武锅Ｂ(200770)2006年年度报告摘要（英文版）

Stock Code: 200770 Short Form of the Stock: Wuguo-B No.: 2007-003 WUHAN BOILER COMPANY LIMITED SUMMARY OF ANNUAL REPORT 2006 §1. Important Notes 1.1 The Board of Directors, the Supervisory Committee and directors, supervisors and senior management of Wuhan Boiler Company Limited (hereinafter referred to as “the Company”) warrant that this report does not contain any false or misleading statements or omit any material facts and all information set forth herein are true, accurate and complete. The summary of annual report 2006 is abstracted from the full text of such report; the investors are suggested to read the full text of such report to understand more details. 1.2 None of the directors, supervisors, senior management demonstrated uncertainty or disagreement about the truthfulness, accuracy, and completeness of this annual report. 1.3 Name list of absent directors from the meeting Name of absent director Reason Name of assignee He went abroad due to Zhou Maorong Wang Zongjun business trip 1.4 Wuhan Zhonghuan Certified Public Accountants Ltd. and BDO Wuhan Zhonghuan International Certified Public Accountants audited the Financial Report 2006 of the Company and produced a standard unqualified Auditors’ Report for the Company. 1.5 Mr. Chen Bohu, Chairman of the Board of the Company, Mr. Xiang Rongwei, General Manager and concurrently CFO, and Ms. Qin Shanlan, Person in Charge of Accounting Organ, hereby confirmed that the Financial Report enclosed in Annual Report is true and complete. 1.6 This report has been prepared in Chinese and English version respectively. In the event of difference in interpretation between the two versions, the Chinese report shall prevail. §2. Company Profile 2.1 Basic information Short form of the stock WUGUO-B Stock code 200770 Listed stock exchange Shenzhen Stock Exchange Registered address and office address No. 586, Wuluo Road, Wuhan, Hubei Post code 430070 Internet website of the Company http://www.wbcl.com.cn E-mail of the Company wbgchw@public.wh.hb.cn 2.2 Contact person and contact method 1 Secretary of the Board Securities Affairs Representative Name Liu Chengxiang Xu Youlan Contact address No. 586, Wuluo Road, Wuhan, Hubei No. 586, Wuluo Road, Wuhan, Hubei Telephone (86)27－87652719 (86)27－87652719 Fax (86)27－87655152 (86)27－87655152 E-mail xu_yl36@yahoo.com.cn xu_yl36@yahoo.com.cn §3. Summary of Accounting Data and Financial Indexes 3.1 Major accounting data Unit: RMB Increase/decrease 2006 2005 compared with the 2004 last year（％） Income from main operations 2,289,197,110.55 2,874,191,882.49 -20.35% 2,214,625,155.28 Total profit 32,614,167.18 45,837,312.18 -28.85% 83,772,811.06 Net profit 10,053,154.92 24,546,297.24 -59.04% 44,864,079.93 Net profit after deducting 10,574,101.50 25,231,627.92 -58.09% 43,368,484.50 non-recurring gains and losses Net cash flow from -660,228,046.84 367,672,700.96 -279.57% -349,254,195.33 operating activities Increase/decrease At the end of At the end of compared with the At the end of 2006 2005 end of the last 2004 year（％） Total assets 2,942,214,320.23 3,124,848,664.38 -5.84% 2,770,656,873.06 Shareholder’s equity (excluding minority 615,538,530.90 615,302,598.05 +0.04% 578,465,485.28 interests) 3.2 Major financial indexes Increase/decrease 2006 2005 compared with the 2004 last year（％） Earnings per share 0.03 0.08 -62.50% 0.15 Return on equity (%) 0.00 － － － Net profit 1.63% 3.99% -2.36% 7.76% Return on equity calculated based on net profit after deducting 1.72% 4.10% -2.38% 7.50% non-recurring gains and losses (%) Net cash flow per share arising from operating -2.22 1.24 -279.03% -1.18 activities Increase/decrease At the end of At the end of At the end of compared with the 2006 2005 2004 end of last year（％） Net assets per share 2.07 2.07 0．00％ 1.95 Net assets per share 1.71 1.87 -8.56% 1.81 after adjustment 2 Items of non-recurring gains and losses √Applicable □Inapplicable Items of non-recurring gains and losses Amounts Gains/losses from disposal of long-term equity investment, fixed assets, project -197,895.64 in construction, intangible assets and other long-term assets Various non-operating expense after deducting daily reserve for impairment of 1,004,421.16 assets withdrawn by the Company in line with the regulations of Accounting System for Business Enterprises Impact on income tax after deducting non-recurring gains and losses -262,932.06 Impact amount deducting minority shareholders’ gains and losses -22,646.88 Total 520,946.58 3.3 Difference in net profit as audited by PRC GAAP and IFRS √Applicable □Inapplicable Unit: RMB’0000 PRC GAAP IFRS Net profit 10,053,000.00 21,786,000.00 The main reason of discrepancy is due to transferring into from Explanation on the difference deferred tax, minority interests and appropriation refund. §4. Changes in Share Capital and Particulars about Shareholders 4.1 Statement of change in share √Applicable □Inapplicable Before the change Increase/decrease in this time (+, - ) After the change Type of shares Issuance Capitalization Number of Proportion Bonus Number of Proportion of new of public Other Subtotal shares (%) shares shares (%) shares reserve I. Nontradable shares 1. Sponsors’ shares 172000000 57.91% 172000000 57.91% Including: 172000000 57.91% 172000000 57.91% Shares held by the State Share held by 172000000 57.91% 172000000 57.91% domestic legal person Share held by foreign legal person Others 2. Raised legal person’s shares 3. Inner employees shares 4. Preference shares or others II. Tradable shares 125000000 42.09% 125000000 42.09% 1. RMB ordinary shares 2. Domestically 125000000 42.09% 125000000 42.09% listed foreign shares 3 3. Overseas listed foreign shares 4. Others III. Total shares 297000000 100% 297000000 100% 4.2 Statement of shares held by the top ten shareholders and the top ten tradable shareholders Total number of shareholders 18,862 Particulars about shares held by the top ten shareholders Total Number of Nature of Proportion number of Share pledged Name of shareholders nontradable shareholders (%) shares held or frozen shares held (share) WUHAN BOILER GROUP CO., LTD State-owned 0 57.91％ 172,000,000 172,000,000 shareholder WANG JIA YI Foreign Unknown 0.73％ 2,180,000 0 shareholder WU NAI WEN Foreign Unknown 0.48％ 1,438,450 0 shareholder GUOTAI JUNAN SECURIES HONG Foreign Unknown shareholder 0.33％ 992,000 0 KONG LIMITED ABN AMRO BANK NV Foreign Unknown 0.28％ 819,600 0 shareholder TANG JUAN Foreign Unknown 0.26％ 782,236 0 shareholder YANG RONG FANG Foreign Unknown 0.24％ 715,000 0 shareholder ZHAN CHANG CHENG Foreign Unknown 0.22％ 657,900 0 shareholder ZHU YUN JIANG Foreign Unknown 0.22％ 652,300 0 shareholder HE JIANG JIN Foreign Unknown 0.17％ 500,000 0 shareholder Particulars about shares held by the top ten shareholders of tradable share Name of shareholders Number of tradable shares held at Type of share the end of the year WANG JIA YI 2,180,000 Domestically listed foreign shares WU NAI WEN 1,438,450 Domestically listed foreign shares GUOTAI JUNAN SECURIES HONG Domestically listed foreign shares 992,000 KONG LIMITED ABN AMRO BANK NV 819,600 Domestically listed foreign shares TANG JUAN 782,236 Domestically listed foreign shares YANG NAI RONG 715,000 Domestically listed foreign shares ZHAN CHANG CHENG 657,900 Domestically listed foreign shares ZHU YUN JIANG 652,300 Domestically listed foreign shares HE CHANG JIN 500,000 Domestically listed foreign shares THE CHINA INDEX FUND Domestically listed foreign shares 471,000 LIMITED 4 Among the top ten shareholders of the Company, Wuhan Boiler Group Co., Ltd., the first largest shareholder of the Company, holds the nontradable shares, and shares held by it remained unchanged in the report period; the rest nine shareholders are social public shareholders and hold tradable shares (B shares), whose change of shares was due to the transaction of the Company’s shares in the second market in the report period. Among the top ten shareholders of the Company, there exists no association relationship Explanation on associated between Wuhan Boiler Group Co., Ltd. and any other shareholders of relationship among the top ten tradable share; Neither of the first largest shareholder is acting-in-concert shareholders or acting-in-concert with any other shareholders as described by the Administrative Rules on Information Disclosure about Changing of Shareholding Status. The Company was unknown whether there is any associated relationship among the top ten shareholders of tradable share; or whether there is any action-in-concert among them as described by the Administrative Rules on Information Disclosure about Changing of Shareholding Status. The Company was unknown whether there is any associated relationship among the top ten shareholders and the top ten shareholders of tradable share. 4.3 Particulars about the controlling shareholders and actual controllers of the Company 4.3.1 Particulars about change in the controlling shareholders and actual controllers of the Company □Applicable √Inapplicable 4.3.2 Introduction to detail situation for the controlling shareholders and the actual controllers Wuhan Boiler Group Co., Ltd. (“the Group Company”) is the controlling shareholder of the Company, as well as the only one holding over 10% of total shares of the Company. Ended Dec. 31, 2006, the Group Company held 172 million shares of the Company, taking up 57.9% of the total shares. Legal representative: Huang Jiang Date of foundation: Aug. 8, 1995 Registered capital: RMB 90.596 million Registered number of enterprise legal person’s business license: 4201001100902 Business scope: investment and operation of the state-owned assets authorized to operate and manage; development, design and whole set installing of boiler, pressure vessels and related mechanical-electrical products, and the import and export businesses approved by the State; truck transportation; (including the business scope of the subsidiaries) (For the projects specially provided by the State, the Company can operate after approval). Wuhan Boiler Group Co., Ltd. is the state-owned sole corporation with capital operating and assets management as its main task, which wholly-owned held by Wuhan Municipal State-owned Assets Supervisory Administration Commission. 4.3.3 The property right and controlling relationship between the Company and the actual controller are as follows: Wuhan Municipal State-owned 100% 57.9% Assets Supervision and Wuhan Boiler Wuhan Boiler Administration Commission Group Co., Ltd. Company Limited 5 §5. Particulars about Directors, Supervisors and Senior Management 5.1 Particulars about changes in shares held by directors, supervisors and senior management Drawing Total payment payment from the Number Number of drawn from shareholding Reasons of shares shares held the companies Name Title Gender Age Office term for held at the at the Company in or other change year-begin year-end the report related period parties or (RMB’0000) not (Yes / No) Chen Bohu Chairman of Male Apr. 2004- 43 0 0 － 6.1 No the Board Apr. 2007 Xiang Director/GM Male Apr. 2004- 54 0 0 － 5.5 No Rongwei Apr. 2007 Chen Helin Director Male Apr. 2004- 58 0 0 － 4.4 No Apr. 2007 Liu Director/ Male Apr. 2004- Chengxiang Secretary of 58 0 0 － 4.1 No Apr. 2007 the Board Hua Lixin Director/ Male Apr. 2004- 42 0 0 － 4.3 No Deputy GM Apr. 2007 Wang Independent Male Apr. 2004- 43 0 0 － 0.00 No Zongjun director Apr. 2007 Zhou Independent Male Apr. 2004- 63 0 0 － 0.00 No Maorong director Apr. 2007 Wang Haisu Independent Male Apr. 2004- 52 0 0 － 0.00 No director Apr. 2007 Zhou Convener Male Apr. 2004- 49 0 0 － 3.2 No Zhemin Apr. 2007 Zeng Supervisor Male Apr. 2004- 58 0 0 － 0.00 Yes Xianping Apr. 2007 Guo Ling Supervisor Male Apr. 2004- 47 0 0 － 0.00 No Apr. 2007 Bai Xixin Deputy GM Male Apr. 2004- 43 0 0 － 4.3 No Apr. 2007 Jin Deputy GM Male Apr. 2004- 48 0 0 － 4.3 No Zhicheng Apr. 2007 Pei Hanhua Deputy GM Male Apr. 2004- 48 0 0 － 4.3 No Apr. 2007 Total - - - - - - - 40.5 - §6 Report of the Board of Directors 6.1 Discussion and analysis by the management team I. Discussion and analysis of operation status in the report period In 2006, the development tendency of market of power station boiler industry further slowed down, facing such new situation, the Company deeply thought about “what position should WBC be standing at in the same industry”. The Company looked for the problem from ourselves, adjusted the operation mode and marketing strategy in time, strengthened market deploitation, reinforced the project follow-up, continuously kept the active and prudent work style and finally achieved the whole-year operation target. What is special worth-mentioned is that in the large-scale alkali stove market, after the Chitianhua’s 1500tds/d Alkali Boiler project, the members of the Company made concerted effort to get the project of 2200tds/d Alkali Recovery Boiler from Jinguang Corporation. It is another great breakthrough of large-scale alkali boiler and served a sordid ground for the large-sized and internationalization of alkali boiler. 6 In 2006, the Company was passed the appraisement and approval performed by Chinese Association for Machinery Safety & Health, became the firstling “First-class Enterprise of Safety and Quality Standardization” in the machinery manufacturing enterprises, and did not take place duty-related death accident in 16 successive years. Besides, the Company was awarded the title of “the Excellent Equipment Management Enterprise”. II. Operation of the Company (I) Scope of main operations and its operating status The Company is mainly engaged in the development, production and sales of power station boilers, special boilers, desulfuration equipments and other pressure vessels as well as auxiliary equipments. In the report period, under the correct decision-making of the Board of Directors and the common efforts of the all employees, the Company realized income from main operations amounting to RMB 2,289,197,110.55, a decrease of 20.35% compared with the last year, profit from main operations amounting to RMB 254,350,602.40, an increase of 3.13% compared with the last year, as well as a net profit of RMB 10,053,154.92, a decrease of 59.04% compared with the last year. 1. Distribution of the main operations classified according to industry: Industry Income from main operations Profit from main operations Machinery Manufacturing 2,289,197,110.55 254,350,602.40 The Company is belongs to the industry of machinery manufacturing that provides special equipments for energy and environmental industries. 2. Major suppliers and customers The total purchase amount of the top five suppliers of the Company was RMB 414.71 million, taking up 65.42 % of the total annual amount of purchase of the Company and the total sales amount of the top five customers was RMB 933.3356 million, taking up 40.77% of the total annual amount of sales of the Company. 3. Particulars about the change in the Company’s assets, liabilities and expenses in the report period Dec. 31, 2006 Dec. 31, 2005 Increase/decrease Items Proportion in Proportion in of proportion in Amount Amount total assets total assets total assets Monetary funds 269,656,517.16 9.17% 650,937,240.82 20.83% -11.66% Accounts receivable 1,422,162,766.97 48.34% 854,546,027.20 27.35% +20.99% Inventories 811,092,836.73 27.57% 685,761,345.70 21.95% +5.62% Short-term loan 647,000,000.00 21.99% 353,500,000.00 11.31% +10.68% Notes payable 570,896,435.34 19.40% 1,103,095,152.88 35.30% -15.90% Accounts payable 563,061,420.94 19.14% 404,566,756.09 12.95% +6.19% Taxes payable 96,944,453.09 3.29% 97,601,916.87 3.12% +0.17% Items 2006 2005 Increase/decrease Operating expense 25,488,965.28 45,990,074.28 -44.58% Administrative expense 160,228,037.68 107,642,995.27 +48.85% Financial expense 38,701,042.47 46,753,505.92 -17.22% Income tax 18,386,531.95 16,219,836.67 +13.36% Note: During the report period, accounts receivable has increased compared with the last year, which was mainly because of increase of completed projects, and undue quality cash deposit and cash refund under accounts receivable has reduced. 7 During the report period, increase of short-term loan was mainly due to decrease of notes payable, which the settlement way by bank acceptance bill has decreased according to the demand from clients. During the report period, increase of administrative expense was mainly because reserve in bad debts and reserve for inventory price decline arising from increase of accounts receivable are withdrawn. Decrease of operating expense and financial expense were mainly due to decrease of business consult fees and number of days of loan. During the report period, increase of income tax was mainly because of increase of income tax payable. 4. Particulars about the change in the Company’s cash flow in the report period Items 2006 2005 Increase/decrease Cash flow arising from operating activities: Cash inflows 1,921,672,325.07 3,294,839,646.92 -1,373,167,321.85 Cash outflows 2,581,900,371.91 2,927,166,945.96 -345,266,574.05 Net cash flow arising from operating activities -660,228,046.84 367,672,700.96 -1,027,900,747.80 Cash flow arising from investing activities: Cash inflows 185,868,987.44 30,621,413.40 155,247,574.04 Cash outflows 9,408,632.62 102,848,795.47 -93,440,162.85 Net cash flow arising from investing activities 176,460,354.82 -72,227,382.07 248,687,736.89 Cash flow arising from financing activities: Cash inflows 932,027,000.00 1,109,400,000.00 -177,373,000.00 Cash outflows 657,121,456.28 1,286,843,383.32 -629,721,927.04 Net cash flow arising from financing activities 274,905,543.72 -177,443,383.32 452,348,927.04 In the report period, cash inflow arising from operating activities has decrease by a big margin, which was mainly because accounts receivable has increased compared with the last year, as a result, net cash flow arising from operating activities has decrease. In the report period, net cash flow arising from investing activities has increased, which was mainly due to decrease of guarantee deposit and fixed deposit. In the report period, decrease of net cash flow arising from financing activities was mainly because of increase of bank loan. (II) Operation and achievement of major holding companies and share-holding companies By the end of the report period, the Company totally had three companies controlled by the Company, namely Wuhan Lanxiang Energy Environmental Science and Technology Co., Ltd. (hereinafter referred to as “Lanxiang Company”), Wuhan Wuguo Zhixin Environmental Equipment Manufacture Co., Ltd. (hereinafter referred to as “Zhixin Company”) and Wuhan Boiler Boyu Industrial Co., Ltd. (hereinafter referred to as “Boyu Company”). The basic situation and operating achievement of the said three companies was as follows: 1. Lanxiang Company This company was established on Jun. 4, 2002 and the Company holds 70% of its equity. This company’s registration code is 4201001102912 with registered capital of RMB 20 million. The business scope of this company includes: technology research, design, technology consultation and technology service of boilers, energy environmental products, steel structure, heat energy products and its auxiliary equipments, sales of development products and contract and technology service (The special-purpose projects of the state is to be operated subject to examination and approval) of energy projects (non-land-construction 8 projects). In the report period, Lanxiang Company achieved income from main operations amounting to RMB 97,765,700 as well as the net profit of RMB 7,574,600. Ended the report period, the total assets of this company was RMB 70,671,900, and the net asset was RMB 39,794,900. 2. Zhixin Company Zhixin Company was established on Jun.13, 2003, the Company held 51% of its equity. This company’s registration code is 4201001171169 with registered capital of RMB 10 million. The business scope of this company includes: manufacture and sales of gas combined circulating residual heat boiler, circulating fluidized bed boiler, alkali reclaim boiler, boiler combustion instruments, boiler components, environment and energy saving instrument, steel structure, production and sales of metal (implement according to the special regulation of China if there is such special regulation). In the report period, Zhixin Company realized income from main operations amounting to RMB 53,107,300 as well as the net profit of RMB 3,565,000. Ended the report period, the total assets of this company was RMB 33,872,600, and the net asset was RMB 15,766,300. 3. Boyu Company Boyu Company was established on Sep. 30, 1998. In the report period, the Company took its 90% equity of Wuhan Special Boiler Whole Set Equipment Co., Ltd. to replace 90% equity of Wuhan Boiler Group Boyu Industrial Co., Ltd. held by Wuhan Boiler Group Co., Ltd.. Boyu Company completed its change procedure of industrial and commercial registration on Nov. 17, 2005, and changed its company name into Wuhan Boiler Boyu Industrial Co., Ltd.. The registration code is 4201001101773 with registered capital of RMB 19.115 million. The business scope of this company includes: packing, design and manufacturing of mechanical & electrical products, processing of metal structure, design and manufacturing of mould & model, production of various high- and middle-pressure valve roughcast, cast steel, cast iron and non-ferrous metal cast. In the report period, Boyu Company realized income from main operations amounting to RMB 17,367,800 as well as the net profit amounting to RMB 1,552,600. Ended the report period, the total assets of this company was RMB 21,696,400, and the net asset was RMB 17,933,500. The Company had no branch company, share-holding company and other joint venture company. III. The Company’s outlook 1. Analyze on the market competition situation and development tendency faced by the Company in 2007: The market of power station boilers in 2007 tends to be further shrink and the competition further violent, which it is the biggest problem we face. By the end of 2006, the total installed electric power capacity of China has exceeded 600 million kw., rank the 2nd of the World, merely less than U.S.A. The social electricity basically balanced and the part of areas appeared an excess. In order to efficiently control the investment of electric sources project, the government takes more power on the macro-control and intervened by administrative means. As the main force of the electric market, “five biggest companies” decreased their new electric projects, many of which are supercritical and over supercritical projects. And projects under 300MV are listed as the limited projects. According to the authority of the State, by the end of 2010, China would plan to realize the installed capacity of 840 million kw, while nearly finish it in 2007. The efficient new thermal power projects are far less to satisfy the suppliers of main engines that the production capability has been enlarged by a big margin. All manufacturers tried their best to grasp the limited market resources including 9 lowering price without any order. 2. Development strategy of the Company The Company will conform to the said industry development trend, adjust thoughts and actions, implement the development strategy such as the technical upgrade of traditional and advantaged products and actively seize high-end products market in respect of the power station boiler technology through overall cooperation from technical R&D to market development with international well-known enterprise, which enable the Company to develop gradually a enterprise having the quite competition force in this industry in home. 3. Operation plan of the Company in 2007 ① The Company will develop the market expansion task effectively, establish the confidence, change the thinking, replace the method and enlarge R&D capability with “the market as guidelines”, solidify and expand the existing products market portion. ② Grasp the overall arrangement, market enlargement, management efficiency, smooth transition, fulfilled effect and promote construction of the destined community in an all-around way. ③ The Company will start with “intensive study, subdivision, rigidity and strictness”, optimize enterprise management and enhance cost control, to improve operation benefit of the Company. ④ The Company will create enterprise culture and form concept support. 4. Capital demand used in development plan, use plan and capital source Based on change in market situation of power equipment manufacturing industry in the future, the Company will raise capital demanded through such various ways as capital market, bank loan and self-raised capital combining with the Company’s operation development strategy, enhance the input of technology renovation, consequently, improve the overall quality and added value of products and R&D speed of new products, so as to lay a solid foundation for sustainable development of the Company. 5. Main risk factors and settlement ways The main products of the Company is power station boilers, but the market of power station boiler highly relies on the market establishment situation of thermal power generation sets, its upriver industry, and get the greater influence from the national macro policies and development policies and structure reformation of electric power industry, thus, there exists policy risk and market risk. In the face of policy risk and market risk, the Company will start with self-conditions, depend on such advantages as technology and talents, follow the most advanced technology in home and abroad at any moment, enhanced technology renovation, increase new products, strengthen management of market marketing, strive to keep and enlarge the existing advantage position in this industry, closely pay attention to rivals and development situation of industry, and adjust the corresponding strategies such as R&D of technology and market development timely, in order to transfer and reduce industry competition risk due to policy risk and market risk. IV. Investment of the Company in the report period 1. In the report period, the Company had no proceeds raised through share offering or the application of proceeds raised through previous share offering continued to the report period. 2. In the report period, the Company had no Investment of proceeds not raised through share offering. 6.1.1 Possible accounting policies change and accounting estimate change subsequent to implementation of new accounting standards and the impact on the Company's financial status and operating results 10 √Applicable □Inapplicable 1. Analysis of difference in shareholders' equity between calculated according to the current accounting standards and that calculated according to new accounting standards on January 1, 2007 from which new accounting standards are implemented: In accordance with the provisions of the Circular with CK [2006] No. 3 document promulgated by Ministry of Finance dated Feb. 15, 2006, the Company would perform new Accounting Standard for Business Enterprises subsequent to amendment dated Jan. 1, 2007. The following differences between calculated according to the current accounting standards and that calculated according to new accounting standards on January 1, 2007 from which new accounting standards are implemented: ① Long-term equity investment difference The balance of long-term equity investment formed through business combination under the same control in long-term equity investment was calculated by the Company based on equity method. As at Dec. 31, 2006, the unamortized balance of RMB 3,994,162.43 should be written off in full, and retained earnings of the parent company as at Jan. 1, 2007 would be given a negative adjustment. The book balance of long-term equity investment was recognized as the cost as of Jan. 1, 2007 subsequent to writing-off the balance of equity investment. ② Income tax In accordance with the regulations of current accounting standards, the Company set down the accounting policies. Hereby, the Company withdrew various reserves for impairment losses of assets. In accordance with Accounting Standards for Business Enterprises No. 18 -- Income Tax, the Company would change the accounting method of income tax from tax payment to balance sheet debt method. The Company should measure as deferred income tax assets according to the balance that book value of assets is less than its tax base in line with new accounting standards, thus, retained earnings would be increased by RMB 10,855,649.78 on Jan. 1, 2007. Therefore, owner’s equity belonging to the parent company increased by RMB 10,838,002.20, while minority interests increased by RMB 17,647.58. ③ Minority shareholders’ equity In the consolidated statement prepared in accordance with the current accounting standards as at Dec. 31, 2006, the minority interests belonging to subsidiaries was RMB 21,457,294.90, which was recorded into shareholders’ equity according to new accounting standards, thereout, the shareholders’ equity increased by RMB 21,457,294.90on Jan. 1, 2007. 2. Possible accounting policies change and accounting estimate change subsequent to implementation of new accounting standards and the impact on the Company's financial status and operating results: ① The long-term investment of the Company to subsidiaries would be measured based on cost method in accordance with the provisions in Accounting Standards for Business Enterprises No. 2 - Long-term Investment from equity method based on based on current accounting policy, this change of such accounting policy would affect on the profits and losses of current period of parent company, but there was no influence on consolidated statement of the Company. ② In accordance with the provisions of Accounting Standards for Business Enterprise No. 4 --- Fixed assets, the payment used for purchasing fixed assets by the Company was put off paying exceeding the normal credit term, for fixed assets with financing in substance, fixed assets cost was recognized based on present value of purchasing price, but the balance between real price paid and present value of purchasing price should be capitalized 11 according to Accounting Standards for Business Enterprise No. 17 --- borrowing cost, except for this, such balance should be recorded into profits and losses of current period during credit term. The change of such policy would increase the period expense of the Company, while would decrease the profit and shareholders’ equity of the Company. ③ In accordance with the provisions of Accounting Standards for Business Enterprise No. 6 --- intangible assets, for expenditure used for R&D stage of project, eligible for capitalization, such expenditure would be capitalized as intangible assets, but it would affect the profit and shareholders’ equity of the Company. ④ In accordance with the provisions of Accounting Standards for Business Enterprise No. 9 --- employee compensation, employee welfare payable withdrew based on proportion under current accounting standards was changed into employee compensation payable according to the actual situation and employee welfare program, and the balance as at the end of period was adjusted as administrative expense of current period. the change of such policy would affect the current cost and expense of the Company, thereby, would affect the profits and losses of current period and shareholders’ equity. ⑤ In accordance with the provisions of Accounting Standards for Business Enterprise No. 17 --- borrowing cost, the borrowing cost for capitalization was changed into the special borrowing cost and general borrowing cost eligible for capitalization from the special borrowing cost under current accounting system, such change would increase borrowing capitalization scope of the Company, decrease financial expense of current period, while increase profits and losses of current period and shareholders’ equity of the Company. ⑥ In accordance with the provisions in Accounting Standards for Business Enterprises No. 18 – income tax, the Company would change the accounting method of income tax from tax payment to balance sheet debt method. Such change of accounting policy would affect the Company's income tax expenses of the current period, profits and losses of current period and shareholders' equity. 6.2 Main operations classified according to industries or products Unit: RMB’0000 Increase or Increase or Increase or decrease of decrease of decrease of Profit ratio of income from profit ratio of Classified cost from main Income from main Cost of main main main main according to operations operations operations operations operations operations industries compared with (%) compared compared with the last year with the last the last year (%) year (%) (%) Machinery Manufacturing 228,919.71 201,934.12 11.11% -20.35% -22.75% 2.53% Increase or Increase or Increase or decrease of decrease of decrease of income from Profit ratio of Classified Profit ratio of cost from main Income from main Cost of main main main according to main operations operations operations operations operations products operations compared with compared compared with the last year with the last the last year (%) year (%) (%) Boiler 228,919.71 201,934.12 11.11% -20.35% -22.75% 2.53% 6.3 Main operations classified according to area Unit: RMB’0000 Areas Income from main operations Increase/decrease of income from main operations over the last year (%) 12 Southern area 55,989.03 -73.15% Northern area 172,930.68 119.27% 6.4 Use of the raised proceeds □Applicable √Inapplicable Particulars about the changed projects □Applicable √Inapplicable 6.5 Application of the non-raised proceeds □Applicable √Inapplicable 6.6 Explanation of the Board of Directors on the “Qualified Opinion” issued by the Certified Public Accountants □Applicable √Inapplicable 6.7 Preplan of profit distribution or capitalization of common reserves for 2006 made by the Board of Directors As audited by Wuhan Zhonghuan Certified Public Accountants Ltd. in accordance with Chinese Accounting Standards, the net profit of the Company was RMB 10,053,154.91 for the year 2006, adding retained profit as at the begin of year amounting to RMB 96,112,848.85, the profit available for distribution as of the year was RMB 106,166,003.77, appropriating 10 percent of net profit of RMB 1,005,315.50 as the statutory surplus reserve. The profit available for distribution as of the year was RMB 105,160,688.27 to all shareholders. It is planned that, based on the total share capital of 297,000,000.00 shares as at Dec. 31, 2006, a cash dividend of RMB 0.20 would be distributed for every 10 shares to all the shareholders, and the total profit to be distributed would amount to RMB 5,940,000.00. The retained profit left over would be carried down to the next year for distribution. No capital public reserves would be transferred into share capital this year. The Company did not appropriate share distribution preplan though the Company achieved the profit in the report period □Applicable √Inapplicable §7 Significant Events 7.1 Purchase of assets □Applicable √Inapplicable 7.2 Sales of assets □Applicable √Inapplicable Explanation on the influences exerted by the issues mentioned in 7.1 and 7.2 upon the continuity of the Company’s business and the stability of the management team: Naught 7.3 Significant guarantees 13 □Applicable √Inapplicable 7.4 Significant related transactions 7.4.1 Related transactions concerning routine operation √Applicable □Inapplicable Unit: RMB’0000 Selling products and offering labor Purchasing products and accepting service to related parties labor service from related parties Related parties Proportion taking up the Proportion taking up the Amount amount of the same Amount amount of the same kind of transactions kind of transactions Wuhan Boiler Group Co., Ltd 2,921.63 1.32% 0.00 0.00% Wuhan Boiler Group Valve Co., Ltd 356.98 0.15% 5,036.14 2.66% Wuhan Boiler Group Yuntong Co., Ltd 0.00 0.00% 6,003.83 100% WBG Boiler Installation 5.03 0.01% 0.00 0.00% Company Wuhan Special Boiler Complete Equipment Co., Ltd 5,021.85 2.26% 0.00 0.00% Total 8,305.49 3.74% 11,039.97 102.66% An amount of RMB 83,054,900 occurred during the related transactions of the Company selling products or providing labor service to the controlling shareholder or its subsidiaries in the report period. 7.4.2 Related credits and liabilities current □Applicable √Inapplicable 7.4.3 Progress of repayment on the capital occupied as at the end of 2005 □Applicable √Inapplicable New capital occupation in the year 2006 □Applicable √Inapplicable In case of the Company's failure to complete the repayment of the capital occupation of non-operating as at the end of 2006, relevant reason, measures for debt repayment and plan for responsibility ascertainment □Applicable √Inapplicable 7.5 Financing entrustment □Applicable √Inapplicable 7.6 Implementation of commitments □Applicable √Inapplicable 7.6.1 The commitments made by the original shareholders holding nontradable shares during the Share Merger Reform and their implementation □Applicable √Inapplicable 14 7.6.2 The quantity of shares not subject to moratorium held by the original nontradable shareholders who hold over 5% of total shares at the end of the report period □Applicable √Inapplicable 7.7 Significant lawsuits and arbitrations □Applicable √Inapplicable §8 Report of the Supervisory Committee (I) Operation In accordance with relevant laws and regulations, the Supervisory Committee had conducted supervision over the convening procedures and resolutions of the Shareholders’ General Meeting and the Board of Directors, the implementation by the Board of the various resolutions made at the Shareholders’ General Meeting, the duty performance of the senior executives of the Company and the management system of the Company, etc. The Committee believed that the Board of Directors of the Company had done their work of 2006 strictly in conformity with the Company Law, Securities Law, Listing Rules, the Articles of Association and other relevant regulative systems, and that the Board had performed their duties carefully and their operating resolutions had been scientific and reasonable. The internal management and control system had been further improved and the internal control mechanism established. The Chairman of the Board, directors, managers and senior executives had no behavior that had gone against national laws, regulations or the Articles of Association or had done any harm to the interests of the Company while performing their duties. (II) Financial Status The Supervisory Committee had conducted periodic inspection into the financial system and the financial status of the Company, and it believed that the Financial Report 2006 could truly reflect the financial status and the operating performance of the Company. The Committee also believed that the auditing opinions given by Wuhan Zhonghuan Certified Public Accountants and BDO Wuhan Zhonghuan Certified Public Accountants Ltd had truly, objectively and fairly reflected the financial status and the operating performance of the Company for the year 2006. (III) Use of raised proceeds The Company had not raised any proceeds in the recent three years (including the report period). (IV) Related transactions of assets purchase or sales In the report period, the Company had no related transactions such as assets purchase or sales. (V) About inspection of related transaction In the report period, the prices of the related transactions of the Company had been fair and reasonable, and no harm had been done to the interests of the Listed Company. §9 Financial Report 9.1 Auditing opinion Auditing opinion: standard unqualified opinion 9.2 Financial statement WUHAN BOILER COMPANY LIMITED 15 CONSOLIDATED INCOME STATEMENT AS AT 31 DECEMBER 2006 2006 2005 Notes RMB’000 RMB’000 Sales 5 2,289,197 2,874,192 Cost of sales (2,025,495) (2,620,329) Gross profit 263,702 253,863 Other operating income, net 3,987 25,914 Selling expenses (40,994) (59,407) Administrative expenses (154,742) (101,458) Operating profit 71,953 118,912 Non-operating expenses, net (276) Finance costs, net 7 (38,701) (46,754) Profit before tax 32,976 72,158 Income tax expense 8 （11,190） (15,126) Profit from ordinary activities after tax 21,786 57,032 Attributable to: Equity holders of the Company 17,612 51,961 Minority interests 22 4,174 5,071 21,786 57,032 Basic and diluted earnings per share 9 RMB0.059 RMB0.175 16 WUHAN BOILER COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2006 2006 2005 Notes RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 10 176,855 202,040 Construction in progress 11 974 2,311 Prepaid lease 3,238 3,388 Intangible assets 12 31,664 37,859 Deferred tax assets 13 10,856 3,659 223,587 249,257 Current assets Inventories 14 310,405 499,956 Due from contract customers 15 500,687 620,786 Trade receivables 16 1,420,836 763,419 Amounts due from parent company 54,000 Amounts due from fellow subsidiaries 17 46,008 44,937 Other receivables, deposits and prepayments 18 136,542 633,962 Pledged or guaranteed deposits 19 167,691 343,286 Cash and cash equivalents 19 101,966 307,652 2,684,135 3,267,998 Total assets 2,907,722 3,517,255 SHAREHOLDERS’ EQUITY Share capital 20 297,000 297,000 Reserves 21 329,287 321,402 626,287 618,402 Minority interests 22 21,457 19,779 Total equity 647,744 638,181 LIABILITIES Non-current liabilities Borrowings 26 140,000 140,000 Current liabilities Notes payable 570,897 1,064,095 Trade payables 502,049 349,254 Other payables and accrued charges 25 189,548 160,024 Due to contract customers 15 6,997 352,668 Amount due to parent company 24 1,421 - Amounts due to fellow subsidiaries 25 16,122 52,921 Deposits received from customers 121,199 375,756 Income tax payable 14,745 16,814 Borrowings 26 697,000 367,542 2,119,978 2,739,074 Total liabilities 2,259,978 2,879,074 Total equity and liabilities 2,907,722 3,517,255 17 WUHAN BOILER COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2006 Attributable to equity holders Minority Total of the Company interest Equity Share Other Retained capital reserves earnings (note 20) (note 21 (a),(b)) Balance at 1 January 2005, as previously reported as equity 297,000 184,550 98,847 17,586 597,983 Dividend relating to 2004 (note 22 (d)) - - (13,956) (2,878) (16,834) Profit for the year - - 51,961 5,071 57,032 Forfeited customer deposits 226 (226) Donated cash 23,450 （23,450） Government grant 2,570 (2,570) Transfer from retained earnings to other reserves - 5,572 (5,572) - - Balance at 31 December 2005 297,000 216,368 105,037 19,779 638,181 Balance at 1 January 2006, as previously reported as equity 297,000 216,368 105,037 19,779 638,181 Dividend relating to 2005 (note 22 (d)) （7,899） (2,496) (10,395) Profit for the year 17,612 4,174 21,786 Forfeited customer deposits 1 (1) Donated cash 27 (27) Government grant 550 (550) Transfer from retained earnings to other reserves 1,005 (1,005) Others 668 Balance at 31 December 2006 297,000 218,619 110,668 21,457 647,744 18 WUHAN BOILER COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 Year ended 31 December Note 2006 2005 Cash flows from operating activities Cash generated from /(used in) operations 27 (623,381) 435,800 Interest paid (44,819) (49,020) Income tax paid (33,445) (46,969) Loss on foreign currency exchange difference (528) (2,037) Net cash generated from /(used in) operating activities (702,173) 337,774 Cash flows from investing activities Acquisition of subsidiary, net of cash acquired (4,969) Purchases of property, plant and equipment (PPE) 10 (6,027) (36,038) Payments for construction in progress (2,378) (1,352) Proceeds from sale of PPE 27 5,317 14,961 Purchases of intangible assets 12 (420) Proceeds from government grant 550 Interests received 7,411 7,183 Dividends received 1,680 14,767 Net cash generated from /(used in) investing activities 6,553 (5,868) Cash flows from financing activities Increase in deposits used as collaterals 171,890 (45,307) Proceeds from borrowings 932,000 1,074,400 Proceeds from donation 27 Cash transfer out as disposal of subsidiary (12,844) Repayments of borrowings (602,542) (1,223,056) Dividends paid to Company’s shareholders (11,441) (14,767) Net cash generated from /(used in) financing activities 489,934 (221,574) Net increase/(decrease) in cash, cash equivalents and bank overdrafts (205,686) 110,332 Cash, cash equivalents and bank overdrafts at the beginning of the year 307,652 197,320 Cash, cash equivalents and bank overdrafts at the end of the year 19 101,966 307,652 9.3 Detailed explanation on the changes in the accounting policies, accounting estimates or accounting methods compared with the latest Annual Report □Applicable √Inapplicable 9.4 Content of significant accounting errors, amounts changed, reasons and influences □Applicable √Inapplicable 19 9.5 Detailed explanation on the changes in the consolidation scope compared with the latest Annual Report □Applicable √Inapplicable 9.6 Reconciliation statement about difference in shareholders’ equity between the new accounting standard and the old accounting standard Unit: RMB Item Title Amount Shareholder’s equity as at Dec.31, 2006 (current Accounting 615,538,530.90 Standards) 1 Balance of long-term equity investment -3,994,162.42 Of which: balance of long-term equity investment formed through -3,994,162.42 business combination under the same control Credit balance for other long-term equity investment calculated based on equity method 2 Investment properties measured based on fair value model Depreciation over the past years supplemental withdrew due to 3 dismantling cost of assets 4 Employee termination indemnity according with projected liability 5 Share based payments 6 Reorganization obligation according with projected liability 7 Business Combinations Book value of goodwill through business combination under the same control Impairment loss on goodwill withdrew based on new accounting standards Financial assets measured in line with fair value and its change amounts 8 was recognized in profit or loss of current period and available-for sale financial assets Financial liability measured in line with fair value and its change amounts 9 was recognized in profit or loss of current period 10 Equity increased due to division of financial instruments 11 Derivative financial instruments 12 Income Tax 10,855,649.78 13 Minority interests 21,457,294.90 14 Other Shareholder equity as at Jan. 1, 2007 (New Accounting Standard) 643,857,313.16 9.7 Review opinion produced by Certified Public Accountants Wuhan Boiler Company Limited Review Report on Reconciliation Statement about Difference in Shareholders’ Equity between New Accounting Standard and Old Accounting Standard ZHZ Zi (2007) No. 097 To all shareholders of Wuhan Boiler Company Limited We have reviewed the accompanying reconciliation statement about difference of shareholder’s equity between calculated the new accounting standard and the old accounting standard (the “Reconciliation Statement”) of Wuhan Boiler Company Limited (the “Company”). Management is responsible for the reparation and fair presentation of this reconciliation statement in accordance with Accounting Standard for Business 20 Enterprises No. 38 – First Time Adoption of Accounting Standard for Business Enterprises and the Circular on Doing Well the Financial Information Disclosure Related to the New Accounting Standard (ZJF[2006] No. 136, hereinafter referred to as the “Circular”). Our responsibility is to express a review report on this reconciliation statements based on our review. In accordance with the relevant provisions of the Circular, we conducted our review according to the provisions of the Standard on Review Engagements for CPAs of China – Engagements to Review Financial Statements. Such standard require that we plan and perform the review to obtain limited assurance whether this reconciliation statement are free from material misstatement. A review limits to enquiring for the relevant personnel and implementing analysis procedure. The review provides the lower assurance than audit. We did not conduct the auditing, thus we did not express any auditing opinion. Based on our review, we believed that the reconciliation statement was prepared in accordance with Accounting Standard for Business Enterprises No. 38 – First Time Adoption of Accounting Standard for Business Enterprises and the Circular in full. Wuhan Zhonghuan Certified Public Accountants Ltd. CPA Shi Wenxian CPA Zhu Hua Wuhan · China 2 April 2007 Chairman of the Board: Chen Bohu Wuhan Boiler Company Limited April 6, 2007 21