深赤湾Ａ(000022)深赤湾Ｂ2003年年度报告（英文版）

2003 ANNUAL REPORT SHENZHEN CHIWAN WHARF HOLDINGS LIMITED Important Note The Board of Directors of Shenzhen Chiwan Wharf Holdings Limited (“the Company”) individually and collectively accepts responsibility for the correctness, accuracy and completeness of the contents of this report and confirms that there are no material omissions nor errors which would render any statement misleading. Chairman of the Board Ms. Wang Fen, as well as General Manager of the Company Dr. Liu Zhangjun and Chief Financial Officer Mr. Zhang Jianguo hereby confirm that the Financial Statements in the Annual Report is true and complete. The Annual Report is written in both English and Chinese. In case of any conflict between the two versions, Chinese version prevails. Table of Contents Part I Company Profile …….…………………………………………..…….……. 1 Part II Financial and Business Highlights ………………….……………..…….…. . 2 A. Profit and breakdown for 2003 …………….……………………………... .. . 2 B. Financial indicators …………….………………………. ………..……….…. 2 C. Changes in shareholders' equity in 2003 ………….……………….....…….... 3 Part III Changes in Shareholding Structure and Shareholders …………….………… 3 A. Changes in shareholding structure ……………………. ………….…………. 3 B. Shareholders ……….………………………………………………....………. 4 Part IV Directors, Supervisors, Senior Executives and Employees ………………… 7 A. General information ….……………….………………………………….….. 7 B. Annual salary ….……………………………………………………………… 10 C. Resignation and appointment ……………………………………………….... 11 D. Work force ….………………………………………………………………. 11 Part V Corporate Governance …….…………………………………...….……….. 11 A. Corporate governance ….………………………………..………..………….. 11 B. Performance of Independent Directors …………………………….……..….. 12 C. Independence from the controlling shareholder …………………..………….. 13 D. Performance Evaluation, motivation and binding mechanism for senior management staff ………………………………………………………………13 Part VI Shareholders’ General Meeting .…………..………….………………..….. 13 Part VII Report by the Board of Directors ………..…..…………..………………… 15 A. Performance in 2003 …………………………………….………………….. 15 B. Investments in 2003 …………….………………………………………….. 19 C. Financial status ….…………………………………………………………. 20 D. Influence of significant changes in business environment and policy ….….. 21 E. Business plan for 2004 .………………………………………..…………….. 22 F. Routine work of the Board of Directors …………………...…..……..……… 22 G. Profit distribution plan for 2003 ……………………………………………... 25 H. Specific explanations and independent opinions of Independent Directors …. 25 Part VIII Report by the Supervisory Committee …..………………..…………..…… 26 Part IX Significant Events …….……………………………………….……………28 Part X Financial Statements ….……………………………………….…………..33 Part XI Documents for Reference …………………………..………………………34 1 PART I COMPANY PROFILE A. Company's Name in Chinese Company's Name in English Shenzhen Chiwan Wharf Holdings Limited (CWH) B. Legal Representative Ms. Wang Fen, Chairman C. Company Secretary Ms. Pei Jiangyuan Authorized Representative Ms. Bu Dan and Ms. He Peng Address 11/F., Chiwan Petroleum Building Port of Chiwan, Shenzhen, PRC Tel +86 755 26694620 Fax +86 755 26684117 E-mail cwh@cndi.com D. Place of Registration Port of Chiwan, Shenzhen, PRC Offices 11-12/F., Chiwan Petroleum Building, Port of Chiwan, Shenzhen, PRC Postal Code 518068 E-mail cwh@cndi.com E. Newspaper for Information "Securities Daily" and "Ta Kung Pao” Disclosure Website for Annual Report http:\\www.cninfo.com.cn Annual Report Preparation Secretariat of the Board of Directors F. Stock Exchange Shenzhen Stock Exchange Stock Short Name Shen Chiwan A/Shen Chiwan B Stock Code 000022/200022 G. Other information Date of Original Registration 19 July 1990 Place of Registration Chiwan, Shenzhen Business Registration Number Qi-Gu-Yue-Shen-Zong-Zi No. 102793 Tax Registration Number Guo-Shui-Shen-Zi No. 440301618832968 Di-Shui-Deng-Zi No. 440305618832968 Accounting Firm (Domestic) PricewaterhouseCoopers Zhong Tian Certified Public Accountants Room 3706, Shun Hing Square, Di Wang Commercial Centre 5002 Shennan Road East Shenzhen, 518068, PRC Accounting Firm (Overseas) PricewaterhouseCoopers 22nd Floor, Prince's Building, Central Hong Kong 1 PART II FINANCIAL AND BUSINESS HIGHLIGHTS A. Profit and Breakdown for 2003 (RMB) Profit before tax 533,286,341 Net profit 313,987,876 Gross profit 651,082,889 Operating profit 552,245,193 Share of result of associates before tax 1,334,492 Net cash flow from operating activities 575,695,920 Increase/decrease in cash and cash equivalents -13,969,040 * Net profit for 2003 of Shenzhen Chiwan Wharf Holdings Limited ("the Company”) was calculated the same under Chinese Accounting Standards and International Accounting Standards as RMB313,987,876. B. Financial Indicators 2003 (RMB) 2002 (RMB) 2001 (RMB) Sales 1,012,014,118 714,755,787 478,756,052 Net profit 313,987,876 183,876,579 73,824,569 Total assets 3,214,527,760 2,331,823,016 2,222,759,643 Shareholders’ equity 1,501,391,931 1,298,098,489 1,153,494,051 (Minority interests excluded) Earnings per share 0.823 0.482 0.194 Net assets per share 3.935 3.402 3.023 Net cash flow per share from 1.509 0.761 0.498 operating activities Return on equity 20.91% 14.17% 6.40% 2 C. Changes in Shareholders' Equity in 2003 1. Changes of shareholders’ equity Unit: RMB Share Item Reserves Retained earnings Shareholders' equity Capital Initial amount 381,517,000 805,568,035 111,013,454 1,298,098,489 Increase 0 125,735,042 188,392,725 314,127,767 Decrease 0 903,949 109,930,376 110,834,325 Ending amount 381,517,000 930,399,128 189,475,803 1,501,391,931 2. Reason for the above changes Shareholders’ equity was increased due to the net profit realized in 2003. PART III CHANGES IN SHAREHOLDING STRUCTURE AND SHAREHOLDERS A. Changes in Shareholding Structure 1. Change in the stock of shares of the Company Change in amount of shares (+,-) bonus reserves new Before the After the change rights shares to stocks issue others subtotal change 1. Untradable shares a. Promoter's shares among which shares held by the State shares held by domestic legal entity 224,470,000 224,470,000 shares held by overseas legal entity others b. Shares raised from legal entity c. Shares held by staff 127,700 -27,300 -27,300 100,400 d. Preference shares and others Subtotal 224,597,700 -27,300 -27,300 224,570,400 2. Tradable shares a. A shares 50,472,300 +27,300 +27,300 50,499,600 b. B shares 106,447,000 106,447,000 c. Overseas listed shares d. others Subtotal 156,919,300 +27,300 +27,300 156,946,600 3. Total shares 381,517,000 381,517,000 3 2. Issuance and listing of shares a. The company was approved to issue 310,470,000 ordinary shares at a par value of RMB1.00 per share in February 1993, with 224,470,000 being the promoter's shares; 46,000,000 shares (the "A shares”) being issued to PRC investors (of which 6,000,000 shares were allotted to the employees of the Company), and 40,000,000 shares (the "B shares”) being issued to overseas investors. The A shares were issued at RMB3.10 per share and the B shares at RMB3.18 per share, which were payable at HKD2.83 per share. On 5 May 1993, the Company's A and B shares were listed and traded on the Shenzhen Stock Exchange. b. On June 1994, bonus shares were issued in a proportion of "one bonus share for every ten shares”. As a result, the total volume of the Company's shares rose to 341,517,000. On 16 June and 21 June 1994, respectively, 4,600,000 bonus A shares and 4,000,000 bonus B shares were listed and traded on the Shenzhen Stock Exchange. c. On 22 June 1995, the Company's promoter, China Nanshan Development (Group) Incorporation (CND), converted all of its 22,447,000 bonus shares to B shares, which were sold to overseas investors at an average price of HKD3.54 per share, and then listed and traded on the Shenzhen Stock Exchange. d. In December 1995, the Company issued 40,000,000 B shares to overseas investors at HKD2.90 per share, which were listed on the Shenzhen Stock Exchange on 15 December 1995. Consequently, the total volume of the Company's shares rose to 381,517,000. e. Total amount of the Company's shares and the shareholding structure were not changed during the reporting period. f. The Company was approved to issue 6,000,000 Employees’ Shares at an issuing price of RMB3.10 per share in February 1993. The shares were put in trust with Shenzhen Branch of China Securities Branch of China Registration Co. Ltd. in March 1993. After bonus shares were issued in June 1994, Employees’ Shares rose to 6,600,000, among which 600,000 bonus shares were allowed to be traded on 16 June 1994. On 1st August 1994, the Company's Employees’ Shares totaling 6,000,000 were allowed to become tradable, except those held by Directors, Supervisory Committee Members and senior management personnel according to relevant rules. Within the reporting period, 28,000 A shares held by Ms. Chen Yonglian, former Deputy General Manager(DGM) of the Company, was approved for circulating on the stock market 6 months after her resignation for retirement was approved on 16 April 2003. Director and DGM Mr. ZhengShaoping purchased in April 2003 700 A shares of the Company, which was locked according to relevant rules. As of December 31, 2003, the total number of Employees’ shares dropped from 127,700 to 100,400 while ordinary A shares surged from 50,472,300 to 50,499,600 accordingly. B. Shareholders 1. As at the end of 2003, 22,859 shareholders of the Company were recorded, 14,880 for shareholders of A Shares and 7,979 for shareholders of B Shares. 4 2. Top ten shareholders Series Changes during the Amount of Name Type Number reporting period Shares 1 CND 0 224,470,000 A shares GUOTAI JUNAN SECURIES HONG 2 KONG LIMITED +9,346,712 9,346,712 B shares 3 GT PRC FUND +4,699,887 4,699,887 B shares BTFE-VALUE PARTNERS 4 INTELLIGENT FD-CHINA B SHS FD +643,748 2,950,608 B shares 5 WESTERN SECURITIES CO. LTD +1,217,862 2,843,880 A shares YUYANG SECURITIES INVESTMENT 6 FD +2,668,335 2,726,242 A shares BERMUDA TRUST (FAR EAST) LTD- 7 VALUE PARTNERS ‘A’ FD +2,465,038 2,465,038 B shares 8 NEWTON ORIENTAL FUND -1,225,303 2,405,628 B shares CA-IS BK LUX-A/C CARLSON FUND 9 MGT CO. +2,373,000 2,373,000 B shares BTFE-BOBL/MANULIFE GLOBAL 10 FUND-CHINA VALUE +1,742,153 2,237,987 B shares Total 256,518,982 * a. The above-mentioned amount of shares are the figures recorded at the end of 2003. b. CND being domestic legal entity and the Fifth shareholder Western Securities Co., Ltd and the Sixth shareholder Yuyang Securities Investment Fund being shareholders of A shares, the other seven shareholders among the top ten are all shareholders of B shares. No relationship exists between CND and the other nine shareholders. The Company is not aware of any relationship existing among the top nine shareholders of circulating shares. c. CND is the only shareholder holding more than 5% of the Company's shares. Shares held by CND were not changed within the reporting year. CND did not pledge or freeze its shares in 2003. d. Among the top 10 shareholders, the shares held by other nine shareholders except CND are all circulated. 3. Information about the controlling shareholder of the Company Company name: China Nanshan Development (Group) Incorporation (CND) Legal representative: Dr. Fu Yuning Registration Date: September 28, 1982 Business scope: Land development, port services and transportation, as well as related bonded warehousing, industry, commerce, property and tourism. Registered Capital: RMB500,000,000 4. Within the reporting year, the controlling shareholder of the Company was not changed. 5 5. No. 1 shareholder of the controlling shareholder of the Company Being No. 1 shareholder of CND, China Merchants (Nanshan) Holdings Limited, holds 36.518% equity interests in CND, with its direct and indirect shareholder being China Merchants Holdings (International) Co., Ltd. (CMHI), which was listed on Hong Kong Exchange. Basic information about CMHI is listed as follows. Date of registration: May 28, 1991 Legal Representative: Fu Yuning Registered capital: HKD300,000,000 Place of registration: Hong Kong Business scope: port and port-related business, infrastructure and industrial production 6. Top ten shareholders of circulating shares Series Amount of Type of Name Number Shares Shares 1 GUOTAI JUNAN SECURIES HONG KONG LIMITED 9,346,712 B shares 2 GT PRC FUND 4,699,887 B shares BTFE-VALUE PARTNERS INTELLIGENT FD-CHINA B 3 SHS FD 2,950,608 B shares 4 WESTERN SECURITIES CO. LTD 2,843,880 A shares 5 YUYANG SECURITIES INVESTMENT FD 2,726,242 A shares BERMUDA TRUST (FAR EAST) LTD-VALUE PARTNERS 6 ‘A’ FD 2,465,038 B shares 7 NEWTON ORIENTAL FUND 2,405,628 B shares 8 CA-IS BK LUX-A/C CARLSON FUND MGT CO. 2,373,000 B shares 9 BTFE-BOBL/MANULIFE GLOBAL FUND-CHINA VALUE 2,237,987 B shares 10 HONGYANG SECURITIES INVESTMENT FD 2,171,877 A shares 34,220,859 Total * The Company is not aware of any relationship existing among the top ten shareholders of circulating shares. 6 PART IV DIRECTORS, SUPERVISORSˈ SENIOR EXECUTIVES AND EMPLOYEES A. General Information Chairman of the Board, Ms. Wang Fen, 49 years of age, MBA. Having taken part in the development of Chiwan Port ever since 1982. Previously, acted as Director of General Manager Office, Manager of Business Department of CND, and General Manager of Shenzhen Chiwan Godown Co., Ltd. Appointed as the Vice President of CND in 1994 and then Senior Vice President participating and taking charge of the development and management of CND's investment. Presently, President of CND. Elected Director of the Company in March 1993, Vice Chairman of the Company in December 1998, and Chairman of the Company in August 2000. Her present term started from May 2002 and ends in May 2005. Holding 34,100 shares of the Company without any change in 2002. Director, Mr. Fan Zhaoping, 50 years of age. Got Bachelor Degree in Economics at the State's Finance University and Master's Degree in Economics at the Research Institute of Finance Ministry of China, then worked as assistant researcher there. As an experienced finance manager, Mr. Fan took the position of Financial Manager at Shenzhen Chiwan Petroleum Supply Base Co., Ltd. in 1988, and Manager of the Finance Department of CND in 1991, then Manager of the Investment Department and Vice President of CND. Now Senior Vice President of CND. Appointed as the Company's Chief Financial Officer in March 1993 and resigned from the post in September 1999. Director of the Company since April 1995 with the present term starting from May 2002 and ending in May 2005. Holding 28,600 shares of the Company without any change in 2002. Director, Mr. Yuan Yuhui, 54 years of age, MBA. Previously, Translator and Assistant Director of Textile Science Research Institute of Hebei Province. Worked in the Business Department of CND in 1989, and then Director of General Manager Office. Now Senior Vice President of CND in charge of the administration, law affairs, research and development issues of CND. Appointed as the Company Secretary in March 1993 and resigned from the post in December 2000. Director of the Company since April 1995 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. Director, Mr. Han Guimao, 54 years of age, graduated from Construction Department of Tsing Hua University. Mr. Han has been working in the field of construction and engineering for over 30 years. Mr. Han first took a job at Tianjin Second Construction Company in 1969, then worked for the First Designing Institute of the Railway Ministry in 1976, and was working from 1983 to 1992 as Deputy General Manager in the Shenzhen Branch of the Second Engineering Bureau of the Railway Ministry (which ranks among the top ten construction and engineering bureaus in China), then took the position of Executive Deputy General Manager in Shenzhen Nanshan Centre-Zone Development Co. Vice President of CND since 1994, and presently Senior Vice President of CND in charge of general planning, construction and engineering, as well as construction material industry of CND. Director of the Company since May 1998 7 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. Director, Mr. Liu Zhangjun, 50 years of age. Got Bachelor Degree in Mechanics from Tongji University and Ph.D Degree in Mechanics at Cambridge University of the United Kingdom. Previously, Head of the Intelligence Import Office in Shenzhen Municipal Personnel Bureau and Manager of the Human Resources Department of CND. General Manager of the Company since August 2000 and Director of the Company since April 1995 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. Director, Mr. Zheng Shaoping, 41 years of age. Got Bachelor Degree in Shipping and then graduated from Postgraduate School of Dalian Shipping University with a major in Marine Trade Law. Previously, Manager of Business Section, Deputy General Manager and then General Manager of Shenzhen Chiwan Harbour Container Co. Now General Manger of Chiwan Container Terminal Co., Ltd. (CCT). Deputy General Manager of the Company from December 1998 to May 2002, and Director of the Company since May 1999 with the present term starting from May 2002 and ending in May 2005. Holding 700 shares of the Company. Independent Director, Mr. Zhang Limin, 49 years of age. Got Doctor’s Degree in Accounting at Tianjin Finance Institute. Presently Professor and Supervisor for post- graduates at Management College of Zhongshan University. His present term started from May 2002 and ends in May 2005. Holding nil shares of the Company. Independent Director, Mr. Liu Ruiqi, 47 years of age. Got Bachelor Degree in Law at Rimin University of China, and presently lawyer at Guangdong Saint-Balance Law Firm. His present term started from May 2002 and ends in May 2005. Holding nil shares of the Company. Independent Director, Mr. Ng Pock Too, 59 years of age. Honorary Doctor of Law Degree of University of New Brunswick in Canada and attended Harvard Business School’s Programme for Management Development. Former Director and CEO of the Economic Development Board of Singapore, Political Secretary to Prime Minister Lee Kuan Yew, CEO of Sembawang Group, a Singapore Government-owned company. Presently, President of Hamilton Sundstrand Asia Pacific Pte Ltd in charge of investment and planning. His present term started from May 2003 and ends in May 2005. Holding nil shares of the Company. Chairman of Supervisory Committee, Mr. Huang Chuanqi, 39 years of age. Got Doctor’s Degree at Nanjing Aviation and Aerospace University, Doctor’s Degree in Mechanical Engineering at France Bourgogne University, and post-doctor at Aerospace Department at German Stuttgart University. Formerly Professor and Supervisor for post- graduates at Nanjing Aviation and Aerospace University, Assistant to Director of Planning and Technology Division of China Civil Aviation Bureau (“CCAB”), Chief Engineer of a division at CCAB. Presently, Vice President of Shenzhen Investment Holding Corporation and Vice Chairman of CND. Elected as the Chairman of the Company's Fourth Supervisory Committee in May 2002 with the present term ending in May 2005. Holding nil shares of the Company. 8 Vice Chairman of Supervisory Committee, Mr. Yu Liming, 41 years of age. Graduated from South China University of Technology in 1982, and got Master’s Degree at Management College at Fudan University and now reading for Doctor’s Degree at that college. Studied at Delft, IHE College and Authority of Rotterdam Port in Netherlands from 1987 to 1988. Joined China Merchants Holdings Co., Ltd. (CMH) in 1984, and presently Director of China Merchants Holdings (Hong Kong) Co., Ltd., General Manager of Business Development Department of CMH. His present term started from May 2002 and ends in May 2005. Holding nil shares of the Company. Supervisory Committee Member, Ms. Mary-Jean Wong, 46 years of age, university graduate. Now Director of Lucliff (Canada) Company and of Max Return Consultancy (HK) Company, Executive Director of HK Clifford Wong Investment Company Ltd., and Director of CND. Elected as member of the Company's Supervisory Committee in May 1996 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. Supervisory Committee Member, Mr. Zhang Ning, 44 years of age, Master’s Degree. Previously, Deputy Manager, and then Manager of the Operation Department of CCT , and later appointed as the Assistant General Manager of CCT. Now Deputy General Manager of CCT. Elected as the employees' representative in the Third Supervisory Committee in May 1999 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. Supervisory Committee Member, Mr. Nie Qi, 42 years of age, Master’s Degree. Previously, worked for Shekou Merchants Harbor Co., Ltd. and appointed as Assistant General Manager of the Company in 1997. Presently, Deputy General Manager of Harbor Division of the Company and General Manager of Shenzhen Chiwan Trans- Grains Terminal Co., Ltd. His present term started from May 2002 and ends in May 2005. Holding 6,200 shares of the Company in 2002. Deputy General Manager, Mr. Lu Baodi, 58 years of age. Previously, cargo controller and Deputy General Manager of Shenzhen Chiwan Harbour Company. Deputy General Manager of the Company since March 1993 with the present term commencing in May 2002 and ending in May 2005. Holding 30,800 shares of the Company without any change in 2002. Chief Financial Officer, Mr. Zhang Jianguo, 40 years of age, university graduate. Previously, Financial Manager of Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Appointed as the Financial Manager of the Company in October 1997 and Chief Financial Officer of the Company in September 1999 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. Company Secretary, Ms. Pei Jiangyuan, 32 years of age, Master’s Degree. Previously worked as the Executive Secretary for the Company’s Chairman. Appointed as the Company Secretary in March 2001 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. 9 * During the reporting period, Director and Deputy General Manager Mr. Zheng Shaoping purchased in April 2003 700 A shares of the company, which was locked in according with relevant rules. Particulars about directors and supervisors who take positions in the Company’s controlling shareholders (CND) are listed as follows. Name Position in CND Office Term Wang Fen President Oct.2002 till present Fan Zhaoping Senior vice president Dec.1998 till present Yuan Yuhui Senior vice president Oct.2002 till present Han Guimao Senior vice president Oct.2002 till present Huang Chuanqi Vice Chairman of the Board Feb.2002 till present Mary-Jean Wong Director April 1995 till present B. Annual Salary 1. Except for the three Independent Directors, the other Directors and Supervisors did not get any emolument, social benefits, or any other preferential treatment from the Company in taking their positions as the Company’s Directors and Supervisory Committee Members in 2003. Director Ms. Wang Fen, Mr. Fan Zhaoping, Mr. Yuan Yuhui, Mr. Han Guimao got their salaries at CND. Supervisory Committee Member Mr. Huang Chuanqi, Mr. Yu Liming and Ms. Mary-Jean Wong got salaries from shareholders of CND. 2. Allowance for Independent Directors was approved at the 2002 Annual General Meeting as RMB60,000/year (pre-tax) each person. 3. Director Mr. Liu Zhangjun and Mr. Zheng Shaoping got their annual salaries totaling RMB850,000 from the Company according to their positions as the General Manager and the Deputy General Manager of the Company. Total amount of the annual salaries of top three management personnel is RMB1,060,000. Total amount of the annual salaries of all the Directors, Supervisory Committee Member and senior management staff who get their salaries from the Company, accounted for RMB1,890,000 in 2003, among which three got salaries ranging from RMB100,000 to RMB200,000 and four from RMB210,000 to RMB450,000. * Supervisor Mr. Zhang Ning and Supervisor Mr. Nie Qi got their salaries for their positions as Deputy General Manager of Chiwan Container Terminal Co., Ltd (“CCT”) and Deputy General Manager of Harbor Division. 4. All the senior executives of the Company are appointed by the Board of Directors. The Board set up the Company’s business and financial budget for each year and sign evaluation contracts accordingly with senior executives. The Board then grants rewards and punishment to senior executives according to their respective performance during the year. 10 C. Resignation and Appointment 1. During the reporting year, former Director Mr. Tian Junyan resigned due to job changes and former Deputy General Manager, Ms. Chen Yonglian resigned on her retirement. 2. Accepting General Manager Mr. Liu Zhangjun’s nomination, the Board passed a resolution on April 16, 2003 on the appointment of Mr. Zheng Shaoping as the Company’s Deputy General Manager. 3. Elected as the Independent Director for the Company’s Fourth Board of Director, Mr. Ng. Pock Too has begun to fulfill his responsibility since the 2002 annual general meeting held on May30, 2003. D. Work Force As of 31 December 2003, the Company had 1,411 employees, with 317 being university graduates, 60 financial clerks, 82 sales persons, 85 technicians, 75 management personnel, and the others being staff for production. PART V CORPORATE GOVERNANCE A. Corporate Governance In strictly implementing the PRC’s Company Law, the Securities Law as well as other laws and regulations issued by China Securities Regulatory Commission (“CSRC”), the Company keeps on improving the Company’s corporate governance by setting up systems for modern enterprise so as to standardize the operation of the Company. Details are set out as follows: 1. shareholders and the shareholders’ general meeting The Company ensures that all the shareholders, especially small or medium shareholders, are equal and could enjoy their full rights. The Company called and held shareholders’ general meeting strictly in compliance with the “Rules for Shareholders’ General Meeting”. 2. relationship between the controlling shareholder and the Company Controlling shareholder of the Company operated in line with rules during the reporting year and did not intervene decisions or operation of the Company directly or indirectly in exceeding authority of the shareholders’ general meeting. 3. Directors and the Board of Directors The Company has elected directors strictly according to the Articles of Association. Numbers and qualifications of Directors conform to relevant laws and regulations. During the reporting period, all Directors attended the Board meetings and shareholders’ general meeting in a positive and responsible manner, participated enthusiastically relevant training so as to know better about laws and regulations as well rights and 11 obligation of Directors. The Rules for Independent Directors was approved by the 2002 Annual General Meeting held on May 30, 2003. 4. Supervisors and the Supervisory Committee Numbers and qualification of Supervisory Committee Members are in compliance with requirements of laws and regulations. The supervisors have performed seriously their duties, taken responsible attitude to all the shareholders, supervised the financial affairs as well as the duties performed by the Company’s Directors, managers and other senior executives in terms of compliance with the laws and regulations. 5. relevant beneficiaries The Company has been fully respecting and safeguarding the legal rights and interests of the banks and other creditors, staff, consumers and other parties of related interests so as to develop the Company in a consistent and healthy way. 6. information disclosure The Company has authorized the Company Secretary to take charge of information disclosure, and the Chairman as well as related Directors to take charge of receiving visits and inquiries of the shareholders.The Company has been disclosing the relevant information in a real, accurate, complete and timely way in strictly observing the law, regulations and the Articles of Association so as to ensure all the shareholders having equal opportunity to obtain the information. Ever since its establishment, the Company has been operating in a standard way according to the requirement of Company Law and other laws and regulations. The Company will keep on doing so according to the “Corporate Governance Principle for Listed Companies” issued by CSRC and Finance Ministry of the State on January 7, 2002 so as to safeguard the interests of shareholders and relevant beneficiaries. B. Performance of Independent Directors The third independent director was elected at the 2002 Annual General Meeting held on May 30, 2003 according to the “Guiding Lines on Setting up Independent Director System in Listed Companies”(GLSIDS) issued by CSRC. Thus, numbers of the Company’s Independent Directors complied with the stipulations of GLSIDS, which says “independent directors should at least take one third among all the members of the Board of Directors in Listed Companies.” Working Rules for Independent Directors was approved by the above meeting. During the reporting period, three Independent Directors seriously performed their duties, monitoring the Company’s business and operation consistently, attending the Board meetings actively, issued independent opinions on significant issues such as the appointment of the senior executives, and significant related-party transactions, etc. maintaining the minority shareholder’s rights, thus played significant roles in the scientific decision-making by the Board of Directors. Articles had been amended for the Strategic Committee, Audit Committee, Nomination Committee, Remuneration Committee and Evaluation Committee, and all the Committees will be set up in the proper time. 12 C. Independence from the Controlling Shareholders The Company is absolutely independent in personnel, assets, finance, organization and business from its controlling shareholder. Details are set out as follows. The Company has basically separated its staff from its controlling shareholder. Senior management personnel of the Company did not take positions at its ultimate shareholding company. No financial clerks took corresponding jobs at the associated companies The Company possesses its own self-governed assets and independent operation system. Assets of the controlling shareholder in the Company (land-use rights and fixed assets such as property and large equipment, etc. being included) was converted through assets evaluation into stock of shares at the latter half of 1992, which the Company has full rights to hold, use and dispose whatsoever. The Company has set up its own financial department as well as the independent normative accounting system and the financial management system on its subsidiary companies. The Company has its own bank accounts and did not share the same bank account with its controlling shareholder. The Company has been paying tax according to the law on its own behalf. Management of the Company on its human resources and staff salary is absolutely independent. Controlling shareholder has handed its wharf-related business thoroughly to the Company to operate and does not engage in the same market as the Company thus has no competition with the Company. D. Performance Evaluation, Motivation and Binding Mechanism for Senior Management Staff All the senior executives of the Company are appointed by the Board of Directors. The Board set up the Company’s business and financial budget for each year and sign performance contracts accordingly with senior executives. The Board then grants rewards and punishment to senior executives according to their respective performance during the year. PART VI SHAREHOLDERS’ GENERAL MEETING One annual general meeting was held in 2003. The Company disclosed the Notice of the 2002 Annual General Meeting in the specified newspapers “Securities Daily” and “Ta Kung Pao” on 18 April 2003. On 30 May 2003, the meeting was held at 9:30AM as scheduled at the No.5 Conference Room on 11/F, Chiwan Petroleum Building, Shenzhen. Thirty-six participants, including 18 shareholders (or shareholders’ authorized proxies), Directors, Supervisory Committee members, senior management staff, lawyer, accountant and other guests etc., represented 245,707,324 shares, or 64.4% of the total 381,517,000 shares, with 240,106,671 being A 13 shares (87.29% of the total A shares), and 5,600,653 shares being B shares (5.26% of the total B shares), which conformed to the Company Law and the Company's Articles of Association. The meeting was presided by Ms. Wang Fen, Chairman of the Board of Directors. Following proposals were reviewed and passed by voting at the meeting. 1. To approve the working report of the Board of Directors for the year of 2002; 2. To approve the working report of the Supervisory Committee for the year of 2002; 3. To approve the financial statement for the year of 2002; 4. To approve the profit distribution plan for the year of 2002; Audited by PricewaterhouseCoopers Zhong Tian Public Accountants in accordance with Chinese Accounting Standard, the Company achieved a net profit of RMB183,599,988 (“domestic audited profit”) in 2002, with retained profit at the beginning of 2002 being RMB13,182,800, the total distributable profit was RMB196,782,788. Audited by PricewaterhouseCoopers in accordance with International Accounting Standard, the Company achieved a net profit of RMB183,876,579 (“overseas audited profit”) in 2002. With retained profit at the beginning of 2002 being RMB178,146, total distributable profit was RMB184,054,725. According to relevant rules and regulation of the State as well as the Company’s Articles of Association, following profit distribution plan was approved. a. RMB18,359,999, i.e.10% of the domestic audited profit for 2002 was to be drawn for Statutory Surplus Reserve; b. 5% of the domestic audited profit for 2002 totaling RMB9,179,999 was to be drawn for Statutory Welfare Fund; c. 25% of the domestic audited profit for 2002 totaling RMB45,899,997 was to be drawn for Discretionary Surplus Reserve; d. After the above drawing of Statutory Surplus Reserve, Statutory Welfare Fund and Discretionary Surplus Reserve from domestic and overseas audited profit respectively, profit distributable to shareholders amounted respectively to RMB123,342,793 and RMB110,614,730. The principle of taking the lower amount as the base for distribution is taken. A cash dividend of RMB0.288 per share (pre-tax) totaling RMB109,876,896 will be paid for the total 381,517,000 shares as at the end of 2002, with the balance of domestic audited profit of RMB13,465,897 and the balance of overseas audited profit of RMB737,834 being retained for the next year. e. The Company has no plan to convert its reserves into equity for 2002. 5. To review the report on appointment of the Company’s accounting firms for the year of 2003, and approve the re-appointment of PricewaterhouseCoopers Zhong Tian Certified Public Accountants and PricewaterhouseCoopers as the Company’s accounting firms for the year of 2003; 6. To approve the amendment of the Articles of Association of the Company; 14 7. To approve the report on the Working Rules for Independent Directors. 8. To approve the report on the election of the Company’s Independent Director for the 4th Board of Directors and Mr. Ng Pock Too was elected as the Company’s third independent director. 9. To approve the report on the resignation of the former Director Mr. Tian Junyan. 10. To approve the report on the acquirement of land –use rights through lease to build the No.12 berth, and authorized the four directors who stand for the Company in CCT’s Board to vote for this issue. According to the relative Laws and Rules, this issue was a transaction between related parties, so the related shareholders followed the avoidance rules when the report was reviewed on the annual general meeting. Accordingly, those 224,532,700 shares held by them were not calculated into the total valid votes. Lawyer Mr. Zhou Weiping of Haiwen & Partners presented his opinion at the meeting as that convening, procedure and voting of the meeting, as well as qualifications of attendants were all conformed with relevant laws, regulations and the Company’s Articles of Association, and that resolutions passed at the meeting are legal and valid. The above resolutions were disclosed on the “Securities Daily” and “Ta Kung Pao” on 31 May 2003. Former Director, Mr.Tian Junyan resigned and Mr. Ng. Pock Too was elected as the Company’s Third Independent Director of the Fourth Board of Directors on the above annual general meeting. PART VII REPORT BY THE BOARD OF DIRECTORS A. Performance in 2003 1. Core business The company is engaged mainly in the handling, warehousing and transportation of containers as well as bulk and general cargoes at the terminals of Shenzhen Port , and also in other related services. Rapid economic development and surging foreign trade volume in South China,especially in the Pear River Delta in 2003 provided sufficient cargoes for Shenzhen port. By making full use of the market opportunity, the Company improved management, optimized operation structure and increased operation efficiency and service level, accelerated the tempo of investment in related equipment and facilities and upgraded the overall handling capacity on one hand, while on the other hand further explored on the market and optimized the business structure. The company achieved impressive increase in cargoes handling business, especially in container handling business, and in cargoes transportation, tugboat service and agency business consequently. The company achieved a throughput of 24,520,000 tons in 2003, 23% up compared with 2002 and accounting for 21.8% of the total throughput of Shenzhen during the year. Container throughput at the Port of Chiwan rose 44.8% up to 2,236,000 15 TEU in 2003, enjoying a 20.9% share in the container handling market in Shenzhen. International container shipping lines calling at Port of Chiwan dramatically increased in 2003, and the market position of Port of Chiwan in terms of container handling business was largely enhanced. Throughput of bulk and general cargo of the Company in 2003 increased by 17.4% to 8,540,000 tons, which shared one-third market in business of bulk and general cargo handling in Shenzhen. Business performance of the Company for the past three years is set out as follows. Business Data 2003 2002 2001 Total throughput (’000 ton) 24,520 19,940 13,500 Throughput of bulk and general cargo (’000 ton) 8,540 7,270 5,590 Container throughput (’000 TEU) 2,236 1,544 901 Trucking (’000 teu•km) 4,690 4,230 3,760 Hours charged for tow trucks 718,000 532,000 Hours charged for tugboat 16,999 13,847 9,151 a. Breakdown of sales Unit: RMB Operation Business Amount Percent Handling Ports handling 921,148,307 88.3% Land transportation transportation 65,390,109 6.27% Marine transportation transportation 35,711,410 3.42% Godown godown 6,215,810 0.6% Agency agency 14,759,257 1.41% Subtotal 1,043,224,893 100% Business offset -31,210,775 Total 1,012,014,118 b. Breakdown of gross profit Unit: RMB Operation Business Amount Percent Handling Ports handling 588,552,628 90.4% Land transportation transportation 23,922,137 3.67% Marine transportation transportation 21,824,239 3.35% Godown godown 2,099,836 0.32% Agency agency 14,684,049 2.26% 16 Subtotal 651,082,889 100% Business offset 0, Total 651,082,889 Sales and gross profit of the Company in 2003 rose due to the following reasons. Incredible growth of business volume led to the significant growth of turnover. Meanwhile, cost and expenses did not grow as well under sound control. Thus, gross profit was increased considerably. c. Financial highlights for core businesses, which accounts for over 10% of the Company’s turnover and profit Unit: RMB Business Turnover Cost Profit margin Handling 921,148,307 332,595,679 63.89% 2. Results of wholly-owned subsidiaries and joint ventures a. Chiwan Container Terminal Co., Ltd. (CCT) The company holds 55% equity interests directly and indirectly in CCT. With a registered capital of USD 44,000,000, CCT is engaged mainly in handling containers, especially in accommodating international container lines. With 12 new international container lines calling during the reporting year, container throughput of CCT achieved 1,635,000TEU, 43.1% up compared with 2002. As of December 31, 2003, total assets of CCT was RMB 1,864,191,308, while net profit for 2003 amounted to RMB362,454,697. b. Shenzhen Chiwan Harbor Container Co. Ltd. (CHCC) The company holds 100% of equity interests directly and indirectly in CHCC. With a registered capital of RMB108,200,000, CHCC now mainly engaged in the accommodation service for transshipment container barges for foreign trade and coastal foreign trade. During the reporting year, CHCC achieved a container throughput of 423,000TEU, 22.6% up compared with 2002. As of December 31, 2003, total assets of CHCC was RMB268,059,978, while net profit for 2003 amounted to RMB37,395,971. c. Harbor Division Being an independent accounting unit but not an enterprise controlled under the Company, Harbor Division is engaged in handling and warehousing of fertilizer for foreign trade. During the reporting period, throughput of bulk and general cargo reached 4,140,000 tons, 22.8% down compared with 2002. As of December 31, 2003, total assets of Harbor Division was RMB348,377,831, while net profit for 2003 amounted to RMB16,945,026. 17 d. Shenzhen Chiwan Terminal Co., Ltd The Company holds 100% equity interests directly and indirectly in the company. With a registered capital of RMB50,000,000, the company is engaged mainly in the handling and stacking of lumbers and grains . During the reporting period, the company achieved a throughput of 4.4million tons of bulk and general cargo, 130% up compared with 2002. As of December 31, 2003, total assets of the company was RMB158,683,498, while net profit for 2003 amounted to RMB39,163,809. e. Shenzhen Chiwan Trans-Grains Terminal Limited (SCTGT) The Company holds 100% equity interests directly and indirectly in the company. With a registered capital of RMB45,000,000, the company is engaged in the business of handling, warehousing and packing of grains, providing related service for handling and warehousing grains for Shenzhen Chiwan Terminal Co., Ltd. During the reporting period, stacking volume of grains reached 27,080,000 tons day, 51.4% up compared with 2002. As of December 31, 2003, total assets of the company was RMB125,045,925, while net profit for 2003 amounted to RMB10,266,134. f. Shenzhen Chiwan Transportation Co., Ltd. (SCTC) The Company holds 100% equity interests directly and indirectly in the company. With a registered capital of RMB7,000,000, the company is engaged in container transportation service at ports and on land. During the reporting period, 718,000 hours were charged for tow trucks service at the port, 35% up compared with 2002, while trucking volume reached 4.69 million teu.km, 10.9% up compared with 2002. As of December 31, 2003, total assets of the company was RMB68,641,792, while net profit for 2003 amounted to RMB10,762,382. g. Shenzhen Chiwan Shipping & Transportation Co., Ltd. (SCST) The Company holds 100% equity interests directly and indirectly in the company. With a registered capital of RMB6,000,000, the company is engaged in tugboat service at ports. During the reporting period, 16,999 hours were charged for tugboats, 22.8% up compared with 2002. As of December 31, 2003, total assets of the company was RMB58,444,028, while net profit for 2003 amounted to RMB15,802,408. . h. Chiwan Wharf (Hong Kong) Ltd. (CWHK) Registered in Hong Kong with a registered capital of HKD1,000,000 and being a wholly owned subsidiary of the Company, that company is an investment holding company. Which respectively holds 4% equity interests in CCT, 40% equity interests in CHCC, 25% equity interests in SCTC, 40% equity interests in SCST, 25% equity interests in SCTGT, 100% equity interests in Chiwan Shipping (Hong Kong) Ltd (CSHK) and 50% equity interests in Media Port Investment Limited. As of December 31, 2003, total assets of the company was RMB354,358,406, while net profit for 2003 amounted to RMB32,819,291. Its wholly owned subsidiary CSHK is engaged in agency service for international shipping and transportation related to business of the Company. During the reporting year, barge transportation volume achieved 91,268 TEU, 24.2% up compared with 2002. 18 3. Major customers Sales (operating income) of the top five customers are totaled RMB508,487,364, 49% of the company’s gross sales (operating income). B. Investments in 2003 1. Utilization of proceeds No funds were raised in 2003. The last proceeds had been used up by the end of 1996. 2. Other investments During the reporting year, RMB615.15million was invested in fixed assets, 229% up compared with 2002, i.e. RMB428.17million more than 2002, among which RMB309.09 million in the infrastructure facilities and RMB306.06 million in the handling and transportation equipments at the port. Progress of major investment projects is undergoing on schedule. a. Container handling business 噝 The infrastructure and the water engineering for Berth 12 were completed on schedule. Four Quay-side Gantry Cranes(QC) and 12 Rubber-tyred Gantry Cranes(RTG) equipped for the berth had been installed and debugged. Berth 12 came into pre-production after the official check at the end of the 2003. 噝 The computer system COSMOS was switched on successfully at the end of March, 2003. 噝 The stacking yards of 60,000 m2 and 5 RTG for container handling came to use at the end of June, 2003. 噝 Two 40-ton gantry cranes equipped for Berth 8 was installed in October, 2002. Another two QC was delivered and came to use after the debugging at the beginning of 2004. b. Bulk and general cargo handling business Phase-III grain silos and two 16-ton gantry cranes had been put into use timely in June, 2003. c. Related business 噝 The new tugboat of 4000hp ordered at the beginning of 2003 had been put into use in December. 噝 48 container trucks and 35 trailers were bought in succession during the reporting year so as to meet with the need of increasing container’s business at Chiwan. 噝 Another tugboat of 3000hp ordered at the end of 2003 is in the process of manufacturing. 19 The investment projects in 2003 were completed on schedule, which improved the operation efficiency and handling capacity of the port, and will provide strong support to the rapid growth of the Company’s business and lay solid foundation for the Company’s sustainable development. In consideration of the rapid development of container handling business of Shenzhen Port, CCT, in which the Company holds 55% equity interests, planned to start building of Berth 13 in 2004 in order to further enlarge the scale of its container business. Relative stacking yard for Berth 8 will be expanded and renovated. It is expected the Company will maintain its investments at a high level in 2004. 3. Significant investments According to the agreement signed with CMHI and Shenzhen Nanyou (Group) Ltd. (“NYG”) regarding construction of Mawan port, the Company’s wholly-owned subsidiary CWHK paid up capital of RMB180 million through Media Port Investment Limited, in which CWHK and CMHI hold 50% equity interests each. The capital paid up by the other two shareholders went into account on schedule as well. On 31 December, 2003, the Company provided a long-term loan of RMB100million at the annual interest rate of 5.841% to Mawan joint-venture companies according to the above agreement with the loan term starting from December 12, 2003 till the date when relative shareholders’ loan is provided by NYG. The above issue about investment in Mawan Port was approved by the Company’s Board on 5 November 2002 and by the 2002 Special General Meeting held on 7 December 2002. Details of the long-term loan were submitted to CRSC on 9 December, 2003. The Mawan investment projects were constructed smoothly. Berth 0 had been completed and put into use in July, 2003. Preparation works such as the plan adjustment (from 4 berths to 3 berths), project initiation and engineering design for the former Berth 5 to Berth 8 were completed. Reclamation Dam Project, the backfill for Berth 5’s back area and the base area embankment were also done. The aquatic engineering of Berth 5 and the backfill for Berth 6 was commenced. It is expected Berth 5 will be finished at the end of 2004 and put into use at the beginning of 2005. C. Financial Status Unit: RMB Items 2003 2002 +/- (%) Reason Construction-in-progress 267,046,303 49,823,701 435.98% Increase of fixed assets Land use rights 864,947,364 617,305,856 40.12% Construction of Berth 12 Increase of shareholder’s loans provided to Investments in associates 288,221,180 3,122,194 9131.37% associated companies Trade receivables 178,197,639 125,968,632 41.46% Increase of sales Shareholders’ equity 1,501,391,931 1,298,098,489 15.66% Increase of net profit Increase of net profit realized by subject Minority interests 566,273,362 456,976,246 23.92% companies Increase of bank loans due to investments in Borrowings 382,130,000 41,800,000 814.19% other companies and fixed assets 20 Construction of Berth 12 and Phase-III grain Total assets 3,214,527,760 2,331,823,016 37.85% silos, purchase of related handling equipment Revenue 1,012,014,118 714,755,787 41.59% Growth of business Gross profit 651,082,889 393,035,908 65.65% Growth of revenue and control on cost Administrative expenses 92,030,520 70,752,437 30.07% Increase of daily expenses Increase of profit, fully exempted tax enjoyed Income tax expense 39,195,173 14,006,958 179.83% by some companies and berths changed to half exempted. Profit or loss for minority Increase of net profit realized by subject 180,103,292 105,229,949 71.15% companies interests Increase of gross profit while sound control Net profit 313,987,876 183,876,579 70.76% on expenses Decrease in cash and Bank deposits was controlled under a sound -13,969,040 -106,082,896 86.83% cash equivalents level after a great fall in 2002 D. Influence of Significant Changes in Business Environment and Policy 1. Container terminal business In order to support the development of container business of the ports located in the western part of Shenzhen and solve the problem of limited road overpass capacity, Shenzhen municipal government started widening and clearing of the main roads leading to the ports in western part of Shenzhen in the later half of 2003 and the operation will last for one year. The company coordinated with other companies located in the same area and co-operated with the communication departments of the government to channel off vehicles and guarantee the smooth transportation. After the completion of the project in the later half of 2004, transportation condition will be greatly improved and thus will benefit the further development of the ports in western part of Shenzhen. Despite the fall of export tax refund rates and the increasing dumping sues against Chinese exported products in 2004, it is expected the exports of the Pearl River Delta will remain over 10% growth during the year and imports will increase rapidly. The international container handling business will maintain a high-speed increase in Shenzhen ports, and the container terminal business of the Company will increase as well. 2. Bulk and general cargo terminal business With the enlarging of total scales of edible oil processing factories, demand for imported soybeans will increase. China will further enlarge the purchasing amount of American soybeans. The Company’s throughput of the grains, in which imported soybeans accounts for the major part will keep on growing. Wheat is expected to be handled at Chiwan Port. Fertilizer business will remain steady. It is expected the bulk and general cargo terminal business will remain at a high level in 2004. 21 E. Business Plan for 2004 In 2004, the company will focus on 1. further exploring its container terminal business. Construction of Berth 13 will be focused on and related equipment will be purchased simultaneously. Re-construction of the back stacking yard for Berth 8 will be accelerated so as to enhance the gate overpass capacity. In order to keep up with the growth rate of Shenzhen Port and manage for a bigger market share in Shenzhen, the Company will search for a more close cooperation pattern with the world famous shipping companies, perfect the shuttle network in the Pearl River Delta, resolve the problems existing on roads and stacking area, upgrade the operation efficiency and services, and further explore the potentiality of resources. 2. handling of imported fertilizer and grains. Through extending the service-chain and providing integrated logistic services, the Company will further sharpen its competitive edges and enhance its market share. 3. developing the port tow-truck business by investing in more trucks as required. A new 3000hp tugboat will be put into use in 2004. Excellent related service will support the further growth of handling business. F. Routine Work of the Board of Directors 1. Board meetings and resolutions The Board of Directors held eight meetings (including six special meetings) in 2003. a. The fifth meeting of the Fourth Board of Directors of the Company took place in the following sequence on 16 April 2003. • To review and approve the Chairman’s Working Report for 2002; • To review and approve the Annual Report of the Company for 2002 and the Abstract; • To review and approve the Company’s Financial Statements for 2002, which was to be submitted for approval to the 2002 Annual General Meeting; • To discuss and approve the profit dividend distribution plan for 2002 as follows, which was to be submitted for approval to the 2002 Annual General Meeting; A cash dividend of RMB0.288 per share (pre-tax) will be paid for the total 381,517,000 shares as at the end of 2002. The Company has no plan to convert its reserves into equity for 2002. • To review and approve the re-appointment of PricewaterhouseCoopers Zhong Tian Certified Public Accountants and PricewaterhouseCoopers as the Company’s accounting firms for the year 2003, and to resolve to submit the appointment proposal to the 2002 Annual General Meeting for approval; • To review and approve the re-appointment of Mr. He Fei and Mr. Zhou Weiping of Haiwen & Partners as the Company’s solicitors for the year 2003; 22 • To approve the amendment of the Articles of Association of the Company, which was to be submitted for approval to the 2002 Annual General Meeting; • To approve the report of the Rules for Independent Directors, which was to be submitted for approval to the 2002 Annual General Meeting; • To approve the report on the nomination of Mr. Ng. Pack Too as the candidate for the Company’s Independent Director, which was submitted to 2002 Annual General Meeting for approval. • To appoint Mr. Zheng Shaoping as the Company’s Deputy General Manager and approve the resignation of the former Deputy General Manager Ms. Chen Yonglian • To approve the resignation report of former Director Mr.Tian Junyan, which was submitted for approval to the 2002 Annual General Meeting; • To approve the resignation report of the Investor Relations representative Miss He Yingban. • To approve the report of the acquirement of land –use rights through lease to build Berth 12, which was submitted to the 2002 Annual General Meeting for approval. • To approve the time, venue and agenda of the 2002 Annual General Meeting. b. The sixth meeting of the Fourth Board of Directors was held on 27 August. 2003 . • To review and approve the Company’s Report for the Interim Report of 2003. • To review and approve the Abstract for the Interim Report of 2003. • To review and approve the profit and dividend distribution plan for the Interim of 2003 as follows. The Company has no plan to distribute profit or to convert its reserves into equity for the interim of 2003. c. The first special meeting of the Fourth Board of Directors for 2003 was held on 25 April, 2003 to review and approve the Company’s Report for the First Quarter of 2003. d. The second special meeting of the Fourth Board of Directors for 2003 was held on 2 July, 2003 to review and approve the report on CCT’s purchase of staff apartment building from CND. e. The third special meeting of the Fourth Board of Directors for 2003 was held on 15 July, 2003 to review and approve the report on the sale of equity in Shenzhen Chiwan Godown Co., Ltd. held by CWHK. f. The Fourth special meeting of the Fourth Board of Directors for 2003 was held on 29 Oct, 2003 • To review and approve the Company’s Report for the First Three Quarters of 2003. • To review and approve the report on the appointment of Investor Relations Representatives. 23 g. The Fifth special meeting of the Fourth Board of Directors for 2003 was held on 24 Nov. 2003 to review and approve the report on applying loans from CND, and resolved to approve the Company to sign agreements with CND and relative financial institutions. According to the agreement, CND would provide recycling loans totaling RMB300,000,000 through the specified financial institutions with the time limit less than one year and more than three months, and the annual interest rate being 3.4%. h. The Sixth special meeting of the Fourth Board of Directors was held on 18 Dec, 2003 • To review and approve in principle the amendment of the Articles of Association of the Company and also the relative amendment of “Working Rules of the Shareholder’s General Meeting”, “Working Rules of the Board of Directors”, “Rules of Meeting Procedures of the Board of Directors”. Article 179 of the Company was to be revised and submitted for approval at the next Board meeting. All of the amendments will be submitted for approval to the 2003 Annual General Meeting. • To review and approve the report on establishment of Investor Relations Management (IRM) System. Directors discussed “Guide of IRM” issued by Shenzhen Stock Exchange and resolved to authorize Chairman Ms. Wang Fen to be primarily responsible for the Company’s IRM, to authorize Director Mr. Yuan Yuhui to be directly responsible for the Company’s IRM, and to authorize the Secretariat of the Board of Director to handle the daily work regarding IRM and to set up relevant Management Measures and Procedures of the IRM, which will not come into effect unless approved by the Board. • To discuss and review the report on the investment in Berth 13 by CCT, in which CWH holds 55% equity interests. All the attending directors came into a common idea that investment in Berth 13 was necessary and timely, so they all approved that the directors who attended the CCT’s board of directors voted for the issue when discussed. 2. Execution of the resolutions passed at the Annual General Meeting a. The report on the acquirement of land –use rights through lease to build Berth 12 was approved by the Shareholder’s General Meeting held on 30 May, 2003 and four directors who attended CCT’s Board of Directors were authorized to vote for this issue, so did they. Until 28 August 2003, all of the payments had been done by CCT, so the relative-parties transaction came to the end according to the agreement. The above issue was disclosed on “Securities Daily” and “Ta Kung Pao” on 29 August, 2003. b. The profit distribution plan that a cash dividend of RMB0.288 per share (pre-tax) would be paid for the total 381,517,000 shares as at the end of 2002 was reviewed and approved by the 2002 Annual General Meeting held on 30 May, 2003. The Board disclosed the Notice about the distribution at “Securities Daily” and “Ta 24 Kung Pao” on 16 July, 2003, and had completed the dividends distribution for both A shares and B shares respectively on 24 July and 28 July, 2003. G. Profit distribution plan for 2003 Audited by PricewaterhouseCoopers Zhong Tian Public Accountants in accordance with Chinese Accounting Standard, the Company achieved a net profit of RMB313,987,876 (“domestic audited profit”) in 2003. Retained profit at year beginning amounted to RMB123,342,793, among which RMB109,876,896 was distributed as dividends for 2002. Profit distributable to shareholders for 2003 amounts to RMB327,453,773. Audited by PricewaterhouseCoopers in accordance with International Accounting Standard, the Company achieved a net profit of RMB313,987,876 (“overseas audited profit”) in 2003. Retained profit at year beginning amounted to RMB111,013,454, among which RMB109,876,896 was distributed as dividends for 2002. Profit distributable to shareholders for 2003 amounts to RMB315,124,434. According to relevant rules and regulation of the State as well as the Company’s Articles of Association, following profit distribution plan was approved by the Board of Directors, which is to be submitted for approval to the 2003 Annual General Meeting. 1. RMB31,398,788, i.e.10% of the domestic audited profit for 2003 is to be drawn for Statutory Surplus Reserve; 2. 5% of the domestic audited profit for 2003 totaling RMB15,699,394 is to be drawn for Statutory Welfare Fund; 3. 25% of the domestic audited profit for 2003 totaling RMB78,496,969 is to be drawn for Discretionary Surplus Reserve; 4. After the above drawing of Statutory Surplus Reserve, Statutory Welfare Fund and Discretionary Surplus Reserve from domestic and overseas audited profit respectively, profit distributable to shareholders amounts respectively to RMB201,858,622 and RMB189,529,283. The principle of taking the lower amount as the base for distribution is taken. A cash dividend of RMB0.496 per share (pre-tax) totaling RMB189,232,432 will be paid for the total 381,517,000 shares as at the end of 2003, with the balance of domestic audited profit being RMB12,626,190 and the balance of overseas audited profit RMB296,851. 5. Capital reserve is to be converted into share capital at the rate of 3 shares for every 10 shares for the total 381,517,000 shares of the Company. After the conversion, total share capital of the Company is increased from 381,517,000 shares to 495,972,100 shares. H. Specific Explanation and Independent Opinions of Independent Directors regarding the Company’s Guarantee Provided to External Parties According to the “Notice on Standardizing Listed Companies’ Capital Relationships with Related Parties and Guarantee Provided” issued by CSRC (No. CSRC[2003]56, hereinafter referred to as “the Notice”), the Company’s Independent Director Mr. Zhang Limin, Mr. Liu Ruiqi, and Mr. Ng. Pock Too had inspected the guarantee provided to 25 external parties(in terms of loan agreements, explanation of the bank and audit report) and expressed independent opinions as follows. 1. Explanation about the Company’s guarantee in the reporting period a. The Company provided the guarantee for CCT’s application of loan facility totaling RMB90,000,000 from the Bank of China from 30 April 2002 to 30 April 2003, and the other two shareholder’s of CCT, International Enterprise Co., Ltd and Hidoney Developments Limited, provided the counter-guarantee respectively in compliance with proportion of their shares held in CCT. The Company’s guarantee to CCT had been terminated when CCT paid off all the loans before 30 April 2003. b. As of 31 December 2003, the balance of the amount for which the Company provided guarantee reached a total of HKD178million, accounting for 12.57% of the audited net asset value of 2002. (On June 5 2003, in order to carry out the resolution about investment in Mawan Port made by the special shareholder’s meeting held on 6 December, 2002, the Company’s wholly-owned subsidiary CWHK entered into a loan agreement with Hong Kong Branch of China Agriculture Bank on loan facilities totaling HKD176 million, which was guaranteed by Shekou Sub-branch of China Agriculture Bank with an irrevocable stand-by L/C of HKD178 million issued for the Company. The Company provided counter guarantee for Shekou Sub-branch of China Agriculture Bank with valid period starting from June 9, 2003 and ending on June 8, 2005. The above issues were disclosed on “Securities Daily” and “Ta Kung Pao” on August 29, 2003 and October 31, 2003) 2. Implementation of stipulation of the Notice a. As of 31 December 2003, the Company and all the subsidiaries brought into the consolidated financial statements had observed the Notice. No guarantee was provided for the controlling shareholder or other related parties, in which the Company holds less than 50% equity interests or any non-enterprise entity or individual. No guarantee was provided directly or indirectly for any liabilities of a company whose liability ratio exceeds 70%. b. In observing the Notice, the Company had amended the Articles of the Association regarding the guarantee to others, especially the terms on the guarantee’s examination and approval procedure and relevant evaluation. The above amendment was approved by the special meeting of the Fourth Board of Directors held on 18 December 2003, and will be submitted for approval to the 2003 Annual General Meeting to be held on 30 April 2004. To sum up, Independent Directors of the Company hold that the Company has abided by the spirit of the Notice, further standardized its guarantee to others, and thus has effectively controlled financial risks with no investors’ interests being infringed upon.. PART VIII REPORT BY THE SUPERVISORY COMMITTEE A. Within the reporting year, in accordance with the “Company Law” of PRC and the Company’s Articles of Association, the Supervisory Committee conducted examination and supervision, carried out its rights and obligations as well as 26 delegated its representatives to attend the Board Meeting and gave its opinions upon the Company’s decision-making regarding some significant issues. The Supervisory Committee held two meetings in 2003. The Third meeting of the Fourth Supervisory Committee was held on 16 April 2003 to • review and approve the Chairman’s Working Report for 2002; • review and approve the Annual Report of the Company for 2002 and the Abstract; • review and approve the Company’s Financial Statements for 2002; and • review and approve the Working Report of the Supervisory Committee for the year of 2002; The Fourth meeting of the Fourth Supervisory Committee was held on 27 August 2003 to • Review and approve the Company’s Interim Report for 2003. • Review and approve the Abstract for the Company’s Interim Report . B. The Committee expressed its independent opinions on the following issues: 1. By supervising the Company’s production and operation, as well as the decision- making and management, the Committee confirmed that during the year 2002 the Company did not, in the above activities, demonstrate any behavior which might have violated the laws and regulations of the country, and that the Company had set up perfect intra-control system. By supervising the behaviors of the Company’s Directors and senior management personnel as they were exercising their authorities, the Committee confirmed that, during the year 2003, the Company’s Directors and senior management personnel had not, in their daily business and management activities, demonstrated any behavior which might have violated the laws, regulations, the Company’s Articles of Association, or the resolutions passed at the Shareholders’ Meetings. They had neither abused their authorities, nor infringed upon the interests of the shareholders, the Company or its employees. 2. With no reserved opinions contained therein, the Auditor's Statements for 2003 presented by the Company’s domestic and overseas accounting firms truly reflected the Company's financial status and business performance. 3. No funds were raised during the reporting year. The last proceeds (by issuing 40,000,000 B Shares in December 1995) had been used up by the end of 1996. Actual usage and amount of the proceeds were in conformity with the original plan. 4. The transaction prices for purchases or sales of the assets were fair and reasonable. Neither inside dealings, nor damage to the interests of certain shareholders, nor loss of the Company’s assets had been found. 5. Related party transactions in 2003 were conducted fairly in conformity with market prices (See Financial Statements for details), and have not impaired the interests of the Company. 27 PART IX SIGNIFICANT EVENTS A. The Company had no significant lawsuits or arbitration cases involved in 2003. B. Acquisition and Sale of Assets 1. Acquisition of CCT’s equity interests The Company entered into an agreement on January 9, 2003 with China State Grains, Cereals & Foods Import & Export (Group) Inc. (“CSGCF”) on the transfer of 1% equity interest and all the related rights and obligations which CSGCF holds in Chiwan Container Terminal Co., Ltd. (“CCT”) at a transfer price of HKD15,763,667, among which HKD14,256,318 being for the transfer of equity and HKD1,507,349 being for the transfer of creditor’s rights. The Company paid the above amount to CSGCF on January 30, 2003. The Company’s subsidiary CWHK entered into an agreement on February 26, 2003 with Hidoney Developments Limited (“Hidoney”) on the transfer of 4% equity interests and related creditor’s rights which Hidoney holds in CCT at a transfer price of HKD53,000,000. CWHK’s subsidiary Grossalan Investment Limited (“Grossalan”) entered into an agreement on February 26, 2003 with MTL Chiwan Holdings Limited (“MTL”) on the transfer of all the 16.67% equity interests which Grossalan holds in Hidoney at a transfer price of HKD53,000,000. Sum of money for these two transactions had been counteracted. The above issues were disclosed on “Securities Daily” and “Ta Kung Pao” in 2002 Annual Report and the following three regular reports. As of 4 December2003, the relevant official procedures were done, and thus the Company is now holding 55% equity interests in CCT directly and indirectly. CCT’s contract and Article of Association had also been amended correspondingly. The above issue didn’t bring any negative impact to the Company’s business continuity and the management stability. RMB2,141,843 was contributed to the 2003 audited net profit with the proportion being 0.68%. Henceforward, the Company will consolidate the statements of CCT at a proportion of 55%. 2. CCT’s purchase of staff dormitory from CND (See Part IX.C.2.a in this report for details). The above issue didn’t bring any negative impact to the Company’s business continuity and the management stability. RMB-14,864 or 0.005% of the 2003 audited net profit was caused. 3. Transfer of the equity of Shenzhen Chiwan Godown Co., Ltd (SCGC) by CWHK (See Part IX.C.2.b in this report for details) The above issue didn’t bring any negative impact to the Company’s business continuity and the management stability. RMB5,360,499 was contributed to the 2003 audited net profit with the proportion being 1.71%. The Company will stop consolidating the statements of SCGC since January 2004. 28 C. Related Party Transactions 1. Transactions with related companies The Company had the following material transactions with related companies during the year. 2003 2002 RMB RMB With CND, the holding company - purchase of land use right 271,002,558 - - entrusted short-term loan 200,000,000 - - lease of docking sites and stacking yards 25,065,585 21,378,320 - rental of office buildings 1,744,832 2,338,806 - purchase of staff dormitory 7,993,953 - Guaranteed by China Merchants Holdings (International) Co., Ltd., a cooperator of Jointed ventures - long-term loans 31,800,000 47,700,000 Payment to CPSB - rental of office buildings 762,466 589,720 Payment to Shenzhen Haiqin Engineering Supervision Co., Ltd., a fellow subsidiary - fee for engineering supervision 3,653,420 884,781 Transactions with the related parties were carried out on terms and conditions mutually agreed by the parties. 2. Related party transactions on transfer of assets and equities a. CCT, in which the Company holds 55% equity interests directly and indirectly, signed the Contract for Sale and Purchase of Apartments on 15 September 2003 with CND’s Real Estate Department at Chiwan, Shenzhen. CCT bought a new seaside apartment building built by CND and at the same time sold its 30 used sets of apartment to CND. The total price for the new seaside apartment building was RMB10,824,003.33 with the area being 3,564.66 m2 and the unit price being RMB3036.476 /m2. The total transposition price for the 30 used sets of apartment was RMB2,830,049.73 with the area being 1167.84m2. CCT should pay RMB7,993,953.6 for the price gap after the transposition. In consideration of the local prices, two parties friendly negotiated on the transaction price, which didn’t 29 damage shareholders’ interests, especially the minority shareholders’ interests. The above issue was disclosed on “Securities Daily” and “Ta Kung Pao” on 18 September 2003. CCT paid off the money on 30 October 2003 and CND had turned the building to CCT on schedule. Related parties transaction was done (See press disclosure on “Securities Daily” and “Ta Kung Pao” on 4 November, 2003 for details). b. CWHK, a wholly owned subsidiary of the Company, entered into an agreement on 18 September 2003 with Shenzhen Chiwan Petroleum Supply Base Co., Ltd. (SCPSB) on the transfer of 50% equity interests and all the related rights and obligations which CWHK held in Shenzhen Chiwan Godown Co., Ltd (SCGC) to SCPSB at a transfer price of RMB20.77million. The transfer price RMB10.97million for SCGC’s 50% equity is based on the medium price between the price RMB10.73million estimated by Beijing Guozhonglian Assets Appraisal Co., Ltd appointed by SCPSB and the price RMB11.2million estimated by Shenzhen Zhongqingxin Assets Appraisal Co., Ltd appointed by the Company. The transfer price RMB9.8million for SCGC’s shareholders’ loans was based on its book value. It had been negotiated that SCPSB shall pay half of the amount to CWHK 15 working days after the signing of agreement and pay the balance after relevant official procedures were done. The above issue was disclosed on “Securities Daily” and “Ta Kung Pao” on 20 September 2003. The above related-party transaction had been reviewed and approved by the Board of the Company, the Board of SCPSB and the Shareholders’ Meeting of SCPSB. All the relevant official procedures came into an end on 5 December 2003. CWHK received the amount from SCPSB respectively on 25 December 2003 and 29 January 2004 excluding RMB879,800, which was turned in as the tax. This related- party transaction had finished on schedule. Implementation details were disclosed on “Securities Daily” and “Ta Kung Pao” on 31 January 2004. 3. Other significant related party transactions a. acquire land-use rights through lease CCT, in which the Company holds 55% equity interests directly and indirectly, entered into “Land Use Agreement” with CND on June 18, 2003 to lease a land area of 117827.2 square meters for 40.5 years for the purpose of constructing a container berth (Berth 12) at Chiwan Port. In consideration of local prices, the transaction price was settled after friendly negotiation between two parties and didn’t damage shareholders’ interests, especially the minority shareholders’ interests. The above issue was disclosed on “Securities Daily” and “Ta Kung Pao” on 18 April 2003, and approved by the 2002 Annual General Meeting held on 30 May 2003. An Independent Financial Report was issued by the Zrich Securities Investment Consulting Inc., which was disclosed on “Securities Daily” and “Ta Kung Pao” on 26 April 2003. The total land use fee for the land amounts to RMB271,002,560, which was paid in three installments with the first installment totaling RMB135,501,280 being paid on June 30, 2003, the second installment RMB67,750,640 on July 30, 2003, while the third RMB67,750,640 on August 28, 2003. Details of the above issue were released on “Securities Daily” and “Ta Kung Pao” on 29 August 2003. 30 b. On 25 December 2003, the Company signed Credit Line of Trust Loan Contract with CND and three financial institutions specified by CND, namely, Shenzhen Branch of China Minsheng Banking Corp., Ltd., Shekou Sub-branch of Bank of China-Shenzhen Branch, Shenzhen Branch of China Construction Bank. CND supplied RMB200,000,000 recycling loans lines to the Company through the above banks with the time limit being less than one year and more than three months and the interest rate being 3.4% per annum. Such loans could be paid off freely. The above issue was disclosed on “Securities Daily” and “Ta Kung Pao” on 26 December 2003. As of 31 December 2003, Company had got loans totally RMB200,000,000 from the above banks. D. Significant Contracts 1. Except for what disclosed at the C.3.a of Part IX, the Company did not hold in trust, contract or lease any significant assets from other companies in 2003, nor did it put in trust, contract or lease its significant assets to other companies. 2. Significant guarantee events a. Guarantee for the subsidiary. (See H.1.a of Par VII in this report for details). b. Counter-guarantee event (See H.1.b of Par VII in this report for details). 3. The Company had no entrusted financing during the reporting period. 4. Other Significant Contracts a. The Company entered into a loan agreement on March 11, 2003 with Shekou Sub- branch of China Agriculture Bank on credit line of trust loan not exceeding RMB200 million. Meanwhile, application of the Company on loan facilities not exceeding RMB200 million to Shekou Sub-branch of China Industrial and Commercial Bank was approved. The above issue was disclosed on “Securities Daily” and “Ta Kung Pao” on 14 March 2003. b. The Company entered into a loan agreement on April 24, 2003 with Shekou Sub- branch of China Agriculture Bank on credit line of trust loan not exceeding RMB190 million. Later, Shekou Sub-branch of China Agriculture Bank issued an irrevocable stand-by L/C of HKD178 million for the Company. The above issue was disclosed on “Securities Daily” and “Ta Kung Pao” on 26 April 2003. c. Board of CWHK resolved on June 5, 2003 to apply to Hong Kong Branch of China Agriculture Bank on credit line of trust loan totaling HKD176 million. Relevant agreement was signed by the above two parties on the same day. The above issue was disclosed on “Securities Daily” and “Ta Kung Pao” on 7 June 2003. d. The Company entered into a loan agreement on November 25, 2003 with Shenzhen Industrial Road Sub-branch of China Everbright Bank on credit line of trust loan not exceeding RMB180 million. The above issue was disclosed on “Securities Daily” and “Ta Kung Pao” on 26 November 2003. 31 e. Contract signed by the Company with CND and its specified banks (See C.3.b of Part IX in this report for details) E. Commitment Board of the Company promised to appoint a third Independent Director before June 30, 2003 and establish the Rules for the Independent Director in its 2002 Annual Report. The Third Independent Director was elected at the Company’s 2002 Annual General Meeting held on May 30, 2003 and the Rules for the Independent Director was approved as well on the meeting. F. Approved by the 2002 annual general meeting held on 30 May 2003, the Company appointed PricewaterhouseCoopers Zhong Tian Certified Public Accountants, which has been working for the Company for 3 years, as the Company’s domestic accounting firm for 2003, and PricewaterhouseCoopers, which has been working for the Company for 6 years, as the Company’s overseas accounting firm for 2003. Remunerations of the Company’s accounting firms were set out as follows: 2003 Pricewaterhouse Coopers Zhong Tian Pricewaterhouse Coopers Audit RMB400,000 HKD390,000 expenses Other - - expenses G. During the reporting year, the Company and its Directors were not punished by the supervising authority. 32 PART X FINANCIAL STATEMENTS (See attached) 33 PART XI DOCUMENTS FOR REFERENCE 1. Financial Statements carrying the signatures of the Company's legal representative, the Chief Financial Officer and the person in charge of accounting; 2. Original copy of Auditor's Statement sealed by CPA and signed by registered accountants; 3. Original copy and press disclosure of all the documents disclosed in 2003 on “Securities Daily”, and “Ta Kung Pao”; and 4. Original copy of the Annual Report signed by the Chairman. For and on behalf of the Board Wang Fen Chairman Shenzhen Chiwan Wharf Holdings Limited Dated 31 March 2004 34 SHENZHEN CHIWAN WHARF HOLDINGS LIMITED AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2003 SHENZHEN CHIWAN WHARF HOLDINGS LIMITED Contents Pages Report of the international auditors 1 Consolidated income statement 2 Consolidated balance sheet 3 Consolidated statement of changes in shareholders’ equity 4 Consolidated cash flow statement 5 Notes to the consolidated financial statements 6 - 36 Supplementary information 37 PricewaterhouseCoopers 22nd Floor Prince’s Building Central Hong Kong Telephone (852) 2289 8888 Facsimile (852) 2810 9888 REPORT OF THE INTERNATIONAL AUDITORS TO THE MEMBERS OF SHENZHEN CHIWAN WHARF HOLDINGS LIMITED (Incorporated as a joint stock limited company in the People’s Republic of China) We have audited the accompanying consolidated balance sheet of Shenzhen Chiwan Wharf Holdings Limited (the “Company”) and its subsidiaries (the “Group”) as of 31st December 2003 and the related consolidated income and cash flow statements for the year then ended. These consolidated financial statements set out on pages 2 to 36 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements present fairly in all material respects the financial position of the Group as of 31st December 2003, and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Certified Public Accountants Hong Kong, 29 March 2004 -1- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2003 Note 2003 2002 RMB RMB Revenue 3 1,012,014,118 714,755,787 Operating costs (360,931,229) (321,719,879) Gross profit 651,082,889 393,035,908 Administrative expenses (92,030,520) (70,752,437) Other operating (expenses)/income (6,807,176) 4,087,812 Profit from operations 4 552,245,193 326,371,283 Finance costs - net 6 (25,653,843) (24,589,184) Gain/(loss) on disposal of subsidiaries /associates 5,360,499 (66,526) Share of results of associates before tax 1,334,492 1,397,913 Profit before tax 533,286,341 303,113,486 Income tax expense 7 (39,195,173) (14,006,958) Profit after tax 494,091,168 289,106,528 Minority interests 24 (180,103,292) (105,229,949) Net profit 313,987,876 183,876,579 Earnings per share 8 0.823 0.482 -2- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED BALANCE SHEET AS AT 31ST DECEMBER 2003 2003 2002 Note RMB RMB ASSETS Non-current assets Property, plant and equipment 10 1,496,440,747 1,261,647,873 Construction-in-progress 11 267,046,303 49,823,701 Land use rights 12 864,947,364 617,305,856 Investment property 13 10,481,188 19,167,511 Intangible assets 14 13,790,514 (3,416,480) Investments in associates 15 288,221,180 3,122,194 Available-for-sale investments 16 4,647,500 59,979,500 2,945,574,796 2,007,630,155 Current assets Inventories 17 19,954,765 19,720,491 Amount due from a related company 28(c) 11,033,436 12,785 Loans to a related company 28(d) - 100,000,000 Other receivables and prepayments 17,048,870 22,761,088 Trade receivables 178,197,639 125,968,632 Cash and cash equivalents 18 42,718,254 55,729,865 268,952,964 324,192,861 Total assets 3,214,527,760 2,331,823,016 SHAREHOLDERS’ EQUITY Share capital 23 381,517,000 381,517,000 Reserves 24 930,399,128 805,568,035 Retained earnings 189,475,803 111,013,454 1,501,391,931 1,298,098,489 Total shareholders’ equity Minority interests 25 566,273,362 456,976,246 LIABILITIES Non-current liabilities Borrowings 19 382,130,000 41,800,000 Current liabilities Trade payables 149,183,222 40,430,630 Other payables and accrued expenses 178,610,089 32,623,855 Taxes payable 7 14,349,568 5,020,750 Short-term borrowings 19 419,340,000 434,940,000 Amount due to holding company 28(b) 3,249,588 21,933,046 764,732,467 534,948,281 1,146,862,467 576,748,281 Total liabilities Total equity and liabilities 3,214,527,760 2,331,823,016 Director Director -3- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31ST DECEMBER 2003 Share capital Reserves Retained (note 23) (note 24) earnings Total RMB RMB RMB RMB Balance at 1st January 2002 381,517,000 732,538,927 39,438,124 1,153,494,051 Dividend paid for 2001 - - (38,914,734) (38,914,734) Profit for the year - - 183,876,579 183,876,579 Transfer from retained profits to reserves - 73,386,515 (73,386,515) - Translation differences - (357,407) - (357,407) Balance at 31st December 2002 381,517,000 805,568,035 111,013,454 1,298,098,489 Balance at 1st January 2003 381,517,000 805,568,035 111,013,454 1,298,098,489 Dividend paid for 2002 - - (109,876,896) (109,876,896) Profit for the year - - 313,987,876 313,987,876 Transfer from retained profits to reserves - 125,595,151 (125,595,151) - Translation differences - (957,429) - (957,429) Others - 193,371 (53,480) 139,891 Balance at 31st December 2003 381,517,000 930,399,128 189,475,803 1,501,391,931 -4- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2003 Note 2003 2002 RMB RMB Cash flows from operating activities Cash generated from operations 26 634,152,395 329,339,906 Interest received 483,925 1,018,003 Interest paid (26,947,202) (25,455,780) Income tax paid (31,993,198) (14,640,321) Net cash from operating activities 575,695,920 290,261,808 Cash flows from investing activities Purchase of property, plant and equipment (403,658,497) (28,707,771) Payments for construction-in-progress (211,494,277) (156,749,561) Investment in and loans made to associates (200,853,379) (1,875,000) Proceeds from disposal of available-for-sale investments - 328,640 Proceeds from disposal of a subsidiary 27 3,045,276 - Classification of an associate to a subsidiary - 3,222,198 Proceeds from disposal of an associate - 1,457,484 Interest received from loans 5,922,125 - Proceeds from disposal of property, plant and equipment 1,735,631 5,056,580 Dividend received 785,057 1,738,400 Net cash used in investing activities (804,518,064) (175,529,030) Cash flows from financing activities Proceeds from short-term borrowings 1,226,060,000 733,012,421 Proceeds from long-term borrowings 432,323,090 10,000,000 Repayments of short-term borrowings (1,241,660,000) (749,489,361) Repayments of long-term borrowings (91,993,090) (153,498,000) Dividends paid to minority shareholders of a subsidiary 25 - (21,926,000) Dividends paid (109,876,896) (38,914,734) Net cash generated from/used in financing activities 214,853,104 (220,815,674) Decrease in cash and cash equivalents (13,969,040) (106,082,896) Movement in cash and cash equivalents: Cash and cash equivalents at 1st January 55,729,865 162,170,168 Decrease (13,969,040) (106,082,896) Effect of exchange rate changes 957,429 (357,407) Cash and cash equivalents at 31st December 18 42,718,254 55,729,865 SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -5- 1 Corporate information Shenzhen Chiwan Wharf Holdings Limited (the “Company”) was incorporated on 16th January 1993 in the People’s Republic of China (the “PRC”) as a joint stock limited company. The A shares and B shares of the Company have been listed on the Stock Exchange of Shenzhen, the People’s Republic of China (“PRC”) since May 1993. The Company and its subsidiaries (the “Group”) are principally engaged in the provision of cargo packing, cargo handling, container terminal, warehousing, land and sea transportation services for customers. 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”). They have been prepared under the historical cost. The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. (b) Group accounting (1) Subsidiaries Subsidiaries, 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. 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(f) 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. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. A listing of the Group’s principal subsidiaries is set out in note 29. -6- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (b) Group accounting (Continued) (2) Associates Investments in associates are accounted for by the equity method of accounting. Under this method, the Company’s share of the post-acquisition profits or losses of associates is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Associates are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investment in associates includes goodwill (net of accumulated amortisation) on acquisition. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group will not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates. A listing of the Group’s principal associates is shown in note 15. (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 Foreign currency transactions are translated into RMB using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement. Translation differences on debt securities and other monetary financial assets measured at fair value are included in foreign exchange gains and losses. Translation differences on non- monetary items such as equities held for trading are reported as part of the fair value gain or loss. Translation differences on available-for-sale equities are included in the revaluation reserve in equity. -7- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (c) Foreign currency translation (Continued) (3) Group companies Income statements and cash flows of entities, of which measurement currencies are not RMB, are translated into RMB at average exchange rates for the year and their balance sheets are translated at the exchange rates ruling on 31 December. Exchange differences arising from the translation of the net investment in foreign entities and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When such a entity is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of such a entity are treated as assets and liabilities of that entity and translated at the closing rate. (d) Property, plant and equipment Land and buildings (except for investment property – see note 2(e)) comprise mainly harbor facilities and offices, and other property, plant and equipment and are stated at historical cost less accumulated depreciation and impairment loss. Depreciation is calculated on a straight-line method to write off the cost or revalued amount of each asset to their residual values over their estimated useful lives as follows: Buildings 5 - 40 years Harbor facilities 50 years Plant, machinery and equipment 5 - 15 years Motor vehicles, cargo ships and tugboats 5 - 20 years Furniture and fixtures 5 years Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised, during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. Repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. -8- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (e) Investment property Investment property, principally comprising office buildings, is held for long-term rental yields and is not occupied by the Group. Investment property is treated as a long-term investment and is recorded at cost less accumulated depreciation and impairment losses. Depreciation is calculated on the straight-line method to write off the cost of investment property to their residual values over their estimated useful life of 40 years. (f) 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/associate at the date of acquisition. Goodwill is amortised using the straight-line method over its estimated useful life. 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. (2) Negative goodwill Negative goodwill represents the excess of the fair value of the net identifiable assets acquired over the cost of acquisition. Negative goodwill is presented in the same balance sheet classification as goodwill. It represents the amount not exceeding the fair values of acquired identifiable non-monetary assets and is recognised as income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable or amortisable assets. (g) Impairment of long lived assets Property, plant and equipment and other non-current assets, including goodwill and intangible assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows. (h) Land use rights Land use rights are up-front payments to acquire long-term interests in land. These are stated at cost and amortised over the remaining period of the lease on a straight-line basis. -9- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (i) Investments The Group classifies its investments in debt and equity securities into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets; for the purpose of preparing the financial statements, short term is defined as 3 months. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets (during the year the Group did not hold any investments in this category). 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; and are included in non-current assets unless management has the expressed intention of holding the investment for less than 12 months from the balance sheet date or unless they are required to be sold to finance the working capital, in which case they are included in current assets. Purchases and sales of investments are recognized and derecognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading and available-for-sale investments are subsequently carried at fair value. Held-to-maturity investments are carried at amortised cost using the effective yield method. Realised and unrealised gains and losses arising from changes in the fair value of trading investments are included in the income statement in the period in which they arise. Unrealised gain and losses arising from changes in the fair value of securities classified as available-for-sale are recognised in equity. The fair values of investments are determined based on quoted bid prices or amounts derived from cash flow models. Fair values of 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 are sold or impaired, the cumulative fair value adjustments are included in the income statement as gains and losses from investment securities. -10- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (j) Leases (1) When the 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 other long-term payables. The interest element of the finance cost is charged to the 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. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset or the lease term. 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 income statement on a straight-line basis over the period of the lease. (2) When the Group company is the lessor When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return. Assets leased out under operating leases are included in investment property and property, plant and equipment in the 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 is determined using the weighted average method. Net realisable value is the estimated selling price in the ordinary course of business, less the selling expenses. (l) Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is 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. -11- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (m) Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are included within borrowings in current liabilities on the balance sheet. (n) Borrowings Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. (o) Deferred income taxes 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 financial statements. Currently 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. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. (p) Pension obligations A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees benefits relating to employee service in the current and prior periods. The Group pays contributions to publicly administered pension insurance plans on a mandatory, contractual or voluntary basis. Once the contributions have been paid, the Group has no further payment obligations. The regular contributions constitute net periodic costs for the year in which they are due and as such are included in staff costs. (q) Provisions Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. -12- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (r) Revenue recognition Revenue comprises the invoiced value for the services rendered, net of rebates and discounts, and after elimination of sales made within the Group. Revenue from services is recognised upon performance of the service. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective interest rate over the period to maturity, when it is determined that such income will accrue to the Group. Dividends are recognised when the right to receive payment is established. Rental income is recognised on an accrual basis. (s) Dividends Dividends are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders. (t) Segment reporting Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments. (u) Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. -13- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3 Segment information (a) Primary reporting format - business segments The Group is organised into two main business segments in the PRC: (i) Harbour related services - provides cargo packing, cargo handling, container terminal management services, warehousing; and (ii) Transportation services - provides trucking and shipping services. Year ended Harbour related Transportation 31st December 2003 services services Eliminations Total RMB RMB RMB RMB Revenue External sales 909,767,050 102,247,068 - 1,012,014,118 Internal sales 31,210,775 - (31,210,775) - Total revenue 940,977,825 102,247,068 (31,210,775) 1,012,014,118 Segment results 538,686,185 20,551,708 559,237,893 Unallocated costs (6,992,700) Profit from operations 552,245,193 Finance expenses - net (25,653,843) Share of results of associate before tax 1,334,492 1,334,492 Gain on disposal of subsidiary 5,360,499 5,360,499 Profit before tax 533,286,341 Income tax expenses (39,195,173) Profit after tax 494,091,168 Minority interests (180,103,292) Net profit 313,987,876 Segment assets 2,718,714,318 122,783,439 2,841,497,757 Associates 284,847,316 3,233,963 288,081,279 Unallocated assets 84,948,724 Consolidated total assets 3,214,527,760 Segment liabilities 989,721,336 33,888,266 1,023,609,602 Unallocated liabilities 123,252,865 Consolidated total liabilities 1,146,862,467 Other segment items Capital expenditure 825,748,354 41,870,598 867,618,952 Depreciation 81,355,805 7,814,781 89,170,586 Amortisation 21,676,894 69,989 21,746,583 Impairment loss 17,805,004 410,924 18,215,928 -14- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3 Segment information (Continued) (a) Primary reporting format - business segments (Continued) Year ended Harbour related Transportation 31st December 2002 services services Eliminations Total RMB RMB RMB RMB Revenue External sales 627,203,664 87,552,123 - 714,755,787 Internal sales 28,418,807 - (28,418,807) - Total revenue 655,622,471 87,552,123 (28,418,807) 714,755,787 Segment results 314,686,820 17,858,533 332,545,353 Unallocated costs (6,174,070) Profit from operations 326,371,283 Finance expenses - net (24,589,184) Share of results of associates before tax 1,397,913 1,397,913 Loss on disposal of an associate (66,526) (66,526) Profit before tax 303,113,486 Income tax expenses (14,006,958) Profit after tax 289,106,528 Minority interests (105,229,949) Net profit 183,876,579 Segment assets 2,177,690,718 91,030,604 2,268,721,322 Associates 3,122,194 3,122,194 Unallocated assets 59,979,500 Consolidated total assets 2,331,823,016 Segment liabilities 516,267,866 18,680,415 534,948,281 Unallocated liabilities 41,800,000 Consolidated total liabilities 576,748,281 Other segment items Capital expenditure 163,015,602 22,296,797 185,312,399 Depreciation 66,443,381 6,906,787 73,350,168 Amortisation 20,092,917 69,989 20,162,906 Unallocated costs represent corporate expenses. Segment assets consist primarily of property, plant and equipment, construction-in-progress, intangible assets, inventories, receivables and operating cash, and exclude investments. Segment liabilities comprise operating liabilities and exclude items such as taxation and certain corporate borrowings. Capital expenditure comprises additions to property, plant and equipment, investment property and intangible assets. -15- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3 Segment information (Continued) (b) Secondary reporting format - geographical segments The Group provides the above services in the PRC, its country of incorporation. No geographical segment information is presented. (c) Analysis of sales 2003 2002 RMB RMB Revenue from services 1,012,014,118 714,755,787 4 Profit from operations The following items have been included in arriving at profit from operations: 2003 2002 RMB RMB Depreciation on property, plant and equipment (note 10) - owned assets 87,145,301 72,158,662 Depreciation on investment property (note 13) 451,104 444,611 Amortisation of land use rights (note 12) 21,122,931 19,611,556 Amortisation of intangible assets – goodwill (included in operating expenses) (note 14) 1,427,817 1,418,961 Negative goodwill recognised as income (included in other operating income) (note 14) (804,165) (867,611) Operating lease rentals - land and buildings 32,754,636 29,310,667 - plant, machinery and equipment 2,475,720 1,886,363 - cargo ships and tugboats 2,174,000 840,700 Loss on disposal of property, plant and equipment 1,447,751 865,694 Staff costs (note 5) 163,263,055 134,406,912 Doubtful debts provision 992,797 1,656,149 Provision for inventories 1,505,414 451,698 Repairs and maintenance expenditure on property, plant and equipment 18,651,436 14,656,446 Rental income - investment property (943,524) (1,175,529) Gain on disposal of available-for-sale investments - (81,140) Impairment charge of property, plant and equipment (included in operating costs) 18,215,928 - -16- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5 Staff costs 2003 2002 RMB RMB Wages and salaries 151,974,892 123,287,865 Pension costs - defined contribution scheme (note 20) 11,288,163 11,119,047 163,263,055 134,406,912 The average number of employees in 2003 was 1,470, of whom 80 worked part-time. 6 Finance costs - net 2003 2002 RMB RMB Interest expenses on bank borrowings 26,947,202 25,455,780 Less: Interest expenses capitalised in construction- -in-progress (note 11 ) (929,605) (521,238) 26,017,597 24,934,542 Interest income (483,925) (1,018,003) Net foreign exchange transaction (gains)/losses (1,446,266) 143,029 Dividends income (255,000) - Others 1,821,437 529,616 25,653,843 24,589,184 7 Income tax expense 2003 2002 RMB RMB PRC income tax (note a) Company and subsidiaries 38,967,817 13,533,414 Share of tax of associates (150,719) 150,719 Hong Kong profits tax (note b) 378,075 322,825 39,195,173 14,006,958 -17- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7 Income tax expense (Continued) (a) In accordance with the relevant income tax laws applicable to enterprises operating in the Shenzhen Special Economic Zone of the PRC, the profits of the Group companies are fully exempte from income tax for five years commencing from the first profit making year of operation followed by a 50% exemption for the immediate next five years (“tax preferential period”), after which the profits of the companies are taxable at the full rate which is currently 15%. As at 31st December 2003, the Group companies with remaining tax preferential period status and the tax reductions involved were as follows: Remaining tax 2003 enacted preferential years tax rate 1 7.5% Shenzhen Chiwan Terminal Company Limited Chiwan Container Terminal Company Limited 1 7.5% - Phase 1 4 7.5% - Phase 2 8 - - Phase 3 4 7.5% Shenzhen Chiwan Grains Terminal Company Limited Deferred taxation has not been provided as there are no significant temporary differences. (b) Hong Kong taxation represents the amount provided at the rate of 17.5% (2002: 16%) on the estimated assessable profits for the year. (c) The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the basic tax rate of the home country of the Company as follows: 2003 2002 RMB RMB Profit before tax 533,286,341 303,113,486 Income tax provision calculated at the effective tax rate of 15% (2002: 15%) 79,992,951 45,467,023 Effect of different tax rate in other tax jurisdiction 3,781 20,177 Effect on tax losses of subsidiaries 127,407 93,057 Effect of tax holidays (43,973,837) (31,393,579) Income not subject to tax (1,065,107) (1,643,549) Expenses not deductible for tax purposes 4,109,978 1,463,829 Tax charge 39,195,173 14,006,958 -18- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7 Income tax expense (Continued) (d) The tax liabilities in the consolidated balance sheet included the following: 2003 2002 RMB RMB Income tax 10,386,042 2,341,349 Business taxes, value-added tax and other surcharges 3,963,526 2,679,401 14,349,568 5,020,750 8 Earnings per share Basic earnings per share is calculated by dividing the consolidated profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. 2003 2002 Net profit attributable to shareholders RMB 313,987,876 RMB 183,876,579 Weighted average number of ordinary shares in issue 381,517,000 381,517,000 Earnings per share RMB 0.823 RMB 0.482 Diluted earnings per share for both years were not disclosed as there were no potential dilutive shares. 9 Dividend per share A dividend of RMB 4.96 per share amounting to a total dividend of RMB 189,232,432 in respect of 2003 was proposed by board of directors on 29 March 2004. The financial statements have not reflected this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending 31st December 2004. The dividend declared in respect of 2002 was RMB 109,876,896. -19- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10 Property, plant and equipment Motor vehic Plant, machinery cargo ships Buildings Harbour facilities and equipment tugbo RMB RMB RMB R Year ended 31st December 2003 Opening net book amount 252,441,552 487,937,934 383,668,975 117,841, Reclassifications (38,693,409) 39,848,851 27,753,086 (30,114, Transfers from construction in progress 35,297,903 36,316,657 157,256,785 48,304, Transfer from investment property 8,235,219 - - Additions 29,172,699 35,000 46,715,482 13,946, Disposals (4,427,108) - (1,635,313) (4,199, Disposal of a subsidiary (note 27) (27,198,824) - (3,358,481) (675, Impairment provision (17,805,004) - - (410, Depreciation (11,130,469) (12,207,726) (41,910,321) (19,421, Closing net book amount 225,892,559 551,930,716 568,490,213 125,271, At 31st December 2003 Cost 329,549,542 636,039,736 767,935,919 249,934, Accumulated depreciation (103,656,983) (84,109,020) (199,445,706) (124,662, Net book amount 225,892,559 551,930,716 568,490,213 125,271, At 31st December 2002 Cost 327,163,062 559,839,228 541,204,360 222,671, Accumulated depreciation and impairment (74,721,510) (71,901,294) (157,535,385) (104,830, Net book amount 252,441,552 487,937,934 383,668,975 117,841, The management has assessed the carrying amount of the above assets and no further impairment provision other than the amount rec December 2003 was mainly made against two warehouses to be demolished with net book values at RMB17,805,004. The demolitio As 31 December 2003, the Group had not obtained the official certificates of the ownership of certain buildings due to the fact that th on which these buildings are located had not been obtained (note 12). - - 20 SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11 Construction-in-progress 2003 2002 RMB RMB At 1st January 49,823,701 11,668,948 Additions 505,064,769 156,083,390 Interest expenses capitalised (note 6) 929,605 521,238 Transferred to property, plant and equipment (note (282,473,832) (118,449,875) 10) Other transfer out (6,297,940) - At 31st December 267,046,303 49,823,701 A capitalisation rate of 5.184% per annum (2002: 5.184%) was used, representing the borrowing cost of the loans used to finance the project. 12 Land use rights 2003 2002 RMB RMB Net book value at beginning of year 617,305,856 636,917,412 Additions 268,764,439 - Amortisation (21,122,931) (19,611,556) Net book value at end of year 864,947,364 617,305,856 In addition to own-held land use rights, the Group also leases from China Nanshan Development (Group) Incorporation (“Nanshan Development”), the Company’s holding company, several plots of land for its operations. The land leased by Nanshan Development to the Group was injected by Shenzhen Investment Holding Corporation in 1982 as part of the consideration in acquiring the equity interests of Nanshan Development. At that time, the prevailing PRC laws did not provide for a mechanism for the issuance of official certificates of the land use rights. However, certain land occupancy documents were issued by Shenzhen Municipal Planning and Land Bureau, such as a “red line sketch” document, in respect of such land. The net book values of fixed assets and investment properties of the Group constructed thereon the related leased land were approximately RMB49,221,496 and RMB10,481,188 as at 31 December 2003, respectively. Nanshan Development issued an undertaking on 9th December 1992 to indemnify the Group from any losses arising from or in connection with the land use rights. As at 31 December 2002 and 2003, there was a piece of land held by the Group which had been committed to be transferred to three joint venture companies of the Group within 5 years’ time. -21- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13 Investment property 2003 2002 RMB RMB Net book value at beginning of year 19,167,511 19,411,508 Additions - 200,614 Transfer to own-occupied property (8,235,219) - Depreciation for the year (note 4) (451,104) (444,611) Net book value at end of year 10,481,188 19,167,511 Independent valuer has not been employed to determine the fair value of the investment property. Its fair value as at 31st December 2003 was determined by management of the Group to be approximately RMB13 million (2002: RMB20 million) using the discounted cash flow method. As described in note 12, the Group has not obtained the official certificate of ownership of above investment property as the related land use rights attached with the land on which the property is located have not been officially granted. 14 Intangible assets Negative Goodwill goodwill Total RMB RMB RMB Year ended 31 December 2002 Opening net book amount 4,723,585 (7,588,715) (2,865,130) Amortisation for the year (1,418,961) 867,611 (551,350) Closing net book amount 3,304,624 (6,721,104) 3,416,480 At 31 December 2002 Cost 14,728,112 (8,757,950) 5,970,162 Accumulated amortisation (11,423,488) 2,036,846 (9,386,642) Net book amount 3,304,624 (6,721,104) (3,416,480) Year ended 31 December 2003 (6,721,104) Opening net book amount 3,304,624 (3,416,480) Additions note 29 11,913,707 - 11,913,707 Disposal of a subsidiary (note 27) - 5,916,939 5,916,939 Amortisation for the year (1,427,817) 804,165 (623,652) Closing net book amount 13,790,514 - 13,790,514 At 31 December 2003 Cost 26,641,819 - 26,641,819 Accumulated amortisation (12,851,305) - (12,851,305) Net book amount 13,790,514 - 13,790,514 -22- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 15 Investments in associates 2003 2002 RMB RMB Share of net assets 8,217,280 3,122,194 Loans 280,003,900 - 288,221,180 3,122,194 The loans extended to the associates at 31 December 2003 are unsecured and have no fixed terms of repayment, of which, RMB100,000,000 bear interest at a rate of 5.841% per annum. The principal associates, all of which are unlisted, are: Country of establishme nt/ incorporatio Name n Percentage of interest held 2003 2002 Shenzhen Chiwan Wharf Network System Co., Ltd the PRC 37.5% 37.5% Shenzhen Merchants Shipping Logistics Co., Ltd. the PRC 40% - The British Virgin Media Port Investments Ltd. Islands 50% (indirect) - 16 Available-for-sale investments 2003 2002 RMB RMB At beginning of year 59,979,500 60,227,000 Disposals (note 29) (55,332,000) (247,500) At end of year 4,647,500 59,979,500 Available-for-sale investments represent investments in PRC and overseas companies of not more than 20% of their paid up capital at 31st December 2003. Available-for-sale investments of the Group are stated at their fair values at year end. During the year and as at 31 December 2003, the Group did not hold any trading or held-to- maturity investments. -23- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 17 Inventories 2003 2002 RMB RMB Oil and gas 801,377 4,830,389 Spare parts 20,841,503 15,341,800 21,642,880 20,172,189 Less: provision (1,688,115) (451,698) 19,954,765 19,720,491 18 Cash and cash equivalents 2003 2002 RMB RMB Cash at banks and on hand 42,718,254 55,729,865 19 Borrowings 2003 2002 RMB RMB Current Bank borrowings 198,140,000 419,040,000 Loans from holding company 200,000,000 - Current portion of long-term bank borrowings (note a) 21,200,000 15,900,000 419,340,000 434,940,000 Non-current Long-term bank borrowings (note a) 382,130,000 41,800,000 Total borrowings 801,470,000 476,740,000 (a) A loan of HK$176,000,000 (RMB equivalent 186,560,000) was raised from a bank during the year. It bears interest at HIBOR+0.75% per annum and is repayable on 9th June 2005. The loan is guaranteed by the China Agriculture Bank Shenzhen Branch Shekou Sub-branch. Another bank loan of HK$30,000,000 (RMB equivalent 31,800,000) bearing interest at HIBOR+1.5% per annum (2002: HIBOR+1.5% per annum) was obtained by a wholly-owned subsidiary and is guaranteed by China Merchants Holdings (International) Co., Ltd. The loan is repayable in 8 installments from 2nd February 2001 with the last installment due on 2nd February 2005. The remaining loans are all unsecured. -24- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 19 Borrowings (continued) Maturity of long-term bank borrowings: 2003 2002 RMB RMB Between 1 to 2 years 197,160,000 21,200,000 Between 2 to 5 years 184,970,000 20,600,000 382,130,000 41,800,000 (b) The effective interest rates at the balance sheet date were as follows: 2003 2002 RMB RMB Short-term bank borrowings 3.61% 4.23% Long-term bank borrowings 1.52% 3.53% Loans from holding company 3.4% - (c) The Group has the following undrawn committed borrowing facilities as at the end of the year: 2003 2002 RMB RMB Floating rate - expiring within one year 100,640,000 190,000,000 - expiring beyond one year 216,030,000 100,000,000 316,670,000 290,000,000 Fixed rate - expiring within one year 466,220,000 200,000,000 - expiring beyond one year 671,000,000 50,000,000 1,137,220,000 250,000,000 (d) The carrying amounts of borrowings approximate their fair value. (e) Most of the Group’s financing arrangements are in the form of short-term loans, as a result, the Group’s current liabilities exceeded current assets by approximately RMB496 million as at 31 December 2003. The directors are confident that that the Group will be able to renew the loan facilities when they fall due or to replace these loans with undrawn facilities available to the Group; and it is able to identify new sources of financing arrangements. -25- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 20 Pension obligations In accordance with certain regulations of the Shenzhen Municipal Government, all enterprises established in Shenzhen are required to contribute to a retirement insurance fund administered by the Shenzhen Municipal Government at rates ranging from 7% to 9% (2002: 7% to 12%) of the basic salaries of the Group’s existing PRC staff. The retirement insurance fund is fully responsible for payments to retired staff. 21 Financial risk management (a) Financial risk factors The Group’s activities expose it to financial risks including the effects of changes in foreign currency exchange rates and interest rates. The Group’s overall risk management seeks to minimise potential adverse effects on the financial performance of the Group. (i) Foreign exchange risk The Group operates in PRC and is exposed to foreign exchange risk arising from currency exposures primarily with respect to RMB. The Group has a number of investments in foreign subsidiaries, whose net assets are exposed to currency translation risk. Currency exposure to the net assets of the Group’s subsidiaries in Hong Kong is managed primarily through borrowings denominated in Hong Kong dollars. (ii) Interest rate risk The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group has no significant interest-bearing assets except bank deposits, interest rates on which have been fixed in relevant contracts. Other financial assets and liabilities do not have material interest rate risk. (iii) Credit risk The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that services are rendered to customers with an appropriate credit history. Cash transactions are limited to high credit quality financial institutions. The Group has policies that limit the amount of credit exposure with any one financial institution. (iv) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group maintains flexibility in funding by keeping committed credit lines available. -26- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21 Financial risk management (continued) (b) Fair values Financial assets of the Group include cash and bank balances, trade receivables, other receivables and prepayments, loans to a related company, amount due from a related company and available-for-sale investments. Their fair values are not materially different from their carrying amounts. Financial liabilities of the Group include bank borrowings, trade payables, other payables and accrued expenses, taxes payable and amount due to holding company. The carrying amounts of short-term loans are estimated to approximate their fair values based on the nature or short-term maturity of these instruments. The fair value of long-term bank loans is estimated by applying a discounted cash flow approach using current market interest rates for similar indebtedness. The fair value is not materially different from the carrying amount. Commitments (a) 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 RMB Plant, machinery and equipment 9,238,887 206,349,152 Land and buildings 72,363,321 72,288,530 Harbour facilities 15,948,067 8,100,000 97,550,275 286,737,682 (b) Operating lease commitments – where the Group is the lessee The future minimum lease payments under non-cancellable operating leases in respect of a cargo ship, tugboats and the use of land leased from Nanshan Development (mentioned in Note 12), are as follows: 2003 2002 RMB RMB Not later than 1 year 23,810,852 19,882,445 Later than 1 year and not later than 5 years 16,789,320 5,121,247 40,600,172 25,003,692 -27- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 22 Commitments (continued) (c) Operating lease commitments – where the Group is the lessor The future minimum lease payments receivable under non-cancellable operating leases are as follows: 2003 2002 RMB RMB Not later than 1 year 2,519,011 2,519,011 Later than 1 year and not later than 5 years 10,076,046 10,076,046 Later than 5 years 30,228,141 32,747,152 42,823,198 45,342,209 23 Share capital Registered, issued and fully paid ordinary shares of RMB1 each: Unlisted A shares held by Unlisted A Nanshan shares held by A shares, B shares, Development legal persons listed listed Total Year ended 31st December 2002 At 1st January and 31st December 2002 224,470,000 127,700 50,472,300 106,447,000 381,517,000 Year ended 31st December 2003 At 1st January and 31st December 2003 224,470,000 100,400 50,499,600 106,447,000 381,517,000 The A and B shares carry equal rights with respect to the distribution of the Company’s assets and profits and rank pari passu in all other respects. -28- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 24 Reserves (other than retained earnings) Share Capital Surplus Statutory premium reserves reserves public welfare Translation (note (b)) (note (b)) (note (c)) fund (note (d)) reserve Total RMB RMB RMB RMB RMB RMB At 1st January 2002 250,956,191 155,384,283 284,368,189 46,844,945 (5,014,681) 732,538,927 Transfer from retained earnings to reserves: Statutory surplus reserve - - 18,346,629 - - 18,346,629 Statutory public welfare fund - - - 9,173,314 - 9,173,314 Discretionary surplus reserve - - 45,866,572 - - 45,866,572 Translation differences - - - - (357,407) (357,407) At 31st December 2002 250,956,191 155,384,283 348,581,390 56,018,259 (5,372,088) 805,568,035 At 1st January 2003 250,956,191 155,384,283 348,581,390 56,018,259 (5,372,088) 805,568,035 Transfer from retained earnings to reserves: Statutory surplus reserve - - 31,398,788 - - 31,398,788 Statutory public welfare fund - - - 15,699,394 - 15,699,394 Discretionary surplus reserve - - 78,496,969 - - 78,496,969 Translation differences (957,429) (957,429) Others - 139,891 46,795 6,685 193,371 At 31st December 2003 250,956,191 155,524,174 458,523,942 71,724,338 (6,329,517) 930,399,128 (a) Pursuant to the relevant PRC regulations and the articles of association of the Company, profit after taxation shall be appropriated in the following sequence: (i) make up accumulated losses; (ii) transfer 10% of the profit after tax to the statutory surplus reserve. When the balance of the statutory surplus reserve reaches 50% of the paid up share capital, such transfer may cease. (iii) transfer 5% to 10% of the profit after tax to the statutory public welfare fund. For the year ended 31st December 2003, an appropriation of 5% of the profit after tax is recommended (2002: 5%); (iv) transfer to the discretionary surplus reserve on an amount approved by the shareholders in general meetings; and (v) distribute dividends to shareholders. The amounts of transfers to the statutory surplus reserve and statutory public welfare fund shall be based on profit after tax in the PRC statutory accounts prepared in accordance with PRC accounting standards. -29- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 24 Reserves (continued) (b) Share premium and capital reserves According to the relevant PRC regulations, share premium and capital reserves can only be used to increase share capital. (c) Statutory surplus reserve and discretionary surplus reserve According to the relevant PRC regulations, statutory surplus reserve and discretionary surplus reserve can be used to make up losses or to increase share capital. Except for the reduction of losses incurred, any other usage should not result in the statutory surplus reserve falling below 25% of the registered capital. (c) Statutory public welfare fund According to the relevant PRC regulations, the use of statutory public welfare fund is restricted to capital expenditure for employees’ collective welfare facilities. Staff welfare facilities are owned by the Group. The statutory public welfare fund is not normally available for distribution to shareholders except in liquidation. Once the capital expenditure on staff welfare facilities has been incurred, an equivalent amount must be transferred from the statutory public welfare fund to discretionary surplus reserve. (d) Profit distribution Pursuant to the relevant PRC regulations and the articles of association of the Company, profit distributable to shareholders shall be the lower of the accumulated profit distributable to shareholders determined according to the PRC accounting standards as stated in the PRC statutory accounts and the accumulated profit distributable to shareholders adjusted according to IFRS (for B shares reporting). 25 Minority interests 2003 2002 RMB RMB At 1st January 456,976,246 362,847,219 Minority interests of a new subsidiary - 10,825,078 Minority interests of a subsidiary disposed (note 27) (10,654,873) - Reduction in minority interests of a subsidiary arising from additional equity investment made (60,151,303) - Share of net profits of subsidiaries 180,103,292 105,229,949 Payments of dividends - (21,926,000) At 31st December 566,273,362 456,976,246 -30- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26 Cash generated from operations Reconciliation of profit before tax to cash generated from operations: 2003 2002 RMB RMB Profit before tax 533,286,341 303,113,486 Adjustments for: Depreciation (note 10, 13) 89,170,586 73,350,168 Amortisation of land use rights (note 12) 21,122,931 19,611,556 Amortisation of intangible assets (note 14) 623,652 551,350 Impairment of property, plant and equipment (note 10) 18,215,928 - Doubtful debts provision (note 4) 992,797 1,656,149 Provision for inventories (note 4) 1,505,414 451,698 Loss on disposal of property, plant and equipment(note 4) 1,447,751 865,694 Interest expenses (note 6) 26,017,597 24,934,542 Interest income (note 6) (483,925) (1,018,003) (Gain)/loss on disposal of a subsidiary/associates (note 27) (5,360,499) 66,526 Gain on disposal of available-for-sale investments - (81,140) Share of net results of associates (1,485,213) (1,397,913) Dividend income (255,000) (1,738,400) Interest income from loans (5,922,125) - Decrease/(increase) in inventories 199,445 (1,593,271) Increase in trade receivables, other receivables and prepayments (30,038,865) (24,918,249) Increase in amounts due from related companies (11,020,651) (94,680,979) (Decrease)/increase in trade payables, other payables and accrued expenses (22,547,226) 10,643,122 Increase in amount due to holding company 18,683,457 19,523,570 Cash generated from operations 634,152,395 329,339,906 -31- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 27 Disposal of a subsidiary Towards the end of 2003, the Group disposed 50% of the equity interests in Shenzhen Chiwan Godown Co. Ltd., a subsidiary, to Shenzhen Chiwan Petroleum Supply Base Co., Ltd. (“CPSB”, a fellow subsidiary of the Group). The disposed business contributed revenues of 13,586,386 and an operating profit of 1,135,099 to the Group’s consolidated operating results in 2003, and its assets and liabilities as at the date of disposal were 41,437,122 and 20,127,375, respectively. Details of net assets disposed and the gain on disposal are as follows: 2003 Disposal consideration: - Cash received 9,800,000 - Due from CPSB 10,086,705 Total consideration 19,886,705 Fair value of net assets disposed (10,654,874) Unamortized negative goodwill as at date of disposal 5,928,668 Shareholder's loan to the subsidiary (9,800,000) Gain on disposal of a subsidiary 5,360,499 The assets and liabilities related to this subsidiary as at the date of disposal were as follows: RMB Cash and cash equivalents 6,754,724 Property, plant and equipment (note 10) 31,431,247 Inventories 36,890 Receivables 3,214,261 Payables (426,175) Tax liabilities (101,200) Other long term liabilities (19,600,000) Minority interests (note 25) (10,654,873) Fair value of net assets disposed 10,654,874 The net cash and cash equivalent inflow from the disposal was as follows: Cash received from disposal 9,800,000 Less: cash and cash equivalent in subsidiary disposed (6,754,724) 3,045,276 -32- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 28 Related party transactions The Company is controlled by China Nanshan Development (Group) Incorporation (incorporated in the PRC) which owns 58.84% of the Company’s equity interest. (a) Save as disclosed in other notes of these financial statements, in the normal course of business, the Group had the following material transactions with related companies during the year: 2003 2002 RMB RMB With Nanshan Development, the holding company - purchase of land use right 271,002,558 - - Entrusted short-term loan 200,000,000 - - lease of docking sites and stacking yards 25,065,585 21,378,320 - rental of office buildings 1,744,832 2,338,806 - purchase of staff dormitory 7,993,953 - Guranteed by China Merchants Holdings (International) Co., Ltd., a cooperator of Jointed ventures - long-term loans 31,800,000 47,700,000 Payment to CPSB - rental of office buildings 762,466 589,720 Payment to Shenzhen Haiqin Engineering Supervision Co., Ltd., a fellow subsidiary - fee for provision of engineering supervision services 3,653,420 884,781 Transactions with the related parties were carried out on terms and conditions mutually agreed by the parties. (b) Amounts due to holding company 2003 2002 RMB RMB Others 3,249,588 21,933,046 Other amounts due are unsecured, interest free and have no fixed terms of repayment. (c) Amount due from a related company 2003 2002 RMB RMB CPSB 11,033,436 12,785 -33- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 28 Related party transactions (continued) (d) Loans to a related company In 2002, loans of RMB 100,000,000 were advanced to Haihong Industry (Shenzhen) Co. Ltd., a fellow subsidiary of the Group. The amount was fully repaid during 2003. (e) Shareholder’s loans to associates In December 2003, the Company extended shareholder's loans of RMB 100,000,000, bearing interest at a rate of 3.4% per annum, to two joint venture companies owned by Media Port Investments Limited (MPIL). MPIL is a joint venture company owned by a subsidiary of the Company provided free interest shareholder's loan to MPIL of RMB 180,003,900 without any fixed terms of repayment. (f) Directors’ remuneration During the years ended 31 December 2002 and 2003, the total remuneration of the directors was RMB 180,000 (2002: RMB 120,000). -34- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 29 Principal subsidiaries The principal subsidiaries of the Group at 31st December 2003 are as follows: Place/country of incorporation/ Name establishment Percentage of interest held 2003 2002 Direct subsidiaries Hong Kong Chiwan Wharf Holdings (H.K.) Limited SAR, the PRC 100% 100% Shenzhen Chiwan Trainsgrain Terminal Company Limited PRC 100% 100% Shenzhen Chiwan Harbour Container Company Limited PRC 100% 100% Shenzhen Chiwan International Freight Agency Company Limited PRC 100% 100% Shenzhen Chiwan Shipping and Transportation Company Limited PRC 100% 100% Shenzhen Chiwan Terminal Company Limited PRC 100% 100% Shenzhen Chiwan Transportation Company Limited PRC 100% 100% Shenzhen Chiwan Oriental Logistics Co. Ltd. PRC 100% 100% Shenzhen Joint Favour International Marine Shipping Agency Company Limited PRC 51% 51% Chiwan Container Terminal Company Limited note a) PRC 55% 50% Shenzhen Chiwan Godown Co. Ltd. (note 27) PRC - 50% Indirect subsidiary Hong Kong Chiwan Shipping (H.K.) Company Limited SAR, the PRC 100% 100% British Virgin Grossalan Investments Limited Islands 100% 100% a Acquisition of additional interests in a subsidiary During the year, the Group acquired an additional 1% equity interest in CCT by cash consideration, and another 4% interests by the exchange of an investment which is available for sale (note 16). The goodwill arising from the such acquisitions was 11,913,707 and it is amortized over a period of 10 years on straight line basis. -35- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30 Post balance sheet event On 29 March 2004, the directors of the Company resolved to increase the share capital by the means of capitalization of the capital reserves of the Company to the extent that 3 additional ordinary shares are to be issued to each shareholder holding 10 shares of the Company (the "Capitalization Issue"). The Capitalization Issue is subject to the approval by the shareholders in the forthcoming annual general meeting of the Company. If the Capitalization Issue is approved, the number of ordinary shares in issue would be increased to 495,972,100. The basic earning per share for the year ended 31 December 2003, assuming the Capitalization Issue had been effective from 1 January 2003, would have been changed to RMB 0.633 (2002: RMB 0.37). 31 Approval of the consolidated financial statements The consolidated financial statements were approved by the board of directors on 29 March 2004. -36- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31ST DECEMBER 2002 The impact of IFRS and other adjustments on the PRC statutory financial statements are as follows: Consolidated net Consolidated profit for the year ended net assets as at 31st December 31st December 2003 2003 RMB RMB As per the PRC statutory financial statements 313,987,876 1,501,084,271 Impact of IFRS and other adjustments: Others - 307,660 As restated after IFRS and other adjustments 313,987,876 1,501,391,931 -37-