Company Profile - Sinotrans Annual Report.pdf · Company”) as its sole promoter. The Company was...

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Company Profile

Sinotrans Limited (“Sinotrans” or the “Company”) is a joint stock

limited company incorporated in the People’s Republic of China

(the “PRC”) on 20 November 2002 with China National Foreign

Trade Transportation (Group) Corporation (“Sinotrans Group

Company”) as its sole promoter. The Company was listed

successfully on The Stock Exchange of Hong Kong Limited on 13

February 2003.

Sinotrans and its subsidiaries (collectively the “Group”) is a

leading provider of logistics services in China. The Group’s core

services are freight forwarding, express services and shipping

agency services and its support services include storage and

terminal services, trucking and marine transportation.

The Group’s services operations cover the fast-growing coastal

regions of China including: Guangdong, Fujian, Shanghai, Zhejiang,

Jiangsu, Hubei, Lianyungang, Shandong, Tianjin, Liaoning and other

strategic regions. Also, the Group has an extensive and well-

established domestic service network and an overseas agency

network.

Contents

2 Corporate Information

3 Financial Highlights

5 Chairman’s Statement

9 Management Discussion and Analysis ofResults of Operations and Financial Position

24 Directors, Supervisors & Senior Management

30 Report of the Directors

39 Report of the Supervisory Committee

41 Notice of Annual General Meeting

44 Auditors’ Report

45 Consolidated Profit and Loss Account

46 Consolidated Balance Sheet

48 Balance Sheet

49 Consolidated Cash Flow Statement

51 Consolidated Statement of Changesin Owner’s Equity

52 Notes to the Financial Statements

USING OUR CONNECTIONS

MOTION AND MOTIVATION

2

Corporate Information

LEGAL NAME OF THE COMPANY:SINOTRANS LIMITED

DATE OF COMMENCEMENT OF THECOMPANY’S REGISTRATION:20 November 2002

REGISTERED ADDRESS ANDHEADQUARTERS OF THE COMPANY:Sinotrans Plaza AA43, Xizhimen BeidajieHaidian DistrictBeijingPeople’s Republic of China100044

PLACE OF BUSINESS IN HONG KONG:21/F, Great Eagle Centre23 Harbour RoadWanchaiHong Kong

LEGAL REPRESENTATIVE OF THECOMPANY:Mr. Zhang Bin

COMPANY SECRETARY:Mr. Gao Wei

INVESTOR AND MEDIA RELATIONS:Securities and Legal Affairs DepartmentTel: (86) 10 6229-6667Fax: (86) 10 6229-6600Email: [email protected]: www.sinotrans.com

HONG KONG SHARE REGISTRAR:Computershare Hong Kong InvestorServices LimitedRoom 1901–5, 19th FloorHopewell Centre,183 Queen’s Road East,Hong Kong

H SHARE LISTING:The Stock Exchange of Hong Kong Limited

ABBREVIATION OF THE COMPANY’SSHARES:中國外運 (SINOTRANS)

STOCK CODE:598

SPONSOR:BOCI Asia Limited35/F., Bank of China Tower1 Garden RoadHong Kong

Credit Suisse First Boston (Hong Kong) Limited45th Floor, 2 Exchange Square8 Connaught PlaceCentralHong Kong

PRINCIPAL BANKERS:Bank of China1 Fuxingmennei StreetXicheng DistrictBeijing 100818China

Shenzhen Development Bank158 Fuxingmennei StreetXicheng DistrictBeijing 10031China

Bank of Communications33 Fuchengmenwai Financial StreetXicheng DistrictBeijing 100032China

AUDITORS:International auditors:PricewaterhouseCoopers22nd FloorPrince’s BuildingCentralHong Kong

PRC auditors:PricewaterhouseCoopersZhong Tian CPAs Company Limited12th Floor, Shui On Plaza333 Huai Hai Zhong LuShanghai 200021People’s Republic of China

LEGAL ADVISERS:As to Hong Kong law:Richards Butler20th FloorAlexandra HouseChater RoadCentralHong Kong

As to PRC law:Haiwen & PartnersRoom 1711Silver TowerNo. 2, Dong San Huan North RoadChaoyang DistrictBeijing 100027PRC

Financial Highlights

3

As at 31 December1999 2000 2001 2002

RMB$’000 RMB$’000 RMB$’000 RMB$’000

Total assets 4,584,196 6,074,104 6,158,637 7,386,735Total liabilities 3,662,136 4,039,351 3,805,980 4,833,721Minority interests 98,166 506,740 573,681 679,786Owner’s equity 823,894 1,528,013 1,778,976 1,873,228

Note 1: As China National Foreign Trade Transportation(Group) Corporation (“Sinotrans GroupCompany”) controlled the business transferred tothe Company before the reorganisation andcontinues to control the Company after thereorganisation in 2002 (See Note 1 to thefinancial statements, the “Reorganisation”), theconsolidated financial statements of the Groupfor the years ended 31 December 1999, 2000,2001 and 2002 have been prepared as areorganisation of business under common controlin a manner similar to a pooling-of-interests. Theconsolidated financial statements of the Groupfor the years ended 31 December 1999, 2000,2001 and 2002 present the results of the Groupas if it had been in existence throughout theperiod, rather than from the date on which theReorganisation was completed.

Note 2: Basic and diluted earnings per share for the yearsended 31 December 1999, 2000, 2001 and 2002

have been computed by dividing the profit for theyear by 2,624,087,200 shares, being the numberof shares issued and outstanding upon the legalformation of the Company on 20 November 2002as if such shares had been outstanding for allyears presented. As there are no potentiallydiluted securities, there is no difference betweenbasic and diluted earnings per share.

Note 3: Sinotrans Air Transportation DevelopmentCompany Limited (“Sinoair”), one of theCompany’s subsidiaries issued shares in its initialpublic offering on the Shanghai Stock Exchangein 2000. Sinoair received net cash proceeds ofapproximately RMB955,520,000 from theissuance. Following the issuance of shares to thepublic, the equity interest held by the Companydecreased from 94.13% to 70.36%, while theGroup’s share of net assets of the subsidiaryincreased from approximately RMB385,333,000to approximately RMB988,420,000, resulting in again of approximately RMB603,087,000.

Profit before taxation

1,400,000

1999 2000 2001 2002

800,000

600,000

200,000

0

400,000

1,000,000

1,200,000

RMB’000

931,547

765,117

1,240,288

435,912

Profit for the year

1,200,000

1999 2000 2001 2002

600,000

400,000

200,000

0

800,000

1,000,000

RMB’000

1,034,008

452,303

572,222

258,187

Earnings per share, basic and diluted

0.40

1999 2000 2001 2002

0.25

0.20

0.10

0

0.15

0.30

0.35

RMB

0.05

14,000,000

1999 2000 2001 2002

8,000,000

6,000,000

2,000,000

0

4,000,000

10,000,000

12,000,000

RMB’000

Turnover

7,792,650

9,968,878

11,049,805

13,550,411

0.220.17

0.39

0.10

4

Chairman’s Statement

With the successful listing of

the Company, Sinotrans’

corporate governance

framework and standard,

our management model and

quality, as well as our

operating strategies and

performance have

undergone a close scrutiny

by the international capital

markets and are well

recognised . The listing

would also provide further

growth potential for the

Group’s development in the

future.

4


5

To the Shareholders,

On behalf of the Board of Directors and all our

staff members, I am pleased to present to the

shareholders the annual results of Sinotrans

Limited (the “Company”) for the year ended

31 December 2002.

REORGANISATION AND LISTING OF THE

COMPANY

The year 2002 was a significant one in the

history of the Company. On 20 November

2002, the Company was established pursuant

to a group reorganisation of China National

Foreign Trade Transportation (Group)

Corporation (“Sinotrans Group Company”).

Sinotrans Group Company, which as the sole

promoter, transferred to the Company a

substantial portion of its businesses located in

the fast-growing coastal regions of China as

well as in certain other strategic regions

throughout China, making the Company and

its subsidiaries (collectively the “Group”) a

leading provider of logistics services in China.

The Company was successfully listed on The

Stock Exchange of Hong Kong on 13 February

2003. With the successful listing of the

Company, our corporate governance

framework and standard, our management

model and quality, as well as our operating

strategies and performance have undergone a

close scrutiny by the international capital

markets and are well recognised. The listing

would also provide further growth potential for

the Group’s development in the future.

REVIEW OF OPERATIONS

The Chinese economy continued its upward

trend in the year 2002. Compared with the

corresponding period in 2001, the GDP in

2002 was up by 8%, foreign trade up by

21.8% and foreign direct investment up by

12.5%. This sustained economic growth had

accelerated the development of the logistics

and transportation industry in China.

The Group is a leading provider of logistics

services in China. Opportunity was taken

during the reorganisation in preparation for

listing in 2002 to maximise the utilisation of

our resources and expertise, competitive

strengths and profound experience. The robust

economy and the strong development of the

logistics and transportation industry in China

provided an ideal business environment. Our

competitive edges were greatly enhanced

through the concerted efforts of all our

employees, improvement of service networks,

6


further standardisation of business processes

and renewal and upgrade of information

technology. This process was further assisted

through more effective internal control by way

of firmer budgetary and management controls

as well as credit management, and the

introduction and implementation of the

ORACLE ERP financial system. As a result, we

were able to raise our competitiveness and

elevate the market position of our various

operations, thereby bringing in satisfactory

operating results to realise our profit target.

Turnover of the Group for the year 2002 was

RMB13.55 billion, an increase of 22.6% over

the same period last year. Profit for the year

was RMB572 million, an increase of 26.5%

over the same period last year. Rapid growth

was witnessed in the volume, revenue and

profit in the various core operations of the

Group.

BUSINESS AND PROSPECTS

We believe that the Chinese economy will

maintain a growth rate of 7% or higher in

2003. This in turn will spur further expansion

in the transportation and logistics industry.

2003 will see the Group operating

independently for the first complete financial

year. We are fully aware of the opportunities

and challenges ahead. We, together with all

our colleagues, will set the pursuit of

shareholders’ interest as our prime objective.

We will concentrate on ensuring growth,

effectiveness, efficiency and return on

investment for the Group as well as to achieve

regulated, effective and transparent corporate

governance. In terms of development

strategies, we will endeavour:

• to strengthen the overall business mix, to

further standardise business processes, to

enhance the competitiveness of our


7

products, and to achieve a steady growth

in operating results;

• to integrate asset and capital operations,

to improve business network and to raise

the overall service capability;

• to fully implement the ORACLE ERP

financial system, to establish a uniform

financial management and control system

and to raise the standard of financial risk

management; and

• to set up a uniform human resources and

performance appraisal system, to improve

the framework of human resources and to

foster a corporate culture based on

people and their competence, exploration

and innovation.

We will strive to offer our utmost efforts in

achieving an overall satisfactory performance

for the operation of the Group to fulfill our

commitment to the shareholders.

I would like to take this opportunity to express

our most sincere appreciation to all our

shareholders and customers for their sustained

trust and support. I look forward to their

continued support in the future.

On behalf of the Board, I would also like to

thank all our staff members who are key to

our success.

Zhang Bin

Chairman

15 April 2003

8

Management Discussion and Analysis of Results of Operations and Financial Position

With our well-established

service network and

integrated service strategy

and competence, together

with our experienced

management team, strong

customer base and customer

handling experience, as well

as our firm and sound

financial policies and

healthy financial position,

our management is full of

confidence in the business

prospects in 2003.

8


9

You should read the following discussion and

analysis in conjunction with the consolidated

financial statements of the Company and its

subsidiaries (collectively the “Group”) and the

accompanying notes thereto included

elsewhere in this Annual Report. The Group’s

consolidated financial statements have been

prepared in accordance with International

Financial Reporting Standards (“IFRS”). These

consolidated financial statements and the

discussion and analysis below assume that the

Group’s current structure had been in

existence throughout the years presented.

OVERVIEW OF OUR OPERATIONS

We are a leading provider of logistics services

in China with access to a nationwide service

network and an overseas agency network. Our

core services include freight forwarding,

express services and shipping agency services,

while our support services comprise storage

and terminal services, marine transportation

and other services. Our well-established service

network as well as our united and integrated

services strategy and competence enable us to

provide integrated logistics services to our

customers.

Our operating results are divided into the

following six segments:

• freight forwarding;

• express services;

• shipping agency;

• storage and terminal services;

• marine transportation; and

• other services, of which trucking is the

primary service.

The operating results from our integrated

logistics services are included in the above

business segments, with most of such results

being included as part of our freight

forwarding results and some being included as

part of storage and terminal services results,

depending on the source of the business and

the nature of the services.

OUTLOOK OF OUR OPERATIONS

The global politics and economy still harbour

not a few of uncertainties in 2003. The

upheaval in the Middle East will affect

adversely the global economic recovery and

development. Nevertheless, China, in which

our operations situate, continues to maintain

strong growth in its economy. With further

liberalisation of its market, China will enjoy

sustained increment in both its external trade

volume and direct investment from overseas

investors, enlarging further the size of its trade

market and benefiting immediately the

transportation and logistics industry we engage

in. As a result, our operations are offered rapid

development potential.

10


The uncertainties in global economic

development and the competition pressure

brought by further liberalising the PRC market

may, to a certain extent, affect the business

development of the Group. However, with our

well-established service network and integrated

service strategy and competence, together with

our experienced management team, strong

customer base and customer handling

experience, as well as our firm and sound

financial policies and healthy financial position,

our management is full of confidence in the

Group’s business prospects in 2003.

OPERATING STATISTICS

The table below sets forth certain of the Group’s operating statistics by business segments for the years

indicated:

For the year ended

31 December

2002 2001

Freight forwarding

Sea freight forwarding (in millions of tonnes)

Bulk cargo 4.8 6.5

Container cargo 24.3 19.4

Air freight forwarding (in millions of kilograms) 159.1 135.5

Rail freight forwarding (in millions of tonnes)

Bulk cargo 3.3 3.3


Road freight forwarding (in millions of tonnes)

Bulk cargo 0.3 0.4


Express services

Packages (in millions of units) 9.5 7.4

Shipping agency

Net registered tonnes (in millions of tonnes) 155.4 129.8

Vessel calls 42,920 36,011

Storage and terminal services

Warehouses (in millions of tonnes) 17.2 16.3

Terminals (in millions of tonnes) 5.3 3.6

Marine transportation

TEUs 769,175 564,526

Other services

Trucking (in millions of tonnes) 3.0 3.0


11

RESULTS OF OPERATIONS

The table below presents the Group’s selected financial information for the years indicated:

For the year ended

31 December

2002 2001

(RMB in millions, except for

per share and number of

shares data)

Turnover 13,550.4 11,049.8

Other revenues 41.9 32.3

Total revenues 13,592.3 11,082.1

Transportation and related charges (10,074.3) (8,085.1)

Total revenues, net of transportation and related charges 3,518.0 2,997.0

Depreciation and amortisation (186.3) (152.8)

Operating costs, excluding depreciation and amortisation:

— Staff costs (1,012.9) (856.2)

— Repairs and maintenance (79.9) (69.3)

— Fuel (214.7) (155.9)

— Travel and promotional expenses (179.2) (147.2)

— Office and communications expenses (118.8) (101.1)

— Rental expenses (578.3) (525.7)

— Other operating expenses (254.5) (265.7)

Operating profit 893.4 723.1

Finance income, net 28.0 31.0

921.4 754.1

12


For the year ended

31 December

2002 2001

(RMB in millions, except for

per share and number of

shares data)

Share of results of associates before taxation 10.1 11.0

Profit before taxation 931.5 765.1

Taxation (244.2) (207.3)

Profit after taxation 687.3 557.8

Minority interests (115.1) (105.5)

Profit for the year 572.2 452.3

Profit distribution (478.0) (74.6)

Earnings per share, basic and diluted (1) RMB0.22 RMB0.17

Number of shares (in millions)(1) 2,624.1 2,624.1

Note:

(1) Basic and diluted earnings per share for the years

ended 31 December 2002 and 2001 have been

computed by dividing the profit for the year by

2,624,087,200 shares, being the number of shares

issued and outstanding upon the legal formation of

the Company on 20 November 2002 as if such

shares had been outstanding for all years

presented. As there are no potentially diluted

shares, there is no difference between basic and

diluted earnings per share.

The information included in the above table and

in our discussion in this section is presented in a

format which differs in certain respects from the

Group’s consolidated financial statements. In

particular, we have included an additional line

item - total revenues, net of transportation and

related charges.

We record the Group’s turnover in respect of

some segments, such as freight forwarding, on

a gross basis, being the full amount we charge

our customers before deducting the

transportation and related charges we pay to

third party transport carriers who provide the

transportation services. We record the Group’s

turnover in respect of certain other services,


13

such as shipping agency, on a net basis, in that

the amount we record as turnover excludes the

amounts we incur to third party service

providers that are necessary to generate the

Group’s turnover.

We have therefore presented the additional

line item — total revenues, net of

transportation and related charges — so that

you can better compare and analyse the

Group’s revenues after deducting the

transportation and related charges which we

incur to third party transport carriers who

provide the relevant transportation services

that we effectively pass on to our customers.

The table below sets forth the Group’s

turnover by business segments and their

respective percentage of total turnover before

inter-segment elimination for the years

indicated:

Turnover by business segments (RMB in millions)

380.7 2.6% Shipping agency

10,324.9 71.7% Freight forwarding

1,950.5 13.5% Marine transportation

1,150.8 8.0% Express services

446.4 3.1% Storage and terminal services

151.0 1.1% Other services

2002

376.7 3.2% Storage and terminal services

8,393.4 71.4% Freight forwarding

1,616.3 13.7% Marine transportation

853.4 7.3% Express services

353.4 3.0% Shipping agency

166.7 1.4% Other services

2001

8,512.1 76.7% Eastern China

1,545.3 13.9% Southern China

905.0 8.2% Northern China

137.1 1.2% Other locations

2001

Turnover by geographical segments (RMB in millions)

2002

10,180.0 74.2% Eastern China

1,946.5 14.2% Southern China

1,310.6 9.5% Northern China

290.3 2.1% Other locations

Notes:

(1) Eastern China includes core strategic locations inJiangsu, Shanghai, Zhejiang, Fujian andShandong and the operations of Sinoair(Sinotrans Air Transportation Development Co.,Ltd., a listed company on the Shanghai StockExchange. Stock name: Sinotrans Air; stock code:600270) in Shanghai, Jiangsu, Zhejiang, Anhui,Fujian, Jiangxi and Shandong.

(2) Southern China includes core strategic locationsin Guangdong, Shenzhen and Hubei and theoperations of Sinoair in Hubei, Hunan,Guangdong, Guangxi, Hainan, Guizhou andYunnan.

The table below sets forth the Group’s turnover

by geographical segments and their respective

percentage of total turnover before inter-

segment elimination for the years indicated:

14


(3) Northern China includes core strategic locationsin Liaoning, Tianjin and the operations of Sinoairin Beijing, Tianjin, Hebei, Shanxi, Inner Mongoliaand Henan.

(4) Other locations primarily includes air freight

forwarding and express services operated by

Sinoair and certain of our jointly controlled

entities in locations other than the above.

Eastern China accounted for 74.2% of total

turnover before inter-segment elimination for the

year ended 31 December 2002 primarily due to

the fact that Eastern China comprises the more

economically developed regions of China.

The table below sets forth the Group’s

operating profit/(loss) derived from each of the

segment results. Each segment result is defined

as the turnover for that segment less direct

operating expenses but before deducting

unallocated costs. The segment results are

presented as an amount of the Group’s

combined segment results for the years

indicated:

COMPARISON AND ANALYSIS OF

OPERATING RESULTS AND FINANCIAL

POSITION FOR THE YEAR ENDED 31

DECEMBER 2002

Turnover

The Group’s total turnover increased 22.6%

from RMB11,049.8 million in 2001 to

RMB13,550.4 million in 2002, mainly due to

the increase in turnover from freight

forwarding, marine transportation and express

services. Moreover, by further restructuring its

business operations, the Group enjoyed the

benefits arising from integrated and

standardised operations. As a result, the Group

achieved better resources allocation and

economies of scale. On top of that, the Group

implemented an employee incentive plan

which also led to the increase in turnover.

Freight forwarding

Our freight forwarding services for import and

export cargo encompasses both container

cargo and bulk cargo. Meanwhile, we offer

ancillary services to our customers including

arranging for customs declaration and

clearance, preparation of documentation,

consolidation and distribution, trucking and

warehousing. In addition, we also have the

ability to provide special services such as

project and trade fair cargo transportation. We

use our Electronic Data Interchange (“EDI”)

technology extensively in our freight

forwarding operations.

300

250

175

150

100

50

25

-25

2001

Freight

forwarding

Express

services

Shipping

agency

Storage and

terminal services

Marine

transportation

Other

services

2002

0

75

125

200

225

275

325RMB millions

The table below sets forth the Group’s operating profit/(loss)derived from each of our segment results

316.6

255.5

237.5

292.5

199.0

215.1

76.356.0 9.7 -2.1

-7.7

34.6


15

We believe that in the freight forwarding

sector, price and quality of service are the

major factors of gaining the market share, and

we also believe the main features of quality of

service are professional, safe and reliable

service and quick response to customers’

demand. Apart from competitive price, we also

think that experienced staff, strong customer

base and our expertise in providing value-

added service are our invaluable competitive

edges.

Turnover from our freight forwarding services

increased 23.0% to RMB10,324.9 million in

2002 from RMB8,393.4 million in 2001.

Income from containers sea freight forwarding

services and air freight forwarding services are

the largest components of the turnover from

freight forwarding. The number of containers

handled by sea freight forwarding services

increased 22.9% to 2.58 million TEUs in 2002

from 2.10 million TEUs in 2001, while the

amount of cargo handled by our air freight

forwarding services increased 17.4% from

135,500 tonnes in 2001 to 159,100 tonnes in

2002. The growth in freight forwarding

revenue in 2002 was mainly due to our ability

to maintain a relatively faster pace of business

development in the economic growth.

Express services

A substantial portion of our express services

operation is carried out by the Company’s

subsidiary, Sinoair, which is a listed company in

the PRC.

We offer a range of international express

services through our joint ventures and

partnerships with international express services

providers such as DHL, UPS and OCS. The

services portfolio includes door-to-door

custom-cleared delivery services to over 200

countries and regions worldwide and

guaranteed on time delivery. Our EDI

technology enables customs clearance of

shipments in advance of their arrival. In

addition, each shipment is assigned a unique

barcoded airwaybill enabling us and our

customers, via the internet, to track the status

of a shipment. We believe that our advanced

tracking systems allow us to save costs as well

as facilitate secure and reliable delivery

services.

16


Turnover from our express services increased

34.8% to RMB1,150.8 million in 2002 from

RMB853.4 million in 2001. The number of

documents and packages handled increased

28.9% to 9.54 million pieces in 2002 from

7.40 million pieces in 2001. The growth was

primarily due to the new services provided by

the Group and the increase in the number of

our branches. Moreover, in 2002, the average

weight per document and package handled by

us increased as compared to 2001 and

therefore, the growth in turnover was higher

than the growth in the number of documents

and packages handled.

Shipping agency

We have well-established shipping agency

operations in many major ports in China

including Dalian, Fuzhou, Guangzhou,

Lianyungang, Ningbo, Qingdao, Shanghai,

Shenzhen, Tianjin and Xiamen.

We conduct our shipping agency business

under the “Sinoagent” brand and have,

through offering standardised services,

established a good reputation amongst

shipping companies.

We believe our strength lies in our large freight

forwarding customer base, our good

reputation in the market, and our long-

established business relationship with many of

the major shipping companies. Good

coordination between our freight forwarding

activities and our shipping agency operations

enables us to extract synergies between these

two businesses.

Turnover from our shipping agency services

increased 7.7% to RMB380.7 million in 2002

from RMB353.4 million in 2001. The number of

containers we handled increased 29.2% to 4.65

million TEUs in 2002 from 3.60 million TEUs in

2001. Net registered tonnage of vessels handled

by our shipping agency services also increased

19.7% from 129.8 million tonnes in 2001 to

155.4 million tonnes in 2002. The number of

vessel calls we managed increased 19.2% from

36,011 in 2001 to 42,920 in 2002. Our

turnover and volume growth in shipping agency

services were primarily due to our enhanced

effort in customer service and marketing and

our ability to maintain a relatively faster pace of

business development. However, due to the

increasing competition and the decline in our

agency fee rates in response to the decline in

the market rates, the turnover growth from the

volume growth was partially offset.

Storage and terminal services

Our storage and terminal services play an

important supporting role to our freight

forwarding and integrated logistics services.


17

The aggregate turnover from storage and

terminal services amounted to RMB446.4

million in 2002, a 18.5% growth from

RMB376.7 million in 2001. Our warehouses

handled 17.22 million tonnes of cargo in 2002,

a 5.6% increase from 16.30 million tonnes in

2001; cargo tonnage handled in terminals

increased 47.8% from 3.60 million tonnes in

2001 to 5.32 million tonnes in 2002, mainly

because of the increased production capacity

such as terminal loading/ unloading facilities in

recent years and the more integrated cargo-

handling capability at terminals, resulted from

the acquisition of two terminal operating

companies on 30 June and 30 September 2002

respectively. Moreover, while enhancing its

import and export business, the Group

proactively developed its domestic goods

handling business in 2002, boosting the

percentage of its domestic trading goods

handling volume over total storage and

terminal business volume from 5.4% in 2001

to 22.7% in 2002. However, the fee scale for

handling domestic trading goods was lower

than that of handling import and export

trading goods, leaving the increment in

turnover smaller than that of business volume.

Marine transportation

In support of our freight forwarding operations

and to further develop our international

network in accordance with our business

strategy, we have established liner and feeder

operations in many important manufacturing

and trading centers.

Turnover from our marine transportation

services increased 20.7% from RMB1,616.3

million in 2001 to RMB1,950.5 million in 2002.

The volume of containers shipped by the

Group rose to 769,175 TEUs in 2002, a 36.3%

up compared to the 564,526 TEUs in 2001.

The growth could be largely attributed to our

new shipping lines and capacity in the second

half year in 2002, driving the turnover to

increase; yet the revenue growth in marine

transportation was partially offset by the

fluctuation in international sea freight rates.

Other services

Turnover from other services, primarily from

our trucking services, decreased 9.4% from

RMB166.7 million in 2001 to RMB151.0 million

in 2002. The Group shipped 3 million tonnes

of cargo in 2002, same as 2001. Due to the

market competition, the business suffered a

decrease in freight rates that led to the

decrease in turnover.

TRANSPORTATION AND RELATED CHARGES

Transportation and related charges increased

24.6% from RMB8,085.1 million in 2001 to

RMB10,074.3 million in 2002 primarily due to

the increased volume of business.

18


TOTAL REVENUES, NET OF

TRANSPORTATION AND RELATED CHARGES

In 2002, total revenues, net of transportation

and related charges increased 17.4% to

RMB3,518.0 million from RMB2,997.0 million

in 2001, while the turnover increased 22.6%.

This is primarily due to the increase in

transportation costs and related charges at a

higher rate resulted from intense competition.

DEPRECIATION AND AMORTISATION

Depreciation and amortisation increased

21.9% from RMB152.8 million in 2001 to

RMB186.3 million in 2002 primarily as a result

of increased fixed assets and intangible assets.

OPERATING COSTS, EXCLUDING

DEPRECIATION AND AMORTISATION

In 2002, our operating costs, excluding

depreciation and amortisation, were

RMB2,438.3 million, a 15.0% increase from

RMB2,121.1 million in 2001. The increase in

operating costs, excluding depreciation and

amortisation, was primarily due to the

increased expenditure on staff costs, lease

payments, travel and promotional expenses,

office and communications expenses and fuel

costs. The increase in staff costs was primarily

due to the wage adjustment in our companies

in Zhejiang, Shanghai, Jiangsu and Guangdong

and also the establishment of new express

services branches by Sinoair. The increase in

fuel costs was due to the increase in marine

transportation capacity and the rise of

international petroleum price, leading to the

37.7% increase in fuel costs in 2002. On the

other hand, our business development also

boosted our lease payments, travel and

promotional expenses and the office and

communications expenses in 2002 accordingly.

OPERATING PROFIT

In 2002, our operating profit was RMB893.4

million, an increase of 23.6% from RMB723.1

million in 2001 primarily as a result of the

increase in business volume. Operating profit

as a percentage of total revenues, net of

transportation and related charges, increased

from 24.1% in 2001 to 25.4% in 2002

primarily as a result of growth in total

revenues, net of transportation and related

charges combined with improved controls on

operating costs.

TAXATION

Taxation increased 17.8% to RMB244.2 million

in 2002 from RMB207.3 million in 2001 primarily

as a result of the increase in taxable income.

Taxation as a percentage of profit before tax

decreased from 27.1% in 2001 to 26.2% in

2002. It was primarily due to the decrease in

expenses not deductible for taxation purposes

and the increase in non-assessable income in

2002.


19

MINORITY INTERESTS

Minority interests increased 9.1% to RMB115.1

million in 2002 from RMB105.5 million in 2001

primarily as a result of the increase in the

profits contributed by Sinoair, of which we are

the holding company.

PROFIT FOR THE YEAR

Profit for the year of the Group increased

26.5% to RMB572.2 million in 2002 from

RMB452.3 million in 2001.

LIQUIDITY AND CAPITAL RESOURCES

Prior to the Reorganisation, Sinotrans Group

Company owned the Group’s operations.

Through the Reorganisation, the Group became

a separate group, both operationally and

financially. Therefore, the historical information

contained herein concerning liquidity and

capital resources of the Group is derived from

movements in the Group’s consolidated balance

sheets and profit and loss accounts and does

not necessarily represent actual movements in

cash. Accordingly, such movement may not be

indicative of the Group’s liquidity and capital

resources in the future or what the Group’s

liquidity and capital resources would have been

had the Group been a separate, stand-alone

entity during the years presented.

Our principal source of working capital is cash

generated from our operations.

The following table summarises our cash flows for each of the two years ended 31 December 2002 and

2001:

For the year ended

31 December

2002 2001

(RMB in millions)

Net cash inflow from operating activities 564.4 590.5

Net cash used in investing activities (162.4) (533.6)

Net cash used in financing activities (43.5) (292.6)

Cash and cash equivalents at end of year 2,342.0 1,983.5

20


OPERATING ACTIVITIES

Net cash from operating activities decreased

4.4% from RMB590.5 million for the year

ended 31 December 2001 to RMB564.4 million

for the year ended 31 December 2002

primarily due to a RMB752.8 million increase in

trade and other receivables for the year ended

31 December 2002 as compared to a

RMB233.6 million decrease for the year ended

31 December 2001, and also due to tax paid

increased from RMB204.0 million for the year

ended 31 December 2001 to RMB256.5 million

for the year ended 31 December 2002, which

was partially offset by a RMB531.4 million

increase in trade payables for the year ended

31 December 2002 (a RMB347.3 million

decrease for the year ended 31 December

2001). The increase in trade receivables for the

year ended 31 December 2002 was primarily

due to the growth in both business scale and

revenue. The average age of trade receivables

for the year ended 31 December 2002 and

2001 were 61 days and 64 days respectively.

The increase in trade payables for the year

ended 31 December 2002 was also primarily

due to the growth in both business scale and

revenue.

INVESTING ACTIVITIES

In 2002, net cash used in investing activities

consisted primarily of the RMB345.3 million

purchase of property, plant and equipment

and the RMB83.1 million purchase of

intangible assets and land use rights, which

was partially offset by the reduction of

RMB243.3 million of term deposits with an

initial term of over three months. In 2001, net

cash in investing activities consisted primarily

of the RMB308.0 million purchase of property,

plant and equipment, increase of RMB229.2

million of terms deposits with an initial term of

over three months and the RMB57.8 million

purchase of land use rights, primarily for our

express services.

FINANCING ACTIVITIES

Net cash used in financing activities was

RMB43.5 million for the year ended 31

December 2002, and net cash used in

financing activities was RMB292.6 million for

the year ended 31 December 2001. It was

mainly because of the reduction in bank loan

repayment, the curtailment in profit

distribution and the absence of net

distributions to Sinotrans Group Company in


21

2002. In 2002, cash outflows in financing

activities included repayment of borrowings of

RMB99.1 million, dividends for minority

shareholders of RMB39.0 million and increase

in pledged deposits of RMB23.4 million, and it

was partially offset by the additional bank

borrowings.

CAPITAL EXPENDITURES

For the year ended 31 December 2002, the

RMB428.4 million capital expenditures

consisted primarily of RMB105.7 million for

construction-in-progress, of which RMB56.0

million was for the investment in constructing

a warehouse at Shanghai Pudong airport for

air transportation, RMB12.0 million for the

financial network projects of the headquarters,

RMB18.8 million for restructuring of

warehouses and terminals in Guangdong,

RMB13.8 million for the container yards

construction in Shanghai; RMB84.19 million for

vehicles, of which RMB32.0 million was for

purchasing express and freight forwarding

vehicles for air transportation; RMB56.27

million for plant and equipment, of which

RMB22.0 million was for purchasing

warehouse and terminal equipments in

Guangdong and RMB21.56 million was for the

use in air transportation; RMB67.44 million for

office facilities, of which RMB33.29 million was

for purchasing office facilities such as

computers for the Sinoair branch companies;

RMB70.2 million for purchasing land use rights

and prepayment for land use rights.

CONTINGENCIES AND GUARANTEES

As at 31 December 2002, the contingent

liabilities of the Group amounted to

approximately RMB62.4 million, primarily

arising from outstanding loan guarantees of

RMB9.9 million for the obligations of certain

related parties and certain third party entities,

pending lawsuits of RMB42.5 million and bills

discounted with recourse of approximately

RMB10.0 million. Except as described above

and apart from intragroup liabilities, the Group

did not have any outstanding at the close of

business on 31 December 2002 loan capital

(issued or agreed to be issued), bank overdrafts

and liabilities under acceptances or other

similar indebtedness, debentures, mortgages,

charges or loans or acceptance credits or hire

purchase commitments, finance lease

commitments, guarantees, indemnities or other

material contingent liabilities.

22


GEARING RATIO

As at 31 December 2002, the gearing ratio of

the Group was 74.6% (2001: 71.1%), which

was derived from the sum of liabilities and

minority interests over total assets on 31

December 2002.

FOREIGN EXCHANGE RATE RISK

A substantial portion of our turnover and

transportation and related charges are

denominated in US dollars, which provides a

natural currency hedge. The Renminbi,

however, is our functional and reporting

currency since it is the legal currency of the

PRC, the primary economic environment in

which we operate, and we are required under

PRC regulations to convert the US dollars

received, net of expenses, into Renminbi within

a prescribed period of time. We have not used

any forward contracts or currency borrowings

to hedge our exposure to foreign currency risk.

The foreign currency is converted into

Renminbi within one year at the latest.

The Renminbi is not a freely convertible

currency. The rules and regulations of the

Chinese government limit our ability to

establish a foreign currency account and our

ability to use or exchange foreign currency.

Actions taken by the Chinese government

could cause future exchange rates to vary

significantly from current or historical exchange

rates. Although the Renminbi to US dollar

exchange rate has been relatively stable since

1994, we cannot predict nor give any

assurance of its future stability. Fluctuations in

exchange rates may adversely affect the value,

translated or converted into US dollars or Hong

Kong dollars, of our net assets, earnings and

any declared dividends. We cannot give any

assurance that any future movements in the

exchange rate of the Renminbi against the US

dollars and other foreign currencies will not

adversely affect our results of operations and

financial position (including ability to pay

dividends). We believe that significant

appreciation in the Renminbi against major

foreign currencies may have a material adverse

impact on our results of operations.

CREDIT RISK

The extent of our credit exposure is

represented by an aggregated balance of trade

receivables and other receivables, trading

investments, pledged deposits and term

deposits with an initial term of over three

months. The maximum credit exposure in the

event that other parties fail to perform their


23

obligation under these financial instruments

was approximately RMB3,206.8 million and

RMB2,625.4 million as at 31 December 2002

and 2001 respectively. In addition, we made

certain prepayments on behalf of customers,

prepaid certain expenses and provided certain

deposits, the aggregate of which was

RMB235.0 million and RMB225.0 million as at

31 December 2002 and 2001 respectively.

EMPLOYEES

The Group had 13,462 employees as at the

end of 2002. The Group has long been

concerned with its employees’ development

and it organised various training programs

including occupational skills, professional

knowledge, and laws and regulations. The

Group spares no effort in its implementation of

the Performance-assessment System that links

staff’s performance and their salary level, in

order to improve the quality of staff and their

working initiative. In addition, the Group has

implemented the Share Appreciation Rights

Scheme and Long-term Performance Unit

Scheme on its management level, as an

incentive for their utmost efforts.

ACQUISITIONS AND DISPOSALS

Save as disclosed in the Company’s prospectus

dated 29 January 2003, there were no material

acquisitions and disposals of subsidiaries or

associated companies of the Company in 2002.

Directors, Supervisors & Senior Management

24

DIRECTORS

Zhang Bin, age 47, is an

executive director and the

chairman of the board of the

Company. He graduated from

Lanzhou Institute of Railway

in January 1982. He then

joined China National Foreign

Trade Transportation

Corporation (“Sinotrans

Group Company”) and

worked in its port department

from January 1982 to June

1988. After that, he was

stationed in the United States,

working with China

Interocean Transport Inc. from

1988 to 1992. Later, he

resumed his service in

Sinotrans Group Company as

vice general manager of the

port department. From

January 1993 to February

1997, he acted as deputy

general manager and general

manager of SINOAIR. He was

promoted to be executive

director and vice president of

Sinotrans Group Company in

1997. In May 2001, he was

appointed to be president of

Sinotrans Group Company. He

obtained from Peking

University the International

Master of Business

Administration degree in May

2002. Mr. Zhang is now, also

the chairman of SINOAIR.

Zhang Jianwei , age 46, is

an executive director and

president of the Company.

Mr. Zhang has been employed

by Sinotrans Group Company

since 1980 with experience in

Sinotrans Group Company’s

financial department, overseas

enterprises management

department and chartering

department. Mr. Zhang was

seconded to China InterOcean

Transport Inc. in the United

States in 1988 to serve as

assistant president. In 1993,

Mr. Zhang became the deputy

general manager of China

National Chartering

Corporation and later became

its general manager. In 1997,

he was promoted to be

assistant president of

Sinotrans Group Company.

Then in 1997, Mr. Zhang

became Sinotrans Group

Company’s executive director

and vice-president. Mr. Zhang

obtained his Master of

Business Administration

degree from China Europe

International Business School

in 1998.

Tao Suyun, age 49, is an

executive director and vice-


Ms. Tao has worked with

Sinotrans Group Company

since 1979 and became

deputy general manager of

the Shipping Europe

Department in 1986. She was

seconded to SINORICK

Shipping Agency Co. in

Hamburg, Germany from

1989 to 1993 to serve as

general manager. She later

returned to work as general

manager with the Sinotrans

Group Company’s liner

shipping division. In 1995, Ms.

Tao was promoted to become

assistant president and served

as Sinotrans Group

Company’s vice-president and

executive director from 1997.

Ms. Tao obtained her Master

of Business Administration

degree from China Europe


in 2002.


25

Pan Deyuan, age 54, is an

executive director of the

Company. Mr. Pan joined


1997 as executive director

and vice president. Before

that, he served in China

Resources Group, China

Machinery Import and Export

Company and Ministry of

Foreign Trade and Economic

Cooperation respectively. Mr.

Pan relinquished his post as

director in January 2003 due

to a change in posting.

Liu Guilin, age 58, is an

executive director of the

Company. Mr. Liu began his

career with Sinotrans Group

Company’s Shanghai

operations in 1962. He served

various posts during his 40

years service with Sinotrans

Group Company including

department manager,

assistant to general manager,

deputy general manager and

later, general manager of


Shanghai operations. In 1999,

Mr. Liu was promoted to

become the vice chairman and

general manager of Sinotrans

Group Company’s Shanghai

operations. From 2002, Mr.

Liu became the chairman of

Sinotrans Eastern Company

Limited. Mr. Liu passed away

on 12 February 2003 due to

illness at the age of 58.

Yang Yuntao, age 37, is a

non-executive director of the

Company. Mr. Yang

commenced working for


after receiving his bachelor of

laws degree from Jilin

University School of Law in

1988. He was deputy general

manager of the port

administration department in


before being transferred to be

the general manager of the

legal affairs department in

1996. Mr. Yang obtained his

Master of Laws degree from

University of International

Business and Economics in

1999. He was appointed vice

president of Sinotrans (Hong

Kong) Holdings Limited in

2002.


26

Koo Kou Hwa, age 77, is an

independent non-executive

director of the Company. Mr.

Koo has been employed by

Tai Chong Cheang Steamship

Co. (H.K.) Ltd. since 1983 and

is currently its chairman. He

studied in the Faculty of

Ocean Shipping, University of

Pennsylvania, Philadelphia,

U.S.A. and the Faculty of

Maritime Law and Chartering

& Ship Brokerage, School of

World Trade, New York,

U.S.A.

Mr. Koo is member to various

marine industry associations,

including the Hong Kong Port

& Maritime Board of HKSAR

(HKPMB), the American

Bureau of Shipping (ABS) and

the Bureau Veritas (B.V.). He

is also the chairman of the

Hong Kong Shipowners

Association and chairman of

the Asia Shipowners Forum.

He has been a council

member and the vice-

chairman of the Executive

Committee of The

International Association of

Independent Tanker Owners

since 1993 and 2000

respectively.

Sun Shuyi, age 63, is an


director of the Company. He

is currently serving as


directors for three other

companies — Galaxy Fund

Management Co. Ltd., China

Southern Fund Management

Co. Ltd. and Dongfeng

Automobile Co. Ltd which is

listed on the Shanghai Stock

Exchange. Mr. Sun had

worked in various ministries of

the central government

before, including serving as

the deputy director of the

office of the Central Leading

Group on Finance and

Economic Affairs, the vice-

minister of the Ministry of

Personnel and the vice-

secretary general of the

Central Enterprise Working

Committee. Mr. Sun

graduated from the University

of Science and Technology of

China in 1963.

SUPERVISORS

Li Jianzhang, age 47, is a

supervisor of the Company.

During Mr. Li’s career, he has

worked in various

governmental departments.

Mr. Li started working at


May 2001. In July 2001, Mr.

Li was promoted to become a

director of Sinotrans Group

Company.


27

Wang Xiaozheng, age 32, is

a supervisor of the Company.

Mr. Wang began his career at


and served in the chartering

department and the enterprise

management department of


from 1994 to 1997. Since

1998, Mr. Wang began

serving at the investment

department of the Sinotrans

Group Company and was

promoted to become the

deputy general manager of

the investment department in

2000. Since November 2002,

Mr. Wang began serving at

the strategy & planning

department of the Company

and was appointed the deputy

general manager.

Zhang Junkuo, age 42, is an

independent supervisor of the

Company. Mr. Zhang began

his career at the Development

Research Center of the State

Council where he was

engaged in various positions,

including, director of the

Research Institute of Market

Economy, deputy secretary-

general of the Academic

Committee, deputy director of

the Comprehensive Economic

Research Department as well

as directing a number of

research programs. During

2001 and 2002, Mr. Zhang

was a visiting scholar at the

department of finance at

Loyola University Chicago as

well as a short-term

consultant at the World Bank

in Washington D.C. in the

United States. Mr. Zhang has

published various articles and

has also received significant

awards such as the Sun Ye-

fang Economics Prize in 1998.

Mr. Zhang obtained his

Master of Economics degree

from the Economic Research

Institute of Huazhong

University of Science and

Technology in 1985.

COMPANY SECRETARY

Gao Wei, age 37, is the

company secretary. Mr. Gao

began his career in the legal

department of Sinotrans

Group Company in 1993. In

1997, Mr. Gao began working

as the vice-general manager

of legal department of

Sinotrans Group Company. In

the same year, he became the

deputy manager in the

restructuring office of the


and became the vice-general

manager of Sinotrans Group

Company’s management

department in 1999. During

the same year, Mr. Gao began

to serve as the vice-general

manager of SINOAIR and was

later promoted to become

SINOAIR’s general manager in

2001. Mr. Gao obtained his

Master of Economics degree

in the Central University of

Finance and Economics in

1993 and his doctorate

degree in laws in the

University of International

Business and Economics in

1999.


28

SENIOR MANAGEMENT

Wang Lin, age 44, is a vice


Mr. Wang started his career

with Sinotrans Group

Company in 1983 by serving

in the Ningbo branch of

Sinotrans Zhejiang Company

Limited. In 1996, Mr. Wang

was promoted to the general

manager of Sinotrans Ningbo

Company Limited. In 1998, he

became the general manager

of Sinotrans Zhejiang

Company Limited which

merged with Sinotrans Ningbo

Company in the same year. In

1999, Mr. Wang became the


Jiangsu Company Limited and

a director of Sinotrans Group

Company. Mr. Wang was

appointed vice president of

the Company and the general

manager of Sinotrans Eastern

Company Limited in 2002 and

from March 2003, he also

acts as chairman of Sinotrans

Eastern Company Limited.

Zeng De, age 56, is a vice-


Mr. Zeng began his career

with Sinotrans Group

Company’s Guangdong

operations in 1976 and was

seconded to Hong Kong in

1985 to serve as general

manager of Eternal Way

Limited. In 1999, he returned

to Guangdong to become the


Group Company’s Guangdong

operations. In 2000, Mr. Zeng

was promoted to become a

director of Sinotrans Group

Company.

Wu Dongming, age 40, is a

vice president of the

Company. Mr. Wu began his

career in the Sinotrans Group

Company in 1986 and served

as assistant general manager

at TNT Skypak-Sinotrans

Company from 1988 to 1990.

In 1990, Mr. Wu served as

department manager at

Sinoair and later became

general manager of

Associated International

Freight Forwarding Co., Ltd.

in 1995. In 1997, Mr. Wu

began serving as the deputy

managing director of DHL-

Sinotrans.


29

Liu Hongling, age 49, is the

chief financial officer of the

Company. Ms. Liu started

working in Sinotrans Group

Company’s financial

department in 1987. Ms. Liu

served as vice-general

manager in Sinotrans Group

Company’s financial

department since 1990 and

was later promoted to

become the general manager

in 1997. Ms. Liu obtained her

bachelor degree in economics

from the People’s University

of China in 1983.

Liu Minsheng*, age 47, chief

information officer of the

Company. Mr. Liu joined


1983 in Human Resources

Department. From 1985 on,

Mr. Liu had been serving in

Sinotrans Group Company’s IT

Centre and later acted as

general manager until

February 1996 when he was

appointed as deputy director

general of China International

Electronic Commerce Center

of the Ministry of Foreign

Trade and Economic

Cooperation of the PRC. In

November 1998, Mr. Liu

began to work as deputy

director general of

Commercial Network and

Sites Development Centre of

the National Domestic Trade

Bureau of China. In January

2003, Mr. Liu resumed his

service in Sinotrans. Mr. Liu

has participated in and led

many prominent domestic

information technology

projects and won for times

national IT awards.

*Mr. Liu’s appointment was

approved by the Board of

our Company on 15 April

2003.

Yu Jianmin, age 38, is the

assistant president of the

Company. Mr. Yu began

working in the liner

department of Sinotrans

Group Company in 1990 and

was seconded to serve as the

chief representative at


Italian representative office in

1993. In 1998, he returned to

China to serve as vice-general

manager of Sinotrans Group

Company’s investment

management department.

Since 1999, Mr. Yu served as

the general manager of


logistics development

department. Mr. Yu obtained

his master degree from the

Dalian Maritime University in

1990. He also obtained his

Master of Business

Administration degree from

the China Europe


in 2002.

30

Report of the Directors

The directors of the Company herein present

their report and audited financial statements of

the Company and its subsidiaries ( the

“Group”) for the year ended 31 December

2002.

REORGANISATION

The Company was incorporated as a joint stock

limited company in the PRC on 20 November

2002 for the purpose of reorganising its

businesses and assets in preparation for the

listing of H shares of the Company on the

main board of the Stock Exchange of Hong

Kong. Details of the reorganisation and the

basis for preparing the financial statements are

set out in Notes 1 and 2 to the financial

statements.

PRINCIPAL ACTIVITIES AND GEOGRAPHIC

ANALYSIS OF OPERATIONS

The principal activities of the Company are

freight forwarding, express services, shipping

agency services, storage and terminal services,

marine transportation and trucking services.

Details of an analysis of the Group’s turnover

from operating activities by principal activity

and geographic area of operations for the year

are set out in Note 4 to the financial

statements.

SUBSIDIARIES, JOINTLY CONTROLLED

ENTITIES AND ASSOCIATED COMPANIES

The activities of the Company’s subsidiaries,

jointly controlled entities and associated

companies are set out in Notes 16, 17 and 18

to the financial statements.

RESULTS

The Group’s results for the year ended 31

December 2002 are set out in the financial

statements on page 45.

DIVIDENDS

Pursuant to the Reorganisation Agreement, the

Company paid a special dividend of RMB478

million to Sinotrans Group Company on 27

March 2003, which was equivalent to the

estimated net profit during the period

commencing from 1 January 2002 to 30

November 2002 (the last day of the calendar

month of its incorporation) calculated in

accordance with the PRC accounting standards.

Since the actual net profit during the period

from 1 January 2002 to 30 November 2002 was

below RMB478 million, pursuant to the

Reorganisation Agreement, Sinotrans Group

Company is required to repay the difference of

RMB29,400 to the Company before 30 June

2003.

Apart from the said special dividend, the Board

of Directors does not propose to pay any

dividend for the year 2002.

BANK LOANS

Details of the bank loans of the Company and

the Group are set out in Note 28 to the

financial statements.


31

MAJOR CUSTOMERS AND SUPPLIERS

In 2002, sales to the five largest customers and

purchases from the five largest suppliers of the

Group accounted for less than 30% of the

Group’s aggregate turnover and purchases

respectively.

For the year ended 31 December 2002, none

of the directors, supervisors, their respective

associates and shareholder (who to the

knowledge of the Board is interested in more

than 5% of the shares of the Company) had

any interest in the five largest customers and

the five largest suppliers of the Group.

CONNECTED TRANSACTIONS

Details of the connected transactions of the

Group for the year ended 31 December 2002


statements. Directors of the Company have

unanimously confirmed that the transactions,

all of which took place prior to our listing in

February 2003, were carried out on normal

commercial terms in the ordinary course of

business of the Group, save as the transactions

disclosed in the prospectus of the Company.

FIXED ASSETS

Details of the movement in the fixed assets of

the Group in the year are set out in Note 13 to

the financial statements.

TAXATION

Details of the taxation of the Company and the

Group as at 31 December 2002 are set out in

Note 9 to the financial statements.

RESERVES

Details of the movements in the reserves of the

Group and the Company in the year are set

out in the financial statements on page 51 and

page 123 respectively.

DISTRIBUTABLE RESERVES

Distributable reserves of the Company as at 31

December 2002 were approximately

RMB22.945 million.

32


SHARE CAPITAL

Share capital of the Company for the year ended 31 December 2002 is as follows:

% of Issued

Name Nature of Shares Number of Shares Share Capital

China National Foreign Trade Domestic shares 2,624,087,200 100%

Transportation (Group)

Corporation

Details of the change in the share capital of

the Company upon completion of the listing

on 13 February 2003 and the exercise of Over-

allotment Option on 17 February 2003 are set

out in Note 31 to the financial statements.

SUBSTANTIAL SHAREHOLDERS’ INTERESTS

IN SHARES

As at 31 December 2002, to the best

knowledge of the directors, no substantial

shareholder was recorded in the register

required to be kept by the Company pursuant

to Section 336 of the Securities and Futures

Ordinance, as the Company was not then

listed.

PURCHASE, SALE AND REDEMPTION OF

LISTED SECURITIES OF THE COMPANY

There was no purchase, sale or redemption of

any of the H Shares by any member of the

Group during the year ended 31 December

2002, as the Company’s H Shares were only

issued and listed in February 2003.

DIRECTORS AND SUPERVISORS

The directors and supervisors of the Company

during the period were as follows:

Executive Directors:

Zhang Bin

Zhang Jianwei

Tao Suyun

Pan Deyuan

Liu Guilin


33

Independent Non-executive Directors:

Koo Kou Hwa

Sun Shuyi

Supervisors:

Li Jianzhang

Wang Xiaozheng

Independent Supervisor:

Zhang Junkuo

The above members of the Board and the

Supervisory Committee were all elected or

appointed in our founding meeting held on 19

November 2002.

In accordance to the Articles of Association of

the Company, all directors and supervisors are

appointed for a term of three years and are

eligible for re-election upon the expiry of the

term.

CHANGES IN DIRECTORS, SUPERVISORS

AND SENIOR MANAGEMENT

During the period ended 31 December 2002,

there were no changes in the directors and

senior management of the Company.

Mr. Pan Deyuan, executive director of the

Company, resigned on 14 January 2003 due to

a change in posting.

Mr. Yang Yuntao, non-executive director of

the Company, was appointed on 14 January

2003.

Mr. Liu Guilin, executive director of the

Company, passed away on 12 February 2003.

Mr. Liu Minsheng, chief information officer of

the Company, was appointed on 15 April

2003.

BIOGRAPHY OF DIRECTORS, SUPERVISORS

AND SENIOR MANAGEMENT

The biographies of the directors, supervisors

and senior management are set out on pages

24 to 29.

DIRECTORS’ AND SUPERVISORS’ INTEREST

IN SHARES

As at 31 December 2002, none of the

directors, supervisors or persons associated

with them had any interest in the shares of the

Company or its associated corporations (within

the meaning of the Securities and Futures

34


Ordinance) that is required to be declared to

the Company and the Stock Exchange of Hong

Kong under Section 341 of the Securities and

Futures Ordinance (including those interest

accounted or deemed to be held as defined in

Section 344 and 345 of the Securities and

Futures Ordinance), or as recorded in the

register maintained by the Company under

Section 352 of the Securities and Futures

Ordinance, or as required by the Model Code

for directors of listed companies in dealing in

securities.

DIRECTORS’ AND SUPERVISORS’ SERVICE

CONTRACTS

All of the executive directors and supervisors

(excluding Mr. Zhang Junkuo, who is an

independent supervisor) of the Company had

entered into service contracts, with a term of

three years respectively, with the Company on

20 January 2003.

The Company has not entered into any service

contract not determinable by the Company

within 1 year without compensation (other

than statutory compensation) with any director

or supervisor.

DIRECTORS’ AND SUPERVISORS’ INTEREST

IN CONTRACTS

For the year ended 31 December 2002, no

director or supervisor had a material interest in

any contract of the Company to which the

Company, its subsidiaries, its ultimate holding

company or its fellow subsidiaries was a party.

DIRECTORS’ AND SUPERVISORS’ RIGHTS TO

ACQUIRE SHARES OR DEBENTURES

At no time during the year ended 31

December 2002 was the Company, its

subsidiaries, its ultimate holding company or its

fellow subsidiaries a party to any arrangement

to enable the Company’s directors or

supervisors to acquire benefits by means of the

acquisition of shares in or debentures of the

Company or any other body corporate.

PENSION SCHEME

Details of the Group’s pension scheme for the

year ended 31 December 2002 are set out in

Note 29 to the financial statements.

TAX RELIEF AND EXEMPTION

The Company is not aware that holders of

securities of the Company are entitled to any

tax relief or exemption by reason of their

holding of such securities.


35

PRE-EMPTIVE RIGHTS

There are no provisions for pre-emptive rights

under the Company’s Articles of Association or

the laws of the PRC.

CODE OF BEST PRACTICE

To the best knowledge of the directors, the

Company has complied with the Code of Best

Practice, as set out in Appendix 14 of the Rules

Governing the Listing of Securities on the Stock

Exchange of Hong Kong Limited (“Listing

Rules”), throughout the period commencing 20

November 2002 (the date of the Company’s

incorporation) to 31 December 2002.

AUDIT COMMITTEE

The Company has set up an audit committee

and has established written terms of reference

for the committee in accordance with the

Code of Best Practice, as set out in Appendix

14 of the Listing Rules. The principal activities

of the audit committee include the

appointment of external auditor, review and

supervision of the Group’s financial reporting

process and internal controls as well as to offer

advice and recommendations to the Board of

Directors. The audit committee comprises one

executive director and two independent non-

executive directors. The current committee

members are Ms. Tao Suyun, Mr. Koo Kuo

Hwa and Mr. Sun Shuyi.

PROPOSED APPOINTMENT OF DIRECTORS

The Company is pleased to report that Mr. Li

Jianzhang has been nominated for election as

an executive director, and that Ms. Liu Jinghua,

Mr. Jerry Hsu, Mr. Ken Torok and Mr. Lee

Chong Kwee have been nominated for election

as non-executive directors(1). Their biographies

are as follows:

Li Jianzhang, age 47, has worked in several

Government departments. Mr. Li joined

Sinotrans Group Company in May 2001. In July

2001, he became the executive director of

Sinotrans Group Company and he was

appointed as a supervisor of the Company in

November 2002.

Liu Jinghua, age 40, joined Sinotrans Group

Company in 1989 and worked in the Financial

Department and Liner Department before she

was seconded to DHL-Sinotrans Beijing to be

its financial manager in 1992. Soon afterwards,

she was promoted to be DHL-Sinotrans’

National Financial Controller and in 1999

36


became National HR Manager. Ms. Liu was

appointed General Manager of the Financial

Department of Sinotrans Group Company in

October 2002. Ms. Liu graduated from the

Central University of Finance and Economics in

1987 and obtained her EMBA in the School of

Management of State University of New York

at Buffalo in December 2000.

Jerry Hsu, age 52, is the Regional Director of

DHL International(2) managing China, Hong

Kong, Taiwan, Korea Peninsula and Mongolia.

Prior to joining DHL in 2001, Mr. Hsu held

various senior management positions in

Daimler Chrysler Corporation in the US

headquarters starting in the late 70s and also

managed its key Asian markets in Japan, China

and Taiwan between 1988 and 2002 with

overall operational and P&L responsibilities. Mr.

Hsu obtained a master’s degree in International

Economics and Politics from the University of

Detroit in 1975. In line with other senior

executives of the DPWN Group, Mr. Jerry Hsu

has been granted stock options in the

securities of Deutsche Post World Net. Mr. Hsu

also holds directorships in various companies

within the DPWN Group.

Ken Torok, age 50, is President of UPS(3) Asia

Pacific and is responsible for UPS operations in

more than 40 countries and territories,

including UPS owned operations, joint ventures

and agent relationships throughout the Asia

Pacific region. Mr. Torok began his UPS career

in the USA in 1975 in operations in the

company’s East Carolina district. He continued

to take on positions of increasing

responsibility, becoming a hub manager in

Wisconsin and Managing Director of UPS Utah.

Prior to becoming President of UPS Asia Pacific

in 2003, Mr. Torok was Managing Director of

UPS South Florida. A native of Long Island,

New York, Mr. Torok graduated with a degree

in business and economics from North Carolina

State University. As with other senior

employees of UPS, Mr. Torok has minor equity

interests in UPS.

Lee Chong Kwee, age 47, is the CEO of Exel(4)

Asia-Pacific. Mr. Lee began his career with Exel

(formerly MSAS Global Logistics) in 1997 and

became Regional Chief Executive for South &

East Asia in 1999. Mr. Lee was appointed CEO

Asia-Pacific in July 2000. Mr. Lee has extensive

experience in the transportation industry,

having spent 17 years with Singapore Airlines


37

in senior management positions in Hong Kong,

USA, Japan, UK and Singapore, before joining

Exel. Mr. Lee studied Mathematics at the

University of Malaya, and also holds a diploma

in accounting and finance. In 2002, Mr. Lee

was appointed by the Singapore Government

to serve on the board of directors of JTC

Corporation, Singapore’s leading provider of

industrial space solutions. Mr. Lee also sits on

the board of PSB Certification Limited,

Singapore’s lSO-certification body. As Mr. Lee

holds a senior position in the Exel Group, he

has minor equity interests in several companies

within the Exel Group. Mr. Lee also holds

directorships in various companies within the

Exel Group.

The appointment of Mr. Li Jianzhang, Ms. Liu

Jinghua, Mr. Jerry Hsu, Mr. Ken Torok and Mr.

Lee Chong Kwee as the Company’s directors is

subject to shareholders’ approval at the Annual

General Meeting to be held on 18 June 2003.

(1) Pursuant to the strategic placing agreements

made between our Company and DHL, UPS and

Exel respectively, each of the strategic investors

has nominated a person to the board of our

Company. In this connection, DHL, UPS and Exel

have respectively nominated Jerry Hsu, Ken Torok

and Lee Chong Kwee as directors. While, for the

purposes of the Listing Rules, each of the

nominee directors has interests (by way of

minority equity interests or stock options or

directorships) in competing businesses (i.e. those

of the strategic investors, each being a major

international company in the transportation and

logistics industry), our Company has been and

continues to carry on its business independently

of and at arms length from, those businesses

and through its joint ventures and cooperation

arrangements with those strategic investors.

(2) DHL Worldwide Express BV (“DHL”) is a member

of the Deutsche Post World Net Group (“DPWN

Group”) whose business operations are global

mail, express delivery, logistics and financial

services serving both in Europe and around the

world. The DPWN Group’s express delivery

business operations in China are held through

DHL, which formed a 50/50 joint venture with

Sinoair in 1986. This joint venture has helped to

establish a business relationship between our

Group and the DPWN Group.

(3) UPS Inc. (“UPS”) is a package delivery company

and a provider of specialised transportation and

logistics services worldwide. Our Group has

worked closely with UPS since 1988 when we

signed an agency agreement providing for our

Company to handle pick up and delivery for UPS

in China. In December 1998, we signed a

memorandum of understanding with UPS

providing for a five year strategic partnership.

(4) Exel plc. (“Exel”) is a UK listed, FTSE 100

company, which provides supply chain

management solutions to its customers around

the world. Exel’s range of logistics solutions

encompasses the whole supply chain from design

and consulting through freight forwarding,

warehousing and distribution services to

38


integrated information management and e-

commerce support. A joint venture company,

Exel-Sinotrans Freight Forwarding Co. Ltd. (“Exel-

Sinotrans”), was formed between Sinoair and

Exel in 1996, which specialises in providing

integrated logistics solutions to its customers in

China.

MAJOR POST-BALANCE SHEET DATE

EVENTS

Details of major post-balance sheet date events


statements.

AUDITORS

PricewaterhouseCoopers and

PricewaterhouseCoopers Zhong Tian CPAs

Company Limited were the Company’s

international auditors and PRC auditors

respectively for the year ended 31 December

2002. A resolution for the re-appointment of

PricewaterhouseCoopers as the international

auditors and PricewaterhouseCoopers Zhong

Tian CPAs Company Limited as the PRC

auditors will be proposed at the forthcoming

Annual General Meeting.

By Order of the Board

Zhang Bin

Chairman

15 April 2003, Beijing, PRC

Report of the Supervisory Committee

39

To the Shareholders,

During the year 2002, the Supervisory

Committee of Sinotrans Limited (the

“Company”) had adhered strictly to the

stipulations of the Company Law of the PRC,

the Rules Governing the Listing of Securities on

the Stock Exchange of Hong Kong, the Articles

of Association of the Company and other

relevant statutory requirements, and, on the

principle of good faith, had discharged its

rights and duties with diligence, pragmatism

and prudence to safeguard the interest of the

shareholders.

We attended meetings of the directors and

general meetings, thereby enabling us to

supervise and monitor effectively all major

operating activities of the Company, the

discharge of duties by the Directors and senior

management and their compliance of related

laws and regulations.

We are of the opinion that the Company had

observed the stipulations of the various laws

and regulations as well as the Articles of

Association of the Company and had operated

in conformity with all relevant requirements

without any violation or misconduct. The

Board of Directors had followed the

procedures as required by relevant laws and

the Articles of Association of the Company in

convening shareholders’ meetings of the

Company in 2002. The resolutions carried at

these meetings were within the requirements

of relevant laws and regulations and the

Articles of Association of the Company. No

acts that are against the interests of the

shareholders or the Company had been found.

The Board of Directors and senior management

of the Company had discharged their duties

with due care, diligence and innovation. They

had made significant contributions to the

development of the Company, thereby

ensuring the best results for the Company.

While discharging their duties, no violation of

any laws and regulations and the Articles of

Association of the Company had been

committed.

We had reviewed conscientiously the auditors’

report of the Company as presented by

PricewaterhouseCoopers and are of the

opinion that the financial statements present

fairly the financial position of the Company as

at 31 December 2002, and operating results of

the Company for the year then ended in all

material aspects.

Mr. Li Jianzhang, member of the Supervisory

Committee, will resign as supervisor after this

supervisory meeting due to a change in his

work responsibilities.

40

Report of the Supervisory Committee

The Company is pleased that Ms. Su Yi (蘇誼 )

has been nominated for election as a

supervisor. Her biography is as follows:

Ms. Su Yi (蘇誼 ), 49, joined Sinotrans Group

Company in December 1986. She has been

appointed a divisional vice general manager

and general manager. Since 1995, she has

been appointed the general manager of

Human Resources Department in Sinotrans

Group Company.

The appointment of Ms. Su Yi as a member of

the Supervisory Committee is subject to

shareholders’ approval in the Annual General

Meeting to be held on 18 June 2003.

We will continue to supervise the operations of

the Company as guided by the relevant PRC

state laws and regulations as well as the

Articles of Association of the Company to

fulfill our duties as entrusted by the

shareholders.

By Order of the Supervisory Committee

Li Jianzhang

Chairman of the Supervisory Committee

15 April 2003, Beijing, PRC

Notice of Annual General Meeting

41

NOTICE IS HEREBY GIVEN that the Annual General Meeting of Sinotrans Limited (the “Company”) for

the year 2002 will be held at Room 1609, Sinotrans Plaza A, A43, Xizhimen Beidajie, Haidian District,

Beijing 100044, the People’s Republic of China on Wednesday, 18 June 2003 at 9:00 a.m. for the

following purposes:

AS ORDINARY BUSINESS

1. to review and approve the report of the board of directors of the Company for the year ended 31

December 2002;

2. to review and approve the report of the supervisory committee of the Company for the year ended 31

December 2002;

3. to review and approve the audited accounts of the Company and the auditors’ report for the year

ended 31 December 2002;

4. to review and approve the profit distribution proposal of the Company for the year ended 31

December 2002;

5. to re-appoint Messrs. PricewaterhouseCoopers as the international auditors of the Company and

PricewaterhouseCoopers Zhong Tian CPAs Company Limited as the PRC auditors of the Company,

and to authorise the directors of the Company to fix their remuneration;

6. (i) to elect Li Jianzhang as a director of the Company;

(ii) to elect Liu Jinghua as a director of the Company;

(iii) to elect Jerry Hsu as a director of the Company;

(iv) to elect Ken Torok as a director of the Company;

(v) to elect Lee Chong Kwee as a director of the Company;

(vi) to elect Su Yi as a supervisor of the Company; and

42


AS SPECIAL BUSINESS

7. to consider and if thought fit to pass the following resolution as a special resolution of the Company:

(i) “THAT subject to the appointment of the new directors at the Annual General Meeting to which

this notice relates, Article 93 of the Articles of Association of the Company be and is hereby

amended by deleting the sentence “The Company shall have a Board of Directors comprising 7

directors” and replacing it with the following: “The Company shall have a Board of Directors

comprising 11 directors”.”

By order of the Board

Gao Wei

Company Secretary

Beijing, China

15 April 2003

Registered Office

Sinotrans Plaza A

A43, Xizhimen Beidajie

Haidian District

Beijing

People’s Republic of China

100044

Notes:

1. The Register of Members of the Company will be closed from 19 May 2003 to 18 June 2003, both

days inclusive, during which period no share transfers will be registered. To qualify for attendance at

the Annual General Meeting, all transfers accompanied by the relevant share certificates must be

lodged with the Company’s Branch Share Registrar in Hong Kong, Computershare Hong Kong

Investor Services Limited of Rooms 1901—1905, 19/F., Hopewell Centre, 183 Queen’s Road East,

Wanchai, Hong Kong, not later than 4:00 p.m. on 16 May 2003, for registration.


43

2. Shareholders intending to attend the Annual General Meeting shall give written notice of the same to

the Company, which shall be lodged at the registered office of the Company on or before 4:00 p.m.

on 29 May 2003.

3. Shareholders entitled to attend and vote at the Annual General Meeting are entitled to appoint one

or more persons (whether or not a shareholder of the Company) as their proxy to attend and vote on

behalf of themselves.

4. In order to be valid, the form of proxy, together with a duly notarised power of attorney or other

document of authority, if any, under which the form is signed must be deposited at the registered

office of the Company not later than 24 hours before the time for holding the Annual General

Meeting.

5. New directors and supervisor

Pursuant to the terms of the strategic placing agreements signed between the Company and three

strategic investors (DHL Worldwide Express BV, UPS Air Couriers of America Limited and Exel plc) prior

to the Company’s IPO, each of these strategic investors are entitled to nominate a director to the

Board of Directors of the Company. In this connection, DHL Worldwide Express BV, UPS Air Couriers

of America Limited and Exel plc have respectively nominated Jerry Hsu, Ken Torok and Lee Chong

Kwee as directors. If elected, they will become non-executive directors of the Company. In addition,

the Company proposes to appoint Li Jianzhang and Liu Jinghua as directors and Su Yi as a supervisor.

The profiles of the six candidates for directors and supervisor mentioned above are set out in the

Company’s annual report.

6. Special resolution

The purpose of the proposed amendments of the Articles of Association of the Company is to allow

for the increase in the number of directors as a result of the proposed appointments of directors

nominated by the strategic investors and the Company.

44

Auditors’ Report

TO THE SHAREHOLDERS OF

SINOTRANS LIMITED

(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

We have audited the accompanying balance sheet of Sinotrans Limited (the “Company”) and consolidated

balance sheet of the Company and its subsidiaries (hereinafter collectively referred to as the “Group”) as at

31 December 2002, and the related consolidated profit and loss account, consolidated cash flow statement

and consolidated statement of changes in owner’s equity for the year then ended. These financial

statements are the responsibility of the Company’s management. Our responsibility is to express an opinion

on these financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing. Those Standards require

that we plan and perform the audit to obtain reasonable assurance about whether the financial statements

are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the

amounts and disclosures in the financial statements. An audit also includes assessing the accounting

principles used and significant estimates made by management, as well as evaluating the overall financial

statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the

Company and the Group as at 31 December 2002, and the results of operations of the Group and its cash

flows for the year then ended in accordance with International Financial Reporting Standards and comply

with the disclosure requirements of the Hong Kong Companies Ordinance.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 15 April 2003

2002 2001

Note RMB’000 RMB’000

Turnover 4 13,550,411 11,049,805

Other revenues 41,890 32,279

13,592,301 11,082,084

Transportation and related charges (10,074,347) (8,085,125)

Staff costs 6 (1,012,848) (856,244)

Depreciation and amortisation (186,267) (152,756)

Repairs and maintenance (79,863) (69,251)

Fuel (214,745) (155,937)

Travel and promotional expenses (179,163) (147,199)

Office and communications expenses (118,825) (101,108)

Rental expenses (578,329) (525,680)

Other operating expenses (254,537) (265,727)

Operating profit 893,377 723,057

Finance income, net 8 28,053 31,039

921,430 754,096

Share of results of associates before taxation 10,117 11,021

Profit before taxation 7 931,547 765,117

Taxation 9 (244,243) (207,291)

Profit after taxation 687,304 557,826

Minority interests (115,082) (105,523)

Profit for the year 572,222 452,303

Earnings per share, basic and diluted 12 RMB0.22 RMB0.17

45

Consolidated Profit and Loss AccountFor the year ended 31 December 2002

2002 2001


ASSETS

Non-current assets

Property, plant and equipment 13 1,220,162 1,014,981

Prepayment for acquisition of land use rights 43,500 —

Land use rights 14 167,725 140,084

Intangible assets 15 20,710 9,226

Investments in associates 18 24,367 50,007

Other non-current assets 56,235 30,120

Deferred tax assets 9 52,900 62,499

1,585,599 1,306,917- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Current assets

Prepayments, deposits and other current assets 19 234,993 224,964

Inventories 20 17,288 17,837

Trade and other receivables 21 2,676,765 1,884,909

Trading investments 22 10,818 1,284

Pledged deposits 23 28,666 5,260

Term deposits with initial term of over three months 24 490,580 733,929

Cash and cash equivalents 25 2,342,026 1,983,537

5,801,136 4,851,720- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Total assets 7,386,735 6,158,637

46

Consolidated Balance SheetAs at 31 December 2002

2002 2001


EQUITY AND LIABILITIES

Share capital 31 2,624,087 2,624,087

Reserves 32 (750,859) (845,111)

Owner’s equity 1,873,228 1,778,976- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Minority interests 679,786 573,681- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Non-current liabilities

Borrowings 28 710 1,851

Deferred tax liabilities 9 1,618 1,957

Early retirement, termination and supplementary pension

benefits obligations 29 — 534,117

Long-term payable to ultimate holding company 29 331,716 —

Provisions 30 85,881 111,322

Other liabilities 3,649 1,940

423,574 651,187- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Current liabilities

Trade payables 26 2,328,662 1,779,209

Other payables, accruals and other current liabilities 27 1,261,082 565,750

Receipts in advance from customers 392,773 397,444

Current tax liabilities 9 161,463 188,585

Borrowings 28 61,614 42,384

Salary and welfare payable 204,553 181,421

4,410,147 3,154,793- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Total liabilities 4,833,721 3,805,980- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Total equity and liabilities 7,386,735 6,158,637

Zhang Bin

Director

Zhang Jianwei

Director

47

Consolidated Balance SheetAs at 31 December 2002

2002

Note RMB’000

ASSETS

Non-current assets

Property, plant and equipment 13 28,217

Intangible assets 15 8,692

Investments in subsidiaries 16 2,797,631

Other non-current assets 20,752

Deferred tax assets 9 3,006

2,858,298- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Current assets

Prepayments, deposits and other current assets 19 281

Trade and other receivables 21 153,532

Cash and cash equivalents 25 27,760

181,573- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Total assets 3,039,871

EQUITY AND LIABILITIES

Share capital 31 2,624,087

Reserves 32 (750,859)

Owner’s equity 1,873,228- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Non-current liabilities

Long-term payable to ultimate holding company 29 331,716- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Current liabilities

Other payables, accruals and other current liabilities 27 834,927- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Total liabilities 1,166,643- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Total equity and liabilities 3,039,871

Zhang Bin

Director

Zhang Jianwei

Director

48

Balance SheetAs at 31 December 2002

2002 2001


Cash flows from operating activities

Cash generated from operations 33(a) 827,986 800,419

Interest paid (7,023) (5,963)

Tax paid (256,536) (203,973)

Net cash inflow from operating activities 564,427 590,483- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Cash flows from investing activities

Net cash outflow from acquisition of subsidiaries/a jointly

controlled entity 33(b) (8,026) (10,246)

Increase in investments in associates (392) (4,618)

Purchase of property, plant and equipment (345,297) (308,034)

Proceeds from disposal of property, plant and equipment 26,918 25,709

Purchase of intangible assets (12,851) (8,087)

Purchase of land use rights (26,712) (57,844)

Prepayment for acquisition of land use rights (43,500) —

Proceeds from disposal of intangible assets 155 —

Increase in other non-current assets (25,494) (2,594)

Purchase of trading investments (34,534) —

Decrease/(increase) in term deposits with initial term of over

three months 243,349 (229,171)

Proceeds from disposal of trading investments 27,356 15,385

Interest income received 33,325 36,722

Dividends received from associates 3,240 9,194

Net cash used in investing activities (162,463) (533,584)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

49

Consolidated Cash Flow StatementFor the year ended 31 December 2002

2002 2001


Cash flows from financing activities

New bank borrowings 114,205 87,394

Repayments of bank borrowings (99,051) (151,411)

New other borrowings 21,750 117

Repayments of other borrowings (21,945) (400)

Profit distribution — (74,647)

Distributions to, net of contributions from

Sinotrans Group Company 32 — (126,693)

Contributions from minority shareholders in subsidiaries 3,999 7,001

Dividends to minority shareholders in subsidiaries (39,027) (45,583)

(Increase)/decrease in pledged deposits (23,406) 11,657

Net cash used in financing activities (43,475) (292,565)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net increase/(decrease) in cash and cash equivalents 358,489 (235,666)

Cash and cash equivalents at 1 January 1,983,537 2,219,203

Cash and cash equivalents at 31 December 2,342,026 1,983,537

50

Consolidated Cash Flow StatementFor the year ended 31 December 2002

Reserves

Share

capital

Capital

reserve

Statutory

surplus

reserve

Statutory

public

welfare

fund

Retained

profits Total

Note RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

(Note 31) (Note 31)

As at 1 January 2001 2,624,087 (1,096,074) — — — 1,528,013

Profit for the year — 452,303 — — — 452,303

Profit distribution — (74,647) — — — (74,647)

Distributions to, net of

contributions from

Sinotrans Group

Company 1,32 — (126,693) — — — (126,693)

As at 31 December

2001 2,624,087 (845,111) — — — 1,778,976

As at 1 January 2002 2,624,087 (845,111) — — — 1,778,976

Profit for the year — — — — 572,222 572,222

Special dividend 11 — — — — (477,970) (477,970)

Transfer to reserves 32 — — 2,699 1,350 (4,049) —

As at 31 December

2002 2,624,087 (845,111) 2,699 1,350 90,203 1,873,228

51

Consolidated Statement of Changes in Owner’s EquityFor the year ended 31 December 2002

1. GROUP REORGANISATION AND PRINCIPAL ACTIVITIES

The Company was established in the People’s Republic of China (‘‘PRC’’) on 20 November 2002 as a joint

stock company with limited liability as a result of a group reorganisation of China National Foreign Trade

Transportation (Group) Corporation (‘‘Sinotrans Group Company’’) in preparation for a listing of the

Company’s H shares on the Main Board of The Stock Exchange of Hong Kong Limited (the

‘‘Reorganisation’’). The initial registered capital of the Company is RMB2,624,087,200, consisting of

2,624,087,200 shares of par value of RMB1.00 per share. The Company and its subsidiaries are

hereinafter referred to as the ‘‘Group’’.

Sinotrans Group Company was established in 1950 as a ministerial-level state-owned enterprise under

the Ministry of Foreign Trade and Economic Co-operation of the PRC. It acted as the sole freight

forwarding agent of the PRC Government. Through a series of business development initiatives and

expansion plans, Sinotrans Group Company has expanded its business scope from providing only freight

forwarding services to a wide range of transportation and logistics services. Sinotrans Group Company is

currently 100% owned by the PRC Government.

Pursuant to the Reorganisation, the Company issued 2,624,087,200 ordinary shares of RMB1.00 per

share (‘‘Domestic Shares’’) in exchange for (i) various assets and liabilities related to the freight

forwarding, express services and shipping agency businesses at certain core strategic locations in the

provinces or municipalities of Guangdong, Fujian, Zhejiang, Shanghai, Hubei, Jiangsu, Shandong, Tianjin

and Liaoning of the PRC, (ii) various assets and liabilities related to selected support operations including

storage and terminal services, trucking and marine transportation at these core strategic locations and

(iii) in addition to those described above, equity interests in certain subsidiaries, jointly controlled entities

and associates engaged in freight forwarding, express services, shipping agency and international multi-

modal transportation services in the PRC (collectively the ‘‘Transferred Businesses’’). Sinotrans Group

Company retained (i) the businesses of freight forwarding, shipping agency, storage and terminal

services, trucking and marine transportation, and express service agents located outside the core

strategic locations, (ii) certain businesses and support operations at these strategic locations to be

wound down or which are surplus to the requirements of the Group, (iii) ship chartering and fleet

management operations and container leasing operations, (iv) equity interests in certain jointly

controlled entities and associates which could not be transferred to the Company due to the absence of

consents of the joint venture partners in these entities, (v) certain non-core businesses and (vi) the

ownership of certain assets and liabilities including staff quarters, certain office buildings, bank

balances, investments in securities, borrowings, claims, contingent and tax liabilities (collectively the

‘‘Excluded Businesses’’).

52

Notes to the Financial Statements

2. BASIS OF PREPARATION

As Sinotrans Group Company controlled the Transferred Businesses before the Reorganisation and

continues to control the Company after the Reorganisation, the consolidated financial statements of the

Group for the years ended 31 December 2002 and 2001 have been prepared as a reorganisation of

businesses under common control in a manner similar to a pooling-of-interests. Accordingly, the assets

and liabilities transferred to the Company have been stated at historical amounts.

The consolidated financial statements of the Group for the years ended 31 December 2002 and 2001

present the results of the Group as if it had been in existence throughout the period and as if the

Transferred Businesses were transferred to the Company by Sinotrans Group Company at 1 January

2001 or when such businesses were acquired by Sinotrans Group Company, whichever is later. The

Company’s directors are of the opinion that the financial statements prepared on this basis present fairly

the consolidated financial position, consolidated results of operations and consolidated cash flows of the

Group as a whole. Therefore, the net profit for the year ended 31 December 2002 includes the

consolidated results of operations before the Reorganisation.

The consolidated financial statements include the historical cost of operations related to the Transferred

Businesses. Expenses that could be specifically identified include the following:

. purchased transportation and related services;

. staff costs (excluding those attributable directly to administration staff);

. depreciation (excluding those attributable directly to property, plant and equipment used for

general and administrative function);

. repairs and maintenance;

. fuel;

. selling and distribution expenses;

. taxes other than income taxes; and

. finance costs.

53


2. BASIS OF PREPARATION (continued)

Costs for which a specific identification method was not practical include only general and

administrative expenses, which are allocated to the Group by Sinotrans Group Company based on the

average of the percentages of the respective historical employee numbers, assets and turnover of the

Transferred Businesses to the total respective historical employee numbers, assets and turnover of

Sinotrans Group Company during the years ended at 31 December 2002 and 2001.

As the Reorganisation was conducted during the year ended 31 December 2002, the financial

statements of the Company have been prepared from the date of its incorporation and, accordingly,

there are no comparative figures in the Company’s balance sheet as at 31 December 2001.

The financial statements have been prepared in accordance with International Financial Reporting

Standards (‘‘IFRS’’), including International Accounting Standards and Interpretations issued by the

International Accounting Standards Board. The financial statements have been prepared under the

historical cost convention as modified by the revaluation of trading investments at fair value as disclosed

in the accounting policies in Note 3 below.

The preparation of financial statements in accordance with IFRS requires management to make

estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of

contingent assets and liabilities at the date of the financial statements and the reported amounts of

revenues and expenses during the year. Actual results could differ from these estimates.

3. PRINCIPAL ACCOUNTING POLICIES

(a) Basis of consolidation

The results of operations of subsidiaries and the share attributable to minority interests are

accounted for in the consolidated profit and loss account. The results of operations of jointly

controlled entities are accounted for by proportionate consolidation as described in Note 3(c).

54


3. PRINCIPAL ACCOUNTING POLICIES (continued)

(b) Subsidiaries

Subsidiary undertakings, which are those entities in which the Group has an interest of more than

one half of the voting rights or otherwise has power to exercise control over the operations, are

consolidated. Subsidiaries are included from the date on which control is transferred to the Group

and are excluded from the date that control ceases. All intercompany transactions, balances and

unrealised gains on transactions between group companies are eliminated; unrealised losses are

also eliminated unless cost cannot be recovered.

Investments in subsidiaries are accounted for using the equity method in the Company’s financial

statements. Equity accounting involves recognising in the profit and loss account the Company’s

share of the subsidiaries’ profit or loss for the year. The Company’s interests in the subsidiaries are

carried in the balance sheet at amounts that reflect its share of the net assets of the subsidiaries

and include goodwill on acquisition.

(c) Jointly controlled entities

A jointly controlled entity is a joint venture in respect of which a contractual arrangement is

established between the participating venturers and whereby the Group together with the other

venturers undertake an economic activity which is subject to joint control and none of the

venturers has unilateral control over the economic activity. The Group’s interests in jointly

controlled entities are accounted for by proportionate consolidation. Under this method the Group

includes its share of the jointly controlled entities’ individual income and expenses, assets and

liabilities and cash flows in the relevant components of the financial statements.

The Group recognises the portion of gains or losses on the sale of assets or provision of services to

jointly controlled entities that it is attributable to the other venturers. The Group does not

recognise its share of profits or losses from jointly controlled entities that result from the purchase

of assets or services by the Group from jointly controlled entities until the Group resells the assets

or services to an independent party. However, if a loss on the transaction provides evidence of a

reduction in the net realisable value of current assets or an impairment loss, the loss is recognised

immediately.

55



(d) Associates

Investments in associates are accounted for by the equity method of accounting. These are

undertakings over which the Group generally has between 20% and 50% of the voting rights, or

over which the Group has significant influence, but which it does not control.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent

of the Group’s investment in the associates; unrealised losses are also eliminated unless the

transaction provides evidence of an impairment of the asset transferred.

Equity accounting is discontinued when the carrying amount of the investment in an associate

reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the

associate.

Gains and losses on disposals of investments in associates are determined by comparing proceeds

with carrying amount and are included in operating profit.

(e) Revenue recognition

Turnover comprises the value of charges for the sale of services to third parties net of

disbursements made on behalf of customers. Turnover/revenues are recognised on the following

bases:

(i) Freight forwarding

Revenue is recognised when the freight forwarding services are rendered, which generally

coincides with the date of departure for outward freight and the date of arrival for inward

freight, where the Group effectively acts as a principal in arranging transportation of goods

for customers, revenue recognised generally includes the carrier’s charges to the Group.

Where the Group effectively acts as an agent for the customers, revenue recognised

comprises fees for services provided by the Group.

(ii) Shipping agency

Revenue from shipping agency services is recognised upon completion of services, which

generally coincides with the date of departure of the relevant vessel from port.

56



(e) Revenue recognition (continued)

(iii) Express services

Revenue from express services is recognised upon delivery of the relevant document or

package.

(iv) Marine transportation

Revenue from liner shipping and feeder services is recognised when the services are rendered.

For uncompleted voyage at the end of a reporting period, revenue is allocated between

reporting periods based on relative transit time in each reporting period.

(v) Storage and terminal services

Revenue from the provision of storage and terminal services is recognised when the services

are rendered.

(vi) Trucking

Revenue from the provision of trucking services is recognised when the services are rendered.

(vii) Rental income

Rental income under operating leases of warehouse and depots is recognised on an accrual

basis.

(viii) Interest income

Interest income is recognised on a time proportion basis, taking into account the principal

amounts outstanding and the interest rates applicable.

(ix) Dividend income

Dividend income is recognised when the right to receive payment is established.

Advance payments and deposits received from customers prior to the provision of services and

recognition of the related revenues are presented as current liabilities.

57



(f) Land use rights

Land use rights are stated at cost less accumulated amortisation and impairment losses. Cost

represents consideration paid for the rights to use the land on which various warehouses,

container storage areas and buildings are situated for periods varying from 10 to 50 years.

Amortisation of land use right is calculated on a straight-line basis over the period of the land use

right.

(g) Property, plant and equipment

Property, plant and equipment is stated at historical cost less accumulated depreciation and

impairment losses. Depreciation is calculated on a straight-line basis to write off the cost of assets

to their residual values over their estimated useful lives as follows:

Buildings 20 – 50 years

Leasehold improvements Over the shorter of the remaining term of the leases or

the estimated useful lives

Port and rail facilities 20 – 40 years

Containers 8 – 15 years

Plant and machinery 5 – 10 years

Motor vehicles and vessels 5 – 10 years

Furniture and office equipment 3 – 6 years

Assets under construction represent buildings under construction and plant and equipment

pending installation, and are stated at cost. Costs include construction and acquisition costs, and

interest charges arising from borrowings used to finance the assets during the period of

construction or installation and testing. No provision for depreciation is made on assets under

construction until such time as the relevant assets are completed and ready for intended use.

Property, plant and equipment are reviewed periodically for impairment losses whenever events or

changes in circumstances indicate that the carrying amount may not be recoverable.

58



(g) Property, plant and equipment (continued)

When the carrying amount of an asset is greater than its estimated recoverable amount, it is

written down immediately to its recoverable amount. Estimated recoverable amount is determined

based on estimated discounted future cash flows of the cash-generating unit at the lowest level to

which the asset belongs. The recoverable amount is the higher of value in use or net selling price.

Gains and losses on disposals are determined by comparing proceeds with carrying amount and are

included in operating profit.

(h) Intangible assets

(i) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s

share of the net assets of the acquired subsidiary/jointly controlled entity at the date of

acquisition. Goodwill is amortised using the straight-line method over its estimated useful life

of 20 years.

Negative goodwill represents the excess of the fair value of the Group’s share of the net

assets acquired over the cost of acquisition. Negative goodwill is presented in the same

balance sheet classification as goodwill. To the extent that negative goodwill relates to

expectations of future losses and expenses that are identified in the Group’s plan for the

acquisition and can be measured reliably, but which do not represent identifiable liabilities,

that portion of negative goodwill is recognised in the profit and loss account when the future

losses and expenses are recognised. Any remaining negative goodwill, not exceeding the fair

values of the non-monetary assets acquired, is recognised in the profit and loss account over

the remaining weighted average useful life of those assets; negative goodwill in excess of the

fair values of those assets is recognised in the profit and loss account immediately.

59



(h) Intangible assets (continued)

(ii) Computer software development costs

Generally, costs associated with developing or maintaining computer software programmes

are expensed as incurred. However, costs that are directly associated with identifiable and

unique software products controlled by the Group and have probable economic benefit

exceeding the cost beyond one year, are recognised as intangible assets. Direct costs include

staff costs of the software development team and an appropriate portion of relevant

overheads.

Expenditure which enhances or extends the performance of computer software programmes

beyond their original specifications is recognised as a capital improvement and added to the

original cost of the software. Computer software development costs recognised as assets are

amortised using the straight-line method over their useful lives, not exceeding a period of 3

years.

(iii) Impairment of intangible assets

Intangible assets are reviewed periodically for impairment losses whenever events or changes

in circumstances indicate that the carrying amount may not be recoverable.

When the carrying amount of an asset is greater than its estimated recoverable amount, it is

written down immediately to its recoverable amount. Estimated recoverable amount is

determined based on estimated discounted future cash flows of the cash-generating unit at

the lowest level to which the asset belongs. The recoverable amount is the higher of value in

use or net selling price.

(i) Trading investments

Investments that are acquired principally for the purpose of generating a profit from short-term

fluctuations in price are classified as trading investments and included in current assets. All

purchases and sales of investments are recognised on the trade date, which is the date that the

Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading

investments are subsequently carried at fair value at each reporting date. Realised and unrealised

gains and losses arising from changes in the fair value of trading investments are included in the

profit and loss account in the period in which they arise.

60



(j) Operating leases

(i) A group company is the lessee

Leases where a significant portion of the risks and rewards of ownership are retained by the

lessor are classified as operating leases. Payments made under operating leases (net of any

incentives received from the lessors) are charged to the profit and loss account on a straight-

line basis over the period of the lease.

(ii) A group company is the lessor

Assets leased out under operating leases are included in property, plant and equipment in the

balance sheet. They are depreciated over their expected useful lives on a basis consistent with

similar owned property, plant and equipment. Rental income (net of any incentives given to

lessees) is recognised on a straight-line basis over the lease term.

(k) Inventories

Supplies, consumables and spare parts are stated at cost determined by the first-in, first-out (FIFO)

method, less any provision for obsolescence.

(l) Trade receivables

Trade receivables are carried at original invoice amounts less provision made for impairment of

these receivables. Such provision for impairment of trade receivables is established if there is

objective evidence that the Group will not be able to collect all amounts due according to the

original term of receivables. The amount of the provision is the difference between the carrying

amount and the recoverable amount, being the present value of expected cash flows, discounted

at the market rate of interest for similar borrowers.

(m) Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash

flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks,

other short-term highly liquid investments with original maturities of three months or less, and

bank overdrafts. In the balance sheet, bank overdrafts are included in borrowings in current

liabilities.

61



(n) Borrowings

Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. In

subsequent periods, borrowings are stated at amortised cost using the effective yield method; any

difference between proceeds (net of transaction costs) and the redemption value is recognised in

the profit and loss account over the period of the borrowings.

(o) Borrowing costs

Interest costs on borrowings to finance the construction of property, plant and equipment are

capitalised, during the period of time that is required to complete and prepare the asset for its

intended use. No borrowing costs were capitalised during the years as the amounts were

immaterial. All other borrowing costs are expensed as incurred.

(p) Deferred income taxes

Deferred income tax is provided in full, using the liability method, on temporary differences arising

between the tax bases of assets and liabilities and their carrying amounts in the financial

statements. The principal temporary differences arise from gain on deemed disposal of investment

in a subsidiary, depreciation on property, plant and equipment, amortisation of intangible asset,

provision for impairment of receivables, write-off of pre-operating and other deferred expenses,

provision for litigation claims and tax value of losses carried forward. Tax rates enacted or

substantively enacted by the balance sheet date are used to determine deferred income tax.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be

available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries,

associates and jointly controlled entities, except where the timing of the reversal of the temporary

difference can be controlled and it is probable that the temporary difference will not reverse in the

foreseeable future.

62



(q) Employee benefits

(i) Pension obligations

The full-time employees of the Group are covered by various government-sponsored pension

plans under which the employees are entitled to a monthly pension based on certain

formulas. The relevant government agencies are responsible for the pension liability to these

retired employees. The Group contributes on a monthly basis to these pension plans. Under

these plans, the Group has no obligation for post-retirement benefits beyond the

contributions made. Contributions to these plans are expensed as incurred.

In addition, the Group provided supplementary pension subsidies to employees who retired

prior to the Reorganisation. The cost of providing these pension subsidies is charged to the

profit and loss account using the projected unit credit method so as to spread the service cost

over the average service lives of the retirees. The pension obligation is measured as the

present value of the estimated future cash flows using interest rates of government securities

which have terms to maturity approximating the terms of the related liability. Actuarial gains

and losses are recognised in the year in which they were incurred. Employees who retire after

the date of Reorganisation are not entitled to such supplementary pension subsidies.

(ii) Termination and early retirement benefits

Employee termination and early retirement benefits are recognised in the period in which the

Group entered into an agreement with the employee specifying the terms of redundancy, or

after the individual employee has been advised of the specific terms.

(iii) Housing benefits

The Group sold staff quarters to its employees, subject to a number of eligibility

requirements, at preferential prices. When staff quarters are identified as being subject to

sale under these arrangements, the carrying value of the staff quarters is written down to the

net recoverable amount. Upon sale, any difference between sales proceeds and the carrying

amount of the staff quarters is charged to the profit and loss account.

63



(q) Employee benefits (continued)

(iii) Housing benefits (continued)

The above discounted quarters allocation plans have been phased out in accordance with the

policies of the PRC Government. In 1998, the State Council of the PRC issued a circular which

stipulated that the sale of quarters to employees at preferential prices should be withdrawn.

In 2000, the State Council further issued a circular stating that cash subsidies should be made

to the employees following the withdrawal of allocation of staff quarters. However, the

specific timetable and procedures of implementation of these policies are to be determined

by individual provincial or municipal government based on the particular situation of the

province or municipality.

Based on the relevant detailed local government regulations promulgated, certain entities

within the Group have adopted cash housing subsidy plans. In accordance with these plans,

for those eligible employees who have not been allocated with quarters at all or who have

not been allocated with quarters up to the prescribed standards before the discounted

quarters sale plans were terminated, the Group is required to pay them one-off cash housing

subsidies based on their years of service, positions and other criteria. These cash housing

subsidies are charged to the profit and loss account in the year in which it was determined

that the payment of such subsidies is probable and the amounts can be reasonably estimated.

In respect of certain entities which have not adopted any cash housing subsidiary plans,

based on the available information and its best estimate, the Group estimated the required

provision for these cash housing subsidies when the State Council circular in respect of cash

subsidies was issued.

Pursuant to the Reorganisation, the ultimate holding company has agreed to bear any further

one-off cash housing subsidies in excess of the amount provided for in the consolidated

financial statements of the Group of RMB74,560,000 at the time of the Reorganisation.

Employees joining the Group after the incorporation of the Company are not entitled to any

one-off cash housing subsidies.

64



(q) Employee benefits (continued)

(iii) Housing benefits (continued)

In addition, all full-time employees of the Group are entitled to participate in various

government-sponsored housing funds. The Group contributes on a monthly basis to these

funds based on certain percentages of the salaries of the employees. The Group’s liability in

respect of these funds is limited to the contributions payable in each period.

(r) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result

of past events, it is probable that an outflow of resources will be required to settle the obligation,

and a reliable estimate of the amount can be made. Where the Group expects a provision to be

reimbursed, for example under an insurance contract, the reimbursement is recognised as a

separate asset but only when the reimbursement is virtually certain.

(s) Financial instruments

(i) Financial risk factors

The Group’s activities expose it to a variety of financial risks, including the effects of changes

in debt and equity market prices, foreign currency exchange rates and interest rates.

— Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from

various currency exposures primarily with respect to the United States Dollar. The Group

has not used any forward contracts or currency borrowings to hedge its exposure to

foreign exchange risk.

— Interest rate risk

The Group’s income and operating cash flows are substantially independent of changes

in market interest rates. The Group has no significant interest-bearing assets. As at 31

December 2001 and 2002, substantially all of its borrowings were at fixed rates. The

Group has not used any interest rate swaps to hedge its exposure to interest rate risk.

65



(s) Financial instruments (continued)

(i) Financial risk factors (continued)

— Credit risk

The extent of the Group’s credit exposure is represented by an aggregated balance of

trade receivables and other receivables, trading investments, pledged deposits and term

deposits with an initial term of over three months. The maximum credit risk exposure in

the event that other parties fail to perform their obligations under these financial

instruments was approximately RMB3,206,829,000 (2001 : RMB2,625,382,000) as at

31 December 2002. In addition, the Group made certain prepayments on behalf of

customers, prepaid certain expenses and provided certain deposits, the aggregate of

which was RMB234,993,000 (2001 : RMB224,964,000) as at 31 December 2002.

(ii) Loan guarantees

The Group had acted as the guarantor for various external borrowings by certain fellow

subsidiaries under the ultimate holding company and certain third party entities. As at 31

December 2002, it acted as the guarantor for certain other related parties and third party

entities. These loan guarantees were provided to assist those entities in obtaining the

necessary funding for their business development and working capital requirements.

Pursuant to the Reorganisation, all guarantees given by the Group for the benefit of the

ultimate holding company and fellow subsidiaries have been released or withdrawn prior to

the listing of the Company’s shares.

In the case of default by these entities on the repayment of the related borrowings, the

Group may be required to pay the guaranteed amounts as disclosed. If the Group is required

to make payments under those guarantees in the case of default by the borrowers, it will

generally be entitled to claim against the borrowers to recover the amounts paid.

The Group periodically reviews its exposure under these guarantees and has laid down

policies specifying the required approvals prior to the provision of further guarantees.

The Group accounts for these guarantees and potential recovery from the borrowers as

contingent liabilities and contingent assets and the applicable accounting policy is set out in

Note 3(u).

66



(s) Financial instruments (continued)

(iii) Fair value estimation

The fair value of publicly traded trading securities is based on quoted market prices at the

balance sheet date.

In assessing the fair value of non-traded financial instruments, the Group uses a variety of

methods and makes assumptions that are based on market conditions existing at each

balance sheet date. Quoted market prices or dealer quotes for the specific or similar

instruments are used for long-term borrowings. Other techniques, such as estimated

discounted value of future cash flows, are used to determine fair value for the remaining

financial instruments.

The face values less any estimated credit adjustments for financial assets and liabilities with a

maturity of less than one year are assumed to approximate their fair values. The fair value of

financial liabilities for disclosure purposes is estimated by discounting the future contractual

cash flows at the current market interest rate available to the Group for similar financial

instruments.

(t) Foreign currency translation

Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the

transactions. Gains and losses resulting from the settlement of such transactions and from the

translation of monetary assets and liabilities denominated in foreign currencies are recognised in

the profit and loss account. The individual items in the financial statements of foreign operations

that are integral to the operations of the Group are translated as if all its transactions had been

entered into by the Group itself.

(u) Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will

only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not

wholly within the control of the Group. It can also be a present obligation arising from past events

that is not recognised because it is not probable that outflow of economic resources will be

required or the amount of obligation cannot be measured reliably.

67



(u) Contingent liabilities and contingent assets (continued)

A contingent liability is not recognised but is disclosed in the notes to the financial statements.

When a change in the probability of an outflow occurs so that outflow is probable, it will then be

recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be

confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly

within the control of the Group.

Contingent assets are not recognised but are disclosed in the notes to the financial statements

when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is

recognised.

(v) Profit distributions and dividends

Profit distributions and dividends proposed or declared after the balance sheet date are disclosed

as a post balance sheet date event and are not recognised as a liability at the balance sheet date.

(w) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing

products or services (business segment), or in providing products or services with a particular

economic environment (geographical segment), which is subject to risks and rewards that are

different from those of other segments.

Unallocated costs represent corporate expenses. Segment assets consist primarily of property,

plant and equipment, intangible assets, inventories, operating receivables and cash, and mainly

exclude deferred tax assets and investments in associates. Segment liabilities mainly comprise

operating liabilities and exclude items such as current and deferred tax liabilities. Capital

expenditures mainly comprise additions to property, plant and equipment and intangible assets.

Operating expenses of a functional unit are allocated to the relevant segment which is the

predominant user of the services provided by the unit. Operating expenses of other shared services

which cannot be allocated to a specific segment are included as unallocated costs.

68



(w) Segment reporting (continued)

In respect of geographical segment, turnover is based on the geographical locations in which the

business operations are located. Total assets and capital expenditures are where the assets are

located.

(x) Related parties

Related parties are those parties which have the ability, directly or indirectly, to control the other

party or exercise significant influence over the other party in making financial and operating

decisions. Parties are also considered to be related if they are subject to common control or

common significant influence.

The Group is a large group of companies under the ultimate holding company and has significant

transactions and relationships with members of the ultimate holding company. Because of these

relationships, it is possible that the terms of these transactions are not the same as those that

would result from transactions among wholly unrelated parties.

The ultimate holding company itself is owned by the PRC government. There are also other

enterprises directly or indirectly owned or controlled by the PRC government (‘‘state-owned

enterprises’’). A portion of the Group’s business activities are conducted with state-owned

enterprises. Furthermore, the PRC government itself represents a major customer of the Group

both directly through its numerous authorities and indirectly through its numerous affiliates and

other organisations. The Group considers that these sales are activities in the ordinary course of

business in the PRC and has not disclosed such sales as related party transactions.

69


4. TURNOVER AND SEGMENT INFORMATION

(a) Primary reporting format — business segments

The Group is organised in 5 main business segments:

(i) Freight forwarding

The Group’s freight forwarding services primarily involve, at the instruction of its customers,

arranging transportation of goods to designated consignees at other locations within

specified time limits. Other ancillary services include arranging for customs declaration and

clearance, preparation of the documentation, consolidation and distribution, drayage and

warehousing.

(ii) Shipping agency

The Group provides shipping agency services to shipping companies which include:

. attending to the formalities for a vessel’s entry into or departure from ports;

. arranging piloting, berthing, loading and discharging of vessels;

. arranging cargo space booking and shipping documentation on behalf of carriers;

. signing bills of lading;

. arranging shipments and transhipment of cargoes and containers;

. managing container control; and

. collecting freight and settling payment on behalf of carriers.

(iii) Express services

The Group’s express services comprise express delivery of documents, packages and heavy

weight freight, as well as small parcel shipments with guaranteed delivery times.

70


4. TURNOVER AND SEGMENT INFORMATION (continued)

(a) Primary reporting format — business segments (continued)

(iv) Marine transportation

The Group’s marine transportation services primarily comprise liner services to and from the

West Coast of North America, within Asia, as well as coastal and river feeder services in the

Yangtze River Area and Pearl River Delta in the PRC.

(v) Storage and terminal services

The Group’s storage and terminal services comprise the following operations:

. warehousing — providing cargo handling and storage services;

. container yards — providing container handling and space management services;

. container freight stations — providing services in connection with storage and vanning/

devanning of containers; and

. terminals — providing berthing, loading/unloading and warehousing services.

Other operations of the Group mainly comprise trucking and other related support services. None

of them are of a sufficient size to be reported separately.

71




As at and for the year ended 31 December 2002

Freight

forwarding

Shipping

agency

Express

services

Marine

transportation

Storage and

terminal

services Others

Inter-segment

elimination Group

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Turnover — External 9,703,902 371,094 1,123,035 1,787,281 434,931 130,168 — 13,550,411

Turnover — Inter-segment 621,038 9,613 27,810 163,207 11,470 20,789 (853,927) —

10,324,940 380,707 1,150,845 1,950,488 446,401 150,957 (853,927) 13,550,411

Segment results 316,647 215,084 292,542 34,579 76,278 (7,749) — 927,381

Unallocated costs (34,004)

Operating profit 893,377

Finance income, net 28,053

921,430

Share of results of associates before

taxation 10,117

Profit before taxation 931,547

Taxation (244,243)

Profit after taxation 687,304

Minority interests (115,082)

Profit for the year 572,222

Assets

Segment assets 3,941,818 863,577 1,666,716 973,051 516,435 109,239 (850,085) 7,220,751

Investments in associates 24,367

Unallocated assets 141,617


Liabilities

Segment liabilities 2,811,676 684,114 306,449 943,392 139,030 51,772 (730,324) 4,206,109

Unallocated liabilities 627,612

Total liabilities 4,833,721

Other information

Capital expenditures 216,644 6,150 108,782 8,891 80,362 7,531 — 428,360

Depreciation 94,612 4,808 28,570 11,093 30,058 5,936 — 175,077

Amortisation 5,871 452 1,795 1,034 1,987 51 — 11,190

Impairment loss on fixed assets 272 — — — — — — 272

Other non-cash expenses/(income) (8,093) 520 763 (2,055) 511 414 — (7,940)

72





Freight

forwarding

Shipping

agency

Express

services

Marine

transportation

Storage and

terminal

services Others

Inter-segment

elimination Group

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Turnover — External 7,828,789 338,812 851,110 1,522,334 357,544 151,216 — 11,049,805

Turnover — Inter-segment 564,639 14,555 2,274 94,006 19,126 15,479 (710,079) —

8,393,428 353,367 853,384 1,616,340 376,670 166,695 (710,079) 11,049,805

Segment results 255,485 199,004 237,541 9,703 56,020 (2,102) — 755,651



Finance income, net 31,039

754,096

Share of results of associates before

taxation 11,021

Profit before taxation 765,117

Taxation (207,291)

Profit after taxation 557,826

Minority interests (105,523)

Profit for the year 452,303

Assets

Segment assets 3,452,348 789,972 1,546,319 435,665 375,672 89,044 (662,907) 6,026,113




Liabilities

Segment liabilities 2,561,822 551,745 351,879 635,308 112,332 85,890 (655,084) 3,643,892

Unallocated liabilities 162,088

Total liabilities 3,805,980

Other information

Capital expenditures 178,173 10,321 127,722 15,219 34,866 7,664 — 373,965

Depreciation 81,823 4,579 19,097 10,481 24,862 5,255 — 146,097

Amortisation 2,595 389 1,749 791 1,030 105 — 6,659

Other non-cash expenses 37,853 18,952 7,753 506 8,736 47 — 73,847

73



(b) Secondary reporting format — geographical segments

The Group’s businesses operate in four main geographical areas within the PRC:

(i) Northern China — Including core strategic locations in Liaoning, Tianjin as well as the

operations of Sinotrans Air Transportation Development Co., Ltd. (‘‘Sinoair’’), a subsidiary of

the Company, in Beijing, Tianjin, Hebei, Shanxi, Inner Mongolia and Henan.

(ii) Eastern China — Including core strategic locations in Jiangsu, Shanghai, Zhejiang, Fujian and

Shandong, as well as the operations of Sinoair in Shanghai, Jiangsu, Zhejiang, Anhui, Fujian,

Jiangxi and Shandong.

(iii) Southern China — Including core strategic locations in Guangdong, Shenzhen and Hubei, as

well as the operations of Sinoair in Hubei, Hunan, Guangdong, Guangxi, Hainan, Guizhou

and Yunnan.

(iv) Other locations — Including primarily the air freight forwarding and express services operated

by Sinoair and certain of the jointly controlled entities of the Group in locations other than

the above.

74



(b) Secondary reporting format — geographical segments (continued)


Turnover —

External

Turnover —

Inter-segment

Total

turnover

Segment

results

Total

assets

Capital

expenditures

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Northern China 1,304,563 6,026 1,310,589 54,640 1,842,333 65,489

Eastern China 10,050,602 129,386 10,179,988 720,874 4,264,229 204,411

Southern China 1,910,306 36,175 1,946,481 124,456 1,018,732 145,576

Other locations 284,940 5,435 290,375 27,411 151,427 12,884

Inter-segment elimination — (177,022) (177,022) — (55,970) —

13,550,411 — 13,550,411 927,381 7,220,751 428,360






75



(b) Secondary reporting format — geographical segments (continued)


Turnover —

External

Turnover —

Inter-segment

Total

turnover

Segment

results

Total

assets

Capital

expenditures

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Northern China 903,715 1,236 904,951 47,481 1,718,742 79,408

Eastern China 8,471,824 40,290 8,512,114 600,686 3,453,044 215,420

Southern China 1,539,567 5,696 1,545,263 103,246 757,348 68,264

Other locations 134,699 2,456 137,155 4,238 133,204 10,873

Inter-segment elimination — (49,678) (49,678) — (36,225) —

11,049,805 — 11,049,805 755,651 6,026,113 373,965






76


5 DIRECTORS’ AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) Directors’ emoluments

During the year, there were no emoluments paid and payable by the Company to the directors of

the Company. The aggregate amounts of the emoluments paid and payable to the directors of the

Company by the Group in respect of their services rendered for managing the businesses of the

Group during the year are as follows:

2002 2001

RMB’000 RMB’000

Fees — —

Other emoluments for executive directors

— Basic salaries, housing allowances, other allowances

and benefits in kind 772 759

— Discretionary bonuses 1,230 539

2,002 1,298

These represent historical amounts incurred by the Group during the year. Remuneration of

directors and supervisors of the Company may change after the listing of the Company.

No directors of the Company waived any remuneration during the year (2001 : Nil).

The emoluments of the directors were within the following band:

Number of directors

2002 2001

Nil – RMB1,000,000 5 5

77


5. DIRECTORS’ AND SENIOR MANAGEMENT’S EMOLUMENTS (continued)

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group during the year are as

follows:

2002 2001

Directors 3 4

Senior management 2 1

The five individuals whose emoluments were the highest in the Group during the year include

three (2001 : four) directors whose emoluments are reflected in the analysis presented in Note (a).

Details of remuneration of senior management amongst the five highest paid individuals are as

follows:

2002 2001

RMB’000 RMB’000

Basic salaries, housing allowances and other allowances

and benefits in kind 317 241

Discretionary bonuses 596 135

913 376

The emoluments of these senior management fell within the following band:

Number of individuals

2002 2001

Nil – RMB1,000,000 2 1

During the years, no emoluments have been paid by the Group to the directors or any of the five

highest paid individuals as an inducement to join or upon joining the Group or as compensation for

loss of office.

78


6. STAFF COSTS

Staff costs during the year which included remuneration to directors and supervisors of the Company

and senior management are as follows:

2002 2001


Wages and salaries 701,999 557,690

Housing benefits (a) 32,749 20,790

Contributions to the pension plans (b) 73,387 59,412

Cost of supplementary pension subsidies to retirees (c)

— current service cost 1,047 5,689

— interest cost 738 3,433

— actuarial gains and losses (29,923) (3,045)

Termination benefits and early retirement benefits (d) 17,978 35,705

Welfare and other expenses 214,873 176,570

1,012,848 856,244

(a) These include the Group’s loss on disposal of staff quarters, contributions to government

sponsored housing funds (at rates ranging from 5% to 22% of the employees’ basic salary) and

cash housing subsidies paid and payable to certain employees during the year.

(b) The employees of the Group participate in various pension plans organised by the relevant

municipal and provincial government under which the Group was required to make monthly

defined contributions to these plans at rates ranging from 5% to 29%, dependent upon the

applicable local regulations, of the employees’ basic salary for the year.

(c) The Group provided supplementary pension subsidies to employees who retired prior to the

Reorganisation. The cost of providing these pension subsidies is charged to the profit and loss

account so as to spread the service cost over the average service lives of the retirees. Employees

who retire after the date of Reorganisation are not entitled to such pension subsidies.

79


6. STAFF COSTS (continued)

(d) Certain employees of the Group were directed to retire early or their employment services were

terminated during the year. Employee termination and early retirement benefits are recognised in

the profit and loss account in the year in which the Group entered into an agreement specifying

the terms of redundancy, or after the individual employee has been advised of the specific terms.

These specific terms vary among the terminated or early retired employees depending on various

factors including position, length of service and district of the employee concerned.

The Group has no other obligations for the payment of pension and other post-retirement benefits of

employees or retirees other than the payments discussed above.

As at 31 December 2002, the Group had approximately 13,462 employees (2001 : 15,926).

7. PROFIT BEFORE TAXATION

Profit before taxation is stated after crediting and charging the following:

2002 2001

RMB’000 RMB’000

Crediting

Rental income 9,565 11,142

Interest income 33,325 36,722

Gain on disposal of property, plant and equipment 2,265 4,689

Fair value gains on trading investments 2,356 2,503

Reversal of provision for impairment of receivables 7,940 —

Charging

Depreciation

— owned property, plant and equipment 173,400 144,508

— owned property, plant and equipment leased

out under operating leases 1,677 1,589

Loss on disposal of property, plant and equipment 4,744 4,426

Auditors’ remuneration 7,863 —

Provision for impairment of property, plant and equipment 272 —

Operating leases

— land and buildings 112,783 79,314

— plant and equipment 465,546 446,366

Provision for impairment of receivables and bad debts written off — 39,207

Amortisation of land use rights and intangible assets 11,190 6,659

80


8. FINANCE INCOME, NET

2002 2001

RMB’000 RMB’000

Interest income on bank balances 33,325 36,722

Interest expense on bank loans and overdrafts (6,923) (5,902)

Interest expense on other loans which are wholly repayable within five years (100) (61)

Exchange gains, net 6,649 5,635

Bank charges (4,898) (5,355)

28,053 31,039

No borrowing costs were capitalised during the year (2001 : Nil).

9. TAXATION

Taxation in the consolidated profit and loss account represents:

2002 2001

RMB’000 RMB’000

Provision for PRC income tax

— current 232,656 214,762

— deferred taxation charge/(credit) 9,260 (9,824)

241,916 204,938

Share of taxation attributable to associates 2,327 2,353

244,243 207,291

The provision for PRC current income tax is based on the statutory rate of 33% (2001 : 33%) of the

assessable income of each of the companies and enterprises now comprising the Group as determined

in accordance with the relevant PRC income tax rules and regulations for the years ended 31 December

2002 and 2001, except for certain subsidiaries or jointly controlled entities which are taxed at

preferential rates ranging from 0% to 30% (2001 : 0% to 30%) based on the relevant PRC tax laws and

regulations.

81


9. TAXATION (continued)

(a) The reconciliation between the Group’s actual tax charge and the amount which is calculated

based on the statutory tax rate of 33% in the PRC is as follows:

2002 2001

RMB’000 RMB’000

Profit before taxation 931,547 765,117

Tax calculated at the statutory tax rate of 33% 307,411 252,489

Utilisation of prior year unrecognised tax losses (2,198) (3,008)

Deferred tax benefits arising from tax losses in certain entities not

recognised 3,454 5,155

Non-taxable income (25,593) (13,961)

Expenses not deductible for tax purposes 15,092 29,057

Preferential tax rate on the income of certain subsidiaries/jointly

controlled entities (55,268) (63,453)

Others 1,345 1,012

Tax charge 244,243 207,291

82



(b) Deferred income taxes are calculated in respect of temporary differences under the liability method

using the tax rates which are expected to apply at the time of reversal of the temporary

differences.

The movement in the deferred taxation accounts is as follows:

Deferred tax assets:

The Group The Company

2002 2001 2002

RMB’000 RMB’000 RMB’000

As at 1 January 62,499 52,554 —

(Decrease)/increase during the year (9,599) 9,945 3,006

As at 31 December 52,900 62,499 3,006

Provided for in respect of:

Provision for impairment of receivables 27,957 33,185 —

Provision for one-off cash housing subsidies 17,215 18,239 —

Provisions for pensions and other post

retirement benefits — 1,889 —

Provision for claims 2,948 7,027 —

Write-off of other current assets — 1,341 —

Other temporary differences 4,780 818 3,006

52,900 62,499 3,006

Temporary differences for which deferred tax

assets were not recognised:

Provision for impairment of receivables 3,612 2,285 —

Depreciation on property, plant and equipment 635 912 635

Losses carried forward 8,607 — —

Write-off of other current assets — 1,406 —

Others 2,492 — 2,492

15,346 4,603 3,127

83



Deferred tax liabilities:

The Group

2002 2001

RMB’000 RMB’000

As at 1 January 1,957 1,836

(Decrease)/increase during the year (339) 121

As at 31 December 1,618 1,957

Provided for in respect of:

Depreciation on property, plant and equipment 1,594 1,426

Other temporary differences 24 531

Total deferred tax liabilities 1,618 1,957

The temporary differences associated with the Group’s underlying investments in subsidiaries,

associates and jointly controlled entities amounted to approximately RMB610,203,000 (2001 :

RMB610,203,000) as at 31 December 2002 for which deferred tax liabilities have not been

recognised. Within the above amounts was a gain of RMB603,087,000 arising from deemed

disposal of the Company’s share of net assets of Sinoair after the issuance of shares by the latter in

connection with its initial public offering on the Shanghai Stock Exchange during the year ended

31 December 2000.

84



(c) Current tax liabilities represent:

The Group

2002 2001

RMB’000 RMB’000

Enterprise income tax 117,311 160,131

Business tax 33,825 24,234

Other taxes 10,327 4,220

161,463 188,585

10. PROFIT ATTRIBUTABLE TO SHAREHOLDERS

The profit attributable to shareholders is dealt with in the accounts of the Company to the extent of

approximately RMB94,252,000.

11. DIVIDEND

Pursuant to the Reorganisation, the Company agreed to distribute a special dividend to Sinotrans Group

Company representing the consolidated net profit of the Group for the period from 1 January 2002 to

30 November 2002 determined in accordance with PRC accounting standards, which amounted to

approximately RMB477,970,000. The Group has distributed such an amount to Sinotrans Group

Company by the end of March 2003.

The board of directors does not recommend the payment of any other dividend for the year ended 31

December 2002.

12. EARNINGS PER SHARE

Basic and diluted earnings per share for the years ended 31 December 2002 and 2001 have been

computed by dividing the profit for the year by 2,624,087,200 shares, being the number of shares

issued and outstanding upon the legal formation of the Company on 20 November 2002 as if such

shares had been outstanding for all years presented. As there are no potentially diluted securities, there

is no difference between basic and diluted earnings per share.

85


13. PROPERTY, PLANT AND EQUIPMENT

The Group

Buildings

Leasehold

improvements

Port and

rail

facilities Containers

Plant and

machinery

Motor

vehicles

and vessels

Furniture

and office

equipment

Assets

under

construction

2002

Total

2001

Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Cost

At beginning of year 528,551 30,581 65,914 22,835 220,751 487,958 279,017 83,233 1,718,840 1,488,535

Additions 26,038 5,452 — 253 56,273 84,192 67,436 105,653 345,297 308,034

Acquisition of

subsidiaries/a jointly

controlled entity 30,399 — 4,438 124 18,575 2,286 1,722 7,086 64,630 6,182

Disposals (13,395) — — (46) (16,842) (30,178) (16,655) (2,500) (79,616) (83,911)

Transfer upon completion 126,845 9,166 — — 6,689 5,416 2,092 (150,208) — —

At end of year 698,438 45,199 70,352 23,166 285,446 549,674 333,612 43,264 2,049,151 1,718,840

Accumulated depreciation

At beginning of year (135,421) (10,756) (28,197) (14,108) (126,614) (248,403) (140,360) — (703,859) (616,227)

Depreciation for the year (29,207) (5,800) (7,929) (2,782) (12,676) (67,520) (49,163) — (175,077) (146,097)

Disposals 5,391 — — 23 10,066 21,649 13,090 — 50,219 58,465

Impairment losses — — — — — (272) — — (272) —

At end of year (159,237) (16,556) (36,126) (16,867) (129,224) (294,546) (176,433) — (828,989) (703,859)

Net book value

At end of year 539,201 28,643 34,226 6,299 156,222 255,128 157,179 43,264 1,220,162 1,014,981

At beginning of year 393,130 19,825 37,717 8,727 94,137 239,555 138,657 83,233 1,014,981 872,308

86


13. PROPERTY, PLANT AND EQUIPMENT (continued)

The Company

Furniture and

office

equipment

Assets under

construction Total

RMB’000 RMB’000 RMB’000

Cost

As at 1 January 2002 — — —

Transferred from Sinotrans Group Company

upon incorporation 9,722 11,655 21,377

Additions 7,296 — 7,296

As at 31 December 2002 17,018 11,655 28,673- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Accumulated depreciation

As at 1 January 2002 — — —

Depreciation for the year (456) — (456)

As at 31 December 2002 (456) — (456)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net book value

As at 31 December 2002 16,562 11,655 28,217

Property, plant and equipment pledged as security for bank loans were as follows:

The Group

2002 2001

RMB’000 RMB’000

Net book value of property, plant and equipment pledged 28,916 16,326

Corresponding borrowings (18,882) (12,230)

87


14. LAND USE RIGHTS

The Group

2002 2001

RMB’000 RMB’000

Cost 189,685 160,273

Accumulated amortisation (21,960) (20,189)

Net book value 167,725 140,084

15. INTANGIBLE ASSETS

The Group

Software Goodwill 2002 Total 2001 Total

RMB’000 RMB’000 RMB’000 RMB’000

Cost

At beginning of year 16,345 (193) 16,152 6,823

Additions 12,851 8,207 21,058 8,984

Acquisition of a jointly controlled

entity — — — 345

Disposals (343) — (343) —

At end of year 28,853 8,014 36,867 16,152- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Accumulated amortisation

At beginning of year (7,116) 190 (6,926) (2,240)

Amortisation for the year (8,855) (564) (9,419) (4,686)

Disposals 188 — 188 —

At end of year (15,783) (374) (16,157) (6,926)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net book value

At end of year 13,070 7,640 20,710 9,226

At beginning of year 9,229 (3) 9,226 4,583

88


15. INTANGIBLE ASSETS (continued)

The Company

Software

RMB’000

Cost

As at 1 January 2002 —

Transferred from Sinotrans Group Company upon incorporation 7,948

Additions 1,758

As at 31 December 2002 9,706- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Accumulated amortisation

As at 1 January 2002 —

Amortisation for the year (1,014)

As at 31 December 2002 (1,014)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net book value

As at 31 December 2002 8,692

16. INVESTMENTS IN SUBSIDIARIES

The Company

2002

RMB’000

Investments at cost:

Unlisted equity interests 1,471,911

Shares listed in the PRC 1,278,378

2,750,289

Share of undistributed post-acquisition profits less losses 97,475

Dividends received (50,133)

2,797,631

89


16. INVESTMENTS IN SUBSIDIARIES (continued)

Shares listed in the PRC represent 70.36% equity interest in Sinoair, a company listed on the Shanghai

Stock Exchange. The market value of those listed shares was RMB4,205,887,736 as at 31 December

2002.

The following is a list of the principal subsidiaries at 31 December 2002 :

Name

Country/place of operation

& incorporation/date of

incorporation/legal status

Issued share/

paid up capital

Equity interest

held by the

Principal activitiesCompany Group

China Marine Shipping

Agency Company

Limited

Beijing, the PRC

11 December 2002

Limited liability company

RMB12,000,000 90% 100% Shipping agency

Sinotrans International

Multimodal

Transportation Company

Limited

Beijing, the PRC

26 December 2002


RMB9,801,195 90% 100% Freight forwarding

Sinotrans Air Transportation

Development Company

Limited

Beijing, the PRC

11 October 1999

Joint stock company with

limited liability

RMB365,851,200 70.36% 70.36% Air freight

forwarding and

express services

Dalian JD Cargo

International Co., Ltd.

Dalian, the PRC

31 March 1994


RMB6,000,000 — 42.22% Air freight

forwarding

Sinotrans Ningbo

International Air Freight

Co., Ltd.

Ningbo, the PRC

2 May 1995


RMB3,000,000 — 42.22% Air freight

forwarding

Shanghai Xin Yun Logistic

Co., Ltd.

Shanghai, the PRC

9 February 2002


RMB5,000,000 — 69.66% Freight forwarding

90



Name




Issued share/

paid up capital

Equity interest

held by the


Sinotrans Network

Technology Company

Limited

Beijing, the PRC

11 December 2001


RMB5,000,000 60% 88.14% Information

technology

services

Shanghai Huafu

Commercial Co., Ltd

Shanghai, the PRC

31 July 1998


RMB1,110,000 — 63.32% Trading and related

services

Sinotrans Eastern Company

Limited

Shanghai, the PRC

29 November 2002


RMB823,164,416 95% 100% Freight forwarding,

shipping agency

and express

services

Sinotrans Jiangsu Company

Limited

Nanjing, the PRC

11 December 2002



shipping agency

and express

services

Sinotrans Zhejiang

Company Limited

Ningbo, the PRC

9 December 2002



shipping agency

and express

services

Sinotrans Hubei Company

Limited

Wuhan, the PRC

22 December 1999



Sinotrans Container Lines

Company Limited

Shanghai, the PRC

24 April 1998


RMB9,837,907 10% 100% Marine

transportation

91



Name




Issued share/

paid up capital

Equity interest

held by the



Agency Shanghai

Company Limited

Shanghai, the PRC

20 December 2002


RMB3,000,000 — 100% Shipping agency

Sinotrans Changjiang

Shipping Company

Limited

Shanghai, the PRC

13 December 2000


RMB10,000,000 — 100% Marine

transportation

Sinotrans Shanghai

Customs Broker

Company Limited

Shanghai, the PRC

29 May 1998


RMB1,500,000 — 100% Freight forwarding

Shanghai Huafa

International

Transportation Co., Ltd

Shanghai, the PRC

14 June 1991

Sino-foreign equity joint

venture

US$10,777,500 — 67% Freight forwarding,

warehousing and

trucking

Shanghai Huafatengfei

International


Limited

Shanghai, the PRC

19 September 2001


RMB5,000,000 — 60.3% Warehousing

Shanghai Sinotrans

Songjiang Logistic

Company Limited

Shanghai, the PRC

7 August 2001


RMB5,000,000 — 85.18% Freight forwarding

Shanghai Jinling

International Freight

Transportation Co., Ltd

Shanghai, the PRC

10 December 1992


venture

US$2,050,000 — 51% Freight forwarding

92



Name




Issued share/

paid up capital

Equity interest

held by the



Agency Changshu

Company Limited

Changshu, the PRC

15 January 1998



Jiangsu Fortunate

International Company

Limited

Nanjing, the PRC

22 April 1995


venture


Sinotrans Nanjing Customs

Broker Company Limited

Nanjing, the PRC

27 December 2002



Sinotrans Suzhou Customs


Suzhou, the PRC

17 August 2000



Sinotrans Zhenjiang

Customs Broker

Company Limited

Zhenjiang, the PRC

30 December 2002



Sinotrans Changzhou

Customs Broker

Company Limited

Changzhou, the PRC

20 April 1995




Agency Jiangsu

Company Limited

Nanjing, the PRC

31 December 2002




Agency Zhangjiagang

Company Limited

Zhangjiagang, the PRC

26 December 2002



93



Name




Issued share/

paid up capital

Equity interest

held by the



Agency Nantong

Company Limited

Nantong, the PRC

27 December 2002




Agency Zhenjiang

Company Limited

Zhenjiang, the PRC

30 December 2002




Agency Changzhou

Company Limited

Changzhou, the PRC

22 January 2002




Agency Yangzhou

Company Limited

Yangzhou, the PRC

10 August 1995




Agency Zhoushan

Company Limited

Zhoushan, the PRC

24 December 2002




Agency Taizhou

Company Limited

Taizhou, the PRC

20 December 2002




Agency Wenzhou

Company Limited

Wenzhou, the PRC

27 December 2002




Agency Ningbo Co., Ltd

Ningbo, the PRC

7 August 1996



94



Name




Issued share/

paid up capital

Equity interest

held by the


Sinotrans Ningbo


Forwarding Co., Ltd

Ningbo, the PRC

20 August 1996



Sinotrans Ningbo Int’l

Container Transportation

Company Limited

Ningbo, the PRC

2 May 1995



Ningbo Transocean Int’l

Forwarding Agency

Company Limited

Ningbo, the PRC

24 February 1993



Sinotrans Ningbo Jiuling

Storage & Transportation

Company Limited

Ningbo, the PRC

2 March 1998


RMB2,000,000 — 64% Trucking

Sinotrans Fujian Company

Limited

Xiamen, the PRC

5 December 2002



shipping agency

and express

services

Sinotrans Fujian Customs


Fuzhou, the PRC

30 December 2002



Sinotrans Xiamen Logistics

Company Limited

Xiamen, the PRC

30 August 2000


RMB22,500,000 — 100% Freight forwarding,

warehousing


Agency Fujian Company

Limited

Fuzhou, the PRC

31 December 2002



95



Name




Issued share/

paid up capital

Equity interest

held by the


Minan Shipping & Enterprise

Corp. Ltd

Fuzhou, the PRC

1 March 1985


venture

US$3,000,000 — 75% Marine

transportation

Sinotrans Guangdong

Company Limited

Guangzhou, the PRC

11 December 2002



shipping agency

and express

services

Sinotrans Shenzhen

Customs Broker

Company Limited

Shenzhen, the PRC

12 November 1993



Sinoway Shipping Limited Hong Kong

6 October 1987


HK$1,000,000 — 100% Marine

transportation

Guangdong Transport

Limited

Hong Kong

29 November 1983


HK$1,000,000 — 100% Marine

transportation

Guangdong Eternal Way

International Freight Co.,

Ltd.

Guangzhou, the PRC

29 January 1996


venture


Jiangmen Foreign Trade

Terminal Co., Ltd.

Jiangmen, the PRC

6 November 2000

Sino-foreign co-operative

joint venture

RMB6,600,000 — 60% Warehousing, depot

and cargo

terminal services

96



Name




Issued share/

paid up capital

Equity interest

held by the


Jiangmen Foreign

Transportation &

Enterprises Company

Limited

Jiangmen, the PRC

18 November 1987


joint venture


Zhongshan Sinoway

Transportation Corp. Ltd

Zhongshan, the PRC

28 July 1988,


joint venture

US$5,140,000 — 59.45% Warehousing, depot

and cargo

terminal services

Sinotrans Shandong

Company Limited

Qingdao, the PRC

9 December 2002



shipping agency

and express

services

Qingdao Bonded Zone

Lianfeng Customs Broker

Company Limited

Qingdao, the PRC

21 March 1997


RMB500,000 — 100% Freight forwarding

Qingdao Golden Express

International

Transportation Service

Co., Ltd.

Qingdao, the PRC

24 February 1993


venture


Qingdao Liantong Customs

Broker Co., Ltd.

Qingdao, the PRC

20 November 1992


venture

US$600,000 — 75% Freight forwarding

97



Name




Issued share/

paid up capital

Equity interest

held by the


Sinotrans Shandong

Hongzhi International


Co., Ltd.

Qingdao, the PRC

5 January 1993


venture


Shandong Hongyun

Container Engineering

Co., Ltd.

Qingdao, the PRC

5 October 1992


venture

US$1,000,000 — 70% Container

maintenance

Sinotrans Tianjin Company

Limited

Tianjin, the PRC

3 December 2002



shipping agency

and express

services

Tianjin Tianshan

International Forwarding

Co., Ltd.

Tianjin, the PRC

7 October 1986


venture

RMB18,000,000 20% 60% Trucking and freight

forwarding

Sinotrans Liaoning

Company Limited

Dalian, the PRC

2 December 2002



shipping agency

and express

services


Agency Liaoning

Company Limited

Dalian, the PRC

30 December 2002



Sinotrans Liaoning Ocean

Shipping Supply Co., Ltd

Dalian, the PRC

12 May 1992


RMB500,000 — 100% Shipping agency

98



Name




Issued share/

paid up capital

Equity interest

held by the


Sinotrans Landbridge


Limited

Lianyungang, the PRC

2 December 2002



shipping agency

and express

services

The names of some of the subsidiaries referred to as above represent management’s translation of the

Chinese names of these companies as no English names have been registered.

17. INTERESTS IN JOINTLY CONTROLLED ENTITIES

The following is a list of the principal jointly controlled entities at 31 December 2002, which are held by

the Company indirectly through its subsidiaries.

Name




Issued share/

paid up capital

Percentage of interest

in ownership/voting

power/profit sharing

held by the


Ningbo Southeast


Company Limited

Ningbo, the PRC

25 September 1992


venture


Ningbo Taiping

International Trade

Transportation

Company Limited

Ningbo, the PRC

6 July 1992


venture


warehousing and

trucking

99


17. INTERESTS IN JOINTLY CONTROLLED ENTITIES (continued)

Name




Issued share/

paid up capital


in ownership/voting


held by the


Shanghai Huasing

International Container

Freight Transportation

Co., Ltd.

Shanghai, the PRC

2 July 1993


venture


warehousing and

trucking

Shanghai Express

International Co, Ltd.

Shanghai, the PRC

13 June 1994


venture

US$4,000,000 20% 51% Freight forwarding,

warehousing and

trucking

Shanghai Hua You

International

Forwarding Co., Ltd.

Shanghai, the PRC

22 August 1997


venture


warehousing

Nittsu Sinotrans Logistic

Dalian Co., Ltd

Dalian, the PRC

23 July 1992


venture


DHL-Sinotrans

International

Air Courier Ltd.

Beijing, the PRC

25 June 1986


venture

US$13,000,000 — 35.18% Express services

100



Name




Issued share/

paid up capital


in ownership/voting


held by the


Sinotrans-OCS

International

Express Co., Ltd.

Beijing, the PRC

13 December 1995


venture

US$2,240,000 — 35.18% Express services

Rex International

Forwarding Co., Ltd.

Beijing, the PRC

13 July 1994


venture

US$1,840,000 — 35.18% Air freight

forwarding

Exel-Sinotrans Freight

Forwarding

Co., Ltd.

Beijing, the PRC

15 May 1996


venture

US$1,360,000 — 35.18% Air freight

forwarding

Beijing Sinotrans

International Travel

Service Co., Ltd.

Beijing, the PRC

18 September 2000


RMB2,000,000 — 35.18% Tourism information

services

The names of some of the jointly controlled entities referred to as above represent management’s

translation of the Chinese names of these companies as no English names have been registered.

101



The aggregate amounts of assets, liabilities, revenues and expenses attributable to the Group’s interests

in the jointly controlled entities are summarised as follows:

2002 2001

RMB’000 RMB’000

Current assets 589,048 584,871

Non-current assets 215,400 187,919

Current liabilities 426,391 455,813

Non-current liabilities 2,900 2,177

Revenue 2,166,155 1,325,577

Expenses (1,907,895) (1,138,167)

The capital commitments related to the Group’s interests in the jointly controlled entities are

summarised as follows:

2002 2001

RMB’000 RMB’000

Authorised and contracted for but not recorded 698 1,567

Authorised but not contracted for 84,094 40,567

84,792 42,134

An analysis of the above capital commitments by nature is as follows:

2002 2001

RMB’000 RMB’000

Acquisition of property, plant and equipment 84,792 42,134

102



The following is a summary of the significant contingent liabilities related to the Group’s interests in the

jointly controlled entities:

2002 2001

RMB’000 RMB’000

Outstanding loan guarantees 2,143 900

Pending lawsuits 4,469 4,469

Others 3,250 —

9,862 5,369

18. INVESTMENTS IN ASSOCIATES

The Group

2002 2001

RMB’000 RMB’000

Unlisted investments, at cost 18,909 44,210

Share of undistributed post-acquisition profits less losses 8,698 14,991

Dividends received (3,240) (9,194)

24,367 50,007

103


18. INVESTMENTS IN ASSOCIATES (continued)

The following is a list of the principal associates at 31 December 2002 :

Name




Issued share/

paid up capital

Equity interest

held by the


Jiangmen Gaosha Agency

Company Limited

Jiangmen, the PRC

10 May 1996


RMB500,000 — 30% Freight forwarding

Ningbo Beilun Donghua


Service Co. Ltd.

Ningbo, the PRC

29 July 1997


RMB4,000,000 — 18% Warehousing

Shanghai Industrial

Sinotrans International


Limited

Shanghai, the PRC

20 March 2002


venture


Suzhou Transtar Logistic

Co., Ltd

Suzhou, the PRC

18 January 1999


joint venture

RMB5,000,000 — 23.45% Warehousing

Shanghai Shen Chi Storage

& Transportation

Company Limited

Shanghai, the PRC

18 July 2002



AMS Global Transportation

Co., Ltd.

Beijing, the PRC

29 June 1991


venture

US$1,860,000 — 14.07% Air freight

forwarding

Sinotrans Air Logistic Co.,

Ltd

Beijing, the PRC

5 March 1999


RMB10,000,000 — 30.96% Storage and

terminal services

104


18. INVESTMENTS IN ASSOCIATES (continued)

Name




Issued share/

paid up capital

Equity interest

held by the


Hangzhou Economic &

Technology Foreign-

Trading Co., Ltd.

Hangzhou, the PRC

18 February 1997


RMB500,000 — 28.14% Freight forwarding,

storage and

terminal services

Shanghai Hu Wan Logistic

Co., Ltd

Shanghai, the PRC

21 May 1997


RMB800,000 — 25.51% Trading

China International

Exhibition Transportation

Company Limited

Beijing, the PRC

20 July 1988



The names of some of the associates referred to as above represent management’s translation of the

Chinese names of these companies as no English names have been registered.

19. PREPAYMENTS, DEPOSITS AND OTHER CURRENT ASSETS


2002 2001 2002

RMB’000 RMB’000 RMB’000

Prepayments on behalf of customers 184,134 190,456 —

Prepaid expenses 46,967 29,770 —

Others 3,892 4,738 281

234,993 224,964 281

105


20. INVENTORIES

Inventories mainly comprise supplies, consumables and spare parts. As at 31 December 2002,

inventories stated at net realisable value amounted to approximately RMB4,265,000 (2001 :

RMB3,184,000).

21. TRADE AND OTHER RECEIVABLES


2002 2001 2002

RMB’000 RMB’000 RMB’000

Trade receivables 2,082,033 1,438,145 —

Bills receivable 6,617 11,347 —

Other receivables 111,748 102,757 4

Due from related parties 476,367 332,660 153,528

2,676,765 1,884,909 153,532

(a) Trade receivables

The Group

2002 2001

RMB’000 RMB’000

Trade receivables 2,160,336 1,549,385

Less: Provision for impairment of receivables (78,303) (111,240)

2,082,033 1,438,145

106


21. TRADE AND OTHER RECEIVABLES (continued)

(a) Trade receivables (continued)

Aging analyses of trade receivables at the respective balance sheet dates are as follows:

The Group

2002 2001

RMB’000 RMB’000

Within 6 months 2,045,551 1,353,651

Between 6 and 12 months 44,421 62,943

Between 1 and 2 years 21,660 48,977


Over 3 years 36,078 64,088

2,160,336 1,549,385

The credit period of the Group’s trade receivables generally ranges from 3 to 6 months.

(b) Bills receivable are bills of exchange with maturity dates of within 6 months.

(c) Other receivables


2002 2001 2002

RMB’000 RMB’000 RMB’000

Deposits receivable 94,638 91,607 —

Advances to other entities 1,171 2,445 —

Dividend and investment income receivables 3,349 4,352 —

Others 27,630 25,181 4

126,788 123,585 4

Less: Provision for impairment of receivables (15,040) (20,828) —

111,748 102,757 4

107



(d) Due from related parties

The amounts due from related parties can be analysed as follows:


2002 2001 2002

RMB’000 RMB’000 RMB’000

Trade receivables:

Ultimate holding company and fellow

subsidiaries 112,954 98,565 —

Jointly controlled entities 5,627 16,644 —

Associates 15 4,879 —

Other related parties 149,977 145,896 —

268,573 265,984 —


256,186 260,630 —

Other receivables:


subsidiaries 211,708 74,147 146,932

Jointly controlled entities 8,654 448 6,596

Associates 2,368 11,864 —


229,588 92,451 153,528


220,181 72,030 153,528

Total:


subsidiaries 324,662 172,712 146,932

Jointly controlled entities 14,281 17,092 6,596

Associates 2,383 16,743 —


498,161 358,435 153,528


476,367 332,660 153,528

108



(d) Due from related parties (continued)

Other receivables from related parties are generally unsecured and non-interest bearing.

Other receivables from ultimate holding company and fellow subsidiaries have been subsequently

settled following the listing of the Company’s shares. Other receivables from other related parties

are repayable on demand.

The Group makes provision for impairment of receivables based on both specific review and

general provision. For major balances in trade and other receivables, the provision is made after

considering the amount due, creditworthiness of the customers and other qualitative factors. For

other balances, a general provision is made at progressive percentages when the amount due is

over six months.

The aging of the amounts due from ultimate holding company, fellow subsidiaries, jointly

controlled entities, associates and other related parties, which are trading in nature, is summarised

as follows:

The Group

2002 2001

RMB’000 RMB’000

Within 6 months 220,762 236,386




Over 3 years 5,859 4,500

268,573 265,984

109


22. TRADING INVESTMENTS

The Group

2002 2001

RMB’000 RMB’000

Listed securities outside Hong Kong 10,818 1,284

Trading investments comprising principally marketable equity securities are stated at fair value at the

close of business at year end. Fair value is estimated by reference to the quoted bid prices.

23. PLEDGED DEPOSITS

The Group

2002 2001

RMB’000 RMB’000

Term deposits with initial term of over three months 28,666 5,260

Corresponding borrowings 12,507 1,100

The corresponding borrowings represent borrowings from banks.

24. TERM DEPOSITS WITH INITIAL TERM OF OVER THREE MONTHS

(a) As at 31 December 2002, approximately RMB428,131,000 (2001 : RMB568,657,000) of the

Group’s term deposits with initial term of over three months was denominated in Renminbi and

deposited with banks in the PRC. The conversion of these Renminbi denominated balances into

foreign currencies is subject to the rules and regulations of foreign exchange control promulgated

by the PRC government.

(b) As at 31 December 2002, approximately RMB61,866,000 (US$7,474,000) (2001 :

RMB148,053,000 (US$17,909,000)) of the Group’s term deposits with initial term over three

months was denominated in the United States Dollar. Other term deposits with initial term over

three months are denominated in various foreign currencies.

110


24. TERM DEPOSITS WITH INITIAL TERM OF OVER THREE MONTHS (continued)

(c) The weighted average effective interest rate on term deposits with initial term of over three

months was 1.82% (2001 : 2.01%) for the year ended 31 December 2002.

25. CASH AND CASH EQUIVALENTS

(a) As at 31 December 2002, approximately RMB1,353,200,000 (2001 : RMB1,032,854,000) and

RMB27,760,000 (2001 : RMB Nil) of the Group’s and the Company’s bank balances and cash was

denominated in Renminbi and deposited with banks in the PRC. The conversion of these Renminbi

denominated balances into foreign currencies is subject to the rules and regulations of foreign

exchange control promulgated by the PRC government.

(b) The weighted average effective interest rate on short term bank deposits as set out in Note (a)

above was 1.64% (2001 : 1.46%) for the year ended 31 December 2002.

26. TRADE PAYABLES

The Group

2002 2001

RMB’000 RMB’000

Trade payables 2,229,576 1,700,268

Due to related parties 99,086 78,941

2,328,662 1,779,209

111


26. TRADE PAYABLES (continued)

(a) Trade payables

The normal credit period for trade payables generally ranges from 1 to 3 months. Aging analyses of

trade payables at the respective balance sheet dates are as follows:

The Group

2002 2001

RMB’000 RMB’000

Within 6 months 1,992,288 1,387,220




Over 3 years 28,224 62,710

2,229,576 1,700,268

(b) Due to related parties — trade payables

The amounts due to related parties, which are trading in nature, can be analysed as follows:

The Group

2002 2001

RMB’000 RMB’000

Ultimate holding company and fellow subsidiaries 65,375 60,542

Jointly controlled entities 4,930 3,104

Associates — 2,441

Other related parties 28,781 12,854

99,086 78,941

112


26. TRADE PAYABLES (continued)

(b) Due to related parties — trade payables (continued)

The aging of the amounts due to the ultimate holding company, fellow subsidiaries, jointly

controlled entities, associates and other related parties is summarised as follows:

The Group

2002 2001

RMB’000 RMB’000

Within 6 months 69,713 26,929




Over 3 years 3,276 5,126

99,086 78,941

27. OTHER PAYABLES, ACCRUALS AND OTHER CURRENT LIABILITIES


2002 2001 2002

RMB’000 RMB’000 RMB’000

Other payables and accruals 197,537 200,150 10,245

Due to related parties 1,063,545 365,600 824,682

1,261,082 565,750 834,927

113


27. OTHER PAYABLES, ACCRUALS AND OTHER CURRENT LIABILITIES (continued)

(a) Other payables and accruals


2002 2001 2002

RMB’000 RMB’000 RMB’000

Payables for property, plant and equipment 12,825 53,431 1,137

Customers’ deposits 69,981 43,967 —

Accrued expenses 41,339 30,970 9,108

Dividends payable to minority shareholders of

subsidiaries 27,156 28,419 —

Advances from other entities 23,613 25,973 —

Others 22,623 17,390 —

197,537 200,150 10,245

(b) Due to related parties

The amounts due to related parties can be analysed as follows:


2002 2001 2002

Note RMB’000 RMB’000 RMB’000


subsidiaries (ii) 1,031,747 317,164 824,682

Jointly controlled entities 915 930 —

Associates 10,868 15,894 —


1,063,545 365,600 824,682

114


27. OTHER PAYABLES, ACCRUALS AND OTHER CURRENT LIABILITIES (continued)

(b) Due to related parties (continued)

(i) Amounts due to related parties of a non-trade nature are generally unsecured and non-

interest bearing. Except for the items disclosed in Note (ii) below, amount due to the ultimate

holding company and fellow subsidiaries of a non-trade nature are repayable within six

months from the listing of the Company’s shares. Amounts due to other related parties of

such nature have no fixed repayment terms.

(ii) Included in the amount due to the ultimate holding company and fellow subsidiaries as at 31

December 2002 is the current portion of the Group’s long-term payable to the ultimate

holding company for the early retirement, termination and supplementary pension benefit

obligations of approximately RMB165,858,000 (See Note 29 for details). In addition, a special

dividend of approximately RMB477,970,000 is also included in the amount due to the

ultimate holding company and fellow subsidiaries. (See Note 11 for details).

115


28. BORROWINGS

(a) Borrowings include bank borrowings and other borrowings which are analysed as follows:

The Group

2002 2001

RMB’000 RMB’000

Current:

Bank borrowings 60,667 41,680

Current portion of non-current borrowings 947 704

61,614 42,384- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Non-current:

Bank borrowings 710 1,656

Other borrowings — 195

710 1,851- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Total borrowings 62,324 44,235

Borrowings:

Unsecured 1,657 2,555

Secured 60,667 41,680

62,324 44,235

The carrying amounts of the borrowings at the respective balance sheet dates approximated their

fair values based on the prevailing borrowing rates available for loans with similar terms and

maturities.

116


28. BORROWINGS (continued)

(b) The Group’s non-current bank borrowings and other borrowings were repayable as follows:

The Group

2002 2001

RMB’000 RMB’000

Bank borrowings:

Within 1 year 697 704

Between 1 and 2 years 710 704

Between 2 and 5 years — 704

Beyond 5 years — 248

1,407 2,360

Less: Current portion (697) (704)

710 1,656

Other borrowings:

Within 1 year 250 —


250 195

Less: Current portion (250) —

— 195

Total:

Within 1 year 947 704

Between 1 and 2 years 710 899


Beyond 5 years — 248

1,657 2,555

Less: Current portion (947) (704)

710 1,851

117


28. BORROWINGS (continued)

(c) Securities

The Group

2002 2001

RMB’000 RMB’000

Term deposits with initial term of over three months pledged 28,666 5,260

Net book value of property, plant and equipment pledged 28,916 16,326

Guarantee provided by ultimate holding company and fellow

subsidiaries of the Group — 5,840

Guarantee provided by companies within the Group 28,953 23,910

Guarantee provided by third parties 325 —

Corresponding borrowings 60,667 41,680

The weighted average effective interest rate of the borrowings was 5.28% (2001 : 5.73%) for the

year ended 31 December 2002.

Pursuant to the Reorganisation, all guarantees provided by the ultimate holding company and

fellow subsidiaries of the Group have been released or withdrawn prior to the listing of the

Company’s shares.

118


29. EARLY RETIREMENT, TERMINATION AND SUPPLEMENTARY PENSION BENEFITS OBLIGATIONS

Prior to the Reorganisatons, the Group paid supplementary pension subsidies to its retired employees

who retired prior to the Reorganisation. In addition, the Group was committed to make periodic benefits

payments to certain former employees who were terminated or asked to retire early in accordance with

various rationalisation programmes adopted by the Group prior to the Reorganisation. Pursuant to the

Reorganisation, the Group and the ultimate holding company have agreed that the Group’s obligations

to make these early retirement, termination and supplementary pension benefits payments as at 30 June

2002 are assumed by the ultimate holding company and the actual payments of these obligations will be

made by the ultimate holding company. Accordingly, an amount due to the ultimate holding company

in the amount of RMB497,574,000 was recorded by the Group as at 31 December 2002, which is to be

settled in three equal instalments on 31 December 2003, 2004 and 2005 :

Obligations of

Early

retirement

benefits

Termination

benefits

Supple-

mentary

pension

subsidies Total

Long-term

payable to

ultimate

holding

company

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

As at 1 January 2001 56,504 38,799 439,456 534,759 —

Additional provision 23,604 12,101 6,077 41,782 —

Payment for the year (20,476) (6,449) (15,499) (42,424) —

As at 31 December 2001 59,632 44,451 430,034 534,117 —

As at 1 January 2002 59,632 44,451 430,034 534,117 —

Additional provision 10,206 7,772 — 17,978 —

Reversal of provision — — (28,138) (28,138) —

Payment for the period (12,417) (5,847) (8,119) (26,383) —

As at 30 June 2002 57,421 46,376 393,777 497,574 —

Transferred to long-term payable

to ultimate holding company (57,421) (46,376) (393,777) (497,574) 497,574

Less: Current portion recorded in

other payables, accruals

and other current liabilities

(Note 27(b)(ii)) — — — — (165,858)

Long-term portion — — — — 331,716

119


29. EARLY RETIREMENT, TERMINATION AND SUPPLEMENTARY PENSION BENEFITS OBLIGATIONS

(continued)

The above obligations as at 31 December 2001 and 30 June 2002 were actuarially determined by a PRC

insurance company using the projected unit credit method.

The material actuarial assumptions used in valuing these obligations are as follows:

(a) Discount rate adopted: 4.5% for the six months ended 30 June 2002 (2001 : 4.1%).

The effect of the above changes in discount rates was reflected as actuarial gains and losses and

charged to the profit and loss account in the year of change;

(b) Medical cost trend rate: 5% (2001 : 5%);

(c) Mortality: Average life expectancy of residents in the PRC;

(d) No survivorship adjustment was included in the termination calculation or in the period up to

normal retirement date for the early retirees. A survival adjustment was however included in

calculating the normal component for the early retirees; and

(e) Medical costs paid to early retirees are assumed to continue until the death of the retirees.

120


30. PROVISIONS

One-off cash

housing

subsidies Guarantees

Outstanding

claims Total

RMB’000 RMB’000 RMB’000 RMB’000

Note (a) Note 34(a) Note 34(b)

As at 1 January 2001 88,464 9,310 21,294 119,068

Provisions — 4,172 — 4,172

Utilised during the year (11,918) — — (11,918)

As at 31 December 2001 76,546 13,482 21,294 111,322

As at 1 January 2002 76,546 13,482 21,294 111,322

Utilised during the year (10,086) (1,450) (13,905) (25,441)

As at 31 December 2002 66,460 12,032 7,389 85,881

(a) This represents the Group’s provision for one-off cash housing subsidies. Certain provincial

governments have not yet promulgated the detailed local regulations in relation to the reformed

housing subsidy policies and certain entities within the Group have not yet adopted any formal

cash housing subsidy plans. In respect of certain entities which have not adopted any cash housing

subsidy plans, based on the available information and its best estimate, the Group estimated a

provision of RMB55,271,000 which was charged to the profit and loss account in the year ended

31 December 2000 when the State Council issued a circular regarding the cash housing subsidies

in the PRC. However, because of the significant uncertainties involved in view of the absence of

detailed local government regulations and formal cash housing subsidy plans for these entities, this

estimate is subject to a high degree of measurement uncertainty. Actual cash housing subsidies

eventually to be paid out may differ significantly from this estimate. The ultimate holding company

has agreed to bear any further one-off cash housing subsidies in the excess of the amount of

RMB74,560,000 provided for in the Group’s consolidated financial statements at the time of the

Reorganisation.

121


31. SHARE CAPITAL

The Company

2002

RMB’000

Registered, issued and fully paid 2,624,087,200 domestic shares of RMB1.00 each 2,624,087

The Company’s initial registered share capital was RMB2,624,087,200, divided into 2,624,087,200

ordinary shares of par value RMB1.00 each. 2,624,087,200 of these ordinary shares were state-owned

domestic shares, representing 100% of the initial registered share capital. Such shares were issued to

the ultimate holding company in consideration for the assets and liabilities related to the Group’s

existing business as at 31 December 2001 transferred from the ultimate holding company.

The share capital presented in the consolidated balance sheet as at 31 December 2001 represents the

initial registered share capital issued by the Company pursuant to the Reorganisation in exchange for the

Transferred Businesses, which is deemed to have been in issue throughout the accounting periods

presented in these accounts in accordance with the basis of preparation referred to in Note 2. The net

value of the assets and liabilities transferred from the ultimate holding company was converted into the

Company’s legal capital with all the then existing reserves eliminated and the resulting difference

credited to capital reserve. Accordingly, a capital reserve being the difference between the amount of

share capital issued and the historical net asset value of the Transferred Businesses as at 1 January 2001

was presented. Retained profits of the Transferred Businesses prior to 31 December 2001 were

capitalised and incorporated in the capital reserve pursuant to the Reorganisation and accordingly they

were not separately disclosed for the year ended 31 December 2001.

In February 2003 the Company completed its global initial public offering (‘‘Global Offering’’).

1,787,406,000 H shares were issued by the Company which comprise 1,624,915,000 shares offered by

the Company and 162,491,000 shares offered by the ultimate holding company. As a result, the issued

share capital of the Company increased to 4,249,002,200 shares, comprising 2,461,596,200 domestic

shares and 1,787,406,000 H shares, representing 57.9% and 42.1% of the issued capital, respectively.

All the domestic state-owned ordinary shares and H shares rank pari passu in all material respects except

that the dividends to holders of H shares are declared in RMB but paid in Hong Kong Dollar.

122


32. RESERVES

The Group

As part of the Reorganisation as described in Note 1, certain businesses were retained by Sinotrans

Group Company. The distributions to, net of contributions from Sinotrans Group Company in the

consolidated statement of changes in owner’s equity during the year ended 31 December 2001

represented the net cash inflow from or outflow to the Excluded Businesses retained by Sinotrans Group

Company.

The Company

Capital

reserve

Statutory

surplus

reserve

Statutory

public

welfare

fund

Retained

profits Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Upon incorporation (845,111) — — 477,970 (367,141)

Profit for the period — — — 94,252 94,252

Special dividend — — — (477,970) (477,970)

Transfer to reserves — 2,699 1,350 (4,049) —

At 31 December 2002 (845,111) 2,699 1,350 90,203 (750,859)

The Company was incorporated in November 2002 to take over the assets and liabilities related to the

Group’s existing business. The amount of capital reserve upon incorporation represented the difference

between the amount of share capital issued and the historical net asset value of the Transferred

Businesses as at 31 December 2001. The amount of retained profits upon incorporation of the Company

represented the Company’s share of the profit of the Transferred Businesses for the period from 1

January 2002 to 30 November 2002 under the equity method of accounting, which is attributable to

Sinotrans Group Company pursuant to the Reorganisation, see Note 11.

123


32. RESERVES (continued)

In accordance with the relevant PRC regulations and the Articles of Association of the Company, every

year the Company is required to transfer 10% of the profit after taxation determined in accordance with

PRC accounting standards to a statutory surplus reserve until the balance reaches 50% of the registered

share capital. Such reserve can be used to reduce any losses incurred and to increase share capital.

Except for the reduction of losses incurred, any other usage should not result in this reserve balance

falling below 25% of the registered share capital.

In accordance with the relevant PRC regulations and the Articles of Association of the Company, every

year the Company is required to transfer between 5% to 10% of the profit after taxation determined in

accordance with PRC accounting standards to a statutory public welfare fund. The use of this fund is

restricted to capital expenditure for employees’ collective welfare facilities, the ownership in respect of

which belongs to the Group. The statutory public welfare fund is not available for distribution to

shareholders except under liquidation. Once the capital expenditure on staff welfare facilities has been

made, an equivalent amount must be transferred from the statutory public welfare fund to the

discretionary surplus reserve, a reserve which can be used to reduce any losses incurred or to increase

share capital. The Company decided to transfer 5% of its net profit determined in accordance with PRC

accounting standards to the statutory public welfare fund for the period ended 31 December 2002.

Subsequent to the Reorganisation, in accordance with the Articles of Association of the Company,

retained profits available for distribution by the Company will be deemed to be the lower of the

amounts determined in accordance with PRC accounting standards and the amount determined in

accordance with IFRS. As at 31 December 2002, the amount of retained profits available for distribution

was approximately RMB22,945,000, being the amount determined in accordance with PRC accounting

standards.

124


33. NOTES TO CONSOLIDATED CASH FLOW STATEMENT

(a) Reconciliation of operating profit to cash generated from operations

2002 2001

RMB’000 RMB’000

Profit for the year 572,222 452,303

Interest income (33,325) (36,722)

Interest expense 7,023 5,963

Loss/(gain) on disposal of property, plant and equipment 2,479 (263)

Fair value gains on trading investments (2,356) (2,503)

(Write back)/charge of provision for impairment of receivables

and bad debts written off (7,940) 39,207

Depreciation of property, plant and equipment 175,077 146,097

Impairment losses of property, plant and equipment 272 —

Amortisation of intangible assets 9,419 4,686

Amortisation of land use rights 1,771 1,973

Share of results of associates, net of taxation (7,790) (8,668)

Minority interests 115,082 105,523

Operating profit before working capital changes 831,934 707,596

Decrease/(increase) in deferred tax assets 9,599 (9,945)

Increase in prepayments, deposits and other current assets (9,657) (4,479)

Decrease/(increase) in inventories 1,453 (1,386)

(Increase)/decrease in trade and other receivables (752,757) 233,598

(Decrease)/increase in deferred tax liabilities (339) 121

Decrease in early retirement, termination and pension benefits

obligations (36,543) (642)

Increase in other liabilities 1,709 1,275

Decrease in provisions (25,441) (7,746)

Increase/(decrease) in trade payables 531,363 (347,346)

Increase in other payables, accruals and other current liabilities 37,555 4,469

Decrease in receipts in advance from customers (7,007) (5,233)

Increase in income and other taxes liabilities 228,645 208,838

Increase in salary and welfare payable 17,472 21,299

Cash generated from operations 827,986 800,419

125


33. NOTES TO CONSOLIDATED CASH FLOW STATEMENT (continued)

(b) Purchase of subsidiaries

(i) On 30 June 2002, the Group acquired an additional 12.5% equity interest in Zhongshan

Sinoway Transportation Corp. Ltd., an associate, from a third party for a cash consideration

of RMB9,340,000 and, as a result of which, the latter became a non-wholly owned subsidiary

of the Group. The acquisition is accounted for by acquisition accounting. Details of the assets

and liabilities acquired are as follows:

RMB’000

Assets/liabilities acquired (at 100% interest):

Property, plant and equipment 42,344

Trade and other receivables 16,229

Cash and cash equivalents 4,939

Trade payables (1,218)

Other payables, accruals and other current liabilities (10,436)

Receipts in advance from customers (2,336)

Current tax liabilities (524)

Salary and welfare payable (3,011)

45,987

12.5% interest acquired by the Group 5,748

Goodwill on acquisition 3,592

Cash consideration paid 9,340

Net cash outflow in respect of the acquisition is analysed as follows:

Cash and cash equivalents (at 100% attributable interest) 4,939

Cash paid (9,340)

(4,401)

126


33. NOTES TO CONSOLIDATED CASH FLOW STATEMENT (continued)

(b) Purchase of subsidiaries (continued)

(ii) On 30 September 2002, the Group acquired an additional 11.7% equity interest in Jiangmen

Foreign Transportation & Enterprises Company Limited, an associate, from a third party for a

cash consideration of RMB6,787,000 and, as a result of which, the latter became a non-

wholly owned subsidiary of the Group. The acquisition is accounted for by acquisition

accounting. Details of the assets and liabilities acquired are as followings:

RMB’000

Assets/liabilities acquired (at 100% interest):

Property, plant and equipment 22,286

Land use rights 2,700

Other non-current assets 621

Prepayments, deposits and other current assets 372

Inventories 904

Trade and other receivables 14,930

Cash and cash equivalents 3,162

Trade payables (16,872)

Other payables, accruals and other current liabilities (3,513)

Current tax liabilities (245)

Borrowings (3,130)

Salary and welfare payable (2,649)

18,566

11.7% interest acquired by the Group 2,172

Goodwill on acquisition 4,615

Cash consideration paid 6,787

Net cash outflow in respect of the acquisition is analysed as follows:

Cash and cash equivalents (at 100% attributable interest) 3,162

Cash paid (6,787)

(3,625)

127


34. CONTINGENT LIABILITIES

The following is a summary of the Group’s significant contingent liabilities:

The Group

2002 2001


Outstanding loan guarantees (a) 9,933 186,729

Bills discounted with recourse 9,959 5,860

Pending lawsuits (b) 42,545 95,577

Others — 2,004

62,437 290,170

(a) The Group had acted as the guarantor for various external borrowings by certain fellow

subsidiaries under the ultimate holding company and certain third party entities. As at 31

December 2002, it acted as the guarantor for certain other related parties and certain third party

entities. Provisions as set out in Note 30 has been made for those guarantees where management

believes it is probable that the Group will have to pay up those guarantees and at amounts based

on its best estimate. Other outstanding guarantees are disclosed as contingent liabilities above.

Pursuant to the Reorganisation, all guarantees given by the Group for the benefit of the ultimate

holding company and fellow subsidiaries have been released or withdrawn prior to the listing of

the Company’s share.

(b) The Group has been named in a number of lawsuits arising in the ordinary course of business.

Provisions as set out in Note 30 has been made for the probable losses to the Group on those

claims when management can reasonably estimate the outcome of the lawsuits taking into

account the legal advice. No provision has been made for pending lawsuits when the outcome of

the lawsuits cannot be reasonably estimated or management believes the probability of loss is

remote.

(c) The above amounts do not include those items for which provision have been made as disclosed in

Note 30.

128


35. CAPITAL COMMITMENTS

The Group has the following outstanding capital commitments not provided for in the consolidated

financial statements:

The Group

2002 2001

RMB’000 RMB’000

Authorised and contracted for but not recorded 37,823 133,425

Authorised but not contracted for 36,875 278,895

74,698 412,320

An analysis of the above capital commitments by nature is as follows:

Acquisition of property, plant and equipment 65,986 314,320

Construction commitment 320 15,260

Purchase of software 8,392 45,540

Others — 37,200

74,698 412,320

The Company did not have any material capital commitments at 31 December 2002.

129


36 OPERATING LEASE COMMITMENTS

(a) The Group as leasee

The Group has commitments to make the following future minimum lease payments under non-

cancellable operating leases:

The Group

2002 2001

RMB’000 RMB’000

Land and buildings

— Not later than one year 51,675 51,245

— Later than one year but not later than five years 108,930 97,266

— Later than five years 129,684 126,363

Plant and machinery



— Later than five years — 560

691,057 406,020

130


36 OPERATING LEASE COMMITMENTS (continued)

(b) The Group as lessor

The Group has contracted with customers for the following future minimum lease receivables

under non-cancellable operating leases as follows:

The Group

2002 2001

RMB’000 RMB’000

Land and buildings



— Later than five years 1,340 2,877

Plant and machinery

— Not later than one year 204 108

— Later than one year but not later than five years 340 —

7,736 9,028

The Company did not have any material lease commitments at 31 December 2002.

37. SIGNIFICANT RELATED PARTY TRANSACTIONS

In addition to the related party transactions undertaken in connection with the Reorganisation described

in Note 1 above, during the year, the Group entered into various transactions with related parties

including the ultimate holding company and fellow subsidiaries, associates, jointly controlled entities

and joint venture partners of jointly controlled entities of the Group, and entities, directly or indirectly,

controlled or significantly influenced by the ultimate holding company.

131


37. SIGNIFICANT RELATED PARTY TRANSACTIONS (continued)

The aggregate income and expenses arising from the related party transactions are summarised as

follows:

Profit and loss items:

The Group

2002 2001

RMB’000 RMB’000

Transactions with ultimate holding company and fellow

subsidiaries:

Revenue:

Revenue from provision of services 384,403 393,826

Rental income from vessels leased out 495 522

Management fee income 5,450 4,319

Expenses:

Service fees (330,382) (432,151)

Rental expenses for office buildings (30,517) (34,794)

Rental expenses for containers (41,107) (36,050)

Rental expenses for warehouse and depots (5,240) (4,442)

Rental expenses for ships (38,390) (60,914)

Rental expenses for motor vehicles (3,884) (4,011)

Rental expenses for machinery and equipment (3,539) (3,475)

Management fees (5,842) (6,350)

Others:

Guarantees provided by the Group for the benefit of ultimate holding

company and fellow subsidiaries — 174,229

Guarantees provided by ultimate holding company — 5,840

Transactions with associates of the Group:

Revenue:

Revenue from provision of services 10 7,054

Expenses:

Service fees (436) (15,283)

Rental expenses for trucks — (360)

132



The Group

2002 2001

RMB’000 RMB’000

Transactions with jointly controlled entities (after elimination of

the Group’s proportionate interests in those jointly controlled

entities):

Revenue:


Expenses:

Service fees (21,480) (14,962)

Others:

Guarantees provided by the Group for the benefit of jointly

controlled entities 5,393 900

Transactions with joint venture partners in jointly controlled

entities (attributable to the Group’s interests in those jointly

controlled entities):

Revenue:

Pick-up and delivery revenue 250,352 212,668


Expenses:

Transportation and related charges (276,749) (200,418)

Service fees (10,073) (3,451)

Management fees (5,823) (4,818)

Transactions with other related parties:

Revenue:

Revenue from provision of pick-up and delivery services 186,424 121,248

Incentive bonus receivable 57,560 68,695


Expenses:

Service fees (19,187) (5,692)

Rental expenses for ships (6,665) (6,387)

Others:

Guarantees provided by the Group for the benefit of joint venture

partners in jointly controlled entities 9,933 12,500

133



These transactions are entered into at terms agreed with these related parties in the ordinary course of

business. The guarantees given by the Group for the benefit of the ultimate holding company and fellow

subsidiaries and vice versa have been released prior to the listing of the Company’s shares.

In addition to the above, the ultimate holding company has assumed the Group’s obligations to make

benefits payments to certain of the Group’s former employees and retirees (see Note 29) and agreed to

bear any further one-off cash housing subsidies in excess of the amount of approximately

RMB74,560,000 provided for in the financial statements of the Group at the time of the Reorganisation

(see Note 30).

Balance sheet items:

The Group

2002 2001

RMB’000 RMB’000

Balances with the ultimate holding company and fellow

subsidiaries:

Trade and other receivables 324,662 172,712

Trade payables (65,375) (60,542)

Other payables, accruals and other liabilities (1,031,747) (317,164)

Long-term payable (331,716) —

Balances with jointly controlled entities:



Other payables, accruals and other liabilities (915) (930)

Balances with associates of the Group:


Trade payables — (2,441)

Other payables, accruals and other liabilities (10,868) (15,894)

Balances with other related parties:



Other payables, accruals and other liabilities (20,015) (31,612)

For the balance sheet items, other related parties primarily represent the joint venture partners in jointly

controlled entities. Other receivables from related parties and amounts due to related parties have

repayment terms as disclosed in Note 21 and Note 27 respectively.

134


38. SUBSEQUENT EVENTS

The following events took place subsequent to 31 December 2002 and up to the date of this report:

(a) Subsequent to 31 December 2002, the Group entered into certain significant agreements with the

ultimate holding company:

On 14 January 2003, the Group entered into a business service agreement with the ultimate

holding company which regulates the provision of transportation and logistics services and

ancillary services by members of the Group to the ultimate holding company (including its

subsidiaries and associates) and vice versa. The business service agreement contemplates that the

relevant members of the Group and the ultimate holding company (including its subsidiaries and

associates) will enter into contracts for specific services and for the leasing of certain assets as and

when necessary, in compliance with the terms of the business service agreement.

The business service agreement also provides for the following:

. Leasing of certain vessels by the Group for aggregate charter hire of approximately

RMB29,000,000.

. Leasing of certain containers by the Group with an estimated annual rental of approximately

RMB56,000,000.

. Leasing of certain motor vehicles by the Group.

The Group has also entered into a master lease agreement providing for the leasing of certain

office premises, warehouses, container yards/freight stations and other properties for a term of 20

years at an annual rental of approximately RMB69,000,000.

(b) In February 2003 the Company completed the Global Offering resulting in total shares outstanding

of 4,249,002,200 of which 2,461,596,200 shares are owned by the ultimate holding company and

1,787,406,000 shares are owned by the public (See Note 31).

135


38. SUBSEQUENT EVENTS (continued)

(c) On 31 March 2003, the Company obtained an approval from the Ministry of Finance and the State

Administration of Taxation of the PRC that the additional depreciation and amortisation on the

asset revaluation surplus of approximately RMB839,800,000, arising from the Reorganisation and

recorded by various entities comprising the Group in their financial statements prepared under PRC

accounting standards, is deductible for enterprise income tax purposes. Since the Group did not

recognise the above asset revaluation surplus in its financial statements prepared in accordance

with IFRS, a deferred tax asset of approximately RMB226,700,000 arose as a result of the approval,

which will be recognised and credited into capital reserve during the year ending 31 December

2003.

(d) On 10 April 2003, the Board of Directors of Sinoair proposed a cash dividend of RMB0.25 per share

totaling approximately RMB91,462,000, of which approximately RMB27,109,000 is attributable to

the minority shareholders. The proposed dividend is subject to the shareholder’s approval at their

next general meeting.

39. ULTIMATE HOLDING COMPANY

The Company’s directors regard Sinotrans Group Company, a company established in the PRC, as the

ultimate holding company of the Company.

40. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the board of directors on 15 April 2003.

136


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