深粮控股(000019)深深宝Ｂ2005年年度报告摘要（英文版）

Stock Code: 000019、200019 Public Notice No.: 2006004 Short Form of the Stock: Shenshenbao – A, Shenshenbao-B SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2005 (B-SHARE) §1. Important Notice 1.1 Board of Directors and Board of Supervisors of SHENZHEN SHENBAO INDUSTRIAL CO., LTD (hereinafter referred to as the Company) and its directors, supervisors and senior executives hereby confirm that there are no any important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. The summary of Annual Report 2005 is abstracted from the Annual Report; the investors are suggested to read the full text of the Annual Report to understand more details. 1.2 No director stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of the Annual Report or have objection for this report. 1.3 Names listed on absent directors Names of absent Reasons for absence Names of entrustee directors Zhao Guorong On business Chen Xiaohua Zhang Jian On business Chen Xiaohua 1.4 Shenzhen Dahua Tiancheng Certified Public Accountants issued standard unqualified Auditors’ Report for the Company. 1.5 Persons in charge of the Company: Chairman of the Board Mr. Zeng Pai and General Manager Ms. Zong Haiyan, person in charge of accounting organ: CFO Ms. Zeng Suyan and person in charge of accounting affairs: Head of the Planning and Financing Department Ms. Peng Xiuhua hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. 1 §2. Company Profile 2.1 Basic information Short form of the stock SHENSHENBAO – A, SHENSHENBAO-B Stock code 000019, 200019 Listed stock exchange Shenzhen Stock Exchange Registered address and Registered address: 28/F, B&C Block of Bao’an Plaza, No. 1002 Sungang Road, Shenzhen office address Office address: 28/F, B&C Block of Bao’an Plaza, No. 1002 Sungang Road, Shenzhen Postcode of registered address: 518020 Postcode Postcode of office address: 518020 Internet website of the http://www.sbsy.com.cn Company E-mail of the Company sbsy@sbsy.com.cn 2.2 Contact person and method Secretary of the Board of Directors Name Liu Xiongjia Contact address 28/F, B&C Block of Bao’an Plaza, No. 1002 Sungang Road, Shenzhen Telephone (86)0755-25507480 Fax (86)0755-25507480 E-mail a0019@21cn.com §3. Summary of Financial Highlights and Business Highlights 3.1 Main Accounting Highlights Unit: RMB’000 Items Amount Profit before taxation 5,267 Profit attributable to shareholders in parent company 6,204 Operating losses (46,261) Net cash flows arising from operating activities (29,596) Net increase in cash and cash equivalents (1,990) 2 3.2 Financial Indexes: Unit: RMB’000 Items 2005 2004 2003 Turnover 81,270 64,558 61,787 Profit attributable to shareholders in parent 6,204 4,309 (44,852) company Total assets 441,815 467,229 446,314 Shareholders’ equity 241,803 235,599 231,290 Earnings per share (RMB) 1.329 0.0237 (0.2465) Weighted average earnings per share (RMB) 2.57 0.0237 (0.2465) Net assets per share (RMB) 1.329 1.2950 1.2714 Return on equity (%) 2.57 1.83 (19.39) 3.3 Difference of the CAS and IAS √Applicable □Inapplicable Net profit of the Company as of the year 2005 was respectively RMB 5,540,000 and RMB 6,204,000 as audited under Chinese Accounting Standard (CAS) and International Accounting Standard (IAS) and the differences are as follows: Unit: RMB’000 Net profit The Financial Report audited by CAS 5,540 Adjustments: Gains transferred by reserves from subsidiary 59 Gains transferred by reserves from affiliated company 561 Equity investment spread of affiliated company not need to be amortized 339 Carry-over cost of capitalized interests at the time of transferring land use property (295) Re-listed based on IFRS (International Financial Reporting Standards ) 6,204 3 §4. Changes in Share Capital and Particulars about Shareholders 4.1 Statement of change in share Unit: share Increase / decrease this Before the change After the change time (+, -) Amount Proportion (%) Subtotal Amount Proportion (%) I. Unlisted shares 115,846,292 63.68% 0 115,846,292 63.68% 1. Sponsors’ shares 115,838,611 63.67% 0 115,838,611 63.67% Including: 44,090,145 24.24% 0 44,090,145 24.24% State-owned shares Domestic legal person’s share 71,748,466 39.44% 0 71,748,466 39.44% Foreign legal person’s share 0 0.00% 0 0 0.00% Others 0 0.00% 0 0 0.00% 2. Raised legal person’s 0 0.00% 0 0 0.00% shares 3. Inner Employees’ shares 7,681 0.00% 0 7,681 0.00% 4. Preference shares or others 0 0.00% 0 0 0.00% II. Listed shares 66,076,796 36.32% 0 66,076,796 36.32% 1.RMB ordinary shares 39,940,796 21.95% 0 39,940,796 21.95% 2.Domestic listed foreign 26,136,000 14.37% 0 26,136,000 14.37% shares 3.Overseas listed foreign 0 0.00% 0 0 0.00% shares 4. Others 0 0.00% 0 0 0.00% III. Total shares 181,923,088 100.00% 0 181,923,088 100.00% 4 4.2 Statement of shares held by the top ten shareholders and Statement of shares held by the top ten circulating shareholders Unit: share Total of shareholders (share) 27,544 Particulars about shares held by the top ten shareholders Total amount of Amount of Amount of shares Full Name of shareholder Nature of shareholders Proportion shares held non-circulating pledged or frozen (Share) shares held SHENZHEN AGRICULATURAL 34.00% 61,848,466 61,848,466 0 PRODUCTS CO., LTD. SHENZHEN INVESMENT State-owned shareholder 29.68% 53,990,145 53,990,145 0 HOLDING CORPORATION Foreign capital WANG XIAO TIAN 0.51% 924,819 0 shareholder Foreign capital CHEN YONG QUAN 0.21% 384,299 0 shareholder Foreign capital CLORY INSIGHT LIMITED 0.14% 246,300 0 shareholder Foreign capital XIAO LI ZHU 0.13% 240,000 0 shareholder LU XUE 0.12% 221,400 0 Foreign capital ZHOU WEN LI 0.11% 200,000 0 shareholder Foreign capital JIN ZE HONG 0.10% 189,700 0 shareholder Foreign capital KOTO TRANSPORT LTD 0.10% 183,468 0 shareholder Particulars about shares held by the top ten circulation shareholders Full name of shareholders Circulation share held at the year-end (share) Type of shares WANG XIAO TIAN 924,819 Domestic listed foreign share CHEN YONG QUAN 384,299 Domestic listed foreign share GLORY INSIGHT LIMITED 246,300 Domestic listed foreign share XIAO LI ZHU 240,000 Domestic listed foreign share LU XUE 221,400 RMB common share ZHOU WEN LI 200,000 Domestic listed foreign share JIN ZE HONG 189,700 Domestic listed foreign share KOTO TRANSPORT LTD 183,468 Domestic listed foreign share YE YONG JIAN 181,700 Domestic listed foreign share LU XIAO 180,000 Domestic listed foreign share 5 1. Based on State-owned Assets Supervision and Administration Commission of Shenzhen Municipality Government (hereinafter referred to as “Shenzhen GZW”) SGZW [2004] No. 89 document, Shenzhen GZW regard Shenzhen Agricultural Products Co., Ltd. (hereinafter referred to as “Agricultural Company”), the controlling shareholder of the Company, as one of the first batch of enterprises put under directly supervision of Shenzhen GZW and implement its duty of subscribe. Amounting to 88,703,978 shares of state-owned share of Agricultural Company held by Shenzhen Commodity & Trade Investment Holdings Company, the original largest shareholder of Agricultural Company would be transferred to Shenzhen GZW. (For details, please refer to the public notice published in Securities Times and Hong Kong Ta Kung Pao dated Nov. 4, 2004), on Sep. 7, 2005, the related registration for transferring equity has been accomplished. 2. Shenzhen GZW released Decision on establishing Shenzhen Investment Holdings Explanation on associated Co., Ltd. (SGZW [2004] No. 223 Document): according to the general arrangement of relationship or accordant Shenzhen municipal committee and government on state-owned assets management system action among the top ten adjustment, made decision of merging Shenzhen Investment Holding Corporation, shareholders of circulation Shenzhen Construction Investment Holdings Company and Shenzhen Commodity & Trade share Investment Holdings Company, and establishing Shenzhen Investment Holdings Co., Ltd.. Shenzhen Investment Holdings Co., Ltd. belongs to state-owned sole company limited (for details, please refer to the public notice of the Company published in Securities Times and Hong Kong Ta Kung Pao dated Nov. 4, 2004). 3. Shenzhen Investment Holding Corporation held 8,565,446 shares of Shenzhen Agricultural Products Co., Ltd (“Agricultural Products”), taking 2.21% of total share capital of Agricultural Products. 4. The Company is not aware whether there exists associated relationship or belongs to accordant actionist regulated by the Management Regulation of Information Disclosure on Change of Shareholding for Listed Companies among the top ten circulation shareholders, or between the top ten circulation shareholders and the top ten shareholders or not. 4.3 Particulars about the controlling shareholders and actual controller of the Company 4.3.1 Particulars about change in the controlling shareholders and actual controller of the Company □Applicable √Inapplicable 6 4.3.2 Introduction to the controlling shareholder and actual controller 1. Name of the controlling shareholder: Shenzhen Agricultural Products Co., Ltd. Legal representative: Chen Shaoqun Date of foundation: Jan. 14, 1989 Main business and product: the company is engaged in constructing wholesale market of agricultural products; deals in market lease and sale; domestic trading, supply and marketing of materials (excluding monopoly products); and offer auxiliary establishment to market of agricultural products wholesale, for instance, rest house, canteen, restaurant, transportation, load and unload, storage, packing (business license of specific item is to be applied in addition); service of information counseling, and wholesale of sugar, tobacco and alcohol. Registration capital: RMB 387,663,000 2. The first largest shareholder of the controlling shareholder of the Company: State-owned Assets Supervision and Administration Commission of Shenzhen Municipality Government State-owned Assets Supervision and Administration Commission of Shenzhen Municipality Government established with hanging out their shingle on Aug., 2004, as special entity directly under Shenzhen People’s Government, implements its qualification of provider on behalf of our nation and carry out supervision and administration according to law for state-owned assets which authorized to be supervised. 4.3.3 Property right and controlling relationship between the actual controller of the Company and the Company is as follows： STATE-OWNED ASSETS SUPERVISION & ADMINISTRATION COMMISSION OF SHENZHEN MUNICIPALITY GOVERNMENT 22.88% 100% SHENZHEN INVESTMENT HOLDING CORPORATION 2.21% SHENZHEN AGRICULTURAL PRODUCTS CO., LTD. 29.68% 34.00% SHENZHEN SHENBAO INDUSTRIAL CO., LTD. 7 §5. Particulars about Directors, Supervisors and Senior Executives 5.1 Particulars about changes in shares held by directors, supervisors and senior executives The total Drawing remunerations Number of from the of drawing holding Number of shareholding Reason for from shares at holding shares company or Name Title Sex Age Office term changing Company in the at the year-end the relevant the report Year-begin company(Yes period(RMB’ /No) 0000) Chairman of the Board, Secretary July 28, 2003- No Zeng Pai Male 35 0 0 207 of the Party July 28. 2006 Committee Independent July 28, 2003- Tian Yanqun Male 59 0 0 60 No Director July 28, 2006 Independent July 28, 2003- Fan Zhiqing Male 57 0 0 60 No Director July 28, 2006 Independent July 28, 2003- Wu Ying Female 43 0 0 60 No Director July 28, 2006 July 28, 2003- Zhao Guorong Director Female 55 0 0 0 Yes July 28, 2006 July 28, 2003- Chen Xiaohua Director Male 40 0 0 0 Yes July 28, 2006 July 28, 2003- Zhang Jian Director Male 33 0 0 0 Yes July 28, 2006 May 26, 2005- He Dong Director Male 36 0 0 0 Yes July 28, 2006 Director and May 26, 2005- Zeng Suyan Female 51 0 0 118 No CFO July 28, 2006 Chairman of July 28, 2003- Zuo Heping supervisory Female 56 7,680 7,680 165 No July 28, 2006 committee Supervisor and Secretary of July 28, 2003- Peng Ying Commission of Male 45 0 0 119 No July 28, 2006 Disciplinary Inspection July 28, 2003- Li Yiyan Supervisor Female 40 0 0 110 No July 28, 2006 May 26, 2005- Zong Haiyan General Manger Female 42 0 0 109 No July 28, 2006 Standing deputy July 28, 2003- Guan Lihua Male 52 0 0 156 No general manager July 28, 2006 Deputy general July 28, 2003- Fang Jianhui Male 40 0 0 155 No manager July 28, 2006 Deputy General July 28, 2003- Zheng Yuxi Male 44 0 0 156 No Manager July 28, 2006 Secretary of the July 28, 2003- Liu Xiongjia board of Male 34 0 0 115 No July 28, 2006 directors Total - 7,680 7,680 - 1,590 8 §6. Report of the Board of Directors 6.1 Discussion and analysis to the whole operation in the report period In 2005, confronted to financial risks resulted in guarantee issues left over by history and bad assets to the Company, faced with operating pressure brought by persistently raised price in raw material and energy source and severe market competition, powerfully supported under the controlling shareholder Agriculture Products, under appropriate leading of the Board, the Company made the following works with starting point of protecting the interests of investors and active and steady the operating principal: 1. Established core industrial development direction of tea and natural plant distillation, strongly support the development of the controlling subsidiary Shenzhen Shenbao Huacheng Food Co., Ltd.(hereinafter referred to as “Shenbao Huacheng”). Shenbao Huacheng has been built a produce base for modern tea deep-processing and plant extraction with annual produce amounting to 1,500 tons instant tea powder (5,000 tons concentrated tea juice) which is in accordance with international standard belongs to the largest scale tea material products manufacturer at present. In terms of tea and plant distillation, Shenbao Huacheng possess several patent technology, level and quality both come up to an international advanced level and smoothly passed International certification of HACCP Food Safety Management System and ISO9001: 2000 Quality Management System, part of products even gained the authentication of American FDA and Judah Muslim Food. Products such as Instant Tea Powder and Concentrated Tea Juice of Shenbao Huacheng has come up to 30% in domestic market share, also the most competitive in overseas market and products sold distantly to Europe and America, Japan, Korea, Hong Kong, Taiwan, etc. countries and areas. 2. To quicken the new product development and the market development, tighten to promote the structure adjustment on traditional product, persistently improve traditional produce technology and carry out technical reformation, to strengthen purchase management and decrease purchase cost. During the report period, the Company promoted new products, for example “Shenbao Herbal Tea”, etc. in the right time according to market demand and amended the product mix of soft drink; through the technical reformation of produce equipment for soft drink, the Company started to use new type wrapper which effectively decreased produce cost and increased the competitive ability of products in market, also made earnings of soft drink sales of the Company increase in a large margin comparing with the same period of previous year. 3. On principals of “to be active but no intervention” to assist the development of, the share-participated company, Shenzhen Pepsi Drink Co., Ltd.(hereinafter referred to as Shenzhen Pepsi). As a local listed company, the Company belongs to the shareholder holding 40% share equity from Shenzhen Pepsi, actively helped Shenzhen Pepsi to coordinate the relationship with department concerned, and could understand and respect its own enterprise culture of Shenzhen Pepsi, except for the participation of the significant decision through the Board, there were no intervention on its independent daily production and sales activities, which created a excellent produce and operation environment. In recent six years, Shenzhen Pepsi kept its rapidly and healthy development, several 9 indexes such as cost control, product quality, sales income and net profit all came out in front among filling plants in Pepsi international system, in March 2006 Shenzhen Pepsi even obtained the privilege of “the best filling plant” of Asian-Pacific Region in 2005 Pepsi International. In 2005 Shenzhen Pepsi realized main operating income amounting to RMB 1,171,913,000 main business profit amounting to RMB 346,002,000 and net profit amounting to RMB 143,892,000, respectively increased 26.71%, 18.52% and 14.39% comparing with the same period of pervious year. 4. To moderately and orderly, actively and effectively solve the issues left over history such as external guarantee, bad assets and redundant staff, etc.. Through nearly five years unremitting effort, the Company has settled most of the issues left over history, and successfully reconciled the law and financial risk resulted in the issued left over history to the Company and basically cleaned up the obstacles for rapid development of the Company in the future. In 2005, the Company realized the income from main operation amounting to RMB 81,462,000, net profit amounting to RMB 5,540,000 and respectively increased by 25.83% and 28.56% compared with corresponding period of last year. 6.2 Statement of main operations classified according to industries and products Unit: RMB’000 Gross Increase/decrease in Increase/decrease in Increase/decrease in Income Classified according Cost of profit income from main cost of main gross profit ratio from main main to industries operations ratio operations over the operations over the over the last year operations (%) last year (%) last year (%) (%) Manufacture of 14,045 11,760 16.14 (31.29) (9.87) (20.03) condiments Manufacture of soft 36,817 34,538 0.69 40.23 36.42 (2.13) drinks Manufacture of teas 30,120 23,915 26.83 73.55 84.64 1.46 Classified according to products San Jing” brand 14,045 11,760 16.14 (31.29) (9.87) (20.03) condiments Soft packing drinks 33,913 30,125 5.21 64.43 51.28 1.76 Tea powder and tea 30,120 23,915 26.83 73.55 84.64 1.46 juice series 10 6.3 Particulars about main operations classified according to areas Unit: RMB’000 Sales areas Income from main operations Gross profit South China 57,027 57.71 East China 12,447 (37.17) Others 11,988 36.50 6.4 Application of the raised proceeds √Applicable □Inapplicable Unit: RMB’000 Total amount of raised proceeds used in 175,014 Total amount of raised the report year 73,993 proceeds Total amount of raised proceeds used 46,358 accumulatively Compliance Compliance Planned Change Actual Accrued with with planned Committed projects amount of projects or amount of amount of estimated progress or input not input earnings earnings or not not Project of Henggang new plant of Shenzhen Pepsi 29,000 No 15,606 26,458 No Yes Cola Beverage Co., Ltd. Project of Shenbao 58,000 No 36,527 0 No No Industrial City Total 87,000 - 52,134 - - - The project of Henggang new plant of Shenzhen Pepsi: the project of Henggang new plant of Shenzhen Pepsi is under the operating management of Shenzhen Pepsi and its situation of earnings is reflected in the whole achievements of Shenzhen Pepsi. The part of not invested shall be decided according to the resolutions of the Board of Explanation on not Directors of Shenzhen Pepsi depending on the expansion situation of Shenzhen Pepsi in reaching planned progress the market of East Guangdong and Dongguan. and earnings (decided by The project of Shenbao Industrial City: in compliance with the principle of cautious concrete projects) investment, based on adjusting the design of relevant engineering accordingly after adjusting product structure according to the changes in the market, the Company invested RMB 5,776,000 into the said project in the report period. The part that was still not invested would be invested gradually by stages according to the progress of the said project. In the report period, the said project hasn’t produce income. Explanation on reasons and procedures of Naught change(decided by concrete projects) 11 Particulars about the changed projects □Applicable √Inapplicable 6.5 Particulars about non-raised capital projects □Applicable √Inapplicable 6.6 Explanation of the Board of Directors on the “Qualified Opinion” made by the Certified Public Accountants □Applicable √Inapplicable 6.7 The preplan on the profit distribution and capitalization of capital public reserve of the Board of Directors □Applicable √Inapplicable The Company did not appropriate share distribution preplan though the Company achieved the profit in the report period. √Applicable □Inapplicable The reason for that The Company did not appropriate share The purpose and using plan for the non-distributed distribution preplan though the Company achieved the profit in profit of the Company the report period. Audited by Shenzhen Dahua Tiancheng Certified Public Accountants under Chinese Accounting Standards, the Company’s net profit was RMB 5,540,000 in 2005; audited by K.C.Oh & Company Certified Public Accountants under International Accounting Standards, the Company’s net profit was RMB 6,204,000 in 2005. According to the relevant provisions in Company Law of the P.R.C. and the Articles of Association of the Company, based on the net profit of the Company amounting to RMB 5,540,000 audited by Shenzhen Dahua Tiancheng Certified Public Accountants in 2005, the retained earnings of the Company amounted to (RMB 35,003,000) in 2005. According to the relevant provisions in Company Law of the Used for offsetting the accumulative losses P.R.C. and Standardized Interlocution No. 3 of Information in the previous years Disclosure on Publicly Issuing Securities – Origin, Procedures and Information Disclosure of Losses Offsetting released by CSRC, before the Company’s accumulative losses being offset at full amount, it was forbidden to distribute dividends to shareholders or convert capital reserve into share capital. In 2005, the Board of the Company decided to neither distribute profits nor convert capital reserve into share capital. The said preplan should be submitted to Annual Shareholders’ General Meeting 2005 for consideration. 12 §7. Significant Events 7.1 Purchase of assets □Applicable √Inapplicable 7.2 Sales of assets √Applicable □Inapplicable Unit: RMB’000 Wholly transferred Wholly Net profits caused the transferred by assets of sales’ Explanations Profits and Related ownership of the Company concerned in Assets for Price of contribution to the on the Date of sales losses caused transaction of the involved transactions sales sales listed company from principle of by sales or not involved credits the year-begin to fixing prices property and debts date of sales rights or or not not Price fixed through two Shenzhen Oumingda parties’ Land using Investment and Sep.28, 2006 9,519 0.00 2,878 No negotiation Yes Yes rights Development Co. Ltd based on the situation of the plot The influence on the business continuity and stability of management group of the Company caused by the revolved matters in 7.1 and 7.2 In Sep. 2005, the Company signed the agreement with Shenzhen Oumingda Investment and Development Co. Ltd on transferring using rights of No. G08511 - 3 (2) industrial land of 27,195.8 square meters, which is located in Fenghuang Bridge of He’ao Village in Henggang, excluded part of the land expropriated by Shenzhen Municipal Government. The price for transfer is RMB 9.519 million, the cost of the land is RMB 6.046 million with the due taxation of RMB 594,000, and then the transfer income is RMB 2.878 million accounting for 62.53% of the total profits. With the end of the auditing date, RMB 7.5 million were taken back and the procedure on the land transfer was completed. The aforesaid items do not have influence on the business continuity and stability of management group of the Company. 13 7.3 Significant guarantee √Applicable □Inapplicable Unit: RMB’000 Particulars about the external guarantee of the Company (Barring the guarantee for the controlling subsidiaries) Name of the Complete Guarantee for Date of happening (date of Amount of Guarantee Company Guarantee term Implementation related party signing agreement) guarantee type guaranteed or not (yes or not) Guangdong Joint Feb. 5, 2005- Sunrise Holdings Feb. 5, 2005 8,580 Responsibility No No Aug. 5, 2005 Co., Ltd. Guarantee Guangdong Joint Feb. 6, 2004- Sunrise Holdings Jun. 10, 2003 4,120 Responsibility No No Feb. 6, 2005 Co., Ltd. Guarantee Guangdong Joint Dec. 31, 1998- Sunrise Holdings Dec. 31, 1998 33,330 Responsibility No No Oct. 31, 1999 Co., Ltd. Guarantee Total amount of guarantee in the report period 8,580 Total balance of guarantee at the end of the report period 46,000 Guarantee of the Company for the controlling subsidiaries Total amount of guarantee for controlling subsidiaries in the report period 53,000 Total balance of guarantee for controlling subsidiaries at the end of the report 53,000 period Particulars about the external guarantee of the Company (Including the guarantee for the controlling subsidiaries) Total amount of guarantee 99,000 The proportion of the total amount of guarantee in the net assets of the Company 41.28% Including: Total amount of guarantee for the shareholders, actual controllers and the relevant 0 parties The debts guarantee amount directly or indirectly provided for the guarantee of 0 which the assets-liability ratio exceeded 70% Proportion of total amount of guarantee in net assets of the Company exceeded 0 50% Total amount of the aforesaid guarantees 0 7.4 Significant related transactions 7.4.1 Related purchase and sale □Applicable √Inapplicable 7.4.2 Current related credits and liabilities □Applicable √Inapplicable 7.5 Entrusted assets □Applicable √Inapplicable 14 7.6 Implementation of commitment items □Applicable √Inapplicable 7.6.1 Date for the Share Merger Reform After asking the holding shareholder Shenzhen Agricultural Products Co. Ltd for the opinions, the plan for the Share Merger Reform of the Company will be taken according to the general arrangement by State-owned Assets Supervision and Administration Commission of Shenzhen Municipal People’s Government, and the plan for the Share Merger Reform of the Company will be disclosed before the end of April in 2006. 7.6.2 Other commitments □Applicable √Inapplicable 7.7 Significant lawsuit and arbitration √Applicable □Inapplicable I. The case concerning the joint-liability guarantee the Company provided for the RMB 7 million loan that Shenzhen China Bicycle Company (Holdings) Limited (hereinafter referred to as “Shen China” for short) had got from China Construction Bank Shenzhen Branch (hereinafter referred to as “Construction Bank” for short) has been closed with a reconciliation. In the year 2003, the Company and Construction Bank reached the Agreement on Interest Reduction and Cancellation, and according to the agreement, the Company had already paid back the RMB 7 million in two times for Shen China and fulfilled its guarantee liability (For details, please refer to Annual Report 2003 of the Company.); through the verdict of (1999) YFJYZZI No. 26 Civil Judgment Document made by Guangdong High People’s Court on the case concerning the joint-liability guarantee amounting to USD 800 thousand the Company provided for the Letter of Credit Shen China had applied for and opened at Bank of China Shenzhen Branch, the Company should shoulder joint repayment liability. And ended the first half year of 2004, the Company had repaid RMB 6.632 million (amounting to USD 800 thousand) for Shen China and fulfilled the guarantee liability (For details, please referred to Semi-Annual Report 2004 of the Company.). Latter, on Jul. 22, 2004 the guarantee payment, which the Company had paid on its behalf, was enforced to conduct by Shenzhen Intermediate People’s Court the Company applied to. To safeguard the rights and interests of the Company, the Company sued Shen China to Shenzhen Intermediate People’s Court, and requested for a verdict to order Shen China to repay the sum of money, which the Company had paid on its behalf, as well as to compensate relevant loss arising from the capital occupancy in 2004. Shenzhen Intermediate People’s Court judged and ordered Shen China to repay the RMB 7 million the Company had paid on its behalf, and the interest arising during the period of capital occupancy [(2004) SZFMECZI No. 448]. Since Shen China had not fulfilled its repayment duty according to the time and contents stipulated in the judgment document, the Company applied to Shenzhen Intermediate People’s Court on Dec. 20, 2004 for compulsory enforcement. Shenzhen Intermediate People’s Court sent Shen China (2004) SZFZZI No. 1382 Civil Award and Mandamus, as well as (2005) SZFZZI No. 208 Civil Award and Mandamus on Jan. 14, 2005, and ruled that the property of Shen China (RMB 14.132 million as the limit) should be sealed up and frozen, and that Shen China should fulfill the duties stipulated in effective legal papers or regulated by law within five days from the day the Mandamus arrived. Should Shen China defaulted beyond the time limit, Shenzhen Intermediate People’s Court would make compulsory enforcement according to law (For details, please refer to notifications of the Company published in Securities Times and Hong Kong Ta Kung Pao dated Jul. 30, 2004, Nov. 20, 2004, Dec. 16, 2004, Dec. 29, 15 2004 and Jan. 18, 2005.). Latter, the aforesaid two lawsuits were stipulated by the Higher People’s Court of Guangdong were conducted by Guangzhou Railway Transportation Court, and the conductions were suspended because of no discovering property clues. II. The case concerning the joint-liability guarantee the Company provided for the RMB 30 million loan obtained by Shenzhen Nanfang Tongfa Industrial Company (hereinafter referred to as “Nanfang Tongfa”) has been closed through mediation on Jan. 11, 2002 (For details, please refer to notifications of the Company published in Securities Times and Hong Kong Ta Kung Pao dated Mar. 13, 2002.). Ended the year 2003, the Company had repaid on behalf of Nanfang Tongfa the principal, interest, as well as the legal fare for the trial of first instance and the cost of preservation, amounting to RMB 38.003 million, and fulfilled the guarantee liability according to the requirements of Civil Mediation Agreement. The Company had applied to Shenzhen Intermediate People’s Court to compulsorily enforce the property of Nanfang Tongfa. In November, 2004 and January 2005, Shenzhen Intermediate People’s Court respectively issued the (2004) SZFZZI No. 477 and No. 115 Civil Order and ruled that, since Nanfang Tongfa had no executable property, (2001) YGFJEZZI No. 111 Civil Mediation Agreement sent by Guangdong High People’s Court should be suspended, and that, after the case of execution suspension disappeared, the Company can applied to Shenzhen Intermediate People’s Court for resumption of execution. III. In December 2002, the case concerning the joint-liability guarantee the Company provided for the HKD 3 million loans that Guangdong Sunrise Holdings Co., Ltd. (the former Shenzhen Lionda Holdings Co., Ltd., hereinafter referred to as “Sunrise Company” for short) had obtained from Industrial and Commercial Bank of China Shenzhen Branch has been closed through mediation. On Jan. 13, 2003, the Company repaid, on behalf of Sunrise Company, the principal of HKD 3 million as well as the interest amounting to HKD 100 thousand, while surplus interest was exempted. The Company would exercise relevant rights through legitimate means. IV. The case concerning the joint-liability guarantee the Company provided for the HKD 6 million loan Sunrise Company had obtained from Shenzhen Development Bank Co., Ltd. Nantou Sub-branch has been closed with reconciliation. Ended the year 2003, the Company had repaid a sum of principal HKD 2 million and the interest arising on behalf of Sunrise Company. The remaining principal of HKD 4 million was made on-lending, and the Company would continue to provide guarantee (For details, please refer to notifications of the Company published in Securities Times and Hong Kong Ta Kung Pao dated May 13, 2003.) Sunrise Company had not repaid this loan by the expiration day of the loan in the report period in 2004. V. The case concerning the joint-liability guarantee the Company provided for the RMB 8 million loans which Sunrise Company had obtained from Guangdong Development Bank Co., Ltd. Shenzhen Nanyuan Subbranch (formerly Guangdong Development Bank Co., Ltd. Shenzhen Branch Nanyuan Subbranch) has been closed with reconciliation. Ended the year 2004, the Company had repaid a sum of interest amounting to RMB 2.369 million on behalf of Sunrise Company, while the remaining principal and interest amounting to RMB 8.58 million would continue to be provided as a loan to Guangdong Sunrise Holdings Co., Ltd., and the Company would continue to provide join-liability guarantee for it. The guarantee term was from Feb. 6, 2004 to Feb. 6. 2005. Sunrise Company had not repaid this loan by the expiration day of the loan in the report period. 16 §8. Report of the Supervisory Committee √Applicable □Inapplicable I. Particular about work of the Supervisory Committee in the report period In the report period, the Supervisory Committee has held two meetings: (i) On Apr. 11, 2005, the Company held 4th meeting of the 5th Supervisory Committee. And the following resolutions have been considered and passed in the Meeting: i) 2004 Report of the Supervisory Committee; ii) 2004 Financial Settlement Report; iii) Annual Report 2004 and its Summary (A-share and B-share respectively); iv) 2004 Profit Distribution Preplan; The public notice on the aforesaid resolutions of the meeting was published in Securities Times and Hong Kong Ta Kung Pao respectively dated Apr.13, 2005. (ii) On Aug. 4, 2005, the Company held 5th meeting of the 5th Supervisory Committee. And the following resolutions have been considered and passed in the Meeting: 2005 Semi-annual Report and its Summary (A-share and B-share respectively) The public notice on the aforesaid resolutions was published in Securities Times and Hong Kong Ta Kung Pao respectively dated Aug. 6, 2005. II. Independent opinion of the Supervisory Committee on relevant issues (i) Operation according to the laws In the report period, the Supervisory Committee conducted supervision over the procedures of holding Board meetings and Shareholders’ General Meeting, resolutions, implementation of the resolutions of the Shareholders’ General Meeting by the Board of Directors, status of the senior executives in implementing their duties and the Company’s management system according to the relevant laws and regulations of the State. In our opinion, in 2005, the Board of Directors carried out the operation in a standardized way strictly according to the PRC Company Law, the Securities Law, the Listing Rules, the Articles of Association and other relevant regulations. The Company’s directors and managers worked carefully and responsibly; the Company’s decision-making was religious and solid; the Company has established the relative perfect internal control system. We have found no directors or senior executives ever involved in any actions against the law, rules and regulations, or the Articles of Association or harmful to the interest of the Company and the shareholders in the process of implementation of their duties. (ii) Financial Inspection The Supervisory Committee has made careful and serious inspection on the Company’s financial system and financial position. In our opinion, 2005 Financial Report of the Company has truly reflected the Company’s financial position and operation achievements. The auditors’ report and the auditors’ opinion on the relevant issues produced by Shenzhen Dahua Tiancheng Certified Public Accountants and Hong Kong K.C. Oh & Company Certified Public Accountants are objective and fair. (iii) The actual investment project funded by the latest proceedings is the same as the commitment. (iv) In the report period, there has existed no insider transaction or action harmful to the part shareholders’ right and interest or in connection with loss of the Company’s assets. (v) In the report period, the Company had no significant related transactions and no actions harmful to the interest of the Company. 17 §9. Financial Report 9.1 Auditing opinions Report of the auditors to the members of Shenzhen Shenbao Industrial Co., Ltd. (Incorporated in the People’s Republic of China with limited liability by shares) We have audited the accompanying balance sheet of Shenzhen Shenbao Industrial Co., Ltd. as of December 31, 2005 and the related statements of income, cash flows and changes in equity for the year then ended. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. 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 the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2005 and the results of its operations and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. K. C. Oh & Company Certified Public Accountants Hong Kong: March 10, 2006 18 9.2 Financial Statements Shenzhen Shenbao Industrial Co., Ltd. Consolidated income statement for the year ended December 31, 2005 2005 2004 Note RMB’000 RMB’000 Turnover (5) 81,270 64,558 Cost of sales ( 70,212 ) ( 51,318 ) Gross profit 11,058 13,240 Other revenue (7) 3,779 484 Other net income (8) 3,388 829 Distribution costs ( 11,461 ) ( 22,973 ) Administrative expenses ( 41,048 ) ( 34,422 ) Other operating expenses (9) ( 11,977 ) ( 2,256 ) Operating loss ( 46,261 ) ( 45,098 ) Share of profit from associates 58,389 50,401 Finance costs ( 6,861 ) ( 7,421 ) Profit/(loss) before taxation (10) 5,267 ( 2,118 ) Income tax (11) ( 171 ) 380 Profit/(loss) for the year 5,096 ( 1,738 ) Attributable to : Equity holders of the parent 6,204 4,309 Share of loss for minority interest ( 1,108 ) ( 6,047 ) 5,096 ( 1,738 ) Profit per share to equity holders of the parent - basic (12) RMB0.0341 RMB0.0237 19 Shenzhen Shenbao Industrial Co., Ltd. Consolidated balance sheet as at December 31, 2005 2005 2004 Assets Note RMB’000 RMB’000 Non-current assets Fixed assets (13) 113,230 103,954 Land use rights - non-current portion (14) 15,702 22,645 Goodwill (15) 26 - Intangible assets (16) 13,395 14,351 Interests in associates (17) 139,347 169,443 Other investments (18) 18,361 22,006 300,061 332,399 Current assets Tax recoverable 1,760 2,046 Land use rights - current portion (14) 602 602 Inventories (19) 27,819 19,429 Accounts receivable (20) 21,927 21,818 Prepayments, deposits and others receivable (21) 56,977 56,276 Cash and bank balances 32,669 34,659 141,754 134,830 Total assets 441,815 467,229 Equity and liabilities Capital and reserves Share capital (22) 181,923 181,923 Reserves 59,880 53,676 Equity attributable to equity holders of the parent 241,803 235,599 Minority interest 18,717 4,999 Total equity 260,520 240,598 Current liabilities Dividends payable 218 218 Amount due to a related company (23) 6,201 6,201 Accounts payable and accrued charges (24) 67,377 60,430 Anticipated liabilities (25) 26,399 19,782 Bills payable 5,000 - Short-term bank loans (26) 76,100 140,000 Total liabilities 181,295 226,631 Total equity and liabilities 441,815 467,229 20 Shenzhen Shenbao Industrial Co., Ltd. Consolidated statement of changes in equity for the year ended December 31, 2005 Attri Statutory ‘equ Share Capital Statutory Discretionary ‘public Accumulate of ‘capital ‘reserve ‘surplus reserve ‘surplus reserve ‘welfare fund d loss ‘the RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Balance as at January 1, 2004 181,923 81,004 - 774 12,593 ( 45,004 ) Increased investment by minority interest - - - - - - Profit/(loss) for the year - - - - - 4,309 Balance as at December 31, 2004 181,923 81,004 - 774 12,593 ( 40,695 ) Increased investment by minority interest - - - - - - Change of minority interest from increased investment in a subsidiary - - - - - - Profit/(loss) for the year - - - - - 6,204 Balance as at December 31, 2005 181,923 81,004 - 774 12,593 ( 34,491 ) According to the Company’s Articles of Association and the PRC’s relevant laws and policies, as well as after making up the Company’s loss, the Company is required to make a transfe accordance with the PRC accounting standards, of the Company to the statutory surplus reserve until the reserve balance has reached 50% of the registered capital of the Company. transfer 5% from the profit after taxation to the statutory public welfare fund. The statutory surplus reserve and the capital reserve may be applied only for the following purposes : i may be used to make up loss; and ii may be converted into share capital by the issue of new shares to shareholders in proportion to their existing shareholdings or by increasing the par value of the shares currently held share capital, the amount remaining in the reserve shall not be less than 25% of the newly increased registered capital. The statutory public welfare fund shall only be applied for the collective welfare of the Company’s employees, and upon utilization, an amount equal to expenditure spent on the colle welfare fund to discretionary surplus reserve. Prior to making up the Company’s loss and the relevant appropriations to the statutory surplus reserve and the statutory public welfare fund, no dividend shall be payable. 21 Shenzhen Shenbao Industrial Co., Ltd. Consolidated cash flow statement for the year ended December 31, 2005 2005 2004 RMB’000 RMB’000 Cash flow from operating activities Operating profit/(loss) before taxation 5,267 ( 2,118 ) Adjustment items : Profit on disposal of fixed assets ( 61 ) ( 182 ) Profit on disposal of land use rights ( 2,583 ) - Depreciation 8,975 6,545 Provision for impairment loss of fixed assets 1,073 - Amortization of land use rights 602 602 Amortization of intangible assets 956 956 Provision for impairment loss of other investments 3,645 1,257 Loss from guarantees 7,090 554 Provision for bad debts made/(reversed) 3,971 ( 573 ) Share of profit from associates ( 58,389 ) ( 50,401 ) Amortization of premium in associates - 339 Interest income ( 579 ) ( 484 ) Interest expense 6,861 7,421 Operating cash flows before movements in working capital ( 23,172 ) ( 36,084 ) Increase in inventories ( 8,390 ) ( 3,303 ) (Increase)/decrease in accounts receivable ( 419 ) 1,488 (Increase)/decrease in prepayments, deposits and others receivable ( 2,343 ) 2,180 Increase in accounts payable and accrued charges 6,947 29,258 Decrease in anticipated liabilities ( 473 ) ( 4,070 ) Increase in bills payable 5,000 - Cash outflow from operating activities before interest and tax payments ( 22,850 ) ( 10,531 ) Interest paid ( 6,861 ) ( 7,843 ) Income tax (paid)/refunded 115 ( 154 ) Net cash outflow from operating activities c/f ( 29,596 ) ( 18,528 ) (to be cont’d) 22 Shenzhen Shenbao Industrial Co., Ltd. Consolidated cash flow statement for the year ended December 31, 2005 (cont’d) 2005 2004 RMB’000 RMB’000 Net cash outflow from operating activities b/f ( 29,596 ) ( 18,528 ) Investing activities Interest received 579 484 Proceeds from disposal of fixed assets 1,068 4,773 Purchases of fixed assets ( 20,331 ) ( 45,648 ) Proceeds from disposal of land use rights 6,905 - Net cash outflow from increased investment in a subsidiary (note 27) ( 600 ) - Dividends received from associates 88,485 29,191 Net cash inflow/(outflow) from investing activities 76,106 ( 11,200 ) Net cash inflow/(outflow) before financing activities 46,510 ( 29,728 ) Financing activities Increase/(decrease) in short-term bank loans ( 63,900 ) 10,000 Increase in minority interest 15,400 900 Net cash inflow/(outflow) from financing activities ( 48,500 ) 10,900 Decrease in cash and cash equivalents ( 1,990 ) ( 18,828 ) Cash and cash equivalents as at beginning of year 4,659 53,487 Bank deposits - pledged as at beginning of year 30,000 - Bank deposits - pledged as at end of year ( 15,000 ) ( 30,000 ) Cash and cash equivalents as at end of year 17,669 4,659 Analysis of cash and cash equivalents Cash and bank balances 32,669 34,659 Bank deposits - pledged ( 15,000 ) ( 30,000 ) Cash and cash equivalents 17,669 4,659 23 9.3 Explanation on changes of accounting policy, accounting estimation and settlement compared with the latest annual report □Applicable √Inapplicable 9.4 Contents, correct amount, reason and its influence of significant accounting errors □Applicable √Inapplicable 9.5 Explanation on change of consolidated scope compared with the latest annual report □Applicable √Inapplicable Chairman of Board of Director: Zeng Pai Shenzhen Shenbao Industrial Co., Ltd. March 10, 2006 24