国药一致(000028)一致药业2003年年度报告摘要（英文版）

SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. Stock Code: 000028, 200028 Short Form of the Stock: Accord Pharm., Accord Pharm.-B No.: 2004-12 Shenzhen Accord Pharmaceutical Co., Ltd. Summary of Annual Report 2003 §1 Important Notes 1.1 Board of Directors of Shenzhen Accord Pharmaceutical Co., Ltd. (hereinafter referred to as the Company) 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. 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 All directors attended the Board meeting. 1.4 Moore Stephens (Shenzhen) Nanfang Minhe Certified Public Accountants issued standard unqualified Auditor’s Report for the Company. 1.5 Chairman of the Company Mr. Guo Yuan, General Manager Mr. Su Yanwei and Chief Financial Officer Mr. Qin Changsheng and Person in charge of Accounting Organ Ms. Lai Wanying 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 Accord Pharm., Accord Pharm.-B Stock code 000028, 200028 Listed stock exchange Shenzhen Stock Exchange Registered address and Accord Pharm. Bldg., No. 15, Ba Gua Si Road, Futian District, office address Shenzhen Guangdong and P.R.C Post code 518029 Internet web site of the http://www.szaccord.com.cn Company E-mail of the Company 0028@szaccord.com.cn SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. 2.2 Contact person and method Secretary of the Board of Directors Representative in charge of Securities Affairs Name Chen Changbing None Contact address Accord Pharm. Bldg., No. 15, Ba Gua Si Road, Futian District, Shenzhen Guangdong Telephone +(86)755 25875195，25875140 Fax +(86)755 25875166 E-mail champion@szaccord.com.cn §3 Summary of Accounting Data and Financial Indexes 3.1 Major accounting data Unit: RMB’000 Increase/decrease 2003 2002 2001 over last year（％） Income from main operations 1,780,874 1,869,938 -4.76% 1,668,675 Total profit 12,233 2,078 488.81% 31,600 Net profit 15,191 4,923 208.58% 21,105 Net profit after deducting 7,969 -4,920 - 16,7135 non-recurring gains and losses Increase/decrease At the end of At the end of At the end from the end of 2003 2002 of 2001 previous year（％） Total assets 1,008,327 1,052,597 -4.21% 1,116,129 Shareholder’s equity 341,584 333,335 2.47% 338,201 (excluding minority interests) Net cash flow arising from 81,221 28,765 182.36% 71,157 operating activities 3.2 Major financial indexes Unit: RMB Increase/decrease 2003 2002 2001 over last year（％） Earnings per share 0.053 0.017 211.76% 0.073 Return on equity 4.45% 1.48% 200.68% 6.24% Return on equity calculated based 2.33% -1.48% - 4.94% on net profit after deducting SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. non-recurring gains and losses Net cash flow per share arising 0.282 0.100 182.00% 0.247 from operating activities Increase or decrease At the end At the end At the end of from the end of of 2003 of 2002 2001 previous year（％） Net assets per share 1.185 1.157 2.42% 1.174 Net assets per share after 1.110 0.997 11.33% 0.920 adjustment 3.3 Difference in net profit as audited by Chinese Accounting Standard (CAS) and International Accounting Standard (IAS) √Applicable □Inapplicable Unit: RMB’000 CAS IAS Net profit 15,191 14,345 (1) Registration fee of trademark 79 Explanation on the (2) losses arising from over book valve difference of investment of subsidiaries 8,344 (3) Goodwill and related amortization -7,577 §4 Changes in Share Capital and Particulars about Shareholders 4.1 Statement of change in share Unit: share Increase / decrease Before the change After the change in this time (+, -) I. Unlisted Shares 1. Sponsors’ shares 150,935,400 0 150,935,400 Including: State-owned share 124,864,740 0 124,864,740 Domestic legal person’s shares 26,070,660 0 26,070,660 Foreign legal person’s shares 0 0 Others 0 0 2. Raised legal person’s shares 27,442,800 0 27,442,800 3. Inner employees’ shares 0 0 4. Preference shares or others 0 0 Total unlisted shares 178,378,200 0 178,378,200 II. Listed Shares 1. RMB ordinary shares 54,885,600 0 54,885,600 2.Domestically listed foreign shares 54,885,600 0 54,885,600 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. 3. Overseas listed foreign shares 0 0 4. Others 0 0 Total listed shares 109,771,200 0 109,771,200 III. Total shares 288,149,400 0 288,149,400 4.2 Statement of shares held by the top ten shareholders Total number of shareholders at the end of report period 29,242 Particulars about shares held by the top ten shareholders Increase / Nature of Shares held Number of decrease in Propo Type of shares shareholders at the share Full name of Shareholders the report rtion (Circulating/Non (State-owned year-end pledged/ year (%) -circulating) shareholder/foreign (share) frozen (share) (share) shareholder) Shenzhen Investment Holding State-owned 0 124,864,740 43.33 Non-circulating Unknown Corporation shareholder Shenzhen Baoan District Shiyan Town Economic and 0 26,070,660 9.05 Non-circulating 16,079,700 Legal person’s share Development Corporation Shenzhen Baoan Shangwu Economic and Development 0 13,942,800 4.84 Non-circulating 13,846,000 Legal person’s share Co., Ltd. Shenzhen Wangzong Industrial 0 5,303,200 1.84 Non-circulating Unknown Legal person’s share Co., Ltd. Nanjing Junyue Investment and 0 5,000,000 1.74 Non-circulating Unknown Legal person’s share Consultation Co., Ltd. CHAN PONG HUNG -171,000 1,567,571 0.54 Circulating Unknown B-share in circulating Wuxi Huaxin Investment 0 1,396,800 0.48 Non-circulating Unknown Legal person’s share Management Co., Ltd. Shanghai Shisheng Enterprise 0 0.35 Non-circulating Unknown Legal person’s share Development Co., Ltd. 1,000,000 SONG LI RONG 875,117 875,117 0.30 Circulating Unknown A-share in circulating Tianjin Polytechnic University 825,345 825,345 0.29 Circulating Unknown A-share in circulating Explanation on associated relationship Among the above top ten shareholders, there exists no associated among the top ten shareholders or relationship among state-owned shareholder and each shareholders of legal consistent action person’s share, and they do not belong to the consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies. For other shareholders of circulation share, the Company is unknown their relationship. SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. Particulars about shares held by the top ten shareholders of circulation shares Shareholders’ name (full name) Number of circulation shares held at Type (A-share, B-share, H-share the year-end and other) CHAN PONG HUNG 1,567,571 B-share SONG LI RONG 875,117 A-share Tianjin Polytechnic University 825,345 A-share Hainan Gefon Network Security Co., 819,499 A-share Ltd. Shanghai Xiaoshen Air Conditioning 783,309 A-share Equipment Co., Ltd. Kunming Tianhao Stage Sound and 741,090 A-share Lighting Engineering Co., Ltd. Shanghai Jiaying Real Estate 689,956 A-share Development Co., Ltd. Tianjin Zhenyuan New Type Pillow 649,401 A-share Plant Urumchi Huixinhong Industry & Trade 636,200 A-share Co., Ltd Shanghai Huayi Group International 591,500 A-share Trade Co., Ltd. Explanation on associated relationship among Among the top ten shareholders of circulation share, the the top ten shareholders of circulation share Company is unknown their relationship. 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 4.3.2 Introduction to the situation of controlling shareholder and other actual controller Name of the controlling shareholder: Shenzhen Investment Holding Corporation Legal representative: Mr. Li Heihu Date of foundation: Feb. 10, 1988 Structure of equity: state-owned sole corporation Registered capital: RMB 2 billion Business scope: Management and supervision of enterprise’s state assets, financing and property right; to share all kinds of enterprise and turnover investment, to offer credit and assurance; to impose profit after taxation and occupying expenses of assets of state enterprise and the other business authorized by municipal government. SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. §5 Particulars About Directors, Supervisors, Senior Executives 5.1 Particulars about changes in shares held by directors, supervisors and senior executives Shares Shares held held at the at the Reason of Name Title Sex Age Office term year-begin year-end change (share) (share) Guo Yuan Chairman of the Male 50 Dec. 18, 2001- the Board expiration of the 0 0 No office term Zeng Vice Chairman of Male 58 Jun. 30, 2000- the Yuxiang the Board expiration of the 0 0 No office term Su Yanwei Director, General Male 43 Aug. 22, 2002- the Manager expiration of the 0 0 No office term Qin Director, CFO Male 43 Dec. 29, 2000- the Changsheng expiration of the 0 0 No office term Yuan Director Female 42 Jun. 27, 2002- the Xueping expiration of the 0 0 No office term Liao Director Male 55 Jun. 30, 2000- the Yuchun expiration of the 0 0 No office term Hao Independent Male 51 Jun. 27, 2002- the Zhujiang Director expiration of the 0 0 No office term Guo Jinlong Independent Male 42 Jun. 27, 2002- the Director expiration of the 0 0 No office term Zhu Dixin Chairman of the Male 56 Dec. 29, 2000- the Supervisory expiration of the 0 0 No Committee office term Shen Supervisor Male 54 Jun. 15, 2001- the Tianfang expiration of the 0 0 No office term SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. Zhao Supervisor Male 35 Jun. 30, 2000 Junpeng - the expiration of 0 0 No the office term Wang Deputy General Female 47 May 10, 2001- the Qiuhui Manager expiration of the 0 0 No office term Gao Guoshi Deputy General Male 50 May 10, 2001- the Manager expiration of the 0 0 No office term Tan Guoshu Deputy General Male 49 Jun. 11, 2003- the Manager expiration of the 0 0 No office term Ou Deputy General Male 45 Jun. 11, 2003- the Jianneng Manager expiration of the 0 0 No office term Chen Secretary of the Male 36 Dec. 29, 2000- the Changbing Board of expiration of the 0 0 No Directors office term 5.2 Particulars about directors and supervisors holding the post in Shareholding Company √Applicable □Inapplicable Drawing the payment Name of Shareholding Title in Shareholding Name Office term from the Shareholding Company Company Company (Yes / No) Shenzhen Baoan District Chairman of the Zeng Yuxiang Shiyan Town Economic and Jun. 2000 to now No Supervisory Committee Development Corporation Shenzhen Baoan District Liao Yuchun Shiyan Town Economic and General Manager Jun. 2000 to now No Development Corporation Shenzhen Investment Holding Yuan Xueping Secretary Jan. 2001 to now No Corporation Qin Shenzhen Investment Holding No Dec. 2000 to now No Changsheng Corporation Shenzhen Baoan Shangwu Zhao Junpeng Economic and Development Chairman of the Board Jan. 2000 to now No Co., Ltd. SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. 5.3 Particulars about the annual payment of directors, supervisors and senior executives Total annual payment RMB 2,698,000 Total annual payment of the top three directors and supervisors drawing the RMB 657,000 highest payment Total annual payment of the top three senior executives drawing the highest RMB 844,000 payment Allowance of independent director RMB 30,000 per person/ year The expenses that independent directors attended the Board Other treatment of independent directors meeting and shareholders’ general meeting are reimbursed according to the Company’s regulations. Name of directors and supervisors Director: Zeng Yuxiang, Liao Yuchun, Yuan Xueping, Qin receiving no payment or allowance from Changsheng, Hao Zhujiang and Guo Jinlong the Company Supervisor: Zhao Junpeng Scope of payment Number of persons RMB 310,000 – RMB 330,000 1 RMB 240,000 – RMB 300,000 5 RMB 160,000 – RMB 200,000 3 §6. Report of the Board of Directors 6.1 Discussion and analysis to the whole operation in the report period In 2003, the Company actively adapted itself to the competitions and changes in the market, emphasized to push all work with deepening reform and transforming mechanism as the drive, with implementing competitive positions taking for all staffs and improving assessment system as the means and with expanding market, reinforcing marketing, enhancing services and further tamping foundation as the emphasis, completed all operating indexes and gained relatively good operating benefits. 1. Itemizing market, positioning specialty and expanding business In 2003, in order to effectively change the abuse in excessively long management chain, based on canceling the qualifications of legal persons of several pharmaceutical commercial enterprises and establishing branches, the Company has set up pharmaceutical logistics division. On the one hand, through peeling off such background businesses as purchase, distribution, settlement and etc., the Company has set up operating platform with comprehensive purchase, storage, distribution, settlement and information system resources share. On the other hand, aiming at SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. various kinds of customer groups and various kinds of regional markets, the Company has conducted specialty division and positioning with various features to all sales branches. Through the market itemization and specialty division, the resources collocation was optimized, which has enhanced the market expansion capability of the Company’s pharmaceutical logistics business, increased the sales and expanded the market share. 2. Making objective clear, pulling out all stops and doing bidding well In 2003, in the emphasis of centralized bidding and purchase for medicine in Shenzhen, the Company improved the organizational system of bidding and centralized the best resources in personnel, finance and materials with clear work division and responsibility division to individuals, which has ensured the smooth progress of bidding and has made the Company gain good achievements. The bidding hitting rate of the Company was 45.8% and the varieties of getting bidding took 34.4% in total varieties of getting bidding in the whole city, ranking the 1st in Shenzhen. 3. Adjusting strategy, cultivating varieties and making sales good Making use of network resources in pharmaceutical wholesale and retail terminal, the pharmaceutical logistics division has cultivated a set of big variety with market potential and profitability jointly with the production enterprises. In the pharmaceutical enterprise, Shenzhen Pharmaceutical Factory implemented the marketing mode of “With operation as the core and with sales as the accessory” and “Both distribution and agency”, which made the products keep good market share. The sales volume of main products, namely “Federal Cough Syrup” and “Dali Xinzhen”, both exceeded 10 million bottles, which both became products with their sales volume exceeding RMB 100 million. Shenzhen General Plant of Chinese Traditional Medicine put emphasis on reinforcing the development of blankness in clinical market and actively pushed the sales growth of main products, namely “Jian’er Qingjie Ye” and “Qingbai” series products according to the principle of key regional markets, key hospitals, key varieties and key investments. 4. Receiving challenge of SARS epidemic and completing the supply task of medicine As a reserve unit of medicine and a supply unit of medical instruments for prevention from SARS epidemic designated by Shenzhen municipal government, during the period of oppugning SARS epidemic in 2003, the Company has assumed the supply of medicine and appliances for preventing from SARS epidemic by over 80% in all big hospitals in Shenzhen and by 40% in retail market. Organizing all forces and mobilizing all resources, the Company strictly implemented the price policy of the State, fully exerted its function as the main channel supply enterprise of medicine, gained relatively good social benefits and was commended by Shenzhen municipal SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. government, Guangdong Economic & Trade Commission and Guangdong Association of Pharmaceutical Industry. 5. Continuing to reinforce the management of technical quality and gaining new effect in GSP certification Based on that Shenzhen Pharmaceutical Factory and Shenzhen General Plant of Chinese Traditional Medicine have passed GMP certification of the State and Shenzhen Pharmaceutical Company and Shenzhen Accord Pharmaceutical Chain Co., Ltd. have passed GSP certification of the State, the Company also passed GSP certification as a whole in 2003. 6. Implementing “To invigorate large enterprises while relaxing control over small ones” and separation of the core from the accessory and reducing the Company’s operating risks In 2003, through transferring its 45.9% equity of Shenzhen Modern Computer Co., Ltd., the Company realized the separation of the core from the accessory; restructuring through transferring 79% equity of Shenzhen Jian’an Pharmaceutical Company and introducing into external shareholders of legal persons, the Company realized the transfer of operating mechanism of this enterprise; through the disposal of stopping operation of Pharmaceutical Trade Company with operating crisis caused by material dispute of medical sales and supply, the Company held back the enlargement of operating risks. 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 (%) (%) (%) Medical industry 452,909 199,490 55.95 -7.65 -27.68 27.89 Medical wholesale 1,908,084 1,789,717 6.20 43.55 49.38 -37.12 Medical retail 271,575 213,031 21.56 -4.92 -3.37 -5.48 Non-medical trade 55,355 5,3409 3.52 -78.49 -78.98 177.17 Counteracting inside the 907,049 906,460 0.06 84.14 84.27 -57.14 Company Including: related 3,615 3,507 3.00 -85.05 -85.05 0.00 transactions Series products of head 220,463 121,174 45.04 7.02 7.68 0.75 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. spore Jian’er Qingjie Ye 21,353 9,434 55.82 11.09 2.54 7.08 Including: related 0 0 transactions Pricing rules for related Market price transactions Necessity and durative 1. The related businesses of the Company with profitability as purpose and with market price and fair of related transactions transaction as principle were in compliance with the principles under market economy. 2. The related transactions accounted for a very small proportion in total sales of the Company, which impacted on the Company by a little margin. 6.3 Particulars about main operations classified according to areas Unit: RMB’000 Areas Income from main operations Increase/decrease in income from main operations over the last year (%) Domestic sales 1,730,188 -0.94 Oversea sales 50,686 -58.93 Total 6.4 Particulars about the customers of purchase and sales Unit: RMB’000 Total amount of purchase 115,350 Proportion in the total 12.56% of the top five suppliers amount of purchase Total amount of sales of the 239,397 Proportion in the total 13.44% top 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 Modern Computer Co., Ltd. Investment earnings contributed in the -3,705 period Proportion in net profit of the listed -24.39% company SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. Share-holding Business scope Development and production of software, hardware company and external equipments of computers, magcard and IC card; database and network service etc. Net profit -8,072 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 It was mainly because the Company’s affiliated industrial enterprises implemented such ways as international bidding etc. to the purchase of large amount of raw materials through digging potential internally and reinforcing the purchase management, which made the cost of raw materials decrease. 6.8 Analysis to reasons of material changes in operating results and profit structure compared with the previous year √Applicable □Inapplicable ①The gross profit ratio of the Company’s industrial enterprises increased; ②In 2002, influenced by the arbitration results of Shenzhen Pharmaceutical Trade Company, a subsidiary of the Company, the bank loan guarantee provided by Shenzhen Pharmaceutical Factory and Shenzhen Pharmaceutical Co., another two subsidiaries of the Company, to the Company respectively was RMB 3.80 million and RMB 3 million, which was reckoned in the estimated liabilities at full amount, thus making the gains and losses in that year decrease. However, there existed no such situation in 2003, which was also the reason why the net profit increased over the last year. Analysis to reasons of material changes in the whole financial position than that in the last year √Applicable □Inapplicable 1. The Company has established pharmaceutical logistics division through continuous deepened reform and has enhanced the market feedback capability in a better way. Catching the commercial opportunity of increase in demand for medicine against SARS in the first half of the year, while increasing the sales of medicine, the Company has gained a certain reserved financial subsidy, as a pointing reserve enterprise for medicine. 2. The Company has gained a relatively high rate of bidding hitting, replying the SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. centralized bidding and purchase of medicine with full strength. 3. The industrial enterprises made the profit increase by a relatively large margin by comparison in the same caliber through digging potential and restructuring inside and actively expanding the market outside, under such adverse situations as the policy of local production and local sales being cancelled. 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 1. On the one hand, along with the continuously good economic situation of the country, the average level of using medicine of town residents increased gradually. On the other hand, the policy and measures of the country urged the price of medicine to fall continuously, which would further stimulate the growth of consumption market of medicine. It would provide good environment for the development of business of the Company. 2. The State implemented the policy falling of price of medicine in succession for many years, which impacted a lot in the industry of medicine. The energetic implementation and increasingly improvement of bidding and purchase system of medicine put forward much higher requirements to the Company’s distribution service of medicine and at the same time would made the Company’s gross profit ratio of sales further decrease. 3. Changes have been taking place in the market structure of medical commerce. The traditional market advantage of the Company was stroke by many new entrants and the operating pressure of the Company increased gradually. Shenzhen retail pharmaceutical stores have been in the super-saturated status and the market competition in medical retail was intense. 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 Particulars about the changed projects □Applicable √Inapplicable 6.13 Application of the proceeds not raised through shares offering □Applicable √Inapplicable SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. 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 1. Transferring purchase concept, reforming the current purchase system and establishing operating mode of “With purchase as the lead and with varieties as the main line” so as to ensure the decrease in purchase cost and quantifying the assessment indexes to the purchase. 2. Adopting flexible mode of business operation and enhancing sales scale, including actively expanding non-bidding market; optimizing variety structure, reinforcing the cooperation with advanced pharmaceutical logistics enterprises in Guangdong and enhancing sales scale; probing into new operating status etc.. 3. Striving for the support and cooperation of a new shareholder, namely Sinopharm Medicine Holding Co., Ltd., in variety resource and sales network, seeking for the combination with Sinopharm Medicine Holding Guangzhou Co., Ltd. in medical purchase and realizing the mutual supplement of advantages of both parties in South China area. 4. Continuing to strengthen the cultivation to whole agency, whole distribution and large variety and trying hard to expand the market. Profit estimation of the next year □Applicable √Inapplicable 6.16 The preplan on the profit distribution and capitalization of capital public reserve of the Board of Directors No distribution or capitalization. §7. Significant Events 7.1 Purchase of assets √Applicable □Inapplicable Unit: RMB’000 Related Contribution to net profit of the transaction or Transaction parties and the Company of the assets Date of purchase Purchase price not (if yes, assets purchased purchased from the date of explain principle purchase to the year-end of pricing) SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. Fixed assets of Chinese Related Medicine Drinking Pills transaction. Factory of Shenzhen Apr. 2, 2003 1,442 0.00 The trading Chengxin Medical price is by Company assessed pricing. 30% equity of Liaoning Related Accord Medication transaction. Multiple Co., Ltd held by Nov. 24, 2003 1,895 0.00 The trading Shenzhen Accord price is assessed Pharmaceutical Group price. Corporation Related Two houses of Shenzhen transaction. Nanshan Pharmaceutical Dec. 23, 2003 647 0.00 The trading Company price is assessed price. 7.2 Sales of assets √Applicable □Inapplicable Unit: RMB’000 Related Contribution to net transaction or profit of the Company Transaction parties Profit or loss from not (if yes, Date of sale Sale price of the assets sold from and the assets sold sale explain the year-beginning to principle of the date of sale pricing) Transfer 79% equity of Shenzhen Jian’an Nov. 24, Non-related Pharmaceutical 8,469 -5,169 -2,706 2003 transaction Company to Shantou Longhu and etc. Transfer 45.9% of Shenzhen Modern Computer Dec. 27, Non-related Manufacture Co., Ltd. 18,080 -3,705 -1,552 2003 transaction to Shenzhen Yinghai Technology Investment Co., Ltd. SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. Influence on consistence of business and stability of managers caused by the issues interfered in purchase and sale Through sale of equity, the Company realized invigorating large enterprises while relaxing control over small ones and the separation of the main and auxiliary business and it is in favor of the long-term and stable development of the Company. 7.3 Important guarantee √Applicable □Inapplicable Unit: RMB’000 Complete Guarantee for Name of the Company Date of Amount of Guarantee type Guarantee term Implementation related party (yes or guaranteed happening guarantee or not not) Sep. 24, Shenzhen Investment Sep. 24, Joint liabilities 45,000 2002-Sep.24, No Yes Holding Corporation 2002 guarantee 2003 Nov. 21, Shenzhen Modern Computer Nov. 21, Joint liabilities 33,200 2002-Nov. 21, No Yes Manufacture Co., Ltd. 2002 guarantee 2003 Dec. 20, Shenzhen Modern Computer Dec. 20, Joint liabilities 25,070 2002-Dec. 31, No Yes Manufacture Co., Ltd. 2002 guarantee 2004 Total amount of guarantee 103,270 Total balance of guarantee 103,270 Including: total balance of related guarantee 103,270 Total amount of guarantee the listed company provided for its share-controlling 58,270 subsidiaries Total amount of guarantee breaking regulations 103,270 Proportion of total amount of guarantee in net assets of the Company 30.23% 7.4 Related credits and liabilities current √Applicable □Inapplicable Unit: RMB’000 Related parties supplied funds to the Supply funds to related parties Related parties Company Occurred amount Balance Occurred amount Balance Shenzhen Medical Trading 1000 800 Company Total amount 1000 800 7.5 Entrusted assets □Applicable √Inapplicable SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. 7.6 Implementation of commitment items □Applicable √Inapplicable 7.7 Significant lawsuit and arbitration √Applicable □Inapplicable 1. Concerning the trade dissension between the Company’s subsidiary, Shenzhen Medical Trading Company (hereinafter referred to as Medical Trading Company) and Grunenthal (Hong Kong) Co., Ltd. and Grunenthal (China) Co., Ltd. (both hereinafter referred to as Grunenthal Company), both parties have negotiated and reached pacification agreement. The content of the pacification agreement is: A. After both parties submit application of relieving sealing up to Shenzhen Intermediate People’s Court, Medical Trading Company pays the deposit of RMB 13,005,000, HKD 29,000 and USD 8,000 in the unfrozen bank account to Grunenthal Company. B. The recovery of sale accounts receivables caused in the period of Medical Trading Company’ sale of medicine with Grunenthal Company’s kind is changed to the responsibility of Grunenthal Company and Medical Trading Company is only responsible for supply of the files and procedure needed by the recovery. C. After the inventories sealed up in Shanghai is relieved, Grunenthal Company is responsible for the sale and Medical Trading Company is responsible for the supply of the needed documents and procedures and provides the bank account for collecting the above sale payment and pays it to Grunenthal Company within three working days after receiving the sale payment. D. Except for implementation of the above obligations, Medical Trading Company additionally pays cash amounting to RMB 1,000,000 to Grunenthal Company. On the effective date of the agreement, both parties submitted Pacification Agreement of Arbitration and application of ending execution of the former two cases to Shenzhen Intermediate People’s Court and the both parties do not execute according to the two Arbitrament. The public notices about the arbitration result and pacification were published on Securities Times and Ta Kung Pao dated Mar. 8, 2003 and Aug. 22, 2003. 2. Concerning the dissension case that Yao Xu (Accuser) indicted the Company’s related party, Shenzhen Medical Production and Supply Company (Appellee I), the Company (Appellee II) and the Company’s subsidiary, Shenzhen Accord Medication Multiple Co., Ltd. (Appellee III) on tort of copyright of figure and letter of “Accord”, Civil Judgement ([2002] SZFZCCZ NO.129) of Guangdong Province Shenzhen Intermediate People’s Court believes that the request of the accuser, “permit accuser taking back the copyright of the opus in this case and the appellee stops infracting the copyright of the accuser’s opus and the appellee undertakes the lawsuit expense of the case” has no sufficient evidence and is overruled. The court judges: overrule the lawsuit request of the accuser and the expense of accepting and hearing of the case is SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. undertaken by the accuser. The judgement result of the lawsuit was published on Securities Times and Ta Kung Pao dated Oct. 30, 2003. Except for the case, the Company has no other significant lawsuits and arbitrations in the report period. 7.8 Particulars about the performance of obligations of Independent Directors Mr. Hao Zhujiang and Mr. Guo Jinlong who were engaged by the Company are independent directors of the 3rd Board of Directors. The two independent directors attended the Board meeting and shareholders’ general meeting, seriously performed their duties, actively make their suggestion and opinion under the full understanding situation on the significant matters examined by the Board of Director (especially the proposals that independent directors need issue independent opinion) according to requirements since holding their post; independent directors guided the daily operating, legal affairs and financing management of the Company; made independent judgment on the decision-making of operating and engagement of senior executives; performed their relevant duties. §8.Report of the Supervisory Committee 1. In the report year, the Supervisory Committee supervised over the Company’s various work in terms of the procedures of holding the Shareholders’ General Meeting and the Board of Directors, resolutions, implementation of the resolutions of the Shareholders’ General Meeting by the Board of Directors, the Company’s production and operation and management of decision-making according to the law, regulations and Articles of Association, and believed the Company had complied with Company Law and the Articles of Association in terms of management and operation and ensured its operation according to law. 2. The Supervisory Committee supervised over the duties performed by the directors and senior executives and believed that in daily operation and administration, they were patient and responsible, made decisions in scientific and reasonable way and the procedure of decision-making was normative and legal. They neither violated the laws, regulations, Articles of Association and resolutions of the Shareholders’ General Meeting nor abused their posts and rights and damaged interests of shareholders, the Company and employees. The management could positively adopt suggestions made by the Supervisory Committee concerning operation and management. 3. The Supervisory Committee believed the financial report of 2003 had objectively and truthfully reflected the Company’s financial status and operation results, and agreed with the standard non-reservation auditors’ reports issued by Xin Shenzhen Nanfang Minhe Certified Public Accountants and Moore Stephens (Shenzhen) Nanfang Minhe Certified Public SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. Accountants. 4.In the report period, the Company occurred no significant related transaction and the price of other related transaction was based on the principle of market and was fair. There found no actions harmful for the interest of the Company. §9. Financial Report 9.1 Auditor’s opinion REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF SHENZHEN ACCORD PHARMACEUTICAL CO., LTD (Incorporated in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Shenzhen Accord Pharmaceutical Co., Ltd. (“the Company”) and its subsidiaries (collectively “the Group”) at 31st December, 2003 and the related consolidated statements of income, cash flow and changes in equity for the year then ended. These financial statements set out on page 2 to 29 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 from 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 directors, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31st December, 2003 and the results of the operations and cash flows of the Group for the year then ended in accordance with International Financial Reporting Standards. Moore Stephens Shenzhen Nanfang Minhe Certified Public Accountants 30th March, 2004 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. 9.2 Financial Statements CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER, 2003 NOTES 2003 2002 RMB’000 RMB’000 Revenue 4 1,780,874 1,869,937 Cost of sales (1,351,824) (1,459,540) Gross profit 429,050 410,397 Other operating revenue 6 30,092 40,112 Selling and distribution costs (334,484) (309,456) Administrative expenses (82,417) (103,744) Other operating expenses (7,349) (20,737) Profit from operations 7 34,892 16,572 Finance costs 8 (12,202) (15,693) Share of results of associates (379) 1,115 Loss on disposal of an associate (3,560) -- Gain on disposal of a subsidiary 9 980 6,096 Profit before tax 19,731 8,090 Taxation 10 (5,472) (8,012) Profit before minority interests 14,259 78 Minority interests 86 647 Net profit for the year 14,345 725 Earnings per share 12 RMB0.0498 RMB0.0025 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. CONSOLIDATED BALANCE SHEET AS AT 31ST DECEMBER, 2003 NOTES 2003 2002 RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 13 171,492 162,864 Construction in progress 14 31,595 34,033 Goodwill 15 29,544 35,134 Subsidiary not consolidated 16 68 -- Interests in associates 17 4,523 23,257 Other investments 337 337 237,559 255,625 Current assets Inventories 18 215,299 250,150 Accounts receivable and other receivables 20 343,232 311,954 Amounts due from related companies 21 29,341 39,851 Prepayments 5,955 62,362 Other investments 4 4 Cash and bank balances 163,503 109,152 757,334 773,473 Total assets 994,893 1,029,098 EQUITY AND LIABILITIES Capital and reserves Registered capital 22 288,149 288,149 Reserves 23 40,556 24,809 328,705 312,958 Minority interests 1,276 1,362 Non-current liabilities Long-term loan 24 2,000 -- Current liabilities Short-term loans - due within one year 24 190,352 172,156 Accruals, accounts payable and other 449,475 488,741 payables Receipts-in-advance 15,102 35,702 Subsidiary not consolidated 16 -- 9,450 Amounts due to related companies 21 5,040 5,186 Tax payable 2,943 3,543 662,912 714,778 Total equity and liabilities 994,983 1,029,098 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER, 2003 NOTES 2003 2002 RMB’000 RMB’000 OPERATING ACTIVITIES Cash generated from operations 25 116,514 44,528 Interest paid (11,553) (14,620) Income tax paid (6,072) (6,089) NET CASH GENERATED FROM 98,889 23,819 OPERATING ACTIVITIES INVESTING ACTIVITIES Interest received 3,509 2,794 Purchase of property, plant and (37,039) (25,805) equipment Proceeds on disposal of property, plant 652 131 and equipment Payment for construction in progress -- (1,093) Proceeds on disposal of a subsidiary 26 (4,241) 1,282 Decrease in interests in subsidiaries -- 1,340 and associates Proceeds on disposal of an associate 9100 -- NET CASH USED IN INVESTING (28,019) (21,351) ACTIVITIES FINANCING ACTIVITIES New bank loans raised 152,337 290,708 Repayment of bank loans (168,856) (342,906) NET CASH USED IN FINANCING (16,519) (52,198) ACTIVITIES INCREASE / (DECREASE) IN CASH AND 54,351 (49,730) CASH EQUIVALENTS CASH AND CASH EQUIVALENTS 109,152 158,882 AT BEGINNING OF YEAR ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 163,503 109,152 SHENZHEN ACCORD PHARMACEUTICAL CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST DECEMBER, 2003 Reserves Registered Capital Surplus Accumulated Reserve capital reserve reserve losses sub-total Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Balance at 1st January, 2002 288,149 17,489 40,861 (34,266) 24,084 312,233 Net profit for the year -- -- -- 725 725 725 Balance at 31st December, 2002 and 1st January, 2003 288,149 17,489 40,861 (33,541) 24,809 312,958 Net profit for the year -- -- -- 14,345 14,345 14,345 Addition during the year -- 1,402 -- -- 1,402 1,402 Balance at 31st December, 2003 288,149 18,891 40,861 (19,196) 40,556 328,705 9.3 Compared with the latest annual report, there was no change in accounting policy, accounting estimate and calculation method. 9.4 Compared with the latest annual report, explanation on changes in consolidated scope After transferring the 79% equity of its affiliated enterprise, namely Shenzhen Jian’an Pharmaceutical Company, in the report period, the Company no longer consolidated the statements of this company since from June 2003. Board of Directors of Shenzhen Accord Pharmaceutical Co., Ltd. April 10, 2004