武锅Ｂ(200770)2006年年度报告（英文版）

WUHAN BOILER COMPANY LIMITED ANNUAL REPORT 2006 Disclosing Newspaper: Securities Times and Ta Kung Pao Disclosing Date: Apr. 6, 2007 Contents Ⅰ. Important Notes----------------------------------------------------------------------------------- 2 Ⅱ. Company Profile---------------------------------------------------------------------------------- 3 Ⅲ. Summary of Accounting Highlight and Business Highlight-------------------------------- 4 Ⅳ. Changes in Share Capital and Particulars about Shareholders------------------------------ 7 Ⅴ. Particulars about Directors, Supervisors and Senior Executives and Employees------- 6 Ⅵ. Corporate Governance------------------------------------------------------------------------------- 9 Ⅶ. Brief Introduction to the Shareholders’ General Meeting ---------------------------------- 10 Ⅷ. Report of the Board of Directors ----------------------------------------------------------------- 10 Ⅸ. Report of the Supervisory Committee---------------------------------------------------------- 14 Ⅹ. Significant Events---------------------------------------------------------------------------------- 15 Ⅺ. Financial Report----------------------------------------------------------------------------------- 17 Ⅻ. Documents for Reference-------------------------------------------------------------------------- 18 1 SECTION I. IMPORTANT NOTES ● The Board of Directors, the Supervisory Committee, directors, supervisors and senior executives of Wuhan Boiler Company Limited (hereinafter referred to as the Company) 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. ● 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. ● Zhou Maorong, the Independent Director of the Company, was absent from the Board meeting personally because he went abroad due to business and entrusted Mr. Wang Zongjun, the Independent Director of the Company to exercise voting right. ● 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. 2 SECTION II. COMPANY PROFILE 1. Legal Name of the Company In Chinese: 武汉锅炉股份有限公司 In English: WUHAN BOILER COMPANY LIMITED Abbr. in English: WBC 2. Legal Representative: Chen Bohu 3. Secretary of the Board of Directors: Liu Chengxiang Securities Affairs Representative: Xu Youlan Contact Address: No. 586, Wuluo Road, Wuhan, Hubei Contact Tel: (86) 27-87652719 Contact Fax: (86) 27-87655152 E-mail: xu_yl36@yahoo.com.cn 4. Registered Address and Office Address: No. 586, Wuluo Road, Wuhan, Hubei Post Code: 430070 Internet Website: http://www.wbcl.com.cn E-mail: wbgchw@public.wh.hb.cn 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times (Domestic), Ta Kung Pao (Overseas) Internet Website for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Securities Department of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: WUGUO – B Stock Code: 200770 7. Other Information of the Company Initial registration date: On Apr. 8, 1998, the Company was formally incorporated. Initial registration place: No. 586, Wuluo Road, Wuhan, Hubei The latest registration date: On Nov. 16, 1998, the Company changed its registration with Administration Bureau for Industry and Commerce of Hubei as a Sino-foreign joint stock limited company. The latest registration place: No. 586, Wuluo Road, Wuhan, Hubei Registration code of enterprise legal person’s business license: QGEZ Zi No.: 002591 Registration code of taxation: 420106271756432 The Certified Public Accountants engaged by the Company: Domestic: Wuhan Zhonghuan Certified Public Accountants Ltd. Address: 16/F, Tower B, Wuhan International Mansion Overseas: BDO International Wuhan Zhonghuan Certified Public Accountants Address: 16/F, Tower B, Wuhan International Mansion 3 SECTION III. SUMMARY OF ACCOUNTING HIGHLIGHTS AND BUSINESS HIGHLIGHTS I. Accounting data of the Company as of the year 2006 Unit: RMB Total profit 32,614,167.18 Net profit 10,053,154.92 Net profit after deducting non-recurring gains and losses 10,574,101.50 Profit from main operations 254,350,602.40 Other operating profit 3,987,312.20 Operating profit 33,919,869.17 Investment income -452,169.32 Subsidy income 0.00 Net non-operating income/expenses -853,532.67 Net cash flow arising from operating activities -660,228,046.84 Net increase/decrease of cash and cash equivalents -209,390,476.72 Note: Item of deducting non-recurring gains and losses and the amount involved (Unit: In RMB) Items of non-recurring gains and losses Amounts Gains/losses from disposal of long-term equity investment, fixed assets, -197,895.64 project in construction, intangible assets and other long-term assets Various non-operating income and expense after deducting daily reserve for impairment of assets withdrawn by the Company in line with the 1,004,421.16 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 The differences between the domestic and overseas of Accounting Standard: (as at Dec. 31, 2006) Net profit Net assets (RMB’0000) (RMB’0000) As per restated after IFRS adjustments 64,774.5 2,178.6 IFRS and other adjustments (1) Writing off long-term investment revaluation surplus 63.5 (2) Deferred tax -1,085.6 -719.7 (3) Government grant -55.0 (4) Minority interests -2,145.7 -417.4 (5) Investment incomes -52.8 -45.2 (6) Transferring into from capital reserve -2.7 (7) Others 66.7 4 As the PRC statutory consolidated financial statements 61,553.9 1,005.3 Note: The main reason of discrepancy is due to transferring into from deferred tax, minority interests and appropriation refund. II. Financial indexes of the Company in the recent three years ended the report period (1) The following data were calculated and listed based on the consolidated accounting statement (Unit: RMB) Items 2006 2005 2004 Income from main operations 2,289,197,110.55 2,874,191,882.49 2,214,625,155.28 Net profit 10,053,154.92 24,546,297.24 44,864,079.93 Total assets 2,942,214,320.23 3,124,848,664.38 2,770,656,873.06 Shareholders’ equity (excluding minority interest) 615,538,530.90 615,302,598.05 578,465,485.28 Earnings per share 0.03 0.08 0.15 Earnings per share (calculated based on monthly 0.03 0.08 0.15 weighted average) Earnings per share after deducting non-recurring 0.03 0.08 0.15 gains and losses Net assets per share 2.07 2.07 1.95 Net assets per share after adjustment 1.71 1.87 1.81 Net cash flow per share arising from operating -2.22 1.24 -1.18 activities Return on equity (%) 1.63% 3.99% 7.76% (2) In accordance with Editing and Reporting Rules Regarding Information Disclosure for Companies Publicly Issuing Securities (No. 9) promulgated by CSRC, the Company’s return on equity and earning per share as of the year 2006 are calculated based on fully diluted method and weighted average method are as follows: Supplemental statement of profit as of report period Return on equity (%) Earnings per share (RMB) Profit as of the report period Fully Weighted Fully Weighted diluted average diluted average Profit from main operations 41.32 40.98 0.86 0.86 Operating profit 5.51 5.47 0.11 0.11 Net profit 1.63 1.62 0.03 0.03 Net profit after deducting non-recurring gains and 1.72 1.70 0.04 0.04 losses III. Particulars about changes in shareholders’ equity during the report period and the reasons (Unit: RMB) 5 Share capital Capital reserve Surplus Statutory public Retained Total Items shareholders’ reserve welfare fund profit equity Amount at the period-begin 297,000,000.00 178,798,219.46 21,695,764.87 21,695,764.87 96,112,848.85 615,302,598.05 Increase in this report period 0 577,777.95 22,701,080.35 0 10,053,154.92 33,332,013.22 Decrease in this report period 0 0 0 21,695,764.87 11,400,315.50 33,096,080.37 Amount at the period-end 297,000,000.00 179,375,997.41 44,396,845.22 0 94,765,688.27 615,538,530.90 Reason for changes Transferring Government Withdrawal Increase of net Increase of statutory surplus profit as of grant from net profit report year profit reserve 6 SECTION IV. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS I. Changes in Share Capital Unit: Share Before the change Increase/decrease in this time (+, - ) After the change Issuance Capitalization Type of shares Number of Proportion Bonus Number of Proportion of new of public Other Subtotal shares (%) shares shares (%) shares reserve I. Nontradable shares 1. Sponsors’ shares 172000000 57.9% 172000000 57.9% Including: Shares held by the State Share held by 172000000 57.9% 172000000 57.9% 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 Total nontradable 172000000 57.9% 172000000 57.9% shares II. Tradable shares 1. RMB ordinary shares 2. Domestically 125000000 42.1% 125000000 42.1% listed foreign shares 3. Overseas listed foreign shares 4. Others Total tradable shares 125000000 42.1% 125000000 42.1% III. Total shares 297000000 100% 297000000 100% II. Issuance and listing of shares 1. On Mar. 20, 1998, the Company placed 125,000,000 domestically listed foreign shares (B shares) to foreign investors at the issuing price of HKD 1.496 per share. The said shares were listed in Shenzhen Stock Exchange for trade on Apr. 15, 1998 with 7 the stock code as 200770. 2. In the report period, there are no changes in the total number of share and structure of share capital of the Company. 3. About profit distribution during the report period On July 18, 2006, the Company implemented profit distributions plan to all shareholders at the rate of RMB 0.35 in cash for every 10 shares with profit distributed amounting to RMB 10,395,000 in total. III. About shareholders (1) Ended Dec. 31, 2006, the Company had totally 16,118 shareholders, including 1 sponsor shareholder, namely Wuhan Boiler Group Co., Ltd; and 16,117 ones of domestically listed foreign shares. (2) Particulars about shares held by the principal shareholders Ended Dec. 31, 2006, the top ten shareholders and the top ten shareholders of tradable share of the Company are as follows: Total number of shareholders 16118 Particulars about shares held by the top ten shareholders Total Number of Nature of Proportion number of Share pledged Name of shareholders nontradable shareholders (%) shares held or frozen shares held (share) WUHAN BOILER GROUP CO., LTD State-owned 57.9％ 172,000,000 172,000,000 0 shareholder WANG JIA YI Foreign 0.73％ 2,180,000 0 Unknown shareholder WU NAI WEN Foreign 0.48％ 1,438,450 0 Unknown shareholder GUOTAI JUNAN SECURIES HONG Foreign 0.33％ 992,000 0 Unknown KONG LIMITED shareholder ABN AMRO BANK NV Foreign 0.28％ 819,600 0 Unknown shareholder TANG JUAN Foreign 0.26％ 782,236 0 Unknown shareholder YANG RONG FANG Foreign 0.24％ 715,000 0 Unknown shareholder ZHAN CHANG CHENG Foreign 0.22％ 657,900 0 Unknown shareholder 8 ZHU YUN JIANG Foreign 0.22％ 652,300 0 Unknown shareholder HE JIANG JIN Foreign 0.17％ 500,000 0 Unknown shareholder Particulars about shares held by the top ten shareholders of tradable share Name of shareholders Number of tradable shares held at the end Type of share 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 992,000 Domestically listed foreign shares 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 471,000 Domestically listed foreign shares LIMITED 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 between Explanation on associated relationship Wuhan Boiler Group Co., Ltd. and any other shareholders of tradable share; Neither of the among the top ten shareholders or first largest shareholder is acting-in-concert with any other shareholders as described by acting-in-concert the Administrative Rules on Information Disclosure about Changing of Shareholding Status. The Company was unknown whether there is any associated relationship among the top ten shareholders of tradable share; or whether there is any action-in-concert among them as described by the Administrative Rules on Information Disclosure about Changing of Shareholding Status. The Company was unknown whether there is any associated relationship among the top ten shareholders and the top ten shareholders of tradable share. (3) The controlling shareholder Wuhan Boiler Group Co., Ltd. (“the Group Company”) is the controlling shareholder of the Company, as well as the only one holding over 10% of total shares of the Company. Ended Dec. 31, 2006, the Group Company held 172 million shares of the 9 Company, taking up 57.9% of the total shares. Legal representative: Huang Jiang Date of foundation: Aug. 8, 1995 Registered capital: RMB 90.596 million Registered number of enterprise legal person’s business license: 4201001100902 Business scope: investment and operation of the state-owned assets authorized to operate and manage; development, design and whole set installing of boiler, pressure vessels and related mechanical-electrical products, and the import and export businesses approved by the State; truck transportation; (including the business scope of the subsidiaries) (For the projects specially provided by the State, the Company can operate after approval). Wuhan Boiler Group Co., Ltd. is the state-owned sole corporation with capital operating and assets management as its main task, which wholly-owned held by Wuhan Municipal State-owned Assets Supervisory Administration Commission. (4) The property right and controlling relationship between the Company and the actual controller are as follows: 100% 57.9% Wuhan Municipal State-owned Wuhan Boiler Wuhan Boiler Assets Supervision and Group Co., Ltd. Company Limited Administration Commission 10 SECTION V. PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES I. Basic information of directors, supervisors and senior executives (1) Particulars about Directors Number of shares held (share) Name Gender Age Title Office term Period-begin Period-end Chen Bohu Male 43 Chairman of the Board Apr. 2004-Apr. 2007 0 0 Xiang Rongwei Male 54 Director Apr. 2004-Apr. 2007 0 0 Chen Helin Male 58 Director Apr. 2004-Apr. 2007 0 0 Liu Chengxiang Male 58 Director Apr. 2004-Apr. 2007 0 0 Hua Lixin Male 42 Director Apr. 2004-Apr. 2007 0 0 Wang Zongjun Male 43 Independent Director Apr. 2004-Apr. 2007 0 0 Zhou Maorong Male 63 Independent Director Apr. 2004-Apr. 2007 0 0 Wang Haisu Male 52 Independent Director Apr. 2004-Apr. 2007 0 0 (2) Particulars about supervisors Number of shares held (share) Name Gender Age Title Office term Period-begin Period-end Zhou Zhemin Male 49 Convener Apr. 2004-Apr. 2007 0 0 Zeng Xianping Male 58 Supervisor Apr. 2004-Apr. 2007 0 0 Guo Ling Male 47 Supervisor Apr. 2004-Apr. 2007 0 0 (3) Particulars about senior executives Number of shares held (share) Name Gender Age Title Office term Period-begin Period-end Xiang Rongwei Male 54 General Manager Apr. 2004-Apr. 2007 0 0 Bai Xixin Male 43 Deputy General Manager Apr. 2004-Apr. 2007 0 0 Hua Lixin Male 42 Deputy General Manager Apr. 2004-Apr. 2007 0 0 Jin Zhicheng Male 48 Deputy General Manager Apr. 2004-Apr. 2007 0 0 Pei Hanhua Male 48 Deputy General Manager Apr. 2004-Apr. 2007 0 0 Liu Chengxiang Male 58 Secretary of the Board Apr. 2004-Apr. 2007 0 0 (4) Notes: 1. Directors, supervisors and senior executives of the Company did not hold the Company’s share. 2. The Company’s present supervisor Mr. Zeng Xianping holds the post of Deputy Chief Accountant in Wuhan Boiler Group Co., Ltd. (the controlling shareholder of the Company) since 2002 to now; the present director Mr. Chen Helin holds the post of Deputy General Manager in Wuhan Boiler Group Co., Ltd. (the controlling shareholder of the Company) since 2001 to now; the present director Mr. Hua Lixin holds Legal Representative in Wuhan Lanxiang Energy Environmental Science and 11 Technology Co., Ltd. (the shareholding subsidiary of the Company) since June 2002 to now; the rest directors, supervisors and senior executives did not hold any position in shareholding company and shareholding subsidiary of the Company. II. Major business experience of directors, supervisors and senior executives and particulars about holding the post in other companies except for Shareholding Company 1. Directors: Mr. Chen Bohu Chairman of the Board of the Company. He takes the post of Chairman of the Board of the Company since 2001. Mr. Xiang Rongwei Director and concurrently General Manager of the Company. He takes the posts of Director and concurrently General Manager of the Company since 2001. Mr. Chen Helin Director of the Company. He takes the post of Deputy General Manager in Wuhan Boiler Group Co., Ltd. since 2001. Mr. Liu Chengxiang Director and concurrently Secretary of the Board of the Company. He takes the posts of Director and concurrently Secretary of the Board in the Company since 2001. Mr. Hua Lixin Director and concurrently Deputy General Manager and Chief Engineer of the Company. He holds the posts of Deputy General Manager and Chief Engineer in the Company since 2001; and takes the post of Director of the Company since 2004. Mr. Zhou Maorong He now acts as Dean in Commercial College of Wuhan University; Deputy Director of Chinese Society of World Economy, Director of Hubei Province Society of World Economy. He acts as Independent Director of the Company form 2001. Mr. Wang Zongjun He now acts as Assistant Dean of Management School of Huazhong Polytechnic University. He acts as Independent Director of the Company form 2001. Mr. Wang Haisu He now acts as Director of MBA Education Center of Zhongnan University of Economics and Law. He took the post of Independent Supervisor from 2001 to 2004. He acts as Independent Director of the Company since 2004. 2. Supervisors: Mr. Zhou Zhemin Convener of the Supervisory Committee of the Company. He took the post of Division Chief of Supplying Division in the Company from 2001 to 2004, and he acts as Deputy Secretary 12 of the Labor Union and Convener of the Supervisory Committee in the Company since 2004. Mr. Zeng Xianping He held the post of Supervisor of the Company since 2001. He acts as Deputy Chief Accountant in Wuhan Boiler Group Co., Ltd. from 2002 till now. Mr. Guo Ling He now acts as Deputy General Manager of Wuhuan Huahan Investment and Management Co., Ltd. He takes the post of Supervisor of the Company since 2004. 3. Senior Executives Mr. Xiang Rongwei General Manager of the Company. He acts as General Manager of the Company since 2001. Mr. Bai Xixin Deputy General Manager of the Company. He acts as Deputy General Manager and concurrently Chief Economist in the Company since 2001. Mr. Hua Lixin Deputy General Manager of the Company. He acts as Deputy General Manager and concurrently Chief Engineer in the Company since 2001. Mr. Jin Zhicheng Deputy General Manager of the Company. He acts as Deputy General Manager of the Company since 2001. Mr. Pei Hanhua Deputy General Manager of the Company. He acts as Deputy General Manager of the Company since 2001. III. Particulars about the annual remuneration received by directors, supervisors and senior executives The Board of Directors determined the remuneration of directors, supervisors and senior executives based on the wage distribution system and the appraised measure of economic responsibility system set down by the Company. In 2006, the Company implemented wage distribution system based on the structure wage distribution system taking position and skill wage as main base; the monthly bonus was determined according to the appraised measure of economic responsibility system and the completion of various economic indexes and technical targets monthly, and the annual bonus was determined based on the completion of various economic indexes and technical targets and major work yearly. Name Office Title Total remuneration in 2006 (RMB) Chen Bohu Chairman of the Board 61,000 Xiang Rongwei Director and concurrently GM 55,000 Chen Helin Director 44,000 Liu Chengxiang Director and concurrently 41,000 S f h d 13 Secretary of the Board Hua Lixin Director and concurrently Deputy 43,000 GM Wang Zongjun Independent Director Receiving no remuneration and allowance from the Company Zhou Maorong Independent Director Receiving no remuneration and allowance from the Company Wang Haisu Independent Director Receiving no remuneration and allowance from the Company Zhou Zhemin Convener 32,000 Zeng Xianping Supervisor Receiving no remuneration and allowance from the Company Guo Ling Supervisor Receiving no remuneration and allowance from the Company Bai Xixin Deputy General Manager 43,000 Jin Zhicheng Deputy General Manager 43,000 Pei Hanhua Deputy General Manager 43,000 IV. Particulars about change in directors, supervisor and senior executives in the report period In the report period, the situation of holding post of director, supervisor and senior executives remained unchanged. V. About employees The Company had totally 2536 employees at the end of the report period; the details are as follows: Profession/occupation composition: Items Number of person Proportion (%) Production personnel 1599 63.05% Salesperson 33 1.30% Technician 588 23.91% Financial personnel 38 1.50% Administration personnel 278 10.96% Total 2536 100% Education Background: Items Number of person Proportion (%) Undergraduate or above 294 11.60% 3-year regular college graduate 650 25.63% Senior high school (including technical 1281 50.51% secondary school and technical school) Junior high school or lower 311 12.26% Total 2536 100% 14 SECTION VI. CORPORATE GOVERNANCE I. Company Administration Strictly according to requirements of Company Law, Securities Law, the Rules for Shares Listing in Shenzhen Stock Exchange, Administration Rules for Listed Companies, the Several Provisions on Strengthening Interests Safeguard for Shareholders of Social Public Shares and Circular on Promoting Listed Companies to Strengthen the Administration Work of Investor Relationship, the Company continually perfected corporate governance of the Company and standardized the Company’s operation. In the report period, the Board of Directors of the Company carefully studies Company Law and Securities Law promulgated newly, made self-inspection in the corporate governance of the Company, and revised the Articles of Association of the Company and other regulations and rules, which further perfect the corporate governance of the Company. II. Implementation of duties of independent directors In the report period, the Company has 3 independent directors, which reached the requirement of Guide Opinion on Establishing Independent Director System in Listed Companies promulgated by CSRC. The independent directors of the Company implemented patiently their duties, carefully examined the resolutions of all Board meetings and shareholders’ general meetings and prudently made voting, and issued independent opinion, brought a good positive function into play in the scientific decision-making of the Board of the Company and safeguard of shareholders’ legal rights and interests. (1) Particulars about the independent directors attending the Board meeting Name of Times that should Times of Times of Times of Remark Independent be attend the personal commission absence Directors Board meeting presence presence Zhou Maorong 5 4 1 0 Wang Zongjun 5 5 0 0 Wang Haisu 5 5 0 0 (2) Particulars about the independent directors proposed different opinions about the relevant matters of the Company Name Matters of objection Special contents of Remark proposed objection proposed Zhou Maorong Naught Naught Wang Zongjun Naught Naught Wang Haisu Naught Naught 15 III. Separation from the holding shareholder in personal, assets, financing, organization and business. The Company has independent personal, financing, organization and business and complete assets compared with the holding shareholder, Wuhan Boiler Group Co., Ltd. The Company conducted settlement and undertook responsibilities and risks independently. In respect of personal, the Company established independent labor, personal and salary management system. Senior executives of the Company had full time jobs and received salaries from the Company and there existed no part-time job in the controlling shareholder. Appointing and dismissing of personal was conducted strictly according to the regulations of Company Law and Articles of Association. In respect of assets, the relationship of property right between the Company and the holding shareholders was clear and there existed no occupation by controlling shareholder in terms of assets, capital and other resources. In respect of financing, the Company established independent financial accounting department and financial settlement system and financial management system, made financial decision-making independently and conducted upright management to the subsidiaries’ financing according to the requirement of strict accounting system of listed companies. The Company had independent bank account and paid tax independently according to law. In respect of organization, the establishment of organization was independent and integral, and the Company possessed the good efficiency and mechanism of operation; the duties of every organization were clear; the establishment and operation of corporate governance was strictly in accordance with Articles of Association, imported Independent Director System and established four special committees under the Board of Directors; the Company’s production operation and the executive administration was completely separate from the controlling shareholders. The Company has established organization in accordance with the demand of self-development. In respect of business, the Company has independent and integral business and the self-operation capability. The Company has independent systems of purchase, sale and production, and can complete purchase, production, and sale through our own system of purchase, production and sale. There is no competition relationship in the same industry between the Company and the controlling shareholder. (IV) Evaluation and encouragement mechanism of senior executives The evaluation and encouragement mechanism for senior executives established by the Board of Directors was mainly the annual target responsibility system. The Board of Directors combined the outstanding achievement of senior executives with such appraised indexes as the operation outstanding achievement of the Company, safe production and honest and diligent in office duties according to the whole-year operation target, which formed the evaluation and encouragement mechanism and encashed wages and performance bonus of senior executives. 16 SECTION VII. BRIEF INTRODUCTION OF SHAREHOLDERS’ GENERAL MEETING I. Notification, convening and holding of the Shareholders’ General Meeting In the report period, the Company held shareholders’ general meeting once, namely, the Annual Shareholders’ General Meeting 2005. The said meeting were witnessed by the lawyer of Hubei Songzhisheng Law Firm and issued the Legal Opinion on the Annual Shareholders’ General Meeting 2005 of Wuhan Boiler Company Limited. The names, notification, convening, holding and information disclosure of the said shareholders’ general meeting was summarized as follows: The Annual Shareholder’s General Meeting 2005 was held at the conference room of the Company on May 26, 2005. One shareholder of domestic shares attended the meeting, representing 172,000,000 state-owned corporate shares, and taking 57.92% of the Company's total share capital; three shareholders of foreign shares attended the meeting, representing 66,200 tradable shares, and taking 0.02% of the Company's total share capital. The said meeting was in compliance with the legal number of voting right on holding shareholders’ general meeting provided in the PRC Company Law and Articles of Association of the Company. The meeting was presided over by Chairman of the Board Mr. Chen Bohu, and all directors attended the meeting. The meeting approved and formed the resolutions by means of voting by open ballot. The said Shareholders’ General Meeting was witnessed and issued legal opinion by Lawyer Peng Bo of Hubei Songzhisheng Law Firm who considered that the procedure of convening and holding was in compliance with the regulations of Company Law, Articles of Association and Standard Opinion on the Shareholders’ General Meeting of Listed Companies. The said public notice was published in Securities Times and Ta Kung Pao dated May 27, 2006. 17 SECTION VIII. REPORT OF THE BOARD OF DIRECTORS 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. 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 18 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. 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 19 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 20 special-purpose projects of the state is to be operated subject to examination and approval) of energy projects (non-land-construction projects). In the report period, Lanxiang Company achieved income from main operations amounting to RMB 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 21 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 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 22 the future, the Company will raise capital demanded through such various ways as capital market, bank loan and self-raised capital combining with the Company’s operation development strategy, enhance the input of technology renovation, consequently, improve the overall quality and added value of products and R&D speed of new products, so as to lay a solid foundation for sustainable development of the Company. 5. Main risk factors and settlement ways The main products of the Company is power station boilers, but the market of power station boiler highly relies on the market establishment situation of thermal power generation sets, its upriver industry, and get the greater influence from the national macro policies and development policies and structure reformation of electric power industry, thus, there exists policy risk and market risk. In the face of policy risk and market risk, the Company will start with self-conditions, depend on such advantages as technology and talents, follow the most advanced technology in home and abroad at any moment, enhanced technology renovation, increase new products, strengthen management of market marketing, strive to keep and enlarge the existing advantage position in this industry, closely pay attention to rivals and development situation of industry, and adjust the corresponding strategies such as R&D of technology and market development timely, in order to transfer and reduce industry competition risk due to policy risk and market risk. IV. Investment of the Company in the report period 1. In the report period, the Company had no proceeds raised through share offering or the application of proceeds raised through previous share offering continued to the report period. 2. In the report period, the Company had no Investment of proceeds not raised through share offering. V. 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. 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: 23 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 24 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 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. VI. Routine work of the Board of Directors (I) About holding, resolutions and information disclosure of the Board meetings in the report period In the report period, the Board of Directors of the Company held five meetings in total, each meeting’s name, holding and information disclosure are as follows: (1) The 10th meeting of the 3rd Board of Directors was held at the meeting room of the Company on Apr. 7, 2006. The public notice related with the said Board meeting was 25 published in Securities Times and Ta Kung Pao dated Apr. 12, 2006 (2) The 11th meeting of the 3rd Board of Directors was held at the meeting room of the Company on Apr. 20, 2006. The public notice related with the said Board meeting was published in Securities Times and Ta Kung Pao dated Apr. 21, 2006. (3) The 12th meeting of the 3rd Board of Directors was held at the meeting room of the Company on Apr. 21, 2006. The public notice related with the said Board meeting was published in Securities Times and Ta Kung Pao dated Apr. 24, 2006. (4) The 13th meeting of the 3rd Board of Directors was held at the 1st meeting room of the Company on Jul. 31, 2006 The public notice related with the said Board meeting was published in Securities Times and Ta Kung Pao dated Aug. 3, 2006 (5) The 14th meeting of the 3rd Board of Directors was held at the meeting room of the Company on Oct. 20, 2006. The public notice related with the said Board meeting was published in Securities Times and Ta Kung Pao dated Oct. 24, 2006. (II) Implementation of the resolutions made at the Shareholders’ General Meeting by the Board of Directors In the report period, the Board of Directors had dutifully implemented the resolutions made at the Shareholders’ General Meeting in accordance with the requirements of relevant laws and regulations, and arranged and carried out the profit distribution plan of 2005. The Company published the Public Notice on the Implementation of the Dividend Distribution 2005 of Wuhan Boiler Co., Ltd in Securities Times and Ta Kung Pao respectively on Jul. 11, 2006. Such plan was finished on Jul. 18, 2006. VII. Preplan on profit distribution and capitalization of public reserves for the year 2006 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 aforesaid preplans need to be submitted to the Annual Shareholders’ General Meeting 2006 for examination and approval. VIII. Other issues disclosed 26 (1) The Company had designated Securities Times and Ta Kung Pao as the newspapers for information disclosure for the year 2006, and the newspapers for information disclosure remained the same in the report period. (2) Special explanation by the CPAs on the funds occupation by the controlling shareholder or other related parties The full text of the Special Explanation on the Funds Occupation by the Controlling Shareholder and Other Related Parties of Wuhan Boiler Co., Ltd produced by Wuhan Zhonghuan Certified Public Accounts Ltd had been published in the website of Shenzhen Stock Exchange and WWW.CNINFO.COM.CN. (3) Special explanations and independent opinions on the accumulated external guarantees and the external guarantees of the report period given by the independent directors Independent directors believed that the Company had strictly controlled external guarantee issues, and no guarantees had been provided for shareholders, controlling subsidiaries of shareholders, affiliated enterprises of shareholders, or other related parties that the Company held by less than 50 percent equity, any non-legal person units or any individuals. Apart from this, the Company had no other external guarantees in any form in the report period. 27 SECTION IX. REPORT OF THE SUPERVISORY COMMITTEE I. Work of the Supervisory Committee in the report period In the year 2006, the Supervisory Committee had dutifully performed their responsibilities of supervision strictly in conformity with the Company Law, Securities Law and the Articles of Association as well as the spirit of being responsible for all shareholders. The Supervisory Committee had held meetings twice in the report period, examined the proposals such as the Annual Report and the Interim Report of the Company, etc, conducted supervision over the decision-making procedures of the Board of Directors, and urged the Board of Directors and the management team to operate according to laws, so as to ensure the standardized operation of the Company’s financial issues. In the report period, the Supervisory Committee had held meetings twice, with the meeting name, convening, resolutions and information disclosure as follows: (1) On Apr. 7, 2006, the 7th meeting of the 3rd Supervisory Committee was held at the meeting room of the Company. 3 supervisors should attend and actually all of them did. The convening of the meeting had been in conformity with the regulations stipulated in the Company Law and the Articles of Association. Convener of the Supervisory Committee Mr. Zhou Zhemin presided at the meeting, and the resolutions examined and approved are as follows: 1. Examined the Work Report 2005 of the Supervisory Committee with 3 approvals 0 against and 0 abstention; 2. Examined the Annual Report 2005 and the Summary of Annual Report 2005 with 3 approvals 0 against and 0 abstention; 3. Examined the Financial Auditors’ Report 2005 of the Company with 3 approvals 0 against and 0 abstention; 4. Supervisors present at the meeting believed that: the procedures of the following proposals had been legal, i.e. the profit distribution preplan 2005 of the Company, the proposal on modifying the Articles of Association of the Company, the proposal on modifying the Rules of Procedure of the Shareholders’ General Meeting, the proposal on modifying the Rules of Procedure of the Board of Directors, the proposal on modifying the Rules of Procedure of the Supervisory Committee, the proposal on modifying the Rules of Procedure of the Special Committee of the Board of Directors, the proposal on adjusting the organization structure of the Company, the proposal on continuing to engage Wuhan Zhonghuan Certified Public Accountants Ltd and BDO Wuhan Zhonghuan Certified Public Accountants Ltd as the auditing agencies for the year 2006 and the remunerations for them, the proposal on the remunerations for the directors, supervisors and senior executives for the year 2005, and the proposal on the convening of the Shareholders’ General Meeting 2005. The Supervisory Committee 28 also believed that the Board of Directors of the Company had performed their duties honestly and diligently, and that while making the aforesaid resolutions, the Board of Directors had not gone against relevant laws, regulations, normative documents or the Articles of Association, but always done their job strictly in accordance with the overall interests of the shareholders and the Company. The public notices on the resolutions of this meeting were published in Securities Times and Ta Kung Pao on Apr. 12, 2006. (2) On Jul. 31, 2006, the 8th meeting of the 3rd Supervisory Committee was held at the meeting room of the Company. 3 supervisors should attend the meeting and actually all of them did, which was in conformity with the regulations in the Company Law and the Articles of Association. Convener of the Supervisory Committee Mr. Zhou Zhemin presided at the meeting. The Interim Report 2006 and the Summary were examined and approved with 3 approvals 0 against and 0 abstention. II. Independent opinions given by the Supervisory Committee on the following issues in the report period: (I) Operation In accordance with relevant laws and regulations, the Supervisory Committee had conducted supervision over the convening procedures and resolutions of the Shareholders’ General Meeting and the Board of Directors, the implementation by the Board of the various resolutions made at the Shareholders’ General Meeting, the duty performance of the senior executives of the Company and the management system of the Company, etc. The Committee believed that the Board of Directors of the Company had done their work 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 achievements 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 achievements of the Company for the year 2006. 29 (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. 30 SECTION X. SIGNIFICANT EVENTS I. Significant lawsuits and arbitrations The Company had no significant lawsuits or arbitrations in the report period. II. Significant purchase or sales of assets and mergers The Company had no significant events of assets purchase, assets sales or mergers. III. Related transactions (1) Merchandise purchase Details on the merchandise bought from related parties in 2006 and 2005 are as follows: Unit: RMB’0,000 Name of company Amount in 2006 Amount in 2005 Wuhan Boiler Group Valve Co., Ltd 5,036.14 5,476.33 Total 5,036.14 5,476.33 (2) Merchandise sales Details on the merchandise sold to related parties in 2006 and 2005 are as follows: Unit: RMB’0,000 Name of company Amount in 2006 Amount in 2005 Wuhan Boiler Group Valve Co., Ltd 356.98 419.62 Wuhan Boiler Group Co., Ltd 2,921.63 5,910.04 Wuhan Special Boiler Complete Equipment Co., Ltd 5,021.85 11,730.35 Wuhan Boiler Group Boiler Installation Company 5.03 - Total 8,305.49 18,060.01 IV. Significant contracts and their implementation (1) In the report period, there were no events of significant entrustment, contracting, lease of other companies’ assets by the Company or vice versa. (2) In the report period, the Company had not provided any significant external guarantees, nor had it provided guarantees for controlling subsidiaries. (3) In the reporting period, the Company has not entrusted others with cash assets management. (4) The Company had no other significant contracts in the report period. V. Neither the Company nor shareholders holding over 5 percent of shares had made any commitments in the newspapers or websites not designated. VI. Engagement or dismissal of Certified Public Accountants In the report period, the Company continued to engage Wuhan Zhonghuan Certified 31 Public Accountants and BDO Wuhan Zhonghuan Certified Public Accountants as the auditing agency, and the remunerations paid to the Certified Public Accountants in the report period are as follows: Expenses for the auditing of Annual Financial Reports 2006 Overseas: BDO Wuhan Zhonghuan Certified Public Accountants USD 85,000 Domestic: Wuhan Zhonghuan Certified Public Accountants RMB 550,000 Expenses (including expenses for board and lodging, travel, telecommunication and duplicating, etc) during the auditing work would be paid by Wuhan Zhonghuan Certified Public Accountants and BDO Wuhan Zhonghuan Certified Public Accountants. In the report period, the Company had fully paid the charges for the auditing of Financial Report 2006 to the Certified Public Accountants. In the report period, Wuhan Zhonghuan Certified Public Accountants had provided auditing services to the Company for 9 successive accounting years. BDO Wuhan Zhonghuan Certified Public Accountants had provided auditing services to the Company for 2 accounting years. VII. Survey and interview received In the report period, the Company received the call and visit patiently in accordance with the Guidelines on Fair Information Disclosure of Companies Listed. The Company and related information disclosure obligor obey the principle of Fair Information Disclosure, and implement no different treatment or divulge the non-public information ahead. VIII. Inspection and punishment received In the report period, neither the Company nor the Board or senior executives had received any administrative punishment or notice of criticism from the CSRC, or had been criticized publicly by the Stock Exchange. IX. The Company had no other significant events in the report period. X. Contingent events There was no contingent events in the report period. XI. Post balance sheet events The Company had no post balance sheet events that occurred during the period from the end of the report period to the disclosure day of this report period and needed to be disclosed. XII. Other significant events In the report period, the Company received notice from Wuhan Boiler Group Co. Ltd. (hereinafter referred to as the WB Group), the largest shareholder of the Company on Apr. 17, 2006. On Apr. 14, 2006, the WB Group signed a Share Purchase Agreement 32 of Wuhan Boiler Company Limited (hereinafter referred to as the Share Purchase Agreement) with ALSTOM (China) Investment Company Limited (hereinafter referred to as ALSTOM (China)). The related events about shares purchase as follow: 1. Transfer way: the shares purchase adopts the way of agreement transfer. 151,470,000 state-owned legal person shares of the Company (taking up 51% of total share capital of the Company) held by WB Group would be transferred to ALSTOM (China). 2. Transfer price: In accordance with the Auditors’ Report produced by Wuhan Zhonghuan Certified Public Accountants Ltd. as at Dec. 31, 2005. After auditing, the net assets per share is added to premium 5% based on RMB 2.0717, namely, net assets per share is RMB 2.1753. The total amount of share transfer is RMB 329, 494, 541.00. 3. Payment way: Such purchase has been authorized by related department of government. Subsequent to finishing of purchase agreement in the round, ALSTOM (China) would deposit all payment related with the share transfer in special account opened by WB Group. 4. The transfer of state-owned legal person shares would become effective after the confirmation of State-owned Assets Supervision & Administration Commission and the Ministry of Commerce. Subsequent to finishing of share transfer, ALSTOM (China) would hold 51% equity of the Company, and become to the utter controlling shareholder of the Company. Meanwhile, the WB Group would still hold 6.9% equity of the Company. 5. Purchase agreement price: Unlisted sponsor state-owned legal person shares of the Company is RMB 2.18 per share, which is no lower than the transfer price per share of Share Purchase Agreement and net assets per share of the Company audited in 2005. Tradable B share of the Company is HKD 2.08 per share according to 90% of arithmetic mean of each day’s weighted average price on 30 trading days before publishing the Purchase Report and Purchase Agreement Report Abstract of Wuhan Boiler Co, Ltd.. The Company published the suggestive notice on the appointed media, Securities Times and Ta Kung Pao on Apr. 14. 2006, as well as the Purchase Report and Purchase Agreement Report Abstract of Wuhan Boiler Co, Ltd. and Report on the Changes in Shares Held by Shareholders of Wuhan Boiler Co. Ltd. SECTION XI. FINANCIAL REPORT I. Auditing opinions Wuhan Zhonghuan Certified Public Accountants had audited the Financial Report 2005 of the Company and issued a standard unqualified Auditors’ Reports for the Company. (1) Auditors’ Reports (attached) (2) Accounting Statements and Notes (attached) 33 SECTION XII. DOCUMENTS FOR REFERENCE 1. Accounting Statements with the signatures and seals of the Legal Representative, Chief Accountant, and the persons in charge of the accounting departments; 2. Original of the Auditors’ Report with the signatures and seals of Chinese CPAs, as audited by Wuhan Zhonghuan Certified Public Accountants; 3. Texts of all the Company’s documents and originals of the public notices disclosed in Securities Times and Ta Kung Pao in the report period; 4. Text of the Annual Report 2006 of the Company. This Annual Report had been prepared in both Chinese and English. Should there be any ambiguities in meaning between the two versions; the one in Chinese shall prevail. Wuhan Boiler Company Limited Chairman of the Board: Chen Bohu Apr. 2, 2007 34 BDO WUHAN ZHONGHUAN Office: 18F, Block B, Wuhan International Building, Jiefang Road, Wuhan CERTIFIED PUBLIC ACCOUNTANTS Postcode:430022 Tel：(86)(27)85826771 Fax：(86)(27) 85424329 International Auditors’ Report To the shareholders of Wuhan Boiler Company Limited (Incorporated in the People’s Republic of China with limited liability) We have audited the accompanying financial statements of Wuhan Boiler Company Limited (the “Company”) and its subsidiaries (the “Group”), which comprise the balance sheet as at December 31, 2006, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility 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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2006, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. BDO Wuhan Zhonghuan Certified Public Accountants Co., Ltd Wuhan, China, April 2nd, 2007 The notes on pages 40 to 73 form an integral part of these financial statements. 35 WUHAN BOILER COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 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 The notes on pages 40 to 73 form an integral part of these financial statements. 36 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 The notes on pages 40 to 73 form an integral part of these financial statements. 37 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 The notes on pages 40 to 73 form an integral part of these financial statements. 38 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 DIRECTOR DIRECTOR The notes on pages 40 to 73 form an integral part of these financial statements. 39 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 1. General information Wuhan Boiler Company Limited (the “Company”) is a joint stock limited company incorporated in the People’s Republic of China (“PRC”) on 8 April 1998. The Company and its subsidiaries (the "Group") are mainly engaged in the manufacturing and sale of boilers within PRC. The Company’s Domestically Listed Foreign Shares (“B Shares”) are listed on the Shenzhen Stock Exchange. The address of its registered office is 586 Wuluo Road, Wuhan City, Hubei Province. 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") including International Accounting Standards and Interpretations issued by the International Accounting Standards Board(IASB). This basis of accounting differs from that used in the preparation of the statutory financial statements in PRC (“the statutory financial statements”). The statutory financial statements of the Company and its subsidiaries comprising the Group have been prepared in accordance with relevant accounting principles and regulations applicable to them, as appropriate in the PRC. Appropriate adjustments have been made to the statutory financial statements to conform to IFRS. Differences arising from the restatement have not been incorporated in the statutory accounting records of the Group. The consolidated financial statements are prepared under the historical cost convention. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4. The notes on pages 40 to 73 form an integral part of these financial statements. 40 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. Adoption of new and revised 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( IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for annual reporting periods beginning on 1 January, 2006. Item Content Effective date IAS 19(revised) Employee benefits option to recognise actuarial 1 January 2006 gains and losses in full, outside profit or loss, in a statement of changes in equity IAS 21(revised) the amendment for net investment in a foreign 1 January 2006 entity IAS39(revised) Fair value option and guarantees 1 January 2006 IFRS 4 Insurance contracts 1 January 2006 IFRS 6 Exploration for and evaluation of mineral 1 January 2006 resources (and concurrent amendments to IFRS1, IAS 16 & IAS38) The adoption of these new and revised Standards and Interpretations did not result in substantial changes to the Group’s accounting policies for the current or prior years. Consolidation (a) Subsidiaries Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or presently convertible are considered when assessing whether the Group controls another entity. The notes on pages 40 to 73 form an integral part of these financial statements. 41 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement (see Note 2.7[a]). Inter-company transactions, balances and unrealised gains on transactions between Group’s entities are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (b) Transaction and minority interests Minority interest is that part of the net results of operations and of net assets of a subsidiary attributable to interests which are not owned directly or indirectly by the Group. Details of the Group’s subsidiaries are set out in Note 32. Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns which are different from those of segments operating in other economic environments. The notes on pages 40 to 73 form an integral part of these financial statements. 42 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 Foreign currency translation (a) Functional and presentation currency Items included in the accounts of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Renminbi (“RMB”), which is the functional and presentation currency of the Company. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates stipulated by the People’s Bank of China prevailing on the first day of the month in which the transactions took place. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Property, plant and equipment (a) All property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Depreciation of the property, plant and equipment is calculated to write off their cost of the assets on the straight-line basis over their expected useful lives to the Group, taking into account their estimated residual value. The principal annual depreciation rates used are: Plant and office premises 3 – 6.5% Production equipment and machinery 5 – 14% Motor vehicles 16% Furniture, fixtures and office equipment 19 – 24% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. The notes on pages 40 to 73 form an integral part of these financial statements. 43 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 (b) Construction in progress represents factory premises under construction, and production plants and machinery and other related fixed assets under installation. Construction in progress is stated at cost, which includes the cost of construction, purchase cost of plant and machinery, as well as interest charges arising from borrowings used to finance the construction during the period of time that is required to complete and prepare the asset for its intended use. Construction in progress for production plants and machinery is transferred to fixed assets on the commissioning date. Plant and machinery are considered to be commissioned when they are capable of producing saleable quality output in commercial quantities on an ongoing basis. (c) An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.8). (d) Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. (e) Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Intangible assets (a) Goodwill (i) Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. (ii) Goodwill arising from business combinations are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. It carried at cost less accumulated impairment losses. Gains and The notes on pages 40 to 73 form an integral part of these financial statements. 44 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing (note 2.8). (b) Proprietary technology and patent Proprietary technology and patent are shown at historical cost. Proprietary technology and patent have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of proprietary technology and patent over their estimated useful lives of not more than 15 years. (c) Research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if the cost can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have been capitalised are amortised from the commencement of the commercial production of the product on a straight-line basis over the period of its expected benefit, not exceeding five years. Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of The notes on pages 40 to 73 form an integral part of these financial statements. 45 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 the impairment at each reporting date. Financial assets The Group’s financial assets are mainly the loans and receivables. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are included in trade receivables, other receivables, prepayments and deposits in the balance sheet. Loans and receivables are measured at amortised cost using the effective interest method less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables where the recognition of interest would be immaterial. Inventories Inventories are stated at the lower of cost or net realisable value. Cost of raw materials represents invoiced price calculated using the weighted average costing method. Cost of work in progress and finished goods includes direct materials, direct labour and an appropriate proportion of production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses. Construction contracts A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and functions or their ultimate purpose or use. When the outcome of a construction contract cannot be estimated reliably, contract The notes on pages 40 to 73 form an integral part of these financial statements. 46 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 revenue is recognised only to the extent of contract costs incurred where it is probable those costs will be recoverable. Contract costs are recognised when incurred. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised over the period of the contract, respectively, as revenue and expenses. The Group uses the percentage of completion method to determine the appropriate amount of revenue and costs to recognise in a given period; the percentage of completion is measured by reference to the relationship that contract costs incurred for work performed to date bear to the estimated total costs for the contract. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Construction contract costs include direct materials, subcontracting cost, direct labor and an appropriate proportion of variable and fixed production overheads. In determining costs incurred up to the year-end, any costs relating to future activity on a contract are excluded and shown as contract work in progress. The aggregate of the costs incurred plus the profit less losses recognised on each contract is compared against the progress billings up to the balance sheet date. When contract costs incurred plus recognised profits less recognised losses exceed progress billings, the balance is shown as due from contract customers. When progress billings exceed contract costs incurred plus recognised profits less recognised losses, the balance is shown as due to contract customers. Trade receivables Trade receivables include progress billings in accordance with the contracts terms and retention monies receivable. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less provision for impairment. A provision for impairment of trade receivables is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement. The notes on pages 40 to 73 form an integral part of these financial statements. 47 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 Cash and cash equivalents Cash and cash equivalents include cash in hand and deposits held at call with banks. Share capital Ordinary shares are classified as equity. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds net of transaction costs and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowing costs that are directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to be ready for their intended use or sale are capitalised as part of the costs of the assets. All other borrowing costs are expensed. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Taxation PRC income taxes are provided for based on the taxable assessable profits and the applicable tax rates for the Group’s entities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting profit or loss nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax The notes on pages 40 to 73 form an integral part of these financial statements. 48 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Retirement scheme Pension obligations The Group participates in a defined contribution retirement scheme (the “Scheme”) operated by the local government. The Group's obligations include contributions to the Scheme determined at a certain percentage of the salaries of the employees. The regular contributions, which are charged to the income statement on an accrual basis, constitute net periodic costs for the year in which they are due and as such are included in staff costs. Once the contributions have been paid, the Group has no further payment obligations. Provision Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Government grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all The notes on pages 40 to 73 form an integral part of these financial statements. 49 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 attached conditions. Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to the income statement on a straight-line basis over the expected lives of the related assets. Warranty The Group recognises the estimated liability to repair or replace products still under warranty at the balance sheet date. This provision is calculated based on certain percentage of the completed contract cost which is determined by reference to past history of the level of repairs and replacements. Revenue recognition Revenue comprises the fair value for the sale of goods and services, net of value-added tax, rebates and discounts and after eliminated sales within the Group. Revenue is recognised as follows: (a) Sales of goods Revenue from construction contracts is based on the stage of completion determined by reference to the cost incurred to date as a percentage of total cost to be incurred. Refer to Note 2.11 for sales recognition in relation to construction. (b) Interest income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income. (c) Dividend income Dividend income is recognised when the right to receive payment is established. The notes on pages 40 to 73 form an integral part of these financial statements. 50 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 Leases (a) A group company is the lessee Leases of property, plant and equipment over which the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance cost is charged to the consolidated income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. If there is reasonable certainty that the lessee will obtain ownership by the end of the lease term, the property, plant and equipment acquired under finance leases is depreciated over the useful life of the asset; otherwise the property, plant and equipment is depreciated over the shorter of the lease term and its useful life. Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated income statement on a straight-line basis over the period of relevant leases. (b) A group company is the lessor Assets leased out under operating leases are included in property, plant and equipment in the consolidated balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term. Dividend distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s consolidated financial statements in the period in which the dividends are The notes on pages 40 to 73 form an integral part of these financial statements. 51 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 approved by the Company’s shareholders. 3. Financial risk management (a) Financial risk factors The Group’s activities expose it to a variety of financial risks: foreign exchange risk, credit risk, liquidity risk and cash flow interest-rate risk. (i) Foreign exchange risk The Group’s entities operate in the PRC with most of the transactions denominated in Renminbi. The Group is exposed to foreign exchange risk arising from the exposure of Renminbi against USD and HKD. The Group has not hedged its foreign exchange rate risk. In addition, the conversion of Renminbi into foreign currencies is subject to the rules and regulations of the foreign exchange control promulgated by the PRC government. (ii) Credit risk The Group has no significant concentrations of credit risks. The carrying amount of the trade receivables included in the consolidated balance sheet represent the Group’s maximum exposure to credit risk in relation to its financial assets. (iii) Liquidity risk The Group ensures that it maintains sufficient cash and credit lines to meet its liquidity requirements. (iv) Cash flow and fair value interest rate risk As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are substantially independent of changes in market interest The notes on pages 40 to 73 form an integral part of these financial statements. 52 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 rates. The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group has not hedged its cash flow and fair value interest rate risk. (b) Fair value estimation The carrying amounts of the following financial instruments approximate to their fair values: Cash and cash equivalents, trade receivables, other receivables, prepayments and deposits, trade payables, construction costs payable, accrued charged and deposits received other non-current liabilities and borrowings. 4. Critical accounting estimates and assumptions Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The result of accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (a) Estimated impairment of goodwill The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 2.8. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates. The notes on pages 40 to 73 form an integral part of these financial statements. 53 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 (b) Estimated impairment of property, plant and equipment and available-for-sale investments Property, plant and equipment and available-for-sales investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amounts of property, plant and equipment and available-for-sale investments have been determined based on value-in-use calculations. These calculation and valuations require the use of judgement and estimates. (c) Current taxation and deferred taxation The Group is subject to taxation in the PRC. Significant judgement is required in determining the amount of the provision for taxation and the timing of payment of the related taxations. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will impact the income tax and deferred tax provisions in the periods in which such determination are made. 5. Segment information No business segment information of the Group is presented as the Group’s sales, expenses, assets and liabilities are primarily attributable to manufacturing and sales of boilers and related products. No geographical segment information has been prepared as the sales recognised in 2006 and 2005 arose from the sale of boilers under long-term contracts within the PRC. All the operating assets of the Group are located in PRC. 2006 2005 RMB’000 RMB’000 Sales 2,289,197 2,874,192 Revenue arising from interest income is disclosed in note 7. 6. Staff costs 2006 2005 RMB’000 RMB’000 The notes on pages 40 to 73 form an integral part of these financial statements. 54 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 Wages and salaries 63,810 62,961 Retirement benefits (Note 28) 9,744 9,444 Other social security costs 18,767 18,898 92,321 91,303 Average number of persons employed by the Group during the year 2,928 2,727 7. Finance costs, net 2006 2005 RMB’000 RMB’000 Interest income arising from bank deposits 7,411 7,183 Net foreign exchange transaction (losses)/ gains (528) (2,287) Interest expenses in relation to - bank borrowings (44,823) (48,955) - finance lease (1,556) (44,823) (50,512) Bank charges (759) (1,138) (38,701) (46,754) 8. Income tax expense 2006 2005 RMB’000 RMB’000 Current tax 18,387 16,220 Deferred tax (Note 14) (7,197) (1,094) 11,190 15,126 Pursuant to a document “Shui Shou Er zi [1998] No. 2” issued by the Wuhan Local Tax Bureau regarding collective payment of income tax, income tax of the Company is collectively paid through Wuhan Boiler (Group) Company Limited (“WHBG”), the parent of the Company. The notes on pages 40 to 73 form an integral part of these financial statements. 55 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the effective tax rate of the Company is analysed as follows: 2006 2005 RMB’000 RMB’000 Profit before tax 32,976 72,158 Tax calculated at the effective rate of 33% (2005: 33%) 10,882 23,812 Effect of different tax rate applicable to a subsidiary * (8,387) (2,136) Other income not subject to tax (2,813) （7,738） Expenses not deductible for tax purposes 11,508 1,188 Tax expense 11,190 15,126 * A subsidiary, Wuhan Lan Xiang Power Environmental Protection Technology Co., Ltd, enjoyed 50% exemption on income tax for the year ended 31 December 2006. 9. Earnings per share 2006 2005 RMB’000 RMB’000 Profit attributable to shares holders of the Company (RMB’000) 17,612 51,961 Weighted average number of ordinary shares in issue (thousand) 297,000 297,000 Basic and diluted earnings per share (RMB per share) 0.059 0.175 The diluted earnings per share is equivalent to the basic earnings per share as there were no potential ordinary shares outstanding during the years ended 31 December 2006 and 2005. 10. Property, plant and equipment The notes on pages 40 to 73 form an integral part of these financial statements. 56 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 Production Furniture, Plant and equipments fixtures office and Motor and office premises machineries vehicles equipments Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Year ended 31 December 2005 Opening net book amount 104,660 109,989 7,880 3,922 226,451 Acquisition of subsidiary 4,920 5,170 371 184 10,645 Additions 2,684 15,599 1,819 1,881 21,983 Transfer out (4,525) - (1,036) (196) (5,757) Disposals (19,557) (4,000) (860) (1954) (26,371) Depreciation (6,223) (15,566) (1,578) (1,244) (24,611) Impairment - (300) - - (300) Closing net book amount 81,959 110,892 6,596 2,593 202,040 At 31 December 2005 Cost 170,572 297,821 14,396 5806 488,595 Impairment (617) (122) (739) Accumulated depreciation (88,613) (186,312) (7,800) (3,091) (285,816) Net book amount 81,959 110,892 6,596 2,593 202,040 Year ended 31 December 2006 Opening net book amount 81,959 110,892 6,596 2,593 202,040 Additions 2,963 12,626 2,110 827 18,526 Transfer out (3,061) (3,644) (1,102) (349) (8,156) Disposals (8,568) (701) (9,269) Depreciation (5,839) (17,775) (1,537) (1,088) (26,239) Impairment (45) (2) (47) Closing net book amount 76,022 93,486 5,366 1,981 176,855 At 31 December 2006 Cost 168,546 293,735 13,630 6,046 481,957 Impairment (662) (124) (786) Accumulated depreciation (92,524) (199,587) (8,264) (3,941) (304,316) Net book amount 76,022 93,486 5,366 1,981 176,855 The Company’s plant and office premises are located in Wuhan city, Hubei Province, the PRC. The land where the properties are situated is leased from WHBG for a The notes on pages 40 to 73 form an integral part of these financial statements. 57 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 period of 50 years. No plant and office premises of the Company have been pledged to a bank for securing loan facilities granted to the Company. The previous finance leased equipments have reached the end of the lease term and such assets have been transferred to the Group in fiscal year 2006. 11. Construction in progress 2006 2005 RMB’000 RMB’000 Opening net book value 2,311 4,756 Additions 2,378 1,352 Transfer to property, plant and equipment (3,715) (3,797) Closing net book value 974 2,311 Construction in progress represents production equipment under installation and is stated at cost. No interest expenses occurred during the current year contrasted to previous year in which interest expenses amounting to RMB 1,396 were capitalised in 2005. 12. Intangible assets Proprietary technology Goodwill and patent Total RMB’000 RMB’000 RMB’000 At 1 January 2005 Cost 1,683 57,621 59,304 Accumulated amortisation (777) (18,518) (19,295) Net book value 906 39,103 40,009 The notes on pages 40 to 73 form an integral part of these financial statements. 58 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 Proprietary technology Goodwill and patent Total RMB’000 RMB’000 RMB’000 Year ended 31 December 2005 Opening net book value 906 39,103 40,009 Addition 4,521 420 4,941 Disposal (728) - (728) Amortisation (178) (6,185) (6,363) Closing net book value 4,521 33,338 37,859 Year ended 31 December 2006 Opening net book value 4,521 33,338 37,859 Addition Disposal Amortisation (6,195) (6,195) Closing net book value 4,521 27,143 31,664 At 31 December 2006 Cost 6,227 58,041 64,268 Accumulated amortisation (1,706) (30,898) (32,604) Net book value 4,521 27,143 31,664 The Directors of the Company are of the opinion that the underlying fair value of the intangible assets was not less than its carrying amount as at 31 December 2006. 13. Deferred tax assets Deferred taxation is calculated on all temporary differences under the liability method using an enacted tax rate of 33% (2005: 33%). 2006 2005 The notes on pages 40 to 73 form an integral part of these financial statements. 59 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 RMB’000 RMB’000 Deferred tax assets: - To be recovered after more than 12 months 10,855 3,659 - To be recovered within 12 months - 10,855 3,659 The movement on the deferred taxation account is as follows: 2006 2005 RMB’000 RMB’000 At beginning of the year 3,659 2,565 Income statement credit (Note 8) 7,197 1,094 At end of the year 10,856 3,659 Deferred tax assets and deferred tax credit in the consolidated income statement are attributable to the following items: Income Statement 2005 Credit/(Debit) 2006 RMB’000 RMB’000 RMB’000 Deferred income tax assets - Temporary difference in respect of provision for impairment loss of inventories 1,453 1,453 - Temporary difference in respect of provision for impairment loss of fixed assets 274 (15) 259 - Temporary difference in respect of provision for bad and doubtful debts 3,385 5,759 9,144 3,659 7,197 10,856 14. Inventories The notes on pages 40 to 73 form an integral part of these financial statements. 60 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 2006 2005 RMB’000 RMB’000 Inventories (at cost) 47,489 186,419 Inventories (at net realisable value) 262,916 313,537 310,405 499,956 Certain raw materials have been written down by RMB 4,399,411 (2005: RMB 984,526) to their estimated net realisable value. 15. Construction contract work in progress 2006 2005 RMB’000 RMB’000 Contract costs incurred and recognised profits (less losses) 1,121,088 2,531,696 Progress billings (627,398) (2,263,578) 493,690 268,118 Comprising: - Due from contract customers 500,687 620,786 - Due to contract customers (6,997) (352,668) 493,690 268,118 16. Trade receivables 2006 2005 RMB’000 RMB’000 Trade receivables 1,510,271 769,572 Less: Provision for bad and doubtful debts (89,435) (6,153) 1,420,836 763,419 17. Amounts due from fellow subsidiaries The notes on pages 40 to 73 form an integral part of these financial statements. 61 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 Amounts due from fellow subsidiaries are substantially derived from normal trading transactions. The amounts are unsecured, non-interest bearing and with no fixed repayment terms. 2006 2005 RMB’000 RMB’000 Wuhan Special Boiler Complete Equipment Engineering Company Limited 25,037 44,937 Wuhan Boiler (Group) Valve Company Limited 20,729 Wuhan Boiler Group Boiler Installation Company Limited 100 Wuhan Boiler (Group) Yuntong Company Limited 140 Others 2 46,008 44,937 18. Other receivables, deposits and prepayments 2006 2005 RMB’000 RMB’000 Other receivables 11,410 9,478 Purchase deposits and other prepayments 125,132 624,484 136,542 633,962 19. Cash and bank balances The notes on pages 40 to 73 form an integral part of these financial statements. 62 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 2006 2005 RMB’000 RMB’000 Cash and cash equivalents: Cash at bank and in hand 101,966 307,652 Fixed deposits – unpledged - 101,966 307,652 Pledged or guaranteed deposits Fixed deposits – pledged - Bank guarantee saving deposits * 167,691 343,286 167,691 343,286 Total cash and bank balances 269,657 650,938 * Bank guarantee saving deposits have been pledged to banks to guarantee notes payable issued by the Company and the letters of guarantee issued by the banks. 20. Share capital 2006 2005 RMB’000 RMB’000 Registered, issued and fully paid of RMB1 each Domestic legal person shares 172,000 172,000 B shares, listed 125,000 125,000 297,000 297,000 Pursuant to Articles 31 and 35 of the Company's Articles of Association, domestic legal person shares and B shares are registered ordinary shares carrying equal rights. Domestic legal person shares are not listed and not freely transferable, unless specifically approved by the relevant government authorities. 21. Reserves The notes on pages 40 to 73 form an integral part of these financial statements. 63 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 (a) Capital reserve and share premium Capital reserve comprises surplus arising on the difference between the nominal value of state shares issued to WHBG, the parent company, in exchange for the value of the transfer of boiler business related assets and liabilities to the Company and the non-distributable reserve arising from the forfeiture of deposits from customers. Share premium represents the premium on the issue of B shares to the foreign investors. Pursuant to the relevant PRC regulations, capital reserve and share premium can only be used to increase share capital. Pursuant to the Accounting System for Business Enterprises of the PRC, any gains arising from forfeiture of deposits from customers are directly reflected in capital reserve and therefore not distributable. Accordingly, a transfer has been made from retained earnings to reflect its non-distributable nature. (b) Reserve funds In accordance with the relevant PRC regulations applicable to joint stock limited companies and the Company’s Articles of Association, the Group is required to allocate its profit after tax to the following reserves: (i) Statutory surplus reserve funds The Group is required each year to transfer 10% of the profit after tax as reported under the PRC statutory financial statements to the statutory surplus reserve funds until the balance reaches 50% of the registered share capital. This reserve can be used to make up any losses incurred or to increase share capital. Except for the reduction of losses incurred, any other application should not result in this reserve balance falling below 25% of the registered capital. (ii) Statutory public welfare funds The Group is required each year to transfer 10% of the profit after taxation in previous year as reported under the PRC statutory financial statements to the The notes on pages 40 to 73 form an integral part of these financial statements. 64 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 statutory public welfare funds. According to the Company Law issued in 2005, the statutory public welfare fund is abolished since January 1st, 2006. (c) Profit distributable to shareholders Pursuant to a document issued by the Ministry of Finance, the profit after appropriation to reserves and available for distribution as dividend shall be the lower of the amount as stated in the PRC statutory financial statements and the financial statements prepared under IFRS. At 31 December 2006, the Group's retained earnings according to the PRC statutory financial statements amounted to RMB 94,765,688.27 (2005: RMB 96,112,848.85). The Company was transformed from a state-owned enterprise to a joint stock limited company on 8 April 1998 under a reorganisation scheme. Pursuant to a Board resolution of WHBG on 27 November 1997, the profits generated from 1 October 1997 (the completion date of the reorganisation) and onwards are distributable to all shareholders and profits generated before 1 October 1997 are distributable to WHBG only. Retained earnings as at 31 December 2006 include RMB28,515,000 of profits generated before 1 October 1997. (d) Dividend Pursuant to a Board resolution on April 2nd, 2006, a cash dividend of RMB 0. 02 per share for the fiscal year 2006, amounting to dividends totalling RMB 5,940,000, was declared during the year. (2005: RMB10,395,000) 22. Minority interests 2006 2005 RMB’000 RMB’000 At beginning of year 19,779 17,586 Share of net profit of subsidiaries 4174 5,071 Dividend distribution (2,496) (2,878) At end of year 21,457 19,779 23. Other payables and accrued charges The notes on pages 40 to 73 form an integral part of these financial statements. 65 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 2006 2005 RMB’000 RMB’000 Other payables 100,498 120,203 Warranty provision * 71,990 39,044 Accrued charges 17,060 777 189,548 160,024 * The Company provides one-year warranties in respect of the sale of boilers and undertakes to repair or replace items that fail to perform satisfactorily. The provision is estimated by reference to the expected warranty claims calculated at certain percentage of the completed construction contract cost, after taking into account the past experience of the level of repairs and returns. The movement of warranty provision is as follows: 2006 2005 RMB’000 RMB’000 Opening net book value 39,044 37,855 Accruals 70,063 78,792 Utilisation (37,117) (77,603) Closing net book value 71,990 39,044 24. Amount due to parent company The amount due to parent company, WHBG, was derived from the transactions as set out in Note 31. The amount is unsecured, non-interest bearing and with no fixed repayment terms. 25. Amounts due to fellow subsidiaries These represent current account balances arising on transactions entered into in the normal course of business. The amounts are unsecured, non-interest bearing and with The notes on pages 40 to 73 form an integral part of these financial statements. 66 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 no fixed repayment terms. 2006 2005 RMB’000 RMB’000 Wuhan Boiler Group Boiler Installation Company Limited 1,252 383 Wuhan Boiler (Group) Yuntong Company Limited 6,164 33,346 Wuhan Special Boiler Complete Equipment Engineering Company Limited 500 4,308 Wuhan Boiler (Group) Valve Company Limited 8,185 14,884 Other 21 16,122 52,921 26. Borrowings 2006 2005 RMB’000 RMB’000 Current - Secured bank borrowings - - Unsecured bank borrowings 647,000 353,500 - Secured finance lease liability * 14,042 - Long-term loan due within 1 year 50,000 - 697,000 367,542 Non-current - Unsecured bank borrowings 140,000 140,000 140,000 140,000 Total borrowings 837,000 507,542 The bank borrowings are secured over both bank guarantee saving deposits and guarantees by WHBG. The unsecured borrowings are supported by guarantees provided by the following parties: The notes on pages 40 to 73 form an integral part of these financial statements. 67 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 2006 2005 RMB’000 RMB’000 Parent company – WHBG 50,000 353,500 The interest rate exposure of the borrowings of the Group is as follows: 2006 2005 RMB’000 RMB’000 At fixed rates 514,000 493,500 At floating rates 323,000 14,042 Total borrowings 837,000 507,542 Weighted average effective interest rate - bank borrowings 6.29% 5.49% - finance lease liability 7.99% - loan from a finance lease company 7.99% There are no material differences between the fair value and carrying amount of the Group’s borrowings. The fair values are based on discounted cash flows using a discount rate similar to the borrowing rate that the Directors believe would be available to the Group at the balance sheet date. Maturity of non-current borrowings (excluding finance lease liability): 2006 2005 RMB’000 RMB’000 Between 1 and 2 years 50,000 Between 2 and 5 years 140,000 90,000 140,000 140,000 27. Cash generated from/(used in) operations The notes on pages 40 to 73 form an integral part of these financial statements. 68 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 Reconciliation of net profit to cash generated from operations 2006 2005 RMB’000 RMB’000 Profit from ordinary activities after tax 21,786 57,032 Adjustments for: Tax charge (Note 8) 11,190 15,126 Depreciation (Note 10) 26,239 24,611 Cost of prepaid lease recognised as expenses 150 150 Provision of impairment loss on property, plant and equipment (Note 10) 47 300 Provision of impairment loss on inventories 3,415 Reversal impairment of inventories (Note 14) (411) Provision for bad debts and doubtful debts 31,308 5,145 Loss on disposal of property, plant and equipment (198) 3,095 Amortisation of intangible assets (Note 12) 6,195 6,363 Interest expenses (Note 7) 45,584 51,650 Donations (27) Government grant (550) Interest income (Note 7) (7,411) (7,183) Loss on foreign currency exchange difference 2,288 Changes in working capital: Decrease/ (Increase) in inventories 192,965 (240,475) Decrease /(Increase) in due from contract customers, trade receivables, amount due from parent company, amounts due from fellow subsidiaries, other receivables, deposits and prepayments (5,737) (49,248) The notes on pages 40 to 73 form an integral part of these financial statements. 69 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 2006 2005 RMB’000 RMB’000 Increase in due to contract customers, bills payable, trade payables, amounts due to fellow subsidiaries, deposits received from customers, other payables and accrued charges (948,337) 567,357 Cash generated from /(used in) operations (623,381) 435,800 28. Retirement scheme The Group participates in a defined contribution retirement scheme organised by the Wuhan Municipal Government for all employees. The Group's contribution to the scheme is provided at 20% (2005: 20%) of the prior year’s total salary for permanent employees. The contribution to the retirement scheme for the year ended 31 December 2006 amounted to RMB 13,813,059.48 (2005: RMB 9,444,000). Other than the above, the Group has no other retirement benefit obligations. 29. Contingent liability The Group had no material contingent liability as at 31 December 2006. 30. Commitments 2006 RMB’000 Not later than 1 year 7,610 7,610 The annual rental for land use right was changed to RMB 6,500,000 in current year. 31. Related party transactions and relationships (a) Apart from those related party transactions disclosed in other notes above, the Group had the following material transactions with its related parties during the year: The notes on pages 40 to 73 form an integral part of these financial statements. 70 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 2006 2005 RMB’000 RMB’000 WHBG - Sale of boilers * 83,055 59,100 - - Operating lease payment * 6,500 1,320 Subsidiaries of WHBG - Purchases of boiler parts and sub-contracting charges paid * 50,361 54,763 - Sales of boilers, raw materials and boiler parts * 83,055 121,500 - Payments for installation and transportation services * 77,205 78,046 - Rental expense * 541 * In the opinion of the Directors of the Company, these transactions were carried out on normal commercial terms and the prices as agreed between the contracting parties. (b) Relationships In the opinion of the Directors of the Company, the ultimate parent company of the Company is WHBG, a state-owned enterprise incorporated in the PRC. (c) Directors’ remuneration A listing of the members of the Board of Directors is shown in 2006 Annual Report. The total remuneration of the Directors approximated RMB 405,000 for the year (2005: RMB 450,000). 32. Subsidiaries As at the balance sheet date, the Company directly held equity interests in the following The notes on pages 40 to 73 form an integral part of these financial statements. 71 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 PRC established subsidiaries: Attributable Name equity interest Principal activities 2006 2005 % % Wuhan Boiler BoYu Complementary Design of packaging, Mechanism of Electronic Station manufacturing of steel 90 90 Company Limited and paint Wuhan Lan Xiang Power Consultancy, research Environmental Protection Technology and design of boilers 70 70 Company Limited and environmental projects. WuHan WuGuo ZhiXin Environmental Manufacturing and sale Protection Equipment Manufacturing of environmental 51 51 Co., Ltd. protection boilers, components and steel structures. 33. Other significant events The parent company has reached an acquisition agreement with Alstom (China) investment Co., Ltd on April 17th, 2006. The WHBG will dispose its 51% holding shares to Alstom (China) investment Co., Ltd as defined in the agreement. The approval of share disposal schedule is undergoing by relevant authority as of balance sheet date.. The Company has entered “removal compensation agreement” and “removal programme agreement” with the parent company WHBG as announced on April 24th, 2006 which the Company will relocate to Fozhuling engineer industry zone of Wuhan East Lake High-tech Development Zoo before September 20th, 2008 according to acquisition plan by Alstom (China) investment Co., Ltd. The Company has reached a letter of intent with Wuhan East Lake High-tech Development Zoo Committee in April 2006. The Company will purchase land use right of 629 mu area in Fozhuling engineer industry zone of Wuhan East Lake High-tech Development Zoo to build new plants according to the letter of intent. 34. Approval of consolidated financial statements The consolidated financial statements were approved by the Board of Directors on nd April 2 , 2007. The notes on pages 40 to 73 form an integral part of these financial statements. 72 WUHAN BOILER COMPANY LIMITED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 36. The impact of IFRS adjustments on the PRC statutory consolidated financial statements is as follows: Net profit Net assets RMB’000 RMB’000 As per the PRC statutory consolidated financial statements 10,053 615,539 IFRS and other adjustments - Donated cash 27 - Government grant 550 - Deferred tax 7,197 10,856 - Forfeited customer deposit 1 - Minority interest 4,174 21,457 - Investment incomes 452 528 - Written off long-time investment revaluation surplus (635) - Others (668) As restated after IFRS adjustments 21,786 647,745 The notes on pages 40 to 73 form an integral part of these financial statements. 73