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YANZHOU COAL MINING COMPANY LIMITED Report and Financial Statements For the year ended December 31, 2002
YANZHOU COAL MINING COMPANY LIMITED REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2002 CONTENTS PAGE(S) REPORT OF THE AUDITORS 1 CONSOLIDATED STATEMENT OF INCOME 2 CONSOLIDATED BALANCE SHEET 3 BALANCE SHEET 4 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 5 CONSOLIDATED STATEMENT OF CASH FLOWS 6 NOTES TO THE FINANCIAL STATEMENTS 7-45
REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF YANZHOU COAL MINING COMPANY LIMITED (A joint stock company with limited liability established in the People's Republic of China) We have audited the financial statements on pages 2 to 45 which have been prepared in accordance with International Financial Reporting 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 Statements of Auditing Standards issued by the Hong Kong Society of Accountants. 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 judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Company and of the Group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. 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. Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at December 31, 2002 and of the profit and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance. Certified Public Accountants Hong Kong, April 11, 2003-1 -
YANZHOU COAL MINING COMPANY LIMITED CONSOLIDATED STATEMENT OF INCOME Year ended December 31, NOTES 2002 2001 2000 RMB'000 RMB'000 RMB'000 GROSS SALES OF COAL... 5 7,772,315 6,369,649 4,704,201 TRANSPORTATION COSTS OF COAL... 5 _ (1,558,414) _ (1,493,639) _ (1,104,464) NET SALES OF COAL... 5 6,213,901 4,876,010 3,599,737 RAILWAY TRANSPORTATION SERVICE INCOME... _ 142,471 _ - _ - 6,356,372 4,876,010 3,599,737 COST OF SALES AND SERVICE PROVIDED... 6 _ (3,362,901) _ (2,812,583) _ (1,983,520) GROSS PROFIT... 2,993,471 2,063,427 1,616,217 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES... 7 (1,231,059) (759,631) (636,436) OTHER OPERATING INCOME... 8 _ 103,729 _ 117,896 _ 60,883 OPERATING INCOME... 1,866,141 1,421,692 1,040,664 INTEREST EXPENSES... 9 (117,929) (61,519) (5,012) _ INCOME BEFORE INCOME TAXES... 10 1,748,212 1,360,173 1,035,652 INCOME TAXES... 12 (523,148) (389,228) (287,292) _ INCOME BEFORE MINORITY INTEREST... 1,225,064 970,945 748,360 MINORITY INTEREST... 3,065 - - _ NET INCOME... 1,221,999 970,945 748,360 APPROPRIATIONS TO RESERVES... 817,187 141,698 114,627 DIVIDEND... 13 287,000 235,340 231,400 EARNINGS PER SHARE... 14 RMB0.43 RMB0.35 RMB0.29 EARNINGS PER ADS... 14 RMB21.29 RMB17.29 RMB14.39-2 -
YANZHOU COAL MINING COMPANY LIMITED CONSOLIDATED BALANCE SHEET ASSETS At December 31, 2002 2001 NOTES RMB'000 RMB'000 CURRENT ASSETS Bank balances and cash... Restricted cash... 15 1,544,173 51,761 1,124,806 30,000 Bills and accounts receivable... 16 802,929 694,252 Investments in securities... Inventories... 17 18 88,702 576,579 49,997 439,882 Prepayments and other current assets... 19 756,019 853,213 Taxes receivable... - 21,674 TOTAL CURRENT ASSETS... 3,820,163 3,213,824 MINING RIGHTS... 20 119,231 125,855 LAND USE RIGHTS... PROPERTY, PLANT AND EQUIPMENT, NET... 21 22 618,206 8,276,941 372,020 7,479,755 GOODWILL... 23 51,660 12,437 NEGATIVE GOODWILL... INVESTMENTS IN SECURITIES... 24 17 (82,861) 1,760 (110,481) 1,760 DEPOSIT MADE ON ACQUISITION OF INVESTMENTS IN SECURITIES... 26 30,138 - DEFERRED TAX ASSET... 27 88,807 87,421 TOTAL ASSETS... 12,924,045 11,182,591 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bills and accounts payable... 28 602,725 636,387 Other payables and accrued expenses... Provision for land subsidence, restoration, rehabilitation 29 634,790 532,874 and environmental costs... 30 83,044 120,196 Amounts due to Parent Company and its subsidiary companies... 36 285,308 757,387 Taxes payable... 56,867 793 TOTAL CURRENT LIABILITIES... 1,662,734 2,047,637 AMOUNTS DUE TO PARENT COMPANY AND ITS SUBSIDIARY COMPANIES - DUE AFTER ONE YEAR... 36 61,341 72,456 LONG-TERM BANK BORROWING... 31 1,200,000 - TOTAL LIABILITIES... 2,924,075 2,120,093 COMMITMENTS... 37 SHAREHOLDERS' EQUITY... 9,995,033 9,060,034 MINORITY INTEREST... 4,937 2,464 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... 12,924,045 11,182,591 The financial statements on pages 2 to 45 were approved and authorized for issue by the Board of Directors on April 11, 2003 and are signed on its behalf by: Director Director - 3 -
YANZHOU COAL MINING COMPANY LIMITED BALANCE SHEET ASSETS At December 31, 2002 2001 NOTES RMB'000 RMB'000 CURRENT ASSETS Bank balances and cash... 1,540,637 1,120,155 Restricted cash... 15 51,761 30,000 Bills and accounts receivable... 16 802,929 694,252 Investments in securities... 17 88,702 49,997 Inventories... 18 569,497 426,353 Prepayments and other current assets... 19 755,049 859,846 Taxes receivable... - 21,674 TOTAL CURRENT ASSETS... 3,808,575 3,202,277 MINING RIGHTS... 20 119,231 125,855 LAND USE RIGHTS... 21 618,206 372,020 PROPERTY, PLANT AND EQUIPMENT, NET... 22 8,276,343 7,479,411 GOODWILL... 23 51,660 12,437 NEGATIVE GOODWILL... 24 (82,861) (110,481) INVESTMENT IN A SUBSIDIARY... 25 2,710 2,710 INVESTMENTS IN SECURITIES... 17 1,760 1,760 DEPOSIT MADE ON ACQUISITION OF INVESTMENTS IN SECURITIES... 26 30,138 - DEFERRED TAX ASSET... 27 88,807 87,421 TOTAL ASSETS... 12,914,569 11,173,410 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bills and accounts payable... 28 602,489 634,724 Other payables and accrued expenses... 29 633,325 528,613 Provision for land subsidence, restoration, rehabilitation and environmental costs... 30 83,044 120,196 Amounts due to Parent Company and its subsidiary companies... 36 285,308 757,387 Taxes payable... 56,749 - TOTAL CURRENT LIABILITIES... 1,660,915 2,040,920 AMOUNTS DUE TO PARENT COMPANY AND ITS SUBSIDIARY COMPANIES - DUE AFTER ONE YEAR... 36 61,341 72,456 LONG-TERM BANK BORROWING... 31 1,200,000 - TOTAL LIABILITIES... 2,922,256 2,113,376 COMMITMENTS... 37 SHAREHOLDERS' EQUITY... 32 9,992,313 9,060,034 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... 12,914,569 11,173,410 Director Director - 4 -
YANZHOU COAL MINING COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Statutory Statutory Future common common Share Share development reserve welfare Retained capital premium fund fund fund earnings Total RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 Balance at January 1, 2000... 2,600,000 2,087,723 111,748 168,213 84,106 1,300,875 6,352,665 Net income... - - - - - 748,360 748,360 Appropriations to reserves... - - - 76,418 38,209 (114,627) - Dividends... - - - - _ - (231,400) (231,400) Balance at December 31, 2000... 2,600,000 2,087,723 111,748 244,631 122,315 1,703,208 6,869,625 Balance at January 1, 2001... 2,600,000 2,087,723 111,748 244,631 122,315 1,703,208 6,869,625 Additional issue of shares, net of share issue expenses of RMB77,253,000... 270,000 1,184,804 - - - - 1,454,804 Net income... - - - - - 970,945 970,945 Appropriations to reserves... - - - 94,465 47,233 (141,698) - Dividends... - - - - _ - (235,340) (235,340) Balance at December 31, 2001... 2,870,000 3,272,527 111,748 339,096 169,548 2,297,115 9,060,034 Balance at January 1, 2002... 2,870,000 3,272,527 111,748 339,096 169,548 2,297,115 9,060,034 Net income... - - - - - 1,221,999 1,221,999 Appropriations to reserves, net of minority interests' share (note)... - - 743,489 49,105 24,593 (817,187) - Dividends... - - - - _ - (287,000) (287,000) Balance at December 31, 2002... 2,870,000 3,272,527 855,237 388,201 194,141 2,414,927 9,995,033 Note: Prior to 1999, the Company was required to contribute RMB1.80 per tonne of raw coal mined to National Coal Industry Bureau ("NCIB") and Shangdong Coal Mining Industrial Bureau ("SCMIB"), in aggregate and the amount was recognized as an expense. In addition, the Company was also required to transfer an annual amount to a future development fund at RMB4.2 per tonne of raw coal mined. The fund can only be used for the future development of the coal mining business and is not available for distribution to shareholders. The contribution to NCIB has been cancelled since July 1, 1998 and the contribution to SCMIB has been cancelled since January 1, 1999. The annual transfer to the future development fund was stopped starting from January 1999. According to a clarification of the relevant regulations obtained from the Ministry of Finance during the year ended December 31, 2002, the requirement of the Company to transfer an annual amount to the future development fund had not been changed upon cancellation of the requirements for contributions to NCIB and SCMIB. Therefore, the Company is required to transfer an amount of RMB743,489,000 (including RMB204,134,000, RMB164,738,000 and RMB144,007,000 for the years ended December 31, 2001, 2000 and 1999, respectively, that would have been transferred had the transfer not been stopped on January 1, 1999), to the future development fund in the current period, representing RMB6 per tonne of raw coal mined, from retained earnings. This change did not have any impact on the Group's financial position or results of operations. - 5 -
YANZHOU COAL MINING COMPANY LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS OPERATING ACTIVITIES Year ended December 31, NOTES 2002 2001 2000 RMB'000 RMB'000 RMB'000 Income before minority interest... 1,225,064 970,945 748,360 Adjustments to reconcile income before minority interest to net cash from operating activities: Depreciation of property, plant and equipment and land use rights... 851,119 819,638 514,203 Amortization of goodwill... 777 777 777 Release of negative goodwill to income... (27,620) (27,620) - Amortization of mining rights... 6,624 6,624 - Recognition of deferred tax asset... (1,386) (2,260) (8,315) Loss on disposal of property, plant and equipment... 1,093 5,811 11,601 Gain on disposal of investments in securities... (2,209) - - (Increase) decrease in assets (net of acquisitions): Bills and accounts receivable... (104,091) 145,380 26,929 Inventories... (93,818) (157,373) 47,547 Prepayments and other current assets... 231,301 (282,451) (259,693) Taxes receivable... 21,674 (21,674) - Increase (decrease) in liabilities (net of acquisitions): Bills and accounts payable... (56,492) 79,275 38,485 Other payables and accrued expenses... 90,973 186,763 8,851 Provision for land subsidence, restoration, rehabilitation and environmental costs... (43,419) (16,528) (51,881) Amounts due to Parent Company and its subsidiary companies... 84,048 52,658 110,577 Taxes payable... 56,074 (149,726) (164,289) NET CASH FROM OPERATING ACTIVITIES... 2,239,712 1,610,239 1,023,152 INVESTING ACTIVITIES Acquisition of Railway Assets... 33 (1,282,445) - - Purchase of property, plant and equipment... (842,471) (677,936) (477,421) Acquisition of investments in securities... (88,702) (51,757) - Deposit made on acquisition of investments in securities... (30,138) - - Increase in restricted cash... (21,761) (30,000) - Proceeds on disposal of investments in securities... 52,206 - - Proceeds on disposal of property, plant and equipment... 47,800 13,686 12,736 Acquisition of Jining III... 34 - (1,204,133) - Acquisition of Zhongyan... 35-1,941 - NET CASH FLOW USED IN INVESTING ACTIVITIES. (2,165,511) (1,948,199) (464,685) FINANCING ACTIVITIES Bank borrowings raised... 1,600,000 - - Repayment to Parent Company and its subsidiary companies in respect of consideration for acquisition of Jining III... 34 (567,242) (601,452) - Dividend paid... (287,000) (235,340) (231,400) Repayments of bank borrowings... (400,000) - - Dividend paid to a minority shareholder of a subsidiary... (592) - - Issues of shares, net of share issue expenses... - 1,454,804 - NET CASH FLOW FROM (USED IN) FINANCING ACTIVITIES... 345,166 618,012 (231,400) NET INCREASE IN CASH AND CASH EQUIVALENTS 419,367 280,052 327,067 CASH AND CASH EQUIVALENTS, BEGINNING... 1,124,806 844,754 517,687 CASH AND CASH EQUIVALENTS, ENDING, REPRESENTED BY BANK BALANCES AND CASH.. 1,544,173 1,124,806 844,754 Additional cash flow information: Cash paid during the year for Interest... Income taxes... 147,361 446,786 37,109 562,888 5,012 459,896-6 -
YANZHOU COAL MINING COMPANY LIMITED NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL The Company is established as a joint stock company with limited liability in the People's Republic of China (the "PRC") and operates six coal mines, namely the Xinglongzhuang coal mine, Baodian coal mine, Nantun coal mine, Dongtan coal mine, Jining II coal mine ("Jining II") and Jining III coal mine ("Jining III") as well as a regional railway network that links these mines with the national railway gird. These six coal mines and the railway were originally divisions of the Company's ultimate holding company, Yankuang Group Corporation Limited (the "Parent Company"), a state-owned enterprise in the PRC. The Parent Company contributed the assets and liabilities of the Xinglongzhuang coal mine, Baodian coal mine, Nantun coal mine and Dongtan coal mine into the Company upon its formation. The Company acquired Jining II from the Parent Company for cash in 1998. The Company acquired Jining III from the Parent Company effective January 1, 2001. This acquisition was financed as set out below. On January 3, 2001, the Company allotted an additional 100,000,000 A shares to the public in the PRC (the "A Share Issue") and the A shares have been listed on the Shanghai Securities Exchange ("SSE") since February 2001. On May 14, 2001, the Company issued an aggregate of 170,000,000 H shares to independent investors and the H shares were listed on The Stock Exchange of Hong Kong Limited. The total net proceeds from the A share and H share offerings were approximately RMB960,607,000 and HK$461,867,000 (equivalent to approximately RMB494,197,000), respectively. The proceeds were applied towards the purchase price of Jining III of approximately RMB2,583 million. The purchase price includes the cost of Jining III of approximately RMB2,450,905,000 and the cost of the mining rights of approximately RMB132,479,000. The consideration for the cost of Jining III was fully settled at December 31, 2002 as follows: (i) Initial installment RMB243,526,000 was paid on January 1, 2001, the completion date; (ii) Second installment The net proceeds of RMB960,607,000 of the A Share Issue were paid over on January 22, 2001. (iii) Third installment 50% of the outstanding balance of the purchase price was paid (without interest) prior to December 31, 2001; and (iv) Fourth installment The outstanding balance of the purchase price was paid (without interest) prior to December 31, 2002. - 7 -
YANZHOU COAL MINING COMPANY LIMITED 1. GENERAL - continued The consideration for the cost of the mining rights of approximately RMB132,479,000 is to be settled over ten years by equal annual installments before December 31 of each year, commencing from 2001 (see also note 34). On January 1, 2002, the Company acquired from the Parent Company the assets of the special purpose coal railway transportation business ("Railway Assets"). The consideration for the acquisition of the Railway Assets was approximately RMB1,242,586,000 subject to the adjustments as follows: For each of the years ending December 31, 2002, 2003 and 2004, the Company will pay an extra RMB40,000,000 for each year if Railway Assets' actual capacity reaches 25,000,000 tonnes, 28,000,000 tonnes and 30,000,000 tonnes, respectively. The acquisition was funded by cash of the Company and a long-term bank loan of RMB1,200,000,000, the repayment of which is guaranteed by the Parent Company. For the year ended December 31, 2002, Railway Assets' actual capacity was more than 25,000,000 tonnes, and accordingly, the consideration is adjusted to approximately RMB1,282,586,000. At December 31, 2002 and 2001, the Company holds a 52.38% interest in the registered capital of Qingdao Free Trade Zone Zhongyan Trade Co., Ltd. ("Zhongyan"), a limited liability company established and operated in the PRC. Zhongyan is engaged in the trading and processing of mining machinery. The Company acquired its stake in Zhongyan during the year ended December 31, 2001 for a cash consideration of RMB2,710,000. Zhongyan did not have any significant impact on the Group's results. In April 2001, the status of the Company was changed to that of a sino-foreign joint stock limited company. The Company's A shares are listed on the SSE, its H shares are listed on The Stock Exchange of Hong Kong Limited, and its American Depositary Shares ("ADS", one ADS represents 50 H shares) are listed on the New York Stock Exchange, Inc. 2. BASIS OF PRESENTATION The accompanying financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"). The Company also prepares a set of financial statements in accordance with the relevant accounting principles and regulations applicable to PRC enterprises ("PRC GAAP"). Differences between IFRS and PRC GAAP are stated in note 43. The financial statements reflect additional disclosures to conform with the disclosure requirements of the Hong Kong Companies Ordinance and with presentations customary in the United States of America. Differences between IFRS and accounting principles generally accepted in the United States of America ("US GAAP") are stated in note 44. - 8 -
YANZHOU COAL MINING COMPANY LIMITED 3. SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared under the historical cost convention, as modified for the revaluation of financial instruments. The principal accounting policies which have been adopted in preparing these financial statements and which conform with IFRS are as follows: Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to December 31 each year. On acquisition, the assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. The interest of minority shareholders is stated at the minority's proportion of the fair values of the assets and liabilities recognized. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. All significant intercompany transactions and balances between group enterprises are eliminated on consolidation. Investments in subsidiaries Investments in subsidiaries in the Company's balance sheet are stated at cost, less any identified impairment loss. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. Revenue recognition Sales of goods are recognized when goods are delivered and title has passed. Service income is recognized when services are provided. Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable. Cash and cash equivalents Cash and cash equivalents include cash on hand, cash accounts, interest bearing savings accounts and time deposits which are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. - 9 -
YANZHOU COAL MINING COMPANY LIMITED 3. SIGNIFICANT ACCOUNTING POLICIES - continued Mining rights Mining rights of Jining III are stated at cost less accumulated amortization and are amortized on a straight line basis over twenty years, being the useful life estimated based on the total proven and probable reserves of the coal mine. Property, plant and equipment and land use rights Property, plant and equipment, other than construction in progress, are stated at cost less depreciation and accumulated impairment losses. When assets are sold or retired, the gain or loss is determined as the difference between the sales proceeds and the carrying amount of the asset and the gain or loss is included in the statement of income. Depreciation is provided to write off the cost of items of property, plant and equipment over their estimated useful lives, after taking into account their estimated residual value, using the straight line method. The estimated useful lives of property, plant and equipment are as follows: Buildings... Railway structure... Plant, machinery and equipment... Transportation equipment... 15 to 35 years 15 to 25 years 5 to 15 years 6 to 9 years The mining structure includes the main and auxiliary mine shafts and underground tunnels. Depreciation is provided to write off the cost of the mining structure using the units of production method based on the estimated production volume for which the structure was designed. Land use rights are amortized over the term of the relevant rights. Assets under construction are not depreciated until they are completed and put into commercial operation. Construction in progress Construction in progress is stated at cost less any identified impairment loss. Cost comprises construction expenditures and other direct costs attributable to such projects, including borrowing costs, if the amount of capital expenditures and the time involved to complete the construction are significant. When the assets concerned are brought into use, the costs are transferred to property, plant and equipment and depreciated in accordance with the policies as stated above. - 10 -
YANZHOU COAL MINING COMPANY LIMITED 3. SIGNIFICANT ACCOUNTING POLICIES - continued Impairment At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognized as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cashgenerating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognized as income immediately. Goodwill Goodwill represents the excess of the purchase consideration paid over Company's share in the fair value of the identifiable assets and liabilities acquired as at the respective dates of acquisition of Jining II and Railway Assets. Goodwill is capitalized and amortized on a straight line basis over a period of ten to twenty years. Additional goodwill resulting from future contingent consideration payments in respect of acquisition of Railway Assets will be amortized on a straight line basis over the remaining life of the original period of ten to twenty years. Negative goodwill Negative goodwill, which represents the excess of the fair value ascribed to the Company's share of the separable net assets at the date of acquisition of Jining III over the purchase consideration is presented as a deduction from the assets of the Company and of the Group. Negative goodwill is released to income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets. Investments in securities Investments in securities are recognized on a trade date basis and are initially measured at cost. Investments other than held-to-maturity debt securities are classified as either held-for-trading or available-for-sale, and are measured at subsequent reporting dates at fair value, based on quoted market prices at the balance sheet date or at cost subject to impairment recognition where the fair value cannot be reliably determined. Where securities are held for trading purposes, unrealized gains and losses are included in net profit or loss for the period. For available-for-sale investments, unrealized gains and losses are recognized directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is included in the net profit or loss for the period. - 11 -
YANZHOU COAL MINING COMPANY LIMITED 3. SIGNIFICANT ACCOUNTING POLICIES - continued Inventories Inventories of coal are physically measured and are stated at the lower of cost and net realizable value. Cost, which comprises direct materials and, where applicable, direct labor and overheads that have been incurred in bringing the inventories to their present location and condition, is calculated using the weighted average method. Net realizable value represents the estimated selling price less all further costs to completion and costs to be incurred in selling, marketing and distribution. Inventories of auxiliary materials, spare parts and small tools expected to be used in production are stated at weighted average cost less provision, if necessary, for obsolescence. Income taxes The charge for income taxes is based on the results for the year after adjusting for items which are non-assessable or disallowed. Deferred taxation is recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement amounts and the tax bases of existing assets and liabilities. Research and development Expenditure on research activities is recognized as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development expenditure is recognized only if it is anticipated that the development costs incurred on a clearly-defined project will be recovered through future commercial activity. The resultant asset is amortized on a straight line basis over its useful life. Where no internally-generated intangible asset can be recognized, development expenditure is recognized as an expense in the period in which it is incurred. No development expenditure has been deferred. Land subsidence, restoration, rehabilitation and environmental costs One consequence of coal mining is land subsidence caused by the resettlement of the land above the underground mining sites. Depending on the circumstances, the Group may relocate inhabitants from the land above the underground mining sites prior to mining those sites or the Group may compensate the inhabitants for losses or damages from land subsidence after the underground sites have been mined. The Group may also be required to make payments for restoration, rehabilitation or environmental protection of the land after the underground sites have been mined. An estimate of such costs is recognized in the period in which the obligation is identified and is charged as an expense in proportion to the coal extracted. - 12 -
YANZHOU COAL MINING COMPANY LIMITED 3. SIGNIFICANT ACCOUNTING POLICIES - continued Capitalization of borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e. assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalized as part of the cost of those assets. Capitalization of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. All other borrowings costs are recognized as an expense in the period in which they are incurred. Foreign currency translation The Group maintains its books and records in Renminbi. Transactions denominated in foreign currencies are translated into Renminbi at the applicable rates of exchange quoted by the People's Bank of China prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into Renminbi at the applicable rates of exchange quoted by the People's Bank of China prevailing at the balance sheet date. Profits and losses arising on translation are recorded in the statement of income. Government grants Government grants are recognized over the periods necessary to match them with the related costs. If the grants do not relate to any specific expenditures incurred by the Group, they are reported separately as other operating income. If the grants subsidise an expense incurred by the Group, they are deducted in reporting the related expense. Grants relating to depreciable assets are presented as a deduction from the cost of the relevant asset. Use of estimates The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 4. SEGMENT INFORMATION The Group is engaged primarily in the coal mining business and commencing from January 1, 2002, the Group is also engaged in coal railway transportation business. The Group operates only in the PRC. All the identifiable assets of the Group are located in the PRC. The Company does not currently have direct export rights and all of its export sales must be made through China National Coal Industry Import and Export Corporation ("National Coal Corporation"), China National Minerals Import and Export Co., Ltd. ("National Minerals Company") or Shanxi Coal Imp. & Exp. Group Corp. ("Shanxi Coal Corporation"). The final customer destination of the Company's export sales is determined by the Company, National Coal Corporation, National Minerals Company or Shanxi Coal Corporation. The Company's subsidiary is engaged in trading and processing of mining machinery in the PRC. No separate segment information about the subsidiary's business is presented in these financial statements as the underlying gross sales, results and assets of the subsidiary's business are insignificant to the Group. - 13 -
YANZHOU COAL MINING COMPANY LIMITED 4. SEGMENT INFORMATION - continued Business segments For management purposes, the Group is currently organized into two operating divisions - coal mining and coal railway transportation. These divisions are the basis on which the Group reports its primary segment information. Principal activities are as follows: Coal mining Coal railway transportation - Underground mining, preparation and sales of coal - Provision of railway transportation services Segment information about these businesses is presented below: INCOME STATEMENT For the year ended December 31, 2002 Coal railway Coal mining transportation Eliminations Consolidated RMB'000 RMB'000 RMB'000 RMB'000 GROSS REVENUE External... 7,772,315 142,471-7,914,786 Inter-segment... - 386,823 (386,823) - Total... 7,772,315 529,294 (386,823) 7,914,786 Inter-segment revenue is charged at prices pre-determined by the relevant governmental authority. RESULT Segment results... 1,791,446 271,272-2,062,718 Unallocated corporate expenses... (226,795) 1,835,923 Unallocated corporate income... 30,218 Operating income... 1,866,141 Interest expenses... (117,929) Income before income taxes... 1,748,212 Income taxes... (523,148) Income before minority interest... 1,225,064 Note: No segment information for the years ended December 31, 2001 and 2000 is presented as the Group was engaged primarily in the coal mining business during those years. - 14 -
YANZHOU COAL MINING COMPANY LIMITED 4. SEGMENT INFORMATION - continued BALANCE SHEET At December 31, 2002 Coal railway Corporate Coal mining transportation and others Consolidated RMB'000 RMB'000 RMB'000 RMB'000 ASSETS Segment assets... 9,861,375 1,162,372 1,900,298 12,924,045 LIABILITIES Segment liabilities... 1,346,568 56,000 1,521,507 2,924,075 OTHER INFORMATION For the year ended December 31, 2002 Coal railway Corporate Coal mining transportation and others Consolidated RMB'000 RMB'000 RMB'000 RMB'000 Capital additions... 802,090 1,166,898 5,547 1,974,535 Amortization of goodwill... 777 - - 777 Release of negative goodwill to income... (27,620) - - (27,620) Depreciation of property, plant and equipment and land use rights.. 764,470 75,519 11,130 851,119 Amortization of mining rights... 6,624 - - 6,624 Loss on disposal of property, plant and equipment... 1,093 - - 1,093 Allowance for doubtful debts... 66,204 - - 66,204 The number of employees of each of the Group's principal divisions are as follows: At December 31, 2002 2001 2000 Coal mining... 24,623 23,689 20,176 Coal railway transportation... 3,249 - - 27,872 23,689 20,176-15 -
YANZHOU COAL MINING COMPANY LIMITED 5. SALES OF COAL AND TRANSPORTATION COSTS OF COAL Year ended December 31, 2002 2001 2000 RMB'000 RMB'000 RMB'000 Domestic sales of coal, gross... 3,939,953 3,014,933 2,414,826 Less: Transportation costs... 525,998 415,121 324,068 Domestic sales of coal, net... 3,413,955 2,599,812 2,090,758 Export sales of coal, gross... 3,832,362 3,354,716 2,289,375 Less: Transportation costs... 1,032,416 1,078,518 780,396 Export sales of coal, net... 2,799,946 2,276,198 1,508,979 Net sales of coal... 6,213,901 4,876,010 3,599,737 Net sales of coal represents the invoiced value of coal sold and is net of returns, discounts, sales taxes and transportation costs if the invoiced value includes transportation costs to the customers. Sales taxes consist primarily of a resource tax calculated at the rate of RMB1.20 per metric tonne ("tonne") of the imputed quantity of raw coal sold and are paid to the local tax bureau. The resource tax for each of the three years ended December 31, 2002, 2001 and 2000 amounted to RMB44,712,000, RMB40,351,000 and RMB33,955,000, respectively. 6. COST OF SALES AND SERVICE PROVIDED Year ended December 31, 2002 2001 2000 RMB'000 RMB'000 RMB'000 Materials... 752,513 643,664 484,337 Wages and employee benefits... 757,532 572,202 419,134 Electricity... 278,407 218,579 185,759 Depreciation... 813,761 784,477 487,623 Land subsidence, restoration, rehabilitation and environmental costs... 232,030 210,939 170,229 Repairs and maintenance... 346,290 276,791 174,734 Annual fee and amortization of mining rights (note)... 19,604 19,604 12,980 Transportation costs... 43,239 22,632 23,336 Others... 119,525 63,695 25,388 3,362,901 2,812,583 1,983,520-16 -
YANZHOU COAL MINING COMPANY LIMITED 6. COST OF SALES - continued Note: The Parent Company and the Company have entered into a mining rights agreement pursuant to which the Company has agreed to pay to the Parent Company effective from September 25, 1997 an annual fee of RMB12,980,000 as compensation for the Parent Company's agreement to give up the mining rights associated with the Group's mines other than Jining III. The annual fee is subject to change after a ten-year period. The cost of the mining rights of Jining III of approximately RMB132,479,000 acquired in 2001 is amortized on a straight line basis over twenty years. 7. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Year ended December 31, 2002 2001 2000 RMB'000 RMB'000 RMB'000 Retirement benefits scheme contributions (note 38)... 334,120 265,825 189,372 Wages and employee benefits... 164,549 75,717 74,946 Additional medical insurance... 29,710 - - Depreciation... 37,358 35,161 26,580 Amortization of goodwill... 777 777 777 Distribution charges... 54,524 57,970 64,569 Allowance for doubtful debts... 66,204 2,508 - Resource compensation fees (note)... 73,762 31,240 28,409 Repairs and maintenance... 8,668 8,247 6,518 Research and development... 30,657 23,026 24,290 Staff training costs... 26,272 23,991 21,462 Freight charges... 14,016 5,532 5,137 Others... 390,442 229,637 194,376 1,231,059 759,631 636,436 Note: In accordance with the relevant regulations, the Group pays resource compensation fees (effectively a government levy) to the Ministry of Geology and Mineral Resources at the rate of 1% on the imputed sales value of raw coal. - 17 -
YANZHOU COAL MINING COMPANY LIMITED 8. OTHER OPERATING INCOME Year ended December 31, 2002 2001 2000 RMB'000 RMB'000 RMB'000 Gain on sales of auxiliary materials... 21,277 21,233 34,899 Government grants (note)... 20,157 - - Interest income from bank deposits... 28,737 39,863 25,984 Interest income from investments in securities... 1,481 - - Release of negative goodwill to income... 27,620 27,620 - Write back of allowance for doubtful debts... - 29,180 - Others... 4,457 - - 103,729 117,896 60,883 Note: Government grants represents the amount granted to the Group in respect of its export sales activities in prior years and received during the year. 9. INTEREST EXPENSES Year ended December 31, 2002 2001 2000 RMB'000 RMB'000 RMB'000 Interest expenses on: - bank borrowings wholly repayable within 5 years... 3,666 1,924 - - bank borrowings not wholly repayable within 5 years... 72,072 - - - bills receivable discounted without recourse... 2,235-5,012 Deemed interest expenses (note 34)... 39,956 59,595-117,929 61,519 5,012 No interest was capitalized during the relevant periods. 10. INCOME BEFORE INCOME TAXES Income before income taxes has been arrived at after charging: Year ended December 31, 2002 2001 2000 RMB'000 RMB'000 RMB'000 Amortization of mining rights... 6,624 6,624 - Auditors' remuneration... 3,500 2,200 2,000 Staff costs, including directors' and supervisors' emoluments... 1,354,251 937,735 704,914 Loss on disposal of property, plant and equipment... 1,093 5,811 11,601-18 -
YANZHOU COAL MINING COMPANY LIMITED 11. DIRECTORS' AND SUPERVISORS' REMUNERATION AND FIVE HIGHEST PAID INDIVIDUALS (a) Directors' and supervisors' emoluments Details of the directors' and supervisors' emoluments are as follows: Year ended December 31, 2002 2001 2000 RMB'000 RMB'000 RMB'000 Independent non-executive directors Fees... 239 128 122 Executive directors Fees... - - - Salaries, allowance and other benefits in kind... 825 846 637 Retirement benefits scheme contributions (note 38)... 371 381 207 Discretionary bonuses... - - - 1,196 1,227 844 Supervisors Fees... - - - Salaries, allowance and other benefits in kind... 400 209 178 Retirement benefits scheme contributions (note 38)... 180 94 55 Discretionary bonuses... - - - 580 303 233 Emoluments of each of the directors and supervisors are all within the band of Nil to HK$1,000,000 for the years ended December 31, 2002, 2001 and 2000. (b) Employees' emoluments The five highest paid individuals in the Group in 2002 included three directors (2001 and 2000: five), details of whose emoluments are included in the disclosures in note 11(a) above. The emoluments of the remaining two individuals are as follows: 2002 RMB'000 Salaries, allowance and other benefits in kind... 314 Retirement benefits scheme contributions (note 38)... 141 Discretionary bonuses... - 455 Emoluments of each of these employees are all within the band of Nil to HK$1,000,000 for the year ended December 31, 2002. - 19 -
YANZHOU COAL MINING COMPANY LIMITED 12. INCOME TAXES Year ended December 31, 2002 2001 2000 RMB'000 RMB'000 RMB'000 Income taxes... 524,534 391,488 295,607 Deferred tax credit (note 27)... (1,386) (2,260) (8,315) 523,148 389,228 287,292 The Company is subject to an income tax rate of 33% on its taxable income. A reconciliation between the provision for income taxes computed by applying the standard PRC income tax rate to income before income taxes and the actual provision for income taxes is as follows: Year ended December 31, 2002 2001 2000 RMB'000 RMB'000 RMB'000 Standard income tax rate in the PRC... 33% 33% 33% Standard income tax rate applied to income before income taxes... 576,910 448,857 341,765 Reconciling items: Transfer to future development fund deductible for tax purpose but not charged to income under IFRS... (76,101) (67,364) (54,363) Amortization of the revaluation surplus of low-priced consumables deductible for tax purposes but not for accounting purposes under IFRS... - (1,212) (606) Release of negative goodwill not subject to tax... (9,115) (9,115) - Deemed interest not deductible for tax purposes... 13,185 19,666 - Allowance for doubtful debts not deductible for tax purposes... 23,681 - - Government grants received not subject to tax... (6,652) - - Others... 1,240 (1,604) 496 Income taxes... 523,148 389,228 287,292 Effective income tax rate... 30% 29% 28% The Company had received approval from the respective tax authorities for the filing of consolidated income taxes by the Parent Company prior to July 2001. Starting from July 2001, the Company submitted a separate income tax filing. The provision for income taxes of the relevant periods represents the provision calculated by the Company on the basis of a separate income tax filing. The subsidiary acquired during the year ended December 31, 2001 did not have any significant impact on the income taxes provided for the years ended December 31, 2001 and 2002. - 20 -
YANZHOU COAL MINING COMPANY LIMITED 13. DIVIDEND Year ended December 31, 2002 2001 2000 RMB'000 RMB'000 RMB'000 Final dividend approved... 287,000 235,340 231,400 Pursuant to the annual general meeting held on June 16, 2000, a final dividend of approximately RMB231,400,000 or RMB0.089 per share proposed by the board of directors in respect of the year ended December 31, 1999 was approved and paid to the shareholders of the Company. Pursuant to the annual general meeting held on June 15, 2001, a final dividend of approximately RMB235,340,000 or RMB0.082 per share proposed by the board of directors in respect of the year ended December 31, 2000 was approved and paid to the shareholders of the Company. Pursuant to the annual general meeting held on June 7, 2002, a final dividend of approximately RMB287,000,000, or RMB0.100 per share proposed by the board of directors in respect of the year ended December 31, 2001 was approved and paid to the shareholders of the Company. The board of directors proposes to declare a final dividend of approximately RMB298,480,000 calculated based on a total number of 2,870,000,000 shares issued at RMB1 each, at RMB0.104 per share in respect of the year ended December 31, 2002. The declaration and payment of the final dividend needs to be approved by the shareholders of the Company by way of an ordinary resolution in accordance with the requirements of the Company's Articles of Association. A shareholders' general meeting will be held for the purposes of considering and, if thought fit, approving this ordinary resolution. 14. EARNINGS PER SHARE AND PER ADS The calculation of the earnings per share for the years ended December 31, 2002, 2001 and 2000 is based on the net income for the year of RMB1,221,999,000, RMB970,945,000 and RMB748,360,000 and on the weighted average of 2,870,000,000 shares, 2,807,507,000 shares and 2,600,000,000 shares in issue, respectively, during the year. The earnings per ADS have been calculated based on the net income for the relevant periods and on one ADS being equivalent to 50 shares. 15. RESTRICTED CASH At the balance sheet date, the amount represented the bank deposits pledged to certain banks to secure banking facilities granted to the Group and the Company. - 21 -
YANZHOU COAL MINING COMPANY LIMITED 16. BILLS AND ACCOUNTS RECEIVABLE THE GROUP AND THE COMPANY At December 31, 2002 2001 RMB'000 RMB'000 Total bills receivable... 239,974 155,883 Total accounts receivable... 639,038 596,233 Less: Allowance for doubtful debts... (76,083) (57,864) Total bills and accounts receivable, net... 802,929 694,252 Bills receivable represent unconditional orders in writing issued by or negotiated from customers of the Group for completed sale orders which entitle the Group to collect a sum of money from banks or other parties. An analysis of the allowance for doubtful debts for 2002 and 2001 follows: THE GROUP AND THE COMPANY 2002 2001 RMB'000 RMB'000 Balance at January 1... 57,864 87,044 Additional allowance charged to income... 64,604 - Direct write-off charged against allowance... (46,385) - Allowance written back to income... - (29,180) Balance at December 31... 76,083 57,864 According to the credit rating of different customers, the Group allows a range of credit periods to its trade customers not exceeding 180 days. The following is an aged analysis of bills and accounts receivable at the reporting date: THE GROUP AND THE COMPANY At December 31, 2002 2001 RMB'000 RMB'000 1-180 days... 551,795 513,080 181-365 days... 182,371 119,096 1-2 years... 99,633 105,443 2-3 years... 38,388 8,258 Over 3 years... 6,825 6,239 879,012 752,116-22 -
YANZHOU COAL MINING COMPANY LIMITED 17. INVESTMENTS IN SECURITIES Available-for-sale investments THE GROUP AND THE COMPANY At December 31, 2002 2001 RMB'000 RMB'000 NON-CURRENT Equity investments... 1,760 1,760 CURRENT Fixed maturity investments... 88,702 49,997 The non-current investments in securities represents unlisted equity investments with no quoted market price and the amount was stated at cost subject to impairment recognition. The current investments in securities represents investments in listed fixed maturity securities that the Group does not intend or is not able to hold to maturity. The carrying amounts of these fixed maturity securities approximate their quoted market prices. 18. INVENTORIES THE GROUP THE COMPANY At December 31, At December 31, 2002 2001 2002 2001 RMB'000 RMB'000 RMB'000 RMB'000 COST Auxiliary materials, spare parts and small tools... 309,246 269,510 302,164 255,981 Coal products... 267,333 170,372 267,333 170,372 576,579 439,882 569,497 426,353-23 -
YANZHOU COAL MINING COMPANY LIMITED 19. PREPAYMENTS AND OTHER CURRENT ASSETS THE GROUP THE COMPANY At December 31, At December 31, 2002 2001 2002 2001 RMB'000 RMB'000 RMB'000 RMB'000 Advances to suppliers... 133,687 82,538 133,687 89,171 Prepaid freight charges and related handling charges... 153,191 146,113 153,191 146,113 Value added tax refund... 342,596 419,145 342,596 419,145 Prepayments for purchase of property, plant and equipment... 7,311 5,837 7,311 5,837 Prepaid land subsidence, restoration, rehabilitation and environmental costs... 23,967 29,984 23,967 29,984 Receivables for utilities charges... 8,162 7,670 8,162 7,670 Receivables for sales of auxiliary materials... 7,835 49,991 7,835 49,991 Others... 79,270 111,935 78,300 111,935 756,019 853,213 755,049 859,846 Included in the balances of the Group and of the Company as of December 31, 2002 and 2001 were allowances for doubtful debts of RMB3,539,000 and RMB2,508,000, respectively. During the year ended December 31, 2002, the Group and the Company made an allowance for doubtful debts of RMB1,600,000 and made direct write-downs of RMB569,000 charged against the balance of the allowances. During the year ended December 31, 2001, the Group and the Company made an allowance for doubtful debts of RMB2,508,000. Included in the Company's balance as of December 31, 2001 was an amount due from its subsidiary of RMB15,614,000. 20. MINING RIGHTS THE GROUP AND THE COMPANY RMB'000 COST At January 1, 2002 and December 31, 2002... 132,479 AMORTIZATION At January 1, 2002... 6,624 Provided for the year... 6,624 At December 31, 2002... 13,248 NET BOOK VALUES At December 31, 2002... 119,231 At December 31, 2001... 125,855 In addition, the Parent Company and the Company have entered into a mining rights agreement pursuant to which the Company has agreed to pay to the Parent Company, effective from September 25, 1997, an annual fee of RMB12,980,000 as compensation for the Parent Company's agreement to give up the mining rights associated with the Group's mines other than Jining III. The annual fee is subject to change after a ten-year period. - 24 -
YANZHOU COAL MINING COMPANY LIMITED 21. LAND USE RIGHTS THE GROUP AND THE COMPANY RMB'000 COST At January 1, 2002... 399,171 Additions on acquisition of Railway Assets... 259,378 At December 31, 2002... 658,549 DEPRECIATION At January 1, 2002... 27,151 Provided for the year... 13,192 At December 31,2002... 40,343 NET BOOK VALUES At December 31, 2002... 618,206 At December 31, 2001... 372,020 The land use rights have a term of fifty years from the date of grant of land use rights certificates. 22. PROPERTY, PLANT AND EQUIPMENT, NET THE GROUP Plant, machinery Railway Mining and Transportation Construction Buildings structure structure equipment equipment in progress Total RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 COST At January 1, 2002... 1,889,262-3,556,324 5,945,331 169,497 270,689 11,831,103 Additions on acquisition of Railway Assets... 48,009 720,704-88,388 19,760 519 877,380 Additions... 7,363 - - 432,500 10,848 387,066 837,777 Transfers... 91,560-89,745 267,646 84,400 (533,351) - Disposals... (12,072) - - (131,488) (13,765) - (157,325) At December 31, 2002... 2,024,122 720,704 3,646,069 6,602,377 270,740 124,923 13,388,935 DEPRECIATION At January 1, 2002... 611,208-1,204,134 2,447,362 88,644-4,351,348 Provided for the year... 100,921 52,286 96,087 583,846 35,938-869,078 Eliminated on disposals... (5,227) - - (96,135) (7,070) - (108,432) At December 31,2002... 706,902 52,286 1,300,221 2,935,073 117,512-5,111,994 NET BOOK VALUES At December 31, 2002... 1,317,220 668,418 2,345,848 3,667,304 153,228 124,923 8,276,941 At December 31, 2001... 1,278,054-2,352,190 3,497,969 80,853 270,689 7,479,755-25 -