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3 1 2 SHANGHAI LINGYUN CURTAIN WALL SCIENCE &TECHNOLOGY CO., LTD. 1 sd01@elingyun.com 2 sd02@elingyun.com B

4 ,904,631 23,682,402 8,495,590 12,649,798 12,645,149-9,992,178 33,883, ,033-41,975,339 17,006,615 7,839,272 7,334,507 17,498 4,465 15,186, ,492, ,113, ,412,108 23,682,402 46,727,893 75,490,641 2,138,712,480 1,436,847,977 1,460,754, ,658, ,078, ,330,949 ( )

5 (%) % / ,000, ,000, ,975,922 6,387, ,363,586 25,163,484 2,298,650 4,134,349 23,327,785 12,581,744 1,149,325 2,067,175 11,663,894 49,357,692 22,945,951 72,303, ,078,842 32,781,590 6,201, ,658,908 (+,-) 1 165,000, ,000, ,000, ,000, ,000, ,000,000

6 ,000, ,000, ,000, ,000, B (B ) % 1 84,670, % 2 68,180, % 3 5,670, % 4 4,050, % 5 2,430, % 6 1,600, % B 7 1,200, % B 8 1,126, % B 9 WONGWAICHING 94, % B 10 WANXIANG INTERNATIONAL INVESTMENT CORPORATION 84, % B

7 % 7800 :

8 % 26 % 11 5 % 15 % 8% 45%

9

10 % %

11 B % ,492,330 12,649,798 23,682,402 % % 29,715, ,011, ,776, ,637, , %

12 T 3S T T 3

13 WTO T T 9079 B 27.97% B 67.79% 2361

14 % 2,138,712,480 1,436,847, ,658, ,078, ,349,194, ,298, ,834,186 8,238, % 83,492, ,113, ,649, ,478, ,682,402 46,727,

15

16 % % ,682, ,241,61 3,447,975, 75,793, B

17

18 ,812,168, 98% ,591, ,628, ,835, ,753, ,039, ,220, % 99,220,

19 ,781, % % 3000, % ,755, % ,225, % % T

20 % 95 [2000]1054 B [2000] % % %

21

22 ,629, ,927, ,273, ,906,875 1,094,985 17,695, ,985 7,957, ,478,103 1,052,045 1,478,103 1,052,045 22,479, ,842, ,663, ,676, ,139, ,894,064 6,054,000 37,523, ,282,525 75,797, , , , ,272-71,111, ,652,187,523 1,202,983, ,371, ,048, ,221,870 20,000, ,163, ,442, ,221,870 20,000, ,163, ,442,611 28,097, ,800,113 22,157,040 19,721,247 (1,637,450) (77,946,209) (786,930) (447,183) 26,460, ,853,904 21,370,110 19,274,064 (2,300,000) (2,300,000) (2,300,000) (2,300,000) 24,160, ,553,904 19,070,110 16,974, ,467,744 23,621, ,628, ,175,825 19,070,110 16,974,064 88,602,001 2,260,619 19,035,742 61,080 47,072,850 2,366, ,674,851 4,688,444 19,035,742 2,138,712,480 1,436,847,977 1,337,640,409 1,147,464,707 :

23 723,000, ,900, ,000, ,000,000 6,000,000 1,000,000 69, ,488,402-81,672,755 39,585,939 2,513,035 2,513, ,525 1,954, ,428 4,984, , ,299 18,299,784 38,112,480 18,299,784 38,112,480 6,098,081 33,297, ,814 3,166,783 41, , ,072,930 9,204,312 11,749,451 5,205,477 2,351,827 5,070,875 2,062,951 1,689,967 8,977,248 2,745,950 20,178,711 3,539,258 1,259,360, ,060, ,438, ,147,041 81,595, ,238,824 8,238,824 8,238,824 8,238, ,834,186 8,238,824 8,238,824 8,238,824-1,349,194, ,298, ,677, ,385, ,858,998 4,470, ,000, ,000, ,000, ,000, ,363, ,975, ,363, ,975,922 34,991,679 37,745,228 34,991,679 31,543,704 11,663,894 12,581,744 11,663,894 10,514,569 72,303,643 49,357,692 71,607,743 55,559, ,658, ,078, ,963, ,078,842 2,138,712,480 1,436,847,977 1,337,640,409 1,147,464,707

24 83,492, ,113, ,092,598 (471,529,155) (176,776,646) (1,858,823) (12,105,024) (3,492,271) 12,649, ,478,962 31,823,681 12,645, ,088 12,587,500 (6,907) (2,542,532) (19,397,644) (6,407,565) (15,790,539) (44,631,661) (10,633,984) (23,895,888) (16,954,054) (17,653,326) (14,894,889) (11,045,366) (9,992,178) 29,257,419 (12,941,373) (9,532,045) 33,883,777 8,964,984 35,929,260 46,225, ,251 17,498 4,347,755 4,239,765 (4,466) (1,549,372) (1,385) (1,139,049) 23,904,631 41,609,037 22,986,502 39,794,531 5,042,885 6,933,362 (222,229) ( 75,971) - 23,682,402 46,727,893 22,986,502 46,727,893 55,559,216 22,820,507 55,559,216 22,820,507 79,241,618 (2,298,650) (1,149,325) 75,793,643 69,548,400 (8,807,138) (4,403,570) 56,337,692 (3,490,000) (6,980,000) 78,545,718 (2,298,650) (1,149,325) 75,097,743 (3,490,000) 69,548,400 (4,672,789) (2,336,395) 62,539,216 (6,980,000) - 72,303,643 71,607,743 49,357,692 55,559,216

25 79,370, ,356,329 13,250, ,468,740 7,994,251 7,406,000 68,802,537 17,892,363 62,177,212 17,752, ,173, ,242,943 75,427, ,627,694 (68,750,146) (424,250,529) (1,000,000) (140,089,062) (8,012,948) (33,065,206) (3,621,994) (21,588,048) (2,752,155) (17,011,582) (17,500) (5,364,889) (110,633,342) (140,559,120) (7,852,788) (69,753,420) (190,148,591) (614,886,437) (12,492,282) (236,795,418) (41,975,339) (11,643,494) 62,934,930 (47,167,724) 9,844, ,958,515 9,844, ,958,515 29,484,339-29,484, ,216,994 12,216,994 39,329, ,175,509 39,329, ,175,509 (3,235,180) (39,384,576) (1,142,536) (8,444,000) (8,500,000) - (248,500,000) (50,000,000) (77,318,534) (32,771,461) (17,467,214) (121,825,175) (56,851,790) (249,642,536) (75,911,214) (82,495,962) 67,323,719 (210,313,323) 48,264, ,000, ,000, ,000, ,000,000 - (553,008,177) (134,976,741) (545,000,000) (135,876,741) (52,544,464) (37,695,015) (51,980,941) (33,797,687) (37,316,212) (1,800,000) (800,000) (605,552,641) (174,471,756) (596,980,941) (207,790,640) 141,447,359 (174,471,756) 129,019,059 (174,471,756) 30,557 (54,113) 30,557 (54,113) 17,006,615 (118,845,644) (18,328,777) (206,748,182)

26 1 46,727,893 46,727,893 (75,971) - 2,236,890 1,474,742 15,701,017 4,144,554 1,352, ,782 45,502 16, ,169 (2,067,180) (468,410) (308,102) 145,575 29,439 34,245,641 30,171,800 (8,964,984) (46,225,860) 43,937,404 33,547,059 (110,494,524) (104,864,583) (36,186,316) (10,191,948) (11,634,494) (47,167,724) ,714, ,707,979 44,358,357 62,687,134 (150,707,979) (269,553,623) (62,687,134) (269,435,316) 17,006,615 (118,845,644) (18,328,777) (206,748,182)

27 72,438,296 2,275,465 71,267,830-3,445,931 71,267, ,962 71,267, ,962 1,170,466 2,162,503-3,332,969 3,252, ,791 3,003, ,927 3,252, ,791 3,003, ,927 2,414,140 2,414,140 2,414,140 2,414,140 6,820,052 6,820,052 6,820,052 6,820,052 2,300,000 2,300,000 2,300,000 2,300,000

28 71,301,406 1,136,890-72,438,296 70,505, ,148 71,267, , ,742-1,170,466 3,252,010 3,252,010 3,252,010 3,252,010 2,414,140 2,414,140 2,414,140 2,414,140 1,200,000 1,100,000 2,300,000 1,200,000 1,100,000 2,300,000

29 B B % % ( [2003]115 )

30 8 1 2 (1) (2) (1) A B C 20%20% 20%

31 20% 20%20% 50% ( 50%) 50% (2) (3), 11 (1) (2) :,, 12 2,000 3% %

32 (1) (2) A B C A 3 B 15 10

33 16, (1) ; (2) 10%, 50% ; (3) 5% ; (4), ; (5) 19 (1) [1996]2 (2) A. B. C. 1 17% 2 3%5% 3 33% [2000]1054 B % 6 3%

34 ,000, ,225,000 66% 50,000,000 23,604,996 60% 120,000,000 99,244,277 90% ,000,000 34,300,000 98% ,000, ,781, % , ,503,892 49,755,500 60% ; 20,000,000 15,000,000 75% ,000,000 98,000,000 98% ( ) 1,000, ,000 55% ( ) , ,000 90% ,000,000 1,100,000 55% ,225,000 15% % 33,615, ,628, ,244, % ,604, % ,781, % ,755,500 60% 98%

35 75% ,000,000 32,754, % ,000,000 4,860,121 10% ,000,000 20,000, % 500, ,000 50% 50% ,754,900 98% , 43.2% % 10% 3 1,537, , , , , , , , , [1996]2

36 ( ) 1 a , ,444 1, , , , ,451, ,270,076 43,599, ,886, ,504, ,069,404 48, , ,337, ,390,280 88, ,812,202 1,993,209 5,540,652 88, ,346, ,629, ,927,720 (b) ,240, a ,484, , ,094, ,947,584 3,252,010 17,695,574 1,484, , ,094, ,947,584 3,252,010 17,695,574 b / 100, , , , ,359, , , , c d 92.96% 3 1,478, a ,592, ,110, , ,267,830 22,479, ,842,664

37 b (%) 22,592, % 112, ,592, % 112, (%) 250,419,502 55% 15,221, ,485,271 27% 14,622,415 32,740,801 7% 11,043,716 48,464,920 11% 30,380, ,110, % 71,267,830 c ,373, % d 95% e 5% 5%

38 5 a ,996, ,846,566 3,332, ,170, ,663, ,676,100 b ,615, % 83,850,057 74% 40,104, % 7,547,457 7% 140, % 9,885,427 9% 136, % 11,563,625 10% 434,996, % 112,846, % c ,955,417.13, 71% d 285% e 5%(5%) 6 a ,354, % 34,429,040 92% 700, % 2,323,387 6% 511,423 1% 259,842 1% 6,054, % 37,523, % b c 84% d 5 5

39 7 a ,954, ,571, ,685, ,282, ,282, ,211,881 2,414, ,282, ,797,741 b 775% c ( ) 19, , , , , , , , , , , , , , ,722, ,236, , , , , , , ,637, ,487, , a ,939, ,820, ,119, ,000, ,000, ,102, ,102, ,041, ,820, ,221, ,000, ,000,000.00

40 b 75% 15,000, ,183, ,183, % 9,8000, ,431, % 250, ,602, ,602, % 550, , , % 1,100, , , % 450, , , ,350, ,415, ,415, % 32,754, ,663, ,663, ,754, ,663, ,663, % 20,000, ,000, ,000, ,000, % 4,860, ,860, ,860, % 8,000, ,000, ,820, ,179, ,860, ,000, ,860, ,820, ,040, ,965, ,000, ,939, ,820, ,119, c 4,631, , ,592, , , , , , , ,435, ,435, ,465, ,465, ,146, , ,102, (d ) 8,000, , ,

41 ,204, ,264, ,007, ,323, ,800, ,293, ,264, , ,462, ,184, ,630, , ,891, ,802, , , , ,926, ,589, ,521, ,914, ,951, ,404, , ,763, ,097, ,035, ,331, ,210, ,368, ,946, , , , , , ,161, , , ,289, ,293, ,493, ,106, ,531, ,424, , , ,044, ,637, ,300, ,300, ,300, ,300, ,937, , ,718, ,160, ,868, ,933, ,796, ,955, ,553, ,202, ,669,104 7,520,521 6,870, ,262, , ,000 13,034,034 43,763,803 1,717,006 3,222,915 61,737,758 32, , ,453 75,204, ,264,454 9,007,527 10,323, ,800,113 8,732,611 46,113,790 3,991,608 3,462,061 62,300,070 1,305,656 12,269,956 1,219, ,118 15,701,017 2,561 52,317 54,878 10,035,706 58,331,429 5,210,895 4,368,179 77,946,209 1,200,000 1,200,000 1,100,000 1,100,000 2,300,000 2,300,000 62,868, ,933,025 3,796,632 5,955, ,553,904 52,270,048 81,555,314 3,528,913 3,408, ,762, ,000, ,619, ,619, ,467, ,467, , , , , ,621, ,018, ,910, , ,467,744.51

42 12 2,590, ,036, ,036, /2,885, , , , ,338, , , , , , , , , , , ,035, ,035, ,035, ~505 72,971, ,295, , ,566, ,273, ,260, ,348, ,139, ,866, ,602, ,072,850

43 14 a ,000, %~5.31% US$43,240, ,000, %~6552% 723,000, ,000, %-6.44% 40,000, % 30,000, % 20,000, % 170,000, ,000, %-6.14% 43,039,381 6,000, % 2,000, % 8,900, % 357,900, ,900,000 b 15 a , % 20,000, % 20,178, a , % 110,598, % 18,531, % 3,378, % 2,979, % 69, % 135,488, % b c 5%(5%) ,672, ,585,939 a 106% b 5

44 ,459, ,432, ,840, ,680, ,299, ,112, ,442, % 1,890,477 2,454, % \3% 22,789, , % 1,365,983 42, % 6,674,294 33, ,832 6,098, ,297, (a) 398,072, ,204, ,396, ,896, ,499, (5%) ,351, ,692,711 1,899,422 1,000, ,478,742 2,351, ,070,875

45 ,977, ,745, (2002) 3, 11,812, % ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, a ,387, ,387, ,423, ,423, B 140,552, ,552, ,975, ,363, b % 33,615, ,628, % 25 a 25,163, ,298, ,134, ,327, ,581, ,149, ,067, ,663,894.10

46 37,745, ,447, ,201, ,991, b 10 2,298, ,149, c ,682, ,727,893 49,357, ,820,507 6,201, ,241, ,548,400 2,298, ,807,138 1,149, ,403,570 75,793, ,337,692 3,490, ,980,000 72,303, ,357,692 25c 27 / a 29,715, ,788,065 53,776, ,325,076 83,492, ,113,141 11,512, %

47 b 23,081, ,941,292 45,901, ,587,863 68,983, ,529, ,250, , ,587, , , , ,115, ,470, ,645, ,717, ,191,528 12,722, ,690,001 74, ,113 33, ,686 16,954, ,653, ,596, ,596, , , ,839, ,839, ,832, , ,418, , , ,832, , ,435, ,883, ,964,984 8,964,984 8,964,984 8,964, ,060, ,741, ,802, ,539, ,897, ,196, ,633,341.73

48 1 a ,549, ,064, ,410, ,170, ,139, ,894, b ,194, % 474,652, % 1,077, % 411, % 140, % 136, % 249,549, % 475,064, % c 5 5% d ,551,

49 ,479, , ,709, ,721, ,293, , ,024, ,435, ,773, , ,733, ,157, , , , , , , , , , ,300, ,300, ,300, ,300, ,473, , ,321, ,070, ,179, , ,489, ,974, ,944, ,831, ,520, ,870, ,166, ,201, ,075, , , ,059, , , ,634, ,906, ,187, ,744, ,472, ,479, , ,709,374 19,721, ,495, ,204, ,991, ,462, ,154, , ,149, , , ,144, , , ,874, ,353, ,045, ,574, ,848, , , , ,200, ,200, ,100, ,100, ,300, ,300, ,179, , ,489, ,974, ,248, ,626, ,528, ,408, ,812, a ,060, ,060, ,442, ,442,610.25

50 26,102, ,102, ,163, ,163, ,442, ,442, b 75% 15,000, ,183, ,183, ,183, % 9,8000, ,349, ,431, ,431, % 34,300, ,591, % 106,781, ,614, ,764, ,764, % 105,631, , ,975, ,975, % 23,604, , ,102, ,102, % 49,755, ,320, ,320, % 167,225, ,759, ,759, ,298, ,124, ,902, ,536, ,536, % 32,754, , ,663, ,663, ,754, , ,663, ,663, % 20,000, ,000, ,000, ,000, % 4,860, ,318, ,860, ,860, ,860, ,318, ,860, ,860, ,913, ,442, ,977, ,060, ,060, c 4,631, , ,592, , , , , , , ,435, ,435, ,465, ,465, ,146, , ,102, ,596, ,596, , , ,839, ,839, , , ,832, ,631, ,463, ,832, ,704, ,391, ,929,260.44

51 78,000, ,000, ,000,000 50,000, ,000, ,000,000, 54,503,892 ; 20,000, ,000, % [2003]115 78,000,000 78,000, ,000, ,000, ,000, ,000, ,000,000 50,000,000 50,000, ,000, ,000,000 30,000,000 90,000, ,000,000 47,344,500 7,159,392 54,503,892 20,000,000 20,000, ,000, ,000,000

52 % % 84,670, ,670, ,000, ,000, ,000,000 30,000, ,000, ,000, ,500, ,500, ,702,335 32,702, ,000,000 15,000, ,000,000 98,000, ,225, % 33,615, ,628, ,244, % ,604, % ,781, % ,755,500 60% ,329,000 19,035, ,293, ( ) 110,000 55,000

53 A ,316, ,896, ,238,824 B 259,499, ,812,168, 8,977, B 9, B 15, % % % 1 2.5

54 % 75% 8.85% 10% 97.5% ,490,000, % 1.97% 2.00% % -1.58% % 3.75% % 1.35%

55

56 AUDITORS REPORT TO THE SHAREHOLDERS OF SHANGHAI LINGYUN CURTAIN WALL SCIENCE AND TECHNOLOGY COMPANY LIMITED (incorporated in the People s Republic of China with limited liability) We have audited the financial statements on pages 2 to 47 which have been prepared in accordance with International Accounting Standards. Respective responsibilities of Directors and Auditors The Company s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you. Basis of opinion We conducted our audit in accordance with International Standards on Auditing. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements and of whether the accounting policies are appropriate to the Group s circumstances, consistently applied and adequately disclosed. We planned our audit in accordance with International Standards on Auditing so as to obtain all the information and explanations which was considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion. Qualified opinion arising from disagreement over accounting treatment As set out in more details in note 2(a) to the financial statements, the Group lost the financial and operational control of two of its subsidiaries (the Unconsolidated Subsidiaries ) during the year and no reliable financial information of the Unconsolidated Subsidiaries is available. In addition, the Unconsolidated Subsidiaries will be disposed of subsequent to 31 December 2002 in accordance with a proposed share exchange arrangement. As of 31 December 2002, the Group accounted for its interest in the Unconsolidated Subsidiaries using the cost method of accounting. In our opinion, the financial statements of the Unconsolidated Subsidiaries should have been consolidated into the Group s financial statements in accordance with International Accounting Standard IAS 27 Consolidated financial statements and accounting for investments in subsidiaries. However, there were no practical audit procedures that we could perform to verify (i) the amounts which should have been consolidated and (ii) the amount of dividend income received from the Unconsolidated Subsidiaries relating to the year ended 31 December Page 1

57 AUDITORS REPORT TO THE SHAREHOLDERS OF SHANGHAI LINGYUN CURTAIN WALL SCIENCE AND TECHNOLOGY COMPANY LIMITED (incorporated in the People s Republic of China with limited liability) (CONTINUED) Qualified opinion arising from disagreement over accounting treatment (continued) Except for any adjustments that might have been found to be necessary had the above disagreement over accounting treatment not existed, in our opinion the financial statements give a true and fair view of the state of affairs of the Group as at 31 December 2002 and of its profit and cash flows for the year then ended. HORWATH HONG KONG CPA LIMITED Certified Public Accountants 25 April 2003 Chan Kam Wing, Clement Practising Certificate number P Central Plaza 18 Harbour Road Wanchai Hong Kong Page 2

58 SHANGHAI LINGYUN CURTAIN WALL SCIENCE AND TECHNOLOGY COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 (Expressed in Renminbi thousands) Notes RMB 000 RMB 000 Revenue, net 4 81, ,008 Cost of sales (68,984) (471,517) Gross profit 12, ,491 Other operating income 47,320 14,362 Distribution costs (2,543) (19,398) Administrative expenses (15,934) (44,632) Other operating expenses - (1,701) Profit from operations 41,492 59,122 Finance costs, net 5 (16,996) (17,502) Share of losses of associates and unconsolidated subsidiaries (270) - Profit before taxation 6 24,226 41,620 Income tax 7-5,043 Profit after taxation 24,226 46,663 Minority interests (222) 73 Profit attributable to shareholders 24,004 46,736 Proposed dividend 8 3,490 6,980 Basic earnings per share 9 RMB0.07 RMB0.13 The notes on pages 9 to 47 form part of these financial statements. Page 3

59 SHANGHAI LINGYUN CURTAIN WALL SCIENCE AND TECHNOLOGY COMPANY LIMITED Assets CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2002 (Expressed in Renminbi thousands) Notes RMB 000 RMB 000 Non current assets Property, plant and equipment 10 11, ,283 Construction-in-progress ,468 23,623 Investment properties 12 12,270 12,270 Intangible assets ,675 2,261 Goodwill: 14 - Goodwill 25, Negative goodwill (6,069) - Interests in associates and unconsolidated subsidiaries ,244 - Long term investments 16 26,040 20,000 Non-current receivables - 2,367 Other non-current assets , ,865 Current assets Inventories, net 17-75,798 Properties held for sale or under development ,282 - Gross amount due from customers for contract work 19-71,112 Due from related parties 28(c) 115,063 6,963 Prepayments and other current assets 324, ,606 Trade receivables, net 20 22, ,671 Short-term investments 21 1,095 17,696 Pledged bank time deposits , ,220 Cash and cash equivalents 167, ,708 1,652,187 1,200,774 Total assets 2,132,644 1,439,639 Page 4

60 SHANGHAI LINGYUN CURTAIN WALL SCIENCE AND TECHNOLOGY COMPANY LIMITED CONSOLIDATED BALANCE SHEET (CONTINUED) AS AT 31 DECEMBER 2002 (Expressed in Renminbi thousands) Equity and liabilities Notes RMB 000 RMB 000 Capital and reserves Share capital , ,000 Reserves , , , ,056 Minority interests 146,859 4,470 Non-current liabilities Due to related parties, non-current portion 30(c) 8,239 8,239 Bank borrowings due after one year 25 81,595-89,834 8,239 Current liabilities Trade payables - 138,173 Deposits from customers 81,673 39,586 Accruals and other current liabilities 142,181 20,936 Due to related parties 30(c) 267,930 1,565 Dividends payable 14,810 31,132 Gross amount due to customers for contract work 24-3,539 Taxes payable 6,098 33,297 Bank borrowings due within one year , ,900 Provision for warranty - 2,746 1,255, ,874 Total equity and liabilities 2,132,644 1,434,639 The financial statements were approved and authorized for issue by the board of directors on 22 April Director Director The notes on pages 9 to 47 form part of these financial statements. Page 5

61 SHANGHAI LINGYUN CURTAIN WALL SCIENCE AND TECHNOLOGY COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY FOR THE YEAR ENDED 31 DECEMBER 2002 (Expressed in Renminbi thousands) Statutory surplus reserve fund Statutory public welfare fund Total shareholders equity Share capital Capital reserve Retained profits Total reserves (Note 22) (Note 23) RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Balance at 31 December , ,976 16,356 8,178 65, , ,702 Net profit for the year ,736 46,736 46,736 Profit appropriations - Statutory surplus reserve fund - - 4,673 - (4,673) Statutory public welfare fund ,336 (2,336) - - Appropriations to statutory reserves by a subsidiary - - 4,134 2,068 (6,202) Dividends declared (Note 8) (42,382) (42,382) (42,382) Balance at 31 December , ,976 25,163 12,582 56, , ,056 Net profit for the year ,004 24,004 24,004 Profit appropriations - Statutory surplus reserve fund - - 2,299 - (2,299) Statutory public welfare fund ,149 (1,149) - - Reversal on deconsolidation of subsidiaries - - (4,134) (2,068) 6, Dividends declared (Note 8) (6,980) (6,980) (6,980) Balance at 31 December , ,976 23,328 11,663 76, , ,080 The notes on pages 9 to 47 form part of these financial statements. Page 6

62 SHANGHAI LINGYUN CURTAIN WALL SCIENCE AND TECHNOLOGY COMPANY LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2002 (Expressed in Renminbi thousands) Notes RMB 000 RMB 000 Cash flows from operating activities Profit before tax 24,226 41,620 Adjustment for: Share of results of associates and unconsolidated subsidiaries Depreciation of property, plant and equipment 4,288 15,701 Loss on disposal of property, plant and equipment Impairment loss of investment properties - 1,100 Amortisation of intangible assets and other non-current assets 1,142 1,385 Amortisation of goodwill 42 - Release of negative goodwill as income (319) - Provision for doubtful debts 1,432 1,138 Provision for warranty - 1,176 Provision for impairment in value of long term investment 71 - Interest expense 29,645 34,192 Interest income (12,722) (16,690) Dividend income (22,833) - Gain on partial disposal of investment in an unconsolidated subsidiary (839) - Gain on disposal of investments held for trading (3,954) (3,667) Income from investments held to maturity - (8,550) Unrealised loss on investments held for trading 390 3,252 Operating profit before working capital changes 20,839 70,803 (Increase) / decrease in inventories (5,822) 43,937 Decrease in properties held for sale or under development 1,937 - Increase in amounts due from related parties (19,649) (13,672) Increase in prepayments and other current assets (160,460) (22,667) Increase in trade receivables (158,855) (75,756) Decrease in trade payables (6,467) (10,853) (Decrease) / increase in deposits from customers (3,189) 3,028 Increas e / (decrease) in accruals and other current liabilities 230,916 (3,410) Decrease in amounts due to related parties (54,103) (4,396) Decrease in gross amount due to customers for contract work - (29,560) (Decrease)/increase in taxes payable (1,475) 8,132 Cash used in operations (156,328) (34,414) Interest expense paid (30,256) (34,015) Income tax refunded - 4,824 Net cash used in operating activities (186,584) (63,605) Page 7

63 SHANGHAI LINGYUN CURTAIN WALL SCIENCE AND TECHNOLOGY COMPANY LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2002 (Expressed in Renminbi thousands) Notes RMB 000 RMB 000 Net cash used in operating activities (186,584) (63,605) Cash flows from investing activities Proceeds from disposal of investments held for trading 10,600 15,626 Proceeds from disposal of investments held to maturity - 108,550 Proceeds from disposal of an unconsolidated subsidiary 30,000 - Interest income received 12,722 17,892 Dividend received 28,750 - Assets reorganisation, net of cash and cash equivalent acquired 26(a) 50,899 - Deconsolidation of subsidiaries 26(b) (74,745) - Cash paid for investments held for trading (53) (17,467) Purchase of property, plant and equipment and investment properties (4,184) (39,000) Expenditures for construction-in-progress (550) - Purchase of intangible assets (19,036) (385) Net cash generated from investing activities 34,403 85,216 Cash flows from financing activities Payment of share issuance costs - (800) Increase / (decrease) in bank borrowings 194,185 (27,100) Dividends paid (23,302) (3,680) Increase in bank time deposits pledged for short-term borrowings (1,695) (107,877) Cash paid for other financing activities - (1,000) Net cash generated from / (used in) financing activities 169,188 (140,457) Net increase / (decrease) in cash and cash equivalents 17,007 (118,846) Cash and cash equivalents at beginning of year 150, ,554 Cash and cash equivalents at the end of year 167, ,708 The notes on pages 9 to 47 form part of these financial statements. Page 8

64 SHANGHAI LINGYUN CURTAIN WALL SCIENCE AND TECHNOLOGY COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS (Expressed in Renminbi thousands) 1. ORGANISATION AND OPERATIONS Shanghai Lingyun Curtain Wall Science and Technology Company Limited (the Company ) was established as a joint stock limited company in the People s Republic of China (the PRC ) on 28 December 1998 subsequent to a corporate reorganization in preparation for the listing of its foreign investment ordinary shares (the B Shares ). The B shares have been listed on the Shanghai Stock Exchange since July On 18 March 2002, Wuhan Lingyun Technology Group Company Limited ( Lingyun Group ) and Tianjin Huanbohai Holding Group Company Limited ( Huanbohai Group ) entered into a share transfer agreement whereby Lingyun Group will transfer its holding of 84,670,000 shares in the Company, representing 24.26% of its issued share capital to Huanbohai Group. On 26 March 2003, the share transfer had been approved by The Ministry of Finance. However, as of the date of this report, the share transfer is still in progress. On 15 April 2002, Hunan Zhensheng Aluminum Company Limited ( Hunan Zhensheng ) and Guoji Environmental Science and Technology Company Limited ( Guoji Environmental ) entered into a share transfer agreement whereby Zhensheng Aluminum transferred its entire shareholding in the Company, representing 68,180,000 shares (19.53%) to Guoji Environmental which became the second largest shareholder of the Company. As at 31 December 2002, the major shareholders of the Company were Lingyun Group which was the ultimate controlling shareholder, and Guoji Environmental. The Company and its subsidiaries are collectively referred to as the Group. The Group is principally engaged in the manufacture and sale of aluminum extrusion materials and the design, manufacture and installation of curtain wall systems; real estate development, tourism development and operations; educational institution operations, services and investment, forestry and plantation, and timber processing. Details of the subsidiaries are set out in Note 27 of the financial statements. The registered office of the Company is located at 18 th Floor, Jiaxing Mansion, 877 Dongfang Road, Shanghai, the PRC. As of 31 December 2002, the Group had 1,200 employees (2001 : 1,189). Page 9

65 SHANGHAI LINGYUN CURTAIN WALL SCIENCE AND TECHNOLOGY COMPANY LIMITED 2. PRINCIPAL ACCOUNTING POLICIES The financial statements of the Group have been prepared in accordance with International Accounting Standards ( IAS ). The Group also prepares financial statements which comply with accounting regulations in the People s Republic of China. A reconciliation of the Group s results and shareholders equity under IAS and PRC accounting regulations is presented in Note 31 to the financial statements. The principal accounting policies adopted are as follows: (a) Basis of presentation The directors are of the opinion that the Group could no longer be in a position to exercise operational or financial control or significant influence over Wuhan Lingyun High Grade Construction Decoration Materials Company Limited ( Lingyun Construction Materials ) and Wuhan Lingyun Construction Decoration Engineering Company Limited ( Wuhan Lingyun ) notwithstanding that the Company owns 75% and 98% of their equity interest respectively. As a result, certain account balances and transactions of Lingyun Construction Materials and Wuhan Lingyun as reflected in their financial statements for the year ended 31 December 2002 cannot be satisfactorily substantiated or otherwise supported. Subsequent to 31 December 2002, the Company has entered into a proposed assets exchange agreement whereby the Company s equity interests in Lingyun Construction Materials and Wuhan Lingyun will be disposed of. Please refer to Note 26(a) of the financial statements for further details of the assets exchange. The financial statements of Lingyun Construction Materials and Wuhan Lingyun have not been consolidated into the Group s financial statements. The Group s interests in these unconsolidated subsidiaries were accounted for using cost method of accounting as at 31 December (b) Principles of consolidation The financial statements of the Group incorporate the financial statements of the Company and all operating subsidiaries that are controlled by the Company. Where an entity either began or ceased to be controlled by the Company during the year, the results are included only from the date control commenced or up to the date control ceased. All significant intercompany balances and transactions, including intercompany profits and unrealised profits and losses are eliminated on consolidation. The equity and net income attributable to minority shareholders interests are shown separately in the consolidated balance sheet and statement of income, respectively. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Page 10

66 SHANGHAI LINGYUN CURTAIN WALL SCIENCE AND TECHNOLOGY COMPANY LIMITED 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (c) Subsidiary A subsidiary is a company over which the Company exercises control. Control exists when the Company has the power to govern the financial and operating policies of the subsidiary so as to obtain economic benefits from it s activities. (d) Investment in associates An associate is a company, not being a subsidiary, over which the Group is in a position to exercise significant influence, through participation in the financial and operating policy decisions of the investee. In the consolidated balance sheet, investments in associates are stated at the Group s share of associates net assets together with any premium paid on acquisition in so far as it has not been written off or amortized. The consolidated income statement includes the Group s share of result of its associates for the year. (e) Investments These are investments in various unlisted companies in which the Group neither holds, directly or indirectly, 20% or more of the voting powers, nor exercises significant influence. Investments held for long term purpose are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with the investment securities. After initial recognition, such investments are measured at fair value and unrealised gains and losses are reported as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement. For investment actively traded in recognized financial markets, fair value generally determined by reference to stock exchange quoted market prices at the close of business on the balance sheet date. For investment in an equity instrument that does not have a quoted market price in active market and for which other methods of reasonably estimating fair value are clearly inappropriate or unworkable, the instrument would be measured at cost, subject to review of impairment. For an investment that has a fixed maturity, the instrument would be measured at cost using the effective interest rate method, subject to review of impairment Page 11

67 SHANGHAI LINGYUN CURTAIN WALL SCIENCE AND TECHNOLOGY COMPANY LIMITED 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (f) Goodwill Goodwill represents the excess of the cost of acquisition over the fair value of the identifiable net assets of a subsidiary at the date of acquisition. Goodwill is recognised as an asset and is amortised using the straight-line method over estimate period that benefits are expected to be received. The carrying amount of goodwill is reviewed annually and written down for impairment when it is considered necessary. Negative goodwill arising on the acquisition of subsidiaries, associates and jointly-controlled entities represents the excess of the Group s share of the fair values of the identifiable assets and liabilities acquired as at the date of acquisition, over the cost of the acquisition. To the extent that negative goodwill relates to expectations of future losses and expenses that are identified in the acquisition plan and that can be measured reliably, but which do not represent identifiable liabilities as at the date of acquisition, that portion of negative goodwill is recognised as income in the consolidated income statement when the future losses and expenses are recognised. To the extent that negative goodwill does not relate to identifiable expected future losses and expenses as at the date of acquisition, negative goodwill is recognised in the consolidated income statement on a systematic basis over the remaining average useful life of the acquired depreciable/amortisable assets. The amount of any negative goodwill in excess of the fair values of the acquired non-monetary assets is recognised as income immediately. In the case of associates and jointly-controlled entities, any negative goodwill not yet recognised in the consolidated income statement is included in the carrying amount thereof, rather than as a separately identified item on the consolidated balance sheet. On disposal of subsidiaries, associates or jointly-controlled entities, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including in the attributable amount of goodwill or negative goodwill which has not been recognised in the consolidated income statement and any relevant reserves as appropriate. Page 12

68 SHANGHAI LINGYUN CURTAIN WALL SCIENCE AND TECHNOLOGY COMPANY LIMITED 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (g) Property, plant and equipment and depreciation Property, plant and equipment are stated at cost less accumulated deprecation and accumulated impairment loss. The initial cost of an asset comprises its purchase price, construction cost and any directly attributable costs of bringing the asset to its purchase price, construction cost and any directly attributable cost of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property, plant and equipment have been put into operation, such as overhaul, repairs and maintenance costs, are recognised as an expense in the period in which they are incurred. In situations where it is probable that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of the asset beyond its originally assessed standard of performance, the expenditures are capitalised as an additional cost of the asset. Depreciation is calculated using the straight-line method to write off the cost, after taking into account the estimated residual value, of each asset over its expected useful life. The expected useful lives are as follows: Buildings Machinery and equipment Motor vehicles Furniture, fixtures and equipment years 7-12 years 5-12 years 5 years The useful lives of assets and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefit from items of property, plant and equipment. When property, plant and equipment are sold or retired, their costs, accumulated depreciation and accumulated impairment loss are eliminated from the accounts and any gain or loss resulting from their disposal is included in the statement of income. (h) Construction-in-progress Construction-in-progress represents buildings and plant under construction and machinery and equipment under installation and testing, and is stated at cost. This includes cost of construction, plant and machinery and other direct costs plus borrowing costs which include interest charges and exchange differences arising from foreign currency borrowings used to finance these projects during the construction period, to the extent these are regarded as an adjustment interest costs. Construction-in-progress is not depreciated until such time as the asset is completed and put into operational use. Page 13

69 SHANGHAI LINGYUN CURTAIN WALL SCIENCE AND TECHNOLOGY COMPANY LIMITED 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (i) Investment properties Investment properties are treated as long term investments and carried at market value determined annually by external independent valuers. Investment properties are not subject to depreciation. Increases or decrease in their carrying amount are credited or charged to the statement of income. (j) Intangible assets Intangible assets are measured initially at cost. Intangible assets are recognised if it is probable that the future economic benefits that are attributable to the assets will flow to the enterprise, and the cost of the asset can be measured reliably. After initial recognition, intangible assets are measured at cost less accumulated amortisation and any accumulated impairment losses. Intangible assets are amortised on a straight-line basis over the best estimation of their useful lives set as follows: Patent Know-how Utility use rights Land use rights Forest use rights 5 years 5 years 5 years years 50 years The amortisation period and method are reviewed annually at each financial year-end. (k) Inventories Inventories, including work-in-process, are stated at the lower of cost and net realisable value, after provision for obsolete items. Cost includes costs of raw materials computed using the first-in, first-out method (contracting business) and weighted average method (manufacturing business) of costing. For work-in-process and finished goods, cost also includes an attributable portion of fixed and variable overhead costs based on a normal operating capacity. Net realisable value is the estimated selling price in the original course of business less the estimated costs of completion, marketing and distribution. Unrealisable inventory has been fully written off. Provision is made for obsolete, slow-moving or defective items where appropriate. When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write down or losses occur. Any reversal of write down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. Page 14

70 SHANGHAI LINGYUN CURTAIN WALL SCIENCE AND TECHNOLOGY COMPANY LIMITED 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (l) Properties held for sale or under development Properties held for sale or under development are stated at the lower of cost and net realizable value. Cost comprises purchase cost of land use rights, development costs and an appropriate proportion of interest expense and foreign currency translation difference in respect of borrowed funds during the development period. Net realizable value is determined by reference to the proceeds of properties sold in the ordinary course of business subsequent to the balance sheet date or management estimates based on prevailing market condition. (m) Construction contracts The accounting policy for the recognition of contract revenue is set out in Note r(i) below. When the outcome of a construction contract can be estimated reliably, contract costs are recognised as expenses by reference to the stage of completion of the contract activity at the balance sheet date. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. When the outcome of a construction contract cannot be estimated reliably, contract costs are recognised as an expense in the period in which they are incurred. Construction contracts in progress at the balance sheet date are recorded at the net amount of costs incurred plus recognised profits less recognised losses and progress billings, and are presented in the balance sheet as Gross amount due from customers for contract work (as an asset) or Gross amount due to customers for contract work (as a liability), as applicable. Cost includes an attributable portion of direct materials, computed on a first-in, first-out basis, cost of machinery and equipment, and direct overheads. Amounts received before the related contract work is performed are included in the balance sheet as Deposits from customers. Amount billed, but not yet paid by the customers, for work performed on a contract are included in the balance sheet as Trade receivables. Where anticipated cost on individual contracts exceed anticipated revenue, the excess amount is shown separately as Provision for losses on contracts. (n) Receivables Receivables are stated at fair value of the consideration given and are carried at cost, after provision for impairment. Page 15