安道麦A(000553)沙隆达2003年年度报告（英文版）

HUBEI SANONDA CO., LTD. ANNUAL REPORT 2003 (B-share) Section I. Important Notes and Contents The Board of Directors of Hubei Sanonda Co., Ltd. (hereinafter referred to as the Company) and its directors hereby confirm that there are no important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. No director stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of the Annual Report or have objection for this report. Chairman of the Board of the Company Mr. Zhang Maoli, General Manager Mr. Zheng Xianhai and person in charge of Financing Mr. He Xuesong hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. This report is prepared in both Chinese and English. Should there be any discrepancy in interpretation between the two versions, the Chinese version shall prevail. Contents Ⅰ. Important Notes------------------------------------------------------------------------------ Ⅱ. Company Profile----------------------------------------------------------------------------- Ⅲ. Summary of Financial Highlight and Business Highlight--------------------------- Ⅳ. Changes in Capital Shares and Particulars about Shareholders------------------- Ⅴ. Particulars about Directors, Supervisors, Senior Executives and Employees--- Ⅵ. Administrative Structure------------------------------------------------------------------- Ⅶ. Brief Introduction to the Shareholders’ General Meeting -------------------------- Ⅷ. Report of the Board of Directors ----------------------------------- --------------------- Ⅸ.Report of the Supervisory Committee--------------------------------------------------- Ⅹ. Significant Events---------------------------------------------------------------------------- XI. Financial Report----------------------------------------------------------------------------- XII. Documents for Reference------------------------------------------------------------------ Section II. Company Profile 1. Legal name of the Company: In Chinese: 湖北沙隆达股份有限公司 In English: HUBEI SANONDA CO., LTD. 2. Legal Representative: Zhang Maoli 3. Secretary of the Board of Directors: Li Zhongxi Tel: (86) 716-8208632 Contact Address: No. 93, Beijing East Road, Jingzhou, Hubei Fax:(86) 716-8208899 Authorized Representative in Change of Securities Affairs: Hu Haosong Contact Address: No. 93, Beijing East Road, Jingzhou, Hubei Tel: (86) 0716-8208232 Fax:(86) 0716-8208899 E-mail: sanonda@sanonda.com.cn 4. Registered Address: No. 93, Beijing East Road, Jingzhou, Hubei Office Address: No. 93, Beijing East Road, Jingzhou, Hubei Post Code: 434001 Website of the Company: http://www.sanonda.com.cn E-mail of the Company: sanonda@sanonda.com.cn 5. Newspaper for Disclosing the Information Chosen by the Company: China Securities, Securities Times and Ta Kung Pao Internet Web Site Designated by CSRC for Publishing the Annual Report of the Company: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed:Office of the Company 6. Stock Exchange Listed With: Shenzhen Stock Exchange Short Form of the Stock: Sanonda A, Sanonda B Stock Code:000553, 200553 7. Other Relevant Information of the Company Initial registered date: Nov. 30, 1993 Registered place: No. 93, Beijing East Road, Jingzhou, Hubei Registered number of corporation legal person’s business license: QGEZ Zi No.:002523 Registered number of taxation: 421001706962287 Name and office address of Certified Public Accountants engaged by the Company: Domestic: Tian Hua Certified Public Accountants Address: 17th Floor, Zhonghua Bldg., Fu Xing Men Wai Av., Xicheng Dis., Beijing Name: HO AND HO & CO. Address: Arion Commercial Centre, 2-12 Queen's Rd. West, HK Section III. Summary of Accounting Highlights and Business Highlights I. Major profit indexes of the Company as of the year 2003 Unit: RMB’000 Items Amount Total Profit 6,017.00 Net Profit 8,482.00 Profit from main operations 128,948.00 Other operating profit 17,766.00 Operating profit 23,242.00 Investment income 3,567.00 Net cash flow arising from operating activities 34,627.00 Net increase in cash and cash equivalents 15,372.00 II. Differences Between financial statements prepared under the PRC Accounting Rules and Regulations and IFRS Other than the differences in the classifications of certain financial captions and the accounting for the items described below, there are no material differences between the Group’s financial statements prepared under the PRC Accounting Rules and Regulations and IFRS. Effects of major differences between the PRC Accounting Rules and Regulations and IFRS on net profit are analyzed as follows: 2003 2002 RMB’000 RMB’000 Net profit under the PRC Accounting Rules and Regulations 7,401 (115,815) Adjustments: Income from short equity investment - 2,064 Provision for bad and doubtful debt of receivables - (24,671) Provision for depreciation for fixed assets not ready for use - (4,187) Inventory net realization value adjustment (2,336) 5,934 Provision for impairment loss of fixed assets - (9,902) Written off of deferred assets - (11,796) Sales cut-off adjustment (5,189) 4,914 Amortisation of deferred revenue 160 - Adjustment for unrealised loss on investment (997) - Others 9,443 (3,150) Net profit under IFRS 8,482 (156,609) Effects of major differences between the PRC Accounting Rules and Regulations and IFRS on shareholders’ equity are analyzed as follows: 2003 2002 RMB’000 RMB’000 Shareholders’ equity under the PRC Accounting Rules and Regulations 868,578 860,166 Adjustments: Income from short equity investment 2,064 2,064 Provision for bad and doubtful debt of receivables (46,623) (46,623) Provision for depreciation for fixed assets not ready for use (27,175) (27,175) Inventory net realization value adjustment - 2,336 Provision for impairment loss of fixed assets (6,156) (6,156) Sales cut-off adjustment - 5,189 Amortisation of deferred revenue (1,465) - Adjustment for unrealised loss on investment (997) - Others 5,499 (3,944) Shareholders’ equity under IFRS 793,725 (785,857) III. Major accounting data and financial indexes over the previous three years at the end of report period (Unit: RMB’000) Financial indexes Unit 2003 2002 2001 Income from main operations RMB’000 858,705 652,210 955,663 Net profit RMB’000 8,482 -156,609 -20,916 Total assets RMB’000 1,516,367 1,542,056 1,617,077 Shareholders’ equity RMB’000 793,725 785,857 943,507 Earnings per share (diluted) RMB 0.03 -0.53 -0.07 Net assets per share RMB 2.67 2.65 3.18 Net cash flow per share arising from RMB operating activities 0.12 0.16 0.42 Return on equity (diluted) % 1.07 -19.93 -2.22 (IV) Supplemental statement of profit calculated according to Regulations on the Information Disclosure of Companies Publicly Issuing Shares (No. 9) released by CSRC: Return on equity (%) Earnings per share (RMB) Profit in the report period Fully diluted Weighted average Fully diluted Weighted average 2003 2002 2003 2002 2003 2002 2003 2002 Profit from main operations 16.25% 10.73% 16.32% 9.78% 0.43 0.29 0.43 0.29 Operating profit 2.93% -16.03% 2.94% -14.62% 0.08 - 0.43 0.08 -0.43 4 Net profit 1.07% -19.45% 1.07% -17.73% 0.03 -0.52 0.03 -0.52 (V) Particulars about changes in shareholders' equity during the report period Unit: RMB’000 Capital Surplus Statutory Share Retained Shareholders’ Items public public public welfare capital profit equity reserve reserve fund Amount at the period-begin 296,962 565,633 62,676 17,823 -139,414 785,857 Increase in the report period 8,482 8,482 Decrease in the report period 614 614 Amount at the period-end 296,962 565,633 62,676 17,823 -131,546 793,725 Reasons for change Net profit and profit distribution as of the year 2003 Section IV. Changes in Share Capital and Particulars about Shareholders (I) Particulars about changes in share capital Unit: share Increase/decrease of this time (+, - ) Before the After the Items Allotment Bonus Capitalization of change Others Subtotal change of share shares public reserve I. Unlisted Shares 1. Promoters’ shares Including: State-owned share 84,729,334 84,729,334 Domestic legal person’s shares Foreign legal person’s shares Others 2. Raised legal person’s shares 3. Inner employees’ shares 4. Preference shares or others Total unlisted shares 84,729,334 84,729,334 II. Listed Shares 1. Domestically RMB ordinary 97,232,276 97,232,276 shares 2.Domestically listed foreign 115,000,000 115,000,000 shares 3. Overseas listed foreign shares 5 4. Others Total listed shares 212, 232,276 212, 232,276 III. Total shares 296,961,610 296,961,610 (II) Particulars about issuance and listing of shares 1. From Oct. 1993 to Nov. 30, 1993, the Company issued domestic RMB ordinary shares 30,000,000 and shares of the Company were listed in Shenzhen Stock Exchange for trade on Dec. 3, 1993. 2. Approved by Securities Committee of the State Council ZF(1997)No.23 document, the Company issued 100,000,000 domestic listed foreign shares(B-shares), with par value of RMB 1 per share from Apr. 29,1997 to May. 5,1997. The shares were listed in Shenzhen Stock Exchange for trade on May 15 of the same year. The Company also execute the surplus quota selling right of 15,000,000 during May 15 to May 21 of the same year. 3. Under the arrangement of Shenzhen Stock Exchange, 5,423,701 state-own transferred allotment shares of the Company were circulating in Shenzhen Stock Exchange on July 6,2000. 4. Dated Dec. 31, 2000, the directors, supervisors and senior executives hold 39158 shares of the Company. In terms of the relevant regulations, the shares were in custody of Shenzhen Securities Registration Co., Ltd. 2. Particulars about the shareholders (1) In the end of the report period, the Company had 39183 shareholders in total, including 25087 A-shareholders and 14096 B-shareholders. (2) In the end of the report period, particulars about shares held by the top ten shareholders of the Company: Number of Nature of Increase / Holding Type of shares share shareholders decrease in shares at the Proportion Full name of Shareholders (Circulating/No pledged/ (State-owned the report year-end (%) n-circulating) frozen shareholder/forei year (share) (share) (share) gn shareholder) Sanonda Group Corporation 0 81,726,625 27.52 Non-circulating 81,726, 625 State-owned legal person shareholder Qichun County State-owned 0 3,002,709 1.01 Non-circulating 0 State-owned Assets Administration shareholder Bureau Zhang Sheng +1,588,600 1,588,600 0.53 Circulating Unknown Foreign shareholder Taiji Investment Co., Ltd. 0 1,000,000 0.33 Circulating Unknown Foreign shareholder 6 Guangqi Investment Co., 0 1,000,000 0.33 Circulating Unknown Foreign Ltd. shareholder Anhui Guidu Heat Supply +131,512 919,012 0.30 Circulating Unknown Circulation Engineering Co., Ltd. shareholder Hubei Zhonglian Yangzi 0 835,000 0.28 Circulating Unknown Circulation State-owned Soil Economic shareholder Development Company Zhou Wenqin 0 698,220 0.23 Circulating Unknown Circulation shareholder Qu Wei +662,815 662,815 0.22 Circulating Unknown Foreign shareholder Deng Lanqin +653,700 653,700 0.22 Circulating Unknown Circulation shareholder Notes: (1) Sanonda Group Corporation is the holding shareholder of the Company, which held the Company’s shares on behalf of the state. (2) Among the top ten shareholders as listed above, there exists no associated relationship between Sanonda Group Corporation (the holding shareholder of the Company) and other shareholders, and it does not belong to the consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies. (3) The Company is unknown whether there exists associated relationship among other shareholders, or whether the shareholders belong to the consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies. (III) Particulars about the holding shareholder Name of the holding shareholder: Sanonda Group Corporation (it held 81,726,625 shares of the Company; taking 27.52% of total shares) Legal representative of the holding shareholder: Zhang Maoli Date of foundation: 1994 Registered capital: RMB 311,101,000 Scope of business: Agrochemical, chemical products, pharmaceutical products, mechanical equipments and fittings, import and export of the Company’s products and the necessary raw and auxiliary material, etc. Sanonda Group Corporation, the holding shareholder, is a shareholder holding state-owned shares of the Company, and its actual controller is Jingzhou Municipal State-owned Assets Administration Office. There was no change in shares held by the holding shareholder in the report period. 81,726,625 shares of the Company held by Sanonda Group Corporation were pledged 7 or frozen. Of them, pledged shares were 55,770,000 shares and frozen shares were 25,956,625 shares (the event was published several times in designated newspapers China Securities, Securities Times and Ta Kung Pao). (IV) There was no other legal person shareholder holding over 10% share. (V) Particulars about shares held by the top ten circulating shareholders of the Company Name of shareholder Number of circulating shares Type held in the report year-end Zhang Sheng 1,558,600 B-share Taiji Investment Co., Ltd 1,000,000 B-share Guangqi Investment Co., Ltd 1,000,000 B-share Anhui Huaidu Heat Supply 919,012 A-share Engineering Co., Ltd. Hubei Zhonglian Yangzi Soil 835,000 A-share Economic Development Company Zhou Wenqin 698,220 A-share Qu Wei 662,815 B-share Deng Lanqin 653,700 A-share Zhao Quanshan 629,710 A-share Wuhua Industrial Co., Ltd 600,000 A-share The Company is unknown whether there exists associated relationship among shareholders of circulation share, or whether the shareholders belong to the consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies. Section V. Particulars about Directors, Supervisors and Senior Executives and Employees (I) Director, supervisor and senior executives 1. Basic Information Holding Holding Reason for Name Title Sex Age Office term shares at the shares at the change year-begin year-end Jun. 2003- Zhang Maoli Chairman of the Board Male 60 11,830 11,830 - Jun. 2006 Vice Chairman of the Dec. 2003- Zheng Xianhai Male 52 0 0 - Board, General Manager Jun. 2006 Jun. 2003- Li Zuorong Director Male 54 3,000 3,000 - Jun. 2006 8 Jun. 2003- Liu Xingping Director Male 41 2,000 2,000 - Jun. 2006 Director, Deputy General Jun. 2003- Deng Guobin Male 36 2,000 2,000 - Manager Jun. 2006 Jun. 2003- Zhang Jianguo Director Male 51 2,000 2,000 - Jun. 2006 Director, Deputy General Jun. 2003- He Fuchun Male 39 2,000 2,000 - Manager, Chief Engineer Jun. 2006 Jun. 2003- Tan Liwen Independent Director Male 56 0 0 - Jun. 2006 Jun. 2003- Liao Hong Independent Director Male 60 0 0 - Jun. 2006 Chairman of the Jun. 2003- Wan Zheming Male 55 7,098 7,098 - Supervisory Committee Jun. 2006 Vice Chairman of the Jun. 2003- Chen Changshun Male 56 9,230 9,230 - Supervisory Committee Jun. 2006 Jun. 2003- Sang Maoxiong Supervisor Male 53 0 0 - Jun. 2006 Jun. 2003- Liu Jun Supervisor Female 42 0 0 - Jun. 2006 Jun. 2003- Xu Baojian Supervisor Male 48 0 0 - Jun. 2006 Jun. 2003- Wang Xuewen Deputy General Manager Male 37 0 0 - Jun. 2006 Jun. 2003- He Xuesong CFO Male 49 0 0 - Jun. 2006 Jun. 2003- Dai Juqing Chief Economist Male 53 0 0 - Jun. 2006 Jun. 2003- Li Zhongxi Secretary of the Board Male 34 0 0 - Jun. 2006 Particulars about directors and supervisors holding the post in Shareholding Company Name Name of the Shareholding Post in the Shareholding Office Term Company Company Zhang Maoli Sanonda Group Corporation Chairman of the Board 2000 to now Li Zuorong Sanonda Group Corporation Vice Chairman of the Board, 2000 to now General Manager Zheng Xianhai Sanonda Group Corporation Director 2000 to now 9 Liu Xingpin Sanonda Group Corporation Director, Deputy General Manager 2000 to now 2. Particulars about the annual payment of directors, supervisors and senior executives The Company implemented the evaluation system on the senior executives where their annual payment was linked with the achievements and results. In the year beginning, the Company would decide the evaluation index of operation achievements or management duties of the senior executives according to the overall development strategy and annual operating objectives; in the year-end, the Board evaluated the senior executives based on the operation achievements and the fulfilled duties. Total annual payment RMB 500,000 Total annual payment of the top three directors RMB 100,000 drawing the highest payment Total annual payment of the top three senior RMB 100,000 executives drawing the highest payment Name of directors and supervisors receiving no None payment or allowance from the Company Allowance of independent director and other The allowance of independent director was RMB treatment 20,000 per year respectively. The Company reimbursed the reasonable charges according to the actual situation, which independent directors attended the meeting of the Board, shareholders’ general meeting or exercise their functions and powers in accordance with the relevant laws and regulations and Articles of Association. Amount of payment Number Over RMB40, 000 3 From RMB30, 000 to RMB40, 000 5 Below RMB30, 000 8 3. Particulars about change on the directors, supervisors and senior executives in the report period: On Jun. 22, 2003, the 4th Board of Directors and 4th Supervisory Committee were elected and came into being at 2002 Shareholders’ General Meeting. The 4th Board of Directors composed of directors Mr. Zhang Maoli, Mr. Liu Xingping, Mr. Li Zuorong, Mr. Zheng Xianhai, Mr. Deng Guobin, Mr. Zhang Jianguo and Mr. Hefuchun; independent directors Mr. Tan Liwen, Mr. Liao Hong. The 4th Supervisory Committee composed of Mr. Wan Zheming, Mr. Chen Changshun, Mr. Sang Maoxiong, Mrs. Liujun, and Mr. Xu Baojian. 10 On Jun. 22, 2003, Mr. Zhang Maoli was elected as the Chairman of the Board in the 1st meeting of the 4th Board, Mr. Liu Xingping as the vice Chairman of the Board. According to the nomination of the Chairman of the Board, Mr. Liu Xingping was engaged as General Manager. According to the nomination of the General Manager, Mr. Deng Guobin, Mr. He Fuchun and Mr. Wang Xuewen were engaged as the Deputy General Manager; Mr. Dai Juqing was engaged as the Chief Economist of the Company and Mr. He Xuesong as the Chief Accountant and Mr. He Fuchun concurrently as the Chief Engineer. According to the nomination of the Chairman, Mr. Li Zhongxi was engaged as the secretary of the Board; Mr. Wu Meng and Mr. Hu Haosong as representatives in charge of the security affairs. On Jun. 22, 2003, Mr. Wan Zheming was elected as the Chairman of the Supervisory Committee and Employee Supervisor Mr. Chen Changshun as the Vice Chairman at the 1st meeting of the 4th Board. On Dec. 30, 2003, the proposal on engaging the senior executives was passed at the 6th meeting of the 4th Board. Due to work need, Mr. Liu Xingping proposed to resign the post of vice chairman of the Board and General Manager. The Board of the Company approved Mr. Liu Xingping’s resignation and elected Director Mr. Zheng Xianhai as the vice chairman of the Board of the Company through negotiation. Nominated by Chairman of the Board, Mr. Zheng Xianhai was elected as the General Manager of the Company. (II) About employees In the end of the report period, the Company had totally 3633 employees, including 1911 registered employees. Of them, 1452 production personnel, 93 salespersons, 142 technicians, 42 financial personnel 135 administrative personnel. The Company had 758 persons graduated from 3-years regular college graduate or above. The Company had 582 retirees. Section VI. Administrative Structure of the Company I. Administration of the Company In the report period, according to Company Law, Securities Law, Administrative Rules for Listed Companies and requirements of other relevant laws and regulations, the Company continuously improved the administration structure of the Company, integrated the actual status of the Company and established every rule of procedure and system in order to ensure the Shareholders’ General Meeting, the Board of Directors, the Supervisory Committee and the management to execute right according to law and implement duties. The Company engaged directors according to the procedure stated in Articles of Association of the Company, the number of the directors of the Board and qualification 11 of host were in accordance with relevant laws, regulations and Articles of Association of the Company. The directors of the Company cautiously made decision based on the duties endued by Articles of Association of the Company according to Rules of Procedure of the Board of Directors. The Company engaged supervisors according to the procedure stated in Articles of Association of the Company, the number of the supervisors of the Supervisory Committee and qualification of host were in accordance with relevant laws, regulations and Articles of Association of the Company. The supervisors of the Company cautiously made decision based on the duties endued by Articles of Association of the Company and supervised over the Company’s finance, directors and senior executives according to Rules of Procedure of the Supervisory Committee. The Company timely studied the laws, regulations and all kinds of normative documents on administration of the companies, self-checked according to requirement, obeyed regulation of information disclosure, performed duties of information disclosure, actively improved quality of information disclosure and actually protected the vantage of the investors. Compared with the requirement of Administration Rule of Listed Companies, the Company’s administration was almost in accordance with relevant regulations, but according to the requirement of Guide Opinion of Independent Directors, the proportion of the independent directors of the Company was less than one third of the directors of the Board. II. Performance of duties of Independent Directors 1. In the report period, the independent directors of the Company patiently performed duties according to Articles of Association of the Company, patiently participated in the decision-making of significant events of the Company and asserted the interest of the Company and all shareholders. 2. In the report period, the independent directors expressed independent opinion on the events such as Proposal on Purchasing Use Right of Two Lands of Sanonda Group and Proposal on Engagement of Senior Executives. III. Separation between the Company and the control shareholder in the respects of business, personal, assets, organization and financing (I) Independence of the Company’s business: The Company has independent main business. The Company existed no competition in the same industry with the control shareholder. The related transactions between them are legal, transparent and fair and the price is reasonable. (II) Independence of the Company’s personal: The Company established independent systems of labor, personal and wage. The procedure of holding concurrent post of the directors of the Company by senior executives of the control shareholder is legal. The 12 General Manager and other senior executives of the Company did not hold posts except for directors in the control shareholders. The general manager, other senior executives and principal technical personals took the full time jobs in the Company and received the salary. (III) Independence of the Company’s assets: The assets of the Company are independent and the property is clear. The Company has independent production system, auxiliary production system and accessory installation. The Company has its own systems of purchase, production tool and sale. (IV) Independence of the Company’s organization: The Company has independent location of production and operation and office organization. (V) Independence of the Company’s financing: The Company has independent financial and accounting department, established normative and independent accounting settlement system and financial management system as well as independent bank account and independently pays tax. IV. Particular about performance evaluation standards and encouragement and binding mechanism: The Company was falling to establishing performance evaluation standards and encouragement and binding mechanism for the directors, supervisors and senior executives. According to the development stratagem and annual operation goal of the Company, the Company confirms the general index of annual operation achievement of the senior executives of the Company and establishes evaluation system and encouragement system of operation achievement. Section VII. Brief Introduction of Shareholders’ General Meeting I. In the report period, the Company has not held the provisional Shareholders’ General Meeting. II. Annual Shareholders’ General Meeting for 2002: On May 22, 2003, the Board of Directors of the Company published the notification of holding Annual Shareholders’ General Meeting for 2002 in China Securities, Securities Times and Ta Kung Pao. At 9 o’clock am. on June 22, 2003 (Sunday), Annual Shareholders’ General Meeting for 2002 was held in the meeting room of the Company, No. 93, Beijing East Road, Jingzhou, Hubei. Total eight shareholders (including proxies of the shareholders) were present at the meeting, representing 81,765,783 shares of the Company, taking by 27.53% of the total shares of the Company (including 81,765,783 shares of A-share and 0 share of B-share). The meeting was presided by Chairman of the Board, Mr. Zhang Maoli. The directors, supervisors and senior executives of the Company took part in the meeting in compliance with relevant regulation of Company Law and Articles of Association of the Company. The lawyer of Hubei Tian Yuan Brother Law Firms participated in the meeting and witnessed. The 13 meeting examined and approved the following proposals: 1. Work Report of the Board of Directors for 2002; 2. Annual Report for 2002 and its Summary; 3. Financial Settlement Report for 2002; 4. Profit Distribution Preplan for 2002; 5. Work Report of the Supervisory Committee for 2002; 6. Proposal on Engagement of Certified Public Accountants; 7. Proposal on Election at Expiration of Office Terms of the Board of Directors; The meeting elected the 5th Board of Directors of the Company that was constituted by nine directors including Mr. Zhang Maoli, Mr. Liu Xingping, Mr. Li Zuorong, Mr. Zheng Xianhai, Mr. Deng Guobin. Mr. Zhang Jianguo, Mr. He Fuchun as well as Independent Director Mr. Tan Liwen and Mr. Liao Hongxian. 8. Proposal on Election at Expiration of Office Terms of the Supervisory Committee; The meeting elected the 4th Supervisory Committee of the Company that constituted by five supervisors including Mr. Wan Zheming, Mr. Chen Changshun, Mr. Sang Maoxiong, Ms. Liu Jun and Mr. Xu Baojian. 9. Proposal on Amendment of Articles of Association of the Company; The public notice on the above resolutions of the Shareholders’ General Meeting and law opinion was disclosed in China Securities, Securities Times and Ta Kung Pao dated June 24, 2003. Section VIII. Report of the Board of Directors I. Operation in the report period (I) Scope of main business and operation status The business scope of the Company is production and sales of pesticides and chemical products. In 2003, the income from main business of the Company was RMB 863,890,000, an increase of 41% compared with that of the corresponding period of the previous year; profit of main business was RMB 136,470,000, an increase of 95% compared with that of the corresponding period of the previous year; export exchange was USD 19.50 million, an increase of 20% compared with that of the corresponding period of the previous year; the Company produced pesticides (converted into integer) of 26,500 tons, an decrease of 6% than that of the corresponding period of the previous year and caustic soda (converted into integer) of 72,000 tons, an increase of 13% compared with that of the corresponding period of the previous year. Main product and its market share: The pesticides produced by the Company took by over 10% of income from main business and profit of main business of the Company. The sale amount of pesticides of the Company in the whole year was RMB 539,995,352.67, taking by 62.51% of income from main business of the Company and its profit took by 81.37% of profit of main business and the gross profit ratio of sale was 21.18%. (II) Operation and achievement of main share-controlling subsidiaries Ended Dec.31, 2003, the share-controlling subsidiaries of the Company include: Unit: RMB’0000 14 Income Proportion Name of Business Registered Total from Net Core business of shares companies quality capital assets main profit held business Sanonda Production Pesticides and Zhengzhou enterprise chemicals 4,000 21,436 12,738 1 70.00% Agrochemical Co., Ltd. Jingzhou Dali Production Packing Industrial 280 340 363 1 53.00% enterprise materials Company Hubei Sanonda Tianmen Production Agrochemical Pesticides 800 7,885 6,624 794 85.00% enterprise and Chemical Co., Ltd. Jingzhou Sanonda Real Real estate Real estate 1,000 3,598 3,758 182 90.00% Estate Co., Ltd. Jingzhou Sanonda Advertisement Advertisement 120 189 134 16 60.00% Advertisement Co., Ltd. Sanonda (Jingzhou) Production Agrochemical Pesticides 2,800 4,671 3,552 -879 87.50% enterprise and Chemical Co., Ltd. Sanonda Production Qichun Co., Pesticides 8,000 9,329 3,898 -788 70.00% enterprise Ltd. Sanonda Import and Foreign Trade Trade export of 1,000 6,710 18,231 -3 90.00% Co., Ltd. pesticides Hubei Fengyuan Production Chemical Chemical 4,000 8,734 3,220 -966 55.00% enterprise fertilizers Industry Co., Ltd. Among of it, basic particulars about the companies whose investment earnings took over 10% of the net profit of the Company: Total assets Net assets Net profit Name of companies Business quality (RMB’0000) (RMB’0000) (RMB’0000) Jingzhou Sanonda Real Estate Development and sale of 3598 1191 182 Co., Ltd. real estate Sanonda Tianmen Agrochemical Production and sales of 7885 2364 794 and Chemical Co., Ltd. pesticide products (III) Major suppliers and customers The total amount of purchase from the top five suppliers was RMB 86.82 million, taking by 11.98% of the total amount of purchase in the whole year. The amount of products sold to the top five customers was RMB 7835, taking by 9.07% of the sale amount of the whole year. (IV) Difficulties and problems arising from the operation and solutions In the report period, the production and operation of the Company came across larger difficulties and pressures: the first was the rise in large range of the price of such energy as chemical raw materials, vapor and electron and it caused the rise of production cost. The second was the influence of SARS. Going-out of persons was difficult and transportation of goods was put off and it impacted the work of production and sale of the Company. Aiming for the above unfavorable conditions, the 15 Company adopted the following measures: the first was to strengthen coordination of marketing, concentrate on grasping the sale of key kinds and key markets. Therefore, the sale amount of domestic market had a rise in larger range, export exchange and export amount created the best level in the history; the second was to patiently organize production, improve production burden as well as product quality and descend production cost; the third was to strengthen every internal management, control expense, drop financing cost, strictly perform purchase of comparative price and public bids and make efforts to digest the factor of price’s rise of raw materials; the fourth was to grasp the construction of key technology regeneration projects and set up base for the Company’s further continuous development. II. Investment of the Company in the report period 1. In the report period, the Company has no raised capital. The last raised capital has been finished using in 2002. 2. Investment of proceeds not raised through share offering: Unit: RMB’0000 Progress of Estimated time of Name of projects Investment projects completion st Acetyl methyl amine phosphor 476 100.00% The 1 half year of 2003 Multi-functional setting engineer 958 100.00% In 2003 Salt well project 920 100.00% The 1st half year of 2003 NPK (compound fertilizer) 1,466 100.00% The 1st half year of 2003 projects (2) In Apr. 2003, the Company invested RMB 4.4 million, established Beijing Yingli Technology Development Co., Ltd. with TH-UNIS INSIGHT Co., Ltd. and Hebei Xinxing Chemical Industry Co., Ltd.. Its registered capital is RMB 8 million and the Company takes by 55%. The company mainly engages in researching, developing and selling of its own products (excluding danger chemicals and easily-virulent chemicals). In Dec. 2003, the Company sold equity amounting to RMB 1.7 million among of equity totally RMB 4.4 million to the management team of Beijing Yingli Technology Development Co., Ltd.. After the transfer, the Company holds equity amounting to RMB 2.7 million of Beijing Yingli Technology Development Co., Ltd., taking by 33.75% of the registered capital. III. Financial situation and operation result of the Company 1. Analysis of financial situation and operation result of the Company in the report period: Unit: RMB’000 Increase/decrease Items 2003 2002 (+/-) Gross profit 128,948 81,791 57.66% Profit for shareholders (loss) 8,482 -156,609 Net increase/(decrease) of cash and 15,372.00 -116,106.00 cash equivalents Trade receivables and other 240,365 183,791 30.78% 16 receivables Construction in progress 20,806 58,518 -64.45% Short-term bank loan 287,838 197,663 45.62% Bank loan-maturity after one year 88,760 46,280 91.79% Reason of increase or decrease: (1) The increase of profit of main business was mainly caused by the rise of sale amount of product and dropping of cost; (2) The increase of profit for shareholders was mainly caused by the increase of gross profit; (3) Net increase of cash and cash equivalent was mainly caused by the increase of net amount of cash flow from financing activities; (4) The increase of trade receivables and other receivables was mainly caused by the increase of sale amount; (5) The decrease of construction in progress was mainly caused by fixed assets changed after the projects were finished; (6) The increase of short-term bank loan was caused by the larger increase of production in the report period and the increase of operation capital needed. (7) Bank loan-maturity after one year was caused by the regeneration loan of national debt item in the report period. 2. Former adjustment According to the notification of local taxation bureau of Hubei Province, the Company reduced the payment of local tax amounting to RMB 1,322,000 before 2002 and RMB 2,959,000 in 2002. Therefore, the Company adopted backward adjustment to respectively adjust shareholders’ equity amounting to RMB 1,322,000 and RMB 4,281,000 for 2001 and 2002. IV. Influence of environment of production and operation, macroscopic policies and regulations on the Company According to the guideline of Notice on the Tax Policy of Pesticide released by Ministry of Finance of the PRC, Customs’ General Administration of the PRC and State Administration of Taxation with FT [2003] No.186 document, since Jun.1, 2004, the value added tax in the production course of the main pesticide products produced by the Company will be resumed for collection. The policy will be stopped for execution, which exempt the value added tax in the production course of indigenous pesticide clarified in the 3rd term of the 1st item of Notice from Ministry of Finance and State Administration of Taxation on the Policy of Exempting the value added tax of Some Agricultural Production Material (FT [2001] No.113 document). The value added tax in 2004 is prefigured to increase nearly RMB several million. V. Operation plan in 2004 2004 is the year for the Company to innovate and adjust. The operation object is to 17 realize sales income amounting to more than RMB 1000 million, exportation amounting to more than USD20 million. The general requirements of the Company’s operation are to change idea and notion and intensify enterprise’s innovation; quicken structure adjustment and strengthen competition power; reinforce management and increase economical benefit, and make sure to achieve the operation objects of the whole year. Mainly to emphasize the following work: firstly the innovation of the Company. Carry through the innovation of cadre system with the objects of strengthening responsibility, increasing efficiency and reinforcing check, the labor system innovation with the objects of increasing the whole making and competition power of the Company, and the distribution system innovation with the objects of introducing market system, mobilize staff’s enthusiasm and exerting their potential. Secondly quicken the adjustment of structure. The products structure adjustment of the Company will be about three aspects: adjust the pesticide to the type of high efficiency and low poison; increase the proportion of herbicide in the products; implement the collateral development of original emulsion production and new variety process. Thirdly strengthen enterprises’ management. Continue to make quality and environment management system as the main thread, focus on the financial management, push “5S” management activity, actively develop the attestation work of professional safety and health management system, and promote the production level and economical operation quality with strict and normative management, strengthen the management and innovation of the subsidiaries, increase profit, decrease deficit and ensure the achievements of the annual objects of production and operation. VI. Routine Work of the Board of Directors 1. In the report period, the Board of Directors of the Company totally held nine meetings with the resolutions as follows: (1) At 9:00 am of Apr.15, 2003, the Company held the meeting of the Board of Directors at the Company’s meeting room. The meeting was presided by the Chairman of the Board Zhang Maoli, eight directors should be present and actually eight were present. Five supervisors attended the meeting as nonvoting delegates. The meeting examined and approved following resolutions: a. General Manager’s Work Report 2002; b. Board of Directors’ Work Report 2002; c. Annual Report 2002 and its Summary; d. Financial Settlement Report 2002; e. Profit Distribution Preplan 2002; Audited as per Chinese Accounting Standards, the Company realized a net profit of RMB –110.7941 million in 2002, as per International Accounting Standards; the 18 Company realized a net profit of RMB –153.6526 million. According to the principle of taking the lower amount and the regulation of Articles of Association, the profits available for distribution was RMB –153.6526 million, plus the undistributed profit of previous year RMB 57.9021 million, profits available for distribution was RMB –95.7505 million. Due to the deficit in 2002, the Board of Directors of the Company decided not to distribute the profit in 2002, not to convert public reserve into share capital. f. Proposal on Engaging Certified Public Accountants; The Company continue to engage Tianhua Certified Public Accountants as the Company’s domestic financial auditor of 2002 with the annual auditing reward of RMB 280000; change to engage Pricewaterhousecoopers Certified Public Accountants as the Company’s international financial auditor with the annual auditing reward of HKD 600000. The holding of Annual Shareholders’ General Meeting 2002 will be notified another day. (2) At 10:30 am of Apr.24, 2003, the Company held the meeting of the Board of Directors at the Company’s meeting room. The meeting was presided by the Chairman of the Board Zhang Maoli, eight directors should be present and actually five were present, members of the Supervisors Committee attended the meeting as nonvoting delegates, which is in accordance with the Company Law and the Articles of Association of the Company. The Independent Director Tan Liwen and Liao Hongjin voted in the method of communication, Director Zhang Jianguo was out for business reason and authorized Director He Fuchun as his representative. The meeting examined and approved 1st Quarterly Report of 2003. (3) At 2:30 pm of May 21, 2003, the Company held the meeting of the Board of Directors at the Company’s meeting room. The meeting was presided by the Chairman of the Board Zhang Maoli, eight directors should be present and actually six were present, members of the Supervisors Committee attended the meeting as nonvoting delegates, which is in accordance with the Company Law and the Articles of Association of the Company. The meeting examined and approved following resolutions: a. Proposal on Changing Office Election of the Company; b. Proposal on Amending Part Terms of the Articles of Association of the Company; c. Proposal on Holding Annual Shareholders’ General Meeting 2002. (4) On Jun. 22, 2003, the Company held the 1st meeting of the 4th Board of Directors at the Company’s meeting room. The meeting was presided by the Chairman of the Board Zhang Maoli, nine directors should be present and actually nine were present, members of the Supervisors Committee attended the meeting as nonvoting delegates, which is in 19 accordance with the Company Law and the Articles of Association of the Company. The meeting examined and approved following resolutions: a. Elect Mr. Zhang Maoli as the Chairman of the 4th Board of Directors, and elect Mr. Liu Xingping as the Vice Chairman of the Board; b. Nominated by the Chairman of the Board, engage Mr. Liu Xingping as the General Manage of the Company; c. Nominated by the General Manager, engage Mr. Deng Guobin, Mr. He Fuchun and Mr. Wang Xuewen as the Company’s Vice General Manager, Mr. Dai Juqing as the General Economist, Mr. He Xuesong as the General Accountant and Mr. He Fuchun as the General Engineer. d. Nominated by Chairman of the Board, Mr. Li Zhongxi was engaged as secretary of the Board, at the same time, deputed Mr. Wu Meng and Mr. Hu Haosong as authorized representative in change of securities affairs. (5) At 9:30 am of Aug. 11, 2003, the Company held the 2nd meeting of the 4th Board of Directors at the office of Wuhan. The meeting was presided by the Chairman of the Board Zhang Maoli, nine directors should be present and actually nine were present, members of the Supervisors Committee and Senior Executives attended the meeting as nonvoting delegates, which is in accordance with the Company Law and the Articles of Association of the Company. The meeting examined and approved Semi year Report and Summary. (6) On the morning of Sep. 30, 2003, the Company held the 3rd meeting of the 4th Board of Directors at the Company’s meeting room. The meeting was presided by the Chairman of the Board Zhang Maoli, nine directors should be present and actually nine were present, members of the Supervisors Committee and part of the Senior Executives attended the meeting as nonvoting delegates, which is in accordance with the Company Law and the Articles of Association of the Company. The meeting examined and approved following resolutions: a. The correction report on the problems of HUBEI SANONDA Co., Ltd. found by Wuhan Security Regulation Office in their circuit examination. b. Approved to apply project loan of RMB 90 million from Shashi Region Branch of Industrial and Commercial Bank of China with term of six years; and approved to take the Company’s machine whose value is RMB 168.6 million as the mortagage of the loan with the term of six years. (7) At 9:30 am of Oct. 19, 2003, the Company held the 4th meeting of the 4th Board of Directors at the Company’s meeting room. The meeting was presided by the Chairman of the Board Zhang Maoli, nine directors should be present and actually eight were present, Independent Director Mr. Tan Liwen was out for business and authorized Independent Director Mr. Liao Hong as his representative. members of the Supervisors 20 Committee attended the meeting as nonvoting delegates, which is in accordance with the Company Law and the Articles of Association of the Company. The meeting examined and approved the following resolutions: a. the Company’s 3rd Quarterly Report of 2003; b. Proposal on Amending the Articles of Association of the Company; c. Proposal on Engaging the Company’s Certified Public Accountants of 2003. Continue to engage Beijing Tianhua Certified Public Accountants as the Company’s domestic auditor of 2003. Change to engage He Xiling Certified Public Accountants as the Company’s International auditor of 2003. (8) On morning of Dec. 18, 2003, the Company held the 5th meeting of the 4th Board of Directors at the Company’s meeting room. The meeting was presided by the Chairman of the Board Zhang Maoli, nine directors should be present and actually nine were present, which is in accordance with the Company Law and the Articles of Association of the Company. The meeting examined and approved the following resolutions: a. Proposal on Purchasing the use right of two pieces of land from SANONDA Group; b. Proposal on jointly invest RMB 5 million and establish Jingzhou Nonghua Chemistry Co., Ltd. (9) On morning of Dec. 30, 2003, the Company held the 6th meeting of the 4th Board of Directors at the Company’s meeting room. The meeting was presided by the Chairman of the Board Zhang Maoli, nine directors should be present and actually nine were present, which is in accordance with the Company Law and the Articles of Association of the Company. The meeting examined and approved proposal on engaging senior executives. Due to the requirements of the Company, Mr. Liu Xingping brought forward the request to resign his position of the Company’s Vice Chairman of the Board and General Manager, elect Direct Mr. Zheng Xianhai as the Vice Chairman of the Board. Nominated by the Chairman of the Board, engage Mr. Zheng Xianhai as the General Manager of the Company. 2. Implementation of the resolution of the Shareholders’ General Meeting by the Board of Directors In the report period, authorized by the Shareholders’ General Meeting, the Board of Directors seriously implemented every resolution of the Shareholders’ General Meeting, and received the supervision from the Supervisory Committee. VII. Profit Distribution Preplan in 2003 Audited as per Chinese Accounting Standards, the Company realized a net profit of RMB 7,400,592.33 in 2003, retroactive adjust the undistributed profit in 2002 of 21 RMB –6,344,584.97, so this year, the profit available for the Shareholders to distribute was RMB –52,446,961.20; As per International Accounting Standards; the Company realized a net profit of RMB 8,482,000, profit available for the Shareholders to distribute was RMB –131,546,000. According to the principle of taking the lower amount, the profits available for distribution was RMB –131,546,000. So the Board of Directors of the Company decided not to distribute the profit in 2002, not to convert public reserve into share capital. The preplan should be submit to 2003 Annual Shareholders’ General Meeting of 2003. VIII. Other Events (1) In the report period, the newspapers appointed for information disclosure is China Securities, Securities Times and Ta Kung Pao. (2) The special explanation of Tianhua Certified Public Accountants on the fund occupied by the Company’s holding shareholders and other related parties: Tianhua Certified Public Accountants presented the Company Special Explanation on the fund occupied by the Company’s holding shareholders and other related parties with THA (2004) No. 080-02 document. According to the requirements of the Information on Some Problems on Regulating the Listed Company and its Related Parties and the Listed Company’s External Guarantee against Rules (SRF [2003] No.56 document) which was released by CSRC and State-owned Assets Supervisory and Administration Committee of the State Council (SASAC), it is the Company’s responsibility to record faithfully and disclose the fund occupied by the holding shareholders and related parties and ensure that it is true, legal and integrity. We have check the relevant contents of the fund occupied by the holding shareholders and related parties recorded in the Company’s Annual Report, of the recheck accountant files during out auditing the Company’s financial report, and of the audited financial report, no significant disaccord has been found. The fund in operation occupied by the holding shareholders and related parties (Unit: RMB) Items 2002.12.31 Increase in this Decrease in this 2003.12.31 period period Holding Shareholders — 0 0 0 0 Occupied in operation (exclude Bank Acceptance Bill) Other Related Parties — 53,975,478.04 127,800,373.04 110,035,503.02 71,740,348.06 Occupied in operation (exclude Bank Acceptance Bill) Occupied by Bank Acceptance Bill 700,000.00 11,339,150.90 5,445,165.00 6,593,985.90 22 Total of the fund occupied in 54,675,478.04 139,139,523.94 115,480,668.02 78,334,333.96 operation The fund in non-operation occupied by the holding shareholders and related parties 2002.12.31 Increase in this Decrease in this 2003.12.31 period period Holding Shareholders — -12,411,016.51 -51,079,657.31 -39,961,130.37 -23,529,543.45 Occupied in non-operation Other Related Parties — 18,996,266.58 73,074,953.10 49,671,841.58 42,399,378.10 Occupied in non-operation Ended Dec.31, 2003, the Company occupied the non-operation fund of its holding shareholder Sanonda Group Company RMB 23,529,543.45, mainly because that in this period, the Company did not pay the fund of land which the Company purchased from Sanonda Group Company. Other related parties occupied the non-operation fund of the Company amounted to RMB 42,399,378.10. (3) The independent opinions from the Independent Directors on the Company’s accumulative and periodic external guarantee: According to the requirements of the CSRC[2003] No.56 document, in order to control the financial risk to a smaller scope, the Company will amend the relevant guarantee items on the Articles of Association and form proposal which will be submit to 2003 Annual Shareholders’ General Meeting for approval. Ended Dec.31,2003, the status of the Company’s external guarantee was: (unit: RMB ‘0000) Name of the Relation Date of Amount Type of Term of Whether Guarantee guarantee object with the occurrence of the the the gua finished decision Company guarantee guarantee rantee procedure and disclosure procedure Sanonda Zhenzhou Subsidiary 2002.8.14 1000 Ordinary 03.1.24- No Pesticide Co.,Ltd. 04.1.23 2003.1.24 1000 Ordinary 03.6.27- No 04.6.27 Sanonda (Jingzhou) Subsidiary 2002.6.28 1127 Ordinary 03.6.28- No Pesticide Chemistry 04.6.27 Co., Ltd. Hubei Fengyuan Subsidiary 2002.8.12 2000 Ordinary 02.7.22- No 23 Chemistry Co., Ltd. 05.7.21 Total occurrence of the related guarantee 5127 Total balance of the related guarantee 5127 Total balance of the guarantee 5127 Section IX. Report of the Supervisory Committee I. Meetings of the Supervisory Committee in 2003 In the report period, the Supervisory Committee of the Company totally held 6 Meetings of the Supervisory Committee with topics for discussion as follows: On April 15, 2003, the Supervisory Committee held the Meeting, which considered and passed such resolutions as Annual Report and its Summary 2002; On April 24, 2003, the Supervisory Committee held the Meeting, which considered and passed the 1st Quarterly Report for 2003; On May 21, 2003, the Supervisory Committee held the Meeting, which considered and passed such resolutions as Renewal of the Supervisory Committee; On June 22, 2003, the Supervisory Committee held the Meeting, which considered and passed such resolutions as Electing Chairman and Vice-chairman of the Supervisory Committee; On Aug. 7, 2003, the Supervisory Committee held the Meeting, which considered and passed such resolutions as Semi-annual Report and its Summary 2003; On Oct. 19, 2003, the Supervisory Committee held the Meeting, which considered and passed such resolutions as the 3rd Quarterly Report for 2002; II. Independent work report 1. Operating according to laws. The members in the Supervisory Committee of the Company attended all the meetings of the Board as nonvoting delegates and supervised on the Company’s decision-making and operation. The Supervisory Committee considered the procedures of the Company’s decision-making were legal and internal control system was improved. In the daily work, the Company’s directors, general manager and senior executives did not disobey laws and regulations and the Articles of Association of the Company, damage the interests of the Company or harm the interests of the shareholders and employees by abusing the authorities. 2. Inspecting the Company’s finance. In the report period, the Supervisory Committee inspected the Company’s business and finance and considered that the unqualified auditor’s report presented by Tin Wha CPAs and Hong Kong Ho And Ho & Company for the Company reflected the Company’s financial position and operating results in an objective and true way. 3. Use of the proceeds raised from the latest public offer. Ended the end of year 2000, 24 the Company’s proceeds raised from B-shares offering had been used up. The change of projects invested with the proceeds raised from B-shares offering was considered and passed by Temporary Shareholders’ General Meeting on Jan. 8, 1999 with legal procedures. The input projects were the same as the changed projects. 4. Acquisition and sales of assets of the Company. The 5th Meeting of the 4th Board of Directors held on Dec. 18, 2003 considered and passed Proposal on Purchasing Two Land Use Right from Sanonda Group Company. The Company invested RMB 29.3368 million to purchase two land use rights amounting to 135,715.54 sq. m. held by Group Company with reasonable price. 5. Related transactions. The related transactions were fair and just, not harming the interests of the Company. Section X. Significant Events I. In the report period, the Company had no any material lawsuit or arbitration. II. In the report period, the Company’s material acquisition and sales of assets, absorption and merger The 5th Meeting of the 4th Board of Directors of the Company held on Dec. 18, 2003 considered and passed Proposal on Purchasing Two Land Use Rights from Sanonda Group Company. The Company invested RMB 29,336,800 to purchase two land use rights amounting to 135,715.54 sq. m. held by the Group Company, which was for the sake of making the property relationships smooth, settling the historical problems left in the aspects of assets and capital separation between the Company and Sanonda Group Company and strengthening the standardized operation of the Company and was also beneficial for reducing the Company’s related transactions and operating risks possibly existing in the future. III. Material related events in the report period: 1. If one company is able to control another company directly or indirectly or plays material influence on the finance and operating decision-making of another company, then the said two companies belong to related parties. Those companies who suffer collective controls or the same material influence can also be considered as related parties. The Group is a part of the larger group member company in Sanonda Group Company, who has obvious transaction and business relationships with the affiliated companies in the same grade. Based on this kind of relationship, the clauses of these transactions are probably not the same with the clauses in the transactions with all non-related parties. Sanonda Group Company itself is held by Chinese Government, who also holds or controls respectable other enterprises (state-owned enterprises) directly or indirectly. 25 According to International Financial Reporting Standards, the state-owned enterprises except for Sanonda Group Company and the affiliated companies in the same grade do not belong to related parties. The related parties refer to those enterprises where Sanonda Group Company is able to exert material influence. Related parties’ names and their relationships with the Group are as follows: Names Relationships Sanonda Group Parent Company Same-graded affiliated companies of Sanonda Group Affiliated companies and associated companies not consolidated The relationships of main related parties are as follows: In 2003 In 2002 RMB’000 RMB’000 Purchasing raw materials from Sanonda Group and its 21,229 22,077 same-graded affiliated companies Purchasing raw materials from affiliated companies and 13,273 12,713 associated companies not consolidated Selling goods to Sanonda Group and its same-graded affiliated 2,009 3,402 companies Selling goods to affiliated companies and associated companies 552 1,248 not consolidated Sanonda provided loan guarantees for the Group (Notes 26) and the amount receivable from related parties on balance sheet date was as follows: In 2003 In 2002 RMB’000 RMB’000 Account receivable from Sanonda Group and its same-graded 3,062 7,453 affiliated companies Account receivable from affiliated companies and associated 778 5,599 companies not consolidated Total 3,840 13,052 The amount payable to related parties on balance sheet date was as follows: In 2003 In 2002 RMB’000 RMB’000 Account payable to Sanonda Group and its same-graded affiliated 542 11,847 26 companies Account payable to affiliated companies and associated companies 1,180 2,004 not consolidated Total 1,722 13,851 The amount receivable (payable) from/to related parties do not include interests with no pledge and with no fixed term for refunding. 2. Related transactions from assets and equity transfer (1) Summary of the related transaction Hubei Sanonda Co., Ltd. (hereinafter referred to as Company or the Company) signed Agreement on Transferring Land Use Rights with Sanonda Group Company (hereinafter referred to as Group Company) in Jingzhou, Hubei on Dec. 16, 2003. The Company planned to purchase two land use rights amounting to 135,715.54 sq. m. held by Group Company. Since Group Company is the first largest shareholder of the Company, holding 81,726,625 shares, taking 27.52% of the Company’s shares, Group Company and the Company form related parties. Therefore, the said transaction forms a related transaction. (2) Introduction of the related party Sanonda Group Company Registered address: No. 93, Beijing East Road, Jingzhou, Hubei Registered capital: RMB 311,101,000 Economic quality: Associated (tight type) Legal representative: Zhang Maoli Business scope: pesticide chemical products, chemical products, medical products, gas, importing and exporting the Company’s products and necessary raw and accessory materials, machinery equipments, fittings, byproducts and transportation of automobile goods. (3) Main contents and pricing policy in the contract of the related transaction Both parties of the transaction: Hubei Sanonda Co., Ltd. and Sanonda Group Company Contents of the transaction: the Company planned to invest RMB 29,336,800 to purchase two land use rights amounting to 135,715.54 sq. m. held by Group Company. Date of agreement signing: Dec. 16, 2003 Pricing of the transaction and transaction price: with Nov. 18, 2003 as norm date, the transaction price for purchasing land use right is based on the total price of land assets assessed by appraisal institutions. Way of the transaction: the Company pays payment to Group Company with self-owned capital within 10 workdays (including the current 27 date of gaining land use right license) from the date when the land use right is transferred to the Company according to laws (namely the Company’s gaining the letter on transferring land use right). (2) Guarantees In the report period, the Company had no any material external guarantee. IV. Material contracts and their implementations: 1. In the report period, the Company did not trust, contract or lease the assets of other companies or vice versa. 2. Material guarantees 1) Short-term loans Guarantors Borrowers Sanonda Sanonda Sanonda Sanonda Sanonda Jingzhou Fengyuan Co., Ltd. Zhengzhou Jingzhou Qichun Sanonda Chemical Pesticide Chemurgy Chemurgy Real Estate Company Company Company Company I. Short-term loans Sanonda Group Company 5,000,000.00 2,000,000.00 40,000,000.00 990,000.00 810,000.00 5,000,000.00 Sanonda Co., Ltd. 20,000,000.00 11,270,000.00 Sanonda Foreign Trade Company 350,000.00 Total 5,000,000.00 2,000,000.00 60,000,000.00 12,610,000.00 810,000.00 5,000,000.00 2) Long-term loans Guarantors Borrowers Sanonda Fengyuan Chemical Sanonda Zhengzhou Pesticide Company Company Sanonda Group Company 10,000,000.00 8,680,000.00 Sanonda Co., Ltd. 20,000,000.00 Total 30,000,000.00 8,680,000.00 The guarantees provided to the controlling subsidiaries by the Company are mainly used for loan guarantee of current capital and can be refunded basically on time according to requirements in the Articles of Association and from relevant bank departments, strictly in compliance with relevant procedures, which shall not impact 28 adverse influence on the Company. 3. In the report period, the Company did not entrust others to conduct management of cash assets or there was no entrusted loan. V. In the report period, the Company or shareholders holding over 5% shares of the Company had no commitment to be disclosed in the report period or continuing to the report period. VI. In the report period, the Company continued to engage Tin Wha CPAs as the domestic auditor and preliminarily decided the auditing expense for year 2003 amounting to RMB 300,000 (excluding room and board expense and business expense of staffs). The said CPAs and its former identity namely Zhongxin Certified Public Accountants and Zhongtianxin Certified Public Accountants have provided auditing service for the Company for 11 years. The Company changed to engage Hong Kong Ho And Ho & Company as the Company’s foreign auditor and paid its annual auditing remuneration amounting to HKD 500,000 in accordance with the agreement signed by the both parties, while the business traveling expense was to be burdened by the Company. The said CPAs provided auditing service for the Company from year 2003. (The Company disclosed the said event, which still should be considered and passed by Shareholders’ General Meeting 2003 of the Company, in the designated newspapers on Oct. 19, 2003) VII. In the report period, the Company, its Board and Directors have not been checked, punished, criticized with circulars by CSRC or condemned publicly by Shenzhen Stock Exchange. CSRC Wuhan Securities Regulatory Office conducted traveling inspection to the Company during July 28 to Aug. 1, 2003, conducted spot inspection to the Company in the aspects of normative operation, information disclosure, use of raised proceeds and finance and issued Circular on Rectification in Limited Term (WSRTW (2003) No. 14 document, hereinafter referred to as Circular) on Sept. 3. After receiving the Circular, the Company’s directors, supervisors and senior executives seriously studied and researched the Circular, analyzed the problems listed in the Circular item by item and established corresponding measures of rectification. On Sept. 30, 2003, the 3rd Meeting of the 4th Board of Directors of the Company considered and passed Rectification Report of Hubei Sanonda Co., Ltd. on Problems in Traveling Inspection by CSRC Wuhan Securities Regulatory Office (The Company disclosed the said resolution of the Board of Directors in the designated newspapers on Sept. 30, 2003). 29 Hubei Sanonda Co., Limited Report and Financial Statements For the year ended 31st December 2003 Ho and Ho & Company Certified Public Accountants Hong Kong 30 Hubei Sanonda Co., Ltd Report and Financial Statements For the year ended 31st December 2003 Content Pages Report of the Auditors 1 Consolidated income statement 2 Consolidated balance sheet 3-4 Consolidated statement of changes in equity 5 Consolidated cash flow statement 6-7 Notes to the financial statements 8 - 34 REPORT OF THE AUDITORS To the shareholders of Hubei Sanonda Co., Limited (incorporated in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Hubei Sanonda Co., Limited (the “Company”) and its subsidiaries (together with the Company referred to as the “Group”) as of 31st December 2003 and the related consolidated statements of income, cash flows and statement of changes in equity for the year then ended. These consolidated financial statements set out on pages 2 to 34 are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing 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 management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31st December 2003, and 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. Ho and Ho & Company Certified Public Accountants 25th March 2004, Hong Kong 1 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 Consolidated income statement for the year ended 31st December 2003 (Expressed in Renminbi Thousand Yuan) Note 2003 2002 RMB’000 RMB’000 Turnover 4 858,705 652,210 Cost of sales (729,757) (570,419) Gross profit 128,948 81,791 Other operating income 17,766 5,428 Distribution expenses (43,318) (65,998) Administrative expenses (76,153) (142,354) Other operating expenses (4,001) (1,267) Profit (loss) from operations 5 23,242 (122,400) Net financing costs 6 (20,792) (24,224) Investment income 3,567 2,112 Profit (loss) before tax and minority interests 6,017 (144,512) Income tax expenses 7 (4,589) (17,876) Profit (loss) before minority interests 1,428 (162,388) Minority interests 7,054 5,779 Net profit (loss) for the year 8,482 (156,609) Earnings (loss) per share – Basic 9 RMB0.03 RMB(0.53) 2 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 Consolidated balance sheet as at 31st December 2003 (Expressed in Renminbi Thousand Yuan) Note 2003 2002 RMB’000 RMB’000 Assets Non-current assets Property, plant and equipment 11 463,391 402,134 Land use rights 12 175,261 149,150 Construction in progress 13 20,806 58,518 Investments in unconsolidated subsidiaries 2,653 2,653 Investments in associates 14 5,048 2,138 Investments in non-trading securities 15 11,931 12,570 Intangible assets 16 5,128 5,676 Negative goodwill 17 (408) (458) Other assets 47 112 Total non-current assets 683,857 632,509 Current assets Inventories 18 257,653 311,061 Investments in trading securities 19 74,154 69,253 Trade and other receivable 240,365 183,791 Income tax recoverable 8,750 19,601 Prepaid expenses and other current assets 30,978 120,603 Cash and cash equivalents 220,610 205,238 Total current assets 832,510 909,547 Total assets 1,516,367 1,542,056 3 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 Consolidated balance sheet as at 31st December 2003 (Expressed in Renminbi Thousand Yuan) Note 2003 2002 RMB’000 RMB’000 Equity and liabilities Shareholders’ equity Share capital 21 296,962 296,962 Capital reserve 22 565,633 565,633 Surplus reserves 23 62,676 62,676 Accumulated losses (131,546) (139,414) 793,725 785,857 Minority interests 32,136 39,190 Non-current liabilities Deferred revenue 25 8,422 3,846 Long-term bank borrowings 26 88,760 46,280 Total non-current liabilities 97,182 50,126 Current liabilities Trade and other payable 268,234 392,488 Short-term bank borrowings 287,838 197,663 Current portion of long- term bank borrowings 26 37,253 76,732 Total current liabilities 593,345 666,883 Total liabilities 690,527 717,009 Total equity and liabilities 1,516,387 1,542,056 The financial statements on pages 2 to 53 were approved and authorized for issue by the Board of Directors on 25th March 2004 and are signed on its behalf by: Director Director 4 Financial St Consolidated statement of changes in equity for the year ended 31st December 2003 (Expressed in Renminbi Thousand Yuan) Accumulated Share Capital Surplus (losses) capital reserve reserves profits RMB’000 RMB’000 RMB’000 RMB’000 Balance at 1st January 2002 296,962 565,353 57,287 23,905 Waiver of a payable in a subsidiary’s book - 280 - - Net loss for the year - - - (153,652) Appropriations - - 5,389 (5,389) Balance at 31st December 2002 and 1st January 2003 296,962 565,633 62,676 (135,136) Net profit for the year - - - 8,482 Dividend paid - - - (614) Balance at 31st December 2003 296,962 565,633 62,676 (131,546) 5 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2004 Consolidated cash flow statement for the year ended 31st December 2003 (Expressed in Renminbi Thousand Yuan) 2003 2002 RMB’000 RMB’000 Profit (loss) before tax 6017 (144,512) Adjustments for: Depreciation of property, plant and equipment 59,559 57,600 Amortization of land use rights 3,226 3,420 Amortization of intangible assets 1,024 1,096 Amortisation of other assets 68 - Negative goodwill released to income (50) - Deferred revenue released to income (160) (131) Gain on disposal of investments (3,067) (3,957) Unrealized loss on fair value adjustment of investment - 1,952 Loss on disposal of property, plant and equipment 7,416 491 Impairment loss on property, plant and equipment 1,578 17,015 Impairment loss on associate - 1,515 Impairment charge for bad debt and doubtful debts - 26,188 Written off of negative goodwill upon acquisition of minority interests - (445) Written off of inventories to net realisable value - 11,463 Interest expenses 28,514 30,919 Interest income (8,052) (5,625) Operating cash flows before movements in working capital 96,073 (3,011) Decrease (Increase) in inventories 53,408 (82,711) (Increase) decrease in trade accounts receivable (56,574) 46,372 (Decrease) increase in trade accounts payable (64,542) 95,048 Cash generated by operations 28,365 55,698 Income tax refunded (paid) 6,262 (7,355) Net cash from operating activities 34,627 48,343 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 Consolidated cash flow statement for the year ended 31st December 2003 (Expressed in Renminbi Thousand Yuan) Note 2003 2002 RMB’000 RMB’000 Net cash from operating activities 34,627 48,343 Investing activities Government grants received 4,736 3,908 Proceeds from disposal of property, plant and equipment, intangible assets and other assets 158 1,691 Proceeds from disposal of investments 78,825 - Purchase of property, plant and equipment , intangible assets and other assets (84,350) (103,817) Purchase of investments (79,451) - Net cash used in investing activities (80,082) (98,218) Financing activities Interest paid (29,266) (31,415) Interest received 8,052 3,859 Capital injection from minority shareholders - 18,000 Dividend paid (614) - Dividend paid to minority shareholders - (3,115) New bank loans raised 477,873 196,304 Repayments of bank loans (395,218) (249,864) Net cash from (used in) financing activities 62,055 (66,231) Net increase decrease) in cash and cash equivalents 15,372 (116,106) Cash and cash equivalents at beginning of year 205,238 321,344 Cash and cash equivalents at end of year Bank balances and cash 220,610 205,238 7 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 Notes to the financial statements for the year ended 31st December 2003 1. General information Hubei Sanonda Co., Limited (the “Company”) was established as a joint stock limited company in the People’s Republic of China (the “PRC”) on 30th September 1992. Its domestically listed ordinary public shares (A shares) and domestically listed foreign ordinary public shares (B shares) have been listed on the Shenzhen Stock Exchange since December 1993 and May 1997 respectively. The Company considers that Sanonda Group Company (“SGC”) is its parent and ultimate parent company. The Company together with its consolidated subsidiaries is collectively referred to as the “Group”. The Group is principally engaged in the manufacturing and sale of agrochemical and chemical products; and property development. As of 31 December 2003, the Company has direct interests in the following subsidiaries, all of which are incorporated in the PRC. Particulars of which are set out below: Attributable equity Name of company interests Principal Activities a) Consolidated subsidiaries Qichun Agrochemical Co., Limited Manufacturing and sale of (沙隆達蘄春有限公司) 70% agrochemicals Jinzhou Agrochemical Co., Limited Manufacture and sale of (沙隆達(荊州)農葯化工有限公司) 87.5% agrochemicals Hubei Sanonda International Trade Co., 90% Import and export sales of Limited agrochemical, chemical and (湖北沙隆達對外貿易有限公司) medicinal products Sanonda Zhengzhou Agrochemical Co., 70% Manufacture and sale of Limited agrochemical and chemical (沙隆達鄭州農葯有限公司) products Sanonda Tianmen Agrochemical Co., Limited 85% Manufacture and sale of (湖北沙隆達天門農化有限責任公司) agrochemicals Jinzhou Sanonda Real Estate Development 90% Real estate development (荊州市沙隆達房地產開發有限公司) Hubei Feng Yuan Chemical Co., Limited 55% Manufacture and sale of (湖北丰源化工有限公司) chemical products 8 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 Attributable equity Name of company interests Principal Activities b) Unconsolidated subsidiaries Sanonda Dali Co. 53% Manufacture and sale of (沙隆達達利實業公司) packaging materials Jinzhou Sanonda Advertisement Co., Limited 60% Design, make, release and (荊州沙隆達廣告有限公司) agency of domestic advertisement c) Associates Jinzhou Sida Chemical Plant 50% Manufacture and sale of (荊州市四達化工廠) agrochemicals 1 Zhengzhou Sanonda Weixin Agrochemical 21% Manufacture and sale of Co., Limited agrochemical (鄭州沙隆達偉新農葯有限公司) Jinzhou Sanonda Jianghan Pharmaceutical 25% Manufacture and sale of Co., Limited pharmaceutical products (荊州市沙隆達江漢制葯有限公司) Jinzhou Tianyang Huibao Micro Chemical 48% Manufacture and sale of Co., Limited chemical products (荊州市天氧滙寶精細化工有限公司) 北京英力精化技術發展有限公司 33.75% 2. Prior period adjustment According to the notice from Hubei Province Local Tax Bureau, the Company had been undercharged of tax payment other than income tax for RMB1,322,000 for the years prior to 2002 and by RMB2,959,000 for 2002. Accordingly, prior period adjustment was made resulting in the decrease of shareholders’ equity by RMB1,322,000 and RMB4,281,000 of 2001 and 2002 respectively. 3. Principal accounting policies a) Statement of compliance The consolidated financial statements of the Group have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) promulgated by the International Accounting Standards Board (“IASB”). IFRS includes International Accounting Standards (“IAS”) and related interpretations. The Group maintains its accounting records and prepares its statutory financial statements in accordance with PRC Accounting Standards for Business Enterprises and the Accounting System for Business Enterprises (“Statutory Financial Statements”). 9 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 4. Principal accounting policies (continued) a) Statement of compliance (continued) The accounting policies and basis adopted to the preparation of the Statutory Financial Statements differ in certain respects from IFRS. The differences arising from the restatement of the results of operations and the net assets for compliance with IFRS are adjusted in financial statements but will not be taken up in the accounting records of the Group. b) Basis of preparation The consolidated financial statements have been prepared in Renminbi (“RMB”), the currency in which the majority of the Group’s transactions are denominated. Except for certain financial instruments which are stated at their fair value, the financial statements have been prepared on the historical cost basis. The accounting policies have been consistently applied by the Group and are consistent with those of the previous year. The principal accounting policies adopted in this report are set out below: c) Basis of consolidation The consolidation financial statements include the financial statements of the Company and its 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 results of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases, and the share attributable to minority interests is deducted from or added to the profit from ordinary activities after taxation. All significant inter-company balances, transactions, and any unrealized gains arising from intercompany transactions are eliminated on consolidation. d) Investments in unconsolidated subsidiaries Investments in unconsolidated subsidiaries are not material to the consolidated financial statements of the Group both individually and taken as a whole. Their assets, liabilities and results are not consolidated. Instead, they are regarded as available-for-sale financial assets, and are stated at cost less provision for impairment loss. e) Interests in associates An associate is a company, not being a subsidiary, in which the Group exercises significant influence over its management. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control over those policies. 10 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 3. Principal accounting policies (Continued) e) Interests in associates (Continued) Investments in associates are not material to the consolidated financial statements of the Group both individually and taken as a whole. They are not accounted for by the equity method of accounting. Instead, they are regarded as non-trading financial assets, and are stated at cost less provision for impairment loss. f) Foreign currency transactions Transactions in foreign currencies are translated to RMB at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet dates are re-translated to RMB at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities denominated in foreign currencies, that are stated at historical cost are translated to RMB at the foreign exchange rate ruling at the date of the transaction. Exchange gains and losses are recognized as income or expense in the income statement, except those capitalized as construction in progress and those arising from the translation at closing rates of foreign currency assets hedged by foreign currency borrowings, and the gains and losses on those foreign currency borrowings (to the extent of exchange differences arising on the foreign currency assets), which are taken directly to reserves. The results of foreign enterprises are translated into RMB at the average exchange rates for the year; balance sheet items are translated into RMB at the rates of exchange ruling at the balance sheet date. The resulting exchange differences are dealt with as a movement in reserves. On disposal of a foreign enterprise, the cumulative amount of the exchange differences which relate to that foreign enterprise is included in the calculation of the profit of loss on disposal. g) Property, plant and equipment i) Owned assets Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost for self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads and borrowing costs. Where an item of property, plant and equipment comprises major components having difference useful lives, they are accounted for as separate items of property, plant and equipment. ii) Subsequent expenditure Expenditure incurred to replace a component of an item of property, plant and equipment, including inspection and overhead expenditure, is capitalized. Other subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property, plan and equipment. All other expenditure is recognized in the income statement as an expense as incurred. 11 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 3. Principal accounting policies (Continued) g) Property, plant and equipment (Continued) iv) Depreciation Depreciation is charged to the consolidated income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment. The estimated useful lives are as follows: Year Buildings 24 years Machinery and equipment 9 – 18 years Motor vehicles 9 years v) Disposals Gains or losses arising from the retirement or disposal of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated income statement on the date of retirement or disposal. h) Land use rights Land use rights acquired are classified as operating leases. The prepaid lease payments are and amortised on a straight-line basis over the leased periods of 50 years. i) Construction in progress Construction in progress represents properties under construction and is stated in the consolidated balance sheet at cost less impairment losses. Cost comprises direct cost of construction as well as interest charges and foreign exchange differences on related borrowing funds to the extent that they are regarded as an adjustment to interest charges during the period of construction. Construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use. No depreciation is provided in respect of construction in progress. 12 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 3. Principal accounting policies (Continued) j) Intangible assets Intangible assets that are acquired by the Group are stated in the balance sheet at cost less accumulated amortization and impairment losses. Amortization is charged to the income statement on a straight-line basis over estimated useful life of the intangible asset. Subsequent expenditure on an intangible asset after its purchase or its completion is recognized as an expense when it is incurred unless it is probable that this expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standard of performance and this expenditure can be measured and attributed to the asset reliably. If these conditions are met, the subsequent expenditure is added to the cost of the intangible asset. k) Investment The Group classified its investments in debt and equity securities into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the same time of the purchase and re-evaluates such designation on a regular basis. Dated debt securities that the Group has the ability and intention to hold to maturity are classified as “held-to-maturity securities”. Held-to-maturity securities are stated in the consolidated balance sheet at amortised cost less provision for impairment losses. Provisions are determined for each investment individually and are recognized in the income statement when carrying amounts are not expected to be fully recovered. For the periods presented, none of the Group’s debt securities were classified as held-to maturity securities. Securities that are acquired principally for the purpose of generating a profit from short term fluctuations in price or dealer’s margin are classified as “trading securities”. Trading securities are stated in the balance sheet at fair value with the changes in the fair value included in the income statement. The fair value for listed securities is based on the quoted market price without any deduction from transaction costs. Securities other than those classified as held-to-maturity and trading are classified as “non-trading securities”. Non-trading securities are stated in the balance sheet at cost less impairment losses. Gains or losses on disposal of investment are determined on the specific identification basis and are accounted for in the income statement on the trade date. Dividend income from unlisted securities is recognized when the right to receive payment is established. Dividend income from listed securities is recognized when the underlying securities are quoted ex-dividend or ex-distribution. Interest income from debt securities is recognized as it accrues, as adjusted by the amortization of the discount or accretion of the premium, so as to achieve a constant rate of return over the period from the date of purchase to the date of maturity. Other interest income is accrued on a time-apportioned basis buy reference to the principal outstanding and the rate applicable. 13 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 3. Principal accounting policies (Continued) l) Negative goodwill Negative goodwill arising on an acquisition represents the excess of the fair value of the net identifiable assets acquired over the cost of acquisition. To the extent that negative goodwill relates to an expectation of future losses and expenses that is identified in the plan of acquisition and can be measured reliably, but which has not yet been recognized, it is recognized in the income statement when the future losses and expenses are recognized. Any remaining negative goodwill, but not exceeding the fair values of the non-monetary assets acquired, is recognized in the income statement over the weighted average useful life of those assets that are depreciable/amortizable. Negative goodwill in excess of the fair value of the non-monetary assets acquired is recognized immediately in the income statement. On disposal of subsidiaries, any attributable amount of purchased goodwill not previously amortised through the income statement or which has previously been dealt with as a movement on group reserves is included in the calculation of the profit or loss on disposal. m) Impairment The carrying amounts of long-lived assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to the recoverable amount. The recoverable amount is the greater of the net selling price and the value in use. In determining the value in use, expected future cash flows generated by the asset are discounted to their present value. The amount of the reduction is recognized as an expense in the income statement. The Group assesses at each balance sheet date whether there is any indication that an impairment loss recognized for an asset in prior years may no longer exist. An impairment loss is reversed if there has been a favorable change in the estimates used to determine the recoverable amount. A subsequent increase in the recoverable amount of an asset, when the circumstances and events that led to the write-down or write-off cease to exist, is recognized as income. n) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses. The cost of inventories is calculated based on the weighted average costing method 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 overheads based on normal operating capacity. 14 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 3. Principal accounting policies (Continued) o) Completed properties for sale Completed properties for sale are stated at the lower of cost and net realizable value. Cost is determined by apportionment of the total land and development costs attributable to unsold properties, and an appropriate portion of production overheads and borrowing costs. Net realizable value represents the estimated selling price less the estimate costs necessary to make the sales. p) Properties under development for sale Properties under development held for sale are stated at the lower of cost and net realizable value. Cost includes cost of land use rights acquired, construction costs and an appropriate proportion of production overheads and borrowing costs during the period of construction. Net realizable value represents the estimated selling price less the estimated costs of completed and the estimated costs necessary to make the sale. q) Trade and other receivables Trade and other receivables are stated at cost less allowance for doubtful accounts. An allowance for doubtful accounts is provided based upon the evaluation of the recoverability of these accounts at the balance sheet date. r) Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash balances and call deposits, short-term highly liquid investments with original maturities of three months or less. s) Interest-bearing borrowings Interest-bearing borrowings are recognized initially at cost, less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognized in the income statement over the period of the borrowings on an effective interest basis. t) Trade and other payables Trade and other payables are stated at their cost. u) 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. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risk specific to the liability. 15 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 3. Principal accounting policies (Continued) v) Deferred revenue and government grants Deferred revenue represents the portion of income relating to the unexpired period of government grants. A government grant is initially recognized as deferred revenue, when there is reasonable assurance that the Group will comply with the conditions attaching with it and that the grant will be received. Grants relating to income are recognized in the income statement on a systematic basis to match with the related costs which they are intended to compensate. Grant relating to assets is recognized in the accounts on a systematic basis over the useful life of the asset. Government grants relating to the purchase of fixed are included in non-current liabilities as deferred revenue and are credited to the income statement on a straight-line basis over the expected lives of the related assets. w) Revenue i) Sales of goods Revenue from the sale of goods is recognized in the income statement when the significant risks and rewards of ownership have been transferred to the buyer. ii) Sales of completed properties Revenue from the sale of completed properties is recognized upon signing of the sale and purchase agreement when the significant risks and rewards of ownership have been transferred to the buyer. Deposits and installments received on properties sold prior to the date of revenue recognized are included in the consolidated balance sheet under deposits received in advance. iii) Interest income Interest income from bank deposits if accrued on a time-apportioned basis by reference to the principal outstanding and the rate applicable. x) Expenses i) Operating lease payments Payments made under operating lease are recognized in the income statement on straight-line basis over the terms of the respective leases. Lease incentive received is recognized in the income statement as an integral part of the total lease expense. Contingent rental are charged to the income statement in the accounting period in which they are incurred. 16 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 3. Principal accounting policies (Continued) x) Expenses (Continued) ii) Net financing costs Net financing costs comprise interest payable on borrowings, calculated using the effective interest rate method, interest receivable on funds invested and foreign exchange gains and losses. Interest income is recognized in the income statement as it accrues, taking into account the effective yield on the assets. Interest expenses are recognized in the income statement using the effective interest rate method. iii) Borrowing costs Borrowing costs are expensed in the income statement in the period in which they are incurred, except to the extent that they are capitalized as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale. The capitalization of borrowing costs as part of the cost of a qualifying asset commences when expenditures for the asset are being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalization of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete. y) Retirement benefits The Group participates in retirement schemes operated by local authorities and the annual cost of providing retirement benefits is charged to the consolidated income statement according to the contribution determined by the relevant schemes. The Group has no further liability to the retirement schemes operated by the local authorities. z 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 in respect of previous years. 17 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 3. Principal accounting policies (Continued) z Income tax (Continued) Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Initial recognition of assets or liabilities that affect neither accounting nor taxable profit is regarded as temporary difference which is not provided for. 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 asst 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. aa) Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segment. 4. Turnover Turnover represents revenue from sale of agrochemical products and properties. The amount of each significant category of revenue recognized in turnover during the year is as follows:- 2003 2002 RMB’000 RMB’000 Sales of agrochemical products and chemicals 821,120 652,210 Sales of properties 37,585 - 858,705 652,210 5. Profit (loss) from operations Profit (loss) from operations is arrived at after charging (crediting): 2003 2002 RMB’000 RMB’000 Depreciation on property, plant and equipment 60,915 57,600 Amortization of land use rights 2,294 3,240 Amortisation of intangible assets 1,024 1,096 Written off of construction in progress 4,428 7,872 Trading investment- fair value adjustment (160) 1,952 Amortisation of negative goodwill (50) (45) 18 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 6. Net financing costs 2003 2002 RMB’000 RMB’000 Interest expenses on borrowings 29,266 32,084 Less: Amount capitalised in construction in progress (752) (2,032) 28,514 30,052 Interest income (8,052) (6,701) Exchange difference 6 213 Others 324 660 20,792 24,224 7. Income tax expenses Income tax expenses in the consolidated income statement represent: 2003 2002 RMB’000 RMB’000 Current tax 4,589 6,080 Deferred tax - 11,796 4,589 17,876 A reconciliation of the expected tax with the actual tax expense is as follows:- 2003 2002 RMB’000 RMB’000 Profit from ordinary activities before taxation 6,032 (144,512) Expected PRC income tax expense at a statutory tax rate of 33% 1,991 (47,589) Tax effect of expenses that are not deductible in determining taxable profit 2,598 558 Tax effect of unrecognized temporary differences arise in the current year - 53,211 Prior year deferred tax asset written off - 11,796 Total tax expense for the year 4,589 17,876 The provision for PRC current income tax is based on a statutory rate of 33% of the assessable income of the Group as determined in accordance with the relevant income tax rules and regulations of the PRC. 19 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 7. Income tax expenses (Continued) No deferred tax asset in respect of the Group’s deductible temporary differences as of 31st December 2003 because it is uncertain as to whether sufficient taxable profits will be available against which the deferred tax assets can be utilized. 8. Dividends The Directors propose not to declare any dividends for the year. 9. Earnings (loss) per share The earnings (loss) per share for the year ended 31st December is calculated based on the net profit for the year of RMB 8,482,000(2002: net loss for the year of RMB156,609,000) and the weighted average number of ordinary shares outstanding during the year of 296,962,000 shares (2002: 296,962,000 shares). The amount of diluted earning per share is not presented as there were no dilutive potential ordinary shares in expositing during the years presented. 10. Employee benefit plan As stipulated by the regulation of the PRC, the Group participates in various defined contribution retirement plans organized by municipal and provincial government for its staff. The Group is required to make contributions to the retirement plan at rates ranging from 16% to 30% of the salaries, bonus and certain allowances of its staff. A member of the plan is entitled to a pension equal to a fixed proportion of the salary prevailing at his or her retirement date. The Group has no other material obligations for the payment of pension benefits associated with these plans beyond the annual contribution described above. The Company’s contribution to the defined contribution plans is recognized as an expense in the income statement as incurred. 20 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 11. Property, plant and equipment Machinery and Motor Buildings Equipment Vehicle Total RMB’000 RMB’000 RMB’000 RMB’000 Cost At 1st January 2003 254,245 539,366 13,616 807,227 Additions 47,946 75,264 1,390 124,600 Disposal (331) (14,619) (2,355) (17,305) At 31st December 2003 301,860 600,011 12,651 914,522 Accumulated depreciation and impairment losses At 1st January 2003 81,248 316,057 7,788 405,093 Depreciation charge for the year 8,087 51,765 1,041 60,893 Written back on disposal (415) (12,786) （1,654) (14,858) At 31st December 2003 88,920 355,036 7,175 451,113 Net book value At 31st December 2003 212,940 244,975 5,476 463,391 At 31st December 2002 172,997 223,309 5,828 402,134 All of the buildings owned by the Group are located in the PRC under medium lease (lease periods of 10 years or more but less than 50 years). The additions of property, plant and equipment during the year includes assets of RMB30,893,000 transferred from construction in progress. As of 31st December 2003, certain of the Group’s property, plant and equipment amounting to RMB18,972,000 were mortgaged as collateral for bank loans. 21 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 12. Land use rights 2003 RMB’000 Cost At 1st January 2003 159,947 Additions 29,337 At31st December 2003 189,284 Accumulated amortisation At 1st January 2003 10,797 Charge for the year 3,226 At 31st December 2003 14,023 Net book value At 31st December 2003 175,261 At 31st December 2002 149,150 13. Construction in progress 2003 2002 RMB’000 RMB’000 At 1st January 62,159 71,104 Additions 16,470 51,267 Amount transferred to property, plant and equipment (46,522) (33,431) Amount transferred to consolidation income statement (7,416) (26,781) At 31st January 52,164 62,159 Less: Impairment losses (3,885) (3,641) 20,806 95,948 22 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 14. Investments in associates 2003 2002 RMB’000 RMB’000 Unlisted shares, at cost 6,563 3,653 Less: Impairment loss recognized (1,515) (1,515) 5,048 2,138 15. Investments in non-trading securities 2003 2002 RMB’000 RMB’000 Unlisted shares 27,241 27,520 Less: Provision for impairment losses (17,500) (17,500) 9,741 10,020 Listed shares 2,190 2,370 National debts debenture - 180 11,931 12,570 16. Intangible assets Intangible assets comprised technical know-how and the movement during the year is as follows: 2003 RMB’000 Cost At 1st January 2003 10,411 Acquisition 460 End of year 10,871 Accumulated amortization Beginning of year 4,719 Charge for the year 1,024 End of year 5,743 Net book value End of year 5,128 Beginning of year 5,692 23 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 17. Negative goodwill 2003 RMB’000 Cost At 1st January 2003 and 31st December 2002 503 Accumulated amortisation At 1st January 2003 45 Amortisation for the year 50 At 31st December 2003 95 Net book value At 31st December 2003 408 At 31st December 2002 458 18. Inventories 2003 2002 RMB’000 RMB’000 Raw materials 121,774 50,184 Work-in-progress 21,631 45,963 Finished goods 107,819 196,394 Real estate in development 22,722 37,148 273,946 329,689 Less: Allowance for diminution in value of inventories (16,293) (18,628) 257,653 311,061 19. Investments in trading securities 2003 2002 RMB’000 RMB’000 Listed equity securities, at market value - 5,395 National debts 75,154 63,858 PRC listed equity securities, at market value 75,154 69,253 24 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 20. Cash and cash equivalents An analysis of the balance of cash and cash equivalents is set out below: 2003 2002 RMB’000 RMB’000 Cash at bank 220,238 204,866 Cash in hand 372 372 220,610 205,238 21. Share capital 2003 2002 No. of No. of shares shares ’000 RMB’000 ‘000 RMB’000 Registered, issued and fully paid: Listed:- A shares of RMB1.00 each 97,232 97,232 97,232 97,232 B shares of RMB1.00 each 115,000 115,000 115,000 115,000 212,232 187,368 187,368 187,368 Unlisted:- State-owned A shares of RMB 1 each 84,730 84,730 84,730 84,730 296,962 296,962 296,962 296,962 All A shares and B shares rank pari passu in all respects. 22. Capital reserve In accordance with the articles of association, the Company shall record the following as capital reserve: (i) share premium; (ii) donations; (iii) appreciation arising from revaluation of assets; and (iv) other items in accordance with the articles of association and relevant regulations in the PRC. Capital reserve may be utilized to offset prior years’ losses or for the issuance of bonus shares. As at 31st December 2002, the capital reserve of the Company mainly represents share premium, that is, net assets acquired from SGC in excess of par value of state shares issued and proceeds from the issuance of A shares and B shares in excess of their par value, net of expenses directly relating to the issue of the shares. The application of the share premium account is governed by Section 178 and 179 of the PRC Company Law. 25 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 23. Surplus reserves 2003 2002 RMB’000 RMB’000 Statutory surplus reserve 39,240 39,240 Statutory public welfare fund 19,620 19,620 Discretionary surplus reserve 3,816 3,816 62,676 62,676 a) Statutory surplus reserve According to the Company’s Articles of Association, the Company and its subsidiaries are required to transfer 10% of its net profit, as determined in accordance with the PRC Accounts g Rules and Regulations, to statutory surplus reserve until the reserve balance reaches 50% of the registered capital. The transfer to this reserve must be made before distribution of a dividend to shareholders. Statutory surplus reserve can be used to make good previous years’ losses, if any, and may be converted into shares capital by the issue of new shares to shareholders in proportion to their existing shareholdings or by increasing the par value of the shares currently held by them, provided that the balance after such issue is not less than 25% of the registered capital. b) Public welfare fund reserve According to the Company’s Articles of Association, the Company and its subsidiaries is required to transfer 5% to 10% of its net profit, as determined in accordance with the PRC Accounting Rules and Regulations, to the statutory public welfare fund. This fund can only be utilized on capital items for the collective benefits of the Company’s employees such as the construction of dormitories, canteen and other staff welfare facilities. This fund is non-distributable other than on liquidation. The transfer to this fund must be made before distribution of a dividend to shareholders. c) Discretionary surplus reserve Discretionary surplus reserve fund is appropriated after the appropriation of statutory surplus reserve and statutory public welfare reserve at the resolution of the Board of Directors and the discretion of the general shareholders’ meeting. Its usage is similar to that of stationary surplus reserve. 26 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 24. Retained profits available for distribution The Company is in the loss position as at 31st December 2003. Accordingly, no profits are available for distribution to the shareholders. 25. Deferred revenue Deferred revenue represents a government grant for purchase of plant and equipment. Such plant and equipment was put into operational use and has an average useful life of 10 years. This government grant, net of the related enterprise income tax payable calculated at 33% of the gross amount, was recorded as deferred revenue in the balance sheet. 26. Bank borrowings The analysis of long-term bank borrowings is as follows: 2003 2002 Interest rate Interest rate per annum Amount per annum Amount RMB’000 RMB’000 Secured 6% 75,633 0%-10.8% 31,022 Guaranteed 0-5.76% 50,380 0%-10.08% 86,290 Unsecured and not 7.56% 5,700 guaranteed 126,013 123,012 Less: Amount overdue or repayable within one year (37,253) (76,732) 88,760 46,280 The above guaranteed bank loans were guaranteed by SGC. The maturities of the Group’s long-term bank borrowings are as follows: 2003 2002 RMB’000 RMB’000 Amount overdue 27,653 - Within one year 9,600 76,732 Between one to two years - 8,800 Between two to five years 38,680 37,480 After five years 50,080 - 126,013 123,012 27 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 26. Bank borrowings (Continued) As of 31 December 2003, the Company had been negotiating with the banks for renewing the relevant repayment terms. The Directors are of the opinion that the negotiations will be concluded in the near future. There will have no material adverse impact on the Group’s operating and cash flow. 27. Financial instruments Financial assets of the Group include cash and cash equivalents, trade and other receivables and amounts due from related companies. Financial liabilities of the Group include bank loan loans, trade and other payables and amounts due to related companies. The Group has no derivative instruments that are designated and qualified as hedging instruments at 31st December 2003 and 2002. Exposure to credit, interest rate and currency risk arises in the normal course of the Group’s business. a) Credit risk The carrying amounts of cash and cash equivalents, receivables and investments represent the Group’s maximum exposure to credit risk in relation to financial assets. Cash is placed with reputable banks. The majority of the Group’s trade account receivable relate to sales of agrochemical products to related parties and third parties. The Group performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on trade accounts receivable. The Group maintains an allowance for doubtful accounts and actual losses have been within management’s expectations. The Group has no significant concentration of credit risk with any single counterparty or group counterparties. b) Liquidity risks The Group’s implements prudent liquidity risk management, which implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilitates, and the ability to close out market positions. c) Interest rate risk The Group’s income and operating cash flows are substantially independent of changes in market interest rate. The Group has no significant interest-bearing assets. The Group policy is to maintain all its borrowings in fixed rate instruments. 28 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 27. Financial instruments) (Continuous) d) Foreign currency risk The Group has no significant foreign currency transactions other than its overseas sales. Substantially all of the Group’s overseas sales are denominated in United States dollars (“USD”). The Group does not enter into any foreign exchange forward contracts or use other means to hedge its exposure to USD. However, the Group’s management closely monitors the fluctuation of the exchange rate of USD against that of RMB. Management of the Group believes that the Group’s net exposure to USD will not result in significant exchange loss to the Group. e) Fair value The directors consider that as the interest rates are rather steady in the foreseeable future. Therefore, the carrying value of the long-term bank loans approximate to their fair value. The fair value of the Group’s trading investment is based on quoted market prices at the balance sheet date. In assessing the fair value of non-trading securities and other financial instruments, the Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. The face vale less any estimate credit adjustments for financial assets and liabilities with as maturity of less than one year are assumed to approximate their fair values. 28. Commitments Up to the date of this report, the Directors are of the opinion that there is no material commitments matter. 29. Contingencies Up to the date of this report, the Directors are of the opinion that there is no material contingency matter. 29 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 30. Related parties transactions Companies are considered to be related if one company has ability, directly or indirectly, to control the other company or exercise significant influence over the other company in making financial and operating decisions. Companies are also considered to be related if they ate subject to common control or common significant influence. The Group is part of a larger group of companies under SGC Group Company and has significant transactions and relationships with the SGC Group Company and fellow subsidiaries. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties. SGC Group Company itself is owned by the PRC government. There are also many other enterprises directly or indirectly owned or controlled by the PRC government (“state-owned enterprises”). Under IFRS, state-owned enterprises, other than SGC Group Company and fellow subsidiaries, are not considered related parties. Related parties refer to enterprises over which SGC Group Company is able to exercise significant influence. Name of related parties and nature of relationship Name Relationship SGC Parent Company Subsidiaries of SGC Unconsolidated subsidiaries and associates The principal related party transactions, which were carried out in the ordinary course of business, are as follows: 2003 2002 RMB’000 RMB’000 Purchase of raw material from SGC and its subsidiaries 21,229 22,077 Purchase of raw materials from unconsolidated 13,273 12,713 subsidiaries and associates Sales of products to SGC and its subsidiaries 2,009 3,402 Sales of products to unconsolidated subsidiaries and 552 1,248 associates The directors of the Company are of the opinion that the above transactions with related parties were conducted in the ordinary course of business and on normal commercial terms or in accordance with the agreements governing such transactions. 30 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 30. Related parties transactions (Continued) The outstanding balances with the related parties are as follows: 2003 2002 RMB’000 RMB’000 Due from SGC and its subsidiaries: 3,062 7,453 Due from unconsolidated subsidiaries and associates: 778 5,599 Total 3,840 13,052 2003 2002 RMB’000 RMB’000 Trade and other payables to SGC and its subsidiaries 11,847 Trade and other payables to unconsolidated subsidiaries and associate 2,004 Total 13,851 The amount due from (to) related parties are unsecured, non-interest bearing and have no fixed terms of repayment. In addition to the above, SGC provided guarantee for the Group for the banking facilities granted. (note 26). 31. Segment information Segment information is presented in respect of the Group’s business and geographical segments. Business segment information is chosen as the primary reporting format because this is more relevant to the Group’s internal financial reporting. The Group comprises the following main business segments: Agrochemical products: The manufacture and sale of agrochemical and chemical products, as well as research and development activities in this area. Property development: The development and sale of residential properties. The Group evaluates the performance and allocates resources to its operating segments on an operating income basis, without considering the effects of finance costs or investment income. The accounting policies of the Group’s segment are the same as those described in the Principal Accounting Policies Corporate administrative costs and assets are not allocated to the operating segments. 31 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 31. Segment information (Continued) Business segment Reportable information on the Group’s business segments is as follows:- Property Agrochemical products development Consolidated 2003 2002 2003 2002 2003 2002 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Revenue from external customers 821,120 652,210 37,585 - 858,705 652,210 Segment results Profit (loss) from operations 20,737 (122,400) 2,505 - 23,242 (122,400) Net Financing cost (19,978) 24,224 (814) - (20,792) 24,224 Investment income 3,567 2,112 -- 3,567 2,112 Profit(loss)before tax and minority interests 3,304 (144,512) 2,713 6,017 (144,512) Income tax expenses (3,694) (17,876) (895) - (4,589) (17,876) Profit before minority interest (390) (162,388) 1,181 - 1,428 (162,388) Property Agrochemical products development Consolidated 2003 2002 2003 2002 2003 2002 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Segment assets 1,480,385 1,542,056 35,982 1,516,367 1,542,056 Segment liabilities 666,434 717,009 24,072 690,506 717,009 32 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 32. Differences Between financial statements prepared under the PRC Accounting Rules and Regulations and IFRS Other than the differences in the classifications of certain financial captions and the accounting for the items described below, there are no material differences between the Group’s financial statements prepared under the PRC Accounting Rules and Regulations and IFRS. Effects of major differences between the PRC Accounting Rules and Regulations and IFRS on net profit are analyzed as follows: 2003 2002 RMB’000 RMB’000 Net profit under the PRC Accounting Rules and 7,401 (115,815) Regulations Adjustments: Income from short equity investment - 2,064 Provision for bad and doubtful debt of receivables - (24,671) Provision for depreciation for fixed assets not ready for - use (4,187) Inventory net realization value adjustment (2,336) 5,934 Provision for impairment loss of fixed assets - (9,902) Written off of deferred assets - (11,796) Sales cut-off adjustment (5,189) 4914 Amortisation of deferred revenue 160 - Adjustment for unrealised loss on investment (997) - Others 9443 (3,150) Net profit under IFRS 8,482 (156,609) 33 Hubei Sanonda Co., Limited Financial Statements for the year ended 31st December 2003 32. Differences Between financial statements prepared under the PRC Accounting Rules and Regulations and IFRS (Continued) Effects of major differences between the PRC Accounting Rules and Regulations and IFRS on shareholders’ fund are analyzed as follows: 2003 2002 RMB’000 RMB’000 Shareholders’ fund under the PRC Accounting Rules and 868,578 860,166 Regulations Adjustments: Income from short equity investment 2,064 2,064 Provision for bad and doubtful debt of receivables (46,623) (46,623) Provision for depreciation for fixed assets not ready for (27,175) (27,175) use Inventory net realization value adjustment - 2,336 Provision for impairment loss of fixed assets (6,156) (6,156) Sales cut-off adjustment - 5,189 Amortisation of deferred revenue (1,465) - Adjustment for unrealised loss on investment (997) - Others 5,499 (3,944) Shareholders’ fund under IFRS 793,725 785,857 34