深基地Ｂ(200053)2005年年度报告（英文版）

2005’s Annual Report SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO LTD 2005’S ANNUAL REPORT Important Note: 1． The directors, supervisors and senior managers guarantee that there exist no omission, misstatement, or misleading information in this annual report. The directors, supervisors and senior managers are responsible, individually and jointly, for the authenticity, accuracy and integrity of the information herein. There is no director, supervisor or senior manager who cannot guarantee the authenticity, accuracy and integrity of the content of this annual reportor does not agree with this report. 2． The Annual Report is written in both English and Chinese. In case of conflict between the two versions, Chinese version shall prevail. 3． PricewaterhouseCoopers presented audit reports with standard and non-reserved opinion for the Company. 4． Dr. Fu Yuning, the Chairman of the Board, Mr. Huang Fanzhi, the Financial Controller, and Ms. Yu Zhongxia, the Financial Manager, guarantee the authenticity and integrity of the financial result of this annual report. 1 2005’s Annual Report Catalogue PART I. Company Profile 3 PART II. Highlights for Accounting and Business Data 4 PART III. Change for Contributed Capital and Shareholders 6 PART IV. Information of Directors, Supervisors, Senior Managers 9 PART V. Corporate Governance 11 PART VI. Review of Shareholder’ General Meetings 13 PART VII. Statements of the Board 14 PART VIII. Report of the Supervisory Committee 21 PART IX. Significant Events 22 PART X. Financial Statements 23 PART XI. Documents Available for Verification 23 2 2005’s Annual Report PART I. Company Profile: Name of the Company Shenzhen Chiwan Petroleum Supply Base Co., Ltd (“Chiwan Base”) Legal Representative Dr. Fu Yuning Secretary of the Board Mr. Fu Jialin Securities Representative Yu Zhongxia Song Tao Tel 26694211 Fax 26694227 E-mail Address sa@chiwanbase.com Office Address 14/F, Chiwan Petroleum Building, Chiwan, Nanshan District, Shenzhen, PRC Post Code 518068 E-mail Address sa@chiwanbase.com Website of the Company Designated Newspapers for “Securities Times”. ”Ta Kung Pao” Information Disclosure Website for Publishing the http://www.cninfo.com.cn Annual Report Place where the Annual Secretary Department of Chiwan Base Report is available Stock Exchange Shenzhen Stock Exchange Stock Series Chiwan Base -B Stock Code 200053 Date of Initial Registration 24th July 1995 Initial Registration Address Industry and Commerce Administration Bureau of Shenzhen, Guangdong, PRC Registration Number for QGYSZZ No. 101031 Business License Number of Taxation 440301618833899 (N) Registration 440305618833899 (L) Domestic Certified Public PricewaterhouseCoopers Accountants International Certified PricewaterhouseCoopers Public Accountants 3 2005’s Annual Report PART II. Highlights of the Accounting and Business Data I. Accounting Data and Financial Indices for Year 2005 Items RMB EBT 124,452,763 Net Profit 114,725,739 Net profit after deducting non-recurring gains and losses 114,760,316 Profit from main business lines 90,621,919 Profit from other business lines 139,328 Operating profit 69,790,831 Net Investment Return 54,711,260 Subsidies 0 Net income from Non-operating Activities -49,328 Net cash flows from operating activities 107,404,321 Net Increase in Cash & Cash Equivalents -698,692 Note: Items included in the non-recurring gains and losses RMB 1. Loss from disposal of fixed assets（minus Revenue） -49,009 2. Revenue from other non-operating activities -20,420 3. Cost of other non-operating activities 118,757 4. Variance on Income tax from non-operating profit -14,751 Total 34,577 The impact of IFRS adjustments on the PRC statutory financial statements are as follows: As per the PRC statutory financial As per the IFRS statements Net profit 114,725,739 115,510,156 Explanation on Differences between IFRS & PRC statutory financial statements Differences II. Main Accounting Data and Financial Indices of the Recent Three Years 2005 2004 2003 Item RMB RMB RMB Revenue 164,468,106 156,545,213 109,619,299 Net Profit 114,725,739 100,412,034 75,349,897 Total Assets 942,236,964 843,030,599 700,107,668 Shareholders’ Equity 736,757,774 672,238,052 632,099,728 (Fully diluted) 0.498 0.435 0.327 Earnings per share (Weighted average) 0.498 0.435 0.327 Earnings per share after (Fully diluted) 0.498 0.428 0.327 deduction of non-recurring gains and (Weighted average) 0.498 0.428 0.327 losses 4 2005’s Annual Report Item 2005 2004 2003 Shareholders’ Equity per share 3.195 2.915 2.741 Shareholers’ Equity per share after adjustment 3.191 2.911 2.693 Net cash flows per share from operating activities 0.466 0.431 0.299 Return on equity (%) (Fully diluted) 15.572 14.937 11.921 Return on equity (%)(Weighted average) 16.189 15.279 11.921 Return on equity (%) after deduction of 15.576 14.667 11.932 non-recurring gains and loses (Fully diluted) Return on equity (%) after deduction of 16.193 15.024 11.932 non-recurring gains and loses (Weighted average) III. Accessories of Profit & Loss Statement in 2005 The hereby ROE and EPS were calculated in accordance with the requirement of “Regulation (9th) of Compilation and Report of Information Disclosure for Company Distributing Securities to the Public” issued by China Securities Regulatory Commission. 2005 2004 Item ROE (%) EPS (RMB) ROE (%) EPS (RMB) Fully Weighted Fully Weighted Fully Weighted Fully Weighted diluted average diluted average diluted average diluted average Revenue 12.300 13.009 0.393 0.393 13.077 13.505 0.381 0.381 Operating profit 9.473 10.233 0.303 0.303 10.273 10.765 0.299 0.299 Net profit 15.572 16.189 0.498 0.498 14.937 15.279 0.435 0.435 Net profit after deducting 15.576 16.193 0.498 0.498 14.667 15.024 0.428 0.428 non-recurring gains and losses IV. Change of Shareholders’ Equity RMB Discretional Contributed Capital Retained Item Statutory surplus Statutory Surplus Equity capital Reserves Earnings Reserve Welfares Reserves Year-begin 230,600,000 210,656,111 58,930,203 29,465,101 29,902,903 112,683,734 672,238,052 Increase 11,472,574 5,020,602 114,725,739 114,725,739 Decrease 66,699,193 50,206,017 Year-end 230,600,000 210,656,111 70,402,777 29,465,101 34,923,505 160,710,280 736,757,774 Reasons of change: 1. The increment of Statutory Surplus Reserve were drawn in accordance with the company’s Articl e of Association. Statutory Surplus Reserves is 10% of the net profit. Discretional Surplus Reserve s is calculated as 5% of the net profit of last year. 2. The increment of Retained Earnings is the company’s undistributed net profit realized this year. 5 2005’s Annual Report PART III. Change of Contributed Capital and Particulars about Shareholders I. Changes for Contributed Capital: Illustration for Change of Contributed Capital: Unit: share Change in number of shares Before Conversion of After change Share Bonus reserves Others Subtotal change allotment shares to shares 1. Nontradable shares a. Promotors’ shares including State owned shares Ownership by Domestic legal entities 119,420,000 119,420,000 Ownership by Foreign legal entities Others b. Shares raised from legal entities c. Employee’s shares d. Preferred shares Total 119,420,000 119,420,000 2. Tradable shares a. A shares b. B shares 111,180,000 111,180,000 c. Shares traded in Overseas’ Market d. Others Total 111,180,000 111,180,000 3. Total of shares 230,600,000 230,600,000 II. Share Issue and List: The Company issued, at the par value of RMB 1.00 per share, a total number of 230.6 million shares of common B shares in June 1995, according to the approval of Shenzhen Securities and Exchange Commission. The total shares include 119.42 million non-tradable A shares, 51.18 million non-tradable B-shares for foreign promoters, and 60 million public traded B-shares for ordinary investors. The public traded B shares were issued on June 23rd, 1995 at a price of HK$2.82 per and the fully diluted P/E of 10.5. The B shares became public listed on July 28th, 1995. The Company haven’t issued any employees’ shares ever since. The number and the frame of the Company’s shares remained unchanged this year. 6 2005’s Annual Report III. Particulars about Shareholders (December 31, 2005) Total number of shareholders 11,828 Holding information of top ten shareholders Ratio Un-tradable Impawned or Name（full name） Character Shares （％） shares frozen CHINA NANSHAN DEVELOPMENT Domestic legal (GROUP) INCORPORATION 51.79 119,420,000 119,420,000 0 entity owned OFFSHORE JOINT SERVICES(BASES) Foreign investment CO. OF SGP. PTE LTD 22.19 51,180,000 0 0 shareholder DU MEIZHEN Other 0.18 406,800 0 Unknown SUN HUNG KAI INVESTMENT SERVICES LTD -CUSTOMERS A/C Other 0.17 388,500 0 Unknown LIN YONGQING Other 0.15 344,294 0 Unknown HUANG JUNJIE Other 0.13 300,665 0 Unknown JING NING Other 0.13 300,000 0 Unknown ZHANG YANQIANG Other 0.13 294,800 0 Unknown NAITO SECURITIES CO.,LTD Other 0.13 291,300 0 Unknown TOYO SECURITIES ASIA LIMITED-A/C CLIENT Other 0.12 282,700 0 Unknown Holding information of top ten tradable shareholders Name（full name） shares Type（A、B、H or other） OFFSHORE JOINT SERVICES(BASES) CO. OF SGP. PTE LTD 51,180,000 B DU MEIZHEN 406,800 B SUN HUNG KAI INVESTMENT SERVICES LTD -CUSTOMERS A/C 388,500 B LIN YONGQING 344,294 B HUANG JUNJIE 300,665 B JING NING 300,000 B ZHANG YANQIANG 294,800 B NAITO SECURITIES CO.,LTD 291,300 B TOYO SECURITIES ASIA LIMITED-A/C 282,700 B CLIENT BEAR STEARNS SECURITIES CORPORATION 282,500 B Among the top ten shareholders, the domestic legal entity shareholder China Nanshan Development (Group) Incorporation has no affiliated relations with other shareholders and does not fall Explanation for the Affiliated Relations or into the scope of united action person stipulated by “Regulation of United Action of the Top Ten Shareholders Information Disclosure of the Change of Shareholding of listed company”. It is unknown that whether other tradable-share shareholders fall into the scope of united action person. 7 2005’s Annual Report IV. Profiles of Major Legal Entity Shareholders 4.1) China Nanshan Development (Group) Incorporation (CNDI) Legal representative: Fu Yuning Date of registration: October 1982 Registered Capital: RMB500,000,000 Business scope: land development; port transportation, industrial, commercial, real estate and tourism; customs bonded warehouses business; etc. 4.2) Substantial Controller of Holding Shareholder Being the holding shareholder of CNDI, China Merchants (NanShan) Holdings Ltd holds 37.01% equity in CNDI. China Merchants Holdings (International) Co, Ltd.(CMHI), which was listed on Hong Kong Exchange, indirectly or directly hold 100% shares of China Merchants (Nanashan) Holdings Ltd. Basic introduction about CMHI is presented as follows: Legal representative: Fu Yuning Date of registration: May 28, 1991 Registered Capital: HKD300,000,000 Business Scope: Port and port-related business, infrastructure construction and industrial production. 4.3) Controlling graph State-Owned Assets Supervisory and Administration Commission i i 100％ China Merchants Group 53.63％ China Merchants Holdings (International) Co Ltd 100％ China Merchants (NanShan) Holdings Ld 37.01% China Nanshan Development (Group) Incorporation 51.79％ Shenzhen Chiwan Petroleum Supply Base Co., Ltd 4.4) Other shareholders with shares of 10% or above : OFFSHORE JOINT SERVICES (BASES) COMPANY OF SINGAPORE PTE LTD Legal representative: Mr. Koh Soo Keong Business scope: investing in the companies engaged on offshore oil supply services. 8 2005’s Annual Report PART IV. Information of Directors, Supervisors and Senior Managers I. Brief information Name Position Gender Age Office Term Fu Yuning Chairman male 49 2004.5—2007.5 Koh Soo Keong Vice Chairman male 55 2004.5—2007.5 Han Guimao Executive Director male 55 2004.5—2007.5 Fong Yue Kwong Director male 53 2004.5—2007.5 Wang Fen Director female 51 2004.5—2007.5 Liu Fu Director male 60 2004.5—2007.5 Lin Zhijun Independent Director male 51 2004.5—2007.5 Bai Youzhong Independent Director male 65 2004.5—2007.5 Tian Rugeng Independent Director male 70 2004.5—2007.5 Zhong Jingshen Convener of the Supervisor male 60 2004.5—2007.5 Committee Ong Lee Keang Supervisor female 51 2004.5—2007.5 Xiang Qingsheng Supervisor male 59 2004.9—2007.4 Fan Zhaoping Supervisor male 52 2004.5—2007.5 Zhang Xiang Employee Supervisor male 41 2004.5—2007.5 Liu Bojiang Employee Supervisor male 59 2004.5—2007.5 Yoon Kok Seng General Manager male 56 2000.9-2005.12 Cui Wei Deputy GM male 49 2002.5—2007.5 Huang Fanzhi Deputy GM & Financial male 38 2005.12-2007.5 Controller Huang Dong Er Deputy GM male 54 2002.5—2007.5 Ren Yongping Deputy GM male 52 2004.4—2007.5 Fu Jialin Board Secretary male 44 2002.5—2007.5 9 2005’s Annual Report Brief information (continued) Whether Shares held Shares held Reason for Total receiving Name at the at the increase/ remuneration remuneration year-begin year-end decrease (RMB’0000) from ralational companies Fu Yuning 0 0 Yes Koh Soo Keong 0 0 Yes Han Guimao 10000 10000 Yes Fong Yue Kwong 0 0 Yes Wang Fen 10000 10000 Yes Liu Fu 0 0 Yes Lin Zhijun 0 0 6.0 No Bai Youzhong 0 0 6.0 No Tian Rugeng 0 0 6.0 No Zhong Jingshen 0 0 Yes Ong Lee Keang 0 0 Yes Xiang Qingsheng 0 0 Yes Fan Zhaoping 10000 11600 Personal Yes purchase Zhang Xiang 0 0 16.4 No Liu Bojiang 0 0 15.8 No Yoon Kok Seng 0 0 76.0 No Cui Wei 0 0 44.7 No Huang Fanzhi 0 0 1.0 No Huang Dong Er 0 0 36.8 No Ren Yongping 10000 10000 34.0 No Fu Jialin 0 0 25.2 No Total 40000 41600 - 249.9 - Note: Seven of above directors or supervisors hold posts in CNDI, three of above supervisors or senior managers hold posts in subsidiaries, details as follows: Dr. Fu Yuning as the Chairman since Dec. 1998; Mdm. Wang Fen as the President since March 2002; Mr. Liu Fu as the Vice Chairman since May 2003; 10 2005’s Annual Report Mr. Han Guimao as the Senior Vice President since March 2002; Mr. Zhong Jingshen as the Vice Chairman since Aug. 2000; Mr. Xiang Qingsheng as the Director since Aug 2004; Mr. Fan Zhaoping as the Senior Vice President since Dec. 1998. Mr. Zhang Xiang as Deputy GM of Guangzhou Baowan Logistic Co Ltd since Jun. 2005. Mr. Ren Yongping as General Manager of Shenzhen Chiwan Logistic Co Ltd from Dec. 2003 to May 2005, as General Manager of Guangzhou Baowan Logistic Co Ltd since Dec. 2004. Mr. Huang Donger as General Manager of Shenzhen Chiwan Logistic Co Ltd since May, 2005. II. Annual Salary of Directors, Supervisor and Senior Managers 1) Decision Procedure and Basis Salary standard of the Company was decided and approved by the Board of Directors. Three independent directors, two employee supervisors and all senior executives draw their salaries, bonuses and other welfares from the Company, while others including Fu Yuning, Koh Soo Keong, Fong Yue Kwong, Wang Fen, Han Guimao, Liu Fu ,Xiang Qingsheng , Zhong Jingshen, Ong Lee Keang, and Fan Zhaoping, draw the pay from their respective shareholder party instead of the Company. 2) Changes of directors, supervisors and senior managers The 7th tele-communication meeting of 4th Board of Directors was held on December 7, 2005 by facsimile. The Board accepted the resignation of Mr. Yoon Kok Seng as General Manager of the Company due to his personal reason. The meeting unanimously agreed to the proposal of the Chairman of the Board that Mr. Han Guimao, the Executive Director of the Board of Directors, should take charge of the daily management of the Company. The Board unanimously agreed to the recommendation by China Nanshan Development (Group) Inc., the controlling shareholder of the Company, and appointed Mr. Huang Fanzhi as Deputy General Manager and Financial Controller of the Company. Mr. Cui Wei would not hold the post of Financial Controller. III. Information of Other Employees: As at Dec. 31, 2005, the Company has a staff of 178, including 128 employees engaging in production, 12 in accounting, 9 in administration and 29 in management; or composing 1 with doctor degree, 15 with master degree, 42 with bachelor degree and 120 with high school or lower graduation. PART V. Corporate Governance The Company strictly implements the PRC Company Law, the Securities Law and other laws, and regulations issued by the CSRC; continuously improves the legal person administration system, makes every effort to build modern enterprise system and regulates its operation. According to “Administration Guideline for listed Company”, the Board of Directors explained the practice situation of the legal person administration of the company as follows: 1) In aspect of shareholders and shareholders’ general meeting: the company’s administration structure can ensure the equal status of all shareholders, especially the minority 11 2005’s Annual Report shareholders, and can ensure shareholders fully exercised their legal rights. The convening procedure, the qualification of the person attending the meeting and the voting procedure of the meeting are in accordance with the stipulation of “Company Law”, “Regulatory Opinion for General Meeting of Listed Company”, “Articles of Association”. 2) In aspect of relations between the control shareholder and the Company: the Company’s control shareholders attached importance to the listed company, gave energetic support, exercised shareholder’s rights and undertook shareholder’s obligation legally. The Company is independent of its control shareholder in terms of business, assets, organization, employees and finance. The Company undertakes responsibilities and risks independently. 3) In aspect of directors and Board of Directors: the Company elects directors strictly in line with the election procedure as regulated in the Articles of Association of the Company. The AOA stipulates that accumulative total voting system should be used in the Board election. All the directors shall exercise their duties loyally, bona fide and diligently. Both the number of directors and composition of the Board shall comply with relevant laws and regulations. The Company has established the independent director system, employed three independent directors taking charge of the special committee of the Board in accordance with the requirements of the CSRC and the Shenzhen Securities Regulatory Office. 4) In aspect of supervisors and Supervisory Committee: Both the election of the Company’s shareholder supervisors and employee supervisors shall comply with relevant laws and regulations. The member and the composition of the Supervisory Committee can ensure the Supervisory Committee to supervise and inspect directors, senior managers and the finance of the Company independently and efficiently. The Supervisory Committee stipulates Rules of Procedure of the Supervisory Committee. The meeting of the Supervisory Committee shall comply with the stipulated procedure. 5) In aspect of person having correlative benefit: the company respects the legal rights of banks and other creditors, employees, consumers, suppliers, communities and other persons who have correlative benefit. The company shall cooperate actively with them so as to achieve continuous and healthy development. 6) In aspect of information disclosure and transparency: The Company stipulates the regulation of information disclosure and authorizes the secretary of the Board and the authorized representative to take charge of securities affairs and information disclosure, and also to welcome the visit and inquiry of the shareholders. The Company discloses the relevant information in a real, accurate, complete and timely way strictly according to the law, regulations and the Articles of Association and the Companyensures all the shareholders to have equal opportunity in obtaining the information. Moreover, the Company timely disclosed the detailed information of the largest shareholder or concrete controller and changes in their shareholdings According to “Administration Guideline for listed Company”, the Board of Directors took the opinion that the practice situation of the Company’s administration is basically in accordance with the requirement of “Administration Guide Line for listed Company” after improving each systems of the Company according to the requirement of the CSRC’s Shenzhen Regional Office. II. Information of Independent Directors’ Performance According to the requirement of the CSRC and Shenzhen Securities Regulatory Office, the company employed three specialists as independent directors, majored in law, accounting and 12 2005’s Annual Report professional area of the company. The Company established three special committees of the Board of Directors and made and improved “Detailed Work Rules of Nomination and Salary Committee of the Board of Directors”, “Detailed Work Rules of Strategy and Development Committee the Board of Directors” and “Detailed Work Rules of Audit Committee of the Board of Directors”. During the period under review, in accordance with the requirement of CSRC’s “Guidance Opinion for Listed Company to Establish of Independent Directors System”， “Articles of Association” and “Work System of Independent Director” the Company’s independent directors exercised their duties, took part in the decision-making of the Company’s importance affairs, presented independent director’s opinion and fully exerted the function of independent director. The information of independent directors to attend the directors’ meetings is as follows: The number Name of the The of directors’ The number independent number of The number of Reference meetings to of absence director presence authorizing be present Bai Youzhong 6 6 Lin Zhijun 6 6 Tian Rugeng 6 6 III. The Company is independent of its control shareholder in terms of business, assets, organization, employees and finance, and has independent and integrated ability of operation and management. 1) In the aspect of operation, the business of the Company is entirely independent of its control shareholder. The control shareholder and its subordinate units did not engage in the business that are the same or similar to the business of the listed company. 2) In the aspect of employees, the employees of the Company are independent of the control shareholder. The senior managements, the leading official of the finance and the secretary of the Board do not occupy any position in the control shareholder. 3) In the aspect of assets, the assets invested by the control shareholder is independent, integrated and has clear ownership. 4) In the aspect of organization, the Company’s Board of Directors, Supervisory Committee and other intern organizations operate independently. There is no affiliated relation between the control shareholder and its functional departments and the Company and the Company’s functional departments. The control shareholder and its subordinate organization do not give any plan and instruction as to the operation to the Company and its subordinate organization or intervene the independence of the Company’s management by other means. 5) In the aspect of finance, the Company establishes the regulatory system of finance and accounting and make it in accordance with correlative laws and regulations. The control shareholder will not intervene the Company’s finance and accounting affairs. PART VI. Review of Shareholders’ General Meeting The Company convened four shareholders’ general meetings during the period under review, the details of which are as follows: 1. The first extraordinary shareholders’ general meeting of the year 2005 was held on the 16th floor of Chiwan Petroleum Building, Shenzhen at 10:00 am on January 10, 2005. The Public Notice and Legal Opinions were published in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on January 11, 2005. 13 2005’s Annual Report 2. The annual shareholders’ general meeting for the year 2004 was held on the 16th floor of Chiwan Petroleum Building, Shenzhen at 10:00 am on May 9, 2005. The Public Notice and Legal Opinions were published in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on May 10, 2005. 3. The second extraordinary shareholders’ general meeting was held on the 16th floor of Chiwan Petroleum Building, Shenzhen at 10:00 am on September 27, 2005. The Public Notice and Legal Opinions were published in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on September 28, 2005. 4. The third extraordinary shareholders’ general meeting was held on the 14th floor of Chiwan Petroleum Building, Shenzhen at 11:00 am on October 18, 2005. The Public Notice and Legal Opinions were published in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on October 19, 2005. PART VII. Statements of the Board I Information of Company Business and Financial Highlights Following the highest-ever increase of 42.8% and 33.3% respectively in turnover and after-tax profit for the year of 2004, the Company achieved in 2005 a moderate year-on-year increase in both turnover and after-tax profit of 5.06% and 14.26% respectively to RMB164 million and RMB115 million. The management also achieved the budget approved by the board. The growth was contributed by the overall sustainable performance of all segments of our business, offshore engineering in particular, which recorded a year-on-year increase of 29.57% in profit and remain as the main driver for the Company to meet the budget. 1.1 Consolidated Major Indicators (Extracted from Pricewaterhouse Cooper Report) Unit: RMB’000 Items 2005 Actual 2004 Actual Change (%) Revenue 164,470 156,550 5.06 Expenditure 86,580 79,930 8.32 Investment Income 54,710 41,550 31.67 EBIT 125,400 11,113 12.84 Net Profit 114,730 100,410 14.26 Total asset 942,240 843,030 11.77 Net asset 736,760 672,240 9.6 Return on Equity (%) 15.57 14.94 4.22 EPS(Yuan) 0.50 0.44 13.64 Net asset per share (yuan) 3.19 2.92 9.25 Debt asset ratio 21.32 19.74 8.00 Debt asset ratio (Interest bearing) 10.61 9.85 7.72 Cash flow from operating activities 107,400 99,390 8.06 14 2005’s Annual Report The segmental financial indicators Unit RMB’000 Structure of Item 2005 2004 Change(%) 2005 (%) Revenue 164,470 156,550 5.06 Base 122,310 114,780 6.6 74.37 Shanghai Baowan 28,400 24,850 14.3 17.27 Chiwan Logistics 14,030 16,930 -17.1 8.53 Expenditure 86,580 79,930 8.32 Base 63,060 54,220 16.30 72.83 Shanghai Baowan 12,490 12,010 4 14.43 Chiwan Logistics 11,300 13,700 -17.52 13.05 PAT 114,730 100,410 14.26 Base 45,360 46,760 -3 39.54 Shanghai Baowan 13,210 10,270 28.63 11.51 Chiwan Logistics 1,4500 1,830 -20.77 1.26 Investment Return (CSE) 54,710 41,550 31.67 47.69 Total Debt 200,850 16,645 20.67 Interest bearing debt 100,000 8,300 20.48 Debt Ratio (%) 21.32 19.74 8.00 Cash flow from operations 107,400 99,390 8.06 Base 90,090 77,100 16.85 83.88 Shanghai Baowan 20,890 17,310 165.27 19.45 Chiwan Logistics 4,650 4,980 -6.63 4.33 ROE (%) 15.57 14.94 4.22 Base 16.77 14.75 13.69 Shanghai Baowan 7.51 6.93 8.37 Chiwan Logistics 3.60 4.73 -23.89 Note: (i) Shanghai Baowan figures are based on 99% shareholdings; (ii) Chiwan Logistics figures are based on 90% shareholdings. 1.2 Turnover and Profit 1.2.1 Offshore Logistics Business Turnover of the supply base business reported a moderate 6.6% growth for the Year to reach 122 million as compared to 115 million in Year 2004. Of the total revenue, the operating turnover generated from oil logistics business recorded year-on-year increase of 16.4% to 56.5 million (48.5 million in year 2004) while that from the warehousing and yard business contributed 50.6 million (48.7 million in year 2004). The net profit slid by 3% to 45.4 million for the period under review. 15 2005’s Annual Report 1.2.2 General Logistics Business First phase of Shanghai Baowan logistic services business generated revenue of 28.4 million on a full year average warehouse high occupying rate， a YOY increase of 14%. Net profit 13.35 million was recorded, representing a 29% Increase. Turnover of Chiwan Logistics and Distribution Co Ltd dropped by 17% to 14.03 million in year 2005 with net profit slipping by 21% to 1.6 million though occupancy rate rose. 1.2.3 Offshore Engineering Business Chiwan Sembwang Engineering (CSE) in which the Company owns 32% equity recorded a strong growth in both turnover and net profit albeit a very active offshore structure market environment. Its turnover increased 13.56% to reach 623 million and net profit rose 29.57% to reach 171 million. An investment income of 54.77 million was realized for the Base. CPEC recorded a turnover of 16.97 million for the period under review, a YOY decrease of 20% as compared to 21.11 million of the proceeding year. However, the new management team made concerted effort to optimize its service mix in its offshore engineering maintenance business and turnaround the Company business with a marginal net profit of 230,000 after writing off 560,000 bad debts carried forward from the proceeding year. 1.3 Operating Expenses For the year 2005, the Company’s total operating expenses amounted to 86.58 million, up 8.32% as compared to 80 million last year. The increase in total costs was the result of increase in operating expenses in tandem with the increase in operating activities, increase in depreciation cost due to adjustment made to the depreciation period (2.3 million), and the integration of costs from Shanghai Baowan International Logistics Park (0.5 million). II Segment Business Review 2.1 Offshore Logistics Business In 2005, 49 wells were drilled and 14 platforms were in production in the East Sector of South China Sea. The number of dockage was recorded 1550 times for various vessels, which brought about 640,000 tons or 4% up of oil drilling and other materials load on and off the vessels. The Base supplied water of 230,000 tons and diesel of 44,000 tons to the platforms in production, an increase of 24% and 53% respectively. To optimize the utilization rates of the facilities and equipments, the Base also used the idle time of the facilities and equipment to provide the non oil clients with loading and offloading of heavy duty structures and CFS services. The full year average occupancy rates of both warehouse and yard maintained as same as that of the proceeding year. 2.2 General Logistics Services The first phase of Shanghai Baowan International Logistics Park maintained high occupancy rate for the period under review. 50% of the planned construction had been completed. Notwithstanding the above, the management has already started to negotiate the lease agreement with the clients interested in the facilities. The first phase of Guangzhou Baowan Logistics Park completed 86% of the planned 16 2005’s Annual Report construction work. The new management team has finished registering the company in Guangzhou and also teamed up with the resources of the headquarters to negotiate with clients to provide warehouse and logistics services. In 2005, the management completed the due diligence and feasibility study for the Tianjin Baowan Logistics Park, and the report had been submitted to the Board. The management will in 2006 register a company in Tianjin and move on to procure the land use right and start the construction work in due time. From June, 2005, the management had made adjustment to Chiwan Logistics and Distribution Co. business direction, the organization and asset reallocation with a view to improve profitability of the Company. The efforts include the actions such as relocating some idle workforce and equipment, writing off some non-performing assets. The well equipped and high efficient logistics park entered into the logistics industry last year and lured away some clients from the Company. Its turnover and net profit dropped by 17% and 21% respectively. 2.3 Offshore Engineering CSE operated near its full capacity in the year under review on strong demand in offshore structure in PRC. The company turned in a turnover and net profit of 623 million and 171 million respectively. III Progress of Projects 3.1 Shanghai 2nd Phase The land conditioning work (first phase) was started on Mar 28. Second phase construction work was started on Oct 2, 2005. 50% facilities had been commissioned till the end of the year 2005. 3.2 Guangzhou Project The 1st phase construction work was started on Mar 2, 2005. 86% facilities had been commissioned for use till the end of the year 2005. 3.3 Tianjin Project The due diligence work for Tianjin project had been completed till the end of the year 2005. IV Industry Analysis and Prospects for 2006 The five-year business plan approved by the board in 2005 shall serve as guidance for the management to move on with its business development within the approved industries. 4.1 Offshore Oil Logistic Industry The drilling plan revealed by CNOOC indicated that 37 wells will be drilled in the east sector of South China Sea, 12 wells less than that of the proceeding year. 17 2005’s Annual Report 4.2 General Logistics Business 4.2.1 Market Forecast The overall logistics business and demand for warehouses increase in tandem with the growth of GDP while that of Shanghai, Guangzhou and Tianjin is above national average with Tianjin being on top in terms of potentiality. In 2005, the aggregated logistics volume is 18.5% of the GDP, 0.3% down as compared with the proceeding year. In accordance with information and survey from the internet of China logistics and purchase and market survey, it is projected that for the year of 2006 logistics market volume will have an increase of 20% and demand for the high end logistics facilities will also grow. As more and more international logistics companies enter into China and the requirement for specialized and catered logistics service is expected on the increase, and high end and large scale logistic park shall have more competitive advantages in the eye of the clients. Due to the continued effort for Government to tighten up the control of land resources, the added supply of such logistic park will slow down and hence the rental rates will experience upswing for standard and large scale logistic park in the range of RMB25-27 per square meter per month in Shanghai for example. However, the projected rental rates also have a big variance for different first line cities with the rates for Guangzhou around 18-20. The competition is expected to intensify as more players enter into the market to fight for clients and land resources. 4.2.2 Construction Work of Logistics Park The goal has been set to speed up the construction work for the second phase of Shanghai Logistic Park and first phase of Guangzhou Logistics Park and lease out the facilities by the first half of 2006. Total construction cost should be controlled within the budget approved by the board. 4.3 Offshore Engineering Business The outlook of offshore engineering services remains very prospective on a very strong demand for offshore structures. The prospect of the industry has offered unprecedented business opportunities for CSE in its near future. The fast and timely development of Penglai yard will serve as a cornerstone to strengthen the revenue base for CSE for many years down the stream. V Major Works for the Year of 2006 In order to ensure smooth implementation of our 5 year business plan, the management identifies the following area of importance in year 2006: 5.1 To strengthen the management and restructure and optimize the allocation of resources: To institutionalize the management and improve its systems; To set up business units and the performance evaluation systems; To review and build motivation system, which includes the restructuring of remuneration and employees’ appraisal system; To prepare the talents for the Base’s business development. 5.2 To speed up the construction of logistics parks: To make best effort to complete the construction work for the second phase of Shanghai Logistics Park and first phase of Guangzhou Logistics Park on schedule and finish the preparatory work for Tianjin Logistics Park; 18 2005’s Annual Report To ensure the quality while pushing ahead construction schedule for the Parks; To control the total construction costs within the budgets approved by the board. 5.3 To aggressively look for new business development model for higher ROE: To integrate the resources of offshore logistics business and Chiwan logistics and distribution to maximize the combined return of the resources; To search for more efficient and effective business model for logistic parks; To build the logistics park network in the first line cities and explore the possibilities to enter into the regional commercial centers in China; To explore the ways of speeding up the logistics business via merger and acquisition and EJV with multinational corporations. VI. Application of the Proceeds The company had invested US$20.5 million raised from stock market in its 1995 floatation in the projects approved by AGM. All projects had been completed by the end of 1996 and the results of which were disclosed accordingly. VII. Report on the Routine of Board of Directors 1.Board Meetings and Resolutions The Board had held six meetings in the reporting period. 1) The third meeting of the fourth Board of Directors was held on the 16th floor of Chiwan Petroleum Building, Shenzhen on March 28, 2005. The Public Notice was published in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on March 31, 2005. 2) The fourth tele-communication meeting of the fourth Board of Directors was held by facsimile on April 18, 2005. The Public Notice was published in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on April 20, 2005. 3) The fifth tele-communication meeting of the fourth Board of Directors was held by facsimile on September 7, 2005. The Public Notice was published in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on September 9, 2005. 4) The fourth meeting of the fourth Board of Directors was held on the 16th floor of Chiwan Petroleum Building, Shenzhen on August 22, 2005. The Public Notice was published in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on August 24, 2005. 5) The sixth tele-communication meeting of the fourth Board of Directors was held by facsimile on October 26, 2005. The Public Notice was published in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on October 28, 2005. 6) The seventh tele-communication meeting of the fourth Board of Directors was held by facsimile on December 7, 2005. The Public Notice was published in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on December 8, 2005. 19 2005’s Annual Report 2. Implementation of the Dividend Distribution Plan During the year under review, the Company implemented its 2004 dividend distribution plan on July 11, 2005: RMB2.17719 cash bonus for each 10-share (tax included). Dividend for B shares was converted into HK dollars for distribution. VIII. Dividend Distribution Preplan for the Year 2005 Profit distribution preplan for the year 2005 is set out as follows: RMB Retained Earning B/F 57,457,115.03 Profits available for distribution 114,725,739.02 Less: Statutory surplus reserve (10%) 11,472,573.90 Discretionary Reserve (5%) 5,736,286.95 Dividends (tax included) (55%) 63, 099,156.46 Retained Earnings 91,874,836.74 The cash dividend for the year 2005 of RMB2.73630 ( tax included ) for every ten shares (tax included) or RMB 63, 099,156.46 in total would be paid by the Company and for this purpose the conversion will be based on the closing rate between HK$ and RMB announced by the People’s Bank of China on the first working day after the resolution is approved by the AGM. The above profit distribution plan will be carried out after the final approval of the AGM 2005. The Company neither declared interim dividend nor converted any reserves into share capital or rights issue in the reporting period. IX. Estimated Profit Distribution Policy for 2006 The estimated profit distribution policy for the year 2006 is as follows: 1) The Company will conduct profit distribution once in 2006; 2) Approximately 40%-60% of net profit realized in 2006 will be distributed as dividend; 3) The distribution will take the form of cash bonus. X. The Company did not plan to transfer Capital - Reserves into share capital for the year 2006. 20 2005’s Annual Report PART VIII. Report of the Supervisory Committee I. Supervisory Committee Meetings Corporation Supervisory Committee convened two meetings in the reporting period. 1) The second meeting of the fourth supervisory committee was held on the 16th floor of Chiwan Petroleum Building, Shenzhen, on March 28, 2005. The meeting reviewed and approved the following resolutions: “General Manager’s Report for the Year 2004”; “Annual Report for the Year 2004 and its Abstract”; “Financial Report for the Year 2004”; “Proposal of the Profit Distribution Plan for the Year 2004”; “Financial Budget for the Year 2005”; “Proposal on Establishing the Interior Audit Function”; “Five-year Business Development Plan”. The resolutions were published in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on March 31, 2005. 2) The third meeting of the fourth Supervisory Committee was held on the 16th floor of Chiwan Petroleum Building, Shenzhen, on August 22, 2005. The meeting reviewed and approved the following resolutions: “Interim Report for the Year 2005 and its Abstract” , “Proposal on the Interim Dividend Distribution Plan (no allocating, no granting) for the Year 2005”, “Revision on Rules of Procedure of the Supervisory Committee”. The resolutions were published in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on August 24, 2005. II. Opinions Formed by the Supervisory Committee as to the Company’s operation in the Reporting Period as follows: 1) The Company’s decision procedures were both healthy and lawful. The Company’s management systems and internal control procedures were in place. The meeting also confirmed that neither the directors nor senior managers had acted in contravention of the laws, regulations, Articles of Association or detrimental to the interest of the company. 2) The Supervisory Committee carefully reviewed the financial report of the company and confirmed that the company was in good financial situation. The meeting further confirmed that the audit report prepared by the independent auditors PricewaterhouseCoopers gave a true and fair presentation of the Company’s financial performance by offering clear opinion in the audit report for the year 2005. 3) In 2005 the Company did not raise capital or engage in any acquisition and disposal of the Company’s assets. 4) All the affiliated transactions in 2005 were conducted in market principle and the Company’s interests were safeguarded. PART IX. Significant Events 1) The Company did not experience any significant lawsuit or arbitration in the reporting year. 2) During the reporting period, neither the director nor the senior manager was fined or penalized by Securities Supervisory and Administration Authorities of PRC. 3) The first extraordinary shareholders’ general meeting of the year 2005 was held on January 10, 2005. The meeting reviewed and approved the resolutions of: “Resolution on the project of Guangzhou Baowan Logistic Center” and “Resolution on joint venture of 21 2005’s Annual Report Guangzhou Baowan Logistics Co., Ltd”. The center would cover the land area of 241 mu or 161,224 square meters and total investment is estimated at RMB155 million. The center is proposed to build warehouse and relevant infrastructures for modern logistics industry. The registered capital of Guangzhou Baowan Logistics Co., Ltd should be RMB50 million with 90% (RMB45 million) contributed by the Company and 10% (RMB5 million) contributed by Shanghai Baowan international Logistics Co., Ltd. After the establishment, it should be for the management and operation of Guangzhou Baowan Logistics Center. The Public Notice was published in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on January 11, 2005. 4) Shanghai Baowan International Logistics Co., Ltd. and Guangzhou Baowan Logistics Co., Ltd., both of the subsidiaries of the Company, had signed contracts for construction of steel structure, wall panel and roofage on August 25, 2005. The marked price of the contract is RMB 64,229,574 Yuan. The public notice was published in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on September 9, 2005. 5) The Company obtained short-term financing fund with RMB100,000,000 Yuan on December 6, 2005. The financing fund was raised by China Nanshan Development (Group) Incorporation. China Minsheng Bank was the consignee. The Company obtained RMB100,000,000 Yuan from the sum of RMB800,000,000 Yuan. The interest rate of the financing fund was 2.9% and the issuing costs was less than 0.6%, which were lower than banking loan’s interest rate of the same period. The Public Notice was published in Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on December 9, 2005. 6) The Company paid RMB555,000 Yuan to PricewaterhouseCoopers, the accounting firm has provided auditing services for eleven years continually since the company listed. 7) The Company maintained its autonomy in personnel and financial management and possesses integrated assets. 8) The Company did not entrust, contract or lease other company’s assets or was entrusted, contracted or leased with its own assets. 9) There were neither other significant contract signed nor significant guarantee event happened in the reporting year. 10) There were no change in the Company’s name or stock’s short form in the reporting period. 11) During the reporting period, the Company made all necessary disclosures. No significant events that should be disclosed were missing. 22 2005’s Annual Report PART X. Financial Statements SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. REPORT OF THE INTERNATIONAL AUDITORS AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 PART XI. Documents Available for Verification: 1. Original copy of Annual Report carrying the signature of the Chairman; 2. Original copy of Auditor’s Statements sealed by CPA and signed by registered accountants; 3. Original copy and press release of all the documents disclosed in 2005 in the newspapers specified by the China Securities Regulatory Commission; 4. Articles of Association; 5. Other related documents. Chairman of the Board: Dr Fu Yuning Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Dated: 10 April 2006 23 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. INDEPENDENT AUDITORS’ REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2005 Contents Independent auditors’ report Consolidated balance sheet Consolidated income statement Consolidated statement of changes in equity Consolidated cash flow statement Notes to the consolidated financial statements PricewaterhouseCoopers 22/F, Prince's Building Central, Hong Kong Telephone (852) 2289 8888 Facsimile (852) 2810 9888 www.pwchk.com INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. (Incorporated as a joint stock limited company in the People’s Republic of China) We have audited the accompanying consolidated balance sheet of Shenzhen Chiwan Petroleum Supply Base Co., Ltd. (the “Company”) and its subsidiaries (together the “Group”) as of 31 December 2005 and the related consolidated statements of income, cash flows and changes in equity for the year then ended. These consolidated financial statements set out on pages 2 to 35 are the responsibility of the Company’s management. Our responsibility is to form an opinion on these consolidated financial statements based on our audit and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accompanying consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2005, and of the results of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Certified Public Accountants Hong Kong, [10 April] 2006 25 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. CONSOLIDATED BALANCE SHEET (All amounts in Rmb unless otherwise stated) 2005 2004 ASSETS Non-current assets Property, plant and equipment 106,248,612 120,928,881 Investment property 229,874,964 236,999,477 Leasehold land 92,695,346 107,429,143 Progress payment for leasehold land 94,620,826 91,725,320 Construction in progress 84,538,559 26,636 Intangible assets 710,818 582,907 Investments in associates 220,966,467 165,194,989 829,655,592 722,887,353 Current assets Inventories 2,217,363 1,179,133 Trade and other receivables 26,645,742 33,862,738 Restricted cash 100,000 - Cash and cash equivalents 84,995,972 85,694,664 113,959,077 120,736,535 Total assets 943,614,669 843,623,888 26 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. CONSOLIDATED BALANCE SHEET (CONTINUED) (All amounts in Rmb unless otherwise stated) 2005 2004 EQUITY Attributable to the Company’s equity holders Share capital 223,841,503 223,841,503 Reserves 352,305,054 335,811,878 Retained earnings 161,636,182 112,825,219 737,782,739 672,478,600 Minority interest 4,631,707 4,337,677 Total equity 742,414,446 676,816,277 LIABILITIES Non-current liabilities Deferred income tax liabilities 5,872,938 7,115,327 Deferred revenue 32,915,755 31,449,527 38,788,693 38,564,854 Current liabilities Borrowings - 83,000,000 Trade and other payables 156,790,344 38,395,049 Current income tax liabilities 5,621,186 6,847,708 162,411,530 128,242,757 Total liabilities 201,200,223 166,807,611 Total equity and liabilities 943,614,669 843,623,888 27 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. CONSOLIDATED INCOME STATEMENT (All amounts in Rmb unless otherwise stated) 2005 2004 Revenue 164,468,106 156,545,214 Cost of sales (73,846,187) (68,636,709) Gross profit 90,621,919 87,908,505 Other gains - net 377,341 502,387 Administrative expenses (20,433,951) (18,273,858) Operating profit 70,565,309 70,137,034 Finance costs - net (1,099,607) (1,452,960) Share of profit of associates 55,771,478 41,677,257 Profit before income tax 125,237,180 110,361,331 Income tax expense (9,432,994) (9,703,284) Profit for the year 115,804,186 100,658,047 Attributable to: Equity holders of the Company 115,510,156 100,412,034 Minority interest 294,030 246,013 115,804,186 100,658,047 Earnings per share for profit attributable to the equity holders of the Company (expressed in Rmb per share) - Basic 0.50 0.44 28 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (All amounts in Rmb unless otherwise stated) Attributable to equity holders of the Company Share Retained Minority Total capital Reserves earnings Interest equity (Note 16) (Note 17) Balance at 1 January 2004, as previously reported as equity 223,841,503 316,976,384 91,522,402 - 632,340,289 Balance at 1 January 2004, as previously separately reported as minority interest - - - 2,130,974 2,130,974 Balance at 1 January 2004, as restated 223,841,503 316,976,384 91,522,402 2,130,974 634,471,263 Profit for the year - - 100,412,034 246,013 100,658,047 Dividend relating to 2003 - - (60,279,917) - (60,279,917) Transfer to reserves - 18,829,300 (18,829,300) - - Capital contributions - - - 1,960,000 1,960,000 Others - 6,194 - 690 6,884 Balance at 31 December 2004/ Balance at 1 January 2005 223,841,503 335,811,878 112,825,219 4,337,677 676,816,277 Profit for the year - - 115,510,156 294,030 115,804,186 Dividend relating to 2004 (Note 27) - - (50,206,017) - (50,206,017) Transfer to reserves - 16,493,176 (16,493,176) - - Balance at 31 December 2005 223,841,503 352,305,054 161,636,182 4,631,707 742,414,446 29 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. CONSOLIDATED CASH FLOW STATEMENT (All amounts in Rmb unless otherwise stated) 2005 2004 Cash flows from operating activities Cash generated from operations 119,728,470 108,876,783 Interests paid (1,475,823) (1,428,901) Income tax paid (11,901,902) (7,428,009) Net cash generated from operating activities 106,350,745 100,019,873 Cash flows from investing activities Payment for remaining consideration of acquisition of a subsidiary - (10,060,503) Purchase of property, plant and equipment (6,311,521) (4,424,796) Payment for construction in progress (70,937,270) (24,439,260) Payment for leasehold land (2,895,506) (65,268,902) Purchase of intangible assets (175,475) (178,200) Dividends received from an associate 3,312,000 - Proceeds from disposals of property, plant and equipment 2,877,008 350,900 Interests received 287,344 791,694 Net cash used in investing activities (73,843,420) (103,229,067) Cash flows from financing activities Loan from holding company 100,000,000 - Proceeds from bank borrowings 55,668,000 261,000,000 Repayments of bank borrowings (138,668,000) (196,000,000) Capital contribution from a minority shareholder - 1,960,000 Repayment of amount due to a minority shareholder - (1,960,000) Dividends paid to shareholders (50,206,017) (60,279,917) Net cash (used in)/generated from financing activities (33,206,017) 4,720,083 Net (decrease)/increase in cash and cash equivalents (698,692) 1,510,889 Cash and cash equivalents at beginning of year 85,694,664 84,183,775 Cash and cash equivalents at end of year 84,995,972 85,694,664 30 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 1 General information Shenzhen Chiwan Petroleum Supply Base Co., Ltd. (the “Company”) was incorporated as a Sino-foreign equity joint venture company in Shenzhen, the People’s Republic of China (the “PRC”) in February 1984. On 11 May 1995, the Company obtained the approval from the Shenzhen Municipal Government for its reorganisation into a joint stock limited company. On 28 July 1995, the Company’s B shares were listed for trading on Shenzhen Stock Exchange. The Company and its subsidiaries (collectively the “Group”) are principally engaged in leasing of office space and warehouses, provision of management, storage and marine logistics services in the PRC. The address of the Company’s registered office is Base Building, Chiwan, Nanshan District, Shenzhen, PRC. These consolidated financial statements have been approved for issue by the Board of Directors on [10 April] 2006. 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The basis of accounting differs from that used in the statutory financial statements of the Group which are prepared in accordance with the Accounting Standards for Business Enterprises and the Accounting System for Business Enterprises promulgated by the State of the PRC. Adjustments incorporated to restate the financial statements for conformity with IFRS have not been taken up in the Group’s books. The consolidated financial statements have been prepared under the historical cost convention. In 2005, the Group adopted the new / revised standards of IFRS below, which are relevant to its operations. The 2004 comparatives have been amended as required, in accordance with the relevant requirements. IAS 1 (revised 2003) Presentation of Financial Statements IAS 2 (revised 2003) Inventories IAS 8 (revised 2003) Accounting Policies, Changes in Accounting Estimates and Errors IAS 10 (revised 2003) Events after the Balance Sheet Date IAS 16 (revised 2003) Property, Plant and Equipment IAS 17 (revised 2003) Leases IAS 21 (revised 2003) The Effects of Changes in Foreign Exchange Rates 31 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 2. Summary of significant accounting policies (continued) 2.1 Basis of preparation (continued) IAS 24 (revised 2003) Related Party Disclosures IAS 27 (revised 2003) Consolidated and Separate Financial Statements IAS 28 (revised 2003) Investments in Associates IAS 32 (revised 2003) Financial Instruments: Disclosures and Presentation IAS 33 (revised 2003) Earnings per Share IAS 39 (revised 2003) Financial Instruments: Recognition and Measurement IAS 40 (revised 2003) Investment Property IFRS 3 (issued 2004) Business Combinations IAS 36 (revised 2004) Impairment of Assets IAS 38 (revised 2004) Intangible Assets The adoption of new / revised IASs 1, 2, 8, 10, 16, 17, 21, 24, 27, 28, 32, 33, 39 and 40 (all revised 2003) did not result in substantial changes to the Group’s accounting policies. In summary: - IAS 1 has affected the presentation of minority interest, share of net after-tax results of associates and other disclosures. - IASs 2, 8, 10, 16, 17, 27, 28, 32, 33, 39 and 40 had no material effect on the Group’s policies. - IAS 21 had no material effect on the Group’s policy. The functional currency of each of the consolidated entities has been re-evaluated based on the guidance to the revised standard. All the Group entities have the same functional currency as their presentation currency for respective entity financial statements. - IAS 24 has affected the identification of related parties and some other related-party disclosures. The adoption of IFRS 3, IAS 36 and IAS 38 results in a change in the accounting policies for goodwill. Until 31 December 2004, goodwill was: - Amortised on a straight line basis over a period of 5 years; and - Assessed for an indication of impairment at each balance sheet date. In accordance with the provisions of IFRS 3 (Note 2.9): - The Group ceased amortisation of goodwill from 1 January 2005; - Accumulated amortisation as at 1 January 2005 has been eliminated with a corresponding decrease in the cost of goodwill; - From the year ended 31 December 2005 onwards, goodwill is tested annually for impairment, as well as when there is indication of impairment; The Group has reassessed the useful lives of its intangible assets in accordance with the provisions of IAS 38. No adjustment resulted from this reassessment. 32 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 2. Summary of significant accounting policies (continued) 2.2 Consolidation (a) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill (see Note 2.9). Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (b) Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group's share of its associates' post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. 33 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 2. Summary of significant accounting policies (continued) 2.3 Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. 2.4 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency").The consolidated financial statements are presented in Renminbi (RMB), which is the Company's functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. 2.5 Property, plant and equipment Property, plant and equipment are stated at historical cost less depreciation. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. 34 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 2. Summary of significant accounting policies (continued) 2.5 Property, plant and equipment (continued) Depreciation is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows: Buildings 10 - 50 years Wharfs 50 years Machinery 3 - 20 years Motor vehicles 3 - 14 years Fixture 5 years Office equipment and others 5 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. 2.6 Construction in progress Construction in progress comprises infrastructure projects under construction, which are stated at cost. This includes all expenditure and other direct costs, prepayments and deposits attributable to the construction and interest charges arising from borrowings used to finance the construction during the construction period. Depreciation is not provided on construction in progress until the related asset is completed and transferred for intended use. 2.7 Investment property Investment property, principally comprising office buildings and warehouses, is held for long-term rental yields and is not occupied by the Group. Investment property is treated as a long-term investment and is carried at cost less accumulated depreciation and impairment loss. Depreciation is calculated on the straight-line method to write off the cost of each asset to their residual values over 20 to 45 years. 2.8 Leasehold land Leasehold land are up-front payments to acquire long-term interests in the usage of land. They are stated at cost and charged to the income statement over the remaining period of the lease on a straight-line basis, net off any impairment losses. 35 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 2. Summary of significant accounting policies (continued) 2.9 Intangible assets (a) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. (b) Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives. 2.10 Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets others than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. 36 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 2. Summary of significant accounting policies (continued) 2.11 Financial assets The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at every reporting date. During the year, the Group only held loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor or a related party with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are classified as trade and other receivables in the consolidated balance sheet. Purchases and sales of investments are recognised on trade-date - the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Loans and receivables are carried at amortised cost using the effective interest method. The Group assessed at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. 2.12 Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined using the weighted average method. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. 2.13 Trade and other receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade and other receivables are impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement within ‘administrative expenses’. 37 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 2. Summary of significant accounting policies (continued) 2.14 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. 2.15 Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. 2.16 Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. 2.17 Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. 2.18 Employee benefits The Group participates in defined contribution retirement schemes organised by the local government authorities in the PRC. Employees are entitled to an annual pension equivalent to a fixed portion of their basic salaries at their retirement dates. The Group is required to make contributions to the retirement schemes at a rate ranging from 8% to 22% of the standard salary of those employees and have no further obligation for post-retirement benefits. The contributions are charged to the income statement of the Group as they become payable in accordance with the rules of the scheme. 38 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 2. Summary of significant accounting policies (continued) 2.19 Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of services, net of value-added tax, rebates and discounts and after eliminated sales within the Group. Revenue is recognised as follows: (a) Sales of services Sales of services are recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. (b) Interest income Interest income is recognised on a time-proportion basis using the effective interest method. (c) Dividend income Dividend income is recognised when the right to receive payment is established. 2.20 Leases (a) When a Group company is the lessee Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. (b) When a Group company is the lessor Assets leased out under operating leases are included in investment property in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the period of the lease. 2.21 Dividend distribution Dividend distribution to the Company's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's shareholders. 2.22 Comparatives The Group previously disclosed interest income within ‘finance costs – net’. Management believes that their inclusion in ‘other gains - net’ above operating profits is a fairer representation of the Group’s activities. 39 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 3 Financial risk management 3.1 Financial risk factors The Group’s activities expose it to financial risks including the effects of changes in foreign currency exchange rates and interest rates. The Group’s overall risk management seeks to minimise potential adverse effects on the financial performance of the Group. (i) Foreign exchange risk RMB is not freely convertible into foreign currencies. Since most of the transactions of the Group were settled in RMB, in the opinion of directors, the Group would not have significant foreign currency risk exposure. (ii) Interest rate risk The Group has no significant interest-bearing assets but it has borrowed short-term loans from a related company at fixed rates. Other financial assets and liabilities do not have material interest rate risk. (iii) Credit risk The Group has no significant concentrations of credit risk. The Group has policies in place to ensure that sales of services are made to customers with an appropriate credit history. Cash transactions are limited to high credit quality financial institutions. (iv) Liquidity risk Liquidity risk management implies funding through an adequate amount of committed bank facilities. The Group aims at maintaining flexibility in funding by keeping committed bank facilities available. 3.2 Fair value estimation The nominal value less impairment provision of trade and other receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. The fair value of investment property is determined by the discounted cash flow method based on the reasonable anticipative investment return rate. 40 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 4 Critical accounting estimates and judgements The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. However, there are no estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. 5 Segment information Primary reporting format - business segments As at 31 December 2005, the Group is organised on a nationwide basis in the PRC into three main business segments: i. Office leasing and management services; ii. Storage services; and iii. Marine logistics services Year ended 31 December 2005 Office leasing and Marine management Storage logistics services services services Unallocated Total Sales 11,319,828 93,039,672 60,108,606 - 164,468,106 Operating profit 3,178,866 47,738,837 37,771,168 (18,123,562) 70,565,309 Finance costs (1,099,607) Share of profit of associates 55,771,478 Profit before income tax 125,237,180 Income tax expense (9,432,994) Profit for the year 115,804,186 Assets 93,714,156 531,156,138 84,953,558 12,824,350 722,648,202 Associates 220,966,467 Total assets 943,614,669 Liabilities 32,815,755 148,226,947 516,771 19,640,750 201,200,223 Other segment items Capital expenditure 1,592,750 83,958,089 2,790,369 3,338,323 91,679,531 Expenditure on leasehold land - 2,895,506 - - 2,895,506 Depreciation 4,076,908 14,254,591 5,723,761 896,343 24,951,603 Amortisation 1,140,154 13,478,578 142,519 20,110 14,781,361 41 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 5 Segment information (continued) Primary reporting format - business segments (continued) Year ended 31 December 2004 Office leasing and Marine management Storage logistics services services services Unallocated Total Sales 12,843,642 90,510,542 53,191,030 - 156,545,214 Operating profit 4,527,455 45,472,862 31,941,908 (11,805,191) 70,137,034 Finance costs (1,452,960) Share of profit of associates 41,677,257 Profit before income tax 110,361,331 Income tax expense (9,703,284) Profit for the year 100,658,047 Assets 90,737,426 504,822,393 64,658,825 18,210,255 678,428,899 Associates 165,194,989 Total assets 843,623,888 Liabilities 19,443,559 125,955,866 1,130,008 20,278,178 166,807,611 Other segment items Capital expenditure 4,448,107 38,889,478 29,945 1,278,584 44,646,114 Expenditure on leasehold land - 66,428,903 - - 66,428,903 Depreciation 5,997,077 8,881,307 4,947,764 1,327,726 21,153,874 Amortisation 1,140,155 13,541,181 142,519 156,222 14,980,077 Unallocated costs mainly represent corporate expenses. Inter-segment transfers or transactions are entered into under the terms and conditions agreed by both parties. Segment assets consist primarily of property, plant and equipment, investment property, leasehold land, progress payment for leasehold land, construction in progress, intangible assets, inventories, receivables and operating cash. They exclude investments in associates. Segment liabilities comprise operating liabilities. They exclude items such as taxation. Capital expenditure comprises additions to property, plant and equipment, investment property, construction in progress and intangible assets (Notes 6, 7, 10, 11). 42 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 5 Segment information (continued) Secondary reporting format - geographical segments The Group's activities are conducted predominantly in the PRC, which is considered as one geographical location in an economic environment with similar risks and returns. As a result, no separate geographical segment information is presented. Analysis of revenue by category 2005 2004 Revenue from services rendered 82,034,592 67,752,008 Revenue from operating leases 82,433,514 88,793,206 164,468,106 156,545,214 43 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 6. Property, plant and equipment Motor Buildings Wharfs Machinery vehicles Fixtu At 1 January 2004 Cost 52,359,027 48,127,724 67,857,402 15,932,757 17,341,4 Accumulated depreciation (20,303,827) (24,807,807) (45,152,397) (9,262,712) (6,824,1 Net book amount 32,055,200 23,319,917 22,705,005 6,670,045 10,517,3 Year ended 31 December 2004 Opening net book amount 32,055,200 23,319,917 22,705,005 6,670,045 10,517,3 Additions 6,086,203 55,343 1,645,610 3,149,016 3,921,2 Transferred from construction in progress (Note 10) 685,246 860,913 4,005,351 - Transferred to investment property (Note 7) (26,771,788) - - - Disposals - (48,181) (93,532) (125,635) Depreciation charge (2,489,256) (1,007,304) (2,727,186) (1,615,433) (2,145,2 Closing net book amount 9,565,605 23,180,688 25,535,248 8,077,993 12,293,3 At 31 December 2004 Cost 16,226,685 48,650,662 72,749,019 18,526,157 21,262,7 Accumulated depreciation (6,661,080) (25,469,974) (47,213,771) (10,448,164) (8,969,4 Net book amount 9,565,605 23,180,688 25,535,248 8,077,993 12,293,3 Year ended 31 December 2005 Opening net book amount 9,565,605 23,180,688 25,535,248 8,077,993 12,293,3 Reclassification 30,571,640 (3,707,948) 3,068,655 931,780 Additions 2,814,022 - 118,766 664,814 2,650,4 Transfer from construction in progress (Note 10) - 50,395 - - Transfer to investment property (Note 7) (1,107,751) - - - Disposals (2,606,384) - (73,718) (209,723) Depreciation charge (3,664,130) (847,880) (3,259,221) (3,343,250) (3,187,0 Closing net book amount 35,573,002 18,675,255 25,389,730 6,121,614 11,756,7 At 31 December 2005 Cost 47,384,672 44,650,946 71,642,061 23,281,450 23,913,2 Accumulated depreciation (11,811,670) (25,975,691) (46,252,331) (17,159,836) (12,156,5 Net book amount 35,573,002 18,675,255 25,389,730 6,121,614 11,756,7 Depreciation expense of 14,955,572 (2004: 12,615,819) was charged in ‘cost of sales’ and 1,508,872 (2004: 1,069,394) in ‘administrative expens At 31 December 2005, the certificates of certain buildings with cost totaling 2,689,104 (2004: 3,568,823) have not been obtained as the certifica been obtained (Note 8). 44 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 7. Investment property 2005 2004 Cost At 1 January 309,013,926 193,258,619 Transfer from property, plant and equipment (Note 6) 1,117,629 42,903,791 Transfer from construction in progress (Note 10) - 73,488,202 Disposals (123,794) (636,686) At 31 December 310,007,761 309,013,926 Accumulated depreciation At 1 January 72,014,449 48,568,270 Charge for the year 8,147,668 7,468,661 Transfer from property, plant and equipment (Note 6) 9,878 16,132,003 Disposals (39,198) (154,485) At 31 December 80,132,797 72,014,449 Net book amount At 31 December 229,874,964 236,999,477 Depreciation expense was charged in cost of sales. At 31 December 2005, the certificates of certain investment property with cost totaling 218,481,263 (2004: 217,487,405) have not been obtained as the certificates of the relevant leasehold land have not been obtained (Note 8). Independent valuer has not been employed to determine the fair value of the investment property. The fair value of the investment property as at 31 December 2005 was determined by directors of the Company to be approximately 388 million (2004: 386 million) using the discounted cash flow method. 45 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 8. Leasehold Land 2005 2004 Opening net book amount 107,429,143 120,732,887 Additions - 1,703,583 Amortisation charge (14,733,797) (15,007,327) Closing net book amount 92,695,346 107,429,143 At 31 December 2005, the certificates of certain leasehold land with net book amount of 69,846,821 have not been obtained, including 40,180,748 injected by China Nanshan Development (Group) Incorporation (“Nanshan Development”), the immediate holding company, and two pieces of land amounting to 23,953,224 and 5,712,849 respectively leased from Nanshan Development, the relevant lease agreements were entered into on 10 February 1984 and 18 July 1997 respectively in respect of the acquisitions of the rights to use the land in Nanshan, the PRC for a period of 25 years and 14 years respectively. The land was injected by the owner of Nanshan Development upon its incorporation and at that time, the then prevailing PRC laws did not allow for the issuance of official documents for transfer of leasehold land. Therefore, Nanshan Development has not obtained the formal leasehold land documentation associated with the land and the assignment of such rights to the Company has not been completed up to the date of the approval of these consolidated financial statements. Nanshan Development entered into two deeds with the Company on 3 July 2000 and 18 July 1997 in respect of the two pieces of land leased from it, under which Nanshan Development undertakes to indemnify the Company all losses, costs, expenses and any other liabilities that may incur or be suffered by the Company arising from the use and occupation of the land and wharf areas throughout the terms of the grant of such rights. 9. Progress payment for leasehold land 2005 2004 At 1 January 91,725,320 27,000,000 Additions 2,895,506 64,725,320 At 31 December 94,620,826 91,725,320 The amount mainly included progress payments of 56,040,000 (2004: 56,040,000) and 38,580,826 (2004: 35,685,320) for lease of two pieces of land acquired by two subsidiaries, Shanghai Baowan Logistics Company Limited (“Shanghai Baowan”) and Guangzhou Baowan Logistics Company Limited (“Guangzhou Baowan”), respectively. As at December 2005, the formal approval of the grant of the related leasehold land certificates was still in progress. 46 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 10. Construction in progress 2005 2004 Beginning of year 26,636 93,937,991 Additions 84,562,318 21,834,828 Transfer to property, plant and equipment (Note 6) (50,395) (42,257,981) Transfer to investment property (Note 7) - (73,488,202) End of year 84,538,559 26,636 11. Intangible assets Goodwill Software Total At 1 January 2004 Cost 560,929 - 560,929 Accumulated amortisation - - - Net book amount 560,929 - 560,929 Year ended 31 December 2004 Opening net book amount 560,929 - 560,929 Additions - 178,200 178,200 Amortisation charge (131,554) (24,668) (156,222) Closing net book amount 429,375 153,532 582,907 At 31 December 2004 Cost 560,929 178,200 739,129 Accumulated amortisation (131,554) (24,668) (156,222) Net book amount 429,375 153,532 582,907 Year ended 31 December 2005 Opening net book amount 429,375 153,532 582,907 Additions - 175,475 175,475 Amortisation charge - (47,564) (47,564) Closing net book amount 429,375 281,443 710,818 At 31 December 2005 Cost 429,375 353,675 783,050 Accumulated amortisation - (72,232) (72,232) Net book amount 429,375 281,443 710,818 47 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 11. Intangible assets (continued) Amortisation of 47,564 (2004: 24,668) is included in ‘administrative expenses’, nil (2004: 131,554) is included in ‘other gains - net’. Accumulated amortisation as at 1 January 2005 has been eliminated with a corresponding decrease in the cost of goodwill. 12. Investments in associates 2005 2004 Beginning of year 165,194,989 126,829,732 Share of profit 55,771,478 41,677,257 Dividends declared - (3,312,000) End of year 220,966,467 165,194,989 The results, assets and liabilities of its associates, all of which are unlisted companies incorporated in the PRC, are as follows: % Profit/ interest Name Assets Liabilities Revenues (loss) held 2004 Shenzhen Chiwan Sembawang Engineering Co., Ltd. (“Chiwan SBW”) 753,938,315 253,696,327 548,788,977 132,096,711 32% Shenzhen Chiwan Offshore Petroleum Equipment Repair/Manufacture Co., Ltd. (“Chiwan Offshore)” 35,828,471 20,355,751 21,114,091 (2,968,455) 20% 789,766,786 274,052,078 569,903,068 129,128,256 2005 Shenzhen Chiwan Sembawang Engineering Co., Ltd. (“Chiwan SBW”) 841,191,668 166,809,518 623,210,748 174,140,162 32% Shenzhen Chiwan Offshore Petroleum Equipment Repair/Manufacture Co., Ltd. (“Chiwan Offshore)” 24,101,806 8,395,956 16,766,392 233,130 20% 865,293,474 175,205,474 639,977,140 174,373,292 13. Inventories 2005 2004 At cost Materials and spare parts 1,902,812 1,179,133 Low-valued consumables 314,551 - 2,217,363 1,179,133 The cost of inventories recognised as expense and included in ‘cost of sales’ amounted to 1,650,453 (2004: 2,095,184) and in ‘administrative expenses’ amounted to 122,165 (2004: 44,440). 48 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 14. Trade and other receivables 2005 2004 Trade receivables 15,188,066 19,113,696 Less: provision for impairment (300,118) (275,182) Trade receivables - net 14,887,948 18,838,514 Dividend receivable - 3,312,000 Other receivables, prepayments and deposits 3,945,277 3,565,896 Receivables from related parties (Note 30(i)) 7,812,517 8,146,328 26,645,742 33,862,738 15. Cash and cash equivalents Note 2005 2004 Cash at bank and in hand 40,095,972 85,694,664 Short-term bank deposits (a) 45,000,000 - Less: Restricted cash (b) (100,000) - 84,995,972 85,694,664 (a) The effective interest rate on short-term bank deposits was 1.71%; these deposits have a maturity of three months. (b) It represented the deposits pledged for the transportation business supervised by the local Customs. 16. Share capital Registered, issued and fully paid ordinary shares of RMB 1 each: Unlisted A shares Unlisted B held by shares Number of Nanshan held by a legal B shares, shares Development person listed Total RMB RMB RMB RMB Registered, issued and fully paid 230,600,000 119,420,000 51,180,000 60,000,000 230,600,000 Translation differences (Note 16 (b)) - (3,500,000) (1,500,000) (1,758,497) (6,758,497) At 1 January 2004 230,600,000 115,920,000 49,680,000 58,241,503 223,841,503 Unlisted shares transfer to listed shares - - (49,680,000) 49,680,000 - At 31 December 2004/ 1 January 2005 230,600,000 115,920,000 - 107,921,503 223,841,503 At 31 December 2005 230,600,000 115,920,000 - 107,921,503 223,841,503 49 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 16. Share capital (continued) (a) Pursuant to the Company’s articles of association, all shares are registered ordinary shares and shall carry equal rights. (b) Translation difference arises from the change in the functional currency of the Company from US dollar (“USD”) to RMB. The total registered share capital of the Company is RMB230,600,000 which has been full paid. Such contributions had been translated into the former functional currency of the Company in USD using the exchange rate prevailing at the date of contribution. On 1 April 2004, the Company’s measurement currency was changed to RMB and the share capital amount denominated in USD was translated into RMB at the exchange rate on 1 April 2004. Consequently, there is a translation difference of RMB 6,758,497 arising out of such translation process. 17. Reserves Share premium and other Statutory Discretionary Statutory public reserves surplus reserve surplus reserve welfare fund Total Balance at 1 January 2004 217,507,477 48,889,000 29,902,903 24,444,499 320,743,879 Transfer from retained earnings - 10,041,203 - 5,020,602 15,061,805 Others 6,194 - - - 6,194 Balance at 31 December 2004/1 January 2005 217,513,671 58,930,203 29,902,903 29,465,101 335,811,878 Transfer from retained earnings - 11,472,574 5,020,602 16,493,176 At 31 December 2005 217,513,671 70,402,777 34,923,505 29,465,101 352,305,054 (a) Pursuant to the relevant PRC regulations and articles of association of the Group, before distributing profit to shareholders, the Group should transfer 10% of its profit after tax to statutory surplus reserve (except where the reserve balance has reached 50% of the paid up share capital). The Group may make appropriation from its profits after tax to discretionary surplus reserve provided it is approved by resolutions of shareholders’ general meeting or the meetings of board of directors, where appropriate. The amounts of transfers to the statutory surplus reserve shall be made based on profit after tax reflected in the PRC statutory accounts prepared in accordance with PRC accounting standards. (b) Statutory surplus reserve and discretionary surplus reserve According to the relevant PRC regulations, statutory surplus reserve and discretionary surplus reserve can be used to make up losses or to increase the share capital of a company. Except for the reduction of losses incurred, any other usage should not result in the reserve balance falling below 25% of the registered capital amount. 50 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 17. Reserves (continued) (c) Statutory public welfare fund According to the relevant PRC regulations, no statutory public welfare fund is to be appropriated from the profit after tax for the year. The closing balance of statutory public welfare fund will be transferred to surplus reserve on 1 January 2006. 18. Borrowings 2005 2004 Current - Unsecured bank borrowings - 83,000,000 As of 31 December 2005, the Group had unutilised banking facilities of 500 million, which was sufficient to finance the obligations arising from the net current liabilities of 48 million as at 31 December 2005. Consequently, directors are of the opinion that the Group has sufficient working capital for the foreseeable future. 19. Deferred tax liabilities A deferred tax liability was recognised according to certain PRC regulations at the time of reorganisation of the Company into a joint stock company. The balance is payable over a period of 14 years. The movement in deferred tax liabilities account is as follows: 2005 2004 At 1 January 7,115,327 8,357,716 Transfer to current tax liabilities (1,242,389) (1,242,389) At 31 December 5,872,938 7,115,327 No other provision for deferred taxation had been recognised as there were no material temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. 51 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 20. Deferred revenue 2005 2004 At 1 January 31,449,527 28,703,382 Additions 5,722,613 7,129,055 Transfer to current revenue (4,256,385) (4,382,910) At 31 December 32,915,755 31,449,527 The balance includes rental of 16,526,612 (2004: 16,951,610) received in advance from Chiwan SBW. 21. Trade and other payables 2005 2004 Trade payables 689,259 1,067,084 Construction payables 25,425,331 2,760,418 Other payables 13,333,165 11,654,453 Amounts due to related parties (Note 30(i)) 117,342,589 22,913,094 156,790,344 38,395,049 22. Expenses by nature 2005 2004 Depreciation and amortisation 39,732,964 36,133,951 Employee benefit expenses (Note 23) 24,294,642 22,277,099 Raw materials and consumables used 1,772,618 2,139,624 Transportation expenses 1,806,314 2,350,613 Rental charges 2,341,280 1,501,159 Utility expenses 2,595,211 1,899,733 Repair and maintenance 2,417,210 3,012,045 Auditors’ remuneration 555,000 374,210 Taxes and levies 10,477,570 9,353,851 Other expenses 8,287,329 7,868,282 Total cost of sales and administrative expenses 94,280,138 86,910,567 52 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 23. Employee benefit expenses 2005 2004 Wages, salaries and other benefits 23,071,784 20,829,247 Pension costs – defined contribution plans 1,222,858 1,447,852 24,294,642 22,277,099 24. Finance costs 2005 2004 Interest expenses 1,582,767 1,428,901 Net exchange (gains)/losses (483,160) 24,059 1,099,607 1,452,960 25. Income tax expense 2005 2004 Current tax 9,432,994 9,703,284 The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the preferential income tax rate of 15% in Shenzhen Special Economic Zone of the PRC, the location in which the Company operates, as follows: 2005 2004 Profit before tax 125,237,180 110,361,331 Tax calculated at the tax rate of 15% (2004: 15%) applicable to the Company 18,785,577 16,554,200 Effect of different tax rates in the subsidiaries of the Group (1,034,687) (645,722) Share of profit of associates not subject to tax (8,365,722) (6,251,589) Expenses not deductible for tax purposes 47,826 46,395 Tax charge 9,432,994 9,703,284 53 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 26. Earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the number of ordinary shares in issue during the year. 2005 2004 Profit attributable to equity holders of the Company 115,510,156 100,412,034 Number of ordinary shares in issue 230,600,000 230,600,000 Basic earnings per share 0.50 0.44 The Company has no dilutive potential shares and diluted earnings per share are therefore not presented. 27. Dividends per share The dividends paid in 2005 and 2004 were 50,206,017 (0.22 per share) and 60,279,917 (0.26 per share) respectively. A dividend in respect of the year ended 31 December 2005 of 0.27 per share, amounting to a total of 63,099,157, is to be proposed at the Annual General Meeting on 10 April 2006. These financial statements do not reflect this dividend payable. 54 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 28. Cash generated from operations 2005 2004 Profit for the year 115,804,186 100,658,047 Adjustments for: Tax 9,432,994 9,703,284 Depreciation 24,951,603 21,153,874 Amortisation of leasehold land 14,733,797 14,823,855 Amortisation of intangible assets 47,564 156,222 (Gains)/losses on disposal of property, plant and equipment and investment property (49,009) 156,963 Provision/(reversal of provision) for impairment of receivables 93,202 (2,016,709) Interest income (287,344) (791,694) Interest expenses 1,582,767 1,428,901 Share of profit of associates (55,771,478) (41,677,257) Changes in working capital: (Increase)/decrease in inventories (1,038,230) 162,424 Decrease/(increase) in trade and other receivables 3,566,182 (1,196,992) Increase in deferred revenue 1,466,228 2,746,114 Increase in trade and other payables 5,196,008 3,569,751 Cash generated from operations 119,728,470 108,876,783 In the cash flow statement, proceeds from sale of property, plant and equipment and investment property comprise: 2005 2004 Net book amount (Notes 6, 7) 3,845,312 818,906 Profit/(loss) on sale 49,009 (156,963) Settlement by receivables (1,017,313) (311,043) Proceeds from sale 2,877,008 350,900 55 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 29. Commitments (a) Capital commitments Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows: 2005 2004 Property, plant and equipment 81,746,780 15,882,541 (b) Operating lease commitments – when the Group is the lessee The future aggregate minimum lease payments under non-cancellable operating leases are as follows: 2005 2004 Not later than 1 year 39,123,246 11,742,556 Later than 1 year and not later than 5 years 5,477,362 34,171,571 Later than 5 years 16,410,332 11,337,977 61,010,940 57,252,104 (c) Operating lease commitments – when the Group is the lessor The future minimum lease payments receivable under non-cancellable operating leases are as follows: 2005 2004 Not later than 1 year 53,455,026 31,218,150 Later than 1 year and not later than 5 years 19,040,489 35,161,074 Later than 5 years 24,050,907 19,897,101 96,546,422 86,276,325 56 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 30. Related party transactions The immediate holding company of the Company is Nanshan Development, which owns 52% of the Company’s equity interests and is a state-controlled enterprise (“SCE”) controlled by the PRC government. The PRC government is therefore regarded by the directors as the ultimate controlling party of the Company. In addition to Nanshan Development group companies and the Company’s associates, those companies directly or indirectly controlled by the PRC government are also regarded by the directors as related parties of the Group. The following significant transactions were carried out with related parties: 2005 2004 (a) Sales of services Service income from immediate holding company - Nanshan Development 3,277,003 3,151,168 Service income from associates - Chiwan Offshore 1,183,115 1,288,048 - Chiwan SBW 7,725,872 4,700,299 8,908,987 5,988,347 Service income from a fellow subsidiary - Shenzhen Chiwan Wharf Holdings Limited 658,807 538,740 Service income from other SCEs 30,538,860 27,435,989 Land usage income from an associate - Chiwan SBW 2,881,440 2,881,440 (b) Purchases of services Construction services provided by related companies Fellow subsidiaries - Shenzhen Chixiao Engineering Construction Co., Ltd. 37,216,555 - - Shenzhen Chixiao Compound Estate Inc. 6,166,278 - 43,382,833 - Other SCEs 5,575,471 9,930,232 Rental for land and buildings leased from immediate holding company - Nanshan Development 2,314,280 1,501,159 (c) Bank deposits at state-controlled banks 56,361,603 33,852,450 (d) Borrowings from state-controlled banks - 83,000,000 57 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 30. Related party transactions (continued) (e) Loan from Nanshan Development * 100,000,000 - * The loan obtained from Nanshan Development is unsecured, interest-bearing at an annual rate of 3.5% and repayable on 30 Nov 2006. The interest charge for 2005 was 249,315 (2004: Nil). (f) Interest income from bank deposits with state-controlled banks 254,742 505,021 (g) Interest charges on borrowings from state- controlled banks 1,203,843 414,833 (h) Key management compensation 2005 2004 Wages and salaries 1,544,895 1,340,824 Pension costs – defined contribution scheme 52,368 52,368 1,597,263 1,393,192 (i) Year-end balances 2005 2004 Receivables from related parties Immediate holding company - Nanshan Development 19,126 19,376 Associates - Chiwan Offshore 33,315 4,812 - Chiwan SBW 556,630 311,892 589,945 316,704 A fellow subsidiary - Shenzhen Chiwan Wharf Holdings Limited 2,510 35,187 Other SCEs 7,200,936 7,775,061 7,812,517 8,146,328 58 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 30. Related party transactions (continued) (i) Year-end balances (continued) Payables to related parties Immediate holding company - Nanshan Development 100,370,400 365,434 A fellow subsidiary - Shenzhen Chiwan Wharf Holdings Limited 115,353 115,353 Other SCEs 16,856,836 22,432,307 117,342,589 22,913,094 All the current accounts maintained with related parties are interest-free, non-secured and repayable on demand, except for the above 100,000,000 of loan from Nanshan Development which are repayable according to the loan agreement. 31. Events after the balance sheet date Pursuant to a resolution passed on the meeting of Board of Directors held on 14 January 2006, a wholly-owned subsidiary, Tianjin Baowan International Logistics Co., Ltd., was established on 14 March 2006 in Tianjin by the Company with registered capital of 49,800,000 and total budgeted investment of 348,000,000. 59