佛山照明(000541)粤照明Ｂ2004年年度报告（英文版）

Annual Report of 2004 of Foshan Electrical & Lighting Company Limited Important Hints: The Board of Directors of FSL and all its directors guarantee that there is no false account, misleading statement or significant omission existing in the information contained in this report, and that they shall bear the individual and joint liabilities for the truthfulness, accuracy and completeness of its content. Mr. Liang Weidong, the director of the company is unable to attend the board meeting on the business trip, and has authorized Mr. Zhong Xincai, the Chairman of the Board of Directors, to vote on his behalf. The accounting data and financial report in this report have been audited by KPMG Peat Marwick in Hong Kong, and respectively made in Chinese and English. In case of any misunderstanding between the two versions, the Chinese text will be prevailing. Mr. Zhong Xincai, the General Manager and the financial chief of the company and Ms. Wang Shuqiong, the Manager of the Financial Department declare to guarantee the truthfulness and completeness of the financial report in this annual report. Content Page I. Brief Introduction to the Company 2 II. Summary of Accounting Data and Business Data 4 III. Change of Capital Stock and Shareholders 7 IV. Directors, Supervisors, Senior Management Personnel and Staffs 11 V. Administration structure of the Company 18 VI. Brief Introduction to the General Meeting of Shareholders 21 VII. Report of the Board of Directors 26 VIII. Report of the Board of Supervisors 41 IX. Significant Events 43 X. Financial Report 45 XI. Reference Documents 69 １ I. Brief Introduction to the Company 1. Name in Chinese: 佛山电器照明股份有限公司 缩 写 ： 佛山照明 Name in English: Foshan Electrical and Lighting Co. Ltd. Abbr.: FSL 2. Legal representative: Zhong Xincai 3. Secretary of the Board of Directors: Lin Yihui Address: #15 Fenjiang North Road, Foshan, Guangdong Tel: (0757) 82966098, 82810239 Fax: (0757) 82816276 E-mail: gzfsligh@pub.foshan.gd.cn 4. Registered and office address: #15 Fenjiang North Road, Foshan, Guangdong Zip code: 528000 Internet web: www.Chinafsl.com E-mail: gzfsligh@pub.foshan.gd.cn 5. Company information disclosed in: China Security, Security Times, Ta Kung Pao (in Hong Kong) and Foshan Daily Internet web site publishing the annual report designated by China Securities Regulatory Committee: http:// www.cninfo.com.cn Annual report prepared in: Secretariat of the Board of Directors in the office building of the company at #15 Fenjiang North Road, Foshan, Guangdong, PRC 6. Listing place of shares: Shenzhen Stock Exchange. Abbr. of shares: Foshan Electrical & Lighting (A Share) Yue Electrical & Lighting (B Share) ２ Code of shares: 000541 (A Share) 200541 (B Share) 7. Other relevant information: Date and place of first registration: registered in the Industrial and Commercial Administrative Bureau of Guangdong Province on Oct. 20, 1992. Registration No. of Legal Entity Business License: 19035257-5 Tax registration No.: YWZ 440601190352575 Names and offices of accountant firms employed by the company: Domestic: Guangdong Zhengzhong Zhujiang Certified Public Accountants (former Guangzhou Certified Public Accountants) 10/F Guangdong Group Building, 555 Dongfeng East Road, Guangzhou Tel: (020) 83859808 Fax: (020) 83800977 Foreign: KPMG Peat Marwick in HongKong (former KPMG Peat Marwick) 8/F Prince’s Building, Hong Kong Tel: (00852) 2826 7126 Fax: (00852) 2845 2588 ３ II. Summary of Accounting Data and Business Data 1. Main accounting data and business data of this year. Unit: CNY Total profit 290,379,761 Net profit 228,925,136 Main business profit 389,692,997 Other business profit 1,969,698 Operating profit 281,857,814 Income from subsidy --- Non-operating net income and expenditure --- Net cash flow from business activities 232,764,324 Net increase of cash and cash equivalent -129,820,934 2. Net profits calculated by two different accounting standards and the difference: The net profit of the company in 2004 audited according to the domestic accounting system for enterprises is RMB 231,479,786.57, and the net profits audited based on the international accounting standard is RMB 228,925,136.00. Reasons for such difference are shown in the following table: Detailed items for difference between the net profits Item Net profit (consolidated) As reported pursuant to IFRS 228,925,136 1. Transfer the amount of deferred tax into the current profit and 2,122,605 loss as per the law for tax payable. 2. Investment held for sales adjusted from fair value to the cost 535,771 and market price (which is lower) 3. Others -103,725 As reported pursuant to the “Accounting System for 231,479,787 Enterprises”of the PRC ４ 3. Main accounting data and financial targets of three years immediately as at the report period (consolidated) Unit: CNY Target items ２００４年 ２００３年 ２００２年 Main business income 1,219,922,140 1,016,750,204.00 953,453,964.00 Net profit 228,925,136 234,560,108.00 218,582,323.00 Total assets 2,541,097,893 2,431,572,874.00 2,359,541,714.00 Shareholder equity (excluding the 2,271,886,990 2,207,848,053.00 2,123,836,214.00 shareholder equity of minority shareholders) Proceeds per share (fully amortized) 0.64 0.65 0.61 Proceeds per share (weighted average) 0.64 0.65 0.61 Net assets per share 6.34 6.16 5.93 Net assets per share after adjustment 6.34 6.12 5.90 Net cash flow per share from business 0.65 0.66 0.91 activities Return rate of net assets (fully amortized) % 10.08 10.62 10.29 ５ 4. Profit data calculated according to the requirements of the “Disclosure and Preparation Rules for Publishing the Information of Security Companies” promulgated by China Securities Regulatory Committee (? 9). Profit of the report 2004 2003 period Return rate of net Proceeds per share, Return rate of net Proceeds per share, assets (%) CNY assets (%) CNY Fully Weighted Fully Weighted Fully Weighted Fully Weighted amortized average amortized average amortized average amortized average Main business profit 17.12 16.78 1.09 1.09 17.19 17.53 1.06 1.06 Operating profit 12.41 12.14 0.79 0.79 11.55 11.77 0.71 0.71 Net profit 10.08 9.86 0.64 0.64 10.62 10.83 0.65 0.65 5. Change of shareholders’equity during the report period. Unit: CNY Item Capital Capital Earned Legal welfare Undistributed Total shareholders’ stock surplus surplus funds profit equity At beginning of the period 358,448,25 1,199,480,017.00 383,656,909 124,833,407 266,262,868.00 2,207,848,053 9 Increase in this period 57,869,947 23,147,979 175,005,406 232,875,353 Reduce in this period 3,950,217 164,886,199 168,836,416 At end of the period 358,448,25 1,195,529,800 441,526,856 147,981,386 276,382,075 2,271,886,990.00 9 Reasons of change Profit Profit distribution Profit distribution distribution of this period ６ III. Change of Capital Stock and Shareholders 1. Change of capital stock (1) Change on capital stock of the company Unit: share Item Before this Change of this time (+ or －) After change change Ration Grant Surplus Increase Other Total transfer I. Uncirculating shares 1. Founder’s share 88,397,100 -- -- -- -- -- 88,397,100 Including: National share 85,922,100 85,922,100 Domestic corporate share 2,475,000 -- -- -- -- -- 2,475,000 Foreign corporate share -- -- -- -- -- Others -- -- -- -- -- 2. Raised corporate share 40,515,750 40,515,750 3. Internal staff share 4. Preferred share or others Total uncirculating shares 128,912,850 128,912,850 II. Circulating shares listed -- -- -- -- .. 1. Ordinary shares in CNY 147,035,409 -- -- -- -- -- 147,035,409 Including: shares held by directors and 497,546 497,546 supervisors. 2. Foreign share listed at home 82,500,000 82,500,000 3. Foreign share listed abroad 4. Others Total circulating shares listed 229,535,409 229,535,409 III. Total shares 358,448,259 358,448,259 Note: the 497,546 shares held by the directors, supervisors and senior officers of FSL have already been frozen according to the relevant regulation. ７ (2) Issuing and listing of shares All Previous Issuing and Listing of Shares (CNY, 10,000 shares) Year Type of shares Issuing Issuing Issuing quantity Listing Listing Total capital stock date price date trade volume 1993 A share issuing 93.10 10.23 1930 93.11.23 1930 7,717.0 1994 A share granting 94.04 --- 3858.5 94.5.11 965 11,575.5 (grant 5 for 10) (after granting) 1995 A share rationing 95.01 8.00 1815.3036 95.2.22 481.1946 13,390.8036 (ration 3 for 10) (after rationing) B share issuing 95.07 HK5.61 5000 95.8.8 5000 18,390.8036 RMB6.02 (after issuing B share) Listing of internal shares held 92.08 4.00 1157 95.9.29 1157 18,390.8036 by staff (after the listing of staff shares) 1996 A, B shares, shares transferred 96.09 --- 9195.4018 96.9.20 5278.3 27,586.2054 from public surplus (increase 5 for 10) (after increase shares by transfer) 1997 A, B shares --- --- --- --- --- 27,586.2054 1998 A, B shares --- --- --- --- --- 27,586.2054 1999 A, B shares --- --- --- --- --- 27,586.2054 2000 Transferred & rationed shares 95.01 8.00 31.9554 2000.4.14 31.9554 27,586.2054 (include transferred and rationed shares listed) Increased shares from A and B 2000.06 --- 2758.6205 (increase 2000.6.23 2758.6205 30,344.8259 shares transfer 1 for 10) (after increased shares by transfer) New issue of A shares 2000.12 12.65 5500 2000.12.23 5500 35,844.8259 2001 A and B shares -- -- -- -- -- 35,844.8259 2002 A and B shares -- -- -- -- -- 35,844.8259 2003 A and B shares -- -- -- -- -- 35,844.8259 2004 A and B shares -- -- -- -- -- 35,844.8259 ８ (3) When the company transformed its system as an internal stock company in Aug., 1992.8 it issued 11,570,000 shares to its internal staffs at the price of RMB 4/share, which were handed over to the Securities Department of Foshan International Trust & Investment Company for trust in Apr., 1993. On Sep. 29, 1995, the shares held by internal staffs were granted to list in Shenzhen Stock Exchange at the expiration of three years, with 11,570,000 shares approved to be listed. At that time, the 143,000 shares for internal staffs held by the directors and supervisors were frozen by Shenzhen Securities Registration Company. There were still 129,030 shares (including the rationed and granted shares) for internal staffs held by the directors and supervisors and senior management personnel still frozen at the end of 2004. 2. Introduction to shareholders. (1) Up to Dec. 31, 2004, the company totally has 43,299 shareholders. Among them, there are 32,337 shareholders for A share (Foshan Electrical and Lighting 000541), and 10,962 shareholders for B share (Yue Electrical and Lighting 200541) (2) Shares held by the top ten shareholders (as at Dec. 31, 2004) Unit: share Names of shareholders Yearly +/- Shares held at Ratio (%) Type of share Shares pledged Nature of shareholder (share) year end (share) (uncirulated or or frozen (state-owned or foreign circulating) (share) shareholder) State-owned Assets Office of Foshan City 0 85,922,100 23.97 Uncirculated 0 National share SYWG BNP PARIBAS Shengli Choice Circulating Unknown 7,574,784 7,574,784 2.11 Securities Investment Funds Youchang Lighting Equipment Trading Co., Uncirculated 0 0 7,002,641 1.95 Ltd. ,Guangzhou Fortis Haitong Income Growth Securities Circulating Unknown 6,832,812 6,832,812 1.91 Investment Funds Share investment funds of China Merchants Bank 5,565,311 5,565,311 1.55 Circulating Unknown 102 Combination of National Social Insurance Circulating Unknown 1,176,115 4,782,805 1.33 Funds Classical securities investment funds of CITIC 4,762,921 4,762,921 1.32 Circulating Unknown Yuyuan Securities Investment Funds 224,264 4,200,300 1.17 Circulating Unknown Hanxing Securities Investment Funds 4,033,723 4,033,723 1.13 Circulating Unknown Pioneer securities investment funds of China Circulating Unknown 4,005,048 4,005,048 1.12 Merchants Bank ９ Note on relationship or concerted action Among the top ten shareholders of the company, the State-owned Assets Office of Foshan City, the shareholder for of the top ten shareholder state-owned shares has neither relationship with Youchang Lighting Equipment Trading Co., Ltd., Guangzhou, nor relationship with any other shareholder, nor the shareholder of concerted action set forth in the “Regulatory Method for Disclosure of Information on Change of the Shares of the Listed Company”. The share investment funds of China Merchants Bank and the pioneer securities investment funds of China Merchants Bank are both controlled by the China Merchants Banks Funds Management Company. It is unclear whether there is any relationship between other shareholders, or if there is any shareholder of concerted action set forth in the “Regulatory Method for Disclosure of Information on Change of the Shares of the Listed Company”. (3) The first major shareholder of the company is the State-owned Assets Office of Foshan City, which is one of the founder shareholders of the company holding 85,922,100 shares at the present, making up 23.97% of the total shares of the company. Except it, there is no other corporate shareholder in the company holding more than 10% of the total shares. (4) Circulating shares held by the top ten shareholders Unit: share Names of shareholders Circulating shares held at Type (A, B, H or the year end (share) other) SYWG BNP PARIBAS Shengli Choice Securities Investment Funds 7,574,784 A Share Fortis Haitong Income Growth Securities Investment Funds 6,832,812 A Share Share investment funds of China Merchants Bank 5,565,311 A Share 102 Combination of National Social Insurance Funds 4,782,805 A Share Classical securities investment funds of CITIC 4,762,921 A Share Yuyuan Securities Investment Funds 4,200,300 A Share Hanxing Securities Investment Funds 4,033,723 A Share Pioneer securities investment funds of China Merchants Bank 4,005,048 A Share HTHK-VALUE PARTNERS INTELLIGENT FD-CHINA B SHS 3,882,449 B Share FD EAST ASIA SECURITIES COMPANY LIMITED 3,489,773 B Share Note on relationship or concerted The share investment funds of China Merchants Bank and the pioneer securities action of the top ten shareholder investment funds of China Merchants Bank are both controlled by the China Merchants Banks Funds Management Company. It is unclear whether there is any relationship between other top ten circulating shareholders, or if there is any relationship or concerted action between any of the top ten circulating shareholders and any of the top ten shareholders. １０ IV. Directors, Supervisors, Senior Management Personnel and Staffs (I) Directors, supervisors and senior management personnel 1. General Name Post Sex Age Term of offices Shares held (numbers) Reason of change Year start Year end Zhong Xincai Chairman of the Board of Directors M 62 Jun. 2004 –Jun., 2007 Purchased by incentive 134,850 184,250 General Manager funds Alfred K. N. Vice Chairman of the Board of Directors M 53 Jun. 2004 – Jun., 2,415,500 2,415,500 （B share） （B share） Chong 2007 Liu Xingming Executive director, Vice General M 42 Jun. 2004 –Jun., 2007 Purchased by incentive funds 50,900 74,800 Manager Liang Weidong Director M 42 Jun. 2004 –Jun., 2007 — — — Chen Guanbiao Director M 56 Jun. 2004 –Jun., 2007 — — — Ye Zaiyou Director M 49 Jun. 2004 –Jun., 2007 — — — Liang Zhen Independent Director M 67 Jun. 2004 –Jun., 2007 — — — Wu Jianhong Independent Director F 58 Jun. 2004 –Jun., 2007 — — — Chen Ziyun Independent Director F 41 Jun. 2004 –Jun., 2007 — — — Huang Guanxiong Chairman of the Board of Supervisors M 54 Jun. 2004 –Jun., 2007 Purchased by incentive funds 12,800 23,400 Chairman of the Labor Union Mei Feixing Supervisor M 34 Jun. 2004 –Jun., 2007 6,200 12,300 Purchased by incentive funds Li Jianwu Supervisor M 34 Jun. 2004 –Jun., 2007 8,300 14,400 Purchased by incentive funds Zhang Chaoyang Supervisor M 40 Jun. 2004 –Jun., 2007 — — — Shen Weiqiang Supervisor M 55 Jun. 2004 –Jun., 2007 — — — Ou Muben Vice General Manager M 55 Jun. 2004 –Jun., 2007 53,800 70,800 Purchased by incentive funds Guo Jieming Vice General Manager M 55 Jun. 2004 –Jun., 2007 20,636 37,936 Purchased by incentive funds Liang Weiqiang GM assistant M 47 Jun. 2004 –Jun., 2007 17,600 32,200 Purchased by incentive funds Lin Yihui Secretary of the Board of Directors M 51 Jun. 2004 –Jun., 2007 12,700 23,100 Purchased by incentive funds Wang Shuqiong Financial chief F 42 Jun. 2004 –Jun., 2007 13,960 25,760 Purchased by incentive funds １１ Mr. Ye Zaiyou is appointed the Chairman of the Board of Directors of Wuzhuang Color Glazed Tiles Factory, Nanhai, the shareholder unit and the sponsor shareholder of FSL. This factory is a popularly-run enterprise. 2. Work experiences and posts of the current directors, supervisors and senior management personnel (1) Work experiences of directors Zhong Xincai: male, native of Nanjing of Jiangsu Province, 62, polytechnic school graduate, is the chairman of the Board of Directors and the general manager of FSL. He has been with FSL from 1964 since he was graduated from Nanjing Radio Industrial School till now, and has been appointed the workshop director, production chief, technology chief, vice factory director and factory director since 1979, the manager of FSL since 1985, and the chairman of the Board of Directors, the general manager and the secretary of Party committee of FSL since 1992. He has been engaged in the electro-optical production for 40 years with rich professional knowledge in electro-optical production and abundant experiences in enterprise management. He has been elected the excellent worker by the Ministry of Light Industry, the national and provincial excellent entrepreneur, and provincial and municipal Party representative, and a deputy to the 8th and 9th People’s Congress of Guangdong Province. Alfred K. N. Chong: male, native of Chaoyang, Guangdong, 53, university graduate, IBM, is the vice general manager of FSL. Currently as the chairman of the board of director of Prosperity Lamps & Components Ltd. in Hong Kong, he has been engaged in the production and trading of electro-optical products for more than 20 years, and is the big shareholder of FSL and the Honorable Citizen of Foshan City as well. He has been elected the director and the vice chairman of the Board of Directors of FSL since 1995. Liu Xingming: male, native of Xinhui, Guangdong, 42, university graduate, engineer, is the executive director and vice general manager of FSL. Admitted in FSL in 1983, he has been appointed the workshop director and the general manager assistant, and is appointed the vice general manager since 1997. He has been the director of FSL since 1995. Liang Weidong: male, native of Sanshui, Guangdong, 42, IBM from Murdoch University, Australia. He has been appointed the vice chief of the Foreign Affairs Office of Foshan City since 1983, the director and vice general manager of HK Foshan Deveoopment Co., Ltd. since 1993, the vice general manager and the vice secretary of Party committee of Foshan Industrial Investment Management Co., Ltd., and the general manager of Gongying Investment Holding Co., Ltd. of Foshan since 2001. He is the director if the 3rd and 4th Board of Directors of FSL. １２ Ye Zaiyou: male, native of Nanhai, Guangdong, 49, junior high school graduate, is the director of the 1st – 4th Board of Directors of FSL. He is now the chairman of the Board of Directors of Wuzhuang Universal Ceramic Factory of Nanhai, and the sponsor corporate shareholder of FSL. Chen Guanbiao: male, from Hong Kong, 56, professional college graduate, is the director of FSL. He has been appointed the manager of HK Sylvania Ltd. since 1975, the director of Griffin Services Ltd. (British Virgin Islands) since 1997, and the general manager of Prosperity Lamps & Components Ltd. in Hong Kong since 2003. He is now the supervisor of the 3rd Board of Supervisors of FSL. Liang Zhen (independent director): male, native of Yangjiang, Guangdong, 67, professional college graduate, senior engineer. He has worked in the county Party committee office of Yangjiang, Guangdong since 1995, studied in the South China Agriculture Institute since 1957, appointed in the Ministry of Light Industry, China Light Industry Association, China Light Industry Administration and China Association of Lighting Industry (CALI) since 1960, and is now the executive member of CALI. Engaged in the macro instruction in this trade for over 40 years with rich experiences in electro-optical industry, and is now the independent director of the 3rd and 4th Board of Directors of FSL. Wu Jianhong (independent director): female, native of Nanjing, Jiangsu, born in Dec., 1946, CPC member, professional college graduate, senior accountant (economist), certified public accountant in China, and the member of the Senior Accountant Appraisal Committee of Jiangsu Province. Graduated from the Department of Finance of Jiangsu Business Professional College in Aug., 1965 (the current Business College of Yangzhou University), she has been appointed the accountant in Nanjing Coal Industry Company from 1965 to1978, the vice section chief, section chief and vice office chief of the Financial & Accounting Office under the Business Department of Jiangsu Province from 1978 to 1992, the vice general manager of Jiangsu Business Development Co., Ltd. from 1992 to 1994, and the office chief of the Financial & Accounting Office under the Trade Department of Jiangsu Province from 1994 to Dec., 2001, and retired in Jan., 2002. She is now the chairman of Jiangsu Business & Accounting Association, the member of the Senior Accountant Appraisal Committee, and the independent director of the 3rd and 4th Board of Directors of FSL. １３ Chen Ziyun (independent director): female, native of Hepu, Guangxi, born in Feb., 1964, Han, started employment in Sep., 1987 and joined in China Zhi Gong Party (Public Interest Party) in Oct., 1995, undergraduate, second-grade lawyer. She is now the vice chairman of Chi Gong Party Committee of Foshan City, the director of Guangdong Tianjue Law Firm, a deputy to the 9th and 10th National People’s Congress, the member of the 5th China National Lawyers Association, the executive member of the 4th Foshan Lawyers’Association, the member of the Legal Consultant Group of Standing Committee of People’s Congress of Foshan City, the member of the Junior and Middle-Rank Solicitor & Notary Public Examination and Appraisal Committee of Foshan City, and the independent director of the 3rd and 4th Board of Directors of FSL as well. She has studied in the Department of Law of Zhongshan University from 1983 to 1987, appointed the assistant lawyer, lawyer and vice director of Foshan 1st Law Office, Foshan Foreign Economic Law Office, Foshan Economic and Trade Law Office, and Foshan Huafa Law Office from 1987 to 1999, appointed the director and lawyer of Guangdong Tianjue Law Firm from 2000 till now, studied in the postgraduate class in commercial law in the People’s University of China from 2001 till now, elected the member of Zhi Gong Party Committee of Foshan City in 1996 and the vice chairman in 2001, elected a deputy to the 9th National People’s Congress in 1998 and a deputy to the 10th National People’s Congress in 2003, elected the member of the 5th China National Lawyers Association in 2001 and the executive member of the 4th Foshan Lawyers’Association in 2002, and appointed the member of the Junior and Middle-Rank Solicitor & Notary Public Examination and Appraisal Committee of Foshan City (2) Work experiences of supervisors Huang Guanxiong: male, born in Oct., 1951, native of Foshan, Guangdong, junior high school graduate, is the chairman of the Board of Supervisors of FSL. He went and worked in the countryside and mountain area in 1969, worked in Tougan Chemical Plant of Guangdong Province in 1972, assigned to Foshan Coal Company in 1979, transferred to FSL in 1979, appointed the workshop director in 1983, and appointed the factory director of Wuzhuang Bulbs Factory in 1993 till now. He has been appointed the vice secretary of Party committee of FSL in Jul., 2002. １４ Lian Jianwu: male, born in Nov., 1971, polytechnic school graduate, is the supervisor of FSL. Graduated from Nanjing Radio Electrical Industry School in 1993, he has been employed in FSL till now, and has been appointed the workshop directors of the miniature automotive lamps workshop, motorcycle lamp workshop and bromine-tungsten lamp workshop. He received the certificate for electro-optical assistant engineer in 1995, and was elected the 12th People’s Congress of Foshan City in Feb., 2003. Mei Feixing: male, native of Pingjiang, Hunan, born in Aug., 1971, professional college graduate, is the supervisor of FSL. He has worked in the grass roots level of FSL since Mar., 1994, participated in the electro-optical technical training held by the company, appointed the workshop director of the powder painting workshop since 1997 in charge of the production and technical management in powdering and frosting, and assigned to the glass plant as the factory director in charge of the production management of the overall plant. Zhang Chaoyang: male, native of Chaoyang, Guangdong, 40, postgraduate, bachelor degree, political worker, is the supervisor of FSL. He has studied in Henan Science and Technology University (the former College of Engineering of Luoyang) since 1981, appointed the League secretary of Foshan Water Pump Factory since 1985, the vice section chief of the Organization Department under the Party Committee of Foshan City since 1991, the section chief of Foshan Economic Committee since 1997, and vice general manager and secretary of the commission for inspecting discipline since 1998, and is now the vice general manager and Party secretary of Gongying Investment Holding Co., Ltd., Foshan, and the chairman of the Board of Directors and general manager of Zhengtong Group Co., Ltd., Guangdong. He is the supervisor of the 3rd and 4th Board of Supervisors of FSL. Shen Weiqiang: male, native of Bao’an, Guangdong, 54, undergraduate from Hong Kong University, Bachelor of Engineering, is the supervisor of FSL. As the director and general manager of Fuyu Industrial Ltd. in Hong Kong, he has engaged in the international trading of electrical appliances for more than 10 years, and kept the close relationship with many large electro-optical and electric companies both at home and abroad. Ever appointed in the large financial institution in Hong Kong, he has the rich experiences in enterprise operation, project financing and investment planning, and has been appointed the director of the 2nd and 3rd Board of Directors of FSL. １５ (3) Work experiences of senior management Ou Muben: male, male, native of Nanhai, Guangdong, 55, senior high school graduate, is the vice general manager of FSL. Admitted in this factory in 1969, he has ever been appointed the workshop director and the chief of the production section, the vice general manager of the company since 1991, and the director of the 1st to 3rd Board of Directors of FSL. Guo Jieming: male, born in Jul., 1949, native of Yiyang, Hunan, professional college graduate, engineer, is the vice general manager of FSL. He has been appointed the technician, workshop director and vice factory director of Yiyang Panels Factory since 1980, the head of the research institute, the director of the development department and vice factory director of Yiyang Bulbs Factory and the member of the Political Consultative Conference of Yiyang City with special subsidies from the State Council since 1985, and the workshop director and chief of the equipment section of FSL since 1996. Liang Weiqiang: male, native of Guangdong, born in Feb., 1958, senior high school graduate, is now the general manager assistant of FSL. Admitted in Foshan Bulbs Factory in 1976 and joined the army in 1978, he has always been with FSL since he was transferred to civilian work, and has ever been appointed the technician, workshop director, chief of the sales section and the manager of the production department. Lin Yihui: male, native of Jieyang, Guangdong, born in Nov., 1954, postgraduate in economy, CPC member, is now the secretary of the Board of Directors. He has served in the army from Dec., 1970 to 1986, worked in the grass-rooted level and government organization then, appointed in Foshan International Trust & Investment Company as the section chief and vice general manager from 1986 to Sep., 2000, in charge of securities operation of such company and the underwriting, issuing and recommendation for listing of shares for many companies, and ever appointed the director of the 1st and 2nd Board of Directors of FSL. He has been with FSL since Oct., 2000 till now. Wang Shuqiong: female, native of Qinghai, born in Apr., 1962, polytechnic school graduate, is now the manager of the financial department. She has worked in Qinghai Bulbs Factory since 1982, assigned to the Financial Bureau of Xining City, Qinghai Province in Dec., 1988, and admitted to FSL since Apr., 1993 till now. １６ 3. Annual remuneration. (1) The remuneration of directors, supervisors and senior management personnel of the company shall be determined in accordance with the program approved by the Board of Directors, depending on their respective positions, posts and tasks completed. The total annual remuneration of the current directors, supervisors and senior management personnel is RMB 1,730,000, and the total remuneration for the top three directors (also the senior management personnel) is RMB 840,000. (2) During the report period, Mr. Liang Zhen, Ms Wu Jianhong and Ms Chen Ziyun, the independent directors of the company, have received no subsidy nor other welfare from the company, but have been refunded the expenses on transportation and board and lodging for attending the Board meeting of the company. (3) Division of annual remuneration for directors, supervisors and senior management personnel of the company: one between RMB 350,000 and 400,000, seven between 100,000 and 200,000, and two between 50,000 and 100,000. (4) Alfred K. N. Chong, the Vice Chairman of the Board of Directors, directors Liang Weidong, Chen Guanbiao and Ye Zaiyou, and supervisors Zhang Chaoyang and Shen Weiqiang, have received neither remuneration nor subsidy from the company. Except for Ye Zaiyou who receives the remuneration from the shareholder unit as a shareholding director, and Alfred K. N. Chong, Chen Guanbiao and Shen Weiqiang who receive the remuneration from the affiliated units, no other director or supervisor has received any remuneration or subsidy from the shareholder unit and any other affiliated unit, but received the remuneration from his own work unit. 4. Director, supervisor and senior management personnel resigned during the report period. Name Former Post Reason of Resign Ma Yijun General Manager Assistant Expiration of the term １７ (II) Staffs The staffs and organizational structure of the company: the company has the total staff members of 8680, including 8094 production personnel, 135 sales personnel, 383 technical personnel, 27 financial personnel, and 41 administrative personnel. There are 628 staff graduated from universities, colleges and polytechnic schools, and 228 retired staff. V. Administration Structure of the Company 1. Administration of the company. The company has constantly perfected its legal entity administration structure according to the relevant regulations and requirements of the “Company Law”, the “Securities Law”and the China Securities Regulatory Committee after its listing, standardized the operation of the company, and set out the relevant rules and management systems. According to the requirements in the “Administration Rules for Listed Companies”issued by the China Securities Regulatory Committee and the National Economic and Trade Committee on Jan. 7, 2002, the administration conditions of the company comply with the regulations concerned, with details shown below: (1) Shareholders and Shareholders’General Meeting: The company has made the “Articles of Association” of the company and the “Rules of Debate of Shareholders’ General Meeting”, to guarantee the legal rights and interests and equality of all shareholders, especially the medium and minority shareholders, strictly notify the shareholders’ meeting at the request, convene the Shareholders’General Meeting, enable the shareholders to exercise their right to vote, and ask the attorney to present the meeting for witness. (2) Big shareholder and listed company: the first shareholder of the company is the State-owned Assets Office of Foshan City, which has not overstepped the rights and duties of the Shareholders’General Meeting and the Board of Directors, nor directly or indirectly interfered the decision-making, production and business operation of the company. The Board of Directors, Board of Supervisors and internal organizations of the company have all carried out the independent operation in personnel, assets, business, finance and organizational structure, separated from the first shareholder. １８ (3) Directors and Board of Directors: the nomination and election of the directors shall comply with the “Articles of Association” of the company. The number and member constitution of the Board of Directors shall meet the requirements of relevant laws and regulations, and the directors can faithfully, sincerely and diligently perform their duties. The company has worked out the “Rules of Debate of the Board of Directors”, to guarantee the high-efficient operation and scientific decision-making of the Board of Directors. The company has appointed three independent directors during the report period, making up one third of the total numbers in the Board of Directors. (4) Supervisors and Board of Supervisors: the company has set up the “Rules of Debate of the Board of Supervisors”, and the number and member constitution of the Board of Supervisor shall meet the requirements of relevant laws and regulations. The supervisors shall perform their duties, and independently and effectively make the supervision and inspection conscientiously. (5) Performance evaluation and incentive and restriction system: the company shall appoint the managers in any open and democratic way, which complies with the provisions of laws and regulations. It has already established the open and democratic performance evaluation standard and incentive and restriction system, to attract more talents and stabilize the managers. (6) Parties at interest: the company and its parties at interest including the creditors, employees, consumers and suppliers complement to each other for mutual promotion and development. The company can fully respect and maintain the legal rights and interests of its parties at interest, and actively cooperate with them, to promote the constant and health development of the company. (7) Information disclosure and transparency: the company shall designate the special personnel to disclose the information, receive the shareholders and answer their questions. In such a way, the company will truly, accurately, completely and timely disclose the information concerned, making sure that all shareholders shall have the equal opportunities for the information. 2. Performance of duties of the independent director. Liang Zhen, Wu Jianhong and Chen Ziyun, the independent directors of the company, have carefully performed their duties as the independent directors since they took their posts. Liang Zhen, Wu Jianhong and Chen Ziyun have attended all eight board meetings held this year, made the preparations and studies before hand after receiving the notice, and fully put forward their personal opinions to earnestly maintain the overall interests of the company. １９ Attendance of independent directors to the board meetings: Name of independent directors Board meeting held this Attend in person Attend by Absence Remark year proxy Liang Zhen 8 7 1 0 Wu Jianhong 8 8 0 0 Chen Ziyun 8 8 0 0 3. Relationship between the company and the first shareholder. The company has been separated from its first shareholder, the State-owned Assets Office of Foshan City in business, personnel, assets, organization and finance. The company has the independent and complete business and autonomous operation ability, and has the well-distributed supply and sales channels. All employees are recruited by the company at its discretion, and there is no employee of the first shareholder taking any post in the company. With complete assets, clean legal properties, and independent organization, the company is an integrated legal entity. As for the finance, the company has set up the account of its own, and carries out the independent operation and independent auditing. 4. Assessment and evaluation for senior management personnel during the report period and the execution of the incentive system. The Remuneration and Assessment Commission of the Board of Directors of the company has examined the operating result of the year according to the regulations in the “Implementation Plan for Share Incentive Funds for Senior and Middle-Rank Management Personnel of Foshan Electrical & Lighting Limited Company”passed by the Shareholders’General Meeting of the company during the report period, appropriated RMB 20 million as the share incentive funds, and drawn up the allocation standard of personal incentive funds for senior and middle-rank management personnel and business and technical backbones based on assessment and appraisal. The company has fixed the shares purchased by the incentive funds. ２０ VI. Shareholders’General Meeting The Shareholders’General Meeting of 2003 and the 1st Interim Shareholders’General Meeting of 2004 were convened in the conference room on the third floor in North Area of the company respectively on May 26, 2004 and Oct. 20, 2004. (I) Shareholders’General Meeting of 2003 1. Convene of the Shareholders’General Meeting The announcement for convening the Shareholders’General Meeting of 2003 of the Board of Directors of the company was published 30 days in advance on the China Security, Security Times, Ta Kung Pao (in Hong Kong) and Foshan Daily on Mar. 25, 2004. The Board of Directors of the company shall be responsible for convening the Shareholders’ General Meeting of 2003. There are 63 shareholders and proxies of shareholders attending the meeting, representing 126,081,731 shares, making up 35.17% of total capital stocks. Among them, there are 14 shareholders of B share, representing 3,867,191 shares of B share, making up 1.08% of total capital stock and complying with the relevant provisions in the “Company Law” and the “Articles of Association”of the company. 2. Resolution of Shareholders’General Meeting. The Shareholders’General Meeting of 2003 passed 9 resolutions one by one by voting. The announcement for the resolution of the Shareholders’General Meeting was published on China Security, Security Times, Foshan Daily and Ta Kung Pao (in Hong Kong) on May 27, 2004. Director Deng Hongping, the lawyer from Huafa Law Firm, Guangdong presented the shareholders’ general meeting on that day, and declared on the spot that the entire course of this shareholders’ general meeting and the reports and resolutions passed by the meeting are all legally effective. (1) To review and pass the Operation Report of the Board of Directors in 2003. 125,980,731 votes for, making up 99.92% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. No vote against and 101,000 votes abstention. (2) To review and pass the Business Report of the General Manager in 2003. 125,980,731 votes for, making up 99.92% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. No vote against and 101,000 votes abstention. ２１ (3) To review and pass the Operation Report of the Board of Supervisors in 2003. 125,980,731 votes for, making up 99.92% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. 2,100 votes against and 101,000 votes abstention. (4) To review and pass the Financial Report and the Profits Distribution Plan in 2003. 125,978,631 votes for, making up 99.92% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. No vote against and 101,000 votes abstention. The Profits Distribution Plan in 2003: the net profit audited by Zhengzhong Zhujiang Certified Public Accountants is taken (lower than that audited by KPMG Certified Public Accountants in HK). The minimum net profit realized by the company in 2003 is RMB 226,325,007.49, and the profit available for distribution to shareholders this year after deducting 10% of legal surplus, 10% of public welfare funds and 5% of arbitrary earned surplus is RMB 242,063,152.39 (including RMB 72,319,369.77 as the undistributed profits of last year). Based on 358,448,259 shares of capital stock at the end of 2003, the company will distribute RMB 4.60 (including the tax. Dividends for B share shall be paid after being converted into HK dollar) as the cash dividend for every 10 shares to all shareholders. The total dividend actually paid is RMB 164,886,199.14, and the remaining RMB 77,176,953.25 will be carried forward to the next year. There will be no increase of capital stock transferred from surplus in 2003. (5) To pass the resolution on introducing the equipment for energy-saving lamps by RMB 100 million owned by the company itself. 125,980,731 votes for, making up 99.92% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. No vote against and 101,000 votes abstention. (6) To pass the resolution on amending some articles in the “Articles of Association” of the company. 125,980,731 votes for, making up 99.92% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. No vote against and 101,000 votes abstention. ２２ (7) To pass the resolution on renewing Zhengzhong Zhujiang Certified Public Accountants in Guangdong and KPMG Certified Public Accountants in Hong Kong as the financial accounting institutes of the company in 2004 125,980,731 votes for, making up 99.92% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. No vote against and 101,000 votes abstention. 3. Change and replacement of directors and supervisors. In the Shareholders’General Meeting of 2003 held on May 26, 2004, the directors and supervisors of the new Board of Directors and Board of Supervisors were elected. (1) The six persons, Zhong Xincai, Alfred K. N. Chong, Liu Xingming, Liang Weidong, Chen Guanbiao and Ye Zaiyou, were elected the directors of the 4th Board of Directors of the company, and the three persons, Liang Zhen, Wu Jianhong and Chen Ziyun, were elected the independent directors. --- Elect Zhong Xincai the director of the 4th Board of Directors of the company. 121,777,969 votes for, making up 96.59% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. No vote against and no vote abstention. --- Elect Alfred K. N. Chong the director of the 4th Board of Directors of the company. 116,622,367 votes for, making up 92.50% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. No vote against and no vote abstention. --- Elect Liu Xingming the director of the 4th Board of Directors of the company. 116,610,167 votes for, making up 92.49% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. No vote against and no vote abstention. --- Elect Liang Weidong the director of the 4th Board of Directors of the company. 116,441,592 votes for, making up 92.35% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. No vote against and no vote abstention. ２３ --- Elect Chen Guanbiao the director of the 4th Board of Directors of the company. 111,313,390 votes for, making up 88.29% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. No vote against and no vote abstention. --- Elect Ye Zaiyou the director of the 4th Board of Directors of the company. 113,641,692 votes for, making up 90.13% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. No vote against and no vote abstention. --- Elect Liang Zhen the independent director of the 4th Board of Directors of the company. 116,456,692 votes for, making up 92.37% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. No vote against and no vote abstention. --- Elect Wu Jianhong the independent director of the 4th Board of Directors of the company. 116,449,492 votes for, making up 92.36% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. No vote against and no vote abstention. --- Elect Liang Zhen the independent director of the 4th Board of Directors of the company. 116,434,492 votes for, making up 92.35% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. No vote against and no vote abstention. (2) The two persons, Zhang Chaoyang and Shen Weiqiang were elected the supe rvisors of the 4th Board of Supervisors of the company. --- Elect Zhang Chaoyang the supervisor of the 4th Board of Supervisors of the company. 123,184,704 votes for, making up 97.70% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. 2,796,027 votes against and 101,000 votes abstention. ２４ --- Elect Shen Weiqiang the supervisor of the 4th Board of Supervisors of the company. 125,980,731 votes for, making up 99.92% of the shares represented by the shareholders attending the meeting, including 3,866,191 shares of B share. No vote against and 101,000 votes abstention. Besides, the three persons, Huang Guanxiong, Mei Feixing and Li Jianwu, have already been elected as the workers’supervisors of the 4th Board of Supervisors of the company in the Workers’ Representative Assembly. (II) 1st Interim Shareholders’General Meeting of 2004 1. Convene of the Shareholders’General Meeting The announcement for convening the 1st Interim Shareholders’General Meeting of 2004 of the Board of Directors of the company was published 30 days in advance on the China Security, Security Times, Ta Kung Pao (in Hong Kong) and Foshan Daily on Sep. 15, 2004. The Board of Directors of the company shall be responsible for convening this interim shareholders’general meeting. There are 75 shareholders and proxies of shareholders attending the meeting, representing 164,357,538 shares, making up 45.85% of total capital stocks. Among them, there are 16 shareholders of B share, representing 10,925,502 shares of B share, making up 3.05% of total capital stock and complying with the relevant provisions in the “Company Law” and the “Articles of Association”of the company. 2. Resolution of Shareholders’General Meeting. The 1st Interim Shareholders’General Meeting of 2004 passed 2 resolutions one by one by voting. The announcement for the resolution of the 1st Interim Shareholders’General Meeting was published on China Security, Security Times, Foshan Daily and Ta Kung Pao (in Hong Kong) on Oct. 21, 2004. Director Deng Hongping, the lawyer from Huafa Law Firm, Guangdong presented the shareholders’general meeting on that day, and declared on the spot that the entire course of this shareholders’general meeting and the reports and resolutions passed by the meeting are all legally effective. ２５ (1) To review and pass the “Resolution on Joint Transaction”of the company. Because the joint transaction is involved, the relevant shareholder of the company, the State-Owned Assets Office of Foshan and Youchang and the relevant personnel withdrew from this vote. Result: 76,019,938 votes for, making up 100% of the shares represented by the shareholders attending the meeting, including 8,510,002 shares of B share. No vote against and no vote abstention. (2) To review and pass the resolution on amending some parts of the “Articles of Association”of the company. 164,357,538 votes for, making up 100% of the shares represented by the shareholders attending the meeting, including 10,925,502 shares of B share. No vote against and no vote abstention. Former Article 20 in the “Articles of Association”of the company: the equity structure of the company: there are 358,448,259 ordinary shares, including 88,397,100 founder’s shares, 88,397,100 shares held by other domestic shareholders, and 82,500,000 shares listed at home held by foreign shareholders. Amended to: Article 20: the equity structure of the company: there are 358,448,259 ordinary shares, including 85,922,100 foreign-capital corporate shares, 42,990,750 internal-capital corporate shares, 147,035,409 social public shares, and 82,500,000 listed at home held by foreign shareholders. VII. Report of the Board of Directors (I) Brief analysis of financial status The company has made a steady business development during the report period, without any significant change on the main financial indices. (II) Business operation of the company. ２６ 1. The business scope of the company keeps unchanged during the report period. The company mainly produces and sells various electro-optical products and auxiliary lighting products. Its products mainly include the ordinary bulbs, decorative bulbs, iodine-tungsten lamps, bromine-tungsten lamps, single-end lamps, automobile lamps, motorcycle lamps, high-tension mercury lamps, high-tension Na lamp, metal halide lamps, T8 and T5 fine-caliber and highly energy-saving fluorescent lamps, and reflection cup, as well as the auxiliary lighting accessories mainly for T8 and T5 energy-saving lamps. Despite of the high production and operation costs and the lack of energy and electricity in 2004, the company has seized the opportunity for development, strengthened the operation management, controlled the costs, enlarged the market development force, expanded the production scale and increase the market shares under the guidance of the national macroeconomic regulation policy by combining the market situation with the production and operation target of 2004. In such circumstance, the company has kept the continuous fast development in production and business operation, gradually strengthened its market competitive force, and further improved the economic growth speed and efficiency, keeping the advantageous trend of constant and stable development Meanwhile, the company has paid close attention to the construction progress of Foshan Electric and Lighting Industrial Park in Cangjiang Industrial Park in Gaoming District, completed parts of basic facilities, factory buildings and environment facilities after more than one year of efforts, and tried its best to put parts of projects into operation in August or September, 2005 to greatly improve the production capacity of the company. In 2004, the company has made 966 million bulbs in total, increasing by 11.77% than that of the last year, and increased its gross industrial output value by 15.11%. The main business income has reached RMB 1220 million, increased by 19.48% than that of last year, and the sales from export has reached USD 53.09 million, increased by 35.98%. Moreover, the company has realized the total profits of RMB 290 million, 7.55% more than that of last year, and realized the net profits of RMB 231 million, growing by 2.28%. The company continues to keep the advantageous trend of constant and stable development. 2. Business operation and results of main holding and equity-participating enterprises: QL Lamps and Components Limited, Foshan is a Sino-foreign joint mutually held by FSL. In accordance with the relevant agreement, FSL has the material controllability to this joint venture. The joint venture, with the registered capital of USD 1.8 million, mainly produces special optical sources such as bromine-tungsten lamps and lighting accessories. FSL Modern Lighting Co., Ltd. was established in the last half of 2004 with the registered capital of RMB 5 million, including RMB 4.5 million invested by FSL, making up 90% of the total capital stock. It mainly produces and sells lighting products and accessories. Chansheng Electronic Ballasts Co., Ltd., Foshan, a Sino-foreign joint venture established in 2003 with the registered capital of RMB 1 million, including 75% of capital stock from FSL, mainly produces and sells electronic ballasts and electronic transformers. All these three enterprises are under normal production, standard operation and with fine results. ２７ Besides, the company has also made investments in China Everbright Bank, Bank of Communications, Fochen Highway in Foshan, Liangke Investment Co., Ltd., Shenzhen and Zhujiang Property Management Company in Guangzhou with minority shares. All these enterprises are of standard management, fast business development and fine benefits, and have given the considerable investment return to the company based on their actual operations. 3. Main suppliers and clients: the purchasing amount of the company with the top five suppliers have made up 19.6% of the total purchasing amount of the year, and the sales amount of the top five clients made up 15.58% of the total sales of the company. 4. Existing operational problems and remedies of the company. The current main problems and difficulties encountered by the company during is operation: first is the rise in price of raw materials. The prices of production materials in the market have risen since the last year, which has increased the production cost. Second is the electricity supply for the enterprise. Because it is difficult to guarantee the industrial power supply due the pressure on electricity in Guangdong Province since 2004, it has adversely affected the production of the company to a certain extent. Thirdly, the supply in the domestic market for electro-optical products still exceeds the supply, making the market and price competition more and more violent. Moreover, some lawbreaking merchants have imitated our famous products and the patent package, which has also adversely affected our sales and prestige. Facing such difficulties, all staffs and workers in the company have united together, smoothed away the difficulties, and made all efforts for development and advancing. To overcome these problems, the company shall: (1) Greatly develop the technical innovation, improve the process and production efficiency, cut down the staff and promote the efficiency at the same time, and reduce the production cost of products; (2) Control the purchase of raw materials, choose the most suitable materials, reduce the purchase price of raw materials, quicken the circulation of funds, and improve the utilization of funds; (3) Expand the production scale, improve the product quality and strengthen the competitive force. The company will quicken its step to introduce the equipment, produce the new products centering the fine-caliber, highly energy-saving and high-tech T8 and T5 fluorescent lamps, make T8 and T5 fluorescent lamps as the leading product of the company, and expand the market coverage; and (4) Actively coordinate with the relevant legal departments, and crack down the imitations by laws. Meanwhile, the company will take all effective measures to strengthen the imitation-free ability of its products. (III) Investment of the company. 1. Use of funds raised (1) Funds put into operation: in the last half of 2000, the company has actually raised RMB 667 million by issuing more shares, and invested in the 9 investment projects disclosed in the Prospectus (except the supplementary current funds) without any change. As at Dec. 31, 2004, RMB 634 million has already been invested, with RMB 32.47 million raised funds remained and ２８ deposited in the special account for funds raised by shares established by our company with the Bank of China, Foshan Branch. The investment projects in details and the progress for use of funds are shown as follows: Unit: RMB 10,000 Item Project (in short) Investment Investment of this Cumulative Funds remained committed report period investment 1 T8 21,575.5 -- 22,618 -1,042 2 T5 19,200 216 13,085 6,115 3 Double loop 2,940 -- 2,700 240 4 Test center 2,962 -- 3,314 -352 5 Three kilns 2,920 -- 3,332 -412 6 Tube-pulling production line 2,944 -- 2,345 599 7 Filament and lead 2,950 -- 4,806 -1,856 8 Power facilities 2,900 -- 2,880 20 9 Environment & fire-fighting 2,800 -- 2,863 -63 10 Current funds 5,500 -- 5,500 0 Total 66691.5 216 63,443 3,247 (2) Progress of investment projects: the projects for T8 energy-saving fluorescent lamps have overfulfilled the plan, with 17 production lines introduced and 16 put into production within this year. The company has also introduced 4 production lines for T5 fluorescent lamps, including 3 already put into production. The facilitating projects including the test center for fluorescent lamps, kilns, tube-pulling lines, filaments and leads and power facilities, and auxiliary environmental protection and fire-fighting engineering have largely completed. As there are still funds left for T5 fluorescent lamps, the company will work hard this year to introduce the equipment and put them into operation as soon as possible in view of the market situation this year. ２９ (3) Benefits from investment projects: there were three production lines for T8 fluorescent lamps before raising the funds. Together with the 17 ones just put into production, there are currently 20 under production, increasing the monthly output of T8 fluorescent lamps to 12.5 million pieces. There are also 4 production lines for T5 fluorescent lamps, making its monthly output to 1.3 million pieces. The demand on the fluorescent lamps market is still vigorous, and the T8 and T5 fluorescent lamps of the company are still out of demand. The sales of T8 and T5 in 2004 are 145.7 million pieces, 24.63% more than those in 2003, and earning the profits of 23.14% more. 2. Investment by self-possessed funds during the report period. The company convened its shareholders’ general meeting during the report period, and resolved and approved to invest five projects by its self-possessed funds of more than RMB 500 million within three to five years. The newly developed projects of spark plug and kinescope for visual doorbell have been put into operation. We have introduced the second production line for metal halogen lamps in Jul., 2004, and the production of metal halogen lamps has already take shape. The company has made more investments to expand the production of energy-saving lamps, ordinary bulbs, miniature automotive lamps and fluorescent lamps as planned, and started to produce all kinds of new lamps and accessories, which are sold together with our optical products. (IV) Financial situation and business results. The financial target of the company completed and the main reasons for any change compared with last year: Unit: RMB10,000 Target At end of 2004 At end of 2003 Change Proportion of change (%) Total assets 254,110 243,157 10,953 4.50 Shareholders’equity 227,189 220,785 6,404 2.90 Main business profit 38,969 37,963 1,006 2.65 Net profits 22,893 23,456 -563 -2.4 Net increase of cash & cash equivalent -12,982 -13,487 505 3.74 l The total assets have increased by RMB 109.53 million, mainly due to the increase of shareholders’equity. l The shareholders’equity has increased by RMB 64.04 million, mainly due to the profit distribution of this year. ３０ l The main business profits have increased by RMB 10.06 million, mainly due to the continuous increase of sales income this year. l The net profits have decreased by RMB 5.63 million, mainly due to the increase of enterprise income tax. l The cash and cash equivalent have increased by RMB 5.05 million, mainly due to the increase of the sales income. (V) Business plan in the year to come. (1) Speed up the construction of Foshan Electrical & Lighting Industrial Park in Gaoming District. After nearly one year of efforts, the construction for the basic facilities and parts of factory buildings in the FSL Industrial Park has already completed. It is expected to put into operation in August –September, 2005 to increase the production scale and the benefits at the same time. (2) Strengthen the management and control the production cost. Cost control has become a kind of system and culture of the enterprise, which is the focal point of FSL this year with the expansion of the production scale, the increase of various expenses and the high price of raw materials. The measures shall include: (1) Change the original management pattern for production expenses, and carry out the overall rationing system for production expenses in each workshop and department; (2) Improve the labor productivity, and control the costs in human resources. Without prejudice to the fulfillment of the production task, we will arrange the production in workshops properly, cut down the employees of low productivity, and keep the sustained and health development for the company. (3) The company will promote the sales by all kinds of measures. First is to carry out the contractual sales for wholesale dealers, to promote the domestic sales, arouse the initiative of the salesmen, and continuously increase the product sales. The second point is the sales of key products, and the third one is the sales of accessories, which is expected to reach RMB 70 million and create the new point of profit growth for the company. Fourthly, it shall give play to the production scales and the product superiority of the company, expand the export sales and production with OEM certification, increase the sales of our lighting products, and create more profits for the company. (4) Strength the management and ensure the product quality. Training is the most significant factor to improve the professional quality of the staff members. Secondly, the company shall speed up the technical innovation, modify the equipment continuously, and improve the production process and the acceptance rate for the products. Besides, it must inspect the product quality strictly to maintain the goodwill of the company. ３１ (5) Arrange and implement the share incentive funds according to the “Implementation Plan for Share Incentive Funds for Senior and Middle-Rank Management Personnel”, standardize it and carry it in real earnest, stabilize and attract more talents, and promote the long-term steady development of the company. (VI) Routine operation of the Board of Directors. 1. Board meetings and resolutions during the report period: the Board of Directors has held eight board meetings within this year. The contents of the meetings and resolutions are: (1) The sixteenth meeting of the 3rd Board of Directors of FSL was held on Mar. 25, 2004. Seven directors of the nine who should attend the meeting actually attended the meeting (including three independent directors). All supervisors of the Board of Supervisors and senior management personnel of the company attended the meeting as the observers. The attendants discussed the relevant issues carefully, and passed the following resolutions: l Examine and pass the operation report of the Board of Directors of 2003. l Examine and pass the business report of the General Manager of 2003. l Examine and pass the final financial report and the draft profits distribution plan of 2003. According to the net profit audited by Zhengzhong Zhujiang Certified Public Accountants, Guangdong (which is lower than that audited by KPMG Certified Public Accountants in Hong Kong), the minimum net profits realized of the company in 2003 is RMB 226,325,007.49. The profits available for distribution to shareholders this year after deducting 10% of legal surplus, 10% of public welfare funds and 5% of arbitrary earned surplus is RMB 242,063,152.39 (including RMB 72,319,396.77 as the undistributed profits of last year) Based on 358,448,259 shares of capital stock at the end of 2003, the Board of Directors of the company will distribute RMB 4.60 (including the tax. Dividends for B share shall be paid after being converted into HK dollar) as the cash dividend for every 10 shares to all shareholders of A and B shares. The total dividend actually paid is RMB 164,886,199.14, and the remaining RMB 77,176,953.25 will be carried forward to the next year for distribution. There is no increase of capital stock by surplus in 2003. l Examine and pass the resolution on introducing the production equipment for energy-saving lamps by the self-possessed funds to expand the production. ３２ As the market for energy-saving lamps develops at high speed in recent years with broad prospect, our energy-saving lamps are highly welcomed by the consumers. To increase our market shares, strengthen our competitive force, and give full play to our existing economic strength and advantages in product quality and price, we plan to introduce the new production equipment for energy-saving lamps with RMB 100 million as our self-possessed funds, to expand the production sales of energy-saving lamps to the monthly output of 8~ 10 million pieces, and create more profits to the company. l Examine and pass the resolution on amending some articles in the “Articles of Association”of the company. It is required by the Securities Regulatory Office of Guangzhou by notice to amend the “Articles of Association”of all listed companies according to the requirements in the “Notice on Standardizing the Funds Operation Between Listed Companies and Its Affiliated Parties and the External Guarantee from Listed Companies”in line with the examination and approval procedures for external guarantee and the credit standard for secured party determined by the Securities Regulatory Office of Guangzhou. Therefore, we have amended the article in Chapter VIII, “Financial & Accounting System”in the “Articles of Association”of the company. The amended article shall have the additional content as below, i.e., Article 147 in Chapter VIII: Any external guarantee of the company shall be signed and approved by more than 2/3 of directors in the Board of Directors; it is not permitted to grant the liability guarantee, directly or indirectly, for any secured party with over70% of assets liabilities ratio. The following articles shall put off in order. l Examine and pass the resolution on nominating the candidates for the directors of the 4th Board of Directors at the expiration of the 3rd Board of Directors. The 3rd Board of Directors has expired after the term of three years from Jun., 2001 to 2004, and the new Board of Directors shall be elected. Candidates for directors of the 4th Board of Directors nominated: Zhong Xincai, Alfred K. N. Chong, Liu Xingming, Liang Weidong, Chen Guanbio, Ye Zaiyou, Liang Zhen (independent director), Wu Jianhong (independent director) and Chen Ziyun (independent director). l Examine and pass the resolution on the “System on Managing of Relationship Between Investors of the Company”. l Examine and pass the resolution on renewing Zhengzhong Zhujiang Certified Public Accountants in Guangdong and KPMG Certified Public Accountants in Hong Kong as the financial accounting institutes of the company in 2004. l Decide to hold the Shareholders’General Meeting of 2003 on May 26, 2004 (Wednesday). ３３ (2) On Apr. 16, 2004, the 3rd Board of Directors convened its 17th meeting, and examined the resolutions by communications and faxes. All nine directors attended the meeting and voted to such resolutions, complying with the relevant provisions set forth in the “Company Law”and the “Articles of Association”of the company. The attendants examined and passed the report of the 1st quarter in 2004 of FSL. (3) The 4th Board of Directors of the company convened its 1st board meeting on May 26, 2004, all nine directors and independent directors newly elected attended the meeting. The attendants reviewed and passed the following resolutions: l Elect Mr. Zhong Xincai as the Chairman of the Board of Directors, and Mr. Alfred K. N. Chong as the Vice Chairman. Elect Mr. Zhong Xincai and Mr. Liu Xingming as the executive directors, Mr. Liang Weidong, Mr. Chen Guanbiao and Mr. Ye Zaiyou as the directors, and Mr. Liang Zhen, Ms Wu Jianhong and Ms Chen Ziyun as the independent directors. l Reappoint Mr. Zhong Xincai as the General Manager of the company. (4) The 4th Board of Directors held its second meeting on Aug. 17, 2004. Seven directors of the nine who should attend the meeting actually attended the meeting (including two independent directors). Mr. Liang Weidong, the director of the company, and Mr. Liang Zhen, the independent director, are unable to attend the board meeting on the business trip, and have both authorized Mr. Zhong Xincai, the Chairman of the Board of Directors to vote on their behalf. This meeting complied with the relevant provisions set forth in the “Company Law”and the “Articles of Association”of the company. All supervisors of the Board of Supervisors and senior management personnel of the company attended the meeting as the observers. The attendants discussed the relevant issues carefully, and passed the following resolutions unanimously: l Review and pass the interim report of 2004 and its summary of the company (in Chinese and English versions). l Review and pass the interim profit distribution plan of 2004, and decide not to make any interim profit distribution, nor increase of capital stock by surplus. (5) On Aug. 30, 2004, the 4th Board of Directors convened its 3rd meeting, and examined the resolutions by communications and faxes. Eight directors attended the meeting (including three independent directors) and voted to such resolutions. Mr. Liang Weidong asked for leave for he was on business trip. All these comply with the relevant provisions set forth in the “Company Law”and the “Articles of Association”of the company. ３４ This meeting focused on the examination of a potential joint transaction. FSL signed the “Framework Purchase Contract”with Osram (Germany) on lighting products on Aug. 31, 2004, to make the framework agreements for the sales of lighting products of different varieties from FSL to Osram and its affiliated enterprises. On the same day, Osram Prosperity Co., Ltd. with 60.14% of equity held by Osram signed the share transfer contract with the State-Owned Assets Supervision and Administration Commission of the People’s Government of Foshan City, to transfer 13.47% of total shares of FSL from the State-Owned Assets Supervision and Administration Commission of the People’s Government of Foshan City to Osram Prosperity Co., Ltd. Should the above transfer is finally approved by the the State-Owned Assets Supervision and Administration Commission of the State Council and the Ministry of Commerce, and completed as per the share transfer contract, Osram Prosperity Co., Ltd. will become one of the major shareholders of FSL, and the “Framework Purchase Contract”for lighting products will constitute the joint transaction between FSL and its shareholders and their affiliated enterprises. In view of the above potential affiliation, this meeting has examined and reviewed this transaction. It is thought in the meeting that Osram is one of the largest manufacturers for lighting products in the world, with its products distributed all over the world and the sales income from lighting products each year of RMB 50000 million. Cooperating with Osram will be benefit to the long-term development of FSL and its expansion on the international market, and is an effective way to speed up the upgrading and improve the economic benefits of the enterprise. In such case, all attendants to this meeting agreed on this potential joint transaction by votes, and authorized the management level of FSL to negotiate with Osram and sign the contract upon the following conditions: l Effective date of contract: the contract will become effective as it is signed by both parties. However, if Osram fails to acquire FSL state-owned shares successfully, this contract will be terminated immediately. l Term of contract: 60 months. The contract will renew for another 60 months automatically at its expiration. However, either party can terminate the contract by a 12 months prior notice. l Quantity of purchase: as the contract is a framework purchase contract, no actual quantity of purchase is agreed by both parties. It is estimated that the total price of goods purchased each year under the contract shall be at least USD 10 million, and will increase year after year. ３５ l Pricing: FSL and Osram will negotiate and decide a series of fixed prices by referring to the sales prices of same lighting products of other clients in May each year. Such fixed prices will be continuously valid from September to December that year. l Term of payment: pay within 30 days after the end of the month next to the date of invoice. The articles and clauses in the above contract shall be submitted as the joint transaction to the shareholders’general meeting of FSL for examination and review before completing the transaction of the state-owned shares. In case that it fails to get through in the shareholders’general meeting, the contract will be terminated as well as the transaction for state-owned shares. (6) The 4th Board of Directors of the company convened its 4th board meeting in Fulin Hotel, Shenzhen on Sep. 13, 2004, Eight directors of the nine who should attend the meeting actually attended the meeting (including three independent directors), complying with the relevant provisions set forth in the “Company Law”and the “Articles of Association”of the company. The attendants reviewed and passed the following resolutions: l Examine and pass the resolution on amending some articles in the “Articles of Association” of the company. It is planned to amend some articles in the “Articles of Association” of the company in accordance with the agreements in the share transfer contract signed between the State-Owned Assets Supervision and Administration Commission of the People’s Government of Foshan City and Osram Prosperity Co., Ltd. and Prosperity Lamps & Components Ltd. (Hong Kong) on Aug. 31, 2004, and the requirements on the examination and approval procedures for share transfer. Former Article 20 in the “Articles of Association”of the company: the equity structure of the company: there are 358,448,259 ordinary shares, including 88,397,100 founder’s shares, 187,551,159 shares held by other domestic shareholders, and 82,500,000 shares listed at home held by foreign shareholders. Amended to: Article 20: the equity structure of the company: there are 358,448,259 ordinary shares, including 85,922,100 foreign-capital corporate shares, 42,990,750 internal-capital corporate shares, 147,035,409 social public shares, and 82,500,000 listed at home held by foreign shareholders. l Decide to hold the 1st interim shareholders’general meeting of 2004 on Oct. 20, 2004 (Wednesday). ３６ (7) The 4th Board of Directors of the company convened its 5th board meeting on Oct. 20, 2004, All nine directors attended the meeting (including three independent directors), complying with the relevant provisions set forth in the “Company Law” and the “Articles of Association” of the company. The attendants examined and passed the report of the 3rd quarter in 2004 of FSL. (8) On Oct. 25, 2004, the 4th Board of Directors convened its 6th meeting, and examined the resolutions by communications and faxes. Six directors attended the meeting (including three independent directors) and voted for such resolutions. Involved in the joint transaction, Mr. Alfred K. N. Chong, the vice chairman of the Board of Directors and Mr. Chen Guanbiao, the director, withdrew from vote in this board meeting. Mr. Liang Weidong asked for leave for he was on business trip. All these comply with the relevant provisions set forth in the “Company Law”and the “Articles of Association”of the company. This meeting focused on the examination of a potential joint transaction. Prosperity Lamps & Components Ltd. (Hong Kong) (hereinafter referred to as the “Prosperity”) signed the share transfer contract with the State-Owned Assets Supervision and Administration Commission of the People’s Government of Foshan City on Aug. 31, 2004, to transfer 10.5% of total shares of FSL from the State-Owned Assets Supervision and Administration Commission of the People’s Government of Foshan City to the Prosperity. Should the above transfer is finally approved by the State-Owned Assets Supervision and Administration Commission of the State Council and the Ministry of Commerce, and completed as per the share transfer contract, the Prosperity will become one of the major shareholders of FSL. Thereafter, the Prosperity will purchase the products of FSL at the same price of the products sold by FSL to other clients based on the demand for market development, and will transact with FSL at the market price for foreign materials and equipment demanded by FSL. This will constitute the joint transaction between FSL and its shareholders and their affiliated enterprises. In view of the above potential affiliation, this meeting has examined and reviewed this transaction. It is thought in the meeting that the Prosperity is one of the largest and most professional production and trading groups for optical sources, lighting products and lighting materials in Hong Kong. As an international group company, it enjoys a extremely high prestige in Europe, America and other places in the world, owns the wide and perfect distribution network both at home and abroad, distributes world renowned products, and is a famous business enterprise for national and international optical sources and relevant products. Cooperating with the Prosperity will be benefit to the long-term development of FSL and its expansion on the international market, and is an effective way to speed up the upgrading and improve the economic benefits of the enterprise. In such case, all six directors attending this meeting agreed on this potential joint transaction by votes, and authorized the management level of FSL to negotiate with the Prosperity and sign the contract on the principle of fairness and justness. ３７ This joint transaction will be submitted to the shareholders’general meeting of the company in due course as per the relevant regulations. 2. Execution of the Board of Directors to the resolutions of the Shareholders’General Meeting: the Board of Directors has carefully executed the resolutions of the Shareholders’General Meeting. All eight resolutions passed in the Shareholders’General Meeting of 2003 (including the profit distribution plan) have been carried out completely, and the Board of Directors has organized and implemented the plan of share incentive funds for senior and middle-rank management personnel of the company under the authorization. (VII) Draft profits distribution plan of 2004 The net profit of FSL audited by Zhengzhong Zhujiang Certified Public Accountants, Guangdong in 2004 is RMB 231,479,786.57, and the profits available for distribution to shareholders this year after deducting 10% of legal surplus, 10% of public welfare funds and 5% of arbitrary earned surplus is RMB 250,786,793.18 (including RMB 77,176,953.25 as the undistributed profits of last year) Based on 358,448,259 shares of capital stock at the end of 2004, the Board of Directors of the company will distribute RMB 4.80 (including the tax. Dividends for B share shall be paid after being converted into HK dollar) as the cash dividend for every 10 shares to all shareholders of A and B shares. The total dividend actually paid is RMB 172,055,164.32, and the remaining RMB 78,731,628.86 will be carried forward to the next year for distribution. There is no increase of capital stock by surplus in 2004. The cash dividend paid to shareholders of B share shall be converted into HK dollars by the middle rate between RMB and HKD declared by the Bank of China on the first business day after the resolution of the Shareholders’General Meeting. The above draft distribution plan shall be implemented so long as it is examined and passed in the Shareholders’General Meeting. (VIII) Other items in report 1. China Security, Security Times, Foshan Daily (all for A share, in Chinese) and Ta Kung Pao in Hong Kong (for B share, in English) have been elected by the company as the newspapers for disclosing the relevant information. There is no change during the report period. ３８ 2. Zhengzhong Zhujiang Certified Public Accountants, Guangdong has made the special comments for the funds occupied by the big shareholders and other related parties of the company. Special Comments on Funds Occupation and Unprofessional Guarantee of Big Shareholders and Other Related Parties of FSL GKSZZ (2005) ? 5100420029 To: Foshan Electrical & Lighting Co., Ltd. We have been authorized to audit your accounting statements in the fiscal year as at Dec. 31, 2004, and issued GKSSZ (2005) ? 5100420019 Audit Report. According to the relevant requirements in the “Notice on Standardizing the Funds Operation Between Listed Companies and Its Affiliated Parties and the External Guarantee from Listed Companies” (ZJF (2003) ? 56), we have also audited the related transactions and funds operations between FSL and its big shareholders and other affiliated parties, including to check the documents and accounting records of in the company concerning the related transactions, and inquiry with the responsible authority about your related transactions and funds operation. We found that: Most funds operation between you and your big shareholders and other affiliated parties are for the purchase and sales of goods and the importation of equipment through the agent (for details, see GKSSZ (2005) ? 5100420019 ). During our audit, we found that there is no matter mentioned in the “Notice on Standardizing the Funds Operation Between Listed Companies and Its Affiliated Parties and the External Guarantee from Listed Companies” happened in FSL, including to: (1) Pay salary, welfare, insurance, advertisement and other expenses for the big shareholder and its related parties, or bear the costs and expenses with each other; (2) Borrow the funds of the company to the big shareholder and its related parties with or without the compensation; (3) Grant the trust loan to the related parties through the bank or the non-banking financial institute; ３９ (4) Authorize the big shareholder and its related parties to make the investment; (5) Issue the commercial acceptance without the actual transaction background for the big shareholder and its related parties; (6) Pay the debts for the big shareholder and its related parties. Zhengzhong Zhujiang Certified Public Accountants, Guangdong Guangzhou, PRC Certified public accountant in China: Jiang Hongfeng Certified public accountant in China: Hong Wenwei March 2005 3. Special notes and independent opinion of the independent director on external guarantee of the company: It is examined and verified that FSL has provided no security for any shareholder of the listed company, the control subsidiary of the shareholder, the affiliated company of the shareholder, any other related party with less than 50% of shares held by FSL, and any non-corporate unit or individual. ４０ VIII. Report of the Board of Supervisors 1. Operation of the Board of Supervisors during the report period. During the report period, the Board of Supervisors has convened three meetings. The Chairman of the Board of Supervisors always attended the meetings of the Board of Directors and the management level, participated in the discussion of the significant policies of the company, reviewed and supervised the resolution and procedure of each board meeting and Shareholders’ General Meeting. The meetings convened by the Board of Supervisors include: (1) The 8th meeting of the 3rd Board of Supervisors was held on Mar. 25, 2004, with all five supervisors attending the meeting, complying with the relevant provisions set forth in the “Company Law”and the “Articles of Association”of the company. This meeting is legal and effective. Mr. Huang Guanxiong, the Chairman of the Board of Supervisors presided the meeting. The attendants reviewed and passed the following resolutions: l Examine and pass the 2003 Annual Report and Summary of 2003 Annual Report of the company. l Examine and pass the operation report of the Board of Supervisors of 2003. l Examine and pass the final financial report and the draft profits distribution plan of 2003. l Examine and pass the resolution on nominating the candidates for shareholders’supervisors of the 4th Board of Directors at the expiration of the 3rd Board of Supervisors. Candidates for shareholders’supervisors of the 4th Board of Supervisors nominated: Zhang Chaoyang, Shen Weiqiang. Workers’supervisors of the 4th Board of Supervisors: the three persons, Huang Guanxiong, Mei Feixing and Li Jianwu, have already been elected as the workers’supervisors of the 4th Board of Supervisors of the company in the Workers’Representative Assembly. l Examine the audit report (without any reservation) issued by Zhengzhong Zhujiang Certified Public Accountants in Guangzhou and KPMG Certified Public Accountants in HK, and think that the financial report has objectively, truly and accurately reflected the financial status and business result of the company. (2) The 1st meeting of the 4th Board of Supervisors was held on May 26, 2004, with four of five newly elected supervisors attending the meeting. Mr. Zhang Chaoyang asked for leave because he was on business trip. Mr. Huang Guanxiong was elected the Chairman of the Board of Supervisors in this meeting. ４１ (3) The 2nd meeting of the 4th Board of Supervisors was held on Aug. 17, 2004, with all five supervisors attending the meeting, complying with the relevant provisions set forth in the “Company Law”and the “Articles of Association”of the company. Mr. Huang Guanxiong, the Chairman of the Board of Supervisors presided the meeting. The attendants reviewed and passed the following resolutions: l Review and pass the interim report of 2004 and its summary of the company (in Chinese and English versions). l Review and pass the resolution on making no interim profit distribution, nor increase of capital stock by surplus. 2. Independent opinion of the Board of Supervisors. (1) Legal operation of the company: it can carry out the strict legal operation, strengthen the standardized construction, set up the rules and systems to perfect the management of the listed company, and further improve management level and standard construction of the company. The company has perfected its internal control system, carried out all management policies for the use of capital, investment project and business operation upon the discussion of the Board of Directors, and made the decisions in legal procedures after making the research and investigation, and studying the feasibility. Since the company set up the post of independent director two years ago, it has solicited the opinion of the independent director for some major decisions, to implement such decisions correctly and effectively, and achieve quite good economic benefits. The Board of Supervisors finds that neither director nor manager of the company has violated the laws, rules and regulations and the Articles of Association of the company or damage the interest of the company while taking his post. The directors and managers of the company abide by the laws and discipline, and being honest in performing their official duties, united and enterprising, actively making their efforts and contributions to the development of the company. (2) Inspect the financial status of the company. The Board of Supervisors believed that the audit reports and relevant notes made by Zhengzhong Zhujiang Certified Public Accountants, Guandong and KPMG in HK have truly reflected the financial situation and business results of the company. ４２ (3) The last actual investment with raised funds: The company has issued more A shares in the last half of 2000, and raised funds of RMB 667 million. By now, the company has invested in the 9 investment projects disclosed in the Prospectus (except the items of current funds), and the actual investment has no difference with the items disclosed in the Prospectus. As at Dec. 31, 2004, raised funds of RMB 634.44 million has already been invested, with RMB 32.47 million remained and deposited in the special account for funds raised by shares established by our company with the Bank of China, Foshan Branch. The projects for T8 and T5 energy-saving fluorescent lamps have made the fast progress. In particular, the company has introduced 17 production lines for T8 fluorescent lamps, which have all been put into production. The company has also introduced 4 production lines for T5 fluorescent lamps. All complementary projects such as the test center for fluorescent lamps, kilns, tube-pulling lines, filaments and leads, power facilities, and auxiliary environmental protection and fire-fighting works have been completed, some even overfulfilled the construction plan. Both the T8 and T5 fluorescent lamps of the company are sold very well on the market, and are still out of demand. (4) During the report period, there is no transaction for purchase and sales of assets in FSL. The joint transaction at the fair and reasonable price has no detriment to the interests of FSL. (5) Zhengzhong Zhujiang Certified Public Accountants, Guangdong and KPMG Certified Public Accountants in HK have issued the audit report without any reservation to the financial report of the company of 2004. IX. Significant Events 1. There is no significant suit or arbitration of the company during the report period. 2. There is no matter on purchase, amalgamation and sales of assets of the company during the report period. ４３ 3. Joint transactions: Related party Sell products and provide labor to Purchase products & get labor from related party related party Transaction amount % of amount in same Transaction amount % of amount in transaction same transaction Prosperity Lamps 28,896,384.92 2.37% 12,383,011.45 2.02% Hangzhou Prosperity 4,837,646.15 0.40% — — Hangzhou Times 4,281,225.64 0.35% 53,695.73 0.01% Prosperity Electrical 4,113,440.96 0.34% — — Nanjing Prosperity 911,511.36 0.07% — — Osram 5,424,117.98 0.44% — — Total 48,464,327.01 3.97% 12,436,707.18 2.03% • The company has paid RMB 1,627,575.10 to Prosperity Lamps as the service charge for the importation of equipment, making up 3% of the price of such equipment. • The above transactions are all priced based on the market price, which is fair and just. • The joint transactions are necessary for the normal business operation of the company, which is benefit to the long-term development of the company. 4. There is neither capital circulation, nor use of funds, nor external guarantee between the company and the first shareholder and other related parties. 5. To optimize the investment structure of the company, it has transferred 19% of the 37.5% shares of Liangke Investment Co., Ltd. held by it during the report period, with 18.5% of shares of Liangke Investment Co., Ltd. currently possessed. 6. There is neither significant contract, including the trust, contract, lease of assets from any other company, nor trust, contract, lease of assets of out company by any other company, nor security affair, nor financing entrust. During the report period, the company has entrusted China Everbright Bank to grant a loan of RMB 10 million to Tianyuan Pharmaceutical Co., Ltd., Zhejiang for a term of one year from Sep. 13, 2004 to Sep., 13, 2005 at the interest rate of 8%. As at Dec. 31, 2004, the company has received the interest from the entrusted loan of RMB 207,790.01. This entrusted loan was approved by the Board of Directors of the Company. ４４ 7. No change has taken place to the domestic and foreign accountants firms of the company during the report period. The company continues to appoint Zhengzhong Zhuangjiang Certified Public Accounts, Guangdong and KPMG Certified Public Accountants in HK as its accountants firms. Zhengzhong Zhuangjiang Certified Public Accounts, Guangdong has served the company for continuous 11 years, while KPMG Certified Public Accountants in HK has served the company for continuous 9 years. The remuneration paid by the company to such two accountants firms are the remuneration standard for financial auditing during the report period is RMB 300,000 to Zhengzhong Zhuangjiang Certified Public Accounts, Guangdong, and HKD 560,000 for KPMG in HK. 8. No company, the Board of Directors of the company or any director has been checked by the China Securities Regulatory Committee, or experienced the administrative sanction or notice of criticism by the China securities supervision committee, or the public condemn of any security exchange. 9. There is no significant event listed in Article 62 of the “Security Law”and Article 17 of the “Rules for Information Disclosure for Companies with Publicly Issued Shares”(trial), and any matter judged as the significant event by the Board of Directors of the company during the report period. X. Financial Report (I) Report of the auditors to the shareholders of Foshan Electrical and Lighting Company Limited Respective responsibilities of directors and auditors (Established in the People’ s Republic of China with limited liability) We have audited the consolidated balance sheet of Foshan Electrical and Lighting Company Limited and its subsidiaries (the “Group”) as of 31 December 2004 and the related consolidated statements of income and cash flows for the year then ended, set out on pages 2 to 29, which have been prepared in accordance with International Financial Reporting Standards promulgated by the International Accounting Standards Board. These consolidated financial statements are the responsibility of the directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. This report is made solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. ４５ Basis of opinion We conducted our audit in accordance with International Standards on Auditing as promulgated by the International Federation of Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of 31 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 promulgated by the International Accounting Standards Board. Certified Public Accountants Hong Kong, China, 23 March 2005 (II) Accounting statements. Consolidated Balance Sheet (Attachment I) Consolidated Profit and Profit Distribution Statement (Attachment II) Consolidated Cash Flow Statement (Attachment III) (II) Notes on the financial statements 1 Significant accounting policies Foshan Electrical and Lighting Company Limited (the “Company”) is a company domiciled in the People’s Republic of China (the “PRC”). The consolidated financial statements of the Company for the year ended 31 December 2004 comprise the Company and its subsidiaries (together referred to as the “Group”). ４６ (a) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and its interpretations adopted by the International Accounting Standards Board (“IASB”). (b) Basis of preparation The consolidated financial statements are prepared on the historical cost basis except that property, plant and equipment were stated at their revalued amount as stated in note 10 and investments held for trading as stated in note 14 were stated at their fair value. The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of polices and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The accounting policies have been applied consistently by Group entities. The IASB has issued a number of new and revised IFRS and IAS (“new IFRS”) which are effective for accounting periods beginning on or after 1 January 2005. The Group has not early adopted these new IFRS in the financial statements for the year ended 31 December 2004. The Group has already commenced an assessment of the impact of these new IFRS but is not yet in a position to state whether these new IFRS would have a significant impact on its results of operations and financial position. (c) Basis of consolidation (i) Subsidiaries Subsidiaries are those entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases. ４７ (ii) Associate Associate is an entity in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group’s share of the total recognised gains and losses of the associate on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds the carrying amount of the associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations in respect of the associate. (iii) Transactions eliminated on consolidation Intragroup balances and transactions and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with the associate are eliminated to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. (d) Translation of foreign currencies Transactions in foreign currencies are translated to Renminbi Yuan at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Renminbi Yuan at the foreign exchange rates ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. (e) Property, plant and equipment Property, plant and equipment are stated at cost or valuation (see note 10) less accumulated depreciation and impairment losses (see note 1(l)). The cost of property, plant and equipment constructed by the Group includes the cost of materials, direct labour and an appropriate proportion of fixed and variable overheads. ４８ When an asset’s carrying amount is increased as a result of a revaluation, the increase is credited directly to equity under the component of revaluation reserve. However, a revaluation increase is recognised as income to the extent that it reverses a revaluation decrease of the same asset previously recognised as an expense. When an asset’s carrying amount is decreased as a result of a revaluation, the decrease is recognised as an expense in the consolidated income statement. However, a revaluation decrease is charged directly against any related revaluation surplus to the extent that the decrease does not exceed the amount held in the revaluation reserve in respect of that same asset. Revaluations are performed periodically to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure is recognised in the income statement as an expense as incurred. Gains or losses arising from the retirement or disposal of property, plant and equipment, are determined as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised as income or expense in the income statement on the date of retirement or disposal. On disposal of a revalued asset, the related revaluation surplus is transferred from the revaluation reserve to retained earnings. Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives, after taking into account their estimated residual values, of items of property, plant and equipment. The estimated useful lives are as follows: Buildings 3 to 25 years Plant and machinery 2 to 8 years Furniture, fixtures and office equipment 2 to 8 years Motor vehicles 5 to 10 years Assets are depreciated from the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed and ready for its intended use. (f) (f) Lease prepayments Lease prepayments represent land use rights paid to the PRC’s land bureau. Land use rights are carried at cost and amortised on a straight-line basis over the respective periods of the rights which range from 40 years to 50 years. ４９ (g) Construction in progress Construction in progress represents properties under construction and equipment purchased prior to installation, which includes construction and acquisition costs, less impairment losses (see note 1(l)). Capitalisation of these costs ceases and the construction in progress is transferred to fixed assets when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided in respect of construction in progress until it is completed and ready for its intended use. (h) Investments Investments in debt and equity securities held for trading are classified as current assets and are stated at fair value, with any resultant gain or loss recognised in the income statement. When the Group has the positive intent and ability to hold government bonds and notes to maturity, they are stated at amortised cost less impairment losses (see note 1(l)). Other investments held by the Group are classified as being available-for-sale and are stated at cost, less provision for impairment losses (see note 1(l)). A provision is made where, in the opinion of management, the carrying amount of the investments exceeds its recoverable amount. The fair value of investments held for trading is their quoted bid price at the balance sheet date. Investments held for trading and available-for-sale investments are recognised/ derecognised by the Group on the date it commits to purchase/sell the investments. Investments held-to-maturity are recognised/derecognised on the day they are transferred to/by the Group. On derecognition, the difference between the net proceeds received or receivable and the carrying amount of the investments are accounted for in the income statement. (i) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on the weighted average principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. ５０ (j) Trade and other receivables Trade and other receivables are stated at their cost less allowance for any amounts expected to be irrecoverable. All allowance is provided for based upon the evaluation of the recoverability of these accounts at the balance sheet date. (k) Cash and cash equivalents Cash and cash equivalents comprise cash balances and deposits with banks and other financial institutions with an initial term of less than three months. (l) Impairment The carrying amounts of the Group’s assets, other than inventories (see note 1(i)), deferred tax assets (see note 1(o)) and financial assets stated at fair value, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. (i) Calculation of recoverable amount The recoverable amount of assets is the greater of their net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. (ii) Reversals of impairment An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (m) Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. (n) Dividends Dividends are recognised as a liability in the period in which they are declared. ５１ (o) Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment of tax payable for previous years. Deferred tax is provided using the balance sheet liability method on all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes and the initial recognition of assets or liabilities which affect neither accounting nor taxable profit, and the differences relating to investments in subsidiaries to the extent that they will probably not reversed in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. (p) Revenue recognition (i) Goods sold In relation to the sale of goods, revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, and no significant uncertainties remain regarding recovery of the consideration due, associated costs or the possible return of goods. (ii) Dividend income Dividend income is accounted for when the shareholder’s right to receive payment is established. (p) Revenue recognition (continued) (iii) Interest income Interest income from bank deposits is accrued on a time-apportioned basis on the principal outstanding and at the rate applicable. ５２ (q) Operating lease payments Operating leases are recognised in the income statement on a straight-line basis over the term of the leases. (r) Retirement plan Obligations for contributions to a defined contribution retirement scheme are recognised as an expense in the income statement as incurred. 2 Revenue The principal activities of the Group are the manufacture and sale of electrical lightings. Revenue represents the invoiced value of goods supplied to customers, net of value added tax. 3 Segment reporting The Group’s profits are almost entirely attributable to its manufacture and sale of electrical lightings in the PRC. Accordingly, no segmental analysis is provided. 4 Other operating income 2004 2003 Rmb Rmb Income from sale of raw materials and packaging materials 5,666,115 1,104,575 Rental income 751,580 352,473 Others 3,359,145 1,502,092 9,776,840 2,959,140 ========== ========== 5 Other operating expenses 2004 2003 Rmb Rmb Loss on disposal of property, plant and equipment 5,440,347 7,871,889 Others 2,366,795 440,412 7,807,142 8,312,301 ========== ========== ５３ 6 Personnel expenses 2004 2003 Rmb Rmb Salaries and staff welfare 129,653,021 108,389,722 Senior management incentive scheme payment (note (i)) 20,338,756 23,145,947 Contribution to defined contribution retirement scheme (note (ii)) 8,515,993 8,185,405 158,507,770 139,721,074 ========== ========== Notes: (i) Pursuant to a resolution passed in the Board Meeting held on 25 March 2002 and the approval by the shareholders in the Annual General Meeting (“AGM”) held on 16 May 2002, the Company established a Senior Management Incentive Scheme (the “Scheme”). According to the Scheme, incentive payments are to be made to the senior management when the Company’s return on net assets for the year is 6% or above, which is measured based on the Company’s annual net profit determined under PRC accounting standards. No incentive payments would be made if the return on net assets is less than 6%. The amounts of provisions are included in administrative expenses. (ii) Certain employees of the Group participate in a defined contribution retirement scheme operated by the PRC municipal government. The Group is required to contribute to the scheme at a rate of 15% and 10% of salary costs in the first and the second half-year of 2004 repsectively (2003: 15%). Member of the retirement scheme is entitled to pension benefits equal to a fixed portion of the salary at the retirement date. The Group has no obligation to make payments in respect of pension benefits associated with this plan other than the annual contribution described above. ５４ 7 Financial income 2004 2003 Rmb Rmb Interest income 11,584,297 10,782,610 Dividends income 2,705,303 2,163,070 Gain on disposal of investments - 5,281,552 Gain on disposal of interest in an associate (note 13) 382,010 - Net unrealised gains of investments held for trading carried at fair value 310,457 8,759,325 14,982,067 26,986,557 ========== ========== 8 Financial expenses 2004 2003 Rmb Rmb Loss on disposal of investments 2,349,106 - Write off and provision for diminution in value of investments available-for-sale 1,710,000 - Bank charges and other financial expenses 1,640,977 1,024,607 Exchange losses 378,027 146,007 6,078,110 1,170,614 ========== ========== ５５ 9 Income tax expense (a) Taxation in the consolidated income statement represents: 2004 2003 Rmb Rmb Current tax expense Provision for PRC income tax for the year 51,493,081 41,562,302 Underprovision of PRC income tax relating to previous years 6,944,915 2,745,229 58,437,996 44,307,531 Deferred tax expense Reversal of temporary difference (note 15) 2,122,605 642,488 Total income tax expense in the consolidated income statement 60,560,601 44,950,019 ========== ========== (a) Taxation in the consolidated income statement represents (continued): The statutory PRC income tax rate applicable to the Company is 33%. The Company was classified as a new and high technology enterprise in the Guangdong Province and a certificate of recognition of new and high technology enterprise, which was valid up to 31 December 2003, was issued to the Company by Guangdong Provincial Department of Science and Technology on 30 April 2001. Pursuant to a notice Yue Fa (1998) No. 16 issued by the People’s Government of Guangdong Province on 23 September 1998, a new and high technology enterprise in the Guangdong Province is entitled to a reduced income tax rate of 15%. Pursuant to a notice “Yue Di Shui Han [2001] No.410”issued by Guangdong Province Local Tax Bureau on 23 August 2001, the Company is entitled to a reduced tax rate of 15% with effect from 1 January 2001. In 2003, the certificate of recognition of new and high technology enterprise was renewed by Guangdong Provincial Department of Science and Technology and which is effective for a period of two years commencing 29 May 2003. Accordingly, the provision for PRC income tax for the year is calculated at the rate of 15% (2003: 15%) on the estimated assessable profits for the year. ５６ (b) Reconciliation of effective tax rate: 2004 2003 Rmb Rmb Profit before taxation 290,379,761 279,547,095 ========= ========= Income tax using the PRC income tax rate 15% 43,556,964 15% 41,932,064 Non-taxable items (375,847) (186,924) Non-deductible expenses 4,985,323 66,062 Underprovision of income tax relating to previous years 6,944,915 2,745,229 Write down of deferred tax assets not to be utilised 5,320,481 - Others 128,765 393,588 60,560,601 44,950,019 ========= ========= (c) Taxation in the consolidated balance sheet represents: 2004 2003 Rmb Rmb Balance at 1 January 6,518,649 28,945,157 Provision for income tax for the year 51,493,081 41,562,302 Balance of income tax provision relating to previous years 6,944,915 2,745,229 Payments made during the year (46,445,095) (66,734,039) Balance at 31 December 18,511,550 6,518,649 ========== ========== ５７ 10 Property, plant and equipment Furniture, fixtures Plant and and office Motor Buildings machinery equipment vehicles Total Rmb Rmb Rmb Rmb Rmb Cost or valuation: At 1 January 2004 329,987,415 731,291,926 5,917,116 10,235,101 1,077,431,558 Additions 5,559,548 12,316,483 1,006,911 603,934 19,486,876 Transfer from construction in progress (note 12) 4,684,966 72,415,138 - 1,008,000 78,108,104 Disposals (10,181,767) (13,039,700) (78,769) (413,395) (23,713,631) At 31 December 2004 330,050,162 802,983,847 6,845,258 11,433,640 1,151,312,907 --------------- --------------- -------------- -------------- ------------------ Depreciation and impairment loss: At 1 January 2004 111,338,433 267,314,678 4,411,244 5,294,928 388,359,283 Charge for the year 14,204,700 97,106,092 1,054,868 1,282,369 113,648,029 Written back on disposal (5,220,902) (8,420,406) (72,300) (256,734) (13,970,342) At 31 December 2004 120,322,231 356,000,364 5,393,812 6,320,563 488,036,970 --------------- --------------- ------------- --------------- ------------------ Net book value: At 31 December 2004 209,727,931 446,983,483 1,451,446 5,113,077 663,275,937 ========= ========= ======== ========= =========== At 31 December 2003 218,648,982 463,977,248 1,505,872 4,940,173 689,072,275 ========= ========= ======== ========= =========== ５８ Valuation As required by the relevant PRC rules and regulations, the assets and liabilities of the Company were revalued at 30 April 1993 by Guangzhou Assets Appraisal Corporation using the depreciated replacement cost method prior to the listing of the Company’s A shares on the Shenzhen Stock Exchange. The surplus on revaluation was taken directly to revaluation surplus. Valuation (continued) In accordance with IAS 16, subsequent to this revaluation, which was based on depreciated replacement costs, property, plant and equipment are carried at revalued amount, being the fair value at the date of the revaluation less any subsequent accumulated depreciation and impairment losses. Revaluation is performed periodically to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. Based on a revaluation performed by Directors as of 31 December 2004, which was based on depreciated replacement costs, the carrying value of property, plant and equipment did not differ materially from their fair value. 11 Lease prepayments Rmb Cost: Balance at 1 January 2004 123,063,160 Additions 55,528,716 Balance at 31 December 2004 178,591,876 ----------------- Amortisation: Balance at 1 January 2004 9,394,765 Amortisation charge for the year 2,474,603 Balance at 31 December 2004 11,869,368 ----------------- Net book value: At 31 December 2004 166,722,508 ========== At 31 December 2003 113,668,395 ========== ５９ 12 Construction in progress Furniture, fixtures Plant and and office Motor Buildings machinery equipment vehicles Total Rmb Rmb Rmb Rmb Rmb At 1 January 2004 373,589 55,725,835 - - 56,099,424 Additions 47,458,875 91,804,260 400,000 1,008,000 140,671,135 Transfer to property, plant and equip- ment (note 10) (4,684,966) (72,415,138) - (1,008,000) (78,108,104) At 31 December 2004 43,147,498 75,114,957 400,000 - 118,662,455 ========= ========= ======== ========= ========== 13 Investment in an associate The Group had previously an interest in an associate, incorporated in the PRC, named Liangke Investment Co., Ltd., Shenzhen (“Liangke”) by owning 37.5% of its equity interest. During the year, 19% of the interest was disposed to a third party for a consideration of Rmb14,089,663. As at 31 December 2004, the cost of investment in respect of the 18.5% interest in Liangke was classified as other investments. 14 Other investments 2004 2003 Non-current investments Unlisted equity securities available-for-sale, at cost 127,873,326 109,354,443 Less: Provision for impairment losses (13,560,000) (11,850,000) 114,313,326 97,504,443 ========== ========== Current investments Equity securities held for trading, at fair value 17,755,765 59,840,069 Debt securities held for trading, at fair value - 47,873,652 Debt securities held-to-maturity, at amortised cost 99,462,100 - 117,217,865 107,713,721 ========== ========== ６０ 15 Deferred tax assets Recognised deferred tax assets Deferred tax assets are attributable to the following: 2004 2003 Rmb Rmb Property, plant and equipment 4,145,256 4,845,483 Other investments 1,493,115 1,726,091 Inventories 26,923 1,742,801 Trade and other receivables 2,978,811 2,452,335 Deferred tax assets 8,644,105 10,766,710 ========== ========== Movement in temporary differences during the year At Recognised At Recognised At 1 January in income 1 January in income 31 December 2003 statement 2004 statement 2004 Rmb Rmb Rmb Rmb Rmb Property, plant and equipment 3,675,342 1,170,141 4,845,483 (700,227) 4,145,256 Other investments 3,891,623 (2,165,532) 1,726,091 (232,976) 1,493,115 Inventories 1,404,443 338,358 1,742,801 (1,715,878) 26,923 Trade and other receivables 2,437,790 14,545 2,452,335 526,476 2,978,811 11,409,198 (642,488) 10,766,710 (2,122,605) 8,644,105 ========= ======== ========= ========== ========== (note 9(a)) ６１ 16 Inventories 2004 2003 Rmb Rmb Raw materials 41,326,704 20,696,875 Work in progress 66,825,257 50,406,144 Finished goods 54,184,959 46,393,134 Spare parts and consumables 31,470 33,351 162,368,390 117,529,504 ========== ========== Included in finished goods are inventories of Rmb54,184,959 (2003: Rmb46,393,134), stated net of a provision. 17 Deposits, prepayments and other receivables 2004 2003 Rmb Rmb Prepayments for purchase of raw materials and machinery 41,600,915 13,355,609 Deposits and other prepayments 17,981,487 9,230,945 59,582,402 22,586,554 ========== ========== 18 Cash and cash equivalents Cash and cash equivalents as of 31 December 2003 and 2004 represent cash at bank and in hand. ６２ Foshan Electrical and Lighting Company Limited Financial statements for the year ended 31 December 2004 (Prepared under International Financial Reporting Standards) 19 Capital and reserves 2004 Statutory Statutory staff Discretionary Share Share Revaluation surplus welfare surplus Retained capital premium surplus reserve reserve reserve earnings Total Rmb Rmb Rmb Rmb Rmb Rmb Rmb Rmb Balance as at 1 January 2004 358,448,259 1,186,000,059 13,479,958 179,142,435 124,833,407 79,681,067 266,262,868 2,207,848,053 Profit for the year - - - - - - 228,925,136 228,925,136 Transfers - - - 23,147,979 23,147,979 11,573,989 (57,869,947) - Revaluation surplus realised - - (3,950,217) - - - 3,950,217 - Dividends to shareholders - - - - - - (164,886,199) (164,886,199) Balance as at 31 December 2004 358,448,259 1,186,000,059 9,529,741 202,290,414 147,981,386 91,255,056 276,382,075 2,271,886,990 =========== =========== =========== =========== =========== =========== =========== =========== 2003 Statutory Statutory staff Discretionary Share Share Revaluation surplus welfare surplus Retained capital premium surplus reserve reserve reserve earnings Total Rmb Rmb Rmb Rmb Rmb Rmb Rmb Rmb Balance as at 1 January 2003 358,448,259 1,186,000,059 13,479,958 156,509,934 102,200,906 68,364,817 238,832,281 2,123,836,214 Profit for the year - - - - - - 234,560,108 234,560,108 Transfers - - - 22,632,501 22,632,501 11,316,250 (56,581,252) - Dividends to shareholders - - - - - - (150,548,269) (150,548,269) Balance as at 31 December 2003 358,448,259 1,186,000,059 13,479,958 179,142,435 124,833,407 79,681,067 266,262,868 2,207,848,053 =========== =========== =========== =========== =========== =========== =========== =========== Registered, issued and fully paid up capital The registered capital comprises 275,948,259 (2003: 275,948,259) ordinary A shares and 82,500,000 (2003: 82,500,000) ordinary B shares. All shares were issued and have a par value of Rmb 1. Revaluation surplus The revaluation surplus relates to the revaluation of certain property, plant and equipment on 30 April 1993 (see note 10) which is not distributable. Distributable retained earnings According to the Company’s Articles of Association, the retained earnings available for distribution are the lower of the amount determined under PRC accounting standards and amount determined under IFRS. As of 31 December 2004, the retained earnings available for distribution were Rmb78,731,629 (2003: Rmb77,176,953), after taking into account of the current year’s proposed final dividend and the transfers to other reserves. Statutory surplus reserve According to the current PRC Company Law and the Company’s articles of association, the Company is required to transfer 10% of its profit after taxation to statutory surplus reserve until the surplus reserve balance reaches 50% of the registered capital. For the purpose of calculating the transfer to reserve, the profit after taxation shall be the amount determined under PRC accounting standards. The transfer to this reserve has to be made before distribution of dividend to shareholders. Statutory surplus reserve can be used to make good previous years’losses, if any, and for capitalisation issue provided that the balance after such issue is not less than 25% of the registered capital. ６３ Foshan Electrical and Lighting Company Limited Financial statements for the year ended 31 December 2004 (Prepared under International Financial Reporting Standards) Registered, issued and fully paid up capital The registered capital comprises 275,948,259 (2003: 275,948,259) ordinary A shares and 82,500,000 (2003: 82,500,000) ordinary B shares. All shares were issued and have a par value of Rmb 1. Revaluation surplus The revaluation surplus relates to the revaluation of certain property, plant and equipment on 30 April 1993 (see note 10) which is not distributable. Distributable retained earnings According to the Company’s Articles of Association, the retained earnings available for distribution are the lower of the amount determined under PRC accounting standards and amount determined under IFRS. As of 31 December 2004, the retained earnings available for distribution were Rmb78,731,629 (2003: Rmb77,176,953), after taking into account of the current year’s proposed final dividend and the transfers to other reserves. Statutory surplus reserve According to the current PRC Company Law and the Company’s articles of association, the Company is required to transfer 10% of its profit after taxation to statutory surplus reserve until the surplus reserve balance reaches 50% of the registered capital. For the purpose of calculating the transfer to reserve, the profit after taxation shall be the amount determined under PRC accounting standards. The transfer to this reserve has to be made before distribution of dividend to shareholders. Statutory surplus reserve can be used to make good previous years’losses, if any, and for capitalisation issue provided that the balance after such issue is not less than 25% of the registered capital. Statutory staff welfare reserve According to the current PRC Company Law and the Company’s articles of association, the Company is required to transfer 5% to 15% (at the discretion of the Board of Directors) of its profit after taxation (determined under PRC accounting standards) to its statutory staff welfare reserve. The statutory staff welfare reserve can only be used for the collective benefits of the Company’s employees such as the construction of dormitories, canteen and other staff welfare factilities. The reserve forms part of the shareholders’equity as individual employees can only use these facilities, the title of which will remain with the Company. The transfer to this reserve must be made before distribution of dividend to shareholders. The Directors have resolved to transfer 10% (2003: 10%) of the current year’s profit after taxation (determined under PRC accounting standards) to this reserve on 23 March 2005. ６４ Foshan Electrical and Lighting Company Limited Financial statements for the year ended 31 December 2004 (Prepared under International Financial Reporting Standards) Discretionary surplus reserve The usage of this reserve is similar to that of statutory surplus reserve. The transfer to this reserve must be made out of its profit after taxation (determined under PRC accounting standards), but before distribution of dividend to shareholders. The Directors have resolved to transfer 5% (2003: 5%) of the current year’s profit after taxation (determined under PRC accounting standards) to this reserve on 23 March 2005. Dividend (a) The following dividend has not been provided for in the financial statements: 2004 2003 Rmb Rmb Proposed final dividend of Rmb0.48 per ordinary share (2003: Rmb0.46) 172,055,164 164,886,199 ========== ========== Pursuant to a resolution passed at the Directors’meeting held on 23 March 2005, a final dividend of Rmb0.48 per ordinary share totaling Rmb172,055,164 will be payable to shareholders, subject to the approval of the shareholders at the Company’s Annual Shareholders’Meeting of 2004. (b) Dividend paid during the year is as follows: 2004 2003 Rmb Rmb Final dividend of Rmb0.46 per ordinary share for the year ended 31 December 2003 (2002: Rmb0.42) 164,886,199 150,548,269 ========== ========== 20 Accruals and other payables 2004 2003 Rmb Rmb Senior Management Incentive Scheme 50,982,466 43,107,824 Value added tax and other taxes payable 4,085,681 5,848,024 Others 23,776,403 22,688,988 78,844,550 71,644,836 ========== ========== ６５ Foshan Electrical and Lighting Company Limited Financial statements for the year ended 31 December 2004 (Prepared under International Financial Reporting Standards) 21 Financial instruments and concentration of risks Financial assets of the Group principally include cash and cash equivalents, trade receivables, deposits and other receivables, and investments. Financial liabilities of the Group principally include trade and other payables and accruals, and salaries, bonus and staff welfare payables. Accounting policies for financial assets and liabilities are set out in note 1. (a) Credit risk Credit risk represents the accounting loss that would be recognised at the reporting date if counterparties failed to perform completely as contracted. The Group does not have significant exposure to any individual customer or counterparty. To reduce exposure to credit risk, the Group performs ongoing credit evaluations of the financial condition of its customers but generally does not require collateral. The Group deposits substantially all the cash and cash equivalents with the four largest state-owned banks of the PRC. The Group is exposed to credit-related losses in the event of non-performance by counterparties to financial instruments but, based on the Group’s credit assessment and the past repayment records of the counterparties, management does not expect any material counterparty to fail to meet its obligations. At balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. (b) Foreign currency risk The Group incurs foreign currency risk on certain trade receivables of Rmb44,704,430 (2003: Rmb40,594,852) and cash and cash equivalents of Rmb54,368,466 (2003: Rmb44,732,014) that are denominated in United States dollars. Fluctuation of the exchange rate of United States dollars against Renminbi Yuan will affect the Group’s financial position and results of operations. (c) Fair value The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of IAS 32 and IAS 39. Fair value estimates, methods and assumptions, set forth below for the Group’s financial instruments, are made to comply with the requirements of IAS 32 and IAS 39, and should be read in conjunction with the Group’s consolidated financial statements and related notes. The estimated fair value amounts have been determined by the Group using market information and valuation methodologies considered appropriate. However, considerable judgment is required to interpret market data to develop the estimates of fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Group could realise in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. ６６ Foshan Electrical and Lighting Company Limited Financial statements for the year ended 31 December 2004 (Prepared under International Financial Reporting Standards) The following summarise the major methods and assumptions used in estimating the fair values of the Group’s financial instruments. The carrying amounts of cash and cash equivalents, trade receivables, deposits and other receivables, debt securities held-to-maturity, trade and other payables and accruals, and salaries, bonus and staff welfare payables approximate fair value due to the short-term nature of these instruments. The fair values of the Group’s listed investments in equity and debt securities held for trading are estimated by referring to the market prices obtained from the relevant stock exchanges. There are no quoted market prices for unlisted equity investments. Accordingly, a reasonable estimate of fair value could not be made without incurring excessive costs. However, provision for impairment losses of Rmb13,560,000 (2003: Rmb11,850,000) was made at 31 December 2004 (see note 14). 22 Commitments (a) Capital expenditure commitments At 31 December 2004 and 2003, capital commitments for the Group are as follows: 2004 2003 Rmb Rmb Authorised and contracted for 16,465,000 21,822,000 Authorised but not contracted for 20,178,000 - 36,643,000 21,822,000 ========== ========== (b) Operating lease payments Minimum lease payments under non-cancellable operating lease are payable as follows: 2004 2003 Rmb Rmb Within one year 1,781,000 1,169,000 Between one and five years 6,512,000 4,676,000 After five years 15,197,000 16,366,000 23,490,000 22,211,000 ========== ========== ６７ Foshan Electrical and Lighting Company Limited Financial statements for the year ended 31 December 2004 (Prepared under International Financial Reporting Standards) The Group leases a land use right under operating lease. The lease typically runs for an initial period of thirty years, with an option to renew the lease after that date. Fixed annual lease payments are payable over the lease terms. During the year ended 31 December 2004, Rmb3,727,387 was recognised as an expense in the income statement in respect of operating leases (2003: Rmb3,756,694). 23 Earnings per share (a) Basic earnings per share The calculation of basic earnings per share at 31 December 2004 was based on the profit for the year of Rmb228,925,136 (2003: Rmb234,560,108) and the number of shares in issue during the year ended 31 December 2004 of 358,448,259 (2003: 358,448,259). (b) Diluted earnings per share No diluted earnings per share is calculated as there are no dilutive potential shares. 24 Related party transactions The Group had the following material transactions during the year with Prosperity Lamps and Components Limited and its affiliated companies. Prosperity Lamps and Components Limited is a company in which Mr. Alfred K.N. Chong, a director of the Company, is the beneficial owner: 2004 2003 Rmb Rmb Sale of goods 48,464,327 50,097,548 Purchase of raw materials 12,436,707 4,427,758 Commission paid 1,627,575 2,419,160 ========== ========== In the opinion of the directors of the Company, the above transactions were undertaken in the normal course of business and were conducted on normal commercial terms and on the arm’s length basis. 25 Group entities (a) Details of the subsidiaries, which are established and operating in the PRC, are as follows: Percentage of Name of company equity held Principal activity QL Lamps and Components 40% Manufacture of Limited (“QLLC”) (note b) lighting products Chansheng Electronic Ballast Co., Ltd. 75% Manufacture of lighting products FSL Modern Lighting Co., Ltd. 90% Manufacture of lighting products ６８ Foshan Electrical and Lighting Company Limited Financial statements for the year ended 31 December 2004 (Prepared under International Financial Reporting Standards) (b) As the Group has effective control of QLLC through the power of governing the financial and operating policies of the economic activity under a contractual arrangement, QLLC has been accounted for as a subsidiary. XI. Reference Documents The investors and the relevant departments can demand the following information from the secretariat of the Board of Directors in the office building of our company: 1. Accounting report signed and sealed by the legal representative of the company, finance chief and the accounting handler. 2. Origin of the auditing report signed and sealed by the accountants office and the public certified accountant. 3. Announcement origin and master copy of all documents of the company publicly disclosed in the newspapers designated by the China Securities Regulatory Committee during the report period. 4. Origin of the Annual Report of 2004 personally signed by the Chairman of the Board of Directors. Foshan Electrical and Lighting Co. Ltd. Board of Directors Mar. 23, 2005 ６９ Foshan Electrical and Lighting Company Limited Financial statements for the year ended 31 December 2004 (Prepared under International Financial Reporting Standards) (Expressed in Renminbi Yuan) Consolidated income statement for the year ended 31 December 2004 Note 2004 2003 Rmb Rmb Revenue 2 1,219,922,140 1,016,750,204 Cost of sales (830,229,143) (637,119,027) Gross profit 389,692,997 379,631,177 Other operating income 4 9,776,840 2,959,140 Selling expenses (44,827,482) (49,106,285) Administrative expenses (64,977,399) (70,210,222) Other operating expenses 5 (7,807,142) (8,312,301) Profit from operations 281,857,814 254,961,509 Financial income 7 14,982,067 26,986,557 Financial expenses 8 (6,078,110) (1,170,614) Share of loss of associate (382,010) (1,230,357) Profit before taxation 290,379,761 279,547,095 Income tax expense 9(a) (60,560,601) (44,950,019) Profit after taxation 229,819,160 234,597,076 Minority interests (894,024) (36,968) Profit for the year 19 228,925,136 234,560,108 =========== ========== Basic earnings per share 23 0.64 0.65 =========== ========== There are no income or expense other than those recognised in the above consolidated income statement for the current and prior years. Therefore, no separate statement of recognised gains and losses has been prepared. The notes on pages 9 to 29 form part of these financial statements. ７０ Foshan Electrical and Lighting Company Limited Financial statements for the year ended 31 December 2004 (Prepared under International Financial Reporting Standards) (Expressed in Renminbi Yuan) Consolidated balance sheet at 31 December 2004 Note 2004 2003 Rmb Rmb ASSETS Non-current assets Property, plant and equipment 10 663,275,937 689,072,275 Lease prepayments 11 166,722,508 113,668,395 Construction in progress 12 118,662,455 56,099,424 Investment in an associate 13 - 27,808,546 Other investments 14 114,313,326 97,504,443 Deferred tax assets 15 8,644,105 10,766,710 1,071,618,331 994,919,793 ------------------- ------------------- Current assets Other investments 14 117,217,865 107,713,721 Inventories 16 162,368,390 117,529,504 Trade receivables 227,104,336 155,795,799 Deposits, prepayments and other receivables 17 59,582,402 22,586,554 Cash and cash equivalents 18 903,206,569 1,033,027,503 1,469,479,562 1,436,653,081 ------------------- ------------------- Total assets 2,541,097,893 2,431,572,874 =========== =========== The notes on pages 9 to 29 form part of these financial statements. ７１ Foshan Electrical and Lighting Company Limited Financial statements for the year ended 31 December 2004 (Prepared under International Financial Reporting Standards) (Expressed in Renminbi Yuan) Consolidated balance sheet at 31 December 2004 (continued) Note 2004 2003 Rmb Rmb EQUITY, MINORITY INTERESTS AND LIABILITIES Capital and reserves Share capital 358,448,259 358,448,259 Share premium 1,186,000,059 1,186,000,059 Other reserves 727,438,672 663,399,735 19 2,271,886,990 2,207,848,053 ------------------- ------------------- Minority interests 6,830,075 5,236,051 ------------------- ------------------- Current liabilities Trade payables 107,977,494 89,538,128 Taxation 9(c) 18,511,550 6,518,649 Accruals and other payables 20 78,844,550 71,644,836 Salaries, bonus and staff welfare payables 57,047,234 50,787,157 262,380,828 218,488,770 ------------------- ------------------- Total equity, minority interests and liabilities 2,541,097,893 2,431,572,874 =========== =========== Approved and authorised for issue by the board of directors on 23 March 2005 ) ) ) Directors ) ) ７２ Foshan Electrical and Lighting Company Limited Financial statements for the year ended 31 December 2004 (Prepared under International Financial Reporting Standards) The notes on pages 9 to 29 form part of these financial statements. ７３ Foshan Electrical and Lighting Company Limited Financial statements for the year ended 31 December 2004 (Prepared under International Financial Reporting Standards) Consolidated statement of cash flows for the year ended 31 December 2004 (Expressed in Renminbi Yuan) Note 2004 2003 Rmb Rmb Rmb Rmb Operating activities Profit before taxation 290,379,761 279,547,095 Adjustments for: - Provision for doubtful debts 3,942,751 - - Dividends income (2,705,303) (2,163,070) - Interest income (11,584,297) (10,782,610) - Loss on disposal of property, plant and equipment 4,862,782 7,871,889 - Depreciation and amortisation 116,122,632 96,317,233 - Revaluation of investments held for trading to fair value (310,457) (8,759,325) - Write off and provision for diminution in value of investments available-for-sale 1,710,000 - - Loss/(gain) on disposal of investment in an associate and other investments 1,967,096 (5,281,552) - Share of loss of an associate 382,010 1,230,357 Operating profit before working capital changes carried forward 404,766,975 357,980,017 The notes on pages 9 to 29 form part of these financial statements. ７４ Foshan Electrical and Lighting Company Limited Financial statements for the year ended 31 December 2004 (Prepared under International Financial Reporting Standards) (Expressed in Renminbi Yuan) Consolidated statement of cash flows for the year ended 31 December 2004 (continued) Note 2004 2003 Rmb Rmb Rmb Rmb Operating profit before working capital changes brought forward 404,766,975 357,980,017 Increase in inventories (44,838,886) (16,465,653) Increase in trade receivables (74,620,810) (47,740,339) Increase in deposits, prepayments and other receivables (37,997,017) (1,629,550) Increase/(decrease) in trade payables 18,439,366 (3,691,733) Increase in accruals and other payables 7,199,714 11,816,351 Increase in salaries, bonus and staff welfare payables 6,260,077 2,234,243 Cash generated from operations 279,209,419 302,503,336 PRC tax paid (46,445,095) (66,734,039) Cash flows from operating activities carried forward 232,764,324 235,769,297 The notes on pages 9 to 29 form part of these financial statements. ７５ Foshan Electrical and Lighting Company Limited Financial statements for the year ended 31 December 2004 (Prepared under International Financial Reporting Standards) (Expressed in Renminbi Yuan) Consolidated statement of cash flows for the year ended 31 December 2004 (continued) Note 2004 2003 Rmb Rmb Rmb Rmb Cash flows from operating activities brought forward 232,764,324 235,769,297 Investing activities Return of cost of investment - 2,581,973 Interest received 11,584,297 10,782,610 Dividends received 2,705,303 2,163,070 Purchase of property, plant and equipment (19,116,185) (15,868,612) Increase in lease prepayments (55,528,716) (4,117,339) Increase in construction in progress (140,671,135) (141,294,513) Purchase of investments (104,262,100) (98,954,396) Proceeds from disposal of investment in an associate and other investments 102,008,970 21,213,607 Proceeds from disposal of property, plant and equipment 4,880,507 3,351,604 Cash flows from investing activities (198,399,059) (220,141,996) Balance carried forward 34,365,265 15,627,301 The notes on pages 9 to 29 form part of these financial statements. ７６ Consolidated statement of cash flows (Expressed in Renminbi Yuan)for the year ended 31 December 2004 (continued) Note 2004 2003 Rmb Rmb Rmb Rmb Balance brought forward 34,365,265 15,627,301 Financing activities Dividends paid (164,886,199) (150,548,269) Capital injection by minority shareholders 700,000 50,000 Cash flows from financing activities (164,186,199) (150,498,269) Net decrease in cash and cash equivalents (129,820,934) (134,870,968) Cash and cash equivalents at 1 January 1,033,027,503 1,167,898,471 Cash and cash equivalents at 31 December 18 903,206,569 1,033,027,503 =========== =========== The notes on pages 9 to 29 form part of these financial statements. Foshan Electrical and Lighting Company Limited Financial statements for the year ended 31 December 2004 (Prepared under International Financial Reporting Standards) (Expressed in Renminbi Yuan)Net impact of IFRS adjustments on the consolidated results and shareholders’funds prepared under PRC accounting regulations Financial statements for the year ended 31 December 2004 Profit after tax Shareholders’funds 2004 2003 2004 2003 As reported in statutory financial statements prepared under PRC accounting regulations 231,479,787 226,325,007 2,255,936,502 2,189,239,189 Adjustments to align with IFRS (i) Deferred taxation (2,122,605) (642,488) 8,644,105 10,766,710 (ii) Net unrealised (loss)/gain of investments held for trading carried at fair value (535,771) 9,605,549 9,069,778 9,605,549 (iii) Realised gain of investments held for trading - (2,309,852) - - (iv) Write back of over-accrued interest expenses - 1,581,892 - - (v) Write off debts forgiven 103,725 - - - (vi) Others - - (1,763,395) (1,763,395) As reported pursuant to IFRS 228,925,136 234,560,108 2,271,886,990 2,207,848,053 ========== ========== =========== =========== 78