BENGANG STEEL PLATES CO., LTD. Annual Report 2004 (Prepared Under International Accounting Standard) April 12 th 2005
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. 2
Table of Contents I. Company Profile II. Financial Highlight 4 III. The change of the capital stock and shareholder's situation 7 IV. Particulars about the Directors, Supervisors and Employees9 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 XI Financial Report 37 Documents for Reference 38 3
I. Company Profile Name of the Company in Chinese: In English: BENGANG STEEL PLATES CO., LTD. Legal name in short form: BSP Legal Representative: Mr. Li Mohua 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: bgbcgdl@online.ln.cn Registered address: No.16, Renmin Road, Pingshan District, Benxi City, Liaoning Province Post Code: 117000 E-mail: bgbctwg@mail.bxptt.ln.cn 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 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 4
II. Financial Highlight 1. Amount of Profit and Formulation In 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 Gross profit Net profit Net profit deducted non-recurring gain/loss Major business profit Operation profit None business income / expense (net) Net Cash flow generated by business operation Net increasing of cash and cash equivalents Note: Non-recurring gain/loss excluded are Index 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 5
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2. Major accounting data and finance index in the prior 3 years of the Company (Unit: RMB) Items 2004 2003 2002 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 Profit of the report period 2004 2003 Net earnings / capital ratio (%) Per Share Income Net earnings / capital ratio (%) Earnings per share On full On full On full On full amortizing weighted amortizing weighted amortizing weighted amortizing weighted basis average basis average basis average basis average Major business profit Operation profit Net profit Earnings per share after deducting of non-recurring gain/loss Profit after equity 7
4. The status of shareholders equity movement Total of Share capital Provision Statutory Un-distributed shareholders Items Share capital premium revised reserves profit 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 Decreased this year At the end of term 109,809.00 701,692.00 701,692.00 1,267.00 337,009.00 338,276.00 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 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) (29,683) - - Defered taxation - Gains from debt reconstruction - (9,796) 578 1,685 (31,637) (51,212) Net profit carried by the financial statements under IAS 700,425 473,512 8
The followings are the analysing on the influence of significant diversity between the two accounting system on the shareholders equity: Year 2004 Year 2003 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 (89,894) (87,362) - Defered taxation - Gains from debt reconstruction (29,683) - 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) 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 Before the change Share allotted 616,000,000 616,000,000 30 000 616,030,000 119,970,000 400,000,000 519,970,000 1,136,000,000 Changed (+,-) Bonus Common sharesreserves Transfer shares OthersSub-to tal After the change 616,000,000 616,000,000 30,000 616,030,000 119,970,000 400,000,000 519,970,000 1,136,000,000 9
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. 12 th 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. 10
(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. 616,000,000 54.23 State-owned DEUTCHE BANK AG LONDON MELLON/VIRGINIA REIREMENT SYSTEM ACADINA EMERGING MARKETS EQUITY 3,160,206 FUND Zeng Xinrong 2,616,100 0.23 Foreign shares Li Weiqin 2,579,300 0.23 Foreign shares YULAN DANG DE FERREYRA UBOC A/C UAM FUNDS INC ACADIAN EMERGING MKTS PORT Zhang Zukun Fang Yijun 5,763,934 3,484,300 legal person share 0.51 Foreign shares 0.31 Foreign shares 0.28 Foreign shares 2,212,900 0.19 Foreign shares 2,066,180 0.18 Foreign shares 2,005,100 0.18 Foreign shares 1,785,740 0.16 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 11
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 follow picture: as the State-own assets committee of Liaoning Province 100% Benxi Steel (Group) Co. Ltd. 54.23% Bengang Steel Plate Co. Ltd 12
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 holdingproportion in Nature of the capital share 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. 13
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 Li Mohua Male 56 Yu Tianzhen Liang Guangde Male 52 Male 50 Chairman of the Board,General Manager Vice Chairman of the Board Director,Vice General manager and Secretary of The Board of Directors Liyu Male 49 Director Zhang Guiyu Guan Dianguo Zhong Tianli Xue Xiangxin Liu Junyou He Yusheng Male 45 Director Male 58 Female 49 Male 51 Male 52 Male 54 Employee Representative Director Independent Director Independent Director Chairman of Supervisory Committee Vice Chairman of Supervisory Committee Yu Ping Female 52 Supervisor Zhang Fuchen Li Bingqiang Male 55 Male 39 Employee Representative Supervisor Employee Representative Supervisor July 26 th 2003-July 26 th 2006 July 26 th 2003-July 26 th 2006 July 26 th 2003-July 26 th 2006 July 26 th 2003-July 26 th 2006 July 26 th 2003-July 26 th 2006 July 26 th 2003-July 26 th 2006 July 26 th 2003-July 26 th 2006 July 26 th 2003-July 26 th 2006 July 26 th 2003-July 26 th 2006 July 26 th 2003-July 26 th 2006 May 25 th 2004-May 25 th 2007 July 26 th 2003-July 26 th 2006 May 25 th 2004-May 25 th 2007 Hold share at the beginning of the year Hold share at the end of the year Remarks 10000 10000 Get reward form Shareholder Unit 10000 10000 Get reward form Shareholder Unit Get reward form Shareholder Unit Get reward form Shareholder Unit 14
(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 August 2000-Present Steel (Group) Co., Ltd. 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 15
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 16
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 17
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 18
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 Went on errands and 0 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. 19
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. The 2003Board of Directors Working Report. The 2003 Supervisory Committee Working Report. The 2003 Annual Report and Abstract of the Company. The 2003 Finance Final Accounts Report of the Company. The 2003 Profit Distribution Proposal of the Company. With Regard to the Modification Proposal of Articles of Association of the Company. With Regard to the Replacing Supervisor Proposal of the Company. The Proposal of Investing on Building No.4 Converter Casting Project With Regard to the Proposal of Investing on Rebuilding 1700mm Hot Rolling Mill. With Regard to the Proposal of Modification Integration Service Agreement. With Regard to the Proposal of Modification Depreciation Life of Regular Assets. 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. 20
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 businessproportion in major income business income Major businessproportion in major profit 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 21
Proportion in major business income Proportion in major business profit Regions Major business income 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 amount96.09% Total amount of the top 5 buyers 4,646,903,084.17 Proportion selling total amount 41.45% 22
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. 23
(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. 24
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. The decreased long-term liabilities was mainly caused by the reimburse loan of bank this year. The stockholder's equity increased was mainly resulted from the reason that the achieved net profit increased this year. 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. 25
Items Year 2004 Year 2003 Increase/Decrease (%) Turnover Sales cost Gross profit Periodic expense Other business expenses/income Net profit 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. Non-business expenditure reduced was mainly resulted from not counting and withdrawing the reducing prepares value of fixed assets this year. 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 ". 26
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. 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. 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. 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. 27
(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 5 th Session of the 3 rd 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. 16 th 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. 28
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 29