深粮控股(000019)深深宝2003年年度报告摘要（英文版）

SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2003 (B-SHARE) §1. Important Notes: 1.1 The Board of Directors of Shenzhen Shenbao Industrial Co., Ltd. (hereinafter referred to as the Company) and its directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. The summary of annual report 2003 is abstracted from the full text of annual report; the investors are suggested to read the full text of annual report to understand more details. This report has been prepared in Chinese version and English version respectively. In the event of difference in interpretation between the two versions, the Chinese report shall prevail. 1.2 No directors stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of the Annual Report or have objection for this report. 1.3 Nine directors were expected to attend the Board meeting and actually eight directors were present; Director Mr. Chen Xiaohua entrusted in writing Director Ms. Zhao Guorong to attend the Board meeting and exercise the voting right on his behalf 1.4 K.C.Oh & Company Certified Public Accountants issued standard unqualified auditors’report for the Company. 1.5 Mr. Zeng Pai, Chairman of the Board of the Company as well as General Manager of the Company and Ms. Zeng Suyan, person in charge of accounting organ (namely head of the Plan and Financing Department) hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. §2. Company Profile 2.1 Basic information Short form of the stock Shenshenbao –A, Shenshenbao-B Stock code 000019, 200019 Listed stock exchange Shenzhen Stock Exchange Registered address and office address 28/F, Tower BC of Bao’an Plaza, No. 1002, Sungang East Road, Shenzhen Post code 518020 Internet web site of the Company http://www.sbsy.com.cn E-mail of the Company sbsy@sbsy.com.cn 2.2 Contact person and method Secretary of Board of Directors Mr. Liu Xiongjia Contact Address 28/F, Tower BC of Bao’an Plaza, No. 1002, Sungang East Road, Shenzhen Telephone (86)755-25507480 Fax (86)755-25507480 E-mail a0019@21cn.com §3. Summary of Accounting Data and Financial Indexes 3.1 Major accounting data Unit: In RMB’000 Items Amount Profit before taxation -48,723 Profit attributable to shareholders -44,852 Operating profit -50,286 Other profit 32,157 Net cash flow arising from operating activities -42,015 Net increase in cash and cash equivalents -24,816 3.2 Major financial indexes Unit: RMB’000 Items 2003 2002 2001 Turnover 61,787 77,134 64,086 Profit attributable to shareholders -44,852 -53,394 -3,387 Total assets 446,314 455,161 402,677 Shareholders’equity 231,290 276,142 338,842 Earnings per share (RMB) -0.2465 -0.2935 -0.0187 Weighted average earnings per share (RMB) -0.2465 -0.2935 -0.0187 Net assets per share (RMB) 1.2714 1.518 1.863 Return on equity (%) -0.1939 -19.34 -1.00 3.3 Difference in net profit as audited by Chinese Accounting Standard (CAS) and International Accounting Standard (IAS) □Applicable √Inapplicable §4. Changes in Share Capital and Particulars about Shareholders 4.1 Statement of changes in shares Unit: Share Before the Increase / decrease in this After the change time (+, -) change Other Subtotal I. Unlisted shares 1. Sponsors’shares 115,838,611 0 0 115,838,611 Including: State-owned shares 105,938,611 -61,848,466 -61,848,466 44,090,145 Domestic legal person’s share 9,900,000 61,848,466 61,848,466 71,748,466 Foreign legal person’s share 0 0 Others 0 0 2. Raised legal person’s shares 0 0 3. Inner employees’shares 7,752 -71 -71 7,681 4. Preference shares or others 0 0 Total unlisted shares 115,846,363 -71 -71 115,846,292 II. Listed shares 1. RMB ordinary shares 39,940,725 71 71 39,940,796 2. Domestically listed foreign shares 26,136,000 0 26,136,000 3. Overseas listed foreign shares 0 0 4. Others 0 0 Total listed shares 66,076,725 71 71 66,076,796 III. Total shares 181,923,088 0 0 181,923,088 4.2 Statement of shares held by the top ten shareholders and the top ten shareholders of circulation share Total shareholders at the end of report period 30,028 Particulars about shares held by the top ten shareholders Increase / Shares held Share Nature of shareholders Type of shares decrease in at the Proportion pledged (State-owned Name of Shareholders (Circulating/No the report year-end (%) or frozen shareholder or Foreign n-circulating) period (share) (share) shareholder) SHENZHEN AGRICULTURAL Non-circulating 0 Domestic legal person’s 61,848,466 61,848,466 34.00 PRODUCTS CO., LTD. shareholder SHENZHEN INVESTMENT HOLDING -61,848,466 53,990,145 29.68 Non-circulating 0 State-owned shareholder CORPORATION XIAO LI ZHU Unknown 240,000 0.13 Circulating Unknown CHEN YONG QUAN Unknown 210,800 0.12 Circulating Unknown LU XIAO Unknown 201,000 0.11 Circulating Unknown ZENG XIAN BAO Unknown 189,700 0.10 Circulating Unknown KOTO TRANSPORTLTD Unknown 183,468 0.10 Circulating Unknown XU ZHUANG GUO Unknown 156,284 0.09 Circulating Unknown ZANG LAI SUN Unknown 136,114 0.07 Circulating Unknown LIU XIAO CHUAN Unknown 127,150 0.07 Circulating Unknown Explanation on associated 1. On Sep. 25, 2002, Shenzhen Investment Holding Corporation signed the Agreement for relationship among the top ten Equity Transfer with Shenzhen Jindazhou Industrial Co., Ltd. (hereinafter referred to as shareholders or consistent action Jindazhou Company), which 53,990,145 shares of the Company held by Shenzhen Investment Holding Corporation were transferred to Jindazhou Company (For detail, please refer to Public Notice published in Securities Times and Ta Kung Pao dated Sep. 27, 2002.). On Dec. 11, 2003, the Company received Notification on Relieving Agreement for Equity Transfer of Shenzhen Shenbao Industrial Co., Ltd. from Shenzhen Investment Holding Corporation (for details, please refer to the public notice of the Company in Securities Times and Ta Kung Pao dated Dec. 12, 2003). 2. In the report period, there was neither pledge nor frozen in the shares held by the shareholders holding over 5% of total shares of the Company. 3. Shenzhen Investment Holding Corporation held 4,758,581 shares of the Shenzhen Agricultural Products Co., Ltd (“Agricultural Products”), taking 2.21% of total share capital of Agricultural Products. 4. There exists no associated relationship among Agricultural Products, Shenzhen Investment Holding Corporation, and No. 3 to No. 10 shareholders listed above the statement and they did not belong to consistent actionist regulated by the Management Regulation of Information Disclosure on Change of Shareholding for Listed Companies; the Company is not aware whether No. 3 to No. 10 shareholders listed above the statement belong to consistent actionist regulated by the Management Regulation of Information Disclosure on Change of Shareholding for Listed Companies or not. Particulars about shares held by the top ten shareholders Shareholder’ s name (full name) Number of circulation shares Type (A-share, B-share, held at the year-end (share) H-share and other) XIAO LI ZHU 240,000 B-share CHEN YONG QUAN 210,800 B-share LU XIAO 201,000 B-share ZENG XIAN BAO 189,700 B-share KOTO TRANSPORTLTD 183,468 B-share XU ZHUANG GUO 156,284 B-share ZANG LAI SUN 136,114 A-share LIU XIAO CHUAN 127,150 B-share CHANG SHI FEN 120,000 B-share LIN CI BAO 120,000 A-share Explanation on associated relationship The Company did not know whether there existed associated among the top ten shareholders of relationship among the top ten shareholders of circulation share or circulation share they belonged to consistent actionist regulated by the Management Regulation of Information Disclosure on Change of Shareholding for Listed Companies or not. 4.3 Particulars about controlling shareholders and actual controller of the Company 4.3.1 Particulars about change in controlling shareholders and actual controller of the Company √Applicable □Inapplicable Name of new controlling shareholder Shenzhen Agricultural Products Co., Ltd Name of new actual controller Shenzhen Commodity & Trade Investment Holdings Company Date of change Jun. 24, 2003 Publication date and newspaper Securities Times and Ta Kung Pao dated Jun. 24, 2003 4.3.2 Introduction of especial situation for controlling shareholder and other actual controller 1. Name of controlling shareholder: Shenzhen Agricultural Products Co., Ltd. Legal representative: Mr. Chen Shaoqun Date of foundation: Jan. 14, 1989 Main business scope: the company is engaged in constructing wholesale market of agricultural products; deals in market lease and sale; domestic trading, supply and marketing of materials (excluding monopoly products); and offer auxiliary establishment to market of agricultural products wholesale, for instance, rest house, canteen, restaurant, transportation, load and unload, storage, packing (business license of specific item is to be applied in addition); service of information counseling, and wholesale of sugar, tobacco and drink. Registered capital: RMB 387,663,000 2. The first largest shareholder of the controlling shareholder of the Company: Name: Shenzhen Commodity & Trade Investment Holdings Company Legal representative: Mr. Feng Yulin Date of foundation: Apr. 30, 1997 Main business scope: investment and setting up industry (specific item is to be applied in addition), domestic trading and supply and marketing of materials (excluding monopoly products). Registered capital: RMB 800,000,000 §5. About Directors, Supervisors and Senior Executives and Employees 5.1 Particulars about changes in shares held by directors, supervisors and senior executives Shares held at Shares held at Reason for Name Title Gender Age Office term the year-begin the year-end change Zeng Pai Chairman of the Jul. 28, 2003- Board, General Male 33 0 0 Jul. 28, 2006 Manager Tian Yanqun Independent Director Jul. 28, 2003- Male 57 0 0 Jul. 28, 2006 Fan Zhiqing Independent Director Male 55 Jul. 28, 2003- 0 0 Jul. 28, 2006 Wu Ying Independent Director Jul. 28, 2003- Female 41 0 0 Jul. 28, 2006 Zhao Guorong Director Jul. 28, 2003- Female 53 0 0 Jul. 28, 2006 Chen Xiaohua Director Jul. 28, 2003- Male 38 0 0 Jul. 28, 2006 Zhang Jian Director Jul. 28, 2003- Male 31 0 0 Jul. 28, 2006 Chen Jie Director Jul. 28, 2003- Male 48 0 0 Jul. 28, 2006 Cui Gang Director Jul. 28, 2003- Male 31 0 0 Jul. 28, 2006 Zuo Heping Chairman of the Jul. 28, 2003- Female 54 7,680 7,680 Supervisor Committee Jul. 28, 2006 Peng Ying Supervisor Jul. 28, 2003- Male 43 0 0 Jul. 28, 2006 Li Yiyan Supervisor Jul. 28, 2003- Female 38 0 0 Jul. 28, 2006 Guan Lihua Standing Deputy Jul. 28, 2003- Male 50 0 0 General Manager Jul. 28, 2006 Fang Jianhui Deputy General Jul. 28, 2003- Male 38 0 0 Manager Jul. 28, 2006 Zheng Yuxi Deputy General Jul. 28, 2003- Male 42 0 0 Manager Jul. 28, 2006 Zhang Deputy Party Male 49 No 0 0 Wanqing Secretary Zeng Suyan Director of Planning Jul. 28, 2003- Female 49 0 0 & Financing Dept. Jul. 28, 2006 Liu Xiongjia Secretary of the Board Jul. 28, 2003- Male 32 0 0 of Directors Jul. 28, 2006 5.2 Particulars about directors and supervisors holding the position in Shareholding Company √Applicable □Inapplicable Name Name of shareholding Company Title in shareholding Office term Drawing the payment Company from the Company (Yes / No) Zhao Guorong Shenzhen Agricultural Products Director, chief financial Jul. 31, 2003- No Co., Ltd. officer Jul. 31, 2006 Chen Xiaohua Shenzhen Agricultural Products Director, secretary of Jul. 31, 2003- No Co., Ltd. the Board Jul. 31, 2006 Zhang Jian Shenzhen Agricultural Products Secretary of HR Naught No Co., Ltd. Chen Jie Shenzhen Jindazhou Industrial Co., Deputy General Naught No Ltd. Manager Cui Gang Shenzhen Jindazhou Industrial Co., Assistant General Naught No Ltd. Manager Peng Ying Shenzhen Agricultural Products Chairman of the Board Naught No Co., Ltd. of shareholding subsidiary of Shenzhen Agricultural Products Co., Ltd. 5.3 Particulars about the annual payment of directors, supervisors and senior executives Total annual payment RMB 802,000 Total annual payment of the top three directors drawing RMB 242,000 the highest payment Total annual payment of the top three senior executives RMB 333,000 drawing the highest payment Allowance of independent director RMB 50,000 per person/year Other treatment of Independent Directors According to the relevant regulations of Administration Rules of Listed Companies and the Company’s actual situation, the Company respectively paid allowance of RMB 50,000 (tax included) to independent directors per year and necessary fees (included but not limited to traffic fees and accommodation etc.), when independent directors attend the Shareholders’ General Meeting and the Board meeting or exercise other authority according to the relevant laws, regulations and Articles of Association of the Company. In the report year, the Company respectively paid RMB 55,000 to Mr. Tian Yanqun and Mr. Fan Zhiqing and paid RMB 23,000 to Ms. Wu Ying (paid since Aug. 2003). Name of directors and supervisors received no payment Ms. Zhao Guorong, Mr. Chen Xiaohua, Mr. Zhang Jian or allowance from the Company Director of the Company, and Mr. Peng Ying, Supervisor of the Company, received no remuneration from the Company, but drew their remuneration from the controlling shareholder, namely Shenzhen Agricultural Products Co., Ltd., or its shareholding subsidiaries. Mr. Chen Jie and Mr. Cui Gang, Director of the Company drew their remuneration from Shenzhen Jindazhou Industrial Co., Ltd.. Payment Number of persons RMB 100,000 ～ RMB 150,000 2 RMB 80,000 ～ RMB 100,000 4 RMB 50,000 ～ RMB 70,000 3 §6. Report of the Board of Directors 6.1 Discussion and analysis to the whole operation in the report period Year 2003 was a year when the Company pushed on and tried for long-term development in the difficulties. In the report period, the precipitate SARS epidemic brought materially adverse influence on the product sales of the Company. Such events left in the history as contingent liabilities, bad long-term investments and guarantee lawsuit etc. seriously influenced on the Company’ s gains and losses in the report period. Moreover, the cancellation of preferential policy of local production and local sales also made the Company’ s profit decrease accordingly. Facing these objective difficulties, the Company has adopted active measures to reply composedly with a view to the long-term development of the Company as well, on the one hand, to continue to reinforce the internal management and emphasize on marketing, quality control and R&D of new products; on the other hand, to vigorously prop up the controlling subsidiaries so as to make them grow in a quick way and thus to strengthen the sustainable development capability of the Company. 1. In the aspect of marketing, to pay more attention to the maintenance and management of sales channels. Especially after SARS epidemic, the Company enlarged the market input, restored the sales channels impacted by SARS epidemic and harmonized the relationships with dealers actively. Based on consolidating old markets, the Company developed new markets in an active and stable way and continued to expand the sales regions. Based on consolidating old dealers, the Company developed new dealers with strength, enriched distributing networks and lost no time to vigorously develop various kinds of promotions and market expansions according to various market statuses in all areas, which made the marketing of the Company more active and has founded a foundation for the market expansion in the future. The Company continued to strengthen and improve the construction o sales teams and fully pushed the sales encouragement mechanism with combination of sales volume and getting-back rate of payments as standard for assessment, especially he Company increased the investment to brand “San Jing”, which made it further more famous in the dominant market with its brand value being further enhanced. Moreover, 2. In the aspect of internal management, the Company further improved all bylaws, pushed institutional management, especially reinforced internal management to such key links as purchase, sales and management of monetary funds etc. and edited and improved internal control system, which has walled up the management holes. Moreover, the Company established cost center inside the Company and disassembled the cost control indexes to all centers so as to strictly control the productive and operative cost. 3. The Company always emphasized on product quality, strictly carried out ISO9000: 2000 standard and strengthened the management and control on productive quality and safety. “San Jing” brand products were acquired “QS certification”. Shenzhen Shenbao Huacheng Food Co., Ltd. (hereinafter referred to as Shenbao Huacheng) successfully passed processing certification and product certification of organic tea of Chinese Academy of Agricultural Science as the first company and passed all certifications without social effects of pollution. 4. In the aspect of R&D of new products, under the guidance of R&D concept of “Nature, Nutrition and Health”, the Company has developed over ten new products of condiments and drinks oriented to market demand and promoted them in a selective way in a reasonable time, which has founded a foundation for the upgrading of products and further adjustment of product structure in the future. 5. Shenbao Huacheng, a controlling subsidiary of the Company, grew in a quick way with the Company’ s strong support. As a supplier of semi-finished products of teas such as condensed tea powder and tea juice etc., the domestic and foreign customer resources of Shenbao Huacheng grew in a rapid way. Moreover, majority of them was famous enterprises with much strength. As a producer and seller of such terminal products as “Fast Tea”, the famous degree of its products was rapidly enhanced in Pearl River Delta, Hong Kong and other large cities etc. and gained relatively high recognition from objective consumption groups. In 2004, Shenbao Huacheng would further adopt the most advanced inspection and analysis instruments in the world and modernized production pipelines in the production and R&D and would push the management of HACCP to the whole course, which would gain a much higher enhancement in the aspect of safety and sanitation of foods and in the aspect of quality control of products. 6.2 Statement of main operations classified according to industries or products Unit: RMB’000 Classified according to Income from Cost of main Gross Increase/decrease Increase/decreas Increase/decrease industries or products main operations profit in income from e in cost of main in gross profit ratio operations (RMB) ratio (%) main operations operations over over the last year (RMB) over the last year the last year (%) (%) (%) Manufacture of 22,598 13,435 40.55 -25.94 -28.97 2.54 condiments Manufacture of soft 24,446 2,3189 5.14 -31.57 -32.19 0.88 drinks Manufacture of teas 13,845 9,927 28.30 35.48 35.31 0.09 Service of lease 899 0.00 100.00 -1.48 0.00 0.00 Including: related 0.00 0.00 - 0.00 0.00 0.00 transactions “San Jing” brand 22,598 13,435 40.55 -25.94 -28.97 2.54 condiments Lactobacillus milk 6,006 5,666 5.66 -40.68 -38.57 -3.25 series Soft packing drinks 18,440 17,523 4.97 -27.97 -29.84 2.54 Tea powder and tea 13,845 9,927 28.30 35.48 35.31 0.09 juice series Including: related 0.00 0.00 transactions Pricing principle of related transaction Naught Explanation on necessity and consistency Naught of related transaction 6.3 Particulars about main operations classified according to areas Unit: RMB’000 Areas Income from main operations Gross profit South China 39,002 6,088 North China 4,947 1,969 East China 16,940 6,328 6.4 Particulars about the customers of purchase and sales Unit: RMB’000 Total amount of purchase of the 7,471 Proportion in the total 20.67% top five suppliers amount of purchase Total amount of sales of the top 19,174 Proportion in the total 30.89% five sales customers amount of sales 6.5 Operation of share-holding companies (applicable to the situation where investment equity takes over 10% of its net profit) √Applicable □Inapplicable Unit: RMB’000 Name of share-holding company Shenzhen Pepsi Cola Beverage Co., Ltd. Investment earnings contributed in the period 32,434 Proportion in net profit of the listed company - Share-holding Business scope Production and sales of carbonic acid drinks company represented by Pepsi in the areas of Shenzhen, Huizhou, Shantou and Meizhou etc. Net profit 81,085 6.6 Explanation on reasons of material changes in main operations and its structure □Applicable √Inapplicable 6.7 Explanation on reasons of material changes in profitability capability of main operations (gross profit ratio) than that in the last year □Applicable √Inapplicable 6.8 Analysis to reasons of material changes in operating results and profit structure compared with the previous year √Applicable □Inapplicable (1) In the year, the gross profit of the Company was RMB 15,236,000, a decrease of 8.66% over the gross profit amounting to RMB 16,682,000 in the last year, which was mainly due to the decrease in sales volume influenced by SARS epidemic. (2) In the year, the net profit was RMB-44,852,000, an increase of 15.99% over the net profit amounting to RMB-53,394,000 in the last year, which was mainly because that the losses from guarantees decreased compared with those in the last year (For details, please refer to Notes 7 of the financial report in Annual Report 2003) while the sales volume and amount decreased influenced by SARS epidemic. (3) At the end of the report period, the net increase in cash and cash equivalents of the Company was RMB-24,816,000, a decrease of 352.96% over the amount at the beginning of the year amounting to RMB 9,810,000, which was mainly because that such problems as investment in the project of Shenbao Industrial City, enlargement of market input and disposal of guarantees left in the history resulted in the outflow of cash. (4) The case that the Company provided joint guarantee for Shenzhen China Bicycle Company (Holdings) Limited (hereinafter referred to as Shenzhonghua) to get loan amounting to RMB 7,000,000 from China Construction Bank Shenzhen Branch has been compromised and settled. The Company refunded the principal amounting to RMB 7,000,000 instead for Shenzhonghua and the interest was exempted. Ended the end of the report period, the Company had refund all principals for Shenzhonghua. The case that the Company provided guarantee amounting to USD 800,000 for Shenzhonghua to apply for opening letter of credit in Bank of China Shenzhen Branch was judged by Guangdong Higher People’ s Court with (1999) YFJYZZ No. 26 document Civil Judgment, where the Company took on the joint discharging responsibility. Ended the notice date, the Company had refunded RMB 3,600,000 for Shenzhonghua. Both the said two guarantees belonged to problems left in the history, which was a link in “Guarantee chain”of listed companies in Shenzhen. At present, the reorganization of liabilities of Shenzhonghua has gained material progress. The Company would continuously adopt practical measures actively and forwardly to strive for the support of the government and relevant departments and would settle the said guarantees through legal way. (5) The Company has settled the guarantee that the Company provided for Shenzhen Tellus Holding Co., Ltd. (hereinafter referred to as Shen Tellus) to get loan amounting to RMB 5,280,000. Ended the notice date, the Company had withdrawn the principal amounting to RMB 5,280,000 and compensation fund amounting to RMB 200,000 refunded by the Company for Shen Tellus. Analysis to reasons of material changes in the whole financial position than that in the last year √Applicable □Inapplicable (1) At the end of the report period, the total assets of the Company amounted to RMB 446,314,000, a decrease of 1.94% over the amount at the beginning of the year amounting to RMB 455,161,000, which was mainly because that the Company incurred a loss in the report period while the short-term loans increased. (2) At the end of the report period, the shareholders’equity of the Company was RMB 231,290,000, a decrease of 16.24% over the amount at the beginning of the year amounting to RMB 276,142,000, which was mainly because that the Company incurred a loss in the year. (3) In the report period, the Company had no change in accounting policy and accounting estimate or correction in material accounting errors. 6.9 Explanation on the past, current and future important effects of the material changes in production and operation environment, macro-policies and regulations on the Company’ s financial position and operating results √Applicable □Inapplicable In the first half of year 2003, SARS epidemic had great impact o the food and beverage industry and affected serious influence on the sales of the Company’s products, thus the Company’ s income from main operations decreased, resulting in the large increase in the Company’ s expenses of market maintenance and expansion. Since Jan. 1, 2003, Shenzhen stopped executing the favorable policy of VAT’ s derating of “Local Manufacture Local Sale” and the Company’ s profit after tax decreased. 6.10 Completion of the profit estimation □Applicable √Inapplicable 6.11 Completion of the business plan □Applicable √Inapplicable 6.12 Application of the raised proceeds √Applicable □Inapplicable Unit: RMB’000 Total amount of raised 73,993 Total amount 13,250 Total amount of raised 28,857 proceeds of raised proceeds used proceeds used accumulatively in the report year Committed projects Planned Change Actual Accrued amount of Compliance with amount of projects or not amount of earnings planned progress and input input estimated earnings or not Project of Henggang new plant No No of Shenzhen Pepsi Cola 29,000 15,606 9,846 Beverage Co., Ltd. Project of Shenbao Industrial No No 58,000 13,250 0 City Total 87,000 - 28,857 9,846 - Explanation on not reaching The project of Henggang new plant of Shenzhen Pepsi: the project of Henggang new plant of planned progress and earnings Shenzhen Pepsi is under the operating management of Shenzhen Pepsi and its situation of earnings is reflected in the whole achievements of Shenzhen Pepsi. In 2003, Shenzhen Pepsi realized net profit amounting to RMB 81,085,000. The part of not invested shall be dicided according to the resolutions of the Board of Directors of Shenzhen Pepsi depending on the expansion situation of Shenzhen Pepsi in the market of East Guangdong and Dongguan. The project of Shenbao Industrial City: in compliance with the principle of cautious investment, based on adjusting the design of relevant engineering accordingly after adjusting product structure according to the changes in the market, the Company invested RMB 13,250,000 into the said project in the report period. The part that was still not invested would be invested gradually by stages according to the progress of the said project. Explanation on reasons and Naught procedures of change Particulars about the changed projects □Applicable √Inapplicable 6.13 Application of the proceeds not raised through shares offering □Applicable √Inapplicable 6.14 Explanation of the Board of Directors on the “Qualified Opinion”made by the Certified Public Accountants □Applicable √Inapplicable 6.15 Business plan as of the next year of the Board of Directors (If it has) □Applicable √Inapplicable Profit estimation of the next year (If it has) □Applicable √Inapplicable 6.16 The preplan on the profit distribution and capitalization of capital public reserve of the Board of Directors Audited by Shenzhen Dahua Tiancheng Certified Public Accountants under Chinese Accounting Standards, the Company’ s net profit was RMB-44,852,000 in 2003; audited by K.C.Oh & Company Certified Public Accountants under International Accounting Standards, the Company’ s net profit was RMB-44,852,000 in 2003. According to the relevant provisions in Company Law of the P.R.C. and the Articles of Association of the Company, based on the net profit of the Company amounting to RMB -44,852,000 audited by Shenzhen Dahua Tiancheng Certified Public Accountants in 2003, the retained earnings of the Company amounted to RMB -44,852,000 in 2003. According to the relevant provisions in Company Law of the P.R.C. and Standardized Interlocution No. 3 of Information Disclosure on Publicly Issuing Securities –Origin, Procedures and Information Disclosure of Losses Offsetting released by CSRC, before the Company’ s accumulative losses being offset at full amount, it was forbidden to distribute dividends to shareholders or convert capital reserve into share capital. In 2003, the Board of the Company decided to neither distribute profits nor convert capital reserve into share capital. The said preplan should be submitted to Annual Shareholders’General Meeting 2003 for consideration. §7. Significant Events 7.1 Purchase of assets □ Applicable √ Inapplicable 7.2 sales of assets □ Applicable √ Inapplicable 7.3 Important guarantee √ Applicable □ Inapplicable Unit: RMB’000 Name of Date of Amount of Type of Guarantee Term of Complete Guarantee for the happening guarantee Guarantee Implementation or related party Company (date of not or not guaranteed signing agreement) Shenzhen China Bicycle Jun. Joint responsibility Jun. 21, 1995- 6,624 No Yes Company 21,1995 guarantee Oct. 21, 1996 (Holdings) Limited Joint responsibility Dec. 31, 1998- Dec.31,1998 34,240 No Yes Guangdong guarantee Oct. 31, 1999 Sunrise Jan. 30, Joint responsibility Jan. 30, 2003- No Yes 8,580 Group Co., 2003 guarantee Jan. 30, 2004 Ltd. Jun.10, Joint responsibility Jun. 10, 2003- No Yes 4,280 2003 guarantee Jan. 10, 2004 Jun.24, Joint responsibility Jun. 30, 2003- Shenzhen 5,000 No No 2003 guarantee Jun. 30, 2004 Shenbao Jun.24, Joint responsibility Sep. 29, 2003- Huacheng 10,000 No No 2003 guarantee Sep. 29, 2004 Foods Co., Jun.24, Joint responsibility Sep. 30, 2003- Ltd 5,000 No No 2003 guarantee Sep. 30, 2004 Shenzhen Dec.23, Joint responsibility Dec. 23, 2002- 20,000 Yes No Shenbao 2002 guarantee Dec. 23, 2003 Sanjing Apr. 30, Joint responsibility Apr. 30, 2003- 30,000 No No Foods & 2003 guarantee Apr. 30, 2004 Beverage Apr. 30, Joint responsibility Sep. 30, 2003- 30,000 No No Investment 2003 guarantee Sep. 30, 2004 Co., Ltd. Mar.25, Joint responsibility Mar. 25, 2003- 20,000 No No 2003 guarantee Mar. 25, 2004 Jun. 25, Joint responsibility Jun. 27, 2003- 10,000 Yes No 2003 guarantee Dec. 27, 2003 Jun. 25, Joint responsibility Oct. 23, 2003- 10,000 No No 2003 guarantee Oct. 23, 2004 Dec. 24, Dec. 24, Joint responsibility 20,000 2003-Oct. 24, No No 2003 guarantee 2003 Total amount of guarantee 152,860 Total balance of guarantee 183,724 Including total balance of related guarantee 53,724 The total amount of guarantee provided by 140,000 the listed companies for its holding subsidiaries Total amount of irregular guarantee 53,724 The proportion of total amount of guarantee 80.11% in the net assets of the Company 7.4 Related credits and liabilities transaction √ Applicable □ Inapplicable Unit RMB’000 Related Parties Provide capital to the related Related parties provided capital parties to the list company Amount Balance Amount Balance Shenzhen South Tongfa Industrial 13,632 38,003 0 0 Company Guangdong Sunrise Group Co., Ltd. 744 9,597 0 0 Shenzhen China Bicycle Company 10,100 10,100 0 0 (Holdings) Limited Total 24,476 57,701 0 0 7.5 Entrusted assets □ Applicable √ Inapplicable 7.6 Implementation of commitment items √ Applicable □ Inapplicable From Mar. 31, 2003 to Apr. 17, 2003, Shenzhen Securities Regulatory Office of CSRC conducted routine inspection about the Company. On May 23, 2003, the Company received Notification on Requiring the Renovation of Shenzhen Shenbao Industrial Co., Ltd. in the Regulated Term (hereinafter referred to as Renovation Notification) with document SZBFZ [2003] No. 94. The directors, supervisors, and senior executives of the Company seriously studied and discussed about the Renovation Notification; according to the Company Law, Securities Law, Shares Listing Rules in Shenzhen Stock Exchange and relevant laws, regulations, and the Articles of the Association, retrospect and checked the operation status in recent years in further step; analyzed the existing problem seriously in the spirit of strictly self-discipline and standardized operation and in the attitude of responsibility to the shareholders; proposed the effective renovation measures.(For details, please refer to the public notice published in Securities Times and Hong Kong Ta Kung Pao dated Jun. 24, 2003). By the end of the report period, majority of the renovation matters were accomplished. 7.7 Significant lawsuit and arbitration √Applicable □ Inapplicable (I) The lawsuit case of the Company as warrantor for Shenzhen South Tongfa Industrial Company (hereinafter referred to as “South Tongfa”) for loan amounting to RMB 30,000,000 was settled through reconciliation on Jan.11, 2002 (For details, please refer to Public Notice on Material Lawsuits of the Company published on Securities Times and Hong Kong Ta Kung Pao dated Mar. 13, 2002). Dated the end of the report period, according to the requirements of Civil Mediation Letter, the Company respectively repaid the principal, interest and lawsuit expense for the 1st trial and expense of save from damage amounting to RMB 38,003,000 (The event didn’t affect the income of the company in the report period). At present, the Company would execute the relevant recourse right pursuant to the law approaches. (II) The lawsuit case that the Company provided guarantee for Guangdong Sunrise Holdings Co., Ltd. (the former Shenzhen Lionda Holdings Co., Ltd., hereinafter referred to as Sunrise Company) concerning the loan of HKD 3,000,000, which Sunrise Company asked for a loan from Shenzhen Branch of Industrial and Commercial Bank of China, has been settled through reconciliation in Dec. 2002. The Company in place of Sunrise Company repaid the principal of HKD 3,000,000and the interest of HKD 100,000 on Jan. 13, 2003. The rest interest has been exempted. The company would execute the relevant rights by legal approaches. (III) The lawsuit case that the Company offered guarantee for Sunrise Company’s loan amounting to HKD 6,000,000 from Nantou sub-branch of Shenzhen Development Bank was settled with compromise. The Company has repaid the principal amounting to HKD 2,000,000 and interest for Sunrise Company, and the residuals of the principal amounting to RMB 4,000,000 were transferred to loan and guaranteed by the Company continuously (For details, please refer to Public Notice of the Company published on Securities Times and Hong Kong Ta Kung Pao dated May 13, 2003) (IV) The lawsuit case that the Company offered guarantee for Sunrise Company’ s loan amounting to RMB 8,000,000 from Shenzhen Nanyuan sub-branch of Gongdong Development Bank (former Nanyuan sub-branch of Shenzhen branch of Guangdong Development Bank) was settled with compromise. Dated the end of the report period, the Company has repaid and interest amounting to RMB 1,939,000 for Sunrise Company, the residuals amounting to RMB 8,580,000 were transferred to loan and guaranteed jointly by the Company continuously. (V) The lawsuit case that the Company offering joint guarantee for Shenzhen Tellus Holding Co., Ltd. of borrowing RMB 5,280,000 from Shenzhen International Trust and Investment Corporation was settled with compromise. The Company has repaid RMB 5,280,000 to Shenzhen International Trust and Investment Corporation for Tellus Company in March 2002. Dated the end of the report period, the Company has retrieved the principal loan amounting to RMB 5,280,000 and the compensation amounting to RMB 200,000. (VI) The lawsuit case that the Company offering joint guarantee for Shenzhen China Bicycle Company (Holdings) Limited of borrowing RMB 7,000,000 from Shenzhen branch of China Construction Bank (hereinafter referred to as “construction bank”) was settled through reconciliation. The Company and construction bank made terms on exempting the interest (For details, please refer to Public Notice of the Company published on Securities Times and Hong Kong Ta Kung Pao dated on Sep. 18, 2003 and on Jan. 10, 2004). In the report period, the Company paid RMB 7,000,000 for Shen Zhonghua in two installments according to the terms. The Company would execute the relevant rights by legal ways. (VII) In the case that the Company provided guarantee for Shenzhen China Bicycle Company (Holdings) Limited to apply for opening the letter of credit amounting to USD 800,000 from Shenzhen Branch of Bank of China. According to the Civil Judgment with (1999) YFJYZ ZI No.26 of Guangdong Higher People’ s Court, the Company took the joint clearing responsibility. Shenzhen Intermediate People’s Court had also issued the implementation order. The Company paid back RMB 3,600,000 for Shen Zhonghua dated the report day. 7.8 Particulars about the performance of obligations of Independent Directors The Company has established Rules for Independent Directors according to Guidelines Opinion on Establishing Independent Director System in Listed Companies and Administration Rules of Listed Companies. At present, the Company has three independent directors. In the report year, the Company held six meetings of the Board and three shareholders’general meetings. Mr. Tian Yanqun and Mr. Fan Zhiqing, Independent Director of the Company, attended six meetings of the Board and three shareholders’ general meetings; Independent director Wu Ying attended two meetings of the Board and one shareholders’general meeting after he was elected as independent director of the Company. In the report year, independent directors of the Company seriously performed their duties; practically safeguard the whole interests of the Company and legal rights of the medium and small shareholders according to the requirement of Articles of Association of the Company and the relevant laws and regulations. §8. Report of the Supervisory Committee I. Particular about work of the Supervisory Committee in the report period In the report period, the Supervisory Committee had held three meetings, examined and adopted and the following resolutions: (I) The 9th meeting of the 4th Supervisory Committee was held on Mar. 12, 2003. The following resolutions were examined and approved at the Meeting: (i) 2002 Report of the Supervisory Committee; (ii) Financial Settlement Report 2002; (iii) Annual Report 2002 and its Summary (A share and B share respectively); (iv) 2002 Profit Distribution Preplan. (v) Preplan about Using Surplus Public Reserve and Capital Reserve to make up losses in the previous years The public notice on the aforesaid resolutions of the meeting was published in Securities Times and Hong Kong Ta Kung Pao respectively dated Mar.13, 2003. (II) The 10th meeting of the 4th Supervisory Committee was held on Jun. 20, 2003. The following resolutions were examined and approved in the Meeting: (i) Renovation Report of Shenzhen Shenbao Industrial Co., Ltd. about the problems found in the 2003 routine inspection by Shenzhen branch of CSRC; (ii) Proposal on Expiration and Election of the Supervisory Committee. The public notice on the aforesaid resolutions was published in Securities Times and Hong Kong Ta Kung Pao respectively dated Jun. 24, 2003. (III) The 1st meeting of the 5th Supervisory Committee was held on July 28, 2003. The following resolutions were examined and approved in the meeting: (i) Proposal on the Election of Chairman of the 5th Supervisory Committee of the Company; (ii) 2003 Semi-annual report and its summaries (A share and B share respectively). The public notice on the aforesaid resolutions was published in Securities Times and Hong Kong Ta Kung Pao respectively dated July 30, 2003. II. Independent opinion of the Supervisory Committee on certain issues (I) Operation According to the Law In the report period, the Supervisory Committee conducted supervision over the procedures of holding Board meetings and Shareholders’ General Meeting, resolutions, implementation of the resolutions of the Shareholders’General Meeting by the Board of Directors, status of the senior executives in implementing their duties and the Company’ s management system according to the relevant laws and regulations. In our opinion, in 2003, the Board of Directors carried out the operation in a standardized way strictly according to the PRC Company Law, the Securities Law, the Listing Rules, the Articles of Association and other relevant regulations. The Company’ s directors and managers worked patiently and responsibly and the Company’ s decision-making was religious and solid. We have found no directors or senior executives ever involved in any actions against the law, rules and regulations, or the Articles of Association or harmful to the interest of the Company and the shareholders in the process of implementation of their duties. (II) Financial Inspection We have made careful and serious inspection of the Company’ s financial system and financial position. In our opinion, 2003 Financial Report of the Company has truly reflected the Company’ s financial position and operation achievements. The auditors’ report and the auditors’opinion on the relevant issues produced by Shenzhen Dahua Tiancheng Certified Public Accountants and Hong Kong K.C. Oh & Company Certified Public Accountants are objective and fair. (III). The actual investment project funded by the latest proceedings is the same as the commitment. (IV) In the report period, there has existed no insider transaction or action harmful to the part shareholders’right and interest or in connection with loss of the Company’s assets. (V) In the report period, the Company had no significant related transactions and no actions harmful to the interest of the Company. §9. Financial Report 9.1 Report of Auditors Shenzhen Shenbao Industrial Co., Ltd. (Incorporated in the People’s Republic of China) Report of the auditors and financial statements for the year ended December 31, 2003 Report of the auditors to the members of Shenzhen Shenbao Industrial Co., Ltd. (Incorporated in the People’ s Republic of China with limited liability by shares) We have audited the accompanying balance sheet of Shenzhen Shenbao Industrial Co., Ltd. as of December 31, 2003 and the related statements of income, cash flows and changes in equity for the year then ended. These financial statements are the responsibility of the Group’ s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In forming our opinion, we have considered the adequacy of the disclosures made in the financial statements concerning the contingent loss the Group may have to suffer in respect of the guarantees it had given to various companies that had defaulted the banks. The defaulting companies are continuing to negotiate with the banks for settlement of the outstanding loans so that the guarantors may not have any eventual loss. Details of the circumstances relating to this fundamental uncertainty are described in note 22 to the financial statements. The Group’ s management is responsible for the disclosure and possible results of the above matter and our opinion is not qualified in this respect. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2003 and the results of its operations and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. K. C. Oh & Company Certified Public Accountants Hong Kong : April 8, 2004 9.2 Accounting statement Shenzhen Shenbao Industrial Co., Ltd. Consolidated income statement for the year ended December 31, 2003 2003 2002 Note RMB’000 RMB’000 Turnover (5) 61,787 77,134 Cost of sales ( 46,551 ) ( 60,452 ) Gross profit 15,236 16,682 Other revenue (6) 1,351 24,011 16,587 40,693 Distribution costs ( 27,372 ) ( 16,386 ) Administrative expenses ( 39,365 ) ( 37,081 ) Other operating expenses ( 136 ) ( 142 ) Operating loss ( 50,286 ) ( 12,916 ) Finance costs ( 4,368 ) ( 2,508 ) Operation loss before exceptional items ( 54,654 ) ( 15,424 ) Exceptional items (7) ( 26,226 ) ( 57,380 ) Loss after exceptional items ( 80,880 ) ( 72,804 ) Share of profit from associates 32,157 20,016 Loss before taxation (8) ( 48,723 ) ( 52,788 ) Taxation (9) ( 499 ) ( 590 ) Loss before minority interests ( 49,222 ) ( 53,378 ) Minority interests 4,370 ( 16 ) Loss attributable to shareholders ( 44,852 ) ( 53,394 ) Accumulated profit/(loss) brought forward ( 47,881 ) 1,502 Loss before transfers and set off ( 92,733 ) ( 51,892 ) Transfers from reserves and loss set off : Transfers from reserves - 4,011 Loss set off 47,729 - 47,729 4,011 Accumulated loss carried forward ( 45,004 ) ( 47,881 ) Loss per share –basic (10) RMB(0.2465) RMB(0.2935) Shenzhen Shenbao Industrial Co., Ltd. Consolidated balance sheet as at December 31, 2003 2003 2002 Note RMB’000 RMB’000 Non-current assets Fixed assets (11) 68,969 47,348 Intangible assets (12) 39,156 40,714 Interests in associates (13) 148,572 135,484 Other investments (14) 37,745 42,558 294,442 266,104 Current assets Tax recoverable 1,512 1,401 Inventories (15) 16,126 18,492 Amount due from a related company (16) - 1,160 Accounts receivable (17) 23,382 28,814 Prepayments, deposits and others receivable (18) 57,365 60,887 Cash and bank balances 53,487 78,303 151,872 189,057 Current liabilities Dividends payable ( 218 ) ( 218 ) Amount due to a related company (19) ( 6,201 ) ( 6,201 ) Accounts payable ( 11,564 ) ( 10,151 ) Receipts in advance ( 14,040 ) - Others payable and accrued expenses ( 19,557 ) ( 21,415 ) Anticipated liabilities ( 23,298 ) ( 26,518 ) Short-term bank loans (20) ( 130,000 ) ( 100,000 ) ( 204,878 ) ( 164,503 ) Net current assets/(liabilities) ( 53,006 ) 24,554 Assets less current liabilities 241,436 290,658 Minority interests ( 10,146 ) ( 14,516 ) Net assets employed 231,290 276,142 Financed by : Share capital (21) 181,923 181,923 Reserves 49,367 94,219 Shareholders’equity 231,290 276,142 The financial statements on pages 2 to 24 were approved and authorised for issue by the board of directors on April 8, 2004 and are signed on its behalf by : Director Director Shenzhen Shenbao Industrial Co., Ltd. Consolidated statement of changes in equity for the year ended December 31, 2003 Retained Share Capital Surplus earnings/ capital reserves reserves (loss) Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 As at January 1, 2002 181,923 37,621 1,502 329,746 Loss for the year of 2002 - - - ( 53,394 ) ( 53,394 ) Transfer from surplus reserves as a result of over-transfer in prior years - - ( 4,011 ) 4,011 - Interests in associates over- provided - ( 210 ) - - ( 210 ) As at December 31, 2002 181,923 33,610 ( 47,881 ) 276,142 As at January 1, 2003 181,923 33,610 ( 47,881 ) 276,142 Loss for the year of 2003 - - - ( 44,852 ) ( 44,852 ) Accumulated loss set off ( ) ( 20,243 ) 47,729 - As at December 31, 2003 181,923 13,367 ( 45,004 ) 231,290 According to the corporation law and relevant regulations of a joint stock limited company, the Company’ s specified profit should be classified as capital reserves, which include share premium, surplus on revaluation of assets and other investments, etc. Capital reserves are normally used for issue of new shares, or for write-off or other-than-temporary provision when other investments are revalued downwards. Surplus reserves comprise statutory reserve, statutory public welfare fund and discretionary surplus reserve. The Company is required to transfer an amount of not less than 10% of the profit after making up the accumulated loss to statutory reserve until it is up to 50% of the registered share capital. Statutory reserve can be used to cover current year loss or for issue of new shares. The amount of statutory reserve to be utilized for issue of new shares should not exceed an amount such that the balance of the reserve will fall below 25% of the registered share capital after the issue of new shares. The Company is also required to transfer 5% of the profit after making up the accumulated loss to statutory public welfare fund. Statutory public welfare fund shall only be applied for the collective welfare of the Company’ s employees. Discretionary surplus reserve is applied in accordance with the shareholders’resolutions passed in the annual general meeting and can be used to cover current year loss or for issue of new shares. Pursuant to the resolutions passed by the shareholders in the 2002 annual general meeting held on June 26, 2003, the Company’ s capital reserves and surplus reserves were used to set off against the accumulated loss. Shenzhen Shenbao Industrial Co., Ltd. Consolidated cash flow statement for the year ended December 31, 2003 2003 2002 RMB’000 RMB’000 Cash flow from operating activities Operating loss before taxation ( 48,723 ) ( 52,788 ) Adjustment items : Loss on disposal of fixed assets 582 38 Depreciation 6,426 19,559 Amortization of intangible assets 1,558 1,207 Provision for impairment loss of other investments 4,630 - Loss from guarantees 21,257 53,742 Provision/(reversal) for impairment loss of assets ( 385 ) 3,622 Amortization of deferred assets - 23 Share of profit from associates ( 32,157 ) ( 20,016 ) Amortization of premium in associates 339 1,695 Profit from disposal of other investments ( 750 ) ( 15,842 ) Dividends from other investments - ( 1,535 ) Interest income ( 881 ) ( 744 ) Interest expense 5,266 3,241 Adjustment of interest in associates - ( 210 ) Operating cash flows before movements in working capital ( 42,838 ) ( 8,008 ) (Increase)/decrease in inventories 3,218 ( 5,331 ) Increase in amount due from a related company - ( 1,160 ) (Increase)/decrease in accounts receivable 4,915 ( 15,912 ) (Increase)/decrease in prepayments, deposits and others receivable 3,572 ( 7,114 ) Increase/(decrease) in accounts payable 1,413 ( 1,000 ) Increase in receipts in advance 14,040 - Increase/(decrease) in others payable and accrued expenses ( 1,858 ) 12,077 Decrease in anticipated liabilities ( 24,477 ) ( 29,042 ) Cash outflow from operating activities before interest and tax payments ( 42,015 ) ( 55,490 ) Interest paid ( 5,378 ) ( 3,241 ) Income tax paid ( 610 ) ( 1,400 ) Net cash outflow from operating activities c/f ( 48,003 ) ( 60,131 ) (to be cont’d) Shenzhen Shenbao Industrial Co., Ltd. Consolidated cash flow statement for the year ended December 31, 2003 (cont’d) 2003 2002 RMB’000 RMB’000 Net cash outflow from operating activities b/f ( 48,003 ) ( 60,131 ) Investing activities Interest received 881 744 Proceeds from disposal of fixed assets 404 697 Purchases of fixed assets ( 27,761 ) ( 16,577 ) Purchases of intangible assets - ( 24,236 ) Dividends received from associates 18,730 9,534 Dividends received from other investments - 1,535 Premium paid for investments in associates - ( 3,390 ) Proceeds from disposal of other investments 933 31,339 Net cash outflow from investing activities ( 6,813 ) ( 354 ) Net cash outflow before financing activities ( 54,816 ) ( 60,485 ) Financing activities Dividends paid - ( 6,405 ) Increase in short-term bank loans 62,200 Minority interests - 14,500 Net cash inflow from financing activities 30,000 70,295 Increase/(decrease) in cash and cash equivalents ( 24,816 ) 9,810 Cash and cash equivalents as at beginning of year 78,303 68,493 Cash and cash equivalents as at end of year 53,487 78,303 Analysis of cash and cash equivalents Cash and bank balances 53,487 78,303 Board of Directors of Shenzhen Shenbao Industrial Co., Ltd. Apr. 10, 2004