深赤湾Ｂ(200022)2008年年度报告（英文版）

2008 Annual Report 2008 ANNUAL REPORT SHENZHEN CHIWAN WHARF HOLDINGS LIMITED Important Note The Board of Directors, the Supervisory Committee as well as the directors, supervisors and senior management staff of Shenzhen Chiwan Wharf Holdings Limited (hereinafter referred to as “the Company＂) hereby confirm that there exists no omission, misstatement, or misleading information in this report, and accept, individually and collectively, the responsibility for the correctness, accuracy and completeness of the contents of this report. This Annual Report has been reviewed and approved at the Third Session of the Sixth Board of Directors of the Company and all directors have attended the session. Chairman of the Board Ms. Wang Fen, as well as Chief Financial Officer of the Company Mr. Zhang Jianguo and Financial Manager Ms. Zhang Yuanling hereby confirm that the Financial Report in the Annual Report is true and complete. — The Annual Report is written in both English and Chinese. In case of any discrepancy between the two versions, Chinese version prevails. — According to certain regulations issued by China Securities Regulatory Commission, the Company needn't to prepare Financial Statements under International Financial Reporting Standards, thus all the financial data disclosed in this report were prepared under Chinese Accounting Standards. 2008 Annual Report Table of Contents PART I COMPANY PROFILE ......................................................................................................... 1 PART II FINANCIAL AND BUSINESS HIGHLIGHTS ................................................................... 2 PART III CHANGES IN SHARE CAPITAL AND SHAREHOLDERS.............................................. 4 PART IV DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT STAFF & EMPLOYEES ... 11 PART V CORPORATE GOVERNANCE......................................................................................... 18 PART VI ANNUAL GENERAL MEETING ...................................................................................... 26 PART VII REPORT OF THE BOARD OF DIRECTORS.................................................................. 26 PART VIII REPORT OF THE SUPERVISORY COMMITTEE.......................................................... 41 PART IX SIGNIFICANT EVENTS .................................................................................................... 42 PART X FINANCIAL STATEMENTS (See attached)..................................................................... 51 PART XI DOCUMENTS FOR REFERENCE .................................................................................... 51 2008 Annual Report PART I COMPANY PROFILE A. Company's Name in Chinese 深圳赤湾港航股份有限公司（深赤湾） Company's Name in English Shenzhen Chiwan Wharf Holdings Limited (Chiwan Wharf) B. Legal Representative Ms. Wang Fen, Chairman C. Company Secretary Ms. Pei Jiangyuan Authorized Representative Mr. Li Ying Address 13/F., Chiwan Petroleum Building, Shenzhen, PRC Tel +86 755 26694222 Fax +86 755 26684117 E-mail cwh@cndi.com D. Place of Registration Chiwan, Shenzhen, PRC Offices 13/F., Chiwan Petroleum Building, Chiwan, Shenzhen, PRC Postal Code 518068 E-mail address cwh@cndi.com Internet Website http://www.szcwh.com E. Newspaper for Information "Securities Times" and "Ta Kung Pao” Disclosure Website for Annual Report http://www.cninfo.com.cn Annual Report Preparation Secretariat of the Board of Directors F. Stock Exchange Shenzhen Stock Exchange Stock Short Name Chiwan Wharf A/Chiwan Wharf B Stock Code 000022/200022 G. Other information Date of Original Registration 19 July 1990 Place of Registration Chiwan, Shenzhen Business Registration Number 440301501124494 Tax Registration Number Shen-Guo-Shui-Deng-Zi No. 440300618832968 Shen-Di-Shui-Deng-Zi No. 440301618832968 Organization Code 61883296-8 Accounting Firm PricewaterhouseCoopers Zhong Tian Certified Public Accountants Room 3706, Di Wang Commercial Centre 5002 Shennan Road East Shenzhen, 518068, PRC 1 2008 Annual Report PART II FINANCIAL AND BUSINESS HIGHLIGHTS A. Profit Breakdown for 2008 (RMB) 2008 Operating profits 1,026,439,685 Total profits 1,033,097,056 Net profit attributable to equity holders of the Company 642,891,604 Net profit attributable to equity holders of the Company 637,202,002 after extraordinary gains and losses Net cash flows from operating activities 1,090,354,989 * Net profit and net assets as at the end of 2008 in the Financial Report prepared under Chinese Accounting Standards (CAS) and International Financial Reporting Standards (IFRS) Unit: RMB CAS IFRS Net profit 944,409,177 944,409,177 Net assets 3,327,657,377 3,327,657,377 Reason for difference After performing new CAS for business enterprise, there existed no difference in either net profit for the reporting period or net assets as at the end of reporting period as set out in the Financial Report prepared under CAS and IFRS. * Extraordinary gains and losses items Items Amount Net gains/(losses) on disposal of non-current assets 4,747,067 Non-operating income (expense) - net 1,910,304 Tax effect on extraordinary gains and losses (1,270,198) Minority interests on extraordinary gains and losses 302,429 Total 5,689,602 2 2008 Annual Report B. Major accounting data and financial indicators for the past three years up to the end of 2008 (RMB) Items 2008 2007 2006 Revenue 1,914,007,717 2,003,562,530 1,948,638,423 Total profit 1,033,097,056 1,042,771,441 1,041,830,198 Net profit attributable to equity 642,891,604 663,872,167 626,836,148 holders of the Company Net profit attributable to equity holders of the Company after 637,202,002 664,757,766 625,639,289 extraordinary gains and losses Total assets 5,153,728,048 5,457,335,718 4,605,598,614 Total equity attributable to equity 2,755,264,347 2,585,863,265 2,262,433,316 holders of the Company Earnings per share 0.997 1.030 0.972 Net assets per share attributable to 4.273 4.011 3.509 equity holders of the Company Net cash flows from operating 1,090,354,989 1,197,492,986 1,146,012,470 activities Net cash flows per share from 1.691 1.857 1.777 operating activities Return on equity 23.33% 25.67% 27.71% C. Return on equity and earnings per share calculated in accordance with the requirements of the “Rules for the Compilation of Information Disclosures by Public Companies (No. 9)” issued by the CSRC Return on equity Earnings per share Profit for 2008 Fully diluted Weighted average Basic Diluted Net profit attributable to ordinary equity holders of the Company 23.33 24.35 0.997 0.997 Net profit attributable to ordinary equity holders of the Company after extraordinary gains and losses 23.13 24.14 0.988 0.988 3 2008 Annual Report PART III CHANGES IN SHARE CAPITAL AND SHAREHOLDERS A. Changes in Share Capital 1. Changes in the stock of shares of the Company Before the change Increase(+)/decrease(-) After the change Issue of Bonus Reserves Number Percentage additional Other Subtotal Number Percentage issue to stocks shares 1. Shares subject to trading moratorium 347,727,801 53.931% -23,118,889 -23,118,889 324,608,912 50.345% a. State-owned shares b. State-owned legal person shares c. Other domestic shares Including: Shares held by domestic corporations 347,559,485 53.905% -23,243,415 -23,243,415 324,316,070 50.300% Shares held by domestic individuals d. Shares held by overseas shareholders Including: Shares held by overseas corporations Shares held by overseas individuals e. Shares held by senior management staff 168,316 0.026% +124,526 +124,526 292,842 0.045% 2. Shares not subject to trading moratorium 297,035,929 46.069% +23,118,889 +23,118,889 320,154,818 49.655% a. Ordinary shares denominated in RMB 117,221,676 18.181% +23,252,059 +23,252,059 140,473,735 21.787% b. Domestically listed foreign shares 179,814,253 27.888% -133,170 -133,170 179,681,083 27.868% c. Overseas listed foreign shares d. Others 3. Total shares 644,763,730 100% 644,763,730 100% 23,243,415 A shares of the Company held by the Company’s controlling shareholder, i.e. China Nanshan Development (Group) Inc. (hereinafter referred to as “CND”) were released for circulation on 6 June 2008. Relevant announcement was disclosed on Securities Times and Ta Kung Pao dated 5 June 2008 (Announcement No. 2008-026). A portion of the shares held by the directors, supervisors and senior management staff of the Company were released for circulation in January 2008 in accordance with relevant requirements of China Securities Depository and Clearing Corporation Limited and Shenzhen Stock Exchange. 2． Changes in shares subject to trading moratorium Shares subject to Increased shares Shares subject Shares Name of trading subject to trading to trading Time of released in Reason shareholder moratorium at the moratorium in moratorium at releasing 2008 year beginning 2008 the year end Share reform CND 347,559,485 23,243,415 0 324,316,070 6 June 2008 commitment Wang Fen 82,632 20,658 0 61,974 The Company Jan. 2008 Law and Fan Zhaoping 53,877 13,470 0 40,407 Jan. 2008 relevant laws Yuan Yuhui 14,040 3,510 0 10,530 and regulations Jan. 2008 4 2008 Annual Report Han Guimao 13,988 3,497 0 10,491 Jan. 2008 Zheng Shaoping 25,871 22,727 65,037 68,181 Jan. 2008 Zhang Ning 22,490 17,294 46,685 51,881 Jan. 2008 Fang Jie 0 2,694 10,776 8,082 Sept. 2008 Ni Keqin 0 3,142 12,568 9,426 Sept. 2008 Zhang Jianguo 0 7,183 28,731 21,548 Sept. 2008 Pei Jiangyuan 0 3,441 13,763 10,322 Sept. 2008 Total 347,772,383 23,341,031 177,560 324,608,912 During the reporting period, the directors, supervisors and senior management staff of the Company purchased B shares of the Company in the secondary market, which were partly released for circulation in accordance with relevant requirements of regulatory authorities. 3. Issuance and listing of shares a. The Company was approved to issue 310,470,000 ordinary shares at a par value of RMB1.00 per share in February 1993, with 224,470,000 being the promoter's shares; 46,000,000 shares (the "A shares”) being issued to PRC investors (of which 6,000,000 shares were allotted to the employees of the Company), and 40,000,000 shares (the "B shares”) being issued to overseas investors. The A shares were issued at RMB3.10 per share and the B shares at RMB3.18 per share, which were payable at HKD2.83 per share. On 5 May 1993, the Company's A and B shares were listed and traded on the Shenzhen Stock Exchange. b. In June 1994, bonus shares were issued in a proportion of "one bonus share for every ten shares”. As a result, the total number of the Company's shares rose to 341,517,000. On 16 June and 21 June 1994, respectively, 4,600,000 bonus A shares and 4,000,000 bonus B shares were listed and traded on the Shenzhen Stock Exchange. c. On 22 June 1995, the Company's promoter, China Nanshan Development (Group) Incorporation (CND), converted all of its 22,447,000 bonus shares to B shares, which were sold to overseas investors at an average price of HKD3.54 per share, and then listed and traded on the Shenzhen Stock Exchange. d. In December 1995, the Company issued 40,000,000 B shares to overseas investors at HKD2.90 per share, which were listed on the Shenzhen Stock Exchange on 15 December 1995. Consequently, the total number of the Company's shares rose to 381,517,000. e. In June 2004, the plan about transfer of capital reserves into share capital for 2003 was carried out on a basis of 3 shares for every 10 shares based on the total 381,517,000 shares as at the close of trading on the Company’s record date (last trading day) 21 June 2004. After the transfer, the total number of the shares of the Company was increased from 381,517,000 to 495,972,100. 5 2008 Annual Report f. In July 2005, the plan about transfer of capital reserves into share capital for 2004 was carried out on a basis of 3 shares for every 10 shares based on the total 495,972,100 shares as at the close of trading on the Company’s record date (last trading day) 5 July 2005. After the transfer, the total number of the shares of the Company was increased from 495,972,100 to 644,763,730. g. In May 2006, the Company implemented its share reform proposal, pursuant to which each shareholder holding circulating A shares whose name appeared on the register kept by the Shenzhen Branch of China Securities Depository & Clearing Corporation Limited as at the close of trading on the Shenzhen Stock Exchange on 29 May 2006 was allotted one share, paid RMB11.5 in cash and granted eight put options by CND for every ten A Shares held (equivalent to 2.98 shares for every ten shares held). Upon the implementation of the share reform proposal, the shareholding percentage of CND in the Company was 57.51%. h. 23,243,415 A shares held by CND was released for circulation on 3 July 2007. i. 23,243,415 A shares held by CND was released for circulation on 6 June 2008. j. The Company was approved to issue 6,000,000 Employees’ Shares at an issue price of RMB3.10 per share in February 1993. The shares were put in trust with Shenzhen Branch of China Securities Depository & Clearing Corporation Limited in March 1993. After bonus shares were issued in June 1994, the number of Employees’ Shares rose to 6,600,000, among which 600,000 bonus shares were allowed to be traded on 16 June 1994. On 1 August 1994, the Company's Employees’ Shares totaling 6,000,000 were allowed to become tradable, except those held by the Directors, supervisors and senior management staff in accordance with relevant rules. B. Particulars about Shareholders 1 Number of shareholders and particulars about shares held 42,672, among which 33,079 being shareholders of A shares Total number of shareholders and 9,593 being shareholders of B shares Shareholdings of top ten shareholders Percentage of Shares subject Shares Nature of shareholding Total shares Name of shareholders to trading pledged shareholders held (％) moratorium or frozen CHINA NANSHAN DEVELOPMENT (GROUP) INC. 57.51 370,802,900 324,316,070 0 CMBLSA RE FTIF TEMPLETON Holder of B ASIAN GRW FD GTI 5496 shares 3.65 23,552,225 0 N/A CHINA MERCHANTS SECURITIES Holder of B (HK) CO., LTD. shares 3.56 22,971,766 0 N/A Holder of B PLATINUM ASIA FUND shares 2.35 15,128,018 0 N/A THORNBURG INVESTMENT Holder of B INCOME BUILDER FUND shares 2.27 14,665,727 0 N/A THORNBURG GLOBAL Holder of B OPPORTUNITIES FUND(9P14) shares 1.61 10,359,303 0 N/A 6 2008 Annual Report NATIONAL SOCIAL SECURITY FUND 102 PORTFOLIO 1.32 8,503,724 0 N/A GOVERNMENT OF SINGAPORE Holder of B INV. CORP.- A/C "C" shares 1.26 8,116,667 0 N/A MIRAE ASSET ASIA PACIFIC INFRA SECTOR EQTY INVSTMT Holder of B TRS 1 shares 0.62 4,012,421 0 N/A OMERS ADMINISTRATION Holder of B CORPORATION(SC03) shares 0.60 3,894,696 0 N/A Shareholdings of top ten shareholders holding shares not subject to trading moratorium Number of shares not subject to Type of shares (A, B, H or Name of shareholders trading moratorium other shares) CHINA NANSHAN DEVELOPMENT (GROUP) INC. 46,486,830 A shares CMBLSA RE FTIF TEMPLETON ASIAN GRW FD GTI 5496 23,552,225 B shares CHINA MERCHANTS SECURITIES (HK) CO., LTD. 22,971,766 B shares PLATINUM ASIA FUND 15,128,018 B shares THORNBURG INVESTMENT INCOME BUILDER FUND 14,665,727 B shares THORNBURG GLOBAL OPPORTUNITIES FUND(9P14) 10,359,303 B shares NATIONAL SOCIAL SECURITY FUND 102 PORTFOLIO 8,503,724 A shares GOVERNMENT OF SINGAPORE INV. CORP.- A/C "C" 8,116,667 B shares MIRAE ASSET ASIA PACIFIC INFRA SECTOR EQTY INVSTMT TRS 1 4,012,421 B shares OMERS ADMINISTRATION CORPORATION(SC03) 3,894,696 B shares Explanation on associated CND does not have any relations with the shareholders holding shares not subject to relationship among the top trading moratorium. The Company does not know if there is any inter-relations among ten shareholders: other shareholders holding shares not subject to trading moratorium. 2 Number and trading moratorium of shares held by top ten shareholders holding shares subject to trading moratorium Name of Shares subject to trading Trading Time for circulation Increase of tradable shares shareholders moratorium held moratorium CND 324,316,070 30 May 2009 324,316,070 None In May 2006, the Company implemented its share reform, during which CND, the controlling shareholder of the Company, committed that non-tradable shares held by CND would not be traded or transferred within 12 months from the day when the shares obtained circulation right. CND further committed that upon the expiration of the aforesaid period, shares sold by CND through the trading system of Shenzhen Stock Exchange would not exceed five percent of total shares of Chiwan Wharf (excluding B shares) during the following 12 months, and not exceed ten percent during the following 24 months. 7 2008 Annual Report 3 Information about the controlling shareholder of the Company Company name: China Nanshan Development (Group) Incorporation (CND) Legal representative: Fu Yuning Registration Date: 28 September 1982 Business scope: Land development, port transportation and related industry, commerce, property and tourism as well as bonded warehousing. Registered capital: RMB500,000,000 4 Within the reporting year, controlling shareholder of the Company remained unchanged, so did its shareholding structure. Shares held by CND had not been pledged or frozen. 5 Shareholding structure of the Company State-Owned Assets State-Owned Assets Supervision and Supervision and Administration Commission Administration Commission of the State Council of the State Council 100％ 100％ China Merchants Group State-Owned State-Owned 55.37％ Assets Assets Supervision and Supervision Administration and Commission of Administration China Merchants Holdings Shenzhen Commission of (International) Municipal Guangdong Government Province China National Offshore Oil Company Limited Corporation 100％ 100％ 100％ 100％ China Silverflow Shenzhen Guangdong China China HK Clifford Merchants Co., Ltd. Investment Petro-Trade National Ocean Wong (Nanshan) Holdings Develop- Offshore Oilfields Investment Holdings Co., Ltd. ment Oil Services Co., Ltd Ltd Corporation Investment (Hong Co., Ltd Kong) Limited (COOS) 36.52% 0.50% 26.10% 23.49% 7.83% 1.64% 3.92% China Nanshan Development (Group) Incorporation 57.51% Public A Public B 14.59% Shenzhen Chiwan Wharf Holdings Limited 27.90% Shares Shares 8 2008 Annual Report 6. Shareholders of CND holding more than 5% of equity interests Shareholder I: China Merchants Holdings (International) Company Limited Legal representative: Fu Yuning Date of establishment: 28 May 1991 Business scope: Investment holding and listing Registered capital: HK$500 million Shareholder II: Shenzhen Investment Holdings Co., Ltd. Legal representative: Chen Hongbo Date of establishment: 13 October 2004 Business scope: 1. provision of guarantees to state-owned enterprises in Shenzhen; 2. management of equity interests in state-owned enterprises other than those directly supervised and managed by the State-owned Assets Supervision and Administration Commission of Shenzhen; 3. asset restructuring, transformation and capital operation of the relevant enterprises; 4. investment; 5. other activities authorized by the State-owned Assets Supervision and Administration Commission of Shenzhen. Registered capital: RMB4.6 billion Shareholder III: Guangdong Petro-Trade Development Corporation Legal representative: Chen Qiang Date of establishment: 7 September 1993 Business scope: Provision of comprehensive service for oil and gas exploitation; industry investment and development; transportation agency; sale of industrial production materials, petroleum products, construction materials, feedstuff, wood chips, furniture and electrical appliances; purchase of agricultural by-products. Registered capital: RMB112,773,000 Shareholder IV: China National Offshore Oil Corporation Legal representative: Fu Chengyu Date of establishment: 7 September 1993 Business scope: Cooperation with foreign partners for oil and gas exploitation in China's offshore areas Registered capital: RMB94.9 billion 10 2008 Annual Report PART IV DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT STAFF & EMPLOYEES A. General Information As at 31 December 2008 Total Amount Receiving Shares Shares of remuneration payments from held at the held at Reasons for received from shareholding Name Title Sex Age Term of office beginning the end of the change the Company units or other of the year the year during the year associated (RMB) units or not Chairman of Wang Fen Female 54 82,632 82,632 0 Yes the Board Fan Zhaoping Director Male 54 53,877 53,877 0 Yes Yuan Yuhui Director Male 58 14,040 14,040 0 Yes Han Guimao Director Male 58 13,988 13,988 0 Yes Director, Zheng Purchase on General Male 46 25,871 90,908 980,000 No Shaoping market Manager Director, 2008.5-2011.5 Deputy Purchase on Zhang Ning Male 48 22,490 69,175 720,000 No General market Manager Independent Li Wuzhou Male 69 0 0 85,000 No Director Independent Hao Zhujiang Male 56 0 0 85,000 No Director Independent Zhang Jianjun Male 44 0 0 85,000 No Director Chairman of the Wang Hong Male 46 0 0 0 Yes Supervisory Committee Mary-Jean Supervisor Female 52 0 0 0 Yes Wong 2008.5-2011.5 Guo Songhua Supervisor Female 50 0 0 0 Yes Purchase on Fang Jie Supervisor Male 52 0 10,776 240,000 No market Purchase on Ni Keqin Supervisor Female 44 0 12,568 300,000 No market Purchase on Zhang Jianguo CFO Male 44 0 28,731 600,000 No market 2008.5-2011.5 Company Purchase on Pei Jiangyuan Female 36 0 13,763 300,000 No Secretary market Total 212,898 390,458 3,395,000 11 2008 Annual Report B. Profiles of the Directors, Supervisors and Senior Executives Chairman of the Board, Ms. Wang Fen, MBA, appointed as the Vice President of CND in 1994 and then Senior Vice President participating and taking charge of the development and management of CND's investment. Presently, President of CND. Director of the Company since March 1993, Vice Chairman of the Company from December 1998 to August 2000, and then Chairman of the Company since August 2000. Director, Mr. Fan Zhaoping, got Bachelor's Degree in Economics at the State's Finance University and Master's Degree in Economics at the Research Institute of Finance Ministry of China, then worked as assistant researcher there. As an experienced financial manager, Mr. Fan took the position of Manager of the Finance Department of CND in 1991, then Manager of the Investment Department and Vice President of CND. Now Senior Vice President of CND. Appointed as the Company's Chief Financial Officer in March 1993 and resigned from the post in September 1999. Director of the Company since April 1995. Director, Mr. Yuan Yuhui, MBA, Worked in the Business Department of CND in 1989, and then Director of General Manager Office. Now Senior Vice President of CND in charge of the administration, law affairs, research and development issues of CND. Appointed as the Company Secretary in March 1993 and resigned from the post in December 2000. Director of the Company since April 1995. Director, Mr. Han Guimao, graduated from Construction Department of Tsing Hua University. Mr. Han has been working in the field of construction and engineering for over 20 years. Vice President of CND since 1994, and presently Senior Vice President of CND in charge of general planning, construction, integrated housing, new construction materials business, offshore petroleum services and logistic services of CND. Director of the Company since May 1998. Director and General Manager, Mr. Zheng Shaoping, got Bachelor's Degree in Shipping and then graduated from Postgraduate School of Dalian Shipping University with a major in Marine Trade Law. Previously, Deputy General Manager of the Company and General Manager of Shenzhen Chiwan Harbor Container Co. Ltd. Now General Manger of Chiwan Container Terminal Co., Ltd. (CCT). Appointed as Deputy General Manager of the Company in December 1998 and resigned from the post in May 2002. Appointed again as the Company’s Deputy General Manager from April 2003 to September 2004. Director of the Company since May 1999 and General Manager since September 2004. Director and Deputy General Manager, Mr. Zhang Ning, got Bachelor's Degree in Wuhan Marine Transportation Engineering Institute with a major in Mechanical Designing. Then got Master's Degree in Science in Wuhan Industrial University with a major in Engineering Machinery. Previously, lecturer at Wuhan University of Technology. Appointed in October 1995 as Deputy Manager of the Operation Department of CCT, and then Manager of that Department, Assistant General Manager of CCT. Now Deputy General Manager of CCT. Employees' representative in the Supervisory Committee from May 1999 to December 2004. Deputy General Manger of the Company since December 2004. 12 2008 Annual Report Independent Director, Mr. Li Wuzhou, got Bachelor's Degree in Tianjin University. Previously, Deputy Director of Construction Department, Deputy Director of Water Transportation Department of the Ministry of Transport, Head of the Preparation Team and President of China Water Transportation Construction Association. Currently, he is the Honorary President of China Water Transportation Construction Association. Independent Director, Mr. Hao Zhujiang, got Bachelor's Degree in Southwest University of Political Science and Law. Previously, Director and Secretary of Party Committee of the Bureau of Legislative Affairs of Shenzhen Municipality, Director of the Administrative Reconsideration Office of Shenzhen Municipal Government, Director of the Legal Advice Office of Shenzhen Municipal Government. Retired in 2001. Currently, he is a partner and lawyer of Horizon Law Firm, Shenzhen Office. Independent Director, Mr. Zhang Jianjun, got Doctoral Degree in Shanghai University of Finance and Economics. Previously, Deputy Dean and professor of the Accounting School of Jiangxi University of Finance and Economics, Vice President of Pengyuan Credit Rating Co., Ltd. (formerly, Sino-Hawk Credit Rating Co., Ltd.), Dean and professor of Business School of Shenzhen University. Currently, he is the Director and a professor of Accounting & Finance Institute of Shenzhen University. Chairman of the Supervisory Committee, Mr. Wang Hong, is a Doctoral candidate in business management of the Chinese Academy of Social Science. Previously, Vice General Manager of China Communications Import and Export Corporation, Managing Director of Hoi Tung Marine Machinery Suppliers Limited of China Merchants Group, General Manager of the Performance Appraisal Department and Human Resources Department of China Merchants Group Limited. Currently, Director and Standing Vice General Manager of China Merchants Holdings (International) Company Limited, Chairman of the Supervisory Committee of CND. Supervisor, Ms. Mary-Jean Wong, is a university graduate and a member of the 10th Shandong Committee of the Chinese People's Political Consultative Conference. Currently, Director of Lucliff (Canada) Company and Hong Kong Fairland Resources Limited, Executive Director of HK Clifford Wong Investment Co., Ltd. and Director of CND. Supervisor of the Company since May 1996. Supervisor, Ms. Guo Songhua, got a Master’s Degree in Computer Management Application from University of Manchester in U.K. Senior Economist. Previously, Assistant Manager, Deputy General Manager, Standing Deputy General Manager and General Manager of the Finance Department of CND since 1994. Currently, Chief Financial Officer of CND. Supervisor, Mr. Fang Jie, previously worked in the Research and Development Department of CND, Standing Deputy General Manager of Shenzhen Chiwan Shipping and Transportation Company Limited, Vice General Manager of Shenzhen Chiwan Sembawang Engineering Co., Ltd. Currently, Assistant General Manager and Manager of the Personnel Administration Department of Harbor Division of the Company. Supervisor, Ms. Ni Keqin, has been working for CCT since May 1993. Currently, Manager of the Operation Department of CCT. 13 2008 Annual Report Chief Financial Officer, Mr. Zhang Jianguo, graduated from Shanxi Finance & Economics Institute, majored in Accounting and got a Bachelor’s Degree in Economics. Previously, Financial Manager of Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Appointed as the Financial Manager of the Company in October 1997 and Chief Financial Officer of the Company since September 1999. Company Secretary, Ms. Pei Jiangyuan, got Master’s Degree from Foreign Languages School of Jilin University. Company Secretary of the Company since March 2001. C. Directors and Supervisors Taking Positions in CND Position in the Name Position in CND Office Term Company Chairman of the Wang Fen President Oct. 2002 till present Board Fan Zhaoping Director Senior Vice President Dec. 1998 till present Yuan Yuhui Director Senior Vice President Oct. 2002 till present Han Guimao Director Senior Vice President Oct. 2002 till present Chairman of Convener of Supervisory Wang Hong Supervisory Nov. 2005 till present Committee Committee Mary-Jean Wong Supervisor Director Apr. 1995 till present Guo Songhua Supervisor Chief Financial Officer Sept. 2007 till present Other Positions Name Company Position Chiwan Container Terminal Co., Ltd. Chairman Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Director Shenzhen Nanshan Development Co., Ltd. Chairman Chiwan Wharf (Hong Kong) Limited. Chairman Shenzhen Chiwan Habor Container Co., Ltd. Chairman Wang Fen Dongguan Chiwan Wharf Company Limited Chairman Dongguan Chiwan Terminal Company Limited Chairman Shenzhen Chiwan Oriental Logistics Co., Ltd. Chairman China Merchants Maritime and Logistics (Shenzhen) Ltd. Vice Chairman Shenzhen Pingnan Railway Co., Ltd Vice Chairman 14 2008 Annual Report Chiwan Container Terminal Co., Ltd. Director Fan Zhaoping Shenzhen Nantian Oil Mills Co., Ltd. Vice Chairman Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Supervisor Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Director Yuan Yuhui Chiwan Development (Singapore) Ltd. Director Chixiao Enterprise Co., Ltd. Chairman Chiwan Container Terminal Co., Ltd. Director Shanghai Matsuo Steel Structure Co., Ltd. Chairman Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Chairman Han Guimao Shenzhen Chiwan Sembawang Engineering Co., Ltd. Vice Chairman Beijing Gangchuangruibo Building Materials Co., Ltd. Chairman Shenzhen Yazhi Lightsteel Housing System Limited. Chairman Shanghai Baowan International Logistic Co., Ltd. Chairman Shenzhen Gangchuang Building Materials Co., Ltd. Chairman China Merchants Holdings (International) Company Limited Director Wang Hong Shanghai International Port (Group) Co., Ltd. Vice Chairman China International Marine Containers (Group) Ltd. Director Lucliff (Canada) Company Director Mary-Jean Wong Hong Kong Fairland Resources Limited Director HK Clifford Wong Investment Co., Ltd. Executive Director Chixiao Enterprise Co.,Ltd Director Dongguan Nanshan Light Construction Materials Company Vice Chairman Limited Shenzhen Haiqin Engineering. Management Co., Ltd. Director Shenzhen Southseas Grains Industries Limited Vice Chairman Chiwan Development (Singapore) Company Limited Director Guo Songhua Chiwan Development (Hong Kong) Co., Ltd. Director Shenzhen Chiwan Petroleum Supply Base Co., Ltd. Supervisor Tianjin Baowan International Logistic Co., Ltd. Director Langfang International Logistic Co., Ltd. Director Nanjing Baowan International Logistic Co., Ltd. Director Wuhan Baowan International Logistic Co., Ltd. Director 15 2008 Annual Report D. Annual Salary 1. Except for Independent Directors, the Company’s other members of the Board of Directors and the Supervisory Committee did not draw any remuneration, commission and others from the Company for taking the position of director or supervisor of the Company. Among which, Wang Fen, Fan Zhaoping, Yuan Yuhui and Han Guimao, directors of the Company, and Guo Songhua, a supervisor of the Company, received their salaries from CND, while Wang Hong and Mary-Jean Wong, supervisors of the Company, drew their salaries from shareholders of CND. 2. Allowance for Independent Directors is RMB85,000/year (tax included), which has been approved at the 2007 Annual General Meeting with effect from 1 June 2008. 3. All senior management staffs of the Company are appointed by the Board of Directors. The Board set up the Company’s business objectives and financial budget for each year and sign KPI contracts accordingly with senior management staff. The Board then grants rewards and punishment to senior management staff according to their respective performance during the year. E. Changes in Directors and Supervisors and Senior Management Staff during the reporting period The Report on the General Election of the Board of Directors of the Company, Report on the General Election of Independent Directors of the Company and the Report on the General Election of the Supervisors of the Company were approved at the annual general meeting of the Company for 2007 held on 29 May 2008, pursuant to which Wang Fen, Fan Zhaoping, Han Guimao, Yuan Yuhui, Zheng Shaoping and Zhang Ning were elected once again as directors of the Company, Li Wuzhou, Hao Zhujiang and Zhang Jianjun were elected as independent directors of the Sixth Board of Directors of the Company, Wang Hong, Mary-Jean Wong and Guo Songhua were elected as supervisors of the Sixth Supervisory Committee of the Company. On 2 April 2008, Fang Jie and Ni Keqin were elected as staff supervisors of the Sixth Supervisory Committee of the Company at the staff representative’s meeting of the Company. The term of office of the Sixth Board of Directors and Supervisory Committee was from May 2008 to May 2011. Zhang Limin, Liu Ruiqi and Ng Pock Too, independent directors of the Fifth Board of Directors, and Guo Yonggang, Yu Liming, Nie Qi and Ding Xiaofang, supervisors of the Fifth Supervisory Committee ceased to be directors and supervisors of the Company upon expiration of their terms of office. The Report on Appointment of the General Manager of the Company, Report on Appointment of the Deputy General Manager of the Company, Report on Appointment of the Chief Financial Officer of the Company and Report on Appointment of the Company Secretary of the Company were considered and approved at the First Session of the Sixth Board of Directors of the Company held on the same date, whereby it was agreed to re-appoint Zheng Shaoping as the General Manager of the Company, Zhang Ning as the Deputy General Manager of the Company, Zhang Jianguo as the Chief Financial Officer of the Company and Pei Jiangyuan as the Company Secretary of the Company, for a term from May 2008 to May 2011. 16 2008 Annual Report F. Attendance by Directors at Board Meetings Meetings Attendance by Non-attendance in Attendance way of Attendance Absence Name of director Title required person for two in person telecommunication by proxy rate to attend consecutive times Chairman of the No Wang Fen 13 3 10 0 0 Board Fan Zhaoping Director 13 3 10 0 0 No Yuan Yuhui Director 13 2 10 1 0 No Han Guimao Director 13 2 10 1 0 No Director, Zheng Shaoping 13 3 10 0 0 No General Manager Director, Zhang Ning Deputy General 13 3 10 0 0 No Manager Independent No Li Wuzhou 8 2 6 0 0 Director Independent No Hao Zhujiang 8 2 6 0 0 Director Independent No Zhang Jianjun 8 2 6 0 0 Director Independent No Zhang Limin 5 1 4 0 0 Director Independent No Liu Ruiqi 5 0 4 1 0 Director Independent No Ng Pock Too 5 0 4 1 0 Director G. Board meetings held during the year Board meetings held during the year 13 Including: On-site meetings 3 Meetings by way of telecommunication 10 Meetings held on site and by way of telecommunication 0 H. Work Force as at 31 December 2008 As at 31 December 2008, the Company had 2,012 employees, with 902 being university graduates, 75 financial personnel, 70 sales persons, 293 technicians, 85 management personnel, and the others being staff for production. The Company needn’t to pay remuneration or any fees for retired staff. 17 2008 Annual Report PART V CORPORATE GOVERNANCE A. Details of the Special Events for Corporate Governance In April 2007, the Company carried out the Special Campaign for corporate governance in line with the principle of seeking truth from facts and in accordance with the requirements of the Notice on Matters concerning Carrying out a Special Campaign to Strengthen the Corporate Governance of Listed Companies (Zheng Jian Gong Si Zi [2007] No. 28) promulgated by the CSRC. During the reporting period, the Company made efforts to improve the results achieved by the special campaign for corporate governance of the Company in 2007 and further carry out the special campaign for corporate governance. Rectification matters mentioned in the Rectification Report for Corporate Governance of the Company announced on 27 October 2007 were completed, details of which are set out below: 1. Details concerning submission of monthly financial statements by the Company to its controlling shareholder were truly disclosed in the section “Corporate Governance” in the annual report of the Company. In strict compliance with the requirements of the Shenzhen Securities Regulatory Bureau, the Company submitted “Undisclosed Information Provided by the Company to its Substantial Shareholders and Actual Controllers” to the Shenzhen Securities Regulatory Bureau every month, including the name list of relevant parties aware of such undisclosed information and relevant information. 2. The auditing staff of the Company have took their respective positions and commenced to perform their duties. The Rules on Internal Audit of the Company was reviewed and approved at the Seventh Session of the Fifth Board of Directors on 8 April 2008 and issued for implementation. 3. Management Rules on the Shares Held by Directors, Supervisors and Senior Management and the Changes Therein was reviewed and approved at the Seventh Special Session of the Fifth Board of Directors of the Company for 2007 held on 25 October 2007 and issued for implementation. 4. Functions of the committees of the Board of Directors were gradually strengthening. For details of performance by the committees of their duties in 2008, please refer to C.3-5 of Part VII. The implementation of the special campaign for corporate governance in listed companies helped the Company to further reinforce the construction of its governance and improve its regulated operations. During the said special campaign, we recognized problems and weakness existing in the Company and timely set down specific rectification measures. We will implement such measures properly. In addition, the Directors, Supervisors and Senior Management Staff of the Company will make more efforts in learning the securities laws and regulations in order to reinforce the management base continually. With the help of the regulatory authorities and the investors, we will strive for efficiency, transform the corporate governance mechanism of the Company gradually towards an efficient, regulated and scientific governance mechanism, and safeguard the interests of the Company and the shareholders to realize the sustainable development of the Company. 18 2008 Annual Report B. General information of Corporate Governance during the reporting period In strict accordance with the requirements of the PRC’s Company Law, the Securities Law and the laws and regulations issued by China Securities Regulatory Commission (“CSRC”), the Company keeps on improving its corporate governance by setting up modern enterprise systems so as to regulate the operation of the Company. Details are set out as follows: 1. Shareholders and general meeting The Company ensures that all the shareholders, especially minority shareholders, are equal and could enjoy their full rights. The Company called and held shareholders’ general meeting strictly in compliance with the “Rules for Shareholders’ General Meeting”. 2. Relationship between the controlling shareholder and the Company Controlling shareholder of the Company acted in line with rules during the reporting year and did not intervene the decisions or operations of the Company directly or indirectly in exceeding the authority of the shareholders’ general meeting. 3. Directors and the Board of Directors The Company elected directors in strict accordance with the Articles of Association. Number and composition of the members of the Board were in compliance with relevant laws and regulations; all Directors attended Board meetings and shareholders’ general meeting in a positive and responsible manner and participated enthusiastically relevant training so as to know better about laws and regulations as well as the rights, obligations and liabilities of Directors. The Company set up the Audit Committee as approved by the first special shareholders’ meeting for 2004 and the Nomination, Remuneration and Evaluation Committee and the Strategy Committee of the Board as approved by the Annual General Meeting for 2005. 4. Supervisors and the Supervisory Committee Number and composition of the members of the Supervisory Committee were in compliance with the requirements of laws and regulations. The supervisors performed seriously their duties, took responsible attitudes to all shareholders and supervised the financial affairs as well as the performance by the Company’s Directors, managers and other senior executives of their duties in compliance with the laws and regulations. 5. Stakeholders The Company fully respected and safeguarded the legal rights and interests of the banks and other creditors, staff, consumers and other stakeholders so as to develop the Company in a consistent and healthy way. 19 2008 Annual Report 6. Information disclosure and transparency The Company authorized the Company Secretary to take charge of information disclosure, and the Chairman as well as related Directors to take charge of dealing with visits and inquiries from shareholders. The Company disclosed relevant information in a true, accurate, complete and timely way in strict accordance with the requirements of laws, regulations and the Articles of Association so as to ensure all shareholders have equal opportunity to obtain the information. The Company has, since its establishment, been operating in a regulated way in accordance with the requirements of the Company Law and other laws and regulations. The Company will keep on doing so in accordance with the “Corporate Governance Principle for Listed Companies” so as to safeguard the interests of the shareholders and relevant stakeholders. C. Non-compliance of corporate governance standards by the Company As controlling shareholder of the Company CND, holds 57.51% of the shares of the Company, it is required to consolidate the Company’s financial statements in its accounts under the Enterprise Accounting Standard No. 33 -Consolidated Financial Statements. Accordingly, CND requires the Company’s Financial Department to submit our monthly financial statements on or about the tenth day every month for the purpose of the preparation of its consolidated financial statements. At the Fifth Session of the Fifth Board of Directors of the Company held on 17 April 2007, the Report Concerning the Submission of Monthly Financial Statements to the Substantial Shareholder was reviewed and approved, it was agreed that Financial Department shall provide the company’s monthly financial statements to CND. On 25 August 2007, the Company disclosed the details of submitting the financial statements to substantial shareholders in the Self-inspection Report and Rectification Plan for Corporate Governance in 2007 of Shenzhen Chiwan Wharf Holding Co., Ltd. In compliance with the requirements of the Shenzhen Securities Regulatory Bureau, the Company delivered “Undisclosed Information Provided by the Company to its Substantial Shareholders and Actual Controllers” to the Shenzhen Securities Regulatory Bureau before the tenth day every month since September 2007, including the name list of relevant parties and relevant information. The above-mentioned matters did not affect the Company’s independence. In the future, the Company will disclose the relevant information in due course at the request of the regulatory authorities. D. Performance of Independent Directors The Company has three independent directors, representing one third of the total members of the Board, which is in compliance with the requirements of the “Guiding Opinions on Setting up Independent Director System in Listed Companies” issued by CSRC. During the reporting period, attendance by the independent directors of the Company at board meetings are disclosed in section IV. F in this report. During the reporting period, independent directors of the Company actively participated in discussions on reports reviewed at board meetings and other issues of the Company and proposed constructive suggestions which had been adopted by the Company. They carefully reviewed and issued independent opinions in written form on significant events such as material related-party transactions in accordance with relevant requirements. Independent Directors proactively performed 20 2008 Annual Report their duties, monitored the Company’s business and operation, actively protected the interests of minority shareholders, and thus played significant roles in the scientific decision-making by the Board of Directors. E. Independence from the Controlling Shareholder The Company is absolutely independent in personnel, assets, finance, organization and business from its controlling shareholder. Details are set out as follows. The Company has basically separated its staff from its controlling shareholder. No senior management staff of the Company holds positions at controlling shareholder of the Company. No financial staff takes concurrent positions in associated companies. The Company possesses its own self-governed assets and independent operation system. Assets of the controlling shareholder in the Company (including land-use rights and fixed assets such as property and large equipment, etc.) were converted through assets evaluation into stock of shares at the latter half of 1992, which the Company has full rights to hold, use and dispose of. The Company has set up its own financial department as well as independent normative accounting system and the financial management system on its subsidiaries. The Company has its own bank accounts and does not share the same bank account with its controlling shareholder. The Company has been paying tax in accordance with the laws and regulations on its own behalf. Management of the Company on its human resources and staff salary is absolutely independent. Controlling shareholder has handed its wharf-related business thoroughly to the Company to operate and does not engage in the same business as the Company does, thus has no competition with the Company. F. Self-evaluation on Internal Control 1. Summary of Internal Control of the Company During the reporting period, in accordance with the requirements of the Company Law, the Basic Standard for Enterprise Internal Control jointly promulgated by the Ministry of Finance and the CSRC and the Guidelines for the Internal Control of Listed Companies issued by the Shenzhen Stock Exchange, the Company fully addressed the establishment and improvement, thorough and effective implementation of Rules on Internal Control of the Company in light of its actual conditions and with a focus on the improvement and strengthening of the internal control of the Company. a. Organizational Structure of Internal Control of the Company The general meeting of shareholders is the supreme authority of Company. It has the legal power to determine the operating policies and investment plans of the Company and consider the annual financial statement, profit distribution or other significant matters of the Company. The Board of 21 2008 Annual Report Directors reports to the shareholders’ general meeting and is responsible for ensuring the implementation of the resolutions of the general meeting and managing the Company within its scope of authority. The Board of Directors has established the Audit Committee, the Strategy Committee, the Nomination, Remuneration and Evaluation Committee. The Audit Committee is responsible for the communication, supervision and direction in respect of internal and external auditing. The Strategy Committee is responsible for conducting research and making advices on the long term development strategy and significant investment decisions of the Company, while the Nomination, Remuneration and Evaluation Committee is responsible for formulating performance evaluation standards and conducting evaluations for managers of the Company and proposing remuneration policies and plans. The Supervisory Committee is a legally established standing supervising body, which is responsible for supervising the internal control of the Company. The Company has established relevant functional divisions to perform financial, operating, engineering, human resource and administrative functions in light of its operations. b. In accordance with the requirements of the Company Law, the Securities Law, the Corporate Governance Principle for Listed Companies and relevant rules and regulations of the CSRC, the Company has established its internal control system, with the Articles of Association as the general principles and other special internal control rules as the basis. z The Company has formulated relevant systems in relation to corporate governance such as the Rules of Procedure for General Meetings, Rules of Procedure for Board Meetings, Working 22 2008 Annual Report Rules for Independent Directors, Detailed Working Rules for the Audit Committee of the Board, Detailed Working Rules for the Nomination, Remuneration and Evaluation Committee of the Board, Detailed Working Rules for the Strategy Committee of the Board, Rules of Procedure for the Supervisory Committee and Detailed Working Rules for General Manager. z To ensure the regulated operation, the realization of operating and management objectives and the healthy operation of business, the Company has formulated rules and regulations in relation to the functional divisions on financial management, project approval, legal affairs and etc, including Rules on Internal Control, Management Rules on Information Disclosure, Rules on Decision-making for Related Party Transactions, Management Rules on Raised Funds, Rules on Internal Audit and Management Rules on External Investment. c. The Company has two internal auditors. Under the leadership of the Board of Directors and its Audit Committee, the internal auditors independently supervised and monitored the implementation of internal control rules, evaluated the scientific character and soundness of internal control and put forward recommendations for enhancing internal control in a timely manner. d. Significant activities and works carried out by the Company in 2008 to establish and improve internal control and the results thereof During the reporting period, in addition to the efforts made to improve the results achieved by the special campaign for corporate governance of the Company in 2007 and further carry out the special campaign for corporate governance, the Company also made efforts to establish and improve relevant internal control systems to ensure the healthy and steady development of the Company. In accordance with the Company Law, the Securities Law and the Articles of Association of the Company, the Management Rules on External Investment and the Rules on Internal Audit were reviewed and approved at the Seventh Session of the Fifth Board of Directors on 8 April 2008, and the Rules on Decision-making for Related Party Transactions and the Management Rules on Raised Funds were reviewed and approved at the Annual General Meeting for 2007 on 29 May 2008. e. Overall evaluation of internal control The internal control system established by the Company is in compliance with the Guidelines for the Internal Control of Listed Companies issued by the Shenzhen Stock Exchange and the requirements of relevant regulatory authorities and has no significant defects in internal control. The Company has established and updated specific rules in respect of the internal control over subsidiaries, related party transactions, external guarantees, utilization of raised funds, significant investments and information disclosure, so as to ensure the normal operation and management of the Company. 23 2008 Annual Report 2. Emphasis of Internal Control of the Company a. Shareholding structure and ownership proportion of subsidiaries b. Internal control of subsidiaries Pursuant to the Rules on Internal Control, the Company adopts a flat management structure for its wholly-owned and holding subsidiaries, whereby the functional departments of the Company provide professional guidance, supervision and support to their counterparts in our subsidiaries and require the wholly-owned and holding subsidiaries of the Company to go through strictly approval procedures concerning operation plans, risk management and etc. The holding subsidiaries of the Company have established approval procedures on significant matters, report significant matters to leaders in charge thereof and report the information about their potential impacts on the trading prices of the Company’s shares and their derivative products to the Company Secretary. The Company holds meetings irregularly to make decisions on significant operating and management matters of its wholly-owned and holding subsidiaries and conducts performance evaluation on them on a quarterly basis. Having regard to the Guidelines for Internal Control promulgated by the Shenzhen Stock Exchange, the Company maintained strict, sufficient and effective management and control over its wholly-owned and holding subsidiaries. No violation of the Guidelines for Internal Control and the Rules on Internal Control of the Company has been identified. c. Internal control of related party transactions The Company established and updated the Rules on Decision-making for Related Party Transactions which set out detailed provisions in respect of the principles of related party transactions, related parties, relations with related parties and decision-making and disclosure procedures of related party transactions. The Company submitted the “Report on Daily Related Party Transactions for the Current Year” to the Board of Directors at the beginning of every year based on the Company's business development. The related party transactions entered into each year are in full compliance with the provisions of the Rules on Decision-making for Related Party 24 2008 Annual Report Transactions and are subject to prior review and approval by independent directors and shall be submitted to Board meetings and/or shareholders’ general meetings for consideration and approval, at which related directors/shareholders shall abstain from voting. Having regard to the Guidelines on Internal Control for Listed Companies on the Shenzhen Stock Exchange, the Company maintained strict, sufficient and effective internal control over its related party transactions. No violation of the Guidelines on Internal Control and the Rules on Internal Control of the Company has been identified. d. Internal control of guarantees provided The Articles of Association of the Company provides for the scope and performance procedures of external guarantees. During the reporting period, the Company did not provide any external guarantees, but provided guarantees for the bank loans granted to Chiwan Container Terminal Co., Ltd., a subsidiary of the Company, and Chiwan Wharf (Hong Kong) Ltd., a wholly-owned subsidiary of the Company. Having regard to the Guidelines on Internal Control for Listed Companies on the Shenzhen Stock Exchange, the Company maintained strict, sufficient and effective internal control over its external guarantees. No violation of the Guidelines on Internal Control and Rules on Internal Control of the Company has been identified. e. Internal control of proceeds utilization The Company established and updated the Management Rules on the Utilization of Raised Funds which set out specific provisions in respect of the management and utilization of raised funds and information disclosure. During the reporting period, there was no use of raised funds by the Company. Having regard to the Guidelines on Internal Control for Listed Companies on the Shenzhen Stock Exchange, the Company maintained strict, sufficient and effective internal control over its use of raised funds. No violation of the Guidelines on Internal Control and Rules on Internal Control of the Company has been identified. f. Internal control of significant investments of the Company The Company established and updated the Management Rules on External Investments which set out specific provisions in respect of the basic principles of external investments, approval authority, examination and approval procedures for investments and the research and assessment of investments. Having regard to the Guidelines on Internal Control for Listed Companies on the Shenzhen Stock Exchange, the Company maintained strict, sufficient and effective internal control over its significant investments. No violation of the Guidelines on Internal Control and Rules on Internal Control of the Company has been identified. g. Internal control of information disclosure The Company established and updated the Management Rules on Information Disclosure to realize full and effective control of the public information disclosure of the Company. This ensures the timely, accurate, complete and fair disclosure of the Company's information. Having regard to the Guidelines on Internal Control for Listed Companies on the Shenzhen Stock Exchange, the Company maintained strict, sufficient and effective internal control over its information disclosure. No violation of the Guidelines on Internal Control and Rules on Internal Control of the Company has been identified. 25 2008 Annual Report 3. Problems relating to key internal control activities of the Company and rectification plan therefore a. During the reporting period, no significant and major defects were found in the key internal control activities of the Company. b. During the reporting period, the Company and relevant persons were not publicly condemned by CSRC and the Shenzhen Stock Exchange in respect of internal control. G. Performance Evaluation and Incentive Mechanism for Senior Management Staff (see D. 3 of Part IV for details) PART VI ANNUAL GENERAL MEETING One shareholders’ general meeting was held during the year, i.e. Annual General Meeting for 2007. The said meeting was held on 29 May 2008 at the conference room on 16/F, Chiwan Petroleum Building, Shenzhen. Notice of the said meeting was released in Securities Times and Ta Kung Pao on 26 April 2008 (Announcement No.: 2008-014). Announcement of the resolutions made at the meeting was disclosed in Securities Times and Ta Kung Pao on 30 May 2008 (Announcement No.: 2008-023). PART VII REPORT OF THE BOARD OF DIRECTORS A. Business review for the reporting period 1. Overall business performance during the reporting period The Company is principally engaged in the handling, warehousing and transportation of containers and dry bulk cargoes, as well as the provision of related services. In 2008, due to the changes in the economic situation home and abroad, particularly the global financial crisis in September and the sharp decrease in export and import for foreign trade, the business of the major ports in the coastal areas of China witnessed an increase at first and then a decrease. Due to the export-oriented features of the economy in the Pearl River Delta Area, such a trend was especially apparent for container handling business at ports throughout the Pearl River Delta Area. During the reporting period, the container handling business of the Company maintained a steady growth in the first three quarters. In the fourth quarter, due to the financial tsunami, business volume of the shipping lines bound for Europe and the U.S. was severely affected and the container throughput of the Company declined significantly to 120 TEUs, representing a decrease of 468,000 TEUs or 28.1% as compared to the third quarter. But, the Company still achieved a total container throughput of 5.913 million TEUs, representing a year-on-year decrease of just 1.5% and accounting for 27.6% of the overall throughput at Shenzhen Port, down by 90 basic points as 26 2008 Annual Report compared to 2007; among which 4.188 million TEUs were handled at Chiwan Port, a decrease of 3.9% as compared to 2007. The bulk cargo handling business maintained its advantages over the surrounding ports in handling grain and fertilizers and was not affected by the financial crisis. The throughput of bulk cargos for the year amounted to 7.756 million tons, an increase of 9.8% over 2007. The market share of the Company among the three major bulk terminals in Shenzhen increased to 23.4%, representing an increase of 2.1% over 2007. During the reporting period, the Company achieved a record-high throughput of 61.580 million tons, representing an increase of 4.5% over 2007 and accounting for 29.2% of the overall throughput at Shenzhen Port. Business highlights of the Company for the past three years are set out as follows. Business Data 2008 2007 2006 Total throughput (million ton) 61.58 58.94 53.19 Among which: Container throughput (million TEU) 5.913 6.003 5.262 Chiwan port 4.188 4.359 4.273 Mawan Port 1.725 1.644 0.989 Throughput of bulk cargo (million ton) 7.756 7.06 7.52 Trucking volume (million TEU.km) 6.54 5.97 5.40 Hours charged for tow trucks (million hours) 1.70 1.893 1.509 Hours charged for tugboat 32,781 32,313 31,856 Year-on-year changes in revenue, operating profit and net profit attributable to the shareholders of the Company (unit: RMB) Reason Item 2008 2007 +/- YoY Revenue 1,914,007,717 2,003,562,530 -4.47% decrease of throughput Operating profit 1,026,439,685 1,045,573,041 -1.83% Net profit attributable sharp decrease of finance cost to the equity holders 642,891,604 663,872,167 -3.16% of the Company During the reporting period, there was no material change in business mix-up and profit breakdown of the Company. 27 2008 Annual Report 2. Core business and performance a. Breakdown of operating income and operating profit (unit: RMB) Percentage Operating Percentage Core business Industry Revenue (％) profit (％) Cargo handling Cargo handling 1,746,381,871 88.75 891,559,365 86.86 Land transportation Transportation 134,970,440 6.86 19,101,784 1.86 Tugboat services Related Shipping 77,607,144 3.94 33,339,060 3.25 Agency services and Agency 8,880,834 0.45 (5,268,176) -0.51 others Subtotal 1,967,840,289 100 938,732,033 91.46 Offset among the business segments (53,832,572) Total 1,914,007,717 938,732,033 91.46 b. Indicators relating to core business which accounts for more than 10% of operating income and operating profit (unit: RMB) Operating Operating profit Business Revenue YoY +/- YoY +/- YoY +/- cost margin Cargo handling 1,746,381,871 -5.41% 736,901,259 3.05% 57.80% -3.47% 3． Major customers Sales to (Revenue from) the Company's top five customers totaled RMB1,276,869,263, accounting for 67％ of the Company's operating income. 4. Financial status for the reporting period a. Material year-on-year changes in assets composition and reasons therefore Accounting for Accounting for Year-on-year total assets as at total assets as at Reason change the end of 2008 the end of 2007 Cash at bank and 12.45％ 14.32％ -1.87％ Paid back bank loans on hand Paid back loans for proposed Short-term loan 16.10% 22.38% -6.28% projects and adjusted the mix-up of loans Surplus reserve 6.89% 20.05％ -13.16% Offset the loss of the company Undistributed 31.52% 12.46％ 19.06% Increase of profits and loss offset profits 28 2008 Annual Report b. Measurement model adopted for major assets Cost approach was adopted for measurement of the Company's assets, except for available-for-sale financial assets and hedging instruments for which fair value approach was adopted. Impact on net profit Impact on equity Balance at the Balance at the of the current period holders’ equity Items beginning of end of the Changes attributable to equity attributable to the the period period holders of the Company Company Hedging 39,459,166 - （39,459,166） 48,188,600 （20,187,704） instruments (1) Available-for-sale 10,520,000 5,440,000 （5,080,000） - （4,252,000） financial assets (2) Total 49,979,166 5,440,000 （44,539,166） 48,188,600 （24,439,704） (1) The hedging instruments represent the General Agreement on Forward Settlement of Foreign Exchange entered into by and between Chiwan Container Terminal Co., Ltd. and the Bank of China Shenzhen Branch Sehkou Sub-branch in 2007 with a view to minimizing foreign exchange risks, and the Application for Forward Settlement of Foreign Exchange accepted by the Bank of China with an option to be transacted between September 2007 and August 2008. Based on the market quotation of the Bank of China Shekou Sub-branch on the last trading day in 2007, i.e. 29 December 2007, the fair value of the forward contract was determined to be RMB39,459,166. Up to 31 December 2008, the amounts of changes in the fair value of the Forward Contract accumulated in equity have been recycled to the income statement. (2) Available-for-sale financial asset represented 1,000,000 PRC legal person shares of Jiangsu Expressway held by the Company. As at 31 December 2008, the market value of the stocks in Shanghai Stock Exchange was RMB5,440,000. c. Material year-on-year changes in financial data and reasons therefore 2008 2007 +/- (%) Reason Hedging instruments and foreign borrowings held by the Company helped the company evade risks from Finance cost (58,897,693) 28,367,266 -307.63 appreciation of RMB. Net gains from foreign exchange increased RMB74.6 million over 2007. Assets impairment provision made for Asset impairment 3,295,627 60,937,679 -94.59 assets related to bulk cargo handling at loss Chiwan in 2007 Income tax 88,687,879 50,267,237 76.43 income tax rate increase in 2008 29 2008 Annual Report d. Composition of cash flows 2008 2007 +/-(%) Reason Net cash flows from 1,090,354,989 1,197,492,986 -8.95 - operating activities Increase of cash dividend received Net cash flows from and sale of intangible assets, while -428,609,285 -86.79 investing activities -56,635,797 decrease in outflow Net cash flows from -1,164,322,742 -152,753,394 662.22 Repayment of bank loans financing activities Effect of exchange rate fluctuation on cash and cash -9,508,074 -3,065,644 210.15 - equivalents equivalents Net increase in cash and cash -140,111,624 613,064,663 -122.85 - equivalents e. Differences between cash flow from operating activities and net profit of the Company for the reporting period 2008 Net profit 944,409,177 Add: Provisions for assets impairment 3,295,627 Depreciation of fixed assets 180,461,767 Depreciation of investment property 894,818 Amortization of intangible assets 39,228,644 Amortization of long-term prepaid expenses 4,086,509 Loss/(Gain) on disposal of fixed assets, intangible assets and other long-term assets (5,998,539) Loss on retirement of fixed assets 1,251,472 Finance expense (28,456,996) Investment income (90,597,044) Increase in deferred income tax assets (3,959,469) Increase in inventories (3,280,066) Decrease/(increase) in operating receivables 60,932,057 Increase/(decrease) in operating payables (11,912,968) Net cash flows from operating activities 1,090,354,989 30 2008 Annual Report 5 Items relating to fair value measurement Unit: RMB’000 Balance at the Gains or losses on Accumulated fair Impairment Balance at Item beginning of fair value changes value changes provided in the end of the period in the period included in equity the period the period Financial assets Including: 1. Financial assets at fair value through profit or loss of the current period Including: Derivative financial assets 2. Available-for-sale financial assets 10,520.00 (4,252.00) 5,440.00 Hedging instruments 39,459.17 (20,187.70) - Subtotal of financial assets 49,979.17 (24,439.70) 5,440.00 Financial liabilities Investment property Productive living assets Total 49,979.17 (24,439.70) 5,440.00 6. Items relating to fair value measurement of financial assets and liabilities in foreign currency Unit: RMB’000 Balance at the Gains or losses on Accumulated fair Impairment Balance at the Item beginning of fair value changes value changes provided in end of the the period in the period included in equity the period period Financial assets Including: 1. Financial assets at fair value through profit or loss of the current period Including: Derivative financial assets 2.loan and accounts receivable 338,727.43 187,902.74 3. Available-for-sale financial assets 4. Hold to maturity investment Subtotal of financial assets 338,727.43 187,902.74 Financial liabilities 1,294,738.80 1,235,135.96 7. Operations and results of wholly-owned subsidiaries and joint ventures a. Chiwan Container Terminal Co., Ltd. (CCT) The Company holds 55% equity interests directly and indirectly in CCT. With a registered capital of USD95.3 million, CCT is engaged mainly in handling containers, especially in accommodating international container lines. CCT achieved a container throughput of 3.505 million TEUs, a decrease of 2.6% compared with 2007. As at 31 December 2008, total asset of CCT was RMB2,790,427,420 and net asset was RMB1,271,984,604. 31 2008 Annual Report b. Shenzhen Chiwan Harbor Container Co. Ltd. (CHCC) The Company holds 100% equity interests directly and indirectly in CHCC. With a registered capital of RMB108.2 million, CHCC is now mainly engaged in handling containers, especially in the accommodation service for transshipment container barges for foreign trade and for medium or small sized international liners as well. During the reporting year, CHCC achieved a container throughput of 416,000 TEUs, a decrease of 14.4% compared with 2007. As at 31 December 2008, total asset of CHCC was RMB441,852,321 and net asset was RMB319,676,855. c. Harbor Division Being an independent accounting unit controlled by the Company but not an enterprise, Harbor Division is engaged in handling and warehousing of imported fertilizers. During the reporting period, throughput reached 2.28 million tons, 32.9% down compared with 2007, of which throughput of bulk and general cargo reached 1.75 million tons, throughput of empty containers reached 267,000 TEUs. As at 31 December 2008, total asset of Harbor Division was RMB315,980,202 and net asset was RMB293,593,722. d. Shenzhen Chiwan Terminal Co., Ltd The Company holds 100% equity interests directly and indirectly in this company. With a registered capital of RMB50 million, the company is engaged mainly in the handling and storage of grains. During the reporting period, the company achieved a throughput of 6.01 million tons, 42.8% up compared with 2007. As at 31 December 2008, total asset of the company was RMB128,163,938 and net asset was RMB126,810,380. e. Shenzhen Chiwan Trans-Grains Terminal Limited (SCTGT) The Company holds 100% equity interests in SCTGT directly and indirectly. With a registered capital of RMB45 million, SCTGT is principally engaged in the loading and unloading, warehousing and packaging of grains and provides related service for the handling and storage of grains by Shenzhen Chiwan Terminal Co., Ltd. During the reporting period, stacking volume of goods reached 35.89 million tons day, representing an increase of 21.5% compared with that of the previous period. As at 31 December 2008, SCTGT's total asset was RMB41,379,493 and net asset was RMB31,877,712. f. Chiwan Wharf (Hong Kong) Ltd. (CWHK) Registered in Hong Kong with a registered capital of HKD1 million and as a wholly owned subsidiary of the Company, CWHK is an investment holding company. As at 31 December 2008, total asset of CWHK was RMB837,445,789 and net asset was RMB602,889,878. Subsidiaries of the company are as follows: 32 2008 Annual Report Shareholding percentage of Shareholding percentage Company Chiwan Wharf (Hong Kong) Ltd. of the Company Chiwan Container Terminal Co., Ltd. 4% 51% Shenzhen Chiwan Harbor Container Co. Ltd. 40% 60% Shenzhen Chiwan Transportation Co., Ltd. 25% 75% Shenzhen Chiwan Shipping & Transportation Co., Ltd. 40% 60% Shenzhen Chiwan Trans-Grains Terminal Limited 25% 75% Chiwan Shipping (H.K.) Company Limited 100% 0 Media Port Investments Limited 50% 0 Dongguan Chiwan Wharf Company Limited 75% 25% Dongguan Chiwan Terminal Company Limited 75% 25% As approved by Shenzhen Stock Exchange, disclosure of revenue, operating profit and net profit of the above-mentioned subsidiaries for the year 2008 will be consolidated. Revenue, operating profit and net profit attributable to equity holders of the said subsidiaries for 2008 were RMB1,898,953,142, RMB1,095,362,781 and RMB718,502,273 respectively. g. Shenzhen Chiwan Transportation Co., Ltd. (SCTC) The Company holds 100% equity interests in SCTC directly and indirectly. With a registered capital of RMB15 million, SCTC is principally engaged in tow-truck services and road transportation services. During the reporting period, 1.700 million hours of tow truck operations were recorded, representing a decrease of 10.2% compared with that of the previous period. Trucking volume reached 6.54 million TEUs.km, representing an increase of 9.5% compared with that of the previous period. As at 31 December 2008, SCTC's total asset was RMB95,133,349, net asset RMB46,439,311, revenue RMB134,970,440, operating profit RMB19,101,784, and net profit RMB14,112,999 respectively. h. Shenzhen Chiwan Shipping & Transportation Co., Ltd. (SCST) The Company holds 100% equity interests in SCST directly and indirectly. With a registered capital of RMB6 million, SCST specializes in provision of tugboat services. During the reporting period, 32,781 hours were charged for tugboat services, representing an increase of 1.4% compared with that of the previous period. As at 31 December 2008, SCST's total assets was RMB144,817,578, net assets RMB55,168,551, revenue RMB77,607,144, operating profit RMB33,339,060 and net profit RMB24,628,615 respectively. 8. Investments during the reporting period a. Utilization of proceeds No funds were raised by the Company during the reporting period. Recently raised funds had been fully utilized by the end of 1996. 33 2008 Annual Report b. Other investments During the reporting period, capital expenditure decreased by RMB132.75 million to RMB304.54 million, 30.4% down over 2007, among which: z Investments in Chiwan port reached RMB114.25 million. 5000hp tugboat was delivered and put into operation in August 2008; z Investments in Machong Project in Dongguan reached RMB150.29 million. Progress of this project dropped behind the schedule due to various factors; z Additional capital contribution to China Merchants Maritime & Logistics (Shenzhen) Ltd., in which the Company holds 40% equity interests, totaled RMB40 million. B. Outlook for the future development of the Company 1. Development trend and competition status of the industry in which the Company is engaged In 2009, due to the global economic slowdown, shrunk demands from home and abroad and the rise of international trade protectionism, the export and import of China will grow at a further declined or even negative rate and the container handling business of China will suffer. Furthermore, as the domestic consumption and investments in China were affected by the weakening macro economy, the transportation demand for bulk cargos including mineral ores, coal and steel will decrease and the port industry of China will enter into a stage of low growth as a whole. Focusing on foreign trade, container handling business at the ports of Shenzhen is susceptible to the changes in demands from abroad. Due to the expected decrease in container business volume, competitions among container terminals will be intensified. Meanwhile, the difficulties in operation encountered by customers, i.e. shipping companies will impose pressures on the operation of ports. As such, it will be more difficult to maintain port tariffs at a stable level. The bulk cargo handling business developed by the three ports in the western part of Shenzhen in line with their respective strengths remained stable generally. Grains import by sea in the Pearl River Delta is expected to remain at relatively stable level. However, the sharp decrease in the throughput of mineral ores and steel in major bulk cargo terminals in surrounding areas will bring potential competition pressure to the grain and fertilizer handling business of the Company. 2. Business Plan for 2009 The Company will continue to enhance the core competitiveness of its businesses, optimize its business structure, operate with prudence, enhance cost control, monitor the impact of the macroeconomic polices of the State on the business environment of the Company, adopt effective measures to face the adverse effect of the financial crisis and promote energy saving and consumption reduction, so as to maintain stable operating results. Container handling business: The Company will endeavor to optimize operating processes, promote technical innovation and enhance service assurance level; and, by leveraging on the opportunities brought by the establishment of the Western Bonded Port Area, consolidate the resources in the 34 2008 Annual Report market and the internal resources of the Company, boost marketing, develop and improve its electronic service platform system, so as to provide its customers with value-added services, keep stable relations with its customers, and maintain market share and good profits. Bulk cargo handling business: The Company will continue to maintain the satisfactory performance of its fertilizer and grains handling business, the good relations with its customers and the stability of its bulk cargo handling business, boost the construction of Phase I of Machong Project in Dongguan which is scheduled to completed in 2009, make good progress in the transfer of its fertilizer business and foster the Machong port area into a new hub of fertilizers. Related services: The Company will continue to maintain the development of trucking and tugboat businesses and the steady operation of barge business to support and safeguard terminal business with safe, excellent and efficient services. 3. Capital requirements and expenditure plan for 2009 To implement our future development strategies and business goals, a capital expenditure of RMB760 million is planned for 2009, of which RMB100 million will be invested in fixed assets at Chiwan Port and RMB660 million will be invested in Machong Project in Dongguan. The above capital expenditures will be mainly funded by net cash inflows from operating activities of the Company and bank borrowings. C. Daily operations of the Board 1. Board meetings and resolutions The Board held a total of thirteen meetings (including three periodic meetings and ten extraordinary meetings) during the year. Details of the meetings are set out as follows: a. On 11 March 2008, the First Special Session of the Fifth Board of Directors for 2008 was held by way of telecommunication voting. Announcement of the resolutions passed at the meeting was disclosed in Securities Times and Ta Kung Pao on 14 March 2008 (Announcement No.: 2008-005). b. On 8 April 2008, the Seventh Session of the Fifth Board of Directors was held. Announcement of the resolutions passed at the meeting was disclosed in Securities Times and Ta Kung Pao on 10 April 2008 (Announcement No.: 2008-007). c. On 25 April 2008, the Second Special Session of the Fifth Board of Directors for 2008 was held by way of telecommunication voting. Announcement of the resolutions passed at the meeting was disclosed in Securities Times and Ta Kung Pao on 26 April 2008 (Announcement No.: 2008-011). d. On 12 May 2008, the Third Special Session of the Fifth Board of Directors for 2008 was held by way of telecommunication voting. Announcement of the resolutions passed at the meeting was disclosed in Securities Times and Ta Kung Pao on 14 May 2008 (Announcement No.: 2008-019). 35 2008 Annual Report e. On 20 May 2008, the Fourth Special Session of the Fifth Board of Directors for 2008 was held by way of telecommunication voting. Announcement of the resolutions passed at the meeting was disclosed in Securities Times and Ta Kung Pao on 22 May 2008 (Announcement No.: 2008-021). f. On 29 May 2008, the First Session of the Sixth Board of Directors was held. Announcement of the resolutions passed at the meeting was disclosed in Securities Times and Ta Kung Pao on 30 May 2008 (Announcement No.: 2008-024). g. On 25 June 2008, the First Special Session of the Sixth Board of Directors for 2008 was held by way of telecommunication voting and the following resolutions were reviewed and approved unanimously: z The Report on Applying for Loans from Nanyang Commercial Bank, pursuant to which the Company was approved to apply for a loan facility in an amount of up to HKD150,000,000.00 from Shenzhen Branch of Nanyang Commercial Bank (China) Limited. z The Report on Provision of Guarantees for the Loans of Chiwan Container Terminal Co., Ltd., a Subsidiary of the Company. Announcement of the resolutions passed at the meeting was disclosed in Securities Times and Ta Kung Pao on 26 June 2008 (Announcement No.: 2008-028). z The Report on Applying for A Comprehensive Credit Facility from the Shenzhen Fuxing Sub-branch of Shenzhen Ping An Bank Limited, pursuant to which the Company was approved to apply for a comprehensive credit facility of RMB300 million from the Shenzhen Fuxing Sub-branch of Shenzhen Ping An Bank Limited for a term of one year. z The Report on the Execution of the Arbitration Settlement Agreement in Relation to the Land Dispute of Berth 8 at Mawan Port, pursuant to which the Company was approved to sign an arbitration settlement agreement with Shenzhen Mawan Terminals Co., Ltd. in relation to the land transfer of Berth 8 at Mawan Port. h. On 17 July 2008, the Second Special Session of the Sixth Board of Directors for 2008 was held by way of telecommunication voting. Announcement of the resolutions passed at the meeting was disclosed in Securities Times and Ta Kung Pao on 19 July 2008 (Announcement No.: 2008-032). i. On 28 August 2008, the Second Session of the Sixth Board of Directors was held. Announcement of the resolutions passed at the meeting was disclosed in Securities Times and Ta Kung Pao on 30 August 2008 (Announcement No.: 2008-035). j. On 29 October 2008, the Third Special Session of the Sixth Board of Directors for 2008 was held by way of telecommunication voting. The Third Quarterly Report for 2008 of the Company was reviewed and approved unanimously. Announcement of the report was disclosed in Securities Times and Ta Kung Pao on 31 October 2008 (Announcement No.: 2008-038). k. On 11 November 2008, the Fourth Special Session of the Sixth Board of Directors for 2008 was held by way of telecommunication voting, at which the Report on the Execution of the 36 2008 Annual Report Service Agreement in Relation to the Sea-Rail Combined Transportation Project was approved unanimously. l. On 28 November 2008, the Fifth Special Session of the Sixth Board of Directors for 2008 was held by way of telecommunication voting. Announcement of the resolutions passed at the meeting was disclosed in Securities Times and Ta Kung Pao on 29 November 2008 (Announcement No.: 2008-040). m. On 31 December 2008, the Sixth Special Session of the Sixth Board of Directors for 2008 was held by way of telecommunication voting, at which the Report on Full Provision of Bad Debts for the Balance of the Accounts Receivable with Shangdong Province Yantai Marine Shipping Company was approved unanimously and it was agreed to make full provision of bad debts for the accounts receivable of certain subsidiaries of the Company with Shangdong Province Yantai Marine Shipping Company in 2008. 2. Implementation by the Board of the resolutions passed at General Meetings Profit Distribution Plan for 2007 was reviewed and approved at the Company's Annual General Meeting for 2007 held on 29 May 2008. Based on a total share capital of 644,763,730 shares as at the end of 2007, a cash dividend before tax of RMB6.78 for every ten shares totaling RMB437,149,808.94 was proposed. The Board of the Company disclosed a notice in respect of payment of dividend for the year 2007 in Securities Times and Ta Kung Pao on 17 July 2008, and completed the dividends payment for both A shares and B shares on 25 July and 29 July 2008 respectively. 3. Performance of Responsibilities by the Audit Committee The Audit Committee held a total of four meetings during the year, including three on-site meetings and one telephone meeting. The current Audit Committee held two on-site meetings during the year. Details of the meetings are set out as follows: a. On 29 January 2008, the First Special Session of the Audit Committee of the Fifth Board of Directors for 2008 was held at 9:00 a.m. by way of telephone conference, at which the Report on the Audit of Shenzhen Chiwan Wharf Holdings Limited submitted by PricewaterhouseCoopers Zhong Tian Certified Public Accountants for 2007 was debriefed. b. On 20 March 2008, the First Session of the Audit Committee of the Fifth Board of Directors for 2008 was held at 8:30 a.m. at Conference Room I, 13/F., Chiwan Petroleum Building, Shenzhen, at which the following resolutions were reviewed and approved: z The Financial Statements of 2007 was reviewed and approved and was submitted to the Board of Directors of the Company for approval; z “Working Report on the Audit of Shenzhen Chiwan Wharf Holdings Limited by PricewaterhouseCoopers Zhong Tian Certified Public Accountants for 2007” was reviewed and approved and was submitted to the Board of Directors; z “Report on the Appointment of Auditors for 2008” was reviewed and approved. The Audit Committee recommend the Board to re-appoint PricewaterhouseCoopers Zhong Tian Certified Public Accountants as the Company's auditors for 2008; 37 2008 Annual Report z “Report on the Set-up of Internal Audit Rules” was reviewed and approved and was submitted to the Board of Directors for approval; z “Report on Internal Auditing Plan of the Company for 2008” was reviewed and approved c. On 28 August 2008, the First Session of the Audit Committee of the Sixth Board of Directors for 2008 was held at 9:00 a.m. at Conference Room I, 13/F., Chiwan Petroleum Building, Shenzhen, PRC, at which the Semi-Annual Financial Report for 2008 of the Company was reviewed and approved. d. On 23 December 2008, the First Special Session of the Audit Committee of the Sixth Board of Directors for 2008 was held at 6:00 p.m. at the Conference Room of Huaan International Hotel, Shenzhen, at which the Report on the Audit of Shenzhen Chiwan Wharf Holdings Limited by PricewaterhouseCoopers Zhong Tian Certified Public Accountants for 2008 was debriefed. In accordance with the requirements of the Circular on Properly Handling the Annual Report 2007 of Listed Companies and Related Work and Standards Concerning the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No.2 - Contents and Formats of Annual Report (Amended in 2007) issued by the CSRC, the Audit Committee of the Company paid attention on the full process of the auditing work of the financial statements of the Company for 2007 during the reporting period, details of which are as follows: a. Before the auditors started their work, the Audit Committee discussed with the principal auditor of the accounting firm and determined the timing schedule for the auditing work of the financial statements for the year. b. The Audit Committee expressed its audit opinions two times on the annual financial statements of the Company for 2007. During the reporting period, the Audit Committee expressed its opinions two times on the Annual Financial Statements for 2007 as required by CSRC. The Audit Committee reviewed the Financial Statements prepared by the Company and issued the following opinions before the Auditors started their work: the Company was in full compliance with relevant laws, regulations and the Articles of Association of the Company, the units and items of the Company's financial statements to be consolidated were complete, and the consolidation basis thereof was accurate and the information included in the Financial Statements submitted by the Company was objective, comprehensive and true. The Company's accounting policies were properly adopted and the accounting estimates made were reasonable. No significant mistake or omission has been identified so far. Due to the time-lag between this review of Financial Statements and the dates of the Auditors' Report, we suggest the Finance Department focus on and deal with subsequent events properly in accordance with the New Enterprises Accounting Standards to ensure the fairness, truthfulness and completeness of the Financial Statements. After the Auditors issued their preliminary audit opinions, the Audit Committee reviewed the Financial Statements again and issued the following opinions: the Company prepared the Financial Statement in full compliance with the New Enterprise Accounting Standards and relevant provisions of the financial control system of the Company, the procedures for the preparation of the Financial Statements were reasonable and proper, which gave a true and fair view of the Company's assets, liabilities, equity interests and operation results as at 31 December 2007. Information 38 2008 Annual Report included in the Financial Statements was objective and complete. Financial Statements for 2007 which was preliminarily audited by PricewaterhouseCoopers Zhong Tian Certified Public Accountants may be submitted for review at the Seventh Session of the Fifth Board of Directors. c. Supervision over the Auditing of Accountants The Audit Committee issued letters to PricewaterhouseCoopers Zhong Tian Certified Public Accountants on 22 February and 7 March 2008 respectively to urge them produce their audit report in a timely manner, so as to ensure the annual audit and information disclosure proceed as scheduled. d. Working Report on the Audit Work Performed by the Accountants for the previous year During the auditing period, the Audit Committee of the Board focused on the problems discovered in process of audit, urged Auditors to finish the preparation of their report within a prescribed period of time and ensured the truthfulness, accuracy and completeness of the annual report. The Certified Public Accountants issued standard unqualified audit report on 8 April 2008. The Audit Committee considered that the Certified Public Accountants conducted their audit in accordance with China’s Independent Auditing Standards, the audit time was sufficient, the deployment of the auditors was appropriate and their practicing capability was excellent, and that the audit report issued sufficiently reflected the Company's financial condition as at 31 December 2007 and its operation results and cash flows for the year 2007 and audit conclusion made was in line with the actual situation of the Company. During the reporting period, the Audit Committee placed great emphasis on the establishment of the internal control and supervision department of the Company and its personnel deployment. The Audit Department was required to submit its working reports for the previous year and working plan for the current year to the Audit Committee and report the establishment and implementation of the internal control system, which enabled the Audit Committee to understand the implementation and effect of the internal control system. In addition, the Audit Committee advised on the improvement for the works of the Audit Department and the Company relating to internal control for the next year and required the Company to set up relevant accountability system to ensure implementation and effect thereof. 4. Performance of Responsibilities by the Nomination, Remuneration and Evaluation Committee On 31 March 2008, the Nomination, Remuneration and Evaluation Committee of the Fifth Board of Directors reviewed the remunerations of the directors, supervisors and senior management staff of the Company for 2007 and issued the Opinions on the Remuneration of the Directors, Supervisors and Senior Management Staff of the Company for 2007. On 16 April 2008, the Nomination, Remuneration and Evaluation Committee of the Fifth Board of Directors considered the candidates for directors and independent directors of the Sixth Board of Directors and issued the Opinions on the Candidates for Directors as well as for Independent Directors of the Sixth Board of Directors. 39 2008 Annual Report On 29 May 2008, the First Session of the Nomination, Remuneration and Evaluation Committee of the Sixth Board of Directors for 2008 was held at 3:15 p.m. at Conference Room IV, 11/F., Chiwan Petroleum Building, Shenzhen, at which the Report on Appointment of the General Manager of the Company, the Report on Appointment of Deputy General Manager of the Company, the Report on Appointment of the CFO of the Company and the Report on Appointment of the Company Secretary of the Company were reviewed and approved, and the Opinions on the Candidates for the Sixth Senior Management was issued and submitted, together with the four reports mentioned above, to the First Session of the Sixth Board of Directors held immediately thereafter for consideration. 5. Performance of Responsibilities by the Strategy Committee During the reporting period, the Strategy Committee of the Sixth Board of Directors held one meeting, i.e., the First Session for 2008 on 28 August 2008 at 11:00 a.m. at Conference Room V, 11/F., Chiwan Petroleum Building, Shenzhen, at which the Business Development Plan for 2008 to 2012 of Shenzhen Chiwan Wharf Holdings Limited was reviewed and approved unanimously. During the reporting period, members of the Strategy Committee conducted research and advised on the investment plans and assets operation projects related to the medium to long term development strategy of the Company. D. Profit Distribution Proposal for 2008 As audited by PricewaterhouseCoopers Zhong tian Certified Public Accountants Co., Ltd., net profit of the Company for 2008 was RMB449,036,125, the accumulative profits available for distribution was RMB514,467,212. 1. In accordance with the provisions of Company Law and the Articles of Association of the Company, the Company is going to draw 10% of net profit of the Company audited for the year 2008, namely RMB44,903,613, as statutory surplus reserve. 2. The Company would plan to distribute dividend of RMB5.00 (tax included) in cash for every 10 shares based on the total share capital of 644,763,730 as at the end of 2008, totaling RMB322,381,865. After the aforesaid distribution, the residual retained profit of the Company was RMB147,181,734. The above profit distribution proposal shall be submitted to 2008 Annual General Meeting for review and approval. E. Cash Dividends Distributed in the last three years Unit: RMB Net profit attributable to equity Amount of cash owners of the parent company in the Percentage dividends (Including tax) consolidated financial statements 2007 437,149,809 663,872,167 65.85% 2006 371,383,908 626,836,148 59.25% 2005 481,638,506 586,342,497 82.14% 40 2008 Annual Report PART VIII REPORT OF THE SUPERVISORY COMMITTEE A. Within the reporting period, in accordance with the Company Law of the PRC and the Company’s Articles of Association, the Supervisory Committee conducted examination and supervision, carried out its rights and obligations as well as delegated its representatives to attend the Board Meeting and gave its opinions upon the Company’s decision-making regarding significant issues. The Supervisory Committee held six meetings in 2008. 1. The Seventh Session of the Fifth Supervisory Committee of the Company was held on 8 April 2008, at which the Working Report of the Supervisory Committee for 2007 and the Annual Report of the Company for 2007 and its Abstract were reviewed and approved. 2. The First Special Session of the Fifth Supervisory Committee of the Company for 2008 was held on 25 April 2008, at which the First Quarterly Report for 2008 and the Report on the General Election of the Supervisory Committee were reviewed and approved. 3. The First Session of the Sixth Supervisory Committee of the Company was held on 29 May 2008, at which the Report on the Election of the Chairman of the Sixth Supervisory Committee was reviewed and approved. 4. The First Special Session of the Sixth Supervisory Committee of the Company for 2008 was held on 17 July 2008, at which the Self-inspection Report Regarding Appropriation of Funds of the Company by Significant Shareholders and Their Related Parties was reviewed and approved. 5. The Second Session of the Sixth Supervisory Committee of the Company was held on 28 August 2008, at which the Semi-Annual Report for 2008 and its Abstract was reviewed and approved. 6. The Second Special Session of the Sixth Supervisory Committee of the Company for 2008 was held on 29 October 2008, at which the Third Quarterly Report for 2008 was reviewed and approved. B. The Supervisory Committee expressed its independent opinions on the following issues. 1. By supervising the Company’s production and operation, as well as the decision-making and management, the Committee confirmed that during the reporting period the Company did not, in the above activities, demonstrate any behavior which might have violated the laws and regulations of the country, and that the Company had set up perfect internal control system. By supervising the behaviors of the Company’s Directors and senior management staff as they were exercising their authorities, the Committee confirmed that, during the reporting period, the Company’s Directors and senior management had not, in their daily business and management activities, demonstrated any behavior which might have violated the laws, regulations, the Company’s Articles of Association, or the resolutions passed at shareholders’ general meetings. They had neither abused their authorities, nor infringed upon the interests of the shareholders, 41 2008 Annual Report the Company or its employees; 2. The unqualified audit report for the reporting period issued by the Company’s auditors truly reflected the Company's financial status and business performance; 3. No funds were raised during the reporting year. The last proceeds (by issuing 40,000,000 B Shares in December 1995) had been used up by the end of 1996. Actual usage and amount of the proceeds were in conformity with the original plan; 4. Related party transactions during the reporting period were conducted fairly at market prices (See Notes to the Financial Statements for details), and have not impaired the interests of the Company. PART IX SIGNIFICANT EVENTS A. The Company had no significant lawsuits or arbitration cases involved in the year. B. The Company did not acquire or sell any assets in the year. C. During the reporting period, there were no non-operating appropriations or repayment of funds by the controlling shareholder and its related parties. PricewaterhouseCoopers Zhong Tian Certified Public Accountants issued Opinions on Appropriations of Funds of Shenzhen Chiwan Wharf Holdings Limited by the Controlling Shareholder and Its Related Parties, details of the report please refer to Website for Information Disclosure. D. Particulars about holding equities of other public companies Set out below are the equity interests the Company held in other public companies during the reporting period, which were invested in previous periods. Changes in Gain Initial Shareholding Book value at owners’ equity Stock during the Accounting Stock name investment percentage in the the end of the during the Source of shares code reporting items amount company period reporting period period Shares held by legal Available-for-s entity, which is 600377 Jiangsu Expressway 1,120,000 0.02% 5,440,000 - (4,252,000) ale financial allowed for circulation assets after share reform ShenZhen Long-term Petro-chemical Shares held by legal 400032 3,500,000 0.26% 382,200 - - equity Industry (Group) entity investments Co., Ltd. GuangDong Guang Long-term Shares held by legal 400009 Jian Group Limited 27,500 0.02% 17,000 - - equity entity Company investments Total 4,647,500 - 5,839,200 - (4,252,000) 42 2008 Annual Report E. Significant related-party transactions 1. Related party transactions relating to daily operation a Land lease payment Rental for the lease of stockyard land by the Company from related party was negotiated between the parties and settled through banks. Details of the land lease rental payable for 2008 are as follows: 2008 2007 CND RMB45,016,097 RMB33,574,399 To meet the requirements of the Company’s daily operations, Harbor Division of the Company and Chiwan Container Terminal Co., Ltd. ("CCT"), in which the Company holds 55% equity interests directly and indirectly, lease several pieces of lands from CND for bulk cargo and container stacking each year. The transactions are the Company's recurrent operations, which were conducted in the past and will continue in the future. Relevant rental was negotiated between the parties and was substantially the same as rental for land leases in western port area of Shenzhen for 2008. The monthly rental was RMB3.5 to RMB12.5 for each square meter, payable on a monthly basis. In the case of overdue payment, a late payment fee equivalent to 0.5% of monthly rental shall be charged for every day overdue. With an amount of RMB45.02 million, the above transaction accounted for 61.25% of the Company's rental for stockyard and offices during the reporting period. Total volume of the above transaction was expected to be RMB37 million throughout 2008, while the actual amount was 121.67% of the estimation. b. Income from land transportation business Shenzhen Mawan Port Service Co., Ltd. and Shenzhen Mawan Terminals Co., Ltd. (hereinafter referred to as “Mawan Companies”) are the Company's customers for land transportation business. Land transportation business and related operations provided by the Company to Mawan Companies were part of the Company’s normal operations, which were conducted in the past and will continue in the future. Consideration for the transaction was negotiated between the parties and relevant tariff was substantially the same as the level in the western port area of Shenzhen in 2008. Charges are payable on a monthly basis. The above-mentioned related party transaction between the Company and Mawan Companies during the reporting period was in compliance with the provisions of the contract. Details of the transaction in 2008 are set out below: 43 2008 Annual Report 2008 2007 Mawan Companies RMB17,292,794 RMB20,618,631 Volume of the transaction was expected to bring an amount of RMB27 million throughout 2008, while the actual amount was 64.05% of the estimation, which accounted for 12.93% of the Company's operating income from land transportation services for the year. 2. Credits and liabilities between related parties and the Company a. Trade receivables 31 December 2008 31 December 2007 RMB RMB Mawan Companies 1,046,835 1,318,892 Nantian Oilmills 972,527 1,436,270 Shenzhen Southseas Grains Industries Limited 1,141,401 1,071,885 3,160,763 3,827,047 The Company's receivables from the related parties for the provision of land transportation services, handling services and leases accounted for 2.17% of the balance of account receivables as at the end of 2008. b. Long-term receivables 31 December 2008 31 December 2007 Media Port Investments Ltd. RMB184,039,141 RMB195,834,378 Shareholder's contribution to an associated company of the Company within the total investment prescribed in the Joint Venture Agreement. c. Long-term loans and current portion of long-term loans 31 December 2008 31 December 2007 RMB RMB Current portion of long-term loansr CND - 226,608,800 Long-term loans CND - - The Company has no loans from CND as at the end of 2008. Please refer to 4.(e) of PART IX in Financial Statements for more details. 44 2008 Annual Report d. Trade payables 31 December 2008 31 December 2007 RMB RMB Shenzhen Chixiao Engineering Construction Co., Ltd - 7,312,396 CND 4,466,812 1,975,064 Shenzhen Haiqin Engineering Supervision & Management Co., Ltd. 986,807 1,308,356 5,453,619 10,595,816 The Company's payables due to related parties incurred as a result of land leasing and acceptance of engineering construction and supervision service accounted for 9.32% of the accounts payables as at the end of 2008. e. Other payables 31 December 2008 31 December 2007 RMB RMB CND (1) 7,251 200,006,183 Mawan Companies (2) 1,690,316 2,251,895 1,697,531 202,258,078 (1) The amount RMB200,000,000 out of RMB200,006,183 as at 31 December 2007 was obtained from CND on 14 December 2007 for payment of certain bidding deposits. It was interest-free and has been repaid on 9 January 2008 because the Company has withdrawn from the bid. (2) The Companies cooperated with Mawan companies in marketing promotion activities. Some common expenses incurred in the cooperation were allocated to both parties based on certain reasonable criteria. For those payments and receipts made on behalf, the Company and Mawan companies recorded the amounts in other receivables or other payables. As at 31 December 2008, the Group’s payable to related parties accounted for 1.62% of total other payables balances. 3. Other significant related party transactions Borrowings 2008 2007 RMB RMB CND - borrow 159,188,000 - repay (226,608,800) (18,728,000) 45 2008 Annual Report In March and December 2008, Chiwan Wharf (Hong Kong) Limited repaid long-term loans of HKD242million from (equivalent to RMB 226,608,800) to CND , bearing interest rate of 4.5% per annum. The interest paid in respect of such borrowings in 2008 amounted to RMB9,129,053. F. Significant contracts and execution 1. During the reporting period, the Company did not hold in trust, contract or lease any significant assets from other companies, nor did it put in trust, contract or lease its significant assets to other companies. 2. During the reporting period, the Company did not provide any external guarantees, but provided guarantees for the bank loans granted to Chiwan Container Terminal Co., Ltd., a subsidiary of the Company, and Chiwan Wharf (Hong Kong) Ltd., a wholly-owned subsidiary of the Company. Amount of Subsisting Type of Guarantee guarantee Term of guarantee guarantee Procedures for guarantee guarantee (HKD’000） liability or not Chiwan Reviewed and approved at Guarantee Container the First Special Session of 44,000 2008.7.31-2010.7.25 Yes with joint Terminal the Sixth Board of liability Co., Ltd. Directors for 2008 Reviewed and approved at Chiwan Guarantee the Fifth Special Session Wharf (Hong 230,000 2008.12.5-2010.12.2 Yes with joint of the Sixth Board of Kong) Ltd. liability Directors for 2008 As at the end of the reporting period, external guarantees provided by the Company amounted to RMB241.12 million, accounting for 8.75% of the net assets of the Company. 3. During the reporting period, the Company did not entrust others to conduct cash assets management. G. Commitment made by the controlling shareholder in the share reform Name Special Commitment Execution Commitment on dividend policy: CND commits to keep stable Executed. dividend policy as in the past, promises to put forward dividend The dividend payout China Nanshan distribution proposal at the annual general meetings for 2006 and ratio for 2006 and 2007 Development 2007, and the dividend payout ratio shall not be less than 50% of was 60% and 50.02% of (Group) the distributable profits achieved in the respective year, and the distributable profits Incorporation promises to vote for it at general meetings. achieved in the year respectively. Commitment on increase of its share equity in the Company: Executed. To avoid the unreasonable fluctuation of stock price of the 46 2008 Annual Report Company and boost investors confidence in the Company, and at the same time to enhance its position as the controlling shareholder, CND will, within 2 months after the share reform proposal be approved at the Relevant Shareholders’ Meeting of A Share Market, buy from stock market 9,406,540 shares (say 10% of all tradable A shares not subject to trading moratorium of 94,065,400 after the execution of the share reform proposal) when the price is not higher than RMB13.00. Within 6 months after share equity increase plan is executed, CND will not sell any shares thus bought according to the said plan, otherwise the income from the sale of shares will be possessed by all shareholders. Incentive mechanism: In order to enhance shareholders’ Proposed to the annual confidence and boost initiatives of management team and core general meeting of the staff of the Company, CND will, after the share reform proposal Company for 2008 in is executed, choose to entrust the Board of Directors of the March 2009. Company through annual general meeting to formulate and carry out equity incentive scheme in accordance with relevant laws and regulations, thus integrate the interests of management team with the whole shareholders of the Company. Letter of Guarantee: CND commits that it will obtain, before Executed. the registration date for the Relevant Shareholders’ Meeting of A Share Market, the letter of guarantee from certain monetary institution recognized by Shenzhen Stock Exchange, consenting to provide complete guarantee to CND for the required amount of money when put options granted to shareholders of tradable shares be executed. Keep the Company as a listed one: CND commits that the Executed. Company is undertaking Share Reform with a view to address the problem of balancing the interests among shareholders of circulating and non-circulating shares, but not to quit from the stock market. CND promises to take actions to keep the Company as a listed one within the period stipulated by relevant laws, rules and regulations, and to disclose information in time, if the shareholding structure does not conform to the requirements for a listed company recognized by Shenzhen Stock Exchange due to the exercise of put option. H. Appointment of accountants As approved by the Annual General Meeting for 2007 held on 29 May 2008, the Company appointed PricewaterhouseCoopers Zhong Tian Certified Public Accountants, which has been providing auditing service for the Company for eight consecutive years, as the Company’s accountants for 2008. Remunerations paid in the reporting year are set out as follows. 2008 PricewaterhouseCoopers Zhong Tian Audit expenses RMB 1,650,000 Other expenses — 47 2008 Annual Report I. Interviews and visits in the reporting year In the reporting period, the Company handled warm-heartedly investors’ phone calls and held one-on-one meetings with investors. The Company disclosed relevant information to investors in accordance with the Company Law, the Securities Law, the Rules on the Management of Investors Relations and other laws and regulations. In 2008, the Company received in aggregate 35 visits. The Company gave visitors an introduction to the profile of the Company and the development of its business, and made reasonable disclosures regarding the operations, investments and financial status of the Company that the investors were interested in. The Company did not disclose, reveal or divulge to any specific visitors any material information not generally available to the public. Details of such interviews and visits are as follows: Topics discussed Type Way Time Location Investor and information provided Promotional UBS January Shanghai Clients of UBS Basic information activities Conference 2008 of operations and launched by JPMorgan April 2008 Beijing Clients of JP Morgan investments of security Conference the Company and firms the financial UBS June 2008 Xi’an Clients of UBS status of the Conference Company Receiving Oral January Conference Morgan Stanley Asia Limited visits from interview, 2008 room of the Information investors Telephone Company provided: February TB Alternative Assets Ltd., conference Brochure of the 2008 Tiger Global Company March China International Capital Corporation 2008 Limited, Baoying Fund Management Co., Ltd. April 2008 Hillhouse Capital Management Ltd., Satellite Asset Management, L.P. May 2008 Overlook Investments Limited, CSC International Holdings Ltd. June 2008 TX Investment Consulting Co., Ltd., WanLian Securities、 China Merchants Holdings (International) Co., Ltd., China Merchants Securities Co.,Ltd., Credit Suisse(HongKong)Limited ShangHai Representative Office July 2008 Merrill Lynch (AP) Co., Ltd., Morgan Stanley Asia Limited, Morgan Stanley Dean Witter Asia Limited, China International Capital Corporation Hong Kong Securities Ltd., J.P. Morgan Securities (Asia Pacific) Limited, Tiedemann Glabal Emerging Markets 48 2008 Annual Report August Ping An Securities Co.,Ltd., 2008 Hua An Fund Management Co., Ltd., E Fund Management Co., Ltd. October China Asset Management Co.,Ltd. 2008 November CLSA Investment Research Co., Ltd.、 2008 Keywise Capital Management (HK) Limited, Credit Suisse, Fidelity Funds, Pacific Asset Management Co.,Ltd., Dongxing Securities Co., Ltd., UBS SDIC, Ping An Securities, Guosen Securities, Value Partners December Fortune SGAM Fund Management Co., Ltd., 2008 China Merchants Securities Co.,Ltd., Changsheng Fund Management Co.,Ltd. J. During the reporting period, the Company did not formulate and implement any equity incentive schemes. K. During the Reporting Period, none of the Company, its Directors, Supervisors, Senior Management, shareholders or actual controllers was subject to investigation by competent authorities, enforcement measures by judicial and regulatory authorities, transfer to judicial departments or prosecution for criminal liability, inspection or administrative punishment by CSRC, non-admission to securities market, or punishment by other administrative departments or public condemnation by the Shenzhen Stock Exchange as a result of being identified as an inappropriate candidate. L. Other significant events Newspaper Date of No. of and Events Website announcement announcement reference page On 30 August 2007, the Company entered into the Principle Agreement on the Equity Transfer of Qingdao Shengtong Coast Property Development Co., Ltd. (‘Shengtong”) and the Principle Agreement on the Matters Relating to the North Area of the Sifang Port Area Involved in the Equity Transfer of Shengtong with shareholders of Shengtong, i.e. Shandong Shengli Co., Ltd (“Shengli”) and Qingdao Shengxin Investment http://www. ST A3; Co., Ltd. (“Shengxin”), Qingdao Sifang Urban 14 May 2008 2008-019 cninfo. TKP B3 Development Company and Sifang District com.cn Government of Qingdao City. As the function planning of the coastline and land mentioned in these agreements has been adjusted in accordance with the new strategies on urban development of Qingdao City, these two agreements have become ineligible to be implemented and have been terminated by the Board with unanimous consent. 49 2008 Annual Report At the Fourth Special Session of the Fifth Board of Directors of the Company for 2008 held on 16 May 2008, it was agreed that the Company and China Merchants International (China) Investment Company Limited (“China Merchants Investment”) would increase their capital contributions to China Merchants Maritime & Logistics (Shenzhen) Ltd.(“CMML”), which is held as 60% by China Merchants Investment and 40% by the Company respectively, in cash in proportion to their respective shareholdings. Such funds will be used to finance the construction of 2008-021 warehouses of phases 5. The additional capital 22 May 2008 ST C14 contribution made by the Company to CMML was 2008-022 TKP C3 5 July 2008 RMB40 million. As a result of the capital contribution, 2008-029 the registered capital of CMML was increased to RMB400 million form the current RMB300 million with no change in shareholding percentages of shareholders. As Mr. Wang Hong, the chairman of the supervisory committee of the Company, is also a director of China Merchants Investment, the capital contribution constitutes a related party transaction under the Rules Governing the Listing of Stocks on the Shenzhen Stock Exchange. The transaction was completed in July 2008. The 23,243,415 shares subject to trading moratorium ST B18 held by CND, the controlling shareholder of the 5 June 2008 2008-026 TKP A30 Company, became tradable on 6 June 2008. To ensue the normal production and operation of the Company in 2008 and satisfy the financial requirements of the subsidiaries of the Company, the Company held the First Special Session of the Sixth Board of Directors for 2008 on 25 June 2008, at which the resolution on the provision of guarantees for the ST C9 loans granted by Nanyang Commercial Bank (China) 26 June 2008 2008-028 TKP B8 Limited Shenzhen Branch to Chiwan Container Terminal Co., Ltd. (“CCT”), a subsidiary of the Company, was reviewed and approved. It was expected that the guarantees provided for CCT would be HKD 44,000,000 in aggregate with a guarantee term of two years. The Company held the Fifth Special Session of the Sixth Board of Directors for 2008 on 28 November 2008, at which the resolution on the provision of guarantee for the bank facilities (in an amount of up to 29 November ST B10 HKD 230 million) granted by Nanyang Commercial 2008-040 2008 TKP B9 Bank (China) Limited to Chiwan Wharf (Hong Kong) Ltd., a wholly-owned subsidiary of the Company, was reviewed and approved. The term of the guarantee was two years from the grant date of the bank facilities. ※ ST refers to Securities Times and TKP refers to Ta Kung Pao. 50 2008 Annual Report PART X FINANCIAL STATEMENTS (See attached) PART XI DOCUMENTS FOR REFERENCE 1. Financial Statements carrying the signatures and stamps of the Company's legal representative, the Chief Financial Officer and the person in charge of accounting; 2. Original copy of the Auditor's Statement stamped by the auditors and signed and stamped by registered accountants; 3. Original copies of all documents and the announcements thereof disclosed in the reporting period on “Securities Times” and “Ta Kung Pao”; and 4. Original copy of the Annual Report signed by the Chairman. For and on behalf of the Board Wang Fen Chairman Shenzhen Chiwan Wharf Holdings Limited Dated 11 April, 2009 51 SHENZHEN CHIWAN WHARF HOLDINGS LIMITED FINANCIAL STATEMENTS AND REPORT OF THE AUDITORS FOR THE YEAR ENDED 31 DECEMBER 2008 [English Translation for Reference Only. Should there be any inconsistency between the Chinese and English versions, the Chinese version shall prevail.] 14281/FZE SHENZHEN CHIWAN WHARF HOLDINGS LIMITED Financial Statements and Report of the Auditors For the year ended 31 December 2008 [English translation for reference only] Contents Page The report of the auditors 1-2 Consolidated and the company’s balance sheets 3-4 Consolidated and the company’s income statements 5 Consolidated and the company’s cash flow statements 6 Consolidated statement of changes in owners’ equity 7 The company’s statement of changes in owners’ equity 8 Notes to financial statements 9 - 76 普华永道中天会计师事务所有限公司 11th Floor PricewaterhouseCoopers Center 202 Hu Bin Road Shanghai 200021, P.R.C. Telephone +86 (21) 6123 8888 Facsimile +86 (21) 6123 8800 www.pwccn.com [English translation for reference only] Report of Auditors PwC ZT Shen Zi (2009) No.10041 (Page 1 of 2) To the shareholders of Shenzhen Chiwan Wharf Holdings Limited： We have audited the accompanying financial statements of Shenzhen Chiwan Wharf Holdings Limited (“Chiwan Wharf”) which comprise the consolidated and the company balance sheets as at 31 December 2008, the consolidated and the company income statements, the consolidated and the company cash flow statements and the consolidated and the company statements of changes in equity for the year then ended and the notes to these financial statements. Management’s Responsibility for the Financial Statements The management is responsible for the preparation of these financial statements in accordance with the Accounting Standards for Business Enterprises. This responsibility includes: (1) designing, implementing and maintaining internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error; (2) selecting and applying appropriate accounting policies; and (3) making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the China Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. [English translation for reference only] PwC ZT Shen Zi (2009) No.10041 (Page 2 of 2) An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying consolidated and the company financial statements present fairly, in all material respects, the financial position of Chiwan Whalf as of 31 December 2008, and their financial performance and their cash flows for the year then ended in accordance with the Accounting Standards for Business Enterprises. PricewaterhouseCoopers Zhong Tian CPAs Limited Company Shanghai, the People’s Republic of China 9 April 2009 SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED AND COMPANY BALANCE SHEETS AS AT 31 DECEMBER 2008 (All amounts in RMB Yuan unless otherwise stated) [English translation for reference only] 31 December 2008 31 December 2007 31 December 2008 31 December 2007 ASSETS Note(s) The Group The Group The Company The Company Current assets Cash at bank and on hand 7(1) 641,475,910 781,587,534 298,644,660 570,266,835 Notes receivable 7(2) 7,846,264 1,167,600 7,846,264 1,167,600 Dividends receivable - - 404,741,735 425,321,224 Accounts receivable 7(3),13(1) 145,675,880 217,005,190 11,338,751 9,647,134 Advances to suppliers 7(4) 10,336,323 6,272,274 111,253 - Interest receivable 454,878 - 5,277,795 - Other receivables 7(3),13(1) 10,180,699 9,817,791 132,957,981 146,614,365 Inventories 7(5) 27,808,298 24,629,401 837,989 1,034,833 Hedging instruments 7(6) - 39,459,166 - - Total current assets 843,778,252 1,079,938,956 861,756,428 1,154,051,991 Non-current assets Available-for-sale financial assets 7(7) 5,440,000 10,520,000 5,440,000 10,520,000 Long-term receivables 7(8),9(4),9(6) 184,039,141 195,834,378 164,228,079 217,001,724 Long-term equity investments 7(9),13(2) 282,844,083 335,978,363 853,904,176 786,582,728 Investment properties 7(10) 29,048,953 29,664,243 20,860,490 21,511,246 Fixed assets 7(11) 2,261,881,360 2,272,954,882 184,480,910 198,322,996 Construction in progress 7(12) 301,348,064 288,525,812 168,540 944,134 Intangible assets 7(13) 1,075,111,068 1,138,614,622 73,752,628 120,356,947 Goodwill 7(14) 10,858,898 10,858,898 - - Long-term prepaid expenses 7(15) 67,625,291 65,424,928 5,818,207 5,839,087 Long-term prepayment 7(16) 58,772,833 - - - Deferred tax assets 7(28) 32,980,105 29,020,636 12,635,845 12,639,786 Total non-current assets 4,309,949,796 4,377,396,762 1,321,288,875 1,373,718,648 TOTAL ASSETS 5,153,728,048 5,457,335,718 2,183,045,303 2,527,770,639 -3- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED AND COMPANY BALANCE SHEETS AS AT 31 DECEMBER 2008 (CONTINUED) (All amounts in RMB Yuan unless otherwise stated) [English translation for reference only] LIABILITIES AND 31 December 2008 31 December 2007 31 December 2008 31 December 2007 OWNERS’ EQUITY Note(s) The Group The Group The Company The Company Current liabilities Short-term borrowings 7(18) 829,840,000 1,221,310,000 178,640,000 401,160,000 Notes payable 7(19) 8,681,000 6,687,150 - - Accounts payable 7(20) 58,507,695 57,201,825 13,231,145 12,926,232 Advances from customers 7(21) 650,306 427,561 16,388 - Employee benefits payable 7(22) 39,286,759 48,322,728 21,825,885 28,325,184 Dividends payable 7(23) 271,365,815 295,768,833 - - Taxes payable 7(24) 27,885,431 25,870,474 1,448,453 1,117,555 Interests payable 4,864,951 173,320 2,909,946 173,320 Other payables 7(25) 104,635,820 293,955,986 209,280,593 467,181,771 Deferred revenue 7(26) 4,951,750 5,292,500 - - Current portion of non-current liabilities 7(27) - 273,428,800 - - Total current liabilities 1,350,669,527 2,228,439,177 427,352,410 910,884,062 Non-current liabilities Long-term borrowings 7(27) 404,800,000 - 132,000,000 - Deferred revenue 7(26) 69,737,144 79,828,541 - - Deferred tax liabilities 7(28) 864,000 4,446,249 864,000 1,692,000 Total non-current liabilities 475,401,144 84,274,790 132,864,000 1,692,000 Total liabilities 1,826,070,671 2,312,713,967 560,216,410 912,576,062 Owners' equity Paid-in capital 7(29) 644,763,730 644,763,730 644,763,730 644,763,730 Capital surplus 7(30) 144,170,555 168,577,210 153,366,828 157,618,828 Surplus reserve 7(31) 355,134,736 1,094,116,893 355,134,736 1,094,116,893 Undistributed profits 1,624,545,217 679,821,265 469,563,599 (281,304,874) Foreign exchange translation differences (13,349,891) (1,415,833) - - Total equity attributable to equity holders of the Company 2,755,264,347 2,585,863,265 1,622,828,893 1,615,194,577 Minority interests 7(33) 572,393,030 558,758,486 - - Total owners' equity 3,327,657,377 3,144,621,751 1,622,828,893 1,615,194,577 TOTAL LIABILITIES AND OWNERS’ EQUITY 5,153,728,048 5,457,335,718 2,183,045,303 2,527,770,639 The accompanying notes form an integral part of these financial statements. -4- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED AND COMPANY INCOME STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB Yuan unless otherwise stated) [English translation for reference only] 2008 2007 2008 2007 Items Note(s) The Group The Group The Company The Company Revenue 7(34),13(3) 1,914,007,717 2,003,562,530 194,916,576 192,713,033 Less: Cost 7(34),13(3) (829,304,564) (792,237,695) (143,900,606) (148,124,114) Tax and levies on operations 7(35) (66,207,650) (69,174,727) (6,719,489) (6,243,252) General and administrative expenses (138,254,928) (135,362,508) (49,967,975) (51,631,578) Finance income/(expenses) - net 7(36) 58,897,693 (28,367,266) (2,248,042) (1,188,745) Asset impairment losses 7(37) (3,295,627) (60,937,679) (713,758) (228) Add: Investment income 7(38),13(4) 90,597,044 128,090,386 454,547,080 981,763,526 Including: share of results of associates 7(38) 90,327,044 121,265,171 (3,681,752) 1,679,581 Operating profit 1,026,439,685 1,045,573,041 445,913,786 967,288,642 Add: Non-operating income 7(39) 9,878,032 2,674,432 5,911,669 1,661,470 Less: Non-operating expenses 7(39) (3,220,661) (5,476,032) (1,912,427) (520,513) Including: Loss on disposals of non-current assets (2,007,722) (5,426,415) (391,928) (510,218) Total profit 1,033,097,056 1,042,771,441 449,913,028 968,429,599 Less: Income tax (expenses)/ income 7(40) (88,687,879) (50,267,237) (876,903) 2,642,405 Net profit 944,409,177 992,504,204 449,036,125 971,072,004 Attributable to equity holders of the Company 642,891,604 663,872,167 Minority interest 301,517,573 328,632,037 Earnings per share (attributable to equity holders of the Company) Basic earnings per share 7(41) 0.997 1.030 Diluted earnings per share 7(41) 0.997 1.030 The accompanying notes form an integral part of these financial statements. -5- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB Yuan unless otherwise stated) [English translation for reference only] 2008 2007 2008 2007 Items Note(s) The Group The Group The Company The Company 1. Cash flows from operating activities Cash received from rendering of services 1,951,350,965 1,983,854,763 169,232,070 186,532,961 Cash received relating to other operating activities 58,937,645 22,975,474 41,769,816 43,574,019 Sub-total of cash inflows 2,010,288,610 2,006,830,237 211,001,886 230,106,980 Cash paid for goods and services (394,250,357) (349,308,638) (97,643,133) (91,508,732) Cash paid to and on behalf of employees (218,134,554) (189,410,725) (60,570,324) (45,335,011) Payments of taxes and levies (164,905,584) (148,486,709) (7,575,905) (9,636,321) Cash paid relating to other operating activities 7(42) (142,643,126) (122,131,179) (70,575,168) (5,735,673) Sub-total of cash outflows (919,933,621) (809,337,251) (236,364,530) (152,215,737) Net cash flows from operating activities 7(42) 1,090,354,989 1,197,492,986 (25,362,644) 77,891,243 2. Cash flows from investing activities Cash received from disposals of investments - - 127,773,645 507,000,000 Cash received from returns on investments 183,724,524 6,825,215 446,904,306 447,572,047 Net cash received from disposals of fixed assets and intangible assets 64,179,274 1,857,971 51,442,840 300,977 Sub-total of cash inflows 247,903,798 8,683,186 626,120,791 954,873,024 Cash paid to purchase fixed assets, intangible assets and other long-term assets (264,539,595) (397,292,471) (8,709,417) (35,321,112) Cash paid relating to other investing activities (40,000,000) (40,000,000) (149,760,000) (505,798,000) Sub-total of cash outflows (304,539,595) (437,292,471) (158,469,417) (541,119,112) Net cash flows from investing activities (56,635,797) (428,609,285) 467,651,374 413,753,912 3. Cash flows from financing activities Cash received from borrowings 2,232,612,000 2,068,094,000 522,640,000 911,000,000 Cash repayments of borrowings (2,609,358,800) (1,484,924,000) (791,980,000) (515,000,000) Cash payments for interest expenses and distribution of dividends or profits (787,575,942) (735,923,394) (443,563,839) (389,231,705) Including: dividends paid to minority shareholders of subsidiaries (295,768,834) (299,618,406) - - Sub-total of cash outflows (3,396,934,742) (2,220,847,394) (1,235,543,839) (904,231,705) Net cash flows from financing activities (1,164,322,742) (152,753,394) (712,903,839) 6,768,295 4. Effect of foreign exchange rate changes on cash and cash equivalents (9,508,074) (3,065,644) (1,007,066) (572,537) 5. Net (decrease)/increase in cash and cash equivalents (140,111,624) 613,064,663 (271,622,175) 497,840,913 Add: Cash and cash equivalents at beginning of year 7(42) 781,587,534 168,522,871 570,266,835 72,425,922 6. Cash and cash equivalent at end of year 7(42) 641,475,910 781,587,534 298,644,660 570,266,835 The accompanying notes form an integral part of these financial statements. -6- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED CONSOLIDATED STATEMENT OF CHANGES IN OWNERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB Yuan unless otherwise stated) [English translation for reference only] Attributable to equity holders of the Company Items Note Paid-in capital Capital surplus Surplus reserves Undistributed profits Translation d Balance at 31 December 2006 644,763,730 140,004,950 1,094,116,893 371,571,793 (3, Effect of first-time adoption of the Accounting Standard for Business Enterprises - - - 15,761,213 Balance at 1 January 2007 644,763,730 140,004,950 1,094,116,893 387,333,006 (3, Movement for the year ended 31 December 2007 Net profit - - - 663,872,167 Gains recognised directly in owners' equity - net changes in fair value of available-for-sale financial assets 7(30) - 7,708,000 - - - net changes in fair value of hedging instruments 7(30) - 20,187,704 - - - translation difference - - - - 2, - others - 676,556 - - Sub-total - 28,572,260 - - 2, Profit appropriation - appropriation to surplus reserves 7(31) - - - - - profit distribution to equity owners 7(32) - - - (371,383,908) Balance at 31 December 2007 644,763,730 168,577,210 1,094,116,893 679,821,265 (1, Balance at 1 January 2008 644,763,730 168,577,210 1,094,116,893 679,821,265 (1, Movement for the year ended 31 December 2008 Net profit - - - 642,891,604 Gains/(losses) recognised directly in owners' equity - net changes in fair value of available-for-sale financial assets 7(30) - (4,252,000) - - - net changes in fair value of hedging instrument 7(30) - (20,187,704) - - - translation difference - a subsidiary - - - - ( - translation difference - an associate 7(8) - - - - (11, - others - 33,049 - - Sub-total - (24,406,655) - - (11, Profit appropriation - appropriation to surplus reserves 7(31) - - 142,010,813 ( 142,010,813) - profit distribution to equity owners 7(32) - - - (437,149,809) Transfer within owner's equity - surplus reserves used to offset accumulated losses 7(31) - - (880,992,970) 880,992,970 Balance at 31 December 2008 644,763,730 144,170,555 355,134,736 1,624,545,217 (13, The accompanying notes form an integral part of these financial statements. -7- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED COMPANY STATEMENT OF CHANGES IN OWNERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB Yuan unless otherwise stated) [English translation for reference only] Items Note Paid-in capital Capital surplus Surplus reserves Balance at 31 December 2006 644,763,730 140,004,950 1,094,116,893 Effect of first-time adoption of the Accounting Standard for Business Enterprises - 9,905,878 - Balance at 1 January 2007 644,763,730 149,910,828 1,094,116,893 Movement for the year ended 31 December 2007 Net profit - - - Gains recognised directly in owners' equity - - - - net changes in fair value of available-for-sale financial assets 7(30) - 7,708,000 - Profit distribution - profit distribution to equity owners 7(32) - - - Balance at 31 December 2007 644,763,730 157,618,828 1,094,116,893 Balance at 1 January 2008 644,763,730 157,618,828 1,094,116,893 Movement for the year ended 31 December 2008 Net profit - - - Losses recognised directly in owners' equity - - - - net changes in fair value of available-for-sale financial assets 7(30) - (4,252,000) - Profit distribution - appropriation to surplus reserves 7(31) - - 142,010,813 - profit distribution to equity owners 7(32) - - - Transfer within owner's equity - surplus reserves used to offset accumulated losses 7(31) - (880,992,970 Balance at 31 December 2008 644,763,730 153,366,828 355,134,736 The accompanying notes form an integral part of these financial statements. -8- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 1 General information Shenzhen Chiwan Wharf Holdings Limited (the “Company”) was incorporated in September 1982 in Shenzhen, the People’s Republic of China (the “PRC”), by China Nanshan Development (Group) Ltd (the “Nanshan Group”), and was registered a sino-foreign joint venture enterprise in July 1990. In January 1993, as approved by the Shenzhen municipal government with document SFBF (1993)357, the Company was reorganized into a joint stock limited company. In February 1993, the Company issued, by public offering, the domestic shares (“A shares”) of 46,000,000 shares and domestically listed foreign shares (“B shares”) of 40,000,000 shares. Both shares were listed in Shenzhen Stock Exchange in May 1993. In June 1994, 31,047,000 bonus shares were issued in a proportion of “one bonus share for every ten shares”. In June, the bonus A shares and bonus B shares held by Nanshan Group were listed in Shenzhen Stock Exchange. In December 1995, the Company issued additional 40,000,000 B shares, consequently, the total volume of the Company’s shares rose to 381,517,000. In June 2004, the directors of the Company resolved to increase the share capital by means of capitalization of the share premium and capital reserves of the Company to the extent that 3 additional ordinary shares were issued to each shareholder holding 10 shares of the Company. As the result, the total volume of shares was increased from 381,517,000 to 495,972,100. In July 2005, again the directors of the Company resolved to increase the share capital by means of capitalization of the share premium and capital reserves of the Company to the extent that 3 additional ordinary shares were issued to each shareholder holding 10 shares of the Company Consequently, the total volume of shares was increased from 495,972,100 to 644,763,730. Pursuant to the relevant rules and regulations issued by the PRC authorities and approval from State-owned Asset Supervision and Administration Commission with document No. (2006)405, share segregation reform of the Company was performed in May 2006. Nanshan Group, the non public shares shareholder of the Company, offered RMB11.5 in cash, 1 share and 8 put options, to the holders of every 10 listed A shares. In return the listed A shares shareholders agree to allow the non public shares held by Nanshan Group be converted into listed A shares. From 30 May 2006, the non public A shares held by Nanshan Group (original volume less those offered to tradable A shares shareholders) become listed with restriction on disposal for certain lock up period. As to the put options offered by Nanshan Group, during the required exercise period from 23 May 2007 to 29 May 2007, none was actually exercised by listed A shares shareholders. The lock up period for two batches of A shares with 23,243,415 share each held by the Nanshan Group with restriction on disposal expired on 3 July 2007 and on 6 June 2008, respectively. -9- SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 1 General information (continued) The Company and its subsidiaries (collectively the “Group”) are principally engaged in the provision of cargo packing, cargo handling, container terminal, warehousing, land and sea transportation services. These consolidated financial statements have been approved for issue by the Board of Directors on 9 April 2009. 2 Basis of preparation The Group prepared financial statements in accordance with the Basic Standard and 38 specific standards of Accounting Standards for Business Enterprises issued by Ministry of Finance of the PRC on 15 February 2006, Application Guidance of Accounting Standard for Business Enterprises, Interpretation of Accounting Standards for Business Enterprises and other regulations issued thereafter (hereafter referred to as “the Accounting Standard for Business Enterprises”, “China Accounting Standards” or “CAS”). 3 Statement of compliance with the Accounting Standards for Business Enterprises The consolidated and the Company’s financial statements for the year ended 31 December 2008 truly and completely present the financial position as of 31 December 2008 and the operating results, cash flows and other information for the year then ended of the Group and Company in compliance with the Accounting Standards for Business Enterprises. 4 Summary of significant accounting policies and accounting estimates (1) Accounting period The Company’s accounting year starts on 1 January and ends on 31 December. (2) Recording currency The recording currency is Renminbi (RMB) (3) Basis of measurement The financial statements have been prepared the historical cost convention, unless otherwise stated adopting fair value, net realisable value or present value method. - 10 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (4) Foreign currency translation (a) Transactions and balances Foreign currency transactions are translated into RMB using the exchange rates prevailing at the dates of the transactions. At the balance sheet date, monetary items denominated in foreign currency are translated into RMB using the spot exchange rate at the balance sheet date. Exchange differences arising from these translations are recognised in profit or loss for the current period, except for those attributable to foreign currency borrowings that have been taken out specifically for the acquisition, construction or production of qualifying assets, which are capitalised as part of the cost of those assets. Non-monetary items denominated in foreign currency that are measured in terms of historical cost are translated at the balance sheet date using the spot exchange rate at the date of the transaction. The effect of exchange rate changes on cash is presented separately in the cash flow statement. (b) Translation of foreign currency financial statements The asset and liability items in the balance sheets for oversea businesses are translated at the spot exchange rate on the balance sheet date. Among the owner’s equity items, the items other than “undistributed profits” are translated at the spot exchange rate of the transaction date. The income and expense items in the income statements of oversea businesses are translated at the spot exchange rate of the transaction date. The differences arising from the above translation are presented separately in the owner’s equities. The cash flows of oversea businesses are translated at the spot exchange rate on the date of the cash flows. The effect of exchange rate changes on cash is presented separately in the cash flow statement. (5) Cash and cash equivalents For the purpose of the cash flow statement, cash comprises cash in hand and deposits held at call with bank. Cash equivalents refer to short-term and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. - 11 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (6) Financial assets Financial assets are classified into the following categories at initial recognition: financial assets at fair value through profit or loss, loans and receivables, available-for-sale financial assets and held-to-maturity investments. The classification of financial assets depends on the Group’s intention and ability to hold the financial assets. (a) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for the purpose of selling in the short term, which are presented as financial assets held for trading on the balance sheet. (b) Loans and receivables Loans and receivables, including accounts receivable and other receivables, are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market (Note 4 (7)). (c) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories at initial recognition. Available-for-sale financial assets are included in other current assets in the balance sheet if management intends to dispose of them within 12 months of the balance sheet date. (d) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed maturity and fixed or determinable payments that management has the positive intention and ability to hold to maturity. Held-to-maturity investments with maturities less than 12 months of the balance sheet date are included in other current assets or current portion of non-current assets on the balance sheet. (e) Recognition and measurement Financial assets are recognised at fair value on the balance sheet when the Group becomes a party to the contractual provisions of the financial instrument. In the case of financial assets at fair value through profit or loss, the related transaction costs occurred at the time of acquisition are recognised in profit or loss for the current period. For other financial assets, transaction costs that are attributable to the acquisition of the financial assets are included in their initial recognition amounts. Financial assets are derecognised when the contractual rights to receive the cash flows from the financial assets have expired, or all substantial risks and rewards of ownership of the financial assets have been transferred. - 12 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (6) Financial assets (continued) (e) Recognition and measurement (continued) Financial assets at fair value through profit or loss and available-for-sale financial assets are subsequently measured at fair value. Investments in equity instruments are measured at cost when they do not have a quoted market price in an active market and whose fair value cannot be reliably measured. Receivables and held-to-maturity investments are measured at amortised cost using the effective interest method. A gain or loss arising from a change in the fair value of financial assets at fair value through profit or loss is recognised in profit or loss. Interests and cash dividends received during the period in which such financial assets are held, as well as the gains or losses arising from the disposal of the assets are recognised in profit or loss for the current period. A gain or loss arising from a change in fair value of an available-for-sale financial asset is recognised directly in equity, except for impairment losses and foreign exchange gains and losses arising from the translation of monetary financial assets. When such financial asset is derecognised, the cumulative gain or loss previously recognised in equity is recognised in profit or loss for the current period. Interests on available-for-sale investments in debt instruments are calculated using the effective interest method during the period in which such investments are held and cash dividends declared by the investee on available-for-sale investments in equity instruments are recognised as investment income in profit or loss. (f) Impairment of financial assets The Group assesses the carrying amount of a financial asset other than that at fair value through profit or loss at each balance sheet date. If there is objective evidence that the financial asset is impaired, the Group shall determine the amount of any impairment loss. If an impairment loss on a financial asset carried at amortised cost has been incurred, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred). If there is objective evidence that the value of the financial asset recovered and the recovery is related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed and the amount of reversal is recognised in profit or loss. - 13 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (6) Financial assets (continued) (f) Impairment of financial assets (continued) In the case of a significant or prolonged decline in the fair value of an available-for-sale financial asset, the cumulative loss arising from the decline in fair value that had been recognised directly in equity is removed from equity and recognised in impairment loss. For an investment in debt instrument classified as available-for-sale on which impairment losses have been recognised, if, in a subsequent period, its fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the previously recognised impairment loss is reversed and recognised in profit or loss for the current period. For an investment in an equity instrument classified as available-for-sale on which impairment losses have been recognised, if, in a subsequent period, its fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the previously recognised impairment loss is reversed and directly recognised in equity. If an impairment loss incurred on an investment in an equity instrument not quoted in an active market and whose fair value cannot be reliably measured, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows of similar financial assets, capitalized based on the returns ratio of the market at the same time. The impairment losses are not allowed to be reversed even if the value is recovered in a subsequent period. (7) Receivables Receivables comprise accounts receivable and other receivables. Accounts receivable arising from rendering of services are initially recognised at fair value of the contractual payments from the customer. Receivables are presented at amortised cost using the effective interest method net of provision for bad debts. Receivables that are individually significant are subject to separate impairment assessment, if there is objective evidence that the Group will not be able to collect the full amounts according to the original terms, a provision for impairment of the receivable is established at the difference between the carrying amount of the receivable and the present value of estimated future cash flows. Receivables that are not individually significant together with those receivables that have been individually evaluated for impairment and found not to be impaired are grouped on the basis of similar credit risk characteristics. The impairment losses are determined, considering the current conditions, on the basis of historical loss experience for the groups of receivables with the similar credit risk characteristics. - 14 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (8) Inventories Inventories include spare parts, fuel and low cost consumables, and are presented at the lower of cost and net realisable value. Inventories are initially recognized at cost. Cost of spare parts and fuel is determined using the weighted average method. Low cost consumables are expensed upon issuance. Provisions for declines in the value of inventories are determined at the carrying value of the inventories net of their net realisable value. Net realisable value is determined based on the estimated selling price in the ordinary course of business, less the estimated costs to completion and estimated costs necessary to make the sale and relevant taxes. The Group adopts the perpetual inventory system. (9) Hedging activities Hedges are classified as fair value hedges, cash flow hedges, and hedges of net investment in an overseas operation. The Group has cash flow hedges in this year. Cash flow hedge refers to a hedging of the risk to changes in cash flow. Such changes in cash flow are attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction and could affect profit or loss. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedging transaction. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement within ‘other gains/ (losses) - net’. Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes place). The gain or loss relating to the ineffective portion is recognized in the income statement within ‘other gains/ (losses) - net’. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement within other ‘gains/(losses) – net’. - 15 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (10) Long-term equity investments Long-term equity investments comprise the Company’s equity investments in its subsidiaries, the Group’s long-term equity investments in its joint ventures and associates as well as the long-term equity investments where the Group does not have control, joint control or significant influence over the investees, and which are not quoted in an active market and whose fair value cannot be reliably measured. (a) Subsidiaries Subsidiaries are all investees over which the Company is able to control, i.e. has the power to govern the financial and operating policies so as to obtain benefits from their operating activities. The existence and effect of potential voting rights (including that derived from the convertible bonds and warrants that are currently convertible or exercisable) are considered to determine whether the Group has control over the investee. Investments in subsidiaries are measured using the cost method in the Company’s financial statements, and adjusted using the equity method when preparing the consolidated financial statements. Long-term equity investments accounted for using the cost method are measured at the initial investment cost. Investment income is recognised in profit or loss for the cash dividends or profit declared by the investee. Such recognition is made only to the extent of the distributions received from accumulated net profits of the investees arising after the investment was made. Cash dividends or distributions received in excess of such profits are regarded as a recovery of the initial cost of the investments. (b) Associates Associates are all investees that the Group has significant influence on their financial and operating policies. Investments in associates are accounted for using the equity method. Where the initial investment cost exceeds the Group’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, the investment is initially measured at cost. Where the initial investment cost is less than the Group’s share of the fair value of the investee’s identifiable net assets at the time of acquisition, the difference is included in profit or loss for the current period and the cost of the long-term equity investment is adjusted accordingly. - 16 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (10) Long-term equity investments (continued) (b) Associates (continued) When using the equity method of accounting, the Group recognised the investment income based on its share of net profit or loss of the investee. The Group discontinues recognising its share of net losses of an investee after the carrying amount of the long-term equity investment together with any long-term interests that, in substance, form part of the investor’s net investment in the investee are reduced to zero. However, if the Group has obligations for additional losses and the conditions on recognition of provision are satisfied in accordance with the accounting standards on contingencies, the Group continues to recognise the investment losses and the provision. For changes in owner’s equity of the investee other than those arising from its net profit or loss, the Group record directly in capital surplus its proportion, provided that the Group’s proportion of shareholding in the investee remains unchanged. The carrying amount of the investment is reduced by the Group’s share of the profit or cash dividends declared by an investee. The unrealised profits or losses arising from the intra-group transactions between the Group and its investees are eliminated to the extent of the Group’s interest in the investees, on the basis of which the investment gain or losses are recognised. The loss on the intra-group transaction between the Group and its investees, of which the nature is asset impairment, is recognised in full amount, and the relevant unrealised gain or loss is not allowed to be eliminated. (c) Other long-term equity investments Other long-term equity investments where the Group does not have control, joint control or significant influence over the investee, and which are not quoted in an active market and whose fair value cannot be reliably measured are accounted for using the cost method. - 17 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (11) Investment property Investment property, including land use rights that have already been leased out and land use rights held for subsequent transfer on capital appreciation and buildings that held for the purpose of lease, is measured initially at its actual cost. Subsequent expenditures incurred for an investment property is included in the cost of the investment property when it is probable that economic benefits associated with the investment property will flow to the Group and its cost can be reliably measured, otherwise the expenditure is recognised in profit or loss in the period in which they are incurred. The Group adopts the cost model for subsequent measurement of the investment property. Buildings and land use rights are depreciated or amortised to allocate the costs of these assets to their estimated net residual values over their estimated useful lives. The estimated useful lives, the estimated net residual values expressed as a percentage of cost and the annual depreciation (amortisation) rates of the investment properties are as follows: Estimated Estimated residual Annual depreciation useful lives value (amortisation) rate Buildings 25 - 33 years 10% 2.7% to 3.6% Land use rights 8 - 38 years - 2.6% to 12.5% When an investment property is changed to an owner-occupied property, it is transferred to fixed assets or intangible assets at the date of the change. When an owner-occupied property is changed to be held to earn rental or for capital appreciation, the fixed asset or intangible asset is transferred to investment property at the date of the change at the relevant carrying amount of the property. The estimated useful life, net residual value of an investment property and the depreciation (amortisation) method applied are reviewed, and adjusted as appropriate at each financial year-end. An investment property is derecognised on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. The amount of proceeds on sale, transfer, retirement or damage of an investment property less its carrying amount and related taxes and expenses is recognised in profit or loss for the current period. - 18 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (12) Fixed assets Fixed assets comprise harbor facilities, warehouses, container yards and buildings, machinery and equipment, motor vehicles, cargo ships and tugboats, and other equipments. Fixed assets purchased or constructed by the Group are initially measured at cost at the time of acquisition. Fixed assets contributed by the State-owned shareholders at the incorporation of a limited company are initially recorded at the valuation amount recognized by the State-owned assets supervision and administration department. Subsequent expenditures incurred for a fixed asset are included in the cost of the fixed asset when it is probable that economic benefits associated with the fixed asset will flow to the Group and its cost can be reliably measured. The carrying amount of those parts that are replaced is derecognized and all other subsequent expenditures are recognised in profit or loss in the period in which it is incurred. Fixed assets are depreciated using the straight-line method to allocate the cost of the assets to their estimated residual values over their estimated useful lives. For the fixed assets being provided for impairment loss, the related depreciation charge is prospectively determined based upon the adjusted carrying amounts over their remaining useful lives. The estimated useful lives, the estimated residual values expressed as a percentage of cost and the annual depreciation rates are as follows: Estimated Estimated Annual useful lives residual value depreciation rate Harbor facilities 5 - 50 years 10% 1.8%-18% warehouses, container yards and buildings 5 - 40 years 10% 2.25%-18% machinery and equipments 5 - 15 years 10% 6%-18% motor vehicles, cargo ships and tugboats 5 - 20 years 10% 4.5%-18% other equipments 5 years 10% 18% The estimated useful life, the estimated net residual value of a fixed asset and the depreciation method applied to the asset are reviewed, and adjusted as appropriate at least at each financial year-end. A fixed asset classified as an asset held for sale is presented as other current asset at the lower of the carrying amount and the fair value less costs to sell. Any excess of the carrying amount over the fair value less the costs to sell is recognised as asset impairment loss. A fixed asset is derecognised on disposal or when no future economic benefits are expected from its use or disposal. The amount of proceeds on sale, transfer, retirement or damage of a fixed asset net of its carrying amount and related taxes and expenses is recognised in profit or loss for the current period. - 19 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (13) Construction in progress Construction in progress is measured at actual cost. Actual cost comprises construction costs, other costs necessary to bring the fixed assets ready for their intended use. Borrowing costs that are eligible for capitalization are capitalized before the assets are ready for their intended use. Construction in progress is transferred to fixed assets when the assets are ready for their intended use, and depreciation begins from the following month. (14) Intangible assets Intangible assets including land use rights and computer software are measured at actual cost. Fixed assets contributed by the State-owned shareholders at the incorporation of a limited company are initially recorded at the valuation amount recognized by the State-owned assets supervision and administration department. (a) Land use rights Land use rights are amortised on the straight-line basis over their estimated useful lives of 20 - 50 years. If the purchase costs of land use rights and attached buildings cannot be reliably allocated between the land use rights and buildings, for the purchase costs are recognised as fixed assets. (b) Computer software Computer software is amortised on a straight-line basis over periods of 3 - 5 years. (c) Periodical review of useful life and amortisation method For an intangible asset with a finite useful life, review and adjustment on useful life and amortization method are performed at each year-end. (15) Goodwill In the acquisition of minority interests of subsidiaries, the difference of the additional cost of investment and the Group’s share of the fair value of the identifiable net assets in subsidiaries is recognised as goodwill in the Group’s consolidated financial statements. Or goodwill is recognised at the excess of the cost of a business combination involving enterprises not under common control over the interest in the fair value of the acquirees’ identifiable net assets acquired in the business combination as at the acquisition date. - 20 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (16) Long-term prepaid expenses Long-term prepaid expenses include the expenditure for improvements to fixed assets under operating lease and other prepayments incurred but should be borne by the current and subsequent periods and amortised over more than one year. Long-term prepaid expenses are amortised on the straight-line basis over the expected beneficial period and are presented at cost net of accumulated amortisation. (17) Impairment of long-term assets Fixed assets, construction in progress, intangible assets with finite useful lives, investment properties measured using the cost model and long-term equity investments in subsidiaries, joint ventures and associates are tested for impairment if there is any indication that an asset may be impaired at the balance date. If the result of the impairment test indicates that the recoverable amount of the asset is less than its carrying amount, a provision for impairment and an impairment loss are recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and the present value of the future cash flows expected to be derived from the asset. A provision for asset Impairment is determined and recognised on an individual asset basis. If it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of the group of assets to which the asset belongs is determined. A group of assets is the smallest group of assets that is able to generate independent cash inflows. Separately recognised goodwill is tested at least annually for impairment, irrespective of whether there is any indication that the asset may be impaired. During the test, the carrying value of goodwill is allocated to the related asset group or groups of asset group which is expected to benefit from the synergies of the business combination. If the result of the test indicates that the recoverable amount of an asset group or groups of asset group including the goodwill allocated is lower than its carrying amount, the corresponding impairment loss is recognized. The impairment loss is first deducted from the carrying amount of goodwill allocated to the asset group or groups of asset group, and then deducted from the carrying amount of the remaining assets of the asset group or groups of asset group pro rata with goodwill. Once the asset impairment loss mentioned above is recognised, it is not allowed to be reversed for the value recovered in the subsequent periods. - 21 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (18) Borrowing costs The borrowing costs that are directly attributable to the acquisition and construction of a fixed asset that needs a substantially long period of time of acquisition and construction for its intended use commence to be capitalised and recorded as part of the cost of the asset when expenditures for the asset and borrowing costs have been incurred, and the activities relating to the acquisition and construction that are necessary to prepare the asset for its intended use have commenced. The capitalisation of borrowing costs ceases when the asset under acquisition or construction becomes ready for its intended use, the borrowing costs incurred thereafter are recognised in profit or loss for the current period. Capitalisation of borrowing costs is suspended during periods in which the acquisition or construction of a fixed asset is interrupted abnormally and the interruption lasts for more than 3 months, until the acquisition or construction is resumed. (19) Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred, and subsequently stated at amortised cots using the effective interest method. Borrowings of which the period is within one year (one year included) are classified as the short-term borrowings, and the others are classified as long-term borrowings. (20) Employee benefits Employee benefits mainly include wages or salaries, bonuses, allowances and subsidies, staff welfare, social security contributions, housing funds, labour union funds, employee education funds and other expenditures incurred in exchange for service rendered by employees. Employee benefits are recognised as a liability in the accounting period in which an employee has rendered service, and as costs of assets or expenses to whichever the employee service is attributable. The Group has established a pension scheme for employees which is a defined contribution plan. The Group pays contributions at 5.5% to 6% of employees’ salary into the plan. The Group has no further obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. The pension assets are hold by a trustee and are managed separately from the Group’s assets. - 22 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (21) Deferred tax assets and deferred tax liabilities Deferred tax assets and deferred tax liabilities are calculated and recognised based on the differences arising between the tax base of assets and liabilities and their carrying amount (temporary differences). Deferred tax asset is recognized for the deductible losses that can be carried forward to subsequent years for deduction of the taxable profit in in accordance with the tax law. No deferred tax liability is recognised for a temporary difference arising from the initial recognition of goodwill. No deferred tax asset or deferred tax liability is recognized for the temporary differences resulting from the initial recognition of assets or liabilities due to a transaction other than a business combination, which affects neither accounting profit nor taxable profit (or deductible loss) At the balance sheet date, deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax assets are only recognised for deductible temporary differences, deductible losses and tax credits to the extent that it is probable that taxable profit will be available in the future against which the deductible temporary differences, deductible losses and tax credits can be utilised. Deferred tax liabilities are recognised for temporary differences arising from investments in subsidiaries and associates, except where the Group is able to control the timing of the reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. When it is probable that the temporary differences arising from investments in subsidiaries and associates will be reversed in the foreseeable future and that the taxable profit will be available in the future against which the temporary differences can be utilized, the corresponding deferred tax assets are recognized. Deferred tax assets and liabilities are offset when: • The deferred taxes are relate to the same taxable entity and same taxation authority, and; • That taxable entity has a legally enforceable right to offset current tax assets against current tax liabilities. - 23 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (22) Revenue recognition The amount of revenue is determined in accordance with the fair value of the consideration received or receivable for services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, rebates, discounts and returns. Revenue is recognised when the economic benefits associated with the transaction will flow to the Group, the relevant revenue can be reliably measured and specific revenue recognition criteria have been met for each of the Group’s activities as described below: (a) Rendering of services The Group provides loading/unloading, transportation, logistic agency and other related harbor services to external customers. Revenue arising from provision of services is recognised when services are completed and the amount of revenue and cost can be reliably measured (b) Transfer of asset use rights Interest income is recognised on a time-proportion basis using the effective interest method. Lease income from an operating lease is recognised on a straight-line basis over the period of the lease. (23) Deferred revenue Deferred revenue is the advance from customers which should be amortised on a straight-line basis over the expected beneficial period of 20 years and presented at cost net of accumulated amortisation. (24) Leases A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. An operating lease is a lease other than a finance lease. Lease payments under an operating lease are recognised on a straight-line basis over the period of the lease, and are either capitalized as part of the cost of related assets, or charged as an expense for the current period. (25) Profit distribution Proposed profit distribution is recognised as a liability in the period in which it is approved by the shareholders’ meeting. - 24 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (26) Preparation of consolidated financial statements The consolidated financial statements comprise the financial statements of the Company and its subsidiaries. Subsidiaries are fully consolidated from the date on which the Group obtains control and are de-consolidated from the date that such control ceases. For a subsidiary acquired in a business combination involving enterprises under common control, it is included in the consolidated financial statements from the date when it, together with the Company, came under common control of the ultimate controlling party. The portion of the net profits realized before the combination date is presented separately in the consolidated income statement. The financial statements of subsidiaries are adjusted in accordance with the accounting policies and accounting period of the Company during the preparation of the consolidated financial statements, where the accounting policies and the accounting periods are inconsistent between the Company and subsidiaries. For subsidiaries acquired from a business combination involving enterprises not under common control, the individual financial statements of the subsidiaries are adjusted based on the fair value of the identifiable net assets at the acquisition date. All significant inter-group balances, transactions and unrealised profits are eliminated in the consolidated financial statements. The portion of a subsidiary’s equity and the portion of a subsidiary’s net profits and losses for the period not held by the Company are recognized as minority interests and presented separately in the consolidated balance sheet within equity and net profits respectively. (27) Segment reporting A business segment is a distinguishable component of the Group that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of the Group that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments. The Group identifies business segments as the primary reporting format while geographical segments as the secondary reporting format respectively. - 25 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 4 Summary of significant accounting policies and accounting estimates (continued) (28) Determination of fair value of financial instruments The fair value of a financial instrument that is traded in an active market is determined at the quoted price in the active market. The fair value of a financial instrument for which the market is not active is determined by using a valuation technique. Valuation techniques include using recent market transactions between knowledgeable, willing parties, reference to the current fair value of another instrument that is substantially the same with this instrument, and discounted cash flow analysis. When a valuation technique is used to establish the fair value of a financial instrument, use market data as much as possible and avoid use of data that is particularly related to the Group. (29) Critical accounting estimates and judgments The Group continually evaluates the critical accounting estimates and key judgements applied based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Except those prescribed in (note 7 (11)), the Group has no critical accounting estimates and key assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. 5 Taxation The types and rates of taxes applicable to the Group during the current year are set out below. Type Tax rate Taxable basis Enterprise income tax 16.5%, 18% Taxable income and 25% Value added tax (“VAT”) 17% and 6% Taxable value added amount (Tax payable is calculated using the taxable sales amount multiplied by the effective tax rate less deductible VAT input of current period) Business tax 3% Taxable loading/unloading and transportation income 5% Taxable warehousing , logistic agency and rental income On 16 March 2007, the National People’s Congress approved the Corporate Income Tax (“CIT”)Law of the People’s Republic of China (the “new CIT Law”), which is effective from 1 January 2008. - 26 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 5 Taxation (continued) The applicable enterprise income tax rate for the Company and the subsidiaries located in Shenzhen Special Economic Zone had been 15%. Under the new CIT Law, the CIT income tax rate applicable to the Company and these subsidiaries will increase gradually to 25% within 5 years from 2008 to 2012. The applicable income tax rate for 2008 is 18%. The applicable enterprise income tax rate for the subsidiaries located in Dongguan city is 25%. Chiwan Wharf Holdings (H.K.) Limited (the “WHK”) and Chiwan Shipping (H.K.) Company Limited are subject to Hong Kong CIT income tax rate at 16.5% (2007: 17.5%). As at 31 December 2008, several subsidiaries of the Company are still in the tax holiday of “5 year exemption and 5 year half reduction”. The details are set out below. (a) The profit derived from berth #11 of Chiwan Container Terminal Company Limited (“CCT”) is entitled to full exemption from income tax for five years commencing from its first profit making year and a 50% exemption for the following five years. 2008 is the eighth profit-making year of berth #11, CIT has been provided at a rate of 9% (2007: 7.5%). (b) The profit derived from berth #12 of CCT is entitled to full exemption from income tax for five years commencing from its first profit making year and a 50% exemption for the following five years. 2008 is the fifth profit-making year of berth #12, no CIT has been provided (2007: Nil). (c) The profit derived from berth #13 of CCT is entitled to full exemption from income tax for five years commencing from its first profit making year and a 50% exemption for the following five years when certain requirement met. 2008 is the forth profit-making year of berth #13, but is the second year for it to meet the requirement of related tax circular, no enterprise income tax has been provided (2007: Nil). - 27 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 6 Subsidiaries (1) Subsidiaries of the Company acquired under common control Registered capital (in ten thousand Yuan Place of unless otherwise Nature of business and % interest held Name of subsidiaries registration stated) principal activities by the Company Direct Indirect Shenzhen Chiwan Harbour Container Shenzhen, 10,820 Container handling and 60% 40% Company Limited PRC other port services Shenzhen Chiwan Transportation Shenzhen, 1500 container transportation, 75% 25% Company Limited PRC vehicle and port machinery maintenance Chiwan Container Terminal Company Shenzhen, USD95,300K Container handling and 51% 4% Limited PRC other port services Shenzhen Chiwan Shipping and Shenzhen, 600 Cargo shipping 60% 40% Transportation Company Limited PRC Chiwan Shipping (H.K.) Company Hong Kong, HKD800K Shipping agency service - 100% Limited PRC The percentage of voting power held by the Group in each subsidiary is same with the percentage of interest. All above subsidiaries and the Company had been under common control by Nanshan Group before and after the acquisition. - 28 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 6 Subsidiaries (continued) (2) Subsidiaries of the Company rather than acquired under common control Registered capital (in ten thousand Yuan Place of unless otherwise Nature of business and % interest held Name of subsidiaries registration stated) principal activities by the Company Shenzhen Chiwan International Shenzhen, 500 Shipping agency service 100% - Freight Agency Company Limited PRC Shenzhen Chiwan Terminal Shenzhen, 5,000 Port services 95% 5% Company Limited PRC Shenzhen Chiwan Trains-Grains Shenzhen, 4,500 Warehousing of grains 75% 25% Terminal Company Limited PRC Chiwan Wharf Holdings (H.K.) Hong Kong HKD1,000K Shipping agency service 100% - Limited SAR, PRC Shenzhen Chiwan Oriental Logistics Shenzhen, 1,000 Warehousing, cargo 50% 50% Company Limited PRC transportation and delivering Dongguan Chiwan Wharf Company Dongguan, 26,130 Port services, 25% 75% Limited PRC warehousing and other logistic services Dongguan Chiwan Terminal Company Dongguan, 30,000 Port services, 25% 75% Limited (a) PRC warehousing and other logistic services Grossalan Investments Limited British Virgin USD 1 Investment holding - 100% Islands The percentage of voting power held by the Group in each subsidiary is same with the percentage of interest. All above subsidiaries are consolidated by the Group. (a) In March 2008, as approved by Dongguan Bureau of Foreign Trade & Economic Cooperation with document DWJMZ(2008)714, Dongguan Chiwan Terminal Company Limited (the “DGCHT”) was established in Dongguan city by the Company and WHK, with registered capital of RMB 300,000,000. As at 31 December 2008, the paid-in capital was RMB 90,000,000 which has been verified by a CPA firm and the remaining capital is to be paid in next two years according to the Articles of Association of DGCHT. - 29 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (1) Cash at bank and at hand 31 December 2008 31 December 2007 Cash on hand 17,859 14,175 Cash at bank 640,303,328 780,731,023 Other cash balances 1,154,723 842,336 641,475,910 781,587,534 The foreign currency portfolio in cash and bank balances is as follows: 31 December 2008 31 December 2007 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent USD 3,065,767 6.83 20,939,189 5,751,162 7.30 41,983,483 HKD 132,860,322 0.88 116,917,083 93,174,853 0.94 87,584,362 137,856,272 129,567,845 (2) Notes receivable 31 December 2008 31 December 2007 Bank acceptance notes 7,846,264 1,167,600 (3) Accounts receivable and other receivables (a) Accounts receivable 31 December 2007 31 December 2008 Accounts receivable 217,362,248 148,452,206 Current year Current year additions reversals Less: provision for bad debts (357,058) (3,261,083) 841,815 (2,776,326) 217,005,190 145,675,880 - 30 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (3) Accounts receivable and other receivables (continued) (a) Accounts receivable (continued) The ageing of accounts receivable and related provisions for bad debts are analysed below: 31 December 2008 31 December 2007 % of total Provision for % of total Provision for Amount balance bad debts Amount balance bad debts Within 1 year 148,077,829 99.7% (2,519,048) 217,005,306 99.9% (175,940) 1 to 2 years 288,525 0.2% (205,767) 82,374 - (8,237) 2 to 3 years - - - 64,425 - (19,328) Over 3 year 85,852 0.1% (51,511) 210,143 0.1% (153,553) 148,452,206 100% (2,776,326) 217,362,248 100% (357,058) Accounts receivable are analysed by customer’s categories as follows: 31 December 2008 31 December 2007 Provision % of total for bad % of % of total Provision for % of Amount balance debts balance Amount balance bad debts balance Receivables that are individually significant 94,253,056 63.5% - - 152,252,344 70.0% - - Others 54,199,150 36.5% (2,776,326) 5.1% 65,109,904 30.0% (357,058) 0.5% 148,452,206 100% (2,776,326) 1.9% 217,362,248 100% (357,058) 0.2% The management classified the five largest accounts receivable as “receivables that are individually significant”. All these accounts receivable are aged within one year and the management is of view that no provision should be made for these balances. As at 31 December 2008, amounts of RMB 2,715,620 due by a shipping company was included in accounts aged within one year. That shipping company was in dormant and involved in several litigations. Its bank accounts have also been controlled. The management considered the recoverability of such accounts receivable is remote and therefore 100% provision for bad debt was provided for them. As At 31 December 2008, no balances included in above accounts receivable are due from the shareholders of the Company who hold over 5% shares with voting rights (31 December 2007:Nil). As at 31 December 2008, the Group’s five largest accounts receivable balances all aged within one year and their aggregate amount was RMB 94,253,056 (31 December 2007: RMB 152,252,344), being 64% (31 December 2007: 70%) of the total accounts receivable balances. - 31 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (3) Accounts receivable and other receivables (continued) (a) Accounts receivable (continued) The following balances are denominated in foreign currencies: 31 December 2008 31 December 2007 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent USD 306,945 6.83 2,096,434 6,048,599 7.30 44,154,773 HKD 1,795,127 0.88 1,579,712 104,335,367 0.94 98,075,245 3,676,146 142,230,018 (b) Other receivables 31 December 2007 31 December 2008 Amount due from third parties 8,369,186 7,424,116 Staff advances 1,767,477 2,493,218 Deposits 967,056 2,240,832 Others 1,173,795 59,921 12,277,514 12,218,087 Current year Current year additions reversals Less: Provision for bad debts (2,459,723) (47,744) 470,079 (2,037,388) 9,817,791 10,180,699 The aging of other receivable and the related bad debts provision are analysed below: 31 December 2008 31 December 2007 % of total Provision for % of total Provision for Amount balance bad debts Amount balance bad debts Within 1 year 8,053,015 65.9% - 9,139,149 74.4% - 1 to 2 years 1,667,423 13.6% (15,190) 927,349 7.6% (481,487) 2 to 3 years 874,741 7.2% (567,368) 193,933 1.6% (41,448) Over 3 years 1,622,908 13.3% (1,454,830) 2,017,083 16.4% (1,936,788) 12,218,087 100% (2,037,388) 12,277,514 100% (2,459,723) - 32 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (3) Accounts receivable and other receivables (continued) (b) Other receivables (continued) Other receivables are analysed by customer’s categories as follows: 31 December 2008 31 December 2007 Provision % of total for bad % of % of total Provision for % of Amount balance debts balance Amount balance bad debts balance Receivables that are individually significant 4,935,668 40.4% (1,177,838) 23.9% 5,625,681 45.8% (1,551,780) 27.6% Others 7,282,419 59.6% (859,550) 11.8% 6,651,833 54.2% (907,943) 13.6% 12,218,087 100% (2,037,388) 16.7% 12,277,514 100% (2,459,723) 20.0% The management classified the five largest other receivables as “receivables that are individually significant”. As at 31 December 2008, the Group did not have any balances which were due from parties holding having 5% or above shares in the Company (31 December 2007: Nil). As at 31 December 2008, the Group’s five largest other receivable balances are all aged within one year, and their aggregate amount is RMB 4,935,668 (31 December 2007: RMB 5,625,681), being 40% (31 December 2007: 46%) of the total accounts receivable balances. The following balances are denominated in foreign currencies: 31 December 2008 31 December 2007 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent USD 13,616 6.83 92,997 23,360 7.30 170,528 HKD 77,476 0.88 68,179 523,941 0.94 492,505 161,176 663,033 - 33 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (4) Advance to suppliers 31 December 2008 31 December 2007 % of total % of total Aging Amount balance Amount balance Within 1 year 10,336,323 100% 6,272,274 100% As at 31 December 2008, the Group did not have any balances which were due to parties having 5% or above shareholdings in the Company (31 December 2007: Nil). No balances of advance to suppliers were denominated in foreign currencies (31 December 2007: Nil). (5) Inventories 31 December 2008 31 December 2007 Cost - Spare parts 28,730,787 24,336,003 Fuel 1,759,915 2,956,676 Low cost consumables 73,669 92,795 30,564,371 27,385,474 Less: Provision for declines in the value of inventories - Spare parts (2,756,073) (2,756,073) 27,808,298 24,629,401 - 34 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (6) Hedging instrument 31 December 2008 31 December 2007 Foreign currency forward contract - 39,459,166 To hedge the potential foreign currency risk, CCT, a subsidiary of the Company, entered into a Foreign Currency Forward Contract (the “Forward Contract”) with Shenzhen Shekou branch of Bank of China (the “SKBOC”) in 2007. According to the Forward Contract, CCT exchanged HK 800,000,000 into RMB with SKBOC during September 2007 to August 2008 at agreed exchange rates. Management considered the Forward Contract is highly effective for hedging purpose according to No. 24 “Hedging”, the Accounting Standards for Business Enterprises. Up to 31 December 2008, the amounts of changes in the fair value of the Forward Contract accumulated in equity have been recycled to the income statement (Note 7(36)). (7) Available-for-sale financial assets 31 December Current year fair 31 December 2007 value movement 2008 Available-for-sale equity instruments 10,520,000 (5,080,000) 5,440,000 Available-for-sale financial asset represented 1,000,000 PRC legal person shares of Jiangsu Expressway (the “Jiangsu Expressway”) held by the Company. As at 31 December 2008, the market value of the stocks in Shanghai Stock Exchange was RMB 5,440,000. - 35 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated and the Company’s financial statements (continued) (8) Long term receivables 31 December Effect of foreign 31 December 2007 exchange rate 2008 Media Port Investments Limited 195,834,378 (11,795,237) 184,039,141 On 30 September 2002, China Merchants Holdings (International) Company Limited (the “CMHI”, a listed company in Hong Kong) and Shenzhen South Oil (Group) Company Limited (the “SSOG”) entered into an agreement called the “Agreement on Cooperation and Development of Mawan Port” (the “Development Agreement”) to incorporate three joint ventures to construct and operate the berth 0#, 5#, 6#, 7# and 8# in Mawan Port. According to the Development Agreement, CMHI and the Group will incorporate an associated company (Note 7 (9)) Media Port Investments Limited (the “MPIL”) first with equal percentage of equity held respectively. MPIL then incorporates the abovementioned three joint ventures together with SSOG, at 60% and 40% equity interest therein respectively. The total investment by the shareholders in these three Mawan joint ventures amounts to RMB 1,200,000,000. In 2003, according to the arrangement under the Development Agreement, WHK, a subsidiary of the Company, provided an interest free shareholder’s loan of HKD 169,815,000 to MPIL, and MPIL then injected the amount to the three Mawan companies as their paid-in capital. In 2006, the interest free shareholder’s loan was increased by HKD 39,320,388 and the increment was paid to the three companies by MPIL as paid-in capital. As at 31 December 2008, the RMB equivalent of the shareholder’s loan amounted to RMB 184,039,141 (2007: RMB 195,834,378). The above long-term receivable is part of the substantial investment to associates and the exchange differences arising in current year was recorded in “Equity – Translation differences of foreign currency financial statements”. The total investments by exceeding these three companies over their paid-in capital have been financed by bank loans. As at 31 December 2008, the total paid-in capital of these three Mawan companies was RMB 735,000,000. The shareholder’s loans to MPIL are unsecured, interest-free and have no fixed term of repayment. The Group has confirmed that it will not call for repayment of the loans within one year from balance sheet date. - 36 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (9) Long-term equity investments 31 December 2008 31 December 2007 Associates (a) 268,934,883 322,062,363 Other long-term equity investments (b) 17,037,500 17,037,500 285,972,383 339,099,863 Less: Provision for impairment of long-term equity investments (c) (3,128,300) (3,121,500) 282,844,083 335,978,363 As at 31 December 2008, the long-term equity investments of the Group were not subject to restriction on disposal or remittance of return on investments. (a) Associates Investment in associates is set out below: Original Additional Cash investment 31 December investment in Share of profit dividends by 31 December cost 2007 current year of associates associates 2008 Shenzhen Cyber-harbour Network Co., Ltd 1,875,000 13,324,265 - 3,800,265 (3,750,000) 13,374,530 China Merchants Maritime & Logistics (Shenzhen) Ltd. * 120,000,000 109,014,264 40,000,000 (7,482,017) - 141,532,247 MPIL** 139,932 199,723,834 - 94,008,796 (179,704,524) 114,028,106 122,014,932 322,062,363 40,000,000 90,327,044 (183,454,524) 268,934,883 * According to a resolution of the Board of Directors of the Company dated 20 May 2008, the investment in China Merchants Maritime & Logistics (Shenzhen) Ltd. (the “CMML”) is to be increased by RMB 40,000,000, with no change in the percentage of equity held in CMML. Up to 31 December 2008, the increased capital has been injected. ** The Company held 50% equity in MPIL, but has no control over it. Thus MPIL was treated as an associate of the Company. As stated in Note 7(8), the Company held 30% equity of the three Mawan Companies through MPIL. - 37 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (9) Long-term equity investments (continued) (a) Associates (continued) The particular of the associates are set out as below. For the year ended 31 December 2008 31 December 2008 Place of Nature of Registered interest voting right Net registration business capital held held Total assets Total liabilities Revenue profit/(loss) Shenzhen Cyber-harbour Shenzhen, Computer net RMB Network Co., Ltd PRC services 5 million 37.5% 37.5% 46,071,935 10,406,522 45,433,643 10,134,041 China Merchants Maritime & Logistics Shenzhen, RMB 400 (Shenzhen) Ltd. PRC Warehousing million 40% 40% 1,162,609,367 808,778,749 111,111,400 (18,705,042) British Virgin MPIL Islands Investing USD 10 50% 50% HKD 481,155,763 HKD 418,320,699 HKD 143,765,952 HKD 144,797,511 All above summary financial information of associates are extracted from their statutory financial statements or management accounts. The Group has applied the accounting policy of the Group to the results of the associates in equity accounting of the share of results of the associates. (b) Other long-term equity investment Name of investees 31 December 2007 & 31 December 2008 China Ocean Shipping Agency (Shenzhen) Company Limited 13,510,000 Shenzhen Petro-chemical Industry (Group) Company Limited. 3,500,000 Guangdong Guang Jian Group Company Limited 27,500 17,037,500 (c) Provision for impairment of long-term equity investments 31 December Movement in 31 December 2007 current year 2008 Other long-term equity investment -Shenzhen Petro-chemical Industry (Group) Company Limited (3,117,800) - (3,117,800) -Guangdong Guang Jian Group Company Limited (3,700) (6,800) (10,500) (3,121,500) (6,800) (3,128,300) - 38 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (10) Investment property Buildings Land use rights Total Cost 31 December 2007 12,513,785 31,508,965 44,022,750 Current year additions 279,528 - 279,528 31 December 2008 12,793,313 31,508,965 44,302,278 Accumulative depreciation/ amortisation 31 December 2007 3,154,761 11,203,746 14,358,507 Current year depreciation 281,053 613,765 894,818 31 December 2008 3,435,814 11,817,511 15,253,325 Net book value 31 December 2008 9,357,499 19,691,454 29,048,953 31 December 2007 9,359,024 20,305,219 29,664,243 (11) Fixed assets warehouses, motor vehicles, container yards machinery and cargo ships other Harbor facilities and buildings equipments and tugboats equipments Total Cost 31 December 2007 924,219,095 506,404,699 1,658,133,738 272,560,713 74,786,175 3,436,104,420 Transfer from construction in progress 19,871,652 495,882 89,543,863 33,593,534 3,704,557 147,209,488 Other current year additions 474,820 158,676 4,229,110 20,095,383 1,532,606 26,490,595 Current year disposals - (8,290,904) (7,145,820) (13,184,322) (581,039) (29,202,085) 31 December 2008 944,565,567 498,768,353 1,744,760,891 313,065,308 79,442,299 3,580,602,418 Accumulated depreciation 31 December 2007 163,721,630 151,668,174 631,816,107 114,031,708 41,059,203 1,102,296,822 Current year depreciation 23,406,498 14,500,820 105,901,141 25,273,021 11,380,287 180,461,767 Current year disposals - (7,168,612) (4,991,176) (12,212,973) (517,486) (24,890,247) 31 December 2008 187,128,128 159,000,382 732,726,072 127,091,756 51,922,004 1,257,868,342 Provision for impairment loss 31 December 2007 and 31 December 2008(a) - 60,695,381 - 157,335 - 60,852,716 Net book value 31 December 2008 757,437,439 279,072,590 1,012,034,819 185,816,217 27,520,295 2,261,881,360 31 December 2007 760,497,465 294,041,144 1,026,317,631 158,371,670 33,726,972 2,272,954,882 - 39 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (11) Fixed assets (continued) (a) In 2007, the Group planned to relocate part of the general cargo business and facilities to Dongguan Machong Port, and made certain impairment provision of certain demolition for related warehouses, container yards and buildings accordingly. As at 31 December 2008, the management of the Group considered that impairment provision against the fixed assets were sufficient. As at 31 December 2008, buildings, machinery and equipment with a net book value of approximately RMB 4,957,525 (Cost: RMB 35,164,024) were idle. At 31 December 2008, the buildings and equipments with carrying amounts of approximately RMB 35,399,058 and cost of RMB 353,990,575 were fully depreciated but still in use (31 December 2007: carrying amounts: RMB 21,878,932; cost: RMB 218,789,323). As at 31 December 2008, ownership certificates of buildings (“Buildings ownership Certificates”) for certain buildings of the Group with carrying amounts of approximately RMB 28,878,305 (cost: RMB 53,604,354) had not yet been obtained by the Group because the official certificates of the lands on which these buildings located had not been obtained (Note 7(13)). In 2008, depreciation expenses of RMB 169,878,866 (2007: RMB 179,216,641) and RMB 10,582,901 (2007: RMB 10,463,758) were charged to cost of revenue and general and administrative expenses, respectively. - 40 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (12) Construction in progress Transfer to fixed 31 December Current year assets during the Other Name of projects Budget 2007 additions current year reduction Land formation and dredging projects for berth 2# - 3# at Machong Port 199,680,000 195,465,901 49,153,947 - (77,390,715) Berth 2# and 3#, Machong Port 147,695,212 7,420,300 96,914,031 - - MQ2535/4025 RTGs 36,900,000 - 13,500,000 - - Berth 4# - 5#, Machong Port 9,006,171 - 3,613,592 - - Two quay cranes 91,304,000 46,112,657 41,585,994 (87,698,651) - Reconstruction of stacking yard for berth 7# - 8# 20,430,000 19,609,860 261,792 (19,871,652) - Tugboat “Chiwan Tugboat 1# “ 35,000,000 7,123,517 26,006,055 (33,129,572) - Wireless network 2,366,557 2,007,584 358,973 (2,366,557) - Others - 10,785,993 15,621,866 (4,143,056) (9,593,795) 288,525,812 247,016,250 (147,209,488) (86,984,510) Borrowing costs for the related construction for berth 2# - 5# at Machong Port, purchase of the two quay cranes a with total amount of RMB 5,140,042 were capitalized during the year at an average interest rate of 5.02% - 6.72% - 41 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (13) Intangible assets 31 December Current year Current year Original cost 2007 additions reductions Land use rights – prepaid under lease (a) 1,419,159,549 1,090,863,843 - - Land use rights– purchased (b) 19,343,189 44,882,529 19,343,189 (44,882,529) Computer software 18,288,657 2,868,250 1,264,430 - 1,456,791,395 1,138,614,622 20,607,619 (44,882,529) As at 31 December 2008, there was no need to make any impairment provision against the intangible assets of t - 42 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (13) Intangible assets (continued) The land use rights of the Group were mainly composed of: (a) Group has leased from Nanshan Group several plots of land with a total area of 752,699 sq. meters within Chiwan port for a lease term of 20 - 50 years with up-front payments of RMB 684,453,783 made. The lands were injected by Shenzhen Investment Holding Corporation in 1982 as part of the consideration in acquiring the equity interests of Nanshan Group. As the PRC laws prevailing at that time did not provide for a mechanism for the issuance of official certificates of the land use rights, Nanshan Group has not obtained the land use right certificates of the leased land so far. In June 2003 and September 2004, CCT entered into a land use agreement with Nanshan Group and leased two plots of land, one with an area of 117,827.2 square meters for 40.5 years and the other with an area of 171,089.478 square meters for 39 years, at the consideration of RMB 271,002,558 and RMB 444,832,643 respectively. Also no official certificates for such lands were obtained by Nanshan Group. Nanshan Group issued irrevocable and unconditional letters of indemnity to the Group in March 2001, June 2003 and September 2004, undertaking to indemnify the Group against any losses arising from or in connection with the leased land use rights. The directors of the Company therefore considered there was no impairment risk nor any contingent liabilities related to the above assets. In December 2000, the Company together with CMHI acquired a plot of land in Mawan port berth 8# with an area of 106,990 square meters through a bid. The Company owned 51% of interest in the land at a cost of RMB 52,188,988. The related land use right transfer agreement was entered into with the Land Bureau by the Company on behalf of both the Company and CMHI. According to the Development agreement described in Note 7(8), the land use right should be transferred to one of the three Mawan companies established under the terms of the Development agreement within five years starting 2002. Since the end of 2002, the land use right has been available for use by SMT, one of the three Mawan companies, free of charge. On 8 January 2008, the Company entered into a contract regarding the transfer of land use right of berth 8# in Mawan Port (the “Transfer Agreement”). According to the Transfer Agreement, the Company agreed to sell the land use right of berth 8# in Mawan Port together with the construction thereon at a consideration of RMB 99,508,500, determined at its purchase cost (including original purchase price of RMB 94,770,000, commission of RMB 2,843,100 and handling charge of RMB 1,895,400, of which the Company born 51% and the other bidding partner CMHI born 49%) to SMT. On 12 November 2008, pursuant to an arbitration of Shenzhen Arbitration Commission [2008]SZTZ37#, SMT and the Company confirmed the enforceability of the Transfer Agreement and then completed the transfer of the land use right accordingly. - 43 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (14) Goodwill 31 December 2008 & 31 December 2007 CCT 10,858,898 The goodwill arose from the acquisition of the minority interests in CCT, being the difference of the additional cost of investment and the Group’s share of the fair value of the identifiable net assets in CCT. Goodwill is tested for impairment annually. As at 31 December 2008, the recoverable amount of the asset group with goodwill was higher than its carrying value, the Group therefore assessed that there was no need for any impairment against the goodwill. (15) Long-term prepaid expenses 31 December 2008 31 December 2007 Construction expenditure of Tonggu sea-route (a) 62,715,428 61,944,592 Improvement to fixed assets under operating leases 2,938,364 248,786 Golf membership 700,164 623,256 Building decoration 365,675 841,373 Others 905,660 1,766,921 67,625,291 65,424,928 In 2007, the Shenzhen municipal government commenced the construction work of the public sea route connecting Tonggu sea route, Shekou port area, Chiwan port area, Mawan prot area, Qianhaiwan port area and Dachanwan port area (“Tonggu Sea Route”). As required by a decision by the government, 60% of construction expenditure would be allocated to the port operators while the remaing 40% born by the government. The port operators in Western Shenzhen port areas were allocated 35% of the total expenditure, and subsequently agreed the portion to each operator, taking into accounts of the factors including the function, waterfront length, berthing ship of each porter etc. The total expenditure of RMB 64,560,000 were allocated to the Group and accounted for as Long term prepaid expenses, being amortized on a straight line basis over 35 years which is the expected useful live of Tonggu Sea Route starting from 2008 when the Tonggu Sea Route was ready for use. - 44 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (16) Long-term prepayment In March 2006, the Company entered into the agreement of “Frame contract for cooperation on usage of quay and land for berth 2# & 5# at Machong Port in Dongguan” with Dongguan Humen Port Administration Commission to purchase a land with an area of 800,000 square meters and area of water with depth of 700 meters from the front of terminal, together with the use right of 1,200 meters coast line, for berth 2# to berth 5# in Dongguan Machong Port at a consideration of RMB 260,000,000. Up to 31 December 2008, the Company has paid the first three instalments of the consideration. As parts of land and water area have not been made available for use by the Company, the relevant payments were therefore recognized as Long-term prepayment. (17) Provision for impairment of assets 31 December Current year Current year reduction 31 December 2007 addition Reverse Utilized 2008 Bad debt provisions (Note 7(3)) 2,816,781 3,308,827 (20,000) (1,291,894) 4,813,714 Provision for declines in the value of inventories (Note 7(5)) 2,756,073 - - - 2,756,073 Provision for impairment of long-term equity investments (Note 7(9)) 3,121,500 6,800 - - 3,128,300 Provision for impairment of fixed assets (Note 7(11)) 60,852,716 - - - 60,852,716 69,547,070 3,315,627 (20,000) (1,291,894) 71,550,803 (18) Short-term borrowings 31 December 2008 31 December 2007 Bank loans - unsecured 829,840,000 1,221,310,000 The weighted average interest rate of the short-term borrowings in 2008 was 4.27% per annum (2007: 4.79%). As at 31 December 2008, the balance of short-term bank loan was HKD 943,000,000. (19) Notes payable 31 December 2008 31 December 2007 Bank acceptance notes 8,681,000 6,687,150 - 45 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (20) Accounts payable As at 31 December 2008, except for the amount due to Nanshan Group (Note 9(4)), the Group did not have any other balances which were due to parties having 5% or above shareholdings in the Company. As at 31 December 2008, accounts payable with aging over 1 year amounting to RMB 3,761,241 (31 December 2007: RMB 9,569,501) were mainly payable for construction and project management services. As the related construction projects have not been completed yet, the accounts have not been settled. The following balances are denominated in foreign currency: 31 December 2008 31 December 2007 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent USD 262,624 6.83 1,793,722 818 7.30 5,971 HKD 91,365 0.88 80,401 8,670 0.94 8,150 1,874,123 14,121 (21) Advances from customers As at 31 December 2008, the advances from customers all aged within 1 year, and the Group did not have any balances which were due to parties having 5% or above shareholdings in the Company. (22) Employee benefits payable 31 December Current year Current year 31 December 2007 additions reductions 2008 Wages and salaries, bonuses, allowances and subsidies 43,668,190 170,003,475 (180,439,213) 33,232,452 Staff welfare 1,144,711 17,175,433 (18,320,144) - Social security contributions - 17,644,023 (17,644,000) 23 Defined contribution plan - 6,614,666 (6,612,726) 1,940 Housing funds - 12,280,902 (12,280,902) - Labor union and employee education funds 3,509,707 7,158,116 (4,620,829) 6,046,994 Others 120 26,722 (21,492) 5,350 48,322,728 230,903,337 (239,939,306) 39,286,759 On 3 June 2008, the Group participated a group defined contribution plan of Nanshan Group approved by Shenzhen government. The above pension contributions were paid into the plan through Nanshan Group. - 46 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (23) Dividends payable 31 December 2008 31 December 2007 International Enterprise Co., Ltd. 150,758,786 164,316,018 Hidoney Developments Co., Ltd. 120,607,029 131,452,815 271,365,815 295,768,833 As at 31 December 2008, the balances were payable to the minority shareholders of CCT, one of subsidiary of the companies, being dividends declare for 2008. (24) Taxes payable 31 December 2008 31 December 2007 Enterprise income tax payable 19,652,512 19,863,217 Withholding tax payable 3,356,435 - Value-added-tax payable 205,464 268,528 Business tax payable 3,640,655 5,056,795 Others 1,030,365 681,934 27,885,431 25,870,474 (25) Other payables 31 December 2008 31 December 2007 Refunds of Harbor Construction Fee (a) 47,489,659 48,170,579 Security expense payable 11,491,195 6,882,789 Relocation compensation for subway (b) 10,616,709 - Temporary receipts 9,272,222 17,023,731 Temporary receipts of fixed assets disposal 7,670,000 - Deposits received 2,682,085 3,567,477 Payable for security system 2,424,860 2,424,860 Audit fee payable 1,650,000 1,350,000 Rental payable 1,490,000 1,490,000 Due to employees 1,469,110 814,394 Service fees 392,432 3,582,383 Due to Nanshan Group (Note 9(4)) 7,215 200,006,183 Others 7,980,333 8,643,590 104,635,820 293,955,986 (a) The amount was refunds of Port Construction Fee received by the Company and CCT from Shenzhen Communication Bureau. According to the related circular “Port construction fee supervising method“ issued by the Ministry of Finance, the use of the refunds should be controlled strictly and separately for port facility construction. - 47 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (25) Other payables (continued) (b) The amount was unutilised compensation awarded by Shenzhen Nanshan District government through Nanshan Group pursuant to document SNDTCZ[2008]008# for stacking yards relocation due to municipal railway construction. The balances will be used to offset the expenses occurred in the future stacking yards relocation. As at 31 December 2008, except for the amount due to Nanshan Group, the Group did not have any other payables which were due to parties having 5% or above shareholdings in the Company. As at 31 December 2008, other payables with aging over 1 year amounting to RMB 2,424,860 (2007: RMB 5,087,118) are mainly payables for certain security system. As the system had not been inspected and accepted, the amounts have not been settled. The following balances are dominated in foreign currency: 31 December 2008 31 December 2007 Original Exchange RMB Original Exchange RMB currency rate equivalent currency rate equivalent USD 25,835 6.83 176,453 67,525 7.30 492,933 HKD 197,270 0.88 173,598 1,257,389 0.94 1,181,946 350,051 1,674,879 (26) Deferred revenue 31 December 2007 - the portion of current liabilities 5,292,500 - the portion of non-current liabilities 79,828,541 85,121,041 Current year reduction (10,432,147) Less: the portion of current liabilities (4,951,750) 31 December 2008 69,737,144 Residual useful years 15-16 years Deferred revenue is amortised on a straight-line basis over the expected beneficial period of 20 years and is presented at cost net of accumulated amortisation. - 48 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (27) Long-term borrowings 31 December 2008 31 December 2007 Bank borrowings(a) - unsecured 404,800,000 46,820,000 Others (Note 9(3)) - 226,608,800 404,800,000 273,428,800 Less: current portion of long-term borrowings - (273,428,800) 404,800,000 - Long-term borrowings are analysed by banks as follows: 31 December 2008 31 December 2007 Nanyang Commercial Bank 404,800,000 - CitiBank - 46,820,000 404,800,000 46,820,000 Long-term borrowings are repayable as follows: 31 December 2008 31 December 2007 Within 1 year - 273,428,800 1 to 2 years 404,800,000 - 404,800,000 273,428,800 The weighted average interest rate of the long-term borrowings in 2008 was 4.99% per annum (2007: 5.05%) (a) Bank borrowings - unsecured As at the 31 December 2008 included, the balance of bank borrowings was HKD460,000,000 from Nanyang Commercial bank, and was repayable within 2 years. Bank borrowing HKD230,000,000 by Chiwan Wharf Holding (H.K.) Limited was secured by a standby letter of credit of HKD 230,000,000 issuer by China Minsheng Bank Corp. Ltd.; on the application by the Company was guaranted 55% of bank borrowing of HKD 80,000,000 (HKD 44,000,000) obtained by CCT was guaranted by the Company. - 49 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (27) Long-term borrowings (continued) (b) Undrawn committed borrowing facilities The Group has the following undrawn committed borrowing facilities as at 31 December 2008: Expiring within 1 year 1,877,479,000 Expiring in 1 to 2 years 1,650,000,000 Expiring in 2 to 3 years 406,400,000 Expiring more than 3 years - 3,933,879,000 The undrawn committed borrowing facilities mentioned above would be used for the commitment capital expenditure (Note 10). As most of the bank borrowings as at 31 December 2008 were repayable within the next 12 months, the Group had net current liabilities of RMB506,891,275. The directors of the Company are confident that the Group can roll over the current borrowings and has sufficient bank borrowing facilities and other financial resources to repay bank borrowings when they fall due. Therefore, the financial statements of the Group are prepared on going concern basis. (28) Deferred tax assets and deferred tax liabilities (a) Deferred tax assets 31 December 2008 31 December 2007 Deductible Deductible Deferred tax temporary Deferred tax temporary assets difference assets difference Provision for asset impairment 15,011,383 65,509,095 12,820,915 60,695,381 Annual bonus and long-term bonus for motivation 5,679,957 32,354,102 6,651,488 47,963,969 Depreciation of fixed assets 8,343,784 34,700,933 4,685,043 24,655,513 Compensation for Pingnan railway 3,473,736 17,368,682 4,689,545 26,053,028 Others 471,245 2,356,225 173,645 2,975,580 32,980,105 152,289,037 29,020,636 162,343,471 (b) Deferred tax liabilities 31 December 2008 31 December 2007 Taxable Taxable Deferred tax temporary Deferred tax temporary liabilities difference liabilities difference Change in fair value of available for sale equity instruments 864,000 4,320,000 1,692,000 9,400,000 Change in fair value of hedging instrument of CCT - - 2,754,249 39,459,166 864,000 4,320,000 4,446,249 48,859,166 - 50 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (29) Share capital Current year Current year 31 December 2007 addition reduction 31 December 2008 Shares with restriction on disposal: State and PRC legal person shares (Note 1) 347,559,485 - (23,243,415) 324,316,070 Shares held by senior management 178,217 133,169 (18,544) 292,842 Including: PRC public shares 97,039 - (18,544) 78,495 Including: Domestically listed foreign shares 81,178 133,169 - 214,347 Total of shares with restriction on disposals 347,737,702 133,169 (23,261,959) 324,608,912 Shares without restriction on disposals: PRC public shares 117,211,776 23,261,959 - 140,473,735 Domestically listed foreign shares 179,814,252 - (133,169) 179,681,083 Total of shares without restriction on disposals 297,026,028 23,261,959 (133,169) 320,154,818 Total 644,763,730 23,395,128 (23,395,128) 644,763,730 Current year Current year 31 December 2006 addition reduction 31 December 2007 Shares with restriction on disposal: State and PRC legal person shares (Note 1) 370,802,900 - (23,243,415) 347,559,485 Shares held by senior management 237,624 - (59,407) 178,217 Including: PRC public shares 129,386 - (32,347) 97,039 Including: Domestically listed foreign shares 108,238 - (27,060) 81,178 Total of shares with restriction on disposals 371,040,524 - (23,302,822) 347,737,702 Shares without restriction on disposals: PRC public shares 93,936,014 23,275,762 - 117,211,776 Domestically listed foreign shares 179,787,192 27,060 - 179,814,252 Total of shares without restriction on disposals 273,723,206 23,302,822 - 297,026,028 Total 644,763,730 23,302,822 (23,302,822) 644,763,730 - 51 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (30) Capital surplus Current year Current year 31 December 2007 additions reductions 31 December 2008 Capital premium 142,786,083 - - 142,786,083 Other capital surplus Change in fair value of available-for-sale financial assets (Note 7(7)) -Total (Note 7(7)) 9,400,000 - (5,080,000) 4,320,000 -Deferred tax liabilities(Note 7(28)) (1,692,000) - 828,000 (864,000) Change in fair value of hedging instrument of CCT (a) -Total 21,702,541 - (21,702,541) - -Deferred tax liabilities (1,514,837) - 1,514,837 - Transfer from the balance of capital surplus recognised under previous accounting system (b) (2,781,133) - - (2,781,133) Others 676,556 - 33,049 709,605 168,577,210 - (24,406,655) 144,170,555 Current year Current year 31 December 2006 additions reductions 31 December 2007 Capital premium 142,786,083 - - 142,786,083 Other capital surplus Change in fair value of available-for-sale financial assets -Total - 9,400,000 - 9,400,000 -Deferred tax liabilities - (1,692,000) - (1,692,000) Change in fair value of hedging instrument of CCT (a) -Total - 21,702,541 - 21,702,541 -Deferred tax liabilities - (1,514,837) - (1,514,837) Transfer from the balance of capital surplus recognised under previous accounting system (b) (2,781,133) - - (2,781,133) Capital premium - 676,556 - 676,556 140,004,950 28,572,260 - 168,577,210 (a) The fair value change of the hedge instrument of CCT (Note 7(6)) and the deferred tax liabilities (Note 7(28)) were recognized in capital surplus by the Group in the proportion of 55%, the proportion of equity interest in CCT held by the Group. - 52 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (30) Capital surplus (continued) (b) Balances of capital surplus recognized under previous accounting system mainly include: - During 2003 to 2005, the Group provided shareholder’s loan of RMB 100,000,000 to Mawan companies. According to related circular CK(2001)64 regarding accounting treatment of sales of assets between related parties issued by the Ministry of Finance, that part of interest received that exceeded the market interest rate of RMB 7,124,745 was recorded in capital surplus. - On 1 January 2006, CCT changed its recording currency from Hong Kong dollar to Renminbi yuan. According to the relevant PRC regulations, the exchange differences arising from translation of foreign capital and other equity accounts are recorded in capital surplus. The Group debited the portion of CCT’s capital and other equity accounts of RMB 10,086,842, calculated based on the proportion of equity interest the Group held in CCT, to capital surplus. (31) Surplus reserve Current year Current year 31 December 2007 additions reductions 31 December 2008 Statutory surplus reserve 394,710,655 142,010,813 (181,586,732) 355,134,736 Discretionary surplus reserve 699,406,238 - (699,406,238) - 1,094,116,893 142,010,813 (880,992,970) 355,134,736 Current year Current year 31 December 2006 additions reductions 31 December 2007 Statutory surplus reserve 394,710,655 - - 394,710,655 Discretionary surplus reserve 699,406,238 - - 699,406,238 1,094,116,893 - - 1,094,116,893 In accordance with the Company Law and the Company’s Articles of Association, the Company should appropriate 10% of net profit for the year to the statutory surplus reserve, the Company can cease appropriation when the statutory surplus reserve accumulated to more than 50% of the paid in capital. The statutory surplus reserve can be used to make up for the loss or increase the paid in capital after approval. The Company appropriates discretionary surplus reserve after shareholders’ meeting approves the Board of Director’s proposal. The discretionary surplus reserve can be used to make up for the loss or increase the paid in capital after approval. - 53 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (31) Surplus reserve (continued) Pursuant to a resolution of the Board of Directors meeting dated 8 April 2008 and the approval of the shareholders’ meeting dated at 29 May 2008, the Company utilized surplus reserve as at 31 December 2006, including discretionary surplus reserve of RMB 699,406,238 and statutory surplus reserve of RMB 181,586,732 to offset the deficit of RMB 880,992,970 of the Company after the retrospective adjustments of the first-time adoption of CAS. Meanwhile, the shareholders’ meeting resolved to approve the Board of Directors’ proposal to appropriate 10% of the net profit RMB 97,107,200 for the year ended 31 December 2007 to the statutory surplus reserve and no appropriation to discretionary surplus reserve for the year ended 31 December 2007. The appropriations have been recorded in the financial statements for the year ended 31 December 2008, the year when the shareholders’ meeting approved the proposal. According to a resolution of the Board of Directors meeting dated 9 April 2009, the Company appropriated 10% of net profit for the year 2008 to the statutory surplus reserve with an amount of RMB 44,903,613 and appropriate no discretionary surplus reserve. (32) Profit distribution As at 31 December 2008, included in the undistributed profits, the amount of RMB 460,621,058 is subsidiaries’ surplus reserve attributable to the Company (31 December 2007: RMB 408,191,011), among which RMB 52,430,047 is appropriated for the current year (2007: RMB 59,807,296). In accordance with the resolution at the Shareholder’s meeting dated on 29 May 2008, the Company paid the dividends in the amount of RMB 437,149,809 of year 2007 to the shareholders (2007: RMB 371,383,908). In accordance with a resolution at the Board of Directors meeting dated 9 April 2009, the Board of Directors proposed dividend of RMB 5.00 for each 10 shares of the issued shares as at 31 December 2008 which was 644,763,730 in total, with an aggregated amount of RMB 322,381,865. The proposed dividend is yet to be approved by the annual general meeting of the shareholders, and has not been recorded as liability in this set of financial statements. - 54 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (33) Minority Interests Minority Interests attributing to minority interests: 31 December 2008 31 December 2007 International Enterprise Co., Ltd. 317,996,128 310,421,381 Hidoney Developments Co., Ltd. 254,396,902 248,337,105 572,393,030 558,758,486 International Enterprise Co., Ltd and Hidoney Developments Co., Ltd hold 25% and 20% equity in CCT, respectively. (34) Revenue and cost of sales 2008 2007 Revenue from main operations 1,855,712,056 1,948,519,701 Revenue from other operations 58,295,661 55,042,829 1,914,007,717 2,003,562,530 2008 2007 Cost of main operations 815,914,503 786,237,570 Cost of other operations 13,390,061 6,000,125 829,304,564 792,237,695 (a) Revenue and cost from main operations: 2008 2007 Revenue Cost Revenue Cost Loading and unloading services 1,690,028,415 728,669,928 1,792,466,103 712,534,016 Transportation service 211,317,833 139,947,692 209,554,802 134,484,633 Agency and others services 7,068,925 - 7,279,875 - Elimination (52,703,117) (52,703,117) (60,781,079) (60,781,079) 1,855,712,056 815,914,503 1,948,519,701 786,237,570 The service income from the top 5 customers with aggregate amount of RMB 1,276,869,263 (2007: RMB 1,368,051,791) accounted for 69% (2007: 70%) of the Group’s total revenue from main operation in 2008. - 55 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (34) Revenue and cost of sales (continued) (b) Other revenue and cost 2008 2007 Revenue Cost Revenue Cost Other logistic services in port 13,169,588 2,421,543 12,166,049 2,275,226 Lease income 13,556,702 3,235,521 12,993,829 1,427,143 Security fee 11,977,116 - 13,089,996 - Agency fee 4,885,458 2,932,861 1,876,125 - Containers management fee 2,527,550 - 2,507,060 - Sales of material 1,905,590 541,906 2,762,749 1,190,229 Parking lot income 1,659,172 2,371,554 - - Documentation fee 584,716 - 1,130,915 - Others 8,029,769 1,886,676 8,516,106 1,107,527 58,295,661 13,390,061 55,042,829 6,000,125 (35) Tax and surcharges 2008 2007 Business tax 65,316,217 68,067,390 City maintenance and construction tax 571,231 941,666 Educational surcharge 80,914 100,397 Others 239,288 65,274 66,207,650 69,174,727 (36) Finance expenses - net 2008 2007 Interest expenses -Interests on borrowings 54,895,004 64,554,136 Less: interest income (8,578,767) (3,971,541) Exchange gains (107,710,059) (33,110,760) - Exchange gains from operating activities (59,521,459) (33,110,760) - Exchange gains from hedging activities (48,188,600) - Others 2,496,129 895,431 (58,897,693) 28,367,266 - 56 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (37) Impairment losses 2008 2007 Impairment losses for bad debts 3,288,827 242,298 Impairment losses on fixed asset - 60,695,381 Impairment losses on long-term investment 6,800 - 3,295,627 60,937,679 (38) Investment income 2008 2007 Income from available-for-sale financial assets 270,000 190,000 Share of profit of investees under equity method of accounting (Note 7 (9(a))) 90,327,044 121,265,171 Profit/cash dividends declared by investees under cost method of accounting - 6,635,215 90,597,044 128,090,386 (39) Non-operating income and expenses (a) Non-operating income 2008 2007 Gain on disposal of intangible assets 5,634,994 1,842,697 Gain on disposal of fixed assets 1,119,795 - Others 3,123,243 831,735 9,878,032 2,674,432 (b) Non-operating expenses 2008 2007 Loss on disposal/scrapping of fixed assets 2,007,722 5,426,415 Donation 1,014,800 36,000 Penalty expenses 4,850 7,885 Others 193,289 5,732 3,220,661 5,476,032 - 57 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (40) Income tax expenses 2008 2007 Current income tax 92,647,348 68,016,399 Deferred income tax (3,959,469) (17,749,162) 88,687,879 50,267,237 The reconciliation from income tax calculated based on applicable tax rate and total profit presented in the consolidated financial statements to the income tax expenses is as follows: 2008 2007 Profit before income tax 1,033,097,056 1,042,771,441 Income tax calculated at the applicable tax rate of 18% (2007: 15%) 185,957,470 156,415,716 Effect of different tax rate in other tax jurisdictions (12,878) 30,510 Tax losses of subsidiaries for which no deferred income tax asset as recognised 1,360,220 1,910,604 Effect of tax holidays (87,346,007) (83,297,131) Effect of issuance of the new CIT law - (6,333,537) Income not subject to tax (16,307,468) (19,213,558) Withholding tax (a) 3,356,435 - Expenses not deductible for tax purposes 1,680,107 754,633 Income tax expenses 88,687,879 50,267,237 (a) Withholding income tax was accrued at the rate of 5% for dividend payable to WHK for the year ended 31 December 2008, declared by those Group’s PRC subsidiaries of which WHK is a shareholder (2007: Nil). - 58 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (41) Earning per share (a) Earnings per share - basic Basic earning’s per share is calculated by dividing the profit attributable to shareholders of the Company by the weighted average number of ordinary shares in issue during the year. 2008 2007 Consolidated profit attributable to shareholders of the Company 642,891,604 663,872,167 Weighted average number of ordinary shares in issue 644,763,730 644,763,730 Basic earnings per share 0.997 1.030 (b) Earnings per share - diluted The Company had not potential dilutive outstanding equity instruments issued as at 31 December 2008 and 2007, accordingly the diluted earnings per share are the same as the basic ones. (42) Notes to consolidated cash flow statements (a) Reconciliation from the net profit to the cash flows from operating activitie 2008 2007 Net profit 944,409,177 992,504,204 Add: Provisions for assets impairment 3,295,627 60,937,679 Depreciation of fixed assets 180,461,767 189,680,399 Depreciation of investment property 894,818 880,277 Amortisation of intangible assets 39,228,644 39,090,252 Amortisation of long-term prepaid expenses 4,086,509 24,986,895 (Gains)/losses on disposal of fixed assets and intangible assets (5,998,539) 793,389 Losses on scrapping of fixed assets 1,251,472 2,790,329 Finance (income)/expenses (28,456,996) 2,804,672 Investment income (90,597,044) (128,090,386) Increase in deferred tax assets (3,959,469) (17,749,162) Increase in inventories (3,280,066) (1,025,887) Increase in operating receivables 60,932,057 13,496,275 (Decrease)/increase in operating payables (11,912,968) 16,394,050 Net cash flows from operating activities 1,090,354,989 1,197,492,986 - 59 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 7 Notes to the consolidated financial statements (continued) (41) Notes to consolidated cash flow statements (continued) (b) Net increase/(decrease) in cash and cash equivalents 2008 2007 Cash at end of year 641,475,910 781,587,534 Less: cash at beginning of year (781,587,534) (168,522,871) Net (decrease)/increase in cash (140,111,624) 613,064,663 (c) Cash and cash equivalents 31 December 2008 31 December 2007 Cash at bank and on hand - Cash on hand 17,859 14,175 - Cash at bank 640,303,328 780,731,023 - Other cash balances 1,154,723 842,336 Cash and cash equivalents at end of year 641,475,910 781,587,534 (d) Cash paid relating to other operating activities In the cash flow statement, cash paid relating to other operating activities comprises: 2008 2007 Lease expenses 73,498,211 61,338,093 Office expenses & utilities 16,276,272 12,842,965 Car expenses 14,272,566 11,746,082 Port expenses 10,947,403 8,283,309 Entertainment expenses 6,694,987 6,814,189 Asset insurance fee 6,544,633 7,280,186 Consulting & auditing fee 4,571,495 6,157,034 Travel & accommodation 3,465,286 2,737,588 Advertisements & exhibition expense 1,337,467 2,082,233 Others 5,034,806 2,849,500 142,643,126 122,131,179 - 60 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 8 Segment information (1) Primary reporting format - business segments (a) Segment information as at and for the year ended 31 December 2008 is as follows: Load and unload Agency service and operation Transportation others Elimination Total Revenue 1,746,381,871 212,577,584 8,880,834 (53,832,572) 1,914,007,717 Including: revenue from external customers 1,746,381,871 158,745,012 8,880,834 - 1,914,007,717 Inter-segment revenue - 53,832,572 - (53,832,572) - Operating expenses 854,822,506 160,136,740 14,149,010 (53,832,572) 975,275,684 Segment profit 891,559,365 52,440,844 (5,268,176) - 938,732,033 Less: unallocated expenses (2,889,392) Add: share of profit of associates 94,008,796 - (3,681,752) - 90,327,044 Add: other investment income 270,000 Operating profit 1,026,439,685 Segment assets 4,485,616,224 239,708,002 173,667,952 (48,598,986) 4,850,393,192 Including: investment in associates 298,067,247 - 154,906,777 - 452,974,024 Add: unallocated assets 303,334,856 Total assets 5,153,728,048 Segment liabilities 272,293,235 41,813,696 23,471,206 (48,598,986) 288,979,151 Add: unallocated liabilities 1,537,091,520 Total liabilities 1,826,070,671 Depreciation and amortization 199,809,311 22,017,839 2,844,588 - 224,671,738 Loss on asset impairment 2,761,099 (35,718) 570,246 - 3,295,627 Capital expenditures 217,761,882 45,269,555 1,508,158 - 264,539,595 - 61 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 8 Segment information (continued) (1) Primary reporting format - business segments (continued) (b) Segment information as at and for the year ended 31 December 2007 is as follows: Load and unload Agency service and operation Transportation others Elimination Total Revenue 1,846,201,686 212,752,523 7,483,197 (62,874,876) 2,003,562,530 Including: revenue from external customers 1,846,201,686 149,877,647 7,483,197 - 2,003,562,530 Inter-segment revenue - 62,874,876 - (62,874,876) - Operating expenses 962,157,066 154,825,745 4,355,990 (62,874,876) 1,058,463,925 Segment profit 884,044,620 57,926,778 3,127,207 - 945,098,605 Less: unallocated expenses (27,615,950) Add: share of profit of associates 119,585,590 - 1,679,581 - 121,265,171 Add: other investment income 6,825,215 Operating profit 1,045,573,041 Segment assets 4,586,092,704 229,669,722 152,023,889 (67,313,266) 4,900,473,049 Including: investment in associates 395,558,212 - 122,338,529 - 517,896,741 Add: unallocated assets 556,862,669 Total assets 5,457,335,718 Segment liabilities 281,533,360 31,204,868 36,852,079 (67,313,266) 282,277,041 Add: unallocated liabilities 2,030,436,926 Total liabilities 2,312,713,967 Depreciation and amortization 230,327,136 20,554,774 3,755,913 - 254,637,823 Loss on asset impairment 60,892,586 13,177 31,916 - 60,937,679 Capital expenditures 377,796,902 18,403,019 1,092,550 - 397,292,471 - 62 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 8 Segment information (continued) (2) Secondary reporting format - geographical segments Revenue from external customers 2008 2007 Mainland PRC 1,910,587,106 2,000,386,249 Hong Kong 3,420,611 3,176,281 1,914,007,717 2,003,562,530 Total assets 31 December 2008 31 December 2007 Mainland PRC 5,103,072,095 5,423,102,391 Hong Kong 50,655,953 34,233,327 5,153,728,048 5,457,335,718 9 Related parties and related party transactions (1) The parent company and subsidiaries The general information of the subsidiaries is set out in Note 6 (a) General information of the parent company Place of registration Nature of business Land development, port service and transportation, Nanshan Group Shenzhen industry and commerce, tour, real estate and others (b) Registered capital and changes in registered capital of the parent company 31 December Current year Current year 31 December 2007 additions decreases 2008 Nanshan Group 500,000,000 - - 500,000,000 (c) The proportion of interests and voting rights in the Company held by the parent company 31 December 2007 31 December 2008 % interest held % voting rights % interest held % voting rights Nanshan Group 57.51% 57.51% 57.51% 57.51% - 63 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 9 Related parties and related party transactions (continued) (2) Nature of related parties that do not control or are not controlled by the company Name of related party Relationship with the Group China Petroleum Supply Base Co. Ltd (“CPSB”) a fellow subsidiary of the Company Shenzhen Chixiao Engineering Construction Co. Ltd a fellow subsidiary of the Company (“Chixiao Engineering”) Shenzhen Haiqin Engineering Supervision Co. Ltd a subsidiary of the shareholder of the (“Haiqin Engineering”) parent company SMW, SMP and SMT (“Mawan companies”) Indirect associates of the Company, and common key management personnel with the Company Shenzhen Cyber-harbour Network Co., Ltd Associate of the Company MPIL Indirect associate of the Company Shenzhen Nantian Oilmills Company (“Nantian Oilmills”) Common key management personnel with the Company Shenzhen Southsea Grains Industries Limited Common key management personnel (“Southsea Grains”) with the Company (3) Related party transactions – Between the Group and related parties (a) Expenses for operating lease The related parties’ pricing policies on lease of container yards and office land from Nanshan Group and CPSB are based on negotiation. 2008 2007 Nanshan Group 45,016,097 33,574,399 CPSB 1,905,152 1,857,107 46,921,249 35,431,506 In 2008, the operating lease payment to related parties accounted for 63.84% of total operating lease payment (2007: 64.01%). - 64 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 9 Related parties and related party transactions (continued) (3) Related party transactions – Between the Group and related parties (continued) (b) Services received The related parties’ pricing policies on services received are based on negotiation. 2008 2007 % of total % of total Amount services Amount services Chixiao Engineering - project 182,818 0.01% 1,222,818 0.66% Haiqin Engineering - project management 396,594 100% 2,568,039 100% service Shenzhen Cyber-harbour Network Co., Ltd - network service 5,985,981 100% 6,506,814 100% 6,565,393 10,297,671 (c) Services provided The related parties’ pricing policies on services provided are based on negotiation. 2008 2007 % of total % of total Amount services Amount services Mawan companies – road transportation 17,292,794 12.93% 20,618,631 14.55% Nantian Oilmills - load and unload service 10,199,714 0.60% 14,211,661 0.79% Southsea Grains - load and unload service 2,681,333 0.15% 2,215,573 0.12% Southsea Grains - leasing 4,052,111 29.89% 3,656,040 28.14% 34,225,952 40,701,905 - 65 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 9 Related parties and related party transactions (continued) (3) Related party transactions – Between the Group and related parties (continued) (d) Loan Interest rates of loans from Nanshan Group are determined based on the market interest rate. 2008 2007 Nanshan Group - long-term loans obtained from - 159,188,000 - short-term loans repaid - (18,728,000) - long-term borrowing repaid (226,608,800) - In March and December 2008, the Company repaid the long-term loan of HKD 242,000,000 (RMB 226,608,800) obtained from Nanshan Group in 2007. Related interest expense paid in 2008 was RMB 9,129,053 with annual interest rate of 4.5%. (e) Emoluments of key management 2008 2007 Emoluments of key management 3,140,000 3,546,000 (4) Receivables from and payables to related parties – for the Group (a) Accounts receivable 31 December 2008 31 December 2007 Southsea Grains 1,141,401 1,071,885 Mawan companies 1,046,835 1,318,892 Nantian Oilmills 972,527 1,436,270 3,160,763 3,827,047 As at 31 December 2008, the Group’s accounts receivable from related parties accounted for 2.2% of total accounts receivable balances (2007: 1.8%). (b) Long-term receivables 31 December 2008 31 December 2007 MPIL(7(8)) 184,039,141 195,834,378 As at 31 December 2008, the Group’s long-term receivables from related parties accounted for 100% of total long-term receivable balances (2007: 100%). - 66 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 9 Related parties and related party transactions (continued) (4) Receivables from and payables to related parties – for the Group (continued) (c) Accounts payable 31 December 2008 31 December 2007 Nanshan Group 4,466,812 1,975,064 Haiqin Engineering 986,807 1,308,356 Chixiao Engineering - 7,312,396 5,453,619 10,595,816 As at 31 December 2008, the Group’s aaccounts payable to related parties accounted for 9.3% of total accounts payable balances (2007: 18.5%). (d) Other payables 31 December 2008 31 December 2007 Mawan companies (b) 1,690,316 2,251,895 Nanshan Group (a) 7,215 200,006,183 1,697,531 202,258,078 As at 31 December 2008, the Group’s payable to related parties accounted for 1.6% of total other payables balances (2007: 68.8%). (a) The amount RMB 200,000,000 at 31 December 2007 is obtained from Nanshan Group on 14 December 2007 for payment of certain bidding deposits. It was interest-free and was repaid on 9 January 2008 because the Company has withdrawn from the bid. (b) The Company cooperates with Mawan companies in marketing promotion activities. Some common expenses incurred in the cooperation are allocated to both parties based on certain reasonable criteria. For those payments and receipts made on behalf, the Company and Mawan companies recorded the amounts in other receivables or other payables. (e) Long-term loans and current portion of long-term loans 31 December 2008 31 December 2007 Nanshan Group - 226,608,800 As at 31 December 2008, the Group has no loans from Nanshan Group (as at 31 December 2007, the Group’s loan from Nanshan Group accounted for 15.2% of total loan balances). - 67 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 9 Related parties and related party transactions (continued) (5) Related party transactions – between the Company and subsidiaries (a) Rental paid to subsidiaries The price of operating lease of machinery and equipments from subsidiaries are determined by negotiation. 2008 2007 CCT 852,467 703,600 (b) Services received from subsidiaries The pricing policies on services received from subsidiaries are based on negotiation. 2008 2007 Shenzhen Chiwan Transportation Company Limited 3,879,949 5,457,389 (c) Guarantee provided 2008 2007 Chiwan Wharf Holding (H.K.) Limited 202,400,000 - CCT 38,720,000 - 241,120,000 - - 68 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 9 Related parties and related party transactions (continued) (6) Amounts due to/from subsidiaries – the Company (i) Other Receivables 31 December 2008 31 December 2007 Short-term loans to subsidiaries (a) Shenzhen Chiwan Shipping and Transportation Company Limited 47,408,776 48,145,265 Shenzhen Chiwan Harbour Container Company Limited 40,000,000 - Shenzhen Chiwan Transportation Company Limited 10,000,000 15,000,000 Shenzhen Chiwan Trains-Grains Terminal Company Limited 5,000,000 28,000,000 Shenzhen Chiwan International Freight Agency Company Limited 1,060,000 1,060,000 Shenzhen Chiwan Terminal Company Limited - 17,000,000 103,468,776 109,205,265 Others Chiwan Wharf Holdings (H.K.) Limited 12,563,868 23,582,370 Shenzhen Chiwan Shipping and Transportation Company Limited 8,238,396 - Shenzhen Chiwan Terminal Company Limited 8,000,000 7,440,868 Shenzhen Chiwan Trains-Grains Terminal Company Limited - 2,972,849 28,802,264 33,996,087 132,271,040 143,201,352 (a) The interest rates of short loans to subsidiaries are set based on market interest rate. In 2008, the Company received interest income with an amount of RMB 7,000,501 (2007: RMB 8,825,748) on such loans. (ii) Long-term receivables 31 December 2008 31 December 2007 Dongguan Chiwan Wharf Company Limited 135,000,000 60,000,000 Shenzhen Chiwan Transportation Company Limited 18,223,794 18,223,795 Chiwan Wharf Holdings (H.K.) Limited 11,004,285 11,004,284 Shenzhen Chiwan Harbour Container Company Limited - 121,976,183 Shenzhen Chiwan Shipping and Transportation Company Limited - 5,797,462 164,228,079 217,001,724 - 69 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 9 Related parties and related party transactions (continued) (6) Amounts due to/from subsidiaries – the Company (continued) The above long-term receivables are the amounts excess contribution made by the Company over the registered capital of respective subsidiaries. The interest rates of the above long-term receivables to subsidiaries are set based on market interest rate. In 2008, the Company received interest income with an amount of RMB 14,754,203 on such receivables. (iii) Other Payables 31 December 2008 31 December 2007 Chiwan Wharf Holdings (H.K.) Limited - 6,454,967 10 Commitments (1) Capital commitments Capital expenditures contracted for by the Group at the balance sheet date but not yet necessary to be recognised on the balance sheet are as follows: 31 December 2008 31 December 2007 Harbour facilities 102,703,747 216,201,134 Land use rights 181,991,051 188,242,254 Machinery and equipments 30,869,216 41,245,000 Buildings 27,747,106 - Others 140,200 1,120,050 343,451,320 446,808,438 (2) Operating lease commitments The future aggregate minimum lease payments due under the signed irrevocable operating leases contracts are summarized as follows: 31 December 2008 31 December 2007 Within one year 10,551,598 5,466,576 Between 1 and 2 years 7,767,547 2,168,748 Between 2 and 3 years 4,095,205 1,261,548 More than 3 years 9,334,839 4,936,341 31,749,189 13,833,213 - 70 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 11 Events after the balance sheet date On 9 April 2009, as approved by the 1st temporary meeting of the sixth session of the Board of the Directors, the Company agreed to transfer the equity interests in a subsidiary, Shenzhen Chiwan Oriental Logsitics Company Limited to the parent company of the Company, Nanshan Group, at a consideration being determined according to the valuation result of the net asset of it as at 31 March 2009 with amount of RMB4,917,700. The financial results for the year ended 31 December 2008 and 2008 of the above captioned company were immaterial to the Group. 12 Net profit after extraordinary gains and losses 2008 2007 Net profit 944,409,177 992,504,204 Plus: Net losses/(gains) on disposal of non-current (4,747,067) 3,583,718 Less: Other non-operating expenses-net (1,910,304) (782,118) Tax effects on extraordinary gain and 1,270,198 85,837 losses Net profit before extraordinary gain to losses 939,022,004 995,391,641 - Attributable to Shareholder of the company 637,202,002 664,757,766 - Minority interests 301,820,002 330,633,875 The basis of preparation of net profit before extraordinary gains and losses reconciliation According to the Interpretation Bulletin on Information Disclosure by Public Companies No [2008] 1 – Extraordinary gains and losses, extraordinary gain and losses are the gain and losses resulted from the transactions/events which are not incurred by the operation of the entity, or, though incurred by the operation, the nature, amounts or the frequency of such transactions/events will lead to a misleading presentation of the normal performance and profitability of the operation of the entity. 13 Notes to the Company’s financial statements (1) Accounts receivable and other receivables (a) Accounts receivable 31 December 2007 31 December 2008 Accounts receivable 9,648,084 11,990,287 Current year Current year additions reversals Less: provision for bad debts (950) (650,586) - (651,536) 9,647,134 11,338,751 - 71 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 13 Notes to the Company’s financial statements (continued) (1) Accounts receivable and other receivables (continued) (a) Accounts receivable (continued) The ageing of accounts receivable and related provisions for bad debts are analysed below: 31 December 2008 31 December 2007 % of total Provision for % of total Provision for Amount balance bad debts Amount balance bad debts Within 1 year 11,793,715 98.4% (454,964) 9,647,134 100% - 1 to 2 years 196,572 1.6% (196,572) - - - Over 3 years - - - 950 - (950) 11,990,287 100% (651,536) 9,648,084 100% (950) Accounts receivable are analysed by customer’s categories as follows: 31 December 2008 31 December 2007 Provision % of total for bad % of total Provision for Amount balance debts proportion Amount balance bad debts proportion Receivables that are individually significant 6,792,486 56.6% - - 5,741,865 59.5% - - Others 5,197,801 43.4% (651,536) 12.5% 3,906,219 40.5% (950) - 11,990,287 100% (651,536) 5.4% 9,648,084 100% (950) - The managements categorized the top five of accounts receivable in “receivables that are individually significant”. They are all aged within one year and the management considered no provision for bad debts is needed. (b) Other receivables 31 December 2007 31 December 2008 Loans to subsidiaries 109,205,265 103,468,776 Others 39,014,828 31,103,000 148,220,093 134,571,776 Current year Current year additions reversals Less: provision for bad debts (1,605,728) (8,067) - (1,613,795) 146,614,365 132,957,981 - 72 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 13 Notes to the Company’s financial statements (continued) (1) Accounts receivable and other receivables (continued) (b) Other receivables (continued) The ageing of receivables and related provisions for bad debts are analysed below: 31 December 2008 31 December 2007 % of total Provision for % of total Provision for Amount balance bad debts Amount balance bad debts Within 1 year 132,808,125 98.7% - 146,526,730 98.9% - 1 to 2 years 76,063 0.1% (7,606) 439,351 0.3% (437,551) 2 to 3 years 439,351 0.3% (437,951) 55,775 - - Over 3 year 1,248,237 0.9% (1,168,238) 1,198,237 0.8% (1,168,177) 134,571,776 100% (1,613,795) 148,220,093 100% (1,605,728) Other receivables as analysed by customer’s categories as follows: 31 December 2008 31 December 2007 Provision % of total for bad % of total Provision for Amount balance debts proportion Amount balance bad debts proportion Receivables that are individually significant 126,211,040 93.8% - - 131,727,635 88.9% - - Others 8,360,736 6.2% (1,613,795) 19.3% 16,492,458 11.1% (1,605,728) 9.7% 134,571,776 100% (1,613,795) 1.2% 148,220,093 100% (1,605,728) 1.1% The management categorized the top five of other receivables in “receivables that are individually significant”. The Company did not have any balances which were due from parties having 5% or above shareholdings in the Company. As at 31 December 2008, the aggregate amount of the Company’s five largest other receivables balances was RMB 126,211,040 (31 December 2007: RMB 131,727,635), being 93.8% (31 December 2007: 88.9%) of the total other receivables, all aged within one year. - 73 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 13 Notes to the Company’s financial statements (continued) (2) Long-term equity investments 31 December 2008 31 December 2007 Subsidiaries (a) 685,088,199 650,328,199 Associates (b) 154,906,777 122,338,529 Other long-term equity investments (Note7(9)) 17,037,500 17,037,500 857,032,476 789,704,228 Less: provision for impairment loss (Note7(9)) (3,128,300) (3,121,500) 853,904,176 786,582,728 As at 31 December 2008, the long-term equity investments of the Company are not subject to restriction on conversion into cash or restriction on remittance of investment income. (a) Subsidiary companies Initial investment Subsequent 31 December Current year 31 December costs additions 2007 additions 2008 Shenzhen Chiwan Terminal Company Limited 47,500,000 - 47,500,000 - 47,500,000 Shenzhen Chiwan International Freight Agency Company Limited 5,000,000 - 5,000,000 - 5,000,000 Shenzhen Chiwan Harbour Container Company Limited 15,000,000 55,920,000 70,920,000 - 70,920,000 Shenzhen Chiwan Transportation Company Limited 7,000,000 - 7,000,000 - 7,000,000 Chiwan Wharf Holdings (H.K.) Limited 1,070,000 - 1,070,000 - 1,070,000 Shenzhen Chiwan Shipping and Transportation Company Limited 6,000,000 - 6,000,000 - 6,000,000 Shenzhen Chiwan Trains-Grains Terminal Company Limited 33,750,000 - 33,750,000 - 33,750,000 Chiwan Container Terminal Company Limited 65,201,611 355,821,588 421,023,199 - 421,023,199 Shenzhen Chiwan Oriental Logistics Company Limited 5,000,000 - 5,000,000 - 5,000,000 Dongguan Chiwan Wharf Company Limited 15,000,000 50,325,000 53,065,000 12,260,000 65,325,000 Dongguan Chiwan Terminal Company Limited 22,500,000 - - 22,500,000 22,500,000 223,021,611 462,066,588 650,328,199 34,760,000 685,088,199 - 74 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 13 Notes to the Company’s financial statements (continued) (2) Long-term equity investments (continued) (b) Associates Profit/Cash Initial Share of dividends investment 31 December Current year profit of declared by 31 December costs 2007 addition associates associates 2008 Shenzhen Cyber-harbour Network Co., Ltd 1,875,000 13,324,265 - 3,800,265 (3,750,000) 13,374,530 China Merchants Maritime & Logistics (Shenzhen) Ltd. (7(9)) 120,000,000 109,014,264 40,000,000 (7,482,017) - 141,532,247 121,875,000 122,338,529 40,000,000 (3,681,752) (3,750,000) 154,906,777 (3) Operating income and operating cost 2008 2007 Revenue from main operations 185,273,472 183,189,359 Revenue from other operations 9,643,104 9,523,674 194,916,576 192,713,033 2008 2007 Cost of main operations 142,153,554 146,949,307 Cost of other operations 1,747,052 1,174,807 143,900,606 148,124,114 (a) Revenue and cost from main operations 2008 2007 revenue cost revenue cost load and unload operation 185,273,472 142,153,554 183,189,359 146,949,307 Revenue derived from top 5 customers was RMB 76,939,990 in total, which represented 42% of the main operation revenue. - 75 - SHENZHEN CHIWAN WHARF HOLDINGS LIMITED NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (All amounts in RMB unless otherwise stated) [English translation for reference only] 13 Notes to the Company’s financial statements (continued) (3) Operating income and operating cost (continued) (b) Other revenue and cost 2008 2007 revenue cost revenue cost Lease income 4,792,725 927,787 4,012,587 913,670 Containers management fee 2,527,550 - 2,507,060 - Documentation fee 584,716 - 1,130,915 - Sales of materials 576,814 - 423,309 - Security fee 114,259 - 377,841 - Other logistic services in port 113,026 - 115,439 - Others 934,014 819,265 956,523 261,137 9,643,104 1,747,052 9,523,674 1,174,807 (4) Investment income 2008 2007 Income from available-for-sale financial assets 270,000 190,000 Shares of profit or loss of investees under equity method accounting (3,681,752) 1,679,581 Profit/cash dividends declared by investees under cost method accounting 436,204,128 971,068,197 Interest income for short-term loans to subsidiaries 7,000,501 8,825,748 Income from interests of the long-term loans to subsidiaries 14,754,203 - 454,547,080 981,763,526 - 76 -