武锅B退(200770)武锅Ｂ2003年年度报告（英文版）

Stock code: 200770 Short form of Stock: Wuguo B WUHAN BOILER COMPANY LIMITED ANNUAL REPORT 2003 Disclosing Newspaper: Securities Times and Ta Kung Pao Disclosing Date: Apr. 1, 2004 Contents Ⅰ. Important Notes-------------------------------------------------------------------------------------------- Ⅱ. Company Profile-------------------------------------------------------------------------------------------- Ⅲ. Summary of Accounting Highlight and Business Highlight--------------------------------------- Ⅳ. Changes in Share Capital and Particulars about Shareholders---------------------------------- Ⅴ. Particulars about Directors, Supervisors and Senior Executives and Employees------------- Ⅵ. Administrative Structure--------------------------------------------------------------------------------- Ⅶ. Brief Introduction to the Shareholders’ General Meeting ---------------------------------------- Ⅷ. Report of the Board of Directors ----------------------------------------------------------------------- Ⅸ. Report of the Supervisory Committee------------------------------------------------------------------ Ⅹ. Significant Events------------------------------------------------------------------------------------------ Ⅺ. Financial Report-------------------------------------------------------------------------------------------- Ⅻ. Documents for Reference--------------------------------------------------------------------------------- SECTION I. IMPORTANT NOTES The Board of Directors of Wuhan Boiler 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. Wuhan Zhonghuan Certified Public Accountants Ltd. and PricewaterhouseCoopers Zhongtian Certified Public Accountants Ltd. audited the financial report of the Company and issued domestic and international unqualified Auditors’ Report for the Company respectively. Chairman of the Board of the Company Mr. Chen Bohu, General Manager and concurrently CFO Mr. Xiang Rongwei and Person in Charge of Accounting Organ Ms. Qin Shanlan hereby confirm that the Financial Report enclosed in Annual Report is true and complete. The business in Chinese Mainland managed by PricewaterhouseCoopers (China) Certified Public Accountants Ltd. has been uniformly handled by PricewaterhouseCooper Zhongtian Certified Public Accountants Ltd., thus Auditors’ Report of the Company as at Dec. 31, 2003 was produced by PricewaterhouseCooper Zhongtian Certified Public Accountants Ltd.. SECTION II. COMPANY PROFILE 1. Legal Name of the Company In Chinese: 武汉锅炉股份有限公司 In English: WUHAN BOILER COMPANY LIMITED 2. Legal Representative: Chen Bohu 3. Secretary of the Board of Directors: Liu Chengxiang Authorized Representative in Charge of Securities Affairs: Xu Youlan Contact Address: No. 586, Wuluo Road, Wuhan, Hubei Contact Tel: (86) 27-87652719 Contact Fax: (86) 27-87655152 E-mail: wbgchw@public.wh.hb.cn 4. Registered Address and Office Address: No. 586, Wuluo Road, Wuhan, Hubei Post Code: 430070 Internet Web Site: http://www.wbcl.com.cn E-mail: wbgchw@public.wh.hb.cn 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times (Domestic), Ta Kung Pao (Overseas) Internet Website for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Securities Department of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: WUGUO – B Stock Code: 200770 7. Other Information of the Company Initial registered date: On Apr. 8, 1998, the Company was formally incorporated. Initial registered place: No. 586, Wuluo Road, Wuhan, Hubei New registered date: On Nov. 16, 1998, the Company changed its registration with Hubei Province Administration Bureau of Industry and Commerce as a Sino-foreign joint stock limited company. New registered place: No. 586, Wuluo Road, Wuhan, Hubei Registered number of enterprise legal person’s business license: QGEZ Zi No.: 002591 Registered number of taxation: 420106271756432 The Certified Public Accountants engaged by the Company: Domestic: Wuhan Zhonghuan Certified Public Accountants Address: 16/F, Tower B, Wuhan International Mansion Overseas: PricewaterhouseCoopers Zhongtian Certified Public Accountants Ltd. Address: 18/F, Yian Plaza, No.33, Jianshe 6th Road, Guangzhou SECTION III. SUMMARY OF ACCOUNTING HIGHLIGHTS AND BUSINESS HIGHLIGHTS (I) Accounting data of the Company as of the year 2003 Unit: In RMB Total profit 46,693,895.83 Net profit 29,851,616.19 Net profit after deducting non-recurring gains and losses 30,994,425.62 Profit from main operations 182,630,928.64 Other operating profit 3,606,491.58 Operating profit 47,909,504.79 Investment income 484,707.30 Subsidy income 890.35 Net non-operating income/expenses -1,701,206.61 Net cash flow arising from operating activities 119,052,060.66 Net increase/decrease of cash and cash equivalents 43,321,741.42 Note: Item of deducting non-recurring gains and losses and the amount involved (Unit: In RMB) Disposal of losses from long-term equity investment, fixed assets, construction in progress, 27,198.96 intangible assets and other long-term assets Other non-operating income after deducting reserve for devaluation of assets withdrew by -24,474.43 the Company daily based on regulations of Accounting System for Business Enterprise Other non-operating expenses after deducting reserve for devaluation of assets withdrew 1,167,185.61 by the Company daily based on regulations of Accounting System for Business Enterprise Reversal of various reserve for devaluation withdrew over the past years -30,101.71 Total 1,139,808.43 The impact on the PRC statutory financial statements adjusted by PricewaterhouseCooper Zhongtian Certified Public Accountants Ltd. based on International Accounting Standards (“IAS”) and others are as follows (Dec. 31, 2003): Net profit Net assets (RMB’000) (RMB’000) As reported by PRC statutory financial statements 29,851 545,183 Adjustment based on IAC and others (1) Writing off long-term investment revaluation - (2,227) increment (2) Deferred tax (52) 2,527 (3) Not need pay client’s funds received in advance 1,800 - (4) Others (143) (633) As restated after IAS and other adjustments 31,742 544,850 Note: The reason of discrepancy is because it’s unnecessary to pay client’s funds received in advance. (II) Financial indexes of the Company over previous three years ended the report period 1. The following data were calculated and listed based on the consolidated accounting statement Unit: RMB Items 2003 2002 2001 Income from main operations 1,237,739,269.58 630,500,780.63 404,267,135.91 Net profit 29,851,616.19 20,140,959.02 18,010,499.03 Total assets 2,204,893,156.02 1,740,339,336.03 1,276,848,449.24 Shareholders’ equity (excluding 545,183,405.34 523,151,336.56 503,010,377.54 minority interest) Earnings per share 0.10 0.068 0.061 Earnings per share (calculated based on 0.10 0.068 0.061 monthly weighted average) Earnings per share after deducting 0.10 0.069 0.051 non-recurring gains and losses Net assets per share 1.863 1.726 1.694 Net assets per share after adjustment 1.726 1.632 1.6677 Net cash flow per share arising from 0.40 0.53 0.247 operating activities Return on equity (%) 5.48% 3.93% 3.581% 2. In accordance with Regulations on the Information Disclosure of Companies Publicly Issuing Shares (No. 9) released by CSRC, the Company’s return on equity and earning per share as of the year 2003 are calculated based on fully diluted method and weighted average method are as follows: Supplemental statement of profit as of report period Return on equity (%) Earnings per share (RMB) Profit as of the report period Fully Weighted Fully Weighted diluted average diluted average Profit from main operations 33.50 33.94 0.61 0.61 Operating profit 8.79 8.90 0.16 0.16 Net profit 5.48 5.55 0.10 0.10 Net profit after deducting non-recurring 5.68 5.76 0.10 0.10 gains and losses (III) Particulars about changes in shareholders’ equity and the reasons during the report period (Unit: RMB) Share capital Capital reserve Surplus Statutory public Retained Total Items reserve welfare fund profit shareholders’ equity Amount at the 297,000,000 149,674,951.34 10,056,052.09 10,056,052.09 56,364,281.04 523,151,336.57 period-begin Increase in this report 0 2,575,452.59 3,572,712.86 3,572,712.86 29,854,616.19 39,575,494.50 period Decrease in this report 0 17,540,425.72 17,540,425.72 period Amount at the 297,000,000 152,250,403.93 13,628,764.95 13,628,764.95 68,675,471.51 545,183,405.34 year-period Reason for changes Converting Increase of net balance of Withdrawal Withdrawal Increase of profit as of foreign currency from net profit from net profit profit report year capital SECTION IV. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS (I) Changes in Share Capital Unit: Share Increase / decrease in this time (+ / -) Before the After the Rationed Bonus Capitalization of change Others Subtotal change share share public reserve I. Unlisted shares 1. Sponsors’ shares Including: State-owned shares Domestic legal person’s shares 172000000 172000000 Foreign legal person’s shares Others 2. Raised legal person’s shares 3. Inner employees’ shares 4. Preference shares or others Total unlisted shares 172000000 172000000 II. Listed shares 1. RMB ordinary shares 2. Domestically listed foreign shares 125000000 125000000 3. Overseas listed foreign shares 4. Others Total listed shares 125000000 125000000 III. Total shares 297000000 297000000 (II) Issuance and listing of shares 1. On Mar. 20, 1998, the Company placed 125,000,000 domestically listed foreign shares (B shares) to foreign investors at the issuing price of HKD 1.496 per share. The shares were listed in Shenzhen Stock Exchange for trade on Apr. 15, 1998 with the stock code as 200770. 2. In the report period, there are no changes in the total number of share and structure of share capital of the Company. 3. About profit distribution during the report period On July 7, 2003, the Company distributed cash dividend to all shareholders at the rate of RMB 0.35 (tax included) for every 10 shares and amounted to RMB 10.395 million in total. (III) About shareholders 1. Ended Dec. 31, 2003, the Company had totally 19,496 shareholders, including 1 sponsor shareholder, namely Wuhan Boiler Group Co., Ltd; 19,495 shareholders of domestically listed foreign shares. 2. Particulars about shares held by the principal shareholders Ended Dec. 31, 2003, the top ten shareholders holding shares of the Company are as follows: Shares held at Increase/ Proportion Pledged or No. Name of shareholders the period-end decrease in total Type of share frozen (share) (+,-) shares (%) 1 WUHAN BOILER GROUP CO., 172,000,000 0 57.9 No Domestic legal person’s LTD share 2 WANG JIA YI 2,230,000 2,230,000 0.75 Unknown Circulation share (B-Share) 3 GT PRC FUND 1,789,491 1,789,491 0.60 Unknown Circulation share (B-Share) 4 SHANGHAI (HK) WANGUO 1,133,900 1,133,900 0.38 Unknown Circulation share (B-Share) SECURITES 5 TONGCHENG INVESTMENT 1,051,562 1,051,562 0.35 Unknown Circulation share (B-Share) CO., LTD 6 CHEN QIAN FEN 625,800 3100 0.21 Unknown Circulation share (B-Share) 7 DBS VICKERS (HONGKONG) Unknown 619,400 619,400 0.21 Circulation share (B-Share) LTD A/C CLIENTS 8 BEST RELIANCE 545,800 -90,800 0.18 Unknown Circulation share (B-Share) INVESTMENTS LTD 9 WANG YAN GUANG 450,000 0 0.15 Unknown Circulation share (B-Share) 10 ZHU RU BO 439,481 439,481 0.15 Unknown Circulation share (B-Share) 11 CUI KAI 393,200 10,445 0.13 Unknown Circulation share (B-Share) Note: On Oct. 16, 2003, Shanghai Municipal Higher People’s Court unfrozen 91.4006 million domestic legal person’s shares (Wuguo B) of the Company held by Wuhan Boiler Group Co., Ltd.. Among the top ten shareholders of the Company, Wuhan Boiler Group Co., Ltd., the first largest shareholder of the Company, with holding non-circulation shares, and shares held by it remained unchanged in the report period; the rest nine shareholders, social public shareholders, held circulation shares (B shares), and the change of shares held by them was due to the transaction of the Company’s shares in the second market in the report period. Among the top ten shareholders of the Company, there exists no association relationship between Wuhan Boiler Group Co., Ltd. and the other shareholders of circulation share, and it doesn’t belong to the consistent actionist regulated by the Management Regulation of Information Disclosure on Change of Share Holding for Listed Companies with the other shareholders. The Company is not aware of their associated relationship among the other shareholders of circulation share, whether belongs to the consistent actionist. 3. The holding shareholder Wuhan Boiler Group Co., Ltd. (“the Group Company”) is the holding shareholder of the Company, as well as the only shareholder holding over 10% of total shares of the Company. Ended Dec. 31, 2003, the Group Company held 172 million shares of the Company, taking 57.9% of total shares. The Group Company was founded on Aug. 8, 1995, whose legal representative is Mr. Huang Jiang; registered capital is RMB 90.596 million; registered number of enterprise legal person’s business license: 4201001100902; registered place: No. 586 of Wuluo Road, Wuhan, Hubei; business scope: invest and operate the state assets based on the authorization for operation and management; development, design and whole set installing of boiler, pressure vessels and related mechanical and electrical products, and the import and export businesses subject to state for approval; truck transportation; (including the business scope of the subsidiaries) (For the projects as specified by state, the Company can only do the businesses subject to the authorization). Wuhan Boiler Group Co., Ltd., the state-owned sole corporation, is wholly-owned subsidiary company of Wuhan Municipal State-owned Assets Supervisory Administration Committee, which took the capital operating and assets management as its primary task. SECTION V. PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES (I) Basic information of directors, supervisors and senior executives 1. Particulars about Directors Holding share (share) Name Gender Age Title Office term Period-begin Period-end Chen Bohu Male 40 Chairman of the Board Apr. 2001-Apr. 2004 0 0 Xiang Rongwei Male 50 Director Apr. 2001-Apr. 2004 0 0 Li Jun Male 45 Director Apr. 2001-Apr. 2004 0 0 Chen Helin Male 54 Director Apr. 2001-Apr. 2004 0 0 Liu Chengxiang Male 55 Director Apr. 2001-Apr. 2004 0 0 Jin Taozhi Female 54 Director Apr. 2001-Apr. 2004 0 0 Wang Zongjun Male 40 Independent Director Apr. 2001-Apr. 2004 0 0 Zhou Maorong Male 58 Independent Director Apr. 2001-Apr. 2004 0 0 Li Donghui Male 36 Independent Director Apr. 2001-Apr. 2004 0 0 2. Particulars about supervisors Holding share (share) Title Office term Name Gender Age Period-begin Period-end Zhang Haiqing Male 54 Convener Apr. 2001-Apr. 2004 0 0 Zeng Xianping Male 54 Supervisor Apr. 2001-Apr. 2004 0 0 Wang Haisu Male 49 Supervisor Apr. 2001-Apr. 2004 0 0 (3) Particulars about senior executives Holding share (share) Name Gender Age Title Office term Period-begin Period-end Xiang Rongwei Male 50 General Manager Apr. 2001-Apr. 2004 0 0 Bai Xixin Male 40 Deputy General Manager Apr. 2001-Apr. 2004 0 0 Hua Lixin Male 39 Deputy General Manager Apr. 2001-Apr. 2004 0 0 Jin Zhicheng Male 44 Deputy General Manager Apr. 2001-Apr. 2004 0 0 Pei Hanhua Male 44 Deputy General Manager Apr. 2001-Apr. 2004 0 0 Liu Chengxiang Male 55 Secretary of the Board Apr. 2001-Apr. 2004 0 0 (4) Notes: 1. Directors, supervisors and senior executives of the Company didn’t hold the share of the Company. 2. The holding shareholder of the Company is Wuhan Boiler Group Co., Ltd.. Supervisor of the Company Mr. Zeng Xianping took the post of deputy chief accountant of Wuhan Boiler Group Co., Ltd.. The other directors, supervisors and senior executives of the Company had no position in the Shareholding Company. (II) Particulars about the annual payment received by directors, supervisors and senior executives 1.The Board of Directors determined the payment of directors, supervisors and senior executives based on the wage distribution system and the merit system of economic duty. In 2003, the Company implemented wage distribution system based on the framework wage distribution system taking position and skill wage as main basis; the monthly bonus was determined according to the merit system of economic duty and the completion of various economic indexes and technical targets monthly, and the annual bonus was determined based on the completion of various economic indexes and technical targets and major work yearly. 2. The total amount and range of annual payment There were 11 directors, supervisors and senior executives drew the annual payment from the Company, and the total annual payment drew by them was RMB 457,000. The total payment of the top three directors drawing the highest payment was RMB 152,000, and the total payment of the top three senior executives drawing the highest payment was RMB 132,000. The range of annual salary: RMB 50,000 to RMB 60,000 2 persons RMB 40,000 to RMB 50,000 2 persons RMB 25,000 to RMB 40,000 7 persons 3. Directors, supervisors and senior executives received no pay from the Company Independent Director: Wang Zongjun, Zhou Maorong and Li Donghui Supervisor: Wang Haili and Zeng Xianping (III) Particulars about change in directors, supervisor and senior executives in the report period In the report period, directors, supervisors and senior executives of the Company remained unchanged. (IV) About employees The Company had totally 2761 employees at the end of the report period; the specific information is as follows: Profession/occupation composition: Items Number of person Proportion (%) Production personnel 1812 65.63 Sales personnel 36 1.30 Technical personnel 356 12.89 Financial personnel 43 1.56 Administration personnel 514 18.62 Total 2761 100 Education Background: Items Number of person Proportion (%) Undergraduate or above 294 10.65 3-year regular college graduate 654 23.69 Senior high school (including technical 1337 48.42 secondary school and technical school) Junior high school or lower 476 17.24 Total 2761 100 Note: At present, the Company had no retiree. The decrease of employees is due to the expiration of employee’s labor contract. SECTION VI. COMPANY ADMINISTRATION STRUCTURE (I) Company Administration Strictly according to Company Law, Securities Law, Rules of Listing Share in Shenzhen Stock Exchange, Administration Rules of Listed Companies and other relevant laws and regulations, the Company perfected consistently legal person administration structure of the Company and standardized the Company’s operation. In the report period, according to the documents on Propelling Listed Companies to Strengthen the Management Work of Investor’s Relationship promulgated by CSRC, the Company formed the Management Regulation of Investor’s Relationship of Wuhan Boiler Company Limited, open the topic on the management of investor’s relationship at the website of the Company, reinforced the communications with investors and potential investors, further improved the Company’s administration. (II) Implementation of duties of independent directors In the report period, the Company has 3 independent directors in accordance with the requirement of Guide Opinion on Establishing Modern Enterprise System in Listed Companies promulgated by CSRC. The independent directors of the Company implemented patiently their duties, checked patiently the investment items and significant events examined by the Board of Directors, consulted and heard actively the opinions of the directors, supervisors and senior executives, expressed independent opinions in the meetings of the Board of Directors and performed a good and active function in the scientific decision-making of the Board of the Company. (III) Separation from the holding shareholder in personal, assets, finance, organization and business. The Company has independent personal, finance, organization and business and complete assets compared with the holding shareholder, Wuhan Boiler Group Co., Ltd. The Company conducted settlement and undertook responsibilities and risks independently. In respect of personal, the Company established independent labor, personal and salary management system. Senior executives of the Company had full time jobs and received salaries in the Company and there existed no part-time job in the control shareholder. Appointing and removing of personal was conducted strictly according to the regulations of Company Law and Articles of Association. In respect of assets, the relationship of property right between the Company and the control shareholders is clear and there existed no occupation by control shareholder in terms of assets, capital and other resources. In respect of finance, the Company established independent financing and accounting department and financial settlement system and financial management system, made financing decision independently, conducted upright management of the subsidiaries’ financing according to the requirement of strict accounting system of listed companies. The Company had independent bank account and paid tax independently according to law. In respect of organization, the establishment of organization was independent, integral, and the Company possessed the good efficiency and mechanism of operation; the duties of every organization were clear; the establishment and operation of administration structure of legal person was strictly in accordance with Articles of Association; the production operation and the administration management was completely separate from the holding shareholders. The Company has established organization in accordance with the demand of self-development. In respect of business, the Company has independent, integral business and the ability of self-operation. The Company has independent systems of purchase, sale and production, and can complete purchase, production, and sale through our own system of purchase, production and sale. There is no competition relationship in the same industry between the Company and the holding shareholder. (IV) Evaluation and encouragement mechanism of senior executives For the purpose of long-term development, the Company established the mechanism of evaluation for senior executives as far as 2000 and principally evaluated the duties’ implementation and achievement of operation and management. In 2003, salary and implementation encouragement for the senior executives will be realized in terms of the evaluation standard based on the economic benefits of the Company and the accomplishment of the evaluating indexes. SECTION VII. BRIEF INTRODUCTION OF SHAREHOLDERS’ GENERAL MEETING (I) Notification, convening and holding of the Shareholders’ General Meeting In the report period, the Company held two shareholder’s general meetings, composing of an extraordinary shareholder’s general meeting and the annual shareholder’ s general meeting. The names, notification, convening, holding, resolutions and information disclosure of the two shareholder’s general meetings were summarized as follows: 1. 2003 1st Extraordinary Shareholder’s General Meeting The Company held 1st Extraordinary Shareholder’s General Meeting 2003 in the meeting room of the Company on Jan. 10, 2003. Total 2 shareholders and proxies attended the meeting, representing 172,000,000 state-owned legal person shares (domestic shares) and 5,000 B shares in circulation (foreign shares), taking 57.92% of the company's total share capital, which was in conformity with the requirements of the PRC Company Law and Articles of Association. The meeting was presided by Chairman of the Board, Mr. Chen Bohu and all directors attended the meeting. The meeting formed the following resolutions by signed votes. (1) Examined and approved the Proposal on Prolonging Another Year Period of Validity of the Proposal on Application for issuing additional RMB Common Share to Public approved at 2001 Annual Shareholders’ General Meeting on the Basis of the Former Half-year Period (since the Approval Date at the 2001 Annual Shareholders’ General Meeting). The voting result was: 172,000,000 state-owned legal person shares and 5,000 B-shares agreed, taking 100% of the total shares of presenting shares in Shareholder’s General Meeting; 0 share opposed; 0 share waived. The Extraordinary Shareholders’ General Meeting was witnessed and issued legal opinion file by Lawyer Peng Bo of Hubei Tianyuan Brother Law Firm who considered that the procedure of convening and holding was in conformity with the regulations of Company Law, Articles of Association and Standard Opinion of the Shareholders’ General Meeting of Listed Companies. The said public notice was published in Securities Times and Ta Kung Pao dated Jan. 11, 2003. 2. Annual Shareholders’ General Meeting 2002 The Company held Annual Shareholder’s General Meeting 2002 on May 16, 2003. The Public Notice about convening time, place, examining issues and other issues of the meeting was published in Securities Times and Ta kung Pao on May 17, 2003. Annual Shareholders’ General Meeting 2002 was held in the meeting room of the Company. Total 1 shareholder and proxy attended the meeting, representing 172,000,000 state-owned legal person shares (domestic shares), taking 57.92% of the company's total share capital, which was in conformity with the Company Law and Articles of Association of the Company. The meeting was presided by Chairman of the Board, Mr. Chen Bohu and all directors attended the meeting. The meeting formed the following resolutions by signed votes. 1. Examined and approved 2002 Annual Report and its Summary; 2. Examined and approved 2002 Work Report of the Board of Directors; 3. Examined and approved 2002 Work Report of the Supervisory Committee; 4. Examined and approved 2002 Financial Report; 5. Examined and approved 2002 Profit Distribution Proposal; 6. Examined and approved 2003 Profit Distribution Policy; 7. Examined and approved the Amendment of the Articles of Association of Wuhan Boiler Company Limited by special resolution; 8. Examined and approved Rules of Procedure of the Special Committee of the Board; 9. Examined and approved Detail Rules of Work of the Strategic Committee of the Board; 10. Examined and approved Detail Rules of Work of the Remuneration Committee of the Board; 11. Examined and approved Detail Rules of Work of the Nomination Committee of the Board; 12. Examined and approved Detail Rules of Work of the Audit Committee of the Board; 13. Examined and approved Proposal on Reengaging Wuhan Zhonghuan Certified Public Accountants Co., Ltd. and PricewaterhouseCoopers (China) Certified Public Accountants as the Audit Organization of the Company in 2003 and their Reward;. The said Shareholders’ General Meeting was witnessed and issued legal opinion file by Lawyer Peng Bo of Hubei Tianyuan Brother Law Firm who considered that the procedure of convening and holding was in conformity with the regulations of Company Law, Articles of Association and Standard Opinion of the Shareholders’ General Meeting of Listed Companies. (II) Election and change of the directors and supervisors of the Company In the report period, 9 directors and 3 supervisors of the Company remained unchanged. Section VIII. Report of the Board of Directors 2003 was the year that the Company has made favorable achievements in production, sales, profit and development since the Company got listed in 1998. Along with the increase of growth speed of the domestic power, the Company actively grasped the opportunity and occupied market and won biggish market share. According to the guidance idea of Exploiting Internal Potential and Expending Externally, the Company carefully organized all production tasks and improved labor productivity gradually, thus the yield of boiler products reached highest record. At the same time, the Company retained positive and steady work style, strengthened uniform management of capital, which made the operation of the Company in a good order, put across the operation objects of the whole year and maintained the persistent and steady development of the Company. In 2003, the Company gained Certificate of Appointed Demonstration Unit of Credit System of China Foreign Trade Enterprises in 2003 that was issued collectively by Ministry of Commerce of the PRC, China Shippers' Association and Credit System Experts Syndic Committee of China Association of Foreign Economics and Trade Enterprises; gained certificate of Attestation of Professional Healthy Management System and Attestation of Environment System that were issued by the Safety Scientific Technology Research Center of State Administration of Work Safety; And also gained certificate of Hubei Fine Enterprises with Foreign investments issued by Hubei People’s Government. II. Operation of the Company (1) Scope of main operations and its operating status The Company is mainly engaged in the development, production and sales of power station boilers, special boilers, desulfuration equipments and other pressure vessels as well as auxiliary equipments. In the report period, under the correct decision-making of the Board of Directors and the collective efforts of the whole employees, the Company realized an income from principle business of RMB 1,237,739,269.58, an increase of 96.31% compared with the previous year, a profit from main operations of RMB 182,630,928.64, an increase of 35.30% compared with the last year and a net profit of RMB 29,851,616.19, an increase of 48.21% compared with the last year. 1. Distribution of the main operations classified according to industry: Industry Income from main operations Profit from main operations Machinery Manufacturing RMB 1,237,739,269.58 RMB 182,630,928.64 The Company belongs to the industry of machinery manufacturing that provides special equipments for energy and environmental industries. 2. Distribution of main operations classified according to area: Area Income from main Proportion in Profit from main Proportion in operations income from main operations profit from operations main operations North area RMB 920,169,830.22 74.34% RMB 142,222,505.41 77.87% South area RMB 317,569,439.36 25.66% RMB 40,408,423.23 22.13% Total RMB 1,237,739,269.58 100% RMB 182,630,928.64 100% 3. Distribution of main operations classified according to product: Product Income from main Proportion in Profit from main Proportion in operations income from main operations profit from operations main operations Boiler RMB 1,237,739,269.58 100% RMB 182,630,928.64 100% 4. Briefs about main products: Product Market share Sales income Sales cost Gross profit rate Boiler 18% RMB 1,237,739,269.58 RMB 1,055,108,340.94 14.94% (2) Operation and achievement of major holding companies and share-holding companies In the report period, the Company totally had three holding companies, namely Wuhan Special Boiler Whole Set Equipment Co., Ltd. (hereinafter referred to as “Special Boiler Company), Wuhan Lanxiang Energy and Environmental Technology Co., Ltd. (hereinafter referred to as “Lanxiang Company”), and Wuhan Wuguo Zhixin Environmental Equipment Manufacture Co., Ltd. (hereinafter referred to as “Zhixin Company”). The basic situation and operating achievement of the said three holding companies was as follows: 1.Special Boiler Company Special Boiler Company was established on Jan.3, 1991. In Apr. 2001, the Company purchased 90% of this company’s equity at the price of RMB 10.51 million. The register code is 4201001102649; the register capital is RMB 11.68 million. The business scope of this company includes: contract of various projects and sales of whole set equipments and auxiliary equipments of various boilers. In the report period, this company realized income from main operations of RMB 66.11 million with the net profit of RMB 1.60 million. Ended the report period, the total amount of assets of this company was RMB 105.80 million and net assets RMB 13.55 million. 2.Lanxiang Company This company was established on Jun. 4, 2002 and the Company holds 70% of its equity. This company’s register code is 4201001102912 with its registered capital of RMB 20 million. The business scope of this company includes: technology research, design, technology consultation and technology service of boilers, energy and environmental protection products, steel structure, heat energy products and its auxiliary equipments, sales of development products and contract and technology service (The special-purpose projects of the state is to be operated subject to examination and approval) of energy projects (non-land-construction projects). In the report period, Lanxiang Company’s income from main operations was RMB 19.89 million with the net profit of RMB 4.54 million. Ended the report period, the total amount of assets of this company was RMB 35.07 million, and the net asset was RMB 25.82 million. 3.Zhixin Company Zhixin Company was established on Jun.13, 2003. In the report period the Company invested RMB 5.1 million of its own capital to establish Wuhan Wuguo Zhixin Environmental Protection Equipment Manufactory Co., Ltd., the Company held 51% of its equity. This company’s register code is 4201001171169 with its registered capital of RMB 10 million. The business scope of this company includes: production and sales of gas combined circulating residual heat boiler, circulating fluidized bed boiler, alkali reclaim boiler, boiler combustion instruments, boiler components and environment and energy saving instrument; Steel structure, production and sales of metal (implement according to the special regulation of China if there is such special regulation). In the report period, Zhixin Company’s income from main operations was RMB 7.60 million with the net profit of RMB 0.18 million. Ended the report period, the total amount of assets of this company was RMB 15.36 million, and the net asset was RMB 10.18 million. The Company had no constituent company, share-holding company and other joint venture companies. III. Major suppliers and customers The total purchase amount of the top five suppliers of the Company was RMB 429.577 million, taking 40.55% of the total annual amount of purchase of the Company and the total sales amount of the top five customers was RMB 524.139 million, taking 42.35% of the total annual amount of sales of the Company. IV. Problems and difficulties arising from the operation and solutions At present the domestic power market is in the phase of resuscitating and the market prospect is very favorable. Due to the increase in the order of the Company, firstly add up the load of the production capacity and instrument, and add up the pressure of the products’ production cycle and safety operation of instruments; secondly shortage of technician meet the requirement of production; thirdly the significant increase in the price of material, the Company’s costing down plan was effected to certain degree. Aim at the above mentioned problems and difficulties, the Company adopted following measures: 1.Strengthen the organization and coordination of the production, make more close production plan and capital distribution plan, strengthen cooperation between all departments and production units of products distribution and increase the input and out put. 2.Strengthen internal management, especially on material purchase, implement contrasting price purchase, fix the material stock rationally and effectively, strengthen cost budget analysis and check, increase the use rate of material. 3.Strengthen to train of technician required by production, increase the synthetic diathesis of the staff and make the human resource structure take to rational and science. V. Investment of the Company in the report period 1.In the report period, the Company had no proceeds raised through share offering or the application of proceeds raised through previous share offering continued to the report period. 2.Investment of proceeds not raised through share offering 1) In the report period, in order to adapt the change of market and search for long term development, the Company needs to increase its technique input, optimize industrial and products’ structure according to the Company’s plan of strategic structure adjustment,, at the same time build up the Company’s core competition power and new profit growth point through import technique, self development and research, market exploitation of high technical and environmental protection new energy products and based on the idea of developing to large scaled circulating fluidized bed boiler. After careful research on the technical school of the main circulating fluidized bed boiler in the scope of the world and combined with the Company’s specialty, the Company signed with France Alstom Company (ALSTOM-EVT) Agreement on Certificate, Technique Transfer and Assistance of circulating fluidized bed boiler which is 220t/h, 410t/h and 135MW, and paid USD 2.05 million (conversion of RMB 16.94 million) for the technique transfer to the technical remise party, transfer scope is circulating fluidized bed and boiler land, fit to burn soft coal, deficient coal, anthracite, coal mud, coal waste, oil shale, lignite, wood crapes, evaporated coal mud and anthracite residua. 2) In the report period, the Company invested and established Wuhan Wuguo Zhixin Environmental Equipment Manufactory Co., Ltd. with its self-owned capital of RMB 5.1 million. The procedures of commercial and industrial registration and taxation registration of this company were completed on June 13, 2003 with a registered capital of RMB 10 million. The registration number of the corporation’s legal person’s business license was: 4201001171169 and the registration address was: No. 586, Wuluo Road, Wuchang District, Wuhan City. The business scope of this company is: production and sales of gas combination circulation residual heat boiler, circulating fluidized bed boiler, alkali reclaim boiler, boiler combustion instruments, boiler components and environment and energy saving instrument; steel structure and production and sales of metal (implement according to the special regulation of China if there is special regulation). The Company held 51% of its equity. In the report period, the main operation status of Zhixin Company’s was, its income from main operations was RMB 7.60 million with the net profit of RMB 0.18 million. Ended the report period, the total amount of assets of this company was RMB 15.36 million, and the net asset was RMB 10.18 million. VI. Financial position of the Company Unit: RMB Items Dec. 31, 2003 Dec. 31, 2002 Increase/decrease (%) Total assets 2,204,893,156.02 1,740,339,336.03 26.69 Shareholders’ equity 545,183,405.35 523,151,336.56 4.2 In 2003 In 2002 Increase/decrease (%) Profit from main 182,630,928.64 134,984,482.59 35.30 operations Net profit 29,851,616.19 20,140,959.02 48.21 Net increase in cash and 43,321,741.42 308,487,057.45 -85.96 cash equivalents Explanation on reasons of changes in financial position: 1. The increase in total assets was mainly due to the expansion of scale of production and operation 2. The increase in shareholders’ equity was mainly due to the increase in net profit. 3. The increase in profit from main operations was mainly due to the increase in sales income. 4. The increase in net profit was mainly due to the increase in sales income and the control in cost and expenditure. 5. The decrease in net increase in cash and cash equivalents was mainly due to the increase in volume of purchase order resulting in the increase in advancing in paying current capital. VII. Business plan of 2004 The general business thought of the Company in 2004 is, make meeting the requirement of the market as the core, and strengthen innovation of labor employment system and distribution system; intensify management of objective cost, technical innovation and operation; quicken the pace of structure adjustment; strengthen the culture construction of enterprises focused on executive, push the Company’s transnormal and consistent development The main measures are: 1.Recognize the position and erect confidence. The domestic economic development trend forced us to quicken development pace. Act according to the trend is the enterprise’s strategy, due to the increase of the prosperity index of power industry, the favorable operation position guarantee the continuous increase of the Company’s sales income; 2.Intensify the innovation of labor employment and distribution system; 3.Strengthen objective cost management, and other basic management. 4.Raise money through various financing method, satisfy the requirement for fund for the Company’s general development; 5.Quicken the pace of strategic adjustment of structure; 6.Strengthen the culture construction of enterprises focused on executive; increase the Company’s core competitive power. VIII. Routine work of the Board of Directors 1. Holding, resolutions and information disclosure of the meetings of the Board of Directors in the report period In the report period, the Board of Directors of the Company totally held 9 meetings with the details as follows: 1) On Jan. 24, 2003, the 10th Meeting of the 2nd Board of Directors was held in the method of communication. 9 Directors should be present and actually 9 attended the Meeting, including 3 independent directors. The members of the Supervisory Committee and Senior Executives attended the Meeting as nonvoting delegates, which was in accordance with the regulation of Company Law and Articles of Association. Chairman of the Board of Directors Mr. Chen Bohu presided at the Meeting and the following resolution was approved after discussed fully by the present Directors: (1) The Correction Report on the Problems Found by Wuhan Securities Regulatory Office in their Circuit Examination. The public notice of the resolution of the Meeting was published on Securities Times and Ta Kung Pao dated Jan. 25, 2003. 2) On Mar. 28, 2003, the 11th Meeting of the 2nd Board of Directors was held in the Conference Room of the Company. 9 Directors should be present and actually 9 attended the Meeting, including 3 Independent Directors. Members of Supervisory Committee and senior executives attended the Meeting as nonvoting delegates, which was in compliance with the regulations of Company Law and Articles of Association. Chairman of the Board of Directors Mr. Chen Bohu presided at the Meeting and the following resolutions were examined and approved in the Meeting: (1) Work Report 2002 (2) Annual Report and its Summary 2002 (3) Work Report 2002 of the Board of Directors (4) Financial Report 2002 (5) Profit Distribution Preplan 2002 (6) Profit Distribution Policy 2002 (7) The Articles of Association of Wuhan Boiler Company Limited (8) Rules of Procedure of Special Committee of the Board of Directors (9) Detailed Rules on work of Strategy Committee of the Board of Directors (10) Detailed Rules on work of Salary Committee of the Board of Directors (11) Detailed Rules on work of Nomination Committee of the Board of Directors (12) Detailed Rules on work of Audit Committee of the Board of Directors (13) Detailed Rules on the Work of General Manager (14) Detailed Rules on the work of Secretary of the Board of Directors (15) Proposal on Remuneration for the Company’s Directors, Supervisors and Senior Executives in 2002 (16) Proposal on Renewal of Wuhan Zhonghuan Certified Public Accountants Ltd. and PriceWaterhouseCoopers Certified Public Accountants as Auditors of 2003 and Their Remuneration (17) Proposal on Requesting of Holding Shareholders’ General Meeting 2002 The public notices of resolutions of the Meeting were published in Securities Times and Ta Kung Pao dated Apr. 3, 2003. th nd 3) On April 18, 2003, the 12 Meeting of the 2 Board of Directors was held in the Conference Room of the Company. 9 Directors should be present and actually 8 attended the Meeting including 2 Independent Directors. One Independent Director went abroad due to business reasons. Members of Supervisory Committee and senior executives attended the Meeting as nonvoting delegates, which was in compliance with the regulations of Company Law and Articles of Association. Chairman of the Board of Directors Mr. Chen Bohu presided at the Meeting and the following resolution was examined and approved in the Meeting: (1) The 1st Quarterly Report and Finance Report of 2003 The public notice of resolution of the Meeting was published in Securities Times and Ta Kung Pao dated April 21, 2003. 4) On May 28, 2003, the 13th Meeting of 2nd Board of Directors was held in the Conference Room of the Company. 9 Directors should be present and actually 9 Directors attended the Meeting, including 3 Independent Directors. Members in Supervisory Committee and senior executives attended the Meeting as nonvoting delegates, which was in accordance with the regulations of Company Law and Articles of Association. Chairman of the Board of Directors Mr. Chen Bohu presided at the Meeting and the following resolution was examined and approved in the Meeting: (1) Proposal on investing and establishing Wuhan Wuguo Zhixin Environmental Equipment Manufacture Co., Ltd. (preparation) The resolution of the Meeting and relevant materials have been reported to Management Department of Shenzhen Stock Exchange. 5) The 14th Meeting of the 2nd Board of Directors of the Company was held in the Conference Room of the Company on Aug. 1, 2003. 9 directors should be present and actually all of them attended the Meeting, including 3 independent directors. The members in the Supervisory Committee and senior executives attended the Meeting as non-voting delegates, in compliance with the provisions in Company Law of the P.R.C. and the Articles of Association of the Company. The following resolutions have been considered and passed in the Meeting, presided by Mr. Chen Bohu, Chairman of the Board: (1) Semi-annual Report and Financial Report 2003 The resolution of the Board was published on Securities Times and Ta Kung Pao dated Aug. 6, 2003. 6) The 15th Meeting of the 2nd Board of Directors of the Company was held in the Conference Room of the Company on Sept. 10, 2003. 9 directors should be present and actually all of them attended the Meeting, including 3 independent directors. The members in the Supervisory Committee and senior executives attended the Meeting as non-voting delegates, in compliance with the provisions in Company Law of the P.R.C. and the Articles of Association of the Company. The following resolutions have been considered and passed in the Meeting, presided by Mr. Chen Bohu, Chairman of the Board: (1) Proposal on Conducting Capital Lease to China National Foreign Trade Financial & Leasing Corporation (2) Proposal on Providing Guarantee for China National Foreign Trade Financial & Leasing Corporation to Gain Loans from China Merchants Bank Beijing Branch The resolutions of the Board and their relevant materials have been reported to the Management Department in Shenzhen Stock Exchange. 7) The 16th Meeting of the 2nd Board of Directors of the Company was held in the Conference Room of the Company on Oct. 27, 2003. 9 directors should be present and actually all of them attended the Meeting, including 3 independent directors. The members in the Supervisory Committee and senior executives attended the Meeting as non-voting delegates, in compliance with the provisions in Company Law of the P.R.C. and the Articles of Association of the Company. The following resolutions have been considered and passed in the Meeting, presided by Mr. Chen Bohu, Chairman of the Board: (1) The 3rd Quarterly Report and Financial Report 2003 The resolution of the Board was published on Securities Times and Ta Kung Pao dated Oct. 29, 2003. 8) The 17th Meeting of the 2nd Board of Directors of the Company was held in the Conference Room of the Company on Nov. 28, 2003. 9 directors should be present but actually 6 of them attended the Meeting, since 3 independent directors went out for business trips. The members in the Supervisory Committee and senior executives attended the Meeting as non-voting delegates, in compliance with the provisions in Company Law of the P.R.C. and the Articles of Association of the Company. The following resolutions have been considered and passed in the Meeting, presided by Mr. Chen Bohu, Chairman of the Board: (1) Proposal on Project of Technical Reform in 3# Snake Pipelines and Accessory Facilities Explanation: The detailed implementation on the Proposal shall be conducted in 2004. 9) The 18th Meeting of the 2nd Board of Directors of the Company was held in the Conference Room of the Company on Dec. 2, 2003. 9 directors should be present but actually 6 of them attended the Meeting, since 3 independent directors went out for business trips. The members in the Supervisory Committee and senior executives attended the Meeting as non-voting delegates, in compliance with the provisions in Company Law of the P.R.C. and the Articles of Association of the Company. The following resolutions have been considered and passed in the Meeting, presided by Mr. Chen Bohu, Chairman of the Board: (1) Proposal on Spreading Introduction and Cooperation of 600MW-graded Compulsive Circulating Boiler Technology with ALSTORM Powerinc in France Explanation: The detailed implementation on the Proposal shall be conducted in 2004. 3. Implementation of the Board on the resolutions of the Shareholders’ General Meeting In the report period, according to the requirements in relevant laws and regulations, in compliance with the resolutions and authorization of the Shareholders’ General Meeting, the Board seriously implemented relevant resolutions passed by the Shareholders’ General Meeting with details as follows: 1) Organizing to implement profit distribution scheme for 2002. The Company published Letter on Dividends Distribution of Wuhan Boiler Company Limited on Securities Times and Ta Kung Pao respectively on June 27, 2003. The scheme was finished in implementation on July 7, 2003. 2) For the Proposal on Extending the Period of Validity in Proposal on the Company’s Applying for Additionally Issuing RMB Ordinary Shares through Public Offer in 2001 Passed by the Annual Shareholders’ General Meeting 2001 for Another One Year from Originally Half a Year Since the Date of Approval by Shareholders’ General Meeting, the said financing plan was still under examination. IX. The profit distribution scheme and predetermined profit distribution policy for year 2004 1. Profit distribution scheme for 2003 Audited by Wuhan Zhonghuan Certified Public Accountants Ltd. to the financial statements of the Company according to Chinese Accounting Standards, the Company’s net profit was RMB 29,851,616.19 in 2003. Statutory reserve amounting to RMB 3,572,712.86 and statutory welfare amounting to RMB 3,572,712.86 was appropriated respectively according to 10% and 10% of the net profit in the year respectively. The profit available for distribution in the year was RMB 68,675,471.51. The Company planned to allot cash at the rate of RMB 0.40 for every 10 shares to all shareholders based on total share capital amounting to 297,000,000 shares on Dec. 31, 2003, which totally amounted to RMB 11,880,000.00, and the balance of retained earnings was carried forward to the next year for distribution. The Company would not convert capital reserve into share capital in the year. The said preplan should be submitted to Annual Shareholders’ General Meeting 2003 for consideration. 2. Predetermined profit distribution policy for 2004 The proportion used for dividends distribution by the Company according to the net profit realized in 2004 and retained earnings in 2003 was 15%-30%. The profit distribution scheme for 2004 would be distributed by means of cash dividends. During the detailed implementation, it should be submitted to Shareholders’ General Meeting for consideration and approval by the Board of Directors in the form of distribution preplan. The Board of Directors of the Company reserved the right of adjusting the said policy according to the Company’s actual situation. X. Other disclosure events 1. The Company selected Securities Times and Ta Kung Pao as the appointed newspapers for information disclosure in 2003. In the report period, the appointed newspapers for information disclosure remained unchanged. 2. Special explanation of certified public accountant on the controlling shareholder and other related parties According to the requirements in Circular on Standardizing Listed Companies’ Capital Current with Related Parties, External Guarantees and Other Several Problems released by CSRC, Wuhan Zhonghuan Certified Public Accountants Ltd. has presented Special Explanation of Wuhan Boiler Company Limited on the Capital Occupied by the Controlling Shareholder and Other Related Parties. The accountant considers: ended Dec. 31, 2003, except for the normal operating capital current between the Company and its controlling shareholder and other related parties, there existed no capital of WUGUO B illegally occupied by the controlling shareholder and other related parties of WUGUO B as stated in the Circular. 3. Special explanations and independent opinions of independent directors on the accumulative and current external guarantees of the Company The independent directors consider: ended Dec. 31, 2003, the Company only provided a guarantee for China National Foreign Trade Financial & Leasing Corporation to gain loans from China Merchants Bank Beijing Branch. There existed no related relationships or other relationships between the Company and China National Foreign Trade Financial & Leasing Corporation. The said loan was that the Company conducted capital lease to China National Foreign Trade Financial & Leasing Corporation according to the need for adjusting the strategic structure, and then China National Foreign Trade Financial & Leasing Corporation got the loan amounting to RMB 42 million from the bank to purchase and lease a batch of special equipments to the Company, who paid the rent annually and used the said batch of equipments. The procedures of examination and approval in the said external guarantee were legal, which was beneficial for the Company’s future development eventually. Section IX. Report of the Supervisory Committee I. Work of the Supervisory Committee in the report period In 2003, according to Company Law of the P.R.C., Securities Law of the P.R.C. and Articles of Association of the Company, based on the spirit of being responsible for all shareholders, the Supervisory Committee of the Company seriously implemented the duties and exerted the supervising function in compliance with relevant laws and regulations. In the year, the Supervisory Committee totally held five meetings, which examined relevant proposals in the annual report and interim report of the Company, supervised and urged the Board of Directors and the Management to operate according to laws in order to ensure the normative operation of the Company’s finance. II. In the report period, holding, resolutions and information disclosure of the meetings of the Supervisory Committee In the report period, the Supervisory Committee of the Company totally held two meetings with details in name, holding, resolutions and information disclosure of all meetings as follows: 1. The 7th Meeting of the 2nd Supervisory Committee was held in the Conference Room of the Company on Mar. 28, 2003. 3 supervisors should be present and actually all of them attended the Meeting, in compliance with the provisions in Company Law of the P.R.C. and Articles of Association of the Company. Mr. Zhang Haiqing, the convener of the Supervisory Committee, presided at the Meeting, in which the following resolutions have been considered and passed: (1) Work Report of the Supervisory Committee 2002 (2) Annual Report and its Summary 2002 (3) Financial Report 2002 (4) Profit Distribution Preplan 2002, Profit Distribution Policy 2003, Amending the Articles of Association of Wuhan Boiler Company Limited, Detailed Rules on Work of General Manager, Detailed Rules on Work of Secretary of the Board of Directors, Proposal on Rules of Procedure of Special Committee of the Board of Directors, Proposal on Detailed Rules on Work of Strategy Committee of the Board of Directors, Proposal on Detailed Rules on Work of Remuneration and Assessment Committee of the Board of Directors, Proposal on Detailed Rules on Work of Nominating Committee of the Board of Directors, Proposal on Detailed Rules on Work of Auditing Committee of the Board of Directors, Proposal on Continuing to Engage Wuhan Zhonghuan Certified Public Accountants Ltd. and PricewaterhouseCoopers Certified Public Accountants as the Company’s Auditors in 2003 and their Remunerations, Proposal on Annual Remunerations of Directors, Supervisors and Senior Executives of the Company in 2002 and Proposal on Requesting for Holding Annual Shareholders’ General Meeting 2002 The resolutions of the Meeting were published on Securities Times and Ta Kung Pao dated April 3, 2003. 2. The 8th Meeting of the 2nd Supervisory Committee was held in the Conference Room of the Company on Aug. 1, 2003. 3 supervisors should be present and actually 2 of them attended the Meeting, since one supervisor went abroad due to business, in compliance with the provisions in Company Law of the P.R.C. and Articles of Association of the Company. Mr. Zhang Haiqing, the convener of the Supervisory Committee, presided at the Meeting, in which the following resolutions have been considered and passed: (1) Semi-annual Report and Financial Report of the Company 2003 The resolution of the Meeting was Securities Times and Ta Kung Pao dated Aug. 6, 2003. III. Operation of the Company according to laws According to relevant laws and regulations of the State, the Supervisory Committee of the Company supervised the holding procedures and resolutions of the Shareholders’ General Meeting and the Board of Directors, implementations of the Board on Resolutions of the Shareholders’ General Meeting, duties performance of the senior executives and the management system of the Company and considered that the Board of Directors of the Company could conduct normative operations strictly in accordance with Company Law of the P.R.C., Securities Law of the P.R.C., Listing Rules, the Articles of Association of the Company and other relevant regulations and systems in the work in year 2003 with serious and responsible work and scientific and reasonable operation and decision-making, further improved the interior management and interior control system and established inner-control mechanism. The Company’s chairman of the Board, directors, managers and senior executives did not disobey laws and regulations of the State and the Articles of Association of the Company or damage the interests of the Company while implementing their duties. IV. Inspecting the Company’s finance The Supervisory Committee of the Company conducted regular inspection on the Company’s financial system and financial status and considered that the Company’s financial report in 2003 could truly reflect the Company’s financial status and operating results. The auditing opinions presented by Wuhan Zhonghuan Certified Public Accountants Ltd. and PricewaterhouseCoopers Certified Public Accountants have reflected the Company’s financial status and operating results in 2003 truly, objectively and fairly. V. Inspecting the use of raised proceeds of the Company Within the recent three years (including the report period), the Company had no raised proceeds. VI. Related transactions on acquisition and sales of assets In the report period, the Company had no related transaction on acquisition and sales of assets. VII. Inspecting the related transactions of the Company The pricing of the Company’s related transactions was reasonable and fair, not damaging the interests of the listed company. SECTION X. SIGNIFICANT EVENTS I. Significant lawsuits and arbitration In the report period, the Company has no significant lawsuits and arbitration. II. Purchase and sale of assets, consolidation and merge of assets In the report period, the Company has no purchase and sale of assets, consolidation and merge of assets. III. Related transactions 1.Relation of related parties (1) Related party with control relationship Registered Relation with Company Legal Name of company Main business address the Company type representative Technology development, design and manufacture of The parent State-owned Wuhan Boiler No.586, Wuluo boiler, pressure vessels company of limited Huang Jiang Group Co., Ltd. Road, Wuhan and related mechanical the Company company and electrical products Custody of boiler project, Wuhan Special No.586, Wuluo Subsidiary of Limited sale of boiler and auxiliary Ruan Xiangfu Boiler Co., Ltd. Road, Wuhan the Company company machine Wuhan Lanxiang No.586, Wuluo Technology research, Subsidiary of Limited Hua Lixin Energy and Road, Wuchang design, technology the Company company Environmental District consultation and Protection Science technology service of and Technology boilers, energy and Co., Ltd. environmental protection products, steel structure, heat energy products and its auxiliary equipments, sales of development products and contract and technology service of energy projects (non-land-construction projects) Manufacture and sale of united circulating gas left-heating boiler, circulating fluidized bed Wuhan Boiler boiler, alkali reclaiming Zhixin boiler and boiler burning Environmental No.586, Wuluo instrument, boiler’s units Subsidiary of Limited Protection Road, Wuchang Chen Shiyu and environment-friendly the Company company Equipment District and energy-saving Manufacture Co., equipments; manufacture Ltd. and sale of steel units and metals (perform according to the national regulation if has) (2) Registered capital of related party with control relation and its change Amount at the Increase in this Decrease in this Amount at the Name of company year-beginning year year year-end Wuhan Boiler 90,596,000.00 90,596,000.00 Group Co., Ltd. Wuhan Special 11,680,000.00 11,680,000.00 Boiler Co., Ltd. Wuhan Lanxiang Energy and Environmental 20,000,000.00 20,000,000.00 Protection Science and Technology Co., Ltd. Wuhan Boiler Zhixin 10,000,000.00 10,000,000.00 Environmental Protection Equipment Manufacture Co., Ltd. (3) Shares (equity) held by related party with control relationship and the change Amount at the Name of Increase in this year Decrease in this year Amount at the year-end year-beginning enterprise Amount % Amount % Amount % Amount % Wuhan Boiler 172,000,000.00 57.91 172,000,000.00 57.91 Group Co., Ltd. Wuhan Special 10,514,900.00 90 10,514,900.00 90 Boiler Co., Ltd. Wuhan Lanxiang Energy and Environmental 14,000,000.00 70 14,000,000.00 70 Protection Science and Technology Co., Ltd. Wuhan Boiler Zhixin Environmental Protection 5,100,000.00 51 5,100,000.00 51 Equipment Manufacture Co., Ltd. (4) Related parties with no control relationship Name of companies Relationship with the Company Wuhan Boiler (Group) Valve Manufacture Co., Ltd. Controlled by Wuhan Boiler Group Wuhan Boiler (Group) Boyu Complementary Mechanism of Controlled by Wuhan Boiler Group Electronic Station Co., Ltd. Wuhan Boiler (Group) Yuntong Co., Ltd. Controlled by Wuhan Boiler Group Wuhan Boiler (Group) Boiler Installation Co. Controlled by Wuhan Boiler Group Wuhan Chengxin Boiler Automatic Control Equipment Co., Ltd. Controlled by Wuhan Boiler Group Wuhan Jiangxia Real Estate Company Controlled by Wuhan Boiler Group 2. Related transaction (1) Purchasing of goods The details of acquirement of the components and accessories from following related parties based on the cost price (Unit: RMB’0000) Name of Company Amounts of 2003 Amounts of 2002 Wuhan Boiler (Group) Valve Manufacture Co., Ltd. 1,052.74 1,794.21 Wuhan Boiler (Group) Boyu Complementary 229.54 601.73 Mechanism of Electronic Station Co., Ltd. Wuhan Chengxin Boiler Automatic Control 1,115.65 95.60 Equipment Co., Ltd. Total 2,397.93 2,491.54 (2) Sale of goods Details of goods and materials sold to related parties in 2003 and 2002 are as follows: (Unit: RMB’0000) Amounts in Amounts in Name of Company 2003 2002 Wuhan Boiler Group Co., Ltd. 47.51 1,270.86 Wuhan Boiler (Group) Valve Manufacture Co., Ltd. 459.86 0.01 Wuhan Boiler (Group) Boyu Complementary Mechanism of Electronic 1.56 0.02 Station Co., Ltd. Wuhan Boiler (Group) Boiler Installation Co. 2.55 Wuhan Chengxin Boiler Automatic Control Equipment Co., Ltd. 12.19 Total 523.67 1,270.89 (3) The balance of receivable and payable of related parties Balance at the year-end Items 2003 2002 Accounts receivable: Wuhan Boiler Group Co., Ltd. 1,942,966.00 22,933,328.51 Wuhan Boiler (Group) Boyu Complementary Mechanism of 87,200.00 Electronic Station Co., Ltd. Other receivable: Wuhan Boiler (Group) Yuntong Co., Ltd. 808,359.53 Wuhan Boiler (Group) Boiler Installation Co. 151,314.00 Accounts payable: Wuhan Boiler (Group) Boiler Installation Co. 34,941.50 Wuhan Boiler (Group) Valve Manufacture Co., Ltd. 9,086,199.00 Wuhan Chengxin Boiler Automatic Control Equipment Co., Ltd. 1,876,464.50 Accounts prepaid: Wuhan Boiler (Group) Boyu Complementary Mechanism of 10,344,501.81 1,476,992.00 Electronic Station Co., Ltd. Wuhan Boiler (Group) Boiler Installation Co. 151,314.00 Wuhan Chengxin Boiler Automatic Control Equipment Co., Ltd. 243,849.15 2,114,700.00 Wuhan Boiler (Group) Valve Manufacture Co., Ltd. 19,208,634.87 Other payable: Wuhan Boiler Group Co., Ltd. 9,998,359.50 Wuhan Jiangxia Real Estate Company 407,200.00 Wuhan Boiler (Group) Valve Manufacture Co., Ltd. 322,455.00 Wuhan Boiler (Group) Yuntong Co., Ltd. 3,088,857.99 (4) The Guarantee and pledge of the Company offered by the related parties Wuhan Boiler Group Co., Ltd. offered the guarantee for the short-term loans of RMB 255,798,000.00 of the Company. Wuhan Boiler Group Co., Ltd. offered the guarantee for the short-term loans of USD 4,450,000 (converting into RMB 36,831,315.00) of the Company. Wuhan Jiangxia Real Estate Company offered the pledge for the short-term loans of RMB 5,000,000.00 of the Company in property. (5) Transportation services offered by the related company Wuhan Boiler (Group) Yuntong Co., Ltd. offered the transportation services for the Company and the transportation expense this year and last year was respectively RMB 30,425,300 and RMB 4.400,000. (6) The Company rent the land for production of Wuhan Boiler Group Co., Ltd., the related company of the Company, and the amounts of rent for the year was RMB 1,452,000. (7) The Company received the expense of assets’ leasing totally RMB 2 million from Wuhan Boiler Group Co., Ltd., the related company of the Company in 2004. IV. Significant contracts and implementation 1.In the report period, neither the Company has entrusted, contracted or leased other companies’ assets nor other companies have entrusted, contracted or leased the Company’s assets. 2. In the report period, the Company has neither significant guarantees for others nor guarantees for share-controlling subsidiaries. 3. In the report period, the Company has not entrusted others to conduct cash assets management. 4. In the report period, the Company has no significant contracts. V. In the report period, the Company and the shareholders holding over 5% equity have no commitment items published on non-designated newspapers, magazines and web sites. VI. Engagement, disengagement of certified public accountants In the report period, the Company continued to engage Wuhan Zhonghuan Certified Public Accountants Co., Ltd. and PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. as the audit organization. The reward the Company paid to the certified public accountants in the latest two years is as follows: Annual audit fee of financial report 2003 2002 Overseas: PricewaterhouseCoopers Zhongtian Certified Public Accountants USD 80,000 USD 75,000 Co., Ltd. Domestic: Wuhan Zhonghuan Certified RMB 550,000 RMB 500,000 Public Accountants Co., Ltd. The expense of food and accommodation, business journey, communication, copy and etc. in the process of the audit by Wuhan Zhonghuan Certified Public Accountants Co., Ltd. and PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. is undertaken by themselves. In the report period, the Company has paid all audit fee of financial report for 2003 to the domestic and foreign Certified Public Accountants. Wuhan Zhonghuan Certified Public Accountants Co., Ltd. and PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. has provided consistently audit service for the Company for six accounting years including the report period. VII. Being checked and punished In the report period, there was no administration punishment and public criticism by the CSRC, public condemn of the Exchange Stock for the Company, Board of Director, Directors and senior executives. In the report period, the Company was consecutively chosen excellent company in information disclosure of listed companies by Shenzhen Stock Exchange in 2002 and 2003. VIII. The Company has no other significant events in the report period. IX. Contingent events The Company provided guarantee for the loan with amount of RMB 42 million and term of one year of China Foreign Trade Financial Leasing Co., Ltd. from China Merchants Bank. It is estimated that the guarantee has no significant payment possibility. X. Item after report period From the report period-end to the disclosure date of the report, the Company has no items after report period needed to be disclosed. Section 11. Auditor’s Report I. Audit opinion The financial report of the Company for 2003 was audited by Wuhan Zhonghuan Certified Public Accountants Co., Ltd. and PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. and was issued the standard unqualified Auditor’s Report. 1. Auditor’s Report (attached) 2. Financial statement and attachment (attached) Section 12. Documents for Reference 1. Accounting statement carried with personal signature and seal of legal representative, chief accountant and person in charge of the accounting affairs. 2. As audited by Wuhan Zhong Huan Certified Public Accountants, original of Auditor’s Report carried with signature and seal of Chinese certified public accountants; 3. Original of all documents and manuscripts of Public Notices of the Company disclosed on Securities Times and Ta kung Pao; 4. Original of 2003 Annual Report. This report is prepared in two versions of Chinese and English. When there are various interpretations in the understanding of two versions, Chinese is standard. Wuhan Boiler Co., Ltd. Chairman of the Board: Chen Bohu April 1, 2004 WUHAN BOILER COMPANY LIMITED (Incorporated in the People’s Republic of China with limited liability) CONSOLIDATED FINANCIAL STATEMENTS AND INTERNATIONAL AUDITORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2003 WUHAN BOILER COMPANY LIMITED (Incorporated in the People’s Republic of China with limited liability) CONSOLIDATED FINANCIAL STATEMENTS AND INTERNATIONAL AUDITORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2003 Contents Pages International auditors’ report 1 Consolidated income statement 2 Consolidated balance sheet 3 Consolidated statement of changes in shareholders’ equity 4 Consolidated cash flow statement 5 Consolidated notes to the financial statements 6 to 30 Supplementary information 31 Facsimile +86 (21) 6386 3300 PricewaterhouseCoopers Zhong Tian CPAs Company Limited 12th Floor, Shui On Plaza 333 Huai Hai Zhong Lu Shanghai 200021 People's Republic of China Telephone +86 (21) 6386 3388 International Auditors’ Report To the shareholders of Wuhan Boiler Company Limited (Incorporated in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Wuhan Boiler Company Limited (the “Company”) and its subsidiaries (the “Group”) as at 31 December 2003 and the related consolidated statements of income, cash flows and changes in shareholders’ equity for the year then ended. These consolidated financial statements set out on pages 2 to 30 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the accompanying consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2003 and of the consolidated results of its operations and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers 26 March 2004 Business is undertaken in the registered name of 普 华 永 道 中 天 会 计 师 事 务 所 有 限 公 司 . WUHAN BOILER COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 2003 2002 Notes RMB’000 RMB’000 Sales 3 1,237,739 630,501 Cost of sales (1,057,391) (496,999) Gross profit 180,348 133,502 Other operating income, net 3,650 3,257 Selling expenses (31,758) (15,875) Administrative expenses (80,381) (68,719) Operating profit 4 71,859 52,165 Finance costs, net 6 (23,224) (18,950) Profit before tax 48,635 33,215 Income tax 7 (15,285) (10,789) Profit from ordinary activities after tax 33,350 22,426 Minority interests 22 (1,608) (511) Net profit 31,742 21,915 Basic and diluted earnings per share 8 RMB0.107 RMB0.074 The notes on pages 6 to 30 form an integral part of these financial statements. -2- WUHAN BOILER COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2003 2003 2002 Notes RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 9 177,869 171,163 Construction in progress 10 7,883 5,114 Prepaid lease 3,688 3,838 Intangible assets 11 34,679 21,682 Available-for-sale investment 12 15,937 15,937 Deferred tax assets 13 2,527 2,579 242,583 220,313 Current assets Inventories 14 218,745 76,879 Due from contract customers 15 419,774 307,363 Accounts receivable 16 489,278 285,117 Amount due from parent company 24 - 20,580 Amounts due from fellow subsidiaries 17 51,351 26,340 Other receivables, deposits and prepayments 18 287,130 79,805 Cash and bank balances 19 533,745 501,268 2,000,023 1,297,352 Total assets 2,242,606 1,517,665 SHAREHOLDERS’ EQUITY Share capital 20 297,000 297,000 Reserves 21 247,850 226,503 Total shareholders’ equity 544,850 523,503 Minority interests 22 14,088 7,580 LIABILITIES Non-current liabilities Borrowings 26 34,667 13,333 Current liabilities Bills payable 375,774 165,703 Accounts payable 153,760 192,739 Other payables and accrued charges 23 76,636 64,440 Due to contract customers 15 133,287 35,050 Amount due to parent company 24 10,649 - Amounts due to fellow subsidiaries 25 3,691 8,757 Deposits received from customers 521,882 111,204 Income tax payable 8,368 12,015 Borrowings 26 364,954 383,341 1,649,001 973,249 Total liabilities 1,683,668 986,582 Total equity and liabilities 2,242,606 1,517,665 The notes on pages 6 to 30 form an integral part of these financial statements. -3- WUHAN BOILER COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2003 Reserves Statutory Statutory Share Capital Share surplus public Retained capital reserve premium reserve funds welfare funds earnings Total (Note 20) (Note 21(a)) (Note 21(a)) (Note 21(b)) (Note 21(b)) (Note 21(c)) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Year ended 31 December 2002 Balance at 1 January 2002 297,000 89,890 54,741 7,833 7,833 51,716 509,013 Net profit - - - - - 21,915 21,915 Transfer from retained earnings to other reserves - - - 2,223 2,223 (4,446) - Dividends (Note 21 (d)) - - - - - (7,425) (7,425) Balance at 31 December 2002 297,000 89,890 54,741 10,056 10,056 61,760 523,503 Year ended 31 December 2003 Balance at 1 January 2003 297,000 89,890 54,741 10,056 10,056 61,760 523,503 Net profit - - - - - 31,742 31,742 Forfeited customer deposits (Note 21 (a)) - 1,800 - - - (1,800) - Transfer from retained earnings to other reserves - - - 3,573 3,572 (7,145) - Dividends (Note 21 (d)) - - - - - (10,395) (10,395) Balance at 31 December 2003 297,000 91,690 54,741 13,629 13,628 74,162 544,850 The notes on pages 6 to 30 form an integral part of these financial statements. -4- WUHAN BOILER COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 2003 2002 Notes RMB’000 RMB’000 Cash flows from operating activities Cash generated from operations 27(a) 124,246 136,594 Interest paid (27,226) (24,604) Tax paid (18,880) (184) Net cash from operating activities 78,140 111,806 Cash flows from investing activities Purchase of property, plant and equipment 27(b) (11,422) (5,126) Purchase of proprietary technology and patent (17,817) - Payments for construction in progress (19,147) (8,240) Proceeds from disposal of property, plant and equipment 855 10 Proceeds from disposal of available-for-sale investment - 17,099 Interest received 4,688 8,971 Dividends received 698 948 Net cash (used in)/ from investing activities (42,145) 13,662 Cash flows from financing activities Cash injection by a minority shareholder 27(b) 3,930 6,000 Decrease/(increase) in deposits used as collaterals 10,845 (134,861) Proceeds from borrowings 576,791 543,661 Repayments of borrowings (573,844) (359,217) Dividends paid (10,395) (7,425) Net cash from financing activities 7,327 48,158 Net increase in cash and cash equivalents 43,322 173,626 Cash and cash equivalents at beginning of year 250,678 77,052 Cash and cash equivalents at end of year 19 294,000 250,678 The notes on pages 6 to 30 form an integral part of these financial statements. -5- WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 1. General Wuhan Boiler Company Limited (the “Company”) is a joint stock limited company incorporated in the People’s Republic of China (“PRC”) on 8 April 1998. The Company and its subsidiaries (the "Group") are mainly engaged in the manufacturing and sale of boilers within PRC. The Company is listed on the Shenzhen Stock Exchange. 2. Accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: (a) Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") including International Accounting Standards and Interpretations issued by the International Accounting Standards Board. This basis of accounting differs from that used in the preparation of the Company's statutory financial statements (“PRC statutory financial statements”). The PRC statutory financial statements of the Company and its subsidiaries comprising the Group have been prepared in accordance with relevant accounting principles and regulations applicable to them, as appropriate in the PRC. Appropriate adjustments have been made to the PRC statutory financial statements to conform with IFRS. Differences arising from the restatement have not been incorporated in the statutory accounting records of the Group. The consolidated financial statements are prepared under the historical cost convention as modified by the revaluation of available-for-sale investments. The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. (b) Consolidation Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity. -6- WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 2. Accounting policies (Cont’d) (b) Consolidation (Cont’d) Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill. See Note 2(g) for the accounting policy on goodwill. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Details of the Group’s subsidiaries are set out in Note 33. (c) Foreign currency translation (1) Measurement currency Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”). The consolidated financial statements are presented in Renminbi (“RMB”), which is the measurement currency of the Group. (2) Transactions and balances Transactions denominated in foreign currencies are translated into RMB at the exchange rates stipulated by the People’s Bank of China prevailing on the first day of the month in which the transactions took place. Monetary assets and liabilities denominated in foreign currencies are translated into RMB at the exchange rates quoted by the People’s Bank of China ruling at the balance sheet date. Exchange differences are included in the consolidated income statement. (d) Property, plant and equipment All property, plant and equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses. Depreciation is calculated to write off the cost of the assets on a straight-line basis over their expected useful lives, taking into account their estimated residual value. The principal annual rates used are: Plant and office premises 3 – 6.5% Production equipment and machinery 5 – 14% Motor vehicles 16% Furniture, fixtures and office equipment 19 – 24% WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 2. Accounting policies (Cont’d) (d) Property, plant and equipment (Cont’d) The gain or loss on disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the consolidated income statement. Repairs and maintenance are charged to the consolidated income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. (e) Construction in progress Construction in progress represents premises under construction and production plants, machinery and other equipment under installation and is stated at cost. Cost includes the cost of construction, purchase cost of plant and machinery as well as interest expenses arising from borrowings used to finance the construction during the construction period. Construction in progress for production plants and machinery is transferred to fixed assets on the commissioning date. Plant and machinery are considered to be commissioned when they are capable of producing saleable quality output in commercial quantities on an ongoing basis. (f) Prepaid lease Prepaid lease represents the cost of acquiring rights to use the transformer substation for the Group’s operations which has been recognised as an expense on a straight-line basis over the expected useful life of 30 years. (g) Intangible assets (1) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary at the date of acquisition. Goodwill is amortised on a straight-line basis over its estimated useful life of not more than 10 years. Management determines the estimated useful life of goodwill based on its evaluation of the respective companies at the time of the acquisition, considering factors such as existing market share, potential growth and other factors inherent in the acquired companies. At each balance sheet date, the Group assesses whether there is any indication of impairment. If such indications exist, an analysis is performed to assess whether the carrying amount of goodwill is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 2. Accounting policies (Cont’d) (g) Intangible assets (Cont’d) (2) Proprietary technology and patent Expenditure on acquired proprietary technology and patent is capitalised and amortised using the straight-line method over their useful lives of not more than 15 years. The carrying amount of each proprietary technology and patent is reviewed annually and adjusted for permanent impairment when it is considered necessary. (3) Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if the cost can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding five years. (h) Impairment of long lived assets Property, plant and equipment, construction in progress and prepaid lease are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows. (i) Available-for-sale investments Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale investments; and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Available-for-sale investments are subsequently carried at fair value. Fair values for unlisted equity securities are estimated using applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment. When securities classified as available-for-sale investments are sold or impaired, the accumulated fair value adjustments are included in the consolidated income statement as gains and losses from investment securities. WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 2. Accounting policies (Cont’d) (j) Leases (1) A group company is the lessee Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance cost is charged to the consolidated income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. If there is reasonable certainty that the lessee will obtain ownership by the end of the lease term, the property, plant and equipment acquired under finance leases is depreciated over the useful life of the asset; otherwise the property, plant and equipment is depreciated over the shorter of the lease term and its useful life. Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated income statement on a straight-line basis over the period of relevant leases. (2) A group company is the lessor Assets leased out under operating leases are included in property, plant and equipment in the consolidated balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term. (k) Inventories Inventories are stated at the lower of cost or net realisable value. Cost of raw materials represents invoiced price calculated using the weighted average costing method. Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses. (l) Construction contracts A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and functions or their ultimate purpose or use. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred where it is probable those costs will be recoverable. Contract costs are recognised when incurred. WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 2. Accounting policies (Cont’d) (l) Construction contracts (Cont’d) When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised over the period of the contract, respectively, as revenue and expenses. The Group uses the percentage of completion method to determine the appropriate amount of revenue and costs to recognise in a given period; the percentage of completion is measured by reference to the relationship that contract costs incurred for work performed to date bear to the estimated total costs for the contract. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Construction contract cost includes direct materials, subcontracting cost, direct labor and an appropriate proportion of variable and fixed production overheads. In determining costs incurred up to the year-end, any costs relating to future activity on a contract are excluded and shown as contract work in progress. The aggregate of the costs incurred plus the profit less losses recognised on each contract is compared against the progress billings up to the balance sheet date. Where contract costs incurred plus recognised profits less recognised losses exceed progress billings, the balance is shown as due from contract customers. Where progress billings exceed contract costs incurred plus recognised profits less recognised losses, the balance is shown as due to contract customers. (m) Accounts receivable Accounts receivable include progress billings in accordance with the contracts terms and retention monies receivable. Accounts receivable are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of accounts receivable is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. (n) Cash and cash equivalents Cash and cash equivalents are carried in the consolidated balance sheet at cost. For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and deposits held at call with banks. (o) Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. All other borrowing costs are charged to the consolidated income statement in the year in which they are incurred. WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 2. Accounting policies (Cont’d) (p) Taxation PRC income taxes are provided for based on the estimated assessable profits and tax rates applicable to the Company and the subsidiaries comprising the Group. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Current enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. (q) Retirement scheme The Group has to make defined contributions to a staff retirement scheme in accordance with the rules and regulations set by the local government. Contributions to the retirement scheme are charged to the consolidated income statement in the period to which the contributions are related. (r) Warranty The Group recognises the estimated liability to repair or replace products still under warranty at the balance sheet date. This provision is calculated based on certain percentage of the completed contract cost which is determined by reference to past history of the level of repairs and replacements. (s) Revenue recognition Revenue from construction contracts is based on the stage of completion determined by reference to the cost incurred to date as a percentage of total cost to be incurred. Refer to Note 2(l) for sales recognition in relation to construction. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. Investment income is recognised when the right to receive dividends or other payments is established. (t) Dividends Final dividends are recorded in the Group’s consolidated financial statements in the period in which they are approved by the Group’s shareholders. (u) Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 2. Accounting policies (Cont’d) (v) Financial instruments Financial instruments carried on the consolidated balance sheet include cash and bank balances, available-for-sale investments, due from/(to) contract customers, receivables, prepayments, payables and borrowings. Available-for-sale investments and accounts receivable are stated at carrying amounts determined in accordance with Notes 2(i) and 2(m) respectively. Other financial assets and financial liabilities without a quoted market price in an active market are measured at cost subject to impairment review. Disclosures of financial risk managements are provided in Note 28. 3. Sales Sales recognised in 2003 and 2002 arised from the sale of boilers under long-term contracts within the PRC. 4. Operating profit The following items have been included in arriving at operating profit: 2003 2002 RMB’000 RMB’000 Depreciation on property, plant and equipment (Note 9, 27) – owned assets 20,744 21,866 – leased assets under finance lease 452 - Reversal of impairment loss of property, plant and equipment (Note 9, 27) (45) (24) Impairment loss of construction in progress (Note 10, 27) - 90 Loss on disposal of property, plant and equipment (Note 27) 58 201 Repairs and maintenance expenditure 8,738 8,064 Amortisation of intangible assets (Note 11, 27) 4,820 4,529 Research and development expenditure * 13,939 13,919 Operating lease rentals in respect of property 1,745 1,606 Provision for bad and doubtful debts 7,339 7,134 Staff costs (Note 5) 70,718 52,796 Warranty (Note 23) 18,914 10,140 * Included in the research and development expenditure are staff emoluments and depreciation totalling RMB 7,582,000 (2002:RMB7,469,000), which have also been included in staff costs and depreciation disclosed above. WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 5. Staff costs 2003 2002 RMB’000 RMB’000 Wages and salaries 53,280 37,458 Retirement benefits (Note 29) 7,325 7,432 Other social security costs 10,113 7,906 70,718 52,796 Average number of persons employed by the Group during the year 2,980 2,690 6. Finance costs, net 2003 2002 RMB’000 RMB’000 Interest income arising from - bank deposits 4,688 2,575 - other deposits - 194 4,688 2,769 Investment - dividend income 698 948 - gain on disposal of an available-for-sale investment - 699 698 1,647 Net foreign exchange transaction gains 580 24 Interest expenses in relation to - bank borrowings (25,860) (18,973) - finance lease (558) - - loan from a finance lease company (1,567) - - other payables - (3,688) (27,985) (22,661) Bank charges (1,205) (729) (23,224) (18,950) WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 7. Income tax 2003 2002 RMB’000 RMB’000 Current tax 15,233 12,560 Deferred tax (Note 13) 52 (1,771) Tax charge 15,285 10,789 Income tax has been calculated based on the estimated assessable profits using the tax rates applicable to the Company and the subsidiaries comprising the Group, respectively. Pursuant to a document “Shui Shou Erzi [1998] No.12” issued by the Wuhan Local Tax Bureau regarding collective payment of income tax, income tax of the Company is collectively paid through Wuhan Boiler (Group) Company Limited (“WHBG”), the parent of the Company. The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the effective tax rate of the Company is analysed as follows: 2003 2002 RMB’000 RMB’000 Profit before tax 48,635 33,215 Tax calculated at the effective rate of 33% (2002: 33%) 16,050 10,961 Effect of different tax rate applicable to a subsidiary * (1,497) (424) Dividend income not subject to tax (230) (313) Expenses not deductible for tax purposes 962 565 Tax charge 15,285 10,789 * A subsidiary in the PRC enjoyed income tax exemption for the two years ended 31 December 2003 and 2002. 8. Earnings per share The calculation of earnings per share is based on the consolidated profit after tax and after minority interests for the year of RMB31,742,000 (2002: RMB21,915,000) and the weighted average number of shares in issue during the year of 297,000,000 (2002: 297,000,000). The Company has no dilutive ordinary shares and as a result basic and diluted earnings per share are the same. WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 9. Property, plant and equipment Production Furniture, Plant and equipment fixtures office and Motor and office premises machinery vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Year ended 31 December 2003 Opening net book value 90,844 73,598 3,779 2,942 171,163 Additions 2,779 20,777 3,468 1,746 28,770 Disposals (430) (351) (87) (45) (913) Reversal of impairment / (impairment charge) (Note 4, 27) - 103 - (58) 45 Depreciation charge (Note 4, 27) (5,345) (13,726) (847) (1,278) (21,196) Closing net book value 87,848 80,401 6,313 3,307 177,869 At 31 December 2003 Cost 162,704 238,296 13,384 9,961 424,345 Accumulated depreciation (74,856) (157,895) (7,071) (6,568) (246,390) Impairment charge - - (86) (86) - Net book value 87,848 80,401 6,313 3,307 177,869 The Company’s plant and office premises are located in Wuhan city, Hubei Province, the PRC. The land where the properties are situated is leased from WHBG for a period of 50 years at an annual rental of RMB1,320,000 payable during the period from the date of incorporation of the Company to 2001. Thereafter, the rental charge is subject to an upward review of 10% every 5 years. The rental charge for 2003 was RMB1,452,000. Additions include assets leased under finance lease of RMB11,025,000 (2002: Nil). Plant and office premises of the Company have been pledged to a bank for securing loan facilities granted to the Company, totalling RMB45,000,000. Impairment charge relates to an idle equipment which would not be used by the Company in the foreseeable future and was calculated based on its estimated recoverable amount. The information in relation to the cost and accumulated depreciation of production equipment, where the Group is lessee under a finance lease, is set forth below: 2003 2002 RMB’000 RMB’00 Cost – capitalised finance lease 11,025 - Accumulated depreciation (452) - Net book amount 10,573 - The finance lease arrangement for production equipment, which has been guaranteed by WHBG, is engaged with a finance lease company in the PRC. WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 10. Construction in progress 2003 2002 RMB’000 RMB’000 Opening net book value 5,114 3,100 Additions 19,147 8,240 Transfer to property, plant and equipment (16,378) (6,136) Impairment charge - (90) Closing net book value 7,883 5,114 Construction in progress represents production equipment under installation and is stated at cost. No interest expenses were capitalised in the current year (2002: Nil). 11. Intangible assets Proprietary technology Goodwill and patent Total RMB’000 RMB’000 RMB’000 Year ended 31 December 2003 Opening net book value 1,332 20,350 21,682 Addition - 17,817 17,817 Amortisation charges (Note 4, 27) (213) (4,607) (4,820) Closing net book value 1,119 33,560 34,679 At 31 December 2003 Cost 1,683 46,117 47,800 Accumulated amortisation (564) (12,557) (13,121) Net book value 1,119 33,560 34,679 The Directors of the Company are of the opinion that the underlying fair value of the intangible assets was not less than its carrying amount as at 31 December 2003. WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 12. Available-for-sale investment 2003 2002 RMB’000 RMB’000 Unlisted investment 15,937 15,937 As at 31 December 2003, the Company held certain legal person shares, representing approximately 3% equity interest (2002: 3%), in Haibowan Joint Stock Company Limited, a company established in Inner Mongolia Autonomous Region of the PRC. This company is engaged in the operation of power plants. Available-for-sale investment is classified as non-current asset, unless it is expected to be realised within twelve months of the balance sheet date or unless it will need to be sold to raise operating capital. Available-for-sale investment of the Group has neither a quoted market price in an active market nor a fixed maturity. The Directors of the Company are of the opinion that the underlying fair value of the unlisted investment approximated its carrying amount as at 31 December 2003. 13. Deferred tax assets Deferred taxation is calculated on all temporary differences under the liability method using an enacted tax rate of 33% (2002: 33%). The movement on the deferred taxation account is as follows: 2003 2002 RMB’000 RMB’000 At beginning of year 2,579 808 Income statement (charge)/credit (Note 7) (52) 1,771 At end of year 2,527 2,579 Deferred tax assets and deferred tax credit in the consolidated income statement are attributable to the following items: (Charge)/credit to income 2002 statement 2003 RMB’000 RMB’000 RMB’000 Deferred income tax assets - Temporary difference in respect of provision for impairment loss of fixed assets 74 (15) 59 - Temporary difference in respect of provision for inventories 15 63 78 - Temporary difference in respect of provision for bad and doubtful debts 2,490 (100) 2,390 2,579 (52) 2,527 WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 14. Inventories 2003 2002 RMB’000 RMB’000 Raw materials (at cost) 215,211 72,964 Raw materials (at net realisable value) 3,534 3,915 218,745 76,879 Certain raw materials have been written down by RMB1,653,000 (2002: RMB1,463,000) to their estimated net realizable value. 15. Construction contract work in progress 2003 2002 RMB’000 RMB’000 Contract costs incurred and recognised profits (less losses) 747,917 468,431 Progress billings (461,430) (196,118) 286,487 272,313 Comprising: - Due from contract customers 419,774 307,363 - Due to contract customers (133,287) (35,050) 286,487 272,313 16. Accounts receivable 2003 2002 RMB’000 RMB’000 Accounts receivable 517,139 306,104 Less: Provision for bad and doubtful debts (27,861) (20,987) 489,278 285,117 Included in accounts receivable balance as at year-end were retention monies of RMB204,693,000 (2002: RMB67,253,000). 17. Amounts due from fellow subsidiaries 2003 2002 RMB’000 RMB’000 Wuhan Boiler (Group) Boyu Complementary Mechanism of Electronic Station Co., Ltd. 10,426 1,477 Wuhan Boiler (Group) Valve Company Limited 18,886 - Wuhan Boiler (Group) Boiler Accessories Manufacturing Company Limited 20,832 23,545 Wuhan Chengxin Boiler Automatic Control Equipment Manufacturing Company Limited - 1,318 Others 1,207 - 51,351 26,340 WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 Amounts due from fellow subsidiaries are substantially derived from normal trading transactions. The amounts are unsecured, non-interest bearing and with no fixed repayment terms. WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 18. Other receivables, deposits and prepayments 2003 2002 RMB’000 RMB’000 Other receivables 10,289 9,900 Deposits * 14,860 18,380 Purchase deposits and other prepayments 261,981 51,525 287,130 79,805 * Represent deposits with an insurance company totalling RMB14,860,000 (2002: 18,380,000), which have been pledged to a bank to guarantee notes payable issued by the Company of RMB30,800,000. The deposits can be withdrawn within one year and bear annual interest rates ranging from 1% to 2.5%. 19. Cash and bank balances 2003 2002 RMB’000 RMB’000 Cash at bank and in hand 172,184 190,045 Fixed deposits * 165,605 91,093 Bank guarantee deposits ** 195,956 220,130 533,745 501,268 * The weighted average effective interest rate on fixed deposits was 1.72% (2002: 1.5%); Fixed deposits have an average maturity of 365 days (2002: 310 days). Fixed deposits totalling RMB13,000,000 (2002: RMB30,460,000) have been pledged to a bank to secure loans totalling RMB20,000,000 (2002: RMB29,000,000) provided to the Company. Fixed deposits totalling USD3,720,000 (2002: Nil) have been pledged to a bank to guarantee notes payable issued by the Company. ** Bank guarantee deposits have been pledged to banks to guarantee notes payable issued by the Company and the letters of guarantee issued by the banks. For the purposes of the cash flow statement, cash and cash equivalents comprise the following: 2003 2002 RMB’000 RMB’000 Cash and bank balances 533,745 501,268 Fixed deposits for securing bank loans and notes payable (43,789) (30,460) Bank guarantee deposits (195,956) (220,130) 294,000 250,678 WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 20. Share capital 2003 2002 RMB’000 RMB’000 Registered, issued and fully paid of RMB1 each Domestic legal person shares 172,000 172,000 B shares, listed 125,000 125,000 297,000 297,000 Pursuant to Articles 31 and 35 of the Company's Articles of Association, domestic legal person shares and B shares are registered ordinary shares carrying equal rights. Domestic legal person shares are not listed and not freely transferable, unless specifically approved by the relevant government authorities. 21. Reserves (a) Capital reserve and share premium Capital reserve comprises surplus arising on the difference between the nominal value of state shares issued to WHBG, the parent company, in exchange for the value of the transfer of boiler business related assets and liabilities to the Company and the non-distributable reserve arising from the forfeiture of deposits from customers. Share premium represents the premium on the issue of B shares to the foreign investors. Pursuant to the relevant PRC regulations, capital reserve and share premium can only be used to increase share capital. Pursuant to the Accounting System for Business Enterprises of the PRC, any gains arising from forfeiture of deposits from customers are directly reflected in capital reserve and therefore not distributable. Accordingly, a transfer has been made from retained earnings to reflect its non-distributable nature. (b) Reserve funds In accordance with the relevant PRC regulations applicable to joint stock limited companies and the Company’s Articles of Association, the Group is required to allocate its profit after tax to the following reserves: (i) Statutory surplus reserve funds The Group is required each year to transfer 10% of the profit after tax as reported under the PRC statutory financial statements to the statutory surplus reserve funds until the balance reaches 50% of the registered share capital. This reserve can be used to make up any losses incurred or to increase share capital. Except for the reduction of losses incurred, any other application should not result in this reserve balance falling below 25% of the registered capital. WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 21. Reserves (Cont’d) (b) Reserve funds (Cont’d) (ii) Statutory public welfare funds The Group is required each year to transfer 10% of the profit after taxation as reported under the PRC statutory financial statements to the statutory public welfare funds. This reserve is restricted to capital expenditure for employees' collective welfare facilities that are owned by the Group. The statutory public welfare funds are not available for distribution to shareholders (except on liquidation). According to a document issued by the Ministry of Finance, when the statutory public welfare fund is utilised, an amount equal to the lower of cost of the assets and the balance of the statutory public welfare fund is transferred from the statutory public welfare fund to the discretionary surplus reserve. On disposal of the relevant assets, the original transfers from the statutory public welfare fund are reversed. (c) Profit distributable to shareholders Pursuant to a document issued by the Ministry of Finance, the profit after appropriation to reserves and available for distribution as dividend shall be the lower of the amount as stated in the PRC statutory financial statements and the financial statements prepared under IFRS. At 31 December 2003, the Group's retained earnings according to the PRC statutory financial statements amounted to RMB68,675,000 (2002: RMB45,969,000). The Company was transformed from a state-owned enterprise to a joint stock limited company on 8 April 1998 under a reorganisation scheme. Pursuant to a Board resolution of WHBG on 27 November 1997, the profits generated from 1 October 1997 (the completion date of the reorganisation) and onwards are distributable to all shareholders and profits generated before 1 October 1997 are distributable to WHBG only. Retained earnings as at 31 December 2003 include RMB28,515,000 of profits generated before 1 October 1997. (d) Dividend Pursuant to a Board resolution on 28 March 2003, a cash dividend of RMB0.035 per share for the fiscal year 2002, amounting to dividends totalling RMB10,395,000, was declared and paid during the year. (2002: RMB7,425,000) Pursuant to a Board resolution on 26 March 2004, a cash dividend of RMB0.04 per share for the fiscal year 2003, amounting to dividends totalling RMB11,880,000, was declared. The consolidated financial statements have not reflected this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in 2004. WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 22. Minority interests 2003 2002 RMB’000 RMB’000 At beginning of year 7,580 1,069 Set up of new subsidiary (Note 33) 4,900 6,000 Share of net profit of subsidiaries 1,608 511 At end of year 14,088 7,580 23. Other payables and accrued charges 2003 2002 RMB’000 RMB’000 Other payables 54,767 55,040 Warranty provision * 19,434 8,194 Accrued charges 2,435 1,206 76,636 64,440 * The Company provides one to three years’ warranties in respect of the sale of boilers and undertakes to repair or replace items that fail to perform satisfactorily. The provision is estimated by reference to the expected warranty claims calculated at certain percentage of the completed construction contract cost, after taking into account the past experience of the level of repairs and returns. The movement of warranty provision is as follows: 2003 2002 RMB’000 RMB’000 Opening net book value 8,194 3,686 Accruals (Note 4) 18,914 10,140 Utilisation (7,674) (5,632) Closing net book value 19,434 8,194 24. Amount due from / (to) parent company The amount due from / (to) parent company, WHBG, was derived from the transactions as set out in Note 32. The amount is unsecured, non-interest bearing and with no fixed repayment terms. WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 25. Amounts due to fellow subsidiaries These represent current account balances arising on transactions entered into in the normal course of business. The amounts are unsecured, non-interest bearing and with no fixed repayment terms. 2003 2002 RMB’000 RMB’000 Wuhan Chengxin Boiler Automatic Control Equipment Manufacturing Company 3,284 - Wuhan Jiangxia Real Estate Company 407 - Wuhan Boiler (Group) Valve Company Limited - 5,086 Wuhan Boiler (Group) Yuntong Company Limited - 3,102 Others - 569 3,691 8,757 26. Borrowings 2003 2002 RMB’000 RMB’000 Current - Secured bank borrowings 58,322 111,656 - Unsecured bank borrowings 292,632 271,685 - Unsecured finance lease liability * 3,675 - - Unsecured loan from a finance lease company * 10,325 - 364,954 383,341 Non-current - Secured bank borrowings 6,667 13,333 - Unsecured finance lease liability * 7,350 - - Unsecured loan from a finance lease company * 20,650 - 34,667 13,333 Total borrowings 399,621 396,674 * The Company has given a guarantee amounting to Rmb42,000,000 (2002: Nil) to a bank in favor of a finance lease company which has provided assets under finance lease arrangement and a loan in the amount of RMB30,975,000 to the Company. The details of the finance lease arrangement are set forth in Note 9. The borrowings include secured bank borrowings totalling RMB64,989,000 (2002: RMB124,989,000). The bank borrowings are secured over certain buildings of the Group (Note 9), certain buildings of Wuhan Jiangxia Real Estate Company amounting to RMB15,797,000 and fixed deposits of the Company (Note 19). WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 26. Borrowings (Cont’d) The unsecured borrowings are supported by guarantees provided by the following parties: 2003 2002 RMB’000 RMB’000 Parent company - WHBG 334,334 236,620 Third party - Shandong Weiqiao Textile (Group) Company Limited - 35,000 Other 298 65 Total guaranteed borrowings 334,632 271,685 The interest rate exposure of the borrowings of the Group is as follows: 2003 2002 RMB’000 RMB’000 At fixed rates 357,621 396,674 At floating rate * 42,000 - Total borrowings 399,621 396,674 Weighted average effective interest rate - bank borrowings 6.02% 5.52% - finance lease liability 7.99% - - loan from a finance lease company 7.99% - * The finance lease liability and loan from a finance lease company bear interest at the rate stipulated by the People’s Bank of China for long-term bank loans of 3 years plus 2.5% per annum. There are no material differences between the fair value and carrying amount of the Group’s borrowings. The fair values are based on discounted cash flows using a discount rate similar to the borrowing rate that the Directors believe would be available to the Group at the balance sheet date. Maturity of non-current borrowings (excluding finance lease liability): 2003 2002 RMB’000 RMB’000 Between 1 and 2 years 16,992 6,666 Between 2 and 5 years 10,325 6,667 27,317 13,333 WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 26. Borrowings (Cont’d) Finance lease liability – minimum lease payments: 2003 2002 RMB’000 RMB’000 Not later than 1 year * 4,398 - Later than 1 year and not later than 5 years * 7,899 - 12,297 Future finance charges on finance lease * (1,272) - Present value of finance lease liability 11,025 - * The minimum lease payments and future finance charges on finance lease are calculated with the interest rate that the finance lease liability bears at the balance sheet date. The present value of finance lease liability is as follows: 2003 2002 RMB’000 RMB’000 Not later than 1 year 3,675 - Later than 1 year and not later than 5 years 7,350 - 11,025 - WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 27. Cash generated from operations (a) Reconciliation of net profit to cash generated from operations 2003 2002 RMB’000 RMB’000 Net profit 31,742 21,915 Adjustments for: Minority interest (Note 22) 1,608 511 Tax charge (Note 7) 15,285 10,789 Depreciation (Note 9) 21,196 21,866 Cost of prepaid lease recognised as expenses 150 150 Reversal of impairment loss on property, plant and equipment (Note 9) (45) (24) Impairment loss on construction in progress (Note 10) - 90 Loss on disposal of property, plant and equipment (Note 4) 58 201 Amortisation of intangible assets (Note 11) 4,820 4,529 Investment income (Note 6) (698) (1,647) Interest expenses (Note 6) 27,985 22,661 Interest income (Note 6) (4,688) (2,769) Changes in working capital: (Increase) / decrease in inventories (141,866) 34,769 Increase in due from contract customers, accounts receivable, amount due from parent company, amounts due from fellow subsidiaries, other receivables, deposits and prepayments (528,328) (141,834) Increase in due to contract customers, bills payable, accounts payable, amounts due to fellow subsidiaries, deposits received from customers, other payables and accrued charges 697,027 165,387 Cash generated from operations 124,246 136,594 (b) Major non-cash item Fixed assets totalling RMB970,000 were injected into the Group as capital contribution by a minority shareholder. The details are set out in Note 33. WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 28. Financial risk managements (a) Interest rate risk The interest rates and repayment terms of bank borrowings are disclosed in Note 26. Other financial assets and financial liabilities do not have material interest rate risk. (b) Credit risk The Group has no significant concentrations of credit risks. Amounts due from contract customers and accounts receivable of the Group are spread among a number of customers in the PRC and cash is deposited with registered banks in the PRC. The carrying amounts of the financial assets after deducting the provision for bad and doubtful debts best represent their maximum credit risk exposure as at 31 December 2003. (c) Foreign currency risk Transactions of the Group are mainly settled in Renminbi. In the opinion of the Directors of the Company, the Group does not have significant foreign currency risk exposure. (d) Fair value The carrying amounts of the following financial instruments approximate to their fair values: cash and bank balances, due from/(to) contract customers, receivables, payables, prepayments and borrowings. Information on the fair value of borrowings and interest rate exposure is included in Note 26. 29. Retirement scheme The Group participates in a defined contribution retirement scheme organised by the Wuhan Municipal Government for all employees. The Group's contribution to the scheme is provided at 20% (2002: 20%) of the prior year’s total salary for permanent employees. The contribution to the retirement scheme for the year ended 31 December 2003 amounted to RMB7,325,000 (2002: RMB7,432,000). Other than the above, the Group has no other retirement benefit obligations. 30. Contingent liability Except for the guarantee provided to a finance lease company as disclosed in Note 26, as at 31 December 2003, the Group had no material contingent liability. WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 31. Commitments Capital commitments Capital expenditure contracted for at the balance sheet date but not recognised in the consolidated financial statements is as follows: 2003 2002 RMB’000 RMB’000 Construction in progress 11,138 6,243 Operating lease commitments The future total minimum lease payments under non-cancellable operating leases mainly in respect of the leasing arrangement as mentioned in Note 9 are as follows: 2003 2002 RMB’000 RMB’000 Not later than 1 year 1,585 1,721 Later than 1 year and not later than 5 years 6,100 6,065 Later than 5 years 88,133 89,730 95,818 97,516 32. Related party transactions and relationships (a) Apart from those related party transactions disclosed in other notes above, the Group had the following material transactions with its related parties during the year: 2003 2002 RMB’000 RMB’000 WHBG - Sale of boilers * 470 12,829 - Operating lease payment * 1,452 1,452 - Assignment of debts to WHBG - 2,329 - Payments of income tax through WHBG 19,141 - - Payments by WHBG on behalf of the Company 6,803 6,990 - Rental income * 2,000 2,000 Subsidiaries of WHBG - Purchases of boiler parts and sub-contracting charges paid * 32,844 26,299 - Sales of boilers, raw materials and boiler parts * 7,473 4,175 - Payments for installation and transportation services * 30,425 6,291 * In the opinion of the Directors of the Company, these transactions were carried out on normal commercial terms and the prices as agreed between the contracting parties. WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 32. Related party transactions and relationships (Cont’d) (b) Relationships In the opinion of the Directors of the Company, the ultimate parent company of the Company is WHBG, a state-owned enterprise incorporated in the PRC. (c) Directors’ remuneration A listing of the members of the Board of Directors is shown in 2003 Annual Report. The total remuneration of the Directors approximated RMB268,000 for the year (2002: RMB208,000). 33. Subsidiaries As at the balance sheet date, the Company directly held equity interests in the following PRC established subsidiaries: Attributable Name equity interest Principal activities 2003 2002 % % Wuhan Special Boiler Complete 90 90 Manufacturing and Equipment Engineering Company sale of special boilers Limited Wuhan Lan Xiang Power Environmental 70 70 Consultancy, research Protection Technology Company and design of boilers Limited and environmental projects. WuHan WuGuo ZhiXin Environmental 51 - Manufacturing and Protection Equipment Manufacturing sale of environmental Co., Ltd. ("Zhi Xin") * protection boilers, components and steel structures. * Zhi Xin was founded by the Company and an unrelated individual. The Company contributed fixed assets, raw materials and cash totalling RMB5,100,000 and the individual contributed fixed assets and cash totalling RMB4,900,000, representing 51% and 49% of the equity interests in Zhi Xin, respectively. 34. Approval of consolidated financial statements The consolidated financial statements were approved by the Board of Directors on 26 March 2004. WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2003 The impact of IFRS adjustments on the PRC statutory consolidated financial statements is as follows: Net profit Net assets RMB’000 RMB’000 As per the PRC statutory consolidated financial statements 29,851 545,183 IFRS and other adjustments - Reversal of investment revaluation gain - (2,227) - Deferred tax (52) 2,527 - Forfeited customer deposits 1,800 - - Others 143 (633) As restated after IFRS adjustments 31,742 544,850