武锅B退(200770)武锅Ｂ2004年年度报告（英文版）

Stock code: 200770 Short form of Stock: Wuguo B WUHAN BOILER COMPANY LIMITED ANNUAL REPORT 2004 Disclosing Newspaper: Securities Times and Ta Kung Pao Disclosing Date: Mar. 25, 2005 Contents Ⅰ. Important Notes-------------------------------------------------------------------------------------------- Ⅱ. Company Profile-------------------------------------------------------------------------------------------- Ⅲ. Summary of Accounting Highlight and Business Highlight--------------------------------------- Ⅳ. Changes in Share Capital and Particulars about Shareholders---------------------------------- Ⅴ. Particulars about Directors, Supervisors and Senior Executives and Employees------------- Ⅵ. Administrative Structure--------------------------------------------------------------------------------- Ⅶ. Brief Introduction to the Shareholders’ General Meeting ---------------------------------------- Ⅷ. Report of the Board of Directors ----------------------------------------------------------------------- Ⅸ. Report of the Supervisory Committee------------------------------------------------------------------ Ⅹ. Significant Events------------------------------------------------------------------------------------------ Ⅺ. Financial Report-------------------------------------------------------------------------------------------- Ⅻ. Documents for Reference--------------------------------------------------------------------------------- 1 SECTION I. IMPORTANT NOTES The Board of Directors of Wuhan Boiler Company Limited (hereinafter referred to as the Company) and its directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. Wuhan Zhonghuan Certified Public Accountants Ltd. and PricewaterhouseCoopers Zhongtian Certified Public Accountants Ltd. audited the financial report of the Company and issued domestic and international unqualified Auditors’ Report for the Company respectively. Independent Director Mr. Wang Zongjun did not attend the Board meeting personally because he went abroad due to business, and authorized and entrusted Independent Director Mr. Wang Haisu to exercise voting right; Director Mr. Li Jun did not attend the Board meeting personally due to business trip and authorized and entrusted Director Mr. Chen Bohu to exercise voting right. Chairman of the Board of the Company Mr. Chen Bohu, General Manager and concurrently CFO Mr. Xiang Rongwei and Person in Charge of Accounting Organ Ms. Qin Shanlan hereby confirm that the Financial Report enclosed in Annual Report is true and complete. 2 SECTION II. COMPANY PROFILE 1. Legal Name of the Company In Chinese: 武汉锅炉股份有限公司 In English: WUHAN BOILER COMPANY LIMITED Abbr. in English: WBC 2. Legal Representative: Chen Bohu 3. Secretary of the Board of Directors: Liu Chengxiang Securities Affairs Representative: Xu Youlan Contact Address: No. 586, Wuluo Road, Wuhan, Hubei Contact Tel: (86) 27-87652719 Contact Fax: (86) 27-87655152 E-mail: xu_yl36@yahoo.com.cn 4. Registered Address and Office Address: No. 586, Wuluo Road, Wuhan, Hubei Post Code: 430070 Internet Web Site: http://www.wbcl.com.cn E-mail: wbgchw@public.wh.hb.cn 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times (Domestic), Ta Kung Pao (Overseas) Internet Website for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Securities Department of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: WUGUO – B Stock Code: 200770 7. Other Information of the Company Initial registered date: On Apr. 8, 1998, the Company was formally incorporated. Initial registered place: No. 586, Wuluo Road, Wuhan, Hubei New registered date: On Nov. 16, 1998, the Company changed its registration with Hubei Province Administration Bureau of Industrial and Commercial as a Sino-foreign joint stock limited company. New registered place: No. 586, Wuluo Road, Wuhan, Hubei Registered number of enterprise legal person’s business license: QGEZ Zi No.: 002591 Registered number of taxation: 420106271756432 The Certified Public Accountants engaged by the Company: Domestic: Wuhan Zhonghuan Certified Public Accountants Address: 16/F, Tower B, Wuhan International Mansion Overseas: PricewaterhouseCoopers Zhongtian Certified Public Accountants Ltd. Address: 25/F, Zhongtai International Plaza, No.161, Linhe West Road, Guangzhou 3 SECTION III. SUMMARY OF ACCOUNTING HIGHLIGHTS AND BUSINESS HIGHLIGHTS (I) Accounting data of the Company as of the year 2004 Unit: RMB Total profit 83,772,811.06 Net profit 44,864,079.93 Net profit after deducting non-recurring gains and losses 43,368,484.50 Profit from main operations 276,114,510.66 Other operating profit 10,503,435.87 Operating profit 81,402,925.24 Investment income 2,886,529.71 Subsidy income － Net non-operating income/expenses -516,643.89 Net cash flow arising from operating activities -349,254,195.33 Net increase/decrease of cash and cash equivalents -96,679,158.22 Note: Item of deducting non-recurring gains and losses and the amount involved (Unit: In RMB) Items of non-recurring gains and losses Amounts Disposal of losses from long-term equity investment, fixed assets, construction in 1,815,532.98 progress, intangible assets and other long-term assets Other non-operating income after deducting reserve for impairment losses of assets withdrew by the Company daily based on regulations of Accounting System for 296,972.06 Business Enterprise Other non-operating expenses after deducting reserve for impairment losses of assets withdrew by the Company daily based on regulations of Accounting System for -152,988.46 Business Enterprise Reversal of various reserve for impairment losses withdrew over the past years 272,715.41 Impact on income tax after deducting non-recurring gains and losses -736,636.56 Total 1,495,595.43 The impact on the PRC statutory financial statements adjusted by PricewaterhouseCooper Zhongtian Certified Public Accountants Ltd. based on International Accounting Standards (“IAS”) and other adjustment are as follows (Dec. 31, 2004): Net profit Net assets (RMB’000) (RMB’000) As reported by PRC statutory financial statements 4,486.40 57,846.50 Adjustment based on IAC and others (1) Writing off long-term investment revaluation 222.70 increment (2) Deferred tax 3.8 256.50 (3) Forfeited customer deposits 29.8 (4) Others -63.30 As restated after IAS and other adjustments 4,742.70 58,039.70 4 Note: The main reason of discrepancy is due to writing off long-term investment revaluation increment. (II) Financial indexes of the Company in the recently three years ended the report period 1. The following data were calculated and listed based on the consolidated accounting statement Unit: RMB Items 2004 2003 2002 Income from main operations 2,214,625,155.28 1,237,739,269.58 630,500,780.63 Net profit 44,864,079.93 29,851,616.19 20,140,959.02 Total assets 2,770,656,873.06 2,204,893,156.02 1,740,339,336.03 Shareholders’ equity (excluding 578,465,485.28 545,183,405.34 523,151,336.56 minority interest) Earnings per share 0.15 0.10 0.068 Earnings per share (calculated based on 0.15 0.10 0.068 monthly weighted average) Earnings per share after deducting 0.15 0.10 0.069 non-recurring gains and losses Net assets per share 1.95 1.84 1.73 Net assets per share after adjustment 1.81 1.73 1.63 Net cash flow per share arising from -1.18 0.4 0.53 operating activities Return on equity (%) 7.76% 5.48% 3.93% 2. In accordance with Regulations on the Information Disclosure of Companies Publicly Issuing Shares (No. 9) promulgated by CSRC, the Company’s return on equity and earning per share as of the year 2004 are calculated based on fully diluted method and weighted average method are as follows: Supplemental statement of profit as of report period Return on equity (%) Earnings per share (RMB) Profit as of the report period Fully Weighted Fully Weighted diluted average diluted average Profit from main operations 47.73 48.64 0.93 0.93 Operating profit 14.07 14.34 0.27 0.27 Net profit 7.76 7.9 0.15 0.15 Net profit after deducting non-recurring 7.50 7.64 0.15 0.15 gains and losses 5 (III) Particulars about changes in shareholders’ equity and the reasons during the report period (Unit: RMB) Share capital Capital reserve Surplus Statutory public Retained Total Items reserve welfare fund profit shareholders’ equity Amount at the 297000000 152,250,403.93 13,628,764.95 13,628,764.96 68,675,471.51 545,183,405.35 period-begin Increase in this report 0 298,000.00 5,281,971.04 5,281,971.04 22,420,137.85 33,282,079.93 period Decrease in this report 0 － － － － 0.00 period Amount at the 297000000 152,548,403.93 18,910,735.99 18,910,736.00 91,095,609.36 578,465,485.28 period-end Reason for changes Other capital Increase of net Withdrawal Withdrawal Increase of reserve profit as of from net profit from net profit profit transferred into report year 6 SECTION IV. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS (I) Changes in Share Capital Unit: Share Increase / decrease in this time (+ / -) Before the After the Rationed Bonus Capitalization of change Others Subtotal change share share public reserve I. Unlisted shares 1. Sponsors’ shares 172000000 0 0 0 0 0 172000000 Including: 0 0 0 0 0 0 0 State-owned shares 0 0 0 0 0 0 0 Domestic legal person’s shares 172000000 0 0 0 0 0 172000000 Foreign legal person’s shares 0 0 0 0 0 0 0 Others 0 0 0 0 0 0 0 2. Raised legal person’s shares 0 0 0 0 0 0 0 3. Inner employees’ shares 0 0 0 0 0 0 0 4. Preference shares or others 0 0 0 0 0 0 0 Total unlisted shares 172000000 0 0 0 0 0 172000000 II. Listed shares 0 0 0 0 0 0 0 1. RMB ordinary shares 0 0 0 0 0 0 0 2. Domestically listed foreign shares 125000000 0 0 0 0 0 125000000 3. Overseas listed foreign shares 0 0 0 0 0 0 0 4. Others 0 0 0 0 0 0 0 Total listed shares 125000000 0 0 0 0 0 125000000 III. Total shares 297000000 0 0 0 0 0 297000000 (II) Issuance and listing of shares 1. On Mar. 20, 1998, the Company placed 125,000,000 domestically listed foreign shares (B shares) to foreign investors at the issuing price of HKD 1.496 per share. The shares were listed in Shenzhen Stock Exchange for trade on Apr. 15, 1998 with the stock code as 200770. 2. In the report period, there are no changes in the total number of share and structure of share capital of the Company. 3. About profit distribution during the report period On June 29, 2004, the Company implemented profit distributions plan to all shareholders at the rate of RMB 0.40 in cash for every 10 shares with amounting to RMB 11.88 million in total. (III) About shareholders 1. Ended Dec. 31, 2004, the Company had totally 19,190 shareholders, including 1 sponsor shareholder, namely Wuhan Boiler Group Co., Ltd; and 19,189 shareholders of domestically listed foreign shares. 2. Particulars about shares held by the principal shareholders Ended Dec. 31, 2004, the top ten shareholders and the top ten shareholders of circulation share of the Company are as follows: 7 Shares held at Increase/ Proportion Pledged or No. Name of shareholders the period-end decrease in total Type of share frozen (share) (+,-) shares (%) 1 WUHAN BOILER GROUP CO., 172,000,000 0 57.9 No Domestic legal person’s LTD share 2 WANG JIA YI 2,180,000 －50,000 0.73 Unknown Circulation share (B-share) 3 WU NAI WEN 1,107,750 1,107,750 0.37 Unknown Circulation share (B- share) 4 CHEN QIAN FEN 717,900 92,100 0.24 Unknown Circulation share (B-share) 5 GUOTAI JUNAN SECURIES Unknown 505,000 505,000 0.17 Circulation share (B-share) HONG KONG LIMITED 6 GUAN WEN HAI 444,927 444,927 0.15 Unknown Circulation share (B-share) 7 XU MICHAEL JUN 443,898 443,898 0.15 Unknown Circulation share (B-share) 8 MA ZE QI 421,350 421,350 0.14 Unknown Circulation share (B-share) 9 SHANGHAI (HK) WANGUO 418,000 －715,900 0.14 Unknown Circulation share (B-share) SECURITES 10 WU, KIN YEUK 400,000 400,000 0.13 Unknown Circulation share (B-share) 11 LU KE 400,000 400,000 0.13 Unknown Circulation share (B-share) Note: Among the top ten shareholders of the Company, Wuhan Boiler Group Co., Ltd., the first largest shareholder of the Company, holds the non-circulation shares, and shares held by it remained unchanged in the report period; the rest nine shareholders are social public shareholders and hold circulation shares (B shares), whose change of shares was due to the transaction of the Company’s shares in the second market in the report period. Among the top ten shareholders of the Company, there exists no association relationship between Wuhan Boiler Group Co., Ltd. and the other shareholders of circulation share, and they doesn’t belong to the consistent action person regulated by the Management Regulation of Information Disclosure on Change of Share Holding for Listed Companies. The Company was unknown whether there exists associated relationship or belongs to consistent action person among the top ten shareholders of circulation share; the Company was unknown whether there exists associated relationship among the top ten shareholders and the top ten shareholders of circulation share. 3. The controlling shareholder Wuhan Boiler Group Co., Ltd. (“the Group Company”) is the controlling shareholder of the Company, as well as the only one holding over 10% of total shares of the Company. Ended Dec. 31, 2004, the Group Company held 172 million shares of the Company, taking 57.9% of total shares. Legal representative: Huang Jiang Date of foundation: Aug. 8, 1995 Registered capital: RMB 90.596 million Registered number of enterprise legal person’s business license: 4201001100902 Business scope: investment and operation of the state-owned assets authorized to 8 operate and manage; development, design and whole set installing of boiler, pressure vessels and related mechanical-electrical products, and the import and export businesses approved by the State; truck transportation; (including the business scope of the subsidiaries) (For the projects specially provided by the State, the Company can operate after approval). Wuhan Boiler Group Co., Ltd. is the state-owned sole corporation with capital operating and assets management as its main task, which wholly-owned held by Wuhan Municipal State-owned Assets Supervisory Administration Commission. 4. The property right and controlling relationship between the Company and the actual controller is as follows: Wuhan Municipal State-owned 100% 57.9% Wuhan Boiler Wuhan Boiler Assets Supervision and Group Co., Ltd. Company Limited Administration Commission 9 SECTION V. PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES (I) Basic information of directors, supervisors and senior executives (1) Particulars about Directors Holding share (share) Name Sex Age Title Office term Period-begin Period-end Chen Bohu Male 41 Chairman of the Board Apr. 2004-Apr. 2007 0 0 Xiang Rongwei Male 51 Director Apr. 2004-Apr. 2007 0 0 Li Jun Male 46 Director Apr. 2004-Apr. 2007 0 0 Chen Helin Male 55 Director Apr. 2004-Apr. 2007 0 0 Liu Chengxiang Male 56 Director Apr. 2004-Apr. 2007 0 0 Hua Lixin Male 40 Director Apr. 2004-Apr. 2007 0 0 Wang Zongjun Male 41 Independent Director Apr. 2004-Apr. 2007 0 0 Zhou Maorong Male 59 Independent Director Apr. 2004-Apr. 2007 0 0 Wang Haisu Male 50 Independent Director Apr. 2004-Apr. 2007 0 0 (2) Particulars about supervisors Holding share (share) Title Office term Name Gender Age Period-begin Period-end Zhou Zhemin Male 47 Convener Apr. 2004-Apr. 2007 0 0 Zeng Xianping Male 55 Supervisor Apr. 2004-Apr. 2007 0 0 Guo Ling Male 45 Supervisor Apr. 2004-Apr. 2007 0 0 (3) Particulars about senior executives Holding share (share) Name Gender Age Title Office term Period-begin Period-end Xiang Rongwei Male 51 General Manager Apr. 2004-Apr. 2007 0 0 Bai Xixin Male 41 Deputy General Manager Apr. 2004-Apr. 2007 0 0 Hua Lixin Male 40 Deputy General Manager Apr. 2004-Apr. 2007 0 0 Jin Zhicheng Male 45 Deputy General Manager Apr. 2004-Apr. 2007 0 0 Pei Hanhua Male 45 Deputy General Manager Apr. 2004-Apr. 2007 0 0 Liu Chengxiang Male 56 Secretary of the Board Apr. 2004-Apr. 2007 0 0 (4) Notes: 1. Directors, supervisors and senior executives of the Company did not hold the Company’s share. 2. The Company’s present supervisor Mr. Zeng Xianping holds the post of Deputy Chief Accountant in Wuhan Boiler Group Co., Ltd. (the shareholding company of the Company) since 2002 to now; the present director Mr. Li Jun holds the post of General Manager in Wuhan Boiler Group Co., Ltd. (the shareholding company of the Company) since 2002 to now; the present director Mr. Chen Helin holds the post of deputy General Manager in Wuhan Boiler Group Co., Ltd. (the shareholding company of the Company) since 2001 to now; the present director Mr. Hua Lixin holds Legal Representative in Wuhan Lanxiang Energy Environment Protection Science and 10 Technology Co., Ltd. (the shareholding subsidiary of the Company) since June 2002 to now; the rest directors, supervisors and senior executives did not held any position in shareholding company and shareholding subsidiaries of the Company. (II) Major business experience of directors, supervisors and senior executives and particulars about holding the post in other companies except for Shareholding Company 1. Director: Mr. Chen Bohu He successfully took the posts of Deputy Division Chief, Division Chief and Deputy Chief Engineer in Design Division of Wuhan Boiler Factory; Director and concurrently General Manager in Wuhan Boiler Company Limited. Now he acts as Chairman of the Board of the Company. Mr. Xiang Rongwei He successfully took the posts of Deputy Division Chief and Division Chief in Financial Division of Wuhan Boiler Factory; Deputy Chief Accountant and Chief Accountant of Wuhan Boiler Factory; Deputy General Manager of Wuhan Boiler Company Limited. Now he acts as Director and concurrently General Manager of the Company. Mr. Li Jun He successfully took the posts of Secretary of Youth League Committee of Wuhan Boiler Factory; Deputy Secretary of Party Committee and concurrently Deputy Factory Director in Wuhan Boiler Factory; General Manager of Wuhan Boiler Company Limited. Now he acts as General Manager of Wuhan Boiler Group Co., Ltd.. Mr. Chen Helin He successfully took the posts of Deputy Factory Director and Factory Director in Branch Factory of Wuhan Boiler Factory; Deputy Factory Director of Wuhan Boiler Factory. Now he acts as Deputy General Manager of Wuhan Boiler Group Co., Ltd.. Mr. Liu Chengxiang He successfully took the posts of Director of Supervision and Auditing Office in Wuhan Boiler Factory and Secretary of Party General Branch in Branch Factory. Now he acts as Director and concurrently Secretary of the Board of the Company. Mr. Hua Lixin He successfully took the posts of Deputy Division Chief and Division Chief in Design Division of Wuhan Boiler Company Limited; Deputy Division Chief, Division Chief and Deputy Chief Engineer in Planning & Marketing Division of Wuhan Boiler Company Limited. Now he acts as Director and concurrently Deputy General Manager and Chief Engineer of the Company. Mr. Zhou Maorong He now acts as Dean in Commercial College of Wuhan University; Deputy Director of Chinese Society of World 11 Economy, Director of Hubei Province Society of World Economy. Now he acts as Independent Director of the Company. Mr. Wang Zongjun He now acts as Assistant Dean of Management School of Huazhong Polytechnic University. Now he acts as Independent Director of the Company. Mr. Wang Haisu He now acts as Director of MBA Education Center of Zhongnan University of Economics and Law Now he acts as Independent Director of the Company. 2. Supervisor: Mr. Zhou Zhemin He now acts as Deputy Secretary of the Labor Union in the Company; Convener of the Supervisory Committee of the Company. Mr. Zeng Xianping He now acts as Deputy Chief Accountant of Wuhan Boiler Group Co., Ltd.. Mr. Guo Ling He successfully took the posts of Assistant Engineer in 701 of China Naval Vessels Institute, Lector of Management School of Wuhan Polytechnic University, Deputy Manager in Investment Dept. of Wuhan State-owned Assets Operation Corporation, Manager of Wuhan Hanhua Economic Development Co., Ltd. and Deputy General Manager of Wuhan Donghu Innovation Technology Investment Co., Ltd.. He now acts as Deputy General Manager of Wuhuan Hanhua Investment and Management Co., Ltd.. 3. Senior Executives Mr. Xiang Rongwei General Manager of the Company. He successfully took the posts of Deputy Division Chief and Division Chief in Financial Division of Wuhan Boiler Factory, Deputy Chief Accountant and Chief Accountant of Wuhan Boiler Factory, and Deputy General Manager of Wuhan Boiler Company Limited. Mr. Bai Xixin Deputy General Manager of the Company. He successfully took the posts of Deputy Division Chief in Design Division of Wuhan Boiler Factory, Deputy Division Chief, Division Chief and Deputy Chief Economist in Planning & Marketing Division of Wuhan Boiler Factory, and Deputy General Manager and concurrently Chief Economist of Wuhan Boiler Company Limited. Mr. Hua Lixin Deputy General Manager of the Company. He successfully took the posts of Deputy Division Chief and Division Chief in Design Division and Deputy Division Chief, Division Chief and Deputy Chief Engineer in Planning & Marketing Division 12 of Wuhan Boiler Company Limited. Mr. Jin Zhicheng Deputy General Manager of the Company. He successfully took the posts of Assistant Factory Director, Secretary of Party General Branch and concurrently Deputy Factory Director in Tube Division of Wuhan Boiler Factory, and Factory Director and concurrently Secretary of Party General Branch in Machinery Division of Wuhan Boiler Factory. Mr. Pei Hanhua Deputy General Manager of the Company. He successfully took the posts of Assistant Factory Director, Deputy Factory Director, Factory Director and concurrently Secretary of Party General Branch in Drum Vessel Division of Wuhan Boiler Factory. Mr. Liu Chengxiang Secretary of the Board of the Company. He successfully took the posts of Director in Supervision and Auditing Office of Wuhan Boiler Factory, and Secretary of Party General Branch of Branch Factory. (III) Particulars about the annual payment received by directors, supervisors and senior executives 1. The Board of Directors determined the payment of directors, supervisors and senior executives based on the wage distribution system and the checking measure of economic responsibility system set down by the Company. In 2004, the Company implemented wage distribution system based on the framework wage distribution system taking position and skill wage as main base; the monthly bonus was determined according to the checking measure of economic responsibility system and the completion of various economic indexes and technical targets monthly, and the annual bonus was determined based on the completion of various economic indexes and technical targets and major work yearly. 2. The total amount and range of annual payment There were 11 directors, supervisors and senior executives drew the annual payment from the Company with amounting to RMB 493,000 in total. The total payment of the top three directors drawing the highest payment was RMB 161,000, and the total payment of the top three senior executives drawing the highest payment was RMB 141,000. The range of annual payment: RMB 50,000 to RMB 60,000 2 persons RMB 40,000 to RMB 50,000 8 persons RMB 30,000 to RMB 40,000 1 persons 3. Directors, supervisors and senior executives received no pay from the Company Independent Director: Wang Zongjun, Zhou Maorong and Wang Haisu Supervisor: Zeng Xianping and Guo Ling 13 (IV) Particulars about change in directors, supervisor and senior executives in the report period In the report period, the office term of the 2nd Board of Directors and the 2nd Supervisory Committee has expired. In accordance with the relevant provisions of Company Law and Articles of Association of the Company, the 1st Extraordinary Shareholders’ General Meeting for 2004 changed and reelected the Company’s Board of Directors and the Supervisory Committee. In the course of election of Director, Director Ms. Jin Taozhi and Independent Director Mr. Li Donghui lost an election respectively, except for this, other directors and independent directors were elected and reappointed the post of Director of the 3rd Board of Directors. In the course of election of Supervisor, Supervisor Mr. Zhang Haiqing and Mr. Wang Haisu lost an election respectively, Mr. Zeng Xianping was elected and reappointed the post of Supervisor of the 3rd Supervisory Committee of the Company. Senior executives, who the expiration of their term of office, were engaged in the 1st meeting of the 3rd Board of Directors, Mr. Xiang Rongwei was engaged as General Manager of the Company; Mr. Bai Xixin, Mr. Hua Lixin, Mr. Jin Zhicheng and Mr. Pei Hanhua were engaged as Deputy General Manager of the Company, Mr. Liu Chengxiang was engaged as Secretary of the Board of Directors. The situation of holding post of senior executives remained unchanged. (V) About employees The Company had totally 2503 employees at the end of the report period; the specific information is as follows: Profession/occupation composition: Items Number of person Proportion (%) Production personnel 1716 68.56 Salesperson 38 1.52 Technician 369 14.74 Financial personnel 40 1.60 Administration personnel 340 13.58 Total 2503 100 Education Background: Items Number of person Proportion (%) Undergraduate or above 279 11.15 3-year regular college graduate 621 24.81 Senior high school (including technical 1135 45.34 secondary school and technical school) Junior high school or lower 468 18.70 Total 2503 100 Note: At present, the Company has no retiree. The decrease of employees is due to the expiration of employee’s labor contract. 14 SECTION VI. COMPANY ADMINISTRATION STRUCTURE (I) Company Administration Strictly according to requirements of Company Law, Securities Law, the Rules for Listing Shares in Shenzhen Stock Exchange, Administration Rules for Listed Companies, the Several Provisions on Strengthening Safeguard of Shareholders’ Equity of Social Public Shares and Circular on Promoting Listed Companies to Strengthen the Management Work of Investor Relationship, the Company continually perfected legal person administration structure of the Company and standardized the Company’s operation. In the report period, the actual situation of administration structure of the Company was in compliance with the requirements of standardization documents promulgated by CSRC. (II) Implementation of duties of independent directors In the report period, the Company has 3 independent directors, which reached the requirement of Guide Opinion on Establishing Independent Director System in Listed Companies promulgated by CSRC. The independent directors of the Company implemented patiently their duties, carefully examined the resolutions of all Board meetings and shareholders’ general meetings and prudently made voting, and issued independent opinion, brought a good positive function into play in the scientific decision-making of the Board of the Company and safeguard of shareholders’ legal rights and interests. (1) Particulars about the independent directors attending the Board meeting Name of Times that should Times of Times of Times of Remark Independent be attend the personal commission absence Directors Board meeting presence presence Zhou Maorong 5 5 0 0 Reappointment Wang Zongjun 5 5 0 0 Reappointment Wang Haisu Taking this post 4 4 0 0 from Apr. 2004 Li Donghui Expiration of his 1 1 0 0 term of office in Apr. 2004 (2) Particulars about the independent directors proposed different opinions about the relevant matters of the Company Name Matters of objection Special contents of Remark proposed objection proposed Zhou Maorong Naught Naught Wang Zongjun Naught Naught Wang Haisu Naught Naught Li Donghui Naught Naught (III) Separation from the holding shareholder in personal, assets, finance, organization and business. 15 The Company has independent personal, finance, organization and business and complete assets compared with the holding shareholder, Wuhan Boiler Group Co., Ltd. The Company conducted settlement and undertook responsibilities and risks independently. In respect of personal, the Company established independent labor, personal and salary management system. Senior executives of the Company had full time jobs and received salaries from the Company and there existed no part-time job in the controlling shareholder. Appointing and dismissing of personal was conducted strictly according to the regulations of Company Law and Articles of Association. In respect of assets, the relationship of property right between the Company and the holding shareholders was clear and there existed no occupation by holding shareholder in terms of assets, capital and other resources. In respect of finance, the Company established independent financial accounting department and financial settlement system and financial management system, made financial decision-making independently and conducted upright management to the subsidiaries’ financing according to the requirement of strict accounting system of listed companies. The Company had independent bank account and paid tax independently according to law. In respect of organization, the establishment of organization was independent and integral, and the Company possessed the good efficiency and mechanism of operation; the duties of every organization were clear; the establishment and operation of administration structure of legal person was strictly in accordance with Articles of Association, imported Independent Director System and established four special committees under the Board of Directors; the Company’s production operation and the administration management was completely separate from the holding shareholders. The Company has established organization in accordance with the demand of self-development. In respect of business, the Company has independent and integral business and the self-operation capability. The Company has independent systems of purchase, sale and production, and can complete purchase, production, and sale through our own system of purchase, production and sale. There is no competition relationship in the same industry between the Company and the holding shareholder. (IV) Evaluation and encouragement mechanism of senior executives In 2004, the Board of Directors established the mechanism of evaluation for senior executives according to the Company’s economic benefit, which salary and encouragement paid to senior executives was in line with fulfillment of operation and management duties and achievement of operation and management. 16 SECTION VII. BRIEF INTRODUCTION OF SHAREHOLDERS’ GENERAL MEETING I. Notification, convening and holding of the Shareholders’ General Meeting In the report period, the Company held two shareholder’s general meetings, including an extraordinary shareholder’s general meeting and an annual shareholder’s general meeting. The aforesaid tow meetings were witnessed by the lawyer of Hubei Tianyuan Brother Law Firm and respectively issued the Legal Opinion on the 1st Extraordinary Shareholders’ General Meeting for 2004 of Wuhan Boiler Company Limited and the Legal Opinion on the 2003 Annual Shareholders’ General Meeting of Wuhan Boiler Company Limited. The names, notification, convening, holding, resolutions and information disclosure of the two shareholder’s general meetings were summarized as follows: (I) The1st Extraordinary Shareholder’s General Meeting for 2004 The 1st Extraordinary Shareholder’s General Meeting for 2004 was held at the conference room of the Company on Mar. 26, 2004. One shareholder of domestic shares attended the meeting, representing 172,000,000 state-owned legal person’s shares, and taking 57.92% of the company's total share capital; shareholder of foreign shares did not attend the said meeting. The said meeting was in compliance with the legal number of voting right on holding shareholders’ general meeting provided in the PRC Company Law and Articles of Association. The meeting was presided over by Chairman of the Board Mr. Chen Bohu, and all directors attended the meeting. The meeting approved and formed the following resolutions by means of voting: 1. Examined and approved the Proposal on Changing and Reelecting the Board of Directors (1) Elected Mr. Chen Bohu as Director of the 3rd Board of Directors of the Company; (2) Elected Mr. Xiang Rongwei as Director of the 3rd Board of Directors of the Company; (3) Elected Mr. Li Jun as Director of the 3rd Board of Directors of the Company; (4) Elected Mr. Chen Helin as Director of the 3rd Board of Directors of the Company; (5) Elected Mr. Liu Chengxiang as Director of the 3rd Board of Directors of the Company; (6) Elected Mr. Hua Lixin as Director of the 3rd Board of Directors of the Company; (7) Elected Mr. Zhou Maorong as Independent Director of the 3rd Board of Directors of the Company; (8) Elected Mr. Wang Zongjun as Independent Director of the 3rd Board of Directors of the Company; (9) Elected Mr. Wang Haisu as Independent Director of the 3rd Board of Directors of the Company; 2. Examined and approved the Proposal on Changing and Reelecting the Supervisory Committee (1) Elected Mr. Zeng Xianping as Supervisor of the 3rd Supervisory Committee of the Company; (2) Elected Ms. Cai Lin as Supervisor of the 3rd Supervisory Committee of the 17 Company; The 3rd Supervisory Committee was composed of Mr. Zeng Xianping, Ms. Cai Lin and Mr. Zhou Zhemin (Employee Supervisor elected by employee representative). The said Extraordinary Shareholders’ General Meeting was witnessed and issued legal opinion by Lawyer Peng Bo of Hubei Tianyuan Brother Law Firm who considered that the procedure of convening and holding was in compliance with the regulations of Company Law, Articles of Association and Standard Opinion of the Shareholders’ General Meeting of Listed Companies. The said public notice was published in Securities Times and Ta Kung Pao dated Mar. 27, 2004. (II) The 2003 Annual Shareholder’s General Meeting The 2003 Annual Shareholder’s General Meeting was held at the conference room of the Company on May 14, 2004. One shareholder of domestic shares attended the meeting, representing 172,000,000 state-owned legal person’s shares, and taking 57.92% of the company's total share capital; two shareholders of foreign shares attended the meeting, representing 396,700 circulation shares, and taking 0.13% of the company's total share capital. The said meeting was in compliance with the legal number of voting right on holding shareholders’ general meeting provided in the PRC Company Law and Articles of Association. The meeting was presided over by Chairman of the Board Mr. Chen Bohu, and all directors attended the meeting. The meeting approved and formed the following resolutions by means of voting: 1. Examined and approved 2003 Annual Report and its Summary; 2. Examined and approved 2003 Work Report of the Board of Directors; 3. Examined and approved 2003 Work Report of the Supervisory Committee; 4. Examined and approved 2003 Financial Report; 5. Examined and approved 2003 Profit Distribution Preplan; 6. Examined and approved 2004 Profit Distribution Policy; 7. Examined and approved the Proposal on Annual Remuneration of Director, Supervisors and Senior Executives in 2003; 8. Examined and approved Management Standardization of Investor Relationship of Wuhan Boiler Company Limited; 9. Examined and approved the Proposal on Reengaging Wuhan Zhonghuan Certified Public Accountants Co., Ltd. and PricewaterhouseCoopers Zhongtian Certified Public Accountants as the Audit Organization of the Company in 2004 and their Reward;. 10. Examined and approved the Proposal on Agreeing Ms. Cai Lin to Resign from the Post of Supervisor and Additionally Elect Mr. Guo Ling as Supervisor Candidate, which is provisional resolution put forward by the Supervisory Committee. The said Shareholders’ General Meeting was witnessed and issued legal opinion by Lawyer Peng Bo of Hubei Tianyuan Brother Law Firm who considered that the procedure of convening and holding was in compliance with the regulations of Company Law, Articles of Association and Standard Opinion of the Shareholders’ General Meeting of Listed Companies. The said public notice was published in Securities Times and Ta Kung Pao dated May 15, 2004. 18 II. Election and change of the directors and supervisors of the Company In the report period, the office term of the 2nd Board of Directors and the 2nd Supervisory Committee has expired. In accordance with the relevant provisions of Company Law and Articles of Association of the Company, the 1st Extraordinary Shareholders’ General Meeting for 2004 changed and reelected the Company’s Board of Directors and the Supervisory Committee. The 3rd Board of Directors of the Company was composed of Mr. Chen Bohu, Mr. Xiang Rongwei, Mr. Li Jun, Mr. Chen Helin, Mr. Liu Chengxiang, Mr. Hua Lixin, Mr. Wang Zongjun, Mr. Zhou Maorong and Mr. Wang Haisu. The 1st Meeting of the 3rd Board of Directors elected Mr. Chen Bohu as Chairman of the 3rd Board of Directors. The 1st Extraordinary Shareholders’ General Meeting for 2004 changed and reelected the Company’s Supervisory Committee, the 3rd Supervisory Committee was composed of Mr. Zhou Zhemin, Mr. Zeng Xianping and Ms. Cai Lin. As examined and approved by the 2003 Annual Shareholders’ General Meeting, the Company agreed Mr. Cai Lin to resign from the post of Supervisor due to work adjustment and additionally elected Mr. Guo Ling as Supervisor of the Company. At present, the 3rd Supervisory Committee of the Company is composed of Mr. Zhou Zhemin, Mr. Zeng Xianping and Mr. Guo Ling. Mr. Zhou Zhemin acts as Convener of the Supervisory Committee. 19 SECTION VIII. REPORT OF THE BOARD OF DIRECTORS I. Discussion and Analysis for operating condition in the report period. 2004 was the year that the Company has made favorable achievements since the Company got listed in 1998. Along with the counterchange of the domestic electric power, the Company actively adjusted sales thoughts and strategies, collected market information from many channels, actively participated boiler project biding which opened by five domestic big generate electricity companies on one hand, grasped keenly the opportunity that the relevant state departments changed new landing electricity project from an examination and approval system to authorization system after the change in investment structure of domestic power, actively explored new market in different areas, and negotiated efficiently with the potential customers, and won the project of grade 300MW group boiler and order for residual heat boiler, and stepped on the new stage in the environmental boiler field. In order to further develop 600MW super-critical project market, the Company got in extensively touch with the potential customers of 600MW super-critical project, cooperated forward to the relevant overseas company and made big progress. Meanwhile, the Company keep the active and steady style, further stressed on the object cost management and reinforced the hand on capital uniform management, ensured the realization of its operation object and general working thought. In 2004, the Company gained the Title of China Machinery 500 Strengths, and ranked 177; appraised as Nationwide Double-Excellent Enterprises with Foreign investments; evaluated and judged as 2004 Annual Excellent Credit Trust Enterprises of Hubei province by Counsel of Bank Association of Hubei Province. II. Operation of the Company (I) Scope of main operations and its operating status The Company is mainly engaged in the development, production and sales of power station boilers, special boilers, desulfuration equipments and other pressure vessels as well as auxiliary equipments. In the report period, under the correct decision-making of the Board of Directors and the common efforts of the whole employees, the Company realized income from main operations amounting to RMB 2,214,625,155.28, an increase of 79% compared with the previous year, profit from main operations amounting to RMB 276,114,510.66, an increase of 51% compared with the previous year and a net profit of RMB 44,864,079.93, an increase of 50.29% compared with the previous year. 1. Distribution of the main operations classified according to industry: Industry Income from main operations Profit from main operations Machinery Manufacturing RMB 2,214,625,155.28 RMB 276,114,510.66 The Company belongs to the industry of machinery manufacturing that provides special equipments for energy and environmental industries. 20 2. Distribution of main operations classified according to areas: Area Income from main Proportion in Profit from main Proportion in operations income from main operations profit from operations main operations North area RMB 1,791,463,608.70 80.89% RMB 223140438.26 80.81% South area RMB 423,161,546.58 19.11% RMB 2,974,072.40 19.19% Total RMB 2,214,625,155.28 100% RMB 276,114,510.66 100% 3. Distribution of main operations classified according to products: Product Income from main Proportion in Profit from main Proportion in operations income from main operations profit from operations main operations Boiler RMB 2,214,625,155.28 100% RMB 276,114,510.66 100% 4. Briefs about main products: Product Market share Sales income Sales cost Gross profit ratio Boiler 18.8% RMB 2,214,625,155.28 RMB 1,927,267,209.83 12.98% (II) Operation and achievement of major holding companies and share-holding companies In the report period, the Company totally had three holding companies, namely Wuhan Special Boiler Whole Set Equipment Co., Ltd. (hereinafter referred to as “Special Boiler Company), Wuhan Lanxiang Energy and Environmental Technology Co., Ltd. (hereinafter referred to as “Lanxiang Company”), and Wuhan Wuguo Zhixin Environmental Equipment Manufacture Co., Ltd. (hereinafter referred to as “Zhixin Company”). The basic situation and operating achievement of the said three holding companies was as follows: 1. Special Boiler Company Special Boiler Company was established on Jan.3, 1991. In Apr. 2001, the Company purchased 90% of this company’s equity at the price of RMB 10.51 million. The register code is 4201001102649; the register capital is RMB 11.68 million. The business scope of this company includes: contract of various projects and sales of whole set equipments and auxiliary equipments of various boilers. In the report period, this company realized income from main operations of RMB 80.64 million with the net profit of RMB 20.9 million. Ended the report period, the total amount of assets of this company was RMB 136.76 million and net assets RMB 64.07 million. 2. Lanxiang Company This company was established on Jun. 4, 2002 and the Company holds 70% of its equity. This company’s register code is 4201001102912 with its registered capital of RMB 20 million. The business scope of this company includes: technology research, design, technology consultation and technology service of boilers, energy and 21 environmental protection products, steel structure, heat energy products and its auxiliary equipments, sales of development products and contract and technology service (The special-purpose projects of the state is to be operated subject to examination and approval) of energy projects (non-land-construction projects). In the report period, Lanxiang Company’s income from main operations was RMB 47.32 million with the net profit of RMB 6 million. Ended with the report period, the total amount of assets of this company was RMB 52.28 million, and the net asset was RMB 28.22 million. 3.Zhixin Company Zhixin Company was established on Jun.13, 2003. In the report period the Company invested RMB 5.1 million of its own capital to establish Wuhan Wuguo Zhixin Environmental Protection Equipment Manufactory Co., Ltd., the Company held 51% of its equity. This company’s register code is 4201001171169 with its registered capital of RMB 10 million. The business scope of this company includes: production and sales of gas combined circulating residual heat boiler, circulating fluidized bed boiler, alkali reclaim boiler, boiler combustion instruments, boiler components and environment and energy saving instrument; Steel structure, production and sales of metal (implement according to the special regulation of China if there is such special regulation). In the report period, Zhixin Company’s income from main operations was RMB 62.25 million with the net profit of RMB 5.24 million. Ended the report period, the total amount of assets of this company was RMB 27.34 million, and the net asset was RMB 15.42 million. The Company had no branch company, share-holding company and other joint venture company. III. Major suppliers and customers The total purchase amount of the top five suppliers of the Company was RMB 629.22 million, taking 77.66 % of the total annual amount of purchase of the Company and the total sales amount of the top five customers was RMB 682.04 million, taking 31.77 % of the total annual amount of sales of the Company. IV. Problems and difficulties arising from the operation and its solutions Due to a large amount of large-scale boiler and new-scale boiler in the Company, new structure, new material and new techniques adopted by these products brought huge difficulties. However, the diffusible components decreased respectively which brought difficulties to production organization and material purchasing of products. With respect to the above mentioned problems and difficulties, the Company adopted following measures: 1. Enhance balanced production level, use advanced management experience for reference, and optimize the work of production management. Make full use of the normal work time to realize the balanced production. Aiming at the product structure, further adjust overall product layout and improve the product efficiency in each segment, strengthen the examination for production plan to guarantee production 22 cycle. 2. Strengthen continuously planning for material purchase, strengthen the process control especially on material purchase in urgent need, and ensure reach the designated position on time. 3. Keep on well-doing technology reconstruction and equipment repairing, and study out reconstruction project according to practical product need, and exact the procedure of examination and approval. 4. Develop full-scale informatization construction, strengthen information communication, promote information source share of the Company step by step. V. Investment of the Company in the report period 1. In the report period, the Company had no proceeds raised through share offering or the application of proceeds raised through previous share offering continued to the report period. 2. In the report period, the Company had no Investment of proceeds not raised through share offering VI. Financial position of the Company Unit: RMB Items Dec. 31, 2004 Dec. 31, 2003 Increase/decrease (%) Total assets 2,770,656,873.06 2,204,893,156.02 25.66 Shareholders’ equity 578,465,485.28 545,183,405.35 6.10 In 2004 In 2003 Increase/decrease (%) Profit from main 276,114,510.66 178,046,029.28 55.08 operations Net profit 44,864,079.93 29,851,616.19 50.29 Net increase in cash and -96,679,158.22 43,321,741.42 -323.17 cash equivalents Explanation on reasons of changes in financial position: 1. The increase in total assets was mainly due to the expansion of production and operation scale. 2. The increase in shareholders’ equity was mainly due to increase in net profit. 3. The increase in profit from main operations was mainly due to increase in sales income. 4. The increase in net profit was mainly due to increase in sales income. 5. The decrease in net increase in cash and cash equivalents was mainly due to the increase in volume of purchase order resulting in increase in advance current capital. VII. In the report period, operating environment, macroscopic policy and regulation related with the financial condition and operation achievement of the company not cause significant change. VIII. Routine work of the Board of Directors (I) Holding, resolutions and information disclosure of the meetings of the Board of 23 Directors in the report period In the report period, the Board of Directors of the Company totally held 5 meetings with the details as follows: 1. On Feb. 20, 2004, the 19th Meeting of the 2nd Board of Directors was held in the meeting room of the Company, 9 Directors should be present and actually 9 attended the Meeting, including 3 independent directors. The members of the Supervisory Committee and Senior Executives attended the Meeting, which was in accordance with the regulation of Company Law and Articles of Association. Chairman of the Board of Directors Mr. Chen Bohu presided at the Meeting and the following resolutions were approved after fully discussed by the present Directors: (1) Examined and approved the Proposal on Changing and Reelecting the Board of Directors; The 2nd Board of Directors of the Company has fulfilled its duty, according to the relevant regulation of Company Law and Articles of Association, named by the 2nd Board of the Directors, elected 9 persons including Mr. Chen Bohu, Mr. Xiang Rongwei, Mr. Li Jun, Mr. Chen Helin, Mr. Liu Chengxiang, Mr. Hua Lixin, Mr. Zhou Maorong, Mr. Wang Zongjun, Mr. Wang Haili, etc, as the candidates of the 3rd Board of the Directors of the Company. (2) The proposal on drawing the 1st Provisional Shareholders’ General meeting 2004 of the Company. The public notice of the resolution of the Meeting was published on Securities Times and Ta Kung Pao dated Feb. 21, 2004. 2. On Mar. 26, 2004, the 1st Meeting of the 3rd Board of Directors was held in the Conference Room of the Company. 9 Directors should be present and actually 9 attended the Meeting, including 3 Independent Directors, 3 nonvoting delegates of Members of Supervisory Committee, which was in compliance with the regulations of Company Law and Articles of Association. Chairman Mr. Chen Bohu presided at the Meeting and the following resolutions were examined and approved in the Meeting: (1) Elect the Chairman of the Board of Company; All the members of the Board of the Directors unanimously elected Mr. Chenbohu as Chairman of the Board of the Company. (2) Engaging senior executives of the Company; The Board of the Directors decided to engage Mr. Xiang Rongwei as General Manager, Mr. Bai Xixin, Mr. Hua Lixin, Mr. Jin Zhicheng, Mr. Pei Hanhua as vice General Manager and engage Mr. Liu Chengxiang as the Secretary of the Board of Directors of the Company. (3) Work Report 2003 of the Company; (4) Annual Report 2003 and its Summary of the Company; (5) Work Report 2003 of the Board of the Company; (6) Financial Report 2003 of the Company; (7) Profit Distribution Preplan 2003 of the Company Audited by Wuhan Zhonghuan Certified Public Accountants Ltd. as per Chinese Accounting Standards, the net profit of the Company in 2003 was RMB 29,851,616.19. The statutory public reserve of the Company included 10% of the net 24 profit of the Parent Company appropriated and 10% of the net profit of shares of the Parent Company in the Subsidiaries appropriated. In 2003, statutory public reserve withdrawn was RMB 3,572,712.86 and statutory welfare fund RMB 3,572,712.86; the profit available for distribution in the year was RMB 68,675,471.51. The Company planned to allot cash at the rate of RMB 0.40 for every 10 shares to all shareholders based on total share capital amounting to 297,000,000 shares on Dec. 31, 2003, which totally amounted to RMB 11,880,000.00, and the balance of retained earnings was carried forward to the next year for distribution. The Company would not convert capital reserve into share capital in the year. (8) The Profit Distribution Policy 2004 of the Company The proportion used for dividends distribution by the Company according to the net profit realized in 2004 and retained earnings in 2003 was 15%-30%. The profit distribution plan for 2004 would be distributed by means of cash dividends. In the detailed implementation, it should be submitted to Shareholders’ General Meeting for consideration and approval by the Board of Directors in the form of distribution preplan. The Board of Directors of the Company reserved the right of adjusting the said policy according to the Company’s actual situation. (9) 2003 Proposal on Annual reward for directors, supervisors and senior executives of the Company; In terms of salary distribution system economic responsibility system examine method made by the Company, the Board of the Directors confirmed the salary for the directors, supervisors and senior executives. In 2003, the Company implemented salary distribution system relied on the salary structure of the position skill, monthly salary fixed on economic responsibility system examine method, according to the monthly fulfillment of various economic technology guideline which they were in charge of, annual salary fixed on annual fulfillment of various economic technology guideline which they were in charge of and their main work. (10) Proposal on Adjusting the members of Special Committee the Board of Directors; Due to the directors Mr. Li Donghui and Ms.Jin Zhitao of the 2nd Board of Directors of the Company will no longer reappoint in the 3rd Board of Directors, Mr. Wang Haili and Mr. Hua Lixin succeed their corresponding positions in the Special Committee of Board of Directors. (11) Approved Wuhan Boiler Co., Ltd. Administrative Regulations for the Investors’ Relationship. (12) Proposal on Renewal of Wuhan Zhonghuan Certified Public Accountants Ltd. and PriceWaterhouseCoopers Certified Public Accountants as Auditors of 2004 and The Remuneration; Draft on renewal of Wuhan Zhonghuan Certified Public Accountants Ltd. and PriceWaterhouseCoopers Certified Public Accountants as auditors of 2004, its remuneration as follows, Audit Organization Yearly audit rewards Domestic PriceWaterhouseCoopers CPA Co., Ltd. $ 85,000 Overseas Wuhan Zhonghuan CPA Co., Ltd. RMB 550,000 25 (13) Proposal on Requesting of Holding Shareholders’ General Meeting 2003 The public notice of resolutions of the Meeting was published in Securities Times and Ta Kung Pao dated on Apr. 1, 2004. 3. On April 20, 2004, the 2nd Meeting of the 3rd Board of Directors was held in the Conference Room of the Company. 9 Directors should be present and actually 8 attended the Meeting, and one director went abroad due to business reasons, in compliance with the regulations of Company Law and Articles of Association. Chairman of the Board of Directors Mr. Chen Bohu presided at the Meeting and the following resolution was examined and approved in the Meeting: (1) The 1st Quarterly Report of 2004 (2) The Board of Directors submitted Proposal on Agreement on Ms. Cai Ling’s Abdicating the Supervisor and Append Mr. Guo Ling as the Candidate of Company’s Supervisor to the Board of Directors, and submitted to examine in the Shareholders’ General Meeting 2003. According to the 12th regulation in the Listed Company Shareholders General Meeting Criterion & Notion, the Board of Directors considered the temporary proposal submitted by the Supervisory Committee belongs to new items unlisted in Shareholders’ General Meeting as well as the 6th regulation in the Listed Company Shareholders General Meeting Criterion & Notion, so agreed to submit the temporary proposal made by the Supervisory Committee to examine in the 2003 Shareholders’ General Meeting. The public notice of resolution of the Meeting was published in Securities Times and Ta Kung Pao dated April 22, 2004. 4. On July 30, 2004, the 3rd Meeting of 3rd Board of Directors was held in the 1st Conference Room of the Company. 9 Directors should be present and actually 9 Directors attended the Meeting, including 3 Independent Directors, 3 Members in Supervisory Committee attended the Meeting as nonvoting delegates, which was in accordance with the regulations of Company Law and Articles of Association. Chairman of the Board of Directors Mr. Chen Bohu presided at the Meeting, discussed and voted by the directors attended in the meeting, the following resolution was examined and approved: (1) Examined and approved 2004 Semi-Annual Report and its summary of the Company; (2) Decision on not proceeding profit distribution and public reserve fund not converting public reserve fund into share equity in Semi-annual Report 2004. The resolution of the Board of Directors was published on Securities Times and Ta Kung Pao dated Aug. 4, 2004. 5. The 4th Meeting of the 3rd Board of Directors of the Company was held in the Conference Room of the Company on Oct. 20, 2004. 9 Directors should be present and actually 8 attended the Meeting, 1 director went abroad due to business reasons, which in compliance with the provisions in Company Law of the P.R.C. and the Articles of Association of the Company. The following resolutions have been considered and passed in the Meeting, presided by Mr. Chen Bohu, Chairman of the 26 Board: (1) The 3rd quarterly work report of 2004. The wholly set of the 3rd quarterly work report 2004 passed by the Board of Directors was published on Securities Times and Ta Kung Pao dated Oct. 22, 2004. (II) Implementation of the Board on the resolutions of the Shareholders’ General Meeting In the report period, according to the requirements in relevant laws and regulations, in compliance with the resolutions and authorization of the Shareholders’ General Meeting, the Board seriously implemented relevant resolutions passed by the Shareholders’ General Meeting with details as follows: 1. Organizing to implement profit distribution scheme for 2003. The Company published Letter on 2003 Dividends Distribution of Wuhan Boiler Company Limited on Securities Times and Ta Kung Pao respectively dated on June 18, 2004. The scheme was finished in implementation on June 29, 2004. 2. Proposal on Reelection of the Board of Directors and Proposal on Reelection of the Supervisory Committee examined and approved by the 1st Provisional Shareholders’ General Meeting have been implemented. IX. The 2004 scheme on the profit distribution and converting capital reserve into share capital (I) Profit distribution plan for 2004 Audited by Wuhan Zhonghuan Certified Public Accountants Ltd. as per Chinese Accounting Standards, the net profit of the Company in 2004 was RMB 44,864,079.93. The statutory public reserve of the Company included 10% of the net profit of the Parent Company appropriated and 10% of the net profit of shares of the Parent Company in the Subsidiaries appropriated. In 2004, statutory public reserve withdrawn was RMB 5,281,971.04 and statutory welfare fund RMB 5,281,971.04; the distributable profit RMB 91,095,609.36. The Company planned to allot cash at the rate of RMB 0.47 for every 10 shares to all shareholders based on total share capital amounting to 297,000,000 shares on Dec. 31, 2004, which totally amounted to RMB 13,959,000.00, and the balance of retained profit would be carried down to next year for distribution. The conversion of capital public reserve into share capital would not be carried out this year. This said proposal should be submitted to 2004 Shareholders’ General Meeting for examination. (II) No converting capital reserve into share capital in the year of 2004. The said proposal should be submitted to Annual Shareholders’ General Meeting for examination and approval. X. Other disclosure events (I) The Company selected Securities Times and Ta Kung Pao as the appointed newspapers for information disclosure in 2004. In the report period, the appointed newspapers for information disclosure remained unchanged. (II) Special explanation of certified public accountant on the controlling shareholder and other related parties 27 According to the requirements in Circular on Standardizing Listed Companies’ Capital Current with Related Parties, External Guarantees and Other Several Problems released by CSRC, Wuhan Zhonghuan Certified Public Accountants Ltd. has presented Special Explanation of Wuhan Boiler Company Limited on the Capital Occupied by the Controlling Shareholder and Other Related Parties. The accountant considers: ended Dec. 31, 2004, except for the normal operating capital current between the Company and its controlling shareholder and other related parties, there existed no capital of WUGUO B illegally occupied by the controlling shareholder and other related parties of WUGUO B as stated in the Circular. (III) Special explanations and independent opinions of independent directors on the accumulative and current external guarantees of the Company The independent directors considered: the Company could strictly control external guarantee for others and had not provided any guarantee for any shareholder, shareholder’s controlling shareholding subsidiary, shareholder’s subsidiary, other related parties that the Company holds less than 50% shares, non-legal-entity units or individuals. In the report period, ended Dec. 31, 2004, there was only one accumulative guarantee still lasting in the report period, and that was the guarantee the Company provided for China National Foreign Trade Financial & Leasing Corporation to gain loans from Beijing branch of China Merchants Bank. There existed no related relationships or other relationships between the Company and China National Foreign Trade Financial & Leasing Corporation. The said loan was that the Company conducted capital lease to China National Foreign Trade Financial & Leasing Corporation according to the need for adjusting the strategic structure, and then China National Foreign Trade Financial & Leasing Corporation got the loan amounting to RMB 42 million from the bank to purchase and lease a batch of special equipments to the Company, who paid the rent annually and used the said batch of equipments. The procedures of examination and approval in the said external guarantee were legal, which was beneficial to the Company’s future development eventually. (This guarantee had long been disclosed in the Annual Report 2003 of the Company.) Except for this one, the Company bore no other external guarantee in any form. 28 SECTION IX. REPORT OF THE SUPERVISORY COMMITTEE I. Work of the Supervisory Committee in the report period In 2004, according to Company Law of the P.R.C., Securities Law of the P.R.C. and Articles of Association of the Company, based on the spirit of being responsible for all shareholders, the Supervisory Committee of the Company seriously implemented the duties and exerted the supervising function in compliance with relevant laws and regulations. In the year, the Supervisory Committee totally held five meetings, which examined relevant proposals in the annual report and interim report of the Company, supervised and urged the Board of Directors and the Management to operate according to laws in order to ensure the normative operation of the Company’s finance. (I) In the report period, holding, resolutions and information disclosure of the meetings of the Supervisory Committee In the report period, the Supervisory Committee of the Company totally held four meetings with details in name, holding, resolutions and information disclosure of all meetings as follows: (i) The 9th Meeting of the 2nd Supervisory Committee was held in the Conference Room of the Company on Feb. 20, 2004. 3 supervisors should be present and actually all of them attended the Meeting, which is in compliance with the provisions in Company Law of the P.R.C. and Articles of Association of the Company. Mr. Zhang Haiqing, the convener of the Supervisory Committee, presided at the Meeting, in which the following resolutions had been considered and passed: ① Examined and approved The Proposal on Reelection of the Supervisory Committee. The term for The 2nd Supervisory Committee of the Company had come to an end. According to the Company Law of P.R.C. and Articles of Association of the Company, workers of the Company elected Mr. Zhou Zhemin Supervisor of the 3rd Supervisory Committee. Wuhan Boiler Group Co., Ltd., the shareholding unit, recommended Mr. Zeng Xianping and Ms. Cai Ling Candidate Supervisor. The resolutions of the Meeting were published on Securities Times and Ta Kung Pao dated Feb. 21, 2004. (ii) The 1st Meeting of the 3rd Supervisory Committee was held in the Conference Room of the Company on Mar. 26, 2004. 3 supervisors should be present and actually all of them attended the Meeting, which is in compliance with the provisions in Company Law of the P.R.C. and Articles of Association of the Company. The supervisor Mr. Zhang Haiqing presided at the Meeting, in which the following resolutions had been examined and approved: ①Elected a convener of the Supervisory Committee. Members of this Supervisory Committee approved the proposal on electing Mr. Zhou Zhemin convener of the Supervisory Committee unanimously. ②Examined and approved the Work Report 2003 of the Supervisory Committee. ③Examined and approved the Annual Report 2003 and its Summary. ④Examined and approved the 2003 Financial Report. 29 ⑤Profit distribution preplan 2003, profit distribution policy 2004, proposal on adjustment among the members of the Specialized Committee of the Board of Directors, approved Investors Relation Management Standard of Wuhan Boiler Co., Ltd., proposal on reengaging Wuhan Zhonghuan Certified Public Accountants Ltd. and PricewaterhouseCoopers Certified Public Accountants as the Company’s auditors in 2004 and their remunerations; proposal on annual remunerations of Directors, Supervisors and Senior Executives of the Company in 2003 and proposal on requesting for holding annual Shareholders’ General Meeting 2003. The Supervisory Committee believed that the Board of Directors of the Company had kept its commitment of being honest, dependable and diligent. During the process of making the above-mentioned resolutions, the Board of Directors of the Company had no behaviors of disobeying laws, regulations, regulatory documents or Articles of Associations, and its behaviors conformed to the general interests of the shareholders and the Company. The resolutions of the meeting were published on Securities Times and Ta Kung Pao dated April 1, 2004. (iii) The 2nd Meeting of the 3rd Supervisory Committee was held in the Conference Room of the Company on Apr. 20, 2004. 3 supervisors should be present and actually 2 of them attended the Meeting, since one supervisor went abroad due to business trip, which is in compliance with the provisions in Company Law of the P.R.C. and Articles of Association of the Company. Mr. Zhou Zhemin, the convener of the Supervisory Committee, presided at the Meeting, in which the following resolutions had been examined and approved: ① Proposal of Approving Ms. Cai Ling’s Resignation from the Position of Supervisor and Supplementing Mr. Guo Ling as Candidate Supervisor of the Company Due to Supervisor of the Company Ms. Cai Ling’s work shift and in accordance with relevant provisions of the Company Law of the P.R.C and Ms. Cai Ling’s resignation, the Supervisory Committee of the Company approved Ms. Cai Ling’s resigning from the position of supervisor. The shareholding unit Wuhan Boiler Group Co., Ltd. recommended supplementing Mr. Guo Ling as Supervisor Candidate of the Company. The resolutions of the meeting were published on Securities Times and Ta Kung Pao dated April 22, 2004. (iv) The 3rd Meeting of the 3rd Supervisory Committee was held in the Conference Room of the Company on Jul. 30, 2004. 3 supervisors should be present and all 3 of them attended the Meeting, which is in compliance with the provisions in Company Law of the P.R.C. and Articles of Association of the Company. Mr. Zhou Zhemin, the convener of the Supervisory Committee, presided at the Meeting. Through prudent discussion and vote, the following resolutions had been passed: ① Examined and approved the 2004 Semi-annual Report and its Summary of the Company. The resolution of the meeting was published on Securities Times and Ta Kung Pao dated Aug. 4, 2004. 30 III. Operation of the Company according to laws According to relevant laws and regulations of the State, the Supervisory Committee of the Company supervised the holding procedures and resolutions of the Shareholders’ General Meeting and the Board of Directors, implementations of the Board on Resolutions of the Shareholders’ General Meeting, duties performance of the senior executives and the management system of the Company and considered that the Board of Directors of the Company could conduct normative operations strictly in accordance with Company Law of the P.R.C., Securities Law of the P.R.C., Listing Rules, the Articles of Association of the Company and other relevant regulations and systems in the work in year 2004 with serious and responsible work and scientific and reasonable operation and decision-making, further improved the interior management and interior control system and established inner-control mechanism. The Company’s chairman of the Board, directors, managers and senior executives had not disobeyed laws and regulations of the State and the Articles of Association of the Company or damaged the interests of the Company while implementing their duties. IV. Inspecting the Company’s finance The Supervisory Committee of the Company conducted regular inspection on the Company’s financial system and financial status and considered that the Company’s financial report in 2004 could truly reflect the Company’s financial status and operating results. The auditing opinions issued by Wuhan Zhonghuan Certified Public Accountants Ltd. and PricewaterhouseCoopers Certified Public Accountants had reflected the Company’s financial status and operating results in 2004 truly, objectively and fairly. V. Inspecting the use of raised proceeds of the Company Within the recent three years (including the report period), the Company had no raised proceeds. VI. Related transactions on acquisition and sales of assets In the report period, the Company had no related transaction on acquisition and sales of assets. VII. Inspecting the related transactions of the Company The pricing of the Company’s related transactions was reasonable and fair with no damaging the interests of the listed company. 31 SECTION X. SIGNIFICANT EVENTS I. Significant lawsuits and arbitration In the report period, the Company has no significant lawsuits or arbitration. II. Significant purchase and sales of assets and consolidation by merger In the report period, the Company has no significant purchase and sales of assets and consolidation by merger. III. Related transactions (I) Relation of related parties and their transactions 1. Relation of related parties (1) Related parties with controlling relationship Name of Registered Main operations Relation with Type Legal companies address the Company representative Wuhan Boiler No. 586, Technology development, design The parent State-owned Huang Jiang Group Co., Ltd Wuluo Road, and manufacture of boiler, company of sole limited Wuhan pressure vessels and related the Company company machinery-electrical products Wuhan Special No. 586, Undertaking boiler engineering, Subsidiary of Limited Ruan Xiangfu Boiler Complete Wuluo Road, sale of boiler and auxiliary the Company company Equipment Wuhan machine Engineering Co., Ltd. Wuhan Lanxiang No. 586, Technology research, design, Subsidiary of Limited Hua Lixin Energy and Wuluo Road, technology consultation and the Company company Environmental Wuchang technology service of boilers, Protection District energy and environmental Science and protection products, steel Technology Co., structure, heat energy products Ltd. and its auxiliary equipments, sales of development products and contract and technology service of energy projects (non-land-construction projects) Wuhan Boiler No. 586, Manufacture and sale of united Subsidiary of Limited Chen Shiyu Zhixin Wuluo Road, circulating gas left-heating boiler, the Company company Environmental Wuchang circulating fluidized bed boiler, Protection District alkali reclaiming boiler and boiler Equipment burning instrument, boiler’s units Manufacture Co., and environment-friendly and Ltd. energy-saving equipments; manufacture and sale of steel units and metals (perform according to the national regulation if there is any.) (2) Registered capital of related parties with controlling relationship and its change 32 Name of company Amount at the Increase in Decrease in Amount at the year-begin this year the year year-end Wuhan Boiler Group Co., Ltd 90,596,000.00 90,596,000.00 Wuhan Special Boiler Complete 11,680,000.00 11,680,000.00 Equipment Engineering Co., Ltd. Wuhan Lanxiang Energy and 20,000,000.00 20,000,000.00 Environmental Protection Science and Technology Co., Ltd Wuhan Boiler Zhixin Environmental 10,000,000.00 10,000,000.00 Protection Equipment Manufacture Co., Ltd. (3) Shares (equity) held by related parties with controlling relationship and the change Name of company Amount at the Increase in this Decrease in this Amount at the year-end year-beginning year year Amount % Amount % Amount % Amount % Wuhan Boiler Group 172,000,000.00 57.91 172,000,000.00 57.91 Co., Ltd Wuhan Special Boiler 10,514,900.00 90 10,514,900.00 90 Complete Equipment Engineering Co., Ltd. Wuhan Lanxiang 14,000,000.00 70 14,000,000.00 70 Energy and Environmental Protection Science and Technology Co., Ltd Wuhan Boiler Zhixin 5,100,000.00 51 5,100,000.00 51 Environmental Protection Equipment Manufacture Co., Ltd. (4) Related parties without controlling relationship Name of company Relationship with the Company Wuhan Boiler (Group) Valve Manufacture Co., Ltd. The Company and this company are subsidiary companies of Wuhan Boiler Group Wuhan Boiler (Group) Boyu Complementary Mechanism of The Company and this company are Electronic Station Co., Ltd. subsidiary companies of Wuhan Boiler Group Wuhan Boiler (Group) Yuntong Co., Ltd. The Company and this company are subsidiary companies of Wuhan Boiler Group Wuhan Boiler (Group) Boiler Installation Co. The Company and this company are subsidiary companies of Wuhan Boiler Group Wuhan Chengxin Boiler Automatic Control Equipment Co., Ltd. The Company and this company are subsidiary companies of Wuhan Boiler Group 2. Transaction of related parties (1) Purchasing of goods Details of the Company purchasing goods from related parties in 2004 and 2003 as 33 follows: Unit: RMB’0000 Name of company Amount in Amount in 2004 2003 Wuhan Boiler (Group) Valve Manufacture Co., Ltd. 2,430.95 1,052.74 Wuhan Boiler (Group) Boyu Complementary Mechanism of Electronic 1,047.20 229.54 Station Co., Ltd. Wuhan Chengxin Boiler Automatic Control Equipment Co., Ltd. 969.78 1,115.65 Total 4,447.93 2,397.93 (2) Sale of goods Details of goods and materials sold to related parties in 2004 and 2003 as follows: Unit: RMB’0000 Name of company Amount in Amount in 2004 2003 Wuhan Boiler (Group) Valve Manufacture Co., Ltd. 559.59 459.86 Wuhan Boiler (Group) Boyu Complementary Mechanism of Electronic 2.10 1.56 Station Co., Ltd. Wuhan Boiler Group Co., Ltd 797.77 47.51 Wuhan Boiler (Group) Boiler Installation Co. 0.06 2.55 Wuhan Chengxin Boiler Automatic Control Equipment Co., Ltd. 58.26 12.19 Total 1417.78 523.67 (3) The balance of receivable and payable of related parties Items Amount at the year-end 2004 2003 Accounts receivable: Wuhan Boiler Group Co., Ltd 2,442,996.00 1,942,996.00 Wuhan Boiler (Group) Boyu Complementary Mechanism of Electronic 87,200.00 87,200.00 Station Co., Ltd. Notes receivable: Wuhan Boiler Group Co., Ltd 23,019,100.00 Other receivables: Wuhan Boiler (Group) Yuntong Co., Ltd. 808,359.53 Wuhan Boiler (Group) Boiler Installation Co. 151,314.00 Accounts prepaid: Wuhan Boiler (Group) Boyu Complementary Mechanism of Electronic 20,221,930.44 10,344,501.81 Station Co., Ltd. Wuhan Chengxin Boiler Automatic Control Equipment Co., Ltd. 557,007.70 243,849.15 Wuhan Boiler (Group) Valve Manufacture Co., Ltd. 36,880,326.32 19,208,634.87 Wuhan Boiler (Group) Yuntong Co., Ltd. 2,763,837.85 Accounts payable: Wuhan Boiler (Group) Boiler Installation Co. 4,941.50 34,941.50 Wuhan Chengxin Boiler Automatic Control Equipment Co., Ltd. 3,567,059.28 1,876,464.50 Wuhan Boiler (Group) Yuntong Co., Ltd. 17,440.00 34 Other payable: Wuhan Boiler Group Co., Ltd 2,245,751.98 9,998,359.50 Wuhan Boiler (Group) Valve Manufacture Co., Ltd. 322,455.00 Wuhan Boiler (Group) Yuntong Co., Ltd. 20,000.00 Wuhan Chengxin Boiler Automatic Control Equipment Co., Ltd. 50,000.00 IV. Significant contracts and implementation 1. In the report period, neither the Company had entrusted, contracted or leased other companies’ assets nor other companies had entrusted, contracted or leased the Company’s assets. 2. In the report period, the Company had neither significant guarantee for others nor guarantees for share-controlling subsidiaries. 3. In the report period, the Company had not entrusted others to conduct cash assets management. 4. In the report period, the Company had no significant contracts. V. In the report period, the Company and the shareholders holding over 5% equity had no commitment items published on non-designated newspapers, magazines or web sites. VI. Engagement and disengagement of certified public accountants In the report period, the Company reengaged Wuhan Zhonghuan Certified Public Accountants Co., Ltd. and PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. as the audit organizations. The reward the Company paid to the certified public accountants in the latest two years is as follows: Annual audit fee of financial report 2004 2003 Overseas: Pricewaterhouse Coopers Zhongtian Certified Public Accountants USD 85,000 USD 80,000 Co., Ltd. Domestic: Wuhan Zhonghuan Certified RMB 550,000 RMB 550,000 Public Accountants Co., Ltd. The expense of food and accommodation, business trip, communication, copy etc. in the process of the audit by Wuhan Zhonghuan Certified Public Accountants Co., Ltd. and PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. is undertaken by themselves. In the report period, the Company had paid sufficient audit fee of financial report for 2004 to the domestic and the overseas Certified Public Accountants. Wuhan Zhonghuan Certified Public Accountants Co., Ltd. and PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. had provided audit service for the Company for seven successive accounting years including the report period. VII. Being checked and punished 35 In the report period, there was no administrative punishment or public criticism by the CSRC, or public condemn from the Exchange Stock for the Company, Board of Director, Directors or Senior Executives. In the report period, Shenzhen Stock Exchange chose the Company 2004 Excellent Company in Information Disclosure of Listed Companies. So far, Shenzhen Stock Exchange has chosen the Company Excellent Company in Information Disclosure of Listed Companies for four successive years. VIII. The Company had no other significant events in the report period. IX. Contingent events The Company provided guarantee for the loan with amount of RMB 42 million and term of one year of China Foreign Trade Financial Leasing Co., Ltd. from China Merchants Bank. It is estimated that the guarantee has no significant payment possibility. X. Item after report period From the report period end to the disclosure date of the report, the Company had no items after report period needed to disclose. XI. Other important events There had been a contract dispute between the Company’s controlling shareholder Wuhan Boiler Group Co., Ltd. and China Minsheng Bank Wuhan Branch. On August 4, 2004, Hubei Province Hanjiang Intermediate People’s Court froze the 20 million state-owned legal person’s shares, bonus shares and allotment shares of the Company (WUGUO B) held by Wuhan Boiler Group Co., Ltd. (taking 6.73% of the Company’s total share capital). In December 2004, the plaintiff China Minsheng Bank Wuhan Branch reached reconciliation out of court with Wuhan Boiler Group Co., Ltd., and put forward to withdraw application for indictment. On Dec. 6, 2004, Hubei Hanjiang Intermediate People’s Court judged through [2004] HMECZI No. 27 Judgement as follows: permit the plaintiff China Minsheng Bank Wuhan Branch to withdraw its indictment and release the 20 million shares of state-owned legal person’s shares, bonus shares and allotment shares of the Company (WUGUO B) held by Wuhan Boiler Group Co., Ltd.. Section XI. Auditor’s Report I. Auditors’ opinion The financial report of the Company for 2004 was audited by Wuhan Zhonghuan Certified Public Accountants Co., Ltd. and PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. and they issued unqualified Auditor’s Report. (1) Auditor’s Report (attached) (2) Financial statements and notes (attached) 36 Section XII. Documents for Reference 1. Accounting statement carrying the personal signatures and seals of legal representative, chief accountant and person in charge of the accounting affairs. 2. Original of Auditor’s Report audited by Wuhan Zhonghuan Certified Public Accountants Ltd. and carrying the signature and seal of Chinese certified public accountant. 3. Originals of all documents and manuscripts of Public Notices of the Company disclosed on Securities Times and Ta Kung Pao. 4. Original of 2004 Annual Report. This report has been prepared in Chinese and English version respectively. In the event of difference in interpretation between the two versions, the Chinese report shall prevail. Wuhan Boiler Co., Ltd. Chairman of the Board: Chen Bohu Mar. 18, 2005 37 International Auditors’ Report To the shareholders of Wuhan Boiler Company Limited (Incorporated in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Wuhan Boiler Company Limited (the “Company”) and its subsidiaries (the “Group”) as at 31 December 2004 and the related consolidated statements of income, cash flows and changes in shareholders’ equity for the year then ended. These consolidated financial statements set out on pages 2 to 31 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accompanying consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2004, and of the results of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Zhong Tian CPAs Limited Company 18 March 2005 38 WUHAN BOILER COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 2004 2003 Notes RMB’000 RMB’000 Sales 3 2,214,625 1,237,739 Cost of sales (1,057,391) (1 933 229) Gross profit 180,348 Other operating income, net 3,650 10 072 Selling expenses (31,758) (67 869) Administrative expenses (80,381) (120 752) Operating profit 4 102,847 71,859 Finance costs, net 6 (23,224) (16 548) Profit before tax 48,635 Income tax 7 (15,285) (34 294) Profit from ordinary activities after tax 52,005 33,350 Minority interests 22 (1,608) (4 578) Net profit 47,427 31,742 Earnings per share 8 RMB0.160 RMB0.107 The notes on pages 6 to 31 form an integral part of these financial statements. 39 WUHAN BOILER COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2004 2004 2003 Notes RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 9 226,451 177,869 Construction in progress 10 4,756 7,883 Prepaid lease 3,538 3,688 Intangible assets 11 40,009 34,679 Available-for-sale investment 12 - 15,937 Deferred tax assets 13 2,565 2,527 277,319 242,583 Current assets Inventories 14 343,450 218,745 Due from contract customers 15 701,688 419,774 Trade receivables 16 818,071 489,278 Amounts due from fellow subsidiaries 17 59,914 51,351 Other receivables, deposits and prepayments 18 590,470 287,130 Pledged or guaranteed deposits 19 292,345 239,745 Cash and cash equivalents 19 197,320 294,000 3,003,258 2,000,023 Total assets 3,280,577 2,242,606 SHAREHOLDERS’ EQUITY Share capital 20 297,000 297,000 Reserves 21 283,397 247,850 Total shareholders’ equity 580,397 544,850 Minority interests 22 17,586 14,088 LIABILITIES Non-current liabilities Borrowings 26 14,323 34,667 Current liabilities Bills payable 476,072 375,774 Trade payables 304,037 153,760 Other payables and accrued charges 23 107,543 76,636 Due to contract customers 15 630,614 133,287 Amount due to parent company 24 907 10,649 Amounts due to fellow subsidiaries 25 5,379 3,691 Deposits received from customers 400,435 521,882 Income tax payable 39,689 8,368 Borrowings 26 703,595 364,954 2,668,271 1,649,001 Total liabilities 2,682,594 1,683,668 Total equity and liabilities 3,280,577 2,242,606 The notes on pages 6 to 31 form an integral part of these financial statements. 40 WUHAN BOILER COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2004 Reserves Statutory Statutory Share Capital Share surplus public Retained Reserves capital reserve premium reserve funds welfare funds earnings sub-total Total (Note 20) (Note 21(a)) (Note 21(a)) (Note 21(b)) (Note 21(b)) (Note 21(c)) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Year ended 31 December 2003 Balance at 1 January 2003 297,000 89,890 54,741 10,056 10,056 61,760 226,503 523,503 Net profit - - - - - 31,742 31,742 31,742 Forfeited customer deposits (Note 21 (a)) - 1,800 - - - (1,800) - - Transfer from retained earnings to other reserves - - - 3,573 3,572 (7,145) - - Dividends (Note 21 (d)) - - - - - (10,395) (10,395) (10,395) Balance at 31 December 2003 297,000 91,690 54,741 13,629 13,628 74,162 247,850 544,850 Year ended 31 December 2004 Balance at 1 January 2004 297,000 91,690 54,741 13,629 13,628 74,162 247,850 544,850 Net profit - - - - - 47,427 47,427 47,427 Forfeited customer deposits (Note 21 (a)) - 298 - - - (298) - - Transfer from retained earnings to other reserves - - - 5,282 5,282 (10,564) - - Dividends (Note 21 (d)) - - - - - (11,880) (11,880) (11,880) Balance at 31 December 2004 297,000 91,988 54,741 18,911 18,910 98,847 283,397 580,397 The notes on pages 6 to 31 form an integral part of these financial statements. 41 WUHAN BOILER COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 2004 2003 Notes RMB’000 RMB’000 Cash flows from operating activities Cash (used in ) / generated from operations 27(a) (265,816) 124,246 Interest paid (31,199) (27,226) Tax paid (3,011) (18,880) Net cash (used in) / from operating activities (300,026) 78,140 Cash flows from investing activities Purchase of property, plant and equipment (11,200) (11,422) Purchase of proprietary technology and patent (11,505) (17,817) Payments for construction in progress (59,758) (19,147) Proceeds from disposal of property, plant and equipment 27(b) 866 855 Proceeds from disposal of available-for-sale investment 20,432 - Interest received 9,863 4,688 Dividends received 831 698 Net cash used in investing activities (50,471) (42,145) Cash flows from financing activities Cash injection by a minority shareholder - 3,930 (Increase)/decrease in deposits used as collaterals (52,600) 10,845 Proceeds from borrowings 860,459 576,791 Repayments of borrowings (542,162) (573,844) Dividends paid (11,880) (10,395) Net cash from financing activities 253,817 7,327 Net (decrease) / increase in cash and cash equivalents (96,680) 43,322 Cash and cash equivalents at beginning of year 294,000 250,678 Cash and cash equivalents at end of year 19 197,320 294,000 The notes on pages 6 to 31 form an integral part of these financial statements. 42 WUHAN BOILER COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2004 1. General information Wuhan Boiler Company Limited (the “Company”) is a joint stock limited company incorporated in the People’s Republic of China (the “PRC”) on 8 April 1998. The Company and its subsidiaries (the "Group") are mainly engaged in the manufacturing and sale of boilers within PRC. The Company’s Domestically Listed Foreign Shares (“B Shares”) are listed on the Shenzhen Stock Exchange. The address of its registered office is 586 Wuluo Road, Wuhan City, Hubei Province. 2. Summary of significant accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: 2.1 Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") including International Accounting Standards and Interpretations issued by the International Accounting Standards Board. This basis of accounting differs from that used in the preparation of the Company's statutory financial statements (“PRC statutory financial statements”). The PRC statutory financial statements of the Company and its subsidiaries comprising the Group have been prepared in accordance with relevant accounting principles and regulations applicable to them, as appropriate in the PRC. Appropriate adjustments have been made to the PRC statutory financial statements to conform to IFRS. Differences arising from the restatement have not been incorporated in the statutory accounting records of the Group. The consolidated financial statements are prepared under the historical cost convention as modified by the revaluation of available-for-sale investments. The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. 43 2. Summary of significant accounting policies (Cont’d) 2.2 Consolidation Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill. See Note 2.7(a) for the accounting policy on goodwill. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Details of the Group’s subsidiaries are set out in Note 33. 2.3 Foreign currency translation (a) Measurement currency Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”). The consolidated financial statements are presented in Renminbi (“RMB”), which is the measurement currency of the Group. (b) Transactions and balances Transactions denominated in foreign currencies are translated into RMB at the exchange rates stipulated by the People’s Bank of China prevailing on the first day of the month in which the transactions took place. Monetary assets and liabilities denominated in foreign currencies are translated into RMB at the exchange rates quoted by the People’s Bank of China ruling at the balance sheet date. Exchange differences are included in the consolidated income statement. 44 2. Summary of significant accounting policies (Cont’d) 2.4 Property, plant and equipment All property, plant and equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation is calculated to write off the cost of the assets on a straight-line basis over their expected useful lives, taking into account their estimated residual value. The principal annual rates used are: Plant and office premises 3 – 6.5% Production equipment and machinery 5 – 14% Motor vehicles 16% Furniture, fixtures and office equipment 19 – 24% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. The gain or loss on disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the consolidated income statement. Subsequent cost are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably, and are depreciated over the remaining useful life of the related asset. Repairs and maintenance are charged to the consolidated income statement during the financial period in which they are incurred. 2.5 Construction in progress Construction in progress represents premises under construction and production plants, machinery and other equipment under installation and is stated at cost. Cost includes the cost of construction, purchase cost of plant and machinery as well as interest expenses arising from borrowings used to finance the construction during the construction period. Construction in progress for production plants and machinery is transferred to fixed assets on the commissioning date. Plant and machinery are considered to be commissioned when they are capable of producing saleable quality output in commercial quantities on an ongoing basis. 2.6 Prepaid lease Prepaid lease represents the cost of acquiring rights to use the transformer substation for the Group’s operations which has been recognised as an expense on a straight-line basis over the expected useful life of 30 years. 45 2. Summary of significant accounting policies (Cont’d) 2.7 Intangible assets (a) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is amortised on a straight-line basis over its estimated useful life of not more than 10 years. Management determines the estimated useful life of goodwill based on its evaluation of the respective companies at the time of the acquisition, considering factors such as existing market share, potential growth and other factors inherent in the acquired companies. At each balance sheet date, the Group assesses whether there is any indication of impairment. If such indications exist, an analysis is performed to assess whether the carrying amount of goodwill is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. (b) Proprietary technology and patent Expenditure on acquired proprietary technology and patent is capitalised and amortised using the straight-line method over their useful lives of not more than 15 years. The carrying amount of each proprietary technology and patent is reviewed annually and adjusted for permanent impairment when it is considered necessary. (c) Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if the cost can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding five years. 2.8 Impairment of long lived assets Property, plant and equipment, construction in progress, prepaid lease and other non-current assets, including intangible assets, are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows (cash-generating units). 46 2. Summary of significant accounting policies (Cont’d) 2.9 Available-for-sale investments Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale investments; and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Available-for-sale investments are subsequently carried at fair value. Fair values for unlisted equity securities are estimated using applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment. Unrealised gains and losses arising from changes in the fair value of securities classified as available-for-sale are recognised in equity. When securities classified as available-for-sale investments are sold or impaired, the accumulated fair value adjustments are included in the consolidated income statement as gains and losses from investment securities. 2.10 Leases (a) A group company is the lessee Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance cost is charged to the consolidated income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. If there is reasonable certainty that the lessee will obtain ownership by the end of the lease term, the property, plant and equipment acquired under finance leases is depreciated over the useful life of the asset; otherwise the property, plant and equipment is depreciated over the shorter of the lease term and its useful life. Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated income statement on a straight-line basis over the period of relevant leases. 47 2. Summary of significant accounting policies (Cont’d) 2.10 Leases (Cont’d) (b) A group company is the lessor Assets leased out under operating leases are included in property, plant and equipment in the consolidated balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term. 2.11 Inventories Inventories are stated at the lower of cost or net realisable value. Cost of raw materials represents invoiced price calculated using the weighted average costing method. Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses. 2.12 Construction contracts A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and functions or their ultimate purpose or use. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred where it is probable those costs will be recoverable. Contract costs are recognised when incurred. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised over the period of the contract, respectively, as revenue and expenses. The Group uses the percentage of completion method to determine the appropriate amount of revenue and costs to recognise in a given period; the percentage of completion is measured by reference to the relationship that contract costs incurred for work performed to date bear to the estimated total costs for the contract. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Construction contract cost includes direct materials, subcontracting cost, direct labor and an appropriate proportion of variable and fixed production overheads. In determining costs incurred up to the year-end, any costs relating to future activity on a contract are excluded and shown as contract work in progress. The aggregate of the costs incurred plus the profit less losses recognised on each contract is compared against the progress billings up to the balance sheet date. Where contract costs incurred plus recognised profits less recognised losses exceed progress billings, the balance is shown as due from contract customers. Where progress billings exceed contract costs incurred plus recognised profits less recognised losses, the balance is shown as due to contract customers. 48 2. Summary of significant accounting policies (Cont’d) 2.13 Trade receivables Trade receivables include progress billings in accordance with the contracts terms and retention monies receivable. Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. 2.14 Cash and cash equivalents Cash and cash equivalents are carried in the consolidated balance sheet at cost. For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and deposits held at call with banks. 2.15 Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. All other borrowing costs are recognized as an expense in the year in which they are incurred. 2.16 Taxation PRC income taxes are provided for based on the estimated assessable profits and the applicable tax rates for the Company and other companies comprising the Group. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Current enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. 2.17 Retirement scheme The Group participates in a defined contribution retirement scheme (the “scheme”) operated by the local government. Contributions to the retirement scheme are charged to the consolidated income statement in the period to which the contributions are related. 2.18 Warranty The Group recognises the estimated liability to repair or replace products still under warranty at the balance sheet date. This provision is calculated based on certain percentage of the completed contract cost which is determined by reference to past history of the level of repairs and replacements. 49 2. Summary of significant accounting policies (Cont’d) 2.19 Revenue recognition Revenue from construction contracts is based on the stage of completion determined by reference to the cost incurred to date as a percentage of total cost to be incurred. Refer to Note 2.12 for sales recognition in relation to construction. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. Investment income is recognised when the right to receive dividends or other payments is established. 2.20 Dividends Final dividends are recorded in the Group’s consolidated financial statements in the period in which they are approved by the Group’s shareholders. 2.21 Financial instruments Financial instruments carried on the consolidated balance sheet include cash and cash equivalents, pledged or guaranteed deposits, available-for-sale investment, due from(to) contract customers, receivables, prepayments, payables and borrowings. Available-for-sale investments and trade receivables are stated at carrying amounts determined in accordance with Notes 2.9 and 2.13 respectively. Other financial assets and financial liabilities without a quoted market price in an active market are measured at cost subject to impairment review. Disclosures of financial risk managements are provided in Note 28. 50 3. Sales Sales recognised in 2004 and 2003 arose from the sale of boilers under long-term contracts within the PRC. All the assets and liabilities at 31 December 2004 and 2003 were related to sales of boilers and located in the PRC. 4. Operating profit The following items have been included in arriving at operating profit: 2004 2003 RMB’000 RMB’000 Depreciation on property, plant and equipment (Note 9) – owned assets 21,403 20,744 – leased assets under finance lease 1,599 452 Provision/(reversal) of impairment loss on property, plant and equipment (Note 9) * 352 (45) Loss on disposal of property, plant and equipment (Note 27) 8 58 Repairs and maintenance expenditure 9,862 8,738 Amortisation of intangible assets (Note 11) ** 6,175 4,820 Research and development expenditure *** 27,512 13,939 Operating lease rentals in respect of property 1,056 1,745 Costs of inventories recognised as expense (included in cost of sales) 1,933,229 1,057,391 Provision for bad and doubtful debts 24,254 7,339 Staff costs (Note 5) 78,903 70,718 Warranty (Note 23) 34,207 18,914 * Provision/(reversal) of impairment loss on property, plant and equipment has been charged in other operating income, net). ** Amortisation of intangible assets has been charged in cost of sales. *** Included in the research and development expenditure are staff emoluments and depreciation totalling RMB10,408,000 (2003:RMB7,582,000), which have also been included in staff costs and depreciation disclosed above. 5. Staff costs 2004 2003 RMB’000 RMB’000 Wages and salaries 59,150 53,280 Retirement benefits (Note 29) 7,580 7,325 Other social security costs 12,173 10,113 78,903 70,718 Average number of persons employed by the Group during the year 2,905 2,980 51 6. Finance costs, net 2004 2003 RMB’000 RMB’000 Interest income arising from - bank deposits 9,863 4,688 Investment - dividend income 831 698 - gain on disposal of an available-for-sale investment 4,495 - 5,326 698 Net foreign exchange transaction gains 127 580 Interest expenses in relation to - bank borrowings (28,222) (25,860) - finance lease (1,584) (558) - loan from a finance lease company (1,133) (1,567) (30,939) (27,985) Bank charges (925) (1,205) (16,548) (23,224) 7. Income tax 2004 2003 RMB’000 RMB’000 Current tax 34,332 15,233 Deferred tax (Note 13) (38) 52 Tax charge 34,294 15,285 Income tax has been calculated based on the estimated assessable profits using the tax rates applicable to the Company and the subsidiaries comprising the Group, respectively. Pursuant to a document “Wu Di Shui Er Han [2005] No.2” issued by the Wuhan Local Tax Bureau regarding collective payment of income tax, income tax of the Company is collectively paid through Wuhan Boiler (Group) Company Limited (“WHBG”), the parent company of the Group. 52 7. Income tax (Cont’d) The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the effective tax rate of the Company is analysed as follows: 2004 2003 RMB’000 RMB’000 Profit before tax 86,299 48,635 Tax calculated at the effective rate of 33% (2003: 33%) 28,479 16,050 Effect of different tax rate applicable to a subsidiary * (1,391) (1,497) Dividend income not subject to tax (274) (230) Expenses not deductible for tax purposes 7,480 962 Tax charge 34,294 15,285 * A subsidiary in the PRC enjoyed 50% exemption on income tax for the year ended 31 December 2004. 8. Earnings per share The calculation of earnings per share is based on the consolidated profit after tax and after minority interests for the year of RMB47,427,000 (2003: RMB31,742,000) and 297,000,000 shares (2003: 297,000,000 shares) in issue. 9. Property, plant and equipment Production Furniture, Plant and equipment fixtures office and Motor and office premises machinery vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Year ended 31 December 2003 Opening net book value 90,844 73,598 3,779 2,942 171,163 Additions 2,779 20,777 3,468 1,746 28,770 Disposals (430) (351) (87) (45) (913) Reversal of impairment / (impairment charge) - 103 - (58) 45 Depreciation charge (5,345) (13,726) (847) (1,278) (21,196) Closing net book value 87,848 80,401 6,313 3,307 177,869 At 31 December 2003 Cost 162,704 238,296 13,384 9,961 424,345 Accumulated depreciation (74,856) (157,895) (7,071) (6,568) (246,390) Impairment charge - - (86) (86) - Net book value 87,848 80,401 6,313 3,307 177,869 Year ended 31 December 2004 Opening net book value 87,848 80,401 6,313 3,307 177,869 Additions 22,676 46,090 3,430 1,889 74,085 Disposals (285) (1,169) (604) (91) (2,149) Impairment charge (Note 4, 27) - (352) - - (352) Depreciation charge (Note 4, 27) (5,579) (14,981) (1,259) (1,183) (23,002) Closing net book value 104,660 109,989 7,880 3,922 226,451 At 31 December 2004 Cost 184,749 278,557 15,378 9,001 487,685 Accumulated depreciation (80,089) (168,216) (7,498) (4,993) (260,796) Impairment charge - (352) - (86) (438) 53 Net book value 104,660 109,989 7,880 3,922 226,451 The Company’s plant and office premises are located in Wuhan city, Hubei Province, the PRC. The land where the properties are situated is leased from WHBG for a period of 50 years. Additions include assets leased under finance lease of RMB8,787,000 (2003: RMB11,025,000). Plant and office premises of the Company have been pledged to a bank for securing loan facilities granted to the Company, totalling RMB272,989,000 (2003: RMB45,000,000). Impairment charge relates to certain idle equipment which would not be used by the Company in the foreseeable future and was calculated based on its estimated recoverable amount. The information in relation to the cost and accumulated depreciation of production equipment, where the Group is the lessee under a finance lease, is set forth below: 2004 2003 RMB’000 RMB’00 Cost – capitalised finance lease 19,812 11,025 Accumulated depreciation (2,051) (452) Net book amount 17,761 10,573 The finance lease arrangement for production equipment, which has been guaranteed by WHBG, is engaged with a finance lease company in the PRC. 10. Construction in progress 2004 2003 RMB’000 RMB’000 Opening net book value 7,883 5,114 Additions 59,758 19,147 Transfer to property, plant and equipment (62,885) (16,378) Closing net book value 4,756 7,883 Construction in progress represents production equipment and machinery under installation and is stated at cost. No interest expenses were capitalised in the current year (2003: nil). 54 11. Intangible assets Proprietary technology Goodwill and patent Total RMB’000 RMB’000 RMB’000 Year ended 31 December 2003 Opening net book value 1,332 20,350 21,682 Addition - 17,817 17,817 Amortisation charges (213) (4,607) (4,820) Closing net book value 1,119 33,560 34,679 At 31 December 2003 Cost 1,683 46,117 47,800 Accumulated amortisation (564) (12,557) (13,121) Net book value 1,119 33,560 34,679 Year ended 31 December 2004 Opening net book value 1,119 33,560 34,679 Addition - 11,505 11,505 Amortisation charges (Note 4, 27) (213) (5,962) (6,175) Closing net book value 906 39,103 40,009 At 31 December 2004 Cost 1,683 57,621 59,304 Accumulated amortisation (777) (18,518) (19,295) Net book value 906 39,103 40,009 The Directors of the Company are of the opinion that the underlying fair value of the intangible assets was not less than its carrying amount as at 31 December 2004. 12. Available-for-sale investment 2004 2003 RMB’000 RMB’000 Unlisted investment - 15,937 55 13. Deferred tax assets Deferred taxation is calculated on all temporary differences under the liability method using an enacted tax rate of 33% (2003: 33%). 2004 2003 RMB’000 RMB’000 Deferred tax assets: - To be recovered after more than 12 months 2,565 2,449 - To be recovered within 12 months - 78 2,565 2,527 The movement on the deferred taxation account is as follows: 2004 2003 RMB’000 RMB’000 At beginning of the year 2,527 2,579 Income statement credit/(charge) (Note 7) 38 (52) At end of the year 2,565 2,527 Deferred tax assets and deferred tax credit in the consolidated income statement are attributable to the following items: Credit/(charge) to income 2003 statement 2004 RMB’000 RMB’000 RMB’000 Deferred tax assets - Temporary difference in respect of provision for impairment loss of fixed assets 59 116 175 - Temporary difference in respect of provision for inventories 78 (78) - - Temporary difference in respect of provision for bad and doubtful debts 2,390 - 2,390 2,527 38 2,565 14. Inventories 2004 2003 RMB’000 RMB’000 Raw materials (at cost) 342,084 215,211 Raw materials (at net realisable value) 1,366 3,534 343,450 218,745 Certain raw materials have been written down by RMB1,395,000 (2003: RMB1,653,000) to their estimated net realizable value. 56 15. Construction contract work in progress 2004 2003 RMB’000 RMB’000 Contract costs incurred and recognised profits (less losses) 1,428,891 747,917 Progress billings (1,357,817) (461,430) 71,074 286,487 Comprising: - Due from contract customers 701,688 419,774 - Due to contract customers (630,614) (133,287) 71,074 286,487 16. Trade receivables 2004 2003 RMB’000 RMB’000 Trade receivables 870,124 517,139 Less: Provision for bad and doubtful debts (52,053) (27,861) 818,071 489,278 Included in trade receivables balance as at year end were retention monies of RMB235,247,000 (2003: RMB204,693,000). 17. Amounts due from fellow subsidiaries 2004 2003 RMB’000 RMB’000 Wuhan Boiler (Group) Boyu Complementary Mechanism of Electronic Station Co., Ltd. 20,308 10,426 Wuhan Boiler (Group) Valve Company Limited 36,880 18,886 Wuhan Boiler (Group) Boiler Accessories Manufacturing Company Limited - 20,832 Others 2,726 1,207 59,914 51,351 Amounts due from fellow subsidiaries are substantially derived from normal trading transactions. The amounts are unsecured, non-interest bearing and with no fixed repayment terms. 18. Other receivables, deposits and prepayments 2004 2003 RMB’000 RMB’000 Other receivables 12,798 10,289 Deposits * 9,700 14,860 Purchase deposits and other prepayments 567,972 261,981 590,470 287,130 57 18. Other receivables, deposits and prepayments (Cont’d) * Represent deposits with an insurance company totalling RMB9,700,000 (2003: RMB14,860,000), which have been pledged to a bank to guarantee notes payable issued by the Company of RMB9,700,000. The deposits can be withdrawn within one year and bear annual interest rates ranging from 1% to 2.5%. 19. Cash and bank balances 2004 2003 RMB’000 RMB’000 Cash and cash equivalents: Cash at bank and in hand 112,224 172,184 Fixed deposits – unpledged * 85,096 121,816 197,320 294,000 Pledged or guaranteed deposits Fixed deposits – pledged ** 31,402 43,789 Bank guarantee saving deposits *** 260,943 195,956 292,345 239,745 Total cash and bank balances 489,665 533,745 * The weighted average effective interest rate on fixed deposits was 1.15% (2003: 1.72%)。 Fixed deposits have an average maturity of 365 days (2003: 365 days). ** Fixed deposits totalling USD3,794,000, equivalent to RMB31,402,000 (2003: RMB43,789,000) have been pledged to a bank to secure loans and notes payable totaling RMB29,000,000 (2003: RMB20,000,000) provided to the Company. *** Bank guarantee saving deposits have been pledged to banks to guarantee notes payable issued by the Company and the letters of guarantee issued by the banks. 58 20. Share capital 2004 2003 RMB’000 RMB’000 Registered, issued and fully paid of RMB1 each Domestic legal person shares 172,000 172,000 B shares, listed 125,000 125,000 297,000 297,000 Pursuant to Articles 31 and 35 of the Company's Articles of Association, domestic legal person shares and B shares are registered ordinary shares carrying equal rights. Domestic legal person shares are not listed and not freely transferable, unless specifically approved by the relevant government authorities. 21. Reserves (a) Capital reserve and share premium Capital reserve comprises surplus arising on the difference between the nominal value of state shares issued to WHBG, the parent company, in exchange for the value of the transfer of boiler business related assets and liabilities to the Company and the non-distributable reserve arising from the forfeiture of deposits from customers. Share premium represents the premium on the issue of B shares to the foreign investors. Pursuant to the relevant PRC regulations, capital reserve and share premium can only be used to increase share capital. Pursuant to the Accounting System for Business Enterprises of the PRC, any gains arising from forfeiture of deposits from customers are directly reflected in capital reserve and therefore not distributable. Accordingly, a transfer has been made from retained earnings to reflect its non-distributable nature. (b) Reserve funds In accordance with the relevant PRC regulations applicable to joint stock limited companies and the Company’s Articles of Association, the Group is required to allocate its profit after tax to the following reserves: (i) Statutory surplus reserve funds The Group is required each year to transfer 10% of the profit after tax as reported under the PRC statutory financial statements to the statutory surplus reserve funds until the balance reaches 50% of the registered share capital. This reserve can be used to make up any losses incurred or to increase share capital. Except for the reduction of losses incurred, any other application should not result in this reserve balance falling below 25% of the registered capital. (ii) Statutory public welfare funds The Group is required each year to transfer 10% of the profit after taxation as reported under the PRC statutory financial statements to the statutory public welfare funds. This reserve is restricted to capital expenditure for employees' collective welfare facilities that are owned by the Group. The statutory public welfare funds are not available for distribution to shareholders (except on liquidation). According to a document issued by the Ministry of Finance, when the statutory public welfare fund is utilised, an amount equal to the lower of cost of the assets and the balance of the statutory public welfare fund is transferred from the statutory public welfare fund to the discretionary surplus reserve. On disposal of the relevant assets, the original transfers from the statutory public welfare fund are reversed. 59 21. Reserves (Cont’d) (c) Profit distributable to shareholders Pursuant to a document issued by the Ministry of Finance, the profit after appropriation to reserves and available for distribution as dividend shall be the lower of the amount as stated in the PRC statutory financial statements and the financial statements prepared under IFRS. At 31 December 2004, the Group's retained earnings according to the PRC statutory financial statements amounted to RMB91,096,000 (2003: RMB68,675,000). The Company was transformed from a state-owned enterprise to a joint stock limited company on 8 April 1998 under a reorganisation scheme. Pursuant to a Board resolution of WHBG on 27 November 1997, the profits generated from 1 October 1997 (the completion date of the reorganisation) and onwards are distributable to all shareholders and profits generated before 1 October 1997 are distributable to WHBG only. Retained earnings as at 31 December 2004 include RMB28,515,000 of profits generated before 1 October 1997. (d) Dividend Pursuant to a Board resolution on 26 March 2004, a cash dividend of RMB0.04 per share for the fiscal year 2003, amounting to dividends totalling RMB11,880,000, was declared and paid during the year. (2003: RMB10,395,000) Pursuant to a Board resolution on 18 March 2005, a cash dividend of RMB0.047 per share for the fiscal year 2004, amounting to dividends totalling RMB13,959,000, was declared. The consolidated financial statements have not reflected this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in 2005. 22. Minority interests 2004 2003 RMB’000 RMB’000 At beginning of year 7,580 Set up of a new subsidiary 4,900 Share of net profit of subsidiaries 1,608 Dividend distribution (1,080) - At end of year 14,088 60 23. Other payables and accrued charges 2004 2003 RMB’000 RMB’000 Other payables 67,575 54,767 Warranty provision * 37,855 19,434 Accrued charges 2,113 2,435 107,543 76,636 * The Company provides one-year warranties in respect of the sale of boilers and undertakes to repair or replace items that fail to perform satisfactorily. The provision is estimated by reference to the expected warranty claims calculated at certain percentage of the completed construction contract cost, after taking into account the past experience of the level of repairs and returns. The movement of warranty provision is as follows: 2004 2003 RMB’000 RMB’000 Opening net book value 8,194 Accruals (Note 4) 18,914 Utilisation (7,674) Closing net book value 19,434 24. Amount due to parent company The amount due to parent company, WHBG, was derived from the transactions as set out in Note 32. The amount is unsecured, non-interest bearing and with no fixed repayment terms. 25. Amounts due to fellow subsidiaries These represent current account balances arising on transactions entered into in the normal course of business. The amounts are unsecured, non-interest bearing and with no fixed repayment terms. 2004 2003 RMB’000 RMB’000 Wuhan Chengxin Boiler Automatic Control Equipment Manufacturing Company 4,116 3,284 Wuhan Jiangxia Real Estate Company 216 407 Wuhan Boiler Group Boiler Installation Company Limited 1,047 - 5,379 3,691 61 26. Borrowings 2004 2003 RMB’000 RMB’000 Current - Secured bank borrowings 301,989 58,322 - Unsecured bank borrowings 387,606 292,632 - Secured finance lease liability * 9,906 3,675 - Unsecured loan from a finance lease company * 4,094 10,325 703,595 364,954 Non-current - Secured bank borrowings - 6,667 - Secured finance lease liability * 9,906 7,350 - Unsecured loan from a finance lease company * 4,417 20,650 14,323 34,667 Total borrowings 717,918 399,621 * The Company has given a guarantee amounting to RMB28,000,000 (2003: RMB42,000,000) to a bank in favor of a finance lease company which has provided assets under finance lease arrangement and a loan in the amount of RMB8,511,000 (2003: RMB30,975,000) to the Company. The details of the finance lease arrangement are set forth in Note 9. The borrowings include secured bank borrowings totalling RMB301,989,000 (2003: RMB64,989,000). The bank borrowings are secured over certain plant and office premises (Note 9) and fixed deposits of the Company (Note 19). The unsecured borrowings are supported by guarantees provided by the following parties: 2004 2003 RMB’000 RMB’000 Parent company - WHBG 387,606 292,334 Other - 298 Total guaranteed borrowings 387,606 292,632 The interest rate exposure of the borrowings of the Group is as follows: 2004 2003 RMB’000 RMB’000 At fixed rates 689,595 357,621 At floating rate * 28,323 42,000 Total borrowings 717,918 399,621 Weighted average effective interest rate - bank borrowings 5.25% 6.02% - finance lease liability 7.99% 7.99% - loan from a finance lease company 7.99% 7.99% 62 26. Borrowings (Cont’d) * The finance lease liability and loan from a finance lease company bear interest at the rate stipulated by the People’s Bank of China for long-term bank loans of 3 years plus 2.5% per annum. There are no material differences between the fair value and carrying amount of the Group’s borrowings. The fair values are based on discounted cash flows using a discount rate similar to the borrowing rate that the Directors believe would be available to the Group at the balance sheet date. Maturity of non-current borrowings (excluding finance lease liability): 2004 2003 RMB’000 RMB’000 Between 1 and 2 years 16,992 Between 2 and 5 years 10,325 27,317 Finance lease liability – minimum lease payments: 2004 2003 RMB’000 RMB’000 Not later than 1 year * 10,922 4,398 Later than 1 year and not later than 5 years * 10,354 7,899 21,276 12,297 Future finance charges on finance lease * (1,272) Present value of finance lease liability 19,812 11,025 * The minimum lease payments and future finance charges on finance lease are calculated with the interest rate that the finance lease liability bears at the balance sheet date. The present value of finance lease liability is as follows: 2004 2003 RMB’000 RMB’000 Not later than 1 year 9,792 3,675 Later than 1 year and not later than 5 years 10,020 7,350 19,812 11,025 63 27. Cash generated from operations (a) Reconciliation of net profit to cash generated from operations 2004 2003 RMB’000 RMB’000 Net profit 47,427 31,742 Adjustments for: Minority interest (Note 22) 4,578 1,608 Tax charge (Note 7) 34,294 15,285 Depreciation (Note 9) 23,002 21,196 Cost of prepaid lease recognised as expenses 150 150 Provision/(reversal) of impairment loss on property, plant and equipment (Note 9) 352 (45) Loss on disposal of property, plant and equipment (Note 4) 8 58 Amortisation of intangible assets (Note 11) 6,175 4,820 Investment income (Note 6) (5,326) (698) Interest expenses (Note 6) 30,939 27,985 Interest income (Note 6) (9,863) (4,688) Changes in working capital: Increase in inventories (124,705) (141,866) Increase in due from contract customers, trade receivables, amounts due from fellow subsidiaries, other receivables, deposits and prepayments (922,610) (528,328) Increase in due to contract customers, bills payable, trade payables, amount due to parent company, amounts due to fellow subsidiaries, deposits received from customers, other payables and accrued charges 649,763 697,027 Cash (used in) / generated from operations (265,816) 124,246 (b) Major non-cash item Proceeds from disposal of property, plant and equipment totalling RMB1,275,000 was settled by offsetting with certain trade payables. 64 28. Financial risk managements (a) Interest rate risk The interest rates and repayment terms of bank borrowings are disclosed in Note 26. Other financial assets and financial liabilities do not have material interest rate risk. (b) Credit risk The Group has no significant concentrations of credit risks. Amounts due from contract customers and trade receivables of the Group are spread among a number of customers in the PRC and cash is deposited with registered banks in the PRC. The carrying amounts of the financial assets after deducting the provision for bad and doubtful debts best represent their maximum credit risk exposure as at 31 December 2004. (c) Foreign currency risk Transactions of the Group are mainly settled in RMB. In the opinion of the Directors of the Company, the Group does not have significant foreign currency risk exposure. (d) Fair value The carrying amounts of the following financial instruments approximate to their fair values: cash and bank balances, due from/(to) contract customers, receivables, payables, prepayments and borrowings. Information on the fair value of borrowings and interest rate exposure is included in Note 26. 29. Retirement scheme The Group participates in a defined contribution retirement scheme organised by the Wuhan Municipal Government for all employees. The Group's contribution to the scheme is provided at 20% (2003: 20%) of the prior year’s total salary for permanent employees. The contribution to the retirement scheme for the year ended 31 December 2004 amounted to RMB7,580,000 (2003: RMB7,325,000). Other than the above, the Group has no other retirement benefit obligations. 30. Contingent liability Except for the guarantee provided to a finance lease company as disclosed in Note 26, as at 31 December 2004, the Group had no material contingent liability. 65 31. Commitments Capital commitments Capital expenditure contracted for at the balance sheet date but not recognised in the consolidated financial statements is as follows: 2004 2003 RMB’000 RMB’000 Construction in progress 13,502 11,138 Operating lease commitments The future total minimum lease payments under non-cancellable operating leases are as follows: 2004 2003 RMB’000 RMB’000 Not later than 1 year 1,477 1,585 Later than 1 year and not later than 5 years 7,128 6,100 Later than 5 years 77,217 88,133 85,822 95,818 32. Related party transactions and relationships (a) Apart from those related party transactions disclosed in other notes above, the Group had the following material transactions with its related parties during the year: 2004 2003 RMB’000 RMB’000 WHBG - Sale of boilers * 7,978 470 - Operating lease payment * 1,056 1,452 - Payments of income tax through WHBG - 19,141 - Payments by WHBG on behalf of the Company - 6,803 - Management fee paid to WHBG 100 - - Rental income * - 2,000 Subsidiaries of WHBG - Purchases of boiler parts and sub-contracting charges paid * 45,338 32,844 - Sales of boilers, raw materials and boiler parts * 6,200 7,473 - Payments for installation and transportation services * 68,034 30,425 - Rental income * 308 - - Rental expense * 1,015 - * In the opinion of the Directors of the Company, these transactions were carried out on normal commercial terms and the prices as agreed between the contracting parties. 66 32. Related party transactions and relationships (Cont’d) (b) Relationships In the opinion of the Directors of the Company, the ultimate parent company of the Company is WHBG, a state-owned enterprise incorporated in the PRC. (c) Directors’ remuneration A listing of the members of the Board of Directors is shown in 2004 Annual Report. The total remuneration of the Directors approximated RMB493,000 for the year (2003: RMB268,000). 33. Subsidiaries As at the balance sheet date, the Company directly held equity interests in the following PRC established subsidiaries: Attributable Name equity interest Principal activities 2004 2003 % % Wuhan Special Boiler Complete 90 90 Manufacturing and sale Equipment Engineering Company of special boilers Limited Wuhan Lan Xiang Power Environmental 70 70 Consultancy, research Protection Technology Company and design of boilers Limited and environmental projects. Wuhan Wuguo Zhi Xin Environmental 51 51 Manufacturing and sale Protection Equipment Manufacturing of environmental Co., Ltd. protection boilers, components and steel structures. 34. Approval of consolidated financial statements The consolidated financial statements were approved by the Board of Directors on 18 March 2005. 67 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2004 THE IMPACT OF IFRS ADJUSTMENTS ON THE PRC STATUTORY CONSOLIDATED FINANCIAL STATEMENTS IS AS FOLLOWS: Net profit Net assets RMB’000 RMB’000 As per the PRC statutory consolidated financial statements 44,864 578,465 IFRS and other adjustments - Gain on disposal of an investment 2,227 - - Forfeited customer deposits 298 - - Deferred tax 38 2,565 - Others - (633) As restated after IFRS adjustments 47,427 580,397 68