武锅Ｂ(200770)2007年年度报告（英文版）

WUHAN BOILER COMPANY LIMITED ANNUAL REPORT 2007 Disclosing Newspaper: Securities Times and Ta Kung Pao Disclosing Date: 25 Apr. 2008 1 Contents Ⅰ. Important Notes----------------------------------------------------------------------------------- 3 Ⅱ. Company Profile---------------------------------------------------------------------------------- 3 Ⅲ. Summary of Accounting Highlight and Business Highlight-------------------------------- 5 Ⅳ. Changes in Share Capital and Particulars about Shareholders---------------------------- 8 Ⅴ. Particulars about Directors, Supervisors and Senior Executives and Employees----- 11 Ⅵ. Corporate Governance------------------------------------------------------------------------------- 17 Ⅶ. Brief Introduction to the Shareholders’ General Meeting ---------------------------------- 25 Ⅷ. Report of the Board of Directors ----------------------------------------------------------------- 26 Ⅸ . Report of the Supervisory Board ---------------------------------------------------------- 34 Ⅹ. Significant Events---------------------------------------------------------------------------------- 36 Ⅺ. Financial Report----------------------------------------------------------------------------------- 38 Ⅻ. Documents for Reference--------------------------------------------------------------------------38 2 SECTION I. IMPORTANT NOTES ● The Board of Directors, the Supervisory Board, Directors, Supervisors and Senior Executives of Wuhan Boiler Company Limited (hereinafter referred to as the Company) hereby confirm that no omission, misstatement, or misleading information exists in this report, and accept, individually and collectively, the responsibilities for the authenticity, accuracy and completeness of the contents of this report. ● The 2007 Financial Reports of the Company had been audited by Wuhan Zhonghuan Certified Public Accountants Ltd, and an unqualified Auditors’ Report for the Company annual accounts had been issued by the Auditor. ● Mr. YEUNG Kwok Wei Richard, Chairman of the Board of the Company, Mr. Philippe VERGNE, Chief Financial Officer, and Mr. Zhang Yansi, Person in Charge of Accounting, hereby confirm that the Financial Report enclosed in this Annual Report is true and complete. 3 SECTION II. COMPANY PROFILE 1. Legal Name of the Company In Chinese: 武汉锅炉股份有限公司 In English: WUHAN BOILER COMPANY LIMITED Abbr. in English: WBC 2. Legal Representative: YEUNG Kwok Wei Richard 3. Secretary to the Board of Directors: Liu Chengxiang Securities Affairs Representative: Xu Youlan Contact Address: No. 586, Wuluo Road, Wuhan, Hubei Contact Tel: (86) 27-87652719 Contact Fax: (86) 27-87655152 E-mail:youlan.xu@power.alstom.com 4. Registered Address and Office Address: No. 586, Wuluo Road, Wuhan, Hubei Post Code: 430070 Internet Website: http://www.wbcl.com.cn E-mail: cnwhu.wbc @ power.alstom.com 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times (Domestic), Ta Kung Pao (Overseas) Internet Website for Publishing the Annual Report: http://www.cninfo.com.cn Place Where the Annual Report is Prepared and Placed: Securities Department of the Company 6. Stock Exchange Listed with: Shenzhen Stock Exchange Stock Abbreviation: WUGUO – B Stock Code: 200770 7. Other Information of the Company Initial registration date: On Apr. 8, 1998, the Company was formally incorporated. Initial registration place: No. 586, Wuluo Road, Wuhan, Hubei The latest registration date: On Oct 26, 2007, the Company changed its registration with Industrial and Commercial Administration Bureau of Hubei Province as a stock company (Sino-Foreign Joint Venture Company and listed company). The latest registration place: No. 586, Wuluo Road, Wuhan, Hubei Business License No.: 420000400000568 Tax Registration No.: 420106271756432 The Certified Public Accountants engaged by the Company: Wuhan Zhonghuan Certified Public Accountants Ltd. Address: 16/F, Tower B, Wuhan International Mansion 4 SECTION III. HIGHLIGHTS OF ACCOUNTING AND BUSINESS RESULTS I. Accounting data for financial year of 2007 Unit: RMB Yuan Total profit -521,693,773.71 Net profit -478,262,995.78 Net profit attributable to Shareholders of the Company -480,602,218.59 Net profit after deducting non-recurring gain and loss -481,219,951.18 Operating profit -521,969,024.97 Investment income 321,946.87 Net non-operating income/expenses 275,251.26 Net cash flow arising from operating activities -89,934,049.57 Net increase/decrease of cash and cash equivalents -22,469,168.18 Note: Non-recurring gains and losses Unit: RMB Yuan Items Amount Gains or losses from disposal of non-current assets 1,489,923.24 Government grant recognized in current period (excl. the grant received according to national unified standards and related -2,300,000.00 closely to the business of the Company) Write-off of outstanding welfare fund accrual in current period 2,925,723.33 according to accounting policy Gains or losses on trading financial assets 321,946.87 Other non-operating income/expenses -647,205.24 Income tax effects of non-recurring gains and losses -1,070,081.17 Effect of minority interests -1,722,727.96 Total 617,732.59 II. Financial indexes of the Company over the last three years. 1. Major accounting highlights Unit: RMB Yuan 2006 Increase/ 2005 Items 2007 decrease from Before After adjustment last year(％) Before After adjustment adjustment adjustment Operating revenue 1,770,372,881.47 2,289,197,110.55 2,312,038,158.45 -23.43% 2,874,191,882.49 2,919,327,746.11 Total profit -521,693,773.71 32,614,167.18 33,066,336.5 -1,677.72% 45,837,312.18 43,379,834.72 Net profit attributable to -480,602,218.59 10,053,154.92 12,748,931.98 -3,869.74% 24,546,297.24 30,420,946.16 shareholders of the company Net profit attributable to shareholders of the company -481,219,951.18 10,574,101.50 13,269,878.56 -3,726.41% 25,231,627.92 31,106,276.84 after deducting non-recurring gains and losses Net cash flow arising from -89,934,049.57 -660,228,046.84 -660,228,046.84 -86.38% 367,672,700.96 367,672,700.96 operating activities 5 Increase/ At the end of 2006 At the end of 2005 Items At the end of 2007 decrease from Before After adjustment the end of last Before After adjustment adjustment year（％） adjustment Total assets 2,525,381,208.62 2,942,214,320.23 2,949,075,807.59 -14.37% 3,124,848,664.38 3,129,014,374.67 Owners’ equity (or shareholders’ 135,840,152.09 615,538,530.90 622,382,370.68 -78.17% 615,302,598.05 619,450,660.77 equity) 2 Major financial indexes Unit: RMB Yuan Increase/ 2006 2005 Items 2007 Decrease Before After adjustment from last Before After adjustment adjustment year(％) adjustment Basic earnings per share -1.62 0.03 0.04 -4,150% 0.08 0.10 Diluted earnings per share -1.62 0.03 0.04 -4,150% 0.08 0.10 Basis earnings per share after deducting -1.62 0.04 0.04 -4,150% 0.08 0.10 non-recurring gains and losses Fully diluted return on net -353.80% 1.63% 2.05% -355.85% 3.99% 4.91% assets Weighted average return -126.61% 1.62% 2.05% -128.66% 4.15% 5.06% on net assets Fully diluted return on net assets after deducting -354.25% 1.72% 2.13% -356.38% 4.10% 5.02% non-recurring gains and losses Weighted average return on net assets after -126.77% 1.70% 2.13% -128.90% 4.26% 5.17% deducting non-recurring gains and losses Net cash flow per share arising from operating -0.30 -2.22 -2.22 86.49% 1.24 1.24 activities Increase/ At the end of 2006 At the end of 2005 decrease Items At the end of 2007 from last Before After adjustment Before After adjustment year（％） adjustment adjustment Net assets per share attributable to 0.46 2.07 2.10 -78.10% 2.07 2.09 shareholders of the company 3 In accordance with Regulations of Information Disclosure and Preparation for Publicly listed company (No. 9) promulgated by CSRC, the Company’s return on net assets and earning per share for year 2007 are calculated based on fully diluted method and weighted average method. ● Return on Net Assets Profit for the reporting 2007 2006 6 period Fully Diluted Weighted Average Fully Diluted Weighted Average Net profit attributable to common shareholders of the Company -353.80% -126.61% 2.05% 2.05% Net profit attributable to common shareholders of the Company after -354.25% -126.77% 2.13% 2.13% deducting non-recurring gains and losses ● Earnings per Share (EPS) Profit for the reporting 2007 2006 period EPS-Basic EPS-Diluted EPS-Basic EPS-Diluted Net profit attributable to common shareholders of -1.62 -1.62 0.04 0.04 the Company Net profit attributable to common shareholders of the Company after -1.62 -1.62 0.04 0.04 deducting non-recurring gains and losses 7 SECTION IV. CHANGES IN SHARE CAPITAL AND SHAREHOLDERS I. Changes in Share Capital Unit: Share Before the change Increase/decrease (+, - ) After the change Items Issuance Capitalization Number of Proportion Bonus Number of Proportio of new of reserved Other Subtotal shares (%) shares shares (%) shares fund I. Non tradable 172,000,000 57.91% 172,000,000 57.91% shares 1. Sponsors’ 172,000,000 57.91% 172,000,000 57.91% shares Including: Shares held by the State Share held by domestic legal 172,000,000 57.91% -151,470,000 -151,470,000 20,530,000 6.91% entity Share held by foreign legal 151,470,000 151,470,000 151,470,000 51.00% entity Others 2. Raised legal entity’s shares 3.Employees shares 4. Preference shares or others II. Tradable 125,000,000 42.09% 125,000,000 42.09% shares 1. RMB ordinary shares 2. Domestically 125,000,000 42.09% 125,000,000 42.09% listed foreign shares 3. Overseas listed foreign shares 4. Others III. Total 297,000,000 100.00% 297,000,000 100.00% shares II. Issuance and listing of shares (1) On Mar. 20, 1998, the Company issued 125,000,000 domestically listed foreign shares (B shares) to foreign investors at HKD 1.496 per share. The shares were listed in Shenzhen Stock Exchange on the Apr. 15, 1998 with the stock code as 200770. (2) At the end of this reporting period and inclusive of the last three years, neither shares nor derivative securities were issued. (3) Change of Company share structure in the reporting period On July 7, 2007, the Company received from ALSTOM (China) Investment Co., Ltd. the opinion 8 issued by China Securities Regulatory Commission regarding the [Acquisition Report and Tender Offer Report of Wuhan Boiler Co., Ltd.], (ZJGS Zi [2007] No 106); in which the Commission unanimously agreed with the full context of the [Acquisition Report of Wuhan Boiler Co., Ltd.] and the [Tender Offer Report of Wuhan Boiler Co., Ltd.] published by ALSTOM (China) Investment Co., Ltd. and ALSTOM holdings Co., Ltd according to [Securities Law and Administration of the Takeover of Listed Companies Measures (CSRC Statute No. 10)]. On Aug. 24, 2007, the Company received a written notification from the then controlling shareholder: Wuhan Boiler Group Co., Ltd. stating that ALSTOM (China) Investment Co., Ltd. had completed all acquisition procedures on Aug. 23, 2007 for the 151,470,000 state-owned shares (non tradable shares) of Wuhan Boiler Co., Ltd. being held by Wuhan Boiler (Group) Co., Ltd. With the acquisition finalized, Alstom (China) Investment Co., Ltd. became the controlling shareholder of the Company. Re-registration with Industry and Commerce authority was finalized on Oct. 26, 2007. (4) No employee shares remain within the Company (5) Profit distribution during the reporting period On July 17, 2007, the Company implemented profit distributions plan to all shareholders at a ratio of RMB 0.20 in cash for every 10 shares held, the total distributed amount was RMB 5,940,000. III. Introduction about shareholders (1) As at the end of Dec 31, 2007, the Company had 13,442 shareholders: including one foreign shareholder, ALSTOM (China) Investment Co., Ltd., one domestic shareholder, Wuhan Boiler Group Co., Ltd, and 13,440 domestically listed foreign shareholders. (2) Shares held by the principal shareholders As at end of Dec 31, 2007, the top ten shareholders and the top ten shareholders for tradable share of the Company are as follows: Total number of shareholders 13,442 Top ten shareholders Total Number of Proportion Share pledged Name of shareholders Nature of shareholders number of non-tradable (%) or frozen shares held shares held ALSTOM (CHINA) INVESTMENT COMPANY Foreign legal entity 51.00% 151,470,000 151,470,000 0 LIMITED. WUHAN BOILER GROUP CO., State-owned legal entity 6.91% 20,530,000 20,530,000 0 LTD WANG JIA YI Domestic natural person 0.58% 1,713,699 0 0 GUOTAI JUNAN SECURIES Domestic non-state-owned 0.41% 1,221,700 0 0 HONG KONG LIMITED legal entity ZHU YUN JIANG Domestic natural person 0.33% 987,242 0 0 HUANG JING ZHANG Domestic natural person 0.32% 939,220 0 0 TANG JUAN Domestic natural person 0.30% 887,236 0 0 CHEN BO Domestic natural person 0.20% 590,984 0 0 Domestic non-state-owned CSC SECURITIES(HK)LTD 0.19% 578,425 0 0 legal entity CHENG ZHI GANG Domestic natural person 0.18% 537,276 0 0 Top ten shareholders with tradable share Number of tradable Name of shareholders Type of share shares held Domestically listed foreign WANG JIA YI 1,713,699 shares 9 GUOTAI JUNAN SECURIES HONG KONG LIMITED 1,221,700 Domestically listed foreign shares ZHU YUN JIANG 987,242 Domestically listed foreign shares HUANG JING ZHANG 939,220 Domestically listed foreign shares TANG JUAN 887,236 Domestically listed foreign shares CHEN BO 590,984 Domestically listed foreign shares CSC SECURITIES(HK)LTD 578,425 Domestically listed foreign shares CHENG ZHI GANG 537,276 Domestically listed foreign shares GUO YING LIU FU 495,000 Domestically listed foreign shares DBS VICKERS (HONG KONG)LTD A/C CLIENTS 493,200 Domestically listed foreign shares Among the top ten shareholders of the Company, Alstom (China) Investment Co., Ltd. (the first principle shareholder of the Company) and Wuhan Boiler Group Co., Ltd. (the second principle shareholder of the Company) hold non-tradable shares of the Company, the other eight shareholders are public shareholders who hold tradable B shares. During the reporting period, the change of shares held by the other eight shareholders is resulted from trading in the secondary market. Among the top ten shareholders of the Company, no association and relationship Explanation on relationship among the exist between Alstom (China) Investment Co., Ltd. (the first principle shareholder top ten shareholders or of the Company), Wuhan Boiler Group Co., Ltd. (the second principle shareholder action-in-concert of the Company) and any other shareholders, and they arenot acting-in-concert with any other shareholder as defined in the Administrative Rules on Information Disclosure about Changing of Shareholding Status. The Company is not aware of whether there is any associated relationship among the top ten shareholders with tradable shares and whether there is any action-in-concert among them. The Company is not aware of whether there is any associated relationship among the top ten shareholders and the top ten shareholders with tradable share. (3) The controlling shareholder Alstom (China) Investment Co., Ltd. is the controlling shareholder of the Company, holding 151,470,000 shares as at end of Dec 31, 2007, is the only shareholder holding over 10% shares of the Company. The shares held by Alstom (China) Investment Co., Ltd. accounts for 51% of total shares. Legal representative: Mr. Claude Burckbuchler Date of foundation: Jan. 26, 1999 Registered capital: USD 60,964,400 Business License No.: Qi-Du-Guo-Zi No. 000816 Business scope: To invest in the fields of industry, infrastructure and energy that encouraged and permitted by China government for foreign investment, and to provide relevant services Alstom (China) Investment Co., Ltd. is a wholly owned foreign enterprise, whose controlling shareholder is Alstom Holdings registered in France. Legal representative: Mr. Monsieur POUPART-LAFARGE HENRI Date of foundation: Jul. 29, 1988 Registered capital: EUR 624,125,422.20 Business scope: shareholding Alstom Holding, the controlling shareholder is Alstom S.A. listed in France. Company Chairman and CEO: Mr. Monsieur KRON Patrick Date of foundation: Nov. 17, 1992 10 Share capital: as of 31 March, 2007, ALSTOM’s share capital amounts to EUR1, 940,640,814 Business scope: the conduct of transactions in France and abroad, notably in the following fields: energy, transmission and distribution of energy, transport, industrial equipment, naval construction & repair work and engineering and consultancy, design and/or production studies and general contracting associated with public or private works and construction; and all the activities related or incidental to the above (4) Relationship between the Company and its controlling shareholder: ALSTOM S. A. 100% 100％ 51％ Wuhan Boiler Company Alstom Holdings Alstom (China) Investment Co., Ltd. Limited 11 SECTION V. PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES I. Basic information of directors, supervisors and senior executives Share incentive granted during the Total reporting period Remuneration remuneration received from Number of Number Beginning Ending received Market shareholder shares of shares Reasons date of date of from the Number price of entities or Name Title Gender Age held at the held at for office office Company in of shares Number of Exercise stock at other related beginning the change share term term the reporting to be price the parties or not of the year year-end exercised period exercised period- (RMB’0,000) (Yes / No) end YEUNG Kwok Chairman of Sep. Sep. Wei Richard the Board Male 58 25,2007 25,2010 0 0 0.00 No Director Sep. Sep. Liu Yi Female 38 25,2007 25,2010 0 0 0.00 Yes Director Sep. Sep. Alain Berger Male 51 25,2007 25,2010 0 0 0.00 No Director Sep. Sep. George GEH Male 47 25,2007 25,2010 0 0 0.00 No Jean-Michel Director Sep. Sep. AUBERTIN Male 49 25,2007 25,2010 0 0 0.00 No Director 1.82 Yes Sep. Sep. Chen Bohu Male 43 0 0 25,2007 25,2010 (Jan.-Jul.) (Aug.-Dec.) Independent Sep. Sep. Wang Haisu Director Male 53 25,2007 25,2010 0 0 10.00 No Independent Sep. Sep. André CHIENG Director Male 54 25,2007 25,2010 0 0 10.00 No Yang Independent Sep. Sep. Xiongsheng Director Male 47 25,2007 25,2010 0 0 10.00 No Waser Raphaele Supervisor Sep. Sep. Marie Aimee Female 41 25,2007 25,2010 0 0 0.00 No Marie-José Supervisor Sep. Sep. Donsion Female 36 25,2007 25,2010 0 0 0.00 No Supervisor Sep. Sep. Peng Hexiang Female 41 25,2007 25,2010 0 0 10.98 No Gérard General Aug. Aug. VALLEE Manager Male 53 20,2007 20,2010 0 0 0.00 No Philippe Aug. Aug. VERGNE CFO Male 42 20,2007 20,2010 0 0 0.00 No Deputy Sep. Sep. Bai Xixin General Male 44 25,2007 25,2010 0 0 16.77 No Manager Deputy Sep. Sep. Hua Lixin General Male 43 25,2007 25,2010 0 0 14.87 No Manager Deputy Sep. Sep. Jin Zhicheng General Male 48 25,2007 25,2010 0 0 12.33 No Manager Deputy Sep. Sep. Pei Hanhua General Male 48 25,2007 25,2010 0 0 14.87 No Manager Secretary of Sep. Sep. Liu Chenxiang the Board Male 59 25,2007 25,2010 0 0 4.36 No 12 Notes: 1. Directors, supervisors and senior executives of the Company do not hold any Company shares. 2. Director Ms. Liu Yi, employee of Alstom (China) Investment Co., Ltd. as Country CFO, China; Director Mr. Chen Bohu, Chairman of the Board of Wuhan Boiler Group Co., Ltd., since Sep. 2007; Supervisor Ms. Peng Hexiang as Chairman of Labor Union, Member of CPC Committee as well as Director in Wuhan Boiler Group Co., Ltd.; Deputy General Manager, Mr. Hua Lixin as Legal Representative in Wuhan Lanxiang Energy Environmental Science and Technology Co., Ltd. (the subsidiary of the Company) since June 2002; Other directors, supervisors and senior executives do not hold any position in the shareholder entity and its subsidiaries. II. Background and experience of directors, supervisors and senior executives over last five years. Mr. YEUNG Kwok Wei Richard (Yang Guowei), Chairman of the Board of the Company, born in April, 1949, Australian Citizenship. A HKIE Follow, holder of Electrical Engineering and MBA degrees. He had worked for Hong Kong CLP Co., Ltd., BBC, ABB, Alston Electric Company, Power Generation Department, Transmission and Distribution Department of Alston Power Transmission and Distribution Co., Ltd. With the position held from Projects Sales Manager to Senior Vice President, Country Chief Representative, China and Country Vice President, China of AREVA T&D SA. He is currently Senior Vice President of electric power business development in Alston Electric Company (a part of Alston Group). Mr. Yang Guowei neither holds shares of the Company nor been sanctioned by CSRC and other relevant authorities or stock exchange. Ms. Liu Yi was born in Mar. 1969, a Chinese nationality. Holder of bachelor degree, after graduated from Water Transport Department of Shanghai Marine College, she worked as an Accountant and Internal Controlling Manager in Shell (China) Development Co., Ltd., Total (China) Investment Co., Ltd. and BP (China) Holdings Limited. She is the Country CFO of Alstom (China) Investment Co., Ltd. (the controlling shareholder of the Company). Ms. Liu Yi neither holds shares of the Company nor been sanctioned by CSRC and other relevant authorities. Mr. Alain Berger was born in Jan. 1956, French nationality. Mr. Berger was appointed as the Senior Vice President in Alston International Cooperation Office in charge of business of Latin America, Senior Vice President in Power Engineering Department in charge of global hydro power business. He had held positions in CEGELEC SOCIETE ANONYME, FRANCE (ALCATEL ALSTHOM Group) as Sales Vice President in American Subsidiary Branch and appointed as Deputy General Manager in headquarter and General Manager in International business in charge of global business activities. Mr. Berger neither holds shares of the Company nor been sanctioned by CSRC and other relevant authorities. Mr. George GEH was born in Sep. 1960, American Citizenship. Holder of MBA from Carnegie Mellon University, Master’s Degree of Materials Science in Pennsylvania State University and Material Engineering Degree in Shanghai Jiao Tong University. He is now appointed the Global Vice President of Alston Electric Company (a part of Alston Group) in charge of strategy and development. Before entering Alston, he worked in a strategic management consulting company, McKinsey as a Deputy Managing partner. Mr. GEH had also worked in Technical Department of National Roller Corporation of U.S.A. Before migrating to the United States in 1980s, he worked in Shanghai Heavy Machinery Plant. Mr. GEH neither holds shares of the Company nor been sanctioned by CSRC and other relevant authorities. Mr. Jean-Michel AUBERTIN was born in Feb. 1958, French nationality. Become an Aeronautical Engineer after graduated from university in 1980 and acquired an EMBA degree in 1991; Mr. AUBERTIN was appointed as System Engineer in Matra Company of Lagardere Groupe, Vice President, Sales and Marketing Vice President in Business Department of MMS. After MMS and Dasa merger to form the European Aeronautic Defense & Space Company, he was promoted to President in Communication, Satellites Department, in charge of business integrating, restructuring and developing; Mr. AUBERTIN joined Alston Group in Oct. 2003 as Senior Vice President of Global Sales and Marketing in Alston Electric Company (a part of Alston Group), and is now Senior Vice President in Alston Global Energetic and Environmental System Group. Mr. Jean-Michel AUBERTIN neither holds shares of the Company nor been sanctioned by CSRC and other relevant authorities. 13 Mr. Chen Bohu was born in May 1964, a Chinese nationality, holder of bachelor degree in Thermal Energy Engineering at Xi’an Jiao Tong University and EMBA from Wuhan University. He is a senior engineer, had held positions of Deputy Section Chief, Section Chief, Assistant Chief Engineer in Wuhan Boiler Plant, Director and General Manager in Wuhan Boiler Co., Ltd. He is now Chairman of Wuhan Boiler Co., Ltd. Mr. Chen Bohu neither holds shares of the Company nor been sanctioned by CSRC and other relevant authorities. Mr. Wang Haisu was born in Nov. 1954, a Chinese nationality. He is a Doctor of Economics, Professor and Doctor Advisor. Currently President of MBA College in Zhongnan University of Economics and Law and professional researcher in Property Research Center, in Political Science Primary Research Base recognized by Ministry of Education. The scientific research mainly covered industrial organization, reform of state-owned enterprises and assets appraisal. He is Managing Deputy Director of Chinese Industrial Economic Association, Vice President of Hubei Industrial Economic Association, Director of China Assets Appraisal Association, Vice President of Hubei Assets Appraisal Association, consultant in Wuhan Association of Small and Medium Enterprises and member of Drafting Group for China Assets Appraisal Standards. He was elected by International Assets Appraisal Committee as member of Drafting Professional Group for New-emerged Market National Standard at the end of 2000. He is appointed independent Director of the 3rd Board of the Company. Mr Wang Haisu neither holds shares of the Company nor been sanctioned by CSRC and other relevant authorities. Mr. André CHIENG: He was born in Nov. 1953, French nationality. He graduated from Ecole Polytechnique De Paris. major in economics, attended the National Economics Management and Statistical Institute and Institutd’ Etudes Politiques de Paris. In 1978, teaching Economics in China for two years. He went back to France in 1980 and joined Louis-Dreyfus as General Manager. In 1988, the company changed name into AEC ASITIQUE EUROPEENNE DE COMMERCE, and enlarged its consultant operation. In the same year, Mr. André CHIENG was appointed as Chairman of the Board and hold the position since then. Mr. André CHIENG came to Beijing in 2001 as vice president of Comité France Chine, Hebei politics & economy consultant and honorary member of China Council for Promotion of International Trade. Mr. André CHIENG does not hold shares of the Company, and has not been sanctioned by CSRC and other relevant authorities. Mr. Yang Shengxiong: He was born in Feb. 1960, Chinese nationality, he graduated from Dongbei University of Finance and Economics with a Doctor degree in Accountancy. He is a Director, Professor and Doctor degree supervisor in accountancy department of Nanjing University. Major research field: internal control, accounting basic theory, finance management, management accounting. Adjunct duties: science commissioner and vice secretary of China Accounting Association; commissioner of enterprise internal control standard committee in Ministry of Finance; Consultant of accounting standard in the Ministry of Finance; vice chairman of Jiangsu Accounting Association. He also serves in Hohai University, Nanjing University of Science and Technology, Anhui University of Finance & Economics, Anhui University of Technology, and Zhejiang Institute of Finance & Economics as adjunct professor. He is the independent director in Jiangsu Expressway, Aerosun and Black. Mr. Yang Xiongsheng does not hold shares of the Company, and has not been punished by CSRC and other relevant authorities. Convener of the Supervisory Committee: Ms. Waser Raphaële Marie Aimée was born in Nov. 1966 she is French. In 1990, she obtained an LLM from Reading University. In 1992, she obtained a DESS in International commercial law. She successively served as a lawyer in CENCEP Company, SG2 Company and SEMA Group respectively. In 1997, she entered ALSTOM Group as legal counsel then in 2003 she became Legal Director of the Hydro Business. Now, she holds the position of Chief Counsel Northeast Asia of the Power Systems Sector of the Alstom Group. Ms. Waser Raphaële Marie Aimée does not hold shares of the Company nor was punished by CSRC or other relevant authorities or stock exchange. Ms. Marie-José Donsion: She was born in July 1971, French nationality, she graduated from European School of Management. In 1994, she joined PricewaterhouseCoopers as auditor; in 1997, she joined ALSTOM as internal auditor; in 1999, she was appointed Chief financial Officer of Madrid ALSTOM T&D Company Spanish Branch; in 2001, Operational and Controlling Vice President in power T&D department; 2004, Finance-Controlling Vice President of Hydropower Station operation. ALSTOM Power T&D Company was sold to AREVA Company in 2004, she returned to ALSTOM in Nov. 2005 and held the position of Financial Vice President of Hydropower Station Operation; Aug. 2007, Financial Vice President of energy and environment solving plan operation. Ms. Marie-José Donsion 14 neither holds shares of the Company nor punished by CSRC and other relevant authorities. Ms. Peng Hexiang was born in May 1966, Chinese nationality, and she graduated from college. She is chairman of Labor Union, member of CPC Committee and Director in Wuhan Boiler Group Co. Ltd. She previously served as director of the Office of Party Committee, secretary of Party Branch; Secretary of Party Branch in Processing Branch Factory, the director of office and secretary of Party Branch, vice secretary of Party Committee in Wuhan Boiler Co. Ltd.. Ms. Peng Hexiang neither holds shares of the Company nor punished by CSRC and other relevant authorities. General Manager Gérard VALLEE was born in Nov. 1954, French nationality, he graduated from ENSAM Ecole National Superieure Des Atrs et Metiers in Paris with Engineering degree in 1977, attended Ecole supérieure de commerce de Paris-Ecole des Affaire de Paris (ESCP-EAP) in 1996, and MBA project execution of senior management research in INSEAD in 2003. He held position of General Manager, ALSTOM (China) Investment Co. Ltd. and ALSTOM Beizhong Power (Beijing) Co. Ltd.; Alstom Shanghai Transformer Co. Ltd.; Chief Procurement Officer (CPO) of Beijing ALSTOM Engineering Consulting Co. Ltd.; Manager of Purchasing Department, Manager of Nuclear Power Department, Manager of Nuclear Power Market Service and Contract Engineer of Nuclear Power Department in ALSTOM Energy System Co. Ltd.. Chief Financial Officer, Mr. Philippe VERGNE was born in March 1965, French nationality. He is a CPA (DECF). He graduated from ESLSCA (Postgraduate School of Business Management). Mr. Vergne held positions of Chief Financial Officer in ALSTOM Electric Company, Chief Financial Officer of Business Division in ALSTOM Power Boiler Factory; Financial Auditor of Industrial Services Division in Siemens, Paris France; Principal of Control Division, Accounting Manager and Chief Business Officer in SNI. Deputy General Manager: Mr. Bai Xixi was born in Jan. 1963, Chinese nationality. He is a senior engineer. He obtained his Bachelor of Engineering degree from Huazhong University of Science and Technology with major of power thermal energy and Master Degree from Huazhong University of Science and Technology with major in western economics management. He is currently Deputy General Manager and Chief Accountant of Wuhan Boiler Co., Ltd.. He successively held positions of Deputy Director of Design Division of Wuhan Boiler Factory, Deputy Director of Planning & Sales Division and Foreign Trade Division and Vice Chief Accountant and Director of Planning & Sales Division and Director of Foreign Trade Division in Wuhan Boiler Co., Ltd. Deputy General Manager, Mr. Hua Lixin was born in July 1964, Chinese nationality, He is a senior engineer. He obtained his Bachelor of Engineering from Huazhong University of Science and Technology with major of power thermal energy and Master of Engineering in major of Thermal Energy Engineering at Xi’an Jiao Tong University. He currently is Deputy General Manager and Chief Engineer of Wuhan Boiler Co., Ltd. He is Chairman of the Board of Energy Environmental Science and Technology Co. Ltd. He held positions of Deputy Director of Design Division of Wuhan Boiler Factory, Deputy Chief Engineer and Director of Design Division of Wuhan Boiler Co. Ltd. and Director of the 3rd Board of Directors of Wuhan Boiler Co., Ltd. Deputy General Manger: Mr. Jin Zhicheng was born in Oct. 1959, Chinese nationality. He is an economist. He graduated from Jianghan University of Wuhan major in Industrial Economics Management, and from Hubei Provincial Party School of the CCP with a major of economics management. He studied MBA in School of Economics and Management of Tsinghua University. He is the Deputy General Manager of Wuhan Boiler Co., Ltd.. He previously held positions of Assistant Factory Director, Deputy Factory Director of Pipe Branch of Wuhan Boiler Co., Ltd. and Factory Director of Processing Branch of Wuhan Boiler Co. Ltd. Deputy General Manger: Mr. Pei Hanhua was born in Nov. 1959 with Chinese nationality. He is an economist. He graduated from Hubei Provincial Party School of the CCP with a major of economic management as bachelor degree. He now acts as Deputy General Manager and concurrently Secretary of CPC Branch of Purchasing Division in Wuhan Boiler Co., Ltd., meanwhile, he is in charge of safety, health and environment of Wuhan Boiler Co., Ltd. and Vice Chairman of Wuhan Safety Production Association. He successively took the posts of Assistant Factory Director, Deputy Factory Director and Factory Director of Steam Pressure Vessel Branch in Wuhan Boiler Co., Ltd. 15 Secretary of the Board: Mr. Liu Chengxiang was born in Sep. 1948 with Chinese nationality. He is a senior political worker. He graduated from China Central Radio and TV University with a major of Industrial Enterprise Management. Now he holds the post of Secretary of the Board of Wuhan Boiler Co., Ltd.. He successively took the posts of Assistant General Manger of Wuhan Boiler Group Co., Ltd., Deputy Director and Director of Office of Supervision and Auditing in Wuhan Boiler Factory; Secretary of CPC General Branch of Pipe Branch of Wuhan Boiler Co., Ltd., Principal of Assets Operation Department of Wuhan Boiler Group Co., Ltd.; Director and concurrently Secretary of the Board of the 3rd Board of Directors as well as Principal of Securities Department of the Wuhan Boiler Co., Ltd.. III. Annual remuneration of Directors, Supervisors and Senior Executives 1. Decision-making procedure of remuneration: annual remuneration of directors, supervisors and senior executives is paid in accordance to the standards stipulated by the state labor authority. During the reporting period, the Company’s six directors, two supervisors and two senior executives had received their remunerations from the Company. The four deputy general manager, one supervisor and secretary of the Board received their annual salaries as per wages & Salaries systems guidelines which were set down by the Board of Directors in compliance with the wage distribution system and the appraisal measure of economic responsibility systems as approved by Shareholders’ General Meeting. 2. The Company paid an annual allowance of RMB 100,000 (before tax) to each independent director. The transportation and accommodation expenses that independent directors incur for attending the Board meetings and shareholders’ general meetings will be reimbursed on the actual expenses basis. IV. Changes of directors, supervisor and senior executives in the reporting period The 1st Extraordinary Shareholders’ General Meeting held on the Sept 25, 2007, on the proposal for the re-election of members Board of Directors and the Supervisory Committee which were approved by means of accumulative voting. Mr. YEUNG Kwok Wei Richard, Ms. Liu Yi, Mr. Alain Berger, Mr. George GEH, Mr. Jean-Michel AUBERTIN and Mr. Chen Bohu were respectively elected as new Director of the Company. Mr. Wang Haisu, Mr. André CHIENG and Mr. Yang Xiongsheng were respectively elected as new Independent Director of the Company. Ms. Marie-José Donsion and Ms. Waser Raphaele Marie Aimee were respectively elected as new Supervisor. Ms. Peng Hexiang was elected as new Supervisor by Workers Congress. At the 20th meeting of the 3rd Board of Directors held on Aug 20, 2007, Mr. Gérard VALLEE was appointed as General Manager and Mr. Philippe VERGNE as Chief Financial Officer of the Company. At the 1st meeting of the 4th Board of Directors held on Sept 25, 2007, Mr.YEUNG Kwok Wei Richard was elected as Chairman of the Board. Mr. Bai Xixin, Mr. Hua Lixin, Mr. Jin Zhicheng and Mr. Pei Hanhua were respectively appointed as Deputy General Managers of the Company. Mr. Liu Chengxiang was appointed Secretary of the Board. At the 1st meeting of the 4th Supervisory Board held on Sep. 25, 2007, Ms. Waser Raphaele Marie Aimee was elected as Convener of the Supervisory Board. V. Employees As at the end of reporting period, the Company has a total number 2,456 on-the-job staffs and 1,258 retired staffs. Details as follows: Specialty composition: Items Number of person Proportion（%） Production Personnel 1,359 55.33% Sales person 33 1.34% Technician 572 23.29% Financial Personnel 36 1.47% Administration personnel 128 5.21% Other 328 13.36% Total 2,546 100% 16 Education Background: Items Number of person Proportion (%) Undergraduate or above 287 11.69% 3-year regular college graduate 585 23.82% Senior high school (including technical 1,097 44.66% secondary school and technical school) Junior high school or lower 487 19.83% Total 2,456 100% 17 Section VI Corporate Governance I. Corporate governance 1. Corporate governance in the reporting period The Company complied strictly to the requirements of Company Law, Securities Law and other relevant laws and regulations stipulated by China Securities Regulatory Commission, the Company continuously improved its corporate governance and standardized the Company’s operation. In the reporting period, the Company improved series of governance and internal system, overall revising the Articles of Association, continuously improving its legal person governance and normalize operation by carrying out a special campaign to ensure the corporate governance of listed company will be complied. In the opinion of the board of Directors, the actual governance status of the Company was in compliance with the requirements of the Code of Corporate Governance for Listed Companies in China. 2. Development of special campaign of corporate governance According to the requirements of Notice on the Matters Concerning Carried out a Special Campaign to Strengthen the Corporate Governance of Listed Companies issued by China Securities Regulatory Committee; Notice on the Matters Concerning Strengthening the Corporate Governance of Listed Companies issued by Hubei Securities Regulatory bureau; Notice on the Matters Concerning Done well to Strengthen the Corporate Governance of Listed Companies issued by Shenzhen Stock Exchange; and corporate governance of Wuhan Boiler Co., Ltd, in May 2005, the Company established a leading team of corporate governance, with the former chairman of the board Mr. Chen Bohu being leader of the team. To ensure the successful implementation of the special campaign of corporate governance for Wuhan Boiler Co Ltd and its report of self-appraisal and rectification plan, the team distributed relevant information for learning and put in place resolutions for Implementation of Corporate Governance of Wuhan Boiler Co. Ltd. (1) Study stage: the former chairman of the board Chen Bohu as leader of the team was responsible for the overall special campaign of corporate governance. On the basis of learning the relevant spirit of the activity, the Company distributed relevant document to directors, supervisors and senior managers of the Company, and organized study session, also put in place Resolutions Implementation of Corporate Governance of Wuhan Boiler Co. Ltd and activated the special campaign as scheduled. (2) Self-appraisal stage: From May to July 2007, the Resolutions Implementation of Corporate Governance of Wuhan Boiler Co., Ltd, were set in accordance to the principle of practicality and reality and in strict compliance with related documents on corporate governance of listed companies as well as Company Law, Securities Law and Articles of Association, the Company took actions to identify the problematic areas and weaknesses in its normal operations, independence, and information disclosure , and addressed the identified key problems accordingly. In the stage of self-appraisal, on 2 Jun. 2007, the Company set up an open system to receive comments from its workforce on corporate governance and submitted to Hubei Securities Regulatory Bureau its a Resolutions Implementation of Corporate Governance of Wuhan Boiler Co. Ltd. On 7 Jun. 2007, in the 17th Meeting of the 3rd Board of Directors of the Company was held; a report on Information Disclosure Management System of Wuhan Boiler Co., Ltd was reviewed and approved. On June of 2007, the Company formulated Rules of Reception and Expanding Internal Control System of Wuhan Boiler Co. Ltd; On 10 Jul. 2007, the Company finalized its Report on Self-appraisal and Rectification Plan of the special campaign of Wuhan Boiler Co. Ltd and submitted the report to Hubei Securities Regulatory Bureau; On 19 Jul. 2007, the 18th Meeting of the 3rd Board of Directors of the Company was held, the report on Self-appraisal and Rectification Plan of the special campaign of Wuhan Boiler Co. Ltd was reviewed and approved, the report was disclosed to public media on the 20 Jul. 2007. (3) Public comment stage: On 2 Jun. 2007, the Company announced the contact method for the special campaign of corporate governance, which included telephone, fax and E-mail etc. for receiving comments from investors and the general public. (4) Rectification and improvement stage: On 1 Nov. 2007, The Company received from the Hubei 18 Secutities Regulatory Bureau the Notice on Comprehensive Comments and Rectification Suggestions Concerning Corporate Governance of Wuhan Boiler Co., Ltd. Based on the requirements of the Notice, the Company analyzed the problem and formulated the Report on Rectification Concerning Carrying out the Special Campaign of Corporate Governance of Listed Companies of Wuhan Boiler Co. Ltd on 5 Nov. 2007, and submitted its report to Hubei Securities Regulatory Bureau. (5) Problems founded by Hubei Securities Regulatory Bureau: The Company needs to further improve its governance structure and its independence. The Company needs to improve its systematic operation and improve the capability of board directors, board supervisors and senior managers in the performance of their duty. The Company needs to improve it transparency, to get the benefits by allowing small investors in participation of decision making,, and to protect the interest of the shareholders, especially the minority shareholders. The Company needs to revise and improve its system of information disclosure and the management of investors’ relationship in accordance with new laws and regulations. On Aug 23, 2007, Alstom (China) Investment Co., Ltd completed the transfer of (non-currency) 151,470,000 state-owned shares of Wuhan Boiler Co. Ltd from Wuhan Boiler Group Co., Ltd , and the change of industrial and commercial registration was completed on 26 Oct. 2007. The new Board of Directors and Board of Supervisors were set up on 25 Sep. 2007. The new Board of Directors studied the previous restructuring plan of the Company as well as the suggestions brought forward by Hubei Securities Regulatory Bureau, and formulated corresponding improvement plans and arrangements. II. Implementation of duties of independent directors In the reporting period, the Company has 3 independent directors, meeting the requirements of Guided Opinion on Establishing Independent Director System of Listed Companies promulgated by China Securities Regulatory Commission. The independent directors of the Company exercised duly their duties, prudently examined the resolutions of all Board meetings and shareholders’ general meetings, voting, and issued independent opinion, this has created a good positive function in the decision-making process of the Board, and in the protection of the interests and legal rights of shareholders. (1) Independent directors attending the Board meeting: Times that should Times of Times of Times of Name be attend the Board personal commission Remark absence meeting presence presence Zhou 6 5 1 0 Departure on 25 Morong Sep. 2005 Wang 6 6 0 0 Departure on 25 Zongjun Sep. 2005 Wang Haisu 10 9 1 0 Present Yang 4 3 1 0 Present Xiongsheng Qian Faren 4 3 1 0 Present (2) Particulars about the independent directors proposed different opinions for matters of the Company: In the reporting period, no independent directors proposed different opinions on the relevant matters of the Company. 19 III. Segregation of controlling shareholder from Company assets, personnel, finance, organization and operations. The Company’s personnel, finance, organization, operations and assets are independent from the controlling shareholder, ALSTOM (China) Investment Co., Ltd. Personnel issues: the Company established independent labor, personnel and salaries management systems. Senior executives are independent from the controlling shareholder; they are full time appointment.. The relationship regarding assets ownership between the Company and the holding shareholder was clearly defined; controlling shareholder did not in possession of any assets, capital and other resources of the Company.. In financing, the Company had its own independent accounting and finance department.Decision making of its accounting and financial management system was strictly adhered to the stringent requirements for listed company, the similar requirements were applied to subsidiaries of the Company. The Company had its own bank accounts and taxations payment was in compliance with legal requirements. In organization structure, the Company was independent with clear division of works and duties among various departments in an organization structure meeting strictly the requirements of corporate governance and the Articles of Association. With the introduction of Independent Director System and the creation of four special committees under the Board; the Company’s operation and administration were completely independent from the controlling shareholder. Regarding operation, the Company has the capability to operate independently and efficiently. Purchasing, sales and productions activities were performed independently by the Company. The Company and the controlling shareholder were not in direct competition in the same industry in China. IV Performance evaluation and rewards for senior executives Performance evaluation and rewards for senior executives were based on the achievement of budgeted target , in conjunction with the achievement of company annual budget results, production safety and professional integrity, also forming parts of the evaluation processes. On the basis of overall results achievement, annual salaries of executives were reflected accordingly. V. Internal control and self-appraisal of the Company (1) Summary During the reporting period, in accordance with the regulations of the Circular of China Securities Regulatory Commission on the Matters Concerning Carrying out a Special Campaign to Strengthen the Corporate Governance of Listed Companies (ZJGS Zi [2007] No. 28) and the Guidelines of Shenzhen Stock Exchange on Internal Control of Listed Companies, the Company, together with the corporate governance self inspection and rectification campaign activities, established the Information Disclosure Management Regulations of Wuhan Boiler Company Limited, the Work Rules for Reception and Promotion of Wuhan Boiler Company Limited and the Rules of Internal Control of Wuhan Boiler Company Limited . The aforesaid regulations and rules have been reviewed and approved by the Board of Directors, and announced in the appointed newspaper for information disclosure. Corporate governance of the Company 20 Shareholders’ General Meeting Supervisory Committee Board of Directors Strategy Committee Audit Committee Nominations Committee Compensation Committee Internal Audit Department Management Team The management team decided that the purpose of internal control was to enhance enterprise management, to reduce operational risks, to ensure compliance of relevant laws, rules and regulations and compliance of the truth, accuracy, completeness and fairness of information disclosure. In accordance with Company Law and the Articles of Association of the Company, the Company set up a sound management system in compliance with relevant regulations of corporate governance and the Articles of Association of the Company. Rules and procedures also established for shareholders’ general meeting, Board meetings and Supervisory Committee meeting. For better operation and management, division of responsibility and authority of each department was clearly defined, which formed the balance mechanism among each other. The Company established rules in integrated management, financial management, operation management, human resource management, purchase management and contract management. For example, rules in financial management governed the procedure for expenses audit and approval, the procedure for forecasting, budgeting, and costing; and the accountability of accounting staff to ensure correctness, accuracy and completeness of financial report. The Company was market focused, and always managing its production and procurement activities in line with delivery requirements of contracts. The Auditing Department also independently perform the task of supervising, monitoring and evaluating the performance of internal control system, making proposal to improve further the internal control system when required. By self appraisal, the Company considered that the current internal control system was reasonable, the cooperation and balancing among departments enhanced the efficient operation of the company in line with the established rules and regulations. (2) Key control activities The Company established relevant rules for all key control activities, which have regulations to follow. In 2007, there was no external guarantee pledged, nor any raised of funds occurred. Other key control activities are as follows: 1. Management and control to shareholding subsidiaries In order to standardize the relationship between the Company and shareholding subsidiaries, the Company reinforced support, guidance and management to the shareholding subsidiaries to promote standard operation of shareholding subsidiaries based on modern enterprise system. , the Company managed the shareholding subsidiaries with four basic management control keys: management of personnel, management of information, management of system and management of risk. At the same time, the Company also established rules on the appointment, responsibility and performance appraisal 21 of the directors and supervisors of shareholding subsidiaries, so as to ensure each director and supervisor performs his/her authority in line with laws. Concerning management of systems, the Company stipulated that each shareholding subsidiary was required to employ the same accounting policy of the Company. Moreover, the Company carried out integrated management in organization establishment, personnel structure, and employment of dismissal of staff in each of the shareholder subsidiaries Relationship between the Company and shareholding subsidiaries Wuhan Boiler Company Limited 90% 70% 51% Wuhan Lanxiang Wuhan Wuguo Zhixin Wuhan Boiler Boyu Energy Environmental Environmental Protection Industrial Co., Ltd. Protection Technology Equipment Co., Ltd. Manufacturing Co., Ltd. 2. Internal control of related transaction In 2007, the Company had related party transactions. The said related party transactions were in compliance with the principles of openness, justice and fairness without damaging the interests of the Company and any shareholders. Concerning examination procedure for the related party transactions, firstly, the Company’s management team and relevant department made a forecast of related party transactions and then submitted a written report to the Board of Directors for approval in a Board meeting. The Board of Directors conducted seriously examination on the contents, price, pricing principle and necessity of each of the related party transactions and its influence on the Company. During voting by the Board of Directors on related party transactions, related directors withdrew from the voting. After approval by the Board, the related party transactions will then submitted to the Shareholder’s General Meeting for approval. After examination and approval by the Shareholder’s General Meeting, the Company’s General Manager carried it in accordance with the contract and reported back the execution and the performance to the Board of Directors timely, and the Board of Directors disclosed relevant performance of the related party transactions in regular report. 3. Internal control of information disclosure The Company established the standard management rules for information disclosure. The rules covered the disclosure principle, scope, contents, flow, management responsibility and confidentiality of information disclosure , When an event, that has great influence on trading prices of shares and derivatives of the Company, appeared, happened or was going to happen, or when the related report or extraordinary report is under preparation, or the Secretary of the Board needed to know the progress of a significant event, the department and duty officers concerned must cooperate fully and reply timely, truly and completely. After the Secretary of the Board or Securities Affairs Representative drafted an information disclosure report, in accordance with the relevant provisions, the said report shall be submitted to the Board of Directors for examination and approval, and then published after approval by Shenzhen Stock Exchange. In the whole course of reporting significant events, insiders shall strictly comply with securities regulations without leakage of information. The Company disclosed information truly, completely, timely and fairly. Meanwhile, the Company shall comply with securities regulations on information disclosure in course of receiving enquiries from investors and in accordance with Management on Investor Relationship and Guideline on Fair Information Disclosure from Shenzhen Stock Exchange. 22 (3) Problems and rectification plan The Company strengthened internal control system in accordance with the requirements of Company Law, Guide to Internal Control of Listed Companies promulgated by Shenzhen Stock Exchange, but due to tough market competition, new challenges appeared and the company had to adjust its operational structure and development plan to ensure the continued healthy development of the Company for a long time.. Meeting with the new challenges,, the Company would continue to enhance corresponding internal control in accordance with the requirements of Guide to Internal Control of Listed Companies promulgated by Shenzhen Stock Exchange strictly, increase training to all directors, supervisors and senior managements and staffs, so as to ensure compliance of corporate governance of the Company.. (4) Overall evaluation The current internal control system of the Company was in compliance with the rules and relevant requirements stipulated by Supervision Authorities, and the actual situation of the Company. The internal control carried out its duty in accordance with relevant laws, regulations and Guide to Internal Control of Listed Companies with, clear responsibility, sound system, faithful execution with effective supervision, so as to ensure normal operation and asset protection of the Company. (5) Opinion of the Supervisory Committee concerning self-appraisal of internal control In accordance with relevant provisions from China Securities Regulatory Commission and Shenzhen Stock Exchange, and the basic principle of internal control, the Company improved the organization of internal control with an updated internal control system to support smooth and healthy operation of the Company. The internal control system enabled better protection and safety of the assets of the Company. The self-appraisal of the Board of Directors on the company’s internal control system reflected objectively and truly of the actual situation of the internal control of the Company. (6) Opinion of Independent Directors concerning self-appraisal of internal control In the report period, the Board of Directors revised, examined and approved a series of new management rules of the Company. the internal control system of the Company was fairly sound and complete. The key improvement activities concerning internal control were launched and covered all areas of the Company. The internal control on management of shareholding subsidiaries, related transaction, external guarantee and information disclosure were strict, sufficient and effective. This helped to ensure normal operation in business and management of the Company. The self-appraisal of the Board of Directors on the internal control was in accordance with actual situation of the internal control of the Company. VI. Verification of appraisal opinion from auditor concerning self-appraisal of internal control During 2007 annual audit, the auditor did not produce verification of appraisal opinion on the self-appraisal of internal control of the Company. 23 Section VII. Brief Introduction of Shareholders’ General Meeting I. Notification, convening and holding of the Shareholders’ General Meeting (1) Annual Shareholders’ General Meeting The Company had its 2006 Annual Shareholders’ General Meeting on 25 May 2007. The public notice of resolutions was published in Securities Times and Ta Kung Pao dated May 26 2007. The 2006 Annual Report and the 2006 Profit Distribution Plan were reviewed and approved during the meeting. (2) Interim Shareholders’ Meeting The 1st Interim Shareholders’ Meeting 2007 was held on the 25 Sep. 2007. The public notice of resolutions was published in Securities Times and Ta Kung Pao dated 26 Sep. 2007. Resolutions of Re-election of the Board of Directors and Re-election of the Board of Supervisors were approved during the meeting. The 2nd Interim Shareholders’ Meeting 2007 was held on the 7 Dec. 2007. The public notice of resolutions was published in Securities Times and Ta Kung Pao dated 8 Dec. 2007. Resolutions of Rules for the Board of Directors, Rules for the Board of Supervisors and Investment Plan of New Factory were approved during the meeting. 24 Section VIII. Board of Directors Report I. Discussion and analysis of operation results during the reporting period In 2007, by taking acquisition as a turning point, the Board of Directors of the Company set up the operational strategy of “restructuring organization, optimizing product profiles, updating technologies and energy saving and environmental protection” in order to positively improve the Company’s management and technological strengths. As disclosed in 2006 Annual Report, the slow down of the power-plant boiler industry in 2006 had lowered the volume of orders intake, and selling price, resulting in an adverse impact on the operating results in 2007. At the same time, the global price increase of steel and longer delivery lead time in 2007, causing a huge operating loss. Therefore, the Company needs to further improve and perfect project management. In addition, increasing requirement of working capital forced the Company to increase its borrowings, and the increase in interest rate during year consequently resulted in increase of financial expenses in the Company. In view of the above, in the year 2007, the Company’s Management had successively issued the profit warnings. During the reporting period, the Company has achieved a total revenue from operations amounting to 1,770 million RMB, which has a decrease of 23.43% compared to last year; a total profit amounting to -521.69 million RMB, which has a decrease 1,678% compared to last year; a net profit attributable to shareholders amounting to -480.6 million RMB, a reduction of 3,870% compared to last year. II. Operation of the Company 1. Scope of operations and current status The Company engaged in the development, production and sales of power station boilers, special boilers, desulfuration equipments, pressure vessels and auxiliary equipments Distribution of the main operations classified according to industry and products: Unit: (RMB) Yuan Distribution of the main operations classified according to industry Increase/decrease Increase/decrease Increase/decrease proportion of proportion of proportion of profit Industry or Operating Revenue Operating Cost Operating operation income operation cost from operation income products profit Rate compared with compared with the compared with the last the last year (%) last year (%) year (%) Machinery 1,770,372,881.47 1,877,184,531.08 -6.03% -23.43% -7.9% -17.88% Distribution of the main operations classified according to products Boiler 1,770,372,881.47 1,877,184,531.08 -6.03% -23.43% -7.9% -17.88% Note: All the products provided by the Company belongs to the manufacturing industry for energy and environmental industries. Main operation Revenue by region Unit: (RMB) Yuan District Operating Revenue Change of operation Revenue compared with the last year (%) South 460,848,671.04 -20.92% North 1,309,524,210.43 -24.27% 2. Major suppliers and customers The total purchase from the top five suppliers for the year was RMB 527.62 million, consisting of 31.44% of the total annual purchase of the Company; total sales amount from the top five customers was RMB 974.48 million, consisting of 55.04% of the total sales of the Company. 3. Changes of Company’s assets, liabilities and expenses during the reporting period 25 31 Dec. 2007 31 Dec. 2006 Increase/decrease of proportion in Items Proportion in Proportion in Amount Amount total assets total assets total assets Monetary capital 171,765,248.14 6.86% 269,656,517.16 9.14% -2.29% Accounts receivable 782,963,441.98 31.00% 1,422,162,766.97 48.22% -17.22% Inventories 1,011,410,161.15 40.37% 811,092,836.73 27.50% 12.87% Short-term loan 779,400,000.00 31.11% 647,000,000.00 21.94% 9.17% Notes payable 719,840,009.40 28.73% 570,896,435.34 19.36% 9.38% Accounts payable 455,383,537.42 18.18% 634,951,233.01 21.53% -3.35% Taxes payable 18,507,442.73 0.74% 114,098,898.71 3.87% -3.13% Items Y2007 Y2006 Increase/decrease Selling expense 29,866,560.96 25,488,965.28 17.17% Administration expense 130,098,858.36 123,269,787.25 5.54% Financial expense 64,585,424.10 38,701,042.47 66.88% Income Tax -43,430,777.93 16,142,924.21 -369.04% Note: Reason of change in financial index: In reporting period, the decrease of Accounts Receivables was mainly resulted from less projects competed in the period and the enforcement of collection; In reporting period, the increase of inventory was due to the increase of in-process projects; In reporting period, the increase of financial expenses was mainly caused by the increase of bank loan and interest rate of bank loan The decrease of corporate income tax was mainly due to the accrual for deferred tax assets. 4. Measurement of fair value in the reporting period Measurement of fair value was in accordance with the stated accounting standards, no deviation in the reporting period. 5. Change of the Company’s cash flow position during the reporting period Items Y2007 Y2006 Increase/decrease proportion (%) Cash flow from operation activity Cash inflow 2,622,628,814.86 1,921,672,325.07 36.48% Cash outflow 2,712,562,864.43 2,581,900,371.91 5.06% Cash flow net amount from operation activity -89,934,049.57 -660,228,046.84 86.38% Cash flow from investment activity Cash inflow 83,068,843.81 185,868,987.44 -55.31% Cash outflow 47,096,952.24 9,408,632.62 400.57% Cash flow net amount from investment activity 35,971,891.57 176,460,354.82 -79.61% Cash flow from fund-raising activity Cash inflow 961,400,000.00 932,027,000.00 3.15% Cash outflow 929,197,090.77 657,121,456.28 41.40% Cash flow net amount from fund-raising activity 32,202,909.23 274,905,543.72 -88.29% 26 Note: Reason of change in financial index In reporting period, operating cash inflow was resulted from strong collection; The decrease of net cash flow arising from investment activities was mainly caused by less release of pledged cash, and down payment for the purchase of new plant equipment; In reporting period, cash outflow for financing activity was mainly due to pay off the bank loan secured in previous reporting period. 6. The operational results of the controlling company and other subsidiaries, At the end of the reporting period, the Company has three subsidiaries: Wuhan Lanxiang Energy & Environmental Protection Technologies Inc. (referred to as Langxiang Company hereinafter); Wuhan WuGuo ZhiXin Environmental Protection Equipment Manufacturing Co., Ltd (referred to as Zhixin Company hereinafter); and Wuhan Boiler Group Boyu Industrial Co., Ltd (referred to as Boyu Company hereinafter). The basic operating results of the three subsisiaries were as follows: z Lanxiang Company Lanxiang was established on 4 Jun. 2002, with registered capital of RMB 20 million of which Wuhan Boiler Company held 70% to total equity and the company registration code is 4201001102912. The business scope of Lanxiang includes: providing research, design, consultation and services on boiler technology relating to: energy & environmental protection, steel structure, thermal energy products and auxiliary equipment; energy project (non-construction) and technical service (other special-purpose projects subject to governmental approval). Lanxiang generated operating revenue of RMB 55.8 million RMB, net profit of RMB 3.91 million RMB. z Zhixin Company Zhixin was established on 13 Jun. 2003, with RMB 10 million registered capital of which Wuhan Boiler Company held 51% of its equity. The Company’s registration code is 4201001171169. The business scope of Zhixin company includes: manufacturing and sales of heat recycled gas boiler, circulating fluidized bed boiler, alkali reclaim boiler, boiler combustion instruments, boiler components, environment and energy saving equipment (special projects subject to governmental approval). In the reporting period, Zhixin generated operating revenue of RMB 35.87 million, net profit of RMB 2.31 million. z Boyu Company Boyu was established on 30 Sep. 1998 with its registration code of 4201001101773. Its registered capital is RMB 19.115 million. The business scope includes: product design and manufacturing of mechanical & electrical products, processing of metal structure, mould & model, production of various high- and middle-pressure valve roughcast, cast steel, cast iron and non-ferrous metal cast. In the reporting period, Boyu generated operating revenue of RMB 19.04 million and net profit of RMB 0.37 million. The Company had no other subsidiaries, share holding and joint ventures. III. Future outlook of the Company 1. Analysis on the industrial development 2008: In recent years, the Chinese domestic thermal power generation market has been developed quickly. I. The total output in the power industry has been increased greatly, with an upgrading of overall capacity. Currently, the total capacity in the power industry exceeds 80,000MW, which can not only meet the needs of the Chinese domestic power industry but also have capability of entering into overseas market. II. The industrial structure has been reformed with improvement of product quality. In the domestic power station boiler industry, a number of 600MW SC (USC) class units and 300MW for thermal power plants based on transferred technology have been manufactured domestically, leading the market into a mature period in terms of technology and production. Due to the replacement program of small thermal power plants in China, the market need for medium and small power station boilers is 27 shrinking down, which causes a decrease in overall power station boiler market. 2. Strategy for future development With the global economic integration, the market competition is currently focused on quality and brand. The new WBC’s development strategy is “restructuring organization, optimizing product profiles, updating technologies and energy saving and environmental protection”. As the current factory is located at the central of Wuhan city, with old facilities and limited transportation connections which do not benefit extension of future production line and technology upgrading, especially not beneficial to production of large capacity boilers (up to 600MW class boilers). Therefore, the Company plans to relocate the current facility to a new site, which includes the longest boiler manufacturing workshop in the world, most advanced factory layout, and excellent production processes and excellent transportation facilities. These will dramatically improve the WBC’s capacity and efficiency in the future. The main purpose for new facility investment is to further develop the manufacturing technology level of the Company. Through transfer of Alstom world-class super-critical and sub-supercritical boiler technology, the products of new Company will be environment-protective, high-efficient and adaptive to the requirements of current power market development, consequently the operating level can be improved to a great extent, as a result the new WBC will be brought to a top class worldwide in terms of engineering, manufacturing and finished products. These will make new WBC a boiler manufacturing base within Alstom worldwide and in China. The Company is also expected to be one of the most advanced boiler manufacturers in Asia and worldwide. 3. Operational strategy for the year 2008 The year of 2008 is the first year after acquisition since 2007 which brings many challenges to the Company. The orders to be received in 2008 will be drastically affected by the relocation of the factory from the existing location to the new location in Wuhan development zone compared to the last year. The new management team will focus on 4 actions as follows: 1, to increase the intake of profitable orders; 2, to improve company Project Management; 3, to optimize company cost base; 4, it is all about people, to implement various functional competencies training and transfer of technology training programs. The new management team in new WBC will take actions to remain its current market shares and further explore the market shares for 600MW class SC and 300MW CFB boilers. In addition, the Company will also dedicate to exploration of overseas market of boiler proper and boiler island with full support from Alstom. The Company will reinforce the technical transferring of new product/technology and costs control and gradually implement the new operational systems in order to achieve the goals of efficient management and standard operation by internal controls and internal monitoring within the Company. 4. Main risks and solutions According to market forecast, in 2008, the Chinese domestic thermal power generation market will continue to shrink down which could lead the Company to a potential risk of decrease of market shares. In the face of such new market risk, the new WBC and Alstom will jointly launch its market development plan by using the technology strength in order to remain the current market shares and build up the new WBC one of the recognized companies with advanced technologies in the market. Affected by the revised monetary policy in China, there will be a risk possibly caused by fluctuation of foreign currency exchange rate. Due to adjustment of foreign currency exchange rate issued by China People’s Bank, the Company will take actions to enhance capital management by reasonable allocation of capitals and develop more financing channels in order to minimize the foreign currency exchange rate risk. Meanwhile, due to the increasing trend of RMB against USD, the Company will closely watch the fluctuation of foreign currency exchange rate to take immediate actions against the change of monetary market IV. Investment in the reporting period 1. In the reporting period, the Company had not raised fund through share offering or the application of fund from previous share offering. 2. In the reporting period, the Company had not raised fund through share offering for other investments. 28 V. Changes in accounting policies and accounting methods and their impact In the reporting period, the Board of Directors approved [the proposal of execution of change Accounting Policy changes according to the new Enterprise Accounting System] in the Company], which was effective from Jan 1, 2007 throughout the Company. In accordance with the requirements of [New Accounting Standard for Business Enterprises No.38 – First time execution of new accounting system], the Profit & Loss statement and the Balance Sheet of the Company in the year 2006 had been retroactively adjusted to reflect the changes. Please refer to Financial Reports; Section XI for details of the adjustments. In the reporting period, there were no other changes in accounting policies and accounting methods in the Company. VI. Routine work of the Board of Directors (I) Convening, resolutions and information disclosure of the board meetings In the report period, the Board of Directors held 10 meetings, the names, convening and information disclosure of these meetings were as follows: (1) On Apr. 2, 2007, the 15th meeting of the 3rd Board of Directors was held in the meeting room of the Company, and the public notices of the resolutions of this meeting were published on Securities Times and Ta Kung Pao on Apr. 6, 2007 (2) On Apr. 23, 2007, the 16th meeting of the 3rd Board of Directors was held in the meeting room of the Company, and the public notices of the resolutions of this meeting were published on Securities Times and Ta Kung Pao on Apr. 25, 2007. (3) On Jun. 7, 2007, the 17th meeting of the 3rd Board of Directors was held in the meeting room of the Company, and the public notices of the resolutions of this meeting were published on Securities Times and Ta Kung Pao on Jun. 8, 2007. (4) On Jul. 19, 2007, the 18th meeting of the 3rd Board of Directors was held in the 1st meeting room of the Company, and the public notices of the resolutions of this meeting were published on Securities Times and Ta Kung Pao on Jul. 20, 2007. (5) On Aug. 8, 2007, the 19th meeting of the 3rd Board of Directors was held in the meeting room of the Company, and the public notices of the resolutions of this meeting were published on Securities Times and Ta Kung Pao on Aug. 9, 2007. (6) On Aug. 20, 2007, the 20th meeting of the 3rd Board of Directors was held in the meeting room of the Company, and the public notices of the resolutions of this meeting were published on Securities Times and Ta Kung Pao on Aug. 24, 2007. (7) On Sep 25, 2007, the 1st meeting of the 4th Board of Directors was held in the meeting room of the Company, and the public notices of the resolutions of this meeting were published on Securities Times and Ta Kung Pao on Sep. 27, 2007. (8) On Oct. 28, 2007, the 2nd meeting of the 4th Board of Directors was held in the meeting room of the Company, and the public notices of the resolutions of this meeting were published on Securities Times and Ta Kung Pao on Oct. 30, 2007. (9) On Nov. 9, 2007, the 3rd meeting of the 4th Board of Directors was held in the meeting room of the Company, and the public notices of the resolutions of this meeting were published on Securities Times and Ta Kung Pao on Nov. 10, 2007. (10) On Nov. 19, 2007, the 4th meeting of the 4th Board of Directors was held in the meeting room of the Company, and the public notices of the resolutions of this meeting were published on Securities Times and Ta Kung Pao on Nov. 20, 2007. (II) Execution of resolutions of Shareholders’ General Meeting by the Board In the reporting period, the Board of Directors, in compliance with applicable laws and regulations had executed all resolutions made by the Shareholders’ General Meeting: the election of board members for the 3rd Board of Directors; amendment of the Article of Association; the profit distribution plan of 2006; Public Notice on the Dividend Distribution plan for 2006 of Wuhan Boiler Co., Ltd was 29 published in Securities Times and Ta Kung Pao on Jul. 6, 2007. The dividend distribution plan was finalized on Jul 17, 2007. (III) Performance of the Audit Committee (1) The pre-audited opinion on the Financial Statements of the Company issued by Wuhan Zhonghuan Certified Public Accountants Co. Ltd. Board of Directors of the Company: We reviewed the financial statements submitted by Finance Department of the Company on 11 Jan. 2008: including the Balance Sheet, Income Statement and Cash Flow Statement for the year ended 31 Dec 2007, the Statement of Change in Owners’ Equity and the Notes of the financial statements. We focused on the truth and completeness of the financial information provided and their adherence to the New Accounting Standard for Business Enterprises and the related financial system of the Company. Our inquiry with relevant financial personnel and management staff about the computational procedures of financial information: we believe; all the transactions of the Company were fully recorded; the accounting policies and accounting methods chosen were suitable and reasonable. There is still a time gap from this preliminary review to the issuance of the first draft of the audit report, we reminded the Finance Department of the Company to strictly follow the New Accounting Standard for Business Enterprises on the treatments of balance date events to ensure the true-and-fair and completeness of the Financial Statements. Audit Committee of the Board of Directors 14 Jan. 2008 (2) The preliminary audit opinion on the Financial Statements of the Company issued by Wuhan Zhonghuan Certified Public Accountants Co. Ltd Board of Directors of the Company: After we reviewed preliminary audit opinion issued by Wuhan Zhonghuan Certified Public Accountants Co., Ltd on the Financial Statements submitted by the Company: including the Balance Sheet, Income Statement, Cash Flow Statement, Statement of Change in Owners’ Equity and the Notes of the financial statements for the year ended Dec 31, 2007. Through further examine the details of the accounts and their documentations, we maintained our original statement, in our opinion, the Financial Statements were prepared in accordance with the New Accounting Standard for Business Enterprises and the related financial system of the Company. The statements fairly reflected the true financial status of the Company as of the Dec 31, 2007, as well as the operating results and the cash flow position in 2007. Audit Committee of the Board of Directors 15 Apr. 2008 (3) The summary of the audit report issued by Wuhan Zhonghuan Certified Public Accountants Co., Ltd Board of Directors of the Company: In accordance to the audit plan prepared by Wuhan Zhonghuan Certified Public Accountants Co. Ltd, there will be 8 auditors performing the audit of the year 2007 financial statements. The pre-audit communication commenced on the 10 Jan 2008, the formal audit started on the 14 Jan 2008. To meet the plan of annual audit work of the Company, they started the communication on the relevant matters The Audit work covered the Financial Statements reporting, consolidation, and compliance with the New Accounting Standard for Business Enterprises. The in-depth communication and auditing provide the auditors with a adequate understanding of the operations of the Company. In the opinion derived after performing the audit: 1. Whether or not all transactions were fully recorded, and reported truly and fairly; 2. Whether the financial reports were produced in accordance with New Accounting Standard for Business Enterprises and the requirements of the Shares Securities regulations; 3. Internal control systems of the Company were adequately implemented; 30 4. Whether other departments of the Company co-operated with the Auditors in providing the information required. The auditors of Wuhan Zhonghuan Certified Public Accountants Co. Ltd satisfied with the responds of the Company to the above criteria. An unqualified report was issued On Apr 21, 2008. In the opinion of the Auditors: The auditors performing the audit were qualified and satisfied the professional requirement of registered Auditors and Accountants; the financial statements of the Company were prepared to reflect the financial position of the Company, its operating results and cash flow position truly and fairly. Audit Committee of the Board of Directors Apr 21, 2008 (4) The re-appointment of Wuhan Zhonghuan Certified Public Accountants Co. Ltd as the year 2008 Auditor by the Board of Directors Wuhan Zhonghuan Certified Public Accountants Co. Ltd is the authorized auditor for the Company since 1998. During the auditing of 2007 accounts, the auditor performed competently and diligently, the Audit Committee proposed to reappoint Wuhan Zhonghuan Certified Public Accountants Co. Ltd as the annual auditor for year 2008, with a Auditing fee of RMB 0.75 million. The above resolution submitted to the Board of the Directors and approved during the 2007 Annual Shareholders’ Meeting. Audit Committee of the Board of Directors Apr 20, 2008 (5) Remuneration of members of the Board and Appraisal Committee The Appraisal Committee of the Board of Directors reviewed the remuneration of Directors, Supervisors and Senior Executives, and disclosed in the 2007 Annual Report of the Company, with the following opinion; In our opinion, the current C&B system applied in the Company is set up according to the decision-making process. The actual distribution of remunerations for Directors, Supervisors and Senior Executives of the Company and the amounts disclosed in the 2007 Annual Report are true and correct. Remuneration and Appraisal Committee of the Board of Directors 2008 VII. Profit distribution plan and capital reserves for the year 2007 As audited by Wuhan Zhonghuan Certified Public Accountants Co., Ltd, the net profit of the Company in 2007 was RMB -480,602,218.59. No profit will be distributed nor capitalized as capital reserves in the reporting period. The above-mentioned proposal had been reviewed and approved during the 2007 Annual Shareholders’ Meeting. VIII. Other issues disclosed (1) Securities Times and Ta Kung Pao were selected as the designated newspapers for year 2007 account disclosure. In the reporting period, the designated newspapers remained same (2) Special explanation by the Wuhan Zhonghuan Certified Public Accountants on the funds occupation by the holding shareholder or other related parties The full text of the Special Explanation on the Funds Occupation by the Holding Shareholder and Other Related Parties of Wuhan Boiler Co., Ltd produced by Wuhan Zhonghuan Certified Public Accounts Ltd had been published in the website of Shenzhen Stock Exchange and www.cninfo.com.cn. (3) Special explanations and independent opinions on the accumulated external guarantees and the external guarantees of the report period given by the independent directors of the Company The independent directors believed that the Company had strictly controlled external guarantee issues, 31 and no guarantees had been provided for shareholders, holding subsidiaries of shareholders, affiliated enterprises of shareholders, or other related parties that the Company held by less than 50 percent equity, any non-legal person units or any individuals. Apart from this, the Company had no other external guarantees in any form in the reporting period. 32 IX Report of the Supervisory Board I. Report of the Supervisory Board for the reporting period The Supervisory Board performed their responsibilities of supervision in strict compliance with Company Law, Securities Law and the Articles of Association and on behalf of all shareholders. There were four Supervisory Board meetings held during the reporting period, examining the Annual Report and the Interim Report submitted by the Company, supervising the execution of board resolutions by the Board of Directors, and ensuring that the operations as performed by Board of Directors and the management team are in accordance to laws and regulations. In the reporting period, the Supervisory Board held meeting 4 times, with their respective meeting name, convening, resolutions and information disclosure as follows: (1) On Apr. 2, 2007, the 9th Meeting of the 3rd Supervisory Committee was held at the meeting room of the Company, and the resolutions approved as below: 1. Examined and approved the Report of Supervisory Committee 2006 with 3 approval votes, 0 against vote, 0 abstention vote. 2. Examined and approved the Annual Report 2006 and Summary with 3 approval votes, 0 against vote, 0 abstention vote. 3. Examined and approved the Auditors’ Report 2006 with 3 approval votes, 0 against vote, 0 abstention vote. 4. Supervisors present at the meeting believed that: the procedures of the following proposals were legal, i.e. the Profit Distribution Preplan 2006 of the Company, the proposal on Renew Engagement of Wuhan Zhonghuan Certified Public Accountants Co., Ltd. and BDO Wuhan Zhonghuan Certified Public Accountants Co., Ltd. as the auditing agencies for the year 2007 and the remunerations for them, the proposal on the Remunerations for the Directors, Supervisors and Senior Executives for the year 2006, the proposal on the Execution of Daily Related Transaction 2006 and Daily Related Transaction Preplan 2007, the proposal on Changes of Major Accounting Policies from Accounting Standards for Business Enterprise, the proposal on the Convening of the Shareholders’ General Meeting 2006. The Supervisory Committee also believed that the Board of Directors of the Company had performed their duties honestly and diligently, and that while making the aforesaid resolutions, the Board of Directors never disobeyed against relevant laws, regulations, normative documents or the Articles of Association, also in keeping with the overall interests of the shareholders and the Company. The public notices of the resolutions of this meeting were published in Securities Times and Ta Kung Pao on Apr. 6, 2007. (2) On Aug. 20, 2007, the 10th Meeting of the 3rd Supervisory Committee was held at meeting room of the Company, and resolutions approved as below: 1. Examined and approved the proposal on Regular Election of Supervisory Committee with 3 approval votes, 0 against vote, 0 abstention vote. 2. Examined and approved the proposal on The Interim Report 2007 and the Summary with 3 approval votes, 0 against vote, 0 abstention vote. The Supervisory Committee believed that report content reflected the operation achievements and financial status truly and fairly and confirmed its validity. The public notices of the resolutions of this meeting were published in Securities Times and Ta Kung Pao on Aug. 24, 2007. (3) On Sep. 25, 2007, the 1st Meeting of the 4th Supervisory Committee was held at meeting room of the Company, and resolutions approved as below: 1. Examined and approved the Electing the Convener of Supervisory Committee with 3 approval votes, 0 against vote, 0 abstention vote. 2. Examined and approved the Rules of Procedure of the Supervisory Committee with 3 approval votes, 0 against vote, 0 abstention vote. The public notices of the resolutions of this meeting were published in Securities Times and Ta Kung 33 Pao on Sep. 27, 2007. (4) On Oct. 28, 2007, the 2nd Meeting of the 4th Supervisory Committee was held via telephone at the meeting room of the Company, examined and approved the Third Quarter Report 2007 with 3 approval votes, 0 against vote, 0 abstention vote. II. Independent opinions expressed by the Supervisory Committee on the following issues in the report period: (1) Operation of the Company As from the beginning of the term of this Supervisory Board committee elected in September 2007 and in accordance with relevant laws and regulations, the Supervisory Committee had conducted supervision over the convening procedures and resolutions of the Shareholders’ General Meeting and the Board of Directors, the implementation by the Board of the various resolutions made at the Shareholders’ General Meeting, the duty performance of the senior executives of the Company and the management system of the Company, etc. The Committee believed that the Board of Directors of the Company had done their work for 2007 strictly in conformity with the Company Law, Securities Law, Listing Rules, the Articles of Association and other relevant regulative systems, and that the Board had performed their duties carefully and their operating resolutions was scientific and reasonable. The internal management and control system were further improved and the internal control mechanism established. (2) Financial status of the Company As from the beginning of the term of this Supervisory Board committee elected in September 2007, the Supervisory Board conducted periodic inspection into the financial system and the financial status of the Company during the 4th quarter, and it believed that the Financial Report 2007 could truly reflect the financial status and the operating achievements of the Company. The Board also believed that the auditing opinions given by Wuhan Zhonghuan Certified Public Accountants Co., Ltd. had truly, objectively and fairly reflected the financial status and the operation achievements of the Company for the year 2007. (3) Use of Raised capital The Company had not raised any capital in the recent three years (including the report period). (4) Related transactions of assets purchase or sales In the report period, the Company had no related transactions for assets purchase or sales. (5) About inspection of related transaction In the report period, the prices of the related transactions of the Company were fair and reasonable, and no harm done to the interests of the Listed Company. The Company also implemented the duty of information disclosure in time. 34 SECTION X. SIGNIFICANT EVENTS I. Significant lawsuits and arbitrations The Company had no significant lawsuits or arbitrations in the report period. II. Significant purchase or sales of assets and mergers The Company had no significant events of assets purchase, assets sales or mergers. III. Related transactions (1) Merchandise purchase Details on the merchandise purchased from related parties in 2007 and 2006 were as follows: Unit: RMB’0,000 Name of company Amount in 2007 Amount in 2006 Wuhan Boiler Group Valve Co., Ltd. 3,918.35 5,036.14 Total 3,918.35 5,036.14 (2) Merchandise sales Details on the merchandise sold to related parties in 2007 and 2006 are as follows: Unit: RMB’0,000 Name of company Amount in 2007 Amount in 2006 Wuhan Boiler Group Valve Co., Ltd. 268.38 356.98 Wuhan Boiler Group Co., Ltd. 1,160.29 2,921.63 Wuhan Special Boiler Whole Set Equipment Co., Ltd. 6,408.48 5,021.85 Total 7,837.15 8,300.46 (3) Transportation service provided by related parties to the Company Wuhan Boiler Group Yuntong Co., Ltd. provided the transportation service for the Company. The transportation expense for the year 2006 was RMB 71.26 million, while transportation expense for the year 2006 was RMB 60.03 million. (4) The Company leased some offices land for production from related parties, Wuhan Boiler Group Co., Ltd. The rent of the whole year was RMB 7.06 million. (5) The company purchased technology from Alstom Power Boiler Gmbh in 2007. According to the contract, the company incurred royalty fee amounting to RMB 2.74 million. IV. Significant contracts and their implementation (1) In the report period, there were no events of significant entrustment, contracting, lease of other companies’ assets by the Company or vice versa. (2) In the report period, the Company neither provides any significant external guarantees nor provided guarantees for controlling subsidiaries. (3) In the report period, the Company didn’t entrust others to manage cash assets. (4) Significant contracts in the reporting period: by Dec 31, 2007, several contracts have been signed for new plant but not been reflected in financial statements. The amounts are RMB398,630,184.07， USD3,686,836.00 and Euro2,152,000.00 respectively. V. Neither Company nor shareholders holding over 5% shares of the Company made any commitments in the newspapers or websites not designated. VI. Engagement or dismissal of Certified Public Accountants In the report period, the Company continued to engage Wuhan Zhonghuan Certified Public Accountants as the auditor. Expenses (including expenses for board and lodging, travel, telecommunication and duplicating, etc) during the auditing work would be paid by Wuhan Zhonghuan Certified Public Accountants Co., Ltd. In the report period, the Company fully paid the charges for the auditing of Financial Report 2007 to 35 the Certified Public Accountants. Wuhan Zhonghuan Certified Public Accountants Co., Ltd. had provided auditing services to the Company for 10 successive accounting years including this year. VII. Survey and interview received In the report period, the Company received the call and visit patiently in accordance with the Guidelines on Fair Information Disclosure of Listed Companies. The Company and related information disclosure obligor obeyed the principle of fair information disclosure, and implemented no different treatment or divulged the non-public information in advance. There were two ways to receive the interview of the Company: one was the way through telephone, while the other was the face-to -face interview with shareholders VIII. Inspection and punishment received In the report period, none of the Company, the Board, Directors, and Senior Executives had received any administrative punishment or notice of criticism from the CSRC, or had been criticized publicly by the Stock Exchange. IX. The Company had no other significant events in the report period. X. There was no significant or contingent events XI. Balance sheet date events There was no balance sheet date event needed to be disclosed during the period from the end of report period to the date that the report is disclosed. XII. Other significant events The previous controlling shareholder (WBG) reached an acquisition agreement with ALSTOM (China) Investment Co., Ltd on April 14, 2006. Following approval by the Chinese authorities the transaction was finalized on 24 August 2007. Since this date, ALSTOM (China) investment Co. Ltd. has become the controlling shareholder, holding 51% of the company. In accordance with “Agreement for the Sale and Purchase of the shares” (‘’SPA’’) signed on April 14, 2006, the transaction includes the following key elements: - the transfer of technology agreement between WBC and Alstom through a License, Technical Transfer and Assistance Agreement for Steam Generators According to ALSTOM Technology,, - the Relocation and Relocation Team Agreement and the Relocation Compensation Agreement, - representations and warranties in the SPA with respect to certain assets, including inventory and work in progress, and liabilities, and indemnification undertakings in respect thereof, to the benefit of WBC, - an Account Management Agreement and Receivable Collection Services Agreement relating to certain accounts receivables, as well as other Ancillary Agreements, including Master Framework Agreements for Product/Services supply, Management Services Agreement, Special Boiler Agreement, Trademark Agreement relating to ALSTOM trademarks, Trademark side letter, Patent Assignment Agreement, Copyright/design Assignment Agreement (WBC to WBG), Copyright/design Assignment Agreement (WBG to WBC), Shareholders Agreement, Supplemental Shareholders Agreement, Supplemental Agreement to the Share Sale and Purchase Agreement, Second Supplemental Land Use Rights Lease Contract, and Relocation Supplemental Agreement. To the extent applicable, the value of the elements described above has been included in the preparation of 2007 financial statements. The full execution of above elements is critical to the future financial viability of the Company. 36 Section XI Financial Report I. Auditing opinions Wuhan Zhonghuan Certified Public Accountants Co., Ltd. had audited the Financial Report 2007 of the Company and issued a standard unqualified Auditors’ Reports for the Company. (1) Auditors’ Reports (attached) (2) Financial Statements and Notes (attached) Section XII Documents Available For Reference 1. Accounting Statements with the signatures and seals of the Legal Representative, Chief Accountant, and the persons in charge of the accounting departments; 2. Original of the Auditors’ Report with the signatures and seals of Chinese CPAs, as audited by Wuhan Zhonghuan Certified Public Accountants; 3. Texts of all the Company’s documents and originals of the public notices disclosed in Securities Times and Ta Kung Pao in the report period; 4. Texts of the Annual Report 2007 of the Company. This Annual Report was prepared in both Chinese and English. Should there be any ambiguities in meaning between the two versions; the one in Chinese shall prevail. Wuhan Boiler Company Limited Chairman of the Board: YEUNG Kwok Wei Richard 21 Apr. 2008 37 ZHONG HUAN Office: 16/F, Wuhan International Building, CERTIFIED PUBLIC ACCOUNTANTS Postcode:430022 Tel：(86)(27)85826771 Fax：(86)(27) 85424329 AUDITOR’S REPORT ZHSZ (2008) No. 338 TO THE SHAREHOLDERS OF WUHAN BOILER CO., LTD. We have audited the accompanying financial statements of Wuhan Boiler Co., Ltd (the “Company”), which comprise the balance sheet and the consolidated balance sheet as at December 31 2007, the income statement, the consolidated income statement, the statement of change in equity, the consolidated statement of change in equity, the cash flow statement and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management's responsibility for the financial statements Preparing financial statements in compliance with Chinese Accounting Standard (2006) is the responsibility of the Company’s management. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation of these financial statements to prevent these financial statements from material misstatement arising from fraud or error; selecting and applying proper accounting policies; and making reasonable accounting estimates. Auditor's responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with Auditing Standards for CICPA. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes performing audit procedures, so as to obtain audit evidence to support the amounts and disclosures in the financial statements. Audit procedures are relied on the auditors’ judgments, including assessment on the risk of material misstatement of these financial statements arising from fraud or error. In risk assessment procedures, we consider internal controls relating to the preparation of these financial statements to design appropriate audit procedures, but our objective is not to express our opinion on the effectiveness of internal controls. An audit also includes assessing the reasonability of accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statements presentation. We believe that the audit evidence we have obtained is sufficient and effective, providing a reasonable basis for our opinion. Opinion In our opinion, the financial statements comply with Chinese Accounting Standard (2006), and present fairly in all material respects the financial position of the Company as of December 31 2007 and the results of its financial performance and its cash flows for the year then ended. Wuhan Zhonghuan Certified Public Accountants CICPA Zhong Jianbing CICPA Chen Yonghong Wuhan, China April 21, 2008 38 Consolidated Balance Sheet (Assets) Consol. No.1 Wuhan Boiler Co., Ltd Unit：RMB Assets Notes 31-Dec-07 31-Dec-06 Current assets Cash and cash equivalents 8.1 171,765,248.14 269,656,517.16 Settlement fund Outgoing call loan Trading finanical assets Notes receivable 8.2 136,760,360.00 23,809,740.00 Accounts receivable 8.3 782,963,441.98 1,422,162,766.97 Prepayment 8.5 155,628,357.39 191,241,631.06 Insurance receivables Reinsurance Receivable Provision of reinsurance contract reserve receivable Interests receivable Other receivables 8.4 1,977,369.91 11,413,139.79 Financial assets purchased under agreement to resell Inventories 8.6 1,011,410,161.15 811,092,836.73 Non-current assets due within 1-year Other current assets Total current assets 2,260,504,938.57 2,729,376,631.71 Non-current assets： Loan and payment on other's behalf disbursed Available-for-sale financial assets Investment held to maturity Long-term receivables Long-term equity investment Investment property Fixed assets 8.7 148,360,635.60 177,489,951.46 Construction in progess 8.8 36,791,471.94 973,894.60 Engieering materials Disposal of fixed assets Production biological assets Oil-gas assets Intangible assets 8.9 21,776,254.92 27,142,180.04 R&D expenses Goodwill Long-term deferred expenses 8.1 250,000.00 3,237,500.00 Deferred tax assets 8.11 57,697,907.59 10,855,649.78 Other non-current assets Total non-current assets 264,876,270.05 219,699,175.88 Total assets 2,525,381,208.62 2,949,075,807.59 Legal representative: Chief Financial official: Chief accountant: 39 Consolidated Balance Sheet(Liabilities and Equity) Consol. No.1 Wuhan Boiler Co., Ltd Unit：RMB Liabilities and shareholder's equity Notes 31-Dec-07 31-Dec-06 Current liabilities： Short-term loans 8.14 779,400,000.00 647,000,000.00 Loans from central bank Deposits received and hold for others Call loan received Held-for-trading financial liabilities Notes payable 8.15 719,840,009.40 570,896,435.34 Accounts payable 8.16 455,383,537.42 634,951,233.01 Advance from customers 8.17 170,572,080.73 128,696,525.55 Financial assets sold under agreements to repurchase Fees and commissions payable Payroll payable 8.18 47,487,388.18 11,392,958.14 Taxes payable 8.19 18,507,442.73 114,098,898.71 Interests payable 1,836,931.25 1,522,070.00 Other payables 8.21 14,856,974.17 6,324,814.29 Amount due to reinsurance Insurance contract provision Entrusted trading of sesurities Entrusted selling of securities Non-current liabilities due within 1-year 50,000,000.00 Other current liabilities 8.2 612,000.00 332,000.00 Total current liabilities： 2,208,496,363.88 2,165,214,935.04 Non-current liabilities： Long-term loans 8.22 160,000,000.00 140,000,000.00 Bonds payable Long-term payables Specific payables Provision for liabilities Deferred taxes liabilities 8.11 2,696.51 3,559.39 Other non-current liabilities Total non-current liabilities： 160,002,696.51 140,003,559.39 Total liabilities 2,368,499,060.39 2,305,218,494.43 Shareholders' Equity： Share capital 8.23 297,000,000.00 297,000,000.00 Capital surplus 8.24 174,854,304.12 174,854,304.12 Less：Treasury Stock Surplus reserve 8.25 39,418,356.83 39,418,356.83 General risk provision Retained earnings 8.26 -375,432,508.86 111,109,709.73 Foreign exchange difference Total shareholders' equity attributable to holding company 135,840,152.09 622,382,370.68 Minority interest 21,041,996.14 21,474,942.48 Total shareholder's equity 156,882,148.23 643,857,313.16 Total liabilities & shareholder's equity 2,525,381,208.62 2,949,075,807.59 Legal representative: Chief Financial official: Chief accountant: 40 Consolidated Income Statement Consol. No.2 Wuhan Boiler Co., Ltd Unit：RMB Items Notes Year 2007 Year 2006 I. Total renenue 1,770,372,881.47 2,312,038,158.45 Including: renenue 8.27 1,770,372,881.47 2,312,038,158.45 Interests income Insurance fee income Fee and commission income II. Total cost of sales 2,292,663,853.31 2,278,165,296.43 Including: Cost of sales 8.27 1,877,184,531.08 2,038,194,898.52 Interests expenses Service charge and commission income Insurance discharge payment Claim expenses-net Provision for insurance contract reserve-net Insurance policy dividend paid Reinsurance expense Business taxes and surcharges 8.28 11,397,013.25 15,505,345.33 Distribution expenses 29,866,560.96 25,488,965.28 Administrative expenses 130,098,858.36 123,269,787.25 Financial costs 8.29 64,585,424.10 38,701,042.47 Impairment loss 8.31 179,531,465.56 37,005,257.58 Plus: gain/loss on change in fair value (“-”for loss) gain/loss on investment(“-”for loss) 8.3 321,946.87 Including: income from investment on associates and jointly ventures Gain or loss on foreign exchange difference (“-”for loss) III. Operating profit(“-”for loss) -521,969,024.97 33,872,862.02 Plus: non-operating income 8.32 2,627,004.53 438,679.42 Less: non-operating expense 8.33 2,351,753.27 1,245,204.94 Including: loss from disposal of non-current asset 1,704,548.03 117,383.20 IV. Total profit(“-”for loss) -521,693,773.71 33,066,336.50 Less: income tax expense 8.34 -43,430,777.93 16,142,924.21 V. Net profit(“-”for loss) -478,262,995.78 16,923,412.29 Including:Attributable to equity holders of the parent company -480,602,218.59 12,748,931.97 Minority interest 2,339,222.81 4,174,480.32 VI. Earnings per share (I) basic earnings per share -1.62 0.04 (II) diluted earnings per share -1.62 0.04 Legal representative: Chief Financial official: Chief accountant: 41 Consoliated Cashflow Statement Consol. No. 3 Wuhan Boiler Co., Ltd Unit:RMB Items Notes Year 2007 Year 2006 1. Cash flows from operating activities Cash received from sales of goods or rending of services 2,597,627,375.44 1,911,736,750.38 Net increase of deposits received and held for others Net increase of loans from central bank Net increase of inter-bank loans from other financial assets Cash received against original insurance contract Net Cash received from reinsurance Net increase of client deposit and investment Cash received from disposal of held-for-trading financial assets Cash received as Interests, fees and commissions received Net increase of inter-bank fund received Cash received under repurchasing, net Tax returned Other cash received from operating activities 8.35 25,001,439.42 9,935,574.69 Sub-total of cash inflow from operating activities 2,622,628,814.86 1,921,672,325.07 Cash paid for goods and services 2,394,660,387.82 2,299,469,101.39 Net increase of loans and advances Net increase of deposit in central bank,banks and other financial institutions Cash paid for original contract claim Cash paid for interests, fees and commission Cash paid for policy dividend Cash paid to and for employees 113,327,300.13 61,900,711.76 Cash paid for all types of taxes 145,173,899.33 121,642,650.86 Other cash paid relating to operating activities 8.35 59,401,277.15 98,887,907.90 Sub-total of cash outflows 2,712,562,864.43 2,581,900,371.91 Net cash outflow in operating activities -89,934,049.57 -660,228,046.84 2. Cash Flows from Investing Activities Cash received from return of investments Cash received from investment income 321,946.87 Net cash received from disposal of fixed assets, intangible assets and other long-term assets 4,082,030.00 6,017,816.99 Net cash received from disposal of subsidiaries and other operating units Other cash received relating to investing activities 8.35 78,664,866.94 179,851,170.45 Sub-total of cash inflows of investing activities 83,068,843.81 185,868,987.44 Cash paid for acquisition of fixed assets, intangible assets and other long-term assets 47,096,952.24 9,408,632.62 Cash paid for acquisition of investments Net increase of pledge loans Net cash paid for acquisition of subsidiaries and other operating units Other cash paid relating to investing activities Sub-total of cash outflows of investing activities 47,096,952.24 9,408,632.62 Net cash inflow from investing activities 35,971,891.57 176,460,354.82 3. Cash Flows from Financing Activities: Cash received from investment Including: Cash received from minority shareholders of subsidiaries Cash received from borrowings 961,400,000.00 932,000,000.00 Cash received from bonds issuing Cash received relating to financing activities 27,000.00 Sub-total of cash inflows of financing activities 961,400,000.00 932,027,000.00 Cash paid for repayments of borrowings 857,000,000.00 602,541,758.90 Cash paid for dividends, profit distribution or interest 72,197,090.77 54,579,697.38 Including: dividends or profits paid to minority shareholders by subsidiaries 2,492,169.14 2,662,000.00 Other cash paid relating to financing activities Sub-total of cash outflows of financing activities 929,197,090.77 657,121,456.28 Net cash inflow from financing activities 32,202,909.23 274,905,543.72 4. Effect of foreign exchange rate changes -709,919.41 -528,328.42 5. Net decrease in cash and cash equivalents -22,469,168.18 -209,390,476.72 Add : Cash and cash equivalents at the beginning of the year 8.35 103,894,894.26 313,285,370.98 6. Cash and cash equivalents at the end of the year 8.35 81,425,726.08 103,894,894.26 Legal representative: Chief Financial official: Chief accountant: 42 Consolidated Statement of Change in Equity Wuhan Boiler Co., Ltd Year 2007 shareholders' equity belonged to parent company Items Less: General Surplus Ret Share capital Capital reserve Treasur Risk reserve ear y stock provision I. Balance at 31 December, 2006 297,000,000.00 179,375,997.41 44,396,845.22 94,76 Plus: change in accounting policies -4,521,693.29 -4,978,488.39 16,34 Correction of errors in previous period II. Balance at 1 January, 2007 297,000,000.00 174,854,304.12 39,418,356.83 111,10 III. Increase/ decrease during the financial year (“-”for loss) -486,54 (I) Net profit -480,60 (II) Gain and loss recognised directly in equity 1. Net changes in fair value of available-for-sale financial assets 2. Effects on changes in equity of invested companies under equity method 3. Deffered tax effect 4. Others Subtotal of (I)and (II) -480,60 (III) Contributions and decrease of capital 1. Contributions by shareholders 2. Equity settled share-based payment 3. Others (IV) Profit distribution -5,94 1. Surplus reserve accrued 2. General risk provision accrued 3. Distribution to shareholders -5,94 4. Others (V) Transfer within shareholders' equity 1. Captial reserve transferred to capital (share capital) 2. Surplus reserve transferred to capital (share capital) 3. Surplus reserve offsetting losses 4. Others IV. Balance at 31 December, 2007 297,000,000.00 174,854,304.12 39,418,356.83 -375,43 Legal representative: Chie Chief financial official: 43 Consolidated Statement of Change in Equity Wuhan Boiler Co., Ltd Year 2006 shareholders' equity belonged to parent company Items Less: General Surplus Ret Share capital Capital reserve Treasur Risk reserve ear y stock provision I. Balance at 31 December, 2005 297,000,000.00 178,798,219.46 43,391,529.74 96,11 Plus: change in accounting policies -4,521,693.29 -4,329,340.85 12,99 Correction of errors in previous period II. Balance at 1 January, 2006 297,000,000.00 174,276,526.17 39,062,188.89 109,11 III. Increase/ decrease during the financial year (“-”for loss) 577,777.95 356,167.94 1,99 (I) Net profit 12,74 (II) Gain and loss recognised directly in equity 1. Net changes in fair value of available-for-sale financial assets 2. Effects on changes in equity of invested companies under equity method 3. Deffered tax effect 4. Others Subtotal of (I)and (II) 12,74 (III) Contributions and decrease of capital 577,777.95 1. Contributions by shareholders 2. Equity settled share-based payment 3. Others 577,777.95 (IV) Profit distribution 356,167.94 -10,75 1. Surplus reserve accrued 356,167.94 -35 2. General risk provision accrued 3. Distribution to shareholders -10,39 4. Others (V) Transfer within shareholders' equity 1. Captial reserve transferred to capital (share capital) 2. Surplus reserve transferred to capital (share capital) 3. Surplus reserve offsetting losses 4. Others IV. Balance at 31 December, 2006 297,000,000.00 174,854,304.12 39,418,356.83 111,10 Legal representative: Chie Chief financial official: 44 Balance Sheet (Assets) Consol. No.1 Wuhan Boiler Co., Ltd Unit：RMB Assets Notes 31-Dec-07 31-Dec-06 Current assets Cash and cash equivalents 159,076,777.05 243,068,141.71 Trading finanical assets Notes receivable 127,340,360.00 20,909,740.00 Accounts receivable 9.1 767,053,757.68 1,404,570,610.81 Prepayment 152,702,118.07 188,190,777.74 Interest receivables Dividend receivables Other receivables 9.2 1,200,525.42 10,104,076.18 Inventories 996,195,131.77 794,986,589.34 Non-current assets due within 1-year Other current assets Total current assets 2,203,568,669.99 2,661,829,935.78 Non-current assets： Available-for-sale financial assets Investment held to maturity Long-term receivables Long-term equity investment 9.3 33,349,922.28 33,349,922.28 Investment property Fixed assets 133,845,667.38 160,884,716.11 Construction in progess 36,781,031.94 963,454.60 Engieering materials Disposal of fixed assets Production biological assets Oil-gas assets Intangible assets 21,471,754.92 26,795,680.04 R&D expenses Goodwill Long-term deferred expenses 250,000.00 3,237,500.00 Deferred tax 57,564,213.84 10,679,174.03 Other non-current assets Total non-current assets 283,262,590.36 235,910,447.06 Total assets 2,486,831,260.35 2,897,740,382.84 Legal representative: Chief Financial official: Chief accountant: 45 Balance Sheet(Liabilities and Equity) Consol. No.1 Wuhan Boiler Co., Ltd Unit：RMB Liabilities and shareholder's equity 31-Dec-07 31-Dec-06 Current liabilities： Short-term loan 775,000,000.00 644,000,000.00 Held-for-trading financial liabilities Notes payable 727,840,009.40 568,896,435.34 Accounts payable 449,676,189.40 629,529,083.19 Advance from customers 167,736,180.73 119,479,525.55 Payroll payable 46,480,762.67 7,187,662.15 Taxes payable 14,757,796.63 111,961,283.20 Interests payable 3,474,931.25 2,303,270.00 Dividend payables Other payables 25,639,687.86 21,529,465.34 Non-current liabilities due within 1-year 50,000,000.00 Other current liabilities Total current liabilities： 2,210,605,557.94 2,154,886,724.77 Non-current liabilities： Long-term loans 160,000,000.00 140,000,000.00 Bonds payable Long-term payables Specific payables Provision for liabilities Deferred taxes liabilities 2,696.51 3,559.39 Other non-current liabilities Total non-current liabilities： 160,002,696.51 140,003,559.39 Total liabilities 2,370,608,254.45 2,294,890,284.16 Shareholders' Equity： Share capital 297,000,000.00 297,000,000.00 Capital surplus 174,854,304.12 174,854,304.12 Less：Treasury Stock Surplus reserve 39,418,356.83 39,418,356.83 Retained earning -395,049,655.05 91,577,437.73 Total shareholders' equity: 116,223,005.90 602,850,098.68 Total liabilities and shareholders' equity: 2,486,831,260.35 2,897,740,382.84 Legal representative: Chief Financial official: Chief accountant: 46 Income Statement Consol. No.2 Wuhan Boiler Co., Ltd Unit：RMB Items Notes Year 2007 Year 2006 I. Total renenue 9.4 1,728,696,265.72 2,225,427,271.92 Less：cost of sales 9.4 1,853,278,195.43 1,984,137,688.22 Business taxes and surcharges 9,590,962.54 13,206,605.61 Distribution expenses 27,604,162.51 23,377,182.55 Administrative expenses 126,273,539.78 116,639,114.33 Financial costs 64,761,329.38 39,034,978.01 Impairment loss 179,542,863.41 36,459,361.43 Plus: gain/loss on change in fair value (“-”for loss) gain/loss on investment(“-”for loss) 9.5 4,436,339.30 2,908,078.12 Including: income from investment on associates and jointly ventures III. Operating profit(“-”for loss) -527,918,448.03 15,480,419.89 Plus: non-operating income 2,627,004.53 343,748.37 Less: non-operating expense 2,281,551.97 1,212,732.87 Including: loss from disposal of non-current asset 1,690,434.61 157,962.88 IV. Total profit(“-”for loss) -527,572,995.47 14,611,435.39 Less: income tax expense -46,885,902.69 11,049,756.00 V. Net profit(“-”for loss) -480,687,092.78 3,561,679.39 VI. Earnings per share (I) basic earnings per share -1.62 0.01 (II) diluted earnings per share -1.62 0.01 Legal representative: Chief Financial official: Chief accountant: 47 Cashflow Statement Consol. No. 3 Wuhan Boiler Co., Ltd Unit:RMB Items Year 2007 Year 2006 1. Cash flows from operating activities Cash received from sales of goods or rending of services 2,551,107,411.88 1,845,008,859.80 Tax returned Other cash received from operating activities 25,001,439.42 9,755,715.33 Sub-total of cash inflows from operating activities 2,576,108,851.30 1,854,764,575.13 Cash paid for goods and services 2,372,369,295.29 2,288,214,346.37 Cash paid to and for employees 93,951,774.82 44,590,732.86 Cash paid for all types of taxes 134,327,181.76 99,626,192.49 Other cash paid relating to operating activities 55,438,720.97 84,776,216.10 Sub-total of cash outflows 2,656,086,972.84 2,517,207,487.82 Net cash flow from operating activities -79,978,121.54 -662,442,912.69 2. Cash Flows from Investing Activities Cash received from return of investments Cash received from investment income 4,436,339.30 4,588,078.12 Net cash received from disposal of fixed assets, intangible assets and other long-term asse 4,082,030.00 5,215,808.73 Net cash received from disposal of subsidiaries and other operating units Other cash received relating to investing activities 78,532,870.35 178,811,744.79 Sub-total of cash inflows of investing activities 87,051,239.65 188,615,631.64 Cash paid for acquisition of fixed assets, intangible assets and other long-term assets 46,802,786.28 7,565,033.41 Cash paid for acquisition of investments Net cash paid for acquisition of subsidiaries and other operating units Other cash paid relating to investing activities Sub-total of cash outflows of investing activities 46,802,786.28 7,565,033.41 Net cash flow from investing activities 40,248,453.37 181,050,598.23 3. Cash Flows from Financing Activities: Cash received from investment Cash received from borrowings 955,000,000.00 929,000,000.00 Cash received relating to financing activities 27,000.00 Sub-total of cash inflows of financing activities 955,000,000.00 929,027,000.00 Cash paid for repayments of borrowings 854,000,000.00 602,541,758.89 Cash paid for dividends, profit distribution or interest 69,129,676.24 50,891,744.73 Other cash payments relating to financing activities Sub-total of cash outflows of financing activities 923,129,676.24 653,433,503.62 Net cash flow from financing activities 31,870,323.76 275,593,496.38 4. Effect of foreign exchange rate changes -709,919.41 -528,328.42 5. Increase in cash and cash equivalents -8,569,263.82 -206,327,146.50 Add : Cash and cash equivalents at the beginning of the year 77,306,518.81 283,633,665.31 6. Cash and cash equivalents at the end of the year 68,737,254.99 77,306,518.81 Legal representative: Chief Financial official: Chief accountant: 48 Statement of Change in Equity Wuhan Boiler Co., Ltd Year 2007 Items Less: Share capital Capital reserve Surplus Treasury stock I. Balance at 31 December, 2006 297,000,000.00 179,375,997.41 40,623 Plus: change in accounting policies -4,521,693.29 -1,204 Correction of errors in previous period II. Balance at 1 January, 2007 297,000,000.00 174,854,304.12 39,418 III. Increase/ decrease during the financial year (“-”for loss) (I) Net profit (II) Gain and loss recognised directly in equity 1. Net changes in fair value of available-for-sale financial assets 2. Effects on changes in equity of invested companies under equity method 3. Deffered tax effect 4. Others Subtotal of (I)and (II) (III) Contributions and decrease of capital 1. Contributions by shareholders 2. Equity settled share-based payment 3. Others (IV) Profit distribution 1. Surplus reserve accrued 2. Distribution to shareholders 3. Others (V) Transfer within shareholders' equity 1. Captial surplus transferred to capital (share capital) 2. Surplus reserve transferred to capital (share capital) 3. Surplus reserves offsetting losses 4. Others IV. Balance at 31 December, 2007 297,000,000.00 174,854,304.12 39,418 Legal representative: Chief Financial official: 49 50 Statement of Change in Equity Wuhan Boiler Co., Ltd Year 2006 Items Less: Share capital Capital reserve Surplus Treasury stock I. Balance at 31 December, 2005 297,000,000.00 178,798,219.46 39,975 Plus: change in accounting policies -4,521,693.29 -913 Correction of errors in previous period II. Balance at 1 January, 2006 297,000,000.00 174,276,526.17 39,062 III. Increase/ decrease during the financial year (“-”for loss) 577,777.95 356 (I) Net profit (II) Gain and loss recognised directly in equity 1. Net changes in fair value of available-for-sale financial assets 2. Effects on changes in equity of invested companies under equity method 3. Deffered tax effect 4. Others Subtotal of (I)and (II) (III) Contributions and decrease of capital 577,777.95 1. Contributions by shareholders 2. Equity settled share-based payment 3. Others 577,777.95 (IV) Profit distribution 356 1. Surplus reserve accrued 356 2. Distribution to shareholders 3. Others (V) Transfer within shareholders' equity 1. Captial surplus transferred to capital (share capital) 2. Surplus reserve transferred to capital (share capital) 3. Surplus reserves offsetting losses 4. Others IV. Balance at 31 December, 2006 297,000,000.00 174,854,304.12 39,418 Legal representative: Chief Financial official: 51 NOTES TO THE FINANCIAL STATEMENTS As of December 31, 2007 Important Notes: This report has been prepared in Chinese version and English version respectively. In the event of difference in interpretation between the two versions, the Chinese report shall prevail. Note 1 Corporate information Wuhan Boiler Co., Ltd (the “Company”) was established by Wuhan Boiler (Group) Co., Ltd (the “Group”) with the exclusive operating assets of boiler manufacturing in September 1997 and listed in B share market in April 1998. The share capital of the Company is 297,000,000 shares. The “Group” holds 172,000,000 shares accounting for 57.91% shareholding and the public shareholding (Domestically listed share in foreign currency) is 125,000,000 shares accounting for 42.09% shareholding. The Company's B-shares listed in the Shenzhen Stock Exchange. The Company obtained the corporate business license documented as Qi Gu Er Zong Fu Zi No.002591 on November 16, 1998. The Group transferred its 51% shareholding of Wuhan Boiler Co., Ltd to Alstom (China) Investment Co., Ltd in 2007 with approval of State-owned Assets Supervision and Administration Commission of the State Council. The share transfer procedures were completed in August 2007. Alstom (China) Investment Co., Ltd holds 151,470,000 shares accounting for 51% shareholding; Wuhan Boiler (Group) Co., Ltd holds 20,530,000 shares accounting for 6.91% shareholding and public tradable shares is 125,000,000 accounting for 42.09% shareholding as at December 31, 2007. 1．The register capital of the Company is 297,000,000.00. 2．The address of its registered office is 586 Wuluo Road, Wuhan City, Hubei Province. 3．The company's legal representative is Guowei Yang. 4．Business scope of the Company is researching, designing, developing and manufacturing of types I, II, III pressure vessels, power station boilers, special boilers, auxiliary boilers, desulfurization equipments and so on. The Company is a big boiler manufacturing enterprise and the main operating actibities are in China. The major customers of the Company are power plants and power stations. Certain products such as auxiliary equipments and pressure vessels target refineries and chemical enterprises. The Company produces three categories products: power station boilers, special boilers and other products. Power station boils are used in power stations. Special boilers are designed and manufactured according to customers’ profit and loss balance combustion technology or specific requirement of fuel, which is energy saving and enviorment friendly. The special boilers include alkali recovery boilers, circulating fluidized bed boilers, bagasse-fired boilers, the stand vertical-burning boilers, liquid slag-off boilers, waste heat boilers and so on. 5．Parent company of the Company is Alstom (China) Investment Co., Ltd. The parent company of Alstom (China) Investment Co., Ltd.is Alstom Holdings Co., Ltd. 6．These financial statements were authorised for issue in accordance with the resolution of the 5th section of the 4th Meeting of Board of Director on April 21, 2008. Note 2. Summary of Main Accounting Policies and Accounting Estimation The financial statements are prepared on the assumption of going concern and on the accrual basis of accounting. The effects of transactions and other events occurring and they are recorded and measured according to “Chinese Accounting Standards (2006): Framework” and other accounting standards. According to “Issued Public Securities Company Dicloseure Norms Quiz NO.7 –-Comparison of the financial accounting information’s preparation and disclosure during the old and new accounting standards transaction period” issued by China Secureties Regulartory Commission documented as 52 Zheng Jian Kuai Ji Zi No. [2007] 10, the Company restates the balance sheet as at December 31, 2006, the income statement and the cash flow statement for the year then ended retrospectively to make the financial statements comparable as required by “Chinese Accounting Standards: the first adoption of the Chinese Accounting Standards:” paragraph 5-19 and other related regulations issued by the Ministry of Finance after effective date of Chinese Accounting Standards. Note 3. The financial statements prepared by the Company are truly and completely reflect the financial position, operation result and cash flow of the Company. Note 4. Summary of Main Accounting Policies and Accounting Estimation 1 Accounting year The accounting year of the Group is from January 1 to December 31 of the Gregorian calendar. 2 Accounting standard currency Renminbi (RMB) is used as the accounting standard currency. 3. Measurement of the elements of the financial statements The measurement basis commonly adopted by the Company in preparing the financial statements is historical cost. This is usually combined with other measurement bases. When the amount of the accounting elements are determinable and obtainable, the selection of other particular basis of measurement such as current cost, net realisable value, present value and fair value may applied. 4 Cash equivalent Cash equivalent is defined as the short-term, highly-liquid small investment which is easily transferred into cash and has low risk of change of value. 5 Foreign currency translations Any transaction is converted into the accounting standard currency according to the approximate exchange rate of the sight rate on the occurrence date of the transaction. （1） Foreign currency exchange difference The foreign currency monetary and non-monetary items are translated at balance sheet dates as following: The monetary items of foreign currencies at the year end are converted with the closing rate on the date of balance sheet. Exchange differences arising on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements is recognised in profit or loss in the period in which they arise. Non-monetary items in foreign currencies measured with historical costs are not changed their amounts in the accounting standard currency but coverted with the spot rate on the date of the transaction. Non-monetary items in foreign currencies measured with fair value are converted according to the spot rate on the date of confirming fair value. Exchange difference arising on translated accounting standard currency and original accounting standard currency is recognised as a change of fair value (including change in exchange rate) in profit or loss in the period. Exchange difference of principle and interest of special loan which satisfies capitalised conditions is capitalised as cost of the assets during the capitalisation period. （2） Conversion of foreign currencies While conversion of financial statements for overseas business, the Company adopts the following 53 principle: The items of assets and liabilities in the balance sheet are used with the spot rate on the balance sheet date for conversion, and the items of owners’ equity, except the item “undistributed profit”, are converted with the spot rate when occurrence. The items of incomes and expenses in the profit and loss statement are converted with approximate exchange rate of the sight rate on the transaction occurring date. The conversion difference of financial statements in foreign currencies arising from the above conversion is separately listed in the item of shareholders’ equity in the balance sheet. Exchange difference arised from conversion of financial statements is presented separately as equity item. The same principle is applied in the comparative financial statements. 6 Recognition and measurement of financial instrument （1）Recognition of financial instrument The Company recognises a financial asset or fiancial liability on its balance sheet when, and only when, the Company becomes a party to the contractual provisions of the instrument. （2）Classification and measurement of financial assets ①The Company classfies financial assets into financial assets at fair value through profit or loss; held-to-maturity investments; loans and receivables; and available-for-sale financial assets. ②The financial assets are initially recognised at fair value. Gains or losses arising from a change in the fair value of a financial asset at fair value through profit or loss is recognised in profit or loss when it incurred and relevant transaction costs are recognised as expense when it incurred. For other financial assets, the transaction costs are recognised as costs of the financial assets. ③Measurement of financial assets A. A financial asset at fair value through profit or loss includes financial assets held for trading and financial assets designated by the Company as at fair value through profit or loss. The Company subsequently measures the financial asset at fair value through profit or loss at fair value and recognises the gain or loss arising from a change in the fair value of a financial asset at fair value through profit or loss as profit or loss in the current period. B. Held-to-maturity investments are measured at amortised cost using the effective interest method. A gain or loss is recognised in profit or loss during the current period when the financial asset is derecognized or impaired and through the amortisation process. C. Loans and receivables are measured at amortised cost using the effective interest method. A gain or loss is recognised in profit or loss during the current period when the financial asset is derecognized or impaired and through the amortisation process. D. Available-for-sale financial assets are measured at fair value and the gain or loss arising from a change in the fair value of available-for-sale financial assets is recognised as capital reserve which is transferred into profit or loss when it is impaired or derecognised. Interests or cash dividends during the holding period are recognised in profit or loss for the current period. ④Impairment of financial assets A. The Company perform an impairment review for all financial assets except those measured at fair value through profit or loss. The Company recognises impairment loss and provides provision for impairment of financial assets when there is any objective evidence indicated impairment. B. The objective evidences indicated impairment which the Company uses to determine the impairment are as following: a）Significant financial difficulty of the issuer or obligor; b）A breach of contract, such as a default or delinquency in interest or principal payments; c）The lender, for economic or legal reasons relating to the borrower's financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; d）It becoming probable that the borrower will enter bankruptcy or other financial reorganisation; 54 e）The disappearance of an active market for that financial asset because of financial difficulties of the issuer; f）Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group; including (i) adverse changes in the payment status of borrowers in the group; or (ii) national or local economic conditions that correlate with defaults on the assets in the group (eg an increase in the unemployment rate in the geographical area of the borrowers, a decrease in property prices for mortgages in the relevant area, or adverse changes in industry conditions that affect the borrowers in the group). g）Significant adverse changes occur in the debtor's business technology, market, economic or legal environment, so that the investment costs may not able to recover; h）A significant or non-temporary decrease in fair value of equity investment instruments; i）Other objective evidences indicate impairment of financial assets. C. Measurement of impairment loss of financial assets a）Measurement of impairment loss of held-to-maturity investment, loans and receivables If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows. The amount of the loss is recognised in profit or loss of the current period. The Company assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. The Company performs impairment test for receivables and provide provision for impairment loss of receivables at each balance sheet date. For the individually significant receivables, the impairment test is carried on individually. If there is objective evidence that an impairment loss on loans and receivables, the Company provides provision for impairment loss for the amount which is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows. For the receivables which are not individually significant or the individually significant receivables which are not determined for impairment, the Company asseses the asset in a group of financial assets with similar credit risk characteristics and collectively provide them for provision of impairment according to certain percentage of the total receivables at the balance sheet date. The Comapany determines the percentage of provision for bad debt of receivables considering both actual loss of previous receviables or receivables with similar credit risk characteristics and aging of current receibables. The current percentage of provision for bad debt of receivables is as following: Percentage of provision for bad debt of receivables Aging of receivables Percentage of provision for bad debt Within 1 year 3% 1-2 years 3% 55 2-3 years 6% 3-5 years 20% Over 5 years 100% If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss of financial asset measured at amortised cost is be reversed. The amount of the reversal is recognised in profit or loss of the current period. b）Available-for-sale financial assets When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity, the cumulative loss that had been recognised directly in equity is removed from equity and recognised in profit or loss even though the financial asset has not been derecognised. If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are recognised in the profit or loss of the current period. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed, with the amount of the reversal recognised in profit or loss of the current period. Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available for sale is not reversed through profit or loss. For an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the impairment loss is not reversed through profit or loss. （3）Classification and measurement of financial liabilities ①The Company's financial liabilities are classified as financial liabilities at fair value through profit or loss and other financial liabilities. ②Financial liabilities are initially measured at fair value. For the financial liability at fair value through profit or loss, relevant transaction costs are recognised as expense when it incurred. For the other financial liabilities, relevant transaction costs are recongnised as costs. ③Subsequent measurement of financial liabilities A. Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated by the Company as at fair value through profit or loss. The Company measures a financial liability at fair value through profit or loss at its fair value. A gain or loss of change in fair value is recognised in the profit or loss of the current period. B. Other financial liabilities are measured by amortised cost using effective interest rate. （4）Fair value measurement consideration ①If there is an active market for the financial instrument, the fair value is quoted prices in the active market. ②If the market for a financial instrument is not active, the Company establishes fair value by using a 56 valuation technique. 7. Recognition and measurement of financial assets transfer （1）The Company derecognises financial assets when the Company transfers substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset in its entirety, the difference between the follows is recognised in profit or loss of the current period. ①the carrying amount of transferring financial assets; ②the sum of the consideration received and any cumulative gain or loss that had been recognised directly in equity (including financial assets transferred to available for sale category). If the transferred asset is part of a larger financial asset and the part transferred qualifies for derecognition in its entirety, the previous carrying amount of the larger financial asset is allocated between the part that continues to be recognised and the part that is derecognised, based on the relative fair values of those parts on the date of the transfer. The difference between the follows is recognised in profit or loss of the current period. ①the carrying amount allocated to the part derecognised; ②the sum of the consideration received for the part derecognised and any cumulative gain or loss allocated to it that had been recognised directly in equity (including financial assets transferred to available for sale category). A cumulative gain or loss that had been recognised in equity is allocated between the part that continues to be recognised and the part that is derecognised, based on the relative fair values of those parts. （2）If a transfer does not qualify for derecognition, the Company continues to recognise the transferred asset in its entirety and shall recognize a financial liability for the consideration received. When the Company continues to recognise a financial asset to the extent of its continuing involvement, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained. 8. Inventory （1）The inventories are divided into the following categories: purchased products, circulating materials, finished products, work-in-progress, and materials in consignors. （2）Recognition of inventory：Inventory is recognised when the following conditions are satisfied. ①The future economic benefit embodied in the inventory is the potential to contribute to the Company; ②The cost of the inventory can be measured reliably. （3）The method of measuring inventories: Raw materials and circulating materials are measured at standard cost method which the variance between standard cost and actual cost is adjusted monthly. Finished products and work-in-progress are measured at actual cost which is allocated according to the job reference. （4）Amortisation metnhod of low-value consumption goods and packages: Low-value consumption goods and packages are fully amortised when they are required and delivered. （5）Inventories are measured at the lower of cost and net realisable value at the balance sheet date. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period when the write-down or loss occurs. 57 ①Net realisable value：Estimates of net realisable value are based on the most reliable evidence available. These estimates take into consideration of events occurring after the end of the period and the purpose for which the inventory is held. Materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. However, when a decline in the price of materials indicates that the cost of the finished products exceeds net realisable value, the materials are written down to net realisable value. The net realisable value of the quantity of inventory held to satisfy firm sales or service contracts is based on the contract price. If the sales contracts are for less than the inventory quantities held, the net realisable value of the excess is based on general selling prices. ②The Company generally provides provision for impairment of inventory individually. For large quantity and low value items of inventories, cost and net realisable value are determined based on categories of inventories. Where certain items of inventory have similar purposes or end uses and relate to the same product line producted and marketed in the same geographical area, and therefore cannot be practicably evaluated separately from other items in that product line, costs and net realisable values of those items may be determined on an aggregate basis. （6）The Company adopts perpetual inventory system for its inventory taking. 9. Measurement of construction contracts Construction contracts are measured at the actual cost, including the direct and indirect costs incurred and attributable to a contract for the period from the date the contract is signed to the final completion of the contract. The construction contract in progress should be presented in the Balance Sheet at the net amount of payment amount after decuting the sum of the accumulated costs occurred and the accumulated margin profit (loss) recognized. The excess of the sum of the accumulated costs occurred and the accumulated margin profit (loss) recognized over the payment amount should be presented as inventory. The excess of the payment amount over the sum of the accumulated costs occurred and the accumulated margin profit (loss) should be presented as advanced from customers. Costs such as travelling expenses and tender charges incurred relating to the signing of the constract should be included as contract costs when the contract is acquired, where the costs could be recognized individually and measured reliably and the contract is probably signed; otherwise it should be charged into the income statement for the period. 10. Long-term equity investment （1）Initial measurement The Company initially measures long-term equity investments under two conditions: ① For long-term equity investment arising from business combination under the common control, the cost is recognised under the following principles. If the business combination is under the common control and the acquirer obtaines long-term equity investment in the consideration of cash, non-monetary asset exchange and bearing acquiree’s liabilities, 58 the initial cost is the proportion of the acquiree’s net asset at the acquisition date. The difference between the consideration and the cost is adjusted to capital reserve. If the capital reserve is not sufficient for adjustment, retained earning is adjusted respectively. The Company recognises the business combination costs directly attributable to the combination, such as professional fees paid to accountants, legal advisers, valuers and so on, in profit or loss of the current period when it occurred. If the acquirer issuing equity shares as consideration, the initial cost is the proportion of carrying amount of the acquiree’s net asset at the acquisition date. Amount of share capital equals to the par value of the issued shares. The difference between consideration and par value of issued shares is adjusted to capital reserve. If the capital reserve is not sufficient for adjustment, retained earning is adjusted respectively. The costs occurred in business combination such as charges of security issuing, commissions are deducted from premium of equity instruments. If the premium is not sufficient for adjustment, retained earning is adjusted respectively. B. If the business combination is not under the common control, the acquirer recognises the initial cost of combination under the following principles. a）When business combination is achieved through a single exchange transaction, the cost of a business combination is the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the acquirer, in exchange for control of the acquiree. b）For the business combination involved more than one exchange transaction, the cost of the combination is the aggregate cost of the individual transactions. c）The costs directly attributed to business combination are included in the cost of combination; d）When a business combination agreement provides for an adjustment to the cost of the combination contingent on future events, the Company includes the amount of that adjustment in the cost of the combination at the acquisition date if the adjustment is probable and can be measured reliably. ②For the long-term investment obtained in any method other than business combination, the initial cost is recognised as below. A. If the long-term equity investment is obtained in cash consideration, the initial cost is the actual purchase payment which includes directly related expenses, tax and other necessary expense. B. If the long-term investment is obtained by issuing equity instruments, the initial cost is the fair value of the issued equity shares. However, cash dividends declared but unpaid or profits are not included in the cost. Direct costs attributed to issue equity instrument such as handling charges and commissions are deducted from premium of equity instruments. If the premium is not sufficient for adjustment, surplus resever and retained earning is adjusted respectively. C. For the long-term investment invested by investors, the initial cost is the agreed value of the investment agreement or contract unless the agreed value is not fair. D. For the long-term investment obtained by non-monetary asset exchange, the initial cost is recognised according to “Chinese Accounting Standard (2006) No. 7: Non-monetary asset exchange”. E. For the long-term investment obtained by restructuring, the initial cost is recognised according to “Chinese Accounting Standard (2006) No. 12: Debt restructuring”. 59 ③For the price paid including cash dividends or profits declared but unpaid, it is recognised as receivables separately rather than as initial cost of long-term equity instruments no matter which method is obtained. （2）Subsequent measurement The Company adopts either cost method or equity method for the long-term equity investment according to the extent of influence, existence of active market and availability of fair value. The equity method is used when the Company has joint control or significant influence over the investee enterprise. The cost method is used when the Company has control or does not have joint control or significant influence over the investee enterprise and there is no quoted price in active market or there is no reliable fair value. ① For the long-term investment under cost method, declared cash dividends or profits are recognised as investment income for the current period when it incurred. The amount of investment income recognised by the Company is limited to the amount distributed out of the accumulated net profits of the investee enterprise that arose after the investment was made. The amount of profits or declared cash dividends by the investee enterprise in excess of the above threshold is treated as return of investment cost. ② For long-term equity investment under equity method, the Company adjusts carrying amount of the long-term equity investment and recognises investment income according to the proportion of net profit or loss after acquisition. The Company reduces carrying amount of the long-term investment regarding to declared cash dividend or profit distribution. For long-term equity investment under equity method, the Company recognises net losses incurred by the investee enterprise to the extent that the carrying amount and the substantial net investment of the long-term equity investment is reduced to zero except there is further obligation of the excess losses. If the investee enterprise realises net profits in subsequent periods, the Company increase the carrying amount of the investment above zero at the amount at which its share of profits exceeds its share of previously unrecognized losses. ③The Company adopts the same manner of financial instrument for the impairment of long-term equity investment which is measured under cost method and there is no quoted price in active market or there is no reliable fair value. Impairment of long-term equity investments other than above refers to accounting policy “Impirment of assets” of the Company. ④ On disposal of an equity investment, the difference between the carrying amount of the investment and the sale proceeds actually received is recognised as an investment gain or loss for the current period. When the equity method is adopted, change in equity of the investee other than profit or loss is recorded in equity. On disposal of the equity investment, amount of change which is recorded in equity previously is transferred to profit or loss for the current period regarding to the proportion of disposal. 11. Recognition and measurement of fixed assets Fixed assets are tangible assets that: 1) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and 2) have useful life more than one year. It includes Property and building, machinery, and vechile. (1) A fixed asset should be initially recognised at cost when: ① it is probable that future economic benefits associated with the asset will flow to the Company; and ② the cost of the asset can be measured reliably. (2) Depreciation Subsequent expenditure relating to a fixed asset is added to the carrying amount of the asset when the expenditure qualifies for capitalisation. Subsequent expenditure that does not qualify for capitalisation is recognised as an expense. 60 The depreciation method adopted by the Company is straight-line method. The categories, estimated useful lives, residual value, and annual depreciation rate of fixed assets are shown as following: The categories Estimated Useful Lives (years) Residual value (%) Annual Depreciation Rate (%) Property and building 15-30 3 6.47-3.23 General machinery 7-18 3 13.86-5.39 Specific machinery 8 3 12.13 Vehicle 6 3 16.17 Electornic equipment 4-5 3 24.25-19.40 The Company reviews the useful life, estimated residual value and depreciation method of fixed assets at the end of each financial year. If expectations are significantly different from previous estimates, the useful life should be revised accordingly. If expectations are significantly different from previous estimates, the estimated residual value is also revised accordingly. If there has been a significant change in the expected realisation pattern of economic benefits from those assets, the depreciation method is changed accordingly. The changes in useful life, estimated residual value and depreciation method is treated as change in accounting estimates. (3) Fixed assets acquired under finance lease The Company identifies a lease of asset as finance lease when substantially all the risks and rewards incidental to legal ownership of the asset are transferred. A fixed asset acquired under finance lease is valued at the lower of the fair value of the leased asset and the present value of the minimum lease payments at the inception of lease. The depreciation method of fixed assets acquired under finance lease is consistents with that for depreciable assets owned by the Company. If the Company can reasonably confirm that it will obtain the ownership of leased asset at the end of lease term, the leased asset should be depreciated during the useful life of the leased asset. If the Company can not reasonably confirm that it will obtain the ownership of leased asset at the end of lease term, the leased asset should be depreciated during shorter of the useful life of the leased asset and the lease term. (4) Impairment of fixed asset refers to accounting policy “Impirment of assets” of the Company. 12. Construction in progress （1）Construction in progress of the Company includes constructing property, building and equipments required installation. （2）Construction in progress is recorded at actual costs incurred. It also includes borrowing costs eligible for capitalization and gain or loss of exchange difference. （3） The Company transfers construction in progress to fixed assets when the project is completed or the project is available for use. For the construction in progress which is capable of operating in the manner intended by management without the final account for completed project, an estimated value is recognised as its cost and the depreciation amount is based on the estimated value. When the final account for completed project is obtained, cost of the asset should be adjusted to the actual cost. However, there is no need to adjust depreciation of the asset in prior period. （4）Impairment of construction in progress refers to accounting policy “Impirment of assets” of the Company. 13. Recognition and measurement of intangible assets 61 Intangible assets are identifiable non-monetary asset that are owned or controlled by the Company and are without physical substance. (1) Recognition of intangible assets The Company recognises an intangible asset when that intangible asset fulfills both of the following conditions: a) It is probable that the economic benefits associated with that asset will flow to the Company; and b) The cost of that asset can be measured reliably. Expenditures incurred during the research phase of an internal project should be recognised as expenses in the period in which they are incurred. Expenditures incurred during the development phase of an internal project should be recognized as an intangible asset if, and only if, the Company can demonstrate all of the following: ① the technical feasibility of completing the intangible asset so that it will be available for use or sale; ② its intention to complete the intangible asset and use or sell it; ③ The method that the intangible asset will generate probable future economic benefits includes the Company can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset; ④ the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and ⑤ its ability to measure reliably the expenditure attributable to the intangible asset during its development (2) Measurement of intangible assets ① An intangible asset is measured initially at its cost. ② Measurement after Recognition A. For an intangible asset with finite useful life, the Company estimates its useful life at the time of acquisition and amortizes it during its useful life in a reasonable and systematic way. The amount of amortization is allocated to relevant costs and expenses according to the nature of beneficial items. The Company does not amortize intangible asset with indefinite useful life. B. Impirment of intangible assets refers to accounting policy “Impairment of assets” of the Company. 14. Impairment of assets It suggests that an asset may be impaired if there is any of the following indications: (1) during the period, an asset's market value has declined significantly more than it would be expected as a result of the passage of time or normal use during the current period; (2) significant changes with an adverse effect on the Company have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the Company operates or in the market to which an asset is dedicated; (3) market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset's value in use and decrease the asset's recoverable amount materially; (4) evidence is available of obsolescence or physical damage of an asset; (5) the asset becomes idle, or the Comopany plans to discontinue or to dispose of an asset before the previously expected date; (6) evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected, for example, the net cash flow generated from assets or the 62 operating profit (or loss) realized by assets is lower (higher) than the excepted amount, etc.; and (7) Other evidence indicates that assets may be impaired. The Company assesses long-term equity investment, fixed assets, construction materials, constructions in progress and intangible assets (except for those with uncertain useful life) that apply Accounting Standard for Business Enterprises No. 8 - Impairment of assets at the balance sheet date. If there is any indication that an asset may be impaired, the Company should assess the asset for impairment and estimate the recoverable amount of the impaired asset. Recoverable amount is measured as the higher of an asset's fair value less costs to sell and the present value of estimated future cash flows from continuing use of the asset. If carrying amount of an asset is higher than its recoverable amount, the carrying amount of this asset should be written down to its recoverable amount with the difference recognized as impairment loss and charged to profit or loss accordingly. Simultaneously a provision for impairment loss should be made. There is any indication that an asset may be impaired, the Company usually estimates its recoverable amount on an individual item basis. However if it’s not possible to estimate recoverable amount of the individual asset, the Company should determine the recoverable amount of the cash-generating unit to which the asset belongs. An asset's cash-generating unit is the smallest group of assets that includes the asset and generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Identification of cash-generating unit is based on whether the cash inflows generated by the cash-generating unit are largely independent of the cash inflows from other assets or groups of assets. The Company assesses goodwills acquired in a business combination and intangible assets with uncertain useful life for impairment each year no matter whether indication that an asset may be impaired exists or not. Impairment assessment of goodwill is carried together with the impairment assessment of related cash-generating unit or group of cash-generating units. Once impairment loss is recognized, it cannot be reversed in subsequent financial period. 15. Recognition and measurement of borrowing cost (1) Capitalization and capitalization period of borrowing costs The costs of borrowings designated for acquisition or construction of qualifying assets should be capitalized as part of the cost of the assets. Capitalisation of borrowing costs starts when a) the capital expenditures have incurred, b) the borrowing costs have incurred and c) the acquisition and construction activities that are necessary to bring the asset to its expected usable condition have commenced. Other borrowing costs that do not qualify for capitalization should be expensed off during current period. Capitalization of borrowing costs should be suspended during periods in which the acquisition or construction is interrupted abnormally, and the interruption period is three months or longer. These borrowing costs should be recognized directly in profit or loss during the current period. However, capitalization of borrowing costs during the suspended periods should continue when the interruption is a necessary part of the process of bringing the asset to working condition for its intended use. Capitalization of borrowing costs ceases when the qualifying asset being acquired or constructed is substantially ready for its intended use. Subsequent borrowing costs should be expensed off during the period in which they are incurred. (2) Calculation method of capitalization for borrowing costs To the extent that funds are borrowed specifically for the purpose of acquiring or constructing a qualifying asset, the amount of borrowing costs eligible for capitalization on that asset is determined as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of the borrowing. To the extent that funds are borrowed generally and used for the purpose of acquiring or constructing a qualifying asset, the amount of borrowing costs eligible for capitalization shall be determined by applying a capitalization rate to the weighted average of excess of accumulated expenditures on 63 qualifying asset over that on specific purpose borrowing. The capitalization rate is the weighted average of the borrowing costs applicable to the borrowings of the Company that are outstanding during the period, other than borrowings made specifically for the purpose of acquiring or constructing a qualifying asset. 16. Revenue （1）Construction contract revenue a)When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract is recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the balance sheet date. The outcome of a construction contract can be estimated reliably when all the following conditions are satisfied: (a) Total contract revenue can be measured reliably; (b) It is probable that the economic benefits associated with the contract will flow to the entity; (c) Both the contract costs to complete the contract and the stage of contract completion at the balance sheet date can be measured reliably; and (d) The contract costs attributable to the contract can be clearly identified and measured reliably. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract is recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the balance sheet date. b) When the outcome of a construction contract cannot be estimated reliably and contract costs are expected to be recoverable, revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as an expense in the period in which they are incurred. Contract costs that are not probable of being recovered are recognised as an expense immediately and no revenue is recognised. c) When the construction contract is interrupted, the Company does not recognise any revenue and gross profit for the current period. If the contract does not recommce in 3 years, gross profit recognized is written off and the contract costs are recognized in the third and fourth year evently. d) If the accumulative estimated contract costs exceed the contract revenue, an estimated loss should be recognized as an expense during the current financial period. （2）Sale of goods The Company recognises revenue from sale of goods when all the following conditions have been satisfied: (i) The Company has transferred to the buyer the significant risks and rewards of ownership of the goods; (ii) The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; (iii) The relevant amount of revenue and costs can be measured reliably.; and (iv) The economic benefits associated with the transaction will flow to the Company （3）Rendering of services: ①Revenue associated with the transaction is recognised by reference to the stage of completion of the transaction at the balance sheet date.The service revenue is recognised at the balance sheet date according to the percentage of completion of the services when (i) the total revenue and total cost can be reliably measured, (ii) the economic benefit pertaining to the service will flow to the Company; (iii) the percentage of completion can be determined reliably. ②When the outcome of the transaction involving the rendering of services cannot be estimated reliably 64 at the balance sheet date, revenue is recognised according to the following: A. When it is probable that the Company will recover the transaction costs incurred, revenue is recognised only to the extent of the expenses recognised that are recoverable. and the costs incurred are recognised as an expense. B. When it is not probable that the costs incurred will be recovered, revenue is not recognised and the costs incurred are recognised as an expense. （4）Revenue arising from the use by others of the Company’s assets Revenue arising from the use by others of the Company’s assets includes interest revenue and royalty revenue. The Company recognised revenue arising from the use by others of the Company’s assets when (a) it is probable that the economic benefits associated with the transaction will flow to the Company and (b) the amount of the revenue can be measured reliably. 17. Accrued costs The Company accrues the extended cost at 2.5% of the actual total production cost over the finished products and charges it into the costs of sales for the period. 18. Income tax The Company adopts the balance sheet liability method for corporate income taxes. (1) Deferred tax asset ① Where there are deductible temporary differences between the carrying amount of assets or liabilities in the balance sheet and their tax bases, a deferred tax asset shall be recognised for all those deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized. Deferred tax assets should be measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. ② At the balance sheet date, where there is strong evidence showing that sufficient taxable profit will be available against which the deductible temporary difference can be utilized, the deferred tax asset unrecognized in prior period shall be recognized. ③ The Company assesses the carrying amount of deferred tax asset at the balance sheet date. If it’s probable that sufficient taxable profit will not be available against which the deductible temporary difference can be utilized, the Company shall write down the carrying amount of deferred tax asset, or reverse the amount written down later when it’s probable that sufficient taxable profit will be available. (2) Deferred tax liability A deferred tax liability shall be recognized for all taxable temporary differences, which are differences between the carrying amount of an asset or liability in the balance sheet and its tax base, and measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. 19. Basis of consolidation （1）Scope of consolidation Consolidated financial statements are included all subsidiaries of the parent. When the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of investee company, the investee company is regarding as subsidiary and included consolidated financial statements. If the parent owns half or less of the voting power of an entity when there is any following condition incurred, the investee company is regarding as subsidiary and included 65 consolidated financial statements. A. power over more than half of the voting rights by virtue of an agreement with other investors; B. power to govern the financial and operating policies of the entity under a statute or an agreement; C. power to appoint or remove the majority of the members of the board of directors or equivalent governing body; D. power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or body. If there is evidence suggesting that no control of investee company exists, the investee company does not be included in the consolidated financial statements. （2）Principle of consolidation The consolidated financial statements are based on the financial statements of individual subsidiaries which are included in the consolidation scope and prepared after adjustment of long-term equity investment under equity method and elimination effect of intragroup transaction . （3）Minority interests The portion of the equity of a subsidiary that are not owned, directly or indirectly through subsidiaries, by the parent is presented as minority interest in the consolidated balance sheet. The portion of the profit or loss of a subsidiary that are not owned, directly or indirectly through subsidiaries, by the parent is presented as minority interest in the consolidated income statement. （4）Excess losses The amount which losses of subsidiaries during the period exceeds the proportion of minority’s obligation is offset minority interest as agreed in the subsidiaries’ association or agreement and minorities have ability to bear the excess losses. Otherwise, the excess losses are offset equity of the parent company. Profits made afterward by subsidiaries are attributable to equity of the parent company before recovery of excess losses. （5）Increase or decrease of the subsidiaries For any subsidiary acquired by the Company through business combination under the common control, when the consolidated balance sheet for the current period are being prepared, the amount at the beginning of the period in the consolidated balance sheet is made corresponding modification. For addition business combination not under common control during the reporting period, the Company makes no adjustment for the the amount at the beginning of the period in the consolidated balance sheet. When disposing subsidiary during the reporting period, the Company makes no adjustment for the amount at the beginning of the period in the consolidated balance sheet. For any subsidiary acquired by the Company through business combination under the common control, when the consolidated income statement for the current period are being prepared, revenue, expense and profit for the period from the beginning of the consolidated period to the year end of the reporting period are included in the consolidated income statement. For addition business combination not under common control during the reporting period, revenue, expense and profit for the period from acquisition date to the year end of the reporting period is included in the consolidated income statement. When disposing subsidiary during the reporting period, revenue, expense and profit for the period from the beginning to the disposal date are included in the consolidated income statement. For any subsidiary acquired by the Company through business combination under the common control, when the consolidated cash flow statement for the current period are being prepared, cashflow for the 66 period from the beginning of the consolidated period to the year end of the reporting period is included in the consolidated cash flow statement. For addition business combination not under common control during the reporting period, cashflow for the period from acquisition date to the year end of the reporting period is included in the consolidated cash flow statement. When disposing subsidiary during the reporting period, cashflow for the period from the beginning to the disposal date is included in the consolidated cash flow statement. Note 5. Note of change in accounting policies, estimations, and errors 1、Changes in accounting policies The Group adopted Chinese Accounting Standards (2006) for the first time. According to “Chinese Accounting Standards (2006) No. 38: the first adoption of the Chinese Accounting Standards:” and “Issued Public Securities Company Dicloseure Norms Quiz NO.7 –- during the old and new accounting standards transaction period, comparison of the financial accounting information’s preparation and disclosure” issued by China Secureties Regulartory Commission documented as Zheng Jian Kuai Ji Zi No. [2007] 10, “Chinese Accounting Standards (2006) interpretation No.10” (documented as Cai Kuai [2007] No. 14) and “Suggestion from Accountant Expert Team on Implementation of Accounting Standards”, the retrospective restatements are as following: （1）According to Chinese Accounting Standards （2006）, the Company adopts balance sheet liability method instead of taxes payable method. It is a change in accounting policies and retrospective restatement is applying for comparative financial statement of fiscal year 2007. The effect of retrospective restatement is as following: Adjustment item Amount A. Accumulated effect of changing in accounting policies at the beginning of 2006 8,612,042.03 Including： Accumulated effet of minority interest at the beginning of 2006 17,647.58 Accumulated effet of retained earning at the beginning of 2006 9,492,706.38 Accumulated effet of surplus reserve at the beginning of 2006 -898,311.93 B. Effect of net profit for the fiscal year of 2006 2,243,607.75 Including：Effect of net profit for the fiscal year of 2006 attributed to parent company 2,243,607.75 C. Accumulated effect of changing in accounting policies at the beginning of 2007 10,855,649.78 Including： Accumulated effet of minority interest (equity) at the beginning of 2007 17,647.58 Accumulated effet of retained earning at the beginning of 2007 11,982,478.49 Accumulated effet of surplus reserve at the beginning of 2007 -1,144,476.29 D. Effect of net profit for the fiscal year of 2007 （2）According to “Chinese Accounting Standards （2006） No. 2: Long-term equity investment” and “Chinese Accounting Standards （2006）interpretation No. 1”, “the company should restatement the long-term equity investments of subsidiaries retrospectively at the first adoption. It is deemed to adopt cost method at the beginning”. Also “difference between initial cost of long-term equity investment and consideration of cash, transferred non-monetary asset, and carrying value of bearing liability should be recognised in capital surplus (capital premium or share premiu). If the balance of capital surplus (capital premium or share premiu) is not sufficient for deduction, retained earning should be adjusted respectively”. It is a change in accounting policies and comparative financial statement is restated retrospectively. The effect of retrospective restatement is as following: Adjustment item Amount A. Accumulated effect of changing in accounting policies at the beginning of 2006 -4,446,331.74 Including： 67 Adjustment item Amount Accumulated effet of capital surplus at the beginning of 2006 -4,521,693.29 Accumulated effet of retained earning at the beginning of 2006 90,433.86 Accumulated effet of surplus reserve at the beginning of 2006 -15,072.31 B. Effect of net profit for the fiscal year of 2006 452,169.32 Including：Effect of net profit for the fiscal year of 2006 attributed to parent company 452,169.32 C. Accumulated effect of changing in accounting policies at the beginning of 2007 -3,994,162.42 Including： Accumulated effet of capital surplus at the beginning of 2007 -4,521,693.29 Accumulated effet of retained earning at the beginning of 2007 587,820.11 Accumulated effet of surplus reserve at the beginning of 2007 -60,289.24 D. Effect of net profit for the fiscal year of 2007 2. There is no change in accounting estimate in the period. 3. There is no change in error in the period. Note 6 Taxation 1. The value-added output tax rates are 17% and paid by deducting value added input tax. 2. The business tax rate is 5% of revenue. 3. Urban maintenance and construction tax is 7% of turnover tax payable. 4. Extra charge for education is 3% of turnover tax payable. 5. City levee fee is 2% of turnover tax payable. 6. Local education development fee is 1‰ of revenue. 7. Non staple food price restraining fund is 1‰ of revenue. 8. Corporate income tax: the corporate income tax rate of the Company and its subsidiaries, Wuhan boiler Boyu industrial Co., Ltd. and Wuhan boiler Zhixing environment protection equipment manufacture Co., Ltd, is 33%. Subsidiary, Wuhan Lan Xiang Power Environmental Protection Technology Co., Ltd, is a high technology enterprise and enjoys 15% corporate income tax rate. Note 7. Business combination and consolidated financial statements 1. Subsidiary Details of subsidiaries of the Company as at December 31, 2007 is shown as following: Subsidiaries Registered Nature Registered Principal activities address capital(RMB) 1）Obtained by business combination under common control Wuhan Boiler BoYu 586 Manufacturing 19,115,250.00 Packaging, design, and manufacturing of Industrial Co., Ltd Wuluo Mechanical and Electrical products; Rd., processing of metal compenents; design Wuhan and manufacturing of model and mold； Manufacturing of valve srough casting, steel casting, iron casting, nonferrous metal casting. 68 2)Obtained by other means except for busniness combination A. Wuhan Lan Xiang 586 Manufacturing 20,000,000.00 Boiler, energy environmental protection Power Environmental Wuluo products, Steel structures, technology Protection Technology Rd., research of heat energy products and its Company Limited Wuhan accessorial equipment,design, technical Consultancy, technical service, sales of developed products, energy project (non-construction project) Gas-steam Combined Cycle Heat Recovery Boiler, Circulating fluidized bed Boiler, Production and sale of the boiler’s components and the energy saving B. WuHan WuGuo 586 Manufacturing 10,000,000.00 equipments, Production and sale of steel ZhiXin Environmental Wuluo structures and metalGas-steam Combined Protection Equipment Rd., Cycle Heat Recovery Boiler, Circulating Manufacturing Co., Ltd. Wuhan fluidized bed（excluding there is specific requirement） Subsidiaries Investment Shareholding Voting Consolidated right （RMB） %（including indirect control） % 1)Obtained by business combination under common control Wuhan Boiler BoYu Industrial Co., Ltd 14,249,787.13 90 90 Yes 2)Obtained by other means except for busniness combination A. Wuhan Lan Xiang Power Environmental 14,000,000.00 70 70 Yes Protection Technology Company Limited B. WuHan WuGuo ZhiXin Environmental Protection 5,100,135.15 51 51 Yes Equipment Manufacturing Co., Ltd 2. There is no investee company which parent company has more than 50% voting rights but does have control. 3. There is no alternation of consolidation scope. 4. Details of minority shareholders of subsidiaries Subsidiary Minority interest Amount of minority Balance after deduction of losses of interest in income subsidiaries during the period exceeding statement deducted from the proportion of minority shareholders minority interest from equity of parent company Wuhan Boiler BoYu 1,848,355.57 Industrial Co., Ltd Wuhan Lan Xiang Power 11,910,197.93 Environmental Protection Technology Company Limited WuHan WuGuo ZhiXin 7,283,442.64 Environmental Protection Equipment Manufacturing Co., Ltd 69 Note 8. Notes to financial statements (Except for especially indicated, the closing balance and the opening balance refer to the balance at Dec 31, 2007 and Dec 31, 2006 respectively; all amounts are presented in RMB). 1．Cash and cash equivalent Item Closing balance Opening balance Cash 540,326.84 491,200.44 Bank deposit 79,591,185.36 101,474,513.82 Other cash and cash equivalent 91,633,735.94 167,690,802.90 Total 171,765,248.14 269,656,517.16 Foreign currency and exchange rate are disclosed as follows: Closing balance Item Currency Former amount Exchange rate Exchange rate amount Cash RMB 35,222.99 1.00 35,222.99 JPY 47,352.45 10.67 505,103.85 Subtotal 540,326.84 Bank deposit RMB 78,730,946.49 1.00 78,730,946.49 USD 117,259.73 7.30 856,535.42 HKD 3,954.98 0.94 3,703.44 Subtotal 79,591,185.36 Other cash and cash equivalents RMB 91,633,735.94 1.00 91,633,735.94 Subtotal 91,633,735.94 Total 171,765,248.14 Opening balance Item Currency Former amount Exchange rate Exchange rate amount Cash RMB 32,724.73 1.00 32,724.73 JPY 44,657.50 10.27 458,476.71 Subtotal 491,200.44 Bank deposit RMB 101,466,373.51 1.00 101,466,373.51 USD 538.73 7.81 4,206.78 HKD 3,915.13 1.00 3,933.53 Subtotal 101,474,513.82 Other cash and cash equivalents RMB 167,690,802.90 1.00 167,690,802.90 Subtotal 167,690,802.90 Total 269,656,517.16 *1. There is guarantee deposit of RMB 90,339,522.06 included in other cash and cash equivalents at the end of the period. *2. The decline of 36.3% in cash and cash equivalents is mainly due to decrease of operating cash inflow and guarantee deposit. 70 2．Notes receivable Category Closing balance Opening balance Bank acceptance 136,760,360.00 23,809,740.00 Total 136,760,360.00 23,809,740.00 Note: Because of national monetary stringency, the purchaser settled project payments by paying bank acceptance, which leads to the dramatic increase of 474% in notes receivable comparing to prior period. 3. Accounts receivable （1）Aging analysis of accounts receivable is as following： Closing balance Aging Amount Proportion Provision for bad debt Within 1 year（including 1 year） 221,614,875.41 24.31% 6,064,012.60 1-2 years（including 2 years） 479,856,639.82 52.64% 40,429,799.19 2-3 years（including 3 years） 84,281,380.21 9.25% 9,647,342.82 3-4 years（including 4 years） 36,463,565.42 4.00% 20,501,271.34 4-5 years（including 5 years） 56,902,496.93 6.24% 19,513,089.86 Above 5 years 32,462,745.07 3.56% 32,462,745.07 Total 911,581,702.86 100.00% 128,618,260.88 Opening balance Aging Amount Proportion Provision for bad debt Within 1 year（including 1 year） 959,771,000.66 63.49% 28,793,130.02 1-2 years（including 2 years） 285,590,344.41 18.89% 8,567,710.32 2-3 years（including 3 years） 163,673,350.62 10.83% 9,820,401.04 3-4 years（including 4 years） 57,000,037.53 3.77% 11,400,007.51 4-5 years（including 5 years） 18,386,603.30 1.22% 3,677,320.66 Above 5 years 27,175,946.53 1.80% 27,175,946.53 Total 1,511,597,283.05 100.00% 89,434,516.08 （2）Accounts receivable shown by categories： Closing balance Category Amount Proportion Provision for bad debt Major single amount 289,227,647.50 31.73% 8,622,795.75 Minor single amount with high risk 32,462,745.07 3.56% 32,462,745.07 in combination as per credit feature Other minor accounts receivable 589,891,310.29 64.71% 87,532,720.06 71 Total 911,581,702.86 100% 128,618,260.88 Opening balance Category Amount Proportion Provision for bad debt Major single amount 494,553,000.00 32.72% 15,508,180.00 Minor single amount with high risk 27,175,946.53 1.80% 27,175,946.53 in combination as per credit feature Other minor accounts receivable 989,868,336.52 65.48% 46,750,389.55 Total 1,511,597,283.05 100.00% 89,434,516.08 Major single amount is accounts receivable with significant balance of the Company (Top 5 account receivable). Minor single account receivable with high risk in combination as per credit feature is defined as single minor accounts receivable with aging over 5 years. （3）Other information of accounts receivable： A. The details of the top 5 accounts receivable： Company Amount Proportion Occurrence year Weiqiao Textile Company Limited (Group) 124,998,000.00 13.41% 2003 -2007 Shanxi Zhenxin (Group) Co., Ltd 47,970,000.00 5.15% 2006 Wuhan Boiler (Group) Co., Ltd 40,641,647.50 4.36% Before 2002 -2007 Shanxi Hexiang Engineering Project Management Co., Ltd. 38,484,000.00 4.13% 2006 Chiping Xin Fa 37,134,000.00 3.98% 2006-2007 Total 289,227,647.50 31.02% B. There is amount of RMB RMB 40,641,647.50 due from Wuhan Boiler (Group) Co., Ltd holding 6.91% of the voting shares of the Company at the end of the period. 4．Prepayment （1）Aging analysis of prepayment is as following： Closing balance Opening balance Aging Amount Proportion Amount Proportion Within 1 year（including 1 year） 153,666,778.38 98.74% 191,227,127.74 99.99% 1-2 years（including 2 years） 1,947,075.69 1.25% 13,000.00 0.01% 2-3 years（including 3 years） 13,000.00 0.01% 1,503.32 0.00% Above 3 years 1,503.32 0.00% Total 155,628,357.39 100.00% 191,241,631.06 100.00% （2）Information of prepayment： The detail of the large amounts of prepayment (above 30% of the closing balance of prepayment): Company Amount Occurrence year Nature or content Minmetals Steel Co., Ltd 46,639,578.40 2007 Payment for material 72 5. Other receivables （1）Aging analysis of other receivables is as following： Closing balance Aging Amount Proportion Provision for bad debt Within 1 year（including 1 year） 1,930,199.28 75.01% 57,905.98 1-2 years（including 2 years） 107,807.80 4.19% 3,234.23 2-3 years（including 3 years） 535.15 0.02% 32.11 3-4 years（including 4 years） 4-5 years（including 5 years） Above 5 years 534,775.00 20.78% 534,775.00 Total 2,573,317.23 100.00% 595,947.32 Opening balance Aging Amount Proportion Provision for bad debt Within 1 year（including 1 year） 11,744,070.88 95.44% 352,322.13 1-2 years（including 2 years） 2-3 years（including 3 years） 5,735.15 0.05% 344.11 3-4 years（including 4 years） 20,000.00 0.16% 4,000.00 4-5 years（including 5 years） Above 5 years 534,775.00 4.35% 534,775.00 Total 12,304,581.03 100.00% 891,441.24 （2）Other receivables shown by categories： Closing balance Category Amount Proportion Provision for bad debt Minor single amount with high risk in 534,775.00 20.78% 534,775.00 combination as per credit feature Other minor other receivables 2,038,542.23 79.22% 61,172.32 Total 2,573,317.23 100.00% 595,947.32 Opening balance Category Amount Proportion Provision for bad debt Minor single amount with high risk in 534,775.00 4.35% 534,775.00 combination as per credit feature Other minor other receivables 11,769,806.03 95.65% 356,666.24 Total 12,304,581.03 100% 891,441.24 Minor single amount with high risk in combination as per credit feature is defined as minor single other receivables with aging over 5 years. 73 （3）Other information of other receivables： A. There was no other receivables from shareholders holding over 5% of the voting shares of the Company. B. The details of the top 5 other receivables： Item Amount Proportion Occurrence year Petty cash 1,220,278.81 49.17% 2007 Request payout 601,924.38 24.25% 2001-2007 Wuyu Alloy Steel Co., Ltd 504,775.00 20.34% Over 5 years Deposit 102,810.00 4.14% 2001-2007 Ding Lan 52,019.83 2.10% 2007 Total 2,481,808.02 100.00% 6．Inventories （1）Inventories： Categories Opening Increase Decrease Closing balance Include: Percentage balance Capitalized of reversed amounts of provision borrowing for costs impairment loss in closing balance Raw 267,315,002.99 750,123,817.15 722,034,486.26 295,404,333.88 materials Work in 536,283,663.59 1,403,526,881.27 1,092,856,098.74 846,954,446.12 process Finished 4,026,369.54 15,557,225.61 13,516,328.98 6,067,266.17 products Circulating 889,146.96 3,573,375.98 3,403,008.15 1,059,514.79 Materials Purchased 3,994,638.98 727,225,400.00 730,504,953.66 715,085.32 goods Materials 2,983,426.12 13,620,334.10 16,603,760.22 in consignors Total 815,492,248.18 2,913,627,034.11 2,578,918,636.01 1,150,200,646.28 （2）Provision for impairment of inventories： Category Opening Provision Decrease Closing balance Basis of balance provision for Transferred Amount impairment back written off 1．Raw materials 4,399,411.45 5,278,715.25 9,678,126.70 Decline in quality of raw material 2．Provision for 129,112,358.43 129,112,358.43 impairment of construction contracts 74 Total 4,399,411.45 134,391,073.68 138,790,485.13 Reason for estimated loss: Estimated total costs of certain construction contracts exceed the estimated total revenue because of price increase of raw materials and so on. The Company recognises the excess amount of RMB 129,112,358.43 as estimated loss. 7．Fixed assets （1）The details of the fixed assets are shown as following： Opening Item Increase Decrease Closing balance balance 1、Cost 482,592,509.11 7,679,530.87 14,821,740.33 475,450,299.65 Including：Property and building 172,551,921.32 15,402.00 172,567,323.32 General machinery 232,803,343.93 4,098,067.46 13,548,748.40 223,352,662.99 Specific machinery 57,560,945.69 272,600.00 9,855.00 57,823,690.69 Vehicle 13,630,184.06 403,403.08 707,420.30 13,326,166.84 Electronic and office equipment 6,046,114.11 2,890,058.33 555,716.63 8,380,455.81 2、Accumulated depreciation 304,316,782.21 24,812,042.74 9,077,077.34 320,051,747.61 Including：Property and building 94,450,495.43 5,767,372.55 100,217,867.98 General machinery 153,477,522.89 14,609,206.93 7,964,705.56 160,122,024.26 Specific machinery 44,182,995.54 2,177,192.18 9,559.35 46,350,628.37 Vehicle 8,264,443.22 1,447,385.70 686,197.69 9,025,631.23 Electronic and office equipment 3,941,325.13 810,885.38 416,614.74 4,335,595.77 3、Provision for impairment of fixed assets 785,775.44 6,252,141.00 7,037,916.44 Including: Property and building General machinery 662,037.56 5,713,886.98 6,375,924.54 Specific machinery 96,310.53 96,310.53 Vehicle 429,869.43 429,869.43 Electronic and office equipment 123,737.88 12,074.06 135,811.94 4、Carrying amount of fixed assets 177,489,951.46 -23,384,652.87 5,744,662.99 148,360,635.60 Including: Property and building 78,101,425.89 -5,751,970.55 72,349,455.34 General machinery 78,663,783.48 -16,225,026.45 5,584,042.84 56,854,714.19 Specific machinery 13,377,950.15 -2,000,902.71 295.65 11,376,751.79 Vehicle 5,365,740.84 -1,473,852.05 21,222.61 3,870,666.18 Electronic and office equipment 1,981,051.10 2,067,098.89 139,101.89 3,909,048.10 （2）The details of construction in progress transferred to fixed assets: Projects and equipments are RMB 4,850,285.66. 8． Construction in progress The detail of the construction in progress is shown as following： Project Opening Increase Transferred to Other decrease Closing balance Capitalised balance fixed assets interest rate 1.Pipe - replacement of 199,682.00 199,682.00 machining gas pipe 2.Newly established 35,655,954.93 35,655,954.93 75 base for the Company 3.Repairment of power 344,390.00 344,390.00 3# gas furnace 4. Roof maintenance in 199,961.00 199,961.00 2007 5. Office decoration 1,405,000.00 1,405,000.00 6. Steam branch 2# 639,406.60 42,000.00 681,406.60 narrow gap alteration 7. Perimeter fence and 83,136.00 83,136.00 anti-theft facility 8. Equipment for new 182,764.01 182,764.01 base WBC MAC 2007001 9.Project and 324,048.00 6,582,147.10 4,168,879.06 1,795,003.04 942,313.00 equipment component 10.Rockover table 10,440.00 10,440.00 Total 973,894.60 44,695,035.04 4,850,285.66 4,027,172.04 36,791,471.94 Including： Capitalized amount of borrowing costs 9．Intangible asset （1）The variety of intangible assets is shown as following： Item Opening balance Increase Decrease Closing balance 1. Cost 58,041,348.75 58,041,348.75 ①The fabrication cold work technique of 16,800,000.00 16,800,000.00 boiler drum ②The technique of culm slurry 11,500,000.00 11,500,000.00 alkali-recycled boiler ③Circulating fluidized bed technique 17,816,457.75 17,816,457.75 ④ 600MW recycle boiler technology 11,504,891.00 11,504,891.00 ⑤Administration system software 420,000.00 420,000.00 2. Accumulated amortization 30,899,168.71 5,365,925.12 36,265,093.83 ①The fabrication cold work technique of 15,140,740.74 1,659,259.26 16,800,000.00 boiler drum ②The technique of culm slurry 8,070,074.76 1,326,412.91 9,396,487.67 alkali-recycled boiler ③Circulating fluidized bed technique 4,355,134.11 1,187,763.85 5,542,897.96 ④ 600MW recycle boiler technology 3,259,719.10 1,150,489.10 4,410,208.20 ⑤Administration system software 73,500.00 42,000.00 115,500.00 3. Carrying amount of intangible assets 27,142,180.04 5,365,925.12 21,776,254.92 ①The fabrication cold work technique of 1,659,259.26 1,659,259.26 boiler drum ②The technique of culm slurry 3,429,925.24 1,326,412.91 2,103,512.33 alkali-recycled boiler ③Circulating fluidized bed technique 13,461,323.64 1,187,763.85 12,273,559.79 ④ 600MW recycle boiler technology 8,245,171.90 1,150,489.10 7,094,682.80 76 Item Opening balance Increase Decrease Closing balance ⑤Administration system software 346,500.00 42,000.00 304,500.00 10．Other long-term assets Item Closing balance Opening balance Long-term deferred expense 250,000.00 3,237,500.00 Total 250,000.00 3,237,500.00 The detail of the large amounts of long-term deferred expenses： Item Closing balance Nature or content Joint development expense of 250,000.00 Construction expenditure of substation substation for production purpose 11．Deferred tax assets and liabilities （1）Temporary difference Temporary difference Item Closing balance Opening balance 1. Deductable temporary difference ① Provision for bad debt 84,963,228.80 27,710,721.53 ② Provision for loss of inventories impairment 138,790,485.13 4,399,411.45 ③ Provision for loss of fixed assets impairment 7,037,916.44 785,775.44 Total 230,791,630.37 32,895,908.42 2. taxable temporary difference ① Donation 10,786.04 10,786.04 Total 10,786.04 10,786.04 （2）Recognized deferred tax assets and liabilities： Item Closing balance Opening balance 1. Deferred tax assets ① Provision for bad debt 21,240,807.20 9,144,538.10 ② Provision for loss of inventories impairment 34,697,621.28 1,451,805.78 ③ Provision for loss of fixed assets impairment 1,759,479.11 259,305.90 Total 57,697,907.59 10,855,649.78 2. Deferred tax liabilities ① Donation 2,696.51 3,559.39 Total 2,696.51 3,559.39 12．Provision for impairment of assets Categories Opening balance Provided during Decrease Closing balance 77 Transferr Amount ed back written off 1. Provision for bad debt 90,325,957.32 38,888,250.88 129,214,208.20 Including：①．Provision for bad debt of accounts receivable 89,434,516.08 39,183,744.80 128,618,260.88 ②．Provision for bad debt of other receivables 891,441.24 -295,493.92 595,947.32 2. Provision for loss of inventories impairment 4,399,411.45 134,391,073.68 138,790,485.13 3. Provision for loss of fixed assets impairment 785,775.44 6,252,141.00 7,037,916.44 Total 95,511,144.21 179,531,465.56 275,042,609.77 13．Assets with ownership limited Nature of assets with ownership limited: The Company’s subsidiary, Zhixin Environmental Protection Equipment Manufacturing Co., Ltd, was granted a loan at RMB 2,900,000.00 with pledge of machinery equipments with the appraisal value at RMB 6,020,319.37, the cost at RMB 8,243,802.61 and the net book value at RMB 6,120,456.15. 14．Short-term loan Category Closing balance Opening balance Credit borrowings 776,500,000.00 Guarantee borrowings 647,000,000.00 Mortgage borrowings 2,900,000.00 Total 779,400,000.00 647,000,000.00 15．Notes payable Category Closing balance Opening balance Amount due in next accounting period Bank acceptance 646,290,009.40 443,396,435.34 646,290,009.40 Commercial acceptance 73,550,000.00 127,500,000.00 73,550,000.00 Total 719,840,009.40 570,896,435.34 719,840,009.40 16．Accounts payable Item Closing balance Opening balance Amount 455,383,537.42 634,951,233.01 * There was no accounts payable due to shareholders holding over 5% of the voting shares of the Company. 17．Advanced from customers Item Closing balance Opening balance Amount 170,572,080.73 128,696,525.55 78 Note： A. There was no advanced from customers due to shareholders holding over 5% of the voting shares of the Company. B. Advanced from customers, including amount of RMB 5,670,863.50 with aging over 1 year, was unsettled contract payments on construction in progress. According to the Company’s accounting method of contract on construction in progress, the account shall be carried forward after the settlement of contract payments on construction in progress. 18．Payroll payable Opening Item Increase Decrease Closing balance balance 1.Salary,bonus, allowance, subsidy 99,500,427.25 88,379,713.08 11,220,714.17 2. Employee welfare 6,732,852.65 1,357,641.74 8,059,450.83 31,043.56 3.Social insurance 30,293.31 21,641,466.89 21,642,032.49 29,727.71 including：①Medical insurance 157.00 5,411,553.06 5,411,710.06 ②Retirement pension 23,551.47 13,945,696.39 13,945,786.39 23,461.47 ③Unemployment insurance 6,584.84 1,450,437.52 1,450,756.12 6,266.24 ④On－job injures insurance 471,090.22 471,090.22 ⑤Fertility insurance 362,689.70 362,689.70 4. Housing fund 79,100.00 7,711,689.00 7,745,369.00 45,420.00 5. Labor union expenditure and 4,550,712.18 3,514,784.65 3,815,492.09 4,250,004.74 employee education expenses 6. Non－monetary benefit 10,740.00 10,740.00 7. Others 32,060,738.00 50,260.00 32,010,478.00 including：Share payment in cash Total 11,392,958.14 165,797,487.53 129,703,057.49 47,487,388.18 Note：Payroll payable increased by 314.18%, because the Company received the subsidies at RMB 19,964,569.00 for early-retired and retired employees from Wuhan Boiler (Group) Co., Ltd. The reserved subsidies for early-retired and retired employees and bonus for business department amounted at RMB 12,045,909.00. 19．Taxes payable Taxes Closing balance Opening balance 1．Value-added tax -8,364,815.95 75,872,100.35 2．Business tax 177,678.93 -174,104.89 3．Corporation income tax 2,248,127.30 14,745,097.11 4．Stamp Tax 1,500,604.69 1,755,516.71 5．Extra charge for education 1,917,511.84 2,324,220.65 6．Urban maintenance and construction tax 2,832,138.07 3,629,552.74 7．Housing property tax 2,463,037.82 1,031,163.08 8．Personal income tax 462,117.95 171,931.61 9．City levee fee 2,570,516.62 2,739,818.73 10．Non staple food price restraining fund 6,470,981.93 6,400,858.10 79 11．Local education development fee 6,229,543.53 5,602,744.52 Total 18,507,442.73 114,098,898.71 20．Other payables Item Closing balance Opening balance Amount 14,856,974.17 6,324,814.29 There is no other payable due to shareholders with more than 5% (including 5%) voting shares of the Company. 21． Other current liabilities Main investors Closing Reason for unsettlement balance Dividends payable Harbin Institute of Technology Power Engineering High 108,000.00 Unpaid dividend Technology Co., Ltd Xi’an Jiaotong University Xing Yuan Power Technology 216,000.00 Unpaid dividend Development Co., Ltd Shanghai Power Generation Equipment Design Institution 144,000.00 Unpaid dividend Wuhan Urban Environment Protection Project Technology 144,000.00 Unpaid dividend Co., Ltd Total 612,000.00 22．Long-term borrowings （1）The classification of long-term borrowings： Item Closing balance Opening balance Credit loan 160,000,000.00 Guaranteed loan 140,000,000.00 Total 160,000,000.00 140,000,000.00 （2）The detailed information of long-term borrowings: Lender Amount Bank of Communications Wuhan Branch Wuchang Subbranch 160,000,000.00 Total 160,000,000.00 23．Share capital Unit: share Before current alternation Movement during the year (+,-) After current alternation Category Proportion Issuance Reserves Proportion Numbers of Bonus Numbers of of new fund Others Subtotal share capital (%) shares share capital (%) shares transfer I. Unlisted shares 172,000,000 57.91% 172,000,000 57.91% 80 Before current alternation Movement during the year (+,-) After current alternation Category Proportion Issuance Reserves Proportion Numbers of Bonus Numbers of of new fund Others Subtotal share capital (%) shares share capital (%) shares transfer 1. Sponsors' shares 172,000,000 57.91% 172,000,000 57.91% including: -State owned shares Shares held by domestic legal 172,000,000 57.91% 172,000,000 57.91% persons Shares held by overseas legal persons Others 2. Raised shares held by legal persons 3. Shares held by employees 4.Preference shares and others II. Listed shares 125,000,000 42.09% 125,000,000 42.09% 1. RMB-denominated ordinary shares 2. Domestically 125,000,000 42.09% 125,000,000 42.09% listed foreign shares 3.Overseas listed foreign shares 4. Others III.Total shares 297,000,000 100% 297,000,000 100% * The Group transferred its 51% shareholding of Wuhan Boiler Co., Ltd to Alstom (China) Investment Co., Ltd in 2007 with approval of State-owned Assets Supervision and Administration Commission of the State Council. The share transfer procedures were completed in August 2007. Alstom (China) Investment Co., Ltd holds 151,470,000 shares accounting for 51% shareholding; Wuhan Boiler (Group) Co., Ltd holds 20,530,000 shares accounting for 6.91% shareholding. 24．Capital surplus Item Opening balance Increase Decrease Closing balance Capital premium 145,104,615.24 145,104,615.24 Other capital surplus 29,749,988.88 29,749,988.88 Including: Transfer from items under previous 29,749,988.88 29,749,988.88 accounting standard Total 174,854,304.12 174,854,304.12 25．Surplus reserve Opening balance Increase Decrease Closing Balance Legal surplus 39,418,356.83 39,418,356.83 Total 39,418,356.83 39,418,356.83 26．Retained earnings 81 Appropriation policy Amount Opening balance of retained earning before adjusments 94,765,688.27 Adjustments on opening balance of retained earning 16,344,021.46 Opening balance of retained earning after adjusments 111,109,709.73 Plus: net profit for the year -480,602,218.59 Less: Ordinary share dividends payable 5,940,000.00 Closing balance of retained earning -375,432,508.86 27．Revenue （1）The details of the revenue are shown as following： Item 2007 2006 1．Operating income 1,757,664,156.56 2,289,197,110.55 2．Other operating income 12,708,724.91 22,841,047.90 Total 1,770,372,881.47 2,312,038,158.45 （2）Segment information is shown as following： Business segment Operating income Operating cost Operating profit 1．Sales of boiler products 1,742,897,656.56 1,867,526,207.80 -124,628,551.24 2．Technical service 4,766,500.00 5,052,639.31 9,713,860.69 Total 1,757,664,156.56 1,872,578,847.11 -114,914,690.55 * The Company’s sales to the top five customers for the year amount to RMB 974,480,058.27 which accounts for 55.04% of the total revenue. （3）Relevant information of construction contracts: Recognised profits to Construction costs Project Total amount date (recognised losses as Progress billings incurred to date negative figure) Fixed price construction 4,879,787,531.08 2,174,626,431.82 13,619,438.36 1,562,954,572.33 contract * Estimated total costs of certain construction contracts exceed the estimated total revenue because of price increase of raw materials and so on. The Company recognises the excess amount of RMB 129,112,358.43 as estimated loss. 28．Tax and associate charge 2007 2006 Rate Business tax 753,986.77 697,643.51 Refer to Note 6 Urban maintenance and construction tax 4,393,061.68 5,850,739.91 Refer to Note 6 Education fee and associate charge 1,882,740.74 2,507,459.92 Refer to Note 6 Embankment fee 1,255,100.60 1,669,409.41 Refer to Note 6 Non staple food price restraining fund 1,823,585.77 2,389,488.65 Refer to Note 6 82 Local education development fee 1,288,537.69 2,390,603.93 Refer to Note 6 Total 11,397,013.25 15,505,345.33 29. Finance costs Finanical costs of the period amounted RMB 64,585,424.10 is 66.88% higher than prior year, which is due to additional interest payment associated resulting from increase of borrowings. 30．Investment income Sources 2007 2006 Gain on stock trading 321,946.87 Total 321,946.87 31．Impairment losses 2007 2006 1. Impairment loss of bad debts 38,888,250.88 33,543,364.98 2. Impairment loss of inventories 134,391,073.68 3,414,885.45 3. Impairment loss of fixed assets 6,252,141.00 47,007.15 Total 179,531,465.56 37,005,257.58 32．Non-operating gains 2007 2006 1．Gain on disposal of non-current assets 214,624.79 315,278.84 including：Gain on disposal of fixed assets 214,624.79 315,278.84 2. Government grant 2,300,000.00 Total 2,627,004.53 438,679.42 33．Non-operating losses 2007 2006 1．Loss on disposal of non-current assets 1,704,548.03 117,383.20 including：Loss on disposal of fixed assets 1,704,548.03 117,383.20 2. Extraordinary losses – amercement and overdue fine 642,205.24 1,088,930.24 3. Non-profit donation contribution 5,000.00 38,891.50 Total 2,351,753.27 1,245,204.94 34．Income tax expense 2007 2006 Current income tax expense 3,412,342.76 18,386,531.95 Add: Deferred income tax 46,843,120.69 2,243,607.74 83 Income tax expense -43,430,777.93 16,142,924.21 35．Relevant information about cash flow statement （1）Other cash received from operating activities 2007 2006 Other cash received from operating activities 25,001,439.42 9,935,574.69 Including: significant items Subsidies for early-retired and retired employees from Wuhan Boiler 19,964,569.00 (Group) Co., Ltd Collection of money advanced for others 837,154.11 9,935,574.69 Returned petty cash 1,787,336.57 Discounted interest funded by government 2,300,000.00 Compensation income 112,379.74 （2）Other cash paid from operating activities 2007 2006 Other cash paid relating to operating activities 59,401,277.15 98,887,907.90 Including: significant items Utility expenses 4,321,754.04 2,064,864.77 Audit fees 1,550,000.00 Laboratory examination expenses 1,702,634.98 3,741,205.87 Overseas travelling expenses 1,340,234.85 Consulting fees 9,323,089.77 24,332,880.53 Business administration expenses and company funds 2,012,639.98 Rental expense 12,273,812.06 6,500,000.00 Business entertainment expenses 6,253,682.26 4,979,679.88 Travelling expense 4,331,606.60 5,745,491.91 Office expenses 2,397,250.84 Transportation fees 5,781,246.30 Insurance expenses 1,495,250.52 Other expenses 13,894,571.77 44,247,288.12 （3）Other cash received from financing activities 2007 2006 OtherCash received from financing activities 78,664,866.94 179,851,170.45 Including: finance income except for interest expenses 3,242,766.10 7,960,923.51 84 Decrease of guarantee deposits and fixed deposits 75,422,100.84 171,890,246.94 （4）Supplementary information of cash flow statement Supplementary information 2007 2006 1. Reconciliation of net profit to net cash flows generated from operations： Net profit -478,262,995.78 16,923,412.29 Provision for impairments of assets. 179,531,465.56 34,769,609.28 Depreciation of fixed assets, oil-gas assets and productive biological assets 24,744,652.49 26,238,882.80 Amortization of intangible assets 5,365,925.12 6,195,554.76 Amortization of long-term deferred expense 2,987,500.00 150,000.00 Losses/gains on disposal of property, plant and equipment, intangible asset 1,475,809.82 -197,895.64 and other long-term assets (gains: negative) Losses/gains on disposal of fixed assets (gains: negative) 14,213.42 Losses/gains from variation of fair value (gains: negative) Finance cost (income: negative) 64,347,778.18 35,327,597.38 Investment loss (gains: negative) -321,946.87 Decrease in deferred tax assets (increase: negative) -46,842,257.81 -2,243,607.74 Increase in deferred tax liabilities (decrease: negative) -862.88 Decrease in inventory (increase: negative) -334,708,398.10 -128,746,376.47 Decrease in accounts receivable from operating activities (increase: 569,826,298.49 -300,630,684.04 negative) Increase in payables from operating activities (decrease: negative) -78,391,231.21 -348,014,539.46 Others Net cash flows generated from operating activities -89,934,049.57 -660,228,046.84 2. Significant investing and financing activities without involvement of cash receipts and payments Debt converted to capital Convertible bonds due within 1 year Finance leased fixed assets 3. Movement of Cash and cash equivalent Closing balance of Cash 81,425,726.08 103,894,894.26 Less: opening balance of cash 103,894,894.26 313,285,370.98 Plus: closing balance of cash equivalent Less: opening balance of cash equivalent Net increase in cash and cash equivalents -22,469,168.18 -209,390,476.72 （5）Cash and cash equivalent： Item 2007 2006 1. Cash Including: Cash on hand 540,326.84 491,200.44 Bank deposit on demand 79,591,185.36 101,474,513.82 Other cash and cash equivalents on demand 1,294,213.88 1,929,180.00 85 Item 2007 2006 2. Cash equivalent Including: bond investments due in three months 3. Closing balance of cash and cash equivalents 81,425,726.08 103,894,894.26 Including: Restricted cash and cash equivalents in parent company or subsidiaries in the group Note 9. Notes of statement of financial statements of parent company 1．Accounts receivable （1）The aging analysis of accounts receivable： Closing balance Aging Amount Proportion Provision for bad debt Within 1 year (including 1 year） 211,133,424.30 23.60% 5,749,569.06 1-2 years（including 2 years） 476,558,313.82 53.25% 40,330,849.42 2-3 years（including 3 years） 83,241,553.05 9.30% 9,584,953.18 3-4 years（including 4 years） 36,463,565.42 4.08% 20,501,271.34 4-5 years（including 5 years） 54,945,168.2 6.14% 19,121,624.11 Above 5 years 32,462,745.07 3.63% 32,462,745.07 Total 894,804,769.86 100.00% 127,751,012.18 Opening balance Aging Amount Proportion Provision for bad debt Within 1 year (including 1 year） 950,352,485.42 63.65% 28,510,574.56 1-2 years（including 2 years） 279,988,254.78 18.75% 8,399,647.64 2-3 years（including 3 years） 161,706,863.99 10.83% 9,702,411.84 3-4 years（including 4 years） 55,532,947.53 3.72% 11,106,589.51 4-5 years（including 5 years） 18,386,603.30 1.23% 3,677,320.66 Above 5 years 27,175,946.53 1.82% 27,175,946.53 Total 1,493,143,101.55 100.00% 88,572,490.74 （2）Accounts receivable shown by categories： Closing balance Category Amount Proportion Provision for bad debt Major single amount 289,227,647.50 32.32% 8,622,795.75 Minor single amount with high risk in combination as 32,462,745.07 3.63% 32,462,745.07 per credit feature Other minor accounts receivable 573,114,377.29 64.05% 86,665,471.36 Total 894,804,769.86 100% 127,751,012.18 86 Opening balance Category Amount Proportion Provision for bad debt Major single amount 494,553,000.00 33.12% 15,508,180.00 Minor single amount with high risk in combination as 27,175,946.53 1.82% 27,175,946.53 per credit feature Other minor accounts receivable 971,414,155.02 65.06% 45,888,364.21 Total 1,493,143,101.55 100% 88,572,490.74 Major single amount is accounts receivable with significant balance of the Company (Top 5 account receivable). Minor single account receivable with high risk in combination as per credit feature is defined as single minor accounts receivable with aging over 5 years. （3）Other information of accounts receivable： A. The details of the top 5 accounts receivable： Company Amount Proportion Occurrence year Weiqiao Textile Company Limited (Group) 124,998,000.00 13.97% 2003-2007 Shanxi Zhenxin (Group) Co., Ltd 47,970,000.00 5.36% 2006 Wuhan Boiler (Group) Co., Ltd 40,641,647.50 4.54% Before 2002 -2007 Shanxi Hexiang Engineering Project Management Co., Ltd. 38,484,000.00 4.30% 2006 Chiping Xin Yuan Aluminum Co., Ltd 37,134,000.00 4.15% 2006-2007 Total 289,227,647.50 32.32% B. There is amount of RMB RMB 40,641,647.50 due from Wuhan Boiler (Group) Co., Ltd holding 6.91% of the voting shares of the Company at the end of the period. 2、Other receivables （1）Aging analysis of other receivables is as following： Closing balance Aging Amount Proportion Provision for bad debt Within 1 year（including 1 year） 1,237,655.07 100.00% 37,129.65 Total 1,237,655.07 100.00% 37,129.65 Opening balance Aging Amount Proportion Provision for bad debt Within 1 year（including 1 year） 10,400,078.54 99.81% 312,002.36 1-2 years（including 2 years） 2-3 years（including 3 years） 3-4 years（including 4 years） 20,000.00 0.19% 4,000.00 Total 10,420,078.54 100.00% 316,002.36 （2）Other receivables shown by categories： 87 Closing balance Category Amount Proportion Provision for bad debt Other minor other receivables 1,237,655.07 100.00% 37,129.65 Total 1,237,655.07 100.00% 37,129.65 Opening balance Category Provision for Amount Proportion bad debt Other minor other receivables 10,420,078.54 100.00% 316,002.36 Total 10,420,078.54 100.00% 316,002.36 （3）Further information of other receivables： A. There was no other receivables from shareholders holding over 5% of the voting shares of the Company. B. The details of other receivables： Amount Proportion Occurrence year Wuhan Boiler (Group) Valve Co., Ltd 4,451.27 0.36% Within a year Training expense 11,000.00 0.89% Within a year Petty cash 1,220,278.81 98.60% Within a year Amount payable held temporarily 1,924.99 0.15% Within a year Total 1,237,655.07 100.00% 3．Long term equity investment Categories Closing balance Opening balance Long-term equity investment under cost method 33,349,922.28 33,349,922.28 Sub-total 33,349,922.28 33,349,922.28 Less：Provision for impairment of long-term equity investment Total 33,349,922.28 33,349,922.28 Notes: Long-term equity investment under cost method Initial investment Opening Closing Company Increase Decrease amount balance balance Wuhan Boiler Boyu Industry Co.,Ltd 14,249,787.13 14,249,787.13 14,249,787.13 Wuhan Lan Xiang Power Environmental Protection Technology 14,000,000.00 14,000,000.00 14,000,000.00 Company Limited WuHan WuGuo ZhiXin Environmental Protection Equipment Manufacturing 5,100,135.15 5,100,135.15 5,100,135.15 Co., Ltd Total 33,349,922.28 33,349,922.28 33,349,922.28 88 4．Revenue and Cost of Sales （1）The details of the revenue are shown as following： Item 2007 2006 1．Operating income 1,716,014,463.89 2,202,592,430.76 2．Other operating income 12,681,801.83 22,834,841.16 Total 1,728,696,265.72 2,225,427,271.92 （2）Segment information is shown as following： Business segment Operating income Operating cost Operating profit Sales of boiler products 1,716,014,463.89 1,843,619,872.15 -127,605,408.26 Total 1,716,014,463.89 1,843,619,872.15 -127,605,408.26 * The Company’s sales to the top five customers for the year amount to RMB 974,480,058.27 which accounts for 56.37% of the total revenue. （3）Revelant information of construction contract: Project Total amount Construction Recognised profits Progress billings costs incurred to to date (recognised date losses as negative figure) Fixed price 4,879,787,531.08 2,174,626,431.82 13,619,438.36 1,562,954,572.33 construction contract * Estimated total costs of certain construction contracts exceed the estimated total revenue because of price increase of raw materials and so on. The Company recognises the excess amount of RMB 129,112,358.43 as estimated loss. 5．Investment income （1）Sources of investment income： Source 2007 2006 Dividends from investees under cost method 4,436,339.30 2,908,078.12 Total 4,436,339.30 2,908,078.12 （2）There was no significant restriction on remittance of investment income. Note 10. Related party relationship and transactions 1．Related party recognition： According to Chinese Accounting Standards and the related regulations of China Securities Regulatory Commission, related party is defined as “when a party controls, jointly controls or exercises significant influence over another party, or when two or more parties are under the control, joint control or significant influence of the same party, the related party relationships are constituted.” 2．The information of parent company is as following: 89 (1) The information of parent company before alternation Registered Organization Registered Name Nature address code capital Wuhan Boiler 586 WuLuo 17771651-4 Development, design and RMB (Group) Co., Rd., Wuhan manufacturing of pressure vessels and 90,596,000 Ltd related mechanical and electrical products (2) The information of parent company after alternation Organization Registered Name Registered address Nature code capital Alstom 5th floor, 71092378-2 The company is approved of USD (China) Chaoqiankun investing in the industry, 60,964,400 Investment Building, No.6, Si liu infrastructure, and energy Co., Ltd street, San li tun, areas that encouraged and Chaoyang district, allowed for foreign investment Beijing. by the government 3．The shareholdings and voting rights of parent company Alstom (China) Investment Co., Ltd holds 151,470,000 shares accounting for 51% shareholding and 51% of voting rights. 4．Other related parties with who the Company has transaction but without control relationship: Company Relationship Alstom Power Boiler GmbH Common control Wuhan Boiler (Group) Co., Ltd The second largest shareholder Wuhan Boiler (Group) Valve Co., Ltd Subsidiary of the second largest shareholder Wuhan Special Boiler Complete Equipment Engineering Subsidiary of the second largest Co., Ltd shareholder Wuhan Boiler (Group) Yuntong Co., Ltd Subsidiary of the second largest shareholder 5．The information of subsidiaries is as follows： Registered Organization Registered capital Share Voting Name Nature address code (Unit:RMB’0000) holding right Wuhan Boiler Boyu 586 Wuluo 71456410-7 Design of packaging, 1911.525 90% 90% Industry Co.,Ltd Road, manufacturing of Wuhan steel and paint Wuhan Lan Xiang 586 Wuluo 73753132-4 Consultancy, 2000 70% 70% Power Road, research and design Environmental Wuhan of boilers and Protection environmental Technology projects. Company Limited WuHan WuGuo 586 Wuluo 74834240-6 Manufacturing and 1000 51% 51% ZhiXin Road, sale of Environmental Wuhan environmental Protection protection boilers, Equipment components and Manufacturing Co., steel structures Ltd 90 6．Related party transactions （1） Purchasing The detailed information of purchasing from related parties in 2006 and 2007 is shown as follows: (Unit RMB’0000) Company 2007 2006 Wuhan Boiler (Group) Valve Co., Ltd 3,918.35 5,036.14 Total 3,918.35 5,036.14 （2） Sales The detailed information of sales to related parties in 2006 and 2007 is shown as follows: (Unit RMB’0000) Company 2007 2006 Wuhan Boiler (Group) Valve Co., Ltd 268.38 356.98 Wuhan Boiler (Group) Co., Ltd 1,160.29 2,921.63 Wuhan Special Boiler Complete Equipment Engineering Co., Ltd 6,408.48 5,021.85 Total 7,837.15 8,300.46 （3） Amounts due from/to related parties Closing balance Item 2007 2006 Trade receivables Wuhan Boiler (Group) Co., Ltd 40,461,647.50 34,366,960.00 Wuhan Special Boiler Complete Equipment Engineering Co., Ltd 9,597,700.00 25,036,560.06 Prepayments Wuhan Boiler (Group)Valve Co., Ltd 20,728,758.39 Wuhan Boiler (Group) Yuntong Co., Ltd 140,000.00 Other receivables： Wuhan Boiler (Group) Yuntong Co., Ltd 4,451.27 Trade payables： Wuhan Boiler (Group) Yuntong Co., Ltd 5,938,361.24 6,164,438.48 Wuhan Boiler (Group)Valve Co., Ltd 5,637,574.14 8,185,481.24 Wuhan Special Boiler Complete Equipment Engineering Co., Ltd 23,909,060.08 Alstom Power Boiler GmbH 6,200,461.02 Advanced from customers Wuhan Boiler (Group) Co., Ltd 7,490,430.00 Wuhan Special Boiler Complete Equipment Engineering Co., Ltd 19,917,800.00 500,000.00 91 Closing balance Item 2007 2006 Other payables Wuhan Boiler (Group) Yuntong Co., Ltd 20,000.00 20,000.00 Wuhan Boiler (Group) Co., Ltd 7,392,933.79 1,421,106.72 （4）Related parties provide transportation service for the Company：Wuhan Boiler (Group) Yuntong Co., Ltd provides transportation service for the Company. The transportation service fee was RMB 71,258,500 in current year and RMB 60,038,300 in prior year. （5）The Company leases land for production purpose from the related party, Wuhan Boiler (Group) Boiler Co., Ltd, and the lease payment during the year is RMB 7,061,100. （6）In 2007 the Company paid to Alstom Power Boiler GmbH RMB 2,743,311.41 for using of the intangible assets. Note 11. Contingency There was no significant contingency at balance sheet date of the Company needed to be disclosed. Note 12. Commitment 1. Capital commitment Up to December 31 2007, the commitment related to purchases of long-term assets which the contract were signed but not reflected in the financial statements amounted to RMB 398,630,184.07, USD 3,686,836.00 and EUR 2,152,000.00. 2. Other commitment Up to December 31 2007, the performance guarantee and tender guarantee issued by the Company but not dued amounted to RMB 316,062,260.00 and USD 3,126,923.00 resepectively. Note 13. Events after the Balance Sheet Date There was no significant events after the balance sheet date of the Company needed to be disclosed. Note 14. Other significant events Previous parent company, Wuhan Boiler (Group) Co., Ltd, entered share transfer agreement with Alstom (China) Investment Co., Ltd on April 14, 2006. The transaction is completed on August 24, 2007 after approval of relevant authorities. Alstom (China) Investment Co., Ltd is parent company of the Company currently with 51% shareholding. The transaction includes the folloing key elements according to the Share Transfer Agreement (hereinafter as the “SPA”) signed in April 14, 2006: （1）Techonology transfer agreement between Alstom (China) Investment Co., Ltd and the Company; （2）Relocation agreement; （3）Procedures and guarantte of related assets (including inventories and items in progress) and 92 liabilities, and further compensation guarantte, with the Company as the beneficiary,; （4） Addition agreements include frame agreement of product and service supply, administration service agreement, agreement on Wuhan Speical Boiler Complete Equipment Engineering Co., Ltd, agreement on patent usage, agreement of technology licence transfer and support, agreement of patent “Alstom”usage, agreement of copyright and design usage,(from Wuhan Boiler Co., Ltd toWuhan Boiler (Group) Co., Ltd), agreement of copyright and design usage,(from Wuhan Boiler (Group) Co., Ltd to Wuhan Boiler Co., Ltd). To the extent applicable, the value of the elements described above have been included in the preparation of 2007 financial statements. The full execution of above elements is critical to the future financial viability of the Company. The Company will purchase land use right of Fozhuling engineer industry zone of Wuhan East Lake High-tech Development Zoo to build new plants. Note 15. Supplementary information 1. Return on equity and earnings per share Return on equity Earnings per share 2007 Fully Weighted Basic Diluted diluted average EPS EPS Net profit attributable to ordinary shareholders -353.80% -126.61% -1.62 -1.62 Net profit attributable to ordinary shareholders after eliminating extrordinary gains or losses -354.25% -126.77% -1.62 -1.62 Return on equity Earnings per share 2006 Fully Weighted Basic Diluted diluted average EPS EPS Net profit attributable to ordinary shareholders 2.05% 2.05% 0.04 0.04 Net profit attributable to ordinary shareholders after eliminating extrordinary gain or loss 2.13% 2.13% 0.04 0.04 Note: return on equity and earnings per share are calculated and disclosed according to“Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares No. 9: Calculation and disclosure of ROE and EPS (2007 revised)” issued by the CSRC. Calculation： Item 2007 2006 Net profit attributable to ordinary shareholders -480,602,218.59 12,748,931.97 Extrordinary gain or loss（Gain: negative） 617,732.59 -520,946.58 Net profit attributable to ordinary shareholders after deducting -481,219,951.18 13,269,878.55 extrordinary gain or loss Opening balance of net assets attributable to ordinary 622,382,370.68 619,459,660.76 shareholders Net profit attributable to ordinary shareholders -480,602,218.59 12,748,931.97 Dividends 5,940,000.00 10,395,000.00 Increase of capital surplus (negative: decrease) 577,777.95 93 Closing balance of net assets attributable to ordinary 135,840,152.09 622,382,370.68 shareholders Weighted average net assets attributable to ordinary shareholders 369,472,842.32 621,819,876.81 Opening balance of share capital 297,000,000.00 297,000,000.00 Closing balance of share capital 297,000,000.00 297,000,000.00 2．Extraordinary gains or losses (negative figure represents gain) Item Amount Gains or losses on disposal of non-current assets -1,489,923.24 Government grant recognized in current period (excluding the government grant acquired 2,300,000.00 by certain quota according to national unified standards related to normal course of operation of the Company) Unsettled welfare fund transferred back during the year according to current accounting policy 2,925,723.33 Gains or losses on trading financial assets 321,946.87 Other non-operating gains or losses other than above (net) -647,205.24 Effect of income tax after deducting extrordinary gains or losses -1,070,081.17 Effect of deducting minority interest -1,722,727.96 Total 617,732.59 3．Comparative financial information between the previous and current accounting standards （1）Adjustments on Income Statement of 2006 Item Before adjustment After adjustment Revenue 2,289,197,110.55 2,312,038,158.45 Cost of sales 2,019,341,162.82 2,038,194,898.52 Taxes and associate charges 15,505,345.33 15,505,345.33 Plus: Other operating profit 3,987,312.20 Less: Distribution expenses 25,488,965.28 25,488,965.28 Administrative expenses 160,228,037.68 123,269,787.25 Financial costs 38,701,042.47 38,701,042.47 Impairment loss 37,005,257.58 Plus: Gain/loss on investment -452,169.32 Non-operating income 438,679.42 438,679.42 Less: Non-operating expense 1,292,212.09 1,245,204.94 Less: Income tax expense 18,386,531.95 16,142,924.21 Minority interest (P/L) 4,174,480.31 Net profit 10,053,154.92 16,923,412.29 （2）Reconciliation of Net Profit of 2006 94 Item Amount Net profit of 2006 (under the previous accounting standard) 10,053,154.92 Effect of retrospective restatement 6,870,257.37 Including: Revenue 22,841,047.90 Cost of sales -18,853,735.70 Other operating profit -3,987,312.20 Administration expense 36,958,250.43 Impairment loss -37,005,257.58 Gain or loss on investments 452,169.32 Non-operating expense 47,007.15 Income tax expense 2,243,607.74 Minority interest (P/L) 4,174,480.31 Net profit of 2006 (under the new accounting standard) 16,923,412.29 Assuming fully implement of new accounting standard Effect of other items 3,550,029.75 Including: welfare payables 3,550,029.75 Prospective net profit of 2006 20,473,442.04 （3）Equity under previous accounting standard is adjusted in accordance with current accounting standard. ① Adjustment of Shareholders’ Equity on January 1, 2006 Item Before adjustment After adjustment Share capital 297,000,000.00 297,000,000.00 Capital surplus 178,798,219.46 174,276,526.17 Surplus reserve 43,391,529.74 39,062,188.89 Retained earning 96,112,848.85 109,111,945.70 Minority interest 19,796,458.79 Total Equity 615,302,598.05 639,247,119.55 Explanation to adjustment: （Negative: deduction） Amount Reconciliation Item item Shareholders’ equity on January 1, 2006 (under previous 615,302,598.05 accounting standard) Difference on long-term equity investment Including: difference on long-term equity investment arising -4,521,693.29 Capital surplus from business combination under common control Amortization of difference on long-term equity investment 75,361.55 Retained earning arising from business combination under common control Income tax expense 8,594,394.45 Retained earning 95 Minority interest 19,796,458.79 Minority interest Shareholders’ equity on January 1, 2006 (under current 639,247,119.55 accounting standard) ②Adjustment of Shareholders’ Equity on December 31, 2006 Item Before adjustment After adjustment Share capital 297,000,000.00 297,000,000.00 Capital surplus 179,375,997.41 174,854,304.12 Surplus reserve 44,396,845.22 39,418,356.83 Retained earning 94,765,688.27 111,109,709.73 Minority interest 21,474,942.48 Total Shareholders’ Equity 615,538,530.90 643,857,313.16 Explanation to adjustment: （Negative: deduction） Item Amount Reconciliation item Shareholders’ equity on December 31, 2006 (under previous 615,538,530.90 accounting standard) Difference on long-term equity investment Including: difference on long-term equity investment -4,521,693.29 Capital surplus arising from business combination under common control Amortization of difference on long-term equity investment 527,530.87 Retained earning arising from business combination under common control Income tax expense 10,838,002.20 Retained earning Minority interest 21,474,942.48 Minority interest Shareholders’ equity on December 31, 2006 (under current 643,857,313.16 accounting standard) （4）Comparison of shareholders’ equity under previous and new accounting standard Amount in Amount in financial financial No. Items statement of Difference Reason statement of 2006 without 2007 restatement Shareholders’ equity on December 31, 2006 (under previous accounting 615,538,530.90 615,538,530.90 standard) 1 Difference on long-term equity investment Including: difference on long-term equity investment arising from business -4,521,693.29 -3,994,162.42 -527,530.87 Note 1 combination under common control Amortisation of difference on long-term 2 equity investment obtained by business 527,530.87 527,530.87 Note 2 combination under common control Including the 3 Income tax expense 10,838,002.20 10,855,649.78 -17,647.58 subsidiaries Different 4 Minority interest 21,474,942.48 21,457,294.90 17,647.58 classification 96 Amount in Amount in financial financial No. Items statement of Difference Reason statement of 2006 without 2007 restatement Equity at January 1, 2007 under current 643,857,313.16 643,857,313.16 accounting standard *1：It is equity investment difference of RMB 4,521,693.29 due to swap of Wuhan Boiler BoYu Industrial Co., Ltd in 2005. According to “Chinese Accounting Standards （2006） No. 2: Long-term equity investment” and “Chinese Accounting Standards （2006）interpretation No. 1”, “the company should restatement the subsidiaries retrospectively at the first adoption. It is deemed to adopt cost method at the beginning”. Also “difference between initial cost of long-term equity investment and consideration of cash, transferred non-monetary asset, and carrying value of bearing liability should be recognised in capital surplus (capital premium or share premiu). If the balance of capital surplus (capital premium or share premiu) is not sufficient for deduction, retained earning should be adjusted respectively”. The equity investment difference of RMB 4,521,693.29 is fully deducted from capital surplus. *2: The equity investment difference of RMB 527,530.87 deducted from capital surplus which was amortised in prior years and recognised in the retained earning. According to “Chinese Accounting Standards （2006） No. 2: Long-term equity investment” and “Chinese Accounting Standards （2006） interpretation No. 1”, it is restated retrospectively. Legal representative： Chief financial official： Chief accountant： 97