招商地产(000024)招商局Ｂ2005年年度报告（英文版）

China Merchants Property Development Co., Ltd. Annual Report 2005 Annual Report 2005 Announcement No. 【CMPD】2006－011 Chapter I. Important Statement & Table of Contents Important Statements: The Board of Directors and the directors of the Company guarantee that there are no significant omissions, fictitious or misleading statements carried in the Report and we will accept individual and joint responsibilities for the truthfulness, accuracy and completeness of the Report. The independent directors Liu Hongyu, Shi Xinping and Meng Yan were not able to attend the board meeting. They authorized independent director Wu Yinong to attend the meeting and voted on behalf of them. Mr. Sun Chengming - the legal representative, Mr. Huang Peikun – the chief financial officer, and Ms. Xu Yixia – the manager of accounting department declare: the financial reports carried in this annual report is secured for its truthfulness and completeness. This report is prepared both in English and Chinese. When there is any conflict in understanding, the Chinese version shall prevail. The financial report was audited by Deloitte Touche Tohmatsu (Shanghai) CPA Ltd. (as domestic auditor), and Deloitte Touche Tohmatsu (Hong Kong) CPA Ltd. (as overseas auditor). Both of the CPAs issued the standard Auditors’ Report without qualified opinion. Table of Contents Chapter I. Important Statement & Table of Contents ........................................................ 1 Chapter II. Company Profile ............................................................................................... 2 Chapter III. Financial Highlight ........................................................................................... 4 Chapter IV. Changes in Capital Shares and Particulars about the Shareholders.................. 7 Chapter V. Particulars about the Directors, Supervisors, Senior Executives and Staffs... 13 Chapter VI. Administrative Structure................................................................................. 24 Chapter VII. The Shareholders’ Meetings........................................................................ 25 Chapter VIII. Report of the Board of Directors ................................................................. 25 Chapter IX. Report of the Supervisory Committee ............................................................ 38 Chapter X. Significant Events ........................................................................................... 40 Chapter XI. Financial Report.............................................................................................. 47 Chapter XII. VII. Documents for Reference .................................................................... 47 1 China Merchants Property Development Co., Ltd. Annual Report 2005 Chapter II. Company Profile I. Legal Name of the Company: In Chinese: 招商局地产控股股份有限公司 Abbr: 招商地产 In English: CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. Abbr: CMPD II. Legal Representative: Sun Chengming III. Secretary of the Board of Directors: Chen Yu Securities Affairs Representative: Liu Ning Address: 9/F, New Times Plaza, Shekou Industrial Zone, Nanshan District, Shenzhen Post Code: 518067 Tel: （0755）26819600 Fax: （0755）26819680 Email: investor@cmpd.cn IV. Registered Address: 9/F, New Times Plaza, Shekou Industrial Zone, Nanshan District, Shenzhen Office Address: New Times Plaza, Shekou Industrial Zone, Nanshan District, Shenzhen Post Code: 518067 Website on the Internet: http://www.cmpd.cn Email: investor@cmpd.cn V. Presses for information disclosing: China Securities Journal, Securities Times and Hong Kong Commercial Daily. (The Company has assigned Hong Kong Commercial Daily to replace Ta Kung Pao as its overseas information discloser since March 2006.) Website Designated by China Securities Regulatory Commission: http://www.cninfo.com.cn The Annual Reports of the Company are available for inquiry at the Secretariat of the Board of Directors. VI. Stock listed in: Shenzhen Stock Exchange The Secondary Stock Exchange listed with: Singapore Stock Exchange Stock ID: CMPD (has been changed to G China Merchants since Feb 9th 2006), China Merchants B Stock Code: 000024, 200024 VII. Misc. Info. 1. Initial registration date: Sept. 19th 1990. 2. Initial registration place: Shenzhen 3. Business License No. QGYSZ Zi No. 101828 4. Taxation License No: National Tax – Shen Zi 440301618845136 2 China Merchants Property Development Co., Ltd. Annual Report 2005 Local Tax – Deng Zi 440305618845136 5. CPAs employed by the Company (1) Domestic: Deloitte Touche Tohmatsu (Shanghai) CPA Ltd. 30/F, Bund Center, Yan An Road East, Shanghai (2) Overseas: Deloitte Touche Tohmatsu (Hong Kong) CPA 26/F, Wing On Centre, 111 Connaught Road Central, Hong Kong VIII. Definitions These expressions are defined to the followings unless otherwise stated: 1. “the Company”: China Merchants Property Development Co., Ltd. 2. “CMSIZ”: China Merchants Shekou Industrial Zone Co., Ltd. 3. “CMRE”: Shenzhen China Merchants Real Estate Co., Ltd. 4. “CMPS”: Shenzhen China Merchants Power Supply Co., Ltd. 5. “CMWS”: Shenzhen China Merchants Water SerDeputys Co., Ltd. 6. “Xin An Realty”: Shenzhen Xin An Realty Co., Ltd. 3 China Merchants Property Development Co., Ltd. Annual Report 2005 Chapter III. Financial Highlight I. Major profit indices as of the year 2005 in RMB No. Major profit indices Amount 1 Total profit 536,044,939 2 Net profit 421,580,919 3 Net profit deducted non-recurring gain/loss 420,776,681 4 Major business profit 628,255,542 5 Other business profit 1,330,436 6 Operation profit 541,975,779 7 Investment income -35,920,968 8 Allowance income 33,378,217 9 None business income / expense (net) -3,388,089 10 Net Cash flow generated by business operation -1,366,547,989 11 Net decreasing of cash and cash equivalents -90,267,435 Non-recurring gains and losses in RMB Non-recurring gain and loss items Amount Non-business gain/loss, net 676,456 Disposal of fixed assets -306,908 Write-back from impairment provisions 2,166,022 Government allowance 2,090,600 Predictive liabilities provided -3,882,437 Impact of income tax and minor shareholders’ gains/losses 60,505 Total 804,238 II. Impact on profit and net assets by the adjustment under International Accounting Standards (RMB’000) Net profit Net asset As reported under Chinese Accounting Standards 421,581 3,775,757 Adjusted under International Accounting Standards Adjustment of assets exchange -13,148 -71,972 Adjustment of goodwill amortization 48,967 107,827 Income from drawback of VAT adjusted on accrual basis 214 26,809 Adjustment of minority shareholders’ gains and losses 595 -11,314 Deferred tax 2,339 -47,322 Others -9,581 11,905 Amount determined under IAS 450,967 3,791,690 [Remarks] The net profit of the year suggested by the overseas auditor was RMB450.967 million. The differences were caused by different accounting policies adopted in recognition and tax calculating of 4 China Merchants Property Development Co., Ltd. Annual Report 2005 asset exchanges, equity investment discrepancy (incur and amortizing) as well as the subsidies occurred in previous year. III. Major accounting data and indices over the latest 3 years (in RMB) 2004 not 2004 Items / Annual Year 2005 Year 2003 adjusted adjusted 3,475,895,99 Major business income 2,659,475,668 3,475,895,992 4,838,834,917 2 Net profit 421,580,919 359,802,928 359,802,928 330,477,566 8,454,998,78 Gross Assets 8,454,998,786 5,923,647,954 8,936,565,336 6 Shareholders’ Equity (Exclude Minority 3,451,290,27 3,775,757,154 3,451,290,272 3,118,874,132 Shareholders’ Equity) 2 Earnings per share (diluted) RMB/Share 0.681 0.581 0.581 0.641 Earnings per share (weighted) RMB/Share 0.681 0.581 0.581 0.689 Earnings per share after deducting of non- 0.680 0.608 0.608 0.678 recurring gains and losses (diluted) RMB/Share Earnings per share after deducting of non- 0.680 0.608 0.608 0.729 recurring gains and losses (weighted) RMB/Share Net asset per share RMB/Share 6.102 5.577 5.577 6.048 Net asset per share, adjusted RMB/Share 6.093 5.557 5.557 5.985 Net return on equity (diluted) 11.17% 10.43% 10.43% 10.60% Net return on equity (Weighted) 11.72% 10.96% 10.96% 12.42% Net return on equity after deducting of non- 11.14% 10.90% 10.90% 11.22% recurring gains and losses (diluted) Net return on equity after deducting of non- 11.69% 11.46% 11.46% 13.15% recurring gains and losses (weighted) Net Cash flow per share generated by business -2.208 -1.979 -1.965 -0.392 operation RMB/Share IV. Indices calculated basing on “Regulations on the Information Disclosure of Public Companies No. 9” Profit indices as of the year Net return on equity (%) Earnings per share (yuan/share) On full Weighted On full weighted amortizing basis average amortizing basis average Major business profit 16.64% 17.46% 1.02 1.02 Operation profit 14.35% 15.05% 0.88 0.88 Net profit 11.17% 11.72% 0.68 0.68 Net profit deducted non-recurring gain/loss 11.14% 11.69% 0.68 0.68 V. Changes of shareholders’ equity in the report term (RMB) Incl. Post Different of Capital Statutory Un- Shareholders’ Capital Surplus balance foreign Items shares public distributed equity reserves reserves sheet profit currency (shares) welfare profit Total distributed translation Initial 618,822,672 1,489,286,681 568,343,071 131,990,216 789,127,260 92,823,401 -14,289,412 3,451,290,272 Increased － － 70,401,080 28,242,988 421,580,919 12,376,453 － 491,981,999 this term 5 China Merchants Property Development Co., Ltd. Annual Report 2005 Decreased － － － － 163,224,481 92,823,401 4,290,636 167,515,117 this term At the end of 618,822,672 1,489,286,681 638,744,151 160,233,204 1,047,483,698 12,376,453 -18,580,048 3,775,757,154 term Reason of change (1) Capital share, capital common reserves: no changes in the year (2) Surplus reserves and statutory public welfare: surplus reserves and statutory public welfare were provided during the profit distribution of the Company and the subsidiaries. (3) Retained profit: the increasing was due to net profit realized in the current year, while decreasing of was due to the Company and subsidiaries distributed profit and provided surplus common reserves, as well as the cash dividend for year 2004. (4) Dividend decided after the date of the balance sheet: The increasing was due to drawing of cash dividend according to the profit distribution proposal of year 2005 which was proposed by the Board of Directors. The decreasing was due to paying of cash dividend for year 2004. (5) Deferent in foreign currency translation: due to the change of the SGD market rate of exchange, at the end of the report, the translation balance was changed accordingly when the accounting statement of foreign currency of the subsidiary company – China Merchant Singapore Port SerDeputy Co., Ltd. was converted into accounting statement of RMB. 6 China Merchants Proper Chapter IV. Changes in Capital Shares and Particulars about the Shareholders I. Statement of change in shares (I) As of December 31st 2005, the shareholding structure of the Company has not been changed comparing with the same per (II) As of February 9th 2006, after the implementation of share reallocation, the share structure is as following: (in shares) Change of share capital Before the change Changed Currently (+,-) Issuing of Transferred Amount Proportion Bonus shares Others Sub-to new shares from reserves I. Shares with conditional subscription 251,086,4 40.57% - -40,854,022 - - -40,854 1. State-owned shares - - - - - - 2. State-owned legal person shares 188,288,100 30.43% - -40,861,142 - - -40,861 3. Other domestic shares 35,600 - - +7,120 - - +7 Including: - - - - - - Domestic legal person shares - - - - - - Domestic natural person shares 35,600 - - +7,120 - - +7 (Management shares) 4. Foreign shareholding 62,762,700 10.14% - - - - Including: Foreign legal person shares 62,762,700 10.14% - - - - Foreign natural person shares - - - - - - (Management shares) II. Shares with unconditional 367,736,272 59.43% - +40,854,022 - - +40,854 subscription 1. Common shares in RMB 204,270,112 33.01% - +40,854,022 - - +40,854 2. Foreign shares in domestic market 163,466,160 26.42% - - - - 3. Foreign shares in overseas market - - - - - - 4. Others - - - - - - III. Total of capital shares 618,822,672 100% - - - - 7 China Merchants Property Development Co., Ltd. Annual Report 2005 II. Issuing and placing of shares (I) Particulars about issuance of shares over the previous three years prior to the end of the report term On Nov. 3rd 2003, the Company obtained the approval from CSRC on Notice on Approving Shares Rationing of China Merchants Shekou Holdings Co., Ltd. (ZJFXZ[2003]124 document), and published the Share Placing Prospectus on Nov. 4th 200. The Company allotted shares to the whole shareholders at the rate of 3 for 10 basing on the total shares amounted to 476,396,000 shares ended Dec. 31st 2002. The price of shares rationing was RMB8.93 per share, converting into HKD8.38 per share. Term of payment was from Nov. 12th 2003 to Nov. 25th 2003. In the course of share rationing, the actual number of shares rationing was 39,289,560 shares because the Company’s shareholders of current B shares and legal person shareholders gave up their ration. After the share rationing, the Company’s total share capital has increased to 515,685,560 shares. Shares allotted have listed for trading in Shenzhen Stock Exchange since Dec. 4th 2003. The shareholders’ general meeting 2003 held on April 9th 2004 passed the profit distribution plan for year 2003, which was, basing on the 515,685,560 shares placed in the market, 2 bonus shares were allotted to each 10 shares to the shareholders. Since then, the total capital shares has increased up to 618,822,672 shares. (II) No changes occurred to the total capital shares and shareholding structure in the report term. As of Feb 9th 2006, the shareholding relocating reforming has been accomplished. The changing of share structure is demonstrated in “I. Statement of change in shares” of this chapter. III. Particulars about the shareholders (I) Total of shareholders at the end of the report term Ended December 31st 2005, the total shareholders of the Company was 47,756, which was 15,407 less than that of the previous year; Among them, A-share holders of 35,465, and B-share holders of 12,291, which have decreased by 13,190 and 2,217 respectively. 8 China Merchants Property Development Co., Ltd. Annual Report 2005 (II) The top ten shareholders as of December 31st 2005 in shares Changed At the end Property of No. Name of the shareholder Initial Portion this term of term share Domestic China Merchants Shekou Industrial 1 188,288,100 0 188,288,100 30.43% sponsor’s Zone Co., Ltd. share Overseas 2 Hong Kong Panorama Investment Ltd. 62,762,700 0 62,762,700 10.14% public shares DBS VICKERS(HONG KONG)LTD Overseas 3 19,927,067 -1,185,467 18,741,600 3.03% A/C CLIENTS public shares FOXTROT INTERNATIONAL Overseas 4 18,480,000 0 18,480,000 2.99% LIMITED public shares Overseas 5 ORIENTURE INVESTMENT LTD 17,735,430 0 17,735,430 2.87% public shares Boshi Value Growth Securities Domestic 6 11,050,457 0 11,050,457 1.79% Investment Foundation public shares National Social Insurance Foundation Domestic 7 7,013,785 1,592,466 8,606,251 1.39% 108 Portfolio public shares National Social Insurance Foundation Domestic 8 3,377,099 4,384,661 7,761,760 1.25% 102 Portfolio public shares Domestic 9 Yang Bang International Ltd. 7,507,402 0 7,507,402 1.21% public shares Yu Yang Securities Investment Domestic 10 2,187,075 2,968,870 5,155,945 0.83% Foundation public shares [Remarks] (1) Hong Kong Panorama Investment Ltd., Foxtrot International Ltd., and Orienture Investment Ltd. are the wholly-owned subsidiaries of CMSIZ; Yangbang International Co., Ltd. is a wholly-owned subsidiary of China Merchants Holdings (International) CO., Ltd. CMSIZ is a wholly-owned subsidiary of China Merchants Group Co., Ltd.; China Merchants Holdings (International) Co., Ltd. is a holding subsidiary of China Merchants Group Co., Ltd. (2) Boshi Value Growth Securities Investmnet Foundation, National Social Insurance Foundation 108 and 102 Portfolio, and Yuyang Securities Investment Foundation are under the administration of Boshi Foundation Management Co., Ltd. (3) In November 2005, as approved by Document Zheng-Jian-Gong-Si-Zi [2005]108 of China Securities Regulatory Commission, titled “The approval notice to CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. for the placing of its non-negotiable foreign shares in the market”, the totally 62,762,700 of non-negotiable foreign legal person shares were put into trading in the market as current B-shares. These shares will be negotiable in Shenzhen Stock Exchange since November 1st 2006. (4) Shares held by the shareholders who are holding over 5% or above of total shares did not been pledged or frozen. (III) Profiles of legal person shareholders holding 10% or above shares of the Company (1) CMSIZ Legal representative: Fu Yuning Registration date: April 1st 1992 Registered capital: RMB2,236,000,000 9 China Merchants Property Development Co., Ltd. Annual Report 2005 Business scope: establishment and management of communication and transportation, industrial manufacturing, finance and insurance, foreign trade, real estate, post and telecommunications, tourism, restaurant, etc.; organization and management of the affiliated enterprises, associated enterprises, foreign-funded enterprises and enterprises in which the Company holds equity interest; dock and warehousing business; overall contracting of water/land construction projects and the related offshore petroleum development projects, and their construction organization and logistics services; product sale of the affiliated enterprises and supply and sale of the required equipment, raw materials and components and parts (where there are state regulations for special operation of special items, handle according to regulations); holding commodity exhibitions, sports games, theatrical performances and cable TV business etc.; and providing technical, operation and legal consultation related to the above business, as well as technology and information services. (2) Hong Kong Panorama Investment Ltd. Legal representative: Qin Yi Date of incorporation: August 13th 1997 Registered capital: HKD10,000 Business scope: Investment and shareholding (3) The substantial controller of the Company China Merchants Group Co., Ltd. is the controlling shareholder of CMSIZ, whose legal representative is Qin Xiao. The foundation date is in Oct. 1986, as well as registered capital of RMB 800 million. Its business scope include: lease and agency of water/land passenger-cargo transportation, water/land conveyance and facilities; dock and warehousing business; salvage, refloatation and tugboat; construction, repairing, checking and marketing of shipping, offshore petroleum drilling equipment; repairing and checking of drilling platform and container; overall contracting of water/land construction projects and the related offshore petroleum development projects, and their construction organization and logistics serDeputys; procurement, supply and sale of water/land communication and transportation equipment; establishment of transportation and industry and commerce; organization and management of finance, insurance and the other relevant business; development, management of Shekou Industrial Zone. Property right and controlling relationship between the substantial controller of the Company and the Company is as follows: 10 China Merchants Property Development Co., Ltd. Annual Report 2005 (4) During the report term, the controlling shareholder of the Company was not changed. (5) The top ten holders of current A-shares as of December 31st 2005 in shares No. Name of the shareholder At the end of term 1 Boshi Value Growth Securities Investment Foundation 11,050,457 2 National Social Insurance Foundation 108 Portfolio 8,606,251 3 National Social Insurance Foundation 102 Portfolio 7,761,760 4 Yu Yang Securities Investment Foundation 5,155,945 5 Jing Fu Securities Investment Foundation 4,777,583 6 National Social Insurance Foundation 106 Portfolio 4,230,963 7 Xing Hua Securities Investment Foundation 4,227,859 China Merchant Bank Co., Ltd. – Zhongxin Classic 8 4,146,816 Portfolio Securities Investment Foundation 9 Jiu Jia Securities Investment Foundation 4,130,000 10 National Social Insurance Foundation 107 Portfolio 3,841,632 [Remarks] (1) Boshi Value Growth Securities Investment Foundation, National Social Insurance Foundation 102 Portfolio, and National Social Insurance Foundation 108 Portfolio are under the administration of Boshi Fund Management Co., Ltd. (2) Xing Hua Securities Investment Foundation and National Social Insurance 107 Portfolio are under 11 China Merchants Property Development Co., Ltd. Annual Report 2005 the administration of Hua Xia Foundation Management Co., Ltd. (3) The Company is not informed about any relationship or “action in concert” among the other shareholders. (6) The top ten holders of current B-shares as of December 31st 2005 in shares No. Name of the shareholder At the end of term 1 DBS VICKERS(HONG KONG)LTD A/C CLIENTS 18,741,600 2 FOXTROT INTERNATIONAL LIMITED 18,480,000 3 ORIENTURE INVESTMENT LTD 17,735,430 4 Yang Bang International Ltd. 7,507,402 5 China Merchants Securities Hong Kong Ltd. 3,000,706 6 GSI S/A GOLDEN CHINA MASTER FOUNDATION 2,987,161 7 CUOTAI JUNAN SECURIES HONG KONG LIMITED 2,631,235 8 Luo Yi 2,294,000 9 SKANDIA GLOBAL FOUNDATIONS PLC 1,860,091 10 DEUTCHE BANK AG LONDON 1,464,744 [Remarks] (1) Shares held by China Merchants Securities Hong Kong Ltd. were purchased from Dafeng International Holdings Co., Ltd. Dafeng International Holdings Co., LTd., Foxtrot International Ltd., and Orienture Investment Ltd. are the wholly-owned subsidiaries of CMSIZ; Yangbang International Co., Ltd. is a wholly-owned subsidiary of China Merchants Holdings (International) CO., Ltd. CMSIZ is a wholly-owned subsidiary of China Merchants Group Co., Ltd.; China Merchants Holdings (International) Co., Ltd. is a holding subsidiary of China Merchants Group Co., Ltd. (2) The Company is not informed about any relationship or “action in concert” among the other shareholders. (7) As of February 9th 2006 when the share reallocation plan was implemented, the holders of A- shares with conditional subscription are as the following: Date when the Amount of shares are Name of the conditional allowed to be Condition of subscription shareholder shares placed in market (1) The original non-negotiable shares shall not be placed in the market or sold within 24 months since the placing right been granted. (2) Shares placed in Shenzhen Stock Exchange in 12 months upon the above 24 months shall CMSIZ 147,426,958 Feb. 9th 2008 not exceed 5% of the total shares of the Company. The price of A-shares of the Company shall not be lower than 120% of the arithmetical average in 30 days prior to the publishing of share reallocation announcement. 12 China Merchants Property Development Co., Ltd. Annual Report 2005 Chapter V. Particulars about the Directors, Supervisors, Senior Executives and Staffs I. Particulars about the Directors, Supervisors and Senior Executives (I) Basic information 1. The directors Shares held at Shares held Changed in Cause of Name Position Gender Age Job term the beginning of at the end of the year change term term Sun 2005.07.29— Chairman M 46 0 0 0 / Chengming 2008.07.28 2005.07.29— Lin Shaobin Director, GM M 45 15,600 0 15,600 / 2008.07.28 Hong 2005.07.29— Director M 42 0 0 0 / Xiaoyuan 2008.07.28 2005.07.29— Li Yasheng Director M 52 0 0 0 / 2008.07.28 2005.07.29— Hua Li Director M 34 0 0 0 / 2008.07.28 2005.07.29— Chen Gang Director M 47 0 0 0 / 2008.07.28 2005.07.29— Yang Baiqian Director M 40 0 0 0 / 2008.07.28 Independent 2005.07.29— Liu Hongyu M 43 0 0 0 / Director 2008.07.28 Independent 2005.07.29— Shi Xinping M 47 0 0 0 / Director 2008.07.28 Independent 2005.07.29— Meng Yan M 50 0 0 0 / Director 2008.07.28 Independent 2005.07.29— Wu Yinong M 43 0 0 0 / Director 2008.07.28 Total of 15,600 0 15,600 / shares held 2. The supervisors Shares held at the Changed Shares held at Name Position Gender Age Job term beginning in the year the end of term of term Chairman of the Zhou Yali supervisory M 50 2005.07.29—2008.07.28 0 0 0 Committee Feng Bohai Supervisor M 50 2005.07.29—2008.07.28 0 0 0 Wen Supervisor M 55 2005.07.29—2008.07.28 0 0 0 Chongping Zhang Employee F 29 2005.09.16—2008.07.28 0 0 0 Linmei Supervisor Employee Xiong Yan F 32 2005.07.29—2008.07.28 0 0 0 Supervisor 13 China Merchants Property Development Co., Ltd. Annual Report 2005 3. The senior executives Shares held at Shares held Changed in Cause of Name Position Gender Age Job term the beginning of at the end of the year change term term 2005.07.29— Lin Shaobin Director, GM M 45 15,600 0 15,600 / 2008.07.28 Deputy Yang 2005.07.29— General M 40 0 0 0 / Baiqian 2008.07.28 Manager Deputy Yang 2005.07.29— General M 42 0 0 0 / Zhiguang 2008.07.28 Manager Deputy 2005.07.29— He Jianya General M 40 0 +20,000 20,000 Purchased 2008.07.28 Manager Deputy 2005.07.29— Meng Cai General M 47 2008.07.28 0 0 0 / Manager Deputy 2005.07.29— Hu Jianxin General M 47 2008.07.28 0 0 0 / Manager Huang 2005.07.29— CFO M 43 0 0 0 / Peikun 2008.07.28 Secretary of 2005.07.29— Chen Yu M 34 0 0 0 / the Board 2008.07.28 Total of 15,600 +20,000 35,600 Purchased shares held 4. Particulars about directors and supervisors’ taking posts in shareholding parties Name Name of shareholding Position Job term parties Sun Chengming CMSIZ General Manager Since May 2002 Hong Xiaoyuan CMSIZ Deputy General Manager Since May 2001 Hua Li CMSIZ CFO Since Oct. 2003 Chen Gang CMSIZ Economist General Since Apr. 2004 Zhou Yali CMSIZ Secretary of CCCP Committee, Deputy Since May 2002 GM Feng Bohai Financial Dept. CMSIZ General Manager Since Sept. 2000 Wen Chongping Auditing Dept. CMSIZ General Manager Since Sept. 1997 (II) Profiles of current directors, supervisors and senior executives 1. Members of the Board Mr. Sun Chengming, Chairman of the Board. Mr. Sun graduated from Wuhan Water Transport and Engineering Institute with a Bachelor Degree in Ship Building and Repairing, and carries a professional title of “Senior Engineer”. Mr. Sun served various positions as General Manager of China Merchants Container SerDeputys Ltd., General Manager of China Merchants Godown Wharf and Transportation Co., Ltd., Deputy General Manager of China Merchants Transportation Holdings Co., Ltd., Deputy General Manager, General Manager concurrently as Party Branch Secretary of China Merchants Industry Holdings Co., Ltd. Mr. Lin Shaobin, Director and General Manager. He graduated from Tsinghua University, and carries a professional title of “Senior Architect. He successively held the position of General Manager of Shekou Industrial Zone Real Estate Company; General Manager of Real Estate Business Department of China 14 China Merchants Property Development Co., Ltd. Annual Report 2005 Merchants Holdings Co., Ltd.; Assistant General Manager and Deputy General Manager of CMSIZ and Chief Planning & Development Advisor of CMSIZ. Mr. Hong Xiaoyuan, Director, held Master degree of economics of Peking University, Master degree of science of Australia State University and Doctorial student of economics in Australia State University. He used to work in the State System Restructuring Reform Committee, successively held the position of General Manager of Shenzhen Longfan Company, Assistant General Manager of CMSIZ, and General Manager of the Company from Dec. 1999 to May 2001. Mr. Li Yasheng, Director of the Company, senior economist, held Master degree from UN Population Center (Cairo). Currently he is the director and General Manager of China Merchants Logistics Group Ltd. and Chairman/GM of Shenzhen China Merchants Petrol Chemical Co., Ltd. He use to be in the positions of Assistant Director of Population Research Institute of Sichuan University; Director of the Planning and Statistics Bureau of Shekou District, Shenzhen; Director of the Planning and Statistics Office of, Director of Economic Development Office of, Assistant General Manager of and Deputy General Manager of CMSIZ; Mr. Hua Li, Director of the Company, graduated from Shanghai Maritime College with a bachelor degree of Accounting. Currently he acts as CFO of China Merchants Shekou Industrial Zone Co., Ltd. He was in the positions of Deputy Manager in Financial Department of China Merchants Holdings (International) Company Limited, Manager in Financial Department of China Merchants Transportation Group Co., Ltd. and Director in Financial Department and Deputy General Manager of China Merchants Group Company Limited. Mr. Chen Gang, Director of the Company, senior economist, MBA of University at Buffalo – the State University of New York, and graduated from Tsinghua University in 1982.He is currently the Chief Economist of CMSIZ and formerly held the position of General Manager of China Merchants Shekou Industrial Zone Investment & Development Co., Ltd., Deputy Chief Economist of CMSIZ. Mr. Yang Baiqian, Director. Graduated from Nankai University with Bachelors degree. MBA of Tsinghua University Economic and Management School in 2002. Mr. Yang was the deputy general manager of Shenzhen Peninsula Foundation Management Company, deputy general manager of Enterprise Administrative Dept. of CMSIZ, deputy general manager of the Company, planning manager of Reforming Center of China Merchants Group Ltd. Mr. Liu Hongyu, Independent Director. He graduated from Tsinghua University with a Bachelor degree in structure engineering Dept. and Master degree of management engineering Dept. He is currently the Chief of Tsinghua University Real Estate Research Institute, professor and doctorial tutor of Construction & Management School of Tsinghua University. Mr. Liu is also the Deputy chairman of China Association of Property Appraisal and Agency, director of Asia Property Association, and senior member of RICS. He was in the jobs of co-lecturer, lecturer, deputy professor, and professor of Civil Engineering School of Tsinghua University. Mr. Shi Xinping, Independent Director, citizen of Hong Kong. He has been studying in Management School of Lancaster University and Business School of Middlesex University and gained MBA and Doctorial Degree of management. He now acted as director of Logistics Management Center of Business School, and associate professor of Finance & Decision Making Dept. of Hong Kong Baptist University. He used to be lecturing in Xi’an Northwest Polytechnic University and Finance & Decision Making Dept. of Hong Kong Baptist University. Mr. Meng Yan, Independent director. Graduated from Central University of Finance and Economics with Bachelor and Master degree of Economics (Accounting) . In July 1997, he was granted Doctorial Degree of Economics (Accounting) by Finance Institute of the Ministry of Finance. Currently he is the dean of Accounting School of Central University of Finance and Economics. Mr. Meng was once sent by the national government to Manchester University (UK) and Murray State University (Kentucky, US) as visiting scholar for one year. 15 China Merchants Property Development Co., Ltd. Annual Report 2005 Mr. Wu Yinong, independent director, citizen of Hong Kong. Mr. Wu gained his Bachelor of Science from Mathematics School of South China Normal University and MBA from Oregon State University (US). At present he is the director of Hong Kong South China Financing Ltd. and chief of Investment and Banking Division. He use to be a project manager of Rising Industries Group (US) and manager of Canadian Eastern Finance Limited (HK). 2. Members of the Supervisory Committee Mr. Zhou Yali, Chairman of the Supervisory Committee. He successively studied in English Dept. of Heilongjiang University and MBA Dept. of China Europe International Business School with master degree. He now acts as secretary of CPC and concurrently serving as Deputy General Manager of CMSIZ. He used to be simultaneous interpreter of International Maritime Affairs Organization (London, UK). He successively held director of translation office of Communication Minister Science and Technology Intelligence Research Institute; Sectional Manager of, Deputy General Manager of, General Manager of and concurrent deputy secretary of CPC of China Communication Import & Export Corporation. Mr. Feng Bohai, Supervisor. He graduated from the Department of Economics & Management of Wuhan University with bachelor degree and title of Accountant. He now takes the post of General Manager of Financial Department of Shekou Industrial Zone. He successively took the post of Deputy Director of Chief Accountant Office of Shekou Industrial Zone, Chief Economist of CMP, Committeeman of Management Committee, Director General of Financial Bureau and Chief Economist of China Merchants Zhangzhou Development Zone and Chief Accountant of Shekou China Merchants Port SerDeputy Co., Ltd.. Mr. Wen Chongping, Supervisor, bachelor degree, Senior Accountant. He now acts as General Manager of Auditing Dept. of CMSIZ. He successively held the position of Deputy Director of Chief Accountants Office of CMSIZ; Director of Financial Dept. of, Deputy General Manager of and Deputy General Manager of Auditing Dept. of China Merchants Holdings Co., Ltd. Ms. Xing Yan, Supervisor representing the employees. Certified Accountant of China. Graduated from Wuhan Communication Technologies University with finance & accounting major. Currently she is the assistant of accounting chief of the Company. She use to work as accountant of Changjiang Transportation & Trading Company under China Changhang Group, and auditing project manager of Shekou Zhonghua Public Accountants. Ms. Zhang Linmei, supervisor representing the employees, certified finance & economics profession. Graduated from Fudan University with bachelor degree in property management & operation in 1998. She has been working in Shenzhen China Merchants Real-estate Co., Ltd. since her graduation, and was in the positions of secretary of the GM, assistant to HRM supervisor, assistant to the chief of Property Leasing & Administration Center. Currently she is the Deputy General Manager of Property Leasing & Administration Center. 3. The senior executives Mr. Lin Shaobin, director and General Manager. As seen above. Mr. Yang Baiqian, director and Deputy General Manager. As seen above. Mr. Yang Zhiguang, Deputy General Manager. He graduated from South China University of Technology with a bachelor degree of architecture engineering and got the title of Senior Engineer. He successfully took the position of the Deputy General Manager, Manager of Development Department of Shekou Industrial Zone Real Estate Company; Assistant General Manager of Shekou Industrial Zone Real Estate Company; Deputy General Manager of Shenzhen CMRE; General Manager of China Merchants Property Co., Ltd and Shenzhen China Merchants Landmark Co., Ltd. 16 China Merchants Property Development Co., Ltd. Annual Report 2005 Mr. He Jianya, Deputy General Manager of the Company. He graduated from Beijing Aviation University with a master degree of electronic engineering and communication engineering and got the title of Engineer. He successfully held the position of director of Shekou Container Terminals Ltd; Deputy Director and Director of Entrepreneurial Management of Shekou Industrial Zone; Deputy General Manager of CMRE. Mr. Meng Cai, Deputy General Manager, engineer. Graduated from Lanzhou Railway College majoring water supplying and drainage. He use to work as the deputy manager and manager of property dept. of Nanshan Development Company, general manager of Shenzhen Nanshan Development Company, and deputy general manager of Shenzhen CMRE. Mr. Hu Jianxin, Deputy General Manager, senior engineer. Graduated from South China University of Technologies with master degree of civil construction. He was the deputy manager of Guangdong Provincial Construction Company General, deputy general manager and general manager of China Merchants Properties Ltd., and deputy general manager of Shenzhen CMRE. Mr. Huang Peikun, CFO, he gained Zhejiang University with a master degree of management, senior accountant. He successively held the position of Accountant of China Merchants Shekou Port SerDeputy Co., Ltd., Manager of Financial Dept. and Chief Accountant of Shenzhen China Merchants Petrochemicals Co., Ltd., Chief Accountant of CMRE, and CFO and Deputy General Manager of Shenzhen China Merchants Landmark Co., Ltd. Mr. Chen Yu, Secretary of the Board of Directors, MBA. He graduated from Chongqing Institute of Architecture and Engineering and Guanghua School Of Management of Peking University successively early and late. He had been working for Beijing Residential Group and Stanley Company in US. (III) Particulars about the jobs taken by the supervisors and senior executives in other companies other than shareholding parties Name Companies in which jobs are taken Relation with the Company Position Controlling shareholder of China Merchants Group Co., Ltd. Assistant to president CMSIZ Chairman Sun Shenzhen China Merchants Landmark Co., Controlled subsidiary of CMSIZ Legal representative Chengming Ltd. Shekou Dazhong Investment Co., Ltd. Controlled subsidiary of CMSIZ Legal representative Shenzhen Pingnan Railway Co., Ltd. Controlled subsidiary of CMSIZ Legal representative China Merchants Bank Director China Merchants Property Management Controlled subsidiary of CMSIZ Legal representative Co., Ltd. Shenzhen China Merchants Landmark Co., Controlled subsidiary of CMSIZ Director Ltd. Controlled subsidiary of the Legal representative, CMRE Company General manager Controlled subsidiary of the Zhangzhou China Merchants Properties Deputy Chairman Company Controlled subsidiary of the Director, General CMPS Legal representative Company Manager Lin Shaobin Controlled subsidiary of the CMWS Legal representative Company Shenzhen China Merchants OCT Subsidiary of the Company Legal representative Investment Co., Ltd. Shenzhen China Merchants Real Estate Partnership company Legal representative Co., Ltd. Management Co., Ltd. Shenzhen China Merchants Guangming Subsidiary of the Company Deputy Chairman Technologies Zone Ltd. Tianjin Xinhai real Estate Development Subsidiary of the Company Legal representative Co., Ltd. 17 China Merchants Property Development Co., Ltd. Annual Report 2005 Hong Kong Dafeng International Co., Ltd. Controlled subsidiary of CMSIZ Legal representative Shenzhen China Merchants Network Co., Legal representative Ltd. Controlled subsidiary of CMSIZ Director Hong Invested by Shekou Industrial Legal representative Xiaoyuan Shenzhen Shekou Telecom Co., Ltd. Zone (50%) Shenzhen Shekou Info Island Network Invested by Shekou Industrial Co., Ltd. Zone (50%) Legal representative Shenzhen Pingfang Auto Garden Co., Ltd. Controlled subsidiary of CMSIZ Legal representative CMP Controlled subsidiary of CMSIZ Legal representative China Merchants Logistics Holdings Co., Controlled subsidiary of CMSIZ Director, GM Ltd. Director Li Yasheng Shenzhen China Merchants Gas Controlled subsidiary of CMSIZ Legal representative Investment Co., Ltd. Shenzhen Xunlong Shipping Co., Ltd. Controlled subsidiary of CMSIZ Legal representative Shenzhen China Merchants Financing Controlled subsidiary of CMSIZ Executive Director SerDeputy Co., Ltd. Controlled subsidiary of the CMRE Director Company Shenzhen China Merchants Landmark Co., Controlled subsidiary of CMSIZ Director Ltd. Controlled subsidiary of the CMPS Director Company Controlled subsidiary of the CMWS Director Company China Merchants Logistics Holdings Co., Independent Controlled subsidiary of CMSIZ Director Ltd. Director Hua Li Shenzhen China Merchants Gas Controlled subsidiary of CMSIZ Director Investment Co., Ltd. Hong Kong Dafeng International Co., Ltd. Controlled subsidiary of CMSIZ Deputy Chairman Shenzhen Shekou Industrial Zone Employees’ Residence Co., Ltd. Indirect controlled by CMSIZ Director Invested by Shekou Industrial Shenzhen Shekou Telecom Co., Ltd. Zone (50%) Director Shenzhen Shekou Info Island Network Invested by Shekou Industrial Co., Ltd. Zone (50%) Director Shenzhen Pingnan Railway Co., Ltd. Controlled subsidiary of CMSIZ Director Shenzhen Pingfang Auto Garden Co., Ltd. Controlled subsidiary of CMSIZ Director Controlled subsidiary of the CMPS Director Company Controlled subsidiary of the CMWS Director Company China Merchants Logistics Holdings Co., Director Chen Gang Controlled subsidiary of CMSIZ Director Ltd. Shenzhen China Merchants Gas Controlled subsidiary of CMSIZ Director Investment Co., Ltd. Shenzhen China Merchants Landmark Co., Controlled subsidiary of CMSIZ Director Ltd. Hong Kong Ruijia Investment Industrial Subsidiary of the Company Director Co., Ltd. Shenzhen China Merchants Xin’an Controlled subsidiary of the Director, deputy Director Properties Co., Ltd. Company General Manager Yang Baiqian Controlled subsidiary of the Director CMPS Company Controlled subsidiary of the Director CMWS Company Real Estate Research Independent Institute, Professor of director Liu Tsinghua University non-associated Civil Construction, Hongyu Doctorial Tutor 18 China Merchants Property Development Co., Ltd. Annual Report 2005 director of Logistics Management Center of Independent Business School, and director Shi Hong Kong Baptist University non-associated associate professor of Xinping Finance & Decision Making Dept. dean of Accounting Independent Central University of Finance & School of Central non-associated director Meng Yan Economics University of Finance and Economics. Director and head of Independent Hong Kong South China Financing Co., non-associated Investment & Banking director Wu Yinong Ltd. Dept. China Merchants Logistics Holdings Co., Ltd. Controlled subsidiary of CMSIZ Legal representative Shenzhen China Merchants Meilun Hotel Management Co., Ltd. Controlled subsidiary of CMSIZ Legal representative Zhou Yali Minghua (Shekou) Seaman SerDeputy Chairman of the Co., Ltd. Controlled subsidiary of CMSIZ Legal representative supervisory China Merchants International Hotel comission Management Co., Ltd. Controlled subsidiary of CMSIZ Legal representative China Merchants Hotel Controlled subsidiary of CMSIZ Legal representative Zhangzhou China Merchants Hotel Co., Ltd. CMSIZ holds 34% of its shares Deputy Chairman Shekou Dazhong Investment Co., Ltd. Controlled company of CMSIZ Director Shenzhen China Merchants Investment Consulting Co., Ltd. Controlled company of CMSIZ Director China Merchants Property Management Co., Ltd. Controlled subsidiary of CMSIZ Director Shenzhen China Merchants Culture & Art Development Co., Ltd. Controlled subsidiary of CMSIZ Director Shenzhen Xunlong Shipping Co., Ltd. Controlled subsidiary of CMSIZ Director Shenzhen Shekou Zhaogang Passenger Transport Co., Ltd. Controlled subsidiary of CMSIZ Director Shenzhen China Merchants Meilun Hotel Management Co., Ltd. Controlled subsidiary of CMSIZ Director Hong Kong Dafeng International Co., Ltd. Controlled subsidiary of CMSIZ Director Supervisor Feng Bohai Shenzhen China Merchants Technologies Investment Co., Ltd. Controlled subsidiary of CMSIZ Director Shenzhen China Merchants Investment & Development Co., Ltd. Controlled subsidiary of CMSIZ Director Minghua (Shekou) Seaman SerDeputy Co., Ltd. Controlled subsidiary of CMSIZ Director Shenzhen B&H Investment Co., Ltd. CMSIZ holds 45% of its shares Director Shenzhen Pingnan Railway Co., Ltd. Controlled subsidiary of CMSIZ Director China Merchants International Hotel Management Co., Ltd. Controlled subsidiary of CMSIZ Director Shenzhen China Merchants Electronics Industry Development Co., Ltd. Controlled subsidiary of CMSIZ Director Shenzhen China Merchants Guangming Technologies Zone Ltd. Controlled subsidiary of CMSIZ Chief Supervisor Supervisor Wen China Merchants Property Management Chongping Co., Ltd. Controlled subsidiary of CMSIZ Chief Supervisor Shenzhen China Merchants Culture & Art Development Co., Ltd. Controlled subsidiary of CMSIZ Chief Supervisor China Merchants Logistics Holdings Co., Ltd. Controlled subsidiary of CMSIZ Supervisor Shenzhen China Merchants Gas Investment Co., Ltd. Controlled subsidiary of CMSIZ Supervisor Shenzhen Xunlong Shipping Co., Ltd. Controlled subsidiary of CMSIZ Director Shenzhen China Merchants Meilun Hotel Management Co., Ltd. Controlled subsidiary of CMSIZ Chief Supervisor 19 China Merchants Property Development Co., Ltd. Annual Report 2005 Shenzhen China Merchants Technologies Investment Co., Ltd. Controlled subsidiary of CMSIZ Chief Supervisor Controlled subsidiary of the CMPS Company Chief Supervisor Controlled subsidiary of the CMWS Company Chief Supervisor Shenzhen Shekou Zhaogang Passenger Transport Co., Ltd. Controlled subsidiary of CMSIZ Director Shenzhen B&H Investment Co., Ltd. CMSIZ holds 45% of its shares Chief Supervisor Shenzhen China Merchants Electronics Industry Development Co., Ltd. Controlled subsidiary of CMSIZ Supervisor Shenzhen Pingfang Auto Garden Co., Ltd. Controlled subsidiary of CMSIZ Supervisor Deputy GM of Supervisor Zhang CMRE Controlled subsidiaries Property Leasing Linmei Center Supervisor Xiong Assistant to the GM of The Company Yan Financial Dept. China Merchants Property Management Controlled subsidiary of CMSIZ Director Co., Ltd. China Merchants Properties (Suzhou) Co., Controlled subsidiary of the Legal representative Ltd. Company Controlled subsidiary of the China Merchants (Nanjing) Co., Ltd. Legal representative Deputy GM Yang Company Zhiguang Shanghai China Merchants Real-estates Controlled subsidiary of the Legal representative Co., Ltd. Company Shanghai China Merchants Properties Co., Controlled subsidiary of the Legal representative Ltd. Company Shekou Xinghua Industrial Holdings Co., Controlled subsidiary of the Legal representative Ltd. Company Controlled subsidiary of the CMRE Director Company China Merchants Garden City (Beijing) Controlled subsidiary of the Legal representative Real-estate Development Co., Ltd. Company China Merchants Properties (Beijing) Co., Controlled subsidiary of the Legal representative Deputy GM He Ltd. Company Jianya Shenzhen Taige Apartment Management Controlled subsidiary of the Legal representative Co., Ltd. Company Indirectly controlled by the Shenzhen Haitao Hotel Co., Ltd. Legal representative Company Tianjin Xinhai real Estate Development Subsidiary of the Company Director Co., Ltd. China Merchants Properties (Chongqing) Controlled subsidiary of the Legal representative Co., Ltd. Company Shenzhen China Merchants Xin’an Controlled subsidiary of the Legal representative Properties Co., Ltd. Company Zhangzhou China Merchants Properties Controlled subsidiary of the Director Deputy GM Meng Co., Ltd. Company Cai Shenzhen China Merchants Guangming Subsidiary of the Company Director Technologies Zone Ltd. Shenzhen City Main Plaza Investment Co., Controlled subsidiary of the Legal representative Ltd. Company Shenzhen China Merchants OCT Subsidiary of the Company Director Investment Co., Ltd. Deputy GM Hu Guangzhou China Merchants Real-estate Controlled subsidiary of the Legal representative Jianxin Co., Ltd. Company Controlled subsidiary of the CFO Huang Peikun CMRE Director Company Controlled subsidiary of the CMPS Director Company Controlled subsidiary of the CMWS Director Company China Merchants Garden City (Beijing) Controlled subsidiary of the Director Real-estate Development Co., Ltd. Company 20 China Merchants Property Development Co., Ltd. Annual Report 2005 China Merchants Properties (Beijing) Co., Controlled subsidiary of the Director Ltd. Company China Merchants Properties (Chongqing) Controlled subsidiary of the Director Co., Ltd. Company China Merchants Properties (Suzhou) Co., Controlled subsidiary of the Director Ltd. Company Shenzhen China Merchants Xin’an Controlled subsidiary of the Director Properties Co., Ltd. Company Shanghai China Merchants Real-estates Controlled subsidiary of the Director Co., Ltd. Company Shanghai China Merchants Properties Co., Controlled subsidiary of the Director Ltd. Company Guangzhou China Merchants Real-estate Controlled subsidiary of the Director Co., Ltd. Company Shenzhen City Main Plaza Investment Co., Controlled subsidiary of the Director Ltd. Company Shenzhen China Merchants Real Estate Partnership company Chief Supervisor Co., Ltd. Management Co., Ltd. Shenzhen China Merchants Guangming Subsidiary of the Company Supervisor Technologies Zone Ltd. (IV) Annual Remuneration As set out by the Articles of Association, the remuneration of senior executives are decided by the Board of Directors. For the report term, all of the senior executives get paid by the Company. The remuneration were decided against the performance of the Company firstly, and with reference to the rewarding levels wildly adopted in the industry and comparable enterprises. It was on July 29th 2005, the 1st provisional shareholders’ general meeting of year 2005 adopted the “Proposal on adjusting the remuneration to independent directors”. Since July 1st 2005, the remuneration for independent directors has been adjusted from RMB50 thousand up to RMB80 thousand, and are paid monthly whenever they are practically on duty. The Company paid no extra remuneration to the independent directors in the report term other than those described above. Chairman of the Board Sun Chengming, director Hong Xiaoyuan, Hua Li, Chen Gang, Chairman of the Supervisory Committee Zhou Yali, and supervisor Wen Chongping, Feng Bohai accepted remuneration from CMSIZ for they were taking positions in the shareholding party. Director Li Yasheng accepted remuneration from China Merchants Logistics Group, which is one of the subsidiaries of CMSIZ. 21 China Merchants Property Development Co., Ltd. Annual Report 2005 Remunerations of the directors, supervisors and senior executives in year 2005 Name Position Total remuneration Notes (RMB’000) Lin Shaobin Director, GM 765.30 Yang Baiqian Director, Deputy GM 523.00 Liu Hongyu Independent Director 65.00 Jan – Dec. Shi Xinping Independent Director 65.00 Jan – Dec. 33.00 Aug. – Meng Yan Independent Director Dec. 33.00 Aug. – Wu Yinong Independent Director Dec. Li Tiancai Former independent director 32.00 Jan. – Jul. Xiong Yan Employee Supervisor 241.90 Zhang Linmei Employee Supervisor 258.90 Yang Zhiguang Vice General Manager 514.30 He Jianya Vice General Manager 525.10 Meng Cai Vice General Manager 528.10 Hu Jianxin Vice General Manager 390.80 Huang Peikun CFO 532.60 Chen Yu Secretary of the Board 397.20 Total 4905.20 (V) Changes of Directors, Supervisors and Senior Executives The 4th term of Board of Directors and the Supervisory Committee were expired for their office term. On July 29th 2005, the Company convened the 1st provisional shareholders’ meeting of year 2005 to elect the new Board and Committee. Mr. Sun Chengming, Mr. Lin Shaobin, Mr. Hong Xiaoyuan, Mr. Li Yasheng, Mr. Huali, Mr. Chen Gang, and Mr. Yang Baiqian were elected the directors of the new 5th term of Board. While Mr. Liu Hongyu, Mr. Shi Xinping, Mr. Meng Yan, and Mr. Wu Yinong were elected the new independent directors of the Board. Mr. Zhou Yali, Mr. Feng Bohai and Ms. Wen Zhongping were elected the supervisors of the Supervisory Committee. On July 19th 2005, the Company convened the Employees’ General Meeting, in which Ms. Xiong Yan and Mr. Liu Zhijian were elected the supervisors of the 5th Supervisory Committee representing the employees. For Mr. Liu Zhijian had resigned from the Company for his personal reason, the Company convened the Employees’ General Meeting once again on September 16th, on which Ms. Zhang Linmei was elected the supervisor representing the employees of the Company. On July 29th 2005, the 1st session of the 5th Board of Directors was convened. Mr. Sun Chengming was elected the Chairman of Board. Where Mr. Lin Shaobin was engaged for the successive term of General Manager, and Mr. Yang Baiqian, Yang Zhiguang, He Jianya, Meng Cai, and Hu Jianxin were engaged as the Deputy General Managers of the Company, Mr. Huang Peikun was engaged as the CFO, and Mr. Chen Yu was engaged the Secretary of the Board. 22 China Merchants Property Development Co., Ltd. Annual Report 2005 II. List of employees (ended December 31st 2005) As of December 31st 2005, the Company (including headquarters and its main shareholding subsidiaries) has 713 registered employees. The composing of professions and education background are as follows: Professions Production Sales & Marketing Technicians Finance & Accounting Executive Others Number of person 97 177 253 59 87 40 Proportion 13.60% 24.82% 35.48% 8.27% 12.20% 5.61% Educations Master or above Bachelor Diploma Intermediate or below Number of person 75 340 111 187 Proportion 10.52% 47.69% 15.57% 26.23% [Remarks] 1. Employees of the Company and major controlled subsidiaries are included. 2. The Company needn’t pay retirement pensions for the Company and its controlled subsidiaries participated in the municipal social security scheme. 23 China Merchants Property Development Co., Ltd. Annual Report 2005 Chapter VI. Administrative Structure I. Administrative Profile The Company kept following with the laws and rules, such as Company Law, Administrative Rules for Public Companies, Guidance on Establishing of Independent Director System, Rules on Protecting the Rights of Public Shareholders, and Share Listing Rules of Shenzhen Stock Exchange, and kept optimising the administrative operations. There were no discrepancies between the substantial situation of the Company and the aforesaid documents. On July 29th 2005, the Company convened the 1st provisional shareholders’ meeting of year 2005 to elect the new Board of Directors. The number of directors increased from 9 to 11, including 4 independent directors, which takes over one third of the total members. In the report term, following with the instructions of the regulatory body, the Company revised its Articles of Association, Rules of Shareholders’ General Meeting, Rules of Board Meetings, and Rules of Supervisory Meetings. In the purpose of enhancing the functions and efficiency of the Board, the Board has established the Auditing Committee, Strategy Committee, as well as Remuneration & Assessment Committee. In viewing of further improve its administrative structure, empower the supervisory mechanism over the directors and the executives, defend the interests of mid-small shareholders and related parties, promote a scientific operation, the Company composed Working Rules of Independent Directors, Investors Relationship Management System, and Working Rules of Information Disclosure. II. Independent Directors’ Performing of Duties The Company convened 13 Board meetings during the report term. 9 of them were convened in term of telecommunication voting. All of the 4 independent directors presented all of the meetings other than the meetings convened in term of telecommunication voting. They issued their opinion upon the important proposals as well as the related transactions. In the report term, the independent directors raised no dissidence against any proposals on the board meeting or other events of the Company. III. Particulars about separation in business, assets, staff, organization, and finance of the Company from the controlling shareholder The Company was totally separated from the controlling shareholder in business, assets, staff, institutions, and finance. The Company possesses its operative capability independently and completely. 24 China Merchants Property Development Co., Ltd. Annual Report 2005 IV. Assessment and motivation over the senior executives Evaluation mechanism: At present, the Company performs assessment over the senior executives against the annual plan and “paper of mission & target”. Performance assessment was conducted with consideration of economical results (upon net profit) and “360 degree” evaluation process. Namely, the combination of performance report over the “paper of mission & target”, and evaluations performed among the directly related levels, both in longitude and latitude. Motivating and binding mechanism: according to the relevant state policies including the Company Law, the Articles of the Association, etc., the Company established comparatively perfect encouragement and binding mechanism, and enforce three salary system, responsibility post salary system, post skills salary system, and commission system, respectively on the management and administration staff of the Company, professional skill staff, and marketing staff. According to the check results of senior management staff by the Board, the Company decides whether the person leave or not, promoted or degraded, and decides correspondent salary and encouragement level. The Company has set up to do some research in making detail implementation method of shares and options motivation, and tried to establish market and consummate encouragement system. Chapter VII. The Shareholders’ Meetings The Company convened 2 shareholders’ meetings during the report term: (I) The Shareholders’ General Meeting 2004 was held on April 26th 2005, the resolutions of the meeting were disclosed with China Securities Journal, Securities Times and Ta Kung Pao on April 27th 2005. (II) The 1st Provisional Shareholders’ Meeting 2005 was held on July 29th 2005. The resolutions of the meeting were disclosed with China Securities Journal, Securities Times and Ta Kung Pao on July 30th 2005. Chapter VIII. Report of the Board of Directors I. Business summary of the report term The Company is a large enterprise with business extending throughout the country, with real estate development and sales, operation of leased properties and power & water supply in residence estates as the core business. The Company achieved rapid growth against its positive and stable operation. For the year of 2005, the Company had realized the major business turnover of RMB2,659,475,668, 23.49% less than the same period of last term, major business profit of RMB628,255,542, 0.11% less than last term, and net profit of RMB421,580,919, 17% over the same period of previous year. During the year, the Company launched its property development projects synchronously in 9 cities in the country. Constructions in processing and planning were totalled to 4.0412 million square meters. Totally 210 thousand square meters were transferred into merchandise property. The properties on leasing grew up to 445.5 thousand square meters. It also realized power outlet of 884 million KWH and water supply of 36.2 million ton. In the report term, basing on the plan at the beginning of year, 211.2 thousand square meters of constructions were put into commodity, which has decreased by 27.84% from the same period of last year. On the other hand, the Company has sold its shares in China Merchants Petrol Chemical, therefore the sales income of it was not included in the major business income of year 2005. That caused decreasing of major business income. But for the increasing of sales profit of real-estate businesses and increasing of rent income, the net profit was increasing steadily. 25 China Merchants Property Development Co., Ltd. Annual Report 2005 (I) Major business operation In the report term, the Company kept concentrating on the major businesses. The business results had reached or exceeded the expectation. Major business turnover and profit were from the businesses located in Shenzhen area during the year. Particulars about the businesses from which the earnings took more than 10% of the total revenue or profit from the major business: Profit ratio of major On Industries Major business income Major business cost Major business profit business Changed over the Changed over the Changed over the Changed over the Portion in total Portion in total Portion in total profit ratio % prev. year RMB’000 RMB’000 RMB’000 prev. year prev. year prev. year Amount Amount Amount Property development 1,662,222 -23.31% 62.50% 1,184,800 -29.01% 61.38% 393,479 1.15% 62.63% 23.67% + 5.72% and sales Property leasing 235,277 19.82% 8.85% 123,484 23.95% 6.40% 99,533 15.03% 15.84% 42.30% - 1.77% Water and 708,262 2.32% 26.63% 581,427 5.04% 30.12% 125,873 -8.41% 20.04% 17.77% - 2.08% power supply Changes upon the same period of previous year were caused by: 1. At the end of the report term, as planned at the beginning of current year, the new commodity houses put into sales was 211.2 thousand square meters, and sales income was RMB1,662,222 thousand. The new commodity was 27.84% less from the 292.7 thousand square meters of previous year. But the sales price has increased. Therefore the sales income has decreased by 23.31%. The sales cost was decreased correspondingly with the commodity areas. Therefore the increasing of major business profit was the consequence of sales price increasing. 2. For new properties been put into leasing operation, and leasing rate has increased, therefore the income from properties leasing business was increased by 19.82% and 15.03% in income and profit respectively. (1) Property development and sales For the latest years, the businesses of property development and sales were growing rapidly. In the report term, with the businesses in Shenzhen as the core growth point, the Company had extended its property businesses (primarily residential properties) to other 8 cities including Guangzhou, Shanghai, Nanjing, Suzhou, Beijing, Tianjin, Chongqing, and Zhangzhou. As of the end of report term, totally 211.2 thousand square meters of properties were put into sales, and some RMB1,662,222,000 of revenue was realized thereof. In the report term, the Company introduced the strategy of “Aggressive in core area, steadily in primary area”. On one hand, the Company was focusing on Shenzhen and its surrounding area, on the other hand, seeking for opportunities in major cities such as Beijing and Shanghai, in viewing of stepwise extending. For the year, the newly scheduled projects were totaled to 275.9 thousand square meters. As of the end of the year, the projects on schedule were totaled to 2.9407 million square meters. Furthermore, CMSIZ, the major shareholder of the Company, promised to input high quality assets such as lands successively to support the development of the Company. 26 China Merchants Proper Projects in construction (ended December 31st 2005) Projects In Construction (x 10,000 square meter) Put into Date Floorag In sales, schedule No. Project Title Location Categories e construction accumulate d date o planned d launch Commercial / 1 Lanxi Valley 2nd Phase Shekou Shenzhen 14.75 14.75 2005.03 residential rd Garden City 3 phase, plot No. Commercial / 2 Shekou Shenzhen 11.76 11.76 2004.10 2 residential Longgang Commercial / 3 Yishanjun 27.56 7.14 2004.12 Shenzhen residential Commercial / 4 Haiyue 4th phase Shekou Shenzhen 7.60 2006.06 residential 5 Jiangang Hill Baoan Shenzhen Residential 30.31 5.30 2005.06 6 Yiyuntingxiang Garden Songjiang Shanghai Residential 10.41 7.85 2005.04 7 Jinshan Proj. Panyu Panyu Guangzhou Residential 94.61 2006.12 Commercial / 8 Dongjiaxi Proj. Chongqing Jiangbei Chongqing 46.95 2006.12 residential Commercial / 9 Yiyunshuian Xiangcheng Suzhou 22.57 5.67 2005.06 residential Commercial / 10 Balizhuang East, Beijing Chaoyang, Beijing 42.14 2006.08 residential Commercial / 11 Holiday Scene Zhongbei Tianjin 29.97 10.23 2005.03 residential Commercial / 12 Yishanhai Zhangzhou Fujian 9.18 5.79 2005.03 residential 13 Xianlin Proj. Nanjing Xianlin Nanjing Residential 24.19 2006.04 Commercial / 14 Xikang Proj. Tianjin Heping Tianjin 3.40 2006.11 residential Commercial / 15 Haiyue 3rd phase * Shekou Shenzhen 8.90 8.90 6.95 2003.08 residential Commercial / 16 City Main Plaza * Futian Shenzhen 8.18 8.18 5.89 2004.01 residential 17 Garden City Center Shekou Shenzhen Leasing 7.40 7.40 2004.05 18 Taige Apartment Shekou Shenzhen Leasing 4.24 4.24 2002.11 27 China Merchants Proper Total 404.12 97.21 12.84 28 China Merchants Property Development Co., Ltd. Annual Report 2005 Remarks: 1. Projects marked * was completed in the report term. 2. 211.2 thousand square meters of properties had been put into sale in year 2005. Which was including the above projects marked * and also the final offers of Lanxi Valley 1st phase, Garden City 3rd phase block 1, and Rainbow Coast. 3. Project underlined were properties for rent. 4. Holiday Scene was a joint operation between China Merchants Real Estate – one of the subsidiaries of the Company, and Tianjing Vanke Properties Company. China Merchants Real Estate was holding 45% of the share in the project. 5. Jiangang Hill project was a joint operation between China Merchants Real Estate and Shenzhen OCT Properties Ltd. China Merchants Real Estate was holding 50% of the share in the project. 6. Yishanhai was a project developed by Zhangzhou China Merchants Properties Co., Ltd. – another subsidiary of the Company. (2) Property leasing businesses Properties on Leasing (x 10,000 square meter) Area for Leased Average Representative project lease accumulated ratio Total 44.55 472.34 Incl. Apartments 3.59 36.23 Seashore Apartments Houses 6.29 67.17 Wale Hill Houses Office buildings 7.48 79.89 91.84% Finance Center Technologies Plants (Misc.) 14.44 165.39 Building Shops 12.74 123.66 Shekou Walmart Remarks: 1. Taige Apartment was not included for its has not been put into operation yet. 2. For the newly obtained properties for lease and function changing of old plants under Xinan Properties – one of the controlled subsidiaries of the Company, the on-leasing area of plants, apartments, and shops were changed accordingly. The Company has long invested in and possessed high quality properties for lease, in viewing of obtain steady increasing of rent income. As of the end of the report term, the leasing properties on operation were totalled to 445.5 thousand square meters. Leasing properties in construction, such as Taige Apartment, Garden City Center (partial), were totalled to 260.1 thousand square meters. The leasing properties were mostly located in Shenzhen, including houses, apartments, offices, plants and shops. Following with the development of the real-estate market in Shenzhen, the property leasing business of the Company was in steady growth. For the report term, the annual average ratio of leasing properties reached up to 91.84%. The properties on leasing were accumulated to 4723.4 thousand square meters throughout the year. Which increased by 32.35% over the previous year. The rent income realized was RMB235,277,000, which was a 19.82% increasing over the previous year. (3) Water and power supply 29 China Merchants Property Development Co., Ltd. Annual Report 2005 Water and Power Supply Business Unit Year 05 Year 04 Year 03 Power supply 10K Kwh 88,400 87,463 82,382 Water supply 10K Ton 3,260 3,022 2,878 The water and power supply businesses were mostly located in Shekou. Following with the increasing industrial and civil demand in water and power supply, the Company’s business was increasing successively in recent years. For the report year, the income from power supply has reached up to RMB626,698,000 which was a 2.1% of growth, and that from water supply has reached up to RMB81,563,000 which was a 3.9% of growth. In the report term, the Company was awarded “The top 3 best public companies of real estate industry in China 2005”, “The best integrated real estate enterprise who resolved the structural weaknesses”, “Champion of the top 10 properties sales of Shenzhen 2004”, “The 2nd place of total real estate enterprise of Shenzhen 2004 (2003)”, and “Top 10 remarkable enterprises of Shenzhen for latest 25 years”, as well as “The best blue-chips real estate enterprise of year 2004-2005”. (II) Business operation and performance of major controlled and shareholding subsidiaries At the end of the report term, there were 3 subsidiaries under the controlling of the Company, they are: China Merchants Real Estate, China Merchants Power Supply and China Merchants Water Supply. The followings are the business operation and performance: 1. China Merchants Real Estate (CMRE) Established in 1984, CMRE has the registered capital of RMB 106 million. The Company holds 95% of its equity. Ended the report period, its total assets reached RMB 5,211.287 million and net assets was RMB 1,567.311million. Of the report term, CMRE has realized the major business turnover of RMB1,884.176 million, the major business profit of RMB475.684 million, and net profit of RMB316.641 million. As of the year 2005, CMRE has had a history of 21 years. It was one of the first real-estate developers in the country. Till present, the Company has extended its businesses all over the country. It has been awarded the top 3 best real-estate developers in Shenzhen for successive years. 2. China Merchants Power Supply (CMPS) Established on November 9, 1980, CMPS has the registered capital of RMB 57 million. The Company holds 99.75% of its equity. Ended the report period, its total assets reached RMB 759.305 million and net assets was RMB 264.379 million. In the report period, CMPS sold 884 million KWH of power products, which was close to that of the previous year, and realized business turnover of RMB626.698 million, business profit of RMB109.597 million, and net profit of RMB119.745 million. CMPS is the unique authorized power supply enterprise in Shekou, enjoying significant regional superiority. The Company has formed an advanced overall plan for power supply network and exercises up-to-date technical management. In the report period, CMPS completed the 3rd sea floor cables, which has laid a foundation for the power supply of Shekou district. 3. China Merchants Water Services (CMWS) Established on October 29, 1989, CMWS has the registered capital of RMB 43 million. The Company holds 99.75% of its equity. Ended the report period, its total assets reached RMB211.794 million and 30 China Merchants Property Development Co., Ltd. Annual Report 2005 net assets was RMB167.503 million. In the report period, CMWS sold 32.60 million tons of water, a 7.88% growth over the previous year. The business turnover for the whole year was RMB81.563 million, business profit of RMB9.845 million, and net profit of 19.966 million. CMWS is the unique authorized water supply enterprise in Shekou, enjoying significant regional superiority. In the report term, CMWS reached an agreement with Shenzhen Water Service Group over the lawsuit on original water. According to the agreement, CMWS would pay RMB2.250 million to Shenzhen Water Service Group and return 13.14 million m3 of original water (worth of RMB10.249 million) to Shenzhen Water Service Group in 18 months. Compare with the judgment made by Guangdong Provincial High Court, this result saved the Company RMB7.751 million of loss. (III) Principal Suppliers and customers Purchasing is taking minor portion in the overall cost of real-estate developing, while the major customers of sales and leasing of properties are individual buyers. In contrast, the sources of power supply is purchased from CLP Group, the power supplied to the top five customers takes 44.5% of the total sales. The source water for water supply is form the three major reservoirs of Shenzhen, the water supplied to the top five customers takes 20.51% of the total water sales. (IV) Major structural assets in the report term. (RMB’000) December 31st 2005 Dec. 31 2004 Increasing of Portion in Portion in total percentage in Items total assets Amount total asset Amount asset (%) (%) Total of assets 8,936,565 100.00% 8,454,999 100.00% 0.00% Monetary fund 340,516 3.81% 401,432 4.75% -0.94% Account receivable 27,305 0.31% 74,937 0.89% -0.58% Inventories 5,677,797 63.53% 5,169,342 61.14% 2.39% Long-term share equity investment 1,161,339 13.00% 1,186,655 14.03% -1.03% Net fixed asset 582,235 6.52% 606,579 7.17% -0.65% Construction in progress 15,228 0.17% 10,837 0.13% 0.04% Other long-term assets 1,078,670 12.07% 874,932 10.35% 1.72% Short-term loans 1,659,189 18.57% 1,740,751 20.59% -2.02% Notes payable 318,849 3.57% 0 0.00% 3.57% Account payable 835,995 9.35% 2,065,014 24.42% -15.07% Account received in advance 58,479 0.65% 460,795 5.45% -4.80% Tax payable 52,069 0.58% 147,415 1.74% -1.16% Other account payable 425,959 4.77% 364,511 4.31% 0.46% Long-term borrowings 1,600,000 17.90% 3,566 0.04% 17.86% Major facts that caused the changing in asset structure: 1. Account receivable and advance received: the account receivable occurred in previous term has been retrieved, while the property sales advances which have reached the conditions of income recognition has been carried over to the gain/loss account of the current report term. The Company adjusted the progress of certain projects according responding to the change of market environment, which caused the properties reached presales condition in the current term were less than usual, and no increasing in property sales advances. 31 China Merchants Property Development Co., Ltd. Annual Report 2005 2. Inventories and other long-term assets: expanding of real-estate business. 3. Long-term share equity investment: long-term share equity investment was decreasing gradually following with the amortizing of share equity investment discrepancy. 4. Notes payable, short-term borrowings, and long-term borrowings: increasing of liabilities with interests was to satisfy the needs of real-estate business development. The Company carried out number of adjustments over the liability structure during the report term, which increased the portion of mid- long-term loans in the liabilities. As of the end of 2005, the long-term borrowings were taking 45% of the total borrowings. In the meantime, the Company adopted various financing channels, such as bank accepted drafts with lower discount rate, to support the needs on short-term borrowings. 5. Account payable: payment was made for land which was payable in the previous term. (V) Changing of accounting data, such as operational expenses, administrative expenses, financial expenses, and income taxes, during the report term. (RMB’000) Items Year Year 2004 Increase / Statement on major movement 2005 decrease rate (%) Operational Normal movement 31,331 32,639 -4.01% expenses Administrative Normal movement expense 92,730 85,646 8.27% Financial Income from long-term foreign currency security -36,451 10,257 -455.38% expenses service realized in the report term The impairment provision provided in the previous Investment term was relatively big in amount, while the income income -35,921 -49,555 -27.51% from partnership companies recognized under equity method has increased. Non-business Income from penalties increased 1,217 596 104.19% income Non-business Great loss occurred in fixed asset disposal in 4,605 20,103 -77.09% expenditure previous year. Income tax 96,127 90,034 6.77% Normal movement (VI) Changing of cash flow in the report term (RMB’000) Year 2005 Year 2004 Percent of Items Amount Structural Amount Structural structural ratio Cause of change ratio ratio increased Cash inflow from business activities 2,858,615 3,835,106 Incl. Cash received from selling of Income from property 2,510,162 87.81% 3,644,280 94.81% -6.93% commodities and services presale decreased Cash outflow for business activities 4,225,163 5,059,737 Incl. Cash paid for buying of Decreasing of payment 3,627,915 85.86% 4,598,230 90.88% -5.16% commodities and services for land using Net Cash flow generated by business -1,366,548 -1,224,631 operation Investment retrieved Net cash flow generated by -62,475 -10,274 by selling of Petrol investment Chemical shares. Primarily new bank Net cash flow generated by financing 1,339,863 941,303 loans. The Company realized net profit of RMB421.581 million in the report term, whereas the net cash flow from business activities was RMB-1,366.548 million. Which means there was significant discrepancy between the net profit and the cash flow from business activities. This was because: (1) It is the characteristic of the real-estate industry, which decided that there should be major discrepancy between two of the indices. (2) The Company’s business was in rapid growth, it is not surprising that the 32 China Merchants Property Development Co., Ltd. Annual Report 2005 investment was faster than cash inflow. II. Looking into future development As predicted by the development plan of the national government, China will step into a richer well-off society. As the carrier of wealth and essential part of civil needs, the supplying of real-estates is of scarcity relatively. Following with the expanding of cities and increasing of civil wealth, the demand for real-estates shall be increasing successively and rapidly in a fairly long period in the future. At present, contrast exists between the arising demands for high quality constructions and limited supplying in the domestic market. Because of the rigorous national policies on land using, adjustment of city planning, and appreciation of Renminbi, the contrast was becoming furthermore significant. Rapid inflating of property prices can be seen in major cities such as Shanghai, Shenzhen, and Beijing. The government unveiled a series of controlling policies and effectively prevented the market from overheating. Obviously the contrast between demand and supply will remain for a long period of time along with political controlling policies. This is bringing the operators opportunities and challenges at the same time. With real estate developing and sales businesses as the leading business, depending on the supporting of property leasing and power & water supplying, the Company concentrates its superior resources in Shenzhen and its surrounding areas, and develops the markets aggressively and restrainedly in other major cities such as Shanghai and Beijing. Till present, the Company has already formed an integrated business line covering real estate developing, property leasing, property agency, and property management services. This has enabled the Company to provide a full range of value-adding services to the clients. To satisfy the needs of rapid developing and enforce the business, the Company is seeking for various financing channels, upgrading its administrative power, introducing and implementing more effective staff-motivating scheme. CMIZ, the major shareholder of the Company, is also providing powerful supporting in term of land using and cash capitals. It further secured the rapid and stable development of the Company. In year 2006, there will be 9 real estate projects of the Company throughout the country step into sales stage (5 of them will be sold in areas other than Shenzhen, they are: Shanghai Yiyunjun, Suzhou Yiyunshuian, Nanjing International Finance Center, Zhangzhou Yishanhai, and Zhangzhou Coral Garden 4th phase. 4 of them will be sold in Shenzhen, they are: Garden City 3rd phase No.2, Lanxi Valley 2nd phase, Jiangang Hill Houses and Longgang Yishanjun.). The newly accomplished properties, including Taige Apartment and Garden City Center, will be put into leasing operation. The constructions in progress, sales volume and leasing properties will break the historic records in year 2006. On the other hand, in viewing of reinforce the power of growth, the Company will further expand its stock of lands and push forward the issuing of 1.65 billion convertible bonds. In this point of view, for the year of 2006, the Company will conduct its overall operation under the principle of balanced development with concerning over Scale, Quality and Efficiency. The management will further study and seize the business characters in the stage of developing, face the changes and competitions of the market, reinforce the management of performance assessment, and look for a breakthrough in the Company’s business on the basis of consolidating the national business layout. For year 2006, the Company is targeting on commodity houses of 210 thousand square meters, accumulated leasing properties of 4.86 million square meters, power supply of 868.13 million KWH, and water supply of 31.90 million tons. The Company is in rapid growth stage and expanding the investment in real estate business, which bings greater pressure on cash capital. To achieve its long-term target, with considering of the needs and plan of cash capital, the Company is predicting a need of some RMB2.5 billion in year 2006. It is expected to 33 China Merchants Property Development Co., Ltd. Annual Report 2005 successfully issue convertible bonds of RMB1.65 billion and bank loan of 0.85 billion to cover the needs in cash capital. Furthermore, the Company will keep trying new financing channels, such as issuing of asset supported bills in inter-bank market against its stable cash flow, and issuing of real estate credit fund against its high quality properties. In the meantime, the Company will enforce the retrieving of account receivable and other receivables, stir up cash inflow from business activities, to release the pressure of external financing efforts. III. Investment in the report term Summary of investment in the report term (I) The Company raised no fund in the report term. All funds raised previously had already been put into operation prior to the report term. (II) Major projects started by non-raised funds, and their progress and profitability in the report term RMB’000 Investment Increasing of Projects of investment Progress of the project Profitability of the year current year over the previous year Property for leasing, interior Garden City 2nd phase 203,817 136% No profit yet decoration in process Gross profit of City Main Plaza * 133,184 50% Completed in year 2005 RMB115.289 million for the year CM Yishanjun 106,100 55% Main body in process No profit yet Suzhou Yiyunshuian 104,392 31% Main body in process No profit yet nd Lanxi Valley 2 Phase 92,282 36% Main body in process No profit yet Garden City 3rd phase, 86,075 63% Main body in process No profit yet land No. 2 Main body in planning Haiyue 4th phase 76,711 403% No profit yet stage Yiyuntingxiang Garden 41,297 20% Main body in process No profit yet Gross profit of RMB- Finished in 2005, put into Taige Apartment 40,575 22% 10.218 million for the operation at the end of year year Demo unit and other Jiangang Hill 1st phase 37,708 13% No profit yet parts’ body finished New project of the Xianlin Proj. Nanjing 34,111 Initial planning No profit yet year New project of the Xikang Proj. Tianjin 22,092 Initial planning No profit yet year Balizhuang East, Beijing 19,418 35% Initial planning No profit yet New project of the Main body in planning Marine Center 9,352 No profit yet year stage Jinshan Proj. Panyu 1,663 2% Initial planning No profit yet nd Jiangang Hill 2 phase 1,080 1% Initial planning No profit yet Dongjiaxi Proj. No profit yet 764 2% Initial planning Chongqing (III) In the report term, the Company had accomplished investment of RMB25.259 million in fixed assets, in which, CMPS had accomplished the investment of RMB5.792 million, mainly in upgrading and reforming of power supply facilities; CMRE had accomplished the investment of RMB9.331 million, mainly in renewing of office equipment and shipping facilities; CMWS had accomplished the investment of RMB7.177 million, mainly in upgrading and reforming of pipelines and water plant 34 China Merchants Property Development Co., Ltd. Annual Report 2005 facilities; subsidiaries out side Shenzhen had accomplished the investment of RMB2.668 million, mainly in purchasing of electronic facilities and shipping facilities; the headquarter and other subsidiaries had accomplished the investment of RMB291 thousand, mainly in renewing of electronic facilities. IV. Routine Works of the Board of Directors (I) Particulars about the board meetings and resolutions The Board convened 13 meetings in the current year, the details are as the follows: 1. On January 31st 2005, the 4th term of Board convened its 17th meeting. The resolutions were disclosed by February 4th 2005 issues of China Securities Journal, Securities Times and Ta Kung Pao. 2. On March 25th 2005, the 4th term of Board convened a provisional meeting. The proposal on convening of Shareholders’ General Meeting 2004 was adopted in term of telecommunication voting. It has been decided to convene the Shareholders’ General Meeting 2004. The public notice about the meeting was disclosed by March 26th 2005 issues of China Securities Journal, Securities Times and Ta Kung Pao. 3. On April 25th 2005, the 4th term of Board convened its 18th meeting. The resolutions were disclosed by April 27th 2005 issues of China Securities Journal, Securities Times and Ta Kung Pao. 4. On May 29th 2005, the 4th term of Board convened its 19th meeting. The resolutions were disclosed by May 31st 2005 issues of China Securities Journal, Securities Times and Ta Kung Pao. 5. On June 23rd 2005, the 4th term of Board convened its 20th meeting. The resolutions were disclosed by June 28th 2005 issues of China Securities Journal, Securities Times and Ta Kung Pao. 6. On July 29th 2005, the 5th term of Board convened its 1st meeting. The resolutions were disclosed with July 30th 2005 issues of China Securities Journal, Securities Times and Ta Kung Pao. 7. On August 28th 2005, the 5th term of Board convened its 2nd meeting. The resolutions were disclosed by August 30th 2005 issues of China Securities Journal, Securities Times and Ta Kung Pao. 8. On September 28th 2005, the 5th term of Board convened its 3rd meeting. The resolutions were disclosed by September 28th 2005 issues of China Securities Journal, Securities Times and Ta Kung Pao. 9. On October 20th 2005, the 5th term of Board convened its 4th meeting. The resolutions were disclosed by October 24th 2005 issues of China Securities Journal, Securities Times and Ta Kung Pao. 10. October 26th 2005, the 5th term of Board convened a provisional meeting. The proposal of selling the 25% of share capital of Shenzhen Xunlong Shipping Services Co., Ltd. was adopted in the meeting. It was agreed to sell the 25% of shares of Shenzhen Xunlong Shipping Services Co., Ltd. held by the Company to CMSIZ. Independent director Liu Hongyu, Shi Xinping, Meng Yan, and Wu Yinong have accepted the proposal beforehand and issued independent opinions on this issue. 11. On December 8th 2005, the 5th term of Board convened its 5th meeting. The resolutions were disclosed by December 13th 2005 issues of China Securities Journal, Securities Times and Ta Kung Pao. 12. On December 16th 2005, the 5th term of Board convened its 6th meeting. The resolutions were disclosed by December 19th 2005 issues of China Securities Journal, Securities Times and Ta Kung Pao. 13. October 26th 2005, the 5th term of Board convened a provisional meeting. The proposal on 35 China Merchants Property Development Co., Ltd. Annual Report 2005 extending the leasing of properties to China Merchants Port Service (Shenzhen) Co., Ltd. was adopted in the meeting. It was agreed to extend the leasing contract with China Merchants Port Service (Shenzhen) Co., Ltd. on the properties located in Shekou Port area. The rental will keep at the original rate, which is RMB884,156.56. The rent will expire upon 12 months (from January 1st 2006 to December 31st 2006). The land using fees and property administrative fees related to the leased properties will be borne by China Merchants Port Service (Shenzhen) Co., Ltd. Independent director Liu Hongyu, Shi Xinping, Meng Yan, and Wu Yinong have accepted the proposal beforehand and issued independent opinions on this issue. (II) Execution of the resolutions of shareholders’ general meeting by the Board The Board of Directors fully executed the resolutions of the Shareholders’ General Meeting, they are: 1. The Board of Directors was authorized by the Shareholders’ General Meeting to in charge of the application for issuing of convertible bonds. The Board of Directors had fully executed the authorization as said above. The application had been approved by the Stock Issuing Committee of China Securities Regulatory Commission on April 18th 2005. On July 29th 2005, the Company convened the first provisional Shareholders’ General Meeting, the proposal was approved to extend the validity period of the bond issuing plan to August 19th 2006. 2. Execution of profit distribution plan The profit distribution plan for year 2004 was decided by the Shareholders’ General Meeting 2004 held on April 26th 2005. Basing on the total capital share of 618,822,672 shares, RMB1.50 would be distributed upon each 10 shares. Totally RMB92,823,401 would be distributed. The company has published “The Announcement of Profit Distribution for Year 2004” on April 29th 2005 and May 9th 2005. The registration date was May 13th 2005 and the ex-dividend date was May 16th 2005. The profit distribution was completed at June 8th 2005. V. Profit distribution or capitalizing of common reserves plan for year 2005 According to the provision of adopting the lower amount between Chinese Accounting Standards and International Accounting Standards as the maximum for distribution, the profit available for distribution is RMB1,117,884,778 for year 2005. According to the requirements of the relevant regulations and the Articles of Association, the profit distribution scheme is as the followings: Providing 10% of the net profit under Chinese Accounting Standards as statutory public reserves amounting to RMB42,158,092. Providing 5% of net profit under Chinese Accounting Standards as statutory public welfare amounting to RMB21,079,046. Out from the net profit of the year, based on the issued shares amounting to 618,822,672 shares, RMB0.20 (tax included) is about to be distributed upon each 10 shares, totally RMB12,376,453 of cash dividend will be distributed. No capitalizing of common reserves will be executed this time. 36 China Merchants Property Development Co., Ltd. Annual Report 2005 VI. For year 2005, the official information disclosure agents were China Securities Journal, China Securities Times and Ta Kung Pao. For year 2006, the official information disclosure agents are China Securities Journal, China Securities Times and Hong Kong Commercial Daily. 37 China Merchants Property Development Co., Ltd. Annual Report 2005 Chapter IX. Report of the Supervisory Committee I. Performing of duties The Supervisory Committee convened 5 meetings in the report term. All of the supervisors presented the board meetings and participated in the discussion of major decision-making issues, as well as the periodic reports of the Company. Backed by the laws and regulations, the Supervisory Committee supervised over the procedures of holding and decision-making of the Shareholders’ General Meeting and the Board Meeting, execution of the resolutions of the Shareholders’ General Meeting by the Board of Directors, performance of the senior executives, and execution of administrative rules of the Company. It also monitored the operation of the Board and executive teams in viewing of scientific decision-making and normative operation of financial issues. The followings are the summary of meetings held in the report term: (I) The 13th meeting of the 4th term of Committee was held on January 21st 2005. The resolutions were adopted as followings: 1. The Auditors’ Report 2004, Annual Report 2004, Summary of Annual Report 2004, Profit Distribution Plan 2004, Proposal on Revising of the Articles of Association, Proposal on Extending the Service of CPAs. 2. Examined and adopted the “Report of the Supervisory Committee” carried in the Annual Report 2004. The resolutions were published by February 4th 2005 issues of China Securities Journal, Securities Times, and Ta Kung Pao. (II) The 14th meeting of the 4th term of Committee was held on May 29th 2005, the proposal of revising the “Rules of Supervisory Meetings” was examined and adopted. The resolutions were published by May 31st 2005 issues of China Securities Journal, Securities Times and Ta Kung Pao. (III) The 15th meeting of the 4th term of Committee was held on June 23rd 2005, the proposal of nominating the members of the 5th term of Committee was examined and adopted. Mr. Zhou Yali, Mr. Feng Bohai, and Ms. Wen Chongping were nominated the candidate of the 5th Supervisory Committee. The resolutions were published by June 28th 2005 issues of China Securities Journal, Securities Times and Ta Kung Pao. (IV) The 1st meeting of the 5th term of Committee was held on July 29th 2005, the proposal of nominating the Chairman of the 5th term of Committee was examined and adopted. Mr. Zhou Yali was nominated the Chairman of the 5th Supervisory Committee. The resolutions were published by July 30th 2005 issues of China Securities Journal, Securities Times and Ta Kung Pao. (V) The 2nd meeting of the 5th term of Committee was held on August 28th 2005. The Semi-annual Report 2005 was examined and adopted. The resolutions were disclosed by the August 30th 2005 issues 38 China Merchants Property Development Co., Ltd. Annual Report 2005 of China Securities Journal, Securities Times and Ta Kung Pao. II. The Supervisory Committees issued independent opinions on the following events (I) Operation according to the laws The Company established legal person administration structure and more perfect internal control system according to relevant laws, regulations and Article of Association. The procedures of decision-making of the Company are in compliant with the laws and regulations and there existed no actions of breaking the laws, regulations and Articles of Association and harmful to the Company’s interest in terms of implementation of the Company’s duty by the directors and managers. (II) Financial inspection The financial statements was reflecting the financial status and business results frankly. Deloitte Touche Tohmatsu Certified Public Accountants and Deloitte Touche Tohmatsu Certified Public Accountants Ltd. audited 2005 financial statements of the Company respectively and all issued standard auditor’s reports with no qualified opinion. (III) Application of raised funds In Nov. 2003, the Company executed share allotment and the actual raised capital was RMB 339,901,009. The Supervisory Committee supervised over the collection and use of the raised capital and the colleted capital has been put into use of the items that were promised in Allotment Share Explanation and obtained prospective income. The Company raised no fund in the report term. (IV) Purchasing or selling of assets and related transactions In the report term, the Company conducted related transactions including selling of the 25% share equity held in Shenzhen Xunlong Shipping Service Co., Ltd., purchasing of the 80% share equity of Fucheng (China) Co., Ltd., and purchasing of China Merchants Property Management Co., Ltd. All transactions were on fair prices and no under-table trades or actions harming the shareholders’ interests or causing losses in the Company’s assets were found. 39 China Merchants Property Development Co., Ltd. Annual Report 2005 Chapter X. Significant Events I. Major lawsuit and arbitration In the report period, the Company had no material lawsuits or arbitrations. II. Significant acquisition, sales of assets and merger and consolidation For details please refer to III (I) “Related transactions regarding assets and share equities”. III. Material related transactions (I) The Company conducted no material related transactions of selling goods or providing labor services. (II) Related transactions regarding trading of assets or share equities 1. Selling of the 25% share equity of Shenzhen Xunlong Shipping Service Co., Ltd. (Xunlong Shipping) On October 26th 2005, the provisional meeting of the 5th term of Board passed the proposal on selling of the 25% share equity of Shenzhen Xunlong Shipping Service Co., Ltd. It has been agreed to sell the 25% of the share equity of Xunlong Shipping to CMSIZ. Basing on the booked net value at June 30th 2005 of Xunlong Shipping amounted to RMB21,959,279.75, the 25% share equity would be sold for RMB5,489,820. This action is positive on supporting the Company’s strategy of concentrating on real estate industry. CMSIZ had already made the whole payment in one off upon the agreement in the report term. 2. Acquiring of the 80% of the share equity of Fucheng (China) Co., Ltd. On December 16th 2005, the 6th meeting of the 5th term of Board passed the proposal on acquiring of the 80% share equity of Fucheng (China) Co., Ltd. It has been agreed to purchase the shares of Fucheng (China) Co., Ltd. held by Hong Kong Chinese Businessman Properties Co., Ltd.(70%) and China Merchants Development Co., Ltd.(10%) with RMB98.210 million and RMB14.030 million respectively under the name of Ruijia Investment & Industrial Co., Ltd. The Company is holding 99% of the share capital of Ruijia Investment & Industrial Co., Ltd. CMSIZ is holding 100% of the shares of Hong Kong Chinese Businessman Properties Co., Ltd. China Merchants Industrial Group Ltd. is holding 100% of the share equity of China Merchants Development Co., Ltd. CMSIZ is the first shareholder of the Company. CMSIZ and China Merchants Industrial Group Ltd. are the fully held subsidiaries of China Merchants Group Ltd. Therefore the transaction is a related transaction. Pricing of the transaction was with reference to the appraisal report issued by Zhongtongcheng Asset 40 China Merchants Property Development Co., Ltd. Annual Report 2005 Appraisal Co., Ltd. (Zhong-tong-ping-bao-zi [2005] No. 73) and upon the net asset as of December 31st 2004. As agreed by both of the parties, the 70% share equity of Fucheng China was priced HKD equal to RMB98.210 million. Where the 10% of share equity of Fucheng China was priced HKD equal to RMB14.030 million. They are totalled to HKD equal to RMB112.240 million. Upon completion of the acquisition, the Company will posses the equity of Nanjing International Financial Center under the name of Nanjing Fucheng which is the fully held subsidiary of Fucheng China. Nanjing International Financial Center is located at the center of Xinjiekou Commercial Area. It is well expected for its market potential. On January 5th 2006, the related procedures were carried out in Hong Kong. The Company has made the payment for the acquisition on January 16th 2006. The above related transaction was disclosed by December 19th 2005 issues of China Securities Journal, Securities Times and Ta Kung Pao. 3. Acquiring of China Merchants Property Management Co., Ltd. On December 8th 2005, the 5th meeting of the 5th term of Board examined the proposal of acquiring China Merchants Property Management Co., Ltd. It has been agreed to purchase the 90% and 10% of the share capital of China Merchants Property Management Co., Ltd. with RMB152.280 million and RMB16.920 million respectively under the name of Shenzhen China Merchants Real-Estate Co., Ltd. – the controlled subsidiary of the Company. On January 12th 2006, the Company entered the Asset Acquisition Contract together with CMSIZ and Shenzhen China Merchants Landmark Co., Ltd. Shenzhen Shekou Dazhong Investment Co., Ltd. and the Company are holding 5% and 95% of the shares of Shenzhen China Merchants Real-Estate Co., Ltd. respectively. CMSIZ and Shenzhen Shekou Dazhong Investment Co., Ltd. are holding 95% and 5% of the shares of China Merchants Landmark Co., Ltd. respectively. Shenzhen Sekou Dazhong Investment Co., Ltd. is the fully held subsidiary of CMSIZ, while CMSIZ is the first shareholder of the Company. Therefore the transaction is a related transaction. Pricing of the project was basing on the appraisal report (Zhong-tong-ping-bao-zi [2005] No. 67) issued by Zhongtongcheng Asset Appraisal Co., Ltd. upon June 30th 2005. For the 90% of shares of China Merchants Property Management held by CMSIZ, the price was RMB152.280 million, while for the 10% of shares held by China Merchants Landmark, the price was RMB16.920 million. Through the above transaction, the Company would hold 100% of the equity of China Merchants Properties Management directly or indirectly, which will further integrate the priority resources of the Company’s business in property development. Upon completion of the transaction, the Company will be able to provide full range of services including designing, developing & construction, sales, and property management. It not only enforces the specialty of the Company, but also consolidates the image of the Company in the market. The details of the above transaction were disclosed by January 16th 2006 issues of China Securities Journal, Securities Times and Ta Kung Pao. (III) Current of credit and debt and guarantee of the Company and related parties (including the subsidiaries not included in the consolidation scope) 1. As of December 31st 2005, CMSIZ – the controlling shareholder has provided guarantee for bank loan to CMPS amounted to USD20,226.98 thousand. 2. As of December 31st 2005, the Company was having RMB5,319.83 thousand payable to CMSIZ. 41 China Merchants Property Development Co., Ltd. Annual Report 2005 3. As of December 31st 2005, the Company was having RMB91,058.28 thousand payable to China Merchants Guangming Technologies Zone Co., Ltd. – the partnership company. 4. As of December 31st 2005, the Company was having RMB15,716.68 thousand payable to China Merchants Property Management Co., Ltd. – the partnership company. (IV) Other related transactions 1. CMSIZ provided the Company RMB500 million of commission loans through China Merchants Bank New Times Branch. On September 26th 2005, the 3rd meeting of the 5th term of Board examined and passed the proposal on CMSIZ’s providing of RMB500 million commission loans through China Merchants Bank New Times Branch. As entrusted by CMSIZ, the said bank provided the Company RMB500 million of loans at annual interest of 5.184% over the term of 3 years. The Company would pay the interest of RMB25.920 million annually. It is a long-term loan over 3 years of term. It will certainly improve the liability structure of the Company and help in returning of short-term loans and provide a steady source of cash capital. As calculated initially, with reference to the interest of other bank loans, it will save the Company of RMB8.640 million of interest in 3 years. The details of the above transaction were disclosed by September 28th 2005 issues of China Securities Journal, Securities Times and Ta Kung Pao. 2. CMWS is providing water supply to CMSIZ and its controlled subsidiaries. This transaction has started since the Company was founded. It was on fair price fully acceptable in the market. All of the water supply in Shekou area were provided by CMWS. 3. CMPS is providing power supply to CMSIZ and its controlled subsidiaries. This transaction has started since the Company was founded. It was on fair price fully acceptable in the market. All of the power supply in Shekou area were provided by CMPS. 4. Land using The facilities, equipments, and offices locations of supplying electricity and water business of the Company were located in Shekou. Most of the leasing properties in real estate business were built in Shekou. Therefore, the Company and subsidiaries rent land of CMSIZ since they were set up. In 2005, land using expenses of the Company and controlling subsidiaries were totalled to RMB 14,112,130. IV. Significant contracts and execution (I) In the report term, the Company conducted no custody, contract, or leasing of assets from/to any other company. (II) Significant guarantee 1. According to the requirements of Notification on Standardizing Capital Current between the Listed Companies and Related Parties and Several Problems about External Guarantee of Listed Companies (ZJF[2003] No. 56) and Notification on Normalizing External Guarantee of Listed Companies 42 China Merchants Property Development Co., Ltd. Annual Report 2005 (ZJF[2005]No.120) promulgated by CSRC, the Company checked itself about the capital current with the related parties and external guarantee: In the report period, there existed no capital of the Company occupied by controlling shareholder and other related parties of the Company. There didn’t provide capital directly and indirectly for controlling shareholders. In the report period, there existed no external guarantee and guarantee out of line; The Company provided Shenzhen China Merchants Real Estate Co., Ltd. – one of the controlled subsidiaries of the Company, with guarantee of RMB250 million. At the end of the report period, the guarantee provided to the controlled subsidiaries of the Company was amounted to RMB 0. 2. Special statement and independent opinions of the independent directors over the external guarantees of the current term According to the requirements of Notification on Standardizing Capital Current between the Listed Companies and Related Parties and Several Problems about External Guarantee of Listed Companies (ZJF[2003] No. 56), the Notification on Information Disclosing over the Capital Occupied by the Controlling Shareholders and Invalid Guarantees (SZJFZ [2004] No. 338) and Notification on Normalizing External Guarantee of Listed Companies (ZJF[2005]No.120), we performed inspection on the situation of external guarantee of the Company. The situation is as: The external guarantee (guarantee to controlled subsidiaries not included) occurred in the report term was RMB0. The balance of external guarantee (guarantee to controlled subsidiaries not included) at the end of report term was RMB0. The guarantee provided to controlled subsidiaries in the report term was RMB250 million. The balance of guarantee provided to controlled subsidiaries at the end of report term was RMB0. We believe the Company was executing the provisions setout by the Articles of Association, and controlling the risks brought by providing of external guarantees. The guarantee provided to the controlled subsidiary was to satisfy the rational needs of the Company’s business operation and rational application of resources. The guarantee was conducted through a legal and rational decision procedure, and harmed no interests of the Company, the shareholders, and especially the mid-small shareholders. The independent directors: Liu Hongyu, Shi Xinping, Meng Yan, Wu Yinong (III) the Company conducted no commissioned financing issue (IV) Other significant contracts in the report term (1) The recycling loan contract for USD40 million or equivalent HKD engaged between the Company and the bank group represented by Shenzhen Branch of Wing Hang Bank was extended. Namely the loan term will start from August 16th 2005 and expire on August 16th 2006. (2) The Company entered the contract for recycling loans of USD50 million with Shenzhen Branch of Bank of China Hong Kong Ltd. The loan term was from January 5th 2004 to January 5th 2005. Upon expiration of the contract, the Company and the Bank signed on another recycling loans of USD35 million for the term of January 5th to January 5th 2006. (3) The Company signed recycling loan contract and credit supplementary agreement for USD 50 million with Shenzheni Branch of Nanyang Commercial Bank and the loan term was from Mar. 5, 2004 to Jul. 31, 2005. Upon expiration of the contract, the Company and the Bank signed on another recycling loans of USD30 million for the term of October 13th 2005 to July 31st 2006. 43 China Merchants Property Development Co., Ltd. Annual Report 2005 (4) The Company received the confirmation letter from Shekou Branch of China Industrial & Commercial Bank for the integrated credit and equivalent client credit up to RMB2.05 billion. It was including financial guarantee credit of RMB1.65 billion (applicable to the guarantee for issuing of convertible bonds), and RMB400 million for current capital. The loan term was from August 26th 2005 to August 25th 2006. (5) The Company entered the agreement with Shekou Branch of Construction Bank for the credit up to RMB800 million with term from July 4th 2005 to July 4th 2006. (6) The Company entered the agreement with Shekou Branch of Agriculture Bank for the credit up to RMB500 million with term from March 25th 2005 to March 25th 2006. (7) The Company entered the agreement with Shekou Branch of Minsheng Bank for the credit up to RMB400 million with term from May 27th 2005 to May 27th 2007. (8) The Company entered the agreement with Shenzhen Branch of Industrial Bank for the credit up to RMB1 billion with term from April 27th 2005 to April 27th 2006. (9) Shenzhen China Merchants Real Estate Co., Ltd. – one of the Company’s subsidiaries entered the agreement with Taizi Rd. Branch of China Merchants Bank for the credit up to RMB450 million with term from September 10th 2003 to September 10th 2006. (10) Shenzhen China Merchants Real Estate Co., Ltd. – one of the Company’s subsidiaries entered the agreement with Shenzhen Branch of Bank of China for the credit up to RMB450 million with term from December 31st 2002 to December 30th 2005. This credit was secured by the Company. (11) Shenzhen China Merchants Real Estate Co., Ltd. – one of the Company’s subsidiaries entered the agreement with Shekou Branch of China Industrial & Commercial Bank for the credit up to RMB800 million with term from August 26th 2005 to August 25th 2006. V. Commitment Issues 1. CMSIZ, the controlling shareholder of the Company, promised not to engage in any business or activities possibly competing with the Company in terms of business, new commodities and new technology in any forms (including but not limited to direct operation, indirect operation, joint investment). It also promised to urge its wholly or partially (over 50% equity) owned subsidiaries and actually controlled affiliates to follow the promise. CMSIZ has fulfilled the promises thoroughly for the report year. 2. In the share equity relocation process, CMSIZ committed the followings: (1) CMSIZ will perform its obligation with abiding the laws, regulations and rules; (2) The original non-negotiable shares shall not be placed in the market or sold within 24 months since the placing right been granted. Shares placed in Shenzhen Stock Exchange in 12 months upon the above 24 months shall not exceed 5% of the total shares of the Company. The price of A-shares of the Company shall not be lower than 120% of the arithmetical average (say RMB11.51) in 30 days prior to the publishing of share reallocation announcement. In case of the commitment was broken, the illegal income from selling of shares will be transferred to the Company’s bank account and under the possession of all shareholders. (3) CMSIZ will accept the expenses paid for the share relocation processes such as financial consultants, sponsors, lawyers, agents, and media advertisement. (4) CMSIZ will propose a management shareholding motivation scheme. But the scheme can only be 44 China Merchants Property Development Co., Ltd. Annual Report 2005 put into operation under the approval of the Board of Directors and the Shareholders’ General Meeting. (5) Upon execution of the share relocation plan, according to the needs of business operation, CMSIZ will keep introduce high quality resources such as lands to support the growth of the Company. VI. Engaging or dismissing of CPAs The Company firstly engaged Deloitte Touche Tohmatsu Certified Public Accountants Ltd. as domestic auditors and Deloitte Touche Tohmatsu Certified Public Accountants as overseas auditors of the Company on Nov. 30, 2001. On April 26th 2005, the Shareholders’ General Meeting 2004 approved relevant proposals on extending the service of the above auditors. Dated the end of the report period, they have provided the auditing service for the Company for successively 5 years. In the report period, the Company should pay audit expense amounting to RMB 0.87 million to Deloitte Touche Tohmatsu Certified Public Accountants ltd. and HKD 1.36 million to Deloitte Touche Tohmatsu Certified Public Accountants for 2005. VII. None of the Company, the Board of Directors, or the directors were criticized or condemned by any superior governing bodies. VIII. Other Major Events (I) The Company’s businesses are of the real estate industry. According to the relevant regulations of People’s Republic Bank of China, the Company should provided mortgage loan guarantee for the purchaser of commercial houses. At present, the guarantee that the Company provided for he purchaser of commercial houses was staggered collateral guarantee with the guarantee term from the date that the mortgage bank gives loan to the date the purchaser transact certificate of house ownership. Provided that the purchaser didn’t fulfill the obligation of debtors, the Company was authorized to call back the houses sold. Therefore, the guarantee would not cause actual loss to the Company. At the end of the report period, the above mortgage guarantee provided by the Company was RMB264.653 million. (II) On August 9th 2005, by document Zheng-Jian-Gong-Si-Zi [2005]No.63, China Securities Regulatory Commission released CMSIZ and Hong Kong Dafeng International Holdings Co., Ltd. (Dafeng International) from the obligation of purchasing offer introduced by holding of the Company’s shares (not more than 5% of the total share capital). On August 11th 2005, CMSIZ and Dafeng International announced “The announcement on increasing the holding of current shares of China Merchants Property Development Co., Ltd.” and started to purchase the current shares of the Company. As of December 9th 2005, the two parties has purchased 0 shares of current A-shares and 3,000,706 shares of current B-shares. To ensure the share relocating process being carried out smoothly, CMSIZ and Dafeng International suspended purchasing of the current shares of the Company temporarily during the period of December 11th 2005 to February 9th 2006. The share relocating process of the Company was accomplished on February 9th 2006. Therefore the 45 China Merchants Property Development Co., Ltd. Annual Report 2005 purchasing plan of CMSIZ and Dafeng International would be restarted since February 10th 2006. They will purchase whenever they think the market situation is appropriate. (III) Significant land reserving issues 1. On September 20th 2005, the Company obtained the using right of a plot in Xincheng District, Xianlin, Nanjing at price of RMB340.740 million. The plot is of 329370.80 square meters in area, including culture reservation land of 1720.00 square meters, municipal facilities land of 85786.90 square meters. The actual area acquired is of 241863.90 square meters. 2. On November 10th 2005, the Company acquired the land plot of 27,078 square meters located in Tianjin marked Jing-He-Xi (Gua) 2005-090. 46 China Merchants Property Development Co., Ltd. Annual Report 2005 Chapter XI. Financial Report (Enclosed) Chapter XII. VII. Documents for Reference I. Financial Statements with signatures and seals of the legal representative, chief financial officer, and accounting director. II. Original of the Auditors’ Report with seal of Certified Public Accountant and signatures of certified public accountants. III. Original of all documents and announcements published in the presses designated by CSRC during year 2005. IV. English Version of the Annual Report 2005 China Merchants Property Development Co., Ltd. The Board of Directors March 8th, 2006 47 DRAFT FOR DISCUSSION CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 Report and Financial Statements For the year ended December 31, 2005 1 CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005 CONTENTS PAGE(S) AUDITORS' REPORT 1 CONSOLIDATED INCOME STATEMENT 2 CONSOLIDATED BALANCE SHEET 3&4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 5 CONSOLIDATED CASH FLOW STATEMENT 6&7 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8 - 43 2 AUDITORS' REPORT TO THE SHAREHOLDERS OF CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 (A joint stock company with limited liability established in The People's Republic of China) We have audited the accompanying consolidated balance sheet of China Merchants Property Development Co., Ltd. as of December 31, 2005 and the related consolidated statements of income, cash flows and changes in equity for the year then ended. These 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. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2005 and the results of its operations and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong March 4, 2006 -1- CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2005 NOTES 2005 2004 Rmb Rmb Turnover 5 2,558,672,569 3,352,686,162 Cost of sales (1,926,002,593) ____________ (2,695,983,574) ____________ Gross profit 632,669,976 656,702,588 Other income 7 2,977,984 6,470,139 Interest income and foreign exchange gains 50,300,716 20,614,128 Dividend income from available-for-sale investments 6,829,312 2,419,626 Selling and distribution costs (31,331,263) (32,639,112) Administrative expenses (93,039,854) (103,036,521) Other expenses 8 (6,158,205) (57,417,541) Finance costs 9 (7,794,857) (30,871,135) Share of results of associates 8,063,720 6,417,542 Loss on disposal of an associate - (300,043) Profit on disposal of discontinuing operations - ____________ 50,857,397 ____________ Profit before taxation 10 562,517,529 519,217,068 Taxation 12 (93,809,156) ____________ (102,355,276) ____________ Profit after taxation 468,708,373 ____________ 416,861,792 ____________ Attributable to : Equity holders of the Company 450,966,684 395,459,823 Minority interests 17,741,689 ____________ 21,401,969 ____________ 468,708,373 ____________ 416,861,792 ____________ Basic earnings per share 14 Including discontinuing operations 73 cents ____________ 64 cents ____________ Excluding discontinuing operations N/A ____________ 56 cents ____________ -2- CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2005 NOTES 2005 2004 Rmb Rmb ASSETS Non-current assets Property, plant and equipment 15 288,477,102 260,794,909 Construction in progress 16 15,228,245 10,836,957 Investment properties 17 1,257,315,812 1,174,030,373 Prepaid lease payments-non current portion 18 335,060,169 289,420,770 Goodwill 19 583,739,924 583,739,924 Negative goodwill 20 - (58,859,661) Investments in associates 22 271,631,374 243,326,543 Available-for-sale investments 24 15,398,956 ____________ 20,051,843 ____________ 2,766,851,582 ____________ 2,523,341,658 ____________ Current assets Inventories 25 2,854,626 3,626,693 Completed properties for sale 26A 61,715,031 467,777,916 Properties under development 26 5,742,141,356 4,838,761,006 Prepaid lease payments-current portion 18 8,266,631 7,277,306 Trade and other receivables 27 103,415,727 252,688,184 Amounts due from associates 41(g) 827,977 7,372,290 Pledged bank deposits 36 29,351,194 - Bank balances and cash 27 311,164,767 ____________ 401,432,202 ____________ 6,259,737,309 ____________ 5,978,935,597 ____________ Total assets 9,026,588,891 ____________ 8,502,277,255 ____________ -3- CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 NOTES 2005 2004 Rmb Rmb EQUITY AND LIABILITIES Capital and reserves Share capital 28 618,822,672 618,822,672 Reserves 29 3,172,867,169 ____________ 2,760,154,864 ____________ Equity attributes to equity holders of the Company 3,791,689,841 3,378,977,536 Minority interests 131,086,323 ____________ 120,431,569 ____________ Total equity 3,922,776,164 ____________ 3,499,409,105 ____________ Non-current liabilities Bank loans - due after one year 30 1,600,000,000 3,566,316 Rental received in advance 31 5,650,000 6,320,000 Deferred taxation 32 47,321,643 ____________ 49,661,082 ____________ 1,652,971,643 ____________ 59,547,398 ____________ Current liabilities Trade and other payables 33 1,571,350,905 2,495,828,579 Provision for litigation claims 34 14,943,744 27,776,027 Receipts in advance and deposits received 58,479,028 460,794,941 Amounts due to associates 41(g) 106,979,938 100,719,564 Taxation liabilities 39,473,819 116,886,510 Bank loans - due within one year 30 1,659,613,650 ____________ 1,741,315,131 ____________ 3,450,841,084 ____________ 4,943,320,752 ____________ Total equity and liabilities 9,026,588,891 ____________ 8,502,277,255 ____________ The financial statements on pages 2 to 43 were approved and authorised for issue by the board of directors on March 4, 2006 and are signed on its behalf by: ______________________________ ______________________________ DIRECTOR DIRECTOR -4- CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31 2005 Statutory Discretionary Statutory Share Share surplus surplus public Capital Other Exchange Retain capital premium reserve reserve welfare fund surplus reserves reserve profi Rmb Rmb Rmb Rmb Rmb Rmb Rmb Rmb Rm Balance at January 1, 2004 515,685,560 1,375,762,132 260,252,524 140,120,038 108,511,734 66,373,525 4,244,819 (6,150,090) 568,01 Exchange differences arising on translation of foreign operations - - - - - - - 2,268,995 Capital contribution by minority interests - - - - - - - - Bonus issue of shares 103,137,112 - - - - - - - (103,13 Profit for the year - - - - - - - - 395,45 Transfer to (from) reserves - - 35,980,293 - 23,478,482 - - - (59,45 Dividend (note 13) - - - - - - - - (51,56 Disposal of subsidiaries - ___________ - ____________ - ___________ ___________ - - ___________ - __________ - _________ - _________ _______ Balance at December 31, 2004 and January 1, 2005 618,822,672 1,375,762,132 296,232,817 140,120,038 131,990,216 66,373,525 4,244,819 (3,881,095) 749,31 Effect of adoption of new accounting policy (note 2) - ___________ - ____________ - ___________ ___________ - - ___________ - __________ - _________ - _________ 58,85 _______ As restated 618,822,672 1,375,762,132 296,232,817 140,120,038 131,990,216 66,373,525 4,244,819 (3,881,095) 808,17 Exchange differences arising on translation of foreign operations - - - - - - - (4,290,639) Profit for the year - - - - - - - - 450,96 Transfer to (from) reserves - - 42,158,092 - 28,242,988 - - - (70,40 Dividend (note 13) - - - - - - - - (92,82 Capital contribution by minority interests - ___________ - ____________ - ___________ ___________ - - ___________ - __________ - _________ - _________ _______ Balance at December 31, 2005 618,822,672 ___________ 1,375,762,132 ____________ 338,390,909 ___________ ___________ 140,120,038 160,233,204 __________ ___________ 66,373,525 _________ 4,244,819 (8,171,734) 1,095,91 _________ _______ CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2005 2005 2004 Rmb Rmb OPERATING ACTIVITIES Profit before taxation 562,517,529 519,217,068 Adjustments for: Amortisation of goodwill - 40,611,089 Depreciation of property, plant and equipment 44,729,584 39,733,791 Depreciation of investment properties 56,619,446 59,115,912 Amortisation of prepaid lease payment 8,266,631 7,277,306 Dividend income from available-for-sale investments (6,829,312) (2,419,626) Impairment loss on available-for-sale investments 1,552,887 7,835,852 Interest income (5,587,659) (11,294,118) Net loss on disposal of property, plant and equipment 895,121 11,296,679 Release of negative goodwill - (3,923,977) Reversal of impairment loss of property, plant and equipment (63,873) - Finance cost 7,794,857 30,871,135 Share of result of associates (8,063,720) (6,417,542) Loss on disposal of an associate - 300,043 Profit on disposal of discontinued operations - ____________ (50,857,397) ____________ Operating profit before working capital changes 661,831,491 641,346,215 Decrease (increase) in inventories 772,067 (10,807,237) Decrease in completed properties for sale 1,077,295,981 1,716,123,076 Increase in properties under development (1,713,664,811) (5,141,676,744) Decrease (increase) in trade and other receivables 144,981,818 (1,232,023) Decrease (increase) in amounts due from associates 6,544,313 (94,514,546) (Decrease) increase in trade and other payables (924,477,674) 1,504,267,147 Decrease in rental received in advance (670,000) (670,000) Decrease in amounts due to associates 6,260,374 99,954,203 (Decrease) increase in provision for litigation claims (12,832,283) 5,925,467 (Decrease) increase in receipts in advance and deposits received (402,315,913) ____________ 7,532,061 ____________ Cash used in operations (1,156,274,637) (1,273,752,381) Income tax paid (173,561,286) (60,610,195) Interest expenses and other finance costs paid (89,840,414) ____________ (54,974,380) ____________ NET CASH USED IN OPERATING ACTIVITIES (1,419,676,337) ____________ (1,389,336,956) ____________ -6- CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 2005 2004 Rmb Rmb INVESTING ACTIVITIES Increase in construction in progress (9,980,528) (68,501,266) Additions of property, plant and equipment (15,870,738) (10,486,383) Increase in investments in associates (25,614,226) (104,750,000) Additions of investment properties (25,762,459) (8,164,407) Additions of prepaid lease payments - (15,000,000) Net proceeds from disposal of a subsidiary (note 35) - 256,260,291 Dividend received from available-for-sale investments 6,829,312 2,419,626 Interest received 5,587,659 11,294,118 Proceeds from disposal of property, plant and equipment 276,094 251,764 Dividends received from associates 5,373,115 533,508 Purchase of available-for-sale investments (323,760) - Proceeds from disposal of available-for-sale investments 3,423,760 - Increase in pledged bank deposits (29,351,194) ____________ - ____________ NET CASH (USED IN) FROM INVESTING ACTIVITIES (85,412,965) ____________ 63,857,251 ____________ FINANCING Proceeds from bank loans 5,168,773,928 4,388,885,118 Contribution from minority shareholders of a subsidiary 80,534 30,576,064 Repayment of bank loans (3,654,041,725) (3,335,579,585) Dividend paid (92,823,401) (51,568,556) Dividends paid to minority shareholders (7,167,469) ____________ (435,997) ____________ NET CASH GENERATED FROM FINANCING ACTIVITIES 1,414,821,867 ____________ 1,031,877,044 ____________ NET DECREASE IN CASH AND CASH EQUIVALENTS (90,267,435) (293,602,661) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 401,432,202 ____________ 695,034,863 ____________ CASH AND CASH EQUIVALENTS AT END OF YEAR, represented by bank balances and cash 311,164,767 ____________ 401,432,202 ____________ -7- CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005 I. GENERAL China Merchants Property Development Co., Ltd. is a limited liability company established in the People's Republic of China (the "PRC") with its A share and B share listed in Shenzhen Stock Exchange (the “SSE”) and its B share also secondly listed in the Singapore Exchange Security Trading Limited. The Company is an investment holding company. The principal activities of its principal subsidiaries, associates and a joint venture are set out in notes 21, 22 and 23, respectively. The address of its registered office and principal place of business is 9/F, New Times Plaza, Shekou Industrial Zone, Nanshan District, Shenzhen of the PRC. These financial statements are presented in Renminbi ("Rmb") since that is the currency in which the majority of the Group's transactions are denominated. II. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board and the International Financial Reporting Interpretations Committee ( the “IFRIC”) of the International Accounting Standards Board that are relevant to its operations and effective for accounting periods beginning on January 1, 2005. International Financial Reporting Standard (“IFRS”) 3 Business Combinations The Group has elected to prospectively apply IFRS 3 from January 1, 2005, as there were no business combinations with agreement date on or after March 31, 2004 and prior to January 1, 2005. The principal effect on adoption of IFRS 3 was on accounting of previously recognised goodwill and negative goodwill. Goodwill IFRS 3 requires goodwill acquired in a business combination to be carried at cost less any accumulated impairment loss. Under International Accounting Standard (“IAS”) 36 Impairment of Assets (as revised in 2004), impairment reviews are required annually, or more frequently if there are indications that goodwill might be impaired. IFRS 3 prohibits the amortisation of goodwill. Previously, under IAS 22, the Group carried goodwill in its balance sheet at cost less accumulated amortisation and accumulated impairment losses. Amortisation was charged over the estimated useful life of the goodwill, subject to the rebuttable presumption that the maximum useful life of goodwill was 20 years. -8- CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 2. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS - continued Goodwill - continue In accordance with the transitional rules of IFRS 3, the Group has discontinued amortising such goodwill and has tested the goodwill for impairment in accordance with IAS 36. At January 1, 2005, the carrying amount of amortisation accumulated of Rmb206,665,423 has been eliminated, with a corresponding decrease in goodwill. As the revised accounting policy has been applied prospectively, this change has no impact on amounts reported for 2004 or prior periods. Excess of acquirer's interest in the net fair value of acquiree's identifiable assets, liabilities and contingent liabilities over cost (previously known as negative goodwill). IFRS 3 requires that, after reassessment, any excess of the acquirer's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities over the cost of the business combination should be recognised immediately in profit or loss. IFRS 3 prohibits the recognition of negative goodwill in the balance sheet. Previously, under IAS 22 (superceded by IFRS 3), the Group released negative goodwill to income over a number of accounting periods, based on an analysis of the circumstances from which the balance resulted. Negative goodwill was reported as a deduction from assets in the balance sheet. In accordance with the transitional rules of IFRS 3, the Group has applied the revised accounting policy prospectively from January 1, 2005. The carrying amount of negative goodwill at January 1, 2005 has been derecognised by an adjustment of Rmb58,859,661 to opening retained earnings at January 1, 2005. Under the previous accounting policy, Rmb3,923,977 of negative goodwill would have been released to income during 2005, leaving a balance of negative goodwill of Rmb54,935,684 at December 31, 2005. Therefore, the impact of the change in accounting policy in 2005 is a reduction in other income of Rmb3,923,977 and an increase in net assets at December 31, 2005 of Rmb54,935,684. -9- CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 3. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS - continued The Group has not early applied the following new standards and interpretations that have been issued but are not yet effective. The directors of the Company anticipate that the application of these standards or interpretations will not have any material impact on the financial statements of the Group. IAS 1 (Amendment) Capital Disclosures1 IAS 19 (Amendment) Actuarial Gains and Losses, Group Plans and Disclosures2 IAS 21 (Amendment) Net Investment in a Foreign Operation2 IAS 39 (Amendment) Cash Flow Hedge of Forecast Intragroup Transactions2 IAS 39 (Amendment) The Fair Value Option2 IAS 39 and IFRS4 (Amendments) Financial Guarantee Contracts2 IFRS 6 Exploration for and Evaluation of Mineral Resources2 IFRS 7 Financial Instruments: Disclosures1 IFRIC 4 Determining whether an Arrangement contains a Lease2 IFRIC 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds2 IFRIC 6 Liabilities arising from Participating in a Specific Market- Waste Electrical and Electronic Equipment3 IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies4 IFRIC 8 Scope of IFRS 25 1 Effective for annual periods beginning on or after January 1, 2007 2 Effective for annual periods beginning on or after January 1, 2006 3 Effective for annual periods beginning on or after December 1, 2005 4 Effective for annual periods beginning on or after March 1, 2006 5 Effective for annual periods beginning on or after May 1, 2006 III. KEY SOURCES OF ESTIMATION UNCERTAINTY The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash- generating units to which goodwill have been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate its present value. There was no impairment in the carrying value of goodwill. - 10 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 IV. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in accordance with International Financial Reporting Standards. The financial statements have been prepared on the historical cost basis, except for the revaluation of certain available-for-sale investments. The principal accounting policies adopted are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (its subsidiaries) made up to December 31 each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. The result of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies into line with those used by other members of the Group. All significant intercompany transactions and balances are eliminated on consolidation. Business combination The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instrument issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non- Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. - 11 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Investments in associates An associate is an enterprise over which the Group is in a position to exercise significant influence, but not control, through participation in the financial and operating policy decisions of the investee. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group's share of the net assets of the associates, less any impairment in the value of individual investments. Any excess of the cost of acquisition over the Group's share of the fair values of the identifiable assets, liabilities and contingent liabilities of the associates recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition after reassessment is recognised immediately in the income statement. Where a group enterprise transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group's interest in the relevant associate, except to the extent that unrealised losses provide evidence of an impairment of the asset transferred. Interests in joint ventures A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control. Joint venture arrangements which involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities. The Group reports its interests in jointly controlled entities using proportionate consolidation – the Group’s share of the assets, liabilities, income and expenses of jointly controlled entities are combined with the equivalent items in the consolidated financial statements on a line-by-line basis. Where the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Group’s interest in the joint venture, except to the extent that unrealised losses provide evidence of an impairment of the asset transferred. - 12 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is charged so as to write off the cost of property, plant and equipment, other than construction in progress, over their estimated useful lives, taking into consideration of their residual values ranging from 5% to 10% using the straight-line method, on the following bases: Plant and machinery, furniture, fixtures and office equipment 5 - 20 years Buildings, open yards and warehouses 10 - 50 years Motor vehicles 5 - 10 years Water pipes 20 years The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement. Construction in progress Construction in progress represents properties under construction and equipment purchased prior to installation and is stated at cost including borrowing costs capitalised in accordance with the Group's accounting policy for borrowing costs. Investment property Investment property, which is property held to earn rentals and/or for capital appreciation, is stated at cost less accumulated depreciation and any recognised impairment losses at the balance sheet date. Depreciation is charged so as to write off the cost of investment properties over their estimated useful lives, using the straight-line method, over a period of 20 years. Prepaid lease payments Prepaid lease payments are amortised over the lease term. Goodwill Goodwill arising on an acquisition of a subsidiary or a jointly controlled entity represents the excess of the cost of acquisition over the Group's interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary or jointly controlled entity at the date of acquisition. Goodwill is initially recognised at cost and measured at cost less any accumulated impairment loss. - 13 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 6. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Goodwill - continued For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the acquisition. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired. For goodwill arising on an acquisition in a financial year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the income statement. An impairment loss for goodwill is not reversed in subsequent periods. On subsequent disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal. Impairment losses (other than goodwill) At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset cash-generating unit is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset or cash- generating unit 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 or cash-generating unit in prior years. A reversal of an impairment loss is recognised as income immediately. - 14 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 7. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Completed properties for sale Completed properties for sale are stated at the lower of cost and net realisable value. Cost includes land cost, development expenditure, professional fees and capitalised borrowing costs. It is determined by apportionment of the total land and development costs attributable to unsold properties based on saleable area. Net realisable value is determined by reference to management estimates based on prevailing market conditions. Properties under development Properties under development are stated at cost less any recognised impairment loss. Cost includes land cost, development expenditure, professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group's accounting policy for borrowing costs. 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. Financial instruments Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. (1) (2)Trade receivables Trade receivables are initially measured at fair value, and are subsequently measured at amortised cost using the effective interest method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the effective interest rate computed at initial recognition. Investments in securities Investments in securities are recognised on a trade-date basis and are initially measured at cost, including transaction costs. - 15 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 8. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (3)Financial instruments - continued Available-for-sale investments are measured at subsequent reporting dates at fair value. Gains and losses on available-for-sale investments arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in profit or loss for the period. The Group did not have any trading or held-to-maturity investments. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equity Financial liabilities and equity instruments issued by the Group are classified according to the substance of contractual arrangements entered into and definitions of financial liabilities and an equity instruments. An equity instrument is any contract that evidence a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below. Trade payables Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest method. Bank borrowings Interest-bearing bank loans and overdrafts are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group’s accounting policy for borrowing costs. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Derivative financial instruments The Group, if necessary, uses derivative financial instruments (primarily foreign currency forward contracts) to hedge its risks associated with foreign currency fluctuations relating to certain firm commitments and forecasted transactions. Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in profit or loss, as these do not qualify for hedge accounting. - 16 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 9. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued (4) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for good and services provided in the normal course of business, net of discount and sales taxes. Sales of goods are recognised when goods are delivered and title has passed. Rental income from investment properties is recognised on a straight-line basis over the terms of the relevant leases. Revenue from sale of properties in the ordinary course of business is recognised when all of the following criteria are met: • the significant risks and rewards of ownership of the properties are transferred to buyers; • neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the properties are retained; • the amount of revenue can be measured reliably; • it is probable that the economic benefits associated with the transaction will flow to the Group; and • the costs incurred or to be incurred in respect of the transaction can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the asset’s net carrying amount. Dividend income from investments is recognised when the shareholders' rights to receive payment have been established. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in the net profit or loss in the year in which they are incurred. - 17 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 10. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Operating leases Rentals payable under operating leases are charged to income on a straight-line basis over the terms of the relevant leases. Retirement benefit costs Payments to defined contribution retirement plans are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution plans where the Group's obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit plan. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is 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 recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, associates, and interests in joint ventures, 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. 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 to the year when the liabilities is settled or the asset is 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. - 18 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 11. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Foreign currencies In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity. For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated into the presentation currency of the Company (i.e. Rmb) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the exchange reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of. V. TURNOVER An analysis of the Group's revenue for the year as follow: 2005 2004 Rmb Rmb Property development 1,619,627,364 2,085,020,975 Electricity supply 625,977,048 612,678,360 Investment property 239,254,700 196,659,877 Water supply 73,813,457 73,271,353 Trading of petrochemical products-discontinued - ____________ 385,055,597 ____________ Total 2,558,672,569 ____________ 3,352,686,162 ____________ - 19 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 VI. SEGMENT REPORTING Segment information is presented in respect of the Group's business segments, which are determined based on the Group's management and internal reporting structure. The Group's activities are principally performed in the PRC (including Hong Kong) and the overseas segment does not have significant impact on the Group's revenue, results and assets. Inter-segment pricing is determined on prices negotiated and agreed by both parties. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise corporate assets and expenses. Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one year. Business segments The Group comprises the following main business segments: Property development (construction and development of properties for sales) Investment property (rental) Electricity supply Water supply In prior years, the Group was also involved in the trading of petrochemical products which was disposed of with effect from February 26, 2004 (see note 11). - 20 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 6. SEGMENT REPORTING - continued Segment information about these business segments is presented below: Continuing operations Discontinuing ope Property Investment Electricity development property supply Water supply Trading 2005 2004 2005 2004 2005 2004 2005 2004 2005 Rmb Rmb Rmb Rmb Rmb Rmb Rmb Rmb Rmb Revenue External 1,619,627,364 2,085,020,975 239,254,700 196,659,877 625,977,048 612,678,360 73,813,457 73,271,353 - 385 Inter- segment sales ____________- ____________- 391,841 ____________ 388,237 ____________ 56,672 ___________ 32,420 ___________ 7,452,835 __________ 4,985,203 __________ ____________- _____ Total revenue 1,619,627,364 ____________ 2,085,020,975 ____________ 239,646,541 ____________ 197,048,114 ____________ 626,033,720 ___________ 612,710,780 ___________ 81,266,292 __________ 78,256,556 __________ ____________- 385 _____ Results Segment results 373,991,944 ____________ 290,412,160 ____________ 67,882,989 ____________ 57,727,313 ____________ 117,076,596 ___________ 135,953,246 ___________ 8,075,633 __________ 10,837,162 __________ ____________- 2 _____ Net unallocated expenses Finance costs Share of results of associates 6,531,613 2,788,117 1,532,107 1,788,581 - - - - - 1 Loss on disposal of an associate - - - - - - - - - Profit on disposal of discontinuing operations - - - - - - - - - 50 Taxation - - - - - - - - - Minority interests - - - - - - - - - Net profit for the year Balance sheet Segment assets 3,746,972,118 3,194,497,478 1,053,423,529 1,610,767,768 805,193,883 950,710,326 225,062,839 212,033,122 - Investments in associates 150,698,203 133,712,966 120,933,171 109,613,577 - - - - - Unallocated assets ____________- ____________- ____________- ____________- ___________- ___________- __________- __________- ____________- _____ Consolidated total assets 3,897,670,321 ____________ 3,328,210,444 ____________ 1,174,356,700 ____________ 1,720,381,345 ____________ 805,193,883 ___________ 950,710,326 ___________ 225,062,839 __________ 212,033,122 __________ ____________- _____ Segment liabilities 946,303,509 1,693,975,109 551,941,444 583,779,114 76,914,809 22,443,567 21,717,672 48,431,630 - Unallocated liabilities ____________- ____________- ____________- ____________- ___________- ___________- __________- __________- ____________- _____ Consolidated total liabilities 946,303,509 ____________ 1,693,975,109 ____________ 551,941,444 ____________ 583,779,114 ____________ 76,914,809 ___________ 22,443,567 ___________ 21,717,672 __________ 48,431,630 __________ ____________- _____ Other information Capital expenditure 11,160,621 6,546,644 27,835,651 77,563,707 5,792,609 10,009,468 6,824,844 6,329,232 - 2 Depreciation and amortisation 10,298,759 16,824,905 72,743,417 59,914,990 14,980,603 14,408,732 11,592,882 12,182,410 - 2 Amortisation of goodwill - 23,013,763 - - - 16,014,144 - - 1 Release of negative goodwill - - - - - - - (3,923,977) - Net loss(gain) on disposal of property, plant and equipment 895,121 11,118,504 - - - 214,777 - (36,602) - Impairment loss on available-for-sale investments 1,552,887 ____________ 7,835,852 ____________ ____________- ____________- ___________- ___________- __________- __________- ____________- _____ CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 VII. OTHER INCOME 2005 2004 Rmb Rmb Release of negative goodwill - 3,923,977 Other sundry income 2,977,984 2,482,860 Profit on disposal of property, plant and equipment - __________ 63,302 __________ 2,977,984 __________ 6,470,139 __________ VIII. OTHER EXPENSES 2005 2004 Rmb Rmb Amortisation of goodwill - 40,611,089 Impairment loss on available-for-sale investments 1,552,887 7,835,852 Provision for litigation claims (see note 34) 3,882,437 7,525,467 Other sundry expenses 401,273 1,210,188 Loss on disposal of property, plant and equipment 321,608 __________ 234,945 __________ 6,158,205 __________ 57,417,541 __________ IX. FINANCE COSTS 2005 2004 Rmb Rmb Interest on bank loans and other borrowings 87,162,583 53,977,533 Less: interest capitalised in the cost of qualifying assets (82,045,557) __________ (28,212,123) __________ Interest expense 5,117,026 25,765,410 Foreign exchange loss 1,039,940 4,108,878 Other finance costs 1,637,891 __________ 996,847 __________ Total 7,794,857 __________ 30,871,135 __________ Interest capitalised in the cost of qualifying assets during the year were on specific borrowings for expenditure on such assets. -1- CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 X. PROFIT BEFORE TAXATION 2005 2004 Rmb Rmb Profit before taxation has been arrived at after charging (crediting): Depreciation and amortisation 109,615,661 106,127,009 Loss on disposal of property, plant and equipment 573,513 11,125,036 Impairment loss on available-for-sale investments 1,552,887 7,835,852 Value added tax refund of imported electricity charges (31,540,126) ___________ (31,288,252) ___________ Exchange gains on forward contracts 38,524,649 8,723,000 Other exchange gains 6,188,408 ___________ 597,010 ___________ 44,713,057 9,320,010 Interest income 5,587,659 ___________ 11,294,118 ___________ 50,300,716 ___________ 20,614,128 ___________ Staff costs: Wages and salaries 51,890,687 69,289,652 Retirement costs 3,306,196 3,689,889 Other staff costs 11,620,230 ___________ 6,767,483 ___________ 66,817,113 ___________ 79,747,024 ___________ XI. DISCONTINUING OPERATIONS On November 25, 2003, the Company entered into conditional sale and purchase agreement with China Merchants Shekou Industrial Zone Co., Ltd. 招商局蛇口工 业区有限公司 ("SIZ"), its ultimate holding company is also the ultimate holding company of the Company, and 招商局物流集团有限公司 ("招商物流") to dispose of its 10% and 65% interest in 深圳招商石化有限公司 ("招商石化") to SIZ and 招商物流 respectively, at a tentative aggregate consideration of approximately Rmb462 million. The transaction was approved by the shareholders in the general meeting held on February 6, 2004 at a total consideration of approximately Rmb499 million. The disposal was completed on February 26, 2004, on which date control of招商石化 was passed to SIZ and 招商物流 respectively. -2- CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 11. DISCONTINUING OPERATIONS - continued The results of the trading of petrochemical products, which have been included in the consolidated income statement, were as follows: 1.1.2004 to 26.2.2004 Rmb Turnover 385,401,692C Operating costs (9,206,044) ___________ Profit before tax 1,731,878 Income tax expense (755,260) ___________ Profit after tax 976,618 Minority interest (5,092) ___________ Net profit for the period 971,526 ___________ For the year ended December 31, 2004, 招商石化 used Rmb16 million in respect of the Group's net operating cash flows, used Rmb1.3 million in respect of investing activities and contributed Rmb69.4 million in respect of financing activities. The carrying amounts of the assets and liabilities of 招商石化 at the date of disposal were disclosed in note 35. A profit of Rmb50,857,397 arose on the disposal of 招商石化, being the proceeds of disposal less the carrying amount of the subsidiary's net assets and attributable goodwill (see note 35). XII. TAXATION 2005 2004 Rmb Rmb Current taxation: - PRC (excluding Hong Kong) 91,259,005 89,892,526 - Hong Kong 3,886,908 - (Over)underprovision in prior years: - PRC (excluding Hong Kong) (232,838) - - Hong Kong 1,235,520 __________ (2,352) ___________ 96,148,595 89,890,174 Deferred taxation (note 32): - Current year (credit)charge (2,339,439) __________ 12,465,102 ___________ Taxation attributable to the Company and its subsidiaries 93,809,156 __________ 102,355,276 ___________ -3- CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 12. TAXATION - continued The following is a reconciliation of income tax expense calculated at the applicable tax rates: 2005 2004 Rmb Rmb Profit before taxation 562,517,529 __________ 519,217,068 ___________ Taxation computed by applying tax rate of 15% 84,377,629 77,882,560 Effect of non-deductible expenses 13,560,283 32,371,099 Effect of non-taxable income (4,893,905) (9,179,840) Effect of different tax rates in other jurisdictions 765,149 __________ 1,281,457 ___________ Taxation expense 93,809,156 __________ 102,355,276 ___________ __________ ___________ (5)Land appreciation tax According to Shendishuifa [2005] No. 521 and No. 522, commencing from November 1, 2005, land appreciation tax is levied on the profits on the properties sold and is prepaid based on 0.5% of the sale proceeds. XIII. DIVIDENDS During 2005, a final dividend of Rmb15 cents per share for the year ended December 31, 2004 (2004: Rmb10 cents per share for the year ended December 31, 2003) amounting to Rmb92,823,401(2004: Rmb51,568,556) was paid to shareholders. In respect of the current year, the directors propose that a dividend of Rmb2 cents per share. This dividend is subject to approval by shareholders at the annual general meeting and has not been included as a liability in these financial statements. The total estimated cash dividend to be paid is Rmb12.4 million. XIV. BASIC EARNINGS PER SHARE The calculation of basic earnings per share including and excluding discontinuing operations is based on net profit for the year 2004 of Rmb395,459,823 and Rmb343,630,900 and on 618,822,672 shares in issue during the year ended December 31, 2004. No diluted earnings per share is presented since were no dilutive potential ordinary shares during the two years ended December 31, 2005 and 2004. -4- CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 XV. PROPERTY, PLANT AND EQUIPMENT Plant and machinery, furniture, Buildings, fixtures open yards and office and Motor Water equipment warehouses vehicles pipes Total Rmb Rmb Rmb Rmb Rmb COST At January 1, 2004 294,563,504 205,878,620 62,154,497 167,729,437 730,326,058 Additions 7,017,578 1,151,591 2,689,514 - 10,858,683 Transfer from construction in progress 4,710,857 75,901,377 - 2,214,915 82,827,149 Transfer to investment properties - (62,161,992) - - (62,161,992) Disposal of a subsidiary (56,039,151) (150,094,992) (55,846,246) - (261,980,389) Reclassification 35,000 - (35,000) - - Disposals (390,095) ___________ ___________ (13,752,983) __________ (910,408) ___________ - (15,053,486) ___________ At December 31, 2004 249,897,693 56,921,621 8,052,357 169,944,352 484,816,023 Additions 9,756,560 211,185 5,845,878 57,115 15,870,738 Transfer from construction in progress 3,572,424 712,440 - 1,304,376 5,589,240 Reclassification 1,343,365 (1,343,365) - - - Transfer from investment properties - 52,059,141 - - 52,059,141 Disposals (3,468,354) ___________ ___________ (902,245) __________ (262,225) ___________ - (4,632,824) ___________ At December 31, 2005 261,101,688 ___________ ___________ 107,658,777 13,636,010 ___________ __________ 171,305,843 ___________ 553,702,318 ACCUMULATED DEPRECIATION AND IMPAIRMENT LOSSES At January 1, 2004 132,775,108 73,228,777 34,946,988 66,761,769 307,712,642 Charge for the year 22,245,217 9,886,289 2,453,080 5,149,205 39,733,791 Transfer to investment properties - (113,360) - - (113,360) Reclassification (206,063) 545,503 (339,440) - - Eliminated on disposal of a subsidiary (30,149,040) (59,060,249) (30,728,949) - (119,938,238) Eliminated on disposals (353,135) ___________ ___________ (2,219,594) __________ (800,992) ___________ - (3,373,721) ___________ At December 31, 2004 124,312,087 22,267,366 5,530,687 71,910,974 224,021,114 Charge for the year 28,301,865 8,383,265 2,642,221 5,402,233 44,729,584 Impairment loss written back (10,500) (53,373) - - (63,873) Reclassification 315,705 102,698 - (418,403) - Eliminated on disposals (3,061,551) ___________ ___________ (163,045) __________ (237,013) ___________ - (3,461,609) ___________ At December 31, 2005 149,857,606 ___________ ___________ 30,536,911 7,935,895 ___________ __________ 76,894,804 ___________ 265,225,216 CARRYING AMOUNTS At December 31, 2005 111,244,082 ___________ ___________ 77,121,866 5,700,115 ___________ __________ 94,411,039 ___________ 288,477,102 At December 31, 2004 125,585,606 ___________ ___________ 34,654,255 2,521,670 ___________ __________ 98,033,378 ___________ 260,794,909 At December 31, 2005, the Group has pledged certain of its properties with an aggregate net book value of approximately Rmb12.2 million (2004: Rmb12.8 million) to banks as security for bank loans. As December 31, 2004, buildings, open yards and warehouses of Rmb24 million were under the process of obtaining land use right certificates. -5- CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 -6- CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 XVI. CONSTRUCTION IN PROGRESS Buildings Plant and and Water machinery warehouses pipes Total Rmb Rmb Rmb Rmb COST At January 1, 2004 3,800,536 10,411,474 5,002,093 19,214,103 Additions 6,527,624 59,468,647 2,504,995 68,501,266 Reclassification from prepaid lease payments - 7,399,973 - 7,399,973 Transfer to property, plant and equipment (4,710,857) (75,901,377) (2,214,915) (82,827,149) Disposal of a subsidiary (770,429) (656,289) - (1,426,718) Disposal - (24,518) __________ __________ - (24,518) _________ __________ At December 31, 2004 4,846,874 697,910 5,292,173 10,836,957 Additions 4,197,998 2,128,435 3,654,095 9,980,528 Transfer to property, plant and equipment (3,572,424) __________ __________ (712,440) (1,304,376) __________ _________ (5,589,240) At December 31, 2005 5,472,448 __________ __________ 2,113,905 7,641,892 __________ _________ 15,228,245 XVII. INVESTMENT PROPERTIES 2005 2004 Rmb Rmb COST At January 1 1,607,037,173 1,500,134,149 Additions 25,762,459 8,164,407 Transfer from property, plant and equipment - 62,048,632 Transfer from completed properties for sale 166,201,567 36,689,985 Transfer to property, plant and equipment (52,059,141) ____________ ____________ - At December 31 1,746,942,058 ____________ 1,607,037,173 ____________ ACCUMULATED DEPRECIATION At January 1 433,006,800 373,890,888 Charge for the year 56,619,446 ____________ 59,115,912 ____________ At December 31 489,626,246 ____________ 433,006,800 ____________ CARRYING AMOUNT At December 31 1,257,315,812 ____________ 1,174,030,373 ____________ The property rental income earned by the Group from its investment properties, all of which is leased out under operating leases, amounted to approximately Rmb239 million (2004: Rmb197 million). Direct operating expenses arising on the investment properties in the period amounted to approximately Rmb144 million (2004: Rmb108 million). -7- CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 The fair value of investment properties are approximately Rmb2,055,000,000 (2004: Rmb 1,610,000,000) as of the balance sheet date in accordance with directors’ estimation and their estimation is made with reference to market evidence of transaction prices of similar properties. -8- CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 17. INVESTMENT PROPERTIES - continued As part of the process of establishing the Company as a joint stock company in 1992, investment properties were valued by Zhong Hua (Shekou) Certified Public Accountants as at April 30, 1992. Pursuant to the approval document being issued by the Shenzhen Municipal Government Office on January 27, 1993, this valuation has been reflected in these financial statements as the deemed cost base of the assets of the Company upon its formation. All addition of the investment properties are a result of subsequent expenditure recognised as assets. On adoption of the IAS 40 (Revised), prepaid lease payments for land under operating lease included in investment properties amounting to Rmb281,368,495 as of January 1, 2005 have been reclassified to prepaid lease payments. Such reclassification has no impact on the results for the both years. At the balance sheet date, the Group’s investment properties amounting to Rmb482 million (2004: Rmb213 million) are under the process of obtaining real estate certificates. XVIII.PREPAID LEASE PAYMENTS 2005 2004 Rmb Rmb The Group’s prepaid lease payments comprise: Leasehold land in PRC 343,326,800 ___________ 296,698,076 ___________ Analysed for reporting purposes as: Current asset 8,266,631 7,277,306 Non-current asset 335,060,169 ___________ 289,420,770 ___________ 343,326,800 ___________ 296,698,076 ___________ Prepaid lease payments are amortised over the relevant lease terms for 50 to 70 years. The amount expensed for the year amounted to Rmb8,266,631 (2004: Rmb7,277,306) -9- CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 XIX. GOODWILL 2005 2004 Rmb Rmb COST At January 1 790,405,347 981,338,911 Disposal of a subsidiary - (190,933,564) Elimination of amortisation accumulated prior to the adoption of IFRS 3 (see note 2) (206,665,423) ___________ - ___________ At December 31 583,739,924 ___________ 790,405,347 ___________ ACCUMULATED AND IMPAIRMENT At January 1 206,665,423 221,691,154 Charge for the year - 40,611,089 Eliminated on disposal of a subsidiary - (55,636,820) Elimination of amortisation accumulated prior to the adoption of IFRS 3 (see note 2) (206,665,423) ___________ - ___________ At December 31 - ___________ 206,665,423 ___________ CARRYING AMOUNT At December 31 583,739,924 ___________ 583,739,924 ___________ Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (“CGUs”) that are expected to benefit from that business combination. The carrying amount of goodwill at the balance sheet date are as follows: 2005 2004 Rmb Rmb Property development segment 343,527,766 343,527,766 Electricity segment 240,212,158 ___________ 240,212,158 ___________ 583,739,924 ___________ 583,739,924 ___________ The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the schedule of planned property development projects, the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. - 10 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next five years based on properties in hand and nil growth for the electricity segment. - 11 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 19. GOODWILL - continued The rate used to discount the forecast cash flows from property development and electricity segments is 10% discount on market rate of interest. In year ended December 31, 2005, there was no impairment loss. XX. NEGATIVE GOODWILL 2005 2004 Rmb Rmb GROSS AMOUNT At January 1 76,043,294 76,043,294 Derecognised upon the application of IFRS3 (76,043,294) ___________ - ___________ - ___________ 76,043,294 ___________ RELEASED TO INCOME At January 1 17,183,633 13,259,656 Derecognised upon the application of IFRS3 (17,183,633) ___________ 3,923,977 ___________ - ___________ 17,183,633 ___________ CARRYING AMOUNT At December 31 - ___________ 58,859,661 ___________ As explained in note 2 to the financial statements, all negative goodwill arising on acquisitions prior to January 1, 2005 was derecognised on adoption of IFRS 3. - 12 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 XXI. SUBSIDIARIES Details of the Company's principal subsidiaries at December 31, 2005 are as follows: Place of incorporation Proportion (or registration) of ownership Name of subsidiary and operation interest Principal activities % 深圳招商房地产有限公司 PRC 95 Property development and investment 深圳招商供电有限公司 PRC 99.75 Supply of electricity 深圳招商供水有限公司 PRC 99.75 Supply of water 香港瑞嘉投资实业有限公司 Hong Kong 100 Investment holding and trading of foreign contracts 深圳招商新安置业有限公司 PRC 100 Property development and management 招商局花园城(北京)房地产 PRC 99.5 Property development 开发有限公司 深圳城市主场投资有限公司 PRC 95.5 Property development and management XXII. INVESTMENTS IN ASSOCIATES 2005 2004 Rmb Rmb Cost of investments in associates 273,200,752 254,691,969 Share of post-acquisition profit, net of dividend received (1,569,378) ___________ (11,365,426) ___________ 271,631,374 ___________ 243,326,543 ___________ Place of registration Proportion of - 13 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 Name of associate and operation ownership interest Principal activities % 深圳海涛酒店有限公司 PRC 45 Hotel management and training services 深圳招商物业管理有限公司 PRC 41.5 Property management 漳州招商房地产有限公司 PRC 50 Property development 深圳市招商局光明科技园有限公司 PRC 49 Property development and management 天津兴海房地产开发有限公司 PRC 45 Property development - 14 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 22. INVESTMENTS IN ASSOCIATES - continued Summarised financial information in respect of the Group's associates is set out below: 2005 2004 Rmb Rmb At December 31 Total assets 1,261,492,545 736,245,410 Total liabilities (727,674,702) ___________ (287,429,579) ___________ Net assets 533,817,843 ___________ 448,815,831 ___________ The Group’s share of associates’ net assets 271,631,374 ___________ 243,326,543 ___________ Year Year ended ended 2005 2004 Rmb Rmb Year ended December 31 Turnover 289,141,963 ___________ 225,086,305 ___________ Profit for the year 34,638,111 ___________ 25,746,925 ___________ The Group’s share of associates’ profit for the year 8,063,720 ___________ 6,417,542 ___________ XXIII.JOINT VENTURE At December 31, 2005 and 2004, the Group has an ownership interest of 47.5 per cent in 深圳招商华侨城投资有限公司, a company engaged in property development and management in the PRC. The following amounts are included in the Group’s financial statements as a result of the proportionate consolidation of深圳招商华侨城投资有限公司: 2005 2004 Rmb Rmb At December 31 Current assets 345,917,000 ___________ 303,371,000 ___________ Non-current assets 824,000 ___________ 125,000 ___________ Current liabilities 116,689,000 ___________ 253,727,000 ___________ Non-current liabilities 182,900,000 ___________ - ___________ (6) (7) Y ear ended December 31 - 15 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 Income - ___________ - ___________ Expenses 2,617,000 ___________ 231,000 ___________ - 16 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 XXIV.AVAILABLE-FOR-SALE INVESTMENTS The amount represents investments in unlisted equity securities that present the Group with opportunity for return through dividend income. The management considers that the carrying values approximate their fair values. XXV. INVENTORIES 2005 2004 Rmb Rmb Finished goods - 497,306 Spare parts and consumable 2,854,626 _________ 3,129,387 _________ 2,854,626 _________ 3,626,693 _________ XXVI.PROPERTIES UNDER DEVELOPMENT 2005 2004 Rmb Rmb COST At January 1 4,838,761,006 1,501,561,637 Additions 1,713,664,811 5,133,463,463 Interest capitalised 82,045,557 28,212,123 Transfer to completed properties for sale (892,330,018) (1,824,476,217) _____________ _____________ At December 31 5,742,141,356 _____________ _____________ 4,838,761,006 26A.COMPLETED PROPERTIES FOR SALE 2005 2004 Rmb Rmb COST At January 1 467,777,916 396,114,760 Transfer from properties under development 892,330,018 1,824,476,217 Transfer to investment properties (166,201,567) (36,689,985) Transfer to prepaid lease payments (54,895,355) - Sales during the year (1,077,295,981) ____________ (1,716,123,076) ____________ At December 31 61,715,031 ____________ 467,777,916 ____________ XXVII.OTHER FINANCIAL ASSETS Trade and other receivables comprise: 2005 2004 Rmb Rmb Trade receivables 27,304,751 59,057,426 - 17 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 Other receivables and prepayments 76,110,976 ___________ 193,630,758 ___________ 103,415,727 ___________ 252,688,184 ___________ - 18 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 27. OTHER FINANCIAL ASSETS - continued The average credit period is 30 days. An allowance has been made for estimated irrecoverable receivable of Rmb 6 million (2004: Rmb 6.2 million). This allowance has been determined by reference to past default experience. The management considers that the carrying amounts of trade and other receivables approximate their fair values. Bank balances and cash comprises cash and short-term deposits held by the group treasury function. The carrying amounts of these assets approximate to their fair values. Credit risk The Group's credit risk is primarily attributable to its trade and other receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the management based on prior experience and their assessment of the current economic environment. The Group generally does not require collateral from its customers and is exposed to credit-related losses in the event of non-performance by customers. However, the Group has no significant concentration of credit risk to individual customers, with exposure spread over a large number of counterparties and customers. The credit risk on liquid funds and derivate financial instruments is limited because the counterparties are banks with high credit-ratings. XXVIII.SHARE CAPITAL Registered, issued and fully paid up capital consisted of A and B shares of Rmb1 each. A share B Share Total Rmb Rmb Rmb At January 1, 2004 327,161,510 188,524,050 515,685,560 Bonus issue of share 65,432,302 ___________ 37,704,810 ___________ 103,137,112 ___________ At December 31, 2004 and 2005 392,593,812 ___________ 226,228,860 ___________ 618,822,672 ___________ On December 13, 2005, the Company announced a share trading reform scheme (the “STRS”) proposed by SIZ, which allows all of its shares in the Company become tradable on the SSE, details of which are as set out in note 43 to the financial statements. XXIX.RESERVES (a) Statutory surplus reserve - 19 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 According to the current PRC company law and the articles of association of individual group companies, each of them is required to transfer 10% of its profit after tax to the statutory surplus reserve until the surplus reserve balance reaches 50% of the registered capital. For the purpose of calculating the transfer to this reserve, the profit after tax shall be the amount determined under PRC accounting standards. The transfer to this reserve must be made before the distribution of dividends to shareholders/investors. - 20 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 29. RESERVES - continued (a) Statutory surplus reserve can be used to make good previous years' losses, if any, and for capitalisation issues provided that the balance after such issue is not less than 25% of the registered capital. (b) Discretionary surplus reserve The transfer to this reserve is subject to the approval by shareholders at general meetings. Its usage is similar to that of statutory surplus reserve. (c) Statutory public welfare fund According to the current PRC company law and the articles of association of individual group companies, each of them is required to transfer 5% of its profit after tax to the statutory public welfare fund. For the purpose of calculating the transfer to this reserve, the profit after tax shall be the amount determined under PRC accounting standards. The transfer to this reserve must be made before the distribution of dividends to shareholders. The statutory public welfare fund can only be used for the collective welfare of their employees such as the construction of staff quarters. The reserve forms part of the shareholders' equity as individual employees can only use these facilities, the titles of which will remain with the group companies. (d) Capital surplus As stated in note 15, property, plant and equipment were valued on April 30, 1992 for the purpose of establishing of the Company as a joint stock company. Capital surplus represents the corresponding surplus arising from this valuation which has been reflected as the deemed cost base of the assets of the Company upon its formation. The amounts transferred to the statutory surplus reserve and statutory public welfare fund for the year ended December 31, 2005 are to be approved at the annual general meetings of the Company and their respective group companies. In accordance with the Company's articles of association, the net income for the purpose of appropriation will be deemed to be the lesser of the amounts determined in accordance with PRC accounting standards and regulations and IFRS. The Company's distributable reserve computed under PRC accounting standards and regulations as at December 31, 2005 included in the retained earnings amounted to approximately Rmb1,088 million (2004: Rmb729 million). - 21 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 XXX. BANK LOANS 2005 2004 Rmb Rmb Bank loans - unsecured 3,093,042,189 1,740,751,419 - secured 166,571,461 _____________ 4,130,028 ____________ 3,259,613,650 _____________ 1,744,881,447 ____________ The borrowings are repayable as follows: On demand or within one year 1,659,613,650 1,741,315,131 In the second year 180,000,000 3,566,316 In the third to fifth years inclusive 1,420,000,000 _____________ ____________- 3,259,613,650 1,744,881,447 Less: Amount due for settlement within 12 months (Shown under current liabilities) (1,659,613,650) _____________ (1,741,315,131) ____________ Amount due for settlement after 12 months 1,600,000,000 _____________ 3,566,316 ____________ At the balance sheet date, over 95% of the unsecured bank loans of Rmb3,093,042,189 (2004: Rmb1,740,751,419) bear interest at 1% to 6% (2004: 1% to 6%) per annum which approximate prevailing market rates and expose the Group to cash flow interest rate risk. Secured bank loans bear interest at the bank prevailing prime rate plus 1% per annum and are repayable in equal monthly instalments by June 2006 and also expose the Group to cash flow interest rate risk. It is secured by a legal mortgage over the properties of a subsidiary with a carrying amount of approximately Rmb12.2 million (2004: Rmb12.8 million). The carrying amounts of bank loans approximate to their fair values because they bear interest at floating rates. The Group's total bank loans outstanding at December 31 are denominated in the following currencies: 2005 2004 % % Renminbi 52 - United States of America dollars 48 95 Hong Kong dollars - 4 Singapore dollars - _______ _______1 Total 100 _______ 100 _______ XXXI.RENTAL RECEIVED IN ADVANCE 2005 2004 Rmb Rmb At January 1 6,320,000 6,990,000 Release to income (670,000) _________ (670,000) _________ - 22 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 At December 31 5,650,000 _________ 6,320,000 _________ - 23 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 XXXII.DEFERRED TAXATION The movement for the year in the Group's deferred taxation was as follows: 2005 2004 Rmb Rmb At January 1 49,661,082 37,195,980 (Credit) charge to profit and loss for the year (2,339,439) __________ 12,465,102 __________ At December 31 47,321,643 __________ 49,661,082 __________ Deferred taxation liabilities recognised by the Group are mainly attributable to the temporary differences on investment properties and property under development. There is no significant unprovided deferred tax for the year or at the balance sheet date. Temporary differences arising in connection with interests in interests in associates and jointly controlled entities are insignificant. XXXIII.OTHER FINANCIAL LIABILITIES Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period is 60 days. The management considers that the carrying amounts of trade and other payables approximate their fair values. XXXIV.PROVISION FOR LITIGATION CLAIMS 2005 2004 Rmb Rmb At January 1 27,776,027 21,850,560 Provided for the year 11,633,797 7,525,467 Payment for the year (16,714,720) (1,600,000) Reversal for the year (7,751,360) __________ - __________ At December 31 14,943,744 __________ 27,776,027 __________ During 2005, claims for compensation have been brought by third parties against the Group relating to the delay in processing of certain building ownership certificates, amounting to approximately Rmb14.9 million (2004: Rmb7.5 million). The Group, after seeking advices from solicitors, has made a provision of approximately Rmb14.9 million (2004: Rmb7.5 million). - 24 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 For the year ended December 31, 2004, an additional provision of approximately Rmb20.2 million was made for the claims for compensation brought by third parties against the Group relating to the improper procurement of water supply from 深圳 市水务(集团)有限公司, which were confiscated by the District Court in Shenzhen of approximately Rmb20.2 million. During the year, a final settlement was agreed at approximately Rmb12.5 million, and the excess provision has been reversed in the income statement. - 25 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 34. PROVISION FOR LITIGATION CLAIMS - continued These amounts have not been discounted for the purpose of measuring the provision for litigation claims because the effect is not material. XXXV.DISPOSAL OF A SUBSIDIARY As referred to in note 11, on February 26, 2004 the Group discontinued its trading business of petrochemical products at the time of the disposal of its subsidiary 招商 石化. The net assets of 招商石化 at the date of disposal were as follows: 26.2.2004 Rmb Property, plant and equipment 142,042,151 Construction in progress 1,426,718 Land use rights 9,189,389 Goodwill 135,296,744 Investments in associates 9,170,691 Available-for-sales investments 3,801,500 Inventories 115,754,041 Trade and other receivables 427,896,365 Bank balances and cash 103,112,097 Trade and other payables (341,346,841) Tax liabilities (1,812,397) Bank loans (35,000,000) Minority interests (124,010,305) ___________ 445,520,153 Direct cost relating to the disposal 2,350,321 Profit on disposal of discontinuing operations 50,857,397 ___________ Total consideration 498,727,871 ___________ Satisfied by: Cash 498,727,871 ___________ Net cash inflow arising on disposal: Cash consideration 498,727,871 Net partial proceeds received in advance in 2003 (137,005,162) Direct cost relating to the disposal (2,350,321) Bank balances and cash disposed of (103,112,097) ___________ 256,260,291 ___________ - 26 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 The impact of 招商石化 on the Group's results in the prior year was disclosed in note 11. - 27 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 XXXVI.PLEDGE OF ASSETS In addition to those disclosed in notes 15 and 30 to the financial statements, at December 31, 2005, the Group has pledged its bank deposits in amount of Rmb29,351,194 (2004: Nil) to secure the credit facilities granted by a bank. XXXVII.CONTINGENT LIABILITIES 2005 2004 Rmb Rmb Guarantees given to banks in respect of mortgages entered into by customers 264,653,193 ___________ 1,261,988,000 _____________ XXXVIII.CAPITAL AND DEVELOPMENT COMMITMENTS 2005 2004 Rmb Rmb Contracted for but not provided in the financial statements in respect of: Acquisition of property, plant and equipment 2,701,000 1,930,000 Construction of properties under development 999,439,000 622,730,000 Acquisition of subsidiaries 112,000,000 ____________ - ____________ 1,114,140,000 ____________ 624,660,000 ____________ XXXIX.OPERATING LEASE ARRANGEMENTS The Group as lessee 2005 2004 Rmb Rmb Minimum lease payments under operating leases recognised as expense 22,661,403 __________ 6,181,734 _________ At the balance sheet date, the Group had outstanding commitments under non- cancellable operating leases, which fall due as follows: 2005 2004 Rmb Rmb Within one year 21,537,000 12,645,000 In the second to fifth years inclusive 36,534,000 33,547,000 After five years 35,925,000 __________ 45,219,000 __________ 93,996,000 __________ 91,411,000 __________ - 28 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 39.OPERATING LEASE ARRANGEMENTS - continued Operating lease payments represent rentals payable by the Group for certain of its office properties. Leases are negotiated for a range of 3 to 18 years and rentals are fixed for an average of 3 years. The Group as lessor Property rental income earned during the year was approximately Rmb239 million (2004: Rmb197 million). The Group’s properties held for rental purposes are expected to generate rental yields of 11 per cent on an ongoing basis All of the properties held have committed tenants for a range between 1 to 15 years. At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments: 2005 2004 Rmb Rmb Within one year 180,555,000 177,101,000 In the second to fifth years inclusive 278,607,000 185,233,000 After five years 307,259,000 ___________ 96,300,000 ___________ 766,421,000 ___________ 458,634,000 ___________ XL. RETIREMENT BENEFITS PLANS Defined contribution plans Over 90% of the employees of the Group 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. The total cost charged to income of approximately Rmb3,306,000 (2004: Rmb3,690,000) represents contributions payable to these schemes by the Group at rates specified in the rules of the schemes. - 29 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 XLI. RELATED PARTY TRANSACTIONS Details of the related parties identified and their relationship with the Group are as follows: Name of company Relationship with the Group SIZ Major shareholder of the Company 深圳市招商创业有限公司 (“招商创业”) A subsidiary of SIZ 招商港务(深圳)有限公司 (“招商港务”) A fellow subsidiary of SIZ 招商局漳州开发区有限公司 A fellow subsidiary of SIZ 招商局漳州开发区公用事业公司 A fellow subsidiary of SIZ 招商物流 A subsidiary of SIZ 香港华商置業有限公司 (“华商置业”) A subsidiary of SIZ 招商局发展有限公司 (“招商局发展”) A subsidiary of SIZ 深圳迅隆船务有限公司 (“迅隆船务”) A subsidiary of SIZ a)During 2005, the Group paid rental expenses of Rmb5.5 million (2004: Rmb1.8 million) and Rmb14 million (2004: Rmb14 million) to 招商创业 and SIZ, respectively. b)During 2005, the Group received rental income of Rmb11 million (2004: Rmb11 million) from招商港务. c)During 2005 and 2004, the Group supplied water and electricity to SIZ and it subsidiaries (Note). d) On December 22, 2005, the Company entered into conditional sale and purchase agreements with华商置業and 招商局发展to acquire of their 70% and 10% interests in Rich Field (China) Limited (“RFCL”) respectively at a consideration of approximately Rmb98 million and Rmb14 million, respectively. The transaction was completed on January 9, 2006 when the legal titles and control over RFCL was transferred to the Group. The net assets acquired in the transaction are as follows: Acquiree’s Fair value carrying amount adjustments Fair value Rmb Rmb Rmb Property, plant and equipment 541,921 - 541,921 Investment properties 50,488,972 12,412,483 62,901,455 Properties under development 399,681,473 98,261,642 497,943,115 Trade and other receivables 9,490,985 - 9,490,985 Bank balances and cash 2,661,371 - 2,661,371 Trade and other payables (103,758,737) - (103,758,737) Taxation liabilities (27,789,120) - (27,789,120) Amount due to fellow subsidiaries (265,168,530) - (265,168,530) Deferred taxation ___________- (36,522,460) ____________ (36,522,460) ___________ - 30 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 66,148,335 ___________ 74,151,665 ____________ 140,300,000 Minority interests (28,060,000) ___________ Total consideration, satisfied by cash 112,240,000 ___________ The above fair value adjustments are estimated by the directors of the Company. - 31 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 41. RELATED PARTY TRANSACTIONS - continued e) At December 31, 2005, a guarantee of Rmb163 million (2004: Rmb789 million) has been given by SIZ to secure bank loans of the Group. f) At December 31, 2005, trade and other payables included amount due to SIZ of Rmb5 million (2004: Rmb376 million). All the above balances with SIZ is unsecured, non-interest bearing and repayable on demand. g) At December 31, 2005 and 2004, amounts due from (to) associates are unsecured, non-interest bearing and repayable on demand. The management considers that the carrying amounts of amounts due from(to) associates approximated their fair values. h) On October 19, 2005, the Company entered into conditional sale and purchase agreements with SIZ to dispose of its 25% interest in迅隆船务to SIZ at a tentative consideration of Rmb5.5 million. The transaction has not been completed as at the date of approval of these financial statements. i)During 2005, SIZ delegated China Merchant Bank granted a designated loan of Rmb500,000,000 to the Group for the working capital purpose for the period from September 28, 2005 to September 27, 2008 carrying interest at rate of 5.184% per annum. j)On March 5, 2004, the Group entered into a conditional sale and purchase agreement with SIZ to acquire land use rights under operating lease for a consideration of Rmb692 million. The transaction was approved by the shareholders in the 2003 annual general meeting on April 9, 2004. At December 31, 2004, the Group has made a partial payment of Rmb319.8 million to SIZ. k)A subsidiary of SIZ, Top Chief Company Limited, executes a guarantee in favour of a banker of the Group in respect of the facility granted to a subsidiary in relation of its forward currency transaction. Note: In the opinion of the directors, it is not practical to quantify the amount charged to SIZ and its subsidiaries. The management is of the opinion that these transactions were concluded based on terms negotiated and agreed with both parties and were entered into in accordance with the relevant agreements. Compensation of key management personnel The remuneration of key management during the year are as follows: 2005 2004 Rmb Rmb Salaries 4,910,000 4,500,000 Retirement benefit cost 81,700 _________ 70,050 ________ 4,991,700 4,570,050 - 32 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 _________ ________ The remuneration of key executives is determined by the management having regard to the performance of individuals and market trends. - 33 - CHINA MERCHANTS PROPERTY DEVELOPMENT CO., LTD. 招商局地产控股股份有限公司 XLII. POST BALANCE SHEET EVENT Details of the post balance sheet event identified as follows: 1. On January 12, 2006, the Company entered into conditional sale and purchase agreement with SIZ and招商创业to acquire their holding of 90% and 10% interests in 招商局物业管理有限公司 respectively, at tentative considerations of approximately Rmb152 million and Rmb17 million, respectively. 2. On January 19, 2006, the Group entered into an agreement with 天津市森 淼投资集团有限公司 to establish 天津招商房地产有限公司(“天津招商”). The Group will contribute Rmb 30 million which represents 75% equity interest of天津招商. The above transactions have not been completed as at the date of approval of these financial statements. XLIII.OTHER SIGNIFICANT EVENT On December 13, 2005, the Company announced the STRS proposed by SIZ, which allows all of its shares in the Company become tradable on the SSE. The shareholders of the Company approved the STRS at an extraordinary general meeting held on January18, 2006. On January 11, 2006, the Stated-Owned Assts Supervision and Administration Commission of the State Council approved the STRS and filed as Guo Zi Chan Quan [2006] No 34. On January 25, 2006, the Ministry of Finance of the PRC also approved the STRS and filed as Shang Zi Pi [2006] No 327. On February 7, 2006, the Company announced the STRS to the public and the SSE approved all non- tradable shares held by the SIZ changed to tradable A-shares on February 8, 2006. The implementation of the STRS does not have an impact on the total share capital, assets, liabilities, owners’ equity and earning per share of the Company. Details of the STRS are set out in the circular of the Company dated December 9, 2005. - 34 -