Annual Report 2004 - china.com.cn · PDF fileE-mail: [email protected] 4. Registered...
Transcript of Annual Report 2004 - china.com.cn · PDF fileE-mail: [email protected] 4. Registered...
本钢板材股份有限公司
BENGANG STEEL PLATES CO., LTD.
Annual Report 2004 (Prepared Under International Accounting Standard)
April 12th 2005
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Important Notes
The members of the Board and the Company acknowledge being responsible for the truthfulness, accuracy, and completeness of the announcement. Not any false record, misleading statement or significant omission carried in this announcement.
No director against the guarantee about the authenticity, accuracy and integrality of this report’s content.
Beijing TIN WHA CPAs and Ho and Ho & Company CPAs issued the standard audit report for the Company with the fair and true opinion.
The Chairman of the Board and General Manager– Mr. Li Mohua, Accounting Principal – Mr. Zhang Guohua hereby declare: the truthfulness and completeness of the report are guaranteed.
This report is prepared both in English and Chinese. When there is any conflict in understanding, the Chinese version shall prevail.
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Table of Contents
I. Company Profile........................................................3
II. Financial Highlight .....................................................4
III. The change of the capital stock and shareholder's situation .....................7
IV. Particulars about the Directors, Supervisors and Employees.....................9
V. Management structure..................................................12
VI. The Shareholders’ Meeting .............................................13
VII. Report of the Board of Directors ........................................14
VIII. The Supervisory Committee Report .....................................23
IX. Significant Events ....................................................28
X Financial Report .....................................................37
XI Documents for Reference .............................................38
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I. Company Profile
1. Name of the Company in Chinese: 本钢板材股份有限公司
In English: BENGANG STEEL PLATES CO., LTD.
Legal name in short form: BSP
2. Legal Representative: Mr. Li Mohua
3. Secretary of the Board: Mr. Liang Guangde
Liaison of stock affair: Mr. Lu Xiaoyong
Address: No.16, Renmin Road, Pingshan District, Benxi City, Liaoning Province
Tel: 0414 7828360 7828010
Fax: 0414 7824158 7827004
E-mail: [email protected]
4. Registered address: No.16, Renmin Road, Pingshan District, Benxi City, Liaoning Province
Post Code: 117000
E-mail: [email protected]
5. Information disclosure media stipulated by the company:
China Securities Journal, Security Times, Hong Kong Commercial Daily
Annual reports also published online at: http://www.cninfo.com.cn
Place where the annual report is prepared and ready for reference: Stock Affair Department, No.16, Renmin
Road, Pingshan District, Benxi City, Liaoning Province
6. Stock listed in: Shenzhen Stock Exchange
(1) Short Form of B-Shares: BENGANGBAN-B Stock Code: 200761
(2) Short Form of the Stock of A-Share: BENGANGBANCAI Stock Code: 000761
7. Misc. information:
Business registration renewed on: April 28, 1999
Business registration renewed with: Liaoning Provincial Commerce & Industry Administration Bureau
Business license number: 2100001049024
Taxation registration number: 210502242690243
Public accountant invited by the Company:
Beijing TIN WHA CPA
Address: 17th Floor, Zhonghua Building, Fuxingmenwai Street, Beijing
Ho and Ho & Company CPAs
Address: Room 304, Leunfa Business Center, No. 2-12 Queen’s Road West, Hong Kong
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II. Financial Highlight
1. Amount of Profit and Formulation In RMB’000
Items Indices
Gross profit 912,073.00
Net profit 700,425.00
Net profit deducted non-recurring gain/loss 701,350.00
Major business profit 1,207,765.00
Other business profit -30,406.00
Operation profit 943,147.00
None business income / expense (net) -33,189.00
Net Cash flow generated by business operation 2,027,329.00
Net increasing of cash and cash equivalents 631,400.00
Items Index
Gross profit 912,073.00
Net profit 700,425.00
Net profit deducted non-recurring gain/loss 701,350.00
Major business profit 1,207,765.00
Operation profit -30,406.00
None business income / expense (net) 943,147.00
Net Cash flow generated by business operation -33,189.00
Net increasing of cash and cash equivalents 2,027,329.00
Note: Non-recurring gain/loss excluded are
Gain/loss from disposal of fixed assets -2,200.00
None-business expenses deducting impairment provision 819.00
Impairment provisions carried back -
Impact of income tax of above items 456.00
Total -925.00
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2. Major accounting data and finance index in the prior 3 years of the Company (Unit: RMB)
2004 2003 2002 Items
Adjusted Not adjusted
Major business turnover 17,349,451.00 11,210,196.00 7,750,477.00 7,750,477.00
Net profit 700,425.00 473,512.00 346,120.00 346,120.00
Gross Assets 8,164,472.00 7,398,116.00 7,319,306.00 6,997,687.00
Shareholders’ Equity (Exclude
Minority Shareholders’ Equity) 5,119,611.00 4,646,386.00 4,172,874.00 4,172,874.00
Earnings per share (diluted) 0.62 0.42 0.30 0.30
Earnings per share (weighted) 0.62 0.42 0.30 0.30
Net asset per share 4.5067 4.0901 3.6733 3.6733
Net asset per share, adjusted 4.5034 4.0867 3.6715 3.6715
Net Cash flow per share generated by
business operation 1.78 0.75 0.66 0.66
Earnings per share after deducting of
non-recurring gain/loss 0.62 0.41 0.32 0.32
Net earnings / capital ratio (diluted) 13.68% 10.19% 8.29% 8.29%
Net earnings / capital ratio (Weighted) 14.02% 10.74% 8.24% 8.24%
Net earnings / capital ratio after
deducting of non-recurring gain/loss
(diluted) 13.70% 9.93% 8.80% 8.80%
Note: Accounting office made ascend adjustment on in advance account and prepay account in 2002 during this
report term. Please find more details on annotation 23 of accounting statement.
3. Profit Statement Attach Table
2004 2003 Net earnings / capital
ratio (%) Per Share Income Net earnings / capital
ratio (%) Earnings per share Profit of the report period On full
amortizing basis
weighted average
On full amortizing
basis weighted average
On full amortizing
basis weighted average
On full amortizing
basis weighted average
Major business profit 23.59% 24.17% 1.0632 1.0632 19.68% 20.74% 0.8051 0.8051
Operation profit 18.42% 18.88% 0.8302 0.8302 17.31% 18.23% 0.7078 0.7078
Net profit 13.68% 14.02% 0.6166 0.6166 10.19% 10.74% 0.4168 0.4168
Earnings per share after deducting of non-recurring gain/loss Profit after equity 13.70% 14.04% 0.6174 0.6174 9.93% 10.47% 0.4063 0.4063
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4. The status of shareholders’ equity movement
In RMB’000
Items Share capital
Share capital
premium
Provision
revised
Statutory
reserves
Un-distributed
profit
Total of
shareholders’
equity
Initial 1,136,000.00 1,403,670.00 293,348.00 381,875.00 1,431,493.00 4,646,386.00
Increased
this year 109,809.00 701,692.00 701,692.00
Decreased
this year 1,267.00 337,009.00 338,276.00
At the end
of term 1,136,000.00 1,403,670.00 292,081.00 491,684.00 1,796,176.00 4,627,927.00
Reason of change
1. The revised reserves decreased by RMB1,267,000 was due to revised fixed assets.
2. The statutory reserves increased by RMB109,809,000, which was drawing of statutory surplus reserves and public reserves
on 10% and 5% of the net profit realized.
3. The profit not distributed has increased by RMB701,692,000, which was due to the net profit realized in the year. The
decreasing of RMB337,009,000 was due to the dividend distributed for the previous year.
5. Diversity between the financial statements prepared under China Accounting Standard and “International
Financial Report Standard”.
Year 2004 Year 2003 RMB’000 RMB’000 Net profit carried by the financial statements under China Accounting Standard 732,062 524,724
Adjustment
- Depreciation drawn on increasing of fixed assets (2,532) (43,101)
- Buildings, plant and equipment revised (29,683) - - Defered taxation - (9,796) - Gains from debt reconstruction 578 1,685
(31,637) (51,212)
Net profit carried by the financial statements under IAS 700,425 473,512
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The followings are the analysing on the influence of significant diversity between the two accounting system on
the shareholders’ equity:
Year 2004 Year 2003 RMB’000 RMB’000 Shareholders’ equity prepared under China Accounting Standard 4,902,711 4,397,271 Adjustment: - Depreciation drawn on increasing of fixed assets 321,764 321,764 - Buildings, plant and equipment revised (89,894) (87,362) - Defered taxation (29,683) - - Gains from debt reconstruction 14,713 14,713 216,900 249,115
Shareholders’ equity prepared under IAS 5,119,611 4,646,386
III. The change of the capital stock and shareholder's situation
(I) Movement of Capital Share
1. Share movement table of the Company (End on 31th Dec. 2004 Unit: share)
Changed (+,-) Before the change
Share allotted
Bonus shares
Common reserves Transfer shares
Others Sub-total
After the change
I. None negotiable shares 1. Promoter’s shares Including: State holding shares Domestic legal person shares Overseas legal person shares Others 2. Legal person shares placed 3. Employees’ shares 4.Preference shares or others Total of non-negotiable shares II. Negotiable shares 1. Common shares in RMB 2. Foreign shares in domestic market 3. Foreign shares in overseas market 4. Others Total of negotiable shares III. Total of capital shares
616,000,000
616,000,000
30 000
616,030,000
119,970,000 400,000,000
519,970,000 1,136,000,000
616,000,000
616,000,000
30,000
616,030,000
119,970,000 400,000,000
519,970,000
1,136,000,000
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2. The issuance of stocks and listing situation
(1) Share placing status in 3 years prior to the end of the report term
The Company issued shares once in 3 years prior to the end of the report term. The Company issued domestic
listing foreign capitals share (B-share) 400 million shares in Shenzhen Stock Exchange, the placing price is
HKD2.38 on Oct. 12th 1997, the listing date was on July 8 , 1997 and the quantity was 400 million shares that
got permission to be listed circulating. On November 3, 1997, issued the domestic listing RMB common stock
(A-Share) 120 million shares in Shenzhen Stock Exchange, issue price is RMB5. 40, listing date was January
15th, 1998, the quantity was 108 million shares that got permission to be listed circulating.
(2) The issued to society 12 million shares of the 120 million RMB common stock was staff shares, the
issuing date was November 3 , 1997, the issue price was RMB5. 40, company's staff shares were listed and
circulated on July 16, 1998. The listing quantity is 11,970,000 shares to get permission this year and still have
30,000 shares which holding by senior executives were frozen.
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(II) Shareholder status
1. The total amount of shareholders is 89470 at the end of report term.
2. Holding status of the top 10 shareholders (End of Dec. 31th 2004)
No. Name of the shareholder Amount of
holding
Proportion in
capital share
(%)
Nature of the
share
1
2
3
4
5
6
7
8
9
10
Benxi Steel (Group) Co., Ltd.
DEUTCHE BANK AG LONDON
MELLON/VIRGINIA REIREMENT SYSTEM
ACADINA EMERGING MARKETS EQUITY
FUND
Zeng Xinrong
Li Weiqin
YULAN DANG DE FERREYRA
UBOC A/C UAM FUNDS INC ACADIAN
EMERGING MKTS PORT
Zhang Zukun
Fang Yijun
616,000,000
5,763,934
3,484,300
3,160,206
2,616,100
2,579,300
2,212,900
2,066,180
2,005,100
1,785,740
54.23
0.51
0.31
0.28
0.23
0.23
0.19
0.18
0.18
0.16
State-owned
legal person
share
Foreign shares
Foreign shares
Foreign shares
Foreign shares
Foreign shares
Foreign shares
Foreign shares
Foreign shares
Foreign shares
Note:
(1) Benxi Steel (group) Co. Ltd is the controlling shareholder of the Company, it holds shares on behalf of the
country, and the holding shares have not been listed as negotiable stocks.
(2) There is no related transaction relationship between Benxi Steel (group) Co. Ltd and other shareholders
among of the top 10 shareholders.
(3) There is only 1 shareholder - Benxi Steel (group) Co. Ltd is holding more than 5% (including 5%) of the
Company’s share, its holding shares have not increased and decreased change status this year and the
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situation of hypothecating , freezing etc. has not happened in its holding shares.
3. The introduction of controlling shareholder's status of the Company
Name of controlling shareholder: Benxi Steel (Group) Co., Ltd.
Legal representative: Zhang Yingfu
Established date: July 10th 1996
Registration Capital: RMB 4,700 million
Company's classification: State-own proprietorship, Authorized Business
Business scope: steel smelt, mine exploitation, panel rolling, oxygen manufacturing, pipe manufacturing,
power generating, coal industry, special steel material manufacturing, heating, supply of the water, electricity,
wind and gas, metal processing, electro mechanics builds, device manufacturing, architecture installation,
railway, highway transportation, import and export trade, traveling industry, construction material , refractory
material , counting device instrument , goods and materials supply and marketing, development of real estate ,
scientific research , design , information service ,etc.. Authorized operate and manage state-own assets.
The property right and control relationship between the Company and actual controller are shown as the
follow picture:
100%
54.23%
State-own assets committee of Liaoning Province
Benxi Steel (Group) Co. Ltd.
Bengang Steel Plate Co. Ltd
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4. There is no legal person shareholders holding shares more than 10% (including 10%) except for the
controlling shareholder Benxi Steel (Group) Co. Ltd. of the Company.
5. Holding status of the top 10 currency share shareholders (End of Dec. 31th 2004)
No. Name of shareholder Amount of holding Proportion in capital share (%)
Nature of the share
1 2 3
4 5 6 7
8 9 10
DEUTCHE BANK AG LONDON
MELLON/VIRGINIA REIREMENT SYSTEM ACADIAN EMERGING MARKETS EQUITY FUND
Zeng Xinrong
Li Weiqin
YULAN DANG DE FERREYRA UBOC A/C UAM FUNDS INC ACADIAN EMERGING MKTS PORT
Zhang Zukun
Fang Yijun
Huang Liandi
5,763,934 3,484,300 3,160,206
2,616,100 2,579,300 2,212,900 2,066,180 2,005,100 1,785,740 1,763,924
1.4410 0.8711 0.7901 0.6540 0.6448 0.5532 0.5165 0.5013 0.4464 0.4410
Foreign shares Foreign shares Foreign shares
Foreign shares Foreign shares Foreign shares Foreign shares
Foreign shares Foreign shares Foreign shares
Note: the related transaction relationship between this the top 10 currency share shareholders are unknown.
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IV. Particulars about the Directors, Supervisors and Employees
(I) Profiles of the directors, supervisors and senior executives of the Company
Name Sex Age Position Job term Hold share at the beginning
of the year
Hold share at
the end of the year
Remarks
Li Mohua Male 56 Chairman of the Board,General
Manager
July 26th 2003-July 26th 2006
Yu Tianzhen Male 52 Vice Chairman of
the Board
July 26th 2003-July 26th 2006
10000 10000
Get reward form
Shareholder Unit
Liang Guangde Male 50
Director,Vice General manager
and Secretary of The
Board of Directors
July 26th 2003-July 26th 2006
10000 10000
Liyu Male 49 Director July 26th
2003-July 26th 2006
Get reward form
Shareholder Unit
Zhang Guiyu Male 45 Director
July 26th 2003-July 26th 2006
Guan Dianguo Male 58
Employee Representative
Director
July 26th 2003-July 26th 2006
Zhong Tianli Female 49 Independent
Director
July 26th 2003-July 26th 2006
Xue Xiangxin Male 51 Independent
Director
July 26th 2003-July 26th 2006
Liu Junyou Male 52
Chairman of Supervisory Committee
July 26th 2003-July 26th 2006
He Yusheng Male 54
Vice Chairman of Supervisory Committee
July 26th 2003-July 26th 2006
Get reward form
Shareholder Unit
Yu Ping Female 52 Supervisor May 25th
2004-May 25th 2007
Get reward form
Shareholder Unit
Zhang Fuchen Male 55
Employee Representative
Supervisor
July 26th 2003-July 26th 2006
Li Bingqiang Male 39
Employee Representative
Supervisor
May 25th 2004-May 25th 2007
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(II) The status of director and supervisor work in shareholding parties
Name Position Work Period
Li Mohua Director of Benxi Steel (Group) Co., Ltd. April 1996-Present
Yu
Tianzhen
Director and General Manager of Benxi Steel (Group)
Co., Ltd.
Feb. 2001-Present
Li Yu Vice general accountant of Benxi Steel (Group) Co., Ltd. Nov. 2004-Present
Liu Junyou Discipline inspection commission secretary of Benxi Steel (Group) Co., Ltd.
August 2000-Present
He
yusheng
Vice General Economist of Benxi Steel (Group) Co.,
Ltd.
Nov. 2004-Present
Yuping Director of Audit office of Benxi Steel (Group) Co., Ltd. August 2003-Present
(III) Major working experience of director and supervisor
Status of the members of director:
Li Mohua, Male, age 56, postgraduate degree, senior economist, Mr. Li once held the position of Minister of
propaganda department , Vice director of Bengang No.2 Steel Factory; Manager and secretary of Party
Committee of Bengang Roller Factory and Roller Casting Company; director and secretary of Party
Committee of Bengang Group Co. No.2 Steel Factory; the standing commissioner of Party Committee and vice
general manager of Bengang Group Co.; Mr. Li now is taking the position of the standing commissioner of
Party Committee of Bengang Group Co. and the chairman of the board and general manager of Bengang Steel
Plate Co., Ltd..
Yu Tianzhen, Male, age 52, postgraduate degree, senior economist, Mr. Yu once held the position of Minister of
propaganda department of Bengang No.2 Steel Factory; secretary and vice secretary of Party Committee of
Bengang Construction Company; General Manager of No.3 Construction Company; secretary of Party
Committee and chairman of the board of Bengang Construction Co.; Vice General manager of Bengang Group
Co; Mr. Yu is now taking the position of Vice chairman of the board, general manager and vice secretary of
Party Committee of Bengang Group Co. and vice chairman of the board of Bengang Co., Ltd..
Liang Guangde, Male, age 50, postgraduate degree, senior engineer, Mr. Liang once held the position of vice
factory director and director of Bengang No. 2 steel-making Factory; factory director of Cold-rolled sheet metal
Factory of Bengang Group; factory director of Hot Continuous Rolling factory of Bengang Steel Plate Co., Ltd.;
Mr. Liang is now taking the position of vice general manager and secretary of the Board of Directors of
Bengang Steel Plate Co., Ltd..
Liyu, Male, age 49, Master degree, senior accountant, Mr. Li once held the position of vice section
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chief of Cost office of finance department and section chief of taxation office of Bengang Co., Ltd..; minister of
finance office and minister of pricing office of Bengang Co., Ltd..; Mr. Li is now taking the position of vice
general accountant of Bengang Group Co.
Zhang Guiyu, Male, age of 45, University degree, senior engineer, Mr. Zhang once held the position of director
assistant, vice director and acting factory director of Steel-making Factory; Mr. Zhang is now taking the
position of director of Steel-making Factory.
Guan Dianguo, Male, age 58, College degree, senior Zheng gong professional. Mr. Guan once held the position
of director of labor union office of Bengang Co.; Minister of propaganda department of labor union office of
Bengang Co.; chairman of Electromechanical Installation Company of Bengang Group Co., Ltd.; acting
chairman of labor union of Bengang Steel Plate Co., Ltd. Mr. Guan is now taking the position of special affair
work.
Status of the members of independent directors:
Zhong Tianli, Female, age 49, she is the professor of North-east University Business School and president
of Financial Management Institute. She was studied in the finance of the Northeastern finance and economics
university from September of 1978 to July of 1982, obtained the bachelor's degree of economics; Studied as a
graduate student in the Northeastern accountancy department of finance and economics university from
September of 1986 to July of 1989, obtained the economics master's degree; Between Sept. 2000 and June 2003,
she’s studying in Northeast University in doctorial course and got doctorial degree thereafter.Took the post as
Singaporean Nanyang Technology University (NTU) Asia and commercial visiting researcher of research center
from March of 1995 to March of 1996.
Xue Xiangxin, male, 51 years old, a steel metallurgical discipline doctoral supervisor of Northeastern
University now, scientific and technical place division chief , Northeastern University material and
metallurgical resources of metallurgical institute and chief of research institute of environmental project of
Northeastern University. He was studied an academic program of metallurgical physical chemistry in the
colored metallurgy of the Northeastern technical college (Northeastern University now) from 1974 to 1977. Left
the school to receive training and take the post as the assistant in 1977, studied for the master's degree in the
Northeastern technical college from 1980 to 1983, and obtained the master's degree in May of 1983; enter the
Northeastern surface process technology research institute of technical college and work, take the post as the
assistant after graduating. Studied for the doctorate, was promoted to a lecturer in 1988 in the metallurgical
specialty of Northeastern technical college steel in April of 1985, and obtained the engineering doctorate in
June of 1990; Promoted to the associate professor in June of 1991; Promoted to a professor in 1998.
Status of the members of supervisor:
Liu Junyou, male, 52 years old, the academic credentials of the university, senior political and ideological work
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teacher. Mr. Liu once held the position of directors of Party Committee of Benxi Subordinate Institution of
municipal Party committee of the Communist Party of China; propaganda ministers and committee members of
the Benxi Communist Party of China municipal Party subordinate committee of working committee of
organization,; director of Supervisory Bureau of Benxi , member of leading Party group; vice director of
management committee of hot spring development district, member of leading Party; director of Benxi office of
building materials industry, member of Party Committee; vice Secretary, member of leading Party group of
Benxi Gongyuan cement (group); vice secretary and director of Supervisory Bureau of discipline inspection
commission of Benxi; Mr. Liu is now taking the position of the standing commissioner of Party Committee,
ministry of office and discipline committee director of Bengang Group.
He Xusheng, male, 54 years old, college degree, senior economist, Mr. He once held the position of vice section
chief of Planning office of Bengang Co., Ltd.; assistant minister of planning department and assets management
division director of Bengang Group Co., Ltd.; vice-minister of enterprise management department of Bengang
Group Co., Ltd; acting minister, minister of planning department of Bengang Group Co., Ltd.; He is now taking
the position of the vice chief economist of Bengang Group Co., Ltd..
Zhang Fuchen, Male, 55 year old, university degree, engineer. Mr. Zhang once held the position of assistant
director and vice director of Bloom Factory; chairman of labor union of Hot Continuous Rolling Factory; He is
now taking the position of vice director, chairman of labor union and Discipline Committee secretary of Hot
Continuous Rolling Factory.
Yuping, Female, 52 years old, university degree, she was once held the position of vice director, director,
assistant of director and vice section chief of audit office of Bengang Group Co., Ltd..
Li Bingqiang, Male, 39 years old, university degree, he was once held the position of vice director, director of
casting workshop and vice director of production department of the Company; he is now taking the position of
director of sheet metal mold arrangement office of casting factory.
Note: there are no statuses shown that the incumbent directors (independent directors are not included) and
supervisors are working as full time or part time to other organizations but only work for shareholder’s
organization.
(IV) Annual Reward Status
1. The director, supervisor and senior executive getting the salary from the company monthly according to the
regulation about salary management and classification standard in 2004.
The total amount of reward (including base pay, related bonus, welfare, housing allowance and other allowances,
etc.) of incumbent director, supervisor and senior management receive form the Company every year is around
RMB306,400, the total amount of the top 3 director reward is RMB183,700, the total amount of the top 3
supervisor reward is RMB107,400.
Allowance of Independent Director is: RMB20, 000 per person per year
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there are 13 incumbent director, supervisor and senior management of the Company, 6 of them (Independent
director is not included) get reward from the Company, there are 1 person get total reward RMB 15,000-40,000;
2 people receive RMB40,000-50,000;3 people receive RMB 50,000-100,000 in one year.
(V) Name and reason of director, supervisor and senior management people to leave their
post in reporting period.
Mr. Sunxiao and Wuwei not longer take the position of director of the Company in reporting period.
(VI) The status of employee of the Company
There are 3,843 employees in position by the end of Dec.31th 2004.
1. Classified by occupations: production people are 3,227, count for 83.96%; Marketing people are 49, count for
1.28%; technology people are 285, count for 7.42%; finance people are 35, count for 0.91% and
administration people are 247, count for 6.43%.
2. Classified by education level: graduate degree are 24, count for 0.63%; university degree are 512, count for
13.32%; college degree are 524, count for 13.64%, secondary specialized , technical and high school degree
are 1,575, count for 40.98%;others are 1,208 and count for 31.43%.
3. There are 1,686 retired employees get retirement pay form the Company.
V. Management structure
(I) Company Administration
The Company unceasingly makes progress on legal person administration structure, establishing modern
organization system and operation in legally by according to the regulations and requirements of Company Law,
Securities Law, Listing Company administration Principle and the Guiding Opinion of Establishing Independent
Director System in Listing Company. The Company and sharecontrolling shareholder – Benxi Steel (Group)
Co., Ltd carried out separation on employee, finance and assets, institution and operation were independent as
well. The Company formulated and passed Investor Relationship Management System and Internal Control
System in the reporting period and all these contact and communication with investors strengthen company’s
internal management in order to promote company’s criterion operation.
(II) Position implementation status of independent director
Independent director attended the entire shareholder meeting and the board meeting and played an important
19
role on important strategy, routine work and maintenance the legality right of the Company and entireness
shareholder by according to the law, regulation and Article Association's given responsibility in reporting term.
The status of independent director attends of the Board of Directors
Name of Independent
Director
Number of board meetings shall
present
Presented personally
(Times)
Presented by consignee (Times)
Absent (Times) Remarks
Zhong Tianli 4 4 0 0
Xue Xiangxin 4 2 2 0 Went on errands and entrusted Zhong Tian Li to vote
Note: The independent director has not put forward the objection to relevant items that the Company passed.
(III) Separation status in such aspects as personnel, assets, financial affairs, institution,
business, etc between the Company and controlling shareholders.
1. The aspect s of personnel: The Company and controlling shareholder are separate in such aspects as labor,
personnel and salary management. Such senior executives as company's chairman, general manager, vice
general manager, secretary of Board of Directors, etc. get salary from the Company, and have not held the
important position beyond a director in shareholder's unit.
2. Assets aspect: The Company and controlling shareholder's relationships between ownership and management
of enterprises are clear, have independent purchase, production, marketing system.
3. Financial affairs aspect: The company has independent financial accounting, the accountant checks and
calculates system and financial management system were improved are complete, applied the independent
bank account and pay taxes independently.
4. Organization aspect: The internal of the Company operates independently; organization structuring and
working function are totally independent.
5. Business: Company have independence improved production business plan, financial affairs check and
calculate , personnel , raw material supplies and products selling business system.
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VI. The Shareholders’ Meeting
The Company held shareholder meeting once in 2004.
(I) The status of the shareholders' meeting on notice, convening and holding
The Board of Directors of the Company published the announcement about holding 2003 shareholder meeting
on China Securities Journal, Security Times and Hong Kong Commercial Daily on April 23rd 2004.
the 2003 shareholders' meeting held on May 25, 2004 by the Company in Bengang Hotel in Benxi city Liaoning
Province, the consignee of shareholder and shareholder who attend meeting amount is 19, representative
632,378,394 shares, accounts for 55.67% of the total amount of the Company's shares, B-share consignee of
shareholder and shareholder amount is 17, representative shares are 16,368,394 shares, accounts for 4.09 of the
B-share share.
(II)The Passed or Rejected Proposals of Shareholders Meeting and The Publishing Disclose Date and Newspaper of Resolutions.
The meeting examined and passed the following reports and proposals by voting method.
1. The 2003Board of Directors Working Report. 2. The 2003 Supervisory Committee Working Report. 3. The 2003 Annual Report and Abstract of the Company. 4. The 2003 Finance Final Accounts Report of the Company. 5. The 2003 Profit Distribution Proposal of the Company. 6. With Regard to the Modification Proposal of Articles of Association of the Company. 7. With Regard to the Replacing Supervisor Proposal of the Company. 8. The Proposal of Investing on Building No.4 Converter Casting Project 9. With Regard to the Proposal of Investing on Rebuilding 1700mm Hot Rolling Mill. 10. With Regard to the Proposal of Modification Integration Service Agreement. 11. With Regard to the Proposal of Modification Depreciation Life of Regular Assets. 12. With Regard to the Proposal of Hiring Beijing TIN WHA CPAs and Ho and Ho & Company CPAs as
Auditor in 2003 and 2004.
The announcement of resolution of the shareholder meeting was published on China Securities Journal, Security
Times and Hong Kong Commercial Daily on May 28th 2004.
(III) The status of voting and replacing director and supervisor of the Company.
This shareholder meeting has examined and passed the proposal of replacing supervisor, Yuping and Li
Bingqiang were voted to be supervisor of the Company.
21
VII. Report of the Board of Directors
(I) Analyzing and discussing of operation status
Under the powerful continuously growth situation of steel market at home and abroad in 2004 and the
competition is getting fierce day by day, the Company catches market opportunities, effort to increase
production and revenue, improve product quality, develop " double high products " in a more cost-effective
manner, expanding the production and selling constantly, fully utilize strategy of revitalizing old industrial base
of the Northeast of implementation that the 16th National Congress of Communist Party of China puts forward
to assign, adhere to the scientific development view, accelerate technological transformation in an all-round
way , make great efforts to strengthen the key competitiveness. Overcome by every possible means of fire
material rise in price and some original fuel in short supply and transportation disadvantage, finished several
producing operations objective in an all-round way and had made the good achievement. In report period, the
output of steel finished 4.98 million tons, increased by 14% compared with the same period of last year;
finished hot-rolled plate output 4,220,000 tons, increase by 5% compared with the same period of last year.
Achieved major business income of RMB 17.3 billion mainly in the whole year, increase by 15% compared
with that of last year; Core business profit is RMB 1.2 billion, increase by 26% compared with the same period
of last year; Net profit is RMB0.73 billion, increase by 40% compared with the same period of last year.
(II) Business Status of the Report Term
1. Major business scope and its operation status
(1)The Company is engaged in the sale of steel smelting, panel rolling and other relevant products, the final
products are mainly hot-rolled panel and part of cast steel mold.
(2)The formulate status of major businesses income and major businesses profit of the Company.
Products Major business income
Proportion in major business income
Major business profit
Proportion in major business profit
Molten steel 487,823,918.80 2.81% 8,291,155.66 0.69%
Steel mold 1,358,125,277.44 7.83% 171,828,637.77 14.20%
Continuous casting billet 15,286,537,841.61 88.11% 1,013,705,381.70 83.76%
Hot Plate 77,858,618.35 0.45% 1,801,766.87 0.15%
Disposal of materials 139,105,813.60 0.80% 14,671,009.24 1.21%
Others 17,349,451,469.80 1,210,297,951.24
Total 10,398,620,144.95 742,607,342.77
Including: related transactions 487,823,918.80 2.81% 8,291,155.66 0.69%
Molten steel 1,085,897,088.11 6.26% 204,622,677.96 16.91%
Hot Plate 8,685,837,270.59 50.06% 515,023,712.15 42.55%
Others 139,061,867.45 0.80% 14,669,797.00 1.21%
(3)The major business income and profit status of major product distribution of the company
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Regions Major business income Proportion in major
business income Major business profit Proportion in major
business profit North 2,239,896,163.26 12.91% 156,255,184.33 12.91% North-east 8,750,345,743.00 50.44% 610,424,228.33 50.44% East 4,092,101,767.78 23.59% 285,465,070.43 23.59% Mid-south 227,966,488.61 1.31% 15,902,945.09 1.31% North-west 9,525,765.27 0.05% 664,517.50 0.05% South-west - 0.00% - 0.00% Export 2,029,615,541.88 11.70% 141,586,005.55 11.70% Total 17,349,451,469.80 1,210,297,951.24
(4) The contrast status of Company’s major product distributing in area:
Regions Major business income Increased/Decreased
compared to last year North 2,239,896,163.26 28.05% North-east 8,750,345,743.00 58.93% East 4,092,101,767.78 29.43% Mid-south 227,966,488.61 -60.68% North-west 9,525,765.27 19.30% South-west - -100.00% Export 2,029,615,541.88 890.02% Total 17,349,451,469.80
(5) The formulation status of major business income manages more than 10%’s major product of the Company.
Products Major business income Major business cost Gross profit ratio %
Continuous rolling billet 1,358,125,277.44 1,186,296,639.67 12.65%
Hot Plate 15,286,537,841.61 14,272,832,459.91 6.63%
Including: related transactions 9,771,734,358.70 9,052,087,968.59
Continuous rolling billet 1,085,897,088.11 881,274,410.15 18.84%
Hot Plate 8,685,837,270.59 8,170,813,558.44 5.93%
Note: This term’s major product of hot plate’s gross profit decreased compared to the last year is due to the
price of entire raw material market of steel increasing continually. The portion of continuous rolling billet has
increased in gross profit due to the increasing of export.
2. The Status of Major Suppliers and Clients
Total amount of the top 5 vendors 8,627,422,882.58 Proportion in purchasing total amount 96.09% Total amount of the top 5 buyers 4,646,903,084.17 Proportion selling total amount 41.45%
23
3. Problem, Difficulty and Solution Appearing in Operating
The major problem and difficulty of the Company in reporting period is: the contradiction among increased
production and revenue, firing materials rising in price and transportation shortage; contradiction among
transform overall with the safety in production and achieving the high production; contradiction among highly
expend on market of scale and marketing of steel trade, etc. For this reason, the Company has taken the
following main measures:
(1) Fully utilize various kinds of modernized means, collect the market information, analyze the market trend
scientifically, especially in some original fuel prices, rush to purchase in the fierce market, through the
market information in time and accurately adopt the strategic on the purchase of compare with price and
quality, adopt the feasible measure on the premise of guaranteeing the original fuel to supply and reduce the
purchase cost by every possible means.
(2) In order to guarantee the high production and accelerate technological transformation to advance together ,
organize and produce necessary transportation and various kinds of energy medium scientifically and
rationally, insist exploit potentialities inwards , produce by focusing on the demand in different period ,
adjust and protect operation management style scientifically, take the essential restriction and assistant
measure to the production , guarantee major production with possible method. And in order to make an
increased output on steel and hot rolling plate under the situation of altering technology in a large-scale.
(3) Accommodate the need of building good quality steel plate base, face the highly competition of steel
industry, base on the long-term development strategy that make a further improvement on production and
client; develop a set of new clients. At present, the proportion of hot plate direct selling user has up to 64%.
(4) In order to overcome the unfavorable factor of the main original fuel raised in price by a wide margin ,
comparing to the advanced level of energy consumption of process with other companies which is in the
same industry, devote more efforts on management constantly, require strictly , examine strictly. Make the
main economic technical indicator have certain improvement.
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(III) Investment status
Utilizing of fund raised previously:
The fund raised in share placing of year 2000 has already been put into utilization completely. The details have
been disclosed in the interim report and annual report of 2000.
Utilization of non-raised fund:
During the report period, the company finishes RMB939,430,000 of investment in technological
transformation with the own fund. The concrete conditions are as follows:
1. 1’225ton crane project, started in 2004. Investment accumulated to RMB7.39 million at the end of 2004. Will
be finished in 2004
2. Molten iron pre-process project: planned to invest RMB29.64 million, started in 2003 Investment of
RMB15.80 million occurred in the year of 2003, and accumulated to RMB25.95 million, will be finished in
2004.
3. 13 sector project: planned to invest RMB13.60 million, started in 2003, RMB12.11 million occurred in 2003,
accumulated to RMB15.33 million till the end of 2004, and will be completed in 2004.
4. Furnace disassembling machine project: planned to invest RMB2.2 million, started in 2003, RMB1.66
million occurred in this term, accumulated to RMB2.09 million till the end of 2004, this project is expected to
be completed in 2004.
5. Roller polishing shop project: planned to invest RMB60.31 million, started in 2003, RMB20.73 million
occurred in 2003, accumulated to RMB60.74 million till the end of 2004, and was completed in 2004.
6. 5# heating furnace project: planned to invest RMB91.46 million, started in 2003, RMB110 thousand occurred
in 2003, accumulated to RMB82.78 million till the end of this term, this project was completed at the end of
2004.
7. Electric motor purchased in small batch. Started in 2004, accumulated to RMB3.5 million. Finished in 2004.
8. Cutting machine purchased in small batch. Started in 2004, accumulated to RMB72 thousand. Finished in
2004.
9. Electric motor purchased in small batch. Started in 2004, accumulated to RMB460 thousand. Finished in
2004.
10. Magnetic drills purchased in small batch. Started in 2004, accumulated to RMB720 thousand at end of 2004.
Finished in 2004.
11. 3# heating furnace project: planned to invest RMB78.00 million, started in 2002. RMB4.91 million occurred
in 2003, accumulated to RMB5.41 million till the end of 2004, this project is in preparation stage.
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12. 4# heating furnace project: planned to invest RMB1,352,632,000, started in 2003. RMB9.34 million
occurred in 2003, accumulated to RMB680.26 million till the end of 2004, this project will completed in 2006.
13. Air compressor station: Total investment RMB8 million, started in 2004, accumulated to RMB3.1 million at
the end of 2004. Will be completed in 2005.
14. Miller reforming project: Total investment RMB9.23 million, started in 2004, accumulated to RMB6.5
million at the end of 2004. Will be completed in 2005.
15. Renewing project of No.4 crane: total investment RMB2.6 million, started in 2004. Accumulated to
RMB650 thousand at the end of 2004. Will be completed in 2005.
16. Annex eforming project: Total investment RMB210.93 million, started in 2003, RMB29.49 million occurred
in 2003, accumulated to RMB191.23 million at the end of 2004. Will be completed in 2005.
17. Square billet project: total investment of RMB263.6861 million, started in 2005, will be completed in 2006.
(IV) Finance status of the Company
Items Year2004 Year2003
Increase/
Decrease (%)
Gross Assets 8,164,472.00 7,398,116.00 10.36% Long-term liabilities 311,862.00 325,688.00 -4.25% Shareholders’ equity 3,983,611.00 3,510,386.00 13.48% Net Cash flow per share generated
by business operation 1.78 0.75 137.37%
Note: Reason of movement
1. The increased gross assets were mainly caused by the healthy currency capital of market and the increased
account receivable this year.
2. The decreased long-term liabilities was mainly caused by the reimburse loan of bank this year.
3. The stockholder's equity increased was mainly resulted from the reason that the achieved net profit
increased this year.
4. The net amount of the cash flow increased, it was mainly caused by company's products sales volume, price
were higher compared with last year and the selling returned money and increased payment of collecting
from customer for goods this year.
26
Items Year 2004 Year 2003 Increase/Decrease (%)
Turnover 17,349,451.00 11,210,196.00 54.76%
Sales cost 16,141,686.00 10,295,582.00 56.78%
Gross profit 1,207,765.00 914,614.00 32.05%
Periodic expense 265,286.00 187,823.00 41.24%
Other business
expenses/income -33,189.00 -3,364.00 886.59%
Net profit 700,425.00 473,512.00 47.92%
Note: Reason of movement
1. Major business income increased was caused mainly by sales volume increased compared last year and the increased sales price.
2. Major business cost increased was caused mainly by sales volume increased compared last year and the increased sales price of raw materials.
3. Major business profit increased was caused mainly by sales volume increased compared last year and the increased sales price.
4. Periodic expenses decreased were caused mainly by export harbor incidental expenses decreased of sales expenses.
5. Non-business expenditure reduced was mainly resulted from not counting and withdrawing the reducing prepares value of fixed assets this year.
6. The net profit increased was resulted mainly from the reason that this year’s core business profit increased compared with last year.
(V) During the report period, there is no great change on production environment , macro
policy and regulation of the Company, and no status on already, ongoing or be going to
influence the Company's financial situation and management performance.
(VI) Major Work on Year 2005
It will be an implementation of scientific development thinking year of 2005, consolidate the macro adjustments
and controls achievement, the key year of keeping social healthy situation of economy. The company should
catch the historical opportunity tightly, reforming, transforming and get development with the scientific
development thinking, quickening the steps of developing in an all-round way and confirm 2005 as " Year of
quality and variety ".
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1. Organize production efficiency with science and achieve the whole year goal of high production. It should
focus on the imbalance illogicality between major product’s increased fuel and transportation, make an
effort on the connection of different processing working procedures insure hot plate can finish the
production of 5,550,000 tons and steel production of 7,000,000 tons.
2. Insist on taking market as the direction, advance the effective adjustment, optimization and upgrading of
product structure in a more cost-effective manner. According to the demand of following new-type and
catch the development opportunity of national macro adjustment and control policy; insist on adjusting
product structure during development, promote the product’s classification during adjusting. Target at the
top-grade field and develop and exploits double-mutual steel , anti-corrosion container steel of hot rolling
and other kind of high quality steel and achieve batch manufacture gradually.
3. Adhere to the demand for the scientific development thinking, combine with the overall plan of the Company built the high quality steel panel base in order to meet the effective adjustment of product
structure and development of optimization and upgrading strategy, accelerate technological transformation
in an all-round way. Not only to guarantee the cross year project finished construction and go into
production, and also manage well of the newly-built project construction. It also should doing a good job
basis on key technological transformation of this year, according to the development goal of " eleven five ",
and start on planning of the third round of transformation and previous work.
4. According to the demand of developing recycle economy; make great efforts to the measure on saving energy, reducing cost and environmental pollution. With fast promotion of equipment, no only to close, stop,
eliminate the high consume energy , with serious pollution draggle technology and equipment successively,
fully utilize existing resources and energy as a basic that strengthen the recycling of the energy and usable
second hand resource during steel production process. Meanwhile , it should take the corresponding
measure and make the comprehensive energy consumption of steel drop to under 900 kilograms per ton of
steel, the steel consumes fresh water drop to under 8 tons per ton of steel, the converter steel material
consumes reaches the national leading level, achieves smelting steel with minus energy in an all-round way.
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(VII) The Status of the Board of Directors’ Routine Work.
1. The status of the Board of Directors meeting and the content of resolution.
The Board of Directors held 4 meetings during the report period and the details are as following:
---- Bengang Steel Plate Co. Ltd held The 5th Session of the 3rd Term of Board of Directors Meetings on 15th in
March of 2004 in the conference room of second floor of the Company Benxi City Liaoning Province. The
meeting has examined and passed the following proposals: (1) Proposal of dismissing
PriceWaterHouseCoopers CPA; (2) Proposal of hiring Beijing TIN WHA CPAs and Ho and Ho &
Company CPAs as auditor in 2003.
The resolution announcement of this meeting was published on Hong Kong Commercial Daily, China Securities
Journal and Security Times on Mar. 16th 2004.
---- Bengang Steel Plate Co. Ltd held The 6th Session of the 3rd Term of Board of Directors Meetings on 20th
in April of 2004 in the conference room of second floor of the Company Benxi city Liaoning Province. The
meeting has examined and passed the following proposals: 1 2003 Work Report of The Board of Directors; (2)
2003 Annual Report and Abstract; (3) 2004 First Quarterly Report; (4) 2003 Finance Final Accounts Report; (5)
Year 2003 Profit Distribution plan; (6) Proposal about Modify Article of Association; (7) Proposal about
applying to withdraw especially dealing with stock; (8) Proposal of investing to build No.4 converter steel
casting project; (9) Proposal of investing on supporting and rebuilding 1700mm hot continuous steel rolling mill;
(10) Proposal of modifying integration service agreement; (11) Proposal of assets arrangement of blooming
steel rolling factory; (12) Proposal of modifying classify depreciation life of fixed assets; (13) Proposal of
continually recruit Beijing TIN WHA CPAs and Ho & Company CPAs as auditor; (14) Proposal of holding
2003 shareholder meeting.
The resolution announcement of this meeting was published on Hong Kong Commercial Daily, China Securities
Journal and Security Times on April 23th 2004.
--- Bengang Steel Plate Co. Ltd held The 7th Session of the 3rd Term of Board of Directors Meetings on July
28th 2004 in the conference room of second floor of the Company Benxi city Liaoning Province. This meeting
examined and passed 2004 Semi-Annual Report and Abstract of Bengang Co., Ltd.
The resolution announcement of this meeting was published on Hong Kong Commercial Daily, China Securities
Journal and Security Times on July 31th 2004.
--- Bengang Steel Plate Co. Ltd held The 8th Session of the 3rd Term of Board of Directors Meetings on Oct.
20th 2004 in the conference room of second floor of the Company Benxi city Liaoning Province. This meeting
examined and passed the following proposals: (1) 2004 Third Quarterly Report of Bengang Co., Ltd. (2)
Proposal about accelerates draw depreciation.
The resolution announcement of this meeting was published on Hong Kong Commercial Daily, China Securities
Journal and Security Times on Oct. 22th 2004.
29
2. The implementation status of the Board of Directors against the shareholder meeting
Implementation status of 2003 profit distribution proposal
The 2003 shareholder meeting has examined and passed on 25th May 2003 that the distribution plan of 2003
was: Benchmark with the total capital stock (1,136,000,000 shares) on Dec. 31th 2003 that distribute to all
shareholders every 10 shares with cash bonus RMB2.00 (including taxation), plan to distribute the common
stock dividend altogether this time in RMB 227,200,000.00, the surplus RMB 1,253,577,420.82 was transferred
to succeeding year as the retained earning.
The Board of Directors of the Company has published the 2003 dividend distribution implementation
announcement on Jun 29th 2004 on Hong Kong Commercial Daily, China Securities Journal and Security
Times. The date of the stock right registering of this dividend distribution was on July 5th 2004, the divide
taxation date was on July 6th 2004.
(VIII) This profit distribution plan or capital common funds capitalizing of reserve
As audited by Beijing TIN WHA CPA, the Company has realized the net profit of RMB732,062,544.19 in year
2004. As provided by the Article of Association of the Board, the statutory surplus reserves was drawn at 10%
amounted to RMB73,206,254.42, and statutory public welfare was drawn at 5% amounted to RMB36,603,127.21.
After the drawing of the statutory surplus reserves and public welfare, the net profit distributable for year 2004
was RMB395,053,162.56, plus the retained profit from year 2003 of RMB1,480,777,420.82, the profit
distributable was totaled to RMB1,875,830,583.38.
Therefore the dividend plan for year 2004 is as: Basing on the total capital shares of
1,136,000,000 shares ended Dec. 31 2004, cash dividend of RMB2.00 will be distributed to
each 10 shares (tax included). There totally RMB227,200,000.00 of common share dividend
will be distributed. The retained RMB1,648,630,583.38 will be carried over the next year as
un-distributed profit.
(IX) Misc.
The selected information disclosing presses by the Company were: Hong Kong Commercial Daily, China
Securities Journal and Security Times and it will not make any change this year.
(X) The audit options of CPAs on Related Transaction
According to " about the notice of standardize listed company and related transaction party’s capital exchanges
and listed company guarantees external’s several questions " (China Securities Regulatory Commission issued
No.56 [2003 ] ) , the registered CPA has made a special description on the Company’s controlling shareholder
and other related transaction party occupied capital and audited the suggestion as follows: (1) The content of
controlling shareholder and other related transaction party had carry out relevant legal procedures and published
30
announcement on specified newspapers; (2) The amount of money of the related transaction has already
disclosed in the accounting statement annotations of the annual report in 2003; (3) The reason of the related
transaction party occupied the capital was occupied as operational use.
(XI) Independent opinions of the independent directors on the external guarantees and
accumulation occurred in this term:
VIII. Report of the Supervisory Committee
(I) The Status of Supervisory Committee Meeting During Report Term
There are 3 supervisory committee meeting was held during the report term
---Bengang Steel Plate Co. Ltd held The 4th Session of the 3rd Term of Board of Directors Meetings on April.
20th 2004 in the conference room of second floor of the Company Benxi city Liaoning Province. This meeting
examined and passed the following proposals: 1 2003 Work Report of The Supervisory Committee; (2)
Proposal about replacing supervisor; (3)2003 Annual Report and Abstract; (4) 2004 First Quarterly Report; (5)
Year 2003 Profit Distribution plan; 6) Proposal about Modify Article of Association; (7) Proposal about
applying to withdraw especially dealing with stock; (8) Proposal of investing to build No.4 converter steel
casting project; (9) Proposal of investing on supporting and rebuilding 1700mm hot continuous steel rolling mill;
(10) Proposal of modifying integration service agreement; (11) Proposal of assets arrangement of blooming
steel rolling factory; (12) Proposal of modifying classify depreciation life of fixed assets.
--- Bengang Steel Plate Co. Ltd held The 5th Session of the 3rd Term of Board of Directors Meetings on July
28th 2004 in the conference room of second floor of the Company Benxi city Liaoning Province. This meeting
examined and passed 2004 Semi-Annual Report and Abstract of Bengang Co., Ltd.
Bengang Steel Plate Co. Ltd held The 8th Session of the 3rd Term of Board of Directors Meetings on Oct. 20th
2004 in the conference room of second floor of the Company Benxi city Liaoning Province. This meeting
examined and passed the following proposals: (1) 2004 Third Quarterly Report of Bengang Co., Ltd. (2)
Proposal about accelerates draw depreciation.
(II) The Supervisory Committee of the Company Issued its Independent Opinion on 2004
Relevant Proceeding.
The board of supervisors of the Company according to Company Law, Securities Law and relevant agreement
of Article of Association focus on legal routine operation, standardize financial operation, etc. carefully carry
out supervise work and this have protected the whole interests of the Company and the masses of shareholders,
31
the Supervisory Committee issued the independent opinion on the relevant situations in report term as follows:
1.The legal operation status of the Company
The Supervisory Committee joined and attended the Company's shareholder meeting and every conference of
Board of Directors, and played an important role on resolution’s formulated, implemented guarantee function
during the report term. The Supervisory Committee of the Company considered that the production in 2004
of the Company was in good condition of operation. Company directors accorded with Company’s article and
regulation while carrying out company's work and did not violate laws and regulations, Article Association or
any behavior that harmful to the interests of the Company and shareholder. The Supervisory Committee of
the Company considered, the Company’s management of production and operation had responsible as
devoted to their duty, had not violated laws and regulations, Article Association or any behavior harmful to
the interests of the Company and shareholder while carrying out company's work, the Company made the
proper strategy of business and Company’s management is doing well and with high-efficient.
2. Examining the finance status of the Company
The finance statement was audited by Beijing TIN WHA CPAs and Ho and Ho & Company CPAs and they
issued standard and without qualified opinion audit report, the finance report of the Company trueness,
impersonality and accurately shown the status of finance and business harvest of the Company.
3. It did not show the Company sold and purchase assets.
4. The Company was fairly traded according to the contract or agreement and there was no harmful to interests
of company shown.
IX. Significant Events
1 No importance lawsuit and arbitrage transactions this year.
2 No purchasing and selling assets, no merge transaction of the Company during the report term.
3 The importance related transaction during the report term.
(I) Related Parties’ Relationship
1) The related transaction parties which is existing control relationship at the end of Dec. 31th 2003
Name of Company Reg. Add. Major
Business
Relationship with the Company
Business type
Legal Representative
Bengang Group Co. Ltd.
Benxi city Liaoning Province
Steel Steel casting
Parent company
State own Zhang Yingfu
32
2) The registration capital of the related parties with controlling relationship and the change thereof
Name of company 2002.12.31 Increased this year Decreased this year 2003.12.31
Bengang Group Co., Ltd. RMB 4,700 million RMB 4,700 million
3) The shareholding of the related parties with controlling relationship and the change thereof
2002.12.31 Increased this year 2003.12.31 Name of company
Amount % Amount % Amount %
Bengang Group Co., Ltd. RMB613,440,000 54 RMB613,440,000 54
4) Non-controlling related parties
Name of the parties Relation with the Company Benxi Steel (Group) Machinery Co., Ltd. Same parent Benxi Steel (Group) Transportation Co., Ltd. Same parent Benxi Steel (Group) Tengda Holdings Ltd. Same parent Benxi Steel (Group) International Trading Co., Ltd. Same parent Benxi Economic Development Zone Bengang Jufeng Development Co., Ltd. Same parent
Benxi Steel (Group) Iron Co., Ltd. Same parent Benxi Steel (Group) Special Steel Co., Ltd. Same parent Tianjin Benchu Goods Trading Ltd. Same parent Guangshou Free Trade Zone Bengang Sales Co., Ltd. Same parent Nanjing Bengang Steel Sales Ltd. Same parent Shanghai Bengang Steel Sales Ltd. Same parent Dalian Boluole Steel Tube Ltd. Same parent Benxi Steel (Group) Special Steel Electronic Installation Co., Ltd. Same parent Haerbin Bengang International Trading Ltd. Same parent Bengang Xi’an Goods Trading Ltd. Same parent Tianjin Bengang Steel Trading Ltd. Same parent Wuxi Bengang Steel Sales Ltd. Same parent Yantai Bengang Steel Sales Ltd. Same parent Xiamen Bengang Steel Sales Ltd. Same parent Shenyang North Bengang Sales Ltd. Same parent Chengchun Bengang Steel Sales Ltd. Same parent Benxi Steel (Group) Steel Process and Logistics Co., Ltd. Same parent Benxi Steel (Group) Construction & Repairing Co., Ltd. Same parent Benxi Steel (Group) Fire Resistance Co., Ltd. Same parent Benxi Steel (Group) Metallurgy Residues Co., Ltd. Same parent Liaoning Metallurgy Technician College Same parent Benxi Steel (Group) Industrial Development Co., Ltd. Same parent Benxi Steel (Group) Construction Co., Ltd. Same parent Yinkou Bengang International Logistics Co., Ltd. Same parent Benxi Steel (Group) Real-estate Development Co., Ltd. Same parent Bengang Group International Trading Ltd. Shenyang Branch Same parent Benxi Steel (Group) Education Center Same parent Benxi Steel (Group) Drilling Tools Co., Ltd. Same parent Benxi Steel (Group) Designing Institute Same parent Benxi Steel (Group) Information and Automatic Tech. Ltd. Same parent Benxi Steel (Group) News Center Same parent Benxi Steel (Group) New Industrial Development Co., Ltd. Same parent Benxi Steel (Group) Mining Co., Ltd. Same parent Benxi Steel (Group) Electronics Co., Ltd. Same parent
33
(II) Related Transaction Agreement
1) On December 18, 2003, our company concluded with BenGang Steel Group Company for a comprehensive
service agreement of validity for three years, which is valid on January 1, 2004. It includes buying raw
materials, auxiliary material, energy power, repair piece spare part, transport services from BenGang Steel
Group Company, and our company sells products to the group. According to the request of this agreement, the
pricing principle of the relevant project is as follows:
A: The pricing of purchasing projects from BengGang Steel Group Company:
Pricing of the raw materials:
The price of the molten iron is the average of current price of molten iron of the same quality in the domestic
pig iron market. The suitable price is not higher than the average price, which Bengang Steel Group Company
sold to independent third party's customer's last January;
The price of scrap steel is the price in scrap steel market plus the process cost, where the scrap steel market
price is the weighted average of the price of scrap steel in bulk, which Bengang Steel Group Company
purchased from independent third party last three months. The process cost is the cost which Bengang Steel
Group Company made the scrap steel into shape. It is adjusted and authorized once every year for the
above-mentioned process cost.
The auxiliary materials all adopt the market price
The pricing of the energy motive force: Except the electricity in market price brought from Bengang Steel
Group Company plus the cost of retransferring as the transaction price, other energy motive force adopts the
complete cost plus the national additional tax;
Pricing of the spare part of the repair piece: buying the spare part of the repair piece processed by Bengang
Steel Group Company follows the pricing standard of complete cost plus national additional tax.
Pricing of the automobile traffic expense: The railway traffic expense is the national price, automobile
transportation is the market price.
Pricing of maintaining the factory building and overhauling and safeguarding of the equipments: The
maintenance cost is confirmed according to the working degree of difficulty and the work load of both sides.
Pricing of quality monitoring, measuring and weighting: carried out according to the state fixed price.
Pricing of the listing service: Bengang Steel Group acted as agent to finish before our company failed to obtain
the power to engage in import and export trade, the agent commission is according to 1.5% of the total value of
the cargoes imported and exported. If obtained the power to engage in import and export trade, the company has
the right to notify the Bengang Group Company to stop the agent relation. Bengang Steel Group is not a sole
34
agent of our company, our company has the right to choose the independent third party to finish acting for the
business.
Pricing of the design and the project service: carried out according to the state fixed price.
Pricing of the heating service of the dwelling house for staff and workers: carried out according to the state
fixed price.
Pricing of telephone, fax and the TV service: carried out according to the state fixed price.
Pricing of the newspaper and other publications: carried out according to the state fixed price.
Pricing of educational facilities: carried out according to the educational facility market leasing price or the
market price.
Pricing of office and business rooms: Bengang Steel Group does not collect and lease the expenses within the
date of this agreement.
Fee of trade mark: RMB 25,200 per year.
Patent: Bengang Steel Group does not collect patent using right.
B: Pricing of the products that our company sold to Bengang Steel Group:
Hot-rolled steel sheet: carried out according to the weighting average price of the same quality products which
our company sold to the independent third party in the previous month.
Molten steel: carried out according to manufacturing cost plus the national additional tax.
Iron and steel scrap, including the iron material: carried out according to the market price.
2) According to the Liao Tu Pi Zi No.6(1997) issued on Mar. 5th 1997 by Liaoning province Land Management
Department, and it’s agreed documentation of land price assessing identification, land assets arrangement
proposal and the lease contract of land using right which was signed between the Company and Bengang Group
Co. Ltd on April 7th 1997 that the Company had the authority of leasing Bengang Group Co. Ltd land which is
located in house building of Bengang Group Co. Ltd with pay and the contract took effect in 50 years. Hereby,
the Company pays for land rental charge to Bengang Group Co. Ltd every year was about RMB2, 673,000. The
rental charge will be adjusted after 5 years of leasing period, and adjust once to the afterwards every three years.
The Company signed the supplementary agreement of the lease contract of the right to use the land with
Bengang Group Co. Ltd on April 6 , 2002, both parties agrees that the rental charge of the right to use the land
remains unchanged up to April 7 , 2005.
35
(III) Related Party Transactions
Pricing strategy: the transaction price between the Company and related transaction parties were according to
the relevant agreements or market trade agreement to confirm.
1) Sales Products
A. Selling goods to the related transaction parties which existing control relationship:
In RMB
Year 2003 Year 2002 Name of company
Amount Proportion in Income % Amount Proportion in Income %
Bengang Group Co., Ltd. 4,808,224,388 27.35 3,027,092,446 27.00
B. Selling goods to the related transaction parties which were not existing control relationship:
In RMB
Year 2004 Year 2003
Name of company Amount
count in
turnover Amount
count in
turnover
Benxi Steel (Group) International Trading Co., Ltd. 2,030,091,873 11.55 90,068,047 0.80
Tianjin Benchu Goods Trading Ltd. 1,981,637. 0.01 23,415,428 0.21
Tianjin Bengang Steel Trading Ltd. 666,604,139 3.79 603,162,516 5.38
Haerbin Bengang International Trading Ltd. 100,963,455 0.57 119,403,986 1.07
Shanghai Bengang Steel Goods Ltd. 311,667,358 1.77 147,689,834 1.32
Nanjing Bengang Steel Sales Ltd. 318,780,720 1.81 273,166 0.00
Wuxi Bengang Steel Sales Ltd. 234,665,915 1.33 309,397,622 2.76
Guangshou Free Trade Zone Bengang Sales Co., Ltd. 61,427,031 0.35 151,592,599 1.35
Bengang Xi’an Goods Trading Ltd. 9,525,765 0.05 7,984,637 0.07
Yantai Bengang Steel Sales Ltd. 617,121,116 3.51 440,542,158 3.93
Benxi Steel (Group) Special Steel Co., Ltd. 323,444,201 1.84 198,338,994 1.77
Benxi Steel (Group) Tengda Holdings Ltd. 24,605,740 0.14 40,589,427 0.36
Shanghai Bengang Steel Sales Ltd. - - 26,306,638 0.23
Xiamen Bengang Steel Sales Ltd. 191,277,332 1.09 111,940,689 1.00
Shenyang North Bengang Sales Ltd. 186,658,633 1.06 62,598,282 0.56
Chengchun Bengang Steel Sales Ltd. 85,207,053 0.48 4,292,459 0.04
Dalian Boluole Steel Tube Ltd. 162,976,137 0.93 94,281,509 0.84
Benxi Steel (Group) Steel Process & Logistics Ltd. 263,039,782 1.50 32,433,322 0.29
Benxi Steel (Group) Construction Ltd. 190,082,336 1.08 - -
Benxi Steel (Group) Industrial Development Ltd. 71,297 0.00 - -
36
Benxi Steel (Group) Construction Ltd. 22,159,087 0.13 - -
Total 5,802,350,607 32.99 2,464,311,313.00 21.98
2) Purchasing Raw, Complement Materials and Spare Parts
A. Purchasing raw materials, assistant materials and spare parts form related transaction parties which were
existing control relationship: In RMB
Year 2003 Year 2002 Name of company
Amount Proportion in cost% Amount Proportion in
cost%
Bengang Group Co. Ltd. (raw materials) 11,877,306,051 73.59 6,187,625,962 60.46
Bengang Group Co. Ltd. (assistant materials and spare parts) 813,040,207 5.04 915,875,964 8.95
Total 12,690,346,258 78.63 7,103,501,926 69.42
The transactions regarding raw materials increased over 2004, which was caused by great increasing of sales.
B. Purchasing Goods form Related Transaction Parties which were not existing related transaction relationship:
In RMB
Year 2004 Year 2003 Name of company Amount Proportion in
cost% Amount Proportion in cost%
Benxi Steel (Group) Iron Co., Ltd.
2,150,015,663 13.32 1,347,499,159 13.17
Benxi Steel (Group) Machinery Co., Ltd. 66,928,349 0.41 73,713,473 0.72
Benxi Steel (Group) Mining Co., Ltd. 109,931,240 0.68 88,878,625 0.87
Benxi Steel (Group) Construction Co., Ltd. 43,971,960 0.27 - -
Benxi Steel (Group) Transportation Co., Ltd. 2,412,103 0.01 - -
Benxi Steel (Group) Electronics Co., Ltd. 1,284,371 0.01 - -
Liaoning Metallurgy Technician College 1,384,321 0.01 - -
Total 2,375,928,007 14.71 1,510,091,257 14.76
37
3) Other Related Transactions: In RMB
Items Year 2004 Year 2003 With the Group
Power supply 800,652,861 755,180,345 Transportation 48,193,945 65,956,630 Repairing 51,127,567 181,642,609 Trademark 25,200 25,200 Land using 2,673,192 2,673,192
Inspection and testing 6,087,164 - Benxi Steel (Group) Trucking Co., Ltd.
Transportation
9,895,030 16,130,138
Repairing 1,160,000
Bengang Group International Trading Ltd.
Export commission 30,444,233 3,111,352 Import commission 3,098,258 1,304,690
Import of equipment 275,764,686
Benxi Steel (Group) Special Steel Co., Ltd.
Repairing 927,820 1,383,916 Yinkou Bengang International Logistics Co., Ltd.
Port fee 23,877,550 2,745,667 Benggang Group Real-estate Co., Ltd.
Property management 229,796 209,130 Benxi Steel (Group) New Industrial Development Co., Ltd.
Labour security fee 1,395,742 1,123,190 Benxi Economic Development Zone Bengang Jufeng Development Co., Ltd.
Packaging 21,195,004 - Benxi Steel (Group) Construction Co., Ltd.
Construction 280,808,079 - Repairing 45,993,687 - Benxi Steel (Group) Information and Automatic Tech. Ltd.
Engineering 20,374,473 - Repairing 3,746,460 - Benxi Steel (Group) Construction & Repairing Co., Ltd.
Engineering 31,467,881 - Repairing 8,955,677 - Benxi Steel (Group) Designing Institute
Designing 3,642,170 - Benxi Steel (Group) Industrial Development Co., Ltd.
Repairing 4,438,811 - Benxi Steel (Group) Electronics Co., Ltd.
Repairing 5,344,648 - Benxi Steel (Group) Iron Co., Ltd.
Transportation 4,975,342 - Benxi Steel (Group) Metallurgy Residues Co., Ltd.
Transportation 18,533,653 - Benxi Steel (Group) Thermal Power Development Co., Ltd.
Heating 2,299,292 - Benxi Steel (Group) Mining Co., Ltd.
Transportation 1,760,225 -
4) The balance of related transaction parties of account receivable and account payable:
In RMB
Items Dec. 31 2004 December 31th 2003 Notes receivable
38
Benxi Steel (Group) Special Steel Co., Ltd. - 7,000,000 Yantai Bengang Steel Sales Ltd. 1,550,000 13,500,000 Wuxi Bengang Steel Sales Ltd. - 62,270,000 Benxi Steel (Group) Steel Process and Logistics Co., Ltd. - 4,500,000 Tianjin Bengang Steel Trading Ltd. - 16,260,000 Dalian Boluole Steel Tube Ltd. 3,811,448 1,400,000 Nanjing Bengang Steel Sales Ltd. 200,000 -
Total 5,561,448 104,930,000 Notes payable
Liaoning Metallurgy Technician College 433,800 - Benxi Steel (Group) Electronics Co., Ltd. 338,900 - Benxi Steel (Group) Construction Ltd. 102,700 - Benxi Steel (Group) Drilling Tools Co., Ltd. 63,600 - Benxi Steel (Group) Trucking Co., Ltd. 27,100 - Benxi Steel (Group) Industrial Development Co., Ltd. 4,400 -
Total 970,500 - Account receivable
Benxi Steel (Group) Special Steel Co., Ltd. 73,049,191 53,494,842 Benxi Steel (Group) International Trading Co., Ltd. 102,939,282 - Tianjin Benchu Goods Trading Ltd. - 24,436,060 Guangshou Free Trade Zone Bengang Sales Co., Ltd. - 6,711,719 Wuxi Bengang Steel Sales Ltd. - 6,406,844 Xiamen Bengang Steel Sales Ltd. - 6,367,585 Shanghai Bengang Steel Goods Ltd. - 2,725,494
Total 175,988,473 100,142,544 Account payable
Benxi Steel (Group) Special Steel Co., Ltd. - 7,567,853 Benxi Steel (Group) Transportation Co., Ltd. - 3,771899 Benxi Steel (Group) Electronics Co., Ltd. - 1,728,593 Benxi Steel (Group) Metallurgy Residues Co., Ltd. - 5,620,695 Benxi Steel (Group) Industrial Development Co., Ltd. - 7,392,619 Bengang Group 90,259,473 32,775,640 Benxi Steel (Group) Construction & Repairing Co., Ltd. 42,507,063 39,787,830 Benxi Steel (Group) Designing Institute 2,608,370 1,067,000 Benxi Steel (Group) Machinery Co., Ltd. 25,022,051 8,852,609 Benxi Steel (Group) Construction Co., Ltd. 68,482,194 66,879,047 Benxi Steel (Group) Drilling Tools Co., Ltd. 487,130 - Benxi Steel (Group) Information and Automatic Tech. Ltd. 5,460,591 -
Total 234,826,872 175,443,785 Advance account Bengang Group 804,095,162 1,509,043,149 Total 804,095,162 1,509,043,149 Account received in advance
Bengang Group 129,478,951 323,773,235 Benxi Steel (Group) Tengda Holdings Ltd. 264,995 6,620,166 Dalian Boluole Steel Tube Ltd. 23,152,334 26,282,411 Tianjin Bengang Steel Trading Ltd. 99,244,800 108,679,718
Benxi Steel (Group) Steel Process and Logistics Co., Ltd. 66,284,791 28,685,365 Yantai Bengang Steel Sales Ltd. 71,765,925 27,456,234 Haerbin Bengang International Trading Ltd. 9,359,356 22,979,791 Shenyang North Bengang Sales Ltd. 22,358,460 18,304,165 Chengchun Bengang Steel Sales Ltd. 8,262,277 11,467,306 Bengang Xi’an Goods Trading Ltd. 410,465 2,345,957 Shanghai Bengang Steel Goods Ltd. 14,132,107 - Nanjing Bengang Steel Sales Ltd. 44,138,686 - Wuxi Bengang Steel Sales Ltd. 92,217 - Guangshou Free Trade Zone Bengang Sales Co., Ltd. 15,860,506 - Xiamen Bengang Steel Sales Ltd. 9,147,578 -
Total 513,953,448 576,594,348 Other account receivable
Bengang Group 6,102,245 1,090,000 Benxi Steel (Group) Construction & Repairing Co., Ltd. 100,000 100,000
Benxi Steel (Group) Fire Resistance Co., Ltd. - 42,375 Benxi Steel (Group) International Trading Co., Ltd. 7,802,238 2,440,000 Benxi Steel (Group) Construction Co., Ltd. 19,832,584 - Benxi Steel (Group) Machinery Co., Ltd. 1,033,977 - Benxi Steel (Group) Education Center 84,455 -
39
Total 34,955,499 3,672,375 Other account payable
Bengang Group 53,054,493 12,992,986 Benxi Economic Development Zone Bengang Jufeng
Development Co., Ltd. 4,124,503 3,480,051
Benxi Steel (Group) International Trading Co., Ltd. 15,758,743 1,847,212 Benxi Steel (Group) Construction & Repairing Co., Ltd. - 5,928,449 Liaoning Metallurgy Technician College 620,334 1,147,113 Benxi Steel (Group) Transportation Co., Ltd. 6,085,818 - Benxi Steel (Group) Electronics Co., Ltd. 3,238,672 - Benxi Steel (Group) News Center 547,964 - Benxi Steel (Group) New Industrial Development Co., Ltd. 289,366 - Benxi Steel (Group) Industrial Development Co., Ltd. 7,575,687 - Benxi Steel (Group) Metallurgy Residues Co., Ltd. 1,742,851 - Benxi Steel (Group) Mining Co., Ltd. 5,890 -
Benxi Steel (Group) Special Steel Co., Ltd. 7,507,902 - Benxi Steel (Group) Machinery Co., Ltd. 1,038,112 -
Total 101,590,335 25,395,811
(IV) Material Contracts and Implementation
1. The Company has never been involved in such events as keeping as custodian, contracted or leased any
other company’s assets and vice versa in the report period or extended from the previous years.
2. No providing of external guarantee occurred in the report term.
3. No providing or accepting of cash asset management to or from other parties occurred during the report
term.
4. No other material contract engaged in the report term.
40
(V) There was no external guarantee or illegal guarantee occurred in the report term or last
to report term.
(VI) Auditing Expenses
The Company pay for annual audit fee to Beijing TIN WHA CPAs and Ho and Ho & Company CPAs RMB
1,100,000.The period of audit services period that Beijing TIN WHA CPAs and Ho and Ho & Company CPAs
offer to the Company was 12 months.
(VII) In the report period, the Company, the Board of Directors or any director had never
been inspected, experienced administrative penalty or been criticized by circulating a notice
of criticism by China Securities Regulatory Commission, or condemned in public by
Shenzhen Stock Exchange.
(VIII) There was no material events and proceeding which was suppose to disclosing but did
not disclosing during the report term.
X Financial Report
1. Accounting Statement (Attached)
2. Accounting Statement annotations (Attached)
XI Documents for Reference
I Accounting Statement with signed and stamped by the principal of legal representative, director of
accounting work principal and accounting institution;
II Audit report original documentation with accounting office stamp and registered CPA signature and
stamp;
III All of the disclosed documentation original and announcement original of the Company which had
published on China Securities Journal, Hong Kong Commercial Daily and Security Times during the report
41
term.
The Board of Directors of Bengang Steel Plate Co. Ltd
Mr. Li Mohua, the Chairman of Board
April 12th 2005
42
Bengang Steel Plates Co., Limited
Report and Financial Statements
For the year ended 31st December 2004
43
Ho and Ho & Company
Certified Public Accountants
Hong Kong
Bengang Steel Plates Co., Limited
Report and financial statements
For the year ended 31st December 2004
Content
Pages
Report of the auditors
1
2
1
Income statement
Balance sheet
3
Statement of changes in equity 4
Cash flow statement
5 – 6
Notes to the financial statements
7 – 36
1
REPORT OF THE AUDITORS
To the shareholders of Bengang Steel Plates Co., Limited
(incorporated in the People’s Republic of China
with limited liability)
We have audited the accompanying balance sheet of Bengang Steel Plates Co., Limited (the “Company”) as of 31st December 2004 and the related statements of income, cash flows and statement of changes in equity for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing as promulgated by the International Federation of Accountants. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of 31st December 2004, and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards promulgated by the International Accounting Standards Board.
2
Ho and Ho & Company
Certified Public Accountants
12th April 2005, Hong Kong
Bengang Steel Plates Co., Limited
Financial statements for the year ended 31st December 2004
2
Income statement for the year ended 31st December 2004
(Expressed in Renminbi Thousand Yuan)
Note 2004 2003
RMB’000 RMB’000
Turnover 4 17,349,451 11,210,196
Cost of sales (16,141,686) (10,295,582)
Gross profit 1,207,765 914,614
Other operating income 5 2,783 5,479
Selling expenses (127,302) (61,346)
Administrative expenses (106,910) (51,303)
Other operating expenses 6 (33,189) (3,364)
Profit from operations 7 943,147 804,080
Finance costs, net 8 (31,074) (75,174)
Profit before tax 912,073 728,906
Income tax expenses 9 (211,648) (255,394)
Bengang Steel Plates Co., Limited
Financial statements for the year ended 31st December 2004
3
Net profit for the year 700,425 473,512
Earning per share – basic 10 RMB 0.62 RMB 0.42
Bengang Steel Plates Co., Limited
Financial statements for the year ended 31st December 2004
4
Balance sheet as at 31st December 2004
(Expressed in Renminbi Thousand Yuan)
Note 2004 2003
RMB’000 RMB’000
Assets
Non-current assets
Property, plant and equipment 13 3,553,450 3,346,888
Construction in progress 14 319,168 94,149
Deferred tax assets 15 14,713 14,713
Total non-current assets 3,887,331 3,455,750
Current assets
Inventories 16 1,627,268 841,007
Accounts receivable 17 177,062 117,408
Bills receivable 18 77,758 378,485
Prepaid expenses and other current assets 19 975,136 1,571,919
Prepaid tax 20 15,704 30,352
Bank balances and cash 21 1,404,213 1,003,195
Bengang Steel Plates Co., Limited
Financial statements for the year ended 31st December 2004
5
Total current assets 4,277,141 3,942,366
Total assets 8,164,472 7,398,116
Bengang Steel Plates Co., Limited
Financial statements for the year ended 31st December 2004
6
Balance sheet as at 31st December 2004
(Expressed in Renminbi Thousand Yuan)
Note 2004 2003
RMB’000 RMB’000
Equity and Liabilities
Shareholders’ equity
Share capital 22 1,136,000 1,136,000
Reserves 23 3,983,611 3,510,386
5,119,611 4,646,386
Non-current liabilities
Bank loans – repayable after one year 24 311,862 325,688
Current liabilities
Accounts payable 25 437,762 284,847
Bills payable 10,000 20,756
Other payable and accrued charges 26 193,517 95,920
Receipt in advance 27 1,829,228 1,411,136
Bank loans – repayable within one year 24 262,492 613,383
Bengang Steel Plates Co., Limited
Financial statements for the year ended 31st December 2004
7
Total current liabilities 2,732,999 2,426,042
Total liabilities 3,044,861 2,751,730
Total equity and liabilities 8,164,472 7,398,116
The financial statements on pages 2 to 36 were approved and authorized for issue by the Board of Directors on 12th April 2005 and are signed on its behalf by:
Director Director
Bengang Steel Plates Co., Limited
Financial statements for the year ended 31st December 2004
8
Statement of changes in equity for the year ended 31st December 2004
(Expressed in Renminbi Thousand Yuan)
Total equity
RMB’000
Balance at 1st January 2003 4,172,874
Net profit for the year 473,512
Balance at 31st December 2003 and 1st January 2004 4,646,386
Payment of 2003 final dividends (227,200)
Net profit for the year 700,425
Balance at 31st December 2004 5,119,611
0
Cash flow statement for the year ended 31st December 2004
(Expressed in Renminbi Thousand Yuan)
2004 2003
RMB’000 RMB’000
Profit from operations 943,147 804,080
Adjustments for:
Depreciation on property, plant and equipment 578,498 455,762
Impairment losses on property, plant and equipment written back on disposal
- (25,963)
Loss on disposal of property, plant and equipment 31,884 23,615
Unrealised exchange loss 360 (20,062)
1,553,889 1,237,432
Operating cash flows before movements in working capital
Increase in inventories (786,261) (108,511)
Increase in accounts receivable (59,654) (75,000)
Decrease (increase) in bills receivable 300,727 (247,887)
Decrease in prepaid expenses and other current assets 596,783 102,140
Increase in accounts payable 152,915 160,128
-1-
(Decrease) increase in bills payable (10,756) 20,756
Increase in receipt in advance 418,092 108,533
Increase (decrease) in other payable and accrued charges
97,597 (16,419)
Cash generated from operations 2,263,332 1,181,172
Income tax paid (197,000) (258,000)
Interest paid (38,285) (67,389)
Bank charges paid (718) (1,706)
Net cash from operating activities 2,027,329 854,077
-2-
Cash flow statement for the year ended 31 st December 2004
(Expressed in Renminbi Thousand Yuan)
2004 2003
RMB’000 RMB’000
Net cash from operating activities 2,027,329 854,077
Investing activities
Receipt of interest income 7,569 13,983
Proceeds from disposal of property, plant and equipment
1,564 5,598
Acquisition of property, plant and equipment (1,043,527) (99,487)
Increase in fixed deposits with maturity more than three months
456,421 (109,505)
Increase in guarantee deposits (226,039) -
Net cash used in investing activities (804,012) (189,411)
Financing activities
Dividends paid (227,200) -
New bank loans - -
Repayment of bank loans (364,717) (667,645)
-3-
Net cash used in financing activities (591,917) (667,645)
Increase (decrease) in cash and cash equivalents 631,400 (2,979)
Cash and cash equivalents at beginning of year 428,579 431,558
Cash and cash equivalents at end of year (note 21)
Bank balances and cash 1,059,979 428,579
-4-
Notes to the financial statements for the year ended 31st december 2003
1. GENERAL INFORMATION
Bengang Steel Plates Co., Ltd. (the “Company”) was incorporated as a joint stock limited company in the People’s Republic of China (the “PRC”) on 27th June 1997. The Company’s Domestically Listed Foreign Shares (“B shares”) and Domestic Shares (“A shares”) were listed on the Shenzhen Stock Exchange in July 1997 and November 1997 respectively.
The directors considered that Benxi Iron and Steel (Group) Limited (“the Parent Company”) is the ultimate parent company of the Company.
The Company is principally engaged in steel smelting, metallurgy, processing and distribution business of related products in the PRC.
As at 31st December 2004, the Company has 3,842 (2003: 3,678) employee.
2. CHANGE OF ACCOUNTING ESTIMATE
After reviewing the using of the Company’s property, plant and equipment, the Directors resolved to reduce the useful life of the assets (except for plant and equipment) by 40% with effect from 1st July 2004. This change in accounting estimate was applied prospectively. Accordingly, the depreciation charge for property, plant and equipment for the year was increased by RMB134,124,000, the profit for the year and the shareholders’ equity as at 31st December 2004 was reduced by RMB143,124,000.
3. PRINCIPAL ACCOUNTING POLICIES
a) Statement of compliance
-5-
The financial statements of the Company have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) promulgated by the International Accounting Standards Board (“IASB”). IFRS includes International Accounting Standards (“IAS”) and related interpretations.
The Company maintains its accounting records and prepares its statutory financial statements in accordance with the accounting principles and the PRC Accounting Standards for Business Enterprises and the Accounting System for Business Enterprises (“Statutory Financial Statements”).
-6-
3. PRINCIPAL ACCOUNTING POLICIES (continued)
a) Statement of compliance (continued)
The accounting policies and basis adopted to the preparation of the Statutory Financial Statements differ in certain respects from IFRS. The differences arising from the restatement of the results of operations and the net assets for compliance with IFRS are adjusted in financial statements but will not be taken up in the accounting records of the Company.
b) Basis of preparation
The financial statements have been prepared in Renminbi (“RMB”), the currency in which the majority of the Company’s transactions are denominated.
Except for certain property, plant and equipment which are stated at their revalued value, the financial statements have been prepared on the historical cost basis.
The accounting policies have been consistently applied by the Company and are consistent with those of the previous year.
The principal accounting policies adopted in this report are set out below:
c) Foreign currency transactions
Transactions in foreign currencies are translated to RMB at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet dates are re-translated to RMB at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities denominated in foreign currencies, that are stated at historical cost are translated to RMB at the foreign exchange rate ruling at the date of the transaction. Exchange gains and losses are recognized as income or expense in the income statement.
-7-
3. PRINCIPAL ACCOUNTING POLICIES (continued)
d) Property, plant and equipment
i) Owned assets
Property, plant and equipment are stated at cost or valuation (note 13b) less accumulated depreciation and impairment losses. The cost for self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads and borrowing costs.
Where an item of property, plant and equipment comprises major components having difference useful lives, they are accounted for as separate items of property, plant and equipment.
ii) Subsequent expenditure
Expenditure incurred to replace a component of an item of property, plant and equipment, including inspection and overhead expenditure, is capitalized. Other subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property, plan and equipment. All other expenditure is recognized in the income statement as an expense as incurred.
iii) Depreciation
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment, and major components that are accounted for separately. The estimated useful lives are as follows:
Estimated useful life
-8-
Plant and buildings 8 30 years
Machinery and equipment 2.4 9 years
Motor vehicles and office equipment 3 10.8 years
iv) Disposals
Gains or losses arising from the retirement or disposal of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated income statement on the date of retirement or disposal.
-9-
3. PRINCIPAL ACCOUNTING POLICIES
e) Construction in progress
Construction in progress represents properties under construction and is stated in the consolidated balance sheet at cost less impairment losses.
Construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use.
No depreciation is provided in respect of construction in progress.
f) Impairment
The carrying amounts of long-lived assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to the recoverable amount. The recoverable amount is the greater of the net selling price and the value in use. In determining the value in use, expected future cash flows generated by the asset are discounted to their present value. The amount of the reduction is recognized as an expense in the consolidated income statement unless the asset is carried at revalued amount for which an impairment loss is recognized directly against any related revaluation reserve to the extent that the impairment loss does not exceed the amount held in the revaluation reserve for that the same asset.
The Company assesses at each balance sheet date whether there is any indication that an impairment loss recognized for an asset in prior years may no longer exist. An impairment loss is reversed if there has been a favorable change in the estimates used to determine the recoverable amount. A subsequent increase in the recoverable amount of an asset, when the circumstances and events that led to the write-down or write-off cease to exist, is recognized as income unless the asset is carried at revalued amount. Reversal of an impairment loss on a revalued asset is credited to the revaluation reserve except for impairment loss which was previously recognized as
-10-
an expense in the consolidated income statement; a reversal of such impairment loss is recognized as income; a reversal of such impairment loss is recognized as income. The reversal is reduced by the amount that would have been recognized as depreciation had the write-down or write-off not occurred.
-11-
3. PRINCIPAL ACCOUNTING POLICIES
g) Inventories
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses.
The cost of inventories is calculated based on the weighted average costing method and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity.
h) Trade and other receivables
Trade and other receivables are stated at cost less allowance for doubtful accounts. An allowance for doubtful accounts is provided based upon the evaluation of the recoverability of these accounts at the balance sheet date.
i) Cash equivalents
Cash equivalents represent short-term, highly liquid investments that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value.
j) Interest-bearing borrowings
Interest-bearing borrowings are recognized initially at cost, less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognized in the income statement over the period of the borrowings on an effective interest basis.
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k) Trade and other payables
Trade and other payables are stated at their cost.
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3. PRINCIPAL ACCOUNTING POLICIES
l) Provisions
A provision is recognized in the balance sheet when the Company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risk specific to the liability.
m) Dividends
Dividends on ordinary shares are recognized as a liability in the period in which they are declared.
n) Revenue
Revenue from the sale of goods is recognized in the income statement when the significant risks and rewards of ownership have been transferred to the buyer.
o) Expenses
i) Operating lease payments
Payments made under operating lease are recognized in the income statement on straight-line basis over the terms of the respective leases. Lease incentive received is recognized in the income statement as an integral part of the total lease expense. Contingent rental are charged to the income statement in the accounting period in which they are incurred.
ii) Net financing costs
-14-
Net financing costs comprise interest payable on borrowings, calculated using the effective interest rate method, interest receivable on funds invested and foreign exchange gains and losses.
Interest income is recognized in the income statement as it accrues, taking into account the effective yield on the assets.
Interest expenses are recognized in the income statement using the effective interest rate method.
-15-
3. PRINCIPAL ACCOUNTING POLICIES
p) Retirement benefits
The Company participates in retirement schemes operated by local authorities and the annual cost of providing retirement benefits is charged to the consolidated income statement according to the contribution determined by the relevant schemes. The Company has no further liability to the retirement schemes operated by the local authorities.
q) Income tax
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognized in the income statement except to the extent that it relates to items recognized directly to equity, in which case it is recognized in equity.
Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment of tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Initial recognition of assets or liabilities that affect neither accounting nor taxable profit is regarded as temporary difference which is not provided for. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.
A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asst can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
-16-
r) Segment reporting
A segment is a distinguishable component of the Company that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segment.
-17-
4. TURNOVER
Turnover represents invoiced sales to customers less discounts and returns. The major revenue recognized for the year is as follows:
2004 2003
RMB’000 RMB’000
Hot plates 15,286,538 10,652,707
Steel billets 1,358,125 204,141
Molten steel 487,824 193,770
Scrap material 77,858 67,919
Others 139,106 91,659
17,349,451 11,210,196
5. OTHER OPERATING INCOME
2004 2003
RMB’000 RMB’000
Sales of raw material, net 80 -
-18-
Gain on debts restructuring 578 1,685
Gain on disposal of property, plant and equipment 696 3,794
Receipt of default payments 1,429 -
2,783 5,479
6. OTHER OPERATING EXPENSES
2004 2003
RMB’000 RMB’000
Penalties 609 718
Donations - 1,198
Loss on disposal of property, plant and equipment 32,580 27,409
Written back of impairment loss on property, plant and equipment on disposal - (25,961)
33,189 3,364
7. PROFIT FROM OPERATIONS
-19-
Profit from operations has been stated after charging:-
2004 2003
RMB’000 RMB’000
Staff costs
-salaries and wages 124,184 90,279
-retirement benefits contribution 35,445 24,380
- other staff welfare 17,240 12,639
-early retirement scheme 24,620 -
201,489 127,298
Depreciation on property, plant and equipment
Written back of impairment loss on property, plant and equipment on disposal 578,498 455,762
Loss on disposal of property, plant and equipment, net - (25,961)
Rental expenses for land use rights 31,884 27,409
Written back of provision for loss in inventories 2,673 2,673
Decrease in provision for bad debts - (3,600)
184 (125)
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8. NET FINANCE COSTS
2004 2003
RMB’000 RMB’000
Interest expenses 38,285 67,389
Interest income (7,569) (13,983)
Exchange loss (360) 20,062
Bank charges 718 1,706
31,074 75,174
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9. INCOME TAX EXPENSES
Income tax expenses in income statement represent:
2004 2003
RMB’000 RMB’000
PRC enterprise income tax
Current year 211,648 245,598
Deferred taxation (Note 14) - 9,796
211,648 255,394
The income tax rate applicable to the Company is 33% (2003: 33%) .
A reconciliation of the expected tax with the actual tax expense is as follows:-
2004 2003
RMB’000 RMB’000
Profit before tax 912,073 728,906
-22-
Expected PRC income tax expense at a statutory tax rate 300,984 240,539
Non-deductible expenses 10,664 14,855
Tax credit granted (100,000) -
211,648 255,394
10. EARNINGS PER SHARE
The earnings per share for the year ended 31st December is calculated based on the net profit for the year of RMB700,425,000 (2003: RMB473,512,000) and the weighted average number of ordinary shares outstanding during the year of 1,136,000,000 shares (2003: 1,136,000,000 shares).
The amount of diluted earning per share is not presented as there were no dilutive potential ordinary shares in expositing during the years presented.
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11. DIVIDEND
Pursuant to a resolution passed at the Directors’ meeting on 12th April 2005, a final dividend of RMB0.20 (2003: RMB0.20) per share totaling RMB227,200,000 (2003: RMB227,200,000) was proposed for shareholders’ approval at the Annual General Meeting. Dividends proposed after the balance sheet date has not been recognized as a liability at the balance sheet date.
12. EMPLOYEE BENEFIT PLAN
As stipulated by the regulation of the PRC, the Company participates in a defined contribution retirement plans organized by municipal and provincial government for its staff. The Company has no other material obligations for the payment of pension benefits associated with these plans beyond the annual contribution described above. The Company’s contribution to the defined contribution plans is recognized as an expense in the income statement as incurred. The Company’s contribution for the year was RMB35,445,000 (2003: RMB24,380,000)
On 1st April 2004, the Company announced an early retirement scheme whereby the employees effectively retire from their work before the statutory retirement age. These employees are still subject to the management of the Company. They will be entitled to a reduced monthly salary and certain staff welfare by the Company. Upon the statutory retirement age, the reduced salary and staff welfare will be replaced by statutory pension which a government agency is responsible for, and the Company has no further obligation for the payments of retirement or other post-retirement benefits of these employees. During the year, the company had paid RMB24,620,000 for the Scheme. As at 31st December 2004, the Management estimated that the future payments of the reduced salary and staff welfare expected to be incurred amounted to approximately RMB 127,491,000 which was no recognized in the balance sheet.
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13. PROPERTY, PLANT AND EQUIPMENT
Plant and equipment
Machinery and
equipment
Motor vehicle and office equipment Total
RMB’000 RMB’000 RMB’000 RMB’000
Cost or valuation
At 1st January 2004 995,787 4,553,678 20,900 5,570,365
Additions - 169 25 194
Transfer from construction in progress
210,676 607,345 293 818,314
Disposals (7,855) (38,206) (1,383) (47,444)
At 31st December 2004 1,198,608 5,122,986 19,835 6,341,429
Representing:
Cost 292,926 1,985,038 3,600 2,281,564
Valuation 905,682 3,137,948 16,235 4,059,865
1,198,608 5,122,986 19,835 6,341,429
Accumulated depreciation
At 1st January 2004 347,267 1,868,314 7,896 2,223,477
-25-
Charge for the year 37,194 535,159 6,145 578,498
Written back on disposal (1,745) (11,680) (571) (13,996)
At 31st December 2004 382,716 2,391,793 13,470 2,787,979
Net book value
At 31st December 2004 815,892 2,731,193 6,365 3,553,450
At 31st December 2003 648,520 2,685,364 13,004 3,346,888
a) All of the buildings owned by the Company are located in the PRC under medium lease (lease periods of 20 years or more but less than 50 years).
b) For the purpose of the group restructuring of the Parent Company, the Company was established as a joint stock company in 1997. Part of business operations and certain assets and liabilities of the Parent Company were transferred to the Company. These assets and liabilities had been revalued an independent PRC qualified valuer on 16th March 1997 according to the relevant regulations and on such basis reflected in the Company’s financial statements.
On 15th April 2002, the property, plant equipment were revalued by an independent PRC qualified valuer on the market price basis. The surplus arising therefrom was transferred to the revaluation reserves.
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14. CONSTRUCTION IN PROGRESS
2004 2003
RMB’000 RMB’000
At beginning of year 94,149 11,513
Additions 1,043,333 96,941
Transfer to property, plant and equipment (818,314) (14,305)
At end of year 319,168 94,149
15. DEFERRED TAX ASSETS
Deferred tax has been provided for using liabilities at the prevailing tax rate of 33% (2003: 33%) on the temporary differences. The major components of the deferred tax assets are as follows:
2004 2003
RMB’000 RMB’000
Provision for bad debts 10,368 10,368
Provision for loss in inventories 4,345 4,345
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14,713 14,713
16. INVENTORIES
2004 2003
RMB’000 RMB’000
Raw materials 6,618 4,155
Work in progress 988,290 368,512
Finished goods 456,506 273,592
Spare parts 189,021 207,915
1,640,435 854,174
Less: Provision for loss (13,167) (13,167)
1,627,268 841,007
At 31st December 2004, inventories stated at net realisable value was RMB3,664,000 (2003: RMB16,715,000).
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17. ACCOUNTS RECEIVABLE
2004 2003
RMB’000 RMB’000
Related parties (note 33) 175,988 100,143
Third parties 33,360 49,469
209,348 149,612
Less: Provision for bad debts (32,286) (32,204)
177,062 117,408
18. BILLS RECEIVABLE
2004 2003
RMB’000 RMB’000
Related parties (note 33) 5,562 104,930
Third parties 72,196 273,555
77,758 378,485
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19. PREPAID EXPENSES AND OTHER CURRENT ASSETS
2004 2003
RMB’000 RMB’000
Related parties (note 33) 839,050 1,512,715
Third parties 60,909 38,254
Other receivable 8,913 20,554
Other tax recoverable 66,080 -
Prepaid expenses 1,710 1,820
Less: Provision for bad debts 976,662 1,573,343
(1,526) (1,424)
975,136 1,571,919
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20. PREPAID TAX
At 31st December 2004 and 2003, the prepaid tax represents the enterprise income tax paid in advance. It can be utilized to offset the future tax payable.
21. CASH AND CASH EQUIVALENTS
For the purpose of the cash flow statement, cash and cash equivalents represent:
2004 2003
RMB’000 RMB’000
Bank balance and cash 1,404,213 1,003,195
Less: Fixed deposits with maturity more than 3 months (118,195) (574,616)
Pledged deposits (226,039) -
1,059,979 428,579
22. SHARE C`APITAL
2004 2003
RMB’000 RMB’000
-31-
Issued and fully paid:
616,000,000 state-owned A shares of RMB1 each 616,000 616,000
120,000,000 public-owned A shares of RMB1 each 120,000 120,000
400,000,000 public-owned B shares of RMB 1 each 400,000 400,000
1,136,000 1,136,000
A shares and B shares rank pari passu in all material respect.
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23. RESERVES
Share
premium
Assets revaluation
reserves Statutory reserves
Retained profits Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1st January 2003 1,072,187 618,926 303,166 1,042,595 3,036,874
Reclasification 331,483 (301,080) - (30,403) -
Eliminated on disposal of property, plant and equipment - (24,498) - 24,498 -
Net profit for the year - - - 473,512 473,512
Transfer - - 78,709 (78,709) -
At 31st December 2003 and 1st January 2004 1,403,670 293,348 381,875 1,431,493 3,510,386
Payment of 2003 final dividends - - - (227,200) (227,200)
Eliminated on disposal of property, plant and equipment - (1,267) - 1,267 -
Net profit for the year - - - 700,425 700,425
Transfer - - 109,809 (109,809) -
At 31st December 2004 1,403,670 292,081 491,684 1,796,176 3,983,611
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a) Share premium and assets revaluation reserve
Share premium represents net assets acquired from the Parent company in excess of par value of state shares issued and proceeds from the issuance of A shares and B shares in excess of their par value, net of expenses directly relating to the issue of the shares. Share premium may be converted into shares capital by the issue of new shares to shareholders in proportion to their existing shareholdings or by increasing the par value of the shares currently held by them
Assets revaluation reserve represents the surplus on revaluation of property, plant and equipment. Any decrease in valuation is first offset against an increase on earlier valuation in respect of the same asset and is thereafter charged to the income statement. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus is transferred to accumulated profits.
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23. RESERVES (continued)
b) Statutory surplus reserve
According to the PRC Laws and the Company’s Articles of Association, the Company is to provide certain statutory reserves which are appropriated from the net profit as reported in the statutory accounts. Accordingly, the Company shall set aside 10% of its net profit for statutory reserves fund (except where the reserve balance has reached 50% of the Company’s registered share capital) and 5% to 10% for the statutory public welfare fund. The Company may make appropriations from its net profit to the discretionary common reserve funds upon approval by shareholders. These reserves cannot be used for purposes other than those for which they are created and are not distributable as cash dividends without the prior approval by Shareholders under certain conditions.
When the statutory reserve fund is not sufficient to cover the priors’ losses, the current year’s net profit will first be used to compensate the previous losses before the appropriations to the statutory common reserve fund and statutory public welfare fund.
The Directors propose, subject to Shareholders’ approval, the transfer of RMB109,809,000 (2003: RMB78,709,000) being 10% and 5% (2003: 10% and 5%) of the net profit for the year as showed in the Statutory financial statements.
c) Retained profits available for distribution
According to the Company’s Articles of Association, the amount of retained profits available for distribution to shareholders of the Company is the lower of the amount determined in accordance with the PRC Accounting g Rules and Regulations and the amount determined in accordance with IFRS. At 31st December 2004, the amount of retained profits available for distribution was RMB 1,796,176,000 (2003: RMB 1,431,493,000), being the amount determined in accordance with the PRC Accounting Rules and Regulations.
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24. BANK LOANS
2004 2003
RMB’000 RMB’000
Guaranteed 414,844 679,561
Unsecured or not guaranteed 159,510 259,510
574,354 939,071
Less: Amount repayable within one year (262,492) (613,383)
311,862 325,688
The interest rates for long-term bank loans are from 2.10% to 5.76% 2003 2.10% to 5.76% The guaranteed is provided by the Parent Company (Note 32)
The maturity of the bank loans are as follows:
2004 2003
RMB’000 RMB’000
Within one year 262,492 613,383
In more than one but less than two years 50,492 212,492
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In more than two but less than five years 228,381 81,215
More than five years 32,989 31,981
574,354 939,071
Less: Amount repayable within one year (262,492) (613,383)
311,862 325,688
25. ACCOUNTS PAYABLE
2004 2003
RMB’000 RMB’000
Related parties (note33) 234,827 175,444
Third parties 202,935 109,403
437,762 284,847
26. OTHER PAYABLE AND ACCRUED CHARGES
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2004 2003
RMB’000 RMB’000
Related parties (note 33) 101,590 25,528
Tax other than income tax 801 10,249
Accrued salaries and welfare 8,359 5,538
Other payable 82,767 54,605
193,517 95,920
27. RECEIPT IN ADVANCE
2004 2003
RMB’000 RMB’000
Accrued salaries and welfare 513,954 576,594
Other payable 1,315,274 834,542
1,829,228 1,411,136
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28. FINANCIAL INSTRUMENTS
a) Financial risks and risks management
The main risks arising from the Company’s financial instruments are business risk, interest rate risk, foreign currency risk and credit risk. The Company does not have any written risk management policies and guidelines. However, the board of directors meets periodically to analyze and formulate measures to manage the Company’s exposure to these risks. Generally, the Company introduces conservative strategies on its risk management. As the Company’s exposure to these risks is kept to a minimum, the Company has not used any derivatives and other instruments for hedging purposes. The Company does not hold or issue derivative financial instruments for trading purposes. The board of directors reviews and agrees policies for managing each of these risks and they are summarized below:
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28. FINANCIAL INSTRUMENTS (continued)
a) Financial risks and risks management (continued)
i) Business risk
The Company conducts its operations in the PRC and accordingly is subject to special considerations and significant risks. These include risks associated with, inter alias, the political, economic and legal environment, influence of national authorities over price regulations and competitions in the industry.
ii) Interest rate risk
The interest rates and terms of repayment of the bank loans of the Company are disclosed in note 28. The Company has no significant concentration of interest rate risk.
iii) Foreign currency risk
The Company’s businesses are principally located in the PRC and all transactions are conducted in RMB, except for the purchases of some machinery and equipment. As at 31 st December 2004, all of the Company’s assets and liabilities were denominated in RMB except that small amount of cash and cash equivalents were denominated in foreign currency. Fluctuation of exchange rates of RMB against foreign currencies will not significantly affect the Company’s results of operation.
iv) Credit risk
The Company’s cash and cash equivalents are mainly deposits with state-owned banks in the PRC.
-40-
The carrying amount of the trade receivables and cash included in the financial statements represent the Company’s maximum exposure to credit risk in relation to its financial assets. The Group has no other financial assets carrying significant exposure to credit risk. The Company has no significant concentrations of credit risk.
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28. FINANCIAL INSTRUMENTS
b) Fair value of financial instruments
Financial instruments of the Company mainly consist of cash and bank balances, trade receivables, other current assets trade payable, other payables and long term interest bearing loans.
The carrying amount of the Company’s financial instruments approximated their value as at 31 st December 2004 because of the short term maturities of these instruments except for long-term interest bearing loans. It was not practicable to estimate the fair value of the long term loans of RMB574,354,000 as the instruments are not marketable.
The carrying amount of the Company’s long term interest bearing loans approximated its fair value based on borrowing rates currently for loans with similar terms maturities.
Fair value estimates are made at a specific point in time and based on relevant market information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
29. OPERATING LEASE COMMITMENT
The minimum lease payment under irrevocable operating leases is as follows:
2004 2003
RMB’000 RMB’000
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Within one year 2,673 2,673
More than one but less than five years 10,692 10,692
More than five years 101,583 104,256
114,948 117,621
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30. CAPITAL COMMITMENT
At 31st December 2003 and 2004, there was capital commitment so far as not provided for in the financial statements:
2004 2003
RMB’000 RMB’000
Acquisition of fixed assets
Contracted 225,900 -
Authorised but not contracted 19,100 -
245,000 -
On 20th April 2004, a resolution concerning the construction No. 4 stove and the improvement works of the1700mm hot pressing machine was passed at the sixth meeting of the third terms of the Company’s board of directors. The total costs for the above works was RMB945,722,000 and RMB191,663,100 respectively. The works will be completed in 2005.
The above resolution has been passed at the 2003 general meeting on 25th May 2004.
31. CONTINGENT LIABILITIES
At 31st December 2003 and 2004, the Company had no material contingent liabilities.
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32. RELATED PARTIES TRANSACTIONS
Companies are considered to be related if one company has ability, directly or indirectly, to control the other company or exercise significant influence over the other company in making financial and operating decisions. Companies are also considered to be related if they ate subject to common control or common significant influence.
The principal related party transactions with the Parent Company and follow subsidiaries, which were carried out in the ordinary course of business, are as follows:
2004 2003
RMB’000 RMB’000
Sale of goods 10,397,331 5,491,404
- the Parent Company(i) 4,807,293 3,027,092
- 本溪钢铁(集团)国际经济贸易有限公司 2,030,092 90,068
- 天津本钢钢铁贸易有限公司 666,604 603,163
- 烟台本钢钢铁销售有限公司 617,121 440,542
- 本溪钢铁(集团)特殊钢有限公司 323,444 198,339
- 南京本钢钢铁销售有限公司 318,781 273
- 上海本钢钢铁物资有限公司 311,667 147,690
- 本溪钢铁(集团)钢材加工配送有限责任公司 263,040 32,433
- 无锡本钢钢铁销售有限公司 234,666 309,398
- 厦门本钢钢铁销售有限公司 191,277 111,941
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- 沈阳北方本钢钢铁销售有限公司 186,659 62,598
- 大连波罗勒钢管有限公司 162,976 94,282
- 哈尔滨本钢经济贸易有限公司 100,963 119,404
- 长春本钢钢铁销售有限公司 85,207 4,292
- 广州保税区本钢销售有限公司 61,427 151,593
- 本溪钢铁(集团)腾达股份有限公司 24,606 40,589
- 上海本钢钢铁销售有限公司 - 26,307
- 天津本储物资经销有限公司 1,982 23,415
- 本钢西安物资销售有限公司 9,526 7,985
Sale of raw material 213,243 -
- the Parent Company 931 -
- 本溪钢铁(集团)建设有限责任公司 190,082 -
- 本溪钢铁(集团)修建有限责任公司 22,159 -
- 本溪钢铁(集团)实业发展有限责任公司 71 -
Purchase of raw materials(i) 14,008,082 7,535,125
- the Parent Company 11,858,066 6,187,626
- 本溪钢铁(集团)铁业有限责任公司 2,150,016 1,347,499
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32. RELATED PARTIES TRANSACTIONS (continued)
2004 2003
RMB’000 RMB’000
Purchase of power from the Parent Company(i) 832,902 755,180
Purchase of accessories (i) 1,038,952 1,078,468
- the Parent Company 813,040 915,876
- 本溪钢铁(集团)石灰石矿 109,931 88,879
- 本溪钢铁(集团)机械制造有限责任公司 66,928 73,713
- 本溪钢铁(集团)建设有限责任公司 43,972 -
- Others 5,081 -
Payment of repair and maintenance expenditure(i) 121,696 183,027
- the Parent Company 51,128 181,643
- 本溪钢铁(集团)建设有限责任公司 45,994 -
- 本溪钢铁(集团)修建有限责任公司 8,956 -
- 本溪钢铁(集团)电气有限责任公司 5,345 -
- 本溪钢铁(集团)实业发展有限责任公司 4,439 -
- 本溪钢铁(集团)信息自动化有限责任公司 3,746 -
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- Others 2,088 1,384
Payment of trqansactions charges(i) 83,358 82,087
- the Parent Company 48,194 65,957
- 本溪钢铁(集团)冶金渣有限公司 18,534 -
- 本溪钢铁(集团)汽车运输有限公司 9,895 16,130
- 本溪钢铁(集团)铁业有限公司 4,975 -
- 本溪钢铁(集团)矿业有限公司 1,760 -
Payment of construction fee(i) 336,292 -
- 本溪钢铁(集团)建设有限责任公司 280,808 -
- 本溪钢铁(集团)修建有限责任公司 31,468 -
- 本溪钢铁(集团)信息自动化有限责任公司 20,374 -
- 本溪钢铁(集团)设计研究院 3,642 -
Payment of package fee to 本溪经济开发区本钢聚丰发展有限公司 21,195 5,341
Payment of agency to 本溪钢铁(集团)国际经济贸易有限公司(i) 33,542 4,416
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Payment of sundry expenses to 营口本钢国贸物流有限公司 23,878 2,746
32. RELATED PARTIES TRANSACTIONS (continued)
2004 2003
RMB’000 RMB’000
Payment of rental to the Parent Company (ii) 2,673 2,673
Payment of testing fee to the Parent Company (i) 6,087 -
Payment of air-conditioning fee to 本溪钢铁(集团)热力开发有限责任公司 2,299 -
Payment of property management fee to 本溪钢铁(集团)房地产有限责任公司 230 209
Payment of trade mark use fee to the Parent Company (i) 25 25
The transactions were entered into on normal commercial terms.
i) On 14th April 1997, the Company and the Parent Company entered into a Comprehensive Services Agreement governing, inter alia, the purchases of raw
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materials, energy and electric power and accessories and spare parts, provision of freight and maintenance services and etc., effective from the date of the incorporation of the Company with a term of five years. On 1st November 2001, the Company signed a Supplementary Agreement to Comprehensive Services Agreement with the Parent Company to extend the term to 31st December 2006.
ii) According to an approval document “Liao Tu Pi Zi (1997) No.6” issued by the Land Bureau of Liaoning Province on 5 March 1997 regarding the valuation of land and the related arrangements, and the Land Use Right Lease Contract entered into between the Company and the Parent Company on 7 April 1997, the Company is authorized to lease the land on which its plants and buildings are located from the Parent Company at an agreed fee. The term of the lease contract is 50 years. The initial rent payable by the Company to the Parent Company was approximately RMB2,673,000 per annum. The rent will be adjusted after the first five years of the lease and subsequently at an interval of three years. On 6th April 2002, the Company signed a supplementary agreement to the Land Use Right Lease Contract with the Parent Company to maintain the same amount of rent until 7th April 2005.
iii) As of 31st December 2004, the Company had loans amounting to RMB414,844,000 (2003:RMB679,561,000) guaranteed by the Parent Company (note 24).
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33. BALANCES WITH RELATED PARTIES
2004 2003
RMB’000 RMB’000
Accounts receivable 175,988 100,143
- 本钢集团国际经济贸易有限公司 102,939 -
- 本溪钢铁(集团)特殊钢有限责任公司 73,049 53,495
- 天津本储物资经销有限公司 - 24,436
- 广州保税区本钢销售有限公司 - 6,712
- 无锡本钢钢铁销售有限公司 - 6,407
- 厦门本钢钢铁销售有限公司 - 6,368
- 上海本钢钢铁销售有限公司 - 2,725
Bills receivable 5,562 104,930
- 大连波罗勒钢管有限公司 3,812 1,400
- 无锡本钢钢铁销售有限公司 - 62,270
- 天津本钢钢铁贸易有限公司 - 16,260
- 烟台本钢钢铁销售有限公司 1,550 13,500
- 本溪钢铁(集团)特殊钢有限责任公司 - 7,000
- 本溪钢铁(集团)钢材加工配送有限责任公司 - 4,500
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- 南京本钢钢铁销售有限公司 200 -
Prepaid expenses and other receivables 839,050 1,512,715
- the Parent Company 810,281 1,510,133
- 本溪钢铁(集团)建设有限责任公司 19,833 -
- 本溪钢铁(集团)国际贸易有限公司 7,802 2,440
- 本溪钢铁(集团)机械制造有限责任公司 1,034
- Others 100 142
Trade payables 234,827 175,444
- the Parent Company 90,260 32,776
- 本溪钢铁(集团)建设有限责任公司 68,482 66,879
- 本溪钢铁(集团)修建有限责任公司 42,507 39,788
- 本溪钢铁(集团)机械制造有限责任公司 25,022 8,853
- 本钢特钢机电安装公司 - 7,568
- Others 8,556 19,580
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33. BALANCES WITH RELATED PARTIES (continued)
2004 2003
RMB’000 RMB’000
Other payables 101,590 25,528
- the Parent Company 53,054 12,993
- 本溪钢铁(集团)国际经济贸易有限公司 15,759 1,847
- 本溪钢铁(集团)实业发展有限责任公司 7,576 -
- 本钢特钢机电安装公司 7,508 -
- 本溪钢铁(集团)汽车运输有限责任公司 6,086
- 本溪经济开发区本钢聚丰发展有限公司 4,124 3,480
- 本溪钢铁(集团)电气有限责任公司 3,239 -
- 本溪钢铁(集团)冶金渣有限责任公司 1,743 -
- 本溪钢铁(集团)机械制造有限责任公司 1,038 -
- Others 1,463 7,208
Receipt in advance 513,954 576,594
- the Parent Company 129,479 323,773
- 天津本钢钢铁贸易有限公司 99,245 108,680
- 烟台本钢钢铁销售有限公司 71,766 27,456
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- 本溪钢铁(集团)钢材加工配送有限责任公司 66,285 28,685
- 南京本钢钢铁销售有限公司 44,139 -
- 沈阳北方本钢钢铁销售有限公司 22,359 17,907
- 大连波罗勒钢管有限公司 23,152 26,282
- 广州保税区本钢销售有限公司 15,861 -
- 上海本钢钢铁物资有限公司 14,132 -
- 哈尔滨本钢经济贸易有限公司 9,359 22,980
- 厦门本钢钢铁销售有限公司 9,148 -
- 长春本钢钢铁销售有限公司 8,262 8,632
- 本溪钢铁(集团)腾达股份有限公司 265 6,620
- 本钢(集团)国际经济贸易有限公司 - 3,233
- 本钢西安物资销售有限公司 410 2,346
- 无锡本钢钢铁销售有限公司 92 -
34. SEGMENT INFORMATION
The Company is engaged in steel industrial. As the Company operates in only one industry and in one location, no segment information is presented.
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35. DIFFERENCES BETWEEN FINANCIAL STATEMENTS PREPARED UNDER THE PRC ACCOUNTING RULES AND REGULATIONS AND IFRS
Other than the differences in the classifications of certain financial captions and the accounting for the items described below, there are no material differences between the Company’s financial statements prepared under the PRC Accounting Rules and Regulations and IFRS. The major differences are:
i) Depreciation on revalued assets
Certain assets of the Company are stated at their revalued value in the financial statements prepared under IFRS while they are stated at cost in the financial statements prepared under the PRC Accounting Rules and Regulation. Accordingly, the depreciation charge of these assets under IFRS and the PRC Accounting Rules and Regulations is different.
ii) Provision for deferred tax
Under the PRC Accounting Rules and Regulation, the Company selected to adopted “Tax payable method” in accounting for the income tax expense. Under this method, tax expenses for the current period are the amount paid or payable for current period only. However, under IFRS, income tax expenses include not only tax for current period but also deferent taxation.
iii) Gain from debt restructuring
Under the PRC Accounting Rules and Regulations, gain from debt restructuring should be credited to capital reserve. Under IFRS, gain from debt re-structuring should be recognized as income.
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35. DIFFERENCES BETWEEN FINANCIAL STATEMENTS PREPARED UNDER THE PRC ACCOUNTING RULES AND REGULATIONS AND IFRS (continued)
Effects of major differences between the PRC Accounting Rules and Regulations and IFRS on net profit are analyzed as follows:
Note 2004 2003
RMB’000 RMB’000
Net profit under the PRC Accounting Rules and Regulations 732,062 524,724
Adjustment:
- Depreciation on revalued assets (i) (2,532) (43,101)
- Disposal of revalued assets (i) (29,683) -
- Deferred taxation (ii) - (9,796)
- Gain on debt restructuring (iii) 578 1,685
(31,637) (51,212)
Net profit under IFRS 700,425 473,512
Effects of major differences between the PRC Accounting Rules and Regulations and IFRS on shareholders’ fund are analyzed as follows:
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Note 2004 2003
RMB’000 RMB’000
Shareholders’ fund under the PRC Accounting Rules and Regulations 4,902,711 4,397,271
Adjustments:
- Revaluation of assets (i) 321,764 321,764
- Depreciation on revalued assets (i) (89,894) (87,362)
- Disposal of revalued assets (i) (29,683) -
- Gain on debt restructuring (ii) 14,713 14,713
216,900 249,115
Shareholders’ fund under IFRS 5,119,611 4,646,386