武锅B退(200770)武锅Ｂ2005年年度报告（英文版）

Stock Code: 200770 Short Form of the Stock: Wuguo B WUHAN BOILER COMPANY LIMITED ANNUAL REPORT 2005 Disclosing Newspaper: Securities Times and Hong Kong Ta Kung Pao Disclosing Date: Apr. 12, 2006 Contents Ⅰ. Important Notes-------------------------------------------------------------------------------------------- Ⅱ. Company Profile-------------------------------------------------------------------------------------------- T -1- Ⅲ. Summary of Accounting Highlight and Business Highlight--------------------------------------- Ⅳ. Changes in Share Capital and Particulars about Shareholders---------------------------------- Ⅴ. Particulars about Directors, Supervisors and Senior Executives and Employees------------- Ⅵ. Corporate Governance------------------------------------------------------------------------------------------ Ⅶ. Brief Introduction to the Shareholders’ General Meeting ---------------------------------------- Ⅷ. Report of the Board of Directors ----------------------------------------------------------------------- Ⅸ. Report of the Supervisory Committee------------------------------------------------------------------ Ⅹ. Significant Events------------------------------------------------------------------------------------------ Ⅺ. Financial Report-------------------------------------------------------------------------------------------- Ⅻ. Documents for Reference--------------------------------------------------------------------------------- T -2- SECTION I. IMPORTANT NOTES The Board of Directors, the Supervisory Committee, directors, supervisors and senior executives of Wuhan Boiler Company Limited (hereinafter referred to as the Company) individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are neither material omissions nor errors which would render any statement misleading. Wuhan Zhonghuan Certified Public Accountants Ltd. audited the Financial Report 2005 of the Company and produced a standard unqualified Auditors’ Report for the Company. The Auditors’ Report 2005 (English version) was issued in the name of BDO International Wuhan Zhonghuan Certified Public Accountants because Wuhan Zhonghuan Certified Public Accountants Ltd. has entered in BDO International Certified Public Accountants (for short “BDO”). Director Mr. Li Jun did not attend the Board meeting personally due to work adjustment and entrusted Director Mr. Liu Chengxiang to exercise voting right; Independent Director Mr. Wang Haisu was absent from the Board meeting personally because he went abroad due to business trip and entrusted Independent Director Mr. Wang Zongjun to exercise voting right. Chairman of the Board of the Company Mr. Chen Bohu, General Manager and concurrently CFO Mr. Xiang Rongwei and Person in Charge of Accounting Organ Ms. Qin Shanlan hereby confirm that the Financial Report enclosed in Annual Report is true and complete. T -3- SECTION II. COMPANY PROFILE 1. Legal Name of the Company In Chinese: 武汉锅炉股份有限公司 In English: WUHAN BOILER COMPANY LIMITED Abbr. in English: WBC 2. Legal Representative: Chen Bohu 3. Secretary of the Board of Directors: Liu Chengxiang Securities Affairs Representative: Xu Youlan Contact Address: No. 586, Wuluo Road, Wuhan, Hubei Contact Tel: (86) 27-87652719 Contact Fax: (86) 27-87655152 E-mail: xu_yl36@yahoo.com.cn 4. Registered Address and Office Address: No. 586, Wuluo Road, Wuhan, Hubei Post Code: 430070 Internet Website: http://www.wbcl.com.cn E-mail: wbgchw@public.wh.hb.cn 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times (Domestic), Ta Kung Pao (Overseas) Internet Website for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Securities Department of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: WUGUO – B Stock Code: 200770 7. Other Information of the Company Initial registration date: On Apr. 8, 1998, the Company was formally incorporated. Initial registration place: No. 586, Wuluo Road, Wuhan, Hubei The latest registration date: On Nov. 16, 1998, the Company changed its registration with Administration Bureau for Industry and Commerce of Hubei as a Sino-foreign joint stock limited company. The latest registration place: No. 586, Wuluo Road, Wuhan, Hubei Registration code of enterprise legal person’s business license: QGEZ Zi No.: 002591 Registration code of taxation: 420106271756432 The Certified Public Accountants engaged by the Company: Domestic: Wuhan Zhonghuan Certified Public Accountants Ltd. Address: 16/F, Tower B, Wuhan International Mansion Overseas: BDO International Wuhan Zhonghuan Certified Public Accountants Address: 16/F, Tower B, Wuhan International Mansion T -4- SECTION III. SUMMARY OF ACCOUNTING HIGHLIGHTS AND BUSINESS HIGHLIGHTS I. Accounting data of the Company as of the year 2005 Unit: RMB Total profit 45,837,312.18 Net profit 24,546,297.24 Net profit after deducting non-recurring gains and losses 25,231,627.92 Profit from main operations 246,630,616.53 Other operating profit 2,592,620.66 Operating profit 48,836,661.72 Investment income -252,965.72 Subsidy income Net non-operating income/expenses -2,746,383.82 Net cash flow arising from operating activities 367,672,700.96 Net increase/decrease of cash and cash equivalents 115,965,395.92 Note: Item of deducting non-recurring gains and losses and the amount involved (Unit: In RMB) Items of non-recurring gains and losses Amounts Gains/losses from disposal of long-term equity investment, fixed assets, project -2,968,852.03 in construction, intangible assets and other long-term assets Various non-operating income 679,382.01 Various non-operating expense after deducting daily reserve for impairment of assets withdrawn by the Company in line with the regulations of Accounting -156,465.41 System for Business Writing back various reserve for devaluation allotted over the previous years 1,438,153.28 Impact on income tax after deducting non-recurring gains and losses 322,451.47 Total -685,330.68 The impact on the PRC statutory financial statements adjusted by BDO International Wuhan Zhonghuan Certified Public Accountants based on IFRS and other adjustment are as follows (as at Dec. 31, 2005): Net profit Net assets (RMB’0000) (RMB’0000) As per the PRC statutory financial statements 2,454.60 61,530.30 IFRS and other adjustments (1) Writing off long-term investment revaluation surplus -63.50 (2) Deferred tax 109.40 365.90 (3) Forfeited customer deposits 22.60 (4) Appropriation refund 257.00 (5) Minority interests 1,977.90 (6) Transferring into from capital reserve 2,345.00 (7) Others 7.50 7.50 As restated after IAS and other adjustments 5,196.10 63,818.10 Note: The main reason of discrepancy is due to transferring into from capital reserve, deferred tax and appropriation refund. II. Financial indexes of the Company in the recent three years ended the report period (1) The following data were calculated and listed based on the consolidated accounting T -5- statement Unit: RMB Items 2005 2004 2003 Income from main operations 2,874,191,882.49 2,214,625,155.28 1,237,739,269.58 Net profit 24,546,297.24 44,864,079.93 29,851,616.19 Total assets 3,124,848,664.38 2,770,656,873.06 2,204,893,156.02 Shareholders’ equity (excluding 578,465,485.28 545,183,405.34 minority interest) 615,302,598.05 Earnings per share 0.08 0.15 0.10 Earnings per share (calculated based on 0.15 0.10 monthly weighted average) 0.08 Earnings per share after deducting 0.15 0.10 non-recurring gains and losses 0.08 Net assets per share 2.07 1.95 1.84 Net assets per share after adjustment 1.87 1.81 1.73 Net cash flow per share arising from 1.24 -1.18 0.4 operating activities Return on equity (%) 3.99% 7.76% 5.48% (2) In accordance with Editing and Reporting Rules Regarding Information Disclosure for Companies Publicly Issuing Securities (No. 9) promulgated by CSRC, the Company’s return on equity and earning per share as of the year 2005 are calculated based on fully diluted method and weighted average method are as follows: Supplemental statement of profit as of report period Return on equity (%) Earnings per share (RMB) Profit as of the report period Fully Weighted Fully Weighted diluted average diluted average Profit from main operations 40.08 41.67 0.83 0.83 Operating profit 7.94 8.25 0.16 0.16 Net profit 3.99 4.15 0.08 0.08 Net profit after deducting non-recurring gains and losses 4.10 4.26 0.08 0.08 III. Particulars about changes in shareholders’ equity during the report period and the reasons (Unit: RMB) Share capital Capital reserve Surplus Statutory public Retained Total reserve welfare fund profit Items shareholders’ equity Amount at the 297,000,000.00 152,548,403.93 18,910,735.99 18,910,736.00 91,095,609.36 578,465,485.28 period-begin Increase in this report 0 26,249,815.53 3,243,328.60 3,243,328.60 5,017,239.49 37,753,712.22 period Decrease in this report 0 458,299.73 458,299.73 916,599.46 period Amount at the 297,000,000.00 178,798,219.46 21,695,764.87 21,695,764.87 96,112,848.85 615,302,598.05 period-end Reason for changes Increase of net Other capital Withdrawal Withdrawal Increase of reserve profit as of from net profit from net profit profit transferred into report year T -6- SECTION IV. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS I. Changes in Share Capital Unit: Share Before the change Increase/decrease in this time (+, - ) After the change Type of shares Issuance Capitalization Number of Proportion Bonus Number of Proportion of new of public Other Subtotal shares (%) shares shares (%) shares reserve I. Nontradable shares 1. Sponsors’ shares 172000000 57.9% 172000000 57.9% Including: Shares held by the State Share held by domestic legal 172000000 57.9% 172000000 57.9% person Share held by foreign legal person Others 2. Raised legal person’s shares 3. Inner employees shares 4. Preference shares or others Total nontradable 172000000 57.9% 172000000 57.9% shares II. Tradable shares 1. RMB ordinary shares 2. Domestically 125000000 42.1% 125000000 42.1% listed foreign shares 3. Overseas listed foreign shares 4. Others Total tradable shares 125000000 42.1% 125000000 42.1% III. Total shares 297000000 100% 297000000 100% II. Issuance and listing of shares 1. On Mar. 20, 1998, the Company placed 125,000,000 domestically listed foreign shares (B shares) to foreign investors at the issuing price of HKD 1.496 per share. The said shares were listed in Shenzhen Stock Exchange for trade on Apr. 15, 1998 with the stock code as 200770. 2. In the report period, there are no changes in the total number of share and structure of share capital of the Company. 3. About profit distribution during the report period On June 28, 2005, the Company implemented profit distributions plan to all shareholders at the rate of RMB 0.47 in cash for every 10 shares with amounting to RMB 13,959,000 in total. T -7- III. About shareholders (1) Ended Dec. 31, 2005, the Company had totally 18,862 shareholders, including 1 sponsor shareholder, namely Wuhan Boiler Group Co., Ltd; and 18,861 ones of domestically listed foreign shares. (2) Particulars about shares held by the principal shareholders Ended Dec. 31, 2005, the top ten shareholders and the top ten shareholders of tradable share of the Company are as follows: Total number of shareholders 18,862 shareholders Particulars about shares held by the top ten shareholders Total Number of Nature of Proportion number of Share pledged Name of shareholders nontradable shareholders (%) shares held or frozen shares held (share) WUHAN BOILER GROUP CO., LTD State-owned 57.9% 172,000,000 172,000,000 0 shareholder WANG JIA YI Foreign 0.73% 2,180,000 0 Unknown shareholder WU NAI WEN Foreign 0.37% 1,107,750 0 Unknown shareholder ABN AMRO BANK NV Foreign 0.30% 890,404 0 Unknown shareholder CHEN QIAN FEN Foreign 0 Unknown 0.24% 717,600 shareholder WEN HE DI Foreign 0.19% 570,000 0 Unknown shareholder LIU BI XIANG Foreign 0.16% 467,000 0 Unknown shareholder GUAN WEN HAI Foreign 0 Unknown 0.15% 446,727 shareholder CHEN CHAO FAN Foreign 0.15% 432,108 0 Unknown shareholder WANG, HUANSHENG Foreign 0.14% 428,800 0 Unknown shareholder Particulars about shares held by the top ten shareholders of tradable share Name of shareholders Numbers of tradable share held at Type of share the end of the year WANG JIA YI 2,180,000 Domestically listed foreign shares WU NAI WEN 1,107,750 Domestically listed foreign shares ABN AMRO BANK NV 890,404 Domestically listed foreign shares CHEN QIAN FEN 717,600 Domestically listed foreign shares WEN HE DI 570,000 Domestically listed foreign shares LIU BI XIANG 467,000 Domestically listed foreign shares GUAN WEN HAI 446,727 Domestically listed foreign shares CHEN CHAO FAN 432,108 Domestically listed foreign shares WANG, HUANSHENG 428,800 Domestically listed foreign shares LI LEON ZHAN WEI 414,500 Domestically listed foreign shares T -8- Among the top ten shareholders of the Company, Wuhan Boiler Group Co., Ltd., the first largest shareholder of the Company, holds the nontradable shares, and shares held by it remained unchanged in the report period; the rest nine shareholders are social public shareholders and hold tradable shares (B shares), whose change of shares was due to the transaction of the Company’s shares in the second market in the report period. Among the top ten shareholders of the Company, there exists no association relationship Explanation on associated between Wuhan Boiler Group Co., Ltd. and any other shareholders of relationship among the top ten tradable share; Neither of the first largest shareholder is acting-in-concert shareholders or acting-in-concert with any other shareholders as described by the Administrative Rules on Information Disclosure about Changing of Shareholding Status. The Company was unknown whether there is any associated relationship among the top ten shareholders of tradable share; or whether there is any action-in-concert among them as described by the Administrative Rules on Information Disclosure about Changing of Shareholding Status. The Company was unknown whether there is any associated relationship among the top ten shareholders and the top ten shareholders of tradable share. (3) The controlling shareholder Wuhan Boiler Group Co., Ltd. (“the Group Company”) is the controlling shareholder of the Company, as well as the only one holding over 10% of total shares of the Company. Ended Dec. 31, 2005, the Group Company held 172 million shares of the Company, taking up 57.9% of the total shares. Legal representative: Huang Jiang Date of foundation: Aug. 8, 1995 Registered capital: RMB 90.596 million Registered number of enterprise legal person’s business license: 4201001100902 Business scope: investment and operation of the state-owned assets authorized to operate and manage; development, design and whole set installing of boiler, pressure vessels and related mechanical-electrical products, and the import and export businesses approved by the State; truck transportation; (including the business scope of the subsidiaries) (For the projects specially provided by the State, the Company can operate after approval). Wuhan Boiler Group Co., Ltd. is the state-owned sole corporation with capital operating and assets management as its main task, which wholly-owned held by Wuhan Municipal State-owned Assets Supervisory Administration Commission. (4) The property right and controlling relationship between the Company and the actual controller are as follows: Wuhan Municipal State-owned 100% Wuhan Boiler 57.9% Wuhan Boiler Assets Supervision and Administration Commission Group Co., Ltd. Company Limited T -9- SECTION V. PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES I. Basic information of directors, supervisors and senior executives (1) Particulars about Directors Holding share (share) Name Sex Age Title Office term Period-begin Period-end Chen Bohu Male 42 Chairman of the Board Apr. 2004-Apr. 2007 0 0 Xiang Rongwei Male 53 Director Apr. 2004-Apr. 2007 0 0 Li Jun Male 47 Director Apr. 2004-Apr. 2007 0 0 Chen Helin Male 57 Director Apr. 2004-Apr. 2007 0 0 Liu Chengxiang Male 57 Director Apr. 2004-Apr. 2007 0 0 Hua Lixin Male 41 Director Apr. 2004-Apr. 2007 0 0 Wang Zongjun Male 42 Independent Director Apr. 2004-Apr. 2007 0 0 Zhou Maorong Male 62 Independent Director Apr. 2004-Apr. 2007 0 0 Wang Haisu Male 51 Independent Director Apr. 2004-Apr. 2007 0 0 (2) Particulars about supervisors Holding share (share) Title Office term Name Sex Age Period-begin Period-end Zhou Zhemin Male 48 Convener Apr. 2004-Apr. 2007 0 0 Zeng Xianping Male 57 Supervisor Apr. 2004-Apr. 2007 0 0 Guo Ling Male 46 Supervisor Apr. 2004-Apr. 2007 0 0 (3) Particulars about senior executives Holding share (share) Name Sex Age Title Office term Period-begin Period-end Xiang Rongwei Male 53 General Manager Apr. 2004-Apr. 2007 0 0 Bai Xixin Male 42 Deputy General Manager Apr. 2004-Apr. 2007 0 0 Hua Lixin Male 41 Deputy General Manager Apr. 2004-Apr. 2007 0 0 Jin Zhicheng Male 47 Deputy General Manager Apr. 2004-Apr. 2007 0 0 Pei Hanhua Male 47 Deputy General Manager Apr. 2004-Apr. 2007 0 0 Liu Chengxiang Male 57 Secretary of the Board Apr. 2004-Apr. 2007 0 0 (4) Notes: 1. Directors, supervisors and senior executives of the Company did not hold the Company’s share. 2. The Company’s present supervisor Mr. Zeng Xianping holds the post of Deputy Chief Accountant in Wuhan Boiler Group Co., Ltd. (the controlling shareholder of the Company) since 2002 to now; the present director Mr. Li Jun holds the post of General Manager in Wuhan Boiler Group Co., Ltd. (the controlling shareholder of the Company) from 2002 to 2005; the present director Mr. Chen Helin holds the post of Deputy General Manager in Wuhan Boiler Group Co., Ltd. (the controlling shareholder of the Company) since 2001 till now; the present director Mr. Hua Lixin holds Legal Representative in Wuhan Lanxiang Energy Environmental Science and Technology Co., Ltd. (the shareholding subsidiary of the Company) since June 2002 to now; the rest directors, supervisors and senior executives did not hold any position in shareholding company and shareholding subsidiaries of the Company. II. Major business experience of directors, supervisors and senior executives and particulars about holding the post in other companies except for Shareholding Company 1. Director: Mr. Chen Bohu Chairman of the Board of the Company. He takes the post of Chairman of the Board of the Company since 2001. Mr. Xiang Rongwei Director and concurrently General Manager of the Company. T - 10 - He takes the posts of Director and concurrently General Manager of the Company since 2001. Mr. Li Jun Director of the Company. He ever took the post of Deputy General Manager of Wuhan Boiler Group Co., Ltd. from 2001 to 2002; and from 2002 to 2005, he took the post of General Manager of Wuhan Boiler Group Co., Ltd.. Mr. Chen Helin Director of the Company. He takes the post of Deputy General Manager in Wuhan Boiler Group Co., Ltd. since 2001. Mr. Liu Chengxiang Director and concurrently Secretary of the Board of the Company. He takes the posts of Director and concurrently Secretary of the Board in the Company since 2001. Mr. Hua Lixin Director and concurrently Deputy General Manager and Chief Engineer of the Company. He holds the posts of Deputy General Manager and Chief Engineer in the Company since 2001; and takes the post of Director of the Company since 2004. Mr. Zhou Maorong He now acts as Dean in Commercial College of Wuhan University; Deputy Director of Chinese Society of World Economy, Director of Hubei Province Society of World Economy. He acts as Independent Director of the Company form 2001. Mr. Wang Zongjun He now acts as Assistant Dean of Management School of Huazhong Polytechnic University. He acts as Independent Director of the Company form 2001. Mr. Wang Haisu He now acts as Director of MBA Education Center of Zhongnan University of Economics and Law. He took the post of Independent Supervisor from 2001 to 2004. He acts as Independent Director of the Company since 2004. 2. Supervisor: Mr. Zhou Zhemin Convener of the Supervisory Committee of the Company. He took the post of Division Chief of Supplying Division in the Company from 2001 to 2004, and he acts as Deputy Secretary of the Labor Union and Convener of the Supervisory Committee in the Company since 2004. Mr. Zeng Xianping He held the post of Supervisor of the Company since 2001. He acts as Deputy Chief Accountant in Wuhan Boiler Group Co., Ltd. from 2002 till now. Mr. Guo Ling He now acts as Deputy General Manager of Wuhuan Huahan Investment and Management Co., Ltd. He takes the post of Supervisor of the Company since 2004. 3. Senior Executives Mr. Xiang Rongwei General Manager of the Company. He acts as General Manager of the Company since 2001. Mr. Bai Xixin Deputy General Manager of the Company. He acts as Deputy General Manager and concurrently Chief Economist in the Company since 2001. T - 11 - Mr. Hua Lixin Deputy General Manager of the Company. He acts as Deputy General Manager and concurrently Chief Engineer in the Company since 2001. Mr. Jin Zhicheng Deputy General Manager of the Company. He acts as Deputy General Manager of the Company since 2001. Mr. Pei Hanhua Deputy General Manager of the Company. He acts as Deputy General Manager of the Company since 2001. III. Particulars about the annual remuneration received by directors, supervisors and senior executives The Board of Directors determined the remuneration of directors, supervisors and senior executives based on the wage distribution system and the appraised measure of economic responsibility system set down by the Company. In 2005, the Company implemented wage distribution system based on the structure wage distribution system taking position and skill wage as main base; the monthly bonus was determined according to the appraised measure of economic responsibility system and the completion of various economic indexes and technical targets monthly, and the annual bonus was determined based on the completion of various economic indexes and technical targets and major work yearly. Name Office Title Total remuneration in 2005 (RMB) Chen Bohu Chairman of the Board 61,000 Xiang Rongwei Director and concurrently GM 55,000 Li Jun Director 45,000 Chen Helin Director 44,000 Liu Chengxiang Director and concurrently Secretary 41,000 of the Board Hua Lixin Director and concurrently Deputy 43,000 GM Wang Zongjun Receiving no remuneration and Independent Director allowance from the Company Zhou Maorong Receiving no remuneration and Independent Director allowance from the Company Wang Haisu Receiving no remuneration and Independent Director allowance from the Company Zhou Zhemin Convener 32,000 Zeng Xianping Receiving no remuneration and Supervisor allowance from the Company Guo Ling Receiving no remuneration and Supervisor allowance from the Company Bai Xixin Deputy General Manager 43,000 Jin Zhicheng Deputy General Manager 43,000 Pei Hanhua Deputy General Manager 43,000 IV. Particulars about change in directors, supervisor and senior executives in the report period T - 12 - In the report period, the situation of holding post of director, supervisor and senior executives remained unchanged. V. About employees The Company had totally 2579 employees at the end of the report period; the details are as follows: Profession/occupation composition: Items Number of person Proportion (%) Production personnel 1565 60.68% Salesperson 39 1.52% Technician 628 24.35% Financial personnel 46 1.78% Administration personnel 301 11.67% Total 2579 100% Education Background: Items Number of person Proportion (%) Undergraduate or above 275 10.66% 3-year regular college graduate 614 23.81% Senior high school (including technical 1293 50.14% secondary school and technical school) Junior high school or lower 397 15.39% Total 2579 100% Note: At present, the Company has no retiree. The increase of employees was due to the acquisition of subsidiaries. T - 13 - SECTION VI. CORPORATE GOVERNANCE I. Company Administration Strictly according to requirements of Company Law, Securities Law, the Rules for Shares Listing in Shenzhen Stock Exchange, Administration Rules for Listed Companies, the Several Provisions on Strengthening Interests Safeguard for Shareholders of Social Public Shares and Circular on Promoting Listed Companies to Strengthen the Administration Work of Investor Relationship, the Company continually perfected corporate governance of the Company and standardized the Company’s operation. In the report period, the Board of Directors of the Company carefully studies Company Law and Securities Law promulgated newly, made self-inspection in the corporate governance of the Company, and revised the Articles of Association of the Company, Rules of Procedure of Shareholders’ General Meeting, Rules of Procedure of Board of Directors, Rules of Procedure of Supervisory Committee and Rules of Procedure of Special Committees under the Board of Directors. The investor’s legal rights and interests were obtained the more safeguard due to the revision and establishment of the aforesaid systems caused, which corporate governance of the Company was obtained the further perfect. II. Implementation of duties of independent directors In the report period, the Company has 3 independent directors, which reached the requirement of Guide Opinion on Establishing Independent Director System in Listed Companies promulgated by CSRC. The independent directors of the Company implemented patiently their duties, carefully examined the resolutions of all Board meetings and shareholders’ general meetings and prudently made voting, and issued independent opinion, brought a good positive function into play in the scientific decision-making of the Board of the Company and safeguard of shareholders’ legal rights and interests. (1) Particulars about the independent directors attending the Board meeting Name of Times that should Times of Times of Times of Remark Independent be attend the personal commission absence Directors Board meeting presence presence Zhou Maorong 5 5 0 0 Wang Zongjun 5 4 1 0 Wang Haisu 5 5 0 0 (2) Particulars about the independent directors proposed different opinions about the relevant matters of the Company Name Matters of objection Special contents of Remark proposed objection proposed Zhou Maorong Naught Naught Wang Zongjun Naught Naught Wang Haisu Naught Naught III. Separation from the holding shareholder in personal, assets, financing, organization and business. The Company has independent personal, financing, organization and business and complete assets compared with the holding shareholder, Wuhan Boiler Group Co., Ltd. The Company conducted settlement and undertook responsibilities and risks independently. In respect of personal, the Company established independent labor, personal and salary T - 14 - management system. Senior executives of the Company had full time jobs and received salaries from the Company and there existed no part-time job in the controlling shareholder. Appointing and dismissing of personal was conducted strictly according to the regulations of Company Law and Articles of Association. In respect of assets, the relationship of property right between the Company and the holding shareholders was clear and there existed no occupation by controlling shareholder in terms of assets, capital and other resources. In respect of financing, the Company established independent financial accounting department and financial settlement system and financial management system, made financial decision-making independently and conducted upright management to the subsidiaries’ financing according to the requirement of strict accounting system of listed companies. The Company had independent bank account and paid tax independently according to law. In respect of organization, the establishment of organization was independent and integral, and the Company possessed the good efficiency and mechanism of operation; the duties of every organization were clear; the establishment and operation of corporate governance was strictly in accordance with Articles of Association, imported Independent Director System and established four special committees under the Board of Directors; the Company’s production operation and the executive administration was completely separate from the controlling shareholders. The Company has established organization in accordance with the demand of self-development. In respect of business, the Company has independent and integral business and the self-operation capability. The Company has independent systems of purchase, sale and production, and can complete purchase, production, and sale through our own system of purchase, production and sale. There is no competition relationship in the same industry between the Company and the controlling shareholder. (IV) Evaluation and encouragement mechanism of senior executives The evaluation and encouragement mechanism for senior executives established by the Board of Directors was mainly the annual target responsibility system. The Board of Directors combined the outstanding achievement of senior executives with such appraised indexes as the operation outstanding achievement of the Company, safe production and honest and diligent in office duties according to the whole-year operation target, which formed the evaluation and encouragement mechanism and encashed wages and performance bonus of senior executives. T - 15 - SECTION VII. BRIEF INTRODUCTION OF SHAREHOLDERS’ GENERAL MEETING I. Notification, convening and holding of the Shareholders’ General Meeting In the report period, the Company held shareholders’ general meeting once, namely, the Annual Shareholders’ General Meeting 2004. The said meeting were witnessed by the lawyer of Hubei Tianyuan Brother Law Firm and issued the Legal Opinion on the Annual Shareholders’ General Meeting 2004 of Wuhan Boiler Company Limited. The names, notification, convening, holding and information disclosure of the said shareholders’ general meeting was summarized as follows: The Annual Shareholder’s General Meeting 2004 was held at the conference room of the Company on May 13, 2005. One shareholder of domestic shares attended the meeting, representing 172,000,000 state-owned corporate shares, and taking 57.92% of the company's total share capital; one shareholder of foreign shares attended the meeting, representing 383,700 tradable shares, and taking 0.13% of the company's total share capital. The said meeting was in compliance with the legal number of voting right on holding shareholders’ general meeting provided in the PRC Company Law and Articles of Association of the Company. The meeting was presided over by Chairman of the Board Mr. Chen Bohu, and all directors attended the meeting. The meeting approved and formed the resolutions by means of voting. The said Shareholders’ General Meeting was witnessed and issued legal opinion by Lawyer Peng Bo of Hubei Tianyuan Brother Law Firm who considered that the procedure of convening and holding was in compliance with the regulations of Company Law, Articles of Association and Standard Opinion on the Shareholders’ General Meeting of Listed Companies. The said public notice was published in Securities Times and Ta Kung Pao dated May 14, 2005. T - 16 - SECTION VIII. REPORT OF THE BOARD OF DIRECTORS I. Discussion and Analysis for operating condition in the report period. In 2005, the growth tendency of power station equipment industry slowed down step by step, facing such market situation, the Company continually kept the active and solid working attitude and overall realized and achieved the whole-year operation target based on “having breakthrough in ideas, having new ways in management, having material change in actions, hitting new high record in production, having good achievement in safety and having character in quality discussion” as the guidelines. In 2005, the Company was passed the appraisement and approval performed by Chinese Association for Machinery Safety & Health, became the firstling “First-class enterprise of Safety and Quality standardization” in the machinery manufacturing enterprises, and did not take place duty-related death accident in 15 successive years. The product of 300MW cyclone furnace boiler developed by the Company was won the “First prize of Wuhan Science & Technology Progress Award”; the Company was awarded “the Advanced Enterprise of the National Machinery Industry with Best Quality and Efficiency” by China Machine Building Quality Management Association. II. Operation of the Company (I) Scope of main operations and its operating status The Company is mainly engaged in the development, production and sales of power station boilers, special boilers, desulfuration equipments and other pressure vessels as well as auxiliary equipments. In the report period, under the correct decision-making of the Board of Directors and the common efforts of the all employees, the Company realized income from main operations amounting to RMB 2,874,191,882.48, an increase of 29.78% compared with the last year, profit from main operations amounting to RMB 246,630,616.53, a decrease of 10.68% compared with the last year, as well as a net profit of RMB 24,546,297.24, a decrease of 45.29% compared with the last year. 1. Distribution of the main operations classified according to industry: Industry Income from main operations Profit from main operations Machinery Manufacturing RMB 2,874,191,882.48 RMB 246,630,616.53 The Company is belongs to the industry of machinery manufacturing that provides special equipments for energy and environmental industries. 2. Major suppliers and customers The total purchase amount of the top five suppliers of the Company was RMB 625.24 million, taking 26.05 % of the total annual amount of purchase of the Company and the total sales amount of the top five customers was RMB 682.04 million, taking 31.77% of the total annual amount of sales of the Company. 3. Particulars about the change in the Company’s assets, liabilities and expenses in the report period Dec. 31, 2005 Dec. 31, 2004 Increase/decrease Items Proportion in Proportion in of proportion in Amount Amount total assets total assets total assets Monetary funds 650,937,240.82 20.83% 489,665,196.67 17.67% +3.16% T - 17 - Accounts receivable 854,546,027.20 27.35% 785,490,794.40 28.35% -1% Inventories 685,761,345.70 21.95% 476,694,925.38 17.21% +4.74% Short-term loan 353,500,000.00 11.31% 682,206,000.00 24.62% -13.31% Notes payable 1,103,095,152.88 35.30% 539,157,132.00 19.46% +15.84% Accounts payable 404,566,756.09 12.95% 304,724,839.91 11.00% +1.95% Taxes payable 97,601,916.87 3.12% 64,319,724.95 2.32% +0.80% Items 2005 2004 Increase/decrease Operating expense 45,990,074.28 56,625,927.35 -18.78% Administrative expense 107,642,995.27 126,714,504.55 -15.05% Financial expense 46,753,505.92 21,874,589.39 +113.73% Income tax 16,219,836.67 34,331,700.50 -52.76% Note: In the report period, the Company’s total asset has increased by RMB 354,191,791.32, which was mainly due to increase of monetary funds, accounts receivable and inventories. In the report period, the Company’s liabilities has increased by RMB 315,161,530.97 in total compared with the year-begin, which was mainly due to increase of notes payable, accounts payable and taxes payable, as well as decrease of short-term loan. There was little change in overall structure of asset and liabilities, which was mainly because the Company paid in bills or notes and reduced the demand of short-term loan, thus, notes payable and short-term loan has increased clearly. The proportion of taxes payable in total assets increased to near balance due to influence of sales achievement. In the report period, operating expense and administrative expense decreased obviously, which was because the Company carried out budget management in the round in 2005 and obtained great effect. Total profit decreased by a large margin due to drop of profit rate in the report period, thus, income tax reduced by a big range. 4. Particulars about the change in the Company’s cash flow in the report period Items 2005 2004 Increase/decrease Cash flow arising from operating activities: Cash inflows 3,294,839,646.92 2,142,872,615.64 1,151,967,031.28 Cash outflows 2,927,166,945.96 2,492,126,810.97 435,040,134.99 Net cash flow arising from operating activities 367,672,700.96 -349,254,195.33 716,926,896.29 Cash flow arising from investing activities: Cash inflows 30,621,413.40 35,668,653.31 -5,047,239.91 Cash outflows 102,848,795.47 65,747,010.07 37,101,785.40 Net cash flow arising from investing activities -72,227,382.07 -30,078,356.76 -42,149,025.31 Cash flow arising from financing activities: Cash inflows 1,109,400,000.00 870,322,005.88 239,077,994.12 Cash outflows 1,286,843,383.32 587,795,236.94 699,048,146.38 Net cash flow arising from financing activities -177,443,383.32 282,526,768.94 -459,970,152.26 In the report period, increase of net cash flow arising from operating activities was mainly because sales income has increased by RMB 659,566,727.21 compared with the last year, at the meantime, all taxations paid decreased by a big margin. T - 18 - In the report period, net cash flow arising from investing activities decreased by RMB 42,149,025.31, which was mainly due to increase of guarantee deposit and fixed deposit. In the report period, decrease of net cash flow arising from financing activities was mainly because the Company refunded bank debts. (II) Operation and achievement of major holding companies and share-holding companies By the end of the report period, the Company totally had three companies controlled by the Company, namely Wuhan Lanxiang Energy Environmental Science and Technology Co., Ltd. (hereinafter referred to as “Lanxiang Company”), Wuhan Wuguo Zhixin Environmental Equipment Manufacture Co., Ltd. (hereinafter referred to as “Zhixin Company”) and Wuhan Boiler Boyu Industrial Co., Ltd. (hereinafter referred to as “Boyu Company”). The basic situation and operating achievement of the said three companies was as follows: 1. Lanxiang Company This company was established on Jun. 4, 2002 and the Company holds 70% of its equity. This company’s registration code is 4201001102912 with registered capital of RMB 20 million. The business scope of this company includes: technology research, design, technology consultation and technology service of boilers, energy environmental products, steel structure, heat energy products and its auxiliary equipments, sales of development products and contract and technology service (The special-purpose projects of the state is to be operated subject to examination and approval) of energy projects (non-land-construction projects). In the report period, Lanxiang Company achieved income from main operations amounting to RMB 73,298,800 as well as the net profit of RMB 7,197,600. Ended the report period, the total assets of this company was RMB 81,737,400, and the net asset was RMB 33,020,300 million. 2. Zhixin Company Zhixin Company was established on Jun.13, 2003, the Company held 51% of its equity. This company’s registration code is 4201001171169 with registered capital of RMB 10 million. The business scope of this company includes: manufacture and sales of gas combined circulating residual heat boiler, circulating fluidized bed boiler, alkali reclaim boiler, boiler combustion instruments, boiler components, environment and energy saving instrument, steel structure, production and sales of metal (implement according to the special regulation of China if there is such special regulation). In the report period, Zhixin Company realized income from main operations amounting to RMB 71,434,400 as well as the net profit of RMB 5,585,600. Ended the report period, the total assets of this company was RMB 34,770,600 million, and the net asset was RMB 16,805,400. 3. Boyu Company Boyu Company was established on Sep. 30, 1998. In the report period, the Company took its 90% equity of Wuhan Special Boiler Whole Set Equipment Co., Ltd. to replace 90% equity of Wuhan Boiler Group Boyu Industrial Co., Ltd. held by Wuhan Boiler Group Co., Ltd.. Boyu Company completed its change procedure of industrial and commercial registration on Nov. 17, 2005, and changed its company name into Wuhan Boiler Boyu Industrial Co., Ltd.. The registration code is 4201001101773 with registered capital of RMB 19.115 million. The business scope of this company includes: packing, design and T - 19 - manufacturing of mechanical & electrical products, processing of metal structure, design and manufacturing of mould & model, production of various high- and middle-pressure valve roughcast, cast steel, cast iron and non-ferrous metal cast. In the report period, Boyu Company realized income from main operations amounting to RMB 6,017,400 as well as the net profit amounting to RMB 547,800. Ended the report period, the total assets of this company was RMB 22,079,500, and the net asset was RMB 16,380,900. The Company had no branch company, share-holding company and other joint venture company. III. The Company’s outlook 1. The market competition situation faced by the Company and development tendency of industry engaged by the Company in 2006: In accordance with forecasting from the State power grid, China will realize the power balance between supply and demand at the end of the year 2006. After the balance of power between supply and demand, our annual installed capacity will fall, of which, the additional installed thermal power generation capacity will decrease to about 22 million KW, a drop of over 50%. The rapid shrink in respect of market of thermal power equipment will result in sharp competition within industry, so that the profitability of enterprises related with this industry will reduce. Along with perfection of macro-control measures step by step, the growth tendency of power station equipment manufacturing industry will slow down step by step, moreover, raw materials of the power equipment manufacturing industry are mainly steels, thus, there is a great influence to the said industry due to the National power investment policies, development and price fluctuation of steel industry. 2. Development strategy of the Company According to the National Green Energy Development Planning, the Company will conform to the said industry development trend, adjust thoughts and actions, implement the development strategy such as the technical upgrade of traditional and advantaged products and actively seize high-end products market in respect of the power station boiler technology through overall cooperation from technical R&D to market development with international well-known enterprise, which enable the Company to develop gradually a enterprise having the quite competition force in this industry in home. 3. Operation plan of the Company in 2006 ① The Company will develop the market expansion task effectively, enlarge R&D capability with “the market as guidelines”, solidify and expand the existing products market portion. ② Aiming at such pressures as the National power investment policies, development and price fluctuation of steel industry and appreciation of the RMB, the Company will strengthen cooperation relationship with customers and suppliers and communicate actively, so as to establish long-term strategic partnerships with understanding and support each other and pull off the “win-win” situation. ③ The Company will start with “intensive study, subdivision, rigidity and strictness”, optimize enterprise management and enhance cost control. ④ The Company will form a good helping and support between parent company and T - 20 - subsidiaries step by step using the existing resources of the Company, so as to realize the Company’s development in harmonious and unified ways. ⑤ The Company will create enterprise culture and form concept support. 4. Capital demand used in development plan, use plan and capital source Based on change in market situation of power equipment manufacturing industry in the future, the Company will raise capital demanded through such various ways as capital market, bank loan and self-raised capital combining with the Company’s operation development strategy, enhance the input of technology renovation, consequently, improve the overall quality and added value of products and R&D speed of new products, so as to lay a solid foundation for sustainable development of the Company. 5. Main risk factors and settlement ways The main products of the Company is power station boilers, but the market of power station boiler highly relies on the market establishment situation of thermal power generation sets, its upriver industry, and get the greater influence from the national macro policies and development policies and structure reformation of electric power industry, thus, there exists policy risk and market risk. In the face of policy risk and market risk, the Company will start with self-conditions, depend on such advantages as technology and talents, follow the most advanced technology in home and abroad at any moment, enhanced technology renovation, increase new products, strengthen management of market marketing, strive to keep and enlarge the existing advantage position in this industry, closely pay attention to rivals and development situation of industry, and adjust the corresponding strategies such as R&D of technology and market development timely, in order to transfer and reduce industry competition risk due to policy risk and market risk. IV. Investment of the Company in the report period 1. In the report period, the Company had no proceeds raised through share offering or the application of proceeds raised through previous share offering continued to the report period. 2. In the report period, the Company had no Investment of proceeds not raised through share offering. V. In the report period, operating environment, macroscopic policy and regulation related with the financial status and operation achievement of the Company remained unchanged. VI. Routine work of the Board of Directors (I) About holding, resolutions and information disclosure of the Board meetings in the report period In the report period, the Board of Directors of the Company held five meetings in total, each meeting’s name, holding and information disclosure are as follows: (1) The 5th meeting of the 3rd Board of Directors was held at the meeting room of the Company on Mar. 18, 2005. The public notice related with the said Board meeting was published in Securities Times and Ta Kung Pao dated Mar. 25, 2005. (2) The 6th meeting of the 3rd Board of Directors was held at the meeting room of the Company on Apr. 18, 2005. The public notice related with the said Board meeting was published in Securities Times and Ta Kung Pao dated Apr. 19, 2005. T - 21 - (3) The 7th meeting of the 3rd Board of Directors was held at the meeting room of the Company on Aug. 5, 2005. The public notice related with the said Board meeting was published in Securities Times and Ta Kung Pao dated Aug. 11, 2005. (4) The 8th meeting of the 3rd Board of Directors was held at the 1st meeting room of the Company on Sep. 15, 2005. The public notice related with the said Board meeting was published in Securities Times and Ta Kung Pao dated Sep. 16, 2005. (5) The 9th meeting of the 3rd Board of Directors was held at the meeting room of the Company on Oct. 24, 2005. The public notice related with the said Board meeting was published in Securities Times and Ta Kung Pao dated Oct. 26, 2005. (II) Implementation of the resolutions made at the Shareholders’ General Meeting by the Board of Directors In the report period, the Board of Directors had dutifully implemented the resolutions made at the Shareholders’ General Meeting in accordance with the requirements of relevant laws and regulations, and arranged and carried out the profit distribution plan of 2004. The Company published the Public Notice on the Implementation of the Dividend Distribution 2004 of Wuhan Boiler Co., Ltd in Securities Times and Ta Kung Pao respectively on Jun. 17, 2005. This plan was finished on Jun. 28, 2005. VII. Preplan on profit distribution and capitalization of public reserves for the year 2005 As audited by Wuhan Zhonghuan Certified Public Accountants Ltd. in accordance with the generally accepted accounting standards in China, the net profit of the Company was RMB 24,546,297.24 for the year 2005. The surplus reserves of the Company consisted of 10 percent of the parent company’s net profit and the share in the 10 percent of the subsidiaries’ net profit enjoyed by the parent company. Thus the statutory public reserve 2005 of the Company was RMB 3,243,328.60, while the statutory welfare fund was RMB 3,243,328.60. The profit available for distribution of the year was RMB 96,112,848.85. It is planned that, based up the total share capital of 297,000,000.00 shares as on Dec. 31, 2005, a cash dividend of RMB 0.35 would be distributed for each 10 shares to all the shareholders, and the total profit to be distributed would amount to RMB 10,395,000.00. The retained profit left over would be carried down to the next year for distribution. No capital public reserves would be transferred into share capital this year. The aforesaid preplans need to be submitted to the Shareholders’ General Meeting 2005 for examination and approval. VIII. Other issues disclosed (1) The Company had designated Securities Times and Ta Kung Pao as the newspapers for information disclosure for the year 2005, and the newspapers for information disclosure remained the same in the report period. (2) Special explanation by the CPAs on the capital occupations by the controlling shareholder or other related parties The full text of the Special Explanation on the Capital Occupations by the Controlling Shareholder and Other Related Parties of Wuhan Boiler Co., Ltd furnished by Wuhan Zhonghuan Certified Public Accounts had been published in the website of Shenzhen Stock Exchange and CNINFO.COM.CN. (3) Special explanations and independent opinions on the accumulated external guarantees and the external guarantees of the report period given by the independent directors Independent directors believed that the Company had strictly controlled external guarantee issues, and no guarantees had been provided for shareholders, controlling subsidiaries of shareholders, affiliated enterprises of shareholders, or other related parties that the T - 22 - Company held by less than 50 percent equity, any non-legal person units or any individuals. In the report period as ended Dec. 31, 2005, the Company only had one guarantee that had occurred in 2003 and lasted into the report period, i.e. the guarantee for the loan obtained by China National Foreign Trade Financial & Leasing Corporation from the Beijing Branch of China Merchants Bank. There was no affiliated relationship or any other relationship between the Company and China National Foreign Trade Financial & Leasing Corporation. This loan had been borrowed by China National Foreign Trade Financial & Leasing Corporation for the financial lease to the Company. China National Foreign Trade Financial & Leasing Corporation had borrowed RMB 42 million from the bank to purchase some special equipment and leased to the Company, and the Company would pay rents to use these equipments. This transaction had been conducted according to the needs of strategic structure adjustment of the Company. The examination procedures of this external guarantee had been in conformity with relevant laws, and this external guarantee would also help a lot in the Company’s future development (this guarantee had already been disclosed in the Annual Report 2003). Apart from this, the Company had no other external guarantees in any form. T - 23 - SECTION IX. REPORT OF THE SUPERVISORY COMMITTEE I. Work of the Supervisory Committee in the report period In the year 2005, the Supervisory Committee had dutifully performed their responsibilities of supervision strictly in conformity with the Company Law, Securities Law and the Articles of Association as well as the spirit of being responsible for all shareholders. The Supervisory Committee had held three meetings in the report period, examined the proposals such as the Annual Report and the Semi-Annual Report of the Company, etc, conducted supervision over the decision-making procedures of the Board, and urged the Board and the management team to operate according to laws, so as to ensure the standardized operation of the Company’s financial issues. In the report period, the Supervisory Committee had held three meetings, with the meeting name, convening, resolutions and information disclosure as follows: (1) On Mar. 18, 2005, the 4th meeting of the 3rd Supervisory Committee was held at the meeting room of the Company. 3 supervisors should attend and actually all 3 did. The convening of the meeting had been in conformity with the regulations stipulated in the Company Law and the Articles of Association. Convener of the Supervisory Committee Mr. Zhou Zhemin presided at the meeting, and the resolutions examined and approved are as follows: 1. Examined the Work Report of the Supervisory Committee 2004, and approved 3 to 0 with 0 abstentions; 2. Examined the Annual Report 2004 and the Summary of Annual Report 2004, and approved 3 to 0 with 0 abstentions; 3. Examined the Financial Auditors’ Report 2004 of the Company, and approved 3 to 0 with 0 abstentions; 4. Supervisors present at the meeting believed that: the procedures of the following proposals had been legal, i.e. the profit distribution preplan 2004 of the Company, the proposal on modifying the Articles of Association of the Company, the proposal on modifying the Rules of Procedure of the Shareholders’ General Meeting, the proposal on modifying the Rules of Procedure of the Board of Directors, the proposal on modifying the Rules of Procedure of the Supervisory Committee, the proposal on modifying the Rules of Procedure of the Special Committee of the Board of Directors, the proposal on adjusting the organization structure of the Company, the proposal on continuing to engage Wuhan Zhonghuan Certified Public Accountants and PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd as the auditing agencies for the year 2005 and the remunerations for them, the proposal on the remunerations for the directors, supervisors and senior executives for the year 2004, and the proposal on the convening of the Shareholders’ General Meeting 2004. The Supervisory Committee also believed that the Board of the Company had performed their duties honestly and diligently, and that while making the aforesaid resolutions, the Board had not gone against relevant laws, regulations, normative documents or the Articles of Association, but always done their job strictly in accordance with the overall interests of the shareholders and the Company. The public notices on the resolutions of this meeting were published in Securities Times and Ta Kung Pao on Mar. 25, 2005. (2) On Apr. 18, 2005, the 5th meeting of the 3rd Supervisory Committee was held at the meeting room of the Company. 3 supervisors should attend the meeting and actually all 3 did, which was in conformity with the regulations in the Company Law and the Articles of Association. Convener of the Supervisory Committee Mr. Zhou Zhemin presided at the meeting, at which the Proposal on the Estimated Routine Related Transactions of the year T - 24 - 2005 was examined and approved 3 to 0 with 0 abstentions: Since the amount of the routine related transactions of the Company was estimated to be approaching the regulations in Article 10.2.5 in the Stock Listing Rules, the meeting had approved to ask the Board to submit the aforesaid proposal as a provisional proposal to the Shareholders’ General Meeting 2004 for examination (For details, please refer to the public notice on the estimated routine related transactions in 2005 of Wuhan Boiler Co., Ltd). The public notices on the resolutions of this meeting were published in Securities Times and Ta Kung Pao on Apr. 19, 2005. (3) On Aug. 5, 2005, the 6th meeting of the 3rd Supervisory Committee was held at the 1st meeting room of the Company. 3 supervisors should attend the meeting and actually all 3 did, which was in conformity with the regulations in the Company Law and the Articles of Association. Convener of the Supervisory Committee Mr. Zhou Zhemin presided at the meeting. After careful examination and voting by the supervisors present at the meeting, the Semi-Annual Report 2005 and the Summary were examined approved. The public notices on the resolutions of this meeting were published in Securities Times and Ta Kung Pao on Aug. 11, 2005. II. Independent opinions given by the Supervisory Committee on the following issues in the report period: (I) Operation In accordance with relevant laws and regulations, the Supervisory Committee had conducted supervision over the convening procedures and resolutions of the Shareholders’ General Meeting and the Board of Directors, the implementation by the Board of the various resolutions made at the Shareholders’ General Meeting, the duty performance of the senior executives of the Company and the management system of the Company, etc. The Committee believed that the Board of Directors of the Company had done their work strictly in conformity with the Company Law, Securities Law, Listing Rules, the Articles of Association and other relevant regulative systems, and that the Board had performed their duties carefully and their operating resolutions had been scientific and reasonable. The internal management and control system had been further improved and the internal control mechanism established. The Chairman of the Board, directors, managers and senior executives had no behavior that had gone against national laws, regulations or the Articles of Association or had done any harm to the interests of the Company while performing their duties. (II) Financial Status The Supervisory Committee had conducted periodic inspection into the financial system and the financial status of the Company, and it believed that the Financial Report 2005 could truly reflect the financial status and the operating achievements of the Company. The Committee also believed that the auditing opinions given by Wuhan Zhonghuan Certified Public Accountants and PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd had truly, objectively, fairly and squarly reflected the financial status and the operating achievements of the Company in 2005. (III) Use of raised proceeds The Company had not raised any proceeds in the recent three years (including the report period). (IV) Related transactions of assets purchase or sales In the report period, the Company had exchanged the 90 percent equity of Wuhan Special Boiler Complete Equipment Co., Ltd for the 90 percent equity of Wuhan Boiler Group Boyu Industrial Co., Ltd held by Wuhan Boiler Group Co., Ltd. This equity exchange T - 25 - belonged to a related transaction. The Supervisory Committee believed that the price of this equity exchange transaction had been reasonable, and that no internal transactions or any cases that would do harm to the shareholders’ interests or lead to the loss of the Company’s assets had been detected. (V) Related transaction In the report period, the prices of the related transactions of the Company had been fair and reasonable, and no harm had been done to the interests of the Listed Company. T - 26 - SECTION X. SIGNIFICANT EVENTS I. Significant lawsuits and arbitrations The Company had no significant lawsuits or arbitrations in the report period. II. Significant purchase or sales of assets and mergers The Company had no significant events of assets purchase, assets sales or mergers. III. Related transactions (1) Merchandise purchase Details on the merchandise bought from related parties in 2005 and 2004 are as follows: Unit: RMB’0,000 Name of company Amount in 2005 Amount in 2004 Wuhan Boiler Group Valve Co., Ltd 5,476.33 2,430.95 Wuhan Boiler Boyu Industrial Co., Ltd 1,047.20 Total 5,476.33 3,478.15 (2) Merchandise sales Details on the merchandise sold to related parties in 2005 and 2004 are as follows: Unit: RMB’0,000 Name of company Amount in 2005 Amount in 2004 Wuhan Boiler Group Valve Co., Ltd 419.62 559.59 Wuhan Boiler Boyu Industrial Co., Ltd 2.10 Wuhan Boiler Group Co., Ltd 5,910.04 797.77 Wuhan Special Boiler Complete Equipment Co., Ltd 11,730.35 Wuhan Boiler Group Boiler Installation Company 0.06 Total 18,060.01 1,359.52 IV. Significant contracts and their implementation (1) In the report period, there were no events of significant entrustment, contracting, lease of other companies’ assets by the Company or vice versa. (2) In the report period, the Company had not provided any significant external guarantees, nor had it provided guarantees for controlling subsidiaries. (3) In the reporting period, the Company has not entrusted others with cash assets management. (4) The Company had no other significant contracts in the report period. V. Neither the Company nor shareholders holding over 5 percent shares had made any commitments in the newspapers or websites not designated. VI. Engagement or dismissal of Certified Public Accountants In the report period, the Company continued to engage Wuhan Zhonghuan Certified Public Accountants as the auditing agency while PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd was dismissed, and the remunerations paid to the Certified Public Accountants in the report period are as follows: Expenses for the auditing of Annual Financial Reports 2005 Overseas: BDO Wuhan Zhonghuan Certified Public Accountants USD 85,000 Domestic: Wuhan Zhonghuan Certified Public Accountants RMB 550,000 Expenses (including expenses for board and lodging, travel, telecommunication and duplicating, etc) during the auditing work would be paid by Wuhan Zhonghuan Certified Public Accountants. In the report period, the Company had fully paid the charges for the auditing of Financial Report 2005 to the Certified Public Accountants. Taking this report period into account, Wuhan Zhonghuan Certified Public Accountants had provided auditing services to the Company for 8 successive accounting years. VII. Inspection and punishment received In the report period, neither the Company nor the Board or senior executives had received T - 27 - any administrative punishment or notice of criticism from the CSRC, or had been criticized publicly by the Stock Exchange. The Company had been praised by the Shenzhen Stock Exchange as an excellent company in information disclosure for the year 2005 among all listing companies. The Company had won this honor for 5 successive years. VIII. The Company had no other significant events in the report period. IX. Contingent events The Company had provided guarantee for the one-year loan of RMB 42 million obtained by China National Foreign Trade Financial & Leasing Corporation from China Merchants Bank. It is estimated that there is no great possibility that the Company would have to pay for this guarantee. X. Post balance sheet events The Company had no post balance sheet events that occurred during the period from the end of the report period to the disclosure day of this report period and needed to be disclosed. XI. Other significant events In the report period, the Company exchanged the 90 percent equity of Wuhan Special Boiler Complete Equipment Co., Ltd (WSBCE) for the 90 percent equity of Wuhan Boiler Group Boyu Industrial Co., Ltd (WBGBI) held by Wuhan Boiler Group Co., Ltd. The equity ownerships involved in this exchange were clear, and there were no liability transfers. (1) On Sep. 15, 2005, the Company signed the Equity Exchange Agreement with Wuhan Boiler Group Co., Ltd, and the two parties had agreed to exchange the equity of RMB 9.2158 million held by the Company with the equity totaling RMB 16.1036 million held by Wuhan Boiler Group Co., Ltd. The Agreement had no other supplementary conditions or reserved articles. (2) Since both WBGBI and the Company are subsidiaries of Wuhan Boiler Group Co., Ltd and WSBCE is a subsidiary of the Company, this equity exchange transaction belonged to a related transaction. (3) The amounts of the objects in this equity exchange transaction had not reached relevant standards stipulated in the Stock Listing Rules of Shenzhen Stock Exchange and the Notice on Some Problems Concerning Significant Purchase, Sales or Exchange of Assets by Listed Companies issued by the CSRC, therefore this equity exchange did not belong to significant assets reorganization. (4) On Sep. 15, 2005, the Company held the 8th meeting of the 3rd Board of Directors, at which the proposal on this equity exchange had been examined and approved unanimously. Public notices on the resolutions of this Board meeting and the equity exchange were published in Securities Times and Ta Kung Pao on Sep. 16, 2005. T - 28 - SECTION XI. FINANCIAL REPORT I. Auditing opinions Wuhan Zhonghuan Certified Public Accountants had audited the Financial Report 2005 of the Company and furnished unqualified Auditors’ Reports for the Company. (1) Auditors’ Reports (attached) (2) Accounting Statements and notes (attached) SECTION XII. DOCUMENTS FOR REFERENCE 1. Accounting Statements with the signatures and seals of the Legal Representative, Chief Accountant, and the persons in charge of the accounting departments; 2. Original of the Auditors’ Report with the signatures and seals of Chinese CPAs, as audited by Wuhan Zhonghuan Certified Public Accountants; 3. Texts of all the Company’s documents and originals of the public notices disclosed in Securities Times and Ta Kung Pao in the report period; 4. Text of the Annual Report 2005 of the Company. This Annual Report had been prepared in both Chinese and English. Should there be any ambiguities in meaning between the two versions, the one in Chinese shall prevail. Wuhan Boiler Company Limited Chairman of the Board: Chen Bohu Apr. 12, 2006 T - 29 - International Auditors’ Report To the shareholders of Wuhan Boiler Company Limited (Incorporated in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Wuhan Boiler Company Limited (the “Company”) and its subsidiaries (the “Group”) as at 31 December 2005 and the related consolidated statements of income, cash flows and changes in shareholders’ equity for the year then ended. These consolidated financial statements set out on pages 2 to 43 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. 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 at 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. BDO Wuhan Zhonghuan Certified Public Accountants Co., Ltd Wuhan, China, 7 April , 2006 T - 30 - WUHAN BOILER COMPANY LIMITED CONSOLIDATED INCOME STATEMENT AS AT 31 DECEMBER 2005 2005 2004 Notes RMB’000 RMB’000 Sales 5 2,874,192 2,214,625 Cost of sales (2,620,329) (1,933,229) Gross profit 253,863 281,396 Other operating income, net 25,914 10,072 Selling expenses (59,407) (67,869) Administrative expenses (101,458) (120,752) Operating profit 6 118,912 102,847 Finance costs, net 8 (46,754) (16,548) Profit before tax 72,158 86,299 Income tax 9 (15,126) (34,294) Profit from ordinary activities after tax 57,032 52,005 Minority interests 23 (5,071) (4,578) Net profit 51,961 47,427 Basic and diluted earnings per share 10 RMB0.175 RMB0.157 T - 31 - WUHAN BOILER COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2005 2005 2004 Notes RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 11 202,040 226,451 Construction in progress 12 2,311 4,756 Prepaid lease 3,388 3,538 Intangible assets 13 37,859 40,009 Deferred tax assets 14 3,659 2,565 249,257 277,319 Current assets Inventories 15 499,956 343,450 Due from contract customers 16 620,786 701,688 Trade receivables 17 763,419 818,071 Amounts due from parent company 54,000 - Amounts due from fellow subsidiaries 18 44,937 59,914 Other receivables, deposits and prepayments 19 633,962 590,470 Pledged or guaranteed deposits 20 343,286 292,345 Cash and cash equivalents 20 307,652 197,320 3,267,998 3,003,258 Total assets 3,517,255 3,280,577 SHAREHOLDERS’ EQUITY Share capital 21 297,000 297,000 Reserves 22 321,402 283,397 618,402 580,397 Minority interests 23 19,779 17,586 Total equity 638,181 597,983 LIABILITIES Non-current liabilities Borrowings 27 140,000 14,323 Current liabilities Notes payable 1,064,095 476,072 Trade payables 349,254 304,037 Other payables and accrued charges 24 160,024 107,543 Due to contract customers 16 352,668 630,614 Amount due to parent company 25 - 907 Amounts due to fellow subsidiaries 26 52,921 5,379 Deposits received from customers 375,756 400,435 Income tax payable 16,814 39,689 Borrowings 27 367,542 703,595 2,739,074 2,668,271 Total liabilities 2,879,074 2,682,594 Total equity and liabilities 3,517,255 3,280,577 T - 32 - WUHAN BOILER COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2005 Attributable to equity holders Minority Total of the Company interest Equity Share Other Retained capital reserves earnings (note 21) (note 22 (a),(b)) Balance at 1 January 2004, as previously reported as equity 297,000 173,688 74,162 - 544,850 Balance at 1 January 2004, as previously separately reported as minority interest - - - 14,088 14,088 Balance at 1 January 2004, as restated 297,000 173,688 74,162 14,088 558,938 Profit for the year - - 47,427 4,578 52,005 Forfeited customer deposits - 298 (298) - - Transfer from retained earnings to other reserves - 10,564 (10,564) - - Appropriation - - (11,880) (1,080) (12,960) Balance at 31 December 2004 297,000 184,550 98,847 17,586 597,983 Balance at 1 January 2005, as previously reported as equity 297,000 184,550 98,847 - 580,397 Balance at 1 January 2005, as previously separately reported as minority interest - - - 17,586 17,586 Balance at 1 January 2005, as restated 297,000 184,550 98,847 17,586 597,983 Dividend relating to 2004 (note 22 (d)) - - (13,959) (2,878)) (16,833) Profit for the year - - 51,961 5,071 57,032 Forfeited customer deposits 226 (226) Donated cash 23,450 （23,450） Government grant 2,570 (2,570) Transfer from retained earnings to other reserves - 5,569 (5,569) - - Balance at 31 December 2005 297,000 216,365 105,037 19,779 638,181 T - 33 - WUHAN BOILER COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 Year ended 31 December Note 2005 2004 Cash flows from operating activities Cash generated from operations 28 435,800 (265,816) Interest paid (49,020) (31,199) Income tax paid (46,969) (3,011) Loss on foreign currency exchange difference (2,037) - Net cash generated from operating activities 337,774 (300,026) Cash flows from investing activities Acquisition of subsidiary, net of cash acquired (4,969) - Purchases of property, plant and equipment (PPE) 11 (36,038) (11,200) Payments for construction in progress (1,352) (59,758) Proceeds from sale of PPE 28 14,961 866 Purchases of intangible assets 13 (420) (11,505) Purchases of available-for-sale financial assets - 20,432 Interest received 7,183 9,863 Dividends received 14,767 831 Net cash used in investing activities (5,868) (50,471) Cash flows from financing activities Increase in deposits used as collaterals (45,307) (52,600) Proceeds from borrowings 1,074,400 860,459 Cash transfer out as disposal of subsidiary (12,844) - Repayments of borrowings (1,223,056 (542,162) Dividends paid to Company’s shareholders (14,767)) (11,880) Net cash used in financing activities (221,574) 253,817 Net increase/(decrease) in cash, cash equivalents and bank overdrafts 110,332 (96,680) Cash, cash equivalents and bank overdrafts at the beginning of the year 197,320 294,000 Cash, cash equivalents and bank overdrafts at end of the year 20 307,652 197,320 DIRECTOR DIRECTOR WUHAN BOILER COMPANY LIMITED T - 34 - SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2005 1. General information Wuhan Boiler Company Limited (the “Company”) is a joint stock limited company incorporated in the People’s Republic of China (“PRC”) on 8 April 1998. The Company and its subsidiaries (the "Group") are mainly engaged in the manufacturing and sale of boilers within PRC. The Company’s Domestically Listed Foreign Shares (“B Shares”) are listed on the Shenzhen Stock Exchange. The address of its registered office is 586 Wuluo Road, Wuhan City, Hubei Province. 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 have been prepared in accordance with International Financial Reporting Standards ("IFRS") including International Accounting Standards and Interpretations issued by the International Accounting Standards Board. This basis of accounting differs from that used in the preparation of the statutory financial statements in PRC (“the statutory financial statements”). The statutory financial statements of the Company and its subsidiaries comprising the Group have been prepared in accordance with relevant accounting principles and regulations applicable to them, as appropriate in the PRC. Appropriate adjustments have been made to the statutory financial statements to conform with IFRS. Differences arising from the restatement have not been incorporated in the statutory accounting records of the Group. The consolidated financial statements are prepared under the historical cost convention. 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 areas involving a higher degree of judgement or complexity, or areas where assumptions and T - 35 - estimates are significant to the consolidated financial statements are disclosed in Note 4. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. 2.2 Changing in accounting policies In December 2003, as part of the “Improvements project” of the International Accounting Standards Board (IASB) in relation to the existing International Accounting Standards (IASs), the IASB released revisions to the following standards that supersede the previously released revisions of those standards: IAS 1 (Presentation of Financial Statements), IAS 2 (Inventories), IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors), IAS 10 (Events After the Balance Sheet Date), IAS 16 (Property, Plant and Equipment), IAS 17 (Leases), IAS 21 (The Effects of Changes in Foreign Exchange Rates), IAS 24 (Related Party Disclosures), IAS 27 (Consolidated and Separate Financial Statements), IAS 28 (Investments in Associates), IAS 31 (Interest in Joint Ventures), IAS 33 (Earnings per Share), and IAS 40 (Investment Property). The revised standards should be applied for annual periods beginning on or after January 1, 2005. In December 2003, the IASB released revised IAS 32 (Financial Instruments: Disclosure and Presentation) and IAS 39 (Financial Instruments: Recognition and Measurement). These standards replace IAS 32 (revised 2000) and IAS 39 (revised 2000) and are to be applied for annual periods beginning on or after January 1, 2005. In March 2004, the IASB issued IFRS 3 (Business Combinations) to replace IAS 22 (Business Combinations). In March 2004, in connection with the issuance of IFRS 3, the IASB revised IAS 36 (Impairment of Assets) and IAS 38 (Intangible Assets). The revised standards are effective for goodwill and other intangible assets acquired in business combinations for which the agreement date is on or after March 31, 2004 and for all other such assets for annual periods beginning on or after March 31, 2004. At 1 January 2005, the Group adopted the revised IFRS below, which are relevant to its operations. The 2004 comparatives have been amended as required, in accordance with the relevant requirements. T - 36 - 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 IAS 24 (revised 2003) Related Party Disclosures IAS 27 (revised 2003) Consolidated and Separate Financial Statements IAS 36 (revised 2004) Impairment of Assets IAS 38 (revised 2004) Intangible Assets IAS 39 (revised 2003) Financial Instruments: Recognition and Measurement The adoption of IAS 1, 2, 8, 10, 16, 17, 21, 24, 27, 32, 33, 39 (all revised 2003) and IAS 36, 38 (all revised 2004) did not result in substantial changes to the Group’s accounting policies. In summary: － IAS 1 (revised 2003) has affected the presentation of minority interest and other disclosures. － IAS 2, 8, 10, 16, 17, 27, 32, 33 and 39 (all revised in 2003) had no material effect on the Group’s policies. － IAS 21 (revised 2003) 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 measurement currency. － IAS 24 (revised 2003)has affected the identification of related parties and certain related party disclosures. － IAS 32 & 39 (revised 2003)affected the recognition and measurement of financial instrument. － IAS 36, 38 (revised 2004) affected the amortisation of goodwill. 2.3 Consolidation T - 37 - (a) Subsidiaries Subsidiaries are all 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 presently convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer 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. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement (see Note 2.7[a]). Inter-company transactions, balances and unrealised gains on transactions between Group’s entities are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of 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) Transaction and minority interests Minority interest is that part of the net results of operations and of net assets of a subsidiary attributable to interests which are not owned directly or indirectly by the Group. Details of the Group’s subsidiaries are set out in Note 23. T - 38 - 2.4 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. 2.5 Foreign currency translation (a) Functional and presentation currency Items included in the accounts 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 functional and presentation currency of the Company. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates stipulated by the People’s Bank of China prevailing on the first day of the month in which the transactions took place. 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. 2.6 Property, plant and equipment (a) All property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation of the property, plant and equipment is calculated to write off their cost of the assets on the straight-line basis over their expected useful lives to the Group, taking into account their estimated residual value. The principal annual depreciation rates used are: Plant and office premises 3 – 6.5% Production equipment and machinery 5 – 14% T - 39 - Motor vehicles 16% Furniture, fixtures and office equipment 19 – 24% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. (b) Construction in progress represents factory premises under construction, and production plants and machinery and other related fixed assets under installation. Construction in progress is stated at cost, which includes the cost of construction, purchase cost of plant and machinery, as well as interest charges arising from borrowings used to finance the construction during the period of time that is required to complete and prepare the asset for its intended use. Construction in progress for production plants and machinery is transferred to fixed assets on the commissioning date. Plant and machinery are considered to be commissioned when they are capable of producing saleable quality output in commercial quantities on an ongoing basis. (c) An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.8). (d) Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. (e) 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. 2.7 Intangible assets (a) Goodwill (i) 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 at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in T - 40 - intangible assets. (ii) Goodwill arising from business combinations of which the agreement date is before 31 March 2004 was previously amortised on a straight line basis over its useful life, which will not exceed 20 years from initial recognition. As at 1 January 2005, amortisation of goodwill was ceased . (iii) Goodwill arising from business combinations of which the agreement date is on and after 31 March 2004, as well as goodwill arising from business combinations of which the agreement date is before 31 March 2004 after elimination of accumulated amortisation at 1 January 2005, are tested annually for impairment and carried at cost less accumulated impairment losses. 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 (note 2.8). (b) Proprietary technology and patent Proprietary technology and patent are shown at historical cost. Proprietary technology and patent have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of proprietary technology and patent over their estimated useful lives of not more than 15 years. (c) Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if the cost can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding five years. 2.8 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 T - 41 - 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 other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. 2.9 Financial assets The Group’s investments are mainly the loans and receivables. 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 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 included in trade receivables, other receivables, prepayments and deposits in the balance sheet. Loans and receivables are carried at amortised cost using the effective interest method. 2.10 Inventories Inventories are stated at the lower of cost or net realisable value. Cost of raw materials represents invoiced price calculated using the weighted average costing method. Cost of work in progress and finished goods includes direct materials, direct labour and an appropriate proportion of production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses. 2.11 Construction contracts A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and functions or their ultimate purpose or use. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred where it is probable those costs will be recoverable. Contract costs are recognised when incurred. T - 42 - When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised over the period of the contract, respectively, as revenue and expenses. The Group uses the percentage of completion method to determine the appropriate amount of revenue and costs to recognise in a given period; the percentage of completion is measured by reference to the relationship that contract costs incurred for work performed to date bear to the estimated total costs for the contract. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Construction contract cost includes direct materials, subcontracting cost, direct labor and an appropriate proportion of variable and fixed production overheads. In determining costs incurred up to the year-end, any costs relating to future activity on a contract are excluded and shown as contract work in progress. The aggregate of the costs incurred plus the profit less losses recognised on each contract is compared against the progress billings up to the balance sheet date. When contract costs incurred plus recognised profits less recognised losses exceed progress billings, the balance is shown as due from contract customers. When progress billings exceed contract costs incurred plus recognised profits less recognised losses, the balance is shown as due to contract customers. 2.12 Trade receivables Trade receivables include progress billings in accordance with the contracts terms and retention monies receivable. Trade 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 receivables is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recongnised in the income statement. 2.13 Cash and cash equivalents Cash and cash equivalents includes cash in hand and deposits held at call with banks. 2.14 Share capital T - 43 - Ordinary shares are classified as equity. 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. Borrowing costs that are directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to be ready for their intended use or sale are capitalised as part of the costs of the assets. All other borrowing costs are expensed. 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 Taxation PRC income taxes are provided for based on the taxable assessable profits and the applicable tax rates for the Group’s entities. 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, if the deferred income tax 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, it is not accounted for. Deferred income tax is determined using tax rates 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. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. T - 44 - 2.17 Retirement scheme Pension obligations The Group participates in a defined contribution retirement scheme (the “Scheme”) operated by the local government. The Group's obligations include contributions to the Scheme determined at a certain percentage of the salaries of the employees. The regular contributions, which are charged to the income statement on an accrual basis, constitute net periodic costs for the year in which they are due and as such are included in staff costs. Once the contributions have been paid, the Group has no further payment obligations. 2.18 Provision Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. 2.19 Government grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to the income statement on a straight-line basis over the expected lives of the related assets. 2.20 Warranty The Group recognises the estimated liability to repair or replace products still under warranty at the balance sheet date. This provision is calculated based on certain percentage of the completed contract cost which is determined by reference to past T - 45 - history of the level of repairs and replacements. 2.21 Revenue recognition Revenue comprises the fair value for the sale of goods and services, net of value-added tax, rebates and discounts and after eliminated sales within the Group. Revenue is recognised as follows: (a) Sales of goods Revenue from construction contracts is based on the stage of completion determined by reference to the cost incurred to date as a percentage of total cost to be incurred. Refer to Note 2.11 for sales recognition in relation to construction. (b) Interest income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cashflow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income. (c) Dividend income Dividend income is recognised when the right to receive payment is established. 2.22 Leases (a) A group company is the lessee Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance cost is charged to the consolidated income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. If there is reasonable certainty that the lessee will obtain ownership by the end of the lease term, the property, plant and equipment acquired under finance leases is depreciated over the useful life of the asset; otherwise the property, plant and equipment is depreciated over the shorter of the lease term and its useful life. Leases where a significant portion of the risks and rewards of ownership are retained T - 46 - 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 consolidated income statement on a straight-line basis over the period of relevant leases. (b) A group company is the lessor Assets leased out under operating leases are included in property, plant and equipment in the consolidated 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 lease term. 2.23 Dividend distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s consolidated financial statements in the period in which the dividends are approved by the Company’s shareholders. 3. Financial risk management (a) Financial risk factors The Group’s activities expose it to a variety of financial risks: foreign exchange risk, credit risk, liquidity risk and cash flow interest-rate risk. (i) Foreign exchange risk The Group’s entities operate in the PRC with most of the transactions denominated in Renminbi. The Group is exposed to foreign exchange risk arising from the exposure of Renminbi against USD and HKD. The Group has not hedged its foreign exchange rate risk. In addition, the conversion of Renminbi into foreign currencies is subject to the rules and regulations of the foreign exchange control promulgated by the PRC government. (ii) Credit risk The Group has no significant concentrations of credit risks. The carrying amount of the trade receivables included in the consolidated balance sheet represent the Group’s maximum exposure to credit risk in relation to its financial assets. (iii) Liquidity risk T - 47 - The Group ensures that it maintains sufficient cash and credit lines to meet its liquidity requirements. (iv) Cash flow and fair value interest rate risk As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group has not hedged its cash flow and fair value interest rate risk. (b) Fair value estimation The carrying amounts of the following financial instruments approximate to their fair values. Cash and cash equivalents, trade receivables, other receivables, prepayments and deposits, trade payables, construction costs payable, accrued charged and deposits received, other non-current liabilities and borrowings. 4. Critical accounting estimates and assumptions Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The 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 are discussed below. (a) Estimated impairment of goodwill The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 2.8. The recoverable amounts of T - 48 - cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates. (b) Estimated impairment of property, plant and equipment and available-for-sale investments Property, plant and equipment and available-for-sales investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amounts of property, plant and equipment and available-for-sale investments have been determined based on value-in-use calculations. These calculation and valuations require the use of judgement and estimates. (c) Current taxation and deferred taxation The Group is subject to taxation in the PRC. Significant judgement is required in determining the amount of the provision for taxation and the timing of payment of the related taxations. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the income tax and deferred tax provisions in the periods in which such determination are made. 5. Segment information No business segment information of the Group is presented as the Group’s sales, expenses, assets and liabilities are primarily attributable to manufacturing and sales of cement and related products. No geographical segment information has been prepared as the sales recognised in 2005 and 2004 arose from the sale of boilers under long-term contracts within the PRC. All the operating assets of the Group are located in PRC. 2005 2004 RMB’000 RMB’000 Sales of goods 2,874,192 2,214,625 Revenue arising from interest income is disclosed in note 8. T - 49 - 6. Expenses by nature The following items have been included in arriving at operating profit: 2005 2004 RMB’000 RMB’000 Depreciation on property, plant and equipment (Note 11) – owned assets 22,198 21,403 – leased assets under finance lease 2,413 1,599 Provision of impairment loss on property, plant and equipment (Note 11) * 300 352 Loss on disposal of property, plant and equipment (Note 28) 3,095 8 Repairs and maintenance expenditure 9,895 9,862 Amortisation of intangible assets (Note 13) ** 6,363 6,175 Research and development expenditure *** 26,165 27,512 Operating lease rentals in respect of property 1,320 1,056 Costs of inventories recognised as expense 2,620,329 1,933,229 Provision for bad and doubtful debts 6,153 24,254 Staff costs (Note 7) 91,303 78,903 Warranty (Note 24) 78,792 34,207 * Provision of impairment loss on property, plant and equipment has been charged in other operating income, net). ** Amortisation of intangible assets has been charged in administrative expenses. *** Included in the research and development expenditure are staff emoluments and depreciation totalling RMB11,787,000 (2004: RMB10,408,000), which have also been included in staff costs and depreciation disclosed above. T - 50 - 7. Staff costs 2005 2004 RMB’000 RMB’000 Wages and salaries 62,961 59,150 Retirement benefits (Note 29) 9,444 7,580 Other social security costs 18,898 12,173 91,303 78,903 Average number of persons employed by the Group during the year 2,727 2,905 8. Finance costs, net 2005 2004 RMB’000 RMB’000 Interest income arising from bank deposits 7,183 9,863 Investment - dividend income - 831 - (loss)/gain on disposal of an available-for-sale investment - 4,495 - 5,326 Net foreign exchange transaction (losses)/ gains (2,287) 127 Interest expenses in relation to - bank borrowings (48,955) (28,222) - finance lease (1,557) (1,584) - loan from a finance lease company - (1,133) (50,512) (30,939) Bank charges (1,138) (925) (46,754) (16,548) 9. Income tax expense T - 51 - 2005 2004 RMB’000 RMB’000 Current tax 16,220 34,332 Deferred tax (Note 14) (1,094) (38) 15,126 34,294 Pursuant to a document “Shui Shou Er zi [1998] No. 2” issued by the Wuhan Local Tax Bureau regarding collective payment of income tax, income tax of the Company is collectively paid through Wuhan Boiler (Group) Company Limited (“WHBG”), the parent of the Company. The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the effective tax rate of the Company is analysed as follows: 2005 2004 RMB’000 RMB’000 Profit before tax 72,158 86,299 Tax calculated at the effective rate of 33% (2004: 33%) 23,812 28,479 Effect of different tax rate applicable to a subsidiary * (2,136) (1,391) Other income not subject to tax （7,738） (274) Expenses not deductible for tax purposes 1,188 7,480 Tax charge 15,126 34,294 * A subsidiary in the PRC enjoyed 50% exemption on income tax for the year T - 52 - ended 31 December 2005. 10. Earnings per share 2005 2004 RMB’000 RMB’000 Profit attributable to equity holders of the Company (RMB’000) 51,916 47,427 Weighted average number of ordinary shares in issue (thousand) 297,000 297,000 Basic and diluted earnings per share (RMB per share) 0.175 0.157 The diluted earnings per share is equivalent to the basic earnings per share as there were no potential ordinary shares outstanding during the years ended 31 December 2005 and 2004. 11. Property, plant and equipment Production Furniture, Plant and equipment fixtures office and Motor and office premises machinery vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 At 1 January 2004 Cost 162,704 238,296 13,384 9,961 424,345 Accumulated depreciation (74,856) (157,895) (7,071) (6,568) (246,390) - - (86) (86) Impairment - Net book amount 87,848 80,401 6,313 3,307 177,869 Year ended 31 December 2004 Opening net book amount 87,848 80,401 6,313 3,307 177,869 Additions 22,676 46,090 3,430 1,889 74,085 Disposals (285) (1,169) (604) (91) (2,149) Impairment charge - (352) - - (352) Depreciation charge (5,579) (14,981) (1,259) (1,183) (23,002) Closing net book amount 104,660 109,989 7,880 3,922 226,451 At 31 December 2004 T - 53 - Production Furniture, Plant and equipment fixtures office and Motor and office premises machinery vehicles equipment Total Cost 184,749 278,557 15,378 9,001 487,685 Accumulated depreciation (80,089) (168,216) (7,498) (4,993) (260,796) Impairment - (352) - - (86) (438) Net book amount 104,660 109,989 7,880 3,922 226,451 Year ended 31 December 2005 Opening net book amount 104,660 109,989 7,880 3,922 226,451 Acquisition of subsidiary 4,920 5,170 371 184 10,645 Additions 2,684 15,599 1,819 1,881 21,983 Transfer out (4,525) - (1,036) (196) (5,757) Disposals (19,557) (4,000) (860) (1954) (26,371) Depreciation charge (6,223) (15,566) (1,578) (1,244) (24,611) Impairment charge - (300) - - (300) Closing net book amount 81,959 110,892 6,596 2,593 202,040 At 31 December 2005 Cost 170,572 297,821 14,396 5,806 488,595 Impairment - (617) - (122) (739) Accumulated depreciation (88,613) (186,312) (7,800) (3,091) (285,816) Net book amount 81,959 110,892 6,596 2,593 202,040 The Company’s plant and office premises are located in Wuhan city, Hubei Province, the PRC. The land where the properties are situated is leased from WHBG for a period of 50 years. Additions include assets leased under finance lease of RMB 23,283,000 (2004: RMB19,812,000). No plant and office premises of the Company have been pledged to a bank for securing loan facilities granted to the Company (2004: RMB272,989,000). T - 54 - The information in relation to the cost and accumulated depreciation of production equipment, where the Group is lessee under a finance lease, is set forth below: 2005 2004 RMB’000 RMB’000 Cost – capitalised finance lease 23,283 19,812 Accumulated depreciation (4,464) (2,051) Net book amount 18,819 17,761 The finance lease arrangement for production equipment, which has been guaranteed by WHBG, is engaged with a finance lease company in the PRC. 12. Construction in progress 2005 2004 RMB’000 RMB’000 Opening net book value 4,756 7,883 Additions 1,352 59,758 Transfer to property, plant and equipment (3,797) (62,885) Closing net book value 2,311 4,756 Construction in progress represents production equipment under installation and is stated at cost. Interest expenses amounting to RMB1, 396 were capitalised in the current year (2004: nil). T - 55 - 13. Intangible assets Proprietary technology Goodwill and patent Total RMB’000 RMB’000 RMB’000 At 1 January 2004 Cost 1,683 46,117 47,800 Accumulated amortization (564) (12,557) (13,121) Net book value 1,119 33,560 34,679 Year ended 31 December 2004 Opening net book value 1,119 33,560 34,679 Addition - 11,505 11,505 Amortisation charges (213) (5,962) (6,175) Closing net book value 906 39,103 40,009 Year ended 31 December 2005 Opening net book value 906 39,103 40,009 Addition 4,521 420 4,941 Disposal (728) - (728) Amortisation charges (178) (6,185) (6,363) Closing net book value 4,521 33,338 37,859 At 31 December 2005 Cost 6,227 58,041 64,268 Accumulated amortization (1,706) (24,703) (26,409) Net book value 4,521 33,338 37,859 The Directors of the Company are of the opinion that the underlying fair value of the intangible assets was not less than its carrying amount as at 31 December 2005. 14. Deferred tax assets Deferred taxation is calculated on all temporary differences under the liability method using an enacted tax rate of 33% (2004: 33%). T - 56 - 2005 2004 RMB’000 RMB’000 Deferred tax assets: - To be recovered after more than 12 months 3,659 2,565 - To be recovered within 12 months - - 3,659 2,565 The movement on the deferred taxation account is as follows: 2005 2004 RMB’000 RMB’000 At beginning of the year 2,565 2,527 Income statement credit (Note 9) 1,094 38 At end of the year 3,659 2,565 Deferred tax assets and deferred tax credit in the consolidated income statement are attributable to the following items: Income Statement 2004 Credit 2005 RMB’000 RMB’000 RMB’000 Deferred income tax assets - Temporary difference in respect of provision for impairment loss of fixed assets 175 99 274 - Temporary difference in respect of provision for bad and doubtful debts 2,390 995 3,385 2,565 1,094 3,659 T - 57 - 15. Inventories 2005 2004 RMB’000 RMB’000 Raw materials (at cost) 499,515 342,084 Raw materials (at net realisable value) 441 1,366 499,956 343,450 Certain raw materials have been written down by RMB985,000 (2004: RMB1,395,000) to their estimated net realizable value. 16. Construction contract work in progress 2005 2004 RMB’000 RMB’000 Contract costs incurred and recognised profits (less losses) 2,531,696 1,428,891 Progress billings (2,263,578) (1,357,817) 268,118 71,074 Comprising: - Due from contract customers 620,786 701,688 - Due to contract customers (352,668) (630,614) 268,118 71,074 17. Trade receivables 2005 2004 RMB’000 RMB’000 Trade receivables 769,572 870,124 Less: Provision for bad and doubtful debts (6,153) (52,053) T - 58 - 763,419 818,071 18. Amounts due from fellow subsidiaries Amounts due from fellow subsidiaries are substantially derived from normal trading transactions. The amounts are unsecured, non-interest bearing and with no fixed repayment terms. 2005 2004 RMB’000 RMB’000 Wuhan Special Boiler Complete Equipment Engineering Company Limited 44,937 - Wuhan Boiler (Group) Boyu Complementary Mechanism of Electronic Station Co., Ltd. - 20,308 Wuhan Boiler (Group) Valve Company Limited - 36,880 Others - 2,726 44,937 59,914 19. Other receivables, deposits and prepayments 2005 2004 RMB’000 RMB’000 Other receivables 9,478 12,798 Deposits * - 9,700 Purchase deposits and other prepayments 624,484 567,972 633,962 590,470 * Represent deposits with an insurance company, which have been received in current year. 20. Cash and bank balances 2005 2004 RMB’000 RMB’000 Cash and cash equivalents: Cash at bank and in hand 307,652 112,224 Fixed deposits – unpledged - 85,096 307,652 197,320 T - 59 - 2005 2004 RMB’000 RMB’000 Pledged or guaranteed deposits Fixed deposits – pledged - 31,402 Bank guarantee saving deposits * 343,286 260,943 343,286 292,345 Total cash and bank balances 650,938 489,665 * Bank guarantee saving deposits have been pledged to banks to guarantee notes payable issued by the Company and the letters of guarantee issued by the banks. 21. Share capital 2005 2004 RMB’000 RMB’000 Registered, issued and fully paid of RMB1 each Domestic legal person shares 172,000 172,000 B shares, listed 125,000 125,000 297,000 297,000 Pursuant to Articles 31 and 35 of the Company's Articles of Association, domestic legal person shares and B shares are registered ordinary shares carrying equal rights. Domestic legal person shares are not listed and not freely transferable, unless specifically approved by the relevant government authorities. 22. Reserves (a) Capital reserve and share premium Capital reserve comprises surplus arising on the difference between the nominal value of state shares issued to WHBG, the parent company, in exchange for the value of the transfer of boiler business related assets and liabilities to the Company and the non-distributable reserve arising from the forfeiture of deposits from customers. Share premium represents the premium on the issue of B shares to the foreign investors. Pursuant to the relevant PRC regulations, capital reserve and share premium can only be used to increase share capital. Pursuant to the Accounting System for Business Enterprises of the PRC, any gains arising from forfeiture of deposits from customers are directly reflected in capital T - 60 - reserve and therefore not distributable. Accordingly, a transfer has been made from retained earnings to reflect its non-distributable nature. (b) Reserve funds In accordance with the relevant PRC regulations applicable to joint stock limited companies and the Company’s Articles of Association, the Group is required to allocate its profit after tax to the following reserves: (i) Statutory surplus reserve funds The Group is required each year to transfer 10% of the profit after tax as reported under the PRC statutory financial statements to the statutory surplus reserve funds until the balance reaches 50% of the registered share capital. This reserve can be used to make up any losses incurred or to increase share capital. Except for the reduction of losses incurred, any other application should not result in this reserve balance falling below 25% of the registered capital. (ii) Statutory public welfare funds The Group is required each year to transfer 10% of the profit after taxation as reported under the PRC statutory financial statements to the statutory public welfare funds. This reserve is restricted to capital expenditure for employees' collective welfare facilities that are owned by the Group. The statutory public welfare funds are not available for distribution to shareholders (except on liquidation). According to a document issued by the Ministry of Finance, when the statutory public welfare fund is utilised, an amount equal to the lower of cost of the assets and the balance of the statutory public welfare fund is transferred from the statutory public welfare fund to the discretionary surplus reserve. On disposal of the relevant assets, the original transfers from the statutory public welfare fund are reversed. (c) Profit distributable to shareholders Pursuant to a document issued by the Ministry of Finance, the profit after appropriation to reserves and available for distribution as dividend shall be the lower of the amount as stated in the PRC statutory financial statements and the financial statements prepared under IFRS. At 31 December 2005, the Group's retained earnings according to the PRC statutory financial statements amounted to RMB96,113,000 (2004: RMB91,096,000). The Company was transformed from a state-owned enterprise to a joint stock limited T - 61 - company on 8 April 1998 under a reorganisation scheme. Pursuant to a Board resolution of WHBG on 27 November 1997, the profits generated from 1 October 1997 (the completion date of the reorganisation) and onwards are distributable to all shareholders and profits generated before 1 October 1997 are distributable to WHBG only. Retained earnings as at 31 December 2005 include RMB28,515,000 of profits generated before 1 October 1997. (d) Dividend Pursuant to a Board resolution on 18 March 2005, a cash dividend of RMB0.047 per share for the fiscal year 2004, amounting to dividends totalling RMB13,959,000, was declared and paid during the year. (2004: RMB11, 880,000) 23. Minority interests 2005 2004 RMB’000 RMB’000 At beginning of year 17,586 14,088 Share of net profit of subsidiaries 5,071 4,578 Dividend distribution (2,878) (1,080) At end of year 19,779 17,586 24. Other payables and accrued charges 2005 2004 RMB’000 RMB’000 Other payables 120,203 67,575 Warranty provision * 39,044 37,855 Accrued charges 777 2,113 160,024 107,543 * The Company provides one-year warranties in respect of the sale of boilers and undertakes to repair or replace items that fail to perform satisfactorily. The provision is estimated by reference to the expected warranty claims calculated at certain percentage of the completed construction contract cost, after taking into account the past experience of the level of repairs and returns. The movement of warranty provision is as follows: T - 62 - 2005 2004 RMB’000 RMB’000 Opening net book value 37,855 19,434 Accruals 78,792 34,207 Utilisation (77,603) (15,786) Closing net book value 39,044 37,855 25. Amount due to parent company The amount due to parent company, WHBG, was derived from the transactions as set out in Note 32. The amount is unsecured, non-interest bearing and with no fixed repayment terms. 26. Amounts due to fellow subsidiaries These represent current account balances arising on transactions entered into in the normal course of business. The amounts are unsecured, non-interest bearing and with no fixed repayment terms. 2005 2004 RMB’000 RMB’000 Wuhan Chengxin Boiler Automatic Control Equipment Manufacturing Company - 4,116 Wuhan Jiangxia Real Estate Company - 216 Wuhan Boiler Group Boiler Installation Company Limited 383 1,047 Wuhan Boiler (Group) Yuntong Company Limited 33,346 - Wuhan Boiler Group Construction Installation Company Limited - - Wuhan Special Boiler Complete Equipment Engineering Company Limited 4,308 - Wuhan Boiler (Group) Valve Company Limited 14,884 - 52,921 5,379 27. Borrowings T - 63 - 2005 2004 RMB’000 RMB’000 Current - Secured bank borrowings - 301,989 - Unsecured bank borrowings 353,500 387,606 - Secured finance lease liability * 14,042 9,906 - Secured loan from a finance lease company * - 4,094 367,542 703,595 Non-current - Unsecured bank borrowings 140,000 - - Secured finance lease liability * - 9,906 - Secured loan from a finance lease company * - 4,417 140,000 14,323 Total borrowings 507,542 717,918 * The Company has given a guarantee amounting to Rmb14,000,000 (2004: Rmb28,000,000) to a bank in favour of a finance lease company. The bank borrowings are secured over both bank guarantee saving deposits by Rmb 36, 000,000 and guarantees by WHBG. The unsecured borrowings are supported by guarantees provided by the following parties: 2005 2004 RMB’000 RMB’000 Parent company – WHBG 353,500 387,606 The interest rate exposure of the borrowings of the Group is as follows: 2005 2004 RMB’000 RMB’000 At fixed rates 493,500 689,595 At floating rate * 14,042 28,323 Total borrowings 507,542 717,918 Weighted average effective interest rate - bank borrowings 5.49% 5.25% T - 64 - - finance lease liability 7.99% 7.99% - loan from a finance lease company 7.99% 7.99% * The finance lease liability and loan from a finance lease company bear interest at the rate stipulated by the People’s Bank of China for long-term bank loans of 3 years plus 2.5% per annum. There are no material differences between the fair value and carrying amount of the Group’s borrowings. The fair values are based on discounted cash flows using a discount rate similar to the borrowing rate that the Directors believe would be available to the Group at the balance sheet date. Maturity of non-current borrowings (excluding finance lease liability): 2005 2004 RMB’000 RMB’000 Between 1 and 2 years 50,000 4,417 Between 2 and 5 years 90,000 - 140,000 4,417 Finance lease liability – minimum lease payments: 2005 2004 RMB’000 RMB’000 Not later than 1 year * 14,479 10,922 Later than 1 year and not later than 5 years * - 10,354 14,479 21,276 Future finance charges on finance lease * (437) (1,464) Present value of finance lease liability 14,042 19,812 * The minimum lease payments and future finance charges on finance lease are calculated with the interest rate that the finance lease liability bears at the balance sheet date. The present value of finance lease liability is as follows: 2005 2004 RMB’000 RMB’000 T - 65 - Not later than 1 year 14,042 9,792 Later than 1 year and not later than 5 years - 10,020 14,042 19,812 28. Cash generated from operations Reconciliation of net profit to cash generated from operations 2005 2004 RMB’000 RMB’000 Net profit 51,961 47,427 Adjustments for: Minority interest (Note 23) 5,071 4,578 Tax charge (Note 9) 15,126 34,294 Depreciation (Note 11) 24,611 23,002 Cost of prepaid lease recognised as expenses 150 150 Provision of Impairment loss on property, plant and equipment (Note 11) 300 352 Reversal impairment of inventories (411) Provision for bad debts and doubtful debts 5145 Loss on disposal of property, plant and equipment (Note 6) 3,095 8 Amortisation of intangible assets (Note 13) 6,363 6,175 Investment income (Note 8) 0 (5,326) Interest expenses (Note 8) 50,512 30,939 Interest income (Note 8) (7,183) (9,863) Loss on foreign currency exchange difference 2,288 - Changes in working capital: Decrease/ (Increase) in inventories (240,475) (124,705) Decrease /(Increase) in due from contract customers, trade receivables, amount due from parent company, amounts due from fellow subsidiaries, other receivables, deposits and prepayments (49,248) (922,610) Increase in due to contract customers, bills payable, trade 568,495 649,763 T - 66 - 2005 2004 RMB’000 RMB’000 payables, amounts due to fellow subsidiaries, deposits received from customers, other payables and accrued charges Cash generated from /(used in) operations 435,800 (265,816) 29. Retirement scheme The Group participates in a defined contribution retirement scheme organised by the Wuhan Municipal Government for all employees. The Group's contribution to the scheme is provided at 20% (2004: 20%) of the prior year’s total salary for permanent employees. The contribution to the retirement scheme for the year ended 31 December 2005 amounted to RMB9,444,000 (2004: RMB7,580,000). Other than the above, the Group has no other retirement benefit obligations. 30. Contingent liability Except for the guarantee provided to a finance lease company as disclosed in Note 27, as at 31 December 2005, the Group had no material contingent liability. 31. Commitments Capital commitments Capital expenditure contracted for at the balance sheet date but not recognised in the consolidated financial statements is as follows: 2005 2004 RMB’000 RMB’000 Construction in progress 84 13,502 Operating lease commitments The future total minimum lease payments under non-cancellable operating leases are as follows: 2005 2004 RMB’000 RMB’000 Not later than 1 year 1,320 1,477 Later than 1 year and not later than 5 years 6,600 7,128 Later than 5 years 46,200 77,217 T - 67 - 54,120 85,822 The annual rental for land use right was changed to Rmb 1,320,000 in current year. 32. Related party transactions and relationships (a) Apart from those related party transactions disclosed in other notes above, the Group had the following material transactions with its related parties during the year: 2005 2004 RMB’000 RMB’000 WHBG - Sale of boilers * 59,100 7,978 - - Operating lease payment * 1,320 1,056 - Management fee paid to WHBG - 100 33. Related party transactions and relationships (Cont’d) 2005 2004 RMB’000 RMB’000 Subsidiaries of WHBG - Purchases of boiler parts and sub-contracting charges paid * 54,763 45,338 - Sales of boilers, raw materials and boiler parts * 121,500 6,200 - Payments for installation and transportation services * 78,046 68,034 - Rental income * - 308 - Rental expense * 541 1,015 * In the opinion of the Directors of the Company, these transactions were carried out on normal commercial terms and the prices as agreed between the contracting parties. (b) Relationships In the opinion of the Directors of the Company, the ultimate parent company of the Company is WHBG, a state-owned enterprise incorporated in the PRC. (c) Directors’ remuneration A listing of the members of the Board of Directors is shown in 2005 Annual Report. The total remuneration of the Directors approximated RMB450,000 for the year (2004: RMB493,000). T - 68 - 34. Subsidiaries As at the balance sheet date, the Company directly held equity interests in the following PRC established subsidiaries: Attributable Name equity interest Principal activities 2005 2004 % % Wuhan Special Boiler Complete Manufacturing and sale Equipment Engineering Company - 90 of special boilers Limited Wuhan Boiler BoYu Complementary Design of packaging, Mechanism of Electronic Station 90 - manufacturing of steel Company Limited and paint Wuhan Lan Xiang Power Consultancy, research Environmental Protection Technology 70 70 and design of boilers Company Limited and environmental projects. WuHan WuGuo ZhiXin Environmental Manufacturing and sale Protection Equipment Manufacturing 51 51 of environmental Co., Ltd. protection boilers, components and steel structures. 35. Approval of consolidated financial statements The consolidated financial statements were approved by the Board of Directors on 7 April 2006. 36. The impact of IFRS adjustments on the PRC statutory consolidated financial statements is as follows: Net profit Net assets RMB’000 RMB’000 As per the PRC statutory consolidated financial statements 24,546 615,303 T - 69 - Net profit Net assets RMB’000 RMB’000 IFRS and other adjustments - Donated cash 23,450 - - Government grant 2,570 - - Deferred tax 1,094 3,659 - Forfeited customer deposit 226 - - Minority interest - 19,779 - Written off long-time investment revaluation surplus - (635) - Others 75 75 As restated after IFRS adjustments 51,961 638,181 T - 70 -