闽灿坤Ｂ(200512)2004年年度报告（英文版）

TSANN KUEN (CHINA) ENTERPRISE CO. LTD 2004 Annual Report (Prepared under International Accounting Standards) 一、 CONTENTS 二、I. COMPANY PROFILE 1 三、II. FINANCIAL AND OPERATIONAL HIGHLIGHTS 2 1. Realized profit for this year 2 2. Financial information and index 3 3. Return on shareholder’s equity calculated after dilution or weighted and EPS 3 4. Statement of changes in equity for the year ended 31 December 2004 4 四、III. CHANGES IN STOCK SHARES AND BRIEF INTRODUCTION ABOUT SHAREHOLDERS 4 1. Changes of stock shares 4 2. About issuing and marketing of shares 5 3. Brief introduction about shareholders 5 4. Brief introduction about the controlling shareholders 7 5.Description of the real controlling shareholder 7 五、IV. ADVANCED MANAGEMENT PERSONNEL AND EMPLOYEES 8 1. Directors, supervisors and senior administrative officials 8 2. Structure of human resource 12 六、V. STRUCTURE OF CORPORATE GOVERNANCE 12 1. Layout of corporate governance 12 2. The independent directors’ performance of duty 13 3. The clear separation of the corporation from its controlling shareholders in the aspects of business、 personnel、assets、organization and financial affairs management, etc. 13 4. The system for examination and appraisal on, and the measures for inspiration and restraint to, the performance of the senior administrative persons. 14 七、VI. RESUME OF THE SHAREHOLDERS’ GENERAL MEETING 14 1. About informing、calling and opening the meeting. 14 2. The resolutions made in the meeting and the newspapers and the date for the disclosure of the information thereof 14 3.The election and replacement of the director(s) or supervisor(s) of the corporation 15 八、VII. REPORT OF THE BOARD OF DIRECTORS 15 1.The operational situation during the reported period 15 2. Investment status 18 3. Financial status and operating achievements 19 4. Changes in the macroscopic policies, laws or regulations that might bring significant influence to the company’s operating status 19 5. Business plan in 2005 19 6. The routine work of the Board of Directors 20 九、VIII.REPORT OF THE SUPERVISORY COMMITTEE 28 十、IX. MAJOR EVENTS 28 十一、 X. FINANCIAL REPORTS (See the attachments) 29 十二、 XI. MEMO 29 IMPORTANT STATEMENT The Board of Directors of the Corporation guarantees herein that there is no false record, misleading statement or any important omission existing in this report, and that they will bear the individual and joint responsibilities for the truthfulness, accuracy and integrity of the contents presented. None of the directors has ever declared that he (she) is uncertain of or has any objection to the truthfulness, accuracy and integrity of this annual report. Deloitte Touche Tohmatsu CPA has issued for our company a standard unqualified audit report. The chairman of the Board of Directors Mr. Tsai Yuan Song and the accounting manager Mr. Lin Zhi Hong jointly guarantee that the financial statements in this annual report are correct and complete. I. COMPANY PROFILE 1. Company’s name (Chinese) ﹕厦门灿坤实业股份有限公司 Company’s name (English) ﹕TSANN KUEN (CHINA) ENTERPRISE CO.,LTD (Abbreviation) ﹕TKC 2. Representative of legal entity ﹕Tsai Yuan Song 3. Board of Director’s secretary ﹕Luo Qing Xing Address for contact ﹕No.88 Xing Long Road, Huli Industry Zone, Xiamen, P.R. China. Telephone ﹕0592-5600887 Fax ﹕0592-5600886 E-mail address ﹕allenlo@tkl.tsannkuen.com Representative of the stock affairs ﹕ Address for contact ﹕ Telephone ﹕ Fax ﹕ E-mail address ﹕ 4. The official address ﹕Xiamen, P.R. China Headquarters ﹕No.88 Xinglong Road, Huli Industry Zone Post code ﹕361006 Web Site ： www.tsannkuen.com E-mail address ﹕allenlo@tkl.tsannkuen.com 5. Disclosure paper ﹕ShenZhen Home page ﹕www.cninfo.com.cn -1- Prepared place ﹕No.88 Xinglong Road, Huli Industry Zone. Xiamen, P.R. China. 6. Marketing place for TKC’s stock ﹕the Shenzhen Stock Exchange Short name for stock ﹕闽灿坤 B Code of stock ﹕200512 7. Registered day and place ﹕Jan. 1st, 1988 in Xiamen Business license number ﹕企独闽厦总副字 00233 号 Tax register code ﹕国税外字 35020661202170 Appointed auditor agent ﹕Deloitte Touche Tohmatsu CPA Auditor’s address ﹕222 Yan An Road East, Shanghai II. FINANCIAL AND OPERATIONAL HIGHLIGHTS 1. Realized profit for this year Unit: RMB’000 Item Content Amount 1 Profit before tax 57,450 2 Net profit 38,621 3 Net profit after extraordinary income or loss 66,125 4 Major operating revenue 899,261 5 Other revenue 64,231 6 Profit from operations 104,158 7 Investment income (1,212) 8 Subsidiary income 60 9 Non-operating earning (or expenditure) (45,072) 10 Net cash flow from operating activities (243,198) 11 Net increases of cash and cash equivalents (75,517) (1). The items and amount of the extraordinary income or loss (RMB’000): Less: (A) Subsidiary income 60 (B) Reverse of asset impairment 12,158 (C) Minority’s extraordinary income 5,114 (D) Income tax affected by Extraordinary items 246 Add: (E) Non-operating income 45,082 (27,504) (2). Summary of difference between IAS and PRC GAAP The above financial statement was prepared in conformity with IAS, which is different from that prepared under PRC GAAP. The profit after taxation reported under the statutory PRC GAAP for the year ended Dec. 31, 2004 is RMB40,420 thousand Yuan, while the net assets reported thereof is RMB 1,426,044 thousand Yuan﹐These net profit and net assets should be adjusted, as pursuant to IAS, as following: -2- Net Assets 2004’s Net Profit Ended Dec. 31, 2004 RMB’000 RMB’000 As reported under PRC GAAP 40,420 1,426,044 Adjustments to conform to IAS: Adjustment to record property, plant and equipment acquired before 1994 at swap rates (2,223) 12,378 Elimination of revaluation reserves 424 (387) Others 0 1,912 As reported under IAS 38,621 1,439,947 2. Financial information and index 2004 Item / year Unit 2004 2003 2002 2003 1 Major operating income RMB’000 6,692,236 4,204,669 3,484,815 159.16% 2 Net profit RMB’000 38,621 126,416 246,731 30.55% 3 Total assets RMB’000 5,160,704 5,061,134 2,866,998 101.97% Stockholder’s equity 4 RMB’000 1,439,947 1,401,410 1,275,419 102.75% (Minority equity excluded) 5 Earning Per Share RMB 0.04 0.14 0.36 26.57% 6 EPS (after extraordinary income or loss) RMB 0.07 0.12 0.36 53.27% 7 Net asset per B share RMB 1.42 1.59 1.89 89.35% 8 Net asset per B share (adjusted) RMB 1.41 1.57 1.86 89.58% Net cash flow from operating activities (0.24) 9 RMB 0.15 0.59 -160.60% per share Return on share- Dilution 2.68% 9.02% 19.35% 29.71% 10 holder’s equity (%) Weighted 2.72% 9.45% 21.01% 28.78% 3. Return on shareholder s equity calculated after dilution or weighted and EPS Return on stockholder’s equity（%） EPS (RMB Yuan) Profits Dilution Weighted Dilution Weighted Major operating profit 62.45 63.30 0.89 0.89 Profit from operation 7.23 7.33 0.10 0.10 Net profit 2.68 2.72 0.04 0.04 Net profit (after extraordinary income or loss) 4.59 4.65 0.07 0.07 Notes: The above statistics of profits is prepared in accordance with The Rules for Preparing of Disclosure Information of the Publicly Issued Shareholding Companies (No. 9) issued by the China Securities Regulation Committee. The calculations are as follows: A. The formula for the fully diluted Return on shareholder’s Equity (ROE) and for the fully diluted Earning per share (EPS): The fully diluted Return on shareholder’s Equity = Profit in the reported period ÷ Net asset at the end of the period. -3- The fully diluted Earning per share = Profit in the reported period ÷ the total shares at the end of the period. B. The formula for the Weighted Return on shareholder’s Equity (ROE) and for the Weighted Earning per share (EPS): ROE=P÷(E0+NP÷2+Ei×Mi÷M0-EJ×MJ÷M0) EPS=P÷(S0+S1+Si×Mi÷M0-SJ×MJ÷M0) In which: P stands for the profit in the reported period; M0 stands for the months in the reported period; Mi stands for the months starting from the next month of the newly increased net assets to the end of the reported period; MJ stands for the months starting from the next month of the decreased net assets to the end of the reported period. NP stands for the net profit in the reported period; E0 stands for the net asset at the beginning of the period; Ei stands for the newly increased net assets from issuing new shares or from converting bonds into shares during the reported period; EJ stands for the decreased net assets by purchasing back action or by distribution of cash dividends during the reported period; S0 stands for the total shares at the beginning of the period; S1 stands for the newly increased shares from converting public reserves into shares or from distribution of stock dividends during the reported period; Si stands for the newly increased shares from issuing new shares or from converting bonds into shares during the reported period; SJ stands for the decreased shares by purchasing back action or by shares-reducing action during the reported period. 4. Statement of changes in equity for the year ended 31 December 2004 Unit: RMB’000 Statutory Statutory Discretionary public Translation Retained Share Capital Share Premium surplus Sub-Total Total surplus Reserve welfare reserve profits Reserve reserve Balance at 1 January 2004 879,328 128,655 124,438 90,694 47,553 84 391,424 130,658 1,401,410 Change of measurement currency used certain subsidiaries into RMB - - - - - (84) (84) - (84) Capitalisation 131,899 - - (43,967) - - (43,967) (87,932) - Net profit for the year - - - - - - - 38,621 38,621 Appropriations - - 3,734 - 1,867 - 5,601 (5,601) - Balance at 31 December 2004 1,011,227 128,655 128,172 46,727 49,420 - 352,974 75,746 1,439,947 III. CHANGES IN STOCK SHARES AND BRIEF INTRODUCTION ABOUT SHAREHOLDERS 1. Changes of stock shares Unit: share Increase/decrease (+,-) Shares at Reserve- Item Apportion New Shares at ending beginning Bonus issue converted Others Subtotal ing shares shares shares Share not in circulation - 1、Founders’ shares 641,671,875 64,167,187 32,083,594 96,250,782 737,922,657 Including: -4- Increase/decrease (+,-) Shares at Reserve- Item Apportion New Shares at ending beginning Bonus issue converted Others Subtotal ing shares shares shares Shares of State Holders Shares of legal person holders within the boundary of China Foreign legal holder’s shares 641,671,875 64,167,187 32,083,594 96,250,782 737,922,657 Others 2.Shares of raising legal persons 3、Shares of the internal staff 4、Preferred shares or others Total shares not in circulation 641,671,875 64,167,187 32,083,594 96,250,782 737,922,657 Shares in circulation 1、Common share in RMB 2.Foreign capital shares on sale 237,656,250 11,882,812 35,648,436 273,304,686 23,765,625 within the boundary of China 3.Foreign capital shares on sale outside the boundary of China 4、Others Total shares in circulation 237,656,250 23,765,625 11,882,811 35,648,436 273,304,686 Total shares 879,328,125 87,932,812 43,966,406 131,899,218 1,011,227,343 2. About issuing and marketing of shares On June 16th, 2004, the Corporation implemented the profit distribution plan that had been approved by the shareholders’ general meeting. According to the plan, stock dividend was to be distributed on the basis of 1 shares for every 10 shares held from the capitalization of retained earnings, totaling 87,932,812 shares, and the other 0.5 shares for every 10 shares from the converting discretionary surplus reserves, totaling 43,966,406 shares; grand totaling 131,899,218 shares. After the completion of this distribution, the company’s registered capital has been increased from the former 879,328,125 shares to the present 1,011,227,343 shares. 3. Brief introduction about shareholders (1)Number of the shareholders: The total number of the company’s shareholders at the end of the reported period is 20,192. -5- (2)Shares held by the top ten stockholders Shares held by the top ten stockholders Situation of Shares shares Attribute of Shares Holdi inmortga No Increase/ (Shares in stockholder Name of Shareholder held at the ng ge or Decrease circulation (Domestic year end Ratio congeal or not in or Foreign) men circulation ) 1 FORDCHEE not in None Others 38,500,312 295,169,062 29.19% DEVELOPMENT LIMITED circulation 2 EUPA INDUSTRY Some shares None Others 38,500,293 295,168,913 29.19% CORPORATION LIMITED in circulation 3 FILLMAN INVESTMENTS not in None Others 19,250,156 147,584,531 14.59% LIMITED circulation 4 TIMMERTON CO INC Shares in Unknown Foreign 1,720,037 13,186,949 1.30% circulation 5 MERRILL LYNCH Shares in Unknown Foreign 7,403,710 7,403,710 0.73% INTERNATIONAL circulation CORE PACIFIC-YAMAICHI Shares in Unknown Foreign 6 INTERNATIONAL (H.K.) 2,693,692 6,762,228 0.67% circulation LIMITED 7 TSAI SHU HUI Shares in None Foreign 509,221 3,904,030 0.39% circulation 8 LAU MING TO Shares in Unknown Others 310,352 2 379 367 0.24% circulation 9 TSAI CHIEN FANG Shares in Unknown Others 234,601 1 798 610 0.18% circulation 10 CSC SECURITIES (HK) Shares in Unknown Foreign 489,454 1,660,378 0.16% LTD. circulation Shares held by the top ten stockholders (Shares in circulation) No Name of Shareholder Shares held at the year end Type (A、B、H share or others) EUPA INDUSTRY CORPORATION 1 LIMITED 101,125,388 B share 2 TIMMERTON CO INC 13,186,949 B share 3 MERRILL LYNCH INTERNATIONAL 7,403,710 B share CORE PACIFIC-YAMAICHI 6,762,228 B share 4 INTERNATIONAL (H.K.) LIMITED 5 TSAI SHU HUI 3,904,030 B share 6 LAU MING TO 2,379,367 B share 7 TSAI CHIEN FANG 1,798,610 B share 8 CSC SECURITIES (HK) LTD. 1,660,378 B share 9 THERMASTER LIMITED 1,637,294 B share 10 CHEN HONG PING 1,410,134 B share Note to interest-related relations or the consistent The top three stockholders are the controlling stockholders. action between the above shareholders TSAI SHU HUI is the spouse of Mr. WU TSAN KUN, who is the legal representative of EUPA INDUSTRY CORPORATION LIMITED. Shareholder, Mr. CHEN HONG PING is the controlling shareholder of TKC and the supervisor of TSANN KUEN ENTERPRISE CO. LTD (situated in Taiwan). TKC has neither knowledge about whether there is any interest-related relations between other shareholders holding circulable shares nor knowledge about whether or not the other shareholders holding circulable shares belong to the consistent action people specified in The Regulations for Information Disclosure on the Change of Shares Held by the Shareholders of the Listed Company. By the date of Dec. 31, 2004, EUPA INDUSTRY CORPORATION LTD holds 295,168,913 shares in all, in which 101,125,388 shares belong to the circulable ones, and the -6- remaining 194,043,525 shares belong to the non-circulable ones. 4. Brief introduction about the controlling shareholders Legal Business Registered Holder’s name Founding day Mortgage representative scope capital Tsann Kun 1990/01/03 Investment HK$10,000 None FORDCHEEDEVELOPMENTLTD Wu EUPAINDUSTRYCORPORATIONLTD Tsann Kun 1989/07/21 Investment HK$100,000 None Wu FILLMANINVESTMENTSLTD Tsann Kun 1992/07/21 Investment HK$10,000 None Wu Note: The above companies are the subsidiary companies of TKE 5.Description of the real controlling shareholder A. Name of the real controlling shareholder ﹕TSANN KUEN ENTERPRISE CO. LTD (situated in Taiwan) B. Legal representative ﹕TSANN KUN WU C. Registered day ﹕Nov. 2nd, 1978 D. Major product and service ﹕Processing, manufacturing and sales of small household appliances as well as their spare parts and equipment, etc. E. Registered capital ﹕NT$2,212,150,000 F. Equity structure ﹕common stock G. Diagram of the relationship between TKC and the real controlling shareholders ﹕ TSA N N K U EN EN TERPRISE CO .LTD 100% SIN O G LO BA L 99.98% 99.96% D EV ELO PM EN T LIM ITED 63.45% EU PA IN D U STRY FO RD CH EE FILLM A N CO RPO RA TIO N D EV ELO PM EN T IN V ESTM EN TS LIM ITED LIM ITED LIM ITED 29.19% TSA N N K U EN (CH IN A ) EN TERPRISE CO .LTD .限公司 29.19% 14.59% (62.29% ) -7- IV. ADVANCED MANAGEMENT PERSONNEL AND EMPLOYEES 1. Directors, supervisors and senior administrative officials (1) Basic information: Share-hol Term of Name Post Sex Age ding Name Post office amount Mr. Tasi 2002.5.22 – CEO Male 49 0 0 Yuan Song 2005.5.20 Mr. Yang 2002.5.22 – Director Male 45 0 0 Wen Fang 2005.5.20 Mr. Zhang 2004.5.21 Director Male 45 0 0 Ke Da -2005.5.20 Mr. Zhuang 2002.5.22 Director Male 51 0 0 Xing -2005.5.20 Mr. Liu Director 2002.5.22 Male 46 0 0 Shun Ren (independent) -2005.5.20 Mr. Wei Director 2003.5.16 – Male 48 0 0 Jun Xian (independent) 2005.5.20 Mr. Zhou Director 2003.5.16 – Male 50 0 0 Zong Geng (independent) 2005.5.20 Mr. Yan Supervisory 2002.5.22 – Male 58 0 0 Liang Ji Chairman 2005.5.20 Mr. Lin 2002.5.22 – Supervisor Male 47 0 0 Zong Ming 2005.5.20 2005.4.1- 2008(the same term Mr. Wang Supervisor Male 45 with the 0 0 Cai Wang other members of the 5th BOD) Mr. Luo Secretary of Male 51 2003.1.7 - 0 0 Qing Xing board Mr. Lin Zhi Accounting Male 39 2002.10 -- 0 0 Hong Manager (2)Working status of BOD members in the companies of shareholders Name Name of Shareholder Title Period Salary or compensation( Yes or No) Mr. TSANN KUEN Zhuang ENTERPRISE CO. executive director 2003.5~ now Yes Xing LTD TSANN KUEN Senior Director of Mr. Yan ENTERPRISE CO. human resource & 2004.2 ~ now Yes Liang Ji LTD purchasing department Mr. TSANN KUEN the vice general Zhang ENTERPRISE CO. manager of operation 2004.6~ now Yes Ke Da LTD department Mr. Lin TSANN KUEN Zong ENTERPRISE CO. Supervisor 2003~ now No Ming LTD -8- (3)Resumes of Name Title Major working experiences and other occupations 1.2002.05—Now TSANN KUEN (CHINA) ENTERPEISE CO.LTD Chairman Mr. Tasi 2.1988.01-2002.12 TSANN KUEN (CHINA) ENTERPEISE CO.LTD General Manager Yuan Chairman 3.1978-1988.01 TSANN KUEN ENTERPRISE CO. LTD Manager of Song Manufacturing and R&D 1.2003.05.- Now TSANN KUEN ENTERPRISE CO. LTD Managing Director 2.2001.03-2003.04 TSANN KUEN ENTERPRISE CO. LTD General Manager of Channel Business Group 3.1998.07-2001.02 TSANN KUEN ENTERPRISE CO. LTD Vice General Manager Mr. 4.1995.09-1998.06 TSANN KUEN ENTERPRISE CO. LTD Manager of Development Zhuang Director Department Xing 5.1989.08-1995.08 TSANN KUEN ENTERPRISE CO. LTD Manager of Quality Assurance 6.1978.05-1989.07 TAIWAN DAOJING ELECTRIC APPLIANCE CO. LTD Supervisor of Quality Assurance Department 1.2003.01-- Now TSANN KUEN (CHINA) ENTERPEISE CO.LTD General Manager 3.2000.03-2003.01 TSANN KUEN (CHINA) ENTERPEISE CO.LTD Vice General Manager 4.1998.08-2000.02 SHANGHAI P&C TELCOM ELECTRONICS General Manager 5.1994.05-1998.08 TSANN KUEN (CHINA) ENTERPEISE CO.LTD Vice General Manager of Domestic Sales Department Mr. Yang General 6.1991.06-1993.09 TUOKAI ENTERPRISE CO. LTD Supervisor of Wen manager Administration Fang Department 7.1989.05-1991.06 TSANN KUEN ENTERPRISE CO. LTD Manager of 3C Chain Stores 8.1987.06-1989.05 TSANN KUEN ENTERPRISE CO. LTD Manager of Administration Department 1.2004.06-- Now TSANN KUEN ENTERPRISE CO. LTD Vice General Manager of Operation Department 2.2003.09-2004.05 TSANN KUEN ENTERPRISE CO. LTD Vice General Manager of European Market 3.2001.09-2003.08 TSANN KUEN ENTERPRISE CO. LTD Vice General Manager of TKE 4.2001.04-2001.08 TSANN KUEN ENTERPRISE CO. LTD Director of Trade Department Mr. 5.1999.01-2001.03 TSANN KUEN ENTERPRISE CO. LTD Manager of Trade Department Zhang Ke Director Da 6.1996.03-1998.12 TSANN KUEN ENTERPRISE CO. LTD Assistant Manager of Trade Department 7.1995.04-1996.02 TSANN KUEN ENTERPRISE CO. LTD Specialist of Administration of Headquarter 8.1992.07-1995.03 TAIWAN YUCHANG MOTORS Special assistant 9.1990.06-1992.06 YOUTH CAMP IMC Specialist 10.1988.05-1990.05 CCL ENTERPRISES BRANCH Manager -9- 1.2004 – Now ACCOUNTING DEPARTMENT OF NATIONAL TAIWAN UNIVERSITY Professor 2.1994 – 2003 ACCOUNTING DEPARTMENT OF NATIONAL TAIWAN UNIVERSITY Associate Professor Mr. Liu 3.1993-1994 UNIVERSITY of MARYLAND U.S.A Assistant professor Director Shun 4.1990-1993 UNIVERSITY of PITTSBURGH U.S.A Instructor (independent) Ren Other occupations 1.2001 – Now GOVERNMENTAL ACCOUNTING STANDARD BOARD (TAIWAN) Committee Member 2.2000 -Now SAFETY RESERVE MANAGEMENT COMMITTE OF CENTRAL HEALTH INSURANCE BUREAU (TAIWAN) Committee Member 1.2003 -Now STRATEGIC PLANNING OF ASIA-PACIFIC OF AVON CO. LTD. Vice President 2.1999.07-2003 P&G CHINA Global Vice President Mr. Wei Director 3.1994.01-1999.06 P&G TAI WAN Chairman and General Manager Jun Xian (independent) 4.1993.04-1993.12 P&G TAI WAN Vice General Manager of Enterprise Planning 5.1991.07-1993.03 P&G U.S.A Marketing Director 1.2002.10—Now SINGAPORE HUADIANTONG GROUP Chairman of Board Mr. Zhou 2.1999.12-2002.09 SINGAPORE HUADIANTONG GROUP General Manager Director Zong 3.1993.09-1999.12 SINGAPORE BILINGUAL LTD. General Manager (independent) Geng 4.1989.09-1993.09 TAIWAN BILINGUAL LTD. General Manager 5.1987-1989 TIC COMPUTERS U.S.A. CEO 1.2004.02-- Now TSANN KUEN ENTERPRISE CO. LTD Group Senior Director of Human Resources and Purchase 2.1999.05-2004.01 TSANN KUEN ENTERPRISE CO. LTD Director of Human Resources and Purchase 3.1997.09-1999.04 TSANN KUEN ENTERPRISE CO. LTD Manager of Purchase Department Mr. Yan Liang Ji Supervisor 4.1991.08-1997.08 TSANN KUEN ENTERPRISE CO. LTD Manager of Human Resources Department 5.1989.12-1991.08 LINZONG ENTERPRISE LTD.(TAIWAN) Manager of Administration Department 6.1986.05-1989.11 DAYIN TRAFFIC LTD.(TAIWAN) Assistant Manager of Administration Department 1.2004.05-- Now TSANN KUEN ZHANGZHOU ENTERPRISE CO. LTD Vice General Manager 2.2002.12-2004.04 EUPA INDUSTRY CORPORATION LTD. Vice General Manager Mr. Lin 3.2002.08-2002.11 TSANN KUEN XIAMEN TECHNOLOGY CO. LTD Vice General Zong Supervisor Manager Ming 4.2001.05-2002.07 SANN KUEN CHINA (SHANGHAI) ENTERPRISE LTD. Vice General Manager 5.1992.05-2001.04 TSANN KUEN (CHINA) ENTERPEISE CO.LTD Vice General Manager 6.1990.04-1992.04 TSANN KUEN ENTERPRISE CO. LTD Manager of Overseas Department 1.2004.09--Now TSANN KUEN (CHINA) ENTERPEISE CO.LTD Senior Director of Administration Department 2.2003.02-2004.08 LIHUI METALS LTD Vice general manager 3.2000.10-2003.01 LIHUI METALS LTD Director 4.1996.07-2000.09 TSANN KUEN CHINA (SHANGHAI) ENTERPRISE LTD. Director of Mr. Wang Administration and Purchase Supervisor Cai Wang 5.1992.11-1996.06 TSANN KUEN ENTERPRISE CO. LTD Manager of Purchase Manager of Overseas Department 6.1989.12-1991.10 TSANN KUEN ENTERPRISE CO. LTD Manager of Factory Affairs 7.1986.11-1989.11 TSANN KUEN ENTERPRISE CO. LTD Supervisor of Purchase - 10 - 1.2003.01--Now TSANN KUEN (CHINA) ENTERPEISE CO.LTD Secretary of Board Mr. Luo 2.2002.10-2003.01 TSANN KUEN (CHINA) ENTERPEISE CO.LTD Finance Director Secretary of Qing Board 3.1997.08-2002.09 PACIFIC SECURITIES CO.LTD Vice General Manager Xing 4.1989.06-1997.07 WATERLAND SECURITIES CO.LTD Vice General Manager 1.2002.10--Now TSANN KUEN (CHINA) ENTERPEISE CO.LTD Accounting Manager 2.2001.10-2002.09 REICHENG CO.LTD Finance Manager Mr. Lin Accounting 3.2000.08-2001.08 TSANN KUEN (CHINA) ENTERPEISE CO.LTD Accounting Manager Zhi Hong Manager 4.1998.10-2000.07 TSANN KUEN (CHINA) ENTERPEISE CO.LTD Accounting Supervisor 5.1994.05-1998.09 YIEH UNITED STEEL CORP. Administrative Accountant (4)Salary in the reported year A. The decision-making procedure of, and the basis for confirmation of, the remuneration to directors, supervisors and senior administrative officials: According to the company’s articles of association, the remuneration paid to the directors and supervisors is decided by the shareholders’ general meeting, while the remuneration paid to other senior administrative officials is decided by the board of directors. All the decisions on the payment to the above personnel are made on the basis of the company’s B. Annual remuneration (salary, bonus, allowance, etc.) to the present directors, supervisors and senior administrative officials﹕ Total annual remuneration RMB 1,720,000 Yuan Sum of the top three directors RMB 949,000 Yuan Sum of the top three senior management RMB 741,000 Yuan Salary for director (independent) RMB 62,500 Yuan /Year Other compensation for director (independent) Reimbursement (travel expense, traffic allowance, communication fees related to attending the meeting) regulated by company policy Thoese do not get the annual remuneration from None TKC Remuneration range (annually) Persons Above RMB 300,000 2 RMB 100,000 -300,000 3 RMB 90,000 -100,000 7 C. All the directors and supervisors receive remuneration from TKC。 D. Changes in directors、supervisors and senior administrative officials: The former director Mr. Yu Jing Lun submitted his resignation for health reason to the Board of Directors on February 1st, 2004 and was approved by the Shareholders’ General Meeting on May 21st, 2004. Shareholders’ General Meeting held on May 21st, 2005 approved that TKC appointed Mr. Zhang Ke Da as as independent directors of its fourth Board of Directors. Former supervisor Miss You Su Qiu resigned because of personal reason. Mr. Wang Cai Wang was reelected as new supervisor by the general meeting of employees on April 1st, 2005 - 11 - 2. Structure of human resource Education level Persons Type of personnel Persons Doctor - Salesmen 1,599 Master 20 Financial Staff 223 Bachelor 626 Technicians 2,336 Academy 1,047 Administrators 2,500 Middle academy 1,054 Workers 15,996 Technical school 4,167 Senior high school 5,420 Middle school 9,726 Elementary school 594 Total 22,654 Total 22,654 V. STRUCTURE OF CORPORATE GOVERNANCE 1. Layout of corporate governance Strictly following the requirements of The Corporation Law, The Securities Exchange Law, The Listing Rules of Shengzhen Stock Exchange, The Corporate Governance Standards for the Listed Company, The Notice about Protection of Shareholders’ Interests of Social Circulated Shares, and The Notice about Investors’ Relationship Management of the Listed Company issued by CSRC, the corporation constantly improves its management structure and standardizes its operations. The actual status is as follows﹕ (1).About the shareholders and the shareholders’ meeting The operations of the company are in conformity with the standards. With a view to actually safeguard the legal rights and interests of middle and small shareholders, and to ensure all the shareholders to be able to fully exert their rights, the company calls and opens the shareholders’ meeting strictly following the legal procedures (2).About the relation of the listed company and its controlling shareholders The behaviors of TKC’s controlling shareholders comply with the standards. No direct or indirect interference or intervention from them has occurred so far to the corporation’s decisions or activities. The corporation is strictly separated from its controlling shareholders in the aspects of personnel, assets, financial affairs、organization and business managements, so that its Board of Directors, the supervisory committee and other internal organizations can run independently (3).About the directors and the Board of Directors The corporation votes for its directors strictly following the director-selecting procedures stipulated in the corporation’s articles of association. The formation of the Board of Directors meets the requirements of the law and regulations. The corporation has laid down The rules of discussion for the Board of Directors and implements it strictly. (4).About the supervisors and the supervisory committee The formation of the supervisory committee meets the requirements of the law and regulations. The corporation has drawn up the rules of discussion for the supervisory committee. With a spirit of being responsible for the shareholders, the members of the supervisory committee play their roles earnestly and carry out the supervisions on the corporation’s financial affairs as well as on the performances of the corporation’s directors, managers and other senior administrative officials. (5).About the interest-related parties - 12 - The corporation fully respects and safeguards the lawful rights and interests of its interest-related parties such as banks and their creditor(s)、staff, consumers, etc., who help mutually to push forward the corporation to develop continuously and healthily. (6).About information disclosure Strictly pursuant to the requirements of the laws、regulations and its articles of association, the corporation discloses the concerned information truly、accurately、 completely and promptly, so as to ensure that all the shareholders will have an equal chance to obtain information . 2. The independent directors’ performance of duty In accordance with the regulations of The Guiding Opinion Regarding the Establishment of Independent Director System in the Listed Company issued by CSRC and with the need to strengthen the corporation’s management, TKC currently appoints 3 persons as its independent directors, who make up 43 percent of its total directors. The independent directors of TKC can seriously carry out their duties. They discuss and resolve all the resolutions of each meeting in the reported period, and also give related independent opinions. And they perform good and positive influence on BOD’s decisions and protecting minority’s legal rights. A. RESUME OF THE SHAREHOLDERS’ GENERAL MEETING Name Times of Personal Deputized Absence Remark meetings Presence Attendance (Times) (Times) (Times) Mr. Liu Shun Ren 7 5 0 2 Overseas business trip Mr. Wei Jun Xian 7 6 0 1 Overseas business trip Mr. Zhou Zong Geng 7 6 0 1 Overseas business trip TKC held 7 times of BOD meetings in 2004. Because 3 independent directors are all the decision makers of their units, responsible for important business activities, under some circumstances, they were unable to some of the BOD meetings. (2). Objections to related issues from independent directors ﹕None 3. The clear separation of the corporation from its controlling shareholders in the aspects of business、 personnel、assets、organization and financial affairs management, etc. (1).In business In the aspect of business management, the corporation gradually gets independent from its controlling shareholders by setting up an independent and integral system of business management, thus obtaining a self-relied operating ability; and enabling itself to become an independent market-oriented legal person. (2).In personnel (A). In the aspects of labor、human and salary management, the corporation is independent completely. As its office site and its places for business and production are isolated from those of the controlling shareholders, there is no mix-up in its business and office work with those of the holders. (B). No interference or intervention from the controlling shareholders has occurred to the corporation’s decisions about personnel appointment or replacement. (3).In assets The assets of the corporation are separated strictly from those of the controlling shareholders. The corporation possesses independently its own production system, auxiliary production system and other related necessary system. Its intangible assets such as industrial property rights, trademark, non-patented technology and so on are also owned by itself independently - 13 - (4).In financial affairs (A). The corporation has its own financial and accounting departments. It has set up a complete set of independent accounting system and drawn up its strict financial management regulations。 (B). The corporation makes its financial decisions independently and no intervention from the controlling shareholders has occurred to the corporation’s fund application. (C). The corporation opened its own bank accounts. No case has been found of transferring the corporation’s funds to the accounts of any financial company or any settlement center controlled by its big shareholder(s) or other related parties. (D). The corporation pays the taxes independently according to the law. 4. The system for examination and appraisal on, and the measures for inspiration and restraint to, the performance of the senior administrative persons. The corporation examines and appraises on the performance of the senior administrative persons according to the relevant index and standards. The results of examination will be recorded into the person’s files and will be linked up with the treatments given to the examinee and with his (her) appointment or displacement. VI. RESUME OF THE SHAREHOLDERS’ GENERAL MEETING 1. About informing、calling and opening the meeting. On the date of April 20th, 2004, TKC published simultaneously an announcement on the newspapers of and as well as on the website of “www.cninfo.com.cn” to inform the TKC’s Board of Directors’ decision about the opening of 2004’s Shareholders’ Regular Meeting (which is also the 2003’s General Meeting of TKC’s shareholders). The 2003’s Shareholders’ General Meeting of TKC was opened on May 21st, 2005 at Xiamen Mandarin Hotel. Seven persons in the name of the shareholder or the shareholders’ representative attended the meeting. The total share amount on behalf of by them which was entitled to vote was 648,309,269 shares, accounting for 73.73 percent of the corporation’s total shares (879,328,125 shares in all). The directors, supervisors and the lawyers of the corporation also attended the meeting, the opening of which conformed to the relative rules specified in Corporation Law and in the corporation’s articles of association. 2. The resolutions made in the meeting and the newspapers and the date for the disclosure of the information thereof (1).In the Shareholders’ General Meeting, the following bills were examined and passed: (A).The 2003’s Report on the Work of the Board of Directors presented by the board; (B).The 2003’s Report on the Work of the Supervisory Committee presented by the committee; (C).The 2003’s final financial statements and the 2003’s financial budget； (D).The distribution plan for 2003’s profit； (E).The revision on the corporation’s articles of association； (F).The change of personnel in the Board of Directors； (G).About renewal of appointing Deloitte Touche Tohmatsu CPA as TKC’s auditor. (2).All the above resolutions were publicized in the newspapers of and on May 22nd, 2004. - 14 - 3.The election and replacement of the director(s) or supervisor(s) of the corporation (1).The resignation application from the former director Mr. Yu Jing Lun was passed. (2).Mr. Zhang Ke Da was elected as the independent director of the TKC’s fourth Board of Directors. VII. REPORT OF THE BOARD OF DIRECTORS Operational status during the reported period TKC achieved a sales turnover of RMB 669,200 ten thousand, which is an increase of 59.16%, as compared with the same item achieved in the same period of last year. The major reasons for the growth are due to the following two points: 1. The order taking of manufacturing division is smooth and prosperous. The capacity of the ZhangZhou Manufacturing site is totally lifted up. In terms of sales turnover and profits, the Company achieved 33.77% growth in sales turnover, and 36.98% growth in profits (the sales turnover of year 2004 of manufacturing division is RMB 508,282 ten thousand, and the profits of manufacturing is RMB 34,538 ten thousand). 2. With the set-up of new shops, the sales turnover of wholesaling division increased significantly to RMB 161,000 ten thousand. Which represented an incremental of RMB 120,400 ten thousand compared the sales turnover of last year. 3. Regarding the profits, the net profits of the reported period is gain RMB 3,862 ten thousand which represented 69.45% decrease, as compared with the same item achieved in the same period of last year. The reason for the decrease of profits was that the wholesaling division was newly set up last year and still in investment phase. The total profitability was lowered accordingly. In order to support the loss of wholesaling division in the early phase and create mid-term and long-term benefits, the group will reduce the operation costs, and improve the efficiency to increase profitability. In order to achieve the goal of profits at an early date, the group has adjusted his business strategy and mode to form diversity and area advantage which include closing the shops with poor benefits, looking for better bases of operations, adjusting operation areas in great Shanghai area and Fujian Province, introducing the shopping guides of suppliers, increasing customer success rate, hiring local talents of wholesaling professions, and launching into weekly settlement of payable accounts to gain more pricing supports and rebates from suppliers. Through the above measures, the operation loss of wholesaling division will be effectively reduced at an early date in return for long-term investments and trusts of the shareholders. 1.The operational situation during the reported period (1). The major business scope and its operational situation A. Classifying according to the trade and product Unit:RMB’000 Trade Product Sales Turnover Gross Profit Home 1,044,270 212,776 comforts Gourmet 2,879,297 508,103 cooking Tea/coffee 894,188 101,638 breakfast Other 265,065 7,227 Manufacturing Subtotal 5,082,820 829,744 Domestic Wholesaling 1,609,416 69,517 Total 6,692,236 899,261 Related-party transactions 428,590 33,274 - 15 - B. Classifying according to the geographical location Unit:RMB’000 Area Sales Turnover Gross Profit North America 2,331,109 316,971 Europe 1,134,872 167,207 Asia 2,907,473 370,746 Other 318,782 44,337 Total 6,692,236 899,261 Note: Asia area includes China, Japan, Taiwan, and Hong Kong . C. The products whose sales income exceeded 10% of the major operational income Unit:RMB’000 Type of product Ratio Sales income Cost of sales Gross profit ratio Home comforts 15.60% 1,044,270 831,494 20.38% Gourmet cooking 43.02% 2,879,297 2,371,194 17.65% Tea/coffee breakfast 13.36% 894,188 792,550 11.37% Domestic Wholesaling 24.05% 1,609,416 1,539,899 4.32% Total 96.04% 6,427,171 5,535,137 13.88% D. There was great change in the company’s major business line or in its structure during the reported period. The sales turnover of wholesaling division increased significantly to 297%. The percentage of the sales turnover of manufacturing division occupying the total sales decreased form 90% in 2003 to 76% in 2004 accordingly. The percentage of the sales turnover of wholesaling division occupying the total sales increased from 10% in 2003 to 24% in 2004. (2). The operational situations and the achievements of the companies which is under TKC’s control or in which TKC holds a share. (A).Tsann Kuen China (Shanghai) Enterprise Ltd. a. Business Range : Manufacturing; b. Major Products and Services: c. Production of household appliances、electronic、light industrial products、 modern office equipments and their related modules 、 various kinds of computers and their related facilities or spare parts. Development of computer software, IC packing and testing. Sale of their own products (the exporting of which will not be restricted by the requirements of license. and quota, or by whether or not being the product of class B). d. Registered capital : US$40,000,000 e. Scope of assets : RMB 690,060,000 f. Net profit : RMB -42,230,000 (B).Tsann Kuen Xiamen Technology Co., Ltd. A. Business Range: Manufacturing; B. Major Products and Services: Producing and marketing network service products like internet server, router and other digital communication devices, network multi-media PC products and their assemblies, related software. Designing, researching, developing and producing sophisticated pressing modules, model normalizers and the like. C. Registered capital : US$20,000,000 D. Scope of assets : RMB 53,180,000 E. Net profit : RMB -190,000 - 16 - (C).Tsann Kuen Zhangzhou Enterprise Co. Ltd. B. Business Range: Manufacturing; C. Major Products and Services: Development, production and sale of small household electrical appliances, new kind of electronic appliances and parts (such as electrical kits, sensors and sensitive transmitters), light industrial products, modern office supplies; designing and producing the molds related to the above products. (Excluding those products restricted by the government or those whose import or export quota is under license administration. When involved in those projects which need to be examined and approved first, the company carries out its operation and production only within the range and within the valid period set in the license.) D. Registered capital : US$ 40,000,000 E. Scope of assets : RMB 2,918,580,000 F. Net profit : RMB 450,030,000 (D).Xiamen Tsann Kuen Dian Tong Electronic Co. Ltd. A. Business Range: Wholesale trading. B. Major Products and Services: Wholesaling and its follow-up service of household appliances, computer sets and their attachments, communication materials, motor and electric equipments, office supplies and the related attachments (including kitchen facilities). (For those business items which need to be examined and approved first according to the laws and regulations, the company will carry out its operation only after it has obtained the license) C. Registered capital : RMB 65,000,000 D. Scope of assets : RMB 1,149,850,000 E. Net profit : RMB – 213,540,000 (E).Shanghai Tsann Pao Electronics Co., Ltd A. Business Range: Wholesale trading B. Major Products and Services: Wholesaling and its follow-up service of household appliances, computer sets and their attachments, communication materials, motor and electric equipments, office supplies and the related attachments (including kitchen facilities). (For those business items which need to be examined and approved first according to the laws and regulations, the company will carry out its operation only after it has obtained the license). C. Registered capital : RMB 10,000,000 D. Scope of assets : RMB 267,030,000 E. Net profit : RMB – 156,100,000 (F).Chengdu Tsann Kuen Electronics Co., Ltd A. Business Range: Wholesale trading B. Major Products and Services: Wholesaling and its follow-up service of household appliances, computer sets and their attachments, communication materials, motor and electric equipments, office supplies and the related attachments (including kitchen facilities). (For those business items which need to be examined and approved first according to the laws and regulations, the company will carry out its operation only after it has obtained the license). C. Registered capital : RMB 5,000,000 D. Scope of assets : RMB 7,160,000 E. Net profit : RMB –20,470,000 (G).T.K. Merchandising Service Co., Ltd. A. Business Range: Software developing and consulting B. Major Products and Services: Software developing and consulting C. Registered capital : RMB 12,400,000 - 17 - D. Scope of assets : RMB 12,420,000 E. Net profit : RMB –1,600 (3).Chief customers and suppliers (A).The sum of purchasing amount from the top five suppliers in 2004 is RMB936,310,000 making up 17.39% of the company’s total purchasing amount in the year. (B).The sum of sales amount to the top five customers in 2004 is RMB2,224,597,000 making up 33.24% of the company’s total sales amount in the year. 2. Investment status (1).Utilization state of raised funds A. Apart from the 40,000,000 shares of outbound funds raised in 1993, TKC has not raised funds since 1994. And there was no case of the utilization of the raised funds being extended till after 1998. B. The plan to issue additional 50 million B-shares and to use the fund raised from that was passed in the 1999’s Meeting of Shareholders, and on July 7, 2000 the application for issuing B-shares was approved by CSRC. After that, the related application documents were sent to CSRC for approval after they had been passed in the shareholders’ meeting held on the date of June 2nd, 2001, but till now no feedback of them has been received. (2).Utilization state of non-raised funds： A. In July of 2002, TKC invested funds in Longhai Developing District of Zhangzhou city to set up a subsidiary company—Tsann Kuen Zhangzhou Enterprise Co. Ltd. in which TKC holds 75 percent of its stockholder’s equity. The registered capital for this subsidiary company is US$ 40,000,000, of which US$ 38,540,000 has arrived in hand. The company contributed 75%. So far, the main workshops have been constructed. By the end of the reported period, most major production lines, such as that of roaster, coffee maker, electric fan as well as motor, have been installed and have started operations. B. In April 2003, TKC invested funds in Huli Industrial Zone of Xiamen city to set up Xiamen Tsann Kuen Dian Tong Electronics Co. Ltd, in which TKC held 65 percent of its stockholder’s equity then. The registered capital for this subsidiary company was RMB 65,000,000, all of which has arrived in position. By the end of the reported period, this company has accumulated loss. TKC and Thermaster Electronic (Xiamen) Ltd., the joint investor, have committed to continuously to provide financial support to keep Xiamen Tsann Kuen Dian Tong Electronics Co. Ltd’s business going, to repay the bank loan, and recognize the investment loss according to their respective ownership. C. Shanghai Tsann Pao Electronics Co., Ltd. (Shanghai Tsann Pao) was established by the Company and Shanghai Huangdu Management Company (Shanghai Huangdu) in December 2002 and obtained its business license on 2 January 2003. The registered capital was RMB 1 million, of which the Company contributed 20%. Shanghai Tsann Pao increased its paid-in capital by RMB 9 million in August 2003, of which the Company contributed RMB 1.8 million. After capital injection, the Company still holds 20% of registered capital of Shanghai Tsann Pao. Since the Company control the majority of the board of directors, and has committed to provide sufficient working capital to finance the operation of Shanghai Tsann Pao Electronics Co., Ltd., the management of the Company regards that the Company has substance control over Shanghai Tsann Pao’s financial policy since the establishment of Shanghai Tsann Pao and operation policy and is able to continue such control. As a result, the Company incorporates Shanghai Tsann Pao into the consolidation financial statements. D.Chengdu Tsann Kuen Electronics Co., Ltd was established by TKC and Shanghai Tsann Pao Electronics Co., Ltd in October 2003. The registered capital is RMB 5 M and TKC contributed 50%. E. The Company and Tsann Kuen Xiamen Technology Co., Ltd. established T.K. - 18 - Merchandising Service Co., Ltd. on Sep. 23rd, 2004. The registered capital for this subsidiary company is RMB 12,400,000, and all of the registered capital has arrived in hand. The company contributed 75% directly and 5% indirectly. 3. Financial status and operating achievements Unit:RMB’000 Increase or Item/Year 2004 2003 Reason for variation decrease (%) Total assets 5,160,706 5,061,134 1.97% Shareholders’ 1,439,949 1,401,410 2.75% equity The gross profit of wholesaling division increased to 257% as compared with the same item achieved in the same period of last year. Gross profit 899,261 547,421 64.27% The need for consumable electronic appliances increased to 58% as compared with the same item achieved in the same period of last year. Loss from the investment of domestic household Net profit 38,621 126,416 -69.45% appliance sales owing to huge fees & expenditures in early stage to set up sales net and non-scale effect. Cash and cash equivalent 507,172 582,689 -12.96% 4. Changes in the macroscopic policies, laws or regulations that might bring significant influence to the company s operating status The VAT rebate rate for export product was lowered from 17% to 14% in 2004. Accordingly, the company’s manufacture cost will rise by RMB71,600,000. 5. Business plan in 2005 (1).2005 sales target: RMB 7,200,000,000 (2).Focus of operations: A. Costs leadership, expenses control, profitability reinforcement； B. Construct and roll out ERP system and CRM mechanism； C. Continuously drive the improvement of manufacturing skills to advance efficiency； D. Build up the mechanism of unit functions and integrate them with workflows and standard operations； E. Strengthen ISO quality standards，perfect the workflow of quality management； F. Speed up the development of human resources，cultivate professional talents in all - 19 - aspects； G. Further complete soundness the evaluation mechanism of operating performance； H. Root enterprise culture. 6. The routine work of the Board of Directors (1).Important resolutions made by the Board of Directors during the reported period A. The first meeting of 2004’s was held on the date of Feb. 21st, 2004, and the following bills were passed in the meeting: (A).The 2003’s annual report on the work of the Board of Directors； (B).About revising the company’s articles of association B. The second meeting of 2004’s was held on the date of April 16th, 2004, and the following bills were passed in the meeting: (A).The company’s 2003’s annual report and its summary； (B).The company’s 2003’s final financial statements﹔ (C).The distribution plan for the company’s 2003’s profit； (D).The company’s stock dividend distribution policy for the estimated 2004’s profit； (E).About the change of personnel in the Board of Directors； (F).About renewal of appointing Deloitte Touche Tohmatsu CPA as TKC’s auditor; (G).About the internal control system; (H).Proposal to call and open the TKC’s 2003’s General Meeting of Shareholders. C.The third meeting of 2004’s was held on the date of April 26th, 2004, and the following bill was passed in the meeting: (A).The 2004’s first quarter financial report.。 D.On August 10th, 2004, in the fourth meeting of the year 2004, the following resolution was made: (A). the resolution about the company’s proposal to increase fund investment to its subsidiaries. E.On August 19th, 2004, in the fifth meeting of the year 2004, the following resolution was made: (A).the company’s 2004’s semi-annual report and its summary. F.In the sixth meeting of 2004 held on Oct. 24th, 2004, the following bills were passed: (A). the year’s 3rd-quarter financial report G.The seventh meeting of 2004’s was held on the date of Dec. 16th, 2004, and the following bills were passed in the meeting: (A).Bill one: A). The Board authorized its chairman to have the full right to deal with the current bank loan credit quota. B). The Board agreed to authorized the chairman of its subsidiary, Tsann Kuen Zhangzhou Enterprise Co. Ltd., to have the full right to deal with the current bank loan credit quota. (B).Bill two﹕The regulation for loans to other parties, endorsement and guarantee. (C).Bill Three﹕Resolution regarding Xiamen Municipal Government’s plan to retract the land use right of “Tsannkuen Technology Park” with compensation: A).Agreed to Xiamen Municipal Government’s compensation plan (1). Return the paid principal of land price, and also the compensated interests computed by the contemporary bank loan interest rate. (2). Built factories were compensated for the replacement costs. - 20 - (3). Xiamen Municipal Government will carry out when the land is taken over， the lease contract of the factory building. (4). Authorized the chairman to deal with Xiamen Municipal Government, Xiamen State-owned Land and Buildings Management Bureau, and other related bureaus regarding the retraction the land use right of “Tsannkuen Technology Park” with compensation. (2). The Board of Directors’ execution status to the resolutions of the Shareholders’ General Meeting (including the Board’s implementation to the work authorized by the Shareholders’ General Meeting, the Board’s implementation to the company’s profit dis tribution plan and to the plan to convert surplus accumulated funds into stock capital during the reported period, and the realization status on the plans to apportion shares or to re-issue new shares, etc.) A. Distribution of the 2003’s yearly profit during the middle phase of 2004: On June 16th, 2004, the Corporation implemented the 2003 yearly profit distribution plan that had been approved by the Shareholders’ General Meeting. The profit distribution plan is as the follows: (A).Stock dividend was to be distributed on the basis of 1 shares for every 10 shares held from the capitalization of retained earnings, totaling 87,932,812 shares (B). 0.5 shares for every 10 shares from the converting discretionary surplus reserves, totaling 43,966,406 shares; grand totaling 131,899,218 shares. (C). After the completion of this distribution, the company’s registered capital has been increased from the former 879,328,125 shares to the present 1,011,227,343 shares. B. No share apportioning or new share re-issuing occurred during the reported period. C. The revision on the corporation’s articles of association The proposal to revise the corporation’s articles of association (Mostly alteration of capital quota ) was put forward in last year. The revision has been completed and the content of the revised one has been examined and confirmed that it did not conflict with the laws and regulations. The Board carried out the revision according to the resolution of the shareholders’ meeting. D. Plan of 2004’s profits distribution (A). Distribution of stock dividend with 0.7 shares for every 10 shares Unit: RMB Item Ratio range Actual ratio Amount Remark Undistributed profit at 42,725,774 beginning Net profit of this period 38,621,206 Appropriate of statutory 10% 10% 3,733,741 surplus reserve Distributable profit 77,613,239 Distribution of stock Items for distribution dividend with 0.7 1. Statutory public welfare 5%-10% 5% 1,866,871 shares for every 10 reserve, and bonus reserve shares。 2. Discretionary surplus reserves, 3. Fund for dividend ---Stock 96.91% 70,785,914 dividends Undistributed profit 4,960,454 at end (B). Distribution of stock dividend with 0.3 shares for every 10 shares for discrepancy surplus reserve conversion into share capital Unit: RMB Item Amount Remarks - 21 - Discrepancy surplus reserve at beginning 46,728,388 Add: appropriation of net profit of 2004 Discrepancy surplus reserve at end 46,728,388 Distribution of stock dividend with Description: 0.3 shares for every Minus: distribution of stock dividend with 0.3 30,336,820 10 shares for shares for every 10 shares discrepancy surplus Discrepancy surplus reserve at beginning after 16,391,567 reserve conversion conversion into share capital into share capital Discrepancy surplus reserve after conversion 16,391,567 into share capital * TKC will distribute stock dividends based on the shareholder list of the granted date in the registration book of the Shengzhen registration company. * The granted date will be announced later. (C). The reason for inability to distribute cash dividend and the purpose and plan of unappropriated profits: Reason Purpose and plan To maintain stable financial a. Tsann Kuen Zhangzhou Enterprise Co. Ltd. is the structure, improve cashflows, subsidiary of TKC. In order to strengthen the and reduce the liabilities ratio competitiveness, expand the business scale, the and the risk of insufficient company with the rapid business growth needs the funds funds to acquire the land of 0.86 million square meters from Zhangzhou Economics Development Co. Ltd. b. Due to the loss of Xiamen Tsann Kuen Dian Tong Electronic Co. Ltd. and Shanghai Tsann Pao Electronics Co., Ltd, the funds will be used to cover the insufficiency of the working capital. (D). Independent opinion about inability to distribute cash dividend of year 2004 from independent directors Independent opinion about inability to distribute cash dividend of year 2004 from independent directors According to The notice about the regulations for the funds flowing between related parties and guarantee in the public companies issued by CSRC, as the independent directors of TSANN KUEN (CHINA) ENTERPRISE CO. LTD, we have seriously and thoroughly checked the reason for inability to distribute cash dividend and expressed the independent opinions as follows: The Company shall maintain stable financial structure, improve the cashflows, reduce the liabilities ratio and the risk of insufficient funds meanwhile the Company will achieve stable and continuous business development and will not harm the minority interests of shareholders. We agree on the resolution about inability to distribute cash dividend of year 2004 made by the Board of Directors. Independent Directors: Liu Shun Ren, Wei Jun Xian, Zhou Zong Geng April 20th,2005 E. Related party transaction (A).Sales and purchase - 22 - Type Content Name of related party 2004 2003 RMB RMB Parts and finished Sales Tsann Kuen Japan Inc. goods 227,770,775.02 210,639,261.26 Parts and finished Tsann Kuen Enterprise Ltd. goods 200,783,542.27 49,879,388.30 Parts and finished Thermaster Electronic (Xiamen) Ltd. goods 35,413.53 2,316.79 Parts and finished Union Channel Limited goods - 2,053,569.76 Parts and finished Tsann Kuen Hong Kong Ltd goods - 185,250.56 428,589,730.82 262,759,786.67 The sales transactions between the Company, TKS, TKL, and the other related companies were all under the prices agreed in the contracts. Raw materials Purchases finished goods.and Tsann Kuen Enterprise Ltd. machine parts 431,766,460.25 398,275,337.44 Raw materials finished goods.and Thermaster Electronic (Xiamen) Ltd. machine parts 86,620,127.27 71,906,775.76 Raw materials finished goods.and Eupa Industry Corporation Ltd. machine parts 6,440,734.64 86,501,395.48 Raw materials finished goods.and Tsann Kuen USA Inc. machine parts - 137,961.91 Raw materials finished goods.and Tsann Kuen Japan Inc. machine parts - 2,039.29 524,827,322.16 556,823,509.88 The transactions between the Company, TKS, TKL, and the other related companies were all under the prices agreed in the contracts. All transactions except those with Thermaster Electronic (Xiamen) Ltd. were priced at the costs of Raw materials finished goods.and machine parts. The transactions between the Company and Thermaster Electronic (Xiamen) Ltd. were all under the prices agreed in the contracts. (B).Property Type Content Name of related party 2004 2003 RMB RMB Mould and Purchases Tsann Kuen Enterprise Ltd. 82,563,208.68 233,055,701.46 machinery Sales Fixed Assets Thermaster Electronic (Xiamen) Ltd. 15,297,433.50 The property transactions between the Company and the related parties were priced according to the book value of the property. (C).Others Type Content Name of related party 2004 2003 RMB RMB Other Technology and know-how usage services Tsann Kuen Enterprise Ltd. fee (i) 191,244,715.08 79,828,412.08 paid - 23 - Sales agency fee of Hong Kong Tsann Kuen Hong Kong Ltd area (ii) 6,680,355.49 1,919,824.79 Post-Sales Service fee of America Tsann Kuen USA Inc. 6,076,628.59 - area (iii) Processing fees (iv) Tsann Kuen Enterprise Ltd. 8,347,923.27 - Compensation for product quality Tsann Kuen Japan Inc. - 5,246,602.62 212,349,622.43 86,994,839.49 Other Thermaster Electronic (Xiamen) services Management income(v) Ltd. 398,766.68 882,973.17 rendered Call center fee (vi) Tsann Kuen Enterprise Ltd. 6,621,406.59 8,277,200.12 7,020,173.27 9,160,173.29 Note: (i) Technology and know-how usage fee and sales commissions the Group paid were arrived at fixed percentage of net sales. (ii) The Group has appointed several of its related companies as sales agents for its export sales. Those related companies sign contract in the name of the Group and collect sales proceeds on the Group’s behalf. The Group records those sales as its own sales as the Group bears substantially all the risks of these transactions. The resulting agency fee as disclosed above was arrived at as a certain percentage of operating expenses incurred by the agents. (iii) Tsann Kuen USA Inc. provides post-sales service in America area for the Group. The Group pays Tsann Kuen USA Inc. the post-sales service fee at 102% of personnel salaries (iv)Processing fess the Group paid were arrived at 2% of actual purchasing costs. (v) Management income the Company received from THERMASTER (XIAMEN) was calculated at certain percentage of the managed company’s revenue income. (vi)Call center fee the Company received from TKE was calculated at certain percentage of the total cost of telecom system, operation cost and training cost. D.Joint investment with related parties: (A).Joint investor :Thermaster Electronic (Xiamen) Ltd. (B).Investee :Xiamen Tsann Kuen Dian Tong Electronic Co. Ltd. (C).Major Products and Services:Wholesaling and its follow-up service of household appliances, computer sets and their attachments, communication materials, motor and electric equipments, office supplies and the related attachments (including kitchen facilities). (For those business items which need to be examined and approved first according to the laws and regulations, the company will carry out its operation only after it has obtained the license). (D).Registered capital :RMB 65,000,000 (E).Scope of assets :RMB 1,152,090,000 (F).Net profit :RMB – 213,540,000 E.The status of receivables and payables Account Name Relationship 2004 2003 RMB RMB Accounts Receivables Tsann Kuen Japan Inc. The same ultimate holding company 55,794,307.07 64,452,930.36 Tsann Kuen Enterprise Ltd. Ultimate holding company 29,904,608.56 30,080,908.01 Other companies controlled by key senior management and their family Thermaster Electronic (Xiamen) Ltd. members with close connection 4,062.11 - - 24 - Union Channel Limited The same ultimate holding company - 186,230.25 Tsann Kuen Hong Kong Ltd The same ultimate holding company - 5,433,901.17 85,702,977.74 100,153,969.79 Other Receivables Tsann Kuen Hong Kong Ltd The same ultimate holding company 38,639,272.91 38,321,378.37 Tsann Kuen Enterprise Ltd. Ultimate holding company 7,260,689.77 27,988,200.77 Other companies controlled by key senior management and their family Thermaster Electronic (Xiamen) Ltd. members with close connection 3,491,852.90 873,294.37 Tsann Kuen Japan Inc. The same ultimate holding company 1,649,600.00 2,187,280.57 Tsann Pao Co., Ltd. The same ultimate holding company 34,927.00 - Tsann Kuen USA Inc. The same ultimate holding company 7,076.75 230,656.29 51,083,419.33 69,600,810.37 Prepaid Tsann Kuen Enterprise Ltd. Ultimate holding company 165,762.57 - Accounts Payables Tsann Kuen Enterprise Ltd. Ultimate holding company 212,781,148.25 291,556,099.81 Other companies controlled by key senior management and their family Thermaster Electronic (Xiamen) Ltd. members with close connection 52,205,024.36 43,054,265.55 Tsann Kuen Japan Inc. The same ultimate holding company 132,816.23 2,110.29 Eupa Industry Corporation Ltd. The same ultimate holding company 129,056.60 48,861,694.51 Tsann Kuen Hong Kong Ltd The same ultimate holding company 8,812.20 15,548,923.79 Tsann Pao Co., Ltd. The same ultimate holding company - 26,928,360.86 Tsann Kuen USA Inc. The same ultimate holding company - 129,053.29 265,256,857.64 426,080,508.10 Other Payables Tsann Kuen Enterprise Ltd. Ultimate holding company 191,123,692.93 84,337,269.43 Tsann Kuen Japan Inc. The same ultimate holding company 12,711,673.24 9,938,382.18 Tsann Kuen Hong Kong Ltd The same ultimate holding company 10,389,783.43 19,585,886.85 Tsann Kuen USA Inc. The same ultimate holding company 2,319,478.01 774,019.08 Tsann Pao Co., Ltd. The same ultimate holding company 1,337,926.57 2,446,674.07 Eupa Industry Corporation Ltd. Shareholder 639,834.54 - Other companies controlled by key senior management and their family Thermaster Electronic (Xiamen) Ltd. members with close connection 540,288.80 297,488.00 Taiwan Supreme Inc. The same ultimate holding company - 5,575,277.07 Sino Global Development Ltd. The same ultimate holding company - 1,750,818.87 219,062,677.52 124,705,815.55 Among the other receivables of the year end, the Company has RMB 38,639,272.91 due from Tsann Kuen Hong Kong Ltd., mainly resulted from collecting the trade payment on behalf of the Company. The main shareholder of the ultimate holding company has committed to repay the payables when Tsann Kuen Hong Kong Ltd. is unable to repay the payables. There are no guarantee, no interest burden, and no fixed payment term for the above receivables and payables of the related parties. F. Directors’ remuneration Remuneration paid to directors during the year was RMB 1,119 thousand Yuan ( 2003 : RMB 1,223 thousand Yuan) G.Guarantee (A).As at 31 December 2004, the Company guaranteed RMB 222,279,500 (2003: RMB - 25 - 16,553,800) for Tsann Kuen China (Shanghai) Enterprise Ltd, a subsidiary of the Group. (B).Special announcement about the funds borrowed by the controlling shareholders and other related parties from certified public accountants. Special announcement and independent opinion about accumulated and current guarantee of the public company from independent directors, as follows: Special report about funds tie-up by its controlling stockholders and related parties for TSANN KUEN (CHINA) ENTERPRISE CO. LTD TO THE BOARD OF DIRECTORS OF TSANN KUEN (CHINA) ENTERPRISE CO., LTD: We have audited consolidated balance sheet of the Tsann Kuen (China) Enterprise Co., Ltd. and its subsidiaries (collectively referred to as the “Group”) as of 31 December 2004 and the related consolidated statements of income, changes in equity and cash flows for the year then ended. We conducted our audit in accordance with Independent Auditing principle of CICPA and issued unqualified Audit report(DTT audit(05) No.P0742) on April 20th, 2005. According to The notice about the regulations for the funds flowing between related parties and guarantee in the public companies issued by CSRC, We have checked the attached forms with the files we examined in auditing and the related part in audited financial statements, meeting minutes, and guarantee data provided by the management, we did not find any discrepancy in all material respects. Form 1：The circumstance of funds tied-up Unit:RMB’0000 Current Current Balance year year tied-up Reason Remark Related party Relationship Account Title at end of cumulative cumulative manner year in Dr in Cr Ultimate holding Account Sales & company Receivables 2,990 19,736 19,754 Cash purchase Sales & Tsann Kuen Prepaid 17 442 425 Cash purchase Enterprise Ltd. Other Deputized Receivables 726 14,352 16,425 Cash collection The same Other Reimburse Tsann Kuen USA Inc. ultimate Receivables 1 1 23 Cash ment Tsann Kuen Japan holding Account Sales & Inc. company Receivables 5,579 22,777 23,643 Cash purchase Other Reimburse Receivables 165 460 514 Cash ment - 26 - Other Reimburse Tsann Pao Co., Ltd. Receivables 3 3 - Cash ment Sino Global Other Reimburse Development Ltd. Receivables - 1 1 Cash ment Union Channel Account Sales & Limited Receivables - - 19 Cash purchase Other Account Sales & Tsann Kuen Hong companies Receivables - - 543 Cash purchase Kong Ltd controlled by Other Deputized key senior Receivables 3,864 33,321 33,289 Cash collection management and Account Sales & Thermaster their family Receivables 0.4 35.4 35 Cash purchase Electronic members with (Xiamen) Ltd close Other Reimburse connection Receivables 349 266 4 Cash ment The form had been prepared by the following ： Legal representative: Tsai Yuan Song Accounting controller: Lin Zhi Hong Form 2：Illegal guarantee Illegal guarantee Company Guarantee code （listed company/s ubsidiary of Guarantee Begin listed amount ning End Guarantee Name company） Guarantor Relationship （,0000） Date date Effective Remark manner Sub-Total The form is the responsibility of the Group’s management. We did not conducted any additional auditing except those conducted in financial statements auditing. The letter should be used only in the report to CRSC for the funds tie-up about the controlling stockholders and other related parties. Without the written permission, it can not be used in any other respect. Deloitte Touche Tohmatsu Certified Public Accountants Ltd April 20th 2005 Special announcement and independent opinion about accumulated and current guarantee of the public company from independent directors - 27 - According to The notice about the regulations for the funds flowing between related parties and guarantee in the public companies issued by CSRC, as the independent directors of TSANN KUEN (CHINA) ENTERPRISE CO. LTD, we have checked its guarantee and expressed the special announcement and independent opinions as follows: Special announcement from independent directors: The accumulated guarantee is RMB222,279,500 and the guarantee of the reported period is RMB222,279,500. Among them, the public company guarantee for Tsann Kuen China (Shanghai) Enterprise Ltd, its subsidiary, for accumulated guarantee of RMB66,829,500 and guarantee of RMB66,829,500 of the reported period and for Xiamen TSANN KUEN Dian Tong Electronic Co. Ltd, also its subsidiary, for guarantee of RMB155,450,000 of the reported period. During the reported period, there is no other guarantee in the group. Independent opinions: Although, the company guaranteed for its controlling subsidiaries, Tsann Kuen China (Shanghai) Enterprise Ltd and Xiamen TSANN KUEN Dian Tong Electronic Co. Ltd, it should take effective measures to reduce the amount of guarantee to reduce the liability risk from 2004 in accordance with The notice about the regulations for the funds flowing between related parties and guarantee in the public companies. In addition, the management should prepare the contingency plan in case of Tsann Kuen China (Shanghai) Enterprise Ltd’s difficulty in turnover to protect the right of shareholders. Because the domestic retailing division is still in loss, we ask TKC to insure the profit and stable cash flow of manufacturing division. In order to protect the minority stockholders, any significant information about TKC’s finance should be publicized in time. Independent Directors: Liu Shun Ren, Wei Jun Xian, Zhou Zong Geng March 17th,2005 VIII.REPORT OF THE SUPERVISORY COMMITTEE 1.Supervisors’ meetings In 2004 supervisory committee performed the supervisory functions, conducted duties, and ensured the legal compliance of the company operations according to the relative rules specified in Corporation Law, the corporation’s articles of association and other related regulations, and by the principles of truthfulness and legality, in order to protect the interests of the general shareholders. (1).In the reported period, the status of the call of supervisory committee, resolutions, and information disclosure. 01. The first meeting of 2004’s was held on the date of Apr. 16th, 2004. In the meeting, the 2003’s report on the work of supervisory committee and the 2003’s audit report were passed; 02. In the 2004’s third meeting held on Apr. 26th, 2004, the 2004’s 1st-quarter financial report was passed. 2.No case has been found to be against the laws in the performance of the board of directors. 3.The company’s financial statements truly reveal the financial status and the operating results of the company. 4.The actual input items of latest fund-raising were in line with the Promissory items。 5.No case of inside-deal has been found to be conducted by the company. 6.The transactions with the relative parties were carried out fairly, and none of them was found to be harmful to the interest of the corporation and the shareholders. 7.After carrying out supervisions and examinations to the year 2004’s work of the company’s directors and other senior administrative persons, no case of violation has been found, and all the above-mentioned persons were recognized to be responsible and faithful to their duties in the year 2004. IX. MAJOR EVENTS 1.Significant litigation or arbitration: none. 2.Significant purchase or disposal of assets and acquisition or merge - 28 - On 8 March 2004, the Company received [2005] Di No.102 Notice from Xiamen Municipal Government, which stated that the land in Tsann Kuen Technology Park located at Jinshang Road, Xiamen, will be taken back by the government. The Company arrived at a agreement in respect of the compensation for the withdrew of the land with Xiamen State-owned Land and Buildings Management Bureau on 31 March 2005. The acquired price is RMB 136,424,180. The acquisition gain will be recognized in the first quarter of year 2005. Tsann Kuen Xiamen Technology Co., Ltd. is the manufacturer of PC products invested by TKC. In 2003, Tsann Kuen Xiamen Technology Co., Ltd. transformed into the factory of developing and processing modules. Though the land is acquired on 31 March 2005, Tsann Kuen Xiamen Technology Co., Ltd. leased the factory space from Tsann Kuen Zhangzhou Enterprise Co. Ltd. since November 2004. There is no impact on its business continuity and stability of the management. 3.Significant transactions with the relative parties: (1).About the details of transactions with the relative parties taking place during the reported period, please refer to the notes to the financial report; (2).All the transactions with the relative parties were done on the basis of signed by XIAMEN TAX BUREAU and the company 4.During the reported period, none of the shareholders who held more than 5% of the company’s total shares revealed without authorization any information on any of the designated newspapers or on inter-net. 5.During the reported period, there was no change in TKC’s appointing Deloitte Touche Tohmatsu CPA to be its auditor, and the fees for it this year was RMB 1,365,000. The CPA is changed from Miss Chou Hua to Miss Yu Dong Fang because of the regulations for rotation of CPAs of auditing business. X. FINANCIAL REPORTS (See the attachments) 1.DTT’s audit report; 2.Financial statements: (1).Consolidated balance sheet; (2).Consolidated income statement; (3).Consolidated cash flow statement; XI. MEMO 1.The Financial statements with signatures and seals of the legal representative, the CFO and other chief accountants. 2.The audit report proper with the seals of the public accounting firm and with the personal signatures and seals of its CPAs. 3.All the company’s documents proper and announcement originals that were publicly disclosed during the reported period on the newspapers nominated by CSRC. 4.The Corporation’s Articles of Association. 5.The above-mentioned documents are stored in the office of the Board of Directors. (Signed by:) Tsai Yuan Song The chairman of the Board of Directors of TSANN KUEN (CHINA) ENTERPRISE CO. LTD - 29 - on Apr. 22th, 2005 - 30 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. Auditors’ Report and Financial Statements for the year ended 31 December 2004 (Prepared under International Financial Reporting Standards) Registered Office: 88 Xinlong Road, HuLi Industry Zone Xiamen China - 31 - AUDITORS' REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 CONTENTS PAGE(S) AUDITORS’ REPORT 1 CONSOLIDATED INCOME STATEMENT 2 CONSOLIDATED BALANCE SHEET 3 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 4 CONSOLIDATED CASH FLOW STATEMENT 5-6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7 - 34 DTT(A)(05)I086 AUDITORS’ REPORT TO THE SHAREHOLDERS OF TSANN KUEN (CHINA) ENTERPRISE CO., LTD. We have audited the accompanying consolidated balance sheet of the Tsann Kuen (China) Enterprise Co., Ltd. and its subsidiaries (collectively referred to as the “Group”) as of 31 December 2004 and the related consolidated statements of income, changes in equity and cash flows for the year then ended. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2004 and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Deloitte Touche Tohmatsu CPA Ltd. 20 April 2005 - 33 - CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 NOTES 2004 2003 RMB’000 RMB’000 Revenue 4 6,692,236 4,204,669 Cost of sales (5,792,975) _________ (3,657,248) ________ Gross profit 899,261 547,421 Other operating income 6 64,231 44,495 Selling and distribution expenses (630,819) (266,532) Administrative expenses (228,515) _________ (165,746) ________ Profit from operations 7 104,158 159,638 Interest income 3,686 2,441 Interest expenses (50,394) _________ (13,418) ________ Profit before tax 57,450 148,661 Income tax expense 8 2,783 _________ (14,609) ________ Profit before minority interests 60,233 134,052 Minority interests (21,612) _________ (7,636) ________ Net profit for the year 38,621 _________ 126,416 ________ RMB RMB Basic earnings per share 10 4 cents _________ 13 cents ________ See accompanying notes to the financial statements. - 34 - CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2004 NOTES 2004 2003 RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 11 1,581,578 1,611,324 Goodwill 12 6,668 7,880 Land use rights 13 77,717 79,623 Other investments 15 71 _________ 71 ________ 1,666,034 _________ 1,698,898 ________ Current assets Inventories 16 1,402,730 1,316,084 Trade and other receivables 17 1,406,433 1,244,048 Amounts due from related companies 27(c) 136,952 169,755 Restricted deposits 21 41,383 49,660 Bank balances and cash 507,172 _________ 582,689 ________ 3,494,670 _________ 3,362,236 ________ Total assets 5,160,704 _________ 5,061,134 ________ EQUITY AND LIABILITIES Capital and reserves Share capital 18 1,011,227 879,328 Other reserves 19 352,974 391,424 Retained profits 75,746 _________ 130,658 ________ 1,439,947 _________ 1,401,410 ________ Minority interests 248,718 _________ 189,560 ________ Non-current liabilities Long-term bank loans 21 _________- 50,000 ________ Current liabilities Trade and other payables 22 1,608,764 2,004,929 Long-term payable-due within one year 20 - 23,414 Long-term bank loans-due within one year 21 50,000 - Amounts due to related companies 27(c) 484,320 550,786 Income tax liabilities 2,075 14,943 Short-term bank loans 21 1,326,880 _________ 826,092 ________ 3,472,039 _________ 3,420,164 ________ Total equity and liabilities 5,160,704 _________ 5,061,134 ________ See accompanying notes to the financial statements. - 35 - CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2004 Other reserves (note 19) Statutory Discretionary Statutory Share Share surplus surplus public Translation Retained capital premium reserve reserve welfare reserve reserve Sub-total profits Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 YEAR ENDED 31 DECEMBER 2003 Balance at 1 January 2003 676,406 128,655 112,478 66,775 41,573 509 349,990 249,023 1,275,419 Exchange differences arising from translation of subsidiaries’ financial statements not recognised in income statement - - - - - (425) (425) - (425) Capitalisation 202,922 - - - - - - (202,922) - Net profit for the year - - - - - - - 126,416 126,416 Appropriations ________- _______- 11,960 _______ 23,919 ______ 5,980 ______ ____- 41,859 _______ (41,859) ________ _________- Balance at 31 December 2003 879,328 ________ 128,655 _______ 124,438 _______ 90,694 ______ 47,553 ______ 84 ____ 391,424 _______ 130,658 ________ 1,401,410 _________ YEAR ENDED 31 DECEMBER 2004 Balance at 1 January 2004 879,328 128,655 124,438 90,694 47,553 84 391,424 130,658 1,401,410 Change of measurement currency used certain subsidiaries into RMB - - - - - (84) (84) - (84) Capitalisation 131,899 - - (43,967) - - (43,967) (87,932) - Net profit for the year - - - - - - - 38,621 38,621 Appropriations ________- _______- 3,734 _______ ______- 1,867 ______ ____- 5,601 _______ (5,601) ________ _________- Balance at 31 December 2004 1,011,227 ________ 128,655 _______ 128,172 _______ 46,727 ______ 49,420 ______ ____- 352,974 _______ 75,746 ________ 1,439,947 _________ - 36 - CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 2004 2003 RMB’000 RMB’000 OPERATING ACTIVITIES Profit from operations 104,158 159,638 Adjustments for: Depreciation of property, plant and equipment and investment properties 311,096 246,759 Impairment loss reversed on property, plant and equipment (10) (1,956) Impairment loss provided on property, plant and equipment 4,064 - Loss(gain) on disposals of property, plant and equipment 23,404 (356) Gain on disposal of investment properties - (10,679) Amortisation of land use rights 1,906 1,906 Amortisation of goodwill 1,212 1,213 Accounts payable written back - (2,050) Effect of foreign exchange rate changes (84) _________ (425) ________ Operating cash flows before movements in working capital 445,746 394,050 Increase in inventories (86,646) (895,080) Increase in trade and other receivables (162,385) (821,733) Decrease in amounts due from related companies 32,803 75,543 (Decrease) increase in trade and other payables (396,165) 1,395,718 (Decrease) increase in amounts due to related companies (66,466) _________ 15,594 ________ Cash generated by operations (233,113) 164,092 Income taxes paid (10,085) _________ (32,415) ________ NET CASH (USED IN) FROM OPERATING ACTIVITIES (243,198) _________ 131,677 ________ INVESTING ACTIVITIES Interest received 3,686 2,441 Proceeds on disposals of property, plant and equipment 7,317 2,196 Proceeds on disposals of investment properties - 14,384 Purchases of property, plant and equipment (316,125) (507,179) Acquisition of subsidiary _________- 1,000 ________ NET CASH USED IN INVESTING ACTIVITIES (305,122) _________ (487,158) ________ - 37 - 2004 2003 RMB’000 RMB’000 FINANCING ACTIVITIES Cash received from minority shareholders 37,546 50,642 Interest paid on bank loans (50,394) (13,418) Repayments of bank loans (2,087,233) (1,118,465) New bank loans raised 2,588,021 1,844,408 Decrease (increase) in restricted deposit 8,277 (49,660) Repayment of long-term payable (23,414) _________ (7,805) ________ NET CASH FROM FINANCING ACTIVITIES 472,803 _________ 705,702 ________ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (75,517) 350,221 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 582,689 _________ 232,468 ________ CASH AND CASH EQUIVALENTS AT END OF YEAR 507,172 _________ 582,689 ________ ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank balances and cash 507,172 _________ 582,689 ________ - 38 - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 GENERAL Tsann Kuen (China) Enterprise Co., Ltd. (“the Company”) was established in the People’s Republic of China (“the PRC”) in 1988 under the name of Tsann Kuen China (Xiamen) Ltd. as a wholly owned foreign investment enterprise. On 16 February 1993, with the approval of the Ministry of Foreign Trade and Economic Co-operation, the Company was reorganised into a joint stock company limited by shares and was renamed as Tsann Kuen (China) Enterprise Co., Ltd. In June 1993, the Company issued 40,000,000 new shares pursuant to an international placing and public offer and these new shares (“B shares”) were then listed on the Shenzhen Stock Exchange on 30 June 1993. The ultimate holding company is Tsann Kuen Enterprise Ltd., a company incorporated in Taiwan. The Company and its subsidiaries are hereinafter collectively referred to as the Group. PRESENTATION OF FINANCIAL STATEMENTS The Company and its subsidiaries maintain their accounting records and prepare their statutory financial statements in accordance with accounting standards and regulations of the People's Republic of China that are applicable to the Company and its subsidiaries. These financial statements (“IFRS financial statements”) have been prepared in accordance with International Financial Reporting Standards (“IFRSs”). The basis of accounting under IFRSs differs in certain respects from that used in the preparation of the Company and its subsidiaries’ statutory financial statements. In preparing these IFRS financial statements, appropriate adjustments, which are not taken up in the accounting records of the Company and its subsidiaries, have been made to the Company and its subsidiaries’ statutory financial statements. These financial statements are presented in Renminbi (“RMB”) since that is the currency in which the majority of the Group’s transactions are denominated. - 39 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. The shares of Shanghai Tsann Pao Electronics Co., Ltd. hold by the Company does not exceed 50%. However, the management regards that the Company has substance control over Shanghai Tsann Pao’s finance and operation policy, so the Company incorporates the financial statements of Shanghai Tsann Electronics Co., Ltd. On acquisition, the assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess (deficiency) of the cost of acquisition over (below) the fair values of the identifiable net assets acquired is recognised as goodwill (negative goodwill). The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. All significant intercompany transactions and balances between group enterprises are eliminated on consolidation. Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as an asset and amortised on a straight-line basis over its estimated useful life. On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of unamortized goodwill is included in the determination of the profit or loss on disposal. - 40 - 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Revenue recognition Sales of goods are recognised when goods are delivered and title has passed. Services income is recognised when services are rendered. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Rental income, from properties under operating leases is recognised on a straight-line basis over the term of the relevant lease. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Rental income from operating leases is charged to income statement on a straight-line basis over the term of the relevant lease. Rentals payable by the Group as lessee under operating leases are charged to the income statement on a straight-line basis over the term of the relevant lease. Foreign currencies Transactions in foreign currencies other than RMB are initially recorded at the rates of exchange prevailing on the first day of the month in which the transactions take place which approximates to the rates of exchange prevailing on the dates of transactions. At each balance sheet date,monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. None-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rate prevailing at the date when the fair value was determined. Gains and losses arising on exchange are included in net profit or loss for the period, except for exchange differences arising on non-monetary assets and liabilities where the changes in fair value is recognized directly to equity. - 41 - 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Research and development costs Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible assets arising from the Group is recognized only if all of the following conditions are met: An assets is created that can be identified (such as software and new process); It is probable that the assets created will generate future economic benefits; and The development cost of the assets can be measured reliably Internally-generated intangible assets are amortized on a straight-line basis over their useful lives. Where no internally-generated intangible assets can be recognized, development expenditure is recognized as an expenses in the period in which it is incurred. Borrowing costs Borrowing costs are recognised in net profit or loss in the period in which they are incurred. Subsidy income Subsidy income is recognised when the Group’s rights to receive is established. Retirement benefit costs The employees of the Group are members of state-managed retirement benefit schemes, under which the Group’s obligations are equivalent to those arising in a defined contribution retirement benefit plan. Payments made to state-managed retirement benefit schemes are charged as expenses as they fall due. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. - 42 - 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Taxation - continued Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Property, plant and equipment Construction is progress and properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Other items of property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost of assets, other than properties under construction in progress, over their estimated useful lives and after taking into account their residual value, using the straight-line method, on the following bases: - 43 - 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Property, plant and equipment - continued Buildings 20 years Machinery and equipment 10-15 years Motor vehicles 5 years Furniture and office equipment 5 years Moulds 5 years Leasehold improvement the shorter of the estimated useful life and the leasing period The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income statement. Land use rights Land use rights are measured initially at cost and amortised on a straight-line basis over their estimated useful lives. Impairment At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs - 44 - 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued to completion and costs to be incurred in marketing, selling and distribution. Financial instruments Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group has become a party to the contractual provision of the instrument. Financial assets The Group’s principal financial assets are bank balances and cash, trade and other receivables, amounts due from related companies and other investments. Trade and other receivables and amounts due from related companies are stated at their nominal value as reduced by the appropriate allowances for estimated irrecoverable amounts. Other investments consist of investments available-for-sale which are initially recorded at cost and are measured at subsequent reporting dates at fair value at the balance sheet date, unless the fair value of which cannot be reasonably estimated, in which case other investments are stated at cost, net of any impairment loss. Increases or decreases in the carrying amount of such investments are recognised as income or expenses of the year. Bank balances and cash are stated at their nominal values. Financial liabilities Significant financial liabilities include interest-bearing bank borrowings, trade and other payables and amounts due to related companies. Interest bearing bank borrowings are recorded at the proceeds received, net of direct issue costs. Finance charges are accounted for on an accrual basis. Trade and other payables and amounts due to related companies are stated at their nominal values. REVENUE An analysis of the Group’s revenue is as follows: 2004 2003 RMB’000 RMB’000 Manufacturing 5,082,820 3,799,556 Retailing 1,609,416 __________ 405,113 _________ 6,692,236 __________ 4,204,669 _________ - 45 - BUSINESS AND GEOGRAPHICAL SEGMENTS Business segments For management purposes, the Group is currently organised into two operating divisions-retailing and manufacturing, which are the basis that the Group reports its primary segment information. Principal activities are as follows: Manufacturing - Manufacture and distribution of household electronic appliances. Retailing - Whole sale and retail of consumable electronic appliances, computers and communication equipments. Segment information about these business is presented below. 2004 Manufacturing Retailing Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 REVENUE External sales 5,082,820 1,609,416 - 6,692,236 Inter-segment sales 23,385 _________ ________- (23,385) _______ ________- Total revenue 5,106,205 _________ 1,609,416 ________ (23,385) _______ 6,692,236 ________ Inter-segment sales are charged at cost. RESULT Segment result 466,424 _________ (362,266) ________ _______- 104,158 ________ Profit from operation 104,158 ________ Interest income 3,686 Interest expenses (50,394) ________ Profit before tax 57,450 Income tax expense 2,783 ________ Profit before minority interests 60,233 Minority interests (21,612) ________ Net profit for the year 38,621 ________ - 46 - 5. BUSINESS AND GEOGRAPHICAL SEGMENTS - continued OTHER INFORMATION Manufacturing Retailing Consolidated RMB’000 RMB’000 RMB’000 Capital expenditure addition 260,716 55,409 316,125 Depreciation 293,247 17,849 311,096 Amortisation of goodwill and land use right 3,118 - 3,118 Provision of impairment loss - 4,064 4,064 2003 Manufacturing Retailing Elimination Consolidated RMB’000 RMB’000 RMB’000 RMB’000 REVENUE External sales 3,799,556 405,113 - 4,204,669 Inter-segment sales 22,993 _________ ________- (22,993) _______ ________- Total revenue 3,822,549 _________ 405,113 ________ (22,993) _______ 4,204,669 ________ Inter-segment sales are charged at cost. RESULT Segment result 293,071 _________ (133,433) ________ _______- 159,638 ________ Profit from operation 159,638 ________ Interest income 2,441 Interest expenses (13,418) ________ Profit before tax 148,661 Income tax expense (14,609) ________ Profit before minority interests 134,052 Minority interests (7,636) ________ Net profit for the year 126,416 ________ OTHER INFORMATION Manufacturing Retailing Consolidated RMB’000 RMB’000 RMB’000 Capital expenditure addition 517,451 87,423 604,874 Depreciation 245,685 1,074 246,759 Amortization of goodwill and land use right 3,119 - 3,119 - 47 - 5. BUSINESS AND GEOGRAPHICAL SEGMENTS - continued BALANCE SHEET 2004 2003 Assets Liabilities Assets Liabilities RMB’000 RMB’000 RMB’000 RMB’000 Manufacturing 4,151,029 1,138,579 4,140,422 1,775,869 Retailing 1,009,675 1,004,505 920,712 803,260 Unallocated corporate liabilities _________- 1,328,955 _________ _________- 891,035 ________ 5,160,704 _________ 3,472,039 _________ 5,061,134 _________ 3,470,164 ________ The number of employees for the year for each of the Group’s principal divisions was as follows: 2004 2003 Manufacturing 20,456 22,922 Retailing 2,198 __________ 5,217 _________ 22,654 __________ 28,139 _________ The Group’s secondary basis of segmentation is by geographical market. An analysis of Group’s revenue and result by geographical market is as follows: Sales revenue by geographical market 2004 2003 RMB’000 RMB’000 North America 2,331,109 1,771,419 PRC Mainland 1,634,711 486,575 Europe 1,134,872 904,440 Japan 490,922 401,221 Taiwan 200,784 49,879 South America 166,002 99,047 Australia 92,071 75,524 Others (Note) 641,765 __________ 416,564 _________ 6,692,236 __________ 4,204,669 _________ The assets, including additions thereto during the year, are located in the PRC. - 48 - OTHER OPERATING INCOME 2004 2003 RMB’000 RMB’000 Income from sales of materials 73,188 22,112 Rental income 7,367 - Call centre fee 6,621 8,277 Management income 399 883 Subsidy income 60 138 (Loss) profit on disposal of property, plant and equipment (23,404) 356 Profit on disposal of investment properties - 10,679 Accounts payable written back (Note) ________- 2,050 _______ 64,231 ________ 44,495 _______ Note: In 2003, the directors reviewed certain long outstanding accounts payable over three years due to loss of contact with the suppliers and considered that these amounts will not require to be settled. Accordingly, these accounts payable were written back. PROFIT FROM OPERATIONS Profit from operations has been arrived at after charging (crediting): 2004 2003 RMB’000 RMB’000 Staff costs 465,097 391,548 Depreciation of property, plant, equipment 311,096 246,653 Depreciation of investment properties - 106 Research and development costs 52,370 22,939 Amortisation - goodwill (included in administrative expenses) 1,212 1,213 - land use rights (include in administrative expenses) 1,906 1,906 Impairment loss reversed recognised (included in cost of sales) (10) (1,956) Impairment loss provided 4,064 - Net foreign exchange (gain) losses (6,834) ________ 10,192 _______ - 49 - INCOME TAX EXPENSE 2004 2003 RMB’000 RMB’000 PRC income tax for the year 2,959 13,839 (Over) under provision of PRC tax expenses in prior year (5,742) ________ 770 _______ (2,783) ________ 14,609 _______ According to the “Detailed Rules and Regulations for Implementation of the Income Tax Law of the People’s Republic of China Concerning Enterprises with Foreign Investment and Foreign Enterprises”, an export oriented enterprise established with foreign investment which, on the expiry of the period of reduction of or exemption from enterprise income tax as stipulated in the tax law, has an export value for the year amounting to 70% or more of the value of its product output for that year may pay enterprise income tax at 50% of the prevailing rate pursuant to the provisions of the tax law. However, an export oriented enterprise located in economic zones which pays enterprise income tax at 15% has to levy income tax at 10%. Income tax for the current year has been provided at the rate of 10%. Tsann Kuen China (Shanghai) Enterprise Ltd. (“TKS”), a subsidiary of the Company, is an export oriented enterprise located in Shanghai, which is entitled to income tax exemption for two years commencing from the first profitable year and a reduction in the applicable tax rate for the next three years. Year 2004 is the third year that TKS enjoys the 50% relief. No provision for current taxation has been made for TKS for year 2004 as it has no taxable income. Tsann Kuen (China) Technology Co., Ltd. (“TKK”), a subsidiary of the Company, is a production enterprise located in Xiamen, which is entitled to income tax exemption for two years commencing from the first profitable year and a reduction in the applicable tax rate for the next three years. No current taxation provision has been made for TKK as it has not had any taxable income since its establishment. Tsann Kuen (Zhangzhou) Enterprise Co., Ltd. (“TKL”), a subsidiary of the Company, is a production enterprise located in Zhangzhou, which is entitled to income tax exemption for two years commencing from the first profitable year and a reduction in the applicable tax rate for the next three years. The year 2004 is the second profitable year that TKL enjoys income tax exemption. No provision for current taxation has been made for Xiamen Tsann Kuen Dian Tong Electronics Co., Ltd., Shanghai Tsann Pao Electronics Co., Ltd., Fuzhou Tsann Kuen Electronics Co., Ltd., Nanjing Tsann Kuen Electronics Co., Ltd., Beijing Tsann Kuen Electronics Co., Ltd., Shanghai Tsann Hung Electronics Co., Ltd., Chengdu Tsann Kuen Electronics Co., Ltd., Wuhan Tsann Kuen Electronics Co., Ltd., Shengyang Tsann Kuen Electronics Co., Ltd., Hebei Shijiazhuang Tsann Kuen Electronics Co., Ltd., Tianjing Tsann Pao Electronics Co., Ltd., Zhengzhou Tsann Kuen Electronics Co., Ltd., Xuzhou Tsann Kuen Electronics Co., Ltd; Kunming Tsann Kuen Electronics Co., Ltd., and T.K. Merchandising Service Co., Ltd, subsidiaries of the Company, as they have not had any taxable income since their establishment. - 50 - 8. INCOME TAX EXPENSE - continued The charge (credit) for the year can be reconciled to the profit per the income statement as follows: 2004 2003 RMB’000 % RMB’000 % Profit before tax 57,450 ______ 148,661 _______ Tax at the PRC tax rate of 10% (2003: 10%) 5,745 10.0 14,866 10.0 Tax effect of expenses that are not deductible in determining taxable profit 277 0.5 234 0.2 Tax effect of income that are not taxable in determining taxable profit (235) (0.4) (1,328) (0.9) (Over) under prior year income tax (5,742) (10.0) 770 0.5 Effect of tax holiday enjoyed by subsidiaries (45,003) (78.3) (17,971) (12.1) Tax loss of subsidiaries not recognised 42,175 ______ 73.4 _____ 18,038 _______ 12.1 ____ Tax expense and effective tax rate for the year (2,783) ______ (4.8) 14,609 9.8 _____ _______ ____ No deferred tax asset has been recognised in respect of the tax losses of the subsidiaries amounting to RMB707,270,000 (2003: RMB285,520,000) in the consolidated financial statements due to the unpredictability of future profit streams. The unrecognised tax losses will be expired in following period: RMB’000 Expired in 2005 6,900 Expired in 2006 28,090 Expired in 2007 70,150 Expired in 2008 180,380 Expired in 2009 421,750 DIVIDENDS On 21 June 2004, there was a bonus issue of 15 bonus shares for every 100 shares held from the capitalisation of retained earnings and discretionary surplus reserve. In respect of current year, the directors propose a bonus issue of 10 bonus shares for every 100 shares held from the capitalisation of discretionary surplus fund and retained earning. This is subject to the approval of the shareholders at the next Annual General Meeting. - 51 - EARNINGS PER SHARE The calculation of the basic earnings per share is based on the following data: Earnings 2004 2003 RMB’000 RMB’000 Earnings for the purposes of basic earnings per share (net profit for the year) 38,621 ________ 126,416 _______ Number of shares 2004 2003 Number of ordinary shares for the purposes of basic earnings per share 1,011,227,343 ________ 1,011,227,343 _______ The number of ordinary shares for 2003 has been adjusted as a result of this year’s capitalisation issues. PROPERTY, PLANT AND EQUIPMENT Machinery Furniture and Motor and office Leasehold Construction Buildings equipment vehicles equipment Moulds improvement in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 COST At 1 January 2004 267,300 653,556 51,391 147,005 1,698,495 34,555 120,705 2,973,007 Additions 3,353 56,530 7,172 40,865 53,575 27,540 127,090 316,125 Transfers 3,003 35,929 1,416 40,523 73,741 18,183 (172,795) - Disposals (637) _______ (10,178) _______ (1,770) ______ (10,426) _______ (33,755) ________ (17,857) _______ _______- (74,623) _________ At 31 December 2004 273,019 _______ 735,837 _______ 58,209 ______ 217,967 _______ 1,792,056 ________ 62,421 _______ 75,000 _______ 3,214,509 _________ ACCUMULATED DEPRECIATION AND IMPAIRMENT At 1 January 2004 69,166 213,256 25,938 62,112 990,796 415 - 1,361,683 Charge for the year 13,373 55,511 7,080 24,349 202,927 7,856 - 311,096 Impairment loss - (10) - 859 - 3,205 - 4,054 Eliminated on disposals (160) _______ (6,051) _______ (1,077) ______ (5,038) _______ (29,625) ________ (1,951) _______ _______- (43,902) _________ At 31 December 2004 82,379 _______ 262,706 _______ 31,941 ______ 82,282 _______ 1,164,098 ________ 9,525 _______ _______- 1,632,931 _________ CARRYING AMOUNT At 31 December 2004 190,640 473,131 26,268 135,685 627,958 52,896 75,000 1,581,578 _______ _______ ______ _______ ________ _______ _______ _________ At 31 December 2003 198,134 _______ 440,300 _______ 25,453 ______ 84,893 _______ 707,699 ________ 34,140 _______ 120,705 _______ 1,611,324 _________ - 52 - GOODWILL RMB’000 COST At 1 January and 31 December 2004 12,124 ________ AMORTISATION At 1 January 2004 4,244 Charge for the year 1,212 ________ At 31 December 2004 5,456 ________ CARRYING AMOUNT At 31 December 2004 6,668 ________ At 31 December 2003 7,880 ________ Goodwill is amortised over its estimated useful life. The foreseeable life of the goodwill arising on past acquisition is 10 years. LAND USE RIGHTS RMB’000 COST At 1 January 2004 and at 31 December 2004 89,699 ________ ACCUMULATED AMORTISATION At 1 January 2004 10,076 Charge for the year 1,906 ________ At 31 December 2004 11,982 ________ CARRYING AMOUNT At 31 December 2004 77,717 ________ At 31 December 2003 79,623 ________ As at 31 December 2004, TKS, a subsidiary of the Group, has not yet obtained the land use right certificate for part of its land, which is included in the above land use rights. The carrying amount of above land use right is RMB 2,636,000 (2003: RMB2,707,000). As at 31 December 2004, land use rights have remaining amortisation periods from 35 to 54 years. - 53 - SUBSIDIARIES Details of the Company’s subsidiaries at 31 December 2004 are as follows: Place and date Proportion of Name of subsidiary of establishment Registered capital ownership interest Principal activity Direct Indirect Tsann Kuen China Shanghai, PRC USD40,000,000 62.5% - Production and sale of household (Shanghai) Enterprise Ltd. 17 August 1993 appliance. Tsann Kuen (China) Xiamen, PRC USD20,000,000 75% - Production and sale of digital Technology Co., Ltd. 4 August 2000 telecom equipment. Tsann Kuen (Zhangzhou) Zhangzhou, PRC USD40,000,000 75% - Production and sale of household Enterprise Co., Ltd. 26 July 2003 appliance. Xiamen Tsann Kuen Xiamen, PRC RMB65,000,000 65%(Note 1) - Whole sale and retail of Dian Tong Electronics 28 March 2003 consumable electronic Co., Ltd. appliances, computers and communication equipments. Shanghai Tsann Pao Shanghai, PRC RMB10,000,000 (Note 2) - Whole sale and retail of Electronics Co., Ltd. 2 January 2003 consumable electronic appliances, computers and communication equipments. Nanjing Tsann Kuen Nanjing, PRC RMB1,000,000 - 100% Whole sale and retail of Electronics Co., Ltd. 21 November 2003 consumable electronic appliances, computers and communication equipments. Beijing Tsann Kuen Beijing, PRC RMB2,000,000 - 100% Whole sale and retail of Electronics Co., Ltd. 5 September 2003 consumable electronic appliances, computers and communication equipments. Fuzhou Tsann Kuen Fuzhou, PRC RMB2,000,000 - 100% Whole sale and retail of Electronics Co., Ltd. 27 October 2003 consumable electronic appliances, computers and communication equipments. Shanghai Tsann Hung Shanghai, PRC RMB2,500,000 - 100% Whole sale and retail of Electronics Co., Ltd. 21 July 2003 consumable electronic appliances, computers and communication equipments. Chengdu Tsann Kuen Chengdu, PRC RMB5,000,000 50% 50% Whole sale and retail of Electronics Co., Ltd. 13 October 2003 consumable electronic appliances, computers and communication equipments. Wuhan Tsann Kuen Wuhan, PRC RMB1,000,000 - 100% Whole sale and retail of Electronics Co., Ltd. 8 December 2003 consumable electronic appliances, computers and communication equipments. Shenyang Tsann Kuen Shenyang, PRC RMB1,000,000 - 100% Whole sale and retail of Electronics Co., Ltd. 18 November 2003 consumable electronic appliances, computers and communication equipments. - 54 - 14. SUBSIDIARIES - continued Place and date Proportion of Name of subsidiary of establishment Registered capital ownership interest Principal activity Direct Indirect Hebei Shijiazhuang Shijiazhuang, PRC RMB1,000,000 - 100% Whole sale and retail of Tsann Kuen 23 December 2003 consumable electronic Electronics Co., Ltd. appliances, computers and communication equipments. Tianjing Tsann Pao Tianjing, PRC RMB1,000,000 - 100% Whole sale and retail of Electronics Co., Ltd. 17 December 2003 consumable electronic appliances, computers and communication equipments. Zhengzhou Tsann Kuen Zhengzhou, PRC RMB1,000,000 - 100% Whole sale and retail of Electronics Co., Ltd. 29 December 2003 consumable electronic appliances, computers and communication equipments Kunming Tsann Kuen Kunming, PRC RMB1,000,000 - 100% Whole sale and retail of Electronics Co., Ltd. 25 December 2003 consumable electronic appliances, computers and communication equipments Xuzhou Tsann Kuen Xuzhou,PRC RMB 1,000,000 - 100% Whole sale and retail of Electronics Co., Ltd. 2 January 2004 consumable electronic appliances, computers and communication equipments T.K. Merchandising Service Xiamen, PRC RMB 12,400,000 5% 95% Software developing Co., Ltd 23 September 2004 and consulting Note 1: At 31 December 2004, Xiamen Tsann Kuen Dian Tong Electronics Co., Ltd (Xiamen Dian Tong) was in an accumulated loss position. The Company and Thermaster Electronic Co., Ltd, related party of the company and minority invester of Xiamen Dian Tong, have committed to provide financial supports to Xiamen Dian Tong to enable it to carry out business plan, repay bank loans and take the operating losses beyond the contributed capital in proportion of contributed capital. The operating loss beyond the contributed capital taken by Thermaster Electronic Co., Ltd. during current year is approximately RMB54,603,000. - 55 - 14. SUBSIDIARIES - continued Note 2: Shanghai Tsann Pao Electronics Co., Ltd. (Shanghai Tsann Pao) was established by the Company and Shanghai Huangdu Management Company (Shanghai Huangdu) in December 2002 and obtained its business licence on 2 January 2003. The Company holds 20% of registered capital of Shanghai Tsann Pao. Since the Company control the majority of the board of directors, and has committed to provide sufficient working capital to finance the operation of Shanghai Tsann Pao, the management of the Company regards that the Company has substance control over Shanghai Tsann Pao’s financial policy and operation policy since the establishment of Shanghai Tsann Pao and is able to continue such control. As a result, the Company incorporates Shanghai Tsann Pao into the consolidation financial statements. At 31 December 2004, Shanghai Tsann Pao was in an accumulated loss position. The Company has committed to provide financial supports to the subsidiary to enable it to carryout business plan and repay bank loans. However, the minority investor of Shanghai Tsann Pao do not express that they have the responsibility and intention to financially support Shanghai Tsann Pao and taken the operation loss beyond its contributed capital, so the Company take all the operation loss beyond the contributed capital of Shanghai Tsann Pao. OTHER INVESTMENTS 2004 and 2003 RMB’000 Available for sale: Unlisted shares 71 _______ The fair value of unquoted entity shares above cannot reliably determined as these equity shares do not have quoted market prices in an active market nor are other methods of reasonably estimating the fair values readily available. Accordingly, these investments are not re-measured to their fair value. INVENTORIES 2004 2003 RMB’000 RMB’000 Raw materials 627,651 542,346 Work-in-progress 431,780 231,425 Finished goods 75,605 69,377 Merchandise 267,694 _________ 472,936 ________ 1,402,730 _________ 1,316,084 ________ - 56 - 16. INVENTORIES - continued 2004 2003 RMB’000 RMB’000 Carrying amount of inventories which are carried at net realisable value - Raw materials 69,338 60,404 - Work-in-progress 62,303 35,538 - Finished goods 2,782 6,552 - Merchandise 102,897 _________ 127,959 ________ 237,320 _________ 230,453 ________ OTHER FINANCIAL ASSETS Trade and other receivables at the balance sheet date comprise amounts receivable from the sale of goods of RMB551 million (31 December 2003: RMB475 million) and advances to suppliers and other prepayments of RMB855 million (2003: RMB769 million). The average credit period taken on sale of goods is 46 days. An allowance has been made for estimated irrecoverable amounts from the sale of goods of RMB 9 million (2003: RMB12 million). This allowance has been determined by reference to past default experience. The directors consider that the carrying amount of trade and other receivables and amounts due from related companies approximates to their fair value. Bank balances and cash comprise cash and short-term deposits held for treasury function. The carrying amount of these assets approximates to their fair value. Fair value The carrying amount of financial assets recorded in the consolidated financial statements approximates to their respective fair values. Fair value estimates are made at specific point in time and are based on relevant market information. The estimate is subjective in nature and involved uncertainty and matters of significant judgment and therefore cannot be determined with precision, changes in valuation methods and assumptions could significantly affect the estimates. - 57 - 17. OTHER FINANCIAL ASSETS - continued Credit risk The Group’s principal financial assets are bank balance and cash, trade and other receivables, amounts due from related companies and other investments, which represent the Group’s maximum exposure to credit risk in relation to financial assets. The Group’s credit risk is primarily attributable to its trade and other receivables and amounts due from related companies. The amounts presented in the consolidated balance sheet are net of allowances for doubtful receivables, estimated by the Group’s management based on prior experience and their assessment of the current economic environment. The credit risk of amounts due from related companies is limited because the amounts are guaranteed by the major shareholder of the ultimate holding company. The credit risk on liquid funds is limited because the counterparties are state-owned banks in the PRC. Concentration of credit risk For the year 2003 and 2004, net sales to the Group’s five largest customers accounted for approximately 41.03% and 33.24%, respectively, of the Group’s total revenue. Net sales to the Group’s largest customer, Salton Inc., accounted for 26.54% and 19.84% of the Group’s total revenue for 2003 and 2004, respectively. Details of the amounts receivable from the five non-related customers with the largest receivable balances at year end are as follows: Percentage of trade receivable 2004 2003 Five largest receivable balances 41.93% _______ 25.87% _______ Foreign exchange risk The Company and its subsidiaries, TKL and TKS, are export-oriented enterprises with the United States as their largest market. Changes in international exchange rates, the rate for United States dollars in particular, will have an impact on the revenue of the Group. In addition, the Group purchases its equipment from overseas and the purchase price of its equipment is denominated in foreign currency. - 58 - SHARE CAPITAL 2004 2003 RMB’000 RMB’000 Registered, issued and fully paid: Legal person shares of RMB1 each 737,923 641,672 B shares of RMB1 each 273,304 _________ 237,656 ________ 1,011,227 _________ 879,328 ________ Balance at 1 January 879,328 676,406 Capitalisation issue (note 9) 131,899 _________ 202,922 ________ Balance at 31 December 1,011,227 _________ 879,328 ________ All the shares rank pari passu with each other in all respects except that the B shares are listed on the Shenzhen Stock Exchange. OTHER RESERVES (a) Other reserves of the Group include statutory surplus reserve, discretionary surplus reserve and statutory public welfare reserve, which form part of shareholders’ equity. Statutory surplus reserve / Discretionary surplus reserve In accordance with relevant PRC laws and regulations and the Company’s Articles of Association, the Company is required to appropriate 10% of its profit after taxation reported in its PRC statutory financial statements to the statutory surplus fund. Allocation to a discretionary surplus reserve shall be approved by the shareholders in general meeting. The appropriation of statutory surplus reserve may cease to apply if the balance of the statutory surplus reserve has reached 50% of the Company’s registered capital. Surplus reserve can be used to make up losses or for conversion into share capital. The Company may, upon the approval by a resolution of shareholders’ general meeting, convert its surplus reserves into share capital by issuing new shares to existing shareholders in proportion to their original shareholding or by increasing the nominal value of each share. However, when converting the Company’s statutory surplus reserve into share capital, the amount of such fund remaining unconverted must not be less than 25% of the registered capital. - 59 - 19. OTHER RESERVES - continued (a) Other reserves of the Group include statutory surplus reserve, discretionary surplus reserve and statutory public welfare reserve, which form part of shareholders’ equity. - continued Statutory public welfare reserve In accordance with relevant PRC laws and regulations and the Company’s Articles of Association, the Company is required to appropriate 5% to 10% of the profit after tax as reported in its PRC statutory financial statements to the statutory public welfare reserve. The statutory public welfare fund shall only apply to collective welfare of staff and workers and welfare facilities as a property of the Company. When the public welfare reserve is utilised, an amount equal to the cost of the assets acquired is transferred to discretionary surplus reserve. On disposal of the relevant assets, the original transfers from the reserve are reversed. (b) Basis for profit distribution In accordance with the Company’s Articles of Association, profit available for distribution to shareholders should be based on the lower of the amount determined under PRC GAAP and the amount determined under IFRS after deduction of the current year’s appropriation to the statutory reserves. The unappropriated profit carried forward for distribution to shareholders as at 31 December 2004 was approximately RMB75,746,000. LONG-TERM PAYABLE The amount represents outstanding balance for land use rights acquired in 2000. It is interest free and was fully repaid during the year: 2004 2003 RMB’000 RMB’000 Long-term payable – due within one year _________- 23,414 ________ - 60 - BANK LOANS 2004 2003 RMB’000 RMB’000 Secured loans 41,000 48,100 Unsecured loans 1,335,880 _________ 827,992 ________ Total 1,376,880 _________ 876,092 ________ The borrowings are repayable as follows: On demand or within one year 1,376,880 826,092 In the second year _________- 50,000 ________ 1,376,880 876,092 Less: Amount due for settlement within12 months (shown under current liabilities) (1,376,880) _________ (826,092) ________ Amount due for settlement after 12 months _________- 50,000 ________ At 31 December 2004, the loans carry fixed interest rates ranging from 1.62% to 6.37% (2003: 1.28% to 5.80%) per annum. At 31 December 2004, approximately RMB 41,000,000 (2003: 48,100,000) of short-term bank loans are secured on deposits RMB41,383,000 of the Group (2003: RMB 49,660,000). The directors consider the carrying amount of the bank loans approximates to their fair value. Analysis of borrowings by currency: 2004 2003 RMB’000 RMB’000 Renminbi 649,726 520,642 US Dollar 690,030 355,450 HK Dollar 37,124 _________ ________- 1,376,880 _________ 876,092 ________ - 61 - OTHER FINANCIAL LIABILITIES Trade and other payables comprise amounts outstanding for trade purchase and ongoing costs. The directors consider that the carrying amount of trade and other payables and amounts due to related companies approximates to their fair value. CAPITAL COMMITMENTS 2004 2003 RMB’000 RMB’000 Commitments for the acquisition of property, plant and equipment 37,707 _________ 83,301 ________ OPERATING LEASE COMMITMENTS The Group as lessee 2004 2003 RMB’000 RMB’000 Minimum lease payments under operating leases recognised in income for the year 151,106 _________ 32,051 ________ At the balance sheet date, the Group had outstanding commitments under non-cancellable operating leases, which fall due as follows: 2004 2003 RMB’000 RMB’000 Within one year 128,686 188,358 In the second to fifth years inclusive 506,292 740,154 After five years 1,366,195 __________ 2,271,206 _________ 2,001,173 __________ 3,199,718 _________ - 62 - RETIREMENT BENEFIT PLANS The employees of the Group are members of a state-managed retirement benefit scheme operated by the local government. The Group are required to contribute a specified percentage of their payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions. The total cost charged to income statement is RMB 17.7 million (2003: RMB7.9 million) which represents contributions payable to these schemes by the Group at rates specified in the rules of the schemes for the current year. As at 31 December 2004, no contributions due in respect of the current reporting period had not been paid over to the schemes (2003: Nil). EVENTS AFTER BALANCE SHEET DATE (1) Subsequent to 31 December 2004, the Company’s subsidiaries, Shenyang Tsann Kuen Electronics Co., Ltd., Chendu Tsann Kuen Electronics Co., Ltd. and Tianjin Tsann Pao Electronics Co., Ltd. had one store closed respectively. The related loss is estimated to be approximately RMB2 million. (2) On 8 March 2004, the Company received [2005] Di No.102 Notice from Xiamen Municipal Government, which stated that the land in Tsann Kuen Technology Park located at Jinshang Road, Xiamen, will be taken back by the government. The Company arrived at a agreement in respect of the compensation for the withdraw of the land with Xiamen State-owned Land and Buildings Management Bureau on 31 March 2005. The Company considers the compensation to be received is adequate to cover the related loss incurred. As at 31 December 2004, the net book value of the certain land use right and buildings is approximately RMB114 million. RELATED PARTY TRANSACTIONS The ultimate holding company of the Company is Tsann Kuen Enterprise Ltd., a company incorporated in Taiwan. (a) During the year, the Group entered into the following transactions with its related companies. 2004 2003 RMB’000 RMB’000 Transactions Sales of raw materials and finished goods - Ultimate holding company 200,784 49,879 - Fellow subsidiaries 227,771 212,693 - Companies in which the Company’s directors have controlling interests 35 __________ 188 _________ - 63 - 27. RELATED PARTY TRANSACTIONS - continued (a) During the year, the Group entered into the following transactions with its related companies. - continued 2004 2003 RMB’000 RMB’000 Purchases of raw materials and finished goods - Ultimate holding company 431,766 398,275 - Fellow subsidiaries 6,441 86,641 - Companies in which the Company’s directors have controlling interests 86,620 __________ 71,907 _________ Sales of property - Companies in which the Company’s directors have controlling interests __________- 15,297 _________ Purchases of mould and machinery - Ultimate holding company 82,563 __________ 233,056 _________ The Company and its subsidiaries TKL and TKS sell raw materials and finished goods to related parties at the contract price. For the company and its subsidiaries, all purchase from related parties, except those from Thermaster Electronic (Xiamen) Ltd. (“Thermaster (Xiamen)”), a company in which the Company’s directors have controlling interests, are priced at the original purchase cost. The company and its subsidiaries purchase raw materials and finished goods from Thermaster (Xiamen) at the contract price. For the company and its subsidiaries, the moulds and machinery purchased from related parties are priced according to their net book value. 2004 2003 RMB’000 RMB’000 Other services paid Technology and know-how usage fee (i) - Ultimate holding company 191,245 79,828 Sales commissions (ii) - Companies in which the Company’s directors have controlling interests 6,680 1,920 After service fee (iii) - Fellow subsidiaries 6,077 - Purchase commissions (iv) - Ultimate holding company 8,348 - Compensation - Fellow subsidiary __________- 5,247 _________ - 64 - 27. RELATED PARTY TRANSACTIONS - continued (a) During the year, the Group entered into the following transactions with its related companies. - continued 2004 2003 RMB’000 RMB’000 Other services rendered Management income (v) - Companies in which the Company’s directors have controlling interests 399 883 Call center fee (vi) - Ultimate holding company 6,621 __________ 8,277 _________ (i) Technology and know-how usage fee the Group paid were arrived at fixed percentage of net sales. (ii) The Group has appointed several of its related companies as sales agents for its export sales. Those related companies sign contract in the name of the Group and collect sales proceeds on the Group’s behalf. The Group records those sales as its own sales as the Group bears substantially all the risks of these transactions. The resulting agency fee as disclosed above was arrived at as a certain percentage of operating expenses incurred by the agents. (iii) After service fee the Group paid were arrived at 102% of the staff cost incurred for providing the after sales service. (iv) Purchase commissions the Group paid were arrived at fixed percentage of purchase. (v) Management income the Company received from Thermaster (Xiamen) was calculated at certain percentage of the managed company’s revenue income. (vi) Call center fee the Company received from TKE was calculated at certain percentage of the total cost of telecom system, operation cost and training cost. (b) Directors’ remuneration Remuneration paid to directors during the year was as follows: 2004 2003 RMB’000 RMB’000 Salaries 1,119 __________ 1,233 _________ - 65 - 27. RELATED PARTY TRANSACTIONS - continued (c) Amounts due from/to related companies Accounts 2004 2003 RMB’000 RMB’000 Amounts due from related companies - Ultimate holding company 37,331 58,069 - Fellow subsidiaries 57,486 67,057 - Companies in which the Company’s directors have controlling interest 42,135 __________ 44,629 _________ 136,952 __________ 169,755 _________ Amounts due to related companies - Ultimate holding company 403,905 375,893 - Fellow subsidiaries 16,631 96,406 - Companies in which the Company’s directors have controlling interest 63,144 78,487 - Shareholders 640 __________ _________- 484,320 __________ 550,786 _________ At 31 December 2004, balances with related companies of RMB39 million (31 December 2003: RMB38 million) represent sales proceeds received on the Group’s behalf. The major shareholder of the ultimate holding company has issued a letter of guarantee for the repayment of this balance. Amounts due from/to related companies were unsecured, interest free and repayable on demand. (d) Guarantee As at 31 December 2004, the Company guaranteed RMB222,279,500 (2003: RMB16,554,000) for TKS and Xiamen Tsann Kuen Dian Tong, subsidiaries of the Group. APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved by the Board of Directors and authorised for issue on 20 April 2005. LANGUAGE The Chinese text of the financial statements is a translated version for reference only. The English text of the financial statements will prevail over the Chinese text. * * * * * - 66 - TSANN KUEN (CHINA) ENTERPRISE CO., LTD. SUPPLEMENTAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2004 SUMMARY OF DIFFERENCES BETWEEN IFRS AND PRC GAAP These financial statements are prepared in conformity with IFRS which are different from its statutory financial statements which are prepared in accordance with PRC GAAP. The statutory financial statements for the year ended 31 December 2004 reported profit for the year as RMB40,420,000 and net assets as RMB1,426,044,000. The principal IFRS adjustments made for profit after taxation and net assets are as follows: Profit for the year Net assets RMB’000 RMB’000 As reported under PRC GAAP 40,420 1,426,044 Adjustments to conform to IFRS: Adjustment to record property, plant and equipment acquired before 1994 at swap rates (2,223) 12,378 Elimination of revaluation reserves 424 (387) Others __________- 1,912 _________ As reported under IFRS 38,621 __________ 1,439,947 _________ TSANN KUEN (CHINA) ENTERPRISE CO., LTD. INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 2004 2003 RMB’000 RMB’000 (Company) (Company) Revenue 312,060 1,555,095 Cost of sales (258,956) __________ (1,312,882) _________ Gross profit 53,104 242,213 Other operating income 46,480 51,436 Loss from subsidiaries 8,165 (4,440) Selling and distribution expenses (20,071) (81,222) Administrative expenses (76,244) __________ (67,647) _________ Profit from operations 11,434 140,340 Interest income 12,276 1,450 Interest expenses 7,644 (4,784) Profit before tax 31,354 137,006 Income tax expense 2,662 __________ (14,609) _________ Net profit for the year 34,016 __________ 122,397 _________ TSANN KUEN (CHINA) ENTERPRISE CO., LTD. BALANCE SHEET AS AT 31 DECEMBER 2004 2004 2003 RMB’000 RMB’000 (Company) (Company) ASSETS Non-current assets Property, plant and equipment 516,140 658,738 Goodwill 6,668 7,881 Land use rights 79,325 76,916 Investments in subsidiaries 548,657 391,008 Other investments 71 71 __________ _________ 1,150,861 1,134,614 __________ _________ Current assets Inventories 87,057 92,507 Trade and other receivables 291,423 335,696 Amounts due from related companies 514,740 514,740 Trustee loan 345,000 120,000 Bank balances and cash 154,305 139,311 __________ _________ 1,392,525 1,202,254 __________ _________ Total assets 2,536,386 2,336,868 __________ _________ EQUITY AND LIABILITIES Capital and reserves Share capital 1,011,227 879,328 Other reserves 347,379 391,346 Retained profits 90,085 146,801 __________ _________ 1,448,691 1,417,475 __________ _________ Non-current liabilities Long-term bank loans - 50,000 __________ _________ - 50,000 __________ _________ Current liabilities Trade and other payables 286,026 280,903 Amounts due to related companies 235,138 235,138 Income tax liabilities 140,524 15,077 Short-term bank loans 433,007 338,275 __________ _________ 1,094,695 869,393 __________ _________ Total equity and liabilities 2,543,386 2,336,868 __________ _________ __________ _________ 70