深基地Ｂ(200053)2007年年度报告（英文版）

SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO LTD 2007’S ANNUAL REPORT Important Notes: 1． The directors, supervisors and senior managers guarantee that there exists no omission, misstatement, or misleading information in this annual report. The directors, supervisors and senior managers are responsible, individually and jointly, for the authenticity, accuracy and integrity of the information herein. There is no director, supervisor or senior manager who cannot guarantee the authenticity, accuracy and integrity of the content of this annual reportor does not agree with this report. All directors were present on the meeting. 2． The Annual Report is written in both English and Chinese. In case of conflict between the two versions, Chinese version shall prevail. 3． PricewaterhouseCoopers presented audit reports with standard and non-reserved opinion for the Company. 4． Mr. Han Guimao, the Chairman of the Board, Mr. Huang Fanzhi, the Financial Controller, and Ms. Yu Zhongxia, the Financial Manager, guarantee the authenticity and integrity of the financial result of this annual report. 1 Catalogue PART I. Company Profile 3 PART II. Highlights for Accounting and Business Data 4 PART III. Change for Contributed Capital and Shareholders 6 PART IV. Information of Directors, Supervisors, Senior Managers 9 PART V. Corporate Governance 13 PART VI. Review of Shareholder’ General Meetings 17 PART VII. The Board Report 17 PART VIII. The Supervisory Committee Report 22 PART IX. Significant Events 22 PART X. Financial Statements 27 PART XI. Documents Available for Verification 27 2 PART I. Company Profile: Name of the Company Shenzhen Chiwan Petroleum Supply Base Co., Ltd (“Chiwan Base”) Legal Representative Mr. Han Guimao Secretary of the Board Mr. Fu Jialin Securities Representative Mr. Song Tao Tel 26694211 Fax 26694227 E-mail Address sa@chiwanbase.com Office Address 14/F, Chiwan Petroleum Building, Chiwan, Nanshan District, Shenzhen, PRC Post Code 518068 E-mail Address sa@chiwanbase.com Website of the Company Designated Newspapers for “Securities Times”, ”Wen Wei Po” Information Disclosure Website for Publishing the http://www.cninfo.com.cn Annual Report Place where the Annual Secretary Department of Chiwan Base Report is available Stock Exchange Shenzhen Stock Exchange Stock Series Chiwan Base -B Stock Code 200053 Date of Initial Registration 24th July 1995 Initial Registration Address Industry and Commerce Administration Bureau of Shenzhen, Guangdong, PRC Registration Number for QGYSZZ No. 101031 Business License Number of Taxation 440301618833899 (N) Registration 440305618833899 (L) Certified Public Accountants PriceWaterhouseCoopers 3 PART II. Highlights of the Accounting and Business Data I. Accounting Data (Unit: RMB) Increase/decre 2007 2006 2005 ase（％） Before After After Before After adjustment adjustment adjustment adjustment adjustment Revenue 233,589,293 194,705,759 194,905,934 19.85% 164,468,106 164,610,056 Profit before tax 121,334,080 146,006,434 149,009,457 -18.57% 124,452,763 125,487,317 Net profit 112,170,424 136,256,670 139,259,693 -19.45% 114,725,739 115,760,293 Net profit after deducting non-recurring 112,486,304 136,552,196 140,042,077 -19.68% 114,760,316 115,794,870 gains&losses Net cash flows from operating activities 155,310,359 107,725,133 107,725,133 44.17% 107,404,321 107,128,522 Increase/decre End of 2007 End of 2006 End of 2005 ase（％） Before After After Before After adjustment adjustment adjustment adjustment adjustment Total assets 1,694,964,593 1,280,440,102 1,284,606,108 31.94% 942,236,964 943,261,929 Shareholders’ equity 856,548,016 810,364,166 814,177,465 5.20% 741,389,481 742,414,446 According to the regulations of Enterprise Accounting Standards, the Company has implemented the new accounting standards since January 1, 2007. There are no differences of net profits and net assets compared with IFRS. II. Main Financial Indices (Unit: RMB) Increase/decre 2007 2006 2005 ase（％） Before After After Before After adjustment adjustment adjustment adjustment adjustment EPS 0.49 0.59 0.60 -18.33% 0.54 0.54 Diluted EPS 0.49 0.59 0.60 -18.33% 0.50 0.50 EPS after deducting non-recurring 0.49 0.59 0.61 -19.67% 0.50 0.50 gains&losses Fully diluted ROE 13.10% 16.81% 17.10% -4.00 percent 15.47% 15.59% Weight average ROE 13.52% 17.67% 17.96% -4.44 percent 16.39% 16.52% Fully diluted ROE after deducting of 13.13% 16.91% 17.20% -4.07 percent 15.52% 15.60% non-recurring gains & loses Weight average ROE after deducting of 13.56% 17.73% 18.06% -4.50 percent 16.43% 16.52% non-recurring gains & loses Net cash flows per share from operating 0.67 0.47 0.47 42.55% 0.47 0.46 activities Increase/decre End of 2007 End of 2006 End of 2005 ase（％） 4 Before After After Before After adjustment adjustment adjustment adjustment adjustment Shareholders’ equity 3.71 3.51 3.53 5.20% 3.19 3.22 per share Note: Items included in the non-recurring gains & losses RMB 1. Net loss from disposal of fixed assets -90,606 2. Net gains from other non-operating activities 478,219 4. Variance on Income tax from non-operating profit -71,733 Total 315,880 III. Accessories of Profit & Loss Statement in 2007 The hereby ROE and EPS were calculated in accordance with the requirement of “Regulation (9th) of Compilation and Report of Information Disclosure for the Company Issuing Shares to the Public” issued by China Securities Regulatory Commission. 2007 2006 Item ROE (%) EPS (RMB) ROE (%) EPS (RMB) Fully Weighted Basic Dilute Fully Weighted Basic Dilute diluted average EPS EPS diluted average EPS EPS Net profit 13.10 13.52 0.49 0.49 17.10 17.96 0.60 0.60 Net profit after deducting 13.13 13.56 0.49 0.49 17.20 18.06 0.61 0.61 non-recurring gains and losses IV. Change of Shareholders’ Equity (Unit: RMB) Discretional Contributed Capital Retained Item Statutory surplus Statutory Surplus Equity capital Reserves Earnings Reserve Welfares Reserves Year-begin 230,600,000 210,890,301 113,493,559 40,659,778218,533,827 814,177,465 Increase 8,015,118 6,812,834 112,170,424 126,998,376 Decrease 1,772,873 82,854,952 84,627,825 Year-end 230,600,000 209,117,428 121,508,677 47,472,612247,849,299 856,548,016 Reasons of change: The increment of Statutory Surplus Reserve was drawn in accordance with the company’s Article of Association. Statutory Surplus Reserves is 10% of the net profit. Discretional Surplus Reserves is calculated as 5% of the net profit of last year. 5 PART III. Change of Contributed Capital and Particulars about Shareholders I. Changes for Contributed Capital: Illustration for Change of Contributed Capital: (Unit: share) Change in number of shares Before Conversion of After change Share Bonus reserves Others Subtotal change allotment shares to shares 1. Nontradable shares a. Promoters’ shares including State owned shares Ownership by Domestic legal entities 119,420,000 119,420,000 Ownership by Foreign legal entities Others b. Shares raised from legal entities c. Employee’s shares d. Preferred shares Total 119,420,000 119,420,000 2. Tradable shares a. A shares b. B shares 111,180,000 111,180,000 c. Shares traded in Overseas’ Market d. Others Total 111,180,000 111,180,000 3. Total of shares 230,600,000 230,600,000 II. Share Issue and List: The Company issued, at the par value of RMB 1.00 per share, a total number of 230.6 million shares of common B shares in June 1995, according to the approval of Shenzhen Securities and Exchange Commission. The total shares include 119.42 million non-tradable A shares, 51.18 million non-tradable B-shares for foreign promoters, and 60 million public traded B-shares for ordinary investors. The public traded B shares were issued on June 23rd, 1995 at a price of HK$2.82 per and the fully diluted P/E of 10.5. The B shares became public listed on July 28th, 1995. The Company haven’t issued any employees’ shares ever since. The number and the frame of the Company’s shares remained unchanged this year. 6 III. Particulars about Shareholders (December 31, 2007) Total number of shareholders 7,679 Holding information of top ten shareholders Ratio Un-tradable Impawned or Name（full name） Character Shares （％） shares frozen CHINA NANSHAN DEVELOPMENT Domestic legal (GROUP) INCORPORATION 51.79 119,420,000 119,420,000 0 entity owned OFFSHORE JOINT SERVICES(BASES) Foreign investment CO. OF SGP. PTE LTD 22.19 51,180,000 0 0 shareholder GUOTAI JUNAN SECURIES HONG KONG Other 1.72 4,017,437 0 Unknown LIMITED LIN XI Other 0.75 1,739,000 0 Unknown SHANGHAI NO1 SECURITIES CO Other 0.48 1,108,100 0 Unknown DBS VICHERS(HK)LTD A/C CLIENTS Other 0.43 1,000,000 0 Unknown ZHONGXIN SECURITIS (HK) CO Other 0.32 748,825 0 Unknown MORGAN STANLEY & CO 0.32 0 Other 747,243 Unknown INTERNATIONAL PLC LIN QIAO CHAI Other 0.32 735,700 0 Unknown HE JING LIN Other 0.29 657,400 0 Unknown Holding information of top ten tradable shareholders Name（full name） shares Type（A、B、H or other） OFFSHORE JOINT SERVICES(BASES) CO. OF SGP. PTE LTD 51,180,000 B GUOTAI JUNAN SECURIES HONG KONG 4,017,437 B LIMITED LIN XI 1,739,000 B SHANGHAI NO1 SECURITIES CO 1,108,100 B DBS VICHERS(HK)LTD A/C CLIENTS 1,000,000 B ZHONGXIN SECURITIS (HK) CO 748,825 B MORGAN STANLEY & CO INTERNATIONAL PLC 747,243 B LIN QIAO CHAI 735,700 B HE JING LIN 657,400 B WANG JUN GANG 502,390 B Among the top ten shareholders, the domestic legal entity shareholder China Nanshan Development (Group) Incorporation has no affiliated relations with other shareholders and does not fall Explanation for the Affiliated Relations or into the scope of united action person stipulated by “Regulation of United Action of the Top Ten Shareholders Information Disclosure of the Change of Shareholding of listed company”. It is unknown that whether other tradable-share shareholders fall into the scope of united action person. 7 IV. Profiles of Major Legal Entity Shareholders 4.1) China Nanshan Development (Group) Incorporation (CNDI) Legal representative: Fu Yuning Date of registration: October 1982 Registered Capital: RMB 500 million Business scope: land development; port transportation, industrial, commercial, real estate and tourism; customs bonded warehouses business; etc. 4.2) Controlling graph State-Owned Assets Supervisory and Administration Commission 100％ 100% China Merchants Group Shenzhen Guangdong CNOOC 55.766％ SASAC SASAC 100％ 100％ 100％ China Merchants Holdings (International) Co Ltd 100％ China Silver Shenzhe Guangd CNOO China Clifford Mercha Flow n ong C Ocean Wang nts Co Ltd Investm Petro-tr Investm Oilfield Investm (Nansha ent ade ent s ent Ltd n) Holding Develop Holding Services Holding Co Ltd ment Co Ltd (H.K.) Ltd Corp Ltd 36.52% 26.10% 23.49% 7.83% 1.64% 3.92% 0.50% China Nanshan Development (Group) Incorporation 51.79% 48.21% Tradable Shenzhen Chiwan Petroleum Supply Base Shareholders Co Ltd (B share) 8 4.3) Shareholders (above 5%) of Holding Shareholder China Merchants Holdings (International) Co Ltd Legal representative: Fu Yuning Date of registration: May 1991 Registered Capital: HKD 500 million Business scope: Investment and holdings, a company listed in HK Stock Exchange Shenzhen Investment Holding Co Ltd Legal representative: Chen Hongbo Date of registration: Oct 2004 Registered Capital: RMB 4.6 billion Guangdong Petro-trade Development Corp Legal representative: Chen Qiang Date of registration: Sep 1993 Registered Capital: RMB 4.6 billion China National Offshore Oil Co Legal representative: Fu Chengyu Date of registration: Sep 1993 Registered Capital: RMB 94.9 billion 4.4) Other shareholders with shares of 10% or above: OFFSHORE JOINT SERVICES (BASES) COMPANY OF SINGAPORE PTE LTD Date of registration： Feb 1984 Date of registration： Singapore Registered Capital：13 million SGP Dollars Business scope: investing in the companies engaged on offshore oil supply services. PART IV. Information of Directors, Supervisors and Senior Managers I. Brief information Name Position Gender Age Office Term Han Guimao Chairman Male 57 2007.5—2010.5 Stephen·Stanley Vice Chairman Male 49 2007.5—2010.5 Fong Yue Kwong Director Male 55 2007.5—2010.5 Wang Fen Director Female 53 2007.5—2010.5 Yuan Yuhui Director Male 57 2007.9—2010.5 Cui Wei Director/General Manager Male 51 2007.5—2010.5 Director/Deputy GM 40 Huang Fanzhi Male 2007.5—2010.5 /Financial Controller Lin Shaodong Independent Director Male 62 2007.5—2010.5 Zhang Limin Independent Director Male 52 2007.5—2010.5 Zhou Chengxin Independent Director Male 53 2007.5—2010.5 Cui Zhongfu Independent Director Male 46 2007.9—2010.5 9 Liu Fu Supervisor (Convener) Male 62 2007.5—2010.5 Fan Zhaoping Supervisor Male 54 2007.5—2010.5 Guo Songhua Supervisor Female 50 2007.5—2010.5 Liu Wei Employee Supervisor Male 42 2007.5—2010.5 Ye Sengsheng Employee Supervisor Male 31 2007.5—2010.5 Ren Yongping Deputy GM Male 55 2004.4—2009.5 Huang Donger Deputy GM Male 56 2002.5—2009.5 Fu Jialin Board Secretary Male 46 2002.5—2009.5 Brief information (continued) Shares held Shares held Whether receiving Total remuneration Name at the at the remuneration from shareholder (RMB’0000) year-begin year-end or other relative companies Han Guimao 10000 10000 yes Stephen·Stanley yes Fong Yue Kwong yes Wang Fen 10000 10000 yes Yuan Yuhui yes Cui Wei 61.72 no Huang Fanzhi 55.58 no Lin Shaodong 4.00 no Zhang Limin 4.00 no Zhou Chengxin 4.00 no Cui Zhongfu 2.00 no Liu Fu yes Fan Zhaoping 11600 11600 yes Guo Songhua yes Liu Wei 33.09 no Ye Sengsheng 21.31 no Ren Yongping 10000 10000 47.89 no Huang Donger 42.59 no Fu Jialin 33.89 no Total 41600 41600 310.07 - The Company hasn’t the stock promoting plan. Note: Six of above directors or supervisors hold posts in CNDI, one of above supervisors or senior managers hold posts in subsidiaries, details as follows: Mr. Han Guimao as the Senior Vice President since March 2002; Mr. Liu Fu as the Vice Chairman since May 2003; Mdm. Wang Fen as the President since March 2002; Mr. Fan Zhaoping as the Senior Vice President since Dec. 1998; Mr. Yuan Yuhui as the Senior Vice President since Oct. 2002; Mdm. Guo Songhua as the Financial Controller since Sep. 2007; II. Resume for Directors, Supervisor and Senior Managers 10 Directors Mr.Han Guimao, aged 57, graduated from architecture of Tsinghua University. Started from 1976, he worked in the First Design Institute of China Railway Ministry. He was the deputy GM of Shenzhen Branch of the Second Construction Bureau of China Railway Ministry in 1983 and the executive deputy GM of Shenzhen Nanshan CBD Development Company in 1992. Since 1994, he jointed CNDI as the assistant general manager, and now, he is the senior vice president of CNDI. He was the fourth Board of Directors of the Company. Mr. Stephen John Stanley, aged 49, Australian, CEO of Toll Asia. He jointed Toll Group of Australia in 1999, as the director for strategy, portfolio review and marketing growth initiatives involving acquisitions, joint ventures and major business development opportunities. Mr. Fong Yue Kwong, aged 55, master degree, president of Jurong Port of Singapore. He was the general manager of the Company from 1984 to 1989 and director of the Company since1992. Mdm. Wang Fen, aged 53, MBA. She jointed CNDI since 1982 and held various posts. Since 1994, she was the vice president and senior vice president of CNDI. Now she is the president of CNDI and the chairperson of Shenzhen Chiwan Wharf Holdings Co Ltd and director of the fourth Board of Directors of the Company. Mr. Yuan Yuhui, aged 57, MBA. He jointed CNDI in 1989 as director of the General Manager’s Office. Now, he is the senior vice president of CNDI in responsible of administration, legal matters and business development, the board secretary from 1993 to 2000 and director since 1994 of Shenzhen Chiwan Wharf Holdings Co Ltd. Mr. Cui Wei, aged 51, MBA of the University of San Francisco and bachelor degree of University of International Business and Economics of Beijing. He jointed the Company in 1991 as assistant general manager, CFO and board secretary in 1995, deputy GM in 2002 and currently the executive deputy GM. Mr. Huang Fanzhi, aged 40, MBA of China Europe International Business School and bachelor degree of Jiangsu University, accountant certificate. He worked in State Ministry of Mechanical & Electronic Industry from 1989 to 1992. He was the financial manager in Shenzhen Contec Software Co Ltd and Philips Consumer Communications & SED Co Ltd from 1992 to 2000, and financial controller in Wal-Mart Business Consultation Co Ltd from 2000 to 2002. He jointed CNDI as deputy GM of Business Management Department from December 2004 to December 2005. Now, he is the deputy GM & financial controller of the Company since December 2005. Mr. Lin Shaodong, aged 62, expert on offshore petroleum field. He had been ever as the general manager of Bohai Oil Field, chief economist of CNOOC, chairman of the board of CNOOC Investment & Holdings co., ltd and China Ocean Oilfields Services (HK) co., ltd. He also had been ever as the vice chairman of the board of CNDI from July 2001 to July 2003 and director of the third board of the Company from November 2001 to September 2003. He retired on December 2005. Presently, he is the special advisor of Haikang Life Insurance co., ltd and China Ocean Oilfields Services (HK) co., ltd. Mr. Zhang Limin, aged 52 doctor degree of accounting, professor of Management Institute of Sun Yat-Sen University. He is vice president of the China Auditing Society, Vice President of Guangdong Auditing Society, member of Accounting firm Governance Committee, and independent director of Shenzhen Chiwan Wharf Holding co., ltd. Mr. Zhou Chengxin, aged 53, doctor degree of law, presently working in the Legal Research Institute of Shenzhen. Now he is deputy to the Forth Shenzhen Municipal People’s Congress, member of the legal committee of the Forth Shenzhen Municipal People’s Congress, expert of the consultation committee for the municipal government of Shenzhen, executive Director of China International Economic Law Institute, arbitrator of China International Economic and Trade Arbitration Commission, and the local arbitration commissions of Shenzhen, Zhuhai, Shanghai and Nanjing, part-time attorney at law of the Guangdong Zhongan Law Firm, independent director of Shenzhen Nanshan Power Station Limited Company. 11 Mr Cui Zhongfu, aged 46, Currently the Vice Chairman and Secretary General of China Federation of Logistics and Purchasing, Visiting Professor of Nankai University, Deputy Director of the Center of Logistics Enterprises of China, Vice Chairman and Secretary General of Logistics Association of China. He got a bachelor degree at Zhongnan University of Economics in 1983 and a master degree at Renmin University of China in 1986. He was a lecturer of the Management Cadre College of the Ministry of Mechanical Industry of China from 1983 to 1990. After 1990, He worked in several governmental departments as section chief, such as the Port Administration Office of the State Council, Bureau of Economic Operation of the State Economic and Trade Commission and the National Development and Reform Commission. Supervisors Mr. Liu Fu, aged 62, senior engineer and offshore petroleum expert. He is the chairman of CNOOC Investment & Holdings Co Ltd, vice chairman of CNDI and director of the fourth Board of Directors of the Company. Mr. Fan Zhaoping, aged 54, master degree in economics in the Research Institute of the Ministry of Finance of China. He was the financial manger of the Company since 1988. Now, he is the senior vice president of CNDI and member of the fourth Supervisory Committee of the Company. Mdm. Guo Songhua, aged 50, senior economist, master degree of University of Manchester. She jointed CNDI in 1994. Now she is the general manager of the Finance Department of CNDI. Mr. Liu Wei, aged 42, master degree. He had been ever the deputy GM of Shanghai Baowan, manager of the Logistic Development Department of the Company. Now, he is the general manager of Petroleum Logistics Supply Division of the Company. Mr. Ye Sensheng, aged 31, graduated from Human Resource Management Course, in RenMin University of China. He jointed the Company in Sep, 2005. Now, he is manager of Human Resource Department of the Company. Senior Managers Mr. Ren Yongping, aged 55, graduated from China Finance College, worked in department of revenue in Hebei government. He had been the financial manager in Chiwan Warf, general manger of Chiwan Foodstuff Port, general manager of Chiwan Warehouse Co. Now he is deputy general manager of the Company. Mr. Huang Donger, aged 56, bachelor degree, had studied in Hamburger for port management. Since 1984, he had been manger of operation department of the Company, registered manager of safe management. Now he is deputy general manager of the Company. Mr. Fu Jialin, aged 46, graduated from Beijing University of Aeronautics and Astronautics in 1982, got the Master from University of Alberta, Canada in 1993. He had been the assistant general manager of development and research department of CNDI, deputy manager of Chixiao Component Houses Co Ltd, general manger of Dongguan Nanshan Construction Material Co Ltd. Now he is the Board Secretary of the Company. III. Annual Salary of Directors, Supervisor and Senior Managers 1) Decision Procedure and Basis Salary standard of the Company was decided and approved by the Board of Directors. Four independent directors, two directors who were concurrently as executives, two employee supervisors and all the other senior executives draw their salaries, bonuses and other welfares from the Company, while all the others draw the payment from their respective shareholder party instead of the Company. 12 2) Changes of directors, supervisors and senior managers On May 2007, the 4th Board of Directors and the 4th Supervisory Committee were expired, and the 5th Board of Directors and the 5th Supervisory Committee were elected by the shareholders meeting. On Sep 2007, the shareholders meeting elected Mr. Yuan Yuhui as director and Mr. Cui Zhongfu as independent director. On Nov 2007, Mr. Cui Wei was appointed as the general manager of the Company by Board of Directors. VI. Information of Other Employees: As on Dec. 31, 2007, the Company has a staff of 337 and 46 in management. There are 25 with master or better degree, 47 with bachelor degree, and 265 with lower degree. PART V. Corporate Governance The Company strictly implements the PRC Company Law, the Securities Law and other laws, and regulations issued by the CSRC; continuously improves the legal person administration system, makes every effort to build modern enterprise system and regulates its operation. According to “Administration Guideline for listed Company”, the Board of Directors explained the practice situation of the legal person administration of the company as follows: 1) In aspect of shareholders and shareholders’ general meeting: the company’s administration structure can ensure the equal status of all shareholders, especially the minority shareholders, and can ensure shareholders fully exercised their legal rights. The convening procedure, the qualification of the person attending the meeting and the voting procedure of the meeting are in accordance with the stipulation of “Company Law”, “Regulatory Opinion for General Meeting of Listed Company”, “Articles of Association”. 2) In aspect of relations between the control shareholder and the Company: the Company’s control shareholders attached importance to the listed company, gave energetic support, exercised shareholder’s rights and undertook shareholder’s obligation legally. The Company is independent of its control shareholder in terms of business, assets, organization, employees and finance. The Company undertakes responsibilities and risks independently. According to the relative rules published by Ministry of Finance, the Company submitted the monthly finance statements to the controlling shareholder (CNDI) for consolidation. On Oct 25, 2007, the 2nd telecommunication meeting of the 5th Board of Directors approved the resolution for the above matter. CNDI and the Company signed the commission letters, recorded the persons who were aware of, and put on the records to the CSRC Shenzhen Bureau. 3) In aspect of directors and Board of Directors: the Company elects directors strictly in line with the election procedure as regulated in the Articles of Association of the Company. The AOA stipulates that accumulative total voting system should be used in the Board election. All the directors shall exercise their duties loyally, bona fide and diligently. Both the number of directors and composition of the Board shall comply with relevant laws and regulations. The Company has established the independent director system, employed three independent directors taking charge of the special committee of the Board in accordance with the requirements of the CSRC and the Shenzhen Securities Regulatory Office. 4) In aspect of supervisors and Supervisory Committee: Both the election of the Company’s shareholder supervisors and employee supervisors shall comply with relevant laws and regulations. The member and the composition of the Supervisory Committee can ensure the Supervisory Committee to supervise and inspect directors, senior managers and the finance 13 of the Company independently and efficiently. The Supervisory Committee stipulates Rules of Procedure of the Supervisory Committee. The meeting of the Supervisory Committee shall comply with the stipulated procedure. 5) In aspect of person having correlative benefit: the company respects the legal rights of banks and other creditors, employees, consumers, suppliers, communities and other persons who have correlative benefit. The company shall cooperate actively with them so as to achieve continuous and healthy development. 6) In aspect of information disclosure and transparency: The Company stipulates the regulation of information disclosure and authorizes the secretary of the Board and the authorized representative to take charge of securities affairs and information disclosure, and also to welcome the visit and inquiry of the shareholders. The Company discloses the relevant information in a real, accurate, complete and timely way strictly according to the law, regulations and the Articles of Association and the Company ensures all the shareholders to have equal opportunity in obtaining the information. Moreover, the Company timely disclosed the detailed information of the largest shareholder or concrete controller and changes in their shareholdings According to “Administration Guideline for listed Company”, the Board of Directors took the opinion that the practice situation of the Company’s administration is basically in accordance with the requirement of “Administration Guide Line for listed Company” after improving each systems of the Company according to the requirement of the CSRC’s Shenzhen Regional Office. II. Information of Independent Directors’ Performance According to the requirement of the CSRC and Shenzhen Securities Regulatory Office, the company employed four specialists as independent directors, majored in law, accounting and professional area of the company. The Company established three special committees of the Board of Directors and made and improved “Detailed Work Rules of Nomination and Salary Committee of the Board of Directors”, “Detailed Work Rules of Strategy and Development Committee the Board of Directors” and “Detailed Work Rules of Audit Committee of the Board of Directors”. During the period under review, in accordance with the requirement of CSRC’s “Guidance Opinion for Listed Company to Establish of Independent Directors System”， “Articles of Association” and “Work System of Independent Director” the Company’s independent directors exercised their duties, took part in the decision-making of the Company’s importance affairs, heard of the business and operating report from the management, reviewed the operating and investments on the spot, and presented independent director’s opinion and fully exerted the function of independent director. The information of independent directors to attend the directors’ meetings is as follows: The number The of directors’ The number of The number Name number of Reference meetings to authorizing of absence presence be present Lin Shaodong 5 5 Engaging in Zhang Limin 5 4 1 other business Zhou Chengxin 5 5 Cui Zhongfu 4 4 III. The Company is independent of its control shareholder in terms of business, assets, organization, employees and finance, and has independent and integrated ability of 14 operation and management. 1) In the aspect of operation, the business of the Company is entirely independent of its control shareholder. The control shareholder and its subordinate units did not engage in the business that are the same or similar to the business of the listed company. 2) In the aspect of employees, the employees of the Company are independent of the control shareholder. The senior managements, the leading official of the finance and the secretary of the Board do not occupy any position in the control shareholder. 3) In the aspect of assets, the assets invested by the control shareholder is independent, integrated and has clear ownership. 4) In the aspect of organization, the Company’s Board of Directors, Supervisory Committee and other intern organizations operate independently. There is no affiliated relation between the control shareholder and its functional departments and the Company and the Company’s functional departments. The control shareholder and its subordinate organization do not give any plan and instruction as to the operation to the Company and its subordinate organization or intervene the independence of the Company’s management by other means. 5) In the aspect of finance, the Company establishes the regulatory system of finance and accounting and makes it in accordance with correlative laws and regulations. The control shareholder will not intervene the Company’s finance and accounting affairs. IV. Special activities on corporate governance of the Company 1) The performance of special activities on corporate governance According to the “Notice on Launching Special Activities to Strengthen Listed Companies’ Internal Control” promulgated by CSRC and relevant requirements of CSRC Shenzhen Bureau, the Company set up an internal control improvement leadership team and a work team on April 20, 2007, drew up special rules in this regard, organized to perform on the plan, and report the problems and correction plan to the Board of Directors. The 1st meeting of the 5th Board of Directors approved “Self-Examination Report and Correction Plan on Corporate Governance of the Company”. The public notice was in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on August 24, 2007. Thereafter, CSRC Shenzhen Bureau examined the corporate governance of the Company on the spot and present correction opinions on September 11, 2007. The Company performed the correction work strictly according to the correction plan and opinions by CSRC Shenzhen Bureau. On October 25, 2007, the resolution of “Rectification Report on Corporate Governance of the Company” was approved by the 2nd tele-communication meeting of the 5th Board of Directors, and the notice was published in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on October 27, 2007. 2) Achievements by this special activity Though the special activities, the Company has improved the internal control rules, further raised the sense of the directors, supervisors and senior managers in performing their duties according to rules, and as a result, the Company’s internal control system functions better than before and its ability for internal control is further strengthened. V. Construction of internal control system The existing internal control system has been established. It can meet the requirements of manufacturing, management and development. It also can meet the requirements of advancing operation benefit and effectiveness of the Company, ensuring the safety of company assets and the trueness, integrity and equity of company information. It has supplied strong secure for carrying out law and internal regulation. The internal control system will be continuously perfected to follow the company development and the change of laws and regulations. These systems will be also carried out during the practice. IV. Self-evaluation for internal control system 15 1．Brief introduction to internal control system of the Company According to prescription of related laws and regulations, the Company established and completed the Company Governance Structure, including Shareholders’ Meeting, Board of Directors, Supervisory Committee and Seniors Management Group. Moreover, the Board of the Directors sets up three special committees, including Strategic and Developmental Committee, Auditing Committee, Nomination and Remuneration Committee. The company has set up an Auditing Department. Meanwhile, an internal auditing and controlling system have been established. The operational activities which include sales, collection of account receivables, purchase, payment, cost and expense, fixed assets management, construction management, information disclosure, human resource management and etc, are strictly carried out by the processes and procedures under the audit and internal control system, thus the risks are effectively controlled. Furthermore, under monitoring of Audit Committee, the Board of Directors supervises the internal control of the Company system, and ensures it can be established. In the report period, in accordance with the newly-promulgated laws and regulations, the Company modified and improved the rules and procedures for systems. At the same time, under the implementation of administration improvement requirements from the CSRC, the Company enhanced and improved its operations. 2．Key internal control activities （1）Holding subsidiaries: The company manages its holding subsidiaries strictly according to the related laws, regulations and relevant prescriptions. The Company also sets up corresponding assignment and performance assessment system for its subsidiaries’ directors, supervisors and senior executors. And it establishes a set of operational management systems and requires managements of the subsidiaries stays within the management framework. Each functional department set up by the Company fully supervises the subsidiaries on aspects of human resource, operation, purchase, finance, production, project construction, and significant contract as well as law affairs. （2）Related party transaction: The Company strictly conformed to the stock listing rules and regulations of the Shenzhen Stock Exchange for its related party transaction. The contract price of the related party transactions is on the basis of public bidding price, it is open and fair. （3）External guarantee: There is no external guarantee in the report period. （4）Usage of raised capital: There is no matter relevant to the usage of raised capital. （5）Significant investment: For any significant investment the Company made, it must be legal, prudent, secure, and effective. The risks must be under control. The limit of the approval authority for the Board of Director and Shareholders’ General Meeting on significant investment is clearly stated in Articles of Association, and the Company has also made strict examination and decision making procedure. The Company focuses on its main business, there are no investment occurred apart form the core business. （6）Information disclosure: In accordance with security laws and regulations, the Company establishes Management Measures on Information Disclosure; the document details the principle, content, procedure and secrecy of information disclosure and defines responsibility investigation mechanism. The Company ensures the information disclosure to the investors in fair, accurate and in time. 3．Problems and improvement plan During the Special Campaign to strengthen the Corporate Governance of Listed Companies, the Company has improved its corporate governance in accordance with the opinions from Shenzhen 16 Security Supervisory Bureau and the suggestions from investors and public. In the report period, the Company used counselor’s advices to improve its internal control system. 4．Overall comment on internal control of the Company The internal control system of the Company is logical and complete, and it is feasible and effective in the actual operation. The work of internal control is a lasting project, and the Company will strictly follow the requirements in the Internal Control Guidelines for Listed Companies and keep improving its internal control system to ensure the Company secure operations and protection for the interest of shareholders. 5．Written opinions of independent directors The internal control system of the Company is logical and completed, and it is feasible and effective in the actual operation. The self evaluation is compliance with the actual consistence of the Company. 6．Written opinions of the supervisory committee The internal control system of the Company is logical and completed, and it is feasible and effective in the actual operation. The self evaluation is compliance with the actual consistence of the Company. PART VI. Review of Shareholders’ General Meeting The Company convened twice shareholders’ general meetings during the period under review, the details of which are as follows: 1. The annual shareholders’ general meeting for the year 2006 was held on the 14th floor of Chiwan Petroleum Building, Shenzhen between 9:00-11:00 am on May 25, 2007. The Public Notice and Legal Opinions were published in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on May 26, 2007. 2. The first extraordinary shareholders’ general meeting was held on the 14th floor of Chiwan Petroleum Building, Shenzhen between 9:00-11:00 am on Sep. 14, 2007. The Public Notice and Legal Opinions were published in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on Sep. 15, 2007. PART VII. The Board Report I Analysis of the Business and Operating i. Brief Information of Business During the reporting period, the Company has achieved the revenue of RMB 223.59 million increased by 19.8% YoY, and cash flow generated from operating activities reached RMB 155.31 million increased by 44.2% while net profit of RMB112.17 million decreased by 19.9% comparing to the same period last year. The decrease of net profit is mainly caused by the following reasons: (1) sharply decrease of investment income from CSE Net profit of CES achieved RMB 120.21 million decreased RMB 111.91 million. The attribution was RMB 40.65 million to the Company decreased RMB 37.21 million by 48% 17 comparing to the same period last year. (2) increase of financial costs As at the end of last year, with the rapid increase of bank loans, the Company has interest-bearing loans of RMB 679 million. The interest costs rose from RMB 11.36 million to RMB 20.74 million or 121% increase. (3) the increase of management expenses for developing logistics business The total management expenses reached RMB 43.30 million increased RMB 12.17 million, 39% increase comparing to the same period last year, including: The start-up costs of Baowan Logistics reached RMB 5.12 million; RMB 3 million increased for manpower expenses; The traveling expenses for new projects increased of RMB 0.946 million; Property tax increased of RMB 0.88 million; The intermediary expenses of auditors’ evaluating and consultants’ advising increased of RMB 0.737 million; The advertisement expenses increased of RMB 0.345 million. ii. Review of Business Sectors Offshore Petroleum Service Turnover of Division of offshore petroleum service got 9.8% growth to reach RMB 147 million year-on-year. Net profit achieved a 12.40% increase to reach RMB 72.69 million. Baowan Logistics Service Chiwan Logistics Turnover of Chiwan Logistics increased 21% to reach RMB 21.01 million comparing with that of last year. Net profit recorded a 21% increase to reach RMB 36.50 million. Shanghai Baowan For almost all the warehouses of the second phrase were put into use, turnover and net profit of Shanghai Baowan enjoyed a rapid growth to RMB 59.73 million and RMB 32.41 million increased by 52% and 75% respectively compared to the same period last year. Currently Shanghai Baowan worked up its value added logistics services to the customers. Until now, it has offered 6 customers this kind of service by renting equipment and loading and unloading goods. The total income from value added logistics services reached RMB 0.87 million in 2007. Guangzhou Baowan: Since Guangzhou Baowan has finished renewal leasing agreements with all customers at the end of last year and with full occupancy rate and good costs saving, turnover achieved RMB 5.84 million, net profit for operating achieved RMB 0.97 million. Offshore Engineering Chiwan Sembawang Engineering (32% equity): After its operation grew rapidly in the past few years, the operation of CSE dropped sharply this year. The accumulated turnover amounted from RMB 979 million to RMB 938 million decreased RMB 41 million by 4.4%. The net profit achieved RMB 120 million (included investment income 18 from Penglai Jutal) and decreased from RMB 232 million to RMB 112 million by 48.3%compared the same time last yea r. Contribution to Chiwan was RMB 40.65 million decreased by 47.1% year-on-year. The sharp drop of its performance mainly was caused by the biggish losses of some project, decreased export rebates, appreciation of RMB currency and etc. Chiwan Offshore Petroleum Equipment Repair & Manufacture Co (20% equity): Net profit of CPEC achieved RMB 2.66 million with investment income of RMB 0.53 million attributed to the Company. iii. Status of the Investments and the Construction Progress The constructions of Shanghai Baowan have been completed and put into use. A new warehouse was planned to be constructed in Jul 2008. Three warehouses (about 200,000 m2) had been put into use in 2006. The Company was engaging on the other part. The construction of Kunshan Baowan was started in the end of Apr 2007 and was planned to be completed in Jun 2008. The construction of Tianjin Baowan was planned to be completed in Jul 2008. The company was engaging on the prophase of the other projects. iv. Key Tasks of Business of 2007 Engage on the progress of projects. Try to complete the prophase and start to construction of Wuhan Baowan, Chengdu Longquan Baowan, Chengdu Xindu Baowan, Shenyang Baowan in the last half year of 2008. Promote the ability of value-added services. Study and research for the new projects to improve the net of Baowan Logistics. Ensure the business and operation of all projects. II. Application of the Proceeds The company had invested US$20.5 million raised from stock market in its 1995 floatation in the projects approved by AGM. All projects had been completed by the end of 1996 and the results of which were disclosed accordingly. There is no application in this reporting period. III. The Change of Accounting Policy, Estimate and Their Effects for the Implementation of New Enterprise Accounting Standards The Company has implemented the new enterprise accounting standards since Jan 1, 2007. The important change of accounting policy, estimate and their effects are as follows: (1) According to the related regulations on long-term equity investment, equity method was changed to cost method. It decreased the influence to investment profit and net profit of the parent company by the profit of subsidiaries, but it did not influence the consolidated statements. (2) According to the related regulations on investment property ， the Company chose historical-costs method continuously, which did not influence the retained earnings, the financial status, or performance. 19 IV. Report on the Routine of Board of Directors 4.1. Board Meetings and Resolutions The Board had held seven meetings in the reporting period. 1) The 14th tele-communication meeting of the fourth Board of Directors was held by fasimile on Feb 7, 2007. The Public Notice was published in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on Feb 8, 2007. 2) The 7th meeting of the fourth Board of Directors was held on the 16th floor of Chiwan Petroleum Building, Shenzhen on April 18, 2007. The Public Notice was published in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on April 20, 2007. 3) The 1st meeting of the fifth Board of Directors was held on the 16th floor of Chiwan Petroleum Building, Shenzhen on May 25, 2007. The Public Notice was published in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on May 26, 2007. 4) The 2nd meeting of the fifth Board of Directors was held on the 16th floor of Chiwan Petroleum Building, Shenzhen on August 21, 2007. The Public Notice was published in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on August 23, 2007. 5) The 1st tele-communication meeting of the fifth Board of Directors was held by facsimile on September 25, 2007. The Public Notice was published in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on September 27, 2007. 6) The 2nd tele-communication meeting of the fifth Board of Directors was held by facsimile on October 25, 2007. The Public Notice was published in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on October 27, 2007. 7) The 3rd tele-communication meeting of the fifth Board of Directors was held by facsimile on November 20, 2007. The Public Notice was published in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on November 21, 2007. 4.2 Information of Audit Committee’s Performance (1)The performance of internal auditing During the report period, the Audit Committee held a special meeting hearing about summary report of internal auditing of the Company in 2007 and new work plan for year 2008. At the meeting, proposals of appointment auditing department manager and revision of internal auditing system of the Company were examined and approved to submit it to the Board of Directors for approval. (2) Maintaining regular communication with auditors and following progress of auditing closely During the auditing period, the committee maintained regular communication with financial department and auditor following progress of auditing closely and held a meeting discussed with the auditors about auditing plan, scope, focus points and the incurred problems and resolutions. After the auditor submitted the draft of audit report, the committee reviewed the finance report and presented written opinion. The committee summarized the working of auditor that PriceWaterhouseCoopers Zhong Tian CPAs completed the annual audit work successfully. (3) Examination proposals for annual report PriceWaterhouseCoopers Zhong Tian CPAs completed annual auditing work as schedule and presented audit report with standard and non-reserved opinion for the Company. The Committee held a meeting to examine the proposal of annual finance report of year 2007 and submit the opinion for the appointment of accounting firm of 2008 to the Board. 20 4.3 Information of Nomination and Emolument Committee’ Performance (1) Before examining and reviewing the proposal of appointment Mr Cui Wei as executive deputy general manager of the Company in Feb,2007, the Committee had evaluated his resume, education background, capability and considered his performance in accordance with the request of duties of GM and agreed to table it the BoD for approval. (2)Before examining and reviewing the proposal of appointment Mr Cui Wei as general manager of the Company in Nov,2007, the Committee had evaluated his resume, education background, capability and considered his performance in accordance with the request of duties of general manager and agreed to table it the BoD for approval. V. Implement for the resolutions of shareholders meeting On the reporting period, the Board of Directors implemented all the resolutions approved by the shareholders meeting, and engaged in operating and investments of the Company. The Company implemented the 2007 dividend distribution plan on July 25, 2007: RMB2.95 cash bonus for per 10-share. Dividend for B shares was converted into HK dollars for distribution. VI. Dividend Distribution Preplan for the Year 2007 In accordance with the audited report by PricewaterhouseCoopers, the Consolidated net profit for the year 2007 is RMB112,170,424, the Parent company’s net profit for the year 2007 is RMB80,151,179. To conform to the Articles of the Company and relevant rules and regulations of PRC, choosing the less as the base of distribution, the Board of Directors would like to propose the dividends distribution plan as follows: (1) Profit Distribution RMB the Parent the Parent Consolidated net company's net company profit% profit% Retained Earning B/F 102,221,860 Net profit of year 2007 80,151,179 Less: Statutory surplus public reserve 8,015,118 10% 7.15% Discretionary public reserve 4,007,559 5% 3.57% Dividends (tax included) 48,090,707 60% 42.87% The balance 20,037,795 25% 17.86% Retained earning 122,259,655 (2) The cash dividend for the year 2007 of RMB2.08 for every ten shares (tax included) or RMB48,090,707 in total would be paid by the Company and for this purpose the conversion will be based on the closing rate between HK$ and RMB announced by the People’s Bank of China on the first working day after the resolution is passed by the AGM. The above dividend distribution plan will be carried out after the final approval of the AGM 2007. The Company neither declared interim dividend nor converted any reserves into share capital in the year of 2007. VII. Estimated Profit Distribution Policy for 2008 21 The estimated profit distribution policy for the year 2008 is as follows: (1) The Company will conduct profit distribution once in 2008; (2) Approximately 30%-70% of net profit realized in 2008 will be distributed as dividend; (3) The distribution will take the form of cash bonus. VIII. The Company did not plan to transfer Capital - Reserves into share capital for the year 2008. PART VIII. The Supervisory Committee Report I. Supervisory Committee Meetings Corporation Supervisory Committee convened three meetings in the reporting period. 1) The 6th meeting of the fourth supervisory committee was held on the 16th floor of Chiwan Petroleum Building, Shenzhen, on April 18, 2007. The public notice was published in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on April 20, 2007. 2) The 1st meeting of the fifth supervisory committee was held on the 16th floor of Chiwan Petroleum Building, Shenzhen, on May 25, 2007. The public notice was published in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on May 26, 2007. 3) The 1st tele-communication meeting of the fifth Supervisory Committee was held by facsimile on October 25, 2007. The public notice was published in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on October 27, 2007. II. Opinions Formed by the Supervisory Committee as to the Company’s operation in the Reporting Period as follows: 1) The Company’s decision procedures were both healthy and lawful. The Company’s management systems and internal control procedures were in place. The meeting also confirmed that neither the directors nor senior managers had acted in contravention of the laws, regulations, Articles of Association or detrimental to the interest of the company. 2) The Supervisory Committee carefully reviewed the financial report of the company and confirmed that the company was in good financial situation. The meeting further confirmed that the audit report prepared by the independent auditors PricewaterhouseCoopers gave a true and fair presentation of the Company’s financial performance by offering clear opinion in the audit report for the year 2007. 3) In 2007 the Company did not raise capital or engage in any acquisition and disposal of the Company’s assets. 4) All the affiliated transactions in 2007 were conducted in market principle and the Company’s interests were safeguarded. PART IX. Significant Events 1) The Company did not experience any significant lawsuit or arbitration in the reporting year. 22 2) During the reporting period, there was no director, supervisor, senior manager who was fined or penalized by Securities Supervisory and Administration Authorities of PRC. 3) Investments: The Annual Shareholders’ General Meeting for the year 2006 was held on May 25, 2007. The meeting reviewed and approved the resolution of: “Resolution on the project of Wuhan Baowan Logistic Park”, “Resolution on the project of Chengdu Longquan Baowan Logistic Park” and “Resolution on the project of Kunshan Baowan Logistic Park Phase II”. The further information was published in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on April 20, 2007. The 1st extraordinary shareholders’ meeting of 2007 was held on September 14, 2007. The meeting reviewed and approved the resolution of: “Resolution on the project of Chengdu Xindu Logistic Park”, “Resolution on the project of Chengdu Shuangliu Baowan Logistic Park”. The further information was published in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on August 23, 2007. 4) Transactions with relative party: On August 21, 2007, the second meeting of the fifth Board of Directors reviewed and approved the resolution on transaction of wall panels for Kunshan project with Shenzhen Chixiao Component Houses Co., Ltd with a total price of RMB 35.16 million. The further information was published in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on August 23, 2007. The 1st extraordinary shareholders’ meeting of 2007 was held on September 14, 2007. The meeting reviewed and approved the resolution on the land lease contract of Donggaodi area with CNDI. The further information was published in Securities Times, Wen Wei Po and http://www.cninfo.com.cn on August 23, 2007. 5) The Company paid RMB 950,000 to PricewaterhouseCoopers, the accounting firm has provided auditing services for 13 years continually since the company listed. 6) The Company maintained its autonomy in personnel and financial management and possesses integrated assets. 7) The important change for assets, costs and cash flow DEC 31,2007 DEC 31,2006 Increase Increase％ Items Of Balance Sheet Cash and cash equivalents 84,572,921.00 42,608,837.00 41,964,084.00 98.49% Prepayments in advance 4,735,088.00 1,249,446.00 3,485,642.00 278.98% Other receivable 4,850,408.00 3,187,101.00 1,663,307.00 52.19% Other current assets 30,000,000.00 - 30,000,000.00 Construction in progress 123,695,461.00 1,357,288.00 122,338,173.00 9013.43% Deferred income tax assets 767,493.00 - 767,493.00 Other non-current assets 445,509,811.00 226,501,016.00 219,008,795.00 96.69% Short-term loans 448,953,212.00 140,000,000.00 308,953,212.00 220.68% Account payable 75,758,472.00 25,930,539.00 49,827,933.00 192.16% Employees’ wage payable 12,547,384.00 9,391,471.00 3,155,913.00 33.60% Interest payable 1,128,497.00 553,997.00 574,500.00 103.70% Others payables 26,949,829.00 20,226,472.00 6,723,357.00 33.24% 23 Non-current liability due in 230,000,000.00 - 230,000,000.00 1 year Long-term loans - 230,000,000.00 -230,000,000.00 -100.00% Items Of Income Statements 2007 2006 Increase Increase％ Administrative expense 43,304,732.00 31,109,567.00 12,195,165.00 39.20% Financial expense 20,912,132.00 8,565,613.00 12,346,519.00 144.14% Loss from disposal of 224,773.00 -448,284.00 673,057.00 -150.14% non-current assets Investment income from 41,300,890.00 78,118,622.00 -36,817,732.00 -47.13% affiliates Items Of Cash Flow Statements 2007 2006 Increase Increase％ Other cash received for business 10,628,239.00 5,739,912.00 4,888,327.00 85.16% activities Cash paid for purchasing of 19,965,982.00 34,894,578.00 -14,928,596.00 -42.78% merchandise and services Other cash paid for business 19,056,541.00 7,654,714.00 11,401,827.00 148.95% activities Cash received from investment 61,724,687.00 - 61,724,687.00 Net cash received from disposal of fixed assets, intangible assets, 1,081,405.00 416,112.00 665,293.00 159.88% and other long-term assets Cash paid for investment 34,455,000.00 - 34,455,000.00 Cash received from loans 347,520,943.00 570,000,000.00 -222,479,057.00 -39.03% Repayment for debts 40,000,000.00 300,000,000.00 -260,000,000.00 -86.67% 8) The Company did not entrust, contract or lease other company’s assets or was entrusted, contracted or leased with its own assets. 9) There were neither other significant contract signed nor significant guarantee event happened in the reporting year. 10) There was no stock investment in the reporting period. 11) The Company has no equity of financial companies and the companies planning to come into the market. 12) There were no changes in the Company’s name or stock’s short form in the reporting period. 13) Index for published notices: Date Matters Published in Resolution notice for the 14th facsimile Securities Times, Wen Wei Po and Feb 8, 2007 meeting of the 4th Board http://www.cninfo.com.cn 24 Resolution notice for the 7th meeting of Securities Times, Wen Wei Po and Apr 20, 2007 the 4th Board http://www.cninfo.com.cn Resolution notice for the 6th meeting of Securities Times, Wen Wei Po and Apr 20, 2007 the 4th Supervisory Committee http://www.cninfo.com.cn Securities Times, Wen Wei Po and Apr 20, 2007 Annual Report for 2006 and its abstract http://www.cninfo.com.cn Investment Notices for the projects of Securities Times, Wen Wei Po and Apr 20, 2007 Wuhan, Chengdu and Kunshan(phase II) http://www.cninfo.com.cn Securities Times, Wen Wei Po and Apr 20, 2007 Notice for the AGM for 2006 http://www.cninfo.com.cn Securities Times, Wen Wei Po and Apr 27, 2007 The First Quarterly Report of 2007 http://www.cninfo.com.cn Securities Times, Wen Wei Po and May 12, 2007 Notice for postponing the AGM for 2006 http://www.cninfo.com.cn Notice for the activities to strengthen Securities Times, Wen Wei Po and May 19, 2007 management http://www.cninfo.com.cn Securities Times, Wen Wei Po and May 26, 2007 Resolution notice for the AGM http://www.cninfo.com.cn Resolution notice for the 1st meeting of Securities Times, Wen Wei Po and May 26, 2007 the 5th Board http://www.cninfo.com.cn Resolution notice for the 1st meeting of Securities Times, Wen Wei Po and May 26, 2007 the 5th Supervisory Committee http://www.cninfo.com.cn Notice for acquirement of short term Securities Times, Wen Wei Po and Jul 13, 2007 finance bonds http://www.cninfo.com.cn Securities Times, Wen Wei Po and Jul 14, 2007 Notice for progress of Wuhan Baowan http://www.cninfo.com.cn Notice for implement of dividends Securities Times, Wen Wei Po and Jul 16, 2007 distribution http://www.cninfo.com.cn Notice for progress of Chengdu Securities Times, Wen Wei Po and Aug 16, 2007 Longquan Baowan http://www.cninfo.com.cn Resolution notice for the 2nd meeting of Securities Times, Wen Wei Po and Aug 23, 2007 the 5th Board http://www.cninfo.com.cn Securities Times, Wen Wei Po and Aug 23, 2007 Interim report of 2007 and its abstract http://www.cninfo.com.cn Securities Times, Wen Wei Po and Aug 23, 2007 Notice for transactions with relative part http://www.cninfo.com.cn Investment Notices for the projects of Securities Times, Wen Wei Po and Aug 23, 2007 Xindu and Shuangliu http://www.cninfo.com.cn Aug 23, 2007 Notice for the 1st extraordinary GSM of Securities Times, Wen Wei Po and 25 2007 http://www.cninfo.com.cn Self-examination report and correction Securities Times, Wen Wei Po and Aug 24, 2007 plan on corporate governance http://www.cninfo.com.cn Resolution notice for the 1st extraordinary Securities Times, Wen Wei Po and Sep 15, 2007 GSM http://www.cninfo.com.cn Notice for progress of Chengdu Xindu Securities Times, Wen Wei Po and Sep 20, 2007 Baowan http://www.cninfo.com.cn Resolution notice for the 1st tele-meeting Securities Times, Wen Wei Po and Sep 27, 2007 of the 5th Board http://www.cninfo.com.cn Investment Notices for the projects of Securities Times, Wen Wei Po and Sep 27, 2007 Shenyang http://www.cninfo.com.cn Resolution notice for the 2nd tele-meeting Securities Times, Wen Wei Po and Oct 27, 2007 of the 5th Board http://www.cninfo.com.cn Rectification report for special activities Securities Times, Wen Wei Po and Oct 27, 2007 on corporate governance http://www.cninfo.com.cn Securities Times, Wen Wei Po and Oct 27, 2007 The Third Quarterly Report of 2007 http://www.cninfo.com.cn Resolution notice for the 1st tele-meeting Securities Times, Wen Wei Po and Oct 27, 2007 of the 5th Supervisory Committee http://www.cninfo.com.cn Securities Times, Wen Wei Po and Nov 2, 2007 Notice for progress of Shenyang Baowan http://www.cninfo.com.cn Resolution notice for the 3rd tele-meeting Securities Times, Wen Wei Po and Nov 21, 2007 of the 5th Board http://www.cninfo.com.cn 14) Reception, investigation and interview situation of company during report period According to pertinent regulations of listed company information disclosures direct of Shenzhen bourse and Working system in management of investor relation of company, we always carry out the principle of equity, justice and publicity when receiving, investing, interviewing and developing activities to fair play total investors, guarantee all investors enjoying right to learn the truth and other lawful rights and interests, to introduce and reflect practical situation of the company objectively, really and insider dealing. Date Locus Way Visitors Theme Mar 2007 Shenzhen On the pot Bosera Funds Business and development Mar 2007 Shenzhen On the pot Haitong Funds Logistic development Apr 2007 Shenzhen On the pot CICC Business and Development May 2007 Shenzhen On the pot Guotai Junan (HK) Logistic development Jun 2007 Shenzhen On the pot CICC Business and Development Aug 2007 Shenzhen On the pot Citigroup Global (Asia) Business and Development Sep 2007 Shenzhen On the pot Government Investment of SGP Business and Development Oct 2007 Shenzhen On the pot Avenue Capital Group Business and Development Nov 2007 Shenzhen On the pot Trellus Management Company, LLC Business and Development Dec 2007 Shenzhen On the pot Shenyin&Wanguo Securities Business and Development 26 15) During the reporting period, the Company made all necessary disclosures. No significant events that should be disclosed were missing. PART X. Audit Report and Finance Report（Attached） Audited by PWC PART XI. Documents Available for Verification: 1. Original copy of Annual Report carrying the signature of the Chairman; 2. Original copy of Auditor’s Statements sealed by CPA and signed by registered accountants; 3. Original copy and press release of all the documents disclosed in 2007 in the newspapers specified by the China Securities Regulatory Commission; 4. Articles of Association; 5. Other related documents. Chairman of the Board: Mr. Han Guimao Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Dated: 25th April 2008 27 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DEC. 2007 Contents Consolidated balance sheet Consolidated income statement Consolidated cash flow statement Consolidated statement of changes in equity Notes to the consolidated financial statements 27 CONSOLIDATED BALANCE SHEET Dec.31 , 2007 Dec. 31, 2006 Dec. 31, 2007 Dec. 31, 2006 Assets: Notes Consolidated Consolidated Parent company Parent company Current assets: 2 2 Cash and cash equivalents 7(1) 84,572,921 42,608,837 76,940,780 34,998,371 7(2) 、 Accounts receivable 9(1) 23,694,142 27,087,025 16,839,579 21,096,449 Prepayment 7(3) 4,735,088 1,249,446 864,354 1,100,960 7(2) 、 Other receivable 9(1) 4,850,408 3,187,101 215,723,577 131,984,311 Inventories 7(4) 1,945,105 1,667,370 1,768,257 1,471,838 Other current assets 7(5) 30,000,000 - 30,000,000 - Total current assets 149,797,664 75,799,779 342,136,547 190,651,929 Non-current assets: Long-term equity 7(6) 、 investment 9(2) 276,888,419 299,085,089 826,962,191 709,158,861 Investment Property 7(7) 291,487,283 293,445,203 100,852,443 116,654,123 Fixed assets 7(8) 155,125,664 147,743,225 53,463,990 48,842,412 Construction in progress 7(9) 123,695,461 1,357,288 537,644 6,600 Intangible assets: 7(10) 251,692,798 240,674,508 41,548,317 55,780,248 Deferred income tax assets 7(19) 767,493 - - - Other non-current assets: 7(11) 445,509,811 226,501,016 253,060,000 203,060,000 Total non-current assets: 1,545,166,929 1,208,806,329 1,276,424,585 1,133,502,244 Total assets: 1,694,964,593 1,284,606,108 1,618,561,132 1,324,154,173 28 CONSOLIDATED BALANCE SHEET (Continued) Dec. 31, 2007 Dec. 31, 2006 Dec. 31, 2007 Dec. 31, 2006 Liabilities and Equities Notes Consolidated Consolidated Parent company Parent company Current liabilities: 2 2 Short-term loans 7(12) 448,953,212 140,000,000 448,953,212 140,000,000 Account payable 7(13) 75,758,472 25,930,539 965,416 670,653 Received in advance 7(14) 383,064 561,022 - - Employees’ wage payable 7(15) 12,547,384 9,391,471 11,322,213 8,972,684 Tax payable 7(16) 7,500,046 5,819,398 5,740,578 5,117,294 Interest payable 1,128,497 553,997 1,128,497 553,997 Others payables 7(17) 26,949,829 20,226,472 102,862,071 128,852,035 Non-current liability due in 1 year 7(18) 230,000,000 - 230,000,000 - Total current liabilities 803,220,504 202,482,899 800,971,987 284,166,663 Non-current liabilities: Long-term loans 7(18) - 230,000,000 - 230,000,000 Deferred income tax liability 7(19) 3,388,161 4,630,550 3,388,161 4,630,550 Other non-current liabilities 7(20) 31,807,912 33,315,194 31,807,912 33,315,194 Total non-current liabilities 35,196,073 267,945,744 35,196,073 267,945,744 Total liabilities 838,416,577 470,428,643 836,168,060 552,112,407 Shareholders’ equity Share capital 7(21) 230,600,000 230,600,000 230,600,000 230,600,000 Capital reserves 7(22) 209,117,428 210,890,301 208,453,862 210,226,735 Surplus reserves 7(23) 168,981,289 154,153,337 168,981,289 154,153,337 undistributed profits 247,849,299 218,533,827 174,357,921 177,061,694 Total shareholders’ equity 856,548,016 814,177,465 782,393,072 772,041,766 Total Liabilities and Equities 1,694,964,593 1,284,606,108 1,618,561,132 1,324,154,173 29 CONSOLIDATED INCOME STATEMENT Dec. 31, 2007 Dec. 31, 2006 Dec. 31, 2007 Dec. 31, 2006 Parent Parent Items Notes Consolidated Consolidated company company I. Total business revenue 7(25)、9(3) 233,589,293 194,905,934 147,006,324 133,837,251 Less: Business costs 7(25)、9(3) (77,936,880) (74,783,794) (47,366,512) (50,856,901) Business tax and surcharge 7(26) (11,239,519) (8,806,115) (6,438,343) (5,727,811) Administrative expense (43,304,732) (31,109,567) (27,784,322) (20,655,212) Net financial expense 7(27) (20,912,132) (8,565,613) (20,181,762) (8,590,547) Loss from asset devaluation 7(28) 224,773 (448,284) 232,070 (426,364) Plus: Investment income 7(29)、9(4) 41,300,890 78,118,622 41,300,890 78,118,622 Incl. Investment income from associates 7(29)、9(4) 41,180,890 78,118,622 41,180,890 78,118,622 II Operational profit 121,721,693 149,311,183 86,768,345 125,699,038 Plus: Non-operating income 7(30) 522,346 199,826 449,128 171,459 Less: Non-operating expenditure 7(30) (909,959) (501,552) (165,902) (469,571) Incl. Loss from disposal of non-current assets 90,606 (260,395) 48,197 (260,395) III.. Gross profit 121,334,080 149,009,457 87,051,571 125,400,926 Less: Income tax expenses 7(31) (9,163,656) (9,262,906) (6,900,392) (7,155,201) IV.Net profit 112,170,424 139,746,551 80,151,179 118,245,725 Attributable to the shareholders of parent company 112,170,424 139,259,693 80,151,179 118,245,725 Minority interest - 486,858 - - V、Earnings per share:： (I) Basic earnings per share 7(32) 0.49 0.60 N/A N/A (II) Diluted earnings per share 7(32) 0.49 0.60 N/A N/A 30 Consolidated cash flow statement Dec. 31, 2007 Dec. 31, 2006 Dec. 31, 2007 Dec. 31, 2006 Parent Parent Items Notes Consolidated Consolidated company company I. Net cash flow from business operation Cash received from sales of products & providing of services 237,739,115 190,932,884 151,941,770 131,606,514 Cash received from other business activities 10,628,239 5,739,912 890,915 117,504,418 Sub-total of cash inflow from business activities 248,367,354 196,672,796 152,832,685 249,110,932 Cash paid for purchasing of merchandise and services (19,965,982) (34,894,578) (11,866,812) (10,642,596) Cash paid to or for staffs (29,221,498) (23,870,460) (19,257,794) (15,885,800) Taxes paid (24,812,974) (22,527,911) (13,777,994) (16,945,593) Cash paid for other business activities 7(33) (19,056,541) (7,654,714) (35,563,729) (7,745,132) Sub-total of cash outflow from business activities (93,056,995) (88,947,663) (80,466,329) (51,219,121) Net cash flow from business operation 7(33) 155,310,359 107,725,133 72,366,356 197,891,811 II. Cash flow from investment Cash received from investment income 61,724,687 - 61,724,687 - Net cash received from disposal of fixed assets, intangible assets, and other long-term assets 1,081,405 416,112 975,927 426,766 Cash received for other investment activities 1,093,497 780,716 940,604 674,570 Sub-total of cash inflow from investment activities 63,899,589 1,196,828 63,641,218 1,101,336 Cash paid from construction of fixed assets, intangible assets and other long-term assets (359,772,829) (349,638,924) (139,988,511) (257,066,089) Cash paid for investment (34,455,000) - (174,455,000) (179,799,999) Cash paid for other investment activities - - - - Sub-total of cash outflow from investment activities (394,227,829) (349,638,924) (314,443,511) (436,866,088) Net cash flow from investment (330,328,240) (348,442,096) (250,802,293) (435,764,752) III. Cash flow from financing Cash received from loans 347,520,943 570,000,000 347,520,943 570,000,000 Sub-total of cash inflow from financing activities 347,520,943 570,000,000 347,520,943 570,000,000 Repayment for debts (40,000,000) (300,000,000) (40,000,000) (300,000,000) Cash paid for dividend or interests (90,746,548) (72,036,667) (87,259,412) (71,985,315) 31 Sub-total of cash outflow from financing activities (130,746,548) (372,036,667) (127,259,412) (371,985,315) Net cash flow from financing 216,774,395 197,963,333 220,261,531 198,014,685 IV. Influence of exchange rate alternation on cash and cash equivalents 207,570 156,495 116,815 180,374 V. Net increase of cash and cash equivalents 41,964,084 (42,597,135) 41,942,409 (39,677,882) Plus: Balance of cash and cash equivalents at the beginning 42,398,837 84,995,972 34,788,371 74,466,253 VI. Balance of cash and cash equivalents at the end 7(33) 84,362,921 42,398,837 76,730,780 34,788,371 32 SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) Consolidated statement of changes in equity (consolidated) Items Equity attributable to the shareholders of parent company Surplus Minority int Share capital Capital reserves Undistributed profits Notes reserves Balance at Dec. 31, 2005 230,600,000 210,656,111 134,791,383 160,710,280 4,631,70 Application of 2006 accounting standards for the first time 2 - - - 1,024,965 - Balance at January 1, 2006 230,600,000 210,656,111 134,791,383 161,735,245 4,631,70 Increase in 2006 Net profit - - - 139,259,693 486,858 Buy in minority interest - 234,190 - - (5,118,56 Profit distribution withdrawal Surplus reserves - - 19,361,954 (19,361,954) - Dividend - - - (63,099,157) - Balance at Dec. 31, 2006 230,600,000 210,890,301 154,153,337 218,533,827 - Balance at January 1, 2007 230,600,000 210,890,301 154,153,337 218,533,827 - Increase in 2007 Net profit - - - 112,170,424 - Gain or loss Charged directly to the owner's equity Influence of investee’s other equity change under equity method - (1,772,873) - - - Profit distribution Withdrawal Surplus reserves - - 14,827,952 (14,827,952) - Dividend - - - (68,027,000) - Balance at Dec. 31, 2007 230,600,000 209,117,428 168,981,289 247,849,299 - - 33 - SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) Consolidated statement of changes in equity (parent company) Share Capital Surplus undistributed Total shareholde Items Notes capital reserves reserves profits Balance at Dec. 31, 2005 230,600,000 210,656,111 134,791,383 160,710,280 736,757,774 Application of 2006 accounting standards for the first time 2 - (429,376) - (19,433,200) (19,862,576) Balance at January 1, 2006 230,600,000 210,226,735 134,791,383 141,277,080 716,895,198 Increase in 2006 Net profit - - - 118,245,725 118,245,725 Profit distribution Withdrawal Surplus reserves - - 19,361,954 (19,361,954) - Dividend - - - (63,099,157) (63,099,157) Balance at Dec. 31, 2006 230,600,000 210,226,735 154,153,337 177,061694 772,041,766 Balance at January 1, 2007 230,600,000 210,226,735 154,153,337 177,061694 772,041,766 Increase in 2007 Net profit - - - 80,151,179 80,151,179 Gain or loss Charged directly to the owner's equity Influence of investee’s other equity change under equity method - (1,772,873) - - (1,772,873) Profit distribution Withdrawal Surplus reserves - - 14,827,952 (14,827,952) - Dividend - - - (68,027,000) (68,027,000) Balance at Dec. 31, 2007 230,600,000 208,453,862 168,981,289 174,357,921 782,393,072 - 34 - SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 1. General information Shenzhen Chiwan Petroleum Supply Base Co., Ltd. (the “Company”) was incorporated as a Sino-foreign equity joint venture company in Shenzhen, the People’s Republic of China (the “PRC”) in February 1984. On 11 May 1995, the Company obtained the approval from the Shenzhen Municipal Government for its reorganization into a joint stock limited company. On 28 July 1995, the Company’s B shares were listed for trading on Shenzhen Stock Exchange. Until 31 December 2007, the Company and its 10 subsidiaries (collectively the “Group”) are principally engaged in leasing of office space and warehouses, provision of management, storage and marine petroleum logistics services in the PRC. The address of the Company’s registered office is Base Building, Chiwan, Nanshan District, Shenzhen, PRC. 2. Accounting basis Before 2007, the financial statements of the Company are prepared according to “Enterprises Accounting System” and relevant Enterprises Accounting Standards. The Ministry of Finance issued “Enterprise Accounting Standard – Basic Standard”, “Enterprise Accounting Standard No. 1 – Inventories” and other 37 specific accounting standards on February 15, 2006. The Ministry of Finance issued "Enterprise Accounting Standard – Application Guide" on October 30, 2006. These form the new enterprise accounting standards system. The Company carried out the new enterprises accounting standards system since January 1, 2007. When preparing financial statements, the Company regarded January 1, 2007 as the first date of implementing Enterprise Accounting Standard and confirmed the opening amounts of balance sheet on January 1, 2007, and on this basis, analyzed impacts to income statement and balance sheet because of articles No. 5-19 in the "Enterprise Accounting Standard No. 38 – the first time of implementation of the Enterprise Accounting Standards". In accordance with the retroactive adjustment principle, the Company adjusted income statement and balance sheet and regarded these as financial statements of last year, and reclassified relevant financial statements’ items according to new standards. 3. Declare on compliance with accounting standards The Company announces that: the Company’s financial statements prepared in accordance with the Enterprises Accounting Standards, and they fairly present the financial position, operation result, cash flow and other relevant information of the Company. - 35 - SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 4. 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. 4.1 Accounting period The Group’s accounts cover the period from 1st January to 31st Dec. 4.2 Booking currency Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "booking currency").The consolidated financial statements are presented in Renminbi (RMB), which is the basic booking currency of the companies comprising the Group.. 4.3 Foreign currency translation Foreign currencies caused by foreign businesses are translated into RMB accounts according to the spot exchange rate of transaction occurring day. For the balances of foreign currency accounts at the end of period, foreign currency monetary items are translated according to the spot exchange rate at the balance sheet date, the difference recorded into current profit and loss; the foreign currency non-monetary items using historical cost are translated according to the spot exchange rate of transaction occurring day Exchange profit and loss due to foreign currency loan relating with purchasing, building or producing assets that comply with capitalization conditions should be dealt same as loan expenses. 4.4 Cash and cash equivalents Cash and cash equivalents include cash in hand, cash in banks and Cash equivalents. Cash equivalents is that the Company holds short-term (expiration of 3 months from purchasing day), liquidity, easy to convert to known amount of cash and low-risk changes in value of investment. 4.5 Financial assets (1) Classification of financial assets Financial assets include financial assets designated as at fair value through profit and loss, loans and receivables, assets available-for-sale and held-to-maturity investments; (2) Recognition and measurement of financial instruments a. The Company shall recognize one financial asset or financial liability when the Company becomes one party to the contractual provisions of financial instrument. The Company shall derecognize a financial asset - 36 - SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) if one of the following conditions is met: the contractual rights to the cash flows from the financial asset expire; the financial asset has been transferred, and the transfer meets the terms of derecognition. The Company shall derecognize a financial liability (or part of it) only when the underlying present obligation (or part of it) is discharged/cancelled. b. The financial assets and financial liabilities are measured with fair value when confirming initially. As to financial assets or financial liabilities at fair value through profit and loss, relevant trade expenses are recorded into the profit and loss of current period; as to other financial assets or financial liabilities, relevant trade expenses are recorded into the initial confirming amount. c. For financial assets, the Company adopts fair value for follow-up measure, and doesn’t deduct trade expenses that would generate when disposing the financial assets. d. For financial liabilities, the Company uses actual interest rate and adopts amortized cost for follow-up measure. e. Profit or loss due to fair value change of financial assets and financial liabilities, excluding relating with hedging, should be dealt with followings: financial assets or financial liabilities at fair value through profit and loss, profit or loss due to fair value change should be recorded into profit or loss due to fair value change; profit or loss due to fair value change of available-for-sale financial assets should be recorded into capital reserves after deducting impairment and exchange difference due to foreign currency financial assets, the capital reserves shall be transferred into current profit and loss when derecognition. f. For financial assets or financial liabilities, the Company adopts amortized cost, excluding relating with hedging, profit or loss due to derecognition, impairment or amortization should be recorded into profit and loss of current period. g. The Company charges counteractive results of fair value change due to hedge instrument and hedged item in same accounting period. (3) Fair value of financial instruments If there is an active market for a financial asset or financial liability, the quoted price in the active market shall be used to establish the fair value of the financial asset or financial liability. If no active market exists for a financial instrument, the Company establishes fair value by using a valuation technique. Valuation techniques include using recent market transactions between knowledgeable, willing parties, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. (4) Impairment of financial assets The Company assesses at the balance sheet date the carrying amount of the financial assets excluding financial assets at fair value through profit and loss. If there is objective evidence that the financial asset is impaired, the Company shall determine the amount of any impairment loss. For a financial asset that is individually significant, the Company should assess the asset impairment. - 37 - SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 4.6 Trade and other receivables and provision for bad debts Trade and other receivables are recognized initially at fair value. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade and other receivables are impaired. 4.7 Inventories Inventories comprising materials, appliances and low-value items stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. 4.8 Long-term investment (a) Subsidiaries Subsidiaries are all entities (including special purpose 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 convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The Group will recognize investment income from subsidiaries by using cost method in income statement. (b) Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are - 38 - SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) accounted with the equity method of accounting and are initially recognized at cost. The Group will recognize investment income from associates by using equity method in income statement. 4.9 Investment property (1) Investment property includes: a land use right that is leased out; a land use right held for transfer upon capital appreciation; a building that is leased out. (2) Initial measurement: a. The costs of purchasing investment property include purchase price, relevant tax and other expenses attributable to the investment property; b. The costs of self-building investment property include all necessary expenses before the asset is substantially ready for its intended use; c. The costs of investment property obtained with other methods are confirmed according to relevant accounting standards. (3) Subsequent measurement: Cost methods. (4) Depreciation or amortization method Depreciation is calculated on the straight-line method to write off the cost of each asset to their residual values over the useful lives. 4.10 Fixed assets and depreciation Fixed assets refer to any item that has more than one-year lifetime and has a relatively high value; they comprise property, plant and equipment that stated at historical cost less depreciation. Subsequent costs are included in the asset's carrying amount or recognized 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 costs of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period when they are incurred. Depreciation is calculated on the straight-line method to write off the cost of each asset to their residual values over the useful lives as follows: - 39 - SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) Estimated Estimated useful residual values(% Annual lives(years) of original value) deprecation rates Buildings 5-50 5%-10% 1.9% - 9.5% Wharfs 50 5% 1.9% Machinery 3-20 5%,10% 4.5% -31.7% Motor vehicles 3-14 5%,10% 6.8%-31.7% Fixed assets decoration 2-5 - 20%-50% Office equipment and 3-5 5%,10% 18% -31.7% others The assets’ residual values and useful lives are reviewed, and adjusted if appropriate at each balance sheet date. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. 4.11 Construction in progress Construction in progress comprises infrastructure projects under construction, which are stated at cost. This includes all the expenditure, other direct costs, prepayments and deposits attributable to the construction and interest charges arising from borrowings used to finance the construction during the construction period. Depreciation is not provided on construction in progress until the related asset is completed and transferred for intended use. 4.12 Intangible assets (a) Leasehold land Leasehold land is up-front payment to acquire long-term interests in the usage of land. They are stated at cost and charged to the income statement over the remaining period of the lease on a straight-line basis, net off any impairment losses. (b) Computer software - 40 - SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful lives. 4.13 Long-term deferred expenses Long-term deferred expenses refer to the expenses prepaid but the amortizing period lasts more than 1 year. The amortization is calculated on the straight-line method to write off the cost of each expense over their useful lives and stated in terms of the original amounts less the amortization. 4.14 Impairment of long-term assets (1) At the end of period, the Company should check carrying amounts of long-term equity investment, fixed assets, and construction in progress, intangible assets and goodwill, if there is objective evidence that the asset is impaired, recoverable amount shall be estimated. The recoverable amount should base on the higher value between fair value less disposal expense and present value of estimated cash flow in the future. When the recoverable amount of the asset is less than its carrying amount, the provision for impairment loss is the difference between the individual asset’s carrying amount and its recoverable amount. Once the impairment loss is recognized, it shall not be reversed in a subsequent period. (2) If there is objective evidence that the asset is impaired, recoverable amount shall be estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the Company shall determine the recoverable amount of the asset group to which the asset belongs. The Company determines asset group based on whether cash flow generating from the asset group is independent with other assets or asset group. At the same time, the Company shall consider operation method and assets continuing use or disposal methods. The asset group that the Company confirms shall be smaller than report section of the Company. 4.15 Other long-term assets Other long-term assets refer to the rental of land use right from 2009 to 2034. 4.16 Borrowing costs Borrowings are recognized initially at cost value. Borrowing costs incurred for the construction of any asset are capitalized during the period that is required to complete and prepares the asset for its intended use. Other borrowing costs are expensed. - 41 - SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 4.17 Contingent liabilities Contingent liabilities are potential obligations that would become liabilities only if certain events happen in the future. If the liabilities are probable and the amount of the liabilities can be reasonably estimated, it should be recorded in the accounts. 4.18 Employee benefits The Group participates in defined contribution retirement schemes organized by the local government authorities in the PRC. Employees are entitled to an annual pension equivalent to a fixed portion of their basic salaries at their retirement dates. The Group is required to make contributions to the retirement schemes at a rate ranging from 8% to 22% of the standard salary of those employees and has no further obligation for post-retirement benefits. The contributions are charged to the income statement of the Group as they become payable in accordance with the rules of the schemes. 4.19 Deferred tax asset and Deferred tax liability (1) Deferred tax asset recognition A deferred tax asset shall be recognized for deductible temporary differences to the extent that it is probable that taxable profits will be available against which the deductible temporary differences can be utilized, unless the deferred tax asset due to initial recognition of assets or liabilities from some special transactions. (2) Deferred tax liability recognition A deferred tax liability shall be recognized for all taxable temporary differences, except to the extent that the deferred tax liability arises from: a. the initial recognition of goodwill; b. the transaction is not a business combination, at the time of the transaction, it affects neither accounting profit nor taxable profit (or deductible loss); c. for taxable temporary differences associated with investment in subsidiaries, associates and interests in jointly controlled enterprises, the investing enterprise is able to control the timing of the reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. (3) Income taxes measurement Income taxes include income taxes for the current period and deferred income taxes. Current and deferred tax of an enterprise shall be recognized as income or an expense and included in profit or loss for the current period, except that: income tax arising from a business combination the Company shall adjust goodwill; income tax arising from a transaction or event which is recognized directly in owner’s equity shall be charged in owner’s equity. 4.20 Revenue recognitions - 42 - SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) Revenue comprises the fair value of the consideration received or receivable for the sale of services, net of value-added tax, rebates and discounts and after elimination of sales within the Group. Revenue is recognized as follows: (a) Sales of services Sales of services are recognized in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. (b) Interest income Interest income is recognized on a time-proportion basis using the effective interest method. (c) Dividend income Dividend income is recognized when the right to receive payment is established. 4.21 Leases (a) When a group company is the lessee Leases where a significant portion of the risks and rewards of ownership are retained by the lesser are classified as operating leases. Payments made under operating leases (net of any incentives received from the lesser) are charged to the income statement on a straight-line basis over the period of the lease. (b) When a group company is the lesser Assets leased out under operating leases are included in investment property in the 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 recognized on a straight-line basis over the period of the lease. 4.22 Business combination - 43 - SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) 1. Business combination policy (1) Business combination involving enterprises under common control For this kind of business combination, the Company adopts equity method. Assets and liabilities that are obtained by the absorbing party in a business combination shall be measured at their carrying amounts, excluding the adjustment of using different accounting policies, and not be recognized as goodwill. The difference between the carrying amount of the net assets obtained and the carrying amount of the consideration paid for the combination shall be adjusted to capital reserve. If the capital reserve is not sufficient to absorb the difference, any excess shall be adjusted against retained earnings. The net profit made by the party being absorbed before the combination shall be presented in the consolidated income statement. (2) Business combination not involving enterprises under common control where the cost of a business combination exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference shall be recognized as goodwill, goodwill shall be measured at cost less accumulated impairment losses. Where the cost of combination is less than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, after reassessment, the difference shall be recognized in profit or loss for the current period. The operation results of the acquiree shall be consolidated since the Company obtains the controlling rights, until the controlling rights are transferred from the Company. (3) Step-by-step realization of business combination The Company realizes business combination through multiple step-by-step exchange transactions; the combined cost is summation of each individual transaction’s cost according to “Enterprise Accounting Standards No. 20 – Business combinations”. 2. Preparation of consolidated financial statements (1) Consolidation scope Consolidation scope includes: the Company holds invested enterprise’s more than half of the right to vote directly, through subsidiary holds invested enterprise’s more than half of the right to vote indirectly, or the Company holds less than half of the right to vote but can control the invested enterprise. (2) Preparation of consolidated financial statements Parent company prepares consolidated financial statements on the basis of parent company and subsidiaries’ financial statements and other datum, adjusts long-term equity investment to subsidiaries according to equity method. The Company would offset all major internal transactions and inter-company current accounts within the consolidation scope. 5 Taxes The major taxes and tax rates: - 44 - SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) tax Tax rate Calculate foundation corporate income tax 15%, 33% Profit before tax payable SHBW corporate income tax 3.3% Business income Value added tax 4% Utility charge Business tax 3%, 5% Service , Rental income 6 Subsidiaries Subsidiary Business Proportion of the name Address capital scope Equity ratio right to vote direct indirect direct indirect cwwl Shenzhen 34,409,050 (i) 100% - 100% - shbw Shanghai 160,000,000 (ii) 90% 10% 90% 10% gzbw Guangzhou 50,000,000 (iii) 90% 10% 90% 10% ksbw Kunshang 120,000,000 (iii) 100% - 100% - tjbw Tianjin 49,800,000 (iii) 100% - 100% - lfbw Hebei 10,000,000 (iii) 100% - 100% - whbw Wuhan 30,000,000 (iii) 100% - 100% - xdbw Chengdou 30,000,000 (iii) 100% - 100% - lqbw Chengdou 50,000,000 (iii) 100% - 100% - sybw Shenyang 30,000,000 (iii) 100% - 100% - (i) Leasing of warehouses, provision of management, storage in the PRC; Storage (except for dangerous goods); packing, sorting and Consolidation (ii) Leasing of office space and warehouses; storage (except for dangerous goods); packing, sorting and Consolidation. (iii) Storage (except for dangerous goods); packing, sorting and Consolidation. 7. Notes to the Consolidated Financial Statements 7.1 Cash and cash equivalents - 45 - SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (All amounts in RMB unless otherwise stated) Item December 31,2007 December 31,2006 Cash in hand 8,071 9,548 Other cash equivalent 210,000 211,783 Cash in bank 84,354,850 42,387,506 Total 84,572,921 42,608,837 The foreign currency December 31,2007 December 31,2006 foreign Exchange RMB foreign Exchange RMB currency rate currency rate USD 354,262 7.30 2,586,113 206,326 7.81 1,611,406 HKD 835,540 0.94 785,408 991,934 1.00 991,934 3,371,521 2,603,340 7.2 Accounts receivables and other receivables December 31,2006 December 31,2007 Accounts receivables 27,764,593 23,933,477 Increase Decrease Less: bad debts provisions (677,568) (8,869) 447,102 (239,335) 27,087,025 23,694,142 Age of accounts receivables and corresponding bad debts provisions： December 31,2007 December 31,2006 Age amount % provisions amount % provisions