CMON Limited — Interim / Quarterly Report 2001

Aug 27, 2001

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)

2001 Interim Results

(Results for the Six Months Ended 30th June 2001)

The board of directors (the "Board") of Shenyang Public Utility Holdings Company Limited (the "Company") is pleased to announce the unaudited interim results of the Company and its subsidiaries (the "Group") for the six months ended 30th June 2001 (the "Period"), together with comparative figures for the corresponding period of 2000 (the "2000 Period") as follows:

CONSOLIDATED PROFIT AND LOSS ACCOUNT

FOR THE SIX MONTHS ENDED 30TH JUNE 2001

(Unaudited)

Six months ended 30th June

Note 2001 2000

RMB'000 RMB'000

Turnover 2 279,206 283,928

Other revenues 3 17,081 31,934

Total revenues 296,287 315,862

Power costs (38,709 ) (47,161 )

Raw water purchase costs (25,902 ) (29,194 )

Depreciation and amortisation (23,652 ) (25,070 )

Employee costs (20,985 ) (23,668 )

Repairs and maintenance (4,578 ) (8,729 )

Other operating expenses (30,928 ) (26,248 )

Profit from operations 151,533 155,792

Finance costs (6,789 ) (2,790 )

Share of profit of joint venture 11,076 17,904

Profit before taxation 155,820 170,906

Taxation 4 (50,354 ) (45,651 )

Profit after taxation 105,466 125,255

Minority interests (584 ) (1,103 )

Profit attributable to

shareholders 104,882 124,152

Transfer to reserves 6 (43,955 ) (34,968 )

60,927 89,184

Interim dividends 5(b) 71,428 61,224

Earnings per share 7 RMB0.10 RMB0.12

Notes:

1. Basis of preparation and accounting policies

The accounting policies and methods of computation used in the preparation of the interim results are in accordance with the accounting principles generally accepted in Hong Kong and accounting standards issued by the Hong Kong Society of Accountants ("HKGAAP") and consistent with those used in the annual accounts for the year ended 31st December 2000 except that the Group has adopted SSAP No.9 (revised), "Events after the balance sheet date", issued by the Hong Kong Society of Accountants which is effective for accounting periods commencing on or after 1st January 2001, in the preparation of these interim results.

The effect of adopting the above new policy is set out below:

In accordance with the SSAP No. 9 (revised), the Group no longer recognises dividends proposed or declared after the balance sheet date as a liability at the balance sheet date. This change in accounting policy has been applied retrospectively so that the comparatives presented have been restated to conform to the changed policy.

As detailed in Note 6, opening retained earnings at 1st January 2001 have increased by RMB57,004,000 (1st January 2000: Nil) which is the reversal of the provision for 2000 proposed final dividend previously recorded as a liability as at 31st December 2000 although not declared until after the balance sheet date.

This adjustment has resulted in a decrease in current liabilities at 30th June 2001 by RMB71,428,000 (31st December 2000:RMB57,004,000) for provision for proposed dividends that is no longer required.

1. Turnover

6 months ended 30th June

2001 2000

RMB'000 RMB'000

Sales of purified water 279,206 267,829

Rental income from leasing of buses and bus routes - 14,475

Income from provision of bus terminal services - 1,624

279,206 283,928

1. Other revenues

6 months ended 30th June

2001 2000

RMB'000 RMB'000

Government subsidies - income tax refund (Note 4(a)) - 23,426

Interest income from joint venture 2,364 3,396

Bank interest income 11,761 4,917

Rental income from leasing of land use rights 45 195

Investment income from unlisted investments 2,911 -

17,081 31,934

1. Taxation

6 months ended 30th June

2001 2000

RMB'000 RMB'000

The Group:

PRC income tax charges 48,520 42,947

The joint venture:

Share of PRC income tax charges 1,834 2,704

50,354 45,651

(a) All PRC domestic enterprises are subject to a unified income tax rate of 33% on their taxable profit unless special arrangement is made and approved by the relevant PRC government authorities. Pursuant to the approval document dated 13th February 1999 issued by the Liaoning Provincial Government, the Group is subject to an effective tax rate of 15% as the Finance Bureau of Shenyang Economic and Technological Development Zone will refund 18% by way of government subsidies. The refund is recognised as a subsidy income when the right to receive is confirmed.

(b) Pursuant to the circular "Guofa [2000] No.2" issued by the State Council on 11th January 2000, effective from 1st January 2000, any tax refund or subsidies granted by local government authorities should be terminated. However, pursuant to the circular "Caishui [2000] No.99" subsequently issued by the Ministry of Finance of the PRC on 13th October 2000, the income tax refund subsidy arrangements granted by local government authorities could be extended to 31st December 2001.

(c) In accordance with various approval documents issued by the State Administration of Taxation of the PRC, Shenhai Co-generation, being a sino-foreign joint venture company engaged in power generation, is subject to an income tax rate of 15% and a local surcharge rate of 1.5%.

(d) No provision for Hong Kong profits tax has been made in the accounts as the Group has no income assessable to Hong Kong profits tax for the Period.

(e) As at 30th June 2001 and during the Period, the Group did not have any significant unprovided deferred tax asset or liability .

1. Dividends

6 months ended 30th June

2001 2000

RMB'000 RMB'000

2000 Final dividend, paid, of RMB0.05586

(1999 : Nil]) per ordinary share (Note (a)) 57,004 -

2001 Interim dividend, proposed, of RMB0.07

(2000 Period: RMB0.06) per ordinary share (Note (b)) 71,428 61,224

128,432 61,224

(a) The previously recorded final dividend proposed and declared after the balance sheet date but accrued in the accounts for 2000 was RMB57,004,000 (1999: Nil). Under the Group's new accounting policy as described in Note 1, this has been written back against opening retained earnings as at 1st January 2001 in Note 6 and was charged in the Period in which it was proposed.

(b) At a Board meeting held on 24th August 2001, it was resolved to declare an interim dividend of RMB0.07 (2000 Period: RMB0.06) per share. This proposed dividend is not reflected as a dividend payable in these interim condensed accounts, but will be reflected as an appropriation of retained earnings for the year ending 31st December 2001.

1. Reserves

Statutory

Statutory public

Share Asset surplus welfare Retained

premium revaluation reserve reserve earnings Total

(note (a)) reserve (note (b)) (note (c)) (note (d)) reserves

RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000

At 1st January 2000 323,258 43,646 20,253 10,127 40,412 437,696

Profit for the year - - - - 287,900 287,900

Disposal of a subsidiary - (5,301 ) (326 ) (163 ) 5,790 -

Disposal of revalued fixed assets - (1,313 ) - - 1,313 -

Transfer to reserve funds - - 44,395 22,197 (66,592 ) -

2000 interim dividend paid - - - - (61,224 ) (61,224 )

At 31st December 2000 323,258 37,032 64,322 32,161 207,599 664,372

2000 final dividend proposed

(Note 5) - - - - (57,004 ) (57,004 )

323,258 37,032 64,322 32,161 150,595 607,368

Company and subsidiaries 323,258 37,032 64,322 32,161 131,519 588,292

Joint venture - - - - 19,076 19,076

At 31st December 2000 323,258 37,032 64,322 32,161 150,595 607,368

Statutory

Statutory public

Share Asset surplus welfare Retained

premium revaluation reserve reserve earnings Total

(note (a)) reserve (note (b)) (note (c)) (note (d)) reserves

RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000

At 1st January 2001

As previous reported 323,258 37,032 64,322 32,161 150,595 607,368

Effect of adopting

SSAP No. 9 (revised)

(Note 1) - - - - 57,004 57,004

As restated 323,258 37,032 64,322 32,161 207,599 664,372

2000 final dividend paid

(Note 5) - - - - (57,004 ) (57,004 )

Profit for the Period - - - - 104,882 104,882

Transfer to reserve

funds - - 29,303 14,652 (43,955 ) -

At 30th June 2001 323,258 37,032 93,625 46,813 211,522 712,250

2001 interim dividend

proposed (Note 5) - - - - (71,428 ) (71,428 )

323,258 37,032 93,625 46,813 140,094 640,822

Company and subsidiaries 323,258 37,032 93,625 46,813 127,367 628,095

Joint venture - - - - 12,727 12,727

At 30th June 2001 323,258 37,032 93,625 46,813 140,094 640,822

(a) Share premium

Share premium comprises surplus between the value of net assets acquired and the nominal value of State shares issued as a result of the incorporation of the Company as a joint stock limited company and the share premium from the issue of H shares.

(b) Statutory surplus reserve

The Group is required to set aside 10% of their profit after taxation prepared in accordance with PRC accounting regulations to the statutory surplus reserve until the balance reaches 50% of their respective paid up capital or registered capital, where further appropriation will be at the Directors' recommendation. Such reserve can be used to reduce any losses incurred or to increase share capital.

(c) Statutory public welfare reserve

The Group is required to transfer 5% to 10% of their profit after taxation prepared in accordance with PRC accounting regulations to the statutory public welfare reserve. The use of this reserve is restricted to capital expenditure for staff collective welfare facilities which are owned by the Group. The statutory public welfare reserve is not available for distribution to the shareholders (except upon liquidation of the Company). Once the capital expenditure on staff welfare facilities has been made, an equivalent amount must be transferred from the statutory public welfare reserve to a discretionary surplus reserve. No such capital expenditure was incurred during the Period (2000 Period: Nil )

(d) Distributable reserves

Pursuant to relevant PRC regulations, profit available for distribution to shareholders shall be the lower of the accumulated distributable profits determined in accordance with PRC accounting standards and regulations as stated in the PRC statutory accounts and the accumulated distributable profits adjusted in accordance with HKGAAP. In the PRC statutory accounts and the HKGAAP accounts as at 30th June 2001, retained earnings after appropriation and dividend proposed available to be carried forward for distribution to shareholders in future years amounted to RMB190,820,000 (31st December 2000: RMB135,119,000) and RMB127,366,000 (31st December 2000:RMB81,166,000) respectively. As such, distributable reserves of the Company as at 30th June 2001, amounted to RMB127,366,000 (31st December 2000: RMB81,166,000).

1. Earnings per share

The calculation of earnings per share for the Period is based on the Group's profit attributable to shareholders for the Period of RMB104,882,000 (2000 Period: RMB124,152,000 ) and the number of 1,020,400,000 ordinary shares (2000 Period: 1,020,400,000 ordinary shares) in issue during the Period.

Interim Dividend

The Board resolved to declare an interim dividend of RMB0.07 per share payable in cash. Pursuant to the Articles of Association of the Company, dividends payable to the holders of domestic invested shares will be paid in Renminbi, while dividends payable to holders of H shares will be paid in Hong Kong dollar. Based on the average closing rate of exchange of HK$1 to RMB1.0607 as indicated by the People's Bank of China during the week immediately preceding the date (i.e. 24th August 2001) on which such dividends were declared, each H share would be entitled to an interim dividend of HK$0.066 while each domestic invested share will be eligible for an interim dividend of RMB0.07. Such dividends will be paid on or before Thursday, 18th October 2001 to shareholders whose names appear on the Company's register of members at the close of business on Friday, 28th September 2001.

Book Closure

The register of members of the Company will be closed from Friday, 21st September 2001 to Friday, 28th September 2001, both dates inclusive, during which no registration of transfers of H shares will be effected. Holders of H shares who would like to receive the interim dividends must lodge their transfers together with all relevant share certificates to the Company's share registrar at Hong Kong Registrars Limited,

2/F, Vicwood Plaza, 199 Des Voeux Central, Central, Hong Kong no later than 4 p.m. on Thursday, 20th September 2001.

Management Discussion and Analysis

* The turnover of the Group during the Period was approximately RMB279,206,000 (2000 Period: RMB283,928,000), representing approximately 1.66% decrease from the 2000 Period.

* Profit after taxation and minority interests amounted to approximately RMB104,882,000, (2000 Period: RMB124,152,000) representing approximately 15.52% decrease from the 2000 Period.

* Earnings per share were approximately RMB0.10 (2000 Period: RMB0.12), representing approximately 16.67% decrease from the 2000 Period.

1. Urban Water Supply

* The turnover of Shenyang Water Company Limited ("Shenyang Water") during the Period amounted to approximately RMB279,206,000, representing a 4.25% increase from the 2000 Period. The increase in turnover was mainly resulted from the increment of water price by approximately 11.80% in accordance with the adjustment of the pricing mechanism comparing with the 2000 Period.

* During the Period, profit before taxation amounted to approximately RMB146,979,000, representing a 2.60% decrease from the 2000 Period. The decrease was due to the postponement of the payment of income tax during the Period and accordingly the corresponding tax subsidy income was not granted. If Shenyang Water had paid the tax and had received the subsidy income according to the current State taxation privilege policy (see note 4(a) to the accounts) during the Period, the profit before taxation would be RMB173,546,000 or increased by approximately 15.00%.

* During the Period, total sales volume of Shenyang Water amounted to approximately 232,215,000 cu.m., representing approximately 6.75% decrease from the 2000 Period. Such decrease was mainly attributable to the severe drought occurred in the northeast region of the PRC in the first half of 2001, Shenyang city had adopted a corresponding water-saving measures in response to the shortage of water supply.

1. Real Estate Development

* During the Period, Shenyang Development Real Estate Company Limited ("Real Estate Company") commenced the development of the residential project "Hong Ji Garden" which is expected to be completed by the end of 2001 and is available for pre-sale at present.

1. Electricity and Heat Co-generation

* During the Period, turnover and profit before taxation of Shenyang Shenhai Hot Electricity Company Limited ("Shenhai Co-generation") amounted to approximately RMB287,113,000 and RMB49,225,000 respectively, representing approximately a 9.93% and 39.95% decrease from the corresponding period of last year.

* During the Period, on-grid sales of Shenhai Co-generation was approximately 997,340 MWh, representing an approximately 5.50% decrease from the corresponding period of last year; total heat production was approximately 2,923,672 GJ, representing an approximately 6.21% increase from the corresponding period of last year.

* A decrease in the on-grid sales and turnover during the Period was mainly attributable to decrease in market demand for electricity and downward adjustments in price. The increase of the total heat production was due to an increase in the heat supply coverage being made to its users including Shenyang Golden Cup Motors Co., Ltd., which is an unrelated party of the Group.

1. Investment in QTIL

* As a result of an equity issue and capital fund raising made by Qinghua Ziguang Technology Venture Investment Co., Ltd. ("QTIL"), the equity interest of the Company in QTIL was diluted from its original 11.11% to 8%. During the Period, the Company received dividends of RMB1,022,000 paid by QTIL.

Group'S working Capital and Financial ResourCes

As at 30th June 2001, the Group had bank loans totalling RMB270,000,000 (31st December 2000: RMB250,000,000), which were pledged by a deposit in banks of HK$265,000,000 (31st December 2000: HK$250,000,000). The term for the above-mentioned loans and pledged amounts are within one year and the annual interest rate of the loans is 5.02% (31st December 2000: 5.02%). The loans are used as working capital of the Group.

During the Period, the Group did not default in any repayment of principal and interest and has a good credit record.

Financial indicators and their calculation basis are as follows:

As at As at

Financial Indicators Calculation Basis 30th June 2001 31st December 2000

Gearing ratio Total liabilities/total assets x 100% 20.96% 20.74%

Earnings/net assets ratio Net profit/net assets x 100% 6.05% 17.09%

Sales profit margin Net profit/sales x 100% 37.54% 47.00%

Capital Structure of the Group

1. Capital Structure of the Group

As at 30th June 2001 As at 31st December 2000

Percentage Percentage

Type Amount to Total Amount to Total

(RMB'000) Capital (RMB'000) Capital

Equity capital 1,740,738 100% 1,692,276 100%

Including: Share capital 1,020,400 58.62% 1,020,400 60.30%

Share premium 323,258 18.57% 323,258 19.10%

Asset revaluation reserve 37,032 2.13% 37,032 2.18%

Statutory surplus reserve 93,625 5.38% 64,322 3.80%

Statutory public welfare reserve 46,813 2.69% 32,161 1.90%

Retained earnings 211,522 12.15% 207,599 12.27%

Minority interests 8,088 0.46% 7,504 0.45%

Total capital 1,740,738 100% 1,692,276 100%

1. Currencies and Structure of Interest Rates

As at 30th June 2001 As at 31st December 2000

Currency Amount('000) Interest Rate Amount('000) Interest Rate

Hong Kong dollar 464,962 2.96% 461,034 5.72%

Renminbi 291,318 0.99% 162,735 0.99%

1. Loans with Fixed Interest Rate

As at 30th June 2001, the Group had loans of RMB270,000,000 (31st December 2000: RMB250,000,000) with a fixed interest rate at 5.02% (31st December 2000: 5.02%) per annum.

Significant investments held

As at 30th June 2001, the Group held an investment in QTIL of RMB20,000,000 at cost (31st December 2000: RMB20,000,000).

Changes in the composition of the enterprise during the interim Period

During the Period, the composition of the Group during the Period remained unchanged.

Number of Employees, Emoluments Policies, Share Option Schemes and Training Schemes

As at 30 June 2001, the Group employed a total of 1,989 full-time employees (including directors of the Company) and provided them with emoluments totalling approximately RMB20,985,000 (2000 Period: RMB23,668,000). The Group has entered into employment contracts with all the employees. Employees are offered different emoluments with respect to their different positions. The Group also made contribution to endowment insurance and housing provident funds for all the employees in accordance with relevant laws of the PRC. The Group also provided them with vocational training courses. To date, the Group has not adopted a share option scheme for its employees.

Details of the Group'S Asset Pledged

As at 30th June 2001, the Group had its fixed deposit asset of HK$265,000,000 (31st December 2000: HK$250,000,000) pledged as security to banks for Renminbi loans.

Proposed A Share Issue

The Company held a Board meeting on 29th June 2001, at which it was resolved to issue new A shares. The fund raised was planned to invest in a 2 x 200 megahertz watt low temperature nuclear heat project in Shenyang. The Company had duly disclosed the matters relating to the A shares issue in Hong Kong newspapers on 3rd July 2001. The A shares issue is subject to approval at the 1st Extraordinary General Meeting of the Company for 2001 held on 24th August 2001. Please refer to the relevant announcement in relation to the resolutions passed at the meeting published on the same date for the voting result.

Currency Risks

According to the regular announcements of the "Quotations of the Exchange Rates for Converting Renminbi to Foreign Currencies by the Head Office of Designated Banks (1-6 issues)" for 2001 announced by the State Administration of Foreign Exchange, the exchange rates of Renminbi to US dollar and to Hong Kong dollar continued to be stable whereas the exchange rate of the Hong Kong dollar to Renminbi experienced slight fluctuation during the Period. Accordingly, the risk of the Company's deposits in Hong Kong dollars was relatively low.

Structure of Share Capital

During the Period, there was no change in the structure of share capital of the Company. As at 30th June 2001, the structure of share capital of the Company was as follows:

Number of

Type of shares shares issued Percentage

Domestic invested shares 600,000,000 58.80%

H shares 420,400,000 41.20%

Total 1,020,400,000 100.00%

Purchase, Sale or Redemption of Shares

During the Period, the Company had not redeemed any of its shares. The Group had not purchased or sold any of the Company's shares during the Period.

DIRECTORS' Interests in Equity Securities or Debt Securities

During the Period, neither the Company, the controlling company and its subsidiaries made any arrangement by which any directors, supervisors and chief executive officers of the Company would receive any benefits through purchase of the shares of the Company.

During the Period, the Company was not notified by the directors, supervisors and chief executive officers of the Company that they themselves or their spouses or their respective children under 18 years old held any interest in the shares or debentures of the Company or its associated companies (as defined in Securities (Disclosure of Interests) Ordinance).

During the Period, the directors, supervisors and chief executive officers of the Company and their spouses or children under 18 years old were not granted and did not exercise the right to subscribe for the shares or debentures of the Company.

During the Period, save as Director Mr. Zhang Guo Xiang who was also the General Manager of Shenyang Water General Corporation ("SWGC"), a fellow subsidiary of the Company, none of the Company, or its fellow subsidiaries or the controlling company entered into any material contract under which the directors and supervisors directly or indirectly had any material interest in any related business of the Group.

Substantial Shareholders

The register of substantial shareholders maintained by the Company pursuant to Article 16(1) of the Securities (Disclosure of Interests) Ordinance as at 30th June 2001, showed that the following companies have a material interest amounting to 10% or more of the relevant share capital of the Company:

(1) Shenyang Public Utility Group Company Limited holds all of the 600,000,000 domestic invested shares in issue, representing approximately 58.8% of the total issued share capital of the Company.

(2) Tai Fook Securities Co., Ltd. holds 88,618,000 H shares, representing approximately 21.08% of the issued H shares of the Company.

(3) Sino-French Water Development (Liaoning) Co., Ltd. ("Sino-French Liaoning") holds 88,146,000 H shares*, representing approximately 20.97% of the issued H shares of the Company.

(4) Citibank NA holds 51,753,200 H shares, representing approximately 12.31% of the issued H shares of the Company.

(5) Guotai Junan Securities (Hong Kong) Ltd. holds 42,172,000 H shares, representing approximately 10.03% of the issued H shares of the Company.

* Sino-French Water Development Co. Ltd., Sino-French Holdings (Hong Kong) Ltd., Beauty Ocean Ltd., Lotsgain Ltd., New World Infrastructure Limited, Mombasa Ltd., Sea Walker Ltd., New World Development Co., Ltd. and Chow Tai Fook Enterprise Co., Ltd. are deemed to be interested in the H shares.

Save as aforesaid, the Company has not been notified of any interest in the issued share capital of the Company which was required to be disclosed pursuant to the Securities (Disclosure of Interests) Ordinance during the Period.

Significant Litigation

During the Period, the Group did not involve in any significant litigation.

Compliance with the Code of Best Practice under the Listing Rules

The Board is pleased to confirm that the Company has complied with the Code of Best Practice under the Listing Rules during the Period.

The Board is not aware of any information indicating that the Group did not comply with the Code of Best Practice as set out in Appendix 14 to the Listing Rules of The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") at anytime during the Period.

Connected Transactions

During the Period, the connected transactions of the Group were detailed as follows:

1. Sale of purified water to SWGC by Shenyang Water, with total sales of RMB279,206,000 (2000 Period: RMB267,829,000);

2. Purchase of surface water from SWGC by Shenyang Water of RMB25,902,000 (2000 Period: RMB29,194,000);

3. Lease of office from Shenyang Water Services General Company, a subsidiary of SWGC by Shenyang Water, with total rental of RMB210,000 (2000 Period: RMB:210,000);

4. Lease of land use right to Shenyang Water Services General Company by Shenyang Water, with rental of RMB45,000 (2000 Period: RMB45,000).

The Board considered that (1) the aforesaid connected transactions were conducted on normal commercial terms (by reference to terms of similar transactions conducted by similar entities in the PRC) in the ordinary business of the Company in accordance with the terms of the respective agreements or terms that were no less favorable than those availiable to third parties and were fair and reasonable so far as the independent shareholders of the Company were concerned; (2) the amounts of the connected transactions relative to the total turnover of Group did not exceed the cap specified under the connected transaction waiver granted by the Hong Kong Stock Exchange.

Audit Committee

A meeting was convened by the Company's Audit Committee on 20th August 2001 to review the Group's financial reporting processes, internal monitoring mechanism and its unaudited interim financial statements for the Period.

The Audit Committee considered that the accounting principles and methods adopted by the Group, internal monitoring mechanism and financial report complied with the relevant requirements of the accounting regulations.

Publication of Further Information on the Web-site on the Hong Kong Stock Exchange

The Company will publish its detailed interim results on the Hong Kong Stock Exchange's web-site at an appropriate time as required by paragraphs 46(1) to 46(6) of Appendix 16 of the Listing Rules.

By Order of the Board

Zhang Guo Xiang

Chairman

Shenyang, the PRC, 24th August 2001