深深宝Ｂ(200019)2008年年度报告摘要（英文版）

SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 Stock Code: 000019, 200019 Public Notice No.: 2009-04 Short Form of the Stock: Shenshenbao-A, Shenshenbao-B Shenzhen Shenbao Industrial Co., Ltd. Summary of Annual Report 2008 §1. Important Notice 1.1 Board of Directors, Supervisory Committee of Shenzhen Shenbao Industrial Co., Ltd. (hereinafter referred to as the Company) and its directors, supervisors and senior executives hereby confirm that there are no any fictitious statements, serious misleading information or important omissions carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. The Summary of Annual Report is abstracted from the full text of Annual Report; the investors are suggested to read the full text of the Annual Report to understand more details. 1.2 No directors, supervisors and senior executives stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of the Annual Report or have objection for this report. 1.3 Name of absent directors Reason of absence Name of entrusted He Dong Due to business Zeng Pai Zhu Junming Due to business Zeng Pai 1.4 Guangdong Dahua Delu Certified Public Accountants issued standard unqualified Auditors’ Report for the Company. 1.5 Chairman of the Board Mr. Zeng Pai, General Manager Mr. Peng Ying and CFO Ms. Zeng Suyan hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. §2. Company Profile 2.1 Basic information Short form of the stock SHENSHENBAO-A, SHENSHENBAO-B Stock code 000019, 200019 Listed stock exchange Shenzhen Stock Exchange Registered address 28/F, B&C Block of Bao’an Plaza, No. 1002 Sungang Road, Shenzhen Post code of registered address 518020 Office address 28/F, B&C Block of Bao’an Plaza, No. 1002 Sungang Road, Shenzhen Post code of office address 518020 Internet web site of the http: // www.sbsy.com.cn Company E-mail bsy @ sbsy.com.cn 2.2 Contact person and method Secretary of the Board of Directors 1 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 Name Liu Xiongjia Contact address 28/F, B&C Block of Bao’an Plaza, No. 1002 Sungang Road, Shenzhen Telephone 0755-25507480 Fax 0755-25507480 E-mail a0019@21cn.com §3. Summary of Accounting Data and Financial Indexes 3.1 Major accounting data Unit: RMB Increase/decrease this year compared 2008 2007 2006 with that of last year (%) Operating income 151,118,088.61 192,241,044.90 -21.39% 104,021,455.44 Total profit 18,681,641.57 46,936,227.65 -60.20% 33,086,078.62 Net profit attributable to shareholders 12,630,244.76 43,690,242.34 -71.09% 34,074,857.69 of the listed company Net profit attributable to shareholders of the listed company after deducting 10,756,011.59 13,804,872.70 -22.09% -11,908,626.34 non-recurring gains and losses Net cash flow arising from operating 516,991.66 -2,450,233.38 121.10% -30,001,648.17 activities Increase/decrease at the end of this At the end of 2008 At the end of 2007 year compared At the end of 2006 with that at the end of last year (%) Total assets 531,942,477.80 468,074,812.84 13.64% 473,517,999.07 Shareholders’ equity attributable to 332,742,310.34 320,112,065.58 3.95% 276,421,823.24 parent company Share capital 181,923,088.00 181,923,088.00 0.00% 181,923,088.00 3.2 Major financial indexes Unit: RMB Increase/decrease this year 2008 2007 compared with 2006 that of last year (%) Basic earnings per share (RMB/Share) 0.07 0.24 -70.83% 0.19 Diluted earnings per share (RMB/Share) 0.07 0.24 -70.83% 0.19 Basic earnings per share after deducting 0.06 0.08 -25.00% -0.07 non-recurring gains and losses (RMB/Share) Fully diluted return on equity (%) 3.80% 13.65% -9.85% 12.33% Weighted average return on equity (%) 3.87% 14.65% -10.78% 13.14% Fully diluted return on equity after 3.23% 4.31% -1.08% -4.31% deducting non-recurring gains and losses (%) Weighted average return on equity after 3.30% 4.63% -1.33% -4.59% deducting non-recurring gains and losses (%) 2 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 Net cash flow per share arising from 0.0028 -0.01 128.00% -0.16 operating activities (RMB/Share) Increase/decrease at the end of this At the end of At the end of year compared At the end 2008 2007 with that at the of 2006 end of last year (%) Net asset per share attributable to shareholders 1.83 1.76 3.98% 1.52 of listed company (RMB/Share) Items of non-recurring gains and losses √Applicable □Inapplicable Unit: RMB Items of non-recurring gains and losses Amount Government subsidy for project of tea industry 5,480,000.00 Income from land compensation of river renovation 759,341.73 Net non-operating income/expense -3,687.58 Others 37,997.61 Less: Influenced amount of minority shareholders’ gains/losses -3,829,670.52 Impact on income tax -569,748.07 Total 1,874,233.17 3.3 Differences between CAS and IAS √Applicable □Inapplicable Unit: RMB Net profit Net asset Amount in this Amount in last Amount in Amount in period period period-begin period-end IAS 12,630,244.76 43,690,242.34 322,290,128.61 335,149,949.02 CAS 12,630,244.76 43,690,242.34 320,112,065.58 332,742,310.34 Items adjusted in accordance with IAS and its totals: Adjustment on amortization of 0.00 0.00 1,016,958.04 1,016,958.04 differences of equity investment Adjustment on cost of transferring 0.00 0.00 -254,239.51 -254,239.51 Shenzhen Pepsi’s equity Losses of devaluation of goodwill 0.00 0.00 -26,038.67 0.00 Provision for minority shareholders’ 0.00 0.00 -203,536.98 0.00 equity Adjustment on other account 0.00 0.00 1,067,000.00 1,067,000.00 payable Capitalization of interest of land use 0.00 0.00 577,920.15 577,920.15 right Accounting System For Business 0.00 0.00 320,112,065.58 332,742,310.34 Enterprises IAS 0.00 0.00 322,290,128.61 335,149,949.02 In 2008, the net profit attributable to owners of the parent company calculated based on CAS was RMB 12,630,244.76, and the net profit attributable to owners Explanations on differences of the parent company calculated based on IAS was RMB 12,630,244.76; there Based on CAS and IAS were no differences between them. In 2008, the shareholders’ equity attributable to parent company calculated based on CAS was RMB 332,742,310.34 and the shareholders’ equity attributable to 3 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 parent company calculated based on IAS was RMB 335,149,949.02; the differences between them are as follows: RMB 335,149,949.02 in accordance with IAS. 1. Adjustment on amortization of differences of equity investment: RMB -1,016,958.04; 2. Adjustment on cost of transferring Shenzhen Pepsi’s equity: RMB 254,239.51; 3. Adjustment on other account payable: RMB -1,067,000.00; 4. Capitalization of interest of land use right: RMB -577,920.15. RMB 332,742,310.34 in accordance with Accounting System For Business Enterprises. §4. Changes in Share Capital and Particulars about Shareholders 4.1 Statement of change in share capital Unit: Share Before the change Increase/Decrease of this time (+, -) After the change Capitali New zation Proporti Bonus Othe Subto Proportio Amount shares of Amount on shares rs tal n issued public reserve I. Shares with conditional 82,465,882 45.33% 82,465,882 45.33% subscription 1. State-owned shares 2. State-owned legal 37,818,689 20.79% 37,818,689 20.79% person’s shares 3. Other domestic shares 44,647,193 24.54% 44,647,193 24.54% Including: Domestic non-state-owned legal 44,647,193 24.54% 44,647,193 24.54% person’s shares Domestic natural person’s shares 4. Foreign shares Including: Foreign legal person’s shares Foreign natural person’s shares 5. Senior executives’ shares II. Shares with 99,457,206 54.67% 99,457,206 54.67% unconditional subscription 1. RMB common shares 73,321,206 40.30% 73,321,206 40.30% 2. Domestically listed 26,136,000 14.37% 26,136,000 14.37% foreign shares 3. Overseas listed foreign shares 4. Others III. Total shares 181,923,088 100.00% 181,923,088 100.00% Statement on changes of conditional shares Unit: Share Conditional Conditional Conditional Conditional Name of Reason for Date of shares in shares shares shares in shareholders condition releasing year-begin released this increased this year-end 4 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 year year Shenzhen July 27, 2008 Agricultural 44,647,193 0 0 44,647,193 Commitment for Products Co., Ltd. Share Merger Shenzhen Reform Investment 37,818,689 0 0 37,818,689 July 27, 2009 Holdings Co., Ltd. Total 82,465,882 0 0 82,465,882 － － 4.2 Particulars about shares held by the top ten shareholders and the top ten shareholders with unconditional subscription Unit: Share Total shareholders 23,613 Particulars about shares held by the top ten shareholders Proportion Amount of Nature of Amount of Shares pledged or Names of shareholders of share conditional shares shareholder share held frozen held held Shenzhen Agricultural 29.54% 53,743,347 44,647,193 0 Others Products Co., Ltd. Shenzhen Investment Holdings State-owned 25.79% 46,914,843 37,818,689 0 Co., Ltd. legal person Zhong Jianlong Others 1.32% 2,400,584 0 0 GUOTAI JUNAN SECURIES Others 0.85% 1,548,547 0 0 (HONG KONG) LIMITED HANG SENG CONSUMER Others 0.60% 1,088,111 0 0 SECTOR FLEXIPOEER FUND Song Gang Others 0.41% 750,792 0 0 Chen Yongquan Others 0.36% 659,372 0 0 Peng Ruihua Others 0.29% 523,200 0 0 Zheng Bangya Others 0.27% 485,700 0 0 Liu Honghai Others 0.23% 420,000 0 0 Particulars about shares held by the top ten unconditional shareholders Amount of unconditional shares Name of shareholder Type of share held (share) Shenzhen Agricultural Products Co., Ltd. 9,096,154 RMB common share Shenzhen Investment Holdings Co., Ltd. 9,096,154 RMB common share Zhong Jianlong 2,400,584 RMB common share GUOTAI JUNAN SECURIES （ HONG 1,548,547 Domestically listed foreign share KONG） LIMITED HANG SENG CONSUMER SECTOR 1,088,111 Domestically listed foreign share FLEXIPOEER FUND Song Gang 750,792 RMB common share Chen Yongquan 659,372 Domestically listed foreign share Peng Ruihua 523,200 Domestically listed foreign share Zheng Bangya 485,700 RMB common share Liu Honghai 420,000 RMB common share STATE-OWNED ASSETS SUPERVISION & ADMINISTRATION COMMISSION Explanation on associated OF SHENZHEN MUNICIPALITY GOVERNMENT directly held 21.52% equities of relationship or accordant Agricultural Products and indirectly held 5.22% equities of Agricultural Products, and action among the top ten directly held 100% equities of Shenzhen Investment Holdings; except that, it is shareholders of circulation unknown whether there exists associated relationship or belongs to accordant actionist share regulated by Administration of the Takeover of Listed Companies among the aforesaid listed other shareholders or not. 5 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 4.3 Particulars about controlling shareholders and actual controller of the Company 4.3.1 Particulars about change in controlling shareholders and actual controller of the Company □Applicable √Inapplicable 4.3.2 Introduction of especial situation for controlling shareholder and actual controller 1. Name of controlling shareholder: Shenzhen Agricultural Products Co., Ltd. Legal representative: Chen Shaoqun Date of foundation: Jan. 14, 1989 Main business: The company is engaged in developing, constructing, operating and managing wholesale market of agricultural products; dealing in market lease and sale; supplying services of market trade; opening electron trading platform for large sums of agricultural products; dealing with the business on wholesale, chains operation, import and export of agricultural products, aquatic products, sugar, tobacco and alcohol; engaging in information, counseling, transportation, property management, storage, package, hotel management, auxiliary services of market, development and operation of property, etc.; carrying out investment relevant with its operating principles. Registration capital: RMB 452,063,442 2. The first largest shareholder of the controlling shareholder of the Company: State-owned Assets Supervision and Administration Commission of Shenzhen Municipality Government. State-owned Assets Supervision and Administration Commission of Shenzhen Municipality Government established with hanging out their shingle on Aug. 2004, as special entity directly under Shenzhen People’s Government, implements its qualification of provider on behalf of our nation and carry out supervision and administration according to law for state-owned assets which authorized to be supervised. 4. 3. 3 Property right and controlling relationships between the actual controller of the Company and the Company is as follows: 6 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 State-owned Assets Supervision and Administration Commission of Shenzhen Municipality Government 100% 21.52% 100% Shenzhen Yuanzhi Investment Co., Ltd. Shenzhen Investment Holdings Co., Ltd. 5.22% Shenzhen Agricultural Products Co., Ltd. 25.79% 29.54% Shenzhen Shenbao Industrial Co., Ltd. §5. Particulars about Directors, Supervisors, Senior Executives 5.1 Particulars about changes in shares held by directors, supervisors and senior executives and their remunerations Total Drawing remunerat remuner ion drawn ation from the from Shares Shares Reason Company sharehol Beginning date Terminating date held held Names Titles Sex Age of in the ders’ of office term of office term at the at the change report units or year-begin year-end period other (RMB’00 related 00)(before units or tax) not Chairman of the Board, Zeng Pai Secretary of Male 38 Oct. 25, 2006 Oct. 25, 2009 0 0 ＿ 36.64 No the Party Committee Zhu Director Male 45 Oct. 25, 2006 Oct. 25, 2009 0 0 ＿ - Yes Junming He Dong Director Male 39 Oct. 25, 2006 Oct. 25, 2009 0 0 ＿ - Yes Chen Director Male 43 Oct. 25, 2006 Oct. 25, 2009 0 0 ＿ - Yes Xiaohua Fan Independent Male 59 Oct. 25, 2006 Oct. 25, 2009 0 0 ＿ 8.96 No Zhiqing Director Du Independent Female 41 Oct. 25, 2006 Oct. 25, 2009 0 0 ＿ 8.96 No Wenjun Director 7 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 Deng Independent Female 37 Oct. 25, 2006 Oct. 25, 2009 0 0 ＿ 8.96 No Meixi Director Zheng Director Male 47 Oct. 25, 2006 Oct. 25, 2009 0 0 ＿ 5.6 Yes Yuxi Zeng Director and Female 54 Oct. 25, 2006 Oct. 25, 2009 0 0 ＿ 26.93 No Suyan CFO Chairman of Zong Supervisory Female 45 Oct. 25, 2006 Oct. 25, 2009 0 0 ＿ 27.35 No Haiyan Committee Li Yiyan Supervisor Female 43 Oct. 25, 2006 Oct. 25, 2009 0 0 ＿ 19.40 No Yan Supervisor Male 39 Oct. 25, 2006 Oct. 25, 2009 0 0 ＿ - Yes Zesong Peng General Male 48 Oct. 25, 2006 Oct. 25, 2009 0 0 ＿ 29.84 No Ying Manager Deputy Guan General Male 55 Oct. 25, 2006 Oct. 25, 2009 0 0 ＿ 24.63 No Lihua Manager Secretary of Liu the Board of Male 37 Oct. 25, 2006 Oct. 25, 2009 0 0 ＿ 24.75 No Xiongjia Directors Total - - - - - 0 0 - 222.02 - Stocks option of the directors, supervisors and senior executives bestowed in the report period □Applicable √Inapplicable 5.2 Presences at the meetings of the Board by the directors Unit: Time Whether Attending the attending the meeting in Name of the Due Presence Entrusted meeting in Positions way of Absence directors Presence in person presence person in communicati successive two on times or not Chairman of the Mr. Zeng Pai 8 7 0 1 0 No Board Mr. Zhu Junming Director 8 7 0 1 0 No Mr. He Dong Director 8 7 0 1 0 No Mr. Chen Xiaohua Director 8 7 0 1 0 No Independent Ms. Deng Meixi 8 6 0 2 0 No Director Explanations on not attending the meeting of the Board in person in successive two times Unit: Time Meetings of the Board held during the year 8 Of which: site meetings 8 Meetings held in way of communication 0 Meetings held in way of both site and communication 0 §6. Report of the Board of Directors 6.1 Discussion and analysis to the whole operation Section I. Operation Review of the Company in the Report Period 8 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 I. Overall operation of the Company in the report period In the report period, faced with serious economy, the Company held firmly strategic development target, built core tea industry chain, strengthened development of tea industry; effectively strengthened the Company’s core competition ability and brand influence by means of optimizing industry structure, advancing capacity, enriching product structure, perfecting construction of quality system as well as intensifying cost control and target management. The Company’s revenue, operation profit, net profit and the relative increasing and decreasing rates compared with those of the same period of last year is described as below for year 2008: Unit: RMB Increase or decrease compared to that of the Item 2008 2007 same period of last year Operating income 151,118,088.61 192,241,044.90 -21.39% Operating profit 12,407,989.81 13,309,682.52 -6.77% Net profit attributable to owners of 12,630,244.76 43,690,242.34 -71.09% parent company Decrease in operating income and operating profit was mainly due to the tea export decreased and sales income of condiment decreased, besides, there was sales income from selling Shenbao Apartment last year, while no such income in this year. Decrease in net profit was mainly due to that there was compensation income from government for land acquisition and sales income from selling Shenbao Apartment in last year, while no such income for this report period; and investment income on Shenzhen Pepsi-Cola Beverage Co., Ltd. (hereinafter called as Shenzhen Pepsi) deceased a little compared to that of the same period of last year, but the operating profit of Shenbao Huacheng and Guangdong Shenbao had rises this year. II. Main works of the Company in 2008 (I) Implemented scheduled strategic development target, built core tea industry chain, strengthened development of tea industry In June of 2008, the phase II reform project of Chaoyang Branch of Shenzhen Shenbao Huacheng Foods Co., Ltd.-a controlling subsidiary of the Company was finished, which greatly improved capacity of Shenbao Huacheng, effectively reduced production cost and improved gross profit ratio of products; in August of 2008, Shenbao Huafa Tea Industry Co., Ltd. in Wuyuan county(hereinafter referred as Wuyuan Shenbao)-a controlling subsidiary of Shenbao Huacheng, finished its construction of Green Tea Fine Manufacture Factory which was then put into operation. Since reform construction of the aforesaid production project for tea industry finished, capacity problem in tea industry of the Company would be effectively solved, which provided stable guarantee for strengthening tea industry. (II)Perfected construction of technic and quality guarantee systems and further strengthened core competition ability of the Company Since established Shenbao Huacheng Tea R&D Center and Trail Base for Further Processing Tea of Tea Research Institute of National Academy of Agricultural Sciences cooperated with Tea Research Institute of National Academy of Agricultural Sciences, in the report period, Shenbao Huacheng officially set application laboratory and product application platform in Tea Research Institute of National Academy of Agricultural Sciences, to provide advanced and practical scientific technology for Shenbao Huacheng in field of instant tea powder and tea concentration juice, thus to keep its leading advantage in this industry; Shenbao Huacheng successfully passed the supervison and check of ISO9001 management system, and the second re-appraisal and authentication work as well, meanwhile, it also successfully passed authentication and reestimation of HACCP quality system, and social responsibility check presented by its important customers. Wuyuan Shenbao was the biggest enterprise in Jiangxi province engaged in tea planting and tea processing, primarily, finely and further. Being the leading enterprise in agriculture of Jiangxi province, Wuyuan Shenbao 9 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 had got organic authentication from BCS ko Garantie GmbH of Germany for its tea garden, factory and products as well, reaching the standard of EU 2092/91, byelaw of organic agriculture of European Union and State Organic Item (NOP/-Final Rule)of Agriculture Department of America (USDA); besides, Wuyuan Shenbao also passed quality system authentication for organic food, gained certificate for organic tea, and was put on records for authentication as export base for green tea in Jiangxi Commodity Inspection Bureau. Combined with the good agricultural working standard (GAP), organic tea authentication, good working standard (GMP), HACCP management system and together with the professional experience in managing tea quality for years, the Company established its Good Tea Working Standard (GTPP) with its own creation and characteristic, which meant that the Company made full-round supervision and control on various harms occurred from planting to processing, ensured stable quality of finished products and completely met demand of customers, by means of adopting strict management system in tea garden, establishing perfect activity record for tea agriculture and detailed management system on harms from pesticide, eyewinker and heavy metal. The Company is undertaking research and programming excellent tea beverage products, thus to establish and form retroactive management system with production management of tea garden, rough process and fine process integrated to ensure quality of products. The perfection of the aforesaid technic and quality guarantee systems provided with reliable technical guarantee and sustainable development for the Company to build the strategic programming with tea industry as core. (III)Optimized products structure and presented products with high added value promptly In the report period, the Company actively consolidated domestic and overseas client resource and sales network, greatly cooperated with customers in new product developing plan, successfully introduced material product of hot instant milk tea and received breakthrough in sales. The situation that production and sales was not so bad in off-season appeared. In order to avoid the influence brought by depreciation of US dollar on tea products exported, Shenbao Huacheng promptly adjusted sales strategy, and developed and upgraded products through strategic cooperation with Tea Research Institute of National Academy of Agricultural Sciences. The excellent tea beverage products sold to European Union market, with high added value-organic and low pesticide remnant, were particularly developed. Meanwhile, by the original sales channel, the Company spread tea raw material to the original customers of tea beverage. (IV)Strengthened management, strictly controlled production opeartion cost Through adjusting production and sale strategy promptly, advocating standardized and fine management and spreading cost control awareness into taches of production, sale and purchase, the Company actively fought against many disadvantages such as climbing price of raw material, appreciation of Renminbi, fluctuation of exchange rate and natural disasters, and effectively controlled the production operation cost. (V)Promoted overall budget management and controlled financial risk In 2008, overall budget management was promoted by the Company; every data of the indexes covered by the overall budget was detailed and decompounded; influence over operation performance of the Company brought by income and cost of various products was analysed repeatedly, which ensured accuracy and execution possibility for the whole year budget. Besides, the Company strengthened returning management on account receivable. At present, the situation that spot payment for spot goods has been basically realized in Guangdong Shenbao and Shenbao Sanjing. While to Shenbao Huacheng, goods were delivered and accounts were received in strict accordance to collection period by network management, thus effectively controled financial risk, speeded up circulation and turnover of capital and raised capital utilization efficiency. 10 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 (VI)Strengthened security awareness in production and product quality The Company organized knowledge training for food security for many times, strengthened training of operation rules for production employees, practically ensured security of employee, equipment and product quality. By reeducation in quality knowledge for all employees, the Company boosted their consciousness and concept in product quality; besides, considering the actual condition, and practiced responsibility system for security management carefully. In the face of frequent food security accidents in the society, the Company’s underlying companies-Shenbao Huacheng, Shenbao Sanjing and Guangdong Shenbao strictly controlled quality; meanwhile, intensified self-check and sent-for-check work for their products, prevented any disadvantage endangering security production to guarantee sanitation and security for all products. In the report period, accident of product quality and security production of the Company was zero. (VII) Got hold of chances of promoting the industry position of the Company In the report period, the Company successfully undertook the 2008 Development Proseminar for Chinese Tea, Coffee and Vegetable Beverage sponsored by China Beverage Association. Over 100 famous domestic and foreign experts, scholars and enterprises were invited in the meeting. This brought important influence in this industry. This action not only enhanced popularity of the Company, but also consolidated its leading position in field of further process of tea and natural plant. In Oct. 2008, the Company organized a team to take part in SIAL Paris held in Paris, France, promoting its products, ability and scale to foreign customers, and got known of market demand from different type of customers, different products and different areas, established contact with customers, built its brand and figure and laid foundation to further develop international market. (VIII)Assisted the share-joining company-Shenzhen Pepsi to develop with principle of Active but No Interference as before The Company would continue to keep good cooperation with American shareholders of Shenzhen Pepsi, assist Shenzhen Pepsi to develop with principle of Activeness but No Interference as before, and create good production and operation environment for Shenzhen Pepsi. III. Scope of main operations and its operation Scope of main operations of the Company: production of canned food, beverage and local products; domestic commerce and supply and marketing of materials; import and export business; development and operation of real estate. Main operations of the Company were under the classification of food and beverage industry. The structure of the revenue from operations and profit from operations shows as follows: 1. Formation of main operations classified according to industries and products(for details, please see 6.2 of the report) (1)Operation income from condiments had decreased, which was mainly due to that municipal road constructed, planned manufacturing base removed, influenced the production arrangement, and further influenced the normal promotion of sales plan, and the same kind of products in part regional market have malignant competition of low price and thus resulted in sliding down of sales amount. (2)Operation income from manufacture of soft drinks had increased, which was mainly due to that sales amount of leading varieties Chrysanthemum Tea increased; the operating profit ration increased mainly was by reforming producing technic, saving energy, reducing consumption, reducing manufacture cost and improvement in gross profit ratio; (3)Operation income from manufacture of teas had decreased, which was mainly due to that 11 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 influenced by fluctuation of export exchange rate in the first half year, Shenbao Huacheng’s underlying company Wuyuan Shenbao promptly adjusted sales strategy, paused tea export to reduce loss, thus sales of tea products declined with a large margin compared to that of the same period of last year; (4)Sales of tea powder and tea juice series products increased compared to that of the same period of last year, which mainly originated from applicable production region of the series products in key clients expanded, and the purchase increased; the operating profit ratio increased was mainly due to that production technic was improved, and meanwhile, effectively reduced production cost. 2. Main business classified according to area(for details, please see 6.3 of the report) Business income in south China decreased due to that there was no income from real estate this year; decrease in export business was mainly due to decreasing tea export of Wuyuan Shenbao; increase in other areas was mainly due to increasing purchase of tea juice and tea powder products conducted by customers of other areas developed by Shenbao Huacheng. During the report period, the Company purchased from the top five suppliers amounting to RMB 39,701,064.86, accounting for 41.38% of total annual purchase, the Company sold to the top five customers amounting to RMB 59,013,928.78, accounting for 39.27% of total annual sales. IV. Formation of assets and changes on expenses of the Company 1. Formation of assets and changes on expenses of the Company in the report period Unit: RMB st st Dec 31 of 2008 Dec 31 of 2007 Increase/decrease of Item Ratio to Ratio to Amount Amount ratio to total asset total assets total assets Account paid in advance 3,104,860.81 0.58% 10,412,941.33 2.22% -1.64% Inventory 48,874,407.93 9.20% 36,926,614.66 7.89% 1.31% 24,954,233.51 4.69% 5,507,263.40 1.18% 3.51% Construction in process Intangible assets 116,465,312.63 21.91% 66,301,949.39 14.16% 7.75% Short-term loan 72,500,000.00 13.64% 22,000,000.00 4.70% 8.94% (1)Balance of account paid in advance for this period decreased 70.18% compared to that of last period, which was mainly due to that account paid in advance for purchasing land use right by Wuyuan Shenbao in this period had been transferred to intangible assets. (2)Increase in inventory mainly originated from increase of raw material inventory and finished-products of Shenbao Huacheng at period end. (3)Net value of construction in process increased compared to that of last period, which was mainly due to construction for production base of Wuyuan Shenbao. (4)Intangible assets increased compared to that of last period, which was mainly due to increasely purchase of land use right of industry lands in Ruhu town, Huizhou city and Wuyuan county purchased by Wuyuan Shenbao. (5)Short-term loan increased compared to that of last period, which was mainly due to increasing short-term loans borrowed from bank in the report period. 2. Measure attribute adopted for main assets of the Company in the report period The Company’s assets were accounted using real costs when acquired, if depreciation of assets happened, then corresponding assets depreciation reserve should be withdrawn. In the balance sheet day, tradable financial assets were following calculated according to fair value, and the change of fair value was considered into current term’s gain and loss. The Company’s present tradable financial asset was Haiguoshi investment, using the market price as the fair value. (For details, please go to Chapter IX, Section III – Holding of other listed companies’ shares) 12 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 3.Expense and its change of the Company in the report period Unit: RMB Increase/decrease Items 2008 2007 （%） Reason of Change Sales expense 10,053,242.41 9,943,077.63 1.11 -- Administration expense 33,133,739.28 38,028,192.11 -12.87 -- Financial expense 4,731,936.85 4,472,187.33 5.81 -- In the report period, the sales expense, administration expense and financial expense of the Company did not have great changes compared with the same period of last year. V. Change of relevant data in cash flow statement of the Company Unit: RMB Items 2008 2007 Increase/decrease(%) Cash flow arising from operation activities Subtotal of cash inflow 210,365,428.63 208,581,972.28 0.86 Subtotal of cash outflow 209,848,436.97 211,032,205.66 -0.56 Net cash flow arising from operation 516,991.66 -2,450,233.38 121.10 activities Cash flow arising from investment activities Subtotal of cash inflow 35,303,298.92 119,494,521.10 -70.46 Subtotal of cash outflow 82,463,140.70 79,389,736.98 3.87 Net cash flow arising from investment -47,159,841.78 40,104,784.12 -217.59 activities Cash flow arising from financing activities Subtotal of cash inflow 83,000,000.00 43,700,000.00 89.93 Subtotal of cash outflow 34,176,395.32 97,133,141.81 -64.81 Net cash flow arising from financing 48,823,604.68 -53,433,141.81 191.37 activities (1)Change of cash flow arising from operation activities occurred originating from cash received from selling goods increased(mainly was that the account receivable of Shenbao Huacheng decreased this year) and cash paid for employee decreased. (2)Change of cash flow arising from investment activities occurred due to that the Company received RMB 51 million for transfer balance of equity of Shenzhen Pepsi and RMB 44.34 million for land compensation from government last year, while no such income received this year. (3)Change of cash flow arising from financing activities occurred due to increasing borrowings from bank this year. VI. Discussion and analysis on other important information relevant to the Company’s operation During the period, there was no other important information relevant to the Company’s operation. VII. Operations and performance analysis of main subsidiaries and share participation companies of the Company (I) Shenzhen Shenbao Huacheng Food Co., Ltd. It was a controlling subsidiary of the Company, and share-holding proportion was 51.67%. The operation range: investing enterprise; information consultation; food technology development; sales of beverage and food additive series products such as ginger tea, condensed pumpkin powder, liquid beverage, condensed tea juice, instant tea powder; import and export business. The registered capital was RMB 103,451,300. Until Dec 31st 13 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 of 2008, the total asset of Shenbao Huacheng reached RMB 209,256,948.97 and equity attributable to shareholders of parent company was RMB 85,790,645.90; during the report period, RMB 94,735,924.87 was realized in operation income, RMB -75,822.24 for operation profit, and RMB 4,212,947.23 for net profit attributable to owners of parent company, RMB 2,773,806.12 increased in net profit attributable to owners of parent company compared to that of the same period of last year. (II)Jiangxi Wuyuan Shenbao Huafa Tea Co., Ltd. It was a controlling subsidiary of Shenbao Huacheng, and share-holding proportion was 62%. The operation range: tea planting; primary, fine and further processing of tea; production, processing, sales and deliver of extending products of tea; processing and sales of instant tea and condensed tea juice; import and export business for tea and agricultural sideline products. The registered capital was RMB 20 million. Until Dec 31st of 2008, the total asset of Wuyuan Shenbao reached RMB 68,461,292.76 and equity attributable to shareholders of parent company was RMB 21,596,993.87; during the report period, RMB 31,367,386.37 was realized in operation income, RMB -3,386,182.24 for operation profit, and RMB 1,622,306.75 for net profit, RMB 1,594,831.60 increased in net profit compared to that of the same period of last year. (III) Shenzhen Shenbao Sanjing Food & Beverage Development Co., Ltd. It was an excusively-owned subsidiary of the Company, and its operation range: production and operation of beverage, subsidiary food, food additive, import and export business. The registered capital was RMB 30.15 million. Until Dec 31st of 2008, the total asset of Shenbao Sanjing reached RMB 104,941,845.22 and equity attributable to shareholders of parent company was RMB 27,028,534.66; during the report period, RMB 57,475,965.45 was realized in operation income, RMB 689,664.33 for operation profit, and RMB 84,146.51 for net profit attributable to owners of parent company, RMB 4,921,959.95 increased in net profit attributable to owners of parent company compared to that of the same period of last year. (IV)Guangdong Shenbao Foods Co., Ltd. It was a controlling subsidiary of Shenbao Sanjing, and share-holding proportion was 80%. The operation range: production, sales (produce with sanitation license) and material purchase of canned food, agricultural sideline foods (excluded commissariat, cotton and tea), non-alcoholic beverage, bean products and milk products. The registered capital was RMB 6 million. Until Dec 31st of 2008, the total asset of Guangdong Shenbao reached RMB 11,735,264.98 and equity attributable to shareholders of parent company was RMB 3,838,181.36; during the report period, RMB 42,449,565.39 was realized in operation income, RMB 3,584,777.42 for operation profit, and RMB 3,653,207.00 for net profit, RMB 2,450,547.76 increased in net profit compared to that of the same period of last year. (V)Shenzhen Pepsi Cola Beverage Co., Ltd. It was a share participation company of the Company and share-participation proportion was 30%. The operation range: production and operation of the American PEPSI beverages, soft drink with Chinese brand, other carbonic acid beverage and non-carbonic acid beverage, PEPSI cola athletic product, PEPSI cola stationery. The registered capital was USD 12.25 million. Until Dec 31st of 2008, the total asset of Shenzhen Pepsi reached RMB 750,924,728.81 and net asset was RMB 428,834,221.53; during the report period, RMB 1,814,940,798.17 was realized in operation income, RMB 130,742,408.85 for operation profit, and RMB 104,918,622.15 for net profit with respectively an increase of 12.98% and 1.77% and a decrease of 4.67%. VIII. No special-aimed subject under control in the Company. 14 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 Section II. Prospect on Future Development and Operation Plan for the Following Year (I) Development trend and influence of this industry 1. As the gradual upgrade of consumption, food and beverage were consumed gradually transferring to brand and high-level market. Meanwhile, food safety problem was paid much more attention to. Especially after the occurrence of Sanlu Milk Powder Affair, China further strengthened supervision on food producer enterprises; new standards and measures were successively issued; demand for product quality was stricter day by day, which would eliminate some producers with small scale and poor production condition through market competition, which would also necessarily promote standardization and scale-expansion of food producer enterprises and was beneficial for industry integration. 2. The domestic beverage enterprises almost conducted decentralized operation and their scale was not so big; regional beverage brands were comparatively many and few of them enjoyed popularity in national beverage market as famous brand; besides, elements such as insufficient capital, singular financing channel, low technology content and weak self-ability restricted expansion of their market space. At present, the biggest threaten and challenge faced by the Company was mainly the strong expansion and occupation coming from foreign beverage brand and competition with the same quality among local beverage brands. In food and beverage industry with perfect competition, unique competition advantages such as management level of enterprises, construction of marketing network and brand value appeared to be especially important. (II)Development trend and influence of industry of tea beverage 1. At present, tea market has the following obvious developing tendency: consumption in tea market remained stable and rising, and price almost maintained stable; as people had strengthened awareness on food safety and import country presented improving standard for heavy metal and pesticide remnant standard, tea production would be paid much more attention to for pollution-free organic production. Construction of excellent tea production and ecological environment and strict non-contaminant processing procedure was very significant. 2. Meanwhile, development of tea industry also faced challenges: mechanical production degree of tea industry was relatively low. In the original producing area of tea, handcraft production still occupied leading position, so enterprise with ability and strength was in urgent need for industrialization operation management; compared to advanced countries, there still existed a gap in production equipments for pick-up tea juice and asepsis canning, and in technics of tea juice thickness, tea juice deposition and maintenance of flavor quality; taking tea export in 2008 into consideration, it could be seen that appreciation of Renminbi, fluctuation of exchange rate, rising price of raw material of tea and increasing cost for logistics all had brought comparatively big influence on tea export of our country. II. The opportunity of the Company for future development (I) The Company formed industry development strategy which centralized on extraction of tea and natural plant along with extension to both sides of tea planting base and terminal products. With several years development, the Company had already owned R&D and production technical team with substantial experiences, advanced equipment and technics, perfect quality guarantee system, operation management thought with innovation, and besides, more than 10 patent techniques with own intellectual property rights. With the aforesaid technique advantages the Company could form its competition bulwark. (II)The Company’s tea industry has a starting scale now. The Company established an international top-class further tea processing and natural plant extraction production base, built comparatively reasonable and perfect busniess chain and its business scope had already been concerned in plant, fine processing and deep processing of tea, import and export business of tea leaf and instant tea; 15 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 ensured its advancing position in field of extraction of tea and natural plant; and the Company gradually extended to tea planting base and terminal products. III. Develop strategy of the Company The Company continues to centralize advanced resources of the Company, and develop the tea industry with all efforts. Taking the fine and deep processing of tea leaf as the core business; that was to say, to produce the condensed tea juice and tea powder, extending to the tea garden planting base and terminal product, and implement industrialization, standardization, internationalization management, establish the leading enterprise in the Chinese tea raw material industry. IV. Operation plan of the Company for 2009 (I)The Company steps forward to extend to tea planting base and terminal product, to build tea industry chain with competition advantage. (II)Guided by market, the Company insists on scientific innovation, continuously optimizes products production technics and speeds up R& D for new products and consolidates core competition ability of the Company. (III)The Company injects innovation into marketing pattern, consolidates present customers and sales channel, actively explores new customer source, improves penetration of products, accelerates cooperation with foreign customers and strives for bigger market occupation. (IV)The Company digges potentials, develops traditional food and beverage industry steadily and makes good preparation for construction and removing of the Condiment manufacturing base. (V)The Company continues to strengthen budget management and cash flow management, to improve utilization efficiency of capital. (VI) The Company strengthens construction of internal control system, and guarantees normal carrying out of operation activity and realization of its integrated strategic target. (VII) The Company generally implements performance management, enhances human resource construction and reserve for person with ability, which provides talents guarantee for the Company’s strategy development. (VIII) The Company continues to follow the guidance spirit of Quality First and Safety Production. Everything is conducted around safety production. National laws and regulations related to food safety are insistently implemented, to make sure that accident of fire fighting, quality safety and other significant safety responsibility affair is zero for a whole year. V. Capital demand and application plan of the Company Revolved around the development strategy, the capital demand and application plan of the Company in the future three years are as follows: (I) Finishing the matching construction for the owned tea planting base in Jiangxi Wuyuan; expanding tea planting base by purchasing tea garden at proper time to provide a stable resource of original tea materials for the Company; developing the good quality green tea products, expanding tea industry product line. The capital of about RMB 80 million was predicted to be needed. (II)Continuously investing RMB 100 million to establish Huizhou Shenbao Manufacture Processing and Logistics Garden (named temporarily) in 1-3 years. (III) In 2009, investment of RMB 15 million was needed for cosntruction and removing the condiment manufacturing base. The funds needed in the aforesaid projects would be solved by the Company’s own capital or financing. VI. Disadvantages for development of the Company and countermeasures adopted (I)The proceeding that Shenzhen Agricultural Products Co., Ltd. and Shenzhen Investment Holdings Corporation transferred 42% equity of the Company to Fusion System (HK) Co., Ltd. has 16 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 gone into procedure for arbitration. Whether this proceeding could be appropriately solved in short time would possibly influence long-term and healthy development of the Company. Countermeasures planned to take: continued to keep independence of the Company, to maintain normal operation of its management on production and operation and financial activity as well, and to supervise the relevant party to appropriately deal with the aforesaid proceeding as quickly as possible with interest of listed company as focus. (II)Higher demand on the Company’s industry chain management ability as the tea industry of the Company extended to tea garden planting base and terminal products. Countermeasures planned to take: integrated the internal resources of the Company, optimized management structure, cultivated and introduced specialized and professional persons with ability to advance the Company’s industry chain management ability. (III)Since continuous capital support was in need for upgrade and reform of the Company’s traditional products and construction of industry chain, the Company received pressure in cash flow. Countermeasures planned to take: strengthened management on project budget, controlled input of fixed assets, activated inventory assets, improved utilization efficiency of capital and optimized financing structure of the Company. 6.2 Statement of main operations classified according to industries or products Unit: RMB’0000 Main operations classified according to industries Increase/decre Increase/decre Increase/decrea ase in income ase in cost of se in gross Gross profit from Classified according to Income from Cost of operations profit ratio ratio operations industries or products operations operations over the last over the last (%) over the last year year year (%) (%) (%) Manufacture of 1,502.64 1,045.91 30.40% -29.74% -22.09% -6.83% condiments Manufacture of soft drinks 4,224.26 3,387.92 19.80% 5.18% -2.76% 6.55% Manufacture of teas 9,302.65 7,324.98 21.26% -8.65% -15.33% 6.21% Main operations classified according to products San Jing’ brand 1,502.64 1,045.91 30.40% -29.74% -22.09% -6.83% condiments Soft packing drinks 4,224.26 3,387.92 19.80% 5.18% -2.76% 6.55% Tea powder and tea juice 7,462.65 5,520.85 26.02% 20.18% 14.29% 3.81% series Tea leaf 1,840.00 1,804.13 1.95% -53.70% -52.78% -1.92% 6.3 Particulars about main operations classified according to areas Unit: RMB’0000 Increase/decrease in income Areas Income from operations from operations over last year (%) South China 5,453.48 -32.63% East China 6,397.83 -10.88% Export 1,232.34 -53.34% Other areas 2,028.16 54.90% Total 15,111.81 -21.39% 6.4 Items measured by adopting fair value √Applicable □Inapplicable 17 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 Unit: RMB Gains/losses Changes of Devaluation Amount at from changes of accumulative fair withdrawn Amount at Item report-begin fair value in the value reckoned in in the report report-end report period equities period Financial assets Of which: 1. Financial assets measured by fair value, and its changes are reckoned in 262,500.00 -160,500.00 -170,288.09 102,000.00 current gains/losses Including: Derivative Financial asset 2. Financial assets available for sales Subtotal of financial assets 262,500.00 -160,500.00 -170,288.09 102,000.00 Financial liabilities Investment property Productive biological assets Others Total 262,500.00 -160,500.00 -170,288.09 102,000.00 6.5 Application of the raised proceeds □Applicable √Inapplicable Particulars about the changed projects □Applicable √Inapplicable 6.6 Application of the proceeds not raised through shares offering Applicable □Inapplicable Unit: RMB’0000 Name Amount Progress Earnings Investment on It was planned to purchase 199,800 square Huizhou Shenbao No earnings were meters land for industrial use, of which land Manufacture 10,029.38 realized use certificate on 149,848 square meters has Processing and temporarily been accomplished ended as Dec. 31, 2008. Logistics Garden Total 10,029.38 - - 6.7 Explanation of the Board of Directors on changes to the accounting policy and accounting estimates, or reasons of modification of material accounting errors and the influences □Applicable √Inapplicable 6.8 Explanation of the Board of Directors on the “Qualified Opinion” made by the CPAs □Applicable √Inapplicable 6.9 The preplan of the profit distribution and capitalization of capital public reserve of the Board of Directors Through audit by Guangdong Dahua Delu Certified Public Accountants, the Company’s net profit attributable to the owners of the parent company in 2008 was RMB 12,630,244.26, plus the undistributed profit at the year-begin RMB 26,592,842.51, according to the regulations of the Company Law and Articles of Association, withdrew 10% statutory public reserve RMB 1,173,792.97 from the net profit the parent company realized in 2008 totalled RMB 11,737,929.66, thus, at the end of the report period, the profit available for distribution to shareholders was RMB 38,049,294.30. 18 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 For the relatively smaller base of undistributed profits of the Company in 2008 and considering the needs of actual operations of the Company in 2009, the Board of Directors of the Company decided neither profit distribution nor capitalization of capital reserve will be carried out for year 2008. The undistributed profits would be mainly used for supporting the development of the Company’s core business. The aforesaid preplan should be submitted to 2008 Annual Shareholders’ General Meeting for examing and approval. Particulars about the cash bonus of the Company in previous three years Unit: RMB Net profit attributable to Ratio of net profit attributable Amount of cash bonus owners of parent Year to owners of parent company (tax included) company in consolidated in consolidated statement statement 2007 0.00 43,690,242.34 0.00% 2006 0.00 34,074,857.69 0.00% 2005 0.00 6,152,808.50 0.00% The Company didn’t put forward cash profit distribution preplan though the Company achieved the profit in the report period √Applicable □Inapplicable Reason for not putting forward cash profit distribution Purpose and using plan of the undistributed preplan though achieving the profit in the report period profit of the Company For the relatively smaller base of undistributed profits of the Company in 2008 and considering the needs of actual The undistributed profits would be mainly operations of the Company in 2009, the Board of the used for supporting the development of the Company decided neither profit distribution nor Company’s core business. capitalization of capital reserve will be carried out for year 2008. §7. Significant Events 7.1 Purchase of assets □Applicable √Inapplicable 7.2 Sales of assets □Applicable √Inapplicable Influences on the business continuity and stability of management of the Company by the matters 7.1 and 7.2 concerned 7.3 Significant guarantees √Applicable □Inapplicable Unit: RMB’0000 Particulars about the external guarantee of the Company (Barring the guarantee for the controlling subsidiaries) Comple Name of the Date of happening Amount Guarantee for Guarantee Guarantee te Company (Date of signing of related party type term Implem guaranteed agreement) guarantee (Yes or no) entation 19 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 or not Guangdong Joint Feb. 6, 2005- Sunrise Holdings Feb. 6, 2005 858.00 Responsibility No No Aug. 6, 2005 Co., Ltd. Guarantee Total amount of guarantee in the report 0.00 period Total balance of guarantee at the end of 858.00 the report period Guarantee of the Company for the controlling subsidiaries Total amount of guarantee for controlling 3,100.00 subsidiaries during the report period Total balance of guarantee for controlling 3,100.00 subsidiaries at the end of the report period Total amount of guarantee of the Company (including guarantee for controlling subsidiaries) Total amount of guarantees 3,958.00 Ratio of total guarantee to net assets of the 11.90% Company Including: Amount of guarantee for shareholders, 0.00 actual controller and its related parties The debts guarantee amount provided for the guarantee of which the assets-liability 0.00 ratio exceeded 70% directly or indirectly Proportion of total amount of guarantee in 0.00 net assets of the Company exceeded 50% Total amount of the aforesaid three 0.00 guarantees Explanations on possibly bearing joint and several liquidating responsibilities for Naught undue guarantees 7.4 Significant related transaction 7.4.1 Related transaction connected to routine operations □Applicable √Inapplicable 7.4.2 Related credits and liabilities current □Applicable √Inapplicable 7.4.3 Occupation and its progress of paying off on the fund in year 2008 □Applicable √Inapplicable 7.5 Entrusted assets management □ Applicable √Inapplicable 7.6 Implementation of commitments √Applicable □Inapplicable Commitments made by the original non-tradable shareholders in the process of Share Merger Reform: (I) Shenzhen Agricultural Products Co., Ltd. and Shenzhen Investment Holdings Corporation will 20 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 obey the laws, statutes and regulations, and perform the statutory commitment obligations in the process of Share Merger Reform; (II) Carrying out an effective and long-term encouragement to the management level, after the completion of share merger reform, Shenzhen Agricultural Products Co., Ltd. and Shenzhen Investment Holdings Corporation, the original non-tradable shareholders of the Company, will sell their possessed shares in 3 year to the management level of the Company according to their share holding proportion after the share merger reform, which took up 6%-8% of the Company’s total capital shares after the implementation of pricing. The aforesaid encouragement specific measures and rules for implementation for the management level was studied and formulated by listed company according to The Measures Governing Equity Incentive Plans of Listed Companies of CSRC and national relevant regulations, and were reported to the State-owned Assets Supervision and Administration Commission of Shenzhen Municipality Government for examination and approval and then implementation. The circulation condition of this part of shares will be implemented following relevant provisions. Both of Agriculture Products Co. and Investment Holdings Co. have been fulfilling their statutory responsibilities for their commitments. According to Trial Provisions for Implementing Stock Option Incentive in State-owned Controlling Listed Companies (Domestic) issued jointly by State-owned Assets Supervisory & Administration Committee and the Ministry of Finance dated December 6, 2006, the Company should detail its stock option incentive plan for management executives according to relevant regulations. The non-tradable share holders will push forward the implementation of stock option incentive plan for executives within the extent allowed by relevant national laws and regulations and in appropriate market situation. Commitments made by the Company or the shareholders with holding above 5% shares in the report period or lasting until the report period. □ Applicable √Inapplicable 7.7 Significant lawsuit and arbitrations √Applicable □Inapplicable I. The case concerning the joint-liability guarantee the Company provided for the RMB 7 million loan that Shenzhen China Bicycle Company (Holdings) Limited (hereinafter referred to as Shen China) had got from China Construction Bank Shenzhen Branch (hereinafter referred to as Construction Bank) has been closed with a reconciliation. In the year 2003, the Company and Construction Bank reached the Agreement on Interest Reduction and Cancellation, and according to the agreement, the Company had already paid back the RMB 7 million in two times for Shen China and fulfilled its guarantee liability (for details, please refer to Annual Report 2003 of the Company.); through the verdict of (1999) YFJYZZi No. 26 Civil Judgment Document made by Guangdong High People’s Court on the case concerning the joint-liability guarantee amounting to USD 0.8 million the Company provided for issue of Letter of Credit Shen China had applied for at Bank of China Shenzhen Branch, the Company should shoulder joint repayment liability. And ended the first half year of 2004, the Company had repaid RMB 6,631,600 (amounting to USD 0.8 million) for Shen China and fulfilled the guarantee responsibility (for details, please refer to Semi-Annual Report 2004 of the Company.). Latter, on Jul. 22, 2004, the guarantee payment, which the Company had paid on its behalf, was enforced to conduct by Shenzhen Intermediate People’s Court that the Company applied to. To safeguard the rights and interests of the Company, the Company sued Shen China to Shenzhen Intermediate People’s Court, and requested for a verdict to order Shen China to repay RMB 7 million, which the Company had paid on its behalf, as well as to compensate relevant loss arising from the capital occupancy in 2004. Shenzhen Intermediate People’s Court judged and ordered Shen China to repay the RMB 7 million the Company had paid on its behalf, and the interest arising during 21 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 the period of capital occupancy [(2004) SZFMECZi No.448]. Since Shen China had not fulfilled its repayment duty according to the time and contents stipulated in the judgment document, the Company applied to Shenzhen Intermediate People’s Court on Dec.20, 2004 for compulsory enforcement. Shenzhen Intermediate People’s Court sent Shen China (2004) SZFZZi No. 1382 Civil Verdict and Mandamus, as well as (2005) SZFZZi No. 208 Civil Verdict and Mandamus on Jan. 14, 2005, and ruled that the property of Shen China (RMB 14,131,575.92 as the limit) should be sealed up and frozen, and that Shen China should fulfill the duties stipulated in effective legal papers or regulated by law within five days from the day the Mandamus arrived. Should Shen China defaulted beyond the time limit, Shenzhen Intermediate People’s Court would make compulsory enforcement according to law (for details, please refer to notifications of the Company published on Securities Times, Hong Kong Ta Kung Pao and Juchao Website dated Jul.30, 2004, Nov. 20, 2004, Dec. 16, 2004, Dec. 29, 2004 and Jan. 18, 2005.). Later, stipulated by the Higher People’s Court of Guangdong, the aforesaid two lawsuits were conducted by Guangzhou Railway Transportation Court, and the conductions were suspended in the report period because of discovering no property clues. As soon as circumstances of execution suspension ended, the Company may apply to Guangzhou Railway Transportation Court for resumption of execution. II. The case concerning the joint-liability guarantee the Company provided for the RMB 30 million loan obtained by Shenzhen Nanfang Tongfa Industrial Company (hereinafter referred to as Nanfang Tongfa) had been closed through mediation on Jan. 11, 2002 (for details, please refer to notifications of the Company published on Securities Times, Hong Kong Ta Kung Pao and Juchao Website dated Mar. 13, 2002.). Ended the year 2003, the Company had repaid on behalf of Nanfang Tongfa the principal, interest, as well as the legal fare for the trial of first instance and the cost of preservation, amounting to RMB 38,003,311.50, and fulfilled the guarantee liability according to the requirements of Civil Mediation Agreement. The Company had applied to Shenzhen Intermediate People’s Court to compulsorily enforce the property of Nanfang Tongfa. In November 2004 and January 2005, Shenzhen Intermediate People’s Court respectively issued the (2004) SZFZZI No.477 and No.115 Civil Order and ruled that, since Nanfang Tongfa had no executable property, (2001) YGFJEZZi No.111 Civil Mediation Agreement sent by Guangdong High People’s Court should be suspended, and that, after the case of execution suspension disappeared, the Company can applied to Shenzhen Intermediate People’s Court for resumption of execution. (For details, please refer to notifications of the Company published on Securities Times, Hong Kong Ta Kung Pao and Juchao Website on Jan. 22, 2005.). The Company got informed that Nanfang Tongfa had applied to the People’s Intermediate Court of Shenzhen for bankruptcy and liquidation for debts. In July 2007, the Company had claimed its credit to the liquidation workgroup of Nanfang Tongfa. As confirmed by the liquidation workgroup of Nanfang Tongfa with Credit Verification Notice, the Company’s credit was confirmed to RMB 43,561,532.50 (in which RMB 38,003,311.50 was the repayment, and RMB 5,558,221.00 was interests). (Details are available with the Announcement of the Board of Directors released on Securities Times, Hong Kong Wen Wei Po, and Juchao Website dated July 18, 2007.) III. In December 2002, the case concerning the joint-liability guarantee the Company provided for the HKD 3 million loans that Guangdong Sunrise Holdings Co., Ltd. (the former Shenzhen Lionda Holdings Co., Ltd. hereinafter referred to as Sunrise Company for short) had obtained from Industrial and Commercial Bank of China Shenzhen Branch had been closed through mediation. On Jan. 13, 2003, the Company repaid, on behalf of Sunrise Company, the principal of HKD 3 million as well as the interest amounting to HKD 0.1 million, while the rest interest was exempted. The Company would exercise relevant rights through legitimate means. IV. The case concerning the joint-liability guarantee the Company provided for the HKD 6 million loan Sunrise Company had obtained from Shenzhen Development Bank Nantou Subbranch 22 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 (hereinafter referred to as Shenfazhan) had been closed with reconciliation. Ended the year 2003, the Company had repaid a sum of principal HKD 2 million and the interest arising on behalf of Sunrise Company. The remaining principal of HKD 4 million was transferred to loan, and the Company would continue to provide guarantee (For details, please refer to notifications of the Company published in Securities Times, Hong Kong Ta Kung Pao and Juchao Website dated May 13, 2003.). In year 2004, after this loan expired, Sunrise Company did not perform the repayment. In year 2006, the Company had repaid another HKD 2.5 million (equaling to RMB 2.55 million) of the principal on behalf of Sunrise Company. In the report period, the Company had repaid HKD 1,453,186.52 of the principal as well as HKD 620,734.25 of the interest (equaling to RMB 2,055,920.22) on behalf of Sunrise Company. The Company had fulfilled the guarantee liability, and would exercise relevant rights through legitimate means. V. The case concerning the joint-liability guarantee the Company provided for the RMB 8 million loans which Sunrise Company had obtained from Guangdong Development Bank Co., Ltd. Shenzhen Nanyuan Subbranch (formerly Guangdong Development Bank Co., Ltd. Shenzhen Branch Nanyuan Subbranch) had been closed with reconciliation. Ended the year 2005, the Company had repaid a sum of interest amounting to RMB 2,369,145.58 on behalf of Sunrise Company, while the remaining principal and interest amounting to RMB 8.58 million would continue to be provided as a loan to Guangdong Sunrise Holdings Co., Ltd., and the Company would continue to provide join-liability guarantee for it. The guarantee term was from Feb. 6, 2005 to Aug. 6, 2005. Sunrise Company had not repaid this loan by the expiration day of the loan. VI. The case concerning the joint-liability guarantee the Company provided for the HKD 32 million loans which Sunrise Company had obtained from Bank of China Shenzhen branch had been reconciled (For details, please refer to notifications of the Company published on Securities Times, Hong Kong Wen Wei Po and Juchao Website dated Jul. 29, 2006 and Dec. 13, 2006.), and on Dec. 11, 2006, the Company signed the Reconciliation Agreement on GLENMORE INVESTMENT LIMITED Releasing Shenzhen Shenbao Industrial Co., Ltd from the Debt Guarantee Liabilities for Guangdong Sunrise Holdings Co., Ltd. with the creditor Glenmore Investment Limited; in 2006, the Company had paid RMB 29 million according to the aforesaid reconciliation agreement. Shenzhen Intermediate People's Court withdrew the lawsuit against the Company，and the Company had submitted a sue to Shenzhen Intermediate People's Court, to apply for recourse to Sunrise Company, and requested the Court to sentence the Sunrise Company to pay back the disbursement by the Company of RMB 29 million and relevant interests. The Court had officially filed the case with case number 2007 SZFMECZi No.123 and finished the trial in the first instance. On Aug. 7, 2007, the Company received the civil judgment from Shenzhen Intermediate People's Court, in which it sentenced Sunrise Company to pay back the disbursement of RMB 29 million and its interest within ten days from the effect term of the sentence (from Dec. 31, 2006, calculate based on bank loan rate of the same period 6.12% till paying off). If Sunrise Company did not pay back the debt in the stipulated time limit willingly, based on the regulations of No. 232 section of the CIVIL PROCEDURE LAW OF THE PEOPLE'S REPUBLIC OF CHINA, Sunrise Company should double pay the interest of the delay days. The lawsuit fee RMB 186,800 was paid by Sunrise Company. If not agree with the sentence, Sunrise Company could appeal to the Guangdong High People’s Court within 15 days since receiving the sentence. If Sunrise Company did not appeal within the statutory days, this sentence be legally effective (for details, please refer to notifications of the Company published on Securities times, Hong Kong Wen Wei Po and website of www.cninfo.com.cn respectively on Feb. 6, 2007, Apr. 21, 2007, Aug. 8 2007). After the legal validity, Sunrise Company did not fulfill its repayment duty according to the time and contents stipulated in the judgment document, the Company applied to Shenzhen Intermediate People’s Court for compulsory enforcement. Shenzhen Intermediate People’s Court transacted the case, and issued Notice of Case 23 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 Acceptance [case number was (2008) SZFZZi No. 127]. (For details, please refer to notifications of the Company published on Securities Times, Hong Kong Wen Wei Po and Juchao Website dated Jan.15, 2008.) In the report period, the Company received the Civil Verdict Document issued by Shenzhen Intermediate People's Court [case number was (2008) SZFZZi No. 127-3], which judged the Civil Verdict Document (2007) SZFMECZi No. 123 being stopped implementing. After ceased execution disappeared, the Company could apply to Shenzhen Intermediate People's Court for resuming compulsory enforcement. (For details, please refer to notifications of the Company published on the Securities Times, China Securities, Hong Kong Wen Wei Po and website of Juchao Website dated Aug. 1, 2008). 7.8 Other significant events and analysis on their influences and solutions 7.8.1 Particulars about securities investment √Applicable □Inapplicable Unit: RMB Total investment Initial proportion Gains and Securities Short form investment Amount Book value No. Stock code of securities losses in Kinds of the stock amount held at period-end in report period (RMB) period-end (%) Stock (3rd 1 400005 Haiguoshi 272,288.09 150,000 102,000.00 100.00% -160,500.00 board) Other stock investment held at the end of report 0.00 - 0.00 0.00% 0.00 period Gain/loss of the sold securities investment in the - - - - 0.00 report period Total 272,288.09 - 102,000.00 100% -160,500.00 7.8.2 Equity of other listed companies held □Applicable √Inapplicable 7.8.3 Equity of non-listed financial enterprises □Applicable √Inapplicable 7.8.4 Particulars about the purchases and selling on equity of other listed company □Applicable √Inapplicable §8. Report of the Supervisory Committee √Applicable □Inapplicable I. Summary of the Supervisory Committee’s works in the report period In 2008, strictly according to the Company Law, Code of Corporate Governance for Listed Companies, Administrative Measures for the Disclosure of Information of Listed Companies and Articles of Association, the Supervisory Committee seriously performed duties endowed by shareholders’ meeting, closely concerned the production operation of the Company, presented the shareholders’ meetings held in the report report, observed the board meetings; monitored the holding procedures of the shareholders’ meetings and board meetings, as well as the execution of the resolutions made in these meetings. It practically maintained legal equity of the Company and shareholders. (I) The Supervisory Committee totally held four meetings in the report period: 1. On Mar. 26, 2008, the 5th meeting of the 6th term of Supervisory Committee was held, in which the 24 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 following proposals were discussed, audited and approved: (1) Supervisory Committee’s Report 2007 of the Company; (2) Annual Financial Settlement Report 2007 of the Company; (3) Report of Self-evaluation on Internal Control 2007 of the Company; (4) Annual Report of the Company 2007 and its Summary; (5) Profit Distribution Preplan 2007 of the Company. Resolutions of this meeting were released by Securities Times, China Securities, Hong Kong Wen Wei Po, and Juchao information website on Mar. 28, 2008. 2. On Apr. 18, 2008, the 6th meeting of the 6th term of Supervisory Committee was held, in which the First Quarterly Report 2008 was discussed, audited and approved. 3. On Aug. 7, 2008, the 7th meeting of the 6th term of Supervisory Committee was held, in which Audit Opinions of the 6th term of Supervisory Committee on the Semi-annual Report 2008 was discussed, audited and approved. 4. On Oct. 21, 2008, the 8th meeting of the 6th term of Supervisory Committee was held, in which Audit Opinions of the 6th term of Supervisory Committee on the Third Quarterly Report 2008 was discussed, audited and approved. II. Independent opinions of the Supervisory Committee on relevant proceedings (I) Operation according to the laws In the report period, the Supervisory Committee conducted supervision over the procedures of holding Board meetings and Shareholders’ General Meeting, resolutions, implementation of the resolutions of the Shareholders’ General Meeting by the Board of Directors, status of the senior executives in implementing their duties and the Company’s management system according to the relevant laws and regulations of the State. It was believed that in 2008, the Board of Directors actively carried out the operation in a standardized and legal way strictly according to the Company Law, the Securities Law, the Stock Listing Rules, the Articles of Association and other relevant regulations. The Company’s directors and managers worked carefully and responsibly; the Company’s decision-making was prudent and solid; the Company had established the relative perfect internal control system. We have found no directors, supervisors or senior executives ever involved in any actions against the law, rules and regulations, or the Articles of Association or harmful to the interest of the Company and the shareholders in the process of implementation of their duties. (II) Financial inspection The Supervisory Committee had made careful and serious inspection on the Company’s financial system and financial situation and believed that the Annual Report 2008 of the Company had truly reflected the Company’s financial situation and operation achievements. The auditors’ report and the auditors’ opinion on the relevant issues presented by Shenzhen Dahua Delu Certified Public Accountants are objective and fair. (III) The actual investment project funded by the latest proceedings is the same as the commitment. The change procedure is legal. (IV) In the report period, the price for purchase and sale of assets conducted by the Company is reasonable. There existed no inside transactions or actions harmful to part shareholders’ right and interest or in connection with loss of the Company’s assets. (V) In the report term, the Company conducted no related transactions. (VI) According to relevant regulations of Guidelines on Internal Control of Listed Companies and Circular of Annual Reports 2008 of Listed Companies issued by Shenzhen Stock Exchange, the Supervisory Committee issued independent opinions on Report of Self-evaluation on Internal Control of the Company 2008. Details could be found in Section IV Report of Self-evaluation on Internal Control in Chapter V. §9. Financial Report 25 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 9.1 Auditor’s opinions Auditor’s report Standard unqualified auditor’s opinions Text of Auditor’s Report Auditor’s Report Dahua Delu GuShenZi(2009)No. 24 To the shareholders of Shenzhen Shenbao Industrial Co., Ltd., We have audited the accompanying financial statements of Shenzhen Shenbao Industrial Co., Ltd. (“the Company”), including balance sheet and consolidated balance sheet of 31 December 2008, and profit statement and consolidated profit statement, and statement on changes of shareholders’ equity and consolidated statement on changes of shareholders’ equity, and cash flow statement and consolidated cash flow statement for the year ended, and notes to the financial statements for the year ended. I. Management's responsibility for the financial statements The Company's management is responsible for the preparation and fair presentation of the financial statements in accordance with the Enterprises Accounting Standards and Enterprises Accounting System. The responsibility includes: (1) designing, performing and maintaining internal control related to the preparation and fair presentation of the financial statements, which are free from material misstatements whether due to frauds or errors; (2) choosing and applying right accounting policies; (3) making reasonable accounting estimates. II. Auditor's responsibility An audit involves performing procedures to obtain audit evidence about the amounts and disclosures of the financial statements. The selective audit procedures depend on auditor's judgment, including the evaluation of the risk of material misstatement of the consolidated financial statements due to frauds or errors. When evaluating risk, we consider internal control related to financial statements, in order to design auditing procedures, but not for the purpose of expressing an opinion on the internal control's effectiveness. An audit also includes assessing the appropriateness of the accounting policies adopted and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that we have obtained sufficient and appropriate audit evidences to provide a basis for our audit opinion. III. Auditing opinion In our opinion, the Company’s financial statements have been prepared in accordance with the Enterprises Accounting Standards and Enterprises Accounting System, and they fairly present, in all material respects, the financial position of the Company as of December 31, 2008, and its operation results and cash flows for the year ended. Guangdong Dahua Delu Certified Public Accountants China Accountant: Gao Dehui (Special Common Partnership) China Accountant: Chen Baohua Shenzhen, P.R.C March 19, 2009 9.2 Financial statement 9.2.1 Balance Sheet Prepared by Shenzhen Shenbao Industrial Co., Ltd. December 31, 2008 Unit: RMB Balance at period-end Balance at year-begin Items Merger Parent Company Merger Parent Company Current assets: Monetary funds 22,501,768.29 10,374,648.49 20,238,034.23 9,331,760.93 Settlement provisions 26 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 Capital lent Transaction finance asset 102,000.00 262,500.00 Notes receivable 760,820.00 Accounts receivable 36,498,040.88 556,200.00 49,396,918.23 1,184,643.21 Accounts paid in advance 3,104,860.81 10,412,941.33 Insurance receivable Reinsurance receivables Contract reserve of reinsurance receivable Interest receivable Dividend receivable Other receivables 40,355,337.99 187,454,715.42 28,298,317.19 187,437,031.71 Purchase restituted finance asset Inventories 48,874,407.93 1,194,571.24 36,926,614.66 Non-current asset due within one year Other current assets Total current assets 151,436,415.90 199,580,135.15 146,296,145.64 197,953,435.85 Non-current assets: Granted loans and advances Finance asset available for sales Held-to-maturity securities Long-term account receivable Long-term equity 139,474,830.94 292,189,473.30 147,121,472.87 298,086,115.23 investment Investment property Fixed assets 96,036,889.01 31,954,397.27 96,799,262.53 32,040,876.68 Construction in progress 24,954,233.51 3,123,985.72 5,507,263.40 2,764,885.72 Engineering material Disposal of fixed asset Productive biological asset Oil and gas asset Intangible assets 116,465,312.63 7,496,325.01 66,301,949.39 6,504,619.55 Expense on Research and Development Goodwill Long-term expenses to be 1,119,092.19 1,640,763.74 127,378.55 apportioned Deferred income tax asset 2,455,703.62 1,596,241.08 4,407,955.27 3,584,421.14 Other non-current asset Total non-current asset 380,506,061.90 336,360,422.38 321,778,667.20 343,108,296.87 Total assets 531,942,477.80 535,940,557.53 468,074,812.84 541,061,732.72 Balance Sheet (Con.) Prepared by Shenzhen Shenbao Industrial Co., Ltd. December 31, 2008 Unit: RMB Balance at period-end Balance at year-begin Items Merger Parent Company Merger Parent Company Current liabilities: Short-term loans 72,500,000.00 20,000,000.00 22,000,000.00 22,000,000.00 Loan from central bank Absorbing deposit and 27 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 interbank deposit Capital borrowed Transaction financial liabilities Notes payable Accounts payable 28,057,487.23 30,572,085.24 Accounts received in advance 2,659,571.95 2,183,994.02 Selling financial asset of repurchase Commission charge and commission payable Wage payable 4,030,723.15 3,214,787.99 6,521,537.45 5,297,124.67 Taxes payable 410,164.54 -1,335,858.83 655,400.80 836,980.51 Interest payable Dividend payable 2,909,182.74 2,909,182.74 2,909,182.74 2,909,182.74 Other accounts payable 25,673,961.73 55,309,763.42 27,544,787.16 65,913,692.25 Reinsurance payables Insurance contract reserve Security trading of agency Security sales of agency Noncurrent liabilities due within 1 year Other current liabilities Total current liabilities 136,241,091.34 80,097,875.32 92,386,987.41 96,956,980.17 Non-current liabilities: Long-term loans 4,000,000.00 Bonds payable Long-term account payable Special accounts payable Projected liabilities 8,580,000.00 8,580,000.00 8,580,000.00 8,580,000.00 Deferred income tax liabilities Other non-current liabilities Total non-current liabilities 12,580,000.00 8,580,000.00 8,580,000.00 8,580,000.00 Total liabilities 148,821,091.34 88,677,875.32 100,966,987.41 105,536,980.17 Owner’s equity (or shareholders’ equity): Paid-in capital (or share 181,923,088.00 181,923,088.00 181,923,088.00 181,923,088.00 capital) Capital public reserve 80,305,894.70 80,305,894.70 80,305,894.70 80,305,894.70 Less: Inventory shares Surplus public reserve 32,464,033.34 32,464,033.34 31,290,240.37 31,290,240.37 Provision of general risk Retained profit 38,049,294.30 152,569,666.17 26,592,842.51 142,005,529.48 Balance difference of foreign currency translation Total owner’s equity attributable to 332,742,310.34 447,262,682.21 320,112,065.58 435,524,752.55 parent company Minority interests 50,379,076.12 46,995,759.85 Total owner’s equity 383,121,386.46 447,262,682.21 367,107,825.43 435,524,752.55 Total liabilities and owner’s equity 531,942,477.80 535,940,557.53 468,074,812.84 541,061,732.72 28 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 9.2.2 Profit Statement Prepared by Shenzhen Shenbao Industrial Co., Ltd. January-December, 2008 Unit: RMB Amount in this period Amount in last period Items Merger Parent Company Merger Parent Company I. Total operating income 151,118,088.61 2,400,000.00 192,241,044.90 31,343,727.10 Including: Operating income 151,118,088.61 2,400,000.00 192,241,044.90 31,343,727.10 Interest income Insurance gained Commission charge and commission income II. Total operating cost 166,916,715.86 17,604,389.00 212,266,571.21 47,390,459.20 Including: Operating cost 117,955,433.20 154,965,985.76 20,978,294.43 Interest expense Commission charge and commission expense Cash surrender value Net amount of expense of compensation Net amount of withdrawal of insurance contract reserve Bonus expense of guarantee slip Reinsurance expense Operating tax and extras 775,249.09 126,420.00 2,194,485.88 1,584,723.42 Sales expenses 10,053,242.41 594,879.37 9,943,077.63 127,936.80 Administration expenses 33,133,739.28 17,999,825.99 38,028,192.11 24,049,341.83 Financial expenses 4,731,936.85 -1,127,631.19 4,472,187.33 2,031,042.42 Losses of devaluation of asset 267,115.03 10,894.83 2,662,642.50 -1,380,879.700 Add: Changing income of fair -160,500.00 189,000.00 value(Loss is listed with “-”) Investment income (Loss is listed 28,367,117.06 28,367,117.06 33,146,208.83 33,146,208.83 with “-”) Including: Investment income on 29,192,117.06 29,192,117.06 33,146,208.83 33,146,208.83 affiliated company and joint venture Exchange income (Loss is listed with “-”) III. Operating profit (Loss is listed with 12,407,989.81 13,162,728.06 13,309,682.52 17,099,476.73 “-”) Add: Non-operating income 6,522,810.91 783,231.66 34,365,118.79 34,244,172.79 Less: Non-operating expense 249,159.15 219,850.00 738,573.66 69,158.21 Including: Disposal loss of 396,771.04 37,703.33 non-current asset IV. Total Profit (Loss is listed with “-”) 18,681,641.57 13,726,109.72 46,936,227.65 51,274,491.31 Less: Income tax 2,668,080.54 1,988,180.06 2,298,813.36 2,201,404.78 V. Net profit (Net loss is listed with “-”) 16,013,561.03 11,737,929.66 44,637,414.29 49,073,086.53 Net profit attributable to owner’s 12,630,244.76 11,737,929.66 43,690,242.34 equity of parent company Minority shareholders’ gains and losses 3,383,316.27 947,171.95 VI. Earnings per share i. Basic earnings per share 0.07 0.06 0.24 0.27 ii. Diluted earnings per share 0.07 0.06 0.24 0.27 9.2.3 Cash Flow Statement Prepared by Shenzhen Shenbao Industrial Co., Ltd. January-December, 2008 Unit: RMB Items Amount in this period Amount in last period 29 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 Parent Parent Merger Company Merger Company I. Cash flows arising from operating activities: Cash received from selling commodities and 186,109,629.5 628,443.21 169,753,461.79 13,881,486.00 providing labor services 3 Net increase of customer deposit and interbank deposit Net increase of loan from central bank Net increase of capital borrowed from other financial institution Cash received from original insurance contract fee Net cash received from reinsurance business Insured savings and net increase of investment Net increase of disposal of transaction financial asset Cash received from interest, commission charge and commission Net increase of capital borrowed Net increase of returned business capital Write-back of tax received Other cash received concerning operating activities 14,319,539.10 43,424,085.96 38,828,510.49 35,673,300.00 Subtotal of cash inflow arising from operating 200,429,168.6 44,052,529.17 208,581,972.28 49,554,786.00 activities 3 Cash paid for purchasing commodities and receiving 132,046,607.2 131,614,229.55 650,963.98 labor service 4 Net increase of customer loans and advances Net increase of deposits in central bank and interbank Cash paid for original insurance contract compensation Cash paid for interest, commission charge and commission Cash paid for bonus of guarantee slip Cash paid to/for staff and workers 24,613,922.06 7,370,468.31 30,274,300.73 14,712,645.29 Taxes paid 12,224,248.71 3,328,864.41 10,379,773.93 3,458,465.63 Other cash paid concerning operating activities 31,027,398.96 14,457,825.07 38,763,901.45 92,713,847.43 Subtotal of cash outflow arising from operating 199,912,176.9 25,157,157.79 211,032,205.66 111,535,922.33 activities 7 Net cash flows arising from operating activities 516,991.66 18,895,371.38 -2,450,233.38 -61,981,136.33 II. Cash flows arising from investing activities: Cash received from recovering investment 51,000,000.00 51,000,000.00 Cash received from investment income 35,188,758.99 35,188,758.99 17,850,506.10 17,850,506.10 Net cash received from disposal of fixed, intangible 114,539.93 12,000.00 45,644,015.00 45,615,590.00 and other long-term assets Net cash received from disposal of subsidiaries and other units Other cash received concerning investing activities 5,000,000.00 5,000,000.00 Subtotal of cash inflow from investing activities 35,303,298.92 35,200,758.99 119,494,521.10 119,466,096.10 30 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 Cash Flow Statement (Con.) Prepared by Shenzhen Shenbao Industrial Co., Ltd. January-December, 2008 Unit: RMB Amount in this period Amount in last period Items Parent Parent Merger Merger Company Company Cash paid for purchasing fixed, intangible and other 82,463,140.70 46,539,209.00 75,589,736.98 2,032,319.31 long-term assets Cash paid for investment 1,750,000.00 3,800,000.00 30,251,300.00 Net increase of mortgaged loans Net cash received from subsidiaries and other units Other cash paid concerning investing activities Subtotal of cash outflow from investing activities 82,463,140.70 48,289,209.00 79,389,736.98 32,283,619.31 Net cash flows arising from investing activities -47,159,841.78 -13,088,450.01 40,104,784.12 87,182,476.79 III. Cash flows arising from financing activities Cash received from absorbing investment 21,700,000.00 Including: Cash received from absorbing minority 21,700,000.00 shareholders’ investment by subsidiaries Cash received from loans 83,000,000.00 20,000,000.00 22,000,000.00 22,000,000.00 Cash received from issuing bonds Other cash received concerning financing activities Subtotal of cash inflow from financing activities 83,000,000.00 20,000,000.00 43,700,000.00 22,000,000.00 Cash paid for settling debts 28,500,000.00 22,000,000.00 92,055,920.22 64,055,920.22 Cash paid for dividend and profit distributing or 5,676,395.32 2,759,639.95 5,077,221.59 4,751,567.13 interest paying Including: Dividend and profit of minority shareholder paid by subsidiaries Other cash paid concerning financing activities Subtotal of cash outflow from financing activities 34,176,395.32 24,759,639.95 97,133,141.81 68,807,487.35 Net cash flows arising from financing activities 48,823,604.68 -4,759,639.95 -53,433,141.81 -46,807,487.35 IV. Influence on cash due to fluctuation in exchange rate 82,979.50 -4,393.86 V. Net increase of cash and cash equivalents 2,263,734.06 1,042,887.56 -15,778,591.07 -21,606,146.89 Add: Balance of cash and cash equivalents at the 20,238,034.23 9,331,760.93 36,016,625.30 30,937,907.82 period -begin VI. Balance of cash and cash equivalents at the period 22,501,768.29 10,374,648.49 20,238,034.23 9,331,760.93 -end 31 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 9.2.4 Statement on Changes of Owners' Equity Prepared by Shenzhen Shenbao Industrial Co., Ltd. 2008 Amount in this report period Owners' equity attributable to the parent company Owners' equity attri Gene Total Paid-up Less Items Paid-up Less: ral Ot Minority capital Capital Treas Surplus Retained owners’ capital Capital Trea risk her interest (Share reserves ury reserves profit equity (Share reserves ury capital) Stock provi s capital) Stoc sion I. Balance at the end of the last 181,923,08 80,305,894 31,290,240. 26,592,842. 46,995,759. 367,107,82 181,923,08 80,305,894 year 8.00 .70 37 51 85 5.43 8.00 .70 Add: Changes of accounting 0.00 0.00 0.0 policy Error correction of the last period Others II. Balance at the beginning of 181,923,08 80,305,894 31,290,240. 26,592,842. 46,995,759. 367,107,82 181,923,08 80,305,894 0.00 this year 8.00 .70 37 51 85 5.43 8.00 .70 III. Increase/ Decrease in this 1,173,792.9 11,456,451. 3,383,316.2 16,013,561 0.00 0.00 0.00 year (Decrease is listed with'"-") 7 79 7 .03 12,630,244. 3,383,316.2 16,013,561 (I) Net profit 76 7 .03 (II) Profits and losses calculating into owners' equity 1. Net changing amount of fair value of financial assets available for sale 2. Effect of changes of other owners' equity of invested units under equity method 32 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 3. Effect of income tax related to owners' equity 4. Others 12,630,244. 3,383,316.2 16,013,561 Total of (I)and (II) 76 7 .03 (III) Owners' devoted and decreased capital 1. Owners' devoted capital 2. Amount calculated into owners' equity paid in shares 3. Others 1,173,792.9 -1,173,792. (IV) Profit distribution 7 97 1,173,792.9 -1,173,792. 1. Withdrawal of surplus reserves 7 97 2. Withdrawal of general risk provisions 3. Distribution for owners (shareholders) 4. Others (V) Carrying forward internal owners' equity 1. Capital reserves conversed to capital (share capital) 2. Surplus reserves conversed to capital (share capital) 3. Remedying loss with profit surplus 4. Others 33 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 IV. Balance at the end of the 181,923,08 80,305,894 32,464,033. 38,049,294. 50,379,076. 383,121,38 181,923,08 80,305,894 0.00 report period 8.00 .70 34 30 12 6.46 8.00 .70 34 SHENZHEN SHENBAO INDUSTRIAL CO., LTD. SUMMARY OF ANNUAL REPORT 2008 9.3 Explanation on changes of accounting policy, accounting estimation and settlement method compared with the latest annual report □Applicable √Inapplicable 9.4 Contents, correct amount, reason and its influence of significant accounting errors □Applicable √Inapplicable 9.5 Explanation on change of consolidated scope compared with the latest annual report □Applicable √Inapplicable Chairman of Board of Director: Zeng Pai Shenzhen Shenbao Industrial Co., Ltd. March 19, 2009 35