小天鹅Ａ(000418)小天鹅Ｂ2004年年度报告（英文版）

WUXI LITTLE SWAN CO., LTD. ANNUAL REPORT 2004 Page 1 CONTENTS Ⅰ. Company Profile----------------------------------------------------------------------------- Ⅱ. Summary of Accounting Highlight and Bussiness Highlight ---------------------- Ⅲ. Changes in Share Capital and particulars about Shareholders-------------------- Ⅳ. Directors, Supervisors, Senior Executives and Employees-------------------------- Ⅴ. Administrative Structure------------------------------------------------------------------- Ⅵ. Particulars about Shareholders’ General Meetings---------------------------------- Ⅶ. Report of the Board of Directors--------------------------------------------------------- Ⅷ. Report of the Supervisory Committee--------------------------------------------------- Ⅸ. Significant Events---------------------------------------------------------------------------- Ⅹ. Financial Report----------------------------------------------------------------------------- Ⅺ. Documents Available for Documents---------------------------------------------------- Important Notes The Board of Directors of Wuxi Little Swan Company Limited (hereinafter refereed to as the Company) and all 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. Ms. Gu Qun was absent from the Board meeting due to her busy business and entrusted Chairman of the Board Mr. Li Shisheng to vote on her behalf; Independent director Mr. Lv Wei was absent from the Board meeting due to his busy business and entrusted Independent director Mr. Yang Jiaye attend and vote on his behalf. Shanghai Shu Lun Pan Certified Public Accountants and Horwath Certified Public Accountants (H.K.) Co., Ltd. issued the unqualified Auditors’ Report for the Company respectively. Mr. Li Shisheng, Chairman of the Board of the Company, and Mr. Bian Yanglin, Chief Financial Officer hereby confirm that the Financial Report of the Annual Report is true and complete. Page 2 SECTION I. COMPANY PROFILE 1. Legal Name of the Company: In Chinese: 无锡小天鹅股份有限公司 In English: Wuxi Little Swan Company Limited 2. Legal Representative: Mr. Li Shisheng 3. Secretary of the Board of Directors: Mr. Qiao Li Contact Address: No. 67, Huiqian Road, Wuxi Jiangsu Post Code: 214035 Tel: (86) 510-3704003-2192 Fax: (86) 510-3704031 E-mail: qiaol@littleswan.com.cn Securities Affairs Representative: Mr. Guo Zuwei Contact Address: No. 67, Huiqian Road, Wuxi Jiangsu Post Code: 214035 Tel: (86) 510-3704003-2022 Fax: (86) 510-3720879 E-mail: securities@littleswan.com.cn 4. Registered Address: No.1 Hanjiang Road, National High-Tech Industrial Development Zone, Wuxi Post Code: 214028 Office Address: No. 67, Huiqian Road, Wuxi Jiangsu Post Code: 214035 International Website of the Company: http://www.littleswan.com E-mail of The Company: Info@littleswan.com.cn 5. Designated Newspaper for Disclosing the China Securities, Securities Times Information of the Company: and Ta Kung Pao Internet Web site for publishing the Annual Report Designated by CSRC: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Securities Department of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: ST Swan A, ST Swan B Stock Code: 000418, 200418 7. Other Relevant Information of the Company Original registration date: Nov. 29, 1993 Original registration place: Jiangsu Province Administrative Bureau of Industrial and Commerce Registered code of enterprise legal person’s Page 3 business license: 3200001103331 Registered code of taxation (National Revenue): 320201134792058 Registered code of taxation (Local Tax): 320211704046760 Name and address of Certified Public Accountants engaged by the Company: Domestic: Shanghai Shu Lun Pan Certified Public Accountants Office address: No. 61, Nanjing East Road, Shanghai, China International: Hong Kong Horwath Certified Public Accountants Office address: Room 2001, Central Plaza, Harbour Road 18, Wan Chai District, Hong Kong SECTION II. SUMMARY OF ACCOUNTING DATA AND BUSINESS DATA 1. Major accounting data as of year 2004 (Unit: RMB) Items Amount Total profit 48,578,464.57 Net profit 39,036,607.58 Net profit after deducting non-recurring gains and losses 13,883,992.17 Profit from main operations 456,444,504.44 Other operating profit 35,071,012.71 Operating profit 11,143,116.47 Investment income 34,636,461.40 Subsidy income 4,664,977.59 Net non-operating income/expenses -1,866,090.89 Net cash flow arising from operating activities -179,327,253.79 Net increase in cash and cash equivalent -224,356,520.21 * Items of deducting non-recurring gains and losses and the relevant amounts: Items of non-recurring gains and losses Amount Gains/losses from disposal of long-term equity investment, fixed assets, project in construction, intangible assets and other5,539,081.14 long-term assets Various government subsidies 10,314,095.29 Other non-operating income/expenses after deducting daily reserve for impairment losses of assets allotted by the Company -137,035.31 based on regulations of Accounting System for Business Enterprise Switching back various reserves for impairment losses allotted 10,145,916.20 over the previous years Impact on income tax -709,441.91 Total 25,152,615.41 Page 4 Difference between Chinese Accounting Standards and International Accounting Standards: (Unit: RMB’000) CAS IAS Net profit 39,037.00 26,961.00 Difference in consolidation scope: 1889.00 Staff’s bounty and welfare funds: -2152.00 Unconfirmed investment losses -3508.00 Consolidating insolvent affiliated companies: -7387.00 Liquidation of affiliated companies: 15649.00 Explanation Investment difference occurred from of difference increasing investment to affiliated companies: -878.00 Canceling of organization expenses: -6840.00 Minority interests -832.00 Writing off over-appropriate wages: -17031.00 Other 9014.00 2. Major accounting data and financial indexes over the past three years as ended the report period: (Unit: RMB) 2002 2004 2003 After adjustment Before adjustment Income from main operations 2,422,932,739.43 2,901,320,283.34 2,941,801,551.71 2,755,698,641.53 Total profit 48,578,464.57 62,235,110.63 -636,968,930.75 -868,462,491.42 Net profit 39,036,607.58 35,990,311.11 -564,803,384.45 -418,429,593.89 Total assets 3,117,214,816.88 3,079,063,440.49 3,175,780,748.53 3,169,627,550.78 Shareholders’ equity 1,141,820,628.36 (excluding minority interests) 1,106,830,465.42 1,088,684,900.87 1,218,424,807.50 Earnings per share 0.1069 0.0986 -1.5470 -1.1461 Net assets per share 3.1274 3.0315 2.9819 3.3372 Net assets per share after 3.0209 adjustment 2.9092 2.8511 3.1976 Net cash flow per share -0.4912 arising from operating activities 0.5244 0.2371 0.2371 Return on equity (%) 3.42 3.25 -51.88 -34.34 Return on equity after deducting non-recurring gains and losses (%) 1.22 0.94 -51.99 -34.44 Structure analysis of return on equity and earnings per share Profit in the report period Return on equity (%) Earnings per share (RMB) Fully Weighted Fully Weighted diluted average diluted average Profit from main operations 39.97 40.52 1.2502 1.2502 Page 5 Operating profit 0.98 0.99 0.0305 0.0305 Net profit 3.42 3.47 0.1069 0.1069 Net profit after deducting non-recurring gains and losses 1.22 1.23 0.038 0.038 3. Change in shareholders’ equity in the report period Unit: RMB Items Share capital Capital reserve Surplus reserve Retained profit Unconfirmed Total loss on shareholders’ investment equity Amount at the period-begin 365,103,840.00 808,114,351.58 141,629,895.41 -208,017,621.57 0.00 1,106,830,465.42 Amount after adjustment at the 0.00 0.00 0.00 0.00 period-begin Amount at the period-begin after 365,103,840.00 808,114,351.58 141,629,895.41 -208,017,621.57 0.00 1,106,830,465.42 adjustment Increase in the report period 1,613,524.49 6,320,231.82 39,036,607.58 0.00 46,970,363.89 Decrease in the report period 8,472,602.22 3,507,598.73 11,980,200.95 Amount at the period-end 365,103,840.00 809,727,876.07 147,950,127.23 -177,453,616.21 -3,507,598.73 1,141,820,628.36 Reasons for change: Add: Net profit as of year 2004: 39,036,607.58 Less: Allotting statutory surplus reserve 4,833,564.75 Allotting statutory welfare fund 724,967.40 Allotting arbitrary surplus reserve 761,699.67 Allotting employee’s bounty 2,152,370.40 SECTION III. CHANGES IN SHARE CAPITAL AND PATICULARS ABOUT SHAREHOLDERS 1. Change of shares (1) Statement of change in shares Unit: share Increase/decrease of this time (+, -) Before the After the Items Capitalization change Rationed Bonus Additional change of public Others Sub- total share shares issuance reserve I. Unlisted Shares 1. Sponsors’ shares 109,622,592 109,622,592 Including: Shares held by the state 101,628,864 -101,628,864 -101,628,864 0 Shares held by domestic legal person 7,993,728 101,628,864 101,628,864 109,622,592 2. Raised legal person’s shares 56,124,000 56,124,000 Including: Domestic legal person’s shares 56,124,000 56,124,000 Foreign legal person’s shares 0 Total Unlisted shares 165,746,592 165,746,592 II. Listed Shares 1. RMB ordinary shares 72,000,000 72,000,000 Page 6 (Including: shares held by senior 152,400 -128,400 -128,400 24,000 executives) 2. Domestically listed foreign shares 127,357,248 127,357,248 Total Listed shares 199,357,248 199,357,248 III. Total shares 365,103,840 365,103,840 Note: Jiangsu Little Swan Group Co., Ltd. held 101,628,864 non-circulation state-owned shares of the Company, which was changed into non-circulation non-state-owned shares in Shenzhen Securities Registration Company on July 23, 2004. (2) Issuance and listing of shares ① The Company issued neither new shares nor derived securities over the recent three years at the end of the report year. ② In the report period, the total shares and structure of shares remained unchanged. ③ There existed no inner employees’ shares in the Company. 2. About shareholders (1) Ended Dec. 31, 2004, the Company has totally 61,990 shareholders, including 43,960 shareholders of A-share and 18,030 shareholders of B-share. (2) Particulars about shares held by the top ten shareholders Unit: share Increase / Number of Shares held decrease in Propor- share Nature of Full name of Shareholders at the Type of shares the report tion (%) pledged/ shareholders year-end year frozen Jiangsu Little Swan Group Co., Ltd. 0 101,628,864 27.84 Non-circulation Legal person’s share Greater China Development Co., Ltd. 0 26,014,349 7.13 Circulating B-share in circulation Wuxi Industry Development Fund 0 16,496,640 4.52 Non-circulation State-owned share Wuxi City and Town Industrial United Committee 0 7,993,728 2.19 Non-circulation Legal person’s share China Southern Securities Co., Ltd. 0 7,570,900 2.07 Non-circulation 7,570,900 Legal person’s share Xi’an Wanguo Real Estate Development Co., Ltd. 0 4,800,000 1.31 Non-circulation Legal person’s share Shenyang Lianya Industrial Development Co., Ltd. 0 2,160,000 0.59 Non-circulation Legal person’s share Chen Shaoming 606,959 1,643,159 0.45 Circulating B-share in circulation China Construction Bank Dalian Trust Investment Co., Ltd. 0 1,440,000 0.39 Non-circulation Legal person’s share Beijing Liancheng Investment 0 1,440,000 0.39 Non-circulation Legal person’s share Consulting Co., Ltd. Explanation on associated relationship among the top ten shareholders or Among the top ten shareholders as listed above, there exists no associated relationship or consistent action. consistent action (3) Basic information on the controlling shareholder and actual controller: Page 7 ① The controlling shareholder: Jiangsu Little Swan Group Co., Ltd. Legal representative: Mr. Zhu Dekun Date of foundation: Dec. 1995 Registered capital: RMB 387.9776 million Business scope: manufacture and sales of electrical home appliances; production of raw material, subsidiary material, equipment, parts and components; consultation of economy and financing, agency service, technical service of electrical home appliances. ② Particulars about the actual controller: Name: Yan Xiaoqun Nationality: the People’s Republic of China (obtained no other right of residence of other country or area) Particulars about his post over recent five year: CEO of Nanjing SVT Group ③ In the report period, the controlling shareholder and the actual controller of the Company remained unchanged. ④ the property right and controlling relationship among the controlling shareholder, the actual controller of the Company and the Company is as follows: Yan Wuxi State-owned Assets Xiaoqun Administration 80% Commission Xi’an Tongyou Technology Investment Co. 94% 17.78% Nanjing VST Group Co. 24.38% 57.84% Jiangsu Little Swan Group Co. 27.84% Wuxi Little Swan Co., Ltd. Page 8 (4) Particulars about legal person’s shareholder holding over 10% shares of the Company In the report period, the Company had no other legal person’s shareholder holding over 10% shares of the Company. (5) Particulars about shares held by the top ten shareholders of circulation share at the end of report period (Unit: share) Number of circulation Name of shareholder Type share at the year-end GREATER CHINA DEVELOPMENT 26,014,349 B-share in circulation CO., LTD. CHEN SHAO MING 1,643,159 B-share in circulation HUANG YING HUI 1,015,900 B-share in circulation SHANGHAI (HK) WANGUO 567,386 B-share in circulation SECURITIES JIANG YUE HAU 488,100 B-share in circulation FANG WEN JING 390,000 B-share in circulation JIANG XU 390,000 B-share in circulation LI YU TIAN 388,000 B-share in circulation BEAR, STEARNS SECURITIES B-share in circulation 430,000 CORPORA TION WANG JUN GANG 376,900 B-share in circulation The Company is unknown whether there exists associated relationship among shareholders of circulation share. SECTION IV. DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES 1. Directors, supervisors and senior executives (1) Basic information Holding Holding Reason for Office Name Title Gender Age shares at the shares at the change term year-begin year-end Apr. 2004- Li Shisheng Chairman of the Board Male 51 Jul. 2006 Vice Chairman of the Apr. 2004- Gu Qun Female 42 Board Jul. 2006 Apr. 2004- Chai Xinjian Director, GM Male 42 Jul. 2006 Liang Apr. 2004- Director Male 49 Bingcong Jul. 2006 Jul. 2003- Li Guodong Director Male 57 Jul. 2006 Peng Jul. 2003- Director Male 48 Zhouhong Jul. 2006 Jul. 2003- Lv Wei Independent Director Male 42 Jul. 2006 Jul. 2003- Yang Jiaye Independent Director Male 69 Jul. 2006 Page 9 Jul. 2003- Zhang Aimin Independent Director Male 40 Jul. 2006 Chen Chairman of the Dec. 2004- Female 60 Yanmeng Supervisory Committee Jul. 2006 Zhang Jul. 2003- Supervisor Male 59 24000 24000 Zhizheng Jul. 2006 Jul. 2003- Ma Jun Supervisor Male 34 Jul. 2006 Secretary of the Board Jul. 2003- Qiao Li Male 45 of Director Jul. 2006 Deputy General Jul. 2003- Li Hong Male 42 Manager Jul. 2006 Mao Deputy General Jul. 2003- Male 48 Zhiliang Manager Jul. 2006 Sep. 2004- Bian Yanglin Chief Financial Officer Male 44 Jul. 2006 Particulars about directors and supervisors holding the post in Shareholding Company Whether draw the Name of Shareholding Title in Shareholding Name Office term reward and Company Company subsidy or not Jiangsu Little Swan Group Chairman of the Board Sep. 1, 2003 Li Shisheng Co., Ltd. and concurrently vice Yes to now President Jiangsu Little Swan Group Sep. 1, 2003 Gu Qun Vice-president No Co., Ltd. to now Chen Jiangsu Little Swan Group Jan. 1, 2003 President assistance No Yanmeng Co., Ltd. to now Jiangsu Little Swan Group Chief director of Jun. 1, 2004 Ma Jun Yes Co., Ltd. trademark department to now Wuxi Industry Developing General Manager of Jun. 1, 1998 Li Guodong Yes Funds operation department to now Peng South Securities Co., Ltd. General Manager of Jan. 1, 1993 Yes Zhouhong Internal Auditing Dept. to now (2) Main work experience or part-time job of present directors, supervisors and senior executives: Directors: Mr. Li Shisheng, male, the Han nationality, aged 51 with bachelor degree, now is in charge of deputy chairman of the Board of the Company and concurrently vice president of Jiangsu Little Swan Group Co., Ltd.. He ever took the post of technician of Zhenjiang Marine Engine Factory of MOC, factory director of the 2nd branch factory of Nanjing Line Material Factory of MOH and CEO of Nanjing management headquarter of Nanjing SVT Group. Deputy chairman of the Board: Ms. Gu Qun, female, the Han nationality, aged 42 with bachelor degree, now is deputy chairman of the Board and concurrently vice president of Jiangsu Little Swan Page 10 Group Co., Ltd.. She ever took the post of section chief of financing office of Chengbei branch of Nanjing Agricultural Bank, deputy director of international business department of Nanjing Agricultural Bank and general manager of Nanjing Port Import & Export Co., Ltd.. Director and general manager: Mr. Chai Xinjian, Doctor, male, the Han nationality, aged 42 with doctor degree, now is in charge of general manager of the Company. He ever took the post of chief director of technology center and standing deputy general manager of Wuxi Little Swan Co., Ltd.. Directors: Mr. Liang Bingcong, male with 49 ages, has business management master degree of the Chinese University of Hong Kong. He ever took the post of executive director of Hong Kong Xinhua Group and administrative president of UK Taylor Teaco Co., Ltd.. He is now in charge of Investment Manager Company of Guotai Treasure and concurrently director of several project company which Guotai Treasure participating the investment in China. Mr. Peng Zhouhong, male, the Han nationality, aged 48 with MBA, ever took the post of Director Researcher of Newland Securities Investment Consultants Co. and Deputy General Manager of Investment Bank in Southern Securities Co., Ltd., and now is in charge of general manager of internal auditing department of Southern Securities Co., Ltd.. Mr. Li Guodong, male, the Han nationality, aged 57 with bachelor, ever took the post of investment minister and manager of credit department of Wuxi State-owned Assets Investment Developing Headquarter. He is now in charge of manager of capital operation department of Wuxi Guolian Group. Independent directors: Mr. Yang Jiaye, male, the Han nationality, aged 69 with bachelor degree, a senior engineer, ever took the post of teacher of Light Industry Institute of Beijing, deputy director of the 2nd light industry research center of Beijing and president of China Electric Home Appliances, and now is in charge of senior consular of China Electric Home Appliances research institute. Mr. Lv Wei, male, the Han nationality, aged 42 with doctor degree of economic management of Shanghai Fudan University. He is now in charge of vice president of management institute of Shanghai Jiaotong University and independent director of Shanghao Jinqiao Co., Ltd.. Mr. Zhang Aimin, male, the Han nationality, assistant professor of accounting with 40 ages, is now in charge of section chief of account department and concurrently chief director of accounting Department of Huazhong University of Science and Technology and director of Shanghai Yuanda Company. Chairman of the Supervisory Committee: Ms. Chen Yanmeng, female, the Han nationality, aged 60 with bachelor degree, is now in charge of president assistance of Jiangsu Little Swan Group Co., Ltd.. She Page 11 ever took the post of chief justice of Court of Nanshan District, Wuxi and presiding judge of Wuxi intermediate People’s court. Supervisors: Mr. Zhang Zhili, male, the Han nationality, aged 59 with bachelor degree, an engineer, ever took the post of chief director of product department of Wuxi Washing Machine Factory, chairman of labor union of Wuxi Little Swan Electric Industry Company and director and deputy general manager of BSW. He is now in charge of deputy general manager of Wuxi Panasonic Refrigerator Compressor Co., Ltd.. Mr. Ma Jun, male, the Han nationality, aged 34 with bachelor degree, ever took the post of service department manager of Wuxi Little Swan Sales Company and general manager of Jiangsu Little Swan Marketing Co., Ltd.. He is now in charge of minister of trademark department of Jiangsu Little Swan Group Co., Ltd.. Senior executives: Mr. Qiao Li, male, the Han nationality, aged 45 with junior college degree, ever took the post of manager of Wuxi Espal Electronic Co., Ltd. and general manager of Wuxi Little Swan Import and Export Co., Ltd.. He is now in charge of deputy general manager and secretary of the Board of the Company. Mr. Li Hong, male, Doctor, the Han nationality, aged 42 with doctor degree, ever took the post of assistant professor of Nanjing University of Science and Technology and now is in charge of deputy general manager of the Company. Mr. Mao Zhiliang, male, the Han nationality, aged 48 with master degree, ever took the post of deputy general manager of BSW and now is in charge of deputy general manager of the Company. Mr. Bian Yanglin, male, the Han nationality, aged 44 with bachelor degree, an accountant, ever took the post of plant manager assistance of Jiangsu Sheyang Textile Plant, deputy section director of account department of Hainan province Textile Industry Headquarter and deputy general manager of Jiangsu Haodi Industry Co., Ltd.. He is now in charge of financial chief supervisor of the Company. (3) About remuneration of directors, supervisors and senior executives In the Company’s 11th meeting of the 4th Board of Directors, the 2004 annual remuneration of General Manager were determined; the annual remuneration of the other senior executives was determined performance evaluation method of the Company; the allowance of independent director and the work subsidy of the non-executive director were determined by the Board of Directors. Total annual remuneration RMB 4,240,000 Total annual remuneration of the top three RMB 2,380,000 directors drawing the highest payment Total annual remuneration of the top three senior RMB 1,920,000 executives drawing the highest payment Allowance of independent director RMB 50,000 per person/year for independent director, while RMB 20,000 per person/ year for non-independent director Other treatment of independent directors The Company reimbursed the reasonable charges Page 12 according to the actual situation, which independent directors attended the meeting of the Board, shareholders’ general meeting or exercise their functions and powers in accordance with Company Law. Name of directors and supervisors receiving no Gu Qun and Chen Yanmeng payment or allowance from the Company Payment Number of persons RMB 200,000 ～ RMB 500,000 6 RMB 500,000- RMB 900,0000 1 RMB 900,000- RMB 1,500,000 1 (4) Change of directors, supervisors and senior executives ① Change of directors In the 9th meeting of the 4th Board of Directors held on Mar.26, 2004, examined and approved Proposal on Three Directors Presenting Application for Resignation and Proposal on Changing directors, agreed Mr. Zhu Dekun, chairman of the Board, Mr. Ou Shiyu, the vice chairman of the Board, and director Mr. Xu Zhonghui respectively presenting to resign the office of chairman of the Board, vice chairman of the Board and director, and recommended Mr. Li Shisheng, Ms. Gu Qun and Mr. Chai Xinjian as the directors of the 4th Board of Directors. The 1st 2004 provisional shareholders’ general meeting of the Company held on Apr. 27, 2004 has approved this change. The 12th meeting of the 4th Board of Directors of the Company has elected Mr. Li Shisheng as chairman of the Board and Ms. Gu Qun as vice chairman of the Board. In the 11th meeting of the 4th Board of Directors held on Apr. 23, 2004, examined and approved Proposal on Director Presenting Application for Resignation and Proposal on Recommending director, agreed director Mr. Paul Wolansky to resign the office of director, and named Mr. Liang Bingcong as the director of the 4th Board of Directors. The 2003 annual shareholders’ general meeting of the Company held on Jun. 28, 2004 has approved this change. ② Change of supervisor In the 3rd meeting of the 4th Supervisory Committee held on Oct. 26, 2004, examined and approved Proposal on Ms. Jiang Lanzhen Resigning the Posts of Chairman of the Supervisory Committee and Supervisor and Proposal on Recommending Ms. Chen Yanmeng as Supervisor of the Company, the 2nd provisional shareholders’ general meeting for 2004 held on Dec.13, 2004 has examined and approved these proposals, later in the 4th meeting of the 4th Supervisory Committee has elected Ms. Chen Yanmeng as chairman of the Supervisory Committee. ③ Change of senior executives In the 12th meeting of the 4th Board of Directors held on Sep.30, 2004, examined and approved Proposal on Financial Chief Supervisor Presenting Application for Resignation and Proposal on Changing Financial Chief Supervisor, agreed Mr. Chen Zhimin to resign the post of Financial Chief Supervisor of the Company and Mr. Bian Yanglin to take the post of Financial Chief Supervisor of the Company. 2. About employees Type Total number Proportions (%) Page 13 Production personnel 675 68.46% Technician 73 7.40% Financial personnel 9 0.91% Administrative personnel 71 7.20% Service personnel 56 5.68% Retirees 391 39.66% *Others 57 5.78% Total 1332 Among them, 14 persons hold master degree or over; 70 persons hold bachelor degree, 97 persons hold associate degree, 84 persons graduated from secondary specialized school, 74 persons graduated from secondary technical school, 262 persons graduated from senior high school; 212 persons graduated from junior high school or below. The Company needs to bear the expenses of 391 retirees. * Note: Other personnel include post-waiting personnel, early retirement personnel and change-job personnel, etc. SECTION VI. ADMINISTRATIVE STRUCTURE I. Company structure The Company normally carried out its operation strictly in accordance with the relevant laws and regulations of the PRC Company Law, the Securities Law, Administration Rule of Listed Company, Guidance Opinion on Establishing Independent Director in Listed Company and Regulation Opinion of the Shareholders’ General Meeting, unceasingly perfected the structure of legal person’s administration. According to the relevant laws and regulations, amended the Articles of Association and made it more standard and reasonable. The operation of the Company in 2004, the Company standardized the action of the Company according to the related laws and regulations made by the relevant company, strictly implemented Administration Rule of Listed Company, actually protected the interests of middle and small shareholders, The actual administration of the Company attained to requirements of normative documents about administration of listed companies promulgated by CSRC. 1. About shareholders and Shareholders’ General Meeting: the Company practically safeguard the interests of the medium and small shareholders, and ensures all shareholders to enjoy their full rights in accordance with the relevant standards Standardized Opinion for Shareholders’ General Meeting of Listed Company and Articles of Association of the Company. The Company established the Rule of Procedure of Shareholders’ General Meeting, guaranteed that all shareholders had the right for expressing their opinions and suggestion in the shareholders’ general meeting and fully exerted the right for voting of the shareholder. 2. About Directors and the Board: the Company elected Directors Strictly according to the Director Election and Engagement proceedings regulated by the Articles of the Association, and the numbers and personnel composition of the Board accorded with Page 14 the requirements of laws and regulations. Every director attended the Board meeting and Shareholders’ General Meeting seriously and responsibly, attended actively the relevant training actively, familiarized the relevant laws and regulations, and comprehended the rights, duties, and responsibilities of directors; the Company had 3 independent directors. 3. About supervisors and the Supervisory Committee: the numbers and personnel composition of the Supervisory Committee of the Company accorded with the requirements of laws and regulations; the Supervisory Committee of the Company set up procedure rules of the Supervisory Committee; the supervisors of the Company fulfilled their duties, in the spirit of being responsible for the shareholders, and conducted the finance of the Company and regularity and lawfulness, and produced the independent opinions. 4. About the relationship between the controlling shareholder and listed company: the conducts of controlling shareholders were normative and did not interfere the decision and operating activities of listed companies directly and indirectly surpassing the Shareholders’ General Meeting; the Company and controlling shareholder has managed “five independence” in personnel, assets, finance, organization and business; the Board, the Supervisory Committee and internal organizations can operate independently. 5. About Achievements Assessment and Encouragement Binding Mechanism: the engagement and deposition of senior executives of the Company was in accordance with laws and regulations and the relevant regulations of Articles of Association. The Company would further perfect achievement assessment and encouragement and binging mechanism of directors, supervisors and senior executives. 6. About relevant interest party: the Company can respect and protect the legal rights and interests of the bank and other creditors, employees and consumers other relevant interest parties. 7. About information disclosure and transparency: the Company designated securities department to be responsible for the information disclosure and reception the visit and consult of Shareholders; strictly according to the regulations of laws, regulations and the Articles of the Association the Company disclosed the relevant information in true, correct, complete and timely manner to ensure the equal chance for all shareholders to acquire information; the Company can disclosed the details of principal shareholders’ equity and change of share equity in accordance with the relevant regulations. II. Performance of the Independent Directors The Company had 3 independent directors, reaching to one third of 9 total directors of the Board of Directors of the Company. The three independent directors fulfilled the duties of independent directors seriously, attended the Board of Directors and the shareholders general meeting on time and expressed the independent opinion on such related transactions and significant events. 1. Particulars about the independent director attending the Board of Directors: Page 15 Name of Times of this Presence in Entrusted Absence independent year attending person presence Note (times) directors (times) (times) (times) Yang Jiaye 17 17 0 0 Lv Wei 17 16 1 0 Zhang Ai’min 17 17 0 0 III. Particulars about the Company’s “Five Separations” from the first largest Shareholder in Respect of Business, Personnel, Assets, Organization and Finance (1) In respect of personnel, in terms of labor, personnel and salary management, the Company and the controlling company are independent each other, there existed no mixed operation and management between the Company and the controlling shareholder. General manager, deputy general manager, financial chief supervisor and secretary of the Board, etc, senior executives had not taken any post barring director in shareholder unit respectively. (2) In respect of assets, there was the clear property right relationship between the Company and the controlling shareholder. (3) In respect of organization, the Company has set up the organization with independent, there existed no cooperate office with the controlling shareholder. (4) In respect of finance: the Company owned independent financial department, established independent accounting system and financial management system, opened independent bank account, paid tax in line with laws, the use of capital was not interfered by the controlling shareholder. (5) In respect of business, the Company owned independent and integrated business system and operation capacity; was completely separate from the controlling shareholder in business. Meanwhile, due to change of the controlling shareholder of the Company, there still existed competition in same trade between the Company and its subsidiaries and the controlling shareholders and its subsidiaries, the Company will continue to improvement at full steam IV. Performance valuation and encouragement mechanism for senior executives The selection, evaluation and encouragement of the senior executives of the Company were implemented according to the relevant regulations of the Company Law, the Articles of the Association and Working Rules of Nomination and Salary Evaluation. The Company established comprehensive management system based on KPI, continued to perfect the annual salary closely linked the Company’s operating achievements, and Salary Committee proposed and the Board decided, effectively improved responsibility and work enthusiasm of the whole management personnel. SECTION VI. BRIEF INTRODUCTION TO SHAREHOLDERS’ GENERAL MEETING In the report period, the Company held totally 3times of shareholders’ general Page 16 meetings. The details are as follows: I. The 2003 Shareholders’ General Meeting (I) Notification, Convening and Holding of 2003 Annual Shareholders’ General Meeting The Board of Directors of the Company released notification of holding the 2003 Annual Shareholders’ General Meeting on May 27, 2004, which were published Securities Times, Securities Times and Hong Kong Ta Kung Pao of that day. The 2003 Annual Shareholders’ General Meeting was held in 301 meeting room of the Company, No.67, Huiqian Road, Wuxi City at 9:00 am on Jun. 28, 2004. 9 shareholders (including shareholders’ proxies) attended the meeting, representing 135,520,789 shares (including 26,276,925 B shares), taking 37.12% of the total shares with voting right amounting to 365,103.840 shares (II) The resolutions of the meeting and the disclosure 1. Examined and approved Annual Report 2003 of the Company and 2003 Report Summary; 2. Examined and approved Work Report of the Board 2003; 3. Examined and approved Work Report of the Supervisory Committee 2003; 4. Examined and approved Financial Settlement Report 2003; 5. Examined and approved Proposal on 2003 Profit Distribution; 6. Examined and approved Proposal on Permission of Jiangsu Little Swan using the little swan trademark; 7. Examined and approved Proposal on changing directors; 8. Examined and approved Proposal on confirming the allowance of independent director of this session and the 2004 work subsidy of non-executive director; 9. Examined and approved Proposal on Amending the Articles of the Association; The public notice on resolutions of 2003 Shareholders’ General Meeting was published on China Securities, Securities Times and Ta Kung Pao dated Jun. 29, 2004. (III). Election and change of directors and supervisors of the Company Due to Mr. Paul Wolansky resigning the post of director of the Company, the Meeting examined Mr Liang Bingcong to take the post of director of the 4th Board of Directors. II. The 1st provisional shareholders’ general meeting of 2004 (I) Notification, Convening and Holding of the 1st provisional shareholders’ general meeting of 2004 The Board of Directors of the Company released notification of holding the 1st Provisional Shareholders’ General Meeting of 2004 on Mar. 27, 2004, which were published Securities Times, Securities Times and Hong Kong Ta Kung Pao of that day. The 1st Provisional Shareholders’ General Meeting of 2004 was held in 208 meeting room of the Company, No.67, Huiqian Road, Wuxi City at 9:00 am on Apr. 27, 2004. 7 shareholders and shareholders’ proxies attended the meeting, representing Page 17 135,304,113 shares (including 26,014,349 B shares), taking 37.06% of the total shares with voting right amounting to 365,103.840 shares (II) The resolutions of the meeting and the disclosure The Meeting examined and approved Proposal on Changing Directors. (III). Election and change of directors and supervisors of the Company In the 9th meeting of the 4th Board of Directors, Mr. Zhu Dekun, chairman of the Board, Mr. Ou Shiyu, the vice chairman of the Board, and director Mr. Xu Zhonghui respectively resigned the office of chairman of the Board, vice chairman of the Board and director, and elected Mr. Li Shisheng, Ms. Gu Qun and Mr. Chai Xinjian as the directors of the 4th Board of Directors through examining and approving by this Shareholders’ General Meeting. III. The 2nd provisional shareholders’ general meeting of 2004 (I) Notification, Convening and Holding of the 2nd provisional shareholders’ general meeting of 2004 The Board of Directors of the Company released notification of holding the 2nd Provisional Shareholders’ General Meeting of 2004 on Nov. 12, 2004, which were published Securities Times, Securities Times and Hong Kong Ta Kung Pao of that day. The 2nd Provisional Shareholders’ General Meeting of 2004 was held in 208 meeting room of the Company, No.67, Huiqian Road, Wuxi City at 9:00 am on Dec. 13, 2004. The Meeting was convened by the Board of Directors and was presided by chairman of the Board Mr. Li Shisheng. 4 shareholders and shareholders’ proxies attended the meeting, representing 135,371,113 shares (including 26,171,349 B shares), taking 37.08% of the total shares with voting right amounting to 365,103.840 shares. Of which, 2 non-circulating shareholder proxy, taking up 109,199,764shares, 2 circulating shareholders and proxy, taking up 26,171,349 shares. (II) The resolutions of the meeting and the disclosure 1. Examined and approved proposal on 2004 related transaction; 2. Examined and approved proposal on engaging the CPAs; 3. Examined and approved proposal on amendment of Articles of Association; 4. Examined and approved the Shareholders’ general meeting ‘s authorization on investment and external guarantee; 5. Examined and approved proposal on authoring chairman of the Board to exert part of duties of the Board of Directors during prorogue of the Board of Directors; 6. Examined and approved proposal on increase of capital for Little Swan Marketing Company; 7. Examined and approved proposal on changing supervisors. (III) Election and change of directors and supervisors of the Company Ms. Jiang Lanzhen, supervisor of the Company, resigned the posts of chairman of the Supervisory Committee and supervisor of the Company due to work so as to this Meeting examined and approved Ms. Chen Yanmeng as supervisor of the 4th Superviosry Committee of the Company. Page 18 SECTION VII. REPORT OF THE BOARD OF DIRECTORS 1. Operation of the Company (1) Industry and status The Company is mainly engaged in the production and sales of white household electric appliance and accessories and fittings and has a famous brand of China “Little Swan”. In 2004, evaluated by the authorities, the brand value was RMB 7.632 billion. In 2004, the Company sold totally washing machines of 2756487 sets and refrigerators of 233639 sets. (2) Scope of core business and operation The core business of the Company is production and sales of household electric appliance and accessories and fittings etc. and technology service. In 2004, the income from core business was RMB 2,422,932,700 and the profit from core business was RMB 462,086,600. a. Statement of main operations classified according to industries (RMB’0000) Industries Income from main Cost of main Gross profit ratio operations operations (%) Manufacture of daily 191,476.20 151,583.3 20.83 electric appliances Manufacture of 14,902.65 14,557.71 2.31 casting Other industries 35,914.42 29,943.61 16.63 b. Statement of main operations classified according to products (RMB’0000) Industries or Income from main Cost of main Gross profit ratio products operations operations (%) Washing machine 162,828.89 128,425.70 21.13 Electric engines 10,926.43 9,619.70 11.96 Refrigerators 25,484.66 20,100.74 21.13 Casting 14,902.65 14,557.71 2.31 Air-conditioners 3,162.64 3,056.86 3.35 Other 24,988.00 20,323.91 18.67 c. Statement of main operations classified according to areas (RMB’0000) Areas Income from main operations Inland of China 194667.74 Overseas 47625.53 Total 242293.27 (3) Operations of main wholly-owned affiliated enterprises and holding subsidiaries Wuxi Little Swan Precision Casting Co., Ltd., which is a holding subsidiary of the Company, a limited company, is mainly engaged in the production and sales of iron precision casting products represented by cold compressors and iron precision casting used in cars with registered capital amounting to RMB 5.8 million. This company realized sales income of RMB 149,026,500 and created profits of RMB –14,737,700 in 2004 with total assets amounting to RMB 152,767,900 million. Wuxi Feilin Electronic Co., Ltd., which is a holding subsidiary of the Company, a limited company, is mainly engaged in the development of software products and development and production of new electronic components etc. with registered capital Page 19 amounting to USD 1.80 million. This company realized sales income of RMB 179,519,900 and created profits of RMB 9,956,900 in 2004 with total assets amounting to RMB 156,815,100 million. Jiangsu Little Swan Sanjiang Electric Appliance Co., Ltd., which is a holding subsidiary of the Company, a limited company, is mainly engaged in the sales of hardware, alternating current and accessories of household appliances etc. with registered capital amounting to RMB 14.8 million. This company realized sales income of RMB 132,403,100 and created profits of RMB 12,052,100 in 2004 with total assets amounting to RMB 236,764,100. Wuxi Little Swan Huayin Electric Appliance Co., Ltd., which is a holding subsidiary of the Company, a Sino-foreign joint venture, is mainly engaged in the production and sales of electric engines with registered capital amounting to RMB 49,673,400. This company realized sales income of RMB 93,457,600 and created profits of RMB 310,600 in 2004 with total assets amounting to RMB 109,452,400. Jiangsu Little Swan Sales Co., Ltd., which is a holding subsidiary of the Company, a limited company, is mainly engaged in the sales of hardware, alternating current and accessories of household appliances etc. with registered capital amounting to RMB 100 million. This company realized sales income of RMB 1,507,127,300 and incurred a loss of RMB –45,183,900 in 2004 with total assets amounting to RMB 515,017,400. Wuxi Little Swan Export and Import Co., Ltd., which is a holding subsidiary of the Company, a limited company, is mainly engaged in the sales of household appliances for export etc. with registered capital amounting to RMB 65 million. This company realized sales income of RMB 476,255,300 and created profits of RMB 1,057,600 in 2004 with total assets amounting to RMB 217,094,500. (4) Main suppliers and customers Unit: RMB’0000 Total amount of purchase of Proportion in the total 62,385.46 34.11% the top five suppliers amount of purchase Total amount of sales of the Proportion in the total 39,638.34 16.36% top five sales customers amount of sales (5) Problems and difficulties from the operation and their solutions Due to sustaining increase of the price of raw materials, demand of raw materials exceeding supply, down of the export tax-rebate and adjustment pressure of the Company’s products in the market, the Company needed to adopt the active and effective measures in order to bring the Company’s existing advantages into full play; collected the purchasing and enhanced the Company’s bargaining capability; dug the internal potential of the Company in full, strengthened control of every cost; developed the innovation spirit in full, actively developed new products and Page 20 continually satisfied the demands of consumers. 2. Financial status The change of main financial indexes and reason in the report period: (1) The change of main financial indexes in the report period: Unit: RMB’0000 Items In 2004 In 2003 Total assets 311,721.48 307,906.34 Long-term liabilities 106.81 106.81 Shareholders’ equity 114,182.06 110,683.05 Profit from core business 45,644.45 52,165.85 Net profit 3,903.66 3,599.03 Net increase of cash and cash -22,435.65 28,155.86 equivalents Summary why the Company’s cash flow is negative 1. Due to the influence of macro- control and tension of money market in 2004, in order to ensure the market share of the Company’s products, the Company properly broadened the requirements that the clients paid notes, which cause the notes and storage increase. 2. Due to the influence of supply and demand of raw materials in 2004, the Company actively used financial leverage, and at the same time, enlarged the proportion of payment in cash to supplier, and shortened the payment period in order to restrict markup requirement from supplier and reduce the purchasing cost of the Company. 3. Investment (1) Application of raised proceeds The proceeds raised through A shares offering in 1997 has been used up legally, which was stated in the report of the Board of Directors in 2001. At present, the Company has no any new raised proceeds. (2) Application of proceeds not raised through share offering The Company held the 24th meeting of the 4th Board of Directors on Dec. 29, 2004, in which examined and approved the proposal on establishing Wuxi Yidaixi Household Appliances Co., Ltd. by means of share-holding. The Company decided that the Company invested and established Wuxi Yidaixi Household Appliances Co., Ltd. together with Merloni Ariston International S.A. with the registered capital of USD 13.6 million, of which the Company invested USD 4.08 million by the owned cash, taking 30% equity, and Merloni Ariston International S.A. invested USD 9.52 million by cash, taking 70% equity. Wuxi Yidaixi Household Appliances Co., Ltd. is engaged in production and sales of appliance dishwasher including its accessories, which satisfied the demand in the international market. It is estimated that the output is 32000 sets in 2005, and all was used for export. 4. Important influence of change of operating environment, macro-policies and regulations on the Company Page 21 In 2004, the State strengthened the control for the macroeconomy, export tax rebate rate was down, the total level of ex-factory price of industry products increased by 6.1% over the last year; the retail price of commodities increased by 2.8%; purchasing price of raw materials, fuel and power increased by 11.4%. In 2004, the competition in the industry of household electric appliance was much more intensified; the whole operation environment further worsened. Data indicated: comparing the price purchased by the enterprises of household electric appliance in Oct. 2004 with the year 2003, the price of steels increased by 70%, the price of plastic increased by 73.9%, the price of copper materials increased by RMB 1600 per ton. For the industry of washing machine, the pressure of cost increased obviously, thus, the Company’s space of making profit was down and operation pressure and risk were sharpening. 5. In the 3rd quarter of 2004, the Company estimated the operating achievement of the Company was payoff in 2003. 6. Business development plan of the new year In 2005, the Company insisted on the operation policy of “seeking development with renovation”, which took market as the guidance and enhancement of brand as objection, and strengthened and enlarge the main business of washing machine through the international cooperation. The main measures were as follows: 1) To take market as the guidance, seize two large markets of domestic market and overseas market and international cooperation; conduct the full-scale cooperation with the global’s manufacturer of household electric appliance through launching initiatively, develop the joint purchasing of accessories and conducted full-scale cooperation of open domestic market and overseas market such as jointly develop, manufacture and sell the combination machine and etc.. 2) To insist on the renovation idea and quicken development of new products; know and hold the market tendency timely, unify the design style of products, reduce design cost, enhance design quality and advance standardization degree; reinforce the protection of the Company’s intellectual property, combine middle- and long-term development project with short-term development project; import DFSS development instrument step by step; perfect the checking system of project; intensify the examination of design plans, and design and develop products demanded by the market in order to satisfy consumers. 3) To strengthen management. With reducing cost as center, keep improving in production, make the budget better, strengthen the control, increase benefit, carry through the idea of people oriented in order to reach the purpose of improving the work efficiency, emphasize the speed of decision-making and implementation, sparkplug the cooperation and information communication among each department, elevate management talent without stick to one pattern, be clear about the responsibility and celerity response; improve the detail quality of every link in the valuation links; reduce the cost, import management accounting system and scientific Page 22 decision-making, quicken the information construction, perfect network construction and introduce the bar codes information system of accessories and enhance the efficiency of labor production. 4) To further standardize the operating of enterprises, strengthen information disclosure work and reinforce the management of investor relationship. 7. Routine work of the Board of Directors (1) Meetings and resolutions of the Board of Directors in the report period In the report period, the Board of Directors of the Company totally held 17 meetings (form the 8th meeting to the 24th meeting of the 4th Board of Directors) with details as follows: 1) The 8th Meeting of the 4th Board of Directors of the Company was held on Feb. 28, 2004 by means of communications, in which examined and passed proposal on agreeing loan of the subsidiary and providing the loan guarantee by the Company for it as follows: The Company agreed that the subsidiary----Wuxi Little Swan Precision Casting Co., Ltd. borrowed a loan without exceeding RMB 10 million from Beitang Sub-branch, Wuxi Branch of Bank of China, and provided the guarantee for the it. 2) The 9th Meeting of the 4th Board of Directors of the Company was held at the meeting room on 2/F of Shanghai International Airport Hotel on Mar. 26, 2004. Nine directors should be present and actually seven of them attended the Meeting, another two directors authorized others to exercise vote right on behalf of them. Directors attending the meeting passed the following resolutions via seriously discussion: a. Examined and approved the Proposal on Resignations Put forward by Three Directors Respectively; b. Examined and approved the Proposal on Changing Directors of the Company; c. Examined and approved the Proposal on Holding the Extraordinary Shareholders’ General Meeting; d. The Board of Directors decided to hold the 1st Extraordinary Shareholders’ General Meeting for 2004 on Apr. 27, 2004. The public notice on resolutions of this meeting was published on China Securities, Securities Times and Ta Kung Pao dated Mar. 27, 2004. 3) The 10th Meeting of the 4th Board of Directors of the Company was held on Apr. 15, 2004 by means of communications, in which examined and passed proposal the following resolutions: a. Examined the Proposal on Adjusting Investment Proportion of Little Swan Processing Base for Export Products; In the 6th meeting of the 4th Board of Directors of the Company, the Board examined and approved the proposal on investing and setting up Little Swan processing base for export products. “Little Swan Processing Base for Export Products” mainly produced the big volume tumble washing machine demanded by GE Company; this project was invested RMB 56 million in total with the registered capital of RMB 28 million; Page 23 originally, Wuxi Little Swan Co., Ltd. invested RMB 27.72 million, taking 99% equity and Wuxi Feiling Electronic Co., Ltd. invested RMB 0.28 million, taking 1% equity. While the name of this project was approved in advance, Wuxi Industrial and Commercial Bureau proposed that the investment proportion of the largest shareholder was not exceed 95%, thus, the investment proportion of this project was adjusted as: Wuxi Little Swan Co., Ltd. invested RMB 26.6 million, taking 95% equity; while Wuxi Feiling Electronic Co., Ltd. invested RMB 1.4 million, taking 5% equity. The other matters remained unchanged. b. Examined and approved the Proposal on Investing and Establishing Wuxi Little Swan Dishwasher Co., Ltd.; The Company planned to invest and establish Wuxi Little Swan Dishwasher Co., Ltd. together with Wuxi Guolian Investment Company. This company planned to take the special equipment of dishwasher held by Wuxi Little Swan Co., Ltd. as the assets with registered capital of RMB 61.5 million, of which Wuxi Guolian Investment Company acquired 51% of this special equipment of dishwasher by the cash and took this as investment for new company, taking 51% equity of new company; Wuxi Little Swan Co., Ltd. took 49% of this special equipment of dishwasher held by it as investment for new company, taking 49% equity of new company. 4) The 11th Meeting of the 4th Board of Directors of the Company was held in Wuxi on Apr. 23, 2004. Mr. Zhu Dekun, Chairman of the Board, presided over the meeting. Nine directors should be present and actually seven of them attended the Meeting, another one director authorized the other director to exercise vote right on his behalf. Directors attending the meeting passed the following resolutions via seriously discussion: a. Work Report 2003 of General Manager; b. Financial Settlement Report 2003; c. Profit Distribution Plan 2003; d. Work Report 2003 of the Board of Directors; e. Annual Report 2003 and its Summary f. Proposal on Appling for Canceling Special Treatment for Stock Transaction g. Proposal on the Resignation Put Forward by Director; h. Proposal on Nominating Director; i. Proposal on Undertaking Losses of Little Swan Sales Co., Ltd.; j. Proposal on Adjusting Accounts in line with the Actual due to Reserve for Bad Debts of Accounts Receivable; k. Proposal on Determining the Annual Remuneration of General Manager and Senior Executives in 2004; l. Proposal on Agreeing Jiangsu Little Swan Group Company to Use the Trademark of “Little Swan” The public notice on resolutions of this meeting was published on China Securities, Securities Times and Ta Kung Pao dated Apr. 23, 2004. Page 24 The 12th Meeting of the 4th Board of Directors of the Company was held in Wuxi on Apr. 27, 2004. Mr. Li Shisheng presided over the meeting. Nine directors should be present and actually six of them attended the Meeting, another three directors authorized the other directors to exercise vote right on the behalf of them. Directors attending the meeting passed the following resolutions via seriously discussion: a. Elected Mr. Li Shisheng as Chairman of the Board of the Company; b. Elected Ms. Gu Qun as Vice Chairman of the Board of the Company; c. Examined and approved Proposal on the 1st Quarterly Report; d. Examined and approved Proposal on Determining Work Subsidy of Non-executive Director. The public notice on resolutions of this meeting was published on China Securities, Securities Times and Ta Kung Pao dated Apr. 29, 2004. 6) The 13th Meeting of the 4th Board of Directors of the Company was held on Apr. 29, 2004 by means of communications, in which examined and passed proposal the following resolutions: a. Passed the Correcting Public Notice of Annual Report 2003; b. Passed the Plan on Adjusting 2003 Profit Distribution. The public notice on resolutions of this meeting was published on China Securities, Securities Times and Ta Kung Pao dated May 10, 2004. 7) The Provisional Meeting of the 4th Board of Directors of the Company was held on May 14, 2004 by means of communications, in which examined and passed proposal on confirming the accumulative line of guarantee provided by the Company to the subsidiaries in 2004. The accumulative line of guarantee provided by the Company to the subsidiaries was RMB 243,831,000 in 2004. In course of transaction, the Board authorized the Chairman of the Board to subscribe the relevant files. 8) The 15th Meeting of the 4th Board of Directors of the Company was held on May 26, 2004 by means of communications. All directors participated in the voting, the meeting examined and approved the following proposals: a. Examined and approved the Proposal on Revising the Articles of Association of the Company; b. Examined and approved the Proposal on Holding the 2003 Shareholders’ General Meeting. The public notice on resolutions of this meeting was published on China Securities, Securities Times and Ta Kung Pao dated May 27, 2004. 9) The 16th Meeting of the 4th Board of Directors of the Company was held on Jun. 3, 2004 by means of communications with examined and approved proposal on Page 25 adjusting the sales amount of dishwashers equipment. The Company adjusted the sales amount of dishwasher equipment sold by the Company to Wuxi Little Swan Dishwasher co., Ltd. into RMB 53,931,600. 10) The 17th Meeting of the 4th Board of Directors of the Company was held on Jul. 20, 2004 by means of communications, in which examined and approved the following proposals: a. Examined and approved the Proposal on Related Transaction for 2004. The public notice on resolutions of this meeting was published on China Securities, Securities Times and Ta Kung Pao dated Jul. 22, 2004. 11) The 18th Meeting of the 4th Board of Directors of the Company was held on Jul. 26, 2004 by means of communications, in which examined and approved the following proposals: a. Examined and approved the Proposal on Providing a Guarantee for Jiangsu Little Swan Sanjiang Electric Appliance Manufacture Co., Ltd.. The Board agreed that the Company provided the guarantee for a loan of Jiangsu Little Swan Sanjiang Electric Appliance Manufacture Co., Ltd. with the accumulative guarantee line amounting to RMB 30 million. In course of transaction, the Board authorized the Chairman of the Board to subscribe the relevant files. b. Examined and approved the Proposal on Providing a Guarantee for Wuxi Little Swan Huayin Electric Appliance Co., Ltd.. The Board agreed that the Company provided the guarantee for a loan of Wuxi Little Swan Huayin Electric Appliance Co., Ltd. with the accumulative guarantee line amounting to RMB 8 million. In course of transaction, the Board authorized the Chairman of the Board to subscribe the relevant files. 12) The 19th Meeting of the 4th Board of Directors of the Company was held on Aug. 18, 2004 by means of communications, in which examined and approved the following proposals: a. Examined and approved the Proposal on Undertaking all Losses for Little Swan Sales Co., Ltd.; b. Examined and approved Semi-annual Report 2004 and its Summary. The public notice on resolutions of this meeting was published on China Securities, Securities Times and Ta Kung Pao dated Aug. 20, 2004. 13) The 20th Meeting of the 4th Board of Directors of the Company was held on Sep. 30, 2004 by means of communications, in which examined and approved the following proposals: a. Examined and approved the Proposal on Resigning of CFO; b. Examined and approved the Proposal on Changing CFO of the Company. The public notice on resolutions of this meeting was published on China Securities, Securities Times and Ta Kung Pao dated Oct. 9, 2004. Page 26 14) The 21st Meeting of the 4th Board of Directors of the Company was held on Oct. 15, 2004 by means of communications, in which examined and approved the following proposals: a. Examined and approved the Proposal on Engaging Certified Public Accountants; b. Examined and approved the Proposal on Amending the Articles of Association of the Company; c. Examined and approved the Proposal on Management System of Investors Relationship; d. Examined and approved the Proposal on Submitting Shareholders’ General Meeting to Authorize the Board of Directors on Investment and External Guarantee; e. Examined and approved the Proposal on Authorizing Chairman of the Board to Exercise the Partial Rights of the Board of Directors in the course of closing meeting. The public notice on resolutions of this meeting was published on China Securities, Securities Times and Ta Kung Pao dated Oct. 19, 2004. 15) The 22nd Meeting of the 4th Board of Directors of the Company was held on Oct. 26, 2004 by means of communications in which examined and approved Proposal on the 3rd Quarterly Report of the Company: a. Examined and approved the Proposal on the 3rd Quarterly Report of the Company. The public notice on resolutions of this meeting was published on China Securities, Securities Times and Ta Kung Pao dated Oct. 28, 2004. 16) The 23rd Meeting of the 4th Board of Directors of the Company was held on Nov. 9, 2004 by means of communications. All directors participated in the voting, the meeting examined and approved the following proposals: a. Examined and approved the Proposal on Receiving the Equity of Little Swan Sales Co., Ltd.; b. Examined and approved the Proposal on Increasing Investment to Little Swan Sales Co., Ltd.; c. Examined and approved the Proposal on Holding the 2nd Extraordinary Shareholders’ General Meeting for 2004. The public notice on resolutions of this meeting was published on China Securities, Securities Times and Ta Kung Pao dated Nov. 12, 2004. 17) The 24th Meeting of the 4th Board of Directors of the Company was held on Dec. 29, 2004 by means of communications, in which examined and approved the following proposals: a. Examined and approved the Proposal on Acquiring 51% equity of Wuxi Little Swan Dishwasher Co., Ltd. held by Guolian; The Company and Wuxi Little Swan Import and Export Co., Ltd. (the controlling company of the Company) respectively acquired 46% equity and 5% equity of Wuxi Page 27 Little Swan Dishwasher Co., Ltd. held by Wuxi Guolian Development (Group) Co., Ltd. with cash of RMB 28.06 million and cash of RMB 3.05 million. After acquirement, the Company and Wuxi Little Swan Import and Export Co., Ltd. held 95% equity and 5% equity of Wuxi Little Swan Dishwasher Co., Ltd. respectively. b. Examined and approved the Proposal on Share-holing and Establishing Wuxi Yidaixi Household Appliances Co., Ltd.. The Company decided that the Company invested and established Wuxi Yidaixi Household Appliances Co., Ltd. together with Merloni Ariston International S.A. with the registered capital of USD 13.6 million, of which the Company invested USD 4.08 million by the owned cash, taking 30% equity, and Merloni Ariston International S.A. invested USD 9.52 million by cash, taking 70% equity. c. Examined and approved the Proposal on Selling Assets of Wuxi Little Swan Dishwasher Co., Ltd. to Wuxi Yidaixi Household Appliances Co., Ltd. by the Company The Company decided to sell the dishwasher equipment held by Wuxi Little Swan Dishwasher Co., Ltd. with the price no less than net book value to Wuxi Yidaixi Household Appliances Co., Ltd.. (2) Implementation of the Board of Directors on the resolutions of Shareholders’ General Meeting In the report period, the Board of Directors of the Company has seriously implemented all resolutions of the Shareholders’ General Meeting and has timely accomplished all tasks from the Shareholders’ General Meeting. 8. 2004 Profit Distribution Preplan Audited by Shanghai Shu Lun Pan Certified Public Accountants as per Chinese accounting principles, profit for distribution in consolidated accounting statements of 2004 was RMB –176,691,916.54 and profit for distribution in accounting statements of parent company was RMB –108,448,416.31; Audited by Horwath Certified Public Accountants as per international accounting principles, profit for distribution of the Company was RMB –188,133,162.00. According to the Company Law and regulations of accounting system, the Company planned to use capital reserve amounting to RMB 108,488.31 for making up losses. 9. In the report period, the newspapers designated by the Company for information disclosure were China Securities, Securities Times and Ta Kung Pao, and the website designated by the Company for information disclosure was http://www.cninfo.com.cn. 10. Special explanation of certified public accountants on capital occupied by the related parties of Little Swan Company Special Explanation on Capital Occupied by the Controlling Shareholder and Other Related Parties of Wuxi Little Swan Company Limited in 2004 Page 28 To all shareholders of Wuxi Little Swan Company Limited: Accepting the commission, we have conducted non-operating capital current and external guarantee between the Company and related parties as audited of Wuxi Little Swan Company Limited (Hereinafter referred to as Little Swan Company) ended Dec. 31, 2004. Our inspection is conducted according to relevant requirements of ZJF [2003] No. 56 Circular on Standardizing Capital Current between Listed Companies and Related Parties and External Guarantees and Other Some Problems promulgated by China Securities Regulatory and Supervision Commission and State-owned Assets Supervision Administration Commission (hereinafter referred to as “No. 56 Document”), and Jiangsu Securities Inspection Bureau. The responsibility of the Company is to provide all true, legal and complete materials relevant to capital occupation and external guarantee, including accounting warrants and books, accounting statements, relevant practicality evidence and other information necessary in our opinion. Our responsibility is to conduct relevant investigation and verification, and present special explanation on capital current between the Company and its related parties according to the provisions in the said No. 56 Document. During the investigation and verification, we have implemented such inspection procedures necessary in our opinion as consulting relevant materials, accounting warrants, checking up accounting book records and etc.. Now the auditing is explained as follows: I. Non-operating capital current between the Company and related parties in 2004: (I) Non-operating capital current between the Company and related parties in 2004: Item Related parties Balance in the Accumulative Accumulative Balance in the Monthly Note year beginning debit amount credit in the period end average (RMB’0000) in the year year (RMB’0000) occupation (debit/credit -) (RMB’0000) (RMB’0000) (debit/credit -) amount (RMB’0000) (debit/credit -) Other Jiansu Little Swan Note 1 1,680.71 760.73 1,630.00 811.44 1,422.42 Receivables Group Co., Ltd. Other Wuxi Little Swan Note 2 Receivables Central 67.60 160.80 100.84 127.56 113.08 Air-conditioner Co., Ltd. Other Wuxi Little Swan Note 3 1,136.73 235.00 274.34 1,097.39 1,117.01 Receivables Dryer Co., Ltd. Other Wuxi Little Swan Note 4 0 1,051.23 1,198.06 -146.83 -29.15 Receivables Kitchen Co., Ltd. Other Wuxi Little Note 5 Receivables Household 8.31 4,506.79 4,490.46 24.64 16.40 Electrical Appliance Co., Ltd. Other Wuxi Little Swan Note 6 Receivables Jiangbo Mould Precision Machine 0 2,721.21 2,073.89 647.32 637.89 Manufacturing Co., Ltd. Other Wuxi Little Swan Note 7 10.56 14.43 0.79 24.20 16.60 Receivables Transportation Co., Page 29 Ltd. Other Wuxi Little Swan Note 8 Receivables Hubin Washing 0 0 0 0 0 Co., Ltd. Other Wuxi Little Swan Note 9 Receivables Washing Investment 199.09 0 0 199.09 199.09 Management Co., Ltd. Other Wuxi Little Swan Note 10 1,225.44 231.33 298.12 1,158.65 1,236.55 Receivables Ceramic Co., Ltd. Other Wuxi Little Note 11 Receivables Swan-Merlonic 9,612.16 1,072.52 1,398.52 9,286.16 10,412.80 Dish-washer Co., Ltd. Other Wuxi Little Swan Note 12 37.89 0 12.41 25.48 32.25 Receivables Sale Co., Ltd. Other Wuxi Little Swan Note 13 Receivables Refrigeration 4,435.22 0 0 4,435.22 4,435.22 Appliances Co., Ltd. Other Wuxi Little Swan Note 14 Receivables Tian’ai Electric 2,317.42 0 125.62 2,191.80 2,233.67 Appliances Co., Ltd. Other Wuxi Little Swan Note 15 Receivables Dish-washer Co., 0 291.76 6.65 285.11 54.62 Ltd. Other Wuxi Lifanda Note 16 Receivables Appliances Co., 633.40 189.89 0 823.29 696.70 Ltd. Other BSW Household Note 17 Receivables Appliances Co., 2,455.88 0 230.14 2,225.74 2,379.17 Ltd. Other Wuxi Little Swan Note 18 Receivables Mobile 0 4,000.00 4,011.20 -11.20 1,037.47 Telecommunication Co., Ltd. Other TOSHIBA Note 19 Receivables Washing-machine 238.14 1,850.88 1,263.52 825.50 410.19 (Wuxi) Co., Ltd. Total 24,058.55 16,204.58 15,484.56 23,097.86 Note 1: It was the principal shareholder of the Company. In the report period, debit current amount was RMB 7607300 and credit amount was called back amounting to RMB 16.3 million. Note 2: It was related party of principal shareholder. In the report period, in the debit item, the Company paid expenditures for water and electricity amounting to RMB 599,600, leasing expense amounting to RMB 1001700, sale of accessories amounting to RMB 6800 in advance. The leasing expenses and sale of accessories receivables were called back in the period. Note 3: It was related party of principal shareholder. In the report period, in the credit item, the Company should pay purchasing payment amounting to RMB 2743400 to Page 30 Wuxi Little Swan Dryer Co., Ltd. and in the debit item, the Company returned RMB 2.35 million. Note 4: It was related party of principal shareholder. In the report period, in the debit item, the Company had called back all temporary borrowing amounting to RMB 10 million, and sporadic sales amounting to RMB 281700, had not drawn back expenses for water and electricity amounting to RMB 41400, and the Company purchased fix assets from it amounting to RMB 1509700. Note 5: It was related party of principal shareholder. In the report period, in the debit item there occurred leasing expenses amounting to RMB 167900 and temporary borrowing amounting to RMB 44.9 million. In the report period, the Company had called back all temporary borrowing and sporadic expenses in advance in the credit item. Note 6: It was a controlling subsidiary of the Company not consolidated in statements of the report period. In the report period, there occurred leasing expenses for fixed assets amounting to RMB 1563500, expenses for water and electricity in advance amounting to RMB 386200, temporary borrowing amounting to RMB 2 million, payment in advance amounting to RMB 6772800 in the debit item. The Company called back temporary borrowing amounting to RMB 2 million in the report period. In addition, the Company purchased moulds amounting to RMB 18738900 from it, and paid RMB 16489800. Note 7: It was a controlling subsidiary of the Company not consolidated in statements of the report period. In the report period, the Company should receive leasing expenses amounting to RMB 89400 and current payment amounting to RMB 54100 in the debit item and the Company called back current payment amounting to RMB 7900. Note 8: It was a controlling subsidiary of the Company not consolidated in statements of the report period. There was no current in the report period. Note 9: It was a controlling subsidiary of the Company not consolidated in statements of the report period. There was no current in the report period. Note 10: It was a controlling subsidiary of the Company not consolidated in statements of the report period. There occurred expenses for water and electricity in advance amounting to RMB 2013200 and leasing expenses receivable amounting to RMB 0.3 million in the debit item. The Company called back current payments including expenses for water and electricity and leasing expenses etc. amounting to RMB 2981200. Note 11: It was a controlling subsidiary of the Company not consolidated in statements of the report period. It was in settlement at Jan., 2004. The creditors’ rights and debts were transferred to the Company. The Company received debts amounting to RMB 8114900 and settling expenses amounting to RMB 2610300 transferred in the debit item. The Company received creditor’s rights amounting to RMB 13985200 transferred in the credit item. Note 12: It was a controlling subsidiary of the Company not consolidated in Page 31 statements of the report period. In the report period, there occurred no current in the debit item, but current payment of last year received amounting to RMB 124100 in the credit item. Note 13: It was a controlling subsidiary of the Company not consolidated in statements of the report period. There was no current in the report period. The balance in the period end was carried down from last year. Note 14: It was a controlling subsidiary of the Company not consolidated in statements of the report period. In the report period, there occurred no current in the debit item, but current payment of last year received amounting to RMB 1256200 in the credit item. Note 15: It was a controlling subsidiary of the Company not consolidated in statements of the report period. In the report period, there occurred sales payment receivable amounting to RMB 1705000 (including diesel oil amounting to RMB 9500) and salaries paid in advance amounting to RMB 1212600 in the debit item, and RMB 66500 received in the credit item. Note 16: It was an associate company of the Company. In the report period, there occurred dividends receivable in previous years adjusted amounting to RMB 1898900 in the debit item, and dividends receivable in previous years amounting to RMB 7227100 receivable in balance in the period end. Note 17: It was an associate company of the Company. In the report period, there occurred no current in the debit item, but the Company received current payment of last year carried down amounting to RMB 2301500 in the credit item. Note 18: It was an associate company of the Company. In the report period, there occurred payment in advance amounting to RMB 40 million in the debit item, and RMB 40112000 received in the credit item. Note 19: It was an associate company of the Company. In the report period, there occurred leasing expenses receivable amounting to RMB 208100, sales receivable amounting to RMB 18284000, and payment for water and electricity in advance receivable amounting to RMB 16700 in the debit item, leasing expenses amounting to RMB 225400, sales amounting to RMB 12385600, and payment for water and electricity amounting to RMB 24200 received in the credit item Note: Explain reason for occurrence of non-operating current item by item. (II) Non-operating capital current between the Company and controlling subsidiaries Item Related Balance in the Accumulative Accumulative Balance in the Monthly Note parties year beginning debit amount credit in the period end average (RMB’0000) in the year year (RMB’0000) occupation (debit/credit -) (RMB’0000) (RMB’0000) (debit/credit -) amount (RMB’0000) (debit/credit -) Other Wuxi Little Note 1 Receivables Swan -202.51 0 0 -202.51 0 Advertisement Company Other Wuxi Little Note 2 Receivables Swan 223.17 1,015.72 1,089.39 149.50 175.99 Property Construction Page 32 Development Co., Ltd. Other Wuxi Little Note 3 Receivables Swan Sutai Clearing 239.39 1,906.96 1,350.00 796.35 700.65 Machine Co., Ltd. Other Wuxi Little Note 4 Receivables Swan Fuji Clear 420.93 7,246.45 7,184.07 483.31 444.50 Equipments Co., Ltd. Other Wuxi Little Note 5 Receivables Swan Precision 520.07 201.10 205.09 516.08 518.84 Casting Co., Ltd. Other Wuxi Little Note 6 Receivables Swan General Electrical 0 2,806.69 23.22 2,783.47 1,863.39 Appliances Co., Ltd. Total 1,201.05 13,176.92 9,851.77 4,526.20 Note 1: It was a controlling subsidiary of the Company (2004 consolidation scope of statements). In this year, there occurred no current and balance the period end was carried down from last year. Note 2: This company is the controlling subsidiary of Wuxi Little Swan Co., Ltd. (the consolidated scope of the statement for 2004); the receivable at the year-begin was dividend receivable and funds in advance. In accordance with the agreement of three parties dated June 25, 2003, Wuxi Little Swan Merloni Dishwasher owed Wuxi Little Swan Real Estate Construction Development Co., Ltd., and Wuxi Little Swan Real Estate Construction Development Co., Ltd. owed Wuxi Little Swan Co., Ltd., whenas Wuxi Little Swan Merloni Dishwasher Co., Ltd. directly offset the debts of Wuxi Little Swan Co., Ltd. owed by Wuxi Little Swan Real Estate Construction Development Co., Ltd. with the fixed assets of RMB 9,130,300 and intangible assets of RMB 1,763,600 after evaluation and confirmation, thus, adjusted and wrote off the said fixed assets and intangible assets amounting to RMB 10,156,500 provisionally estimated into the account in the previous year in debit, while supplementarily withdrew and offset real estate receivable of RMB 10,893,900 in credit. In the report period, the receivable of RMB 737,400 at the period-begin was reduced in credit. Note 3: It was a controlling subsidiary of the Company (2004 consolidation scope of statements). There occurred expenses for water and electricity in advance amounting to RMB 569600 and temporary borrowing amounting to RMB 18.5 million in the debit item, and temporary borrowing called back amounting to RMB 13.5 million in the credit item. Note 4: It was a controlling subsidiary of the Company (2004 consolidation scope of statements). There occurred expenses for water and electricity in advance amounting to RMB 119600 and temporary borrowing amounting to RMB 72.3 million, sporadic sales payment amounting to RMB 44900 in the debit item, and temporary borrowing Page 33 amounting to RMB 71798300 and sales payment amounting to RMB 2050900 recieved in the credit item. Note 5: It was a controlling subsidiary of the Company (2004 consolidation scope of statements). There occurred sales payment amounting to RMB 2011000 in the debit item and RMB 2050900 received in the credit item. Note 6: It was a newly-increased controlling subsidiary of the Company. There occurred equipments payment paid in advance and other current payments in the debit item and RMB 232200 received in the credit item in the report period. Note: Controlling subsidiaries listed in statement (III) were offset in the consolidated statements. (III) Capital current between Wuxi Little Swan Property Construction Development Co., Ltd. and controlling shareholder and other related parties were as follows: 1. Jiangsu Little Swan Group Co., Ltd. Item Related Balance in the Accumulative Accumulative Balance in the Monthly Note parties year beginning debit amount credit in the period end average (RMB’0000) in the year year (RMB’0000) occupation (debit/credit -) (RMB’0000) (RMB’0000) (debit/credit -) amount (RMB’0000) (debit/credit -) Other Jiangsu Little Receivables Swan Group 110.31 850.02 863.54 96.79 676.43 Co., Ltd. Prepaid Jiangsu Little accounts Swan Group 2,937.00 0 2,937.00 0 2,814.63 Co., Ltd. Notes Jiangsu Little receivable Swan Group 0 3,418.58 296.49 3,122.09 130.09 Co., Ltd. In the report period, there occurred temporary borrowing amounting to RMB 8500200 of Little Swan Group in the debit side of other receivables, and temporary borrowing amounting to RMB 8500200 and partial payment in advance in last year received in the credit item, and balance in the year end amounting to RMB 967900. Prepaid accounts in the year beginning amounting to RMB 29.37 million were land payment for purchasing Wuxi new district in advance for Little Swan Group Co., Ltd.. In the report period, Little Swan Group had paid the total amount in the form of note, and the Company recorded in the debit side of notes receivable. After deducting land payment in advance called back, the debit amount of notes receivables was temporary borrowing of Little Swan Group in other receivables in the report period amounting to RMB 4815800, of which, RMB 2964900 were drawn back as recorded in the credit side. Balance in the period end included land payment in advance receivable amounting to RMB 29.37 million and temporary borrowing amounting to RMB 1850900. 2. Little Swan (Jinzhou) Electrical Appliance Co., Ltd. Item Related Balance in the Accumulative Accumulative Balance in the Monthly Note parties year debit amount credit in the period end average beginning in the year year (RMB’0000) occupation (RMB’0000) (RMB’0000) (RMB’0000) (debit/credit -) amount (debit/credit -) (RMB’0000) (debit/credit Page 34 -) Other Little Swan Receivables (Jinzhou) Electrical 0 1,000.00 1,000.00 0 500 Appliance Co., Ltd. Notes Little Swan receivable (Jinzhou) Electrical 0 1,000.00 0 1,000.00 500 Appliance Co., Ltd. Little Swan (Jinzhou) Electrical Appliance Co., Ltd. was a subsidiary of principal shareholder. There occurred temporary borrowing amounting to RMB 10 million in the credit side of other receivables. At the period-end, the Company received in the form of note and recorded it into notes receivable. (IV) Non-operating capital current between Wuxi Little Swan Sales Co., Ltd. and controlling shareholder, Jiangsu Little Swan Group Co., Ltd. were as follows: Item Related Balance in the Accumulative Accumulative Balance in the Monthly Note parties year beginning debit amount credit in the period end average (RMB’0000) in the year year (RMB’0000) occupation (debit/credit -) (RMB’0000) (RMB’0000) (debit/credit -) amount (RMB’0000) (debit/credit -) Other Jiangsu Little Receivables Swan Group -8.31 133.50 64.41 62.78 27.24 Co., Ltd. This year there occurred expenses paid in advance amounting to RMB 1335000 by Little Swan Sales Company for Jiangsu Little Swan Group Co., Ltd. in the debit side of other accounts receivable, RMB 644100 in the credit side. (V) Non-operating capital current between Wuxi Little Swan Advertisements Co., Ltd. and controlling shareholder, Jiangsu Little Swan Group Co., Ltd. were as follows: Item Related Balance in the Accumulative Accumulative Balance in the Monthly Note parties year beginning debit amount credit in the period end average (RMB’0000) in the year year (RMB’0000) occupation (debit/credit -) (RMB’0000) (RMB’0000) (debit/credit -) amount (RMB’0000) (debit/credit -) Other Jiangsu Little Receivables Swan Group 12.95 0 0 12.95 12.95 Co., Ltd. There occurred no credit and debit current. (VI) Capital occupation returned by related parties with non-currency capital Except that Wuxi Little Swan Property Construction Development Co., Ltd. cancelled out debts with fixed assets and intangible assets according to the agreement, there found no other related parties paying back capital occupation with non-currency capital. (VII) Conclusion As said above, we believed except non-operating capital current existing between Wuxi Little Swan Co., Ltd. and controlling shareholder and other related parties, we didn’t find the Company provided entrusted loan to related parties through bank or non-bank financial institutions; entrusted its related parties to conduct investment Page 35 activities; and opened trade acceptances without true transaction background for its related parties. 11. Opinions issued by Independent Directors of the Company about external guarantee As independent directors of the Company, in down-to-earth principle, we conducted serious inspection on external guarantee of the Company, now presented the following opinions: 1. Ended Dec. 31, 2004, the balance of external guarantee of the Company was RMB 264.99 million, taking 23.21%of net assets, with a decrease of RMB 286692500 over the period end of 2003 by 52%; balance of guarantee out of line was RMB 205.49 million, with a decrease of RMB 302692500 over the period end of 2003 by 59.56%. 2. Ended Dec. 31, 2004, the guarantee provided for controlling shareholder, Jiangsu Little Swan Group Co., Ltd. by the Company was RMB 10 million, with a decrease of RMB 226422000 over the end of 2003; guarantee provided for Wuxi Lifangda Electrical Appliances Co., Ltd. (of which the Company holding 42% equity), of which the Company held less than 50% equity, was RMB 3.5 million, same with that of last year. With respect to guarantee amounting to RMB 10 million provided for controlling shareholder, the Company would remove it at the expiration date. The details of guarantee out of line were disclosed in China Securities News, Securities Times, and Hong Kong TA Kung Pao on Apr. 9, 2005. 3. Ended Dec. 31, 2004,the debt guarantee p directly and indirectly provided by the Company for the guaranteed, of which the debt ratio surpassed 70% was RMB 191.99 million, with a decrease of RMB 69268500 over 2003 by 26.51%. The above guarantee out of line belonged to the guarantee provided for controlling subsidiaries of the Company, and renewal for due loan on-lending of controlling subsidiaries. 4. In 2004, pursuant to the relevant requirements of ZJF[2003] No. 56 Document, the Company revised Articles of the Association. 5. According to the regulations of Listed Rules and Articles of the Association, the Company fulfilled information disclosure obligations, and disclosed external guarantee in a true way. Independent Directors: Yanh Jiaye, Lv Wei, Zhang Aimin Apr. 18, 2005 Section VIII. Report of the Supervisory Committee I. Meetings held by the Supervisory Committee In the report period, meetings held by the Supervisory Committee totaled three. 1. The 2nd meeting of the 4th Supervisory Committee of Wuxi Little Swan Co., Ltd. was held at 11 am. on Apr. 23, 2004 in Wuxi. The meeting examined and unanimously approved the Work Report 2003 of the Supervisory Committee, and prudently examined and deliberated the proposals passed at the 11th meeting of the 4th Board of Page 36 Directors of the Company. For more details, please refer to China Securities, Securities Times and Hong Kong Ta Kung Pao dated Apr. 23, 2004. 2. On Oct. 26, 2004, the 3rd meeting of the 4th Supervisory Committee of Wuxi Little Swan Co., Ltd. was held through communication. The meeting examined and approved the following proposals: (1) Examined and approved the proposal on Ms. Jiang Lanzhen’s resignation from the positions of Chairman of the Supervisory Committee, and supervisor of the Company. Due to work reason, Chairman of the Supervisory Committee of the Company Ms. Jiang Lanzhen had asked to resign from the posts of Chairman of the Supervisory Committee and supervisor of the Company. (2) Examined and approved the proposal on recommending supervisors. Since supervisor Ms. Jiang Lanzhen had asked to resign from the positions of Chairman of the Supervisory Committee and supervisor, now the Supervisory Committee had nominated Ms. Chen Yanmeng as the supervisor candidate of the 4th Supervisory Committee of the Company. This proposal would be submitted to the Shareholders’ General Meeting of the Company for examination. For more details, please refer to China Securities, Securities Times and Hong Kong Ta Kung Pao dated Oct. 28, 2004. (3) On Dec. 13, 2004, the 4th meeting of the 4th Supervisory Committee of Wuxi Little Swan Co., Ltd. was held in the Company. 3 supervisors should attend, and actually all 3 had attended. The meeting had approved the proposal on election of the Chairman of the Supervisory Committee, and supervisors present at the meeting unanimously voted Ms. Chen Yanmeng Chairman of the Supervisory Committee of the Company. For more details, please refer to China Securities, Securities Times and Hong Kong Ta Kung Pao dated Dec. 14, 2004. II. Opinions of the Supervisory Committee In the report period, according to the provisions in Company Law of the P.R.C. and the Articles of Association of the Company, all members in the Supervisory Committee of the Company had implemented their supervision duties and functions devotedly in the operating activities of the Company and had formed the following opinions through a series of supervision and examination activities: 1. In the report period, the decision-making procedures of the Company had been fully in compliance with the state laws and regulations, and a relatively perfect internal control system had been established. When performing their duties of the Company, the Company’s directors and senior administrative personnel had no behaviors disobeying the laws and regulations and the Articles of Association or doing harm to the interests of the Company. 2.Shu Lun Pan Certified Public Accountants Co., Ltd. (the domestic auditor) and Hong Kong Horwath Certified Public Accountants (the overseas auditor) had both audited the Financial Report 2004 of the Company, and furnished standard Page 37 unqualified Auditors’ Reports. The Supervisory Committee believed that these auditing opinions had been objective and fair, and the Financial Report of this year had truly reflected the Company’s financial status and operation achievements. 3. The transaction prices of the purchases and sales of assets made by the Company in the report period had been reasonable, and no insider dealings had ever been discovered, nor had cases occurred which would do harm to the rights and interests of the shareholders or lead to the loss of the Company’s assets. 4. In the report period, there had been related transactions with related parties. The transaction prices had been fair and square, and impartial. No harm had ever been done to the rights and interests of non-related shareholders or the interests of the Listed Company. Section IX. Significant Events I. The Company had no significant lawsuits or arbitrations in the report period. II. The Company had no purchases or sales of assets, takeovers or mergers in the report period. III. Important related transactions 1. On the 11th meeting of the 4th Board of Directors of the Company held on Apr. 23, 2004, the proposal on permitting Little Swan Group Company to use the Little Swan trademark had been examined and approved. For details, please refer to the notifications on the resolutions of the Board of Directors published in China Securities, Securities Times and Hong Kong Ta Kung Pao dated Apr. 27, 2004, as well as the notifications on related transactions published on Apr. 29, 2004. 2. On the 17th meeting of the 4th Board of Directors of the Company held on Jul. 20, 2004, the proposal on the related transactions of 2004 had been examined and approved. The meeting had permitted the Company to make fixed-brand purchase of full automatic double-tub washing machines from Ningbo Little Swan. It was estimated that the purchase amount would not be exceeding RMB 250 million. For details, please refer to notifications on related transactions published in China Securities, Securities Times and Hong Kong Ta Kung Pao dated Jul., 23, 2004. 3. On the 23rd meeting of the 4th Board of Directors of the Company held on Nov. 9, 2004, the proposal on accepting the equity of Little Swan Sales Company. The Company had decided to accept the 33% equity of Little Swan Sales Company held by Jiangsu Little Swan Group Co., Ltd. and the 6% equity of Little Swan Sales Company held by Wuxi Little Swan Boerka Air-Conditioner Co., Ltd. at the price of zero. Resolutions of this meeting had been published in China Securities, Securities Times and Hong Kong Ta Kung Pao dated Nov. 12, 2004. 4. As to other related transactions, please refer to the Financial Report. IV. Important contracts of the Company needed to be disclosed in the report period: Page 38 1. In the report period, the Company had no entrustment, contracting or leasing. 2. Important guarantees: Unit: RMB’0000 External guarantees of the Company (excluding guarantees for holding subsidiaries) Name of the guarantee Happening date (the Guarantee Guarantee Accomplished For related day the agreement amount term or not party or was signed) not Wuxi Little Swan Nov. 15, 2004 500.00 Nov. 15, 2004 – No Yes Household Appliances Co., May 15, 2005 Ltd. Wuxi Little Swan Dec. 30, 2004 500.00 Dec. 30, 2004 – No Yes Household Appliances Co., Jun. 30, 2005 Ltd. Wuxi Lifanda Electric Jun. 28, 2004 150.00 Jun. 28, 2004 – No Yes Appliances Co., Ltd. Jun. 28, 2005 Wuxi Lifanda Electric Mar., 24, 2004 200.00 Mar. 24, 2004 – No Yes Appliances Co., Ltd. Mar. 24, 2005 Total amount of the guarantees occurred in the report period 26,999.00 Total balance of the guarantees at the end of the report period 26,499.00 Guarantees the Company had provided to holding subsidiaries Total amount of guarantees provided to holding subsidiaries in the 25,149.00 report period Total balance of guarantees provided to holding subsidiaries at the end 25,149.00 of the report period Total guarantee amount of the Company (including guarantees for holding subsidiaries) Total guarantee amount 26,499.00 Proportion the total guarantee amount took up the net assets of the 23.21% Company Irregular guarantees of the Company Amount of the guarantees for holding shareholders and other related 1,350.00 parties of which the Company held less than 50% equity Debt guarantee provided directly or indirectly to guarantees with a 19,199.00 assets-liability ratio exceeding 70% The total guarantee amount exceeding 50% of net assets or not No Total irregular guarantee amount 20,549.00 1) Wuxi Filin Electronics Co., Ltd., a subsidiary the Company held 51% equity, provided two RMB-5-million guarantees, totaling RMB 10 million, for Wuxi Little Swan Household Appliances Co., Ltd., a subsidiary of the Company’s holding shareholder. These guarantees belonged to irregular guarantees, and the Company would end them right on the expiration day. 2) The guarantee the Company had provided the subsidiary Wuxi Lifanda Electric Appliances Co., Ltd. (the Company held 42% equity) actually totaled RMB 3.5 million in 2003, and in 2004 a renewal guarantee amount of RMB 3.5 million. As to the aforesaid two irregular guarantees, the Company had already made them known to the outside. Please refer to notifications published in China Securities, Securities Times and Hong Kong Ta Kung Pao dated Apr. 9, 2005. 3. The Company had not entrusted others with assets management. V. Neither the Company nor shareholders holding more than 5% had made any commitments in the report period. VI. Engagement of Certified Public Accountants by the Company On Dec. 13, 2004, the 2nd Provisional Shareholders’ General Meeting of 2004 Page 39 approved the proposal on engaging Certified Public Accountants. Shu Lun Pan Certified Public Accountants Co., Ltd was engaged as the domestic auditor for 2004, while Hong Kong Horwath Certified Public Accountants as the international auditor for 2004. Auditing fees for 2004 totaled RMB 1.3 million. VII. Penalty received by the Company, the Board or directors: The Company, the Board and directors had not been inspected by or received administrative penalty or circulating criticism from CSRC, nor had them ever been criticized publicly by Shenzhen Stock Exchange. VIII. Other important events 1. Changes occurred to the directors: For details, please refer to IV. Changes of directors, supervisors and senior administrative personnel in the report period in Section IV. 2. Amendments to the Articles of Association: For details, please refer to part of the contents in I. Shareholders’ General Meeting 2004 and II. The 2nd Provisional Shareholders’ General Meeting of 2004 contained in Section VII. Briefs on the Shareholders’ General Meeting. Section X. Financial Report See the attachements Section X. Documents Available for Reference 1. Annual report carrying the signature of Chairman of the Board; 2. Accounting Statements carrying the signatures and seals of legal representative, chief financial supervisor and person in charge of accounting; 3. Originals of Auditors’ Report carrying the seal of Certified Public Accountants as well as signatures and seals of certified public accountants. 4. Originals of all documents and manuscripts of public notices ever disclosed on China Securities, Securities Times, and Hong Kong Ta Kung Pao. Board of Directors of Wuxi Little Swan Company Limited Apr. 18, 2005 Page 40 AUDITORS’ REPORT TO THE SHAREHOLDERS OF WUXI LITTLE SWAN COMPANY LIMITED (Incorporated in the People’s Republic of China with limited liability) We have audited the financial statements on pages 2 to 41 which have been prepared in accordance with International Financial Reporting Standards. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The Company’s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. BASIS OF OPINION We conducted our audit in accordance with International Standards on Auditing. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion. OPINION In our opinion the financial statements give a true and fair view of the state of affairs of the Group as at 31 December 2004 and of its profit and cash flows for the year then ended. HORWATH HONG KONG CPA LIMITED 2001 Central Plaza Certified Public Accountants 18 Harbour Road Wanchai 18 April 2005 Hong Kong Chan Kam Wing, Clement Practising Certificate number P02038 Page 41 WUXI LITTLE SWAN COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 (Expressed in Renminbi thousands) 2004 2003 Notes RMB’000 RMB’000 Sales 4 Continuing operation 2,434,613 2,807,163 Discontinued operation 5 - 94,037 2,434,613 2,901,200 Cost of sales (1,976,209) (2,283,487) Gross profit 458,404 617,713 Other revenue 48,670 - Distribution costs (347,832) (390,638) Administrative expenses (112,467) (114,826) Provision for bad and doubtful debts (15,338) (12,252) Provision for inventory obsolescence (11,206) (38,466) Other operating expenses, net (15,195) (36,795) Gain on sale of discontinuing operation 5 - 6,413 Profit from operations 6 5,036 31,149 Finance costs, net 7 (11,885) (23,770) Share of results of associates 41,469 46,957 Gain on liquidation of a subsidiary 8 15,649 - Profit before taxation Continuing operation 50,269 40,460 Discontinued operation 5 - 13,876 50,269 54,336 Page 42 WUXI LITTLE SWAN COMPANY LIMITED CONSOLIDATED INCOME STATEMENT (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2004 (Expressed in Renminbi thousands) 2004 2003 Notes RMB’000 RMB’000 Profit before taxation Continuing operation 50,269 40,460 Discontinued operation 5 - 13,876 50,269 54,336 Income tax Continuing operation 14,456 12,356 Discontinued operation 5 - 3,451 10 (14,456) (15,807) Profit before minority interests 35,813 38,529 Minority interests (8,852) (11,567) Net profit for the year 26,961 26,962 Earnings per share 11 - Basic RMB0.07 RMB0.07 - Diluted Not applicable Not applicable The notes on pages 7 to 45 form part of these consolidated financial statements. Page 43 WUXI LITTLE SWAN COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2004 (Expressed in Renminbi thousands) 2004 2003 (Restated) Notes RMB’000 RMB’000 Assets and liabilities Non-current assets Leasehold land 12 65,326 66,511 Property, plant and equipment 13 605,532 675,903 Intangible assets 14 7,644 16,269 Investments in unconsolidated subsidiaries 15 101,487 39,106 Investments in associates 16 195,574 194,050 Available-for-sale investments 17 6,670 8,818 982,233 1,000,657 Current assets Inventories 18 509,091 362,298 Receivables, advances to suppliers and other current assets 19 805,755 735,055 Cash and bank balances 852,448 954,190 2,167,294 2,051,543 Current liabilities Trade and other payables 20 1,230,105 1,215,189 Current tax liabilities 8,800 29,826 Borrowings 21 712,490 635,690 1,951,395 1,880,705 Net current liabilities 215,899 170,838 Total assets less current liabilities brought forward 1,198,132 1,171,495 Page 44 WUXI LITTLE SWAN COMPANY LIMITED CONSOLIDATED BALANCE SHEET (CONTINUED) AS AT 31 DECEMBER 2004 (Expressed in Renminbi thousands) 2004 2003 (Restated) Notes RMB’000 RMB’000 Total assets less current liabilities carried forward 1,198,132 1,171,495 Minority interests (76,510) (76,834) Net assets 1,121,622 1,094,661 Representing: Share capital 22 365,104 365,104 Reserves 23 756,518 729,557 Shareholders’ funds 1,121,622 1,094,661 The financial statements were approved and authorised for issue by the board of directors on 18 April 2005 Director Director The notes on pages 9 to 41 form part of these consolidated financial statements. Page 45 WUXI LITTLE SWAN COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2004 (Expressed in Renminbi thousands) Reserves Statutory Discretionary Statutory common common public Total Share Share reserve reserve welfare Accumulated shareholders’ capital surplus funds funds funds losses equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 22) (Note 23(a)) (Note 23(b)) (Note 23(a)) (Note 23(c)) Balance at 31 December 2002 - As previously reported 365,104 1,087,895 218,566 204,224 111,027 (921,626) 1,065,190 - Prior year adjustments (Note 27) - - - - - 11,418 11,418 - Adjustment on income appropriations in respect of prior years - - (12,644) - 2,352 10,292 - - As restated 365,104 1,087,895 205,922 204,224 113,379 (899,916) 1,076,608 Termination of subsidiaries - - (5,939) - (2,970) - (8,909) Net profit for the year - - - - - 26,962 26,962 Reserve to offset loss - (299,218) (169,285) (204,224) - 672,727 - Appropriations for the year - - 468 - 54 (522) - Balance at 31 December 2003 365,104 788,677 31,166 - 110,463 (200,749) 1,094,661 Balance at 31 December 2003 - As previously reported 365,104 788,677 42,673 - 107,701 (220,912) 1,083,243 - Prior year adjustments (Note 27) - - - - - 11,418 11,418 - Adjustment on income appropriations in respect of prior years - - (11,507) - 2,762 8,745 - - As restated 365,104 788,677 31,166 - 110,463 (200,749) 1,094,661 Net profit for the year - - - - - 26,961 26,961 Income appropriations - - 4,834 762 725 (6,321) - Balance at 31 December 2004 365,104 788,677 36,000 762 111,188 (180,109) 1,121,622 The notes on pages 9 to 41 form part of these consolidated financial statements. Page 46 WUXI LITTLE SWAN COMPANY LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2004 (Expressed in Renminbi thousands) 2004 2003 RMB’000 RMB’000 Operating activities: Net profit before tax 50,269 54,336 Adjustment for: Depreciation 69,888 82,653 Amortisation of intangible assets 1,656 2,908 Amortisation of leasehold land 2,574 1,345 Provision for bad and doubtful debts 15,338 12,252 Provision for inventory obsolescence 11,206 38,466 Provision for available-for-sale investments 148 1,702 Loss on increase in share of equity in a subsidiary through capital injection 878 - Loss on sale of property, plant and equipment 2,588 5,223 Gain on disposal of discontinuing operation - (6,413) Impairment loss for property, plant and equipment 224 - Interest income (26,091) (16,073) Interest expenses 64,532 40,263 Share of results of associates (41,469) (46,957) Cash flow from operations before changes in working capital: 151,741 169,705 (Increase)/decrease in receivables, advances to suppliers and other current assets (136,858) 198,136 (Increase)/decrease in inventories (157,999) 227,269 Increase/(decrease) in trade and other payables 42,961 (77,686) Cash (used in)/generated from operations (100,155) 517,424 Interest paid (64,532) (40,263) Tax paid (9,242) (77,387) Net cash (used in)/generated from operating activities (173,929) 399,774 Page 47 WUXI LITTLE SWAN COMPANY LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2004 (Expressed in Renminbi thousands) 2004 2003 RMB’000 RMB’000 Investing activities Purchase of property, plant, equipment, intangible assets and leasehold improvement (66,874) (82,369) Acquisition of investments in unconsolidated subsidiaries, investments in associates and other investments (57,950) (5,604) Proceed from disposal of investments in unconsolidated subsidiaries and other investments 4,434 2,644 Receipts of dividend from associates 42,885 19,603 Placement of pledged deposits (125,002) - Interest received 26,091 16,073 Proceed from disposal of property, plant and equipment, and land use rights 56,855 21,601 Disposal of subsidiary, net of cash disposed - 4,483 Net cash used in investing activities (119,561) (23,569) Financing activities Proceeds from borrowings 912,290 895,490 Repayments of borrowings (835,490) (956,090) Dividends paid to group shareholders - (8,993) Dividends paid to minority interests (10,054) (7,678) Increase in minority interest - 7,303 Net cash generated from/(used) in financing activities 66,746 (69,968) Net (decrease)/increase in cash and cash equivalents (226,744) 306,237 Cash and cash equivalents at beginning of year 932,690 626,453 Cash and cash equivalents at end of year 705,946 932,690 Analysis of cash and cash equivalents Cash and bank balances 852,448 954,190 Less : Pledged deposits (146,502) (21,500) 705,946 932,690 The notes on pages 9 to 41 form part of these consolidated financial statements. Page 48 WUXI LITTLE SWAN COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in Renminbi thousands) 1. ORGANISATION AND OPERATIONS Wuxi Little Swan Company Limited (referred to as the Company) was formerly a state-collectively-owned enterprise founded in 1958 in Jiangsu Province of the People’s Republic of China (“PRC”). It was reorganised into a joint stock limited liability company in 1993 and registered in Wuxi, Jiangsu. The registered office of the Company is No.1 Hanjiang Road, National Hi-tech Industrial Development Zone, Jiangsu Province. The Company and its subsidiaries are collectively referred to as the Group. The principle activities of the Group are manufacture and sale of washing machines, refrigerators and other household appliances produced by the subsidiaries of Jiangsu Little Swan Group. The Group’s operating assets are primarily located in the PRC. The directors of the Company confirm Jiangsu Little Swan Group Co., Ltd. (referred to as “JLSG” or the “Holding Company”), a stated-owned enterprise incorporated in the PRC, as its holding company. The Company’s domestic Renminbi ordinary shares (“A share”) and domestic listed foreign investment shares (“ B share”) are listed on the Shenzhen Stock Exchange. 2. PRINCIPAL ACCOUNTING POLICIES (a) Basis of presentation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as published by the International Accounting Standards Board. These consolidated financial statements have been prepared under the historical cost conversion with the exception of fair value measurement of certain financial assets and liabilities and provision of impairment for assets. The Group also prepares consolidated financial statements which comply with accounting regulations in the People’s Republic of China. A reconciliation of the Group’s results and shareholders’ equity under IFRS and PRC accounting regulations is presented in Note 30. The principal accounting policies adopted are as follows: Page 49 WUXI LITTLE SWAN COMPANY LIMITED 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (b) Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its controlled subsidiaries, after elimination of all material intercompany transactions. Subsidiaries are consolidated from the date the Company obtains control until such time as control ceases. Acquisitions of subsidiaries are accounted for using the purchase method of accounting. The financial statements of subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. Adjustments are made to conform any dissimilar material accounting policies that may exist. Minority interest represents the interest in subsidiaries not held by the Group. (c) Subsidiaries Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. Details of the Company’s subsidiaries as of 31 December 2004 are set out in Note [25] to the consolidated financial statements. The results of operations and net assets of certain subsidiary companies are not material to those of the Group, hence, they have been excluded from consolidation. Investments in subsidiaries that are excluded from consolidated financial statements are accounted for by the equity method. Page 50 WUXI LITTLE SWAN COMPANY LIMITED 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (d) Associates Investments in associates are accounted for by the equity method of accounting. Associates are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. In the consolidated balance sheet, investment in associates is stated at the Group’s share of associates’ net assets together with any premium paid on acquisition in so far as it has not been written off or amortised. The consolidated income statement includes the Group’s share of result of its associates for the year. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates. (e) Investments The Group classified its investments in debt and equity securities into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets; for the purpose of these financial statements short term is defined as 3 months. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets; during the period the Group did not hold any investments in this category. 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; 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. Page 51 WUXI LITTLE SWAN COMPANY LIMITED 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (e) Investments (continued) 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. Trading and available-for-sale investments are subsequently carried at fair value. For the available-for-sale investments that have a quoted market price in an active market, the fair value is based on quoted bid prices; for available-for-sale investments that does not have a quoted market price, but the fair value can be reliably determined, the fair value is constructed on the basis of the market price of the similar financial instrument or derived from cash flow models; for available-for-sale investments that the fair value can not be reliably determined, are carried at cost less accumulated impairment loss. Held-to-maturity investments are carried at amortised cost using the effective yield method. Realised and unrealised gains and losses arising from changes in the fair value of trading and available-for-sale investments are included in the consolidated income statement in the period in which they arise. (f) Goodwill Goodwill represents the excess of the cost of acquisition over the fair value of the identifiable net assets of subsidiaries or associate at the date of acquisition. Goodwill is recognised as an asset and is amortised using a systematic basis over an average useful life that benefits are expected to be received. The carrying amount of goodwill is reviewed annually and written down for permanent impairment where it is considered necessary. The gain or loss on disposal of an entity includes the unamortised balance of goodwill relating to that entity. Page 52 WUXI LITTLE SWAN COMPANY LIMITED 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (g) Property, plant and equipment and depreciation Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an asset comprises its purchase price, construction cost and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Depreciation is calculated using the straight-line method to write off the cost, after taken into account the estimated residual value of 3%-10%, of each asset over its expected useful life. The expected useful lives are as follows: Buildings 30-40 years Plant and machinery 5-18 years Equipment and motor vehicles 5-12 years The useful lives of assets and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefit from items of property, plant and equipment. Expenditure incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance and overhaul costs, is recognised as an expense in the year in which it is incurred. In situations where it is probable that an expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset beyond its originally assessed standard of performance, the expenditure is capitalised as an additional cost of the asset. When assets are sold or retired, their costs and accumulated depreciation and accumulated impairment losses are eliminated from the accounts and any gain or loss resulting from their disposal is included in the consolidated income statement. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Page 53 WUXI LITTLE SWAN COMPANY LIMITED 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (h) Construction-in-progress Construction-in-progress represents buildings and plant under construction and machinery and equipment under installation and testing, and is stated at cost. This includes cost of construction, plant and equipment and other direct costs plus borrowing costs which include interest charges and exchange differences arising from foreign currency borrowings used to finance these projects during the construction period, to the extent these are regarded as an adjustment to interest costs. Construction-in-progress is not depreciated until such time as the assets are completed and ready for their intended use. (i) Land use rights Land use rights are stated at cost less accumulated amortisation and any impairment in value. Land use rights are amortised on a straight-line basis over the period of the land use rights. The carrying values of land use rights are reviewed for impairment at each balance sheet date. (j) Intangible assets Intangible assets are measured initially at cost. Intangible assets are recognised only if it is probable that the future economic benefits that are attributable to the assets will flow to the Group; and the cost of the asset can be measured reliably. After initial recognition, intangible assets are measured at cost less accumulated amortisation and any accumulated impairment losses. Intangible assets are amortised on a straight-line basis over the best estimate of their useful lives. The amortisation period and the amortisation method are reviewed periodically to ensure that the method and period of amortisation are consistent with the expected pattern of economic benefits from intangible assets. Page 54 WUXI LITTLE SWAN COMPANY LIMITED 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (k) Research and development costs Research and development costs are expensed as incurred, except for development costs which relate to the design and testing of new or improved materials, products or processes which are recognised as an asset to the extent that it is expected that such assets will generate future economic benefits. Deferred development costs are amortised from the date of commercial production of the product or from the date the process is put into use. Such costs are currently being amortised on a straight-line basis over their useful lives. At each balance sheet date, the Group assesses whether there is any indication of impairment. If any such indication exists, deferred development costs are written down to the estimated recoverable amount. (l) Impairment of long term assets Property, plant and equipment and other non-current assets, including intangible assets, investments in associates and available-for-sale investments are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. The net selling price means the amount acquired under the fair transactions. The value in use means the carrying value of the cash flow in when disposing the assets at the end of usage. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows. (m) Inventories Inventories are stated at the lower of cost and net realisable value. Cost, calculated on the weighted average basis, comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Page 55 WUXI LITTLE SWAN COMPANY LIMITED 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (n) 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. Receivable from related party are carried at cost. (o) Cash and cash equivalents For the purposes of the cash flow statement, cash represents cash on hand and deposits with banks, which can be withdrawn on demand. Cash equivalents represent short-term, highly liquid investments, which are readily convertible into known amounts of cash with original maturity period of three months or less and are subject to an insignificant risk of change in value. (p) Trade and other payables Liabilities for trade and other payables are carried at cost, which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the Group. Payables to related parties are carried at cost. Page 56 WUXI LITTLE SWAN COMPANY LIMITED 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (q) Borrowings and borrowing costs Borrowings are initially recognised at the proceeds received, net of transaction costs incurred. They are subsequently stated at amortised costs using the effective yield method; any difference between net proceeds and redemption value is recognised in the consolidated income statement over the period of the borrowings. Borrowing costs include interest charges and other costs incurred in connection with arranging borrowings and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Borrowing costs are expensed as incurred, except when they are directly attributable to the acquisition, construction of property, plant and equipment that necessarily takes a substantial period of time to get ready for its intended use in which case they are capitalised as part of the cost of that asset. Capitalisation of borrowing costs commences when expenditures for the asset and borrowing costs are being incurred and the activities to prepare the asset for its intended use are in progress. Borrowing costs are capitalised at the weighted average cost of the related borrowings until the asset is ready for its intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. (r) Provisions A provision is recognised when, and only when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation. When a provision is no longer probable that an outflow of resources embodying economic benefit will be required to settle the obligation, the provision will be reversed. Page 57 WUXI LITTLE SWAN COMPANY LIMITED 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (s) Taxation Deferred income tax is provided, using the liability method, on all temporary differences at the reporting date between the tax base of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carry-forward of unused tax assets and unused tax losses, can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or subsequently enacted at the balance sheet date. (t) Foreign currency Items included in the consolidated financial statements of the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to the Group. The consolidated financial statements are presented in RMB, which is the measurement currency of the Group. Transactions in other currencies are translated into RMB at the exchange rates prevailing at the dates of transactions. Monetary assets and liabilities denominated in other currencies at the consolidated balance sheet date are re-translated at the exchange rates prevailing at that date. Non-monetary assets and liabilities in other currencies are translated at historical rates. Exchange differences arising from changes in exchange rates subsequent to the transaction dates are included in consolidated income statement. Page 58 WUXI LITTLE SWAN COMPANY LIMITED 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (u) Revenue recognition Revenue comprises the invoiced value for the sales of goods net off rebates and discounts, and after eliminating sales within the Group. Provided it is probable that the economic benefits associated with a transaction will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised on the following basis: i) Sale of goods Revenue is recognised when the significant risks and rewards of ownership of goods have been transferred to the buyer. ii) Interest income Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity. iii) Dividend income Dividend income is recognised when the right to receive dividend is established. (v) Pension scheme Pursuant to the PRC laws and regulations, contributions to the basic old age insurance for the Group’s local staff are made monthly to a government agency based on certain percentage of the standard salary set by the provincial government. The government agency is responsible for the pension liabilities relating to such staff on their retirement. The Group accounts for these defined contributions on an accrual basis. The Group has no obligation for the payment of pension benefits beyond the contribution described above. Page 59 WUXI LITTLE SWAN COMPANY LIMITED 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (w) Segment Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments. The Group conduct the business within one business segment and the Group also operates within one geographical segment because its revenue is primarily generated in the PRC and its assets are located in the PRC. (x) Subsequent events Post year-end events that provide additional information about the Group’s position at the balance sheet date or those that indicate the going concern assumption is not appropriate (adjusting events), are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes when material. (y) Fundamental errors On rare occasions, an error has such a significant effect on the financial statements of one or more prior periods that those financial statements can no longer be considered to have been reliable at the date of their issue. These errors are referred to as fundamental errors. The correction of fundamental errors that relate to prior periods requires the restatement of the comparative information or the presentation of additional pro forma information. (z) Use of estimates The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Page 60 WUXI LITTLE SWAN COMPANY LIMITED 3. FINANCIAL RISK MANAGEMENT (a) Financial risk factors and financial risk management The Group activities expose it to a variety of financial risks, including credit risk, liquidity risk, interest rate risk and foreign exchange risk. The Group overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. (i) Credit risks The Group has no significant concentration of credit risk with any single counter party or group counter parties. The Group has policies in place to ensure that sales of products are made to customers with an appropriate credit history. The Group has policies that deposits are put in reputable banks. (ii) Liquidity risks Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. (iii) Interest rate risk The Group income and operating cash flows are substantially independent of changes in market interest rates. The Group has no significant interest-bearing assets. The Group policy is to maintain all its borrowings in fixed rate instruments. (iv) Foreign exchange risk The Group has no significant foreign exchange risk due to limited foreign currency transactions. Page 61 WUXI LITTLE SWAN COMPANY LIMITED 3. FINANCIAL RISK MANAGEMENT (CONTINUED) (b) Estimation of fair value (i) Cash and cash equivalent The carrying amount of cash and cash equivalents approximates their fair value due to these financial instruments either carry a current rate of interest or have a short period of time between the origination of the cash deposits and their expected maturity. (ii) Trade and other receivables and payables The carrying amount of trade and other receivables and payables, which are all subject to normal trade credit terms, approximates their fair value. (iii) Due from and due to related parties The carrying amount of due from and due to related parties, which are all subject to normal trade credit terms, approximates their fair value. (iv) Borrowings As of 31 December 2004, the carrying amount of borrowings approximates their fair value as these borrowings bear quoted market interest rates. (v) Available-for-sale investments The carrying amount of available-for-sale investments cannot be reliably estimated and disclosed because these investments do not have quoted market prices in an active market and other methods reasonably estimating fair value for these investments are not available. Page 62 WUXI LITTLE SWAN COMPANY LIMITED 4. SALES The Group revenue is mainly from sale of washing machines, air conditioners, refrigerators and other household appliances in the People Republic of China. 2004 2003 RMB’000 RMB’000 Sales of washing machine 1,628,289 1,752,289 Sales of refrigerator 254,847 257,179 Sales of air conditioner 31,626 261,123 Others 525,612 642,736 2,440,374 2,913,327 Less: Surtaxes (5,761) (12,127) 2,434,613 2,901,200 5. DISCONTINUING OPERATIONS In the prior year, the Group terminated entire 74.42% equity interest in Wuxi ASP Electronics Co., Ltd. and 50% equity interest in Wuxi ALC Plastics Co., Ltd. The turnover, expenses and results of the companies for the year ended 31 December 2003 were as follows: 2004 RMB’000 Sales 94,037 Cost of sales (72,172) Profit from operations 21,865 Administrative expenses (6,049) Finance cost (1,940) Profit before tax 13,876 Tax (3,451) Loss after tax 10,425 Page 63 WUXI LITTLE SWAN COMPANY LIMITED 5. DISCONTINUING OPERATIONS (CONTINUED) The carrying amounts of the total assets and liabilities relating to the discontinued operation, in aggregate, as at the date of disposal were as follows: 2004 RMB’000 Property, plant and equipment 27,548 Current assets 120,616 Total assets 148,164 Total liabilities (96,973) Net assets 51,191 6. PROFIT BEFORE TAX FROM OPERATIONS 2004 2003 RMB’000 RMB’000 The following items have been included in arriving at profit before tax:- Depreciation on property, plant and equipment 69,888 82,653 Impairment of property, plant and equipment 224 - Loss on disposal of property, plant and equipment 2,588 5,223 Amortisation of leasehold land 2,574 1,345 Amortisation of intangible assets 1,656 2,908 Research and development expenditure 2,791 2,756 Inventory: Costs of inventories recognised as expense 1,976,209 1,132,414 Provision for inventory obsolescence 11,206 38,466 Receivables provision for bad and doubtful debts 15,338 12,252 Provision for impairment in value of other investments 148 1,702 Subsidy income (4,665) (2,462) Staff costs (Note 8) 97,243 106,191 Page 64 WUXI LITTLE SWAN COMPANY LIMITED 7. FINANCE COSTS 2004 2003 RMB’000 RMB’000 Interest expense 38,442 40,263 Interest income (26,091) (16,073) 12,351 24,190 Net foreign exchange gain (466) (420) 11,885 23,770 8. GAIN ON SALE OF DSICONTINUED OPERATION During the year the Company’s subsidiary Wuxi Little Swan Maloni Dishwasher Co., Ltd. (“Maloni”) was liquidated and dsregistered. The Company was not required to bear any loss in the liquidation process in excess of the capital contribution it had already made. Accumulated losses of approximately RMB15,649,000 of Maloni which were previously dealt with by the Group were eliminated from the consolidated income statement. 9. STAFF COSTS 2004 2003 RMB’000 RMB’000 Wages and salaries 68,319 74,068 Other welfare 28,924 32,123 97,243 106,191 The average number of full time employees in 2004 was 3,417 (2003: 3,277). Page 65 WUXI LITTLE SWAN COMPANY LIMITED 10. INCOME TAX EXPENSE (a) Taxation in the consolidated income statement represents: 2004 2003 RMB’000 RMB’000 The Company and its subsidiaries - Provision for the current year 8,695 12,483 - Under provision in respect of prior years 2,296 - 10,991 12,483 Share of tax charge of associates 3,465 3,324 14,456 15,807 As a high technology companies registered in Wuxi National High-Tech Industrial Development Zone, Jiangsu Province, the Company received the approval from local authorities for a preferential tax rate of 15%, according to the relative regulation published by the State Administration of Taxation. The income tax rates applicable to subsidiary companies are ranging from 15% to 33%. (b) Deferred taxation No deferred taxation asset has been made in the consolidated financial statements as the directors are of opinion that the recognition of deferred tax assets arising on the temporary differences are uncertain. Page 66 WUXI LITTLE SWAN COMPANY LIMITED 11. PROFIT PER SHARE Basic profit per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. 2004 2003 RMB’000 RMB’000 Net profit 26,961 26,962 Weighted average number of ordinary shares in issue (in thousands) 365,104 365,104 Basic earnings per share RMB0.07 RMB0.07 The diluted profit per share was not calculated because no potential dilutive share existed during the year. 12. LAND USE RIGHTS 2004 2003 RMB’000 RMB’000 Cost: At 1 January 73,314 48,050 Additions 1,532 17,889 Disposals (2,192) - Transfer from intangible assets - 7,375 At 31 December 72,654 73,314 Accumulated amortization: At 1 January 6,803 5,458 Charge for the year 2,574 1,345 Written back on disposal (2,049) - At 31 December 7,328 6,803 Net book value 65,326 66,511 Leasehold land represented the land use fee prepaid for long lease land where the Company and its subsidiaries certain plants are situated. Page 67 WUXI LITTLE SWAN COMPANY LIMITED 13. PROPERTY, PLANT AND EQUIPMENT Plant and Construction Buildings machinery Vehicles in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Cost: At 31 January 2004 308,621 733,577 32,508 34,572 1,109,278 Additions 1,253 21,865 1,517 40,707 65,342 Transfer from intangible assets - 6,948 - - 6,948 Disposals (645) (132,588) (7,811) (1,356) (142,400) Transfer from construction in progress 1,688 7,115 - (8,803) - Transfer to investment - - - (12,178) (12,178) Reclassification 2,966 (2,966) - - - At 31 December 2004 313,883 633,591 26,214 52,942 1,026,990 Accumulated depreciation and impairment: At 1 January 2004 50,141 362,964 18,465 1,805 433,375 Charge for the year 12,165 55,390 2,333 - 69,888 Transfer from intangible assets - 2,853 - - 2,853 Written back on disposal (340) (78,522) (6,020) - (84,882) Transfer from construction in progress - 1,805 - (1,805) - Impairment - 224 - - 224 Reclassification (6,885) 6,885 - - - At 31 December 2004 55,081 351,599 14,778 - 421,458 Net book value: At 31 December 2004 258,802 282,352 11,436 52,942 605,532 At 31 December 2003 258,480 370,613 14,043 32,767 675,903 Page 68 WUXI LITTLE SWAN COMPANY LIMITED 14. INTANGIBLE ASSETS 2004 2003 RMB’000 RMB’000 Cost: At 1 January 52,342 54,641 Additions - 5,076 Disposals (28,836) - Transfer to land use rights - (7,375) Transfer to property, plant and equipment (6,948) - At 31 December 16,558 52,342 Accumulated amortisation: At 1 January 36,073 33,165 Charge for the year 1,656 2,908 Written back on disposal (25,962) - Transfer to property, plant and equipment (2,853) - At 31December 8,914 36,073 Net book value 7,644 16,269 Intangible assets is mainly acquired technology know how. Page 69 WUXI LITTLE SWAN COMPANY LIMITED 15. INTERESTS IN UNCONSOLIDATED SUBSIDIAIRES 2004 2003 RMB’000 RMB’000 Share of net assets of unconsolidated subsidiaries 99,255 39,106 Goodwill 2,232 - 101,487 39,106 Particulars of the Company’s unconsolidated subsidiaries, all of which are unlisted entities incorporated in the PRC, as at 31 December 2004 were as follows: Percentage of attributable Name equity interest Principal activity Wuxi Little Swan Dishwasher Co., Ltd. 100.00% Manufacture and sale of washing machine Wuxi Little Swan Washing Investment 95.00% Investing and managing washer Management Co., Ltd. services Wuxi Little Swan Jiangbo Mould 70.00% Manufacture of moulds Manufacturing Co., Ltd. Wuxi Little Swan Hubin Washer Co., Ltd. 60.00% Provision of washer services Wuxi Little Swan Transportation Co., Ltd. 75.00% Provision of transportation services . Note: The above subsidiaries were not consolidated as, in the opinion of directors, these subsidiaries were immaterial to the Group. Page 70 WUXI LITTLE SWAN COMPANY LIMITED 16. INTERESTS IN ASSOCIATES 2004 2003 RMB’000 RMB’000 Share of net assets of associates 195,574 194,050 The principal associates, all of which are unlisted entities incorporated in the PRC, are as follows: Percentage of attributable Name equity interest Principal activity Wuxi Lifanda Electric Appliances Co., Ltd. 42.46% Manufacture and sale of electrical appliances BSW Household Appliances Co., Ltd. 40% Manufacture and sale of household appliances Wuxi Matsushita Refrigeration Co., Ltd. * 19% Manufacture and sale of refrigerator and its accessory Wuxi Matsushita Refrigeration Compressor 19% Manufacture and sale of Co., Ltd. * compressors for refrigerators and its accessories GuangZhou Antaida Material Distribution 20% Provision of logistic services Co., Ltd. Toshiba washing machine Wuxi Co., Ltd. 25% Manufacture and sale of washing machine Little Swan Mobile Communication Co., Ltd. 25% Manufacture and sale of mobile telephone FGLS Electric Co., Ltd 50% Manufacture and sales electronic products Note: * As the Group actually has significant influence to Wuxi Matsushita Refrigeration Co., Ltd. and Wuxi Matsushita Refrigeration Compressor Co., Ltd. The Group considers these two companies are associates of the Group. Page 71 WUXI LITTLE SWAN COMPANY LIMITED 17. AVAILABLE-FOR-SALE INVESTMENTS 2004 2003 RMB’000 RMB’000 Unlisted investments, at cost 6,670 8,818 18. INVENTORIES 2004 2003 RMB’000 RMB’000 Raw materials 152,877 124,308 Work in progress 2,838 24,736 Finished goods 408,570 251,112 564,285 400,156 Less : Provision for inventory obsolescence (55,194) (37,856) 509,091 362,298 19. RECEIVABLES, ADVANCES TO SUPPLIERS AND OTHER CURRENT ASSETS 2004 2003 RMB’000 RMB’000 Trade receivables 421,258 793,523 Other receivables 29,815 144,268 Less: Provision for bad and doubtful debts (64,453) (471,878) 386,620 465,913 Notes receivable 244,986 96,142 Advances to suppliers 74,819 62,639 Amounts due from fellow subsidiaries (Note 24(b)) 56,961 16,230 Amounts due from associates (Note 24 (b)) 34,002 33,023 Amounts due from holding company (Note 24(b)) - 50,032 Amounts due from unconsolidated subsidiaries (Note 24(b)) 8,367 11,076 805,755 735,055 Page 72 WUXI LITTLE SWAN COMPANY LIMITED 20. TRADE AND OTHER PAYABLES 2004 2003 (Restated) RMB’000 RMB’000 Trade payables 546,617 561,598 Advances from customers 83,508 206,943 Notes payable 306,338 264,812 Other payables 181,169 127,824 Amounts due to holding company (Note 24(c)) 24,801 - Amounts due to fellow subsidiaries (Note 24(c)) 65,189 51,728 Amounts due to associates (Note 24(c)) 112 - Amounts due to unconsolidated subsidiaries (Note 24(c)) 19,560 - Dividend payable 2,811 2,284 1,230,105 1,215,189 21. BORROWINGS 2004 2003 RMB’000 RMB’000 Short-term bank borrowings 712,490 635,690 Short-term bank borrowings of RMB73,000,000 are secured by time deposit (2003 : RMB21,500,000); RMB381,000 is guaranteed by the holding Company (2003 : RMB407,000,000). The remaining is unsecured. The borrowings bear interest at rates ranging from 4.2% to 6.90% (2003 : 4.78% to 6.05%) per annum. The carrying amounts of short-term bank borrowings approximate to their fair value. Page 73 WUXI LITTLE SWAN COMPANY LIMITED 22. SHARE CAPITAL As of 31 December 2004, the outstanding share capital represented state-owned shares, legal person shares, A shares and B shares. The B shares rank pari passu in all respects with the state-owned shares and A shares except that state-owned shares and A shares can only be owned and traded by investors in the PRC. 2004 2003 Number RMB’000 Number RMB’000 Registered, Issued and fully paid shares of RMB1 each: Unlisted State owned share * - - 101,628,864 101,629 Legal person share 165,746,592 165,747 64,117,728 64,118 165,746,592 165,747 165,746,592 165,747 Listed A shares 72,000,000 72,000 72,000,000 72,000 B shares 127,357,248 127,357 127,357,248 127,357 199,357,248 199,357 199,357,248 199,357 365,103,840 365,104 365,103,840 365,104 * During the year the holding company was reorganised and changed from a state-collectively-owned enterprise into a joint stock limited liability company. Accordingly, the 101,628,864 shares of the Company held by the holding company were reclassified from state owned share to legal person share. Page 74 WUXI LITTLE SWAN COMPANY LIMITED 23. RESERVES Movements in reserves are set out in the consolidated statement of changes in shareholders' equity. (a) In accordance with the relevant PRC regulations and the articles of association of the Company, the Company and its subsidiaries are required to allocate, where applicable, 10% of profit after taxation as determined in accordance with PRC accounting standards and regulations applicable to each individual company, to the statutory surplus reserve fund until such reserve reaches 50% of the registered capital of the respective companies. According to the relevant PRC regulations, statutory surplus reserve and discretionary surplus reserve can be used to make up losses or to increase share capital. Except for the reduction of losses incurred, other usage should not result in the statutory surplus reserve falling below 25% of the registered capital. (b) In accordance with the relevant PRC regulations and the articles of association of the Company and its subsidiaries, the Group’s statutory public welfare fund, which is established through the appropriation from the Group’s profit after taxation, must be used for capital expenditure on staff welfare facilities. These facilities remain as properties of the Group. In the current year, entities of the Group which had net profits appropriated 5% of the respective profit after taxation, as determined in accordance with PRC accounting standards and regulations applicable to each individual company, to the statutory public welfare fund. Appropriation to such reserve is not recognised for the net statutory loss of the Company for the year ended 31 December 2002. The company fully reversed the statutory common reserve funds appropriated in 2002 after correcting the material accounting fault and adjusting the losses for the year ended 31 December 2002 retrospectively. (c) According to the relevant regulations in the PRC, the amount of retained earnings available for distribution is the lower of the amount determined under PRC accounting standards and regulations and the amount determined under IFRS. In the PRC statutory financial statements as at 31 December 2004, accumulated loss carried forward amounted to RMB177,454,000 (2003 : RMB208,018,000). Page 75 WUXI LITTLE SWAN COMPANY LIMITED 24. RELATED PARTY TRANSACTIONS AND BALANCES Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. (a) Names and relationships of related parties are as follows: Except for the unconsolidated subsidiaries and associates, the name and nature of relationship of other related parties are as follows: Name Relationship Jiangsu Little Swan Group Co., Ltd. (“JLSG”) Holding company The directors consider transactions with JLSG and entities controlled by JLSG are related party transactions. (b) The amounts due from fellow subsidiaries, unconsolidated subsidiaries and associates are unsecured, interest-free and have no fixed repayment terms. (c) The amounts due to holding company, fellow subsidiaries, unconsolidated subsidiaries and associates are unsecured, interest-free and have no fixed repayment terms. (d) Significant related parties transactions (i) During the year, the Group had the following transactions with related parties which, in the opinion of the Directors, were conducted at actual cost and on normal commercial terms: 2004 2003 RMB’000 RMB’000 Purchase of goods from holding company - 3,056 Purchase of goods from fellow subsidiaries 786,715 693,789 Purchase of goods from unconsolidated subsidiaries 21,657 28,445 Sale of goods to holding company - 17,686 Sale of goods to associates 30,596 28,043 Sale of goods to fellow subsidiaries 7,504 4,640 Sale of goods to unconsolidated subsidiaries 1,457 - Page 76 WUXI LITTLE SWAN COMPANY LIMITED 24. RELATED PARTY TRANSACTIONS AND BALANCES (CONTINUED) (d) Significant related parties transactions (continued) (ii) Directors’ remuneration In 2004, total remuneration of the directors was RMB2,370,000 (2003: RMB1,350,000). (iii) The Group appointed the holding company as purchase agent during the year and agreed to paid agency fees based on purchase amount at rates ranging from 1.8% to 2%. During the year, the Group paid agency fees of RMB4,116,000 to the holding company. (iv) On 15 December 2004 the Group entered into a sale and purchase agreement with one of its associates whereby the associate agreed to purchase moulds from the Group at a consideration of RMB9,070,000. (v) Pursuant to the resolution passed by at a directors’ meeting held on 23 April 2004, the Company allowed the holding company to use the Company’s registered trademark under the condition where the holding company will not compete with the Company in the same industry. The permit will expire at the maturity of registration of trademark. No trademark fee was received from the holding company. Page 77 WUXI LITTLE SWAN COMPANY LIMITED 25. PRINCIPAL SUBSIDIARIES Particulars of the Company’s subsidiaries, all of which were established and are operating in the PRC are as follows:- Equity Registered Name of subsidiary interest capital Principal activities ’000 Wuxi Feiling Electronics Co. 51% US$918 Manufacture and sales of Ltd. computer control components for washing machine Wuxi Little Swan Advertising 100% RMB1,000 Advertising Co. Wuxi Little Swan Property 91.2% RMB20,966 Property construction Construction and Development Co. Ltd Wuxi Little Swan Sales 95% RMB10,000 Sale of electrical appliances, Company motor vehicles and spare parts Wuxi Little Swan Import and 88.46% RMB30,000 Import & Export activities Export Company Jiangsu Little Swan San Jiang 51% RMB14,800 Manufacture and sale of Electrical Appliances electrical appliances Manufactory Company Wuxi Huayin Electric 75% US$6,000 Manufacture and sale of Appliances Co. Ltd. electric engines for household appliances and digital engines Wuxi Little Swan Sutai Washing 75% US$6,000 Manufacture and sale of Machine Co., Ltd. commercial washing machine, dryers and spare parts Page 78 WUXI LITTLE SWAN COMPANY LIMITED 24. PRINCIPAL SUBSIDIARIES (CONTINUED) Equity Registered Name of subsidiary interest capital Principal activities ’000 Little Swan Freezer Co., Ltd. 75% RMB20,000 Sale of refrigerators and other freezer equipment Wuxi Little Swan TianAi 90% RMB5,000 Sale of washing machine and Electrical Appliances Co., Ltd. drying machine Wuxi Little Swan High Grade 75% US$5,800 Manufacture and sale of Casting Co., Ltd. high-grade casting for compressors Wuxi Little Swan Pottery Co., 90% RMB3,000 Manufacture, process and sale Ltd. of tube and shell of pottery electric power and electronic and accessories Process of metal Wuxi Little Swan – Fuji 75% US$4,000 Manufacture and sale of dryer Cleaning Equipment Co., Ltd. equipment and spare parts Jiangsu Little Swan Marketing 98.05% RMB19,500 Sale of electrical appliances and Sales Co., Ltd. Wuxi Little Swan General 100% RMB28,000 Manufacture and sale of dryer Appliance Co., Ltd machine and washing machine Page 79 WUXI LITTLE SWAN COMPANY LIMITED 26. CONTINGENT LIABILITIES The Group has no significant contingent liabilities as of 31 December 2004. 27. PRIOR YEAR ADJUSTMENT In 1997 the Group recorded a negative goodwill of RMB11,418,000 arising from the acquisition of a subsidiary as an other payable within current liabilities. The negative goodwill in current was not immediately recognised as income at the date of acquisition or on a systematic basis over an expected period subsequently. The Group made a prior year adjustment to restate the amount, resulting in a decrease in accumulated losses of 31 December 2002 and 2003 by RMB11,418,000. 28. SEGMENT REPORTING The Group conducts its business within one business segment - the business of manufacturing and sale of washing machines, air conditioners, refrigerators and other household appliances in the PRC. The Group has prepared any segment income statement during the year ended 31 December 2003. The Group also operates within one geographical segment because its revenues are primarily generated in the PRC and its assets are located in the PRC. Accordingly, no geographical segment data is presented. Page 80 WUXI LITTLE SWAN COMPANY LIMITED 29. IMPACT OF IFRS ADJUSTMENTS ON NET PROFIT AND SHAREHOLDERS’ EQUITY The statutory accounts of the Group are prepared in accordance with PRC accounting regulations applicable to joint stock limited companies. These accounting principles differ in certain significant aspects from IRFS. The effects of these differences on profit after taxation and minority interests for the year ended 31 December 2004 and shareholders’ funds at that date are summarised as follows: Profit after taxation and minority Shareholders' interests equity RMB’000 RMB’000 As determined pursuant to PRC accounting regulations 39,037 1,141,821 Impact of cumulative IFRS adjustments (12,076) (20,199) As determined pursuant to IFRS 26,961 1,121,622 Page 81 WUXI LITTLE SWAN COMPANY LIMITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 Contents Pages Auditors’ Report 1 Consolidated income statement 2 &3 Consolidated balance sheet 4&5 Consolidated statement of changes in shareholders’ equity 6 Consolidated statement of cash flows 7&8 Notes to the consolidated financial statements 9 to 41 WUXI LITTLE SWAN COMPANY LIMITED (Incorporated in the People’s Republic of China) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004