ST Pearl River, ST Pear River B Stock code ,

Transcription

1 1 HAINAN PEARL RIVER HOLDINGS CO., LTD. ANNUAL REPORT Important Notice 1.1 Board of Directors of Hainan Pearl River Holdings Co., Ltd. (hereinafter referred to as the Company) and its directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. 1.2 Mr. Zheng Qing, Chairman of the Board as well as General Manager, Mr. Chen Binglian, Deputy General Manager as well as Chief Financial Officer, hereby guarantee that the financial report enclosed in this Annual Report 2004 is true and complete. 2. Company Profile 2.1 Basic information Short form of the stock ST Pearl River, ST Pear River B Stock code , Listed stock exchange Shenzhen Stock Exchange Registered address and office address 29/F, Royal Empire Building, Pearl River Plaza, Binhai Avenue, Haikou Post code Internet web site of the Company Naught of the Company hnpearl@public.hk.hi.cn 2.2 Contact person and method Secretary of the Board of Directors Securities Affairs Representative Name Feng Pai Gu Lirong Contact address 29/F, Royal Empire Building, Pearl 29/F, Royal Empire Building, River Plaza, Binhai Avenue, Pearl River Plaza, Binhai Avenue, Haikou Haikou Telephone (86) ext. (86) ext. Fax (86) (86) hnpearl@public.hk.hi.cn hnpearl@public.hk.hi.cn 3. Summary of Accounting Data and Financial Indexes 3.1 Major accounting data Unit: RMB Increase/decrease over last year(%) 2002 Income from main operations 24,750, ,561, ,008,755 Total profit -107,361,020-1,482,336-7, ,462,535 Net profit -103,498,072 1,629,184-6, ,499,128 Net profit after deducting non-recurring gains and losses -110,359,070-14,620, ,518,891 At the end of 2004 At the end of 2003 Increase/decrease from the end of previous year(%) At the end of 2002 Total assets 664,279, ,838, ,838,276 Shareholder s equity (excluding 157,388, ,895, ,348,071 minority interests) Net cash flow arising from operating activities -79,676,938-2,065,568-3, ,296,825

2 3.2 Major financial indexes Unit: RMB Increase/decrease over last year(%) 2002 Earnings per share , Return on equity (%) Return on equity calculated based on net profit after deducting non-recurring gains and losses (%) Net cash flow per share arising from operating activities , At the end of 2003 At the end of 2002 Increase or decrease from the end of previous year(%) At the end of 2001 Net assets per share Net assets per share after adjustment Items of non-recurring gains and losses Applicable Inapplicable Items of non-recurring gains and losses Amount Gains and losses occurred from disposal of long-term equity investment, fixed assets, construction -515, in progress, intangible assets and other long-term assets Tax refundable and reduction and exemption exceeding authority in approving or without formal approval document Various government subsidies Capital occupied received from non-financing enterprises reckoned into gains and losses of current 800, period Gains and losses from short-term investment Gains and losses from commission investment Other non-operating income/expenses after deducting daily reserve for impairment losses of assets 1,416, allotted by the Company based on regulations of Accounting System for Business Enterprise Various reserves for impairment losses of assets withdrew due to force majeure factors such as natural disaster Switching back various reserves for impairment losses allotted over the previous years 5,160, Gains and losses from debt reorganization Gains and losses from assets replacement Gains and losses occurred from transaction that trading price exceeds fair value Retroactively adjusting net profit in the previous period due to change of accounting policies in comparable financial statement Confirmed other non-recurring gains and losses items according with regulations of defining Total 6,860, Difference in net profit as audited by Chinese Accounting Standard (CAS) and International Accounting Standard (IAS) Applicable Inapplicable Impact of IFRS and Other Adjustments on Profit/(Loss) for the Year and Net Assets: IMPACT OF IFRS AND OTHER ADJUSTMENTS ON (LOSS)/PROFIT FOR THE YEAR AND NET ASSETS (Loss)/Profit for the year ended 31 December Net assets as of 31 December RMB'000 RMB'000 RMB'000 RMB'000 As reported in statutory accounts (103,498) 1, , ,895 Impact of IFRS and other adjustments - adjustment on capitalisation of interest charges arising from borrowings used to finance the properties under development during the construction period - -

3 and corresponding depreciation 931 (4,788) - reversal of adjustment on capitalisation of interest charges arising from borrowings used to finance the properties under development during the construction period disposed of in last year - 4,788-4,788 - unrecognised losses of consolidated subsidiaries (2,747) (2,445) wavier of payables recorded as movement of capital reserves in statutory accounts now recognised as income 10, reversal of capital reserve arising from transfer of construction in progress from the Company to a subsidiary as capital injection - - (2,072) (363) - goodwill on acquisition of an associate recorded as bad debts under IFRS and reversal of amortisation 306 (3,059) (2,753) (3,059) - gain on disposal of a subsidiary which was recorded as movement in capital reserve in statutory accounts provision for bad and doubtful debts - - (14,600) (14,600) - adjustment on treasury stock - - (1,410) (1,410) - adjustment to income from an associate - - (9,929) (9,929) - others (568) 872 (1,094) (526) As restated for the Group (95,478) 2, , , Changes in Share Capital and Particulars about Shareholders 4.1 Statement of change in share (Unit: share) Amount at the period-begin Amount at the period-end I. Non-circulating shares 1. Sponsors shares Including: Domestic legal person s shares 206,744, ,744, Inner employees shares Total non-circulating shares 206,744, ,744,976 II. Circulating shares 1. Domestically RMB ordinary shares 113,405, ,405, Domestically listed foreign shares 57,500,000 57,500,000 Total circulating shares 170,905, ,905,824 III. Total shares 377,650, ,650, Statement of shares held by the top ten shareholders shareholders of A-share and shareholders of Total number of shareholders at the end of report year B-share Particulars about shares held by the top ten shareholders Full name of Shareholders Increase / decrease in the report year (share) Shares held at the year-end (share) Proportion (%) Type of shares (Circulating/No n-circulating) Number of share pledged/ frozen (share) Nature of shareholders (state-owned shareholder or foreign shareholder) Beijing Wanfa Real Estate 0 112,628, Non-circulating 40,000,000 Other Development Co., Ltd. Guangzhou Lishengde Investment 0 17,000, Non-circulating 0 Other Co., Ltd. Henglong International Co., Ltd. 0 13,570, Non-circulating 13,570,000 Other Shanghai Central South Investment 0 11,000, Non-circulating 0 Other and Management Co., Ltd. Hainan Development Bank Haikou Branch 0 7,820, Non-circulating 0 Other

4 Hebei Securities Co., Ltd. 0 5,750, Non-circulating 0 Other Guangzhou Pearl River Foreign 0 4,896, Non-circulating 0 Other Capital Contraction Design Institute, Hainan Branch Ping An Insurance Company Of China, Ltd. 0 3,450, Non-circulating 0 Other Hainan Yueyin Science and 0 2,660, Non-circulating 0 Other Technology Co. Ltd. Shenzhen Gintian Industrial Co., Ltd. 0 2,300, Non-circulating 2,300,000 Other Particulars about shares held by the top ten shareholders of circulation share Full name of shareholder Number of circulation shares held at Type (A-share, B-share, H-share or other) the year-end ZHANG XIAO XIA 1,725,000 B-share ZHAO SHU ZHEN 868,600 A-share ZHANG LI JUN 654,200 A-share HUANG PEI LING 602,413 B-share LI YAN 490,600 A-share QIU LAN ZHEN 460,000 A-share HUANG PEI LIN 431,200 B-share ZHANG HUI LONG 397,430 A-share LIN LI 397,378 B-share CHANG MIN 360,000 A-share Explanation on associated Among the above shareholders, there existed no associated relationship between relationship among the top ten shareholders or consistent action the first largest shareholder and the other shareholders, and they didn t belong to the consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies. For the other shareholders, the Company is unknown whether there exists associated relationship, or whether the rest shareholders belong to the consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies. 4.3 Particulars about the controlling shareholders and actual controller of the Company Particulars about change in the controlling shareholders and actual controller of the Company Applicable Inapplicable Introduction of especial situation on the controlling shareholder and other actual controller Beijing Wanfa Real Estate Development Co., Ltd. ( Wanfa Real Estate ), the first largest shareholder of the Company, was established in Nov with registered capital amounting to RMB 280 million, whose legal representative is Meng Qiao. Its main business includes the development and operation of real estate. As a joint-stock company, its major shareholders are Beijing Xinxing Real Estate Development General Company, Beijing Jiahengtai Industrial Co., Ltd., Beijing Shengcai Science and Trade Co., Beijing Jiuzhu Property and Management Co., Ltd. and Beijing Yitai Co.. The actual controller of the Company s controlling shareholder, Beijing Xinxing Real Estate Development General Company ( Xinxing Real Estate ) is one of the shareholders of Beijing Wanfa Real Estate Development Co., Ltd., who was established in 1992 with registered capital of RMB 10 million and legal representative Zheng Qing. The said company is principally engaged in the development and operation of real estate as a collective enterprise Property right and controlling relationship between the actual controller of the Company and the Company is as follows:

5 State-owned Assets Supervision and Administration Commission of Beijing Municipal Government Beijing Xinxing Real Estate Development General Company % Jiuzhu Property Management Co., Ltd % Jiahengtai Industrial Co., Ltd % Shengcai Science & Trading Corporation % Tianzheng Construction Supervision Co., Ltd % Yitai Corporation % Beijing Wanfa Real Estate Development Co., Ltd % Hainan Pearl River Holdings Co., Ltd. 5. Particulars About Directors, Supervisors and Senior Executives 5.1 Particulars about changes in shares held by directors, supervisors and senior executives Name Title Sex Age Office term Zheng Qing Chairman of the Board / Male General Manager Peng Shuyin Director Male Wu Xiaojing Director Male Shi Yonghui Director Male Zhang Jian Director Male Tan Shuguang Director Male Wang Zhigang Independent Director Male Yang Kaijun Independent Director Male Zhang Taowei Independent Director Male Sun Xianli Convener of Male Supervisory Committee She Jianhui Supervisor Female Xu Jingui Supervisor Male Feng Pai Deputy General Manager Chen Binglian Deputy General Manager Male Male Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Apr Apr Apr Apr Shares held at the year-begin Shares held at the year-end Reason for change Naught 0 0 Naught 0 0 Naught 0 0 Naught 0 0 Naught 0 0 Naught 0 0 Naught 0 0 Naught 0 0 Naught 0 0 Naught 0 0 Naught 0 0 Naught 0 0 Naught 0 0 Naught

6 5.2 Particulars about directors and supervisors holding the post in Shareholding Company Applicable Inapplicable Name Zheng Qing Shi Yonghui Zhang Jian Tan Shuguang Name of Shareholding Company Beijing Wanfa Real Estate Development Co., Ltd. Beijing Wanfa Real Estate Development Co., Ltd. Guangzhou Lishengde Investment Co., Ltd. Hainan Yueyin Science and Technology Co. Ltd. Title in Shareholding Company Office term Drawing the payment from the Company (Yes / No) Director Jun to now Yes Deputy General Manager Jul to now No Chairman of the Board Aug to now No General Manager May 2001 to now No 5.3 Particulars about the annual payment of directors, supervisors and senior executives Total annual payment RMB 520,000 Total annual payment of the top three directors Naught (one director drew the remuneration from the drawing the highest payment Company because he concurrently took the post of General Manager of the Company.) Total annual payment of the top three senior RMB 450,000 executives drawing the highest payment Allowance of independent director Naught Other treatment of independent directors Name of directors and supervisors receiving no payment or allowance from the Company Range of payment Naught Director: Peng Shuyin, Wu Xiaojing, Shi Yonghui, Zhang Jian and Tan Shuguang Independent Director: Wang Zhigang, Yang Kaijun and Zhang Taowei Supervisor: Sun Xianli, She Jianhui Number of persons RMB 150,000 ~ RMB 250,000 1 RMB 100,000 ~ RMB 150,000 2 RMB 50,000 ~ RMB 100, Report of the Board of Directors 6.1 Discussion and analysis to the whole operation in the report period 1. Four certificates (Land Certificate, Land Use License, Planning License and Construction License) of Wuhan Real Estate Project has been handled over, the Company strived for the partial development funds and completed project bidding; and all preparation work for development has been completed all-sidedly. The 1 st phase project started foundations construction in the 4 th quarter of Project of Sanya Wanjia Holiday Inn entered into the phase of exquisite decoration and started to conduct the business-opening preparation work. 3. To liquidize remnant assets, the Company programmed the 3 rd phase project of Longzhu New City. 4. Pearl River Property developed the comprehensive business such as real estate and etc. by relying on brand advantage. 6.2 Statement of main operations classified according to industries or products Unit: RMB Classified according to industries or products Income from main operations Cost of main operations Gross profit ratio (%) Increase/ decrease of income from main operations compared with the previous year (%) Increase/ decrease of cost of main operations compared with the previous year (%) Increase/ decrease of gross profit ratio compared with the previous year (%)

7 Income from sales of 1,145,259 1,345, Down 34% real estate Income from property management 14,532,747 11,788, Down 4% Income from tour 5,607,564 5,245, No change service Income from 3,445,470 2,015, Up 1% engineering supervision Including: total amount of related transactions that the listed company sold products or provided labor service to the controlling shareholder and its subsidiaries was RMB 0.00 in the report period. 6.3 Particulars about main operations classified according to areas Unit: RMB Areas Income from main operations Increase/decrease of income from main operations compared with the previous year (%) Proportion of income from main operations for 2004 in the total revenue Hainan 24,725, % 6.4 Particulars about the customers of purchase and sales Total amount of purchase of the top five suppliers 9,530,000 Proportion in the total amount of purchase Total amount of sales of the 2,120,000 Proportion in the total top five sales customers amount of sales 45.20% 12.60% 6.5 Operation of share-holding companies (applicable to the situation where investment equity takes over 10% of its net profit) Applicable Inapplicable Name of share-holding company Southwest Securities Co., Ltd. Investment earnings contributed in the period -53,657,486 Proportion in net profit of listed company 51.84% Business scope Comprehensive securities Share-holding company Net profit -161,750,992 (in addition, adjusted retroactively RMB -440,289,643) 6.6 Explanation on reasons of material changes in main operations and its structure Applicable Inapplicable 6.7 Explanation on reasons of material changes in profitability capability of main operations (gross profit ratio) compared with the previous year Applicable Inapplicable 6.8 Analysis to reasons of material changes in operating results and profit structure compared with the previous year Applicable Inapplicable Analysis to reasons of material changes in the whole financial position than that in the last year Applicable Inapplicable 6.9 Explanation on the past, current and future important effects of the material changes in production and operation environment, macro-policies and regulations on the Company s financial position and operating results Applicable Inapplicable

8 6.10 Completion of the profit estimation Applicable Inapplicable 6.11 Completion of the business plan Applicable Inapplicable 6.12 Application of the raised proceeds Applicable Inapplicable Particulars about the changed projects Applicable Inapplicable 6.13 Application of the proceeds non-raised through shares offering Applicable Inapplicable Name of project Amount of project Progress of project Earning of project Sanya Wanjia Junhua Holiday Inn RMB million Exquisite decoration Naught engineering Wuhan Real Estate Project RMB million The 1 st phase Naught foundations engineering 6.14 Explanation of the Board of Directors on the Qualified Opinion made by the Certified Public Accountants Applicable Inapplicable 6.15 Business plan as of the next year of the Board of Directors Applicable Inapplicable In 2005, the Company will grasp core business tightly, and ready the following tasks: 1. To start the 1 st phase engineering of Wuhan Real Estate project roundly, and realize commence sales. 2. To complete the ending engineering of Sanya Wanjia Hotel, and try to bring it into trial operation as soon as possible. 3. To liquidize the remanent land in Haikou, and start the 3 rd phase project of Longzhu New City. Profit estimation of the new report year Applicable Inapplicable 6.16 The preplan on the profit distribution and capitalization of capital public reserve of the Board of Directors In the report period, the Company would conduct neither profit distribution nor converting capital reserve into share capital due to deficit. The Company did not appropriate share distribution preplan though the Company achieved the profit in the report period Applicable Inapplicable 7. Significant Events 7.1 Purchase of assets Applicable Inapplicable 7.2 Sales of assets Applicable Inapplicable 7.3 Significant guarantees Applicable Inapplicable 7.4 Significant related transactions

9 7.4.1 Related sale and purchase Applicable Inapplicable Related credits and liabilities current Applicable Inapplicable Related parties Beijing Xinxing Real Estate Development General Company (the actual controller of the controlling shareholder) Beijing Wanfa Real Estate Development Co., Ltd. (the controlling shareholder) Hainan Longzhu Shunda Entertainment Co., Ltd. (affiliated enterprise) Guangzhou Lishengde Investment Co., Ltd. (the second largest shareholder) Shanghai Sea Pearl Property Corporation (affiliated enterprise) Unit: RMB 0000 To supply funds to related parties Related parties supplies funds to Listed Company Occurred amount Balance Occurred amount Balance Total Including: Occurred amount and balance that the Company supplied funds to the controlling shareholder and its subsidiaries was RMB 0.00 and RMB 0.00 respectively in the report period. 7.5 Entrust financing Applicable Inapplicable 7.6 Implementation of commitment items Applicable Inapplicable 7.7 Significant lawsuit and arbitrations Applicable Inapplicable The case on the Company prosecuted Hainan Zhongkexin Industrial Development Co., Ltd. and Hainan Overseas Chinese Commerce Co., Ltd. to pay the arrears for purchase of houses and overdue default fine, Haikou Municipal Intermediate People s Court issued the judgment in July 2003, which judged Hainan Zhongkexin Industrial Development Co., Ltd. to pay the rest arrears for purchased of houses amounting to RMB 9.4 million and overdue default fine amounting to RMB 1.15 million. The Company received all arrears on Mar. 2, 2004 and Mar. 30, 2004, and the said case has been finished. The said event was published on Securities Times dated Apr. 23, Particulars about the performance of obligations of Independent Directors 1. Particulars about the independent directors attending the Board meeting Name of Times that should Times of Times of Independent be attend the personal commission Directors Board meeting presence presence Wang Zhigang Times of absence 5 4 / 1 Yang Kaijun 5 5 / / Zhang Taowei 5 5 / / Remark To go abroad due to business 2. Particulars about the independent directors proposed different opinions about the relevant matters of the Company Applicable Inapplicable 8. Report of the Supervisory Committee Applicable Inapplicable

10 9. Financial Report 9.1 Auditors Opinion To the members of Hainan Pearl River Holding Company Limited (incorporated in the People's Republic of China with limited liability) We have audited accompanying consolidated balance sheet of Hainan Pearl River Holding Company Limited (the "Company") and its subsidiaries (the "Group") as of 31 December 2004, and the related consolidated statements of income and cash flows for the year then ended. The financial statements as set out on pages 2 to 29 are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing issued 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 management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the financial statements give a true and fair view of the state of the Group's affairs as of 31 December 2004 and of the Group's loss and cash flows for the year then ended in accordance with International Financial Reporting Standards. Grant Thornton Certified Public Accountants Hong Kong [Date]

11 9.2 Notes to accounting statement 1. Compared with the latest annual report, there was no change in accounting policy, accounting estimate and calculation method. 2. Compared with the latest annual report, the Company no longer consolidated balance sheet of Beijing Baili Network Technology Co., Ltd. and Hainan Pearl River Supervision Co., Ltd. and accounting statement of Hainan Pearl River Tubular Pile Co., Ltd Accounting statement (Attached hereafter) Board of Directors of Hainan Pearl River Holdings Co., Ltd. April 12,

12 Consolidated statement of income for the year ended 31 December 2004 Notes RMB'000 RMB'000 Turnover 6 24, ,561 Cost of sales (21,482) (97,180) Gross profit 3,269 32,381 Other revenue 7 12,448 1,856 Gain on disposal of subsidiaries ,158 Selling, general and administrative expenses (22,810) (26,471) Amortisation of intangible assets 15 (1,716) (1,674) Write back of impairment of properties held for sale 199 2,276 Provision for doubtful debts (7,960) (2,126) Provision for impairment of long term investments (62,496) (332) (Loss)/Profit from operations 8 (78,960) 24,068 Net finance costs 9 (17,564) (18,748) Loss from associates (351) (3,310) (Loss)/Profit before taxation (96,875) 2,010 Taxation (Loss)/Profit before minority interests (96,875) 2,010 Minority interests 1, (Loss)/Profit for the year (95,478) 2,716 (Loss)/Profit per share (RMB Fen) 11 (25.28) 0.72

13 Consolidated balance sheet as of 31 December 2004 Notes RMB'000 RMB'000 ASSETS AND LIABILITIES Non-current assets Property, plant and equipment 12 87,559 89,772 Land use rights 13 27,131 - Long term investments 14 92, ,509 Intangible assets 15 10,017 13, , ,106 Current assets Properties held for sale , ,474 Inventories Trade and other receivables 18 70,825 81,627 Amounts due from associates ,914 Amounts due from investee companies Amounts due from unconsolidated subsidiaries Amount due from a related company 3,960 4,180 Cash at banks and in hand 16,758 58, , ,523 Current liabilities Secured bank loans current portion 22 81,220 93,570 Other loans current portion 23 15, ,000 Trade and other payables , ,338 Amounts due to associates 19 1,616 2,352 Amounts due to investee companies Amount due to an unconsolidated subsidiary Loans from related companies 25 63,196 58,670 Dividends payable 3,213 3, , ,369 Net current assets/(liabilities) 92,147 (30,846) Non-current liabilities Secured bank loans non-current portion 22 25,000 - Other loans non-current portion , ,000 - Minority interests 7,159 6,252 Net assets 125, ,008 CAPITAL AND RESERVES Share capital , ,651 Reserves 27 (252,121) (156,643) Shareholders funds 125, ,008 Director Director

14 Consolidated statement of changes in equity for the year ended 31 December 2004 Share Capital Revenue Accumulated capital reserve reserve losses Total RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 Balance at 1 January , , ,908 (558,179) 218,292 Profit for the year ,716 2,716 Balance at 31 December 2003 and as at 1 January , , ,908 (555,463) 221,008 Loss for the year (95,478) (95,478) Balance at 31 December , , ,908 (650,941) 125,530

15 Consolidated cash flow statement for the year ended 31 December 2004 Notes RMB'000 RMB'000 Cash flows from operating activities (Loss)/Profit before taxation (96,875) 2,010 Adjustments for : Depreciation 3,923 7,960 Provision for doubtful debts 7,960 2,126 Provision for impairment of long term investments 62, Write back of impairment of properties held for sale (199) (2,276) Loss from associates 351 3,310 Gain on disposal of subsidiaries 30 (106) (18,158) Loss/(Gain) on disposal of property, plant and equipment 2,239 (335) Amortisation of intangible assets 1,716 1,674 Interest income (1,074) (763) Interest expense 18,638 19,511 Operating (loss)/profit before working capital changes (931) 15,391 Increase in trade and other receivables (10,221) (3,806) Increase in properties held for sale (61,423) (20,101) Decrease/(Increase) in inventories 35 (6,279) Increase in amounts due from unconsolidated subsidiaries (130) - Decrease in amounts due from associates 3,386 2,780 Increase in amounts due from investee companies (220) - Increase in trade and other payables 45,205 35,630 (Decrease)/Increase in amounts due to associates (736) 1,500 Increase in amounts due to investee companies Increase in amount due to an unconsolidated subsidiary Cash (used in)/generated from operations (24,637) 25,341 Interest paid (15,200) (7,159) (39,837) 18,182 Cash flows from investing activities Proceeds from disposal of property, plant and equipment 1,297 2,246 Acquisition of a subsidiary net of cash acquired 29 - (6,335) Disposal of subsidiaries net of cash disposed of ,679 Increase in long term investments (1,725) (225) Purchases of property, plant and equipment (35,907) (22,896) Interest received 1, Net cash used in investing activities (34,847) (12,768) Cash flows from financing activities Bank loans repayment (12,350) (4,465) New bank loans raised 25,000 3,000 Increase in loan from related companies 22,000 39,500 Repayment of loan from related companies (6,700) - Capital contribution by minority interests 4,800 - Net cash generated from financing activities 32,750 38,035 (Decrease)/Increase in cash (41,934) 43,449 Cash at beginning of year 58,692 15,243 Cash at end of year 16,758 58,692

16 Notes to the financial statements for the year ended 31 December ORGANISATION AND OPERATIONS Hainan Pearl River Holding Company Limited (the "Company") was incorporated in the People's Republic of China (the "PRC") in November On 3 January 1992, the Hainan Provincial People's Government approved the reorganisation of the Company into a joint stock limited company. The principal activities of the Company and its subsidiaries (the "Group") are properties development and management and travel related services. Last year, the Group also engaged in manufacture of PHC-pipe. The registered office of the Company is located at 29/F., Dihao Building, Pearl River Plaza, Binhai Avenue, Haikou, Hainan, PRC. The average number of employees of the Group during the year was 1,156 (2003 : 960). 2. BASIS OF PRESENTATION The consolidated financial statements of the Group incorporate the financial statements of the Company and its major subsidiaries made up to 31 December All material inter-company transactions and balances are eliminated on consolidation. As of 31 December 2004, the Company had the following subsidiaries, which were all incorporated in the PRC : Company name Date of establishment Attributable equity interest Registered capital Principal activities Consolidated subsidiaries Hainan Pearl River Properties and Hotels Management Co., Ltd. (" 海南珠江物业酒店管理有限公司 ") Hainan Pearl River Enterprises Holding Co., Ltd. Shanghai Real Estate Co. (" 海南珠江实业股份有限公司上海房地产公司 ") Hainan Pearl River Tourism Co. Ltd (" 海南珠江国际旅行社有限公司 ") 22 August % RMB5,000,000 Property management 29 June % RMB40,000,000 Property development 5 April % RMB1,500,000 Travel services

17 2. BASIS OF PRESENTATION (Continued) Company name Date of establishment Attributable equity interest Registered capital Principal activities Consolidated subsidiaries Hubei Pearl River Real Estate Development Co., Ltd. (" 湖北珠江房地产开发有限公司 ") Sanya Wanjia Hotel Management Co., Ltd. (" 三亚万嘉酒店管理有限公司 ") 12 April % RMB37,500,000 Property development 19 March % RMB40,000,000 Hotel management A subsidiary is a company controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of a company so as to obtain benefit from its activities. Acquired subsidiaries are subject to application of the purchase method. This involves the revaluation at fair value of all identification assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their revalued amounts, which are also used as the bases for subsequent measurement in accordance with the Group accounting policies. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of income from the effective date of acquisition or up to the effective date of disposal, as appropriate. The gain or loss on the disposal of a subsidiary represents the difference between the proceeds of the sale and the Group's share of its net assets together with any unamortised goodwill or negative goodwill.

18 2. BASIS OF PRESENTATION (Continued) During the year, the Group disposed of the following subsidiaries. These subsidiaries did not constitute any major line of business which was not disclosed as discontinuing operations in the financial statements. Company name Hainan Pearl River Enterprises Project Construction Supervision Co., Ltd. (" 海南珠江实业工程建设监理公司 ") Beijing Baili-net Technology Co., Ltd. (" 北京百利网科技有限公司 ") Attributable equity interest Principal activities 100% Construction supervision and management 75% Information technology consulting services As of 31 December 2004, the following subsidiaries are not consolidated where in the directors' opinion, the Group cannot exercise control over these companies and the operations are not in the same line with the Group. Company name Hainan Pearl River Haikou Environmental Projects Company (" 海南珠江海口绿化工程公司 ") Hainan Pearl River Environmental Projects Co., Ltd. (" 海南珠江绿化工程有限公司 ") Hainan Pearl River Estate Cleaning Company (" 海南珠江物业清洁公司 ") Pearl River Estate Machine Engineering Company (" 珠江物业机电工程公司 ") Hainan Pearl River Estate Marketing Co., Ltd. (" 海南珠江不动产营销策划有限公司 ") Attributable equity interest Principal activities 100% Environmental construction 100% Environmental construction 100% Buildings cleaning 100% Selling machinery 100% Properties selling agent

19 2. BASIS OF PRESENTATION (Continued) As of 31 December 2004, the Company had the following major associates, which were all incorporated in the PRC : Company name Date of establishment Attributable equity interest Registered capital Principal activities Beijing Dirui Computer & Technology Co., Ltd. (" 北京市迪瑞计算技术有限公司 ") Beijing Wanwangyuan Communication & Technology Co. (" 北京万网元通讯技术公司 ") Beijing Feikai Biological Technology Co. (" 北京飞凯生物技术公司 ") Beijing Xin Li Ji Vacuum Glass Technique Co., Ltd (" 北京新立基真空玻璃技术有限公司 ") Zhongjinwang Database Co., Ltd (" 中经网数据有限公司 ") 12 August % RMB41,250,000 Hotel video communication system 25 September % RMB30,000,000 Communication technique and system 21 February % RMB15,000,000 Biological technique research 27 March % RMB25,000,000 Investment holding 20 June % RMB80,000,000 Interest services An associate is a company, other than a subsidiary, in which the Group has a long term equity interest and over which the Group is in a position to exercise significant influence on its financial and operating policy decisions. The results of the above associates are accounted for by using the equity method of accounting and the Group's interests are stated at the share of net assets value in these associates.

20 3. PRINCIPAL ACCOUNTING POLICIES The non-statutory consolidated financial statements are prepared under the historical cost convention and in accordance with International Financial Reporting Standards ("IFRS"). The statutory financial statements are prepared in accordance with the PRC Accounting Standards for Business Enterprises and the Accounting System for Business Enterprises ("Statutory Accounts"), which differ in certain respects from IFRS. These consolidated financial statements have incorporated adjustments made to the Statutory Accounts in order to conform to IFRS. The impact on IFRS and other adjustments between the Statutory Accounts and these financial statements are summarised in note 33. The Group's operations are principally conducted in the PRC. Accordingly, the consolidated financial statements of the Group have been prepared in Renminbi ("RMB"), being the functional currency of the Group. The following principal accounting policies were adopted in preparation of the consolidated financial statements of the Group to conform to IFRS : (a) Property, plant and equipment (i) Depreciation Depreciation is provided to write off the cost of property, plant and equipment over their estimated useful lives using the straight line method. The estimated useful lives of property, plant and equipment are as follows : Land and buildings Machinery and equipment Furniture and fixtures Motor vehicles 25 years 10 years 5 years 5 years (ii) Measurement bases Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to the working condition and location for its intended use. When assets are sold or retired, any gain or loss resulting from their disposal, being the difference between the net disposal proceeds and the carrying amount of the assets, is included in the consolidated statement of income.

21 3. PRINCIPAL ACCOUNTING POLICIES (Continued) (b) Construction in progress Construction in progress represents machineries and properties under construction and is stated at cost. Cost includes construction cost plus interest charges arising from borrowings used to finance these projects during the construction period. Construction in progress is transferred to property, plant and equipment when it is capable of producing saleable output on a commercial basis. (c) Goodwill Goodwill represents the premium of purchase consideration over the fair values ascribed to the net assets of subsidiaries or associates acquired and is amortised, using the straight line method, over a period of 10 years. (d) Long term investments All investments are initially recognised at cost being the fair value of the consideration given and including transaction costs. They are subsequently carried at fair value based on quoted market prices, when available. For unquoted investments, management considers all available factors in determining fair value, which may include cost, the type of investment, subsequent purchases of the same or similar investments, and the current financial position and operating results of the company invested in. Any investment that does not have a quoted market price in an active market and where fair value cannot be reliably measured is stated at cost and is subject to review for impairment. Investments intended to be held on a continuing basis are classified as available-for-sale investments. Changes in fair value in these investments are recognised in a revaluation reserve when these changes arise. In the case of impairment the deficit is recognised in the consolidated statement of income. When these investment are disposed of, the related revaluation surplus or deficit is recognised as income or an expense. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investment and included in current assets. Changes in fair value in these investments are recognised in the consolidated statement of income as they arise. (e) Land use right Land use right are up-front payments to acquire long-term interests in the usage of land and stated at cost less provision for impairment where necessary and is charged to consolidated statement of income over the term of right remaining period of the land on the straight line method.

22 3. PRINCIPAL ACCOUNTING POLICIES (Continued) (f) Impairment The carrying amounts of the Group's assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. All impairment losses are recognised in the consolidated statement of income. Calculation of recoverable amount The recoverable amount of other assets is the greater of their net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Reversal of impairment An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (g) Properties held for sale Properties held for sale are stated at the lower of cost and net realisable value. Cost of properties held for sale includes cost of construction, development expenditures and interest charges capitalised. Net realisable value is determined on the basis of the estimated selling price less further costs of construction and estimated costs necessary to make the sale. (h) Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions.

23 3. PRINCIPAL ACCOUNTING POLICIES (Continued) (i) Borrowing costs Costs incurred on borrowings that are directly attributable to the construction of the hotel in Sanya and properties held for sale in Wuhan are capitalised as part of the cost of the hotel and the properties held for sale up to the completion of their construction. Any other borrowing costs are charged to the consolidated statement of income in the period in which they are incurred. (j) Foreign currencies Transactions in foreign currencies are translated into Renminbi Yuan at the rates of exchange ruling at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Renminbi Yuan at the rates of exchange ruling at that date. Exchange differences are dealt with in the consolidated statement of income. (k) Recognition of revenue Revenue from the sale of developed properties is recognised when title of the property is transferred and the buyer takes legal possession of the property. Revenue from property management is recognised when the management service is provided. Revenue from travel-related services is recognised when the related services are performed. (l) Provision A provision is recognised in the consolidated balance sheet when the Group 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 risks specific to the liability.

24 3. PRINCIPAL ACCOUNTING POLICIES (Continued) (m) Segmental reporting In accordance with the Group's internal financial reporting, the Group has determined that business segments be represented as the primary reporting format and geographical segment as the secondary reporting format. Unallocated costs represented corporate expenses. Segment assets consist primarily of intangible assets, property, plant and equipment, inventories, receivables and operating cash. Unallocated assets include long term investments and intangible which cannot be allocated to any segment. Segment liabilities comprise operating liabilities and exclude items such as taxation and certain corporate borrowings. Capital expenditure comprises additions to land use rights, intangible assets and property, plant and equipment, including additions resulting from acquisitions of subsidiaries. In respect of geographical segment reporting, sales are based on the country in which the customer is located and total assets and capital expenditure are where the assets are located. (n) Retirement benefits Pursuant to the relevant regulations of the PRC government, the Group participates in a local municipal government retirement benefits scheme (the "Scheme"), whereby the Group is required to contribute a certain percentage of the basic salaries of its employees to the Scheme to fund their retirement benefits. The local municipal government undertakes to assume the retirement benefits obligations of all existing and future retired employees of the Group. The only obligation of the Group with respect to the Scheme is to pay the ongoing required contributions under the Scheme mentioned above. Contributions under the Scheme are charged to the consolidated statement of income as incurred. There are no provisions under the Scheme whereby forfeited contributions may be used to reduce future contributions.

25 3. PRINCIPAL ACCOUNTING POLICIES (Continued) (p) Discontinuing operation A discontinuing operation is a clearly distinguishable component of the Group's business, both operationally and for financial reporting purposes, that is disposed of or abandoned pursuant to a single plan, and which represents a separate major line of business or geographical area of operation. (q) Cash and cash equivalent Cash comprises cash on hand and demand deposits repayable on demand with any bank or other financial institution. Cash includes deposits denominated in foreign currencies. Cash equivalents represent short-term, highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are also included as a component of cash and cash equivalents for the purpose of the cash flow statement.

26 4. SEGMENT INFORMATION Segmental information of the Group by business segment (primary segment) and geographical segment (secondary segment) are as follows : (a) Business segment Discontinuing operations Continuing operations (see note 5) Properties development and management Travel-related services Manufacture of PHC-pipe Total RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 Turnover 19,143 25,766 5,608 4,325-99,470 24, ,561 Segment results (7,314) 1, ,625 (7,290) 24,895 Unallocated expenses (71,670) (827) Loss from associates (351) (3,310) Net finance costs (17,564) (18,748) Minority interests 1, (Loss)/Profit for the year (95,478) 2,716 Segment assets 409, , ,022 50, , ,293 Unallocated assets 102, ,336 Total assets 636, ,629 Segment liabilities 448, ,785 55,342 9, , ,369 Unallocated liabilities - - Total liabilities 503, ,369 Capital expenditure 4,573 13,826 31,334 1,850-7,219 35,907 22,895 Depreciation 3,899 3, ,724 3,923 7,960 Non-cash expenses other than depreciation 7,740 2, ,740 2,126 Unallocated non-cash expenses 62, ,236 2,458

27 4. SEGMENT INFORMATION (Continued) (b) Geographical segment The sales and the capital expenditure of the Group during the years ended 31 December 2003 and 2004 were made in the PRC. All of the Group's assets as of 31 December 2004 were located in the PRC. 5. DISCONTINUING OPERATIONS The Group entered into a sale and purchase agreement with an independent third party on 22 October 2003 under which the Group agreed to dispose of 98.67% equity interest in its wholly-owned subsidiary, Hainan Pearl River Pile Co., Ltd., which was engaged in manufacture of PHC-pipe for a consideration of RMB50 million. The disposal was to raise funding for the Group's property and hotel development in Wuhan and Sanya respectively. The disposal was completed in December As of 31 December 2003, the Group received from the independent third party cash consideration of RMB25,548,000 and the remaining portion was included under other receivables under current assets. As a result, manufacture of PHC-pipe is reported in the financial statements for the year ended 31 December 2003 as a discontinuing operation. The sales, results, cash flows and net assets of this discontinued segment were as follows: RMB'000 RMB'000 Sales and results: Sales - 99,470 Operating expenses - (78,455) Profit for the year - 21,015 Assets and liabilities: Total assets - 97,028 Total liabilities - (64,635) Net assets - 32,393 Cash flows: Operating cash flows - 20,245 Investing cash flows - (10,890) Financing cash flows - (1,015) Total cash flows - 8,340

28 6. TURNOVER RMB'000 RMB'000 Properties development 1,145 11,790 Properties management income 17,978 12,132 Travel-related services 5,608 4,325 Sales of PHC-pipe - 99,470 Others 20 1,844 24, , OTHER REVENUE RMB'000 RMB'000 Rental income 944 1,618 Waiver of other payables 10,482 - Others 1, ,448 1, (LOSS)/PROFIT FROM OPERATIONS RMB'000 RMB'000 (Loss)/Profit from operations is arrived at after charging/(crediting) : Amortisation of intangible assets 1,716 1,674 Depreciation of property, plant and equipment 3,923 7,960 Loss/(Gain) on disposal of property, plant and equipment 2,239 (335) Staff cost 4,461 8,126

29 9. NET FINANCE COSTS RMB'000 RMB'000 Interest charges on bank loans 7,124 8,065 Interest charges on other loans 9,249 9,249 Interest charges on loans from related companies 2,938 2,268 Interest charges on other interest-bearing payables 1, Less : interest capitalised included in properties held for sale and construction in progress (2,068) (364) 18,638 19,511 Interest income (1,074) (763) 17,564 18,748 The borrowing costs have been capitalised at a rate of 10% per annum (2003 : 2%). 10. TAXATION The Group provides for taxation on the basis of its income for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes. The tax expense can be reconciled to the (loss)/profit per the consolidated statement of income as follows : RMB'000 RMB'000 (Loss)/Profit before taxation (95,478) 2,716 Tax on (loss)/profit before taxation, calculated at the rates applicable to the tax jurisdiction (31,508) 896 Tax effect on expenses that are not deductible in determining taxable profit 22,339 - Tax effect on income that are not assessable in determining taxable profit (35) (2,388) Tax loss utilisation (2,544) (363) Tax loss carried forward 11,748 1,855 Actual tax expenses - -