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-1-山东晨鸣纸业集团股份有限公司SHANDONGCHENMINGPAPERHOLDINGSLIMITEDAnnualReport2004March2005-2-ImportantStatement:TheBoardofDirectorsandthedirectorsoftheCompanyguaranteethattherearenosignificantomissions,fictitiousormisleadingstatementscarriedintheReportandwewillacceptindividualandjointresponsibilitiesforthetruthfulness,accuracyandcompletenessoftheReport.
ThereportispreparedbothinChineseandEnglish.
Whenthereisanydiversityininterpreting,theChineseversionshallprevail.
TheChairmanoftheBoard–Mr.
ChenHongguo,ChiefAccountingSupervisor–Mr.
YuShiyong,AdministratoroftheAccountingDepartment–Mr.
LiuJunwuherebydeclare:thetruthfulnessandcompletenessofthereportareguaranteed.
DirectorDongJianwenandDirectorZhouShaohuaabsenttheBoardmeetingfortheyareonbusinesstravel.
-3-TableofContentsI.
CompanyProfile…4II.
FinancialHighlight…5III.
CapitalMovementandShareholders…9IV.
ParticularsabouttheDirectors,SupervisorsandSeniorExecutives….
12V.
ManagementStructure…18VI.
TheShareholders'GeneralMeeting…20VII.
ReportoftheBoardofDirectors…22VIII.
ReportoftheSupervisoryCommittee…31IX.
SignificantEvents…33X.
FinancialReport…35XI.
DocumentsforReference…64-4-I.
CompanyProfile1.
StatutoryChineseName:山东晨鸣纸业集团股份有限公司StatutoryEnglishName:SHANDONGCHENMINGPAPERHOLDINGSLIMITEDAbbreviation:SCPH2.
LegalRepresentative:ChenHongguo3.
SecretaryoftheBoard:HaoYunSecuritiesAffairLiaison:WangWeiAddress:No.
595ShenchengRd.
,ShouguangCity,ShandongProvinceTel:0536-2158011、2156488Fax:0536-2158640Email:cmzqb@chenming.
com.
cn4.
Registeredaddressandoffice:No.
595ShenchengRd.
,ShouguangCity,ShandongProvincePostCode:262700Website:http://www.
chenmingpaper.
com5.
NewspapersDesignatedforInformationDisclosing:SecuritiesTimes,HongKongCommercialDailyWebsiteassignedbyChinaSecuritiesRegulatoryCommissiontopublishtheAnnualReports:http://www.
cninfo.
com.
cnThisAnnualReportisavailableattheCapitalOperationDepartmentoftheCompany.
6.
StockListedin:ShenzhenStockExchangeStockID:ChenmingPaper,ChenmingB,StockCode:000488,200488Transferablebond:ChenmingBond,Code:1254887.
Misc.
InformationBusinessregistrationchangedat:September15,2003.
Registeredaddress:No.
595ShenchengRd.
,ShouguangCity,ShandongProvinceBusinesslicenseNo.
:Qi-gu-lu-zong-ziNo.
000003Taxregistration:No.
370783613588986CertifiedPublicAccountantsinvitedbytheCompany:TianjianCertifiedPublicAccountantCo.
,Ltd.
Address:17thfloor,BlockA,InvestmentPlaza,No.
27FinancialStreet,XichengDistrict,BeijingDeloitteToucheTohmatsuCPALtd.
BeijingBranch,8/FofficeTowerW2,TheTowers,OrientalPlaza,1EastChangAnAvenue,Beijing100738,PRC-5-II.
FinancialHighlight(I)Majoraccountingdata(inRMB)Items2004Grossprofit847,436,670.
72Netprofit503,721,298.
14Netprofitdeductednon-recurringgain/loss453,120,230.
74Majorbusinessprofit1,653,273,517.
03Otherbusinessprofit23,402,883.
40Operationprofit748,635,781.
46Investmentrevenue6,864,868.
23Allowanceincome100,905,936.
59Nonebusinessincome/expense(net)-8,969,915.
56NetCashflowgeneratedbybusinessoperation414,042,167.
71Netincreasingofcashandcashequivalents533,406,015.
73ThenetprofitprovidedbydomesticCPA(consolidate)isRMB503,721,000,wherethenetprofitprovidedbyoverseasCPA(consolidated)isRMB478,990,000whichislessthanthatofprovidedbythedomesticCPAbyRMB24,731,000.
Thisismailybecauseaccordingtotheinternationalaccountingstandard:①Relativeamortizingadjustmentandtrademarkre-evaluationincreasedthenetprofitbyRMB1.
45million.
②Thegovernmentspecialfundregardingpurchasingoffixedassetsisre-classifiedfromcapitalreservesintodifferedincome,whichincreasedtheprofitbyRMB1.
749million.
③Thelossfromforeigncurrencyloansexchanging,whichdecreasedtheprofitbyRMB31.
231million.
④Adjustmentofcreditofequityinvestmentandrelativeamortizing,whichdecreasedtheprofitbyRMB4.
486million.
⑤Thegovernmentspecialfundregardingpurchasingofproperties,plantsandequipmentisre-classifiedfromcapitalreservesintodifferedincome,whichincreasedtheprofitbyRMB20.
174million.
⑥Interestsoftransferablebondprediction,decreasedtheprofitbyRMB3.
349million⑦Theopeningexpenseswrittenintogain/loss,decreasedtheprofitbyRMB5.
145million.
⑧Theincomefromdebtre-organizingtransferredfromcapitalreservestootherbusinessincome,increasedtheprofitbyRMB0.
978million.
⑨ThediversityofenterpriseincometaxclearancedecreasedtheprofitbyRMB4.
871million.
Attachment:DiversitybetweenthedomesticandoverseasaccountingstandardItemsAmountRMB0'000ThenetprofitprovidedbydomesticCPA50,372.
1Relativeamortizingadjustmentandtrademarkre-evaluation145.
0Thegovernmentspecialfundregardingpurchasingoffixedassetsisre-classifiedfromcapitalreservesintodifferedincome174.
9Thelossfromforeigncurrencyloansexchanging-3,123.
1Adjustmentofcreditofequityinvestmentandrelativeamortizing-448.
6Thegovernmentspecialfundregardingpurchasingofproperties,plantsandequipmentisre-classifiedfromcapitalreservesintodifferedincome2,017.
4-6-Interestsoftransferablebondprediction-334.
9Theopeningexpenseswrittenintogain/loss-514.
5Theincomefromdebtre-organizingtransferredfromcapitalreservestootherbusinessincome97.
8Thediversityofenterpriseincometaxclearance-487.
1ThenetprofitprovidedbyoverseasCPA47,899Note:Non-recurringgain/lossitems(inRMB)ItemsAmountNon-businessincome2,606,552.
08Non-businessexpenditure-6,367,697.
08Taxreturnedandallowanceincome52,591,578.
72Short-terminventoryimpairmentprovisionwrittenback126,426.
87Baddebtprovisionswrittenback1,020,017.
44Gain/lossfromentrustedinvestment760,000.
00Incomefromdisposalofshareequity-135,810.
63Total50,601,067.
40(II)Majoraccountingdataandfinancialindicesofthelatest3yearsYear20032002Items2004AdjustedNotadjustedAdjustedNotadjustedMajorbusinessturnover(RMB)7,064,613,089.
055,819,073,195.
585,819,073,195.
584,454,775,147.
874,454,775,147.
87Netprofit(RMB)503,721,298.
14627,141,183.
07628,111,635.
21363,767,078.
67380,660,696.
72Grosscapital(RMB)15,850,290,151.
7410,225,989,292.
0310,230,861,065.
038,689,918,637.
968,689,918,637.
96Shareholders'Equity(Minorityshareholdersexcluded)4,839,068,873.
634,371,048,361.
784,375,920,134.
783,543,330,736.
523,535,287,468.
37Earningspershare(diluted)(RMB/share)0.
56110.
69860.
69970.
72940.
7632Earningspershare(weighted)(RMB/share)0.
56110.
69860.
69970.
72940.
7632Earningspershare(Dilutedandlessrecurringgain/loss)0.
50470.
65400.
65400.
64750.
6793-7-Earningspershare(Weightedandlessrecurringgain/loss)0.
50470.
65400.
65400.
64750.
6793Netassetpershare(RMB/share)5.
39044.
86904.
87447.
10467.
0885Netassetpershare,adjusted(RMB/share)5.
32574.
80014.
80554.
62566.
9209NetCashflowpersharegeneratedbybusinessoperation0.
45250.
68690.
68692.
07412.
0741Netearnings/capitalratio(%),diluted10.
4114.
3514.
3510.
2710.
77Netearnings/capitalratio(%),Weighted10.
9115.
9415.
9610.
8211.
31Netincome/capitalratioandearningspersharecalculatedundertheformulassetoutbyChinaSecuritiesRegulatoryCommissioninthe"PublicCompanyInformationDisclosingRules".
-8-2004Netearnings/capitalratio(%)Earningspershare(yuan/share)ProfitofthereportperiodOnfullamortizingbasisweightedaverageOnfullamortizingbasisweightedaverageMajorbusinessprofit34.
17%35.
80%1.
84161.
8416Operationprofit15.
47%16.
21%0.
83390.
8339Netprofit10.
41%10.
91%0.
56110.
5611Netprofitdeductednon-recurringgain/loss9.
36%9.
81%0.
50470.
5047(III)ChangingofcapitalsharesItemsCapitalsharesCapitalreservesSurplusreservesStautorypublicwelfareUn-distributedprofitTotalofshareholdersequityInitial897,727,9031,932,848,340.
62237,763,934.
44186,322,215.
881,116,385,967.
844,371,048,361.
78Increasedthisterm54,072,004.
0148,121,062.
8748,121,062.
87503,721,298.
14654,035,427.
89Decreasedthisterm186,014,916.
04186,014,916.
04Attheendoterm897,727,9031,986,920,344.
63285,884,997.
31234,443,278.
751,434,092,349.
944,839,068,873.
63CauseofchangeIncreaseofallowanceDrawuponnetprofitoftheyearDrawuponnetprofitoftheyearProfitoftheyear-9-III.
MovementofShareCapitalandShareholdersA.
(I)MovementofCapitalShare(inShares)BeforethechangeChanged(+,-)AfterthechangedI.
Nonenegotiableshares1.
Promoter'sshares290,060,557290,060,557Including:State-ownedshares281,895,451281,895,451Domesticlegalpersonshares8,165,1068,165,106OverseaslegalpersonsharesOthers2.
Legalpersonsharesplaced3.
Employees'shares4.
PreferencesharesorothersTotalofnon-negotiableshares290,060,557290,060,557II.
Negotiableshares1.
CommonsharesinRMB236,002,356236,002,3562.
Foreignsharesindomesticmarket371,664,990371,664,9903.
Foreignsharesinoverseasmarket4.
OthersTotalofnegotiableshares607,667,346607,667,346III.
Totalofcapitalshares897,727,903897,727,903B.
(II)IssuingandlistingofstocksAsapprovedbyChinaSecuritiesRegulatoryCommissionbyDocumentNo.
[2004]147,theCompanyissued20milliontransferablecompanybond(referredtoas"theBond")atparvalueofRMB100,totaledtoRMB2billion.
ThetermoftheBondis5yearswhichstartedfromSeptember15th2004toSeptember15th2009.
TheBondwaslistedinShenzhenStockExchangeonSeptember30th2004withIDof"ChenmingBond"andcodeof"125488".
ThesharetransferringperiodcommencingMarch15th2005toSeptember15th2009,andwillexpireonSeptember15th2009.
C.
(III)ParticularsabouttheShareholders1.
Uptotheendofthereportterm,theCompanyisheldby39,411shareholdersintotal.
2TopTenShareholdersNo.
NameoftheshareholderSharesheldattheendoftermChangingintheyearshareratio%SharePropertyAmortizingorfreezing1ShandongShouguangState-ownedAssetAdministration281,895,451031.
40Promoter'snational-heldsharesNone2NIKKOCITITBS/ARE:JF9,999,871+5,000,0001.
11BsharesN/A-10-CHINAMOTHERFD(716000)3KWONGWAHINVESTMENT(SHOUGUANG)LIMITED9,415,56201.
05BsharesN/A4CHINAINTLMARINECONTAINERS(HONGKONG)LTD8,651,685+8,651,6850.
96BsharesN/A5FengheValueSecurityInvestmentFoundation8,434,369-12,355,8310.
94OthersN/A6ChinaIndustrial&CommercialBank–BoshiSelectiveSecuritiesInvestmentFound8,195,055+8,195,0550.
91OthersN/A7TaiheSecurityInvestmentFoundation6,999,500+3,225,5620.
78OthersN/A8ChinaCommercialandIndustrialBank–PufengSecuritiesInvestmentFoundation6,701,988+6,701,9880.
75OthersN/A9BankofChina–JiashiServiceIndustriesSecuritiesInvestmentFoundation6,701,549+6,701,5490.
75OthersN/A10ChinaMerchantBankCo.
,Ltd.
–ZhongxinClassicFormulaSecuritiesInvestmentFoundation6,585,175+6,585,1750.
73OthersN/A3.
Thecontrollingshareholder(1)ShandongShouguangState-ownedAssetAdministrationisthecontrollingshareholderoftheCompanywhichisholdingmorethan5%ofthecapitalshares.
Itistheadministrativeandsupervisorybodyofstate-ownedpropertiesinShouguangCity.
Itwasholding281,895,451ofpromoter'sstate-ownedsharesattheendofthereportterm,whichwas31.
40%ofthetotalsharecapital.
Noneoftheshareswasputintoamortizingandfreezing.
(2)PropertyandcontrollingrelationshipbetweentheCompanyandthecontroller↓31.
40%4TopTenShareholdersofNegotiableSharesInSharesNo.
FullnameofshareholderNegotiablesharesheldattheendofreporttermSharecategories(A,B,Horothers)1NIKKOCITITBS/ARE:JFCHINAMOTHERFD(716000)9,999,871Bshares2KWONGWAHINVESTMENT(SHOUGUANG)LIMITED9,415,562Bshares3CHINAINTLMARINECONTAINERS(HONGKONG)LTD8,651,685Bshares4FengheValueSecurityInvestmentFoundation8,434,369Ashares5ChinaIndustrial&CommercialBank–BoshiSelectiveSecuritiesInvestmentFound8,195,055Ashares6TaiheSecurityInvestmentFoundation6,999,500Ashares7ChinaCommercialandIndustrialBank–PufengSecuritiesInvestmentFoundation6,701,988Ashares8BankofChina–JiashiServiceIndustriesSecuritiesInvestmentFoundation6,701,549Ashares9ChinaMerchantBankCo.
,Ltd.
–ZhongxinClassic6,585,175AsharesShouguangState-ownedAssetAdministrativeBureauShandongChenmingPaperHoldingsCo.
,-11-FormulaSecuritiesInvestmentFoundation10ChinaCommercialandIndustrialBank–JintaiSecuritiesInvestmentFoundation5,424,671AsharesRelatedrelationshipand"ActioninConcert"betweenthetop10shareholdersandtop10holdersofnegotiableshares:FengheValueSecurityInvestmentFoundation,TaiheSecurityInvestmentFoundationandBankofChina–JiashiServiceIndustriesSecuritiesInvestmentFoundationareunderthesamemanager–JiashiFoundationManagementCo.
,Ltd.
TheCompanydon'tinformedwhetherthereisrelationshipbetweentheabovepartiesregardingactioninconcert.
5.
Top10holdersofthetransferablebondsattheendofreporttermNo.
Nameoftheholder(fullname)Bondsheldattheendofyear1ChinaCommercialandIndustrialBank–SouthernFoundation950,0002ChinaCommercialandIndustrialBank–XingyeTransferableBondCombinedSecuritiesFoundation808,0533NationalSocialSecurityFoundation201Combination806,4354ChinaPingAnInsurance(Group)Co.
,Ltd.
708,4455ChinaAgricultureBank–JingshunGreatwallInternalDemandOpenSecuritiesInvestmentFoundation675,0146ChinaIndustrial&CommercialBank–BoshiSelectiveSecuritiesInvestmentFound654,8937ChinaCommercialandIndustrialBank–KaiyuanSecuritiesInvestmentFoundation608,2848ChinaEverbrightBankCo.
,Ltd.
–ZhongrongJingqiIndustrialSecuritiesInvestmentFoundation409,6739ChinaConstructionBank–HuabaoXingyeMulti-strategicSecuritiesInvestmentFoundation401,69410ChinaConstructionBank–BaokangBondInvestmentFoundation400,085-12-IV.
ParticularsabouttheDirectors,Supervisors,1.
SeniorExecutives,andEmployeesD.
(I)ProfileNamePositionSexAgeTermofdutySharesheldatthebeginningoftermSharesheldattheendoftermChanged(shares)ChenHongguoChairmanM402004.
9-2007.
952,391549,794+497,403YinTongyuanViceChair,GMM472004.
9-2007.
960,248308,998+248,750GuoXiuchengDirectorM392004.
9-2007.
9099,500+99,500DongJianwenDirectorM422004.
9-2007.
94,624104,124+99,500ZhouShaohuaDirectorM432004.
9-2007.
9066,300+66,300WuBingyuDirectorM352004.
9-2007.
9066,300+66,300HouHuancaiDirectorM432004.
9-2007.
931,43397,733+66,300HuWenheDirectorM592004.
9-2007.
910,47876,778+66,300HuChangqingDirectorM392004.
9-2007.
920,95570,65549,700LiuChengzhenDirectorM352004.
9-2007.
9066,300+66,300ZhaoJinghuaIndependentDirectorM432004.
9-2007.
9000LiuXueyanIndependentDirectorM662004.
9-2007.
9000DiaoYuntaoIndependentDirectorM402004.
9-2007.
9000WangZhihuaIndependentDirectorM462004.
9-2007.
9000ZhouChengjuanIndependentDirectorF412004.
9-2007.
9000ZhengLiyongViceChairofSupervisoryCommitteeM372004.
9-2007.
920,95620,9560SunDianmingSupervisorM342004.
9-2007.
9000RenGuang'aiSupervisorM372004.
9-2007.
9000GaoJunjieSupervisorM342004.
9-2007.
920,95520,9550LiuWenzhengSupervisorM332004.
9-2007.
9000WangBaoliangViceGeneralManagerM312004.
9-2007.
9000HuangBendongViceGeneralManagerM402004.
9-2007.
9000RenWeiViceGeneralManagerM432004.
9-2007.
9000GenGuanglinViceGeneralManagerM312004.
9-2007.
9049,700+49,700FangLijunViceGeneralManagerM352004.
9-2007.
915,71648,916+33,200LiXueqinViceGeneralManagerF422004.
9-2007.
95,23838,438+33,200HaoYunSecretaryoftheBoard,ViceGMM422004.
9-2007.
931,43381,133+49,700WangZaiguoViceGeneralManagerM392004.
9-2007.
95,2385,2380YuShiyongCFOM422004.
9-2007.
9000Note:(1)Changingofshareholdingstatusofdirectorsandseniormanagementswascausedbytheshareawardimplementedforyear2002.
(2)Noneofthedirectorsandsupervisorsistakinganyjobintheshareholdingparties.
-13-E.
(II)Majorcareerhistoryofthedirectors,supervisorsandseniormanagementandtheirjobstakeninpartiesotherthanshareholdersoftheCompany.
Mr.
ChengHongguo,whojoinedourcompanyin1987,onceheldthepositionofWorkshopManager,DirectorofBrachFactory,DeputyManager,memberofBoard,andBaordChairmanofWUhanChenmingHanyangPaperStockCo.
,Ltd.
Mr.
ChenghasbeenassumingtheBoardChairmanofourcompanysince2001.
Mr.
YinTongyuan,whojoinedourcompanyin1982,onceheldthepositionofWorkshopManager,theChiefofTechnologyDept.
,DeputyFactoryManagingDirectorandExecutiveDeputyFactoryManagingDirector.
Afterthereformoftheenterprisein1993,Mr.
YinassumedDeputyBoardChairmanandGeneralManageruntilnow.
Mr.
GuoXiucheng,whojoinedourcompanyin1989,onceheldthepositionofDirectorrofOperatingOffice,DirectorofProjectManagementOffice,Manager,AssistantofGeneralManagerandDeputyManagerofBeijingBranch,.
Mr.
GuoisnowontheBoard.
Mr.
DongJianwen,whojoinedourcompanyin1988,onceheldthepositionofWorkshopDirector,ManufacturingDirector,AssistantofGeneralManager,ManageroftheFirstFactoryofChenming,GeneralManagerandBoardExecutiveofChibiChenmingPaperCo.
,Ltd.
,GeneralManagerandBoardChairmanofWUhanChengmingHanyangPaperStockCo.
,Ltd.
Mr.
DongisnowontheBoardandinchargeofmanufacturingofourcompany.
Mr.
ZhouShaohua,whojoinedourcompanyin1997,onceheldthepositionofExecutiveDeputyManagerandEngineerinChiefofWUhanChenmingHanyangPaperStockCo.
,Ltd.
andBoradChairmanofJiangxiChenminPaperCo.
,Ltd.
Mr.
ZhouisnowontheBoardofourcompanyandJiangxiChenmingPaperCo.
,Ltd.
Mr.
WuBingyu,whojoinedourcompanyin1989,onceheldthepositionofOrganizationSectionChief,DirectorofPartyLeadershipOffice,DirectorofPartyLeadershipGroup,AssistantofGeneralManager,DeputySecretaryofPartyLeadershipGroupofWuhanChenmingHanyangPaperStochCo.
,Ltd.
andBoardChairmanofJilinChenmingPaperCo.
,Ltd.
Mr.
WuisnowontheBoard.
Mr.
HouHuancai,whojoinedourcompanyin1983,onceheldthepositionofWorkshopDirector,DirectorofBranchFactory,DeputyDirectorofQihePaperboardFactory,BoardChairmanofJilinChenmingPaperCo.
,Ltd.
andChairmanofthe1standthe2ndSupervisoryBoard.
Mr.
HouisnowassumingGeneralManagerofourcompanyandBoardChairmanofQihePapaerboardCo.
,Ltd.
ofShandongChenmingPaperGroup.
Mr.
HuWenhe,whojoinedourcompanyin1987,onceheldthepositionofSecretaryofPartyLeadershipGroupofShandongChenmingXinliThermoelectricityCo.
,Ltd.
,GeneralManagerandBoradChairman.
Mr.
HuisnowontheBoardofourcompanyandassumingBoardChairmanofShandongChenmingThermoelectricityStockCo.
,Ltd.
Mr.
HuChangqing,whojoinedourcompanyin1988,onceheldthepositionofDirectorofTech-reformDept.
ofourcompany,Directorofthe2ndFactoryofChenming,etc.
Mr.
HuisnowontheBoardofourcomapnyandBoardChairmanofShanghaiChenmingPaperMachineCo.
,Ltd.
Mr.
LiuChengzhen,whojoinedourcompanyin1986,oncehelpthepositionofWorkshopDirector,DeputyDirectorofBranchPulpMill,FactoryDirector,GeneralManagerandBoradChairmanofChibiChenmingPaperCo.
,Ltd.
DeputyManagerandGeneralManagerofWuhanChenmingHanyangPaperStockCo.
,Ltd.
Mr.
LiuisnowontheBoardandassumingBoardChairmanofYanbianChenmingPaperCo.
,Ltd.
-14-Mr.
ZhaoJinghuaoncehelpthepositionofDeputyDirectorofEconomicManagementDept.
ofShandongUniversity,VicePresidentandPresidentofManagementInstituteofShandongUniversity.
Mr.
ZhaoisnowassumingDirectorofCapitalManagementandEnterpriseStratigyResearchCenterofCentralFinanceandEconomicsUniversity.
Mr.
ZhaobegantoassumeIndependentDirectorin6,2002.
Mr.
LiuXueyan,anAccountingprofessor,onceheldthepositionofteachofAccountingDept.
ofShandongFinanceandEconomicsInstitute,AccountantofFinanceDept.
ofShandongTractorFactory,DirectorofAccountingDept.
ofShandongEconomicsInstitute,DirectorofChinaAccountingProfessorCommittee,DirectorofShandongEastAccoutingOffice.
Mr.
LiuisnowamemberofShandongRegisteredAccountantConsultativeCommitteeandMajordomoofShandongRuihuaManagementConsultantCo.
Ltd.
Mr.
LiubegantoassumeIndependentDirectorin6,2002.
Mr.
WangZhihua,whoonceheldthepositionofteacherofShandongEconomicsInstitute,DirectorandSecretaryofShandongElectricityAcademe,isnowamemberofPartyLeadershipGroupandDeputyManagerofShandongXinyuanStockCo.
Mr.
WangbegantoassumeIndependentDirectorin4,2003.
Mr.
DiaoYuntaoaregisteredaccountant,onceheldthepositionofDeputyDirectorofFinancialOfficeofShandongProvince,DeputyDirectorofLocalRevenueOfficeofShandongProvince.
Mr.
DiaoisnowassumingDirectorofShandongQiluAccountingOffice,BoradChairmanofShandongRuihuaManagementConsultantCo.
andtheDeputyBoardChairmanandGeneralManagerofShandongRuihuaInvestmentCo.
HebegantoassumeIndependentDirectorin4,2003.
Ms.
ZhouChenjuan,anEconopmicsBachelorwhograduatedfromFinanceDept.
ofShanghaiFinanceandEconomicsUniversityin1987,wasassignedtoRevenueDept.
ofShandongFinanceandEconomicsInstitutein1987.
Ms.
ZhouisnowassumingDirectorofRevenueTheoryStaffOffice.
ShebegantoassumeIndependentDirectorin4,2003.
Mr.
ZhengLiyong,whojoinedourcompanyin1987,onceheldthepositionofDeputyDirectorofPowerSupplyDept.
HeisnowassumingChairmanofSupervisoryBoard,AssistantofGeneralManagerandChairmanoftheLabourUnion.
Mr.
SunDiannian,whojoinedourcompanyin1989,onceheldthepositionofDeputyWorkdshopDirector,DeputyManagerandGeneralManagerofSupplyCo.
,AssistantofGeneralManagerandDeputyManagerofShouguangChenmingCo.
HeisnowassumingSupervisorofourcompany.
Mr.
RenGuang'ai,whojoinedourcompanyin1993,oncehelpthepositionofEnterpriseManagementStaff,DeputyDirectorofEnterpriseManagementSection,DirectorofStorageDept.
andQualityDept.
,DeputyDirectorandDirectorofEnterpriseManagementDept.
HeisnowassumingDeputyDirectorofHumanResourceDept.
ofourcompany.
Mr.
GaoJunjie,whojoinedourcompanyin1994,onceheldthepositionofDirectorofLawOfficeandDeputyDirectorofMinistryofAuditofourcompany.
HeisnowassumingStaffSupervisorandDirectorofCapitalManagement.
Mr.
LiuWenzheng,whojoinedourcompanyin1993,onceheldthepositionofAccountantofourbranchcompany,DirectorofFinanceDept.
ofShandongQiheChenmingPaperboardCo.
,etc.
HeisnowassumingStaffSupervisorandDirectorofMinistryofAudit.
Mr.
WangBaoliang,whoonceheldthepositionofteacherofYingliMiddleSchoolofShouguangCity,SecretaryofPartyLeadershipCommitteeofthetown,SecretaryandSectionChiefofShouguangPartyLeadershipCommitteeDeputyDirectorofConfidentialDept.
,DeputyGeneralOfficeandSecretary-General,etc.
Hejoinedourcomapnyin10,2003andisnowassumingDeputyManager.
-15-Mr.
HuangBendongonceheldthepositionofDeputyDirectorofIndoctrinationDept.
ofShouguangNormalInstitute,SecretaryofShouguangEducationalOffice,VicePresidentofShouguangNo.
1MiddleSchool,etc.
Hejoinedourcompanyin12,2003andnowisassumingDeputyManager.
Mr.
RenWeionceheldthepositionofcashierofBankofChina,ShougaungBranch,CreditClerkofICBCShouguangBranch,DeputyManagerofInternationalBusinessDept.
DirectorofSalesDept.
,AssistantofPresident,VicePresident,Presidentofthebanck,etc.
hejoinedourcompanyin7,2004andnowisassumingDeputyManager.
Mr.
gengGuanglin,whojoinedourcompanyin1992,onceheldthepositionofWorkshopDirectorofourcompany,DeputyManagerofofChibiChenmingPapaerCo.
andGeneralManagerofShouguangChenmingCo.
,Ltd.
HeisnowassumingDeputyManagerofourcompany.
Mr.
PangLijun,whojoinedourcompanyin1991,onceheldthepositionofManager,AssistantofgeneralManagerandDeputyManagerofBeijingBranch.
heisnowassumingDeputyManagerofourcomapny.
Ms.
LiXueqin,whojoinedourcompanyin1987,onceheldthepositionofDirectorofMinistryofAudit,ViceChairmanofSupervisoryBoardandDeputyManagerofourcompany.
Hewasselectedastherepresentativeofthe10thPeople'sCongressandisnowassumingDeputyManagerofourcompany.
Mr.
Haoyun,whojoinedourcompanyin1984,onceheldthepositionofSecretaryoftheLeagueCommittee,DirectorofLAbourandHumanResourceDept.
,DirectorofStockOfficeandAssistantofGeneralManagerofourcompany.
HeisnowassumingDeputyManagerandSecretaryoftheBoard.
Mr.
WangZaiguo,whojoinedourcomapnyin1987,onceheldthepositionofSecretaryoftransportationcomapny,theAssistantofGeneralManagerandDirectorofLogisticsDept.
,managerofhotel,DeputyManagerofShouguangChenmingPaperCo.
,Ltd.
andSupervisorofourcompany.
HeisnowassumingDeputyManagerofourcompany.
Mr.
YuShiyongonceheldthepositionofFinancialMajordomoofFujianMindongElectricityStockCo.
,Ltd.
HeisnowassumingFinancialMajordomoofourcompany.
-16-F.
(III)AnnualReward1.
Thejudgmentprocedurefortherewardofdirectors,supervisorsandseniormanagement:setbytheAssessmentandRewardingCommitteeoftheCompany.
2.
Basisofrewardstodirectorsandseniormanagement:uponthepracticalprofitability,natureofduties,andindividualperformance,onthebasicprincipleofmotivatingandstability,fixedannualrewardisadoptedfordirectorsandseniormanagement.
TheannualrewardsofthedirectorsandseniormanagementvarybetweenRMB100thousandandRMB1.
5million.
Therewardstosupervisorsareannuallyfixed.
ForsupervisorstakingmanagerialpositionsintheCompany,theirrewardaredecidedbytheGeneralManager'sConferencebasingonparticularposition.
ForsupervisorsnottakinganypositionintheCompany,theirrewardsvarybetweenRMB100thousandtoRMB200thousand.
3.
Thetotalannualrewardforthecurrentdirectors,supervisorsandseniormanagementareamountedtoRMB9million.
Thetop3directorsaretotaledtoRMB3.
7million.
Thetop3managementsaretotaledtoRMB1.
8million.
4.
AsapprovedbyShareholders'GeneralMeeting2002,theCompanypaysRMB40thousandannuallytoeachindependentdirector(taxincluded),travelexpensesandrationalexpensesforexercisingofdutiesaccordingtotheArticleofAssociationarereimbursedbytheCompany.
5.
Distributionoftherewardstodirectors,supervisorsandseniormanagement:RMB1million–RMB1.
5million3RMB0.
5million–RMB1million4RMB0.
2million–RMB0.
5million8RMB0.
05million–RMB0.
2million9G.
(IV)Movementofdirectors,supervisorsandmanagement(1)OnJune22nd2004,asapprovedbytheShareholder'sGeneralMeeting2003,Mr.
WuBinyu,Mr.
HouHuancai,andMr.
LiuChengzhenwereelectedthedirectorsofthe3rdtermofBoard.
Theirofficetermwillexpirealongwiththe3rdtermofBoard.
Mr.
LiMingren,Mr.
XiaYouliang,andMr.
WangZhijunwereapprovedtoresignfromthepositionsofdirectors.
(2)OnSeptember1st2004,asapprovedbythe1stProvisionalShareholders'GeneralMeeting2004,Mr.
ChenHongguo,Mr.
YinTongyuan,Mr.
GuoXiucheng,Mr.
DongJianwen,Mr.
ZhouShaohua,Mr.
WuBinyu,Mr.
HouHuancai,Mr.
HuWenhe,Mr.
HuChangqing,andMr.
LiuChengzhenwereelectedthemembersofthe4thtermofBoard.
Theirofficetermwas3years.
Mr.
LiuXueyan,MR.
ZhaoJinghua,Mr.
DiaoYuntao,Mr.
WangZhihuaandMs.
ZhouChengjuanwereelectedtheindependentdirectorsofthe4thtermofBoard.
Theirofficetermwas3years.
(3)September1st2004,asapprovedbythe1stProvisionalShareholders'GeneralMeeting2004,Mr.
ZhenLiyong,Mr.
SunDianming,andMr.
RenGuang'aiwereelectedthesupervisorsofthe4thtermofSupervisoryCommitteeforofficetermof3years.
Aselectedbythe1stEmployees'DelegationConference,Mr.
GaoJunjieandMR.
LiuWenzhengwereelectedthesupervisorsrepresentingtheemployeesoftheCompanyfor3yearsofofficeterm.
-17-(4)OnSeptember1st2004,asapprovedbythe1stmeetingofthe4thtermofBoard,Mr.
YinTongyuanwasengagedtheGeneralManageroftheCompany,Mr.
HaoYunwasengagedtheSecretaryoftheBoard,Mr.
WangBaoliang,Mr.
HuangBendong,Mr.
RenWei,Mr.
GengGuanglin,Mr.
FangLijun,Ms.
LiXueqin,Mr.
HaoYunandMr.
WangZaiguowereengagedtheViceGeneralManageroftheCompany.
MR.
YuShiyongwasengagedtheChiefFinancialOfficeoftheCompany.
Theirofficetermwouldbe3years.
H.
(V)EmployeesThereweretotally18270employeesintheCompany,including11649ofproductionemployee,631ofsalespersons,2493technicalpersons,311offinancialpersons,1463ofexecutivepersons,and1723others.
Oneducationlevels,648ofundergraduateorhigher,1998ofcollegegraduation,5413ofintermediatetechnical,and10211highschool,technicalschoolorlower.
NoexpensesofretiredemployeesassumedbytheCompany.
Employeesofthecontrolledsubsidiariesincludedabove.
-18-V.
ManagerialStructureI.
(I)CompanyManagementUndertherequirementoftheCompanyLaw,SecurityLawandPublicCompanyManagementRegulations,thecompanykeptoptimizingthemanagementstructureandoperatethecompanyinastandardizedmeantoensureitshealthydevelopment.
Duringthereportterm,the"ArticleofAssociation"wasrevised,"TheRulesofManagement"wasformulated,3independentdirectorswasengagedwhichmadethenumberofindependentdirectorsreached1/3ofthetotaldirectors.
ThereisnotobviousdifferentbetweenthepracticalsituationoftheCompanyandtheregulatorydocumentsissuedbytheRegulatoryCouncilaboutthemanagementoflistedcompanies.
J.
(II)Independentdirectors'fulfillingofresponsibility1.
AttendingofBoardMeetingsNameofIndependentDirectorTimesofBoardMeetingPresentedPersonallyEntrustedothersAbsentNotesLiuXueyan5500ZhaoJinghua5500DiaoYuntao5500WangZhihua5500ZhouChengjuan5500Inthereportterm,5oftheindependentdirectorsthatengagedbythecompanyweredoingtheirjobsresponsibly.
Theypresentedtheboardmeetingsandexercisedtheirjudgmentsindependentlyonthedecision-makingprocessesofpersonnelchanging,relatedtransactions,devalueprovisions,salariesofdirectorsandseniormanagements,motivatingpolicies,chairmanmotivationfoundation,correctingofaccountingerrors,andoutgoingguarantees.
Thusprotectingthelegalbenefitofthewholecompanyandmiddle-smallshareholdersaswell.
2.
ObjectionopinionraisedbytheindependentdirectorsonthebusinessoftheCompanyNoneofthe5independentdirectorsraisedanyobjectionontheresolutionsoftheBoardneitheronresolutionsadoptedbeyondtheBoard.
K.
(III)Particularsabouttheseparationofbusinesses,personnel,assets,organizations,andaccountingfromthecontrollingshareholderShandongShouguangState-ownedAssetsAdministrationisthefirstshareholderofthecompany.
Thecompanyiscompletelyseparatedinbusinesses,personnel,assets,organizations,andaccountingfromthecontrollingshareholder.
1.
Intheaspectofbusiness:thecompanyhasitsindependentandcompletebusinessoperationcapability.
Thecontrollingshareholderistheadministratorofstate-ownedassets,thereforenocompetitionexistbetweentwooftheentitiesbyrunningsameorsimilarbusinesses.
2.
Inpersonnel:Noneofthemanagers,vicemanagers,accountantsandseniormanagementstakesjobintheshareholdingparty.
Thelabourmanagement,personnelandsalarymanagementareoperatedindependently.
-19-3.
Inassets:Thecompanyownstheassetscompletelyandrunsitsproduction,supplyingandsalessystemindependently.
Thetrademarks,patentrightsandnon-patenttechnologiesarecompletelyseparatedfromthecontrollingshareholder.
4.
Inorganization:Thecompanyhasamatureandindependentorganizationstructure,whichcompletelyseparatedfromthecontrollingshareholder.
Collaboratedbusinessoperationorofficeactivitiesneverhappened.
5.
Inaccounting:Thecompanyhasitsownindependentaccountingdivision,accountingsystem,bankaccount,andexerciseitsliabilityoftaxationindependently.
L.
(IV)Assessmentandmotivatingmechanismoftheseniormanagement1.
AssessmentmechanismTheassessmentmechanismwasbuiltonbothmonthlybasisandannualbasis.
Monthlyassessmentisformedbyinter-assessmentbetweenseniormanagementsandassessmentofintermediateontheseniormanagements.
AnnualassessmentisperformedbytheAssessmentandRewardCommitteeoftheCompanybasingonthejobterms,positions,workloads,andindividualperformance.
2.
MotivatingmechanismTheCompanyadoptsshareequityawardingandChairman'sawardingonmotivatingofseniormanagementaccordingtotheproposalregardingshareequityawardingadoptedbytheShareholders'GeneralMeeting2001andtheproposalregardingChairman'sawardadoptedbytheShareholders'GeneralMeeting2002.
TheawardsaredecidedbytheAssessmentandRewardCommitteeoftheCompanybasingonthejobterms,positions,workloads,andCompany'sbusinessscaleandindividualperformance.
-20-VI.
TheShareholders'GeneralMeetingM.
(I)TheShareholders'GeneralMeeting2003andthe1stProvisionalShareholders'GeneralMeetingwereheldinthereportterm.
1.
TheShareholders'GeneralMeeting2003ofShandongChenmingPaperHoldingsCo.
,Ltd.
washeldonJune22nd2004intheCompany.
ThecallingannouncementofthemeetingwaspublishedonMarch16th,2004issuesofChinaSecuritiesJournalandHongKongCommercialDaily.
Thereweretotally14shareholders'andproxiespresentedthemeeting,whichincluding12domesticshareholdersorproxiesand2overseasshareholdersorproxies.
Theywererepresentingintotal312,740,855shares,whichtakes34.
84%ofthetotalentitledsharecapitaloftheCompany.
Amongthem,287,260,987aredomesticshares,take91.
85%ofthetotalsharepresentedthemeeting,whereas25,479,868areoverseasshares,take8.
15%ofthetotalshares.
TheholdingofthemeetingwasregardedascompliancewiththeCompanyLaw,theArticleofAssociationand"SuggestionsonStandardizingofShareholders'GeneralMeetingsofListedCompanies".
HaotianLawFirmsentMr.
WangXiaoming,thelawyer,topresentthemeetingandissuedthelawyer'sopinion.
Thefollowingproposalswereexaminedoneafteranotherandpassedinwayofregisteredballots.
I.
The2003AnnualWorkReportoftheBoardofDirectorsII.
The2003AnnualWorkReportoftheSupervisoryCommitteeIII.
TheFinancialSettlementofYear2003IV.
TheProfitDistributionProposalforYear2003V.
TheProposaltoreviseArticlesofAssociationVI.
ProposaltoAlterDirectorsVII.
TheProposalonEmploymentofDomesticandOverseasCPAsVIII.
DiscussedandpassedtheproposaltoextendtheexpirationIX.
TheproposalofstatementsontheutilizingoffundraisedpreviouslyX.
DiscussedandpassedproposalthatshareholdermeetingauthorizestosignimportantprojectTheaboveresolutionswerepublishedonJune23rd2004byChinaSecuritiesJournalandHongKongCommercialDaily.
2.
The1stshareholders'specialmeetingof2004ofShandongChenmingPaperHoldingsLtd.
washeldonSeptember1,2004inthemeetingroomofthesalesdepartmentoftheCompanylocatedonthe26thfloor,BlockA,BeijingDigitalBuilding,ZhongguanchunRd.
South,Haidian,Beijing.
ThenotificationofcallingforthemeetingwaspublishedonJuly29th2004issuesofChinaSecuritiesJournalandHongKongCommercialDaily.
Totally18shareholdersorattorneyspresentedthemeeting.
Whichincluding17ofdomesticshareholdersand1foreignshareholder.
Thepeoplepresentedthemeetingwererepresentingtotally309,871,622sharesoftheCompany,took34.
52%ofthetotalsharesentitledforvotingrights.
Amongwhich,292,631,164werelocalshareswhichtakes94.
44%ofthetotalsharespresentedthemeeting;while17,240,458wereforeignshareswhichtakes5.
56%ofthetotalsharespresentedthemeeting.
TheholdingofthemeetingwascomplyingwiththeprovisionsoftheCompanyLaw,TheArticleofAssociationandTheOpinionsonStandardizingofShareholders'GeneralMeeting.
Mr.
WangXiaoming,thelawyersentbyHaotianLawFirmpresentedthemeetingandissuedthelawyer'sstatementthereof.
Thefollowingproposalswereexaminedoneafteranotherandpassedinwayofregisteredballots.
I.
TheproposalofalternatingtheBoardofDirectors.
II.
TheproposalofalternatingtheSupervisoryCommittee.
III.
Theproposalofamendingpartialoftheprovisionsoftherewardingsystemofdirectorsandseniorexecutives.
TheaboveresolutionswerepublishedonSeptember2nd2004byChinaSecuritiesJournalandHongKongCommercialDaily.
N.
(II)Electingandchangingofdirectorsandsupervisors(1)OnJune22nd2004,asapprovedbytheShareholder'sGeneralMeeting2003,Mr.
WuBinyu,Mr.
HouHuancai,andMr.
LiuChengzhenwereelectedthedirectorsofthe3rdtermofBoard.
Their-21-officetermwillexpirealongwiththe3rdtermofBoard.
Mr.
LiMingren,Mr.
XiaYouliang,andMr.
WangZhijunwereapprovedtoresignfromthepositionsofdirectors.
(2)OnSeptember1st2004,asapprovedbythe1stProvisionalShareholders'GeneralMeeting2004,Mr.
ChenHongguo,Mr.
YinTongyuan,Mr.
GuoXiucheng,Mr.
DongJianwen,Mr.
ZhouShaohua,Mr.
WuBinyu,Mr.
HouHuancai,Mr.
HuWenhe,Mr.
HuChangqing,andMr.
LiuChengzhenwereelectedthemembersofthe4thtermofBoard.
Theirofficetermwas3years.
Mr.
LiuXueyan,MR.
ZhaoJinghua,Mr.
DiaoYuntao,Mr.
WangZhihuaandMs.
ZhouChengjuanwereelectedtheindependentdirectorsofthe4thtermofBoard.
Theirofficetermwas3years.
(3)September1st2004,asapprovedbythe1stProvisionalShareholders'GeneralMeeting2004,Mr.
ZhenLiyong,Mr.
SunDianming,andMr.
RenGuang'aiwereelectedthesupervisorsofthe4thtermofSupervisoryCommitteeforofficetermof3years.
-22-VII.
ReportoftheBoardofDirectorsO.
(I)StatementonsignificanteventsinthereporttermFortheyearof2004,thecompetitionoftheindustrywassevereallovertheworld.
TheCompanywasdoingitsbesttodevelopitspotentialandenhanceitsmanagement,toovercomenegativeeffectbroughtbyhighrisingofpricesofenergyandrawmaterials.
TheoutputandsalesincomeincreasedsuccessivelyduringtheyearandenforcedtheCompany'sleadingpositioninthewholeindustryofthecountryforthepast10years.
IssuingofRMB2billiontransferablebondswasastrongsupporttotheCompany'sconstructionprojects.
The300KTcoatedwhiteboardprojectwascompletedinearly2005andputintotestoperation;The250KThotmillpulpprojectwasintestoperation;JiangxiChenmingwasestablishedtogetherwithSAPPILIMITEDfromSouthAfrica,XinMaolinCo.
fromKorea,andinternationalfinancingcompanies,whichwillintroduceadvancedmanagementsystemtotheCompanyandopenedaninternationalfinancingchannel.
The200KTlow-rationcoatedpaperandaccessoryprojectswasintestingstage.
AlloftheabovewillbringnewgrowthpointtotheCompanyintheyearof2005.
P.
(II)BusinessSituationoftheReportTermThecompanyisinthepapermanufacturingindustry,whichisalight-industry.
TheCompanyismainlyengagedinproductionandsalesofmachine-makepaperandpaperboard,papermakingrawmaterials,papermakingmachinery,powerandheatsupply.
Forthereportterm,theoutputofmachine-madepaperwas1.
58millionton,whichwas14.
2%overthecorrespondingperiodofpreviousyear.
ThesalesvolumewasRMB7,064,610,000,whichincreasedby21.
4%.
ThenetprofitwasRMB847,440,000whichdecreasedby0.
18%.
1.
Majorbusinessturnoverandprofitstructure(1)DistributiononindustriesIndustryMajorbusinessturnover(RMB0,000)Majorbusinessprofit(RMB0'000)Machine-madepaper661,115.
52154,815.
79Powerandheating5,238.
01623.
49Constructionmaterials27,028.
837,423.
62Paperchemicalmaterial6,813.
612,497.
91Papermachines4,415.
191,820.
20Others1,850.
15319.
44Total706,461.
31167,500.
45(2)DistributiononproductsMajorproductsMajorbusinessturnover(RMB0,000)Majorbusinessprofit(RMB0'000)Lightweightcoatedpaper56,207.
4713,928.
21Duplexpresspaper97,095.
5723,290.
78Writingpaper41,511.
269,241.
25Artpaper181,155.
2749,350.
22Newspresspaper69,726.
2620,373.
53-23-Paperboard75,878.
6711,886.
39Total521,574.
50127,944.
15(3)DistributiononterritoriesAreasMajorbusinessturnover(RMB0,000)Majorbusinessprofit(RMB0'000)East292,779.
0969,418.
55North135,350.
9932,091.
72South94,686.
5722,450.
19Mid-south77,048.
4018,268.
18North-east49,967.
4211,847.
28South-west23,397.
015,548.
09North-west13,421.
583,181.
41Overseas19,810.
254,695.
03Total706,461.
31167,500.
452.
Particularsabouttheturnover,salescostsandgrossprofitratioofthemajorproducts(RMB0'000)CategorySalesIncomeSalescostGrossprofitratio%Lightweightcoatedpaper56,207.
4742,279.
2624.
78Duplexpresspaper97,095.
5773,804.
7923.
99Writingpaper41,511.
2632,270.
0122.
26Artpaper181,155.
27131,805.
0427.
24Newspresspaper69,726.
2649,352.
7329.
22Paperboard75,878.
6763,992.
2915.
663.
Inthereportterm,theoutputandsalesvolumeincreasedandthemajorbusinesshasincreasedsignificantly,butthegrossprofitratiodecreasedduetoincreasingofpricesofenergyandrawmaterials.
Thoughthemajorbusinessprofithasbreakevenwiththepreviousyear.
Followingwiththelaunchingofaforesaidlargeprojects,theCompanywillbeenforcedinbusinessscaleandcompetition.
Q.
(III)Businessperformanceofmajorcontrolledsubsidiaries1.
Controlledsubsidiary–WuhanChenmingHanyangPaperHoldingsCo.
,Ltd.
RegisteredcapitalRMB211,367,000Shareholdingportion:50.
93%Majorproducts:ordinarypaper,presspaperGrossassetattheendofreportterm:RMB2,387,271,600Outputofmachinemadepaperin2004:329KtonSalesincome:RMB1,586,717,100Netprofit:RMB106,748,4002.
Controlledsubsidiary–ShandongChenmingPaperGroupQihePaperboardCo.
,Ltd.
RegisteredcapitalRMB376,200,000Shareholdingportion:99.
9468%Majorproducts:paperboardGrossassetattheendofreportterm:RMB1,243,384,000Outputofpaperboardandcorrugatedpaperboardin2004:399.
8KtonSalesincome:RMB1,083,177,700Netprofit:RMB78,284,7003.
Controlledsubsidiary–ShandongChenmingPowerSupplyHoldingsCo.
,Ltd.
RegisteredcapitalRMB99,553,100-24-Shareholdingportion:51%Majorproducts:electricityandheatpowersupplyGrossassetattheendofreportterm:RMB664,094,700Salesincome:RMB406,348,200Netprofit:RMB14,770,5004.
Controlledsubsidiary–ChibiChenmingPaperCo.
,Ltd.
RegisteredcapitalRMB177,419,400Shareholdingportion:35.
7883%Majorproducts:DoubleplasticcoatedpaperGrossassetattheendofreportterm:RMB464,830,500Outputvolume:78.
4KtonSalesincome:RMB370,442,600Netprofit:RMB62,288,9005.
Controlledsubsidiary–HailaerChenmingPaperCo.
,Ltd.
RegisteredcapitalRMB16,000,000Shareholdingportion:75%Majorproducts:BleachedreedboardGrossassetattheendofreportterm:RMB122,785,700Outputvolume:26.
6KtonSalesincome:RMB88,219,500Netprofit:RMB3,724,6006.
Controlledsubsidiary–JilinChenmingPaperCo.
,Ltd.
RegisteredcapitalRMB81,633,000Shareholdingportion:51%Majorproducts:Woodpulp,machine-madepaperGrossassetattheendofreportterm:RMB37,172,500Outputvolume:101.
8KtonSalesincome:RMB359,264,400Netprofit:RMB39,427,9007.
Controlledsubsidiary–ShanghaiChenmingPaperMachineryCo.
,Ltd.
RegisteredcapitalRMB70,000,000Shareholdingportion:61%Majorproducts:pulpmachine,papermakemachineryGrossassetattheendofreportterm:RMB273,879,500Outputvolume:101.
8KtonSalesincome:RMB122,088,000Netprofit:RMB13,713,300R.
(IV)Particularsaboutthemajorvendorsandbuyersinthereportterm(1)Thepurchasesofthecompanyfromthetop5vendorstook10.
84%ofthetotalpurchasesoftheyear.
(2)Thesalesofthecompanytothetop5buyerstook6.
78%ofthetotalsalesoftheyear.
S.
(V)ProblemsanddifficultiesencounteredandsolutionsDuetorisingofrawmaterialsandenergyprices,andtheinvasionofinternationalmanufacturersthemarketcompetitionbecamemoresevere.
ItincreasedthecostsandloweredtheCompany'scompetitivecapacity.
TheCompanyadoptedthefollowingmeasurementstofacingthesituation:(1)Performdirectadministrationonthepurchasingprocessofsubsidiaries.
Invitebiddingforlargeamountpurchasingofmaterialstolowertheprice.
-25-(2)Fullydevelopthepotentialofcurrentequipments.
Increasetheoperationalqualitythroughreconstructionofequipmentsandfineturningofproductiontechniques.
Thishasincreasedtheoutputby14.
2%.
(3)Enlargepulpproductioncapacity,enforceresearchingandcontrollingofmajormaterialmarket,rationalcontrolonthematerialstock,tooverridetheinfluenceofpricevibration.
(4)Speedupinternationalco-operation,enlargetheco-operationwithworld-knownmanufacturersandinternationalfinancingbodies.
Introduceadvancedmanagementconcept;bringtheCompanyintotheinternationalmarketplace.
(5)Keeptargetingonthemarketplaceconstruction,managementstandardizingatonehand,marketdevelopingattheother,keepthemarketingpracticeprogressstably.
T.
(VI)InvestmentintheReportTerm1.
UtilizingoffundraisedTheCompanyissuedRMB2billionoftransferablecorporationbondinSeptember2004,andpracticallyreceivedRMB1,956.
22million.
Thefundwasutilizedrightassetoutbytheprospectus.
Nochangingofinvestmentprojectwasmade.
Endedthereportterm,RMB1,754.
65millionwasputintoinvestment.
ThebalanceofRMB201.
57millionisinthespecialbankaccountforfutureuse.
Thedetailsofinvestmentareasthefollowings:InRMB10thousandProjectsetbytheprospectusTotalofinvestmentProposedinvestmentPracticalinvestmentAccumulatedexpenditureProspectedprofitaftertaxProgress300KTcoatedwhiteboard83,76083,76083,760.
00118,667.
8317,354AlmostfinishedPollutiontreatmentandrecyclingengineering17,30017,3007,800.
007,800.
00962UnderconstructionITandlogisticsmanagementproject17,80017,8001,361.
001,419.
57-UnderconstructionJiangxiChenming200KTlow-rationcoatedpaperproject168,55551,69951,699.
00246,043.
3023,237Almostfinished150T/Dchemical-mechanicalpulpsystemandaccessories8,7088,7088,708.
0013,906.
94-FinishedSupplementaryofworkingcapital25,00025,00022,137.
00--Total175,465.
00387,837.
64--Notes:(1)150T/Dchemical-mechanicalpulpsystemandaccessorieshavebeenputintooperationattheendof2003,andproducedprofitaftertaxofRMB38.
20million.
(2)Whentheinvestmentfromtheraisedfundisnotenough,theshortpartisfundedbybanksortheCompanyitself.
2.
Investmentfromnon-financingresourcesThe25KTBCTMP(BleachChemicalTemperatureMilledPulp)projectanditsaccessorieswereproposedforinvestmentofRMB520million.
RMB279millionwasinvestedinthereportterm.
ThefundwasraisedbytheCompanyitself.
Theprojectwillbeputintotestoperationinthefirstquarterof2005andexpectedtoproduceprofitaftertaxofRMB100million.
3.
Inthereportterm,theinvestmentpartnersofJiangxiChenmingPaperCo.
,Ltd.
–SAPPILIMITED(SouthAfrica),InternationalFinancialCo.
,XinmaolinPaperCo.
,(Korea)andtheCompanyenlargedtheirinvestment.
TheregisteredcapitalofJiangxiChenmingPaperCo.
,Ltd.
wasenlargedtoUSD172,000,000.
TheCompanyinvestedwithcashandphysicalpropertyamountedtoUSD81.
1049-26-million,whichtakes47.
154%oftheregisteredcapital.
ThedetailsaboutthiseventhavebeenpublishedonOctober28th2004byChinaSecuritiesJournalandHongKongCommercialDaily.
ThecompanywasestablishedonDecember24th2004asasino-foreignjointventure.
U.
(VII)Financialstatusandbusinessperformance1.
MovementofaccountingindicesinRMBItems20042003+/-(%)Grossasset15,850,290,151.
7410,230,861,065.
0354.
93Shareholders'equity4,839,068,873.
634,371,048,361.
7810.
71Majorbusinessprofit1,653,273,517.
031,624,729,186.
821.
76Netprofit503,721,298.
14627,141,183.
07-19.
68Netincreaseofcashandcashequivalents533,406,015.
73244,375,893.
43118.
27(1)Increasingoftotalassetwascausedbyincreasingofloansraisedfornewprojects,issuingofbondsandincreasingofnetprofit.
(2)Increasingofshareholders'equitywascausedbyincreasingofnetprofitinthereportterm.
(3)Decreasingofnetprofitwasduetothedecreasingoftaxreimbursementandincreasingofrawmaterialsprices,whichcausedtheincreasingofcostsanddecreasingofgrossprofit.
(4)Increasingofcashandcashequivalentwasduetothecollectingofsalesincomeandthepartofthefundraisedfrombondissuingin2004hasnotbeenutilizedyet,andtheincreasingofcurrentcapitalduefromtheinvestmentofJiangxiChenmingPaperCo.
,Ltd.
2.
Influenceofalterationofaccountingpolicies,accountingestimations,andcorrectingofaccountingerrors(1)Noneofalterationofaccountingpoliciesorchangingofaccountingestimationbeenundertakeninthereportterm(2)Correctingofaccountingerrorsforpreviousfiscalyears:TheCompanypaidenterpriseincometaxofRMB2,698,976.
43whenclearingthetaxationsforyear2003(including:RMB3,901,320.
86fortheincometaxofyear2002,andoffsettedRMB1,202,344.
43ofincometaxforyear2003).
ThiseventhasbeenretrospectivelywrittenintotherelativesubjectsofFinancialReport2003.
ThesubsidiariesoftheCompanypaidincometaxretrospectivelyforthepreviousyearswhenclearingthetaxationforyear2003.
RelativesubjectswererewrittenintheFinancialReport2003ofthesubsidiariesandtheCompany'saswell.
-27-Theinfluenceoftheabovecorrectingofaccountingerrorsareasthefollowings:NameofcompaniesAmountcorrectedInfluenceonthetotalprofitoftheCompanyYear2002ShandongChenmingPaperHoldingsCo.
Ltd.
3,901,320.
86-3,901,320.
86Yer2003ShandongChenmingPaperHoldingsCo.
Ltd.
-1,202,344.
431,202,344.
43WuhanChenmingPaperHoldingLtd.
1,383,556.
97-704,645.
56ShandongChenmingPaperGroupQihePaperBoardLtd.
1,468,932.
48-1,468,151.
01Total5,551,465.
88-4,871,773.
003.
Particularsabouttheliabilities,credit,andarrangementforreturningofdebts,includingprincipalandinterestsAttheendofreportterm,theCompanyisresponsibleforRMB5,583.
5965millionofcurrentliabilities,andRMB3,664.
1138millionoflong-termliabilities,totaledtoRMB9,247.
7102million.
Attheendofthereportterm,thecreditstatusoftheCompanyhasnotbeenchanged.
RelativedetailsanddebtreturningplancanbefindintheProspectusofIssuingCorporationTransferableBondspublishedonSeptember25th2004byChinaSecuritiesJournal,SecuritiesTimes,ShanghaiSecuritiesDailyandhttp://www.
cninfo.
com.
cn.
V.
(VIII)Changingofbusinessenvironment,macropolicies,lawsandregulationsimpactonthebusinessoperationofthecompanyThesignificantincreasingofrawmaterialsandenergypriceshasimpactedthebusinessoperationoftheCompanyatcertainlevel.
W.
(IX)BusinessplanforthecomingyearFortheyear2005,theCompanywillkeepfocusingonthemarketconstructionandemphasisonself-developmentandcreativity.
Investmentwillbeenlargedonconstructionofnetprojectsandmarketplaceaswellastechnicaldevelopment.
Internationaldevelopmentwillalsobethemainstrategicdirectioninviewingofcreateaninternationalenterprisewithglobalcompetition.
Majorworksandmeasurements:1.
Enforcethemarketdevelopingofnewproductswithtargetofbuildingupinternationalreputation.
Furtherenhancetheconstructionofmarketingforceandnetwork.
Keepbalanceofproductionandsalesvolumeofnewproducts.
2.
Buildinganetworkofproductionbasesandpurchasingprocess.
Establishwoodsupplyingbasebymeansofjointventure,toestablishaintegratedwood,pulpandpaperproductionchain.
3.
Enforceemployeetrainingprogrammetoincreaseemployeeskillandbackupthespeedydevelopmentoftheenterprise.
-28-4.
Speedupinternationalco-operationprocess,improvecapitaloperation,performmulti-layerandfullrangeinternationalcooperation,seekformorepowerfulpartners.
5.
Explorefornewprojectsinviewingofinternationalmarkettoensuretheconsistenceofdelelopment.
X.
(X)DailyworksoftheBoard1.
TheCompanyheld5Boardmeetingsduringthereportterm.
1)The3rdtermofBoardofShandongChenmingPaperHoldingsLimited(theCompany)heldits16thmeetingonMarch14th,2004onthe2ndfloorofChenmingHotel.
Allofthe15directorspresentedthemeeting.
Allofthesupervisorsandrelativeexecutivespresentedthemeetingasnonevotingdelegations.
ThemeetingwascomplyingwithrelativelawsandactsandprovisionsoftheArticleofAssociationoftheCompany.
TheDirectorsexaminedandpassedtheproposalsraisedinthemeetingandthefollowingsaretheresolutions:1)TheAnnualReport2003anditssummaryversion;2)TheBoard'sReport2003;3)TheFinancialSettlementReport2003;4)Profitallocationplanforyear2003andprofitallocationpolicyforyear20045)TheproposalonrevisingtheArticleofAssociationoftheCompany;6)Theproposalofinvestmentonchemical-mechanicalpulpprojects;7)Theproposalondistributionofshareequitymotivationfoundation;8)TheproposalondistributionofChairman'srewardingfoundation;9)TheproposalonextendingoftransferablebondplanoftheCompany;10)Thestatementonutilizingoffundraisedfrompreviousfinancing;11)Theproposalonengagingofdomesticandoverseasaccountants;12)Theproposalonengagingofconventionallegaladvisor.
13)Theproposalonprovidingsecuritiestothecontrolledsubsidiariesforintegratedcredits;14)TheproposalofapplyingfortheauthorizationfromtheShareholders'GeneralMeetingaboutenteringofsignificantcontracts;15)TheproposalofholdingtheShareholders'GeneralMeeting2003.
TheaboveresolutionswerepublishedbytheMarch16th2004issuesofChinaSecuritiesTimesandHongKongCommercialDaily.
2)The3rdtermofBoardofShandongChenmingPaperHoldingsLimited(theCompany)heldits17thmeetingonApril16th,2004onthe2ndfloorofChenmingHotel.
Allofthe15directorspresentedthemeeting.
Allofthesupervisorsandrelativeexecutivespresentedthemeetingasnonevotingdelegations.
ThemeetingwascomplyingwithrelativelawsandactsandprovisionsoftheArticleofAssociationoftheCompany.
The1stQuarterlyReport2004wasexaminedandpassedonthemeeting.
3)The3rdtermofBoardofShandongChenmingPaperHoldingsLimited(theCompany)heldits18thmeetingonJuly27th,2004intheHeadquarterofSalesDivisionlocatedonthe26thfloorofBlockA,BeijingDigitalBuilding.
Allofthe15directorspresentedthemeeting.
Allofthesupervisorsandrelativeexecutivespresentedthemeetingasnonevotingdelegations.
ThemeetingwascomplyingwithrelativelawsandactsandprovisionsoftheArticleofAssociationoftheCompany.
TheDirectorsexaminedandpassedtheproposalsraisedinthemeetingandthefollowingsaretheresolutions:I.
TheSemi-AnnualReport2004anditssummaryversion.
II.
Semi-annualprofitdistributionplanof2004.
III.
TheproposalofalternatingtheBoardofDirectors.
IV.
Theproposalofmanagementregulationsabouttheproceedsraisedfromfinancialactivities.
-29-V.
TheproposalofapplyforintegratedcreditofRMB0.
3billionfromBankofChinaShouguangBranchforoneyear.
VI.
Theproposalofamendingpartialoftheprovisionsoftherewardingsystemofdirectorsandseniorexecutives.
VII.
Theproposalonholdingofthe1stProvisionalShareholders'GeneralMeeting2004.
TheaboveresolutionswerepublishedbytheJuly29th,2004issuesofChinaSecuritiesTimesandHongKongCommercialDaily.
4)The4thtermofBoardofShandongChenmingPaperHoldingsLimited(theCompany)heldits1stmeetingonSeptember1,2004inthemeetingroomonthe2ndfloorofYibinHouseofBeijingFriendshipHotel.
Allofthe15directorspresentedthemeeting.
ThemeetingwascomplyingwithrelativelawsandactsandprovisionsoftheArticleofAssociationoftheCompany.
Thefollowingproposalswereadoptedasresolutionsthroughexaminationandvoting.
I.
Mr.
ChenHongguowaselectedtheChairmanofBoard,andMr.
YinTongyuanwaselectedtheViceChairmanofBoardfortheofficetermof3years.
II.
AsnominatedbyChairmanChenHongguo,Mr.
YinTongyuanwasengagedastheGeneralManageroftheCompany;Mr.
HaoYunwasengagedastheSecretaryoftheBoard;andMr.
WangWeiwasengagedtheRepresentativeofSecuritiesAffairs.
Theywillholdtheofficefor3years.
III.
AsnominatedbyGeneralManagerYinTongyuan,Mr.
WangBaoliang,Mr.
HuangBendong,Mr.
RenWei,Mr.
GenGuanglin,Mr.
FangLijun,Ms.
LiXueqin,Mr.
HaoYun,andMr.
WangZaiguowereengagedtheViceGeneralManagersoftheCompany.
Mr.
YuShiyongwasengagedtheChiefFinancialOfficeroftheCompany.
Theywillholdtheirofficefor3years.
IV.
Mr.
ChenYongxingwasengagedasthesenioradvisoroftheBoardofDirectorsforofficetermof3years.
TheaboveresolutionswerepublishedbytheSeptember2nd2004issuesofChinaSecuritiesTimesandHongKongCommercialDaily.
5)The4thtermofBoardofShandongChenmingPaperHoldingsLimited(theCompany)heldits2ndmeetingonOctober28th,2004onthe2ndfloorofChenmingHotel.
Allofthe15directorspresentedthemeeting.
ThemeetingwascomplyingwithrelativelawsandactsandprovisionsoftheArticleofAssociationoftheCompany.
The3rdQuarterlyReportofyear2004wasexaminedandpassedbythemeeting.
2.
Executionoftheresolutionsadoptedbytheshareholder'sgeneralmeeting.
AsadoptedbytheShareholders'GeneralMeetingheldonJune22nd2004,theprofitdistributionplanwasas:basingonthetotalcapitalshareamountedto897,727,903andthedistributableprofitofRMB1,120,283,386.
24,RMB1.
00willbedistributedtoeach10shares(taxincluded).
TotallyRMB89,772,790.
30wouldbedistributed,andthebalanceofRMB1,030,510,595.
94wouldbecarriedovertothenextyear.
TheabovedistributionplanhasbeenimplementedinAugust2004.
Y.
(XI)Currentprofitdistributionplanorcapitalizationofpublicreservesplan1.
AsauditedbyTianjianPublicAccountantCo.
,Ltd.
,thenetprofitrealizedinyear2004wasRMB503,721,298.
14.
AccordingtotheregulationsoftheArticleofAssociation,10%ofitwillbedrawnaslegalreservesamountedtoRMB48,121,062.
87,10%ofitwillbedrawnaslegalpublicwelfareamountedtoRMB48,121,062.
87,thedistributableprofitforyear2004wasRMB407,479,172.
40.
Plus-30-theretainedprofitatthebeginningofyearamountedtoRMB1,116,385,967.
84andminustheamountdistributedforyear2003,thedistributableprofitforyear2004isRMB1,434,092,349.
94.
2.
Profitdistributionpreplanforyear2004Onthebasisoftotalcapitalshareof897,727,903attheendofyear2004,andthedistributableprofitofRMB407,479,172.
40,2bonussharesandRMB1.
00ofcashdividendwillbediliveredtoeach10shares(taxincluded).
ThetotalprofitdistributedisamountedtoRMB269,318,370.
90,theretainedprofitofRMB138,160,801.
50willbecarriedovertothenextyear.
Bythemeantime,basingonthetotalcapitalshareof897,727,903sharesattheendofyear2004,3newshareswillbeincreasedovereach10sharesbythecapitalreserves.
Z.
(XII)Misc.
Information1.
CapitaltransactionwithrelatedpartiesInaccordancewith"Notificationontheregulationsofcapitaltransactionsandexternalguaranteesbetweenlistedcompaniesandrelatedparties"(DocumentNo.
Zheng-jian-fa[2003]56,referredtoas"theNotification"hereinafter)issuedbyChinaSecuritiesRegulatoryCommission,TianjianPublicAccountantissuedthespecialstatementaboutthecapitaltransactionandguaranteeprovidedbetweentheCompanyanditsrelatedparties.
(DocumentTian-jian-(2005)-Te-Shen-Zi025).
TotheShareholdersofSHANDONGCHENMINGPAPERHOLDINGSLIMITED:(1)Capitaloccupationofthecontrollingshareholderandrelatedparties①ThecontrollingshareholderTherewasnocapitaloccupiedbycontrollingshareholdertilltheendofDecember31st2004.
②OtherrelatedpartiesEndedDecember31st2004,thebalanceofaccountreceivablesduetoShouguangLibenPaperCo.
,Ltd.
(inwhichtheCompanyisholding26.
40%ofcapitalshares)wasamountedtoRMB1,002,375.
90.
Thesearerents,waterandelectricitycharges.
(2)Wedidn'tfindanyevidencethattheCompanyprovidedanycapitaltothecontrollingshareholderandotherrelatedpartiesdirectlyorindirectlyassetoutinthe1stand2ndtermoftheNotification.
Theindependentdirectorsacknowledge:endedatDecember31st2004,theCompanyprovidednoexternalguarantee.
AsrequiredbythedocumentZheng-Jian-Fa[2003]56,theCompanyhasrevisedtheArticleofAssociation.
TheproceduresofexternalguaranteeandqualificationsforthereceivershasbeenamendedintotheArticleofAssociation.
TheCompanyisperformingitsdutyofinformationdisclosingrightaccordingtotheRulesofStockListingandtheArticleofAssociation,andprovidedrelativeinformationtotheCPA.
2.
TheofficialinformationdisclosingmediasareChinaSecuritiesJournalandHongKongCommercialDaily.
-31-VIII.
TheReportoftheSupervisoryCommitteeInthereportterm,theSupervisoryCommitteewasexercisingitsdutywithrespectingoftheshareholders'benefit.
ThecommitteepresentedtheBoardmeetingsandperformedinspectiononthelegalityofthefinancialactivitiesandperformingofdutiesofthedirectors,managersandotherseniormanagements.
AA.
(I)TheCommitteehasheld3meetingsduringthereportterm.
1.
The8thmeetingofthe3rdtermofSupervisoryCommitteewasheldonMarch14th2004onthe2ndfloorofChenmingHotel.
Allofthe5supervisorspresentedthemeeting.
Thefollowingresolutionswereexaminedandpassedinthemeeting.
I.
TheAnnualReport2003anditssummaryversion.
II.
TheReportoftheSupervisoryCommittee2003;III.
TheFinancialSettlementReport2003;TheaboveresolutionswerepublishedbytheMarch16th,2004issuesofChinaSecuritiesTimesandHongKongCommercialDaily.
2.
The3rdtermofSupervisoryCommitteeofShandongChenmingPaperHoldingsLimited(theCompany)heldits10thmeetingonJuly27th,2004intheHeadquarterofSalesDivisionlocatedonthe26thfloorofBlockA,BeijingDigitalBuilding.
Allofthe5supervisorspresentedthemeeting.
Theproposalsraisedinthemeetingwereexaminedandpassedbythesupervisors.
Thefollowingsaretheresolutionsofthemeeting:I.
TheSemi-AnnualReport2004anditssummaryversion.
II.
TheproposalofalternatingtheSupervisoryCommittee.
TheaboveresolutionswerepublishedbytheJuly29th2004issuesofChinaSecuritiesJournalandHongKongCommercialDaily.
3.
The4thtermofSupervisoryCommitteeofShandongChenmingPaperHoldingsLimited(theCompany)heldits1stmeetingonSeptember1,2004inthemeetingroomonthe2ndfloorofYibinHouseofBeijingFriendshipHotel.
Allofthe5supervisorspresentedthemeeting.
Theproposalsraisedinthemeetingwereexaminedandpassedbythesupervisors.
Thefollowingsaretheresolutionsofthemeeting:Mr.
ZhenLiyongwaselectedtheChairmanofthe4thTermofSupervisoryCommitteefortheofficetermof3years.
TheaboveresolutionswerepublishedbytheSeptember2nd2004issuesofChinaSecuritiesJournalandHongKongCommercialDaily.
BB.
(II)Independentstatementsissuedbythesupervisorycommittee1.
Thedecision-makingproceduresofthecompanyarevalid.
Theinternalcontrollingsystemismatureandproperlyoperated.
NobehaviorsthatviolatethelawsortheArticleofAssociationorharmingthebenefitofthecompanywerefound.
2.
Thecommitteeundertookinspectionsonthefinancialstatusofthecompany.
Thecommitteetakesfortheauditors'reportsissuedbybothofTianjianCertifiedPublicAccountantsandDeloitteToucheTohmatsuCPALtd.
asreflectingthefinancialstatusandbusinessresultsofthecompanyfrankly,objectively,andjustly.
3.
ThecompanyissuedRMB2billionoftransferablebonds,whichwasaccordingwiththatdescribedintheStockInvitingProspectus.
Noinvestmenthasbeenmadetoprojectsotherthanthatofsetbytheprospectus.
-32-4.
Propertyacquisitionsoccurredduringthereporttermwasonreasonablepriceandneitherharmedtheinterestsoftheshareholdersnorcausinglosingofcompanyassets.
5.
Relatedtransactionsoccurredduringthereporttermwasonafairandreasonablebase,harmednobenefitofthecompany.
-33-IX.
SignificantEventsCC.
(I)SignificantlawsuitorarbitrationeventsoccurredinthereporttermTheCompanywasinvolvedinalawsuiteventregardingpaymentforengineeringprojects.
Afterthecompletionoftheworkshop,thecontractorsuedtothecourtthattheCompanydidn'tmakethepayment.
ThecourtissuedjudgmentofexecutinginadvancetotheCompanyaccordingtotherequestofthecontractor.
ThebanksavingoftheCompanyamountedtoRMB7.
804millionwasfrozenandexecutedtheCompanybyRMB10millioninadvance.
EndedDecember31st2004,thecourtdidn'tmakeanyformaljudgmentyet.
TheCompanyispreparingforrespondingthelawsuit.
Becauseoftheuncertaintyoftheresult,theCompanyhaspredictedrelativeliabilitiesinaccordancewiththelawsuit,andadjustedthecostandgain/lossaccountoftherelativeproject.
ThiseventwillnotmakeanyimpactonthenormaloperationandproductionofthewholecompanyandshallbringnolosstotheCompany.
DD.
(II)Acquisitionorsellingofassets,takingovereventsoccurredinthereportterm.
TheCompanyincreaseditsinvestmentandshareholdinginJiangxiChenmingPaperCo.
,Ltd.
duringthereportterm.
DetailsaboutthiscanbefoundinthereportoftheBoardofDirectors.
EE.
(III)MaterialRelatedTransactionsNomaterialrelatedtransactionsoccurredduringthereportterm.
FF.
(IV)MaterialContractsandImplementation1.
Therewasnoexternalguaranteeorillegalguaranteeoccurredinthereportterm.
EndedDecember31st2004,theCompanyhasprovidedloansecuritiestothecontrollingsubsidiariesamountedtoRMB1,812,520,00.
NameofthesubsidiariesAmountguaranteedWuhanChenmingPaperHoldingLtd.
672,511,909.
47ShandongChenmingPaperGroupQihePaperBoardLtd.
80,000,000.
00HailaerChenmingPaperLtd.
14,850,000.
00ShandongChenmingBoardLtd.
35,000,000.
00JiangxiChenmingPaperLtd.
815,160,945.
00HezeChenmingBoardLtd.
60,000,000.
00ShanghaiChenmingPaper-makingMachineLtd.
135,000,000.
00Total1,812,522,854.
472.
TheproviderofsecurityfortheissuingoftransferablebondsisChinaIndustrialandCommercialBankShandongBranch.
Theprofitability,assets,andcreditpositionshavenotchangedduringthereportterm.
GG.
(V)ChangingofCPAsThe3rdmeetingofthe4thtermofBoardhasexaminedandadoptedtheproposalofchangingtheoverseasauditor.
PriceWaterHouseCoopersLtd.
willnolongerbetheoverseasauditoroftheCompanyforyear2004,andDeloitteToucheTohmatsuCPALtd.
wasengagedtheoverseasauditoroftheCompanyforyear2004.
ThisproposalissubjecttotheapprovaloftheShareholders'GeneralMeeting2004.
TianjianPublicAccountantwillbethedomesticauditoroftheCompanyforanotheroneyear.
-34-CPAAuditingChargeforyear2004TianjianPublicAccountantsRMB1millionDeloitteToucheTohmatsuCPALtd.
HKD1.
15millionThetravelingexpensesofthetwoCPAsweretakenbytheCompany.
HH.
(VI)Statementonthecompany,theBoardortheDirectorreceivedanypenaltyformChinaSecuritiesSupervisoryCommitteeoranycondemnfromtheStockExchange.
InMay2004,ChinaSecuritiesRegulatoryCommissionperformedinspectionontheCompanyandissued"Thenotificationofrectification".
ThenotificationrequirestheCompanytorectifytheinformationdisclosingabouttheadjustmentofincometaxforyear2002.
ThetotalimpactoftheadjustmentwasamountedtoRMB3.
9753million.
TheCompanyhasrepaidthetaxandperformedadjustmentin2004onthefinancialstatementofyear2002.
Relativelosseshavebeenwrittenintothenetgain/lossaccountof2004.
TheCompanywillpaygreatattentionontheinformationdisclosingofrelativeaffairs.
DetailsaboutthiscanbefoundintheJune10th2004issuesofChinaSecuritiesJournalandHongKongCommercialDaily.
-35-X.
FinancialReportNotestotheFinancialStatementsR05-066AUDITORS'REPORTTOTHESHAREHOLDERSOFSHANDONGCHENMINGPAPERHOLDINGSLIMITED(establishedasajointstocklimitedcompanyinthePeople'sRepublicofChina)WehaveauditedtheaccompanyingconsolidatedbalancesheetofShandongChenmingPaperHoldingsLimitedanditssubsidiaries(the"Group")asof31December2004andtherelatedconsolidatedstatementsofincome,cashflowsandchangesinequityfortheyearthenended.
TheseconsolidatedfinancialstatementsaretheresponsibilityoftheGroup'smanagement.
Ourresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedonouraudit.
WeconductedourauditinaccordancewithInternationalStandardsonAuditing.
ThoseStandardsrequirethatweplanandperformtheaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementsarefreeofmaterialmisstatement.
Anauditincludesexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements.
Anauditalsoincludesassessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallfinancialstatementspresentation.
Webelievethatourauditprovidesareasonablebasisforouropinion.
Inouropinion,theconsolidatedfinancialstatementspresentfairly,inallmaterialrespects,theconsolidatedfinancialpositionoftheGroupasof31December2004andtheconsolidatedresultsofitsoperationsanditsconsolidatedcashflowsfortheyearthenended,inaccordancewithInternationalFinancialReportingStandards.
DeloitteToucheTohmatsuCPALtd.
Beijing,25March2005-36-CONSOLIDATEDINCOMESTATEMENTFORTHEYEARENDED31DECEMBER2004NOTES20042003RMB'000RMB'000Turnover47,042,8825,797,836Costofsales(5,366,187)(4,152,181)Grossprofit1,676,6951,645,655Otheroperatingincome6153,68086,781Distributioncosts(396,042)(345,354)Administrativeexpenses(358,084)(327,895)Profitfromoperations71,076,2491,059,187Financecosts8(249,863)(167,268)Gainondisposalofasubsidiary9-4,769Shareofresultsofassociates411(572)Profitbeforetaxation826,797896,116Taxation10(212,692)(171,008)Profitaftertaxation614,105725,108Minorityinterests(135,115)(72,047)Netprofitfortheyear478,990653,061Proposeddividend1189,77389,773Earningspershare12-BasicRMB0.
53RMB0.
73-DilutedRMB0.
52N/A-37-CONSOLIDATEDBALANCESHEETAT31DECEMBER2004NOTES20042003RMB'000RMB'000Non-currentassetsProperty,plantandequipment1310,287,1246,126,413Landuserights14170,709173,066Interestsinassociates1520,05819,647Available-for-saleinvestments166,0526,052Prepayments1712,00018,00010,495,9436,343,178CurrentassetsInventories181,611,9381,045,831Tradeandotherreceivables192,025,5031,785,596Restrictedbankdeposits197,804-Bankbalancesandcash191,586,3401,052,9355,231,5853,884,362CurrentliabilitiesTradeandotherpayables201,866,6731,209,697Borrowings-amountduewithinoneyear213,619,7052,963,757Taxationpayable99,27771,438Dividendpayable7751285,586,4304,245,020Netcurrentliabilities(354,845)(360,658)10,141,0985,982,520CapitalandreservesSharecapital24897,728897,728Reserves253,730,2583,117,1834,627,9864,014,911Minorityinterests1,694,660866,042Non-currentliabilitiesConvertibleloannotes231,767,050-Borrowings-amountdueafteroneyear211,642,910687,386Deferredincome22408,492414,1813,818,4521,101,56710,141,0985,982,520Theconsolidatedfinancialstatementsonpage2to29wereapprovedandauthorisedforissuebytheBoardofDirectorson25March2005andaresignedonitsbehalfby:DIRECTORDIRECTOR-38-CONSOLIDATEDSTATEMENTOFCHANGESINEQUITYFORTHEYEARENDED31DECEMBER2004StatutoryStatutorypublicDiscretionaryShareCapitalEquitysurpluswelfaresurplusDividendAccumulatedcapitalreservereservereservereservereservereserveprofitsTotalRMB'000RMB'000RMB'000RMB'000RMB'000RMB'000RMB'000RMB'000RMB'000At1January2003498,7381,853,261-146,596126,610-24,937736,6453,386,787Bonusissue398,990(299,242)99,748)-Dividendpaid24,937)-(24,937)Netprofitfortheyear653,061653,061Appropriationstoreserves-17,561-58,50258,502--(134,565)-Dividendproposed89,773(89,773)-Reclassifications117)117---At31December2003897,7281,571,580-205,098184,99511789,7731,065,6204,014,911Recognitionofequitycomponentofconvertibleloannotes,netofdirectissuecostincurred--223,858223,858Dividendpaid89,773)-(89,773)Netprofitfortheyear478,990478,990Dividendproposed89,773(89,773)-Appropriationstoreserves-19,141-47,49147,491--(114,123)-At31December2004897,7281,590,721223,858252,589232,48611789,7731,340,7144,627,986-39-CONSOLIDATEDCASHFLOWSTATEMENTFORTHEYEARENDED31DECEMBER200420042003RMB'000RMB'000OperatingactivitiesProfitbeforetaxation826,797896,116Adjustmentsfor:Interestincome(19,549)(16,652)Interestexpense210,912163,622Shareofresultofanassociate(411)572Depreciationofproperty,plantandequipment549,008486,756Amortisationoflanduserights5,0784,987Amortisationofgovernmentgrantsreceived(21,769)(19,177)Lossondisposalofproperty,plantandequipment10,2132,527Allowancesforbadanddoubtfuldebts(496)19,948Allowancesforinventories(223)(970)Investmentincome-(10,300)Gainondisposalofequityinterestinasubsidiary-(4,769)Operatingcashflowsbeforemovementsinworkingcapital1,559,5601,522,660Increaseininventories(565,884)(517,266)Increaseintradeandotherreceivables(239,411)(113,084)Decrease(increase)innon-currentprepayments6,000(18,000)Increaseintradeandotherpayables(56,431)(118,914)Cashgeneratedbyoperations703,834755,396Taxpaid(184,853)(150,853)Netcashfromoperatingactivities518,981604,543InvestingactivitiesPaymentforconstructioncosts(3,713,642)(915,821)Purchaseofproperty,plantandequipment(286,199)(205,814)Paymentoflanduserights(2,721)(20,919)Governmentgrantsreceived16,080252,000Proceedsondisposalofproperty,plantandequipment22,1641,235Interestreceived19,54916,652Acquisitionofsubsidiaries-22,500Proceedsondisposaloftradinginvestments-10,300Proceedsondisposalofequityinterestinasubsidiary-10,140Dividendreceived-732Netcashusedininvestingactivities(3,944,769)(828,995)-40-20042003RMB'000RMB'000FinancingactivitiesNewborrowingsraised6,527,981593,053Issueofconvertibleloannotes2,000,000-Capitalcontributionbyminorityshareholdersofsubsidiaries709,79858,420Borrowingsrepaid(4,916,509)-Interestpaid(208,862)(166,926)DividendspaidbytheCompany(89,126)(24,809)Directissuecostsincurredinconnectionwiththeissueofconvertibleloannotes(39,990)-Dividendspaidbysubsidiariestominorityshareholdersofsubsidiaries(16,295)(32,595)Increaseinrestrictedbankdeposits(7,804)-Decreaseinpledgedbankdeposits-106,900Netcashfromfinancingactivities3,959,193534,043Netincreaseincashandcashequivalents533,405309,591Cashandcashequivalentsatbeginningoftheyear1,052,935743,344Cashandcashequivalentsatendoftheyear,representingbankbalancesandcash1,586,3401,052,935-41-NOTESTOCONSOLIDATEDFINANCIALSTATEMENTSFORTHEYEARENDED31DECEMBER20041.
GENERALShandongChenmingPaperHoldingsLimited(the"Company")wasincorporatedinthePeople'sRepublicofChina(the"PRC")inMay1993.
TheCompany'sBsharesandAshareswerelistedontheShenzhenStockExchangein1997and2000,respectively.
TheCompanyanditssubsidiaries(the"Group")areprincipallyengagedinmanufactureofpaper.
ThenumberofemployeesoftheGroupat31December2004is18,270(2003:16,292).
2.
PRESENTATIONOFFINANCIALSTATEMENTSTheCompanyanditssubsidiariesmaintaintheiraccountingrecordsandpreparetheirstatutoryfinancialstatementsinaccordancewiththeaccountingstandardsandregulationsapplicabletojointstockcompanieslimitedbysharesofthePeople'sRepublicofChina("PRCGAAP").
TheseconsolidatedfinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards("IFRS").
TheaccountingpoliciesandbasesadoptedinthepreparationofthestatutoryfinancialstatementsdifferincertainrespectsfromIFRS.
ThedifferencesarisingfromtherestatementoftheresultsofoperationsandthenetassetsforcompliancewithIFRSareadjustedintheconsolidatedfinancialstatementsbutarenottakenupintheaccountingrecordsoftheCompanyanditssubsidiaries.
ThesefinancialstatementsarepresentedinRenminbi("RMB")sincethatisthecurrencyinwhichmajorityoftheGroup'stransactionsaredominated.
PotentialimpactarisingfromtherecentlyissuedaccountingstandardsIFRS3"Businesscombination"becameeffectivein2004andappliestotheaccountingforbusinesscombinationsforwhichtheagreementdateisonorafter31March2004.
AstheGrouphasnobusinesscombinationsoracquisitionofsubsidiariesduringtheyear,sotheGroupdoesnotexpectthattheirissuancewillhaveamaterialeffectonhowtheresultsofoperationsandfinancialpositionoftheGrouparepreparedandpresented.
Moreover,in2004,theInternationalAccountingStandardsCommitteeFoundationissuedanumberofneworrevisedIFRSswhichareeffectiveforaccountingperiodsbeginningonorafter1January2005.
TheGrouphasnotearlyadoptedthesenewIFRSsintheconsolidatedfinancialstatementsfortheyearended31December2004.
-42-3.
SIGNIFICANTACCOUNTINGPOLICIESTheconsolidatedfinancialstatementshavebeenpreparedonthehistoricalcostbasisexceptforcertainfinancialinstrumentswhicharecarriedatfairvalues.
Theprincipalaccountingpoliciesadoptedaresetoutbelow.
BasisofconsolidationTheconsolidatedfinancialstatementsincorporatethefinancialstatementsoftheCompanyandenterprisescontrolledbytheCompany(itssubsidiaries),madeupto31Decembereachyear.
ControlisachievedwheretheCompanyhasthepowertogovernthefinancialandoperatingpoliciesofaninvesteeenterprisesoastoobtainbenefitsfromitsactivities.
Theresultsofsubsidiariesacquiredordisposedofduringtheyearareincludedintheconsolidatedincomestatementfromtheeffectivedateofacquisitionoruptotheeffectivedateofdisposal,asappropriate.
Whennecessary,adjustmentsaremadetothefinancialstatementsofsubsidiariestobringtheaccountingpoliciesusedintolinewiththoseusedbyothermembersoftheGroup.
Allsignificantintercompanytransactionsandbalancesbetweengroupenterprisesareeliminatedonconsolidation.
InterestsinassociatesAnassociateisanenterpriseoverwhichtheGroupisinapositiontoexercisesignificantinfluence,butnotcontrol,throughparticipationinthefinancialandoperatingpolicydecisionsoftheinvestee.
Theresultsandassetsandliabilitiesofassociatesareincorporatedintheseconsolidatedfinancialstatementsusingtheequitymethodofaccounting.
Interestsinassociatesarecarriedinthebalancesheetatcostasadjustedbypost-acquisitionchangesintheGroup'sshareofthenetassetsoftheassociatelessanyimpairmentinthevalueofindividualinvestments.
AnyexcessofthecostofacquisitionovertheGroup'sshareofthefairvaluesoftheidentifiablenetassetsoftheassociateatthedateofacquisitionisrecognisedasgoodwill.
WhereagroupenterprisetransactswithanassociateoftheGroup,unrealisedprofitsandlossesareeliminatedtotheextentoftheGroup'sinterestintherelevantassociate,excepttotheextentthatunrealisedlossesprovideevidenceofanimpairmentoftheassettransferred.
-43-3.
SIGNIFICANTACCOUNTINGPOLICIES-continuedRevenuerecognitionSalesofgoodsarerecognisedwhengoodsaredeliveredandtitlehaspassed.
Salesofelectricityarerecognisedwhenelectricityaregeneratedandtransmittedtothepowergridoperatedbythelocalelectricpowercompany.
Interestincomeisaccruedonatimebasis,byreferencetotheprincipaloutstandingandattheinterestrateapplicable.
DividendincomefrominvestmentsisrecognisedwhentheGroup'srighttoreceivepaymenthavebeenestablished.
LeasesLeasesareclassifiedasfinanceleaseswheneverthetermsoftheleasetransfersubstantiallyalltherisksandrewardsofownershiptothelessee.
Allotherleasesareclassifiedasoperatingleases.
Rentalspayableunderoperatingleasesarechargedtotheconsolidatedincomestatementonastraight-linebasisoverthetermoftherelevantlease.
ForeigncurrenciesTransactionsincurrenciesotherthanRMBarerecordedattheratesofexchangeprevailingonthedatesofthetransactions.
Ateachbalancesheetdate,monetaryassetsandliabilitiesthataredenominatedincurrenciesotherthanRMBareretranslatedattheratesprevailingonthebalancesheetdate.
Non-monetaryassetsandliabilitiescarriedatfairvaluethataredenominatedincurrenciesotherthanRMBaretranslatedattherateprevailingatthedatewhenthefairvaluewasdetermined.
Gainsandlossesarisingonexchangeareincludedinnetprofitorlossfortheperiod,exceptforexchangedifferencesarisingonnon-monetaryassetsandliabilitieswheretheexchangeinfairvalueisrecogniseddirectlytoequity.
BorrowingcostsBorrowingcostsdirectlyattributabletotheacquisition,constructionorproductionofqualifyingassets,whichareassetsthatnecessarilytakeasubstantialperiodoftimetogetreadyfortheirintendeduseorsale,areaddedtothecostofthoseassets,untilsuchtimeastheassetsaresubstantiallyreadyfortheirintendeduseorsale.
Investmentincomeearnedonthetemporaryinvestmentofspecificborrowingspendingtheirexpenditureonqualifyingassetsisdeductedfromthecostsofthoseassets.
Allotherborrowingcostsarerecognisedinnetprofitorlossfortheperiodinwhichtheyareincurred.
-44-3.
SIGNIFICANTACCOUNTINGPOLICIES-continuedGovernmentgrantsGovernmentgrantsrelatingtoproperty,plantandequipmentaretreatedasdeferredincomeandreleasedtoconsolidatedincomestatementovertheexpectedusefullivesoftheassetsconcerned.
Othergovernmentgrants,includingvalue-addedtaxrefundsarerecognisedasincomewhentheGroupisentitledtoreceive.
TaxationIncometaxexpenserepresentsthesumofthetaxcurrentlypayableanddeferredtax.
Thetaxcurrentlypayableisbasedontaxableprofitfortheyear.
Taxableprofitdiffersfromnetprofitasreportedintheincomestatementbecauseitexcludesitemsofincomeorexpensethataretaxableordeductibleinotheryearsanditfurtherexcludesitemsthatarenevertaxableordeductible.
TheGroup'sliabilityforcurrenttaxiscalculatedusingtaxratesthathavebeenenactedorsubstantivelyenactedbythebalancesheetdate.
Deferredtaxisthetaxexpectedtobepayableorrecoverableondifferencesbetweenthecarryingamountofassetsandliabilitiesintheconsolidatedfinancialstatementsandthecorrespondingtaxbasesusedinthecomputationoftaxableprofit,andisaccountedforusingthebalancesheetliabilitymethod.
Deferredtaxliabilitiesaregenerallyrecognisedforalltaxabletemporarydifferencesanddeferredtaxassetsarerecognisedtotheextentthatitisprobablethattaxableprofitswillbeavailableagainstwhichdeductibletemporarydifferencescanbeutilised.
Suchassetsandliabilitiesarenotrecognisedifthetemporarydifferencearisesfromgoodwillorfromtheinitialrecognition(otherthaninabusinesscombination)ofotherassetsandliabilitiesinatransactionthataffectsneitherthetaxprofitnortheaccountingprofit.
Deferredtaxliabilitiesarerecognisedfortaxabletemporarydifferencesarisingoninvestmentsinsubsidiariesandassociates,exceptwheretheGroupisabletocontrolthereversalofthetemporarydifferenceanditisprobablethatthetemporarydifferencewillnotreverseintheforeseeablefuture.
Thecarryingamountofdeferredtaxassetsisreviewedateachbalancesheetdateandreducedtotheextentthatitisnolongerprobablethatsufficienttaxableprofitwillbeavailabletoallowallorpartoftheassettoberecovered.
Deferredtaxiscalculatedatthetaxratesthatareexpectedtoapplyintheperiodwhentheliabilityissettledortheassetrealised.
Deferredtaxischargedorcreditedintheincomestatement,exceptwhenitrelatestoitemschargedorcrediteddirectlytoequity,inwhichcasethedeferredtaxisalsodealtwithinequity.
-45-3.
SIGNIFICANTACCOUNTINGPOLICIES-continuedProperty,plantandequipmentAssetsinthecourseofconstructionforproduction,rentaloradministrativepurposes,orforpurposesnotyetdetermined,arecarriedatcost,lessanyrecognisedimpairmentloss.
Costincludesprofessionalfeesand,forqualifyingassets,borrowingcostscapitalisedinaccordancewiththeGroup'saccountingpolicy.
Depreciationoftheseassets,onthesamebasisasotherassets,commenceswhentheassetsarereadyfortheirintendeduse.
Otheritemsofproperty,plantandequipmentarestatedatcostlessaccumulateddepreciationandanyrecognisedimpairmentloss.
Depreciationischargedsoastowriteoffthecostofassets,otherthanconstructioninprogress,overtheirestimatedusefullives,aftertakingintoaccountoftheirestimatedusefullivesusingthestraight-linemethod,onthefollowingbases:Buildings20-40yearsPlantandmachinery5-10yearsCostofupgradeofleasedplantandmachineryOvertheunexpiredtermsoftheleaseThegainorlossarisingondisposalorretirementofanassetisdeterminedasthedifferencebetweenthesalesproceedsandthecarryingamountoftheassetandisrecognisedinincome.
LanduserightsLanduserightsaremeasuredinitiallyatpurchasecostlessimpairmentlossidentified,andamortisedonastraight-linebasisovertheirestimatedusefullives.
ImpairmentAteachbalancesheetdate,theGroupreviewsthecarryingamountsofitsassetstodeterminewhetherthereisanyindicationthatthoseassetshavesufferedanimpairmentloss.
Ifanysuchindicationexists,therecoverableamountoftheassetisestimatedinordertodeterminetheextentoftheimpairmentloss(ifany).
Whereitisnotpossibletoestimatetherecoverableamountofanindividualasset,theGroupestimatestherecoverableamountofthecash-generatingunittowhichtheassetbelongs.
Recoverableamountisthegreaterofnetsellingpriceandvalueinuse.
Inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheasset.
Iftherecoverableamountofanasset(orcash-generatingunit)isestimatedtobelessthanitscarryingamount,thecarryingamountoftheasset(cashgeneratingunit)isreducedtoitsrecoverableamount.
Impairmentlossesarerecognisedasanexpenseimmediately.
Whereanimpairmentlosssubsequentlyreverses,thecarryingamountoftheasset(cash-generatingunit)isincreasedtotherevisedestimateofitsrecoverableamount,butsothattheincreasedcarryingamountdoesnotexceedthecarryingamountthatwouldhavebeendeterminedhadnoimpairmentlossbeenrecognisedfortheasset(cash-generatingunit)inprioryears.
Areversalofanimpairmentlossisrecognisedasincomeimmediately.
-46-3.
SIGNIFICANTACCOUNTINGPOLICIES-continuedInventoriesInventoriesarestatedatthelowerofcostandnetrealisablevalue.
Costcomprisesdirectmaterialsand,whereapplicable,directlabourcostsandthoseoverheadsthathavebeenincurredinbringingtheinventoriestotheirpresentlocationandcondition.
Costiscalculatedusingtheweightedaveragemethod.
Netrealisablevaluerepresentstheestimatedsellingpricelessallestimatedcoststocompletionandcoststobeincurredinmarketing,sellinganddistribution.
FinancialinstrumentsFinancialassetsandfinancialliabilitiesarerecognisedontheGroup'sbalancesheetwhentheGroupbecomesapartytothecontractualprovisionsoftheinstrument.
TradeandotherreceivablesTradeandotherreceivablesarestatedattheirnominalvalueasreducedbyappropriateallowancesforestimatedirrecoverableamounts.
InvestmentsInvestmentsarerecognisedonatrade-datebasisandareinitiallymeasuredatcostincludingtransactioncosts.
Atsubsequentreportingdates,debtsecuritiesthattheGrouphastheexpressedintentionandabilitytoholdtomaturity(held-to-maturitydebtsecurities)aremeasuredatamortisedcost,lessanyimpairmentlossrecognisedtoreflectirrecoverableamounts.
Theannualamortisationofanydiscountorpremiumontheacquisitionofaheld-to-maturitysecurityisaggregatedwithotherinvestmentincomereceivableoverthetermoftheinstrumentsothattherevenuerecognisedineachperiodrepresentsaconstantyieldontheinvestment.
Investmentsotherthanheld-to-maturitydebtsecuritiesareclassifiedaseitherheld-for-tradingoravailable-for-sale,andaremeasuredatsubsequentreportingdatesatfairvalueexceptforanyfinancialassetsthatdonothaveaquotedmarketpriceinanactivemarketandforwhichfairvaluecannotbereliablymeasured.
Wheresecuritiesareheldfortradingpurposes,gainsandlossesarisingfromchangesinfairvalueareincludedinnetprofitorlossfortheperiod.
Foravailable-for-saleinvestments,gainsandlossesarisingfromchangesinfairvaluearerecogniseddirectlyinequity,untilthesecurityisdisposedoforisdeterminedtobeimpaired,atwhichtimethecumulativegainorlosspreviouslyrecognisedinequityisincludedinthenetprofitorlossfortheperiod.
BorrowingsInterest-bearingbankloansandoverdraftsarerecordedattheproceedsreceived,netofdirectissuecosts.
Financecharges,includingpremiumspayableonsettlementorredemption,areaccountedforonanaccrualbasisandareaddedtothecarryingamountoftheinstrumenttotheextentthattheyarenotsettledintheperiodinwhichtheyarise.
TradeandotherpayablesTradeandotherpayablesarestatedattheirnominalvalue.
-47-3.
SIGNIFICANTACCOUNTINGPOLICIES-continuedFinancialinstruments-continuedConvertibleloannotesConvertibleloannotesareregardedascompoundinstruments,consistingofaliabilitycomponentandanequitycomponent.
Atthedateofissue,thefairvalueoftheliabilitycomponentisestimatedusingtheprevailingmarketinterestrateforsimilarnon-convertibledebt.
Thedifferencebetweentheproceedsofissueoftheconvertibleloannotesandthefairvalueassignedtotheliabilitycomponent,representingtheembeddedoptiontoconverttheliabilityintoequityoftheGroup,isincludedinequity.
Issuecostsareapportionedbetweentheliabilityandequitycomponentsoftheconvertibleloannotesbasedontheirrelativecarryingamountsatthedateofissue.
Theportionrelatingtotheequitycomponentischargeddirectlyagainstequity.
Theinterestexpenseontheliabilitycomponentiscalculatedbyapplyingtheprevailingmarketinterestrateforsimilarnon-convertibledebttotheliabilitycomponentoftheinstrument.
Thedifferencebetweenthisamountandtheinterestpaidisaddedtothecarryingamountoftheconvertibleloannotes.
RetirementbenefitcostsPaymentstodefinedcontributionretirementbenefitplansarechargedasanexpenseastheyfalldue.
Paymentsmadetostate-managedretirementbenefitschemesaredealtwithaspaymentstodefinedcontributionplanswheretheGroup'sobligationsundertheschemesareequivalenttothosearisinginadefinedcontributionretirementbenefitplan.
4.
TURNOVERTurnoverrepresentstheamountreceivedorreceivablefromthesalesofpaperproducts,constructionmaterials,chemicalproducts,papermanufacturingmachinery,electricityandotherproducts,netofsalesreturnsandsalestaxduringtheyear.
20042003RMB'000RMB'000Saleofpaperproducts6,591,6265,464,283Saleofconstructionmaterials268,918205,560Saleofchemicalproducts67,71533,616Saleofelectricity52,10237,910Saleofpapermanufacturingmachinery43,90143,813Others18,62012,6547,042,8825,797,836-48-5.
BUSINESSANDGEOGRAPHICALSEGMENTTheGroup'soperationsandsalesareinthePRConly.
Thesalesofpaperproductsaccountedforover90%(2003:over90%)oftheconsolidatedturnoverandresultoftheGroupinthebusinesssegment.
6.
OTHEROPERATINGINCOME20042003RMB'000RMB'000GovernmentgrantsExpansiongrants(a)79,99937,429Value-addedtaxandothertaxesrefund(b)24,68510,695Others223,478104,70651,602Interestincome19,54916,652Others29,42518,527153,68086,781(a)TheCompanyanditssubsidiariesreceivedgovernmentgrantsfromthelocalmunicipalgovernmentsinrelationtotheencouragementofthedevelopmentandadvancementofthebusinessoftheGroup.
ThetotalamountgrantedandreceivedduringtheyearisRMB79,999,000(2003:RMB37,429,000).
Accordingtotherelevantgovernmentgrantdocuments,thegrantsareusedfortheexpansionanddevelopmentofthebusinessoperationsandproductionoftheGroup.
20042003RMB'000RMB'000TheCompany19,907-ShandongChenmingPaperGroupQiheLinerboardPaperCompanyLimited32,86619,603ChibiChenmingPaperCompanyLimited12,59110,550WuhanChenmingHanyangPaperCompanyLimited11,6603,500HailaerChenmingPaperCompanyLimited2,0403,776YanbianChenmingPaperCompanyLimited935-79,99937,429(b)PursuanttovariouscircularsissuedbytheStateAdministrationofTaxationandlocalgovernmentauthorities,theGroupreceivedvarioustypesofrefundonvalue-addedtaxandotherlocaltaxes.
-49-7.
PROFITFROMOPERATIONSProfitfromoperationshasbeenarrivedataftercharging(crediting):20042003RMB'000RMB'000Wagesandsalaries275,418245,613Staffwelfare39,56921,171Definedretirementbenefitschemescontributions31,45528,226Performancebonusfund-22,435Totalstaffcosts346,442317,445(Reversalof)allowanceforbadanddoubtfuldebts(496)19,948Reversalofallowanceofinventory(223)(970)Amortisationoflanduserights5,0784,987Depreciationofproperty,plantandequipment549,008486,756Lossondisposalofproperty,plantandequipment10,2132,527Minimumoperatingleasepaymentinrespectofbuildings,plantandequipment40,35137,730Repairsandmaintenanceexpenditureonproperty,plantandequipment126,669102,286Researchanddevelopmentcosts8,6569,5258.
FINANCECOSTS20042003RMB'000RMB'000Interestexpenseson:Bankborrowings201,283158,633Convertibleloannotes30,898-Otherborrowings7,5794,989Less:Interestcapitalisedinconstructioninprogress(28,848)-Netinterestexpense210,912163,622Netexchangeloss(gain)32,479(188)Otherfinancecharges6,4723,834249,863167,268Borrowingcostscapitalisedduringtheyeararecalculatedbyapplyingacapitalisationrateofapproximately5%(2003:nil)toexpenditureonqualifyingassets.
9.
GAINONDISPOSALOFASUBSIDIARYDuring2003,theGroupdisposedofits49%equityinterestinasubsidiary,namely,ShandongChenmingPanelsCompanyLimited,toaPRCthirdpartyforaconsiderationofRMB10,140,000andresultinginagainofRMB4,769,000.
-50-10.
TAXATION20042003RMB'000RMB'000TheincometaxchargerepresentsChargefortheyear207,328140,477Underprovisioninprioryears5,55130,531Incometaxrefunded(187)-212,692171,008PursuanttotherelevantlawsandregulationsinthePRC,thestatutoryenterpriseincometaxrateof33%isappliedtotheGroupexceptforthefollowingcompanieswhichentitletodifferentconcessionarytaxratesbelow.
SincetheCompanyisaforeigninvestmententerpriseestablishedandoperatedintheTechnologyEconomicZoneinShandong,theapplicableincometaxrateoftheCompanyis24%.
PursuanttotheapprovaloftheShouguangStateTaxBureau,ShandongChenmingXinliCo-generationCompanyLimited,asubsidiaryoftheCompany,beingaforeigninvestmententerprise,isexemptedfrompayingPRCincometaxfortwoyearsstartingfromthefirstyearwithassessableincomefollowedbya50%reductioninincometaxrateinthefollowingthreeyears.
2004isthefifthprofit-makingyearofthesubsidiaryandaccordingly,incometaxhasbeenprovidedat7.
5%.
PursuanttotheapprovaloftheHailaergovernmentandaccordingtotherelatedregulationsissuedbyPRCMinistryofForeignTradeandEconomicCooperation,HailaerChenmingPaperCompanyLimited,asubsidiaryoftheCompany,isexemptedfrompayingPRCEnterpriseIncomeTaxforthreeyearsstartingfromthefirstyearwithassessableincomefollowedbya50%reductioninincometaxrateinthefollowingtwoyears.
2004isthefifthprofit-makingyearofthesubsidiaryandaccordingly,incometaxhasbeenprovidedat16.
5%.
PursuanttotheapprovalofthelocalgovernmentandaccordingtoregulationsissuedbyStateofCouncil,theapplicableincometaxrateofYanbianChenmingPaperCompanyLimited,asubsidiaryoftheCompany,is15%.
PRCEnterpriseIncomeTaxoftheGroupfortheyearmainlycomprisesincometaxoftheCompanyandcertainofitssubsidiarieswhicharecalculatedatratesapplicabletotherelevantcompaniesrangingfrom15%to33%(2003:15%to33%).
Astheeffectofdeferredtaxationarisingonthetemporarydifferencesasatthebalancesheetdateisinsignificant,nodeferredtaxationhasbeenprovided.
-51-10.
TAXATION-continuedThechargefortheyearcanbereconciledtotheprofitpertheconsolidatedincomestatementasfollows:20042003RMB'000RMB'000Profitbeforetaxation826,797896,116Taxcalculatedatdomestictaxratesapplicabletoindividualcompanies(averagerate:24%)198,431216,534Effectoftaxincentives(note)(20,378)(119,484)Incomenottaxable(11,201)(16,570)Expensesnotdeductible40,47659,997Underprovisioninprioryear5,55130,531Incometaxrefunded(187)-Taxchargefortheyear212,692171,008Note:Includedintheamountsabove,accordingtoregulationsissuedbytheStateAdministrationofTaxation,theCompanyandasubsidiary,WuhanChenmingHanyangPaperCompanyLimited,obtainedincentivesforpurchaseofequipmentmanufactureddomesticallywithanamountofRMB5,074,000(2003:RMB91,921,000)andRMB15,304,000(2003:RMB21,504,000)respectivelyfromlocaltaxauthoritiesduringtheyear.
11.
PROPOSEDDIVIDEND20042003RMB'000RMB'000Proposeddividendfortheyearended31December2004of10cents(2003:RMB10cents)pershare89,77389,773Theproposeddividendfortheyearended31December2004issubjecttoapprovalbyshareholdersattheforthcomingAnnualGeneralMeetingandhasnotbeenincludedasaliabilityinthesefinancialstatements(seenote31).
-52-12.
EARNINGSPERSHAREThecalculationofthebasicanddilutedearningspershareisbasedonthefollowingdata:Earnings20042003RMB'000RMB'000Earningsforthepurposeofbasicearningspershare478,990653,061Effectofdilutivepotentialshares:Interestonconvertibleloannotes(netoftax)19,803-Earningsforthepurposesofdilutedearningspershare498,793653,061Numberofshares20042003'000'000Numberofsharesforthepurposesofbasicearningspershare897,728897,728Effectofdilutivepotentialshares:Convertibleloannotes58,689-Weightedaveragenumberofsharesforthepurposesofdilutedearningspershare956,417897,72813.
PROPERTY,PLANTANDEQUIPMENTPlantandConstructionBuildingsmachineryinprogressTotalRMB'000RMB'000RMB'000RMB'000COSTAt1January20041,191,5985,442,662706,3927,340,652Additions101,025185,1744,455,8974,742,096Transfers163,727431,979(595,706)-Disposals(5,336)(36,426)-(41,762)At31December20041,451,0146,023,3894,566,58312,040,986DEPRECIATIONAt1January2004162,9661,051,273-1,214,239Providedfortheyear68,179480,829-549,008Eliminatedondisposals(1,287)(8,098)-(9,385)At31December2004229,8581,524,004-1,753,862CARRYINGAMOUNTAt31December20041,221,1564,499,3854,566,58310,287,124At31December20031,028,6324,391,389706,3926,126,413-53-14.
LANDUSERIGHTSRMB'000COSTAt1January2004198,308Additions2,721________At31December2004201,029________AMORTISATIONAt1January200425,242Providedfortheyear5,078________At31December200430,320________CARRYINGVALUESAt31December2004170,709________________At31December2003173,066________________TheleasetermsofthelanduserightsheldbytheGrouparerangedfrom40to50years.
15.
INTERESTSINASSOCIATES20042003RMB'000RMB'000Shareofnetassets20,05819,647ParticularsofassociatesoftheGroupat31December2004,whichareestablishedinthePRC,areasfollows:PlaceofPercentageofequityNameofcompanyoperationinterestheldbytheGroupPrincipalactivitiesShouguangLibenPaperPRC26.
4%ManufactureMakingCompanyLimitedofpaperQingzhouChenmingPRC30.
0%ProductionofDenaturationAmylumdenaturatedCo.
,Ltd.
amylum-54-16.
AVAILABLE-FOR-SALEINVESTMENTS20042003RMB'000RMB'000Unlistedinvestments,atcost7,2527,2,52Less:Impairment(1,200)(1,200)Carryingvalueatthebalancesheetdate6,0526,052Available-for-saleinvestmentscompriseunlistedinvestmentsinthecompaniesestablishedinthePRCinwhichtheGroupholdsnotlessthan20%oftheirpaid-upcapitalortheGroupcannotexercisesignificantinfluenceorcontrol.
ThedirectorsoftheCompanyareoftheopinionthatthecarryingvalueoftheavailable-for-saleinvestmentapproximatedtherecoverableamountoftheavailable-for-saleinvestmentsasofthebalancesheetdate.
17.
PREPAYMENTSNon-currentprepaymentsrepresentedprepaidrentalforproductionfacilitiesleasedfromHanyangPaperMakingFactory,aminorityshareholderofWuhanChenmingHanyangPaperCompanyLimited.
Theseprepaymentsareduewithin5yearsfromthebalancesheetdate.
Thecurrentportionofprepaymentsisincludedinthetradeandotherreceivablesinnote19.
Thedirectorsconsiderthatthecarryingamountofprepaymentsapproximatestheirfairvalue.
18.
INVENTORIES20042003RMB'000RMB'000Rawmaterials905,390496,948Workinprogress48,70652,284Finishedgoods586,371426,699Propertyunderconstruction71,47170,1231,611,9381,046,054Less:Allowancesforobsolescence-(223)1,611,9381,045,831FinishedgoodsofRMB12,216,000at31December2003werestatedatnetrealisablevalue.
Otherinventoriesat31December2003andinventoriesat31December2004werestatedatcostatthebalancesheetdate.
-55-19.
OTHERFINANCIALASSETSTradeandotherreceivablesatthebalancesheetdatecompriseamountstradeandbillsreceivablesofRMB1,411,432,000(2003:RMB1,371,340,000),otherreceivablesof188,678,000(2003:RMB204,644,000)anddepositsandprepaymentsof425,393,000(2003:RMB209,612,000).
Theaveragecreditperiodtakenonsalesofgoodsis60days.
AnallowancehasbeenmadeforestimatedirrecoverableamountsofgoodssoldofRMB122,833,000(2003:RMB123,329,000)atthebalancesheetdate.
Theallowancehasbeendeterminedbyreferencetopastdefaultexperience.
Thedirectorsconsiderthatthecarryingamountoftradeandotherreceivablesapproximatestotheirfairvalue.
BankbalancesandcashcomprisecashheldbytheGroupandshort-termdepositswithanoriginalmaturityofthreemonthsorless.
Thecarryingamountoftheseassetsapproximatestotheirfairvalue.
RestrictedbankdepositsofRMB7,804,000(2003:nil)atthebalancesheetdatewasthecashbalanceatbankfrozenbyacourtorderinconnectionwiththecourtcasementionedinnote27.
Thecarryingamountofthisassetapproximatestoitsfairvalue.
CreditriskTheGroup'sprincipalfinancialassetsarebankbalancesandcash,tradeandotherreceivablesandinvestments,whichrepresenttheGroup'smaximumexposuretocreditriskinrelationtofinancialassets.
TheGroup'screditriskisprimarilyattributabletoitstradeandotherreceivables.
Asubstantialamountoftradeandotherreceivablesarisefromtheoperationofsalesofpapers.
Theamountspresentedinthebalancesheetarenetofallowancesfordoubtfulreceivables,estimatedbytheGroup'smanagementbasedonpriorexperienceandthecurrenteconomicenvironment.
TheGrouphasnosignificantconcentrationofcreditrisk,withexposurespreadoveralargenumberofcounterpartiesandcustomers.
ThecreditriskonliquidfundsislimitedbecausethecounterpartiesareapprovedbanksinthePRC.
Thecreditriskontherestrictedbankbalanceislimitedbecausethecourthasreleasedacourtordertounfreezethatbankaccountsubsequenttothebalancesheetdate.
20.
OTHERFINANCIALLIABILITIESTradeandotherpayableprincipallycompriseamountsoutstandingfortradepurchaseandongoingcostsaccruedandexpenseaccruals.
Thedirectorsconsiderthatthecarryingamountoftradeandotherpayablesapproximatestheirfairvalue.
-56-21.
BORROWINGS20042003RMB'000RMB'000Unsecuredbankborrowings5,064,6422,676,612Unsecuredbankborrowingsguaranteedbythirdparties155,000920,000Otherborrowings42,97354,5315,262,6153,651,143Theborrowingsarerepayableasfollows:Withinoneyear3,619,7052,963,757Inthesecondyear158,44049,900Inthethirdtofifthyearinclusive548,470513,105Afterfiveyears936,000124,3815,262,6153,651,143Less:Amountdueforsettlementwithinoneyearshownundercurrentliabilities(3,619,705)(2,963,757)Amountdueafteroneyear1,642,910687,38620042003RMB'000RMB'000Totalborrowings-atfixedrates4,161,2373,612,670-atfloatingrates1,101,37838,4735,262,6153,651,143Analysisofborrowingsbycurrency:-denominatedinRMB3,449,1613,057,392-denominatedinUnitedStatesdollars1,527,015583,094-denominatedinEuro286,439--denominatedinHongKongdollars-10,6575,262,6153,651,143Fixedinterestrateborrowingsarechargedattheprevailingmarketratesupto6.
03%(2003:6.
9%)perannum.
Theeffectiveweightedaverageannualratefortheyearended31December2004was4.
54%(2003:4.
93%)perannum.
InterestonborrowingsatfloatingratesarecalculatedbasedontheborrowingratesannouncedbythePeople'sBankofChina.
Thedirectorsconsiderthatthecarryingamountsofborrowingsapproximatetheirfairvalues.
-57-22.
DEFERREDINCOME20042003RMB'000RMB'000Atbeginningoftheyear414,181181,358Grantsobtained16,080252,000Releasedtoincomestatement(21,769)(19,177)Atendoftheyear408,492414,181Duringtheyear,certaingovernmentgrantsobtainedareinrelationtotheconstructionofproperty,plantandequipmentamountingtoRMB16,080,000(2003:RMB252,000,000)fromthelocalmunicipalgovernments.
Thegrantswererecordedasdeferredincomeinthebalancesheetandtobecreditedtotheincomestatementonastraight-linebasisovertheexpectedusefullivesoftherelatedassets.
Inaccordancewiththetermsofthegrants,theamountattributabletotheGroupofRMB19,141,000(2003:RMB17,561,000)wastransferredfromaccumulatedprofitstocapitalreserveastherelevantamountisrestrictedindistribution.
23.
CONVERTIBLELOANNOTESTheconvertibleloannoteswereissuedon15September2004.
TheloannotesareconvertibleintosharesoftheCompanyatthediscretionoftheholders,atanytimebetween15March2005and15September2009.
TheinitialconversionpriceisRMB9.
99pershareoftheCompany.
TheconversionpricewillbeadjustedduringtheperiodifthecapitalstructureoftheCompanyischangedasaresultofbonusissues,rightsissue,issueofnewsharesordividendsdistributionoccurredaftertheissueofconvertibleloannotes.
Iftheloannoteshavenotbeenconverted,theywillberedeemedwithin5tradingdaysbefore15September2009atthepriceofRMB106.
05perloannoteofRMB100.
Interestrangedfrom1.
5%to3.
17%perannumwillbepaidtotheholdersoftheloannotesduring2004to2009untilthatsettlementdate.
Thenetproceedsreceivedfromtheissueoftheconvertibleloannoteshavebeensplittedbetweentheliabilityelementandequitycomponent,representingthefairvalueoftheembeddedoptiontoconverttheliabilityintoequityoftheGroup,asfollows:RMB'000Nominalvalueofconvertibleloannotesissued2,000,000Equitycomponent,netofdirectissuecostincurred(223,858)Directissuecostincurred(39,990)________Liabilitycomponentatdateofissue1,736,152Interestcharged30,898________Liabilitycomponentat31December20041,767,050________________-58-23.
CONVERTIBLELOANNOTES-continuedThedirectorsareoftheopinionthatthecarryingamountoftheliabilitycomponentofestimatedthefairvalueoftheliabilitycomponentoftheconvertibleloannotesat31December2004isapproximatelythecarryingamountoftheconvertibleloannotesatthebalancesheetdate.
24.
SHARECAPITALState-PRClegalNumberofownedpersonEmployeessharessharessharessharesBsharesAsharesTotal'000'000'000'000'000'000At1January2003498,737,724156,6094,53654,112206,48177,000498,738Bonusissue(note(c))398,990,179125,2873,62943,290165,18461,600398,990TransfertoAshares(note(d)97,402)-97,402-At31December2003andat31December2004897,727,903281,8968,165-371,665236,002897,728(a)Allissuedsharesareauthorised,issuedandfullypaidwithaparvalueofRMB1each.
Thestate-ownedshares,thePRClegalpersonshares,employeesshares,AandBsharescarryequalvotingrights.
(b)State-ownedsharesandPRClegalpersonsharesarenotallowedtobetradedunlessapprovalsareobtainedfromtherelevantauthorities.
(c)During2003,withtheapprovalbytheshareholdersoftheCompanyinthe2003annualgeneralmeeting,abonusissueof398,990,179sharesintheproportionof2sharesforevery10sharesfromaccumulatedprofitsand6sharesforevery10sharesfromcapitalreservesbedistributedtotheshareholdersoftheCompany.
Consequently,asat31December2003,thetotalnumberofauthorisedandissuedsharesoftheCompanywasincreasedto897,727,903shares.
(d)Withtheapprovalfromtherelevantauthorities,employeesshareswereallowedtobetradedasAsharesfromNovember2003onwards.
(e)Therewerenochangesintheauthorised,issuedandfullypaidsharecapitalduring2004.
-59-25.
RESERVES(a)ReservesoftheGroupotherthanaccumulatedprofitsanddividendreserveincludecapitalreserves,equityreserve,statutorysurplusreserve,discretionarysurplusreserveandstatutorypublicwelfarereserve,whichformpartofshareholders'equity.
Capitalreservecomprises:(a)SurplusbetweentheappraisedvalueofthenetassetsandthevalueofsharesissuedwhentheCompanywasconvertedfromastate-ownedenterprisetoajointstocklimitedcompany;(b)Theplacingof115,000,000BsharesatapremiumofRMB3.
75pershare;(c)Theplacingof70,000,000AsharesatapremiumofRMB19.
80pershare;(d)Contributedsurplusarisingfrominjectionofcapitalfromminorityshareholders.
ContributedsurplusrepresentstheGroup'sshareoftheexcessamountofthefairvalueofassetsovertheamountofcapitalrequiredtobeinjectedbytheminorityshareholdersintheestablishmentofsubsidiaries;(e)TransfersfromaccumulatedprofitsforthosegovernmentgrantsrecognisedintheincomeunderIFRSbutarenotdistributableinaccordancewiththelegalrequirementinthePRC(note22);and(f)TransferofcapitalreserveofRMB299,242,000tosharecapitalinconnectionwiththebonusissuesin2003.
EquityreserveEquityreserverepresentstheequitycomponentoftheconvertibleloannotesissuedduringtheyear.
Statutorysurplusreserve/DiscretionarysurplusreserveInaccordancewithrelevantPRCCompanylawsandregulationsandtheCompany'sArticlesofAssociation,theCompanyisrequiredtoappropriate10%ofitsprofitaftertaxationreportedinitsstatutoryfinancialstatementspreparedunderthePRCGAAPtothestatutorysurplusreserve.
Allocationtothediscretionarysurplusreserveshallbeapprovedbytheshareholdersingeneralmeeting.
Theappropriationofstatutorysurplusreservemayceasetoapplyifthebalanceofthestatutorysurplusreservehasreached50%oftheCompany'sregisteredcapital.
Surplusreservesmaybeusedtomakeuplossesorforconversionintosharecapital.
TheCompanymay,upontheapprovalbyaresolutionofshareholders'generalmeeting,convertitssurplusreservesintosharecapitalbyissuingnewsharestoexistingshareholdersinproportiontotheirthenexistingshareholdingsorbyincreasingthenominalvalueofeachshare.
However,whenconvertingtheCompany'sstatutorysurplusreserveintosharecapital,theamountofsuchreserveremainingunconvertedmustnotbelessthan25%oftheregisteredcapital.
-60-25.
RESERVES-continuedStatutorypublicwelfarereserveInaccordancewithrelevantPRCCompanylawsandregulationsandtheCompany'sArticlesofAssociation,theCompanyisrequiredtoappropriate5%to10%oftheprofitaftertaxationasreportedinitsstatutoryfinancialstatementspreparedunderthePRCGAAPtothestatutorypublicwelfarereserve.
ThestatutorypublicwelfarereserveshallonlyapplytocollectivewelfareofstaffandworkersandwelfarefacilitiesremainaspropertiesoftheGroup.
Thestatutorypublicwelfarereserveisnon-distributable.
Whenthestatutorypublicwelfarereserveisutilised,anamountequaltothecostoftheassetsacquiredistransferredtodiscretionarysurplusreserve.
Ondisposaloftherelevantasset,theoriginaltransfersfromthereservearereversed.
Thereisnoutilisationduringtheyear(2003:Nil).
(b)BasisforprofitdistributionInaccordancewiththeCompany'sArticlesofAssociation,profitavailablefordistributiontoshareholdersshouldbebasedontheloweroftheamountdeterminedinaccordancewiththePRCaccountingstandardsandregulationsandthatdeterminedunderIFRSafterdeductionofthecurrentyear'sappropriationtothestatutoryreserves.
26.
COMMITMENTSCapitalcommitmentsThecapitalcommitmentsinrelationtotheexpenditureauthorisedbutnotcontractedforinthefinancialstatementsinrespectofacquisitionofproperty,plantandequipmentat31December2003wereRMB1,446,585,000.
Therewasnosignificantcapitalcommitmentat31December2004.
OperatingleasecommitmentsAtthebalancesheetdate,theGroupwasfutureminimumleasepaymentsundernon-cancelableoperationleasesinrespectofproperty,plantandequipmentareasfollows:20042003RMB'000RMB'000Withinoneyear31,13326,703Inthesecondtofifthyearinclusive65,64484,862Afterfiveyears8,25960,268105,036171,833Leasesarenegotiatedforanaveragetermof10yearsandrentalsarefixedatthedateofsigningtheagreements.
-61-27.
LITIGATIONAt31December2004,theCompanyhasanoutstandinglawsuitclaimedbyoneofitscontractorsinconnectiontothedisputeinpaymentoftheconstructionworkperformedforaproductionplantoftheCompany.
ThecontractorsuedtheCompanyforanaggregatesumofapproximatelyRMB17millionforthecontractworkandcorrespondinginterestandcompensationforlossduetotheworksuspension.
Upontheapplicationfiledbytheplaintiff,thecourthasissuedacourtorderduringtheyeartofreezeaCompany'sbankaccountwithbankdepositofRMB7,804,000andalsoanamountofcashofRMB10,000,000isinthecourt'scustody.
Thejudgementfromthecourtregardingthiscasehasnotyetbeenfinalisedasat31December2004.
Duetotheuncertaintyoftheresultofthecourtcase,theCompanyhasfullyaccruedtheclaimamountofRMB17millionandcapitalisedthecorrespondingamountofcontractworkintheconstructioninprogressatthebalancesheetdate.
Subsequenttothebalancesheetdate,bytheapplicationfiledbytheCompany,thecourthasissuedanorderofreleasetounfreezetheabovebankaccount.
28.
RELATEDPARTYTRANSACTIONS(a)TheGrouphasenteredintothefollowingsignificanttransactionswithitsassociatesduringtheyear:20042003RMB'000RMB'000Purchaseofrawmaterials26,01917,125Electricitychargesreceived7,3926,089Utilitychargesreceived4,5623,791ThetermsoftheabovetransactionsaremutuallyagreedbetweentheGroupanditsassociates.
(b)Directors'remunerationIn2004,thetotalremunerationofthedirectorsamountedtoapproximatelyRMB9,000,000(2003:RMB6,790,000).
29.
RETIREMENTBENEFITSCHEMECONTRIBUTIONSTheCompanyanditssubsidiarieshaveparticipatedincertaindefinedcontributionretirementschemesmanagedbytherespectivemunicipalgovernmentswheretheGroupoperates,coveringallpermanentstaffoftheGroup.
TheGrouphasnoobligationbeyondthecontributionswhicharecalculatedbasedon20%to25%(2003:20%to25%)ofpermanentstaffbasicsalaries.
-62-30.
PRINCIPALSUBSIDIARIESTheparticularsoftheprincipalsubsidiariesoftheCompanyat31December2004,thatallareestablishedinthePRC,areasfollows:AttributableequityinterestPlaceofheldbyPrincipalNameofcompanyoperationtheCompanyactivitiesDirectlyheldbytheCompanyShandongChenmingElectricPowerPRC51.
00%InvestmentholdingGenerationHoldingsCompanyLimitedWuhanChenmingHanyangPaperPRC50.
93%ManufactureofpaperCompanyLimitedHailaerChenmingPaperCompanyLimitedPRC75.
00%ManufactureofpaperShandongChenmingPaperGroupQihePRC99.
95%ManufactureofpaperLinerboardPaperCompanyLimitedYanbianChenmingPaperCompanyLimitedPRC51.
00%Manufactureofpaperpulp(formerlyknownasYasongChenmingPaperCompanyLimited)ShouguangChenmingTianyuanPRC68.
00%ArboricultureoftreeArboricultureCompanyLimitedJiangxiChenmingPaperCompanyLimited*PRC47.
15%ManufactureofpaperBeijingTianbaojialinRealEstatePRC45.
00%PropertydeveloperCompanyLimited*ShanghaiChenmingPaperMachineryPRC61.
00%ManufactureofCompanyLimitedpapermachineryIndirectlyheldbytheCompanyXiangfanChenmingCopperplatePaperPRC35.
79%ManufactureofpaperCompanyLimited*ChibiChenmingPaperCompanyLimited*PRC35.
79%ManufactureofpaperShandongChenmingXinliCo-generationPRC26.
01%GenerationofelectricityCompanyLimited*WuhanChenmingQiannengElectricPowerPRC25.
97%GenerationofelectricityGenerationCompanyLimited*-63-30.
PRINCIPALSUBSIDIARIES-continuedAttributableequityinterestPlaceofheldbyPrincipalNameofcompanyoperationtheCompanyactivitiesShandongChenmingPanelsPRC26.
01%ManufactureofCompanyLimited*decoratingmaterialsShouguanChenmingCementsPRC45.
90%ManufactureofcementsCompanyLimited*ShouguangXinyuanCoalCompanyLimitedPRC50.
49%SaleofcoalWuhanChenjianNew-styleWallPRC25.
97%ManufactureofMaterialsCompanyLimited*constructionmaterials*TheGroupcontrolsover50%ofthevotingrightsofthesecompaniesandtherefore,theyhavebeenconsolidatedaccordingly.
31.
POSTBALANCESHEETEVENTOn25March2005,thedirectorsproposedabonusissueof448,863,951sharesintheproportionof2sharesforevery10sharesfromretainedearningsand3sharesforevery10sharesfromcapitalreserve,basedonthenumberofsharesissuedasat31December2004.
Moreover,thedirectorsalsoproposedadividendofRMB1forevery10sharesfromretainedearnings,basedonthenumberofsharesissuedasat31December2004.
TheaboveproposeddistributionissubjecttoapprovalbyshareholdersattheforthcomingAnnualGeneralMeeting.
-64-XI.
DocumentsforReference(I)Financialstatementscarryingthesignaturesofthelegalrepresentative,chiefaccountantandprincipaloftheaccountingdepartment.
(II)Auditors'Reportcarryingthestampsoftheaccountantfirmandsignatureofthecertifiedaccountants(III)AlltheoriginalsoftheCompany'sdocumentsandpublicnoticesdisclosedinthenewspapersdesignatedbyChinaSecuritiesRegulatoryCommissioninthereportperiod;TheBoardofDirectorsofShandongChenmingPaperHoldingsCo.
,Ltd.
March2005