深赤湾Ａ(000022)深赤湾Ｂ2004年年度报告（英文版）

2004 Annual Report 2004 ANNUAL REPORT SHENZHEN CHIWAN WHARF HOLDINGS LIMITED Important Note The Board of Directors of Shenzhen Chiwan Wharf Holdings Limited (“the Company”) individually and collectively accepts responsibility for the correctness, accuracy and completeness of the contents of this report and confirms that there are no material omissions nor errors which would render any statement misleading. Chairman of the Board Ms. Wang Fen, as well as Director of the Company Mr. Fan Zhaoping and Chief Financial Officer Mr. Zhang Jianguo hereby confirm that the Financial Statements in the Annual Report is true and complete. The Annual Report is written in both English and Chinese. In case of any conflict between the two versions, Chinese version prevails. 2004 Annual Report Table of Contents PART I Company Profile 1 PART II Financial and Business Highlights 2 A. Profit and Breakdown for 2004 .............................................................................. 2 B. Financial Indicators.................................................................................................. 2 C. Changes in Shareholders' Equity in 2004 ................................................................ 3 PART III Changes in Share Capital and Shareholders 3 A. Changes in Shareholding Structure.......................................................................... 3 B. Shareholders............................................................................................................ 5 PART IV Directors, Supervisors, Senior Executives & Employees 6 A. General Information................................................................................................. 6 B. Directors and Supervisors Taking Positions in CND............................................. 10 C Other Positions....................................................................................................... 10 D. Annual Salary ........................................................................................................ 12 E. Resignations and Appointments............................................................................. 12 F. Work Force............................................................................................................. 13 PART V Corporate Governance 13 A. Corporate Governance ........................................................................................... 13 B. Performance of Independent Directors .................................................................. 14 C. Independence from the Controlling Shareholders.................................................. 14 D. Performance Evaluation, Motivation and Binding Mechanism for Senior Management Staff ....................................................................................................... 15 PART VI Shareholders’ General Meeting 15 PART VII Report by the Board of Directors 17 A. Performance in 2004 .............................................................................................. 17 B. Investments in 2004 ............................................................................................... 20 C. Financial Status ...................................................................................................... 21 D. Business Plan for 2005 .......................................................................................... 22 E. Routine Work of the Board of Directors ................................................................ 22 F. Profit distribution plan for 2004 ............................................................................ 24 G. Specific Explanation and Independent Opinions of Independent Directors .......... 25 PART VIII Report by the Supervisory Committee 26 PART IX Significant Events 27 PART X Financial Statements 31 PART XI Documents for Reference 31 2004 Annual Report PART I COMPANY PROFILE A. Company's Name in Chinese 深圳赤湾港航股份有限公司 Company's Name in English Shenzhen Chiwan Wharf Holdings Limited (CWH) B. Legal Representative Ms. Wang Fen, Chairman C. Company Secretary Ms. Pei Jiangyuan Authorized Representative Ms. Bu Dan and Ms. He Peng Address 11/F., Chiwan Petroleum Building Port of Chiwan, Shenzhen, PRC Tel +86 755 26694620 Fax +86 755 26684117 E-mail cwh@cndi.com D. Place of Registration Port of Chiwan, Shenzhen, PRC Offices 11-12/F., Chiwan Petroleum Building, Port of Chiwan, Shenzhen, PRC Postal Code 518068 E-mail cwh@cndi.com E. Newspaper for Information "Securities Daily" and "Ta Kung Pao” Disclosure Website for Annual Report http:\\www.cninfo.com.cn Annual Report Preparation Secretariat of the Board of Directors F. Stock Exchange Shenzhen Stock Exchange Stock Short Name Shen Chiwan A/Shen Chiwan B Stock Code 000022/200022 G. Other information Date of Original Registration 19 July 1990 Place of Registration Chiwan, Shenzhen Business Registration Number Qi-Gu-Yue-Shen-Zong-Zi No. 102793 Tax Registration Number Guo-Shui-Shen-Zi No. 440301618832968 Di-Shui-Deng-Zi No. 440305618832968 Accounting Firm (Domestic) PricewaterhouseCoopers Zhong Tian Certified Public Accountants Room 3706, Shun Hing Square, Di Wang Commercial Centre 5002 Shennan Road East Shenzhen, 518068, PRC Accounting Firm (Overseas) PricewaterhouseCoopers 22nd Floor, Prince's Building, Central Hong Kong 1 2004 Annual Report PART II FINANCIAL AND BUSINESS HIGHLIGHTS A. Profit and Breakdown for 2004 (RMB) Profit before tax 875,960,887 Net profit 530,006,581 Gross profit 1,000,461,512 Operating profit 914,333,045 Share of result of associates before tax -8,089,526 Net cash flow from operating activities 1,014,373,328 Increase/decrease in cash and cash equivalents 47,621,349 * Net profit for 2004 of Shenzhen Chiwan Wharf Holdings Limited ("the Company”) was calculated under Chinese Accounting Standards (CAS) as RMB535,628,927, while under International Accounting Standards (IAS) as RMB530,006,581. A discrepancy of RMB5,622,346 exists between the two calculation results due to the following two reasons. 1. Part of charges on capital utilization collected from associate companies which exceeds the one-year interest for bank deposits was taken as capital reserve under CAS , while as investment income under IAS. A discrepancy of RMB3,591,000 in net profit was thus brought on. 2. Preliminaries of associated companies which have not started formal operations was taken as investment loss under IAS, while was not taken as investment loss under CAS. A discrepancy of RMB9,213,346 in net profit was thus brought on. B. Financial Indicators Unit: RMB Y2004 Y2003 Y2002 Sales 1,499,660,007 1,012,014,118 714,755,787 Net profit 530,006,581 313,987,876 183,876,579 Total assets 4,248,212,559 3,214,527,760 2,331,823,016 Shareholders’ equity 1,843,123,509 1,501,391,931 1,298,098,489 (Minority interests excluded) Earnings per share 1.069 0.823 0.482 Net assets per share 3.716 3.935 3.402 Net cash flow per share from 2.045 1.509 0.761 operating activities Return on equity 28.76% 20.91% 14.17% 2 2004 Annual Report C. Changes in Shareholders' Equity in 2004 1. Changes of shareholders’ equity Unit: RMB Share Item Reserves Retained earnings Shareholders' equity Capital Initial amount 381,517,000 930,399,128 189,475,803 1,501,391,931 Increase 114,455,100 215,209,000 530,006,581 859,670,681 Decrease 114,455,100 403,484,003 517,939,103 Ending amount 495,972,100 1,031,153,028 315,998,381 1,843,123,509 2. Reason for the above changes Shareholders’ equity was increased due to the net profit realized in 2004. PART III CHANGES IN SHARE CAPITAL AND SHAREHOLDERS A. Changes in Share Capital 1. Changes in the stock of shares of the Company Changes in amount of shares (+,-) bonus reserves new Before the After the change rights shares to stocks issue others subtotal change 1. Non-circulating shares a. Promoter's shares among which shares held by the State shares held by domestic legal entity 224,470,000 +67,341,000 +67,341,000 291,811,000 shares held by overseas legal entity others b. Shares raised from legal entity c. Shares held by staff 93,500 +28,050 +28,050 121,550 d. Other shares held by senior executives 6,900 +2,070 +83,260 +85,330 92,230 Subtotal 224,570,400 +67,371,120 +83,260 +67,454,380 292,024,780 2. Circulating shares a. A shares 50,499,600 +15,149,880 +15,149,880 65,649,480 b. B shares 106,447,000 +31,934,100 -83,260 +31,850,840 138,297,840 c. Overseas listed shares d. others Subtotal 156,946,600 +47,083,980 -83,260 +47,000,720 203,947,100 3. Total shares 381,517,000 +114,455,100 0 +114,455,100 495,972,100 3 2004 Annual Report 2. Issuance and listing of shares a. The company was approved to issue 310,470,000 ordinary shares at a par value of RMB1.00 per share in February 1993, with 224,470,000 being the promoter's shares; 46,000,000 shares (the "A shares”) being issued to PRC investors (of which 6,000,000 shares were allotted to the employees of the Company), and 40,000,000 shares (the "B shares”) being issued to overseas investors. The A shares were issued at RMB3.10 per share and the B shares at RMB3.18 per share, which were payable at HKD2.83 per share. On 5 May 1993, the Company's A and B shares were listed and traded on the Shenzhen Stock Exchange. b. On June 1994, bonus shares were issued in a proportion of "one bonus share for every ten shares”. As a result, the total volume of the Company's shares rose to 341,517,000. On 16 June and 21 June 1994, respectively, 4,600,000 bonus A shares and 4,000,000 bonus B shares were listed and traded on the Shenzhen Stock Exchange. c. On 22 June 1995, the Company's promoter, China Nanshan Development (Group) Incorporation (CND), converted all of its 22,447,000 bonus shares to B shares, which were sold to overseas investors at an average price of HKD3.54 per share, and then listed and traded on the Shenzhen Stock Exchange. d. In December 1995, the Company issued 40,000,000 B shares to overseas investors at HKD2.90 per share, which were listed on the Shenzhen Stock Exchange on 15 December 1995. Consequently, the total volume of the Company's shares rose to 381,517,000. e. During the reporting period, shareholding structure of the Company was not changed. Plan about capital reserves to share capital for 2003 was carried out during the reporting period as 3 shares for every 10 shares for the total 381,517,000 shares recorded as at registration day (last trading day) June 21, 2004. After the transfer, total share capital was increased from 381,517,000 to 495,972,100. f. The Company was approved to issue 6,000,000 Employees’ Shares at an issuing price of RMB3.10 per share in February 1993. The shares were put in trust with Shenzhen Branch of China Securities Depository & Clearing Corporation Limited in March 1993. After bonus shares were issued in June 1994, Employees’ Shares rose to 6,600,000, among which 600,000 bonus shares were allowed to be traded on 16 June 1994. On 1st August 1994, the Company's Employees’ Shares totaling 6,000,000 were allowed to become tradable, except those held by Directors, Supervisory Committee Members and senior management personnel according to relevant rules. In September, 2004, Director Ms. Wang Fen, Mr. Fan Zhaoping, Mr. Han Guimao and Mr. Yuan Yuhui were awarded bonus by Board of Directors of CND due to their excellent performance in 2003 as CND’s senior management staff. Managing Director Mr. Zheng Shaoping and Deputy General Manager Mr. Zhang Ning were also awarded bonus by Board of Directors of Chiwan Container Terminal Co., Ltd. (CCT) due to their excellent performance in 2003 as CCT’s senior management staff. The aforesaid bonus was used by them to buy the Company’s B shares totaling 83,260 shares, which were locked according to relevant regulations. As at December 31, 2004, shares held by senior executives were thus increased from 8,970 to 92,330, while B shares dropped from 138,381,100 to 138,297,840 shares. 4 2004 Annual Report B. Shareholders 1. As at the end of 2004, 14,740 shareholders of the Company were recorded, 8,434 for shareholders of A Shares and 6,306 for shareholders of B Shares. 2. Top ten shareholders Changes Amount of Number Type of during the Shares as Percen- of shares Type of No. Name shares reporting at the end tage pledged shares (C/NC) period of 2004 or frozen 1 CND +67,341,000 291,811,000 58.84% NC 0 A shares GUOTAI JUNAN SECURIES HONG 2 +4,619,456 13,966,168 2.82% C N/A B shares KONG LIMITED 3 GT PRC FUND +3,359,966 8,059,853 1.63% C N/A B shares HTHK-VALUE PARTNERS 4 +1,628,294 4,578,902 0.92% C N/A B shares INTELLIGENT FD-CHINA B SHS FD 5 UBS WARBURG CUSTODY PTE LTD. +4,467,564 4,467,564 0.90% C N/A B shares INDUSTRIAL AND COMMERCIAL BANK OF CHINA-SYWG BNP 6 +4,336,398 4,336,398 0.87% C N/A A shares PARIBAS SHENGLI CHOSEN SECURITIES INVESTMENT FUND HARVEST CHINA EQUITIES 7 +4,172,675 4,172,675 0.84% C N/A B shares INVESTMENT COMPANY LIMITED BANK OF COMMUNICATIONS- 8 +2,630,119 2,838,843 0.57% C N/A A shares KERUI SECURITIES FUND 9 HONGYANG SECURITIES FUND +555,746 2,727,623 0.55% C N/A A shares SHANGHAI-HK WANGUO 10 +614,636 2,668,976 0.54% C N/A B shares SECURITIES * a.. No relationship exists between CND and the other nine shareholders. The Company is not aware of any relationship existing among the top nine shareholders holding circulating shares. b. CND is the only shareholder holding more than 5% of the Company's shares. Percentage of CND’s equity interests in the Company was not changed within the reporting year. CND did not pledge or freeze its shares in 2004. c. Plan of reserves to stocks for 2003 was carried out in June 2004 as 3 shares for every 10 shares. Investors shall be aware of the changes in shares during the reporting period resulted from the above-mentioned reason. d. NC stands for non-circulating, while C for circulating and N/A for non-available. 3. Information about the controlling shareholder of the Company Company name: China Nanshan Development (Group) Incorporation (CND) Legal representative: Dr. Fu Yuning Registration Date: September 28, 1982 Business scope: Land development, port services and transportation, as well as related bonded warehousing, industry, commerce, property and tourism. Registered Capital: RMB500,000,000 5 2004 Annual Report 4. Within the reporting year, the controlling shareholder of the Company was not changed. 5. Relationship between the Company and controlling shareholder CND 58.84% the Company 6. Top ten shareholders holding circulating shares Amount of Type of No. Name shares as at the Shares end of 2004 1 GUOTAI JUNAN SECURIES HONG KONG LIMITED 13,966,168 B shares 2 GT PRC FUND 8,059,853 B shares 3 HTHK-VALUE PARTNERS INTELLIGENT FD-CHINA B SHS FD 4,578,902 B shares 4 UBS WARBURG CUSTODY PTE LTD. 4,467,564 B shares INDUSTRIAL AND COMMERCIAL BANK OF CHINA-SYWG BNP PARIBAS SHENGLI CHOSEN 5 SECURITIES INVESTMENT FUND 4,336,398 A shares 6 HARVEST CHINA EQUITIES INVESTMENT COMPANY LIMITED 4,172,675 B shares 7 BANK OF COMMUNICATIONS -KERUI SECURITIES FUND 2,838,843 A shares 8 HONGYANG SECURITIES FUND 2,727,623 A shares 9 SHANGHAI-HK WANGUO SECURITIES 2,668,976 B shares 10 THORNBURG INVESTMENT INCOME BUILDER FUND 2,599,963 B shares * The Company is not aware of any relationship existing among the top ten shareholders holding circulating shares. No relationship exists between CND and the above ten shareholders. PART IV DIRECTORS, SUPERVISORS，SENIOR EXECUTIVES & EMPLOYEES A. General Information Chairman of the Board, Ms. Wang Fen, 50 years of age, MBA. Having taken part in the development of Chiwan Port ever since 1982. Previously, acted as Director of General Manager Office, Manager of Business Department of CND, and General Manager of Shenzhen Chiwan Godown Co., Ltd. Appointed as the Vice President of CND in 1994 and then Senior Vice President participating and taking charge of the development and management of CND's investment. Presently, President of CND. Elected Director of the Company in March 1993, Vice Chairman of the Company in December 1998, and Chairman 6 2004 Annual Report of the Company in August 2000. Her present term started from May 2002 and ends in May 2005. Since the plan on reserves to stocks for 2003 was carried out in June 2004 as 3 shares for every 10 shares, 34,100 A shares held by Ms. Wang at the beginning of 2004 was increased to 44,330 shares. Ms. Wang bought 14,800 B shares during the reporting period with her bonus awarded by the Board of Directors of CND in view of her excellent performance as senior executive of CND (see the Company’s announcement No. 2004-027 issued on September 29, 2004 for details). The above mentioned A shares and B shares were both locked in accordance with certain regulations. Director, Mr. Fan Zhaoping, 51 years of age. Got Bachelor Degree in Economics at the State's Finance University and Master's Degree in Economics at the Research Institute of Finance Ministry of China, then worked as assistant researcher there. As an experienced finance manager, Mr. Fan took the position of Financial Manager at Shenzhen Chiwan Petroleum Supply Base Co., Ltd. in 1988, and Manager of the Finance Department of CND in 1991, then Manager of the Investment Department and Vice President of CND. Now Senior Vice President of CND. Appointed as the Company's Chief Financial Officer in March 1993 and resigned from the post in September 1999. Director of the Company since April 1995 with the present term starting from May 2002 and ending in May 2005. Since the plan on reserves to stocks for 2003 was carried out in June 2004 as 3 shares for every 10 shares, 28,600 A shares held by Mr. Fan at the beginning of 2004 was increased to 37,180 shares. Mr. Fan bought 10,700 B shares during the reporting period for the same reason as Ms. Wang. The above mentioned A shares and B shares were both locked in accordance with certain regulations. Director, Mr. Yuan Yuhui, 55 years of age, MBA. Previously, Translator and Assistant Director of Textile Science Research Institute of Hebei Province. Worked in the Business Department of CND in 1989, and then Director of General Manager Office. Now Senior Vice President of CND in charge of the administration, law affairs, research and development issues of CND. Appointed as the Company Secretary in March 1993 and resigned from the post in December 2000. Director of the Company since April 1995 with the present term starting from May 2002 and ending in May 2005. Mr. Yuan bought 10,800 B shares during the reporting period for the same reason as Ms. Wang, which was locked in accordance with certain regulations. Director, Mr. Han Guimao, 55 years of age, graduated from Construction Department of Tsing Hua University. Mr. Han has been working in the field of construction and engineering for over 30 years. Mr. Han first took a job at Tianjin Second Construction Company in 1969, then worked for the First Designing Institute of the Railway Ministry in 1976, and was working from 1983 to 1992 as Deputy General Manager in the Shenzhen Branch of the Second Engineering Bureau of the Railway Ministry (which ranks among the top ten construction and engineering bureaus in China), then took the position of Executive Deputy General Manager in Shenzhen Nanshan Centre-Zone Development Co in charge of large construction projects, planning and construction management. Vice President of CND since 1994, and presently Senior Vice President of CND in charge of general planning, construction and engineering, as well as construction material industry of CND. Director of the Company since May 1998 with the present term starting from May 2002 and ending in 7 2004 Annual Report May 2005. Mr. Han bought 10,760 B shares during the reporting period for the same reason as Ms. Wang, which was locked in accordance with certain regulations. Director and General Manager, Mr. Zheng Shaoping, 42 years of age. Got Bachelor Degree in Shipping and then graduated from Postgraduate School of Dalian Shipping University with a major in Marine Trade Law. Previously, Manager of Business Section, Deputy General Manager and then General Manager of Shenzhen Chiwan Harbour Container Co. Now General Manger of Chiwan Container Terminal Co., Ltd. (CCT). Appointed as Deputy General Manager of the Company in December 1998 and resigned from the post in May 2002. Elected as Director of the Company since May 1999 with the present term starting from May 2002 and ending in May 2005. Appointed again as the Company’s Deputy General Manager in April 2003, and then as General Manager in September 2004 with the present term ending in May 2005. Since the plan on reserves to stocks for 2003 was carried out in June 2004 as 3 shares for every 10 shares, 700 A shares held by Mr. Zheng at the beginning of 2004 was increased to 910 shares. Mr. Zheng bought 18,900 B shares during the reporting period with his bonus awarded by the Board of Directors of CCT in view of his excellent performance as senior executive of CCT (see the Company’s announcement No. 2004-027 issued on September 29, 2004 for details). The above mentioned A shares and B shares were both locked in accordance with certain regulations. Independent Director, Mr. Zhang Limin, 50 years of age. Got Doctor’s Degree in Accounting at Tianjin Finance Institute. Presently Professor and Doctor Supervisor at Management Institute of Sun Yat-Sen University. His present term started from May 2002 and ends in May 2005. Holding nil shares of the Company. Independent Director, Mr. Liu Ruiqi, 48 years of age. Got Bachelor Degree in Law at People’s University of China, and presently lawyer at Liu & Liu Attorneys at Law. His present term started from May 2002 and ends in May 2005. Holding nil shares of the Company. Independent Director, Mr. Ng Pock Too, 60 years of age. Honorary Doctor of Law Degree of University of New Brunswick in Canada and attended Harvard Business School’s Programme for Management Development. Former Director and CEO of the Economic Development Board of Singapore, Political Secretary to Prime Minister Lee Kuan Yew, CEO of Sembawang Group, a Singapore Government-owned company. Presently, President of Hamilton Sundstrand Asia Pacific Pte. Ltd. in charge of investment and planning. His present term started from May 2003 and ends in May 2005. Holding nil shares of the Company. Chairman of Supervisory Committee, Mr. Huang Chuanqi, 41 years of age. Got Doctor’s Degree at Nanjing Aviation and Aerospace University, Doctor’s Degree in Mechanical Engineering at France Bourgogne University, and post-doctor at Aerospace Department at German Stuttgart University. Formerly Professor and Supervisor for post- graduates at Nanjing Aviation and Aerospace University, Assistant to Director of Planning and Technology Division of China Civil Aviation Bureau (“CCAB”), Chief Engineer of a division at CCAB. Presently, Board Chairman of Shenzhen Water (Group) Co., Ltd. and Vice Chairman of CND. Elected as the Chairman of the Company's Fourth Supervisory 8 2004 Annual Report Committee in May 2002 with the present term ending in May 2005. Holding nil shares of the Company. Vice Chairman of Supervisory Committee, Mr. Yu Liming, 43 years of age. Got Doctor’s Degree at Management Institute at Fudan University. Graduated from South China University of Technology in 1982, and Studied at Delft, IHE College and Authority of Rotterdam Port in Netherlands from 1987 to 1988. Joined China Merchants Holdings Co., Ltd. (CMH) in 1984, and presently Director of China Merchants Holdings (Hong Kong) Co., Ltd., General Manager of Business Development Department of CMH. His present term started from May 2002 and ends in May 2005. Holding nil shares of the Company. Supervisory Committee Member, Ms. Mary-Jean Wong, 49 years of age, university graduate. Now Director of Lucliff (Canada) Company and of Max Return Consultancy (HK) Company, Executive Director of HK Clifford Wong Investment Company Ltd., and Director of CND. Elected as member of the Company's Supervisory Committee in May 1996 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. Supervisory Committee Member, Mr. Nie Qi, 43 years of age, Master’s Degree. Previously, worked for Shekou Merchants Harbor Co., Ltd. and appointed as Assistant General Manager of the Company in 1997. Presently, Deputy General Manager of Harbor Division of the Company and General Manager of Shenzhen Chiwan Trans-Grains Terminal Co., Ltd. His present term started from May 2002 and ends in May 2005. Since the plan on reserves to stocks for 2003 was carried out in June 2004 as 3 shares for every 10 shares, 6,200 A shares held by Mr. Nie at the beginning of 2004 was increased to 8,060 shares. Deputy General Manager, Mr. Zhang Ning, 45 years of age, Master’s Degree in Science. Previously, teacher at Wuhan University of Technology. Appointed by CCT in October 1995 as Deputy Manager of the Operation Department, and then Manager of that Department, Assistant General Manager of CCT. Now Deputy General Manager of CCT. Employees' representative in the Supervisory Committee from May 1999 to December 2004. Appointed as the Company’s Deputy General Manger in December 2004 with the term ending in May 2005. Mr. Zhang bought 17,300 B shares during the reporting period with his bonus awarded by the Board of Directors of CCT in view of his excellent performance as senior executive of CCT (see the Company’s announcement No. 2004-027 issued on September 29, 2004 for details). Such B shares were locked in accordance with certain regulations. Deputy General Manager, Mr. Lu Baodi, 59 years of age. Previously, cargo controller and Deputy General Manager of Shenzhen Chiwan Harbour Company. Deputy General Manager of the Company since March 1993 with the present term commencing in May 2002 and ending in May 2005. Since the plan on reserves to stocks for 2003 was carried out in June 2004 as 3 shares for every 10 shares, 30,800 A shares held by Mr. Lu at the beginning of 2004 was increased to 40,040 shares. Chief Financial Officer, Mr. Zhang Jianguo, 41 years of age, university graduate. Previously, Financial Manager of Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Appointed as the Financial Manager of the Company in October 1997 and Chief Financial Officer of the Company in September 1999 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. 9 2004 Annual Report Company Secretary, Ms. Pei Jiangyuan, 33 years of age, Master’s Degree. Previously worked as the Executive Secretary for the Company’s Chairman. Appointed as the Company Secretary in March 2001 with the present term starting from May 2002 and ending in May 2005. Holding nil shares of the Company. B. Directors and Supervisors Taking Positions in CND Position in the Name Position in CND Office Term Company Wang Fen Chairman of the Board President Oct.2002 till present Fan Zhaoping Director Senior Vice President Dec.1998 till present Yuan Yuhui Director Senior Vice President Oct.2002 till present Han Guimao Director Senior Vice President Oct.2002 till present Chairman of Vice Chairman of the Huang Chuanqi Feb.2002 till present Supervisory Committee Board Member of Supervisory Mary-Jean Wong Director April 1995 till present Committee C. Other Positions Name Company Position Chiwan Container Terminal Co., Ltd. Chairman Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Director Shenzhen Nanshan Development Co., Ltd. Chairman Chiwan Wharf (Hong Kong) Limited. Chairman Wang Fen Shenzhen Chiwan Habor Container Co., Ltd. Chairman Shenzhen Chiwan International Freight Agency Co. Chairman Shenzhen Chiwan Oriental Logistics Co., Ltd. Chairman China Merchants Maritime and Logistics (Shenzhen) Ltd. Vice Chairman Chiwan Container Terminal Co., Ltd. Director Fan Shenzhen Nantian Oil Mills Co., Ltd. Director Zhaoping Shenzhen Southseas Grains Industries Limited. Director Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Supervisor Yuan N/A Yuhui Han Chiwan Container Terminal Co., Ltd. Director Guimao Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Executive Director 10 2004 Annual Report Huanan Building Materials (Shenzhen) Co., Ltd. Chairman Shenzhen Yazhi Lightsteel Housing System Limited. Chairman Shenzhen Chixiao Component House Co., Ltd. Chairman Shenzhen Gangchuang Building Materials Co., Ltd. Chairman Executive Director Chiwan Container Terminal Co., Ltd. General Manager Shenzhen Chiwan Shipping & Transportation Company Chairman Zheng Shaoping Shenzhen Chiwan Transportation Company Chairman Shenzhen Cyber-Habor Network Co., Ltd. Vice Chairman China Merchants Maritime and Logistics (Shenzhen) Ltd. Director Zhang Management Institute of Sun Yat-Sen University Professor, Doctor Tutor Limin Liu Ruiqi Liu & Liu Attorneys at Law Lawyer Hamilton Sundstrand Asia Pacific Pte. Ltd President, Asia Pacific Ng Pock NTUC Income Chairman Too Links Island Holdings Ltd Director Chairman, Secretary of Shenzhen Water (Group) Co., Ltd. Party Committee Huang Shenzhen Water Real Estate Management Co., Ltd. Chairman Chuanqi Shenzhen Haina Water Co., Ltd. Chairman Shenzhen Litong Water Co., Ltd. Chairman China Merchants Holdings (Hong Kong) Co., Ltd. Director China Merchants Holdings (International) Co., Ltd. Vice Managing Director Shenzhen Magang Cangma Co., Ltd. Chairman Yu Shenzhen Mawan Port Co., Ltd. Chairman Liming Shenzhen Mawan Wharf Co., Ltd. Chairman Nan You (Holdings) Ltd. Director China Merchants (SCT) Holdings Co., Ltd. Director Shekou Container Terminals Ltd. Director Lucliff (Canada) Company Director Mary-Jean Max Return (HK) Company Director Wong HK Clifford Wong Investment Co., Ltd. Director Nie Qi Shenzhen Chiwan Trans-Grains Terminal Ltd. General Manager Lu Baodi N/A Zhang Chiwan Container Terminal Co., Ltd. Deputy General Manager Ning Zhang Shenzhen Chiwan Trans-Grains Terminal Ltd. Chairman Jianguo 11 2004 Annual Report Shenzhen Chiwan Transportation Company Vice Chairman Shenzhen Chiwan Shipping & Transportation Co. Vice Chairman China Ocean Shipping Agency Shenzhen Director Chiwan Wharf Holdings (HK) Ltd. Director Chiwan Shipping (HK) Ltd. Director Pei N/A Jiangyuan D. Annual Salary 1. Except for the three Independent Directors, the other Directors and Supervisors did not get any emolument, social benefits, or any other preferential treatment from the Company in taking their positions as the Company’s Directors and Supervisory Committee Members in 2004. Director Ms. Wang Fen, Mr. Fan Zhaoping, Mr. Yuan Yuhui and Mr. Han Guimao got their salaries at CND. Supervisory Committee Member Mr. Huang Chuanqi, Mr. Yu Liming and Ms. Mary-Jean Wong got salaries from shareholders of CND. 2. Allowance for Independent Directors was approved at the 2002 Annual General Meeting as RMB60,000/year (pre-tax) each person. 3. Total amount of the annual salaries of top three management personnel was RMB1,560,000. Total amount of the annual salaries of all the Directors, Supervisory Committee Member and senior management staff who get their salaries from the Company, accounted for RMB2,380,000 in 2004, among which three got salaries ranging from RMB200,000 to RMB300,000 and four from RMB310,000 to RMB680,000. 4. All the senior executives of the Company are appointed by the Board of Directors. The Board set up the Company’s business and financial budget for each year and sign evaluation contracts accordingly with senior executives. The Board then grants rewards and punishment to senior executives according to their respective performance during the year. E. Resignations and Appointments 1. During the reporting year, former Director and General Manager Mr. Liu Zhangjun resigned due to job changes and former Deputy General Manager. Mr. Zheng Shaoping was appointed as the General Manager in accepting the Chairman’s nomination. 2. During the reporting year, Employees’ Representative in the Supervisory Committee Mr. Zhang Ning resigned from the post due to job changes and was appointed as the Company’s Deputy General Manager in accepting the General Manager’s nomination. 12 2004 Annual Report F. Work Force As of 31 December 2004, the Company had 1,654 employees, with 503 being university graduates, 70 financial clerks, 79 sales persons, 116 technicians, 75 management personnel, and the others being staff for production. PART V CORPORATE GOVERNANCE A. Corporate Governance In strictly implementing the PRC’s Company Law, the Securities Law as well as other laws and regulations issued by China Securities Regulatory Commission (“CSRC”), the Company keeps on improving the Company’s corporate governance by setting up systems for modern enterprise so as to standardize the operation of the Company. Details are set out as follows: 1. shareholders and the shareholders’ general meeting The Company ensures that all the shareholders, especially minority shareholders, are equal and could enjoy their full rights. The Company called and held shareholders’ general meeting strictly in compliance with the “Rules for Shareholders’ General Meeting”. 2. relationship between the controlling shareholder and the Company Controlling shareholder of the Company operated in line with rules during the reporting year and did not intervene decisions or operation of the Company directly or indirectly in exceeding authority of the shareholders’ general meeting. 3. Directors and the Board of Directors The Company has elected directors strictly according to the Articles of Association. Numbers and qualifications of Directors conform to relevant laws and regulations. During the reporting period, all Directors attended the Board meetings and shareholders’ general meeting in a positive and responsible manner, participated enthusiastically relevant training so as to know better about laws and regulations as well as rights and obligation of Directors. The Company set up Audit Committee as approved by the first special shareholders’ meeting. 4. Supervisors and the Supervisory Committee Numbers and qualification of Supervisory Committee Members are in compliance with requirements of laws and regulations. The supervisors have performed seriously their duties, taken responsible attitude to all the shareholders, supervised the financial affairs as well as the duties performed by the Company’s Directors, managers and other senior executives in terms of compliance with the laws and regulations. 5. relevant beneficiaries The Company has been fully respecting and safeguarding the legal rights and interests of the banks and other creditors, staff, consumers and other parties of related interests so as to develop the Company in a consistent and healthy way. 13 2004 Annual Report 6. information disclosure The Company has authorized the Company Secretary to take charge of information disclosure, and the Chairman as well as related Directors to take charge of receiving visits and inquiries of the shareholders. The Company has been disclosing the relevant information in a real, accurate, complete and timely way in strictly observing the law, regulations and the Articles of Association so as to ensure all the shareholders having equal opportunity to obtain the information. Ever since its establishment, the Company has been operating in a standard way according to the requirement of Company Law and other laws and regulations. The Company will keep on doing so according to the “Corporate Governance Principle for Listed Companies” issued by CSRC and Finance Ministry of the State on January 7, 2002 so as to safeguard the interests of shareholders and relevant beneficiaries. B. Performance of Independent Directors The Company has three independent directors. Number of the Company’s Independent Directors complies with the stipulations of “Guiding Lines on Setting up Independent Director System in Listed Companies” issued by CSRC, which says “independent directors should at least take one third among all the members of the Board of Directors in Listed Companies. During the reporting period, Independent Director Mr. Zhang Limin and Mr. Liu Ruiqi should attend and indeed attended eight meetings. Independent Director Mr. Ng Pock Too should attend eight Board meetings and indeed attended seven meetings. Mr. Ng Pock Too did not attend the eight session of the Fourth Board of Directors which was held on August 18, 2004. He had reviewed the documents before the meeting and had no objections. He entrusted Mr. Zhang Limin as his proxy to attend the meeting and express opinions on the meeting. No objection was voiced from three Independent Directors regarding the documents of the Board meetings and other issues of the Company. They carefully reviewed and issued independent opinions in written form on significant issues such as significant related-party transactions, guarantee provided, and appointment of the senior executives. Independent Directors seriously performed their duties, monitoring the Company’s business and operation consistently, maintaining the minority shareholder’s rights, thus played significant roles in the scientific decision-making by the Board of Directors. C. Independence from the Controlling Shareholder The Company is absolutely independent in personnel, assets, finance, organization and business from its controlling shareholder. Details are set out as follows. The Company has basically separated its staff from its controlling shareholder. Senior management personnel of the Company do not take positions at its ultimate shareholding company. No financial clerks took corresponding jobs at the associated companies The Company possesses its own self-governed assets and independent operation system. Assets of the controlling shareholder in the Company (land-use rights and fixed assets such 14 2004 Annual Report as property and large equipment, etc. being included) was converted through assets evaluation into stock of shares at the latter half of 1992, which the Company has full rights to hold, use and dispose whatsoever. The Company has set up its own financial department as well as the independent normative accounting system and the financial management system on its subsidiary companies. The Company has its own bank accounts and does not share the same bank account with its controlling shareholder. The Company has been paying tax according to the law on its own behalf. Management of the Company on its human resources and staff salary is absolutely independent. Controlling shareholder has handed its wharf-related business thoroughly to the Company to operate and does not engage in the same market as the Company thus has no competition with the Company. D. Performance Evaluation, Motivation and Binding Mechanism for Senior Management Staff (see Part IV D.4 for details) PART VI SHAREHOLDERS’ GENERAL MEETING Two shareholders’ General meetings were held in 2004. A. 2003 Annual General Meeting The Company disclosed the Notice of the 2003 Annual General Meeting in the specified newspapers “Securities Daily” and “Ta Kung Pao” on 31 March 2004. On 30 April 2004, the meeting was held at 9:30AM as scheduled at the No.5 Conference Room on 11/F, Chiwan Petroleum Building, Shenzhen. Thirty-three participants, including 17 shareholders (or shareholders’ authorized proxies), Directors, Supervisory Committee members, senior management staff, lawyer, accountant and other guests etc., represented 228,293,757 shares, or 59.84% of the total 381,517,000 shares, with 225,239,408 being A shares (81.88% of the total A shares), and 3,054,349 shares being B shares (2.87% of the total B shares). Conformed to the Company Law and the Company's Articles of Association, the meeting was legal and valid. The meeting was presided by Ms. Wang Fen, Chairman of the Board of Directors. Following proposals were reviewed and passed by voting at the meeting. 1. To approve the working report of the Board of Directors for the year of 2003; 2. To approve the working report of the Supervisory Committee for the year of 2003; 3. To approve the financial statement for the year of 2003; 4. To approve the profit distribution plan for the year of 2003; Audited by PricewaterhouseCoopers Zhong Tian Public Accountants in accordance with Chinese Accounting Standard, the Company achieved a net profit of RMB313,987,876 15 2004 Annual Report (“domestic audited profit”) in 2003. Retained profit at year beginning amounted to RMB123,342,793, among which RMB109,876,896 was distributed as dividends for 2002. Profit distributable to shareholders for 2003 amounts to RMB327,453,773. Audited by PricewaterhouseCoopers in accordance with International Accounting Standard, the Company achieved a net profit of RMB313,987,876 (“overseas audited profit”) in 2003. Retained profit at year beginning amounted to RMB111,013,454, among which RMB109,876,896 was distributed as dividends for 2002. Profit distributable to shareholders for 2003 amounts to RMB315,124,434. a. RMB31,398,788, i.e.10% of the domestic audited profit for 2003 is to be drawn for Statutory Surplus Reserve; b. 5% of the domestic audited profit for 2003 totaling RMB15,699,394 is to be drawn for Statutory Welfare Fund; c. 25% of the domestic audited profit for 2003 totaling RMB78,496,969 is to be drawn for Discretionary Surplus Reserve; d. After the above drawing of Statutory Surplus Reserve, Statutory Welfare Fund and Discretionary Surplus Reserve from domestic and overseas audited profit respectively, profit distributable to shareholders amounts respectively to RMB201,858,622 and RMB189,529,283. The principle of taking the lower amount as the base for distribution is taken. A cash dividend of RMB0.496 per share (pre-tax) totaling RMB189,232,432 will be paid for the total 381,517,000 shares as at the end of 2003, with the balance of domestic audited profit being RMB12,626,190 and the balance of overseas audited profit RMB296,851. e. Capital reserve is to be converted into share capital at the rate of 3 shares for every 10 shares for the total 381,517,000 shares of the Company. After the conversion, total share capital of the Company is increased from 381,517,000 shares to 495,972,100 shares. 5. To review the report on appointment of the Company’s accounting firms for the year of 2004, and approve the re-appointment of PricewaterhouseCoopers Zhong Tian Certified Public Accountants and PricewaterhouseCoopers as the Company’s accounting firms for the year of 2004; 6. To approve the amendment of the Articles of Association, Working Rules of the General Meeting, and Working Rules of the Board of Directors of the Company; 7. To approve the authorization of the General Meeting to the Board of Directors regarding the limit of bank loans. Board of Directors was authorized to handle the loan not exceeding 40% of the audited net assets under relevant rules and regulations. Lawyer Mr. Zhou Weiping of Haiwen & Partners presented his opinion at the meeting as that convening, procedure and voting of the meeting, as well as qualifications of attendants were all conformed with relevant laws, regulations and the Company’s Articles of Association, and that resolutions passed at the meeting were legal and valid. The above resolutions and legal opinions were disclosed on the “Securities Daily” and “Ta Kung Pao” on 10 May 2004 and 1 May 2004 respectively. B. The First Special Shareholders’ Meeting for 2004 16 2004 Annual Report The Company disclosed the “Notice of the First Special Shareholders’ Meeting for 2004” in the specified newspapers “Securities Daily” and “Ta Kung Pao” on 20 August 2004. On 22 September 2004, the meeting was held at 9:30AM as scheduled at the No.5 Conference Room on 11/F, Chiwan Petroleum Building, Shenzhen. Thirty-six participants, including 17 shareholders (or shareholders’ authorized proxies), Directors, Supervisory Committee members, senior management staff, lawyer and other guests etc., represented 352,703,561 shares, or 71.11% of the total 495,972,100 shares, with 329,373,951 being A shares (92.11% of the total 357,591,000 A shares), and 23,329,610 shares being B shares (16.86% of the total 138,381,100 B shares). Conformed to the Company Law and the Company's Articles of Association, the meeting was legal and valid. The meeting was presided by Ms. Wang Fen, Chairman of the Board of Directors. Following proposals were reviewed and passed by voting at the meeting. 1. To approve the report on the acquirement of land –use rights through lease to build Berth 13, and to authorize the five directors who stand for the Company in CCT’s Board to vote for this issue. 2. To approve the report on the set-up of Audit Committee. Lawyer of Haiwen & Partners presented his opinion at the meeting as that convening, procedure and voting of the meeting, as well as qualifications of attendants were all conformed with relevant laws, regulations and the Company’s Articles of Association, and that resolutions passed at the meeting were legal and valid. The above resolutions and legal opinions were disclosed on the “Securities Daily” and “Ta Kung Pao” on 23 September 2004. PART VII REPORT BY THE BOARD OF DIRECTORS A. Performance in 2004 1. Core business The company is engaged mainly in the handling, warehousing and transportation of containers as well as bulk and general cargoes at the terminals of Shenzhen Port , and also in other related services. Rapid economic development and surging foreign trade volume in South China drove Shenzhen ports run faster in 2004. Total throughput for Shenzhen Ports in 2004 was 135.25 million tons, 20.3% up over 2003, among which container throughput was 13.655 million TEUs, 28.2% up over 2003. Growth rate of the Company was even higher than the average growth rate of Shenzhen ports. The company achieved a throughput of 34.75 million tons in 2004, 41.7% up compared with 2003 and accounting for 25.7% of the total throughput of Shenzhen during the year. In enjoying the highest growth rate of 53.3% among Shenzhen Ports, the Company’s container throughput rose to 3.428 million TEUs in 2004. Market share was increased from 20.9% to 25.1%. Throughput of bulk and general cargo of the Company in 2004 decreased by 4.8% to 7.79 million tons, which shared one-fourth market in business of bulk and general cargo handling in Shenzhen. Business performance of the Company for the past three years is set out as follows. 17 2004 Annual Report Business Data Y2004 Y2003 Y2002 Total throughput (million ton) 34.75 24.52 19.94 Throughput of bulk and general cargo (million ton) 7.79 8.18 7.27 Container throughput (million TEU) 3.428 2.236 1.544 Trucking volume (million teu•km) 4.31 4.69 4.23 Hours charged for tow trucks (’000 hours) 914 718 532 Hours charged for tugboat 22,616 16,999 13,847 a. Breakdown of sales Unit: RMB Operation Business Amount Percent Handling ports handling 1,400,859,642 90.86% Land transportation transportation 85,508,655 5.55% Tugboat service transportation 49,344,936 3.20% Agency agency 6,028,742 0.39% Subtotal 1,541,741,975 100% Business offset 42,081,968 Total 1,499,660,007 b. Breakdown of gross profit Unit: RMB Operation Business Amount Percent Handling ports handling 943,372,311 94.30% Land transportation transportation 17,529,847 1.75% Tugboat service transportation 33,530,612 3.35% Agency agency 6,028,742 0.60% Subtotal 1,000,461,512 100% Business offset 0 Total 1,000,461,512 Sales and gross profit of the Company in 2004 rose due to the following reasons. Incredible growth of business volume led to the significant growth of turnover. Meanwhile, cost and expenses did not grow as well under sound control. Thus, gross profit was increased considerably. c. Financial highlights for core businesses, which accounts for over 10% of the Company’s turnover and profit Unit: RMB Business Sales Cost Profit margin Handling 1,400,859,642 457,487,331 67.34% 18 2004 Annual Report 2. Results of wholly-owned subsidiaries and joint ventures a. Chiwan Container Terminal Co., Ltd. (CCT) The company holds 55% equity interests directly and indirectly in CCT. With a registered capital of USD 63,500,000, CCT is engaged mainly in handling containers, especially in accommodating international container lines. CCT achieved a container throughput of 2.675 million TEUs, 63.6% up compared with 2003. As of December 31, 2004, total assets of CCT was RMB 2,619,622,617. b. Shenzhen Chiwan Harbor Container Co. Ltd. (CHCC) The company holds 100% equity interests directly and indirectly in CHCC. With a registered capital of RMB108,200,000, CHCC is now mainly engaged in handling containers, especially in the accommodation service for transshipment container barges for foreign trade and for medium or small sized international liners as well. During the reporting year, CHCC achieved a container throughput of 458,000TEUs, 8.2% up compared with 2003. As of December 31, 2004, total assets of CHCC was RMB481,285,240. c. Harbor Division Being an independent accounting unit controlled under the Company but not an enterprise, Harbor Division is engaged in handling and warehousing of imported fertilizer. During the reporting period, throughput reached 3.88 million tons, 6.3% down compared with 2003, among which bulk and general cargo throughput was 3.29 million tons, 7.7% down compared with 2003. As of December 31, 2004, total assets of Harbor Division was RMB304,633,626. d. Shenzhen Chiwan Terminal Co., Ltd The Company holds 100% equity interests directly and indirectly in the company. With a registered capital of RMB50,000,000, the company is engaged mainly in the handling and stacking of grains . During the reporting period, the company achieved a throughput of 4.5 million tons of bulk and general cargo, 2% up compared with 2003. As of December 31, 2004, total assets of the company was RMB150,100,296. e. Shenzhen Chiwan Trans-Grains Terminal Limited (SCTGT) The Company holds 100% equity interests directly and indirectly in the company. With a registered capital of RMB45,000,000, the company is engaged in the business of handling, warehousing and packing of grains and provides related service for handling and warehousing grains for Shenzhen Chiwan Terminal Co., Ltd. During the reporting period, stacking volume of grains reached 40.37 million tons day, 49% up compared with 2003. As of December 31, 2004, total assets of the company was RMB119,317,488. f. Shenzhen Chiwan Transportation Co., Ltd. (SCTC) The Company holds 100% equity interests directly and indirectly in the company. With a registered capital of RMB7,000,000, the company is engaged in container transportation service at ports and on roads. During the reporting period, 914,000 hours were charged for tow truck service at the port, 27.3% up compared with 2003, while trucking volume on roads reached 4.31 million teu.km, 8.1% down compared with 2003. As of December 31, 2004, total assets of the company was RMB75,749,939, while net profit for 2004 amounted to RMB13,269,844. 19 2004 Annual Report g. Shenzhen Chiwan Shipping & Transportation Co., Ltd. (SCST) The Company holds 100% equity interests directly and indirectly in the company. With a registered capital of RMB6,000,000, the company is engaged in tugboat service at ports. During the reporting period, 22,616 hours were charged for tugboats, 33% up compared with 2003. As of December 31, 2004, total assets of the company was RMB94,930,462, while net profit for 2004 amounted to RMB23,958,312. . h. Chiwan Wharf (Hong Kong) Ltd. (CWHK) Registered in Hong Kong with a registered capital of HKD1,000,000 and being a wholly owned subsidiary of the Company, CWHK is an investment holding company, which respectively holds 4% equity interests in CCT, 40% equity interests in CHCC, 25% equity interests in SCTC, 40% equity interests in SCST, 25% equity interests in SCTGT, 100% equity interests in Chiwan Shipping (Hong Kong) Ltd., and 50% equity interests in Media Port Investment Limited. As of December 31, 2004, total assets of CWHK was RMB354,573,916, while net profit for 2004 amounted to RMB40,599,538. 3. Major customers Sales (operating income) of the top five customers are totaled RMB905,384,295, 60% of the company’s gross sales (operating income). B. Investments in 2004 1. Utilization of proceeds No funds were raised in 2004. The last proceeds had been used up by the end of 1996. 2. Other investments During the reporting year, RMB827.34million was invested in fixed assets, 34% up compared with 2003, i.e. RMB212.19million more than 2003, among which RMB171.68 million in the infrastructure facilities and RMB212.19 million in the handling and transportation equipments. Construction and manufacture of major investment projects are undergoing on schedule. a. Container handling business • Construction of Berth 13 was undergoing on schedule and will come to an end in the first half of 2005. Being 456m long at quay and -17m deep at its forefront, the berth has a depot of 120,000m2. Part of the depot had already been put into use. Equipped with six quay-side gantry cranes (QC) and 18 rubber-tyred gantry cranes (RTG), annual handling capacity of the berth will reach 650,000 TEU. • A plot of land of 35,000m2 at the backside of Berth 8, which had been used for a warehouse, was reconstructed to a container depot, which was put into service in January 2005. • Six QCs and 26 RTGs will be delivered in the first half of 2005. 20 2004 Annual Report b. Bulk and general cargo handling business Main work for the 10,000m2 warehouse was completed and the warehouse will be put into operation in the first half of 2005. c. Related business • The 3000hp tugboat ordered at the end of 2003 was delivered and put into use in July 2004. • Another tugboat of 4000hp ordered at the midst of 2004 is under construction. 3. Significant investments According to the agreement signed with China Merchants Holdings (International) Co., Ltd. and Shenzhen Nanyou (Group) Ltd. regarding construction of Mawan port, the Company provided a shareholder’s loan of RMB60million to a Mawan joint-venture company (Shenzhen Magang Cangma Co., Ltd.), in which the Company holds 30% equity interest indirectly. Construction of Berth 5 is coming to an end and is expected to be put into operation in the first half of 2005. Being 360m long at its quay, 450m wide for stacking depot and -17m deep at its forefront, Berth 5 is equipped with four QCs and 12 RTGs. Budget for Berth 5 is RMB737million (land use rights included). Upon its completion, annual handling capacity for Berth 5 will reach 500,000TEU. With the same resource equipped as Berth 5, main work for Berth 6 is almost completed and will be put into operation at the latter half of 2005. Berth 7 is planned to be built in 2005. C. Financial Status Unit: RMB Item Y2004 Y2003 +/- (%) Reason Revenue 1,499,660,007 1,012,014,118 48.19 Growth of business Operating costs 499,198,495 360,931,229 38.31 Growth of business Gross profit 1,000,461,512 651,082,889 53.66 Growth of revenue and control on cost Increase of net profit realized by subject Minority interests 296,581,064 180,103,292 64.67 companies Increase of gross profit while sound Net profit 530,006,581 313,987,876 68.80 control on expenses Construction-in-progress 364,171,495 267,046,303 36.37 Increase of fixed assets Land use rights 1,283,306,251 864,947,364 48.37 Construction of Berth 13 Increase of loan to a third party and Investments in associates 339,859,099 288,221,180 17.92 shareholder’s loans provided to associated companies Trade receivables 224,481,675 178,197,639 25.97 Increase of sales Capital reserves was transferred to Share capital 495,972,100 381,517,000 30.00 share capital at the ratio of 3:10 Reserves 1,031,153,028 930,399,128 10.83 Draw of reserve Retained earnings 315,998,381 189,475,803 66.78 Considerable increase of net profit Shareholders’ equity 1,843,123,509 1,501,391,931 22.76 Increase of net profit Minority interests 773,263,937 566,273,362 36.55 Increase of net profit realized by subject 21 2004 Annual Report companies Increase of long-term bank loan used on Non-current liabilities 503,788,728 382,130,000 31.84 the investment in fixed assets, and a deferred revenues for 20 years Investment in fixed assets and a 39.17 Bills payable 396,299,643 137,588,280 188.03 year long-term lease of a plot of land (171,089.478m2) from CND Increase of receivable, long-term Total assets 4,248,212,559 3,214,527,760 32.16 investments and fixed assets Increase/Decrease in cash 47,621,349 -13,969,040 440.91 Increase of balance of bank deposits and cash equivalents D. Business Plan for 2005 1. In following the trend that container terminal business keeps on growing steadily, the Company will further optimize resources on the aspects of quay, stacking yards and roads at Chiwan Port. Lack of container stacking yard will be settled in renovating part of stacking yard for bulk and general cargo into container yards so as to upgrade the comprehensive turnover capacity for container berths thus in turn to keep up with the average growth rate of Shenzhen Ports. 2. The Company will keep on focusing on the handling of imported fertilizer and grains and manage to maintain the business stable. 3. Port tow-truck business will be developed with more emphasis. More tow-trucks will be equipped as required so as to safeguard the service level. The new 4000hp tugboat will be put into use in 2005 to further upgrade the tugboat service and support the growth of terminal business. 4. The Company will take part in the operation and management of Berth 5 and Berth 6 at Mawan Port, so that Chiwan Port and the two berths at Mawan Port will be regarded as a whole for coordination and development. E. Routine Work of the Board of Directors 1. Board meetings and resolutions The Board of Directors held eight meetings (including six special meetings) in 2004. a. The seventh session of the Fourth Board of Directors of the Company took place in the following sequence on 29 March 2004. • To review and approve the Chairman’s Working Report for 2003; • To review and approve the Annual Report of the Company for 2003 and the Abstract; • To review and approve the Company’s Financial Statements for 2003, which was to be submitted for approval to the 2003 Annual General Meeting; • To discuss and approve the profit dividend distribution plan for 2003 as follows, which was to be submitted for approval to the 2003 Annual General Meeting; 22 2004 Annual Report A cash dividend of RMB0.496 per share (pre-tax) totaling RMB189,232,432 will be paid for the total 381,517,000 shares as at the end of 2003. Capital reserve is to be converted into share capital at the rate of 3 shares for every 10 shares for the total 381,517,000 shares of the Company. After the conversion, total share capital of the Company is increased from 381,517,000 shares to 495,972,100 shares. • To review and approve the re-appointment of PricewaterhouseCoopers Zhong Tian Certified Public Accountants and PricewaterhouseCoopers as the Company’s accounting firms for the year 2004, and to resolve to submit the appointment proposal to the 2003 Annual General Meeting for approval; • To review and approve the re-appointment of Mr. He Fei and Mr. Zhou Weiping of Haiwen & Partners as the Company’s solicitors for the year 2004; • To approve the amendment of the Articles of Association of the Company, which was to be submitted for approval to the 2003 Annual General Meeting; • To approve the authorization of the General Meeting to the Board of Directors regarding the limit of bank loans. Board of Directors was authorized to handle the loan not exceeding 40% of the audited net assets under relevant rules and regulations. • To approve the report on the authorization to research the inspiration scheme on management staff. • To approve the time, venue and agenda of the 2003 Annual General Meeting. b. The eighth session of the Fourth Board of Directors was held on 18 August, 2004 to • review and approve the Company’s Interim Report for 2004 and the abstract. • approve the report on the acquirement of long-term land use rights through lease for Berth 13, which was to be submitted for approval to the first special shareholders’ meeting in 2004. • approve the report on the set-up of Audit Committee, which was to be submitted for approval to the first special shareholders’ meeting in 2004. In taking the Chairman’s nomination, Mr. Zhang Limin, Mr. Liu Ruiqi and Mr. Fan Zhaoping was elected as the member for the Audit Committee. • approve the report on the Investors Relations Management Rules • approve the time, venue and agenda of the first special shareholders’ meeting in 2004. c. The first special meeting of the Fourth Board of Directors for 2004 was held on 22 April 2004 to review and approve the Company’s Report for the First Quarter of 2004. d. The second special meeting of the Fourth Board of Directors for 2004 was held on 3 September 2004 to review and approve the report on change of the Company’s General Manager. Mr. Liu Zhangjun was approved to resign from the post as General Manager due to job changes. In accepting the Chairman Ms. Wang Fen’s nomination, the Board approved to appoint Mr. Zheng Shaoping as the General Manager. Independent Directors expressed their independent opinions about the issue. 23 2004 Annual Report e. The third special meeting of the Fourth Board of Directors for 2004 was held on 8 September 2004 to review and approve the report on the purchase of 15% equity interest of China Ocean Shipping Agency Shenzhen (PENAVICO) from CND. The Board approved to purchase 15% equity interest of PENAVICO from CND at a price of RMB13.51 million. Independent Directors expressed their independent opinions about the related-party transaction. f. The fourth special meeting of the Fourth Board of Directors for 2004 was held on 26 October 2004 to review and approve the Company’s Report for the First Three Quarters of 2004. g. The fifth special meeting of the Fourth Board of Directors for 2004 was held on 24 December 2004 to review and approve the report on appointment of Zhang Ning as the Company’s Deputy General Manager as well as the study report on “Build up honest, faithful and law-abiding ideas, and enhance the corporate governance level”. h. The sixth special meeting of the Fourth Board of Directors was held on 30 December 2004 to review and approve the report on the Company’s Intra-Control Rules. 2. Execution of the resolutions passed at the Shareholders’ General Meeting a. Profit and dividend distribution plan for 2003 was approved at the 2003 Annual General Meeting as that a cash dividend of RMB0.496 per share (pre-tax) totaling RMB189,232,432 will be paid for the total 381,517,000 shares as at the end of 2003, and capital reserve is to be converted into share capital at the rate of 3 shares for every 10 shares for the total 381,517,000 shares of the Company. The Board disclosed the Notice about the distribution at “Securities Daily” and “Ta Kung Pao” on 14 June 2004, and had completed the dividends distribution for both A shares and B shares respectively on 22 June and 24 June, 2004. Relevant official procedures were done on 21 September 2004. After the conversion, total share capital of the Company is increased from 381,517,000 shares to 495,972,100 shares. b. The first special shareholders’ meeting approved the report on the acquirement of long- term land use rights through lease for Berth 13, and authorized the five directors who stood for the Company in CCT’s Board to vote for this issue. The five directors did so at CCT’s board meeting. As at 16 December 2004, CCT had paid up for the transaction, which was thus finished as agreement. Relevant announcement was released on “Securities Daily” and “Ta Kung Pao” on 21 December 2004. F. Profit distribution plan for 2004 Audited by PricewaterhouseCoopers Zhong Tian Public Accountants in accordance with Chinese Accounting Standard, the Company achieved a net profit of RMB535,628,927 (“domestic audited profit”) in 2004. Retained profit at year beginning amounted to RMB201,858,622, among which RMB189,232,432 was distributed as dividends for 2003 in 2004. Profit distributable to shareholders for 2004 amounts to RMB548,255,117. Audited by PricewaterhouseCoopers in accordance with International Accounting Standard, the Company achieved a net profit of RMB530,006,581 (“overseas audited profit”) in 2004. Retained profit at year beginning amounted to RMB189,475,803, among which 24 2004 Annual Report RMB189,232,432 was distributed as dividends for 2003 in 2004. Profit distributable to shareholders for 2004 amounts to RMB530,249,952. The Board of Directors approved the following profit distribution plan for 2004, which is to be submitted for approval to the 2004 Annual General Meeting. 1. RMB53,562,893, i.e. 10% of the domestic audited profit for 2004 is to be drawn for Statutory Surplus Reserve; 2. 5% of the domestic audited profit for 2004 totaling RMB26,781,446 is to be drawn for Statutory Welfare Fund; 3. 25% of the domestic audited profit for 2004 totaling RMB133,907,232 is to be drawn for Discretionary Surplus Reserve; 4. After the above drawing of Statutory Surplus Reserve, Statutory Welfare Fund and Discretionary Surplus Reserve from domestic and overseas audited profit respectively, profit distributable to shareholders amounts respectively to RMB334,003,546 and RMB315,998,381. The principle of taking the lower amount as the base for distribution is taken. A cash dividend of RMB0.637 per share (pre-tax) totaling RMB315,934,227.70 will be paid for the total 495,972,100 shares as at the end of 2004, with the balance of domestic audited profit being RMB18,069,318.30 and the balance of overseas audited profit RMB64,153.30. 5. Capital reserve is to be converted into share capital at the rate of 3 shares for every 10 shares for the total 495,972,100 shares of the Company. After the conversion, total share capital of the Company is increased from 495,972,100 shares to 644,763,730 shares. The Board of Directors applied to 2004 Annual General Meeting for an authorization on the amendment of relevant articles in Articles of Association after the above profit distribution plan is carried out. G. Specific Explanation and Independent Opinions of Independent Directors According to the “Notice on Standardizing Listed Companies’ Capital Relationships with Related Parties and Guarantee Provided” issued by CSRC (No. CSRC[2003]56, hereinafter referred to as “the Notice”), the Company’s Independent Directors Mr. Zhang Limin, Mr. Liu Ruiqi, and Mr. Ng. Pock Too had inspected the Company’s guarantee provided to external parties (in terms of 2004 audit report) and expressed independent opinions as follows. 1. During the reporting period, the Company did not provide any guarantee to external parties. 2. As of December 31, 2004, the Company did not have any guarantee provided, which may violate relevant rules and regulations. 3. Balance of the amount for which the Company provided guarantee as of 31 December 2004 As of 31 December 2004, balance of the amount for which the Company provided guarantee reached a total of HKD178million, accounting for 18.19% of the audited net asset value of 2004. (On 5 June 2003, in order to carry out the resolution about investment in Mawan Port 25 2004 Annual Report made by the special shareholder’s meeting held on 6 December, 2002, the Company’s wholly-owned subsidiary CWHK entered into a loan agreement with Hong Kong Branch of China Agriculture Bank on loan facilities totaling HKD176 million, which was guaranteed by Shekou Sub-branch of China Agriculture Bank with an irrevocable stand-by L/C of HKD178 million issued for the Company. The Company provided counter guarantee for Shekou Sub-branch of China Agriculture Bank with valid period starting from June 9, 2003 and ending on June 8, 2005. The above issues were disclosed on “Securities Daily” and “Ta Kung Pao” on 29 August 2003, 31 October 2003, 31 March 2004 and 20 August 2004) 4. Implementation of stipulation of the Notice c. As of 31 December 2004, the Company and all the subsidiaries brought into the consolidated financial statements had observed the Notice. No guarantee was provided for the controlling shareholder or other related parties, in which the Company holds less than 50% equity interests or any non-enterprise entity or individual. No guarantee was provided directly or indirectly for any liabilities of a company whose liability ratio exceeds 70%. d. In observing the Notice, the Company had amended the Articles of the Association regarding the guarantee to others, especially the terms on the guarantee’s examination and approval procedure as well as relevant evaluation on the credit standing of the guaranteed party. The above amendment was approved at the 2003 Annual General Meeting held on 30 April 2004. To sum up, Independent Directors of the Company hold that the Company has abided by the spirit of the Notice, further standardized its guarantee to others, and thus has effectively controlled financial risks. PART VIII REPORT BY THE SUPERVISORY COMMITTEE A. Within the reporting year, in accordance with the “Company Law” of PRC and the Company’s Articles of Association, the Supervisory Committee conducted examination and supervision, carried out its rights and obligations as well as delegated its representatives to attend the Board Meeting and gave its opinions upon the Company’s decision-making regarding some significant issues. The Supervisory Committee held two meetings in 2004. The fifth session of the Fourth Supervisory Committee was held on 29 March 2004 to • review and approve the Annual Report of the Company for 2003 and the Abstract; and • review and approve the Working Report of the Supervisory Committee for the year of 2003. The sixth session of the Fourth Supervisory Committee was held on 18 August 2004 to review and approve the Company’s Interim Report for 2004 and the abstract. B. The Committee expressed its independent opinions on the following issues: 1. By supervising the Company’s production and operation, as well as the decision-making and management, the Committee confirmed that during the reporting period the 26 2004 Annual Report Company did not, in the above activities, demonstrate any behavior which might have violated the laws and regulations of the country, and that the Company had set up perfect intra-control system. By supervising the behaviors of the Company’s Directors and senior management personnel as they were exercising their authorities, the Committee confirmed that, during the reporting period, the Company’s Directors and senior management personnel had not, in their daily business and management activities, demonstrated any behavior which might have violated the laws, regulations, the Company’s Articles of Association, or the resolutions passed at the Shareholders’ Meetings. They had neither abused their authorities, nor infringed upon the interests of the shareholders, the Company or its employees. 2. With no reserved opinions contained therein, the Auditor's Statements for 2004 presented by the Company’s domestic and overseas accounting firms truly reflected the Company's financial status and business performance. 3. No funds were raised during the reporting year. The last proceeds (by issuing 40,000,000 B Shares in December 1995) had been used up by the end of 1996. Actual usage and amount of the proceeds were in conformity with the original plan. 4. The transaction prices for purchases or sales of assets were fair and reasonable. Neither inside dealings, nor damage to the interests of certain shareholders, nor loss of the Company’s assets had been found. 5. Related party transactions taking place during the reporting period were conducted fairly in conformity with market prices (See Financial Statements for details), and have not impaired the interests of the Company. PART IX SIGNIFICANT EVENTS A. The Company had no significant lawsuits or arbitration cases involved in 2004. B. Acquisition and Sale of Assets 1. Sale of the equity of Shenzhen Chiwan Godown Co., Ltd (SCGC) by CWHK CWHK, a wholly owned subsidiary of the Company, entered into an agreement on 18 September 2003 with Shenzhen Chiwan Petroleum Supply Base Co., Ltd. (SCPSB) on the transfer of 50% equity interests and all the related rights and obligations which CWHK held in SCGC to SCPSB at a transfer price of RMB20.77million. CWHK received the amount from SCPSB respectively on 25 December 2003 and 29 January 2004 excluding RMB879,800, which was turned in as the income tax. This related-party transaction was finished on schedule. Relevant announcements were released on “Securities Daily” and “Ta Kung Pao” on 20 September 2003 and 31 January 2004, as well as at subsequent 2003 Annual Report, Report for the First Quarter of 2004, and 2004 Interim Report. The above issue didn’t bring any impact to the Company’s gross profit for the reporting period. Other receivables as at December 31, 2004 decreased RMB10.09million compared with the figure recorded on December 31, 2003. 2. Sale of the equity of Shenzhen Joint Favor International Marine Shipping Agency Co., Ltd (Joint Favour) 27 2004 Annual Report The Company entered into an equity transfer agreement with Shenzhen Enterprise Development Co., Ltd. (“SED”) on 10 May 2004 to transfer 51% equity interest which the Company held in Joint Favour to SED at a transfer price of RMB5,000,000. The Company received the amount on May 24, 2004. According to certain regulations of the Finance Ministry, the Company consolidated Joint Favour’s income statement and cash flow statement for the period starting from January 1, 2004 to the base day for such transfer. Joint Favour contributed to the Company’s consolidated profit and loss for 2004 a revenue of RMB6,207,365 and net profit of RMB1,541,755, 51% of which amounted to RMB786,295. Relevant announcement was released on “Securities Daily” and “Ta Kung Pao” on 20 August 2004. Such issue influence the Company’s gross profit for 2004 by RMB941,701, 0.11% of the gross profit. 3. Acquisition of the equity of China Ocean Shipping Agency Shenzhen (PENAVICO) The Company entered into an equity transfer agreement with CND on 21 September 2004 to acquire 15% equity interest which CND held in PENAVICO from CND at a price of RMB13.51 million. Relevant official procedures had been conducted by 28 October 2004 by PENAVICO. The Company paid up the amount on November 3, 2004. Relevant announcements were released on “Securities Daily” and “Ta Kung Pao” on 9 September 2004 and 6 November 2004. The above issue didn’t bring any impact to the Company’s gross profit for the reporting period. Long-term investment in associates as at December 31, 2004 increased RMB13.51 million compared with the figure recorded on December 31, 2003. C. Significant Related Party Transactions 1. Land-use fees During the reporting period, the Company leased from CND several plots of land for stacking yards and offices on terms and conditions mutually agreed by the parties. Rents for the past two years are set out as follows. Y2004 Y2003 CND RMB30,838,465 RMB26,810,417 2. Handling income During the reporting period, the Company provided handling service to related party on fair terms and conditions mutually agreed by the parties. Details of the handling income are set out as follows. Y2004 Y2003 Shenzhen Nantian Oil Mills Co., Ltd. RMB15,033,484 RMB11,857,229 3. Related party transactions on transfer of assets and equities (see PART IX.B.3 for details) 4. Entrusted loans received 28 2004 Annual Report The Board of Directors approved in November 2004 to get from CND through the banks appointed by CND recycling loans lines with the time limit being less than one year and more than three months and the interest rate being 3.4% per annum. As of 31 December 2004, the Company had got loans totally RMB150,000,000 from such three banks and paid interests totaling RMB5,590,167. 5. Long-term loan investments Unit: RMB 2004 2003 Mawan joint venture companies 160,000,000 100,000,000 Media Port Investment Limited 180,003,900 180,003,900 340,003,900 280,003,900 6. Entrusted loans provided The Company paid RMB40,000,000 to Haihong Industry (Shenzhen) Co., Ltd. (Haihong) in July and September of 2004, and entrusted Haihong to provide the sum to Shenzhen Nanyou (Group) Co., Ltd. through Nanshan Branch of China Merchants Bank at an annual interest rate being 6.138%-6.435%. Valid period for half of the above loan started from 1 July 2004 to 30 June 2008, while the other half from 1 September 2004 to 31 August 2008. The above two issues specified in Item 4 and Item 5 are regarded as related-party transactions according to Listing Rules (2004 edition) issued by Shenzhen Stock Exchange. 7. Other significant related party transactions CCT, in which the Company holds 55% equity interests directly and indirectly, entered into “Land Use Agreement” with CND on September 29, 2004 to lease a plot of land of 171,089.478m2 for 39.17 years for the purpose of constructing a container berth (Berth 13) at Chiwan Port. In consideration of local land prices, the transaction price was settled after friendly negotiation between the two parties and didn’t damage shareholders’ interests, especially the minority shareholders’ interests. The above related party transaction was approved at the first special shareholders’ meeting for 2004, which was held on 22 September 2004. Zrich Securities Investment Consulting, Inc. presented “Independent Finance Advisor’s Report” on the transaction, which was announced on “Securities Daily” and “Ta Kung Pao” on 20 August 2004. The total land use fee for the aforesaid land amounted to RMB444,832,642.8, which was paid in three installments to CND with the first installment totaling RMB222,416,321.4 being paid on October 29, 2004, the second installment RMB111,208,160.7 on November 29, 2004, while the third RMB111,208,160.7 on December 16, 2004, upon which CCT had paid up all the fee and the transaction was finished as agreement. Relevant announcement was released on “Securities Daily” and “Ta Kung Pao” on 21 December 2004. 29 2004 Annual Report D. Significant Contracts 1. Except for what disclosed at the Part IX.C.7, the Company did not hold in trust, contract or lease any significant assets from other companies in 2004, nor did it put in trust, contract or lease its significant assets to other companies. 2. Significant guarantee events Regarding counter-guarantee event, please see Part VII.G.3 in this report for details. 3. The Company had no entrusted financing during the reporting period. 4. Other Significant Contracts a. The Company entered into a loan agreement on March 11, 2003 with Shekou Sub- branch of China Agriculture Bank (“CAB”) on credit line of trust loan not exceeding RMB200 million. The above issue was disclosed on “Securities Daily” and “Ta Kung Pao” on 14 March 2003. The Company entered into a Supplement Agreement on March 12, 2004 with CAB on distributing the aforesaid loan facility to the Company’s such subsidiaries as CCT, CHCC, SCTC and SCST. The above issue was disclosed on “Securities Daily” and “Ta Kung Pao” on 13 March 2004. On 28 May 2004, the fourth Board of Directors approved after review and discussion to apply to CAB to extend the aforesaid loan facility to year 2007 and continue to distribute the loan facility to the Company’s four subsidiaries. The Company thus entered into an agreement with CAB on May 31, 2004. The above issue was disclosed on “Securities Daily” and “Ta Kung Pao” on 1 June 2004. b. The Board resolved on June 11, 2004 to apply loan facilities equivalent to RMB410 million for three years to Shenzhen Nanshan Sub-branch of China Agriculture Bank. The Company signed the agreement with the above bank on June 15, 2004. The above issue was disclosed on “Securities Daily” and “Ta Kung Pao” on 14 June 2004 and 17 June 2004. c. The Board resolved on August 19, 2004 to apply loan facilities equivalent to RMB400 million for three years to Shenzhen Hongli Sub-branch of Shenzhen Development Bank. Each loan under the credit line would not be used beyond twelve months. The Company signed the agreement with the above bank on the same day. The above issue was disclosed on “Securities Daily” and “Ta Kung Pao” on 21 August 2004. d. The Board resolved on September 3, 2004 to apply loan facilities equivalent to RMB200 million for two years to Fuxing Sub-branch of Shenzhen Commercial Bank. The Company signed the agreement with the above bank on 8 September 2004. The above issue was disclosed on “Securities Daily” and “Ta Kung Pao” on 4 September 2004 and 9 September 2004. E. Approved by the 2003 annual general meeting held on 30 April 2004, the Company appointed PricewaterhouseCoopers Zhong Tian Certified Public Accountants, which has been working for the Company for four years, as the Company’s domestic accounting firm for 2004, and PricewaterhouseCoopers, which has been working for the Company 30 2004 Annual Report for seven years, as the Company’s overseas accounting firm for 2004. Remunerations of the Company’s accounting firms were set out as follows: Y2004 Pricewaterhouse Coopers Zhong Tian Pricewaterhouse Coopers Audit RMB500,000 HKD500,000 expenses Other - - expenses F. During the reporting year, the Company and its Directors were not punished by the supervising authority. PART X FINANCIAL STATEMENTS (See attached) PART XI DOCUMENTS FOR REFERENCE 1. Financial Statements carrying the signatures of the Company's legal representative, the Chief Financial Officer and the person in charge of accounting; 2. Original copy of Auditor's Statement sealed by CPA and signed by registered accountants; 3. Original copies and press disclosures of all the documents disclosed in 2004 on “Securities Daily” and “Ta Kung Pao”; and 4. Original copy of the Annual Report signed by the Chairman. For and on behalf of the Board Wang Fen Chairman Shenzhen Chiwan Wharf Holdings Limited Dated 31 March 2005 31 SHENZHEN CHIWAN WHARF HOLDINGS LIMITED AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2004 SHENZHEN CHIWAN WHARF HOLDINGS LIMITED Contents Pages Report of the independent auditors 1 Consolidated income statement 2 Consolidated balance sheet 3 Consolidated statement of changes in shareholders’ equity 4 Consolidated cash flow statement 5 Notes to the consolidated financial statements 6 - 37 Supplementary information 38 PricewaterhouseCoopers 22/F, Prince's Building Central, Hong Kong Telephone (852) 2289 8888 Facsimile (852) 2810 9888 www.pwchk.com REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF SHENZHEN CHIWAN WHARF HOLDINGS LIMITED (Incorporated as a joint stock limited company in the People’s Republic of China) We have audited the accompanying consolidated balance sheet of Shenzhen Chiwan Wharf Holdings Limited (the “Company”) and its subsidiaries (the “Group”) as of 31st December 2004 and the related consolidated income and cash flow statements for the year then ended. These consolidated financial statements set out on pages 2 to 37 are the responsibility of the Company’s management. Our responsibility is to form an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility forwards or accept liability to any other person for the contents of this report. 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Group as of 31st December 2004, and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Certified Public Accountants Hong Kong, 29 March 2005 -1- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2004 Note 2004 2003 RMB RMB Revenue 4 1,499,660,007 1,012,014,118 Operating costs (499,198,495) (360,931,229) Gross profit 1,000,461,512 651,082,889 Other revenue 15,448,229 8,782,947 Administrative expenses (106,176,380) (92,030,520) Other operating income/(expenses) 3,657,983 (15,590,123) Gain on disposal of subsidiaries 29 941,701 5,360,499 Profit from operations 5 914,333,045 557,605,692 Finance costs - net 7 (30,282,632) (25,653,843) Share of results of associates before tax 16 (8,089,526) 1,334,492 Profit before tax 875,960,887 533,286,341 Income tax expenses 8 (49,373,242) (39,195,173) Profit after tax 826,587,645 494,091,168 Minority interests 27 (296,581,064) (180,103,292) Net profit 530,006,581 313,987,876 (Adjusted) Earnings per share 9 1.069 0.633 -2- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED BALANCE SHEET AS AT 31ST DECEMBER 2004 2004 2003 Note RMB RMB ASSETS Non-current assets Property, plant and equipment 11 1,807,175,674 1,496,440,747 Construction-in-progress 12 364,171,495 267,046,303 Land use rights 13 1,283,306,251 864,947,364 Investment property 14 10,228,570 10,481,188 Intangible assets 15 11,181,359 13,790,514 Investments in associates 16 339,859,099 288,221,180 Loan to a third party 17 40,000,000 - Available-for-sale investments 18 14,657,500 4,647,500 3,870,579,948 2,945,574,796 Current assets Inventories 19 22,792,039 19,954,765 Amount due from related companies 30(c) 7,023,850 11,033,436 Other receivables and prepayments 31,053,974 17,048,870 Trade receivables 224,481,675 178,197,639 Cash and cash equivalents 20 92,281,073 42,718,254 377,632,611 268,952,964 Total assets 4,248,212,559 3,214,527,760 SHAREHOLDERS’ EQUITY Share capital 25 495,972,100 381,517,000 Reserves 26 1,031,153,028 930,399,128 Retained earnings 315,998,381 189,475,803 1,843,123,509 1,501,391,931 Total shareholders’ equity Minority interests 27 773,263,937 566,273,362 LIABILITIES Non-current liabilities Borrowings 21 451,385,380 382,130,000 Deferred revenue 22 52,403,348 - 503,788,728 382,130,000 Current liabilities Trade payables 41,812,570 149,183,222 Bills payable 396,299,643 137,588,280 Other payables and accrued expenses 77,427,893 41,021,809 Amount due to holding company 30(b) 2,611,963 3,249,588 Taxes payable 8 22,631,835 14,349,568 Deferred revenue - current portion 22 2,897,881 - Short-term borrowings 21 584,354,600 419,340,000 1,128,036,385 764,732,467 1,631,825,113 1,146,862,467 Total liabilities Total equity and liabilities 4,248,212,559 3,214,527,760 Director Director -3- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31ST DECEMBER 2004 Share capital Reserves Retained (note 25) (note 26) earnings Total RMB RMB RMB RMB Balance at 1st January 2003 381,517,000 805,568,035 111,013,454 1,298,098,489 Dividend paid for 2002 - - (109,876,896) (109,876,896) Profit for the year - - 313,987,876 313,987,876 Transfer from retained profits to reserves - 125,595,151 (125,595,151) - Translation differences - (957,429) - (957,429) Others - 193,371 (53,480) 139,891 Balance at 31st December 2003 381,517,000 930,399,128 189,475,803 1,501,391,931 Balance at 1st January 2004 381,517,000 930,399,128 189,475,803 1,501,391,931 Capitalisation of capital reserve 114,455,100 (114,455,100) - - Dividend paid for 2003 - - (189,232,432) (189,232,432) Profit for the year - - 530,006,581 530,006,581 Transfer from retained profits to reserves - 214,251,571 (214,251,571) - Translation differences - 957,429 - 957,429 Balance at 31st December 2004 495,972,100 1,031,153,028 315,998,381 1,843,123,509 -4- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2004 Note 2004 2003 RMB RMB Cash flows from operating activities Cash generated from operations 28 1,089,222,725 634,152,395 Interest received 909,652 483,925 Interest paid (29,189,024) (26,947,202) Income tax paid (46,570,025) (31,993,198) Net cash from operating activities 1,014,373,328 575,695,920 Cash flows from investing activities Purchase of property, plant and equipment (183,676,059) (403,658,497) Payments for construction-in-progress (649,057,734) (211,494,277) Investment in associates (60,000,000) (200,853,379) Purchase of available-for-sale investment (13,510,000) - Loan to a third party (40,000,000) - Proceeds from disposal of subsidiaries 29 10,949,957 3,045,276 Interest received from loans 2,449,416 5,922,125 Proceeds from disposal of property, plant and equipment 6,769,893 1,735,631 Dividend received 145,000 785,057 Net cash used in investing activities (925,929,527) (804,518,064) Cash flows from financing activities Proceeds from short-term borrowings 657,286,600 1,226,060,000 Proceeds from long-term borrowings 412,843,380 432,323,090 Repayments of short-term borrowings (657,632,000) (1,241,660,000) Repayments of long-term borrowings (178,228,000) (91,993,090) Dividends paid to minority shareholders of a subsidiary 27 (85,860,000) - Dividends paid (189,232,432) (109,876,896) Net cash generated from/used in financing activities (40,822,452) 214,853,104 Increase/(decrease) in cash and cash equivalents 47,621,349 (13,969,040) Movement in cash and cash equivalents: Cash and cash equivalents at 1st January 42,718,254 55,729,865 Increase/(decrease) in cash and cash equivalents 47,621,349 (13,969,040) Effect of exchange rate changes 1,941,470 957,429 Cash and cash equivalents at 31st December 20 92,281,073 42,718,254 -5- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Corporate information Shenzhen Chiwan Wharf Holdings Limited (the “Company”) was incorporated on 16th January 1993 in the People’s Republic of China (the “PRC”) as a joint stock limited company. The A shares and B shares of the Company have been listed on the Stock Exchange of Shenzhen, the People’s Republic of China (“PRC”) since May 1993. The Company and its subsidiaries (the “Group”) are principally engaged in the provision of cargo packing, cargo handling, container terminal, warehousing, land and sea transportation services for customers. 2 Accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: (a) Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). They have been prepared under the historical cost, as modified by the revaluation of available-for-sale financial assets. The preparation of the consolidated financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. During the year ended 31 December 2004, certain changes were introduced to IAS36 Impairment of Assets and IAS38 Intangible Assets, and a new standard, IFRS 3 Business Combinations, became effective. There were no material effects of these revised standards to the financial statements of the Company. (b) Group accounting (1) Subsidiaries Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill, or negative goodwill if vice versa. See note 2(f) for the accounting policy on goodwill, and as negative goodwill if vice versa. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated -6- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (b) Group accounting (Continued) (1) Subsidiaries (Continued) unless cost cannot be recovered. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. A listing of the Group’s principal subsidiaries is set out in note 31. (2) Associates Investments in associates are accounted for by the equity method of accounting. Under this method, the Company’s share of the post-acquisition profits or losses of associates is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Associates are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investment in associates includes goodwill (net of accumulated amortisation) on acquisition. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group will not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates. A listing of the Group’s principal associates is shown in note 16. (c) Foreign currency translation (1) Measurement currency Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”).The consolidated financial statements are presented in Renminbi (“RMB”), which is the measurement currency of the Group. (2) Transactions and balances Foreign currency transactions are translated into RMB using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement. Translation differences on debt securities and other monetary financial assets measured at fair value are included in foreign exchange gains and losses. Translation differences on non- monetary items such as equities held for trading are reported as part of the fair value gain or loss. Translation differences on available-for-sale equities are included in the revaluation reserve in equity. -7- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (c) Foreign currency translation (Continued) (3) Group companies Income statements and cash flows of entities, of which measurement currencies are not RMB, are translated into RMB at average exchange rates for the year and their balance sheets are translated at the exchange rates ruling on 31 December. Exchange differences arising from the translation of the net investment in foreign entities and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When such a entity is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of such a entity are treated as assets and liabilities of that entity and translated at the closing rate. (d) Property, plant and equipment Land and buildings (except for investment property – see note 2(e)) comprise mainly harbor facilities and offices, and other property, plant and equipment and are stated at historical cost less accumulated depreciation and impairment loss. Depreciation is calculated on a straight-line method to write off the cost or revalued amount of each asset to their residual values over their estimated useful lives as follows: Buildings 5 - 40 years Harbor facilities 50 years Plant, machinery and equipment 5 - 15 years Motor vehicles, cargo ships and tugboats 5 - 20 years Furniture and fixtures 5 years Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised, during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. Repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. -8- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (e) Investment property Investment property, principally comprising office buildings, is held for long-term rental yields and is not occupied by the Group. Investment property is treated as a long-term investment and is recorded at cost less accumulated depreciation and impairment losses. Depreciation is calculated on the straight-line method to write off the cost of investment property to their residual values over their estimated useful life of 40 years. (f) Intangible assets (1) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary/associate at the date of acquisition. Goodwill is amortised using the straight-line method over its estimated useful life. Management determines the estimated useful life of goodwill based on its evaluation of the respective companies at the time of the acquisition, considering factors such as existing market share, potential growth and other factors inherent in the acquired companies. At each balance sheet date the Group assesses whether there is any indication of impairment. If such indications exist, an analysis is performed to assess whether the carrying amount of goodwill is fully recoverable. A write-down is made if the carrying amount exceeds the recoverable amount. (2) Negative goodwill Negative goodwill represents the excess of the fair value of the net identifiable assets acquired over the cost of acquisition. Negative goodwill is presented in the same balance sheet classification as goodwill. It represents the amount not exceeding the fair values of acquired identifiable non-monetary assets and is recognised as income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable or amortisable assets. (g) Impairment of long lived assets Property, plant and equipment and other non-current assets, including goodwill and intangible assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows. (h) Land use rights Land use rights are up-front payments for the operating lease of land. These are stated at cost and amortised over the remaining period of the lease on a straight-line basis. -9- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (i) Investments The Group classifies its investments in debt and equity securities into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets; for the purpose of preparing the financial statements, short term is defined as 3 months. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets (during the year the Group did not hold any investments in this category). Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has the expressed intention of holding the investment for less than 12 months from the balance sheet date or unless they are required to be sold to finance the working capital, in which case they are included in current assets. Purchases and sales of investments are recognized and derecognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading and available-for-sale investments are subsequently carried at fair value. Held-to-maturity investments are carried at amortised cost using the effective yield method. Realised and unrealised gains and losses arising from changes in the fair value of trading investments are included in the income statement in the period in which they arise. Unrealised gain and losses arising from changes in the fair value of securities classified as available-for-sale are recognised in equity. The fair values of investments are determined based on quoted bid prices or amounts derived from cash flow models. Fair values of unlisted equity securities are estimated using applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment. When securities classified as available-for-sale are sold or impaired, the cumulative fair value adjustments are included in the income statement as gains and losses from investment securities. - 10 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (j) Leases (1) When the Group company is the lessee Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. (2) When the Group company is the lessor When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return. Assets leased out under operating leases are included in investment property and property, plant and equipment in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term. (k) Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined using the weighted average method. Net realisable value is the estimated selling price in the ordinary course of business, less the selling expenses. (l) Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. - 11 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (m) Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are included within borrowings in current liabilities on the balance sheet. (n) Borrowings Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. (o) Deferred income taxes Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. (p) Pension obligations A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees benefits relating to employee service in the current and prior periods. The Group pays contributions to publicly administered pension insurance plans on a mandatory basis. Once the contributions have been paid, the Group has no further payment obligations. The regular contributions constitute net periodic costs for the year in which they are due and as such are included in staff costs. (q) Provisions Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. - 12 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 Accounting policies (Continued) (r) Revenue recognition Revenue comprises the invoiced value for the services rendered, net of rebates and discounts, and after elimination of sales made within the Group. Revenue from services is recognised upon performance of the service. Upfront payments received from the customers for future usage of services of the Group are deferred and recognized as income on a straight-line method over the committed service period. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective interest rate over the period to maturity, when it is determined that such income will accrue to the Group. Dividends are recognised when the right to receive payment is established. Rental income is recognised on an accrual basis. (s) Dividends Dividends are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders. (t) Segment reporting Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments. 3． Financial risk management (a) Financial risk factors The Group’s activities expose it to financial risks including the effects of changes in foreign currency exchange rates and interest rates. The Group’s overall risk management, carried out by top management, seeks to minimise potential adverse effects on the financial performance of the Group. (i) Foreign exchange risk The Group operates in PRC and is exposed to foreign exchange risk arising from currency exposures primarily with respect to RMB. The Group has a number of investments in foreign subsidiaries, whose net assets are exposed to currency translation risk. Currency exposure to the net assets of the Group’s subsidiaries in Hong Kong is managed primarily through borrowings denominated in Hong Kong dollars. - 13 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3 Accounting policies (Continued) (a) Financial risk management (continued) (1) Financial risk factors (continued) (ii) Interest rate risk The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group has no significant interest-bearing assets except bank deposits, interest rates on which have been fixed in relevant contracts. Other financial assets and liabilities do not have material interest rate risk. (iii) Credit risk The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that services are rendered to customers with an appropriate credit history. Cash transactions are limited to high credit quality financial institutions. The Group has policies that limit the amount of credit exposure with any one financial institution. (iv) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group maintains flexibility in funding by keeping committed credit lines available. (2) Fair values Financial assets of the Group include cash and bank balances, trade receivables, other receivables and prepayments, loans to a related company, amount due from a related company and available-for-sale investments. Their fair values are not materially different from their carrying amounts. Financial liabilities of the Group include bank borrowings, trade payables, other payables and accrued expenses, taxes payable and amount due to holding company. The carrying amounts of short-term loans are estimated to approximate their fair values based on the nature or short-term maturity of these instruments. The fair value of long-term bank loans is estimated by applying a discounted cash flow approach using current market interest rates for similar indebtedness. The fair value is not materially different from the carrying amount. - 14 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4 Segment information (a) Primary reporting format - business segments The Group is organised into two main business segments in the PRC: (i) Harbour related services - provides cargo packing, cargo handling, container terminal management services, warehousing; and (ii) Transportation services - provides trucking and shipping services. Year ended Harbour related Transportation 31st December 2004 services services Eliminations Total RMB RMB RMB RMB Revenue External sales 1,400,859,642 98,800,365 - 1,499,660,007 Internal sales - 42,081,968 (42,081,968) - Total revenue 1,400,859,642 140,882,333 (42,081,968) 1,499,660,007 Segment results 859,562,795 68,590,721 928,153,516 Unallocated costs (13,820,471) Profit from operations 914,333,045 Unallocated finance expenses - net - - (30,282,632) Share of results of associates before tax (6,106,335) (1,983,191) (8,089,526) Profit before tax 875,960,887 Income tax expenses (49,373,242) Profit after tax 826,587,645 Minority interests (296,581,064) Net profit 530,006,581 Segment assets 3,598,375,574 200,011,773 3,798,387,347 Associates 338,608,327 1,250,772 339,859,099 Unallocated assets 109,966,113 Consolidated total assets 4,248,212,559 Segment liabilities 1,072,856,024 364,583,467 1,437,439,491 Unallocated liabilities 194,385,622 Consolidated total liabilities 1,631,825,113 Other segment items Capital expenditure 928,446,931 48,970,502 977,417,433 Depreciation 110,875,212 10,206,634 121,081,846 Amortization 26,403,769 69,987 26,473,756 - 15 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4 Segment information (Continued) (a) Primary reporting format - business segments (Continued) Year ended Harbour related Transportation 31st December 2003 services services Eliminations Total RMB RMB RMB RMB Revenue External sales 909,767,050 102,247,068 - 1,012,014,118 Internal sales 31,210,775 - (31,210,775) - Total revenue 940,977,825 102,247,068 (31,210,775) 1,012,014,118 Segment results 544,046,684 20,551,708 564,598,392 Unallocated costs (6,992,700) Profit from operations 557,605,692 Unallocated finance expenses - net - - (25,653,843) Share of results of associates before tax 1,334,492 - 1,334,492 Profit before tax 533,286,341 Income tax expenses (39,195,173) Profit after tax 494,091,168 Minority interests (180,103,292) Net profit 313,987,876 Segment assets 2,718,714,318 122,783,439 2,841,497,757 Associates 284,847,316 3,233,963 288,081,279 Unallocated assets 84,948,724 Consolidated total assets 3,214,527,760 Segment liabilities 989,721,336 33,888,266 1,023,609,602 Unallocated liabilities 123,252,865 Consolidated total liabilities 1,146,862,467 Other segment items Capital expenditure 825,748,354 41,870,598 867,618,952 Depreciation 81,355,805 7,814,781 89,170,586 Amortisation 21,676,894 69,989 21,746,583 Impairment loss 17,805,004 410,924 18,215,928 Unallocated costs represent corporate expenses. Segment assets consist primarily of property, plant and equipment, construction-in-progress, intangible assets, inventories, receivables and operating cash, but exclude investments. Segment liabilities comprise operating liabilities and exclude items such as taxation and certain corporate borrowings. Capital expenditure comprises additions to property, plant and equipment, investment property and intangible assets. - 16 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4 Segment information (Continued) (b) Secondary reporting format - geographical segments The Group provides all the above services in the PRC and accordingly, no geographical segment information is presented. (c) Analysis of sales 2004 2003 RMB RMB Revenue from services 1,499,660,007 1,012,014,118 5 Profit from operations The following items have been included in arriving at profit from operations: 2004 2003 RMB RMB Depreciation on property, plant and equipment (note 11) - owned assets 121,081,846 87,145,301 Depreciation on investment property (note 14) 451,104 451,104 Amortisation of land use rights (note 13) 26,473,756 21,122,931 Amortisation of intangible assets – goodwill (included in operating expenses) (note 15) 2,609,155 1,427,817 Negative goodwill recognised as income (included in other operating income) (note 15) - (804,165) Operating lease rentals - land and buildings 38,509,542 32,754,636 - plant, machinery and equipment 154,350 2,475,720 - cargo ships and tugboats 4,013,673 2,174,000 (Gain)/losses on disposal of property, plant and equipment (net) (2,043,351) 1,447,751 Staff costs (note 6) 175,126,815 103,751,741 (Reversal) of/doubtful debts provision (107,618) 992,797 Provision for inventories - 1,505,414 Repairs and maintenance expenditure on property, plant and equipment 24,184,880 18,651,436 Rental income - investment property (959,250) (943,524) Impairment losses of property, plant and equipment (included in other operating expenses) - 18,215,928 - 17 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6 Staff costs 2004 2003 RMB RMB Wages and salaries 144,604,655 89,078,966 Pension costs - defined contribution scheme (note 23) 30,522,160 14,672,775 175,126,815 103,751,741 The average number of employees in 2004 was 1,547 (2003: 1,470), of whom 66 (2003: 80) worked part-time. 7 Finance costs - net 2004 2003 RMB RMB Interest expenses - bank borrowings 23,598,857 26,947,202 - loans from holding company 5,590,167 - Less: Interest expenses capitalised in construction- -in-progress (note 12 ) (890,189) (929,605) 28,298,835 26,017,597 Interest income (909,652) (483,925) Dividends income (145,000) (255,000) Net foreign exchange transaction (gains)/losses (984,041) (1,446,266) Others 4,022,490 1,821,437 30,282,632 25,653,843 8 Income tax expense 2004 2003 RMB RMB PRC income tax (note a) - Company and subsidiaries 49,048,576 38,967,817 - Share of tax of associates 272,555 (150,719) Hong Kong profits tax (note b) 52,111 378,075 49,373,242 39,195,173 - 18 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8 Income tax expense (Continued) (a) In accordance with the relevant income tax laws applicable to enterprises operating in the Shenzhen Special Economic Zone of the PRC, the profits of the Group companies are fully exempt from income tax for five years commencing from the first profit making year of operation followed by a 50% exemption for the immediate next five years (“tax preferential period”), after which the profits of the companies are taxable at the full rate which is currently 15%. As at 31st December 2004, the status of tax preferential period of each Group company is as follows: Remaining number of years with tax preferential 2004 enacted treatment tax rate - 7.5% Shenzhen Chiwan Terminal Company Limited Chiwan Container Terminal Company Limited - 7.5% - 9# berth 3 7.5% - 10# berth 6 - - 11# berth 9 - - 12# berth 3 7.5% Shenzhen Chiwan Grains Terminal Company Limited Deferred taxation has not been provided as there are no significant temporary differences. (b) Hong Kong taxation represents the amount provided at the rate of 17.5% (2003: 17.5%) on the estimated assessable profits of the year. (c) The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the basic tax rate of the home country of the Company as follows: 2004 2003 RMB RMB Profit before tax 875,960,887 533,286,341 Income tax provision calculated at the effective tax rate of 15% (2003: 15%) 131,394,133 79,992,951 Effect of different tax rate in other tax jurisdictions - 3,781 Effect on tax losses of subsidiaries 632,590 127,407 Effect of tax holidays (83,847,798) (43,973,837) Income not subject to tax (127,690) (1,065,107) Expenses not deductible for tax purposes 1,322,007 4,109,978 Tax charge 49,373,242 39,195,173 - 19 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8 Income tax expense (Continued) (d) The tax liabilities in the consolidated balance sheet included the following: 2004 2003 RMB RMB Income tax 15,081,546 10,386,042 Business taxes, value-added tax and other surcharges 7,550,289 3,963,526 22,631,835 14,349,568 9 Earnings per share Basic earnings per share is calculated by dividing the consolidated profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. 2004 2003 (Adjusted) Net profit attributable to shareholders RMB 530,006,581 RMB 313,987,876 Weighted average number of ordinary shares in issue (note) 495,972,100 495,972,100 Earnings per share RMB 1.069 RMB 0.633 Diluted earnings per share for both years were not disclosed as there were no potential dilutive shares. Note: On 29 March 2004, the directors of the Company resolved to increase the share capital by means of capitalization of the capital reserves of the Company to the extent that 3 additional ordinary shares were issued to each shareholder holding 10 shares of the Company (the "Capitalization Issue"). The Capitalization Issue was approved by the shareholders and took effect on 22 June 2004 and 25 June 2004 for its A share and B share capital, respectively. In calculating the weighted average number of ordinary shares in issue, the Capitalization Issue was treated as if it had occurred at the beginning of the earliest period presented, i.e 1st January 2003. Accordingly, the 2003’s figures have been adjusted retrospectively. 10 Dividend per share A final dividend of RMB 0.637 per share amounting to a total dividend of RMB 315,934,228 in respect of 2004 was proposed by board of directors on 29 March 2005. The financial statements have not reflected this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending 31st December 2005. The dividend declared and paid in respect of 2003 was RMB 189,232,432. - 20 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11 Property, plant and equipment Motor vehi Plant, machinery cargo ships Buildings Harbour facilities and equipment tugb RMB RMB RMB R Year ended 31st December 2004 Opening net book amount 225,892,559 551,930,716 568,490,213 125,271 Reclassifications 4,680,334 13,872,849 (29,579,734) 4,504 Transfers from construction in progress 12,925,997 107,458,632 200,462,449 43,404 Additions 9,046,325 151,876 37,368,016 9,848 Disposals (18,240,273) (1,267,110) (1,893,080) (256 Disposal of a subsidiary (note 29) - - - (994 Impairment provision utilized 17,754,889 - - 183 Depreciation (9,669,877) (13,111,530) (62,957,113) (23,169 Closing net book amount 242,389,954 659,035,433 711,890,751 158,792 At 31st December 2004 Cost 353,059,145 750,898,108 970,376,439 299,308 Accumulated depreciation and impairment (110,669,191) (91,862,675) (258,485,688) (140,516 Net book amount 242,389,954 659,035,433 711,890,751 158,792 At 31st December 2003 Cost 329,549,542 636,039,736 767,935,919 249,934 Accumulated depreciation and impairment (103,656,983) (84,109,020) (199,445,706) (124,662 Net book amount 225,892,559 551,930,716 568,490,213 125,271 The management has assessed the carrying amount of the above assets and no further impairment provision other than the amount re As 31 December 2004, the Group had not obtained the official certificates of the ownership of certain buildings with net book val that the corresponding land use right certificates of the land on which these buildings are located had not been obtained (note 13). - 21 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 12 Construction-in-progress 2004 2003 RMB RMB At 1st January 267,046,303 49,823,701 Additions 474,832,019 505,064,769 Interest expenses capitalised 890,189 929,605 Transferred to property, plant and equipment (377,599,724) (282,473,832) Other transfer out (997,292) (6,297,940) At 31st December 364,171,495 267,046,303 A capitalisation rate of 3.0% per annum (2003: 5.184%) was used, representing the borrowing cost of the loans used to finance the project. 13 Land use rights 2004 2003 RMB RMB Net book value at beginning of year 864,947,364 617,305,856 Additions 444,832,643 268,764,439 Amortisation (26,473,756) (21,122,931) Net book value at end of year 1,283,306,251 864,947,364 In addition to own-held land use rights, the Group also leases from China Nanshan Development (Group) Incorporation (“Nanshan Development”), the Company’s holding company, several plots of land for its operations. The land leased by Nanshan Development to the Group was injected by Shenzhen Investment Holding Corporation in 1982 as part of the consideration in acquiring the equity interests of Nanshan Development. At that time, the prevailing PRC laws did not provide for a mechanism for the issuance of official certificates of the land use rights. However, certain land occupancy documents had been issued by Shenzhen Municipal Planning and Land Bureau in respect of such land. The net book values of fixed assets and investment properties of the Group constructed thereon the related land were approximately RMB38,378,000 and RMB10,229,000 as at 31 December 2004, respectively. Nanshan Development has undertaken to indemnify the Group against any losses arising from or in connection with the land use rights. As at 31 December 2003 and 2004, there was a piece of land held by the Group with net book value of approximately RMB48,014,000 which had been committed to be transferred to three associated companies of the Group within 5 years’ time. - 22 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14 Investment property 2004 2003 RMB RMB Net book value at beginning of year 10,481,188 19,167,511 Additions 198,486 - Transfer to self-occupied property - (8,235,219) Depreciation for the year (note 5) (451,104) (451,104) Net book value at end of year 10,228,570 10,481,188 Independent valuer has not been employed to determine the fair value of the investment property. Its fair value as at 31st December 2004 was determined by management of the Group to be approximately RMB29 million (2003: RMB13 million) using the discounted cash flow method. As described in note 13, the Group has not obtained the official certificate of ownership of above investment property as the related land use rights attached with the land on which the property is located have not been officially granted. 15 Intangible assets Negative Goodwill goodwill Total RMB RMB RMB Year ended 31 December 2003 Opening net book amount 3,304,624 (6,721,104) (3,416,480) Additions 11,913,707 - 11,913,707 Disposal of a subsidiary - 5,916,939 5,916,939 Amortisation for the year (1,427,817) 804,165 (623,652) Closing net book amount 13,790,514 - 13,790,514 At 31 December 2003 Cost 26,325,304 - 26,325,304 Accumulated amortisation (12,534,790) - (12,534,790) Net book amount 13,790,514 - 13,790,514 Year ended 31 December 2004 Opening net book amount 13,790,514 - 13,790,514 Amortisation for the year (2,609,155) - (2,609,155) Closing net book amount 11,181,359 - 11,181,359 At 31 December 2004 Cost 26,325,304 - 26,325,304 Accumulated amortisation (15,143,945) - (15,143,945) Net book amount 11,181,359 - 11,181,359 - 23 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 16 Investments in associates 2004 2003 RMB RMB Share of net assets At beginning of year 8,217,280 3,122,194 Investments made to associates - 4,139,932 Shares of net profit/(loss) (a) (8,362,081) 1,485,211 Dividends declared - (530,057) At end of year (144,801) 8,217,280 Loans 340,003,900 280,003,900 339,859,099 288,221,180 (a) Share of profit/(loss) is after taxation of the associates. The principal associates, all of which are unlisted, are: Country of establishment/ Name incorporation Percentage of interest held 2004 2003 Shenzhen Cyber-harbour Network Co., Ltd the PRC 37.5% 37.5% China Merchants Maritime & Logistics (Shenzhen) Ltd. the PRC 40% 40% The British Virgin Media Port Investments Ltd. (“MPIL”) Islands 50% (indirect) 50% (indirect) Shenzhen Mawan Wharf Co., Ltd (“MW”) the PRC 30% (indirect) 30% (indirect) Shenzhen Mawan Port Service Co., Ltd (“MP”) the PRC 30% (indirect) 30% (indirect) Shenzhen Mawan Terminals Co., Ltd (“MT”) the PRC 30% (indirect) 30% (indirect) In 2004, the Company renewed its shareholder's loans of RMB 100,000,000, bearing interests at the rates ranging from 5.841% - 6.138% per annum, made to MW and MP which will be due in full in June 2005. The loans are renewable again upon expiry. In addition, the Company also provided interest-free shareholder's loan to MPIL of RMB 180,003,900 without any fixed terms of repayment. During the year, the Company also extended shareholders’ loan of RMB60,000,000, which are interest free and with a repayment term of four years, to MT. 17 Loan to a third party The loan was made to a joint venture partner with MPIL in the form of an entrusted loan. The loan was unsecured, bearing the interest at rates ranging from 6.138% to 6.435% per annum, with the repayment terms of four years. - 24 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18 Available-for-sale investments 2004 2003 RMB RMB At beginning of year 4,647,500 59,979,500 Additions 13,510,000 - Disposals - (55,332,000) Less: impairment loss (3,500,000) - At end of year 14,657,500 4,647,500 Available-for-sale investments represent investments in PRC and overseas companies of not more than 20% of their paid up capital at 31st December 2004. Available-for-sale investments of the Group are stated at their fair values at year end. During the year and as at 31 December 2004, the Group did not hold any trading or held-to- maturity investments. 19 Inventories 2004 2003 RMB RMB Oil and gas 1,283,411 801,377 Spare parts 21,508,628 19,153,388 22,792,039 19,954,765 At the year end, inventories of approximately RMB2,346,000 were stated at net realisable value (2003: RMB2,345,000). 20 Cash and cash equivalents 2004 2003 RMB RMB Cash at banks and on hand 92,281,073 42,718,254 - 25 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21 Borrowings 2004 2003 RMB RMB Current Bank borrowings 247,794,600 198,140,000 Loans from holding company 150,000,000 200,000,000 Current portion of long-term bank borrowings (note a) 186,560,000 21,200,000 584,354,600 419,340,000 Non-current Long-term bank borrowings (note a) 451,385,380 382,130,000 Total borrowings 1,035,739,980 801,470,000 (a) A loan of HK$176,000,000 (RMB equivalent 186,560,000) was raised from a bank in 2003. It bears interest at HIBOR+0.75% per annum and is repayable on 9th June 2005. The loan is guaranteed by the China Agriculture Bank Shenzhen Branch Shekou Sub-branch while the Company gave a back-to-back guarantee. The remaining loans are all unsecured. Maturity of long-term bank borrowings: 2004 2003 RMB RMB Between 1 to 2 years 158,542,000 197,160,000 Between 2 to 5 years 292,843,380 184,970,000 451,385,380 382,130,000 (b) The effective interest rates at the balance sheet date were as follows: 2004 2003 RMB RMB Short-term bank borrowings 2.15% 3.61% Long-term bank borrowings 2.62% 1.52% Loans from holding company 3.4% 3.4% - 26 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21 Borrowings (continued) (c) The Group has the following undrawn committed borrowing facilities as at the end of the year: 2004 2003 RMB RMB Floating rate - expiring within one year - 100,640,000 - expiring beyond one year 271,491,500 216,030,000 271,491,500 316,670,000 Fixed rate - expiring within one year 100,000,000 466,220,000 - expiring beyond one year 909,236,520 671,000,000 1,009,236,520 1,137,220,000 (d) The carrying amounts of borrowings approximate their fair values. (e) Most of the Group’s financing arrangements are in the form of short-term loans, as a result, the Group’s current liabilities exceeded current assets by approximately RMB750 million as at 31 December 2004. The directors are confident that that the Group will be able to renew the loan facilities when they fall due or to replace these loans with undrawn facilities available to the Group; and it is able to identify new sources of financing arrangements. 22 Deferred revenue 2004 RMB Addition during the year 57,957,620 Amortization (2,656,391) 55,301,229 Less: current portion (2,897,881) 52,403,348 - 27 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23 Pension obligations In accordance with certain regulations of the Shenzhen Municipal Government, all enterprises established in Shenzhen are required to contribute to retirement insurance fund, administered by the Shenzhen Municipal Government and National Government at rate of 14% (2003: 7% to 9%) of the basic salaries of the Group’s existing PRC staff or average salaries in the Shenzhen. The retirement insurance fund is fully responsible for payments to retired staff. 24 Commitments (a) Capital commitments Capital expenditure contracted for at the balance sheet date but not recognised in the consolidated financial statements is as follows: 2004 2003 RMB RMB Plant, machinery and equipment 304,861,972 9,238,887 Land and buildings 1,340,575 72,363,321 Harbour facilities 63,626,777 15,948,067 369,829,324 97,550,275 (b) Operating lease commitments – where the Group is the lessee The future minimum lease payments under non-cancellable operating leases in respect of a cargo ship, tugboats and the use of land leased from Nanshan Development (mentioned in Note 12), are as follows: 2004 2003 RMB RMB Not later than 1 year 28,019,131 23,810,852 Later than 1 year and not later than 5 years 52,765,357 16,789,320 80,784,488 40,600,172 - 28 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 24 Commitments (continued) (c) Operating lease commitments – where the Group is the lessor The future minimum lease payments receivable under non-cancellable operating leases are as follows: 2004 2003 RMB RMB Not later than 1 year 3,688,558 2,519,011 Later than 1 year and not later than 5 years 14,754,234 10,076,046 Later than 5 years - 30,228,141 18,442,792 42,823,198 (d) Investment commitments The Group has committed to provide capital contributions to MW, MP and MT, in an aggregate amount up to RMB80,000,000 in the following two years, and to make additional contributions to another associated company amounting to RMB76,000,000. 25 Share capital Registered, issued and fully paid ordinary shares of RMB1 each: Unlisted A Unlisted A shares held by shares held by Nanshan senior A shares, B shares, Development management listed listed Total At 1st January and 31st December 2003 224,470,000 100,400 50,499,600 106,447,000 381,517,000 Capitalization Issue (note 9) 67,341,000 21,150 15,158,850 31,934,100 114,455,100 At 31st December 2004 291,811,000 121,550 65,658,450 138,381,100 495,972,100 The A and B shares carry equal rights with respect to the distribution of the Company’s assets and profits and rank pari passu in all other respects. - 29 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26 Reserves (other than retained earnings) Share Capital Surplus Statutory premium reserves reserves public welfare Translation (note (b)) (note (b)) (note (c)) fund (note (d)) reserve Total RMB RMB RMB RMB RMB RMB At 1st January 2003 250,956,191 155,384,283 348,581,390 56,018,259 (5,372,088) 805,568,035 Transfer from retained earnings to reserves: Statutory surplus reserve - - 31,398,788 - - 31,398,788 Statutory public welfare fund - - - 15,699,394 - 15,699,394 Discretionary surplus reserve - - 78,496,969 - - 78,496,969 Translation differences (957,429) (957,429) Others - 139,891 46,795 6,685 193,371 At 31st December 2003 250,956,191 155,524,174 458,523,942 71,724,338 (6,329,517) 930,399,128 Capitalisation issue (note 9) (114,455,100) - (114,455,100) Transfer from retained earnings to reserves: Statutory surplus reserve - - 53,562,893 - - 53,562,893 Statutory public welfare fund - - - 26,781,446 - 26,781,446 Discretionary surplus reserve - - 133,907,232 - - 133,907,232 Translation differences - - - - 957,429 957,429 At 31st December 2004 136,501,091 155,524,174 645,994,067 98,505,784 (5,372,088) 1,031,153,028 (a) Pursuant to the relevant PRC regulations and the articles of association of the Company, profit attributable to shareholders shall be appropriated in the following sequence: (i) make up accumulated losses; (ii) transfer 10% of the profit after tax to the statutory surplus reserve. When the balance of the statutory surplus reserve reaches 50% of the paid up share capital, such transfer may cease. (iii) transfer 5% to 10% of the profit after tax to the statutory public welfare fund. For the year ended 31st December 2004, an appropriation of 5% of the profit after tax is recommended (2003: 5%); (iv) transfer to the discretionary surplus reserve on an amount approved by the shareholders in general meetings; and (v) distribute dividends to shareholders. The amounts of transfers to the statutory surplus reserve and statutory public welfare fund shall be based on profit attributable to shareholders in the PRC statutory accounts prepared in accordance with PRC accounting standards. - 30 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26 Reserves (continued) (b) Share premium and capital reserves According to the relevant PRC regulations, share premium and capital reserves can only be used to increase share capital, subject to certain restriction. (c) Statutory surplus reserve and discretionary surplus reserve According to the relevant PRC regulations, statutory surplus reserve and discretionary surplus reserve can be used to make up losses or to increase share capital. Except for the reduction of losses incurred, any other usage should not result in the statutory surplus reserve falling below 25% of the registered capital. (d) Statutory public welfare fund According to the relevant PRC regulations, the use of statutory public welfare fund is restricted to capital expenditure incurred for employees’ collective welfare facilities. Staff welfare facilities are owned by the Group. The statutory public welfare fund is not normally available for distribution to shareholders except in liquidation. Once the capital expenditure on staff welfare facilities has been incurred, an equivalent amount must be transferred from the statutory public welfare fund to discretionary surplus reserve. (e) Profit distribution Pursuant to the relevant PRC regulations and the articles of association of the Company, profit distributable to shareholders shall be the lower of the accumulated profit distributable to shareholders determined according to the PRC accounting standards as stated in the PRC statutory accounts and the accumulated profit distributable to shareholders adjusted according to IFRS (for B shares reporting). 27 Minority interests 2004 2003 RMB RMB At 1st January 566,273,362 456,976,246 Minority interests of a subsidiary disposed (note 29) (3,899,150) (10,654,873) Reduction in minority interests of a subsidiary arising from additional equity investment made - (60,151,303) Share of net profits of subsidiaries 296,581,064 180,103,292 Payments of dividends by a subsidiary (85,860,000) - Other movements in equity 168,661 - At 31st December 773,263,937 566,273,362 - 31 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 28 Cash generated from operations Reconciliation of profit before tax to cash generated from operations: 2004 2003 RMB RMB Profit before tax 875,960,887 533,286,341 Adjustments for: Depreciation (note 11, 14) 121,532,950 89,170,586 Amortisation of land use rights (note 13) 26,473,756 21,122,931 Amortisation of intangible assets (note 15) 2,609,155 623,652 Impairment of property, plant and equipment (note 11) - 18,215,928 (Gain)/loss on disposal of property, plant and equipment (note 5) (2,184,204) 1,447,751 Interest expenses (note 7) 28,298,835 26,017,597 Interest income - bank (note 7) (909,652) (483,925) Gain on disposal of a subsidiary/associates (note 29) (941,701) (5,360,499) Share of net results of associates 8,362,081 (1,485,213) Impairment loss for available for sales investments 3,500,000 - Dividend income (145,000) (255,000) Interest income from loans (6,403,256) (5,922,125) (Increase)/decrease in inventories (2,837,274) 1,704,859 Increase in trade receivables, other receivables and prepayments (63,131,565) (29,046,068) Decrease/(increase) in amounts due from related companies 4,009,586 (11,020,651) Increase/(decrease) in trade payables, other payables and accrued expenses 40,364,523 (22,547,226) (Decrease)/increase in amount due to holding company (637,625) 18,683,457 Increase in deferred revenue 55,301,229 - Cash generated from operations 1,089,222,725 634,152,395 - 32 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 29 Disposal of a subsidiary In May 2004, the Group disposed its 51% of the equity interests in Shenzhen Joint Favour International Marine Shipping Agency Co. Ltd., a subsidiary. The disposed business contributed to approximately RMB6,207,000 of revenues and RMB786,000 of operating profit to the Group’s consolidated operating results in 2004. The net book values of its assets and liabilities as at the date of disposal were approximately RMB14,760,000 and RMB6,802,000, respectively. Details of net assets disposed and the gain on disposal are as follows: 2004 Disposal consideration – cash 5,000,000 Carrying amount of net assets disposed (4,058,299) Gain on disposal of a subsidiary 941,701 The assets and liabilities related to this subsidiary as at the date of disposal were as follows: RMB Cash and cash equivalents 4,136,748 Property, plant and equipment (note 11 and 12) 1,296,727 Receivables and other current assets 9,326,349 Payables and other current liabilities (6,691,823) Tax liabilities (110,552) Net assets 7,957,449 Less: minority interests (49%) (3,899,150) Net assets disposed 4,058,299 The net cash and cash equivalent inflow from the disposal was as follows: Cash received from the above said disposal 5,000,000 Less: cash and cash equivalent in subsidiary disposed (4,136,748) 863,252 Proceeds relating to disposal in prior year but received in current year 10,086,705 10,949,957 - 33 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30 Related party transactions The Company is controlled by China Nanshan Development (Group) Incorporation (incorporated in the PRC) which owns 58.84% of the Company’s equity interest. The related parities with which the Group has the transactions during the year are listed below: China Merchants Holdings (International) Co. Ltd (“CMIL”) a joint venturer China Petroleum Supply Base Co. Ltd (“CPSB”) a fellow subsidiary Shenzhen Haiqin Engineering Supervision Co. Ltd (“SHES”) a fellow subsidiary MPIL, MW, MP and MT associated companies Shenzhen Nantian Oilmills Company (“Nantian Oilmills”) having a same key management personnel with the Company Shenzhen Southseas Grains Industries Limited (“Southseas having a same key management Grains”) personnel with the Company (a) Save as disclosed in other notes of these financial statements, in the normal course of business, the Group had the following material transactions with related companies during the year: 2004 2003 RMB RMB With Nanshan Development - purchase of land use right 444,832,643 271,002,558 - entrusted short-term loan 150,000,000 200,000,000 - leasing of docking sites and stacking yards 29,489,204 25,065,585 - acquisition of available-for-sale investment 13,510,000 - - interests paid 5,590,167 - - rental of office buildings 1,349,261 1,744,832 - purchase of staff dormitory - 7,993,953 Guaranteed by CMIL - long-term loans - 31,800,000 With Nantian Oilmills - services rendered to 15,033,484 11,857,229 With Southseas Grains - services rendered to 1,079,862 1,628,409 - rental income from 2,742,030 2,742,030 Payment to CPSB - rental of office buildings 538,740 762,466 Payment to SHES - fee for provision of engineering supervision services 670,682 3,653,420 Transactions with the related parties were carried out on terms and conditions mutually agreed by the parties. - 34 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30 Related party transactions (continued) (b) Amounts due to holding company 2004 2003 RMB RMB Non-trading 2,611,963 3,249,588 The amounts are unsecured, interest free and have no fixed terms of repayment. (c) Amount due from related companies 2004 2003 RMB RMB CPSB - 11,033,436 MW, MP and MT 7,023,850 - (d) Shareholder’s loans to associates (note 16) 2004 2003 RMB RMB MPIL 180,003,900 180,003,900 MW 50,000,000 50,000,000 MP 50,000,000 50,000,000 MT 60,000,000 - 340,003,900 280,003,900 (e) Key management compensation During the years ended 31 December 2003 and 2004, the total compensation of the key management was RMB 2,380,000 (2003: RMB 1,890,000). - 35 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 Principal subsidiaries The principal subsidiaries of the Group at 31st December 2004 are as follows: Place/country of incorporation/ Name establishment Percentage of interest held Direct subsidiaries 2004 2003 Hong Kong, Chiwan Wharf Holdings (H.K.) Limited the PRC 100% 100% Shenzhen Chiwan Trainsgrain Terminal Company Limited PRC 100% 100% Shenzhen Chiwan Harbour Container Company Limited PRC 100% 100% Shenzhen Chiwan International Freight Agency Company Limited PRC 100% 100% Shenzhen Chiwan Shipping and Transportation Company Limited PRC 100% 100% Shenzhen Chiwan Terminal Company Limited PRC 100% 100% Shenzhen Chiwan Transportation Company Limited PRC 100% 100% Shenzhen Chiwan Oriental Logistics Co. Ltd. PRC 100% 100% Chiwan Container Terminal Company Limited PRC 55% 55% Shenzhen Joint Favour International Marine Shipping Agency Company Limited (note 29) PRC - 51% Indirect subsidiaries Hong Kong, Chiwan Shipping (H.K.) Company Limited the PRC 100% 100% British Virgin Grossalan Investments Limited Islands 100% 100% - 36 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32 Post balance sheet event Apart from the final dividend proposed by the directors as described in Note 9, the Group had no other significant post balance sheet events to be disclosed. 33 Comparative figures The amount of other revenue for 2003 has been separately disclosed in the consolidated income statement for conformity with the current year presentation. 34 Approval of the consolidated financial statements The consolidated financial statements were approved by the board of directors on 29 March 2005. - 37 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31ST DECEMBER 2004 The impact of IFRS and other adjustments on the PRC statutory financial statements are as follows: Consolidated net Consolidated profit for the year ended net assets as at 31st December 31st December 2004 2004 RMB RMB As per the PRC statutory financial statements 535,628,927 1,852,029,195 Impact of IFRS and other adjustments: Write-off the pre-operating expenses incurred by an indirect associated company (9,213,346) (9,213,346) Recognition of income which is directly credited to the equity in PRC statutory financial statements 3,591,000 - Others - 307,660 As restated after IFRS and other adjustments 530,006,581 1,843,123,509