皇庭国际(000056)深国商Ｂ2005年年度报告（英文版）

SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD. ANNUAL REPORT 2005 April 22, 2006 SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 Section I. Important Notes, Paraphrase and Contents I. Important Notes The Board of Directors, the Supervisory Committee, directors, supervisors and senior executives of Shenzhen International Enterprise Co., Ltd. (hereinafter referred to as the Company) individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. Independent Director Shen Jinghua was absent from the Board meeting due to work reason. Independent Director Fang Yuji was absent from the Board meeting due to work reason, and authorized Director Song Shengjun to represent him and vote on his behalf at the board meeting.. Reanda Certified Public Accountants issued a standard unqualified Auditor ’s Report for the Company. Chairman of the Board of the Company Mr. Li Jinquan, General Manager Ms. Song Shengjun and Person in charge of Accounting and Chief Financial Supervisor Mr. Cai Yanhong hereby confirm that the Financial Report of the Annual Report is true and complete. II. Paraphrase The following shortened forms have the following meanings in this report unless otherwise stated: The Company: Shenzhen International Enterprise Co., Ltd. SDG: Shenzhen Special Economic Zone Development (Group) Co., Ltd. Foh Chong & Sons: Malaysia Foh Chong & Sons SDN.BHD. Taitian Industrial: Shenzhen Taitian Industrial Development Co., Ltd. Rongfa Company: Shenzhen Rongfa Investment Co., Ltd. III. Contents Section Ⅰ. Important Notes, Paraphrase and Contents-------------------------------------1 Section Ⅱ. Company Profile-------------------------------------------------------------------2 Section Ⅲ. Summary of Financial Highlight and Business Highlight-------------------3 Section Ⅳ. Changes in Share Capital and Particulars about Shareholders--------------5 Section Ⅴ. Particulars about Directors, Supervisors, Senior Executives and Staffs----9 Section .Ⅵ Corporate Governance-----------------------------------------------------------12 Brief Introduction to the Shareholders ’ Genera l Meeting------------------14 Section .Ⅶ Section .Ⅷ Report of the Board of Directors ----------------------------------------------15 Section .Ⅸ Report of the Supervisory Committee----------------------------------------24 Section Ⅹ. Significant Events---------------------------------------------------------------25 Section Ⅺ. Financial Report-----------------------------------------------------------------31 Section Ⅻ. Documents for Reference-------------------------------------------------------31 -1- SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 Section II. Company Profile 1. Legal Name of the Company In Chinese: 深圳市国际企业股份有限公司 In English: SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD. 2. Legal Representative: Li Jinquan 3. Secretary of the Board of Directors: Zhou Meng Securities Affairs Representative: Zhang Weidong Tel: (86) 755-82281888, 82285565 Contact Address: Investment and Management Dept., on 23/F of Development Center Bldg., Renmin South Road, Shenzhen Fax: (86) 755-82285573 E-mail: zhoumeng868@21cn.com 4. Registered Address and Office Address: on 23/F of Development Center Bldg., Renmin South Road, Shenzhen Post Code: 518001 Company’s Internet Website: http://www.china-ia.com E-mail: szia@szonline.net 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times and Hong Kong Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Investment and Management Dept. of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: SZIEC-A SZIEC-B Stock Code: 000056 200056 7. Initial Registration Date: March 1993; Place: Shenzhen, Guangdong Registration Date after the Adjustment: Dec. 2002; Place: Shenzhen Guangdong Registration Code of Enterprise Corporate Business License: 4403011016891 Registration Code of Tax: 440303192179083 The Certified Public Accountants Engaged by the Company: Domestic: Reanda Certified Public Accountants Office Address: Room 808, Sun Dong An Plaza, No. 138, Wangfujing Av., Dongcheng District, Beijing International: BDO International Certified Public Accountants Office Address: 2008, East District of Zhubang 2000, No. 100, Balizhuangxili, Chaoyang District, Beijing -2- SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 Section III. Summary of Financial Highlights and Business Highlights I. Major accounting data and business indexes as of the year 2005 (Unit: In RMB) As of the year 2005 Item Consolidated Statement Total profit 29,806,095.24 Net profit 7,001,516.39 Net profit after deducting non-recurring gains and losses -36,261,354.66 Profit from main operations 47,939,472.24 Profit from other operations 10,529,579.43 Operating profit -10,398,394.11 Investment income 32,190,880.00, Subsidy income - Net income / expense from non-operating 8,013,609.35 Net cash flows arising from operating activities 57,088,012.80 Net increase in cash and cash equivalents 5,862,427.39 Note: Items of deducting non-recurring gains and losses and the relevant amounts: Items Amount (RMB) (I) Gains/losses from disposal of long-term equity investment, fixed assets, project in construction, intangible assets and other long-term assets 42,280,939.69 (II) Gains and losses form short-term investment, excluded Gains and losses form short-term investment obtained by financial institutions with operating qualification approved to be set up by the administration of the State - (III) Other various non-operating income/expenses after deducting daily reserve for impairment of assets withdrawn by the Company in line with the regulations of Accounting System for Business -619,174.61 (IV)change of fund-occupation from non-financial corporation accounted for in income statement 1,445,786.89 (V) Return of Impairment loss withdrawn in the previous years 2,194,432.09 (VI) Losses of debts reorganization -1,445,786.89 (Ⅶ)Impact on income tax -581,837.28 Total of non-operating gains and losses 43,262,871.05 The explanation on the difference between the auditing results under PRC GAAP and IAS: As audited by Reanda Certified Public Accountants according to PRC GAAP and by BDO International Certified Public Accountants according to IAS promulgated by International Accounting Standard Committee, the Company ’s profit after taxation as of the year 2005 respectively was RMB 7,002 and RMB 27,271. The adjustment for the differences was as follows: -3- SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 (Unit: In RMB’000) Consolidated statement as of the year 2005 Profit after tax as audited by Reanda Certified Public Accountants 7,002 Adjustment to conform with IAS: - Unconfirmed investment losses 4,942 Increase of depreciation charge - Taxation paid - Gains and losses form long-term investment return 3,781 Expense from non-operating 7,363 Finacial expense- Interest expense 4,182 Profit after tax as audited by BDO International Certified Public Accountants 27,271 Difference in the profit after taxation as audited by Reanda Certified Public Accountants Co., Ltd. under PRC GAAP and by BDO International Certified Public Accountants under IAS is due to the different regulations in PRC GAAP and IAS. II. Accounting data and financial indexes in the recent three years as at the end of report year Unit: In RMB Index 2005 2004 2003 Income from main operations 188,946,531.61 86,671,267.67 114,629,436.25 Net profit 7,001,516.39 -73,686,632.08 714,849.30 Total assets 728,664,738.16 937,464,009.62 1,030,478,158.12 Shareholder’s equity (excluding minority 200,927,031.38 177,437,673.14 305,460,975.24 interests) Earnings per share (RMB/share) 0.03 -0.334 0.0032 Weighted average earnings per share 0.032 -0.334 0.0032 Fully diluted earnings per share 0.0317 -0.334 0.0032 Earnings per share after deducting -0.164 -0.258 -0.089 non-recurring gains and losses Net assets per share (RMB/share) 0.91 0.80 1.38 Net assets per share after adjustment 0.68 0.74 1.34 (RMB/share) Net cash flows per share arising from 0.26 0.27 0.11 operating activities Return on equity (%) 3.48 -41.53 0.23 Weighted average return on equity after -20.04 -23.57 -6.44 deducting non-recurring gains and losses III. In accordance with the regulations of Editing and Reporting Rules Regarding Information Disclosure for Companies Publicly Issuing Securities (No. 9) promulgated by CSRC, the Company ’s return on equity and earning per share as of the year 2005 are calculated based on fully diluted method and weighted average -4- SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 method are as follows: Return on equity (%) Earnings per share (RMB/Share) Profit in the report period Fully diluted Weighted average Fully diluted Weighted average Profit from main operations 23.86 26.49 0.22 0.22 Operating profit -5.18 -5.75 -0.05 -0.05 Net profit 3.84 3.87 0.0317 0.03 Net profit after deducting non-recurring gains and -18.05 -20.04 -0.1642 -0.16 losses 4. Changes in shareholders’ equity in the report year (Unit: RMB) Statutory Surplus public Total shareholders’ Items Share capital Capital reserve public Retained profit reserve equity welfare fund Amount at the 220,901,184 51,109,680.43 95,801,417.55 24,211,865.99 -160,249,804.81 177,437,673.14 year-begin Increase in the report 0 11,545,583.82 682,055.23 341,027.61 5,978,433.55 23,489,358.24 year Decrease in the report 0 0 0 0 0 0 year Amount at the year-end 220,901,184.00 62,655,264.25 96,483,472.78 24,552,893.60 -154,271,371.26 200,927,031.38 Long-term eq uity investme nt preparation Withdrawal as Withdrawal as Profit as of the Causes and price di Profit as of the year of the year of the year year fference of re lated party tr ansactions Section IV. Changes in Share Capital and Particulars about Shareholders I. Particulars about the changes in share: 1. Statement of change in share (Ended Dec. 31, 2005) (Unit: share) Increase/decrease in this time (+, - ) Before the Capitalization After the Items Allotment Bonus Additional Sub- change of public Others change of shares shares issuance total reserve I. Nontradable shares 1. Sponsors’ shares 42,035,328 42,035,328 Including: Shares held by the State 42,035,328 42,035,328 Share held by domestic legal person Share held by foreign legal person Others 2. Raised legal person ’s 51,643,584 51,643,584 shares 3. Inner employees shares 4. Preference shares or -5- SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 others Total nontradable shares 93,678,912 93,678,912 II. Tradable shares 1. RMB ordinary shares 55,222,272 55,222,272 2. Domestically listed 72,000,000 72,000,000 foreign shares 3. Overseas listed foreign shares 4. Others Total tradable shares 127,222,272 127,222,272 III. Total shares 220,901,184 220,901,184 2. Issuance and listing of shares (1) By the end of the report year, the Company didn ’t issue new shares over the past three years. (2) In the report period, both the Company ’s total shares and its structure remained unchanged. (3) On Jan. 6, 2006, the Company implemented the Non-tradable Share Reform proposal in accordance with the resolutions made at the shareholders ’ meeting on Non-tradable Share Reform held on Dec. 7, 2005, namely at the consideration rate of 3.5 shares for every 10 tradable A shares. Of which, SDG arranged the consideration shares amounting to 12,696,376 shares, Shenzhen Taitian Industrial Development Co., Ltd. arranged the consideration shares amounting to 6,631,420 shares (including 869,877 consideration shares paid by Taitian Industrial instead of Hechang Chemical). After implementing the above-mentioned plan, shares held by three companies were changed into tradable A shares with disposal restriction, thus, the Company ’s tradable A shares with disposal restriction totaled up 45,090,605 shares (including shares held by senior executives) as well as tradable A shares without disposal restriction amounting to 74,122,387 shares. (4) According to the Replying on Agreeing Nontradable Foreign Shares of Shenzhen International Enterprise Co., Ltd. to List for Trade (ZJGS Zi [2005] No. 4 document) promulgated by CSRC on Jan. 21, 2005, the Company ’s nontradable foreign shares amounting to 29,688,192 shares were formally listed for trade with B Stock Market of Shenzhen Stock Exchange on Jan. 23, 2006,corresponding, the type of shares was changed into tradable B shares with 101,688,192 tradable B shares in total. II. About Shareholders 1. Ended Dec. 31, 2005, the Company has 38,120 shareholders in total. 2. Particulars about shares held by the top ten shareholders (Ended Dec. 31, 2005) Unit: 0,000 shares Increase / Number of shares held decrease in Proportion share Full name of Shareholders at the Type of shares the report (%) pledged/ year-end year frozen Shenzhen Special Economic Zone 4203.5328 19.03 State-owned legal No Development (Group) Co., Ltd. person share -6- SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 3026.4192 13.70 Foreign legal Malaysia Foh Chong & Sons SDN.BHD. person share and No B-share Shenzhen Taitian Industrial Development 1907.5392 8.64 Domestic legal No Co., Ltd. person share F.C. (ASIA) HOLDINGS SDN.BHD. 868.4194 3.93 B-share No 374.4000 1.69 Foreign legal Hong Kong Mengxing Industrial Co.,Ltd. No person share 288.0000 1.30 Foreign legal Malaysia Uchino Corporation SDN. BHD. No person share Dapu Hechang Chemical Co., Ltd. 288.0000 1.30 No 288.0000 1.30 Foreign legal H. K. F. C. International Trade Co. No person share LETSCON HOLDINGS SDN.BHD. 201.6972 0.91 B-share No CHEN YAO SHENG +34.3900 34.3900 0.16 B-share No Notes: (1) The Company was unknown whether there is any associated relationship among the top ten shareholders; or whether there is any action-in-concert among them as described by the Administrative Rules on Information Disclosure about Changing of Shareholding Status. (2) Shenzhen Special Economic Zone Development (Group) Co., Ltd. holds the shares of the Company on behalf of the State. Foreign shareholders are as follows: Malaysia Foh Chong & Sons SDN.BHD., F.C. (ASIA) HOLDINGS SDN. BHD., LETSCON HOLDINGS SDN. BHD., Hong Kong Mengxing Industrial Co., Ltd., Malaysia Uchino Corporation SDN. BHD. and H. K. F. C. International Trade Co.. (3) Malaysia Foh Chong & Sons SDN.BHD. holds 10,080,000 tradable B shares and 20,184,192 nontradable foreign shares. (4) On Jan. 6, 2006, the Non-tradable Share Reform proposal of Shenzhen International Enterprise Co., Ltd. was formally implemented. After implementation, SDG held 29,338,952 shares of the Company, taking up 13.28% of total share capital, who became the second largest shareholder of the Company. Shenzhen Taitian Industrial Development Co., Ltd. held 12,443,972 shares of the Company, taking up 5.63% of total share capital. The type of shares held by such three shareholders as SDG, Taitian Industrial and Hechang Chemical was changed into tradable A shares with disposal restriction. (5) On Jan. 23, 2006, the Company ’s nontradable foreign shares were listed with B Stock Market of Shenzhen Stock Exchange formally, including: 20,184,192 shares held by Malaysia Foh Chong & Sons SDN.BHD., 3,744,000 shares held by Hong Kong Mengxing Industrial Co., Ltd., 2,880,000 shares held by H. K. F. C. International Trade Co. and 2,880,000 held by UCHINO CORPORATION SDN. BHD. Thus,they were changed into tradable B shares. 3. The first largest shareholder of the Company (1) The largest shareholder of the Company is Shenzhen Special Economic Zone Development (Group) Co., Ltd. ( “SDG”), who holds 42,035,328 shares of the Company, taking up 19.03% of the total shares of the Company. SDG was founded on June 20, 1982, with registered capital amounting to RMB 1582.82 million; legal representative is Liu Aiqun. Nature of the company belongs to limited company and it -7- SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 registered in Shenzhen, Guangdong. Business scope includes: development and operation of real estate, domestic trade, supply and marketing business of materials (excluding special operating, special control and special sales), consultation of economic information (excluding limitative items); operating import and export business; industrial transportation; tourism; financing trust and issuance of valuable securities (the said items could operate after obtaining business license). (2) Shenzhen Investment Holding Co., Ltd. is the first largest shareholder of Shenzhen Special Economic Zone Development (Group) Co., Ltd., who holds 43.30% equity. Shenzhen Investment Holding Co., Ltd. was founded on Oct. 13, 2004 with the registered capital of RMB 4 billion; its legal representative is Chen Hongbo; its registration place is Shenzhen, Guangdong. Business scope includes: (1) providing guarantee for municipal state-owned enterprises; (2) management of state-owned equity except for enterprises supervised by the State-owned Assets Supervision and Administration Commission of Shenzhen; (3) assets reorganization, reformation and capital operation of enterprises; (4) investment; and (5) other operations authorized by Shenzhen Municipal SASAC. (3) Property right and controlling relationship between the actual controller of the Company and the Company is as follows: Shenzhen Investment Holding Co., Ltd. 43.30% Shenzhen Special Economic Zone Development (Group) Co., Ltd. 19.03% Shenzhen International Enterprise Co., Ltd. 4. Other legal person ’s shareholder holding over 10% (including 10%) of the total share of the Company: Malaysia Foh Chong & Sons SDN.BHD. holds 30,264,192 shares of the Company, taking up 13.70% of the total shares; legal representative is Xiao Guangsheng; registration place is Malaysia. Business scope includes: plantation of rubber, development of real estate, chemical, metal wares, import & export of raw material, financial companies and securities investment. 5. Particulars about shares held by the top ten tradable shareholders of the Company (Ended Dec. 31, 2005) Unit: 0,000 shares Circulating shares held in Item Name of Shareholders Type of Shares the year end Malaysia Foh Chong & Sons 1 1008.0000 B-Share SDN.BHD. 2 F.C. (ASIA) HOLDINGS SDN.BHD. 868.4194 B-Share 3 LETSCON HOLDINGS SDN.BHD. 201.6972 B-Share 4 CHEN YAO SHENG 34.3900 B-Share 5 YE YONG JIAN 33.1900 B-Share -8- SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 6 LIN ZHI HAO 26.1044 B-Share 7 YANG CONG RONG 24.2866 B-Share 8 WEI SHI 24.0000 B-Share 9 LU HUA ZHONG 23.2711 B-Share 10 FANG YI JUN 20.6700 B-Share Note: The Company was unknown whether there is any associated relationship among the top ten shareholders of tradable share; or whether there is any action-in-concert among them as described by the Administrative Rules on Information Disclosure about Changing of Shareholding Status. Section V. Particulars about Directors, Supervisors, Senior Executives and Staffs (I) Directors, supervisors and senior executives 1. Basic information Number of holding Number of Name Gender Age Title Office term shares at the holding shares year-begin at the year-end Li Jinquan Male 60 Chairman of the Board Jan. 2003 – now 144,000 144,000 Song Shengjun Female 51 Director, General Manager Jan. 2003 –now 172,800 172,800 Zhang Jianmin Male 47 Director Jan. 2003 –now Xiao Male Director Jan. 2003 –now 58 Guangsheng Chen Jiehou Male 65 Independent director Jan. 2003 –now Fang Yuji Male 44 Independent director Jan. 2003 –now Shen Jinghua Male 47 Independent director Jan. 2003 –now Zhou Xiaoxing Female Chairman of the Supervisory Jan. 2003 –now 50 Committee Zhou Xiaoling Female 46 Supervisor Jan. 2003 –now Li Mugui Male 61 Supervisor Jan. 2003 –now 119,900 119,900 Zhong Fenjun Male 42 Deputy General Manager Jan. 2003 –now Yao Rongjing Female 43 Deputy general manager Oct. 2004 –now Zhou Yalin Male 60 Deputy general manager Dec. 2004 –now Zhou Meng Male Deputy general manager Apr. 2005 –now 34 Secretary of the Board Cai Yanhong Female 32 Chief Financial Officer Dec. 2004 –now Note: Particulars about directors or supervisors holding the position in Shareholding Company Director Mr. Zhang Jianmin took the posts of Deputy General Manager and member of CPC of Shenzhen Special Economic Zone Development (Group) Co., Ltd.; Director Mr. Xiao Guangsheng took the post of Director of Malaysia Foh Chong & -9- SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 Sons SDN.BHD.; and Supervisor Mr. Li Mugui took the post of Chairman of the Board of Dapu Hechang Chemical Co., Ltd. 2. Main work experiences and other part-time job excluding the shareholder ’s company of present directors, supervisors and senior executives: Mr. Li Jinquan: transferred into Shenzhen Special Economic Zone Development (Group) Co., Ltd. in 1981, took the post of manager of Shenzhen International Arcade in 1983, and now is in charge of Chairman of the Board of the Company. He was in engaged in leading work of trade and commerce over 20 years and has so rich experiences in commerce management. Ms. Song Shengjun: entered into the Company from 1984 to now, from engaging marketplace to promoting trade, from engaging commerce, estates to disparate operation, accumulated very rich extraordinarily abundant experiences of trade major management and enterprise leading, and now is in charge of Director and General Manager of the Company. Mr. Zhang Jianmin: ever took the post of deputy secretary of Commission for Disciplinary Inspection of Shantou and SDG, manager of auditing and supervision department and manager of law affairs department of SDG, and now is in charge of Deputy General Manager of SDG and concurrently Chairman of the Board of Shenzhen Communications Industry Co., Ltd. Mr. Xiao Guangsheng: now is in charge of Director, General Manager of Malaysia Foh Chong & Sons SDN.BHD. and Director of the Company. Mr. Chen Jiehou: ever took the post of vice president and concurrently chief engineer of Shenzhen Futian Architecture Design Institute, and now is in charge of Deputy General Manager and concurrently Chief Structure Design supervisor of Shenzhen Huayang international Engineering Design Co., Ltd.. Mr. Fang Yuji: senior leaguer of HKSA, member of UK ACCA and member of UK ASAA, and now is in charge of H. K. Fang Yuji CPAs. Mr. Shen Jinghua: ever took the post of assistant of Shanghai Tongji University and Darmstadt TU, engineer of Krebs und Kiefer Engineer Institute, manager of Berlin branch of Lehmann-Block Engineer Affairs, chief supervisor of far east area of Obermeyer Design Consultants Ltd. and Legal Representative and General Manager of Obermeyer Engineer Consultants (Shanghai) Co., Ltd.. Ms. Zhou Xiaoxing: ever took the post of section chief of Shenzhen Foreign Trade Chemical Machinery Import & Export Company and manager of Purchase and Distribution Center of Shenzhen International Marketplace Chain Commerce Co., and now is in charge of Manager of Party-masses Personnel Department of the Company. Ms. Zhou Xiaoling: ever ever took the post of manager of personnel department of Shenzhen Shekou (Longhuan) Drink Co. and manager of General Affairs Department of Shenzhen Mary Electric Co., Ltd., and now is in charge of Deputy leader of the Shangbu International Arcade Supervisor of the Company. Mr. Li Mujia: now is in charge of director and general manager of Hong Kong Hechang Chemical Co., Ltd. and commissar of the 10 th Commission of Dapu County, Guangdong Province of CPPCC. Mr. Zhong Fenjun: ever took the post of deputy general manager of Shenzhen Tianjun - 10 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 Industry Co., Ltd., Chairman of the Board of Shenzhen Huasheng Industrial Co., Ltd., General manager of Shenzhen Oceanic Fishery Co., Ltd., and now is in charge of Deputy General Manager of the Company. Ms. Yao Rongjing: ever took the posts of deputy general manager of enterprise management dept. of SDG, deputy general manager of Shenzhen SDG Tongcheng Industrial Co., Ltd., Chairman of the Board of Foshan Shenzhiguang Yuxing Lighting Industrial Co., Ltd., and now is in charge of Deputy General Manager of the Company. Mr. Zhou Yalin: ever took the positions of vice minister of CPC Shaoguan United Front Work Dept. of City Party Committee, secretary of Party Group of Business Association of Shaoguan, standing deputy chairman of Chamber of Commerce Headquarter of Shaoguan and standing consular of Guangdong C of C, and now is in charge of Deputy General Manager of the Company. Mr. Zhou Meng: entered into the Company in 1993, took the turns of deputy manager of Planning & Financing Dept., manager of Investment Management Dept., secretary of the Board and deputy general manager of Chain Commerce Company, now is in charge of Deputy General Manager and Secretary of the Board of the Company. Mr. Cai Yanhong: ever took the post of auditor and project director of Shenzhen Huapeng CPAs and project manager of Shenzhen South Minhe CPAs, and now is in charge of CFO of the Company. 3. Particulars about the annual remuneration received by directors, supervisors and senior executives The Shareholders ’ General Meeting determined the remuneration of directors and supervisors, and the Board of Directors senior executives. During the report period, all senior executives of the Company drew their remuneration from the Company. (1) In the report period, the allowances received by directors, independent directors and supervisors were paid according to a standard determined in the Resolution on Adjusting Allowance Standard of Directors, Independent Directors and Senior st Executives examined and passed at the 1 extraordinary shareholders ’ general meeting 2003. Directors and independent directors taking no position in the Company received allowance of RMB 30,000 (tax excluded) per year from the Company, directors taking position in the Company received allowance of RMB 15,000 (tax excluded) from the Company; supervisors received allowance of RMB 10,000 (tax excluded) from the Company. The Company bore such fees as traffic fee, residence fee, investigation fee and meeting fee occurred which Independent directors performed their duties. Director Li Jinquan, Director Xiao Guangsheng, Director Chen Jiehou, Director Fang Yuji, Director Shen Jinghua received allowance of RMB 30,000 per year respectively, Supervisor Li Mujia received allowance of RMB 10,000, apart from this, they received no any remuneration from the Company. Of them, Director Zhang Jianmin, Director Xiao Guangsheng and Supervisor Li Mujia drew their remuneration from the Shareholding Company. (2) The senior executives taking position in the Company drew their remuneration from the Company. The remuneration of senior executives was composed of wage - 11 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 (including basic wage and benefit wage), allowance and year-end bounty. Annual remuneration paid by the Company to senior executives is as follows: Name Office Title Annual Remuneration (RMB) Song Shengjun Director and General Manager 270,000 Zhong Fenjun Deputy General Manager 180,000 Yao Rongjing Deputy General Manager 180,000 Zhou Yalin Deputy General Manager 180,000 Zhou Meng Deputy General Manager 180,000 Secretary of the Board Cai Yanhong Chief Financial Officer 156,000 Zhou Xiaoxing Chairman of the Supervisory Committee 96,000 Manager of HR Dept. Zhou Xiaoling Supervisor 84,000 Total annual remuneration paid by the Company to directors, supervisors and senior executives totaled up RMB 1,456,000 4. Particulars about disengagement and leaving of directors, supervisors and senior executives in the report period. Directors, supervisors and senior executives did not resign from their position. II. About staff Ended Dec. 31, 2005, the Company had totally 490 employees in office. The composing of professional and background of education and the retiree are as follows: Composing of professional: salesperson: 258 persons; technicians: 61 persons; financial personnel: 23 persons; administrative personnel: 66 persons. Background of education: postgraduate: 9 persons; bachelor degree: 41 persons; 3-years regular college: 46 persons; person graduated from technical secondary school: 56 persons. Numbers of Retirees: 9 Section VI. Corporate Governance I. The Company’s corporate governance The Company standardized its operation in accordance to the requirements of the PRC Company Law, Securities Law and other laws and rules. In the report period, the Company amended and perfected the partial contents of the Articles of Association and appendixes in order to further perfect modern enterprise system and strengthen its administrative construction in line with Circular Concerning Some Issues on Regulating the Funds between Listed Companies and Associated Parties and Listed Companies’ Provision of Guaranty to Other Parties, Several Regulations on Strengthening Protection of Social Public Shareholders ’ Equity, Guideline on Network Voting of Shareholders ’ General Meeting for Listed Companies (Trail), Stock Listing Rules of Shenzhen Stock Exchange (2004 Revised) promulgated by CSRC and Shenzhen Stock Exchange in recent years. The Company ’s Shareholders ’ - 12 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 General Meeting, Board of Directors and Supervisory Committee performed their duties independently based on the relevant laws and regulations. The Company launched the Non-tradable Share Reform. And the Company passed the resolution of shareholders ’ meeting on Non-tradable Share Reform, which taking interests of the whole shareholders to unify as the Company ’s values and ensuring same right for same shares and same dividend for same shares, which was beneficial to optimization of equity structure and formed a good internal administrative structure. The Company continually perfected internal control system, at the same time, reinforced management of investor relationship actively, implemented various measures to improve investor relationship timely, which made active efforts for safeguarding interests of investors, especially medium-sized and small shareholders. At present, the Company has three independent directors, exceeding one third of number of directors of the Board, which was in compliance with the requirements on establishing independent directors in listed companies issued by the CSRC, further perfected the Company’s corporate governance and ensured all making-decision made by the Company democratically and scientifically. (II) Performance of Independent Directors The Board of Director consists of three independent directors, of them, two independent directors are experts in real estate industry, and another independent director is financing and auditing expert. In the report period, independent directors attended the Board meetings and Shareholders ’ General Meetings actively, fulfilled the duties of Independent Directors seriously and expressed independent opinions on the significant matters of the Company. Independent directors played an important role in strengthening the independence of the Board, reinforcing strategic management function of the Board of the Company, balancing the rights of the Board and concerning the legal rights and interests of the medium-sized and small investors. The independent directors propelled the scientific making-decision of the Board and normative operation of the Company and promoted the normative operation of the Company in further step. Particulars about independent director attending the Board meeting This year should Presence in Entrusted Name of Absence attending the Board person presence Note Independent director (time) meeting (time) (time) Chen Jiehou 5 4 1 0 Fang Yuji 5 4 0 1 Shen Jinghua 5 4 1 0 (III) The Company was separated from Shenzhen Economic Zone Development (Group) Co., Ltd. in personnel, assets and financing, the organization and business were independent. Both companies independently settled and undertook liabilities and risk respectively. - 13 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 1. In respect of personnel, the Company is absolutely independent management of labor, human affairs and salaries; The Company ’s senior executives including the chairman of the Board, general manager, deputy general manager, financial principal and the secretary of the Board haven ’t been taking actual managerial positions and receiving salaries in shareholders’ companies concurrently 2. In respect of assets, the Company has clear property right of assets, and there exists no occupation of assets by the large shareholder or related parties. 3. In respect of finance, the Company has established the independent finance department, and established independent business accounting system and financial management system, and opened independent bank account and paid taxes independently. 4. In respect of organization, the Board of Directors, the Supervisory Committee and other internal organizations have been functioning independently. The large shareholder and its subsidiary organizations have neither assigned management plan and order to the Company and the Company ’s subsidiaries, nor impacted the independency of the Company ’s management and administration through any other ways. 5. In respect of business, the Company has independent purchase and sales system as well as independent and complete business and management capabilities. IV. Performance Valuation and Encouragement Mechanism for Senior Executives The Company was actively implementing effective performance valuation and encouragement mechanism for senior executives. Section VII. Introduction to Shareholders’ General Meeting In the report period, the Company totally held two Shareholders ’ General Meeting with details as follows: I. On Apr. 21, 2005, the 2 nd Meeting for the year 2005 of 4 th Board of Directors of the Company made resolutions to hold the Annual Shareholders ’ General Meeting 2004. The Meeting was held at the meeting room of the Company, 23/F, Development Center Building, Renmin South Road, Luohu District, Shenzhen on May 31, 2005. Chairman of the Board Mr. Li Jinquan presided over the said meeting. Totally 12 shareholders and shareholder ’s representatives attended the Meeting, representing 108,194,286 shares, taking up 48.98% of total share capital of the Company. The Company’s directors, supervisors, senior executives and lawyers engaged by the Company attended the Meeting as non-voting delegates. The following resolutions have been considered and passed at the Meeting: 1. Work Report 2004 of the Board of Directors; 2. Work Report 2004 of the Supervisory Committee; 3. Financial Settlement Report 2004; 4. 2004 Profit Distribution Plan; 5. Resolution on reengaging domestic and international CPAs; 6. Proposal on cooperatively establishing a 500,000-mu base of fast-growing trees in Wengyuan County, Guangdong; - 14 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 7. Proposal on establishing a 400,000-mu base of fast-growing trees in Xingning City, Guangdong; 8. Proposal on cooperatively establishing a 200,000-mu base of fast-growing trees in Wuhua County, Guangdong 9. Proposal on transferring 48.76% equity of Shenzhen Hezheng Jinhu Investment Co., Ltd. publicly; 10. Proposal on full-allotting reserve for bad debts and reserve for devaluation of assets; 11. Resolution on amending the partial clauses of Articles of Association of the Company and its appendixes. The said public notice on resolutions was published in Securities Times and Hong Kong Ta Kung Pao and http://www.cninfo.com.cn dated Jun. 1, 2005. II. On Nov. 7, 2005, the 4 th Board of Directors issued the notification on holding shareholders’ general meeting related with Non-tradable reform A stock market according to entrusting and requirement from Shenzhen Economic Zone Development (Group) Co., Ltd. and Shenzhen Taitian Industrial Development Co., Ltd., two non-tradable shareholders of the Company. The said shareholders ’ general meeting was held at the meeting room on 23/F, Development Center Building, Renmin South Road, Luohu District, Shenzhen on Dec. 7, 2005. Chairman of the Board Mr. Li Jinquan presided over the said meeting. Totally 1680 shareholders of A-share and authorized representatives with voting right (including shareholders voting in network) attended the Meeting, holding 70,999,657 shares in total, of which, 9,888,937 shares held by shareholder representatives of tradable A share, taking up 59.56% of shares with voting right of the Company. The Company’s directors, supervisors, senior executives and lawyers engaged by the Company attended the Meeting as non-voting delegates. The following resolutions have been considered and passed at the said meeting: Approved the Non-tradable reform Plan of Shenzhen International Enterprise Co., Ltd. The said public notice on resolutions was published in Securities Times, China Securities Journal, Shanghai Securities News and Hong Kong Ta Kung Pao and http://www.cninfo.com.cn dated Dec. 8, 2005. Section VIII. Report of the Board of Directors I. Operation status in the report period 1. The overall operation status The Company is mainly engaged in the retail business and development of real estate and is also involved in other businesses of property management and forest planting etc. In the report period, the Company realized an income from main operations, profit from main operations and net profit amounting to RMB188,946,531.61, RMB47,939,472.24 and RMB7,001,516.39. Along with the Chinese retail market was opened further, the foreign retailers have - 15 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 started a large-scale expansion, the merger or acquisition and purchase matters participated by retail enterprises occurred frequently, which market concentricity enhanced continually. At the same time, under the situation that the retail market competition became more and more drastically, the retail was enriched and perfected gradually, and quickened innovation and reorganization of retail. Facing a competition between foreign retailers and local modern commercial rivals in Shenzhen, the Company’s income from the retail commerce reduced step by step. Thus, the Company launched on an adjustment of retail commerce: transforming from operating mode to service mode, speeding up retreating from traditional department store industry, and devoting to the construction of shopping mall and establishing modern new-type commerce. Shenzhen International Arcade Co., Ltd has planed to enter into JingDao International Shopping Mall. The prosperous development in respect of urban commerce was promoted under the strong support due to such indexes as income level, growth anticipation and consumption capability of urban residents and etc., which provided a good environment for steady development of urban commercial properties. The commercial properties in Shenzhen took on a driving growth trend, which the said market ran to saturation situation. In December 2005, Shenzhen Retail Outlet Distribution Plan (2006-2010), the first special plan of commercial networks development in Shenzhen, made out a new commercial situation of “one axis, two belt and fourteen characteristic blocks” for Shenzhen in the coming five years. Shenzhen CDB JingDao International Shopping Mall was located in the center axis of Shenzhen, which was the key construction project in real estate industry of the Company. In order to ensure construction capital of key project, Shenzhen Rongfa Investment Co., Ltd., a subsidiary company , publicly transferred its land use right of 5# lot in Longgang district of Shenzhen, which the prophase engineering has been finished, resulting in increase of income and profit from main operations. Shenzhen International Arcade Property Management Co., Ltd, another subsidiary company, whose property management branch was appraised as “Shenzhen excellent property management unity” in 2005. The Company’s property management operated well, keeping a steady income, which has formed a good brand. At present, the company ’s several forest bases are in the early afforesting period with every task proceeding as scheduled, the trees of the two bases in Wengyuan county and Wuhua city have favorable growth tendency, the average height of the eucalyptus planted in 2005 have come to 3.2m. With the guidance and assistance of some related scientific and research institutions and forest governmental departments, the company’s forest planting and managing experience and technique has made great progresses, also, the company established modern forest planting and managing mode and system, which provide a good foundation for the coming intensive and sweeping plant. The company ’s forest project was still in the initial stages with no operating income provisionally due to the existence of special growing period of trees. At the same time, the company strengthened the assets revitalization in the report period, which not only increased considerable cash flow but established good basic - 16 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 for the company’s strategic transformation and operation in the next year. 2. Main operation and operation status in the report period Statement of income from main operations classified according to industries: Unit: RMB Increase/decrease Increase/decrease Increase/decrease Gross of income from of cost of main of gross profit Income from Cost of main profit Industries main operations operations ratio compared main operations operations ratio compared with compared with the with the last year (%) the last year (%) last year (%) (%) Retail 25,363,600.53 20,440,959.51 19.41 -42.30 -44.85 0.81 commerce Sales of real 30.48 398.75 161.20 55.15 estate 145,555,709.00 101,193,260.58 Property 16.99 14.31 13.69 -2.83 rental 15,462,604.08 12,835,676.79 Service 2,564,618.00 668,063.17 73.95 - - - Note: Statement of income from main operations classified according to areas: Increase/decrease in income from main Branches of areas Income from main operations operations over the last year (%) Shenzhen 188,804,994.71 51,022,353.67 Huizhou 11,356.00 35,586,564.00 Hefei 130,180.90 62,350.00 3. Major suppliers and customers In the report period, the total amount of purchase of the top five suppliers was approximately RMB14,708,600. The total amount of sales of the top five customers was approximately RMB146,157,753, taking up 77.35% of the total annual amount of sales. 4. Financial status of the Company Proportion Items 2005（RMB） 2004（RMB） of increase Reason or decrease Total assets 728,664,738.16 937,464,009.62 -22% inventories decrease profit and investment loss Shareholders’ equity 200,927,031.38 177,437,673.14 13% decrease sale the 5# lot in Longgang Income from main operations 188,946,531.61 86,671,267.67 118% district Profit from main operations 47,939,472.24 -4,332,494.64 -1207% same to above Net profit 7,001,516.39 -73,686,632.08 -110% Same to above Accounts receivable 5,070,061.15 4,155,792.02 22% - - 17 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 Other receivable 32,347,247.49 40,162,088.67 -19% - Receipts in advance of Accounts in advanced 36,327,252.53 20,517,515.52 77% Gangyihaoting tower Taxes payable 2,238,951.48 3,175,468.51 -29% - Operating expense 33,715,639.83 25,938,834.77 30% - Provision for bad debts of accounts receivable and Administrative expense 24,111,658.27 71,891,898.8 -66% inventories evaluation preparation Financial expense 11,040,147.68 25,419,243.58 -57% Band loan less Investment income 32,190,880.00 -320% Profit due to transfer equity Non-operating income 11,420,763.06 7,844,809.30 46% Sale properties Net increase of cash and cash 5,862,427.39 -24,772,539.95 -124% operating activities produce equivalent 5. Operation and achievements of main holding companies and share-holding companies (1) Shenzhen International Arcade, whose 99.94% equity is held by the Company, is mainly engaged in the retail and wholesale business of chain stores with registered capital of RMB10 million In the report period, this company had total assets of RMB213,254,101.42. and realized an income from main operations of RMB22,501,308.83, profit from main operations of RMB4,094,324.12. (2) Shenzhen Rongfa Investment Co., Ltd., whose 60% equity is held by the Company, is mainly engaged in the development of real estate with registered capital of USD 5 million In the report period, this company had total assets of RMB499,352,008.06. and realized an income from main operations of RMB148,357,574.00, profit from main operations of RMB41,838,332.72 . (3) Shenzhen International Arcade Property Management Co., Ltd., whose 61% equity is held by the Company, is mainly engaged in property management with registered capital of RMB7 million In the report period, this company had total assets of RMB 15,257,440.10 and realized an income from main operations of RMB15,214,001.08, profit from main operations of RMB1,507,500.48. II. The Company’s outlook in 2006 The year 2006 is the year that the Company will achieve the benefit step by step in course of strategic transformation plan, all tasks will take benefit as focus, which ensure that the Company will produce long-acting profitability. Facing such disadvantageous factors as sharp commerce competition and tightened macro-control of real estate, insisting on an operating stratagem taking commercial properties as core and developing continuable forest industry, the Company will establish a corporate culture of “Human-oriented” to inspire innovation capability of staff and enhance operating efficiency, and strive to realize overall change in operating status in 2006. (1) Straightening out procedures and links and strengthening management. Doing the - 18 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 reelection of the Board of Directors well, guaranteeing smooth transition of the Company’s operation, further optimizing corporate governance based on the accomplishment of Non-tradable reform, amending the Articles of Association of the Company in accordance with the latest laws and regulations, try to set up a good legal foundation for corporate governance of the Company and establish a standard flat for long-period stability of the Company. (2) Based on competition environment faced by the Company and actual conditions, carrying out corporate development stratagem, improving the strategic distribution structure in respect of the Company ’s operating, establishing an operating stratagem taking commercial properties as core and developing continuable forest industry; bringing historical advantage in commercial operating and real estate development into play, integrating commercial property value chain formed both commerce and property, forming advantage complementation and resource sharing in real estate development, commerce operating and property management. Forest industry, as a resource limiting industry, will provide a steady and reliable cash flow for competition and development of the Company. (3) Doing three campaigns of “Speeding JingDao, Integrating Retail and Expanding Forest Industry” in the whole year 2006. With the aid of an opportunity of overall city planning review and commerce development, and relying on JingDao International Shopping Mall, the Company will complete the transformation of the retail from traditional retail to new-style modern department store incorporating shopping, leisure and entertainment, from operating mode to service mode and from extensive mode to intensive mode, and establish the advanced information management flat, which will promote further enhancement in the efficiency of retail and modern level as well as provide the important support for corporate competition. As for the construction of JingDao project, the company will exert itself to ensure the rate of progress and quality, analyze its engineering situation, centralize the whole project situation, settle appropriately various problems. In the course of operating of JingDao project, the company will accumulate accumulating development experience of commercial properties, establish establishing strategic partner relationship, explore the advanced and scientific financing channel of commercial properties development, which will establish solid foundation for developing commercial properties of Shenzhen circumjacent cities and other second-tier cities of China, and achieve sustaining and steady development for commercial properties; On the other hand, the company will enlarge enlarging continually forest planting scale, strengthen the establishment of forest bases and the cooperation with research institution, establish establishing industrial chain of forest industry, form an integrative situation of scientific research, raising seeding, production of fertilizer, planting and processing of timber, seeking seek international cooperation and attracting attract investment from foreign capitals and funds. (4) In order to ensure enough cash flow, the company will strengthen assets revitalization, expanding financing channel, introduce strategic investors to ensure the construction and sustaining operation of the key project. - 19 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 (5) Along with expansion of retail and commercial properties, the Company will set up a talent stratagem “attracting talent, training talent, employing talent and keeping talent”, quickly and effectively establishing a management team having strong foundation, profession-morality and professional capability through several means such as internal elevation, external employment and communication within industry; setting up set up a corporate culture of “Human Oriented ”, intensifying intensify equity encouragement discussion, and establishing establish an advanced and effective appraised encouragement system. III. Investment in the report period 1. Usage of raised proceeds in the report period In the report period, the Company didn ’t raise proceeds for use. The raised proceeds of last time were used up in the previous years. 2. Investment of non-raised proceeds in the report period Ended Dec.31, 2005, balance of long-term investment of the Company was RMB6,570,262.84, a decrease of RMB 50,000 , compared with that of last year, down 0.76%. In accordance with the spirits of the Company ’s 2 nd meeting for the year 2005 of the Board of Directors and the annual shareholders ’ general meeting 2004, Rongfa Company publicly transferred its 48.72% equity of Shenzhen Hezheng Jinhu Investment Co., Ltd. via Shenzhen International High-tech & Property Exchange on July 11, 2005 with lowest price of RMB127 million. After equity transfer, Rongfa Company gained earnings of RMB32,190,880.00. In the report period, the non-raised proceeds of the Company mainly invested to construct constructed the project, JingDao Shopping Mall in the Shenzhen Central District. The Company formally obtained the land use right of the said project in 2002, based on that on the basis of it , the Company engaged RTKL International Co., Ltd. of America to design in architecture, Nihon Sekkei, Inc, Japan to design in landscape. The said project was formally laid a foundation on Jan.17, 2005, and completed the soil engineering of foundation pit, and was establishing the foundation pit bottom plate water-resistance project and reinforced colligation project. The said project was making good progress, and was planed to be capped in the second half year of 2006 and be finished early in 2007. At present, the Company was consulting with all some strategic investors, striving to set up strategic cooperation relationship and fully launching working to attract domestic and foreign investors in the global. IV. Reanda Certified Public Accountants issued a standard unqualified Auditors ’ Report for the Company. V. Routine work of the Board of Directors (I) In the report period, meetings and resolutions of the Board In the report period, the Company totally held 5 Board meetings with details as follows: - 20 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 1. The 1 st Temporary Meeting for the year 2005 of the 4 th Board of Directors was held by means of communication on Jan.10, 2005. The Company has 7 directors and actually 7 directors exercised the voting right. The following proposals were examined and approved by means of fax voting at the Meeting: (1) Proposal on establishing 400,000-mu base of fast-growing trees in Xingning City of Guangdong, which was submitted to the extraordinary temporary shareholders ’ general meeting for examination discussion. (2) Proposal on drawing the internal control system of the Company The said public notice on resolutions was published in Securities Times and Ta Kung Pao and http://www.cninfo.com.cn dated Jan. 11, 2005. 2. The 2nd Meeting for the year 2005 of the 4 th Board of Directors was held at meeting room on 23/F, Development Center Building, Renmin South Road, Shenzhen on Apr. 21, 2005. The Company has 7 directors and actually 4 directors attended the Meeting. Members of the Supervisory Committee attended the Meeting as non-voting delegate. The following proposals were considered and passed at the Meeting: (1) Work Report 2004 of the Board of Directors; (2) Annual Report 2004 and its Summary; (3) Financial Settlement Report 2004; (4) 2004 Profit Distribution Preplan; (5) Resolution on reengaging domestic and international CPAs; (6) Proposal on transferring 48.76% equity of Shenzhen Hezheng Jinhu Investment Co., Ltd. publicly; (7) Proposal on revitalizing land in Bantian (8) Proposal on full-allotting reserve for bad debts and reserve for devaluation of assets for the year 2004; (9) Proposal on newly engaging Mr. Zhou Meng as Deputy General Manager and Secretary of the Board of the Company; (10) Proposal on cooperatively establishing a 200,000-mu base of fast-growing trees in Wuhua County, Guangdong (11) Proposal on adjusting accounting errors; (12) Proposal on explanation on Auditors’ Report 2004. The said public notice on resolutions was published in Securities Times and Ta Kung Pao and http://www.cninfo.com.cn dated Apr. 23, 2005. 3. The 3 rd Meeting for the year 2005 of the 4 th Board of Directors was held by means of communication at 10:00 am of Apr. 29, 2005. The Company has 7 directors and actually 7 directors attended the Meeting. The following proposals were considered and passed at the Meeting: (1) Proposal on amending Articles of Association of the Company and its appendixes. (2) Proposal on holding the annual shareholders’ general meeting 2004; (3) The 1st quarterly report for the year 2005. The said public notice on resolutions was published in Securities Times and Ta Kung Pao and http://www.cninfo.com.cn dated Apr. 30, 2005. - 21 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 4. The 4 th Meeting for the year 2005 of the 4 th Board of Directors was held at meeting room on 23/F, Development Center Building, Renmin South Road, Shenzhen on July 28, 2005. The Company has 7 directors and actually 5 directors attended the Meeting. Members of the Supervisory Committee and senior executives attended the Meeting as non-voting delegate. The following proposals were considered and passed at the Meeting: (1) The Semi-annual Report 2005 of Shenzhen International Enterprise Co., Ltd.; The said public notice on resolutions was published in Securities Times and Ta Kung Pao and http://www.cninfo.com.cn dated July 29, 2005. 5. The 2 nd Extraordinary temporary Meeting for the year 2005 of the 4 th Board of Directors was held by means of fax on Oct. 11, 2005. The Company has 7 directors and actually 5 directors attended the Meeting. Independent director Chen Jiehou and independent director Fang Yuji did not attend the Board meeting because they went abroad due to business trip. The said meeting examined and approved the proposal on selling Longgang International Department Store (II) Implementation of resolutions of Shareholders ’ General Meeting by the Board of Directors In the report period, the Board of Directors timely arranged the personnel to seriously implement the resolutions in an active attitude strictly according to the resolutions of Shareholders’ General Meeting and safeguard the shareholders ’ rights and interests in a comparatively good way. On Dec. 7, 2005, the Company the shareholders ’ general meeting related with Non-tradable reform A stock market, in which examined and passes the Non-tradable reform Plan of the Company, and authorized the Board of Directors to implement. The Non-tradable reform was finished on Jan.6, 2006. According to authorizing of shareholders’ general meeting, the Board of Directors assisted to handle appliance procedure of listing for trade for nontradable foreign shares. The Company ’s nontradable foreign shares were listed with B stock market of Shenzhen Stock Exchange formally dated Jan. 23, 2006. VI. Preplan of profit distribution of the report year Ended Dec.31, 2005, the Company ’s profit after taxation was RMB 7,001,520 and RMB27,271,000 respectively audited by Reanda Certified Public Accountants as per Chinese Accounting Standards and BDO Certified Public Accountants as per International Accounting Standards. According to the principle of taking the lower amount for profit distribution, the profit after taxation in 2005 was RMB 7,001,520, after appropriating the statutory surplus public reserve of RMB 682,055.23 and statutory public welfare fund of RMB 341,027.61, adding the undistributed profit carried down from the end of 2004 amounting to RMB -160,249,804.81, the total profit available for distribution to shareholders was RMB -154,271,371.26. The profit distribution preplan for the year 2005 was: neither to distribute profit nor to convert - 22 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 public reserve into share capital. The said distribution preplan is planned to implement after the examination and approval of Shareholders’ General Meeting. VII. The Company designated Securities Times and Ta Kung Pao as the newspapers for information disclosure of the Company in 2006. VIII. Other disclosed event 1. Special explanation of Reanda Certified Public Accountants on the capital occupied by related parties According to the requirements in the Circular Concerning Some Issues on Regulating the Funds between Listed Companies and Associated Parties and Listed Companies ’ Provision of Guaranty to Other Parties issued by CSRC and State-owned Assets Supervision and Administration Commission of the State Council (ZJF[2003]No. 56 Document), the Company has prepared Statement of Capital of the Listed Company Occupied by Related Parties as at Dec. 31, 2005 (hereinafter referred to “Statement”) attached in the special explanation. Preparing and disclosing the Summary Statement externally and ensuring its truthfulness, legality and completeness are the responsibility of the Company. We have checked the materials carried in Statement with the accounting information rechecked and relevant contents in the financial report audited while auditing the financial report for 2005 of the Company. Except for implementing the auditing procedures related with related transactions carried out in the auditing of accounting statements for 2005 to Shenzhen International Enterprise Co., Ltd., we have not conducted extra auditing procedures on the materials carried in the Statement. In order to better understand the capital occupancy between the Company and its controlling shareholder and other related parties, the Summary Statement should be read along with the accounting statements ever audited. As examined, we believe: ended as at Dec. 31, 2005, there existed neither the event of capital occupied by the controlling shareholder and other related parties stated in Clause 2 of Article 1 of the Notification between the Company and the controlling shareholder and other related parties nor paying the period expense such as wage, welfare, insurance and advertisement in advance and undertaking cost and other expenditures. 2. Special explanations and independent opinions produced by the independent directors on the current capital between related parties and the Company and external guarantees: According to the spirit of the Circular Concerning Some Issues on Regulating the Funds between Listed Companies and Associated Parties and Listed Companies ’ Provision of Guaranty to Other Parties issued by CSRC with the ZJF (2003) No. 56 Document and starting from the spirit of being practical and realistic, we had conducted a strict and responsible inspection into the external guarantees of Shenzhen International Enterprise Co., Ltd. as well as its current capital with related parties. To some relevant problems, our answers were as follows: (1) The Company had not provided any guarantees for related parties in strict - 23 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 accordance with relevant regulations set by the CSRC. (2) Due to the need of operation, the Company and the subsidiary Rongfa Company had provided guarantees for the loan of RMB6,000,000 got by the subsidiary Shenzhen International Arcade. The aforesaid guarantees all had been made in accordance with the procedures stipulated in the Articles of Association and the Work Rules of the Board of Directors and so on. (3) By Dec. 31, 2005, except for the loan guarantee provided by the Company for the RMB8.67 million loan obtained by Shenzhen SZ-HK Industry Trade Import & Export Company, neither the Company nor holding subsidiaries included in the consolidated statements had any other external guarantees. (4) Strictly conforming to the regulations of Stock Listing Rules and Articles of Association, the Company had prudently performed its obligations of information disclosure on its external guarantees, and furnished CPAs all the materials concerning external guarantees of the Company according to the fact and regulations. (5) The Special Explanation on Capital Occupied by the Controlling Shareholders and Other Related Parties of Shenzhen International Enterprise Co., Ltd. furnished by the Company’s audit institutions had truly reflected the Company’s status. Section IX. Report of the Supervisory Committee I. Particulars on the work of the Supervisory Committee in the report period Besides attending the Board meetings as non-voting delegates, the Supervisory Committee of the Company held 2 meetings in total in the report period: 1. The 1 st meeting for the year 2005 of the 4 th Supervisory Committee was held at the meeting room of the Company on 23/F, Development Center Building, Renmin South Road, Shenzhen on Apr. 21, 2005. 3 supervisors should attend the meeting and actually 2 of them were present. Zhou Xiaoxing, Chairman of the Supervisory Committee, presided over the meeting. The meeting went over and approved the following resolutions: (1) Work Report 2004 of the Supervisory Committee; (2) Profit Distribution Preplan for the year 2004; (3) Annual Report 2004 and its Summary; (4) Proposal on Full-allotting Reserve for Bad Debts and Reserve for Devaluation of Assets for the year 2004; (5) Independent Opinion on Adjusting Accounting Errors; (6) Independent Opinion on Explanation on Auditors’ Report 2004. The said public notice on resolutions was published in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn dated Apr. 23, 2005. 2. The 2 nd meeting for the year 2005 of the 4 th Supervisory Committee was held at the meeting room of the Company on Jul. 28, 2005. 3 supervisors should attend the meeting and actually 2 of them were present. The meeting went over and approved the Semi-Annual Report 2005 and Summary of the Semi-Annual Report of the Company. - 24 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 II. Independent opinions of the Supervisory Committee on the operation of the Company 1. The Company’s operation according to laws In the report period, the Supervisory Committee had conducted supervision on the Company’s operation according to laws. The Committee believed that the Company could operate strictly according to Articles of Association and relevant laws and regulations, dutifully carried out the eight-word principle of the CSRC, i.e. “Fa Zhi, Jian Guan, Zi Lv and Gui Fan ”(in English: legality, supervision, self-discipline, standard), and punctually and completely disclosed relevant information of the Company. The Company had no irregular cases, and its decision-making procedures were legal and inner control system basically healthy. While performing their duties, the directors, General Manager and other senior administrative personnel of the Company had been diligent, responsible, and dutiful, and strictly carried out each resolutions made by the Shareholders ’ General Meetings in the report period. No deeds that had been against laws, regulations or Articles of Association, or done harm to the rights or interests of the shareholders or the interests of the Company had ever been discovered. 2. Financial status of the Company The standard unqualified opinion Auditors ’ Reports for the year 2005 produced by Reanda Certified Public Accountants and BDO International Certified Public Accountants had truly reflected the financial status and operation achievements of the Company. 3. In the report year, the Company had not raised any funds for use. 4. Purchases and sales of assets by the Company in the report period. The purchases and sales of assets occurred in the report period was the need of the normal operation business. The trading price of purchase and sale of assets was reasonable. There existed no internal transactions and the transactions did not damage the right and interest of part of the shareholders nor had the transactions led to loss of the Company’s assets. 5. Related transactions in the report period All the related transactions of the Company in the report period were all proper commercial behaviors. They had been fair and reasonable, and had not done any harm to the interests of the Company. 6. Financial Auditors’ Report Reanda Certified Public Accountants and BDO International Certified Public Accountants had audited the Financial Report 2005 of the Company, and both had produced unqualified opinions. Section X. Significant Events I. Significant lawsuits and arbitrations Significant lawsuits and arbitrations that newly occurred in the report period are as follows: - 25 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 On Nov. 17, 2004, Shenzhen Mingxing Industrial Development Co., Ltd. (hereinafter referred to as Mingxing Industrial) and the subsidiary Shenzhen Rongfa Investment Co., Ltd. (hereinafter referred to as Rongfa Company) signed an Agreement Paper. Rongfa Company would borrow money from Mingxing Industrial to repay the mortgage loans for the 5# land mass in Longgang owned by Rongfa Company, so as to end the mortgage for this land mass. The Company would shoulder joint responsibility for this loan obtained by Rongfa Company from Mingxing Industrial. Mingxing Industrial would transfer RMB34,600,181.00 to Rongfa Company in installments. On Mar. 1, 2005, Rongfa Company put the land use right of the 5# land mass in Longgang on sale for RMB91,080,000 through public listing at Shenzhen Land & Real Estate Trade Center. Shenzhen Guang Ye Cheng Investment & Development Co., Ltd. won the use right of this land mass at the price of RMB140,880,000. The difference between the realized price and the base price totaled RMB49,800,000. Mingxing Industrial filed a lawsuit, demanding that Rongfa Company and the Company pay Mingxing Industrial the transaction price difference deducting taxes and charges totaling RMB46,762,200 as well as the interest of RMB869,776.92. Shenzhen Intermediate People ’s Court issued the Judgment [(2005) SZFMECZ № 327] on Nov. 17, 2005 which had turned down the appeal from Mingxing Industrial. Mingxing Industrial did not accept the judgment and filed an appeal to Guangdong Superior People’s Court. Right now, this case is still being heard. The Company had repaid Mingxin Industrial the principal of RMB34,600,181.00. Progress in the report period of the significant lawsuits and arbitrations that happened in previous years: (1) In September 2005, Shenzhen Intermediate People ’s Court of Guangdong Province issued the (2005) SZMFZZ №. 22 Civil Final Judgment, i.e. the retrial judgment on the case concerning the loan guarantee dispute among the Company, the creditor Shangbu Sub-Branch of Shenzhen Branch of the Bank of China (Shangbu Bank) and the borrower Shenzhen SZ-HK Industry and Trade Import & Export Company (hereinafter referred to as SZ-HK Industry and Trade). It ruled that the Company shoulder the joint guarantee responsibility for the principal of RMB6 million borrowed by SZ-HK Industry and Trade in 1999 as well as the overdue interest. This case was the historically left-over mutual-guarantee problem between the Company and SZ-HK Industry and Trade. Before the above judgment, the case had gone through the 1 st and the 2 nd instances, and the People ’s Procuratorate of Guangdong Province had made the decision of not filing counter-appeal, and decided to give the case a retrial in 2004. - 26 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 The Company could not accept the judgment and has filed an appeal to Guangdong Superior People’s Court for retrial. Right now, this case is still being heard. In the year 2004, the Company had treated the principal and the overdue interest totaling RMB8,670,209.16 involved in this guarantee as liability, and the increase during the report period was the predicted new interest increase of RMB782,925.00 withdrawn for the period ended the statement date. (2) In April 2003, the subsidiary Shenzhen Rongfa Investment Co., Ltd. (hereinafter referred to as Rongfa Company) signed Cooperation Agreement with the cooperation parties Beijing Dongfang Kangtai Real Estate Development & Management Co., Ltd. and Beijing Dongfang Kangtai International Automobile Trade Co., Ltd. as well as an Investment Service Contract with the service party Beijing Daosen Property Co., Ltd. on the project of the reconstruction of the West Street at the Beijing Station. After signing the Agreements and the Contract, Rongfa Company paid RMB10 million cooperation fund to the cooperation parties and RMB4.1 million investment service charges to the service party. In 2004, this project could not be implemented due to various reasons, and Rongfa Company demanded the repayment of the advance fund from the cooperation parties and the service party in the same year. However, the requirements of the Rongfa Company had not been satisfied. In February 2005, Rongfa Company filed an appeal to South China Branch of the China International Economic and Trade Arbitration Commission, demanding for the cooperation parties and the service party to repay the advance cooperation fund and the investment service fund totaling RMB14.1 million. On Aug. 22, 2005, South China Branch of the China International Economic and Trade Arbitration Commission issued the (2005) ZGMZSCZ № D96 Arbitration Paper on this case, and ruled that the cooperation parties repay Rongfa Company the RMB10 million advance fund, its interest as well as the fine for contract breach. The interest would be calculated according to the interest rate of the same period publicized by the People ’s Bank of China. On Sep. 27, 2005, Rongfa Company received RMB11,086,838 cooperation fund. No judgment has been made for the advance investment service charge of RMB4.1 million paid to the service party, and the Company has withdrawn bad debt reserve of RMB3.1 million for the credit receivable from the service party. II. The Company had made significant purchase or sales of assets in the report period. (1) According to the spirit of the 7th meeting of the 4 th Board of Directors held in 2004, the controlling subsidiary of the Company Shenzhen Rongfa Investment Co., Ltd. put the land use right of its 5# land masses in Longgang (Land mass №: G01011-6 (1), G01011-6 (2), G01011-6 (3)) on sale through public listing at the Shenzhen Land & Real Estate Trade Center on Jan. 31, 2005. On Mar. 2, 2005, the trading of these land masses ended, and Shenzhen Guang Ye Cheng Investment and Development Co., Ltd. (hereinafter referred to as Guang Ye Cheng Company) won the land use right at the - 27 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 price of RMB140.88 million, and signed with Rongfa Company the Contract on the Transfer of the Land Use Right of Three Land Masses Including G01011-6 (1) . Independent directors had no objections to this event. This transaction had been conducted through public listing. Therefore there were no cases that had done harm to the interests of the Company or the shareholders, and this transaction did not form a related transaction. No legal obstacles had stood in the way. This transfer of land use right was the normal management and transaction of land property of Rongfa Company. It would help in further idle assets tapping, improving the assets operation efficiency and the Company ’s development in the long run. Once accomplished, this transaction would increase the operating income and cash inflows of the company. And the predicted proceeds to Rongfa Company would be 35.67 million, which would raise the Company ’s operating profit by about RMB21.40 million. (2) The subsidiary Shenzhen Rongfa Investment Co., Ltd. signed an Capital Increase Contract with Shenzhen Hazens Real Estate Co., Ltd. and Shenzhen Jiayuan Industrial Development Co., Ltd. with its land reserves (i.e. the Jinhu Garden project, with the initial phase of the project finished, located at Honghu 1 st Street East, Wenjin North Road, Luohu District, Shenzhen, land mass № H305-0027, total land area for use 9,795 square meters), and co-founded Shenzhen Hazens Jinhu Investment Co., Ltd. (hereinafter referred to as Hazens Jinhu). The registered capital of Hazens Jinhu totaled RMB194.6 million, with 48.72% provided by Rongfa Company. In accordance with the spirit of the 2 nd Board meeting held in 2005 and the Shareholders ’ General Meeting 2004, Rongfa Company put its 48.72% equity of Hazens Jinhu on sale through public listing at the Shenzhen International Hi-Tech Property Exchange, and the final price was RMB127 million. Independent directors had no objections to this event. This transaction had been conducted through public listing. Therefore there were no cases that had done harm to the interests of the Company or the shareholders, and this transaction did not form a related transaction. The income of RMB32.19 million btained by Rongfa Company from this equity transfer would raise the Company’s operating profit by about RMB19.31 million., guaranteeing the construction of the major projects and the development of the Company in the long run. (3) According to the spirit of the 2 nd provisional meeting of the 4 th Board of Directors held in 2005, the controlling subsidiary Shenzhen Longgang International Arcade signed a Shenzhen Real Estate Sales Contract (on sale, hereinafter referred to as “1st Floor Contract ”) with Shenzhen Baihao Electric Appliances Co., Ltd. (hereinafter referred to as Baihao Company) at Shenzhen Longgang Real Estate Trade Center on Dec. 1, 2005. According to the 1 st Floor Contract, Longgang International Mall would st transfer the real estate ownership of the 1 floor of the multiple-use building in Longgang township of Longgang District of Shenzhen (Real Estate Certificate №: st SFDZ № 1003516, hereinafter referred to as the 1 floor) to Baihao Company. On - 28 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 Dec. 16, 2005, Longgang International Arcade again, signed a second Shenzhen Real Estate Sales Contract (on sale, hereinafter referred to as “2nd Floor Contract ”) with Baihao Company at the Trade Center, and it would transfer the real estate ownership of the 2 nd floor of the multiple-use building in Longgang township of Longgang District of Shenzhen (Real Estate Certificate №: SFDZ No. 6000097596, hereinafter referred to as the 2 nd floor) to Baihao Company. The total transfer price of these st transactions was RMB20,380,000.00, of which RMB12,954,163.00 was for the 1 nd floor and RMB7,425,837.00 was for the 2 floor. Right now, Longgang International Arcade has received all the transfer money. This transaction did not form a related transaction and no legal obstacles had stood in the way. To the current operation and future development of Longgang International Arcade, these assets transfers would help the Listed Company to cut costs and reduce expenses. III. The Company had no significant related transactions in the report period. IV. Important contracts in the report period and their implementation 1. In the report period, there were no events of significant entrustment, contracting, lease of other companies’ assets by the Company or vice versa. 2. Important guarantee contracts made by the Company in the report period In the report period, the Company had provided guarantees for its subsidiaries strictly in accordance with the decision-making procedures stipulated in the Articles of Association and the Work Rules of the Board of Directors, etc. And one of the guarantees had been provided by the Company and Rongfa Company jointly for the RMB6 million loan obtained by the subsidiary Shenzhen International Arcade from Futian Sub-Branch of the Shenzhen Branch of Minsheng Bank. The term started on Sep. 30, 2004 and expired on Sep. 30, 2005. Other guarantees of the Company are as follows: (1) According to the conventions of the sales of commercial housing through mortgage among real estate companies, the subsidiary Shenzhen Rongfa Investment Co., Ltd. (hereinafter referred to as Rongfa Company) provided guarantees for the mortgages for the sales of the properties developed by itself. By Dec. 31, 2005, the balance of the mortgage guarantees provided by Rongfa Company was RMB100,629,775.52. (2) According to the conventions of the sales of commercial housing through mortgage among real estate companies, the subsidiary Huizhou Rongfa Industrial Investment Co., Ltd. (hereinafter referred to as Huizhou Rongfa) provided guarantees for the mortgages for the sales of the properties developed by itself. By Dec. 31, 2005, the balance of the mortgage guarantees provided by Huizhou Rongfa was RMB20,177,000. - 29 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 3. In the reporting period, the Company had not entrusted others with cash assets management, nor had it entrusted others to get loans. 4. The Company had no other significant contracts in the report period. V. Other commitments made by the Company or shareholders holding 5% or above equity in the report period and ever disclosed in newspapers or websites. As recommended and guaranteed by China Galaxy Securities Co., Ltd., the Company published the Paper on the Non-tradable Share Reform of Shenzhen International Enterprise Co., Ltd. in China Securities News, Securities Times and Hong Kong Ta Kung Pao as well as the CNINFO website on Nov. 4, 2005. This plan had been approved at the relevant shareholders’ meeting for A share market on the Non-tradable Share Reform held on Dec. 7, 2005. After being gone over and approval of the Ministry of Commerce of the People ’s Republic of China, it was launched into implementation on Jan. 6, 2006. Commitments made by SDG and Taitian Industrial, who are related shareholders of non-circulating shares of the A-share market in the Paper on the of Non-tradable Share Reform of Shenzhen International Enterprise Co., Ltd. are as follows: (1) Within 12 months since the day the of Non-tradable Share Reform is implemented, no shares would be traded or transferred. (2) After the expiration of the above commitment, the number of the former non-circulating shares would be sold through Shenzhen Stock Exchange by the original shareholders of non-circulating shares, who holds over 5% of the Company ’s equity will not exceed 5% of the Company ’s total share number within 12 months, and not exceed 10% within 24 months. (3) Apart from the lowest legal commitments, Taitian Industrial also made the following special commitments: Since one of the three shareholders of non-circulating shares of the Company Dapu Hechang Chemical Co., Ltd. has not made clear whether or not it would join this Non-tradable Share Reform. Taitian Industrial agrees that it will pay on behalf of Dapu Hechang Chemical Co., Ltd. the consideration arrangements needed to be handled by Dapu Hechang Chemical Co., Ltd. as according to the stipulations of the Non-tradable Share Reform Plan. After that, if the shares held by Dapu Hechang Chemical Co., Ltd. are to be circulated in market, Dapu Hechang Chemical Co., Ltd. should repay the fund paid by Taitian Industrial on its behalf, or get the approval of Taitian Industrial. SDG and Taitian Industrial also made the following special commitments: They will pay the relevant charges during this Non-tradable Share Reform, including the financial consultation charges, charges by the sponsors and lawyers, charges for communication and promotion, expenses on media propaganda, etc. (4) SDG and Taitian Industrial promised: “Should we, the commitment makers, fail to - 30 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 perform or not fully perform our commitments, we will compensate other shareholders for their losses arising from these cases.” (5) SDG and Taitian Industrial declared: “We, the commitment makers, will faithfully perform our commitments and shoulder corresponding legal responsibilities. Only if the assignee agrees and has the ability to shoulder the commitment responsibilities, we, the commitment makers, will not transfer the shares held by us.” VI. In the report period, the domestic Certified Public Accountants engaged by the Company was Reanda Certified Public Accountants, and the overseas was BDO International Certified Public Accountants. The remuneration paid to the Certified Public Accountants by the Company for the year 2005 totaled RMB650 thousand, of which RMB400 thousand was for Reanda Certified Public Accountants who started to provide auditing service for the Company from 2001, while RMB250 thousand was for BDO International Certified Public Accountants who had provided auditing service to the Company since 2002. VII. In the report period, the Board of the Company, the Supervisory Committee, as well as the directors, supervisors and other senior executives had not been inspected by the CSRC, received any administrative punishments or circulating criticism from the CSRC, or publicly criticized by the Shenzhen Stock Exchange. VIII. In the report period, the Company had no significant events that fit the stipulations of Article 67 of the Securities Law or Article 17 of Detailed Rules for Implementation of Information Disclosure by Companies with Publicly issued Shares (Trial Edition), or any events deemed as significant events by the Board of Directors. Section XI. Financial Report I. Auditors’ Report (attachment) II. Financial Statements (attachment) III. Notes to the Financial Statements (attachment) Section XII. Documents for Reference 1. Accounting statements with the signatures and seals of the company ’s legal representative, the person in charge of accounting affairs and the person in charge of the accounting departments. 2. Originals of the Auditors ’ Reports with the seals of the Certified Public Accountants, as well as the signatures and seals of the CPAs. 3. Originals of all the documents and manuscripts of the public notices of the Company disclosed in the Securities Times, Hong Kong Ta Kung Pao and the CNINFO website in the report period. - 31 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 This report has been prepared in both Chinese and English. Should there be any ambiguity in meaning in the two versions, the Chinese version shall prevail. Board of Directors of Shenzhen International Enterprise Co., Ltd. Apr. 21, 2006 - 32 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 AUDITORS’ REPORT BDO Reanda (2006) No.1042B To the shareholders of B shares of Shenzhen International Enterprise Co., Ltd. 深圳市国际企业股份有限公司 (Incorporated in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Shenzhen International Enterprise Co., Ltd. ( “the Group ”) as at 31st December 2005 and the related consolidated statements of income, cash flows and changes in equity for the year then ended. These financial statements are the responsibility of the Group ’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These 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, the evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material aspects, the financial position of the Group as at 31st December 2005 and the results of its operations and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. BDO Reanda Certified Public Accountants Beijing, China, 21st April 2006 - 33 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 SHENZHEN INTERNATINAL ENTERPRISE CO., LTD. Consolidated Income Statement FOR THE YEAR ENDED 31 DECEMBER 2005 Notes 2005 2004 RMB'000 RMB'000 Turnover 4 188,947 86,671 Cost of sales (141,007) (91,004) Gross profit 47,940 (4,333) Selling expenses (33,716) (25,939) G&A expenses (24,111) (75,811) Other operating expenses (4,503) (41,089) Other operating income 31,892 23,335 Investment income 35,972 (14,629) Operating profit 53,474 (138,466) Net finance costs 6 (8,341) (25,510) (Loss)/Profit before taxation 7 45,133 (163,976) Taxation 8 (642) 744 (Loss)/Profit after taxation 44,491 (163,232) Profit/Loss attributable to Minority interests 17,220 (32,586) Loss/Profit attributable to equity holders of parent 27,271 (130,646) 44,491 (163,232) Basic earnings per share 9 RMB0.12 RMB(0.59) The accompanying notes form an integral part of these financial statements. - 34 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD. Consolidated Balance Sheet AS AT 31 DECEMBER 2005 Notes 2005 2004 RMB'000 RMB'000 ASSETS Non-current assets Property, plant and equipment 10 252,479 259,180 Intangible assets 11 2,788 3,236 Investment 12 6,570 1,988 261,837 264,404 Current assets Inventories 13 299,518 475,905 Accounts receivable 14 5,070 4,156 Prepayments and other receivables 35,873 42,970 Cash and cash equivalents 15 108,254 127,284 448,715 650,315 Total assets 710,552 914,719 LIABILITIES AND EQUITY Non-current liabilities Bank loans – due after one year 16 134,124 15,400 Deferred income 2,676 3,088 136,800 18,488 Current liabilities Bank loans-due within one year 16 163,008 471,771 Bills payable - 12,000 Amounts due to a shareholder 18 32,253 26,731 Accounts payable 17 38,335 72,879 Other payables and Accruals 19 136,450 156,795 Dividends payable 5,128 5,128 Taxes payable 2,239 3,175 377,413 748,479 Equity Share capital 20 220,901 220,901 Reserves 21 172,146 171,123 Accumulated losses 21 (182,707) (208,955) Total shareholders’ funds 210,340 183,069 Minority interests (14,001) (35,317) Total Equity and Liabilities 710,552 914,719 On behalf of the Board __________________________________ ___________________________________ Director Director The accompanying notes form an integral part of these financial s - 35 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD. Consolidated Cash Flow Statement FOR THE YEAR ENDED 31 DECEMBER 2005 2005 2004 RMB'000 RMB'000 Operating activities: Net profit 27,271 (130,646) Adjustments for non-cash items: Investment losses 4,941 54,337 Deferred taxation - (2,700) Taxation 642 (744) Minority interests 17,220 (32,586) Interest expenses 15,343 28,601 Interest income (7,347) (1,811) Foreign exchange loss (1,483) (91) Provision for bad debts (674) 24,150 Provision for inventories 2,288 18,363 Depreciation 14,935 21,226 Goodwill written off - 3,919 Amortization of intangible assets 448 451 Gain on disposals of property, plant and equipment (10,090) (1,489) Impairments in property, plant and equipment - 17,510 Investment income (3,781) 4,629 Impairments in investment - 10,000 Gain on disposal of investment (32,191) - Dividend paid - (29,981) Dividend received 2 3 Tax paid (450) - Tax refund - 9 Prior year adjustment - 7,068 Cash flow before changes in working capital 27,074 (9,782) Decrease/(increase) in inventories 64,437 (66,422) Decrease/(increase) in accounts receivable (720) 5,255 Decrease/(increase) in deferred expenses (723) - 36 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 59 Decrease/(increase) in prepayments and other receivables 8,631 10,402 Increase/(decrease) in bills payable (12,000) 7,000 Increase/(decrease) in amounts due to a shareholder 5,519 (805) Increase/(decrease) in accounts payable (34,544) 44,213 Increase/(decrease) in accruals (3,090) 1,075 Increase/(decrease) in receipts in advance and other payables 3,753 36,711 Net cash from operating activities: 58,337 27,706 - 37 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD. Consolidated Cash Flow Statement (ContinuEd) FOR THE YEAR ENDED 31 DECEMBER 2005 2005 2004 RMB'000 RMB'000 Investing activities: Disposal of investments 112,000 - Proceeds on disposal of property, plant and equipment 28,235 27,327 Acquisition of property, plant and equipment (27,564) (4,106) Acquisition of investments - (530) Net cash used in investing activities: 112,671 22,691 Financing activities: Additions of bank loans during the year 281,733 517,966 Prepayments of bank loans during the year (471,771) (593,075) Net cash used in financing activities: (190,038) (75,109) Cash effect from exchange rate changes - (81) Net decrease in cash and cash equivalents: (19,030) (24,793) Decrease in bank balances pledged as securities to loans 24,893 6,650 Cash and cash equivalents at the beginning of the year 33,191 51,334 Cash and cash equivalents at the end of the year 39,054 33,191 Cash and bank balances 108,254 127,284 Less: Fixed deposits pledged as securities to bank loans (69,200) (94,093) Cash and cash equivalents 39,054 33,191 The accompanying notes form an integral part of these financial statements. - 38 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD. Consolidated statement of changes in equity FOR THE YEAR ENDED 31 DECEMBER 2005 Share Accumulated Reserves Total Capital losses RMB'000 RMB'000 RMB'000 RMB'000 Balance at January 1, 2004 220,901 175,357 (56,109) 340,149 Prior year adjustment - (4,304) (22,130) (26,434) Restated at January 1, 2004 220,901 171,053 (78,239) 313,715 Net (loss) for 2004 - - (130,646) (130,646) Profit appropriation - 70 (70) - Balance at 31 December 2004 220,901 171,123 (208,955) 183,069 Net profit for 2005 - - 27,271 27,271 Profit appropriation - 1,023 (1,023) - Balance at 31 December 2005 220,901 172,146 (182,707) 210,340 The accompanying notes form an integral part of these financial statements. - 39 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD. Notes to the financial statements FOR THE YEAR ENDED 31 DECEMBER 2005 (Expressed in Renminbi Yuan) 1. CORPORATE INFORMATION Shenzhen International Enterprise Co., Ltd. ( “the Company”) was incorporated in 1983 in the People’s of Republic China and was restructured as a stock limited company in 1993. The Company issued A and B shares in 1994 and 1995 respectively in the Shenzhen Stock Exchange. The principal activities of the Company and its subsidiaries (together with the Company referred to as the “Group”) are chain departmental stores, property development and management, and trading. 2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS The consolidated financial statements have been prepared in Renminbi ( “RMB”), being the currency in which the majority of the Group’s transactions are denominated. The Group maintains its accounting records and prepares its statutory financial statements in accordance with the accounting principles and the relevant financial regulations applicable to foreign investment enterprises in the PRC. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ( “IFRS”). The accounting policies and basis adopted for 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 these financial statements but will not be taken up in the accounting records of the Group. At the date of authorization of these financial statements, the following Standards and Interpretations were in issue but not yet effective: IFRS 6 Exploration for and Evaluation of Mineral Resources IFRS 7 Financial Instruments: Disclosure IFRIC 3 Emission Rights IFRIC 4 Determining whether an Arrangement contains a Lease IFRIC 5 Right to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds IFRIC 6 Liabilities Arising from Participating in a Specific Market – Waste Electrical and - 40 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 Electronic Equipment IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies IFRIC 8 Scope of IFRS 2 The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared on the historical basis. The principal accounting policies adopted are set out below: (a) 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 31st December each year. Control is achieved where the Company has the power to govern its financial and operating policies of an investee enterprise so as to obtain benefits from its activities. On acquisition of subsidiaries, the assets and liabilities are stated at the fair value at the date of acquisition. The interest of minority shareholders is stated at the minority ’s proportion of the fair values of the 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. Where 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 among the Group are eliminated on consolidation. (b) Investments in associates An associate is an enterprise over which the Group is in a position to exercise significant influence, but not control, through participation in the financial and operating policy decisions of the investee. The operating results, assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Where the Group transacts with an associate of the Group, unrealized profits and losses are eliminated to the extent of the Group’s interest in the relevant associate. - 41 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 (c) Goodwill Goodwill arising from 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 subsidiary or associate at the date of acquisition. Goodwill is tested for impairment at least annually. Goodwill arising on the acquisition of an associate is included within the carrying amount of the associate. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet. On disposal of a subsidiary or an associate, the attributable amount of un-amortized goodwill is included in the determination of the profit or loss on disposal. (d) Revenue recognition Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognized in the income statement as follows: (i) Sale of goods Revenue is recognized when goods are delivered to the customers ’ premise, which is taken to be the point in time when the customer has accepted the goods and the related risks and rewards of ownership. Revenue excludes value added or other sales taxes and is after deduction of any trade discounts. (ii) Sale of property Revenue from sale of property is recognized when the sales agreements are signed between the Group and the customers and the sales proceeds can be collected with reasonable assurance. (iii) Rental income from operating leases Rental income receivable under operating leases is recognized on a straight-line basis over the term of the lease. (iv) Service income Service income is recognized when services are rendered. (v) Dividends Dividend income from investments is recognized when the shareholder’s right to receive payment is established. - 42 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 (vi) Interest income Interest income from bank deposits is accrued on a time-apportioned basis on the principal outstanding and at the rate applicable. (e) Foreign currencies Transactions in currencies other than RMBare initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the rates prevailing on the balance sheet date. Profits and losses arising on currency exchange are included in net profit or loss for the year. (f) Borrowing costs Borrowing costs attributable directly 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 borrowing costs eligible for capitalization. All other borrowing costs are recognized as expenses in the period in which they are incurred. (g) Retirement benefit costs Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution plans where the Group ’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit plan (h) 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 recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill (or negative 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. - 43 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 Deferred tax liabilities are recognized for taxable temporary differences arising from 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 larger 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 is realized. 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. (i) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. Depreciation is charged so as to write off the cost of assets over their estimated useful lives, using the straight-line method, on the following basis: Buildings and land use rights 30 years Office equipment 5 years Motor vehicles 5 years Others 5 years Leasehold improvement 5 years The gain or loss arising from disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset, and is recognized in the income statement. (j) 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. 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 the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the assets. 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 - 44 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 recoverable amount. Impairment losses are recognized as an expense immediately. 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 as no impairment loss had been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized as income immediately. (k) Inventories Inventories are stated at the lower of cost and net realizable 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. Net realizable value represents the estimated selling prices less all estimated costs to completion and costs to be incurred in marketing, selling and distribution. In accessing the net realizable value of completed properties for sale, factors such as the estimated useful lives are taken into consideration. (l) Financial instruments Financial assets and financial liabilities are recognized on the Group ’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. (i) Trade and other receivables Trade receivables are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. (ii) 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. (iii) Trade and other payables Trade payables are stated at their nominal value. (m) Investments (i) Long-term investments are stated in the balance sheet at cost. Allowance is made when the fair values have declined below the carrying amounts. (ii) Profits or losses on disposal of investments are determined as the difference between the net disposal proceeds and the carrying amount of the investments and are accounted for in the income statement as they arise. - 45 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 (n) Operating leases Rental payable under operating leases is accounted for in the income statement on a straight-line basis over the periods of the respective leases. (o) Related parties For the purposes of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals or other entities. (p) Provisions Provisions are recognized when the Group has a present obligation as a result of a past event, which it is probable, will result in an outflow of economic benefits that can be reasonably estimated. (q) Cash equivalents Cash equivalents represent short-term, highly liquid investments that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value. 4．TURNOVER Turnover represents the invoiced value of goods sold to customers which excludes value added tax, other sales taxes and trade discounts, and after eliminating inter-company transactions. An analysis of the Group ’s turnover by principal activities for the year ended December 31, 2005 is as follows: 2005 2004 RMB'000 RMB'000 By activities: Property sales 145,556 29,184 Department store sales 25,364 43,960 Rental and property management fee 15,463 13,527 Rendering of services 2,564 - Total 188,947 86,671 5．SEGMENT INFORMATION - 46 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 There is no segment information for the Group as the Group is principally involved in property related business and operates only in PR China. 6．NET FINANCE COSTS 2005 2004 RMB'000 RMB'000 Interest income (7,347) (1,811) Interest expense (exclusive of capitalized interest) 15,342 26,617 Others 346 704 Total 8,341 25,510 7．PROFIT BEFORE TAXATION Profit before taxation is stated after charging and crediting the following: 2005 2004 RMB'000 RMB'000 After charging/(crediting): Depreciation 14,935 21,226 Goodwill written off - 3,920 Amortization of intangible assets 448 451 Interest expenses 15,342 28,601 Allowance for bad debts (674) 24,150 Allowance for diminution in value of inventories 2,288 18,363 Interest income (7,347) (1,811) Gain on foreign currency exchange (1,483) (91) Rental income (26,643) (28,926) Gain on disposal of property, plant and equipment (10,090) (1,489) Investment income (35,972) 14,629 8．TAXATION 2005 2004 RMB'000 RMB'000 Current taxation 642 1,956 Deferred tax - (2,700) Total 642 (744) The income tax rate applied by the Group on the estimated assessable profit for the year is at a rate of 15%, which is the prevailing corporate income tax rate for all PRC enterprises in Shenzhen （2004: 15％）. - 47 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 9．EARNINGS PER SHARE The calculation of basic and diluted earnings per share is based on the consolidated profit of RMB27,271,000 for the year (2004: loss of RMB130,646,000) and the 220,901,184 shares in issue (2004: 220,901,184 shares). 10．PROPERTY, PLANT AND EQUIPMENT Building and Land Office Fixed Assets Machinery Betterment Total Use Rights Equipment RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 Cost at 1 January 2005 421,214 6,308 5,145 9,044 441,711 Additions - 530 3,706 20,893 25,129 Disposals 26,104 1,571 126 - 27,801 at 31 December 2005 395,110 5,267 8,725 29,937 439,039 Accumulated depreciation at 1 January 2005 116,320 3,332 4,944 1,516 126,112 Charge for the year 9,967 352 1,049 3,567 14,935 Disposals 9,398 1,414 94 - 10,906 at 31 December 2005 116,889 2,270 5,899 5,083 130,141 Impairment at 1 January 2005 56,419 - - - 56,419 at 31 December 2005 56,419 - - - 56,419 Net book value at 31 December 2005 221,802 2,997 2,826 24,854 252,479 at 31 December 2004 248,475 2,976 201 7,528 259,180 As at 31 December 2005, buildings with net book values of RMB73,659,000 (2004: RMB130,824,000) have been mortgaged to the banks to secure general banking facilities for the Group. 11．INTANGIBLE ASSETS Software 2005 2004 RMB'000 RMB'000 At 1 January 3,236 3,687 Amortization (448) (451) At 31 December 2,788 3,236 - 48 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 12．INVESTMENT 2005 2004 RMB'000 RMB'000 Unlisted shares in PRC 6,570 1,988 Total 6,570 1,988 13．INVENTORIES 2005 2004 RMB'000 RMB'000 Inventories at department store 627 45 Completed properties for sale 315,541 492,510 Allowance for diminution in value of inventories (16,650) (16,650) Total 299,518 475,905 As at 31 December 2005, completed properties for sale with a carrying value of RMB102,558,084 (2004: RMB260,114,259) have been mortgaged to the banks to secure general banking facilities for the Group. 14．ACCOUNTS RECEIVBLE 2005 2004 RMB'000 RMB'000 Gross 8,749 8,029 Allowance for doubtful debts (3,679) (3,873) Total 5,070 4,156 The directors consider that the carrying amount of trade and other receivables approximates their fair value. The Group’s average credit period in 2005 is 16 days (2004: 29 days). The Group’s credit risk is primarily attributable to its trade 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 the current economic environment. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. 15．CASH AND CASH EQUIVALENTS 2005 2004 RMB'000 RMB'000 Cash and bank balances 108,254 127,284 - 49 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 Bank balances and cash comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value. Included in above is fixed bank deposits of RMB69,200,400 (2004: RMB94,093,000) that have been mortgaged to the banks to secure general banking facilities. 16．BANK LOANS 2005 2004 RMB’000 RMB’000 Secured 291,132 412,867 Unsecured 6,000 74,304 Total 297,132 487,171 On demand or within one year 163,008 471,771 In the second year 134,124 15,400 297,132 487,171 Less: Amount due from settlement within one year (163,008) (471,771) (shown under current liabilities) Amount due for settlement after one year 134,124 15,400 The loans are secured by certain property, plant and equipment and inventories. 17．ACCOUNTS PAYABLE Trade payables principally comprise amounts outstanding during the normal course of business. The directors consider that the carrying amount of trade payables approximates to their fair value. The average credit period taken for trade payables is 142 days (2004: 201 days). 18．THE AMOUNT DUE TO SHAREHOLDER The amount due to shareholder represent advances which are unsecured, interest-free and have no fixed terms of repayment. 19．OTHER PAYABLES AND ACCRUALS 2005 2004 RMB'000 RMB'000 Receipts in advance and others 114,631 130,098 Accruals 12,366 18,027 Compensation payable 9,453 8,670 Total 136,450 156,795 - 50 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 20．SHARE CAPITAL A share B share Total RMB'000 RMB'000 RMB'000 At 31 December 2005 148,901 72,000 220,901 At 31 December 2004 148,901 72,000 220,901 The par value per share is RMB1.00. 21．RESERVES Statutory Discretionary Capital Other capital Surplus Accumulated surplus public welfare Total reserve reserve reserve losses reserve fund RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 January 1, 2005 50,995 115 56,576 39,225 24,212 (208,955) (37,832) Transferred - - 682 - 341 (1,023) - Profit for the year - - - - - 27,271 27,271 December 31, 2005 50,995 115 57,258 39,225 24,553 (182,707) (10,561) Statutory surplus reserve According to the PRC Company Law, the Group is required to transfer at least 10% of its profit after taxation, as determined under PRC accounting regulations, to the statutory surplus reserve until the reserve balance reaches 50% of the registered capital. The transfer to this reserve must be made before the distribution of dividends to shareholders. Statutory surplus reserve can be used to make good previous years ’ losses, if any, and for capitalization issues provided that the balance after such issue is not less than 25% of the registered capital. Discretionary public welfare fund According to the articles of association, the Group is required to transfer a certain percentage of its profit after taxation, as determined under PRC accounting regulations, to the discretionary public welfare fund. The discretionary public welfare fund can only be used for the collective welfare of the Group’s employees such as the construction of staff quarters. The fund forms part of the shareholders’ equity as individual employees can only use these facilities, the titles of which will remain with the Group. The appropriation to this fund must be made before the distribution of dividends to shareholders. The articles of association of the Group specify that a maximum of 5% of its profits can be appropriated to the discretionary public welfare fund and the rate of appropriation is to be determined by the board of directors annually. Surplus reserve - 51 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 The rate of appropriation to these reserves is to be determined by the board of directors annually. General reserve can be used to make good previous years ’ losses, if any, and for capitalization issues. 22．SUBSIDIARIES AND ASSOCIATED COMPANY 1. Subsidiaries Notes Place of Registered Principal Interest Subsidiaries Incorporation Capital Activities Held Shenzhen International Arcade Co., Department store Shenzhen RMB10,000,000 99.94% Ltd. operation Department store Shenzhen Longgang International 1 Shenzhen RMB15,000,000 100% operation Arcade Enterprise Co., Ltd. Department store Shenzhen International Arcade Chain Shenzhen RMB10,000,000 100% operation Store Property Shenzhen International Arcade Shenzhen RMB7,000,000 61% management Property Management Co., Ltd. Property Shenzhen Rongfa Investment Co., Shenzhen USD5,000,000 construction & 60% Ltd. trading Shenzhen Grace East Union Industry 2 Shenzhen RMB5,000,000 Cosmetic retail 64% Co., Ltd. Property Huizhou Rongfa Industry Investment Huizhou RMB6,000,000 construction & 95.37% Co., Ltd. trading Property Anhui International Arcade Property Hefei RMB500,000 60.90% management Management Co., Ltd. Wengyuan Guoshanglinhai Wengyuan RMB1,000,000 Afforestation 78% Development Co., Ltd. Wuhua Guoshanglinye Development Wuhua RMB1,000,000 Afforestation 78% Co., Ltd. Note: 1). Shenzhen Longgang International Arcade Enterprise Co., Ltd. has discontinued its operation as of balance sheet date due to the sale of its operating space in December 2005. 2). The name Shenzhen Grace East Union Industry Co., Ltd. was changed from Shenzhen Grace - 52 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 International Meizi Town Industry and Commerce Co., Ltd. on 24 Feb. 2005. 3). Shenzhen Chunhua Medicine United Co., Ltd., Shenzhen Guoshang Medicine Co., Ltd. and Shenzhen International enterprise trade Co., Ltd. went into liquidation and are therefore not included in the consolidated financial statements. 4). In January 2005, the Group established Wuhua Guoshanglinye Development Co., Ltd. It is included in the consolidation in 2005. 2．Associated Company Place of equity Registered Principal Interest Subsidiaries establishment/ Capital Activities Held incorporation Shenzhen Oriental Overseas Housekeeping Shenzhen RMB100,000 50% Home Services Co., Ltd. Services The effect of the new establishments on the consolidated balance sheet: 2005 RMB’000 Cash and cash equivalents 242 Prepayments 932 Inventories 1,371 Property, plant and equipment 121 Deferred expenditures 195 Accrued payroll (6) Accrued welfare fund (5) Other payables (36) Other Current liabilities (2,019) Net assets 795 The effect of the new establishments on the consolidated income statement: 2005 RMB’000 Revenue - Cost of sales - Gross profit - Administrative expenses (209) Financial expenses 4 Profit before tax (205) - 53 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 Income tax expense - Net profit for the year (205) 23．CONTIGENT LIABILITIES Guarantee (1) In compliance with the normal practice on the sale of commercial houses by real estate developers, a subsidiary of the Group, Shenzhen Rongfa Investment Co., Ltd. (Rongfa) has been providing guarantee on the mortgages sale of its self-developed commercial houses. As at December 31, 2005, the total mortgage guaranteed by Rongfa is RMB100,629,776. (2) In compliance with the normal practice on the sale of commercial houses by real estate developers, a subsidiary of the Group, Huizhou Rongfa Industry Investment Co., Ltd (Huizhou Rongfa) has been providing guarantee on the mortgages sale of its self-developed commercial houses. As at December 31, 2005, the total mortgage guaranteed by Huizhou Rongfa is RMB20,177,000. 24．CONTINGENT ASSETS In 1989, a subsidiary of the Group, Shenzhen International Arcade Co., Ltd. ( “the International Arcade”) initiated a court case against Longhua local government, Buoluo County, Guangdong Province for a dispute relating to a loan borrowed by the latter from the International Arcade. The principle of the loan was RMB2,531,966. According to the Court Order [1989] SLFJS No. 162, a delay penalty of RMB3,610,039 and the charge for the trial of RMB5,000 were also the responsibility of Longhua local government. Due to lack of the ability to make the above payment, the court suspended the execution in 1990; therefore the International Arcade wrote off this loan receivable accordingly. On August 29, 2002, the International Arcade applied for enforcement of previous court decision. Based on Civil Order [2002] SLFZ No.3912, a land of 27,147 square meters which at the moment was the property of Longhua local government was seized. The International Arcade received RMB1,659,700 in 2003 and RMB130,000 in 2004. Such amount had been written back against the allowance of bad debt of the period. The management estimates that the balance can be recovered in full. 25．LITIGATIONS (1) In September 2005, Shenzhen Intermediate People ’s Court issued Review Order [2005] SZMFZ No.22, ruled that the Group has joint liability to a guaranteed loan (RMB6 million and related overdue interest) borrowed from Bank of China, Shenzhen Shangbu branch by Shenzhen Shengang Gongmao Co., Ltd. (“Shengang Gongmao”) in 1999. The case was a historical issue between the Group and Shengang Gongmao. The court had judged in favor of the Group in previous court decisions until the above review decision came into effective. - 54 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 The Group filed an appeal at Guangdong Superior People ’s Court. By the balance sheet date, the case is on going. In 2004, estimated loss of RMB8,670,209, including the guaranteed principle and overdue interest, was accrued. An additional interest liability of RMB782,925 was accrued in 2005. (2) In April 2003, Rongfa entered into a cooperation agreement with Beijing Dongfang Kangtai House Property Co., Ltd. and Beijing Dongfang Kangtai International Automobile Trading Co., Ltd. (collectively as “Cooperate Side”), as well an investment service agreement with Beijing Daosen Estate Development Co., Ltd. ( “Service Side ”) on Beijing Rail Station Western Road Improvement Project. According to these agreements, Rongfa made a RMB10 million advance to the Cooperate Side and RMB4.1 million to the Service Side. However, this project did not proceed as scheduled due to reasons out of the control of Rongfa. Under this circumstance, Rongfa requested for a full refund of RMB14.10 million advances from the recipients. With the refusal from both the Cooperate and Service Side, Rongfa submitted the case to China International Economic and Trade Arbitration Commission, South China Sub-Commission in February 2005. The arbitration has made their decision on August 22, 2005. According to the arbitration decision [2005] MZSC No.D96, the Cooperate Side should refund the advance of RMB10 million with interest and penalty. The interest should be calculated at a prevailing rate for the valid period of the agreement. On September 27, 2005, Rongfa received RMB11,086,838 from the Cooperate Side. The arbitration for the service agreement relating to the advanced RMB4.1 million service fee is still in progress. A special bad debt provision of RMB3.1 million has been made as of December 31, 2005. (3) Rongfa signed a loan borrowing agreement with Shenzhen Mingxing Industrial Development Co., Ltd. ( “Mingxing”) on November 17, 2004. The Group provides guarantee and bears joint liability with Rongfa on this loan borrowing. Mingxing would lend RMB34,600,181 to Rongfa in installments accordingly. On March 1, 2005, the land use right of Longgang No.5 Project was listed for sale on Shenzhen Land & Property Exchange Center at an initial listing price of RMB91.08 million. Shenzhen Guangyecheng Investment Development Co., Ltd. ( “Guangyecheng”) won the bid at a purchase price of RMB140.88 million. Towards the above land deal, Mingxing sued Rongfa and the Group for breaching the contract between the three parties, asking for a compensation of RMB46,762,200, equivalent to the net difference between the initial listing price and the closing price of the sale of the land use right, and an interest of RMB869,777. On November 17, 2005, Shenzhen Intermediate People ’s Court issued Civil Order [2005] SZFMRCZ No. 327, rejected the claim from Mingxing. Mingxing responded with a further appeal to Guangdong Superior People’s Court. As at December 31, 2005, the case is still in process. The - 55 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 Group has repaid the loan principle of RMB34,600,181 to Mingxing in 2005. 26．OPERATING LEASES The Group committed to the following irrevocable operating lease contract: 2005 2004 RMB'000 RMB'000 Land and buildings - expiring in the first year 6,639 12,400 - expiring in the second to fifth years inclusive 25,751 - 32,390 12,400 27．MATERIAL RELATED PARTIES TRANSACTIONS 1. Related Parties (1) Related parties with controlling interest The Group has controlling relationship with its subsidiary companies. Registered Principal Relationship Company Legal Name of Entity Address Activities with the Group Nature Representative Shenzhen International Department store Controlling Limited Shenzhen Li, Junquan Arcade Co., Ltd. operation subsidiary Liability Shenzhen Longgang Department store Controlling Limited Song, Shenzhen International Arcade operation subsidiary Liability Shengjun Enterprise Co., Ltd. Controlling Limited Song, Shenzhen International Shenzhen International trade subsidiary Liability Shengjun enterprise trade Co., Ltd. Department store Controlling Limited Zhou, Shenzhen International Shenzhen operation subsidiary Liability Xiaoxing Arcade Chain Store Medical & Controlling Limited Song, Shenzhen Chunhua Shenzhen Pharmaceutical subsidiary Liability Shengjun Medicine United Co., Ltd. equipment Medical & Controlling Limited Song, Shenzhen Guoshang Shenzhen Pharmaceutical subsidiary Liability Shengjun Medicine Co., Ltd. Products Shenzhen International Property Controlling Limited Shenzhen Cai, Shaorong Arcade Property management subsidiary Liability Management Co., Ltd. Property Limited Controlling Song, Shenzhen Rongfa Shenzhen construction & Liability subsidiary Shengjun Investment Co., Ltd. trading Shenzhen Cosmetic retail Controlling Limited Zhong, Fenjun - 56 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 Registered Principal Relationship Company Legal Name of Entity Address Activities with the Group Nature Representative Shenzhen Grace East subsidiary Liability Union Industry Co., Ltd. Property Limited Controlling Song, Huizhou Rongfa Industry Huizhou construction & Liability subsidiary Shengjun Investment Co., Ltd. trading Anhui International Arcade Property Controlling Limited Hefei Liuli Property Management Co., management subsidiary Liability Ltd. Limited Controlling Wengyuan Guoshanglinhai Wengyuan Afforestation Liability Zhong, Fenjun subsidiary Development Co., Ltd. Limited Controlling Wuhua Guoshanglinye Wuhua Afforestation Liability Zhong, Fenjun subsidiary Development Co., Ltd. Shenzhen Oriental Housekeeping Controlling Limited Shenzhen Liuli Overseas Home Services services subsidiary Liability Co., Ltd. (2) Related parties without controlling interest Name of Entity Relationship with the Group Shenzhen Special Area Development Hold 19.03% share interest of the Group (Group) Co., Ltd. Malaysia Foh Chong & Sons SDN.BHD. Hold 13.70% share interest of the Group Shenzhen Shenfa Enterprises Co., Ltd. A subsidiary of Shenzhen Special Area Development (Group) Co., Ltd. Dapu Hechang Chemicals Co., Ltd. Hold 1.3% share interest of the Group HongKong Hesheng International Trading Hold 1.3% share interest of the Group Co., Ltd. 2．Transactions with related parties In addition to related party transaction disclosed elsewhere in the financial statements, the Group has the followings related party transactions: (1) Pricing in related party transactions All transactions with related parties are at arm ’s length principle and were carried out at market - 57 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 rates or rates agreed between the parties. (2) In the financial year 2005, the Group had related party sales and purchases only with those related parties who have been included in the consolidation. (3) Balance with related parties Name of Entity Nature of the Transaction 2005 2004 Other Receivables: RMB'000 RMB'000 Dapu Hechang Chemicals Co., Ltd. Due from - 2,027 Other Payables: Shenzhen Chunhua Medicine United Due to 2,090 2,090 Co., Ltd. Shenzhen Guoshang Medicine Co., Ltd. Due to 1,492 1,492 Shenzhen International enterprise trade Due to 1,160 1,160 Co., Ltd. Due to Shareholders: Shenzhen Special Area Development Borrowing and Interest 4,353 16,644 (Group) Co., Ltd. Dividends payable and share Malaysia Foh Chong & Sons SDN.BHD. ownership restructure related 27,900 10,089 payables 28．IMPACT OF IFRS ADJUSTMENTS ON CONSOLIDATED PROFIT/LOSS 2005 2004 RMB'000 RMB'000 Profit / (Loss) as reported under PRC GAAP 7,002 (73,686) Investment losses not recognized 4,942 (54,337) Additional depreciation charge - (1,404) Taxation - 2,700 Investment written off 3,781 (3,919) Non-operating Income 7,364 - Interest expense waiver 4,182 - Profit or loss as reported under IFRS 27,271 (130,646) 29．IMPACT OF IFRS ADJUSTMENTS ON CONSOLIDATED NET ASSETS - 58 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 2005 2004 RMB'000 RMB'000 Net assets as reported under PRC GAAP 200,927 177,438 Depreciation (18,112) (18,113) Minority interest 27,525 27,525 Investment - (3,781) Net assets as reported under IFRS 210,340 183,069 30．OTHER SIGNIFICANT EVENTS 1. Shareholding Reform and B-shares conversion a). The Group has completed the shareholding reform on January 1, 2006. The changes in the shareholding structure are as follows: Before Reform After Reform Type of Shares No. of Shares % of Total Type of Shares No. of Shares % of Total 1. Unlisted shares 93,678,912 42.41 1. Listed shares with 74,351,117 33.66 selling conditions State-owned corporate 42,035,328 19.03 State-owned corporate 29,338,953 13.28 shares shares Corporate shares of 21,955,392 9.94 Domestically-owned 15,323,972 6.94 initiators corporate shares Foreign-owned 29,688,192 13.44 Foreign-owned corporate 29,688,192 13.44 corporate shares shares 2. Listed shares 127,222,272 57.59 2. Listed shares without 146,550,067 66.34 selling conditions A Share 55,222,272 25.00 A Share 74,550,067 33.75 B Share 72,000,000 32.59 B Share 72,000,000 32.59 3. Total share capital 220,901,184 100.00 3. Total share capital 220,901,184 100.00 b). On January 21, 2005, the Group received the approval [2005] ZJGS No.4 from China Securities Regulatory Commission (CSRC), regarding the conversion of 29,688,192 unlisted foreign shares into B shares. These converted shares that accounted for 13.44% of the share capital of the Group were previously held by Malaysia Foh Chong & Sons SDN.BHD., HongKong Mengxing Industrial Co., Ltd., HongKong Hesheng International Trading Co., Ltd. and UCHINO CORPORATION SDN BHD. Effective one year after January 20, 2005, these newly converted B - 59 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 shares would become marketable in Shenzhen Securities Market. On January 23, 2006, the above mentioned shares became marketable. 2. Sale of Assets Rongfa entered into an agreement with Shenzhen Hezheng House Property Co., Ltd. ( “Hezheng House Property”) and Shenzhen Jiayuan Industry Development Co., Ltd. ( “Jiayuan Industry”) to set up Shenzhen Hezhengjinhu Investment Co., Ltd.（”Hezhengjinhu”）. The new establishment is for real estate development and operations. Total registered capital of Hezhengjinhu is RMB194.6 million, of which, 48.72% is held by Rongfa through contributing a land (Lot No.H305-0027) of 9,795 square meters, located on Wenjin Road, Lohu district, Shenzhen. It was previously for the Jinhu Garden Project with earlier phrase construction completed. On July 11, 2005, Rongfa sold its 48.72% shareholdings in Hezhengjinhu at a price of RMB127 million in Shenzhen International High-tech Property Exchange Center, and recorded a gain of RMB32,190,880 on this transaction. 3. Debt Restructuring (1) On September 12, 2005, the Group reached an understanding with the bankruptcy liquidation team of Guangdong International Trust & Investment Corporation (“the Team”), agreeing to make a lump sum payment of RMB3.2 million to the Team for settling all the payment obligations stated on the Court Order [1999] SZFJ3 No.007-68. The Group had made the payment of RMB3.2 million upon signing the understanding. After net off all related settling fees, the gain recognized from this debt restructuring was RMB2,571,300. (2) The Group took the property ownership with a total book value of RMB6,120,776 (Unit-29B in International Enterprise Mansion, C-39C, C-39D and B-42D in Gangyihaoting Residential Building, Unit-902 in International Commercial Tower) to offset its RMB4,663,500 debts owned to the Special Area Development Group. The loss recognized from this debt restructuring was RMB1,457,276. (3) On November 14, 2005，the Group signed a debt restructuring agreement with the Special Area Development Group for settling all historical disputes between the two parties. The two parties agreed on the rights and obligations on loans of each party as of August 20, 2005. The Group owed RMB11,980,952 to the Special Area Development Group, which was mainly borrowings and dividends payable. The Special Area Development Group owned totally RMB5,627,468 to the Group, of which, RMB5,058,628 should had been the interest income resulted from a loan of HK$5 million in 1992 from the Group to a subsidiary of the Special Area Development Group, Shenzhen Shenfa Enterprise Co., Ltd. ( “Shenfa Enterprise ”). Shenfa Enterprise repaid the - 60 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 principle of the loan in 2002, but any related interest. Due to the poor financial situations of the borrower, the Group did not account this interest rights on its book in prior years based on the prudence principle. As a result of this debt restructuring, the Group recognized this previously unrecorded interest rights by reducing the obligations to its related party, the Special Area Development Group. The total amount of RMB5,627,468 was treated as interest income in the current year. 31．FINANCIAL INSTRUMENTS Financial assets of the Group include bank balance and cash, trade and other receivables. Financial liabilities of the Group include bank loans, trade and other payables. Interest rate risk The Group’s exposure to interest rate risk arose from bank loans. Foreign currency risk The Group’s exposure to foreign currency risk is minimal as the operation is mainly in PRC. The carrying amount of financial assets best represents their maximum credit risk exposure at the balance sheet date. Fair value The fair value of bank balances and cash, trade and other receivables, bank loans, other loan, obligations under finance lease, trade and other payables are not materially different from their carrying amounts. Fair value estimates are made at specific point in time and are based on relevant market information. The estimate is subjective in nature and involved uncertainties and matters of significant judgment and therefore cannot be determined with precision. 32．COMMITMENTS 1. On July 31, 2004, Rongfa entered into an agreement with Wuhua Local Forestry Bureau, Guangdong Province (“the Wuhua Bureau”). The Wuhua Bureau would provide Rongfa with 200 thousand mus of forestland over the years with an annual rental of RMB8 per mu. According to the agreement, the rental would be adjusted once based on the price index of Guangdong Province every ten years. The rental period is 50 years, commencing from the day Rongfa starts the planting officially. As at December, 31, 2005, RMB72,744 rental has paid by Rongfa. 2. On December 10, 2004, Rongfa entered into an agreement with Wongyuan Local Forestry Bureau, Guangdong Province ( “the Wongyuan Bureau”). The Wongyuan Bureau would provide Rongfa with 500 thousand mus of forestland over the years with an annual rental of RMB10 per - 61 - SHENZHEN INTERNATIONAL ENTERPRISE CO., LTD ANNUAL REPORT 2005 mu. The rental period is 50 years, commencing from the day Rongfa starts the planting officially. As at December, 31, 2005, Rongfa has made RMB500,000 advance to the Wongyuan Bureau. 3. On January 8, 2005, Rongfa entered into an agreement with Xingning Local Forestry Bureau, Guangdong Province (“the Xingning Bureau”). The Xingning Bureau would provide Rongfa with 400 thousand mus of forestland over the years with an annual rental and administration fee of RMB15 per mu. The rental period is 50 years, commencing from the day Rongfa starts the planting officially. 33．SUBSEQUENCE EVENTS On February 7, 22, 2006 and April 5, 2006, the Group repaid totally loans of RMB33,850,000 to Agriculture Bank of China, World Trade Center Branch. Pledged fixed deposit equivalent to RMB34,200,400 has been set free. 34．APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved by the Board of Directors on 21 April 2006. - 62 -