深物业A(000011)深物业Ｂ2005年年度报告（英文版）

SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LTD. ANNUAL REPORT 2005 Mar. 11, 2006 1 Important Notes: Board of Directors, Supervisory Committee, directors, supervisors and senior executives of Shenzhen Properties & Resources Development (Group) Ltd. (hereinafter referred to as the Company) individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. Independent director Mr. Jiang Changlong and independent director Kong Yuquan were absent form the Board meeting due to business trip, but they examined the relevant information before the meeting, and they entrusted Independent Director Zhang Jianjun to vote on his behalf respectively with the aye on all proposals involved. Director Mr. Guo Yuanxian was absent from the Board meeting duet to some reason and did not entrust other director to vote. Wuhan Zhonghuan CPAs Ltd. issued a Auditors’ Report with pinpoint events for the Company; and the Board of Directors and the Supervisory Committee of the Company made the corresponding explanations in details for the relevant matters, the investors are suggested to notice the content. Chairman of the Board of the Company Mr. Tian Chenggang, Person in Charge of Accounting Work Mr. Zha Shengming and Manager of Financial Department Ms. Zhang Wei hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. This report has been prepared in Chinese version and English version respectively. In the event of difference in interpretation between the two versions, the Chinese version shall prevail. Contents . Company Profile---------------------------------------------------------------------------3 . Summary of Financial Highlight and Business Highlight-------------------------3 . Particulars about the Changes in Capital Shares and Shareholders------------6 . Particulars about Director, Supervisor, Senior Executive and Staff -----------10 . Administrative Structure----------------------------------------------------------------16 . Brief Introduction to the Shareholders’ General Meeting -----------------------18 . Report of the Board of Directors ----------------------------------- ------------------18 . Report of the Supervisory Committee------------------------------------------------27 . Significant Events-------------------------------------------------------------------------28 . Financial Report--------------------------------------------------------------------------32 . Documents for Reference---------------------------------------------------------------32 2 I. COMPANY PROFILE 1. Name of the Company In Chinese: 深圳市物业 发展 集团股份有限公司 Abbr. in Chinese: 物业集团 In English: ShenZhen Properties & Resources Development (Group) Ltd. (PRD) 2. Legal Representative: Tian Chenggang 3. Secretary of the Board: Guo Yumei Securities Affairs Representative: Dong Wei Tel: (86) 755-8221 1020 Fax: (86) 755-8221 0610, 8221 2043 Contact Address: 42nd Floor, International Trade Center, Renmin South Road, Shenzhen E-mail: 0011@szwuye.com.cn 4. Registered Address and Office Address: 39th and 42nd Floor, International Trade Center, Renmin South Road, Shenzhen Post Code: 518014 Internet Web Site of the Company: www.szwuye.com.cn 5. Media Designated for Disclosing Information of the Company: A-Share: Securities Times, B-Share: Ta Kung Pao Internet Web Site Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Office of Board of Directors, on 42nd Floor, International Trade Center, Renmin South Road, Shenzhen 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of Stock and Stock Code: Shen Wuye A (000011) Shen Wuye B (200011) 7. Registration data: Jan. 17, 1983 Address: Shenzhen Municipal Administration Bureau for Industrial and Commerce Registration number of enterprise legal person’s business license: 4403011027229 Registered number of taxation: 440301192174135 Name and address of Certified Public Accountants engaged by the Company: Domestic: Wuhan Zhonghuan Certified Public Accountants Ltd. Address: 16th - 18th Floor, Tower B, Wuhan International Mansion International: BDO International Wuhan Zhonghuan Certified Public Accountants Address: 16th - 18th Floor, Tower B, Wuhan International Mansion II. SUMMARY OF FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS (I) Accounting data as of the year 2005 (Unit: RMB) Total profit 98,970,133.62 Net profit 82,902,699.63 Net profit after deducting non-recurring gains and losses 56,104,024.05 Profit from main operations 288,641,976.60 3 Other operating profit 1,491,126.92 Operating profit 96,352,744.44 Investment income 13,543,300.76 Subsidy income 0.00 Net non-operating incomes/expenses -10,925,911.58 Net cash flow arising from operating activities 220,842,222.05 Net increase in cash and cash equivalents -1,212,742.82 Items of non-recurring gains and losses deducted and the relevant amount: Unit: RMB Items of non-recurring gains and losses Amount 1. Gains/losses from disposal of long-term equity investment, fixed 7,569,770.61 assets, project in construction, intangible assets and other long-term assets 2. Gains/losses from short-term investment -8,989,470.13 3. Various non-operating income after deducting daily reserve for 1,653,326.05 impairment of assets in line with the regulations of Accounting System for Business Enterprise 4. Various non-operating expenses after deducting daily reserve for -3,402,213.70 impairment of assets in line with the regulations of Accounting System for Business Enterprise 5. Switching back various reserve for devaluation allotted over the 28,788,501.24 previous years Impact on income tax 1,178,761.51 Total 26,798,675.58 Adjustment statement on differences of financial statement Unit: RMB’000 Items Net profit as of Net assets as at year 2005 Dec. 31, 2005 As calculated in accordance with CAS 82,903 650,258 Switching back into fixed assets from amortization amount -6,368 Adjustment of expenses amortization -1,165 -1,316 Other -2,207 -14,578 As calculated in accordance with IAS 79,531 627,996 (II) Major accounting date and financial indexes over the past three years ended the report period Unit: RMB Items 2005 2004 2003 Income from main operations 963,481,024.09 1,326,289,977.75 1,079,474,318.91 Net profit 82,902,699.63 90,449,977.35 77,001,831.44 Total assets 1,792,535,811.46 2,302,935,990.54 2,437,227,899.69 Shareholders’ equity (excluding 650,258,392.78 567,128,809.36 474,222,712.97 4 minority interests) Earnings per share 0.153 0.167 0.142 Earnings per share after deducting 0.104 0.160 0.229 the non-recurring gains and losses Net assets per share 1.200 1.047 0.875 Net assets per share after 0.965 0.789 0.513 adjustment Net cash flow per share arising 0.408 0.483 0.346 from operating activities Return on equity 12.75% 15.95% 16.24% Weighted average return on equity 9.22% 16.72% 32.95% after deducting the non-recurring gains and losses Return on equity and earnings per share calculated based on Regulations on the Information Disclosure of Companies Publicly Issuing Shares (No. 9) published by CSRC Year 2005 Unit: RMB Return on equity Earning per share Profit in the report period Fully Weighted Fully Weighted diluted average diluted average Profit from main operations 44.39% 47.43% 0.5327 0.5327 Operating profit 14.82% 15.83% 0.1778 0.1778 Net profit 12.75% 13.62% 0.1530 0.1530 Net profit after deducting non-recurring gains and losses 8.63% 9.22% 0.1036 0.1036 (III) Particulars about change in shareholders’ equity in the report period Unit: RMB Items Amount at the Increase in this Decrease in Amount at the Reason for change period-begin period this period period-end Share capital 541,799,175.00 541,799,175.00 Capital reserve 399,320,441.91 226,883.79 374,278,076.18 25,269,249.52 Note 1 Surplus reserve Withdrawing from net 62,919,127.11 3,040,626.18 65,959,753.29 profit Including: Statutory Withdrawing from net welfare public funds 62,919,127.11 1,013,542.06 63,932,669.17 profit Retained profit -436,909,934.66 457,180,775.81 3,040,626.18 17,230,214.97 Note 2 Total shareholders’ ----- equity 567,128,809.36 460,448,285.78 377,318,702.36 650,258,392.78 Note 1: Reason for change of capital reserve: In this report period, increase of capital reserve was because the Company transferred account receivables of RMB 226,883.79 into capital reserve, which is unable to pay; decrease of capital reserve 5 was because the Company offset losses over the past years with capital reserve of RMB 374,278,076.18. Note 2: Reason for change of retained profit: In the report period, increase of retained profit was because the Company realized net profit of RMB 82,902,699.63 and offset losses of RMB 374,278,076.18 in the previous years with capital reserve; decrease of retained profit was because the Company withdrew surplus reserve and welfare public funds amounting to RMB 3,040,626.18. III. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS (I) Particulars about changes in share capital as of the year 2005 1. Statement of change in shares Year 2005 Unit: Share Before the Increase/decrease in this time (+, - ) After the change Capitalization change Issuance of Bonus (number and of public Others Subtotal (number and new shares shares proportion) reserve proportion) I. Unlisted shares 1. Sponsors’ shares Including: 323,747,713 323,747,713 Shares held by the State (59.75%) (59.75%) Shares held by domestic 65,200,850 65,200,850 legal person (12.03%) (12.03%) Shares held by foreign legal person 2. Raised corporate shares 3. Inner employees’ shares 4. Preference shares or others 388,948,563 388,948,563 Total unlisted shares (71.78%) (71.78%) II. Listed shares 91,355,000 91,355,000 1. RMB ordinary shares (16.86%) (16.86%) 2. Domestically listed 61,459,312 61,459,312 foreign shares (11.34%) (11.34%) 3. Overseas listed foreign shares 4. Frozen shares held by 36,300 36,300 senior executives (0.0067%) (0.0067%) 152,850,612 152,850,612 Total listed shares (28.21%) (28.21%) III. Total shares 541,799,175 541,799,175 6 2. Issuance and listing of shares Over the previous three years as at end of the report period, the Company issued neither new shares nor derived securities; and there were changes in neither total shares nor the structure of shares due to bonus shares and rationed shares. The existent inner employees’ shares of the Company were subscribed by senior executives when the Company initially issued the shares at the issuance price of RMB 3.6 per share; the issuance date is Oct. 31, 1991; the issuance quantity is 6.5 million shares. 3. In the report period, the Company started a work on equity division reform in Dec. 2005. Ended the disclosure date of this report, the Plan on Equity Division Reform examined and approved by the relevant shareholders’ general meeting did not be implemented, thus, the Company’s share capital remained unchanged. (II) About shareholders 1. Particulars about numbers of shareholders and shares held by shareholders Unit: share By the end of the report period, the Company has 38,805 shareholders Total number of shareholders in total, including 30,834 ones of A-share, 7,971 ones of B-share. Particulars about shares held by the top ten shareholders Total Number of Share Type of Proportion Full name of Shareholder number of non-circulation pledged or shareholders (%) shares held shares held frozen SHENZHEN CONSTRUCTION State-owned 59.75 323747713 323747713 0 INVESTMENT HOLDINGS share SHENZHEN INVESTMENT HOLDING Directional 10.45 56628000 56628000 0 CORPORATION corporate shares LABOR UNION OF SHENZHEN Directional 0.46 2516800 2516800 0 INTERNATIONAL TRADE PROPERTY corporate MANAGERMENT COMPANY shares Directional 0.29 1573000 1573000 0 SHENZHEN SPECIAL ZONE corporate DUTY-FREE COMMODITY CO. shares SHANGHAI ZHAODA INVESTMENT Directional 0.19 1010000 1010000 0 CONSULTANT CO., LTD. corporate shares YOU XIAN HUI Circulation 0.17 930000 0 Unknown A-share DU NIAN Circulation 0.15 802663 0 Unknown A-share 7 CHINA EAGLE SECURITIES CO., LTD. Directional 0.15 786500 786500 786500 corporate shares were shares frozen judicially SHANGHAI KUNLING INDUSTRY & Directional 0.12 629200 629200 0 TRADE CO., LTD. corporate shares GUOTAIJUNAN SECURIES B-share 0.10 539803 0 Unknown HONGKONG LIMITED Explanation on associated There exists no associated relationship or consistent action among the relationship among the above top three shareholders. For other shareholders, the Company was shareholders or consistent action unknown whether there exists associated relationship or consistent action. Particulars about shares held by the top ten shareholders of circulation share Name of shareholders Numbers of circulation share held Type of share YOU XIAN HUI 930000 A-share DU NIAN 802663 A-share GUOTAIJUNAN SECURIES 539803 B-share HONGKONG LIMITED ZENG YING 536900 B-share CHENG BIN 536000 A-share SHAO XIANG WEN 534380 A-share WAN TAO 531700 A-share CHEN WEN JIAN 506899 A-share ZHENG GUI LIANG 497200 A-share CHEN SHEN YING 486201 A-share Explanation on associated The Company did not know whether there exists associated relationship relationship among the above among the top ten shareholders of circulating share and the top ten shareholders of circulation share or shareholders or not. consistent action Note: Shenzhen Construction Investment Holdings still holds 485,899 corporate shares of the company. Shares held by Shenzhen Construction Investment Holdings was neither pledging or freezing in the report period. 2. About the controlling shareholder of the Company At the end of report period, the controlling shareholder of the Company is still Shenzhen Construction Investment Holdings (“the holding company”) in register book. In 2004, Shenzhen Municipal Government incorporated Shenzhen Construction Investment Holdings with the other two municipal companies, namely Shenzhen Investment Holding Corporation and Shenzhen Trade and Business Corporation, and 8 established Shenzhen Investment Holding Co., Ltd.. Thus, the Company’s actual controlling shareholder is Shenzhen Investment Holding Co., Ltd., a sole state-funded limited company, who was established in Oct. 13, 2004; its legal representative is Mr. Chen Hongbo and the registered capital is RMB 4 billion. Main business scope: providing guarantee to municipal state-owned enterprises, management of state-owned equity, assets reorganization of enterprises, reformation and assets operation, and equity investment and etc.. As a government department, State-owned Assets Supervision and Administration Commission of Shenzhen implemented management for Shenzhen Investment Holding Co., Ltd. on behalf of Shenzhen municipal government. Thus, the final controller of the Company is State-owned Assets Supervision and Administration Commission of Shenzhen with locating at Investment Bldg., Shen Nan Av., Futian District, Shenzhen and postcode of “518026”. The controlling relationship between the Company and the actual controller is as follows: State-owned Assets Supervision and Administration Commission of Shenzhen 100% Shenzhen Investment Holding Co., Ltd. 70.3% The Company 3. The second largest shareholder of the Company is Shenzhen Investment Holding Corporation (holding 10.45% equity of the Company), who was established in Feb. 1988, and its legal representative is Mr. Li Heihu, as well as registered capital of RMB 2 billion. It is an assets management company owned by the whole people. In accordance with the document of SGZW [2004] No. 223 “Decision on establishing Shenzhen Investment Holding Co., Ltd.”, in 2004, Shenzhen Investment Holding Corporation incorporated with Shenzhen Construction Investment Holdings and Shenzhen Trade and Business Corporation. The corporate shares of the Company held by Shenzhen Investment Holding Corporation were held by new company after incorporation — Shenzhen Investment Holdings Co., Ltd.. 4. In the report period, the first and second largest shareholders, namely Shenzhen Construction Investment Holdings and Shenzhen Investment Holding Corporation signed an Agreement on Shares Transfer of ShenZhen Properties & Resources Development (Group) Ltd. with Brilliant Idea Investment Limited in Shenzhen, which transferred all equity of the Company held by them to Brilliant Idea Investment 9 Limited (Brilliant Idea Investment Limited is a controlling subsidiary of Kowloon Development Company Limited listed with Hong Kong Stock Exchange). After finishing equity transfer procedure, Brilliant Idea Investment Limited will hold 70.3% equity of the Company and become the absolute controlling shareholder of the Company, thus, the Company will be controlled by a Hong Kong company from the State-owned shareholding. The Company has published the relevant matters on the said purchase in the appointed mediums on Apr. 5, 2005. At present, the relevant equity transfer procedure is transacting. The Company will disclose continuously on the progress of purchase according to the relevant regulations. IV. PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES (I) About director, supervisor and senior executives 1. Basis information Holding shares Holding Name Title Sex Age Office term at the shares at the year-begin year-end Jun. 2004- Tian Chenggang Chairman of the Board Male 52 0 0 Jun. 2007 Jun. 2004- Guo Yuanxian Director Male 52 0 0 Jun. 2007 Director, Deputy Jun. 2004- Zha Shengming Male 58 18150 18150 General Manager Jun. 2007 Yang Director, Deputy Jun. 2004- Male 58 0 0 Shuncheng General Manager Jun. 2007 Director Jun. 2004- Li Zhen Male 43 0 0 Jun. 2007 Jun. 2004- Wang Huimin Director Female 39 0 0 Jun. 2007 Jun. 2004- Zhang Jianjun Independent Director Male 42 0 0 Jun. 2007 Jiang Jun. 2004- Independent Director Male 41 0 0 Changlong Jun. 2007 Jun. 2004- Kong Yuquan Independent Director Male 41 0 0 Jun. 2007 Chairman of the Jun. 2004- Cao Ziyang Male 55 0 0 Supervisory Committee Jun. 2007 Supervisor, Manager of Jun. 2004- Tong Qinghuo Male 43 0 0 Human Resource Jun. 2007 Supervisor, Deputy Director of the Jun. 2004- Liu Jiake Male 57 0 0 Discipline Inspection Jun. 2007 Office 10 Supervisor, Deputy Jun. 2004- Jin Chenggui Manager of Auditing Male 58 0 0 Jun. 2007 Department Supervisor, Leader of Jun. 2004- Ma Deqin Female 52 0 0 Labor Union Jun. 2007 Luo Rurong General Manager Male 49 Apr. 2005- 0 0 Wei Yuxin Chief Financial Officer Female 46 Apr. 2005- 0 0 Deputy General Jan. 2003- Luo Junde Male 56 0 0 Manager Jun. 2004 Mar. 2003- Liu Yinhua Chief Engineer Male 46 0 0 Jun. 2004 Secretary of the Board, Jun. 2004- Guo Yemei Director of the Board of Female 46 0 0 Jun. 2007 Directors Office 2. Working experience of Directors, Supervisors and Senior Executives Members of the Board of Directors Mr. Tian Chenggang, was born in Dec. 1953, Master degree, Senior Manager and Senior Political Worker. He has experience in administration and enterprise management in the State Organs over 30 years; he’s experienced in serving in the army; he successively took the post of Deputy Director of General Office of Sichuan Import & Export Commodity Inspection Bureau, Division Chief of Qualification Censorship Division of State Ministry of Personnel, member of Zhuhai Municipal Committee, Director of Foreign Economic & Trade Commission and Secretary of the Party Leadership Group, President of Council for the Promotion of Zhuhai Trade and Chamber of Zhuhai Commerce; he took Chairman of the Board, Secretary of Party Committee of the Company and NPC Deputy of Shenzhen from July 1996 to now. Mr. Guo Yuanxian, was born in Dec. 1954, Master degree, Senior Economist. He’s experienced in serving in the army over 20 years. He ever took the post of Division Chief of Ground Army Division of Military Education Office of Air Force Headquarters; after he was transferred to civilian work, he worked in China Southern Securities Co., Ltd. and ever took the posts of Assistant President, Vice-president, Director & General Manager and Deputy Secretary of Party Committee; he took the post of Vice-president of Shenzhen Construction Investment Holdings since June 2002. From Sep. 2004 to now, he held the posts of Secretary of Party Committee, Chairman of the Board of Shenzhen Shahe Industrial (Group) Co., Ltd.. Now he acts as Director of the Company. Ms. Wang Huimin, was born in Oct. 1967, Master degree, Economist. She has experience in enterprise management over 10 years. She took the post of Manager of Human Resource Dept. of Shenzhen Construction Investment Holdings (the controlling shareholder of the Company) from 2002 to 2004. She took the posts of Manager of Department of Personnel of Shenzhen Investment Holding Co., Ltd. (the 11 actual controller of the Company) from Oct. 2004 to now. Now, she acts as Director of the Company. Mr. Li Zhen, was born in Apr. 1963, Senior Engineer, double bachelor degrees. He has experience in enterprise management and administration over 20 years. He worked in Shenzhen Investment Holdings Corporation from 1997 to 2004 and ever took the posts of Deputy Director of Secretariat of the Board of Directors, Manager of General Office, Manager of the 1st Dept. of Industry, Assistant President and Director of Office. He took the posts of Chairman of the Board of Shenzhen Tongchan Industrial Co., Ltd. from Oct. 2004 to now. Now he acts as Director of the Company. Mr. Zha Shengming, was born in Feb. 1948, three years college, Economist. He has experience in enterprise administration, personnel management and enterprise economic management over 20 years. He’s experienced in serving in the army. He was transferred to the Company in Aug. 1988 and ever took the post of Division Chief of Personnel Division, Director of Office of the Board. He now acts as Director and Deputy General Manager of the Company. Mr. Yang Shuncheng, was born in Sep. 1948, three years college. He has management experience in construction enterprise and real estate development enterprise. From 1997 to 1998, he took the post of Manager of Real Estate Development Dept. in Shenzhen Construction Investment Holdings; from 1999 to now, he took the posts of Deputy General Manager and Director of the Company. Independent Director: Mr. Zhang Jianjun, was born in 1964, Doctor degree. He gains experience in teaching, scientific research and administration in university over 10 years. He took the post of standing vice-president in Shenzhen Sino-hawk Credit Rating Co., Ltd., Deputy Director of Shenzhen Enterprise Credit Ratings Committee and Subeditor in journal of Credit Ratings from 1999 to 2001; he took the posts of Dean and Professor in Economy College of Shenzhen Universtiy from 2001 to now. Now he acts as Independent Director of the Company. Mr. Jiang Changlong, was born in 1965, Master-degree of economics in Beijing University. He gains experience in state organs and finance & securities management of enterprise over 10 years. He was engaged in business work in the fields of finance and securities in the State Development Planning Commission RRC and the Securities Commission of the State Council and ever took the post of Deputy Division Chief of the Securities Commission of the State Council; he took the posts of Assistant President of Shenzhen Guosen Securities Co., Ltd., General Manager of Investment Bank Dept of Guosen Securities and Vice-president of Guosen Securities from 1996 to 2002; he held the posts of Director and Deputy General Manager of Shenzhen International Trust & Investment Co., Ltd. from 2002 to 2003; he occupied the post of President of Datong Securities Co., Ltd. from 2003 to 2004; he took the posts of 12 Vice-president of West China Securities Co., Ltd. from May 2004 to now. Now he acts as Independent Director of the Company. Mr. Kong Yuquan, was born in 1965, Master-degree of law in Renmin University of China and Master-degree of law in the University of Warwick. He gains management experience in the local securities regulatory organ over 10 years. He took the post of Deputy Director Clerk of Securities Regulatory Division of the People’s Bank of China, Shenzhen Branch; he worked in Shenzhen Securities Regulatory Office from 1993 to 2002 and successively took the posts of Director Clerk, Deputy Division Chief of General Office and Deputy Division Chief of Regulatory Division of Listed Companies; from Apr. 2003 to now, he took the posts of Chief Economist and Chief Lawyer of Zhongshan Securities Co., Ltd.. Now he acts as Independent Director of the Company. Supervisor: Mr. Cao Ziyang, was born in Mar. 1951, Senior Political Worker. He has experience in political work, human resource and economic management in enterprises over 30 years. He’s experienced in serving in the army. He took the post of Director of Party Committee Office of Shenzhen Construction Investment Holdings since Feb. 1997; he was transferred to the Company in Apr. 1998 and ever took the posts of Director and Deputy General Manager of the Company. He now acts as Deputy Secretary of Party Committee and Chairman of the Supervisory Committee of the Company. Mr. Tong Qinghuo, was born in Dec. 1963, Political Worker, Master-degree. He has experience in political work and human resource in enterprises over 10 years. He was transferred to the Company in Sep. 1996 and ever took the post of Deputy Manager of Personnel Dept., and now took the posts of Assistant General Manager, Manager of Personnel Dept. and Supervisor of the Company. Mr. Liu Jiake, was born in June 1949, three years college, Senior Political Worker. He has experience in management of political work in enterprises over 30 years. He was transferred to the Company in Nov. 1994 and took the posts of Director of General Office of Shanghai Branch and Section Chief of Organization Dept. of Party Committee Office early and late. He now acts as Deputy Director of the Office for Discipline Inspection Office and Supervisor of the Company. Mr. Jin Chenggui, was born in July 1948, Accountant. He has experience in financial management of enterprise over 30 years. He was transferred to the Company in May 1990 and took the posts of Financial Manager of Foods Branch and Shanghai Branch early and late; he now acts as Deputy Manager of Auditing Dept. and Supervisor of the Company. Ms. Ma Deqin, was born in Sep. 1954, Political Worker. She has experience in enterprise’s political work and labor union over 20 years. She was transferred to the 13 Company in Sep. 1988 and took the posts of Carder and Director of Labor Union-Workwoman Committee early and late. She now acts as Chairman of Labor Union and Supervisor of the Company. Senior Executives: Mr. Luo Rurong, was born in Oct. 1956, MBA. Mr. Luo has management experience in real estate industry for many years, has solid qualified experience in enterprise operation and financial management, and is familiar with the development and operation of land project in Hong Kong and Chinese Mainland. Mr. Luo ever took the post in HongKong Land for nearly twenty years. Now he serves in HongKong Kowloon Development Company Limited and acts as of Market and Sale General Manager. In Apr. 2005, he took the post of General Manager of the Company in a period of transition according to the relevant regulations of the Agreement on Shares Transfer of ShenZhen Properties & Resources Development (Group) Ltd. and its attachment signed. Ms. Wei Yuxin, 46 years of age, holds bachelor degree of business awarded by Australian Melbourne Monash University. She is Associate Member of Hong Kong Institute of Certified Public Accountants, Fellow Member of the Association of Chartered Certified Accountants and Associated Member of Australian Society of Certified Practising Accountants. Ms. Wei has rich experience in financial management and company management for many years, and ever took the post in Association of International Accountants for eight years; during eight years, Ms. Wei provided the professional service for many Multi National Corporations and companies listed in Hong Kong. Now, Ms. Wei served in Hong Kong Kowloon Development Company Limited and took the posts of Assistant General Manager, Company Secretary, which is in charge of daily financial management work. Mr. Luo Junde, was born in Mar. 1950, three years college, Senior Economics. He has administration experience in industry, construction and real estate development. He took the posts of Deputy Manager and Manager of Overseas Dept. of Shenzhen Construction Investment Holdings early and late from 1997 to 2003. He took the post of Deputy General Manager of the Company from Jan. 2003 to now. Mr. Liu Yinhua, was born in May 1960, Doctor Degree of Tongji University, Senior Engineer. He has experience in technology and administration in the field of construction. He was transferred to the Company in Sep. 1996 and took the posts of Deputy Head of Engineering Dept., General Manager of Property Management Company and Vice-Chief Engineer of the Company early and late. He now acts as Chief Engineer of the Company. Ms. Guo Yumei, was born in Oct. 1959, Bachelor degree, and held the title of interpretation. She gains experience in enterprise management over 20 years. She ever worked in Shannxi Management Bureau of CAAC; she worked in the Company since 14 1985 and took the posts of Secretary of Office, Translator, Section Chief and Deputy Manager of Capital Dept. early and late. She now acts as Secretary of the Board and Director of Office of the Board in the Company. 3. Particulars about the annual remuneration of the Company’s directors, supervisors and senior executives Order Name Annual remuneration (RMB) 1 Tian Chenggang 626,000 2 Guo Yuanxian Drawing remuneration from Shahe Group Co. 3 Wang Huimin Drawing remuneration from Investment Holding Co., Ltd. 4 Li Zhen Drawing remuneration from Tongchan Industrial Co., Ltd. 5 Zha Shengming 490,700 6 Yang Shuncheng 489,500 7 Jiang Changlong Allowance of independent director of RMB30,000 8 Zhang Jianjun Allowance of independent director of RMB30,000 9 Kong Yuquan Allowance of independent director of RMB30,000 10 Cao Ziyang 638,400 11 Tong Qinghuo 372,200 12 Ma Deqin 374,500 13 Liu Jiake 331,700 14 Jin Chenggui 277,700 15 Luo Rurong Drawing remuneration from Kowloon Development Company Limited 16 Wei Yuxin Drawing remuneration from Kowloon Development Company Limited 17 Luo Junde 488,900 18 Liu Yinhua 494,900 19 Guo Yumei 373,700 Total 4,958,200 In 2005, the remuneration standard of enterprise’s operator was determined in accordance with the Implementation Method on Annual Remuneration for Operators of Shenzhen Municipal State-owned Enterprises. The remuneration standard of other directors, supervisors and senior executives taking position were determined in accordance with the Trial Method on Wage Reformation of PRD examined and passed by the Shareholders’ General Meeting of the Company, which was examined and approved in the 1st meeting of the Board of Directors for 2006. 4. Personnel change In the report period, the Board of Directors engaged Mr. Luo Rurong and Ms. Wei Yuxin as General Manager and Chief Financial Officer of the Company respectively 15 in a period of transition in line with an Agreement on Shares Transfer of ShenZhen Properties & Resources Development (Group) Ltd. signed in Shenzhen on Apr. 1, 2005; In the report period, Mr. Fang Yibing resigned from the posts of Director and General Manager of the Company due to work adjustment; In the report period, Mr. He Wenhua resigned from the post of Director of the Company due to retirement. (II) About employees The Company has totally 1918 employees in office at present, including 1099 production personnel, 164 salespersons, 589 technicians, 79 financial personnel and 138 administrative personnel. 1172 persons graduated from 3-year regular collage or above. Presently, the Company needs to bear the expenses of 111 retirees. V. ADMINISTRATIVE STRUCTURE (I) Administration of the Company In recent years, the Company has been established a set of more perfect and clear legal person’s administrative system in accordance with the requirements of standardized documents promulgated by Securities Supervision Institution, and caused various businesses activities to put up with autonomic and standardized course. On Apr. 1, 2005, the first and second largest shareholders, namely Shenzhen Construction Investment Holdings and Shenzhen Investment Holding Corporation signed an Agreement on Shares Transfer of ShenZhen Properties & Resources Development (Group) Ltd. with Brilliant Idea Investment Limited, the various examining and approving procedure of equity transfer and the final transfer procedure need the longer time, the various noncommittal factors that may exist might affect the Company’s normal production and operation in the period of transition; in order to safeguard benefits of the whole shareholders of the Company and ensure the Company’s operating activities to develop normally in the period of transition, the Board of the Company formed the Resolution of the Board of Directors on Protecting Interests of Transferor, Transferee and the Whole Medium and Small Shareholders, and adopted the corresponding measures, and further strengthened the standardized administration and intensified the legal management functions of the Board; the significant events were discussed and decided by the Board of Directors; all significant operating activities were conducted in line with Company Law, the Articles of Association of the Company and all Management Regulations of the Company, and performed the relevant contents of the Agreement on Equity Transfer and its attachment in the round; and enhanced information disclosure and ensured the right to know of the vast investors; publicized new Company Law, Securities Law widely within the scope of the Company, strengthened and advanced the handling capability of the Company’s each levels according to the laws. In comparison with standardized documents, the Company will explore in establishment of the effective encouragement and biding mechanism in future, and 16 further enhance work efficiency and operating benefits, reinforce the competition and safeguard the investment right of the whole shareholders. (II) Performance of Independent Directors: In the report period, three independent directors of the Company were Jiang Changlong, Zhang Jianjun and Kong Yuquan, who are professional in the local securities, law and financing academe. The holding qualification of independent directors accorded with the relevant regulations of CSRC. Particulars about implementing independent directors’ responsibility in the report period: Name of Times that Times of Times of Times Remark independent should be attend personal commission of directors the Board presence presence absence meeting Jiang 5 4 1 0 Entrusting Kong Changlong Yuquan to vote Zhang Jianjun 5 5 0 0 -- Kong Yuquan 5 5 0 0 -- Particulars about the objection proposed by independent directors on the relevant events Name Event that Contents of objection Remark independent directors proposed objection Jiang Engaging GM He hope that the Company defined the He held the reserve Changlong and CFO in the transition regulations and rules for the opinion on the said period of functions and powers of GM and CFO in proposals in the transition the period of transition, so as to control Board meeting on the risk of listed companies during the Apr. 19, 2005 and period of purchase, protect the interests voted abstention vote. of medium and small investors and safeguard the standardized operation of the Company. Zhang Jianjun Ditto Ditto Ditto Kong Yuquan Ditto Ditto Ditto Particulars about independent opinion 1. Three independent directors issued the independent opinion on engaging GM and CFO in the period of transition. 2. Three independent directors issued the independent opinion on the plan of equity division reform. (III) Particulars about the Company’s “Five Separations” from the Controlling Shareholder The Company has integrated business, keeps independence in operating management, 17 and made “Five Separations” from the controlling shareholder: 1. The Company was independent in management, and possessed independent production, supply and distribution system; 2. The Company independently engaged employees, and possessed absolutely independent management of labor, personnel and salaries; 3. The Property of the Company is transparent, and the Company possessed independent assets ownership; 4. The Company owned independent office site and organization; 5. The Company has independent financial auditing system. VI. BRIEFINGS ON THE SHAREHOLDERS’ GENERAL MEETING In the report period, the Company’s Board of Directors sent out the notice on holding the Shareholders’ General Meeting 2004 on May 28, 2005, and the said Meeting was held on 35/F of Shenzhen International Trade Center Building at 9:30 am of June 28, 2005 on schedule. The following procedure such as notification, convening and holding of the Meeting were in line with the relevant regulations of Company Law and the Articles of Association of the Company. There were 5 shareholders and shareholders’ proxies attended the meeting representing 383,479,633 shares, taking 70.78% of total shares of the Company; including 1 shareholder of foreign share, representing 83,071 shares, taking 0.14% of total shares with voting right of foreign shareholders. The partial directors, supervisors and senior executives of the Company attended this meeting as non-voting delegates. Mr. Zheng Weihe, the professional lawyer of Shu Jin Law Firm, witnesses the said Shareholders’ General Meeting and issued Legal Opinion. Mr. Tian Chenggang, Chairman of the Board, presided over the Meeting. This meeting unanimously passed the following proposals by means of local vote: Work Report 2004 of the Board of Directors; Work Report 2004 of the Supervisory Committee; Financial Settlement Report 2004; Annual Report 2004; Profit Distribution Plan 2004 and Proposal on Making up Losses; Proposal on Amending the Articles of the Association of the Company; Proposal on Engaging Certified Public Accountants for the Company in 2005. The relevant Public Notice on Resolution of this Shareholders’ General Meeting was published on Securities Times and Ta Kung Pao and the designated Internet http://www.cninfo.com.cn on June 29, 2005. VII. REPORT OF THE BOARD OF DIRECTORS (I) Operating Review of the Company 1. The whole operating status By the end of report period, the Company realized income form main operations amounting to RMB 963,481,024.09, down 27% compared with RMB 1,326,289,977.75 realized in the same period of the last year, which was due to the decrease of sale areas of real estate projects, so that sale income has decreased; the Company realized profit from main operations amounting to RMB 288,641,976.60, a decrease of 32% compared with RMB 423,765,125.70 realized in the same period of 18 the last year, which was because sale income of real estate projects reached the condition of settlement and transferred has decreased over the same period of last year; the Company realized net profit amounting to RMB 82,902,699.63, a drop of 8% compared with RMB 90,449,977.35 realized in the same period of the last year, which was due to decrease of operating profit. In 2005, the real estate market in home appeared the quick development tendency continually, the Company grasped the opportunity in time, strengthened sales work of products, so as to obtain good outstanding sales achievement from all real estate projects and take back capital effectively. Of which, project of Junfeng Lishe was sold out at the end of 2005, and all funds from building sales has been entered in an account, which established the solid base for the Group realized the whole operation target in 2005 and alleviated the partial capital pressure. The actual sales rate of the project of “Huangyuyuan B” reached over 90% and the relevant funds were entered in an account timely, and the volume of other buildings was less. The prophase development work of the project of “land A and B of Huangyuyuan C” was making good progress; the project of “Fenghe Rili B” has started formally at the end of 2005. In the report period, the State set up a series of macro-control measures on the real estate market. In the long run, these measures will be in favor of the stabilization and maintenance of market, and help the development of real estate industry in path of the health. Along with rapid urbanization process and economic development, the domestic real estate market will have a wide development space. As a listed company engaging in the real estate development as main operations for many years, the Company insisted on operating with honesty and standardization, held plenty of development experience and professional and bridle-wise management group, and took the certain influence force and reputation. The Company is also faced with new challenge along with the furious market competition, thus, the further expansion of enterprise’s comprehensive strength and the cultivation of enterprise’s development aftereffect are problems that the Company needs to solve urgently. 2. Particulars about operating of main operations of the Company (1) Scope of main operations and its operating: The Company is large-size real estate specialty company with the main operations of real estate development, property leasing and management and concurrently is engaged in the taxi passenger transport, commodity department store and hotel and food industry. The income from main operations of the whole year was RMB 963 million and total profit was RMB 98.97 million. The main breakdown was as follows: Classified according to industry: Income from real estate development amounting to RMB 7.5 billion, profit from real estate development amounting to RMB 90 million; Income from property management and lease amounting to RMB 136 million, profit from property management and lease amounting to RMB –1.56 million; Income from taxi passenger transport amounting to RMB 37.52million, profit from taxi passenger transport amounting to RMB 8.91million; Income from commercial operation amounting to RMB 27.37 million, profit from commercial operation amounting to RMB –1.14million; 19 Income from travel and food business amounting to RMB 13.67 million, profit from travel and food business amounting to RMB –1.53 million. Classified according to areas: Shenzhen: Income amounting to RMB 929 million, Profit from main operations amounting to RMB 104.5 million; East China: Income amounting to RMB 24.045 million; Profit from main operations amounting to RMB 2.966 million; Hainan: Income amounting to RMB 10.649 million, Profit from main operations: RMB -1.112 million. (2) Analysis on main operations of the Company Sales income, sales cost and gross profit ratio of the main products taking over 10% of the income from main operations or profit from main operations: Unit: RMB’000 Industries Income from Cost of Gross Increase/decrease Increase/decrease of Increase/decrease main main profit of income from cost of main of gross profit operations operations ratio (%) main operations operations compared ratio compared compared with the with the previous with the previous previous year (%) year (%) year (%) Real estate 751338 464730 38.15 -32.45 -29.33 -6.68 development Property management 136472 118219 13.37 -0.76 6.97 -31.89 and lease Commercial 27378 26258 4.09 -20.17 -18.19 -36.19 retail Taxi passenger 37522 9690 74.18 11.99 7.77 1.38 transport Tourism and 13674 6687 51.10 5.37 5.56 -0.16 food Explanation on the increase of profitability capability of main operations in the report period compared with the previous year: In 2005, the Company realized income from main operations amounting to RMB 963,481,024.09, a decrease of 27% over the same period of last year; realized profit from main operations amounting to RMB 288,641,976.60, a drop of 32% over the same period of last year; and realized net profit amounting to RMB 82,902,699.63, down 8% over the same period of last year, which was mainly because: The real estate projects reached the condition of settlement and completing has decreased, and resulted in decrease of income from main operations and profit from main operations; The proportion of income from main operations has decreased by a big margin, while the proportion of net profit has decreased a little correspondingly, which was mainly because that the payoff capability of the Company’s investment and operating 20 business rose solidly, and investment income has increased by a big margin compared with the last year. In 2005, administrative expense has decreased compared with the last year. (3) Major suppliers and customers When the Company was engaged in the development business of real estate, the Company generally contracted the real estate projects developed to the contractor companies that gained the bidding by means of project bidding form and the contractor companies were responsible for providing the construction materials. The sales objects of the commercial house of the Company were mainly individual customers and there was no batch customer generally. The amount of sales of the top five customers took 1% of the total sales amount of the Company. 3. In the report period, particulars about the change situation in the Company’s assets composing compared with the same period of last year and main reasons for change: (1) Change situation in assets structure compared with the same period of last year Dec. 31, 2005 Dec. 31, 2004 Increase/decrease Items Amount (RMB) Proportion in Amount (RMB) Proportion in of proportion in total assets total assets total assets (%) (%) Accounts Down 0.72% 66,308,666.23 3.70 68,630,108.16 2.98 receivable Inventories 962,316,422.67 53.68 1,381,621,649.40 59.99 Down 6.31% Long-term equity Down 0.16% 80,130,407.21 4.47 106,669,381.67 4.63 investment Fixed assets 247,663,192.00 13.82 277,902,032.49 12.07 Down 1.75% Short-term loans 462,202,117.37 25.78 400,980,000.00 17.41 Up 8.37% Long-term Down 6.90% liabilities due 0 0 159,000,000.00 6.90 within one year Short-term loans 0 0 96,000,000.00 4.17 Down 4.17% Total assets 1,792,535,811.46 2,302,935,990.54 Note: Decrease of accounts receivable was mainly because that the Company drew back the partial accounts receivable in the report period; Decrease of inventories was mainly because that the sale cost of Junfeng Lishe Garden and Huangyuyuan Garden was carried forward in this year; Decrease of long-term equity investment was mainly because that Shenzhen International Trade Plaza Properties Development Co., Ltd. (original subsidiary of the Company) was liquidated and finished in the report period and its corporate shares were withdrawn; Decrease of fixed assets was mainly because that original value of fixed assets purchased was RMB 43,454,717.22, while the accumulated depreciation amount was 21 RMB 15,781,831.95. Decrease of long-term liabilities due within one year was mainly because that the Company refunded the bank loans in the report period. Increase of short-term loan was mainly due to increase of mortgage loan in the report period. Decrease of long-term loan was mainly because that the Company refunded the long-term loans in the report period. (2) In the report period, particulars about the change situation in the Company’s operating expense, administrative expense, financial expense and income tax compared with the same period of last year and main reasons for change: Items Jan.-Dec. 2005 RMB Jan.-Dec. 2004 RMB Increase/decrease year-on-year (±%) operating 35,081,654.43 33,219,285.82 5.61 expense administrative 125,880,463.14 218,387,710.98 -42.36 expense financial 32,818,241.51 40,482,936.20 -18.93 expense income tax 16,067,433.99 35,710,266.19 -55.01 Note: Increase of operating expense was mainly because that the expense of sales promotion has increased a little in the report period; Decrease of administrative expense was mainly because that the amount of provision withdrawn has decreased compared with the same period of last year; Decrease of financial expense was mainly because that the Company refunded the bank loan in the report period; Decrease of income tax was mainly because that the profit on sales from real estate has decreased in the report period. 3. Particulars about change in main items of cash flow compared with the same period of last year and reasons for change: Items 2005 (RMB) 2004(RMB) Increase/ Decrease (%) Cash flows arising from operating activities: Subtotal of cash inflows 885,223,708.03 1,246,717,898.85 -29.00 Subtotal of cash outflows 664,381,485.98 985,003,369.54 -32.55 Net cash flows arising from operating activities 220,842,222.05 261,714,529.31 -15.62 Cash flows arising from investing activities: Subtotal of cash inflows 25,006,316.34 18,111,331.26 38.07 Subtotal of cash outflows 19,760,765.12 10,921,711.69 80.93 Net cash flows arising from investing activities 5,245,551.22 7,189,619.57 -27.04 22 Cash flows arising from financing activities Subtotal of cash inflows 292,920,000.00 496,000,000.00 -40.94 Subtotal of cash outflows 519,283,073.43 796,293,873.06 -34.79 Net cash flows arising from financing activities -226,363,073.43 -300,293,873.06 24.62 Note: Decrease of net cash flows arising from operating activities over the same period of last year was mainly because that the cash on sales from real estate received by the Company has decreased compared with the same period of last year; Decrease of net cash flows arising from investing activities over the same period of last year was mainly because that the cash paid due to update of taxi by International Trade Vehicle Industrial Co., Ltd. has increased compared with the same period of last year; Increase of net cash flows arising from financing activities over the same period of last year was mainly because that the bank loan repaid by the Company and the interests of bank loan paid by the Company has decreased compared with the same period of last year. In the report period, the cash flows arising from operating activities of the Company was RMB 220,842,222.05, and there existed the bigger difference with net profit as of report period amounting to RMB 82,902,699.63, the reason are: Amount of “Cash paid due to purchasing commodities and receiving labor service” in cash flow statement of the Company was the less than amount of “Cost of main operations” (after deducting labour cost) in income statement, the reason are due to the lower of withdrawal rate; “Depreciation allotted” in income statement amounting to RMB 22.84 million did not pay on cash; “Interests expense deducted” in income statement amounting to RMB 32.83 million was not belong to cash flows arising from operating activities; The Company refunded the guarantee funds for Gintian amounting to RMB 33.68 million, which was reflected in income statement as of year 2004. 6. Operations and achievements of main holding companies and share-holding companies Unit: RMB’000 Registered Equity Assets Net Company name Main businesses capital proportion amount profit Development, construction, Shenzhen Huangcheng operation, and management of 25000 100 percent 793108 61829 Real Estate Co., Ltd supporting commercial service facilities at Huanggang Port Shenzhen Guomao Automobile transportation of Automobile Industry 29850 passengers, and lease of 100 percent 156338 5567 Company automobiles Shanghai Shenzhen Real estate development in 50000 100 percent 111588 2975 Property Development Shanghai 23 Co., Ltd (II) Future development 1. Confronted with the increasingly fierce competition in the market, the Company had been contracting business during the past few years, and stuck to the operation strategy of two main lines with supporting businesses, i.e. the real estate development business and the business of leasing profit-making properties as the two main lines, and the businesses of property management, automobile transportation and restaurant service as supplementary businesses. In recent years, the Company had adopted a series of measures and made some breakthroughs in adjusting business strategy, getting rid of bad assets, improving industrial structure and solving problems left by history, etc. However, the Company is still faced with the predicament of operating capital shortage. 2005 was the Company’s transition period with the system reform going on, and all the credit banks took an on-looking attitude and shrink their original loan amounts for the Company. Bank loans slumped to RMB 462 million from RMB 656 million, down by RMB 194. The credit loans were changed into mortgage loans, and the capital proportion obtained through mortgage loans also decreased compared with previous years. During the report year, there was not much floor space of buildings available for sale this year and the newly developed buildings still demanded for more capital injection. All these had led to the large financial gap, which in return seriously constricted the Company’s land mass reserves and the development speed of new buildings. The Company would face greater pressure in capital demand in the year 2006. 2. In the report period, the Zhuojian Investment Co., Ltd purchased shares of Shen Wuye, and the share transfer had been approved by the State-Owned Assets Supervision and Administration Commission and the Ministry of Commerce. Other relevant procedures are under way. In the coming few years, the Company would still center on the development of real estates. Right now in the urban Shenzhen, the Company would highlight the construction and development of the projects of Huangyuyuan C, Huangyuyuan D, Fenghe Rili high-rise, and Fuchang 2nd Phase, etc. In 2006, the floor space under construction would total approximately 250,000 square meters. To ensure the construction of each project to go as planned, the Company intends to adopt the following measures: Guarantee the construction progress of the major real estate projects, tighten the management of project costs, ensure the profit increase of the main business of real estate development. Keep on doing well the sales of the remaining properties and spare no efforts to revitalize stock assets. Continue to strengthen the business of leasing profit-making properties and maintain a steady growth. Since projects such as Huangyuyuan C, Huangyuyuan D, Fenghe Rili high-rise, and Fuchang 2nd Phase, etc are still at the primary stage of construction, their capital demands are huge. Apart from the self-owned fund, about RMB 300 million needs to 24 be borrowed through financing from finance institution to meet the demands. The financing channels have been basically secured. 3. During the report period, the State put out lots of policies and regulations targeting at the real estate industry, which had led to even hotter competition among real estate enterprises, and the structure among the real estate enterprises would further differentiate. Projects developed by the Company in recent years had made great achievement in a prosperous real estate market, and the business profit had remained stable. However, the Company’s sustainable operation in the future is greatly threatened by capital shortage, decreasing land reserves and the tight macro-policy. (III) Investments in the report period 1. In the report period, the Company has not raised any proceeds, nor has there been any use of proceeds raised previously. 2. Explanation on the significant projects invested with non-raised proceeds, their progress and profit-making status Unit: RMB’000 Amount Profit-making Rate of Project Progress invested status return Fuchang 2nd Phase 10000 Primary preparation - - Fenghe Rili B 15500 Stake base about to complete - - Land A in basic construction Land A, B of 44380 stage, Land B in design and - - Huangyuyuan C construction application stage Total 69880 - - - (IV) Explanation by the Board on the “qualified Auditors” Report with emphasized issues Wuhan Zhonghuan Certified Public Accountants had furnished an unqualified Auditors’ Report with emphasized issues. Explanation on the Auditors’ Report furnished by Wuhan Zhonghuan Certified Public Accountants is as follows: As stated in Note (IX), 1, (1) of the Accounting Statements, the appeal for second instance on the real estate sales contracts signed with the 8 property owners, including Haiyi (Shenzhen) Industrial Co., Ltd, etc, submitted by the Company to Guangdong Senior People’s Court had been rejected in 2003. The 8 properties owners including Haiyi (Shenzhen) Industrial Co., Ltd have not applied to Guangdong Senior People’s Court for compulsory execution after the appeal for second instance were rejected. The Company is handling the application for second instance to the Supreme Court right now. According to the assets book value, the loss estimated by the Company totaled RMB 41,772,906.07. As stated in Note (IX), 1, (2) of the Accounting Statements, in July 2001, Guangdong Senior People’s Court ruled that Shenzhen Jiyong Properties Development Company should pay the Company a transfer fund amounting to RMB 143,860,000. In November of the same year, the Company appealed to Guangdong Senior People’s Court (hereinafter referred to as the Court) for compulsory execution, and the Court sealed up that company’s housing properties of approximately 28,000 square meters. Since the Zhejiang Branch of the Industrial and Commercial Bank of China objected 25 the sealing of the properties, the Court finally ruled that the Company end the sealing about 10,000 square meters of Shenzhen Jiyong Properties Development Company’s properties. The Company had filed objection to the Court. In September 2005, the Court sent Shenzhen State land and housing properties registration sections the rule on the end of the seal, and the seal of the above-mentioned properties about 10,000square meters formally ended. As stated in Note (IX), 1, (3) of the Accounting Statements, (2002) YGFMYZZ No. 90 Judgment issued by the Court ruled that the Company refund the construction fund totaling RMB 10.8 million and relevant bank interests to the Shenzhen Business Office of Hubei Foreign Trade and Economic Cooperation Bureau. The Company did not agree with the judgment and filed an appeal to the Supreme Court for second instance. In August 2005, the Supreme Court ruled that the Court give the case second instance, and that the original judgment be suspended during the second instance. According to the (2002) YGFMYZZ No. 90 Judgment issued by the Court, the relevant loss estimated by the Company totaled RMB 9,655,160.25. The Company has made reasonable estimation on the losses arising during the aforesaid cases, and the contents in the section would not influence the Auditors’ opinions given by Wuhan Zhonghuan Certified Public Accountants. (V) Routine work of the Board 1. Meetings held by the Board during the report period Time Main content On-spot meeting. Examined and approved the Annual Report 2004 and the Summary, Proposal on the Profit Distribution 2004 and Loss Making up, Proposal on Withdrawing Feb. 28, 2005 Various Reserves 2004, Proposal on the Switching-back of Assets Depreciation Reserves 2004, Business Plan and Investment Plan 2005 and Proposal on the Obsolescence of Fixed Assets; Decided to apply for the end of “special treatment”. On-spot meeting. Approved the proposal on the engagement of General Manager and Chief Financial Officer; examined and approved the 1st Quarterly Report of the Apr. 19, 2005 Company, Report to All Shareholders by the Board of Shenzhen Properties & Resources Development (Group) Ltd on the Purchase by Zhuojian Investment Co., Ltd. Telecommunications meeting. Approved through telecommunications the Work Report of the Board 2004, Financial Settlement Report 2004, Proposal on Modifying the May 26, 2005 Articles of Associations of the Company, and the Proposal on the Engagement of Certified Public Accountants for the Year 2005; determined issues on the convening of the annual Shareholders’ General Meeting. Telecommunications meeting. Approved through telecommunications the Semi-Annual Aug. 11, 2005 Report 2005 and the Summary, proposal on the profit distribution of the upper half year and the proposal on the obsolescence of fixed assets. Telecommunications meeting. Approved through telecommunications the 3rd Quarterly Oct. 20, 2005 Report. 2. During the report period, resolutions of the Shareholders’ General Meeting had been implemented. The Company had made up the losses occurred in previous years with the profit of 2004 amounting to RMB 90,449,977.35 and the capital reserve totaling RMB 374,278,076.18. After this making-up action, the Company still had an 26 accumulated loss of RMB 62,631,858.48 needed to be made good. Each proposal of the 2004 Shareholders’ General Meeting had been effectively executed. (VI) Profit distribution preplan 2005 The retained profit at the beginning of the year 2005 totaled RMB -436,909,934.66. Offset with the capital reserve of RMB 374,278,076.18 left over at the end of 2004 (approved by the 2004 Shareholders’ General Meeting held on Jun. 28, 2005), the retained profit totaled RMB -62,631,858.48. As audited by Wuhan Zhonghuan Certified Public Accountants Ltd, the 2005 net profit of the Company amounted to RMB 82,902,699.63. According to Article 4 in the Share Transfer Agreement signed by Shenzhen Construction Investment Co., Ltd, Shenzhen Investment Management Company and Zhuojian Investment Co., Ltd: The business profit made by Shen Wuye during the transition period would be used to make up the losses arising previously, and neither the assigners nor the assignee should demand Shen Wuye to issue bonus shares or grant dividends with the operating achievements made during the transition period according to the shareholders’ equity. As deliberated by the Board, the 2005 profit distribution preplan is as follows: 1. The net profit of 2005 totaling RMB 82,902,699.63 would be used to make up the loss of RMB 62,631,858.48 previously made; 2. 10%, i.e. RMB 2,027,084.12 would be withdrawn as statutory surplus reserve according to the Articles of Association; 3. 5%, i.e. RMB 1,013,542.06 would be withdrawn as statutory public welfare fund; 4. After the above arrangements, the balance of the retained profit at the end 2005 totaled RMB 17,230,214.97, which would be used for the normal operation of the project Fenghe Rili. This profit distribution preplan could only be carried out after being examined and approved by the 2005 Shareholders’ General Meeting. VIII. Report of the Supervisory Committee In 2005, the Supervisory Committee held 3 meetings in total: First meeting: Held on Feb. 28, 2005; examined the Report of the Supervisory Committee 2004, Annual Report 2004 and the Summary and the proposal on withdrawing 8 reserves, gave opinions on the explanatory opinions in the Annual Report, etc; unanimously approved the meeting subjects; disclosed information in relevant media. Second meeting: Held on Aug. 11, 2005; gave the Supervisory Committee’s independent opinions on the Semi-Annual Report 2005 and the Summary; formed resolutions and notified all shareholders through relevant media. Third meeting: Held on Dec. 9, 2005; learned the Securities Law and the Company Law modified after the 18th Meeting of the Standing Committee of the 10th National People’s Congress; after the learning, all members of the Supervisory Committee refreshed their knowledge of the Securities Law and the Company Law, strengthened legal consciousness and further summoned up their confidence during work practice. Members of the Supervisory Committee had attended each Board meeting of the Company, and, in conformity with the Company Law, the Management Rules for 27 Listed Companies and the Articles of Association, conducted supervision over the Board’s and the management team’s operation, looked up materials concerning the Company’s big economic activities and dutifully fulfilled their supervision responsibilities. Independent opinions given by the Supervisory Committee on relevant issues of the Company are as follows: 1. Operation: According to the Company’s various works in 2005, the operation of both the Board and the management team was in conformity with the Company Law, the Management Rules for Listed Companies and the Articles of Association, and the resolutions of the Shareholders’ General Meeting was executed effectively. While performing their duties, neither the Board nor the senior executives had committed and behavior that went against any law, regulation or the Articles of Association. And no power abuse or harm done to the Company’s interests had been detected. The Supervisory Committee believed that under the right guidance of the Board, the Company had put great efforts in production and operation work in 2005, and successfully accomplished the profit index for the year; the effective organization and appropriate measures by the management team had greatly boosted the overall work efficiency of the Group, the management levels of the subordinate enterprises had generally been advanced, distinguished economic benefit had been gained, and the original development goal had been successfully achieved. 2. Financial status: After looking up the Company’s financial accounting materials and relevant rules, the Supervisory Committee believed that the inner control system of the Company was complete and healthy, and the management perfect. This year’s accounting had conformed to the financial system of listed companies; various reserves had been withdrawn strictly according to the inner control system of the Company, and necessary application procedures had been conducted. As audited by the Certified Public Accountants, the Financial Report of the Company had faithfully, objectively and accurately reflected the financial status and operating achievements of the Company. 3. During the activities of assets integration and sales, no transactions unfair, inner transactions or other behavior that had done harm to the interests of part of the shareholders or led to assets loss of the Company had been detected. 4. Auditors’ Report Wuhan Zhonghuan Certified Public Accountants had furnished an unqualified Auditors’ Report with emphasized issues. The Supervisory Committee had made careful consultation on the matters mentioned in the Auditors’ Report. It believed that the explanation given by the Board and the Management team on the issues mentioned had conformed to the actual status of the Company, and that the relevant accounting measures taken had been in accordance with the financial accounting policies. IX. Significant Events (I) Progress of the significant lawsuits or arbitrations of previous years: 1. The “Haiyi Company” case disclosed in the Annual Reports during 2000 and 2004 made no new progress. The 8 properties owners including Haiyi (Shenzhen) Industrial 28 Co., Ltd have not applied to Guangdong Senior People’s Court for compulsory execution. The Company is preparing the application for second instance to the Supreme Court right now. 2. As to the “Jiyong Company” case disclosed in a provisional public notice on Apr. 12, 2001 and in the Annual Reports during 2000 and 2004, Shenzhen Intermediate People’s Court had ruled that the Company’s appeal for second instance be accepted and the case be given second instance in Aug. 2005. The court opened on Dec. 15, 2005 to hear the case, and the hearing is still under way. 3. As to the “Luohu Restaurant” bankruptcy case disclosed in a provisional public notice on Jul. 23, 2003 and in the Annual Reports during 2001 and 2004, after confirmed by the liquidation team and the court, the Company could recover a bankruptcy claim of RMB 25,888,863.08. At the end of January 2005, authorized by the Guangdong Senior People’s Court, Guangzhou Railway Transportation Intermediate Court took the case of Hubei Foreign Trade and Economic Cooperation Bureau suing the Company. Guangzhou Railway Transportation Intermediate Court sent the judgment of sealing to the Luohu Restaurant liquidation team and sealed up the Company’s credit claim of RMB 23,000,000 in from Luohu Restaurant, which was then transferred to the Guangzhou Railway Transportation Intermediate Court. The Company filed objection to the judgment right away. In the end, the Supreme Court issued the (2004) MEJZ No. 146-1 Civil Judgment, which ruled that the Court give the case second instance and the execution be suspended during the second instance. The rest of the Company’s bankruptcy claim from Luohu Restaurant had been recovered. 4. As to the case of the Company being sued by Hubei Foreign Trade and Economic Cooperation Bureau disclosed in Annual Report 2004, the Company did not agree with the Court’s judgment of refunding the construction fund totaling RMB 10.8 million and relevant bank interests to the Shenzhen Office of Hubei Foreign Trade and Economic Cooperation Bureau, and had filed an appeal to the Supreme Court for second instance. On Jan. 18, 2005, the Supreme Court gave the case a hearing. In August 2005, the Supreme Court issued the (2004) MEJZ No. 146-1 Civil Judgment and ruled that the Court give the case second instance and the execution be suspended during the second instance. The Court heard the case on Dec. 5, 2005. (II) Significant lawsuits of this year In 2003, the Company signed a Real Estate Lease Contract with Shenzhen Shengfenglu Guomao Jewel & Gold Co., Ltd (hereinafter referred to as “Jewel & Gold Company”), and leased the business stores in Guomao Building (A 1st to 5th floor) originally run the Company to Jewel & Gold Company, which would also to use the premises for commodity sales. The lease term started on May 1, 2003 and would end on Apr. 30, 2013 (see Annual Report 2003 for details.). Since Jewel & Gold Company had not punctually paid its rents, management charges as well as power charges, the Company put an end to the Lease Contract with Jewel & Gold Company on Sep. 27, 2005 according to the Contract Law and the Lease Contract. In the mean time, the Company filed an appeal to the court for a judgment demanding Jewel & Gold Company to compensate the Company’s principal loss of RMB 29 34,357,599.6 ended Sep. 27, 2005. The Company also appealed for Lin Nuohua to take the joint responsibility of RMB 10,053,000 for Jewel & Gold Company’s debts. The court has accepted the case. (III) The Company had no events of assets purchase, sales or reorganization during the report period. (IV) Significant related transactions during the report period 1. There were no significant transactions happening in the report period. 2. Related transaction of previous years that were connected with routine operations Bidding had been invited by the Construction Projects Transaction Service Center of Shenzhen Construction Bureau for the 12-15 high-rises of Huangyuyuan B developed by the Company’s subordinate Shenzhen Huangcheng Real Estate Co., Ltd, Shenzhen Jianye Construction Engineering Company won, and the two parties signed a project contract totaling RMB 195,919,800.00. The ultimate settlement price was RMB 182,464,375.42. By Dec. 31, 2005, Shenzhen Huangcheng Real Estate Co., Ltd had paid the entire project fund. Bidding had been invited by the Shenzhen Bidding Invitation Center for the Junfeng Lishe Project developed by the Company, and Shenzhen Yuezhong (Group) Co., Ltd won. The two parties signed a project contract, which together with the supplementary agreement totaled RMB 268,487,701.00. The ultimate settlement price amounted to RMB 248,008,618.71. By Dec. 31, 2005, the Company had paid RMB 240,403,919.00. 2. Credits, liabilities and guarantees between the Company and related parties For details on the credits and liabilities with related parties, please refer to the balances of accounts receivable from and payable by related parties in Note (VIII), 2, (4) of the Financial Report. For details on the guarantees, please refer to Note (VIII), 2, (2) of the Financial Report. The aforesaid funds had occurred due to normal operation needs and left over by history. (V) Significant contracts and their implementation 1. During the report period, the Company had no events of assets entrusting, contracting or leasing. 2. Significant guarantees As to the guarantee for “Jintian Company” disclosed in a provisional public notice on Dec. 28, 2004, Annual Reports during 2001 and 2004, Semi-Annual Report 2005 and another provisional notice on Apr. 26, 2005, the three lawsuits caused by the loan guarantee provided by the Company for Jintian Company have almost been solved at the end of the report period. In the report period, the lawsuit caused by the guarantee provided by the Company for Jintian Company to Changchun Branch of Communications Bank of China came to the end. The Company fully performed its duties stipulated in the Reorganization Agreement of Liability Guarantee, and the court had freed the Company’s housing properties frozen due to the lawsuit. The Company has asked Jintian Company to compensate the Company’s loss of RMB 48 million. A bad debt reserve of RMB 48 million had been withdrawn in the report year of 2004. Since the Company had provided guarantee to Guomao Sub-Branch of Shenzhen 30 Branch, Agricultural Bank of China (hereinafter referred to as “Guomao Bank”) for Jintian Company’s loan of RMB 6 million in 1997, and Jintian Company had failed to pay back the loan by the expiration date, the Company had to bear the joint responsibility. In the report period, the Company signed a Execution Reconciliation Agreement with Guomao Bank, and paid Jintian Company’s loan principal of RMB 6 million and the execution charges of the case. This Agreement has been fully performed. According to relevant laws and regulations, the Company has demanded Jintian Company to compensate the Company all the losses. In the report year 2004, the Company estimated that the relevant losses totaled RMB 6 million. A bad debt reserve of RMB 6 million has been withdrawn during this period. Since the Company had provided guarantee to Sehnzhen Branch Office of China Construction Bank (hereinafter referred to as “Construction Bank”) for Jintian Company’s loan of RMB 2.6 million in 1998, and Jintian Company had failed to pay back the loan by the expiration date, the Company had to bear the joint responsibility. During the report period, the Company estimated that the relevant losses totaled RMB 2.6 million, which had been recorded under the item of gains and losses of the period. By the end of the report period, the Company has not paid its guarantee fund. With the 3rd floor and Room 4-01 of Shenzhen International Trade Center Building owned by the Company, the Company provided a guarantee to Shenzhen Futian Sub-Branch of Industrial and Commercial Bank of China for the Company’s wholly-owned subsidiary Shenzhen Huangcheng Real Estate Co., Ltd for its loan totaling RMB 81 million. The guarantee amount took up 12.46 percent of the Company’s net assets. During the report period, the Company has not entrusted others with cash assets management. (VI) Commitments made by the shareholders holding more than 5 percent of the Company’s shares in the report period. On Dec. 12, 2005, the Company officially launched its Share-Trading Reform. In the modified final Plan of Share-Trading Reform issued on Dec. 21, both the main consideration executor and the Company’s potential controlling shareholder Zhuojian Investment Co., Ltd promised: “Zhuojian Investment Co., Ltd would abide by the relevant laws, regulations and rules, and, besides fulfilling the legal responsibilities promised, it would also promised not to trade or transfer the non-circulating shares held within 36 months since the day those shares get the right to circulate. Should Zhuojian Investment Co., Ltd broke its promise by selling its shares, the capital obtained by it would be transferred to and owned by the Listed Company. It is also promised that within 3 years since the non-circulating shares are granted with the rights to circulate, Zhuojian Investment Co., Ltd would go through relevant procedures to make the proposal of issuing bonus shares and dividends at the annual Shareholders’ General Meetings of Shen Wuye, with the bonus shares and dividends no lower than 30 percent of the net profit available for distribution, and give its vote of agreement to the proposal at the Shareholders’ General Meetings. Zhuojian Investment Co., Ltd promised: all relevant expenses arising during Shen Wuye’s Share-Trading Reform would be paid by Zhuojian Investment Co., Ltd. 31 The Shareholders’ General Meeting held on Jan. 13, 2006 has approved Shen Wuye’s Plan of Share-Trading Reform. By the disclosing day of this report, relevant procedures of Share-Trading Reform are still under way. (VII) Engagement of Certified Public Accountants In the report period, the Company still invited Wuhan Zhonghuan Certified Public Accountants Ltd to do the auditing work for the year 2005. Since Wuhan Zhonghuan Certified Public Accountants Ltd has joined BDO International Certified Public Accountants (hereinafter referred to as BDO), it is professionally qualified to provide the Company with Auditors’ Reports for A shares and B shares, of which Auditors’ Report for B shares has been signed and furnished in the name of BDO International Wuhan Zhonghuan Certified Public Accountants. Since the first agreement signed on the auditing work between the two parties, Wuhan Zhonghuan Certified Public Accountants has providing auditing service for 4 report years for the Company. The achievement auditing fees for 2005 totaled RMB 550,000 (including business trip expenses). (VIII) In the report period, neither the Company, nor the Board of the Company or directors have been inspected, punished, or criticized by the securities regulatory sections. X. Financial Report (attached) XI. Documents for Reference 1. Accounting Statements with the signatures and seals of the Legal Representative and the Manager of the Finance Department. 2. Originals of the Auditors’ Reports with the seals of the auditing agencies, and the signatures and seals of the CPAs. 3. Texts and originals of the public notices disclosed in the media within the report period. Board of Directors of Shenzhen Properties & Resources Development (Group) Ltd Mar. 11, 2006 32 德豪国际武汉众环会计师事务所 BDO Wuhan Zhonghuan Certified Public Accountants SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 CONSOLIDATED FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 CONTENTS PAGES REPORT OF THE AUDITORS 1-2 CONSOLIDATED INCOME STATEMENT 3 CONSOLIDATED BALANCE SHEET 4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 5 CONSOLIDATED CASH FLOW STATEMENT 6-7 NOTES TO THE FINANCIAL STATEMENTS 8-28 BDO WUHAN ZHONGHUAN Office: 18F, Block B, Wuhan International Building, Jiefang Road, Wuhan CERTIFIED PUBLIC ACCOUNTANTS Postcode:430022 Tel (86)(27)85826825 Fax (86)(27) 85424329 ZHSZ (2006) No.149 AUDITORS’ REPORT TO THE SHAREHOLDERS OF SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 (Established in the People’s Republic of China with limited liability) We have audited the accompanying balance sheet of the Shenzhen Properties& Resources Development (Group) Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) as of December 31 2005, and the related consolidated statements of income, and cash flows for the year then ended. Respective Responsibilities of Company’s Management and Auditors These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. Basis of Audit Opinion We conducted our audit in accordance with International Standards on Auditing except that the scope of our work as limited as explained below. 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 policies 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. The evidence available to us was limited as we were unable to carry out auditing procedures necessary to obtain adequate assurance regarding the results and assets and liabilities of certain of the subsidiaries of the Company which were not consolidated in these consolidated financial statements as fully disclosed in Note 14 to the financial statements. This is not in accordance with International Accounting Standard No. 27 issued by the International Accounting Standards Board. There were no other satisfactory audit procedures that we could adopt to obtain adequate assurance regarding the results and assets and liabilities of these non-consolidated subsidiaries. Furthermore, owing to insufficient information acquired, we were unable to satisfy ourselves as to certain adjustments for adoption of International Accounting Standards in the prior years. Those adjustments result the decrease of opening balances and closing balances of the Company’s assets and net assets by RMB19, 828 (in thousand). The evidence available to us was limited as we were unable to carry out satisfactory auditing procedure to obtain adequate assurance regarding those opening balances and their impact to the financial statements. Fundamental uncertainty relating to the outcome of certain litigations In forming our opinion, we have considered the adequacy of the disclosures made in the financial statements concerning the possible outcome of certain litigations against the Group for breach of contracts of sale and purchase of realty properties by the Group on the ground of the Group’s failure to complete the contracts as schedules. The future settlement of these litigations might result in additional liabilities to the Group. Details of the circumstances relating to this fundamental uncertainty are described in Note 27 to the financial statements. We consider that the fundamental 1 uncertainty has been adequately accounted for and disclosed in the financial statements and our opinion is not qualified in this respect. Opinion In our opinion, except for the effects of adjustments, if any, as might have been determined to be necessary had we been able to satisfy ourselves as to the opening balances of the financial statements and the results and assets and liabilities of the non-consolidated subsidiaries on the Group’s results and assets and liabilities, the financial statements give a true and fair view of the financial position of the Company as of December 31 2005, and of the results of its operations and its cash flows for the year then ended in accordance with International Accounting Standards and comply with the relevant statute. BDO Wuhan Zhonghuan Certified Public Accountants Co., Ltd Wuhan, China, March 9, 2006 2 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 CONSOLIDATED INCOME STATEMENT YEAR ENDED DECEMBER 31, 2005 Notes 2005 2004 RMB’000 RMB’000 restated Turnover 4 963,481 1,326,290 Cost of sales (674,839) (902,525) Gross profit 288,642 423,765 Other revenue/ (expenses), net (11,263) (2,632) Administrative expenses (132,458) (218,441) Distribution costs (35,082) (33,219) Profit from operations 6 109,839 169,473 Finance costs 7 (32,835) (41,293) Share of profits/ (losses) of associates 25,964 3,692 Loss on investments, net 8 (7,370) (5,766) Profit before taxation 95,598 126,106 Taxation 9 (16,067) (35,710) Profit after taxation and attributable to shareholders 79,531 90,396 Earnings per share Basic and diluted 10 RMB0.14 RMB0.17 3 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2005 Notes 2005 2004 RMB’000 RMB’000 restated Non-current assets Property, plant and equipment 11 301,649 333,909 Intangible assets 12 69,115 70,364 Interests in subsidiaries not consolidated 14 20,829 5,096 Interests in associates 15 95,484 107,235 Investments in securities 16 6,319 16,410 493,396 533,014 Current assets Inventories 17 895,578 1,316,712 Trade and other debtors and prepayments 18 127,410 135,851 Trading securities 19 2,714 9,944 Cash and bank balances 240,144 240,234 1,256,846 1,702,741 Current liabilities Trade and other creditors 20 547,660 866,385 Provisions 21 54,028 58,602 Taxes payable 42,016 68,314 Borrowings 22 462,202 559,980 1,105,906 1,553,281 Net current assets/(liabilities) 159,940 149,460 Total assets less current liabilities 653,336 702,474 Non-current liabilities Borrowings 22 - 96,000 Long-term deferred income 23 25,340 38,235 25,340 134,235 627,996 548,239 CAPITAL AND RESERVES Share capital 24 541,799 541,799 Reserves 86,197 6,440 627,996 548,239 Approved by the board of directors on March 9, 2006. DIRECTOR DIRECTOR 4 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY YEAR ENDED DECEMBER 31, 2005 Statutory Public Share capital welfare Retained capital reserve fund earnings Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 25) Balance at January 1, 2004 541,799 347,665 79,511 (521,155 ) 447,820 Profit for the year - - - 90,396 90,396 Transfer of reserve - 39,764 - (29,741) 10,023 Balance at December 31, 2004 541,799 387,429 79,511 (460,500) 548,239 Profit for the year - - - 79,531 79,531 Transfer of reserve - (374,052) 3,041 371,237 (226) Balance at December 31, 2005 541,799 13,377 82,552 (9,732) 627,996 5 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 CONSOLIDATED CASH FLOW STATEMENT YEAR ENDED DECEMBER 31, 2005 2005 2004 RMB’000 RMB’000 Profit from ordinary activities before taxation 95,598 126,106 Adjustment for: Share of results of associates (7,711) (3,692) Interest expense 32,827 47,689 Interest income (957) (2,067) Bad or doubtful debts written back (17,392) (50) Provision for doubtful debts 14,697 71,586 Provision for inventories written back (6,881) (10,515) Provision for impairment in investments in securities 8,106 - Decrease in bank balances pledged as securities - 5,000 Provision for trading securities 273 (7,838) Provision for trading securities written back (8,370) - Depreciation of property, plant and equipment 26,937 26,640 Amortisation of intangible assets 1,786 3,043 (Gain)/loss on disposal of property, plant and equipment 9,177 476 (Gain)/ loss on dealing of listed investments (9,263) 62 Gain/(loss) in foreign currency exchange (695) - Operating cash flows before movements in working capital 138,132 256,440 Decrease in inventories 426,292 80,433 Decrease in receivables 31,585 16,232 Increase/(decrease) in payables (262,880) 10,782 Cash generated by operations 333,129 363,887 Taxes paid (114,330) (119,846) Net cash flows from operating activities 218,799 244,041 Investing activities Interest received 957 2,067 Proceeds on disposal of other investments 6,341 916 Decrease in trading securities - 4,243 Proceeds on disposal of property, plant and equipment 18,666 3,967 Purchases of property, plant and equipment (19,761) (10,922) Decrease/(Increase) in interests in associates - 28,507 Net cash flows from investing activities 6,203 28,778 6 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 CONSOLIDATED CASH FLOW STATEMENT – continued YEAR ENDED DECEMBER 31, 2005 Financing activities Interest paid on bank loans and other loans (32,827) (47,689) New bank loans raised 292,920 473,600 Repayments of bank loans (486,698) (725,120) Net cash flows in financing activities (226,605) (299,209) (Decrease)/ increase in cash and cash equivalents (1,603) (26,390) Cash and cash equivalents at beginning of year - as previously registered 240,234 266,624 - effect of exclusion of subsidiaries consolidated in prior year 1,513 - As adjusted 241,747 266,624 Cash and cash equivalents at end of year Represented by cash and bank balances 240,144 240,234 7 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 1. CORPORATE INFORMATION Shenzhen Properties & Resources Development (Group) Limited (the “Company”) was incorporated as a joint stock company with limited liability in the People’s Republic of China (“PRC”) pursuant to a reorganization of state-owned enterprises. A and B shares were issued by the Company. The Company and its subsidiaries (the “Group”) are principally engaged in property development, investment and management, transportation, construction and property development consultancy. 2. BASIS OF PREPARATION The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The consolidated financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current event and actions, actual results ultimately may differ from those estimates. 3. PRINCIPAL ACCOUNTING POLICIES The following principal accounting policies are adopted by the Group in preparing the financial statements to comply with IFRS: (a) Subsidiaries Subsidiaries, which are those entities in which the Company and/or its subsidiaries have an interest of more than one half of the voting rights or otherwise have power to govern the financial and operating policies, are consolidated. The existence and effect of potential voting rights that are presently 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. (b) Associates Investments in associates are accounted for by the equity method of accounting. Under this method the company’s share of the post-acquisition profits or losses of associates is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Associates are 8 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 3. PRINCIPAL ACCOUNTING POLICIES – continued entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associates. (c) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. Deprecation is calculated on the straight-line method to write off the cost or the revalued amounts of each asset, to their residual values over their estimated useful lives as follows: Land and buildings in the PRC 20 –25 years Buildings outside the PRC 20 years or the lease terms, whichever is higher Motor vehicles 5 years Fixtures and equipment 5 years Leasehold improvements 5 years When the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposal are determined by comparing proceeds with carrying amount and are included in operating profit. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised, during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed. (d) Land use rights Land use rights are stated at cost less accumulated amortisation and impairment losses. Cost represents consideration paid for the rights to use the land on which various warehouses, container storage areas and buildings are situated for 50 years. Amortisation of land use right is calculated on a straight-line basis over the period of the land use right. (e) Intangible assets Intangible assets represent the cost of acquisition of taxi licenses and are stated at 9 cost less amortisation and impairment losses, if necessary, for any permanent SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 3. PRINCIPAL ACCOUNTING POLICIES – continued diminution in value. Amortisation is provided to write off the cost of taxi licenses over the license period granted by relevant authorities, which is 20 years. (f) Investment in securities All securities other than held-to-maturity debt securities are measured at subsequent reporting dates at fair value. Where securities are held for trading purposes, unrealised gains and losses are included in income statement for the period. For other securities, unrealised gains and losses are dealt with in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the income statement for the period. (g) Properties under development Properties under development are stated at cost less provision for anticipated losses, where appropriate. Cost includes cost of land use rights acquired, development cost and borrowing costs capitalised. (h) Completed properties for sale Completed properties for sale are stated at the lower of cost and the estimated net realisable value. Cost includes cost of land use rights acquired, development cost and borrowing costs capitalised. Net realisable value represents the estimated selling price less the estimated costs necessary to make the sale. (i) Inventories Inventories are stated the lower of cost and net realisable value. Costs, which comprise all costs of purchase, are calculated using the weighted average method. Net realisable value represents the estimated selling prices less all estimated costs of completion and selling expenses. (j) Impairment loss At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately. 10 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 3. PRINCIPAL ACCOUNTING POLICIES – continued (k) Revenue recognition Revenue from sale of property is recognised when sales agreements are signed between the Group and the customers, deposits are received from customers in full amount, and the relevant risks and rewards were transferred to the customers. Revenue from the sale of goods is recognised upon the transfer of risks and rewards of ownership. Rental income under operating leases is recognised on a straight line basis over the term of the relevant lease. Interest income is recognised on a time proportion basis taking into account the principal amounts outstanding and the interest rates applicable. (l) Retirement benefit costs The Group participates in retirement schemes operated by local authorities and the annual cost of providing retirement benefits is charges to the consolidated income statement according to the contribution determined by the relevant schemes. (m) Taxation Taxation represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expense that are taxable or deductible in other years. And it further excludes income statement items that are never taxable and deductible. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recongised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or negative goodwill or from the initial recognition other than in a business combination of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. 11 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 3. PRINCIPAL ACCOUNTING POLICIES – continued The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. (n) Foreign currencies translation The Company and its subsidiaries maintain their books and records in Renminbi (‘RMB’). Transactions in foreign currencies are translated at exchange rates quoted by he People’s Bank of China at the translation dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into RMB at the exchange rate quoted by the People’s Bank of China at the balance sheet date. All exchange differences are dealt with in the income statement. The accounts of subsidiaries and associated companies expressed in foreign currencies are translated at rates of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with as a movement in reserves. (o) Operating leasing Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rentals income and expenses under operating leases are credited and charged respectively to the consolidated income statement on a straight-line basis over the term of the relevant lease. (p) Cash and cash equivalents Cash and cash equivalents comprise short term highly liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired, less advances from bank repayable within three months from the date of the advances. (q) Provisions Provisions are recognised when the Group has a present obligation as a result of a past event which it is probable will result in the outflow of economic benefits that can be reasonably estimated. (r) Financial instruments Financial assets and liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. 12 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 3. PRINCIPAL ACCOUNTING POLICIES – continued (s) Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. 4. TURNOVER An analysis of the Group’s turnover is as follows: 2005 2004 RMB’000 RMB’000 restated Sale of properties 751,338 1,112,296 Sale of goods 27,378 34,294 Taxi services 37,522 33,506 Property rental and management services income 126,695 133,217 Hotel and restaurant operations 13,674 12,977 Others 6,873 - Totals 963,481 1,326,290 5. SEGMENTS REPORTING (a) Business segment For management purposes, the Group is organised into three major operating divisions – property, trading, and transportation and catering services. The divisions are the basis on which the Group reports its primary segment information. Principal activities are as follows: Property - construction, sales, leasing and management of properties Trading - sale of general merchandise Transportation and catering services - hotel and restaurant operation and provision of taxi services Segment information about these businesses for the year ended December 31, 2005 is presented below: 13 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 5. SEGMENTS REPORTING – continued Taxi Sales of services, properties, hotel and management restaurant services and Sales of operations rental income goods and others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Revenue External sales 878,034 27,378 58,069 963,481 Inter-segment sales 9,777 - - (9,777) - Total revenue 887,811 27,378 58,069 (9,777) 963,481 Inter-segment sales are charged on terms which are determined by the directors. Sales of Taxi services, properties, hotel and management restaurant services and Sales of operations rental income goods and others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RESULTS Segment results 257,761 668 35,694 (5,481) 288,642 General administrative expenses and unallocated corporate expenses (178,803) Profit from operations 109,839 Finance costs (32,835) Share of losses of associates 25,964 Loss on investments (7,370) Profit before taxation 95,598 Taxation (16,067) Profit after taxation and attributable to shareholders 79,531 14 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 5. SEGMENTS REPORTING – continued Segment information about these businesses for the year ended December 31, 2004 is presented below: Sales of Taxi services, properties, hotel and management restaurant services and Sales of operations rental income goods and others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Revenue External sales 1,245,513 34,294 46,483 - 1,326,290 Inter-segment sales 4,296 - - (4,296) - Total revenue 1,249,809 34,294 46,483 (4,296) 1,326,290 Inter-segment sales are charged on terms which are determined by the directors. Sales of Taxi services, properties, hotel and management restaurant services and Sales of operations rental income goods and others Eliminations Consolidated RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RESULTS Segment results 397,012 2,110 28,939 (4,296) 423,765 General administrative expenses and unallocated corporate expenses (254,292) Profit from operations 169,473 Finance costs (41,293) Share of losses of associates 3,692 Income from investments (5,766) Profit before taxation 126,106 Taxation (35,710) Profit after taxation and attributable to shareholders 90,396 (b) Geographical segment For the year ended December 31, 2005 and 2004, all of the Groups business was derived from activities in the PRC and all of the Group’s total assets are located in the PRC as at December 31, 2005 and 2004. 15 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 6. PROFIT FROM OPERATIONS Profit from operations has been arrived at after charging and crediting: 2005 2004 RMB’000 RMB’000 restated After charging: Staff costs – statutory pension 19,267 15,843 – other costs 136,165 111,965 Total staff cost 155,432 127,808 Depreciation of owned property, plant and equipment 26,937 26,640 Amortisation of intangible assets 1,786 3,044 Provision for doubtful debts 14,697 71,736 Provision for impairment of investments 8,106 - Unrealised losses on trading securities - 7,838 Loss on dealing of trading securities 8,989 62 Loss on disposal of property, plant and equipment 9,177 476 And after crediting: Interest income 957 2,067 Provision for doubtful debts written back 17,392 - Provision for inventories written back 6,881 10,515 Provision for impairment of trading securities written back 8,097 - Gain on dealing of investment 16,747 - 7. FINANCE COSTS 2005 2004 RMB’000 RMB’000 restated Interest expenses 32,835 47,689 Less: Interest capitalized - (6,396) 32,835 41,293 16 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 8. LOSS ON INVESTMENTS, NET 2005 2004 RMB’000 RMB’000 restated Interest on bank deposits, government bonds and other loans (1,629) (2,067) Provision for impairment - - Loss/(gain) on dealing of listed investments 8,989 62 Reversal of the provision for trading securities 10 7,771 7,370 5,766 9. TAXATION 2005 2004 RMB’000 RMB’000 restated The charge comprises: Income tax for the year: PRC income tax 16,067 35,710 Taxation attributable to the Company and its subsidiaries 16,067 35,710 The Group provided for income tax on the estimated assessable profit for the year at the rate of 15% (2004: 15%), the prevailing income tax rate for all PRC enterprise in Shenzhen. Taxation on overseas profits has been calculated on the estimated assessable profit for the year at the rates of taxation prevailing in the countries in which the subsidiaries operate. The charge for the year can be reconciled to the profit per the income statement as follows: 2005 2004 RMB’000 RMB’000 restated Profit before tax 98,885 126,106 Tax at the domestic income tax rate of 15% (2004:15%) 14,833 18,916 Tax effect of expenses that are not deductible in determining taxable profit 2,564 12,473 Effect of different tax rates of subsidiaries and associates -1,330 4,321 Tax expense and effective tax rate for the year 16,067 35,710 17 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 10. EARNINGS PER SHARE The calculation of earnings per share is based on the Group’s profit attributable to shareholders of RMB 79,531,000 (2004: RMB 90,396,000) and the 541,799,000 (2004: 541,799,000) shares in issue during the year. No diluted earnings per share is presented since there are no dilutive potential ordinary shares in existence during the years ended December 31, 2005 and 2004. 11. PROPERTY, PLANT AND EQUIPMENT Leasehold land and Leasehold Motor Fixture and buildings improvements vehicles equipment Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 COST At January 1, 2005 368,308 37,478 35,505 27,966 469,257 Transferred from inventories 46,792 - - - 46,792 Additions 776 101 18,572 1,023 20,472 Disposals 73,713 - 18,228 1,114 93,055 At December 31,2005 342,163 37,579 35,849 27,875 443,466 DEPRECIATION At January 1, 2005 89,640 14,391 17,210 14,107 135,348 Charge for the year 16,881 764 7,737 1,555 26,937 Eliminated on disposals (4,898) - (14,629) (941) (20,468) At December 31, 2005 101,623 15,155 10,318 14,721 141,817 NET BOOK VALUES At December 31, 2005 240,540 22,424 25,531 13,154 301,649 At December 31, 2004 278,668 23,087 18,295 13,859 333,909 As at December 31, 2005, land and buildings with net book values of approximately RMB 142,473,991.47 (2004: RMB 66,307,000) have been pledged to the banks to secure general banking facilities for the Company and its subsidiaries. 18 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 12. INTANGIBLE ASSETS RMB’000 Cost At January 1, 2004 100,787 Additions 537 At December 31, 2005 101,324 Amortisation At January 1, 2004 30,423 Provide for the year 1,786 At December 31, 2005 32,209 Net book value At December 31, 2005 69,115 At January 1, 2005 70,364 As at December 31, 2005, taxi licenses with net book value of RMB 37,028,420 (2004: RMB 27,018,042) have been pledged to the banks to secure general banking facilities for the Company and its subsidiaries. 13. PRINCIPAL SUBSIDIARIES Details of the principal subsidiaries included in consolidated financial statements at December 31, 2005 are as follows: Proportion of ownership interest/ Name of subsidiary voting power held Principal activities Place of incorporation Direct Indirect % % Hainan Xinda Development 100 - Property development The People’s Republic Headquarter Company and trading of China Shenzhen Property and Construction 100 - Property development The People’s Republic Development Company of China Shenzhen ITC Property Management 95 5 Property management The People’s Republic Company of China Shenzhen Huangcheng Real Estate 95 5 Property development, The People’s Republic Company Limited construction and of China management Shenzhen ITC Vehicles Services 90 10 Transportation and The People’s Republic Company vehicles rental service of China Shanghai Shenzhen Properties 90 10 Property management The People’s Republic Development Company Limited and construction of China Shenzhen ITC Restaurant Limited 80 20 Restaurant operation The People’s Republic and wine merchandise of China Shenzhen Property Construction 90 10 Property development The People’s Republic Supervision Company Limited consultancy services of China Shenzhen International Trade Plaza 95 5 Retailing of general he People’s Republic of merchandise China 19 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 14. INTERESTS IN SUBSIDIARIES NOT CONSOLIDATED 2005 2004 RMB’000 RMB’000 restated Cost of investment 29,751 100,658 Provision for impairment (28,923) (76,041) 829 24,617 Amounts due from subsidiaries 20,000 20,000 Amounts due to subsidiaries - (39,521) 20,829 5,096 Details of subsidiaries excluded from the consolidated financial statement at December 31, 2005 are as follows: Proportion of ownership interest/ Name of subsidiary voting power held Principal activities Place of incorporation Direct Indirect % % Shum Yip Properties Development 100 - Property development Hong Kong Limited Zhanjiang Shenzhen Estate - 100 Property development The People’s Republic Development Company Limited and retailing of of China general merchandise Shenzhen ITC Plaza & Development 70 - Property investment The People’s Republic Company Limited and development of China Shenzhen Real Estate Development 100 - Property development The People’s Republic Company of China Shenzhen Real Estate Exchange 100 - Property investment The People’s Republic of China Shen Shan Company 100 - Dormant The People’s Republic of China Sihui Jianye Huangjiang - 100 Property development The People’s Republic Development Company of China Shenzhen Tesu Vehicle Driver - 100 Driver training The People’s Republic Training Center Limited of China 20 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 15. INTERESTS IN ASSOCIATES 2005 2004 RMB’000 RMB’000 restated Cost of investment 126,603 148,559 Share of post-acquisition loss, net of dividends received 5,460 (20,072) Provision for impairment (64,140) (64,350) 67,923 64,137 Amounts due from associates 29,706 45,362 Amounts due to associates (2,145) (2,264) 95,484 107,235 Details of the principal associates at December 31, 2005 are as follows: Proportion of ownership interest/ voting power held Name of associate Principal activities Place of incorporation Direct Indirect % % Shenzhen Carrier Service Company Limited 40 - Air-conditioning The People’s Republic of China ITC Tian An Company Limited 50 - Property investment and The People’s Republic of development China Shenzhen Jifa Warehouse Company Limited 50 - Warehousing The People’s Republic of China Anhui Nan Peng Paper Manufacturing 30 - Manufacturing and sales of coated The People’s Republic of Company Limited art paper China Shenzhen Fulin Industry Incorporated 10.59 - Hotel The People’s Republic of Company China Shenzhen Matform Ceramics Industry 26 - Ceramics craft The People’s Republic of Company Limited China Shenzhen ITC Industry Development 38.33 - Property development The People’s Republic of Company Limited China Shenzhen Tian’an International Building 50 - Building management The People’s Republic of Property Management Company Limited China Shenzhen Huajin Glass Bottle Company 15.83 - Manufacturing and sales of glass The People’s Republic of Limited China Guangzhou Lishifeng Motorcar Company - 30 Motor vehicle trading The People’s Republic of Limited China 21 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 16. INVESTMENTS IN SECURITIES 2005 2004 RMB’000 RMB’000 restated Unlisted equity investments at cost 22,386 21,760 Provision for impairment (16,067) (5,350) 6,319 16,410 The amount represents holding of unlisted legal-person shares of enterprises established in the PRC. 17. INVENTORIES 2005 2004 RMB’000 RMB’000 restated Properties held for sale/under development 471,559 421,557 Completed properties held for sale 421,629 892,281 Other inventories 2,390 2,874 895,578 1,316,712 As at December 31, 2005, completed properties held for sale with carrying value of RMB 8,234,237.55 (2004:RMB129,672,453) have been pledged to the banks to secure general banking facilities granted to the subsidiaries. 18. OTHER FINANCIAL ASSETS Other financial assets comprise trade and other debtors and prepayments. The terms of payment in respect of the Group’s sales of properties are in accordance with the terms of respective sales contracts. The management considers that the carrying amounts of trade and other debtors and prepayments approximate to their fair values. The amounts presented in the balance sheet are net of provision for doubtful debts. Provision for doubtful debts is estimated by the management with reference to their prior experience and their assessment of the current economic environment. Credit risk attributable to trade and other debtors are frequently reviewed and assessed by the management. 19. TRADING SECURITIES 2005 2004 RMB’000 RMB’000 restated Listed securities, at market value 2,714 9,944 22 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 20. OTHER FINANCIAL LIABILITIES Other financial liabilities comprise trade and other creditors which are outstanding for trade purchases and ongoing costs. The terms of payment in respect of the Group’s trade purchase and ongoing costs are in accordance with the terms of respective contracts. The management considers that the carrying amounts of trade and other creditors approximate to their fair values. 21. PROVISIONS The provision represents management’s best estimate of the Group’s liability for certain litigation losses. 22. BORROWINGS 2005 2004 RMB’000 RMB’000 restated Bank loans 449,002 635,980 Other loans 13,200 20,000 462,202 655,980 Secured 449,002 635,980 Unsecured 13,200 20,000 462,202 655,980 The maturity profile of the above loans and overdrafts is as follow: On demand or within one year 462,202 559,980 More than one year, but not exceeding two years - 96,000 More than two years, but not exceeding five years - - 462,202 655,980 Less: Amounts due within one year shown under current liabilities 462,202 559,980 - 96,000 During the year, the Group obtained new bank loans in the amounts of RMB 292,920,000. The loans bear interest at prevailing market rates ranging from 5% to 7% (2004:5% to 7%) per annum. 23 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 23. LONG-TERM DEFERRED INCOME 2005 2004 RMB’000 RMB’000 restated At January 1 38,235 40,009 Additions for the year (8,582) 5,430 Released to income statement (4,313) (7,204 ) At December 31 25,340 38,235 The amount represents deferred income arising on sales of taxi licenses and is released to the income statement over 25 years. 24. SHARE CAPITAL 2005 2004 RMB’000 RMB’000 restated Registered, issued and fully paid: 388,949,000 state shares and shares held by other promoters of RMB1.00 each 388,949 388,949 91,391,000 A share of RMB1.00 each 91,391 91,391 61,459,000 B share of RMB1.00 each 61,459 61,459 541,799 541,799 All the shares rank pari passu with each other in all respects. 25. ANALYSIS OF CHANGES IN FINANCING DURING THE YEAR Other Short-term Long-term short-term bank loans bank loans loans RMB’000 RMB’000 RMB’000 restated Balance at January 1, 2005 400,980 96,000 159,000 New loans raised 292,920 - - Repayments of amounts borrowed (231,698) (96,000) (159,000) Balance at December 31, 2005 462,202 - - 24 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 26. PLEDGE OF ASSETS As at December 31, 2005, leasehold land and buildings with a net book value of RMB 142,473,991.47 (2004: RMB66,307,000), completed properties held for sales of RMB 8,234,237.55 (2004: RMB129,672,453) and certain taxi licenses having a net book value of RMB 37,028,420 (2004: RMB27,018,000) have been pledged to the banks for the general banking facilities granted to the Group. 27. CONTINGENT LIABILITIES (1) The Company and one of its wholly owned subsidiaries are defendants in a law suit carried to the court in 1999 claiming for breach of contract of sale and purchase of realty properties on the part of the Company and its subsidiary by virtue of failure to completing the transaction by proper transfer of title deeds of properties concerned on schedule as contracted. The Provincial High Court of Guangdong has declared and re-affirmed its final ruling against the Company and its subsidiary for paying a total compensation of approximately HK$79 million (or approximately RMB84 million) to the plaintiffs. The Company is seeking an appeal to the People’s Supreme Court and as a prerequisite, submitted to the court a voluntary order of restriction on certain of the Group’s realty properties assets of a carrying value on the balance sheet as at December 31, 2003 of approximately RMB40 million which, in the opinion of the Company’s directors, are of a realisable value sufficient to cover the compensation as imposed by the court decision. A provision of approximately RMB42 million has been made for the loss under such case in the Group’s financial statements as of December 31, 2004. As at the date of this report, the application for appeal to the Supreme Court is still in progress. (2) A court case against the Company in 2000 in relation to delay in delivery of realty properties was finalised and according to the court decision the Company have to refund to the plaintiff the whole of the purchase consideration for the properties concerned of RMB10.8 million plus interest accrued. The Company appealed to the People’s Supreme Court and on August 2005 a civil award was given by the Supreme Court which set out that Guangdong Provincial Supreme Court should execute a new trial. Up to Dec 31 2005 a contingent loss of RMB 9,655,160.25 was made by the Company. (3) On Dec 1998, the Company provided security for its parent company’s borrowings of RMB 260,000. On May 2001 the Company was commanded to bear the guardianship. A contingent loss of RMB 260,000 was made by the Company in the year 2004. Up to Dec 31 2005 the amount was still unpaid. (4) As at Dec 31 2005, certain properties of the Company was used to secure the borrowings of RMB 8,100,000 made available to one of its subsidiary. (5) As at Dec 31 2005, the Company and its subsidiaries provided guarantee of RMB 21,545,000 to its realty properties purchasers in favor of banks. 25 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 28. OPERATING LEASES At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments: 2005 2004 RMB’000 RMB’000 restated - Within one year 26,760 26,190 - In the second to fifth year inclusive 91,060 52,380 117,820 78,570 Operating lease payments represent rentals payable by the Group for certain of its office properties. Leases are negotiated for an average term of 3 years and rentals are fixed for an average of 3 years. 29. RETIREMENT BENEFITS PLANS Defined contribution plans The employees of the Group in the PRC are members of state-managed retirement benefit schemes operated by the PRC government. The Group is required to contribute a specified percentage of their payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions at the rates specified in the rules of the schemes. 26 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 30. RELATED PARTY TRANSACTIONS During the year, the Group entered into the following transactions with related parties: Relationship with the Name Group 2005 2004 RMB’000 RMB’000 restated Construction costs Shenzhen Construction Holding paid Investment Holding Co. company 182,464 163,720 Construction costs Shenzhen Yuezhong Fellow paid (Group) Co. Ltd subsidiary 240,403 209,138 Outstanding balances with related parties the balance sheet date which are included in the balance sheet are as follows: 2005 2004 RMB’000 RMB’000 restated Amounts due from related parties, disclosed as interest in subsidiaries not consolidated, interest in associates and trade and other debtors and prepayments 49,706 186,663 27 SHENZHEN PROPERTIES & RESOURCES DEVELOPMENT (GROUP) LIMITED 深圳市物業發展(集團)股份有限公司 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2005 31. IMPACT OF IFRS ADJUSTMENTS ON NET PROFIT FOR THE YEAR Profit for the year ended December 31 2005 2004 RMB’000 RMB’000 restated As reported in financial statements prepared in accordance with PRC GAAP 82,903 90,450 Adjustments to confirm with IFRS: Deferred expenses written off (1,165) (86) Amortisation charges written back - 32 Others (2,207) - 79,531 90,396 32. IMPACT OF IFRS ADJUSTMENTS ON CONSOLIDATION NET ASSETS Consolidated net assets As at December 31 2005 2004 RMB’000 RMB’000 restated As reported in financial statements prepared in accordance with PRC GAAP 650,258 567,129 Adjustments to confirm with IFRS: “B share” prior years adjustments (19,828) (4,000) Deferred expenses written off (1,316) (3,448) Amortisation charges written back (6,368) 613 Addition depreciation charges - (10,380) Addition amortisation charges - (8,373) Unamortised expenses written off - (4,233) Others 5,250 10,931 627,996 548,239 28