杭汽轮Ｂ(200771)2003年年度报告摘要（英文版）

HANGZHOU STEAM TURBINE CO., LTD. ANNUAL REPORT 2003 (Summary) §1 Important Declaration： 1.1 The Board of Directors and the directors of the Company guarantee that there are no significant omissions, fictitious or misleading statements carried in the Report and we will accept individual and joint responsibilities for the truthfulness, accuracy and completeness of the Report. This is the summary abstracted from the complete version of Annual Report 2003, for details please refer to the complete version. 1.2 The 15th meeting of the 2nd term Board of Directors examined the Annual Report 2003. This Annual Report is passed by the 11 directors collectively. 1.3 PriceWaterHouseCoopers Zhongtian CPA and Zhejiang Oriental CPA issued the standard auditing report without explanatory statement. 1.4 The Chairman Mr. Nie Zhonghai, the General Manager Mr. Yan Jianhuan, the Chief Financial Officer and Chief Accountant Mr. Bo Ronghua, and the Chief Director of Accounting Department Mr. Wu Guomei hereby declares: the Financial Statement in the report is guaranteed to be truthful and complete. 1.5 The report was prepared both in Chinese and English, in conflict between the two versions, the Chinese version shall prevail. §2 Company Profile 2.1 Basic Information Hangqilun B Stock Name 200771 Stock Code Stock Exchange Shenzhen Stock Exchange Registered location and office address 357 Shiqiao Rd., Hangzhou City, Zhejiang P. C. 310022 Web address http://www.htc.net.cn Email he@htc.net.cn 2.2 Liaisons Secretary of the Board Representative of Stock Affairs Name He Jianhang Bo Ronghua 357 Shiqiao Rd., Hangzhou City, 357 Shiqiao Rd., Hangzhou City, Address Zhejiang Zhejiang （0571）85780422 Tel （0571）85780198 Fax （0571）85780433 （0571）85780433 Email he@htc.net.cn brh@htc.net.cn - - -2 - §3 Financial Highlights 3.1 Major accounting data In RMB 2002 (Prev. Change of current year 2003 (Current year) 2001 year) than prev. year (%) Major business ３４．９４ ４３９，９３６，１７７．９９ ３２６，０２７，７６３．８０ ２８９，１６０，３３１．８８ revenue Total profit ７０，２７６，８５０．５７ ４３，３０７，７９７．３６ ６２．２７ ３１，９８８，９４６．２６ Net profit ４４，００２，５２９．９８ ３４，７０６，７３１．０４ ２６．７８ ２７，３８８，８６８．９４ Net profit １９．４１ deducted ４０，８９９，９５６．８８ ３４，２５２，１８０．８７ ２８，１５８，２６１．９０ non-recurring gain/loss End of 2002 Change of end of End of 2003 (end (End of prev. current year than end End of 2001 of current year) year) of prev. year (%) Total Assets １，０２２，３７５，３７７．５７ ６８５，４８０，２７３．３９ ４９．１５ ６２６，９５６，３９７．０９ Shareholders’ ７．５４ equity ( minority shareholders’ ５１２，７４５，３８０．１６ ４７６，７８３，５０２．１２ ４６３，６４０，７５１．４６ equity not included) Net cash １７８．９４ flow per share ２２３，６８９，２０２．０６ ８０，１９１，１７７．３３ ５１，１４４，６０４．６０ generated by business operation 3.2 Major accounting indices In RMB 2003 (Current 2002 (Prev. Change of current year 2001 year) year) than prev. year Earnings per share ０．２０ ０．１５８ ２６．５８ ０．１２４ Earnings per share * ８．５８ ７．２８ １７．８６ ５．９１ Net earnings / capital ratio ７．９８ ７．１８ １１．１４ ６．０７ Net earnings per share ratio based １８３．３３ on deducting of non-recurring １．０２ ０．３６ ０．２３ gain/loss End of 2003 End of 2002 Change of end of End of Net Cash flow generated by (end of current (End of prev. current year than end 2001 business operation year) year) of prev. year ２．３３ ２．１７ ７．３７ ２．１１ Net asset per share ２．２５ ２．０２ １１．３９ １．９５ 3.3 Discrepancy of domestic and international accounting standards √ Applicable □Non - Applicable In RMB thousand Domestic Accounting Standard International Accounting Standard Net profit 44,003 48,626 - - -3 - The discrepancy of carry over to other income from recognition of deferred incomes is amount to RMB2.75 million; Deferred income tax liability amount to Particulars RMB1.932 million; Deferred income tax asset amount to RMB4.84 million. about the Offsetting of account not payable amount to RMB2.14 million. The discrepancy of discrepancy depreciations for house and building and equipment amount to RMB-7.039 million; Adjustment according to IAS generated proceeds of RMB48.627 million. §4 Change of Share Capital and Shareholders 4.1 Change of shares (refer to appendix 1) 4.2 Top 10 shareholders Total capital shares at the 11787 end of report term: The top 10 shareholders Shareholders’name Change in Shares held Share Stock Amortize or Shareholder the report at the end of portion property freezing property term term % Hangzhou Steam Turbine No 140,000,000 63.64 None 70,000,000 State-owned Power Group Co., Ltd. current BIN LIANG No 4,721,553 2.15 Current B N/A Foreign shares GT PRC FUND 2,999,973 2,999,973 1.36 Current B N/A Foreign shares Shanghai-Hong Kong 1,632,390 1,632,390 0.74 Current B N/A Foreign Global Security shares PICTET & CIE 1,100,000 1,100,000 0.50 Current B N/A Foreign shares Zhu Rubo 913,600 913,600 0.42 Current B N/A Foreign shares TOYO SECURITIES 803,600 803,600 0.37 Current B N/A Foreign ASIA shares LIMITED-A/C CLIENT DRIEHAUS INTL 764,500 764,500 0.35 Current B N/A Foreign RECOVERY shares FD,Ｌ．Ｐ． ＧＴＩ ２５２１９ Wang Huiru 747,700 747,700 0.34 Current B N/A Foreign shares Chen Yongzheng 709,311 709,311 0.32 Current B N/A Foreign shares Associated relationship or joint (1) Of top ten shareholders Hangzhou Turbine Group Co., Ltd. holds behaviors shares on behalf of the State and the others belong to B-Share shareholders. (2) No shareholders hold 5% of the Company’s shares except for Hangzhou Turbine Power Group Co., Ltd. (3) Hangzhou Steam Turbine Group has no associated relationship with the other 9 shareholders. It is unknown if there exist associated relationship among the 9 shareholders. Particulars about the top-10 holders of current shares. Rank Name of the shareholder Shares held at Category of the the end of share (A, B, H report term shares or others) 1 BIN LIANG 4,721,553 B shares 2 GT PRC FUND 2,999,973 B shares 3 Shanghai –Hong Kong Global Security 1,632,390 B shares 4 PICTET & CIE 1,100,000 B shares 5 Zhu Rubo 913,600 B shares 6 TOYO SECURITIES ASIA 803,600 B shares LIMITED-A/C CLIENT - - -4 - LIMITED-A/C CLIENT 7 DRIEHAUS INTL RECOVERY 764,500 B shares FD,L.P. GTI 25219 8 Wang Huiru 747,700 B shares 9 Chen Yongzheng 709,311 B shares 10 GUOTAT JUNAN SECURIES 704,000 B shares HONG LIMITED Note: The Company is not informed by the above top-10 shareholders whether there is any related connections among them. 4.3 Controlling shareholders and practical controllers The controlling shareholder and practical controller is Hangzhou Steam Turbine Power Group Co., Ltd. (the Group), who is holding 140,000,000 state-owned shares takes 63.64% of the total share capital. 4.3.1 Change of controlling shareholders and practical controllers. □Applicable √Non - Applicable 4.3.2 Particulars about controlling shareholders and practical controllers Hangzhou Turbine Power Group Co., Ltd. (the Group) was founded in June 1995, which is a state-owned and sole proprietorship company authorized by the Government. The Group is considered to be one of 520 leading state-owned enterprises. Registered Office of the Group: 357 Shiqiao Rd., Hangzhou City; Registered capital: RMB156.85 million. Legal Representative: Mr. Fang Wen; Owning-companies: 10 holding companies, 10 full-capital constituent companies and 5 partially hold companies; Major Business: textile machine, paper-making machine, pump, casting, changing speed gear, heat exchanging instrument, digital and display system and their manufacturing and processing. Original material, equipment and parts for groups’purchasing and making, providing services of water, electricity and gas for their owning enterprises. §5 Particulars About the Directors, Supervisors, Senior Managements, and Employees 5.1 Change of share holding No. Name Position Sex Age Job Term Shareholding 1 Nie zhonghai Chairman of the Board Male 46 2003.10-2004.6 Nil 2 Wang Vice Chairman Male 51 2001.6-2004.6 Nil Hongkang 3 Jin Fujuan Vice Chairman Female 50 2001.6-2004.6 Nil ４ Yan Jianhua Director, GM Male 45 2001.6-2004.6 Nil 5 Li Lie Director, Standing Vice GM Male 55 2001.6-2004.6 Nil 6 Ye Zhong Director, Chief Engineer Male 35 2001.6-2004.6 Nil 7 Bo Ronghua Director, Chief Accountant Male 52 2001.6-2004.6 Nil 8 Yao Fusheng Independent Director Male 71 2001.6-2004.6 Nil 9 Zhang Independent Director Male 65 2002.5-2004.6 Nil Mingguang 10 Zhou Zhaoxue Independent Director Male 65 2002.5-2004.6 Nil 11 Hua Xiaoning Independent Director Male 40 2003.10-2004.6 Nil 12 Chu Shuilong Chairman of supervisory Male 51 2001.6-2004.6 Nil committee 13 Shao Linna Supervisor Female 49 2001.6-2004.6 Nil 14 Zhang Yougen Supervisor Male 46 2001.6-2004.6 Nil 15 He Fengdi Employee supervisor Female 53 2001.6-2004.6 Nil 16 Zhao Ying Employee supervisor Female 47 2001.9-2004.6 Nil 17 Yu Changquan Vice GM Male 46 2001.5-2004.6 Nil - - -5 - 18 Yan Jinghe Vice GM Male 49 2001.5-2004.6 Nil 19 He Jianhang Secretary of the Board Male 46 2001.5-2004.6 Nil 5.2 Particulars about directors and supervisors take job position in any of the shareholders. √Applicable □Non – Applicable Name Takes Job In Position Job Term Whether take salary Nie Hangzhou Steam Turbine Chairman 2003. Y Zhonghai Power Group Co., Ltd. 8-2004.5 Wang Hangzhou Steam Turbine Vice Chairman, GM 2001.5-2004. Y Hongkang Power Group Co., Ltd. 5 Jin Fujuan Hangzhou Steam Turbine Vice Chairman, Chairman of 2001.5-2004. Y Power Group Co., Ltd. the workers’union 5 Yan Jianhua Hangzhou Steam Turbine Director 2001.5-2004. Y Power Group Co., Ltd. 5 Ye Zhong Hangzhou Steam Turbine Director 2001.5-2004. Y Power Group Co., Ltd. 5 Chu Hangzhou Steam Turbine Director, Vice GM 2001.5-2004. Y Shuilong Power Group Co., Ltd. 5 Shao Linna Hangzhou Steam Turbine Chief of Accounting - N Power Group Co., Ltd. Department He Fengdi Hangzhou Steam Turbine Supervisor, Vice Chairman of - N Power Group Co., Ltd. the workers’union 5.3 Annual payroll of the directors, supervisors and senior management In RMB 10 thousand Total of salaries of directors, supervisors and senior 354.00 executives for year 2003 Total of the highest 3 directors in annual salary 114.00 Total of the highest 3 senior executives in annual salary 117.00 Allowance for independent directors 4 / year / person (including tax) Other allowance for independent directors No other allowances except reimbursing of their business trip expenses. Directors and supervisors not taking any salary or Supervisor Shao Linna, Zhang allowance from the company Yougen and He Fengdi are not taking any salary or allowance from the Company but from the Hangzhou Steam Turbine Power Group. Distribution of Salary Level Number of Person 36-39 5 25-33 4 12-18 2 4-5.5 5 §6 Report of the Board of Directors 6.1 Analyzing of overall business status for the report term Principle business scope of the company: steam turbine and its supporting equipment, design and manufacturing of spares and fitting parts, sales of products manufactured by the company itself, and after services. The company manufactures the industrial steam turbines that can be divided into industrial driving steam turbine and industrial electric power generation steam turbine by the driven object. The industrial driving steam turbine is the key power equipment among various large-scale industrial units. It is mainly used to rotary machines such as compressor, blast blower, pump and presser, and are widely used in such fields as oil refining, chemical industry, chemical fertilizer, building - - -6 - materials, metallurgy, electric power, light industry, and environment protection.The industrial electric power generation steam turbine is mainly used to drive the electric generator and provide thermal energy at the same time, and is widely used in such fields as enterprise self-contained power stations in various industrial sectors, regional joint production project of heat and electric power, electric power station that features gas-steam turbine joint circulation, and garbage power plants in cities. In the period of reporting, the company’ s principle businesses and their structure and earnings-generating capacity remain unchanged compared with those in the previous period of reporting. In 2003, the company manufactured 124 steam turbines that total 831.8 thousand kilowatts and are worth RMB 449.177 million, where the quantity, kilowatts and value up 29.17%, 78.57% and 45.53% respectively from last year. The sales revenue reaches RMB 439.9362 million and the profit reaches RMB 70.2769 million, up 34.94% and 62.27% respectively from last year. The company hits a new high. The achievements do not come easy, considering that they are made under extremely difficult situations: havoc of SARS and limitation of power supply. In 2003, the company scored a major breakthrough at least in the following nine aspects: 1. Formulate the “Three-Year Development Plan Following the Tenth Five-Year Plan”, and identify the development thoughts. 2. Seize the historic opportunities and strengthen the marketing capabilities. 3. Strengthen the management innovation and tap the production potential. 4. Accelerate the scientific research and enhance the innovation capacity. 5. Carry out large-scale technical innovations and keep pace with the market rally tides. 6. Improve the responsibility system assessment and increase the transparency of allocation. 7. Improves the internal coordination mechanism and strengthen the adaptability. 8. Adjust part of organizations to boost the administration efficiency. 9. Start to reform the branches and form a framework for development of branches. 6.2 Distribution of major business on categories of business or products (in RMB 10 thousand) Product type Major Major Gross Compared with last Compared with last Compared with last business business margin year, Major business year, cost of goods year, the gross margin income cost (%) income sold increases/decreases increases/decreases increases/decreases by (%) by (%) by (%) Industrial 40871 25061 38.68 44.19 38.71 2.42 steam turbine Foundry 404 416 -2.97 3.59 -4.15 7.12 goods Auxiliary 484 302 37.60 296.72 231.87 12.32 equipment Others 2235 1016 54.53 -40.32 -7.38 -16.18 Total 43994 26795 39.09 34.94 36.09 -0.52 Incl. Related 4423 3272 26.02 -22.19 -8.14 -11.32 transaction Pricing policy of associated There are number of sales company under the Group. The purchase from the Company are on the transactions common sale price of the Company Statement on the necessity Utilizing of the sales network of the Group in selling of part of the products. It is benefiting the and continuousness of company by increase the market share. These associated transactions will be carried on. associated transactions Note: “Others”in the Product Type includes spares and fitting parts of the steam turbine, modification of imported steam turbine to suit domestic conditions, and upgrade and modification of steam turbine. 6.3 Major business distribution in territories: Territory Business income Change over previous year (%) Ｄｏｍｅｓｔｉｃ 42389 32.72 - - -7 - Ｏｖｅｒｓｅａｓ 1605 141.72 North-east China 43994 34.94 6.4 Top 5 vendors and buyers (in RMB 10 thousand) The purchases of the company 4,780.79 Portion of the total 16.34% from the top 5 vendors purchase The sales of the company to the 17,445.15 Portion of the total 39.65% top 5 buyers sales 6.5 Operation of the shareholding companies (applicable for the company which the investment earnings takes more than 10% or over.) □Applicable √Non - Applicable 6.6 Causations of significant changes occurred on the major business and its structure. □Applicable √Non - Applicable 6.7 Causations of significant changes occurred on the profitability of major business comparing with the previous year □Applicable √Non - Applicable 6.8 Causations of significant change of the operation result and profit structure comparing with the previous year □Applicable √Non - Applicable Causations of significant change occurred in the entire financial status comparing with the previous year. □Applicable √Non - Applicable 6.9 Influence on the business operation of the company from the changing of business environment, macro policies, laws and regulations √Applicable □Non – Applicable Analyzed the domestic market situation, the board of director in the company was conscious of that: The marketing demands for industrial steam turbine would continue to keep prosperous with the expedite progression of the urbanization, civil operation and industrialization in our country, and with the implementation of the development strategy in our country’ s 10th five-year-plan and the Three West and One East strategies (West development, Transmission of electricity from the west to the east, Transmitting natural gas from the west to the east, Revive the Northeast old industrial base). The company should cherish the favorable opportunity and strive for expanding the producing capacity, so as to meet the market demands. However, the board of director especially reminded the investors to notice that some polices like the monetary restraint maybe appear by relevant department when the country strengthened the macro-economic regulation system. The appearance of these policies certainly would affect the company operation in the two respects: One was the number of orders. The credit squeeze policy would make some projects, which were planed to start, delayed or cancelled due to lack of money, thus the bullish market would be restrained, even reversing the rapidly rising investment impulsion in a certain field, consequently, the number of orders would decreased. The other lied in the return of payment for goods. The uncertainty of customer’s capital certainly would make the press for payment more difficult, thus led to the increase of receivable amount. In addition, the increase of profit would be affected in some respects on account of the rising of raw material’ s price, the increasing of labor force cost, and the technical innovation investment for expanding the producing capacity. Therefore, the board of director sincerely reminded all the investors to attach importance to the risk that they would undertake for investing the company’s stock. 6.10 Fulfilling of profitability forecasting □Applicable √Non – Applicable - - -8 - 6.11 Fulfilling of the business target □Applicable √Non – Applicable 6. 12 Utilizing of raised fund □Applicable √Non – Applicable Particulars about changing of utilization □Applicable √Non – Applicable - - -9 - 6.13 Particulars about projects invested by non-raised fund √Applicable □Non – Applicable Project specification Project amount Progress Profitability Status The national large 125,000,000 The investment of Benift the profitability scale project “ethene RMB87,437,200 has positively equipment” of been utilized in the localization of 3 types porject. Part of the of equipment equipment has already been installed at the end of 2003, the project can be put into operation in the 1st season of 2004. Investment on 1st 49500 Purchased 11000 Made proceeds of grade A share market shares of Zhongxin 23,500 after sold out. Gufen Total 125,049,500 - 6.14 Statement of the Board of Directors on the “non-comments” of the public accountant □Applicable √Non – Applicable 6.15 Plan of the Board for the coming new year √Applicable □Non – Applicable The scheduled producing task for the industrial steam turbine was 201/1.50 million kilowatts in 2004. The number of steam turbines and the kilowatts will increase by 62% and 81% respectively than that in 2003. So large throughput never appears in the 46 years history in our company. To fulfill the producing task in 2004, there are a great number of difficulties; here the two most difficult predictable problems are the insufficient producing capacity and the power supply limitation. However, the only thing we can do is to try our best at all costs to fulfill the scheduled throughput and meet the market demands and our customers. Except fulfilling the producing objects in 2004, we shall create conditions for future development. For all this, the company will endeavor to fulfill the following important tasks: 1. Speed the construction of diesel generating electricity system. This project shall be accomplished before the summer in 2004, so as to decrease the loss to the production resulted from the power supply limitation. 2. Speed the expanding of the final assembly workshop and the batch of technical innovation projects aimed at enlarging the producing capacity like the Steam Turbine for Boiler Feed Pump for Supercritical Thermal Power Station, so as to meet the dramatic increasing market demands for the industrial steam turbine in the major industries such as the electric power, petrochemicals and metallurgy. 3. Speed the reformation, reconstruction and relocation progress for the batch of subsidiaries such as the casting subsidiary and auxiliary equipment subsidiary. Expand the scale of producing parts in specialization and collaboration, to increase the yield of key spare parts and components. 4. Speed to seek for the parts outsourcing partners, and strive to double the parts outsourcing capacity on the existing basis. 5. Speed the development of three major new products, exploit new application filed for the industrial steam turbine, continuously consolidate and extend our company’ s technical predominance in the advanced products market of domestic industrial stream turbine. 6. Reinforce to import new technologies and foreign capital, expedite the pace to open overseas market, so as to make more competitive in the international market for our company. - - 10 - - Profitability prediction for the coming new year □Applicable √Non – Applicable 6.16 Profit distribution or capitalization of capital public reserves for the current term In accordance with the Articles of Association of the Company, the “net profit” adopted in the profit distribution will be basing on the lower one of the financial results audited by the overseas auditor and the domestic auditor. Therefore the 2003 Financial Statement issued by Zhejiang Oriental Certified Public Accountant is prevail, and the net profit of the year is RMB44,002,529.98, with drawing of statutory reserves of RMB4,460,812.71 (RMB4,400,253.00 for the parent company), and drawing of statutory public welfare fund of RMB4,460,812.71 (RMB4,400,253.00 for the parent company), plus the profit of RMB47,893,752.19 practically not distributed in the previous year, the profit distributable is amounted to RMB82,974,656.75. The Board of Directors proposes: basing on the total capital share of 220,000,000 shares at the end of year 2003, RMB2.00 (tax included) will be distributed as cash dividend upon each 10 shares. Dividend for B share holders will be translated to and distributed in Hong Kong Dollar at the middle exchange rate between HKD and RMB published by the People’ s Bank of China at the 1st bank day next to the date when the profit distribution plan was adopted by the Shareholders’General Meeting 2003. The profit distributed in this time is amounted to RMB44,000,000.00. The retained RMB38,974,656.75 of profit practically not distributed will be carried over to the next fiscal year. No capitalization of reserves will be performed for year 2003. The above preliminary proposal plan is subject to the approval in the 2003 annual meeting of shareholders. - - 11 - - §7. Significant Events 7.1 Assets acquisition □Applicable √Non – Applicable 7.2 Assets placing □Applicable √Non – Applicable 7.3 Significant guarantees (in RMB10 thousand) □Applicable √Non – Applicable 7.4 Associated credits and debts (in RMB10 thousand) √Applicable □Non – Applicable Related Parties Provide fund to the related Fund received from the party related party Occurred Balance Occurred Balance Hangzhou Steam Turbine Power Group Co., Ltd. 2,360.08 1026.11 2,795.55 180.58 Hangzhou Thermo Power Co., Ltd. 520.13 259.15 482.67 681.90 Hangzhou Southern Gear Machine Co., Ltd. 419.60 174.60 245.16 0.00 Hangzhou Southern Operation Co., Ltd. 0.00 0.00 0.00 28.58 Hangzhou Nanling Steam Turbine Parts Factory 3.70 0.47 6.69 0.00 Hangzhou No. 4 Mechanism School 0.07 0.00 0.30 0.00 Hangzhou Nanhua Paper Board Factory 0.01 0.00 0.06 0.00 Hangzhou Steam Turbine Environmental 145.07 4.97 143.40 5.35 Engineering Co., Ltd. Hardware Shop of the Group 0.00 6.08 8.00 0.00 Technical Association of the Group 0.00 0.00 0.00 0.00 Southern Sales Company of the Group 273.44 389.29 361.33 153.00 Vehicle Sales Company of the Group 0.29 0.29 0.00 0.00 Hangzhou Steam Turbine Dyeing Machinery Co., 0.00 0.00 0.00 0.00 Ltd. Technical Association of the Group 0.00 0.00 0.00 0.00 Hangzhou Southern Computer Co., Ltd. 0.00 0.00 0.00 8.65 Sales Company of the Group 0.00 0.00 0.00 3673.93 Total 3,722.39 1,860.96 4,043.16 4,731.99 7.5 Consigned financing □Applicable √Non – Applicable 7.6 Fulfilling of commitment event □Applicable √Non – Applicable 7.7 Significant lawsuit and arbitration □Applicable √Non – Applicable 7.8 Particulars about the independent directors In the report term, the company added one independent director, that makes the number of independent directors reaches 4 and takes 36% of the total number of directors. In the spirit of responsible for the shareholders of the Company, the independent directors executed their duties in defending of the mid-small shareholders’benefit following with the laws and regulations stated by “The Company Law”, “The Security Law”, “Management Rules of Public Companies”, and “The Instructions on Setting Independent Directors in Public Companies”. They devote themselves in - - 12 - - understanding of the company operation by taking part in the Board meeting and Shareholders’General Meeting. They back the Board up in making fair and scientific decisions for the company. Under the leading of independent directors, the special committees of the Board were working effectively for the report term. The Strategy Committee held 4 meeting; Nomination Committee held 2 meetings; Auditing Committee held 3 meetings; Reward and Assessment Committee held 5 meeting. Major proposals submitted to the Board were examined beforehand by the special committees. The independent directors issued independent statements for “Proposal of adjusting of the bad debt provision rate and drawing of asset impairment provisions”which been submitted to the 9th meeting of the 2nd term Board, and “Proposal of adjusting the bad debt provision standard” which been submitted to the 13th meeting of the Board. (for details of above please refer to the Independent Statements published on April 17th, 2003 and October 9th, 2003 issues of Security Times. The independent directors of Reward and Assessment Committee conducted the assessment works for the directors, supervisors and senior executives for year 2002 and 2003. Their spirit of hardworking, trustiness, and practice are setting out a sample for the other directors. §8 Report of the Supervisory Committee During the report term, the Supervisory Committee held three meetings. In report term, the board of supervisors of the company attended the shareholders' meeting and all previous directorate meeting as a nonvoting delegate according to the law and supervised the procedure of shareholders' meeting , proposal item , implementation of resolution ,etc., think : Board of directors and manager's stratum of the company can operate according to " company law " , " corporation constitution” , " the company management criterion " , make the great decision in accordance with the science, legal procedure, effective implement to guarantee the operation abiding by laws. The Supervisory Committee has not found any behavior and phenomenon that the company's director, general manager and other senior executives broke out the law, code, corporation constitution or do anything harmful to interests of company The board of supervisors thinks: The Supervisory Committee and manager stratum are facing the new situation in short supply to the products comparing the increasing demand and can take counter-measure in time to expand production capacity actively, the difficulties caused by SARS and " operate a switch and ration the power supply " at the same time, which show the professional spirit and the strong ability of company policy-making stratum, manager stratum when facing the change of market. The fund previously raised has been use up in 2002, during the report term there is no new financing situation; There was no such situation to happen that the company purchased and sell the assets in the report term; The Supervisory Committee think that the Board of directors and manager's stratum can fulfill the obligation of truthfulness conscientiously, the related business can go on according to relevant agreements strictly, the price is rational, the procedure is legal, the situation of damaging the stockholder's equity or leading to the losses of company assets has not occurred. PriceWaterHouseCoopers CPAs Company and Zhejiang Orient CPAs Company make the standard non-interpretative explanation and audit report without reserved opinion, The Supervisory Committee had no other items to need proving, in the report term, the company has not predicted the profit and had no other items to need proving, §9 Financial Report 1. PriceWaterHouseCoopers Zhongtian CPA and Zhejiang Oriental CPA issued the standard auditing report without explanatory statement. 2. The consolidation range was not changed comparing with the previous year. （2）公司独立董事的专项说明：3. Special explanation for changing of accounting estimation: The reverse fund for bad debts in our company can apply the depreciation as per the age of the receivables - - 13 - - (including the receivable and other receivable) balance in the end of period. In order to reinforce the company’ s asset foundation, enhance the risk resistance, and represent the prudence accounting principle, the adjustment for original standard of depreciating the reverse fund of bad debts was brought forward by the 4th meeting of the audit committee of current board of directors, agreed on the 13th meeting of the second session of board of directors, and approved on the 2003 No.2 temporary conference of shareholders in the company. According to the debtor’ s financial condition such as the cash flows and detailed aging schedule for the company’ s receivables, the standard was adjusted as follows: Originally, depreciated by 5% for the age less than one year, and one to three years, 30% for the age above three years. At present, depreciated by 5% for the age less than one year, 10% for that between 1-2 years, 30% for that between 2-3 years, and 60% for that above three years. Compared with the original depreciation standard, calculating as per the new one would affect the net profit of the company in 2003 up to about RMB 19,972,900. - - 14 - - HANGZHOU STEAM TURBINE COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 (All amounts in Renminbi thousands except earnings per share data) Notes 2003 2002 Sales 439,041 325,374 Cost of sales (274,095) (197,982) Gross profit 164,946 127,392 Other operating profit/(loss) 6 8,698 (10,128) Distribution expenses (11,657) (8,243) Administrative expenses (93,974) (69,059) Operating profit 4 68,013 39,962 Finance income, net 7 974 1,264 Share of result of associates (859) (1,815) Group profit before tax 68,128 39,411 Income tax 8 (19,470) (258) Group profit after tax 48,658 39,153 Minority interest 19 (32) (58) Net profit 48,626 39,095 Earnings per share 10 - Basic RMB 0.22 RMB 0.18 - Diluted Not applicable Not applicable - - 15 - - HANGZHOU STEAM TURBINE COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2003 (All amounts in Renminbi thousands) Notes 2003 2002 ASSETS Non-current assets Property, plant and equipment 11 170,103 173,542 Construction in progress 12 85,850 10,163 Leasehold land 13 55,216 56,477 Investments in associates 14 9,192 10,051 Other non-current assets - 342 Deferred tax assets 20 2 - 320,363 250,575 Current assets Inventories 15 176,516 138,046 Receivables and prepayments 16 295,957 181,671 Cash and cash equivalents 248,869 134,323 721,342 454,040 Total assets 1,041,705 704,615 EQUITY AND LIABILITIES Capital and reserves Share capital 17 220,000 220,000 Reserves 18 200,542 186,731 Retained earnings 104,329 91,514 524,871 498,245 Minority interests 19 1,722 1,690 LIABILITIES Non-current liabilities Deferred tax liabilities 20 - 6,770 Other non-current liabilities 21 2,790 11,930 Deferred income 22 9,069 - 11,859 18,700 Current liabilities Trade and other payables 23 487,361 181,701 Current tax liabilities 15,892 4,279 503,253 185,980 Total liabilities 515,112 204,680 Total equity and liabilities 1,041,705 704,615 These consolidated financial statements have been approved for issue by the Board of Directors of Hangzhou Steam Turbine Company Limited on 13 April 2004. - - 16 - - HANGZHOU STEAM TURBINE COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2003 (All amounts in Renminbi thousands) Share Share Revaluation Other Statutory Total Retained capital premium surplus surplus reserves reserves earnings Total equity (Note 17) (Note 18) Balance at 1 January 2002 220,000 96,762 27,311 1,250 30,452 155,775 81,117 456,892 Net profit for 2002 - - - - - - 39,095 39,095 Appropriation to reserves - - - - 6,698 6,698 (6,698) - Gain on debts waived - - - 306 - 306 - 306 Dividends - - - - - - (22,000) (22,000) Revaluation for property, plant and equipment - gross - - 32,385 - - 32,385 - 32,385 Revaluation for property, plant and equipment – tax (Note 20) - - (8,433) - - (8,433) - (8,433)         Balance at 31 December 2002 220,000 96,762 51,263 1,556 37,150 186,731 91,514 498,245 Net profit for 2003 - - - - - - 48,626 48,626 Appropriation to reserves - - - - 8,921 8,921 (8,921) - Dividends - - - - - - (22,000) (22,000) Government grant transfer in - - - 2,750 - 2,750 (2,750) - Gain on debts waived - - - 2,140 - 2,140 (2,140) -         Balance at 31 December 2003 220,000 96,762 51,263 6,446 46,071 200,542 104,329 524,871 - - -4 - HANGZHOU STEAM TURBINE COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 (All amounts in Renminbi thousands) Note 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations 24 239,293 86,237 Income tax paid (14,629) (7,090) Net cash generated from operating activities 224,664 79,147 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (91,996) (39,765) Purchase of leasehold land - (18,357) Purchase of short-term investments (56) (611) Disposal of short-term investments 129 1,093 Proceeds from sale of property, plant and equipment 687 185 Disposal of land use right 76 - Disposal of other non-current assets - 65 Interest received 1,182 1,377 Net cash used in investing activities (89,978) (56,013) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (22,000) (22,000) Proceeds from other non-current liabilities 1,860 1,630 Net cash used in financing activities (20,140) (20,370) Net increase in cash and cash equivalents 114,546 2,764 Cash and cash equivalents at beginning of year 134,323 131,559 Cash and cash equivalents at end of year 248,869 134,323 5