杭汽轮Ｂ(200771)2008年年度报告（英文版）

Annual Report 2008 Complete Version Stock Code: 200771 Stock ID: Hangqilun B Announcement No. 2009-02 二零零八年年度报告 ANNUAL REPORT 2008 April 27, 2009 杭州汽轮机股份有限公司 H A N G Z H O U S T E A M T U R B I N E C O . , LT D . 1 Annual Report 2008 Complete Version Table of Contents CHAPTER I. IMPORTANT STATEMENT 3 CHAPTER II. COMPANY PROFILE 4 CHAPTER III. FINANCIAL DATA AND BUSINESS HIGHLIGHTS 5 CHAPTER IV. CHANGING IN CAPITAL SHARE AND PROFILES OF THE SHAREHOLDERS 9 CHAPTER V. DIRECTORS, SUPERVISORS, EXECUTIVES, AND EMPLOYEES 12 CHAPTER VI. ADMINISTRATION STRUCTURE 18 CHAPTER VII. THE SHAREHOLDERS’ MEETING 22 CHAPTER VIII. BOARD OF DIRECTORS’ REPORT 23 CHAPTER IX SIGNIFICANT EVENTS 42 CHAPTER X. REPORT OF THE SUPERVISORY COMMITTEE 48 CHAPTER XI. FINANCIAL REPORT 50 CHAPTER XII. OTHER DATA TO BE SUBMITTED 51 CHAPTER XIII. REFERENCE DOCUMENTS 53 2 Annual Report 2008 Complete Version Chapter I. Important Statement 1. The Board of Directors and the directors of the Company guarantee that there are no significant omissions, fictitious or misleading statements carried in the Report and we will accept individual and joint responsibilities for the truthfulness, accuracy and completeness of the Report. 2. The 8th meeting of the 4th term of Board examined the Annual Report 2008. The 10 directors on the meeting voted in favor on the report collectively. 3 This report is prepared both in English and Chinese. When there is any conflict in understanding, the Chinese version shall prevail. 4. None of the directors, supervisors, or senior executives is holding uncertain opinion or disagreement over the truthfulness, accuracy, and completeness over the Annual Report. 5. Independent director Hua Xiaoning absented the meeting and empowered independent director Zhang Mingguang to vote on his behalf. All of the rest directors presented the meeting on which this Annual Report was examined. 6. Pan-China (Zhejiang) Certified Public Accountants issued Auditors’ Report without emphasis issues and qualified opinion on the Financial Report 2008 of the Company. 7. Chairman Mr. Nie Zhonghai, General Manager Mr. Yan Jianhuan, Chief Financial Officer Mr. Bo Ronghua, and the Chief of Accounting Department Mr. Wu Guomei hereby declares: the Financial Statement in the report is guaranteed to be truthful and complete. The Board of Directors of Hangzhou Steam Turbine Co., Ltd. April 22, 2009 3 Annual Report 2008 Complete Version Chapter II. Company Profile (I) Legal Name of the Company Name in Chinese: 杭州汽轮机股份有限公司 Name in English: HANGZHOU STEAM TURBINE CO., LTD Abbreviation in English: HTC (II) Legal Representative: Mr. Nie Zhonghai (III) Secretary of the Board: Mr. Yu Changquan Tel: (0571)85780432 Fax: (0571)85780433 E-mail: ychq@htc.net.cn Stock affair representative: temporarily not available Board of Directors’ Office: (0571)85780198 Fax: (0571)85780433 (IV) Registered Address and Office Address: 357 Shiqiao Rd., Hangzhou City, Zhejiang, China Post Code: 310022 Website: http://www.htc.net.cn (V) Shares Listed in: Shenzhen Stock Exchange Stock Abbreviation: Hangqilun B Stock Code: 200771 (VI) Presses Assigned by National Security Supervisory Committee for Information Disclosure: Website: http://www.cninfo.com.cn Press media: Securities Times, Shanghai Securities Daily, Hong Kong Commercial Daily (VII) Report prepared and ready for inquire at: Securities Office, Hangzhou Steam Turbine Co., Ltd. (VIII) The primary business range of the Company is: designing, manufacturing, selling and service providing of steam turbine and its supplementary equipments, elements and accessories. Providing related services such as equipment integration, after-sales, import and export services. (IX) Supplementary information: 1. Primary business registration of the company is on April 23, 1998 at Zhejiang Provincial Business Administration. With the authorization of the 1st Provisional Shareholders’ General Meeting 1998 held on September 15, 1998, the company changed its property of business into “Sino-foreign joint public company”. The 1st renewing of business registration was on December 18th, 1998 and the 2nd renewing was on December 31st 2006, the 3rd renewing was on December 30th 2007. Business registration license was granted and renewed by Zhejiang Provincial Business Administration, and the 4th renewing was on November 10, 2008. 2. Business license No. 企股浙总副字第 002150 号. 3. Tax registration No. 330165704202620 4. Business organization code: 70420262 5. Consignee of the non-negotiable stocks: The 182,000,000 non-negotiable state-owned stocks of the company were consigned to: China Securities Depository & Clearing Corporation Ltd. Shenzhen Branch. 5. Public accountants employed: Certified public accountant: Pan-China (Zhejiang) Certified Public Accountants Office address: 6-10/F Xihu Business Building, 128 Xixi Road, Hangzhou Post office: 310007 Email: info@orients.cn Tel: (0571)88216888 Fax: （0571）88216999 4 Annual Report 2008 Complete Version Chapter III. Financial Data and Business Highlights 1. Main accounting data in RMB Yuan Increase/decrease Year 2008 Year 2007 Year 2006 (%) Turnover 3,319,171,377.40 2,855,886,247.40 16.22% 2,461,971,748.99 Total profit 819,432,190.77 625,966,749.86 30.91% 656,824,159.84 Net profit attributable to the 573,649,026.96 380,073,172.37 50.93% 442,389,274.14 shareholders of the listed company Net profit attributable to shareholders of listed company after deducting of 554,343,330.43 376,698,998.33 47.16% 447,906,499.55 non-recurring gain/loss Cash flow generated by business 387,925,952.41 300,318,010.63 29.17% 140,125,814.21 operation, net Increase/decrease End of 2008 End of 2007 End of 2006 (%) Gross Assets 4,569,605,900.83 3,569,766,258.19 28.01% 2,593,870,878.23 Owners’ (shareholders’) equity 1,901,311,875.65 1,476,382,848.69 28.78% 1,236,556,848.92 Share capital 371,800,000.00 371,800,000.00 0.00% 286,000,000.00 [Note 1] Business income has increased by RMB463.28 million over previous year, which was a 16.22% of increase. This was caused by blooming of market demand, and the productivity expanding measures were working. [Note 2] Gross profit increased by RMB193.46 million and 30.91% over previous year. Which was caused by increasing of turnover. [Note 3] Net profit attributable to the owners’ of the listed company increased by RMB193.58 million, and 50.93% over the previous year. Which was caused by: (1) Income tax rate changed from 33% to 25%; (2) The parent company and one of its controlled subsidiaries – Zhongneng Co. were certified to High-Tech Enterprise, thus enjoy 15% of income tax rate in 2008. (3) Guoneng Co. – the subsidiary of Auxiliary Machinery Co. and Huayuan Co. – the subsidiary of Machinery Co. was changed from sino-foreign joint venture into sino-foreign co-operative enterprise, and investment gains attributable to the parent company was increased. [Note 4] Total asset increased by RMB999.84 million and 28.01% over the beginning of current year, which was caused by expanding of sales and product in process, payment collected in advance, and shareholders’ equity have increased. [Note 5] Shareholders’ equity increased by RMB424.93 million and 28.78%; which was caused by increasing of undistributed profit and surplus reserves. 5 Annual Report 2008 Complete Version 2. Major financial indices in RMB Yuan Increase/decrease Year 2008 Year 2007 Year 2006 (%) Basic earnings per share (Yuan/share) 1.54 1.022 50.68% 1.19 Diluted earnings per share (Yuan/share) 1.54 1.022 50.68% 1.19 Basic earnings per share less non-recurring gain/loss 1.49 1.013 47.09% 1.205 (Yuan/share) Fully diluted net income/asset ratio 30.17% 25.74% 4.43% 35.78% (%) Weighted average net 34.22% 28.05% 6.17% 42.09% income/asset ratio (%) Fully diluted net income/asset ratio less non-recurring 29.16% 25.51% 3.65% 36.22% gain/loss (%) Weighted average net 33.07% 27.80% 5.27% 42.61% income/asset ratio less non-recurring gain/loss(%) Net Cash flow per share generated by business operation 1.04 0.81 28.40% 0.49 (yuan/share) End of End of Increase/decrease End of 2008 2007 (%) 2006 Net asset per share attributable to the shareholders of the 5.11 3.97 28.72% 4.32 listed company (Yuan/share) [Note 1] Non-recurring gain/loss items and amounts in RMB Yuan Note (if Non-recurring gain and loss items Amount applicable) Gain/loss of non-current assets 29,578.84 Government subsidies accounted into current gain/loss account, other than those closely related to the Company’s common business, comply with the national policy 12,306,669.57 Note 1 and continues to enjoy at certain fixed rate or amount. Other non-business income and expenditures other than the above -3,438,105.92 Other gain/loss items satisfying the definition of non-recurring gain/loss accounts 20,128,380.54 Note 2 Influenced amount of minority shareholders’ equity -7,871,809.37 Influenced amount of income tax -1,849,017.13 Total 19,305,696.53 - [Note 2] Steam Turbine: RMB4,690,000.00 (including RMB268000 for co-operation with Zhejiang University, RMB4422000.00 was government award for advanced manufacturing enterprises of year 2008.) Guoneng Co. RMB610,000.00 (including RMB560 thousand of government subsidy for high-tech industry, and RMB50 thousand of industrial development fund from Yuhang District Finance Bureau.); Casting Co.: RMB4,822,669.57 (including RMB3,269,119.57 of VAT refunding, RMB86340 of industrial project government subsidy, RMB10000 of allowance for technical center, RMB20000 of subsidy for model enterprise, RMB1396800 for project financing, RMB3000 was “139” manpower training subsidy, RMB11410 was government subsidy for recyclable economy, RMB26000 was for technical reforming subsidy for 10K ton casting project); Machinery Co.: RMB4,000.00 (which was labor allowance in special fund for employment promoting account setup by Shiqiao neighborhood committee). Zhongneng Co.: RMB2,030,000.00 (including RMB30 thousand received as award of technical innovation and new products, RMB600 thousand for enterprise technical center, RMB500 thousand was for key area of equipment manufacturing, RMB100 was for innovative projects, RMB800 was for new-type heavy industry). [Note 3] Explanation to “Other gain/loss items satisfying the definition of non-recurring gain/loss accounts” 6 Annual Report 2008 Complete Version Other gain/loss items satisfying the definition of non-recurring gain/loss in above chart are caused by the investment income of RMB20,128,380.54 recognized in the current term as described in Note XIV(II). The Company deems that this was an odd incident which may influence the normal judgment on the Company’s performance and profitability, thus it was satisfying the definition of non-recurring gain/loss and accounted into non-recurring gain/loss account. 7 Annual Report 2008 Complete Version 3. Differences between domestic and overseas accounting standards in RMB Yuan Net profit Net asset Amount of last Beginning of Current term End of term term term On IAS 573,649,026.96 380,073,172.37 1,476,382,848.69 1,901,311,875.65 On Chinese Accounting Standard 573,649,026.96 380,073,172.37 1,476,382,848.69 1,901,311,875.65 Individual items and sum adjusted under IAS Net profit 573,649,026.96 380,073,172.37 0.00 0.00 Net asset 0.00 0.00 1,476,382,848.69 1,901,311,875.65 Under International Accounting Standard 573,649,026.96 380,073,172.37 1,476,382,848.69 1,901,311,875.65 Statement on differences between the IAS No difference (Not audited) and Chinese Accounting Standard 8 Annual Report 2008 Complete Version Chapter IV. Changing in Capital Share and Profiles of the Shareholders I. Change in shares (in shares) Before the change Changed (+,-) After the change Issuing of Bonus Transferred Amount Proportion Others Sub-total Amount Proportion new shares shares from reserves I. Shares with conditional 236,600,000 236,600,000 subscription 1. State-owned shares 2. State-owned legal person 236,600,000 63.64% 236,600,000 63.64% shares 3. Other domestic shares Incl. Non-government domestic legal person shares Domestic natural person shares 4. Share held by foreign investors Incl. Shares held by foreign legal persons Foreign natural person shares 5. Management shares II. Shares with unconditional subscription 1. Common shares in RMB 2. Foreign shares in 135,200,000 36.36% 135,200,000 36.36% domestic market 3. Foreign shares in overseas market 4. Others III. Total of capital shares 371,800,000 100.00% 371,800,000 100.00% II. Issuing and placing of securities 1. The company didn’t place any stock or derivative securities during the past 3 years till the end of the report term. 2. Particulars about the primary placing of stocks of the company Hangzhou Steam Turbine Co., Ltd. (the Company) was promoted solely by Hangzhou Steam Turbine Power Group Co., Ltd. (the Group), and established by the mean of foreign shares (B shares) placing in the domestic market as a shareholding company. The Group invested in the Company with net asset of RMB199,485,800 and takes 140,000,000 state-owned shares of the Company at RMB1 each. The Company primarily issued 80,000,000 of foreign shares (B shares) in the domestic market at HKD2.14 per share by means of close placing between March 31 and April 6, 1998 (equal to RMB2.29 / share at RMB:HKD=1:1.0691). On April 28, 1998, 80,000,000 B shares were approved to be listed in Shenzhen Stock Exchange. 3. The capital shares were totaled to 371,800,000 shares in the report term. Among them there were 236,600,000 state-owned shares, accounted for 63.64% of the total capital shares, and 135,200,000 of foreign shares, account for 36.36% of the total capital shares. 4. None of share equity relocation, shall placing, issuing of new shares, merger, converting of bonds, or capital reducing occurred in the report term. Profit distribution plan for year 2007 implemented on June 12, 2008 was: Basing on the total capital shares of 371,800,000 at the end of 2007, RMB4.00 was distributed to the entire shareholders upon each 10 shares (tax included). 5. There wasn’t any employees’ share existing or placed till the end of the report term. 9 Annual Report 2008 Complete Version III. Shareholding situation of the top 10 shareholders and top 10 holders of unconditional shares. In Shares. Total of shareholders 14,699 Top 10 Shareholders Properties of Conditional Pledged or Name of the shareholder Share proportion % Total shares shareholder shares frozen Hangzhou Steam Turbine State-owned legal 63.64% 236,600,000 236,600,000 91,000,000 Power Group Co., Ltd. person SCHRODER INTL SELECTION FD-GREATER CN FD Overseas legal person 1.69% 6,287,474 0 N/A GTI 25287 SCHRODER INTERNATIONAL Overseas legal person 1.69% 6,280,733 0 N/A SELECTION FUND SCHRODERS KOREA LIMITED Overseas legal person 1.40% 5,200,521 0 N/A HSBC CHINA MOMENTUM FUND Overseas legal person 0.73% 2,729,991 0 N/A NORGES BANK Overseas legal person 0.69% 2,562,014 0 N/A Domestic natural LAU YAM HOI person 0.48% 1,783,600 0 N/A GOVERNMENT OF SINGAPORE Overseas legal person 0.45% 1,672,502 0 N/A INV.CORP.-A/C “C” TOYO SECURITIES ASIA LIMITED-A/C Overseas legal person 0.40% 1,499,095 0 N/A CLIENT. BOCHK INVESTMENT FUNDS-BOCHK CHINA GOLDEN DRAGON Overseas legal person 0.34% 1,276,797 0 N/A FUND Top 10 holders of unconditional shares Name of the shareholder Unconditional shares Category of shares SCHRODER INTL SELECTION FD-GREATER CN FD 6,287,474 Foreign shares placed in domestic exchange GTI 25287 SCHRODER INTERNATIONAL SELECTION FUND 6,280,733 Foreign shares placed in domestic exchange SCHRODERS KOREA LIMITED 5,200,521 Foreign shares placed in domestic exchange HSBC CHINA MOMENTUM FUND 2,729,991 Foreign shares placed in domestic exchange NORGES BANK 2,562,014 Foreign shares placed in domestic exchange LAU YAM HOI 1,783,600 Foreign shares placed in domestic exchange GOVERNMENT OF SINGAPORE INV.CORP.-A/C 1,672,502 Foreign shares placed in domestic exchange “C” TOYO SECURITIES ASIA LIMITED-A/C CLIENT. 1,499,095 Foreign shares placed in domestic exchange BOCHK INVESTMENT FUNDS-BOCHK CHINA 1,276,797 Foreign shares placed in domestic exchange GOLDEN DRAGON FUND INVESTERINGSFORENINGEN DANSKE INVEST 1,173,395 Foreign shares placed in domestic exchange (1) Of top ten shareholders, Hangzhou Steam Turbine Group Co., Ltd. holds shares on behalf of the State and the others are to B-Share shareholders. (2) Hangzhou Steam Turbine Group Co., Ltd. is not related to any of the other 9 shareholders. It is unknown whether there is any relationship among the 9 shareholders. (3) None of the other shareholders are regarded as Act in Concert relationship according to the Notes to relationship or Administrative Regulations of Information Disclosing of Public Companies. “action in concert” among (4) Since September 2007, Hangzhou Steam Turbine Group Co., Ltd. has put 91 million shares of the top ten shareholders. promoter’s state-owned shares (takes 38.46% of the total shares it is holding in the Company, and takes 24.48% of the total share capital of the Company) into pledge to Communication Bank Ltd. for the loan credit up to RMB640 million. The pledge term will commence at October 21, 2007 and expire at the end of September 2009. 10 Annual Report 2008 Complete Version IV. Profile of the controlling shareholder 1. Profiles of the controlling shareholder Legal Representative: Nie Zhonghai Registered capital: RMB500 million Date of Incorporation: Dec. 1992 Business Type: State-owned and sole proprietorship company authorized by the Hangzhou Government Registered address: No. 357 Shiqiao Road Hangzhou City Major Business: textile machine, paper-making machine, pump, casting, changing speed gear, heat exchanging instrument, digital and display system and their manufacturing and processing. Original material, equipment and parts for groups’ purchasing and making, providing services of water, electricity and gas for their owning enterprises. 2. The controlling shareholder and substantial holder of the Company were not changed in the report term. 3. Chart of shareholding and controlling relationship between the Company and substantial holder Hangzhou State-owned Assets Supervisory & Administrative Committee 100% Hangzhou Steam Turbine Power Group Co., Ltd. 63.64% Hangzhou Steam Turbine Co., Ltd. 4. No substantial holder of the Company controlling the Company through trust or other asset management channel in the report term. 11 Annual Report 2008 Complete Version Chapter V. Directors, Supervisors, Executives, and Employees 1. Particulars about the shareholding and remunerations of Directors, Supervisors, and Senior Management Pays received from Shares Shares held at Cause the Company in the Take remuneration Job Job held at Name Position Sex Age the beginning of report term from shareholding started ended the end of of term change (RMB0’000) before or related parties? term tax Nie Jun 21 Jun 20 Chairman M 51 0 0 107.72 No Zhonghai 2007 2010 Wang Vice Jun 21 Jun 20 M 56 0 0 102.37 No Hongkang Chairman 2007 2010 Vice Jun 21 Feb 17 Jin Fujuan F 55 0 0 98.08 No Chairman 2007 2009 Jun 21 Jun 20 Yan Jianhua Director, GM M 50 0 0 102.37 No 2007 2010 Director, Jun 21 Feb 17 Li Lie M 60 0 0 100.22 No Standing GM 2007 2009 Director, Jun 21 Jun 20 Ye Zhong Chief M 40 0 0 94.87 No 2007 2010 engineer Director, Bai Jun 21 Jun 20 Chief M 57 0 0 94.87 No Ronghua 2007 2010 accountant Zhang Independent Jun 21 Jun 20 M 70 0 0 10.00 No Mingguang Director 2007 2010 Zhou Independent Jun 21 Jun 20 M 70 0 0 10.00 No Zhaoxue Director 2007 2010 Hua Independent Jun 21 Jun 20 M 45 0 0 10.00 No Xiaoning Director 2007 2010 Independent Jun 21 Jun 20 Qi Guoning M 59 0 0 10.00 No Director 2007 2010 Chu Chief Jun 21 Jun 20 M 56 0 0 98.08 No Shuilong Supervisor 2007 2010 Jun 21 Jun 20 Shao Linna Supervisor F 55 0 0 0.00 Yes 2007 2010 Zhang Jun 21 Jun 20 Supervisor M 51 0 0 29.17 No Yougen 2007 2010 Jun 21 Jun 20 Lu Jianhua Supervisor M 46 0 0 25.03 No 2007 2010 Jun 21 Jun 20 Zhao Ying Supervisor F 52 0 0 9.73 No 2007 2010 Liu Vice General Jun 21 Feb 17 M 51 0 0 94.87 No Guoqiang Manager 2007 2009 Ye Vice General Jun 21 Jun 20 M 54 0 0 94.87 No Yongzhong Manager 2007 2010 Yu Secretary of Jun 21 Jun 20 M 51 0 0 88.78 No Changquan the Board 2007 2010 Total - - - - - - 1,181.03 - Note: No incentive bonus shares granted to the directors, supervisors, and managements in the report term. 12 Annual Report 2008 Complete Version 2. Engaging and dismissing of directors, supervisors and senior executives. Name Name of the shareholder Job taken Job term Nie Zhonghai Hangzhou Steam Turbine Power Group Co., Ltd. Chairman 2003.8--present Wang Hongkang Hangzhou Steam Turbine Power Group Co., Ltd. Vice Chairman, GM 2003.8--present Jin Fujuan Hangzhou Steam Turbine Power Group Co., Ltd. Vice Chairman, Chairman of the Union 2003.8--2009.2. Yan Jianhua Hangzhou Steam Turbine Power Group Co., Ltd. Director 2003.8--present Ye Zhong Hangzhou Steam Turbine Power Group Co., Ltd. Director 2003.8--present Chu Shuilong Hangzhou Steam Turbine Power Group Co., Ltd. Director, Vice GM 2003.8--present Shao Linna Hangzhou Steam Turbine Power Group Co., Ltd. Director of financial department 2003.8—2009.3 3. Professional history of the current directors, supervisors and senior executives for the latest 5 years (1) Members of the Board: Mr. Nie Zhonghai: CCP member; college graduate; economist. From April 1997 to August 2003, Mr. Nie held the positions of Chairman of the Board and General Manager of Hangzhou Thermoelectricity Group. In August 2003, Mr. Nie assumed Secretary of the Party and Chairman of the Board of Huangzhou Steamer Power Group Co., Ltd. He was elected as Director and Chairman of the second and third Board of the Company. In 2005, he was awarded the National Model Worker. He is not the director of Hangzhou Commercial Bank. When the Board of Directors was elected on June 2007, Mr. Nie was elected as Chairman of the 4th term of Board. Mr. Wang Hongkang: CCP member; bachelor degree; senior engineer. Mr. Wang had assumed Vice Chairman of the Board and General Manager of Hangzhou Steamer Power Group Co., Ltd. since May, 2001. He was the Vice Chairman of the 2nd and 3rd term of Board of Directors of the Company. He was elected again as Vice Chairman of the 4th Board again in June 2007. Ms. Jin Fujuan: CCP member; Bachelor degree; Ms. Jin had assumed Vice Chairman of the Board of Hangzhou Steamer Power Group Co., Ltd. since May, 2001. She was the Vice Chairman of the 1st, 2nd and 3rd term of Board of Directors of the Company, and was elected again as Vice Chairman of the 4th Board in June 2007. Mr. Yan Jianhua: CCP member; Bachelor degree; Professorial Senior Engineer. When the Board of Directors changed on June 25, 2001, Mr. Yan was elected as Director of the 2nd and 3rd term of Board and General Manager of the Company. When the Board of Director altered in June 2007, he was selected again as Director of the 4th Board and General Manager. Mr. Li Lie: CCP member; technical school diploma; Engineer. Mr. Li was Director of the 1st, 2nd, and 3rd Board and Deputy Manager. When the Board of Director changed in June 2007, he was elected as Director of the 4th Board and Executive Deputy Manager. Mr. Bo Ronghua, CCP member; bachelor degree; senior accountant. Mr. Bo was Director of the 1st, 2nd, and 3rd Board and Chief Accountant. When the Board of Director changed in June 2007, he was elected again as Director of the 4th Board and Chief Accountant. Mr. Ye Zhong: CCP member; bachelor degree; Senior Engineer. When the Board of Directors changed on June 25, 2001, Mr. Ye was selected as Director of the second Borad and General Engineer of the Company. When the Board of Director changed on June 19, 2004, he was elected as Director of the third Board and General Engineer. In June 2007, he was elected again the director of the 4th term of Board, and also the General Engineer and Deputy General Manager of the Company. Mr. Zhang Mingguang: CCP member; graduate of secondary technical school; Engineer; Be good at Economics Management. Mr. Zhang once held such positions as Deputy Director of City People's Congress. He’s now retired. Mr. Zhang was elected as Independent Director of the second and third Board of the Company. When the Board of Director changed in June 2007, he was selected as Independent Director of the 4th Board. Mr. Zhou Zhaoxue, CCP member, graduate of technical school, senior accountant, specialized in accounting and auditing. Once he’s the Vice Govener of Zhejiang Bureau of Auditing, retired. He was elected the independent director of the 2nd and 3rd term of Board. He was elected the independent director again for the 4th term of Board in June 2007. 13 Annual Report 2008 Complete Version Mr. Hua Xiaoning: Master degree; CPA. Mr. Hua held the positions of Deputy Chief Accountant of Shenzhen Shekou Zhonghua CPA and Senior Manager of Arthur Anderson Hua Qiang Certified Public Accountants. Mr. Hua was elected as Independent Director of the 2nd and 3rd Board of the Company. He was elected the independent director again for the 4th term of Board in June 2007. Mr. Qi Guoning: Doctor of Engineering; Professor; Doctoral Tutor. He is now a professor and doctoral supervisor of Machine Manufacturing and Automating Department of Zhejiang University, member of Committee of State “863 Program” Advanced Manufacturing and Automating Experts. Mr. Qi was elected as Independent Director of the 3rd Board of the Company in June 2004. And was elected the independent director again for the 4th term of Board in June 2007. (2) Members of the Supervisory Committee Mr. Zhu Shuilong: Party Member; Bachelor Degree; Senior Economist. Director and Vice GM of Hangzhou Steamer Power Group Co., Ltd. Mr. Zhu was the Supervisor of the 1st, 2nd, and 3rd term of Supervisory Committee of the Company. And was elected the Chairman again for the 4th term of Supervisory Committee in June 2007. Mr. Zhang Yougen, CCP member, bachelor degree, certified social worker. He was the supervisor of 1st, 2nd, and 3rd term of the Supervisory Committee, director of the Party office of the Company. And was elected the supervisor again for the 4th term of Supervisory Committee in June 2007. Ms. Shao Linna: Member of the Democratic Revolutionary Party; College Diploma, Accountant. She is now assuming Director of Finance Department of Hangzhou Steamer Power Co., Ltd. Mr. Shao was the supervisor of 1st, 2nd, and 3rd term of the Supervisory Committee, director of the Party office of the Company. And was elected the supervisor again for the 4th term of Supervisory Committee in June 2007. Mr. Lu Jianhua: CCP Member; bechelor degree. Mr. Lu was once the assistant of Trade Union and office manager of the Company. He was elected the vice-president of Workers’ Union in July 2004, and was elected as worker's supervisor. He was the supervisor of 1st, 2nd, and 3rd term of the Supervisory Committee, director of the Party office of the Company. And was elected the supervisor again for the 4th term of Supervisory Committee in June 2007, until reelected by the Trade Union on legal procedures. Ms. Zhao Ying, CCP member, bachelor degree, accountant. Currently she’s an accountant of the Financial Department of the Company. Commissioner of the Workers’ Union of Hangzhou Steam Turbine Power Group Co., Ltd. and also the commissioner of the Worker’s Union of the Company. She was the employees’ supervisor of the 2nd and 3rd term of Supervisory Committee. She was the supervisor of 1st, 2nd, and 3rd term of the Supervisory Committee, director of the Party office of the Company. And was elected the supervisor again for the 4th term of Supervisory Committee in June 2007, until reelected by the Trade Union on legal procedures.. (3) Executives Mr. Liu Guoqiang, CCP member, Engineer, Deputy GM. He joined the Company in 1977 and worked as worker, section director, vice director of workshop, and secretary of the workshop. He was engaged the Deputy General Manager by the 6th meeting of the 3rd term of Board held on June 23, 2005, and was engaged the Deputy General Manager again in June 2007. Mr. Ye Yongzhong, CCP member, college diploma, certified economist, Deputy General Manager. Once he was a worker, technician, assistant to director, vice director, secretary of factory chief, director of production division, director of contract center, assistant to GM and director of sales dept. He was engaged the Deputy General Manager by the 6th meeting of the 3rd term of Board held on June 23, 2005, and was engaged the Deputy General Manager again in June 2007. Mr. Yu Changquan, CCP member, Bachelor’s Degree, senior economics profession. Secretary of the Board. He was engaged the Deputy General Manager of the Company since January 2000, and extended on June 19th 2004. He was engaged the Secretary of the Board by the 6th meeting of the 3rd term of Board held on June 23rd 2005. He was engaged the Deputy General Manager by the 6th meeting of the 3rd term of Board held on June 23, 2005, and was engaged the Secreatary of Board again in June 2007. Note: No dismissing of directors, supervisors, and executives in the report term. 14 Annual Report 2008 Complete Version 4. Particulars about the directors and supervisors who take jobs in entities other than shareholding companies Name and position in the Name of companies taking jobs Relation with the Company Position Company Hangzhou Industry Capital Operation Non-related General Company Manager Hangzhou Relian International Trading Controlled Subsidiary of the Parent Director Chairman Nie Zhonghai Co. Company Hangzhou Hangfa Junyue Investment Co., Controlled Subsidiary of the Parent Legal Ltd. Company representative Hangzhou Steam Turbine Technologies Controlled Subsidiary of the Parent Director Co., Ltd. Company Hangzhou Steam Turbine Zhuji Zhong-de Controlled Subsidiary of the Parent Director Properties Co., Ltd. Company Bank of Hangzhou Co., Ltd. Affiliate company of the Company Director Hangzhou Steam Turbine Technologies Controlled Subsidiary of the Parent Legal Co., Ltd. Company representative Hangzhou Steam Turbine Zhuji Zhong-de Controlled Subsidiary of the Parent Legal Vice Chairman Wang Properties Co., Ltd. Company representative Hongkang Hangzhou Dongfeng Shipyard Co., Ltd. Controlled Subsidiary of the Parent Director Company Hangzhou Relian International Trading Controlled Subsidiary of the Parent Legal Co. Company representative Hangzhou Steam Turbine Environmental Subsidiary controlled by the parent Director Engineering Co., Ltd. company and shares held by the Company Hangzhou Nanfangtongda Gears Co., Ltd. Controlled Subsidiary of the Parent Director Company Vice Chairman Jin Hangzhou Steam Turbine Technologies Controlled Subsidiary of the Parent Supervisor Fujuan Co., Ltd. Company Zhejiang Steam Turbine Packaged Controlled subsidiary of the Company Legal Technology Development Co., Ltd. representative Director, GM Yan Hangzhou Steam Turbine Machinery & Controlled subsidiary of the Company Legal Jianhua Equipment Co., Ltd. representative Hangzhou Steam Turbine Auxiliary Controlled subsidiary of the Company Director Machine Co., Ltd. Hangzhou Zhongneng Steam Turbine Controlled subsidiary of the Company Director Power Co., Ltd. Hangzhou Steam Turbine Casting Co., Controlled subsidiary of the Company Director Ltd. Hangzhou Steam Turbine Technologies Controlled Subsidiary of the Parent Director Co., Ltd. Company Hangzhou Zhongneng Steam Turbine Controlled subsidiary of the Company Legal Director, Standing Vice Power Co., Ltd. representative GM, Li Lie Hangzhou Steam Turbine Casting Co., Controlled subsidiary of the Company Director Ltd. (India)GREENESOL POWER SYSTEMS Affiliate company of the Company Director PVT LTD Hangzhou Steam Turbine Casting Co., Controlled subsidiary of the Company Chairman Director and chief Ltd. accountant Bo Ronghua Hangzhou Steam Turbine Environmental Subsidiary controlled by the parent Director Engineering Co., Ltd. company and shares held by the Company Zhejiang Steam Turbine Packaged Controlled subsidiary of the Company Supervisor Technology Development Co., Ltd. Director Ye Zhong Hangzhou Zhongneng Steam Turbine Controlled subsidiary of the Company Director Power Co., Ltd. Independent Director Shenzhen Youlian Shijun Enterprise None President Hua Xiaoning Management Consulting Co., Ltd. Shenzhen Tianma Micro-electronic Co., None Independent Ltd. Director Hangzhou Relian International Trading Controlled Subsidiary of the Parent Supervisor Co. Company 15 Annual Report 2008 Complete Version Chief Supervisor Chu Hangzhou Hangfa Junyue Investment Co., Controlled Subsidiary of the Parent Director Shuilong Ltd. Company Hangzhou Steam Turbine Environmental Subsidiary controlled by the parent Director Engineering Co., Ltd. company and shares held by the Company Hangzhou Wandong Vacuum Tub Co., Controlled Subsidiary of the Parent Legal Ltd. Company representative Hangzhou Steam Turbine Technologies Controlled Subsidiary of the Parent Supervisor Co., Ltd. Company Supervisor Shao Linna Hangzhou Nanfangtongda Gears Co., Ltd. Controlled Subsidiary of the Parent Supervisor Company Hangzhou Steam Turbine Environmental Subsidiary controlled by the parent Supervisor Engineering Co., Ltd. company and shares held by the Company Hangzhou Steam Turbine Auxiliary Controlled subsidiary of the Company Legal Machine Co., Ltd. representative Secretary of the Board, Hangzhou Steam Turbine Environmental Subsidiary controlled by the parent Supervisor Yu Changquan Engineering Co., Ltd. company and shares held by the Company 5. Directors’ attendance at the board meetings. Not attend the Attended by Name of the Times to Actually Presented by meetings for Position mean of Absented directors attend attended proxy successively 2 telecom times Nie Zhonghai Chairman 9 2 6 1 0 No Wang Hongkang Vice Chairman 9 3 6 0 0 No Jin Fujuan Vice Chairman 9 2 6 1 0 No Yan Jianhua Director 9 2 6 1 0 No Li Lie Director 9 3 6 0 0 No Ye Zhong Director 9 3 6 0 0 No Bai Ronghua Director 9 3 6 0 0 No Independent Zhang Mingguang 9 3 6 0 0 No Director Independent Zhou Zhaoxue 9 3 6 0 0 No Director Independent Hua Xiaoning 9 2 6 1 0 No Director Independent Qi Guoning 9 2 6 1 0 No Director Times of board meetings in the current 9 year Incld. Onsite meetings 3 by telecommunication 6 Combination of onsite and 0 telecommunication Note: None of the directors absented the board meeting for successively two times. 6. No dismissing of directors, supervisors, and executives in the report term. 7. The employees The total number of employees at the end of 2008 was counted to 2432. Which is including 1663 of production people (1299 technical workers), 331 of executive, 427 of technicians and engineers. As classified according to professions: 149 of R&D, 170 of sales (including after-sales-serves), 23 of financial, 331 of administrative, 1299 of technicians and workers. As classified on education and professional qualification: 802 of the employees are above college education, takes 33.0% of the total; 187 of technicians with over intermediate technical certifications, takes 7.7% of the total; 94 of higher qualifications, takes 3.9% of the total employees. The overall number of employees in 2007 has increased over that of 2006. Which was caused by expanding of 16 Annual Report 2008 Complete Version production and technical upgrading. The Company has recruited a great number of college and technical school graduates. 57 employees retired in the report term. There were totally 504 employees retired since 1998 to the end of 2008. According to the government document [2004]6 “The governmental opinion on socializing of retirement service” the retired employees of the Company have been adopted by the Social Security System (belongs to the area where they were registered as residents). The Company no longer pays pensions to theses retired employees other than certain allowances at important festivals. The pensions are arranged by the Social Security System according to the regulations of Hangzhou Government. 17 Annual Report 2008 Complete Version Chapter VI. Administration Structure I. Administrative Position 1. Operation and administration Since listed in the stock market，the Company constantly improved its corporate administration structure, strengthened standardized operation and information disclosure and seriously and properly manage the relationship with investors strictly according to the Company Law, the Securities Law, and the Administration Standards of Listed Companies. The internal controlling structure was fitting will to the practical situation of the Company. An effective operation pattern has been developed with clear responsibilities and function without any connection with that of the shareholders’. The Shareholders’ Meeting, the Board of Directors, the Supervisory Committee, and the executive team were working systematically. In year 2008, the Shareholders’ Meetings, the Board Meetings, and the Supervisory Committee Meetings were held in accordance with the laws, regulations, the Articles of Association, and respective rules. All of the decision-making processes involving major investment, financing, and providing of external guarantees were following with the Articles of Association and regulations. The Supervisory Committee was functioning well in supervising the business operation. Professional Committees in the Board of Directors were working well and formed records on decision-making processes. Thus all of the “Three Meetings” were working well. Directors and supervisors assigned by the Company to the subsidiaries were also working well in decision making and supervisory jobs. 2. Special administrative improvement operation According to announcement [2008]27 issued by China Securities Regulatory Commission on June 12, 2008 and the “Notification on promoting the special administration improving actions for listed companies” issued by Zhejiang Securities Regulatory Office, the Company carried forward the improvement actions and consolidated the achievements realized in 2007. Since the beginning of 2008, the Company carried on the improvement actions as described in “Administration Improvement Action Report” made by the Board in 2007. Detailed regulations, management standards, and management systems of the internal controlling were revised and completed at the end of October 2008, and put into operation since November 2008. Internal auditing office and full-time staffs were in position at the beginning of the report term, and have been working well. “Statement on accelerating the special improvement actions” was passed at the 3rd provisional meeting of the Board, and released at http://www.cninfo.com.cn on July 18, 2008. In May 2008, five of the national departments published “Fundamental Enterprise Internal Controlling Standard”. The Company delivered official documents to the departments and subsidiaries to check over the practice of business operation and reorganize according to the Standard. The Board of Directors deems that, through two years of constant improving, faults and problems discovered with the Company’s administrative structure have been resolved. A healthy administration structure has been established. The Company will carry forward the operations according to the Company Law, Securities Law, as well as the regulations of China Securities Regulatory Commission, and conduct the business operation to a speed and healthy development. In the report term, the Company was following with the “Share Listing Rules of Shenzhen Stock Exchange” (Revised 2008), fulfilled the responsibilities of information disclosure under the principles of truthfulness, accurate, and completeness. As of the end of report term, the Company’s administrative practice was complying with the regulatory documents issued by China Securities Regulatory Commission. 18 Annual Report 2008 Complete Version II. Performance of the independent directors At present, number of independent directors has been over one third of the total members of the Board. The four professional committees have been established and functioning for years. In the report term, according to the requirements of the Direction of Establishing Independent Director System in Listed Company, the Articles of Association of the Company and other rules and regulations, the independent directors functioned honestly diligently to maintain with efforts the Company’s total benefit and intermit and small investors’ benefit. They used sufficient time and energy to learn and master seriously the new supervising policies; they concerned about the Company’s administrative affairs, attended every the Board of Directors’ meetings and their professional committee meetings and supplied constructive opinions and suggestions positively. At the beginning of 2008, the Company produced “Annual Report Criteria of Independent Directors” and “Working Rules of Auditing Committee”. At present, all of the independent directors are qualified under the requirement of China Securities Regulatory Commission, and with full knowledge and skills to fulfill the jobs in decision making of the Board. The independent directors have been participating in the decision-making process and provide independent opinions on the accounting policies, routine related transactions, remunerations and assessment of the directors and executives, and major investment of the Company. These have helped the objective and scientific decision-making of the Board. III. Independency of the Company The Company kept independence and separated with holding-share shareholders on the aspects of business, human resource, capital, structure, account. And the Company established independent and complete manufacturing and operating systems, it had independent and complete business scale and self-operation capacity. 1. On business operations The Company’s majors of design, manufacture, sale business of industrial steam turbine was independent from the holding company (Hang Steam Turbine Group); the subsidiaries of the holding company had sale business of industry steam turbine with purchasing price of factory price of steam turbine and its periphery from the Company, and the Company had no same business building with the holding company. 2. On personnel management The Company kept independence with the holding-share share holders on the aspects of human resource and remuneration management. Although the Company’s chairman of the Board and the vice chairman of the Board were part-time by the parent company’s (Hang Steam Turbine Group) chairman of the Board and the vice chairman of the Board; the Company’s management was employed and gotten salary exclusively in the Company instead of any management duty in the holding-share share holders except the duty of chairman of the Board. The Company’s accountant shad no part-time job in their parent company (including other relevant companies). 3. On capital operation The property relationship between the Company and the holding-share share holders was clear and explicit. The capital and business injected by the holding-share share holders was independent and complete. And at the same time, the Company owned system of manufacturing and operation, sale, accessorial manufacturing and relevant equipments which independent from holding shareholder. The Company’s industrial property and non-patent technology assets kept basic independence. About the related trading of employee’s routing traffic between the Company and the related companies, please see details in the main trading affairs in the section of main affairs and finance report in this report. 4. On organization structure The Company kept total independence from the share-holding share holders on the organization establishment. The Company owned separate and independent manufacturing, supply, sale system, there was no same field competition with the share-holding company, and the Company owned independent management and operation systems. About the employee routine traffic and living logistics, the Company signed related trading agreements with the subsidiaries of the share-holding company. The Company’s intermit managers came from the Company’s manager, and was evaluated under the economic responsibility system. 19 Annual Report 2008 Complete Version 5. On accounting management The Company had independent accounting department, and established independent account re-calculation system and accounting system; the Company also had the regulated and independent finance management on the share-holding and subsidiaries; the Company had independent finance policies and bank account and its tax, there was no joint account with share-holding share holders. IV. Summary of self-evaluation on internal control 1. Summary of internal controlling In the report term, according to the Company Law, Securities Law, Listed Company Administration Rule, and Instruction for Articles of Association of Listed Companies, and Fundamental Rules of Internal Controlling, the Company established a consummate administrative structure. The shareholders’ meeting, the Board of Directors, and the Supervisory Committee have been fulfilling their duties in decision making, execution, and supervising. The Board of Directors has established the Remuneration and Assessment Committee, Development Strategy Committee, Nomination Committee, and Auditing Committee which contributed to higher efficiency of the Board. In the report term, the Board was composed by 11 directors including 4 independent directors. In the report term, the Company established a special team to fully revise and consummate the internal controlling system. Practically the team revised over a hundred administrative processes and criterion including the “Criteria on Authorization of Contract Signing”, “Contract Administration”, “Criteria of Price Management”, “Bidding Management”, “Trade Payment Retrieving Rules”, “Internal Controlling Standard on Contracts of Steam Turbine Sales”, “Capital Management Criteria”, “Budget Criteria”, “Fixed Asset Criteria”, “Business Administration of Controlled Subsidiaries”, “Quality Responsibility Claiming Criteria for Suppliers (Controlled subsidiaries)”. The internal controlling system was fully improved and covering the decision-making process, business administration, manpower management, finance management, performance assessment, production safety, and environment protection. The Board of Directors, the Supervisory Committee, and the executives have been performing their duties according to the Articles of Association and a number of legal person administration system. 2. Overall evaluation of internal controlling by the Company Based upon the Fundamental Rules of Internal Control and Instructions on Internal Control of Listed Companies, the internal controlling system was further consummated especially since the launching of special improving actions in 2007. To fully reflect the principle of completeness, essentiality, and balance in the internal controlling practice, and fully considered the adaptability and economical efficiency, the Company requires the internal controlling system to be strong and effective. Basically the current system was established complying with the requirement of China Securities Regulatory Commission and Shenzhen Stock Exchange, and was operating effectively to support the achieving of the Company’s development strategy and business targets. Risk controlling system was healthy and effective. The controlling system was working effectively to makeup weakness and preventing the Company from making mistakes. Internal controlling is a dynamic process. Along with the growth of the Company, we are going to keep improving it to catch up with the need of development. It is also an effective way to approach the targets. We’ll use it to brush up the managerial standard and risk resistant capability. 3. Independent directors’ opinion on the Company’s self-evaluation of internal controlling According to the “Instructions of Internal Controlling for Listed Companies” and “Instructive Opinions on Deploying of Independent Directors in Listed Companies” issued by Shenzhen Stock Exchange, the independent directors provide the following independent opinions on the self-evaluation of the Company on the internal controlling system in 2008: In the report term, according to the “Instruction of Internal Controlling in Listed Companies”, the Company revised and produced a number of criteria and rules. The internal controlling system was basically complete and complying with the laws, regulations and requirements of the supervisory departments. The internal controlling system was focusing on the management of controlled subsidiaries, related transactions, external guarantees, significant investment, information disclosing. It has effectively supported the Company’s business administration toward rationality, validity, completeness, and effectiveness. The independent directors deems that, the self-evaluation of the Company on its internal controlling system was reflecting the practical situation of the 20 Annual Report 2008 Complete Version Company. 4. Self-evaluation report of the Board on the internal controlling system Please go to the official website of Shenzhen Stock Exchange (http://www.cninfo.com.cn) for the self-evaluation report of the Board on the internal controlling system dated April 27. V. Assessment and incentive scheme of executives The Company deployed remuneration of basic annual salary plus performance bonus to the directors (not including independent directors), chairman of supervisor and executives. According to the “Assessment System for Executives” (revised in 2007), annual operation target responsibility and important affairs, the remuneration and evaluation professional committee of the Board of Directors was responsible for organizing annual comprehensive evaluation on executives. And according to the evaluation criteria and procedure settled by evaluation system, the committee grades and evaluate the executives one after another. This is usually done at the beginning of next year, and the results of assessment will be used in deciding of the annual remunerations, promotions, and maneuver of executives. The Year Salary Income System made the high manager’s income connected with the Company’s profit income, personal achievement and evaluation result. The annual high manager’s remuneration proposal confirmed by the remuneration and evaluation professional committee of the Board of Directors was submitted to the Board of directors for final confirmation. The high manager’s personal month salary was based on the basic year salary and the other part of bonus was distributed to each one after annual evaluation. 21 Annual Report 2008 Complete Version Chapter VII. The Shareholders’ Meeting I. The Shareholders’ Annual Meeting 2007 was held on May 16, 2008 by way of onsite registered votes. The resolutions were released on Securities Times, Shanghai Securities Daily, Hong Kong Commercial Daily and http://www.cninfo.com.cn dated May 17, 2008. II. The 1st Shareholders’ Provisional Meeting 2008 was held on August 26, 2008 by way of onsite registered votes. The resolutions were released on Securities Times, Shanghai Securities Daily, Hong Kong Commercial Daily and http://www.cninfo.com.cn dated August 27, 2008. III. No re-electing or replacing of directors or supervisors happened in the report term. 22 Annual Report 2008 Complete Version Chapter VIII. Board of Directors’ Report I. Management Discussion and Analysis 1. The Company General Operation Situation in 2008 In 2008, in the face of a complex and volatile social economic situation and the serious challenges brought by the financial crisis which spread among the world rapidly, the company prepares for the future, insists on leading by market demand, centers on receiving orders and makes ready for against the cold. It strives for innovation and widening on the basis of persisting in stable operation, and enhances the capability constantly by meeting the market challenges. The company’s key economic indicators like the value involved in the contracts, production value and profit has set a new record in 2008. In the report period, the company revenue reaches RMB3,319.17 million, up 16.22% over the same period last year. The main business profit is RMB819.43 million, up 30.91% over the same period last year. The net profit attributable to the owners of the listed company is RMB573.65 million, up 50.93% over the same period last year. 2. A Review of the Company Operation Situation in the Report Period (1) Support by new product, make significant breakthrough of independent innovation Aiming at market demand, the company is supported by new product. It makes great effort to overcome technical difficulty and moves into hi-end products to make significant break through in the field of product. For example, the new products contain the 3.2M2 low voltage unit which is the biggest unit in the company, the self-developed million rate BFPT American units, the million rate ethene units of Zhenhai and Tianjin which are national key research projects, the 600 thousand per year PTA device units. The success of the exploitation of 50MW steamer generator unit control system which condenses by abstracting heat breaks the monopolies of the foreign companies. The production of G004/G005 gas unit has finished the work of using G0007/G0008 gas turbine unit system in factories. In 2008, the company have succeed in receiving the whole Indonesia unit of American and Doosan Infracore and the whole India driving unit, Turkey unit, Poland unit and Australia unit of Hitachi one after the other. (2) Optimize the product mix constantly, further consolidate and expand market shares The produce market in 2008 is fraught with variable and uncertainty. On the basis of investigation and predication on market, the company made judgment on the market situation at the beginning of this year. At the stage of improving the ability of flexible production and accelerating technological renovation, the company optimizes production mix continually. It further consolidates and expands market shares and exploits new market field. With the discussion and analysis of market supply, product costs and marketing strategy, the company makes a series of adjustment of product price and standardizes the product standard and collocation to strengthen the competitiveness of products. For examples, in order to keep and expand the market share of Water Pump Steam Turbine field, the company expends huge effort in reducing redundancy and costs of 300MW and 600MW Feed Water Pump Steam Turbine units. In the promotion of 1000MW Feed Water Pump unit, the company vigorously domesticated the parts and auxiliary equipment of introduced 1000MW Feed Water Pump to reduce cost effectively by recommending the self-developed WK model. Affected by the financial crisis, the home and abroad market situation are facing serious challenge. The amount of order over the second half of 2008 reduces sharply. Contracts of the traditional fields like chemical processing of coal, metallurgy and generate electricity reduce obliviously. Therefore, the company opens up new market actively, increases new product varieties and made all attempts to strive for order. In the report period, after the success in the 52 thousand space devision unit’s trial run and receiving the contract of 60 thousand spacedevision projects, the company has accessed in the 60 thousand spacedvision markets which is monopolized by foreign companies. The company developed double split flow unit which has PTA device and annual output of 600 thousand tons. This unit makes use of the expanding of low compressed steam parameter and has a favorable market prospect. The company has undertake the project of mating feed water pump Steam Turbine with the first 2×300MW air cooler in nation. And it sets an example of mating feed water pump Steam Turbine with air cooler. The successful promotion of WK’s 2 ×1000MW feed water pump Steam Turbine unit has 23 Annual Report 2008 Complete Version enriched the model of feed water pump Steam Turbine with 1000MW unit and improved the competitiveness of our company. The financial crisis has slowed down the amplification of international order. Therefore, the company put forward three changes aiming at overseas market. We change the overdependence to India market, change the situation of selling electronic product in a high proportion and change the single mean of selling our own product. There are four breakthroughs we have reached. First, we reach a new record of foreign trade contract value which is 130 million U.S. dollars including the contract value of agent product. Second, the sales volume of driving product is 62% of the total which exceed the generate electricity product’s for the first time. We got excellent results that the category of hi-end product is more than low-end product, making breakthrough of shifting sale style. The company cooperates with foreign main engine factory and EPC Company and gets driving Steam Turbine of India aqua fortis factory and five industrial driving Steam Turbines from the 34,000 kt/a refinery project of India ESSAR Company. Third, the company succeeds in selling 150MW Steam Turbine for the first time, making the significant breakthrough of unit capacity. Forth, we have made breakthrough of selling feed water pump unit. After selling Boiler Feed Water Pump Turbine (BFPT) to American at the end of 2007 for the first time, the company signs a two-year contract of BFPT and four feed water pump double split flow Steam Turbines which are used in India and Thailand power station with Doosan Infracore in 2008, making a good beginning of deeper mutual cooperation in future. We have made a major breakthrough of selling gas turbine. We have signed the contract of G007 and G008 gas turbines with the value of RMB 440 million. It is the first biggest single contract in the history of the Company. The sale style which is base on Mitsubishi has been changed into signing contract for technology and commerce with client and taking responsibility to their client directly by the Company. (3) Improve the capability of production and sale constantly; create conditions for enhancing the competitiveness on market The company owns the most processing large unit in 2008. And the amount of major project is large and manufacture difficulty degree is high. For example, we have G007, G008 gas turbine; 1000MW feed water pump unit, 3200m3 blast furnace blowers, 60MW air separation unit and unit of American Becktel Company. The company adopts a lot of new technology, new material and new technique and optimizes production arranging to improve the complete-unit technology and balance production equivalence. The company also makes full use of internal and external resources. Productivity also improves obviously with the help of technical progress and managing abilities instead of increasing equipments and staffs. Domestic investment projects are affected by the international economic situation. Some investment projects which relate to our order occur to delay or stop. In order to avoid risk, the company does investigation on clients’ project progress, getting the demand information of clients. We can take measurement of delaying of stopping operation scheduling in a proper way. (4) Strengthen the recovery of funds, control the operation risk With the growth of sales volume, the volume of Account Receivable increased in 2007. The company pays more attention on the dynamic management of Account Receivable and takes measurement of restraining the growth rate of Account Receivable. The growth rate of Account Receivable has decreased vastly in 2008. Concerning the major clients who are in arrears with payment, the company provided after-sale service, spare part and detained goods to avoid new Account Receivable. The responsibility system of Account Receivable recovery has been put into effect. (5) The effects of the change of home and abroad markets situation, credit policy adjustment, the change of exchange rate and interest rate, price changes of cost elements and natural disasters to the company’s financial situation and results in this year and in future The effects of the change of home and abroad markets situation: in the first half of 2008, the growing of international oil price and RMB appreciation bring benefit on coal chemical industry which has alternative energy. The demand of Steam Turbine is very large. In the second half of 2008, because of the international financial crisis, the price of international oil reaches record lows. The profit expectation space of coal chemical industry was narrowed which resulted in the sharp drop in Steam Turbine demand. Orders of Steam Turbine decrease. The effective demand of our company’s Steam Turbine decreased. We can see decrease in order, dropping in price and crease in stocks. The amount of orders and the price of products began to decrease from September 2008. Both of them dropped off in the fourth quarter. And at the same time, some clients demand delay or slow-down in delivery. The similar situation occurred in the industries like petrochemical enterprise, oil refinery, chemical industry, 24 Annual Report 2008 Complete Version metallurgy. We estimate that the situation of soft market will still occur in 2009. The effects of credit and other related policies: with the credit policy adjustments, related stimulus policies and growing efficacy of basic construction, it will bring positive situation to the Company. However, the nation’s related stimulus policies didn’t have direct relation to the improvement of the company’s operation. On the other hand, the change of nation credit policy in 2009 maybe has good effect on clients, alleviating the growth of Account Receivable and recovery of payment. The effects of the change of exchange rate: in the process of cooperating with international companies, the company pays money down to buy special material and fittings. In the report period, the company locks in a certain amount of exchange rate through bank when the exchange rate of Japanese Yen is low. What is more, receiving foreign exchange, the company sold Steam Turbine overseas in time. The effects of the change of interest rate: with the development of the company, the growth of accounts receivable and implement of investment projects and measurements for revamping project, the demand of funds increases. The company owns a little amount of bank loan so that the change of interest rate has little effect on the company. In the second half of 2008, People's Bank of China cuts interest rates for several times which is helpful for the company to decrease the cost of finance. It is estimated that the bank’s loan amount will increase in small-range, so does the cost of finance in 2009. The effects of price changes of cost elements: the prices of steel products and energy products changed dramatically which bring difficulty for measuring the cost of products. With the increasing of product competition and the price fluctuation of steel products and energy products, the bargain price of the company’s product will decrease constantly. And the results of the company will be affected to some extend. The effects of natural disasters: the snowstorm calamity in January, 2008 and the Wenchuan earthquake in May result in little bad effect on buying heavy forgings, logistics, sale and client service. However, the natural disasters didn’t have influence to the company’s financial situation and results. 3. Company with the task and situation in 2009 By the rapid spread of the international financial crisis and the obvious slow down of world economic growth, the impact expected in 2009 of China’s economic difficulties in the operation of a further increase in the pressure of increasing economic downturn. Many uncertainties are difficult to predict to bring our production and operation of more severe challenges. The company in 2009 will in a grim situation and the task is arduous, which will make a very tough year. (1) Company with the situation analysis and the facing difficulties in 2009 The orders and prices both went down. The orders of company as well as the traceable targets monthly declined since the late of 2008. The orders of the structure are not ideal with large units and single contracts decreased. A sharp declined in demand in the comparative advantageable products of the company, such as coal chemical industry, metallurgy, power generation viewed from the area of market. The measures of the State Council to expand domestic demand are lack of directing contribution to Company’s operation. The suspension of contract in the units and the goods delivery bring pressure of scheduling and funding, adding a threat and uncertainty to the company that under the results and finance in 2009. Inventory was in a significant increase. With the implementation of the contract being deteriorated, there could be a further growth in the inventory in 2009, which would give a possibility of long-term backlog, depreciation, even leading to retirement of the finished products. Accounts Receivable increases and the recovery is difficult. A increases the possibility of bad debt and the death debt under the recession in the economic environment. Cash flow is tighter than the previous year. As for decreased orders in 2009 compared with the same period last year, pre-receivables reduced but inventory increased, which might result in poor cash flow. The Company has been in the pursuit of the main industry and sound operation since being listed all the time. During nearly 5 years of rapid development, the company also has a certain range of strength improvement. Although the company strategy against the decline of the economic environment has been prepared in recent years, but the financial tsunami and the intensity of the economic crisis is still far beyond the company's expectations. The Company in response to measures showed inadequate. (2) Company with the Operation Ideas and Task in 2009 25 Annual Report 2008 Complete Version The working ideas in 2009 of the Company takes “getting the market to protect growth” as the top priority to establish and perfect market-oriented operation mechanism, to adjust and improve the business strategy and marketing approach, to integrate the company as well as social resources, and to push the market to make every effort to ensure the stable development of enterprises; makes “focusing on management, increasing effectiveness” as the main means to establish and improve organizational structure and management capabilities, to tap fully and display the effect of management of resources to the value of promoting efficiency; and holds the “people's livelihood and security interests of shareholders” as the goal to gather sales, technologies, manufacturing, energy management, and sincere cooperation to fight against chilliness; to get full of wisdom and make a concerted effort, loyalty work in order to enhance the strength together going through winter, and strive to create a situation of a stable and rapid development in business, the sustainable and stabilize results of operations, and the staff live and work in peace. The objectives of the Company operations in 2009 carry at maintaining “0” of the record of a major physical security and fire incidents, a significant quality and equipment accidents, major disciplinary incidents; a pursuit of realizing the achievement of sales revenue, gross profit and staff income basically the same as in 2008, avoiding to happen a falling. The Company’s tasks in 2009 are to understand clearly the situation, a strengthened confidence, a exchange of the crisis into opportunity, of the challenges into a driving force, and to be a courageous “Winter” winning more room for development; Adjusting business strategy, making competition for wisdom and ability to do the contract, not failing positions and project, enlarging the extension of new products and new areas, and the Company's mature product markets, further offering the competitive promotional price of market through lowering costs, shortening the delivery cycle with different ways of production organization, and making every effort to consolidate and expand market share; Accelerating the pace of R & D, broadening the input of technological development of hardware and software, reserving well in technology, enhancing creative capability of independent innovation, doing a good unit R & D of 100MW ten thousand kilowatts drag levels, and actively involving in nuclear emergency Feed Water Pump new projects to ensure that the success of the development of 135MW units, further improving the company's position in the high-end market and the ensuring that the products meet market demand; Mastering the knowledge of the user's information and a clear project payment, enhancing the project tracking and exchange of scheduling production unit information and the convergence of producer, supplier and seller, advancing the coordination mechanism to achieve an effective output and reduce inventories, providing effective real estate foundation and protection for product marketing of the company; To further enhance the marketing, design, production, services and other aspects of the quality of work, the adapting ability in the international market, the ability of implementation of international standards; to improve the competitiveness not only of their products, but also of soft products and company's brand value, aiming at opening up the market of high-quality products which will win customers and enhancing the capacity of sustainable development; The company accounts receivable and product inventory shall be viewed as the biggest risks in the current production and operation, the owners and project dynamic changes in tracking mechanisms shall be established to avoid a new inventory and try every possibility to reduce product inventory. the accounts receivable collection efforts and measures shall be increased, and a full reduction of cost while promotion of the efficiency of work from each aspect of product sales and contract design, procurement, inventory, production, finance and so on have been taken steps to enhance its control, in particular, the control of the hidden costs is one of them. 26 Annual Report 2008 Complete Version II. Main business operation 1. Main business distribution based on product type RMB0’000 Distribution on industries Change of Change of Operation profit Change of cost operation profit On industry or product Turnover Operation cost income over last ratio over last year % ratio over last year % year % Boiler and power 266,512.94 159,260.38 40.24% 3.13% -3.22% 3.92% machine manufacture Casting 8,066.26 6,489.29 19.55% 79.98% 61.66% 9.12% Petrol chemical and other 4,803.66 3,665.62 23.69% 140.84% 261.77% -25.51% manufacturing Other special equipment 16,338.81 5,084.20 68.88% 58.11% 36.57% 4.90% Residue Thermal Power 12,199.08 6,835.51 43.97% 100.00% 100.00% 100.00% Plant Total 307,920.75 183,918.89 40.27% 11.88% 6.12% 3.24% Distribution on products Industrial steam turbine 266,512.94 159,260.38 40.24% 3.13% -3.22% 3.92% Casting products 8,066.26 6,489.29 19.55% 79.98% 61.66% 9.12% Auxiliary machinery 4,803.66 3,665.62 23.69% 140.84% 261.77% -25.51% Others 16,338.81 5,084.20 68.88% 58.11% 36.57% 4.90% Residue Thermal Power 12,199.08 6,835.51 43.97% 100.00% 100.00% 100.00% Plant Total 307,920.75 183,918.89 40.27% 11.88% 6.12% 3.24% 2 Distribution of major business on territories in RMB0’000 Regions Turnover Change of income over last year % Domestic 274,388.09 11.11% Overseas 33,532.66 18.58% Total 307,920.75 40.27% 3. Main suppliers and clients in RMB0’000 Total of top 5 vendors Portion in total 19,702.26 purchasing 7.31% Total of top 5 clients Portion in total sales 128,008.91 38.57% 40.65% 4. No major change happened to the main businesses and there profitability in the report term comparing with the previous report term. 5. Change in asset structure and gain/loss account: Items with fluctuate of amounts in Financial Statements over 30% (include) and its difference is over 5% (include) of the total assets 5.1 Change of consolidated asset structure RMB0’000 27 Annual Report 2008 Complete Version Amount Difference and changes difference is over No. Items 5% (include) of the Major influencing facts Year 2008 year 2007 Amount Scale % total assets 1 Monetary capital 45,010.30 29,660.53 15,349.77 51.75% 3.36% Increase of short loans Increasing of turnover 2 Advance account 23,009.71 17,161.33 5,848.38 34.08% 1.28% and expanding of production Expanding of sales and 3 Inventories 119,264.33 76,454.60 42,809.73 55.99% 9.37% increasing of in-stock material Long-term share Investment in Bank of 4、 40,809.33 29,409.38 11,399,.95 38.76% 2.49% equity investment Hangzhou Long-term Redecoration of 5、 amortizable 1,037.01 14.95 1,022.06 6,836.52% 0.22% conference hall expenses Increasing of bank 6、 Short-term loans 18,100.00 - 18,100.00 100% 3.96% loans Prepayment Increasing of sales 7、 149,736.39 104,681.69 45,054.70 43.04% 9.86% received order 9、 Retained profit 111,135.28 73,196.28 37,939.00 51.83% 8.30% Increasing of sales Minor 10、 shareholders’ 30,648.39 22,626.98 8,021.41 35.45% 1.76% Increasing of profit equity Total of owners’ Caused by the above 11、 220,779.58 170,265.26 50,514.32 29.67% 11.05% equity increased factors 28 Annual Report 2008 Complete Version 5.2 Statement on major changes in the consolidated income statement Items with fluctuate of amounts in Financial Statements over 30% (include) and its difference is over 5% (include) of the total profit RMB0’000 Difference and Portion of Amount Major influencing No. Items changes difference in total facts Year 2008 year 2007 Amount Scale % profit >= 5% 1 Turnover 331,917.14 285,588.62 46,328.52 16.22% 56.54% Increasing sales Increasing of sales 2 Operation cost 207,193.89 183,272.14 23,921.75 13.05% 29.19% caused increasing of sales cost Increasing of bank 4 Financial expenses 515.61 241.65 273.96 113.37% 0.33% loans 5 Investment income 4,874.47 2,240.52 2,633.95 117.56% 3.21% Note 1 6 Operation profit 81,053.40 61,853.58 19,199.82 31.04% 23.43% Increasing of turnover 7 Total profit 81,943.22 62,596.67 19,346.55 30.91% 23.61% Increasing of sales 8 Net profit 70,315.18 47,688.97 22,626.21 47.45% 27.61% Note 2 Net profit attributable to 9 the owners of parent 57,364.90 38,007.32 19,357.58 50.93% 23.62% Note 2 company Minor shareholders’ 10 12,950.27 9,681.65 3,268.62 33.76% 3.99% Note 2 equity Note 1. Mainly caused by changing of the subsidiaries of Auxiliary Machinery Co. and Machinery Co. from sino-foreign joint venture into sino-foreign co-operative enterprises, thus the investment gains attributable to the parent company has increased. 2. Mainly caused by increasing of main business, secondly, the Company and Zhongneng Co. was certified to High-Tech enterprises and start to enjoy 15% of income tax rate for year 2008. 5.3 Composition of the cash flow statement RMB0’000 Net cash flow in Change in cash and Items Cash flow of 2008 similar activities equivalents % Sub-total of cash inflow from business activities 367,653.16 947.74% Sub-total of cash outflow from business activities 328,860.57 847.74% Cash flow generated by business operation, net 38,792.59 100% 252.72% Sub-total of cash inflow due to investment activities 6,635.59 Sub-total of cash outflow due to investment activities 27,928.77 Net cash flow generated by investment -21,293.18 100% -138.72% Subtotal of cash inflow from financing activities 48,380.00 Subtotal of cash outflow due to financing activities 50,471.73 Net cash flow generated by financing -2,091.73 100% -13.63% Influence of exchange rate on cash flow -57.92 -0.38% Change in cash and cash equivalents 15,349.77 100% 100% III. Business performance of main controlled subsidiaries and affiliates RMB0’000 Share Total asset at Net asset at Net profit 29 Annual Report 2008 Complete Version Name of companies Business property Registered Incorporated ratio end of 2008 end of 2008 in 2008 capital in % Zhejiang Steam Technological Turbine Packaged development of Technology 3000 2001.1 51 11,922.91 6,726.97 2,495.85 automatic control and Development Co., instrument control Ltd. Hangzhou Steam Turbine Contracting of Environmental environmental 2000 2000.4 45 1,564.63 1,287.24 -63.49 Engineering Co., engineerings Ltd. Hangzhou Designing and Zhongneng Steam manufacturing of 2500 2004.2 51 61,315.39 8,219.58 6,931.02 Turbine Power Co., steam turbines Ltd. Hangzhou Steam Turbine Casting Co., Iron and steel casting 2200 2004.3 51 19,846.55 12,960.92 1,944.42 Ltd. Hangzhou Steam Manufacturing and Turbine Machinery processing of steam 1500 2004.4 52 15,639.33 11,671.23 4,743.67 & Equipment Co., turbine accessories Ltd. Zhejiang Tianhang Steam Turbine Machinery process 3000 2004.5 33.33 5,540.92 3,725.42 496.68 Auxiliary Machinery Co., Ltd. Hangzhou Steam Manufacturing of Turbine Auxiliary steam turbine 4000 2004.10 76 32,806.94 23,505.66 11,058.50 Machine Co., Ltd. auxiliary machines Supplying, installation, and 15.8773 mil Greenesol Co. testing of steam Indian 2003 37% 268,390.42 11,813.53 3,548.28 (India) turbines to power Rupee plant facilities Hangzhou Commercial Bank Note 1 132,141.6 8.75% 9,931,709.50 480,940.00 127,743.4 Co., Ltd. Note: 1. Bank of Hangzhou Ltd. is doing the businesses approved and stipulated by China Banking Administration Committee according to the laws, regulations, and other rules. 2. At the 1st Provisional Board Meeting held on February 2, 2008, the proposal on disposal of the 30 million shares of Zhejiang Tianyu Holdings Co., Ltd. For details please go to Announcement Lin 2008-10 released at http://www.cninfo.com.cn dated February 3, 2008. The investment has been retrieved in whole according to the agreement. IV. No items accounted at fair value in the report term. V. No proceeds from share placing raised in the report term or carried over from previous terms. Proceeds from previous share placing have been used up in 2002. VI. Progress and profitability of major project invested by non-financing proceeds In the report term, the Company has invested RMB103.158 million in expanding of steam turbine productivity, which increased by 2.45% over the previous year. Which covered: developing and technical reconstruction project of 1 million ton / year large scale ethylene driving steam turbine; technical reconstruction of 1000MW water pump steam turbine; adding, replacing, overhaul, safety, environment protection, and working condition improvement. 30 Annual Report 2008 Complete Version VII. No major change in accounting policy and accounting estimations or correcting of major accounting faults, thus the Board of Directors has no comments on this. VIII. No “non-standard auditors’ report” issued by the CPA for the report term. IX. Profit distribution or capitalizing of common reserves proposed by the Board of Directors: 1. Basing on the 371.80 million shares at present, RMB4.00 will be distributed to each 10 shares (tax included), totally RMB148.72 million will be distributed. The remained profits will be carried over to the next year. 2. Dividend for B shares will be distributed in Hong Kong Dollar. The exchange rate will be the interim price between RMB and HKD published by People’s Bank of China at the 1st working day after the Shareholders’ Annual Meeting 2008. 3. Dividends of the previous three years RMB Yuan Net profit attributable to the Ratio in net profit attributable to the owners of the parent company in Cash dividend (tax included) parent company in the consolidated the consolidated financial financial statements statements Year 2007 148,720,000.00 380,073,172.37 39.13% Year 2006 143,000,000.00 442,389,274.14 32.32% Year 2005 110,000,000.00 359,301,149.94 30.61% X. The Company wasn’t holding foreign financial assets or liabilities in the report term. XI. External operating environment of the company, the current situation and trend in development of policies on macro-economic layer. 1. Macro-economic environment, trend in development of the industry and market impact. Products of Steam Turbine belong to investment products which are mostly used on basic industry that on the leading end of national economic industry chain. They have an obviously periodic character since the demand; development speed and level are closely related to the macro-economic status. This global financial crisis spread to the real economic which undoubtedly impacts the investment demand and probably causes the demand of our company declined. Both of the Chinese fiscal policy and monetary policy have changed their directions, from prudent fiscal policy to proactive and tight monetary policy to propriety easy, but the recovery and start up of the market demand is a long way to go due to the confidence and misgiving. The ten measures to expand domestic demand and the plan to invigorate the equipment manufacturing industry which were put forth by the State Council will bring a beneficial effect to our company, but they lack of the direct contribution to the operating of our company, further more, it is a slow process of tramsmition to the industry. [Countermeasures] Intensify capacity in R&D of new products, increase the technological reserve, strengthen the efforts to joint venture and cooperating process of upstream and downstream products, for the coming of a new round economic development climax; Steadfast in accelerating the process of globalization would grasp the demand of overseas client and the advantage of our fine and inexpensive products, rapidly enlarge the international market share; Taking advantage of breather during the production and business assignment to further reinforce the basic management of company and complete our internal work; intensifying the training of staff in order to enhance the ability of staff in all aspects; strengthening the cost control and reducing the cost. 2. Market competition pattern of the industry and responses. Our coterie, upstream equipment enterprises of industrial Steam Turbine and great power private enterprise make their ways to the field of industrial Steam Turbine. They probably achieve this by transition, joint venture and 31 Annual Report 2008 Complete Version collaboration with foreign capital. The fall of investment willingness and demand will surely lead to intensifying competition then the price may continue to decline. Since the 4th quarter, the actual order gradually down slide and traceable targets reduce, the phenomena that users who have signed the contract initiatively ask for suspend and delay in delivery are increase. It will surely result in reducing the payment, results decline and capital shortage. The plants of contract and in the manufacture which may suspend, delay in delivery or be returned are probably increase, that will lead to the pressure on company’s production scheduling and capital, what’s more, there will be a threaten and additional uncertainty on the company’s result of 2009 and capital. [Countermeasures] “Compete for the market, sustain growth” is the guideline of all departments and managers and staffs. The company is all out to create the conditions for contending the contracts, completely research the market, intensify the forecast and judgment of product market, especially pay attention to the dynamic competition of potential competitors on industrial Steam Turbine. Do not lose the position and do not give up the projects. Technology, manufacture and management etc. are prepared for marketing and thinking for the users. Tackling the contracts, entwining the users, all out to strengthen and enlarge the market share. Accelerating the optimization and upgrading, enlarging the capacity per unit and coming to the realization of updating and upgrading our products. We rely on the independent innovation to have what others haven’t, to have excellent products when others have normal, making our product individuation and differentiation with high technology and high added value, retaining the technical advantages of our company. We explore new market through line extensions; roll out higher technological content and broader application areas products. We promote our competitive power and enhance the core competence by high quality; high technological innovation and high brand value, further consolidate and enhance our position on high end market. Find out the reasons of suspend and delay delivery, take countermeasures and prevent from falling into a passive position. We should provide attractive promotional price by cost reduction, try out different production and operating patterns to shorten the delivery cycle. By increasing product variety, joint venture and collaboration we speed up to enter new product market. Intensify the cooperation with mating manufacturers and establish closer strategic cooperation relations to help each other overcome the difficulties. 3. High account receivable and solutions. The company’s account receivable stays high when the economic environment faces decline, then the possibility increases that the capital which is difficult to reclaim become bad debt and dead loan, even result in the capital of company unlikely recovering, which directly threaten to the development outcome of the company over the years. [Countermeasures] Strengthen the efforts to reduce and control the account receivable, ensure the safe handling of company’s cash flow, take measures to trace the plants of contract. Take effective measures to deal with the customers with large debt, we would take the customers in arrears long term to court and protect company’s legitimate interests. Intensify the service, strive to deal with the problems left over by history and make capital reclaim easier. In allusion to the risk of account receivable, we will take the measures mainly as flows: A. Strengthen the efforts to reclaim the debts, make sure each account receivable in charge. B. Set up the monthly regular meeting institution of reclaiming, realize that each project is in charge and reported on the meeting. C. Send lawyer’ letter or start a lawsuit to the customers in arrears long term. D. Carry out the income of company’s management and business department is related to the loan recall. E．Strictly perform the delivery institution, insist on delivery after payment when the customers who have an adverse credit record. F. Establish the incentive system of recovery account receivable. 4. Increasing storage and solutions. As the economic environment change, the company’s storage increases gradually. Some of them probably become long term backlog, devaluation, even result in scrape in the situation that economic environment facing decline. If this aggravates, it will erode the company’s achievement and cause capital shortage. 32 Annual Report 2008 Complete Version [Countermeasures] Make an abundant research on the market, [Countermeasures] Making an abundantly research on the market, establishing the dynamic tracing system of customers with contract, capital and the changing of projects, in order to avoid new storages and products in process. Taking active measures to dispose the storages including end product, finished product, kit and materials, reduce the application of capital and prevent financial risk. Therefore, the board particularly warms the vast investors: Please fully consider the uncertainties above and pay close attention to the risk of investment when you invest our stock. Facing the risk, we need further understanding what the Premier Wen Jiabao said when he inquired the performance of enterprises in Anshan, Shenyang and Dalian during March 20 to March 22 this year. He said: we do face many difficulties, but enterprise should have an indomitable spirit in front of difficulties. The fundamental plane of Chinese economic and social development and the secular trend turning well do not change. We should enhance our confidence and strength, take measures courageously respond to the challenges and combined with the long-term benefits. We should see the opportunities brought by great demand which comes from aspects of infrastructure construction on accelerating the industrialization and urbanization, upgrading of the industrial structure and consumption patterns, environmental protection, ecological construction, development of social undertakings etc. As mountaineering, enterprises have newer and higher goals to obtain every year. The enterprises can maintain thrive no other than continually overcoming each difficulties and achieving each goals. Facing the 2009 financial crisis, we should more firmly our core concepts and develop it that is striving to first-class, overcoming the difficulties and courage of taking responsibility. “As the sea flows laterally, the characters of a hero shows. As the mountain rises straight up, the aspiration of the skies never falls.” We have confidence to turn pressure into impetus and turn crisis to favorable turn. We can surely perform a miracle and gain healthier and faster development under adverse. XII. Investment in the report term According to the resolutions adopted at the 4th meeting of the 4th term of Board held on June 17, 2008 (Announcement Lin 2008-16 on Securities Times, Shanghai Securities Daily, and www.cninfo.com.cn dated June 18, 2008), the Company participated in the bidding for the employees’ shares of Bank of Hangzhou hosted by Hangzhou Enterprise Property Exchange on July 30, 2008. It was also adopted by the 1st Provisional Shareholders’ Meeting 2008 (Announcement Lin 2008-29 on Securities Times, Shanghai Securities Daily, and www.cninfo.com.cn dated August 27, 2008) At this bidding, the Company acquired 15.5932 million shares originally held by the employees of Bank of Hangzhou at RMB9.70 per share. The total payment was RMB151.25404 million. The Company was originally holding 100 million shares of Bank of Hangzhou. After acquiring of the 15.5932 million shares, the Company is holding 115.5932 million shares and account for 8.75% of the total share capital of Bank of Hangzhou. XIII. Day-to-day works of the Board (I) Particulars about the board meetings and resolutions The Board of Directors held 9 meetings in the year of 2008: 1. The 1st Provisional Board Meeting 2008 The 1st Provisional Board Meeting 2008 was held on February 2, 2008 by telecommunication. The proposal on disposal of the 30 million shares of Zhejiang Tianyu Holdings Co., Ltd. was examined and passed at the meeting. For details please go to Announcement Lin 2008-10 on Securities Times, Shanghai Securities Daily, Hong Kong Commercial Daily and the official website of the Company (Route: Investor Relationship – Company Announcement – Resolutions of the Board) 2. the 3rd meeting of the 4th term of Board The 3rd meeting of the 4th term of Board was noticed on March 23, 2008 and held in the 1st meeting room on April 3, 2008. 22 proposals including the Annual Report of the Board 2008 were voted and passed at the meeting. For details please go to Announcement Lin 2008-2 on Securities Times, Shanghai Securities Daily, Hong Kong Commercial Daily dated April 8, 2008, and the official website of the Company (Route: Investor Relationship – Company Announcement – Resolutions of the Board) 33 Annual Report 2008 Complete Version 3. The 2nd provisional board meeting 2008 The 2nd provisional board meeting 2008 was held on April 24, 2008 by telecommunication, the 1st Quarterly Report 2008 of the Company was examined and passed at the meeting. For details please go to Announcement Lin 2008-11 on Securities Times, Shanghai Securities Daily, Hong Kong Commercial Daily, and the official website of the Company (Route: Investor Relationship – Company Announcement – Resolutions of the Board) 4. The 4th meeting of the 4th term of Board The 4th meeting of the 4th term of Board was noticed on June 6, 2008 and held in the 1st meeting room on June 17, 2008. 3 proposals including the proposal to acquire the employees’ shares of Hangzhou Commercial Bank Ltd. were voted and passed at the meeting. For details please go to Announcement Lin 2008-16 on Securities Times, Shanghai Securities Daily, Hong Kong Commercial Daily dated June 18, 2008, and the official website of the Company (Route: Investor Relationship – Company Announcement – Resolutions of the Board) 5. The 3rd provisional board meeting 2008 The 3rd provisional board meeting 2008 was held on July 17, 2008 by way of telecommunication. The “Statement on promotion of administrative improvement operation” and “Proposal on changing the Company’s business range and revise the Articles of Association” were examined and passed at the meeting. For details please go to Announcement Lin 2008-17 on Securities Times, Shanghai Securities Daily, Hong Kong Commercial Daily, and the official website of the Company (Route: Investor Relationship – Company Announcement – Resolutions of the Board) 6. The 4th provisional board meeting 2008 The 4th provisional board meeting 2008 was held on August 8, 2008 by way of telecommunication. The announcement of convening the 1st Shareholders’ Provisional Meeting 2008 was examined and passed at the meeting. For details please go to Announcement Lin 2008-19 on Securities Times, Shanghai Securities Daily, Hong Kong Commercial Daily, and the official website of the Company (Route: Investor Relationship – Company Announcement – Resolutions of the Board) 7. The 5th meeting of the 4th term of Board Written notice for holding of the 5th meeting of the 4th term of Board was served on August 4, 2008. The meeting was held at the meeting room at the 1st floor of the Company on August 13, 2008. The Interim Report 2008 and Report on Capital Adoption by Controlling Shareholder for the first half of 2008 were examined and passed at the meeting. For details please go to Announcement Lin 2008-21 on Securities Times, Shanghai Securities Daily, Hong Kong Commercial Daily, and the official website of the Company (Route: Investor Relationship – Company Announcement – Resolutions of the Board) 8. The 5th provisional board meeting 2008 The 5th provisional board meeting 2008 was held by mean of telecommunication on October 15, 2008. The proposal on investing RMB110.90 million to technical reconstruction of steam turbines for 1 million KW Super-critical Coal-fired Power Generating Units and 1 million ton large ethylene system was examined and passed at the meeting. For details please go to Announcement Lin 2008-27 on Securities Times, Shanghai Securities Daily, Hong Kong Commercial Daily, and the official website of the Company (Route: Investor Relationship – Company Announcement – Resolutions of the Board) 9. The 6th meeting of the 4th term of Board The 6th provisional board meeting 2008 was held by mean of telecommunication on October 22, 2008. The 3rd Quarterly Report 2008 was examined and passed at the meeting. For details please go to Announcement Lin 2008-28 on Securities Times, Shanghai Securities Daily, Hong Kong Commercial Daily dated October 24, 2008, and the official website of the Company (Route: Investor Relationship 34 Annual Report 2008 Complete Version – Company Announcement – Resolutions of the Board) (II) Execution of the resolutions of shareholders’ general meeting by the Board 1. During the period, the Shareholders’ Meeting had no special authorization item to the Board of Directors, and the Company had no share placing or issuing of new shares. The profit distribution plan during the period shows as below: The profit distribution plan proposed by the Board was examined and passed at the Shareholders’ Annual Meeting held on May 16, 2008. Namely basing on the total capital shares of 371,800,000 shares at the end of 2007, RMB4.00 (tax inclusive) of cash dividend will be allocated to each 10 shares. Dividend for B share holders will be translated to Hong Kong Dollar at the middle rate released by People’s Bank of China at the first bank day after the profit distribution plan was approved by the Shareholders’ Annual Meeting 2008. Totally RMB148,720,000.00 of profit will be distributed. The retained profit of RMB960,636,465.03 will be carried over to the next fiscal year. This plan has been executed and announced thereafter. The Announcement of Profit Distribution for Year 2007 was announced by Securities Times, Shanghai Securities Daily, and Hong Kong Commercial Daily dated may 31, 2008. (Announcement Lin 2008-15). The final trading day of B shares was June 6, 2008; the ex-dividend day was June 10, 2008; the registration day of B shares was June 12, 2008. Profit distribution was to the national shareholder of the Company and all B-share holders registered in China Securities Depository & Clearing Corporation Ltd. at the closing of Shenzhen Stock Exchange in the afternoon of June 12, 2008 (June 6, 2008 was the final trading day). Dividend for B-share holders was distributed in Hong Kong Dollar at the central parity rate announced by People’s Bank of China (HKD1 = RMB0. 8938) at the first bank day after the Shareholders’ Annual Meeting 2007 (May 19, 2008); B-share holders were free of tax temporarily. Including: dividends for national shareholder were distributed by the Company directly; dividends for B-share holders were transferred to their account through the brokers or banks on June 12, 2008. If investors changed their broker on June 12, 2008, their dividends were distributed through the original broker. 2. In the report term, the 1st provisional shareholders’ meeting 2008 held on August 26, 2008 examined and passed “The proposal on investing RMB151.25404 to takeover 15.5932 million employees’ shares of Bank of Hangzhou (This resolution has been published with Announcement Lin 2008-29 on Securities Times, Shanghai Securities Daily, and www.cninfo.com.cn dated August 27, 2008). The Company has completed the payment of RMB151.25404 and registration of the 15.5932 million employees’ shares. At present, the Company is holding 115.5932 million shares in Bank of Hangzhou, account for 8.75% of the total capital shares of the bank. 3. At the 1st provisional shareholders’ meeting held on October 19, 2007, the proposal about investing some RMB100 million to Hangzhou Steam Turbine Casting Co., Ltd. for the forge line project. The forge line is planned to be put into production in November 2008. In the report term, for the metal materials were increasing significantly in prices at the 4th quarter of 2007 and the 1st half of 2008, increasing of accessory equipment and adopting of more advanced equipment, the purchasing was over budget. On the other hand, the demand for forge products was shrinking significantly in the 2nd half of 2008. Therefore Hangzhou Steam Turbine Casting Co., Ltd. has decided to postpone the operation. The Company will keep concerning about the progress of the project and keep the shareholders informed the progress and capital investment. (III) Auditing Committee’s performing of duties The Auditing Committee was deployed under the Board, and formed with 5 directors including 3 independent directors and 2 directors. The chief commissioner was independent director Zhou Zhaoxue. There were two accounting professions in the committee. The Auditing Committee was performing its duties strictly according to the Working Criteria of Auditing Committee and was mainly in charge of supervising, verification and communication of internal and external auditing works. It was also performing the duties to satisfy the requirement of China Securities Regulatory Commission as described in “Preparing, auditing and disclosing of annual report 2008” (证监公司字[2008]48 号). In the auditing works of 2008 and related works, the Auditing Committee: (1) Before the deploying of Pan-China (Zhejiang) Certified Public Accountants in the Company, the Auditing Committee negotiated with the CPA about the schedule of auditing works; (2) According to the related regulations and requirements, before the deploying of Pan-China (Zhejiang) Certified Public Accountants in the Company, the Auditing Committee observed the financial statements made by the 35 Annual Report 2008 Complete Version Company and deemed: the financial statements were prepared according to the accounting policies of the Company. Adopting of accounting policies and estimations was appropriate and reasonable. It was complying with the new Enterprise Accounting Standard and regulations of the Department of Finance. Information and statements of subsidiaries included in the consolidation range were complete and accurate, the basis of consolidation was accurate. The financial statements were authentic, objective, accurate, complete and without major fault or omission. (3) Since the deploying of the CPA, the Auditing Committee urged the CPAs face-to-face to make sure they will provide auditors’ report and opinions on schedule. Upon issuing of the initial opinions by the CPAs, the Auditing Committee conducted communication with the CPAs. (4) Provided report about the auditing works done by Pan-China (Zhejiang) Certified Public Accountants to the Board of Directors, which said: The auditing works of 2008 were done on schedule, Pan-China (Zhejiang) Certified Public Accountants has issued the Auditors’ Report of the current year, which was fairly reflecting the production and operation of the Company. On April 13, 2008, the Auditing Committee held a meeting to vote on the financial statements and agreed to submit the financial statements to the Board of Directors. (5) Proposed to the Board to extend the service of Pan-China (Zhejiang) Certified Public Accountants: Pan-China (Zhejiang) Certified Public Accountants was doing its jobs diligently, independently, objectively and fairly according to the wildly accepted standard in the process of auditing the financial statements of the Company. Thus we propose to extend the service of Pan-China (Zhejiang) Certified Public Accountants to the year of 2009. (IV) Remuneration and Assessment Committee’s performing of duties The Remuneration and Assessment Committee was formed by 5 directors including 3 independent directors and 2 directors. Independent director Zhang Mingguang is the chief commissioner. The committee verified the remuneration scheme of the executives and deems: remunerations for the executives in year 2008 was implemented according to the “Remuneration and Assessment Criterion” produced by the Board. The procedures were complying with the laws, regulations and the Articles of Association. The related data were authentic and accurate. XIV. Profit distribution 1. According to the Articles of Association, profit distribution will be upon the auditing result of the Financial Statement. According to the Financial Statements 2008 which were audited already, the net profit attributable to the parent company of the current year is RMB573,649,026.96. After providing of surplus reserves of RMB45,539,055.91, (parent company: RMB45,539,055.91), plus undistributed profit of RMB583,242,827.31 at the beginning of year, the distributable profit is RMB1,111,352,798.36. As proposed by the shareholders’ general meeting, basing on the total capital shares of 371,800,000 shares at the end of 2007, RMB4.00 (tax inclusive) of cash dividend will be allocated to each 10 shares. Dividend for B share holders will be translated to Hong Kong Dollar at the middle rate released by People’s Bank of China at the first bank day after the profit distribution plan was approved by the Shareholders’ Annual Meeting 2008. Totally RMB148,720,000.00 of profit will be distributed. The retained profit of RMB962,632,798.36 will be carried over to the next fiscal year. The above profit distribution plan is subject to the approval of the Shareholders’ Annual Meeting 2008. 2. Execution of cash dividends According to the “Resolutions on Amending the Cash Dividend Regulations of Listed Companies” issued by China Securities Regulatory Commission (Act [2008]57), to further standardize the Company’s operation, the 2nd provisional board meeting 2009 held on March 5, 2009 revised the Articles of Association. (For details please find Announcement Lin 2009-04 published on Securities Times, Shanghai Securities Daily and http://www.cninfo.com.cn dated March 6, 2009. This was approved by the 1st Provisional Shareholders’ Meeting 2009 held on March 25, 2009. XV. Other issues to be disclosed 1. The official presses and medias assigned by the Company for information disclosure were Shanghai Securities Daily, Securities Times, Hong Kong Commercial Daily, and http://www.cninfo.com.cn in the report term. None of them was replaced, no new media employed at present. 2. Special statement of Pan-China (Zhejiang) Certified Public Accountants on capital transaction between the Company and the related parties 36 Annual Report 2008 Complete Version On April 22, 2009, Pan-China (Zhejiang) Certified Public Accountants issued the “Special auditing statement on capital transaction between Hangzhou Steam Turbine Co., Ltd. and the controlling shareholder and related parties” (浙天会[2009]号 172), the followings are the whole text: 37 Annual Report 2008 Complete Version Special auditing statement on capital transaction between Hangzhou Steam Turbine Co., Ltd. and the controlling shareholder and related parties in 2008 浙天会〔2009〕172 号 To China Securities Regulatory Commission: As entrusted by Hangzhou Steam Turbine Co., Ltd. (“the Company”), we performed special audition on non-operational adoption of capital and other capital transactions with related parties in 2008. It is the executive team’s responsibility to provide related information, and be responsible for the truthfulness, legality, and completeness of it. Our responsibility is to provide special opinion on the situation of non-operational adoption of capital and other capital transactions with related parties. We performed the auditing practice according to “Chinese CPA Work Standard”. In the process of auditing, according to the practical situation of the Company, we performed auditing procedures such as sampling the accounting records which we deem as necessary. According to document Zheng-Jian-Fa [2003]56 “Circular about capital interchange and external guarantee of PLC with related parties” issued by China Securities Regulatory Commission and National State-owned Asset Supervisory Committee, we made statement on the situation of non-operational adoption of capital and other capital transactions with related parties of Hangzhou Steam Turbine Co., Ltd. in form of chart attached hereafter. Attached chart: Summary of non-operational adoption of capital and other capital transactions with related parties in year 2008, Hangzhou Steam Turbine Co., Ltd. Zhejiang Tianjian Orient Certified Public Accountants Ltd. CPA China Lin Guoxiong Hangzhou China CPA China Fu Jingjing Date of report: April 22, 2009 38 Annual Report 2008 Complete Version Attachment: Summary of non-operational adoption of capital and other capital transactions with related parties in year 2008, Hangzhou Ste Balance of Occurred and Interest of Relationship Repaid up to Non-operational Accounting capital adoption accumulated in capital B Name of the parties with the 2008 capital adoption items at beginning of 2008 (interest adoption in en Company accumulated 2008 exclusive) 2007 (if any) Current main shareholder and its affiliates Sub-total - - - Previous main shareholder and its affiliates Sub-total - - - Total - - - Balance of Occurred and Interest of Repaid up to B Other related capital Relations to the Accounting capital exchange accumulated in capital Related parties 2008 ex interchange Company items at beginning of 2008 (interest exchange in accumulated en 2008 exclusive) 2008 (if any) Hangzhou Steam Turbine Power Group Controlling Account 42.33 17.73 Co., Ltd. shareholder receivable Affiliate of HSTG Nanfang Sales controlling Account 2.00 Co. shareholder receivable Hangzhou Steam Affiliate of Turbine Power Sales controlling Account 6,145.49 13,968.70 11,337.06 Co., Ltd. shareholder receivable Hangzhou Hangfa Affiliate of Power Generating controlling Account 18.00 7.80 25.80 Major shareholder and Equipment Co., Ltd. shareholder receivable its affiliates Affiliate of HSTG Energy Tech controlling Account 7.50 Co., Ltd. shareholder receivable Hangzhou Relian Affiliate of International Trading controlling Advance 6,832.08 11,674.30 18,506.38 Co. shareholder account Hangzhou Hangfa Affiliate of Power Generating controlling Advance 1,169.23 11,007.94 8,755.90 Equipment Co., Ltd. shareholder account Hangzhou Affiliate of Nanfangtongda Gears controlling Advance 53.82 369.12 422.94 Co., Ltd. shareholder account Subsidiaries and affiliates of the Company Annual Report 2008 Complete Version Related nature person and legal person under his/her control Other related parties and its affiliates Total - - - 14,262.95 37,035.36 39,065.81 Annual Report 2008 Complete Version 3. The special statement and independent opinions on the capital adoption and providing of external guarantees issued by the independent directors: According to the relative regulations of China Securities Regulatory Commission regarding providing of external guarantees, as the independent directors of the Company, upon investigation and comprehending on the Company’s business practice, and with reference to the opinions of the Board, Supervisory Committee, and the executives, under the principle of truthfulness and responsible to the shareholders, we obtained comprehending on the external guarantees both accumulated and occurred in the current term. The following independent opinions are provided basing on the authentic and complete information provided by the Company: I. Special statements 1. No illegal adoption of capital by the controlling shareholder or other related parties other than normal operational capital exchange. 2. The Company provided no guarantee to any of the controlling shareholder and other related parties, related parties in which the Company is holding less than 50% of shares, any other legal persons, non-legal persons or individuals in the report term. II. The independent opinions 1. Up to December 31, 2008, all of the capital interchange with the controlling shareholder and other related parties were normal operational transaction without capital occupation by any of the controlling shareholder or other related parties, nor any such event carried down from previous periods. 2. As of December 31, 2008, the Company never conducted any external guarantee and no such guarantee happened in previous terms and carried over to the current term. The independent directors: Zhang Mingguang, Zhou Zhaoxue, Hua Xiaoning, Qi Guoning April 22, 2009 41 Annual Report 2008 Complete Version Chapter IX Significant Events 1. Asset Acquisition RMB0’000 Net profit contributed from the The other party Net profit If it was a related beginning of year to the end of Compl of the trade or Date of contributed since day transaction (state Pricing Assets Price year (applicable for transfer ultimate purchase of purchase to the pricing basis if policies consolidated enterprises under no dominator end of report term yes) same control 15.5932 mil Aug 7 Hangzhou Bank shares of Bank 15,125.40 No Bidding Yes 2009 of Hangzhou 2. Asset disposal RMB0’000 Profit contributed by Gain/loss If it was a related C The other party Date of the sold assets from the from transaction (state Asset traded Price Pricing policies tra of trade disposal beginning of year until disposal of pricing basis if the day of being sold the asset yes) According to the “Share Equity Zhejiang Xiyuan Zhejiang Tianyu Entrustment Contract” engaged Mar 26, Shareholding Shareholding 1800.00 No between the Company and other 2009 Co., Ltd. Co., Ltd. shareholders of Zhejiang Tianyu in June 2005. According to the “Share Equity Hangzhou Caikai Zhejiang Tianyu Entrustment Contract” engaged Mar 26, Investment Shareholding 1200.00 No between the Company and other 2009 Group Ltd. Co., Ltd. shareholders of Zhejiang Tianyu in June 2005. Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 Influence of the issues in above subject 1 and 2 on the consistency of business and stability of the executives: 1) None of the above issues in subject 1 and 2 will make negative influence on the consistency of business and stability of the executives. 2) The issues under subject 1 increased the capital application efficiency and economical efficiency. The issues under subject 2 helped the Company to go around investment risks. 3. No external guarantee existing or occurred in 2008. 4. Material related transactions I. Relevant transactions arising from purchasing commodity or providing of labour services: (1) Some subsidiaries of Hangzhou Steam Turbine Group are engaged in the sales of industrial steam turbines. They purchased steam turbines and spare parts and components from the Company at the ex-factory price of the Company. On the other hand, the Company was purchasing relevant parts from the subsidiaries of the Group, such as generators and gearboxes. In the report period ， the amount of these related transaction was RMB465,399,779.61. (2) Pursuant to several service agreements, HSTG provides the Company with facilities and services such as social services, property management, staff training, transportation and computer service. Unless terminated earlier, the agreements will be effective until 31 December 2012. For the report term, the Company paid service fees of RMB6,787,600.00 in accordance with the service agreements. Hangzhou Steam Turbine Industry Co., Ltd. provided cleaning services to the Company, the Company paid RMB758,582.90 for the services provided. (3) Pursuant to several supply agreements, HSTG supplies the Company with energy. The agreements will be effective until 31 December 2012. For the report term, the Company purchased energy amounting to RMB14,702,548.18 from HSTG (4) Pursuant to the land rent agreement, the Company uses the land possessed by HSTG of 84964M2. The annual rent of RMB1,340,860.00 was to be paid by the Company thereof. For the year ended December 31st 2008, the Company has paid RMB1,340,860.00 for the land rent. (5) Office building rental: The Company and its subsidiaries rent the office building from HSTG for the year of 2008 with rental fee of RMB1,252,292.40 according to the rental agreement. (6) Expenses paid on behalf: Basic medical insurances were paid by HSTG on the Company’s behalf. During the year ended December 31, 2008, the insurance paid by HSTG was RMB7,032,800.11. The total amount of above four related transactions was RMB497,274,463.20. Refer to Note 10 of the financial statements of this report - "Relation between related parties and other related transactions" for details. As the Company and the Group are living in the same castle the above related transactions are necessary and will continue in viewing of reducing cost and realizing resource sharing. II. During report term, there is no stock equity transaction between the Company and any related parties. III. Credits, liabilities and guarantee items with the relevant relations (which not included in the consolidation range) (1) During the report term, there was no non-operational capital interchange between the Company and HSTG or its subsidiaries. There is credit and liabilities transaction when the Group and its subsidiary branches are selling the Steam Turbine products. The Group owed payment at RMB88,112,307.38 that count for 6.35% of account receivables by end of term; where the Company owed the related parties of RMB24,664,442.68 that count for 68.18% of other payables by end of term. Please refer to Notes 3 - “related parties’ balance of payable and receivable and Note 10 – “Related parties and transactions” in the financial report for details. In the report term, the related transaction contracts with the holding shareholder have expired one after another. The Company established a special team to perform researching on the market price and negotiate with the 43 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 holding shareholder and finally extended nine of these contracts. They have been approved by the 3rd meeting of the 4th term of Board held on April 3, 2008 (Announcement Lin2008-02 dated April 8, 2008) and the Shareholders’ Annual Meeting held on May 16, 2008 (Announcement Lin 2008-13 dated May 17, 2008). Independent directors provided opinions on this issue. (2) During report term, there is no credit guarantee between the company and the related parties. (3) No capital adoption and debt issues occurred or carried down from previous years in the report term. 5. In the report term, the Company has no new or existing entrusted capital management issues. 6. No commitment issues made by shareholders with 5% or above share equities occurred in or last to the report term. 7. No material lawsuit or arbitration in the report period. 8. The Company hasn’t traded or held other listed companies’ shares in the report term. 9. Engaging and dismissing of CPAs In the report term, the Company extended the service of Pan-China (Zhejiang) Certified Public Accountants. In the report term, the Company paid RMB480 thousand to Pan-China (Zhejiang) Certified Public Accountants and the Company paid no traveling expenses for the CPA. Pan-China (Zhejiang) Certified Public Accountants has been working for the Company as the domestic auditor for successively 10 years since 1999. 10. In the report period, none of the Company, the Board of Directors or any director had ever been inspected, experienced administrative penalty or been criticized by circulating a notice of criticism by China Securities Regulatory Commission, or condemned in public by Shenzhen Stock Exchange. 11. In the report term, the shares of non-listing financial enterprise held by the Company in RMB Yuan Book Change of Gain/loss of Name of the Initial Share value at owners’ Accounting Source of Shares held the report enterprises investment portion the end equity in the subject shares term of term report term Hangzhou 390,953,200.00 115,590,000 8.75% Transfer Bank Total - - - 44 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 12 Reception of investigations, communications, or interviews Main content involved and material Time/date Place Way Visitors provided Overseas market, profile of Hangzhou 2008/01/08 the Company onsite investigation Huili Foundation Commercial Bank Goldman Sachs 2008/01/23 the Company onsite investigation Product structure, trend in 2008 Investment Raw material, export, snow disaster, 2008/02/19 the Company onsite investigation Martin.Currie productivity Source of orders, influence of the 2008/02/26 the Company onsite investigation Mogen Datong macro economical adjustment State of Hangzhou Commercial Bank, 2008/02/28 the Company onsite investigation Martin.Currie trend of gross profit, receivables Industrial trends, energy saving, 2008/03/20 the Company onsite investigation Ruixun Huashi competitions Penghua, Gaohua, Fuguo, Huaxia, Gross profit trend, overseas market, 2008/03/28 the Company onsite investigation Schroder, productivity Huitianfu telephone Cost, gross profit trend, influence of 2008/04/11 the Company Huili Foundation communication expenses Newton、Rowe Appreciating of materials, overseas 2008/05/19 the Company onsite investigation Price market, gross profit trend AXA World Market, management motivation, 2008/05/21 the Company onsite investigation Funds-Framlington competitors Market situation of steam turbine, Capital Group 2008/08/14 the Company onsite investigation demand, change of profit, influence of Asset Management material price inflation Overseas market, application and Asian Century 2008/08/21 the Company onsite investigation market of steam turbine, productivity, Quest Fung，L.P. profitability telephone Individual 2008/09/05 the Company Trend of orders, cost, overseas market communication investors Product characters, industrial layout, overseas market, outsourcing, loans, 2008/09/12 the Company onsite investigation Boshi Fund market share, major shareholders, B-share reforming Industrial involved, anticipation of America Capital 2008/10/07 the Company onsite investigation coming 3 years, labor cost, receivable International Fund accounts Influence of material cost, overseas HSBC Global 2008/10/14 the Company onsite investigation market, dividend policies, receivable Asset accounts Gas turbine, overseas market, bad 2008/10/15 the Company onsite investigation Huili Foundation debt provisions, receivable accounts Bank of China B-share reforming, repurchasing of 2008/10/21 the Company onsite investigation International share equity Product application, account received telephone Individual 2008/11/17 the Company in advance, receivable accounts, communication shareholder B-share’s way out 45 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 11. Index of provisional announcements released in the report term No. Date Content Official media Official website Lin April 8 Summary of Annual Report 2007 2008-01 2008 Lin April 8 Resolutions of the 3rd Meeting of the 4th 2008-02 2008 Term of Board Lin April 8 Resolutions of the 2nd Meeting of the 4th 2008-03 2008 Term of Supervisory Committee Lin April 8 Notification on Convening of the Annual 2008-04 2008 General Meeting 2007 Lin April 8 Announcement on the actual amount of 2008-05 2008 day-to-day operational related transactions in 2007 and predicted for 2008 Lin April 8 Special Opinions of the Independent 2008-06 2008 Directors Lin April 8 Articles of Association (Revised 2008) 2008-07 2008 Lin April Business Performance Prediction for the 1st 2008-08 22 Quarter of 2008 2008 Lin April The 1st Quarterly Report 2008 2008-10 26 2008 Lin April Resolutions of the 2nd Special Board 2008-11 26 Meeting of 2008 2008 Lin April Resolutions of the 1st Special Meeting of the 2008-12 26 Supervisory Committee 2008 2008 Lin May Resolutions of the Annual General Meeting 2008-13 17, 2007 2008 http://www.cninfo.com.cn Lin May Announcement on Donations to Sichuan for Securities Time 2008-14 29 the Great Earthquake Shanghai 2008 Securities Daily Lin May Announcement of Dividend 2007 Hong Kong 2008-15 31 Commercial 2008 Daily Lin June Resolutions of the 4th Meeting of the 4th 2008-16 18 Term of Board 2008 Lin Jul 17, Resolutions of the 3rd Provisional Board 2008-17 2008 Meeting (Telecommunication Voting) of 2008 Lin Aug 5, Announcement on taking over the 2008-18 2008 employees’ shares of Bank of Hangzhou Lin Aug 8, Resolutions of the 4th Provisional Board 2008-19 2008 Meeting (Telecommunication Voting) of 2008 Lin Aug 8, Notice on Convening of the 1st Provisional 2008-20 2008 Shareholders’ Meeting 2008 Lin Aug Resolutions of the 5th meeting of the 4th 2008-21 13, term of Board 2008 46 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 Lin Aug Resolutions of the 3rd meeting of the 4th 2008-22 13, term of Supervisory Committee 2008 2008-23 Aug Summary of the Interim Report 2008 18, 2008 2008-24 Aug Complete version of the Interim Report 18, 2008 2008 2008-25 Aug Interim Financial Report 2008 18, 2008 Lin Oct 15, Resolutions of the 5th provisional Board 2008-27 2008 meeting (Telecommunication) of 2008 Lin Oct 22, Resolutions of the 6th meeting of the 4th 2008-28 2008 term of Board (Telecommunication Voting) Lin Oct 27, Resolutions of the 4th meeting of the 4th 2008-29 2008 term of Supervisory Committee 2008-29 Aug Resolutions of the 1st Provisional 27, Shareholders’ Meeting 2008 2008 2008-31 Oct 24, The 3rd Quarterly Report 2008 2008 Lin Dec Announcement on awarding of high-tech 2008-32 23, enterprises to the Company 2008 47 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 Chapter X. Report of the Supervisory Committee In year 2008, the members of the Committee performed their duties diligently in accordance with the Company Law and Articles of Association and were responsible to all of the shareholders. We participated in the decision-making processes and important business operation of the Company, and provided opinions and suggestions. We were effectively supervising the performance of the directors and executives, and the business and financial situations of the Company regularly in viewing of the shareholders’ benefit. We hereby present the work report of year 2008 and submit to the Shareholders’ Annual Meeting 2008 for examination. I. Meetings of the Committee in the report term 1. The 2nd meeting of the 4th term of Supervisory Committee was held in the meeting room at the 1st floor of the Company’s executive building. “The Supervisory Committee’s Work Report”, “The Self-evaluation Report on Internal Controlling System”, “Annual Report 2007”, “Routine Related Transactions Occurred in 2007 and Anticipated for 2008”, and “The Proposal on Loan Application in 2008” were examined and passed at the meeting. Resolutions of the meeting (Announcement Lin 2008-03) was disclosed by Shanghai Securities Times and Securities Times dated April 8, 2008. 2. The 1st Provisional Meeting of the Committee 2008 was held by mean of telecommunication on April 24, 2008. The 1st Quarterly Report 2008 was examined and passed at the meeting. Resolutions of the meeting (Announcement Lin 2008-12) was disclosed by Shanghai Securities Times and Securities Times dated April 25, 2008. 3. The 3rd meeting of the 4th term of Supervisory Committee was held in the meeting room of the Company on August 13, 2008. The Interim Report 2008 and its summarized version was examined and passed with verification opinions. The Verification Report of Capital Adoption by Holding Shareholder in the 1st Half of 2008 was also examined and passed at the meeting. Resolutions of the meeting (Announcement Lin 2008-22) was disclosed by Shanghai Securities Times and Securities Times dated August 14, 2008. 4. The 4th meeting of the 4th term of Supervisory Committee was held by mean of telecommunication on October 22, 2008. The 3rd Quarterly Report 2008 was examined and passed with verification opinions. Resolutions of the meeting (Announcement Lin 2008-29) was disclosed by Shanghai Securities Times and Securities Times dated October 23, 2008. II. Performing of duties in the report term In year 2008, to standardize the business operation, ensure scientific decision-making and good economical efficiency, the Supervisory Committee enhanced the supervisory works in the following aspects: 1. Supervising on the business operation: The Supervisors participated in the meetings of the Board and supervised the main decision-making procedures; verified the execution of resolutions of the shareholders’ meeting and board meetings, as well as the major investment plans and related transactions. The Committee also provided corresponding opinions and suggestions on the business operation of the Company. 2. Supervising the financial operations: Observing the Company’s operation and financial situation was the key aspects of the Committee’s jobs. Firstly, the Committee promoted the Company to further improve the financial administration and internal controlling system; Secondly, observed and inspected the accounting operation according to the laws, regulations and policies of the country. With reference to the Company’s characteristics, provided suggestions to improve the financial management of the Company. 3. Supervising the executives: to perform effective supervising over the performances of the directors and executives of the Company, the Supervisory Committee urged them to study the laws and regulations to upgrade their sense of legal operation, therefore ensure legal operation of the Company. 48 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 III. Independent opinions of the Supervisory Committee 1. Independent opinions on the legality of business operation In the report term, the Company was operating according to the laws with mature internal controlling system. Holding of the board meetings and shareholders’ meeting on major decision-making processes were complying with the laws and regulations. None of the directors or executives violated any of the laws, regulations and Articles of Association of the Company at performing of their duties. 2. Independent opinions on the financial situation of year 2008 The Company has been inspecting on the financial situation of the Company. We deems that the auditor’s report without qualified opinions issued by Pan-China (Zhejiang) Certified Public Accountants was objectively and fairly reflecting the financial situation and business performance of the Company. 3. Independent opinions on acquisition and disposal of assets The Supervisory Committee deems that, “The proposal on investing RMB151.25404 million to takeover 15.5932 million employees’ shares of Bank of Hangzhou” adopted at the 4th meeting of the 4th term of Board held on June 17, 2008 and the 1st Provisional Shareholders’ Meeting 2008 held on August 26, 2008, and “The proposal on disposing the 30 million shares of Zhejiang Tianyu Shareholding Co., Ltd.” adopted at the 1st Provisional Board Meeting 2008 held on February 2, 2008 were complying with the laws, regulations and the Articles of Association. The resolutions adopted thereon were legal and valid without violating the interests of the mid-small shareholders. No other acquisition or disposal of assets in the report term. 4. Independent opinions on the related transactions The Committee verified the related transactions conducted in 2008 and deems: The related transactions was conducted strictly at the prices setout by the relative agreement approved by the Shareholders’ Meeting, and complying with the related regulations and legal procedures. Pricing of the related transactions were on fair and reasonable basis without illegal operation, and no harming on the interests of the Company or the shareholder, especially the mid-small shareholders. 5. Independent opinions on the capita adoption by the controlling shareholder Capital transactions with the controlling shareholder and related parties were routine operations without non-operational adoption of capital by controlling shareholder or related parties. No such non-operational adoption of capital occurred in the report or carried down from the previous terms. 6. Verification opinions on the self-evaluation report of internal controlling According to the “Instructions of Internal Controlling of Listed Companies” provided by Shenzhen Stock Exchange, the Supervisory Committee issues the following verification opinions on the self-evaluation report of internal controlling “The Self-Evaluation Report on Internal Controlling of 2008” was objectively, frankly, and completely reflecting the operation of internal controlling system of the Company in the report term. In the report term, according to the requirements of China Securities Regulatory Commission and Shenzhen Stock Exchange, following with the basic principles of internal controlling practice, basing on the Company’s business practice, the Company has established internal controlling system covering every aspect of the business operation, the decision-making mechanism, execution mechanism, and supervisory mechanism were established. A mature internal controlling structure has been established with full-time staffs and ensured effective execution and supervising of key operations of the Company. Information disclosure was authentic, accurate, and complete. National laws and regulations were implemented in the Company. And helped the Company to get away from weakness and potential operational faults. It supported the normal operation and protected the assets of the Company. 7. Independent opinions on the latest application of proceeds from share issuing In the report term, the Company has no existing proceeds from share issuing and hasn’t conducted any share issuing operation. 8. Non-standard opinions issued by the CPA 49 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 The Auditors’ Report without qualified opinion issued by Pan-China (Zhejiang) Certified Public Accountants was frankly, objectively, and precisely reflecting the Company’s financial positions. IV. Work plan for year 2009 1. Keep comprehending the policies of national departments and the stock exchange to increase the capability and efficiency of the Committee, keep guarding the interests of the shareholders. 2. Further enhance the sense of supervisory and diligence to the responsibilities. 3. Keep doing supervisory jobs over the business operation, investment, related transactions, capital adoption, and guarantee providing of the Company. Enforce the sense of risk-preventing, promote the further improving of administration and management standard. Hangzhou Steam Turbine Co., Ltd. The Supervisory Committee April 27, 2009 Chapter XI. Financial Report Attached hereafter. 50 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 Chapter XII. Other data to be submitted 12.1 Insider of the Annual Report from outside parties Information Title of Company code Company ID Name ID Party belong to Position reported on information Responsible Turnover and 000771 Hangqilun B Yan Zili Statistics dept. of HSTG Jan 19 2009 person profit Hangzhou Quality Turnover and 000771 Hangqilun B He Jinlong Inspection Bureau Section leader Jan 14, 2009 profit Xiacheng Office Hangzhou Xiacheng Economic Turnover and 000771 Hangqilun B Zhao Jianping Statistics Office Shiqiao information Jan 19 2009 profit Street Committee collector Zhejiang National Defense Assistant Turnover and 000771 Hangqilun B Wang Jianhao Jan 19 2009 Industry Office researcher profit Hangzhou Economic Turnover and 000771 Hangqilun B Gao Lingling Commission Industry Chief staff Feb 05 2009 profit Injury Investigation Hangzhou Bureau of Turnover and 000771 Hangqilun B Meng Jiala Vice chief staff Feb 05 2009 Foreign Trade profit Steam Turbine Division of Turnover and 000771 Hangqilun B Zheng Jianfu China Electronics Industry Chief secretary Feb 23, 2009 profit Association Turnover and 000771 Hangqilun B Wang Xiaohui Finance dept. of HSTG Vice head Feb 04 2009 profit Hangzhou Xiacheng Economic Technical 000771 Hangqilun B Zhao Jianping Statistics Office Shiqiao information Jan 20 2009 operation Street Committee collector Hangzhou Xiacheng 000771 Hangqilun B Gu Qiong Staff Mar 09 2009 Financial date Technical Bureau Zhang Zhejiang National Defense 000771 Hangqilun B Staff Mar 03, 2009 Financial date Zhonglie Industry Office 12.2 Information about internal controlling in 2008 Appli Note/remarks (if not applicable is selected, pleas Information about internal controlling in 2008 cable give detailed reason) or not I. Establishing and implementing of internal controlling system 1. Establishing of internal auditing system If the Company has established internal auditing system, and whether it has Yes been approved by the Board 2. Organization structure Whether the Board has established the Auditing Committee, internal auditing department separated from the accounting department, whether the Yes internal auditing department is responsible to the Auditing Committee. 3. Personnel arrangement (1) Whether the Auditing Committee is composed by directors with over half of them are independent directors; the convener is an independent Yes director; and at least one independent director is an accounting profession (2) Whether the internal auditing office has over tree (including) full-time 是 staffs to perform the internal auditing duties (3) Whether the responsible person of the internal auditing department is a full-time staff nominated by the Auditing Committee and engaged or Yes dismissed by the Board II. Disclosure of self-evaluation report on internal controlling in the year 1. Whether the Auditing Committee provided self-evaluation report on the establishing and implementing of internal controlling system regarding Yes financial reports and information disclosure upon the evaluation report and materials produced by the internal auditing office 2. Whether the self-evaluation report is containing the following contents: Yes 51 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 (1) Whether the internal controlling system was established and implemented effectively; (2) Weakness of the internal controlling system, irregular issues and handling; (3) Measures to improve and consummate the internal control system; (4) Improvement of weakness and irregular issues exist in previous year (if applicable); (5) Verification on the internal control system and evaluation works done in the current year. 3. Whether the self-evaluation report deems that the internal control system was working effectively. Please provide details about the major weaknesses Yes if it is not working effectively During the year of 2008, the Company established special team to perform full reorganizing and consummating on the internal control system. Over a hundred regulations and criterion were produced or revised. The Company deems that the internal controlling is a dynamic process. At 4. Whether the Company has employed a CPA to issue verification report on present it is under full implementation stage. No the effectiveness of the internal control system Some of the processes still need to be tested in practical operation. Thus the Company thought it is still not a appropriate time to use a CPA to verify the effectiveness of the internal control system. We shall keep improving and enhancing the establishing and implementing of the internal control system. 5. Whether the CPA issued verification report other than verification report without qualified conclusions on the effectiveness of the internal control No system. If yes, whether the Board and the Supervisory Committee have provided special statements on the issues involved. 6. Whether the independent directors and Supervisory Committee issued Yes definite consent opinions (please state if objective opinions are issued) Not 7. Whether the sponsoring organization and its representative person issued applic definite consent verification opinions (if applicable) able 12.3 Change of CPAs 1. Domestic CPA Zhejiang Orient Certified Public Accountants engaged by the Company for year 2008 was merged into Pan-China (Zhejiang) Certified Public Accountants in November 2008. The Company has released the “Announcement on Alternation of Auditing Body’s Title” on February 4, 2009 (Announcement Lin 2009-01). 2. No overseas CPA is engaged for the report term. 52 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 Chapter XIII. Reference Documents 1. Annual Report 2008 with signature of the Chairman 2. Financial Report bearing the signatures of the legal representative, financial superior and head of accounting department. 3. Original copy of the Auditors’ Report under the seal of the CPA and signed by and under the seal of certified accountants. 4. All the originals of the Company’s documents and public notices disclosed in the newspapers designated by China Securities Regulatory Commission in the report period; All of the original copies of the above documents are available at the secretarial office of the Board, and will be provided duly on demand of the CSRC, SSE, or any shareholder of the Company in accordance with the laws, regulations, and the Articles of Association. Mr. Nie Zhonghai The Chairman of Board Hangzhou Steam Turbine Co., Ltd. April 22, 2009 Auditors’ Report 浙天会审〔2009〕2268 号 To the entire shareholders of Hangzhou Steam Turbine Co., Ltd. We have audited the Financial Statements of Hangzhou Steam Turbine Co., Ltd. (the Company) attached hereafter, including the Balance Sheet and Consolidated Balance Sheet ended December 31, 2008, Income Statement and Consolidated Income Statement, Cash Flow Statement and Consolidated Cash Flow Statement, Statement of Change in Share Equities and Consolidated Statement of Change in Share Equities of year 20087, as well as the notes to the Financial Statements. I. Executives’ responsibilities on the Financial Statements Preparing of the Financial Statements according to Enterprise Accounting Standard is the responsibility of the management of the Company. This responsibility is including: (1) Design, implement and maintain the internal control system related to producing of the Financial Statements, to prevent the Financial Statements from major false presentation due to cheating or error; (2) Select and use of appropriate accounting policies; (3) Make reasonable estimations. II. Responsibilities of the CPA Our responsibilities are to issue auditing opinions on the Financial Statements basing on the auditing works we’ve done on them. We carried out the auditing works with compliance to Chinese CPA Auditing Standard, which requires us to plan and implement our works with professional ethic standards, and obtain reasonable guarantee that the Financial Statements are free of major false statements. 53 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 Auditing works are involving in auditing practices to obtain evidences regarding the amounts and presentation of the Financial Statements. Selecting of auditing practices is based on the CPA’s judgment, including evaluation on the risks of major false statements due to cheating or error. At evaluating of the risks, we’ve considered the relative internal control system related to the preparation of the Financial Statements. However we don’t comment on the effectiveness of the internal control system. The auditing works also include evaluations on the felicitousness of accounting policy selecting, the rationality of accounting estimations, and the overall presentation of the Financial Statements as well. We believe that the evidences we’ve obtained are appropriate and sufficient, which provided foundations to our issuing of auditing opinions. III. Auditors’ Opinions We believe that the Company has been following with the Enterprise Accounting Standard in preparing of the Financial Statements. The Financial Statements is reflecting, in all important aspects, the financial situation of Fangda Group as of December 31, 2008, and the business performance and cash flow of year 2008. Zhejiang Tianjian Orient Certified Public Accountants Ltd. CPA China Lin Guoxiong Hangzhou China CPA China Fu Jingjing Date of report: April 22, 2009 54 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 55 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 Balance Sheet Prepared by: Hangzhou Steam Turbine Co., Ltd. Ended December 31, 2008 in RMB Yuan Balance at the end of term Balance at the beginning of year Items Consolidated Parent company Consolidated Parent company Current asset: Monetary capital 450,103,030.94 158,711,304.02 296,605,363.48 125,110,310.08 Settlement provision Outgoing call loan Transactional financial assets Notes receivable 374,122,522.90 279,142,200.00 336,535,631.00 244,509,227.00 Account receivable 1,184,421,641.17 1,045,972,821.97 1,043,084,022.15 971,629,195.37 Prepayment 230,097,109.65 84,096,664.49 171,613,294.90 69,108,271.41 Insurance receivable Reinsurance receivable Provisions of Reinsurance contracts receivable Interest receivable Dividend receivable 17,212,500.00 Other account receivable 17,241,574.65 13,786,223.02 23,489,470.87 24,456,348.62 Repurchasing of financial assets Inventories 1,192,643,294.30 850,043,203.46 764,546,024.44 599,024,974.84 Non-current asset due in 1 year Other current asset 236,603.00 Total of current asset 3,448,865,776.61 2,448,964,916.96 2,635,873,806.84 2,033,838,327.32 Non-current assets Loans and payment on other’s behalf disbursed Disposable financial asset Expired investment in possess Long-term receivable Long-term share equity 408,093,320.85 455,849,320.85 294,093,777.89 334,880,980.94 investment Investment real estate Fixed assets 523,475,639.79 397,301,612.80 465,298,186.13 354,736,929.06 Construction in process 37,083,938.18 11,299,250.13 56,488,218.09 47,392,456.63 Engineering goods Fixed asset disposal Production physical assets Gas & petrol Intangible assets 102,596,697.16 49,081,454.61 68,835,256.85 50,260,102.33 R&D expense Goodwill Long-term amortizable 10,370,103.45 9,467,565.08 149,473.53 expenses Differed income tax asset 39,120,424.79 30,966,989.05 49,027,538.86 40,532,194.12 Other non-current asset Total of non-current assets 1,120,740,124.22 953,966,192.52 933,892,451.35 827,802,663.08 Total of assets 4,569,605,900.83 3,402,931,109.48 3,569,766,258.19 2,861,640,990.40 Current liabilities Short-term loans 181,000,000.00 100,000,000.00 56 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 Loan from Central Bank Deposit received and hold for others Call loan received Trade off financial liabilities Notes payable 298,203,241.55 366,981,929.55 322,309,670.13 281,312,849.13 Account payable 283,861,630.55 221,991,259.71 332,779,807.85 311,874,870.43 Prepayment received 1,497,363,927.16 1,056,118,723.46 1,046,816,856.74 857,931,425.18 Selling of repurchased financial assets Fees and commissions receivable Employees’ wage payable 19,952,410.05 12,844,851.17 16,361,398.26 11,287,583.00 Tax payable 22,361,297.05 13,811,247.32 108,499,915.61 85,577,232.41 Interest payable 114,125.00 Dividend payable Other account payable 36,174,381.34 26,661,061.72 28,412,552.37 17,237,282.45 Reinsurance fee payable Insurance contract provision Entrusted trading of securities Entrusted selling of securities Non-current liability due in 1 year Other current liability 14,700,000.00 Total of current liability 2,353,731,012.70 1,798,409,072.93 1,855,180,200.96 1,565,221,242.60 Non-current liabilities Long-term borrowings Bond payable Long-term payable 330,000.00 330,000.00 Special payable Expected liabilities Differed income tax liability 1,225,374.71 1,225,374.71 7,782,595.79 2,044,645.08 Other non-recurring liabilities 6,523,710.00 5,048,250.00 3,820,860.00 2,797,250.00 Total of non-current liabilities 8,079,084.71 6,273,624.71 11,933,455.79 4,841,895.08 Total of liability 2,361,810,097.41 1,804,682,697.64 1,867,113,656.75 1,570,063,137.68 Owners’ equity (or shareholders’ equity) Capital paid in (or share 371,800,000.00 371,800,000.00 371,800,000.00 371,800,000.00 capital) Capital reserves 138,953,250.09 138,953,250.09 138,953,250.09 138,953,250.09 Less: Shares in stock Surplus reserves 279,205,827.20 260,449,422.07 233,666,771.29 214,910,366.16 Common risk provision Retained profit 1,111,352,798.36 827,045,739.68 731,962,827.31 565,914,236.47 Different of foreign currency translation Total of owner’s equity belong to 1,901,311,875.65 1,598,248,411.84 1,476,382,848.69 1,291,577,852.72 the parent company Minor shareholders’ equity 306,483,927.77 226,269,752.75 Total of owners’ equity 2,207,795,803.42 1,598,248,411.84 1,702,652,601.44 1,291,577,852.72 Total of liabilities and owners’ 4,569,605,900.83 3,402,931,109.48 3,569,766,258.19 2,861,640,990.40 equity 57 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 58 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 Income Statement Prepared by: Hangzhou Steam Turbine Co., Ltd. Jan - Dec 2008 in RMB Yuan Amount of the Current Term Amount of the Previous Term Items Consolidated Parent company Consolidated Parent company I. Total revenue 3,319,171,377.40 2,346,766,884.61 2,855,886,247.40 2,328,530,548.28 Incl. Business income 3,319,171,377.40 2,346,766,884.61 2,855,886,247.40 2,328,530,548.28 Interest income Insurance fee earned Fee and commission received II. Total business cost 2,557,382,021.56 1,884,420,622.00 2,259,755,687.97 1,967,109,674.74 Incl. Business cost 2,071,938,943.81 1,528,610,715.61 1,832,721,449.13 1,628,392,809.47 Interest expense Fee and commission paid Insurance discharge payment Net claim amount paid Net insurance policy reserves provided Insurance policy dividend paid Reinsurance expenses Business tax and 9,768,522.29 2,505,238.15 8,116,164.60 2,591,579.27 surcharge Sales expense 100,027,849.64 70,405,820.86 85,371,696.16 61,398,880.27 Administrative expense 318,185,764.92 234,516,593.67 277,863,407.54 221,457,194.60 Financial expenses 5,156,160.91 2,401,702.95 2,416,533.49 3,619,607.53 Asset impairment loss 52,304,779.99 45,980,550.76 53,266,437.05 49,649,603.60 Plus: Gains from change of fair value (“-“ for loss) Investment gain (“-“ for 48,744,692.44 76,278,811.90 22,405,248.20 43,428,951.25 loss) Incl. Investment gains -285,700.09 -285,700.09 -1,218,769.04 from affiliates Gains from currency exchange (“-“ for loss) III. Operational profit (“-“ for 810,534,048.28 538,625,074.51 618,535,807.63 404,849,824.79 loss) Plus: Non business income 14,071,663.04 5,225,593.47 12,766,948.69 6,071,958.96 Less: Non-business expenses 5,173,520.55 1,482,573.42 5,336,006.46 3,432,319.13 Incl. Loss from disposal of 317,249.68 242,699.53 149,756.46 non-current assets IV. Gross profit (“-“ for loss) 819,432,190.77 542,368,094.56 625,966,749.86 407,489,464.62 Less: Income tax expenses 116,280,427.67 86,977,535.44 149,077,036.42 99,455,456.85 V. Net profit (“-“ for net loss) 703,151,763.10 455,390,559.12 476,889,713.44 308,034,007.77 Net profit attributable to the 573,649,026.96 380,073,172.37 owners of parent company Minor shareholders’ equity 129,502,736.14 96,816,541.07 VI. Earnings per share: (I) Basic earnings per share 1.54 1.22 1.02 0.83 (II) Diluted earnings per 1.54 1.22 1.02 0.83 share 59 Hangzhou Steam Turbine Co., Ltd. Cash Flow Statement Prepared by: Hangzhou Steam Turbine Co., Ltd. Jan - Dec 2008 in RMB Yuan Amount of the Current Term Items Consolidated Parent comp I. Net cash flow from business operation Cash received from sales of products and providing of services 3,644,410,896.59 2,476,084,95 Net increase of customer deposits and capital kept for brother company Net increase of loans from central bank Net increase of inter-bank loans from other financial bodies Cash received against original insurance contract Net cash received from reinsurance business Net increase of client deposit and investment Net increase of trade financial asset disposal Cash received as interest, processing fee, and commission Net increase of inter-bank fund received Net increase of repurchasing business Tax returned 4,196,649.58 423,75 Other cash received from business operation 27,924,069.20 10,030,23 Sub-total of cash inflow from business activities 3,676,531,615.37 2,486,538,94 Cash paid for purchasing of merchandise and services 2,448,628,092.34 1,668,805,66 Net increase of client trade and advance Net increase of savings in central bank and brother company Cash paid for original contract claim Cash paid for interest, processing fee and commission Cash paid for policy dividend Cash paid to staffs or paid for staffs 383,718,815.30 321,742,82 Taxes paid 360,114,803.36 246,700,28 Other cash paid for business activities 96,143,951.96 37,988,74 Sub-total of cash outflow from business activities 3,288,605,662.96 2,275,237,52 Cash flow generated by business operation, net 387,925,952.41 211,301,42 II. Cash flow generated by investing Cash received from investment retrieving 30,050,000.00 30,000,00 Cash received as investment gains 28,902,011.99 59,352,01 Net cash retrieved from disposal of fixed assets, intangible assets, and other long-term 562,595.00 449,55 assets Net cash received from disposal of subsidiaries or other operational units 60 Hangzhou Steam Turbine Co., Ltd. Other investment-related cash received 6,841,265.85 Sub-total of cash inflow due to investment activities 66,355,872.84 89,801,56 Cash paid for construction of fixed assets, intangible assets and other long-term assets 127,433,610.08 62,947,85 Cash paid as investment 151,854,040.00 151,254,04 Net increase of loan against pledge Net cash received from subsidiaries and other operational units Other cash paid for investment activities Sub-total of cash outflow due to investment activities 279,287,650.08 214,201,89 Net cash flow generated by investment -212,931,777.24 -124,400,33 III. Cash flow generated by financing Cash received as investment 6,300,000.00 Incl. Cash received as investment from minor shareholders 6,300,000.00 Cash received as loans 442,000,000.00 350,000,00 Cash received from bond placing Other financing-related cash received 35,500,000.00 Subtotal of cash inflow from financing activities 483,800,000.00 350,000,00 Cash to repay debts 261,000,000.00 250,000,00 Cash paid as dividend, profit, or interests 188,217,309.56 152,720,40 Incl. Dividend and profit paid by subsidiaries to minor shareholders 32,038,376.00 Other cash paid for financing activities 55,500,000.00 Subtotal of cash outflow due to financing activities 504,717,309.56 402,720,40 Net cash flow generated by financing -20,917,309.56 -52,720,40 IV. Influence of exchange rate alternation on cash and cash equivalents -579,198.15 -579,69 V. Net increase of cash and cash equivalents 153,497,667.46 33,600,99 Plus: Balance of cash and cash equivalents at the beginning of term 296,605,363.48 125,110,31 VI. Balance of cash and cash equivalents at the end of term 450,103,030.94 158,711,30 61 Hangzhou Steam Turbine Co., Ltd. Change in Owners’ Equities Prepared by: Hangzhou Steam Turbine Co., Ltd. Year 2008 in RMB Yuan Amount of the Current Term Owners’ Equity Attributable to the Parent Company Owners’ Equity Attributable t Less: Minor Less: Items Capital paid in Common Total of owners’ Capital paid in Capital Shares Surplus shareholders’ Capital Shares Surp (or share risk Retained profit Others equity (or share reserves in reserves equity reserves in reser capital) provision capital) stock stock I. Balance at the end of 371,800,000.00 138,953,250.09 233,666,771.29 731,962,827.31 226,269,752.75 1,702,652,601.44 286,000,000.00 136,200,422.69 202,863 last year Plus: Change of accounting policy Correcting of previous errors Others II. Balance at the 371,800,000.00 138,953,250.09 233,666,771.29 731,962,827.31 226,269,752.75 1,702,652,601.44 286,000,000.00 136,200,422.69 202,863 beginning of current year III. Changed in the current year (“-“ for 45,539,055.91 379,389,971.05 80,214,175.02 505,143,201.98 85,800,000.00 2,752,827.40 30,803 decrease) (I) Net profit 573,649,026.96 129,502,736.14 703,151,763.10 (II) Gains/losses accounted into owners’ -20,128,380.54 -20,128,380.54 2,752,827.40 equity directly 1. Change in fair value of sellable financial assets, net 2. Influence of change in other owners’ 167,259.40 equity of invested enterprises on equity basis 3. Influence of income tax related to owners’ equity items 4. Others -20,128,380.54 -20,128,380.54 2,585,568.00 Total of (I) and (II) 573,649,026.96 109,374,355.60 683,023,382.56 2,752,827.40 (III) Investment or decreasing of capital by 17,578,195.42 17,578,195.42 owners 1. Capital inputted 6,300,000.00 6,300,000.00 by owners 2. Amount of shares paid and accounted as owners’ equity 3. Others 11,278,195.42 11,278,195.42 (IV) Profit allotment 45,539,055.91 -194,259,055.91 -46,738,376.00 -195,458,376.00 30,803 1. Providing of 45,539,055.91 -45,539,055.91 30,803 surplus reserves 2. Common risk provision 3. Allotment to the -148,720,000.00 -46,738,376.00 -195,458,376.00 owners (or shareholders) 62 Hangzhou Steam Turbine Co., Ltd. 4. Others (V) Internal transferring of owners’ 85,800,000.00 equity 1. Capitalizing of capital reserves (or to capital shares) 2. Capitalizing of surplus reserves (or to capital shares) 3. Making up losses by surplus reserves 4. Others 85,800,000.00 IV. Balance at the end of 371,800,000.00 138,953,250.09 279,205,827.20 1,111,352,798.36 306,483,927.77 2,207,795,803.42 371,800,000.00 138,953,250.09 233,666 this term 63 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 Hangzhou Steam Turbine Co., Ltd. Notes to Financial Statements Year 2008 In RMB I. Company Profile Hangzhou Steam Turbine Co., Ltd. (the Company) was incorporated as a joint stock limited company exclusively promoted by Hangzhou Steam Turbine & Power Group Company Limited (“HSTG”) approved by the Securities Regulatory Commission of the State Council with the Document SRC [1998] No. 8 by offering domestically listed foreign currency ordinary shares (B Shares), with registration date: April 23, 1998, legal entity business license No.: QGZZ Zi No. 002150, current registered capital RMB 220,000,000. The Company has issued 80,000,000 B Shares which have been listed for trading with Shenzhen Stock Exchange commencing from April 28, 1998. On December 2, 1998, the Company became a joint stock enterprise with foreign investment through approval by the State Ministry of Foreign Trade and Economic Cooperation with the document [1998]外经贸资二函字第 745 号. On June 8th 2006, as approved at the Shareholders’ Annual Meeting 2005, the Company capitalized the common reserves upon the total capital shares of 220 million shares at December 31, 2005, namely 3 new shares to each 10 shares. After that, the total of capital shares was changed to 286 million shares, and the registered capital was changed to RMB286 million thereof. Registration alternation procedures have been accomplished on December 31, 2006. On June 15th 2006, as approved at the Shareholders’ Annual Meeting 2006, the Company capitalized the common reserves upon the total capital shares of 286 million shares at December 31, 2006, namely 3 new shares to each 10 shares (tax included). After that, the total of capital shares was changed to 371.8 million shares, and the registered capital was changed to RMB371.8 million thereof. Registration alternation procedures have been accomplished in December, 2007. The scope of key business of the Company: The design and manufacturing of steam turbine, gas turbine, other rotating and to-and-fro machinery and auxiliary equipment, and spare parts and components, sales of self-manufactured products and the provision of relevant after-sales service and import & export service. II. Basis and method adopted in preparing of the Financial Statements The finance report compiled by the Company is accordance with the Enterprise Accounting Standard released by Department of Finance in February 2006, namely the accounting policies and estimations described in Note 3 – “Major accounting policies and estimations adopted by the Company”. III. The main accounting policies and accounting estimations adopted (I) Statement of compliance to the Enterprise Accounting Standard The finance report compiled by the Company is accordance with the enterprise accounting standard, it reflects the Company’s finance state, achievements and cash flow fairly and entirely. 64 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 (II) Basis for preparing the financial statements The Company adopts perpetual operation as the basis of financial statements. (III) Accounting period The Company uses the calendar year for its fiscal year. A fiscal year is from January 1 to December 31. (IV) Standard currency for bookkeeping The Company uses Renminbi (RMB) as the standard currency for book keeping. (V) Accounting measurement attributes Finance asset, finance debt, finance asset capable of sale, derived finance tools were calculated by fair value; delayed stock products, fixed asset caused by exceeding normal credit when purchasing were calculated by current value of purchasing price; stock products which subtracted value were calculated by real value, other assets which subtracted value were calculated by returnable value (the higher between fair value and current value); Asset inventory surplus was calculated by replacement cost. (VI) Recognition of cash and cash equivalents Cash equivalent refers to the investment held by the Company with short term (due within 3 months from the purchase date), strong liquidity and low risk of value fluctuation that is easy to be converted into cash of known amount. (VII) Foreign currency translating Foreign currency business occurred was translated by reasonably defined, similar rate of RMB to the rate on the business happened date. The foreign end term balances of all foreign currency accounts, foreign currency projects were calculated by the rate on the due date of balance sheet, the difference value was added into current term gain or loss; the non-currency foreign projects which had calculated by historical cost were recalculated by the rate of the transaction date; the non-currency foreign projects which had calculated by fair value were calculated by the rate of the date of defining fair value, the difference value was added into current term fair value gain or loss (VIII) Financial instruments recognition and accounting 1. Type of finance asset and finance debt Finance assets are divided initially into four types of financial asset appointed to be measured at fair value with their changes are accounted into current gain/loss accounts(including transactional finance asset and financial asset appointed to be measured at fair value with their changes are accounted into current gain/loss accounts), transactional financial assets, debt and account receivable, finance asset saleable. Finance debts are divided initially into two types of financial debt appointed to be measured at fair value with their changes are accounted into current gain/loss accounts(including transactional finance debt and financial debt appointed to be measured at fair value with their changes are accounted into current gain/loss accounts), other finance debt. 2. Basis of recognition and accounting of finance asset and finance debt When the Company is one part of the finance instrument contract, one finance asset or debt is recognized. When on recognizing initially finance asset or debt, it is measured by fair value, for the finance asset or debt which appointed to be measured at fair value with their changes are accounted into current gain/loss accounts, the related transaction expenses are directly accounted into current gain and loss; for other finance asset and debt, the related transaction expenses accounted into the initial recognition account. 65 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 The Company future measures finance asset by fair value without deducting future possible transaction fee but with exception: (1) Due investment, debt and account receivable are measured by actual interest rate according to the amortized costs. (2) Equity instrument investment which have no quote in active market and which fair value can’t be measured reliably, and its derived finance assets which are connected with the equity instrument and which are summarized through the equity instrument, are measured by cost. The Company conduct successive measure of finance debt according to amortized cost by actual interest rate with exception as following: (1) finance debt which appointed to be measured at fair value with their changes are accounted into current gain/loss accounts, is measured at fir value without deducting possible future transactional fee at settlement; (2) Equity instrument investment which have no quote in active market and which fair value can’t be measured reliably, and its derived finance assets which are connected with the equity instrument and which are closed off through the equity instrument, are measured by cost. (3) finance debt sponsorship contracts which are not appointed to be measured at fair value with their changes are accounted into current gain/loss accounts, or debt agreements at rate lower than market rate and which are not appointed to be measured at fair value with their changes are accounted into current gain/loss accounts, are measured at the higher value between the optimal estimated value payable according to current obligations and the surplus value from which the initial recognition value deduct the accumulated amortized amount according to the actual interest rate. Gain or loss from fluctuation of financial assets or liabilities are handled at the following ways, except for relating to hedge instrument. (1) Gain or loss from fluctuation of fair value of financial assets or liabilities and accounted into current gain/loss account, are accounted into gain/loss of fluctuation of fair value. Interests or cash dividend received in the period of holding these assets are recognized as investment gains. When they are disposed, the difference between the amount actually received and initially booked value is recognized as investment gains, and adjust the gain/loss from fair value fluctuation. (2) Fluctuation of fair value of sellable financial assets accounted into capital reserves; interests gained at actual interest rate are accounting into investment gains; the cash dividend received from sellable instrument investment, are accounted into investment gains when distributed; At disposal of these investment, the difference between actual amount received and book value are recognized as investment gains after deducting of accumulated change of fair value which are originally accounted into capital reserves. 3. Basis of recognition and accounting of finance asset transfer The Company stop recognizing the finance asset which risks and remuneration of ownership are transferred to the receiver; and continue to recognize the transferred finance asset which risks and remuneration of ownership are kept, and recognize the value as one finance debt. For the finance assets which risks and remuneration of ownership are not transferred or kept, the Company recognize them as following: (1) stop recognizing the finance asset which are given up the control; (2) continue to recognize the finance asset and related finance debt according to the extend which involved into the transferred finance asset for the finance asset which are not given up control. The Company measured the surplus between the following two values for the transferred finance assets which fulfill the stop recognition requirements into current gain or loss: (1) Book value of the transferred finance asset; (2) Consideration plus the accumulated fair value changes which were accounted directed into owner’s equity. For the transferred finance assets which partly fulfill the stop recognition requirements the Company amortized the stopped recognition part and the not-stopped recognition part of the book value of the whole transferred finance asset, and account the surplus between the following two values into current gain or loss: (1) Book value of the stopped recognition part; (2) consideration plus the corresponding stopped recognition part of the accumulated fair value changes which were accounted directed into owner’s equity. 4. Basis of recognition and accounting of fair value for the main finance asset and finance debt For the finance asset or debt which active market exists, the Company recognize the fair value 66 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 according to the quote on the active market; for the finance asset or debt which active market not exists, the Company recognized the fair value using estimation technology (including reference of the latest market prices from freewill transactions by persons familiar with conditions, reference of the current fair value of other similar finance instrument in characteristics, discounted cash flow models and Option Pricing Model); for the initially acquired or initial finance asset or finance debt, the Company recognize the fair value basis on the market trading price. 5. Impairment test and impairment reserves plan The Company conduct impairment test to the finance asset other than which appointed to be measured at fair value with their changes are accounted into current gain/loss accounts on balance sheet day. The Company conduct independently impairment test for single finance asset with large value for single finance asset with little value the Company conduct the impairment test with those of the finance asset composition which have similar credit risk characteristics; for the non impairment assets which are tested independently, the Company conduct the impairment test with those of the finance asset composition which have similar credit risk characteristics. For the finance asset accounted by amortized cost which have subject impairment evidence at the end term, the impairment loss was recognized according to the difference between the book value and the anticipating future cash flow, for the finance asset which have little difference between its short term account receivable anticipating future cash flow and its current value, the Company don’t discount the future cash flow when recognizing related impairment loss. When there is impairment loss for the Equity instrument investment which have no quote in active market and which fair value can’t be measured reliably and its derived finance assets which are connected with the equity instrument and which are calculated through the equity instrument, are measured by cost, the difference is recognized as impairment loss between the book value of the equity instrument investment and its derived finance asset and the current value discounted by the future cash flow according to the market profit rate of the similar finance asset. The Company recognize the impairment loss for the saleable finance asset which fair value have sharp decreasing and the anticipating decreasing trend is not temporary, and account it into impairment loss together with the accumulated fair vale loss which was accounted into owner’s equity directly. (IX) Bad debts reserves of account receivable. For receivables and other receivables among the companies in the consolidation range, no bad debt provision will be provided. For the individual major amount account receivable with subject evidence proving impairment loss(include account receivable and other capital receivable), the Company conduct bad debt provisions according to the difference between its future cash flow and its book value; For individual account receivable with minor amount, and those with major amount but suggested no impairment when separate test was performed (include account receivable and other capital receivable), the Company conduct the proportion of all the compositions’ bad debt provisions according to the actual loss rate of the similar account receivable composition with same account age together with the current conditions. At the following schedule: Age of account receivable Bad debt provisions rate Within 1 year (include 1 year) 5% 1-2 years (include 2 years) 20% 2-3 years (include 3 years) 40% over 3 years 60% For receivables with physical evidence showing that there is obvious difference with the recoverable value, the Company will perform individual impairment test, and provide bad debt reserves at the difference between the future cash flow lower than the book value. 67 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 For other account receivable (including bill receivable, interest receivable, long term account receivable and etc), the Company conduct the bad debt provisions according to individual recognition. The Company don’t conduct bad debt provisions for the account receivable and other account receivable which combined into finance report and between companies. (X) Inventory recognition and accounting 1. Inventories include saleable finished goods or merchandise, product-in-process , consumption material and goods in manufacturing procedure or working procedure. 2. Inventories are initially measured at their actual costs. 3. Accounting of inventories delivered out: Delivered out materials are accounted by weighted average method, issued out finished products are accounted at individual price. Consumables are accounted by once only amortization method. Packing materials for manufacturing are accounted directly into manufacturing cost. 4. At the balance sheet day, inventories are measured at the lower of costs and cashable net values, the individual difference between the cashable net value and cost are provided as inventory impairment provision. For finished product, merchandise, saleable material and other saleable merchandise inventory, their cashable net values are recognized by their estimated sale price in normal operation deducting estimated sale expenses and related taxes; for material inventory which need processing, it cashable net value are recognized by the estimated sale prices of its finished products in normal operation deducting the estimated cost, sale expenses and related taxes due to the end of processing; At the balance sheet day, for inventory item which part has contract price and part has no contract price, the cashable net value is accounted separately, and recognize the inventory impairment provision or returnable cash. 5. Inventory is inventoried by perpetual inventory system (XI) Long-term equity investment recognition. 1. Initial investment cost recognition of long-term equity investment (1) For the long-term equity investment formed by corporate merger under common control, if it is the long-term equity investment obtained from the corporate merger by paying cash, transferring non-cash asset, bear liability and issuing equity securities, the share of book value of owner's equity of the merged party on the merger date shall be taken as the initial investment cost. The asset reserve is adjusted according to the difference between the initial investment cost of long-term equity investment and the book value of paid combined consideration or issued securities; if the capital is not enough for deduction, the remain earnings are adjusted. (2) For the long-term equity investments formed by merger of enterprises under different control, the initial investment cost is recognized by the paid fair value of combined consideration on purchasing day and related expenses. (3) For the long-term equity investments formed by other than merger of enterprises: if it is gotten by paying cash, the initial investment cost is recognized by purchasing price when buy; if it is gotten by issuing equity securities, the initial investment cost is recognized by the fair value of the securities; if it is gotten by investor’s investment, the initial investment cost is recognized by investment contract or agreed value in contract (except the not fair contract value). 2. Cost basis is adopted in accounting of those long-term equity investments by which the Company has substantial control, and is adjusted in composing combined finance report according to equity basis; and those has no common control or major influence without quotation in an active market and the fair value cannot be reliably measured is also recalculated by cost basis. And equity basis is adopted in accounting of those long-term equity investments by which the Company has joint control or major influence on the invested enterprise. 68 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 3. At balance sheet day, for the long term equity investment which recalculated on cost basis and has no quotation in an active market and the fair value cannot be reliably measured, if has subject evidence of deducting value, conduct the long term investment depreciation plan according to the difference between discounted cash flow of similar market investment and its fair value; for other investment has value deducting phenomenon, conduct the long term investment depreciation plan according to the appendix three (fifteen) in this finance report. 4. the basis for recognizing common control and major influence on invested enterprise is: if the invested enterprise’s main finance and operation policy need to be agreed by the other investing part, the investment is common control investment; if only have participating decision rights in invested enterprise’s main finance and operation policy but have no own control or common control with other investing part, the investment is investment with major influence. (XII) Fixed assets recognition and accounting. 1. Fixed assets are defined as the tangible assets which have following characteristics: (1) for the purpose of producing goods, providing services, lease or for operation & management; (2) have more than one fiscal year of service life. 2. Fixed assets also have following conditions: (1) Economic benefit flow into enterprise very possibly; (2) cost can be measured reliably. The successive expensed related fixed assets are accounted into fixed assets cost if it is in accordance with above conditions; if not, accounted into current term gain or loss when happens. 3. Fixed assets are accounted initially by cost basis. 4. Depreciation of fixed assets is on age average basis. Depreciation age, estimated net residue rate and annual rates are as the followings: Category of fixed assets Expected retain value Annual depreciation Useful age (yrs) ratio (%) Houses & buildings 20-30 4% of original value 3.2-4.8 Equipment & machinery 8-15 4% of original value 6.4-12 Office equipment 5 4% of original value 19.2 5. Fixed assets which stop using over three month for absence manufacturing or natural crisis are cognized as idle fixed assets (except seasonal suspend). Same depreciation method is deployed for idle fixed assets as other similar fixed assets. 6. At the balance sheet day, if there is clue of fixed assets depreciation, depreciation plan preparation is conducted according to Note III (XV) 3. (XIII) Recognition and measuring of construction in process 1. Construction in process is recognized on the basis of characteristics: very possible economic benefit flow in, cost can be measured reliably. Since the date when the construction in process reaches its useful status as expected, the construction in process is measured by the happened cost Since the date when the construction in process reaches its useful status as expected. 2. When t he construction in process reaches its useful status as expected, it is transferred into fixed asset at actual cost. If the construction in process has reached useful status but with completion of project settlement process, it is transferred to fixed asset at the value estimated, and adjustment will happen after completion of project settlement process but no depreciation renew. 3. At the balance sheet day, if there is clue of construction in process depreciation, depreciation plan preparation is conducted according to appendix three (fifteen) section three. (XIV) Recognition and measuring of intangible assets 1. Intangible assets are accounted initially by cost basis. 69 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 2. According to the contract rights or other legal rights, industry environment, historical experience, related expert verification and other comprehensive facts, if can define the economic benefit time limit, the intangible assets are the Intangible assets with limited useful life; if can’t define the economic benefit time limit, the intangible assets are the Intangible assets without limited useful life. 3. For intangible assets with limited useful life, have to consider the following fact when estimate the useful life time limit: (1) The normal useful life of products manufactured from the intangible assets, useful life of available similar assets. (2) Current environment of technology and techniques and future development trend; (3) Market requirements of the products manufactured from the intangible assets or supplied service from the intangible assets; (4) Future deployed activities of the current and potential competitors; (5) Anticipating maintenance expense to the economic benefit capacity of the intangible assets, and the Company’s payable capacity for the expenses; (6) related law regulations or similar limitation for the time of the intangible assets, such as special permission period, rent period; (7) Relationship with other the Company owned assets’ useful life. 4. For intangible assets with limited useful life, during the use life it is amortized according to the anticipating implementation method of the economic benefit of the intangible asset systematically and reasonably. If can’t recognize the anticipating implementation method, the straight basis is deployed. Intangible assets without limited useful life are not amortized. But have to review the useful life of the intangible assets and conduct the depreciation test. 5. At the balance sheet day, to check the future economic benefit capacity to the Company of the intangible assets, depreciation plan preparation is conducted according to Note III (XV) 3. 6. Expenditures of internal researching projects are accounted into current term gain and loss when happens. The development period expenditures are recognized as intangible assets when fulfill following conditions: (1) The intangible asset is completed and technically possible to be used or sold; (2) With intention to complete the intangible asset for purpose of use or sale; (3) Evidence showing that there are markets or the products produced with using of the intangible asset, or markets of the intangible asset itself, by which the intangible asset may produce financial benefits. Intangible assets used inside the Company must be approved for their usable characters. (4) Developing of the intangible assets are supported by sufficient technical, financial, and other resources, and the intangible assets can be used or sold. (5) Expenditures occurred in developing of the intangible asset may be reliably measured. (XV) Asset impairment 1. 1. At the balance sheet day, assets (except inventory, equity investment without quote at active market and which fair value can’t be reliably measured, investing property deployed fair value measurement, consuming biology asset, ) are evaluated to show if there is depreciation clue .If there is clue to show asset depreciation, estimate its returnable amount by individual asset; if it’s hard to estimate the individual asset, estimate it on the basis of its asset composition or composition group. 2. The returnable amount is the higher value of net value of individual asset, asset composition, asset composition group’s fair value deduct dealing expenditures and anticipating future cash flow net value of the individual asset, asset composition, asset composition group. 3. If the individual asset’s returnable amount is lower than its book value, asset depreciation preparation is conducted according to the deference between the individual asset book value and returnable amount. If the returnable value of the asset composition or the asset composition group is lower than its book value, when recognizing the depreciation loss, the depreciation loss amount firstly compensate the amortized book value of goodwill of the asset composition or asset composition group, secondly proportionally compensate the other assets’ book value according to the proportion of other asset other than goodwill; the above book value compensations are recognized as separate individual asset’s depreciation loss and separate depreciation loss preparation plan are conducted. 70 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 4. Once impairment losses are confirmed upon the above assets, they won’t be restored in successive accounting periods. (XVI) Loan and loan expenses recognition and accounting 1. Recognition criteria for loan expense capitalization. The loan and loan expenses which satisfying capitalization conditions for construction or manufacturing are capitalized and accounted into asset cost; for other loan expense, if is recognized as expense when happens, is accounted into current term gain or loss. Asset which satisfying capitalization conditions refer to fixed asset, investing property asset or inventory which need long time construction or manufacturing activity to reach expected status of using or sale. 2. During the loan expense capitalization. (1) When simultaneously satisfying the following conditions, capitalization begins: 1) Asset expense has happened; 2) Loan expense has happened; 3) Necessary construction or manufacturing activity has began for asset reach the expected status of using or sale. (2) Suspending capitalization: if asset which satisfying capitalization conditions has suspended unexpected during construction or manufacturing, and the suspend time exceed three months, the capitalization will suspend; the loan expense during the suspending period are recognized as current term expenditure till the reopen of the construction or manufacturing. (3) Stopping capitalization: if asset which satisfying capitalization conditions has reached the status of using or sale, the capitalization stop. 3. Loan expense capitalization amount. Loans borrowed particularly for purchasing or construction of assets which satisfies the conditions of capitalization, the expenses to be capitalized shall be decided by actual interest occurred for the particular loan, less interest obtained from saving of the unused fund saving in bank or temporary investment gains. If common loans have been used in purchasing or construction of assets satisfies the conditions of capitalization, the interest to be capitalized shall be calculated according to the weighted average of balance of accumulated capital expense over capital expense of the particular loan multiply the capitalization ratio of common loans used. Capitalization ratio is calculated at the weighted average interest of common loans. During the capitalization, the interest capitalization amount in each fiscal period don’t exceed the actual interest of loan of that period. The exchange difference of special foreign currency loan and interest are capitalized during the capitalized period. For other expenses of special loan, if happens before the asset which satisfying capitalization conditions for construction or manufacturing reaching the using or sale status, capitalize it; if happens after reaching the status, account it into current term gain or loss. For other expenses of common loan, are accounted into current term gain or loss. (XVII) Recognition of income 1. Sale of goods Major risks and rewards attached to the goods have been transferred to the purchaser; The Company holds neither successive management power which is normally attached to ownership, nor effective control, over the goods which have been sold out; Amount of income may be reliably measured; when the costs, occurred or will occur, may be measured reliably, confirm the sale income implementation. 2. Providing of services At balance sheet day, those service trades (simultaneously satisfying the requirements of those: income can be measured reliably, related economic benefit will flow in very possibly, transaction procedure can be confirmed reliably, happened and happening cost can be measured reliably) which can be reliably estimated are recognized at the percentage of completion, and progress of completion of service is decided by the portion of costs occurred over the estimated total costs. At 71 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 balance sheet day, those service trades which can not be reliably estimated, if the happened services cost will be compensated, the services income are recognized according to happened service cost and transited to service cost according to same amount; if the happened services cost will not be compensated, the happened services cost are accounted into current term’s gain or loss and the services income will not be recognized. 3. Giving of assets Income from giving of assets is recognized when satisfying requirements: related economic benefit flows in very possibly, income can be measured reliably. Amount of interest income is calculated according to the time and actual interest rate of the monetary capital is used by other party. Income of using fee is calculated upon the charge period and calculation provided by the related contract or agreement. (XVIII) Enterprise income tax recognition and accounting. 1. Differed income tax liabilities or assets are recognized at proper rate in the term of retrieving the assets or paying the liabilities according to difference (for not recognized assets and liabilities which tax basis can be recognized, the difference is between the tax basis and the book value) between book value of the assets or liabilities and the tax basis. 2. Differed income tax assets are recognized limitedly by the income tax which very possibly deduct deductible temporary difference. At balance sheet day, the not-yet recognized differed income tax assets in previous fiscal term are recognized if have evidence to prove there is enough income tax very possibly to deduct deductible temporary difference. 3. At balance sheet day, the book value of differed income tax assets are recalculated, if there is not enough possible tax income to deduct deductible temporary difference, the book value will be deducted. When there is enough income tax, recover the book value which deducted. 4. Current income tax and differed income tax are accounted into current gain/loss account as income tax expenditures or gains, but exclude the following income taxes: (1) Merger of enterprises; (2) Transactions or events recognized directly in owners’ equity. (XIX) Consolidated financial statements The Company takes all subsidiaries under the Company’s substantial control in the consolidation range. The consolidated financial statements are based on the finance report of parent company and its subsidiaries. And are composed according to Enterprise Account Criteria No.33- Consolidated Financial Statements after adjusting the long equity investment to subsidiaries according to Equity Law and other related documents. 72 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 IV. Taxes (I) VAT Paid at 17%. (II) City maintenance and construction tax The Company, Zhejiang Huayuan Steam Turbine Mechanism Co., Ltd, Hangzhou Guonenng Steam Turbine Co’,Ltd are foreign investment enterprises which are free of city maintenance tax. The other subsidiaries are subject to pay city maintenance tax with amount of 7% turnover tax. (III) Education surtax The Company, Zhejiang Huayuan Steam Turbine Mechanism Co., Ltd, Hangzhou Guonenng Steam Turbine Co’,Ltd are foreign investment enterprises which are free of education surtax. The other subsidiaries are subject to education surtax at 3% of turnover tax. (IV) Local education surcharges Paid at 2% of turnover tax payable. (V) Enterprise income tax 1. According to the document 浙科发高[2008]314 titled “Notification of Awarding the Second Lot of High-Tech Enterprises of Year 2008” issued jointly by Zhejiang Bureau of Science and Technology, Zhejiang Bureau of Finance, Zhejiang National Tax Bureau, and Zhenjiang Local Tax Bureau, the Company was certified the High-Tech Enterprise of 2008, therefore enjoys 15% of income tax rate. 2. According to the document 浙科发高[2008]250 titled “Notification of Awarding the First Lot of High-Tech Enterprises of Year 2008” issued jointly by Zhejiang Bureau of Science and Technology, Zhejiang Bureau of Finance, Zhejiang National Tax Bureau, and Zhenjiang Local Tax Bureau, the Company was certified the High-Tech Enterprise of 2008, therefore enjoys 15% of income tax rate. 3. According to “Approval to Hangzhou Guoneng Steam Turbine Engineering Co., Ltd. for remitting of taxes at fixed period” (余国税外〔2008〕290 号) issued by Zhejiang Hangzhou National Tax Bureau, Hangzhou Guoneng Steam Turbine Engineering Co., Ltd. is enjoying preferable taxation policies at fixed period, namely, 2007 was the year the company started to make profit, it was free of tax for 2007-2008, and 12.5% of tax rate for 2009-2011. 4. According to “Notification of certifying Zhejiang Huayuan Steam Turbine Machinery Co., Ltd. and other three foreign invested manufacturers to enjoy tax remitting policies at fixed period” (德 国税法[2007]19 号) issued by Zhejiang Deqing County National Tax Bureau, Zhejiang Huayuan Steam Turbine Machinery Co., Ltd. was qualified to enjoy income tax remitting policies at fixed periods, namely, 2007 was the year the company started to make profit, it was free of tax for 2007-2008, and 12.5% of tax rate for 2009-2011. 5. Other subsidiaries are subject to 25% of corporation income tax. 73 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 V. Enterprise consolidation and consolidated financial statements (I) Main subsidiaries under control Subsidiaries obtained through other ways Subsidiary Reg. Add. Business Registered Business Scope (Full name) property capital Zhejiang Steam Trubine Packaged Development of electrical & Hangzhou Manufact Technologies Development Co., Ltd. 30 mil mechanical equipment control unit and Zhejiang uring (the Packaged Tech Co.) technical consulting service Designing and manufacturing of steam turbines and supplementary equipment Hangzhou Zhongneng Steam Turbine Hangzhou Manufact 92.5 mil and parts; sales of the Company’s Power Co., Ltd. (Zhongneng Co.) Zhejiang uring products; contracting and consulting of mid-small size power plants Manufacturing of cast iron and steel Hangzhou Steam Turbine Casting Hangzhou Manufact products; installation and maintenance RM22 million Co., Ltd. (Casting Co.) Zhejiang uring of casting equipments; sales of the Company’s products Hangzhou Steam Turbine Auxiliary Hangzhou Manufact Manufacturing of auxiliary equipment Machinery Co., Ltd. (Auxiliary 40 mil Zhejiang uring of steam turbine Machinery Co.) Hangzhou Steam Turbine Machinery Manufacturing and processing of Hangzhou Manufact Equipment Co., Ltd. (Machinery 15 mil steam turbine auxiliary parts and other Zhejiang uring Equipment Co.) machinery auxiliary parts Zhejiang Huayuan Steam Turbine Huzhou Manufact Manufacturing and processing of 21 mil Machinery Co., Ltd. (Huayuan Co.) Zhejiang uring steam turbine parts Steam turbine periphery; service: Hangzhou Guoneng Steam Turbine Hangzhou Manufact design, installation, consultation, 40 mil Engineering Co., Ltd. (Guoneng Co.) Zhejiang uring technology service of steam turbine system and related equipments. Hangzhou Steam Turbine Group Steam turbine and auxiliary equipment Hangzhou Manufact Equipment System Engineering Co., 20 mil designing and installation, equipment Zhejiang uring Ltd. (Group System Co.) system engineering Designing of cooling and depressurizing equipment and accessories; manufacturing Hangzhou Pangtong Electronic Hangzhou Manufact (assembling only): cooling and 1 mil Equipment Co., Ltd. (Pangtong Co.) Zhejiang uring depressurizing equipment; wholesale and retailing: cooling and depressurizing equipment and related equipment Changshan Qijin Equipment & Quzhou Manufactur Designing, installation of steam RM10 million Engineering Co., Ltd. (Qijin Co.) Zhejiang ing turbine and auxiliary equipment Shaoxing Qi’an Equipment & Shaoxing Manufactur Designing, installation of steam RM10 million Engineering Co., Ltd. (Qi’an Co.) Zhejiang ing turbine and auxiliary equipment 74 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 (Continue) Subsidiary Practical amount of Balance of net investment Share Voting (Full name) investment to end of practically made in proportion power % report term subsidiaries % Zhejiang Steam Turbine Packaged Technology 15,828,000.00 15,828,000.00 51 51 Development Co., Ltd. Hangzhou Zhongneng Steam 5,100,000.00 5,100,000.00 51 51 Turbine Power Co., Ltd. Hangzhou Steam Turbine Casting 11,220,000.00 11,220,000.00 51 51 Co., Ltd. Hangzhou Steam Turbine 18,240,000.00 18,240,000.00 76 76 Auxiliary Machine Co., Ltd. Hangzhou Steam Turbine Machinery & Equipment Co., 7,968,000.00 7,968,000.00 52 52 Ltd. Zhejiang Huayuan Steam Turbine 15,750,000.00 15,750,000.00 75 75 Co., Ltd. (Note 1) Hangzhou Guoneng Steam Turbine Engineering Co., Ltd. 30,000,000.00 30,000,000.00 75 75 (Note 2) HSTG Equipment & Engineering 8,000,000.00 8,000,000.00 40 40 Co., Ltd. (Note 3) Hangzhou Pangtong Electronic 700,000.00 700,000.00 70 70 Equipment Co., Ltd. (Note 4) Changshan Qijin Equipment & 7,000,000.00 7,000,000.00 70 70 Engineering Co., Ltd. (Note 5) Shaoxing Qi’an Equipment & 7,000,000.00 7,000,000.00 70 70 Engineering Co., Ltd. (Note 5) [Note 1]: Huayuan Co. is the subsidiary of Machinery Co. [Note 2]: Guoneng Co. is a subsidiary of Auxiliary Equipment Co. [Note 3]: HSTG Equipment & Engineering Co. is under controlling of Zhongneng Co. [Note 4]: Pangtong Co. is a subsidiary of Zhongneng Co. [Note 5]: Qijin Co. and Qi’an Co. are subsidiaries of HSTG Equipment & Engineering. (II) Subsidiaries in which the parent company is holding half or over of shares, and reasons to be included in the consolidated financial statements HSTG Equpment & Engineering Co. was incorporated in October 2007 and Zhongneng Co. was holding 40% of its share equity. It’s business practice started in the report term, and Zhongneng Co. is practically controlling the business opearation. Therefore it was included in the consolidated financial statements since January 2008. (III) Change on scope of consolidated finance statements. 1. In December 2008, Zhongneng Co. and Xinchang Kaili Cooling and Depressurizing Equipment Factory established Hangzhou Pangtong Electronic Equipment Co., Ltd. jointly with registered capital of RMB1 million, in which Zhongneng Co. inputted RMB700 thousand and taking 70% of the capital share. Zhongneng Co. is practically controlling the new company. Therefore it was included in the consolidated financial statements since the date of incorporation (i.e. February 16, 2009, at which the registration routines were completed and the Certificate of Incorporation No. 330198000012411 was granted). 2. In the report term, HSTG Equipment & Engineering Co. and Hangzhou Jinnuo Goods Co., Ltd. invested jointly to establish Changshan Qijin Equipment & Engineering Co., Ltd., which was incorporated on August 1, 2008 with business license No.330822000006344. The company was registered to capital or RMB10 million, in which HSTG Equipment & Engineering Co. inputted 75 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 RMB7 million, account for 70% of the share equity, and taking substantial controlling over it. Therefore it was included in the consolidated financial statements since the date of incorporation. 3. In the report term, HSTG Equipment & Engineering Co. and Shaoxing Jian’an Equipment Leasing Co., Ltd. invested jointly to establish Shaoxing Qi’an Equipment & Engineering Co., Ltd., which was incorporated on August 8, 2008 with business license No.330621000050367. The company was registered to capital or RMB10 million, in which HSTG Equipment & Engineering Co. inputted RMB7 million, account for 70% of the share equity, and taking substantial controlling over it. Therefore it was included in the consolidated financial statements since the date of incorporation. (IV) Minor shareholder’s equity of main subsidiaries. Amount for The balance of parent deducting company shareholder’s minor Minor equity deducting subsidiary shareholder’s Full name of the subsidiary shareholders’ shareholder’s current term equity in the equity loss beyond the minor minor shareholder’s initial equity shareholder’s shares equity Zhejiang Steam Turbine Packaged Technology 32,962,142.38 Development Co., Ltd. Hangzhou Zhongneng Steam Turbine Power Co., Ltd. 40,275,931.34 Hangzhou Steam Turbine Casting Co., Ltd. 63,508,507.32 Hangzhou Steam Turbine Auxiliary Machine Co., 56,413,576.60 Ltd. Hangzhou Steam Turbine Machinery & Equipment 56,021,897.22 Co., Ltd. Hangzhou Guoneng Steam Turbine Engineering Co., 13,674,124.00 Ltd. Zhejiang Huayuan Steam Turbine Machinery Co., 7,975,000.00 Ltd. Hangzhou Steam Turbine Power Group Packaged 29,523,806.83 Project Engineering Co., Ltd. Hangzhou Pangtong Electronic Equipment Co., Ltd. 300,000.00 Changshan Qijin Equipment & Engineering Co., Ltd. 2,860,283.76 Shaoxing Qi’an Equipment & Engineering Co., Ltd. 2,968,658.32 VI. Profit distribution According to the Profit Distribution Plan 2007 passed by Shareholders’ Annual Meeting 2007, legal surplus reserve was provided at 10% of the net profit realized in 2007, and RMB4 (tax included) was distributed to each 10 shares. According to the Profit Distribution Plan 2008 passed at the 8th meeting of the 4th term of Board held on April 22, 2009, legal surplus reserve was provided at 10% of the net profit of the parent company realized in 2008, and basing on 371,800,000 of total capital shares at end of 2008, RMB4 (tax included) of cash dividend will be distributed to each 10 shares. This preplan is subject to the approval of the Shareholders’ Annual Meeting 2008. 76 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 VII. Notes to Consolidated Financial Statements (I) Notes to Consolidated Balance Sheet 1. Monetary capital End of term 450,103,030.94 (1) Details Items End of term Beginning of term Cash in stock 149,943.17 57,791.58 Bank deposit 442,221,100.77 275,124,780.72 Other monetary fund 7,731,987.00 21,422,791.18 Total 450,103,030.94 296,605,363.48 (2) Statement on accounts which are pledged, frozen, limited to use, or stored in overseas place, or with potential risk in retrieving. Other balance of cash at the end of term were mostly the deposite for issuing of L/C and secure letter. (3) Monetary capital – foreign currency capital Balance at the end of term Balance at the beginning of year Exchange Translated to Original Exchange Translated to Original currency rate RMB currency rate RMB Bank USD USD deposit 1,479,139.02 6.8346 10,109,323.85 325,040.57 7.3046 2,374,291.35 JPY 23,591,639.92 0.07565 1,784,707.56 EUR 530,979.28 9.6590 5,128,728.87 EUR 316.83 10.6669 3,379.59 Total 17,022,760.28 2,377,670.94 (4) Statement on the assets changed by over 30% (included) or 5% (included) of the total assets Increasing of 51.75% from the beginning of term was caused by increasing of bank loans in the report term. 2. Notes receivable End of term 374,122,522.90 (1) Details Balance at the end of term Balance at the beginning of year Items Bad debt Bad debt Book balance Book value Book balance Book value provision provision Bank - - acceptance 374,122,522.90 374,122,522.90 336,535,631.00 336,535,631.00 Commercial acceptance - - Total 374,122,522.90 - 374,122,522.90 336,535,631.00 - 336,535,631.00 77 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 (2) Notes endorsed but not due was RMB333,511,110.68, which due dates are between January 2, 2009 to June 22, 2009 (3) No evidence shows that any of the notes receivable has impaired, thus no bad debt reserve was provided. 3. Account receivable End of term 1,184,421,641.17 (1) Details Balance at the end of term Balance at the beginning of year Items Book Proportion Bad debt Book Proportion Bad debt Book value Book value balance % provision balance % provision Major single 543,010,515.29 39.16 68,783,062.22 474,227,453.07 amount 393,180,246.62 32.92 44,653,113.77 48,527,132.85 Minor single amount but with 47,497,098.52 3.43 29,408,536.71 18,088,561.81 36,347,363.16 3.04 23,263,326.86 13,084,036.30 great credit risk 795,997,253.47 57.41 103,891,627.18 692,105,626.29 Other minors 764,823,147.27 64.04 83,350,294.27 81,472,853.00 Total 1,386,504,867.28 100.00 202,083,226.11 1,184,421,641.17 194,350,757.05 100.00 151,266,734.90043,084,022.15 (2) Age analysis Balance at the end of term Balance at the beginning of year Items Book Proportion Bad debt Book Proportion Bad debt Book value Book value balance % provision balance % provision within 1 year 850,786,900.32 61.36 42,539,345.03 808,247,555.29 827,813,244.86 69.32 41,390,662.25 786,422,582.61 1-2 years 340,623,484.21 24.57 68,124,696.84 272,498,787.37 237,114,580.06 19.85 47,422,916.00 189,691,664.06 2-3 years 132,738,915.01 9.57 53,095,566.00 79,643,349.01 83,277,557.97 6.97 33,311,023.19 49,966,534.78 Over 3 years 62,355,567.74 4.50 38,323,618.24 24,031,949.50 46,145,374.16 3.86 29,142,133.46 17,003,240.70 Total 1,386,504,867.28 100.00 202,083,226.11 1,184,421,641.17 1,194,350,757.05 100.00 151,266,734.90 1,043,084,022.15 (3) Debts due from top 5 debtors were amounted to RMB696,840,313.67, accounted for 50.26% of the booked balance of account receivable, their age analysis are as the followings: Account age End of term within 1 yr 481,869,783.59 1-2 yrs 155,606,521.34 2-3 yrs 41,812,660.52 Over 3 yrs 17,551,348.22 Sub-total 696,840,313.67 (4) Debts due from shareholders with 5% or over of the Company’s shares Name of the shareholder End of term Beginning of term 78 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 Hangzhou Steam Turbine Group 246,000.00 423,300.00 Sub-total 246,000.00 423,300.00 (5) Other statements 1) Statement on providing of bad debt on major account receivables Single major account receivables with major amount and tested no impairment at the end term, the bad debt reserves are provided at the practical impairment rate after combined with receivables with similar age. 2) Statement on determine of combination of accounts without major amount but with great credit risks after combined with other similar receivable accounts. According to the analysis on the retrieving of receivables, greater risks are attached to receivables with over 3 years of age. Thus bad debt provisions were provided upon receivables with over 3 years of age at 60%. Account receivables with part of amount over 10% (included) are determined as minor amount, but with greater credit risks after combined, are deducted from the above applicable receivables. 3) Account receivable (aged over 3 years) amounted to RMB2,275,694.00 at end of term was provided bad debt provisions in full due to long-term debt or payment refused. 4. Prepayment End of term 230,097,109.65 (1) Age analysis End of term Beginning of term Account age Book balance Proportion Bad debt Book value Book balance Proportion Bad Book value provision % debt provision within 1 yr 222,342,120.49 96.62 222,342,120.49 163,401,006.30 95.21 163,401,006.30 1-2 yrs 6,068,588.39 2.64 6,068,588.39 1,348,441.58 0.79 1,348,441.58 2-3 yrs 57,576.00 0.03 57,576.00 1,644,864.77 0.96 1,644,864.77 Over 3 yrs 1,628,824.77 0.71 1,628,824.77 5,218,982.25 3.04 5,218,982.25 Total 230,097,109.65 100.00 230,097,109.65 171,613,294.90 100.00 171,613,294.90 (2) Statement on material unsettled prepayment due over one year Prepayment over one year are outstanding purchasing payments. (3) No debts due from shareholders with 5% or over of the Company’s shares (4) No evidence shows that impairment occurred to the prepayments at the end of term, thus no bad debt provision was provided. (5) Statement on the assets changed by over 30% (included) or 5% (included) of the total assets The book value at end of term has increased by 34.08%, which was caused by increase of production and led to increase in prepaid purchases at the end of term. 5. Other account receivable End of term 17,241,574.65 (1) Details Balance at the end of term Balance at the beginning of year Book Proportion Bad debt Book Proportion Bad debt Items balance % provision Book value balance % provision Book value Major single 7,010,320.94 32.50 2,556,192.56 4,454,128.38 amount 14,098,825.94 50.73 4,046,453.56 10,052,372.38 79 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 Minor single amount but 377,471.28 1.75 226,482.77 150,988.51 332,765.36 1.20 199,659.22 133,106.14 with great credit risk Other 14,184,809.46 65.75 1,548,351.70 12,636,457.76 minors 13,361,280.63 48.07 57,288.28 13,303,992.35 Total 21,572,601.68 100.00 4,331,027.03 17,241,574.65 27,792,871.93 100.00 4,303,401.06 23,489,470.87 80 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 (2) Age analysis End of term Beginning of term Account Book balance Proportion Bad debt Book value Book balance Proportion Bad debt Book value age provision % provision within 1 yr 13,923,005.96 64.54 696,150.30 13,226,855.66 20,585,385.63 74.07 1,029,269.28 19,556,116.35 1-2 yrs 1,512,600.00 7.01 302,520.00 1,210,080.00 2,602,400.00 9.36 520,480.00 2,081,920.00 2-3 yrs 1,749,203.50 8.11 699,681.40 1,049,522.10 47,000.00 0.17 18,800.00 28,200.00 3-5 yrs 4,387,792.22 20.34 2,632,675.33 1,755,116.89 4,558,086.30 16.40 2,734,851.78 1,823,234.52 Total 21,572,601.68 100.00 4,331,027.03 17,241,574.65 27,792,871.93 100.00 4,303,401.06 23,489,470.87 The outstanding accounts due from top 5 debtors are amounted to RMB11,186,749.39, accounted for 51.86% of the total booked balance of other receivables. Their ages are: Account age End of term within 1 yr 6,144,428.45 2-3 yrs 1,032,000.00 Over 3 yrs 4,010,320.94 Sub-total 11,186,749.39 (4) No debts due from shareholders with 5% or over of the Company’s shares (5) Other statements 1) Statement on providing of bad debt on major account receivables Bad debt provisions are provided at the practical rate after combined with other similar accounts on other receivables with single major amounts which are not impaired. 2) Statement on the combination of other receivables with minor single amount but with great credit risks after combined with similar accounts. According to the analysis on the retrieving of other receivables, greater risks are attached to receivables with over 3 years of age. Thus bad debt provisions were provided upon other receivables with over 3 years of age at 60%. Other account receivables with part of amount over 10% (included) are determined as minor amount, but with greater credit risks after combined, are deducted from the above applicable other receivables. 6. Inventories End of term 1,192,643,294.30 (1) Details Balance at the end of term Balance at the beginning of year Items Impairment Impairment Book balance Book value Book balance Book value provision provision Stock materials 310,088,684.93 310,088,684.93 245,608,607.43 245,608,607.43 Product in 541,972,221.45 541,972,221.45 process 333,820,947.81 333,820,947.81 Stock products 343,376,921.73 2,794,533.81 340,582,387.92 186,806,847.07 1,690,377.87 185,116,469.20 Total 1,195,437,828.11 2,794,533.81 1,192,643,294.30 766,236,402.31 1,690,377.87 764,546,024.44 (2) Basis of providing inventory impairment provisions Inventory impairment provisions were provided according to the balance of cost of single inventory item over the realizable net value, which is determined according to the latest sales price 81 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 less related expenses. Impairment provisions of part of the products disposed have been carried back in the report term. (3) No inventory has been used as pledge. (4) Statement on the assets changed by over 30% (included) or 5% (included) of the total assets The book value at end of term has increased by 55.99%, which was caused by increase of sales and in-stock products. 7. Long-term share equity investment End of term 408,093,320.85 (1) Details Balance at the end of term Balance at the beginning of year Items Impairment Impairment Book balance Book value Book balance Book value provision provision Investment in 5,506,869.23 5,506,869.23 13,311,366.27 13,311,366.27 affiliates Other equity 402,586,451.62 402,586,451.62 280,782,411.62 280,782,411.62 investment Total 408,093,320.85 408,093,320.85 294,093,777.89 294,093,777.89 (2) Long-term equity investment on equity basis 1) Composition of balances at the end of term Share Other Balance at Name of the Investment Adjustment of portion Cost equity the end of Companies term gain/loss % change term Hangzhou Steam Turbine Environmental Engineering Co., Ltd. 45 20 yrs 9,000,000.00 -4,029,173.27 536,042.50 5,506,869.23 Sub-total 9,000,000.00 -4,029,173.27 536,042.50 5,506,869.23 2) Details of changes in the report term Change Change of Dividend Balance at the Change of of other Balance at Name of the adjustment received Initial amount beginning of costs in the equities the end of Companies on gain/loss in the year term in the term of the term term term Hangzhou Steam Turbine Environmental Engineering Co., Ltd. 9,000,000.00 5,792,569.32 -285,700.09 5,506,869.23 Hangzhou Steam Turbine Power Group Packaged Project Engineering Co., Ltd. 8,000,000.00 7,518,796.95 -8,000.000.00 481,203.05 Total 17,000,000.00 13,311,366.27 -8,000.000.00 195,502.96 5,506,869.23 [Note] Share equity of Group System Co. was decreased due to reasons described in Note V (II). (3) Long-term equity investment on cost basis 82 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 Details Share Balance at the Investment Increased this Decreased Balance at the Name of the Companies portion Initial amount beginning of term term this term end of term % year Zhejiang Tianyu Share 27.27 50 yrs 30,000,000.00 30,000,000.00 30,000,000.00 Controlling Co., Ltd. Greenesol Co. (India) 37 Not stated 1,032,411.62 1,032,411.62 1,032,411.62 Zhejiang Tianhang Steam Turbine Auxiliary 33.33 50 yrs 10,000,000.00 10,000,000.00 10,000,000.00 Machinery Co., Ltd. Luoyang Zhongneng Steam Turbine Sales 10 50,000.00 50,000.00 50,000.00 Co., Ltd. Hangzhou Bank 8.75 Not stated 239,700,000.00 239,700,000.00 151,254,040.00 390,954,040.00 Zhejiang Sanxin Automatic Engineering 6.00 30 yrs 600,000.00 600,000.00 600,000.00 Co., Ltd. Sub-total 281,382,411.62 280,782,411.62 151,854,040.00 30,050,000.00 402,586,451.62 (4) On March 13, 2008, the Company entered the Share Equity Transferring Contract with Zhejiang Xiyuan Holdings Co., Ltd., and Hangzhou Caikai Investment Group Ltd. respectively, by which the Company transferred the share equities in Zhejiang Tianyu Holdings Co., Ltd. over to the above parties. (5) The Auxiliary Machine Co. – the controlled subsidiary of the Company has invested RMB10,000,000 in Zhejiang Tianhang Steam Turbine Auxiliary Machinery Co., Ltd. and take 33.33% of the share equities. According to the agreement, the Company adopts fixed return in accounting of this long-term equity investment. In case of the revenue of the company is lower than RMB80 million, the return rate after tax will be 10%, ie. RMB1,000,000; in case of the revenue is over RMB80 million, the return rate after tax will be 12%, ie. RMB1,200,000. For the above long-term equity investment adopts agreement rewarding scheme, the Auxiliary Machinery Co. accounts the long-term equity investment on cost basis. (6) Long-term equity investment impairment provisions No obvious impairment evidence appears at the end of term, thus no impairment provision was provided. (7) Statement on the assets changed by over 30% (included) or 5% (included) of the total assets Increasing of 38.76% was caused by increasing of investment in in Hangzhou Bank. 83 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 8. Fixed assets End of term 523,475,639.79 (1) Details Original value Category Beginning of term Increased this term Decreased this term End of term Houses & buildings 232,765,699.85 22,279,364.93 341,082.71 254,703,982.07 Equipment & machinery 510,381,801.31 29,013,690.79 3,448,687.43 535,946,804.67 Office equipment 75,538,734.27 61,647,298.26 658,803.26 136,527,229.27 Total 818,686,235.43 112,940,353.98 4,448,573.40 927,178,016.01 Accumulated depreciation: Decreased this Category Beginning of term Increased this term term End of term Houses & buildings 79,571,360.88 7,062,978.38 98,383.18 86,535,956.08 Equipment & 229,132,956.78 machinery 37,042,080.99 2,522,615.26 263,652,422.51 Office equipment 36,505,151.33 9,277,789.15 438,107.55 45,344,832.93 Total 345,209,468.99 53,382,848.52 3,059,105.99 395,533,211.52 Impairment provision Decreased this Category Beginning of term Increased this term term End of term Houses & buildings 1,505,077.02 148.78 1,504,928.24 Equipment & machinery 4,472,648.36 288.80 4,472,359.56 Office equipment 2,200,854.93 8,978.03 2,191,876.90 Total 8,178,580.31 9,415.61 8,169,164.70 Book value Category Beginning of term Increased this term Houses & buildings 151,689,261.95 166,663,097.75 Equipment & machinery 276,776,196.17 267,822,022.60 Office equipment 36,832,728.01 88,990,519.44 Total 465,298,186.13 523,475,639.79 (2) Increasing in current term includes RMB103,263,831.51 transferred from construction in process. (3) No external guarantee issues in fixed assets. (4) No temporary idle fixed assets at the end of report term. (5) No fixed assets rent in by financing or operational rent out in the amount at the end of term. (5) Impairment provision of RMB8,169,164.70 was provided according to the difference between the book value and retrievable value of single fixed asset. 84 Hangzhou Steam Turbine Co., Ltd. 9. Construction in process End of term 37,083,938.18 (1) Details End of term Book Impairment Project balance provision Book value Book Reconstruction of the boiler room 5,100 Head office of 2nd workshop reconstruction 76 Technical reforming of new dynamic balance machine 25,901 Decoration of the conference hall 1,857 Testing and controlling machine and burning machine of general assembling workshop 69 TK6916 Digital Flat Lathe 1,437,432.62 1,437,432.62 Renewing of TK6113 Digital Flat Lathe 2,582,264.71 2,582,264.71 Renewing of vane lathe 553,030.70 553,030.70 New flat drill in general assembling 372,387.55 372,387.55 New lathe in Vane Factory C61100（D1000/L3000） 323,741.00 323,741.00 Construction in process under Huayuan Co. 6,532 Construction in process of Guoneng Co. 17,434,701.85 17,434,701.85 545 Construction in process of Casting Co. 8,266,186.20 8,266,186.20 2,018 Other small projects 6,114,193.55 6,114,193.55 14,386 Total 37,083,938.18 37,083,938.18 56,488 85 Hangzhou Steam Turbine Co., Ltd. (2) Change of constructions in process Project Beginning Increased Transferred to Other E of term this term fixed asset decrease this this term term Reconstruction of the boiler room 5,100,004.16 2,416,600.00 7,516,604.16 Head office of 2nd workshop reconstruction 76,648.00 76,648.00 Technical reforming of new dynamic balance machine 25,901,871.20 17,237,185.02 43,139,056.22 Decoration of the conference hall 1,857,028.65 10,803,991.60 3,117,631.39 9,543,388.86 Testing and controlling machine and burning machine of general assembling workshop 69,940.00 69,940.00 TK6916 Digital Flat Boring 1,437,432.62 1, TK6113 Digital Flat Boring 2,582,264.71 2, Renewing of vane lathe 553,030.70 32 ton crane 811,022.61 811,022.61 Flat drill 372,387.55 C61100 lathe 323,741.00 Huayuan Co. New Factory Construction 6,532,213.46 10,470,863.45 16,003,076.91 1,000,000.00 Guoneng Co. New Factory Construction 545,548.00 16,889,153.85 17, Casting workshop and equipment 2,018,000.00 7,288,186.20 1,040,000.00 8, Other small projects 14,386,964.62 26,670,929.14 31,566,500.22 3,377,199.99 6 Total 56,488,218.09 97,856,788.45 103,263,831.51 13,997,236.85 37, (3) No evidence shows that impairment occurred to the construction in process, therefore no impairment provision was provi (4) Statement on the assets changed by over 30% (included) or 5% (included) of the total assets Amount at end of year decreased by 34.35% from the beginning of year, which was caused by transferring of construction-in 86 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 10. No intangible asset was under pledge End of term 102,596,697.16 (1) Details Original value Beginning of Increased this Decreased this Category term term term End of term Land using right 78,169,190.00 7,440,358.25 85,609,548.25 Residue heat power plant operation right 28,000,000.00 28,000,000.00 Sub-total 78,169,190.00 35,440,358.25 113,609,548.25 Accumulated amortizing Beginning of Increased this Decreased this Category term term term End of term Land using right 9,333,933.15 1,678,917.94 11,012,851.09 Residue heat power plant operation right Sub-total 9,333,933.15 1,678,917.94 11,012,851.09 Book value Category Beginning of term Increased this term Land using right 68,835,256.85 74,596,697.16 Residue heat power plant operation right 28,000,000.00 Total 68,835,256.85 102,596,697.16 (2) No intangible asset was under pledge, for details please go to Note XI (II). (3) Residue heat power plant operation right are described in Note XIV(I). (4) No evidence shows that impairment occurred to the intangible assets, therefore no impairment provision was provided. (5) Statement on the assets changed by over 30% (included) or 5% (included) of the total assets The amount at end of term increased by 49.05% over the beginning of term, which was caused by increasing of Residue heat power plant operation right. 11. Long-term amortizable expenses End of term 10,370,103.45 (1) Details Items End of term Beginning of term Decoration expenses 10,370,103.45 149,473.53 Total 10,370,103.45 149,473.53 (2) Statement on the assets changed by over 30% (included) or 5% (included) of the total assets Increasing of 68.38 times over the beginning of term was caused by great increasing in decoration expenses spent on the conference hall rented by the Company. 12. Differed income tax asset End of term 41,704,315.71 (1) Details Items End of term Beginning of term Influence of bad debt provisions 31,514,530.18 38,887,296.48 Influence of inventory impairment provisions 419,180.07 422,594.47 Influence of fixed asset impairment provisions 1,225,374.71 2,044,645.08 Influence of non-realized profits in consolidated statements 4,195,900.78 5,471,293.07 87 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 Influence of exemption of home-made equipment 993,660.81 993,660.81 Other periodic differences of tax payments 771,778.24 1,208,048.95 Total 39,120,424.79 49,027,538.86 (2) Temporary differences corresponding to related assets and liabilities Items Amount of temporary differences Influence of bad debt provisions 206,413,773.13 Influence of inventory impairment provisions 2,794,533.81 Influence of fixed asset impairment provisions 8,169,164.70 Influence of non-realized profits in consolidated statements 25,652,111.87 Influence of exemption of home-made equipment 3,974,643.24 Other periodic differences of tax payments 4,344,494.55 Sub-total 251,348,721.30 13. Short-term loans End of term 181,000,000.00 (1) Details Condition End of term Beginning of term Guarantee loan 150,000,000.00 Pledged loan 31,000,000.00 Total 181,000,000.00 (2) No overdue borrowing. 14. Notes payable End of term 298,203,241.55 (1) Details Category End of term Beginning of term Bank acceptance 298,203,241.55 322,309,670.13 Total 298,203,241.55 322,309,670.13 (2) No shareholders’ notes payable to shareholders with 5% or over of the Company’s voting shares. 15. Account payable End of term 283,861,630.55 (1) Account of shareholders’ with 5% or above of the Company’s voting shares. Name of the shareholder End of term Beginning of term Hangzhou Steam Turbine Group 305,446.91 50,231.93 Sub-total 305,446.91 50,231.93 (2) No major overdue payable for more than 1 year. 16. Prepayment received End of term 1,497,363,927.16 (1) Account of shareholders’ with 5% or above of the Company’s voting shares. Name of the shareholder End of term Beginning of term Hangzhou Steam Turbine Group 2,752,000.00 50,231.93 Sub-total 2,752,000.00 50,231.93 (2) No major prepayment received over 1 year was not transferred. (3) Statement on the assets changed by over 30% (included) or 5% (included) of the total assets 88 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 Prepayment received has increased by 43.04% from the beginning of term, which was caused by increasing of orders. 17. Employees’ wage payable End of term 19,952,410.05 (1) Details Items Beginning of Increased this Decreased this term term term End of term Wage, bonus, allowance and subsidies 2,714,150.40 267,193,365.89 266,077,033.59 3,830,482.70 Employees’ welfare 11,953.80 35,548,174.14 35,560,127.94 Social insurance 9,015,381.60 76,972,638.60 72,237,559.52 13,750,460.68 Housing fund 1,933,449.76 28,680,772.00 30,552,008.76 62,213.00 Trade Union finance 725,146.55 5,629,855.47 5,495,471.91 859,530.11 Training expenses 1,961,316.15 2,554,948.27 3,127,479.86 1,388,784.56 Other – dismissing welfare 129,118.10 68,179.10 60,939.00 Total 16,361,398.26 416,708,872.47 413,117,860.68 19,952,410.05 (2) No delayed employees’ salary and performance remunerations. 18. Tax payable End of term 22,361,297.05 (1) Details Category End of term Beginning of term VAT -7,127,689.28 34,671,203.78 City maintenance and construction tax 89,537.46 275,131.50 Business tax -920,980.80 38,743.60 Enterprise income tax 24,135,042.00 64,937,784.19 Paying of individual income tax on behalf 3,844,593.34 4,647,351.88 Property tax 135,371.88 79,784.64 Education surtax 34,696.31 728,780.47 Local education surcharges 195,863.80 99,433.46 Stamp tax 93,214.08 1,623.52 Water conservancy fund 1,866,827.15 3,017,189.68 Flood controlling expenditure 14,821.11 2,888.89 Total 22,361,297.05 108,499,915.61 (2) Statement on the assets changed by over 30% (included) or 5% (included) of the total assets Tax payable has decreased by 79.39% which was caused by: 1) The initial amount of tax on inflow items to be deducted has increased; 2) Zhongneng Co. and the Company prepaid the tax at 25% of income tax for each quarter, while it was approved to enjoy 15% of income tax at end of year, this has caused increasing of prepaid tax and decreasing in balance of income tax payable. 19. Other account payable End of term 36,174,381.34 Account of shareholders’ with 5% or above of the Company’s voting shares. Name of the shareholder End of term Beginning of term Hangzhou Steam Turbine Group 18,775,326.66 13,432,365.69 Sub-total 18,775,326.66 13,432,365.69 89 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 20. Other current liabilities End of term 14,700,000.00 Name of the shareholder End of term Beginning of term Dividend payable [Note] 14,700,000.00 13,432,365.69 Sub-total 14,700,000.00 13,432,365.69 [Note] Dividend payable to the shareholders of Zhongneng Co. 21. Long-term payable End of term 330,000.00 Details Items End of term Beginning of term Drawing in administrative restructuring 330,000.00 330,000.00 Total 330,000.00 330,000.00 22. Differed income tax liability End of term 1,225,374.71 (1) Details Items End of term Beginning of term Balance of income tax on investment income 5,737,950.71 Other periodic differences of tax payments 1,225,374.71 2,044,645.08 Total 1,225,374.71 7,782,595.79 [Note]: Initial amount of investment income tax was caused by the differences between the income tax ratio between the Auxiliary Machinery Co. and its subsidiaries Guoneng Co. and Machinery Co. and Huayuan Co. While the investment income accounted at share portion in the consolidated statement was recognized as income tax liabilities. (2) Temporary differences corresponding to related assets and liabilities Temporary Items deference Temporary deference of other tax payables 8,169,164.70 Sub-total 8,169,164.70 (3) Statement on the assets changed by over 30% (included) or 5% (included) of the total assets Anticipated liability has increased by 84.25%, which was caused by decreasing of supplementary income tax of investment gains. 23. Other non-recurring liabilities End of term 6,523,710.00 (1) Details Items End of term Beginning of term Differed income 6,523,710.00 3,820,860.00 Total 6,523,710.00 3,820,860.00 (2) Statement on other non-current liabilities (differed income) with major amount: 1) On September 8, 2005, the Company entered the R&D Cooperation Contract with Hangzhou Technologies & Science Bureau, by which the Company received the financing fund of RMB300,000.00 for the R&D project of steam turbine monitor and failure analyzing system in September 2005. As of December 31, 2008, the Company has used RMB300,000.00 of it to cover related expenses. 90 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 2) In 2006, pursuant to the document 浙科发计[2006]168 号 issued by Zhejiang Provincial Department of Science and Technologies, the R&D project of Million Ton Ethene Steam Turbine was certified as one of the first batch of key technical projects of the province. RMB300,000.00 of government subsidy was received in December 2006 specially for the project. Up to December 31, 2008, the Company has used RMB150,000.00 to cover related expenses. The balance of differed gains to cover the successive expenses was amounted to RMB150,000.00. 3) On September 2006, the Company entered the Provincial Technical Programs Contract with Hangzhou Technologies & Science Bureau, by which the Company received the financing funds of RMB600,000.00 and RMB400,000.00 respectively in December 2006 and December 2007 for the R&D project of Intelligent Monitoring System for Distributed Production Process. As of December 31, 2008, the Company has used RMB800,000.00 of it to cover related expenses. The balance of differed gains to cover the successive expenses was amounted to RMB200,000.00. 4) According to 杭科计[2007]247 号 and 杭财企一[2007]1089 号 issued by Hangzhou Science & Technologies Bureau and Hangzhou Finance Bureau, the Company received RMB335,000.00 of subsidies in December 2007 for the R&D Project of Intelligent Monitoring System for Distributed Production Process. The balance of differed gains to cover the successive expenses was amounted to RMB335,000.00. 5) Pursuant to 杭财企一[2007]1197 号 issued by Hangzhou Finance Bureau and Hangzhou Economic Commission, the Company received the financing fund of RMB460,000.00 for the construction project of network phase II. This was related to purchasing of assets, thus was distributed to the useful life of the assets, namely 5 years. Therefore RMB92,000.00 was accounted as non-operational income of the current term. The balance of differed gains to cover the successive expenses was amounted to RMB276,000.00. 6) In December 2007, the Company received RMB250,000.00 and RMB200,000.00 of financing from China Petrol Chemical Holdings Co., Ltd. pursuant to “The 3rd Batch of National Subsidies to Finance National Technical Programs”. They were used to finance the R&D projects of Split Compressor Unit and Propylene Cooling Compressor of Million Ton Ethene Equipment respectively. As of December 31, 2008, RMB225,000.00 of it has been used to cover releated expenses. The balance of differed gains to cover the successive expenses was amounted to RMB225,000.00. 7) Pursuant to document 浙财企字[2006]285 号 issued by Zhejiang Provincial Bureau of Finance and Zhejiang Provincial Economic and Trade Commission, the Company received government subsidy of RMB890,000.00 for advanced manufacturing base project. This asset was relevant and are amortized straightly to 10 years. RMB89,000.00 of it has been accounted as non-operational income in current term. The balance of differed gains to cover the successive expenses was amounted to RMB645,250.00 6) In June 2008, the Company received RMB200,000.00 and RMB200,000.00 of financing respectively from China Petrol Chemical Holdings Co., Ltd. pursuant to “The 1st Batch of National Subsidies to Finance National Technical Programs”. They were used to finance the R&D projects of Split Compressor Unit and Propylene Cooling Compressor of Million Ton Ethene Equipment respectively. As of December 31, 2008, RMB200,000.00 of it has been used to cover releated expenses. The balance of differed gains to cover the successive expenses was amounted to RMB200,000.00. 9) According to document 杭 科 计 [2008]251 号 and 杭 财 企 一 [2008]1286 号 issued by Zhejiang Provincial Bureau of Finance and Zhejiang Provincial Bureau of Science & Technologies, the Company has received RMB3,500,000.00 of government subsidy for the “2nd Batch of Key Technical Innovation Subsidy 2008” in year 2008. As of December 31, 2008, the Company has used RMB1,750,000.00 of the fund to cover relative expenses. The balance of differed gains to cover the successive expenses was amounted to RMB1,750,000.00. 10) According to document 杭科计[2008]296 号 issued by Zhejiang Provincial Bureau of Finance and Zhejiang Provincial Bureau of Science & Technologies, the Company has received 91 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 RMB2,000,000.00 of subsidy for Key Laboratory Base of year 2008. This was related to purchasing of assets and shall be amortized to its useful life, i.e. 5 years. In the report term, RMB40,000.00 has been accounted into non-operational gains, The balance of differed gains to cover the successive expenses was amounted to RMB1,600,000.00. 11) Pursuant to document 杭财企[2008]1299 号 issued by Hangzhou Bureau of Finance and Hangzhou Economic and Trade Commission, the Company received government subsidy of RMB679,000.00 for the “2nd Batch of Government Subsidy for Industrial Information Technology Application Projects”. RMB679,000.00 has been used to cover related expenses in the report term. 12) According to document 杭财企[2008]969 号 issued by Hangzhou Bureau of Finance and Hangzhou Economic and Trade Commission, the Company has received RMB350,000.00 of special fund for the “1st Batch of New Type Heavy Industry Enterprises 2008”. RMB350,000.00 has been used to cover related expenses in the report term. 13) Pursuant to document Hang-Cai-Qi [2007] 914 issued by Hangzhou Bureau of Finance and Hangzhou Economic Commission, Casting Co. – one of the Company’s subsidies, received government subsidy of RMB260,000.00 for the technical reconstruction and productivity expanding project of 10K ton casting products in October 2007. This was regarded as asset relevant and would be amortized straightly to its useful life of 10 years. In current term, the balance of differed income was recognized to RMB 260,000.00. The balance of differed income used to setoff relative expenses of future terms was RMB234,000.00. 14) Pursuant to document Yu-Jing-Tou [2007]21 issued by Hangzhou Yuhang District Bureau of Finance and Hangzhou Yuhang Economic Development Bureau, Casting Co. – one of the Company’s subsidies, received the government subsidy of RMB575,600.00 for the casting project in April 2007. The project has reached its useable status in December 2006. Thus this asset would be amortized straightly to its useful life. In which RMB28,780.00 was accounted under non-operational income and RMB518,040.00 was recognized as balance of deferred income. 15) Pursuant to document Yu-Jing-Neng-Yuan [2007]35 issued by Hangzhou Yuhang District Bureau of Finance and Hangzhou Yuhang Economic Development Bureau, Casting Co. – one of the Company’s subsidies, received the government subsidy of RMB228,200.00 for the heating furnace reconstruction project in August 2007. The project has reached its useable status in December 2006. Thus this asset would be amortized straightly to its useful life. In which RMB11,410.00 was accounted under non-operational income and RMB205,380.00 was recognized as balance of deferred income. 16) Pursuant to document Yu-Jing-Tou [2005]39 issued by Hangzhou Yuhang District Bureau of Finance and Hangzhou Yuhang Economic Development Bureau, Casting Co. – one of the Company’s subsidies, received the government subsidy of RMB575,600.00 for the casting project in 2008. The project has reached its useable status in December 2006. Thus this asset would be amortized straightly to its useful life. In which RMB57,560.00 was accounted under non-operational income and RMB518,040.00 was recognized as balance of deferred income. (3) Statement on the assets changed by over 30% (included) or 5% (included) of the total assets Amount at end of term increased by 70.74% over the beginning of term. Which was caused by increasing of government subsidies received in the report term. 92 Hangzhou Steam Turbine Co., Ltd. 24. Capital shares End of term 371,800,000.00 (1) Details Changed this term (+,-) Items Beginning of term Issuing Transferred Bonus of new from Others S shares shares reserves Amount Proportion 1. State-owned shares 2. State legal person shares 236,600,000 63.64 3. Other domestic shares Including: (I) Domestic legal person shares Conditional Shares Domestic natural person shares 4. Foreign shares Including: Foreign legal person shares Foreign natural person shares Total of conditional shares 236,600,000 63.64 (II) 1. RMB common shares Unconditional 2. Foreign currency shares listed 135,200,000 36.36 shares domstic 3. Foreign shares listed overseas 4. Others Total of negotiable shares 135,200,000 36.36 (III) Total of shares 371,800,000 100.00 93 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 25. Capital reserves End of term 138,953,250.09 Details Items Increased this Decreased this Beginning of term term term End of term Share capital 81,815,220.00 81,815,220.00 premium Other capital 57,138,030.09 57,138,030.09 reserves Total 138,953,250.09 138,953,250.09 26. Surplus reserves End of term 279,205,827.20 (1) Details Items Decreased Beginning of term Increased this term this term End of term Statutory surplus 233,666,771.29 45,539,055.91 279,205,827.20 reserves Total 233,666,771.29 45,539,055.91 279,205,827.20 (2) Reason and basis of change on surplus reserves. Incrasing of this term was caused by providing of statutory surplus reserves provided at 10% of the parent company’s net profit. 27. Retained profit End of term 1,109,926,043.61 (1) Details Items Beginning of term 731,962,827.31 Increased this term 573,649,026.96 Decreased this term 194,259,055.91 End of term 1,111,352,798.36 (2) Other statements 1) Statement on change of retained profit and profit distribution proportion a. Increasing of RMB573,649,026.96 was caused by net profit transferred in this term. b. Decreasing of RMB194,259,055.91 was caused by implementing of profit distribution plan for 2007 approved by the Shareholders’ Meeting 2008, which was, basing on the total share capital of 371,800,000 at the end of 2007, RMB4 was distributed to each 10 shares (tax included). Totally RMB148,720,000.00 was distributed. Meanwhile, the statutory surplus reserves of RMB45,539,055.91 was provided at 10% of the net profit realized by the parent company in the report term. 2) According to the Profit Distribution Plan 2008 passed at the 8th meeting of the 4th term of Board held on April 22, 2009, legal surplus reserve was provided at 10% of the net profit of the parent company realized in 2008, and basing on 371,800,000 of total capital shares at end of 2008, RMB4 (tax included) of cash dividend will be distributed to each 10 shares. This preplan is subject to the approval of the Shareholders’ Annual Meeting 2008. 94 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 (II) Notes to consolidated income statement 1. Turnover / cost Current term 3,319,171,377.40 / 2,071,938,943.81 (1) Details Turnover Items Current term Same period of last term Major business turnover 3,079,207,500.39 2,752,223,527.81 Other business income 239,963,877.01 103,662,719.59 Total 3,319,171,377.40 2,855,886,247.40 Operation cost Items Current term Same period of last term Major business cost 1,839,188,899.57 1,733,167,459.93 Other business cost 232,750,044.24 99,553,989.20 Total 2,071,938,943.81 1,832,721,449.13 (2) Main business turnover / cost Items Current term Same period of last term Income Cost Profit Income Cost Profit Industrial steam 2,665,129,404.47 1,592,603,815.44 1,072,525,589.03 2,584,121,715.18 1,645,666,761.80 938,454,953.38 turbine Casting products 80,662,593.06 64,892,905.99 15,769,687.07 44,817,242.71 40,140,908.29 4,676,334.42 Auxiliary 48,036,641.04 36,656,200.37 11,380,440.67 19,945,846.63 10,132,361.84 9,813,484.79 machinery Residue Thermal 121,990,769.69 94,194,012.74 27,796,756.95 Power Plant Others 163,388,092.13 50,841,965.03 112,546,127.10 103,338,723.29 37,227,428.00 66,111,295.29 Total 3,079,207,500.39 1,839,188,899.57 1,240,018,600.82 2,752,223,527.81 1,733,167,459.93 1,019,056,067.88 (3) Top 5 sales income Items Current term Same period of last term Total of sales to top 5 clients 1,280,089,082.00 1,033,997,710.35 Portion in turnover of the year 38.57% 36.21% 2. Business tax and surcharge Current term 9,768,522.29 Details Items Current term Same period of last term Business tax 2,065,475.05 65,243.60 City maintenance and construction tax 2,815,128.62 3,078,439.03 Education surtax 1,078,989.99 1,508,574.46 Local education surcharges 3,808,928.63 3,463,907.51 Total 9,768,522.29 8,116,164.60 3. Financial expenses Current term 5,156,160.91 Financial expenses has increased by 1.13 times over the same period of last year, which was caused by interests paid for bank loans. 95 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 4. Asset impairment loss Current term 53,338,523.12 Details Items Current term Same period of last term Bad debt losses 50,834,367.18 54,773,425.97 Inventory impairment losses 1,470,412.81 -1,369,175.17 Fixed assets impairment losses -137,813.75 Total 52,304,779.99 53,266,437.05 5. Investment income Current term 48,744,692.44 (1) Details Items Same period of last Current term term Profit gained from invested entities on cost basis 28,902,011.99 23,624,017.24 Amount of net change of gains from invested entities adjusted on -285,700.09 -1,218,769.04 equity basis Others 20,128,380.54 Total 48,744,692.44 22,405,248.20 (2) There was no major limitation on retrieving of investment gains. (3) Statement on changes for over 30% (included) or 10% (included) of the total profit. Investment income of current term has increased by 1.86 times than the same period of last year, which was mainly caused by increasing of other project investment gains. 6. Non-business income Current term 14,071,663.04 Details Items Current term Same period of last term Government subsidy 12,306,669.57 11,382,436.45 Gains from disposal of fixed assets 346,828.52 447,825.51 Compensation income 1,322,964.20 725,151.95 Others 95,200.75 211,534.78 Total 14,071,663.04 12,766,948.69 7. Non-operational expenditure Current term 5,173,520.55 Details Items Current term Same period of last term Outgoing donations 3,098,000.00 300,000.00 Penalty paid 19,592.34 301,880.65 Loss from disposal of fixed assets 317,249.68 149,756.46 Compensation paid 795,079.55 Water conservancy fund 1,317,918.33 3,635,464.20 Others 420,760.20 153,825.60 Total 5,173,520.55 5,336,006.46 96 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 8. Income tax expenses Current term 116,280,427.67 Details Items Same period of last Current term term Income tax of current term 112,661,598.11 147,177,829.50 Deferred income tax 3,618,829.56 1,899,206.92 Total 116,280,427.67 149,077,036.42 (III) Notes to consolidated cash flow statement 1. Other large amount cash received in relating to business operation Items Current term Same period of last term Gains from bank interests 5,300,573.46 3,333,624.97 Government subsidies received 11,738,400.00 11,132,324.00 Sub-total 17,038,973.46 14,465,948.97 2. Other large amount cash paid n relating to business operation Items Current term Same period of last term Business trips 14,974,163.81 13,055,523.62 Transportation 37,414,817.88 32,715,891.39 Business reception expenses 14,422,085.63 13,363,646.97 International traveling 3,551,035.46 3,599,797.83 Property management and civil services 6,787,600.00 8,684,199.73 Rental 2,593,738.26 2,515,942.80 Sub-total 79,743,441.04 73,935,002.34 3. Other large amount cash received in relating to investment Items Current term Same period of last term Consolidation of balance of cash of 6,841,265.85 HSTG Equipment & Engineering Co. at beginning of term Sub-total 6,841,265.85 4. Large amount cash received in relating to financing activities Items Current term Same period of last term Borrowings received from other units 35,500,000.00 Sub-total 35,500,000.00 5. Other large amount of cash paid in relating to financing activities Items Current term Same period of last term Returning of borrowings from other units 55,500,000.00 Sub-total 55,500,000.00 6. Supplementary information to the cash flow statement is available with Note XIV (III). 97 Hangzhou Steam Turbine Co., Ltd. VIII. Notes to parent company financial statements (I) Notes to items of parent company balance sheet 1. Account receivable End of term 1,045,972,821.97 (1) Details End of term Portion Bad debt P Book Balance Book value Book Balance % provision Major single amount 529,348,807.54 42.87 67,058,924.42 462,289,883.12 392,945,476.61 Minor single amount but greater risk after combined in a character group 45,469,644.22 3.68 28,192,064.13 17,277,580.09 35,690,011.31 Other minors 659,948,038.90 53.45 93,542,680.14 566,405,358.76 687,223,965.66 Total 1,234,766,490.66 100.00 188,793,668.69 1,045,972,821.97 1,115,859,453.58 (2) Age analysis End of term Beginning of term Age Book Balance Portion % Bad debt provision Book value Book Balance Portion % Bad debt provision within 1 yr 723,253,959.24 58.57 35,977,057.96 687,276,901.28 762,768,843.36 68.36 44,411,738.53 1-2 yrs 322,409,510.57 26.11 64,481,902.11 257,927,608.46 227,223,407.39 20.36 42,994,741.48 2-3 yrs 128,774,907.41 10.43 51,227,562.96 77,547,344.45 80,379,180.52 7.20 31,576,472.21 Over 3 yrs 60,328,113.44 4.89 37,107,145.66 23,220,967.78 45,488,022.31 4.08 25,247,305.99 Total 1,234,766,490.66 100.00 188,793,668.69 1,045,972,821.97 1,115,859,453.58 100.00 144,230,258.21 98 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 (3) Debts due from top 5 debtors were amounted to RMB679,637,465.92, accounted for 55.04% of the booked balance of account receivable, their age analysis are as the followings: Account age End of term within 1 yr 471,737,758.58 1-2 yrs 150,833,598.60 2-3 yrs 40,189,760.52 Over 3 yrs 16,876,348.22 Sub-total 679,637,465.92 (4) Account of shareholders’ with 5% or above of the Company’s voting shares. Name of the shareholder End of term Beginning of term Hangzhou Steam Turbine Group 355,800.00 Sub-total 355,800.00 (5) Other statements 1) Statement on providing of bad debt on major account receivables Single major account receivables with major amount and tested no impairment at the end term, the bad debt reserves are provided at the practical impairment rate after combined with receivables with similar age. 2) Statement on determine of combination of accounts without major amount but with great credit risks after combined with other similar receivable accounts. According to the analysis on the retrieving of receivables, greater risks are attached to receivables with over 3 years of age. Thus bad debt provisions were provided by 60% upon receivables with over 3 years of age. Account receivables with part of amount over 10% (included) are determined as minor amount, but with greater credit risks after combined, are deducted from the above applicable receivables. 3) Account receivable (aged over 3 years) amounted to RMB2,275,694.00 at end of term, was providing of bad debt provisions for long-term debits and refused payments. 2. Other account receivable End of term 13,786,223.02 (1) Details End of term Beginning of term Book Balance Portion Bad debt Portion Bad debt Major single amount Book value Book Balance Book value % provision % provision Minor single amount but greater risk after combined in a character group 8,444,374.53 48.72 2,627,895.24 5,816,479.29 12,144,392.32 43.29 2,796,072.56 9,348,319.76 Other minors 70,471.28 0.41 42,282.77 28,188.51 72,765.36 0.26 43,659.22 29,106.14 Total 8,817,149.61 50.87 875,594.39 7,941,555.22 15,838,235.87 56.45 759,313.15 15,078,922.72 Major single amount 17,331,995.42 100.00 3,545,772.40 13,786,223.02 28,055,393.55 100.00 3,599,044.93 24,456,348.62 (2) Age analysis End of term Beginning of term Portion Bad debt Portion Bad debt Book Balance Book value Book Balance Book value Age % provision % provision within 1 yr 10,987,803.20 63.40 309,897.07 10,677,906.13 21,226,907.25 75.66 514,113.15 20,712,794.10 1-2 yrs 589,800.00 3.40 117,960.00 471,840.00 2,530,400.00 9.02 506,080.00 2,024,320.00 2-3 yrs 1,673,600.00 9.66 669,440.00 1,004,160.00 - - - - Over 3 yrs 4,080,792.22 23.54 2,448,475.33 1,632,316.89 4,298,086.30 15.32 2,578,851.78 1,719,234.52 Total 17,331,995.42 100.00 3,545,772.40 13,786,223.02 28,055,393.55 100.00 3,599,044.93 24,456,348.62 99 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 (3) Debt due from top 5 debtors in other receivable account were totaled to RMB11,106,358.14, account for book balance of other receivable account. Ages are as the followings: Account age End of term within 1 yr 6,564,037.20 2-3 yrs 532,000.00 Over 3 yrs 4,010,320.94 Sub-total 11,106,358.14 (4) Statement on the assets changed by over 30% (included) or 5% (included) of the total assets Other receivables at end of term has decreased by 43.63%, which was causd by incrasing of account retrieving than the previous term. (5) Other statements 1) Statement on providing of bad debt on major account receivables Bad debt provisions are provided at the practical rate after combined with other similar accounts on other receivables with single major amounts which are not impaired. 2) Statement on the combination of other receivables with minor single amount but with great credit risks after combined with similar accounts. According to the analysis on the retrieving of receivables, greater risks are attached to receivables with over 3 years of age. Thus bad debt provisions were provided by 60% upon receivables with over 3 years of age. Account receivables with part of amount over 10% (included) are determined as minor amount, but with greater credit risks after combined, are deducted from the above applicable receivables. 3. Long-term share equity investment End of term 455,849,320.85 (1) Details End of term Beginning of term Impairment Impairment Book balance provision Book value Book balance provision Book value Investment on 58,356,000.00 58,356,000.00 subsidiaries 58,356,000.00 58,356,000.00 Investment in 5,792,569.32 5,792,569.32 partnerships 5,506,869.23 5,506,869.23 Other equity 270,732,411.62 270,732,411.62 investment 391,986,451.62 391,986,451.62 Total 455,849,320.85 455,849,320.85 334,880,980.94 334,880,980.94 (2) Investment on subsidiaries Name of Share Investment Beginning of company Initial amount Increased Decreased End of term portion term term invested this term this term Packaged Tech. 51% 20 yrs 15,828,000.00 15,828,000.00 15,828,000.00 Co. Zhongneng Co. 51% 30 yrs 5,100,000.00 5,100,000.00 5,100,000.00 Casting Co. 51% 30 yrs 11,220,000.00 11,220,000.00 11,220,000.00 Auxiliary 76% 20 yrs 18,240,000.00 18,240,000.00 18,240,000.00 Machine Co. Machinery Co. 52% 20 yrs 7,968,000.00 7,968,000.00 7,968,000.00 Sub-total 58,356,000.00 58,356,000.00 58,356,000.00 100 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 (3) Investment in joint ventures and affiliates 1) Composition of balances at the end of term Company Other Share Investment Gain/loss invested in Cost change in End of term portion term adjustement equity Hangzhou Steam Turbine Environmental 45 20 yrs 9,000,000.00 -4.029,173.27 536,042.50 5,506,869.23 Engineering Co., Ltd. Sub-total 9,000,000.00 -4,029,173.27 536,042.50 5,506,869.23 2) Details of changes in the report term Company Cash Change of Adjustment Other invested in dividend Beginning of cost in of gain/loss change Initial amount received End of term term current in current in this term term equity term Hangzhou Steam Turbine Environmental 9,000,000.00 5,792,569.32 -285,700.09 5,506,869.23 Engineering Co., Ltd. Sub-total 9,000,000.00 5,792,569.32 -285.700.09 5,506,869.23 (4) Other equity investments Details Name of company Share Investment Beginning of Increased this Decreased Initial amount End of term invested portion term term term this term Zhejiang Tianyu Share Controlling Co., Ltd. 27.27 50 yrs 30,000,000.00 30,000,000.00 30,000,000.00 Greenesol Co. (India) 37 Not stated 1,032,411.62 1,032,411.62 1,032,411.62 Hangzhou Bank 7.5676 Not stated 239,700,000.00 239,700,000.00 151,254,040.00 390,954,040.00 Sub-total 270,732,411.62 270,732,411.62 151,254,040.00 30,000,000.00 391,986,451.62 (5) Long-term equity investment impairment provisions No obvious impairment evidence appears at the end of term, thus no impairment provision was provided. (6) Statement on the assets changed by over 30% (included) or 5% (included) of the total assets Long-term equity investment at end of term has increased by 36.12% over the beginning of term, which was caused by investment in Hangzhou Bank was increased. 101 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 (II) Notes to items of parent company income statements 1. Turnover / cost Current term 2,346,766,884.61/1,528,610,715.61 (1) Details Turnover Items Current term Same period of last term Major business turnover 2,319,353,092.40 2,296,885,351.73 Other business income 27,413,792.21 31,645,196.55 Total 2,346,766,884.61 2,328,530,548.28 Operation cost Items Current term Same period of last term Major business cost 1,503,745,869.36 1,598,519,618.80 Other business cost 24,864,846.25 29,873,190.67 Total 1,528,610,715.61 1,628,392,809.47 (2) Main business turnover / cost Current term Same period of last year Items Income Cost Profit Income Cost Profit Industrial 2,296,060,503.66 1,496,919,988.87 799,140,514.79 2,276,746,255.88 1,587,109,435.08 689,636,820.80 steam turbine Others 23,292,588.74 6,825,880.49 16,466,708.25 20,139,095.85 11,410,183.72 8,728,912.13 Sub-total 2,319,353,092.40 1,503,745,869.36 815,607,223.04 2,296,885,351.73 1,598,519,618.80 698,365,732.93 (3) Top 5 sales income Items Current term Same period of last term Total of sales to top 5 clients 1,192,572,568.73 1,033,997,710.35 Portion in turnover of the year 50.82% 44.41% 2. Investment income Current term 76,278,811.90 (1) Details Same period of last Current term Items term Profit gained from invested entities on cost basis 76,564,511.99 44,166,517.24 Amount of net change of gains from invested entities adjusted on -285,700.09 -737,565.99 equity basis Total 76,278,811.90 43,428,951.25 (2) There was no major limitation on retrieving of investment gains. (3) Statement on changes for over 30% (included) or 10% (included) of the total profit. Investment gains have increased by 75.64%, which was caused by increasing of dividend from subsidiaries. 102 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 IX. Asset impairment provisions (I) Details Decreased this term Provided current Items Beginning of term Written End of term term Transferred back Bad debt provision 155,570,135.96 50,844,117.18 206,414,253.14 Inventory impairment 1,690,377.87 366,256.87 2,794,533.81 provision 1,470,412.81 Fixed asset impairment 8,178,580.31 9,415.61 8,169,164.70 provision Total 165,439,094.14 52,314,529.99 375,672.48 217,377,951.65 [Note]: Bad debt provision provided this term includes the bad debt provisions provided by HSTG Equipment & Engineering Co. amounted to RMB9,750.00 consolidated at the beginning of term. (II) Statement on reasons and basis of providing Reasons and basis of provisions provided for bad debt, inventory impairment, and fixed asset impairment are provided in Note VII (I) 3, 5, 6, and 8. X. Related parties and transactions (I) Statement on recognition of related parties Pursuant to “Enterprise accounting standard No.36 – disclosure of related parties”, related parties are those parties solely control, jointly control the other party, or with major influence on the other party, and over two parties under common control of a party or under major influence of this party. Pursuant to “PLC Information Disclosure Regulations” (Order No. 40, China Securities Regulatory Commission), related legal persons and natural persons with particular situation are recognized as related parties. (II) Related party relations 1. Parent company and ultimate controlling party Share Voting Relation portion in power in Name of Organization Business Registered Reg. Add. with the the the companies code property capital Company Company Company (%) % Hangzhou Hangzhou 143071842 Limited Parent 500 mil Steam China liability company 63.64 63.64 Turbine Group 2. Details about the subsidiaries are available with Note V (I). 3. Affiliates (1) Profiles Total Total Organization Business Registered Name of the Companies Reg. Add. share voting code property capital portion % power % Hangzhou Steam Turbine Hangzhou 72106627X Manufacturing 20 mil Environmental Engineering Co., China 45 45 Ltd. 4. Other related parties 103 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 Name of the parties Relation with the Company HSTG Technology Association Affiliate of the Group HSTG Nanfang Sales Co. Affiliate of the Group Hangzhou Steam Turbine Automobile Sales Service Co., Ltd. Subsidiary of the Group HSTG Technology Association Affiliate of the Group HSTG Sales Co., Ltd. Subsidiary of the Group Hangzhou Steam Turbine Industrial Co. Subsidiary of the Group Hangzhou Hangfa Group Subsidiary of the Group Hangzhou Relian International Trading Co. Subsidiary of the Group Hangzhou Steam Turbine Wooden Packaging Co., Ltd. Subsidiary of the Group Hangzhou Nanfangtongda Gears Co., Ltd. Subsidiary of the Group Hangzhou Dongfeng Shipyard Co., Ltd. Subsidiary of the Group (III) Related transactions 1. Purchasing of goods Current term Same period of last term Related parties Name Amount Pricing Amount Pricing HSTG Technology Association 25,607.18 Price on agreement Hangzhou Steam Turbine Automobile Sales Service Co., Ltd. 22,374,012.12 Price on agreement 29,909,689.53 Price on agreement Hangzhou Steam Turbine Industrial Co. 2,332,847.68 Price on agreement 2,598,317.67 Price on agreement Hangzhou Hangfa Group 97,156,900.67 Price on agreement 66,304,454.77 Price on agreement Hangzhou Relian International Trading Co. 146,071,246.65 Price on agreement 55,096,520.00 Price on agreement Hangzhou Steam Turbine Wooden Packaging Co., Ltd. 15,760,325.05 Price on agreement 14,330,857.96 Price on agreement Hangzhou Nanfangtongda Gears Co., Ltd. 13,953,870.00 Price on agreement 16,802,000.00 Price on agreement Hangzhou Dongfeng Shipyard Co., Ltd. 1,966,000.00 Price on agreement 1,825,832.00 Price on agreement HSTG Sales Co., Ltd. 158,000.00 Price on agreement Sub-total 299,615,202.17 187,051,279.11 2. Sales of goods Related parties Current term Same period of last term Name Amount Pricing Amount Pricing Price on Price on 30,427.35 137,435.92 HSTG Technology Association agreement agreement Price on Price on 163,995,427.38 151,722,008.56 HSTG Sales Co., Ltd. agreement agreement Price on Price on 299,165.81 194,017.09 Hangzhou Hangfa Group agreement agreement Price on 6,786.32 Hangzhou Relian International Trading Co. agreement Hangzhou Steam Turbine Automobile Sales Price on Price on 23,232.12 4,522.93 Service Co., Ltd. agreement agreement Price on 123,504.27 HSTG Technology Association agreement Price on Price on 30,769.23 10,256.41 Hangzhou Nanfangtongda Gears Co., Ltd. agreement agreement Price on 1,282,051.28 HSTG Energy Tech Co., Ltd. agreement Sub-total 165,784,577.44 152,075,027.23 104 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 3. Outstanding payment with related parties End of term Beginning of term Items and name of related parties Bad debt Bad debt Balance Balance provision provision (1) Accountin receivable Hangzhou Steam Turbine Group 246,000.00 147,600.00 423,300.00 253,980.00 HSTG Nanfang Sales Co. 20,000.00 12,000.00 20,000.00 12,000.00 HSTG Sales Co., Ltd. 87,771,307.38 10,479,112.97 61,454,948.00 7,559,422.20 Hangzhou Hangfa Group 180,000.00 36,000.00 HSTG Energy Tech Co., Ltd. 75,000.00 Sub-total 88,112,307.38 10,638,712.97 62,078,248.00 7,825,402.20 (2) Prepaid account Hangzhou Hangfa Group 34,212,652.92 11,692,310.91 Hangzhou Nanfangtongda Gears Co., Ltd. 538,200.00 Hangzhou Relian International Trading Co. 68,320,780.68 Sub-total 34,212,652.92 80,551,291.59 (3) Account payable Hangzhou Nanfangtongda Gears Co., Ltd. 1,637,250.00 77,000.00 Hangzhou Steam Turbine Group 305,446.91 50,231.93 Hangzhou Steam Turbine Automobile Sales Service Co., Ltd. 463,731.27 3,967,242.07 Hangzhou Steam Turbine Industrial Co. 386,429.99 387,020.88 Hangzhou Hangfa Group 5,802,000.00 Hangzhou Relian International Trading Co. 1,202,446.65 Hangzhou Steam Turbine Wooden Packaging Co., Ltd. 37,395.00 1,265,221.92 Sub-total 9,834,699.82 5,746,716.80 (4) Pre-collected account HSTG Sales Co., Ltd. 46,802,280.00 59,650,395.00 Hangzhou Hangfa Group 724,412.99 Hangzhou Steam Turbine Group 2,752,000.00 Hangzhou Steam Turbine Power Group Packaged Project Engineering Co., Ltd. 18,489,760.80 Sub-total 50,278,692.99 78,140,155.80 (5) Other payable Hangzhou Steam Turbine Automobile Sales Service 5,889,116.02 801,049.71 Co., Ltd. Hangzhou Steam Turbine Group 18,775,326.66 13,432,365.69 Sub-total 24,664,442.68 14,233,415.40 4. Other related transactions (1) Guarantees Guarantees provided by HSTG to the Company and its subsidiaries, ended December 31, 2008 (RMB0’000) Balance of guaranteed Note Guarantee acceptor Loan provider Due date loans August 15, The Company China Imp.& Exp. Bank 100,000,000.00 2009 Hangzhou Steam Turbine Power Group Equipment Yan’an Branch of January 16, 20,000,000.00 System Engineering Co., Ltd. Hangzhou Bank 2009 Hangzhou Steam Turbine Power Group Equipment Yan’an Road Branch of April 15, 30,000,000.00 System Engineering Co., Ltd. Hangzhou Bank 2009 Sub-total 150,000,000.00 (2) Supplying agreement on services, raw materials, energy, and telecommunication HSTG provide civil services, property management, and employee training to the Company. The fees payable to HSTG was RMB6,787,600.00 in the current term. HSTG supplies water and power to the Company and 105 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 some of the subsidiaries amounted to RMB14,702,548.18 this term. HSTG provide cleaning services to the Company and the fee was RMB758,582.90 for this term. (3) Rental The Company rent the land using right from HSTG by RMB1,340,860.00 at this term. Office buildings rented from HSTG was RMB1,252,878.26 for this term. (4) Expenses paid on behalf the Company The basic medical insurance was paid by HSTG on behalf of the Company. For the current term, the Company had paid RMB7,032,800.11 under this item. 5. Remuneration of key executives The Company has directors, supervisors, and executives totaled to 19 persons. 18 of them accept pays from the Company. Their annual remunerations were totaled to RMB11.8103 million. For the same period of last year, 18 persons accept pays from the Company totaled to RMB11.4037 million. Details are as the followings: Name of management Same period last year Position personnel Current term Nie Zhonghai Chairman 107.72 107.72 Wang Hongkang Vice Chairman 102.37 102.37 Jin Fujuan Vice Chairman 98.08 98.08 Yan Jianhua Director, GM 102.37 102.37 Li Lie Director and standing general manager 100.22 100.22 Ye Zhong Director, Chief engineer 94.87 94.87 Bai Ronghua Director, Chief accountant 94.87 94.87 Zhang Mingguang Independent Director 10.00 10.00 Zhou Zhaoxue Independent Director 10.00 10.00 Hua Xiaoning Independent Director 10.00 10.00 Qi Guoning Independent Director 10.00 10.00 Chu Shuilong Chief Supervisor 98.08 98.08 Shao Linna Supervisor Zhang Yougen Supervisor 29.17 27.58 Lu Jianhua Supervisor 25.03 23.67 Zhao Ying Supervisor 9.73 9.75 Liu Guoqiang Vice General Manager 94.87 94.87 Ye Yongzhong Vice General Manager 94.87 55.34 Yu Changquan Secretary of the Board 88.78 90.58 Total 1,181.03 1,140.37 106 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 XI. Contingent Events (1) Ended December 31, 2008, the Company provided no guarantee to parties other than related parties. (II) Property in pledging ended December 31, 2008 Pledge Guarantee Pledge Creditor Original book Net book Amount of Due date Note acceptor value value loan Casting Co. Land using Tangxi Branch, 10,276,032.00 9,842,596.56 20,000,000.00 2009-1-20 right Construction Bank Casting Co. Land using Banshan Branch, 6,440,358.25 6,351,372.30 11,000,000.00 2009-6-22 right Industrial Bank Sub-total 16,716,390.25 16,193,968.86 31,000,000.00 XII. Commitment events The Company, Casting Co. and Guoneng Co. have made capital commitment amounted to RMB165.5902 million for construction of new workshops and purchasing of equipment. XIII. Non-adjustment issues occurred in post-balance sheet issues No such non-adjustment issues occurred in post-balance sheet issues to be disclosed. 107 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 XIV. Other material events (I) HSTG Equipment and Engineering Co., Ltd. – subsidiary of the Company entered the “Agreement on Cooperation on 2500T/D Residue Heating Power Plant” and “Entrusted Management Agreement” with Zhuji No.2 Cement Co., Ltd. of Zhejiang Zhaoshan Construction Material Group. According to the agreement, HSTG Equipment and Engineering is responsible to the construction of the power plant and installation of equipment (the overall price of the construction has been decided in the agreement), and pay for the costs in advance. Upon completion of the construction, HSTG Equipment and Engineering Co. will have operation right and gains for six years as the gains of above construction costs. According to “Enterprise Accounting Standard Interpret No.2” regarding the principles of BOT, the total cost of construction will be recognized as income firstly and recognized as intangible assets, then amortized to the operation period straightly. Gains in each period will be recognized as income. (II) Guoneng Co. and Huayuan Co. were sino-foreign joint-venture before 2008. As approved by Hangzhou Yuhang International Trade and Cooperation Bureau with document (余外经贸〔2008〕78 号), Guoneng Co. was changed from sino-foreign joint-venture into sino-foreign co-operation. The Articles of Association of Guoneng Co. was revised and setout: (1) During the period of cooperation, the distributable profit realized after paying of tax and providing of provisions, will be distributed at 8% for the 1st and 2nd year, and 5% since the 3rd year to Hong Kong Ruiyun Enterprise Co., Ltd. (Ruiyun Co.) – the overseas partner. Distribution of profit will be stopped as soon as the profit distributed to Ruiyun has accumulated to RMB20 million. (2) When the cooperation period is expired but the accumulative reward has not reached up to RMB20 million, the balance shall be paid to Ruiyun Co. at one time. (3) Liabilities raised from debts in the cooperation period are shared by the two partners at: Guoneng Co. 90% and Ruiyun Co. 10%. All of the assets are belong to Auxiliary Machinery Co. For the above changes, the share of net asset in Guoneng Co. attributable to Auxiliary Machinery Co. at end of 2007 was higher than the amount already recognized as share of net asset by RMB15,638,971.68. The increased amount of share of net asset was recognized as investment income of the current term. According to the approval document (德外经贸企〔2008〕55 号) issued by Deqing International Trade and Cooperation Bureau on July 1, 2008, Huayuan Co. was changed from sino-foreign joint-venture to sino-foreign cooperation. The revised Articles of Association setout: (1) Since the profit-making year of Huayuan Co., 10% of the annual profit will be rewarded to Ruiyun Co. – the foreign partner. (2) When the reward paid to Ruiyun Co. has accumulated to two time of the investment (i.e. RMB10.5 million) in the period of cooperation or in advance, no further reward will be paid to Ruiyun Co. All of the assets of Huayuan Co. (including the investment of Ruiyun) will be belong to Machinery Co. For the above changes, the share of net asset in Huayuan Co. attributable to Machinery Co. at end of 2007 was higher than the amount already recognized as share of net asset by RMB4,489,408.86. The increased amount of share of net asset was recognized as investment income of the current term. (III) Information regarding cash flow statement 1. Appendix of Cash Flow Statement Same period of last Supplementary Info. Current term term (1) Net profit adjusted to cash flow of operation: Net profit 703,151,763.10 476,889,713.44 Plus: Asset impairment provision 52,304,779.99 53,266,437.05 108 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 Fixed asset depreciation, gas and petrol depreciation, production goods depreciation 53,366,658.39 45,322,644.68 Amortizing of intangible assets 1,678,917.94 1,496,917.20 Amortizing of long-term expenses 785,789.81 Loss from fixed assets, intangible assets and other long-term assets disposal (“-“ for gains) -29,578.84 -300,280.57 Loss from fixed assets discarding (“-“ for gains) 2,211.52 Loss from fluctuate of fair value (“-“ for gains) Financial expenese (“-“ for gains) 9,296,433.56 3,522,257.95 Investment loss (“-“ for gains) -48,744,692.44 -22,405,248.20 Decrease of deferred income tax asset (“-“ for increase) 10,176,050.64 -3,838,743.77 Increase of deferred income tax liabilities (“-“ for decrease) -6,557,221.08 5,780,336.97 Decrease of inventory (“-“ for increase) -399,028,225.26 -242,753,270.24 Decrease of operational receivables (“-“ for increase) -306,502,761.50 -810,720,156.98 Increase of operational payables (“-“ for decrease) 318,028,038.10 797,674,799.11 Others -3,619,607.53 Cash flow generated by business operation, net 387,925,952.41 300,318,010.63 (2) Material investment and financing without involving in cash flow Liabilities converted to capital Convertible bond expire in 1 year Fixed assets leased through financing (3) Change of cash and cash equivalents Balance of cash at period end 450,103,030.94 296,605,363.48 Less: Initial balance of cash 296,605,363.48 215,963,304.30 Plus: Balance of cash equivalents at the period end Less: Initial balance of cash equivalents Net increasing of cash and cash equivalents 153,497,667.46 80,642,059.18 2. Cash and cash equivalents Items Current term Same period of last term (1) Cash 450,103,030.94 296,605,363.48 Incl: Cash in stock 149,943.17 57,791.58 Bank savings could be used at any time 442,221,100.77 275,124,780.72 Other monetary capital could be used at any time 7,731,987.00 21,422,791.18 (2) Cash equivalents Incl. Bond investment due in 3 months (3) Balance of cash and cash equivalents at end of term 450,103,030.94 296,605,363.48 Incl. Cash and cash equivalents in the parent company or internal subsidies with limitation to use (IV) Government subsidies 1. Government subsidies received in the current term (1) In the report term, the Company received RMB400,000.00 of fund from China Petrol Chemical Co., Ltd. as “The 1st Lot of National Fund for 2008 Key Technical Projects”. It was used in R&D of million ton ethane splitting compressor unit and propylene cool compressor project. (2) According to documents 杭科计〔2008〕251 号 and 杭财教〔2008〕1286 号 issued by Hangzhou Bureau of Technologies and Bureau of Finance for the important technical innovation fund, the Company received the fund of RMB3,500,000.00. (3) According to document 浙科发计〔2008〕296 号 issued by Zhejiang Provincial Bureau of Technology and Bureau of Finance, the Company received RMB2,000,000.00 in the report term . (4) According to document 杭财企〔2008〕1299 号 issued by Hangzhou Bureau of Finance and Hangzhou Economics Committee, the Company received RMB679,000.00 of award for information technology application 109 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 project. (5) According to document 杭财企〔2008〕969 号 issued by Hangzhou Bureau of Finance, and Hangzhou Economics Committee, the Company received RMB350,000.00 of special fund for properly developed heavy industry. (6) According to documents 杭财企〔2008〕153 号 issued by Hangzhou Bureau of Finance for the information system construction fund, the Company received the fund of RMB10,000.00. 2. Government subsidies received by subsidiaries (1) Casting Co. 1) According to document 余经投〔2005〕39 号 issued by Hangzhou Yuhang Bureau of Finance, and Hangzhou Yuhang Economy Development Office, the Casting Co. received RMB575,600.00 for funding of casting projects. 2) According to document 余经投〔2008〕7 号 issued by Hangzhou Yuhang Economy Development Office, Yuhang Bureau of Finance, and Yuhang Bureau of Technology, Casting Co. received the fund of RMB10,000.00 for enterprise technical center. 3) According to document 余财企〔2008〕187 号 issued by Hangzhou Yuhang Bureau of Finance, and Bureau of Technology, Casting Co. received government subsidy and award of RMB1,396,800.00 for high-tech development projects. 4) Casting Co. received model enterprise subsidy of RMB20,000.00 for Yuhang Bureau of Finance. 5) Casting Co., received 139 talent training fund of RMB3,000.00 from Hangzhou Yuhang Bureau of Personnel. (2) Guoneng Co. 1) According to document 余财企〔2008〕187 号 issued by Hangzhou Yuhang Bureau of Finance, and Bureau of Technology, Guoneng Co. received government subsidy and award of RMB560,000.00for high-tech development projects. 2) According to document 余财企〔2008〕101 号 issued by Hangzhou Yuhang Bureau of Finance and Hangzhou Yuhang Economy Development Office, Guoneng Co. received RMB50,000.00 of government award for enterprise reconstruction. (3) Machinery Co.: Received labor allowance of RMB4,000.00 from Shiqiao Committee. (4) Huayuan Co.: Received RMB150,000.00 of technical innovation subsidy from Deqing Bureau of Finance. (5) Zhongneng Co. 1) According to document 杭财企一〔2007〕737 号 issued by Hangzhou Bureau of Finance, Hangzhou Economy Committee, and Hangzhou Bureau of Technology issued on August 29, 2007, received government subsidy of RMB300,000.00 for certified enterprise technical center. 2) According to document 杭财企一〔2007〕1160 号 issued by Hangzhou Bureau of Finance, and Hangzhou Economy Committee on December 7, 2007, received government subsidy of RMB500,000.00 for rewarding of key fields of equipment manufacturing of 2007. 3) According to 杭经开经〔2008〕138 号 and 杭经开财〔2007〕77 号 issued by Hangzhou Technical and Economy Development Zone Development Bureau, and Finance Bureau on December 7, 2007, received RMB300,000.00 of government subsidy. 4) According to document 杭财企〔2008〕610 号 issued by Hangzhou Bureau of Finance and Hangzhou Economy Committee on July 2, 2008, received technical innovation fund of RMB100,000.00. 5) According to document 杭财企〔2008〕]969 issued by Hangzhou Bureau of Finance and Hangzhou Economy Committee on October 10, 2008, received RMB800,000.00 of special fund for appropriately developed new heavy industry. 110 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 6) According to document 杭政函〔2007〕204 号 issued by the Government of Hangzhou on December 6, 2007, received RMB20,000.00 of award for technical upgrading. 7) According to document 杭经技术〔2007〕439 号 issued by Hangzhou Economy Committee, Hangzhou Bureau of Technology, and Hangzhou Bureau of Finance, received RMB10,000.00 of new products and new technologies. 111 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 XV. Supplementary information (I) Non-recurring gain/loss 1. (I) According to “PLC Information Disclosure Q&A No.1 – Non-recurring gain/loss (revised 2008)”, the non-recurring gain/loss of the Company are as the followings (“+” for gain, “-“ for loss): Items Current term Gain/loss from disposal of non-working capital, including the neutralized part of the impairment provision provided already 29,578.84 Refunding and exemption of taxes in excess of authority or without official approval documents Government subsidies accounted into current income account (except for those government subsidies closely 12,306,669.57 related to the Company’s business, and received at national statutory standard and amount) Capital adoption fee collected from non-financial organizations and accounted into current gain/loss Gain/loss from differences between the cost of enterprise merger and the fair value of recognizable net asset of the invested entities Gain/loss from non-monetary assets Gain/loss from commissioned investment or assets Asset impairment provisions provided for force-majeur Gain/loss from debt reorganization Enterprise reorganizing expenses, such as employee placement fee and integration fee Gain/loss from trade departing from fair value Current net gain/loss of subsidiaries under same control from beginning of term till date of consolidation Gain/loss generated by contingent liabilities without connection with main businesses Gain/loss from change of fair value of transactional asset and liabilities, and investment gains from disposal of transactional financial assets and liabilities and sellable financial assets, other than valid period value instruments related to the Company’s common businesses Restoring of receivable account impairment provision tested individually Gain/loss from commissioned loans Gain/loss from change of fair value of investment property measured at fair value in follow-up measurement Influence of one-time adjustment made on current gain/loss account according to the laws and regulations regarding tax and accounting Consigning fee received for cosigned operation Other non-business income and expenditures other than the above -3,438,105.92 Other gain/loss items satisfying the definition of non-recurring gain/loss account 20,128,380.54 Sub-total 29,026,523.03 Less: Influence of enterprise income tax (“-“ for decrease of income tax) 2,086,616.80 Portion of minor shareholders 7,755,385.53 Net amount of non-recurring gain/loss attributable to the shareholders of the parent company 19,184,520.70 2. Statement on “other gain/loss items satisfying the definition of non-recurring gain/loss” Other gain/loss items satisfying the definition of non-recurring gain/loss in above chart are caused by the investment income of RMB20,128,380.54 recognized in the current term as described in Note XIV(II). The Company deems that this was an odd incident which may influence the normal judgment on the Company’s performance and profitability, thus it was satisfying the definition of non-recurring gain/loss and accounted into non-recurring gain/loss account. 112 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 (II) According to “PLC Information Disclosure Regulations No.9 – Disclosure of net income on asset and earnings per share (Revised in 2007)” the net income on asset calculated on fully amortizing and weight average and basic and diluted earnings per share are as the followings: 1. Details Net return on equity (%) Earnings per share (yuan/share) On full Basic gains per Diluted gains per weighted average amortizing basis share share Profit of the report period Same Same Same Same Current period Current period Current period Current period term of last term of last term of last term of last term term term term Net profit attributable to common 30.17 25.74 34.22 28.05 1.54 1.02 1.54 1.02 shareholders of the Company Net profit attributable to the common owners of the PLC after deducting of 29.16 25.51 33.07 27.80 1.49 1.01 1.49 1.01 non-recurring gains/losses 2. Formula of earnings per share ① Basic earnings per share = P÷S S=S0＋S1＋Si×Mi÷M0－Sj×Mj÷M0－Sk Including: P = net profit attributable to common shareholders of the Company, or net profit attributable to common shareholders after deducting of non-recurring gain/loss S = weighted average of common shares placed in the market S0 = Total shares at the beginning of term S1 = increased shares due to capitalizing of common reserves or dividend Si = shares increased due to placing of new shares or transferred from debt in the report term Sj = shares decreased due to actions such as repurchasing in the report term SK = the amount of shares reduced M0 = number of months of the report term Mi = number of months from month next to the share increasing to the end of report term Mj = number of months from month next to the share decreasing to the end of report term ② Diluted earning per share=[P+（Diluting prospective common share interest recognized as expense －transfer expense）×（1-income tax rate）]/（S0 ＋ S1 ＋ Si×Mi÷M0 － Sj×Mj÷M0—Sk+ weighted average of common shares increased by term of subscription certificates, share future options, or convertible bonds） P = net profit attributable to common shareholders of the Company, or net profit attributable to common shareholders after deducting of non-recurring gain/loss At calculating of diluted earnings per share, company shall consider the influences of all diluting potential common shares, till the diluted earnings per share was minimized. ③ On the other hand, when the amount of common shares has increased due to distribution of dividend in shares, capitalizing of common reserves, and share division, or decreased due to share combination, the enterprise shall 113 Hangzhou Steam Turbine Co., Ltd. Financial Statements 2008 recalculate and present the earnings per share of each period. Hangzhou Steam Turbine Co., Ltd. April 22, 2009 114