安道麦A(000553)沙隆达2003年年度报告摘要（英文版）

HUBEI SANONDA CO., LTD. SUMMARY OF ANNUAL REPORT 2003 (B-share) §1. Important Notes 1.1 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. The 2003 annual report summary is abstracted from the full text of annual report; the investors are suggested to read the full text of annual report to understand more details. 1.2 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. 1.3 All directors attended the Board meeting. 1.4 Ho and Ho & Company Certified Public Accountants issued an unqualified Auditors’Report for the Company. 1.5 Chairman of the Board of the Company Mr. Zhang Maoli, General Mana ger 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. 1.6 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. Accounting data of Chinese version enclosed in annual report are quoted from Chinese Auditors’ Report, while accounting data of English version enclosed in annual report are quoted from International Auditors’Report. §2. Company Profile 2.1 Basic information Short form of the stock Sanonda A, Sanonda B Stock code 000553, 200553 Listed stock exchange Shenzhen Stock Exchange Registered address and Office address No. 93, Beijing East Road, Jingzhou, Hubei Post code 434001 Internet web site of the Company http://www.sanonda.com E-mail of the Company sanonda@sanonda.com.cn 2.2 Contact person and method Secretary of the Board of Authorized Representative in Directors charge of the Securities Affairs Name Li Zhongxi Hu Haosong Contact address No. 93, Beijing East Road, No. 93, Beijing East Road, Jingzhou, Jingzhou, Hubei Hubei Telephone 0716-8208632 0716-8208232 Fax 0716-8208899 0716-8208899 E-mail sanonda@sanonda.com.cn sanonda@sanonda.com.cn §3. Summary of Accounting Data and Financial Indexes 3.1 Major accounting data Unit: RMB’000 Increase/decrease 2003 2002 2001 over last year（％） Income from main operations 858,705.00 652,210.00 31.66% 955,663 Total profit 6,017.00 -144,512.00 -- (21,129) Net profit 8,482.00 -156,609.00 -- (20,916) Increase/decrease At the end of At the end of At the end of from the end of last year 2003 year 2002 year 2001 year（％） Total assets 1,516,367.00 1,542,056.00 -1.67% 1,617,077 Shareholder’s equity (excluding 793,725.00 785,857.00 1.00% 943,507 minority interests) Net cash flow arising from 34,627.00 48,343.00 -28.37% 66,148 operating activities 3.2 Major financial indexes Unit: RMB’000 Increase/decrease over 2003 2002 2001 last year（％） Earnings per share 0.029 -0.527 -105.42% -0.07 Earnings per share (calculated based on new share capital if share capital was changed) 0.029 -0.527 -105.42% -0.07 Return on equity (%) 1.07 -19.93 -- -2.22 Net cash flow per share arising from operating activities 0.12 0.16 -25.00% 0.42 At the end At the end Increase/decrease At the end of year of year from the end of last of year 2003 2002 year（％） 2001 Net assets per share 2.67 2.65 0.75% 3.18 Net assets per share after adjustment 2.67 2.65 0.75% 3.18 3.3 Difference of net profit as audited by PRC Accounting Rules and Regulations and IFRS √Applicable □Inapplicable Unit: RMB’0000 PRC Accounting Rules and Regulations IFRS Net profit 740.06 848.00 Inventory net realization value adjustment RMB –234 Sales cut-off adjustment RMB –519 Explanation on the Amortization of special appropriate funds RMB 16 difference Adjustment for unrealised loss on investment RMB -99 Others RMB 944 §4. Changes in Share Capital and Particulars about Shareholders 4.1 Statement of change in shares Unit: share Before the Increase/decrease in this After the Items change change change I. Unlisted shares 1. Sponsors’shares 84,729,334 0 84,729,334 Including: State-owned share 84,729,334 0 84,729,334 Domestic legal person’ s shares 0 0 Foreign legal person’ s shares 0 0 Others 0 0 2. Raised legal person’ s shares 0 0 3. Inner employees’shares 0 0 4. Preference shares or others 0 0 Total unlisted shares 84,729,334 0 84,729,334 II. Listed shares 1. RMB ordinary shares 97,232,276 0 97,232,276 2. Domestically listed foreign shares 115,000,000 0 115,000,000 3. Overseas listed foreign shares 0 0 4. Other 0 0 Total listed shares 212,232,276 0 212,232,276 III. Total shares 296,961,610 0 296,961,610 4.2 Statement of shares held by the top ten shareholders and the top ten shareholders of circulation share Total number of shareholders at the end of report period 39,183 Particulars about shares held by the top ten shareholders Number of Nature of Increase / Holding Type of shares share shareholders decrease in shares at the Proportion Full name of Shareholders (Circulating/Non- pledged/ (State-owned the report year-end (%) circulating) frozen shareholder/foreign year (share) (share) (share) shareholder) Sanonda Group Corporation 0 81,726,625 27.52 Non-circulating 81,726, 625 State-owned 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 0.34 Circulating Unknown Foreign shareholder Guangqi Investment Co., 0 1,000,000 0.34 Circulating Unknown Foreign Ltd. shareholder Anhui Guidu Heat Supply 131,512 919,012 0.31 Circulating Unknown State-owned Engineering Co., Ltd. shareholder Hubei Zhonglian Yangzi 0 835,000 0.28 Circulating Unknown State-owned State-owned Soil Economic shareholder Development Company Zhou Wenqin 0 698,220 0.24 Circulating Unknown State-owned shareholder Qu Wei 662,815 662,815 0.22 Circulating Unknown Foreign shareholder Deng Lanqin 653,700 653,700 0.22 Circulating Unknown State-owned shareholder Explanation on associated relationship (1) Sanonda Group Corporation is the holding shareholder of the among the top ten shareholders or Company, which held the Company’s shares on behalf of the state. consistent action (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 assoc iated 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. Particulars about shares held by the top ten shareholders Shareholder’s name (full name) Circulation share held at the Type（A-share, B-share, year-end (share) H-share or others） Zhang Sheng 1,588,600 B-share Taiji Investment Co., Ltd. 1,000,000 B-share Guangqi Investment Co., Ltd. 1,000,000 B-share Anhui Guidu Heat Supply Engineering 919,012 A-share Co., Ltd. Hubei Zhonglian Yangzi State-owned 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 Explanation on associated The Company is unknown whether there exists associated relationship among the top ten relationship among shareholders of circulation share, or whether the shareholders of circulation share shareholders belong to the consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies. 4.3 Particulars about holding shareholders and actual controller of the Company 4.3.1 Particulars about change in holding shareholders and actual controller of the Company □Applicable √Inapplicable 4.3.2 Introduction of especial situation for holding shareholder and other actual controller 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 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). §5. Particulars about Directors, Supervisors and Senior Executives 5.1 Change in shares held by directors, supervisors and senior executives 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 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 Secretary of the Jun. 2003- Li Zhongxi Male 34 0 0 Board Jun. 2006 5.2 Particulars about directors or supervisors holding the positio n in Shareholding Company √Applicable □Inapplicable Name of Drawing the payment Title in Shareholding Name Shareholding Office term from the Shareholding Company Company Company (Yes / No) Zhang Maoli Sanonda Group Chairman of the Board 2000 to now No Corporation Li Zuorong Sanonda Group Vice Chairman of the 2000 to now No Corporation Board, General Manager Zheng Sanonda Group Director 2000 to now No Xianhai Corporation Liu Xingping Sanonda Group Director, Deputy General 2000 to now No Corporation Manager 5.3 Particulars about the annual payment of directors, supervisors and senior executives 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 Allowance of independent director RMB 20,000 per person/ year Other treatment of independent directors The Company reimbursed the reasonable charges according to the actual situation, which independent directors attended the Board meeting, shareholders’ general meeting or exercise their functions and powers in accordance with the relevant laws and regulations and Articles of Association. Name of directors and supervisors receiving no None payment or allowance from the Company Payment Number of persons Over RMB 40,000 3 RMB 30,000 ～ RMB 40,000 5 Under RMB 30,000 8 §6. Report of the Board of Directors 6.1 Discussion and analysis to the whole operation in the report period The business scope of the Company is production and sale of pesticides and chemical products. 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. The third was there existed disordered competition in agricultural trade market. Aiming for the above unfavorable conditions, the 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 continuous development. In 2003, the income from main business of the Company was RMB’000 858,705 an increase of ３２ % compared with that of the corresponding period of the previous year; profit of main business was RMB’000 128,948, an increase of 58% 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. 6.2 Statement of main operations classified according to industries or products 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 6.4 Particulars about the customers of purchase and sales Unit: RMB’0000 Purchase amount from Proportion in total 8,682.00 11.98% the top five suppliers purchase amount Sale amount to the top Proportion in total 7,835.00 9.07% five customers sale amount 6.5 Operation of share- holding companies (applicable to the situation where investment equity takes over 10% of its net profit) √Applicable □Inapplicable Unit: RMB’0000 Name of share-holding companies Sanonda Tianmen Agrochemical and Chemical Co., Ltd. Investment earnings contributed in the report 674.90 period Proportion in net profit of the Company 91.20% Share-holding Operation scope Production and sale of pesticides products companies Net profit 794.00 Name of share-holding companies Jingzhou Sanonda Real Estate Co., Ltd. Investment earnings contributed in the report 163.80 period Proportion in net profit of the Company 22.13% Share-holding Operation scope Development and sale of real estate companies Net profit 182.00 6.6 Explanation on reasons of material changes in main operations and its structure □Applicable √Inapplicable 6.7 Explanation on reasons of material changes in profitability capability of main operations (gross profit ratio) than that in the last year √Applicable □Inapplicable In 2003, the increase of sale amount of pesticides and chemical products and rise of price caused the rise of income from main business of the parent company in a large range, an increase of RMB 167 million, among of it, the increase of RMB 143 million came from pesticides products and the increase of RMB 24 million came from chemical products; profit of main business of the parent company increased RMB 64 million than the same period of last year, including: 1. The rise of sale amount caused the increase of profit of main business amounting to RMB 13 million; 2. The rise of price caused the increase of profit of main busine ss amounting to RMB 29.40 million; 3. The dropping of cost caused the increase of profit of main business amounting to RMB 21 million; 4. The adjustment of product structure caused the increase of profit of main business amounting to RMB 0.6 million. 6.8 Analysis to reasons of material changes in operating results and profit structure compared with the previous year □Applicable √Inapplicable Analysis to reasons of material changes in the whole financial position than that in the last year 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% 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. 6.9 Explanation on the past, current and future important effects of the material changes in production and operation environment, macro-policies and regulations on the Company’ s financial position and operating results √Applicable □Inapplicable According to the spirit in Circular on Taxation Policies in Pesticide released by Ministry of Finance of the P.R.C., Customs General Administration of the P.R.C. and State Administration of Taxation with FT [2003] No. 186 document, since Jan. 1, 2004, the collection of value-added tax in production was recovered in main pesticide products produced by the Company. In Item I Subparagraph 3 of Circular of Ministry of Finance of the P.R.C. and State Administration of Taxation on Policy on Exempting Value-added Tax in Several Agricultural Production Materials, policy on exempting value-added tax in production of state-produced pesticide stopped to be implemented. 6.10 Completion of the profit estimation □Applicable √Inapplicable 6.11 Completion of the business plan □Applicable √Inapplicable 6.12 Application of the raised proceeds □Applicable √Inapplicable Particulars about the changed projects □Applicable √Inapplicable Name of projects Investment Progress of projects Earnings of projects Acetyl methyl amine 594.00 100.00% phosphor Multi-functional 1,096.00 100.00% engineer Salt well project 1,050.00 100.00% NPK project 6,500.00 100.00% Total 9,240.00 6.14 Explanation of the Board of Directors on the “Qualified Opinion” made by the Certified Public Accountants □Applicable √Inapplicable 6.15 Business plan as of the next year of the Board of Directors (If it has) □Applicable √Inapplicable Profit estimation of the next year (If it has) □Applicable √Inapplicable 6.16 The preplan on the profit distribution and capitalization of capital public reserve of the Board of Directors 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 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 sha re capital. §7. Significant Events 7.1 Purchase of assets √Applicable □Inapplicable The 5 Meeting of the 4th Board of Directors of the Company held on Dec. 18, 2003 th 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. 7.2 Sales of assets □Applicable √Inapplicable 7.3 Significant guarantees √Applicable □Inapplicable Unit: RMB’0000 Date of happening Complete Guarantee for Name of guaranteed Amount of Term of (date of Type of guarantees Implementation related parties or objects guarantees guarantees agreement or not not (yes or no) signing) Sanonda Zhengzhou 1,000.00 Ordinary Jan. 24, 2003 – Aug. 14, 2002 No Yes Pesticide Co., Ltd. guarantee Jan. 23, 2004 Sanonda (Jingzhou) 1,127.00 Ordinary Jun. 28, 2003 – Pesticide Chemical Jun. 28, 2002 guarantee Jun. 27, 2004 No Yes Co., Ltd. Hubei Fengyuan 2,000.00 Ordinary Jul. 22, 2002 – Aug. 12, 2002 No Yes Chemical Co., Ltd. guarantee Jul. 21, 2005 Total amount of guarantee 5,127.00 Total balance of guarantee 5,127.00 Including: total balance of related guarantees 5,127.00 Total guarantees provided by the listed company for 5,127.00 controlling subsidiaries Total illegal guarantees 0.00 Proportion of total guarantees in net assets of the 5.91 Company 7.4 Current related credits and liabilities □Applicable √Inapplicable 7.5 Entrusted assets management □Applicable √Inapplicable 7.6 Implementation of commitments □Applicable √Inapplicable 7.7 Significant lawsuits and arbitrations □Applicable √Inapplicable 7.8 Particulars about duties performance of Independent Directors 1. In the report period, the independent directors of the Company seriously implemented their duties and seriously took part in the decision- making of significant events of the Company in accordance with the Articles of Association of the Company and Work System of Independent Directors, which has safeguarded the interests of the Company and all shareholders. 2. In the report period, the independent directors expressed independent opinions on such matters as Proposal on Purchasing Two Land Use Rights from Sanonda Group Company, Proposal on Engagement of Senior Executives and etc.. §8. 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 1 st 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, 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. §9. Auditors’Report 9.1 Auditing opinion 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 consolid ated 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 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) 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 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 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 Total equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Balance at 1st January 2002 296,962 565,353 57,287 23,905 942,186 Waiver of a payable in a subsidiary’ s book - 280 - - 280 Net loss for the year - - - (153,652) (156,609) Appropriations - - 5,389 (5,389) - Balance at 31st December 2002 and 1st January 2003 296,962 565,633 62,676 (135,136) 785,857 Net profit for the year - - - 8,482 8,482 Dividend paid - - - (614) (614) Balance at 31st December 2003 296,962 565,633 62,676 (131,546) 793,725 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 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 de crease) 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 9.3 Compared with the latest annual report, there was no change in accounting policy, accounting estimate and calculation method. 9.4 Compared with the latest annual report, there was no change in the consolidated scope. Board of Directors of Hubei Sanonda Co., Ltd. Mar. 26, 2004