长虹美菱(000521)皖美菱Ｂ2004年年度报告（英文版）

HEIFEI MEILING COMPANY LTD ANNUAL REPORT 2004 April 2005 Important Notice: Board of Directors of Hefei Meiling Co., Ltd. (hereinafter referred to as the Company) and its directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions or errors that would render any statement misleading. Shenzhen Pengcheng Certified Public Accountants and Morison Heng Certified Public Accountants respectively issued the standard unqualified Auditors’ Report for the Company. Chairman of the Board Mr. Gu Chujun, Vice-president Mr. He Jinqi and Secretary of Financial Dept. Mr. Zhong Weiyi hereby confirm that the Financial Report of the Annual Report is true and complete. Contents Section I. Company Profile------------------------------------------------------------------------------ Section Ⅱ. Summary of Financial Highlight and Business Highlight-------------------------- Section Ⅲ. Changes in Capital Shares and Particulars about Shareholders----------------- SectionⅣ. Particulars about Directors, Supervisors, Senior Executives and Employees--- Section Ⅴ. Administrative Structure -------------------------------------------------------------- Section Ⅵ. Brief Introduction to the Shareholders’ General Meeting------------------------- Section Ⅶ. Report of the Board of Directors------------------------------- ------------------------ Section Ⅷ. Report of the Supervisory Committee------------------------------------------------- Section Ⅸ. Significant Events-------------------------------------------------------------------------- Section Ⅹ. Financial Report -------------------------------------------------------------------------- Section XI. Documents for Reference---------------------------------------------------------------- Section I. Company Profile 1. Legal Name of the Company In Chinese: 合肥美菱股份有限公司 In English: HEFEI MEILING CO., LTD. Abbr. in English: HFML 2. Legal Representative: Mr. Gu Chujun 3. Secretary of the Board of Directors and Securities Affairs Representative Secretary of the Board of Directors: Xue Hui Contact address: No. 48, Wuhu Road, Hefei Tel: (86) 551-2869394 Fax: (86) 551-2883122 E-mail: wyxuehui@163.com Securities Affairs Representative: Qi Dunwei E-mail: secretary@meiling.com 4. Registered Address: No. 48, Wuhu Road, Hefei Office Address: No. 48, Wuhu Road, Hefei Post Code: 230001 Company’s Internet Website: http://www.meiling.com E-mail of the Company: info@meiling.com 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times, China Securities and Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Secretariat of the Board of Directors, on 2/F of the Company’s Office Bldg. 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: MEILINGDIANQI, MEILING-B Stock Code: 000521, 200521 7. Other relevant information Initial registration date: Dec. 31, 1992 Initial registration place: Hefei Municipal Administration Bureau of Industrial and Commerce Registration date after change: Jul.28, 2004 Registration address: Anhui Province Administration Bureau of Industrial and Commerce Registration number of business license of enterprise legal person: 001684 Registration number of tax: GSW Zi 34010414918555X Domestic Certified Public Accountants Engaged by the Company: Name: Shenzheng Pengcheng Certified Public Accountants Address: 5/F, Baofeng Mansion, No.2006 Dongmen South Road, Shenzhen International Certified Public Accountants Engaged by the Company: Name: Morison Heng Certified Public Accountants Address: 17th Floor, No.1, One Hysan Avenue, Causeway Bay, Hong Kong Section II. Summary of Financial Highlight and Business Highlight 1. Summary of accounting highlight as of the year 2004 Unit: RMB Items Amounts Total profit 17,161,709.91 Net profit 16,767,740.47 Net profit after deducting non-recurring gains and losses 11,724,65.97 Profit form main operations 286,774,086.51 Other operating profit 990,271.88 Operating profit 14,858,453.50 Investment income -652,168.43 Subsidy income 2,682,000.00 Net non-operating income/expenses 93,424.84 Net cash flows arising from operating activities 147,849,150.81 Net increase/decrease in cash and cash equivalents 60,430,991.78 Items of deducting non-recurring gains and losses and the involved amounts are as following: Unit: RMB No. Items Amounts 1 Income form purchasing of capital 188,643.62 2 Net income from penalty 40,535.21 3 Income from subsidy 2,862,000.00 Switching back provision for losses from falling price of 4 2,102,030.98 inventories of the report period 5 Subtotal 5,193,209.81 6 Net losses from disposal of fixed assets 68,621.44 7 Donation expenditure 50,796.87 8 Penalty expenditure 704.00 9 Income from transfer of share equity 30,000.00 10 Subtotal 150,122.31 11 Impact on income tax --- 12 Amount of non-recurring gains and losses impact 5,043,087.50 2. The net profit as of year 2004 was RMB 16,767,000 as audited according to the Chinese Accounting Standards and that was RMB 28,432,000 as audited by Morison Heng Certified Public Accountants according to the International Financial Reporting Standards. The differences are stated as follows: Unit: RMB’000 Net profit as of Net assets as at Dec. 31, year 2004 2004 As report under PRC statutory financial statements 16,767 856,947 IFRS adjustments: Provision for warranty expenses 2,899 （12,076） Remeasurement of financial assets in according 7,656 （234,921） with IAS 39 （3,084） 5,525 Depreciation of fixed assets 4,194 （19,187） Other 28,432 596,288 As restated after IFRS adjustments 3. Main accounting data and financial indexes Unit: RMB Items 2004 2003 2001=2 Income from main operations 1,438,633,867.16 1,383,809,999.35 1,261,882,198.34 Net profit 16,767,740.47 -194,656,073.42 8,107,604.25 Total assets 2,357,408,266.18 2,245,189,884.42 2,300,035,010.32 Shareholders’ equity 856,947,103.22 840,931,946.31 1,035,388,019.73 Earnings per share (weighted) 0.04 -0.47 0.02 Earnings per share (diluted) 0.04 -0.47 0.02 Earnings per share (deducting non-recurring gains and losses) 0.03 -0.44 0.0155 Net assets per share 2.07 2.03 2.50 Net assets per share after adjustment 1.22 1.30 1.92 Net cash flow per share arising from operating activities 0.36 0.23 0.156 Return on equity (%) (diluted) 1.96 -23.15 0.78 Return on equity (%) (weighted) 1.98 -20.75 0.79 4. Supplemental statement of profit distribution Return on equity (%) Earnings per share (RMB) Profit as of report period Weighted Weighted Fully diluted Fully diluted average average Profit from main operations 33.46 33.80 0.69 0.69 Operating profit 1.73 1.75 0.04 0.04 Net profit 1.96 1.98 0.04 0.04 Net profit after deducting 1.37 1.38 0.03 0.03 non-recurring gains and losses Explanation: (1) In accordance with Reporting Regulations on the Information Disclosure of Companies Publicly Issuing Stock (No. 9) promulgated by China Securities Regulatory Commission, at the end of year 2003 and 2004, the Company’s total ordinary share was 413,642,949 shares as calculated based on calculating method of weighted average. Calculation formula of major financial indexes: Earnings per share= net profit/Total ordinary share at the year-end Net assets per share= Shareholder’s equity at the year-end / Total ordinary share at the year-end Return on equity= Net profit/Shareholder’s equity at the year-end×100% Net assets after adjustment=(Shareholder’s equity at the year-end-accounts receivable more three years – expenses to be apportioned -long-term expenses to be apportioned)/Total ordinary share at the year-end Net cash flow per share arising from operating activities= Net cash flow arising from operating activities/ Total ordinary share at the year-end (2) Non-recurring gains and losses are calculated based on Q&A for Standard on the Information Disclosure of Companies Publicly Issuing Stock (No. 1) — non-recurring gains and losses (revised on Jan. 15, 2004). (3) Weighted average return on equity is calculated based on net profit after deducting non-recurring gains and losses as of report period. The calculating method of the said index referred to the regulations of Reporting Regulations on the Information Disclosure of Companies Publicly Issuing Stock (No. 9) 5. Particulars about changes in shareholders’ equity during the report period and reasons (Unit: share) Statutory Capital Surplus Item Share capital Public Retained profit Total reserve reserve welfare fund Amount at year-begin 413642949.00 572522062.28 219246331.19 65643217.32 -430122613.48 840931946.31 Increase in this period 140000.00 16767740.47 16907740.47 Decrease in this period 892583.56 892583.56 Amount at year-end 413642949.00 571769478.72 219246331.19 65643217.32 -413354873.01 856947103.22 Changes for - Provision for - - Gains in the Gains in the reason investment report period report period Section III. Changes in Capital Shares and Particulars about Shareholders 1. Particulars about the changes in share (ended of Dec.31, 2004) Unit: share Type of share Before the Increase/Decrease of this time (+, -) After the change Capitalization change Rationed Bonus Additional of public Others Subtotal share shares issuance reserve I. Unlisted shares 1. Sponsors’ shares 126,982,650 -82,852,683 -82,852,683 44,129,967 Including: State-owned share 123,396,375 -82,852,683 -82,852,683 40,543,692 Domestic legal person’s 3,586,275 3,586,275 shares Foreign legal person’s shares Others 2. Raised legal person’s 22,029,973 22,029,973 shares 3. Inner employees’ shares 4. Preference shares or +82,852,683 +82,852,683 82,852,683 others Total unlisted shares 149,012,623 149,012,623 II. Listed shares 1. RMB ordinary share 151,530,326 151,530,326 2. Domestically listed 113,100,000 113,100,000 foreign shares 3. Overseas listed foreign shares 4. Others Total listed shares 264,630,326 264,630,326 III.Total shares 413,642,949 413,642,949 Note: Hefei Meiling Group Holdings Co., Ltd. transferred the state-owned shares amounting to 82,852,683 shares (taking up 20.03% of total share capital) to Guangdong Greencool Enterprise Development Co., Ltd. (hereinafter referred to as Guangdong Greencool) through negotiation and the process of transfer of names has been finished, so as to Guangdong Greencool became the largest shareholder of the Company. In the report period, there was no change in the share capital arising form bonus shares, converting capital reserve into share capital or rationed share, etc. 2. Issuance and Listing of shares In 1996, through approval by China Securities Regulatory Commission, the Company issued 100 million shares of domestically listed foreign capital shares (B-shares) at the price of RMB 3.30 per share on Aug. 14, 1996, which were listed with Shenzhen Stock Exchange for trading on Aug. 28, 1996. In June 1997, the Company implemented the dividend distribution plan by distributing bonus shares at the rate of 3.5 shares for every 10 shares. As a result, the share capital increased by 82.3549 million shares, up to 380,226,255 shares. From July 29 to August 11, 1997, the Company conducted allotment for A-shares (at the rate of 2.22 shares for every 10 shares) at the price of RMB 4.80 per share. Totally 33.4167 million shares were placed and were listed on Aug. 23, 1997. Up to then, the Company’s share capital increased to 413,642,949 shares. 3. About shareholders (1) Ended Dec. 31, 2004, the Company had totally 89,832 shareholders, including 16,234shareholders of B-share. (2) Particular of shares held by the top ten shareholders Holding Increase/ shares at Proper- Number of Name of decrease Nature of No. the tion Type of share share pledged shareholders during this shareholder year-end (%) or frozen year (share) Guangdong Greencool +82,852,683 82,852,683 20.03% 1 Enterprise Non-circulating Naught Other Development Co., Ltd. Hefei Meiling (Group) -82,852,683 40,543,692 9.80% State-owned Non-circulating Naught Holdings Co., Ltd. shareholder Fang Jing Wen +534,000 2,203,300 0.53% B-share Circulating Unknown circulating Yongsheng Industrial +29,000 2,109,000 0.51% B-share 4 Circulating Unknown Co., Ltd. circulating Hefei Industrial Bank 0 1,707,750 0.41% 5 Non-circulating Unknown Other Hefei Refrigerator 0 1,707,750 0.41% 6 Non-circulating Unknown Other Fittings Factory Hefei Agency of Anhui 0 1,536,975 0.37% 7 Non-circulating Unknown Other Agricultural Bank International Business Dept. of Anhui 0 1,536,975 0.37% 8 Non-circulating Unknown Other Industrial and Commercial Bank Anhui Province 0 1,536,975 0.37% 9 Technology Import & Non-circulating Unknown Other Export Corporation China Cinda Assets 0 1,536,975 0.37% 10 Management Non-circulating Unknown Other Company Explanation: (1) Guangdong Greencool Enterprise Development Co., Ltd. the 1st large shareholder of the Company, there existed no shares pledged or frozen held by Hefei Meiling (Group) Holdings Co., Ltd. and Guangdong Greencool. Among the top ten shareholders, there existed no associated relationship among Guangdong Greencool Enterprise Development Co., Ltd., Hefei Meiling (Group) Holdings Co., Ltd. and other legal person’s shareholders or belong to the concerted actors as specified in the Measures for Controlling Information Disclosure of Alternation in the Shares Held by Shareholders in Listed Companies; as the Company has no idea on whether there exists any business relationship among other shareholders of circulating shares or they belong to the concerted actors as specified in the Measures for Controlling Information Disclosure of Alternation in the Shares Held by Shareholders in Listed Companies. (2) In the report period, the shareholder holding over 10% of the Company’s shares was Guangdong Greencool Enterprise Development Co., Ltd. that actually holds 20.03%. The said shares had not been pledge, frozen or placed under trusteeship in the report period. (3) About the shareholder holding over 10% of the Company’s shares Guangdong Greencool Enterprise Development Co., Ltd. was funded on Oct. 22, 2001; the registered address was 8/F, Rongshan Mansion, Shunde District, Foshan, Guangdong Province with the registered capital amounting to RMB 1,200,000,000; business scope was development, produce and sales: refrigerating plant, freon-free refrigerant; research and development of the refrigerating technology; development, produce and sales of computer and broadband net equipment. Guangdong Greencool Enterprise Development Co., Ltd. was jointly invested and established by Mr. Gu Chujun and Greencool Cryogen (China) Co., Ltd, of which, Mr. Gu Chujun held 60% of share equity and Greencool Refrigerant held 40% of share equity, the property structure is as follows: MR.GU CHUJUN 60% GCT INVESTMENT CO., LTD. 100% 60% GREENCOOL CRYOGEN (CHINA) CO. 40% GUANGDONG GREENCOOL ENTERPRISE DEVELOPMENT CO. LTD. 20.64% 20.03% GUANGDONG KELON CO., LTD. HEFEI MEILING CO., LTD. Greencool Cryogen (China) Co., Ltd. is foreign enterprise, which was invested and established by British Virgin Islands GCT Investment Co., Ltd. according to approval of Tianjin Municipal People’s Government in Tianjin dated Mar. 3, 1995 (Mr. Gu Chujun owned the absolute controlling share right of British Virgin Islands GCT Investment Co., Ltd.). Registered capital of Greencool Cryogen (China) Co., Ltd. is USD 150 million, and business scopes include: Gu’s cryogen, various replacers of CFC, new-style cryogen, hot-dynamical medium, hot-circle medium and development, production and sales of raw materials of the said products; auxiliary equipment, application equipment, development, production and sales of the above products. 4. Particular about the top ten shareholders of circulation share in the report period, (1) About the top ten shareholders of circulation A-share Type of Shares held at Proportion in No. Name of shareholders share the year-end total shares (%) 1 Hefei Meicheng Absorbing Plastic Co., Ltd. A-share 1,305,300 0.315% YANG DONGCHUN 2 A-share 477,131 0.115% WEI LI 3 A-share 426,700 0.103% YANG SHENG 4 A-share 302,800 0.073% Baoxiang Value Stock Integrated 5 A-share 250,000 0.060% Investment Credit LV SHAOQUN 6 A-share 238,000 0.058% ZHANG JU SHENG 7 A-share 236,311 0.057% WANG QINGPING 8 A-share 213,221 0.052% GAO WEI 9 A-share 195,674 0.047% WANG RENHE 10 A-share 192,000 0.046% (2) About the top ten shareholders of circulation B-share Shares held at Proportion in No. Name of shareholder Type of share the year-end total shares (%) 1 FANG WENJING B-share 2,203,300 0.53% 2 Yongsheng Industrial Co., Ltd. B-share 2,109,000 0.51% 3 HUANG GUO QIANG B-share 1,488,000 0.36% 4 LI XOXONG B-share 1,450,000 0.35% 5 CAO SHENGCHON B-share 1,376,000 0.33% 6 LONG QINFANG B-share 1,341,962 0.32% 7 CHEN YI QING B-share 976,559 0.24% 8 XIAO YANMEI B-share 811,805 0.20% SUPER WIDE INTERNATIONAL 9 B-share 808,000 0.19% LIMITED 10 ZHU YI NAN B-share 800,243 0.19% Section IV. Particulars about Directors, Supervisors, Senior Executives and Employees 1. Shares held by directors, supervisors and senior executives, their office term and remuneration Shares held Shares held Change of Name Sex Title Age Office term at at holding period-end period-begin share Chairman of the Gu Chujun Male 46 Jul. 2003-May 2005 0 0 0 Board Vice Chairman of Wang Jiazhang Male 54 May 2002-May 2005 13477 13477 0 the Board Li Shijun Male President 50 Jul. 2003-May 2005 0 0 0 Cheng Executive Male 39 Jul. 2003-May 2005 0 0 0 Xiangzhou director He Jinqi Male Vice-president 42 Jul. 2003-May 2005 0 0 0 Xue Hui Male Vice-president 42 Oct. 2003-May 2005 0 0 0 Lin Ke Male Director 42 Jul. 2003-May 2005 0 0 0 Jiang Jizhi Male Director 58 Aug. 2003-May 2005 0 0 0 Huo Yongxin Male Director 35 Jul. 2003-May 2005 0 0 0 Independent Wei Wei Male 50 May 2002-May 2005 0 0 0 director Independent Zhuo Wenyan Male 67 May 2002-May 2005 0 0 0 director Independent Wu Hanhong Male 48 Aug. 2003-May 2005 0 0 0 director Chairman of the Li Weimin Male Supervisory 38 Jun. 2004-May 2005 0 0 0 Committee Jing Xing Male Supervisor 51 Jul. 2003-May 2005 0 0 0 Yong Fengshan Male Supervisor 37 Jul. 2003-May 2005 0 0 0 Main work experience of directors, supervsiors and senior executives: (1) Mr. Gu Chujun, graduated from Tianjin University with Engineering Master Degree. The inventor and patent owner of Guangdong Greencool Cryogen and founder of Greencool Group. Chairman of the Board of Guangdong Greencool Enterprise Development Co., Ltd., Greencool Cryogen (China) Co., Ltd. and Yangzhou Yaxing Motor Coach, chairman of the Board of Guangdong Kelon Electric Appliance and Greencool Technology Holdings Co., Ltd.. Mr. Gu Chujun accumulated a wealth of experience over 15 years in refrigeration engineering and cryogen industry. Before establishment of Greencool, he ever taught at Tianjin University, actively participated in and researched thermodynamics and refrigeration engineering, and now is in charge of chairman of the Board of the Company. (2) Mr. Wang Jiazhang took the turns of plant manager assistance and vice plant manger of Hefei Refrigerator Headquarter, vice chairman of the Board and chairman of Hefei Meiling Co., Ltd., now he is in charge of chairman of the Board and secretary of Hefei Meiling Group Holdings and vice chairman of the Company. (3) Mr. Li Shijun took the turns of vice chairman of Yangzi Group, deputy general manager and concurrently sales manager of Bosch Refrigerating Co., Ltd. and deputy general manager and manager of the Company, now is in charge of president of the Company. (4) Mr. Chen Xiangzhong, doctor degree, took the turns of senior engineer of project management department of Ocean office of State Oceanic Administration of P.R.C. the Utilization and Protection of Ocean, Hamburg University Germany，deputy section chief of international cooperation office of Ocean office of State Oceanic Administration of P.R.C. (preside the work); Genera Manager, Levin Enterprises (China), Inc，vice president of Greencool Group, and now is in charge of executive director of the Company. (5) Mr. Jiang Jizhi, an accountant, took the turns of section chief and general accountant of accounting department of Hefei Meiling Co., Ltd., general manager of sales company and general manager of Hefei Meiling Washing Machine, and now is in charge of director and standing deputy general manager of Hefei Meiling Group and director of the Company. (6) Mr. Huo Yongxin took the post of technician of the 3rd Line Material Plant of Capital Steel Company, engineer of Greencool Cryogen (China) Co., Ltd. and president assistance of Beijing Greencool Environment Project Co., Ltd., and now is in charge of Hubei Greencool Environment & Economical Project Co., Ltd. and director of the Company. (7) Mr. Lin Ke, bachelor degree of civil engineering of Beijing Construction & Engineering University, financing bachelor of Brock University, Canada, took the turns of investment analyst of Investment Group and China Commerce representative of Aim Group, and now is in charge of vice president of investment of Greencool Group and director of the Company. (8) Mr. Wei Wei, doctor, professor and instructor of doctor, is well posted up macro-economic field, took the post of president of Economic Institute of An’hui University, vice president of An’hui University and commissar of the Communist Party School, and now is in charge of president of An’hui province Society and Science Institute and independent dirctor of the Company. (9) Mr. Zhuo Wenyan, professor, China CPA, instructor of master degree student of An’hui Finance and Economics University, councilor of China accounting and standing councilor of An’hui CPA, and take the post of independent director of the Company. (10) Mr. Wu Hanhong, doctor degree, professor and instructor of doctorate, councilor of Chinese Foreign Economic Doctrine Seminar, chief secretary of Beijing Foreign Economic Doctrine Seminar, senior visiting scholar of Lou vain University of Belgium, and independent director of the Company. (11) Mr. He Jinqi took the turns of charger of accounting office of one large-scale state-owned enterprise of Tianjin, manager of accounting office, financing office and finance department of Greencool Cryogen (China) Co. and vice president of Beijing Greencool Environment Engineering Co., and now is in charge of vice president of the Company. (12) Mr. Xue Hui took the post of director and concurrently general manager of (Sino-US joint-invest) Hefei Huazhen Senior Composite Material Co., section chief of capital management office of WCP, standing deputy general manager of An’hui Chang’an Electronic Co. and concurrently general manager of sales company, and now is in charge of vice president and secretary of the Board of the Company. (13) Mr. Li Weimin took the post of teacher of Beijing Metallurgy Institute of Management, manager of planning management department of China Schindler Elevator Headquarter, and now is in charge of senior president assistance of Shenzhen Company, sales chief supervisor of Beijing Company of Greencool Group and supervisor of the Company. (14) Mr. Jing Xing took the turns of senior journalist of China Youth Daily, executive director and vice president of Beijing Greencool Environment Project Co., Ltd., and now is in charge of director and vice president of Shanghai Greencool Environment Project Co., Ltd. and Jiangsu Greencool Environment Project Co., Ltd. and supervisor of the Company. (15) Mr. Yong Fengshan, an accountant, took the turns of chief director of operation department and section chief of finance department of Hefei Cable Plant, vice general accountant and concurrently section chief of finance department of Hefei Meiling Co., Ltd., and now is in charge of director and deputy general manager of Hefei Meiling Group Holdings and supervisor of the Company. 2. Particulars about director and supervisor holding concurrent office in Shareholding Company, namely Guangdong Greencool Enterprise Development Co., Ltd. and Hefei Meiling (Group) Holdings Co., Ltd. Name Title in Shareholding Company Title Office term Guangdong Greencool Enterprise Gu Chujun Chairman of the Board 2001 till now Development Co., Ltd. Hefei Meiling (Group) Holdings Wang Jiazhang Chairman of the Board 2002 till now Co., Ltd. Hefei Meiling (Group) Holdings Jiang Jizhi Director, Deputy General Manager 2002 till now Co., Ltd. Hefei Meiling (Group) Holdings Yong Fengshan Director, Deputy General Manager 2003 till now Co., Ltd. 3. Foundation of annual remuneration Foundation of annual remuneration received by directors, supervisors and senior executives: the Company conducted the democratic evaluation and performance examination on the task of directors, supervisors and senior executives according to the spirit of the 11th meeting of the 4th Board of Directors and the relevant policies of labor authority and the checking system of linking their office position wages with performance; then the remuneration is decided and implemented on the basis of evaluation result which has been examined and approved by the Board of Directors or the Shareholders’ General Meeting. The Company respectively paid allowance of Independent Directors of RMB 60,000 to every independent director per year based on the decision of the 11th meeting of the 4th Board of Director. Total annual remuneration RMB 3,905,500 Total annual remuneration of the top three RMB 1,322,100 directors drawing the highest payment Total annual payment of the top three senior RMB 1,503,300 executives drawing the highest payment Allowance of independent director RMB 60,000 per person/ year Other treatment of independent directors Naught Name of directors and supervisors receiving no Mr. Gu Chujun payment or allowance from the Company Range of remuneration Number of persons RMB 750,000 to RMB 800,000 1 RMB 600,000 to RMB 650,000 1 RMB 300,000 to RMB 400,000 6 RMB 50,000 to RMB 100,000 6 4. Particular of the change of Director, Supervisor and Senior Executive In the report period, 2003 annual shareholders’ general meeting examined and approved that Mr. Lu Jianqing resigned the supervisor of the 4th Board of Directors and elected Mr. Li Weimin as the supervisor of the Board of Directors of the Company. The 11th meeting of the 4th Supervisory Committee elected Mr. Li Weimin as the supervisor of the 4th Board of Directors. 5. The number of employees, professional/occupational composition, education background and retirement The Company has 2,607 employees, including 231professionals holding medium and senior professional titles, 1,443 production personnel, 541 salespersons, 174 administrative personnel. 803 of them hold college degrees or higher. The Company did not have to bear the expenses to retired staff and there are only 190 internally retired staff members. Professional composition is as follow: Professional Number Proportion Production personnel 1443 55.54% Salesperson 541 20.75% Administrative personnel 174 6.67% Technicians 101 3.87% Financial personnel 69 2.65% Section V. Administrative Structure I. Company Administration Strictly according to the requirements in Company Law of the P.R.C., Securities Law, Rules on Administration of Listed Companies, Guidance Opinion on Establishing Independent Director System in Listed Companies and other relevant laws and regulations, the Company efficiently developed the function of the present administrative structure, guaranteed the steady and healthy development of the Company and protected the interests of extensive shareholders and the Company. In the report period, the Company exerted the tasks on standardizing the administrative structure of the Company as follows: 1. In 2004, in accordance with the requirements of ZJF (2003) No. 56 Document released by CSRC, connecting with the actual situation of the Company, the Company amended the part of Articles of Association and added the relevant items of external guarantee, for particulars about accumulated and present external guarantee, transaction and occupied capital occurred among controlling shareholder, related parties and the Company, consciously self-examined, strictly controlled risk and standardized the operation. 2. Aiming at the new coming-on various laws and regulations, the Company actively organized the relative members to learn and revised the relevant regulations according to the requirement of regulations, and guarantee legal and reasonable operation of the Company under new rules and regulations. Additionally in order to enhance information communication between investor and the Company and promote investor ‘s understanding and identifying for the Company so as to made Investor Relationship Management System of the Company and increased the transparency. 3. In the report period, the Company fulfilled a series of self-examination required by An’hui SRC. 4. In the report period, the administrative structures of the Company were perfect relatively and reached on the requirement of the relevant document of CSRC. II. Performances of Independent Directors According to the relevant provisions of the Guiding Opinions on the Establishment of Independent Director System in Listed Companies promulgated by China Securities Regulatory Commission, the Company has integrated independent director system in Articles of Association. At present, 3 independent directors of the Company was in compliance with the requirement of CSRC, since the tenancy, the 3 independent directors were able to attend to the Board of Directors and the Supervisory Committee in the report period, actively learned the particulars about the various operations of the Company, fulfill their obligations with earnest, and expressed their opinions for some significant issues of the Company and performed an active function on the scientific decision-making and normative operation of the Company and preserved the interest of the Company and all shareholders in a diligent and responsible attitude. 1. Particulars about independent director attending the Board of Directors: Name of This year should Presence in Entrusted Absence independent attending the board person presence Note (times) directors (times) (times) (times) Wei Wei 6 6 0 0 --- Zhuo Wenyan 6 6 0 0 --- Went Wu Hanhong 6 3 1 2 abroad 2. Particulars about independent director presenting different opinion on the relevant items of the Company: In the report period, the 3independent directors had no different opinion on various proposals of the annual Board of Meeting and other events of the Company. III. Separation between the Company and its Controlling Shareholder in terms of Business, Personnel, Assets, Organization and Finance 1.The Board, the Supervisry Committee and the internal organizations of the Company operated independently and there existed no interfervence on the operating decision of the Company by the controlling shareholder; the staff of production and operation of the Company separated from the controlling shareholder; 2. The Company possessed its own independent labor, human resource, and salary management departments and worked out its own labor, personnel, and salary management systems, president and vice president, etc. other senior executives of the Company drew no remuneration in controlling shareholders’ unit. 3.There was clear equity realtionship between the Company and the controlling shareholder and the production system and equipment facilities were independent from the controlling shareholder; the Company possesseed independent 4. The Company has established independent financial departments and accounting system. The Company has opened independent bank account and paid taxes independently. There exists no joint office work with the controlling shareholder. 5. There existed no breach of regulation of the controlling shareholder by occupying capital and other assets. IV. Valuation and Encouragement Mechanism for Senior Executives The Company consistently perfected fair, transparent and normative valuation standards and encouragement binding mechanism on the directors, supervisors and senior executives; the engagement and disengagement of the executives were fair and transparent in accordance with laws and regulations; the duties of the executives were confirmed in the post obligation system of the Company. The Company conducted the distribution assessment system based on the work achievements on the senior executives. According to the post duty of individuals and evaluation of work achievements and the economic benefits of the Company, the company distributed salary to the senior executives. Section VI. Shareholders’ General Meeting I. Notification, Convening and Holding of Shareholders’ General Meeting In the report year, the Company held one annual shareholders’ general meeting and one extraordinary shareholders’ meetings. 1. The 16th meeting of the 4th Board of Directors held on Apr.23, 2004 approved the proposal on holding 2003 Shareholders’ General Meeting. The public notice was published respectively on Securities Times and Hong Kong Ta Kung Pao dated Apr. 26, 2004. The 2003 shareholders’ general meeting was held on Jun. 19, 2004 at the meeting room 3/F of Meiling Building. 8 shareholders or their representatives attended the meeting, representing a total of 126,883,677 shares, accounting for 30.67％of the Company’s total shares, of which, A-share amounted to 126,593,677, taking up 30.60% of total share capital and B-share amounted to 290,000 shares, taking up 0.07% of total share capital. The meeting was presided by Mr. Gu Chujun and directors, supervisor, senior executives and engaging lawyer all attended the Meeting. 2. The 19th meeting of the 4th Board of Directors held on Nov.19, 2004 approved the proposal on holding 2004 Provisional Shareholders’ General Meeting. The public notice was published respectively on Securities Times and Hong Kong Ta Kung Pao dated Nov. 26, 2004. The 2004 Provisional shareholders’ general meeting was held on Dec.28, 2004 at the meeting room 3/F of Meiling Building. 6 shareholders or their representatives attended the meeting, representing a total of 126,883,677 shares (of which, A-share amounted to 126,593,677 and B-share amounted to 290,000 shares), accounting for 30.67% of the Company’s total shares, of which, 4 non-circulating shareholder and proxy, representing 125,274,900 shares, and 3 circulating shareholders and proxies, representing 1,608,777 shares. The meeting was presided by Mr. Wang Jiazhang, vice chairman of the Board, and directors, supervisor, senior executives and engaging lawyer all attended the Meeting. II. The resolution of the Shareholders’ General Meeting and the disclosure: 1. The 2003 Shareholders’ General Meeting examined and approved the following resolutions by voting items item by item: (1) Examined and approved 2003 Work Report of the Board of Directors; (2) Examined and approved 2003 Work Report of the Supervisory Committee; (3) Examined and approved 2003 Financial Settlement Report; (4) Examined and approved 2003 Profit Distribution Proposal; (5) Examined and approved Proposal on Engaging the Certified Public Accountants; (6) Examined and approved Proposal on Amendment of Articles of Association; (7) Examined and approved Proposal on. Agreeing Mr. Lu Jianqing Resigning the Supervisor of the 4th Supervisory Committee of the Company; (8) Examined and approved Proposal on Recommending Mr. Li Weimin the Supervisor of the 4th Supervisory Committee of the Company; (9) Examined and approved Canceling of the Receivables amounting to RMB 145,938,990.53 after Verification. The resolutions of the meeting were published in Securities Times and Hong Kong Ta Kung Pao dated Jun. 21, 2004. 2. The 2004 Provisional Shareholders’ General Meeting examined and approved the following resolutions by voting items item by item: (1) Examined and approved Proposal on Receivables Replacing the Land Tenancy of Hefei Meiling (Group) Holdings Co., Ltd.; (2) Examined and approved Proposal on Changing Domestic CPAs. The resolutions of the meeting were published in Securities Times and Hong Kong Ta Kung Pao dated Dec. 19, 2004. III. Election and replacement of the Company’s directors and supervisors In the report period, approved by the 2004 Shareholders’ General Meeting, agreed Mr. Lu Jianqing to resign the supervisor of the 4th supervisory Committee and agreed to recommend Mr. Li Weimin as the supervisor of the 4th supervisory Committee of the Company. Section VI. Report of the Board of Directors I. Management Discussion & Analysis Year 2004 was the first development year of the Company after reformation, as well as the most important year. Over the past year, the external macro environment occurred a great change: the price of the main raw materials such as chemical industry, steels and plastic has increased by a big range; price-falling of products in the refrigeration industry caused the price of refrigeration in the midseason reached the lowest in the recent years; the industry competition was very furious and the brand continually integrated, which cause the concentricity of brand has enhanced further. Under the said situation such new macro enviroment, the Company carried through the instructions of the Board with a firm hand, and adjusted business strategy and operating mechanism timely, reinforced internal reformation and management, tightly seized the opportunity from the market adjustment and actively used the various policies so as to realize quickening of the development step under adjustment and the great development in the fierce market competition. 1. To enhance development of new products with technology as precursor The Company conducted a mass of input in respects of technology renovation and produtcs development such as energy-saving, silent, network, frequency conversion, environment protection and anti-bacteria, and designed and developed series middle- and high-grade products such as zoology with series of Terminator A++ as representative, A++, 8B energy-saving and 7AK electron-control, and put in the market and obtained the achievement. 2. To seize the opportunity of international market development and promote development of enterprise with export The Company organized and took part in the large-scale international appliance exhibition and China Export Commodities Fair in spring and autumn respectively for five times, actively promoted “Meiling” products and “Meiling” image, and achieved the better effect. In the last year, markets in Middle East and Africa also became a new economic growth points except that Europe market continually increased by a big margin, and two markets increased over 100%. 3. To advance the sales proporation of the middle- and high-grade products with energy-saving products as breach The Company advanced the sales proporation of middle- and high-grade “Meiling” products with product of Terminator A++ as development point of brand promotion and with re-entry high-grade level as tenet. Through such measures as strengthening communication and cooperation with the professional large-scale chain stores, intensifying specialty training of salespersons and reinforcing terminal sales capability, the Company increased the sales proportion of middle- and high-grade products so as to advance the brand value of “Meiling”. 4. To conduct construction of export base and enlarge production scale of the Company In order to use the current resources in full, the production line project of output of 600,000 sets invested and set up by the Company has been put into production according to the Company’s interim development tactic and the requirement of increase of export market, which layed solide foundation for the development of the Company in the new year. 5. To continualy implement biding and purchasing of materials and reduce cost of products The Company and Kelon Company jointly implemented the full-scale biding and purchasing for materials of year 2004, and greatly saved purchasing capital. Althrought the international enviroment was changed later, but the rising of price of the partial raw materials fetched the largish pressure to biding and purchasing. 6. To strengthen plan and budget management and standardize management mechanism of business running The Company established new monthly running mode of business plan, formed the plan and management system through three-lay plan and work mode such as coordination meeting of production and marketing, communication meeting of production plan and operation plan meeting of the Company, and laid stress on reinforcing supervision and checking of the operating plan. The Company set up the full-sided budget management system for the first time, and conducted the budget and analysis for all expenses of next month at the beginning of the month, performed registration in advance and canceling after verification for all expenses, knew the situation of expenses occurred in the current month, and at the same time, carried out the strict examination and approval system for every expense, controlled expenditure and primarily formed the budget management system. 7. To promote work of reduction of cost and development activities of revenue-enhancing and expenditure control and improve economic benefit of the Company Through the Company’s effort, communication with Kelon Company and technology renovation and improvement of design, the Company reduced the cost of products. The consuming quota of single set auxiliary materials has greatly reduced through strengthening the control to consuming of auxiliary materials; increased liquidation and receiving of accounts receivable, for accounts receivable of products sold in domestic market was fully conducted liquidation, evaded risk of operation; the profit from waste reclaim has increased by a large margin compared with the same period of through the several methods such as advancing price and bidding; the 6th government bonds has obtained the discount government loans. Due to the efficient measures taken, the Company gained the great achievement in operation and development, which bulit up stick basis to get more improvement of the Company next year. In 2004, the sales volume of refrigerators (freezers) increased by 20.6% compared with the last year, of which the export increased by 63.2% year-on-year. II. Scope of main business and operating status 1. Scope of main business The Company belongs to the household appliance industry, mainly engaged in the research, manufacturing and sales of the refrigerators, and the scope of principal businesses includes the manufacturing, sales and service of various household refrigerators and auxiliary parts, and the sales and service of other household appliance products. 2. Operation based on Products in 2004 Unit: RMB Classified Income from main Cost of main Gross Increase/decrease Increase/decreas Increase/decreas according to operations operations profit ratio in income from e in cost of main e in gross profit industries or (%) main operations operations over ratio over the products over the last year the last year (%) last year (%) (%) Refrigerators 1,438,401,411.63 1,149,748,846.79 20.07 13.35 8.32 -3.72 (freezer) Total 1,438,401,411.63 1,149,748,846.79 20.07 13.35 8.32 -3.72 3. Operation in 2003 classified according to areas (Unit: RMB’0000) Areas Increase/decrease Increase/decrease over the same over the same Domestic period of last year Overseas period of last year Indexes （%） （%） Income from main 1,093,299,567.95 9.85 345,344,299.21 49.50 operations Profit from main 287,780,638.99 47.47 930,126.72 -97.62 operations 4. Operations and achievements of main holding and share-holding companies: Proportion Type of Registered Scale of Net Name of companies Main business held by the economy capital assets profit Company Anhong Plastic Co., Ltd. Sino-foreign ABS board USD 1 75% 2,053 -90 joint venture materials million Hefei Meiling Packaging Sino-foreign Production and USD 3.067 Co., Ltd. joint venture sales of million 48.28% 9,882 -53 corrugated paper Zhongke Meiling Low Domestic Refrigerators USD 60 Temperature Technology joint venture and ice tanks million 70% 7,608 131 Co., Ltd. with low temperature 5. The Company’s total purchase amount from the top five suppliers was RMB 268.29 million, accounting for 23.33% in its total annual purchase amount while the Company’s total sales amount of the top five customers was RMB 114.721 million, accounting for 7.97% in its total amount of sales. 6. Problems and difficulties from the operation and their solutions In 2004, household appliance enterprises faced much more intense macro environment and market situation. The price of raw materials climbed up and pressure of cost management increased; the market share of the foreign brands of refrigerator at home increased step by step and the competition strengthened; the famous brand of other household appliance industries at home acquire and enlarge the production capability in succession so as to march towards refrigerators industry and further scrabble for market share of refrigerators; the scale of professional chain stores grew in strength and the bargain capability with the manufacturer enhanced. It is difficult that the price of products returned the rational position due to the nonstandard competition of industries, which made the average profit ratio within the industry decrease by any possibility. Aiming at the said existing problems, the Company prepared to adopt the following countermeasures: (1) To adjust structure of products, return high-end of the market and enhance the brand value of “Meiling”; quicken up international market and brought along the enterprise’s development with export; pay attention to use of new technology, new materials and new technics, enlarge putting-into of R&D, dominate refrigeration technology of refrigerators as the commanding point, implement design cost system of products development objection, reduce the costs from root; continue to bidding and purchase with association of Kelon. (2) To plan the development strategy of Meiling in middle and long term, establish Meiling Hi-tech Industrial Park, strengthen development aftereffect of Meiling; make the brand of Meiling professional, strong and great so as to make the operating scale of the enterprise reach leading level in the industry with refrigeration as the core by making use of advantage of Green Cool. (3) To strengthen the cost quota management and expense management inside the Company, change the calculation unit into small with benefit as center, build up the operating idea that the function departments all are profit center so as to reach the purpose of revenue-enhancing and expenditure control. III. Investment in the report period 1. The use of the raised proceeds in the report period: In the report period, there was no share allotment or the use of the proceeds raised through shares allotment continuing to the report period. 2. Investment of the proceeds not raised through shares offering in the report period: Amount at the Increased in Transferring out Amount at the Name of investee period-begin this period in this period period-end Investment of fixed assets 75,187 3,012 219 77,980 Construction in progress 1,558 1,447 958 2,047 IV. Analysis to financial position and operating results in the report period Unit: RMB’0000 1. Operating results and cash flow Indexes Increase/decrease 2004 2003 (%) Income from main operations 1,438,633,867.16 1,383,809,999.35 3.96 Profit from main operations 286,774,086.51 230,588,924.39 24.37 Operating expense 164,594,968.14 223,192,049.60 -26.25 Management expense 70,707,284.80 155,571,692.15 -54.55 Financial expense 37,603,651.95 39,082,165.52 -3.78 Investment earnings -652,168.43 2,520,278.30 -125.88 Non-operating income/expense 93,424.84 -16,784,654.95 100.56 Net profit 16,767,740.47 -194,656,073.42 108.61 Net increase in cash and cash equivalents 60,430,991.78 63,971,960.85 -5.54 Reasons for changes: (1) Profit from main operation increased by 24.37% compared with the last year, which was mainly because that the Company adjusted products structure and enhanced development of new products and revenue-saving and cost-reducing. (2) Operating expense decreased by 26.25% compared with the last year, which was mainly because that the Company decreased advertisement expenses and strengthened the internal management. (3) Management expense decreased by 54.55% compared with the last year, which was mainly because that the balance of accounts receivable decreased by a big margin after replacing accounts receivable of the report peirod, and corresponding the reserve for bad debts decreased. 2. Analysis to financial position of the Company Indexes Increase/decrease 2004 2003 (%) Accounts receivable 96,424,740.03 398,255,108.92 -75.79 Other receivables 410,153,194.15 410,555,605.10 -9.80 Notes receivable 75,599,243.30 138,061,153.07 -45.24 Intangible assets 587,124,618.54 253,271,171.04 131.82 Total assets 2,357,408,266.18 2,245,189,884.42 5.00 Shareholders’ equity 856,947,103.22 840,931,946.31 1.90 Reasons for changes: (1) Accounts receivable at the period-end decreased by 75.79% compared with the period-begin, which was mainly because Hefei Meiling Group Co., Ltd., the shareholder of the Company, replaced the Company’s book value of accounts receivable amounting to RMB 352,569,599.58 (the balance was RMB 418,892,640.86 and reserve for bad debts was RMB 66,323,041.28) and disposal of losses of bad debts amounting to RMB 145,875,178.29 (has been appropriated reserve for bad debts) with land use right. (2) Notes receivable at the period-end decreased by 45.24% compared with the period-begin, which was mainly because the returning funds of sale by cash were more than notes. (3) Intangible assets at the period-end increased by 131.82% compared with the period-begin, which was mainly because the Company replaced land use right of Hefei Meiling Group Co., Ltd. with accounts receivable. V. Particulars about reports presented by certified public accountants: Shenzhen Pengcheng Certified Public Accountants and Morison Heng Chartered Accountants Certified Public Accountant have presented unqualified auditors’ report for the Company. VI. Business development plan of the new year In 2005, with the operating and guiding idea of “closing to the market, pulling products, promoting management, profit oriented” as the core, the Company would further change and adjust mind, operating concept and management measures, strive for constructing objective system, planning system, budget system, responsibility system, cost accounting system, assessment system and operating safeguard system. The Company actively guided the staff to fulfill obligations, improve professional level, management level and operating capabilities, creatively develop various work, and realize operating objected proposed by the Board. 1. Return of domestic-sales brand, increase of export volume and efficiency. Adjust product structure of domestic sales, strengthen product image at middle and high level: adopt strategy of products at middle and high price level, take market shares to pull and promote market position of products, and guarantee certain objective profit. When increasing export volume, pursue to maximization of profit. 2. Adjust sales strategy and reorganize domestic sales market. Reorganize sales internet roundly, adopt product sales strategy of “break out high-price products, enlarge middle-price products and keep low-price products”. Further improve sales proportion of middle and high price products. 3. Speed up export rate of internationalization and propel enterprise development effectively. The Company used export basis to enlarge productivity, grasped good chance that international market increased big space, facilitated powerful international distributor and special manufacture, and improved export volume in international market. 4. Speed up technology research step and promote product development capabilities. Improve research and development qualities of the team based on stabilizing excellent talents, dominating point of refrigeration technology with environmentalism, energy-saving, silent, appearance as main breakthroughs for research and development; oriented by the market, with quick reaction means, attain to the objectives of adapting to the need of market changes, decreasing design costs and improving production efficiency; shorten design and input circle life of developing new product and improving products, and enhance competitive edge of Meiling products depending on speed. 5. Extrude cost management, strengthen mind of increasing income, and develop cost-falling activities. Establish pricing and accounting models of products, further control expenditures and decreasing consumption; reinforced assessment and analysis of various control, emphasized analysis and management of various ration, develop every item of saving activities correspondingly; and consummated management system of expense registered and cancelled after verification. Establish profit-oriented planning budget management pattern to help planning and budget to get more closer to the market and the fact. 6. Optimizing human resources and improve implementation capabilities. Continually optimizing human resources structure and enhancing whole qualities of human resources; designed staff professional planning and strengthened professional training. Dissolve key achievement index of mangers and draw up post assessment measures. Develop consistent management activities with improving professional level as the objective, enhance professional capability of staff, and reinforced capability of fulfilling functions and cooperation. VII. Routine work of the Board of Directors 1. Meetings and resolutions of the Board of Directors in the report period In 2004, the Board of Directors of the Company seriously implemented its duties, exercised its authorities actively and prudently and totally held five meetings so as to listen to reports on relevant progress of work and make resolutions on significant issues: (1) The 15th Meeting of the 4th Board of Directors of the Company was held on Mar. 22, 2004 by fax. 9 directors should be present for voting and actually 6 attended the Meeting for voting, in compliance with the provisions in Company Law of the P.R.C. and the Articles of Association of the Company. Through serious research, the meeting examined and approved resolutions including Matters of Changing International CPAs of the Company, Matters on Canceling Accounts Receivables amounting to RMB 145,938,990.53 after Verification, and Matters on Proving for current Capital loan of Zhongke Meiling Low Temperature Technology Co., Ltd. etc.. The said resolutions were published on China Securities, Securities Times and Ta Kung Pao dated Mar. 11, 2004. (2) The 16th Meeting of the 4th Board of Directors of the Company was held in Conference Room, 4/F of the Company on Apr. 23, 2004. 9 directors should be present for voting and actually all attended the Meeting for voting, in compliance with the provisions in Company Law of the P.R.C. and the Articles of Association of the Company. Through serious research, the Board examined and approved resolutions including Work Report of the Board 2003, Annual Report 2003 and its Summary, Financial Settling Report 2003, Profit Distribution Preplan 2003 of the Company, Proposal on Reengaging CPAs and their Remuneration, 2004 1st Quarterly Report, and Proposal on Revising Partial Terms of Articles of the Association of the Company and Notification on Holding 2003 Annual Shareholders’ General Meeting etc.. The said resolutions were published on China Securities, Securities Times and Ta Kung Pao dated Apr. 25, 2004. (3) The 17th Meeting of the 4th Board of Directors of the Company was held in Conference Room, 4/F of the Company on Aug. 15, 2004. 9 directors should be present for voting and actually 7 attended the Meeting for voting, in compliance with the provisions in Company Law of the P.R.C. and the Articles of Association of the Company. The meeting was presided by Vice Chairman of the Board, Mr. Wang Jiazhang. Through serious research, the Board examined and approved resolutions including 2004 Semi-annual Report and its Summary, and Proposal on Providing Guarantee for Anhui Anhong Plastic Co., Ltd. etc.. The said resolutions were published on China Securities, Securities Times and Ta Kung Pao dated Aug. 16, 2004. (4) The 18th Meeting of the 4th Board of Directors of the Company was held on Oct. 25, 2004 by fax. 9 directors should be present for voting and actually 8 attended the Meeting for voting, in compliance with the provisions in Company Law of the P.R.C. and the Articles of Association of the Company. Through serious research, the meeting examined and approved 2004 3rd Quarterly Report. (5) The 19th Meeting of the 4th Board of Directors of the Company was held on Nov. 19, 2004 by fax. 9 directors should be present for voting and actually 8 attended the Meeting for voting, in compliance with the provisions in Company Law of the P.R.C. and the Articles of Association of the Company. Through serious research, the meeting examined and approved resolutions including Proposal on Ceasing Shift of Significant Assets of Hefei Meling Co., Ltd., Proposal on Replacing Partial Accounts Receivable by Partial Land Use Rights of Hefei Meiling Group Holdings Co., Ltd., and Proposal on Holding 2004 Provisional Shareholders’ General Meeting etc.. The resolutions were published on China Securities, Securities Times and Ta Kung Pao dated Nov. 26, 2004. 2. Implementation of the Board of Directors on resolutions of Shareholders’ General Meeting In the report period, the Company totally held one Annual Shareholders’ General Meeting and one Provisional Shareholders’ General Meeting. The Board of Directors seriously implemented their duties according to the Articles of Association of the Company and seriously implemented all resolutions of Shareholders’ General Meeting. VIII. The profit distribution preplan and predicting profit distribution policy 2005 1. The profit distribution preplan Since there incurred a loss in the operation in 2001 and 2003, at present the accumulative retained profit was RMB –413,354,873.01. Thus, the Company decided neither to distribute profits nor convert reserve into share capital in 2004. The profit distribution plan would be carried out after losses offsetting. The said preplan should be submitted to Annual Shareholders’ General Meeting 2004 for consideration after being considered and passed by the Board of Directors. 2. Predicting profit distribution policy 2005 In 2005, the profit would be used for offset losses in priority and profit distribution would be conducted after losses offsetting. IX. Other reporting issues In 2004, the newspapers designated by the Company for information disclosure were Securities Times and Ta Kung Pao. In 2005, the newspapers designated by the Company for information disclosure were changed into Securities Times, China Securities and Ta Kung Pao. X. Special explanation of Shenzhen Pengcheng Certified Public Accountants on Capital Occupation and External Guarantees of the Company’s Controlling Shareholder and Other Related Parties Special Auditing Explanation on Capital Current Between Hefei Meiling Co., Ltd. and its Related Parties SPSWTZi [2005] To all shareholders of Hefei Meiling Co., Ltd.: We have audited the accompanying statements of Hefei Meiling Co., Ltd. (“the Company”) in 2004, and presented unqualified auditor’s report (refer to SPSGSZi [2004] Auditor’s Report). In the process of auditing, according to Independent Auditing Principles of Chinese Certified Public Accountant, CSRC Dept. of Listed Company Supervision [2003] No. 13 Letter Notification on Submitting Capital Occupied by Principal Shareholder and Related Parties and Guarantee out of Line of Listed Companies, and CSRC ZJF[2003] No. 56 Circular on Standardizing Capital Current between Listed Company and Related Parties and Several Problems on External Guarantee of Listed Company, we have checked capital occupied by principal shareholders and related parties and guarantee provided for controlling shareholder and its subsidiaries, and implemented necessary auditing procedures. We issued special auditing opinions on capital occupation and guarantee provided. Since our auditing on annual accounting statements was not directly for the purpose of inspecting capital occupied by related parties and guarantee out of line, and auditing tests and internal control of the audited entity were inherent limited, our auditing couldn’t ensure to find out all capital occupied by principal shareholder and related parties and guarantee provided for controlling shareholder and its subsidiaries and its related parties. Report on Capital Current of the Company and Related Parties and External Guarantee ended Dec. 31, 2004 was as follows: 1. Name of principal shareholder and related parties existing transactions Name of principal shareholder and related parties Relationship with the Company Hefei Meiling Group Holdings Co., Ltd. Shareholder of the Company Hefei Meiling Sigma air Conditioner Co., Ltd. Shareholding subsidiary of the Company Hefei Meiling Washing Machine Co., Ltd. Subsidiary of shareholder of the Company Anhui Anhong Plastics Co., Ltd. One of principal shareholders of the Company Hefei Meiling Packaging Co., Ltd. Subsidiary of the Company Zhongke Meiling Low Temperature Technology Co., Subsidiary of the Company Ltd. 2. Statement of Capital Current between the Company and controlling shareholder and other related parties ended Dec. 31, 2004 Unit: RMB Name of related parties Account Balance in the Debit amount Balance in the Debit amount Way of period in 2004 period in 2004 settlement beginning of beginning of 2004 2004 Hefei Meiling Group Other Offsetting with Holdings Co., Ltd. receivables 101,602,113.18 49,678.70 196,381.38 101,455,410.50 current accounts and paying cash Hefei Meiling Washing Other Offsetting with Machine Co., Ltd. receivables 309,177,018.23 --- --- 309,177,018.23 current accounts and paying cash Hefei Meiling Washing Accounts Offsetting with Machine Co., Ltd. paid in 2,757,353.92 4,995,706.01 5,714,904.39 2,038,119.54 current accounts advance and paying cash Hefei Meiling Sigma Accounts Offsetting with Air Conditioner Co., receivable 4,535,863.48 --- 485,339.00 5,021,202.48 current accounts Ltd. and paying cash Anhui Anhong Plastics Accounts Offsetting with Co., Ltd. paid in 4,933,847.92 42,547,707.21 39,950,867.56 7,530,687.57 current accounts advance and paying cash Hefei Meiling Accounts Offsetting with Packaging Products receivable 5,027,791.63 50,137,408.73 50,939,717.45 5,830,100.35 current accounts Co., Ltd. and paying cash Zhongke Meiling Low Accounts Offsetting with Temperature receivable 124,973,999.86 123,012,475.42 13,807,359.76 current accounts 15,768,884.20 Technology Co., Ltd. and paying cash Including: (I) There existed no advance wages, welfare, insurance, advertisement and other period expenses for its related parties or bear the cost and other expenditures for each other mutually about the Company; (II) The Company didn’t borrow the Company’s capital for its related parties with compensation or without compensation; (III) The Company didn’t entrust its related parties to conduct investment activities; (IV) The Company didn’t open trade acceptances without true transaction background for its related parties; (V) The Company didn’t refund liabilities for its related parties; 3. Ended Dec. 31, 2004, the guarantee provided by the Company for controlling shareholder and other related parties, of which the Company held less than 50% shares, any non-legal person’s units or individuals There existed no guarantee provided by the Company for controlling shareholder and other related parties, of which the Company held less than 50% shares, any non-legal person’s units or individuals Shenzhen Pengcheng Certified Public Accountants CPA of China CPA of China Shenzhen China Apr. 18, 2005 XII. Independent Opinion of Independent Directors on Capital Occupation and External Guarantees of the Company’s Controlling Shareholder and Other Related Parties According to the spirit in Circular on Standardizing Listed Companies’ Capital Current with Related Parties, External Guarantees and Other Some Problems released by CSRC, based on the attitude of being serious and responsible, we have examined and carried out the Company’s related transactions and external guarantees with independent opinion expressed as follows: 1. Special Explanation of Shenzhen Pengcheng Certified Public Accountants on Capital Current and External Guarantees Between Hefei Meiling Co., Ltd. and its Related Parties (Hereinafter referred to as Special Explanation) has disclosed capital current and external guarantees between the Company and its controlling shareholder and other related parties in a true and complete way. We agreed the Special Explanation. 2. The said decision-makings of bank loan guarantees have been approved by the Board of Directors and the Shareholders’ General Meeting with legal procedures. The Company has implemented corresponding obligations of information disclosure timely and fully. Independent Directors: Wei Wei, Zhuo Wenyan and Wu Hanhong Apr. 18, 2005 Section VIII. Report of the Supervisory Committee In the report period, the Supervisory Committee prudently performed the rights and obligations of supervisors according to the PRC Company Law, the Articles of Association of the Company and relevant laws and regulations and in compliance with the Rules of Procedures for the Supervisory Committee, fully exercised the supervision over the Board of Directors and its members and the senior executives, and played a good role in the standardized operation and sustainable development of the Company. I. Meetings of the Supervisory Committee in the report period In the report period, besides attending the Shareholders’ General Meeting 2003 and each meetings in 2004 of the Board of Directors of the Company as non-voting delegates, members of the Supervisory Committee held six meetings in total, with main contents as follows: 1. On Apr. 23, 2004, the 10th meeting of the 4th Supervisory Committee was held in the meeting room on the 4th floor of the Company. 3 supervisors should have attended the meeting, and actually 2 supervisors had attended, which conformed to the regulations of the Company Law and Articles of Association of the Company. After careful deliberation, the meeting examined and approved some resolutions, such as the Annual Report 2003 and Summary of Annual Report 2003, Work Report 2003 of the Supervisory Committee of the Company, Financial Final Report 2003, Profit Distribution Preplan 2003, the 1st Quarterly Report of 2004, Proposal on Mr. Lu Jianqing’s Resignation from the Position of Supervisor of the 4th Supervisory Committee, and Proposal on Recommending Mr. Li Weimin as Supervisor of the 4th Supervisory Committee, etc.. 2. On Jun. 19, 2004, the 11th meeting of the 4th Supervisory Committee was held in the meeting room on the 4th floor of the Company. 3 supervisors should attend the meeting, and actually all 3 had attended, which conformed to the Company Law and Articles of Association of the Company. After careful study, the meeting elected Mr. Li Weimin Chairman of the 4th Supervisory Committee of the Company. 3. On Aug. 15, 2004, the 12th meeting of the 4th Supervisory Committee was held in the meeting room on the 4th floor of the Company. 3 supervisors should have attended the meeting, and actually 2 had attended, which conformed to the Company Law and Articles of Association of the Company. After careful study, the meeting approved the Interim Report 2004 and Proposal on Providing Guarantee for Anhui Anhong Plastic Co., Ltd.. 4. On Oct. 25, 2004, the 13th meeting of the 4th Supervisory Committee was held through the means of communication. 3 supervisors should attend the meeting, and actually all 3 had attended, which conformed to the Company Law and Articles of Association of the Company. After prudent deliberation, the meeting approved the 3rd Quarterly Report of 2004. 5. On Nov. 19, 2004, the 14th meeting of the 4th Supervisory Committee was held through the means of communication. 3 supervisors should attend the meeting, and actually all 3 had attended, which conformed to the Company Law and Articles of Association of the Company. After prudent deliberation, the meeting approved resolution like the Proposal on Discontinuing the Important Assets Replacement of Hefei Meiling Co., Ltd., Proposal on Exchanging for Land-Use Right of Hefei Meiling Group Holding Co., Ltd. with Receivables, Proposal on Changing the Domestic Certified Public Accountants, and Proposal on Holding the 2004 Provisional Shareholders’ General Meeting, etc.. II. Independent opinions of the Supervisory Committee on the relevant events of 2004 1. Operation according to the laws In the report period, the Board of Directors conducted operation in a standardized way and seriously implemented various resolutions and authorizations of the Shareholders’ General Meeting strictly according to the PRC Company Law, Securities Law, Administration Rule for Listed Company, Articles of Association of the Company, and other laws and regulations. The decision-making procedures were scientific and legal. The Supervisory Committee supervised over and checked the procedure of holding, resolutions of the Shareholders’ General Meeting and the Board of Directors, implementation of the resolutions of the Shareholders’ General Meeting by the Board of Directors, performance of duties of the directors, managers and other senior executives and implementation of the internal management system of the Company and there found no behaviors of breaking laws, regulations and Articles of Association of the Company. The decision-making and operation of related transactions of the significant investment of the Company was disposed in the classified authorization scope through legal decision-making procedure and had not done any harm to the interests of the Company or the shareholders of the Company, especially the minority shareholders. 2. Inspection of the financial status of the Company In the report period, the Supervisory Committee conducted earnest and careful inspection over the Company’s financial position. In the opinion of the Supervisory Committee, the Company had maintained good financial position, operated the funds with high efficiency, conducted standardized financial management and kept healthy internal system. Shenzhen Pengcheng Certified Public Accountants and Morison Heng Certified Public Accountants had respectively issued standard unqualified Auditors’ Report for the Company’s Financial Report of 2004, which had truly, accurately and completely reflected the Company’s financial position and operation result. 3. Purchases and sales of assets and related transactions As checked, the Supervisory Committee believed that the related transactions of the significant assets replacement between the Company and Hefei Meiling (Group) Holdings Co., Ltd. in the report period was conducted according to the principle of fairness and obtained the independent opinion issued by relevant agencies. The related transactions had no inside dealings and had not done harm to the interest of any part of the shareholders or caused any loss to the assets of the Company. Section IX. Significant Events I. The Company had not been involved in any material lawsuits or arbitrations in the report period. II. Purchase and sale of assets made by the Company in the report period To adapt to the strategic need of planning and developing of Hefei City, to solve the problems arising from the irrational design of the plants and the move of the whole Company, and to reduce bad debt risks due to receivable funds and to perfect assets quality, the Stock Company decided to replace the accounts receivable with a book value of RMB 418,892,640.86 with the land-use right of the 491,081.64 square metres land block situated in the Economic Technology Development Zone, Hefei, Anhui and owned by the Group Company. The 19th meeting of the 4th Board of Directors of the Stock Company had examined and deliberated the Proposal on the Replacement of Accounts Receivable with the Land-Use Rights Owned by Hefei Meiling Group Holding Co., Ltd.. Related directors had avoided the voting, while the present directors with voting rights had examined and approved the aforesaid proposal. On Nov. 19, 2004, the Stock Company and the Group Company signed the Agreement on the Replacement of Accounts Receivable with the Land-Use Rights Owned by Hefei Meiling Group Holding Co., Ltd.. The above-mentioned Proposal on the Replacement of Accounts Receivable with the Land-Use Rights Owned by Hefei Meiling Group Holding Co., Ltd. had got approval from the Provisional Shareholders’ General Meeting 2004 of the Stock Company. III. Other related transactions in the report period were normal related transactions. For more details, please refer to notes in the Financial Statement. IV. Significant contracts (1) Entrusted, contracted and leased assets During the report period, the Company hadn’t entrusted, contracted or leased the assets of other companies, nor had other companies entrusted, contracted or leased the Company’s assets. In the report period, the Company hadn’t entrust others to carry out cash assets management. (2) Guarantees On Mar. 10, 2004, the 15th meeting of the 4th Board of Directors decided to provide guarantee for the current funds loan amounting to RMB 20 million for Zhongke Meiling Cryogenics Limited Company (the Company holding 70% of its equity), and the guarantee term was from Mar. 5, 2004 to Mar. 5, 2006. Anhui Anhong Plastic Co., Ltd. was a holding subsidiary of the Company (the Company holding 75% of its equity). To continue to support this company’s operation, the Company had provided guarantee for its current funds loan amounting to RMB 4.5 million, and the guarantee term was from Aug. 30, 2004 to Aug. 30, 2006. Up to now, the guarantee amount of the Company totalled RMB 24.5 million, taking up 2.86% of the Company’s net assets. V. Fulfillment of the Company or shareholders holding above 5% shares on the publicly disclosed commitments By Dec. 31, 2004, the debt owed by Hefei Meiling Group Holdings Co., Ltd. was RMB101,105,300. The debt occurred mainly because the Group Company had acquired the assets of the Air-Conditioner Plant of the Company and equity of the Washing Machine Company and undertaken relevant fund occupation fee. The debt owed by Hefei Meiling Washing-machine Co., Ltd. was RMB309,184,900. The debt occurred mainly due to the current funds investment, payment for raw materals for it made by the Company, as well as the ads fee of the Stock Company shared by it and relevant fund occupation fee it undertook before the Company transferred the equity of Washing Machine Company to Group Company. The 4th Board of Directors of the Company had been actively negociating with Meiling Group and Meiling Washing Machine Company to solve the aforesaid problems of capital occupancy. All related parties had agreed to implement the closing plan to the debts owed by principal shareholders and their related parties signed in 2001. It is estimated that all debts would be cleaned up in 2005. VI. Engagement, change of the engagement or disengagement of Certified Public Accountants Hua Zheng Certified Public Accountants had successively provided auditing services for the Company for many years. Now that this company had expanded business continuously, and its auditing business volume increased, making it unable to arrange auditing work according to the time designated by the Company. Through mutural negociation, both parties had agreed to end the auditing service, and the Company engaged Shenzhen Pengcheng Certified Public Accountants to be in charge of the domestic auditing work in 2004 of the Company. The remuneration the Company paid Morison Heng Certified Public Accountants was HKD 460 thousand, and that for Shenzhen Pengcheng Certified Public Accountants was RMB 350 thousand. Morison Heng Certified Public Accountants and Shenzhen Pengcheng Certified Public Accountants had provided auditing services for the Company for 2 years and 1 year respectively. VII. Criticism received from CSRC and Shenzhen Stock Exchange in the report period In the report period, the Company, the Board of the Company and directors had not been inspected by CSRC, or received administrative penalty or circulating criticisms, nor had them ever been criticized publicly by Shenzhen Stock Exchange. VIII. In the report period, the Company has not occurred the significant events stated in Article 62 of Securities Law and Article 17 of Implementation Rule for Information Disclosure of the Companies Publicly Issuing Share (Trial Implementation) and the items that were regarded as the significant events by the Board of Directors of the Company. Newspapers for information Date of notification Content of public notice disclosure Notification on the Return to the State-Owned Shares Feb. 6, 2004 Transfer Problem of the Company from the State-Owned Securities Times, Ta Kung Pao Assets Supervision and Administration Commission Notification on the Equity Transfer of Hefei Meiling Co., Mar. 2, 2004 Securities Times, Ta Kung Pao Ltd. Notification on the Resolutions of the 15th Meeting of the 4th Mar. 11, 2004 Securities Times, Ta Kung Pao Board of Directors Notification on the Resolutions of the 16th Meeting of the 4th Apr. 26, 2004 Securities Times, Ta Kung Pao Board of Directors Notification on the Resolutions of the Shareholders’ General Jun. 22, 2004 Securities Times, Ta Kung Pao Meeting 2004 Notification on the Resolutions of the 17th Meeting of the 4th Aug. 18, 2004 Securities Times, Ta Kung Pao Board of Directors Notification on the Resolutions of the 12th Meeting of the 4th Aug. 18, 2004 Securities Times, Ta Kung Pao Supervisory Committee Notice on the Resolutions of the 17th Meeting of the 4th Nov. 27, 2004 Board of Directors and on the Provisional Shareholders’ Securities Times, Ta Kung Pao General Meeting Nov. 27, 2004 Assets Replacement Notification Securities Times, Ta Kung Pao Notification on the Resolutions of the 14th Meeting of the 4th Nov. 27, 2004 Securities Times, Ta Kung Pao Supervisory Committee Notification on the Resolutions of the 1st Provisional Dec. 29, 2004 Securities Times, Ta Kung Pao Shareholders’ General Meeting of 2004 Section X. Financial Report Section XI. Documents Available for Reference 1. Accounting Statements signed by and under the seals of the Chairman of the Board, Deputy President and person in charge of accounting institution; 2. Original of Auditors’ Report carrying the seals of the domestic and international certified public accountants as well as personal signatures and seals of certified public accountants; 3. All the originals of the Company’s documents and public notices disclosed in the newspapers designated by China Securities Regulatory Commission. All the aforesaid documents are placed at the head office of the Company, and the Company shall timely make them available whenever they are demanded by China Securities Regulatory Commission or Shenzhen Stock Exchange, or any shareholder asks to check according to the relevant law and regulations or the Articles of Association. Chairman of the Board: Gu Chujun Board of Directors of Hefei Meiling Co., Ltd. Apr. 21, 2005 HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 Report and Financial Statements For the year ended December 31, 2004 HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004 CONTENTS PAGE(S) INTERNATIONAL AUDITORS’ REPORT 1 CONSOLIDATED INCOME STATEMENT 2 CONSOLIDATED BALANCE SHEET 3–4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 5 CONSOLIDATED CASH FLOW STATEMENT 6–7 NOTES TO THE FINANCIAL STATEMENTS 8 – 28 SUPPLEMENTARY INFORMATION 29 INTERNATIONAL AUDITORS’ REPORT TO THE SHAREHOLDERS OF HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 (Incorporated in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Hefei Meiling Company Limited (the “Company”) and its subsidiaries (the “Group’) as at December 31, 2004 and the related consolidated statements of income, cash flows and changes in shareholders’ equity for the year then ended. These consolidated financial statements set out on pages 2 to 28 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In forming our opinion, we have considered the adequacy of the disclosures made in note 16 & 17 to the financial statements in respect of the Company had executed agreements with Hefei Meiling Holding Company (“HMHC”) and Hefei Meiling Washing Machine Co., Ltd. (“Washing Machine Co.”) to transfer its trade receivables of RMB418,892,641, the amount due from HMHC and the amount due from Washing Machine Co. in exchange for land use rights as well as building and production facilities with valuation of RMB797,541,900 and RMB40,563,800 respectively. Title to the land use right has not been registered in the Company’s name as formal approval from the relevant PRC authority is required for transfer and registration. The financial statements do not include any adjustments that would result from a failure to obtain such approval. We consider that these matters have been adequately accounted for and disclosed in the financial statements. In our opinion, the accompanying consolidated financial statements give a true and fair view of the financial position of the Group as at December 31, 2004, and of the results of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards. Morison Heng Chartered Accountants Certified Public Accountants Hong Kong: April 18, 2005 -1- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2004 Notes 2004 2003 RMB’000 RMB’000 Turnover 3 1,438,884 1,393,196 Cost of sales (1,148,782) (1,157,593) Gross profit 290,102 235,603 Other revenue 3 11,085 7,208 Distribution costs (152,833) (144,294) Administrative expenses (78,897) (129,600) Other operating expenses (1,719) (112,473) Profit/(Loss) from operations 4 67,738 (143,556) Finance costs 6 (38,924 ) (39,651 ) Share of results of associates (214) 2,408 Profit/(Loss) before taxation 28,600 (180,799) Income tax 8 - (402 ) Profit/(Loss) after taxation 28,600 (181,201 ) Minority interests 26 (168 ) 3,128 Net profit/(loss) for the year 28,432 (178,073 ) Earnings per share Basic 9 0.07 (0.43 ) -2- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2004 Notes 2004 2003 RMB’000 RMB’000 ASSETS Non-currents assets Land use rights 10 473,452 124,216 Property, plant and equipment 11 479,586 494,232 Construction in progress 12 11,088 7,685 Intangible assets 13 117,480 134,460 Interests in associated companies 14 26,218 28,004 Available-for-sale investments 15 30,690 30,690 Amount due from a shareholder 16 70,374 85,221 Amount due from a related company 17 159,437 160,508 1,368,325 1,065,016 Current assets Inventories 18 237,529 188,607 Trade receivables 19 34,645 314,072 Bills receivable 75,599 138,061 Other receivables and prepayments 20 106,679 59,079 Amounts due from related companies 21 445 6,974 Pledged or guaranteed deposits 22 89,476 58,500 Bank balances and cash 22 226,175 196,790 770,548 962,083 Current liabilities Trade payables 369,307 296,185 Bills payable 272,106 204,000 Other payables and accruals 110,376 99,618 Receipts in advance 88,737 104,320 Amounts due to related companies 23 1,274 29,126 Amounts due to associated companies 23 18,813 - Provision for warranty 24 12,076 14,975 Borrowings 25 630,190 626,059 1,502,879 1,374,283 -3- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 CONSOLIDATED BALANCE SHEET – (continued) AT DECEMBER 31, 2004 Notes 2004 2003 RMB’000 RMB’000 Net current liabilities (732,331 ) (412,200 ) Total assets less current liabilities 635,994 652,816 Non-current liabilities Borrowings 25 (23,300) (67,910) Minority interests 26 (16,406) (16,298) NET ASSETS 596,288 568,608 CAPITAL AND RESERVES Registered capital 27 413,643 413,643 Reserves 28 856,658 857,410 Accumulated losses (674,013) (702,445) 596,288 568,608 Approved by the Board of Directors on April 18, 2005 DIRECTOR DIRECTOR -4- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2004 Reserves Statutory Statutory Disc Share Capital common public comm capital reserve reserve funds welfare funds reserve f RMB’000 RMB’000 RMB’000 RMB’000 RMB’0 Balance at December 31, 2002 413,643 572,321 65,426 65,643 153,82 Transfer from waiver of short term loan - 200 - - - Net loss for the year - - - - - Balance at December 31, 2003 413,643 572,521 65,426 65,643 153,82 Share of capital reserve of an associate - (892) - - - Share of capital reserve of a subsidiary - 140 - - - Net profit for the year - - - - - Balance at December 31, 2004 413,643 571,769 65,426 65,643 153,82 -5- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2004 2004 2003 RMB’000 RMB’000 Cash flows from operating activities Profit/(loss) before taxation 28,600 (180,799) Adjustment for: Amortisation of intangible assets 16,980 17,064 Amortisation of land use rights 3,334 3,334 Construction in progress written off 1,523 - Depreciation 43,423 45,951 Gain on disposal of property, plant and equipment (189 ) (13) Loss on disposal of property, plant and equipment 206 10,359 Loss on disposal of available-for-sale investments 30 - Minority interest (60 ) - Interest paid 38,924 39,651 Interest income (2,000 ) (851) Provision for impairment loss of amount due from associated company - 1,660 Provision for impairment loss of amount due from a shareholder 705 2,339 Provision for impairment loss of receivables 690 38,186 Provision for impairment loss of inventories - 36,743 Provision for warranty expenses - 975 Share of results of associates 214 (2,408) Write-back of provision for warranty expenses (2,899 ) - Write-back of provision for receivables (4,623 ) - Operating profit before working capital changes 124,858 12,191 (Increase)/Decrease in inventories (48,922 ) 43,350 Increase in trade receivables (68,995 ) (21,316) Decrease/(Increase) in bills receivable 62,462 (45,749) (Increase)/Decrease in other receivables and prepayments (47,815 ) 15,160 Decrease in amounts due from related companies 6,529 20,495 Increase/(Decrease) in trade payables 73,122 (83,096) Increase in bills payable 68,106 124,000 Increase in other payables and accruals 10,758 23,690 (Decrease)/Increase in receipts in advance (15,583 ) 31,467 (Decrease)/Increase in amounts due to related companies (27,852 ) 15,439 Increase in amounts due to associated companies 18,813 - Decrease in provision for loss on guarantee - (55,500) -6- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 Cash generated from operations 155,481 80,131 Interest paid (38,924 ) (39,651) Net cash from operating activities 116,557 40,480 -7- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 CONSOLIDATED CASH FLOW STATEMENT – (continued) FOR THE YEAR ENDED DECEMBER 31, 2004 2004 2003 RMB’000 RMB’000 Cash flows from investing activities Interest received 2,000 851 Proceeds on disposal of property, plant and equipment 1,329 4,704 Proceeds on disposal of available-for-sale investments 70 - Purchase of property, plant and equipment (20,572 ) (5,490) Purchase of intangible assets - (1,331) Purchase of available-for-sale investments (100 ) - Payments for construction in progress (14,477 ) (7,638) Interests in associated companies 1,572 286 Decrease in amount due from shareholder 14,142 52,665 Decrease/(Increase) in amount due from a related company 1,071 (32,216) Net cash (used in)/from investing activities (14,965 ) 11,831 Cash flows from financing activities Dividend paid - (2,478) Increase in deposits used as collaterals (30,976 ) (34,500) Proceeds from issue of capital reserve 140 - Payment on capital reserve (892 ) - Proceeds from borrowings 600,690 90,844 Repayments of borrowings (641,169 ) (61,550) Net cash used in financing activities (72,207 ) (7,684) Net increase in cash and cash equivalents 29,385 44,627 Cash and cash equivalents at the beginning of the year 196,790 152,163 Cash and cash equivalents at the end of the year 226,175 196,790 Analysis of cash and cash equivalents at the end of the year Bank balances and cash 226,175 196,790 -8- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 NOTES TO THE FINANCIAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2004 GENERAL INFORMATION Hefei Meiling Company Limited (the “Company”) is a joint stock limited company incorporated in the People’s Republic of China (the “PRC”). The Company and its subsidiaries (the “Group”) are mainly engaged in the manufacturing of household refrigerators and sale of household electronic appliances. The Company’s A shares and B shares are listed on the Shenzhen Stock Exchange. The Company’s Domestically Listed Foreign Shares (“B Shares”) are listed on the Shenzhen Stock Exchange. The address of its registered office is 48 Wuhu Road, Hefei. 1. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of those consolidated financial statements are set out below: Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) including International Accounting Standards and Interpretations issued by the International Accounting Standards Board. The basis of accounting differs from that used in the preparation of the Company’s statutory financial statements (“PRC statutory financial statements”). The PRC statutory financial statements of the Company and its subsidiaries comprising the Group have been prepared in accordance with relevant accounting principles and regulations applicable to them, as appropriate in the PRC. Appropriate adjustments have been made to the PRC statutory financial statements to conform to IFRS. Differences arising from the restatement have not been incorporated in the statutory accounting records of the Group. The consolidated financial statements are prepared under the historical cost convention as modified by the revaluation of available-for-sale investments. The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results -9- HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 ultimately may differ from those estimates. Basis of consolidation The consolidation financial statements incorporate the financial statements of the Company and its subsidiaries made up to December 31 each year. The results of the 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. All significant inter-company transactions and balances within the Group are eliminated on consolidation. - 10 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 2. SIGNIFICANT ACCOUNTING POLICIES – (continued) Subsidiaries A subsidiary is a company in which the Company, directly or indirectly, holds more than half of the issued share capital, or controls more than half of the voting power, or where the Company controls the composition of its board of directors or equivalent governing body. Investments in subsidiaries are stated at cost less any identified impairment loss. Result of the subsidiaries are accounted for by the Company on the basis of dividends received and receivable during the year. Revenue recognition Revenue is recognised when it is probable that the economic benefits will flow to the Company and when the revenue can be measured reliably on the following bases: Sales of goods are recognised when goods are delivered and title has passed. Investment income is recognised when the right to receive dividends or other payments is established. Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable. Land use rights Land use rights are stated at cost less accumulated amortisation. Land use rights are amortised over the lease period using the straight-line method. Property, plant and equipment Buildings are depreciated over the unexpired periods of the leases or their expected useful lives to the Group, whichever is shorter, on a straight-line basis, while other property, plant and equipment are depreciated at rates sufficient to write off their cost less residual value, if any, and accumulated impairment losses over their estimate useful lives on a straight-line method at the following rates per annum: Buildings 30 – 40 years Plant and machinery 10 – 16 years Furniture, fixtures and office equipment 8 – 12 years - 11 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 Motor vehicles 8 – 15 years 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 the income statement. - 12 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 2. SIGNIFICANT ACCOUNTING POLICIES – (continued) Construction in progress Construction in progress represents premises under construction and production plants, machinery and other equipment under installation and is stated at cost. Cost includes the cost of construction, purchase cost of plant and machinery as well as interest expenses arising from borrowings used to finance the construction during the construction period. Construction in progress for production plants and machinery is transferred to property, plant and equipment on the commissioning date. Plant and machinery are considered to be commissioned when they are capable of producing saleable quality output in commercial quantities on an ongoing basis. Intangible assets a. Computer software The cost of acquisition of new computer software is capitalized and treated as an intangible asset of there costs are not integral part of the related hardware. Computer software is amortised on the straight-line basis over their estimate useful lives, but not exceeding 10 years. b. Trademarks Trademarks are measured initially at cost and are amortised on a straight-line basis over their estimated useful lives, but not exceeding 20 years. c. Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if the cost can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding five years. - 13 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 Associated companies An associated company is a company, not being a subsidiary, in which an equity interest is held for the long-term and significant influence is exercised in its management. Investments in associated companies are stated at cost less any identified impairment loss. Results of the associated companies are accounted by the Company on the basis of dividends received and receivable during the year. - 14 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 2. SIGNIFICANT ACCOUNTING POLICIES – (continued) Available-for-sale-investments Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale investments; and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Available-for-sale investments are subsequently carried at fair value. Fair values for unlisted equity securities are estimated using applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment. Unrealised gains and losses arising from changes in the fair value of securities classified as available-for-sale are recognised in equity. When securities classified as available-for-sale investments are sold or impaired, the accumulated fair value adjustments are included in the consolidated income statement as gains and losses from investment securities. Inventories Inventories are stated at the lower of cost and net realisable value. Cost which comprises direct materials and, where applicable, direct labor costs and those overheads that have been incurred in bringing the inventories and work in progress to their present locations and condition, is calculated using the first-in, first-out method. Net realisable value is based on estimated selling prices less estimated selling expenses. Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. - 15 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 Impairment of assets At each balance sheet date, the Company reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately. Where an impairment loss is subsequently reversed, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately. - 16 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 2. SIGNIFICANT ACCOUNTING POLICIES – (continued) Warranty The Group recognises the estimated liability to repair or replace products still under warranty at the balance sheet date. This provision is calculated based on certain percentage of the completed contract cost which is determined by reference to past history of the level of repairs and replacements. Taxation PRC income taxes are provided for based on the estimated assessable profits and the applicable tax rates for the Company and other companies comprising the Group. Deferred taxation is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the accounts. Taxation rates enacted or substantively enacted by the balance sheet date are used to determine deferred taxation. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred taxation is provided on temporary differences arising on investments in subsidiaries and associated companies, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Leased assets Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rentals applicable to such operating leases are charged to the income statement on the straight-line basis over the lease terms. Foreign currencies Transactions in foreign currencies are recorded at rates of exchange ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Renminbi at the rates of exchange ruling on the balance sheet date. Profits and losses arising on foreign currency translation are dealt with in the income statement. - 17 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. - 18 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 2. SIGNIFICANT ACCOUNTING POLICIES – (continued) Employee benefits The Group participates in employee social security plans, including pension, medical, housing and other welfare benefits, organized by the government authorities in accordance with relevant regulations. Except for the above social security benefits, the Group has no additional commitment to other employee welfare benefits. According to the relevant regulations, premium and welfare benefit contributions are remitted to the social welfare authorities and are calculated based on percentages of the total salary of employees, subject to a certain ceiling. Contributions to the plans are charged to the income statement as incurred. Borrowing costs All borrowing costs are recognised as expenses in the year in which they are incurred. Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, cash investments with a maturity of three months or less from the date of investment and bank overdraft. Financial instruments Financial assets and liabilities carried in the consolidated balance sheet include cash and cash equivalents, pledged or guaranteed deposits, available-for-sale investments, receivables, payables and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. - 19 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 2. TURNOVER AND REVENUE The Group is engaged in the sales of household refrigerators and other household electrical appliances, and accessories of household appliances to external customers at invoiced value net of discounts, value added tax and returns. Revenue recognised during the year is as follows: 2004 2003 RMB’000 RMB’000 Turnover Sales of goods 1,438,884 1,393,196 Other revenue Bank interest income 2,000 851 Investment income 380 1,664 Sale of scrap materials 1,031 629 Tax refund on export sales and new products 2,862 3,058 Exchange gain - 60 Gain on disposal of property, plant and equipment 189 13 Write-back of provision for receivables 4,623 - Others - 933 11,085 7,208 Total revenue 1,449,969 1,400,404 - 20 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 3. PROFIT/(LOSS) FROM OPERATIONS Profit/(Loss) from operations is arrived at: 2004 2003 RMB’000 RMB’000 After charging: Amortisation of land use rights 3,334 3,334 Amortisation of intangible assets 16,980 17,064 Construction in progress written off 1,523 - Depreciation of property, plant and equipment 43,423 45,951 Exchange loss 108 - Loss on disposal of property, plant and equipment 206 10,359 Loss on disposal of available-for-sale investments 30 - Provision for impairment loss of receivables 690 38,186 Provision for impairment loss of amount due from associated company - 1,660 Provision for impairment loss of amount due from a shareholder 705 2,339 Provision for impairment loss of inventories - 36,743 Provision for warranty expenses 7,200 12,395 Research and development expenditure 3,124 8,920 Rent paid under operating leases – office rental 6,707 6,650 Staff costs (including directors’ remuneration – note 7) 88,246 65,713 Warranty expenses 10,099 11,420 4. STAFF COSTS 2004 2003 RMB’000 RMB’000 Wages and salaries 71,867 57,633 Staff welfare 13,798 7,771 Retirement benefits 2,581 309 88,246 65,713 Average number of persons employed by the Group during the year 2,390 2,322 - 21 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 5. FINANCE COSTS 2004 2003 RMB’000 RMB’000 Interest on bank borrowings 38,924 39,651 - 22 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 6. DIRECTORS’ REMUNERATION Particulars of the emoluments of the directors for the year were as follows: 2004 2003 RMB’000 RMB’000 Fees - - Other emoluments 3,905 780 3,905 780 RMB180,000 were paid to three independent non-executive directors during the year (2003: RMB26,000). The emoluments of the directors were within the following ranges: Number of directors 2004 2003 RMB100,000 or below 4 6 RMB100,001 – RMB400,000 4 3 RMB400,001 – RMB650,000 1 - 7. INCOME TAX 2004 2003 RMB’000 RMB’000 Current tax - - Share of tax of associates - 402 - 402 PRC income tax comprises income tax of the Company and its subsidiaries, Zhongke Meiling Cryogenics Company Limited and Anhui Anhong Plastics Co., Ltd., and is calculated at rates applicable to the relevant companies ranging from 24% to 33%. The charge for the year can be reconciled to the profit/(loss) per the income statement as follows: 2004 2003 RMB’000 RMB’000 - 23 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 Profit/(Loss) before tax 28,600 (180,799) Tax calculated at the effective rate of 33% (2003: 33%) 9,438 (59,664) Deferred taxation not recognized - 60,098 Tax effect of income not taxable for taxation purposes (685 ) - Utilisation of tax losses not previously recognised (8,753 ) (32 ) Taxation charge - 402 - 24 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 8. INCOME TAX – (continued) No deferred tax asset has been recognized in the financial statements as it is uncertain such an asset will crystallize in the foreseeable future (2003: Nil). Details of the unprovided deferred tax asset at December 31, 2004 are as follows: 2004 2003 RMB’000 RMB’000 Provision for receivables and inventories 14,506 108,352 Tax losses 33,536 42,289 48,042 150,641 EARNINGS/(LOSS) PER SHARE The calculation of earnings per share is based on the consolidated profit/(loss) after tax and after minority interests for the year of RMB28,432,000 (2003: RMB178,073,000) and 413,643,000 shares (2003: 413,643,000) in issue. 8. LAND USE RIGHTS RMB’000 COST At January 1, 2004 134,161 Additions 352,570 At December 31, 2004 486,731 ACCUMULATED AMORTIZATION At January 1, 2004 9,945 Charge for the year 3,334 At December 31, 2004 13,279 NET BOOK VALUE At December 31, 2004 473,452 - 25 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 At December 31, 2003 124,216 At December 31, 2004, the net book value of land use rights of the Group amounted to RMB59,877,000 (2003: RMB63,148,000) were pledged as security for bank borrowings. Title to the land use right for settlement of outstanding balance with HMHC has not been registered in the Company’s name as formal approval is required for transfer and registration. - 26 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 9. PROPERTY, PLANT AND EQUIPMENT Furniture, fixtures Plant and and office Motor Buildings machinery equipment vehicles Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 COST At January 1, 2004 237,701 503,456 31,524 17,735 790,416 Additions 888 17,044 128 2,512 20,572 Transfer from construction in progress - 9,551 - - 9,551 Disposals - (524) (189 ) (1,668 ) (2,381) At December 31, 2004 238,589 529,527 31,463 18,579 818,158 ACCUMULATED DEPRECIATION At January 1, 2004 42,743 219,654 21,265 12,522 296,184 Charge for the year 6,557 34,474 1,311 1,081 43,423 Eliminated on disposals - (73) - (962 ) (1,035) At December 31, 2004 49,300 254,055 22,576 12,641 338,572 NET BOOK VALUES At December 31, 2004 189,289 275,472 8,887 5,938 479,586 At December 31, 2003 194,958 283,802 10,259 5,213 494,232 At December 31, 2004, the net book value of buildings of the Group amounted to RMB85,873,000 (2003: RMB88,850,000) were pledged as security for bank borrowings. 10. CONSTRUCTION IN PROGRESS 2004 2003 RMB’000 RMB’000 Opening net book value 7,685 4,768 Additions 14,477 7,638 Transfer to property, plant and equipment (9,551 ) (4,721 ) Write-off (1,523 ) - - 27 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 Closing net book value 11,088 7,685 Construction in progress represents production equipment and machinery under installation and is stated at cost. No interest expenses were capitalized in the current year (2003: Nil). - 28 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 11. INTANGIBLE ASSETS Computer Technical software Trademark know-how Total RMB’000 RMB’000 RMB’000 RMB’000 COST At January 1, 2004 and at December 31, 2004 8,821 130,078 18,000 156,899 ACCUMULATED AMORTISATION At January 1, 2004 2,462 17,427 2,550 22,439 Charge for the year 1,764 12,966 2,250 16,980 At December 31, 2004 4,226 30,393 4,800 39,419 NET BOOK VALUE At December 31, 2004 4,595 99,685 13,200 117,480 At December 31, 2003 6,359 112,651 15,450 134,460 12. INTERESTS IN ASSOCIATED COMPANIES 2004 2003 RMB’000 RMB’000 Unlisted shares, at cost 25,749 26,429 Share of post-acquisition profits 2,129 2,343 Share of post-acquisition capital reserve - 892 27,878 29,664 Less: Impairment loss (1,660 ) (1,660 ) 26,218 28,004 Details of the associated companies as at December 31, 2004 are as follows: Registered Equity Name of associated company capital Principal activities interest held 2004 2003 Hefei Meiling Packing USD3,067,000 Manufacturing and sale of 48.28% 48.28% - 29 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 Product Co., Ltd packing materials Hefei Meiling - Sigema USD1,000,000 Manufacturing and sale of air 20% 20% Appliances Co., Ltd conditioners 合肥技術產權交易所 RMB3,500,000 Clearing house 28.57% 28.57% Hefei Meiling-Sigema Appliance Co., Ltd. is planning to liquidate and full provision for impairment loss was made during the year. - 30 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 13. AVAILABLE-FOR-SALE INVESTMENTS 2004 2003 RMB’000 RMB’000 Listed investment 6,150 6,150 Unlisted investment 24,540 24,540 30,690 30,690 14. AMOUNT DUE FROM A SHAREHOLDER 2004 2003 RMB’000 RMB’000 Amount due from a shareholder 89,799 103,941 Less: Impairment loss (19,425 ) (18,720 ) 70,374 85,221 (a) The balance was due from Hefei Meiling Holding Company (“HMHC”). The year end balance mainly represents recharge of advertising and other selling expenses to HMHC, interest charge on the outstanding balance and receivables arising from disposal of equity interests in certain companies to HMHC. According to an agreement dated March 20, 2001, no interest would be charged to HMHC on the outstanding balance commencing January 1, 2001. (b) Pursuant to an agreement dated March 5, 2002 entered into between the Company and HMHC, the outstanding balance will be fully repaid by the end of 2005. (c) On November 26, 2003, the Company entered into agreements with HMHC, and Hefei Meiling Washing Machine Co., Ltd (“Washing Machine Co.”) to transfer its trade receivable of RMB427,290,900, the amount due from HMHC and the amount due from Washing Machine Co. in exchange for the land use rights with valuation of RMB797,541,900. The land use rights are owned by HMHC and located in Economic and Technological Development Zone of Hefei and the buildings and production facilities of Washing Machine Co. The transaction of exchange of assets has been approved by the shareholders and China Securities Regulatory Commission. The title to the - 31 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 land use right has not been registered in the Company’s name as the Company has just filed the documents to the relevant PRC authority to grant formal approval for transfer and registration. The Directors are of the opinions that formal approval will be granted and the formality be completed in the near future and will have no material impact on the financial position and operations of the Group. - 32 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 15. AMOUNT DUE FROM A RELATED COMPANY 2004 2003 RMB’000 RMB’000 Amount due from a related company 311,216 312,287 Less: Impairment loss (151,779 ) (151,779 ) 159,437 160,508 (a) The balance was due from Hefei Meiling Washing Machine Co., Ltd (“Washing Machine Co.”), a subsidiary of HMHC. The year end balance mainly represents advances to Washing Machine Co. for the purchase of property, plant and machinery, for financing its operations, and interest charge on the outstanding balance. According to an agreement dated March 20, 2001, no interest would be charged to Washing Machine Co. on the outstanding balance commencing January 1, 2001. (b) Pursuant to agreements dated November 26, 2003 entered into between the Company, HMHC and Washing Machine Co., the outstanding balance will be settled by the transfer of building and production facilities with a valuation of RMB40,563,800 and land use rights owned by HMHC. Title to the land use right has not been registered in the Company’s name as formal approval is required for transfer and registration. (c) The amount due from Washing Machine Co. is guaranteed by HMHC. 16. INVENTORIES 2004 2003 RMB’000 RMB’000 Raw materials 80,075 38,483 Work in progress 13,018 9,830 Finished goods 144,436 140,294 237,529 188,607 Included above are raw materials of RMB3,054,000 (2003: RMB1,068,000) and finished goods RMB4,168,000 (2003: RMB18,775,000) carried at net realisable value. - 33 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 17. TRADE RECEIVABLES 2004 2003 RMB’000 RMB’000 Trade receivables 105,723 615,573 Less: Impairment loss (71,078 ) (301,501 ) Trade receivables, net 34,645 314,072 The trade receivables included RMB418,892,641 which have been transferred to HMHC in exchange for the land use right. The title to the land use right has not been registered in the Company’s name as the Company has just filed the documents to the relevant PRC authority to grant formal approval for transfer and registration. - 34 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 OTHER RECEIVABLES AND PREPAYMENTS 2004 2003 RMB’000 RMB’000 Other receivables 17,507 15,932 Less: Impairment loss (6,137 ) (917 ) Other receivables, net 11,370 15,015 Prepayments 95,309 44,064 106,679 59,079 AMOUNTS DUE FROM RELATED COMPANIES The amounts due are unsecured, interest-free and with no fixed terms of repayment. 18. CASH AND CASH EQUIVALENTS 2004 2003 RMB’000 RMB’000 Cash and cash equivalents: Bank balance and cash 226,175 196,790 Pledged or guaranteed deposits Bank guarantee saving deposits 89,476 58,500 Total bank balances and cash 315,651 255,290 Bank guarantee saving deposits have been pledged to banks to guarantee bills payable and the average effective interest rate on short-term bank deposits was 0.99% (2003: 0.99%) per annum. AMOUNTS DUE TO RELATED COMPANIES/ASSOCIATED COMPANIES The amounts due are unsecured, interest-free and with no fixed terms of repayment. - 35 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 19. PROVISION FOR WARRANTY 2004 2003 RMB’000 RMB’000 Opening net book value 14,975 14,000 Provision for the year 7,200 12,395 Utilisation (10,099 ) (11,420 ) Closing net book value 12,076 14,975 The Group provides a three-year warranty in respect of the compressors of refrigerators and undertakes to repair or replace items that fail to perform satisfactorily. The provision is estimated by reference to the expected warranty claims calculated at certain percentage based on past experience of the level of repairs and returns. 20. BORROWINGS 2004 2003 RMB’000 RMB’000 Current - secured bank borrowings 605,690 626,059 - unsecured bank borrowings 24,500 - 630,190 626,059 Net-current - secured bank borrowings 20,000 67,910 - unsecured government loan 3,300 - 23,300 67,910 Total borrowings 653,490 693,969 (a) Certain bank borrowings of the Group are guaranteed by the following companies: 2004 2003 - 36 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 RMB’000 RMB’000 HMHC 582,390 591,140 (b) The Group’s major bankers had confirmed that it would provide banking facilities totaling RMB850,000,000 to the Group for a period to December 31, 2004. As at December 31, 2004 banking facilities of RMB266,310,000 has not been utilised. - 37 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 25. BORROWINGS – (continued) (c) The interest rate exposure of the borrowings of the Group is as follows: 2004 2003 RMB’000 RMB’000 Total borrowings - at fixed rates 650,190 693,969 - interest free 3,300 - 653,490 693,969 2004 2003 Weighted average effective interest rate: - bank borrowings 5.57% 5.37% (d) The carrying amount and estimated fair value of the Group’s non-current borrowings at December 31, 2004 are set out as follows: 2004 2003 RMB’000 RMB’000 Carrying amount 23,300 67,910 Estimated fair value 23,115 67,743 The fair value of non-current borrowings is estimated by applying a discounted cash flow approach using current market interest rates for similar indebtedness. Fair value estimates are made at specific point in time and are based on relevant market information. These estimates are subjective in nature and involved uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in valuation methods and assumptions could significantly affect the estimates. 21. MINORITY INTERESTS 2004 2003 RMB’000 RMB’000 - 38 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 At beginning of year 16,298 19,426 Share of capital reserve (60 ) - Share of results of subsidiaries 168 (3,128 ) At end of year 16,406 16,298 - 39 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 22. SHARE CAPITAL Registered, issued and fully paid ordinary shares of RMB1 each: 2004 2003 RMB’000 RMB’000 A shares (unlisted) 149,056 149,056 A shares (listed) 151,487 151,487 B shares (listed) 113,100 113,100 413,643 413,643 Pursuant to Company’s Articles of Association, A and B shares are all registered ordinary share. Except for the currency in which dividends are payable, these shares carry equal rights. On February 5, 2004, Hefei Municipal State-owned Assets Supervision and Administration Committee approved the transfer of 82,852,683 shares of the Company from Hefei Meiling (Group) Holdings Co., Ltd. (State - owned shareholder) to 廣東格林柯爾企業發展有限公司. Since then, 廣東格林柯爾企業發展有限公 司 is a controlling shareholder of the Company. 23. RESERVES In accordance with the relevant PRC regulations applicable to joint stock limited companies and the Company’s Articles of Association, the Group is required to allocate its profit after tax to the following reserves: Statutory common reserve funds The Group is required each year to transfer 10% of the profit after tax as reported under the PRC statutory financial statements to the statutory common reserve funds until the balance reaches 50% of the registered share capital. This reserve can be used to make up any loss incurred or to increase share capital. Except for the reduction of losses incurred, any other application should not result in this reserve balance falling below 25% of the registered capital. Statutory public welfare funds The Group is required each year to transfer 5% to 10% of the profit after tax as - 40 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 reported under the PRC statutory financial statements to the statutory public welfare funds. This reserve is restricted to capital expenditure for employees’ collective welfare facilities that are owned by the Group. The statutory public welfare funds are not available for distribution to shareholders (except on liquidation). Once capital expenditure for staff welfare facilities has been made an equivalent amount must be transferred from the statutory public welfare funds to the discretionary common reserve funds. - 41 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 28. RESERVES – (continued) Discretionary common reserve funds The discretionary common reserve funds can be set up by means of appropriation from retained earnings or transferred from the statutory public welfare funds. The reserve can be used to reduce losses, to increase share capital or for payment of dividends. Any transfer to the reserve requires the approval of shareholders in general meeting. No profit appropriation will be made for the year 2004 as the net profit for the year has been utilised to make up accumulated losses. 24. DISTRIBUTABLE PROFITS Pursuant to the relevant PRC regulations and the Company’s Articles of Association, profit distributable to shareholders shall be the lower of the distributable profits as determined in accordance with PRC accounting standards and the distributable profits as adjusted in accordance with IFRS. 25. FINANCIAL RISK MANAGEMENTS Interest rate risk The interest rates and repayment terms of bank borrowings are disclosed in note 25. Other financial assets and financial liabilities do not have material interest rate risk. Credit risk The Group has no significant concentrations of credit risks. Trade receivables of the Group are spread among a number of customers in the PRC and cash is deposited with registered banks in the PRC. The carrying amounts of the financial assets after deducting the provision for bad and doubtful debts best represent their maximum credit risk exposure as at December 31, 2004. Foreign currency risk Transactions of the Group are mainly settled in RMB. In the opinion of the Directors of the Company, the Group does not have significant foreign currency risk exposure. - 42 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 Fair value The carrying amounts of the following financial assets and financial liabilities approximate their fair value: cash, receivables, payables and borrowings. Information on the fair value of borrowings and interest rate exposure is included in note 25. - 43 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 26. CAPITAL COMMITMENTS 2004 2003 RMB’000 RMB’000 Contracted but not provided for - acquisition of property, plant and equipment 18,635 5,700 27. RELATED PARTY TRANSACTIONS During the year, the Group had the following material transactions with related parties in normal course of its business: 2004 2003 RMB’000 RMB’000 HMHC - Disposal of accounts receivable for a consideration of land use rights 352,570 - Washing Machine Co. - Purchase of goods - 72,252 - Sale of goods - 27,559 Other subsidiaries of HMHC - Purchase of goods 43,500 242,758 - Sale of goods - 14,745 PLEDGE OF ASSETS At December 31, 2004, the land use rights with net book value of RMB59,877,000 (2003: RMB63,148,000), the buildings with net book value of RMB85,873,000 (2003: RMB88,850,000), the bills receivable of RMB230,000,000 (2003: Nil) and bank deposits of RMB89,476,000 (2003: RMB58,500,000) were pledged to banks for banking facilities granted to the Group. - 44 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 28. SUBSIDIARIES As at December 31, 2004, the Company directly held equity interests in the following PRC established subsidiaries: Attributable Registered equity Name of subsidiary capital Principal activities interest held 2004 2003 Anhui Anhong Plastics Co., USD1,000,000 Manufacturing and sales of 75% 75% Ltd accessories of household appliances Zhongke Meiling RMB60,000,000 Development, manufacturing 70% 70% Cryogenics Company and sale of cryogenic Limited refrigerators POST BALANCE SHEET EVENT Subsequent to the balance sheet date, HMHC resolved to transfer its land use right in settlement of its remaining balance with the Company and an amount due from Hefei Meiling Washing Machine Co., Ltd. The above transaction is subject to the approval of shareholders and China Securities Regulatory Commission. - 45 - HEFEI MEILING COMPANY LIMITED 合肥美菱股份有限公司 SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2004 The impact of IFRS adjustments on the PRC statutory financial statements is as follows: Net profit for Net assets The year ended as at December 31, 2004December 31, 2004 RMB’ 000 RMB’000 As report under PRC statutory financial statements 16,767 856,947 IFRS adjustments: Write-bank of provision for warranty expenses 2,899 (12,076 ) Remeasurement of financial assets in according with IAS 39 7,656 (234,921 ) Depreciation of property, plant and equipment (3,084 ) 5,525 Others 4,194 (19,187 ) As restated after IFRS adjustments 28,432 596,288 - 46 -