佛山照明(000541)粤照明Ｂ2003年年度报告（英文版）

Annual Report of 2003 of Foshan Electrical & Lighting Company Limited Important Hints: The Board of Directors of this company and all its directors guarantee that there is no false account, misleading statement or significant omission existing in the information contained in this report, and that they shall bear the individual and joint liabilities for the truthfulness, accuracy and completeness of its content. Mr. Liang Weidong, the director of the company is unable to attend the board meeting on the business trip, and has authorized Mr. Zhong Xincai, the Chairman of the Board of Directors, to vote on his behalf. Mr. Shen Weiqiang, the director of the company is also unable to attend the board meeting on the business trip, and has authorized Mr. Alfred K.N. Chong, the Vice Chairman of the Board of Directors, to vote on his behalf. The accounting data and financial report in this report have been audited by KPMG Peat Marwick in Hong Kong, and respectively made in Chinese and English. In case of any misunderstanding between the two versions, the Chinese text will be prevailing. Mr. Zhong Xincai, the General Manager and the financial chief of the company and Ms. Wang Shuqiong, the Manager of the Financial Department declare to guarantee the truthfulness and completeness of the financial report in this annual report. Content Page I. Brief Introduction to the Company 1 II. Summary of Accounting Data and Business Data 3 III. Change of Capital Stock and Shareholders 6 IV. Directors, Supervisors, Senior Management Personnel and Staffs 9 V. Managerial Hierarchy of the Company 11 VI. Brief Introduction to the General Meeting of Shareholders 14 VII. Report of the Board of Directors 17 VIII. Report of the Board of Supervisors 30 IX. Significant Events 32 X. Financial Report 34 XI. Reference Documents 55 I. Brief Introduction to the Company 1. Name in Chinese: 佛山电器照明股份有限公司 缩写: 佛山照明 Name in English: Foshan Electrical and Lighting Co. Ltd. Abbr.: FSL 2. Legal representative: Zhong Xincai 3. Secretary of the Board of Directors: Lin Yihui Address: #15 Fenjiang North Road, Foshan, Guangdong Tel: (0757) 82966098, 82810239 Fax: (0757) 82816276 E-mail: gzfsligh@pub.foshan.gd.cn 4. Registered and office address: #15 Fenjiang North Road, Foshan, Guangdong Zip code: 528000 Internet web: www.Chinafsl.com E-mail: gzfsligh@pub.foshan.gd.cn 5. Company information disclosed in: China Security, Security Times, Ta Kung Pao (in Hong Kong) and Foshan Daily Internet web site publishing the annual report designated by China Securities Committee: http:// www.cninfo.com.cn Annual report prepared in: Secretariat of the Board of Directors in the office building of the company at #15 Fenjiang North Road, Foshan, Guangdong, PRC 6. Listing place of shares: Shenzhen Stock Exchange. Abbr. of shares: Foshan Electrical & Lighting (A Share) Yue Electrical & Lighting (B Share) Code of shares: 000541 (A Share) 200541 (B Share) 1 7. Other relevant information: Date and place of first registration: registered in the Industrial and Commercial Administrative Bureau of Guangdong Province on Oct. 20, 1992. Registration No. of Legal Entity Business License: 19035257-5 Tax registration No.: YWZ 440601190352575 Names and offices of accountant firms employed by the company: Domestic: Guangdong Zhengzhong Zhujiang Certified Public Accountants (former Guangzhou Certified Public Accountants) 10/F Guangdong Group Building, 555 Dongfeng East Road, Guangzhou Tel: (020) 83859808 Fax: (020) 83800977 Foreign: KPMG Peat Marwick in HongKong (former KPMG Peat Marwick) 8/F Prince’s Building, Hong Kong Tel: (00852) 2826 7126 Fax: (00852) 2845 2588 2 II. Summary of Accounting Data and Business Data 1. Main accounting data and business data of this year. Unit: CNY Total profit 279,547,095.00 Net profit 234,560,108.00 Main business profit 379,631,177.00 Other business profit — Operating profit 254,961,509.00 Investment return 16,203,947.00 Income from subsidy — Non-operating net income and expenditure — Net cash flow from business activities 235,769,297.00 Net increase of cash and cash equivalent -134,870,968.00 2. Net profits calculated by two different accounting standards and the difference: The net profit of the company in 2003 audited according to the domestic accounting system for enterprises is ￥226,325,007.00, and the net profits audited based on the international accounting standard is ￥234,560,108.00. Reasons for such difference are shown in the following table: Detailed items for difference between the net profits Net profit (CNY) As reported in statutory financial statements prepared under PRC 226,325,007.00 accounting regulations Adjustments to align with IFRS 1. Recognition of deferred tax assets -642,488.00 2. Net unrealized gains/(losses) of investments held for trading carried 9,605,549.00 at fair value 3. Realized (gains)/loss of investments held for trading -2,309,852.00 4. Write back of over-accrued interest expenses 1,581,892.00 As reported pursuant to IFRS 234,560,108.00 3 3. Main accounting data and financial targets of three years immediately prior to the report period (consolidated) Unit: CNY Target items 2003 年 2002 年 2001 年 Main business income 1,016,750,204.00 953,453,964.00 827,662,639.00 Net profit 234,560,108.00 218,582,323.00 189,354,006.00 Total assets 2,431,572,874.00 2,359,541,714.00 2,243,581,689.00 Shareholder equity (excluding the 2,207,848,053.00 2,123,836,214.00 2,048,633,195.00 shareholder equity of minority shareholders) Proceeds per share (fully amortized) 0.65 0.61 0.53 Proceeds per share (weighted average) 0.65 0.61 0.53 Net assets per share 6.16 5.93 5.72 Net assets per share after adjustment 6.12 5.90 5.69 Net cash flow per share from business 0.66 0.91 0.75 activities Return rate of net assets (fully amortized) % 10.62 10.29 9.24 4 4. Profit data calculated according to the requirements of the “Disclosure and Preparation Rules for Publishing the Information of Security Companies” promulgated by China Securities Committee (No.9). Profit of the report 2003 2002 period Return rate of net Proceeds per share, Return rate of net Proceeds per share, assets (%) CNY assets (%) CNY Fully Weighted Fully Weighted Fully Weighted Fully Weighted amortized average amortized average amortized average amortized average Main business profit 17.19 17.53 1.06 1.06 17.11 16.84 1.01 1.01 Operating profit 11.55 11.77 0.71 0.71 11.06 10.88 0.66 0.66 Net profit 10.62 10.83 0.65 0.65 10.29 10.13 0.61 0.61 5. Change of shareholders’ equity during the report period. Unit: CNY Item Capital Capital Earned Legal welfare Undistributed Total stock surplus surplus funds profit shareholders’ equity At beginning of the period 358,448,259 1,199,480,017.00 224,874,751.00 102,200,906.00 238,832,281.00 2,123,836,214.00 Increase in this period 33,948,751.00 22,632,501.00 234,560,108.00 291,141,360.00 Reduce in this period 207,129,521.00 207,129,521.00 At end of the period 358,448,259 1,199,480,017.00 258,823,502.00 124,833,407.00 266,262,868.00 2,207,848,053.00 Reasons of change Profit Profit distribution Profit distribution distribution of this period 5 III. Change of Capital Stock and Shareholders 1. Change of capital stock (1) Change on capital stock of the company Unit: share Before this Change of this time (increase or reduce) (+ or -) After this change Rationed Granted Transfer of Newly issued Subtotal change shares shares public surplus A shares I. Uncirculating shares 1. Founder’s share 88,397,100 88,397,100 Including: National share 85,922,100 85,922,100 Domestic corporate share 2,475,000 2,475,000 Foreign corporate share Others 2. Raised corporate share 40,515,750 40,515,750 3. Internal staff share 4. Preferred share or others Total uncirculating shares 128,912,850 128,912,850 II. Circulating shares listed 1. Ordinary shares in CNY 147,035,409 147,035,409 Including: shares held by directors and 378,460 378,460 supervisors. 2. Foreign share listed at home 82,500,000 82,500,000 3. Foreign share listed abroad 4. Others Total circulating shares listed 229,535,409 229,535,409 III. Total shares 358,448,259 358,448,259 Note: the 378,460 shares held by the directors and supervisors of this company have already been frozen according to the relevant regulation. 6 (2) Issuing and listing of shares All Previous Issuing and Listing of Shares (CNY, 10,000 shares) Year Type of shares Issuing Issuing Issuing quantity Listing Listing trade Total capital stock date price date volume 1993 A share issuing 93.10 10.23 1930 93.11.23 1930 7,717.0 1994 A share granting 94.04 --- 3858.5 (grant 5 for 10) 94.5.11 965 11,575.5 (after granting) 1995 A share rationing 95.01 8.00 1815.3036 95.2.22 481.1946 13,390.8036 (ration 3 for 10) (after rationing) B share issuing 95.07 HK5.61 5000 95.8.8 5000 18,390.8036 RMB6.02 (after issuing B share) Listing of internal shares held 92.08 4.00 1157 95.9.29 1157 18,390.8036 (after the listing by staff of staff shares) 1996 A, B shares, shares transferred 96.09 --- 9195.4018 96.9.20 5278.3 27,586.2054 from public surplus (increase 5 for 10) (after increase shares by transfer) 1997 A, B shares --- --- --- --- --- 27,586.2054 1998 A, B shares --- --- --- --- --- 27,586.2054 1999 A, B shares --- --- --- --- --- 27,586.2054 2000 Transferred & rationed shares 95.01 8.00 31.9554 2000.4.14 31.9554 27,586.2054 (include transferred and rationed shares listed) Increased shares from A and B 2000.06 --- 2758.6205 2000.6.23 2758.6205 30,344.8259 (after increased shares transfer (increase 1 for 10) shares by transfer) New issue of A shares 2000.12 12.65 5500 2000.12.2 5500 35,844.8259 3 2001 A and B shares -- -- -- -- -- 35,844.8259 2002 A and B shares -- -- -- -- -- 35,844.8259 2003 A and B shares -- -- -- -- -- 35,844.8259 (3) When the company transformed its system as an internal stock company in Aug., 1992, it issued 11,570,000 shares to its internal staffs at the price of RMB 4/share, which were handed over to the Securities Department of Foshan International Trust & Investment Company for trust in Apr., 1993. On Sep. 29, 1995, the shares held by internal staffs were granted to list in Shenzhen Stock Exchange at the expiration of three years, with 11,570,000 shares approved to be listed. At that time, the 143,000 shares for internal staffs held by the directors and supervisors were frozen by Shenzhen Securities Registration Company. There were still 193,380 shares (including the rationed and granted shares) for internal staffs held by the directors and supervisors still frozen at the end of 2003. 7 2. Introduction to shareholders. (1) Up to Dec. 31, 2003, the company totally has 70,969 shareholders. Among them, there are 58,755 shareholders for A share (Foshan Electrical and Lighting 000541), including 9 shareholder of senior management shares, and 12,214 shareholders for B share (Yue Electrical and Lighting 200541) (2) Shares held by the top ten shareholders (as at Dec. 31, 2003) Unit: share Names of shareholders Yearly Shares held at Ratio Type of share(un Shares pledged Nature of shareholder +/- year end (%) cirulated or or frozen (share) (state-owned Or (share) (share) circulating) foreign shareholder) State-owned Assets Office of Foshan City Uncirculated 0 National share 0 85,922,100 23.97 Youchang Lighting Equipment Trading Uncirculated 0 Co., Ltd. ,Guangzhou 0 7,002,641 1.95 Baokang Consumer Goods Security Circulating Unknown Investment Funds 6,468,891 6,468,891 1.80 Yinfeng Securities Investment Funds Circulating Unknown 2,181,210 4,774,256 1.33 BTFE-VALUE PARTNERS Circulating Unknown Foreign shareholder INTELLIGENT FD-CHINA B SHS FD 2,921,622 4,141,349 1.16 (B share) Yuyuan Securities Investment Funds Circulating Unknown 1,310,091 3,976,036 1.11 102 Combination of National Social Circulating Unknown Insurance Funds 3,606,690 3,606,690 1.01 DBS VICKERS (HONG KONG) LTD.A/C Circulating Unknown Foreign shareholder CLIENTS 1,998,579 3,502,737 0.98 (B share) Zhongji Investment Consultant Co., Ltd., Circulating Unknown Shanghai 2,906,989 2,906,989 0.81 BERMUDA TRUST (FAR EAST) LTD. Circulating Unknown Foreign shareholder VALUE PARTNERS “A” FD 1,103,120 2,502,958 0.70 (B share) Note on relationship or concerted Among the top ten shareholders of the company, the State-owned Assets Office of Foshan City, the shareholder for state-owned shares has neither relationship with Youchang Lighting Equipment Trading Co., Ltd., Guangzhou, nor action of the top ten shareholder relationship with any other shareholder, nor the shareholder of concerted action set forth in the “Regulatory Method for Disclosure of Information on Change of the Shares of the Listed Company”. It is unclear whether there is any relationship with other circulating shareholders, or if there is any shareholder of concerted action set forth in the “Regulatory Method for Disclosure of Information on Change of the Shares of the Listed Company”. (3) The first major shareholder of the company is the State-owned Assets Office of Foshan City, which is one of the founder shareholders of the company holding 85,922,100 shares at the present, making up 23.97% of the total shares of the company. Except it, there is no other corporate shareholder in the company holding more than 10% of the total shares. 8 (4) Circulating shares held by the top ten shareholders Unit: share Names of shareholders Circulating shares held Type (A, B, H or other) at the year end (share) Baokang Consumer Goods Security Investment Funds A Share 6,468,891 Yinfeng Securities Investment Funds A Share 4,774,256 BTFE-VALUE PARTNERS INTELLIGENT B Share FD-CHINA B SHS FD 4,141,349 Yuyuan Securities Investment Funds A Share 3,976,036 #102 Combination of National Social Insurance Funds A Share 3,606,690 DBS VICKERS (HONG KONG) LTD.A/C CLIENTS B Share 3,502,737 Zhongji Investment Consultant Co., Ltd., Shanghai A Share 2,906,989 BERMUDA TRUST (FAR EAST) LTD. VALUE B Share PARTNERS “A” FD 2,502,958 Alfred K. N. Chong B Share 2,415,500 Haifutong Selected Security Investment Funds A Share 2,097,843 Note on relationship or concerted It is unclear whether there is any relationship with other circulating shareholders, or if there is any shareholder of concerted action set forth in the “Regulatory Method for action of the top ten shareholder Disclosure of Information on Change of the Shares of the Listed Company”. IV. Directors, Supervisors, Senior Management Personnel and Staffs (I) Directors, supervisors and senior management personnel 1. General 9 Name Sex Age Post Term of offices Shares held (numbers) Term of offices Year start Year end Zhong Xincai M 61 Chairman of the Board of Directors, Jun. 2001 – Jun. 2004 74,250 134,850 Incentive funds General Manager Alfred K. N. M 52 Vice Chairman of the Board of Directors Jun. 2001 – Jun. 2004 2,388,700 2,415,500 Purchased from market Chong (B share) (B share) Liu Xingming M 41 Executive director, Vice General Manager Jun. 2001 – Jun. 2004 21,780 50,900 Liang Weidong M 41 Director Jun. 2001 – Jun. 2004 Shen Weiqiang M 54 Director Jun. 2001 – Jun. 2004 Ye Zaiyou M 48 Director Jun. 2001 – Jun. 2004 Liang Zhen M 66 Independent Director Jun. 2001 – Jun. 2004 Wu Jianhong F 57 Independent Director May, 2002 – Jun. 2004 Chen Ziyun F 40 Independent Director May, 2003 – Jun. 2004 Huang M 53 Chairman of the Board of Supervisors, May, 2003– Jun. 2004 Guanxiong Chairman of the Labor Union Tan Shengzhi M 55 Supervisor Jun. 2001 – Jun. 2004 33,000 39,500 Incentive funds Huang Yazheng M 61 Supervisor Jun. 2001 – Jun. 2004 31,350 37,750 Incentive funds Zhang Chaoyang M 39 Supervisor Jun. 2001 – Jun. 2004 — — Chen Guanbiao M 55 Supervisor Jun. 2001 – Jun. 2004 — — Ou Muben M 54 Vice General Manager 33,000 53,800 Incentive funds Guo Jieming M 54 Vice General Manager — — Ma Yijun M 35 GM assistant — 17,400 Incentive funds Liang Weiqiang M 46 GM assistant — 17,600 Incentive funds Lin Yihui M 50 Secretary of the Board of Directors — 12,700 Incentive funds Wang Shuqiong F 41 Financial chief — 13,960 Incentive funds Mr. Ye Zaiyou is appointed the Chairman of the Board of Directors of Wuzhuang Color Glazed Tiles Factory in Nanhai, the shareholder unit of the company and one of its founder shareholder. This factory is a popularly-run enterprise. 2. Annual remuneration. (1) The remuneration of directors, supervisors and senior management personnel of the company shall be determined in accordance with the program approved by the Board of Directors, depending on their respective position, post and task completed. The total annual remuneration of the current directors, supervisors and senior management personnel is RMB 1,290,000, and the total remuneration for the top three directors (also the senior management personnel) is RMB 700,000. (2) During the report period, Mr. Liang Zhen, Ms Wu Jianhong and Ms Chen Ziyun, the 10 independent directors of the company, have received no subsidy and other welfare from the company, but have been refunded the expenses on transportation and board and lodging for attending the Board meeting of the company. In the year to come, the company will give them the applicable welfare treatment according to the relevant regulations and the actual situation. (3) Division of annual remuneration for directors, supervisors and senior management personnel of the company: one between RMB 350,000 and 380,000, three between 100,000 and 200,000, and five between 50,000 and 100,000. (4) Alfred K. N. Chong, the Vice Chairman of the Board of Directors, directors Liang Weidong, Shen Weiqiang and Ye Zaiyou, and supervisors Zhang Chaoyang and Chen Guanbiao, have received neither remuneration nor subsidy from the company. Except for Ye Zaiyou who receives the remuneration from the shareholder unit as a shareholding director, no other director or supervisor has received any remuneration or subsidy from the shareholder unit and any other affiliated unit, but received the remuneration from his own work unit. 3. Director, supervisor and senior management personnel resigned during the report period. Name Former Post Reason of Resign Ou Muben Executive Director Resign from his post of director because he is also the senior management personnel (II) Staffs The company has the total staff members of 8400, including 7700 production personnel, 115 sales personnel, 350 technical personnel, 23 financial personnel, and 40 administrative personnel. There are 524 staff graduated from universities, colleges and polytechnic schools, and 222 retired staff. V. Administration Structure of the Company 1. Administration of the company. The company has constantly perfected its legal entity administration structure according to the relevant regulations and requirements of the “Company Law”, the “Securities Law” and the China Securities Regulatory Committee after its listing, standardized the operation of the company, and set out the relevant rules and management systems. According to the requirements in the “Administration Rules for Listed Companies” issued by the China Securities Regulatory Committee and the National Economic and Trade Committee on Jan. 7, 2002, the administration conditions of the company comply with the regulations concerned. (1) Shareholders and Shareholders’ General Meeting: The company has made the “Articles of 11 Association” of the company and the “Rules of Debate of Shareholders’ General Meeting”, to guarantee the legal rights and interests and equality of all shareholders, especially the medium and minority shareholders, strictly notify the shareholders’ meeting at the request, convene the Shareholders’ General Meeting, enable the shareholders to exercise their right to vote, and ask the attorney to present the meeting for witness. (2) Controlling shareholder and listed company: the first shareholder of the company is the State-owned Assets Office of Foshan City, which has not overstepped the rights and duties of the Shareholders’ General Meeting and the Board of Directors, nor directly or indirectly interfered the decision-making, production and business operation of the company. The Board of Directors, Board of Supervisors and internal organizations of the company have all carried out the independent operation in personnel, assets, business, finance and organizational structure, separated from the first shareholder. (3) Directors and Board of Directors: the nomination and election of the directors shall comply with the “Articles of Association” of the company. The number and member constitution of the Board of Directors shall meet the requirements of relevant laws and regulations, and the directors can faithfully, sincerely and diligently perform their duties. The company has worked out the “Rules of Debate of the Board of Directors”, to guarantee the high-efficient operation and scientific decision-making of the Board of Directors. The company has appointed three independent director during the report period, making up one third of the total numbers in the Board of Directors. (4) Supervisors and Board of Supervisors: the company has set up the “Rules of Debate of the Board of Supervisors”, and the number and member constitution of the Board of Supervisor shall meet the requirements of relevant laws and regulations. The supervisors shall perform their duties, and independently and effectively make the supervision and inspection conscientiously. (5) Performance evaluation and incentive and restriction system: the company shall appoint the managers in any open and democratic way, which complies with the provisions of laws and regulations. It has already established the open and democratic performance evaluation standard and incentive and restriction system, to attract more talents and stabilize the managers. (6) Parties at interest: the company and its parties at interest including the creditors, employees, consumers and suppliers complement to each other for mutual promotion and development. The company can fully respect and maintain the legal rights and interests of its parties at interest, and actively cooperate with them, to promote the constant and health development of the company. (7) Information disclosure and transparency: the company shall designate the special personnel to disclose the information, receive the shareholders and answer their questions. In such a way, the company will truly, accurately, completely and timely disclose the information concerned, making sure that all shareholders shall have the equal opportunities for the information. 12 2. Performance of duties of the independent director. Liang Zheng, Wu Jianhong and Chen Ziyun, the independent directors of the company, have carefully performed their duties as the independent directors since they took their posts. They have attended all four board meetings held this year, made the preparations and studies before hand after receiving the notice, and fully put forward their personal opinions to earnestly maintain the overall interests of the company. 3. Relationship between the company and the first shareholder. The company has been separated from its first shareholder, the State-owned Assets Office of Foshan City in business, personnel, assets, organization and finance. The company has the independent and complete business and autonomous operation ability, and has the well-distributed supply and sales channels. All employees are recruited by the company itself, and there is no employee of the first shareholder taking any post in the company. With complete assets, clean legal properties, and independent organization, the company is an integrated legal entity. As for the finance, the company has set up the account of its own, and carries out the independent operation and independent auditing. 4. Assessment and evaluation for senior management personnel during the report period and the execution of the incentive system. The Remuneration and Assessment Commission of the Board of Directors of the company has examined the operating result of the year according to the regulations in the “Implementation Plan for Share Incentive Funds for Senior and Middle-Rank Management Personnel of Foshan Electrical & Lighting Limited Company” passed by the Shareholders’ General Meeting of the company during the report period, appropriated RMB 20.8 million as the share incentive funds, appointed the intermediary unit to set up the enforcement regulations for share incentive funds, drawn up the allocation standard of personal incentive funds for senior and middle-rank management personnel and business and technical backbones based on assessment and appraisal, and submitted it to the Board of Directors of the company for approval. The company has fixed the shares purchased by the incentive funds. 13 VI. Shareholders’ General Meeting The Shareholders’ General Meeting of 2002 was convened in the conference room on the third floor in North Area of the company on May 21, 2003. 1. Convene the Shareholders’ General Meeting. The announcement for convening the Shareholders’ General Meeting of 2002 of the Board of Directors of the company was published 30 days in advance on the China Security, Security Times, Ta Kung Pao (in Hong Kong) and Foshan Daily on Mar. 28, 2003. The Board of Directors of the company shall be responsible for convening the Shareholders’ General Meeting of 2002. There are 72 shareholders and proxies of shareholders attending the meeting, representing 127,496,618 shares, making up 35.57% of total capital stocks. Among them, there are 11 shareholders of B share, representing 2,594,702 shares of B share, making up 0.72% of total capital stock and complying with the relevant provisions in the “Company Law” and the “Articles of Association” of the company. 2. Resolution of Shareholders’ General Meeting. The Shareholders’ General Meeting of 2002passed 12resolutions one by one by voting. The announcement for the resolution of the Shareholders’ General Meeting was published on China Security, Security Times, Foshan Daily and Ta Kung Pao (in Hong Kong) on May 22, 2003. Director Deng Hongping, the lawyer from Huafa Law Firm, Guangdong presented the shareholders’ meeting on that day, and declared on the spot that the entire course of this Shareholders’ General Meeting and the reports and resolutions passed by the meeting are all legally effective. (1) To review and pass the Operation Report of the Board of Directors in 2002. 127,496,618votes for, making up 100% of the shares represented by the shareholders attending the meeting, including 2,594,702 shares of B share. Neither vote against nor vote abstention. (2) To review and pass the Business Report of the General Manager in 2002. 127,496,618votes for, making up 100% of the shares represented by the shareholders attending the meeting, including 2,594,702 shares of B share. Neither vote against nor vote abstention. 14 (3) To review and pass the Operation Report of the Board of Supervisors in 2002. 125,440,313 votes for, making up 98.399% of the shares represented by the shareholders attending the meeting, including 2,594,702 shares of B share. 2,056,305 votes against and no vote abstention. (4) To review and pass the Financial Report and the Profits Distribution Plan in 2002. 127,496,618votes for, making up 100% of the shares represented by the shareholders attending the meeting, including 2,594,702 shares of B share. Neither vote against nor vote abstention. The Profits Distribution Plan in 2002: the net profit audited by Zhengzhong Zhujiang Certified Public Accountants is taken (lower than that audited by KPMG Certified Public Accountants in HK). The minimum net profit realized by the company in 2002 is RMB 204,819,357.27, and the profit available for distribution to shareholders this year after deducting 10% of legal surplus, 10% of public welfare funds and 5% of arbitrary earned surplus is RMB 222,867,665.55 (including RMB 69,253,147.60 as the undistributed profits of last year). Based on 358,448,259 shares of capital stock at the end of 2002, the company will distribute RMB 4.20 (including the tax. Dividends for B share shall be paid after being converted into HK dollar) as the cash dividend for every 10 shares to all shareholders. The total dividend actually paid is RMB 150,548,268.78, and the remaining RMB 72,319,396.77 will be carried forward to the next year. There will be no increase of capital stock transferred from surplus in 2002. (5) To pass the resolution on making the adjustment for some members of the Board of Directors and electing Ms. Chen Ziyun as the Independent Director. 127,496,618votes for, making up 100% of the shares represented by the shareholders attending the meeting, including 2,594,702 shares of B share. Neither vote against nor vote abstention. (6) To pass the resolution on amending the some articles in the “Articles of Association” of the company. 127,496,618 votes for, making up 100% of the shares represented by the shareholders attending the meeting, including 2,594,702 shares of B share. Neither vote against nor vote abstention. (7) To pass the resolution on jointly developing the spark plug products by RMB 50 million as the self-possessed funds. 120,773,049 votes for, making up 94.73% of the shares represented by the shareholders attending the meeting, including 2,594,702 shares of B share. No vote against, and 6,723,569 votes abstention. 15 (8) To pass the resolution on jointly developing the kinescopes for visual intercom doorbells with RMB 10 million as the self-possessed funds. 127,445,918 votes for, making up 99.96% of the shares represented by the shareholders attending the meeting, including 2,594,002 shares of B share. 45,700 votes against, and 5000 votes abstention. (9) To pass the resolution on increasing USD 1 million as the self-possessed funds to introduce the equipment for metal halogen lamps. 127,496,618 votes for, making up 100% of the shares represented by the shareholders attending the meeting, including 2,594,702 shares of B share. Neither vote against nor vote abstention. (10) To pass the resolution on expanding the production for ordinary lamps, miniature automotive lamps and fluorescent lamps with the self-possessed funds. 127,491,618 votes for, making up 99.999% of the shares represented by the shareholders attending the meeting, including 2,594,702 shares of B share. No vote against , and 5000 votes abstention. (11) To pass the resolution on developing the new lamps and fittings for metal halogen lamps, grid lamps, T6 and T4 lamps with RMB 50 million as the self-possessed funds. 127,496,618 votes for, making up 100% of the shares represented by the shareholders attending the meeting, including 2,594,702 shares of B share. Neither vote against nor vote abstention. (12) To pass the resolution on renewing Zhengzhong Zhujiang Certified Public Accountants in Guangdong and KPMG Certified Public Accountants in Hong Kong as the financial accounting institutes of the company in 2002. 127,496,618 votes for, making up 100% of the shares represented by the shareholders attending the meeting, including 2,594,702 shares of B share. Neither vote against nor vote abstention. 3. Change and replacement of directors and supervisors. Ms. Chen Ziyun was elected the independent director of the company on the Shareholders’ General Meeting of 2002 held on May 21, 2003. The application of Mr. Ou Muben for resigning from his post of the director because he is the senior management personnel at the same time was approved. The experience of Ms. Chen Ziyun, the independent director, was published on the China Security, Security Times, Ta Kung Pao (in Hong Kong) and Foshan Daily on Mar. 28, 2003. 16 VII. Report of the Board of Directors (I) Brief analysis of financial status The company has made a steady business development during the report period, without any significant change on the main financial indices. (II) Business operation of the company. 1. Main business scope and business operation of the company: the company mainly produces and sells various electro-optical products and auxiliary lighting products. Its products mainly include the ordinary bulbs, decorative bulbs, iodine-tungsten lamps, bromine-tungsten lamps, single-end lamps, automobile lamps, motorcycle lamps, high-tension mercury lamps, high-tension Na lamp, metal halide lamps, T8 and T5 fine-caliber and highly energy-saving fluorescent lamps, and reflection cup, as well as the auxiliary lighting accessories mainly for T8 and T5 energy-saving lamps. Despite the Gulf War and SARS in 2003, because the managing leaders of the company paid even greater efforts to surmount the difficulties in all aspects, the company has made a constant and fast development in its production and business operation, gradually strengthen its market competitive power, and continuously improved its economic growing speed and benefit. Meanwhile, according to the investment project examined and approved in the Shareholders’ General Meeting in the first half year, the company has decided to invest RMB 600 million to set up Foshan Electric and Lighting Industrial Park in Cangjiang Industrial Park in Gaoming District. It has already taken over the land in Sep., and made and plan and start the construction in Oct. By now, the construction for basic facilities and the arrangement in environmental protection is under progress, the and project will be partially put into operation at the end of 2004, greatly increasing the production capacity of the company. In 2003, the company has made 864 million bulbs in total, increasing by 9.89% than that of the last year, and increased its gross industrial output value by 8.54%. The main business income has reached RMB 1020 million, increased by 6.63% than that of last year, and the sales from export has reached USD 39.08 million, increased by 16%. Moreover, the company has realized the total profits of RMB 270 million, 11.27%more than that of last year, and realized the net profits of RMB 226 million, growing by 10.5%. The company continues to keep the advantageous trend of constant and stable development, and there is no change of its main business compared with last year. 17 2. Business operation and results of affiliated enterprise controlled and invested by the company: Wuzhang Bulbs Factory, Nanhai, is an affiliated enterprise controlled by the company, with its registered capital of RMB 3 million. It mainly produces ordinary lighting bulbs, motorcycle bulbs and high-pressure mercury bulbs, as well as auxiliary semi products. QL Lamps and Components Limited, Foshan is a Sino-foreign joint venture invested by the company, with the registered capital of USD 1.8 million. It mainly produces special optical sources and lighting fittings such as bromine-tungsten lamp. Liangke Investment Co., Ltd., Shenzhen, was incorporated in Nov., 2000, with the registered capital of RMB 80 million. Foshan Electrical & Lighting has made investments of RMB 30 million in total, making up 37.5% of the capital stock of such company. Liangke mainly engages the investment of high-tech industry, operation of the establishment funds of other investment companies, and investment consultant. By nearly three year of capital operation, it has achieved a certain results, although it has had a loss of RMB 3.28 million during the report period. All these three enterprises have normal production, standard operation and fine achievements. Besides, the company has also made less investments in China Everbright Bank, Bank of Communications, Fochen Highway in Foshan and Zhujiang Property Management Company in Guangzhou. All these enterprises are of standard management, fast business development and fine benefits, and have given the considerable investment return to the company based on their actual operations. 3. Main suppliers and clients: the purchasing amount of the company with the top five suppliers have made up 16.83% of the total purchasing amount of the year, and the sales amount of the top five clients made up 15.41% of the total sales of the company. 4. Existing operational problems and remedies of the company: first is the rise in price of raw materials. The prices of production materials in the market have risen since the last half of 2003, which has increased the production cost. Second is the electricity supply for the enterprise. Because it is difficult to guarantee the industrial power supply due the pressure on electricity in Guangdong Province, it may adversely affect the production of the company to a certain extent. Thirdly, the supply in the domestic market for photo-electric products still exceeds the supply, making the market and price competition more and more violent. Moreover, some lawbreaking merchants have imitated our famous products and the patent package, which also adversely affects our sales and prestige. Facing such difficulties, all staff in the company have united together, smoothed away the difficulties, and made all efforts for development and advancing. To overcome these problems, the company shall (i) greatly develop technical innovation, improve the process and production efficiency, reduce the staff and promote the efficiency at the same time, and reduce the production cost of products; (ii) control the purchase of raw materials, choose the most suitable materials, reduce the purchase price of raw materials, quicken the circulation of funds, and improve the use 18 efficiency of funds; (iii) expand the production scale, improve the product quality and strengthen the competitive force. The company will quicken its step to introduce the equipment, produce the new products centering the fine-caliber, highly energy-saving and high-tech T8 and T5 fluorescent lamps, make T8 and T5 fluorescent lamps as the leading product of the company, and expand the market coverage; and (iv) actively coordinate with the relevant legal departments, and crack down the imitations by laws. Meanwhile, the company will take all effective measures to strengthen the imitation-free ability of its products. (III) Investment of the company. 1. Use of funds raised (1) Funds put into operation: in the last half of 2000, the company has actually raised RMB 667 million by issuing more shares, and invested in the 9 investment projects disclosed in the Prospectus (except the supplementary current funds) without any change. As at Dec. 31, 2003, RMB 632 million has already been invested, with RMB 34.64 million raised funds remained and deposited in the special account for funds raised by shares established by our company with the Bank of China, Foshan Branch. The investment projects and use of funds are detailed as follows: Unit: RMB 10,000 Item Project (in short) Investment Investment Cumulative Funds remained subscribed of this term investment 1 T8 21,575.5 2,745 22,618 -1,042 2 T5 19,200 1,604 12,869 6,331 3 Double loop 2,940 317 2,700 240 4 Test center 2,962 316 3,314 -352 5 Three kilns 2,920 1,296 3,332 -412 6 Tube-pulling production line 2,944 319 2,345 599 7 Filament and lead 2,950 1,665 4,806 -1,856 8 Power facilities 2,900 419 2,880 20 9 Environment & fire-fighting 2,800 101 2,863 -63 10 Current funds 5,500 1,040 5,500 0 Total 66691.5 9,822 63,227 3,464 19 (2) Progress of investment projects: the projects for T8 energy-saving fluorescent lamps have completed, with 16 production lines introduced and put into production all within this year. The company has also introduced three production lines for T5 fluorescent lamps, which have been put into production. The facilitating projects including the test center for fluorescent lamps, kilns, tube-pulling lines, filaments and leads and power facilities, and auxiliary environmental protection and fire-fighting engineering have largely completed. The company plans to further introduce one production lines for T5 fluorescent lamps, and has parts of funds unused. It will introduce the equipment and put them into operation as soon as possible in line with the market situation this year. (3) Benefits from investment projects: there were three production lines for T8 fluorescent lamps before raising the funds. Together with the 16 ones just put into production, there are currently 19 under production, increasing the monthly output of T8 fluorescent lamps to 12 million pieces. There are also three production lines for T5 fluorescent lamps, making its monthly output to 1 million pieces. The demand on the fluorescent lamps market is still vigorous, and the T8 and T5 fluorescent lamps of the company are still out of demand. The sales of T8 and T5 in 2003 are 116.91 million pieces, 31.18% more than those in 2002, and earning the profits of 27.45% more. 2. Investment by self-possessed funds during the report period. The company convened its Shareholders’ General Meeting of 2002 during the report period, and resolved and approved to invest five projects by its self-possessed funds of more than RMB 500 million within three to five years. All these projects have been launched already in the first half of 2003. The newly developed projects of spark plug and kinescope for visual doorbell are in the trial production. We have signed the contract for metal halogen lamp product, to introduce more equipment from US in Jul., 2004 (the equipment introduced in 2002 have been put into operation in the first half of 2003). The company has made more investments to expand the production of ordinary bulbs, miniature automotive lamps and fluorescent lamps as planned, and start to produce all kinds of new lamps and accessories sold together with our optical products. (IV) Financial situation and business results. The financial target of the company completed and the main reasons for change with last year: Unit: RMB10,000 Target At end of 2003 At end of 2002 Change Proportion of change (%) Total assets 241329 234,788 6541 2.78 Shareholders’ equity 218924 211188 7736 3.66 Main business profit 36483 35,384 1099 3.11 Net profits 22633 20,482 2151 10.5 Net increase of cash & cash -13487 10,109 -23596 -233.41 20 equivalent 21 The total assets have increased by RMB 65.41 million, mainly due to the increase of shareholders’ equity. The shareholders’ equity has increased by RMB 77.36 million, mainly due to the profit distribution of this year. The main business profits have increased by RMB 10.99 million, mainly due to the continuous increase of sales income this year. The net profits have increased by RMB 21.51 million, mainly due to the increase of main business profits, and the reduce of the period charge. The cash and cash equivalent have reduced by RMB 235.96 million, mainly due to the increase of fixed assets. (V) Business plan in the year to come. (1) Speed up the construction of Foshan Electrical & Lighting Industrial Park in Gaoming District. In 2004, the company will continue to carry out the investment projects examined and approved in the Shareholders’ General Meeting held last year, pay attention to the construction of Foshan Electrical & Lighting Industrial Park in Fuwan Town, Gaoming District (to level the land, build up the factory building and purchase the equipment), and try its best to put the project partially into operation at the end of the year, and to increase the production scale and the benefits at the same time. (2) Make the production well for major projects. The company will quicken the equipment introduction for projects concerned, continue to adjust and move the relevant workshops, and expand the production in 2004. It will expand the production scale for T8, T5, energy-saving lamps, automotive lamps, miniature automotive lamps, ordinary bulbs, single-end lamps, decorative lamps, metal halogen lamps and lighting accessories of different sizes, speed up the development to promote the production scale, and seize the advantageous opportunity in the market competition. (3) Make technical innovation and new product development. The new product development shall be a new growth point for profits of the company, as well as the basic condition for enterprise development. In the year to come, the company will speed up the technical innovation, and develop new varieties and new models for fluorescent lamps, fine-caliber energy-saving lamps, metal halogen lamps and lighting accessories, to suit the demand on the market. Meanwhile, it will strengthen the quality control, constantly improve the equipment and production technology, and steadily promote the production quality. (4) Strengthen the cost control, and improve the market competitive power of products. The company will further perfect and carry out the arrangement for production material consumption, personnel quota, piecework plan and saving plan. It shall control the raw material cost and reduce the consumption. It shall also improve the energy-consuming equipment, and improve the efficiency of the energy equipment, to reduce the consuming costs of water, electricity, fuel and gas. 22 (5) The company will promote the sales by all kinds of measures. First of all, it will develop the secondary market and rural market, and expand the coverage for sales. Secondly, it shall mobilize the activity of dealers, and develop the potentiality of distributors, to guarantee the successful sales of products. Thirdly, the company will broadly promote the brand image of the company by all channels. (6) Increase the export sales and production with OEM certification. We will further expand the export sales and production with OEM certification in 2004, give full play to our brand prestige as the “King of Lamps” in China, as well as large-scale production, to promote our export sales and production with OEM certification to a high level, and create more profits for the company. (7) Arrange and implement the share incentive funds according to the “Implementation Plan for Share Incentive Funds for Senior and Middle-Rank Management Personnel”, standardize it and carry it in real earnest, stabilize and attract more talents, and promote the long-term steady development of the company. (VI) Routine operation of the Board of Directors. 1. Board meetings and resolutions during the report period: the Board of Directors has held four board meetings within this year. The contents of the meetings and resolutions are: (1) The twelve meeting of the 3rd Board of Directors of this company was held on Mar. 26, 2003. Nine directors of the nine who should attend the meeting actually attended the meeting (including two independent director). All supervisors of the Board of Supervisors and senior management personnel of the company attended the meeting as the observers. The attendants discussed the relevant issues carefully, and passed the following resolutions: Examine and pass the 2002 Annual Report and Summary of 2002 Annual Report of the company (both Chinese and English versions) Examine and pass the operation report of the Board of Directors of 2002. Examine and pass the business report of the General Manager of 2002. Examine and pass the final financial report and the draft profits distribution plan of 2002. According to the net profit audited by Zhengzhong Zhujiang Certified Public Accountants, Guangdong (which is lower than that audited by KPMG Certified Public Accountants in Hong Kong), the minimum net profits realized of the company in 2002 is RMB 204,819,357.27. The profits available for distribution to shareholders this year after deducting 10% of legal surplus, 10% of public welfare funds and 5% of arbitrary earned surplus is RMB 222,867,665,55 (including RMB 69,253,147.60 as the undistributed profits of last year). 23 Based on 358,448,259 shares of capital stock at the end of 2002, the Board of Directors of the company will distribute RMB 4.20 (including the tax. Dividends for B share shall be paid after being converted into HK dollar) as the cash dividend for every 10 shares to all shareholders of A and B shares. The total dividend actually paid is RMB 150,548,268.78, and the remaining RMB 72,319,396.77 will be carried forward to the next year for distribution. There is no increase of capital stock by surplus in 2002. Examine and pass the resolution on developing and producing spark plugs as vehicle igniters with RMB 50 million as the self-possessed funds, which will be sold together with the automotive bulbs and motorcycle bulbs made by the company. The spark plugs are the igniters used in automobiles and motorcycles, which are the vehicle fittings like the automotive bulbs and motorcycle bulbs. In the beginning of 2000, the Board of Directors has approved the spark plug project, yet no investment was made because of the insufficient conditions. Today, fast developing market demand for motor vehicles and the optimum prospect for automobiles, motorcycles and vehicle fittings in the coming twenty to thirty years show that we can make use our prestigious brands of “Foshan Electrical & Lighting”, “FSL” and “QL” and our existing sales network, to promote the development of spark plugs for vehicles. Therefore, the company plans to invest RMB 50 million to develop and produce spark plug products, and sell them together with the automotive bulbs and motorcycle bulbs. Examine and pass the resolution on jointly developing the kinescopes for visual intercom doorbells with RMB 10 million as the self-possessed funds. The kinescope for visual intercom doorbell is the 4” flat black-and-white kinescope largely used for visual intercom doorbell and visual telephone. It can realize the two-way visual and audio communication indoors and outdoors through the close-circuit monitor system by infrared scanning. It is provided by the relevant document issued by the Ministry of Construction that all newly developed commercial dwellings and quarters must provide the visual doorbell for each house. By now, the demand for 4” kinescopes exceeds the supply, and rises by 20% each year, with bright market prospect. The company plans to invest RMB 10 million (making up 80% of the total shares), to jointly develop and produce the kinescopes for visual intercom doorbells, creating the new point for profit growth for the company. 24 Examine and pass the resolution introducing the metal halogen lamp equipment and expanding the production for metal halogen lamp with USD 1 million as the self-possessed funds. The Shareholders’ General Meeting held in May, 2002 approved to introduce the production equipment and technical software for metal halogen lamps by investing USD 3.6 million. By nearly a half year’s efforts, the company has completed the abroad training of technical personnel, as well as the installation and commissioning of the equipment. The new project will be formally put into operation soon, and the new metal halogen lamps will appear in Guangzhou Spring Commodity Fair. With high technical content, the metal halogen lamp will become the key product in the Lighting Project, and has the high added value and broad market prospect. The company plans to invest USD 1 million more to introduce the equipment for metal halogen lamps, to expand the production scale and create more benefits to the company. Examine and pass the resolution on expanding the production of ordinary bulbs, miniature automotive lamps and fluorescent lamps with the self-possessed funds. To occupy greater shares in the electro-optical market, strengthen its market competition, give full play to its existing economic strength and the advantages in product quality and price, and implement the synchronized growth of both production scale and benefit, the company plans to expand the production of ordinary bulbs, miniature automotive lamps and fluorescent lamps with RMB 456.35 million as the self-possessed funds. Ordinary bulbs: invest RMB 88.9 million to increase the annual output from the current 300 million pieces to 600 million pieces (including the bulb blower fan, furnace, factory building, production line, warehouse, high-pressure blower and tube machine). Miniature automotive lamps: invest RMB 36 million to increase the annual output from the current 200 million pieces to 400 million pieces (36 production lines to be increased). Because the existing old factory building can be used, no investment shall be made for the factory building and land. Fluorescent lamps: invest RMB 204.5 million to increase the annual output from the current 150 million pieces to 250 million pieces (including 14 production lines for T8, factory building, warehouse, high-pressure blower fan, spiral filament forming machine and filament leading machine). Besides, RMB 26.95 million will be invested for the basic facilities, petroleum gas station and power station for the above three projects. The current funds of RMB 100 million shall be provided. 25 Examine and pass the resolution on developing the new lighting accessories and fittings for high-tech energy-saving metal halogen lamps, grid lamps, T6 and T4 with RMB 50 million as the self-possessed funds. In the past two years, our lighting accessories for T8 and T5 fluorescent lamps are sold very well, making a fast development and the considerable economic benefits. At the time when the company continuously increases its new electro-optical products such as the metal halogen lamps, grid lamps, T6 and T4 lamps, we decide to invest RMB 50 million to speed up the pace to develop the corresponding lighting accessories, making the products of complete varieties and different sizes for complementary sales. Resolution on adjusting some members of the Board of Directors and electing the new independent director. It is set forth in the Articles of Association of the company that the Board of Directors of the company is currently composed of 9 directors, including two independent directors. According to the requirements of the China Securities Regulatory Committee in the “Instruction Opinion for Independent Director System in the Listed Company”, there must be one third of independent directors in the Board of Directors of any listed company before Jun. 30, 2003. Therefore, the company has adjusted some members of the Board of Director to increase one independent director while maintaining the number of 9 directors set forth in the Articles of Association of the company. In such circumstance, Mr. Ou Muben, the executive director, proposed to resign from his post as the executive director because he is also the senior management personnel of the company as the same time. By recommendation and nomination, Ms. Chen Ziyun has become the candidate for independent director in law affairs of the company (attached with her personal biography). Resolution on amending some articles in the “Articles of Association” of the company. Amend the articles 13, 93 and 113 based on the actual situation of the company according to the requirements in the “Management Rules for Listed Company” and the requirements from the China Securities Regulatory Committee. --- Article 13: Verified by the company registration authority, the business scope of the company: research, develop and produce electro-optical products, electro-optical equipments, and electro-optical accessories, and sell such products on both the domestic and foreign markets; as well as the relevant engineering information service. 26 Changed to: Article 13: Verified by the company registration authority, the business scope of the company: research, develop and produce electro-optical products, electro-optical equipments, electro-optical accessories, electro-optical raw materials, lighting accessories and fittings, visual doorbells and fittings, electrical materials, and vehicle accessories, and sell such products on both the domestic and foreign markets; as well as the relevant engineering installation and information services. --- Article 93: the Board of Directors is composed of nine directors, including two independent directors (including one in accounting affairs), one Chairman of the Board and one Vice Chairman. Changed to: Article 93: the Board of Directors is composed of nine directors, including three independent directors (including one in accounting affairs and one in legal affairs ), one Chairman of the Board and one Vice Chairman. --- Article 112: The company has two independent director. Changed to: Article 112: The company has three independent directors. Decide to renew Zhengzhong Zhujiang Certified Public Accountants in Guangdong and KPMG Certified Public Accountants in Hong Kong as the financial accounting institutes of the company in 2003. Decide to hold the Shareholders’ General Meeting of 2002 on May 21, 2003 (Wednesday). (2) On Apr. 18, 2003, the 3rd Board of Directors convened its 13th meeting, and examined the resolutions by communications and faxes. Nine directors attended gave the votes for such resolutions, complying with the relevant provisions set forth in the “Company Law” and the “Articles of Association” of the company. The attendants examined and passed the report of the 1st quarter in 2003 of Foshan Electrical & Lighting Company Limited. (3) The 3rd Board of Directors of the company convened its 14th board meeting on Aug. 14, 2003, all nine directors who should attend the meeting attending the meeting (including three independent directors). All supervisors and senior management personnel of the company attended the meeting as the observers. The attendants reviewed and passed the following resolution unanimously: 27 Review and pass the interim report of 2003 and its summary of the company (in Chinese and English versions). Review and pass the interim profit distribution plan of 2003, and decide not to make any interim profit distribution, nor increase of capital stock by surplus. Ask the management personnel of the company to carry out the investment projects examined and approved in the Shareholders’ General Meeting earnestly, including the takeover of land, construction of factory building and purchaser of equipment, to ensure the synchronized development of production scale and benefits. (4) On Oct. 21, 2003, the 3rd Board of Directors convened its 15th meeting, and examined the resolutions by communications and faxes. Nine directors attended gave the votes for such resolutions, complying with the relevant provisions set forth in the “Company Law” and the “Articles of Association” of the company. The attendants examined and passed the report of the 3rd quarter in 2003 of Foshan Electrical & Lighting Company Limited. 2. Execution of the Board of Directors to the resolutions of the Shareholders’ General Meeting: the Board of Directors has carefully executed the resolutions of the Shareholders’ General Meeting. All twelve resolutions passed in the Shareholders’ General Meeting of 2002 have been carried out completely, and the Board of Directors has organized and implemented the plan of share incentive funds for senior and middle-rank management personnel of the company under the authorization. (VII) Draft profits distribution plan of 2003 According to the net profit audited by Zhengzhong Zhujiang Certified Public Accountants, Guangdong (which is lower than that audited by KPMG Certified Public Accountants in Hong Kong), the minimum net profits realized of the company in 2003 is RMB 226,325,007.49. The profits available for distribution to shareholders this year after deducting 10% of legal surplus, 10% of public welfare funds and 5% of arbitrary earned surplus is RMB 242,063,152.39 (including RMB 72,319,396.77 as the undistributed profits of last year) Based on 358,448,259 shares of capital stock at the end of 2003, the Board of Directors of the company will distribute RMB 4.60 (including the tax. Dividends for B share shall be paid after being converted into HK dollar) as the cash dividend for every 10 shares to all shareholders of A and B shares. The total dividend actually paid is RMB 164,886,199.14, and the remaining RMB 77,176,953.25 will be carried forward to the next year for distribution. There is no increase of capital stock by surplus in 2003. 28 The cash dividend paid to shareholders of B share shall be converted into HK dollars by the middle rate between RMB and HKD declared by the Bank of China on the first business day after the resolution of the Shareholders’ General Meeting. The above draft distribution plan shall be implemented upon the review and approval of the Shareholders’ General Meeting. (IX) Other items in report 1. China Security, Security Times, Foshan Daily (all for A share, in Chinese) and Ta Kung Pao in Hong Kong (for B share, in English) have been selected by the company as the newspapers for disclosing the relevant information. There is no change during the report period. 2. Zhengzhong Zhujiang Certified Public Accountants, Guangdong has made the special comments for the funds occupied by the shareholders and other related parties of the company. Special Comments for the Funds Occupied by the Shareholders and Other Related Parties of Foshan Electrical & Lighting Co., Ltd. GKSZZ (2004) № 3413463 To: Foshan Electrical & Lighting Co., Ltd. We have been authorized to audit your accounting statements in the fiscal year as at Dec. 31, 2003, and issued GKSSZ (2004) № 8438263 Audit Report. According to the relevant requirements in the “Notice on Standardizing the Funds Operation Between any Listed Company and Its Affiliated Parties and the Issues on Foreign Security of Any Listed Company” (ZJF (2003)№56), we have also audited the related transactions and funds operations between this company and its controlling shareholders and other affiliated parties, including to check the documents and accounting records of in the company concerning the related transactions, and inquiry with the responsible authority about your related transactions and funds operation. We found that: You, Foshan Electrical & Lighting Co., Ltd., has no related transactions such as funds operation with the top shareholder, the State-owned Assets Management Office of Foshan City and any other related party outside the consolidated statement. During our audit, we found that there is no matter mentioned in the “Notice on Standardizing the Funds Operation Between any Listed Company and Its Affiliated Parties and the Issues on Foreign Security of Any Listed Company” happened in this company, including to: 29 (1) Pay salary, welfare, insurance, advertisement and other expenses for the controlling shareholder and its related parties, or bear the costs and expenses with each other; (2) Borrow the funds of the company to the controlling shareholder and its related parties with or without the compensation; (3) Grant the trust loan to the related parties through the bank or the non-banking financial institute; (4) Authorize the controlling shareholder and its related parties to make the investment; (5) Issue the commercial acceptance without the actual transaction background for the controlling shareholder and its related parties; (6) Pay the debts for the controlling shareholder and its related parties. Zhengzhong Zhujiang Certified Public Accountants, Guangdong Guangzhou, PRC Certified public accountant in China: Jiang Hongfeng Certified public accountant in China: Chen Xiaogang Feb. 18, 2003 3. Special notes and independent opinion of the independent director on foreign security of the company: It is examined and verified that the company has provided no security for any shareholder of the listed company, the control subsidiary of the shareholder, the affiliated company of the shareholder, any other related party with less than 50% of shares held by this company, and any non-corporate unit or individual, and the control subsidiary of the company has no other foreign security either. 30 VIII. Report of the Board of Supervisors 1. Operation of the Board of Supervisors during the report period. During the report period, the Board of Supervisors has convened two meetings. The Chairman of the Board of Supervisors always attended the meetings of the Board of Directors and the management group, participated in the discussion of the significant policies of the company, reviewed and supervised the resolution and procedure of each board meeting and Shareholders’ General Meeting. The meetings convened by the Board of Supervisors: (1) The 6th meeting of the 3rd Board of Supervisors of 2003 was held on Mar. 26, 2003, with all five supervisors attending the meeting. Mr. Huang Yazheng, the Chairman of the Board of Supervisors presided the meeting. The attendants reviewed and passed the following resolutions: Examine and pass the 2002 Annual Report and Summary of 2002 Annual Report of the company. Examine and pass the operation report of the Board of Supervisors of 2002. Examine and pass the final financial report and the draft profits distribution plan of 2002. Elect the new Chairman of the Board of Supervisors. Because Mr. Mai Kanglin has resigned from post as the supervisor representing the workers of the company for any personal reason, Mr. Huang Guanxiong was elected as the supervisor representing the workers by the Labor Union Committee under the workers’ representative assembly. On the other side, as Mr. Huang Yazheng has resigned his post as the Chairman of the Board of Supervisors because of his old age, it is unanimously agreed by all members of the Board of Supervisors to elect Mr. Huang Guanxiong as the new chairman. Examine the audit report (without any reservation) issued by Zhengzhong Zhujiang Certified Public Accountants in Guangzhou and KPMG Certified Public Accountants in HK, and think that the financial report has objectively, truly and accurately reflected the financial status and business result of the company. (2) The 7th meeting of the 3rd Board of Supervisors of 2002 was held on Aug. 14, 2003, with all five supervisors attending the meeting. Mr. Huang Yazheng, the Chairman of the Board of Supervisors presided the meeting. The attendants reviewed and passed the following resolutions: Review and pass the interim report of 2003 and its summary of the company (in Chinese and English versions). 31 Review and pass the interim profit distribution plan of 2003, and decide not to make any interim profit distribution, nor increase of capital stock by surplus. Agree with the management personnel of the company to carry out the investment projects examined and approved in the Shareholders’ General Meeting earnestly, including the takeover of land, construction of factory building and purchaser of equipment, to ensure the synchronized development of production scale and benefits. 2. Independent opinion of the Board of Supervisors. (1) Legal operation of the company: it can carry out the strict legal operation, strengthen the standardized construction, set up the rules and systems to perfect the management of the listed company, and further improve management level and standard construction of the company. The company has perfected its internal control system, carried out all management policies for the use of capital, investment project and business operation upon the discussion of the Board of Directors, and made the decisions in legal procedures after making the research and investigation, and studying the feasibility. Since the company set up the post of independent director two years ago, it has solicited the opinion of the independent director for some major decisions, to implement such decisions correctly and effectively, and achieve quite good economic benefits. The Board of Supervisors finds that neither director nor manager of the company has violated the laws, rules and regulations and the Articles of Association of the company or damage the interest of the company while taking his post. The directors and managers of the company abide by the laws and discipline, and being honest in performing their official duties, united and enterprising, actively making their efforts and contributions to the development of the company. (2) Inspect the financial status of the company. The Board of Supervisors believed that the audit reports and relevant notes made by Zhengzhong Zhujiang Certified Public Accountants, Guandong and KPMG in HK have truly reflected the financial situation and business results of the company. (3) The last actual investment with raised funds: The company has issued more A shares in the last half of 2000, and raised funds of RMB 667 million. By now, the company has invested in the 9 investment projects disclosed in the Prospectus (except the items of current funds), and the actual investment has no difference with the items disclosed in the Prospectus. As at Dec. 31, 2003, raised funds of RMB 632.27 million has already been invested, with RMB 34.64 million remained and deposited in the special account for funds raised by shares established by our company with the Bank of China, Foshan Branch. 32 The projects for T8 and T5 energy-saving fluorescent lamps have made the fast progress. In particular, the company has introduced 16 production lines for T8 fluorescent lamps, which have all been put into production. The company has also introduced three production lines for T5 fluorescent lamps. Most of the complementary projects such as the test center for fluorescent lamps, kilns, tube-pulling lines, filaments and leads, power facilities, and auxiliary environmental protection and fire-fighting works have been completed, some even surpassed the production target. Both the T8 and T5 fluorescent lamps of the company are sold very well on the market, and are still out of demand. (4) During the report period, our company has neither transaction for purchase and sales of assets nor the related transaction. (5) Zhengzhong Zhujiang Certified Public Accountants, Guangdong and KPMG Certified Public Accountants in HK have issued the audit report without any reservation to the financial report of the company of 2003. IX. Significant Events 1. There is no significant suit or arbitration of the company during the report period. 2. There is no matter on purchase, amalgamation and sales of assets of the company during the report period. 3. There is no significant matter on affiliated transaction of the company during the report period. 4. There is neither capital circulation, nor use of funds, nor foreign security between the company and the first shareholder and other related parties. 5. There is neither significant contract, including the trust, contract, lease of assets from any other company, nor trust, contract, lease of assets of out company by any other company, nor security affair, nor financing entrust. 33 6. No change has taken place to the domestic and foreign accountants firms of the company during the report period. The company continues to appoint Zhengzhong Zhuangjiang Certified Public Accounts, Guangdong and KPMG Certified Public Accountants in HK as its accountants firms. Zhengzhong Zhuangjiang Certified Public Accounts, Guangdong has served the company for continuous 10 years, while KPMG Certified Public Accountants in HK has served the company for continuous 8years. The remuneration paid by the company to such two accountants firms are the remuneration standard for financial auditing during the report period is RMB 300,000 to Zhengzhong Zhuangjiang Certified Public Accounts, Guangdong, and HKD 560,000 for KPMG in HK. 7. No company, the Board of Directors of the company or any director has been checked by the China Securities Regulatory Committee, or experienced the administrative sanction or notice of criticism by the China securities supervision committee, or the public condemn of any security exchange. 8. There is no significant event listed in Article 62 of the “Security Law” and Article 17 of the “Rules for Information Disclosure for Companies with Publicly Issued Shares” (trial), and any matter judged as the significant event by the Board of Directors of the company during the report period. 34 X. Financial Report (I) Audit report Report of the auditors to the shareholders of Foshan Electrical and Lighting Company Limited (Established in the People’s Republic of China with limited liability) Respective responsibilities of directors and auditors We have audited the accompanying consolidated balance sheet of Foshan Electrical and Lighting Company Limited (the “Company”) and its subsidiaries (the “Group”) as of 31 December 2003 and the related consolidated statements of income and cash flows for the year then ended on pages 2 to 27. These consolidated financial statements are the responsibility of the directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Basis of opinion We conducted our audit in accordance with International Standards on Auditing as promulgated by the International Federation of Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2003, and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards promulgated by the International Accounting Standards Board. KPMG Certified Public Accountants Certified Public Accountants Hong Kong, 26 March 2003 35 (II) Accounting statements. Consolidated Profit Statement Consolidated Balance Sheet Consolidated Cash Flow Statement (III) Notes on the financial statements 1. Significant accounting policies Foshan Electrical and Lighting Company Limited (the “Company”) is a company domiciled in the People’s Republic of China (“PRC”). The consolidated financial statements of the Company for the year ended 31 December 2003 comprise the Company and its subsidiaries (together referred to as the “Group”). (1) Statement of compliance The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) promulgated by the International Accounting Standards Board (“IASB”). IFRS includes International Accounting Standards (“IAS”) and related interpretations. (2) Basis of preparation The consolidated financial statements are prepared on the historical cost basis except that property, plant and equipment were stated at their revalued amount as stated in note 10 and investments held for trading were stated at their fair value. The accounting policies have been consistently applied by the Group. The preparation of financial statements in accordance with IFRS requires management to make 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 year. Actual results could differ from those estimates. (33) Basis of consolidation * Subsidiaries Subsidiaries are those enterprises controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control ceases. * Associate Associate is an enterprise in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group’s share of the total recognized gains and losses of the associate on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds the carrying amount of the associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations in respect of the associate. 36 * Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealized gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with the associate are eliminated, to the extent of the Group’s interest in the enterprise, against the investment in the associate. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. (4) Translation of foreign currencies Transactions in foreign currencies are translated to CNY at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into CNY at the foreign exchange rates ruling at that date. Foreign exchange differences arising on translation are recognized in the income statement. (5) Property, plant and equipment * Property, plant and equipment are stated at cost or valuation (see note 10) less accumulated depreciation and impairment losses (see note 1(l)). The cost of property, plant and equipment constructed by the Group includes the cost of materials, direct labor and an appropriate proportion of fixed and variable overheads. * When an asset’s carrying amount is increased as a result of a revaluation, the increase is credited directly to equity under the component of revaluation reserve. However, a revaluation increase is recognized as income to the extent that it reverses a revaluation decrease of the same asset previously recognized as an expense. When an asset’s carrying amount is decreased as a result of a revaluation, the decrease is recognized as an expense in the consolidated income statement. However, a revaluation decrease is charged directly against any related revaluation surplus to the extent that the decrease does not exceed the amount held in the revaluation reserve in respect of that same asset. Revaluations are performed periodically to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. * Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure is recognized in the income statement as an expense as incurred. * Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives, after taking into account their estimated residual values, of items of property, plant and equipment. 37 The estimated useful lives are as follows: Houses and buildings 3 to 25 years Machines and equipments 2 to 8 years Furniture, fixtures and office equipment 2 to 8 years Motor vehicles 5 to 10 years Assets are depreciated from the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed and ready for its intended use. (6) Lease prepayments Lease prepayments represent land use rights paid to the PRC’s land bureau. Land use rights are carried at cost and amortized on a straight-line basis over the respective periods of the rights which range from 40 years to 50 years. (7) Construction in progress Construction in progress represents properties under construction and equipment purchased prior to installation, which includes construction and acquisition costs, less impairment losses (see note 1(l)). Capitalization of these costs ceases and the construction in progress is transferred to fixed assets when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided in respect of construction in progress until it is completed and ready for its intended use. (8) Investments Listed investments held for trading are classified as current assets and are stated at fair value, with any resultant gain or loss recognized in the income statement. Other unlisted investments held by the Group are classified as being available-for-sale and are stated at cost, less provision for impairment losses (see note 1(l)). A provision is made where, in the opinion of management, there is an impairment in the value of an investment. The fair value of investments held for trading is their quoted bid price at the balance sheet date. Investments held for trading and available-for-sale investments are recognized/ derecognized by the Group on the date it commits to purchase/sell the investments. On derecognition, the difference between the net proceeds received or receivable and the carrying amount of the investments are accounted for in the income statement. (9) Inventories Inventories are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. 38 The cost of inventories is based on the weighted average principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads. (10) Trade and other receivables Trade and other receivables are stated at their cost less allowance for any amounts expected to be irrecoverable. All allowance is provided for based upon the evaluation of the recoverability of these accounts at the balance sheet date. (11) Cash and cash equivalents Cash and cash equivalents comprise cash balances and deposits with banks and other financial institutions, maturing within three months. (12) Impairment The carrying amounts of the Group’s assets, other than inventories (see note 1(i)), deferred tax assets (see note 1(o)) and financial assets stated at fair value, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in the income statement. * Calculation of recoverable amount The recoverable amount of assets is the greater of their net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. * Reversals of impairment An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if an impairment loss had been recognized. (13) Provisions A provision is recognized in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. 39 (14) Dividends Dividends are recognized as a liability in the period in which they are declared. (15) Income tax * Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognized in the income statement except to the extent that it relates to items recognized directly to equity, in which case it is recognized in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment of tax payable for previous years. Deferred tax is provided using the balance sheet liability method on all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes and the initial recognition of assets or liabilities which affect neither accounting nor taxable profit, and the differences relating to investments in subsidiaries to the extent that they will probably not reversed in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. (17) Revenue recognition * In relation to the sale of goods, revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, and no significant uncertainties remain regarding recovery of the consideration due, associated costs or the possible return of goods. * Dividend income is accounted for when the shareholder’s right to receive payment is established. * Interest income from bank deposits is accrued on a time-apportioned basis on the principal outstanding and at the rate applicable. (18) Operating lease payments Payments made under operating leases are recognized in the income statement on a straight-line basis over the terms of the respective leases. (19) Employee benefits Contributions to defined contribution retirement schemes are recognized as an expense in the income statement as incurred. 40 2 Revenue The principal activities of the Group are the manufacture and sale of electrical lightings. Revenue represents the invoiced value of goods supplied to customers, net of value added tax. 3 Segment reporting The Group’s profits are almost entirely attributable to its manufacture and sale of electrical lightings in the PRC. Accordingly, no segmental analysis is provided. 4 Other operating income 2003 2002 Rmb Rmb Income from sale of raw materials & packing materials 1,104,575 1,526,765 Rental income 352,473 268,721 Gain on disposal of land use rights - 4,847,080 Others 1,502,092 765,671 2,959,140 7,408,237 ========== ========== 5 Other operating expenses 2003 2002 Rmb Rmb Loss on disposal of property, plant and equipment 7,871,889 9,370,302 Others 440,412 2,187,596 8,312,301 11,557,898 ========== ========== 6 Personnel expenses 2003 2002 Rmb Rmb Salaries and staff welfare 108,389,722 113,370,743 Senior management incentive scheme payment 23,145,947 31,012,914 (note (i)) 8,185,405 6,021,513 Contribution to defined contribution plans (note (ii)) 139,721,074 150,405,170 ========== ========== 41 Notes: (i) Pursuant to a resolution passed in the Board Meeting held on 25 March 2002 and the approval by the shareholders in the Annual General Meeting (“AGM”) held on 16 May 2002, the Company established a Senior Management Incentive Scheme (the “Scheme”). According to the Scheme, incentive payments are to be made to the senior management when the Company’s return on net assets for the year is 6% or above, which is measured based on the Company’s annual net profit determined under PRC accounting standards. No incentive payments would be made if the return on net assets is less than 6%. The Scheme was effective from 2001 retrospectively. In 2002, provisions for incentive payments of RMB14 million and RMB17 million have been made in relation to the years of 2001 and 2002, respectively, and the amounts of provisions are included in the administrative expenses. (ii) Certain employees of the Group participate in a defined contribution retirement scheme operated by the PRC municipal government. The Group is required to contribute to the scheme at a rate of 15% (2002: 15%) of salary costs. Member of the retirement scheme is entitled to pension benefits equal to a fixed portion of the salary at the retirement date. The Group has no obligation to make payments in respect of pension benefits associated with this plan other than the annual contribution described above. 7 Net financial income 2003 2002 Rmb Rmb Interest income 10,782,610 6,225,334 Bank charges and other financial expenses (1,024,607) 1,611,844 Exchange loss (146,007) (208,376) Net financial income 9,611,996 4,405,114 ========== ========== 42 8 Net investment income 2003 2002 Rmb Rmb Gain on disposal of investments 5,281,552 14,559,122 Dividends income 2,163,070 3,053,523 Net unrealized gains/(losses) of investments held for trading carried at fair value Provision for diminution in value of 8,759,325 2,309,852 investment available-for-sale - (3,000,000) 16,203,947 16,922,497 ========== ========== 9 Income tax expense (a) Taxation in the consolidated income statement represents: 2003 2002 Rmb Rmb Current tax expense Provision for PRC income tax for the year 41,562,302 38,985,060 Underprovision of PRC income tax 2,745,229 - relating to prior years written back 44,307,531 38,985,060 Deferred tax expenses / (income) Origination and reversal of temporary difference 642,488 (1,578,114) (note 15) Total income tax expense in the consolidated 44,950,019 37,406,946 income statement ========== ========== The statutory PRC income tax rate applicable to the company is 33%. The Company was classified as a high technological enterprise in the Guangdong Province and a certificate of recognition of high technological enterprise, which was valid up to 31 December 2003, was issued to the Company by Guangdong Provincial Department of Science and Technology on 30 April 2001. Pursuant to a notice “Yue Di Shui Han [2001] No.410” issued by Guangdong Province Local Tax Bureau on 23 August 2001, the Company is entitled to a reduced tax rate of 15% with effect from 1 January 2001. In 2003, the certificate of recognition of high technological enterprise was renewed by Guangdong Provincial Department of Science and Technology and which is effective for a period of two years commencing 1 January 2004. Accordingly, the provision for PRC income tax for the year is calculated at the rate of 15% (2002: 15%) on the estimated assessable profits for the year. 43 (b) Reconciliation of effective tax rate: 2003 2002 Rmb Rmb Profit from ordinary activities before 279,547,095 255,183,375 Taxation Income tax using the PRC income tax rate 15% 41,932,064 15% 38,277,506 Non-taxable items (186,924) (1,812,608) Non-deductible expenses 66,062 788,737 Underprovision of current tax 2,745,229 - relating to previous years 363,589 153,311 Others 44,950,019 37,406,946 ========= ========= (c) Taxation in the consolidated balance sheet represents: 2003 2002 Rmb Rmb Balance at 1 January 28,945,157 28,096,753 Provision for PRC income tax for the year 41,562,302 38,985,060 Balance of PRC income tax provision 2,745,229 - relating to prior years (66,734,039) (38,136,656) Payments made during the year Balance at 31 December 6,518,649 28,945,157 ========== ========== 10 Property, plant and equipment Furniture, fixtures Machines and and office Motor Buildings equipments equipment vehicles Total Rmb Rmb Rmb Rmb Rmb Cost or valuation: At 1 January 2003 322,810,106 614,402,164 6,979,989 10,970,109 955,162,368 Additions 9,272,833 5,345,096 310,590 940,093 15,868,612 Transfer from construction in progress (note 12) 12,610,459 141,370,632 - 578,000 154,559,091 Disposals (14,705,983) (29,825,966) (1,373,463) (2,253,101) (48,158,513) At 31 December 2002 329,987,415 731,291,926 5,917,116 10,235,101 1,077,431,558 --------------- --------------- --------------- --------------- --------------- 44 Depreciation and impairment loss: At 1 January 2003 102,912,929 217,198,691 4,910,875 6,397,557 331,420,052 Charge for the year 18,027,393 74,165,675 669,846 1,011,337 93,874,251 Written back on disposal (9,601,889) (24,049,688) (1,169,477) (2,113,966) (36,935,020) At 31 December 2003 111,338,433 267,314,678 4,411,244 5,294,928 388,359,283 Net book value: At 31 December 2003 218,648,982 463,977,248 1,505,872 4,940,173 689,072,275 At 31 December 2002 219,897,177 397,203,473 2,069,114 4,572,552 623,742,316 ========= ========= ======== ======== ======= Valuation As required by the relevant PRC rules and regulations, the assets and liabilities of the Company were revalued at 30 April 1993 by Guangzhou Assets Appraisal Corporation using the depreciated replacement cost method prior to the listing of the Company’s A shares on the Shenzhen Stock Exchange. The surplus on revaluation was taken directly to revaluation surplus. In accordance with IAS 16, subsequent to this revaluation, which was based on depreciated replacement costs, property, plant and equipment are carried at revalued amount, being the fair value at the date of the revaluation less any subsequent accumulated depreciation and impairment losses. Revaluation is performed periodically to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. Based on a revaluation performed by Directors as of 31 December 2003, which was based on depreciated replacement costs, the carrying value of property, plant and equipment did not differ materially from their fair value. 11 Lease prepayments Rmb Cost: Balance at 1 January 2003 118,945,821 Additions 4,117,339 Balance at 31 December 2003 123,063,160 45 Amortization: Balance at 1 January 2003 6,951,783 Amortization charge for the year 2,442,982 Balance at 31 December 2003 9,394,765 ----------------- Net book value: At 31 December 2003 113,668,395 At 31 December 2002 111,994,038 ========== 12 Construction in progress Machines & Motor Buildings equipment vehicles Total Rmb Rmb Rmb Rmb At 1 January 2003 9,368,178 59,980,824 15,000 69,364,002 Additions 3,615,870 137,115,643 563,000 141,294,513 Transfer to property plant and equipment (note 10) (12,610,459) (141,370,632) (578,000) (154,559,091) At Dec. 31, 2003 373,589 55,725,835 - 56,099,424 ========= ========== ======== ========== 13 Investment in associate 2003 2002 Rmb Rmb Share of net assets 27,808,546 29,038,903 ========= ========= Details of the associate, which is established and operating in the PRC, are as follows: Percentage of equity held Name of company by the company Principal activity Liangke Investment Co., Ltd., 37.5% Investments and assets Shenzhen management 46 14 Other investments 2003 2002 Rmb Rmb Non-current investments Unlisted equity securities available-for-sale, at cost 109,354,443 111,936,416 Less: Provision for impairment losses (11,850,000) (11,850,000) 97,504,443 100,086,416 Current investments Equity securities held for trading, at fair value 59,840,069 15,932,055 Debt securities held for trading, at fair value 47,873,652 - 107,713,721 15,932,055 ========== ========= 15 Deferred tax assets Recognized deferred tax assets Deferred tax assets are attributable to the following: 2003 2002 Rmb Rmb Property, plant and equipment 4,845,483 3,675,342 Other investments 1,726,091 3,891,623 Inventories 1,742,801 1,404,443 Trade and other receivables 2,452,335 2,437,790 Deferred tax assets 10,766,710 11,409,198 ========== ========= Movement in temporary differences during the year At Recognised At Recognised At 1 January in income 1 January in income 31 December 2002 Statement 2003 statement 2003 Property, plant and 981,234 2,694,108 3,675,342 1,170,141 4,845,483 equipment Other investments 6,383,896 (2,492,273) 3,891,623 (2,165,532) 1,726,091 Inventories 307,971 1,096,472 1,404,443 338,358 1,742 Trade and other 2,157,983 279,807 2,437,7 14,545 2,452 receivables 9,831,084 1,578,114 11,409,198 (642,488) 10,766,710 ======= ======== ======== ======== ========= (note 9(a)) 47 16 Inventories 2003 2002 Rmb Rmb Raw materials 20,696,875 18,606,359 Work in progress 50,406,144 47,643,457 Finished goods 46,393,134 34,753,756 Spare parts and consumables 33,351 60,279 117,529,504 101,063,851 ========== ========== Included in finished goods are inventories of Rmb46,393,134 (2002: Rmb34,753,756), stated net of a general provision. 17 Deposits, prepayments and other receivables 2003 2002 Rmb Rmb Prepayments for acquiring land use right and - 5,400,242 purchase of buildings Prepayments for purchase of raw materials 13,355,609 8,653,745 and machinery Deposits and other prepayments 9,230,945 6,903,017 22,586,554 20,957,004 ========== ========== 18 Cash and cash equivalents Cash and cash equivalents as of 31 December 2002 and 2003 are cash at bank and in hand. 48 19 Capital and reserves 2003 Statutory Statutory staff Discret Share Share Revaluation surplus welfare s capital premium surplus reserve reserve r Rmb Rmb Rmb Rmb Rmb Balance as at 1 January 2003 358,448,259 1,186,000,059 13,479,958 156,509,934 102,200,906 6 Net profit for the year － － － Transfers － － － 22,632,501 22,632,501 1 Dividends － － － Balance as at 31 December 358,448,259 1,186,000,059 13,479,958 179,142,435 124,833,407 7 2003 2002 Statutory Statutory staff Share Share Revaluation surplus welfare capital Premium surplus reserve reserve Rmb Rmb Rmb Rmb Rmb Balance as at 1 January 2002 358,448,259 1,186,000,059 13,479,958 136,027,998 81,718,97 Net profit for the year － － － Transfers － － － 20,481,936 20,481,93 Dividends － － － Balance as at 31 December 2002 358,448,259 1,186,000,059 13,479,958 156,509,934 102,200,90 Registered, issued and fully paid up capital The registered capital comprises 275,948,259 (2002: 275,948,259) ordinary A shares and 8 ordinary B shares. All shares were issued and have a par value of Rmb 1. Revaluation surplus The revaluation surplus relates to the revaluation of certain property, plant and equipment on which is not distributable. Distributable retained earnings According to the Company’s Articles of Association, the retained earnings available for dis amount determined under PRC accounting standards and amount determined under IFRS. A retained earnings available for distribution were Rmb77,176,953 (2002: Rmb72,319,396), af current year’s proposed final dividend and the transfers to other reserves. Statutory staff welfare reserve According to the current PRC Company Law and the Company’s articles of association, the Company is required to transfer 5% to 15% (at the discretion of the Board of Directors) of its profit after taxation (determined under PRC accounting standards) to its statutory staff welfare reserve. The statutory staff welfare reserve can only be used for the collective benefits of the Company’s employees such as the construction of dormitories, canteen and other staff welfare facilities. The reserve forms part of the shareholders’ equity as individual employees can only use these facilities, the title of which will remain with the Company. The transfer to this reserve must be made before distribution of dividend to shareholders. The Directors have resolved to transfer 10% (2002: 10) of the current year’s profit to this reserve on 8March 2004. Discretionary surplus reserve The usage of this reserve is similar to that of statutory surplus reserve. The transfer to this reserve must be made out of its profit after taxation (determined under PRC accounting standards), but before distribution of dividend to shareholders. The Directors have resolved to transfer 5% (2002: 5%) of the current year’s profit to this reserve on 8 March 2004. Dividend (a) The following dividend has not been provided for in the financial statements: 2003 2002 Rmb Rmb Proposed final dividend of Rmb0.46 per ordinary share (2002: Rmb0.42) 164,886,199 150,548,269 ======== ======== Pursuant to a resolution passed at the Directors’ meeting held on 8 March 2004, a final dividend of Rmb0.46 per ordinary share, totaling Rmb164,886,199 will be payable to shareholders, subject to the approval of the shareholders at the Company’s 15th Annual General Meeting. 51 (b) Dividend paid during the year is as follows: 2003 2002 Rmb Rmb Final dividend of Rmb0.42 per ordinary share for the year ended 31 December 2002 (2001: Rmb0.4) 150,548,269 143,379,304 ======== ======== 20 Accruals and other payables 2003 2002 Rmb Rmb Senior Management Incentive Scheme 43,107,824 31,012,914 Value added tax and other taxes payable 5,848,024 6,456,905 Others 22,688,988 22,358,666 71,644,836 59,828,485 ========== ========== 21 Financial instruments and concentration of risks Financial assets of the Group principally include cash and cash equivalents, trade receivables, deposits and other receivables, and investments. Financial liabilities of the Group principally include trade and other payables and accruals. Accounting policies for financial assets and liabilities are set out in note 1. (a) Credit risk Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed to perform completely as contracted. The Group does not have significant exposure to any individual customer or counterparty. To reduce exposure to credit risk, the Group performs ongoing credit evaluations of the financial condition of its customers but generally does not require collateral. The Group deposits substantially all the cash and cash equivalents with the four largest state-owned banks of the PRC. The Group is exposed to credit-related losses in the event of non-performance by counterparties to financial instruments but, based on the Group’s credit assessment and the past repayment records of the counterparties, management does not expect any material counterparty to fail to meet its obligations. 52 At balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. (b) Foreign currency risk The Group incurs foreign currency risk on certain trade receivables of Rmb40,594,852 (2002: Rmb28,243,928) and cash and cash equivalents of Rmb44,732,014 (2002: Rmb20,819,370) that are denominated in United States dollars. Fluctuation of the exchange rate of United States dollars against CNY will affect the Group’s financial position and results of operations. (c) Fair value The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of IAS 32 and IAS 39. Fair value estimates, methods and assumptions, set forth below for the Group’s financial instruments, are made to comply with the requirements of IAS 32 and IAS 39, and should be read in conjunction with the Group’s consolidated financial statements and related notes. The estimated fair value amounts have been determined by the Group using market information and valuation methodologies considered appropriate. However, considerable judgment is required to interpret market data to develop the estimates of fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Group could be realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The following summarize the major methods and assumptions used in estimating the fair values of the Group’s financial instruments. The carrying amounts of cash and cash equivalents, trade receivables, deposits and other receivables, trade and other payables and accruals approximate fair value due to the short-term nature of these instruments. The fair values of the Group’s listed equity investments are estimated by referring to the market prices obtained from the relevant stock exchanges. There are no quoted market prices for unlisted equity investments. Accordingly, a reasonable estimate of fair value could not be made without incurring excessive costs. However, provision for impairment losses of Rmb11,850,000 (2002: Rmb11,850,000) was made this year (see note 14). 22 Commitments (a) Capital expenditure commitments As at 31 December 2003, the Group had capital expenditure commitments authorized and contracted for but not provided for in the financial statements amounting to approximately Rmb21,822,119 (2002: Rmb24,957,416). 53 (b) Operating lease payments Minimum lease payments under non-cancellable operating lease are payable as follows: 2003 2002 Rmb Rmb Less than one year 1,169,000 1,169,000 Between one and five years 4,676,000 4,676,000 More than five years 16,366,000 17,535,000 22,211,000 23,380,000 ========== ========== The Group leases a land use right under operating lease. The lease typically runs for an initial period of thirty years, with an option to renew the lease after that date. Fixed annual lease payments are payable over the lease terms. During the year ended 31 December 2003, Rmb3,756,694 was recognised as an expense in the income statement in respect of operating leases (2002: Rmb3,129,200). 23 Earnings per share (a) Basic earnings per share The calculation of basic earnings per share at 31 December 2003 was based on the profit attributable to shareholders of Rmb234,560,108 (2002: Rmb218,582,323) and the number of shares in issue during the year ended 31 December 2003 of 358,448,259 (2002: 358,448,259). (b) Diluted earnings per share No diluted earnings per share is calculated as there are no dilutive potential shares. 24 Group enterprises (a) Details of the subsidiaries, both of which are established and operating in the PRC, are as follows: Percentage of Name of company equity held Principal activity Wuzhuang Factory 100% Manufacture of lighting products QL Lamps and Components 40% Manufacture of Limited (“QLLC”) (note b) lighting products Chansheng Electric Ballasts Co., 75% Manufacture of Ltd., Foshan lighting products (b) As the Group has effective control of QLLC through the power of governing the financial and operating policies of the economic activity under a contractual arrangement, QLLC has been accounted for as a subsidiary. 54 Net impact of IFRS adjustments on the consolidated results and shareholders’ funds prepared under PRC accounting regulations. Financial statements for the year ended 31 December 2003 (Expressed in Renminbi Yuan) Profit after tax Shareholders’ funds 2003 2002 2003 2002 As reported in statutory 226,325,007 204,819,357 2,189,239,189 1,961,332,290 financial statements prepared under PRC accounting regulations Adjustments to align with IFRS (i) Dividend proposed - 150,548,269 (ii) Recongition of deferred (642,488) 1,578,114 10,766,710 11,409,198 tax asset (iii) Capitalisation and - 8,590,420 - - Depreciation Difference (iv) Net unrealized gains/(losses) of investments held for trading carried 9,605,549 2,309,852 9,605,549 2,309,852 at fair value (v) Realised gains/(losses) of investments held for Trading (2,309,852) 1,236,587 - - (vi) Write back of over- 1,581,892 - - - accrued interest Expenses (ix) Others - 47,993 (1,763,395) (1,763,395) As reported pursuant to IFRS 234,560,108 218,582,323 2,207,848,053 2,123,836,214 ========= ========= =========== =========== 55 XI. Reference Documents The investors and the relevant departments can demand the following information from the secretariat of the Board of Directors in the office building of our company: 1. Accounting report signed and sealed by the legal representative of the company, finance chief and the accounting handler. 2. Origin of the auditing report signed and sealed by the accountants office and the public certified accountant. 3. Announcement origin and master copy of all documents of the company publicly disclosed in the newspapers designated by the China Securities Committee during the report period. 4. Origin of the Annual Report of 2003 personally signed by the Chairman of the Board of Directors. Foshan Electrical and Lighting Co. Ltd. Board of Directors Mar. 25, 2004 56 Consolidated income statement for the year ended 31 December 2003 (Expressed in Renminbi Yuan) Note 2003 2002 Rmb Rmb Revenue 2 1,016,750,204 953,453,964 Cost of sales (637,119,027) (590,068,720) 379,631,177 363,385,244 Gross profit Other operating income 4 2,959,140 7,408,237 Selling expenses (49,106,285) (37,205,759) Administrative expenses (70,210,222) (87,151,988) Other operating expenses 5 (8,312,301) (11,557,898) 254,961,509 234,877,836 Profit from operations Net financial income 7 9,611,996 4,405,114 Net investment income 8 16,203,947 16,922,497 Share of (loss)/profit of associate (1,230,357) (1,022,072) Profit from ordinary activities before 279,597,076 255,183,375 Taxation Income tax expense - company and subsidiaries 9(a) (44,950,019) (37,406,946) - associate Profit from ordinary activities after 234,597,076 217,776,429 taxation Minority interests (36,968) 805,894 Profit attributable to shareholders 19 234,560,108 218,582,323 Basic earnings per share 23 0.65 0.61 =========== =========== No separate consolidated statement of recognized gains and losses has been prepared as the net profit for the year would be the only component of this statement. 57 Consolidated balance sheet at 31 December 2003 (Expressed in Renminbi Yuan) Note 2003 2002 Rmb Rmb ASSETS Non-current assets Property, plant and equipment 10 689,072,275 623,742,316 Lease prepayments 11 113,668,395 111,994,038 Construction in progress 12 56,099,424 69,364,002 Investment in an associate 13 27,808,546 29,038,903 Other investments 14 97,504,443 100,086,416 Deferred tax assets 15 10,766,710 11,409,198 994,919,793 945,634,873 Current assets Other investments 14 107,713,721 15,932,055 Inventories 16 117,529,504 101,063,851 Trade receivables 155,795,799 108,055,460 Deposits, prepayments and other receivables 17 22,586,554 20,957,004 Cash and cash equivalents 18 1,033,027,503 1,167,898,471 1,436,653,081 1,413,906,841 2,431,572,874 2,359,541,714 -------------------- -------------------- Total assets ============ ============ 58 Consolidated balance sheet at 31 December 2003 (continued) (Expressed in Renminbi Yuan) Note 2003 2002 Rmb Rmb EQUITY, MINORITY INTERESTS AND LIABILITIES Capital and reserves Share capital 358,448,259 358,448,259 Share premium 1,186,000,059 1,186,000,059 Other reserves 663,399,735 579,387,896 19 2,207,848,053 2,123,836,214 5,236,051 5,149,083 Minority interests Current liabilities Trade payables 89,538,128 93,229,861 Taxation 9(c) 6,518,649 28,945,157 Accruals and other payables 20 71,644,836 59,828,485 Salaries, bonus and staff 50,787,157 48,552,914 welfare payables 218,488,770 230,556,417 -------------------- -------------------- Total equity, minority interests and liabilities 2,431,572,874 2,359,541,714 ============ ============ Approved and authorized for issue by the Board of Directors on _____________. ) ) ) Directors ) ) 59 Consolidated statement of cash flows for the year ended 31 December 2003 (Expressed in Renminbi Yuan) Note 2003 2002 Rmb Rmb Rmb Rmb Operating activities Profit from ordinary 279,547,095 255,183,375 activities before taxation Adjustments for: - Dividends income (2,163,070) （3,053,523） - Interest income (10,782,610) （6,225,334） - Loss on disposal of property, plant and equipment 7,871,889 9,370,302 - (Gain)/loss on (4,847,080) disposal of land use right - Depreciation and 96,317,233 88,904,596 amortization - Revaluation of (8,759,325) (2,309,852) investments held for trading to fair value - Provision for diminution 3,000,000 in value of investments available-for-sale - Gain on disposal of (5,281,552) (14,559,122) an investments - Share of loss/(profit) 1,230,357 1,022,072 of an associate Operating profit 357,980,017 326,485,434 before working capital changes (carried over) 60 Consolidated statement of cash flows for the year ended 31 December 2003 (continued) (Expressed in Renminbi Yuan) Note 2003 2002 Rmb Rmb Rmb Rmb 1. Operating profit before working 357,980,017 326,485,434 capital changes (BF) 2. (Increase)/decrease in (16,465,653) 8,767,823 inventories 3. Increase in trade (47,740,339) (15,284,805) receivable 4. (Increase)/decrease in (16,629,550) 7,450,470 deposits, prepayment and other receivables 5. (Decrease)/increase (3,691,733) 27,201,201 in trade payables 6. (Increase)/decrease 11,816,351 (91,976) in accruals and other payables 7. Increase in salaries, 2,234,243 9,136,791 bonus and staff welfare payables Cash generated from 302,503,336 363,664,938 operations PRC tax paid (66,734,039) (38,136,656) Cash inflows from 235,769,297 325,528,282 operating activities (carried over) 61 Consolidated statement of cash flows for the year ended 31 December 2003 (continued) (Expressed in Renminbi Yuan) Note 2003 2002 Rmb Rmb Rmb Rmb Cash inflows from 235,769,297 325,528,282 operating activities (BF) Investing activities Investment return 2,581,973 - Interest received 10,782,610 6,225,334 Dividends received 2,163,070 3,053,523 Purchase of property, (15,868,612) (43,545,196) Plant and equipment Increase in lease (4,117,339) (24,525,456) Prepayments Increase in construction (141,294,513) (151,619,837) In progress Investment for purchaser (98,954,396) (13,622,203) Proceeds from disposal 21,213,607 114,485,833 Of other investments Proceeds from disposal - 19,608,686 Of land use right Proceeds from disposal 3,351,604 8,919,225 Of property, plant and equipment Cash flows from (220,141,996) (81,020,091) investing activities Balance (carried over) 15,627,301 244,508,191 62 Consolidated statement of cash flows for the year ended 31 December 2003 (continued) (Expressed in Renminbi Yuan) Note 2003 2002 Rmb Rmb Rmb Rmb Balance (BF) 15,627,301 244,509,191 Financing activities Dividends paid (150,548,269) (143,379,304) Capital injection by 50,000 - minority shareholder Cash flows from (150,498,269) (143,379,304) financing activities Net (decrease)/increase (134,870,968) 101,128,887 in cash and cash equivalents Cash and cash 1,167,898,471 1,066,769,584 equivalents at 1 January Cash and cash equivalents at 31 December 18 1,033,027,503 1,167,898,471 =========== =========== 63