古井贡酒(000596)古井贡Ｂ2003年年度报告（英文版）

ANNUAL REPORT 2003 (B SHARE) APRIL 2004 ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Important Notices To the best knowledge of the Board of Directors of the Company, there is neither untrue presentation, seriously misleading statements, nor omission of material facts contained in the information herein. The Board of Directors severally and jointly bears responsibility for the authenticity, accuracy and completeness of the information contained in this annual report. Chairman of the Board Mr. Liu Dejun, General Manager Mr. Wang Feng and Chief Accountant Mr. Li Peihui state that they ensure the correctness and completeness of the information contained in this Annual Report . This Annual Report of the Company is made into both Chinese and English. The Chinese version shall prevail over the English version should there be any discrepancy between the two. Contents CHAPTER I. THE COMPANY INFORMATION Chapter II. Summary of Accounting & Operational Data Chapter III. Particulars about the Changes of Share Capital & Shareholders Chapter IV. Particulars about Directors, Supervisors, Senior Executives & Employees of the Company Chapter V. Corporate Governance Structure…….. Chapter VI. Highlights of the General Meeting Chapter VII. Report of the Board of Directors Chapter VIII. Working Report of the Board of Supervisors - １ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Chapter IX. Substantial Events Chapter X. Financial Statements Chapter XI. References Chapter I. The Company Information 1. Statutory name of the Company In Chinese: 安徽古井贡酒股份有限公司 In English: ANHUI GUJING DISTILLERY COMPANY LIMITED 2. Legal representative: Liu Junde 3. Secretary of Board of Directors: Li Peihui Contact address: Gujing Town, Bozhou City, Anhui Province Tel: (0558) 5710127 Fax: (0558) 5710006 E-mail: GUJINGZQB@GUJING.COM.CN Authorized representative for securities: Chen Ping Contact address: Gujing Town, Bozhou City, Anhui Province Tel: (0558) 5710057 Fax: (0558) 571000 E-mail: cp01@yeah.net 4. Registered address: Gujing Town, Bozhou City, Anhui Province Office address: Gujing Town, Bozhou City, Anhui Province Post code: 236820 Website: www.gujing.com E-mail: gujing@mail.ahbbptt.net.cn 5. Newspapers for disclosure of Annual Report are as follows: Shanghai Securities Daily, China Securities Daily and Hong Kong Wen Wei Po Website for publishing Annual Report of the Company: www.cninfo.com.cn Place of the Annual Report filed: office of Secretary of BOD of the Company 6. Place where the company shares are listed: Shenzhen Stock Exchange Short form of Stock Name: Gujing Distillery A Securities Code: 000596 Short form of Stock Name: Gujing Distillery B Securities Code: 200596 7. Other information - ２ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) 1) Initial registration date of the Company: May 30, 1996 Updated alteration registration date: December 15, 2003 Registration authority: Anhui Provincial Administration for Industry and Commerce 2) Registration number of business license: 14897271-1 Tax registration number: 341202151940008 3) Names and addresses of accountants’ offices appointed by the Company Domestic: Deloitte Touche Tohmatsu CPA Ltd. Address: 30/F, Bund Center, 222 Yan An Road East, Shanghai, PRC Abroad: Deloitte Touche Tohmatsu Address: 26/F Wing On Center, 111 Connaught Road Central, Hong Kong Chapter II. Summary of Accounting and Operational Data I. Accounting data for the current year Unit: RMB’,000.00 Items Accounting Data Total profit 34,488 Net profit 20,717 Profit from major business 177,009 Operating profits 35,413 Investment gains 291 Subsidy incomes 0 Net cash flow operations 72,500 Net increase of cash and cash equivalents: 16,778 II. Main accounting data and financial indexes over the last three years Unit: RMB’,000.00 Items 2003 2002 2001 Income from major business 558,587 526,034 807,393 Net profit 20，717 46，281 68,483 Total assets 1,560,176 1,566,840 1,521,972 Shareholders’ equity 1,182,550 1,184,910 1,184,261 - ３ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Earnings per share (unit: RMB ’.00) 0.09 0.20 0.29 Net assets per share (unit: RMB ’.00) 5.03 5.04 5.04 Net assets per share after adjustment 5.02 5.04 5.05 (unit: RMB ’.00) Net cash flows operating activities per share (unit: RMB ’.00) 0.31 0.12 0.25 Diluted net assets income ratio（%） 1.73 4.05 5.90 Weighted average net assets income 1.73 4.05 5.80 ratio（%） III. The differences in net profits and net assets calculated in accordance with Chinese accounting standards and international accounting standards Unit: RMB’,000.00 Net assets at end of this Net profit of the period period Amount calculated in accordance 20,430 1,183,243 with Chinese accounting standard Items & amount adjustment in accordance with international accounting standards as below: Initial expenditure for subsidiary （693） （693） Incomes from sale of subsidiary 1,403 Amount calculated in accordance 21，140 1，182，550 with international accounting standards IV. Particulars about changes of shareholders’ equity Unit: ’,000 shares / ’,000 yuan - ４ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Statutory Total Share Capital Surplus Undistributed Item public shareholder’s Capital reserve reserve profit welfare equity At beginning of the period 235,000 521,647 73，640 73,640 280,983 1,184,910 Increase in this period 0 0 2,043 2,043 21,140 25,226 Decrease in this period 0 0 0 0 (27,586) (27,586) At end of this period 235,000 521,647 75,683 75,683 274,537 1,182,550 Reasons of changes 1. Increase of surplus reserve and statutory public welfare caused by withdrawal of annual net profits; 2. Increase of undistributed profit caused by current year earning, while decrease in this period caused by appropriation of statutory surplus reserve & public welfare and dividend distribution; 3. Shareholder’s equity changes caused by current year earning and dividend distribution of previous year. Chapter III. Particulars about the Changes of Share Capital & Shareholders I. Particulars about changes of share capital Unit: share Before this Increase or decrease of this change（+、-） After this change change - ５ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Rationed Bonus Public Issued Other Sub- shares shares reserve new total converted shares into shares A. Nonnegotiable shares 1. Founder’s shares 155,000,000 155,000,000 Among: State-owned shares 155,000,000 155,000,000 Domestic corporate shares Overseas corporate shares Others 2. Raised corporate shares 3. Internal 24,500 24,500 employees’ shares 4. Preferred shares or others Subtotal of 155,024,500 155,024,500 nonnegotiable shares B. Listed and negotiable shares 1. RMB ordinary 19,975,500 19,975,500 shares 2. Foreign capital 60,000,000 60,000,000 shares listed locally 3. Foreign capital shares listed overseas 4. Others Subtotal of listed 79,975,500 79,975,500 and negotiable shares C. Total shares 235,000,000 235,000,000 Note: the nonnegotiable 24,500 internal employees’ shares are the shares held by the directors, supervisors and senior executives of the company. - ６ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) II. Particulars about issuance and public offer 1. Particulars about stock issuance and public offer in the past three years In the three years before the report period, there is no issuance of stock or derivative securities of any kind in the Company. Note: In May 1996, the company issued 60 million B shares at the par value of HK$ 3.64 per share, which were listed in Shenzhen Stock Exchange on June 12 of the same year. In September 1996, the Company issued 20 million A shares at the par value of RMB 8.48 yuan per share, among which 2 million shares are held by employees, and the rest 18 million A shares were listed in Shenzhen Stock Exchange on September 27 of the same year. 2. Change of capital stock structure within the report period By the end of the report period, there is no change to the total number of shares of the Company. 3. Issuance of shares held by employees The 2 million shares held by employees were subscribed at the par value of RMB 8.48 yuan per share when the Company listed its A shares in September 1996, were entrusted to the No. 1 Division of Shenzhen Gousen Securities Co., Ltd. Except for 24,500 shares held by the existing directors, supervisors and senior executives, the rest shares held by employees have already been listed. III. Brief introduction to shareholders 1. Total number of shareholders at end of the report period By the end of the report period, the Company has 24,038 shareholders, including 1 holder of state-owned corporate share, 5 holders who are directors, supervisors and senior executives of the Company, 12,651 shareholders who hold locally-listed foreign-capital shares and 11,387 public shareholders. 2. Particulars about the shares held by major shareholders (top ten shareholders by - ７ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) December 31st, 2003) Shares Shares under Names of Character of No. Shares held Proportion pledge or shareholders Classification equity freezing 1 ANHUI GUJING Non- State-owned GROUP COMPANY 155,000,000 65.96% Nil corporate negotiable LIMITED shares 2 Li Anbai 1,530,000 0.65% negotiable Unknown B shares 3 Shanghai Securities 660,000 0.28% negotiable Unknown A shares Co. Ltd. 4 Baoyong Enterprise 602,001 0.26% negotiable Unknown B shares Co. Ltd. 5 CHEN KAM TONG 364,400 0.16% negotiable Unknown B shares 6 CHEN YU BIN 358,700 0.15% negotiable Unknown B shares 7 Tang Haiming 324,000 0.14% negotiable Unknown B shares 8 He Bin 300,000 0.13% negotiable Unknown B shares 9 Wisdom House Intelligent System 300,000 0.13% negotiable Unknown B shares (Hong Kong) Co. Ltd. 10 Chen Ailan 299,800 0.13% negotiable Unknown A shares Notes: 1) There has no any intercorporating relationship between the biggest shareholder and the rest shareholders, and the aforesaid biggest shareholder does not belong to such kind of actors in concert defined by Regulations for Disclosure of Information about Changes of Shareholders for Listed Companies. No information is available about intercorporating relationship or acting in concert among the rest shareholders. 2) The shareholder that holds more than 5% of total shares of the Company is ANHUI GUJING GROUP COMPANY LIMITED. The shares it held are state-owned shares, and there has no any changes for them during this report period, and no pledge or freezing occurs. 3) Introduction to the biggest shareholder of the Company (by the end of this report period): The biggest shareholder of the Company is ANHUI GUJING GROUP COMPANY LIMITED, its legal representative: Wang Xiaojin; date of incorporation: January 16th, 1995; registered capital: Rmb353,380,000; registered address: Gujing Town, Bozhou City, Anhui Province; main business and products: beverage, - ８ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) construction materials, plastic goods, shareholding and operation of state-owned assets in the scope authorized by the State; composition of share capital: state-owned and fully-funded, and independently operation. 4) There has no any change of holding shareholders in the report period. 3. Particulars about ten top shareholders of negotiable shares of the Company Shares held at Character of No. Names of shareholders end of this report Proportion equity period 1 Li Anbai 1,530,000 0.65% B shares 2 Shanghai Securities Co. Ltd. 660,000 0.28% A shares 3 Baoyong Enterprise Co. Ltd. 602,001 0.26% B shares 4 CHEN KAM TONG 364,400 0.16% B shares 5 CHEN YU BIN 358,700 0.15% B shares 6 Tang Haiming 324,000 0.14% B shares 7 He Bin 300,000 0.13% B shares 8 Wisdom House Intelligent System 300,000 0.13% B shares (Hong Kong) Co. Ltd. 9 Chen Ailan 299,800 0.13% A shares 10 Wu Liping 271,769 0.12% B shares Notes: No information is available about whether there are any intercorporating relationship among the aforesaid ten top negotiable shareholders or not. 4. There has no any other corporate shareholder that holds more than 10% (including 10%) of total shares of the Company in the report period. Chapter IV. Particulars about Directors, Supervisors, Senior Executives & Employees of the Company - ９ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) I. Particulars about directors, supervisors and senior executives 1. General information Shares Shares held at Name Position Sex Age Duty term held at year year end beginning Liu Chairman of board M 41 2003.5-2005.5 0 0 Junde Wang Director/General manager M 39 2003.5-2005.5 0 0 Feng Wang Director M 59 2002.5-2005.5 3,500 3,500 Xiaojin Yang Director M 55 2002.5-2005.5 3,000 3,000 Gauguin Director/Secretary of BOD/Chief Li Peihui M 31 2003.5-2005.5 0 0 Accountant Wang Director/Vice marketing M 29 2002.5-2005.5 0 0 Subin controller Liu Independent director M 50 2002.5-2005.5 0 0 Youpeng Zhuo Independent director M 66 2002.5-2005.5 0 0 Wenyan Li Hao Independent director M 53 2002.5-2005.5 0 0 Yuan Chief supervisor F 56 2002.5-2005.5 1,500 1,500 Qinghua Zhang Supervisor M 50 2002.5-2005.5 0 0 Jialiang Liang Supervisor M 40 2002.5-2005.5 0 0 Jinhui Zhang Vice general manager M 56 2002.5-2005.5 2,500 2,500 Zongyi Zhu Vice general manager M 38 2002.5-2005.5 0 0 Renwang Lu Vice general manager M 42 2002.5-2005.5 0 0 Jianchun Zhang Vice general manager M 42 2002.5-2005.5 0 0 Jianlin Li Assistant to general manager M 54 2002.5-2005.5 2,000 2,000 Wanlin Wang Vice general manager M 42 2003.12-2005.5 0 0 Dejie Notes: particulars about directors and supervisors of the Company working in shareholding companies - １０ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) 1) Mr. Wang Xiaojin, director of the Company, acts as chairman of the board commencing January 1995 in AN GUJING GROUP CO. LTD., the holding shareholder. 2) Mr. Yang Guangyuan, director of the Company, acts as general manager and party secretary commencing January, 1995 in AN GUJING GROUP CO. LTD., the holding shareholder. 2. Annual remuneration A complete compensation and reward system has been established in the Company. And a yearly salary scheme has been devised for directors, supervisors and senior executives. The remuneration of directors and supervisors shall be decided by the shareholders’ general meeting in accordance with the stipulation in the Articles of Association of the Company. A yearly evaluation shall be carried out by the board of directors for the senior executives. The Board of Supervisors shall supervise their performance and routine work of them. And meanwhile they shall also be reviewed and managed by human resource department of the Company. Total annual remuneration amount (exclusive of subsidy 99.86 of independent directors) (RMB’0,000.00) Total annual remuneration amount for top three directors 28.89 (RMB’0,000.00) Total annual remuneration amount for top three senior 28.89 executives (RMB’0,000.00) Allowance for independent directors RMB20,000 per year per person (after tax) Those expenditures occurred by attending board meeting & shareholder’s general meeting and Other subsidy for independent directors performing their authorities in accordance with articles of association of the Company will be sent into account Annual remuneration range: RMB80,000 ~ 100,000 3 persons RMB40,000 ~ 80,000 8 persons - １１ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Lower than RMB40,000 2 persons 3. Particulars about changes of directors, supervisors and senior executives during the report period 1) On April 2, 2003, the following motions have been passed by the 6th meeting of the 3rd Board of Directors: * Accepted Mr. Yang Guangyuan to resign from chairman of board, and elected Mr. Liu Junde new chairman of board of the Company; * Accepted Mr. Gan Shaoyu to resign from director, member of executive committee and general manager, and elected Mr. Wang Feng member of executive committee. Mr. Wang Feng was appointed to general manager upon the proposal of Mr. Liu Junde, chairman of board of the Company. * Accepted the proposal of Mr. Li Peihui being a director of the board Relevant resolutions of the Board have been published on Shanghai Securities Daily, China Securities Daily and Hong Kong Wen Wei Po dating April 4, 2003. 2) On May 12, 2003, Mr. Li Peihui was elected director of the Board on 2002 General Meeting. Relevant resolution of General Meeting has been published on Shanghai Securities Daily, China Securities Daily and Hong Kong Wen Wei Po dating May 13, 2003. 3) On August 14, 2003, that motion of Mr. Li Peihui acting as secretary of BOD has been passed by the 8th meeting of the 3rd Board of Directors: Relevant resolutions of the Board have been published on Shanghai Securities Daily, China Securities Daily and Hong Kong Wen Wei Po dating August 17, 2003. II. Particulars about employees Up to December 31, 2003, the Company has 6,010 employees in the payroll, composition listed as below: - １２ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Classification Item Employee Proportion University graduate and above 339 5.6 College degree 456 7.5 Secondary education 130 2.2 Per education Senior high school education 310 5.2 Junior high school education 4,775 79.5 Total 6,010 100 Production personnel 4,670 77.7 Technical personnel 480 8.0 Per position Financial personnel 110 1.8 Sales personnel 390 6.5 Administrative personnel 360 6.0 Total 6,010 100 Chapter V. Corporate Governance Structure I． Particulars about actual governance state of the Company The Company constantly perfect corporate governance structure and standardize its management strictly in accordance with the Company Law, Securities Law as well as Standard for Governance of Listed Companies. At present, the governance status of the Company basically complies with the requirements of Standards for Governance of Listed Companies regulated by China Securities Regulatory Commission. Since its establishment, the Company is striving for formation and improvement of a basic system as well as standardization of its structure and conduct. Up to now, a considerably rational operating system has been set up. II. Particulars about independent directors’ performances - １３ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Independent directors of the Company are in a position to fulfill their responsibilities. They deliberated over investment projects and major proceeding raised by the board, delivered their independent opinions in board meeting. Furthermore, they also put forward their expert view of points on the interoperate transaction between the Company and ANHUI GUJING GROUP CO. LTD., and this is helpful for achievement of more standard conduct of the Company’s intercorporating transaction. III. Particulars about “Five Independences” of the Company 1. Independence of business The Company is mainly engaged in the production and sales of distilled spirit, and does not compete in business with its holding shareholder. The Company owns completely independent production, procurement, supply and sales systems, personnel and customers, asset management system and R&D center, which enable the Company fully independent from its holding shareholder. 2. Independence of personnel The Company owns a sound system for independence of labor, personnel and wage management. Such senior executive as general manager, secretary of BOD, chief accountant works fully-time in the Company and gets their remuneration herefrom. 3. Independence of assets The Company is in full possession of property rights for those assets which invested by the holding shareholder. All assets including corresponding assets for production, supply, sales and other business are wholly owned by the Company. Its assets have clear and express property right and are completely independent from shareholder companies. 4. Independence of organizations The Company has built a matter-of-fact operational structure. This enables its - １４ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) managing and operating organizations completely independent from holding shareholder. There has no joint official business between the Company and the holding shareholder. 5. Independence of financial affairs The Company has a completely independent financial department, executing independent financial management, accounting calculation and tax affairs. The holding shareholder has never interfered in accounting and financial affairs of the Company. IV. Particulars about assessment and incentive mechanism to senior executives During the report period, target yearly remuneration system with considerably rational incentive mechanism was formed in the Company. Yearly remuneration of senior executives is calculated by means of linking their performance and completion of benefit target of the Company. Chapter VI. Highlights of the General Meeting General Meeting of 2002 has been convened in the report period, particulars are as below. I. General inform of 2002 General Meeting Meeting notice of 2002 General Meeting was published on Shanghai Securities Daily, China Securities Daily and Hong Kong Wen Wei Po dating April 4, 2003. On May 12, 2003, General Meeting was held in the meeting room of Gujing Hotel, Bozhou City, Anhui Province. 11 shareholders or shareholders’ representative attended this meeting, representing a total of 155,024,000 shares which account to 65.97% of total share of the Company. All of them are A share holders. - １５ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) II. Particulars about resolution of General Meeting The following resolutions have been discussed and passed by means of voting by 2002 General Meeting: Annual Report & its summary for year 2002, Working Report of the board of directors for the year 2002, Financial Statements for the year 2002, Working Report of the Board of Supervisors for the year 2002, Profit Distribution Plan for the year 2002, Motion to enlarge business scope of the Company, Motion to change accountant’s office. Mr. Li Peihui was elected director of the 3rd Board in this General Meeting. III. Particulars about election and change of directors and supervisors Mr. Li Peihui was elected director of the 3rd Board in this General Meeting. All of the aforesaid resolutions as well as Legal Opinion provided by King & Wood Law Firm were published on Shanghai Securities Daily, China Securities Daily and Hong Kong Wen Wei Po dating May 13, 2003. Chapter VII. Report of the Board of Directors (I) Discussions and Analysis of Financial Situation and Other Substantial Events during the Report Period In the face of a complex and volatile external environment and increasingly fierce market competition in 2003 and led by the Board of Directors, we had conscientiously put into practice the guidelines of the Party's Sixteenth National Congress, deepened the restructuring of products, optimized the marketing system and strengthened effective execution. With joint efforts of the whole staff united as one, multiple negative factors such as the spread of SARS, keen industrial competition and restriction of state taxation policy, were overcome and the profit of major business - １６ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) reached 559 million yuan, a 6.19% increase over the same period of the precious year and the net profit reached 20.43 million yuan. (II) Operating Results of the Company during the Report Period 1. Primary scope of business and operating results of the Company (1) Primary scope of business of the Company includes the production and sales of white spirit, beer, grape wine, distillery equipment, packing materials, glass container, feedstuff, oil, drinks, high-tech development, biotech development, and deep-processing of agricultural and sideline products. (2) Main products of the Company: Gujing Tributary Liquor, the flagship product of the Company and one of the top eight old white spirits in China, has a history of over 1,800 years, bearing a special style of "crystal color, orchid aroma, mellow taste and long aftertaste". Currently white spirit products include four name brands of Gujinggong, Gujing, Yetaiyang and Laobada, divided into two aroma types of dense aroma and faint aroma, ranging from 30v/v to 60v/v, with a complete product system covering high, moderate and low prices. Of them, Gujinggong and Gujing brand series are flagship white spirit products. (3) Main business income and operating results of the Company during the report period ○1 Constitution of main business Sub-industries of main business Unit: RMB 1,000 yuan Rate of gross Sub-industry Main business income Main business cost profit (%) White spirit 510,467 271,174 46.88 Grape spirit 4,277 2,377 44.43 Others 43,843 36,255 17.31 - １７ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) b. Sub-products of main business Unit: RMB 1,000 yuan Main business income Rate of gross Sub-product Main business cost profit (%) High-grade wine/spirit 394,104 174,335 55.76 Medium grade 38,069 26,510 30.36 wine/spirit Low grade wine/spirit 78,294 70,329 10.17 c. Sub-districts of main business Unit: RMB 1,000 yuan Increase/decrease of main business income Sub-district Main business income over the previous year (%) North China 155,825 （0.06） South China 122,072 3.86 Central China 232,570 19.54 2. Major Controlling Companies and Equity Participated Companies (1) Operation and Performance of Major Controlling Companies Registered Scale of Company Capital Percentage assets Net profit Scope of business Name (10,000 of shares (10,000 (10,000 yuan) yuan) yuan) Bozhou Gujing Sales of liquor Sales Company and trade service. 4,364.6 99% 40,095.65 19,459.07 - １８ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Bozhou Gujing Motor Providing Transport transport service. 694.5 99% 852.96 58.88 Company Bozhou Gujing Production and Glass Product sales of glass 1600 99% 7367.83 10.19 Co., Ltd. products. Anhui Laobada Wholesale and Distillery Co., retail of alcoholic 3000 93% 3043.75 （16.03） Ltd. products. Development and Beijing Jinshengyi sales of computer Technology software and 5000 70% 6666.41 （41.94） Co., Ltd. peripheral equipment, Anhui Gujing Yetaiyang Sales of liquor, fruit and 360 92% 1102.50 （8.03） Distillery Sales vegetable wine Co., Ltd. Bozhou Gujing Production and sales Vegetable Oil 60 80% 45.78 （0.90） of vegetable oil Co., Ltd. (2) Major Equity Participated Companies Place of Registered Capital Investment Percentage of Company Nam incorporation (10,000 yuan) (10,000 yuan) shares（%） Hua'an Securities Hefei 170,500 10,000.00 5.87 Co., Ltd. 3. Major Suppliers and Customers Total purchase amount from top 5 suppliers of the Company is RMB 92.371 million yuan which amounts to 32.84% of the total purchase amount of the Company. Total - １９ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) sales amount to top 5 customers of the Company is RMB 92.5395 million yuan which amounts to 17% of total business income of the Company. 4. Problems Occurred in Operation and Their Solutions During the report period, the Company encountered the following problems and difficulties in operation: The severe impact on catering industry of the SARS (Serious Atypical Respiratory Syndrome) epidemic situation breaking out in April unavoidably affected the sale of white spirit. The earlier investment of the Company could not be fully recovered. Since 2001, the state has adjusted the consumption tax for liquor, aiming at leading Chinese liquor enterprises onto a road for scaled development and grouping. Yet in the course of exercising, numerous small distilleries have not been covered, resulting that low-end liquors of the Company are not as competitive as those from small distilleries and thus the market share is amazingly reduced. Meanwhile, as far as the whole market of alcoholic drinks is concerned, the market share of liquor is gradually reduced and the consumption of liquor is increasingly shrinking. Moreover, the price rise of raw materials and fuels also reduced the profit space of the Company’s products. In the face of an unexpected outbreak of the severe acute respiratory syndrome (SARS), cutthroat competition within the industry due to poor integration, restriction from the state’s taxation policy and the reduction of liquor market share, etc., the Company, under the leadership of the Board of Directors and joint efforts of the whole staff, took feasible and effective countermeasures as follows: 1. Deepen the reform, emancipate minds and speed up the opening up and reform of the enterprise to boost the overall strategic upgrading and systematically improve the comprehensive competence of the Company in an all-round way. Although the annual profit was greatly reduced comparing with that of the previous year, the sales income increased over the same period of the previous year, fully indicating the drive for the Company’s development. 2. Encourage the implementation of new marketing strategy, enhance the - ２０ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) optimization of marketing system and system construction, emphasize product integration and branding, strengthen market operation and further improve marketing level. The fundamental transition from traditional marketing to modern marketing was initially achieved. Especially, by positive adjustment of marketing strategy, the loss in a declining market was minimized. 3. Internally, the Company continued target cost management, encouraged the promotion of budget management and strictly controlled the cost. The purchase procedure and management system were standardized and completed, exercising mass purchase by bid invitation in an open, fair and justified way, so as to reduce the production and operation cost as well as the management cost. 4. Further deepen internal system reform, broaden the sources of employment, improve the personnel and employment system, compensation and distribution system, performance evaluation system and other management systems, activate and upgrade enterprise mechanics and unremittingly promote the reform and adjustment, and expedite the establishment of a modern management system integrating encouragement and restriction. While the advantages of a state-owned enterprise were fully utilized, the flexible operating mode of private enterprise was integrated, so the comprehensive competence of the enterprise was improved. 5. Strengthen executive force, improve and enhance different operating systems of the Company, redesign the business flow, further improve product quality and work, providing marketing transformation and market construction with powerful support. The market has no space for weak players. After the test of SARS and fierce liquor market competition and in the face of the price raising pricing in high-end liquor market, the continual inburst of overseas players and the standing out of internal strong players, we will take a highly responsible attitude and screw up our courage to enhance our advantages and face up to al difficulties. . The year 2004 is not only a year for the integration and upgrading of Chinese liquor industry but also a year for the breakthrough and restructuring of Gujing’s liquor industry. The innovation of system and mechanism provides inexhaustible drive and the innovation of idea and philosophy inputs vigor. In response to the state’s policy for the institutional reform, we will positively enhance restricting so as to exert the vigor of the enterprise and promote the comprehensive, sound and sustainable - ２１ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) development of the Company. (III) Investments of the Company 1. No raised fund has been put into investment in this report period. 2. Non-raised fund investment in the report period: See details in Note 8 and Note 17 of the financial report. (IV) Financial Status of the Company during the Report Period and Analysis of Operation Result by the Board of Directors 1. Financial Status of the Company in the Report Period Rate of Financial Index 2003 (1,000 yuan) 2002 (1,000 yuan) Increase or Decrease (%) Total Assets 1,560,176 1,566,840 (0.43) Shareholders’ Equity 1,182,550 1,184,910 (0.20) Profit from Main Business 177,009 195,889 (9.64) Net Profit 20,717 46,281 (55.24) Cash Flow from Operating Activities 72,500 28,528 154.14 Increased Amount of Cash and its Equivalent 16,778 (36,678) 145.74 2. Analysis of the Reasons for the Changes of Major Indexes (1) The decrease in profit from main business was due to price rise of the raw materials in 2003, resulting in increased production cost and decreased gross profit rate of this year. (2 ) Major reasons for the substantial decrease of net profit: - ２２ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) ① Influenced by the outbreak of SARS in the first half of the year, the Company, in order to further consolidate the market, intensified product marketing, resulting in a increase of the expenses of RMB6.53 mil. during the period over the same period of the previous year. ② In the report period, Hua'an Securities Co., Ltd., an equity participation company, had no dividends, directly leading to a decrease of 10, 000,000 yuan of the Company's net profit over the corresponding period of the previous year. ③ In the report period, the Company has no income from fiscal subsidies, directly leading to a decrease of 14, 900,000 yuan in the net profit over the corresponding period of the previous year. ④ In the report period, the excessive concern of the medium/high grade wine market and the negligence of the low-end wine market results in the relatively higher unit cost. (3) Increase of the net amount of cash flow from operational activities is caused by increase of sales revenue and the intensified recovery of receivables and sales fund. (4) The great increase of the net increase in cash equivalent was mainly because that the investment for Shenzhen Zhongke Venture Capital Co., Ltd. was withdrawn in the report period. (V) Business Plan for the New Fiscal Year 1. Guiding Ideology and Working Guideline Guiding ideology for work in 2004: Under the guidance of the spirit of “16th Congress”, with reformation and adjustment as main subject, accelerate reform by opening up and boost enterprise restructuring; standardize enterprise operation and focus on institutional restructuring; deepen marketing transformation and create marketing service and management platform for the beneficial interaction between brands and products; refine process management, deepen overall budget management, enhance continual improvement of quality system, improve human resources development and management system, strengthen the execution of professional management, so as to achieve the overall transformation and upgrading of Gujing’s liquor business. - ２３ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) The company defines the year 2004 as “a year for enterprise reconstruction” with working guideline of: standardize enterprise operation and focus on institutional restructuring, deepen marketing transformation and refine process management. 2. Objectives for Production Operation: The gross output of the liquors of 65% by volume shall be 22,500 tons, and gross sales of the liquors of all kinds shall be 26,700 tons. 3. The implementing measures (1) Vigorously support and boost enterprise institutional reform, continuously improve legal person governance and further promote the standardization of the Company’s overall operation. By highlighting opening up and development, we will exercise enterprise system reform as well as establish and improve the system, which shall be integrated with corporate culture. (2) Ensure the deepening and rectifying of marketing transformation, deepen brand integration, rationalize the coordination, complementation and transition of old and new channels and properly conduct customer reestablishment and recreation of logistics service management platform. (3) More attentions shall be paid to the low-end wine market, to cut down the unit price through the increase of the overall output, and speed up the turnover of the inventory and improve profit-making abilities. (4) Refine process management, strengthen fundamental management, deepen different professional management, integrate international value chain, promote value-added “value chain” and steadily improve comprehensive management level. (5) Further improve human resources development and management system, strengthen human resources development, improve compensation and encouragement mechanism and provide a beneficial mechanism and platform for outstanding talents. (VI) Routine Work of the Board of Directors 1. Meetings of the Board of Directors and Content of Resolutions - ２４ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) During the report period, the Board of Directors held 5 meetings that were in conformity with Company Law and the Articles of Association of the Company. (1) On January 1, 2003, the 5th meeting of the third session of the Board of Directors of the Company was held, which considered and passed “Summary of Work in 2002” and “Opinions on Work in 2003”; (2) On April 3, 2003, the 6th meeting of the third session of the Board of Directors of the Company was held, which considered and passed “Annual Report 2002 and Summary of Annual Report”, “Report on the Work of the Board of Directors in 2002”, “Financial Final Report for 2002”, “Profit Distribution Plan for 2002”, “Resolution on the Transfer of 80% Equity Ownership of Anhui Gujing Shuangxi Winery Co., Ltd. Held by the Company”, “Resolution on the Expansion of the Company’s Scope of Business”, “Resolution on the Election of Chairman of the Board Of Directors”, “Resolution on the Adjustment of Directors and the Members of the Executive Committee and the Appointment of the Company’s General Manager” and “Proposal for Holding Shareholders’ General Meeting 2002 of the Company”. Bulletin of the resolutions of the meeting of the Board of Directors was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on April 4, 2003. (3) On April 23, 2003, the 7th meeting of the third session of the Board of Directors of the Company was held, which considered and passed “the First Quarterly Report of 2003”. Bulletin of the resolutions of the meeting of the Board of Directors was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on April 25, 2003. (4) On April 23, 2003, the 8th meeting of the third session of the Board of Directors of the Company was held, which considered and passed “Interim Report 2003 and Its Summary” and “Resolution on the Reappointment of the Secretary of the Board of Directors”. Bulletin of the resolutions of the meeting of the Board of Directors was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on August 18, 2003. (5) On October 23, 2003, the 9th meeting of the third session of the Board of Directors of the Company was held, which considered and passed “the Third Quarterly Report of 2003” “Resolution on the Management System for Investor - ２５ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Relations” “Resolution on the Establishment of High Protein Feedstuff Factory under Anhui Gujing Distillery Co., Ltd.” and “Resolution on the Establishment of Non-operating Offices in 39 Central Cities of China”. Bulletin of the resolutions of the meeting of the Board of Directors was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on October 25, 2003. 2. Execution of Resolutions of Shareholders’ General Meetings by the Board of Directors During the report period, the Board of Directors of the Company executed resolutions passed by Shareholders’ General Meetings according to the requirements of related laws and regulation of Company Law, Securities Law and Articles of Association of the Company, and strictly within the range of power authorized by Shareholders’ General Meeting. Detailed execution is as follows: (1) Execution of Profit Distribution Plan of 2002 According to profit distribution plan passed by votes in Shareholders’ General Meeting held on May 12, 2003, the Company distributed RMB 1.0 yuan per 10 shares (including tax), with a calculation based on total amount of market capitalization at the end of 2002, and dividends totaling 23,500,000 yuan for B shares converting into HK dollars, with the remainder brought about to the next year. The accumulation fund shall not be transferred to equity in the year. The dividends distribution plan was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po on May 21, 2003. A stock right registration date for dividends distribution and final trading date for B shares were July 2, 2002, and exdividend date was May 28, 2002. (2) Other Executions This year, the Board of Directors of the Company strictly carried out other resolutions passed on Shareholders’ General Meeting of 2002 (VII) Profit Distribution Plan or Plan for Transfer of Capital Reserve to Increase Capitalization According to the audit in 2003 by Shanghai Deloitte Touche Tohmatsu CPA Ltd, the accountant of the Company, the Company achieved a net profit of RMB 20,430,497 yuan in 2002. After retaining legal reserve and public welfare fund of totally RMB 4,086,100 yuan, plus RMB 257,481,707 yuan of undistributed profit at the beginning of the year, the profit for distribution for the year is RMB 273,826,104 yuan; according to - ２６ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) the audit by Hong Kong Deloitte Touche Tohmatsu CPA Ltd, an international accountant, the Company achieved a net profit of RMB 21,139,483 yuan in 2003. After retaining legal reserve and public welfare fund of totally RMB 4,086,100 yuan, plus RMB 257,481,707 yuan of undistributed profit at the beginning of the year, the profit for distribution for the year is RMB 274,535,090 yuan. According to Articles of Association of the Company and related stipulations, in case of inconsistency between two audit reports, the smaller amount of undistributed profit shall be adopted as dividend distribution standard. Consequently, profit distributable for this year is RMB 273,826,104 yuan. According to the proposal of the 11th meeting of the 3rd session of the Board of Directors of the Company, profit distribution plan for the year is: according to the actual conditions of business growth, investment and financing, it is decided that profit distributed will not be conducted this year and no public reserve will be transferred to increase capitalization this year. This distribution plan is subject to the approval by Shareholders’ General Meeting of 2003. (VIII) Other Report Items 1. The company selected China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po for disclosing information in 2004. 2. Use of funds by controlling shareholder and other related parties According to the Wan Zheng Jian Han Zi [2003] No. 154 Document titled Circular on the Submission of Self-disclosed Report on Fund Transfer, Use of Funds and External Guaranty Incurred between A Listed Company and Its Controlling shareholder and Other Related Parties issued by Hefei Special Office of China Securities Regulatory Commission, the Company’s Board of Directors and Senior Executives studied Circular on Standardizing Fund Transfer between A Listed Company and Other Related Parties as Well as External Guaranty by A Listed Company issued by China Securities Regulatory Commission, and conducted a carefully examination in the Company, as detailed below: (1) Use of funds of the listed company by controlling shareholder and other related parties Balance at the Balance at the beginning of the Item end of the period Reason for fund transfer period (1,000 (1,000 yuan) yuan) - ２７ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Gujing Tianshi Printing Co., 43 35 Operational use Ltd. Gujing Xuedi Brewery Co., Ltd 161 0 Operational use (2) Use of funds of controlling shareholder and other related parties by the listed company Balance at the Balance at the end of beginning of the Item the period (1,000 Reason for fund transfer period (1,000 yuan) yuan) AGGL Operational use 133 13,760 Operational use Bozhou Zhenlihenbao 296 22 Company Ltd. Gujing Tianshi Printing Operational use Company Ltd. 3,338 1,146 Operational use Bozhou Gujing Printing 143 0 Company Ltd. The fund transfer between the Company and the controlling shareholder and other related parties was mostly goods purchase, receipt of labor and other related transactions. Bedsides the abovementioned fund transfer related transactions, there was no improper use of funds by the controlling shareholder and other related parties. The company had not provide guarantee to the controlling shareholder, de facto controller and other related parties, or any non-judicial entities or individuals. The controlling shareholder, de facto controller and other related parties had not forced the Company to provide others with guarantee. (3) Certified public accountant’s statement on the use of funds by the Company’s controlling shareholder and other related parties Shanghai Deloitte Touche Tohmatsu CPA Ltd presented the Company with Special Audit Notes on the Use of Funds by the Controlling Shareholder and Other - ２８ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Related Parties of Auhui Gujing Distillery Company Limited (De Shi Bao Shen (04) P0536). Its main contents and conclusive suggestions are summarized as below a. The Board of Directors of Auhui Gujing Distillery Company Limited, Being entrusted, we audited the balance sheet dated December 31st, 2003, and the profit and profit appropriation statement of 2003 of Auhui Gujing Distillery Company (“Your Company”) and issued a clean audit opinion identified as De Shi Bao Shen (04) P0536. As required in Circular on Standardizing Fund Transfer between A Listed Company and Other Related Parties as Well as External Guaranty by A Listed Company issued by China Securities Regulatory Commission and State-owned Assets Supervision and Administration Commission of the State Council, Your Company prepared the Schedule of Survey on the Use of Funds (hereafter referred to as Schedule of Survey) up to December 31, 2003, which is attached to this letter. It is Your Company’s responsibility to authentically prepare and disclosure the Schedule of Survey and ensure its correctness, accuracy and completeness. We have checked the data contained in the Schedule of Survey with the accounting information rechecked when auditing Your Company’s financial report 2003 and relevant contents of the audited financial report and have not found any major inconstancy. Except the audit procedure related to related transactions exercised for auditing Your Company’s financial report 2003, we have not exercised any extra audit procedures against the data contained in the Schedule of Survey. This letter is only intended to help Your Company report the use of funds by the controlling shareholder and other related parties in 2003 to China Securities Regulatory Commission, and is not intended for any other purposes without a written consent from us. b. Schedule of Survey on the Use of Funds of Auhui Gujing Distillery Company Unit: RMB 1,000 yuan Name of Accounting Balan Accumulate Bala Rema Use of funds Relation relevant party item ce at Accumulate d amount nce rks - ２９ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) the d amount incurred to at begin incurred to creditor in the ning debtor the whole end of the in the whole year of year year the year Gujing Tianshi Subsidiary of the Accounts 35 144 136 43 _ Printing Co., controlling shareholder receivable Ltd. Purchase and sale Gujing Xuedi Subsidiary of the Accounts 0 202 41 161 _ Brewery controlling shareholder receivable Co., Ltd - - call loans - - - loan by mandate - - - - - investment by an entrusted related party - - - - - issuance of commercial acceptance without actual transaction - - - - - entrusted payment of debts - - - - - others (such as payment of expenses for another, etc. ) - - - - - Shanghai Deloitte Touche Tohmatsu CPA Ltd April 12, 2004 - ３０ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) 3. Independent opinion on fund transfer between related parties and external guarantee by the Company from independent directors In the spirit of Circular on Standardizing Fund Transfer between A Listed Company and Other Related Parties as Well as External Guaranty by A Listed Company (Zheng Jian Fa [2003] No. 56) jointly issued by China Securities Regulatory Commission and State-owned Assets Supervision and Administration Commission of the State Council, we have carefully examined the fund transfer between related parties and external guarantee by the Company and believe that 1. Up to December 31, 2003, there was no improper appropriation of funds by the controlling shareholder and other related parties. 2. Up to December 31, 2003, the company had not provided guarantee to the controlling shareholder, de facto controller and other related parties, or any non-judicial entities or individuals. The controlling shareholder, de facto controller and other related parties had not forced the Company to provide others with guarantee. Chapter VIII. Report of the Board of Supervisors (I) Meetings of the Board of Supervisors During the report period, 2 meetings were held by the Board of Supervisors of the Company: - ３１ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) 1. On April 2, 2003, the 3th meeting of the third session of the Board of Supervisors of the Company was held. Yuan Qinghua, Chairwoman of the Board of Supervisors presided over the meeting and all members of the Board of Supervisors attended the meeting. The meeting considered and passed “Report on the Work of the Board of Supervisors in 2002”, “Annual Report 2002 and Summary of Annual Report”, “Financial Final Report for 2002”, “Resolution on the Transfer of 80% Equity Ownership of Anhui Gujing Shuangxi Winery Co., Ltd. Held by the Company” and “Resolution on the Expansion of the Company’s Scope of Business”. Bulletin of the resolutions of the meeting of the Board of Supervisors was published on Shanghai Securities Daily, China Securities Daily and Hong Kong Wen Wei Po on April 4, 2003. 2. On August 14, 2003, the 5th meeting of the third session of the Board of Supervisors of the Company was held. All members of the Board of Supervisors attended the meeting considered and passed which considered and passed “Interim Report 2003 and Its Summary” and “Resolution on the Reappointment of the Secretary of the Board of Directors” Bulletin of the resolutions of the meeting of the Board of Supervisors was published on Shanghai Securities Daily, China Securities Daily and Hong Kong Wen Wei Po on August 18, 2003. (II) Independent Opinions Expressed by the Board of Supervisors on Related Matters In 2003, the Board of Supervisors carried out its duty strictly in accordance with Company Law and Articles of Association of the Company to protect the interest of the Company and all the shareholders. It practiced effective supervision over legal management, financial status, duties carried out by senior management personnel of the Company, etc. 1. Legal Management of the Company In 2003, supervisors attended all previous meetings of the Board of Directors, gave necessary participations and supervision over production and management plan of the Company, investment decision-making, authorization by the Board of Directors. The - ３２ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Board of Supervisors unanimously believe that the Board of Directors can organize and hold Shareholders’ General Meetings strictly in accordance with the requirements of Company Law and Articles of Association of the Company, fully practice duties and powers authorized by Shareholders’ General Meetings, and carry out all the resolutions of the General Meetings. During the report period, the Company had perfect internal control systems which operated according to the law and all of the decision-making procedures were in conformity with the law; Directors and managers of the Company could strictly abide by laws, regulations and Articles of Association when they carried out their duties and none of them was found to have any behavior of impairing the interest of the Company. 2. Supervision of Financial Status of the Company Shanghai Deloitte Touche Tohmatsu CPA Ltd (Domestic) and Hong Kong Deloitte Touche Tohmatsu CPA Ltd (Foreign) were appointed to audit financial status of the Company in 2003 and issued audit reports without any reserved opinions. After careful examination financial status of the Company, the Supervisory Committee believes that the report is objective, correct and truly reflected financial status and operation result of the Company. The company has strict financial system, perfect internal control systems, and no behaviors against financial system or infringing upon the interest of the investors were found. 3. Supervision of Utilization of Raised Fund The company did not raise any fund during the report period. The Board of Supervisors gave a strict supervision over utilization of fund raised at the previous time and found that all of the fund raised in the previous time has been used up according to the requirements of prospectus and the investment projects are gradually producing benefits. 4. Related transactions Pricing of related transactions incurred in the Company was fair, rational and in conformity with related laws, regulations and Articles of Association of the company. The company performed the obligation in information disclosure according to related state laws, regulations, requirements of Shenzhen Stock Exchange and the Articles of Association of the Company. - ３３ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Chapter IX. Substantial Events (I) In the report period, the Company has not been involved in any substantial lawsuits or arbitral matters. (II) In the report period, substantial assets acquisition, sale, merger have occurred in the Company. The investment for Shenzhen Zhongke Venture Capital Co., Ltd. was withdrawn in the report period. See details in Note 15 of the financial report. In the report period, there is no other substantial assets acquisition, sale, merger occurred in the Company. (III) Major related transactions: 1. Related transaction equity transfer - ３４ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) On April 2, 2003, the 6th meeting of the 3rd session of the Board of Directors passed Resolution on the Transfer of 80% Equity Ownership of Anhui Gujing Shuangxi Winery Co., Ltd. (“Gujing Shuangxi ”) held by the Company, deciding to transfer 80% equity ownership of Anhui Gujing Shuangxi Winery Co., Ltd. held by the Company to Anhui Gujing Group Co., Ltd. Regarding the price of equity transfer, Bozhou City Puxin Accountants' Office took December 31, 2002 as the base date of assets evaluation. According to Puxin’s Bo Pu Kuai Ping Zi (2003) No. 003 Assets Assessment Report, it was determined that the price for the equity transfer was RMB 17,428,860.23 yuan. The price for the equity transfer was just and reasonable, allowing the Company to be more capable of being engaged in the operation of liquor and other relevant industries and facilitating the optimization of the Company’s condition of assets and the improvement of its return on net assets without damaging the interests of shareholders and the Company. 2. Related transactions purchase and sale of commodities Amount of transaction (RMB 10,000 yuan) Type of Pricing Work Unit Commodity Actual Proportion among transaction basis amount similar transactions (%) production Gujing Comprehensive market raw purchase 5,053.94 17.91 Service Co. Ltd. price material Gujing Tianshi Printing packaging market purchase 1,417.30 5.04 Co., Ltd. materials price Note: (1) The prices of above related transaction follow the fair market pricing rule, which improves the production efficiency of the company and conforms with the benefits of the company and all shareholders, without violating the interests of small/medium shareholders. - ３５ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) (2) See Note 38 in the financial report for details of other related transactions in the report period. (3) There were no other important related transactions in the report period. (IV) Performance of Important Contracts 1. During the report period, the Company did not entrust, contract, lease other companies’ assets, and no assets of the Company was entrusted, contracted, leased by other companies. 2. During the report period, the Company did not provide any guaranty to any other companies. 3. During the report period, the Company did not entrust any other companies to manage its cash assets. 4. During the report period, the Company did not sign any other important contracts. (V) Commitments made by the Company and shareholders holding more than 5% (including 5%) of the shares of the Company during the report period For details, please refer to Note 40 on Financial Report. (VI) Appointment and Removal of Accountants’ Office The Company appointed Shanghai Deloitte Touche Tohmatsu CPA Ltd and Hong Kong Deloitte Touche Tohmatsu CPA Ltd as domestic and foreign audit institutions. Deloitte Touche Tohmatsu CPA Ltd provided the Company with audit service since 2002 and was again appointed as the Company’s audit institution in 2004. ’ In the year, the Company totally paid RMB 580,000 yuan of audit fees to Shanghai Deloitte Touche Tohmatsu CPA Ltd and Hong Kong Deloitte Touche Tohmatsu CPA Ltd. (VII) Patrol Inspection by Fuscous Securities Management Office of China Securities Regulatory Commission during November 24-28, 2003 To solve the existing issues found in the inspection, Hefei Special Office China Securities Regulatory Commission issued a circular (Wan Zheng Jian Han Zi [2003] No. 215). The Company’s Board of Directors addressed the issues found and immediately prepared corresponding corrective measures, which were published on Shanghai Securities Daily, China Securities Daily and Hong Kong Wen Wei Po on February 26, 2004. (VIII) Other Substantial Events - ３６ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) During the report period, the Company had no other substantial events undisclosed. Chapter X. Financial Statements (I) Audit Report Audit Report As of December 31, 2003 (Prepared according to international financial report guideline) To the shareholders of Anhui Gujing Distillery Company Limited (Incorporated in the People’s Republic of China with limited liability), We have audited the consolidated balance sheet and related consolidated income statement of the year, consolidated cash flow statement and consolidated statement of changes in equity up to December 31, 2003 provided by Anhui Gujing Distillery Company Limited and its subsidiaries (the group). The management of the group will be responsible for these financial statements and our responsibility is to provide our opinions to the statements based on our audit. We performed our audit according to international audit guideline that requires us to plan and perform audit so as to ensure that there is not any significant misstatement in the financial statements. Our audit not only includes spot-checking figures of the financial statement and bases for related disclosure, but also includes evaluating accounting policies adopted by the management in preparing the financial statements and appropriateness of significant assessments and overall formulation of the financial statement. We believe that our audit have provided us with reasonable base for our audit opinions. It is our opinion that the financial statements above are prepared in accordance with international financial statement guideline and truly and fairly expressed the group’s financial situation up to December 31, 2003 in all significant aspects and the operation result and cash flow of the report period. Hong Kong, China April 00, 2004 - ３７ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) (II) Financial Statement Consolidated Income Statement As of December 31, 2003 (All accounts expressed in thousands of RMB except per share data) Notes 2003 2002 Revenue 4 558,587 526,034 Sales tax (71,773) (75,273) Sales cost (309,805) (254,872) Gross profit 177,009 195,889 Profit from other activities 21,401 24,562 Subsidy income 5 - 14,900 Distribution expenses (57,383) (48,928) Administrative expenses (83,097) (83,923) Other operation expenses (22,517) (21,856) Profit from operation activities 6 35,413 79,644 Accounting expenses 7 (2,619) (2,990) Investment income 8 291 10,762 Proceeds from disposal of a subsidiary 9 1,403 - Profit before tax 34,488 87,416 Income tax 10 (13,771) (41,135) Profit after tax 20,717 46,281 Minor shareholders’ equity 423 764 Net profit of the year 21,140 47,045 Earnings per share Basic 11 RMB 0.09 RMB 0.20 Consolidated Balance Sheet As of December 31, 2003 (All accounts expressed in thousands of RMB) Notes 2003 2002 - ３８ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Assets Non-current assets Property, plant and equipment 12 385,233 432,129 Land tenure 13 38,183 42,185 Goodwill 14 1,680 2,520 Trademark and proprietary technology 15 14,588 19,642 Investment in an associate 17 - 60,480 Other long-term investment 18 100,000 100,250 539,684 657,206 Current Assets Inventories 19 571,712 569,698 Accounts receivable and other amount receivable 21 228,638 244,380 Accounts receivable from related company 32 205 35 Investment for transaction 20 107,638 - Deposit and cash 21 112,299 95,521 1,020,492 909,634 Total Assets 1,560,176 1,566,840 Equity and Liabilities Capital and Reserves Issued Capital 22 235,000 235,000 Reserves 23 947,550 949,910 1,182,550 1,184,910 Minor shareholders’ equity 22,347 25,836 Non-current liabilities Bank loans with maturity over 1 year 25 40,100 44,000 Current liabilities Accounts payable and other amount payable 26 203,657 200,058 Income tax payable 1,544 319 Other taxes payable 27 82,168 76,332 Accounts payable to related company 32 3,910 17,385 Bank loans with maturity less than 1 year 25 23,900 18,000 315,179 312,094 Total Equity and Liabilities 1,560,176 1,566,840 Consolidated Statement of Changes in Equity As of December 31, 2003 (All accounts expressed in thousands of RMB) Reserves Share Capital Statutory Common Retained Capital Reserve Reserve Reserve Profit Total Total Up to December 31, 2003 Balance at Jan. 1, 2002 235,000 521,043 68,936 68,936 290,346 949,261 1,184,261 - ３９ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Net profit for the year - - - - 47,045 47,045 47,045 Appropriation for statutory and Common reserve - - 4,704 4,704 (9,408) - - Dividends - - - - (47,000) (47,000) (47,000) Other - 604 - - - 604 604 Balance at Dec. 31, 2002 235,000 521,647 73,640 73,640 280,983 949,910 1,184,910 Up to December 31, 2003 Balance at Jan. 1, 2003 235,000 521,647 73,640 73,640 280,983 949,910 1,184,910 Net profit for the year - - - - 21,140 21,140 21,140 Appropriation for statutory and Common reserve - - 2,043 2,043 (4,086) - - Dividends - - - - (23,500) (23,500) (23,500) Balance at Dec. 31, 2003 235,000 521,647 75,683 75,683 274,537 947,550 1,182,550 Consolidated Cash Flow Statement As of December 31, 2003 (All accounts expressed in thousands of RMB) Notes 2003 2002 Operating Activities Profit from operation 35,413 79,644 Adjustable items: Residual for bad accounts 753 2,763 Residual for inventory devaluation - 13 Cumulative depreciation of property, plants and equipment 43,297 42,836 Amortized intangible assets 6,943 5,914 Amortized goodwill generated from purchase of associate company 480 120 Loss caused by disposing property, plants and equipment 440 494 Cash flow generated from operating activities before change of operating capital 87,326 131,784 Inventory (increase) (26,054) (87,769) Decrease(increase) of accounts receivable and other amounts receivable (2,875) 42,853 Increase of accounts receivable from related company (170) (35) Increase (decrease) of accounts payable and other amounts payable 37,360 (23,104) Increase (decrease) of other tax liabilities 5,836 (10,178) Increase (decrease) of accounts payable to related company (13,475) 16,901 Cash generated from operating activities 87,948 70,452 Income tax paid (12,546) (39,336) Interest paid (2,902) (2,588) Net cash generated from operating activities 72,500 28,528 Investment Activities Interest received 1,139 762 Dividends received - 10,000 Property, plants and equipment purchased (24,039) (62,623) Income from disposal of property, plants and equipment 921 7,967 Intangible assets purchased - (12,312) Net cash inflow from disposal of subsidiary 28 17,303 - Disposal of investment in associate company 60,000 - Purchase of transactional investment (108,486) - Net cash used in investment activities (53,162) (56,206) Fund-raising Activities Dividends paid (23,500) (47,000) Loans refunded - (6,000) - ４０ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Additions of bank loans 20,000 44,000 Minor shareholders’ capital contribution in subsidiaries 940 - Net cash used in fund-raising activities (2,560) (9,000) Increase/(decrease) of cash and cash equivalent 16,778 (36,678) Cash and cash equivalent at beginning of year 95,521 132,199 Cash and cash equivalent at end of year Deposit in bank and cash 112,299 95,521 (III) Notes to Consolidated Financial Statement 1. Corporate Information Anhui Gujing Distillery Company Limited (the Company) was incorporated in the People’s Republic of China on May 30, 1996 and listed in Shenzhen Stock Exchange. The Company and its subsidiaries (the Group) are principally engaged in production and sales of distilled spirit, wine, vintage equipment, packing material, feed, glass bottles and computer hardware. The ultimate holding company is Anhui Gujing Group Company Limited (Gujing Group). The group had 6,010 employees by December 31, 2003 (6,003 in 2002). 2. Basis of Financial Statement The Company and its subsidiaries kept accounting records and prepared statutory financial statements according to accounting guidelines and ordinances (“Guidelines to Accounting in China”) applicable to enterprises in China. The consolidated financial statement is prepared in accordance with international financial statement guideline. However, some of the accounting policies and norms adopted in the statutory financial statement may differ in some aspects from international financial statement guidelines. Adjustment has been made in the financial statement due to differences caused when reformulating operating achievements and net assets so as to conform to international financial statement guidelines, but no adjustment has made in the accounting records of the Company and its subsidiaries. Differences between international financial statement guideline and Chinese accounting guideline are listed in supplementary information. 3. Summary of Principle Accounting Policies The financial statement is prepared according to historical cost basis adopting the following principle accounting policies: Basis for Consolidation The consolidated financial statement includes financial statement of the Company and its controlled companies (subsidiaries) up to December 31 every year. A controlled company is a company in which the Company controls financial, operating policies and benefits from its operating activities. Purchasing price of a subsidiary is calculated with assets, liabilities and fair value of the company at the time of purchase. In case that purchase cost is greater than fair value of the identifiable net assets purchased, the exceeding part shall be confirmed as goodwill. Minor shareholders’ equity is listed according to the shares of fair value of the confirmed assets and liabilities held by them. - ４１ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Operating achievements of a subsidiary acquired or disposed in the report period are included in consolidated income statement starting from the effective date of purchase and ending on the effective date of disposal. A subsidiary’s financial statement may be adjusted as necessary to maintain consistency of accounting policies of a subsidiary with other members of the group. In consolidation, all significant transactions and balances between members of the group shall be offset. Investment in associate company An associate company is a company in which the group participates in decision-making of financial, operating policies in the invested company and has significant influence (but not control) to the company. Operating result, assets and liabilities of the associate shall be calculated into the financial statement according to equity method. Investment in associate company is listed in the balance sheet in the form of cost, adjustment of changes in shares of the associate company held by the group after purchase minus investment devaluation. Purchasing cost of the group exceeding shares of fair value of identifiable net assets of the associate company is confirmed as goodwill. Goodwill Goodwill incurred in consolidation indicates the excess amount of purchase cost for shares held by the group in the fair value of the identifiable assets and liabilities of the associate on the date of purchase. Goodwill shall be confirmed as assets and amortized according to assessment of its operational lifespan on a straight-line basis. Goodwill incurred in the purchase of an associate company in included in the book amount of investment in the associate company. Goodwill incurred in subsidiaries and joint-controlled companies are listed separately in the balance sheet. In case of disposal of a subsidiary or an associate, un-amortized balance of related goodwill, if any, shall be recorded as profit and loss of disposal. Income Confirmation Sales of commodity is confirmed when it is delivered and property right is transferred. Interest income is confirmed according to un-refunded principal and interest rate, and time proportion. Dividends income from investment is confirmed when shareholders’ right for - ４２ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) receivable amount is established. Operating Leases Lease payments under an operating lease are recognized as expense in income statement over the lease terms on a straight-line basis. Foreign Currencies Payment made in currencies other than RMB is converted initially according to the exchange rate of the transaction date. Monetary assets and liabilities thus calculated shall be converted again according to the exchange rate of balance sheet date and profit or loss incurred therein shall be calculated into net profit and loss of the report period. Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e, assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalized as part of the cost of those assets. Prior to payment of incurred eligible assets, capitalized borrowing cost shall be deducted from investment income from temporary investment of specially borrowed funds. All other borrowing costs shall be confirmed as cost of incurred period. Subsidy Income Subsidy income shall be confirmed when the group is entitled to receive it. Pension and Benefit Cost The group participates in pension and benefit scheme of the state. Pensions and benefit funds shall be charged to operating expense in the year to which they relate. Income Tax Income tax is the total amount of income tax and deferred tax items payable. Income tax of the current period is calculated according to taxable profit of the year. Taxable profit defers from net profit listed in income statement, as it does not include taxable profit or tax-offsetting payments, etc. or non-taxable or non-offsetting items. Income tax liabilities of the group for the year are calculated according to tax rates stipulated in balance sheet date or stipulated actual tax rates. Deferred tax items are expected tax payable or recoverable tax incurred from difference between the book amount of assets and liabilities in financial statement and tax basis related to calculation of taxable profit. Deferred tax items are calculated adopting balance sheet liability method. Normally, all deferred income tax liabilities incurring from temporary differences of taxable amount shall be confirmed, while deferred income assets can only be confirmed within the limit that future taxable profit is adequate to offset the temporary differences. In case of temporary difference incurring from initial confirmation of goodwill, or other assets and liabilities in transactions (excluding mergers) that have no impact to taxable profit or accounting profit, deferred income tax assets and liabilities are not confirmed. - ４３ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Taxable temporary differences incurring from investment in subsidiaries, associates and equity of joint-ventures are recognized as deferred income tax liabilities unless the group can control the reverse of such temporary differences and the temporary differences are not likely to be reversed in predictable future. In case that book values of deferred income tax assets on each balance sheet date are checked and there may possibly be no more adequate taxable profit in the future to reverse partial or all deferred income tax assets, the irreversible part shall be deducted from deferred income tax assets. Deferred income tax is calculated according to income tax rate applied to expected profit from related assets or payment of related liabilities. Deferred income tax shall be recorded into income statement unless it is related to direct entry equity in which deferred income tax can also be regarded as an equity item. Deferred income tax assets and liabilities can only be offset each other when related income taxes are collected by the same taxation institution and the group is going to settle income tax assets and liabilities for the current period with net amount. Property, Plant and Equipment Property under construction for production, lease, administrative purpose or undefined purpose is recognized as balance after deducting any definite devaluation loss from the cost that includes professional cost and borrowing cost capitalizing eligible assets according to accounting policies of the group. Residual for depreciation of such property can only be made on the same basis with other property when the property is put to its expected use. Other property, plants and equipment can be listed with balance after deducting cumulative depreciation and definite devaluation loss from cost. Except property under construction, other properties shall have depreciation of the cost over their lifespan on straight-line basis. Building 14-18 years Devices and equipment 8-10 years Vehicles 8 years Other equipment 8 years Income and loss incurring from disposal or discarded assets are determined according to the difference between sales revenue and book amount of the assets, and confirmed in income statement. Land Tenure Land tenure is measured initially according to its purchasing cost and amortized over estimated lifespan on straight-line basis. - ４４ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Trademark and Proprietary Technology Trademarks and proprietary technologies are measured initially according to its purchasing cost and amortized over estimated lifespan on straight-line basis. Devaluation On each balance sheet date, the group checks book amounts of tangible and intangible assets to determine if there is any sign of devaluation loss in these assets. In case of any sign of devaluation, their recoverable amounts are assessed to determine the amount of loss. In case that it is impossible to determine the recoverable amount of a single assets, the group assesses recoverable amount of cash generating unit of the assets. Recoverable amount means net amount of sales or usable amount, whichever the highest. In assessing usable amount, expected future cash flow is converted into current value according to pretax converting rate reflecting assessment of the monetary time value and specific risk of the assets in the market. In case that recoverable amount of evaluated assets (or cash generating unit) is less than its book amount, book amount of the assets (or cash generating unit) is reduced to recoverable amount and the devaluation loss is confirmed immediately as cost. In case that devaluation loss can be recovered in the future, the book amount of the assets (or cash generating unit) will increase to re-evaluated value of the recoverable amount, but the book amount after the increase can not exceed the book amount of the assets (or cash generating unit) that should have been determined in the previous years when devaluation loss was not confirmed. Recovery of devaluation loss is confirmed immediately as income. Inventory Inventory is measured according to cost or realizable net value, whichever the greatest. Cost includes direct material and, in some cases, direct labor cost and indirect cost incurred from inventory that arrived current location and state. Cost is calculated with weighted average method. Realizable net value means net amount of estimated sales price minus estimated finishing cost and costs incurred after sales. Financial Instrument In case that the group becomes a party of financial instrument agreement, financial assets and financial liabilities are confirmed on balance sheet of the group. Accounts Receivable Accounts receivable is listed as an amount of nominal amount minus proper Residual for estimated unrecoverable amount. Investment Investment is confirmed according to transaction date and measured initially according to cost (including transaction cost). On the report date after the initial measurement date, debt instruments with - ４５ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) definite plan of the group to hold until maturity are measured according to cost after amortization minus devaluation loss confirmed according to unrecoverable amount. Annual amortization of any decreased or increased value incurring from purchase of maturity instrument is consolidated with other investment income receivable from the financial instrument over the investment term so that income generated during different periods can express fixed return of the investment. Investments other than debt instrument with maturity can be classified as investment held for transaction or investment for sales, and measured according to fair value on later report date, e.g. financial assets have no relevant market price in active market and when there is no reliable measurement for its fair value, it is measured according to cost after amortization minus devaluation loss confirmed by reflecting unrecoverable amount. In case of instrument for transaction, unrealized profit or loss shall be recorded into net profit and loss of the current period. In case of investment for sales, unrealized profit or loss shall be directly confirmed as equity and the cumulative profit or loss confirmed as equity shall not be calculated into net profit or loss of the current period until the instrument is disposed or confirmed to have bee decreased in value. Bank Loans Bank loans with interest and overdrafts are recorded as received amounts minus direct cost of issuance. Accounting costs (including payment of premium when tendering or redeeming the loan) are given accounting treatment on accrual basis and, in case that incurred financial cost is not tendered in the period in which it incurred, it will be recorded into the book amount of related loan. Account Receivable Account receivable is expressed in its nominal value. Equity Instrument Equity instrument is measured according to received amount minus direct cost of issuance. 4. Income Income of the group is analyzed as below: (All accounts expressed in thousands of RMB) 2003 2002 Sales of distilled spirit and wines 514,744 490,328 Other 43,843 35,706 558,587 526,034 Principal operating activities of the group are located in China and there is only one business segment with all assets located in China. 5. Subsidy Income The Company obtained subsidy income in 2003. Subsidy income obtained by the Company in 2002 was financial subsidy granted by Financial Bureau of Bozhou City to compensate for the loss caused by unfavorable impact of market competition and change of taxation policy. 6. Profit generated from operating activities - ４６ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) The following items have already been deducted from profit generated from operating activities: (All accounts expressed in thousands of RMB) 2003 2002 Net loss caused by exchange rate 28 33 Labor cost 77,698 85,417 Depreciation and amortization - Property, plants and equipment 43,297 42,836 - Goodwill 840 840 - Land tenure 1,049 1,319 - Trademark and proprietary technology 5,054 3,755 50,240 48,750 Inventory cost confirmed as expenses 309,805 254,872 Except property, plants and equipment, other depreciation and amortization items listed above are recorded into administrative cost. Depreciation of property, plants and equipment equaling about RMB28,277 thousands (2002: RMB25,447 thousands) is recorded into sales cost and about RMB15,020 thousands (2002: RMB17,389 thousands) into administrative cost. 7. Financial Cost (All accounts expressed in thousands of RMB) 2003 2002 Interest of bank loans 2,619 2,990 8. Investment Income (All accounts expressed in thousands of RMB) 2003 2002 Other dividends from investment - 10,000 Deposit interest 1,139 762 Decrease of fair value of transactional investment held at end of year (848) - 291 10,762 9. Disposal of subsidiary The Company signed an agreement with Gujing Group regarding transfer of 80% share ownership of Anhui Gujing Double-happiness Wine Co., Ltd. which is principally engaged in wine business so as to obtain cash to expand other business of the group. The transaction was completed on April 2, 2003. Operation result(already recorded into consolidated financial statement) of Anhui Gujing Double-happiness Wine Co., Ltd. from January 1, 2003 to April 2, 2003 is listed in details as follows: (All accounts expressed in thousands of RMB) Up to Apr. 2, 2003 Up to Dec. 31, 2002 Operating revenue 4,277 22,309 Operating cost (2,724) (15,297) Operating expenses (2,814) (9,930) Accounting cost (104) (1,402) Loss before tax (1,401) (4,320) Minor shareholders’ equity 281 864 Loss after tax from normal operating activities (1,120) (3,456) In the report period, Anhui Gujing Double-happiness Wine Co., Ltd. brought to the - ４７ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Company RMB970 thousands (2002: RMB820 thousands) of net cash flow from operating activities. Book amount of assets and liabilities of Anhui Gujing Double-happiness Wine Co., Ltd. on disposal date is disclosed in Note 28. Anhui Gujing Double-happiness Wine Co., Ltd. obtained total profit of RMB1,403 thousands (income from transfer minus net assets)(See Note 28). Income tax incurring from the transaction is included in income tax cost of the group. 10. Income Tax Cost (All accounts expressed in thousands of RMB) 2003 2002 Corporate income tax Income tax of current period 10,818 28,135 Income tax accruals in previous year 2,953 13,000 13,771 41,135 Income tax within Chinese territory is calculated as 33% of estimated taxable profit of the year. Income tax of the year adjusted into pretax profit of consolidated income statement: (All accounts expressed in thousands RMB) 2003 % 2002 % Profit before tax 34,488 87,416 Income tax calculated according to income tax rate of 33% 11,381 33 28,847 33 Impact of income tax on non-deductible cost when determining taxable profit 5,830 17 7,505 8 Impact of income tax on deductible extra amount when determining taxable profit(Note) (6,393) (19) - - Impact of income tax on non-taxable income when taxable profit - Subsidy income (1,917) (6) - Dividend income - - (3,300) (3) 10,818 31 28,135 32 Note: The amount is research and development cost that can be deducted from taxable income by approval of local taxation bureau. Up to December 31, 2003, the Company had no significant temporary difference and consequently no deferred income. 11. Earnings per share After deduction of income tax and minor shareholders’ equity, basic earnings per share including terminated operations are calculated from net profit of RMB21,140 thousands(2002: RMB47,045 thousands) divided by issued total shares of 235,000,000(2002: 235,000,000 shares). As there is no impact of diluted potential ordinary shares in the report period, no diluted earnings per share are calculated for the year. 12. Property, plants and equipment (All accounts expressed in thousands of RMB) Project under Devices & Other construction Building equipment Vehicles equipment Total Cost - ４８ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Jan. 1, 2003 17,889 377,031 202,291 16,974 44,050 658,235 Reclassification - - 221 - (221) - Increase 6,597 829 10,304 2,380 3,929 24,039 Transferred in as project Under construction （19,536） 1,043 15,403 - 3,090 - Disposal - (404) (4,118) (537) (448) (5,507) Transferred out when disposing subsidiary (354) (17,328) (18,421) (511) (369) (36,983) December 31, 2003 4,596 361,171 205,680 18,306 50,031 639,784 Cumulative Depreciation January 1, 2003 - 141,787 65,820 7,118 11,381 226,106 Reclassification - - 81 - (81) - Accrual amount for the year - 18,205 18,147 1,979 4,966 43,297 Resale at disposal - (216) (3,215) (312) (403) (4,146) Resale at disposal of subsidiary - (5,709) (4,405) (316) (276) (10,706) December 31, 2003 - 154,067 76,428 8,469 15,587 254,551 Book amount December 31, 2003 4,596 207,104 129,252 9,837 34,444 385,233 December 31, 2002 17,889 235,244 136,471 9,856 32,669 432,129 Up to December 31, 2003, title certificate of a building with net value of about RMB13,840 thousands(2002: RMB14,358 thousands) was still going through procedures. 13. Land Tenure (All accounts expressed in thousands of RMB) 2003 2002 Cost January 1 49,676 43,864 Increase of the year - 5,812 Disposed when disposing subsidiary (5,206) - December 31 44,470 49,676 Cumulative Depreciation January 1 7,491 6,172 Accrual amount of the year 1,049 1,319 Transferred out when disposing subsidiary (2,253) - December 31 6,287 7,491 Book Amount December 31 38,183 42,185 - ４９ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Up to December 31, tenure certificate of a land with net value of about RMB5,467 thousands(2002: RMB5,614 thousands) was still going through procedures. Land tenure will be amortized according to expected validity of 10-50 years. 14. Goodwill (All accounts expressed in thousands of RMB) 2003 2002 January 1 and December 31 4,200 4,200 Amortization January 1 1,680 840 Increase in the year 840 840 December 31 2,520 1,680 Book amount December 31 1,680 2,520 Goodwill is amortized over expected years of validity. Expected years of validity of goodwill incurred from purchase of subsidiary company is 5 years. 15. Trademark and proprietary technology (All accounts expressed in thousands of RMB) 2003 2002 Cost January 1 44,050 37,550 Increase in the year - 6,500 December 31 44,050 44,050 Amortization January 1 24,408 20,653 Amortized amount of the year 5,054 3,755 December 31 29,462 24,408 Book Amount December 31 14,588 19,642 Trademark is amortized according to expected usable years of average 10 years. Proprietary technology is amortized according to expected usable years of average 5 years. 16. Subsidiary Up to December 31, 2003, detailed information of subsidiaries of the Company is listed as below: Shares of Registration equity and & operating power Name of subsidiary location for vote Principal operation Bozhou Gujing Sales Co. Anhui, China 100% Provide sales & trade service to the company. Bozhou Gujing Motor Transport Co. Anhui, China 100% Provide transport service to the company. Bozhou Gujing Glass Co., Ltd. Anhui, China 100% Production & sales of glass products. Bozhou Gujing Waste Recycle Co., Ltd. Anhui, China 100% Collecting and sales of used wine bottles. Anhui Laobada Distillery Co., Ltd. Anhui, China 93% Wholesale, retail of wine products. Beijing Jinshengyi Technology Co., Ltd. Beijing, China 70% Development and sales of computer hardware, software and peripheral equipment. Anhui Gujing Wild-sun Distillery Sales Co., Ltd. Anhui, China 92% Sales of distilled spirit and fruit wines Anhui Gujing Plant-oil Co., Ltd. Anhui, China 100% Production and sales of plant oil Dongguan Jinshengyi Technology Co., Ltd. Guangdong, China 70% Technical development and sales of computer hardware, software and peripheral equipment. 17. Investment in Associate Companies (All accounts expressed in thousands of RMB) 2003 2002 Investment cost 60,600 60,600 - ５０ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Investment recovered in the year (60,000) - Cumulative goodwill amortization (240) (120) Residual for decreased value (360) - - 60,480 According to the resolution of temporary shareholders’ general meeting, Shenzhen Zhongke Merchant Initial Investment Co., Ltd., an associate of the Company with 20% shareholding, will return the investment made by the Company by way of decreasing equity or shareholders buying back the shares. At the same time, the Company will give up voting power and right for dividends. Up to December 31, 2003, the Company had already received returned investment of RMB60,000 thousands but related legal procedures are yet to be finished. Goodwill will be amortized over the estimated years of validity. Estimated years of validity of goodwill incurred from acquiring a subsidiary is 5 years. 18. Other Investment (All accounts expressed in thousands of RMB) 2003 2002 Unlisted equity of investment for sale 100,000 100,250 Detailed information of other significant investments of the Group up to December 31, 2003 are listed as below: Registration & Equity shares & Name of company operating location voting power Principal Operation Hua’an Security Co., Ltd. Anhui, China 5.87% Security exchange The board of directors believe that, as there is no active market, it is impossible to have reliable calculation of fair value of investment for sale on balance sheet date, and, consequently, investment for sale up to December 31, 2003 is reported according to decreased value confirmed with cost decrease. 19. Inventory (All accounts expressed in thousands of RMB) 2003 2002 Raw material and packing material 181,730 168,945 Work in process and semi-products 324,757 331,370 Finished products 65,225 69,383 571,712 569,698 Of the inventory, finished products of RMB29,008 thousands (2002: RMB26,967 - ５１ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) thousands) were calculated according to realizable net value. 20. Investment Held for Transaction (All accounts expressed in thousands of RMB) 2003 2002 Fair value 107,638 - All of the security investment above is bond securities listed in the market and the Group can achieve investment return by way of transactional income. Fair values of the securities are confirmed on market price basis. 21. Other Financial Assets Accounts receivable and other amounts receivable include accounts receivable of RMB118,000 thousands (2002: RMB128,000 thousands) incurred from commodity sales. Average credit period of commodity sales is 90 days. The Group has already appropriated a residual of RMB3,300 thousands (2002: RMB8,000 thousands) for estimated bad accounts incurring in commodity sales. This amount of accrual is determined according to our experience. The directors believe that the book values of accounts receivable and other amount receivable is close to their fair values. Deposit in bank and cash include cash stored in the safe of the group and short-term deposit in bank. Book values of these assets are close to their fair values. Credit Risk Credit risks of the Group principally exist in accounts receivable and other amounts receivable. The amount of accounts receivable listed in balance sheet is net amount after deduction of residual for bad accounts and the residual amount is determined basing on experience of the Group and according to estimation of economic environment of the time. The Group has no concentrated significant credit risks as it has already distributed risks to a great number of our clients. There is limited credit risk in current capital as opposite parties involve in related items are banks with high credit levels assessed by credit level assessment institution of the People’s Republic of China. 22. Equity Capital - ５２ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Detailed information of shares with face value of RMB1.00 up to December 31, 2003 is as follows: 2003 and 2002 Shares Amount (thousand share) (thousands of RMB) Approved: State share with face value of RMB1 155,000 155,000 A stock with face value of RMB1 20,000 20,000 B stock with face value of RMB1 60,000 60,000 235,000 235,000 Face values of all stocks are equal, A stocks and B stocks listed in Shenzhen Stock Exchange, state shares not listed. 23. Reserves (a) Other reserves including capital reserve, statutory reserve, free reserve and statutory common reserve are part of shareholders’ equity. Capital Reserve Capital reserve mainly consists of net assets injected into the Company to set the cost that exceeded the face value of the stock when the Company was incorporated into a company with limited liabilities in 1996. Statutory Reserve/Free Reserve According to related laws, regulations in China and stipulations in Articles of Association, the Company should appropriate 10% of profit after tax of statutory financial statement prepared according to accounting policies of China into statutory reserve. Appropriation of free reserve should be approved in general meeting of shareholders. When statutory reserve reaches 50% of registered capital of the company, further appropriation may stop. The reserve can be used to make up for loss of the company, or transferred into capital stock with a resolution passed in the general meeting of shareholders. When transferring reserve into capital stock to increase equity, new shares can be distributed to shareholders according to their holding rates or face value of the stock can be increased. But, in case of transferring statutory reserve into capital, remaining amount of the reserve should not be less than 25% of the registered capital. Statutory Common Reserve According to related laws, regulations in China and stipulations in Articles of Association, the Company should appropriate 5 - 10% of profit after tax of statutory financial statement prepared according to accounting policies of China into common reserve that can only be used to make capital payment of collective benefits for employees. Statutory common reserve cannot be used for apportionment. When using statutory common reserve, it will be transferred into free surplus reserve based on cost of purchased assets. When discarding related assets, the original reserve transferred will be transferred back. No statutory common reserve has been used during the report period (2002: N/A). (b) Benchmark for Profit Distribution According to Articles of Association, distributable profit calculated according to accounting guidelines of China and according to international financial statement guidelines, whichever the smallest, minus statutory residual deduction, shall be distributed as dividends. - ５３ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Up to December 31, 2003, distributable retained profit calculated according to accounting guideline of China is about RMB273,826 thousands (In 2002, distributable retained profit calculated according to international financial statement guidelines was RMB280,983 thousands). 24. Dividends Distribution According to the proposal of the board of directors on , 2004, no cash dividends (2002: RMB0.1) will be distributed to shareholders for 2003. This dividends distribution plan is subject to approval of general meeting of shareholders. 25. Bank Loans (All accounts expressed in thousands of RMB) 2003 2002 Bank loans 64,000 62,000 Maturity of loans: Current or within 1 year 23,900 18,000 Within 2 years 12,000 3,900 Within 3 – 5 years 28,100 40,100 64,000 62,000 Minus: Amount matures within 1 year(listed in current liability) 23,900 18,000 Amount matures after 1 year 40,100 44,000 Major characteristic of bank loans: (All accounts expressed in thousands of RMB) 2003 2002 Credit loan 20,000 - Guaranteed loan (Note a) 44,000 44,000 Mortgage loan - 18,000 64,000 62,000 (a) For details of guaranteed loan above, please refer to Note 32 (c). (b) All bank loans are in RMB loans. Annual average interest of the bank loans is 5.22% (2002: 5.16%) The directors believe that book amounts of bank loans are close to their fair values. 26. Other Financial Liabilities Accounts payable and other amounts payable principally include unsettled payments for purchase of goods and operating cost. The directors believe that the book amounts of accounts payable and other amounts payable equal approximately to their fair values. 27. Other Tax Liabilities (All accounts expressed in thousands of RMB) 2003 2002 Excise 60,028 60,216 Value added tax 17,761 12,446 Sales tax 3 823 Municipal construction tax 4,373 2,843 Other 3 4 82,168 76,332 28. Disposal of Subsidiary Net assets of Anhui Gujing Double-happiness Wine Co., Ltd. on its disposal date and up to December 31, 2002 was as follows: (All accounts expressed in thousands of RMB) Apr. 2 Dec. 31 2003 2002 - ５４ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Property, plants and equipment 26,277 26,826 Inventory 24,040 23,231 Accounts receivable and other amounts receivable 17,864 19,156 Deposit and cash 126 1,096 Intangible assets 2,953 3,011 Accounts payable and other amounts payable (33,228) (33,887) Bank loans (18,000) (18,000) 20,032 21,433 Minor shareholders’ equity (4,006) (4,287) Net assets held by the company 16,026 17,146 Income from disposal 1,403 Total 17,429 Liquidating method: Cash 17,429 Net cash inflow from transfer of subsidiary: Valuable consideration paid in cash 17,429 Bank deposit and cash of the disposed subsidiary (126) 17,303 Impact of Anhui Gujing Double-happiness Wine Co., Ltd. on operating result of the Group is disclosed in Note 9. 29. Capital Commitment (All accounts expressed in thousands of RMB) 2003 2002 Commitment made to purchase property, plants and equipment but not reflected in the report 615 6,861 30. Operating Lease Agreement (All accounts expressed in thousands of RMB) 2003 2002 Operating lease confirmed as cost of current period Minimum payment amount of lease 850 1,493 On balance sheet date, the Group has the following irrevocable operating lease commitment that should be paid in the specified period of time: (All accounts expressed in thousands of RMB) 2003 2002 Within 1 year 699 1,493 Within 2 – 5 years 1,454 666 2,153 2,159 Payment amount of operating lease indicates rent payable for some office property leased by the Group. Average lease term of them is 3 years and rent is fixed for average 5 years. 31. Retirement Benefit Scheme Setting up drawing plan Employees of the Group are members National Retirement Benefit Scheme administrated by local government. The scheme requires the Group to pay some amounts calculated according to certain proportions of salary cost to the fund of retirement benefit scheme. Obligation of the Group for the scheme is to pay certain proportions of drawings. Drawings payable by the Group according to the proportions stipulated in the scheme is RMB3,800 thousands (2002: RMB3,800 thousands) which is recorded into profit and loss. 32. Related Transaction (a) Name of related companies and their relationship Name Relationship Anhui Gujing Group Co., Ltd. Controlling shareholder Anhui Gujing Comprehensive Service Company Subsidiary of controlling shareholder Bozhou Zhenlihengbao Co., Ltd. Subsidiary of controlling shareholder Gujing Tianshi Printing Co., Ltd. Subsidiary of controlling shareholder Anhui Gujing Xuedi Beer Co., Ltd. Subsidiary of controlling shareholder - ５５ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Bozhou Gujing Printing Co., Ltd. Subsidiary of controlling shareholder (b) Significant Related Transaction Detailed information of significant related transactions: (All accounts expressed in thousands of RMB) 2003 2002 Commodity sales Anhui Gujing Xuedi Beer Co., Ltd. 202 - Gujing Tianshi Printing Co., Ltd. 144 - 346 - Commodity purchase Anhui Gujing Comprehensive Service Company 50,539 37,809 Bozhou Gujing Printing Co., Ltd. 316 - Bozhou Zhenlihengbao Co., Ltd. 639 247 Gujing Tianshi Printing Co., Ltd. 14,173 14,624 65,667 52,680 Transaction price is in accordance with contract price and contract price is determined by the management of the Company according to market price. Service cost paid to Anhui Gujing Group Co., Ltd. 6,000 6,000 According to agreement, as Gujing Group provides service facilities such as hospital, school, etc., the Company should pay service cost of RMB6,000 thousands annually starting from January 1, 2000. (All accounts expressed in thousands of RMB) 2003 2002 Account receivable from related part - Anhui Gujing Xuedi Beer Co., Ltd. 161 - - Gujing Tianshi Printing Co., Ltd. 44 35 205 35 Account payable to related party - Bozhou Zhenlihengbao Co., Ltd. 296 22 - Gujing Tianshi Printing Co., Ltd. 3,338 1,146 - Bozhou Gujing Printing Co., Ltd. 143 - - Gujing Group 133 13,760 - Anhui Gujing Comprehensive Service Company - 2,457 3,910 17,385 Amount payable to Anhui Gujing Group Co., Ltd. has no mortgages, nor fixed payment date. (c) Guarantee Up to December 31, 2003, Gujing Group provided a guarantee of RMB44,000,000 (referring to year of 2002: RMB44,000,000) to the Company for long-term bank loan. Remuneration paid to directors and senior administrators Remuneration of directors and other key members of the management were paid as follows: (Accounts expressed in thousands of RMB) 2003 2002 Salary 624 879 33. Approval of Financial Statement The financial statement was passed and approved for disclosure by the board of directors on April 12, 2004. Supplementary Information 1. Impact of changes in international financial statement guidelines on profit after tax (All accounts expressed in thousands of RMB) Profit after tax Net assets 2003 2002 2003 2002 Amount of statutory financial statement 20,430 47,045 1,183,243 1,184,910 Establishment expense of subsidiary recorded into cost (693) - (693) - Income from sales of subsidiary 1,403 - - - - ５６ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2003 (B SHARE) Amount of international financial statement 21,140 47,045 1,182,550 1,184,910 Chapter XI. References 1. Accounting Statement signed and sealed by legal representative, principal in charge of accounting and principal of accounting institution. 2. Original Audit Report bearing a seal of public accounting firm and signature of public certified accountant. 3. Original company documents and notices published during report period on newspapers designated by China Securities Regulatory Commission. Anhui Gujing Distillery Company Limited April 12, 2004 - ５７