杭汽轮Ｂ(200771)2004年年度报告摘要（英文版）

Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary §1 Important Declaration 1.1 The Board of Directors and the directors of the Company guarantee that there are no significant omissions, fictitious or misleading statements carried in the Report and we will accept individual and joint responsibilities for the truthfulness, accuracy and completeness of the Report. This summary is abstracted from the completed text of Annual Report 2004, for details of the report please go to the complete text. This report is prepared both in English and Chinese. When there is any conflict in understanding, the Chinese version shall prevail. 1.2 None 1.3 Director(s) absented the board meeting Name of the Director Reason of absent Consignee Nie Zhonghai Went abroad on business Wang Hongkang Yan Jianhua Went abroad on business Zhou Shaohua Independent Director Went abroad on business Independent Director Hua Xiaoning Zhang Mingguang 1.4 PriceWaterHouseCoopers Zhongtian CPA and Zhejiang Orient CPA issued standard auditing report on the Financial Report 2004 without emphasis issues and qualified opinion. 1.5 The Chairman Mr. Nie Zhonghai, the General Manager Mr. Yan Jianhuan, the Chief Accountant Mr. Bo Ronghua, and the Chief Director of Accounting Department Mr. Wu Guomei hereby declares: the Financial Statement in the report is guaranteed to be truthful and complete. 1 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary §2 Company Profile 2.1 Company Profile Stock ID Hangqilun B Stock Code 200771 Stock Exchange Shenzhen Stock Exchange No. 357 Shiqiao Road Hangzhou City Registered address and office address No. 357 Shiqiao Road Hangzhou City For registered address: 310022 Post Code For office address: 310022 Website http://www.htc.net.cn Email. he@htc.net.cn 2.2 Liaison people Secretary of the Board Representative of Stock Affairs Name He Jianhang Zhou Yongmei Securities Office, Hangzhou Steam Turbine Securities Office, Hangzhou Steam Turbine Address Co., Ltd., 357 Shiqiao Rd., Hangzhou,Co., Ltd., 357 Shiqiao Rd., Hangzhou, Zhejiang Zhejiang Tel. 0571-85780198 0571-85780198 Fax. 0571-85780433 0571-85780433 Email. he@htc.net.cn zzym@htc.net.cn 2 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary §3 Financial Highlights 3.1 Major accounting data In RMB Yuan 2004 2003 Increase/decrease 2002 (%) Major business income 977,825,970.01 439,936,177.99 122.27% 326,027,763.80 Gross profit 254,621,928.02 70,276,850.57 262.31% 43,307,797.36 Net profit 174,190,581.58 44,002,529.98 295.86% 34,706,731.04 Net profit deducted non-recurring gain/loss 168,628,088.41 40,899,956.88 312.29% 45,060,387.19 Net Cash flow generated by business operation 441,511,505.85 223,689,202.06 97.38% 80,191,177.33 End of 2004 End of 2003 Increase/decrease End of 2002 (%) Gross Assets 1,754,500,766.93 1,022,375,377.57 71.61% 685,480,273.39 Shareholders’Equity (Exclude Minority Shareholders’ 646,394,236.62 512,745,380.16 26.07% 476,783,502.12 Equity) 3.2 Major accounting indices In RMB Yuan 2004 2003 Increase/decrease 2002 (%) Earnings per share 0.79 0.20 295.00% 0.16 Earnings per share (Note) 0.79 - - - Net earnings / capital ratio 26.95% 8.58% 18.37% 7.28% Net earnings / capital ratio basing on net profit after 26.09% 7.98% 18.11% 7.18% deducting of non-recurring gain/loss (%) Net Cash flow per share generated by business operation 2.01 1.02 97.06% 0.36 End of End of Increase/decrease End of 2004 2003 (%) 2002 Net asset per share 2.94 2.33 26.18% 2.17 Net asset per share, adjusted 2.90 2.25 28.89% 2.02 3 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary Non-recurring gain and loss items √ applicable □ not applicable In RMB Yuan Non-recurring gain and loss items Amount Impairment provision drawn previously and written back 3,073,321.24 Other none-business gain/expenses after deducting of impairment provisions according to 4,339.88 enterprise accounting standard Gain/loss from disposal of long-term equity investment, fixed assets, construction in process, 3,377,700.48 intangible asset, and other long-term assets. Less: Income tax -892,868.43 Total 5,562,493.17 3.3 Diversity between the international and domestic accounting standards √ applicable □ not applicable In RMB Yuan Domestic Accounting Standard Overseas accounting standard: Net profit 174,190,581.58 179,225,243.46 Deferred income taxes amount to RMB4, 983,777.00; Offsetting of account not payable amount to RMB3, 458,274.88; The discrepancy of depreciations for house and building and Statement about theequipment amount to RMB-3, 688,795.00;The discrepancy of carry over to other income diversity from recognition of deferred incomes is amount to RMB604, 585.00; Adjustment according to IAS generated proceeds of RMB323, 180.00. 4 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary § 4 Changes in Share Capital & Particulars about Shareholders 4.1. Statement of Changes in Shares Shares Before the changeChanged (+,-)After the changed Sub-total I. None negotiable shares 1. Promoter’s shares 140,000,000 0 140,000,000 Incl. State-owned shares 140,000,000 0 140,000,000 Domestic legal person shares 0 0 0 Overseas legal person shares 0 0 0 Others 0 0 0 2. Legal person shares placed 0 0 0 3. Employees’ shares 0 0 0 4. Preference shares or others 0 0 0 Total of non-negotiable shares 140,000,000 0 140,000,000 II. Negotiable shares 1. Common shares in RMB 0 0 0 2. Foreign shares in domestic market 80,000,000 0 80,000,000 3. Foreign shares in overseas market 0 0 0 4. Others 0 0 0 Total of negotiable shares 80,000,000 0 80,000,000 III. Total of capital shares 220,000,000 0 220,000,000 Shares allotted from foundations, employees’shares traded on site, shares allotted to strategic investors, and shares allotted to common legal persons shall be presented their amount. □applicable √ not applicable 5 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary 4.2 Top Ten Shareholders and Top Ten Negotiable Share Holders Total shareholders at the end 9,060 of the report period Top Ten Shareholders Changed Shares held at Proportion Pledged or Property of Full name of shareholder in the year the end of% Class of share frozen shareholder report term Hangzhou Steam Turbine 140,000,000 63.64% Non-negotiable 70,000,000 State-owned Power Group Co., Ltd. HTHK-VALUE PARTNERS Foreign INTELLIGENT FD-CHINA B8,185,164 8,185,164 3.72% Negotiable shares SHS FD CUOTAI JUNAN SECURIES 2,468,538 3,822,489 1.74% Negotiable Foreign HONG KONG LIMITED shares SKANDIA GLOBAL FUNDS 430,000 3,150,494 1.43% Negotiable Foreign PLC shares GT PRC FUND 0 2,999,970 1.36% Negotiable Foreign shares TOYO SECURITIES ASIA-420,700 1,491,398 0.68% Negotiable Foreign LIMITED-A/C CLIENT shares 内滕证券株式会社 -420,483 853,947 0.39% Negotiable Foreign shares HTHK-BOBL/MANULIFE Foreign GLOBAL FUND-CHINA793,053 793,053 0.36% Negotiable shares VALUE Luo Yi 745,732 745,732 0.34% Negotiable Foreign shares Shen Guo 542,517 542,517 0.25% Negotiable Foreign shares Top Ten Shareholders of Negotiable Shares Full name of shareholder Negotiable shares held at the end of Share categories (A, B, H or report term others) HTHK-VALUE PARTNERS INTELLIGENT FD-CHINA B SHS8,185,164 B shares FD CUOTAI JUNAN SECURIES3,822,489 B shares HONG KONG LIMITED SKANDIA GLOBAL FUNDS PLC3,150,494 B shares GT PRC FUND 2,999,970 B shares TOYO SECURITIES ASIA1,491,398 B shares LIMITED-A/C CLIENT 内滕证券株式会社 853,947 B shares HTHK-BOBL/MANULIFE 793,053 B shares GLOBAL FUND-CHINA VALUE Luo Yi 745,732 B shares Shen Guo 542,517 B shares China Everlight Securities (HK)533,900 B shares Ltd. (1) Of top ten shareholders, Hangzhou Steam Turbine Group Co., Ltd. Notes to relationship or “action in holds shares on behalf of the State and the others are to B-Share concert” among the top tenshareholders. shareholders. (2) Hangzhou Steam Turbine Group Co., Ltd. is not related to any of the other 9 shareholders. It is unknown whether there is any relationship among the 9 shareholders. 4.3 Change in Controlling Shareholder and the Actual Controller 6 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary 4.3.1 Change in Controlling Shareholder and the Actual Controller □applicable √ not applicable 4.3.2 Particulars about Controlling Shareholder and the Actual Controller (1) Controller shareholders status Company Name: Hangzhou Steam Turbine Power Group Co., Ltd Legal Representative: Nie Zhonghai Registered Capital: RMB 156,850,000 Established Date: Dec. 1992 Business Type: State-owned and sole proprietorship company authorized by the Hangzhou Government Registered address: No. 357 Shiqiao Road Hangzhou City Major Business: textile machine, paper-making machine, pump, casting, changing speed gear, heat exchanging instrument, digital and display system and their manufacturing and processing. Original material, equipment and parts for groups’purchasing and making, providing services of water, electricity and gas for theirowning enterprises. (2) Changing of controlling shareholder and practical controller of the Company The controlling shareholder and practical controller of the Company haven’t been changed during the report term. Chart of the controlling relationship between the practical controller and the Company The Municipal Government of Hang Zhou 100% Hangzhou Steam Turbine Power Group Co., Ltd. 63.64% Hangzhou Steam Turbine Co., Ltd. 7 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary § 5 Directors, Supervisors and Senior Executives 5.1 Changes in Shares Held by Directors, Supervisors and Senior Executives Shares held at Shares held at the Cause of Name Position SexAgeJob term the beginning of end of term change term Nie Zhonghai Chairman M 47 2004.6.19 –2007.6.180 0 Wang Vice Chairman M 52 2004.6.19 –2007.6.180 0 Hongkang Jin Fujuan Vice Chairman F 51 2004.6.19 –2007.6.180 0 Yan Jianhua Director, GM M 46 2004.6.19 –2007.6.180 0 Li Lie Director, standingM 56 2004.6.19 –2007.6.180 0 GM Ye Zhong Director, ChiefM 36 2004.6.19 –2007.6.180 0 engineer Zhou ShaohuaDirector, ChiefM 53 2004.6.19 –2007.6.180 0 accountant Zhang Independent M 66 2004.6.19 –2007.6.180 0 Mingguang Director Zhou Zhaoxue Independent M 66 2004.6.19 –2007.6.180 0 Director Hua Xiaoning Independent M 41 2004.6.19 –2007.6.180 0 Director Qi Guoning Independent M 55 2004.6.19 –2007.6.180 0 Director Chu ShuilongChief Supervisor M 52 2004.6.19 –2007.6.180 0 Shao Linna Supervisor F 50 2004.6.19 –2007.6.180 0 Zhang Supervisor M 47 2004.6.19 –2007.6.180 0 Yougen Lu Jianhua Employee M 42 2004.8.17 –2007.6.180 0 Supervisor Zhao Ying Employee F 48 2004.8.17 –2007.6.180 0 Supervisor Yu Vice GeneralM 47 2004.6.19 –2007.6.180 0 Changquan Manager Yan Jinghe Vice GeneralM 50 2004.6.19 –2007.6.180 0 Manager He Jianhang Secretary of theM 47 2004.6.19 –2007.6.180 0 Board 8 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary 5.2 Directors and supervisors taking positions in the shareholding parties √ applicable □ not applicable Name Name of theJob taken Job term Get remuneration or shareholder not Hangzhou Steam Nie Zhonghai Turbine Power Group Chairman Aug. 24th 2003 - Present Yes Co., Ltd. Hangzhou SteamVice Chairman, Wang Hongkang Turbine Power Group GM Dec. 6th 2001 -Present Yes Co., Ltd. Hangzhou SteamVice Chairman, Jin Fujuan Turbine Power Group Chairman of theDec. 6th 2001 -Present Yes Co., Ltd. Union Hangzhou Steam Yan Jianhua Turbine Power Group Director Dec. 6th 2001 -Present Yes Co., Ltd. Hangzhou Steam Ye Zhong Turbine Power Group Director Dec. 6th 2001 -Present Yes Co., Ltd. Hangzhou Steam Chu Shuilong Turbine Power Group Director, Vice GMDec. 6th 2001 -Present Yes Co., Ltd. Hangzhou SteamDirector of Shao Linna Turbine Power Group financial April 4th 1998 -Present No Co., Ltd. department 5.3 Annual rewards of Directors, Supervisors and Senior Executives In RMB 10 thousand Yuan Total of annual reward 717.53 Top 3 directors 199.87 Top 3 managements 200.94 Allowance of Independent6.00 x10K/person.y Director ear Other expenses ofTravel and accommodation expenses for attending of meetings are taken by the Independent Directors: Company Directors and supervisors not Supervisor: Shao Linna taking rewards from the Company Reward distribution Number of person 60-69 8 50-59 2 30-39 1 10-15 1 6-7 2 9 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary §6 Report of the Board 6.1 Overall business situation in the report term In year 2004, under the leadership of the Board of Directors, the company has made eight following achievements: 1. Over-fulfill every examination task that the Board of Directors puts forward in an all-round way Until the end of December of 2004, the home company has finished 227 industry steam turbines, 1,537,800 kilowatts, with the goods output value of RMB 986,000,000, the number of steam turbines , the counting of kilowatt and the output value increase by 83.04% , 84.87 and 119.5 compared with the same period of last year separately; the income from sales is RMB 977,826,000, increased by 122.27% compared with the same period of last year; total profit is 2,546,219,000, increased 262.31 compared with the same period of last year; accepted contract RMB 2,520,000,000, increase by 52.27% compared with the same period of last year; retrieved payment is RBM 1,320,000,000, increase by 71.21%; overall labor productivity is RMB 305,900 per capita, increase by 93.23%; finished 201 technological reform and skill measure projects, pay the bill the fund of RMB 96,700,000. Company's business scale, asset quality, profit ability, developing ability is promoted in an all-round way; the comprehensive benefit index continues ranking No.1 among the domestic steam turbine trade. 2. Placed a sturdy foundation on realizing the “Double Goal” in year 2005 On the reality of sharply increasing industry steam turbine order, and in order to meet the user's needs, the Board of Directors proposed the following at the beginning of the year: Guarantee that the total amount of the output will " double " than 2003 in 2004, strive to make the total amount of output of 2005 realize the goal of " doubling " on the basis of 2004. In order to implement this goal, the company managers catch “the project of the bottleneck" tightly, break through item by item, and has made the achievements. First, break through "general assembling bottleneck". Expand the output, through the channels, such as "outsourcing ", etc., utilizing social resources to solve the productivity insufficient problem partly, but assembly must be finished by ourselves, so, the trial general assembling extension project becomes the company ‘s "project of the first" of 2004, it has been Completed and went into operation on December 10. Second, break through “production place bottleneck”. Through moving and adjusting the relevant workshop, warehouse, offices, vacate thousands of square meters of working place, meet the production demand to the maximum extent. Third, break through “equipment bottleneck”. nearly 30 sets of great key equipment that are purchased both at home and abroad successively being put into operation in 2004 has made the equipment production capability increased by nearly 70%. Fourth, break through "outsourcing bottleneck". The outsourcing amount increased by a large margin, it can meet the demand that the total amount of the output doubles in 2005 basically. Fifth, break through “electricity utilizing bottleneck ". The company has finished the construction of "private power station" before the coming of the summer of Electric Peak, and tided over the electricity shortage steadily. Sixth, break through "Human resources bottleneck". The company will distribute and arrange 168 workers altogether in 2004, will recruit all kinds of 196 professional personnel and 102 of vocational technical school placement internship students, and it is the year that has allocated and employed the most staff since the company is listed. 3. Move forward system reforms of subsidiary companies, realize the process restructure. In year 2004, the company has accomplished the system reform of “Zhongneng Company”, “Cast and forge company”, “Supplementary Machine Company” and “Mechanical Equipment Company”. These subsidiary companies are originally a department in the production chain of our company, through the production right diversification reform, the ones that have not merely realized production process restructure, and have excited the motive power of enterprise's development. Hangzhou Turbine Power Co., Ltd. has finished 45 steam 10 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary turbines/95624 kilowatts/RMB 55,931,000 from March to December, accepting the contract of RMB 256,000,000, selling RMB 90,156,000, and the profit is RMB 8,793,400. Every index exceeds the goal made by the Company’s Board of Directors at the beginning of the year. Hangzhou turbine casts and forges Co. Ltd. realized selling RMB 69,049,300, profit RMB 7,615,500, and 4000 tons of castings from May to December. The steam turbine cylinder finished per month improves nearly 20 sets from the 7 to 8 sets before the reforming. Turbine complementing machine Co., Ltd. of Hangzhou is listed in December, realizing selling RMB 6,794,400 that month, the profit is 1,501,600. After making the simulation independent accounting of subsidiary factory in the blade workshop, under the situation of not increasing basically in the equipment, personnel, place, it has realized that the output doubles. 4. Progress depending on the science and technologies, strengthen the technological reserve In 2004, the company has acquired great achievements on new product development, new craft promotion, information technical application, product quality guarantee, etc. "Large-scale super critical value steam turbine feed water pump of power generating boiler" has become the significant products of "Advanced Manufacturing Industry” in Zhejiang Province; scientific and technical result of 600MW half capacity boiler feed pump steam turbine has passes the provincial-level appraisal. "3 in 1” quiet blade is popularized on a large scale; application of the rotor processing with the combination of the advanced cutter and the newly introduced equipment, can improve produce capability in double; Implementation of CAD/CAPP/PDM project, taking accelerating technology and preparing the speed as purport, make the designer design interconnectedly and interdynamically through the network platform, design efficiency has improved greatly; The company has passed the check of ISO9000 quality system, the dependability index of product quality is promoted by a large margin; Quality Guarantee Department, through the cultivation of outsourcer's training, guiding and examining , granting the emeritus card exempt from inspection , has improved the quality assurance ability of the outsourcer. The company has strengthened the technological reserve on the basis of market prediction. Development of "the three new products", enable us to take the lead in intruding upon the new fields of “Large air-seperation driving”, “large-scale ethylene driving”, “large-scale super critical value power generating boiler feed pump driving” etc. This has proved again that we have stronger "Market-oriented” research and development ability 5. Open up the overseas market, expand the market share. In 2004, the company has spent big strength opening up the overseas market. The company has reformed the foreign trade function system, set up independent steam turbine foreign trade agency, made the new examination mechanism, given the policy, given the pressure, impelled foreign trade personnel to turn from “waiting for business" into “acquiring business”, going into a lot of countries of Asia, Europe, South America and other places and carrying on market investigation, researching, and looking for the suitable agency, promoting product distribution. Through the efforts in the foreign trade department of the company, by the end of December, the accepted overseas order is 25 million dollars altogether, increased by 212% compared with the same period of last year. 6. Consolidate the foundation of managing, improve the incentive mechanism In 2004, the company strengthened adjustment of the organization and cadres, cancelled the physics and chemistry department, spare part department and personnel organization department, and established foreign trade department, quality guarantee department and human resources department. The great adjustment of the middle level cadre, making the young cadre with strong ability can show their talent. Recruiting a middle level cadre becomes a system publicly, and it is supported by staff and received favorable comment. Company's staff's distribution system reform continues moving forward. After implementing of the marketing line, and the research institute payrolls contracted responsibility system, the production line carried on the salary total value contracted responsibility system on the examining foundation of production coefficient, production number, sales amount and goods volume. It has excited the staff's production enthusiasm greatly. 2004, the company has also strengthened technical training of the staff, independently or working with the relevant higher education schools, opening up the numerical control technology class, Graduate student's class 11 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary for Projects master and spoken English class, which has greatly improved the staff's technology and professional ability. 7. Strengthen the relation with persons who are correlated with of the interests, try hard to realize "Win together" 2004, the company pays close attention to the relation with user, supplier, cooperating trader. The company positively communicated and exchanged with the persons who are correlated with all interests, established the long-term strategic partnership relation of understanding, supporting each other. The company has already become the equipment strategic partner's supplier of China Petrochemical Industry. 8. Do corporate culture construction well, build the atmosphere of "doing business harmoniously” 2004, the company was fruitful in enterprise's cultural construction, the company launched the theme educational activities of "not having any excuse", strengthening the confidence of the goal that "the total amount double" in the staff, improving enterprise's administrative execution ability, which has played a positive role. 6.2 Principal businesses classified based on industries/products In RMB 10 thousand Yuan 12 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary Distribution on industries Major business Increase/decrease cost Gross profit On industry or Major businessMajor businessGross profit of major business increased/decrease ration product income cost ratio % turnover (%) d overincreased/decr corresponding eased term Boiler and power 93,123.00 55,590.00 40.30% 127.85% 121.82% 1.62% machine manufacture Casting 256.00 230.00 10.16% -36.63% -44.71% 13.13% Other special26.00 18.00 30.77% -94.63% -94.04% -6.83% equipment Other general4,378.00 2,332.00 46.73% 95.84% 129.53% -7.81% parts Including: related 15,022.97 11,183.61 25.56% 239.59% 241.69% -0.46% transactions Distribution on products Industrial 93,123.00 55,590.00 40.30% 127.85% 121.82% 1.62% steam turbine Casting 256.00 230.00 10.16% -36.63% -44.71% 13.13% products Auxiliary 26.00 18.00 30.77% -94.63% -94.04% -6.83% machinery Others 4,378.00 2,332.00 46.73% 95.84% 129.53% -7.81% Total 97,783.00 58,170.00 40.51% 122.27% 117.09% 1.42% Including: related 15,022.97 11,183.61 25.56% 239.59% 241.69% -0.46% transactions Principle of pricing theHSTG is holding several subsidiaries which involved in sales of industrial steam turbine, all sales related are at the ex-factory price. transactions Statement on the necessity and The Company is adopting the sales network of the Group spread around the country to promote its continuousnessproducts and providing prompt services to the clients. of related transactions Including: The related transactions of the Company selling products to the controlling shareholders and its subsidiaries were amounted to RMB150,612,400. 13 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary 6.3 Major businesses distribution on regions In RMB 10 thousand Yuan Regions Major business income Increase/decrease of major business turnover (%) Domestic 96,242.00 127.04% Overseas 1,541.00 -3.99% Total 97,783.00 122.27% 6.4 Major vendors and clients In RMB 10 thousand Yuan Total of top 5 vendors 13,599.00 Counted in total18.30% purchasing Total of top 5 clients 37,923.00 Counted in total38.78% sales 6.5 Operation of shareholding subsidiaries √ applicable □ not applicable In RMB 10 thousand Yuan Name of the company Hangzhou Steam Turbine Environmental Engineering Co., Ltd. Investment income-204.58 Proportion in the Company’s net profit 400.90% contributed Shareholding Business Contracting of environment and water processing engineering, manufacturing of company Scope environmental protection equipment. Net profit -51.03 Name of the company Zhejiang Tianyu Share Controlling Co., Ltd. Investment income0.00 Proportion in the Company’s net profit 0.00% contributed Shareholding Business Mainly manages industry investment, enterprise planning etc. company Scope Net profit 0.00 Name of the company Hangzhou Zhongneng Turbine Power Co., Ltd. Investment income0.00 Proportion in the Company’s net profit 0.00% contributed Shareholding Business designing, producing and contracting small and medium sized thermoelectric company Scope steam turbine project. Net profit -1.04 Name of the company Hangzhou Zhongneng Turbine Sales Co., Ltd. Investment income0.00 Proportion in the Company’s net profit 0.00% contributed Shareholding Business Sales of steam turbine, full set generators and spare parts. company Scope Net profit -4.74 Name of the company Zhejiang Tianhang Thermal Power Equipment Co., Ltd. Investment income0.00 Proportion in the Company’s net profit 0.00% contributed Shareholding Business Steam turbine supplementary equipment, heat transistor, metal structure company Scope materials, mining equipments, and electro-mechanism. Net profit 0.00 14 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary 6.6 Major Change in the Principal Business or its Structure □applicable √ not applicable 6.7 Major Change in the Profitability (Gross Profit Rate) of the Major Business over the Previous Year □applicable √ not applicable 6.8 Cause of Major Change in the Profit Composition over the Previous Year □applicable √ not applicable Causations of significant change on overall financial status √ applicable □ not applicable In the year 2004, the major business turnover, major business profit and net profit has increased by 122.27%, 130.52% and 295.86% respectively over the previous year. This was due to the strong trend of growth of the market. But also benefit from the implementing of productivity expending measures. For the reforming projects are blooming in the electric power and metro chemical industry, the scheduled delivery has increased by over 1 time. To meet with the customers’ needs, the Company expended its output at all effort. In the year 2004. the cash and cash equivalents increased by 13.37% over the previous year.This was benefit from the increasing of purchase orders and increasing of advance payment. In the year 2004, the shareholders’equity and current liabilities has increased by ***% and ***% over the previous year. Increasing of shareholders’ equity was due to the increasing of major business turnover which lead to the increasing of net profit. The increasing of current assets was because of the increasing of orders and advance payments. 6.9 Significant changes in business environment, national policies and regulations impacting the financial situation and business performance in the past, present or future √ applicable □ not applicable During the report term, although we have made good managing achievements, the Board of Directors need to specially remind investors to pay attention to the risks of the company running owing to the following things which happened or are happening or will happen. Our industrial steam turbine is invested product. Its market requirement is closed linked with national macroscopical economical situation, especially national investment policies. During the report term, our country has issued a series of “macroscopical adjustment”policies. The implementation of these policies will take great effects on manufacture and management of our company. With the more and more efforts of national macroscopical adjustment, especially after the State Council issued Emergent Notification on Suggestion to Strictly Refrain Disorderly Building Projects of Power Station transmitted from National Development and Reform Commission, the management of our company will be influenced by the following two aspects: The first is order receipt. Because of “clearing projects which are been built”, some of our projects might be postponed or even canceled, which will affect the number of orders of our company. The second is payment reclaim. Because of “improving financial adjustment and credit management ”, some users might be in shortage of money, and thus, it will be more difficult for us to ask for payment and accounts receivable will increase. Our steam turbine is a long periodic product. The average manufacturing period is about 6 to 12 months. Therefore, orders received this year will transform to sales the next year. The present orders show that the main 15 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary conflict we will be faced with in 2005 to 2006 will still be conflict between “limited output ability and great market requirement”. Because of the shortage of electricity in Hangzhou, our company equipped 5 diesel dynamotors so as to ensure well running of production. So the cost of electricity will greatly increase. Meanwhile, in order to improve output ability, we will increase investment to technological transformation and expand outside cooperative processing. Because more staff work overtime, the cost of labor forces will increase too. All the facts mention above will take negative effects on increase of gross profit of our products. Therefore, the Board of Directors specially reminds investors to take above-mentioned uncertain factors into sufficient consideration and pay close attention to investment risks while invest stocks of our company.. 6.10 Fulfilling of profitability prediction □applicable √ not applicable 6.11 Fulfilling of business plan □applicable √ not applicable 6.12 Utilization of fund raised from financing actions □applicable √ not applicable Changing of projects □applicable √ not applicable 16 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary 6.13 Utilizing of non-raised fund √ applicable □ not applicable In RMB 10 thousand Yuan Projects Amount ofProgress of theTurnover of the project the project project Technical reforming project 13,500.00 Main equipments May contribute in the 1st or 2nd quarter of are in position 2005. Establishing and controlling of March – Dec. 2004 realized sales income or Hangzhou Zhongneng Steam510.00 Incorporated onRMB90.156 million, gross profit of Feb. 27, 2004 RMB8.7393 million and net profit of Turbine Power Co., Ltd. RMB4.1492 million Establishing and controlling of Incorporated onMay – Dec. 2004, realized sales income of Hangzhou Steam Turbine1,122.00 March 1st 2004. RMB69,049,300, total profit of RMB7.6155 Casting Co., Ltd. million and net profit of RMB4.9323 million. Hangzhou Steam Turbine Incorporated onDec. 2004, realized sales income of Supplementary Machine Co.,1,824.00 Oct. 12t 2004. RMB6.7944 million and total profit of RMB** Ltd. million, and net profit of ** million Zhejiang Tianyu Share3,000.00 Incorporated on0- Controlling Co., Ltd. Dec.7 2004. Total 19,956.00 - - 6.14 Statement on the none-standard opinion issued by the CPA □applicable √ not applicable 6.15 Business plan for the new year √ applicable □ not applicable Managing plan of the company in 2005 Ensure accomplishment of manufacturing and managing task and meet market requirement. Improve sense of crisis, pressure and responsibility, and spare no effort to occupy the market. Increase investment on research, expedite technology development and improve core competition ability. Change extensive economy into intensive economy and improve standard of enterprise operation and management. Prediction of profitability for the new year √ applicable □ not applicable The Board of Directors tables a general requirement to running goal in 2005, namely, the output in 2005 must double on basis of that in 2004. The gist of the goal is as follows: In 2005, the company has decided the task of industrial steam turbine manufacture, namely, 310 steam turbines/2.5 million kw./RMB 191,300 and the number of steam turbines, the number of kw. and porudct value are respectively 36.56%, 62.57% and 94.02% higher than those of 2004. There are many uncertain factors which may influence profit increase, including markup of energy and raw materials, outside processing of massive spare parts and increase of cost of labor forces, etc. Therefore, it’s difficult to predict specific data of profit in 2005. However, the company will strictly execute information 17 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary exposal regulation issued by China Securities Regulatory Commission, and predict the achievement situation of the next report period in annual report. We appeal all the investors to pay attention to it. The Board of Directors predicted that the achievements in the first quarter of 2005 will be 50-100% higher that that in the same period of last year. (In the first quarter of 2004, the net profit is RMB 33,115,894.35 and each share gets RMB 0.15.) 6.16 Current profit distribution plan or capitalization of public reserves plan √ applicable □ not applicable Profit distribution scheme In accordance with the Articles of Association of the Company, the “net profit” adopted in the profit distribution will be basing on the lower one of the financial results audited by the overseas auditor and the domestic auditor. Therefore the 2004 Financial Statement issued by Zhejiang Oriental Certified Public Accountant is prevail, and the net profit of the year is RMB 74,190,581.58, with drawing of statutory reserves of RMB 19,191,599.84 (RMB 18,372,872.74 for the parent company), and drawing of statutory public welfare fund of RMB 19,044,554.97 (RMB 18,372,872.74 for the parent company), plus the profit of RMB 82,974,656.75 practically not distributed in the previous year, the profit distributable is amounted to RMB 257,165,238.33. The Board of Directors proposes: basing on the total capital share of 220,000,000 shares at the end of year 2004, RMB 7.00 (tax included) will be distributed as cash dividend upon each 10 shares. Dividend for B share holders will be translated to and distributed in Hong Kong Dollar at the middle exchange rate between HKD and RMB published by the People’s Bank of China at the 1st bank day next to the date when the profit distribution plan was adopted by the Shareholders’General Meeting 2004. The profit distributed in this time is amounted to RMB 154,000,000.00. The retained RMB 20,930,083.52 of profit practically not distributed will be carried over to the next fiscal year. The above-mentioned profit distribution scheme needs to be discussed and approved by the Shareholders’ General Meeting 2004. No capitalization of reserves will be performed for year 2004. The company is making profit in the report term but not yet have any dividend plan. □applicable √ not applicable 18 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary §7 Significant Events 7.1 Acquisition □applicable √ not applicable 7.2 Selling of property □applicable √ not applicable 7.3 Significant guarantee □applicable √ not applicable 7.4 Significant Related Transactions 7.4.1 Related sales and purchasing √ applicable □ not applicable In RMB 10 thousand Yuan Sales of products or labour service Purchasing of products or labour Related parties to the related parties services from the related parties Amount of Ratio in similar Amount of Ratio in similar transaction trades transaction trades Hangzhou Steam Turbine Power 547.84 0.56% 0.00 0.00% Group Co., Ltd. Hangzhou Nanfangtongda Gears 0.00 0.00% 514.70 0.69% Co., Ltd. Hangzhou Nanhua Wooden 0.00 0.00% 613.04 0.83% Packaging Co., Ltd. Hangzhou Steam Turbine Industrial 7.70 0.01% 124.63 0.17% Co. Hangzhou Steam Turbine Machinery 190.10 0.19% 567.76 0.85% & Equipment Co., Ltd. Hangzhou Steam Turbine Vehicle 0.59 0.00% 904.60 1.22% Sales Co.Ltd. Hangzhou Steam Turbine Environmental Engineering Co., 67.45 0.07% 82.88 0.08% Ltd. Hangzhou Steam Turbine Relian 0.00 0.00% 705.42 0.95% Co., Ltd. Hangzhou Heating Power Company 14.14 0.01% 0.00 0.00% Hangzhou Nanfang Operation 10.06 0.01% 24.07 0.03% Service Co. Hangzhou Steam Turbine Power 14,165.52 14.49% 0.00 0.00% Sales Co., Ltd. Hangzhou Nanfang Computer Co., 0.00 0.00% 36.22 0.05% Ltd. HSTG Technology Association 34.23 0.04% 15.80 0.02% HSTG Technology Association 23.33 0.02% 0.00 0.00% Hangzhou Hangfa Group 0.00 0.00% 519.50 0.70% Hangzhou Nanling Steam Turbine 0.28 0.00% 0.00 0.00% Parts Plant Total 15,061.24 15.40% 4,108.62 5.58% 19 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary 7.4.2 Related credit and debt interchange √ applicable □ not applicable In RMB 10 thousand Yuan Provide money to the related Accept money from the related Related parties parties parties Amount Balance Amount Balance occurred occurred Hangzhou Steam Turbine Power Group 810.33 1,171.44 665.00 496.30 Co., Ltd. HSTG Nanfang Sales Co. 2.00 234.97 156.32 153.00 HSTG Light Industry, Chemical and0.00 0.00 6.08 0.00 Hardware Business Department Hangzhou Steam Turbine Environmental67.89 0.00 72.86 0.00 Engineering Co., Ltd. Hangzhou Steam Turbine Automobile0.00 0.00 0.29 102.23 Sales Service Co., Ltd. Hangzhou Heating Power Company 0.00 0.00 259.15 0.00 Hangzhou Nanfang Gear Unit Industrial 384.02 43.92 514.70 0.00 Co. Hangzhou Nanling Steam Turbine Parts0.33 0.00 0.80 0.00 Plant Hangzhou Nanfang Operation Service2.47 0.00 2.47 0.00 Co. Hangzhou Steam Turbine Group Stuff12.40 0.00 12.40 0.00 Technology Association Hangzhou Steam Turbine Power Sales 12,843.06 1,930.90 10,912.16 4,661.54 Co., Ltd. Hangzhou Steam Turbine Industrial Co. 22.51 0.43 22.08 20.70 Hangzhou Steam Turbine Machinery & 174.23 60.35 113.88 21.79 Equipment Co., Ltd. Hangzhou Hangfa Group 1,850.50 1,331.00 519.50 0.00 Hangzhou Relian International Trading 1,338.18 632.76 705.42 0.00 Co. Hangzhou Nanfang Computer Co., Ltd. 0.00 0.00 0.00 6.27 Total 17,507.92 5,405.77 13,963.11 5,461.83 Including: The Company provided RMB175,079,200 to the controlling shareholder and its subsidiaries in the report term, therefore the balance was RMB54,057,700 million. 7.5 Financing proxy □applicable √ not applicable 7.6 Fulfilling of consent issues □applicable √ not applicable 7.7 Material Lawsuits/Arbitrations □applicable √ not applicable 7.8. Independent directors’ performing of duties Independent directors’ presenting of board meetings 20 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary Name ofTimes of Independent board Presented Presented AbsentRemark Director meetings to personally by proxy present He’s the independent director of the 2nd term of Board; presented only the meetings of the 2nd term Yao Fusheng 4 2 2 0 of Board, among which, he entrusted another to vote on the 1st provisional board meeting of 04, and 16th meeting of the 2nd term of Board. Zhang He’s the independent director of the 2nd and 3rd Mingguang 10 0 0 0 term of Board. Presented all of the meetings of the report term. He’s the independent director of the 2nd and 3rd Zhou Zhaoxue 10 10 0 0 term of Board. Presented all of the meetings of the report term. He’s the independent director of the 2nd and 3rd Hua Xiaoning 10 10 0 0 term of Board. Presented all of the meetings of the report term. He’s the independent director of the 3rd term of rd Qi Guoning 6 5 1 0 Board. Presented only the meetings of the 3 term of Board, he entrusted another to vote on the 2nd meeting of the 3rd term of Board. Objection upon relative events raised by the independent directors √ applicable □ not applicable Name of IndependentIssue objected Opinion of the objection Remark Director Zhang Mingguang,Issuing of B shares toPreparation work was not sufficient for The 5th meeting Hua Xiaoning particular parties the project of the 2nd strategy committee Zhang Mingguang,The proposal on investing on Don’t agree to invest in enterprisesThe 16th meeting Hua Xiaoning, ZhouZhejiang Tianhang Heatingrelated to manufacturing of steam of the 2nd term of Zhaoxue Equipment Co., Ltd. turbine parts in way of shareholding. It board must be controlling shareholding. Zhang Mingguang,2 basic managerial rulesSome of the terms need to be further T h e 2nd meeting Hua Xiaoning, Zhouincluding “Management ofimproved. of the 3rd term of Zhaoxue, Qi Guoning out sending directors and board supervisors” §8 Report of the Supervisory Committee □applicable √ not applicable 21 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary §9 Financial Report 9.1 Auditor’s Opinion Standard auditing statement without qualified opinion 9.2 Financial Statements 9.2.1 Balance Sheet In RMB Yuan 22 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary Under domestic accounting standard Items At the end of term Initial Consolidated Parent company Consolidated Parent company Current asset: Monetary fund 523,233,489.19 465,662,475.64 248,869,327.08 223,665,029.24 Short-term investment Notes receivable 119,013,135.91 112,093,058.91 57,069,100.00 49,169,100.00 Dividend receivable Interest receivable Account receivable 216,212,731.09 204,763,674.04 168,058,294.34 167,879,688.99 Other account receivable 30,880,571.13 54,303,484.52 32,383,901.24 32,711,813.08 Advance account 97,029,136.02 77,278,890.54 40,311,992.60 39,262,312.60 Allowance receivable Inventories 350,783,075.67 306,137,471.55 176,516,000.76 175,335,176.89 Expense to be amortized 48,133.33 Long-term credit invest expire in 1 year Other current asset Total of current asset 1,337,200,272.341,220,239,055.20 723,208,616.02 688,023,120.80 Long-term investment: Long-term share equity47,244,850.52 110,390,115.75 9,190,681.10 41,499,875.31 investment Long-term credit investment Total of long-term investment 47,244,850.52 110,390,115.75 9,190,681.10 41,499,875.31 Consolidated price difference Fixed asset: Original value of fixed assets 500,598,842.56 495,478,666.58 428,840,538.54 428,259,595.54 Less: Accumulated depreciation 268,942,431.88 268,699,119.77 252,759,073.04 252,642,803.75 Net fixed assets 231,656,410.68 226,779,546.81 176,081,465.50 175,616,791.79 Less: Fixed asset impairment9,107,749.11 9,107,749.11 9,272,386.66 9,272,386.66 provision Net fixed asset 222,548,661.57 217,671,797.70 166,809,078.84 166,344,405.13 Engineering material 16,842,863.23 16,842,863.23 10,511,846.57 10,511,846.57 Construction in progress 94,163,534.04 86,531,128.44 75,337,865.20 75,337,865.20 Fixed asset disposal Total of fixed assets 333,555,058.84 321,045,789.37 252,658,790.61 252,194,116.90 Intangible and others: Intangible assets 36,500,585.23 36,500,585.23 37,317,289.84 37,317,289.84 Long-term expenses to be amortized Other long-term assets Total of intangible and other36,500,585.23 36,500,585.23 37,317,289.84 37,317,289.84 assets Deferred tax: Deferred tax debit Total of assets 1,754,500,766.931,688,175,545.55 1,022,375,377.571,019,034,402.85 23 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary Current liabilities Short-term loans Notes payable Account payable 82,042,529.98 92,490,568.83 46,787,370.68 45,570,807.05 Account received in advance 954,238,208.72 900,426,454.27 436,066,817.51 436,066,817.51 Prepaid wages 1,500,000.00 Welfare payable 493,805.71 23,783.08 Dividend payable Tax payable 31,494,896.16 26,754,136.32 18,693,146.01 18,350,698.42 Other accounts to be delivered 315,195.45 261,958.32 31,781.62 31,726.22 Other account payable 10,319,039.13 9,344,045.37 3,515,561.98 3,478,973.49 Reserved expenses Expected liabilities Long-term liability expire in 1 year Other current liability Total of current liability 1,080,403,675.151,029,277,163.11505,118,460.88 503,499,022.69 Long-term liabilities Long-term borrowings Bond payable Long-term payable Special payable 3,296,000.00 2,966,000.00 2,790,000.00 2,790,000.00 Other long-term liability Total of long-term liability 3,296,000.00 2,966,000.00 2,790,000.00 2,790,000.00 Deferred tax: Deferred tax credit Total of liability 1,083,699,675.151,032,243,163.11507,908,460.88 506,289,022.69 Minor shareholders’ equity 24,406,855.16 1,721,536.53 Owners’ equity (or shareholders’ equity) Practical capital collected (or share 220,000,000.00 220,000,000.00 220,000,000.00 220,000,000.00 capital) Less: returned investment Practical capital (or share capital), net 220,000,000.00 220,000,000.00 220,000,000.00 220,000,000.00 Capital reserves 167,158,035.63 167,158,035.63 163,699,760.75 163,699,760.75 Surplus reserves 84,306,117.47 82,354,869.32 46,070,962.66 45,609,123.84 Incl. Statutory public welfare 42,080,036.30 41,177,434.66 23,035,481.33 22,804,561.92 Un-distributed profit 174,930,083.52 186,419,477.49 82,974,656.75 83,436,495.57 Incl. Cash dividend 154,000,000.00 154,000,000.00 44,000,000.00 44,000,000.00 Investment loss not recognized yet Different of foreign currency translation Total of owners’equity (or shareholders’646,394,236.62 655,932,382.44 512,745,380.16 512,745,380.16 equity) Total of liabilities and owners’ equity (or 1,754,500,766.931,688,175,545.551,022,375,377.571,019,034,402.85 shareholders’ equity) 24 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary 9.2.2 Income statements In RMB Yuan Under domestic accounting standard Items Current term Same period last year Consolidated Parent company Consolidated Parent company I. Major business turnover 977,825,970.01899,528,978.97 439,936,177.99439,169,007.06 Less: Major business cost 581,696,871.68535,939,148.96 267,948,911.44268,891,725.46 Major business tax and surtax 1,732,810.17 1,348,996.54 895,502.76 876,475.44 II. Major business profit (“-“ for loss) 394,396,288.16362,240,833.47 171,091,763.79169,400,806.16 Plus: Other business profit (“-“ for loss)1,823,635.25 1,259,321.50 1,139,600.12 974,798.27 Less: Business expenses 19,955,450.89 18,368,857.16 11,630,991.86 11,630,991.86 Administrative expense 131,657,401.80113,289,479.63 93,105,994.36 91,896,237.97 Financial expenses -3,409,766.04 -2,844,448.20 -974,356.91 -531,380.75 III. Operational profit (“-“ for loss) 248,016,836.76234,686,266.38 68,468,734.60 67,379,755.35 Plus: Investment gains (“-“ for loss) -1,959,580.58 6,217,690.44 -835,316.66 -253,271.91 Allowance income 4,245,322.82 4,245,322.82 2,923,070.10 2,923,070.10 Non-business income 5,004,990.99 5,004,990.99 220,727.73 220,727.73 Less: Non-business expenses 685,641.97 429,622.78 500,365.20 480,317.76 IV. Gross profit (“-“ for loss) 254,621,928.02249,724,647.85 70,276,850.57 69,789,963.51 Less: Income tax 75,731,227.81 65,995,920.45 26,242,447.06 25,787,433.53 Minor shareholders’ equity 4,700,118.63 31,873.53 Plus: Investment loss occurred this term but not recognized V. Net profit (“-“ for loss) 174,190,581.58183,728,727.40 44,002,529.98 44,002,529.98 Plus: Retained profit at the beginning of 82,974,656.75 83,436,495.57 69,893,752.19 70,234,471.59 term Other transferred in VI. Distributable profit 257,165,238.33267,165,222.97 113,896,282.17114,237,001.57 Less: Statutory surplus reserves 19,190,599.84 18,372,872.74 4,460,812.71 4,400,253.00 Drawing of statutory public welfare 19,044,554.97 18,372,872.74 4,460,812.71 4,400,253.00 Employee award and welfare fund Reserves Enterprise development fund Profit returned to investment VII. Distributable profit 218,930,083.52230,419,477.49 104,974,656.75105,436,495.57 Less: Preference share dividend payable Optional surplus reserves Common share dividend payable 44,000,000.00 44,000,000.00 22,000,000.00 22,000,000.00 Common share dividend transferred to capital (or share capital) VIII. Undistributed profit 174,930,083.52186,419,477.49 82,974,656.75 83,436,495.57 Income statement (Appendix) 1. Income from selling and disposal of department or invested entities 2. Loss from nature disasters 3. Increasing (or decreasing) of gross profit by changing of accounting policies 4. Increasing (or decreasing) of gross profit by changing of accounting-6,013,587.72 -6,013,587.72 -19,972,983.79 -19,972,983.79 estimation 5. Loss from debt reconstruction 6. Others 25 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary 9.2.3 Cash Flow Statements In RMB Yuan Under domestic accounting standard Items Current term Consolidated Parent company I. Net cash flow from business operation Cash received from sales of products or services 1,476,289,742.791,365,536,167.48 Tax returned 4,410,538.07 4,410,538.07 Other cash inflow related to operation 18,618,838.49 15,969,667.59 Subtotal of cash inflow 1,499,319,119.351,385,916,373.14 Cash paid for purchasing of merchandise and services 738,401,553.68 656,906,890.51 Cash paid to staffs or paid for staffs 124,132,103.67 118,322,079.22 Taxes paid 128,622,676.83 121,385,255.25 Other cash paid related to operation 66,651,279.32 61,893,322.60 Subtotal of cash outflow 1,057,807,613.50958,507,547.58 Net Cash flow generated by business operation 441,511,505.85 427,408,825.56 II. Cash flow generated by investing Cash received from returning of investment 86,250.00 86,250.00 Cash received as investment profit 1,801,200.00 Net cash received from disposal of fixed assets, intangible assets and 1,259,517.96 3,616,773.54 other long-term assets Other cash received related to investment 2,878,764.00 2,878,764.00 Subtotal of cash inflow 4,224,531.96 8,382,987.54 Cash paid to acquire fixed assets, intangible assets and other long-term105,856,834.17 85,834,125.17 assets Cash paid for investment 40,100,000.00 64,560,000.00 Other cash paid related to investment Subtotal of cash outflow 145,956,834.17 150,394,125.17 Net cash flow generated by investment -141,732,302.21 -142,011,137.63 III. Cash flow generated by financing Proceeds from investments 18,080,000.00 Cash received from loans Other cash received related to financing 728,000.00 728,000.00 Subtotal of cash inflow 18,808,000.00 728,000.00 Cash paid for recovering of debt Cash paid for dividend, profit or interest 44,094,800.00 44,000,000.00 Other cash paid related to financing Subtotal of cash outflow 44,094,800.00 44,000,000.00 Net cash flow generated by financing -25,286,800.00 -43,272,000.00 IV. Influence of exchange rate movement -128,241.53 -128,241.53 V. Net increase of cash and cash equivalents 274,364,162.11 241,997,446.40 26 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary Appendix of Cash Flow Statement 1. Net profit adjusted to cash flow of business operation Net profit 174,190,581.58183,728,727.40 Plus: Asset impairment provision drawn 1,829,331.18 -174,303.36 Depreciation of fixed assets 20,932,639.87 20,712,798.18 Amortizing of intangible assets 816,704.61 816,704.61 Amortizing of long-term expenses Decrease of expenses to be amortized (Less: increase) -48,133.33 Increase of reserved expenses (Less: decrease) Cash lost from treatment of fixed assets, intangible assets and other long-term-129,013.01 -273,174.14 assets (less: gains) Loss of disposing fixed assets 4,646.00 Financial expenses -3,409,766.04 -2,844,448.20 Investment loss (less: gains) 1,018,501.69 -7,158,769.33 Credit of deferred tax (less: debit) Decreasing of inventories (less: increasing) -174,368,470.29-130,903,690.04 Decrease (less: increase) in operating receivables -242,159,465.85-170,037,788.40 Increase (less: decrease) in operating payables 652,834,325.77528,808,581.64 Others 5,299,505.04 4,734,187.20 Minor shareholders’ equity 4,700,118.63 Net Cash flow generated by business operation 441,511,505.85427,408,825.56 2. Investment and financing activities not involving with cash Liabilities converted to capital Convertible bond expire in 1 year Fixed assets leased through financing 3. Net increasing of cash and cash equivalents Balance of cash at period end 523,233,489.19465,662,475.64 Less: Initial balance of cash 248,869,327.08223,665,029.24 Plus: Balance at the end of term of cash and equivalents Less: Balance at the beginning of term, cash and equivalents Net increasing of cash and cash equivalents 274,364,162.11241,997,446.40 9.3 Explanation on changes of accounting policies, accounting estimation, and accounting method √ applicable □ not applicable During the report term, the company changed the accounting standard of depreciation of fixed assets. The Company adopts average age method in accounting of fixed asset depreciations. With ignoring of impairment provisions of the fixed assets, the depreciation rates are determined upon the categories, predicted serving life, and predicted net scrap value rate (4% of original value) of the fixed assets. Currently the following depreciation scheme is adopted: 27 Hangzhou Steam Turbine Co., Ltd. Annual Report 2004 Summary Category of Fixed Assets Depreciation Age（Year） Annual Depreciation（%） Houses & Buildings 40 2.4 Machinery & Equipment 14-18 5.3-6.9 Office Facilities 5-10 9.6-19.2 To meet with the demand of market, the Company will increase the productivity dramatically. Following with the increasing of productivity, physical consume of fixed assets is becoming greater. This is certainly leading to value losing of the fixed assets. In the mean time, along with the progress of science and technology, the intangible loss of the fixed asset is also increasing. In this point of view, the old depreciation scheme will not benefit the Company’s long-term development. For the purpose of consolidate the capital base of the Company, reflect the cautious principle of accounting, strengthen the ability of anti-risk, speed up the Company’s development, it is necessary to adjust the depreciation scheme of the fixed assets. The fifth meeting of audit committee of the Board of Director discussed and agreed and the 15th meeting of the second Board of Directors discussed and approved and 2003 Shareholders’ General Meeting discussed and approved to adjust the accounting standard of depreciation of fixed assets. The new standard is as follows. Category of Fixed Assets Depreciation Age（Year） Annual Depreciation（%） Houses & Buildings 20-30 3.2-4.8 Machinery & Equipment 8-15 5.4-12 Office Facilities 5 19.2 9.4 Content, amount, reason and impact of major accounting errors □applicable √ not applicable 9.5 Explanation on changes of consolidation range √ applicable □ not applicable Hangzhou Zhongneng Steam Turbine Power Co., Ltd., Hangzhou Steam Turbine Casting Co., Ltd. and Hangzhou Steam Turbine Supplementary Machine Co., Ltd. has been included in the consolidation range. 28