安道麦A(000553)沙隆达Ｂ2005年年度报告（英文）

HUBEI SANONDA CO., LTD. ANNUAL REPORT 2005 (B-share) Section I. Important Notes The Board of Directors, the Supervisory Committee, directors, supervisors and senior executives of Hubei Sanonda 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 or errors which would render any statement misleading. All directors attended the Board meeting. Chairman of the Board of the Company Mr. Li Zuorong, General Manager Mr. Zheng Xianhai and person in charge of Accounting and Principal in charge of Accounting Organ Mr. He Xuesong hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. This report is prepared in both Chinese and English. Should there be any discrepancy in interpretation between the two versions, the Chinese version shall prevail. Hong Kong Ho and Ho & Company Certified Public Accountants audited the financial report of the Company and produced the standard unqualified Auditors’ Report for the Company. Section II. Company Profile 1. Legal name of the Company: In Chinese: 湖北沙隆达股份有限公司 In English: HUBEI SANONDA CO., LTD. 2. Legal Representative: Li Zuorong 3. Secretary of the Board of Directors: Li Zhongxi Contact Address: No. 93, Beijing East Road, Jingzhou, Hubei Tel: (86) 716-8208632 Fax:(86) 0716-8208899 E-mail: li_zhongxi@263.net Securities Affairs Representative: Hu Haosong Contact Address: No. 93, Beijing East Road, Jingzhou, Hubei Tel: (86) 716-8208232 Fax:(86) 0716-8208899 E-mail: lakerhu@263.net 4. Registered Address: No. 93, Beijing East Road, Jingzhou, Hubei Office Address: No. 93, Beijing East Road, Jingzhou, Hubei Post Code: 434001 Website of the Company: http://www.sanonda.com.cn E-mail of the Company: sld@chemchina.com.cn 5. Newspaper for Disclosing the Information Chosen by the Company: China Securities Journal, Securities Times and Ta Kung Pao Internet Web Site Designated by CSRC for Publishing the Annual Report of the Company: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Office of the Company 6. Stock Exchange Listed With: Shenzhen Stock Exchange Short Form of the Stock: Sanonda A, Sanonda B Stock Code: 000553, 200553 7. Other Relevant Information of the Company Initial registration date: Nov. 30, 1993 Initial registration organization: Hebei Province Administration Bureau for Industry and Commerce Registration code of corporate business license: QGEZ Zi No.: 002523 Registration code of taxation: 421001706962287 Name and office address of Certified Public Accountants engaged by the Company: Domestic: TianZhi ZiXin CPAs Address: No. 208, Tower B, Huatong Building, Yi No. 19 Cheng Gong Zhuang West Road, Haidian Dis., Beijing Name: Hong Kong Ho and Ho & Company Certified Public Accountants Address: Arion Commercial Center, II-12 Queen's Rd. West, HK Section III. Summary of Accounting Highlights and Business Highlights I. Major financial data of the Company as of the year 2005 Unit: RMB’000 Items Amount Total Profit 8,474.00 Net Profit 181.00 Profit from main operations 213,800.00 Profit from other operations 10,934.00 Operating profit 22,440.00 Investment income -13,966.00 Subsidy income Net non-operating income/expenses Net cash flow arising from operating activities 80,383.00 Net increase in cash and cash equivalents -5,408.00 II. Explanation on the difference in net profit as audited according to Chinese Accounting Standards and International Accounting Standards respectively Other than the differences in the classifications of certain financial captions and the accounting for the items described below, influence on net profit between accounting statements prepared according to PRC Accounting Rules and Regulations and IFRS are analyzed as follows: Effects on net profit and net assets after adjustment according to IFRS are analyzed as follows: 2005 2004 RMB’000 RMB’000 Net profit (deficit) under the PRC Accounting Rules and Regulations 5,165 13,863 Adjustments: Income from short equity investment - (2,064) Provision for bad and doubtful debt of receivables - 25,712 Provision for depreciation for fixed assets not ready for use - 27,175 Provision for impairment loss of fixed assets - 6,156 Amortization of specific allocate funds 160 160 Adjustment for unrealized loss on investment (1,287) (2,351) Others (3,857) (5,520) Net profit under IFRS 181 63,131 Effects of major differences between the PRC Accounting Rules and Regulations and IFRS on shareholders’ equity are analyzed as follows: 2005 2004 RMB’000 RMB’000 Shareholders’ equity under the PRC Accounting Rules and 879,072 Regulations 878,946 Adjustments: Income from short equity investment - Provision for bad and doubtful debt of receivables (20,911) (20,911) Amortisation of specific allocate funds (1,145) (1,305) Negative goodwill transferred into accumulative loss at the beginning of report period 358 Amortisation of goodwill 197 Amortisation of negative goodwill (50) Other - Shareholders’ equity under IFRS 857,395 856,856 III. Major accounting data and financial indexes over the previous three years at the end of report period (Unit: RMB’000) Increase/decrease Jan.-Dec. Jan.-Dec. Jan.-Dec. Financial indexes of this year over 2005 2004 2003 the last year Income from main operations 1,261,835.00 1,134,082.00 11.26% 858,705.00 Net profit 181.00 63,131.00 -99.71% 8,482.00 Total assets 1,650,082.00 1,541,286.00 7.06% 1,516,367.00 Shareholders’ equity (excluding minority interests) 857,395.00 856,856.00 0.06% 793,725.00 Earnings per share (RMB Yuan) 0.001 0.21 -99.52% 0.03 Net assets per share (RMB Yuan) 2.89 2.89 0 2.67 Net cash flow per share arising from operating activities (RMB Yuan) 0.27 0.19 42.11% 0.12 Return on equity 0.02% 7.37% -7.35% 1.07% IV. Supplemental statement of profit Consolidated supplemental statement of profit Return on equity (%) Profit in the report period Fully diluted Weighted average This period Last period This period Last period Profit from main operation 24.936% 22.201% 24.949% 23.050% Operating profit 2.617% 4.321% 2.619% 4.486% Net profit 0.021% 7.368% 0.021% 7.650% Earrings per share (RMB/share) Profit in the report period Fully diluted Weighted average This period Last period This period Last period Profit from main operation 0.7200 0.6406 0.7200 0.6406 Operating profit 0.0756 0.1247 0.0756 0.1247 Net profit 0.0006 0.2126 0.0006 0.2126 V. Particulars about changes in shareholders' equity during the report period Unit: RMB’000 Surplus Share Capital Accumulated Items public Total capital reserve deficits reserve RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Jan. 1, 2004 296,962 565,633 62,676 (131,546) 793,857 Influence due to change in consolidated scope Surplus in 2004 - - - 63,131 63,131 Dec. 31, 2004 and Jan. 1, 2005 296,962 565,633 62,676 (68,415) 856,856 Influence due to change in consolidated scope Influence due to change in accounting policies - - - 358 358 Surplus in 2005 - - - 181 181 Dec. 31, 2005 296,962 565,633 62,676 (67,876) 857,395 Section IV. Changes in Share Capital and Particulars about Shareholders I. Particulars about changes in share capital (I) Statement of change in share capital Unit: share Before the change Increase/decrease in this time (+, - ) After the change Capitalizati Issuance Number of Proportion Bonus on of Number of Proportion of new Other Subtotal shares (%) shares public shares (%) shares reserve I. Nontradable shares 1. Sponsors’ shares Including: Shares held by the State 84,729,334 28.53% 84,729,334 28.53% Share held by domestic legal person Share held by foreign legal person Others 2. Raised legal person’s shares 3. Inner employees shares 4. Preference shares or others Total nontradable shares 84,729,334 28.53% 84,729,334 28.53% II. Tradable shares 1. RMB ordinary shares 97,232,276 32.74% 2. Domestically listed 115,000,000 38.73% foreign shares 3. Overseas listed foreign shares 4. Others Total tradable shares 212,232,276 71.47% 212,232,276 71.47% III. Total shares 296,961,610 100.00% 296,961,610 100.00% (II) Particulars about issuance and listing of shares 1. From Oct. 1993 to Nov. 30, 1993, the Company issued 30,000,000 RMB ordinary shares and the said shares were listed in Shenzhen Stock Exchange for trade on Dec. 3, 1993. 2. Approved by CSRC of the State Council ZF(1997) No.23 document, the Company issued 100,000,000 domestic listed foreign shares (B shares) with par value of RMB 1 per share from Apr. 29,1997 to May 5, 1997. The said shares were listed in Shenzhen Stock Exchange for trade on May 15 of the same year. The Company also execute the over-allotment option of 15,000,000 shares during May 15 to May 21 of the same year. 3. Under the arrangement of Shenzhen Stock Exchange, 5,423,701 state transferred allotted shares of the Company were circulated in Shenzhen Stock Exchange on July 6, 2000. 4. Ended Dec. 31, 2005, the directors, supervisors and senior executives hold 20230 shares of the Company. In terms of the relevant regulations, the shares were in custody of Shenzhen Securities Registration Co., Ltd. 5. In the report period, there were no changes in total number of shares and its structure resulted in bonus share, transferring into share capital, additional issuance and capitalization of transferable bond or other reasons. 6. In the report period, the Company had no internal employee shares. II. Particulars about the shareholders 1. Number of shareholders and abut shares held (1) At the end of the report period, the Company had 39170 shareholders in total, including 25986 shareholders of A-share and 13184 shareholders of B-share. (2) At the end of the report period, particulars about shares held by the top ten shareholders of the Company: Total number of shareholders at the end of report period 39170 Particulars about shares held by the top ten shareholders Total Number of Share Type of Full name of Shareholder Proportion number of nontradable pledged or shareholders shares held shares held frozen SANONDA GROUP State-owned 27.52% 81,726,625 81,726,625 42,110,000 CORPORATION shareholder QICHUN COUNTY STATE-OWNED ASSETS State-owned 1.01% 3,002,709 3,002,709 0 ADMINISTRATION shareholder BUREAU Foreign ABN AMRO BANK NV 0.42% 1,250,000 0 0 shareholder SHEN YING Foreign 0.34% 1,020,800 0 0 shareholder TAIJI INVESTMENT CO., Foreign 0.33% 1,000,000 0 0 LTD. shareholder GUANGQI INVESTMENT Foreign 0.33% 1,000,000 0 0 CO., LTD. shareholder WANG ZHI CHANG Tradable A 0.33% 977,585 0 0 share FINANCING CO., LTD. Foreign 0.29% 864,550 0 0 shareholder TAN DONG SHAN Foreign 0.25% 740,860 0 0 shareholder HUANG JUN YUE Foreign 0.22% 664,570 0 0 shareholder Particulars about shares held by the top ten tradable shareholders Name of shareholders Numbers of tradable Type of shares shares held ABN AMRO BANK NV 1,250,000 Domestically listed foreign shares SHEN YING 1,020,800 Domestically listed foreign shares TAIJI INVESTMENT CO., 1,000,000 Domestically listed foreign shares LTD. GUANGQI INVESTMENT 1,000,000 Domestically listed foreign shares CO., LTD. WANG ZHI CHANG 977,585 RMB ordinary share FINANCING CO., LTD. 864,550 Domestically listed foreign shares TAN DONG SHAN 740,860 Domestically listed foreign shares HUANG JUN YUE 664,570 Domestically listed foreign shares XIE XI XIAN 664,500 Domestically listed foreign shares CHEN CHAO MING 649,700 Domestically listed foreign shares Explanation on associated relationship The Company was unknown whether there is any among the above shareholders or associated relationship among the top ten acting-in-concert shareholders of tradable share. 2. Particulars about the controlling shareholder and actual controller (1) The controlling shareholder Name of the controlling shareholder: Sanonda Group Corporation Legal representative: Li Zuorong Registered capital: RMB 240.66 million Date of foundation: 1994 Scope of business: manufacturing and sales of chemical products and pharmaceutical products; import and export trade of pesticide, chemical products and chemical mechanical equipments and fittings; manufacturing and sales of chemical mechanical equipments; production and fixing of steel construction; fixing of chemical engineering and lease of housing. (2) Actual controller Name of the actual controller: ChemChina Agrochemical Corporation Registered capital: RMB 300 million ChemChina Agrochemical Corporation is a large-scale stated-owned sole company subordinate to ChemChina Group Corporation, as well as the wholly-owned subsidiary of ChemChina Group Corporation and one of the specialized companies under ChemChina Group Corporation, who is engaged in investment, development, production and operation of pesticides, chemical fertilizers, fine chemical products and minerals products. ChemChina Group Corporation subordinates to SASAC of State Council, which is state-owned large-scale corporation established after approval by the State Council in 2004. (3) Particulars about change in the controlling shareholder and actual controller of the Company In the report period, the Company’s controlling shareholder remained unchanged, while the actual controller was changed into ChemChina Agrochemical Corporation from Jingzhou Municipal State-owned Assets Supervision Administrative Committee (4) Property and control relationship between the actual controller and the Company are as follows: SASAC of State Council 100% ChemChina Group Corporation 100% 带格式的 ChemChina Agrochemical Corporation 100% 带格式的 Sanonda Group Corporation 27.52% Hubei Sanonda Co., Ltd. 3. Other legal person shareholder holding over 10% share of the Company There was no other legal person shareholder holding over 10% share of the Company in the report period. Section V. Particulars about Directors, Supervisors and Senior Executives and Employees I. Director, supervisor and senior executives (I) Basic Information Total payment Holding Holding drawn from the Increase/ Reason shares at shares at Company in the Name Title Sex Age Office term decrease for the the report period of shares change year-begin year-end (after tax RMB’0000) Jun. 30, 2003- Director Dec. 12, 2005 Li Zuorong Chairman of the Male 55 3000 3000 7.6 Dec. 12, 2005 Board Jun. 30, 2006 Secretary of CPC Vice Chairman of Jun. 30, 2003- Zheng Xianhai the Board, General Male 54 7.6 Jun. 30, 2006 Manager Jun. 30, 2003- Liu Xingping Director Male 43 2000 2000 6.4 Jun. 30, 2006 Director, Deputy Jun. 30, 2003- He Fuchun Male 41 2000 2000 6.4 General Manager Jun. 30, 2006 Director, Deputy Jun. 30, 2003- Deng Guobin Male 38 2000 2000 5.8 General Manager Jun. 30, 2006 Jun. 30, 2003- Director Dec. 22, 2005 Zhang Jianguo Chairman of the Male 53 2000 2000 6.0 Dec. 26, 2005- Supervisory Jun. 30, 2006 Committee Jun. 30, 2003- Chief Accountant Dec. 22, 2005 He Xuesong Male 51 - 6.4 Dec. 22, 2005- Director, CFO Jun. 30, 2006 Director, Assistant Dec. 22, 2005- Liu Anping Male 38 - 3.0 to General Manager Jun. 30, 2006 Secretary of the Jun. 30, 2003- Li Zhongxi Male 35 - 3.6 Board Jun. 30, 2006 Independent Jun. 30, 2003- Tan Liwen Male 58 - 3.0 Director Jun. 30, 2006 Independent Jun. 30, 2003- Liao Hong Male 62 - 3.0 Director Jun. 30, 2006 Independent Jun. 30, 2003- Yu Jingzhong Male 47 - 3.0 Director Jun. 30, 2006 Chairman of the Jun. 30, 2003- Wan Zheming Supervisory Male 57 - 5.6 Jun. 30, 2006 Committee Chen Jun. 30, 2003- Supervisor Male 58 - 5.6 Changshun Jun. 30, 2006 Jun. 30, 2003- Sang Maorong Supervisor Male 55 - 2 Jun. 30, 2006 Jun. 30, 2003- Liu Jun Supervisor Female 45 - 2 Jun. 30, 2006 Jun. 30, 2003- Xu Baojian Supervisor Male 50 - 2 Jun. 30, 2006 2. Particulars about the main work experiences among present directors, supervisors and senior executives: Mr. Li Zuorong successively took the posts of workshop technician, workshop director, section chief of technology section and director of design office of primary Sha City Pesticide Plant, and minister of project department, deputy general manager and director of the Company. Now he acts as Chairman of the Board and Secretary of CPC of the Company . Mr. Zheng Xianhai successively took the posts of workshop director, secretary of CYL, section chief of sales office and section chief of trading office of primary Sha City Pesticide Plant, and deputy general manager and director of the Company. He is now in charge of vice chairman of the Board and general manager of the Company. Mr. Liu Xingping successively took the posts of technician of primary Sha City Pesticide Plant, AND plant manager of Electrochemical Plant, director, deputy general manager, vice chairman of the board and general manager of the Company. He is now acts as director of the Company. Mr. He Fuchun successively took the posts of section monitor of primary Sha City Pesticide Plant, senior chief director of workshop of the Company and plant manager of the Pesticide 1st Plant. He is now in charge of director, deputy general manager and chief engineer of the Company. Mr. Deng Guobin successively took the posts of workshop director of the Company, plant manager of the Pesticide 1st Plant, deputy division chief of technology office of the Company. He is now in charge of director and deputy general manager of the Company. Mr. He Xuesong successively took the posts of section monitor of the primary Sha City Pesticide Plant, section chief of financing office of Sha City Fuel-chemical Bureau, deputy minister and minister of financing department of Sanonda Group Corporation and deputy chief accountant and chief accountant of the Company. He is now in charge of director and chief financial officer of Company. Mr. Liu Anping successively took the posts of deputy factory chief and factory chief of Energy Sources Power Factory of the Company and deputy chief engineer of the Company. He now acts as director and assistant general manager of the Company. Mr. Li Zhongxi successively took the posts of office secretary of the Company, manager of packaging company. Now he is in charge of secretary of the Board and concurrently office director of the Company. Mr. Tan Liwen graduated from electric machinery designing and making department of Middle China Science and Technology University in 1982 and advanced studied doctor degree in Commercial Institute of Ohio State University of US from 1985 to 1988, He has the doctor degree of economics of Wuhan University and now is in charge of vice president of commercial institute of Wuhan University, charger of management department of commercial institute, commissar of teaching guidance commission of commerce and industry management department of ministry of education, vice president of strategy management research institute of Wuhan University, expert of examination and comment system of state nature and science funds commission and society and science funds of ministry of education. He is now in charge of professor and instructor for doctorate of commercial institute of Wuhan University and independent director of the 4th Board of Directors of the Company. Mr. Liao Hong graduated form accounting major of Finance and Economics Institute of Hunan University in 1966 and ever took the post of finance and accounting charger of Cotton Spinning Plant; he taught in South China Finance and Economics University and took the post of deputy section chief of finance department in it from 1982 to 1987; and taught in accounting department of Wuhan University from 1987 till now and took the turns of vice director and director of accounting department till 1999, and concurrently took the post of councilor of China Accounting Society and councilor of China Auditing Society, etc., independent director of the 3rd Board of Directors of the Company. He now holds the position of professor and instructor for doctorate of accounting department of Wuhan University, China CPA and independent director of the 4th Board of Directors of the Company. Mr. Yu Jingzhong entered into accounting department of South China Finance and Economics University through examination to study accounting, then was left to teach at it after graduation in 1985; in 1991 he was sent to Huangshi as president assistance of Commercial Bank, and then temporarily transferred into Shenzhen Procurator ate in 1992 and sent back to teach in the University till now. He is now in charge of independent director of the 4th Board of Directors of the Company. Mr. Zhang Jianguo successively took the posts of assistance of organization office, deputy secretary of workshop and deputy director of management department of primary Sha City Pesticide Plant, senior office director, principal office director and secretary of the Board and director of the Company. He is now in charge of chairman of the supervisory committee and deputy secretary of CPC of the Company. Mr. Chen Changshun successively took the posts of vice secretary of CYL Committee, vice secretary of Party Branch of workshop and vice chairman of Labor Union of primary Sha City Pesticide Plant. Now he is in charge of supervisor of the Company. Mr. Sang Maoxiong successively took the posts of office secretary and section chief of publicity section of primary Sha City Pesticide Plant, vice director of Party office and deputy office director of the Company. He is now in charge of supervisor of the Company. Ms. Liu Jun successively took the posts of chief accountant of Sanonda Jingchun Company, chief accountant of Sanonda Jingzhou Agrochemical Company. Now she is in charge of supervisor of the Company. Mr. Xu Baojian successively took the posts of deputy director of workshop of the primary Sha City Pesticide Plant, deputy plant manager of energy power plant, secretary of Party branch of CPC and concurrently chairman of Labor Union of the Company. He is now in charge of supervisor of the Company. (II) Particulars about directors and supervisors holing the position in shareholding company Name Name of the Shareholding Post in the Shareholding Office term Company Company Sanonda Group Chairman of the Board, From Dec. 2005 till Li Zuorong Corporation General Manager now Sanonda Group Zheng Xianhai Director 2000 till now Corporation Sanonda Group Director, General Liu Xingping 2003 till now Corporation Manager Sanonda Group He Fuchun Director Dec. 2005 till now Corporation (III) Particulars about change on the directors, supervisors and senior executives in the report period: In Dec. 2005, Mr. Zhang Maoli resigned from the posts of Chairman of the Board and Director due to work reason; Mr. Zhang Jianguo resigned from the post of Director of the Company due to work demand. The Board of Directors of the Company additionally elected Mr. He Xuesong and Mr. Liu Anping as Director of the Company respectively. The Board of Directors elected Mr. Li Zuorong as Chairman of the Board of the Company. In Dec. 2005, Mr. Wan Zheming resigned from the post of Chairman of the Supervisory Committee due to work demand, while the Supervisory Committee additionally elected Mr. Zhang Jianguo as Supervisor of the Company and elected Mr. Zhang Jianguo as Chairman of the Supervisory Committee. (IV) Particulars about the annual remuneration of directors, supervisors and senior executives The Company set down salary plan and implementation measures to the senior executives. At the year-beginning, the Company would decide the appraisal index of operation achievements or management duties for the senior executives according to the overall development strategy and annual operating target; at the year-end, the Board appraised the senior executives based on the operation achievements and the fulfilled duties. 2. About employees As at the end of the report period, the Company had totally 3482 employees, including 1873 on-job employees in the Company, namely 452 administrative personnel, 1122 technicians and 162 salespersons. The Company had 951 persons graduated from 3-years regular college graduate or above. Section VI. Corporate Governance I. Corporate governance of the Company In the report period, in order to protect investors’ interests, the Company continuously perfected its corporate governance according to Company Law, Securities Law, Stock Listing Rules of Shenzhen Stock Exchange and Administrative Rules for Listed Companies, and combining the Company’s actual status, the Company established every rules of procedure and system in order to ensure the Shareholders’ General Meeting, the Board of Directors, the Supervisory Committee and Management Team to exercise their rights according to law and perform their duties. 1. Shareholders and Shareholders’ General Meeting: the Company could treat all shareholders equally, fully respect and maintain shareholders’ interests, especially medium and small investors. The Company abided the rules of information disclosure, performed duties of information disclosure, and actively improved quality of information disclosure, continually strengthened investors relationship management and timely answered all questions put by the Company’s shareholders, consequently, ensured investors to enjoy the knowing and participation right for significant events of the Company regulated in laws and rules, and faithfully protected interests of shareholders especially medium and small investors. 2. Director and Board of Directors: The Company elected and engaged director according to the regulations of the Articles of Association of the Company. The number of the Board of Directors and holding qualification were in compliance with the regulations of the relevant laws, regulations and the Articles of Association. In the report period, the Board of Directors fully discussed and made decision with scientific, fast and careful way according to duties empowered by the Articles of Association and the Rules of Procedure for the Board of Directors. 3. Supervisor and Supervisory Committee: The Supervisory Committee conducted the supervision on lawfulness and regularity of financial status of the Company and performance of the directors and senior executives of the Company according to duties empowered by the Articles of Association and the Rules of Procedure for the Supervisory Committee, which protected the legal rights and interests of the Company and its shareholders. In accordance with the requirements of Administrative Rules for Listed Companies, the Company’s corporate governance basically was in conformity with the relevant regulations. II. Performance of duties of Independent Directors 1. In the report period, three independent directors of the Company patiently performed duties according to Articles of Association of the Company and Work System of Independent Director, actively learned the operating situation of the Company, presented their independent opinions on related transactions and operation decision-making of the Company which played an active role in scientific decision-making of the Board of Directors and the development of the Company. As the independent director of the Company, they faithfully protected the interests of vast investors and the Company. 2. In the report period, the Company totally held 6 Board meetings and 1 annual shareholders’ general meeting. Three independent directors did not propose the objection on proposals of the Board meetings and proposals of other meetings. The Particulars about their attending the shareholders’ general meeting is as follow: Independent Meetings should be Times attending in Times of entrusting directors attended person others to attend Tan Liwen 7 6 1 Liao Hong 7 7 0 Yu Jingzhong 7 7 0 III. Separation between the Company and the controlling shareholder in the respects of business, personal, assets, organization and financing (I) Independence of the Company’s business: The Company possessed the independent purchasing and sales system and independent operating capability. The Company existed no competition in the same industry with the controlling shareholder. The related transactions between them are legal, transparent and fair and the price is reasonable. (II) Independence of the Company’s personal: The Company established independent systems of labor, personal and wage. The procedure of holding concurrent post of the directors of the Company by senior executives of the controlling shareholder is legal. The General Manager, other senior executives and core technicians of the Company took the full time jobs in the Company and received the salary from the Company. (III) Independence of the Company’s assets: The assets of the Company are independent and the property is clear. The Company has independent production system, auxiliary production system and accessory installation. The Company has its own industrial property, trademark and non-patent technology related with the Company’s operation. (IV) Independence of the Company’s organization: The Company has independent location of production and operation and office organization. (V) Independence of the Company’s financing: The Company has independent financial and accounting department, established normative and independent accounting settlement system and financial management system as well as independent bank account and independently pays tax. IV. Particular about performance evaluation standards and encouragement and binding mechanism: The Company has established the plan on the remuneration of senior executives and its detailed enforcement method so as to unceasingly perfected evaluation standards and encouragement and binding mechanism of directors, supervisors and senior executives. The Board of Directors engaged all senior executives of the Company. The Company made out the product operations object and annual preplan of the Company every year, and carry out examination on senior executives according to the fulfillment of operation objects and development strategy and annual operation objects so as to confirm the amount of the efficiency annual remuneration of senior executives. Section VII. Brief Introduction of Shareholders’ General Meeting I. About the annual shareholders’ general meeting The Company held the annual shareholders’ general meeting 2001 on May 16, 2005. The relevant public notice on resolutions was published in China Securities Journal, Securities Times and Hong Kong Ta Kung Pao dated May 17, 2005. Section VIII. Report of the Board of Directors Ⅰ. Operation condition of the company within the report period 1. General operation condition The company's sales revenue within the report period was RMB 1,261,835,000 Yuan, which was an 11.26% increase over that of the same period of the previous year; the gross profit was RMB 213,800,000 Yuan, which was a 12.39% increase and the net profit was RMB 181,000 Yuan, which was a 99.71% decrease. The main reasons for the company's profit decrease were: 1) Influenced by the international crude oil price, the company's main raw materials and energy consumption and freight increased and thus the cost was raised. 2) Influenced by the state policy on the prohibition of highly toxic pesticides, the market of part of the company's highly toxic pesticides shrank and the prices were lowered down. 3) Although the company had enhanced the product structure adjustment, some of the substitutional products were not mass produced and the economic benefit was not obvious. 4) Some holding subsidiaries had suffered from huge loss and the collected depreciation reserve increased. Within the report period, facing such difficulties, the company enhanced its management, strengthened its purchasing by invitation to bid and based on materials comparative price, increased its technological innovation and project investment, improved its products' technological level and enlarged the production scale, increased product exportation by taking advantage of the technical superiority of some of the products and the company's self-import and export right. Within the report period, the company had produced chemical pesticides of 36,300 tons and sodium hydroxide of 82,400 tons, which are 14% and 7% increases over those of the same periods of the previous year. The foreign currency through exportation was 55 million US dollars, a 51% increase over that of the same period of the previous year. 2. Operation condition of the company’s main businesses (1) Main business scope of the company Business scope of the company: production and sales of pesticides and chemical products (2) Table for the main businesses of the company in respect of industries and products Unit: RMB’000Yuan 2005 2004 RMB’000Yuan RMB’000 Yuan Sales of pesticides and chemical products 1,261,112 1,106,337 Real Estate sales 723 28,465 1,261,835 1,134,802 (3) The top five suppliers and top five customers of the company Unit: RMB’000Yuan Total purchasing amount of the 94,815 Percentage of the total 9.06% top five suppliers Total sales amount of the top five 161,541 Percentage of the total 12.80% customers 3. Explanations of the significant changes of the company’s asset composition within the report period Unit: RMB’000Yuan December 31st, 2005 December 31st, 2004 Percentage of Percentage of Project Fluctuation Amount the total Amount the total assets assets Project under construction 15,735 0.95% 28,353 1.84% -0.89% Inventory 336,199 20.37% 255,618 16.58% 3.79% Trade securities investment 642 0.04% 19,543 1.27% -1.23% Receivable trade debts and other 20.80% 17.92% 2.88% debts 343,235 276,247 Total assets 1,650,082 1,541,286 Remarks: 1) The decrease of project under construction was mainly due to the carry-over of the fixed assets when the project was completed. 2) The book balance of the inventory in the end of the year increased by RMB 80,518,000 Yuan, which was a 31.52% increase. This was mainly due to the good domestic sales and exportation conditions in 2005. In order to ensure the domestic sales and exportation in the year 2006, the company had increased its winter reserve. 3) The decrease of the trade securities investment was mainly due to the realization of the short-term securities in portfolio. 4) The receivable trade debts and other debts in the end of the year increased by RMB 66,988 (24.25%) Yuan compared to that in the beginning of the year. The main reason was: the subsidiary company Hubei Fengyuan Chemical Industry Co., Ltd. has not been incorporated into the company this year. The increase was due to the inclusion of the receivables from Hubei Fengyuan Chemical Industry Co., Ltd. in the total figure at the end of the year while the decrease was due to the exclusion of the receivables of Hubei Fengyuan Chemical Industry Co., Ltd. 4. Explanations of the company’s cash flow composition within the report period Unit: RMB’000Yuan Increased or Project 2005 2004 Fluctuation decreased value Net cash flows resulted from 44.45% operating activities 80,383 55,648 24,735 Net cash flows resulted from -80,369 -49,622 61.96% investing activities -30,747 Net cash flows resulted from -5,422 20,989 -125.83% financing activities -26,411 Remarks: 1) The increase of the net cash flows resulted from operating activities was mainly due to the rapid capital withdrawal for the expanded exportation and the capital withdrawal for the domestically sold products. 2) The decrease of the net cash flows resulted from investing activities was mainly due to the increase of engineering and technical transformation projects. 3) The decrease of the net cash flows resulted from the financing activities was mainly due to the increase of the bank loans for the expansion of the production scale and technical transformation projects. As the bank loan increased, the loan interest also increased. 5. Analysis of the operation conditions and achievements of the main holding companies Unit: RMB’0000Yuan Revenue of Proportion Nature of Registered Total Net Name of company Main products or services main of shares business capital assets profit business Production of pesticides Sanonda Zhengzhou Industrial and chemical products 70.00% 4,000 28,831 20,060 13 Pesticide Co., Ltd. production such as omethoate and sodium hydroxide Sanonda (Jingzhou) Industrial Production of pesticides Pesticide and Chemical 87.50% 2,800 4,297 6,696 -147 production and intermediates Industry Co., Ltd. Hubei Fengyuan Industrial Production and sales of Chemical Industry Co., 55.00% 4,000 4,628 -1,859 production NPK compound fertilizer Ltd. Import & Export of Hubei Sanonda Import & 90.00% pesticides and 1,000 9,370 30,093 573 International Co., Ltd. Export intermediates Development and sales of Jinzhou Sanonda Real 90.00% Real estate real estate and sales of 1,000 1,769 72 -56 Estate Co., Ltd. construction materials Hubei Sanonda Industrial Production and sales of Tianmen Agrochemical 85.00% 800 7,411 6,975 314 production pesticides Co., Ltd. Jingzhou Longhua Industrial Production and sales of 65.00% 500 1,791 5,027 149 Petrochemical Co., Ltd. production chemical products Jingzhou Sanonda Financial consultation Financial Consultation 90.00% Consultation and investment 500 2,452 44 Co., Ltd. consultation and service Jingzhou Sanonda Advertisement designing 60.00% Advertising 120 218 147 9 Advertising Co., Ltd. and releasing Jingzhou Sanonda Research, development, Industrial Aifusi Chemical 51.00% production and sales of 600 848 593 24 production Industry Co., Ltd. fine chemical products Ⅱ.Prospect for the company’s future development (1) Development trend of the industry: The development trend for the pesticide industry is implementing gross control, avoiding redundant construction, accelerating industry integration, converging advantageous market resources and gradually adopting mass and intensive production so as to enhance the international competitiveness of the country’s pesticide enterprises. While further perfecting intellectual property protection and enhancing technology introduction, a number of enterprises and groups with relatively strong power and science and technology innovation capabilities should be cultivated, new species should be developed, highly toxic pesticides should be reduced and substituted and production technology levels and product qualities should be improved. The “Eleventh Five-year” development plan for the pesticide industry has considered the industry structure adjustment, scientific research investment increase and environment pollution control as the three development themes. The pesticide industry should be developed in an efficient, safe and applicable manner. (2) Business objective of the company in 2006 The business objective for the year 2006 proposed by the group is: main business revenue RMB1.55 billion Yuan, foreign currency from export USD 60 million and total amount of profits RMB 35 million Yuan. (3) Advantages and difficulties for the company From the favorable perspective, China is now in the rising period of the new economic cycle, the international and costal industries are now being transferred to the central regions, the state “Central Region Prosperity” strategy is being gradually implemented and the agrochemical company and group is providing a development platform for and giving support and guidance to the company in the aspect of project, financing and management. All of these will provide historical opportunities and favorable conditions for the company’s development. From the unfavorable perspective, there are mainly three points: (1) Influence of the industry policy. 2006 is the last year for the sales of methamidophos and methyl parathion in the domestic market. In addition, the country has been strictly controlling the exportation of highly toxic pesticides. Both the domestic and overseas markets for the traditional products such as methamidophos and methyl parathion are in severe conditions. (2) Influence of the financial policies. Appreciation of RMB, international trade friction and lowering of the tax reimbursement rate of highly toxic pesticides will have certain influence on the company’s exportation. (3) Influence of the safety and environment protection requirements. Currently, as the human-oriented scientific development view is being implemented in the whole country and people’s requirements for safety and environment protection are becoming higher and higher, the company still has a lot of work to do in the implementation of the safety measures and environment comprehensive remediation and as to how to conduct clean production, environment protection and maintain a harmonious relationship between the enterprise and the surroundings and sustainable development. Ⅲ.Investment of the company within the report period 1. Usage of the collected funds Within the report period, the company had no collected funds or no extension of the funds collected before the report period to the report period. 2. Project of non-collected funds Unit: RMB’0000Yuan In accordance with the Investment within Name of project Project progress planned progress and the report period benefits or not Glyphosate project 3066 100% Yes Acephate project 701 100% Yes Triple effect 1518 100% Yes evaporation project Electrolytic rectification system 972 100% Yes transformation Nitrogen trifluoride 432 100% Yes project extension Total 6689 Ⅳ.Routine work of the board of directors The company held the fifteenth meeting of the fourth board of directors on April 13th, 2005 and the resolution announcement was published on China Securities Journal, Securities Times and Ta Kung Pao dated April 15th, 2005. The company held the sixteenth meeting of the fourth board of directors on April 26th, 2005, during which the first quarter report of 2005 was approved. The company held the seventeenth meeting of the fourth board of directors on August 8th, 2005 and the resolution announcement was published on China Securities Journal, Securities Times and Ta Kung Pao dated August 10th, 2005. The company held the eighteenth meeting of the fourth board of directors on October 20th, 2005, during which the third quarter report of 2005 was approved. The company held the nineteenth meeting of the fourth board of directors on December 18th, 2005 and the resolution announcement was published on China Securities Journal, Securities Times and Ta Kung Pao dated December 19th, 2005. The company held the twentieth meeting of the fourth board of directors on December 23rd, 2005, during which the marketing system reform trial was approved and subsidiaries were planned to be set up in some of the company’s sales territories. Ⅴ. Profit distribution or capital reserve conversion and increase preplan Audited according to the domestic accounting standard, the company’s net profit in 2005 was RMB 5,165,234.82 Yuan and the profit which could be distributed by the shareholders after making up the loss was RMB -37,422,529.36 Yuan. According to international accounting standard, the net profit was RMB 181,000.00 Yuan and the profit which could be distributed by the shareholders after making up the loss was RMB -68,381,000.00 Yuan. According to the Lower of Cost or Market (LCM) principle, the profit which could be distributed by the shareholders after making up the loss was RMB -67, 876,000.00. According to the relevant stipulations of the Company Law and Articles of Association, the board of directors of the company decided not to distribute profit and not to convert and increase capital reserve in 2005. The preplan had to be submitted to the 2005 shareholder’s meeting for deliberation and approval. Ⅵ. Why there was profit but no cash profit distribution preplan within the report period According to the Lower of Cost or Market (LCM) principle and audited as per the international accounting standard, within the report period, the profit which could be distributed by the shareholders after making up the loss in this year was RMB -67, 876,000.00 Yuan and the undistributed profit was a negative number. Therefore, the company had not proposed the cash profit distribution preplan. Ⅶ. Others 1. Within the report period, the company chose China Securities Journal, Securities Times and Ta Kung Pao as its authorized publications to publish its relevant company information. Section IX. Report of the Supervisory Committee I. Meetings of the Supervisory Committee in 2005 The Company held the 6th meeting of the 4th Supervisory Committee at the Water meeting room of the Company on Apr. 13, 2005. The said meeting passed the following resolutions: (1) Work Report 2004 of the Supervisory Committee; (2) Financial Settlement Report 2004; (3) Profit Distribution Preplan 2004; (4) Annual Report 2004 and its Summary; (5) Proposal on Engaging Certified Public Accountants for the year 2005 for the Company; (6) Proposal on Amending the Articles of Association of the Company; (7) Notification on Holding the Annual Shareholders’ General Meeting 2004. The Company held the 7th meeting of the 4th Supervisory Committee at the Water meeting room of the Company on Aug. 8, 2005. The said meeting examined and passed Semi-annual Report 2005. II. Independent work report 1. Operating according to laws. The members in the Supervisory Committee of the Company attended all the meetings of the Board as nonvoting delegates and supervised on the Company’s decision-making and operation. The Supervisory Committee considered the procedures of the Company’s decision-making were legal and internal control system was improved. In the daily work, the Company’s directors, general manager and senior executives did not disobey laws and regulations and the Articles of Association of the Company, damage the interests of the Company or harm the interests of the shareholders and employees by abusing the authorities. 2. Inspecting the Company’s finance. In the report period, the Supervisory Committee inspected the Company’s business and finance and considered that the unqualified auditor’s report for 2005 presented by TIN WHA CPAs and Hong Kong Ho And Ho & Company for the Company reflected the Company’s financial position and operating results in an objective and true way. 3. Use of the latest raised proceeds. Ended the end of year 2002, the Company’s raised proceeds from B-shares offering had been used up. The change of projects invested with the proceeds raised from B-shares offering was considered and passed by Temporary Shareholders’ General Meeting on Jan. 8, 1999 with legal procedures. The input projects were the same as the changed projects. 4. Independent opinion of the Supervisory Committee on purchase and sales of assets: In the report period, the Company existed no significant purchase and sales of assets. 5. Related transactions. The related transactions were fair and just, not harming the interests of the Company. Section X. Significant Events I. Significant lawsuits and arbitrations In the report period, the Company had no significant lawsuits or arbitrations. II. Purchase and sales of assets as well as mergers in the report period In the report period, the Company had made no significant purchase or sales of assets or mergers. III. Important related transactions happened in the report period 2005 2004 RMB’000 RMB’000 Purchase of raw materials from Sanonda Group and its 8,291 8,913 same-graded affiliated companies Purchase of materials from minority shareholders - 3,339 Purchase of raw materials from affiliated companies and 10,725 7,095 associated companies not consolidated Sale of goods to Sanonda Group and its same-graded affiliated - 506 companies Housing lease to affiliated companies and associated 1,000 360 companies not consolidated Sale of goods to minority shareholders - 27 IV. Creditor’s rights, liabilities and guarantees between related parties and the Company: 1. Balance of receivables and prepayments of related parties 2005 2004 RMB’000 RMB’000 Receivables and prepayments Sanonda Group and its same-graded affiliated companies 45,920 19,243 Affiliated companies and associated companies not 51,819 250 consolidated Minority shareholders - 1,248 Total 97,739 20,741 2. Guarantees Relationship Guarantee Overdue Actual between Warrantor Warrantee amount amount status of Notes warrantee and (RMB’0000) (RMB’0000) warrantee the Company Shareholding Normal Hubei Sanonda Co., Ltd. Sanonda Zhenzhou Pesticide Co., Ltd. 1000 Loan subsidiary operating Shareholding Normal Hubei Sanonda Co., Ltd. Sanonda Zhenzhou Pesticide Co., Ltd. 700 Loan subsidiary operating Shareholding Normal Hubei Sanonda Co., Ltd. Sanonda Zhenzhou Pesticide Co., Ltd. 1500 Loan subsidiary operating Shareholding Normal Hubei Sanonda Co., Ltd. Sanonda Zhenzhou Pesticide Co., Ltd. 1000 Loan subsidiary operating Sanonda Jingzhou Pesticides and Shareholding Normal Hubei Sanonda Co., Ltd. 1071 1071 Loan Chemical Industry Co., Ltd. subsidiary operating Sanonda Jingzhou Pesticides and Shareholding Normal Hubei Sanonda Co., Ltd. 99 99 Loan Chemical Industry Co., Ltd. subsidiary operating Sanonda Jingzhou Pesticides and Shareholding Normal Hubei Sanonda Co., Ltd. 200 200 Loan Chemical Industry Co., Ltd. subsidiary operating Sanonda Jingzhou Pesticides and Shareholding Normal Hubei Sanonda Co., Ltd. 165 165 Loan Chemical Industry Co., Ltd. subsidiary operating Sanonda Jingzhou Pesticides and Shareholding Normal Hubei Sanonda Co., Ltd. USD 84 USD 84 Loan Chemical Industry Co., Ltd. subsidiary operating Hubei Sanonda International Trade Co., Shareholding Normal Documentary Hubei Sanonda Co., Ltd. USD 1000 Limited subsidiary operating credit Relationship Guarantee Overdue Actual between Warrantor Warrantee amount amount status of Notes warrantee and (RMB’0000) (RMB’0000) warrantee the Company Hubei Sanonda International Trade Co., Shareholding Normal Documentary Hubei Sanonda Co., Ltd. Limited 5000 subsidiary operating credit Shareholding Normal Bank Hubei Sanonda Co., Ltd. Sanonda Zhenzhou Pesticide Co., Ltd. 1000 subsidiary operating acceptance bill Sanonda Jingzhou Pesticides and Shareholding Normal Hubei Sanonda Co., Ltd. 30 30 Loan Chemical Industry Co., Ltd. subsidiary operating Total (RMB) 11,735 1,535 Total (USD) USD 1,084 USD 84 V. Custody In the report period, the Company had no custody. VI. Contracting In the report period, the Company had no contracting. VII. Leasing In the report period, the Company had no leasing. VIII. Guarantee In the report period, the Company had no any guarantee except that the Company provided the guarantee to shareholding subsidiaries. IX. Financing entrustment In the report period, the Company had no financing entrustment events. X. Other important contracts In the report period, the Company had no other important contracts. XI. Implementation of commitments In accordance with the requirements of CSRC and SSE, the Company would complete share merger reform before June 30, 2006. XII. Engagement and dismission of Certified Public Accountants Owing to proposal from ChemChina Agrochemical Corporation, the actual controller of the controlling shareholder, the Company no longer engaged TIN WHA CPAs as the auditor of the Company in order to standardize operating and unify management, however, the Company engaged TianZhi ZiXin CPAs as the auditor of the Company for the year 2005, and primarily decided to pay auditing fee of RMB 450,000 for annual report 2005 (excluding fees for boarding and business trip). The Company continued to engage Hong Kong Ho and Ho & Company Certified Public Accountants as the international auditor, and paid the annual auditing reward of HKD 500,000 to it according to the agreement signed by the both parties, with the fees for business trip born by the Company. Hong Kong Ho and Ho & Company had provided auditing services to the Company for 3 years. XIII. Punishment of the Company, the Board of Directors and the Supervisory Committee and integration and correction In the report period, the Company, the Board of Directors and directors of the Company had not been inspected by CSRC, received administrative penalty, or circulating criticism, or been criticized publicly by Shenzhen Stock Exchange. XIV. Other significant events 1. On May 20, 2005, Jingzhou Municipal State-owned Assets Supervision Administrative Committee signed the Assets Transfer Agreement of Sanonda Group Corporation with ChemChina Agrochemical Corporation, State-owned Assets Supervision Administrative Committee of Hebei Province People’s Government made a Reply of Province SASAC on Transfer of State-owned Assets of Sanonda Group Corporation with Compensation with EGZCQ [2005] No. 177 document, which agreed Jingzhou Municipal People’s Government to transfer the state-owned assets of Sanonda Group Corporation to ChemChina Agrochemical Corporation with compensation with base date of Dec. 31, 2004. After accomplishment of transfer, Sanonda Group Corporation became a wholly-owned subsidiary of ChemChina Agrochemical Corporation, but original independent corporate station, ratepaying relationship, main body of operating, creditor’s right and debt remained unchanged. ChemChina Agrochemical Corporation is a large-scale stated-owned sole company subordinate to ChemChina Group Corporation, as well as the wholly-owned subsidiary of ChemChina Group Corporation and one of the specialized companies under ChemChina Group Corporation, who is engaged in investment, development, production and operation of pesticides, chemical fertilizers, fine chemical products and minerals products. ChemChina Group Corporation subordinates to SASAC of State Council, which is state-owned large-scale corporation established after approval by the State Council in 2004. 2. Sanonda Group Corporation, the first largest shareholder of the Company, pledged 40.86 million shares of the Company held by it (taking up 13.76% of total share capital of the Company) for a loan of RMB 60 million to Jingzhou Sha City Sub-branch, Industrial and Commercial Bank of China on Dec. 1, 2005. As at Dec. 31, 2005, the aforesaid shares was still mortgaged. Section XI Financial Report REPORT OF THE AUDITORS To the shareholders of B shares of Hubei Sanonda Co., Limited (incorporated in the People’s Republic of China with limited liability) W e h av e aud i t ed th e a c co mp a ny ing cons ol i d at ed b al an c e sh e et o f H ub ei Sanon d a C o . , L i mi t ed a s o f 3 1 s t D ec emb e r 2 0 0 5 an d th e re l a t ed co n so l id at ed s t a t e me n ts o f i n co me , c a s h flo w s and ch a n g es i n eq u ity f o r t h e y e a r t h e n en d e d . Th es e c o n s o l id a te d f i n an c i a l s ta t e me n t s are t h e r e s p o n s i b ili t y o f th e G ro u p ’ s ma n a g e me nt . Our re s pon s ib i l ity i s to exp re s s a n op i n ion o n th o se c on so lid at ed fi n an ci a l s t a te me n ts b as ed o n o u r a u d i t and to r e p o r t o u r o p ini o n s o le l y to y o u , a s a b o d y , a n d f o r n o o th e r p u rp o s e . W e d o n o t as s u me r e s p o n s ib il i t y to w a rd s o r ac c ep t l i ab i l ity to a n y o th e r p e r s o n fo r t h e con t en t s o f t h is re p o r t. W e condu cted ou r aud it in acco rd an ce with Intern ation al Stand a rds on Au ditin g . Tho s e S t and a rd s req u i re th at w e p l an a n d p e rfo rm t h e aud it to obta i n re ason a bl e a s su r a n ce ab o u t wh eth e r the con s o l id at ed f in a n ci a l s t a t e me n t s a r e f re e o f ma t e ri a l mi s s t a t e me n t . An a u d i t in c lu d e s ex ami n i n g , o n a t e s t b a s i s , evide n c e suppo rting th e amo un ts and d isclo su res in th e co n solid ated finan c ial statemen ts. An audit also in clud e s assessing the account ing p rin cip les u s ed and sig nifican t e s t i ma t e s ma d e b y t h e ma n ag e me n t , a s w e ll a s ev a lu a ting th e o v e r al l p r e s e n t a ti on o f th e co n s o l i d at ed f i n an ci a l s t a te me n ts . W e b e l i ev e that o u r aud i t p r o v i d e s a re a s on ab le b asi s for o u r op ini on . In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of 31st December 2005 and of the results of its operations and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. Ho and Ho & Company Certified Public Accountants Hong Kong 21st April 2006 Hubei Sanonda Co., Limited Consolidated income statement for the year ended 31st December 2005 Notes 2005 2004 RMB’000 RMB’000 Turnover 5 1,261,83 1,134,08 5 2 Cost of sales (1,048,035) (943,850) Gross profit 213,800 190,232 Other operating income 10,934 16,111 Distribution expenses (76,614) (61,894) Administrative expenses (91,286) (87,046) Other operating expenses (5,022) (20,379) Finance costs, net 7 (29,372) (20,908) Investment income (13,966) 45,622 Profit before taxation 6 8,474 61,738 Income tax expenses 8 (7,335) (2,966) Profit for the year 1,139 58,772 Attributable to: Equity holders of the parent 181 63,131 Minority interests 958 (4,359) 1,139 58,772 Earnings per share – Basic 10 RMB0.01 RMB0.21 Hubei Sanonda Co., Limited Consolidated balance sheet as at 31st December 2005 Notes 2005 2004 RMB’000 RMB’000 Assets Non-current assets Property, plant and equipment 12 478,148 452,078 Land use rights 13 157,954 161,489 Construction in progress 14 15,735 28,353 Investments in associates 15 5,115 5,048 Available-for-sale investments 16 30,247 32,337 Intangible assets 17 4,245 4,571 Goodwill 18 1,975 1,975 Negative goodwill 19 - (358) Other assets 289 381 Total non-current assets 693,708 685,874 Current assets Inventories 20 336,199 255,618 Properties under development for sales 21 - 586 Investments held for trading 22 642 19,543 Trade and other receivables 343,235 276,247 Income tax recoverable 2,699 8,348 Prepaid expenses and other current assets 31,382 47,445 Cash and cash equivalents 23 242,217 247,625 Total current assets 956,374 855, 412 Total assets 1,650,082 1,541,286 Hubei Sanonda Co., Limited Consolidated balance sheet as at 31st December 2005 Notes 2005 2004 RMB’000 RMB’000 Equity and liabilities Capital and reserves Share capital 24 296,962 296,962 Capital reserve 25 565,633 565,633 Surplus reserves 26 62,676 62,676 Accumulated losses (67,876) (68,415) Equity attributable to equity holders of the parent 857,395 856,856 Minority interests 22,784 28,859 Non-current liabilities Deferred revenue 27 15,922 8,662 Long-term bank borrowings 28 90,000 90,000 Total non-current liabilities 105,922 98,662 Current liabilities Trade and other payables 344,043 249,846 Short-term bank borrowings 309,350 276,995 Current portion of long- term bank borrowings 28 10,588 30,068 Total current liabilities 663,981 556,909 Total liabilities 769,903 655,571 Total equity and liabilities 1,650,082 1,541,286 The financial statements on pages 2 to 38 were approved and authorised for issue by the Board of Directors on 21st April 2006 and are signed on its behalf by: Director Director Hubei Sanonda Co., Limited Consolidated statement of changes in equity for the year ended 31st December 2005 Attributable to equity holders of the parent Share Capital Surplus Accumulated Total Minority capital reserve reserves losses equity interests Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (note 24) (note 25) (note 26) At 1st January 2004 296,962 565,633 62,676 (131,546) 793,725 32,136 825,861 Effect of change in consolidation - - - - - 1,082 1,082 Profit / (loss) for the year - - - 63,131 63,131 (4,359) 58,772 At 31st December 2004 and 1st January 2005 296,962 565,633 62,676 (68,415) 856,856 28,859 885,715 Effect of change in consolidation - - - - - (7,033) (7,033) Effect of change in accounting policy (note 2) - - - 358 358 - 358 Profit for the year - - - 181 181 958 1,139 At 31st December 2005 296,962 565,633 62,676 (67,876) 857,395 22,784 880,179 Hubei Sanonda Co., Limited Consolidated cash flow statement for the year ended 31st December 2005 2005 2004 RMB’000 RMB’000 Operating activities Profit before taxation 8,474 61,738 Adjustments for: Depreciation of property, plant and equipment 54,938 62,629 Amortisation of land use rights 3,535 3,708 Amortisation of intangible assets 326 941 Amortisation of other assets 17,577 7,525 Negative goodwill released to income - (50) Deferred revenue released to income (160) (160) Gain on disposal of property, plant and equipment (381) (84,534) Interest expenses 30,228 25,235 Interest income (3,079) (4,614) Operating cash flows before movements in working capital 111,458 72,418 Increase in inventories and properties under development for sales (79,995) (1,449) (Increase)/decrease in trade and other receivables (66,988) 2,664 Decrease in prepaid expenses and other current assets 21,711 - Increase/(decrease) in trade and other payables 94,197 (18,387) Cash generated from operations 80,383 55,246 Income tax paid - 402 Net cash from operating activities 80,383 55,648 34 Hubei Sanonda Co., Limited Consolidated cash flow statement for the year ended 31st December 2005 2005 2004 RMB’000 RMB’000 Net cash from operating activities 80,383 55,648 Investing activities Government grants received 7,420 400 Net cash proceeds from disposal of property, plant and equipment 256 90 Net cash proceeds from disposal of investments 43,994 48,136 Purchase of property, plant and equipment (97,697) (97,137) Dividends received 456 66 Purchase of other long-term investments (34,798) (1,177) Net cash used in investing activities (80,369) (49,622) Financing activities Interest paid (32,376) (29,485) Interest received 3,079 4,614 New bank borrowings raised 348,000 352,245 Repayments of bank borrowings (324,125) (306,385) Net cash (used in) / from financing activities (5,422) 20,989 Net (decrease) / increase in cash and cash equivalents (5,408) 27,015 Cash and cash equivalents at beginning of the year 247,625 220,610 Cash and cash equivalents at end of the year 242,217 247,625 35 Hubei Sanonda Co., Limited Notes to the consolidated financial statements for the year ended 31st December 2005 1. General information Hubei Sanonda Co., Limited (the “Company”) was established as a joint stock limited company in the People’s Republic of China (the “PRC”) on 30th September 1992. Its domestically listed ordinary public shares (“A shares”) and domestically listed foreign ordinary public shares (“B shares”) have been listed on the Shenzhen Stock Exchange since December 1993 and May 1997 respectively. The addresses of the registered office and principal place of business of the Company are disclosed in the corporate information to the annual report. The Company considers that Sanonda Group Company (“SGC”) is its ultimate parent company. The Company together with its consolidated subsidiaries is collectively referred to as the “Group”. The Group is principally engaged in the manufacturing and sale of agrochemical and chemical products; and property development. As of 31st December 2005, the Company has direct interests in the following subsidiaries, all of which are incorporated in the PRC. Particulars of which are set out below: Attributable Name of subsidiaries equity interests Principal activities Jinzhou Agrochemical Co., Limited Manufacture and sale of 87.50% agrochemicals Hubei Sanonda International Trade Co., 90.00% Import and export sales of Limited agrochemical, chemical and medicinal products Sanonda Zhengzhou Agrochemical Co., 70.00% Manufacture and sale of Limited agrochemical and chemical products Sanonda Tianmen Agrochemical Co., 85.00% Manufacture and sale of Limited agrochemicals Jinzhou Sanonda Real Estate Development 90.00% Real estate development Co., Limited Jinzhoulong hua Chemical Co., Limited 65.00% Manufacture and sale of agrochemical and chemical products 36 Hubei Sanonda Co., Limited Jinzhou Sanond finance consultation Co., 90.00% Finance consultation Limited 37 Hubei Sanonda Co., Limited 2. Adoption of new and revised International Financial Reporting Standards / Changes in accounting policies In the current year, the Group has adopted all of the new and revised International Financial Reporting Standards (“IFRSs”), International Accounting Standards (“IASs”) and Interpretations issued by the International Accounting Standards Board (“the IASB”) and the International Financial Reporting Interpretations Committee (“IFRIC”) of the IASB that are relevant to its operations and effective for accounting periods beginning on 1st January 2005. The adoption of these new and revised IFRSs, IASs and Interpretations has resulted in changes to the Group’s accounting policies in the following area: - goodwill (IFRS 3) The impact of this change in accounting policies is discussed below. IFRS 3 – Business combinations Excess of acquirer’s interest in the fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost (previously known as negative goodwill) IFRS 3 requires that, after reassessment, any excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of the business combination should be recognised immediately in profit or loss. IFRS 3 prohibits the recognition of negative goodwill in the balance sheet. Previously, under IAS 22 (superceded by IFRS 3), the Group released negative goodwill to income over a number of accounting periods, based on an analysis of the circumstances from which the balance resulted. Negative goodwill was reported as a deduction from assets in the balance sheet. In accordance with the transitional rules of IFRS 3, the Group has applied the revised accounting policy prospectively from 1st January 2005. Therefore, the change has had no impact on amounts reported for 2004 or prior periods. The carrying amount of negative goodwill at 1st January 2005 has been derecognised at the transition date. Therefore, an adjustment of RMB358,000 is made to opening accumulated losses and negative goodwill at 1st January 2005. Under the previous accounting policy, RMB50,000 of negative goodwill would have been released to income during 2005, leaving a balance of negative goodwill of RMB308,000 at 31st December 2005. Therefore, the impact of the change in accounting policy in 2005 is a reduction in other operating income of RMB50,000 and an increase in net assets at 31st December 2005 of RMB308,000. 38 Hubei Sanonda Co., Limited At the date of authorisation of these consolidated financial statements, the following IFRSs, IASs and Interpretations were in issue but not yet effective: IAS 1 (Amendment) Capital disclosures1 IAS 19 (Amendment) Actuarial gains and losses, group plans and disclosures2 IAS 21 (Amendment) Net investment in a foreign operations2 IAS 39 (Amendment) Cash flow hedge of forecast intragroup transactions2 IAS 39 (Amendment) The fair value option2 IAS 39 & IFRS 4 Financial guarantee contracts2 (Amendment) IFRS 6 Exploration for and Evaluation of Mineral Resources2 IFRS 7 Financial instruments : Disclosures1 IFRIC 4 Determining whether an arrangement contains a lease2 IFRIC 5 Right to interests arising from decommissioning, restoration and environmental rehabilitation funds2 IFRIC 6 Liabilities arising from participating in a specific market - waste electrical and electronic equipment3 IFRIC 7 Applying the restatement approach under IAS 29 Financial Reporting in Hyperinflationary Economics4 IFRIC 8 Scope of IFRS 25 IFRIC 9 Reassessment of embedded derivatives6 1 Effective for annual periods beginning on or after 1st January, 2007. 2 Effective for annual periods beginning on or after 1st January, 2006. 3 Effective for annual periods beginning on or after 1st December, 2005. 4 Effective for annual periods beginning on or after 1st March, 2006. 5 Effective for annual periods beginning on or after 1st May, 2006. 6 Effective for annual periods beginning on or after 1st June, 2006. The directors anticipate that the adoption of these IFRSs, IASs and Interpretations in future periods will have no material impact on the consolidated financial statements of the Group. 3. Principal accounting policies The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments which were measured at fair values as explained in the accounting policies set out below. The financial statements have been prepared in accordance with IFRSs and IASs. a) Statement of compliance The consolidated financial statements of the Group have been prepared in 39 Hubei Sanonda Co., Limited accordance with the IFRS promulgated by the IASB. IFRS includes IAS and related interpretations. The Group maintains its accounting records and prepares its statutory financial statements in accordance with PRC Accounting Standards for Business Enterprises and the Accounting System for Business Enterprises (“Statutory Financial Statements”). 3. Principal accounting policies (Continued) a) Statement of compliance (continued) The accounting policies and basis adopted to 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 consolidated financial statements but will not be taken up in the accounting records of the Group. b) Basis of preparation The consolidated financial statements have been prepared in Renminbi (“RMB”), the currency in which the majority of the Group’s transactions are denominated. Except for certain financial instruments which are stated at their fair value, the consolidated financial statements have been prepared on the historical cost basis. The accounting policies have been consistently applied by the Group and are consistent with those of the previous year. The principal accounting policies adopted in this report are set out below: c) Basis of consolidation The consolidation financial statements include the financial statements of the Company and its subsidiaries made up to 31st December each year. Control exists when the Company has the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The results of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases, and the share attributable to minority interests is deducted from or added to the profit from ordinary activities after taxation. All significant inter-company balances, transactions, and any unrealized gains arising from intercompany transactions are eliminated on consolidation. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies into line with those used by other members of the 40 Hubei Sanonda Co., Limited Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Minority interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. 3. Principal accounting policies (Continued) d) Interests in associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results, assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate) are not recognised. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interests in the relevant associate. 41 Hubei Sanonda Co., Limited e) Foreign currencies The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in Currency Units, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. 3. Principal accounting policies (Continued) e) Foreign currencies (continued) Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations (including comparatives) are expressed in Currency Units using exchange rates prevailing on the balance sheet date. Income and expense items (including comparatives) are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised in profit or loss in the period in which the foreign operation is disposed of. f) Property, plant and equipment i) Owned assets 42 Hubei Sanonda Co., Limited Property, plant and equipment other than construction in progress are stated at cost less accumulated depreciation and impairment losses. Where an item of property, plant and equipment comprises major components having difference useful lives, they are accounted for as separate items of property, plant and equipment. ii) Subsequent expenditure Expenditure incurred to replace a component of an item of property, plant and equipment, including inspection and overhead expenditure, is capitalised. Other subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property, plan and equipment. All other expenditure is recognized in the income statement as an expense as incurred. iii) Depreciation Depreciation is charged to the consolidated income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment. The estimated useful lives are as follows: Year Buildings 24 years Machinery and equipment 9 – 18 years Motor vehicles 9 years 3. Principal accounting policies (Continued) f) Property, plant and equipment (continued) iv) Disposals Gains or losses arising from the retirement or disposal of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated income statement on the date of retirement or disposal. g) Land use rights Land use rights acquired are classified as operating leases. The prepaid lease payments are amortised on a straight-line basis over the leased periods of 50 years. h) Construction in progress Construction in progress represents properties under construction and is stated in the consolidated balance sheet at cost less any accumulated impairment losses. Cost comprises direct cost of construction as well as interest charges and foreign 43 Hubei Sanonda Co., Limited exchange differences on related borrowing funds to the extent that they are regarded as an adjustment to interest charges during the period of construction. Cost of completed construction works are transferred to appropriate category of property, plant and equipment when the asset is substantially ready for its intended use. No depreciation is provided in respect of construction in progress until completion of construction. i) Intangible assets Intangible assets that are acquired by the Group are stated in the consolidated balance sheet at cost less accumulated amortisation and impairment losses. Amortisation is charged to the consolidated income statement on a straight-line basis over their estimated useful lives. Subsequent expenditure on an intangible asset after its purchase or its completion is recognized as an expense when it is incurred unless it is probable that this expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standard of performance and this expenditure can be measured and attributed to the asset reliably. If these conditions are met, the subsequent expenditure is added to the cost of the intangible asset. j) Financial instruments Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. 3. Principal accounting policies (Continued) j) Financial instruments (continued) (i) Trade receivables Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. (ii) Investments 44 Hubei Sanonda Co., Limited Investments are recognised and derecognised on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus directly attributable transaction costs. At subsequent reporting dates, debt securities that the Group has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost using the effective interest rate method, less any impairment loss recognised to reflect irrecoverable amounts. Impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the investment’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised. Investments other than held-to-maturity debt securities are classified as either investments held for trading or available-for-sale, and are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the period. Impairment losses recognised in profit or loss for equity investments classified as available-for-sale are not subsequent reversed through profit or loss. Impairment losses recognised in profit or loss for debt instruments classified as available-for-sale are subsequently reversed if an increase in the fair value of the instrument can be objectively related to an event occurring after the recognition of the impairment loss. 3. Principal accounting policies (Continued) j) Financial instruments (continued) (iii) Borrowings Interest-bearing bank and other loans are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate 45 Hubei Sanonda Co., Limited method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group’s accounting policy for borrowing costs. (iv) Trade payables Trade payables are initially measured at fair value, and are subsequent measured at amortised cost, using the effective interest rate method. (v) Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. (vi) Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. (vii) Financial liabilities and equity Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below. 3. Principal accounting policies (Continued) k) Business combinations The acquisition of subsidiaries is accounted for using the purchase method. The 46 Hubei Sanonda Co., Limited cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combinations. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. l) Impairment At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered 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 asset to which the asset belongs. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as expense immediately, unless the relevant asset is carried at a revalued amount under another standard, in which case the impairment loss is treated as a revaluation decrease under that standard. Where impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount under another standard, in which case the reversal of the impairment loss is treated as a revaluation increase under that other standard. 47 Hubei Sanonda Co., Limited 3. Principal accounting policies (Continued) m) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value represents the estimated selling price in the ordinary course of business, less the estimated cost of completion and the estimated costs necessary to make the sale. The cost of inventories is calculated based on the weighted average costing method and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity. n) Completed properties for sale Completed properties for sale are classified as current assets and stated at the lower of cost and net realisable value. Cost is determined by apportionment of the total land and development costs attributable to unsold properties, and an appropriate portion of production overheads and borrowing costs. Net realizable value represents the estimated selling price less the estimate costs necessary to make the sales. o) Provisions Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material. p) Deferred revenue and government grants Deferred revenue represents the portion of income relating to the unexpired period of government grants. A government grant is initially recognized as deferred revenue, when there is reasonable assurance that the Group will comply with the conditions attaching with it and that the grant will be received. Grants relating to income are recognized in the consolidated income statement on a systematic basis to match with the related costs which they are intended to compensate. Grant relating to assets is recognized in the accounts on a systematic basis over the useful life of the asset. Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred revenue and are credited to the income statement on a straight-line basis over the expected lives of the related assets. 48 Hubei Sanonda Co., Limited q) Revenue recognition Revenue is measured at the fair value of the consideration received and receivable and presents amounts receivable for goods and services provided in the normal course of business, net of discounts and sales related taxes. 3. Principal accounting policies (Continued) q) Revenue recognition (continued) i) Sales of goods Sales of goods are recognised when goods are delivered and title has passed. ii) Sales of completed properties Sales of completed properties are recognised upon signing of the sale and purchase agreement when the significant risks and rewards of ownership have been transferred to the buyers. Deposits and installments received on properties sold prior to the date of revenue recognized are included in the consolidated balance sheet under deposits received in advance. r) Expenses i) Operating lease payments Rental payable under operating lease are charged to the consolidated income statement on straight-line basis over the terms of the respective leases. Lease incentive received is recognised in the consolidated income statement as an integral part of the total lease expenses and are also spread on a straight-line basis over the lease term. ii) Net financing costs Net financing costs comprise interest payable on borrowings, calculated using the effective interest rate method, interest receivable on funds invested and foreign exchange gains and losses. Interest income from a financial asset is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. Interest expenses are recognised in the consolidated income statement using the effective interest rate method. iii) Borrowing costs 49 Hubei Sanonda Co., Limited Borrowing costs are expensed in the income statement in the period in which they are incurred, except to the extent that they are capitalized as being directly attributable to the acquisition, construction or production of an qualifying asset which necessarily takes a substantial period of time to get ready for its intended use or sale. 3. Principal accounting policies (Continued) r) Expenses (continued) iii) Borrowing costs (continued) The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditures for the asset are being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. s) Retirement benefits The Group participates in retirement schemes operated by local authorities and the payments to providing retirement benefits are charged to the consolidated income statement as they fall due. The Group has no further liability to the retirement schemes operated by the local authorities. t) Income tax 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 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 recognised on differences between the carrying amounts of assets 50 Hubei Sanonda Co., Limited and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. 3. Principal accounting policies (Continued) t) Income tax (continued) The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits 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 realised. Deferred tax is charged or credited to profit or loss, 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 there is a legally enforceable right to set off current tax assets against current tax liabilities and 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. 4. Critical accounting judgments and key sources of estimation uncertainty In the process of applying the Group’s accounting policies which are described in note 3 above, management has made the following judgments that have significant effect on the amounts recognised in the financial statements. The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are also discussed below. Depreciation of property, plant and equipment Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives, after taking into account of their estimated residual value. The determination of the useful lives and residual values involve management’s estimation. The Group assesses annually the residual value and the useful life of the property, plant and equipment and if the expectation differs from the original estimate, such a difference 51 Hubei Sanonda Co., Limited may impact the depreciation in the year and the estimate will be changed in the future period. Allowance for bad and doubtful debts The Group performs ongoing credit evaluations of its customers and adjust credit limits based on payment history and the customer’s current credit-worthiness, as determined by the review of their current credit information. The Group continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon its historical experience and any specific customer collection issues that its has been identified. Credit losses have historically been within the Group’s expectations and the Group will continue to monitor the collections from customers and maintain an appropriate level of estimated credit losses. 4. Critical accounting judgments and key sources of estimation uncertainty Allowances for inventories The management of the Group reviews an aging analysis at each balance sheet date, and makes allowance for obsolete and slow-moving inventory items identified that are no longer suitable for use in production. The management estimates the net realisable value for such finished goods based primarily on the latest invoice prices and current market conditions. The Group carries out an inventory review on a product-by-product basis at each balance sheet date and makes allowance for obsolete items. 5. Turnover Turnover represents the net amount received and receivable from sales of agrochemical products and properties. The amount of each significant category of revenue recognised in turnover during the year is as follows: 2005 2004 RMB’000 RMB’000 Sales of agrochemical products and chemicals 1,261,112 1,106,337 Sales of properties 723 28,465 1,261,835 1,134,802 6. Profit before taxation Profit before taxation is arrived at after charging / (crediting): 2005 2004 RMB’000 RMB’000 52 Hubei Sanonda Co., Limited Depreciation on property, plant and equipment 54,938 62,629 Amortisation of land use rights 3,535 3,708 Amortisation of intangible assets 326 941 Written off of construction in progress - 8,602 Staff costs (Note 6a) 61,132 58,731 Trading investment- fair value adjustment (160) (160) Amortisation of negative goodwill and goodwill - (50) 6a. Staff costs The staff costs comprised:- 2005 2004 RMB’000 RMB’000 Wages and salaries 54,178 51,774 Social security costs 6,954 6,222 Other pension costs - 735 1 024 61,132 58,731 7. Finance costs, net 2005 2004 RMB’000 RMB’000 Interest expenses on borrowings 32,376 29,485 Less: Amount capitalised in construction in progress 2,148 4,250 30,228 25,235 Interest income (3,079) (4,614) Others 2,223 287 29,372 20,908 8. Income tax expenses Income tax expenses in the consolidated income statement represent: 2005 2004 RMB’000 RMB’000 Current tax 7,335 2,966 The reconciliation of tax expenses to the profit before taxation per consolidated income statement is as follows: 2005 2004 RMB’000 RMB’000 Profit before taxation 8,474 61,738 53 Hubei Sanonda Co., Limited Tax at the applicable statutory tax rate of 33% 2,796 20,374 Tax effect of expenses that are not deductible in determining taxable profit 10,034 2,129 Tax effect of unrecognised temporary differences (5,495) (19,537) Tax expense for the year 7,335 2,966 The provision for PRC income tax is calculated based on a statutory rate of 33% on the assessable income of the Group as determined in accordance with the relevant income tax rules and regulations of the PRC. 9. Dividends The Directors do not propose to declare any dividends for the year. 54 Hubei Sanonda Co., Limited 10. Earnings per share The earnings per share for the year ended 31st December 2005 is calculated based on the profit for the year attributable to equity holders of the parent of RMB 181,000 (2004: RMB 63,131,000) and the weighted average number of ordinary shares outstanding during the year of 296,962,000 shares (2004: 296,962,000 shares). The amount of diluted earning per share is not presented as there were no dilutive potential ordinary shares in expositing during the years presented. 11. Employee benefit plan As stipulated by the regulation of the PRC, the Group participates in various defined contribution retirement plans organized by municipal and provincial government for its staff. The Group is required to make contributions to the retirement plan at rates ranging from 16% to 30% of the salaries, bonus and certain allowances of its staff. A member of the plan is entitled to a pension equal to a fixed proportion of the salary prevailing at his or her retirement date. The Group has no other material obligations for the payment of pension benefits associated with these plans beyond the annual contribution described above. The Group’s contribution to the defined contribution plans is recognised as an expense in the consolidated income statement as incurred. 55 Hubei Sanonda Co., Limited 12. Property, plant and equipment Machinery and Motor Buildings Equipment Vehicles Total RMB’000 RMB’000 RMB’000 RMB’000 Cost At 1st January 2004 301,860 600,011 12,651 914,522 Additions 15,175 54,388 2,752 72,315 Disposals (30,612) (59,873) (2,521) (93,006) At 31st December 2004 and 1st January 2005 286,423 594,526 12,883 893,832 Additions 19,293 115,094 1,021 135,408 Disposals (25,804) (58,770) (371) (84,945) At 31st December 2005 279,912 650,850 13,533 944,295 Accumulated depreciation At 1st January 2004 87,829 333,553 6,735 428,117 Charge for the year 11,391 49,796 1,442 62,629 Written back on disposals (11,090) (56,733) (1,507) (69,330) At 31st December 2004 and 1st January 2005 88,130 326,616 6,670 421,416 Charge for the year 17,254 36,095 1,589 54,938 Written back on disposals 9,538 12,130 310 21,978 At 31st December 2005 95,846 350,581 7,949 454,376 Accumulated impairment losses At 1st January 2004 1,091 21,483 440 23,014 Recognised for the year - 8,910 - 8,910 Written back on disposals - (11,146) (440) (11,586) At 1st January 2005 1,091 19,247 - 20,338 Written back on disposals - 8,567 - 8,567 At 31st December 2005 1,091 10,680 - 11,771 Net book values At 31st December 2005 182,975 289,589 5,584 478,148 At 31st December 2004 197,202 248,663 6,213 452,078 a) All buildings are located in the PRC under medium lease (lease periods of 10 years or more but less than 50 years). b) During the year, additions of property, plant and equipment amounting to RMB111,112,000 (2004:RMB70,729,000 ) were transferred from construction in progress. c) The reduction during the year included an amount of RMB46,962,000 (2004: RMB74,346,0000) transferring out upon disposal of subsidiaries. d) As of 31st December 2005, certain of the Group’s property, plant and equipment amounting to RMB387,180,000 (2004:RMB1,676,000) were mortgaged as collateral for bank loans. 56 Hubei Sanonda Co., Limited 13. Land use rights RMB’000 Cost At 1st January 2004 189,284 Disposals (143) Transfer (9,921) At 31st December 2004 and 2005 179,220 Accumulated amortisation At 1st January 2004 5,351 Charge for the year 3,708 At 31st December 2004 and 1st January 2005 9,059 Charge for the year 3,535 At 31st December 2005 12,594 Accumulated impairment losses At 1st January 2004, 31st December 2004 and 2005 8,672 Net book values At 31st December 2005 157,954 At 31st December 2004 161,489 14. Construction in progress 2005 2004 RMB’000 RMB’000 At 1st January 28,353 24,691 Additions 99,012 84,230 Transfer to property, plant and equipment (111,112) (70,729) Transfer - (719) Written off - (8,602) At 31st December 16,253 28,871 Less: Impairment loss recognised (518) (518) 15,735 28,353 Included in construction in progress was capitalised interest of RMB2,418,000 (2004:RMB756,000). 57 Hubei Sanonda Co., Limited 15. Investments in associates 2005 2004 RMB’000 RMB’000 Cost of investments in unlisted associates 5,115 6,563 Less: Impairment loss recognised - (1,515) 5,115 5,048 Details of the Company’s principal associates at 31st December 2005 are as follows: Attributable equity Name of associates interests Principal activities Sanonda Dali Co. 33.70% Manufacture and sale of packaging materials Jinzhou Tianyang Huibao Micro Chemical Co., 48.00% Manufacture and sale of Limited chemical products Beijing yingli Micro Chemical Co., Limited 33.75% Manufacture and sale of chemical products 16. Available-for-sale investments 2005 2004 RMB’000 RMB’000 Unlisted shares 29,419 31,509 Less: Impairment loss recognised (11,991) (11,991) 17,428 19,518 Listed shares 12,819 12,819 30,247 32,337 58 Hubei Sanonda Co., Limited 17. Intangible assets Intangible assets comprised technical know-how and the movement during the year is as follows: RMB’000 Cost At 1st January 2004 10,871 Additions 426 Disposals (42) At 31st December 2004 and 2005 11,255 Accumulated amortisation At 1st January 2004 5,743 Charge for the year 941 At 1st January 2005 6,684 Charge for the year 326 At 31st December 2005 7,010 Net book values At 31st December 2005 4,245 At 31st December 2004 4,571 18. Goodwill RMB’000 Cost At 1st January 2004, 31st December 2004 and 2005 1,975 19. Negative goodwill RMB’000 Cost At 1st January 2004 and 31st December 2004 503 Effect of change in accounting policy (note 2) (503) At 31st December 2005 - Accumulated amortisation At 1st January 2004 95 Amortised for the year 50 At 31st December 2004 and 1st January 2005 145 Effect of change in accounting policy (note 2) (145) At 31st December 2005 - Carrying amounts At 31st December 2005 - At 31st December 2004 358 59 Hubei Sanonda Co., Limited 60 Hubei Sanonda Co., Limited 20. Inventories 2005 2004 RMB’000 RMB’000 Raw materials 66,349 60,035 Work-in-progress 37,504 57,523 Finished goods 240,521 148,670 344,374 266,228 Less: Allowance for diminution in value of inventories (8,175) (10,610) 336,199 255,618 21. Properties under development for sales 2005 2004 RMB’000 RMB’000 At cost - 586 22. Investments held for trading 2005 2004 RMB’000 RMB’000 PRC listed equity securities, at fair value 642 16,721 Funds - 2,822 642 19,543 23. Cash and cash equivalents An analysis of the balance of cash and cash equivalents is set out below: 2005 2004 RMB’000 RMB’000 Cash at bank 242,187 247,557 Cash in hand 30 68 242,217 247,625 61 Hubei Sanonda Co., Limited 24. Share capital 2005 2004 No. of No. of shares shares ’000 RMB’000 ’000 RMB’000 Registered, issued and fully paid: Listed: A shares of RMB1.00 each 97,232 97,232 97,232 97,232 B shares of RMB1.00 each 115,000 115,000 115,000 115,000 212,232 212,232 212,232 212,232 Unlisted: State-owned A shares of RMB 1 each 84,730 84,730 84,730 84,730 296,962 296,962 296,962 296,962 All A shares and B shares rank pari passu in all respects. 25. Capital reserve In accordance with the articles of association, the Company shall record the following as capital reserve: (i) share premium; (ii) donations; (iii) appreciation arising from revaluation of assets; and (iv) other items in accordance with the articles of association and relevant regulations in the PRC. Capital reserve may be utilised to offset prior years’ losses or for the issuance of bonus shares. As at 31st December 2005, the capital reserve of the Company mainly represents share premium, that is, net assets acquired from SGC in excess of par value of state shares issued and proceeds from the issuance of A shares and B shares in excess of their par value, net of expenses directly relating to the issue of the shares. 62 Hubei Sanonda Co., Limited 26. Surplus reserves 2005 2004 RMB’000 RMB’000 Statutory surplus reserve (note a) 39,240 39,240 Statutory public welfare fund (note b) 19,620 19,620 Discretionary surplus reserve (note c) 3,816 3,816 62,676 62,676 a) Statutory surplus reserve According to the Company’s Articles of Association, the Company and its subsidiaries are required to transfer 10% of its profit attributable to equity holders of the parent, as determined in accordance with the PRC Accounting Rules and Regulations, to statutory surplus reserve until the reserve balance reaches 50% of the registered capital. The transfer to this reserve must be made before distribution of a dividend to shareholders. Statutory surplus reserve can be used to make good previous years’ losses, if any, and may be converted into shares capital by the issue of new shares to shareholders in proportion to their existing shareholdings or by increasing the par value of the shares currently held by them, provided that the balance after such issue is not less than 25% of the registered capital. b) Public welfare fund reserve According to the Company’s Articles of Association, the Company and its subsidiaries is required to transfer 5% to 10% of its profit attributable to equity holders of the parent, as determined in accordance with the PRC Accounting Rules and Regulations, to the statutory public welfare fund. This fund can only be utilized on capital items for the collective benefits of the Company’s employees such as the construction of dormitories, canteen and other staff welfare facilities. This fund is non-distributable other than on liquidation. The transfer to this fund must be made before distribution of a dividend to shareholders. c) Discretionary surplus reserve Discretionary surplus reserve fund is appropriated after the appropriation of statutory surplus reserve and statutory public welfare reserve at the resolution of the Board of Directors and the discretion of the general shareholders’ meeting. Its usage is similar to that of stationary surplus reserve. 63 Hubei Sanonda Co., Limited 27. Deferred revenue Deferred revenue represents a government grant for purchase of plant and equipment. Such plant and equipment was put into operational use and has an average useful life of 10 years. This government grant, net of the related enterprise income tax payable calculated at 33% of the gross amount, was recorded as deferred revenue in the balance sheet. 28. Bank borrowings The analysis of long-term bank borrowings is as follows: 2005 2004 Interest rate Interest rate per annum Amount per annum Amount RMB’000 RMB’000 Secured 5.76%-6.12% 98,588 5.76%-6.12% 58,588 Guaranteed 5.76% 2,000 5.76% 61,480 100,588 120,068 Less: Amount overdue or repayable within one year (10,588) (30,068) Amount due over one year 90,000 90,000 The above guaranteed bank loans were guaranteed by SGC. The maturities of the Group’s long-term bank borrowings are as follows: 2005 2004 RMB’000 RMB’000 Amount overdue 10,588 18,468 Within one year - 11,600 10,588 30,068 Between two to five years 90,000 90,000 After five years - - 100,588 120,068 The Company was negotiating with the banks for renewing the relevant repayment terms. The Directors are of the opinion that the negotiations will be concluded in the near future. 64 Hubei Sanonda Co., Limited 29. Financial risk management objectives and policies Financial assets of the Group include cash and cash equivalents and trade and other receivables. Financial liabilities of the Group include bank borrowings and trade and other payables. The Group has no derivative instruments that are designated and qualified as hedging instruments at 31st December 2005 and 2004. Exposure to credit, interest rate and currency risk arises in the normal course of the Group’s business. a) Credit risk The carrying amounts of cash and cash equivalents, receivables and investments represent the Group’s maximum exposure to credit risk in relation to financial assets. Cash is placed with reputable banks. The majority of the Group’s trade receivable relate to sales of agrochemical products to related parties and third parties. The Group performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on trade accounts receivable. The Group maintains an allowance for doubtful accounts and actual losses have been within management’s expectations. The Group has no significant concentration of credit risk with any single counterparty or group counterparties. b) Liquidity risks The Group’s implements prudent liquidity risk management, which implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilitates, and the ability to close out market positions. c) Interest rate risk The Group’s income and operating cash flows are substantially independent of changes in market interest rate. The Group has no significant interest-bearing assets. The Group policy is to maintain all its borrowings in fixed rate instruments. d) Foreign currency risk The Group has no significant foreign currency transactions other than its overseas sales. Substantially all of the Group’s overseas sales are denominated in United States dollars (“USD”). The Group does not enter into any foreign exchange forward contracts or use other means to hedge its exposure to USD. However, the Group’s management closely monitors the fluctuation of the exchange rate of USD against that of RMB. Management of the Group believes that the Group’s net 65 Hubei Sanonda Co., Limited exposure to USD will not result in significant exchange loss to the Group. 66 Hubei Sanonda Co., Limited 29. Financial risk management objectives and policies (continued) e) Fair value The directors consider that as the interest rates are rather steady in the foreseeable future. Therefore, the carrying value of the long-term bank borrowings as at 31st December 2005 and 2004 approximate to their fair value. The fair value of the Group’s trading investment is based on quoted market prices at the balance sheet date. In assessing the fair value of non-trading securities and other financial instruments, the Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. 30. Commitments At the balance sheet date, the Directors are of the opinion that there is no material commitments matter. 31. Contingencies At the balance sheet date, the Directors are of the opinion that there is no material contingency matter. 32. Related parties transactions Companies are considered to be related if one company has ability, directly or indirectly, to control the other company or exercise significant influence over the other company in making financial and operating decisions. Companies are also considered to be related if they ate subject to common control or common significant influence. The Group is part of a larger group of companies under SGC Group Company and has significant transactions and relationships with the SGC Group Company and fellow subsidiaries. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties. SGC Group Company itself is owned by the PRC government. There are also many other enterprises directly or indirectly owned or controlled by the PRC government (“state-owned enterprises”). Under IFRS, state-owned enterprises, other than SGC Group Company and fellow subsidiaries, are not considered related parties. Related parties refer to enterprises over which SGC Group Company is able to exercise significant influence. 67 Hubei Sanonda Co., Limited 32. Related parties transactions (continued) Name of related parties and nature of relationship Name Relationship SGC Parent Company Subsidiaries of SGC Associates and investee companies The principal related party transactions are as follows: 2005 2004 RMB’000 RMB’000 Purchase of raw materials from SGC and its subsidiaries 8,291 8,913 Purchase of raw materials from minority shareholders - 3,339 Purchase of raw materials from associates and investee companies 10,725 7,095 Rental income received from associates and investee companies 1,000 - Sales of products to SGC and its subsidiaries - 506 Sales of products to associates and investee companies - 360 Sales of products to minority shareholders - 27 The directors of the Company are of the opinion that the above transactions with related parties were conducted in the ordinary course of business and on normal commercial terms or in accordance with the agreements governing such transactions. At the balance sheet date, the outstanding balances with the related parties are as follows: 2005 2004 RMB’000 RMB’000 Due from SGC and its subsidiaries 45,920 19,243 Due from associates and investee companies 51,819 250 Due from minority shareholders - 1,248 Total 97,739 20,741 2005 2004 RMB’000 RMB’000 Trade and other payables to SGC and its subsidiaries 392 89 Trade and other payables to associates and investee 1,452 264 companies Minority shareholders - 453 1,844 806 68 Hubei Sanonda Co., Limited 32. Related parties transactions (continued) The amount due from / to related parties are unsecured, non-interest bearing and repayable on demand. In addition to the above, SGC provided guarantee for the Group for the banking facilities granted. Details of which are set out in note 28. 33. Segment information Segment information is presented in respect of the Group’s business and geographical segments. Business segment information is chosen as the primary reporting format because this is more relevant to the Group’s internal financial reporting. The Group comprises the following two business segments: Agrochemical products: The manufacture and sale of agrochemical and chemical products, as well as research and development activities in this area. Property development: The development and sale of residential properties. The Group evaluates the performance and allocates resources to its operating segments on an operating income basis, without considering the effects of finance costs or investment income. The accounting policies of the Group’s segments are the same as those described in the principal accounting policies Corporate administrative costs and assets are not allocated to the operating segments. 69 Hubei Sanonda Co., Limited 33. Segment information (Continued) Business segment Reportable information on the Group’s business segments is as follows: Property Agrochemical products development Consolidated 2005 2004 2005 2004 2005 2004 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Revenue from external customers 1,261,112 1,105,617 723 28,465 1,261,835 1,134,082 Segment results Profit (loss) from operations 52,791 33,983 (979) 3,041 51,812 37,024 Net finance costs (29,791) (20,764) 419 (144) (29,372) (20,908) Investment income (13,966) 45,333 - 289 (13,966) 45,622 Profit / (loss) before taxation 9,034 58,552 (560) 3,186 8,474 61,738 Income tax expenses (7,335) (2,966) - - (7,335) (2,966) Profit for the year 1,699 55,586 (560) 3,186 1,139 58,772 Property Agrochemical products development Consolidated 2005 2004 2005 2004 2005 2004 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Segment assets 1,632,391 1,538,525 17,691 2,761 1,650,082 1,541,286 Segment liabilities 766,750 637,713 3,153 17,858 769,903 655,571 70 Hubei Sanonda Co., Limited 34. Differences Between financial statements prepared under the PRC Accounting Rules and Regulations and IFRS Other than the differences in the classifications of certain financial captions and the accounting for the items described below, there are no material differences between the Group’s financial statements prepared under the PRC Accounting Rules and Regulations and IFRS. Effects of major differences between the PRC Accounting Rules and Regulations and IFRS on net profit are analysed as follows: 2005 2004 RMB’000 RMB’000 Profit attributable to equity holders of the parent under the PRC Accounting Rules and Regulations 5,165 13,863 Adjustments: Income from short equity investment written back on disposal - (2,064) Provision for doubtful receivables written back on disposal of a subsidiary - 25,712 Depreciation on idle property, plant and equipment written back on disposal of a subsidiary - 27,175 Provision for impairment loss on property, plant and equipment written back on disposal of a subsidiary - 6,156 Amortisation of deferred revenue 160 160 Adjustment for unrealised loss on investments (1,287) (2,351) Others (3,857) (5,520) Profit attributable to equity holders of the parent under IFRS 181 63,131 Effects of major differences between the PRC Accounting Rules and Regulations and IFRS on shareholders’ fund are analyzed as follows: 2005 2004 RMB’000 RMB’000 Equity attributable to equity holders of the parent under the PRC Accounting Rules and Regulations 878,946 879,072 Adjustments: Provision for doubtful receivables (20,911) (20,911) Amortisation of deferred revenue (1,145) (1,305) Transfer of opening negative goodwill to accumulated losses 358 - Reversal of amortisation of goodwill 197 - Reversal of amortisation of negative goodwill (50) - Equity attributable to equity holders of the parent under IFRS 857,395 856,856 Section XII. Documents for Reference 71 Hubei Sanonda Co., Limited 1. Accounting Statement carrying the signatures and seals of the legal representative, and persons in charge of accounting 2. Original of the Auditors’ Report carrying the seals of Certified Public Accounts, and the signatures and seals of the CPAs 3. Originals of all the documents of the Company ever disclosed publicly on the information-disclosure media designated by CSRC, as well as original manuscripts of all notifications of the Company 4. Original of the Annual Report 2005 of the Company Hubei Sanonda Co., Ltd. Chairman of the Board: Li Zuorong Apr. 21, 2006 72