CMON Limited — Annual Report 2004

Jul 29, 2005

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瀋陽公用發展股份有限公司 Shenyang Public Utility Holdings Company Limited

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

(Stock Code: 747)

2004 Annual Results

(Results for the year ended 31st December 2004)

The board of directors (the “Board”) of Shenyang Public Utility Holdings Company Limited (the”Company”) is pleased to announce the audited results of the Company and its subsidiaries (collectively the “Group”) for the year ended 31st December 2004 (the “Year”) and the comparative figures for the corresponding period of 2003, prepared in accordance with the accounting principles generally accepted in Hong Kong, as follows:

CONSOLIDATED INCOME STATEMENT (AUDITED)

Notes Turnover 2 Other income 3 Cost of properties sold Taxes on sales of properties Staff costs Depreciation and amortisation Provision for impairment loss on property held for sale Other operating expenses (Loss) profit from operations Finance costs Share of results of a jointly controlled entity Profit of disposal of a jointly controlled entity (Loss) profit before tax 2 Taxation 4 (Loss) profit after tax Minority interests (Loss) profit attributable to shareholders (Loss) earnings per share – basic 7	2004 RMB’000 35,312 5,160 (13,029) (1,617) (15,563) (47,366) (58,913) (82,088) (178,104) (40,471) 21,288 2,821 (194,466) (3,016) (197,482) 2,487 (194,995) RMB(0.19)	2003 RMB’000 169,116 4,351 (113,157) (9,476) (8,532) (7,488) – (21,245) 13,569 (6,023) 24,288 – 31,834 (14,380) 17,454 379 17,833 RMB0.02

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Note:

1. BASIS OF PREPARATION

The financial statements of the Group are prepared in accordance with the Hong Kong Financial Reporting Standard (“HKFRS”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), the term of HKFRS is inclusive of Statements of Standard Accounting Practice (“SSAP”) and Interpretations approved by the HKICPA.

• (a) Recent issued accounting standards

The HKICPA has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (“new HKFRSs”) which are effective for accounting periods beginning on or after 1st January 2005.

The Group has not early adopted these new HKFRSs in the financial statements for the year ended 31st December 2004. The Group has already commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a significant impact on its results of operations and financial position.

(b) Adoption of going concern basis

The group recorded a net loss of RMB194,995,000 for the year and had overdue bank loans totaling RMB199,638,000 as at 31st December 2004. Notwithstanding this, the financial statements have been prepared on the assumption that the Group will continue to operate as a going concern. In the opinion of the Directors, the Group will have sufficient working capital to continue its operations in the coming year, after taking into consideration of the following:

• (i) The Group is currently negotiating with its bankers to extend and re-schedule the repayment terms of certain bank loans and borrowings which either have been overdue for payment at the balance sheet date or would be due for repayment in the coming year. The Group is also in the course of discussion with some of its bankers to apply for additional credit facilities. The Directors anticipate that the Group will be able to maintain the existing credit facilities and obtain additional credit facilities from its bankers.

• (ii) The Group is currently seeking potential buyers for the interest in certain of its subsidiaries and properties. As part of the Group’s strategic plan, the Group intends to dispose these investments and properties and thereby to obtain additional cash resources for repayment of its overdue indebtedness and/or to provide additional working capital. The Directors anticipate that the assets will be disposed at amounts not less than their current net book value.

The Directors believe that the aforementioned financing plans and operational measures will be successful and the principal bankers will continue to support the Group. Having regard to the cash flow projections of the Group, which are based on the key assumption that these measures will be successful, the Directors are of the opinion that, in the light of the measures taken to date, together with the expected results of other measures in progress, the Group will have sufficient cash resources to satisfy its future working capital and other financing requirements. Accordingly, the financial statements have been prepared on a going concern basis.

Should the Group be unable to generate sufficient cash flows and/or secure the support of its bankers, the Group might not be able to continue its business as a going concern basis. Adjustments would have to be made in the financial statements to restate the value of the assets to their recoverable amounts, to provide for any further liabilities which might arise, and to reclassify non-current assets and non-current liabilities as current assets and current liabilities respectively.

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2. Segment Information and Segment Results Analysis:

For management purposes, the Group is currently organised into three (2003: two) operating divisions. These divisions are the basis on which the Group reports its primary segment information.

Principal activities are as follows:

– Property development development, sale, rental and management of properties. – Education projects leasing of campus and equipment and investment and management of education projects. – Cemetery development development and lease of tomb sets and niches for cremation urns.

The cemetery development business of the Group was commenced in the year of 2004.

There was no significant business transaction between the segments for both years.

Segment information about these businesses is presented below:

Property development Education projects Cemetery development (a) Others Interest income Finance costs Share of results of a jointly controlled entity Profit of disposal of a jointly controlled entity Unallocated corporate expenses (Loss) profit before tax	Turnover 2004 2003 RMB’000 RMB’000 21,128 165,762 10,658 2,500 494 – 3,032 854 35,312 169,116	Segment results 2004 2003 RMB’000 RMB’000 (76,040) 28,434 (11,584) (2,711) (38,546) – (4,061) (1,327) (130,231) 24,396 5,160 4,351 (40,471) (6,023) 21,288 24,288 2,821 – (53,033) (15,178) (194,466) 31,834

• a) The subsidiary of the Group 深圳市西麗報恩褔地墓園有限公司 Shenzhen Xili Baoen Fu Di Cemetery Company Limited (“Xili Cemetery”) operates cemetery business in Shenzhen of Guangdong Province, the PRC. The land on which the business is situated is a leasehold land with a medium lease terms until 10th May 2048. Xili Cemetery develops tomb sets and niches for cremation urns on the land and leases to the lessees for the period as same as the lease terms of the land. The rental income is wholly received from the leasee when the legally binding contract is signed. Such rental income is recognized on a straight-line basis in the income statement over the relevant lease terms. The rental income received but not yet recognised to income statement is classified as deferred income in the balance sheet.

• b) All of the Group’s turnover for both years was originated in the PRC.

• c) As at 31st December 2003 and 2004, all of the Group’s segment assets were located in the PRC, accordingly no geographical segment information is presented.

3. Other income

2004 2003 RMB’000 RMB’000 Interest on bank deposits 5,160 4,351

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4. Taxation

The charge comprises: The Company and subsidiaries – PRC enterprise income tax – Deferred taxation Share of taxation of a jointly controlled entity in the PRC	2004 RMB’000 – 785 (3,801) (3,016)	2003 RMB’000 (10,568) 196 (4,008) (14,380)

No provision for Hong Kong Profits Tax has been made as the Group’s income neither arises in, nor is derived from Hong Kong.

Taxation of the Group arising in the PRC is calculated at the rates of 15% - 33%.

The applicable PRC income tax rate for the jointly controlled entity is 16.5%.

5. Appropriations to reserves

According to their respective Articles of Association, the Company and its subsidiaries are required to transfer a proportion of their retained earnings, as shown in the accounts prepared under the PRC accounting regulations to various statutory reserves. As the Group sustained a loss for the year, no appropriation was made.

6. Dividend

No dividend was paid or proposed during the year ended 31st December 2004, nor has any dividend been proposed since the balance sheet date (2003: Nil).

7. (Loss) earnings per share

The calculation of (loss) earnings per share for the year is based on the loss attributable to shareholders for the year of RMB194,995,000 (2003: profit of RMB 17,833,000) and the number of 1,020,400,000 shares (2003: 1,020,400,000 shares) in issue during the year.

No diluted (loss) earnings per share are presented as the Company has no dilutive potential shares outstanding in both years.

EXTRACT OF INTERNATIONAL AUDITORS’ REPORT FOR THE YEAR ENDED 31ST DECEMBER 2004

Basis of opinion

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) except that the scope of our work was limited as explained below.

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Company and of the Group, consistently applied and adequately disclosed.

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We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. However, the evidence available to us was limited because we have not obtained all the information we considered necessary in related to certain other receivable balances:

• (a) Up to the date of this report, we have not yet obtained the audit confirmations or related agreements of certain receivable balances amounted to RMB45,515,000. There were no other alternative audit procedures that we could adopt to verify the nature, existence and accuracy of these receivable amounts. Accordingly, we could not ascertain these receivable amounts have been properly disclosed in the financial statements and whether the Group had any unrecorded financial obligations in respect thereof.

• (b) As disclosed in Note 27 to the financial statements, up to the date of this report, there was unsettled amounts of RMB197,189,000 in respect of these debtors. Although the Group had signed repayment agreements with certain of these debtors amounted to approximately RMB51,800,000. However, we considered that there were uncertainties in the fulfillment of these repayment agreements by these debtors. Accordingly, we were unable to form an opinion in respect of the recoverability of the aforesaid unsettled amounts of these debtors of approximately RMB197,189,000.

Any adjustment to the above figures may have a consequential significant effect on the loss for the year and shareholders’ equity as at 31st December 2004.

In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for the following opinion.

Fundamental uncertainty relating to the going concern basis of the financial statements

In forming our opinion, we considered the adequacy of the disclosures made in the financial statements concerning the adoption of the going concern basis for the preparation of the financial statements. As set out in note 2(b) to the financials statements, the financial statements have been prepared on a going concern basis, the validity of which depends upon the successful implementation of certain proposed financing plans and the continual financial supports of the Group’s bankers. The financial statements do not include any adjustments that would result from the failure of the Group to operate as a going concern. Had the going concern basis not been used, adjustments would have to be made to reduce the value of the Group’s assets to their recoverable amounts, to provide for any liabilities which might arise, and to reclassify non-current assets and liabilities as current assets and liabilities respectively. We consider that appropriate disclosures relating to this fundamental uncertainty have been made and our opinion is not qualified in this respect.

Qualified opinion – limitation of audit scope

Except for the limitation in evidence available to us in respect of the matters as mentioned in the section of “Basis of Opinion”, in our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 31st December 2004 or of its loss and cash flows for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitations on our work as set out in the section of “Basis of Opinion” of this report:

• we have not obtained all the information and explanations that we consider necessary for the purpose of our audit; and

• we were unable to determine whether proper books of accounts have been kept.

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FINAL DIVIDEND

The Board resolved that no final dividend would be declared for 2004. Such resolution is subject to approval at the 2004 Annual General Meeting of the Company to be held on 20th September 2005.

BUSINESS REVIEW

• The turnover of the Group in the Year was RMB35,312,000 (2003:RMB169,116,000), representing a decrease of approximately 79.12% compared with that of the year ended 31st December 2003 (the “Previous Year”).

• The loss after tax in the Year was RMB197,482,000 (2003: profit of RMB17,454,000), representing a decrease of approximately RMB214,936,000 compared with that of the Previous Year.

• The loss attributable to shareholders in the Year was RMB194,995,000 (2003: profit of RMB17,833,000), representing a decrease of approximately RMB212,828,000 compared with that of the Previous Year.

• The loss per share in the Year was RMB0.19 (2003: earnings per share of RMB0.02), representing a decrease of approximately RMB0.21 compared with that of the Previous Year.

1. Real Estate Development Business

During the Year, the Group mainly focused on sales and construction of phase two for the project “Water-Flowers City” in Shenyang, renovation, decoration, sales and lease of the project “Cosmo International Mansion” in Shenyang and preliminary preparation work of the project “Scenic Bay” in Beijing.

Phase one of the project “Water-Flowers City” in Shenyang has been completed for residence and pre-sale of phase two has completed. As at 31st December 2004, the project “Water-Flowers City” in Shenyang recorded actual sales area of 4,830 square metres and a sales revenue of RMB14,063,000.

The project “Cosmo International Mansion” in Shenyang is the reconstruction of an incomplete project, with gross floor area of approximately 30,000 square metres. The decoration and ornament works for the mansion and its podium have basically been completed. As at 31st December 2004, the project recorded aggregate presold area of 9,630 square metres and a presales revenue of RMB70,751,000. Rental income of the podium for the Year amounted to RMB5,266,000.

Affected by the policy adjustments regarding suspension of the application, approval and construction of all real estate development projects in Beijing, the project of “Scenic Bay” in Beijing has not yet officially commenced construction during the Year, but has obtained approval for land requisition from the relevant government authorities, and the subsequent work is under planning.

During the Year, turnover from real estate development, sales and lease businesses amounted to RMB21,128,000, down 87.25% over that of the Previous Year and the loss before taxation amounted to RMB76,040,000, which is RMB104,474,000 less than that of the Previous Year. It is principally because of a substantial decrease in the gross floor area of sold properties as compared with that of the Previous Year, the loose cost control over the “Water-Flowers City” project in Shenyang, the over investment in brand promotion as well as the unexpected investment on the difficult reconstruction of the old buildings for the project “Cosmo International Mansion” in Shenyang during the Year.

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2. Education Investment Business

Phase one of Shenyang Beida Education Science Park (“Shenyang Education Park”), a project invested by Shenyang Development Beida Education Science Park Company Limited (“Shenyang Education”) with a site area of 133,000 square metres, was basically completed in August 2004. Shenyang Beida Jade Bird School (“Shenyang School”) was set up in May 2004, and obtained “School Operation Permit”, “Education Fee Collection Permit” and “Permission for the Appointment of Foreign Teachers” issued by the Education Bureau of Shenyang in April and July 2004 respectively. Shenyang School formally started school in September 2004 with the first enrollment of 60 students, and is now under active preparation for 2005 enrollment.

The second batch of students admitted by Zhuhai Beida Subsidiary Experiment School (“Zhuhai School”) commenced school smoothly on 1st September 2004, constituting a total of 790 students at present. In December 2004, Zhuhai School has passed the Band One School Accessment for the district of Guangdong Province and was assessed as a Band One school in the district of Guangdong Province. Under the Lease Contract entered into between Zhuhai Beida Education Science Park Company Limited (“Zhuhai Education”) and Zhuhai School, Zhuhai School has during the Year paid Zhuhai Education a rental fee amounting to RMB10,000,000.

During the Year, Shanghai Municipal Government has made adjustment to the land use of substantial projects and the land proposed for use by Shanghai Beida Jade Bird Education Investment Company Limited (“Shanghai Education”) is within the adjustment plan. As such, there is no actual progress for the project construction of Shanghai Beida Education Science Park. Shanghai Education is currently under negotiation with Shanghai Municipal Government with a view to resolve such issue.

3. Electricity and Heat Co-generation Business

On 28th December 2002, the Company entered into an agreement with Pollon Investment Limited (“Pollon Investment”) pursuant to which the Company would transfer its 22.50% equity interests in Shenyang Shenhai Hot Electricity Company Limited (“Shenhai Co-generation”) to Pollon Investment. The Company is aware that Ministry of Commerce of the PRC has approved the transfer of the equity interests on 8th July 2004. The remaining work on the change of the equity interests have also been completed subsequently. Since July 2004, Shenhai Co-generation was no longer a joint venture of the Company.

4. System Integration Business

Shenyang Beida Jade Bird Business Information System Company Limited (“Shenyang Business Information”) recorded operating income and loss for the Year amounting to RMB3,032,000 and RMB4,061,000 respectively. During the Year, Shenyang Business Information provided audiovisual education accessories and buildings automation services for the construction of Shenyang Education Park, with a contract value of RMB1,200,000.

5. Cemetery Development Busines

During the Year, a lease income of RMB494,000 and a loss before tax of RMB38,546,000 were generated by Xili Cemetery, and 279 plots were leased.

During the Year, Xili Cemetary invested approximately RMB12,000,000 to perfect the environment of the cemetery area. Xili Cemetary did not achieve expected operation results principally because the settlement of rights of credit and debts and the reorganization of sales team took a comparatively long time, and the new employees had insufficient marketing experience, which resulted in the undesirable sales of plots and the relevant products.

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BUSINESS OUTLOOK

Looking into 2005, the Group will strengthen its internal management to minimize costs and expenses, and make greater efforts in marketing to revitalize the value of its assets, and speed up the completion and sales of its existing real estate development projects. Meanwhile, the Group will strive to explore new sources of revenue and improve income from its education investment in Shenyang Education and Zhuhai Education. Furthermore, with the integration of sale and management systems aiming at a desirable growth in sales revenue of Xili Cemetery, the Group is committed to a turnaround of its overall operations.

ASSETS AND FINANCIAL POSITION OF THE GROUP

1. Financial statistics of the Group

		As at 31st	As at 31st
Items	Basis	December 2004	December 2003
Gearing ratio	Total liabilities/total assets x 100%	43.09%	28.20%
Current ratio	Current assets/current liabilities	1.36	2.36
Quick ratio	(Current assets – inventories –	1.06	1.68
	properties under development –
	properties held for sale)/current
	liabilities
(Loss) earnings/	Net (loss) profit/net assets x 100%	(11.32)%	0.91%
net assets ratio
Sales (loss) profit	Net (loss) profit/sales x 100%	(552.21)%	10.54%
margin
Debt equity ratio	Total liabilities/shareholders’
	equity x 100%	78.45%	41.61%

2. Overall position of the Group’s assets

During the Year, there was an increase in the total assets of the Group when compared with that of the Previous Year. The total assets of the Group increased to approximately RMB3,027,054,000 in 2004 from approximately RMB2,741,168,000 in the Previous Year, representing an increase of approximately RMB285,886,000 or 10.43%.

			RMB’000
	As at 31st	As at 31st	Change in
Items	December 2004	December 2003	amounts
Total assets	3,027,054	2,741,168	285,886
Of which:
Fixed assets	936,928	547,243	389,685
Interests in a jointly controlled
entity	–	103,380	(103,380)
Goodwill	609,372	62,638	546,734
Deposits paid for acquisitions
of subsidiaries	–	391,100	(391,100)
Investment securities	20,000	20,000	–
Long-term receivable	–	58,234	(58,234)
Current assets	1,460,754	1,558,573	(97,819)

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3. Current assets of the Group

During the Year, the current assets of the Group decreased by approximately RMB97,819,000 to RMB1,460,754,000 as compared with RMB1,558,573,000 in the Previous Year, representing a decrease of approximately 6.28%.

			RMB’000
	As at 31st	As at 31st	Change in
Items	December 2004	December 2003	amounts
Current assets	1,460,754	1,558,573	(97,819)
Of which:
Properties held for sale	321,863	426,201	(104,338)
Inventories	2,099	469	1,630
Other investments	620	–	620
Account receivables	12,465	7,050	5,415
Receivables from a former jointly
controlled entity	60,000	60,000	–
Long-term receivable –
receivable within one year	97,056	38,822	58,234
Prepaid expenses	101,835	117,374	(15,539)
Other receivables	551,894	78,600	473,294
Tax recoverable	8,459	–	8,459
Pledged bank deposits	180,399	46,072	134,327
Cash and bank balance	124,064	783,985	(659,921)

4. Bank borrowings of the Group

As at 31st December 2004, the Group’s bank borrowings totaled RMB708,858,000 (2003: RMB425,000,000), of which RMB291,420,000 were loans secured by the Company’s cash or property, and parts of the remaining balance were guaranteed loans, which guarantees provided by Beijing Beida Jade Bird Company Limited (“Beida Jade Bird”), Shenyang Public Utility Group Company Limited and other persons totaled RMB385,300,000. Among the above-mentioned borrowings, borrowings repayable within one year bear interest at 4.779% to 5.841% per annum, and borrowings repayable within two years bear interest at 5.49% or 6.039% per annum.

	As at 31st	As at 31st
	December 2004	December 2003
	(RMB’000)	(RMB’000)
Bank borrowings repayable in the
following periods
Overdue	199,638	–
Within one year	338,220	376,000
The 2nd year	171,000	49,000
	708,858	425,000

As at 31st December 2004, the Group’s overdue bank borrowings were RMB 199,638,000.

5. Bills payable

As at 31st December 2004, the balance of the Group’s bank acceptance totaled RMB31,000,000, all of which were used to fund the “Cosmo International Mansion” project in Shenyang.

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6. Currency risks

According to the “Quotations of the Exchange Rates for Converting Renminbi to Foreign Currencies by the Head Office of Designated Banks” periodically promulgated by the State Administration of Foreign Exchange of the PRC in 2004, the exchange rates of Renminbi to US dollar and to Hong Kong dollar were stable as a whole, and the exchange rate of the Hong Kong dollar to Renminbi experienced slight fluctuations during the Year. Accordingly, the risks of the Company’s deposits of Hong Kong dollar were relatively low.

7. Contingent liabilities

• (7a) Pursuant to the sales and purchase agreement for the acquisition of equity interests in Shenzhen Jingmei Industrial Development Company Limited (“Jingmei Industrial”) and its subsidiary, Xili Cemetery (collectively refers as “Cemetery Companies”) dated 31st December 2003, all assets and liabilities not relating to the operations of cemetery business would be transferred out of the Cemetery Companies and taken up by the former shareholder (the “Former Shareholder”). During the year, the Company entered into an agreement with the Former Shareholder that a total of the Cemetery Companies’ other payables of approximately RMB24,771,000 and other receivables of approximately RMB8,785,000 would be offset against the outstanding balances of approximately RMB14,886,000 owed to the Cemetery Companies by the Former Shareholder and that the net balance of RMB1,100,000 owed to the Former Shareholder was waived.

As written confirmations from these creditors to signify their agreements to above arrangement had not yet been obtained, the Group was still primarily liable to these liabilities. In the opinion of the Directors, as the debts had been undertaken up by the Former Shareholder, they believe that there will not have material adverse impact on the Group’s operating results and cash flows for the year.

• (7b) Prior to acquisition by the Group, Jingmei Industrial was involved in a litigation relating to construction contracts. The Court held in the year 2002 that Jingmei Industrial together with another party were required to pay a compensation amount of RMB16,054,000. Jingmei Industrial and the other party had filed an appeal to the Appeal Court. Up to the date of approval of the financial statements, the case is still in progress. In the opinion of the Directors, no provision should be made for this case because as mentioned in above paragraph, the consequence of the case and related costs should be taken up by the Former Shareholder.

• (7c) In addition to the above, the Company gave an undertaking to the minority shareholders of the Company’s deregistered subsidiary, Shenyang Development Tourism Industrial Company Limited (“Shenyang Tourism”) during the year to undertake all liabilities incurred during the operating period of Shenyang Tourism. In the opinion of the Directors, the undertaking would not have any material adverse impact on the operation and financial position of the Group.

Save as disclosed above, the Group did not have any material contingent liabilities as at the balance sheet date.

USE OF PROCEEDS ARISING FROM THE ISSUE OF H SHARES

The issue of 420,400,000 H Shares of the Company in December 1999 raised net proceeds of RMB684,256,000. No proceeds were raised by means of issuing new shares thereafter. The proceeds were applied basically in accordance with the use of proceeds as disclosed in the prospectus of the Company dated 7th December 1999 (the “Prospectus”). The extraordinary general meeting of the Company convened on 20th August 2002 approved the resolution to change the intended use of proceeds amounting to RMB200,000,000, which was the remaining unused net proceeds of the total amount of RMB489,000,000 originally intended to be used for Shenyang Water Company Limited (“Shenyang Water”). Up to 31st December 2004, the Company has made investments totaling approximately RMB593,230,000 (2003: RMB593,230,000), of which:

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• (1) RMB231,951,000 was used to invest in the acquisition of No. 8 Water Plant (as defined in the Prospectus);

• (2) RMB56,787,000 was used for the acquisition and construction of the Shifosi Water Source expansion project (as defined in the Prospectus);

• (3) RMB9,041,000 was used to renovate the system of production facilities of Shenyang Water;

• (4) RMB1,000,000 was used to purchase new vehicles for Jingwei Transportation (as defined in the Prospectus);

• (5) RMB100,000,000 was used to acquire the land use right of a parcel of land in Shenyang Economic and Technological Development Zone with an area of 790,000 square metres; and

• (6) the balance was used as working capital.

NUMBER OF EMPLOYEES AND THEIR EDUCATION LEVELS

As at 31st December 2004, the Group had 320 employees.

208 employees of the Group had received university or higher education, and 76 technicians were of intermediate rank or above.

During the Year, the aggregate salaries and allowances paid to the employees amounted to RMB15,563,000 (2003: RMB8,532,000). The Group has not established any share option scheme for any of its senior management or employees.

TRUST DEPOSITS

There were no deposits managed by trustees for the Year.

TAXATION

Details of taxation of the Group are set out in note 4 of the consolidated income statement.

• (1) The Group was subject to an enterprise income tax rates from 15% to 33% during the Year.

• (2) No tax reduction and exemption was enjoyed by holders of the listed securities of the Company for their holding of such securities.

STAFF QUARTERS

Pursuant to the “Housing Reserves Management Ordinance” stipulated by the PRC government and the document (Shenfangweihuifa [2000] No. 3) issued by Shenyang Municipal Government on 28th December 2000, the basis of contribution for the housing reserves was the monthly income of the staff, of which the ratio of contribution by the Company was 15% from 1st April 2003 onwards.

PURCHASE, SALE AND REDEMPTION OF SHARES

During the Year, the Group did not purchase, sell or redeem any of the Company’s shares.

PRE-EMPTIVE RIGHT

There are no provisions for pre-emptive rights under the Company’s Article of Association and the laws of the PRC which would acquire the Company to offer new shares to existing shareholders on a pro rata basis.

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WORK OF THE AUDIT COMMITTEE

Pursuant to the Code of Best Practice as set out in Appendix 14 to the Rules Governing the Listing of Securities of The Stock Exchange of Hong Kong Limited (“Listing Rules”), the Company established an Audit Committee at the fifth meeting of the first Board. The Company held a board meeting to make adjustment to the Audit Committee on 28th September 2004 and finally gained approval of the Shareholders’ General Meeting on 15th November 2004. As such, the Audit Committee is now in compliance with the newly revised Rule 3.21 of Chapter 3 of the Listing Rules which came into effect on 31st March 2004. The main function of the Audit Committee, which is a special committee under the board of directors, is to review and supervise the financial reporting procedures and methods of the Group. The Audit Committee comprises three independent non-executive directors of the Company, namely Messrs. Choy Shu Kwan, Wilson, Cheng Wei and Cui Yan.

At the meeting held on 27th July 2005, the Audit Committee reviewed the accounts of the Company and expressed its opinion in respect of the connected transactions of the Company as follows:

• (1) The information disclosed in the accounts of the Company is complete, accurate and fair and the accounting policies adopted are correct, without any material problems being discovered.

• (2) The connected transactions of the Company have been carried out:

• A. in the ordinary and usual course of business of the Company;

• B. on normal commercial terms (by reference to transactions of a similar nature and as made by similar entities in the PRC) or (where there is no available comparison) on terms no less favourable than those available to third parties;

• C. in accordance with the terms of the respective agreements governing such transactions;

• D. are fair and reasonable so far as the shareholders of the Company are concerned; and

• E. the total amount of the connected transactions does not exceed the cap in respect of the waiver for the connected transactions granted by The Stock Exchange of Hong Kong Limited (“Stock Exchange”), that is, as at 31st December 2004, the rent paid by Zhuhai School to Zhuhai Education did not exceed RMB10,000,000.

MATERIAL LITIGATION

In December 2004, Shenzhen Development Bank Dalian Branch (the “Plaintiff”) and the Company had disputes on the loan of RMB200,000,000 (the “Loan”). Shenzhen Development Bank Dalian Branch sued the Company at the Supreme People’s Court in Liaoning Province and sequestrated parts of the Company’s bank accounts. The parties of the litigation reached settlement on 22nd January 2005. The Supreme People’s Court in Liaoning Province issued the Civil Mediation (2004)(Liao Min San He Chu Zi No.59) and the Release Notification of Bank Accounts.

On 28th January 2005, the Company has obtained the release of the cash held in various banks from sequestration and detainment. As at 28th April 2005, the Company has repaid an aggregate amount of RMB50,000,000 to the Plaintiff. As at 28th April 2005, the Plaintiff sequestrated an amount of RMB155,000,000 from Liao Ning Hua Jin Hua Gong Group Company Limited, one of the guarantors of the Loan. From then on, the Plaintiff has already received the outstanding amount due under the Loan and interest from the Company and its guarantors for the Loan.

On 17th May 2005, that guarantor began to take measures against the Company and its related parties as a result of the sequestration of its monies by the Plaintiff and the guarantee it gave for the Loan. On 14th June 2005, 80 residential units of Cosmo International Mansion (with a value of around RMB24,000,000) owned by the Company’s subsidiary, Shenyang Pollon Finance Building Management Company Limited and bank deposits of around RMB200,000 from another subsidiary of the Company, Beijing Diye Real Estate Development Company Limited, were sequestrated by that guarantor.

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At present, the Company and Beida Jade Bird, an indirect shareholder of the Company, are in negotiations with that guarantor on the above matters and repayment but has not reached any final agreement. The Company will publish further announcements as necessary to keep its shareholders and the public informed when final agreement between the parties is reached (For details please refer to the Company’s announcement dated 12th July 2005).

CODE OF BEST PRACTICE

The directors of the Company are pleased to confirm that the Company has complied with the Code of Best Practice as set out in the Listing Rules during the Year.

PUBLICATION OF FURTHER INFORMATION ON THE WEB-SITE OF THE STOCK EXCHANGE

Financial and other relevant information of the Company in accordance with the Listing Rules will be available for publication on the web-site of the Stock Exchange in due course.

By order of the Board Xu Er Hui Chairman

29th July 2005, Shenyang, the PRC

The members of the board of directors and supervisory committee of the Company are as follows:

Executive Directors

Mr. Xu Er Hui, Mr. Zhang Jian Bo, Mr. Zhang Ying Jian, Mr. Wang Se, Mr. Geng Jian Wei and Mr. Chen Shu Xin.

Non-executive Directors

Dr. Michel P. Detay and Mr. Zhang Wan Zhong

Independent Non-executive Directors

Mr. Cheng Wei, Mr. Choy Shu Kwan, Wilson and Mr. Cui Yan

Supervisors

Ms. Li Shu Lian, Mr. Zhao Xue Zhi, Mr. Lin Dong Hui and Mr. Yang Zhi An.

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the 2004 Annual General Meeting of Shenyang Public Utility Holdings Company Limited (“the Company”) will be held at the Company’s business office at the Conference Room, No. 14, Shisiwei Road, Heping District, Shenyang, the People’s Republic of China (“the PRC”) at 9:00 a.m. on Tuesday, 20th September 2005 for the following purposes:

By way of ordinary resolutions:

1. To consider and approve the 2004 report of the board of directors of the Company;

2. To consider and approve the 2004 report of the supervisory committee of the Company;

3. To consider and approve the 2004 financial statements of the Company;

4. To consider and approve the 2004 reports of the PRC auditors and the international auditors of the Company;

5. To consider and approve the 2004 profit allocation and dividend distribution proposals of the Company;

6. To consider and approve the re-appointment of Ho and Ho & Company, Certified Public Accountants, as the international auditors of the Company and to authorise the board of directors to determine their remuneration;

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1. To consider and approve the re-appointment of Liaoning Pan-China Certified Public Accountants Company Limited as the PRC auditors of the Company and to authorise the board of directors to determine their remuneration;

2. To consider and elect Mr. Shek Kim Ming as the non-executive director of the Company, with the term of service until 10th October 2005.

Mr. Shek Kim Ming, born in September 1965, has worked as the chief financial officer of Sino-French Holdings (Hong Kong) Limited since 2001. Mr. Shek Kim Ming has been the senior auditing officer of PricewaterhouseCoopers, Certified Public Accountants, the group chief accountant of Jardine Securicor Limited and the assistant financial controller of Jardine OneSolution (HK) Limited. Mr. Shek Kim Ming graduated from University of Hong Kong and Queensland University of Technology in Australia, with a bachelor degree of social sciences and a master degree in commerce respectively. He is an associate member of Hong Kong Institute of Certified Public Accountants. Mr. Shek Kim Ming has fruitful experience in financial and investment management business.

By way of special resolution:

1. To consider and approve the granting of an issue mandate to the board of directors of the Company to issue state shares and H shares respectively not exceeding 20.00% of the existing number of state shares and H shares respectively.

By order of the Board Wang Se Company Secretary

29th July 2005, Shenyang, the PRC

Notes:

• (1) Each shareholder entitled to attend and vote at the meeting is entitled to appoint one or more proxies in writing to attend and vote at the meeting on his/her behalf. A proxy need not be a member of the Company. Shareholders or their proxies are entitled to attend and vote at the meeting.

• (2) To be valid, the proxy form together with the notarised power of attorney or authority (if any) must be delivered to the Company’s business address or the Company’s H share registrar, Hong Kong Registrars Limited at Rooms 1901-5, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than 24 hours before the time of the meeting.

• (3) Shareholders or their proxies shall produce their identity documents when attending the meeting.

• (4) The register of members of the Company will be closed from Sunday, 21st August 2005 to Monday, 19th September 2005 (both days inclusive), during which period no transfer of the Company’s shares will be registered.

• (5) Shareholders whose names appear in the register of members at 4:00pm, Friday, 19th August 2005 are entitled to attend and vote at the meeting.

• (6) Shareholders who intend to attend the meeting should complete and lodge the reply slip and return it to the Company’s business address at No. 14, Shisiwei Road, Heping District, Shenyang, the PRC, (postal code: 110003) or deliver the same to the Company’s H share registrar, Hong Kong Registrars Limited on or before Tuesday, 30th August 2005. The reply slip may be delivered by hand, by post, by cable or by fax. The fax no. of the Company is 8624-23257181. The fax no. of the Company’s H share registrar is 852-28650990/25296087. Completion and return of reply slip shall not affect the right of shareholders to attend the meeting pursuant to note (5) above.

• (7) The Annual General Meeting is expected to take not more than one day. The attending shareholders and proxies shall be responsible for their own travelling and accommodation expenses.

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REPLY SLIP FOR THE 2004 ANNUAL GENERAL MEETING TO BE HELD ON 20TH SEPTEMBER 2005

To: Shenyang Public Utility Holdings Company Limited (the “Company”)

I/We (note 1)

(name(s) in English) (name(s) in Chinese)

of

(the registered address(es) as shown in the Register of Members) being the registered holder(s) of (note 2) (state shares/H shares (note 3) of RMB1.00 each in the share capital of the Company, hereby inform the Company that I/we intend to attend (in person or by proxy ) the 2004 Annual General Meeting of the Company to be held at the Company’s office at Conference Room, No. 14, Shisiwei Road, Heping District, Shenyang, the People’s Republic of China (the “PRC”) at 9:00 a.m. on Tuesday, 20th September 2005.

Date: 2005 Signature(s):

Notes:

1. Please insert full name(s) in Chinese or English and address(es) (as shown in the register of members) in BLOCK CAPITALS.

2. Please insert the number of state shares or H shares registered in your name(s).

3. Please delete as appropriate.

4. The register of members of the Company will be closed from Sunday, 21st August 2005 to Monday, 19th September 2005 (both days inclusive), during which period no transfer of the Company’s shares will be registered. Holders of state shares or H shares of the Company whose names appear in the register of members of the Company as at 4:00 p.m. on Friday, 19th August 2005 shall be entitled to attend and to vote at the Annual General Meeting (and any adjournment thereof).

5. Holders of state shares or H shares of the Company who intend to attend the Annual General Meeting should complete and return this slip to the Company’s business address at No. 14, Shisiwei Road, Heping District, Shenyang, the PRC or the Company’s H shares registrars in Hong Kong, Hong Kong Registrars Limited, at Rooms 1901-5, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong on or before Tuesday, 30th August 2005. The reply slip may be delivered by hand, by post or by fax to the number (852) 2865 0990/2529 6087.

“Please also refer to the published version of this announcement in The Standard”

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