古井贡酒(000596)古井贡Ｂ2004年年度报告摘要（英文版）

ANNUAL REPORT 2004 (B SHARE) June 2005 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Chapter I Important Notices l Board of Directors and directors of the company ensure that there is neither untrue presentation, seriously misleading statements, nor omission of material facts contained in the information herein and shall seve rally and jointly bear responsibility for the authenticity, accuracy and completeness of the information contained in this annual report. l Board Chairman Mr. Wang Feng, General Manager Mr. Wang Dejie and General Accountant Mr. Li Peihui ensure the correctness and completeness of the accounting report in this Annual Report. Chapter II Basic Information of Company 1. Statutory name of the Company In Chinese: 安徽古井贡酒股份有限公司 In English: ANHUI GUJING DISTILLERY COMPANY LIMITED 2. Legal representative: Wang Feng 3. Secretary of Board of Directors: Li Peihui Contact address: Gujing Town, Bozhou City, Anhui Province Tel: (0558) 5710057 Fax: (0558) 5710006 E- mail: ｇｕｊｉｎｇｚｑｂ＠ｇｕｊｉｎｇ．ｃｏｍ．ｃｎ Authorized representative for securities: Ma Junwei Contact address: Gujing Town, Bozhou City, Anhui Province Tel: (0558) 5710057 Fax: (0558) 5710006 E- mail: JWMA@ gujing.com.cn 4. Registered address: Gujing Town, Bozhou City, Anhui Province Office address: Gujing Town, Bozhou City, Anhui Province Post code: 236820 Website: http://www.gujing.com E- mail: gujing@mail.ahbbptt.com.cn 5. Selected Newspapers for information disclosure are as follows: China Securities Daily, Shanghai Securities Daily, Hong Kong Wen Wei Po Daily 1 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Website for publishing Annual Report of the Company: http://www.cninfo.com.cn Place of the Annual Report filed: office of Secretary of BOD of the Company 6. Place where the company shares are listed: Shenzhen Securities Exchange Short form of Stock Name: Gujing Distillery A Securities Code: 000596 Short form of Stock Name: Gujing Distillery B Securities Code: 200596 7. Other information: 1) Initial registration date of the Company: May 30, 1996 Updated alteration registration date: December 15, 2004 Registration authority: Anhui Provincial Administration for Industry and Commerce 2) Registration number of business license: QGWZZ No. 001745 Tax registration number: 341600151940008 3) Names and addresses of accountants’offices appointed by the Company Domestic : Deloitte Touche Tohmatsu CPA Ltd. Address: 30/F, Bund Center, 222 Yan An Road East, Shanghai Abroad: Deloitte Touche Tohmatsu Address: 26/F Wing On Center, 111 Connaught Road Central, Hong Kong Chapter III Summary of Accounting and Operational Data I. Accounting data of 2004 Unit: RMB thousand yuan Items Amount Total profit (103,229)) Net profit (172,742) Profit from ma in business 175,158 Operating profits 638 Investment gains (7,750) Subsidy incomes 268 Net cash flow from operating activities 9,077 Increase or Decrease of cash and cash equivalents 9,028 II. The differences in net profits and net assets calculated in accordance with Chinese accounting standards and international accounting standards Unit: RMB thousand yuan Net profit of the report Net assets at end of this period report period 2 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Amount calculated in accordance (179,435) 903,611 with Chinese accounting standard Items & amount adjustment in accordance with international ６，０００ accounting standards Initial expenditure for subsidiary 693 Amount calculated in accordance with international accounting (172,742) 903,611 standards III. Main accounting data and financial indexes over the last three years Unit: RMB thousand yuan Items 2004 2003 2002 Income from main business 596,917 558,587 526,034 Net profit (172,742) (42,807) 17,795 Total assets 1,472,419 １，５６０，１７６ １，５６６，８４０ Shareholders’equity 903,611 1,076,353 １，１４２，６６０ Earnings per share (0.74) (0.18) 0.08 Net assets per share ３．８５ 4.58 ４．８６ Net assets per share after adjustment ３．８３ 4.58 ４．８５ Net cash flows per share from operating activities 0.039 ０．３０９ 0.136 Diluted net assets income ratio（%） －１９．１２ －３．９８ １．５６ Weighted average net assets income -17.45 -3.82 １．５５ ratio（%） IV. Particulars about changes of shareholders’equity Unit: RMB thousand yuan Statutory Proposed Total Share Capital Surplus Undistributed Dividend Item public shareholder’ s Capital reserve reserve profit Payable welfare equity At beginning ０ of the period ２３５，０００ 521,647 69,415 69,415 180,876 1,076,353 Increase in this ０ period ０ 3 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Decrease in ０ this period ０ (172,742) (172,742) At end of this ０ period ２３５，０００ 521,647 69,415 69,415 8,134 903,611 Reasons of The undistributed profit and decrease in shareholder’ s equity is for reason of the loss of 2004. changes Chapter IV Particulars about the Changes of Share Capital & Shareholders I. Particulars about changes of share capital (1) Table of Share s Change Unit: share Before this Increase or decrease of this change（+、-） After this change change Rationed Shares Public Issued Other Sub- shares grant reserve new total converted shares into shares A. Nonnegotiable shares 1. Founder’ s shares １５５，０００，０ １５５，０００，０００ ００ Including: State-owned shares １５５，０００，０ １５５，０００，０００ Domestic corporate shares Overseas corporate shares Others 2. Raised corporate shares 3. Internal ２４，５００ ２４，５００ employees’shares 4. Preferred shares or others Subtotal of １５５，０２４，５ １５５，０２４，５００ nonnegotiable shares ００ 4 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED B. Listed and negotiable shares 1. RMB ordinary ７９，９７５，５０ ７９，９７５，５００ shares ０ 2. Foreign capital ２３５，０００，０ ２３５，０００，０００ shares listed locally ００ 3. Foreign capital shares listed overseas 4. Others Subtotal of listed ７９，９７５，５０ ７９，９７５，５００ and negotiable ０ shares C. Total shares ２３５，０００，０ ２３５，０００，０００ ００ Note: the nonnegotiable 24,500 internal employees’ shares are the shares held by the directors, supervisors and senior executives of the company. II. Particulars about issuance and public offer 1. Particulars about stock issuance and public offer in the past three years In the three years before the report period, the Company did not issue stocks or any derivative securities. 2. Change of capital stock structure within the report period By the end of the report period, there is no change in the total number of shares of the Company. 3. Issuance of shares held by employees Two million shares held by employees were subscribed at the par value of RMB 8.48 yuan per share when the Company listed its A shares in September 1996, were entrusted to the No. 1 Division of Shenzhen Go usen Securities Co., Ltd. in September 27, 1996. Except for 24,500 shares held by the existing directors, supervisors and senior executives, the rest shares held by employees have already been listed. III. Brief introduction to s hareholders 1. Total number of shareholders at end of the report period By the end of the report period, the Company has 23,299 shareholders, including 1 holder of state-owned corporate share, 5 holders who are directors, supervisors and senior executives of the Company, 11,673 shareho lders who hold locally- listed foreign-capital shares and 11,556 public shareholders. 5 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED 2. Particulars about the shares held by top ten shareholders ( up to December 31st , 2003) Stockholdi Proportion Shares Increase or Shares ng Classification Names of Decrease quantity Character of No. Quantity at (nonnegotiabl shareholders during the under pledge equity the end of e shares or report period or freezing year negotiable (shares) 1 ANHUI GUJING １５５，０００， Non- State-owned GROUP COMPANY ６５．９６％ Nil corporate ０ ０００ negotiable LIMITED shares 2 He Bin ＋５６０，８００ ８６０，８００ ０．３７％ negotiable Unknown B shares 3 Baoyong Enterprise ６０２，００１ ０．２６％ negotiable Unknown B shares Co. Ltd. ０ 4 Zhao Zhanyue Unknown ５２２，９００ ０．２２％ negotiable Unknown B shares 5 CHEN YU BIN ＋１５７，４０４ ５１６，１０４ ０．２２％ negotiable Unknown B shares 6 ＷＯＮＧ ＫＩＮ ＨＵＮＧ Unknown ４４８，０００ ０．１９％ negotiable Unknown B shares 7 Huang Peiling Unknown ４４１，６０２ ０．１９％ negotiable Unknown B shares 8 Zhou Zhengzhong Unknown ４０１，７００ ０．１７％ negotiable Unknown B shares 9 ＣＨＥＮ ＫＡＭ ＴＯＮＧ ０ ３６４，４００ ０．１６％ negotiable Unknown A shares 10 Ｃａｉ Ｇｕｉｓｈｅｎｇ Ｕｎｋｎｏｗｎ ３２８，６００ ０．１４％ negotiable Unknown A shares Notes: 1) There has no any intercorporating relationship between the biggest shareholder and the rest shareholders, and the aforesaid biggest shareholder does not also belong to such kind of actors in concert defined by Regulations for Information Disclosure about Changes of Shareholders for Listed Companies. No information is available about intercorporating relationship or acting in concert among the rest shareholders. 2) The shareholder holding more than 5% of total shares of the Company is ANHUI GUJING GROUP COMPANY LIMITED. The shares it held are state-owned shares, and there has no any changes for them during this report period, and no pledge or freezing occurs. 3) Introduction to the biggest shareholder of the Company (by the end of this report period): The biggest shareholder of the Company is ANHUI GUJING GROUP COMPANY LIMITED which is the state-owned sole proprietorship established on Jan. 16, 1995, with the registered capital Rmb353,380,000; its legal representative is Mr. Wang Xiaojin. Its business scope: beverage, construction materials, plastic products, shareholding and operation of state-owned assets in the authorized scope by the State. There has no any change in controlling shareholders in the report period. Property right relationship and control relationship between the company and actual controller. 6 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED The People’s Government of Bozhou 100% ANHUI GUJING GROUP COMPANY LIMITED 65.96% This Company 4) The company has not corporate shareholders holding more than 10% (including 10%) of total shares of the Company. 5) Particulars about ten top shareholders of negotiable shares of the Company Shares held at Proportion Character of No. Name of shareholders end of this report (%) equity period 1 He Bin ８６０，８００ ０．３７％ B shares 2 Baoyong Enterprise Co. Ltd. ６０２，００１ ０．２６％ A shares 3 Zhao Zhanyue ５２２，９００ ０．２２％ B shares 4 CHEN YU BIN ５１６，１０４ ０．２２％ B shares 5 WONG KIN HUNG ４４８，０００ ０．１９％ B shares 6 Huang Peiling ４４１，６０２ ０．１９％ B shares 7 Zhou Zhengzhong ４０１，７００ ０．１７％ B shares 8 ＣＨＥＮ ＫＡＭ ＴＯＮＧ ３６４，４００ ０．１６％ B shares 9 Cai Guisheng ３２８，６００ ０．１４％ A shares 10 Wisdom House Intelligent System ３００，０００ ０．１３％ B shares (Hong Kong) Co. Ltd. Notes: No information is ava ilable about whether there are any intercorporating relationship among the aforesaid ten top negotiable shareholders or not. 4. There has no any other corporate shareholder that holds more than 10% (including 10%) of total shares of the Company in the report period. 7 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Chapter V. Particulars about Directors, Supervisors, Senior Executives & Employees of the Company I. Particulars about directors, supervisors and senior executives 1. Basic information Shares Shares held at held at Name Position Gender Age Duty term year year beginning end May 2002-May Wang Feng Board Chairman M 40 0 0 2005 Wang May 2002-May Director M 56 3,500 3,500 Xiaojin 2005 Yang May 2002-May Director M 60 3,000 3,000 Guangyuan 2005 May 2002-May Liu Junde Director M 42 0 0 2005 Director/Secretary of May 2003-May Li Peihui M 32 0 0 BOD/General Accountant 2005 Wang Director/Vice market May 2002-May M 30 0 0 Subin director 2005 Liu May 2002-May Independent director M 51 0 0 Youpeng 2005 Zhuo Independent director M 67 May 2002-May 0 0 Wenyan 2005 Li Hao Independent director M 54 May 2002-May 0 0 2005 Yuan May 2002-May Chief supervisor F 57 1,500 1,500 Qinghua 2005 Zhang May 2002-May Jialiang Supervisor M 51 2005 0 0 Liang May 2002-May Supervisor M 41 ０ ０ Jinhui 2005 Wang Dec. 2003-May General manager M 43 ０ ０ Dejie 2005 Zhu Executive Vice general Dec. 2003-May M 39 ０ ０ Renwang manager 2005 Lu May 2002-May Vice general manager M 43 ０ ０ Jianchun 2005 Zhang May 2002-May Vice general manager M 43 ０ ０ Jianlin 2005 Notes: particulars about directors and supervisors of the Company working in shareholding companies 1) Director Mr. Wang Xiaojin acts as the board chairman in ANHUI GUJING GROUP CO., LTD., as the controlling shareholders of this company from January 1995, and also acts as the president from August 2004. 2) Director Mr. Yang Guangyuan acts as party secretary in ANHUI GUJING GROUP CO., LTD. as the 8 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED controlling shareholders of this company from January 1995. 3) Director Mr. Liu Junde acts as vice president of ANHUI GUJING GROUP CO., LTD. from August 2004. 4) Supervisor Ms. Yuan Qinghua acts as the director of party committee office and secretary of Commission for Discipline Inspection in ANHUI GUJING GROUP CO., LTD. from May 2000. (2) Main work experience of incumbent directors, supervisors and senior executives 1. Mr. Wang Feng, incumbent board chairman of the company, had ever acted as the league secretary of Bozhou Gujing Wine Factory, vice section chief of economic development office, vice section chief of business management office, assets management manager, member of the second board of directors and secretary and general manager of the board of directors. 2. Mr. Wang Xiaojin, incumbent director of this company and board chairman and president of ANHUI GUJING GROUP CO., LTD. had ever acted as the factory director of Bozhou Gujing Wine Factory, member, board chairman and general manager of the first and second board of directors. 3. Mr. Yangguangyuan, incumbent board chairman of this company and director and Secretary of the Party Committee of ANHUI GUJING GROUP CO., LTD. had ever acted as the Secretary of the Party Committee of Bozhou Gujing Wine Factory and member and vice board chairman of the first and second board of directors of this company. 4. Mr. Liu Junde, incumbent director of this company, vice president of ANHUI GUJING GROUP CO., LTD. had ever acted as vice finance section chief of Woyang County Meat Processing Factory, finance principal of Bozhou Textile Factory, vice finance section chief, section chief, finance manager and general accountant of Bozhou Gujing Wine Factory and member and board chairman of the third board of directors of this company. 5. Mr. Li Peihui, incumbent director, secretary of board of directors and general accountant, had ever acted as the accountant of No. 1 finance section, accountant of securities department, vice section chief of No. 2 finance section, section chief of No. 1 finance section, vice manager and manager of finance department, vice general accountant and member of the third board of directors of this company. 6. Mr. Wang Subin, incumbent director of board of directors and vice market director of the sales company, had ever acted as the vice market director for the market supervision and director for market operation. 7. Mr. Zhuo Wenyan, incumbent independent director of board of directors of this company, had ever worked in Fujian Xianyou Sugar Factory and Anhui finance and economics school and ever acted as assistant, lecturer, associate professor, professor and department head of accounting department of Anhui University of Finance & Trade, now acts as accounting professor and tutor of Ph. D. in Anhui University of Finance & Trade, director of China Accounting Society, vice chairman of Anhui Accounting Society , vice chairman of Business Finance & Accounting Seminar of China academy of finance & economics, 9 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED executive director of Anhui Institute of Certified Public Accountants and adjunct professor of Hefei College of Economics & Technology. 8. Mr. Liu Youpeng, incumbent independent director of board of directors of this company and professor of Shanghai Institute of Commercial Education, had ever worked in Weishu District, Beijing, Anhui Quanjiao County centre middle school and Wanbei branch of Anhui Agriculture College as well as acted as section chief of Anhui Provincial education committee, deputy director, vice mayor of Bozhou, director of the Enrollment Office in Institutions of Higher Learning of Anhui Provincial education committee and adjunct professor of Anhui Institute of Education. 9. Mr. Li Hao, incumbent independent director of this company and superintendent of modern Institute of Justice of Law School of Nanjing Normal University, Tutor for doctorial students, lawyer of Anhui Zhongding Law Firm and vice chairman of Chinese Procedural Law Seminar, had ever acted as deputy director of Teaching and Research of Law of Party School of Anhui Province Party Committee, adjunct professor of Anhui University and counselor of Anhui Technology Publishing House, etc. 10. Mr. Yuan Qinghua, incumbent director of party committee office of ANHUI GUJING GROUP CO., LTD. secretary of Commission for Discipline Inspection, committeeman of party committee and supervisor of the third board of supervisors of this company, had ever acted as vice general manager of Anhui Bozhou Gujing Hotel Co., Ltd. supervision manager of the company, supervisor of the first and second board of supervisors of this company, office director of ANHUI GUJING GROUP CO., LTD. vice secretary of Commission for Discipline Inspection and the first vice-chairman of labour union. 11. Mr. Liang Jinhui, incumbent market director and supervisor of the third board of supervisors of this company, had ever acted as secretary of information research room of the company, editor in chief of Gujing Newspaper Office, propaganda and advertising section chief, vice manager of market development department of the company, supervisor of the second board of supervisors and manager of market development department and director of market research and supervision center. 12. Mr. Zhang Jialiang, incumbent human resource manager and supervisor of the third board of supervisors, had ever acted as branch secretary of the second wine brewery workshop of this company, labor section chief, personnel vice manager and deputy director of party committee office, director and supervisor of the second board of supervisors of the company. 13. Mr. Wang Dejie, incumbent general manager of this company, had ever acted as energy measurement section chief of Bozhou Gujing Wine Factory, vice general manager of Anhui Jiufang Pharmacy Co., Ltd. investment management manager of Anhui Gujing Group Co., Ltd. general manager of alcohol branch of this company, vice general manager of this company. 14. Mr. Zhu Renwang, incumbent vice executive general manger of this company mainly responsible for the sales work, had ever acted as vice section chief, section chief, vice manger and general manger of subsidiary Gujing sales company of this company. 10 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED 15. Mr. Lu Jianchun, incumbent vice general manager of the company mainly responsible for quality management, had ever acted as quality inspection section chief of Bozhou Gujing Wine Factory, vice quality manager and manager. 16. Mr. Zhang Jianlin, incumbent vice gene ral manger mainly responsible for the production work of the company, had ever acted as manager of production workshop of Bozhou Gujing Wine Factory, vice workshop director, workshop director, factory director and production manager of Wine Brewery Branch of the company. 2. Annual remuneration A complete compensation and reward and performance evaluation system has been established in the Company. And a yearly salary scheme has been devised for directors, supervisors and senior executives. The allowance of independent directors shall be decided by the shareholders’ general meeting in accordance with the stipulation in the Articles of Association of the Company. A yearly evaluation shall be carried out by the special performance evaluation department of the company for the senior executives. The Board of Supervisors shall supervise their production operation work. And meanwhile they shall also be reviewed and managed by human resource department of the Company. Total annual remuneration amount (exclusive of subsidy 84.48 of independent directors) (RMB’ 0,000.00) Total annual remuneration amount for three top directors 31.86 (RMB’ 0,000.00) Total annual remuneration amount for three top senior 31.86 executives (RMB’ 0,000.00) Allowance for independent directors RMB20,000 per year per person (after tax) Those expenditures occurred by attending board of directors & shareholder’ s general meeting and Other subsidy for independent directors performing their authorities in accordance with articles of association of the Company will be sent into account Annual remuneration range: more than 100,000 3 persons RMB70,000 ~ 100,000 3 persons Lower than RMB70,000 4 persons Director Mr. Wang Xiaojin, Mr. Yang Guangyuan and Mr. Liu Junde do not collect the remuneration in the company. 3. Particulars about changes of directors, supervisors and senior executives during the report period. 11 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED 1) On August 6, 2004, the following motions on election of board chairman and engagement of general manger and vice general manager have been passed by the 13th meeting of the 3rd Board of Directors: * In consideration of work change of the former board chairman Mr. Liu Junde, upon research, the board of directors accepts Mr. Liu Junde to resign from board chairman, and elects Mr. Wang Feng as new board chairman of the Company by joint recommendation of Directors Mr. Wang Xiaojin, Mr. Yang Guangyuan and Mr. Liu Junde and upon review of the nomination committee of board of directors of the company; * In consideration of duty change of general manager Mr. Wang Feng, upon research, the board of directors accepts Accepted Mr. Wang Feng to resign from general manager, upon recommendation of board chairman Mr. Wang Feng and review of nomination committee of the company, elect Mr. Wang Dejie as general manager and appoint Mr. Zhu Renwang to vice executive general manager. Relevant resolutions of the Board of Directors have been published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po Daily on August 7, 2004. II. Particulars about employees Up to December 31, 2004, the Company has 6,160 employees in the payroll and 113 retirees to bear the expenses, and the composition of employees in active service is listed as below: Classification Item Employee Proportion (persons) University graduate and above ２２０ ４％ College degree ２７９ ５％ Secondary education ４３３ ７％ Per education Senior high school education ４８７ ８％ Junior high school education ４，７４１ ７６％ Total ６，１６０ １００％ Operation personnel ４，８４１ ７８．６％ Technical personnel ４８８ ７．９％ Per position Financial personnel １１５ １．９％ Sales personnel ３９６ ６．４％ Administrative personnel ３２０ ５．２％ (excusive of sales and financial Total ６，１６０ １００％ 12 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Chapter VI. Corporate Governance Structure I． Particulars about actual governance state of the Company The Company constantly perfect corporate governance structure and standardize its management strictly in accordance with the Company Law, Securities Law as well as Standard for Governance of Listed Companies. At present, the governance status of the Company basically complies with the requirements of Standards for Governance of Listed Companies regulated by China Securities Regulatory Commission. Up to the end of the report period, the company has established quite perfect inner control system, including Articles of Association, rules of procedure of shareholders’general meeting, rules of procedure of board of directors, rules of procedure of board of directors, detailed work rules of general manager, work system of independent directors and corresponding detailed rules of implementation for strategy committee, audit committee, nomination committee and remuneration and review committee of the board of directors. During the report period, according to relevant regulations of the supervision department and combining the actual circumstances of the company, revise the Articles of Association and further perfect the inner control system of the company, at present, the company has owned more scientific corporate governance structure. Corporate governance structure chart of the company: 1. Shareholders’general meeting 2. Board of supervisors 3. Board of directors 4. Strategy committee 5. Audit committee 6. Nomination committee 7. Remuneration and review committee 8. Operation management II. Particulars about independent directors’performances (1) Independent directors attendance to the board of directors of the Company. Ｎａｍｅ Ｎｕｍｂｅｒ ｏｆ Ｔｉｍｅｓ Ｎｕｍｂｅｒ ｏｆ Ｎｕｍｂｅｒ ｏｆ Ｎｕｍｂｅｒ ｏｆ Ｔｉｍｅｓ Ｎｕｍｂｅｒ ｏｆ Ｔｉｍｅｓ ｏｆ Ｔｉｍｅ ｏｆ ｏｆ Ｖｏｔｉｎｇ ｂｙ Ｔｉｍｅｓ ｏｆ Ｐｅｒｓｏｎａｌ Ｖｏｔｉｎｇ ｏｎ Ｃｏｍｍｕｎｉｃａｔｉｏｎ Ａｂｓｅｎｃｅ Ａｔｔｅｎｄａｎｃｅ Ｃｏｍｍｉｓｓｉｏｎ Ｚｈｕｏ ６ ４ ２ ０ ０ Ｗｅｎｙａｎ Ｌｉｕ ６ ４ ２ ０ ０ Ｙｏｕｐｅｎｇ Ｌｉ Ｈａｏ ６ ４ ２ ０ ０ During the report period, three independent directors punctually attended the board of directors of the Company and made independent suggestions for a series of matters such as production and operation, 13 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED capital operation and material personnel change and interoperate transaction, etc. in respect of finance, laws and corporate governance, etc. which helps board of directors make more scientific and objective decisions and really maintain the legal rights and interests of the company and shareholders. (2) Particulars about independent directors’dissidences for relevant matters of the company During the report period, 3 independent directors has not put forward their dissidences for the motions of board of directors of this year and other motions of non-board of directors. (3) Particulars about five independences in business, personnel, assets, organizations and financial affairs between this company and controlling shareholders. The controlling shareholder Anhui Gujing Group Co., Ltd. holds 65.96% of total shares of the company. The company and big shareholders realized five independences in business, personnel, assets, organizations and financial affairs, with separate independent calculation, independent responsibilities and risks. Big shareholders can not surpass the shareholders’general meeting to directly or indirectly interfere with the company’ s decisions and legal production and operation activities, and there is no the same trade competition state of the same products between the company and big shareholders. IV. Particulars about assessment and incentive mechanism to senior executives during the report period Up to the end of the report period, target yearly remuneration system for the senior executives of the company with considerably rational performance assessment and incentive mechanism was formed in the Company. The decisions management adopts the assessment and incentive measures in combination with the Yearly remuneration and economic indexes and management achievement. To advance the standard, healthy and orderly development of the company as well as attract more talents and keep the stability of the senior executives, annually establish the assessment index at the beginning of the year and sign a written responsibility of business objective, decide the remuneration proportion at the year-end according to personal work performance of the senior executives and completion of benefit target of the Company. Chapter VII. Highlights of the General Meeting During the report period, the company convened two shareholders’General Meeting. The particulars are as below. I. Annual Shareholders ’General Meeting 14 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED (1) Particulars about the notice and convening of Shareholders ’General Meeting Meeting notice of 2003 General Meeting was published on China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po Daily dating April 17, 2004. On May 19, 2004, General Meeting was held in the meeting room on the second floor in Gujing Hotel, Bozhou City, Anhui Province. 14 shareholders or shareholders’representatives attended this meeting, representing a total of 155,830,900 shares which accounts for 66.31% of total shares of the Company, with 11 A share shareholders or shareholders’representatives, representing a total of 155,024,500 shares; with 3 B share shareholders or shareholders’representatives, representing a total of 806,400 shares. (2) Particulars about resolution and publishing of General Meeting The following resolutions have been discussed and passed by means of open voting: 1. Annual Report & its summary for year 2002; 2. Working Report of the board of directors for the year 2003; 3. Financial Statements for the year 2003; 4. Working Report of the Board of Supervisors for the year 2003; 5. Profit Distribution Plan for the year 2003; 6. Motion to revise and increase a part of articles (Articles of Association); 7. Motion to continue to appoint Shanghai Deloitte Touche Tohmatsu CPA Ltd. and Hong Kong Deloitte Touche Tohmatsu CPA Ltd. as the Company’ s domestic and oversea audit institution in 2004; 8. Motion to related operation transaction of 2003; 9. Motion to sign the main materials purchase contract of 2004. 10. The announcement of the resolutions of shareholders’general meeting was published in China Securities Daily, Shanghai Securities Daily, Hong Kong Wen Wei Po Daily in both English and Chinese on May 20, 2004. 2. Provisional shareholders’general meeting (1) Notice and convening of shareholders’general meeting On Nov. 19, 2004, the company published the notice on convening the first provisional shareholders’ general meeting of the year 2004 in China Securities Daily, Shanghai Securities Daily, Hong Kong Wen Wei Po Daily, the meeting was held in the meeting room on the fourth floor of the company on Dec. 20, 2004. There are 6 shareholders and shareholders’representatives attending the provisional shareholders’ general meeting, representing a total of 648,804 shares which account s for 0.2761% of total shares of the Company, including 4 nonnegotiable A share shareholders and shareholders’representatives, representing a total of 9,000shares, 2 negotiable B share shareholders and shareholders’representatives, representing a total of 639,804 shares. 15 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED (2) Particulars about resolution and publishing of General Meeting The following resolutions on replacement related transaction of the company’ s 70% shareholding in Beijing Winward Technology Co., Ltd. and 99.96% shareholding in Bozhou Gujing Printing Co., Ltd. held by Anhui Gujing Group Co., Ltd. have been discussed and passed by means of open voting. The announcement of the resolutions of the shareholders’general meeting was published in China Securities Daily, Shanghai Securities Daily, Hong Kong Wen Wei Po Daily in both English and Chinese on Dec. 21, 2004. II. Particulars about election and change of directors and supervisors During the report period, the company did not elect and replace any directors and supervisors. Chapter VIII. Report of the Board of Directors 1. Discussion and analysis from management In 2004, under the leadership of the board of directors and the solidarity of all employees, the company took time to overcome difficulties, held confidence firmly, strengthened management and dealt with all kinds of disadvantages caused by such factors as cost rise etc. As a result, the market has been expanded and the marketing achievement has been raised steadily. In the field of marketing, the company has imported a set of modern marketing concept, further optimized product structure, organization structure and marketing team, integrated marketing resources, strengthened marketing management and deepened marketing change. In the field of quality management , the company has paid attention to raising the quality recognition of employees, completely carried out quality policy, actively pushed forward the integral management system construction of quality/environment/occupational safety based on the quality system, strengthened process control and deepened technical innovation. As a result, the company has made great achievements. The company was awarded “Top10 Enterprise of National Food Safety Model”, “Advanced Unit of National Good Service Month”etc. In the field of the adjustment of industry structure, the company has invested the project of deep process of wheel with self-prepared fund, actively cultivated new profit growth point. Holding the object of strengthening main industry and making alcohol industry and relevant industries big and powerful, the company has completed the assets replacement operation between 70% shares of Beijing Winward Technology Co., Ltd. and 99.96% shares in Bozhou Gujing Printing Co., Ltd. held by Anhui Gujing Group Co., Ltd. which made the main business of the company clearer. The company strengthened the technical innovation during the report period, and successively carried out expansion and supporting project innovation for the canned workshops, glass company and carton workshops and expanded the packing materials warehouses, etc. Considering the trusteeship of two securities companies and bad operation and heavy worsening to different degrees of financial state of one securities company among three securities companies as the trustees for national debts investment, in April 2005, based on the cautious principle and the responsible attitude for the investors, starting from the long-range point of view of the company, the board of directors of the company withdrew the devaluation reserves for the balance of the national debts investment up to the report period; in Mar. 2005, after reviewing the taxpaying from 2002 to 2004, Hefei commissioner office under the ministry of finance thinks that combining paying of income tax between the company and Bozhou Gujing Sales Company falls short of relevant regulations, upon the requests of the relevant governmental authorities, the company supplemented the payable income tax, so a 16 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED considerable loss occurs in the company’ s operation achievements of the year 2004. In 2005, the company will develop marketable products, integrate the market situation and take the measures to reduce the inner management expenses, etc. to try to reduce the disadvantageous influences of the separate taxpaying on the company. (II) Operating Results of the Company during the Report Period 1. Primary scope of business and operating results of the Company (1) Primary scope of business of the Company includes the production and sales of Gujing wine, Gujinggong wine, Laobada and Yetaiyang series alcoholic products including two fragrant types of aroma and faint scent, and the company owns very complete product system with spirit content from 60 to 30 degree at the high, medium and low price. (2) Table of Sub- industries and sub-products of main business Unit: RMB 1,000 yuan Sub-industries of Main Business Increase or Increase or Increase or Decrease Decrease of Decrease of Main Main Main Main of Rate of Sub- industry or Rate of gross business business business Business gross profit Sub-products profit (%) profits over income profits Income over over the the the previous previous previous year (%) year (%) year (%) ５３９，８２１，１０５ ２３１，０３０，５３５ ４２．８ ４．８７ －４．２１ －４．０６ Wine ５７，０９６，３２６ ７４５２５２３ １３ ３０．２３ －１．７９ －４．２６ Others Sub- industries of Main Business ４４７，０７７，３２５ ２２２，００１，１６３ ４９．９６ １３．４４ １．０２ －５．８０ High grade wine/spirit ５１，７２８，０９３ ８，６８９，６３６ １６．８０ ３５．８８ －２４．８２ －１３．５６ Medium grade wine/spirit ４１，０１５，６８７ ３３９，７３６ ０．８３ －４７．６１ －９５．７８ －９．３４ Low grade wine/spirit c. Sub-districts of main business Unit: RMB 1,000 yuan 17 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Increase/decrease of main business income Sub-district Main business income over the previous year (%) North China １２５，１３０，５３２ －１９．７０ South China １１５，１４３，８４２ －５．６８ Central China ２９９，５４６，７３１ ２８．８０ 2. Operation and Performance of Major Controlling Companies and Equity Participated Companies (1) Bozhou Gujing Sales Company Bozhou Gujing Sales Company has RMB43.646 million of registered capital and holds 99% of total shares, which is mainly engaged in the sales of liquor and trade service. At the end of 2004, Bozhou Gujing Sales Company has total assets RMB16,518,300 and main business income RMB439,932,400 and realized net profits RMB53,121,500. (2) Bozhou Gujing Motor Transport Company Bozhou Gujing Motor Transport Company has registered capital RMB6,945,000 holds 99% of total shares, which mainly provides transport service. At the end of 2004, Bozhou Gujing Motor Transport Company has total assets RMB11,394,400 and main business income RMB1,920,200 and realized net profits RMB232,300 during the report period. (3) Bozhou Gujing Glass Product Co., Ltd. Bozhou Gujing Glass Product Co., Ltd. has registered capital RMB16 million and holds 99% of total shares, which is mainly engaged in production and sales of glass products. At the end of the report period, Bozhou Gujing Glass Product Co., Ltd. has total assets RMB79,858,000 and main business income RMB33,638,400 and realized net profits RMB1,738,600. (4) Bozhou Gujing Printing Co., Ltd. Bozhou Gujing Printing Co., Ltd. has registered capital RMB27.26 million and holds 99.96% of total shares, which is mainly engaged in printing and sales of packing products. At the end of the report period, Bozhou Gujing Printing Co., Ltd. has total assets RMB29.59 million. (5) Anhui Laobada Distillery Co., Ltd. Anhui Laobada Distillery Co., Ltd. has registered capital RMB30 million and holds 93% of total shares, which is mainly engaged in sales of Laobada series alcoholic products. At the end of the report period, Anhui Laobada Distillery Co., Ltd. has total assets RMB31,314,300 and main business income RMB4,076,100 and realized net profits RMB409,400. 6．Anhui Gujing Yetaiyang Distillery Sales Co., Ltd. Anhui Gujing Yetaiyang Distillery Sales Co., Ltd. has registered capital RMB3.6 million and holds 92% of total shares, which is mainly engaged in sales of Yetaiyang series alcohol products. At the end of the report period, Anhui Gujing Yetaiyang Distillery Sales Co., Ltd. has total assets RMB6,830,800 and main business income RMB6,484,600 and loss RMB265,900. 7. Bozhou Gujing Vegetable Oil Co., Ltd. Bozhou Gujing Vegetable Oil Co., Ltd. has registered capital RMB0.6 million and holds 80% of total shares, which is mainly engaged in manufacturing and sales of Gujing Vegetable Oil. At the end of the report period, Bozhou Gujing Vegetable Oil Co., Ltd. has total assets RMB458,100 and main business income RMB634,800 and realized net profits RMB14,500. 8. Hua’an Securities Co., Ltd. Hua’an Securities Co., Ltd. has registered capital RMB1,705,000,000 and holds 5.87% of total shares, which is mainly engaged in securities investment and investment bank business, etc. (2) Main suppliers and customers During the report period, the total purchase amount of the first five suppliers of the company is RMB122.06 million, accounting for 34.31% of the total purchase amount; During the report period, the total sales income of the first five customers of the company is RMB100.03 million, accounting for 16.8% of the total main business income of the company. 4. Problems Occurred in Operation and Their Solutions 18 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED First it is nearly impossible to recover the funds of national debts investment by Minfa Securities Co., Ltd. Hengxin Securities Co., Ltd. and Jianqiao Securities Co., Ltd. so the board of directors of the company follows the cautious principle to withdraw the bad debts reserves for the total amount of the national debts investment of RMB90.53 million of net account value; then after the ministry of finance reviews the taxpaying circumstances from 2002 to 2004, it thinks that the previous means of combining the income tax of the company falls short of relevant regulations, so the company must separately pay income tax, which make the tax of the company considerably increase than previous tax. Though it is more difficult to recover the national debts investment, and the company has withdrawn all bad debts reserves, but the recovery group of the national debts investment funds has not relax the efforts to recover the funds, and the relevant working personnel has been going all out to reclaim the funds all along to retrieve the company’ s loss; for the tax increase problems, the board of directors of the company increases the product marketing strength and reduce the disadvantageous influences the tax increase for the company by enlarging the sales amount. 3.Investment circumstance during the report period (1) Raised funds investment No raised fund has been put into investment in this report period. (2)Non-raised fund investment in the report period 1. RMB80.06 million of investment is planed in the wheat deep-processed project, RMB 24.95 million was invested actually, and a total accumulative amount of RMB24.95 million was invested, up to the end of the report period, the project has been completed 30%. 2. Rmb29.50 million of investment was planned in the canned production and storage facilities expansion project, RMB19.43 million was invested during the report period, such project has been completed. 3. RMB15 million of investment is planned in the fourth bottles workshop of Gujing glass company, RMB15.21 million was invested during the report period, such project has been completed. 4. See annotations 17 of the financial statement for other investment projects. (Ⅳ). Financial Status of the Company during the Report Period and Analysis of Operation Result by the Board of Directors 1. Financial Status of the Company Unit: RMB Thousand Yuan Items The number at the Rate of The number at beginning of the Increase or the end of the term term Decrease (%) Total Assets 1,472,419 1,560,176 -5.62 Circulating assets 897,187 1,020,492 -12.08 Monetary fund 121,327 112,299 8.04 Inventory 602,061 571,712 5.30 Short-term liabilities 538,407 421,376 27.77 Rate of asset-liability 38.47% 29.58% 8.89 Shareholders interest 903,611 1,076,353 -16.05 Analysis: The decrease of circulating assets mainly attributes to the withdrawing of Inventory falling price reserves. The decrease of receivable account mainly attributes to the company’s further strengthening the management of the receivable account and speeding the urgency so that the balance of receivables decreases in this accounting year. The increase of short-term liabilities mainly attributes to the increase of short-term bank loan. The decrease of shareholders’interest mainly attributes to the comparatively greater loss of the Company in this accounting year. 19 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED （二）The analysis of operating results: Unit: RMB thousand Yuan Items The Number of the The number of the Rate of term same time in the Increase or previous year Decrease (%) Major business income 596,917 558,587 6.86 Major business profit 175,158, 177,009 -1.04 Net profit (172,742) （42,807) -310.44 Cash and cash equivalent 9,028 16,778 -46.19 increase or decrease amount Analysis: The comparatively greater decrease of net profit attributes to the comparatively greater loss due to the Company’s withdrawing of the national debt investment depreciation reserves in full sum and mending withdrawing of the income tax payable of 2004. Particulars of the Board of Directors’Non-Standard Opinion on the Audit Report Deloitte Touche Tohmatsu CPA Ltd and Deloitte Touche Tohmatsu (hereinafter referred to as Deloitte) submitted the audit report on the accounting statements of the fiscal year of 2004. In respect of the matters that the audit report points out that the Company has no evidence to prove the exemptibility of taxes payable due to consolidated payment of taxes prior t o 2002 and there is no sufficient audit evidence to evaluate the callback of the Company’s national debit investment and the audit evidence of the Company’s interest investment in Huaan is unobtainable to judge whether there is major depreciation, the Board of Directors makes the following statements: 1. The Company is always in accordance with the consistent principle of accounting and adopts the method of consolidated payment of income tax with the sales company. In March 2005, the Anhui Resident Financial Supervision Office of the Ministry of Finance examined the tax payment of the Company from 202 to 2004 and believed that the tax payment method of the Company bore no approval of the State Tax Bureau and fell short of the relevant prescriptions of the Supplementary Notice on Collecting Enterprises of Consolidated Payment Implementing Unified Calculation, Hierarchical Management, Local Pre-payment and Centralized Liquidation of Income Tax by the State Tax Bureau. The local tax authorities recently issued documents, requesting the Company to makeup the taxes payable of 2002, 2003 and 2004. Considering that it is a matter of the past, the supervisor of the Ministry of Finance just examined the data of 2002, 2003 and 2004. According to the Article 52 of the People’s Republic of China to Administer and Levy Taxes, for the lack of payment or insufficient payment by taxpayer or obligator due to the liability of the tax authority, the tax authority may request the taxpayer or obligator to make up the payment within three years without late fee charged. Therefore, the company did not withdraw the prior taxes. 2. Due to the fact that the Henxin Securities and MF Securities successively suffered administrative take-over. From the take-over unit and the media, we gained the knowledge that the assets status of Henxin Securities and MF Securities was worsening and the relevant reconstruction plan had not turned up. Meantime, Capital Bridge Securities had never adopted any method to recover the Company’s operation right on national debit investment account and involved in several lawsuits due to its own causes. Considering the situation, the Board of Directors studied and believed that as time passes by, the company might had more and more difficulty in reclaiming residual national debit investment fund. Thus, with the principle of prudence, the Company withdrew the depreciation reserves from the national debit investment amount with the net book value of RMB 90.53 million Yuan by December 31, 2004. 20 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED 3. Huaan Securities co., Ltd (hereinafter referred to as Huaan Securities) is a joint stock company of the Company (holding 5.71%) and operates normal and sound. We has never obtained any information referring to the bad operation of Huaan Securities and found not evident withdrawal of depreciation. Thus, the Company did not exert the withdrawal of depreciation reserves concerning this investment. The independent directors of the Company hold the independent opinion that the financial statements of the Company basically reflect the financial situation and current matters under current situations. The measures adopted by the Board of Directors on the items mentioned in the audit opinion conform to the factual situation of the Company. It is hoped that the Board of Directors of the Company will adopt effective polices to solve the above matters. (VI) Routine Work of the Board of Directors 1. Meetings of the Board of Directors and Content of Resolution During the reporting period, the Board of Directors held 6 meetings and following items were discussed and passed: (1) The Report on the change of relevant problems issued by China Securities Regulatory Commission, Hefei Specially Appointed Office while inspecting Gujing Distillery Co., Ltd; (2) Operational affiliated transactions of Gujing Distillery Co., Ltd. in 2003; (3) Annual Report 2003 and Summary of Annual Report”, “Report on the Work of the Board of Directors in 2003”, “Profit Distribution Plan for 2003”; (4) Comprehensive project of deep process of 300 thousand tons maize annually, the project of tinned product and storage facilities expanding, the project of Plant 4 of Gujing Glass Company, the project of purchasing land for deep process of maize and the comprehensive project of deep process of 150 thousand wheel annually; (5) Amending the Articles of Association of the Company. Special committee was set up to establish relevant detailed rules, establish the General Manger Rules of Procedure of Anhui Gujing Distillery Co., Ltd., the Management rules of Information Exposure of Anhui Gujing Distillery Co., Ltd. (6) Continuing to engage the Accountant Office and changing the securities affairs representative; (7) Applying for the loan amount to the bank; (8) Holding the general meeting for 2003, and the interim general meeting for 2004; (9) “The First Quarterly Report of 2003”, “the Third Quarterly Report of 2003”, “the Six Month Report of 2004 and its summary”; (10) Selecting the chairman; engaging general manager and executive general manager; (11) Assets replacement and affiliated transactions. 2. Execution of Resolutions of Shareholders’General Meetings by the Board of Directors During the reporting period, the Board of Directors of the Company passed the following resolutions strictly in accordance with the Company Law, Securities Law, and the Articles of Association of the Company and in accordance with the resolution and authorization: On 21st Dec., 2004, the Resolution on the replacement with 70% shares of Beijing Winward Technology held by the Company to change 99% shares of Haozhou Gujing Printing held by Anhui Gujing Group. According to the resolution made on the meeting, the company has completed relevant alteration and registered name transfer before 25th, Dec, 2004. (VII) Profit Distribution Plan or Plan for Transfer of Capital Reserve to Increase Capitalization According to the audit in 2004 by Shanghai Deloitte Touche Tohmatsu CPA Ltd, the accountant of the Company, the Company achieved a loss profit of RMB 179,435,814 yuan in 2004, plus RMB 180,165,606 Yuan of undistributed profit of the previous year, the profit for distribution for the year is RMB 729,792 Yuan; according to the audit by Hong Kong Deloitte Touche Tohmatsu CPA Ltd, an international accountant, the Company lost RMB172,742,000Yuan in 2004 plus RMB180,876,000 Yuan of undistributed profit at the beginning of the previous year, the profit for distribution for the year is RMB729,792 Yuan. Considering that the Company gets a big loss in 2004, the 17th session of 3rd Board of Directors observed and proposed that the company shall have no profit distribution and the capitalization of public reserves this year. The distribution plan is subject to the observing and approval of the General Meeting of 2004. 21 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED VIII. Other Report Items The company selected China Securities Daily, Shanghai Securities Daily and Hong Kong Wen Wei Po for disclosing information in 2005. XI. CPA’s Special Explanation on Use of Funds by Controlling Shareholders and Other Related Parties Board of Directors of Anhui Gujing Distillery Company Limited, In accordance with Guidelines of Independent Audit of China’ s CPA, we have audited Balance Sheet up to December 31, 2004, 2004 Profit and Profit Appropriation Statement and Statement of Cash Flow provided by Anhui Gujing Distillery Company Limited (Your Company) and have signed and issued Audit Report of De Shi Bao [Shen] Zi (05) No. P01055 on June 27, 2005, where the auditors failed to give any comments. According to requirements of Circular on Standardizing Fund Transfer between A Listed Company and Other Related Parties as Well as External Guaranty by A Listed Company issued by China Securities Regulatory Commission and State Administration of State Property, Your Company have prepared survey of use of funds of your company (hereinafter referred to as Survey) by December 31, 2004 as detailed below and attaching to this letter. It is responsibility of your company to prepare and disclose the survey and to ensure its authenticity, legality and completeness. We have checked information in the survey and accounting information checked by our office while auditing annual report of your company in 2004 as well as related information in audited financial report and found no significant misstatement. We carried out no extra audit program towards information in the survey except for relevant audit on transfers with related parties carried out in the annual fiscal report of your company in 2004. This letter can only be intended to help report to China Securities Regulatory Commission on Use of Funds by Controlling Shareholders and Related Parties of Your Company in 2004, and cannot be used for otherwise purposes without our written approval. Survey on the Use of Funds of Auhui Gujing Distillery Company Unit: RMB 1,000 yuan Accumulated Accumulated Balance at amount Balance amount Name of Accounting the incurred to at the end Rema Use of funds Relation incurred to related party item beginning of debtor of the rks creditor in the the year in the whole year whole year year Gujing Tianshi Subsidiary of the Accounts ４３ － ４３ － _ Printing Co., controlling shareholder receivable Ltd. Purchase and sale Gujing Xuedi Subsidiary of the Accounts １６１ １，６８５ １，７０２ １４４ _ Brewery controlling shareholder receivable Co., Ltd 22 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Gujing Integrated Subsidiary of the Accounts － ５４１ ５４１ Services controlling shareholder receivable Company Other Gujing － １１７ １１７ － controlling shareholder accounts Group receivable Other Transposing of Gujing － １６，４５２ １０，０００ ６，４５２ price difference controlling shareholder accounts Group receivable Call loans - - - - - - - Loan by mandate - - - - - - - Investment by an entrusted related - - - - - - - party Issuance of Commercial acceptance - - - - - - - without actual transaction Entrusted payment of debts - - - - - Others (such as payment of expenses for another, etc. ) - - - - - Deloitte Touche Tohmatsu CPA Ltd June 27, 2005 X. Independent Opinions Expressed by the Board of Supervisors on the Circulation of Related Parties, the Company’s Accumulative Total and the Situation of Guarantees In accordance with “The Notice on Standardizing the Financial Flow between the Listed Companies and Related Parties and on the Matters of External Guarantee”issued Securities Regulatory Commission vide 2003-56, we have surveyed the required matters above and we hold that: 1. As of December 31, 2004, the Company is holding 6.452 mil. yuan receivable accounts of Anhui Gujing Group Co., Ltd., which incurred from the assets transfer during the report period. According to the agreement between the two parties, the latter shall pay off the remainder before Dec. 31, 2004. Therefore the Company is holding no improper appropriation of funds of the controlling shareholders or other related parties. 2. As of December 31, 2004, the Company is controlling the external guarantee activities. So far, the company has provided no guarantee for any shareholders, actual controlling shareholders, any related parties, any non-corporate bodies or individuals, 23 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED the controlling shareholders, de facto controlling individuals or other related parties have not forced the company to provide guarantee for others. Chapter IX. Report of the Board of Supervisors (I) Meetings of the Board of Supervisors During 2004r, all members of the Board of Supervisors of Anhui Gujing Distillery strictly followed the Company Law of the People’s Republic of China, the regulations on IPO, the Articles of Association, the Procedural Rules of the Board of Supervisors, and executed its responsibilities to safeguard the interests of the company and all the shareholders. During the report period, the Board has held three meetings, and three supervisors attended all the meetings. The meeting notices, convening and solutions comply with the legal procedures. The meetings observed and passed the working report of the Board of Supervisors of 2003, revised the Articles of Association, and observed the Annual Report of 2003, Semiannual Report of 2004, the Purchase Contracts of Main Raw Materials of 2004, observed and passed the related transaction on the assets transfer between the Company and Anhui Gujing Group Co., Ltd., and the observed and passed the wheat fine processing project, observed the change and election of the chairman of the Board and senior management, and observed the internal procedure on substantial decision making during the report period. (II) Independent Opinions Expressed by the Board of Supervisors on Related Matters 1. Legal Management of the Company During the report period, the Board of Supervisors carried out its duty strictly to supervise the convening procedure, solutions and the implementations of the Board of Directors for the solutions made in the General Meeting in accordance with Company Law, Securities Law, regulations on IPO and Articles of Association of the Company and other regulations. During the report period, the Company had perfect internal control systems which operated according to the law and all of the decision-making procedures were in conformity with the law; Directors and managers of the Company could strictly abide by laws, regulations and Articles of Association when they carried out their duties and none of them was found to have any behavior of impairing the interest of the Company, the company’s shareholders and its employees. 2. Supervision of Financial Status of the Company The Board of Supervisors has observed the company’s accounting reports and other data, and believes that the statements are clear in respect of expenses and incomes, the accounting and the account management complies with the related stipulations. 3. Supervision of Utilization of Raised Fund The company did not raise any fund during the report period, all of the fund raised in the previous time has been used up in the previous fiscal year and there is no raised fund left over this period. 4. The acquisition and sales of assets. During the report period, the pricing for acquisition and sales of assets are reasonable, no inside transaction or acts are found impairing the interests of the shareholders or causing the assets loss. 5. Related transactions Pricing of related transactions incurred in the Company was fair, rational and in conformity with related laws, regulations and Articles of Association of the company. The company performed the obligation in information disclosure according to related state laws, regulations, requirements of Shenzhen Stock Exchange and the Articles of Association of the Company. 6. Notes made by Board of Supervisors regarding the non-standard comments on the audit report Shanghai Deloitte Touche Tohmatsu CPA Ltd and Hong Kong Deloitte Touche Tohmatsu CPA Ltd issued an audit report where they expressed its failure to make any comments on the Annual Report of 2004. The Board of Directors made detailed description on the related problems. The Board of Supervisors hold that the accounting report of the company gives a true expression on the financial status and the problems it is facing and the description of the Board of Directors regarding the related matters and the measures it took are in accordance with the actual situation. The Board of Supervisors will muster all to support the Board of Directors and the management to take proper measures to solve these matters. 24 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED Chapter X. Substantial Events (Ⅰ ). Major laws uits and arbitrage 1. Anhui Laobada distillery Company limited (hereinafter referred to as Laobada Company), the holding subsidiary of the Company, utilized its own fund to purchase national debit via the sales department subordinate to MF Securities Company Limited (hereinafter referred to as MF Securities). Due to the internal cause of MF Securities, Laobada could not operate its account of national debit investment. Therefore, Laobada Company lodged a complaint to Anhui Higher People’s Court, requesting MF Securities to return the national debit and its derivative dividend or compensation equivalent to RMB 30.438 million Yuan to Laobada Company and to bear the cost occurred in this case. The lawsuit was accepted and heard by the court. The detail of the lawsuit was published in China Securities, Shanghai Securities Gazette and Hong Kong Wen Wei Po newspaper on July 29, 2004. 2. Bozhou Gujing Waste Reclamation Co., Ltd (hereinafter referred to as Waste Reclamation Company),which is the holding subsidiary of Bozhou Gujing Glass Company Limited, the subsidiary of the Company, utilized its own fund to purchase national debit via the sales department subordinate to Capital Bridge Securities Company Limited (hereinafter referred to as capital Bridge Securities). Due to the internal cause of Capital Bridge Securities, the Waste Reclamation Company could not operate it’s the balance of near RMB 40 million Yuan of national debit investment in its account. Therefore, in January, 2005, the Waste Reclamation Company lodged a complaint to Bozhou Intermediate People’s Court, requesting Capital Bridge Securities to return the balance of national debit investment fund to the Waste Reclamation Company. The lawsuit was accepted and heard by the court. The detail of the lawsuit was published in China Securities, Shanghai Securities Gazette and Hong Kong Wen Wei Po newspaper on February 25, 2004 and March 29, 2004. (Ⅱ) Assets purchase, sale, acquisition and merger For details, please see “Ⅲ Major related transactio ns” (Ⅲ ). Major related transactions 1. Related transactions occurred in purchase and sale of commodities Unit: RMB Yuan Work Unit Type of Pricing Amount of Proportion Affect on transaction basis transaction among profit of the similar Company transactions (%) Bozhou Gujing Purchase of market 47,861,503 ２９％ null Comprehensive Service production raw price Co., Ltd. material Bozhou Gujing Tianshi Purchase of Market 12,942,788 ７．９％ null Printing Co., Ltd. packaging price material 2. Transaction of subsidiaries’interest The Company entered into the Agreement on Assets Replacement with Gujing Group on November 16, 2004. The Company transferred 70% of interest of Beijing Winward Technology Co., Ltd. (hereinafter referred to as Beijing Winward) held by the Company to Anhui Gujing (Group) Co., Ltd. (hereinafter referred to as Gujing Group), and Gujing Group transferred 99.96% of interest of Bozhou Gujing Printing Co., Ltd (hereinafter referred to as Gujing Printing) held by Gujing Group to the Company. The price of the transaction was based on the confirmed evaluation value of the assets for replacement. 99.96% of interest of Gujing Printing held by Gujing Group was evaluated into RMB 27.6504 million Yuan, and 70% of interest of Winward held by the Company into RMB 44.1028 million Yuan. The balance occurred in the replacement of assets is made up in cash by Gujing Group. Gujing Group is the first majority shareholder of the Company. The replacement of assets constitutes the related transaction, and was approved in the first extraordinary shareholders general meeting on December 29, 2004. The Company has completed the procedure for interest transaction on December 29, 2004 (date for interest transaction). The detail of the object of the related transaction is the following: Unit: RMB ten thousand Yuan Transaction object Book value Evaluation value Transfer price 70% of interest of Beijing Winward 4428.19 4410.28 4410.28 held by the Company 99.6% of interest of Gujing Printing 2739.08 2755.09 2755.09 25 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED held by Gujing Group 3. The Company had no other major related transactions (IV) Performance of Important Contracts 1. During the report period, the Company did not entrust, contract, lease other companies’assets, and no assets of the Company was entrusted, contracted, leased by other companies. 2. During the report period, the Company did not provide any guaranty to any other companies. 3. During the report period, the Company did not entrust any other companies to manage its cash assets. 4. During the report period, the Company did not sign any other important contracts. (V) Commitments made by the Company and shareholders holding more than 5% (including 5%) of the shares of the Company during the report period For details, please refer to Notes on Financial Report. (VI) Appointment of Accountants’Office The Company appointed Shanghai Deloitte Touche Tohmatsu CPA Ltd and Hong Kong Deloitte Touche Tohmatsu CPA Ltd as the domestic and foreign audit institutions of the Company since 2002. In the report period, the Company totally paid RMB 580 thousand Yuan of audit fees to Shanghai Deloitte Touche Tohmatsu CPA Ltd and Hong Kong Deloitte Touche Tohmatsu CPA Ltd. As the company hasn’t come to any agreement with the related Certified Public Accountant Limited in terms of the employment of annual audit organization of 2005, so the board of directors hasn’t developed the proposal addressing the employment of audit organization. (VII) Inspection and punishment by securities regulation authorities During the report period, the Company, the Company’s Board of Directors and directors did not suffer from any administration punishment under the check of China Securities Regulatory Commission, or post comment or public censure by Stock Exchange. (VIII) Subsequent Events As the company didn’t disclose the Annual Report of 2004 before April 30, 2005, Shenzhen Stock Exchange made public censure to the company on May 25, 2005, and on May 31, 2005, China Securities Regulatory Commission considered that the company is a suspec t of being violated the security rules and regulations and took investigation to the company. (IX) Other Substantial Events During the report period, the Company had no other substantial events undisclosed. 26 SHANGHAI CHINA INTERNATIONAL TRAVEL SERVICE COMPANY LIMITED ANHUI GUJING DISTILLERY COMPANY LIMITED Auditors’Report and Financial Statements for the year ended 31 December 2004 (Prepared under International Financial Reporting Standards) 27 ANHUI GUJING DISTILLERY COMPANY LIMITED AUDITORS’REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 (Prepared under International Financial Reporting Standards) CONTENTS PAGE(S) AUDITORS’REPORT 1－2 CONSOLIDATED INCOME STATEMENT 3 CONSOLIDATED BALANCE SHEET 4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 5 CONSOLIDATED CASH FLOW STATEMENT 6 –7 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8 –32 AUDITORS’REPORT TO THE SHAREHOLDERS OF ANHUI GUJING DISTILLERY COMPANY LIMITED (a joint stock limited company incorporated in the People’s Republic of China) We were engaged to audit the accompanying consolidated balance sheet of Anhui Gujing Distillery Company Limited (“the Company”) and its subsidiaries (collectively referred to as the “Group”) as of 31 December 2004 and the related consolidated income statement, changes in equity and cash flows for the year then ended. These financial statements are the responsibility of the Group’ s management. Except as discussed in the paragraphs 1, 2 and 3, we conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 1. As described in note 19 to the financial statements, at 31 December 2004, the Group’ s investments of RMB100,000,000 were held through accounts opened in three securities companies. As some business of these securities companies was suspended in year 2004, the accounts of the Group were frozen which resulted in the limitation for the Group to access these investments. Therefore, the Group has made full provision against these investments in view of the collection risk. We cannot obtain direct confirmation of the investments of RMB40,000,000 from Jianqiao Securities Co., Ltd. or perform other audit procedures to satisfy ourselves the existence of the investments of RMB40,000,000 mentioned above. In addition, as lack of sufficient and proper audit evidence to assess the valuation of the investments of RMB100,000,000, we are unable to judge whether a full provision against these investments is appropriate. 2. Included in the balance sheet as at 31 December 2004 was an investment of RMB100,000,000 in Hua An Securities Co., Ltd. (“Hua An Securities”). We were unable to obtain the financial information of Hua An Securities for the year 2004 so as to assess whether any impairment in value has to be recognized in respect of the investment. -1- AUDITORS’REPORT- continued 3. The Company has filed and paid the Enterprise Income Tax (“EIT”) in the way of consolidation with Bozhou Gujing Sales Company (“the Sales Company”) (“Consolidated Tax Filing and Payment”) constantly. According to the inspection result made in March 2005 by Anhui Commissioners’Office for Finance Supervision of Ministry of Finance (“the Commissioners’Office”) after inspecting the implementation of EIT Filing and Payment for the period from years 2002 to 2004, the Consolidated Tax Filing and Payment did not comply with the related taxation regulations. As described in note 4 to the financial statements, the Group has already restated deficient tax of RMB42,249,684 and RMB63,946,850 for years 2002 and 2003 respectively, such amounts were made with reference to certain notices issued by local tax authority in March 2005. However, pursuant to another notice issued by local tax authority dated 26 June 2005, the deficient tax thereon stated amounted to RMB39,960,000 and RMB59,250,000 for years 2002 and 2003 respectively. In this context, we are unable to ascertain whether the latter notice supersedes the earlier one, and accordingly, whether the amount of the deficient tax included in the financial statements is free from material misstatement. 4. As explained in note 4 to the financial statements, management believed that the possibility that the payment of deficient tax will be imposed on the Group for tax years prior to 2002 is remote and hence has made no provision for or disclosure of the potential exposure in the financial statements. However, in our opinion, disclosure should have been made in the financial statements of the uncertainties relating to the tax position of the Group in respect of tax years prior to 2002. In this context, we consider that disclosure should have also been made of the basis upon which management has been concluded that such exposure to taxation prior to year 2002 is remote. Also, we consider that disclosure should have been made in the financial statements of the possible implications of the outcome of these uncertainties for the going concern status of the Group. It is not practicable for us to quantify the potential impact of this matter on the financial statements. Because of the significance of matters discussed in paragraphs 1, 2 and 3, we do not express an opinion on the financial statements. In forming our opinion, we have considered the adequacy of the disclosure made in the financial statements concerning the possible outcome of tax delay payment penalty and penalty for deficient tax starting from year 2002. The further conclusion from tax authority could result in additional liabilities in years 2003 and 2004 respectively. Details of the circumstances relating to this fundamental uncertainty are described in note 32 to the financial statements. We consider that the fundamental uncertainty has been adequately accounted for and disclosed in the financial statements and our opinion is not qualified in this respect. Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong, China 27 June 2005 -2- ANHUI GUJING DISTILLERY COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 NOTES 2004 2003 RMB'000 RMB'000 (Restated) Revenue 5 596,917 558,587 Sales taxes (63,325) (71,773) Cost of sales (358,434) _________ (309,805) ________ Gross profit 175,158 177,009 Other operating income 14,538 21,401 Distribution costs (80,446) (57,383) Administrative expenses (93,782) (83,097) Other operating expenses (14,830) (22,517) (Loss) income from investments 6 (7,750) 291 Impairment loss for trading investments held at year end 19 (90,531) _________ ________- Profit from operations 7 (97,643) 35,704 Finance costs 8 (5,586) (2,619) Gain on disposal of a subsidiary _________- 1,403 ________ (Loss) profit before tax (103,229) 34,488 Income tax expense 10 (70,618) _________ (77,718) ________ Loss before minority interests (173,847) (43,230) Minority interests 1,105 _________ 423 ________ Net loss for the year (172,742) _________ (42,807) ________ Basic loss per share 11 RMB(0.74) _________ RMB(0.18) ________ _________ ________ -3- ANHUI GUJING DISTILLERY COMPANY LIMITED CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2004 NOTES 2004 2003 RMB'000 RMB'000 (Restated) ASSETS Non-current assets Property, plant and equipment 12 423,219 385,233 Land use rights 13 46,379 38,183 Goodwill 14 - 1,680 Trademarks and patents 15 5,634 14,588 Other investments 17 100,000 _________ 100,000 ________ 575,232 _________ 539,684 ________ Current assets Inventories 18 602,061 571,712 Trade and other receivables 167,203 228,638 Amounts due from related parties 30 6,596 205 Investments held for trading 19 - 107,638 Bank balances and cash 121,327 _________ 112,299 ________ 897,187 _________ 1,020,492 ________ Total assets 1,472,419 _________ 1,560,176 ________ EQUITY AND LIABILITIES Capital and reserves Share capital 21 235,000 235,000 Reserves 22 668,611 _________ 841,353 ________ 903,611 _________ 1,076,353 ________ Minority interests 2,301 _________ 22,347 ________ Long-term liabilities Bank loans –due after one year 24 28,100 _________ 40,100 ________ Current liabilities Trade and other payables 231,113 203,657 Income tax liabilities 156,534 107,741 Other tax liabilities 26 63,462 82,168 Amounts due to related parties 30 1,398 3,910 Bank loans –within one year 24 85,900 _________ 23,900 ________ 538,407 _________ 421,376 ________ Total equity and liabilities 1,472,419 _________ 1,560,176 ________ _________ ________ -4- ANHUI GUJING DISTILLERY COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2004 Reserves Statutory Statutory Share Capital surplus public welfare Retained Total capital surplus reserve reserve profits reserves Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 YEAR ENDED 31 DECEMBER 2003 Balance at 1 January 2003 As originally stated 235,000 521,647 73,640 73,640 280,983 949,910 1,184,910 Prior year adjustment _________- _________- (4,225) _________ (4,225) _________ (33,800) _________ (42,250) __________ (42,250) __________ As restated 235,000 521,647 69,415 69,415 247,183 907,660 1,142,660 Net loss for the year - - - - (42,807) (42,807) (42,807) Dividends _________- _________- _________- _________- (23,500) _________ (23,500) __________ (23,500) __________ Balance at 31 December 2003 235,000 _________ 521,647 _________ 69,415 _________ 69,415 _________ 180,876 _________ 841,353 __________ 1,076,353 __________ YEAR ENDED 31 DECEMBER 2004 Balance at 1 January 2004 As originally stated 235,000 521,647 75,683 75,683 274,537 947,550 1,182,550 Prior year adjustment _________- _________- (6,268) _________ (6,268) _________ (93,661) _________ (106,197) __________ (106,197) __________ As restated 235,000 521,647 69,415 69,415 180,876 841,353 1,076,353 Net loss for the year _________- _________- _________- _________- (172,742) _________ (172,742) __________ (172,742) __________ Balance at 31 December 2004 235,000 _________ 521,647 _________ 69,415 _________ 69,415 _________ 8,134 _________ 668,611 __________ 903,611 __________ _________ _________ _________ _________ _________ __________ __________ -5- ANHUI GUJING DISTILLERY COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 2004 2003 RMB'000 RMB'000 (Restated) OPERATING ACTIVITIES Profit from operations (97,643) 35,704 Adjustments for: Allowance for doubtful debts 6,033 753 Inventory provision 12,328 - Interest received (871) (1,139) Decline in fair value of trading investments held at year end 8,621 848 Impairment loss for trading investments held at year end 90,531 - Depreciation of property, plant and equipment 42,057 43,297 Amortisation of intangible assets 6,884 6,943 Amortisation of goodwill arisen from investment in associate - 480 (Gain) loss on disposal of property, plant and equipment (421) _________ 440 ________ Operating cash flows before movements in working capital 67,519 87,326 Increase in inventories (51,452) (26,054) Decrease (increase) in trade and other receivables 8,029 (2,875) Decrease (increase) in amounts due from related parties 61 (170) Increase in trade and other payables 33,103 37,360 (Increase) decrease in other tax liabilities (18,260) 5,836 Decrease in amounts due to related parties (2,512) _________ (13,475) ________ Cash generated from operations 36,488 87,948 Income taxes paid (21,825) (12,546) Interest paid (5,586) _________ (2,902) ________ Net cash from operating activities 9,077 _________ 72,500 ________ (Continued) -6- ANHUI GUJING DISTILLERY COMPANY LIMITED NOTE 2004 2003 RMB'000 RMB'000 INVESTING ACTIVITIES Interest received 871 1,139 Purchase of property, plant and equipment (74,100) (24,039) Proceeds from disposal of property, plant and equipment 1,931 921 Disposal of a subsidiary 27 12,285 17,303 Proceeds from withdrawal of investment in associate - 60,000 Purchase of investments held for trading - (108,486) Proceeds from the disposal of investment held for trading 8,486 _________ ________- Net cash used in investing activities (50,527) _________ (53,162) ________ FINANCING ACTIVITIES Dividends paid - (23,500) Repayments of borrowings (100,000) - New bank loans raised 150,000 20,000 Investments received from minority shareholders of subsidiaries 478 _________ 940 ________ Net cash from (used in) financing activities 50,478 _________ (2,560) ________ Net increase in cash and cash equivalents 9,028 16,778 Cash and cash equivalents at beginning of year 112,299 _________ 95,521 ________ Cash and cash equivalents at end of year Bank balances and cash 121,327 _________ 112,299 ________ -7- ANHUI GUJING DISTILLERY COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STAT EMENTS FOR THE YEAR ENDED 31 DECEMBER 2004 GENERAL Anhui Gujing Distillery Company Limited (the “Company”) was incorporated in the People’s Republic of China (the “PRC”) on 30 May 1996 as a joint stock limited company. Its shares are listed on the Shenzhen Stock Exchange. The principal activities of the Company and its subsidiaries (the “Group”) are the manufacture and sale of distilled spirits, wine, distilling facilities, packaging material, feeds, bottles and computer hardware. The Company’s holding company is Anhui Gujin Group Limited (“AGGL”). As of 31 December 2004, there are 6,160 (2003: 6,010) employees in the Group. PRESENTATION OF FINANCIAL STATEMENTS The Company and its subsidiaries maintain their accounting records and prepare their statutory financial statements in accordance with the enterprise accounting standards and regulations of the PRC(“PRC GAAP”). These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The accounting policies and bases adopted in the preparation of the statutory financial statements differ in certain respects from IFRS. The differences arising from the restatement of the results of operations and the net assets for compliance with IFRS are adjusted in the consolidated financial statements but are not taken up in the accounting records of the Group. A reconciliation of the Group’s profit and net assets under IFRS and PRC GAAP is set out in supplement information. In 2004, the International Accounting Standards Board issued a number of new or revised International Accounting Standards (“IAS”) and IFRSs (collectively referred to as “new IFRSs ”), which are effective for accounting periods beginning on or after 1 January 2005. The Group has commenced considering the potential impact of these new IFRSs, but is not yet in a position to determine whether these IFRSs would have a significant impact on how its results of operations and financial position are prepared and presented. These IFRSs may result in changes in the future as to how the results and financial position are prepared and presented. These financial statements are presented in Renminbi (RMB) since that is the currency in which majority of the Group’s transactions are dominated. -8- ANHUI GUJING DISTILLERY COMPANY LIMITED SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an invested enterprise so as to obtain benefits from its activities. On acquisition, the assets and liabilities of the relevant subsidiaries are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identified net assets acquired is recognized as goodwill. The interest of minority shareholders is stated at the minority’s proportion of the fair values of assets and liabilities recognized. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. When necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by other members of the Group. All significant inter-company transactions and balances between group enterprises are eliminated on consolidation. Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is capitalised and amortised on a straight-line basis over its useful economic life. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet. On disposal of a subsidiary the attributable amount of unamortized goodwill is included in the determination of the profit or loss on disposal. -9- ANHUI GUJING DISTILLERY COMPANY LIMITED 3. SIGNIFICANT ACCOUNTING POLICIES –continued Revenue recognition Sales of goods are recognized when goods are delivered and title has passed. Interest income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable. Dividend income from investments is recognized when the shareholders’rights to receive payment have been established. Subsidy income is recognised when the Group’ s right to receive is established. Operating leases Rentals payable by the Group as lessee under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Foreign currencies Transactions in currencies other than RMB are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the period. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. All other borrowing cos ts are recognised in net profit or loss in the period in which they are incurred. Retirement benefit costs The employees of the Group are members of state-managed retirement benefit schemes. Payments made to state-managed retirement benefit schemes are dealt with as defined contribution plans and are charged as expenses as they fall due. - 10 - ANHUI GUJING DISTILLERY COMPANY LIMITED 3. SIGNIFICANT ACCOUNTING POLICIES –continued Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. - 11 - ANHUI GUJING DISTILLERY COMPANY LIMITED 3. SIGNIFICANT ACCOUNTING POLICIES –continued Property, plant and equipment Construction in progress for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognized impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Group’s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Other property, plant and equipment are stated at cost less accumulated depreciation and any recognized impairment loss. Depreciation is charged so as to write off the cost of property, plant and equipment, other than construction in progress, over their estimated useful lives, using the straight-line method, on the following bases: Buildings 14-18 years Machinery 8-10 years Motor vehicles 8 years Other equipment 8 years The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in income. Land use rights Land use rights are measured at cost and amortised on a straight-line basis over their estimated useful lives. Trademarks and patents Trademarks and patents are measured initially at purchase cost and are amortised on a straight-line basis over their estimated useful lives. Impairment At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount 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. - 12 - ANHUI GUJING DISTILLERY COMPANY LIMITED 3. SIGNIFICANT ACCOUNTING POLICIES –continued Impairment - continued If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately, unless the relevant asset is land or buildings other than investment property carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labor costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Financial instruments Financial assets and financial liabilities are recognised on the Group’ s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Trade and other receivables Trade and other receivables are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Investments Investments are recognised on a trade-date basis and are initially measured at cost, including transaction costs. At subsequent reporting dates, debt securities that the Group has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost, less any impairment loss recognised to reflect irrecoverable amounts. The annual amortisation of any discount or premium on the acquisition of a held-to-maturity security is aggregated with other investment income receivable over the term of the instrument so that the revenue recognised in each period represents a constant yield on the investment. - 13 - ANHUI GUJING DISTILLERY COMPANY LIMITED 3. SIGNIFICANT ACCOUNTING POLICIES –continued Investments - continued Investments other than held-to-maturity debt securities are classified as either held-for-trading or available-for-sale, and are measured at subsequent reporting dates at fair value except for any financial assets that do not have a quoted market price in an active market and for which fair value cannot be reliably measured. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in net profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the period. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Trade and other payables Trade and other payables are stated at their nominal value. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. PRIOR PERIOD ADJUSTMENT In the prior years, the Company filed and paid the Enterprise Income Tax (“EIT”) in the way of consolidation with Bozhou Gujing Sales Company (“the Sales Company”) . In March 2005 Anhui Commissioners’Office for Finance Supervision of Ministry of Finance inspected the implementation of Consolidated Tax Filing and Payment during the period from years 2002 to 2004, according to the conclusion of such inspection the Consolidated Tax Filing and Payment do not comply with the related taxation regulations. In March 2005 the Group received certain notices from the Local Tax Authority, which required the Group to pay deficient EIT of approximately RMB42,250,000 and RMB63,947,000 respectively in years 2002 and 2003. The Company has included a prior year adjustment to account for the deficient EIT retrospectively. The Company believes the possibility for the payment of deficient tax occurred before year 2002 is remote. - 14 - ANHUI GUJING DISTILLERY COMPANY LIMITED 4. PRIOR PERIOD ADJUSTMENT- continued The effects on the financial statements are summarized below: Reserves increase (decrease) Retained Statutory surplus and profits public welfare reserves RMB’000 RMB’000 At 1 January 2003 As originally stated 280,983 147,280 Prior year adjustment (33,800) ___________ (8,450) ___________ As restated 247,183 ___________ 138,830 ___________ At 31 December 2003 As originally stated 274,537 151,366 Prior year adjustment (93,661) ___________ (12,536) ___________ As restated 180,876 ___________ 138,830 ___________ The effects of the prior year adjustment on the net profit for the year 2003 are summarized below: 2003 RMB’000 Decrease due to adjustment on Consolidated Tax Filing and Payment 63,947 ___________ REVENUE An analysis of the Group’ s revenue is as follows: 2004 2003 RMB’000 RMB’000 Sales of distilled spirit and wine 539,821 514,744 Others 57,096 _________ 43,843 ________ 596,917 _________ 558,587 ________ The Group conducts the majority of its business activities in China and operates the distilled spirit and wine as one major business segment. All the assets are located in China. - 15 - ANHUI GUJING DISTILLERY COMPANY LIMITED (LOSS) INCOME FROM INVESTMENTS 2004 2003 RMB’000 RMB’000 Interest on bank deposits 871 1,139 Decline in fair value of trading investments held at year end (8,621) _________ (848) ________ (7,750) _________ 291 ________ PROFIT FROM OPERATIONS Profit from operations has been arrived at After charging: 2004 2003 RMB’000 RMB’000 Net foreign exchange losses 44 _________ 28 ________ Staff costs 78,351 _________ 77,698 ________ Depreciation and amortisation - Property, plant and equipment 42,057 43,297 - Land use rights 990 1,049 - Goodwill 840 840 - Trademarks and patents 5,054 _________ 5,054 ________ 48,941 _________ 50,240 ________ Cost of inventories recognized as expenses 358,434 _________ 309,805 ________ After crediting: Subsidy income 268 _________ ________- Except for property, plant and equipment, all depreciation and amortization are charged to administrative expenses. Depreciation of property, plant and equipment is charged to cost of sales by RMB28,037,000 (2003: RMB28,277,000) and administrative expenses by RMB14,020,000 (2003: RMB15,020,000). FINANCE COSTS 2004 2003 RMB’000 RMB’000 Interest on bank loans 5,586 _________ 2,619 ________ - 16 - ANHUI GUJING DISTILLERY COMPANY LIMITED DISPOSAL OF A SUBSIDIARY The Company entered into an agreement to exchange all its 70% shares on Beijing Winward Technology Co., Ltd. (“Beijing Winward”), with AGGL’ s 99.96% shares in Bozhou Gujing Printing Co., Ltd. (“Gujing Printing”). The transaction was completed on 29 December 2004. The operating results of Beijing Winward for the period from 1 January 2004 to 29 December 2004, which have been included in the consolidated income statement, were as follows: 1.1.2004 1.1.2003 to to 29.12.2004 31.12.2003 RMB’000 RMB’000 Revenue 27,815 29,453 Cost of sales (25,428) (26,167) Operating expenses (4,598) (3,660) Finance costs (31) _________ (45) ________ Loss before minority interests (2,242) (419) Minority interests 673 _________ 125 ________ Net loss (1,569) _________ (294) ________ During the year, Beijing Winward contributed RMB1,252,000 (2003: RMB10,795,000) to the Group’ s net operating cash outflows. The carrying amounts of the assets and liabilities of Beijing Winward at the date of transaction are disclosed in note 27. As the proceeds of disposal are the same as the carrying amounts of the subsidiary’s net assets and attributed goodwill, no profit or loss is occurred. - 17 - ANHUI GUJING DISTILLERY COMPANY LIMITED INCOME TAX EXPENSE 2004 2003 RMB’000 RMB’000 Enterprise income tax Income tax for the year 67,399 74,765 Under provision in previous years 3,219 _________ 2,953 ________ 70,618 _________ 77,718 ________ PRC enterprise income tax is calculated at 33% on the estimated assessable profit for the year. The charge for the year can be reconciled to the (loss) profit before tax per the consolidated income statement as follows: 2004 2003 RMB'000 % RMB'000 % (Loss) profit before tax (103,229) _______ 34,488 ______ Tax at tax rate of 33% (34,066) 33 11,381 33 Tax effect of expenses that are not deductible in determining taxable profit 11,143 (11) 4,821 14 Tax effect of unrecoverable losses 90,322 _______ (87) _____ 58,563 ______ 170 ____ 67,399 _______ (65) _____ 74,765 ______ 217 ____ _______ _____ ______ ____ No provision for deferred taxation has been made in the financial statements because there are no significant temporary differences at the balance sheet date. At the balance sheet date, the Group has unused tax losses of approximately RMB273,703,000 available for offset against future profits. No deferred tax assets have been recognized in respect of the tax losses due to the unpredictability of future profit streams. Such tax losses will expire in year 2009. LOSS PER SHARE The calculation of basic loss per share was based on the net loss for the year of approximately RMB172,742,000 (2003: RMB42,807,000) divided by 235,000,000 (2003: 235,000,000) shares, being the number of shares in issue throughout the year. The diluted loss per share figures have not been presented because no dilutive potential ordinary shares existed in both years. - 18 - ANHUI GUJING DISTILLERY COMPANY LIMITED PROPERTY, PLANT AND EQUIPMENT Construction Motor Other in progress Buildings Machinery vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Cost At 1 January 2004 4,596 361,171 205,680 18,306 50,031 639,784 Additions 61,954 884 4,800 3,911 2,551 74,100 Acquired on acquisition of a subsidiary - 7,037 3,757 240 1,784 12,818 Transferred from construction in progress (40,317) 20,060 18,102 - 2,155 - Disposals - - (9,271) (1,317) (167) (10,755) Disposal of a subsidiary ______- (638) _______ (6,250) _______ (956) ______ (1,100) ______ (8,944) _______ At 31 December 2004 26,233 ______ 388,514 _______ 216,818 _______ 20,184 ______ 55,254 ______ 707,003 _______ Accumulated Deprecation At 1 January 2004 - 154,067 76,428 8,469 15,587 254,551 Charge for the year - 16,645 17,069 2,235 6,108 42,057 Disposals - - (8,046) (1,079) (120) (9,245) Eliminated on disposal of subsidiary ______- (138) _______ (2,410) _______ (405) ______ (626) ______ (3,579) _______ At 31 December 2004 ______- 170,574 _______ 83,041 _______ 9,220 ______ 20,949 ______ 283,784 _______ Carrying Amount At 31 December 2004 26,233 ______ 217,940 _______ 133,777 _______ 10,964 ______ 34,305 ______ 423,219 _______ At 31 December 2003 4,596 ______ 207,104 _______ 129,252 _______ 9,837 ______ 34,444 ______ 385,233 _______ As at 31 December 2004, the certificate for ownership of title of buildings and land use rights included in construction in progress with carrying amount of RMB20,274,000 (2003: RMB13,840,000) and RMB21,200,000 (2003:Nil) respectively had not yet been obtained as it was still in the process of application. - 19 - ANHUI GUJING DISTILLERY COMPANY LIMITED LAND USE RIGHTS 2004 2003 RMB’000 RMB’000 Cost At 1 January 44,470 49,676 Acquired on acquisition of a subsidiary 9,186 - Disposal of a subsidiary _________- (5,206) ________ At 31 December 53,656 _________ 44,470 ________ Amortisation At 1 January 6,287 7,491 Charge for the year 990 1,049 Eliminated on disposal of a subsidiary _________- (2,253) ________ At 31 December 7,277 _________ 6,287 ________ Carrying Amount At 31 December 46,379 _________ 38,183 ________ _________ ________ As at 31 December 2004, the certificate of land use right with carrying amount of RMB5,352,000 (2003: RMB5,467,000) had not yet been obtained as it was still in the process of application. The land use right with carrying amount of RMB40,297,000 (2003: RMB32,716,000) obtained from the local land administration bureau is for specific purpose and limited to transfer. The foreseeable lives of the land use rights are 10-50 years. GOODWILL 2004 2003 RMB’000 RMB’000 Gross Amount At 1 January 4,200 4,200 Eliminated on disposal of a subsidiary (4,200) _________ ________- At 31 December _________- 4,200 ________ Amortization At 1 January 2,520 1,680 Charge for the year 840 840 Eliminated on disposal of a subsidiary (3,360) _________ ________- At 31 December _________- 2,520 ________ Carrying Amount At 31 December - _________ 1,680 ________ _________ ________ Goodwill is amortized over 5 years. - 20 - ANHUI GUJING DISTILLERY COMPANY LIMITED TRADEMARKS AND PATENTS 2004 2003 RMB’000 RMB’000 Cost At 1 January 44,050 44,050 Disposal of a subsidiary (6,500) _________ ________- At 31 December 37,550 _________ 44,050 ________ Amortisation At 1 January 29,462 24,408 Charge for the year 5,054 5,054 Eliminated on disposal of a subsidiary (2,600) _________ ________- At 31 December 31,916 _________ 29,462 ________ Carrying Amount At 31 December 5,634 _________ 14,588 ________ Trademarks are amortised over their estimated useful lives, which are on average 10 years. Patents are amortized over their estimated useful lives, which are on average 5 years. SUBSIDIARIES Details of the Company’s subsidiaries at 31 December 2004 are as follows: Place of Proportion of registration ownership interest Name of subsidiary and operation and voting power held Principal activity Bozhou Gujing Sales Company Anhui, PRC 100% Provision of trading services to the Company Bozhou Gujing Transportation Anhui, PRC 100% Provision of transportation Company services to the Company Bozhou Gujing Glass Co., Ltd. Anhui, PRC 100% Manufacture and sale of glass products Anhui Gujing Waste Anhui, PRC 100% Collect and sale of Recycle Co., Ltd. recycled bottle glasses Anhui Old Big Eight Anhui, PRC 93% Sale of wine and Distillery Co., Ltd. other products Anhui Gujing Wild Sun Anhui, PRC 92% Sale of wine and beverages Sales Co., Ltd. Bozhou Gujing Vegetable Anhui, PRC 100% Produce and sale of Oil Co., Ltd. vegetable oil Bozhou Gujing Anhui, PRC 99.96% Manufacture and sale Printing Co., Ltd. of printing products - 21 - ANHUI GUJING DISTILLERY COMPANY LIMITED OTHER INVESTMENTS 2004 and 2003 RMB’000 Available-for-sale investment Unlisted shares 100,000 ________ Details of the Group’ s other investments as of 31 December 2004 is as follows: Place of registration Proportion of Name of Company and operation ownership interest Principal activity Hua An Securities Co., Ltd. Anhui, PRC 5.87% Brokerage and trading of securities In the opinion of the directors, there is no active market for the available for sale investments at the balance sheet date and their fair values cannot be reliable measured. The available for sale investments at 31 December 2004 are stated at cost less identified impairment loss. Besides, in the opinion of the directors, no impairment loss should be made on above investments. INVENTORIES 2004 2003 RMB’000 RMB’000 Raw materials and packaging materials 226,739 181,730 Work-in-process and semi-finished goods 326,897 324,757 Finished goods 48,425 _________ 65,225 ________ 602,061 _________ 571,712 ________ _________ ________ Included in the inventories, an amount of finished goods with RMB30,604,000 (2003: RMB29,008,000) and an amount of semi-finished goods with RMB1,258,000 (2003:Nil) were carried at net realisable value. INVESTMENTS HELD FOR TRADING 2004 2003 RMB’000 RMB’000 Fair value 90,531 107,638 Impairment (90,531) _________ ________- _________- 107,638 ________ The investments included above represent investments in listed debt securities that present the Company with opportunity for return through trading gains. The fair value of these securities is based on quoted market prices. - 22 - ANHUI GUJING DISTILLERY COMPANY LIMITED 19. INVESTMENTS HELD FOR TRADING - continued The investments were held through the accounts opened in three securities companies. Because some business of these securities companies was suspended in 2004, the accounts of the Group are frozen accordingly which resulted in the limitation for the Group to access these investments. Therefore, the Group suited two of these securities companies on 9 July 2004 and 20 January 2005, respectively. As such lawsuit is suspended or still in progress, the Company has made full provision for these investments as the collection risk. OTHER FINANCIAL ASSETS Trade and other receivables at the balance sheet date comprised amounts receivable from the sale of goods of RMB100 million (2003: RMB118 million). The average credit period taken on sales of goods is 90 days. An allowance has been made for estimated irrecoverable amounts from the sale of goods of RMB3.6 million (2003: RMB3.3 million). This allowance has been determined by reference to past default experience. The directors consider that the carrying amount of trade and other receivables approximates their fair value. Bank balances and cash comprise cash and short-term deposits held for treasury function. The carrying amount of these assets approximates their fair value. Credit risks The Group’s credit risk is primarily attributable to its trade and other receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group’ s management based on prior experience and their assessment of the current economic environment. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. The credit risk on liquid funds is limited because the counterparties are approved banks and financial institutes in the PRC. SHARE CAPITAL As of 31 December 2004, the details of share capital (par value of RMB1 each) are as follows: 2004 and 2003 Number of Amount shares(’000) (RMB’000) Registered, issued and fully paid: State-owned shares of RMB1 each 155,000 155,000 A shares of RMB1 each 20,000 20,000 B shares of RMB1 each 60,000 _________ 60,000 ________ 235,000 _________ 235,000 ________ - 23 - ANHUI GUJING DISTILLERY COMPANY LIMITED SHARE CAPITAL –continued All the shares rank pari pssu with each other in all respects except that A shares and B shares are both listed on the Shenzhen Stock Exchange but state-owned shares are unlisted. RESERVES (a) Reserves of the Group include capital surplus, statutory surplus reserve, discretionary surplus reserve and statutory public welfare reserve, which form part of shareholders’equity. Capital surplus Capital surplus principally represents excess of the deemed cost of the net assets injected into the Company on its formation in 1996 over nominal par value of issued capital received when the Company issued state owned shares. Statutory surplus reserve/discretionary surplus reserve In accordance with relevant PRC company laws and regulations and the Company’s Articles of Association, the Company is required to appropriate 10% of its profit after tax reported in its statutory financial statements prepared under the PRC GAAP to the statutory surplus reserve. Allocation to a discretionary surplus reserve shall be approved by the shareholders in general meeting. The appropriation of statutory surplus reserve may cease to apply if the balance of the statutory surplus reserve has reached 50% of the Company’s registered capital. Surplus reserve may be used to make up losses or for conversion into share capital. The Company may, upon the approval by a resolution made in the shareholders’general meeting, convert its surplus reserve into share capital by issuing new shares to existing shareholders in proportion to their original shareholdings or by increasing the nominal value of each share. However, when converting the Company’s statutory surplus reserve into share capital, the amount of such reserve remaining unconverted must not be less than 25% of the registered capital. Statutory public welfare reserve In accordance with relevant PRC Company laws and regulations and the Company’s Articles of Association, the Company is required to appropriate 5% to 10% of the profit after tax as reported in its statutory financial statements prepared under the PRC GAAP to the statutory public welfare reserve. The statutory public welfare reserve shall only apply to collective welfare of staff and workers and welfare facilities remain as properties of the Group. The statutory public welfare reserve is non-distributable. When the statutory public welfare reserve is utilized, an amount equal to the cost of the assets acquired is transferred to discretionary surplus reserve. On disposal of the relevant asset, the original transfers from the reserve are reversed. There is no utilisation during the year (2003: Nil). - 24 - ANHUI GUJING DISTILLERY COMPANY LIMITED 22. RESERVES - continued (b) Basis for profit distribution In accordance with the Company’s Articles of Association, profit available for distribution to shareholders should be based on the lower of the amount determined in accordance with the PRC accounting standards and regulations and that determined under IFRS after deduction of the current year’s appropriation to the statutory reserves. The retained profits carried forward available for distribution to shareholders as at 31 December 2004 based on the PRC financial statements, amounted to approximately RMB730,000 (2003: based on the PRC financial statements amounted to approximately RMB180,166,000). DIVIDENDS Pursuant to a resolution of the board of directors dated on 27 June 2005, the board of directors of the Company proposed not to distribute cash dividend (2003: Nil), which is subject to the approval by shareholders at the shareholders’meeting. BANK LOANS 2004 2003 RMB’000 RMB’000 Bank loans 114,000 _________ 64,000 ________ The borrowings are repayable as follows: On demand or within one year 85,900 23,900 In the second year 16,000 12,000 In the third to fifth year inclusive 12,100 _________ 28,100 ________ 114,000 64,000 Less: Amount due for settlement within 12 months (shown under current liabilities) 85,900 _________ 23,900 ________ Amount due for settlement after 12 months 28,100 _________ 40,100 ________ - 25 - ANHUI GUJING DISTILLERY COMPANY LIMITED 24. BANK LOANS - continued The principal features of the bank loans are as follows: 2004 2003 RMB’000 RMB’000 Unsecured 70,000 20,000 Guaranteed (Note a) 44,000 _________ 44,000 ________ 114,000 _________ 64,000 ________ _________ ________ (a) Details of the guaranteed bank loans are set out in note 31(c). (b) All the bank loans are denominated in RMB. The bank loans bear average interest rates of 5.278% (2003: 5.022%) per annum. The directors consider that the carrying amount of the bank loans approximates their fair value. OTHER FINANCIAL LIABILITIES Trade and other payables comprise amounts outstanding for trade purchase and ongoing costs. The directors consider that the carrying amount of trade and other payables approximates their fair value. OTHER TAX LIABILITIES 2004 2003 RMB’000 RMB’000 Consumption tax 54,583 60,028 Value added tax 7,283 17,761 Business tax 8 3 City construction tax 1,583 4,373 Others _________5 ________3 63,462 _________ 82,168 ________ _________ ________ - 26 - ANHUI GUJING DISTILLERY COMPANY LIMITED SHARES TRANSACTION Disposal of a subsidiary The net assets of Beijing Winward at the date of disposal and at 31 December 2003 were as follows: 29.12.2004 31.12.2003 RMB’000 RMB’000 Property, plant and equipment 5,365 4,221 Land use rights 3,900 5,200 Inventories 13,050 9,409 Trade and other receivables 49,357 46,443 Bank balances and cash 139 1,391 Trade and other payables (8,669) _________ (1,321) ________ 63,142 65,343 Minority interests (19,419) _________ (20,051) ________ Net assets attributable to the Group 43,723 45,292 ________ Goodwill 840 _________ 44,563 _________ _________ The impact of Beijing Winward on the Group’s operating results is disclosed in note 9. Acquisition of a subsidiary On 29 December 2004, the Group acquired 99.96% of interest in Gujing Printing as the part of consideration for disposal Beijing Winward. The fair value of Gujing Printing at the date of acquisition and at 31 December 2003 were as follows: 29.12.2004 RMB’000 Property, plant and equipment 12,818 Land use rights 9,186 Inventories 4,275 Trade and other receivables 1,984 Bank balances and cash 2,424 Trade and other payables (2,576) _________ Interest in Gujing Printing 28,111 _________ - 27 - ANHUI GUJING DISTILLERY COMPANY LIMITED 27. SHARES TRANSACTION-CONTINUED Consideration: Interests in Beijing Winward disposed of 44,563 Cash (10,000) Deferred consideration within one year (6,452) _________ Interests in Gujing Printing acquired 28,111 _________ The deferred consideration will be settled in cash by AGGL on or before 31 December 2005. Net cash inflows arising on transaction of interest: Cash consideration 10,000 Cash owned by Gujing Printing 2,424 Cash owned by Beijing Winward (139) _________ 12,285 _________ If the acquisition of Gujing Printing had been completed on the first day of the fiscal year, group revenues for the year would have been RMB598,502,000 and group loss attributable to equity would be RMB161,731,000. CAPITAL COMMITMENTS 2004 2003 RMB’000 RMB’000 Commitments for the acquisition of property, plant and equipment, but not provided in the financial statements 13,959 _________ 615 ________ - 28 - ANHUI GUJING DISTILLERY COMPANY LIMITED OPERATING LEASE ARRANGEMENTS 2004 2003 RMB’000 RMB’000 Minimum lease payments paid under operating leases recognized in income for the year 530 _________ 850 ________ At the balance sheet date, the Group had outstanding commitments under non-cancelable operating leases, which fall due as follows: 2004 2003 RMB’000 RMB’000 Within one year - 699 In the second to fifth year inclusive _________- 1,454 ________ _________- 2,153 ________ Operating lease payments represent rentals payable by the Group for certain of its office premises. Leases are negotiated for an average term of three years and rentals are fixed for an average term of five years. As of 31 December 2004, there are no operating lease arrangements as Beijing Winward was disposed during the year. RETIREMENT BENEFIT PLANS Defined contribution plans The employees of the Group are members of a state-managed retirement benefit scheme operated by the local government. The Group is required to contribute a specified percentage of the payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions. The total cost charged to income statements of approximately RMB4,300,000 (2003: RMB3,800,000) represents contributions payable to the scheme by the Group at rates specified in the rules of the scheme. - 29 - ANHUI GUJING DISTILLERY COMPANY LIMITED RELATED PARTY TRANSACTIONS (a) Name of related party and relationship Name Relationship AGGL Parent company Anhui Gujing Service Company Ltd. Subsidiary of AGGL Bozhou Zhenlihenbao Company Ltd. Subsidiary of AGGL Gujing Tianshi Printing Company Ltd. Subsidiary of AGGL Anhui Gujing Xuedi Beer Company Ltd. Subsidiary of AGGL Bozhou Gujing Printing Company Ltd. Former subsidiary of AGGL (b) Significant transactions with related parties Significant related party transactions are as follows: 2004 2003 RMB’000 RMB’000 Sales Anhui Gujing Xuedi Beer Company Ltd. 1,685 202 Anhui Gujing Service Company Ltd. 542 - AGGL 117 - Gujing Tianshi Printing Company Ltd. _________- 144 ________ 2,344 _________ 346 ________ Purchase Anhui Gujing Service Company Ltd. 47,861 50,539 Gujing Tianshi Printing Company Ltd. 12,943 14,173 AGGL 7,231 - Bozhou Zhenlihenbao Company Ltd. _________- 639 ________ 68,035 _________ 65,351 ________ The transactions are conducted based on contract prices, which are determined by the management according to the market prices. Payment of service fees to AGGL _________- 6,000 ________ Pursuant to an agreement dated on 1 January 2000, the Group should pay service fees amounting to RMB6,000,000 annually to AGGL from 1 January 2000 for using of hospital, nursery and school provided by AGGL. AGGL exempts the Group from service fees from the year 2004 on. - 30 - ANHUI GUJING DISTILLERY COMPANY LIMITED 31. RELATED PARTY TRANSACTIONS –continued (b) Significant transactions with related parties –continued As of 31 December 2004: 2004 2003 RMB’000 RMB’000 Amounts due from related parties AGGL 6,452 - Gujing Xuedi Beer Company Ltd. 144 161 Gujing Tianshi Printing Company Ltd. _________- 44 ________ 6,596 _________ 205 ________ Amounts due to related parties Gujing Tianshi Printing Company Ltd. 1,100 3,338 Bozhou Zhenlihenbao Company Ltd. 275 296 Anhui Gujing Service Company Ltd. 23 - Bozhou Gujing Printing Company Ltd. - 143 AGGL _________- 133 ________ 1,398 _________ 3,910 ________ _________ ________ Amounts due from/to related companies are unsecured, interest free and with no fixed repayment terms. The directors consider that the carrying amount of amounts due from/to related parties approximate to their fair value. (c) As at 31 December 2004, the bank loans amounting to RMB44,000,000 (2003: RMB44,000,000) is guaranteed by AGGL. (d) The Company has transaction of interest with AGGL in 2004, as referred to note 27. (e) Directors’and executives’remuneration The remuneration of directors and other members of key management during the year was as follows: 2004 2003 RMB’000 RMB’000 Salaries 845 _________ 624 ________ - 31 - ANHUI GUJING DISTILLERY COMPANY LIMITED - 32 - ANHUI GUJING DISTILLERY COMPANY LIMITED CONTINGENT LIABILITIES The Company has filed and paid the EIT in the way of consolidation with the Sales Company constantly. According to the inspection result made in March 2005 by the Anhui Commissioners’Office for Finance Supervision of Ministry of Finance (“the Commissioners’Office”) after inspecting the implementation of EIT Filing and Payment for the period from years 2002 to 2004, the Consolidated Tax Filing and Payment do not comply with the related taxation regulations. In addition, the Group did not pay the sufficient EIT complying for the period from years 2002 to 2004 complying with the regulation of the Notice to demand for correction of Bo Di Shui Zheng Guan Ze Zi [2004] 1003 and 1004, the Notice to demand for tax payment of Bo Di Shui Zheng Guan Xian Zi [2005]1-005, 006, 007 by the due date. In addition, the Group received the Notice of Bo Di Shui Zheng Guan Jue Zi [2005] 1-01 issued by the local tax authority dated on 26 June 2005, which required the Group to pay the deficient EIT mentioned above before 10 July 2005. The maximum tax delay payment penalty for the years 2003 and 2004 is RMB5,176,000 and RMB15,597,000 respectively. Furthermore, the Group is exposed to the additional penalties ranging from 50% to 500% of the deficient EIT in accordance with relevant regulation. The Group is, however, unable at present to estimate with reasonable certainty the amount of tax delay penalty and additional penalty, if any, that might be enforced by the local tax authority. EVENTS AFTER BALANCE SHEET DATE The Commissioner’ s Office inspected the filing and payment of consumption tax for the period from years 2002 to 2004 in April 2005 according to the notice. Up to 27 June, 2005, the Group has not received any inspection conclusion in written or oral form. The management believes such inspection has no impact on the financial statements. APPROVAL OF THE FINANCIAL STATEMENTS The financial statements were approved by the board of directors on 27 June 2005. * * * END OF FINANCIAL STATEMENTS * * * - 33 - ANHUI GUJING DISTILLERY COMPANY LIMITED SUPPLEMENT INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2004 IMPACT OF IFRS ADJUSTMENTS ON NET LOSS FOR THE YEAR AND NET ASSETS Net loss for the year Net assets 2004 2003 2004 2003 RMB’000 RMB’000 RMB’000 RMB’000 As reported in the statutory financial statements of the Group (179,435) (43,517) 903,611 1,077,046 Written off of pre-operating expenditure of subsidiary 693 (693) - (693) Exempted AGGL service fees 6,000 - - - Profit from disposal of subsidiary _______- 1,403 ______ _________- _________- As restated for the Group to IFRS (172,742) _______ (42,807) ______ 903,611 _________ 1,076,353 _________ _______ ______ _________ _________ ANHUI GUJING DISTILLERY COMPANY LIMITED ANNUAL REPORT 2004 (B SHARE) Chapter XII Documents for future reference (1) Accounting statements with the signatures and seals of the legal representatives, principals in charge of accounting work and principals of accounting institutions. (2) Originals of audit reports with the seal of the certified public accountants’firm and signature and seal of the certified public accountants. (3) Originals and all documents disclosed in the appointed newspapers by China Securities Regulatory Commission and announced manuscripts during the report period. Anhui Gujing Distillery Co., Ltd. June 2005 - １