宁通信B(200468)宁通信Ｂ2003年年度报告（英文版）

Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report (Based on IFRS) Important Note The Board of Directors and Directors of the Company hereby confirm that there are no factitious record, misleading statements or material omission in the information carried in this report, and collectively and individually accepts full responsibility for the truthfulness, accuracy and completeness of the whole contents. The Company’s Legal Representative Huang Zhiqin, General Manager Li Weide, and Associate Chief Accountant Shi Lian hereby confirm that the financial report in this report is truthful and complete. This report is prepared both in Chinese and in English. In case of any inconsistency between the two versions, the Chinese version should prevail. -1- Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Contents I. Company Profile ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 3 II. Financial & Operating Highlights ┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 3 III. Share Capital Variation & Shareholders Introduction ┄┄┄┄┄┄ 5 IV. Directors, Supervisors, Senior Management & Employees┄┄┄┄ 7 V. Corporate Governance Structure┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 10 VI. Highlights of Shareholders General Meetings ┄┄┄┄┄┄┄┄┄ 11 VII. Report of the Board of Directors ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 12 VIII. Report of the Supervisory Committee ┄┄┄┄┄┄┄┄┄┄┄┄ 21 IX. Significant Events ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 23 X. Financial Report ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 25 XI. Documents for Inspection ┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄┄ 26 Attached Financial Statement and notes ┄┄┄┄┄┄┄┄┄┄┄ 27 -2- Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report I. Company Profile 1. Company’s Legal Chinese Name: 南京普天通信股份有限公司 Company’s Legal English Name: Nanjing Putian Telecommunications Co., Ltd. 2. Legal Representative: Mr. Huang Zhiqin 3. Secretary of the Board of Directors: Mr. Xiao Zhaokai Address: No. 1 Putian Road, Qinhuai District Nanjing Telephone: 86-25-52418518-2278,86-525-52409954 Fax: 86-25-52409954 Email Address: securities@postel.com.cn Securities Affairs Representative: Mr. Shi Lian Address: No. 1 Putian Road, Qinhuai District Nanjing Telephone: 86-25-52418518-2258 Facsimile: 86-25-52409954 Email Address: sl@postel.com.cn 4. Registered Address: No. 58 Qinhuai Road, Jiangning Economics and Technology Development Zone, Nanjing, Jiangsu Province PRC Business Address: No. 1 Putian Road, Qinhuai District Nanjing Postal Code: 210012 Web Site: www.postel.com.cn Email Address: securities@postel.com.cn 5. Appointed Newspaper for Company Information Disclosure: Securities Times & Hong Kong Ta Kung Pao Appointed Web Site for Annual Report Publication: www.cninfo.com.cn Annual Report Prepared At: Financial & Securities Department 6. Listing and Trading Place of Company stock: Shenzhen Stock Exchange Stock Abbreviation: Ning Tong Xin B Stock Code: 200468 7. Latest Registration Date: 28 May, 1999 Registered At: State Administration For Industry and Commerce Legal person operating license Qi Gu Su Zong Zi No. 000225 registration code: Taxation Registration Code: 320121134878054 Appointed Auditor: Price WaterHouseCoopers Zhong Tian CPAs Co., Ltd. Auditor’s Business Address: 12th Floor Shui On Plaza 333, Huaihai Zhong Road, Shanghai II.Financial & Operating Highlights 1. Financial data for 2003(RMB’000) Profit Before Taxation 13,922 Net Profit 12,068 Profit After Deducting Non-recurrent profit/loss 1,234 Gross profit 181,984 Profit for Other Businesses 7,096 -3- Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Operating Profit 30,630 Subsidy Receipt 1,091 Net Cash Generated from Operating Activities 53,813 Increase of Cash and Cash Equivalent 29,187 Note 1:Deducted non-recurrent profit/losses are: Net income from disposal of fixed assets 6,867 Items included in Other Operating Income 394 Items included in Other Operating Expenses -1,369 Subsidy Receipt 1,091 Profit from sales of long-term investment 3,983 Income tax involved -132 In total 10,834 Note2: Explanation of discrepancy as audited under CAS and IFRS (RMB’000) Net assets at Net profit for 2003 31 December 2003 Per PRC accounts 2,517 378,646 Adjustments for IFRS accounts: Remeasurement of financial assets and financial liabilities in accordance with International Accounting Standard 39 9,551 (12,281) Per IFRS accounts 12,068 366,365 2. Main financial data for the recent 3 years: Financial Indicators 2003 2002 2001 Turnover(RMB’000 yuan) 818,647 625,872 753,608 Net Profit(RMB’000 yuan) 12,068 -55,213 2,383 Total Assets(RMB’000 yuan) 1,026,102 963,925 1,035,535 Shareholder’s Equity(excluding minor 366,365 352,120 391,279 shareholder’s equity) (RMB’000 yuan) Earnings Per Share(yuan) 0.056 -0.257 0.011 Net Assets Per Share(yuan) 1.704 1.638 1.82 Net Cash Per Share Generated from 0.250 0.401 -0.01 Operating Activities(yuan) Return On Net Assets(%) 3.29% -15.68% 0.61% Note 1: The share capital of the Company kept unchanged from the end of the reporting period to the day when this report is published. Note2: Attached Profit Form Profit for Return On Net Equity（%） Earnings Per Share reporting period Fully diluted Weighted average Fully diluted Weighted average -4- Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Gross profit 49.67% 50.81% 0.8464 0.8464 Operating profit 8.36% 8.55% 0.1425 0.1425 Net profit 3.29% 3.37% 0.0561 0.0561 Net profit after deducting 0.34% 0.34% 0.0057 0.0057 Non-recurrent profit/losses 3. Changes on Shareholders’ Equity during the reporting period (RMB’000) Capital Statutory and Statutory Exchange Share accumula discretionary welfare Translation Other Retained Shareholder’s Item capital tion fund accumulation fund reserve reserves earnings equity in total fund At 215,000 165,531 16,331 10,253 -58 115 -55,052 352,120 year-beginning Increase 2,133 616 308 44 14,720 17,821 Decrease 1,731 921 924 3,576 At year-end 215,000 167,664 15,216 9,640 -14 115 -41,256 366,365 Increase of capital accumulation fund was due to: (1) share of waived debts of an associate company, i.e., share of capital surplus recognized by an associate due to debts by its investors, (2) negative goodwill arising on consolidation. Increase of statutory and discretionary accumulation fund as well as statutory welfare fund resulted from proposed appropriation of the foresaid fund for the year. Increase of retained earnings resulted from net profit realized for the year and disposal of subsidiaries, while decrease of it resulted from proposed appropriation of Statutory and discretionary accumulation fund and statutory welfare fund. III. Share Capital Variation & Shareholders Introduction 1. Share Capital Variation (1)Change of the share composition Changes in the period Year-beginni Placed Bonus Shares transferred Sub Year-end ng other shares shares from capital shares -total Un-listed shares 1.Promoter 115,000,000 115,000,000 shares Including: State-owned 115,000,000 115,000,000 shares Domestic legal person shares Foreign legal person shares Other 2.Placement legal person shares -5- Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report 3.Employee’s shares 4.Preference shares and other Un-listed shares 115,000,000 115,000,000 in total Listed shares 1. RMB ordinary shares 2.Domestically-li 100,000,000 100,000,000 sted foreign shares 3.Overseas listed foreign shares 4.Other Listed shares in 100,000,000 100,000,000 total Total shares 215,000,000 215,000,000 (2)Stock issuing and listing in the last three years The Company did not issue shares in the last three years ended by 2002. 2. Shareholders introduction (1) As at 31st December 2003, the Company had 18575 shareholders, including 1 state-owned legal person shareholder and 18574 B- shareholders. (2) Top ten shareholders and top at year-end Shareholder Shares held +/-Shares Mortgaged or Order Shareholder Ratio in the year type at year-end frozen shares China Putian Unlisted 1 115,000,000 53.49% 0 0 Corporation state-owned Share 2 Wang Xuanxuan Circulating B-share 1,066,868 0.50% 455,531 Unknown 3 Yin Xiao’e Circulating B-share 643,903 0.30% 11,300 Unknown Shanghai Hongkong 4 Circulating B-share 538,600 Unknown Wangou Securities 0.25% 311,800 5 Chen Genhao Circulating B-share 502,000 0.23% 402,000 Unknown 6 He Kebing Circulating B-share 383,400 0.18% Unknown Unknown 7 Chen Yik Kian Circulating B-share 360,000 0.17% Unknown Unknown 8 Li Yi Circulating B-share 351,837 0.16% Unknown Unknown 9 Ye Zhuanyou Circulating B-share 322,900 0.15% 0 Unknown 10 Wong Lai Circulating B-share 308,600 0.14% Unknown Unknown 11 Xu Bingnan Circulating B-share 280,000 0.13% 0 Unknown Note: The shareholders from No. 2 to No. 11 were the largest ten shareholders with the Company’s circulating shares. Among the top ten shareholders, China Putian isn’t a related party to the others. It’s not known by the Company whether there are related parties among the top ten shareholders of circulating shares. -6- Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report The Company does not know whether there are related parties among the top ten shareholders of circulating shares. (3) Introduction of holding company: Company name: China Putian Corporation Company type: state-owned sole enterprise Legal representative: Xing Wei Date of Corporation: 1980 Scale of business: develop and manufacture various communications equipment such as large-scale digital program-controlled switchboard, GSM and CDMA mobile telecommunication equipment and mobile phone, IP serial products, micro-wave telecommunication equipment, optical telecommunication equipment, optical and electric telecommunication cable, communication power supply, distribution equipment, IC phone, multi-media computer terminal, fax machine, postal mechanic and so on; engage in contract for international and domestic telecommunication project, engage in technical and economic business such as cooperation, technology introduction, import and export of relevant products. It was originally named ”China Posts and Telecommunications Industry Corporation” under the Ministry of Posts and Telecommunications and the Ministry of Information Industry. At the end of 1998 it became a large-scale enterprise directly subordinate to the central government. During the reporting period the holding company kept unchanged. IV. Directors, Supervisors, Senior Management & Employees 1. Directors, supervisors and senior management (1) Profile Whether shares receive term of shares held at name sex age Position held at payment in office year-beginning year-end the Company Huang Jun 2003 Male 42 Chairman of BOD 0 0 No Zhiqin -Jun 2006 Vice Chairman of Jun 2003 Li Weide Male 56 BOD, General 0 0 Yes -Jun 2006 Manager Jun 2003 Cao Bin Male 47 Director 0 0 No -Jun 2006 Jun 2003 Director 0 0 No Jiang -Jun 2006 Male 48 Haishan Assistant General Jun 2003 0 0 Yes Manager -Jun 2006 Wang Jun 2003 Female 53 Director 0 0 No Lili -Jun 2006 Wu Male 32 Director Jun 2003 0 0 No -7- Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Xiaohua -Jun 2006 Shi Independent Jun 2003 Male 48 0 0 Yes Jianjun Director -Jun 2006 Yang Independent Jun 2003 Male 41 0 0 Yes Zhen Director -Jun 2006 Yu Independent Jun 2003 Honglia Male 49 0 0 Yes Director -Jun 2006 ng Chairman of the Wang Jun 2003 Male 53 Supervisory 0 0 No Jiaqiang -Jun 2006 Committee Jiang Jun 2003 Male 35 Supervisor 0 0 No Kun -Jun 2006 Shi Jun 2003 Male 53 Supervisor 0 0 Yes Xinhua -Jun 2006 Sun Assistant General Jun 2003 Male 46 0 0 Yes Qiang Manager -Jun 2006 Jiang Assistant General Jun 2003 Male 41 0 0 Yes Hanbin Manager -Jun 2006 Liu Jun 2003 Male 49 Director 0 0 Yes Chuanxi -Jun 2006 Yuan Assistant General Jun 2003 Male 40 0 0 Yes Yong Manager -Jun 2006 Zou Assistant General Jun 2003 Dezhon Male 43 0 0 Yes Manager -Jun 2006 g Wang Assistant General Aug 2003 Male 32 0 0 No Pengfei Manager -Jun 2006 Xiao Jun 2003 Male 38 Secretary of BOD 0 0 Yes Zhaokai -Jun 2006 (2) Directors and supervisors working for the Company’s shareholders Name Company Position Office Term Huang Zhiqin China Putian Vice President Since Dec 2001 Cao Bin China Putian General Manager of Technology & Quality Since Nov 2001 Department Wu Xiaohua China Putian Assistant General Manager of Strategy & Since Jul 2003 Development Department Wu Xiaohua China Putian Assistant to General Manager of Strategy & Since Dec 2001 Development Departemtn Wang Lili China Putian Senior Researcher of Technology & Quality Since Dec 2001 Department Wang Jiaqiang China Putian General Manager of Financial Department Since Nov 2001 Jiang Kun China Putian Assistant General Manager of Capital Since Jun 2003 Administration Department (3) Annual remuneration ①How directors, supervisors, and senior management’s remuneration are decided and paid: Presently, the directors(except independent directors) and supervisors are not paid by the Company. Those directors or supervisors who hold the administrative positions in the Company receive remuneration according to their administrative posts. The senior management’s remuneration level, which is assessed by the Remuneration & -8- Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Assessment Committee of BOD and is subject to the approval of the BOD, is made up of three parts including fundamental salary, post salary and performance salary. The BOD evaluate the senior management’s performance in light of operating results and accordingly determine their remuneration. Independent directors receive allowance from the Company summed at the standard set by the shareholder’s general meeting. ② In 2003, a total of RMB835,147 was paid to those directors, supervisors and senior management who received remuneration from the Company, 9 persons in total, including RMB185,475 to the two executive directors and RMB375,156 to the three senior managers with highest remuneration. ③ There are nine persons receiving remuneration from the Company among the directors, supervisors and senior management, including one person with an annual remuneration below RMB70,000, five persons between RMB70,000 to RMB90,000 and three persons over RMB90,000. ④ As approved by the shareholders general meeting held on 20 June 2003, the independent directors receive an allowance at the standard of RMB30,000 (before-tax) for each person every year. ⑤ The directors and supervisors who do not receive remuneration from the Company are: Mr. Hang Zhiqin, Mr. Cao Bin, Mr. Wu Xiaohua, Ms. Wang Lili, Mr. Wang Jiaqiang, Mr. Jiang Kun and Mr. Wang Pengfei. They all receive remuneration from the controlling shareholder, China Putian Corporation. (4) Appointment and resignation of the directors, supervisors and senior management in the reporting period An election for new board members and supervisors at the expiration of their office term was held in 2002 Shareholders General Meeting on 20 June 2003. Mr. Huang Zhiqin, Mr. Li Weide, Mr. Cao Bin, Mr. Wang Lili, Mr. Wu Xiaohua were elected as Directors of the Third BOD. Mr. Shi Jianjun, Mr. Yang Zhen and Mr. Yu Hongliang were elected as Independent Directors of the Third BOD. Mr. Wang Jiaqiang, Mr. Jiang Kun, together with Mr. Shi Xinhua who was chosen by the Staff Representative Conference as delegate of the staff, were elected to the Third Supervisory Committee. Mr. Zhou Zhenkai, Mr. Liu Chuanxi, Mr. Dai Yuanfang and Mr. Zhang Xiaoqiang who were members of the Second BOD, would not hold the position any more. As approved by the First Meeting of the Third BOD on 20 June 2003, Mr. Huang Zhiqin was elected as Chairman of the BOD, Mr. Li Weide was elected as Vice Chairman of the BOD. And appointed as General Manager of the Company. Mr. Xiao Zhaokai was appointed as Secretary of the Third BOD. Mr. Jiang Haishan, Mr. Sun Qiang, Mr. Jiang Hanbin, Mr. Liu Chuanxi, Mr. Yuan Yong and Mr. Zou Dezhong were appointed as Assistant General Manager of the Company. As approved by the Second Meeting of the Third BOD on 24 August 2003, Mr. Wang Pengfei was appointed as Assistant General Manager of the Company. 2. Employees of the Company At the end of 2003, the Company had 1,724 employees. A breakdown by job duties of the employees is as follows: -9- Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Technology 301 Production 573 Sales 345 Services 237 Administration 268 A breakdown by educational level is as follows: University degree and above 356 Technical secondary school 210 College 449 High school and below 709 The Company has 609 retired employees, whose expenses are mainly borne by the social security fund. V. Corporate Governance Structure 1. Present state of the Company’s management The Company has been working hard to improve its legal person governance structure to standardize its operation in accordance with the requirements of the PRC Company Law, Securities Law and China Securities Regulatory Commission (CSRC). During the reporting period, the BOD set up three special committees under it, namely the Strategy Committee, the Audit Committee and the Remuneration & Assessment Committee. Each committee has worked out detailed working rules. Besides, the Company made revision to the Rule of Information Disclosure and formulated Rules of Guarantee Offering and Rules of Investor Relationship, further perfecting its internal control system. Pursuant to Guidelines On Establishing Independent Director System in Listed Companies promulgated by CSRC, during the reporting period the Company appointed one more independent director at the expiration of the office term of the second BOD, boosting independent directors’ proportion in the BOD to 1/3. 2. Independent directors’ working performance The Company has engaged three independent directors by now. Ever since taking the post, the independent directors carefully attended the board meetings and shareholder meetings held in the reporting period, participated actively in making important decision of the Company, and presented independent opinion on the Company’s related transactions and guarantees rendered to other parties, performing their duties conscientiously from the point of protecting the minor investors’ interests. 3. “Five Separates” with the holding company (1) Personnel: The Company established independent laboring and salary management system. All of the senior management receive remuneration from the Company except Assistant General Manager Mr. Wang Pengfei, who is working as Assistant to President of China Putian Corporation, the Company’s controlling shareholder. Mr. Wang Pengfei was appointed as Assistant General Manager by the BOD in August 2003 to take the post temporarily. He receives compensation from China Putian Corporation. (2) Assets: The assets of the Company are clearly separated with the holding company on ownership, subject to no impropriation or interferences from the latter. (3) Finance: The Company has established independent financial department and - 10 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report financial control policies. The control company did not interfere the Company on using its own fund. (4) Organization: The Company has an all-round system of internal organizations such as the Board of Directors and Supervisory Committee, who can all perform their duties independently. (5) Business: The Company does its business independent on its ultimate controlling and related companies. 4. Establishment and implementation of assessment and incentive system for the senior management The Company has established an elementary assessment and incentive system for senior management in the reporting period. The senior management held themselves responsible to the BOD and were assessed by the Remuneration & Assessment Committee according to the Company’s audited financial data pursuant to the agreed remuneration and assessment project. VI. Highlights of Shareholders General Meeting In the reporting period the Company held two Shareholders General Meetings. 1. 2002 Shareholders General Meeting The 26th Meeting of the Second BOD decided to hold the meeting, and published the meeting notice and deferment notice on the Securities Times and Ta Kung Pao on 19th April and 15th May 2003. On 20 June 2003, the Company’s 2002 Shareholders General Meeting was held in the Company’s boardroom at No. 1 Putian Road, Qinhuai District, Nanjing. One state-owned legal person shareholder, representing 115,000,000 shares, and one B-shareholder proxies, representing 183,900 shares, were present at the meeting, represented a total of 115,183,900 shares, or 53.57% of the Company’s share capitals. The meeting was presided by Chairman of BOD, Mr. Huang Zhiqin, and passed the following proposals, including: (1) 2002 Annual Report of the Company (2) 2002 Work Report of the Board of Directors (3) 2002 Work Report of the Supervisory Committee (4) 2002 Work Report of General Manager (5) 2002 Financial Report (6) 2002 Profit Distribution Plan: no dividends shall be declared and no capital accumulation fund shall be transferred into share capital for 2002. (7) Electing the Third BOD members: Mr. Huang Zhiqin, Mr. Lie Weide, Mr. Cao Bin, Mr. Jiang Haishan, Mr. Wu Xiaohua and Ms. Wang Lili were elected as Directors of the Third BOD. Mr. Shi Jianjun, Mr. Yang Zhen and Mr. Yu Hongliang were elected as Independent Direcots of the Third BOD. (8) Electing the Third BOD members: - 11 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Mr. Wang Jiaqiang, Mr. Jiang Kun and Mr. Shi Xinhua were elected as the third Supervisroy Committee members. (9) Paying allowance to Independent Directors The announcement of the meeting was published on Securities Times and Ta Kung Pao on 21 June 2003. 2. The First Extempore Shareholders General Meeting of 2003 The Third Meeting of the Second BOD decided to hold the meeting, and published the meeting notice notice on the Securities Times and Ta Kung Pao on 30 September 2003. On 30 October 2003, the Company’s 2003 First Extempore Shareholders General Meeting was held in the Company’s boardroom at No. 1 Putian Road, Qinhuai District, Nanjing. One state-owned legal person shareholder, representing 115,000,000 shares, and two B-shareholder proxies, representing 294,400 shares, or 53.625% of the Company’s sharecapital, were present at the meeting, which is conforming to the Articles of Association. The meeting was presided by Vice Chairman of the BOD Li Weide under authorization of President Huang Zhiqin., and passed the proposal of signing a Purchase Contract with Shenzhen Putianlingyun Electric Co., Ltd. , a related party of the Company, to be its regional sales agent. According to the agreement, the Company will be authorized as a regional sales agent of Putianlingyun to sell its PHS phone and thus purchase its product for less than 0.12 Billion Yuan and 0.15 Billion Yuan in 2003 and year next. Whereas both the Company and Shenzhen Putianlingyun Electric Co., Ltd. are subsidiaries of China Putian Corportion, China Putian Corporation gave up its right to vote on this proposal in the meeting as a related party whose interest was concerned. The announcement of the meeting was published on Securities Times and Ta Kung Pao on 31 October 2003. VII. Report of the Board of Directors 1. Analysis of the Company’s operating position in the reporting period During the reporting period, the Company was still faced with serious marketing condition and intensified competition. Against various difficulties and challenges, the Company adhered to the guideline of “taking concrete steps, working harder to bring about an upswing in 2003” and adopted diversified measures including quickening product mix restructure, reinforcing market exploration, speeding up development of new products and strengthening overall internal management. As a result, the Company realized revenue of 818,647,000 yuan and net profit of 12,068,000 yuan, succeeding in achieving the operating goal set at the beginning of the year. 2. Main business of the Company (1) Introduction of main business The Company is mainly engaged in manufacture, sales and after sales services of data communications products, wiring communications products, wireless - 12 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report communications products, distribution frame products as well as multi-media computers and relevant products. The Company realized turn over of 818,647,000 yuan in 2003, 30.80% up from last year, and gross profit of 181,984,000 yuan, 23.16% up from last year. (2) Composition of turn over( RMB’000) By industry: Industry Sales Cost Telecommunications 691,862 556,689 Electric appliances 101,107 77,317 By products: Product Sales Cost Distribution frame 263,623 180,687 Network products 257,013 213,218 Wireless products 171,226 162,785 Electric products 101,107 77,317 By region: Region Sales Cost North China 245,128 192,217 East China 219,788 167,639 Other regions 353,732 275,361 (3) Operating results of main subsidiaries and associated companies in 2003 (yuan) ① Main subsidiaries Company’s Registered Subsidiary Main business Total assets Turnover Net profit equity capital Nanjing Nanfang Manufacture and sales Telecommunications 100% of data communication 33,175,147 143,153,849 141,548,609 (7,287,132) Company Ltd. equipment Nanjing Hongyan Electric Manufacture and sales 74% - - 26,407,693 (211,430) Appliances Company of electric products Nanjing Putian Manufacture and sales Smart-building Technology 81.934% of intelligent building 12,000,000 63,875,705 81,250,744 5,495,259 Company system Beijing Pi-com Network electronic Telecommunications 51% products, digital US $ 500,000 80,104,985 30,319,554 (1,448,230) Equipment Ltd. transmission system Nanjing Putian Hongyan Electric appliances, Electric Appliance 65% telecommunication US$ 1,930,000 69,949,697 76,003,805 2,871,664 Company parts Nanjing Putian Network Manafucture and sales 89% 10,000,000 17,124,742 9,547,892 (2,331,208) Company Ltd. of network equipment ② Associated companies which contributing more than 10 percent of the Company’s net profit. Investment Equity of the Registered Company Main business Net profit Income to the Company capital Company Nanjing Postel Wong Zhi Manufacture and 90,000,000 Telecommunications 34% sales of CMMA -1,288,228 -437,998 ($10,900,000) Co., Ltd mobile phone - 13 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Data Xishan Putian communications, 49% 20,000,000 -3,241,260 -1,588,217 Information Network Ltd. vocal transmission, internet services Nanjing Putian Changle Telecommunication Telecommuncations 49% s Equipment 5,000,000 2,633,295 1,290,315 Equiment Ltd. manufacture (4) Main suppliers and customers In 2003, the Company’s purchase from the top five suppliers accounted for about 47.83 percent of the total amount, and sales to the top five customers accounted for about 14.57percent of the total amount. (5) Difficulty in operation In 2003, faced with the unfavorable condition of the telecommunications industry’s slowing down and intensified competition, the Company mainly adopted the following measures: 1) strengthen industry restructuring and enterprise reform and restructure; 2) strengthen marketing network construction, striving to promote market shares; 3) speed up development of new products and technical innovation; 4) strengthen fundamental management in all respects; 5) strengthen talent fostering. In the coming new year, the Company needs to do more work on enterprise restructure and reform, fostering new economic growth point, and improving financial condition. 2. Investment in reporting period (1) Use of proceeds from share issuing The Company did not raise any proceeds by issuing shares in the reporting period or use proceeds raised in previous periods. (2) Other investment in report period ① As approved by the 24th meeting of the Second BOD on 31 January 2003, the Company reinvested 100,000 dollars in Nanjing Menneks Electric Appliances Ltd., which had had registered capital of 2 million dollars with 50% equity owned by the Company. The other shareholder, Germany Menneks Electric Appliances Ltd., which held the rest 50% equity, also increased 100,000 dollars to the company. After the reinvestment, Nanjing Menneks Electric Appliances Ltd. increased its registered capital to 2.2 million dollars. ② Nanjing Hongyan Electric Appliances Ltd. and Nanjing Putian Hongyan Electric Appliances Ltd. were two subsidiaries of the Company, with registered capital of RMB 11.97 million and USD 0.4 million (RMB 3.31million), and a 74% and 65% stake held by the Company respectively. Because the business term of Nanjing Hongyan Electric Appliances Ltd. expired in March 2003, the Company reinvested with the assets allotted in liquidation of the subsidiary into Nanjing Putian Hongyan Electric Appliances Ltd. together with the other shareholders, increasing its registered capital to 1.93 million dollars (16 million yuan), with a 72% stake held by the Company. - 14 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report ③ Nanjing Postel Wong Zhi Telecommunications Co., Ltd. is an associated company of the Company with 34% holdings. At the end of 2002, it had registered capital of 50 million yuan. As approved by the 11th Meeting of the Second BOD on 22 January 2002, in the reporting period the Company reinvested RMB13,622,843 (USD1.65 million) into it together with the other shareholders who also made the additional investment according to their stake in it. After the reinvestment, the company’s registered capital was increased to USD10.9 million, with each shareholder’s equity unchanged. 3. Analysis on financial position and operating results (RMB’000) Increase/ Item 2003 2002 +/-(%) Main reason of increase/decrease decrease Total assets Increase of long-term investment and current 1,017,456 962,347 55,109 5.73% assets Shareholder’s Profit realized for the year, proposed profit 345,513 336,096 9,417 2.80% equity appropriation for the year by subsidiaries Increase of Increase of net cash generated in investment and cash and cash 29,187 -88,309 117,496 133.05% financing activities equivalents Gross profit 181,984 147,763 34,221 23.16% Decrease of sales income over last year Subsidy receipt Granted subsidy for a technical renovation project 1,091 5,153 -4,062 -78.83% last year Net profit Increase of sales income, growth of income from 7,240 -55,213 62,453 -113.11% subsidiaries, profit from sale of long-term investment 4. Work plan for next year The information and telecommunications industry is experiencing gradual recovering development after the overall restructuring in the last 2 or 3 years. However, the competition is also becoming more and more intensified. The Company is determined to grasp this opportunity and do the following work in the next year to ensure the annual operating target to be fulfilled: (1) Strengthen the development of the Company’s four main industries to ensure the Company to develop in a sustainable, rapid and healthy way: After years of industry restructuring, the Company has developed into a corporation focusing on four major industries including Distribution Frame Industry, Internet Industry, Wireless Industry and Electric Industry. Next the Company will make more investment in these industries and promote their market shares, striving to achieve make more awards in every field to ensure the fulfillment of operating goal. (2) Strengthen corporation restructuring and enterprise reform to promote the vitality of the Company The Company will go on to improve its modern-enterprise system to establish a standardized legal person governance structure. It will do more work on the restructuring of the subsidiaries and internal reform to promote the enterprise’s competitiveness. (3) Strengthen standardized management to ensure the Company to develop in a healthy way The Company will further standardize management in respect of decision making on investment, contract evaluation, overall budget, technology and product quality in order to control investment risk and reduce cost and expenses, thus enhancing the enterprise management level. (4) Open wider to the outside world, strengthen capital operation, and actively - 15 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report implement the development strategy of “promoting export while absorbing foreign investment and technology ”. The Company will actively explore the overseas market while introducing foreign technology and fund, and strengthen capital operation and strategy management. (5) Strengthen human resources management, build excellent enterprise culture, promote the overall quality of the Company staff. The Company, which is attempted to build a high-qualified team of staff to promote its competitiveness on talents, will continue to strengthen employee training, introduce highly qualified personnel, perfect the system of selecting the best while laying off the last, and build favorable corporate culture. 6. Routine work of the Board of Directors (1) Meetings and resolutions of BOD during the reporting period Eleven board meetings were held during the reporting period. 1) On 13 January 2003, the Company held the 23rd Meeting of the Second BOD, which considered and approved the proposal of rendering guarantee for a 5 million bank loan to its controlled subsidiary Beijing Picom Telecommunications Ltd. 2) On 31 January 2003, the Company held the 24th Meeting of the Second BOD, which considered and approved the proposal of making an additional investment of $100,000 to its subsidiary Nanjing Menneks Electric Appliance Ltd. 3) On 7 April 2003, the Company held the 25th Meeting of the Second BOD, which considered and approved the proposal of transferring 3.74% equity of Nanjing Dongda Wideband Technology Ltd. and 50% equity of controlled subsidiary Nanjing Yuhua Electroplating Factory. 4) On 17 April 2003, the Company held the 26th Meeting of the Second BOD, on which the following proposals were considered and approved: A. 2002 Work Report of the Board of Directors B. 2002 Work Report of General Manager C. 2002 Financial Report D. 2002 profit distribution preplan E. 2002 Annual Report and summary F. Proposal of nominating candidates of the Third Board of Directors: G. The proposal of paying allowance to independent directors: It’s decided that independent directors receive an allowance of RMB30,000 for each person every year from the Company. H. The proposal of offering guarantee for the Company’s subsidiaries I. The proposal of holding the Company’s 2002 shareholders general meeting Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 19 April 2003. 5) On 25 April 2003, the Company held the 27th Meeting of the Second BOD, on which - 16 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report the following proposals were considered and approved: A. The 2003 First Quarterly Report of the Company B. The proposal of integrating two subsidiaries named Nanjing Putian Hongyan Electric Appliances Company and Nanjing Hongyan Electric Appliances Company Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 27 April 2003. 6) On 14 May 2003, the Company held the 28th Meeting of the Second BOD, which considered and approved the proposal of deferring 2002 Shareholders General Meeting. 7) On 20 June 2003, the Company held the first Meeting of the Third BOD, which considered and approved the following proposals: A. Electing Mr. Huang Zhiqin as Chairman of the Third BOD, and electing Mr. Li Weide as Vice Chairman of the Third BOD B. Appointing Mr. Li Weide as General Manager of the Company, and appointing Mr. Xiao Zhaokai as secretary of the Third BOD C. Appointing Mr. Jiang Haishan, Mr. Sun Qiang, Mr. Jiang Hanbin, Mr. Liu Chanxi, Mr. Yuan Yong and Mr. Zou Dezhong as Assistant General Manager of the Company D. The proposal of setting up three special committees of the BOD, namely the Strategy Committee, the Audit Committee, and the Remuneration & Assessment Committee. E. Detailed working rules for the three committees aforesaid F. Rules of Company Information Disclosure G. Rules of Guarantee Offering Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 21 June 2003. 8) On 24 August 2003, the Company held the 2nd Meeting of the Third BOD, which considered and approved the following proposals: A. General Manager’s report on reviewing the operation in the first half of 2003 and arrangement on work in the next half year B. The Company’s financial report for the first half year C. Profit distribution plan for the first half of 2003: it’s decided no dividend be declared, nor capital reserves be transferred to share capital D. 2003 Semi-annual Report of the Company and Summary E. The proposal of appointing Mr. Wang Pengfei as Assistant General Manager of the Company Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 26 August 2003. 9) On 25 September 2003, the Company held the 3rd Meeting of the Third BOD, which considered and approved the following proposals: A. The proposal of selling the Company’s idle house property located at No.187-191 Shengzhou Road, Nanjing B. The proposal of transferring 20.8% equity of the subsidiary Nanjing Putian Hongyan - 17 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Electric Appliances Company C. The proposal of signing a general contract with the related party to be authorized as its sales agent D. The proposal of holding the First Extempore Shareholders General Meeting of 2003 10) On 23 October 2003, the Company held the 4th Meeting of the Third BOD, which considered and approved 2003 Third Quarterly Report of the Company. 11) On 19 November 2003, the Company held the 5th Meeting of the Third BOD, which considered and approved the following proposals: A. the proposal of increasing 8.533% equity of the Company’s holding subsidiary Nanjing Putian Smart-building Technology Ltd. B. the proposal of transferring 8.02% equity of Nanjing Dongda Wideband Technology Ltd. 7. Profit distribution preplan for the year The Company realized net profit of 7,240 thousand yuan for 2003. Plus the accumulated losses by last year, it had accumulated losses of 46,084 thousand yuan by the end of 2003. According to this fact, the Board of Directors advised that no dividends be declared for 2003, and that no capital accumulation fund be transferred into share capital. 8. Specific illustration on capital occupation by the controlling shareholder and other related parties To the Board of Directors of Nanjing Putian Telecommunications Co., Ltd. PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. (“we”) have accepted the appointment to audit the consolidated and the parent company’s balance sheet of the Company and its subsidiaries as at 31 December 2003 and the related consolidated and the parent company’s income and cash flow statements for the year then ended. Our audit was conducted in accordance with China Certified Public Accountants’ Independent Auditing Standards. Unqualified report of the auditors ( PwC ZT Shen Zi (2004) No. 840) has been issued on 9 April 2004. According to Circular on Certain Issues Relating to Fund Transfer Between Listed Company and Their Related Parties and Guarantees Provided by Listed Companies ( Zheng Jian Fa [2003] No. 56) jointly issued by the China Securities Regulatory Commission and the State-owned Assets Supervision and Administration Commission, the Company has prepared the accompanying statement on capital occupation by its controlling shareholder and other related parties for the year ended 31 December 2003(“ the statement”). It’s the Company’s responsibility for the fair presentation (accuracy, legality and completeness) of the statement. We have agreed the information on the statement to the - 18 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report accounting records examined during annual audit of the year 2003 and the audited financial statements with no inconsistencies in all material respects have been noted. Except for the audit procedures performed on related party transactions during the annual audit of the year 2003, no additional audit procedures have been performed on the information of the statement. For better understanding of the capital occupation by the controlling shareholder and other related parties of the Company, the accompanying statement should be read together with the audited consolidated financial statement. This specific illustration is only for the disclosure purpose of the capital occupation of the controlling shareholder and other related parties of the Company, and should not be used for any other purposes. Appendix: The statement on capital occupation by the controlling shareholder and other related parties of Nanjing Putian Telecommunication Co., Ltd. Pricewaterhouse Coopers Zhong Tian CPAs Co., Ltd. 9 April 2004 - 19 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report The statement on capital occupation by the controlling shareholder and other related parties of Nanjing Putian Tel Item Name of related Relation with Balance at Balance at Accumulative Reason party the Company 1 January 2003 31 December 2003 amount in capital 2003 occupation Capital - - - - - - - occupation by controlling shareholder Trade Beijing Controlled by 6.54 - - Occupation receivable same parent due Putiantailitong company operating Telecommunications activities Technology Development Company Nanjing Zhongyou Associate 0.95 4.89 3.94 Occupation due Capital Telecommunications company operating occupation Company activities by other Other Associate 11.15 5.00 - Occupation Xishan Putian related receivables company due parties Information Network operating Co., Ltd. activities Prepaid Associate 0.79 - - Occupation Xishan Putian accounts company due Information Network non-operatin Ltd. activities Shenzhen Controlled by - 1.95 1.95 Occupation Putianlingyun same parent due Electric Company company operating activities Amount 19.43 11.84 5.89 - 20 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report 9. Special explanation and independent opinion presented by the Independent Directors on guarantee offered by the Company to other parties at the end of and in the reporting period. Pursuant to Circular on Certain Issues Relating to Fund Transfer Between Listed Company and Their Related Parties and Guarantees Provided by Listed Companies ( Zheng Jian Fa [2003] No. 56) promulgated by CSRC, in the spirit of being practical and realistic, we carefully checked Nanjing Putian Telecommunications Co., Ltd. in respect of offering guarantee to other parties and hereby announce that: According to our examination, the Company has been taking strict measures to control the risk of offering guarantee to other parties in accordance with the requirement of the Articles of Association, and has been undergoing regulated procedures in the conduction of offering guarantee. By now the Company has never offered guaranteesfor the shareholder, any other related parties of the Company, any non-legal-person units, or any individual persons. Neither have the Company’s shareholder or other related parties forced the Company to provide guarantee for others. By 31 December 2003, the Company has never provided guarantee for any parties except controlling subsidiaries. VIII. Report of Supervisory Committee 1. Meetings of the Supervisory Committee during the reporting period The Supervisory Committee held five meetings in the reporting period: (1) On 17 April 2003, the Company held the 10th Meeting of the Second Supervisory Committee, which considered and approved the 2002 work report of the Supervisory Committee, the Company’s 2002 Annual Report and Summary, the Company’s 2002 Financial Report and Profit Distribution Preplan, and the proposal of nominating candidates of the Third Supervisory Committee. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 19 April 2003. (2) On 25 April 2003， the Company held the 11th Meeting of the Second Supervisory Committee, which considered and approved the Company’s First Quarterly Report of 2003. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 26 April 2003. (3) On 20 June 2003, the Company held the 1st Meeting of the Third Supervisory Committee, on which Mr. Wang Jiaqiang was elected as Chairman of the Supervisory Committee. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 21 June 2003. - 21 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report (4) On 24 August 2003, the Company held the 2nd Meeting of the Third Supervisory Committee, which considered and approved the Company’s 2003 Semi-annual Report and Summary. Announcement of the meeting was published on the Securities Times and Ta Kung Pao on 26 August 2003. (5) On 23 October 2003, the Company held the 3rd Meeting of the Third BOD, which considered and passed the Company’s 2003 Third Quarterly Report. 2. Independent opinion presented by the Supervisory Committee (1) The Company’s performance in abiding by the laws in operation The Supervisory Committee inspected and supervised the procedures and resolutions of Shareholders General Meeting and the Board of Directors as well as implementation of Shareholders General Meeting resolution by BOD, senior management’s actions in performing duties and enterprise management mechanism of the Company. The Supervisory Committee believe that the Company was in conformity with the relevant laws, regulations and the Company’s Articles of Association in its operating activities, and underwent legal procedures in decision-making. As far as legal person governance structure, it has established comparatively sound internal control system. The Board of Directors and the administrative management were cautious, careful and conscientious in performing their duties. And no acts of the directors and senior management were observed violating the laws or contrary to the interest of the Company. (2) The Company’s financial position: The Supervisory Committee carefully inspected the financial rules and financial situation of the Company, and believe that the financial sector of the Company could carefully implement the relevant accounting policy of PRC and has worked hard to perfect the internal control system of the Company. The Supervisory Committee believe that the 2003 Accounting Statement gives a true view of the Company’s financial position and operating results in the reporting period, and the 2003 Auditor’s Report as well as the related judgement presented by Pricewaterhouse Coopers is objective and fair. The Supervisory Committee suggest the senior management to take effective measures to control, clarify and deal with the potential risks existing in inventories, accounts receivables and long-term investment so as to reduce losses and promote the quality of the assets. (3) The Company’s transaction in purchasing and selling assets The Company’s transactions in purchasing and selling assets in the reporting period were in line with the principle of sustainable long-term development and were executed at fair prices. No insider deals, actions harmful to certain shareholders’ interest, or loss of the Company’s assets were found. (3) The Company’s related transactions: The Company’s related transactions in the year were executed at market price by - 22 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report regulated procedures according to relevant rules and by normal commercial terms under the rule of fair trade. No actions of harming the interest of the Company were observed by the Supervisory Committee after inspection. IX. Significant Events 1. The Company was not engaged in any lawsuit or arbitration of material importance during the reporting period. 2. Matters related to purchasing assets, selling assets or merging during the reporting period 1）As approved by the 25th meeting of the Second BOD on 7 April 2003, the Company transferred a 50% stake in the subsidiary Nanjing Yuhua Electroplating Factory to the managers and key members of the factory. The transaction, priced at RMB 1.29 million, brought in a net loss of RMB 812,277 to the Company. The factory had had registered capital of 2.8 million yuan, with a 60% stake held by the Company. After the equity transfer, the Company still held a 10% stake in it. 2）As approved by the 25th meeting of the Second BOD on 7 April 2003, the Company transferred a 3.74% equity, or original investment of RMB 700,000 in Nanjing Dongda Wideband Technology Company to the other shareholders. The transaction, priced at RMB 1.05 million, brought in an income of RMB350,000 to the Company. Nanjing Dongda had had registered capital of 18.72 million yuan with a 13.35% stake held by the Company. After the transfer, the Company still held a 9.62% stake in it. 3）As approved by the 3rd meeting of the Third BOD on 25 September 2003, the Company sold the idle house property located at No. 187-191 Shengzhou Road Nanjing. The property, with the book value of 2.196 million yuan, was sold at the price of 12.17 million yuan and brought in a net income of 6.38 million yuan to the Company. 4）As approved by the 3rd meeting of the Third BOD on 25 September 2003, the Company transferred a 20.8% stake in the subsidiary Nanjing Putian Hongyan Electric Appliances Company. The transaction, priced at 7.85 million yuan, brought in a net income of 3,739,209 yuan to the Company. After the transfer, the Company still held a 51.2% stake in it. 5）Nanjing Putian Smart-building Ltd. was a holding subsidiary of the Company. It had had registered capital of 12 million yuan, with a 82.24% stake held by the Company and a 17.76% stake by individual shareholders. As approved by the 5th meeting of the Third BOD on 19 November 2003, the Company was sold 6.1% technology equity in the subsidiary for free by the individual shareholders, and at the same time bought from the - 23 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report latter a 2.433% stake in the subsidiary, or original investment of 292 thousand yuan, at the price of 379.6 thousand yuan. After the equity transfer, the Company held a 90.767% stake, or a 81.934% stake for profit sharing, in the subsidiary, while the individual shareholders held a 9.233% stake, or a 18.066% stake for profit sharing in it. 6）As approved by the 5th meeting of the Third BOD on 19 November 2003, the Company transferred a 8.02% stake, or original investment of 1.5 million yuan in Nanjing Dongda Wideband Technology Company to the other shareholders. The transaction, priced at 2.33 million yuan, brought in an income of 83 thousand yuan to the Company. After the transfer, the Company still held a 1.6% stake in it. Through the foresaid assets selling and transfer, the Company readjusted and improved asset structure and industry structure, which would help the Company to focus on the development of its major industries. These transactions will not affect the continuity of the Company’s operation or the stability of the corporation management. 3. Material related transactions: (1) Material related transactions: As approved by the First Extempore Shareholders General Meeting of 2003, the Company entered into an agreement with Shenzhen Putianlingyun Electronic Ltd., a related party of the Company which is also controlled by China Putian Corporation, to be authorized to sell its PHS phone as its regional sales agent, and accordingly purchased its product totaling to 130,792,530 yuan in the reporting period. The transaction, executed at market price, was a normal operating activity of the Company and will be continued in next year with a max amount of 0.2 billion yuan. (2) Other related transactions: see Notes to the Financial Statements 27 4. Material contracts (1) During the reporting period the Company did not trust, contract or lease assets to other companies or from other companies. (2) Guarantee offering: during the reporting period the Company offered guarantee for the following subsidiaries (million yuan) Type of Warrantee Amount Starting time Ending time Term Note guarantee Joint 10 7.25.2003 7.24.2004 1 year liabilities Nanjing Nanfang Joint 20 12.25.2003 12.24.2004 1 year Telecommunications Company liabilities Joint 10 6.27.2003 6.26.2004 1 year liabilities Joint 3 1.13.2003 7.13.2003 Half year repaid Nanjing Hongyan Electric liabilities Appliance Company Joint 3 3.26.2003 9.26.2003 Half year repaid liabilities Nanjing Putian Hongyan Electric Joint 1 4.30.2003 10.30.2003 Half year repaid Appliance Company liabilities Joint 2 4.22.2003 10.21.2003 Half year repaid liabilities - 24 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Joint 2 11.10.2003 11.10.2004 1 year liabilities Joint 1 10.29.2003 4.29.2004 Half year liabilities Joint 6 10.23.2003 04.23.2004 Half year liabilities Joint 4 9.27.2003 3.27.2004 Half year liabilities Joint 3 8.22.2003 2.22.2004 Half year liabilities Nanjing Putian Smart-building Joint 4 5.28.2003 5.27.2004 1 year Technology Ltd. liabilities Joint 2 2.26.2003 2.26.2004 1 year liabilities Joint 2 5.23.2003 5.23.2004 1 year Nanjing Mennekes Electric liabilities Appliance Ltd. Joint 2 7.30.2003 7.30.2004 1 year liabilities Joint 2 10.21.2003 10.21.2004 1 year liabilities Beijing Picom Joint Telecommunications Equipment 5 1.17.2003 1.16.2004 1 year liabilities Ltd. (3) The Company made no entrust investment during the reporting period. 5. Commitment of the Company or shareholders holding over 5 percent of the share capital During the reporting period, the Company or shareholders holding more than 5 percent of the share capital did not make any commitment. 6. Appointment of Public Accountant The Company continued to appoint Price WaterHouseCoopers Zhong Tian CPAs Co., Ltd. and PricewaterhouseCoopers China Limited as the domestic and foreign auditors. Payment to the auditors: (unit: yuan) 2003 2002 Auditor Audit expense Other expense Audit expense Other expense Domestic auditor 300,000 0 300,000 0 Overseas auditor 700,000 0 700,000 0 Note: (1) Expense for business trip was borne by the auditors themselves. (2)The auditors provided no other services charging fees except audit services for the Company. 7. The Company, the Board of Directors or the directors were not punished by the securities regulatory departments during the reporting period. X. Financial Report 1. Auditor’s report The Company’s 2003 Financial Statements were audited and issued a report with unqualified opinion by Price WaterHouseCoopers Zhong Tian CPAs Co., Ltd. - 25 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. (incorporated in the People's Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Nanjing Putian Telecommunications Co., Ltd. (the “Company”) and its subsidiaries (the “Group”) as of 31 December 2003 and the related consolidated income and cash flow statements for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2003 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Zhong Tian CPAs Co., Ltd. 9 April 2004 2. Financial statements(attached) 3. Notes to the financial statements (attached) XI. Documents for Inspection 1. Original text of accounting statements signed and sealed by legal person representative, financial controller and accountant officer. 2. Original text of Auditor’s Report signed and sealed by Certified Public Accountant with public accountant’s seals on. 3. Original texts of all the files and announcements published on the newspapers appointed by China Securities Regulatory Commission during the reporting period. Nanjing Putian Telecommunications Co., Ltd. 13 April 2004 - 26 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Notes 2003 2002 Sales 3 818,647 625,872 Cost of sales 3 (636,663) (478,109) Gross profit 181,984 147,763 Other operating income 8,611 13,161 Distribution costs (79,417) (66,666) Administrative expenses (79,033) (109,901) Other operating expenses (1,515) (4,454) Operating profit (loss) 4 30,630 (20,097) Finance costs, net 6 (20,235) (23,995) Loss on disposal of subsidiaries 7 (812) (721) Profit on sale of trading investments - 164 Profit from sales of long-term investments 8 4,795 503 Share of loss of associated companies 14 (456) (6,829) Profit (loss) before tax 13,922 (50,975) Tax 9 (2,141) (5,658) Profit (loss) before minority interests 11,781 (56,633) Minority interests 10 287 1,420 Net profit (loss) for the year 12,068 (55,213) Earnings (loss) per share 11 Rmb 0.06 Rmb (0.26) - 27 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2003 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Notes 2003 2002 ASSETS Non-current assets Property, plant and equipment 12 111,149 110,654 Construction in progress 2,753 9,316 Land use rights 13 35,271 35,559 Investments in associated companies 14 35,345 22,241 Intangible assets 15 14,063 19,018 198,581 196,788 Current assets Inventories 16 206,094 178,471 Receivables and prepayments 17 397,122 409,812 Cash and bank balances 18 224,305 178,854 827,521 767,137 Total assets 1,026,102 963,925 - 28 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2003 (continued) (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Notes 2003 2002 EQUITY AND LIABILITIES Capital and reserves Share capital 19 215,000 215,000 Reserves 20 151,365 137,120 366,365 352,120 Minority interests 10 15,820 17,457 Non-current liabilities Long-term bank loan 21 35,000 35,000 Employee housing benefits payable 17,918 20,655 Other non-current liabilities 1,670 842 54,588 56,497 Current liabilities Trade and other payables 22 287,499 247,158 Current tax liabilities 1,029 729 Dividend payable 801 464 Short-term bank loans 23 300,000 289,500 589,329 537,851 Total liabilities 643,917 594,348 Total equity and liabilities 1,026,102 963,925 On 9 April 2004, the Company’s Board of Directors authorised these financial statements for issue. Director Director - 29 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2003 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Year ended 31 December 2002 Statutory and Retain Capital discretionary Statutory Exchange earning surplus surplus public Translation Other (Accumulat reserve fund welfare fund reserve reserves losse Balance at 1 January 2002 - As previously reported 149,437 14,998 9,782 (18) 115 1,9 - Transfer in of reserves arising from valuation of assets at reorganization in 16,024 - - - - prior years       165,461 14,998 9,782 (18) 115 1,9 Exchange translation difference - - - (40) - Net loss for the year - - - - - (55,2 Proposed profit appropriation for 2002 - 1,333 471 - - (1,8 Other movement 70 - - - -       Balance at 31 December 2002 165,531 16,331 10,253 (58) 115 (55,0       - 30 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2003 (continued) (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Year ended 31 December 2003 Statutory and Capital discretionary Statutory Exchange surplus surplus public Translation Other Accumulat reserve fund welfare fund reserve reserves loss Balance at 1 January 2003 165,531 16,331 10,253 (58) 115 (55,0 Exchange translation difference - - - 44 - Net profit for the year - - - - - 12,0 Proposed profit appropriation for - 616 308 - - (9 2003 Disposal of subsidiaries - (1,731) (921) - - 2,6 Share of waived debts of an associate (1) 1,843 - - - - Negative goodwill arising on consolidation 290 - - - -       Balance at 31 December 2003 167,664 15,216 9,640 (14) 115 (41,2       (1) It represents share of capital surplus recognized by an associate due to waiver of debts by its investors. - 31 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Notes 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES Net profit (loss) 12,068 (55,213) Adjustments for: Tax 9 2,141 5,658 Minority interests 10 (287) (1,420) Depreciation 12 18,202 20,058 Impairment of property, plant and equipment 12 - 1,038 Impairment (Reversal of impairment) of receivables 4 (3,387) 7,292 Write-down of inventories 4 14,130 24,777 Amortization of land use rights and intangible assets 13, 15 6,888 5,765 Interest expense 6 21,840 24,868 Interest income 6 (2,416) (1,109) Share of loss of associated companies 14 456 6,829 Profit on sale of share of investments 8 (4,795) (503) Loss (profit) on disposal of property, plant and equipment and intangible assets 4 (6,867) 502 Loss on disposal of subsidiaries 7 812 721 Profit on sale of trading investments - (164) Operating profit before working capital changes 58,785 39,099 Increase in inventories (42,426) (14,060) Decrease in receivables and prepayments 20,761 4,871 Increase in trade and other payables 37,719 87,028 Cash generated from operations 74,839 116,938 Net interest paid (19,424) (23,759) Tax paid (1,602) (6,992) Net cash generated from operating activities 53,813 86,187 - 32 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report CONSOLIDATED CASH FLOW STATEMENT (continued) FOR THE YEAR ENDED 31 DECEMBER 2003 (All amounts are stated in Renminbi thousand Yuan unless otherwise stated) Notes 2003 2002 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of government bonds - 18 Proceeds from disposal of property, plant and equipment 11,389 550 Purchase of property, plant and equipment, intangible assets and payments on construction projects (20,213) (24,886) Investments in associated companies (13,663) (15,121) Proceeds from sale of trading investments - 181 Disposal of subsidiaries, net of cash disposed 7 (63) (494) Cash from sale of investments 11,754 - Investment in a subsidiary company (900) - Dividends from investments 461 - Increase in bank deposits with maturity over 3 months (16,264) (31,942) Net cash used in investing activities (27,499) (71,694) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of non-current liabilities (7,843) (7,301) Proceeds from bank loans 269,500 405,000 Repayment of bank loans (259,000) (499,700) Capital contributed by minority shareholders of consolidated subsidiaries 1,138 1,299 Dividend paid to minority shareholders (922) (2,100) Net cash generated from (used in) financing activities 2,873 (102,802) Increase (Decrease) in cash and cash equivalents 29,187 (88,309) Cash and cash equivalents at beginning of year 145,909 234,218 Cash and cash equivalents at end of year 175,096 145,909 Cash and cash equivalents comprise: Cash at bank and in hand 175,096 145,909 - 33 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report 1 CORPORATE INFORMATION Nanjing Putian Telecommunications Co., Ltd. (the “Company”) was established in May 1997 in the People’s Republic of China (the “PRC”) as a joint stock limited company. The principal activities of the Company and its subsidiaries (the “Group”) are the manufacture and marketing of telecommunication equipment, electric appliances and other related accessories in the PRC. Particulars of the Company's principal subsidiaries, joint ventures and associated companies are shown in note 26. All the operating assets and substantially all the sales of the Group are based in the PRC. China Putian Information Industry Corporation, which holds the Company’s 115,000,000 state-owned shares, or 53.49% of the Company’s total share capital, is regarded as the Company’s ultimate holding company (the “Ultimate Holding Company”). 2 PRINCIPAL ACCOUNTING POLICIES (a) Basis of preparation The consolidated financial statements have been prepared based on the management accounts of the Company, its subsidiaries, joint ventures and associated companies. Those management accounts are prepared in accordance with PRC accounting standards, which differ in certain respects from International Financial Reporting Standards (“IFRS”). These financial statements have incorporated adjustments made to the management accounts in order to conform with IFRS. The consolidated financial statements have been prepared under the historical cost convention. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. (b) Group accounting (1) Subsidiaries Subsidiaries are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with those adopted by the Group. (2) Associated companies Investments in associated companies are accounted for by the equity method of accounting. Under this method the Company’s share of the post-acquisition profits or losses of associated companies is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Associated companies are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent of the Group’s interest in the associated - 34 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report companies; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an associated company equals or exceeds its interest in the associated company, the Group does not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associated company. (3) Joint ventures The Group’s interests in jointly controlled entities are accounted for by proportionate consolidation. The Group combines its share of the joint ventures’ individual income and expenses, assets and liabilities and cash flows on a line-by-line basis with similar items in the Group’s financial statements. The Group recognises the portion of gains or losses on the sale of assets by the Group to the joint venture that it is attributable to the other venturers. The Group does not recognise its share of profits or losses from the joint venture that result from the purchase of assets by the Group from the joint venture until it resells the assets to an independent party. However, if a loss on the transaction provides evidence of a reduction in the net realisable value of current assets or an impairment loss, the loss is recognised immediately. (c) Foreign currency translation (1) Reporting currency The Company uses the Renminbi (“Rmb”) as reporting currency. The consolidated financial statements of the Group are presented in Renminbi thousand. (2) Transactions and balances Foreign currency transactions are translated into Rmb using the exchange rates stipulated by the People’s Bank of China prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Renminbi at the exchange rates stipulated by the People’s Bank of China at the balance sheet date. Exchange differences arising from these translations are recognised in the income statement. (3) Foreign entities Income statements and cash flows of foreign entities are translated into the Group’s reporting currency at average exchange rates for the year and their balance sheets are translated at the exchange rates ruling on 31 December. Exchange differences arising from the net investment in foreign entities are taken to shareholders’ equity. When a foreign entity is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. (d) Trading investments Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets. All purchases and sales of trading investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading investments are subsequently carried at fair value. Realised and unrealised gains and losses arising from changes in the fair value of trading investments are included in the income statement in the year in which they arise. (e) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment loss. Depreciation is calculated on the straight-line method to write off the cost of each asset to their residual values over their estimated useful lives as follows: - 35 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Buildings 15-35 years Plant and machinery 10-15 years Furniture, fixtures and office equipment 6-8 years Motor vehicles 4-11 years When the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposal of property, plant and equipment are determined by comparing proceeds with carrying amount and are included in operating profit. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. (f) Construction in progress Construction in progress represents capital assets under construction or being installed and is stated at cost. Cost comprises cost of equipment, construction costs and other direct costs including interest expense arising from borrowings to finance the projects during the construction period. On completion of construction, the cost is transferred to property, plant and equipment. (g) Land use rights Land use rights are stated at cost less amortization. Amortization is calculated on the straight line method to write off the cost of land use rights over their use period. (h) Intangible assets Intangible assets represent software expenditures and proprietary technologies. Software expenditures represent the cost of software rights. They are stated at cost and amortized on the straight-line basis over their use period from the date they are put into use. Proprietary technologies are initially recorded at cost. Proprietary technologies are amortized on the straight-line basis over their useful lives. (i) Impairment of long-lived assets Property, plant and equipment and other non-current assets, including intangible assets, are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows. (j) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined - 36 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report using the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. (k) Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. (l) Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term highly liquid investments. (m) Borrowings Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. (n) Pension costs The Group participates in a government defined contribution retirement scheme. Under the scheme, retirement benefits of existing and retired employees are guaranteed by the local Unified Retirement Fund and the Group has no further obligations beyond the annual contributions. The Group's contributions are charged to the income statement in the period to which they relate. (o) Income taxes PRC income tax is provided for based on the assessable profits computed in accordance with PRC tax regulations and tax rates applicable to the Group. Deferred income tax is provided, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used to determine deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. (p) Revenue recognition Revenue comprises the invoiced value for the sale of goods and services net of value-added tax, rebates and discounts, and after eliminating sales within the Group. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Revenue from rendering of services is based on the stage of completion determined by reference to services performed to date as a percentage of total services to be performed. Other revenues earned by the Group are recognised on the following bases: - 37 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report • Interest income - on an effective yield basis. • Subsidy income - when the right to receive payment is approved by the government. (q) Dividends Dividends are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders. (r) Financial instruments Financial instruments carried in the balance sheet include cash and bank balances, investments in associated companies, receivables and prepayments, payables and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. - 38 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report 3 SALES AND COST OF SALES Sales and cost of sales include the following: Manufactured Purchased telecommunication telecommunication and and Manufactured Sub-contracting electrical products electrical products electronics products services 2003 Sales 405,282 322,226 81,858 2,480 Cost of sales (279,857) (285,213) (63,141) (2,307)     Gross profit 125,425 37,013 18,717 173     2002 Sales 346,103 195,374 56,583 2,072 Cost of sales (248,707) (164,513) (42,100) (1,816)     Gross profit 97,396 30,861 14,483 256     The Group is organized into one main business segment, telecommunication and related products. Accord is presented. All assets and operations of the Group are located in the PRC, which is considered as one geographic locat and returns. Accordingly, no geographical segment information is presented. - 39 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report 4 OPERATING PROFIT (LOSS) The following items have been included in arriving at operating profit (loss): 2003 2002 Subsidy income 1,091 5,153 Profit from sale of trademark - 2,000 Depreciation on property, plant and equipment (note 12) (18,202) (20,058) Gain(loss) on disposal of property, plant and equipment 6,867 (485) Staff costs (note 5) (69,175) (56,111) Reversal of impairment (Impairment) of receivables 3,387 (7,292) Write-down of inventories (14,130) (24,777) Impairment of property, plant and equipment (included in “other operating expenses”) (note 12) - (1,038) Amortization of land use rights (included in “administrative expenses”) (note 13) (944) (828) Amortization of intangible assets (included in “administrative expenses”) (note 15) (5,944) (4,937) Repairs and maintenance expenditure on property, plant and equipment 1,085 2,172 Research and development expenditure 9,709 8,836 Operating lease rentals payable – property 2,599 2,165 5 STAFF COSTS 2003 2002 Employees’ wages and salaries 50,636 42,642 Pension costs 11,150 9,351 Directors’ remuneration 257 596 Medical insurance and others 7,132 3,522 69,175 56,111 Average number of persons employed by the Group during the year 1,747 1,759 6 FINANCE COSTS, NET 2003 2002 Interest expense on bank loans 21,840 24,868 Interest income (2,416) (1,109) Others 811 236 Tax charge 20,235 23,995 - 40 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report 7 DISPOSAL OF SUBSIDIARIES 1) In August 2003, Nanjing Hongyan Electric Appliance Company(“Hongyan”), a 74% owned subsidiary of the Group, was liquidated. Accordingly Hongyan was no longer consolidated into the Group since the date of its liquidation. a) The related assets and liabilities of Hongyan at the date of liquidation are as follows: Assets Property, plant and equipment 3,744 Investments in associated companies 439 Receivables and prepayment 26,913 Tax recoverable 229 Cash and bank balances 1,284 32,609 Liabilities Employee housing benefits payable (1,371) Trade and other payables (14,451) Short-term bank loans (4,000) (19,822) Net assets at the date of liquidation 12,787 b) The company’s share of net assets received from liquidation was Rmb 9,462,265. c) The effect of the disposal on cash and cash equivalents of the Group is as follows: Cash received on liquidation (Minority shareholders’ share of cash and bank balances was recorded as a payable of Rmb 333,839 to the minority shareholders.) 1,284 Cash and bank balances at the date of liquidation (1,284) Net cash outflow on disposal - (2) In April 2003, the Company sold 50% of the share capital of Nanjing Yuhua Electroplating Factory (“Yuhua”), a 60% owned subsidiary of the Company, to the third parties of Yuhua. Accordingly, Yuhua was no longer consolidated into the Group since the date the shares were sold. a) The related assets and liabilities of Yuhua at the date of disposal are as follows: Assets Property, plant and equipment 1,903 Construction in progress 9 Inventories 673 Receivables and prepayment 2,221 Cash and bank balances 713 5,519 Liabilities Employee housing benefits payable (452) Current tax liabilities (239) Trade and other payables (619) (1,310) Net assets at the date of disposal 4,209 - 41 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report b) Disposal loss Proceeds on disposal 1,292 Portion of net assets disposed of 2,104 Loss on disposal (812) c) The effect of the disposal on cash and cash equivalents of the Group is as follows: Cash received on disposal 650 Bank balances and cash at the date of disposal (713) Net cash outflow on disposal (63) 8 SALES OF LONG-TERM INVESTMENTS 1) In September 2003, the company sold 20.8% of the share capital of Nanjing Putian Hongyan Electric appliance Company Ltd. (“Putian Hongyan”), a 72% owned subsidiary, to a third party. The profit from the sale is as follows: Net assets at the date of sale 19,783 Proceeds on sale 7,854 Portion of net assets sold 4,115 Profit on sale of share of long-term investment 3,739 2) In October 2003, the company sold 11.7% of the share capital of Nanjing Dongda Broadband Technology Co., Ltd. (“Dongda’’) to a third party. The profit from the sale is as follows: Book value of the Group’s investment at the date of sale 2,500 Proceeds on sale 3,380 Portion of the investment sold 2,200 Profit on sale of share of long-term investment 1,180 3) In November 2003, the company sold 3.33% of the share capital of Nanjing Putian Smart-building Technology Co., Ltd. (“Smart-building”), a subsidiary, to a third party. The loss from the sale is as follows: Net assets at the date of sale 19,319 Proceeds on sale 520 Portion of net assets sold 644 Loss on sale of share of long-term investment (124) 9 TAX 2003 2002 Current tax 2,141 5,658 Share of tax of associated companies (note 14) - - 2,141 5,658 - 42 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report The Company and its subsidiaries and joint ventures are subject to the following income tax rates in 2003 and 2002: 2003 2002 The Company (a) 15% 15% Nanjing Nanfang Telecommunications Company Limited (a) 15% 15% Nanjing Bada Telecommunications Factory 33% 33% Shanghai Huaning Telecommunications Development Ltd. (b) 15% 15% Nanjing Golden Huali Electronics Ltd. (c) - - Nanjing Putian Shiye Company Ltd. 33% 33% Nanjing Putian Computer Company Ltd. 33% 33% Nanjing Mennekes Electric Appliance Ltd. (d) 27% 27% Nanjing Putian Smart-building Technology Ltd. (a) 15% 15% Putian Telecommunications (H.K.) Co., Ltd. (e) 17.5% 16% Beijing Picom Telecommunications Equipment Ltd. (c) - - Nanjing Putian Hongyan Electric Appliance Company (f) 12% - Nanjing Putian Computer Technology Company Ltd. 33% 33% Nanjing Putian Network Company Ltd. (c) - - Nanjing Putian Telecommunications Shiye Company Ltd. 33% - (a) The Company, Nanjing Nanfang Telecommunications Company Limited and Nanjing Putian Smart-building Technology Ltd. are qualified as high technology enterprises established in Nanjing Jiangning National Hi-technology Development Zone. In accordance with relevant regulations, they are subject to income tax at a reduced rate of 15%. (b) Shanghai Huaning Telecommunications Development Ltd. (“Huaning”) is established in the Shanghai Pudong Area. In accordance with the relevant regulations, Huaning is subject to income tax at a reduced rate of 15%. (c) Nanjing Golden Huali Electronics Ltd., Beijng Picom Telecommunications Equipment Ltd. and Nanjing Putian Network Company Ltd. have not provided any income tax since they have no taxable income for the year 2003. (d) Nanjing Mennekes Electric Appliance Ltd. is a joint venture company established in the old urban district of economic and technological development area whose current corporate income tax is 24%, and local income tax is 3%, totally 27%. (e) In accordance with the Hong Kong tax law, Putian Telecommunications (H.K.) Co., Ltd., a subsidiary established in Hong Kong on 1 December 2000, is subject to income tax at 17.5% in the year 2003. (f) Nanjing Putian Hongyan Electric Appliance Company is a Joint venture company established in the old urban district of economic and technological development area whose current corporate income tax is 24%. It is entitled to full exemption from income tax for the first two years starting from the first profit-making year (after utilising all tax losses brought forward) and a 50% reduction in the income tax rate for the three years thereafter. The company entered into its first profit-making year in 2001 and accrued the corporate income tax at 12% in year 2003 which is the first year of 50% tax exemption. The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of the Company as follows: 2003 2002 Profit (loss) before tax 13,922 (50,975) - 43 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Tax calculated at a tax rate of 15% 2,088 (7,646) Previous year’s tax underprovided (tax refund) (863) 3,611 (Utilization of) subsidiaries’ tax losses (1,587) 3,264 Income and expense items which are not taxable or deductible for income tax purposes 2,263 5,858 Effect of different tax rates for certain subsidiaries, joint ventures and associated companies 240 571 Tax charge 2,141 5,658 Deferred tax assets are recognised to the extent that realisation of the related tax benefit through future taxable income is probable. For the year ended 31 December 2003, the unrecognised tax losses and deductible temporary differences to carry forward against future taxable income for the group are Rmb 11,180,000 (2002: Rmb 21,760,000) and Rmb 55,899,000 (2002: Rmb 78,007,000) respectively. Under PRC tax laws, the tax losses should be utilized within 5 years. Therefore, the Group’s tax losses can be utilized to deduct the taxable income until 2009. The Group does not have other significant unprovided deferred tax. 10 MINORITY INTERESTS 2003 2002 At beginning of year 17,457 21,082 Additional investment 5,102 2,031 Disposals (5,070) (1,722) Share of net loss of subsidiaries (287) (1,420) Dividend paid (1,382) (2,514) At end of year 15,820 17,457 11 EARNINGS (LOSS) PER SHARE Earnings (loss) per share is calculated by dividing net profit (loss) for the year by the 215,000,000 shares in issue during the year. 12 PROPERTY, PLANT AND EQUIPMENT Furniture, fixtures Plant and and office Motor Buildings machinery equipment Vehicles Total Cost At 1 January 2002 102,136 83,157 42,234 11,019 238,546 Additions in 2002 5,496 2,138 5,850 774 14,258 Disposals in 2002 (110) (5,266) (1,741) (462) (7,579) At 1 January 2003 107,522 80,029 46,343 11,331 245,225 Additions in 2003 4,663 14,475 4,839 1,144 25,121 Disposals in 2003 (7,061) (6,992) (3,456) (1,910) (19,419) At 31 December 2003 105,124 87,512 47,726 10,565 250,927 - 44 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Accumulated depreciation At 1 January 2002 28,936 54,200 25,214 6,777 115,127 Charge for 2002 4,232 7,441 6,545 1,840 20,058 Disposals in 2002 (24) (4,821) (1,439) (260) (6,544) At 1 January 2003 33,144 56,820 30,320 8,357 128,641 Charge for 2003 3,780 7,524 5,856 1,042 18,202 Disposals in 2003 (2,702) (5,615) (2,493) (1,656) (12,466) At 31 December 2003 34,222 58,729 33,683 7,743 134,377 Impairment charge At 1 January 2002 - 1,642 3,228 22 4,892 Charge (reversal) for 2002 2,382 - (1,344) - 1,038 At 1 January 2003 2,382 1,642 1,884 22 5,930 Reversal for 2003 - (529) - - (529) At 31 December 2003 2,382 1,113 1,884 22 5,401 Net book value At 31 December 2003 68,520 27,670 12,159 2,800 111,149 At 31 December 2002 71,996 21,567 14,139 2,952 110,654 13 LAND USE RIGHTS 2003 2002 Cost At beginning of year 40,168 40,183 Additions 656 - Disposals - (15) At end of year 40,824 40,168 Accumulated amortization At beginning of year 4,609 3,781 Amortization for the year 944 828 At end of year 5,553 4,609 Net book value 35,271 35,559 14 INVESTMENTS IN ASSOCIATED COMPANIES 2003 2002 At beginning of year 22,241 18,253 Share of net loss of associated companies (456) (6,829) Share of tax (note 9) - - Investments during the year 16,221 11,317 - 45 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Disposals (2,200) (500) Receipt of dividends (461) - At end of year 35,345 22,241 Details of the associated companies are elaborated in note 26. 15 INTANGIBLE ASSETS 2003 2002 Cost At beginning of year 30,351 22,244 Additions 989 8,939 Transfer out (7) (832) At end of year 31,333 30,351 Accumulated amortization At beginning of year 11,333 7,211 Additions 5,944 4,937 Transfer out (7) (815) At end of year 17,270 11,333 Net book value 14,063 19,018 16 INVENTORIES 2003 2002 Raw materials - at cost 27,533 29,730 - at net realizable value 1,585 2,417 Work in progress - at cost 18,097 16,869 - at net realizable value - - Finished goods - at cost 132,361 127,267 - at net realizable value 26,518 2,188 206,094 178,471 17 RECEIVABLES AND PREPAYMENTS 2003 2002 Trade receivables 383,050 395,562 Other receivables 20,001 28,539 Less: Provision for impairment (26,411) (47,920) Trade and other receivables, net 376,640 376,181 Prepayments 8,638 14,207 Receivables from and prepayments to related parties (note 27 (c)) 11,844 19,424 397,122 409,812 18 CASH AND BANK BALANCES 2003 2002 - 46 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Cash at bank and in hand 175,096 145,909 Bank deposits 49,209 32,945 224,305 178,854 The effective interest rates on bank deposits ranged from 1.71% to 1.98% and these deposits have maturities over three months. For the purpose of the cash flow statement, cash and cash equivalents comprise cash at bank and in hand. 19 SHARE CAPITAL 2003 2002 Registered, issued and fully paid shares of Rmb 1 each: State-owned shares, not listed 115,000 115,000 Domestically-listed foreign shares (B shares) 100,000 100,000 215,000 215,000 20 RESERVES (a) Capital surplus Transactions of the following nature are recorded in the capital surplus: (1) Share premium arising on the issue of shares at prices in excess of their par value; (2) Donations received; (3) Surplus arising from the revaluation of assets; and (4) Any other items required by the PRC regulations to be so treated. Amounts in the capital surplus can be utilised to offset prior years’ losses or for issue of bonus shares. (b) Statutory surplus reserve fund and statutory public welfare fund Statutory reserves include both the statutory surplus reserve fund and the statutory public welfare fund. PRC Company Law requires a company to appropriate 10% of its profit for the year computed in accordance with the PRC accounting regulations (after offsetting prior years’ losses) to the statutory surplus reserve fund. When the balance of such fund reaches 50% of the company’s registered share capital, any further appropriation is optional. The statutory surplus reserve fund can be utilised to offset prior years’ losses or for issue of bonus shares. However, the fund shall be maintained at a minimum of 25% of registered share capital after any such issue. PRC Company Law also requires a company to appropriate between 5% to 10% of its profit for the year computed in accordance with the PRC accounting regulations (after offsetting prior years’ losses) to the statutory public welfare fund. The fund shall be utilised for the collective benefit of the workforce, including the provision of staff quarters. No other distribution shall be made from the fund other than upon liquidation of the company. During the year ended 31 December 2003, Rmb 615,577 and Rmb 307,788 had been appropriated by subsidiaries to the statutory surplus reserve fund and statutory public welfare fund respectively. (c) Discretionary surplus reserve fund and dividend - 47 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report The Board of Directors recommends that no appropriation to the discretionary surplus reserve fund and no dividend be made for 2003. The above recommendations are subject to approval by the shareholders in the Company’s Annual General Meeting to be held in 2004. 21 LONG-TERM BANK LOAN Long-term bank loan represents an unsecured loan borrowed from China Construction Bank and is due on 4 February 2007. The long-term bank loan is guaranteed by the Ultimate Holding Company. 2003 2002 (a) Weighted average effective interest rates at 31 December 5.76% 6.21% (b) The carrying amount of the long-term bank loan approximates its fair value. The fair value is based on discounted cash flows using a discount rate based upon the borrowing rate which was available to the Group for bank borrowings with similar terms at the balance sheet date. 22 TRADE AND OTHER PAYABLES 2003 2002 Trade payables 250,535 212,741 Customer deposits 12,066 5,357 Accrued expenses 374 - Other payables 16,587 19,615 279,562 237,713 Payables to related parties (note 27 (c)) 7,937 9,445 287,499 247,158 23 SHORT-TERM BANK LOANS 2003 2002 Secured - 1,500 Unsecured 300,000 288,000 300,000 289,500 Interest of unsecured credit bank loans is charged on the outstanding balances at rates ranging from 4.779% to 6.37% (2002: 4.79% to 6.37%) per annum. 24 FINANCIAL INSTRUMENTS (a) Credit risk The Group have no significant concentration of credit risk. The carrying amounts of accounts receivable included in the balance sheet represent the Group's maximum exposure to credit risk in relation to its financial assets. No other financial assets carry a significant exposure to credit risk. - 48 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Cash is placed with state-owned banks and financial institutions. (b) Foreign exchange risk The Group operates in the PRC and has no significant exposure to any specific foreign currency. (c) Interest rate risk The Group has no significant interest-bearing assets, as such its income and operating cash flows are substantially independent of changes in market interest rates. Interest rates on bank loans are disclosed in notes 21 and 23. (d) Fair value The carrying amounts of the following financial assets and financial liabilities approximate their fair values: bank balances and cash, trading investments, trade receivables and payables, prepayments and other receivables and payables, short-term borrowings. 25 CAPITAL COMMITMENTS Capital expenditure in respect of property, plant and equipment contracted for at 31 December 2003 but not recognised in the financial statements amounted to Rmb 15,560,000 (2002: Rmb 20,544,000). 26 PRINCIPAL SUBSIDIARIES, JOINT VENTURES AND ASSOCIATED COMPANIES The Company’s subsidiaries, joint ventures and associated companies, all of which are established in the PRC except Putian Telecommunications (H.K.) Co., Ltd. which is established in Hong Kong, are as follows: Name of company Group’s equity interest Principal activities 2003 2002 Subsidiaries: Nanjing Nanfang 100% 100% Manufacture and sale of data Telecommunications Company Limited communication equipment Nanjing Bada 60% 60% Manufacture and sale of Telecommunications Factory telecommunication equipment Nanjing Hongyan Electric - 74% Manufacture and sale of Appliance Company electrical products Shanghai Huaning 87.8% 93.5% Export agency business Telecommunications Development Ltd. Nanjing Golden Huali 60% 60% Manufacture and sale of lights, Electronics Ltd. electronic products and accessories Nanjing Yuhua 10% 60% Metal surface processing and Electroplating Factory manufacture and sale of consternation hardware Nanjing Putian Shiye Company Ltd. 100% 100% Hotel and catering Nanjing Putian Computer 99.5% 99.5% Design, manufacture and sale - 49 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Company Ltd. of computer products Nanjing Putian Smart-building 81.93% 82.24% Manufacture and sale of smart Technology Ltd. building system Putian Telecommunications (H.K.) 90% 90% Export and import of Co., Ltd. telecommunications equipment Beijing Picom Telecommunications 51% 51% Manufacture and sale of data Equipment Ltd. communication equipment Nanjing Putian Hongyan Electric 51.2% 65% Manufacture and sale of Appliance Company electrical products Nanjing Putian Computer Technology 86.6% 86.6% Sale of computer and Company Ltd. communication equipment Nanjing Putian Network Company Ltd. 89% 89% Manufacture and sale of network equipment Nanjing Putian Telecommunications 45% - Sales and installation of Shiye Company Ltd. electronic and telecommunication equipment Joint ventures: Nanjing Mennekes 50% 50% Manufacture and sale of Electric Appliance Ltd. switches Associated companies: Xishan Putian Information 49% 49% Provision of data and Network Co., Ltd. voice transmission services Nanjing Putian Wangzhi 34% 34% Design and production of Telecommunications Co.,Ltd. CDMA and 3G products Nanjing Zhongyou 30% 30% Manufacture and sale of Telecommunications Company Ltd. telecommunication equipment and electrical accessories Nanjing Changle Telecommunications 49% 49% Manufacture and sale of Equipment Factory telecommunication equipment 27 RELATED PARTY TRANSACTIONS (a) Pricing Policies The Group’s pricing policies on products sold to related parties / goods purchased from related parties are based on market prices. (b) The following transactions were carried out with related parties: 2003 2002 Sale of raw materials to Nanjing Putian Wangzhi Telecommunications Ltd. 61,229 - Sale of raw materials to Nanjing Changle Telecommunications Equipment Factory 38,801 - Sale of goods to Nanjing Zhongyou Telecommunications Co., Ltd. 3,401 1,593 Sale of trademark to Ultimate Holding Company - 2,000 Sale of goods to a subsidiary of Ultimate Holding Company - 1,723 103,431 5,316 - 50 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Purchase of goods from a subsidiary of Ultimate Holding Company 130,793 - Purchase of goods from Nanjing Changle Telecommunications Equipment Factory 39,367 17,630 Purchase of goods from Nanjing Putian Wangzhi Telecommunications co., Ltd. - 6,409 170,160 24,039 (c) Balances with related parties 2003 2002 Receivables from Xishan Putian Information Network Co., Ltd. 5,000 11,934 Receivables from Nanjing Zhongyou Telecommunications Ltd. 4,890 947 Prepayment to a subsidiary of Ultimate Holding Company 1,954 - Receivables from a subsidiary of Ultimate Holding Company - 6,543 11,844 19,424 Payables to Nanjing Changle Telecommunications Equipment Factory 7,937 7,275 Payables to Nanjing Putian Wangzhi Telecommunications Co., Ltd. - 2,170 7,937 9,445 The above balances are unsecured, interest free and have no fixed terms of repayment. 28 CONTINGENCIES The Group purchased certain CDPD products from Lucent Technologies World Services Inc. ("Lucent") in 1998. A memorandum was signed by both parties under which Lucent agreed to exchange any unsold CDPD products for other up-to-date CDPD products with the same value. Since Lucent has terminated the production of CDPD products, the Group is not able to exchange the products from Lucent. As at 31 December 2003 unsold CDPD products totalled approximately Rmb 15,243,000. The Group is currently requesting Lucent to provide compensation. According to the current results of negotiation with Lucent, the Group has provided approximately Rmb 3,049,000 provision for the CDPD products in year 2003. 29 COMPARATIVES Certain comparative figures have been reclassified to conform with changes in presentation in the current year. NANJING PUTIAN TELECOMMUNICATIONS CO., LTD. RECONCILIATION OF NET PROFIT AND NET ASSETS BETWEEN PRC ACCOUNTS AND IFRS ACCOUNTS Net assets at Net profit for 2003 31 December 2003 - 51 - Nanjing Putian Telecommunications Co., Ltd. 2003 Annual Report Per PRC accounts 2,517 378,646 Adjustments for IFRS accounts: Remeasurement of financial assets and financial liabilities in accordance with International Accounting Standard 39 9,551 (12,281) Per IFRS accounts 12,068 366,365 - 52 -