深粮控股(000019)深深宝Ｂ2004年年度报告（英文版）

SHENZHEN SHENBAO INDUSTRIAL CO., LTD. ANNUAL REPORT 2004 (B-SHARE) April, 2005 Important Note: The Board of Directors of Shenzhen Shenbao Industrial Co., Ltd. (hereinafter referred to as the Company) and its directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. K.C.Oh & Company Certified Public Accountants issued unqualified Auditors’ Report for the Company. Mr. Zeng Pai, Chairman of the Board as well as General Manager of the Company and Ms. Zeng Suyan, person in charge of accounting organ (namely head of the Planning and Financing Department) hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. This report has been prepared in Chinese version and English version respectively. In the event of difference in interpretation between the two versions, the Chinese report shall prevail. 1 Content Chapter I Company Profile………………………………………………………3 Chapter II Abstract of Financial Highlights and Business Highlights………….4 Chapter III Changes in Share Capital and Particulars about Shareholders…….6 Chapter IV Particulars about Directors, Supervisors and Senior Executives and Staffs…………………………………………………………………………………..9 Chapter V Administrative Structure……………………………………………..11 Chapter VI Particulars about Shareholders’ General Meeting…………………14 Chapter VII Report of the Board of Directors………………………………….16 Chapter VIII Report of the Supervisory Committee…………………………….29 Chapter IX Significant Events……………………………………………………..31 Chapter X Financial Report……………………………………………………..34 Documents Available for Reference………………………………………………..65 2 Chapter I. Company Profile I. Legal Name of the Company In Chinese: 深圳市深宝实业股份有限公司(Abbr. 深宝) In English: SHENZHEN SHENBAO INDUSTRIAL CO., LTD. (Abbr.: SBSY) II. Legal Representative: Mr. Zeng Pai III. Secretary of Board of Directors: Mr. Liu Xiongjia Liaison Address: 28/F, B&C Block of Bao’an Plaza, No. 1002 Sungang Road, Shenzhen Tel: (86) 755-25507480 Fax: (86) 755-25507480 E-mail: a0019@21cn.com IV. Registered Address of the Company: 28/F, B&C Block of Bao’an Plaza, No. 1002 Sungang Road, Shenzhen Office Address of the Company: 28/F, B&C Block of Bao’an Plaza, No. 1002 Sungang Road, Shenzhen Post Code: 518020 Internet Web Site: http://www.sbsy.com.cn E-mail: sbsy@sbsy.com.cn V. Newspapers Chosen for Disclosing the Information of the Company: Securities Times (Domestic) and Ta Kung Pao (Overseas) 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: Secretariat of the Board of Directors VI. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: SHENSHENBAO – A, SHENSHENBAO-B Stock Code: 000019, 200019 VII. Other Relevant Information of the Company 1. The initial registration date and place: July 30, 1981, Shenzhen The changed registration date and place: Dec. 3, 2003, Shenzhen 2. Registration code for business license of corporation: 4403011024443 3. Number of taxation registration: GSDZ 440301192180754 DSDZ 440303192180754 4. Name of the domestic certified public accountants engaged by the Company: Shenzhen Dahua Tiancheng Certified Public Accountants Address: 11/F., B Block of Confederation Square, No. 5022 Binhe Av. Futian Dis. Shenzhen Name of the overseas certified public accountants engaged by the Company: K.C.Oh & Company Certified Public Accountants Address: 8/F., New Henry House, No. 10 Ice House Street, Central, Hong Kong 3 Chapter II. Abstract of Financial Highlights and Business Highlights Section I. Profit Index as of the Year 2004 I. Profit index of the year 2004 Unit: RMB ’000 Items Amount Profit before taxation (2,118) Profit attributable to shareholders 4,309 Operating profit （43,457） Other profit 50,401 Net cash flow arising from operating activities (10,531) Net increase in cash and cash equivalents (18,828) II. Discrepancy and explanation for the difference in the net profit as audited by domestic and international certified public accountants respectively. Net profit of the Company as of the year 2004 was respectively RMB 4,309,000 and RMB 4,309,000 as audited under Chinese Accounting Standard (CAS) and International Accounting Standard (IAS) and there is no difference between them. Section II. Principal Accounting Data and Financial Index over Previous Three Years Ended the Report Year Unit: RMB ’000 Items 2004 2003 2002 Turnover 64,558 61,787 77,134 Profit attributable to shareholders 4,309 (44,852) (53,394) Total assets 467,229 446,314 455,161 Shareholders’ equity 235,599 231,290 276,142 Earnings per share (RMB) 0.0237 (0.2465) (0.2935) Weighted average earnings per share (RMB) 0.0237 (0.2465) (0.2935) Net assets per share (RMB) 1.2950 1.2714 1.518 Return on equity (%) 0.0183 (0.1939) (19.34) Section III. Changes in Shareholders’ Equity for the Year 2004 and the Causes Unit: RMB’000 Share Capital public Surplus public Items Retained earnings Total capital reserve reserve Amount at period-begin 181,923 81,004 13,367 (45,004) 231,290 Increase in the report 0.00 0.00 0.00 4,309 4,309 period Decrease in the report 0.00 0.00 0.00 period Amount at period-end 181,923 81,004 13,367 (40,695) 235,599 Reason of changes --- --- --- Gains in this year Gains in this year 4 Chapter III. Changes in Share Capital and Particulars about Shareholders Section I. Changes in Shares 1. Statement of changes in shares (Ended Dec. 31, 2004, Unit: In shares) Increase / decrease this time (+, -) Before changethe After the change Allotment Bonus Sharesfrom transferred Additional Others Sub-total of Shares shares public reserve issuance I. Unlisted shares 1. Sponsors’ shares 115,838,611 115,838,611 Including: State-owned shares 44,090,145 44,090,145 Domestic share legal person’s 71,748,466 71,748,466 Foreign share legal person’s Others 2. Raised legal person’s shares 3. sharesInner Employees’ 4. Shares held by senior executives 7,681 7,681 5. Preference shares or others Total unlisted shares 115,846,292 115,846,292 II. Listed shares 1.RMB ordinary shares 39,940,796 39,940,796 2.Domestic shares listed foreign 26,136,000 26,136,000 3.Overseas listed foreign shares 4. Others Total listed shares 66,076,796 66,076,796 III. Total shares 181,923,088 181,923,088 Section II. Issuance and listing of stock I. In the previous three years ended the report period, the Company has not issued shares or derived securities. II. There existed no changes on the total shares and structure of the Company within the report period. 5 Section III. Particulars about Shareholders I. Ended the report period, the Company had totally 29,713 shareholders, including 23,595 shareholders of A-share, 6,118 shareholders of B-share. II. Ended Dec. 31, 2004, particulars about shares held by the top ten shareholders and held by the top ten circulation shareholders. Particulars about shares held by the top ten shareholders Increase/de Amount of Type of Amount of Nature of shareholders cease in the holding shares Propor- shares (state-owned Full Name of shareholder report shares at the (circulating tion (%) pledged or shareholder or foreign period year-end /non- frozen (share) capital shareholder) (share) (share) circulating) SHENZHEN Non- AGRICULATURE 0 61,848,466 34.00 0 circulating PRODUCTS CO., LTD. SHENZHEN INVESMENT Non- State-owned 0 53,990,145 29.68 0 HOLDING CORPORATION circulating shareholder CHEN YONG QUAN Foreign capital Unknown 384,299 0.21 Circulating Unknown shareholder XIAO LI ZHU Foreign capital Unknown 240,000 0.13 Circulating Unknown shareholder LU XUE Unknown 221,900 0.12 Circulating Unknown ZHOU WEN LI Foreign capital Unknown 200,000 0.11 Circulating Unknown shareholder ZENG XIAN BAO Foreign capital Unknown 189,700 0.10 Circulating Unknown shareholder KOTO TRANSPORT LTD Unknow Foreign capital Unknown 183,468 0.10 Circulating n shareholder LU XIAO Foreign capital Unknown 180,000 0.09 Circuiting Unknown shareholder LIANG HAI YAN Foreign capital Unknown 131,500 0.07 Circulating Unknown shareholder Particulars about shares held by the top ten circulation shareholders Full name of shareholders Circulation share held at the year-end Type (A, B, H shares or others) (share) CHEN YONG QUAN 384,299 B-share XIAO LI ZHU 240,000 B-share LU XUE 221,900 A-share ZHOU WEN LI 200,000 B-share ZENG XIAN BAO 189,700 B-share KOTO TRANSPORT LTD 183,468 B-share LU XIAO 180,000 B-share LIANG HAI YAN 131,500 B-share YU XIU YING 129,566 A-share LIU XIAO CHUAN 125,000 B-share 6 Explanation on associated 1. On Sep. 25, 2002, Shenzhen Investment Holding Corporation (hereinafter referred to as Investment Holding) signed the Agreement for Equity Transfer with relationship or consistent Shenzhen Jindazhou Industrial Co., Ltd. (hereinafter referred to as Jindazhou action among the top ten Company), which 53,990,145 shares of the Company held by Investment Holding were transferred to Jindazhou Company (For detail, please refer to Public Notice shareholders of circulation published in Securities Times and Ta Kung Pao dated Sep. 27, 2002.). On Dec. 11, share 2003, the Company received Notification on Relieving Agreement for Equity Transfer of Shenzhen Shenbao Industrial Co., Ltd. from Shenzhen Investment Holding Corporation (for details, please refer to the public notice of the Company in Securities Times and Ta Kung Pao dated Dec. 12, 2003). On Apr. 2, 2004, Investment Holding informed the Company by letter that Jindazhou Company agreed to relieve the agreement for equity transfer (for details, please refer to the public notice published on Securities Times and Hong Kong Ta Kung Pao dated Apr. 6, 2004). 2. Based on State-owned Assets Supervision and Administration Commission of Shenzhen Municipality Government (hereinafter referred to as “Shenzhen GZW”) SGZW [2004] No. 89 document, Shenzhen GZW regard Shenzhen Agricultural Products Co., Ltd. (hereinafter referred to as “ Agricultural Company”), the controlling shareholder of the Company, as one of the first batch of enterprises put under directly supervision of Shenzhen GZW and implement its duty of subscribe. Amounting to 88,703,978 shares of state-owned share of Agricultural Company (taking up 22.88% of total shares of the Company) held by Shenzhen Commodity & Trade Investment Holdings Company, the original largest shareholder of Agricultural Company, would be transferred to Shenzhen GZW. The relevant transfer and change registration formalities of share equity are under transaction currently (for details, please refer to the public notice published in Securities Times and Hong Kong Ta Kong Pao dated Nov. 11, 2004). 3. Shenzhen GZW released Decision on establishing Shenzhen Investment Holdings Co., Ltd. (SGZW [2004] No. 223 Document): according to the general arrangement of Shenzhen municipal committee and government on state-owned assets management system adjustment, made decision of merging Shenzhen Investment Holding Corporation, Shenzhen Construction Investment Holdings Company and Shenzhen Commodity & Trade Investment Holdings Company, and establishing Shenzhen Investment Holdings Co., Ltd.. Shenzhen Investment Holdings Co., Ltd. belongs to state-owned sole company limited (for details, please refer to the public notice of the Company published in Securities Times and Hong Kong Ta Kong Pao dated Nov. 4, 2004). 4. Shenzhen Investment Holding Corporation held 8,565,446 shares of Shenzhen Agricultural Products Co., Ltd (“Agricultural Products”), taking 2.21% of total share capital of Agricultural Products. 5. The Company is not aware whether there exists no associated relationship or belongs to consistent actionist regulated by the Management Regulation of Information Disclosure on Change of Shareholding for Listed Companies among the top ten circulation shareholders, or between the top ten circulation shareholders and the top ten shareholders or not. Explanation on Strategy Name of shareholders Dating to hold shares investor or ordinary legal person participating - - allotment of new shares and dating to hold them. 7 III. Particulars about controlling shareholders of the Company 1. Name of controlling shareholder: Shenzhen Agricultural Products Co., Ltd. Legal representative: Chen Shaoqun Date of foundation: Jan. 14, 1989 Main business and product: the company is engaged in constructing wholesale market of agricultural products; deals in market lease and sale; domestic trading, supply and marketing of materials (excluding monopoly products); and offer auxiliary establishment to market of agricultural products wholesale, for instance, rest house, canteen, restaurant, transportation, load and unload, storage, packing (business license of specific item is to be applied in addition); service of information counseling, and wholesale of sugar, tobacco and alcohol. Registration capital: RMB 387,663,000 2. The first largest shareholder of the controlling shareholder of the Company: Name: Shenzhen Commodity & Trade Investment Holdings Company Legal representative: Feng Yulin Date of foundation: Apr. 30, 1997 Main business scope: investment and setting up industry (specific item is to be applied in addition), domestic trading and supply and marketing of materials (excluding monopoly products). Registration capital: RMB 800,000,000 3. State-owned Assets Supervision and Administration Commission of Shenzhen Municipality Government State-owned Assets Supervision and Administration Commission of Shenzhen Municipality Government established with hanging out their shingle on Aug., 2004, as special entity directly under Shenzhen People’s Government, implements its qualification of provider on behalf of our nation and carry out supervision and administration according to law for state-owned assets which authorized to be supervised. 8 4. Property right and controlling relationship between the actual controller of the Company and the Company is as follows: STATE-OWNED ASSETS SUPERVISION & ADMINISTRATION COMMISSION OF SHENZHEN MUNICIPALITY GOVERNMENT 100% 100% SHENZHEN COMMODITY & TRADE SHENZHEN INVESTMENT HOLDING 22.88% INVESTMNENT HOLDINGS CORPORATION COMPANY 22.88% 2.21% SHENZHEN AGRICULTURE PRODUCTS CO., LTD. 29.68% 34% SHENZHEN SHENBAO INDUSTRIAL CO., LTD. IV. Introduction to Shenzhen Investment Holding Corporation Legal representative: Li Heihu Date of foundation: Feb. 10, 1988 Main business and product: management and supervision of enterprise’s state assets, financing and property right; to share all kinds of enterprise and turn over investment, to offer credit and assurance; to impose profit after taxation and occupying expenses of assets of state enterprise and the other business authorized by municipal government. Registration capital: RMB 2,000,000,000 V. Introduction to Shenzhen Investment Holdings Company Legal representative: Chen Hongbo Date of foundation: Oct. 13, 2004 Main business and product: to provide guarantee to state-owned enterprise which belongs to municipality; to carry out management to the state-owned share equity excluding the enterprises directly under the supervision of State-owned Assets Supervision and Administration Commission of Shenzhen Municipality Government; assets reorganization, innovation and capital operation of subsidiary enterprise; investment and other business authorized by State-owned Assets Supervision and Administration Commission of Shenzhen Municipality Government. Registration capital: RMB 4,000,000,000 9 Chapter IV. Particulars about Directors, Supervisors and Senior Executives and Staffs Section I. Particulars about the directors, supervisors and senior executives I. Basic status (ended the report date) Number of holding shares (share) Name Gender Age Title Office term At the At the year-begin year-end Chairman of the Board, July 28, 2003- Zeng Pai Male 34 0 0 General Manager July 28. 2006 July 28, 2003- Tian Yanqun Male 58 Independent Director 0 0 July 28. 2006 July 28, 2003- Fan Zhiqing Male 56 Independent Director 0 0 July 28. 2006 July 28, 2003- Wu Ying Female 42 Independent Director 0 0 July 28. 2006 Zhao July 28, 2003- Female 54 Director 0 0 Guorong July 28. 2006 Chen July 28, 2003- Male 39 Director 0 0 Xiaohua July 28. 2006 July 28, 2003- Zhang Jian Male 32 Director 0 0 July 28. 2006 Chairman of supervisor July 28, 2003- Zuo Heping Female 55 7,680 7,680 committee July 28. 2006 July 28, 2003- Peng Ying Male 44 Supervisor 0 0 July 28. 2006 July 28, 2003- Li Yiyan Female 39 Supervisor 0 0 July 28. 2006 Standing deputy general July 28, 2003- Guan Lihua Male 51 0 0 manager July 28. 2006 July 28, 2003- Fang Jianhui Male 39 Deputy general manager 0 0 July 28. 2006 Deputy General July 28, 2003- Zheng Yuxi Male 43 0 0 Manager July 28. 2006 Minister of planning July 28, 2003- Zeng Suyan Female 50 0 0 financing dept. July 28. 2006 Secretary of the board of July 28, 2003- Liu Xiongjia Male 33 0 0 directors July 28. 2006 10 Notes: Particulars about directors, supervisors holding the position in Shareholding Company (1) Director of the Company Ms. Zhao Guorong held the position of director and chief financial supervisor of Agricultural Products, with office term from July 31, 2003 to July 31, 2006. (2) Director of the Company Mr. Chen Xiaohua held the position of director, deputy of general manager and secretary of the Board of Agricultural Products, with office term from July 31, 2003 to July 31, 2006. (3) Director of the Company Mr. Zhang Jian held the position of Director of HR Dept. of Agricultural Products. II. Particulars about main work experience and posts or part-time job of present directors, supervisors and senior executives: Directors: 1. Mr. Zeng Pai, an economist, was born in 1971 and graduated from Xi’an Jiaotong University with doctor degree of management science. He took turns of deputy general manager of futures business dept., manager of trade & development dept., assistance of general manager, etc. of agricultural company; since April 2001 he has taken the post of director and general manger of the Company and he has held the positions of chairman of the Board, general manager and secretary of the Party committee of the Company since January 2003. Now he is in charge of chairman of the Board, general manager and secretary of the Party committee of the Company, chairman of the Board of Shenzhen Shenbao Huacheng Food Co., Ltd. and director of Shenzhen Pepsi Drink Co., Ltd.. 2. Mr. Tian Yanqun, was born in 1947 and graduated from Zhongshan University with bachelor degree of law in 1984, and went to German University of Cologne as visiting scholar from 1990 to 1991, he ever took the post of director of personnel department of Shenzhen University. Now he is in charge of associate professor in law of Shenzhen University, deputy superintendent of Hong Kong Law Institute, part time lawyer and arbitrator of Guangzhou arbitration commission, and he has held the position of independent director of the Company since February 2000. 3. Mr. Fang Zhiqing, a senior accountant and senior economist with master degree, was born in 1949 and he took turns of committeeman of senior professional title and concurrently member of expert group of Guangdong Province, financial manager and financial chief supervisor of Shenzhen large-scale state-run or joint-invested enterprises, and now he is in charge of visiting professor (mainly teaching courses of company financing) of Shenzhen 11 manager advanced study, he has held the position of independent director of the Company since July 2002. 4. Ms. Wu Ying, a senior economist with bachelor degree, was born in 1963. She is mainly engaged in management in financial field. She took the turns of deputy general manager of Hainan Province filial of China Construction Bank and deputy director of head office of China Construction Bank since 2000, till now she works at the head office of Shenzhen Development Bank as from June 2001 and is charge of manager and senior economist, she has taken the post of independent director of the Company since July 2003. 5. Ms. Zhao Guorong, a senior accountant with bachelor degree, was born in 1951. She took turns of deputy minister, minister and chief accountant of planning and financial dept. of the Agriculture Products Company, she has taken the post of financial chief supervisor of the Agriculture Products Company since February 1996, she took turns of the 1st, 2nd, 3rd and 4th Board of Directors of the Agriculture Products Company as of February 1997, and she has taken the post of the 4th and 5th Board and Directors of the Company since February 2000. 6. Mr. Chen Xiaohua, an economist with master degree, was born in 1966. he took turns of section chief of secretariat, director and concurrently secretary of the Board of the Agriculture Products Company. He is now in charge of director, deputy general manager and secretary of the Board of Agriculture Products Company and he has taken the post of director of the Company since February 2003. 7. Mr. Zhang Jian, bachelor degree of business administration, was born in 1973. He took the post of manager of Shenzhen Yikang Medical Instruments Co., Ltd., and took turns of senior staff member, deputy minister of Human Resources dept. of the Agriculture Products Company, until now he has taken the positions of minister of Human Resources dept. of the Agriculture Products Company since July 2003 and the director of the Company since July 2003. Supervisors: 1. Ms. Zuo Heping, a political engineer with junior college level. She has taken the position of deputy secretary of the Party committee and secretary of commission for disciplinary inspection of the Company since May 1994, the supervisor of the Company since December 1995, the chairman of supervisors committee of the Company since July 2003. And now she is in charge of chairman of supervisors committee and chairman of Labor Union of the Company. 2. Mr. Peng Ying, an economist with bachelor degree, was born in 1961. He took turns of 12 office director of general manager, general manager assistant and concurrently minister of human resources of the Agriculture Products Company and chairman of Shenzhen Agriculture Products Flesh Dispatch Co., Ltd.. He has taken the position of supervisor of the Company since February 2000 and the secretary of commission for disciplinary inspection of the Company since January 2005. 10. Ms. Zhang Yan, an economist with bachelor degree, was born in 1966. She has taken the post of the Company since graduated on August 1988;she is now the minister of human resources of the Company; she has held the position of supervisor of the Company since July 2003. Other senior executives: 11. Mr. Guan Lihua, a senior engineer and senior economist with master degree, on-study doctor, was born in 1954. He took turns of general manager assistance of Shenzhen Huayang Bags Co., general manager of Shenzhen Yinzhu Plastic Products Co., Ltd.; since 1999 he took turns of director, deputy general manager and standing deputy general manager of the Company, and has taken the position of standing deputy general manager of the Company since July 2003. 12. Mr. Fang Jianhui, born in 1966, he has bachelor degree and now is employee admitted to postgraduate program in Xi’an Jiaotong University majoring in banking. Since 1993 he took turns of deputy general manager and manager of import & export dept. of the Agriculture Products Company, general manager of Shenzhen Liya Trade development Co., Ltd.; he has taken the post of deputy general manager of the Company since February 2000, and now he is in charge of deputy general manager of the Company, director of Shenzhen Sanjing Food & Drink Development Co., Ltd. and director of Shenzhen Shenbao Huacheng Food Co., Ltd.. 13. Mr. Zheng Yuxi, bachelor degree of economics, was born in 1962. He has taken the post of director and deputy general manager of underling enterprise of Shenzhen Special Economic Region Free Commodities Enterprises; he took the turns of general manager assistance and deputy general manager of the Company as of May 2001.now he is in charge of deputy general manager of the Company, chairman and general manager of Shenzhen Shenbao Sanjing Food & Drink Development Co., Ltd. and director of Shenbao Huacheng Food Co., Ltd.. 14. Ms. Zeng Suyan, an accountant with junior collage degree, was born in 1955. She took the turns of chief accountant, deputy minister and minister of planning and financial dept. of the Company since 1994. She is now in charge of minister of the planning and financial dept. 13 of the Company and supervisor of Shenzhen Shenbao Huacheng Food Co., Ltd.. 15. Mr. Liu Xiongwei, an economist with bachelor degree, was born in 1972. He took turns of counterman of Shenzhen filial of SINOTRANS and office director assistance of the Board of Shenzhen Agriculture Products Co., Ltd., he has taken the post of secretary of the Board of Shenzhen Shenbao Industrial Co., Ltd.. Now he is in charge of secretary of the Board and minister of inner inspection dept. of the Company and director of Shenzhen Shenbao Sanjing Food & Drink Development Co., Ltd.. III. Particulars about the annual remuneration of directors, supervisors and senior executives In the report year, the annual remuneration of the directors, supervisors and senior executives drawing salaries from the Company is researched and confirmed based on the regulation of relevant wage management and rate standard of Shenzhen and the actual situation of the Company. In the report period, the Company has 15 directors, supervisors and senior executives at present. Of them, 8 persons received their salary from the Company totally amounting to RMB 750,000, Among them, 2 persons enjoy an annual salary from RMB 100,000 to RMB 150,000; 3 persons enjoy from RMB 80,000 to RMB 100,000 and 3 persons enjoy an annual salary from RMB 70,000 to 80,000. Total remuneration of the top three directors was RMB 242,000 and total remuneration of the top three senior executives was RMB 345,000. According to the relevant regulation of Administration Rule of Listed Company and the Company’s actual situation, the Company respectively paid allowance of RMB 50,000 (tax included) to independent directors per year and necessary fees (included but not limited to traffic fees and accommodation etc.), when independent directors attend the Shareholders’ General Meeting and the Board meeting or exercise other authority according to the relevant laws, regulations and Articles of Association of the Company. Within the report year, the Company respectively paid RMB 59,000 to Mr. Tian Yanqun, Mr. Fan Zhiqing and Ms. Wu Ying. In the report period, directors of the Company Ms. Zhao Guorong, Mr. Chen Xiaohua, Mr. Zhang Jian and supervisors of the Company Mr. Peng Ying received no remuneration from the Company, but received remuneration from Agricultural Products, the actual controlling shareholder of the Company, or share-controlling subsidiary of the Company. III. Particulars about name of directors, supervisors and senior executives leaving their position during the report year and the reason of leaving 14 On May 25, 2004, the Shareholders’ General Meeting 2003 of the Company to Mr. Chen Jie and Mr. Cui Gang to quit the post of the director of the 5th Board of Directors due to work. IV. There existed no particulars about leaving their position or engaging of senior executives in the report period. Section II. About Employees At the end of the year 2004, the Company had totally 399 employees. Profession/occupation composition Education Background Profession Number Proportion (%) Education Number Proportion (%) Production personnel 94 23.56 Postgraduate or higher 7 1.75 Salesperson 40 10.03 Undergraduate 35 8.77 Technicians 39 9.77 3-years regular college 55 13.79 graduate Financial personnel 20 5.01 Polytechnic school 21 5.26 graduate Administrative 92 23.06 Senior middle school 281 70.43 personnel graduate or lower Laid-off worker 114 28.57 Retirees whose expense needs to be 0 undertaken Total 399 100 Total 399 100 Chapter V. Administrative Structure Section I. Company Administration The Company strictly implemented the PRC Company Law, the Securities Law and Administration Rule of Listed Company, etc. the requirements of relevant laws and regulations issued by CSRC, moreover, combined with the Company’s actual situation, so as to continuously perfected its structure of legal person administration and operates the Company in a standardized way. In the report period, the Company newly instituted Information Inner Report System and the Management System of Investor Relationship, regulated the work of information disclosure and investors’ relationship of the Company and further improved the management level of the Company. Comparing with the relevant laws and regulations, the Board of Directors considered that the practical situation of management of the Company and the relevant laws and regulations kept consistence basically. The details 15 of the management of the Company are set out as follows: 1. Shareholders and Shareholders’ General Meeting: The Company operates in accordance with the relevant standards, practically safeguard the interests of the medium and small shareholders, and ensures all shareholders to enjoy their full rights. The Company revised and integrated the Articles of Association and Rule of Procedure of Shareholders’ General Meeting in accordance with ZJF [2003] No.56 Document of Notification on Several Problems of Standardizing Capital Current and Guarantee for External Parties of Listed Companies and Related Parties promulgated by CSRC; the Company convened and held shareholders’ general meeting strictly in compliance with the relevant provision of Company Law, Standardized Opinion for Shareholders’ General Meeting of Listed Company and Articles of Association of the Company. 2. Relationship between the controlling shareholder and the listed company: The actual controlling shareholder of the Company operated in line with rules and did not intervene decision or operation of the Company directly or indirectly exceeding authority of the shareholders’ general meeting. The Company is absolutely independent in personnel, assets, finance, organization and business from its controlling shareholder. The Board of Directors, the Supervisory Committee and the internal management organ perform their respective functions in an independent way. 3. Directors and the Board of Directors: The Company has elected directors strictly according to the election procedure regulated in the Articles of Association, decided to further perfect the election procedure and practice the accumulative voting system. Numbers and qualification of Board of Director are in compliance with requirements of laws and regulations. The Company revised and integrated the Rules of Procedures of Board of Directors in accordance with ZJF [2003] No.56 Document of Notification on Several Problems of Standardizing Capital Current and Guarantee for External Parties of Listed Companies and Related Parties promulgated by CSRC; the Board meeting was held according to the relevant procedures; all directors attended the Board meetings and shareholders’ general meeting in a positive and responsible manner, and implemented the director’s responsibility of listed company carefully and strictly. The Company has established Rules for Independent Directors and gradually perfected it, and has elected three independent directors based on the relevant regulation and procedure. 4. Supervisors and the Supervisory Committee: The Company has established the Rules of Procedures of the Supervisory Committee, numbers and qualification of Supervisory Committee are in compliance with requirements of laws and regulations. The supervisors have performed seriously their duties, taken responsible attitude to all the shareholders, and supervised the financial affairs, the duties performed by the Company’s directors, managers 16 and other senior executives in terms of compliance with the laws and regulations. 5. Relevant Beneficiaries: The Company and parties of related interests such as the banks, creditors, employees, consumers, suppliers and community supplemented each other, advanced and developed jointly. The Company has been fully respecting and safeguarding the legal rights of the parties of related interests, cooperated with them, and developed the Company in a sustainable and healthy way. 6. Information Disclosure and Investors’ Relationship Management: The Company has established the Rules of Information Disclosure Management, Information Inner Report System and the Management System of Investor Relationship, and authorized the secretary of the Board of Directors to take charge of disclosing information, receiving the visit and inquiry of the investors. The Company has been disclosing the relevant information in a real, accurate, complete and timely way strictly according to the law, regulations and the Articles of Association, ensured all the shareholders to have equal opportunity to obtain the information. Section II. Particulars about Performance of Duties of Independent Directors The Company has established Rules for Independent Directors according to Guidelines Opinion on Establishing Independent Director System in Listed Companies and Administration Rules of Listed Companies. At present, the Company has three independent directors. In the report year, the Company held five meetings of the Board and one Shareholders’ General Meetings. Mr. Tian Yanqun, Mr. Fan Zhiqing and Ms. Wu Ying, three Independent Director of the Company, representatively attended in person five meetings of the Board and one Shareholders’ General Meetings. In the report year, independent directors of the Company seriously performed their duties in diligent and responsible way, and practically safeguard the whole interests of the Company and legal rights of the medium and small shareholders according to the requirement of Articles of Association of the Company and the relevant laws and regulations. Section III. Separation between the Company and its Controlling Shareholder in terms of Personnel, Assets, Finance, Organization and Business 1. In term of business: The Company is completely independent from the controlling shareholder in business and has independent and complete business and autonomous operation capacity. The Company owned independent purchase and sales system. The Company is responsible for purchasing all raw materials and distributing products. R&D, production, purchase and distribution departments are separate from each other. The Company has already been independent legal person operating in the market. 17 2. In term of personnel & organization: (1) The Company is absolutely independent in the management of labor, personnel and salaries. Office and production sites are different from those of the controlling shareholder. There is no such situation of operating and working together with controlling shareholder. (2) General manager, deputy general manager, financial supervisor, secretary of the Board and other senior executives work for the Company in full time and draw salary from the Company, without taking concurrent position in the controlling shareholder enterprises. (3) The controlling shareholder recommends directors according to relevant legal procedures. All personnel resolution made in Board meetings and shareholders’ general meetings may be effectively carried out. There is no such situation that the controlling shareholder intervenes engagement and dismission of the personnel of the Company. 3. In term of assets: The Company is totally independent from its controlling shareholder in term of assets and operates completely independent. The Company not only possesses independent production system, auxiliary production system and complementary facilities, but also enjoys such intangible assets as industrial property right, trademark, non-patent technology, etc. 4. In term of finance: (1) The Company has established independent financial department, independent and complete accounting system and financial management system. (2) The Company has financial decision-making right independently without interfere of its controlling shareholder. (3) The Company has independent bank account without depositing fund into accounts of the controlling shareholder, financial company or settlement center controlled by related parties 4) The Company pays the duties in compliance with laws. Section IV. Performance Valuation, Encouragement and Binding Mechanism for Senior Executives According to demands of establishing modern enterprise system, the Company has established a fair performance evaluation system for senior executives so as to confirm the rights and obligations of senior executive, exert the enthusiasm and creativity of senior executives, supervise and urge the senior executives to perform the obligations of being honest and diligent. According to the Articles of Association, Rules of Procedures of Board of Directors and Rules of Procedures of Supervisory Committee, the Board and Supervisors Committee carried through the process supervision on the routine performance of the senior executives; the Company implemented the year-end evaluation to the senior executives, whose results were directly related to their salaries and engagement, and made the encouragement and punishment according to the evaluation results. 18 Chapter VI. Particulars about Shareholders’ General Meeting Section I. About shareholders’ general meeting In the report period, the Company held one shareholders’ general meetings, namely Shareholders’ General Meeting 2003: 1. On Apr. 23, 2004, the Company published Notification on Holding Shareholders’ General Meeting 2003 in Securities Times and Ta Kung Pao, which stated the date of the Shareholders’ General Meeting 2003 as May 25, 2004. 2. On May 25, 2004, the Company held the Shareholders’ General Meeting 2002 in the conference room of the Company on 27/F, Tower C, Bao’an Square, No. 1002, Sungang Road, Shenzhen. Three shareholders and shareholders’ representatives attended the meeting with representing 115,846,291 shares (all are A shares), taking up 63.68% of total share capital of the Company. The following proposals were examined and approved item by item by means of signed voting in the Meeting: (1) 2003 Report of the Board of Directors; (2) 2003 Report of the Supervisory Committee; (3) 2003 Financial Settlement Report; (4) 2003 Annual Report and its Summary (A and B shares); (5) 2003 Profit Distribution Preplan; (6) Special proposal on revision of Articles of Association; (7) Proposal on revision of Rules of Procedure of the Shareholders’ General Meeting; (8) Proposal on revision of Rules of Procedure of the Board and Directors; (9) Proposal on Engaging auditors for the Company in 2004; (10) Proposal on Mr. Chen Jie resigning the post of director of the Company; (11) Proposal on Mr. Cui Gang resigning the post of director of the Company. 3. Public Notice on Resolutions of Shareholders’ General Meeting 2003 was published in Securities Times and Ta Kung Pao dated May 26, 2004. Section II. Election and change of directors and supervisors As examined by the 4th meeting of the 5th Board of Directors of the Company dated Apr. 22, 2004, which agreed that Mr. Chen Jie and Mr. Cui Gang resigned from the posts of Directors of the 5th Board of Directors (for details pls. refer to Public Notice of the Company published in Securities Times and Hong Kong Ta Kong Pao dated Apr. 23, 2004). The aforesaid relevant proposals of the Board of Directors were examined and approved by the 2003 Shareholders’ General Meeting held on May 25, 2004. Chapter 7. Report of the Board of Directors Section I. Discussion and analysis of the Management In the report period, in active and steady operating principles, based on protecting rights and interests of shareholders, the Company set out from strengthening internal management, kept propelling constructive adjustment of products, cultivated new profit increasing points, overcame operating pressure and financial risks brought from sustainable price-rising of raw 19 materials and auxiliary materials, rising of production costs, fierce competition of soft drinks, and resolving historical residual guarantees and bad assets. In 2004, net profit of the Company was RMB 4,309,000 and the Company realized profit from losses. 1. In the aspect of strengthening internal management, in the report period, every item of internal control system of the Company furthered sounded and consummated; Making use of ISO 9001 of the Company: 2000 reappraisal and application for HACCP Certification, the Company conducted relevant training about ISO, HACCP and GMP system within the Company, strengthened techniques flow management, and innovated internal technology, which cut down the materials consummation level of products, and in some extent, digested cost pressure brought from rising-up of raw materials and auxiliary materials. On the other hand, the Company set out from the point of optimizing human resources arrangement, reformed function divisions and factories, reduced organs and employees, resolved the partial historical problem of surplus staff, so the salary expenses decreased sharply year-on-year, which digested price-rising of partial raw materials and auxiliary materials, and the working efficiency was further improved, which basically attained to the objective of reducing staff for greater efficiency. 2. Continue to optimize and adjust product structure and firmly cultivate new profit increasing points. In the report period, according to the requirements of the market, the Company timely introduced four new products into market, consummated product matrix of flavorings and drinks; the Company established industry development direction with withdrawing tea and natural plants as the core, supported relevant controlling subsidiaries strongly; the core products, instant tea powder and tea extract achieved good sale achievements with sales volume increasing sharply, which successfully entered markets of Japan, Korea and Hong Kong etc.. 3. In the report period, controlling subsidiary, new manufactory of Shenzhen Shenbao Huacheng Food Co., Ltd. (hereinafter referred to as “Shenbao Huacheng Company”) successfully put into production. In R&D and production, new manufactory adopted advanced detect analysis instrument in the world and modernized pipelining production lines, which was at present scale instant tea powder and tea extract manufactory of the largest scale with the most advanced equipments. New manufactory has passed HACCP certification. Both the safety and sanitation of food and product quality control were promoted to a higher level. Section II. Operation of the Company I. Scope of main operations and its operation 1. Scope of main operations of the Company: production of food can, beverage and local products; domestic commerce and supply and marketing of materials; import and export business. 2. Main operations of the Company were under the classification of food and beverage industry. In the report period, the Company realized turnover of RMB 64,558,000 and gross profit of RMB 13,240,000. 20 (1) Formation of income from main operations and profit classified according to industries and products: Unit: RMB’000 Industries Turnover Gross profit Manufacture of condiments 20,442 7,394 Manufacture of soft drinks 26,059 741 Manufacture of teas 17,355 4,403 Leasing service 702 702 Products “San Jing” brand condiments 20,442 7,394 Lactobacillus milk series 5,629 30 Soft packing drinks 20,430 711 Tea powder and tea juice series 17,355 4,403 (2) Main operations classified according to areas Unit: RMB’000 Sales areas Income from main operations Gross profit South China 35,966 3,471 North China 6,334 2,209 East China 19,810 6,802 Export 2,448 758 3. Sales of products taking over 10% of income from main operations of the Company Turnover Sales cost Gross profit Main products (RMB’000) (RMB’000) rate (%) “San Jing” brand condiments 20,442 13,047 36.17 Soft packing drinks 20,430 19,914 2.53 Tea powder and tea juice series 17,355 12,952 25.37 3. In the report period, the Company realized operating income amounting to RMB 64,558,000 with an increase of 4.48% over the same period of last year, mainly because that the sales income of series of products including tea powder, tea extract increased; gross profit amounting to RMB 13,240,000, with a decrease of 13.10% over the same period of last year, mainly because price-rising of main raw materials and auxiliary materials and fuels resulted 21 in the increase of productive costs. II. Operations and achievements of main holding and share-holding companies of the Company (1) Shenzhen Shenbao San Jing Food & Beverage Development Co., Ltd.: a wholly-owned subsidiary of the Company, with registered capital amounting to RMB 25,000,000, Business scope of this company: production and sales of beverage, by-food, additives (excluding limited items) and operation of import and export business (the details in compliance with SMGZZZI No. 2002-352 Qualification Certificate). At the end of the report period, the total assets of this company reached RMB 101,791,000 and premium in Shareholders’ equity amounting to RMB 3,598,000. (2) Shenzhen Shenbao Industrial and Trade Development Company: as a sole subsidiary of the Company, this company has a registered capital of RMB 5,500,000. Business scope of this company: food can, beverage, condiment and its packing materials, raw and auxiliary materials, hardware and alternating current, chemical products, daily used china, automobile fittings, electrical products, agricultural byproducts, local products, daily used general merchandise, products of arts and crafts, textiles and operation of import and export business. At the end of the report period, the total assets of this company reached RMB 3,017,000 and premium in Shareholders’ equity amounting to RMB 8,166,000. (3) Shenzhen Pepsi Cola Beverage Co., Ltd.: the Company holds 40% equity of this company, whose registered capital is RMB 12,250,000. Main business of this company covers production and sales of carbonic acid beverage represented by Pepsi Cola in districts of Shenzhen, Huizhou, Shantou and Meizhou, etc.. At the end of report period, the total assets of this company amounted to RMB 651,540,000 and premium in Shareholders’ equity amounting to RMB 125,794,000. III. Main suppliers and customers In the report period, the purchase amount from the top five suppliers totally amounted to RMB 10,133,000, taking 17.71% of total annual purchase, while the sales amount to the top five customers totally amounted to RMB 27,254,000, taking 42.09% of total annual sales. IV. Problems and difficulties from the operation and solutions (I) Problems and difficulties from the operation 1. The competition in the food and beverage industry was intense with low entry doorsill, thus it was hard to from competitive bulwark. In the intensified competition, the profit of traditional products decreased, which made the Company’s profitability capability and competitive capability weakened; on the other hand, large quantities of human resources, materials and finance needed to be put into the new products of beverage still under the 22 market cultivation period. 2. In the report period, sustainable rising-up price of petroleum, petrochemicals, and agricultural and sideline products resulted in sharp rising in costs of partial raw and auxiliary materials in need of production of main products of the Company, and increasing of power costs, which brought relative big cost pressure. (II) Solutions 1. Aiming at the status in the food and beverage industry, being established in quality, R&D and service, the Company attached importance to the product quality management, reinforced service marketing, enlarged the strength in R&D of new products and sped up the adjustment steps to product structure. To change the situation that products sales lag behind for a long time, the Company planned to change marketing system, established special sales company to promote sales efficiency and market reaction capabilities; in the aspect of input of new products, the Company emphasized to put the limited resources into the new products with market potential and profitability potential. In the report period, leading new products of the Company tea extract and instant tea power obtained good sales achievements in domestic market with great sales volume, which successfully entered markets of Japan, Korea and Hong Kong etc.. 2. Setting out from strengthening internal management, the Company digs out internal potentiality. Through optimizing human resources arrangement, resolving surplus staff problem left from history, the Company realized increasing efficiency while reducing the staff, which partially digested cost pressure brought from price rising. Section III. Investment of the Company I. Use of the raised proceeds In the report period, the Company used the raised proceeds to increase investment amounting to RMB 175,014,000 to Shenbao Industrial City. Ended the end of the report period, the actual use of the raised proceeds of the Company was as follows: Unit: RMB’000 Investment project committed in Investment amount Actual Progress Prospectus committed in Prospectus investment (%) Project of Henggang new plant of 29,000 1,5606.4 53.82 Shenzhen Pepsi Cola Beverage Co., Ltd. Project of Shenbao Industrial City 58,000 30,751.5 53.02 There were still the raised proceeds amounting to RMB 27,635,000 deposited in the bank without using. 23 The project of Henggang new plant of Shenzhen Pepsi: the project of Henggang new plant of Shenzhen Pepsi is under the operating management of Shenzhen Pepsi and its situation of earnings is reflected in the whole achievements of Shenzhen Pepsi. The part of not invested shall be dicided according to the resolutions of the Board of Directors of Shenzhen Pepsi depending on the expansion situation of Shenzhen Pepsi in the market of East Guangdong and Dongguan. The project of Shenbao Industrial City: in compliance with the principle of cautious investment, based on adjusting the design of relevant engineering accordingly after adjusting product structure according to the changes in the market, the Company invested RMB 17,501,000 into the said project in the report period. The part that was still not invested would be invested gradually by stages according to the progress of the said project. In the report period, the project haven’t produce income. II. Investment of the proceeds not raised through shares offering in the report period In the report period, the Company had no material investment invested with the proceeds not raised through shares offering. Section IV. Financial position and operating results of the Company In the report period, K.C.Oh & Company Certified Public Accountants has presented unqualified auditors’ report for the Company with detailed analysis as follows: (1) At the end of the report period, the total assets of the Company amounted to RMB 462,229,000, an increase of 4.69% over the amount at the beginning of the year RMB 446,314,000, mainly because that the Company enlarged investment in Shenbao Industrial City and plants and equipments, led to increase in fixed assets. (2) At the end of the report period, the shareholders’ equity of the Company was RMB 235,599,000, an increase of 1.87% over the amount at the beginning of the year RMB 231,290,000, mainly because that the Company made profits from losses this year. (3) In the year, the gross profit of the Company was RMB 13,240,000, a decrease of 13.10% over the gross profit amounting to RMB 15,236,000 in the last year, mainly because sharp increase in price of main raw and auxiliary materials and fuels resulted in increase of productive costs. (4) In the year, premium in shareholders’ equity of the Company was RMB 4,309,000, an increase of 109.61% over the amount at the beginning of the year RMB 44,852,000 mainly because in 2003 the Company suffered losses by SARS epidemic and resolving guarantee problem left from history, and this year periodical expenses decreased and investment income increased by a relative big margin over the same period of last year. (5) At the end of the report period, the net increase in cash and cash equivalents of the 24 Company was (RMB 18,828,000), an increase of 24.13% over the amount at the beginning of the year amounting to RMB 24,816,000, mainly because administrative expenses and sale expenses decreased compared with the same period of last year, which led to net increase in cash flow arising from operating activities. (6) In the report period, the Company had no significant assets losses. (7) The Company has settled the guarantee that the Company provided for Shenzhen Tellus Holding Co., Ltd. (hereinafter referred to as Shen Tellus) to get loan amounting to RMB 5,280,000 in legal way. Ended Mar., 2004, the Company had withdrawn the principal amounting to RMB 5,280,000 and compensation fund amounting to RMB 200,000 refunded by the Company for Shen Tellus. (8) In the report period, the Company had no change in accounting policy and accounting estimate or correction in material accounting errors. Section V. Influence of changes in productive and operative environment and macro policies and regulations on the Company In the report period, sustainable rising-up price of petroleum, petrochemicals, and agricultural and sideline products resulted in sharp rising in costs of partial raw and auxiliary materials in need of production of main products of the Company, and increasing of power costs. It’s estimated in 2005 the Company still encounted pressure brought from rising of productive costs. Section VI. Routine work of the Board of Directors I. 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 5 meetings of the Board: 1. The 3rd Meeting of the 5th Board of Directors of the Company was held on Apr. 8, 2004 and the following resolutions have been considered and passed in the Meeting: (1) Proposal on Withdrawing Impairment Losses for Investment on Shenzhen Shenbao Jiuce Co., Ltd.; (2) Proposal on Withdrawing Impairment Losses for Investment on Chaozhou Shenbao Construction Co., Ltd.; (3) Proposal on Reselling Residual of Fixed Assets; (4) Proposal on Withdrawing Projected Liabilities on Loan Guarantee for Guangdong Sunrise Holdings Co., Ltd.; (5) Proposal on Withdrawing Projected Liabilities on Guarantee for Shenzhen China Bicycles Company (Holdings) Ltd.; (6) Report pf the Board 2003 of the Company; 25 (7) Financial Settling Report 2003 of the Company; (8) Annual Report 2003 of the Company and its summary (A, B-share); (9) Profit Distribution Preplan 2003 of the Company; (10) Special Proposal on Revising the Articles of the Association; (11) Proposal on Revising Procedure Rules of Shareholders’ General Meeting of the Company; (12) Proposal on Revising Procedure Rules of the Board of the Company; (13) Investorship Management System of the Company; (14) Proposal on Engaging 2004 auditor of the Company; (15) Proposal on Releasing Public Notice on Holding 2003 Shareholders’ General Meeting; The said resolutions were published on Securities Times and Ta Kung Pao dated Apr. 10, 2004. 2. The 4th Meeting of the 5th Board of Directors of the Company was held on Apr. 22, 2004 and the following resolutions have been considered and passed in the Meeting: (1) 1st Quarterly Report pf the Company 2004; (2) Proposal on Mr. Chen Jie Resigning the post of Director of the Company; (3) Proposal on Mr. Cui Gang Resigning the post of Director of the Company; (4) Proposal on holding 2003 Shareholders’ General meeting 2003 of the Company. The said resolutions were published on Securities Times and Hong Kong Ta Kung Pao dated Apr. 23, 2004. 3. The 5th Meeting of the 5th Board of Directors of the Company was held on Aug. 5, 2004 and the following resolution has been considered and passed in the Meeting: (1) 2004 Semi-annual Report of the Company and its Summary (A, B-share). The said resolution was published on Securities Times and Hong Kong Ta Kung Pao dated Aug. 6, 2004. 4. The 6th Meeting of the 5th Board of Directors of the Company was held on Oct. 19, 2004 and the following resolutions have been considered and passed in the Meeting: (1) 3rd Quarterly Report of the Company 2004 5. The 7th Meeting of the 5th Board of Directors of the Company was held on Dec. 30, 2004 and the following resolutions have been considered and passed in the Meeting: (1) Guideline on Internal Control Work; (2) Internal Auditor System; 26 (3) Information Internal Report System; (4) Notification on Establishing Internal Auditing Department; (5) Proposal on Engaging Mr. Liu Xiongjia as Head of Internal Auditing Department. II. Implementation of the Board on resolutions of Shareholders’ General Meeting In the report period, the Board of the Company seriously implemented all resolutions passed by Shareholders’ General Meeting strictly in compliance with the resolutions and authorizations of Shareholders’ General Meeting. In 2003, the Company did not distribute profits or convert capital reserve into share capital. The Company had no shares allotment and additional issuance of new shares. Section VII. Profit distribution plan for 2004 Audited by Shenzhen Dahua Tiancheng Certified Public Accountants under Chinese Accounting Standards, the Company’s net profit was RMB 4,309,000 in 2004; audited by K.C.Oh & Company Certified Public Accountants under International Accounting Standards, the Company’s net profit was RMB 4,309,000 in 2004. According to the relevant provisions in Company Law of the P.R.C. and the Articles of Association of the Company, based on the net profit of the Company amounting to RMB 4,309,000 audited by Shenzhen Dahua Tiancheng Certified Public Accountants in 2004, the retained earnings of the Company amounted to (RMB 44,695,000) in 2004. According to the relevant provisions in Company Law of the P.R.C. and Standardized Interlocution No. 3 of Information Disclosure on Publicly Issuing Securities – Origin, Procedures and Information Disclosure of Losses Offsetting released by CSRC, before the Company’s accumulative losses being offset at full amount, it was forbidden to distribute dividends to shareholders or convert capital reserve into share capital. In 2004, the Board of the Company decided to neither distribute profits nor convert capital reserve into share capital. The said preplan should be submitted to Annual Shareholders’ General Meeting 2004 for consideration. II. Independent Opinion on 2004 Profit Distribution Preplan of the Company presented by Independent Directors Shenzhen Shenbao Industrial Co., Ltd. Independent Opinion on 2004 Profit Distribution Preplan of the Company presented by Independent Directors According to the requirements of CSRC Several Regulations on Strengthening Equity Protection of Social Public Shareholders, we now presented independent opinions on Cash Profit Distribution preplan of the Board of the Company as follows: 27 According to the relevant provisions in Company Law of the P.R.C. and Standardized Interlocution No. 3 of Information Disclosure on Publicly Issuing Securities – Origin, Procedures and Information Disclosure of Losses Offsetting released by CSRC, before the Company’s accumulative losses being offset at full amount, it was forbidden to distribute dividends to shareholders or convert capital reserve into share capital. In 2004, the Board of the Company decided to neither distribute profits nor convert capital reserve into share capital. We believed the decisions of the Company accorded with regulations of Company Law and CSRC and requirements of Accounting Principles. Shenzhen Shenbao Industrial Co., Ltd. Independent Directors of the 5th Board Tian Yanqun, Fan Zhiqing, Wu Ying Apr.11, 2005 Section VIII. Other important events I. Special explanation of CPA on the capital occupied by the Company’s controlling shareholder and other related parties Special Explanation on Capital Occupied by Controlling Shareholder and Related Parties of Shenzhen Shenbao Industrial Co., Ltd. SH (2005) ZSZ No. 066 China Securities Regulatory Commission Shenzhen Securities Regulatory Bureau: As a CPA auditing the accounting statements of Shenzhen Shenbao Industrial Co., Ltd. (hereinafter referred to as ShenShenbao) for 2004, we have presented the Special Explanation on the relevant issues such as capital occupied of the Company’s controlling shareholder and its related parties according to Circular on Standardizing Capital Current between Listed Company and Related Parties and External Guarantees and Other Several Problems of Listed Company (ZJF [2003] No. 56 document) released by CSRC. I. We took notice of that the capital of the Listed Company occupied by the related parties of ShenShenbao were as follows: 1. Ended Dec. 31, 2004, the balance of capital of the listed company occupied by the related parties was RMB 0.00. 28 2. Illegal capital of listed company occupied by the related parties were as follows: (1) Ended Dec. 31, 2004, the balance of illegal capital of listed company occupied by the related parties was RMB 0.00, which decreased by RMB 57,700,000, a decrease of 100% compared with the beginning of the report period. (2) Illegal capital of listed company occupied by the largest shareholder and enterprise controlled by it: The balance of illegal capital of listed company occupied at the period-begin and at the period-end was RMB 0.00 and RMB 0.00 respectively; thus, illegal capital of listed company occupied in the report period was RMB 0.00. II. Statement of capital of listed company occupied by the related parties Unit: RMB Relationships Account of Balance at the Debit Credit Balance at Amount of Way and Way of Capital Remark between accounting period-begin occurred occurred the reserve for reason of refund occupation out of related parties statement amount amount period-end bad debts occupation line forbidden by and listed withdrawn No. 56 company Document or not B C D E F G H I J K L Subsidiary of Estimated 38,003 - 38,003 *- - Implementing - No See the former liabilities guarantee attachment I first largest Debit refund joint shareholder responsibility Sub-subsidiary Estimated 9,597 - 9,597 *- - Implementing - No See of the former liabilities guarantee attachment I first largest Debit refund joint shareholder responsibility Associated Estimated 10,100 - 10,100 *- - Implementing - No See company of liabilities guarantee attachment I sub-subsidiary Debit refund joint of the former responsibility first largest shareholder 57,700 - 57,700 *- - - *: The illegal capital of listed company occupied by the related parties in the report year decreased by RMB 57,700,000 compared with the period-begin due to the equity change of ShenShenbao; the aforesaid three companies no longer belonged to related party, thus the Company transferred the balance at the period-begin out. The Special Opinion is presented by us according to the requirements of CSRC and its 29 dispatching authorities and could not be used for other purposes. The results caused by misuse are irrelevant to CPA and certified public accountants implementing this business. Attachment I: Explanation on Capital Occupied of Controlling Shareholder and Related Parties of ShenShenbao Shenzhen Dahua Tiancheng Certified Public Accountants CPA: Shenzhen·China CPA: Apr. 11, 2005 Attachment I: Explanation on Capital Occupied by Controlling Shareholder and Related Parties I. The controlling shareholder of Shenzhen Shenbao Industrial Co., Ltd. Shenzhen Investment Holding Corporation originally held 115,838,611 shares of Shenshenbao (including 9,900,000 shares from its affiliated company called Ping An Insurance Co., Ltd. of China), taking 63.7% of its total share capital, as the controlling shareholder of Shenshenbao. At the end of 1999, Shenzhen Investment Holding Corporation transferred its 61,848,466 shares of Shenshenbao (taking 34% of its total share capital) to Shenzhen Agricultural Products Co., Ltd. (“Agricultural Products”), thus Agricultural Products became the controlling shareholder of the Company. The equity transfer procedure was accomplished within year 2003. II. Capital occupied 1. The original controlling shareholder, namely Shenzhen Investment Holding Corporation, did not occupy the capital of Shenzhen Shenbao Industrial Co., Ltd.. 2. The controlling shareholder, namely Shenzhen Agricultural Products Co., Ltd., did not occupy the capital of Shenzhen Shenbao Industrial Co., Ltd.. 3. Capital current between Shenzhen Shenbao Industrial Co., Ltd. and Shenzhen South Tongfa Industrial Company, an original associated company of the Company Shenzhen South Tongfa Industrial Company is a subsidiary of Shenzhen Investment Holding Corporation. In 1995, Shenshenbao provided a guarantee for its loan amounting to RMB 30,000,000 and this company did not refund the loan at expiration. Under Shenshenbao’s effort, after mediating by the court and compromising by such three parties as the bank, the court and this company, Shenshenbao paid the principal and interest amounting to RMB 38,003,000 for this company by stages. In 2002 and 2003, Shenshenbao respectively paid 30 RMB 24,371,000 and RMB 13,632,000, at the beginning of 2004, Shenshenbao has paid up the principal and interests. In the statement of capital of listed company occupied by the related parties, the capital of listed company occupied by Shenzhen South Tongfa Industrial Company in 2004 has decreased by RMB 38,003,000 compared with the period-begin due to the equity change of ShenShenbao; the said company no longer belonged to related party, thus the Company transferred the balance at the period-begin out. 4. Capital current between Shenzhen Shenbao Industrial Co., Ltd. and Guangdong Sunrise Holdings Co., Ltd., an original associated company of the Company Guangdong Sunrise Holdings Co., Ltd. is a sub-subsidiary of Shenzhen Investment Holding Corporation. In 1997, Shenshenbao provided guarantee for its loan amounting to RMB 8,000,000 and HKD 9,000,000 and this company did not refund the loan at expiration. Under Shenshenbao’s effort, after compromising by such three parties as the bank, the court and this company, Shenshenbao paid partial principal and interest for this company and provided guarantee continuously for the rest amount. In 2001, 2002 and 2003, Shenshenbao respectively paid RMB 4,182,000, RMB 4,671,000 and RMB 744,000; Shenshenbao totally paid RMB 9,597,000 at the beginning of 2004, while Shenshenbao paid RMB 539,000 in year 2004. The Company totally paid partial principals and interests amounting to RMB 10,136,000 for this company. In the statement of capital of listed company occupied by the related parties, the capital of listed company occupied by Guangdong Sunrise Holdings Co., Ltd. in 2004 has decreased by RMB 9,597,000 compared with the period-begin due to the equity change of ShenShenbao; the said company no longer belonged to related party, thus the Company transferred the balance at the period-begin out. 5. Capital current between Shenzhen Shenbao Industrial Co., Ltd. and Shenzhen China Bicycle Company (Holdings) Limited, an original associated company of the Company Shenzhen China Bicycle Company (Holdings) Limited is a sub-subsidiary of Shenzhen Investment Holding Corporation, an associated company of Guangdong Sunrise Holdings Co., Ltd.. (1) In 1996, Shenshenbao provided a guarantee for its loan amounting to RMB 7,000,000 and this company did not refund the loan at expiration. On June 17, 1998, Guangdong Shenzhen Intermediate People’s Court confirmed that Shenshenbao should take on the joint discharging responsibility with (1998) SZFJTCZ No. 210 Civil Intermediation. In Sept. 2003, under Shenshenbao’s effort, Shenshenbao reached Agreement on Interests Reduction and Exemption after negotiating with the bank, where agreed after Shenshenbao refunding RMB 7,000,000, the bank agreed to reduce and exempt the said interests of liabilities. After the agreement signing, Shenshenbao has paid RMB 7,000,000 within year 2003. (2) In July 1996, Shenzhen China Bicycle Company (Holdings) Limited applied for opening 31 a letter of credit amounting to USD 1,000,000 from Bank of China Shenzhen Branch and at the same time required the said bank to exempt from receiving the deposit of opening amounting to USD 800,000. Shenshenbao presented irrevocable warranty to Bank of China Shenzhen Branch and agreed to provide guarantee for Shenzhen China Bicycle Company (Holdings) Limited to open the said letter of credit with guarantee amounting of USD 800,000. After expiration of the letter of credit, Shenzhen China Bicycle Company (Holdings) Limited did not transact procedure of payment to Bank of China Shenzhen Branch. On Nov. 23, 1999, Guangdong Higher People’s Court judged Shenshenbao to take on the joint discharging responsibility with (1999) YFJYZZ No. 26 Civil Judgment. Under Shenshenbao’s effort, the bank agreed to exempt the relevant interests of Shenshenbao after Shenshenbao refunding USD 800,000. In 2003, Shenshenbao paid RMB 3,100,000, the rest amount was converted into RMB 3,532,000, and has been paid up within year 2004. (3) In the statement of capital of listed company occupied by the related parties, the capital of listed company occupied by Shenzhen China Bicycle Company (Holdings) Limited in 2004 has decreased by RMB 10,100 compared with the period-begin due to the equity change of ShenShenbao; the said company no longer belonged to related party, thus the Company transferred the balance at the period-begin out. II. Special explanation and independent opinion of independent directors on the Company’s accumulative and current external guarantees and implementing provisions Shenzhen Shenbao Industrial Co., Ltd. Special explanation and independent opinion of independent directors on the Company’s external guarantees In accordance with Rules of Administration of Listed Companies, Guidance Opinion on Establishing Independent Director System in Listed Companies, Circular on Standardizing Capital Current between Listed Company and Related Parties and External Guarantees and Other Several Problems of Listed Company, the Articles of Association of the Company and other relevant provisions, we have seriously inspected the Company’s accumulative and current external guarantees and provisions on implementing Circular on Standardizing Capital Current between Listed Company and Related Parties and External Guarantees and Other Several Problems of Listed Company and have checked the relevant contents in auditors’ report for 2004. Now independent directors presented the special explanation and issued the independent opinion on relevant situations as follows: I. Special explanation 32 1. The Company did not provide loan guarantee for its controlling shareholder, namely Shenzhen Agricultural Products Co., Ltd., and its related parties, or did not provide guarantees for other related parties where the Company held below 50% shares, any non-legal person companies or individuals. 2. In the report period, occurrence amount of the Company’s external guarantees was RMB 8,580,000, which is the renewal of loans and guarantees caused from loan guarantee of Guangdong Sunrise Holdings Co., Ltd. left in the history. At the end of report period, the balance of the Company’s external guarantees was RMB 8,580,000 and HKD 36,000,000, taking 16.43% of net assets of the Company for year 2004 after auditing. The Company’s external guarantees happened before year 1999, under the historical background that Shenzhen South Tongfa Industrial Company, Guangdong Sunrise Holdings Co., Ltd., Shenzhen China Bicycle Company (Holdings) Limited and Shenzhen Tellus Holdings Co., Ltd. and the Company were all controlling subsidiaries or wholly-owned subsidiaries of Shenzhen Investment Holding Corporation, the Company provided loan guarantee for the said four companies. Now the relevant guarantees left in the history and their progresses are as follows: (1) In 1997, the Company provided a joint guarantee for a loan amounting to RMB 5,280,000 of Shenzhen Tellus Holdings Co., Ltd. (hereinafter referred to as Shen Tellus) from Shenzhen International Trust Investment Company. In 2002, this case was compromised and settled. In Mar. 2002, the Company refunded RMB 5,280,000 for Shen Tellus. Ended March 2004, the Company has withdrew the principal amounting to RMB 5,280,000 and compensation fund amounting to RMB 200,000 refunded for Shen Tellus. (2) Guangdong Sunrise Holdings Co., Ltd. is a sub-subsidiary of Shenzhen Investment Holding Corporation. In 1997, the Company provided guarantee for its loan amounting to RMB 8,000,000 and HKD 9,000,000 and this company did not refund the loan at expiration. After compromising by such three parties as the bank, the court and this company, the Company paid partial principal and interest for this company and provided guarantee continuously for the rest amount. In 2001, the Company totally paid RMB 4,180,000; totally paid RMB 4,670,000 in 2002, totally paid RMB 740,000 in 2003 and totally paid RMB 540,000 in 2004. The Company totally paid partial principal and interest amounting to RMB 10,130,000 for this company. In 1998, the Company provided a joint guarantee for this company to get loan amounting to HKD 32,000,000 from Bank of China Shenzhen Branch. Ended the end of the report period, this company still did not refund the said principal and interest of loan. In 2003, Bank of China Shenzhen Branch required the Company to provide pledge articles for the said guarantee. In Sept. 2003, the Company agreed to pledge its 51.67% equity of Shenzhen 33 Shenbao Huacheng Food Co., Ltd. to Bank of China Shenzhen Branch. (3) Shenzhen China Bicycle Company (Holdings) Limited is a sub-subsidiary of Shenzhen Investment Holding Corporation, an associated company of Guangdong Sunrise Holdings Co., Ltd.. In 1996, the Company provided a guarantee for it to get loan amounting to RMB 7,000,000 from China Construction Bank Shenzhen Branch and this company did not refund the loan at expiration. On June 17, 1998, Guangdong Shenzhen Intermediate People’s Court confirmed that the Company should take on the joint discharging responsibility with (1998) SZFJTCZ No. 210 Civil Intermediation. In Sept. 2003, the Company reached Agreement on Interests Reduction and Exemption after negotiating with the bank, where agreed after the Company refunding RMB 7,000,000, the bank agreed to reduce and exempt the said interests of liabilities. After the agreement signing, the Company has paid RMB 7,000,000, and finished guarantee responsibility. In July 1996, Shenzhen China Bicycle Company (Holdings) Limited applied for opening a letter of credit amounting to USD 1,000,000 from Bank of China Shenzhen Branch and at the same time required the said bank to exempt from receiving the deposit of opening amounting to USD 800,000. The Company presented irrevocable warranty to Bank of China Shenzhen Branch and agreed to provide guarantee for Shenzhen China Bicycle Company (Holdings) Limited to open the said letter of credit with guarantee amount of USD 800,000. After expiration of the letter of credit, Shenzhen China Bicycle Company (Holdings) Limited did not transact procedure of payment to Bank of China Shenzhen Branch. On Nov. 23, 1999, Guangdong Higher People’s Court judged the Company to take on the joint discharging responsibility with (1999) YFJYZZ No. 26 Civil Judgment. Ended the report date, the Company has paid RMB 6,630,000, and finished guarantee responsibility. (4) Shenzhen South Tongfa Industrial Company is a subsidiary of Shenzhen Investment Holding Corporation. In 1995, the Company provided a guarantee for its loan amounting to RMB 30,000,000 and this company did not refund the loan at expiration. After mediating by the court and compromising by such three parties as the bank, the court and this company, the Company paid the principal and interest amounting to RMB 38,000,000 for this company by stages. In 2002, the Company has paid RMB 24,370,000 and has paid up the rest amount in 2003, and finished guarantee responsibility. 3. Except for relevant issues of renewal of loans and guarantees caused from proper settlement of guarantees left in the history, since Shenzhen Agricultural Products Co., Ltd. occupied the Company at the end of 1999, the Company had no any external guarantee newly increased. 4. In the report period, occurrence amount of loan guarantee provided by the Company to the controlling subsidiaries was RMB 125,000,000; at the period-end, the balance of guarantee 34 provided by the Company to the controlling subsidiaries was RMB 95,000,000, taking 40.66% of the Company’s net assets for 2004 after auditing. The detailed situations are as follows: (1) In the report period, Shenzhen Shenbao Sanjin Food & Beverage Development Co., Ltd. (hereinafter referred to as “Sanjing Company”), the wholly-owned subsidiary of the Company, totally obtained a loan amounting to RMB 60,000,000 from China Everbright Bank Shenzhen Branch in twice and the Company provided warrant guarantee for the said loan for one year; Sanjing Company totally obtained a loan amounting to RMB 20,000,000 from China Minsheng Bank Luohu Sub-branch in twice and the Company provided warrant guarantee for the said loan, ended the end of report period, Sanjing Company has refunded RMB 10,000,000, and the Company has released from the corresponding guarantee responsibility. On Dec. 24, 2003, Sanjing Company borrowed a loan amounting to RMB 20,000,000 from Shenzhen Commercial Bank Jingtian Sub-branch and the Company provided warrant guarantee for the said loan, ended the period-end, Sanjing Company has paid off the loan on due, and the Company has released from the relevant guarantee responsibility. On Oct. 26, 2004, Sanjing Company borrowed a loan amounting to RMB 15,000,000 from Shenzhen Commercial Bank Jingtian Sub-branch and the Company provided warrant guarantee for the said loan for one year. (2) On Jun. 24, 2004, Shenzhen Shenbao Huacheng Food Co., Ltd. (hereinafter referred to as “Shenbao Huacheng Company”), the controlling subsidiary of the Company, obtained comprehensive credit line amounting to RMB 20,000,000 from Jintian Sub-branch of Shenzhen Commercial Bank and the Company provided warrant guarantee for the credit line, and Jintian Sub-branch of Shenzhen Commercial Bank lent payment amounting to RMB 20,000,000; ended the end of report period, Shenbao Huacheng Company has paid off the said loan on due and the Company has released from the relevant guarantee responsibility. On Dec. 24, 2004, Shenbao Huacheng Company obtained comprehensive credit line amounting to RMB 10,000,000 from Jintian Sub-branch of Shenzhen Commercial Bank and the Company provided warrant guarantee for the credit line for one year. By the end of report period, Jintian Sub-branch of Shenzhen Commercial Bank lent payment amounting to RMB 10,000,000 in total. 5. According to the relevant spirit in Circular on Standardizing Capital Current between Listed Company and Related Parties and External Guarantees and Other Several Problems of Listed Company, the Company has conducted serious self-inspection on the external guarantees and at the same time, we required the Company to amend the Articles of Association of the Company according to the relevant provisions in the Circular so as to strictly control the external guarantees. 35 6. There are specific persons in Planning & Financial Department and Law Office in the Company to conduct real-time track on the guarantees. II. Independent opinion 1. The decision-making and examination procedures of the Company’s external guarantees were legal, reasonable and fair. 2. The Company has implemented the information disclosure of external guarantees timely. 3. Under the background that the Company suffered material negative influence in respect of external guarantees left in the history, the guarantees provided by the Company to the controlling subsidiaries were that the Company adopted necessary and rational measures in order to ensure the Company’s normal operation in the production and operating activities, which was in compliance with the maximum principle of interests of the Company, not harming the Company and its shareholders, especially the interests of middle and small shareholders. 4. The said renewal of guarantees caused by the proper settlement of external guarantees left in the history was in compliance with the maximum principle of interests of the Company, not harming the Company and its shareholders, especially the interests of middle and small shareholders. Shenzhen Shenbao Industrial Co., Ltd. Independent Directors in the 5th Board Tian Yanqun, Fan Zhiqing and Wu Ying Apr. 11, 2005 Chapter VIII. Report of the Supervisory Committee I. Particular about work of the Supervisory Committee in the report period In the report period, the Supervisory Committee has held two meetings: (I) The 2nd meeting of the 5th Supervisory Committee was held on Apr. 8, 2004. The following resolutions were examined and approved at the Meeting: (1) 2003 Report of the Supervisory Committee; (2) 2003 Financial Settlement Report; (3) Annual Report 2003 and its Summary (A-share and B-share respectively); (4) 2003 Profit Distribution Preplan; (5) Opinion of the Supervisory Committee on the Relevant Issues of Withdrawal of Reserve for Devaluation of Investment and Estimated Liabilities. The public notice on the aforesaid resolutions of the meeting was published in Securities Times and Hong Kong Ta Kung Pao respectively dated Apr.10, 2004. (II) The 3rd meeting of the 5th Supervisory Committee was held on Aug. 5, 2004. The 36 following resolutions were examined and approved at the Meeting: (1) 2004 Semi-annual Report and its Summary (A-share and B-share respectively). The public notice on the aforesaid resolutions was published in Securities Times and Hong Kong Ta Kung Pao respectively dated Aug. 6, 2004. II. Independent opinion of the Supervisory Committee on relevant issues (I) Operation according to the laws In the report period, the Supervisory Committee conducted supervision over the procedures of holding Board meetings and Shareholders’ General Meeting, resolutions, implementation of the resolutions of the Shareholders’ General Meeting by the Board of Directors, status of the senior executives in implementing their duties and the Company’s management system according to the relevant laws and regulations of the State. In our opinion, in 2004, the Board of Directors carried out the operation in a standardized way strictly according to the PRC Company Law, the Securities Law, the Listing Rules, the Articles of Association and other relevant regulations. The Company’s directors and managers worked carefully and responsibly; the Company’s decision-making was religious and solid; the Company has established the relative perfect internal control system. We have found no directors or senior executives ever involved in any actions against the law, rules and regulations, or the Articles of Association or harmful to the interest of the Company and the shareholders in the process of implementation of their duties. (II) Financial Inspection The Supervisory Committee has made careful and serious inspection on the Company’s financial system and financial position. In our opinion, 2004 Financial Report of the Company has truly reflected the Company’s financial position and operation achievements. The auditors’ report and the auditors’ opinion on the relevant issues produced by Shenzhen Dahua Tiancheng Certified Public Accountants and Hong Kong K.C. Oh & Company Certified Public Accountants are objective and fair. (III). The actual investment project funded by the latest proceedings is the same as the commitment. (IV) In the report period, there has existed no insider transaction or action harmful to the part shareholders’ right and interest or in connection with loss of the Company’s assets. (V) In the report period, the Company had no significant related transactions and no actions harmful to the interest of the Company. Chapter IX. Significant Events Section I. Significant lawsuits and arbitrations (I) Significant lawsuits occurred in the report period 37 1. The case concerning the joint-liability guarantee the Company provided for the RMB 7 million loan that Shenzhen China Bicycle Company (Holdings) Limited (hereinafter referred to as “Shen China” for short) had got from China Construction Bank Shenzhen Branch (hereinafter referred to as “Construction Bank” for short) has been closed with a reconciliation. In the year 2003, the Company and Construction Bank reached the Agreement on Interest Reduction and Cancellation, and according to the agreement, the Company had already paid back the RMB 7 million in two times for Shen China and fulfilled its guarantee liability (For details, please refer to Annual Report 2003 of the Company.); through the verdict of (1999) YFJYZZI No. 26 Civil Judgment Document made by Guangdong High People’s Court on the case concerning the joint-liability guarantee amounting to USD 800 thousand the Company provided for the Letter of Credit Shen China had applied for and opened at Bank of China Shenzhen Branch, the Company should shoulder joint repayment liability. And ended the first half year of 2004, the Company had repaid RMB 6.632 million (amounting to USD 800 thousand) for Shen China and fulfilled the guarantee liability (For details, please referred to Semi-Annual Report 2004 of the Company.). To safeguard the rights and interests of the Company, the Company sued Shen China to Shenzhen Intermediate People’s Court, and requested for a verdict to order Shen China to repay the sum of money, which the Company had paid on its behalf, as well as to compensate relevant loss arising from the capital occupancy. Shenzhen Intermediate People’s Court judged and ordered Shen China to repay the RMB 7 million the Company had paid on its behalf, and the interest arising during the period of capital occupancy [(2004) SZFMECZI No. 448]. Since Shen China had not fulfilled its repayment duty according to the time and contents stipulated in the judgment document, the Company applied to Shenzhen Intermediate People’s Court on Nov. 20, 2004 for compulsory enforcement. Shenzhen Intermediate People’s Court sent to Shen China (2004) SZFZZI No. 1382 Civil Award and Mandamus, as well as (2005) SZFZZI No. 208 Civil Award and Mandamus on Jan. 4, 2005, and ruled that the property of Shen China (RMB 14.132 million as the limit) should be sealed up and frozen, and that Shen China should fulfill the duties stipulated in effective legal papers or regulated by law within five days from the day the Mandamus arrived. Should Shen China defaulted beyond the time limit, Shenzhen Intermediate People’s Court would make compulsory enforcement according to law (For details, please refer to notifications of the Company published in Securities Times and Hong Kong Ta Kung Pao dated Jul. 30, 2004, Nov. 20, 2004, Dec. 16, 2004, Dec. 29, 2004 and Jan. 18, 2005.). (II) Other lawsuits 1. The case concerning the joint-liability guarantee the Company provided for the RMB 30 million loan obtained by Shenzhen Nanfang Tongfa Industrial Company (hereinafter referred 38 to as “Nanfang Tongfa”) has been closed through mediation on Jan. 11, 2002 (For details, please refer to notifications of the Company published in Securities Times and Hong Kong Ta Kung Pao dated Mar. 13, 2002.). Ended the year 2003, the Company had repaid on behalf of Nanfang Tongfa the principal, interest, as well as the legal fare for the trial of first instance and the cost of preservation, amounting to RMB 38.003 million, and fulfilled the guarantee liability, according to the requirements of Civil Mediation Agreement. The Company had applied to Shenzhen Intermediate People’s Court to compulsorily enforce the property of Nanfang Tongfa. In January 2005, Shenzhen Intermediate People’s Court issued the (2004) SZFZZI No. 115 Civil Order and ruled that, since Nanfang Tongfa had no executable property, (2001) YGFJEZZI No. 111 Civil Mediation Agreement sent by Guangdong High People’s Court should be suspended, and that, after the case of execution suspension disappeares, the Company can applied to Shenzhen Intermediate People’s Court for resumption of execution (For details, please refer to notifications of the Company published in Securities Times and Hong Kong Ta Kung Pao dated Jan. 22, 2005.). 2. In December 2002, the case concerning the joint-liability guarantee the Company provided for the HKD 3 million loan that Guangdong Sunrise Holdings Co., Ltd. (the former Shenzhen Lionda Holdings Co., Ltd., hereinafter referred to as “Sunrise Company” for short) had obtained from Industrial and Commercial Bank of China Shenzhen Branch has been closed through mediation. On Jan. 13, 2003, the Company repaid, on behalf of Sunrise Company, the principal of HKD 3 million as well as the interest amounting to HKD 100 thousand, while surplus interest was exempted. The Company would exercise relevant rights through legitimate means. 3. The case concerning the joint-liability guarantee the Company provided for the HKD 6 million loan Sunrise Company had obtained from Shenzhen Development Bank Co., Ltd. Nantou Subbranch has been closed with a reconciliation. Ended the year 2003, the Company had repaid a sum of principal HKD 2 million and the interest arising on behalf of Sunrise Company. The remaining principal of HKD 4 million was made on-lending, and the Company would continue to provide guarantee (For details, please refer to notifications of the Company published in Securities Times and Hong Kong Ta Kung Pao dated May 13, 2003.) Sunrise Company had not repaid this loan by the expiration day of the loan in the report period. 4. The case concerning the joint-liability guarantee the Company provided for the RMB 8 million loan which Sunrise Company had obtained from Guangdong Development Bank Co., Ltd. Shenzhen Nanyuan Subbranch (formerly Guangdong Development Bank Co., Ltd. Shenzhen Branch Nanyuan Subbranch) has been closed with a reconciliation. Ended the year 2003, the Company had repaid a sum of interest amounting to RMB 1.939 million on behalf 39 of Sunrise Company, while the remaining principal and interest amounting to RMB 8.58 million would continue to be provided as a loan to Guangdong Sunrise Holdings Co., Ltd., and the Company would continue to provide join-liability guarantee for it. The guarantee term was from Feb. 6, 2004 to Feb. 6. 2005. 5. The case about the joint-liability guarantee the Company provided for the RMB 5.28 million loan that Shenzhen Tellus Holdings Co., Ltd. (hereinafter referred to as “Shen Tellus” for short) had obtained from Shenzhen International Trust & Investment Company has been closed with a reconciliation. In March 2002, the Company repaid RMB 5.28 million on behalf of Shen Tellus. Ended March 2004, the Company had recovered the whole principal amounting to RMB 5.28 million that had been repaid by on behalf of Shen Tellus, as well as a compensation fund of RMB 200 thousand. Section II. Purchases and sales of assets In the report period, there were no significant purchases or sales of assets, nor significant takeovers or mergers made by the Company. Section III. Material related transactions The Company conducted no material transactions with its related parties in the report period. Section IV. Important contracts and the implementation (I) Entrustment, contracting and leasing The Company had no important entrustment, contracting or leasing in the report period. (II) External guarantees left over by history The external guarantees left over by history of the Company were all made before the year 1999, when, with Nanfang Tongfa, Sunrise Company, Shen China, Shen Tellus and the Company all being holding subsidiaries or wholly-owned subsidiaries of Shenzhen Investment Holdings Corporation as the historical background, the Company had provided the above-mentioned four companies loan guarantees with the guarantee principal amounting to RMB 50.28 million, HKD 41 million and USD 800 thousand. After being controlled by Shenzhen Agricultural Products Co., Ltd., the Company set down to solve the guarantee problems left over by history. Ended the report period, the guarantee liabilities for Shen China, Shen Tellus and Nanfang Tongfa has been rescinded, and more than 50% of historically left guarantees has been settled. Right now, the only guarantee liability left over non-rescinded is that for Sunrise Company amounting to RMB 8.58 million and HKD 36 million (amounting to RMB 38.379 million at the exchange rate of 1.0661), with the total guarantee amount taking up 16.43% of the Company’s audited net assets of the year 2004. Details are as follows: 1. After the case concerning the guarantee the Company provided for the HKD 6 million loan that Sunrise Company had obtained from Shenzhen Development Bank Co., Ltd. Nantou Subbranch had been closed with a reconciliation, apart from the part of the principal and 40 interest that the Company should repay on behalf of Sunrise Company, the remaining principal of HKD 4 million was made on-lending, and the Company would continue to provide guarantee (For details, please refer to notifications of the Company published in Securities Times and Hong Kong Ta Kung Pao dated May 13, 2003.). After the expiration of the loan in the report period, Sunrise Company had not repaid. 2. After the case about the guarantee the Company provided for the RMB 8 million that Sunrise Company had obtain from Guangdong Development Bank Co., Ltd. Shenzhen Branch had been closed with a reconciliation, apart from the part of principal and interest that the Company should repay on behalf of Sunrise Company, the remaining principal and interest amounting to RMB 8.58 million would continue to be lent to Guangdong Sunrise Holdings Co., Ltd. , and the Company would continue to provide guarantee. The guarantee term was from Feb. 6, 2004 to Feb. 6, 2005. 3. In December 1998, the Company provided joint-liability guarantee for the HKD 32 million loan, which Sunrise Company had got from Bank of China Shenzhen Branch, with the guarantee term from Dec. 31, 1998 to Oct. 31, 1999. By the end of the report period, Sunrise Company had not repaid the above-mention loan principal or interest. In the year 2003, Bank of China Shenzhen Branch required the Company to provide pledge assets for the above-mentioned guarantee. On Sep. 22, 2003, the Company agreed to pledge 51.67% share equity of Shenbao Huacheng it held to Bank of China Shenzhen Branch (For details, please refer to notifications of the Company published in Securities Times and Hong Kong Ta Kung Pao dated Sep, 27, 2003.). (III) Guarantees for holding subsidiaries By the end of the report period, the total guarantees that the Company had furnished holding subsidiaries amounted to RMB 95 million, taking up 40.66% of the Company’s audited net assets of the year 2004. Details are as follows: 1. In the report period, the wholly-owned subsidiary of the Company Shenzhen Shenbao Sanjing Food & Beverage Development Co., Ltd. (hereinafter referred to as “Sanjing Company” for short) got a loan in two times amounting to RMB 60 million from China Everbright Bank Shenzhen Branch, and the Company provided it a guarantee with a term of one year; it also got a loan in two times amounting to RMB 20 million from China Minsheng Bank Luohu Subbranch, with the Company providing it a warranty guarantee, and, by the end of the report period, Sanjing Company has returned RMB 10 million of this loan, and the Company has been freed from the relevant guarantee liability; On Dec. 24, 2003, Sanjing Company got a loan amounting to RMB 20 million from Shenzhen City Commercial Bank Jingtian Subbranch, with the Company providing warranty guarantee, and, by the end of the report period, Sanjing Company has returned the whole amount of the loan, and the Company 41 has been freed from relevant guarantee liability. On Oct. 26, 2004, Sanjing Company got a loan of RMB 15 million from Shenzhen City Commercial Bank Jingtian Subbranch, and the Company provided warranty guarantee with a one-year term. 2. On Jun. 24, 2004, the Company’s holding subsidiary Shenbao Huacheng Company obtained comprehensive credit line amounting to RMB 20 million from Shenzhen City Commercial Bank Jingtian Subbranch, and the Company provided warranty guarantee as well as a loan of RMB 20 million; by the end of the report period, Shenbao Huacheng Company has returned the whole loan amount, and the Company has been freed from relevant guarantee liability. On Dec. 24, 2004, Shenbao Huacheng Company got comprehensive credit line amounting to RMB 10 million from Shenzhen City Commercial Bank Jingtian Subbranch, and the Company provided a one-year warranty guarantee for it. By the end of the report period, the loans provided by the Company amounted to RMB 10 million. 3. Entrustment of financial management In the report period, the Company had made no entrustment of financial management. Section V. Commitments In the report period, neither the Company nor shareholders holding more than 5% had made any commitments disclosed in the designated newspapers or website. Section VI. Engagement and Disengagement of Certified Public Accountants In the year 2004, the Company renewed the engagement of Shenzhen Dahua Tiancheng Certified Public Accountants as the domestic auditor of the Company in the year 2004, and K. C. Oh & Company Public Accountants as the international auditor of the Company in the year 2004. The remunerations that the Company had paid the Certified Public Accountants were as follows: Unit: RMB ’000 Name of Certified Public Accountants Financial auditing fee Other fee Notes 2004 2003 2004 2003 Shenzhen Dahua Tiancheng Certified Public 220 220 -- -- -- Accountants K.C.Oh & Company Certified Public 180 180 -- -- -- Accountants Shenzhen Dahua Tiancheng Certified Public Accountants and K. C. Oh & Company Certified Public Accountants had provided auditing services for the Company for four successive years. 42 Section VII. Other significant events 1. In the report period, the Company, the Board of Directors of the Company or the directors had not been inspected by CSRC, nor received any administrative penalty or circulating criticism from CSRC, or publicly criticized by Shenzhen Stock Exchange. 2. According to the requirements of Notice on Standardizating the Capital Balance between Listed Companies and Related Parties as well as on Some External Guarantee Problems of Listed Companies (ZJF [2003] No. 56), which was jointly issued by CSRC and the State-owned Assets Supervision and Administration Commission of the State Council, and the Notice on the Relevant Work Concerning the Execution of Notice on Standardizing the Capital Balance between Listed Companies and Related Parties as well as on Some External Guarantee Problems of Listed Companies (SZBFZI [2003] No. 233 Document), which was issued by Shenzhen Securities Regulatory Bureau, the Company must supplement relevant articles concerning the external guarantees of the Company in the Articles of Association of the Company according to stipulation. In light of this, the 2003 Shareholders’ General Meeting of the Company held on May 25, 2004 approved amending relevant articles of the Articles of Association of the Company. (For details, please refer to notifications of the Company published in Securities Times and Hong Kong Ta Kung Pao dated May 26, 2004.) 3. On Sep. 25, 2002, Shenzhen Investment Holdings Corporation and Jindazhou Company signed the Share Equity Transfer Agreement and transferred the 53,990,145 shares of the Company it had held to Jindazhou Company (For details, please refer to notifications of the Company published in Securities Times and Hong Kong Ta Kung Pao dated Sep. 27, 2002); On Dec. 11, 2003, the Company received the Notice on the Dissolution of the Agreement on the Transfer of Shenzhen Shenbao Industrial Co., Ltd.’s Equity from Investment Management Company (For details, please refer to notifications of the Company published in Securities Times and Hong Kong Ta Kung Pao dated Dec. 12, 2003.); On Apr. 2, 2004, Investment Management Company informed the Company by letter that Jindazhou Company had agreed to cancel the aforesaid equity transfer agreement (For details, please refer to notifications of the Company published in Securities Times and Hong Kong Ta Kung Pao dated Apr. 6, 2004.). 43 4. Shenzhen State-owned Assets Management Office issued the Decision on the Establishment of Shenzhen Investment Holdings Co., Ltd. (SGZW [2004] No. 223 Document): according to the general arrangement on the work adjustment of state-owned assets management system made by CPC Shenzhen Committee and Shenzhen Municipal People’s Government, it was decided that Shenzhen Investment Management Company, Shenzhen Construction Investment Holdings Company and Shenzhen Commercial and Trading Investment Holdings Company should be merged to establish Shenzhen Investment Holdings Co., Ltd.. Shenzhen Investment Holdings Co., Ltd. is a wholly state-funded limited liability company (For details, please refer to notifications of the Company published in Securities Times and Hong Kong Ta Kung Pao dated Nov. 4, 2004.). 5. On Nov. 3, 2004, the Company cancelled Chaozhou Shenbao Construction Development Company according to law (For details, please refer to notifications of the Company published in Securities Times and Hong Kong Ta Kung Pao dated Nov. 5, 2004.). 6. In the report period, there were no other significant events of the Company that had been disclosed in provisional report. Chapter X. Financial Report Report of the auditors to the members of Shenzhen Shenbao Industrial Co., Ltd. (Incorporated in the People’s Republic of China with limited liability by shares) We have audited the accompanying balance sheet of Shenzhen Shenbao Industrial Co., Ltd. as of December 31, 2004 and the related statements of income, cash flows and changes in equity for the year then ended. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audit. 44 We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2004 and the results of its operations and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. K. C. Oh & Company Certified Public Accountants Hong Kong : April 11 , 2005 45 Shenzhen Shenbao Industrial Co., Ltd. Consolidated income statement for the year ended December 31, 2004 2004 2003 Note RMB’000 RMB’000 Turnover (5) 64,558 61,787 Cost of sales ( 51,318 ) ( 46,551 ) Gross profit 13,240 15,236 Other revenue (6) 46 1,351 13,286 16,587 Distribution costs ( 22,973 ) ( 27,372 ) Administrative expenses ( 33,667 ) ( 39,365 ) Other operating expenses ( 103 ) ( 136 ) Operating loss ( 43,457 ) ( 50,286 ) Finance costs ( 6,912 ) ( 4,368 ) Operating loss before exceptional items ( 50,369 ) ( 54,654 ) Exceptional items (7) ( 2,150 ) ( 26,226 ) Loss after exceptional items ( 52,519 ) ( 80,880 ) Share of profit from associates 50,401 32,157 Loss before taxation (8) ( 2,118 ) ( 48,723 ) Taxation (9) 380 ( 499 ) Loss before minority interests ( 1,738 ) ( 49,222 ) Minority interests 6,047 4,370 Profit/(loss) attributable to shareholders 4,309 ( 44,852 ) Accumulated loss brought forward ( 45,004 ) ( 47,881 ) Loss before set off ( 40,695 ) ( 92,733 ) Loss set off - 47,729 Accumulated loss carried forward ( 40,695 ) ( 45,004 ) Profit/(loss) per share – basic (10) RMB0.0237 RMB(0.2465) 46 Shenzhen Shenbao Industrial Co., Ltd. Consolidated balance sheet as at December 31, 2004 2004 2003 Note RMB’000 RMB’000 Non-current assets Fixed assets (11) 103,954 68,969 Intangible assets (12) 37,598 39,156 Interests in associates (13) 169,443 148,572 Other investments (14) 22,006 37,745 333,001 294,442 Current assets Tax recoverable 2,046 1,512 Inventories (15) 19,429 16,126 Accounts receivable (16) 21,818 23,382 Prepayments, deposits and others receivable (17) 56,276 57,365 Cash and bank balances 34,659 53,487 134,228 151,872 Current liabilities Dividends payable ( 218 ) ( 218 ) Amount due to a related company (18) ( 6,201 ) ( 6,201 ) Accounts payable ( 12,994 ) ( 11,564 ) Receipts in advance ( 4,500 ) ( 14,040 ) Others payable and accrued expenses ( 42,936 ) ( 19,557 ) Anticipated liabilities ( 19,782 ) ( 23,298 ) Short-term bank loans (19) ( 140,000 ) ( 130,000 ) ( 226,631 ) ( 204,878 ) Net current liabilities ( 92,403 ) ( 53,006 ) Assets less liabilities 240,598 241,436 Minority interests ( 4,999 ) ( 10,146 ) Net assets employed 235,599 231,290 Financed by : Share capital (20) 181,923 181,923 Reserves 53,676 49,367 Shareholders’ equity 235,599 231,290 The financial statements on pages 2 to 23 were approved and authorized for issue by the board of directors on April , 2005 and are signed on its behalf by : Director Director 47 Shenzhen Shenbao Industrial Co., Ltd. Consolidated statement of changes in equity for the year ended December 31, 2004 Retained Share Capital Surplus earnings/ capital reserves reserves (loss) Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 As at January 1, 2003 181,923 108,490 33,610 ( 47,881 ) 276,142 Loss for the year of 2003 - - - ( 44,852 ) ( 44,852 ) Accumulated loss set off - ( 27,486 ) ( 20,243 ) 47,729 - As at December 31, 2003 181,923 81,004 13,367 ( 45,004 ) 231,290 As at January 1, 2004 181,923 81,004 13,367 ( 45,004 ) 231,290 Profit for the year of 2004 - - - 4,309 4,309 As at December 31, 2004 181,923 81,004 13,367 ( 40,695 ) 235,599 According to the corporation law and relevant regulations of a joint stock limited company, the Company’s specified profit should be classified as capital reserves, which include share premium, surplus on revaluation of assets and other investments, etc. Capital reserves are normally used for issue of new shares, or for write-off or other-than-temporary provision when other investments are revalued downwards. Surplus reserves comprise statutory reserve, statutory public welfare fund and discretionary surplus reserve. The Company is required to transfer an amount of not less than 10% of the profit after making up the accumulated loss to statutory reserve until it is up to 50% of the registered share capital. Statutory reserve can be used to cover current year loss or for issue of new shares. The amount of statutory reserve to be utilized for issue of new shares should not exceed an amount such that the balance of the reserve will fall below 25% of the registered share capital after the issue of new shares. The Company is also required to transfer 5% of the profit after making up the accumulated loss to statutory public welfare fund. Statutory public welfare fund shall only be applied for the collective welfare of the Company’s employees. Discretionary surplus reserve is applied in accordance with the shareholders’ resolutions passed in the annual general meeting and can be used to cover current year loss or for issue of new shares. 48 Shenzhen Shenbao Industrial Co., Ltd. Consolidated cash flow statement for the year ended December 31, 2004 2004 2003 RMB’000 RMB’000 Cash flow from operating activities Operating loss before taxation ( 2,118 ) ( 48,723 ) Adjustment items : (Profit)/loss on disposal of fixed assets ( 182 ) 582 Depreciation 6,545 6,426 Amortization of intangible assets 1,558 1,558 Provision for impairment loss of other investments 1,257 4,630 Loss from guarantees 554 21,257 Reversal of impairment loss of assets ( 573 ) ( 385 ) Share of profit from associates ( 50,401 ) ( 32,157 ) Amortization of premium in associates 339 339 Profit from disposal of other investments - ( 750 ) Interest income ( 484 ) ( 881 ) Interest expense 7,421 5,266 Operating cash flows before movements in working capital ( 36,084 ) ( 42,838 ) (Increase)/decrease in inventories ( 3,303 ) 3,218 Decrease in accounts receivable 1,488 4,915 Decrease in prepayments, deposits and others receivable 2,180 3,572 Increase in accounts payable 1,430 1,413 Increase in receipts in advance 4,500 14,040 Increase/(decrease) in others payable and accrued expenses 23,328 ( 1,858 ) Decrease in anticipated liabilities ( 4,070 ) ( 24,477 ) Cash outflow from operating activities before interest and tax payments ( 10,531 ) ( 42,015 ) Interest paid ( 7,843 ) ( 5,378 ) Income tax paid ( 154 ) ( 610 ) Net cash outflow from operating activities c/f ( 18,528 ) ( 48,003 ) (to be cont’d) 49 Shenzhen Shenbao Industrial Co., Ltd. Consolidated cash flow statement for the year ended December 31, 2004 (cont’d) 2004 2003 RMB’000 RMB’000 Net cash outflow from operating activities b/f ( 18,528 ) ( 48,003 ) Investing activities Interest received 484 881 Proceeds from disposal of fixed assets 4,773 404 Purchases of fixed assets ( 45,648 ) ( 27,761 ) Dividends received from associates 29,191 18,730 Proceeds from disposal of other investments - 933 Net cash outflow from investing activities ( 11,200 ) ( 6,813 ) Net cash outflow before financing activities ( 29,728 ) ( 54,816 ) Financing activities Increase in short-term bank loans 10,000 30,000 Minority interests 900 - Net cash inflow from financing activities 10,900 30,000 Decrease in cash and cash equivalents ( 18,828 ) ( 24,816 ) Cash and cash equivalents as at beginning of year 53,487 78,303 Bank deposits - pledged ( 30,000 ) - Cash and cash equivalents as at end of year 4,659 53,487 Analysis of cash and cash equivalents Cash and bank balances 34,659 53,487 Bank deposits - pledged ( 30,000 ) - Cash and cash equivalents 4,659 53,487 50 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 1. General information Shenzhen Shenbao Industrial Co., Ltd. (the “Company”), formerly a state-owned enterprise incorporated in the People’s Republic of China (“PRC”) in 1975, obtained approval from the Shenzhen Municipal People’s Government to reorganize to a company limited by shares in 1991. On the approval of the People’s Bank of China, Shenzhen Branch, the Company issued A shares and B shares. They are listed on the Shenzhen Stock Exchange and carry equal rights. The principal activity of the company is investment holding and the principal activities of its principal subsidiaries are described in note 3. 2. Basis of presentation of the financial statements The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”). These accounting standards differ from those used in the preparation of the PRC statutory financial statements, which are prepared in accordance with the PRC Accounting Standards. To conform to IFRS adjustments have been made to the PRC statutory financial statements. Details of the impact of such adjustments on the net asset value as at December 31, 2004 and on the operating results for the year then ended are included in note 24 to the financial statements. In addition, the financial statements have been prepared under the historical cost convention except for certain fixed asset items that are recorded at valuation less accumulated depreciation. 3. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and of its subsidiaries (the “Group”) made up to December 31 each year. Except for those subsidiaries not consolidated for the reasons stated below, all significant inter-company transactions and balances within the Group have been eliminated on consolidation. (a) Subsidiaries A subsidiary is a company in which the Company holds, directly or indirectly, more than 50% of the equity interest as a long-term investment and/or has the power to cast the majority of votes at meetings of the board of directors/management committee. As at December 31, 2004, the Company held the following subsidiaries, all of which are incorporated in the PRC : 51 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 (cont’d) 3. Basis of consolidation (cont’d) (a) Subsidiaries (cont’d) i) Subsidiaries consolidated Effective Year of equity held Company name registration by the Company Principal activities Shenzhen Shenbao Industrial 1989 100% Trading and wholesaling Trading & Development Co., Ltd. Shenzhen Shenbao Properties 1998 100% Property management of Management Co., Ltd. Group’s properties Shenzhen Shenbao Bioproducts 1998 100% Manufacture of healthy Co., Ltd. food and additives, etc. Shenzhen Shenbao Tri-well Food & 1998 100% Manufacture of soft drinks, Beverage Co., Ltd. canned food and additives, etc. Shenzhen Shenbao Huacheng Foods 2002 51.67% Tea concentrates and Co., Ltd. instant brew Guangdong Shenbao Foods Co., Ltd. 2004 70%* Business not yet commenced * Held by the Group’s subsidiary, Shenzhen Shenbao Tri-well Food & Beverage Co., Ltd. ii) Subsidiaries not consolidated Effective Year of equity held Company name registration by the Company Principal activities Shenzhen Shenbao Fruit Juice 1994 70% Fruit juice Co., Ltd. Shenzhen Shenbao (Liaoyuan) 1992 53.5% Soft drinks Co., Ltd. The board of directors is of the opinion that the above subsidiaries not consolidated are not fully put into operation and their operating results and net assets have no significant effect on the Group. Therefore, they have not been included in the consolidation. After taking into consideration the expected impairment loss, investments in above companies are accounted for at cost less provision for diminution in value. 52 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 (cont’d) 3. Basis of consolidation (cont’d) (b) Associates An associate is a company in which the Company holds, directly or indirectly, not less than 20% and not more than 50% equity interest as a long-term investment and is able to exercise significant influence on this company. Except for the associate that is shown in note 14, investments in associates are accounted for by the Group using the equity method of accounting. The associates held by the Company as at December 31, 2004 are shown in note 13 to the financial statements. 4. Summary of significant accounting policies (a) Turnover Turnover represents the proceeds from the sales of goods, net of returns, discounts and sales tax, supplied to customers outside the Group. Turnover and profit of the Group are from the manufacture and sale of soft drinks and food products and leasing business. (b) Revenue recognition Revenue is recognized when it is probable that the benefits will flow to the Group and the revenue can be measured reliably. i) Sales of goods are recognized when the goods are delivered and the title has passed. ii) Income from services is recognized when it is probable that the economic benefits associated with the transaction will flow to the Group, the stage of completion of the transaction can be measured reliably and the costs incurred and expected to be incurred for the transaction can be measured reliably. iii) Leasing income under operating leases is accounted for in the income statement on a straight-line basis over the terms of the respective leases. iv) Interest income is accrued on a time proportion basis by reference to the principal outstanding and at the interest rate applicable. v) Dividend income from investments is recognized when the shareholders’ right to receive payment has been established. 53 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 (cont’d) 4. Summary of significant accounting policies (cont’d) (c) Fixed assets and depreciation Fixed assets are stated at cost or valuation less accumulated depreciation. Depreciation of fixed assets is provided using the straight-line method over the estimated useful lives, taking into account the estimated residual value of 5% of the cost or revalued amount, as follows : Plants and buildings 5-40 years Machinery and equipment 12 years Transport equipment 9 years Furniture, fixtures and office equipment 5-6 years Construction-in-progress - Construction-in-progress represents the factory and office buildings under construction and is stated at cost. This includes costs of construction, machinery and furniture as well as interest charges and exchange differences arising from borrowings that are used to finance the construction during the construction period. No depreciation is provided on construction-in-progress prior to its completion. However, for construction-in-progress that are pending for further process and are functionally or technologically obsolete, their carrying amounts are reduced to their recoverable amounts by reference to the impairment loss. (d) Intangible assets The cost of land use rights is amortized on a straight-line basis over the lease term. The cost of technical know-how is amortized on a straight-line basis over its expected useful life of 20 years. (e) Deferred assets Deferred assets are amortized on a straight-line basis over 5 years. (f) Investments Long-term investments are stated at cost less provision for diminution in value that is other than temporary whilst short-term investments are stated at the lower of cost and market value or net realizable value. (g) Inventories Inventories are valued at the lower of cost (using weight-average method) and net realizable value. Cost comprises direct materials, direct labor cost and an appropriate portion of overheads. Net realizable value is calculated as the estimated selling price less all further costs of production and the related costs of marketing, selling and distribution. 54 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 (cont’d) 4. Summary of significant accounting policies (cont’d) (h) Cash and cash equivalents Cash and cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (i) Foreign currency conversion The financial statements are expressed in Renminbi. Transactions in foreign currencies are translated at the rates prevailing at the dates of the transactions. Monetary assets and liabilities in foreign currencies are translated at the rates prevailing at the balance sheet date. Exchange differences that are attributable to the translation of foreign currency borrowings for the purpose of financing the construction of factory and office buildings, plant and machinery and other major fixed assets for periods prior to their being in a condition to enter into services are included in the cost of the fixed assets concerned. Other exchange differences are dealt with in the consolidated income statement. (j) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. (k) Impairment loss At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Any impairment loss arising is recognized as an expense immediately. A reversal of impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognized in prior years. Reversals of impairment loss are credited to the income statement in the year in which the reversals are recognized. 55 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 (cont’d) 4. Summary of significant accounting policies (cont’d) (l) Provisions Provisions are recognized when the Group has a present legal or constructive obligation subsequent to a past event, which will result in a probable outflow of economic benefits that can be reasonably estimated. (m) Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognized if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed as at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. 56 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 (cont’d) 5. Turnover 2004 2003 RMB’000 RMB’000 Sales and service income 64,051 61,167 Leasing income 702 899 64,753 62,066 Taxes and charges ( 195 ) ( 279 ) 64,558 61,787 6. Other revenue 2004 2003 RMB’000 RMB’000 Investment income - 750 Revenue from staff housing scheme - 575 Other income 46 26 46 1,351 7. Exceptional items 2004 2003 RMB’000 RMB’000 Loss from guarantees 554 21,257 Provision for impairment loss of other investments 1,257 4,630 Amortization of premium in associates 339 339 2,150 26,226 Loss from guarantees The Group had provided irrevocable guarantees to the banks in respect of the loans advanced to Shenzhen China Bicycle Company (Holdings) Limited and Guangdong Sunrise Holdings Co., Ltd. (formerly known as Shenzhen Lionda Holdings Company Limited). These two companies defaulted payments upon maturity and the court had made the rulings that the Group was jointly liable for the banks’ claims. In addition and based on the assessments on other overdue guaranteed loans, the Group provided loss from guarantees of RMB15,000 and RMB539,000 for the loans that were overdue by Shenzhen China Bicycle Company (Holdings) Limited and Guangdong Sunrise Holdings Co., Ltd. (formerly known as Shenzhen Lionda Holdings Company Limited) respectively. The amount was treated as an exceptional item for the year. 57 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 (cont’d) 7. Exceptional items (cont’d) Provision for impairment loss of other investments The subsidiary not consolidated, Chaozhou Shenbao Development Co., Ltd. was dissolved during the year. The Group had accordingly made a further provision for impairment loss amounting to RMB1,257,000. Amortization of premium in associates The Group previously transferred certain land use rights as part of investment cost to an associate. In accordance with the regulations, the Group needed to pay additional premium payment of the above land use rights. The resulting difference between the revised cost of investment and the equity interest of this associate was recorded as premium. The premium is amortized on a straight-line basis over the period of 10 year with an annual amortization amount of RMB339,000. 8. Loss before taxation 2004 2003 RMB’000 RMB’000 Loss before taxation has been arrived at : After charging : Loss on disposal of fixed assets - 582 Depreciation 6,545 6,426 Amortization of intangible assets 1,558 1,558 Provision for bad debts - 467 Interest expense 7,421 5,266 Exchange loss 3 - and after crediting : Profit on disposal of fixed assets 182 - Profit from disposal of other investments - 750 Reversal of provision for obsolete inventories - 852 Reversal of provision for bad debts 573 - Interest income 484 881 Exchange gain - 2 58 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 (cont’d) 9. Taxation PRC income tax is determined by reference to the profit reported in the audited financial statements under PRC Accounting Standards, and after adjustments for income and expense items that are not assessable or deductible for income tax purposes. It is provided at the rates of 15% and 33% on the estimated assessable income for the year. 2004 2003 RMB’000 RMB’000 Current tax Income tax 210 482 (Over-provision)/under-provision in prior years ( 590 ) 17 ( 380 ) 499 Deferred tax - - (Income)/expense from taxation ( 380 ) 499 The reconciliation between tax income/expense and accounting loss at is as follows : 2004 2003 RMB’000 RMB’000 Loss before taxation ( 2,118 ) ( 48,723 ) Tax at the income tax rate of 15% (2003 - 15%) ( 318 ) ( 7,308 ) (Over-provision)/under-provision in prior years ( 590 ) 17 Tax effect : - disallowable expenses 75 - - tax losses unrecognised 3,759 7,538 - tax losses utilised ( 3,378 ) - - different tax rates of subsidiaries operating in ‘ different jurisdictions 72 252 (Income)/expense from taxation at the rate of 17.9% (2003 - n/a) ( 380 ) 499 10. Profit/loss per share The calculation of the basic profit/loss per share is based on the current year’s profit of RMB4,309,000 (2003 - loss of RMB44,852,000) attributable to the shareholders and on the existing number of 181,923,088 shares (2003 - 181,923,088 shares) in issue during the year. 59 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 11. Fixed assets Furniture, Plants & Machinery Transport fixtures & buildings & equipment equipment office equipment RMB’000 RMB’000 RMB’000 RMB’000 Cost/valuation Balance as at January 1, 2004 14,904 93,898 12,451 8,564 Increase 83 3,712 576 1,784 Decrease ( 1,195 ) ( 3,558 ) ( 861 ) ( 146 Reclassification 26,871 29,649 - - Balance as at December 31, 2004 40,663 123,701 12,166 10,202 Accumulated depreciation/impairment loss Balance as at January 1, 2004 ( 8,530 ) ( 74,124 ) ( 8,467 ) ( 4,399 Increase ( 629 ) ( 4,219 ) ( 987 ) ( 710 Decrease 33 3,229 728 136 Balance as at December 31, 2004 ( 9,126 ) ( 75,114 ) ( 8,726 ) ( 4,973 Net book value Balance as at December 31, 2004 31,537 48,587 3,440 5,229 Balance as at December 31, 2003 6,374 19,774 3,984 4,165 The Group’s fixed assets were revalued by Shenzhen Assets Valuation Office on July 31, 1991. The revaluation surplus had been credited to capital reserv During the year, interest payment of RMB473,000 (2003 – RMB112,000) was capitalized in construction-in-progress. 60 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 (cont’d) 12. Intangible assets Land use Technical rights know-how Total RMB’000 RMB’000 RMB’000 Cost Balance as at January 1, 2004 and as at December 31, 2004 30,848 17,000 47,848 Accumulated amortization Balance as at January 1, 2004 ( 6,999 ) ( 1,693 ) ( 8,692 ) Increase ( 602 ) ( 956 ) ( 1,558 ) Balance as at December 31, 2004 ( 7,601 ) ( 2,649 ) ( 10,250 ) Net book value Balance as at December 31, 2004 23,247 14,351 37,598 Balance as at December 31, 2003 23,849 15,307 39,156 Land use rights : (1) Land use rights for land of 80,408 square meters located at Henggang Town, Shenzhen : These have a useful life of 50 years up to December 2043. (2) Land use rights for land of 3,000 square meters located at the center of Longgang Town, Shenzhen : This piece of land is for commercial use and has a total construction area of 5,856 square meters. The land use rights have a useful life of 70 years up to February 2063 and their entitlement was due to an exchange of land use rights for land located at Huaqiao Village, Henggang Town, Shenzhen, which had been taken back by the local government. Technical know-how is related to tea products. 61 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 (cont’d) 13. Interests in associates 2004 2003 RMB’000 RMB’000 Share of net assets 168,426 147,216 Premium in associates 3,390 3,390 Amortization of premium ( 2,373 ) ( 2,034 ) 1,017 1,356 Interest in associates 169,443 148,572 As at December 31, 2004, particulars of the associates are set out as follows : Effective Place of equity held Company name registration by the Company Principal activities Shenzhen Pepsi-Cola Beverage Co., Ltd. Shenzhen 40% Pepsi-Cola beverages Shenzhen Agriculture Business Co., Ltd. Shenzhen 20% Agricultural technology and consultancy, internet development, etc. 14. Other investments 2004 2003 RMB’000 RMB’000 Subsidiaries not consolidated, at cost 16,558 37,570 Associate not accounted for under equity method 2,870 2,870 Unlisted shares, at cost 17,809 17,809 37,237 58,249 Provision for impairment loss ( 15,231 ) ( 20,504 ) 22,006 37,745 Unconsolidated subsidiaries Shenzhen Shenbao Fruit Juice Co., Ltd. wih registered share capital of RMB16,500,000, was planned to be involved in fruit juice production. The Company fully paid the investment amounting to RMB16,500,000, which had exceeded the agreed 70 percent of its share capital. However, it has not been put into actual production after its establishment. Currently, Shenzhen Shenbao Fruit Juice Co., Ltd. owns a set of fruit juice production facilities. Based on the anticipated loss, the Group made a total provision for impairment loss of RMB2,131,000 on this investment. 62 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 (cont’d) 14. Other investments (cont’d) Unconsolidated subsidiaries (cont’d) Shenzhen Shenbao (Liaoyuan) Co., Ltd. is registered in Liaoling Province. The effective equity interest held by the Company is 53.5%. Its principal activity is soft drinks production. It has been dormant since its establishment because of the lack of capital. Thus, impairment loss has been fully provided. Associate not accounted for under equity method The Company held an effective equity interest of 49.14% in Shenzhen Shenbao (Xinmin) Food Co., Ltd. It has been dormant since its establishment because of the lack of capital. Thus, impairment loss has been fully provided. 15. Inventories 2004 2003 RMB’000 RMB’000 Raw materials 7,187 5,753 Packing materials 1,762 1,712 Finished goods 2,483 1,336 Work-in-progress 4,815 3,985 Sub-contracting, consignment and other materials 9,945 10,103 Provision for obsolescence ( 6,763 ) ( 6,763 ) 19,429 16,126 16. Accounts receivable 2004 2003 RMB’000 RMB’000 Amounts receivable 37,844 39,332 Provision for bad debts ( 16,026 ) ( 15,950 ) 21,818 23,382 63 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 (cont’d) 17. Prepayments, deposits and others receivable 2004 2003 RMB’000 RMB’000 Advance payments 2,359 2,222 Prepayments 206 61 Fixed assets on disposal - 3 Others receivable 74,009 76,026 76,574 78,312 Provision for bad debts ( 20,298 ) ( 20,947 ) 56,276 57,365 18. Amount due to a related company 2004 2003 RMB’000 RMB’000 Shenzhen Investment Administration Company 6,201 6,201 19. Short-term bank loans 2004 2003 Note RMB’000 RMB’000 Bank loans – secured (22) 15,000 - Bank loans – pledged (22) 30,000 - Bank loans – unsecured 95,000 130,000 140,000 130,000 The above loans bear interest at normal commercial lending rates. 64 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 (cont’d) 20. Share capital 2004 2003 RMB’000 RMB’000 Registered, issued and paid-up A shares of RMB1 each 155,787 155,787 B shares of RMB1 each 26,136 26,136 181,923 181,923 A shares, listed and tradable 39,941 39,941 B shares, listed and tradable 26,136 26,136 66,077 66,077 A shares, listed but temporarily not tradable 115,846 115,846 181,923 181,923 21. Contingent liabilities As at December 31, 2004, the Group had provided irrevocable guarantees for bank loans granted to other related companies as set out below : Guarantee Contingent Contingent Name of related company amounts Provision liabilities liabilities Equivalent to . ’000 ’000 ’000 RMB ’000 Guangdong Sunrise Holdings HK$ 32,000 HK$ ( 6,400 ) HK$ 25,600 27,392 Co., Ltd. HK$ 4,000 HK$ ( 4,000 ) HK$ - - RMB 8,580 RMB ( 8,580 ) RMB - - 27,392 Guangdong Sunrise Holdings Co., Ltd. (formerly known as Shenzhen Lionda Holdings Company Limited) is a listed company. Its major shareholder Shenzhen Investment Administration Company is at present the Company’s second major shareholder. 65 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 (cont’d) 22. Pledge of assets The Group had pledged the 51.67% shareholdings of Shenzhen Shenbao Huacheng Foods Co., Ltd. to secure the loan of HK$32,000,000 granted to Guangdong Sunrise Holdings Co., Ltd. (formerly known as Shenzhen Lionda Holdings Company Limited). The Group had already made a provision of HK$6,400,000 (equivalent to RMB6,848,000), the details of which are shown in note 21. The Group had pledged the 100% shareholdings of Shenzhen Shenbao Tri-well Food & Beverage Co., Ltd. to secure the loan of RMB8,580,000 granted to Guangdong Sunrise Holdings Co., Ltd. (formerly known as Shenzhen Lionda Holdings Company Limited). The Group had already made a full provision thereon, the details of which are shown in note 21. A bank loan of RMB15,000,000 was secured by the land use rights of a piece of land located at Longgang Town, Shenzhen. The land was held for the development of residential/commercial buildings. It had a site area of 3,000 square metres and a gross floor area of 5,856 square metres. Bank loans amounting to RMB30,000,000 were obtained by pledging the Group’s bank deposits of RMB30,000,000. 23. Financial instruments Financial assets of the Group include cash and bank balances, accounts receivable, others receivable, prepayments and deposits. Financial liabilities include short-term bank loans, accounts payable, others payable, receipts in advance, amount due to a related company, accrued expenses and anticipated liabilities, etc. (a) Credit risk Cash and bank balances : The Group’s bank balances are mainly deposited in the banks and financial institutions situated in the PRC. They do not have a significant exposure to credit risk. 66 Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 (cont’d) Accounts receivable : As adequate provision has been made, the Group does not have a significant exposure to any individual customer or counterpart. The major concentrations of credit risk arise from exposures to a substantial number of accounts receivable that are mainly located in the PRC. (b) Fair value The fair value of financial assets and financial liabilities is not materially different from their carrying amount. The carrying value of short-term borrowings is estimated to approximate its fair value based on the borrowing terms and rates of similar loans. 23. Financial instruments (cont’d) (b) Fair value (cont’d) Fair value estimates are made at a specific point in time and based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties on matters of significant judgement, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 24. Impact on profit attributable to shareholders and net asset value as reported by the PRC Certified Public Accountants Profit attributable Net to shareholders asset value RMB’000 RMB’000 As reported by PRC Certified Public Accountants 4,309 233,659 Adjustments to conform to IFRS : Unidentified payable reversed as income - 1,067 Interest capitalization on land use rights - 873 As restated in conformity with IFRS 4,309 235,599 25. Language The translated English version of the financial statements is for reference only. Should any disagreement arise, the Chinese version shall prevail. Documents available for Reference There are complete following documents in Secretariat of the Board of the 67 Company Shenzhen Shenbao Industrial Co., Ltd. Notes to the financial statements for the year ended December 31, 2004 (cont’d) provided for reference upon demand of China Securities Regulatory Commission, Shenzhen Stock Exchange and the shareholders of the Company: I. Accounting statements carried with the signatures and seals of legal representative, principal in charge of the accounting and principal in charge of accounting organizations; II. Original of the Auditors’ Report carried with the seal of Certified Public Accountants as well as the signature and seal of the certified public accountant; III. Originals of all the documents as disclosed on Securities Times and Hong Kong Ta Kung Pao as well as the manuscripts of the public notices as published in the report period; and IV. Original of Annual Report 2004 carried with the autograph of the Chairman of the Board of Directors of the Company. Shenzhen Shenbao Industrial Co., Ltd. Chairman of the Board: Apr. 11, 2005 68