粤高速Ａ(000429)粤高速2004年年度报告（英文版）

Annual Report for 2004 Guangdong Provincial Expressway Development Co., Ltd. March 2004 1 Important Notes The Board of Directors and the directors of the Company hereby warrant that there are no misstatement, misleading representation or important omissions in this report and shall assume joint and several liability for the authenticity, accuracy and completeness of the contents hereof. Director Mr.Ma chunsheng did not attend the board meeting due to business trip and authorized another director Lin jian to attend the board meeting and vote on his behalf. The board chairman of the Company Mr. Cao Xiaofeng, general manager Mr. Huo Yanbin and chief accountant Mr. Xiao Laijiu represent and warrant the financial report in this annual report is true and complete. Contents I. Brief Introduction of the Company -1- II. Highlights of Accounting Data and Business Data -5- III. Particulars about Changes in Share Capital and Shareholders -11- IV. Particulars about Directors, Supervisors, Senior Executives and -15- Employees V. Corporate Administration Structure -20- VI. Brief Introduction of Shareholders' General Meeting -24- VII. Report of the Board of Directors - 25 - VIII. Report of the Supervisory Committee -41 - IX. Important Events - 43 - X. Financial Report -45- XI. List of Documents Available for Inspection -81 - This Report has been prepared in both Chinese and English. In case of any discrepancy, the Chinese version shall prevail. 2 I Brief Introduction of the Company I. Legal name of the Company In Chinese: 广 东 省 高 速 公 路 发 展 股 份 有 限 公 司 In English: Guangdong Provincial Expressway Development Co. Ltd. English Abbreviation: GPED II. Legal Representative: Cao Xiaofeng III. The secretary to the board of directors: Xiao Laijiu Contact address：85 Baiyun Road, Guangzhou, Guangdong Tel：(020) 83731365 Fax：(020) 83731384 Email: xiaolaijiu@163.com Securities affair representative：Zuo Jiang Contact address：85 Baiyun Road, Guangzhou, Guangdong Tel：(020) 83731388-230 Fax：(020) 83731384 Email: zeozj@163.net IV. Registered address：85 Baiyun Road, Guangzhou, Guangdong Business address：85 Baiyun Road, Guangzhou, Guangdong Zip code：510100 Email: ygs@gpedcl.com Internet address:www.gpedcl.com V. Newspapers selected by the Company for information disclosure: Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily. Internet website for publishing the annual report of the Company: http://www.cninfo.com.cn Place for preparing and placing the annual report of the Company: 85 Baiyun Road, Guangzhou, Guangdong VI. Stock exchange for listing: Shenzhen Stock Exchange Stock abbreviation: Guangdong Expressway A, Guangdong Expressway B Stock code : 000429, 200429 VII. Other Relevant Information 1. The date of first registration: February 9, 1993 Registered address：4/F, Dongjian Building, 503 Dongfeng Central Road, Guangzhou The date of last registration change: May 24, 2004 Registered address：85 Baiyun Road, Guangzhou 2. Registration number of business license of incorporated enterprise: QGYZZ No. 002875 3. Tax registration number：440102190352102 4. The certified public accountants retained by the Company Guangzhou Yangcheng Certified Public Accountants Co., Ltd. Office address: 25/F, 3 Jianlibao Building, 410 Dongfeng Central Road, Guangzhou. Ernst and Young. Address of representative office in China: Room 1110 and 1111, Main Office Building, Guangdong International Hotel, 339 Huanshi East Road, Guangzhou. 4 II Highlights of Accounting Data and Business Data I. The total profit earned by the Company in the report year and its composition： Unit: RMB Item 2004 Total profit 493,498,744.04 Net profit 258,201,252.90 Net profit after deducting non-recurring gains and losses 257,873,730.62 Profit from main operation 591,298,908.74 Profit from other operations 3,693,716.33 Operating profit 420,831,689.72 Investment income 82,434,308.37 Subsidy income 0.00 Net non-operating income and expenses -9,767,254.05 Net amount of cash flow from operating activities 674,823,385.84 Net increase or decrease of cash and cash equivalents 264,463,232.70 Note 1. Apart from issuing financial report pursuant to Chinese accounting standards, the Company also issued financial report pursuant to international accounting standards for reference by overseas investors. The (consolidated) net profit calculated by domestic accountants pursuant to Chinese accounting standards is RMB 258,201,252.90. The (consolidated) net profit calculated by overseas accountants pursuant to international accounting standards is RMB 194,522,000.00. The difference between them is RMB 63,679,252.90. Refer to supplementary accounting information (I) in this chapter for detailed reasons for the difference. 5 Note 2: Items of non-recurring gains and loss deducted and involved amount Unit: RMB Book amount（+ representing Items of non-recurring gains and losses gains / - representing losses） 1. Gains and losses on disposition of long-term equity investment, fixed assets, construction in progress, intangible -40,034,275.59 assets and other long-term assets 2. Tax refund, deduction and exemption that is examined and approved by authority exceeding or has no official approval - document 3. Government subsidy in various forms - 4. Fund possession cost collected from non-financial enterprises 27,679,864.76 and accounted for as gains and losses for the current period 5. Short-term investment gains and losses 591,565.85 6. Gains and losses on entrusted investment - 7. Non-operating income and expenses after deducting fixed provision for impairment of assets generally made by the 445,706.40 Company according to Accounting Regulations for Business Enterprises. 8. Provision for impairment of assets made due to force majeure factors such as natural calamity 9. Writeback of provision for impairment made in previous 13,599,149.59 years 10. Gains and losses on debt restructuring 11. Gains and losses on asset swap 12. Gains and losses on the part exceeding fair value generated by the transaction price that is apparently unfair 13. Retroactive adjustment by the change of accounting policies to the net profit of previous periods in comparative financial statements 14. Other items confirmed by CSRC Subtotal 2,282,011.01 15. Amount of influence of the above items on income tax -1,954,488.73 Amount involved by the above items 327,522.28 6 II. Main accounting data and financial indicators of the Company in the last three years as of the End of the Report Period are as follows: 2003 2002 Item 2004 Before After adjustment Before After adjustment adjustment adjustment Income from main operation (RMB) 902,454,921.50 797,190,721.00 797,190,721.00 753,156,947.00 753,156,947.00 Net profit (RMB) 258,201,252.90 181,182,988.13 174,985,947.02 171,024,582.16 155,173,786.62 Total assets (RMB) 6,837,621,820.60 6,663,419,082.32 6,663,419,082.32 6,140,580,965.34 3,455,730,228.58 Shareholders' equity（not including minority 3,634,903,493.42 3,534,078,664.97 3,503,299,837.45 3,480,312,041.99 3,480,312,041.99 （RMB） interests） Earnings per share (RMB/share) (fully diluted) 0.21 0.14 0.14 0.14 0.12 Earnings per share (RMB/share) (weighted 0.21 0.14 0.14 0.14 0.12 average) Earnings per share after deducting non-recurring 0.21 0.14 0.14 0.15 0.13 gains and losses (RMB/share) Net assets per share after adjustment 2.89 2.81 2.79 2.77 2.75 （RMB/share） Net assets per share after adjustment 2.88 2.80 2.78 2.75 2.73 （RMB/share） Net cash flow per share from operating activities 0.54 0.36 0.36 0.28 0.28 Return on net assets (fully diluted) 7.10% 5.13% 4.99% 4.91% 4.49% Return on net assets (weighted average) 7.30% 5.07% 5.07% 4.8% 4.55% Weighted return on equity after deducting 7.29% 5.03% 5.03% 5.20% 4.90% non-recurring gains and losses 7 III. Particulars about changes in shareholders' equity in the report period Unit: RMB Item Share capital Capital surplus Surplus reserve Statutory Undistributed Total shareholders' public welfare profit equities fund Beginning 1,257,117,748.00 1,534,807,790.79 348,145,977.20 68,891,091.09 364,934,238.76 3,503,299,837.45 balance Increase in current 99,065.53 38,730,187.94 12,910,062.65 93,759,290.16 131,603,655.97 period Decrease in current period Ending 1,257,117,748.00 1,534,906,856.32 386,876,165.14 81,801,153.74 458,693,528.92 3,634,903,493.42 balance Reason for I. The interest of Appropriation Appropriation Profit for the Profit for the year change paid-up capital for surplus for statutory year during the period reserve public welfare of capital fund verification of subsidiaries IV. Supplementary accounting information (I) Reason for the difference between net assets and net profits for the report period calculated pursuant to domestic and international accounting standards Unit of amount: RMB'000 Net profit Net assets Stated pursuant to Chinese accounting standards 258,201 3,634,903 Depreciation adjustment, net -11,730 -97,656 Adjustment of goodwill amortization generated by the acquisition of the shareholders' equity of affiliated companies and subsidiaries, net 10,732 32,241 Writeback adjustment of the unrealized income from the transfer of Jiujiang Bridge 2,496 -36,392 Write-off adjustment of deferred tax and assets corresponding to the unrealized income from the transfer of Jiujiang Bridge -822 1,569 Recognition and amortization of other long-term assets -2,859 10,293 Hands over extends tax of Fokai Guangfo Guangzhu Yuezhao and Guanghui company -29,359 -59,559 The income tax and overdue fine additionally paid and appropriated as required by tax bureau in the report year -30,779 Others -1,358 -3,659 Stated pursuant to international accounting standards 194,522 3,481,740 The overseas audit body auditing the Company is Ernst and Young. 8 (II) According to the gist of No. 9 circular of CSRC on the promulgation of Rules on Information Disclosure of Companies Publicly Issuing Securities, the return on equity and earnings per share of the Company for 2003 calculated on fully diluted basis and weighted average basis are as follows: Return on equity Earnings per share (RMB) Profit for the report period Weighted Weighted Fully diluted average Fully diluted average Profit from main operation 16.27% 16.71% 0.47 0.47 Operating profit 11.58% 11.89% 0.33 0.33 Net profit 7.10% 7.30% 0.21 0.21 Net profit after deducting non-recurring gains and losses 7.09% 7.29% 0.21 0.21 (III) Schedule of provision for impairment of assets Unit of amount：RMB Item Beginning Increase in Amount Ending balance balance current period transferred back in current period I. Total provision for bad debts 1,470,000.00 567,256.58 - 2,037,256.58 Including：Accounts receivable - 548,399.40 - 548,399.40 Other receivables 1,470,000.00 18,857.18 - 1,488,857.18 II. Total provision for impairment of short-term investment 145,477.73 357,555.00 503,032.73 - Including：Stock investment 145,477.73 50,232.31 195,710.04 Bond investment 307,322.69 307,322.69 III. Total provision for impairment of inventories - - - Including：Merchandise inventory - - - Raw materials - - - - IV. Total provision for impairment of long-term investment 17,254,012.03 - 5,518,601.96 11,735,410.07 Including ： Long-term equity investment 5,518,601.96 - 5,518,601.96 - Long-term creditor's right investment - - - - V. Total provision for impairment of 16,100,000.0 fixed assets 16,100,000.00 0 - Including：Houses and buildings 3,700,000.00 - 3,700,000.00 - Machinery and equipment - - - - VI. Total provision for impairment of intangible assets - - - - 9 Including：Patent right - - - - Trademark right - - - - VII. Provision for impairment of construction in progress - - - - VIII. Provision for impairment of entrusted loan - - - - 10 III Particulars about Changes in Share Capital and Shareholders I. Statement of changes in shares Unit：share Increase or decrease this time (+/-) Before this Capitalization Right Bonus Secondary After this change change of common Others Subtotal shares shares offering reserve fund I. Non-negotiable shares 1. Promoter's shares 512,142,945 512,142,945 Including： State-owned shares 474,780,525 474,780,525 Domestic corporate shares 37,362,420 37,362,420 Overseas corporate shares Others 2. Raised corporate shares 166,694,053 -45,000,000 -45,000,000 121,694,053 Including： Domestic corporate shares 121,694,053 121,694,053 Overseas corporate shares 45,000,000 -45,000,000 -45,000,000 0 3. Staff shares 4. Preferred shares or others Total non-negotiable shares 678,836,998 -45,000,000 -45,000,000 633,836,998 II. Negotiable shares 1. Domestically listed RMB 274,530,750 274,530,750 common shares 2. Domestically listed foreign 303,750,000 +45,000,000 +45,000,000 348,750,000 investment shares 3. Overseas listed foreign investment shares 4. Others Total negotiable shares 578,280,750 +45,000,000 +45,000,000 623,280,750 III. Total shares 1,257,117,748 0 0 1,257,117,748 II. Share issue and listing 1. The Company did not issue shares in the recent three years. 2. According to the China Securities Regulatory commission (GSZ(2003)NO.3 " The Notice of approving Guangdong Provincial Expressway Development Co. Ltd. To go on the foreign Stock market to Circulation "IJM OVERSEAS VENTURES SDN.BHD. Holds 45 million to go on the market of foreign capital stock Transfers B circulation stock and goes on the market on March 8, 2004 11 3. At the end of the report period, the Company did not have staff shares. III. Particulars about Shareholders 1. As of December 31, 2004，the Company had 98,736 shareholders in total. Including 65,632 A shares shareholders and 33,104 B shares shareholders. 2. Particulars about the shareholding of principal shareholders Name of shareholder Increase or Number of Proportion Type of share Quantity Nature of decrease in shares held (%) of shareholder the year at the end of pledged year or frozen (shares) shares Guangdong State-owned Communication Group 474,780,525 37.77% Non-negotiable Nil shares Co., Ltd. Shareholder IJM OVERSEAS holding foreign VENTURES 65,055,917 5.18% Negotiable Nil investment SDN.BHD. shares Guangdong Expressway 19,377,187 1.54% Non-negotiable Nil Corporate shares Co., Ltd. Guangdong Yuecai Trust 14,062,500 1.12% Non-negotiable Nil Corporate shares Investment Co., Ltd. Shareholder National Social Security holding +13,080,481 13,080,481 0.72% Negotiable Nil Fund 108 negotiable shares Shareholder Shanghai Haitong holding Securities Shenzhen 9,065,698 0.41% Negotiable Nil negotiable Business Dept. shares Shareholder Yuyuan Security holding +8,001,181 8,001,181 0.34% Negotiable Nil Investment company negotiable shares Shareholder Boshi Jingxuan Security holding +6,569,819 6,569,819 0.30% Negotiable Nil Investment company negotiable shares Xinhui City Siqian Town Economic Union Head 5,176,890 0.28% Non-negotiable Nil Corporate shares Office 12 Shareholder Yulong Security holding +4,079,878 4,079,878 0.27% Negotiable Nil Investment Fund. negotiable shares (1) Among the top ten shareholders ， Guangdong Communication Group Co., Ltd. holds 474,780,525 state-owned shares on behalf of the state. (2) Among the top ten shareholders，Guangdong Communication Group Co., Ltd. is the parent company of Guangdong Expressway Co., Ltd. National Social Security Fund 108, Yuyuan Security Investment company, Boshi Security Investment company and Yulong Security Investment Fund are all managed by Boshi Fund management company. It’s unclear that if there is any relation between other shareholders and if they are taking concerted action in Regulations on disclosure of Information about Change in shareholding of Shareholder of Listed Companies. 3. Brief introduction of the controlling shareholder Guangdong Communication Group Co., Ltd. is the largest shareholder of the Company. legal representative: Zhu Xiaoling. Date of establishment: August 23, 2000. Registered capital: RMB 16.8 billion. It is a solely state-owned limited company. Business scope：equity management, organization of asset reorganization and optimized allocation, raising funds by means including mortgage, transfer of property rights and joint stock system transformation, project investment, operation and management, traffic infrastructure construction, highway and railway project operation and relevant industries, technological development, application, consultation and services, highway and railway passenger and cargo transport, ship industry, relevant overseas businesses. Practical master status: Guangdong province state-owned property supervising committee 100% Guangdong Communication Group Co., Ltd 37.77% Guangdong province Expressway Development Co., Ltd 13 4. Particulars about the shareholding of the top ten shareholders holding negotiable shares Name of shareholder Number of shares held Type of at the end of year share (shares) IJM OVERSEAS VENTURES SDN.BHD. 65,055,917 B shares National Social Security Fund 108. 13,080,481 A shares Haitong Securities Co., Ltd. 9,065,698 A shares Yuyuan Security Investment company 8,001,181 A shares Boshi Jingxuan Security Investment company 6,569,819 A shares Yulong Security Investment Fund. 4,079,878 A shares NAITO SECURITIES CO., LTD. 3,372,387 B shares National United Andesheng Security Investment A shares company 2,439,409 Baodexin Quantized Core Security Investment 2,377,908 A shares company TOYO SECURITIES ASIA LIMITED-A / C CLIENT 2,263,100 B shares Boshi Fund Management Company manages National Social Security Fund 108, Yuyuan Security Investment company, Boshi Security Investment of Industrial & Commercial Bank of China and Yulong Security Investment Fund. It’s unclear that if there is any relation between other shareholders and if they are taking concerted action in regulations on disclosure of information about change in shareholding of shareholder of listed companies. 14 IV Particulars about directors, supervisors and senior executives 1. Basic information Sex Age Term of No. of shares No. of shares Increase/decrea office held at the held at the se (shares) Name Position (Year) beginning of end of period period (shares) (shares) Cao Xiaofeng Chairman of the board of directors Male 40 2002—2005 18,400 18,400 0 HuoYanbin Director & general manager Male 38 2002—2005 15,300 15,300 0 Xiao Laijiu Director, deputy general manager, Male 41 2002—2005 15,300 15,300 0 chief accountant and the secretary to the board of directors Ling Jian Director Male 43 2003—2005 0 0 -22,330 Ma Chunsheng Director Male 40 2003—2005 0 0 Wang Tao Director Male 41 2002—2005 15,300 15,300 0 Li Wenzheng Director Male 53 2002—2005 23,400 23,400 0 Liu Qin Independent director Male 40 2002—2005 0 0 0 He Hongdi Independent director Female 64 2002—2005 0 0 0 He Qiang Independent director Male 52 2003—2005 0 0 Xiang Tiangui Independent director Female 48 2003—2005 0 0 Li Dongshan The chairman of the supervisory Male 40 2002—2005 0 0 0 committee Wu Jianxiang Supervisor Male 57 2003—2005 0 0 XuYan Supervisor Female 50 2002—2005 44,550 44,550 0 Li Mei Supervisor Female 35 2002—2005 94,050 94,050 0 Tu Huiling Supervisor Female 45 2002—2005 43,425 43,425 0 Dong Guofeng Deputy general manager Male 2002—2005 43,425 43,425 0 35 Yun Wujun Chief economic engineer Male 50 2002—2005 15,300 15,300 0 Wang Jiachen Chief engineer Male 40 2002—2005 33,580 33,580 0 Peng Xiaofang Person in charge of internal audit Female 42 2002—2005 6,100 6,100 0 15 2. Particulars about directors and supervisors holding positions at corporate shareholders Whether receiving Name of Name Position Term of office remuneration and shareholder subsidy（Yes or no） Guangdong Director of 2000.6 to the Ling Jian Communication Yes Investment Dept. present Group Co., Ltd. Guangdong General manager 2003.4 to the Ma Chunsheng Expressway Co., and member of Yes present Ltd. Party committee Guangdong Yuecai Trust Deputy general 1995.7 to the Wang Tao Yes Investment Co., manager present Ltd. IJM OVERSEAS 1996.6 to the Li Wenzheng VENTURES Finance director Yes present SDN.BHD Director of Guangdong Planning and 2003.3 to the Li Dongshan Communication Yes Financial Audit present Group Co., Ltd. Dept. Guangdong Vice chairman of 2003.3 to the Wu Jianxiang Communication Yes labor union present Group Co., Ltd. 3, Incumbent trustee, supervisor, high-level administrative 's main employment history and the situations of their concurrent job besides the shareholder unit's. Mr. Cao Xiaofeng, who is the company chairman of the board, party committee secretary, master graduate student, senior engineer and the senior economist. Works in this company from 1998 until now, successively holds routine deputy general manager, vice- chairman of the board, general manager. Who presently is the chairman of Fokai Expressway Co.,Ltd, the vice- chairman of Guanghui Expressway Co.,Ltd.. Mr. Huo Yanbin,who is the director of company, general manager, doctor, the senior economist. Who works in this company from 1993 until now, successively holds negotiable securities department manager, the secretary of the board of directors, vice- general manager. Who presently is the chairman of Fokai Expressway Co.,Ltd,the director of Guanghui Expressway Co.,Ltd.,the vice- chairman of Jiangzhong Expressway Co.,Ltd.. 16 Mr.Xiao laijiu, who is the director of company, vice-general manager, chief accountant and the secretaries of the board of directors, Who presently is the director of Fokai Expressway Co.,Ltd,.the vice-chairman of ShenzhenHuiyan Expressway Co.,Ltd.,the director of Guangfo Expressway Co.,Ltd.. Mr. Ling Jian, who is the director of company, master, senior engineer, From 1993 to 2000 he was the vice-presidents of Guangdong Province road design institute., Who is the Minister of Investment-Management department of Guangdong Province transportation group limited company. Mr. Ma Chunsheng, who is the director of company, University undergraduate, Professor level engineer, Chief of Guangdong Province road reconnaissance plan design institute, Who is the Chairman of the board of Guangdong Province Expressway company from 2003 until now. Mr. Wang Tao,who is the director of company, master graduate student, Who was the deputy general manager of Guangdong Yuecai trust investment company, from 1995 to 2001 and the Deputy general manager of Guangdong Yuecai Stock control investment company from 2001 until now. Mr.Li wenzheng,who is the director of company, master.From 1971 nutil now, he works in Malaysian Yibao project group limited company, holds the post of Financial trustee. Mr. Liu Qin,who is the independent director of company. From 2000 to 2001 he hold the post of the Xi'an Jiaotong University teachers, from 2001 to 2002 he was the quantity analyst of Huaxia fund management limited company, from 2002 to 2003 he was the technology main pipe of Huashang fund management limited company, from 2004 until now he is the technology general inspector of Guotai fund management company. Ms.He hongdi, who is the independent director of company, university undergraduate, chartered accountant. From 1996 to 1997 she was the Chartered accountant of Guangdong Hongjian Audits office.From .She is the partner of Shenxin accounting firm, Chartered accountant. Mr.Heqiang, who is the independent director of company,university undergraduate. From 1985 until now he worked in central Financial finance university, incumbent professor, Holds a concurrent post of independent director of Jinan Diesel engine limited liability company,Hunan Dongting Aquaculture limited liability company, Zhanjiang Harbor limited liability company. Ms Xiang tiangui, who is the independent director of company,university undergraduate. From 1994 until now is the partner of Beijin Chang`an Law office, Attorney. Mr.Li dongshan ,who is the president of board of supervisors of company, university undergraduate. From 1998 to 2000 he was the Director section member of Guangdong Province transport department.From 2000 until now is the minister of counts and Audit Department of Guangdong Communication Group Co., Ltd. Mr. Wu Jianxiang, who is the supervisor of company, the university undergraduate, From 1996 to 17 2000 he held the post of deputy general manager in the Hong Kong prestige abundant transportation enterprise limited company, From 2000 to 2003 he held the post of deputy general manager, party committee secretary in the Guangdong transportation investment company, From 2003 until now he holds the post of trade union vice-president in Guangdong Communication Group Co., Ltd.Ms. Xu Yan, who is the supervisor of company, the university undergraduate, From 1990 to1996 she was appointed manager in Fokai Expressway limited company, From 1996 to 2003 she was appointed party committee assistant deputy secretary in the Guangdong Province Expressway company, From 2003 until now she works in the Guangdong Hualu transportation science and technology limited company, incumbent chairman of the board. Ms. Limei, who is the supervisor of company, office director, the party manage director, disciplinary inspection committee member, the university faculty, the politicst , From 1998 until now she works in this company, presently the supervisor president of Guanghui Expressway company and Jiangzhong Expressway company. Ms.Tu huiling, who is the supervisor of company, trade union vice-president, the graduate student, the high-level politicst , From 1992 until now she works in this company. Mr. Dong Guofeng,who is the deputy general manager of company, the graduate student, the high-level politics, From 1990 to 1997 he worked in the guangdong Guanghua Expressway company, From 1997 until now he works in this company, presently holds chairman of the board of Guangdong Expressway science and technology investment limited company and the company trustees of Zhaoqing Yuezhao road limited company. Mr. Yunwujun, who is the chief economist of company, legal advisor, the university undergraduate course, senior accountant,From 1990 to 1995 he was appointed audit branch section chief, disciplinary inspection committee member in the Guangdong Province Grain&oil import-export company, From 1995 until now he works in this company, presently he is the vice- chairman of the board of Guangdong Maozhan Expressway limited company, the trustees of Guangdong Expressway science and technology investment limited company, the supervisors president of Guangdong Fokai Expressway limited company, the independent trustees of Guangdong Water&telegraph second office. Mr. Wang Jiachen,who is the chief engineer od company, the university undergraduate, senior engineer, From 1995 to 1997 participated the 325 federal highways Jiujiang bridge to direct the extension project, From 1997 to 2000 participated Guangqing Expressway of Xinhua to Yinzhan extension project, From 2000 until now he works in this company, presently he is the trustees of Jiangzhong Expressway limited company and the chairman of the board of ZhaoqingYuezhao limited company. Ms.Peng xiaofang, who is in charge of examines of company, university undergraduate course, senior accountant, From 1993 until now she works in this company, presently holds a concurrent post the Guangdong Expressway science and technology investment limited company supervisors, the Guangdong Fokai Expressway limited company supervisors, the Shenzhen Huiyan 18 Expressway limited company supervisors 3. Annual remuneration The remuneration of directors and supervisors was examined and determined at the first shareholders' general meeting in 2002. The total amount of annual remuneration received by current directors, supervisors and senior executives from the Company in 2004 was RMB 3.0883 million. The total amount of the remuneration of the top three directors receiving the remuneration of the highest amount was RMB 0.9189 million. The total amount of the remuneration of the top three senior executives receiving the remuneration of the highest amount was RMB 0.9189 million. The number of the current directors, supervisors and senior executives of the Company was 21. All of them received remuneration and subsidy from the Company. The range of amount of annual remuneration is as follows: Range of annual remuneration Number of directors, supervisors and senior executives RMB 0 - 100,000 11 persons RMB 100,000 - 200,000 2 persons RMB 200,000 - 300,000 6 persons RMB 300,000 - 400,000 2 persons 4. Name of the directors, supervisors or senior executives who left their posts in the report period and the reason therefore In the report period, none of the directors, supervisors or senior executives left their posts. II. Particulars about employees As of the end of 2004, the Company had 1075 on-the-job employees. The particulars are as follows: Number of Divided by function person Proportion Managerial personnel 207 19.20% Toll collectors 745 69.30% Road service personnel 36 3.30% Logistical personnel 87 8.09% Total 100 100.00% 19 Divided by professional title Senior professional title 23 2.10% Semi-senior professional title 70 8.37% Junior professional title 109 10.10% Others 873 81.20% Total 1075 100.00% Divided by academic qualification Holders of master's degree or above 12 1.10% Graduates of regular universities 90 8.30% Graduates of junior colleges and secondary technical schools 467 43.40% Others 506 47.00% Total 1075 100.00% The number of retired staff and workers for whom the Company needed to pay retirement are 5 pensions. 20 V Corporate administration structure I. Particulars about corporate administration The Company has constantly improved its corporate administration structure, established modern enterprise system and standardized its operation strictly according to the requirements of the Company Law, Securities Law and relevant laws and regulations of CSRC. At present, the company has formulated and the implemented systems includes: "The rule of Board of directors Procedure ", "The rule of General meeting of shareholders Procedure ", "The rule of Board of supervisors Procedure ", "Independent Trustee System", " The Internal control System about Withdraws Each Property Reduction Preparation ", "Information Disclosed Control system", "Significant Information Internal report System" and "Investor Relations management system “At present, the Company has 4 independent directors, who account for over one third of the members of the board of directors. The corporate administration structure of the Company is quite sound. There is no discrepancy with the requirements of relevant documents of CSRC. II. Particulars about duty performance of independent directors The four independent directors of the company, Liu Qin, He Hongdi, He Qiang and Xiang Tiangui Strictly according to " The govern Criterion of Goes on the market Company ", "Independent Trustee System" and "Articles of incorporation" and so on the rules and regulations stipulations to fulfills the responsibility In the report period，the four independent directors positively participate the meeting of board of directors and the general meeting of shareholders, expressed independent opinions on the appointment of senior executives and related transactions of the company, put forward professional opinions on the significant investment decisions and future development strategy of the Company, enhanced the independence of the board of directors, Practically maintained the benefit of company and the general shareholders'. 1、The situations of independent trustees participate the meeting of board of directors Name The The The The Remarks frequency of frequency of frequency of frequency of meeting of personally entrust attend absence board of attend directors Liu qin 4 4 0 0 He hongdi 4 4 0 0 He qiang 4 4 0 0 Xiang tiangui 4 4 0 0 2、The situation of independent directors` objections. In this period of time, they didn’t raise any objection. 21 III. Notes to the separation of the Company from its controlling shareholder in respect of business, personnel, assets, organs and finance The controlling shareholder of the Company is Guangdong Communication Group Co., Ltd. It holds 474,780,525 shares of the Company，which account for 37.77% of the total share capital of the Company. The Company has sound corporate administration structure. It has been completely independent of its controlling shareholder in respect of business, personnel, assets, organs and finance and has independent and complete business and the ability of independent operation. 1. Independent business The Company is mainly engaged in the toll collection and maintenance of Guangfo Expressway and Fokai Expressway. Meanwhile, it is the joint venturer of Shenzhen Huiyan Expressway Co., Ltd., Guangdong Maozhan Expressway Co., Ltd., Guangdong Guanghui Expressway Co., Ltd., Jingzhu Expressway Guangzhu Section Co., Ltd., Zhongjiang Expressway Co., Ltd, ShiqinYueshi Expressway Co., Ltd.,and Guangdong Express Technology Investment Co., Ltd. The Company has outstanding main operation, independent and complete business and the ability of independent operation. All business decisions of the Company were made independently, being completely separated from the shareholder with actual control. Related transactions were carried out in light of the principle of fair transaction, which did not harm the interests of the Company and other shareholders of the Company. The content of related transactions was fully, timely and accurately disclosed, which did not have negative influence on the Company. 2. Complete assets The relationship of the Company's property right is clear. The assets injected by shareholders in the Company are independent and complete and have clear property right. All capital was paid up and relevant formalities of property right change were settled. 3. Independent personnel As for personnel relationship, the general manager, deputy general managers, the secretary to the board of directors and financial controller of the Company were full-time employees and received salary from the Company, who did not concurrently hold positions at the parent company. All directors and supervisors of the Company were elected through legal procedure. The board of directors directly appointed the general manager, deputy general managers, chief accountant, chief economic engineer and chief engineer. The general manager directly appointed other managerial personnel of all levels. The Company owns independent power of personnel appointment and removal. 4. Independent finance 22 The Company, including subsidiaries and branches, established independent accounting department，independent accounting system and regulations on financial management. The Company independently opened bank account and did not deposit funds in the accounts of the finance company or settlement center of the majority shareholder. The Company independently paid tax. The Company's financial decisions were independently made. The majority shareholder did not interfere with the use of funds by listed companies. 5. Independent organization The board of directors, the supervisory committee and other internal organs of the Company operated independently. Its organs are complete and independent. IV. The mechanism of appraisal and stimulation of senior executives and the establishment and implementation of relevant incentive system in the report period The Company submitted senior executive incentive scheme to the board of directors for examination according to the operating results reflected in the annual auditor's report issued by certified public accountants and implemented such scheme after examination and approval by the board of directors. 23 VI Brief Introduction of Shareholders' General Meeting In the report period，the Company held an annual shareholders' general meeting-----2003 annual shareholders' general meeting . 1.The situations of notification and convene of meeting of shareholders.。 The 9th meeting of the fourth board of directors of the Company resolved to hold 2003 annual shareholders' general meeting and published meeting notice on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on April 17, 2004. 2.The resolutions general meeting of shareholders through or veto, the date and the publication of the information disclose. The 2002 annual shareholders' general meeting of the Company was held in China Hall on 4/F of Guangdong Foreign Investors' Activity Center on May 27, 2004. 6 shareholders (or shareholders' representatives) attended the meeting, holding and representing 574,208,572 shares, which account for 45.68% of the total share capital, i.e., 1,257,117,748 shares. 3 shareholders holding domestic investment shares attended the meeting, representing 508,220,212 shares. 5 shareholders holding foreign investment shares attended the meeting, representing 65,988,360 share. The meeting complied with relevant provisions of the Company Law and the Articles of Association of the Company. The meeting examined and voted through the following proposals by registered ballot: 1、 Finance final accounts report of 3003 2、 2003 Profit Distribution Preplan; 3、 2003 Business Report of the General Manager; 4、 2003 Work Report of the Board of Directors of the Company; 5、 2003 Work Report of the Supervisory Committee of the Company; 6、 2003 Annual Report and Its Summary; 7、 The bill about invites the accounting firm 8、 The Proposal for Changing the Business Scope of the Company and Revising Relevant Part of Articles of Association of the Company. The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on May 28, 2004. III. Particulars about the election and replacement of director and supervisors In the current period, this company has not elects, or replaces director of corporations or the supervisor. 24 VII Report of the Board of Directors I. Discussion and analysis of operation In the good macroscopic environment of 2004, due to the strong growth of Zhusanjiao local economy and CEPA and the impels impetus of Zhusanjiao economical circle, The through train current capacity and general spent income of the company controlled subsidiaries and joint ventures are obtain the double figure growth. Increase or Increase or decrease over the decrease over the Volume of same period of Toll income in same period of vehicle traffic in the previous year 2004 (RMB the previous year 2004 (million) (%) million) (%) Guangfo Expressway 29.65 17.56% 324.27 11.05% Fokai Expressway 13.92 21.44% 530.99 15.64% Jiujiang Bridge 7.02 2.11% 47.54 3.34% Huiyan Expressway 15.37 20.65% 218.21 17.79% Maozhan Expressway 1.91 27.20% 65.35 51.71% Jingzhu Expressway 569.22 20.17% Guangzhu East Section 16.59 21.70% Guangzhao Expressway 4.90 22.70% 111.18 22.07% Guangzhao First-class 82.61 31.45% Highway 8.91 24.27% Guanghui Expressway 8.65 ----- 535.09 ----- Guangfo expressway has completed the overhaul project and the through train current capacity and general spends income has appear the recoverable growth, obtained the biggest increased range of recent years. Fokai expressway, Huiyan expressway and Jingzhu expressway east section has entered the fast increases period. The traffic flow magnitude and general spends has a bigger growth, brings a greater income to the company." Along with the clear of Maoyang expressway, The expressway from Guangzhou to Zhanjiang has linked up. It greatly increased the train current capacity and general spends income. On the other hand Maozhan expressway (22km) has also cleared. It increased the amortizes expense and loss of Maozhan expressway. Guangzhao expressway and Guangzhao first-class Highway had realized profit, and general income will increase along with the traffic flow magnitude year by year and provide a greater income for the company."Guanghui expressway has cleared on December 2003 and realized profit of 0.9 billion. It will be a highlight to the income of company. In the report period，the income from main operation and net profit of the Company were RMB 25 9020 million and RMB 2580 million net income, an increase of 13.17% and 47.43% respectively over the same period of the previous year. The cash flow from operating activities was RMB 6750 million, an increase of 46.68% over the same period of the previous year. The net increase of cash and cash equivalents was RMB 2640million. As of December 31, 2004，the assets-liabilities ratio of the Company was 35.67%. Long-term liabilities accounted for 71.63% of total liabilities. There were no due but unsettled debts. The Company had sufficient overall equity capital and its assets and liabilities structure was good, which is exposed to low financial risk. The Company operated in good condition in 2004. The progress of the projects under construction is as follows: 62.83% of Jiangzhong Expressway (including phase-II Jianghe Expressway) was completed. It expected to be completed at the end of 2005. The overhaul project of Guangfo Expressway was completed in August 2004. II. Operating status of the Company in the report period 1. The scope of main operation and its operating status Being in infrastructure industry, the Company is mainly engaged in the commercial development and operation of expressways and huge bridges. It is one of main enterprises engaged in the development of expressways and huge bridges in Guangdong expressway system. Expressway industry is an industry enjoying the key support of the state. The operation of the company is benefits from the support of national industrial policies. In the report period, the income from main operation and profit from main operation of the Company were RMB 902,454,921.50 and RMB 591,298,908.74 respectively, which came from the commercial toll collection of expressways and huge bridges. The concrete composition is as follows: Items of main operation Income from main Proportion operation (RMB) Fokai Expressway Co., Ltd. 578,521,665.50 64.11% Guangfo Expressway Co., Ltd. 323,933,256.00 35.89% Items of main operation Profit from main Proportion operation (RMB) Fokai Expressway Co., Ltd. 369,184,998.24 62.44% Guangfo Expressway Co., Ltd. 222,113,910.50 37.56% 2. Operating status and results of main controlled subsidiaries and joint ventures (1) Guangfo Expressway Co., Ltd. The Company holds 75% equity of this company. The registered capital of the company is RMB 200 million. It is engaged in construction and operation of Guangzhou-Foshan Expressway, including the maintenance and toll collection of the 26 expressway, the maintenance of traffic facilities including signs and marked lines, vehicle salvage, etc. As at the end of 2004, the total assets and net profit of the company were RMB 771,562,421.29 and RMB 174,257,073.37respectively. While the net assets were RMB 453,038,117.91 (2) Guangdong Fokai Expressway Co., Ltd. The Company holds 51% equity of this company. The registered capital of the company is RMB 340 million. It is engaged in operation and management of Fokai Expressway, supporting salvage, maintenance and cleaning, supply of parts and components, etc. As at the end of 2004, the total assets and net profit of the company were RMB3, 437,289,285.57 and RMB 166,497,357.47 respectively. While the net assets were RMB 1,311,102,977.83 (3) Guangdong Express Technology Investment Co., Ltd. The Company holds 95% equity of this company. The registered capital of Guangdong Express Technology Investment Co., Ltd. is RMB 100 million. It is engaged in investing in science and technology industries. As at the end of 2004, the total assets and net profit of the company were RMB 98,635,244.78 and RMB 3,306,542.77 respectively. While the net assets were RMB 92,624,387.58 (4) Shenzhen Huiyan Expressway Co., Ltd. The Company holds one-third equity of this company. The registered capital of the company is RMB 36 million. The company is engaged in the organization and management of the construction of the main line of Shenzhen section of Huiyan Expressway, its operation, management and maintenance after its completion, collection of toll and road service management, the construction management of road, bridge and culvert projects and engineering consultation. As at the end of 200$, the total assets and net profit of the company were RMB 550,800,698.97 and RMB 110,515,373.91 respectively. While the net assets were RMB 81,371,864.60 (5) Guangdong Maozhan Expressway Co., Ltd. The Company holds 20% equity of this company. The registered capital of the company is RMB 320 million. The company is engaged in operation, maintenance and management of Dianbai-Zhanjiang Expressway and relevant supporting facilities. As at the end of 2004, the total assets and net profit of the company were RMB 3,156,608,668.18 and RMB -117,377,350.14 respectively. While the net assets were RMB 239,385,711.35 (6) Jingzhu Expressway Guangzhu Section Co., Ltd. The Company holds 20% equity of this company. The registered capital of the company is RMB 580 million. The company is engaged in the operation and management of Guangzhou-Zhuhai Expressway and provision of supporting services including fueling, salvage and supply of parts and components. As at the end of 2004, the total assets and net profit of the company were RMB 4,797,831,597.56 and RMB 147,769,482.21 respectively. While the net assets were RMB504,719,898.57. (7) Zhaoqing Yuezhao Highway Co., Ltd. The Company holds 25% equity of this company. The registered capital of the company is RMB 818.3 million. It is engaged in the construction, operation and management of Guangzhao Expressway, old highways and their supporting facilities, service facilities and integrated projects. As at the end of 2004, the total assets and net 27 profit of the company were RMB 2,357,908,680.39 and RMB 16,792,452.75 respectively.The net assets were RMB 742,736,566.05. (8) Guangdong Guanghui Expressway Co., Ltd. The Company holds 30% equity of this company. The registered capital of the company is RMB 671.9 million. It is engaged in the investment in and construction of Guanghui Expressway and supporting facilities, the toll collection and maintenance management of Guanghui Expressway. As at the end of 2004, the total assets and net profit of the company were RMB 7,292,035,686.53 and RMB 90,477,996.46 respectively, while the net assets were RMB 2,332,864,779.18. 3. Problems and difficulties occurred in operation and their solutions On one hand, because the expressway is scarce in the certain degree and the resources characteristic, and Guangdong Province expressway profession market degree is quite high, the company enjoys the preferential policy are less, further purchases the highway difficulty gradually will be increase. The company should the measure includes: adjust the procedure that paid great attention to the purchase to complete the expressway stockholder's rights to participates more in the earlier period construction of expressway; Strengthens the dynamics coordinated work, impetus the high quality expressway advancement of the province. III. Particulars about investment (I) The Company did not use raised funds in the report period. (II) The actual progress of important investment projects utilizing non-raised funds. 1, According to the 11th meeting of the forth board of director and 2001 shareholders meeting, our company write up the contract "Jiangzhong Expressway project cooperation contract" with Guangdong Highway construction company to invests together to sets up the Jiangzhong expressway limited company. The company registration capital is 150 million Yuan, the Guangdong highway construction company holds 85% stockholder's rights, our company holds 15% stockholder's rights Jiangzhong expressway limited company has obtained the Guangdong Province industrial and commercial administration bureau to August 26, 2002 "Enterprise Legal people To do business License" (the registration number: 4400001901158).On April 3 2003，The second meeting of the first board of directors of Guangdong Jiangzhong expressway Co., Ltd. agreed that change the company registration capital to 3.4352 billion. On April 15,2003 Huangdong Tianhuahuayue account firm has listed the examining report HYYZ(2003)NO.2054 To examine it .In the report period, our company invested 21.36 million Yuan.。Up to December 31,2004,the Jiangzhong expressway project progress (including phase-II project of Jianghe Expressway.) was 62.83%, our company has accumulate invested 104.65 million Yuan 2、On July 14, 2000, the Company newly entered into the Contract for Cooperative Construction 28 and Operation of Guangzhou (Luogang) to Huidong (Lingkeng) Expressway with Guangdong Changda Development Co., Ltd., Guangdong Pearl River Highway & Bridge Investment Co., Ltd. and Huizhou Highway Property Development Co., Ltd. to jointly invest in, construct and operate Guangzhou (Luogang) to Huidong (Ling Keng) expressway, and its supporting and service facilities. The total investment of the project is about RMB 6.7 billion. 35% of the total investment shall be paid by corporate shareholders in lump sum. Capital shall be contributed year by year in proportion according to the approved construction progress. The registered capital of the company is RMB 100 million. The Company shall contribute capital of RMB 30 million, which accounts for 30% of the registered capital. The capital beyond the registered capital shall be paid by shareholders according to proportion of capital contribution. The funds beyond 35% of total capital shall be raised from banks by pledging project equity. If the bank loans are deficient or the rough estimate approved by government goes beyond investment estimation, the cooperative parties shall make additional investment in the form of shareholder loan according to the proportion of capital contribution or continue to apply for bank loans to cover such deficiency or difference. Guanghui Expressway was open to traffic on December 20, 2003. In the current period, this company invests 78 million Yuan. As of December 31, 2004, our company has invested 678 million Yuan. The net profit of Guangdong Guanghui expressway Co., Ltd. Is 90,477,996.46 Yuan. Our company obtained the investment income of 27,143,398.94 Yuan. IV. Analysis of the financial position and operating results of the Company 1. Notes to the correction of accounting errors According to DGST (2004) No. 1 Tax Treatment Decision issued by South District Check Bureau of Guangzhou State Taxation Bureau on December 31, 2004, the Company should pay income tax RMB 26,090,793.80. This error was corrected when the financial statements for 2004 were prepared. Retroactive adjustment was made to the financial statements for 2002. After adjustment, the year beginning balance of taxes payable increased by RMB 26,090,793.80 and surplus reserve decreased by RMB 26,090,793.80. In which, the surplus reserve was reduced by 3,913,619.07 Yuan. The undistributed profit reduced by 22,177,174.73 Yuan. The income tax expenses for 2003 increased by RMB 6, 197,014.11, while the net profit for 2002 decreased by RMB 6,197,014.11. The undistributed profit and retained earnings for 2002 decreased by RMB 10,240,864.68 and RMB 12,048,076.09 respectively. Change of accounting policies 2. Changing of Accounting Policy According to the provisional resolutions adopted by the 4th term of Board on February 24th 2005, the original accounting principle regarding bad debts is as: bad debt loss is calculated by allowance method. Bad debt provision is drawn upon account receivable at different rate depending on its age. Which are: 10% for 1-2 years, 30% for 2-3 years, 50% for 3-4 years, and 90% for 4-5 years. 29 Full provision will be drawn when the followings are satisfied: Account not recoverable provided by conclusive evidence; Account aged over 5 years with low possibility of recoverable; Account be proved not recoverable after the liquidation when the debtor has declared cancellation or bankrupt or negative asset. The debtor is suspended for business operation under force majeure and showing no sign of recovering within a limited period. From January 1st 2004, the accounting policy of bad debts has been changed to: bad debt loss is calculated by allowance method. Bad debt provision is drawn upon account receivable at different rate depending on its overdue age. Which are:10% for 1-2 years of overdue, 30% for 2-3 years, 50% for 3-4 years, and 90% for 4-5 years. Full provision will be drawn when the followings are satisfied: Account receivable not recoverable provided by conclusive evidence; Account overdue for over 5 years with low possibility of recoverable; Account be proved not recoverable after the liquidation when the debtor has declared cancellation or bankrupt or negative asset. The debtor is suspended for business operation under force majeure and showing no sign of recovering within a limited period. When particular account is hard to recover due to deterioration of the debtor’s financial situation, the Company may draw individual bad debt provision upon the practical situation. No bad debt provisions are drawn upon accounts with conclusive evidence that can be recovered without any obstruction. The changing of accounting policies was not impacting the financial situation and business performance of the Company for year 2004 3. Analysis of the financial position and operating results of the Company Proportion of Item 2004-12-31 2004-1-1 increase or decrease (%) Monetary capital 512,809,594.25 248,346,361.55 106.49% Current liabilities 696,057,662.85 538,520,919.05 29.25% Shareholders' equity 3,634,903,493.42 3,503,299,837.45 3.76% Total assets 6,837,621,820.60 6,663,419,082.32 2.61% The year 2004 The year 2003 Cost from main operation 263,188,193.28 236,005,899.78 11.52% Profit from main operation 591,298,908.74 518,769,487.31 13.98% Financial expenses 104,585,099.52 65,596,400.02 59.44% Investment income 82,434,308.37 21,134,524.72 290.05% Net profit 258,201,252.90 174,985,974.02 47.56% Net increase of cash and cash 264,463,232.70 116,408,374.43 127.19% equivalents Monetary capital increased mainly due to the increase of the increase of general spends income Current liabilities increased mainly due to the long-term debt which in 1 year expired increase. Shareholders' equity increased mainly due to the increase of investment income. 30 Total assets increased mainly due to the increase of net profit. The main cost increased mainly due to the increase of the mensuration of vehicles of the traffic flow magnitude which raise the road produces amortizes, simultaneously Fokai expressway resurfacing project put into the use in August and it raises in amortize of 2004 9-12 . The main profit increased mainly due to the increase of general spends income Financial expenses increased mainly due to the increase of loans arising from the overhaul of Guangfo Expressway. Investment income increased mainly due to the increase of the income from Jingzhu Expressway Guangzhu East Line and Huiyan Expressway and the increase of the income control stock company. Net profit increased mainly due to the income of expressway general spends and the profit increase of control stock expressway. Net increase of cash and cash equivalents increased mainly due to the increase of general spends income. V. Influence of the changes in production and operation environment and macro policies on the operating status of the Company. This company receives the unites the issue of Guangdong Province transport department, the Guangdong Province price bureau, the Guangdong Province provincial finance department " To reduce Vehicles General Charge Standard Notice" (Guangdong YJC [2005] NO.35), Guangdong Province expressway, the common freeway to reduce the vehicles charge standard. It was published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily. (Please consult it of company announce on March 3,2005) The traffic flow of five kind of vehicles traffic flow of company control stork expressway composes approximately 5% of all expressway traffic flow quantity, general spends income approximately compose about 10% of all expressway gross income. Our company initially surveys, to declines the charge standard of five kind of vehicles causes the general to spend of income reduce about 1%-2%, But considerate the nature growth of traffic flow magnitude every year as well as charge standard decline tempts increases of the traffic flow magnitude, the charge standard decline will not constitute the significant influence to company's whole profit. VI. Guangzhou Yangcheng Certified Public Accountants Co., Ltd. and Ernst and Young issued unqualified auditor's report for the report year for the Company. 31 VII. Business plan of the Company for the new year. 1. To strengthen expressway operation management, strictly control the plans, cost, profit target management and performance appraisal of operation companies and strengthen examination, internal audit and supervision. The target income from main operation and cost of main operation for 2005 are RMB 940.86million and RMB 316.55 million respectively. 2. Positively coordinate with the transportation group to complete the property right reform and the property reorganization plan, participate transport business project of stockholder's rights transfer, purchases the high quality property in the group at the right moment, strengthen the main camp service. 3. Strengthens the management of Jiangzhong expressway and the constructing project of Jianghe expressway two issues. 4. Strengthens the management investor relationship. Strictly observes the correlation stipulation and discloses the company information to the investor, through all kinds of channels to strengthen communication with investors, Enhances the company transparency and investor cognition. VIII. Routine Work of the Board of Directors (I) Board meetings and resolutions in the report period In the report period, the Company held 4 board meetings in total. The particulars of the meetings are as follows: 1. The 8th meeting of the fourth board of directors of Guangdong Expressway Development Co., Ltd. was held in the meeting room of the Company in the morning of March 5, 2004. 11 directors were supposed to attend the meeting, arrived 10 trustees, 1 trustee entrusts other trustee attendances and the vote, the trustees who attend the conference surpass a half of all trustee .The meeting complied with relevant provisions of the Company Law and the Articles of Association of the Company. The meeting was convened and presided over by the chairman of the board of directors Cao Xiaofeng. All supervisors and senior executives of the Company attended the meeting as nonvoting delegates. The meeting examined and adopted the following proposals: (1) The bill of "flushes the short term investment of fall in price preparation " (2) The bill of " Withdraws the fixed asset fall in price preparation " (3) The bill of "flushes the long term investment of fall in price preparation " (4) The bill of "adjust undistributed profit at the beginning of year " (5) Financial final accounts report of 2003 (6) Appropriation of profit predetermined plan of 2003 (7) General manager business report of 2003 (8) Work report of board of directors of 2003 32 (9) The 2003 annual report and its the report abstract, and the agreement announcement (10) The bill of withdraws the reward (11) The bill of invites the accounting firm (12) The bill of revision articles of incorporation partial provisions of company (13) Internal audit supervisory work stipulation (implementation) of GPED. The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on March 9, 2004. 2. The 9th meeting of the fourth board of directors of Guangdong Expressway Development Co., Ltd. was held in the meeting room of the Company in the morning of April 15, 2004. 11 directors were supposed to attend the meeting, 9 of whom were actually present. Director Ma Chun entrusted other directors to attend the meeting and voted on his behalf. The trustees who attend the conference surpass a half of all trustee .The meeting complied with relevant provisions of the Company Law and the Articles of Association of the Company. The meeting examined and adopted the following proposals: "The bill of the loses of processing fixed asset" "The bill of 2004 First quarter Report " "The bill of holds the meeting of 2003 General meeting of shareholders " The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on April 17, 2004. 3. The 10th meeting of the fourth board of directors of Guangdong Expressway Development Co., Ltd. was held in Shandong in the morning of August 5, 2004. 11 directors were supposed to attend the meeting, 9 of them were actually present. 2 directors authorized other directors to attend the meeting and vote on their behalf. The trustees who attend the conference surpass a half of all trustee .The meeting complied with relevant provisions of the Company Law and the Articles of Association of the Company. The meeting was convened and presided over by the chairman of the board of directors Cao Xiaofeng. All supervisors attended the meeting as nonvoting delegates. The meeting examined and adopted the following proposals: （1） The bill of "flushes the short term investment of fall in price preparation " （2） The bill of " Withdraws the fixed asset fall in price preparation " （3） The 2004 annual report and its the report abstract, and the agreement announcement （4） "2004 Half Year Appropriation of profit Bill" （5） The bill of " Donation of Helping the poor Funds " The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on August 9, 2004. 4. The 11th meeting of the fourth board of directors of Guangdong Expressway Development Co., Ltd. was held in the morning of October 27, 2004 in the manner of voting by correspondence. All of 11 directors attended the meeting. The trustees who voted on the conference surpass a half of all trustee .The meeting complied with relevant provisions of the Company Law and the Articles of 33 Association of the Company. The meeting examined and adopted the Report of the Company for the Third Quarter of 2004 and approved its announcement. (II) Implementation by the board of directors of the resolutions of the shareholders' general meeting. The appropriation of profit and the common reserve fund change into the capital stock plan: 2003 general meeting of shareholders considered passed the bill of appropriation of profit of 2003: Take 2003 year's end total capital stock 1,257,117,748 as the cardinal numbers, pays out the cash dividend RMB 1.00 Yuan to every 10 factions (to contain tax). This appropriation of profit plan has completed in July, 2004." IX. Preplan for profit distribution and common reserve fund capitalization for the report year According to the audit of the financial position and profit status of the Company for 2004 by Yangcheng Certified Public Accountants pursuant to Chinese enterprise accounting standards, the after-tax profit of the Company for 2004 is RMB 258,201,252.90 and the accumulative distributable profit is RMB 497,432,716.86. As audited by Ernst and Young pursuant to international accounting standards, the after-tax profit of the Company for 2004 is RMB 194,522,000.00 and the accumulative distributable profit is 323,055,000.00. According to the provisions of the Articles of Association of the Company, regulations of CSRC and relevant financial regulations, profit distribution should be carried out based on the lower of the profits calculated pursuant to Chinese and international accounting standards. The distribution plan is as follows: 1. As audited by Yangcheng Certified Public Accountants, the after-tax profit of the Company for 2004 is RMB 258,201,252.90. Withdraw 10% of the after-tax profit, i.e., RMB 25,820,125.29 is to be appropriated for statutory common reserve fund and 5% thereof, i.e., RMB 12,910,062.65 is to be appropriated for statutory public welfare fund. 2. RMB 150,854,129.76 is to be allocated from the profit available for distribution to shareholders as the fund for dividend distribution for 2004. The board of directors decided the Company would distribute profit for 2004 in the form of cash dividend payment. The Company is to pay RMB 1.20 (including tax) for each 10 shares with the total share capital, i.e., 1,257,117,748 shares, as the base. Cash dividends of RMB 150,854,129.76 are to be distributed in total. The remaining undistributed profits are to be carried forward to the next year. The foreign exchange translation rate for the cash dividends payable to shareholders of B shares and overseas corporate shares is to be determined according to the bank's selling rate of HKD:RMB exchange rate published by the foreign exchange purchase bank on the date of foreign exchange purchase within two months after 2004 annual shareholders' general meeting makes the resolution for dividend distribution. X. Miscellaneous 34 1. The newspapers selected by the Company for information disclosure The Company selected Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily as the newspapers for information disclosure. 2. The special statement of certified public accountant to the fund occupation by the controlling shareholder and other related parties of the Company. Special Statement of the Fund Occupation by the Controlling Shareholder and Other Related Parties (2005)YZSZ(NO.3924) To all shareholders of Guangdong Provincial Expressway Development Co., Ltd.: We accepted the entrustment of Guangdong Expressway Development Co., Ltd. (hereinafter referred to as "your company") and audited the status of fund occupation between the Company and its controlling shareholder and other related parties of the Company according to the requirements of GZZJ (2004) No. 15 Document - Circular of Relevant Work Concerning the Implementation of Circular on Certain Issues Relating to Standardization of Fund Transfer Between Listed Companies and Their Related Parties and Guarantees Provided by Listed Companies issued by CSRC Guangzhou Securities Regulatory Office. We hereby give our statement based on our audit as follows: As of December 31, 2003, the debit balance of the current accounts between your company and its controlling shareholder Guangdong Communication Group Co., Ltd. as well as other related parties (not including related parties included in the scope of consolidation) was RMB 489.9817 million. Of which: The debit balance of the entrusted loan provided to related parties through non-banking financial institutions was RMB 368.2301 million. The debit balance of shareholder loans provided to related parties was RMB 8.2124 million. The above transactions were carried out according to the equity proportion of shareholders. The debit balance of other current accounts at the end of period was RMB 113.5392 million. Except the above circumstances, we did not find your company was involved in other circumstances of fund transfer mentioned in ZJF (2003) No. 56 Document - Circular on Certain Issues Relating to Standardization of Fund Transfer Between Listed Companies and Their Related Parties and Guarantees Provided by Listed Companies, including: 1. The Company provides interest bearing or interest free loans to its controlling shareholder and other related parties; 2. The Company advances period expenses including payroll, fringe benefits, insurance premiums and advertising costs on behalf its controlling shareholder and other related parties or costs and other expenditures are borne on behalf of one another; 35 3. The Company entrusts its controlling shareholder and other related parties to make investment; 4. The Company issues commercial acceptance bills without any real commercial means for its controlling shareholder and other related parties; 5. The Company extinguishes liabilities on behalf of its controlling shareholder and other related parties. Guangzhou Yangcheng Certified Public Accountants Co., Ltd. Chinese C.P.A.：Chen xiongyi Chinese C.P.A.：Liu Jiesheng Guangzhou China , 2005 Appendix: Statistical Table of Fund Occupation Prepared by the Company. 36 Statistical Table of Fund Occupation Prepared by the Company December 31, 2003 Prepared by: Guangdong Expressway Development Co., Ltd. Unit: RMB'0000 Relationship Closing time Closing time point Amount of fund Accu Amount of fund Company Company between fund point of ending of beginning Corresponding items in occupation at the amo Fund occupation party occupation at the end of code abbreviation occupation party balance of fund balance of fund financial statements beginning of period o period (RMB'0000) and the Company occupation occupation (RMB'0000) (R A B C D E1 E2 F1 G1 F2 G2 F3 G3 F4 Guangdong Changda Controlled by the Guangdong 000429 Highway Engineering Co., same parent 2004-12-31 2004-1-1 Prepayment 31.00 20.00 Expressway Ltd. company Guangdong Xinyue Controlled by the Guangdong Communication same parent 2004-12-31 2004-1-1 Prepayment - 62.36 Expressway Investment Co., Ltd. company Guangdong Nengda High Controlled by the Guangdong Grade Highway same parent 2004-12-31 2004-1-1 Prepayment 105.45 25.83 Expressway Maintenance Company company Guangdong expressway Controlled by the reconnaissance and design same parent 2004-12-31 2004-1-1 Prepayment 26.00 institute company A joint venture company of Long-term Guangdong Huiyan Expressway which the 2004-12-31 2004-1-1 creditor's right 12,158.00 Expressway Company Company directly investment holds 33.33% equity Guangdong Beijing Gelin Enze A joint venture 2004-12-31 2004-1-1 Long-term 821.24 800.00 37 Expressway Organic Fertilizer Co., company of creditor's right Ltd. which the investment Company indirectly holds 33.25% equity A joint venture company of Long-term Guangdong Guangzhu East 36,823.0 which the 2004-12-31 2004-1-1 creditor's right 34,095.38 Expressway Expressway Company 1 Company directly investment holds 20% equity Controlled by the Guangdong Guangdong Expressway Other 5,880.0 same parent 2004-12-31 2004-1-1 - Expressway Co., Ltd. receivables 0 company A joint venture company of Huiyan Expressway which the 11,15 2004-12-31 2004-1-1 11,158.00 Company Company directly holds 33.33% equity Guangdong Nengda High Controlled by the Grade Highway same parent 2004-12-31 2004-1-1 24.77 24 Maintenance Company company Guangdong Gaoda Controlled by the Property Development same parent 2004-12-31 2004-1-1 8.70 8 Company company Subtotal 11,191.47 37,806.70 5,880.00 47,161.57 11,191 38 Note: 1, This company entrusts Guangdong Yuecai investment Co., Ltd. to provide the non- rest entrust loan to Shenzhen Huiyan expressway Co., Ltd. In view of the above shareholder entrusts loan has expire, On April 30, 2004，Shenzhen Huiyan expressway Co., Ltd. Writes up the pledge letter that pledged repays (each fiscal year to repay 30%) the shareholder’s loan. year by year.This company change over the Shenzhen Shenzhen Huiyan expressway limited company's shareholders loan to the long-term creditor's rights investment to other calculate. In the year 2004 Shenzhen Huiyan expressway limited company returns our company 10 million Yuan. Note: 2, this company controlled subsidiary company Guangdong high technology investment Co., Ltd. via Beijing Commercial bank limited company which it holds 35% stock to provide 8 million Yuan requests loans to Beijing Gelin Enze Organic Fertilizer Co., Ltd.，The deadline from June 4, 2003 to June 4, 2004 and the month interest rate is 4.425 ‰."Beijing Gelin Enze Organic Fertilizer Co., Ltd. Writes up the funds plan on January 6, 2005, plan to returns the above shareholder entrust the loan before December 31, 2006. On January 11, 2005, Wang Jianji writes up the pledge letter, undertakes to guarantee the responsibility until the debt principal and interest are pay off. Note: 3, This company provides the shareholder loan to Jingzhu expressway Guangzhu east section Co., Ltd. Agree to compound interest in computation interest way. 3.The special statement and independent opinions of independent directors on the accumulative and current external guarantee provided by the Company according to ZJF (2003) No. 56 Document. According to China Securities Regulatory commission " The Notices to standard goes on the market company and the fund Intercourse connect side and goes on the market company’s foreign guarantee ", after examining, up to December 31,2004,GPED has make the entrusted loan and shareholder loan totally 489.9817 million Yuan. Including provided entrusted loan to related parties through non-banking financial interest of 368.2301 million Yuan. And the shareholder loan of 8.2124 million Yuan. And other Intercourse debit balance of 113.5392 million Yuan. We consider that it was due to the characteristic of road profession. It harmed neither the company nor the rights and interests of the shareholders of the company . Except the above circumstances, we did not find GPED. Was involved in other circumstances of fund transfer mentioned in the notices, including: (1)Up to this report period, there are some differences between " The Notices to standard goes on the market company and the fund intercourse connect side and goes on the market company’s foreign guarantee "and fund intercourse connected side of GPED (2)Up to this report period, the company and main controlled subsidiaries and joint ventures never provides the guarantee to company shareholders, shareholder's subsidiary company, shareholder's attached enterprise, other connection sides which holds the company stock below 50% and any 39 individual. 40 VIII Report of the Supervisory Committee I. Meetings of the supervisory committee and resolutions in the report period In the report period, the Company held 2 meetings of supervisory committee in total. The particulars of the meetings are as follows: 1. The 5th meeting of the fourth supervisory committee of Guangdong Expressway Development Co., Ltd. was held in the meeting room of the Company on March 5, 2004. 5 supervisors were supposed to attend the meeting, 3 of them were actually present. 2 directors authorized other directors to attend the meeting and vote on their behalf.. The meeting was presided over by Mr. Li Dongshan, the chairman of the supervisory committee. The supervisors present at the meeting made the following resolutions after serious discussion: （1） Examining and adopting 2003 Work Report of the Supervisory Committee and approving submitting it to 2003 annual shareholders' general meeting for examination; （2） Examining and adopting 2003 Final Accounting Report and approving submitting it to 2003 annual shareholders' general meeting for examination; （3） Examining and adopting 2003 Profit Distribution Plan and approving submitting it to 2003 annual shareholders' general meeting for examination; （4） Examining and adopting 2003 Annual Report and Its Summary and approving submitting it to 2003 annual shareholders' general meeting for examination; （5） According to the resolution of the 8th meeting of the forth board of directors of "The bill about flushes short term investment fall in price preparation", "The bill about withdraw fix asset fall in price preparation", "The bill about flushes long term Stockholder's rights investment fall in price preparation" and "The bill about Adjusts the undistributed profit of 2003 beginning ". The board of supervisors has agreed the above resolution and has expressed the special opinion The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on March 9, 2004. 2. The 6th meeting of the fourth supervisory committee of Guangdong Expressway Development Co., Ltd. was held in Shandong in the morning of August 5, 2004. 5 supervisors were supposed to attend the meeting, all of whom were actually present. The meeting complied with relevant provisions of the Company Law and the Articles of Association of the Company. The meeting was convened and presided over by Mr. Li Dongshan, the chairman of the supervisory committee. It examined and adopted the following proposals: （1）"The bill about flushes short term investment fall in price preparation" （2）"The bill of processing with the loss of fix asset " 41 （3）"The 2004 Half Annual report" and its the abstract, and the its announcement " The resolutions of this meeting were published on Securities Times, China Securities Daily, Shanghai Securities Daily, Tak Kung Pao and Hong Kong Commercial Daily on August 9, 2004. II. The operation of the Company according to law The management of the Company made decisions in democratic manner and fully listened to opinions of all relevant parties. Its decision-making procedure strictly complied with the provisions of the Articles of Association of the Company and the authorization of the board of directors. Meanwhile, it formulated Rules of Procedure of the Board of Directors, Rules of Procedure of the Supervisory Committee and Rules of Procedure of Shareholders' General Meeting as well as over 50 regulations on post responsibilities, internal control, etc. No director or manager of the Company was found to violate laws, regulations, the Articles of Association of the Company or harm the Company's interests when he performed his duties. III. Inspection of the finance of the Company The supervisory committee established internal audit system and strengthened financial audit, inspection and supervision of subsidiaries. No significant regulation-violating act was found after audit. Besides, Yangcheng Certified Public Accountants and Ernst and Young audited the financial report for the report year respectively pursuant to independent audit standards for Chinese C.P.A. and international auditing standards and issued unqualified auditor's report. In the opinion of the supervisory committee, this auditor's report truly reflects the Company's financial status and operating results and is fair, objective, true and reliable. IV. Utilization of raised funds In the report period，no raised funds were used. V. Acquisition and disposal of assets by the Company The Company neither acquired nor disposed of assets in the report period. VI. Related transactions In the report period，no related transactions. 42 IX Important Events I. The Company was not involved in any material lawsuits and arbitration in the report year. II. Acquisition and disposal of assets, takeovers and mergers in which the Company was involved. There were no events of material acquisition or disposal of assets or asset reorganization in the report period or such events that occurred in previous periods but continued in the report period. III. Material related transactions The Company was not involved in any material related transaction in the report period. IV. Material contracts and their performance 1. The Company did not hold in trust or contract for or lease the assets of other companies nor did other companies hold in trust, contract for or lease the assets of the Company in the report period. 2. The Company did not provide important external guarantee in the report period. 3. The Company did not entrust others with money management in the report period. 4 In the report period，the Company did not sign other material contracts. V. Commitments There were neither commitments made by the Company or shareholders holding over 5% of total share capital in the report period nor such commitments that continued to the report period. 43 VI. Appointment of certified public accountants In the report period，the Company continued to engage Yangcheng Certified Public Accountants and Ernst and Young as domestic and overseas audit bodies for the Company. The particulars about the remuneration of certified public accountants: 2004 Number of continuous years of Certified public Financial audit Other provision of audit services to accountants expenses expenses the Company Guangzhou RMB 0.6 million RMB30000 12 years Yangcheng Certified Public Accountants Co., Ltd. Ernst and Young RMB 0.955 9 years million The Company did not bear the traveling expenses of certified public accountants. VII. In the report period, the Company, its board of directors and its directors were not investigated by CSRC, administratively punished or publicly criticized by CSRC or publicly condemned by stock exchange. 44 Ⅹ REPORT OF THE AUDITORS To the members Guangdong Provincial Expressway Development Co., Ltd. (Established in People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Guangdong Provincial Expressway Development Co., Ltd. (the “Company”) and its subsidiaries (collectively referred to as the “Group”) as at 31 December 2004 together with the related consolidated income statement and consolidated cash flow statement for the year then ended. These financial statements are the responsibility of the directors. Our responsibility is to express an opinion on these financial statements based on our audit. This report is made solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. 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 from 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 the significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 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 the Group’s operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Hong Kong 9 March 2005 1 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED INCOME STATEMENT Year ended 31 December 2004 Notes 2004 2003 RMB’000 RMB’000 Turnover 4 855,696 754,775 Operating costs (265,611) (247,681) Gross profit 590,085 507,094 Other revenue 4 40,747 51,331 Administrative expenses (72,430) (65,228) Other operating expenses (32,868) (30,456) PROFIT FROM OPERATING ACTIVITIES 5 525,534 462,741 Finance costs 6 (108,320) (67,741) Share of profits and losses of associates 50,727 3,246 PROFIT BEFORE INCOME TAX 467,941 398,246 Income tax expense 7 (155,408) (132,198) PROFIT BEFORE MINORITY INTERESTS 312,533 266,048 Minority interests (118,011) (121,554) NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS 194,522 144,494 Dividends 8 150,854 125,712 EARNINGS PER SHARE - BASIC 9 RMB0.155 RMB0.115 Other than the net profit for the year attributable to shareholders, the Group had no recognised gains or losses. Accordingly, a consolidated statement of recognised gains and losses is not presented in the financial statements. 2 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED BALANCE SHEET 31 December 2004 Notes 2004 2003 RMB’000 RMB’000 ASSETS Non-Current Assets Fixed assets 10 4,053,613 4,174,182 Construction in progress 11 13,418 17,946 Goodwill 12 28,416 43,555 Interests in associates 13 1,843,302 1,725,500 Other investments, unlisted 14 143,310 128,119 Other long term assets 15 17,740 21,404 Bridge operating rights 17 49,308 52,830 Deferred income tax assets 7 1,570 2,392 Total Non-Current Assets 6,150,677 6,165,928 Current Assets Cash and cash equivalents 512,711 246,142 Prepayments and other receivables 11,652 19,016 Current investment securities 18 2,134 48,469 Inventories 142 107 Due from associates 13 8,464 8,000 Due from related companies 19 22,869 14,675 Total Current Assets 557,972 336,409 TOTAL ASSETS 6,708,649 6,502,337 Continued/… 3 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED BALANCE SHEET (continued) 31 December 2004 Notes 2004 2003 RMB’000 RMB’000 EQUITY AND LIABILITIES Capital and Reserves Issued capital 22 1,257,118 1,257,118 Reserves 23 2,224,622 2,155,812 Total Equity 3,481,740 3,412,930 Minority Interests 730,383 666,560 Non-Current Liabilities Interest-bearing loans and borrowings 21 1,200,000 1,350,000 Due to minority shareholders 20 513,325 513,325 Deferred income tax liabilities 7 55,662 43,444 Amounts payable 2,077 2,077 Total Non-Current Liabilities 1,771,064 1,908,846 Current Liabilities Current portion of interest-bearing loans and borrowings 21 400,000 320,000 Other payables 52,510 54,846 Tax payable 36,683 26,580 Due to associates 13 96,230 - Due to related companies 19 54,404 46,788 Due to minority shareholders 20 85,635 65,787 Total Current Liabilities 725,462 514,001 Total Liabilities 2,496,526 2,422,847 TOTAL EQUITY AND LIABILITIES 6,708,649 6,502,337 Director Director 4 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. CONSOLIDATED CASH FLOW STATEMENT Year ended 31 December 2004 Note 2004 2003 RMB’000 RMB’000 NET CASH INFLOW FROM OPERATING ACTIVITIES 24(a) 579,877 407,895 CASH FLOW FROM INVESTING ACTIVITIES Interest received 3,180 2,182 Purchases of current investment securities, listed (17,123) (57,083) Purchases of fixed assets and additions of construction in progress (65,438) (105,017) Acquisition of equity interest and shareholders’ loans in associates (800) (430,518) Acquisition of available-for-sale financial assets (21,360) (30,000) Proceeds from disposal of equity interest in a subsidiary 9,012 1,711 Proceeds from disposal of an available-for-sale financial asset 1,000 17,000 Proceeds from disposal of fixed assets 466 90 Proceeds from disposal of current investment securities, listed 64,443 149,694 Proceeds from an advance repaid by an associate 10,000 6,000 Dividends received from an associate 29,001 26,834 Advance to an associate (78,000) (38,430) Net cash outflow from investing activities (65,619) (457,537) CASH FLOW FROM FINANCING ACTIVITIES Equity dividends paid (125,712) (125,712) Dividends paid to minority shareholders (51,977) (96,035) Repayment of loans to minority shareholders - (624,407) Proceeds from loans and borrowings 275,000 1,985,000 Repayment of loans and borrowings (345,000) (975,000) Net cash inflow/(outflow) from financing activities (247,689) 163,846 INCREASE IN CASH AND CASH EQUIVALENTS 266,569 114,204 Cash and cash equivalents at beginning of year 246,142 131,938 CASH AND CASH EQUIVALENTS AT END OF YEAR 512,711 246,142 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash at bank and cash on hand 512,711 246,142 5 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 1. CORPORATE INFORMATION The Company was established in the People’s Republic of China (the “PRC”) on 9 February 1993 in the name of Guangdong Foshan-Kaiping Expressway Shareholding Company Ltd. (the “Predecessor Company”) as a joint stock limited company in accordance with the regulations for joint stock limited companies. Pursuant to the approval at the shareholders’ meeting of the Predecessor Company and the approval of the Guangdong Provincial State Asset Bureau in June 1993, Guangdong Provincial Freeway Company transferred its 75% equity interest in Guangzhou-Foshan Expressway Company Limited (“Guangfo Company”) and its 100% interest in Jiujiang Bridge to the Company in exchange for shares in the Company. In July 1996, the Company issued for subscription of 135,000,000 B shares by way of a private placement with foreign investors. Dealings in the B shares on the Shenzhen Stock Exchange commenced in August 1996. After the completion of the B shares issue, the Company changed its name to Guangdong Provincial Expressway Development Co., Ltd. In January 1998, the Company issued for subscription of 100,000,000 A shares for local PRC investors. Dealings in the A shares on the Shenzhen Stock Exchange commenced in February 1998. In August 2000, the Company issued 30,000,000 listed A shares and 43,822,250 unlisted A shares by way of rights issue on the basis of three new shares of RMB1 each for every 10 existing shares for the shareholders in the register of members on 15 August 2000 at RMB11 per rights share payable in full on acceptance. On 23 April 2001, the Company transferred RMB419,039,249 of share premium and capital surplus to share capital. On 7 November 2003, Guangdong Gaosu Science and Technology Investment Company Limited (“Gaosu Company”) entered into an agreement with Guangzhou Jingbo Transportation Technology Co., Ltd. and Zhaoqing Yingjia Information System Co., Ltd. to contribute RMB800,000 as share capital and account for 40% equity interest in Guangzhou Xinlu Transportation Technology Co., Ltd. (“Xinlu Company”). Xinlu Company was registered on 7 March 2004. The principal activity of Xinlu Company is the design and development of intelligent transportation system (see note 13). On 31 August 2004, Gaosu Company disposed of 79% equity interest in Tibet Zhongke Energy-storage Technology Development Co., Ltd. (“Zhongke Company”), the principal activity of which is investment in the battery manufacturing industry (see note 16). Apart from the above, there are no significant changes in the principal activities of the Company and its subsidiaries for the year ended 31 December 2004. The principal activity of the Company is investment holding. The ultimate holding company of the Group for the year ended 31 December 2004 was Guangdong Communications Group Company Limited, a company established in the PRC. 6 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 1. CORPORATE INFORMATION (continued) The consolidated financial statements of the Group for the year ended 31 December 2004 were authorised for issue in accordance with a resolution of the directors dated 9 March 2005. The registered office of the Company is located at No. 85 Baiyun Road, Guangzhou, Guangdong Province, the PRC. The Group operates in Guangdong Province of the PRC and employed 1,100 employees as at the end of the financial year. 2. BASIS OF PRESENTATION These consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”), which comprise standards and interpretations approved by the International Accounting Standards Board, and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee that remain in effect. The Group maintains its books and prepares its statutory financial statements in accordance with the relevant accounting principles and financial regulations applicable to joint stock limited companies established by the Ministry of Finance of the PRC. The accounting policies and bases adopted in the preparation of the statutory financial statements differ in certain material respects from IFRS. The material adjustments arising from restating the results and net assets to comply with IFRS have been made in the preparation of these financial statements, but will not be taken up in the accounting records of the Group. The principal adjustments made to conform to IFRS are set out below: - elimination of the unrealised profits arising on the disposal of 100% ownership of the Jiujiang Bridge and related assets to Foshan-Kaiping Expressway Company Limited (“Fokai Company”) against the Group’s share of 35% equity interest in Fokai Company in 1999; - deferred income tax; - goodwill arising on the acquisition of a subsidiary and associates; - amortisation of goodwill; - depreciation charges; - amortisation of other long term assets; - impairment loss of fixed assets; - current investment securities at market value; and - other adjustments made in accordance with IFRS. Further details with respect to the net impact of these IFRS adjustments are included in note 25 to the financial statements. The consolidated financial statements have been prepared on a going concern basis, notwithstanding the net current liabilities position of the Group as at 31 December 2004. This is based on the undertaking that the Group has unutilised borrowing facilities of RMB1,660,000,000 (see note 24(b)) available. Moreover, one of the minority shareholders, which was also one of the major creditors of the Group, has agreed not to demand for the repayment of the amount due to it and to continue to provide adequate financial support to one of the subsidiaries of the Company so that a subsidiary can meet its liabilities as and when they fall due. 7 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 8 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries which the Company controls at the balance sheet date. The results of subsidiaries acquired or disposed of during the period are consolidated from or to their effective dates of acquisition or disposal, respectively. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. Adjustments are made to bring in line any dissimilar accounting policies which may exist. All intercompany balances and transactions, and unrealised profits arising from intra-group transactions have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. (b) Subsidiaries Subsidiaries are companies in which the Company has a long term interest of more than 50% and has effective control over the management of the companies. (c) Interests in associates Associates are companies, not being subsidiaries, in which the Group has a long term interest of not less than 20% of the equity interest and over which it is in a position to exercise significant influence. The Group’s share of the post-acquisition results and reserves of its associates is included in the consolidated income statement and consolidated reserves, respectively. The Group’s interests in associates are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting less any impairment losses. Where associates are accounted for using the equity method, unrealised profits and losses resulting from “upstream” and “downstream” transactions between the Group and the associates are eliminated to the extent of the Group’s interests in associates. Unrealised losses are not eliminated to the extent that the transaction provides evidence of an impairment of the asset transferred. (d) Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. (e) Foreign currency transactions Foreign currency transactions are recorded at the applicable exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable exchange rates ruling on that date. Exchange differences are dealt with in the consolidated income statement. 9 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (f) Fixed assets and depreciation Fixed assets are stated at acquisition cost or valuation less accumulated depreciation and any impairment losses. In connection with the Group’s reorganisation, fixed assets as at 31 January 1993 were revalued by Zhongzhou Certified Public Accountants, a firm of certified public accountants in the PRC, on a depreciated replacement cost basis. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use thereafter. Depreciation of expressways and a bridge is calculated to write off their cost on a sum-of-the-units method whereby depreciation is provided based on the share of forecasted traffic volume for a particular period over the projected total traffic volume throughout the remaining operating periods of respective expressways and bridge, the relevant joint venture period or its estimated useful life, whichever is shorter. In addition, the directors review the projected total traffic volume throughout the operating periods of respective toll expressways and a bridge on a regular basis. An independent professional traffic survey is obtained if the directors consider it appropriate. Appropriate adjustments are made should there be a material change. All direct and indirect costs relating to the construction of expressways, a bridge and office premises, including interest costs on related borrowed funds during the construction period, are capitalised as the costs of fixed assets. Amortisation of improvements relating to the expressways and a bridge is calculated on the straight-line basis to write off the cost over the period, the relevant joint venture period or its estimated useful life, whichever is shorter. Depreciation of other fixed assets is calculated on the straight-line basis to write off the cost or valuation of each asset, less any estimated residual value, over its estimated useful life. The principal annual rates used for this purpose are analysed as follows: Buildings 3.2 - 4.74% Machinery 6.4 -12% Furniture, fixtures and other equipment 18 - 19.4% Motor vehicles 12 -18% The carrying values of fixed assets are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. The recoverable amount of fixed assets is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognised in the consolidated income statement for the year then ended. 10 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (g) Construction in progress Construction in progress represents costs incurred in connection with the construction of expressways, a bridge, office premises and other fixed assets, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises direct costs of construction and capitalised borrowing costs on related bank and other borrowings during the period of construction. No provision for depreciation is made on construction in progress until such time as the relevant assets are put into use. Construction in progress is reclassified to the appropriate category of fixed assets when completed and ready for use. (h) Goodwill Goodwill represents the excess of the cost of acquisition over the fair value of identifiable net assets of subsidiaries and associates at the date of acquisition. Goodwill is amortised on the straight-line basis over five years. It is reviewed by the management of the Group for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is stated at cost less accumulated amortisation and any impairment losses. (i) Investments All investments are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with the investments. After initial recognition, investments which are classified as held-for-trading and available-for-sale are measured at fair value. Gains or losses on investments held for trading are recognised in income. Gains or losses on measurement to fair value of available-for-sale investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in income. Investments in equity interests classified as available-for-sale and trading investments without quoted market price in an active market and whose fair value cannot be reliably measured are stated at cost less any accumulated impairment losses. For investments that are actively traded in organised financial markets, fair value is determined by reference to stock exchange quoted market bid prices at the close of business on the balance sheet date. For investments where there is no quoted market price, fair value is determined by reference to the current market value of another instrument which is substantially the same or is calculated based on the expected cash flows of the underlying net asset base of the investment. 11 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (j) Investment properties Investment properties are stated at acquisition cost less accumulated depreciation and any impairment losses. The Group adopts the cost model set out in IAS 40 “Investment property” and the cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditure incurred after the asset has been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset, the expenditure is capitalised as an additional cost of the asset. The carrying values of investment properties are reviewed at each balance sheet date by the management of the Group to assess whether the carrying values may not be recoverable, and if the carrying values exceed the estimated recoverable amount, such amounts are written down to their recoverable amounts and the impairment losses are recognised in the consolidated income statement for the year then ended. Depreciation is calculated on the straight-line basis over the estimated useful life of 20 years. (k) Bridge operating rights Bridge operating rights represent the rights to operate a bridge and are stated at cost less accumulated amortisation. Amortisation is provided on the straight-line basis over the period of the bridge operating rights granted to the Group. (l) Other long term assets Other long term assets represent losses on the disposal of residential apartments to the staff of the Group, and are eliminated by amortisation through the consolidated income statement on the straight-line basis over 10 years, being the average remaining service duration of the staff in the Group. (m) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and short term deposits with an original maturity of three months or less. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above. (n) Inventories Inventories represent, primarily, low value consumables and are stated at the lower of cost and net realisable value. 12 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (o) Interest-bearing loans and borrowings All loans and borrowings are initially recognised at cost, being the fair value of the consideration received and include acquisition charges associated with the borrowings or loans. (p) Retirement benefits The Group is required to make contributions on behalf of its employees to a government administered retirement scheme in accordance with the rules and regulations thereof. The Group’s liability with regard to this retirement scheme is limited to its contributions, which are accounted for on an accrual basis. (q) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the costs of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. (r) Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, and the following specific recognition criteria must also be met before revenue is recognised: • toll revenue, net of any applicable revenue taxes, when received; • service income, by reference to the stage of completion, which is measured by reference to labour hours incurred to date as a percentage of the total estimated labour hours for each contract and where the contract outcome cannot be measured reliably, recognised only to the extent of the expenses recognised that are recoverable; • rental revenue, on a time proportion basis, over the lease terms; • interest income, on a time proportion basis; and • dividend and investment income, when the shareholders’ right to receive payment has been established. 13 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (s) Income taxes PRC income tax is provided at the rates applicable to enterprises, Sino-foreign joint stock limited companies and Sino-foreign co-operative joint venture companies in the PRC on the income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes, based on existing PRC income tax legislation, practices and interpretations thereof. Tax refunds received are recorded as a reduction of income tax expense upon receipt. Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences: • Except where the deferred income tax liability arises from goodwill amortisation or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • In respect of taxable temporary differences associated with interests in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carryforward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carryforward of unused tax assets and unused tax losses can be utilised: • Except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit, nor taxable profit or loss; and • In respect of deductible temporary differences associated with interests in subsidiaries, associates and joint ventures, deferred income tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. 14 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 4. TURNOVER AND REVENUE Revenue mainly represents toll income from the operations of toll expressways and a bridge and other revenue, net of relevant revenue taxes. An analysis of turnover and revenue is as follows: 2004 2003 RMB’000 RMB’000 Toll income 904,044 797,191 Less: Revenue taxes (48,348) (42,416) Turnover 855,696 754,775 Interest income 29,226 26,175 Income on current investment securities, listed 985 3,547 Service income 1,141 4,322 Dividend income from an available-for-sale financial assets - 1,696 Gain on disposal of equity interest in a subsidiary 272 142 Rental income 3,058 3,853 Other operating income 6,065 11,596 Other revenue 40,747 51,331 Total revenue 896,443 806,106 The Company and its subsidiaries are subject to the following types of revenue taxes of the PRC: Business Tax (“BT”), levied at 5% on toll income and other service income; City Development Tax, levied at 5% to 7% of BT; and Education Supplementary Tax, levied at 3% of BT. 15 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 5. PROFIT FROM OPERATING ACTIVITIES The Group’s profit from operating activities is arrived at after charging/(crediting) the following: 2004 2003 RMB’000 RMB’000 Operating costs 265,611 247,681 Depreciation charges 178,228 173,386 Amortisation of bridge operating rights 3,522 3,522 Amortisation of goodwill 15,139 16,986 Amortisation of other long term assets 3,664 3,664 Staff costs: Wages and salaries 35,927 34,500 Housing benefits 3,520 2,983 Retirement benefits 7,023 5,582 Staff welfare and bonuses 4,080 2,433 Loss on disposal of fixed assets 17,140 121 Provision for doubtful debts 5,503 - Provision for impairment loss of fixed assets - 4,200 Write-back for impairment loss of an available-for-sale financial asset arising from the disposal (6,247) (1,404) Rental expenses 1,399 1,435 16 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 6. FINANCE COSTS 2004 2003 RMB’000 RMB’000 Interest expenses on: Related party loans and an advance 26,306 2,717 Bank loans 76,614 64,514 Other loan 5,400 510 108,320 67,741 7. INCOME TAX EXPENSE Major components of income tax expense for the year ended 31 December 2004 are analysed as follows: Note 2004 2003 RMB’000 RMB’000 Current income tax: Current income tax charge 111,589 106,385 Adjustments in respect of current income tax of previous periods 7.1 30,779 10,591 Deferred income tax: Relating to reversal of deductible temporary differences 822 822 Relating to origination of taxable temporary differences 12,218 14,400 Income tax expense reported in consolidated income statement 155,408 132,198 PRC income tax for the Company and its subsidiaries operating in the PRC has been provided at the applicable income tax rate of 33% on the assessable profits, except for Guangfo Company, which is subject to an income tax rate of 18%. The effective income tax rates applicable to the Company and its subsidiaries are analysed as follows: 2004 2003 The Company 33% * 33% * Guangfo Company 18% ** 18% ** Fokai Company 33% * 33% * Gaosu Company 33% *** 0/33% *** Guangzhou Proteam Technology Incorporation (“Proteam Incorporation”) 33% * 33% * * In accordance with the tax regulations in the PRC, the applicable PRC income tax rate to the Company, Fokai Company and Proteam Incorporation is 33%. As Proteam Incorporation had accumulated taxable losses as at 31 December 2004, no provision for PRC income tax has been made for the year then ended. ** In accordance with the tax regulations in the PRC, the applicable PRC income tax rate to Guangfo Company is 18%. 17 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 7. INCOME TAX EXPENSE (continued) *** In accordance with the tax regulations in the PRC, the applicable PRC income tax rate to Gaosu Company is 33%. Pursuant to an approval document issued by Guangzhou Tax Bureau, Gaosu Company was exempt from income tax from 1 August 2002 to 31 July 2003 and is subject to income tax on the assessable profits at rates of 33% commencing 1 August 2003. A reconciliation of the expected tax with the actual tax expenses is presented below: Note 2004 2003 RMB’000 RMB’000 Profit from operating activities before income tax and minority interests 467,941 398,246 Tax at an applicable tax rate of 33% 154,421 131,421 Effect attributable to a subsidiary charged at tax rates of (30,786) (29,544) Tax losses of the Company and subsidiaries - 11,321 Income not subject to tax (17,133) (1,306) Expenditure not allowable for income tax purposes (including goodwill amortisation) 18,127 9,715 Tax expenses in respect of the current year 124,629 121,607 - At an effective income tax rate of 26.7% (2003: 30.5%) Adjustments in respect of PRC income tax of previous periods 30,779 10,591 Income tax expense included in the consolidated income statement for the year ended 31 December 2002 155,408 132,198 18 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 7. INCOME TAX EXPENSE (continued) Deferred income tax Deferred income tax as at 31 December 2004 related to the following: Consolidated Consolidated balance sheet income statement 2004 2003 2004 2003 RMB’000 RMB’000 RMB’000 RMB’000 Deferred income tax liabilities: Depreciation differences between tax base and carrying amount of expressways (55,662) (43,444) (12,218) (14,400) Deferred income tax assets: Unrealised profit from disposal of fixed assets 1,570 2,392 (822) (822) Deferred income tax charge (13,040) (15,222) Net deferred income tax liabilities (55,662) (43,444) Net deferred income tax assets 1,570 2,392 Note: 7.1 According to the request of the local tax bureau in 2004, a deemed interest income (the “Deemed Interest Income”), amounting to RMB136,399,000, should be calculated for the currently interest-free shareholders’ loans granted to subsidiaries and an associate for previous years by the Company, by reference to the interest rates applied by commercial banks for the same periods. Accordingly, adjustments in respect the current income tax of the Company for the Deemed Interest Income, amounting to RMB30,779,000, have been included in the financial statements for the year ended 31 December 2004. According to the request of the local tax bureau in 2003, the amortisation charges of the excess of the purchase consideration paid for individual acquisition over the net assets acquired by the Company at the acquisition date, (the “Amortisation Charges”), amounting to RMB33,395,000 for previous years, could not be treated as tax-deductible expenses until the disposal of the underlying investments. In view of the fact that the disposal schedule of the above-mentioned underlying investments could not be reliably estimated by the directors of the Company, deferred income tax assets in relation to the Amortisation Charges have not been recognised in the financial statements for the year ended 31 December 2003. Accordingly, the adjustments in respect of the current income tax of the previous periods of the Company amounting to RMB10,591,000 have been included in the financial statements for the year ended 31 December 2003. 19 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 8. DIVIDENDS PAID AND PROPOSED During the year ended 31 December 2004, a dividend of RMB0.1 per share (totalling RMB125,712,000) approved at the 2004 annual general meeting was declared and paid. In addition, a further dividend of RMB0.12 per share has been proposed and will be submitted for formal approval at the 2005 annual general meeting. Accordingly, this dividend (totalling RMB150,854,000) has not been recognised as a liability as at 31 December 2004. During the year ended 31 December 2003, a dividend of RMB0.1 per share (totalling RMB125,712,000) was declared and paid. In addition, a further dividend of RMB0.1 per share was proposed and approved at the 2004 annual general meeting, and was paid in 2004 following that approval. Accordingly, that dividend (totalling RMB125,712,000) was not recognised as a liability as at 31 December 2003. 9. EARNINGS PER SHARE The basic earnings per share is calculated by dividing the net profit attributable to shareholders for the year of RMB194,522,000 (2003: RMB144,494,000) by the weighted average number of 1,257,117,749 (2003: 1,257,117,749) shares in issue. No diluted earnings per share were presented as there were no dilutive potential ordinary shares as at the year end. 20 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 10. FIXED ASSETS Furnit fixtu Expressways and o and a bridge Improvements Buildings Machinery equipm RMB’000 RMB’000 RMB’000 RMB’000 RMB’ Cost or valuation: At beginning of year 4,579,211 125,818 184,138 159,180 72, Additions - 54,342 4,242 6,505 7, Disposals - - (18,775) (29,984) (47, At 31 December 2004 4,579,211 180,160 169,605 135,701 33, Accumulated depreciation: At beginning of year 698,456 39,386 52,423 106,011 47, Provided during the year 140,945 7,821 7,578 9,150 8, Disposals - - (9,562) (17,086) (44, At 31 December 2004 839,401 47,207 50,439 98,075 11, Provision for impairment loss of fixed assets: At beginning of year 2,600 - 3,700 5,773 Provided during the year - - - - Disposals - - (3,700) (4,400) At 31 December 2004 2,600 - - 1,373 Net book value: At 31 December 2004 3,737,210 132,953 119,166 36,253 21, At 31 December 2003 3,878,155 86,432 128,015 47,396 24, 21 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 10. FIXED ASSETS (continued) In connection with the Group reorganisation, fixed assets as at 31 January 1993 were revalued by Zhongzhou Certified Public Accountants on a depreciated replacement cost basis. The revaluation surplus of RMB147,600,000 arising from the revaluation has been approved by the Guangdong Provincial State Assets Bureau and reflected in the Group’s financial statements. The 1993 valuation was a one-off exercise which established the deemed cost of the fixed assets injected upon the formation of the Company. As a result, the directors consider that the requirements of IAS 16 “Property, plant and equipment” with respect to carrying assets at amounts other than cost less accumulated depreciation are not applicable. Xiebian Interchange and Yayao Interchange (the “Two Interchanges”) with the carrying amounts of RMB129,415,000 as at 31 December 2004 have been included in the consolidated financial statements for the year then ended, for which Guangfo Company respectively accounted for 33% and 60% equity interest in the project companies for the individual interchange (the “Project Companies”). According to the establishment agreement of the Project Companies, which were incorporated solely for the construction of the Two Interchanges, the Two Interchanges should be handed over to the local government authorities upon completion of the construction. As a result, the directors of the Group considered that the capital expenditures for the Project Companies should be accounted for as fixed assets in the consolidated financial statements, rather than interest in a subsidiary or an associate in accordance with the accounting principle of substance over form, in view of the future economic benefits, in excess of the originally assessed standard of performance of Guangzhou-Foshan Expressway (“Guangfo Expressway”), would flow to Guangfo Company. 11. CONSTRUCTION IN PROGRESS Construction in progress consists of various construction projects in progress. These projects mainly include the construction of the Siling Complex. 12. GOODWILL RMB’000 Cost: At 1 January 2004 105,928 Additions during the year - At 31 December 2004 105,928 22 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 Accumulated amortisation: At 1 January 2004 62,373 Provided during the year 15,139 At 31 December 2004 77,512 Net book value: At 31 December 2004 28,416 At 31 December 2003 43,555 23 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 13. INTERESTS IN ASSOCIATES Particulars of the associates, which operate in the PRC, are analysed as follows: Date of Attributable equity Principal activities Name incorporation interest of the Group 2004 2003 Shenzhen Huiyan 20 November 33.33%* 33.33%* Construction and Expressway Company 1991 operation of Limited Huizhou-Yantian Port (“Huiyan Company”) Expressway, Shenzhen section Guangdong Maozhan 8 February 20%* 20%* Construction and Expressway Company 1999 operation of Limited Dianbai-Zhanjiang (“Maozhan Company”) Expressway Guangdong Guanghui 12 August 30%* 30%* Construction and Expressway Company 1999 operation of Limited Guangzhou-Huidong (“Guanghui Company”) Expressway Beijing-Zhuhai 13 May 20%* 20%* Construction and Expressway 1993 operation of Guangzhou-Zhuhai Guangzhou-Zhuhai Section Company Expressway Limited (“Guangzhu Company”) Zhaoqing Yuezhao 23 November 25%* 25%* Construction and Expressway Company 1998 operation of Limited Guangzhou-Zhaoqing (“Yuezhao Company”) Expressway Green Angel Organic 23 January 33.25%* 33.25%* Manufacture and sale Fertilizer Company 2002 of organic fertilizer Limited (“Green Angel Company”) 24 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 Guangzhou Xinlu 7 March 38%* - Design and Transportation 2004 development of Technology Company intelligent Limited transportation system (“Xinlu Company”) * The Group’s profit sharing in associates is in proportion to its share of equity interest therein. Pursuant to the approval of the Gaosu Company's directors at a meeting held on 7 November 2003, Gaosu Company entered into an agreement with Guangzhou Jingbo Transportation Technology Co., Ltd. and Zhaoqing Yingjia Information System Co., Ltd. dated 3 February 2004 to jointly establish Xinlu Company. Accordingly, Gaosu Company contributed RMB800,000 as share capital and accounted for 40% equity interest in Xinlu Company. 25 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 13. INTERESTS IN ASSOCIATES (continued) Notes 2004 2003 RMB’000 RMB’000 Share of net assets 887,062 864,536 Due from associates Current portion 13.1 8,464 8,000 Non-current portion 13.1 956,240 860,964 964,704 868,964 Due to associates 13.2 96,230 - Notes: 13.1 Due from associates Current portion The loan of RMB8,000,000 to Green Angel Company is unsecured, bears interest rate at 5.31% per annum and has no fixed terms of repayment. The current year’s balance also included interest accrued. Non-current portion An advance of RMB111,580,000 to Huiyan Company is unsecured, interest-free and has no fixed terms of repayment. Huiyan Company repaid RMB10,000,000 to the Company for the year ended 31 December 2004. An advance of RMB476,430,000 to Guanghui Company is unsecured, interest-free and has no fixed terms of repayment. The remaining balance of amounts due from associates in non-current portion represents the loan to Guangzhu Company, which is unsecured and has no fixed terms of repayment. The nominal interest rate of the loan to Guangzhu Company was 8% per annum (effective interest rate for 2004: 8%, 2003: 8%). The amount of interest receivable from Guangzhu Company as at the year end is calculated by reference to the principal sum which should include the gross amount of the outstanding unpaid interest at the end of the prior year. 26 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 27 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 13. INTERESTS IN ASSOCIATES (continued) Notes: (continued) 13.2 Due to associates An advance of RMB96,000,000 from Guanghui Company is unsecured, interest-free and has no fixed terms of repayment. The remaining balance of amounts due to associates represents advances from Huiyan and Green Angel Company, which is unsecured and has no fixed terms of repayment. 14. OTHER INVESTMENTS, UNLISTED Notes 2004 2003 RMB’000 RMB’000 Investments in available-for-sale financial assets 141,670 132,527 Less: Provision for impairment loss of an available-for-sale financial assets - (6,247) 14.1 141,670 126,280 Investment properties 3,970 3,970 Less: Accumulated depreciation and provision for impairment loss of investment properties (2,330) (2,131) 14.2 1,640 1,839 143,310 128,119 Notes: 14.1 During the year, RMB21,360,000 was contributed by the Company as part of a capital injection in Jiangmen-Zhongshan Expressway Company Limited, which has been included in the investments in available-for-sale financial assets. The remaining balance of investments in available-for-sale financial assets mainly represents investments in equity interest in unlisted securities firms registered in the PRC. For the investments in available-for-sale financial assets as at 31 December 2004, 28 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 as the directors consider there is no quoted market price in an active market and whose fair value cannot be reliably measured, the investments in available-for-sale financial assets are initially recognised at cost less any accumulated impairment losses. 14.2 Investment properties as at 31 December 2004 mainly represent real estates for rental purpose located in Shunde city in Guangdong Province, the PRC. 29 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 15. OTHER LONG TERM ASSETS RMB’000 Cost: At 1 January 2004 and 31 December 2004 36,633 Accumulated amortisation: At 1 January 2004 15,229 Provided during the year 3,664 At 31 December 2004 18,893 Net book value: At 31 December 2004 17,740 At 31 December 2003 21,404 Other long term assets represent losses on disposal of residential apartments to staff. In accordance with the relevant regulations issued by the State Council of the PRC applicable to companies established in the PRC, the residential apartments of the Group were sold to the staff of the Group at a discounted value according to their remaining duration of service in the Group. 30 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 16. INVESTMENTS IN SUBSIDIARIES As at 31 December 2004, the Company had five subsidiaries which were established and operating in the PRC. All material intercompany transactions and balances have been eliminated on consolidation. Particulars of the subsidiaries are shown as follows: Nominal value of Attributable equity Date of paid-up interest of the Name Incorporation capital Group Principal activities RMB’000 2004 2003 Guangzhou-Foshan Expressway 7 July 200,000 75% 75% Operation of Company Limited 1988 Guangfo (“Guangfo Expressway Company”) Guangdong Provincial Foshan-Kaiping 12 March 1,108,000 51% 51% Operation of Fokai Expressway 1996 Expressway and Limited Liability Jiujiang Bridge Company (“Fokai Company”) Guangdong Gaosu Science and 13 August 100,000 95% 95% Investment in the Technology 2001 industry of science Investment and technology Company Limited (“Gaosu Company”) Guangzhou Proteam Technology 26 October 5,000 57% 57% Manufacture Incorporation 1998 and sale of (“Proteam telecommunication Incorporation”) and network systems 31 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 Tibet Zhongke Energy-storage 22 March 1,000 - 75% Investment in the Technology 2001 battery Development Co., manufacturing Ltd. (“Zhongke industry Company”) Pursuant to the approval of Gaosu Company’s directors’ meeting held on 20 August 2004, Gaosu Company entered into a disposal agreement to dispose of 79% equity interest in Zhongke Company at a consideration of RMB9,012,000 with effect from 31 August 2004, resulting in a gain on disposal of RMB272,000, which has been included in the consolidated income statement for the year ended 31 December 2004. 17. BRIDGE OPERATING RIGHTS RMB’000 Cost: At 1 January 2004 and 31 December 2004 66,918 Accumulated amortisation: At 1 January 2004 14,088 Provided during the year 3,522 At 31 December 2004 17,610 Net book value: At 31 December 2004 49,308 At 31 December 2003 52,830 Fokai Company acquired the bridge operating rights to operate the Jiujiang Bridge for the period from 1 January 2000 to 10 June 2018. 18. CURRENT INVESTMENT SECURITIES 2004 2003 RMB’000 RMB’000 32 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 Government bonds, listed - 44,138 Shares, listed 2,134 4,331 2,134 48,469 The amount consists of investments in listed shares through authorised financial institutions registered in the PRC. The market values of listed shares as at 31 December 2004 were RMB2,134,000. The listed shares were carried at market value as at 31 December 2004. The gain of RMB105,000, arising from the changes in the market values of the listed shares dated 31 December 2004, have been included in the consolidated income statement for the year then ended. 19. DUE FROM/TO RELATED COMPANIES The amounts due from related companies were unsecured, interest-free and fully settled in January 2005. The amounts due to related companies included an amount, which was unsecured, bore interest at the prevailing market rates based on the rates quoted by the People’s Bank of China (2004: 5.49% per annum; 2003: 5.49% per annum) and had no fixed terms of repayment. The remaining amounts due to related companies were unsecured, interest-free and had no fixed terms of repayment. 20. DUE TO MINORITY SHAREHOLDERS The amounts due to minority shareholders at the balance sheet date are unsecured and are analysed as follows: 2004 2003 RMB’000 RMB’000 Interest-bearing borrowings: Non-current portion 498,325 498,325 498,325 498,325 33 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 Non-interest-bearing borrowings: Current portion 85,635 65,787 Non-current portion 15,000 15,000 100,635 80,787 598,960 579,112 The maturities of the amounts due to minority shareholders as at the balance sheet date are analysed as follows: 2004 2003 RMB’000 RMB’000 Amounts repayable: Within one year 85,635 65,787 In the second year 40,000 15,000 In the third to fifth years, inclusive - 40,000 Beyond five years 473,325 458,325 598,960 579,112 The amounts of RMB498,325,000 due to minority shareholders are unsecured and bear interest at rates ranging from 4.941% to 5.184% per annum. The remaining balances of the amounts due to minority shareholders are unsecured, interest-free and have no fixed terms of repayment, out of which a balance of RMB15,000,000 is not expected to be repaid within one year from the balance sheet date. 34 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 21. INTEREST-BEARING LOANS AND BORROWINGS 2004 2003 RMB’000 RMB’000 Bank loans, unsecured 1,450,000 1,520,000 Other loan, unsecured 150,000 150,000 1,600,000 1,670,000 The maturities of the above amount are analysed as follows: Loans and borrowings repayable: Within one year 400,000 320,000 In the second year - 150,000 In the third to fifth years, inclusive 1,200,000 1,200,000 1,600,000 1,670,000 Long term portion 1,200,000 1,350,000 The bank loans are unsecured and bear interest at rates ranging from 4.779% to 5.184% per annum. A loan agreement was entered into dated 13 November 2003 for the loan of RMB150,000,000 borrowed from a company incorporated in the PRC by Fokai Company made through the Industrial and Commercial Bank of China, a financial institution authorised to lend money to PRC companies, which is unsecured, bears interest at 3.6% per annum and reaches maturity in 2005. 35 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 22. ISSUED CAPITAL 2004 2003 RMB’000 RMB’000 Registered, issued and fully paid: − 633,836,999 unlisted A shares of RMB1 each 633,837 633,837 − Nil unlisted foreign investment − shares of RMB1 each (2003: 45,000,000) - 45,000 − 348,750,000 listed B shares of RMB1 each 348,750 303,750 (2003: 303,750,000) − 274,530,750 listed A shares of RMB1 each 274,531 274,531 (2003: 274,530,750) 1,257,118 1,257,118 In July 1996, the Company issued for subscription of 135,000,000 B shares by way of a private placement with foreign investors. Dealings in the B shares on the Shenzhen Stock Exchange commenced in August 1996. Pursuant to the resolution at a shareholders’ general meeting in May 1997, the Company distributed a scrip dividend of 1.7 shares for every 10 shares of RMB1 and a bonus issue of 3.3 shares for every 10 shares of RMB1 to shareholders in the register of members dated 20 June 1997. In January 1998, the Company issued for subscription of 100,000,000 A shares for local PRC investors. Dealings in the A shares on the Shenzhen Stock Exchange commenced in February 1998. Pursuant to the approval of the Company’s shareholders at a general meeting held on 22 August 2000, the Company issued 30,000,000 listed A shares and 43,822,250 unlisted A shares by way of rights issue on the basis of three new shares of RMB1 each for every 10 existing shares for the shareholders in the register of members on 15 August 2000 at RMB11 per rights share payable in full on acceptance. Pursuant to the approval of the Shenzhen Stock Exchange and CSRC, dealings of 53,020,500 unlisted A shares on the Shenzhen Stock Exchange commenced on 5 February 2001. Pursuant to the approval of the Company’s shareholders at a general meeting held on 23 April 2001, the Company transferred RMB419,039,249 of share premium and capital surplus to share capital in the financial statements for the year ended 31 December 2001. 36 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 Pursuant to the approvals of the Ministry of Foreign Trade and Economic Cooperation and CSRC dated 5 November 2002 and 16 January 2003, respectively, dealings of 45,000,000 unlisted foreign investment shares on the Shenzhen Stock Exchange commenced on 8 March 2004. 37 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 23. RESERVES Share premium Statutory account Statutory public Discretionary and surplus welfare surplus Retained capital reserve fund reserve profits Total surplus RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 At beginning of year 1,534,761 167,767 89,093 114,565 249,626 2,155,812 Net profit for the year - - - - 194,522 194,522 Cash dividends - - - - (125,712) (125,712) Transfer to reserves: Statutory surplus reserve - 22,742 - - (22,742) - Statutory public welfare fund - - 11,371 - (11,371) - Discretionary surplus reserve - - - - - - 1,534,761 190,509 100,464 114,565 284,323 2,224,622 In accordance with the Company Law of the PRC and the Company’s articles of association, the Company is required to transfer part of the profit after tax as reported in the Group’s statutory financial statements, to the statutory surplus reserve and the statutory public welfare fund. In addition, the board of directors may determine to appropriate part of the profit after tax to the discretionary surplus reserve. At the board of directors’ meeting held on 9 March 2005, the directors proposed to transfer RMB22,742,000 and 11,371,000 to each of the statutory surplus reserve and the statutory public welfare fund, respectively. These represent approximately 10% and 5% of the profit after tax as reported in the Group’s statutory financial statements for the year ended 31 December 2004. According to the relevant regulations in the PRC, the retained profits available for distribution as dividends is the lower of the amounts determined under PRC accounting regulations and the amounts determined under IFRS. 38 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 24. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (a) Reconciliation of profit before income tax to net cash inflow from operating activities 2004 2003 RMB’000 RMB’000 Profit before income tax 467,941 398,246 Adjustments for: Share of profits and losses of associates (50,727) (3,246) Depreciation charges 178,228 173,386 Loss on disposal of fixed assets 17,140 121 Provision for impairment loss of fixed assets - 4,200 Provision for doubtful debts 5,503 - Write-back for impairment loss of an available-for-sale financial asset (6,247) (1,404) Gain on disposal of equity interest in a subsidiary (272) (142) Amortisation of goodwill 15,139 16,986 Amortisation of bridge operating rights 3,522 3,522 Amortisation of other long term assets 3,664 3,664 Interest expenses 108,320 67,741 Interest income (29,226) (26,175) Dividend income from an available-for-sale financial - (1,696) asset Income on current investment securities, listed (985) (3,547) Operating profit before working capital changes 712,000 631,656 (Increase)/decrease in inventories (35) 20 Decrease/(increase) in prepayments and other receivables 822 (449) Increase in amounts due from associates (252) - Increase in amounts due from related companies (8,194) (14,675) Increase in amounts due to related companies 3,617 5,235 Decrease in amounts due to minority shareholders (5,194) (36,616) Increase in amounts due to associates 96,230 - Decrease in other payables (1,945) (18,868) Cash generated from operations 797,049 566,303 Interest paid (84,907) (64,103) Income taxes paid (132,265) (94,305) 39 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 Net cash inflow from operating activities 579,877 407,895 24. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued) (b) Unutilised borrowing facilities As at 31 December 2004, the unutilised borrowing facilities available to settle the Group’s capital commitment for investment and construction amounted to RMB1,660,000,000 (2003: RMB 1,790,000,000). The above borrowing facilities as at 31 December 2004 were made available in accordance with the terms and conditions set out in the offered borrowing facilities as follows: 2004 2003 RMB ’000 RMB ’000 Amounts to be drawn down: Within one year 850,000 190,000 In the second to fifth years, inclusive 810,000 1,600,000 1,660,000 1,790,000 25. IMPACT OF IFRS ADJUSTMENTS ON CONSOLIDATED PROFIT ATTRIBUTABLE TO SHAREHOLDERS AND CONSOLIDATED NET ASSETS Consolidated profit Consolidated attributable to shareholders net assets as at Year ended 31 December 31 December 2004 2003 2004 40 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 RMB’000 RMB’000 RMB’000 As reported under PRC accounting principles 258,201 181,183 3,634,903 IFRS and other adjustments, net* (63,679) (36,689) (153,163) As restated under IFRS 194,522 144,494 3,481,740 * The adjustments include, primarily, adjustments for the elimination of the unrealised profits arising on the disposal of 100% ownership of the Jiujiang Bridge and related assets to Fokai Company against the Group’s share of 35% equity interest in Fokai Company in 1999, deferred income tax, goodwill arising on the acquisition of a subsidiary and associates, amortisation of goodwill, depreciation charges, amortisation of other long term assets, impairment loss of fixed assets, current investment securities at market value and other adjustments in accordance with IFRS. 41 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 26. COMMITMENTS AND CONTINGENT LIABILITIES (a) Capital expenditure commitments The Group has capital expenditure commitments not provided as at the balance sheet date as follows: 2004 2003 RMB’000 RMB’000 Authorised, but not contracted for - 800 Contracted for 941,335 1,138,123 941,335 1,138,923 (b) Operating lease commitments – the Group as lessee At the balance sheet date, the Group does not have any significant operating lease commitments. (c) Contingent liabilities At the balance sheet date, the Group does not have any significant contingent liabilities. 27. RETIREMENT BENEFITS AND HOUSING BENEFITS (a) Retirement benefits As stipulated by the regulations issued by the State Council of the PRC, the Group participates in a defined contribution retirement plan organised by the Guangdong Provincial Government. All staff are entitled to an annual pension which is equal to a fixed proportion of their final basic salary on retirement. The Group is required to make contributions to the retirement plan at rates ranging from 12% to 20% (2003: 12% to 19%) of the basic salaries of its staff. The Group has no obligations for the pension benefits beyond the annual contributions as described above. During the year, contributions to registered insurance companies made by the Group under the defined contribution retirement scheme amounted to RMB7,023,000 (2003: RMB5,582,000). 42 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 (b) Housing benefits In accordance with the PRC housing reform regulations, the Group is required to make contributions to the government administered housing fund schemes at rates ranging from 8% to 20% (2003: 8% to 20%) of the specified salary amounts of the PRC employees. The employees are required to make a contribution equal to the Group’s contributions out of their payroll. The employees are entitled to claim the entire sum of the fund under certain specified withdrawal circumstances. The Group has no further obligation for housing benefits beyond the said contributions. For the year ended 31 December 2004, the Group contributed RMB3,520,000 (2003: RMB2,983,000) to the said housing fund schemes. 43 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 28. RELATED PARTY DISCLOSURES (a) Related party transactions The following is a summary of the significant transactions carried out between the Group and its related parties in the ordinary course of business during the year: 2004 2003 RMB’000 RMB’000 Transaction with associates Shareholders’ loan to an associate (see note 13) - 8,000 Repayment of an advance to an associate (see note 13) 10,000 6,000 Interest receivable from associates (see note 13) 27,701 25,256 Advance to an associate (see note 13) 78,000 38,430 Advance from associates (see note 13) 96,230 - Transaction with fellow subsidiaries Interest expenses payable to a fellow subsidiary (see note 19) 804 795 Repayment of loan to a fellow subsidiary, which is also a minority shareholder (see note 20) - 599,407 Interest expenses payable to a fellow subsidiary, which is also one of the minority shareholders (see note 20) 23,300 1,985 Expressway maintenance and repair expenses payable to fellow subsidiaries, which are also minority shareholders 5,585 3,443 Construction fees payable to a fellow subsidiary 17,992 25,100 Transaction with related parties Loan from a minority shareholder (see note 20) - 40,000 Rental expenses payable to a related company 1,281 1,304 Interest expenses payable to a minority shareholder (see note 20) 2,202 1,922 Repayment of loan to a minority shareholder (see note 20) - 25,000 Expressway maintenance and repair expenses payable to related companies 14,946 18,197 Handling charges payable to a related company 8,319 - Construction fees payable to a fellow subsidiary was based on actual costs 44 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 incurred and under normal commercial terms and conditions. Expressway maintenance and repair expenses payable to fellow subsidiaries and related companies were based on actual costs incurred and under normal commercial terms and conditions. Rental expenses payable to a related company was based on actual costs incurred and under normal commercial terms and conditions. Handling charges mainly represented the service fees payable to Guangdong Unitoll Collection Incorporate, a related company, which was charged on toll income of toll expressways in Guangdong Province commencing on 1 January 2004. Pursuant to the approval issued by the relevant local authority, the handling charges were charged on a progressive basis at rates from 0.25% to 2% of the toll income. 45 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 28. RELATED PARTY DISCLOSURES (continued) (b) Directors’ remuneration During the year, the executive members of the board of directors received remuneration, inclusive of basic salaries, bonuses and allowances, totalling RMB1,761,000 (2003: RMB3,035,000). The Company contributed RMB354,000 (2003: RMB45,000) to defined contribution retirement schemes administered by registered insurance companies for the executive directors. 29. FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISKS The Group conducts its major operations in the PRC and exposes to market risks from changes in interest. In addition, they are also subject to special considerations and risks including risks associated with, inter alia, the political, economic and legal environment and restrictions pertaining to the setting of a stable toll tariff. Financial assets of the Group include cash, investments, prepayments and other receivables. Financial liabilities of the Group include bank loans, amounts due to related companies, other payables and amounts due to minority shareholders. (a) Credit risk Substantial amounts of the Group’s cash balances are deposited with the China Construction Bank Corporation, the Bank of China Limited, the Agriculture Bank of China, the China International Trust and Investment Company Industrial Bank, the Shenzhen Development Bank, the Industrial and Commercial Bank of China, the China Everbright Bank, Huaxia Bank, the Bank of Communications, the Shanghai Pudong Development Bank, China Minsheng Banking Corp., Ltd., the China Merchants Bank, the Guangzhou Commercial Bank, Beijing City Commercial Bank Co., Ltd., Industrial Bank Co., Ltd. and Guangdong Development Bank. Included in the balance of the Group balances with financial institutions is an amount of RMB52,998,000 deposited by the Company and Gaosu Company with certain securities companies, for securities trading purpose, of which the terms and conditions were the same as those deposits in commercial banks. The directors considered that deposits with these securities companies are subject to a higher credit risk than those placed with commercial banks. In view of the above, the directors consider it appropriate to account for any interest 46 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 income arising from these deposits on a receipt basis. Other than the aforesaid, the Group has no other significant concentration of credit risk with any single counterparty or group counterparties. (b) Liquidity risk The Group policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed annual credit facilities from banks to meet its commitments over the next year in accordance with its strategic plan. 47 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 29. FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISKS (continued) (c) Interest rate risk The Group’s exposure to interest rate risk relates principally to its bank loans and amounts due to minority shareholders. The Group’s income and operating cash flows are substantially independent of changes in market interest rate prices. (d) Foreign exchange risk The Group has no significant foreign exchange risk due to limited foreign currency transactions. (e) Fair values The fair values of cash, investments, prepayments, other receivables, amounts due to related companies, other payables and amounts due to minority shareholders are not materially different from their carrying amounts. Investments held for trading, are estimated by reference to their quoted market prices at the balance sheet date. Available-for-sale financial assets are measured at cost less impairment losses, if there are no quoted market prices in an active market and their fair values cannot be reliable (see note 14). Fair value estimates are made at a specific point in time and based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 30. SEGMENT INFORMATION The Group’s revenue and profit for the year were almost entirely derived from the management and operations of toll expressways and a bridge, which are located in the Guangdong Province, the PRC. Accordingly, no segmental analysis by activity and geographical area is provided. 48 GUANGDONG PROVINCIAL EXPRESSWAY DEVELOPMENT CO., LTD. NOTES TO FINANCIAL STATEMENTS Year ended 31 December 2004 31. COMPARATIVE AMOUNTS Certain comparative amounts in the prior year have been reclassified so as to conform to the current year’s presentation. 32. APPROVAL OF THE FINANCIAL STATEMENTS The financial statements were approved and authorised for issue by the board of directors on 9 March 2005. 49