CStone Pharmaceuticals — Annual Report 2002

Apr 14, 2003

YANZHOU COAL MINING COMPANY LIMITED

兗州煤業股份有限公司 YANZHOU COAL MINING COMPANY LIMITED

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

ANNUAL RESULTS FOR THE YEAR ENDED 31ST DECEMBER, 2002

The Board of Directors of Yanzhou Coal Mining Company Limited (the “Company”) is pleased to announce the operating results of the Company for the year ended 31st December, 2002:

• The Company’s net sales for the year ended 31st December, 2002 was RMB6,356.4 million (approximately US$770.3 million, or HK$6,006.8 million), an increase of RMB 1,480.4 million (approximately US$179.4 million, or HK$1,398.9 million), or 30.4% as compared with the 2001 net sales of RMB4,876.0 million (approximately US$597.8 million, or HK$4,656.6 million). The net sales of coal was increased by RMB1,337.9 million (approximately US$162.13 million, or HK$1,264.3 million), or 27.4% to RMB6,213.9 million (approximately US$753.03 million, or HK$5,872.1 million) in 2002 from RMB4,876.0 million in 2001. Net income of the railway transportation service was RMB142.5 million (approximately US$17.27 million, or HK$134.6 million).

• The Company’s net income for the year ended 31st December, 2002 was RMB1,222 million (approximately US$148.1 million, or HK$1,154.8 million), an increase of RMB 251.1 million (approximately US$30.42 million, or HK$237.2 million), or 25.9% as compared with the 2001 net sales of RMB970.9 million (approximately US$119.0 miilion, or HK$927.2 million).

• In accordance with the Company’s consistent dividend policy, the Board of Directors of the Company proposes to declare a final dividend of RMB0.104 (approximately US$0.0126, or HK0.098) per share (before tax). The dates of the Annual General Meeting (the “AGM”) for the year 2002 and the payment of final dividends will be announced by the Company in due course.

• The special purpose coal transportation railway assets (the “Railway Assets”), which was acquired by the Company at the beginning of 2002, transported 27.045 million tonnes of coal in 2002. After the interests on bank borrowings raised in connection to the acquisition of Railway Assets and the enterprise income tax attributable to the income of Railway Assets, the Railway Assets contributed net income of RMB131.8 million (approximately US$15.97 million, or HK$124.55 million) to the Company.

The Company has significantly improved its performance in 2002. Net income for the year ended 31st December, 2002 was RMB1, 222 million, representing a 25.9% increase over that of 2001.

In 2002, the Company achieved growth in operating results and secured market share in domestic and overseas coal markets, and successfully implemented operating strategies of increasing production and sales of coal, enlarging export volumes and upgrading product quality. The Company has also further improved its marketing system.

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 1

YANZHOU COAL MINING COMPANY LIMITED

In 2002, the Company’s over-all profitability level had increased by the implementation of the following measures regarding the production and sale of coal, such as, further increasing the ratio of clean coal products and optimizing the coal products variety structures; further raising quality management standard in coal production, preparation and transportation which raised the reputation of its products. Its coal product was rated as “Bestselling Brand in China in 2002” by China Market Investigation and Assessment Center. The Company continued to improve the Long-wall Top Coal Caving mining techniques for medium and thick coal seams. The Company strengthened the research and development for the medium and thick coal extraction, enhance the production system and auxiliary facilities. The Company increased capital input to transform production safety facilities and to improve production safety.

At the beginning of 2002, the Company acquired the Railway Assets from the Parent Company. As a result, connected transactions between the Company and the Parent Company had been reduced, and the Company’s earnings ability increased as the Company had integrated its coal production, transportation and selling system. In 2002, the Railway Assets transported 27.04 million tonnes of coal. The Railway Assets contributed net income of RMB131.8 million to the Company if the Railway Assets was presented as an operating segment.

The Company’s Board of Directors is satisfied with the successful implementation of operating strategies, expansion of the Company’s business scale and an increased in profit in 2002. We are optimistic on our future performance.

FINANCIAL HIGHLIGHTS

(prepared in accordance with International Financial Reporting Standards (“IFRS”))

The financial highlights is prepared based on the financial information set out in the audited consolidated statement of income, consolidated balance sheet, and consolidated statement of cash flows in 2002 and 2001, respectively.

OPERATING RESULTS

OPERATING RESULTS
	Year ended 31st December
	2002	2001
	(RMB’000 )	(RMB’000 )
Net Revenue
Net sales of coal	6,213,901	4,876,010
Domestic Sales	3,413,955	2,599,812
Export	2,799,946	2,276,198
Net Income of Railway
Transportation Service	142,471	–
Total Net Sales(1)	6,356,372	4,876,010
Gross Profit	2,993,471	2,063,427
Operating Income	1,866,141	1,421,692
Interest Expenses	(117,929 )	(61,519 )
Income Before Income Taxes	1,748,212	1,360,173
Net Income	1,221,999	970,945
Earnings per Share	RMB0.43	RMB0.35
Dividend per Share(2)	RMB0.104	RMB0.100
Notes (1): Total Net Revenue in 2002 includes net sales of coal and net income of railway transportation service.
(2): Dividend per share of year 2002 represents dividend proposed.

ASSETS AND LIABILITIES

ASSETS AND LIABILITIES
	As at 31st December
	2002	2001
	(RMB’000 )	(RMB’000 )
Net Current Assets	2,157,429	1,166,187
Land Use Rights and Net Value of
Property, Plant and Equipment	8,895,147	7,851,775
Total Assets	12,924,045	11,182,591
Total Bank Borrowings	1,200,000	–
Shareholders’ Equity	9,995,033	9,060,034
Net Asset Value per Share	RMB3.48	RMB3.16
Return on Net Assets (%)	12.23	10.72

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003

2

YANZHOU COAL MINING COMPANY LIMITED

SUMMARY STATEMENT OF CASH FLOWS

SUMMARY STATEMENT OF CASH FLOWS
	Year ended 31st December
	2002	2001
	(RMB’000 )	(RMB’000 )
Net Cash from Operating Activities	2,239,712	1,610,239
Net Increase in Cash and Cash Equivalent	419,367	280,052
Net Cash Flow per Share from Operating Activities	RMB0.78	RMB0.56

OVERVIEW

In 2002, the Company produced 38.43 million tonnes of raw coal, sold 35.05 million tonnes of coal and the railway transportation of coal achieved 27.04 million tonnes. Realized net sales of RMB6,356.4 million, among which net sales of coal was RMB6,213.9 million and net income of railway service was RMB142.5 million, and net income of RMB1,220 million.

In 2002, the Company acquired from the Parent Company the assets of the special purpose coal railway transportation business (“Railway Assets”) which provide railway transportation services to the Company and others. Prior to the acquisition, the Company would pay the Parent Company for the railway transportation services provided. The Railway Assets operate as a segment of the Company after the acquisition and impose inter-segment charges for the railway transportation services provided on the sales of coal of the Company. The operating results of the Railway Assets as a segment of the Company are set out in the section headed “Railway Assets”.

PRODUCT PRICES AND SALES

The following table sets out the Company’s net sales by product category for the years ended 31st December , 2002 and 2001:

2002 and 2001:
				Year ended 31st December
			2002				2001
				Excluding the effects
				of the acquiration
				of the Railway Assets
	Sales	Net sales	% of total	Net sales	% of		Net sales	% of
	volume	of coal	net sales	of coal	total net	Sales volume	of coal	total net
	(’000 tonnes)	(RMB million)	of coal	(RMB million)	sales of coal	(’000 tonnes)	(RMB million)	sales of coal
Clean coal
No. 1	422.5	100,131	1.6	95,142	1.6	257.9	56,209	1.2
No. 2	6,086.4	1,245,883	20.0	1,166,298	19.5	3,782.4	715,525	14.7
Domestic	222.8	51,697	0.8	51,227	0.8	262.7	58,491	1.2
Exports	5,863.6	1,194,186	19.2	1,115,071	18.7	3,519.7	657,034	13.5
No. 3	12,369.0	2,300,063	37.1	2,167,851	36.4	11,838.4	2,053,686	42.1
Domestic	3,766.3	694,303	11.2	672,291	11.3	2,692.5	434,522	8.9
Exports	8,602.7	1,605,760	25.9	1,495,560	25.1	9,145.9	1,619,164	33.2
Subtotal for
clean coal	18,877.9	3,646,077	58.7	3,429,291	57.5	15,878.7	2,825,420	58.0
Domestic	4,411.6	846,131	13.6	818,660	13.7	3,213.1	549,222	11.3
Exports	14,466.3	2,799,946	45.1	2,610,631	43.8	12,665.6	2,276,198	46.7
Screened
raw coal	12,628.6	2,213,372	35.6	2,189,767	36.7	12,169.1	1,785,999	36.6
Mixed coal
and others	3,541.5	354,452	5.7	347,146	5.8	2,987.6	264,591	5.4
Total	35,048.0	6,213,901	100.0	5,966,204	100.0	31,035.4	4,876,010	100.0
Including:
Domestic	20,581.7	3,413,955	54.9	3,355,573	56.2	18,369.8	2,599,812	53.3

The Company has achieved substantial sales increase of coal in 2002 by keeping on carrying out the measure to enlarge sales volume and export volume. The Company sold 35.05 million tonnes of coal in 2002, representing an increase of 4.01 million tonnes, or 12.9%, from 31.04 million tonnes in 2001, among which, sales of export coal was 14.47 million tonnes, representing an increase of 1.80 million tonnes, or 14.2% over that of 2001. The increase in export sales was mainly due to the increase in export of No. 2 clean coal by 2.34 million tonnes and the decrease in export of No.3 clean coal by 0.54 million tonnes. Sales to the domestic market was 20.58 million tonnes, an increase of 2.21 million tonnes, or 12.0%, over that of 2001. The increase in domestic markets was mainly due to the sales increase of No.1 clean coal, No.3 clean coal, raw coal, mixed coal and others by 0.16 million tonnes, 1.07 million tonnes, 0.46 million tonnes and 0.55 million tonnes over that of last year, respectively.

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 3

YANZHOU COAL MINING COMPANY LIMITED

The following table sets out the Company’s product prices for the years ended 31st December, 2001 and 2002:

		2002		2001
			Average price
			(Excluding the
			effects of the
			acquisition of the
	Average price		Railway Assets)	Average price
	(RMB per tonne)		(RMB per tonne)	(RMB per tonne)
Clean coal
No. 1	237.0		225.2	217.9
No. 2	204.7		191.6	189.2
Domestic	232.0		229.9	222.7
Exports	203.7		190.2	186.7
No. 3 clean coal	186.0		175.3	173.5
Domestic	184.4		178.5	161.4
Exports	186.7		173.9	177.0
Subtotal for clean coal	193.1		181.7	177.9
Domestic	191.8		185.6	170.9
Exports	193.6		180.5	179.7
Screened raw coal	175.3		173.4	146.8
Mixed coal and others	100.1		98.0	88.6
Average price	177.3		170.2	157.1
Average domestic price	165.9		163.0	141.5

Note: The average prices represent the invoice prices minus sale taxes, transportation cost from the Company to ports, port charges and miscellaneous fees.

The average coal price of the Company was RMB177.30/tonne in 2002. After eliminating effects of the acquisition of the Railway Assets, the Company’s average price was RMB170.23/tonne, representing an increase of RMB13.12/tonne, or 8.4% as compared with that of 2001, among which the average domestic coal price was RMB163.04/tonne, representing an increase of RMB21.51, or 15.2% as compared with that of 2001.The average export coal price was RMB180.46, representing an increase of RMB0.75, or 0.4% as compared with that of 2001.

The increase in average coal price in 2002 was principally due to: 1. In 2002, the domestic coal price picked up and the prices of all kinds of coal products of the Company were higher than the average annual coal price of the Company in 2001; 2. The sales volume of higher-priced clean coal increased as the Company adjusted its products structures to meet the market demand.

The Company’s major export customers are located in East Asian countries and regions, such as Japan and South Korea. The Company’s realized net sales of export coal accounted for 45.1% of total net sales in 2002. After eliminating effects of the acquisition of the Railway Assets, the Company’s realized net sales of export coal accounted for 43.8% of total net sales in 2002, presenting an decrease of 2.9% over the same period of 2001.

RAILWAY ASSETS

The Company acquired the Railway Assets from the Parent Company at the beginning of 2002. To reflect the contributions of the acquired Railway Assets, the operating results of the Railway Assets in 2002 were presented as an operating segment.

Before the acquisition of the Railway Assets, for coal products sold to customers through the ports and transported by the Railway Assets, the Company settled the accounts with the customers at FOB prices. The Company bore the transportation expenses incurred on the Railway Assets and made payments to the Parent Company. Such expenses are regarded as sale/transportation cost of the Company. For coal products transported directly to the customers by trains, the Company settled the accounts with the customers at exmine prices. The customers bore the transportation expenses incurred on the Railway Assets and made payment to the Parent Company through the Company.

After the acquisition of the Railway Assets, the Company bears expenses relating to the Railway Assets for coal products sold on FOB terms. When accounting the Railway Assets as an operating segment, transportation through the Railway Assets is defined as internal transportation. The transportation charges are calculated as the Railway Assets’ income from internal transportation, which are off-set against the sale/transportation cost of the Company when consolidating the statements. The cost of such transportation are included in the internal transportation cost of the Railway Assets before the consolidation of the statements, and included into the sales/transportation cost of the Company when consolidating the statements. For the settlement of the coal products sold on ex-mine terms, the customers bear the transportation expenses incurred on the Railway Assets. When accounting the Railway Assets as an operating segment, transportation through the Railway Assets is defined as an external transportation and the transportation income less sales tax are included in the transportation service income of the Railway Assets. The cost of such transportation is included as the cost of goods sold of the Company.

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 4

YANZHOU COAL MINING COMPANY LIMITED

Main operation figures of the Railway Assets as an operating segment are as follows:

Items	Items		2002
I.	Net income from Railway Transportation (RMB’000)		529,294
	1.	Income from Railway Transportation (RMB’000)	534,156
		Transportation Volume (tonne)	27,044,733
		Freight (RMB/tonne)	19.75
	Including:
	(1)	Income from External Transportation (RMB’000)	147,333
		Transportation Volume (tonne)	8,557,925
		Freight (RMB/tonne)	17.22
	(2)	Income from Internal Transportation (RMB’000)	386,823
		Transportation Volume (tonne)	18,486,808
		Freight (RMB/tonne)	20.92
	2.	Sales Tax (RMB’000)	4,862
II.	Cost	of Railway Transportation (RMB’000)	192,116
	1.	Cost of External Transportation (RMB’000)	52,990
	2.	Cost of Internal Transportation (RMB’000)	139,126
III.	Contribution to the net income of the Company (RMB’000) (Note)		131,795
	Note:	After the interests on bank borrowings raised in connection to the acquisition	of Railway Assets and the
		enterprise income tax attributable to the income of Railway Assets.

OPERATING EXPENSES AND COST CONTROL

The following table sets out the Company’s principal operating expenses, which are also expressed as percentages of total net sales for the years ended 31st December, 2002 and 2001:

Net sales Net sales of coal Net income of railway transportation Total net sales Cost of goods sold Materials Wages and employee benefits Electricity Depreciation Repairs and maintenance Land subsidence Mining right expenses Other transportation fee Other manufacturing costs Total cost of goods sold Selling, general and administration expenses Total operating expenses	Year ended 31st 2002 2001 (RMB million) 6,213,901 4,876,010 142,471 – 6,356,372 4,876,010 752,513 643,664 757,532 572,202 278,407 218,579 813,761 784,477 346,290 276,791 232,030 210,939 19,604 19,604 43,239 22,632 119,525 63,695 3,362,901 2,812,583 1,231,059 759,631 4,593,960 3,572,214	December 2002 (% of total ne 97.8 2.2 100.0 11.8 11.9 4.4 12.8 5.4 3.7 0.3 0.7 1.9 52.9 19.4 72.3	2001 t sales) 100.0 –
			100.0
			13.2 11.7 4.5 16.1 5.7 4.3 0.4 0.5 1.3
			57.7 15.6
			73.3

In 2002, total operating expenses were RMB4,594 million, representing an increase by RMB1,021.7 million, or 28.6% from that of 2001. Cost of goods sold and selling, general and administration expenses were increased by 19.6% and 62.1%, respectively, when compared with that in the same period of 2001. Total operating expenses to total net sales reduced to 72.3% in 2002 from 73.3% in 2001.

MANAGEMENT DISCUSSION AND ANALYSIS

The following discussion and analysis should be read in conjunction with the audited financial statements of the Company for 2001 and 2002 and the notes thereto included elsewhere in this announcement. Such financial statements have been prepared in accordance with IFRS and include the effects of the Railway Assets, which were acquired at the beginning of 2002. For a discussion of certain differences between IFRS and US Generally Accepted Accounting Principles (“US GAAP”), please refer to note 17 to the financial statements contained herein or the Company’s annual report on Form 20-F filed with the Securities and Exchange Commission of United States of America, which will be provided to any shareholder upon written request.

Net sales increased by RMB1,480.4 million, or 30.4%, to RMB6,356.4 million in 2002 from RMB4,876 million in 2001. The net sales of coal was increased by RMB1,337.9 million, or 27.4% to RMB6,213.9 million in 2002 from RMB4,876 million in 2001. Net income of the railway transportation service was RMB142.5 million.

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003

5

YANZHOU COAL MINING COMPANY LIMITED

After excluding the impact of the acquisition of the Railway Assets, the Company realized net sales of coal of RMB5,966.2 million, representing an increase of RMB1,090.2 million, or 22.4%, from RMB4,876 million in 2001. Such increase was principally due to: sales volume of coal was increased by 12.9%, resulting in an increase in net sales of coal by RMB630.4 million; average coal price was increased by 8.4%, resulting in an increase in net sales of coal by RMB459.8 million.

Cost of goods sold and service increased by RMB550.3 million, or 19.6%, to RMB3,362.9 million in 2002 from RMB2,812.6 million of 2001, of which the cost of coal sales was 3,309.9 million, the cost of services provided by the Railway Assets was RMB52.99 million.

After eliminating the effects of the acquisition of the Railway Assets, cost of coal sold increased by RMB497.3 million, or 17.7% to RMB3,309.9 million in 2002 from RMB2,812.6 million in 2001. This was mainly due to the increase in raw coal output, the increased proportion of washed clean coal and the increase in wages .The unit cost of coal sold was RMB94.5, representing an increase of RMB3.9, or 4.3%, compared with RMB90.6 of last year. The main reasons for the variation in the unit cost of coal sold are as follows: i) the adjustment in product structure by increasing the proportion of washed clean coal in sales volume which led to an increase of unit cost of coal sold by around RMB3.3; ii) wages and employee benefits increased following the increase of productivity which resulted in an increase of unit cost by RMB2.9; iii) as the government increased the management and supervision of coal mine production safety, the Company invested approximately RMB40 million to improve production safety, which resulted in an increase in unit cost by around RMB1.1/tonne; iv) raw coal output volume of Jining III coal mine increased by 2.92 million tonnes, which resulted in a decrease of unit cost of coal sold by around RMB0.96/tonne; v) the Company has successfully controlled the cost of production by applying advanced technology and equipment and transforming roof support system and auxiliary transport system to improve productivity. The coal out had increased at same time. As a result, the unit cost reduced by RMB2.4/ tonne, partially offsetting effect to the Company by the increase in production cost as mentioned above.

Selling, general and administration expenses was RMB1, 231.1 million in 2002, increased by RMB471.5 million, or 62.1%, from RMB759.6 million compared with the same period of last year, among which sales, general and administration expenses of the Railway Assets were RMB65.686 million.

After deducting the acquisition of the Railway Assets, selling, general and administrative expenses of the Company were RMB1,165.4 million, representing an increase of RMB405.8 million or 53.4% as compared with the same period in the previous year. The main reasons were as follows: 1. an increase in pension fund by RMB68.295 million; 2. an increase in wages of the management and employee benefits by RMB88.832 million; 3. an increase in wages surcharge by RMB40.672 million due to the introduction of supplementary medical insurance fund and an increase in wages; 4. increase in provision for bad debt by RMB63.696 million; 5. increase in mineral resources compensation by RMB42.522 million; In addition, the increase in output and sales volume of the Company also led to an selling in sales, general and administrative expenses.

Other operating income reduced by RMB14.167 million, or 12.0%, to RMB103.7 million in 2002 from RMB117.9 million in 2001.

Operating income increased by RMB444.4 million, or 31.3%, to RMB1,866.1 million in 2002 from RMB1,421.7 million in 2001. This was principally due to the increase of net sales.

Interest expenses increased by RMB56.410 million, or 91.7%, to RMB117.9 million in 2002 from RMB61.519 million in 2001. This was principally due to the increase in interest expenses of long-term loan for the acquisition of the Railway Assets.

Before deduction of income taxes, income increased by RMB388 million, or 28.5%, to RMB1,748.2 million in 2002 from RMB1,360.2 million in 2001.

Net income increased by RMB251.1 million, or 25.9%, to RMB1,222 million in 2002 from RMB970.9 million in 2001.

Total assets increased by RMB1,741.4 million, or 15.6%, to RMB12,924 million as at 31st December, 2002 from RMB11,182.6 million as at 31st December, 2001. This was principally due to the acquisition of the Railway Assets and the increase in assets from the Company’s production and operation activities.

Total liabilities increased by RMB804 million, or 37.9%, from RMB2,120.1 million as at 31st December, 2001 to RMB2,924.1 million as at 31st December, 2002. This was principally due to the increase in long-term loan for the payment for the acquisition of the Railway Assets.

Shareholders’ equity increased by RMB935.0 million, or 10.3%, from RMB9,060.0 million as at 31st December, 2001 to RMB9,995.0 million as at 31st December, 2002. This was principally attributed to the increase in profits arising from the Company’s production and operation activities.

LIQUIDITY AND CAPITAL RESOURCES

In 2002, the Company’s principal sources of capital were cash flow from operations and loan from the bank. The Company’s principal uses of the capital include payment for operating expenses, the acquisition of Jining III coal mine and the Railway Assets and the purchase of property, plants, equipment and payment of shareholders’ dividend.

As at 31st December, 2001, the balance of the Company’s accounts receivable and notes receivable was RMB802.9 million, an increase of RMB108.6 million, or 15.6% from RMB694.3 million as at 31st December, 2001. That is principally due to the substantial increase of coal sales volume.

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 6

YANZHOU COAL MINING COMPANY LIMITED

Inventories increased by RMB136.7 million, or 31.1%, to RMB576.6 million as at 31st December, 2002 from RMB439.9 million as at 31st December, 2001. This was principally due to: (i) increases in total production and varieties of coal products, resulting in higher volume of total coal stocks; (ii) the Company increased sales volume transported through the canals, resulting in higher volume of coal in transit.

Prepayment and other current assets reduced by RMB97.2 million or 11.4% to RMB756 million as at 31st December, 2002, from RMB853.2 million as at 31st December, 2001. This was principally due to the decrease in VAT export rebate receivable and provision for land subsidence costs.

Accounts payable and notes payable decreased by RMB33.7 million, or 5.3%, to RMB602.7 million as at 31st December, 2002 from RMB636.4 million as at 31st December, 2001.

Other accounts payable and provisions increased by RMB101.9 million, or 19.1%, to RMB634.8 million as at 31st December, 2002 from RMB532.9 million as at 31st December, 2001, principally due to the increase in provisions, other taxes payable, and employee benefits payable.

Long-term liabilities increased to RMB1,261.3 million as at 31st December 2002 from RMB72.456 million as at 31st December, 2001. This was principally due to the increase in long-term bank loan for the payment of the acquisition of the Railway Assets.

The Company’s capital expenditure for the purchase of property, machinery and equipment was RMB728.6 million and RMB837.8 million in 2001 and 2002, respectively.

As at 31st December, 2002, the consideration for the acquisition of Jining III coal mine of RMB2,450.9 million has been settled by the Company with cash in hand of RMB996.1 million and the net proceeds raised from the new issue of A shares and H shares. The consideration for mining right of RMB132.479 million will be paid in ten equal installments without interest each year commencing from 2001. The Company has paid RMB26.496 million for the mining right at the end of this report period.

The Company completed the acquisition of the Railway Assets on 1st January, 2002. The purchase consideration of RMB1,243 million has been settled by the Company at the end of this report period. In accordance with the Railway Assets Acquisition Agreement, when the annual transportation volume of the Railway Assets reaches the volume milestones targets of 25 million tonnes, 28 million tonnes and 30 millions tonnes for the year 2002, 2003 and 2004, respectively, the Company will pay the Parent Company an amount of RMB40 million before 30th June of each year in the three years from 2003. The transportation volume of the Railway Assets in 2002 was 27.04 million and the Company has paid RMB40 million in accordance with the terms stated above.

As at 31st December, 2002, the Company’s debt to equity ratio was 12.0%, which was calculated based on the total shareholder’s equity and amount of long term bank loan amounting to RMB9,995 million and RMB1,200 million, respectively.

Since 2002, the Company resumes the transfer of future development fund based on a rate of RMB6.0 per tonne of coal, and includes such amount in the future development fund. In addition, the Company transferred an aggregate amount of RMB512.9 million in relation of future development fund for the period from 1999 to 2001 to the future development fund. Such adjustment has no impact on the financial condition and operating result of the Company.

The Company’s Board of Directors had recommended a final dividend of RMB298.48 million to be paid out of the Company’s cash revenue from operations.

Taking into account the cash in hand and existing abundant capital sources, the Company believes that it will have sufficient capital for its operational requirements.

TAXATION

The Company is still subject to an income tax rate of 33% on its taxable profits in 2002.

US GAAP RECONCILIATION

The Company’s audited financial statements are prepared in compliance with IFRS, which differs in certain respects from US GAAP. Please refer to note 17 to the financial statements contained herein for a description of the differences between IFRS and US GAAP, and the adjusted net income for the year ended 31st December, 2002 and the shareholders’ equity as at 31st December, 2002 after reconciliation made in accordance with US GAAP.

OUTLOOK FOR 2003

The coal demand in domestic and overseas markets will maintain stable and coal price is expected to reach last year’s average level. The Company aims to have a stable increase in operating results by enlarging sales volume, adjusting products structure and controlling production costs.

The coal supply and demand in domestic market will maintain stable. The Chinese government estimated a 7% or more increase in GDP for 2003. The stable and continuous growth in China’s economy, coupled with an increase in coal consumption in electricity power generation, construction and metallurgical industries will increase the domestic demand for coal over that of 2002. On the basis of shutting down small coal mines in the past few years, the Chinese Government will strictly regulate the production permits and production safety of small coal mines. Small coal mines will be closed for safety concerns. Coal production and operation will be further regulated and increase of coal supply will be controlled. Total domestic supply of coal in 2003 will remain as 2002. The demand and supply of coal in the domestic coal market will be in equilibrium and with a stable price.

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003

7

YANZHOU COAL MINING COMPANY LIMITED

Coal has an unique position in energy source in the world. Coking coal is slightly over-demanded while steam coal demand will increase steadily. Coal has an unique position in the world’s energy source, with a 44% share of global electricity generation due to its low production cost and stable supply. As the major coal importers being Japan, South Korea and Taiwan district, which make up 75% of total coal import volume in Asia, will continue to increase their demand for power, the demand for thermal coal will continue to increase. We will experience a decrease in thermal coal price in 2003 as compared with 2002 due to competition from coal suppliers. There will be a slight fall in coking coal price although there will be a huge increase in demand as compared to 2002. Due to increases in both demand for and price of coking coal, the semi-soft coking coal will enjoy an increase in demand and its price is expected to maintain stable.

The Iraqi War and the OPEC oil policy will have little impact on the demand and supply of coal and coal prices in the near future. From 1st October, 2003, the Japanese Government will impose import duties on thermal coal. Import duty on thermal coal will be YEN 230/tonne. Such import duty will have little impact on the coal export of the Company.

The Chinese government will continue to encourage coal exporters to enlarge their coal export volume. It is estimated that China’s coal export volume in 2003 will exceed 90 million tonnes.

Order volume of coal continues to increase. The Company has so far signed sales contracts and letters of intent for 39.26 million tonnes of coal, which is 4.21 million tonnes or 12.0% higher than the total actual sales volume in 2002, of which approximately 14 million tonnes are planned for export which is approximately the same as the last year.

It is predicted that the coal sales price of the Company in 2003 will be slightly lower than that of 2002. The domestic average coal sale price will remain the same as last year while the export average coal price will be slightly lower than that of 2002.

OPERATING STRATEGIES

Promoting output and sales volumes, and stabilizing export volume. Coal products of the Company enjoy good reputation in domestic and overseas coal markets with great market potentials. In 2003, the Company will further expand its production and sales volumes to meet the demand of electricity and metallurgical customers in coastal areas in China. The coal export volume for 2003 will maintain the same as 2002.

Improving product quality and adjusting products structure. On the basis of an equilibrium in demand and supply, high quality coal products have greater market potentials and are more profitable due to the government’s energy policy and increase in consumption in high quality coal products. The Company will continue to utilize more powerful coal washing capacity to increase product quality, and increase the ratio of coal products with higher selling prices in the Company’s product structure, such as clean coal.

Upgrading the long-wall top coal caving (“LTCC”) technology and improving the mining technology for medium and thick coal seams. The Company’s aim is to reach a coal output volume of 40 million tonnes in 2005. By improving the LTCC technology, it is estimated that coal output will reach 40 million tonnes in 2003. One of the key operating strategies of the Company is to maintain its lead in LTCC technology and mining technology for medium and thick coal seams. Based on the present LTCC technique, upgrading the technological equipment to increase the annual output of single working-panel from 3 to 4 million tonnes to 4 to 7 million tonnes and to maintain the lead in LTCC technology. Based on an improved roof support system with 2 rows of pillars used in mining technology for medium and thick coal seams, to transform the hoisting systems, underground transportation systems, and surface coal handling systems; to further improve the mining technology system for medium and thick coal seams. Thus, the Company can enjoy technical advantages for outward development and maintain growth in coal output.

In 2003, the Company will take the following measures to reduce costs: i) increasing production capacity, coal output and production efficiency, and reducing unit cost of production through technological innovation; ii) innovating roof support system, auxiliary transportation system and enlarging bolting net utility, reducing the consumption of materials and reducing labor costs; iii) improving ERP management system, raising management standard and strictly control costs and expenses.

Seeking opportunities for acquisition and exploration of new coal mines. The Company has successfully expanded its operating scale through acquisitions. The Company will make good use of its advantages in technology, market share, management, etc. to seek opportunities in domestic and overseas markets and other businesses to acquire quality coal mines and explore new coal mines. In this way the Company will enhance its profitability level and expand the business scale for sustainable development.

In 2003, the Company will achieve the following object: raw coal output will reach 40 million tonnes with sales volume of 38 million tonnes while the unit costs will be not higher than 2002.

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 8

YANZHOU COAL MINING COMPANY LIMITED

PROPOSED PROFIT APPROPRIATION

In accordance with the Company’s consistent dividend policy, the profit appropriation of the Company for the year ended 31st December, 2002 as proposed by the Board of Directors is as follows:

(Prepared in accordance with PRC GAAP)	RMB’000
Net income	1,003,115
Unappropriated profits at beginning of year	1,197,704
Appropriation to statutory surplus reserve	100,311
Appropriation to statutory public welfare fund	50,156
Appropriation to statutory surplus reserve and
public welfare fund of the subsidiaries	164
Distributable profits	2,050,188
Dividends payable	298,480
Unappropriated profits	1,751,708

The proposed profit appropriation will be presented to the shareholders of the Company (the “Shareholders”) for approval at the forthcoming annual general meeting of the Company for 2002.

Pursuant to the Company’s Articles of Association, the Company’s financial statements should be prepared according to the PRC GAAP as well as the IFRS or the accounting standards and regulations of the places in which its shares are listed. For the purpose of determining the final dividends payable to the Shareholders, the lower of the profits after taxation in these accounting standards will be applied for the relevant year. For this purpose, for the year ended 31st December, 2002, profits after taxation audited in accordance with the PRC GAAP will apply to determine dividends payment. Since listing, the Company has consistently implemented the dividend policy distributing approximately 35% of the Company’s net income to the shareholders, after the deduction of statutory reserves for the relevant year.

DIVIDENDS

The directors of the Company have decided to recommend at the forthcoming Annual General Meeting (“AGM”) for the year 2002, a payment in cash of a final dividend of RMB298.48 million (before tax) or RMB0.104 (before tax) per share. The dates of the AGM and the payment of final dividends will be announced by the Company in due course. Notice of the AGM, the reply slip and the proxy form will be despatched to the shareholders in due course.

Pursuant to the Company’s Articles of Association, dividends payable to the shareholders shall be calculated and declared in Renminbi. Dividends payable to holders of the Company’s domestic shares shall be paid in Renminbi, while dividends payable to holders of the Company’s H shares shall be paid in Hong Kong dollars. The exchange rate will be the average of the closing exchange rates for Renminbi to Hong Kong dollars as announced by the People’s Bank of China for the five working days prior to the announcement of payment of such dividends.

BORROWINGS

The Company entered into a long term borrowing contract (the “Borrowing Contract”) with the Bank of China on 3rd December, 2001 and borrowed RMB1.2 billion from the Bank of China on 4th January, 2002. The loan was applied to finance the acquisition of the Railway Assets from the Parent Company.

The interest rate of the loans is 6.21% per annum, subject to adjustment in accordance with the adjustment of statutory interest rate or method of calculation of interest made by the State during the term of the Borrowing Contract. The Loan Period commenced on the date of the signing of the Borrowing Contract and will expire on the date on which the last instalment of principal and interest is paid, which should be no more than 96 months.

CONNECTED TRANSACTIONS

The Company’s independent non-executive directors have reviewed the connected transactions set out in notes 14 and 15 to the financial statement contained herein.

HOUSING SCHEME

According to the Materials and Services Supply Agreement dated 17th October, 1997 entered into between the Company and the Parent Company (as amended by a supplemental agreement dated 30th October, 2001), which was disclosed in the Company’s combined offering prospectus dated 24th March, 1998 and issued in Hong Kong in connection with the Combined Offering and the announcement and circular of the Company dated 30th October, 2001 and 22nd November 2001, respectively, the Parent Company is responsible for providing accommodation to its employees and the employees of the Company. The Company and the Parent Company share the incidental expenses relating to the provision of such accommodation on a pro-rata basis based on their respective number of employees and mutual agreement. Such expenses amounted to RMB30.97 million and RMB37.2 million in 2001 and 2002, respectively.

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003

9

YANZHOU COAL MINING COMPANY LIMITED

Commencing from 2002, the Company paid to its employees a housing allowance which is based on a fixed percentage of employees’ wages for their buying of residential houses. In 2002, the employees’ housing allowances paid by the Company amounted to RMB129.7 million in total.

DISCLOSURE OF SIGNIFICANT EVENTS

Acquisition of Jining III Coal Mine

The Company acquired Jining III coal mine from the Parent Company on 1st January, 2001. As at 31st December, 2002, the consideration of RMB2,450,905,000 has been settled by the Company.

The consideration of the mining right of Jining III is approximately RMB132.479 million, which shall be paid to the Parent Company in ten equal annual interest free installments, commencing from 2001. As at 31st December, 2002, the Company has paid mining right consideration of RMB26.496 million.

Acquisition of Railway Assets

The Company acquired the Railway Assets from the Parent Company on 1st January, 2002. As at 31st December, 2002, the consideration of RMB1,242,586,000 has been settled by the Company.

During the year ended 31st December, 2002, transport capacity of the Railway Assets reached 27.04 million tonnes. When amounting the Railway Assets as an operating segment, the Railway Assets contributed RMB131.8 million to the Company’s net profits during the year ended 31st December, 2002.

Appointment of Directors and Supervisors, election of chairman, vice chairman of the board of directors and chairman of the Supervisory Committee and Appointment of General Manager and other members of the Senior Management

The first extraordinary general meeting for 2002, meeting of the Board of Directors and meeting of the Supervisors Committee were held on 22nd April, 2002. At the meeting, the Company approved the appointment of directors and supervisors: Mo Liqi was elected as Chairman, Yang Deyu was elected as Vice-chairman and General Manager; Meng Xianchang was elected as Chairman of the Supervisor Committee; Yu Xuezhi, Zhang Yingmin, Wang Xinkun were appointed as Deputy General Managers; Wu Yuxiang was appointed as the Chief Financial Officer, Ni Xinghua was appointed as Chief Engineer and Chen Guangshui was appointed as the Secretary of the Board.

A meeting of the Board of Directors was held on 8th July, 2002. Two additional Deputy General Managers, Tian Fengze and Shi Chengzhong were appointed.

AMENDMENTS TO THE ARTICLES OF ASSOCIATION OF THE COMPANY

On 22nd April, 2002, the Company held its first extraordinary general meeting for 2002 and approved the Revised Bill of the Articles of Association of the Company passed earlier at the Board of Directors meeting on 4th March, 2002. The Articles of Association of the Company were amended in accordance with the rules and regulations issued by domestic supervisors authorities since the Company’s shares were listed, while also taking into consideration the actual operations of the Company. This is to ensure that the articles could better meet the requirements of domestic/foreign regulators and to improve its practicality. Details of the Revised Bill of the Articles of Association was set out in domestic Shanghai Security , and Wen Wei Po and South China Morning Post of Hong Kong on 5th March ,2002.

EMPLOYEES’ BASIC MEDICAL INSURANCE SCHEME

In accordance with the notice of Shandong Provincial People’s Government relating to the issue of the “Notice on the Implementation Plan for the Establishment of Cities and Towns Employee Basic Medical Insurance Scheme of Shandong Province” (Lu Zheng Fa [1999] No.94), the “Provisional Rules for Cities and Towns Employee Basic Medical Insurance Scheme of Jining City” (Ji Zheng Fa [2000] No.46) issued by Jining People’s Government, the “Implementation Provisions for Employee Medical Insurance of Yanzhou Coal Mining Company Limited” and the “Notice of the Ministry of Finance and the Ministry of Labour Protection relating to Enterprise Supplementary Medical Insurance” (Cai She [2002] No.18) jointly issued by the Ministry of Finance and the Ministry of Labour Protection, the Company established and commenced to implement the employees’ basic medical insurance scheme on 1 January, 2002.

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003

10

YANZHOU COAL MINING COMPANY LIMITED

The Company’s basic medical insurance scheme comprises basic medical insurance and supplementary medical insurance schemes: 1. basic medical insurance scheme – since the listing of the shares of the Company, a fund of 14% of the total wages of employees (“benefit expenses”) was set aside and charged to “Wages and Employees’ Benefits” under “Cost of Sale and services provided” and “Selling, General and Administrative Expenses”. The employees’ medical fees were paid out from the benefit expenses. After the implementation of the basic medical insurance scheme, 8% of the total wages of employees were set aside and charged by the Company as basic medical insurance fund, which was still paid out from the benefit expenses and charged to “Wages and Employee Benefits” under “Cost of Sale and services provided” and “Selling, General and Administrative Expenses”, which did not have impact on the earnings of the Company in 2002 as compared to the previous year; 2. supplementary medical insurance scheme – in accordance with the relevant regulations, a supplementary medical insurance fund of 4% the total wages of employees was set aside by the Company and charged to “Supplementary Medical Insurance” under “Selling, General and Administrative Expenses”. In 2002, the Company set aside RMB29.71 million as supplementary medical insurance fund, resulting in a decrease in the net earnings of the Company by RMB19.906 million.

ADJUSTMENT OF ORGANIZATION STRUCTURE

As approved by the meeting of board of directors on 8th July, 2002, the Company has undergone an internal amalgamation. The Company restructured the former 12 functional departments into 7 functional departments, namely the Secretariat of the Board of Directors, Department of Coordination, Department of Human Resources, Department of Financial Planning, Department of Production Technology, Department of Safety Scrutiny and Department of Economic Operation.

As approved by the meeting of the Board of Directors on 29th October, 2002, the Company has established an Audit Committee and an Audit Department. The Audit Committee consists of 5 members, including 3 independent non-executive directors (one is an accounting professional), an external director and an employee director. The head of the Audit Committee is to be selected from the independent non-executive directors. The main duty of the Audit Committee is to audit the Company’s internal audit regulations, internal control regulations, financial reporting procedures, financial information and its disclosure on behalf of the Company. The Audit Department is the internal audit organization of the Company.

CONSTRUCTION OF JINING SIHE COAL PORT

The Company’s board of directors held a meeting on 11th April, 2003, at which a resolution has been passed to approve the opening of an inland river route connecting Jining III coal mine to the Jinghang Grand Canal by the construction of the Jining Sihe Coal Port which is adjacent to Jining III coal mine.

The handling capacity of the Jining Sihe Coal Port is expected to be 5 million tonnes per year. Its construction consists of two phases. The first phase of this project will mainly include a dock with loading capacity of 1,000 tonnes and a coal stockpile of 180 thousand tonnes. Its handling capacity is expected to be 3 million tonnes per year. It is expected that construction of the first phase of the Jining Sihe Coal Port will commence in April 2003 and will complete in December 2003. Depending on the operation of the first phase of the Jining Sihe Coal Port, the Company may carry out feasibility study on, and the construction of, the second phase of the project. The Company will use its internal resources to construct the Jining Sihe Coal Port.

After the construction of the Jining Sihe Coal Port, it will create the shortest water transportation route from the Company to the customers along the Jinghang Grand Canal and the Changjiang River, and will provide the following benefits to the Company: (1) improve its business operation system and increase the capacity of its coal transportation; (2) further enhances and develops the Company’s coal market along the Jinghang Grand Canal and the Changjiang River; (3) the cost of coal transportation via the Jinghang Grand Canal is lower than railway transportation and seaport transportation and will increase the profitability of the Company; and (4) when the transportation capacity of the Jining Sihe Coal Port reaches its full capacity, it could also provide river transportation service to third parties, creating additional income for the Company.

PURCHASE, REDEMPTION OR SALE OF SHARES

The Company did not purchase, redeem or sell any of its shares during the year ended 31st December, 2002.

COMPLIANCE WITH CODE OF BEST PRACTICE

The Audit Committee of the Board of Directors has been established during the period under review. The details are set out in “Disclosure of significant event” and “Adjustment of Organization Structure” contained herein. The Directors of the Company are of the view that the Company has complied with the Code of Best Practice set out in Appendix 14 of the Rules Governing the Listing of Securities (the “Listing Rules”).

MATERIAL LITIGATION AND ARBITRATION

The Company was not involved in any material litigation or arbitration during the year ended 31st December, 2002.

On behalf of the Board

MO Liqi

Chairman

Zoucheng, PRC, 11th April, 2003

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003

11

YANZHOU COAL MINING COMPANY LIMITED

PUBLICATION OF ANNUAL RESULTS ON THE WEBSITE OF THE STOCK EXCHANGE OF HONG KONG LIMITED (THE “STOCK EXCHANGE”)

A results announcement containing the information required by paragraphs 45(1) to 45(3) of Appendix 16 to the Listing Rules will be published on the website of the Stock Exchange in due course.

ANNUAL RESULTS

The Board of Directors of the Company has the pleasure of presenting the audited annual operating results of the Company and its subsidiary for the year ended 31st December, 2002 prepared in conformity with (I) International Financial Reporting Standards (“IFRS”) and (II) the relevant accounting principles and regulations applicable to PRC enterprises (“PRC GAAP”).

(I) Financial information under IFRS

CONSOLIDATED STATEMENT OF INCOME

NOTES GROSS SALES OF COAL 4 TRANSPORTATION COSTS OF COAL 4 NET SALES OF COAL 4 RAILWAY TRANSPORTATION SERVICE INCOME COST OF SALES AND SERVICE PROVIDED 5 GROSS PROFIT SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6 OTHER OPERATING INCOME 7 OPERATING INCOME INTEREST EXPENSES 8 INCOME BEFORE INCOME TAXES INCOME TAXES 9 INCOME BEFORE MINORITY INTEREST MINORITY INTEREST NET INCOME APPROPRIATIONS TO RESERVES DIVIDEND EARNINGS PER SHARE 10 EARNINGS PER ADS. 10	Year ende 2002 RMB’000 7,772,315 (1,558,414 ) 6,213,901 142,471 6,356,372 (3,362,901 ) 2,993,471 (1,231,059 ) 103,729 1,866,141 (117,929 ) 1,748,212 (523,148 ) 1,225,064 3,065 1,221,999 817,187 287,000 RMB0.43 RMB21.29	d December 31, 2001 RMB’000 6,369,649 (1,493,639 ) 4,876,010 – 4,876,010 (2,812,583 ) 2,063,427 (759,631 ) 117,896 1,421,692 (61,519 ) 1,360,173 (389,228 ) 970,945 – 970,945 141,698 235,340 RMB0.35 RMB17.29

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 12

YANZHOU COAL MINING COMPANY LIMITED

CONSOLIDATED BALANCE SHEET

NOTES ASSETS CURRENT ASSETS Bank balances and cash Restricted cash Bills and accounts receivable 11 Investments in securities Inventories 12 Prepayments and other current assets Taxes receivable TOTAL CURRENT ASSETS MINING RIGHTS LAND USE RIGHTS PROPERTY, PLANT AND EQUIPMENT, NET GOODWILL NEGATIVE GOODWILL INVESTMENTS IN SECURITIES DEPOSIT MADE ON ACQUISITION OF INVESTMENTS IN SECURITIES DEFERRED TAX ASSET TOTAL ASSETS LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Bills and accounts payable Other payables and accrued expenses Provision for land subsidence, restoration, rehabilitation and environmental costs Amounts due to Parent Company and its subsidiary companies Taxes payable TOTAL CURRENT LIABILITIES AMOUNTS DUE TO PARENT COMPANY AND ITS SUBSIDIARY COMPANIES – DUE AFTER ONE YEAR LONG-TERM BANK BORROWING TOTAL LIABILITIES SHAREHOLDERS’ EQUITY MINORITY INTEREST TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	A 2002 RMB’000 1,544,173 51,761 802,929 88,702 576,579 756,019 – 3,820,163 119,231 618,206 8,276,941 51,660 (82,861 ) 1,760 30,138 88,807 12,924,045 602,725 634,790 83,044 285,308 56,867 1,662,734 61,341 1,200,000 2,924,075 9,995,033 4,937 12,924,045	t December 31, 2001 RMB’000 1,124,806 30,000 694,252 49,997 439,882 853,213 21,674 3,213,824 125,855 372,020 7,479,755 12,437 (110,481 ) 1,760 – 87,421 11,182,591 636,387 532,874 120,196 757,387 793 2,047,637 72,456 – 2,120,093 9,060,034 2,464 11,182,591

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 13

CONSOLIDATED STATEMENT OF CASH FLOWS

YANZHOU COAL MINING COMPANY LIMITED

OPERATING ACTIVITIES Income before minority interest Adjustments to reconcile income before minority interest to net cash from operating activities: Depreciation of property, plant and equipment and land use rights Amortization of goodwill Release of negative goodwill to income Amortization of mining rights Recognition of deferred tax asset Loss on disposal of property, plant and equipment Gain on disposal of investments in securities (Increase) decrease in assets (net of acquisitions): Bills and accounts receivable Inventories Prepayments and other current assets Taxes receivable Increase (decrease) in liabilities (net of acquisitions): Bills and accounts payable Other payables and accrued expenses Provision for land subsidence, restoration, rehabilitation and environmental costs Amounts due to Parent Company and its subsidiary companies Taxes payable NET CASH FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Acquisition of Railway Assets Purchase of property, plant and equipment Acquisition of investments in securities Deposit made on acquisition of investments in securities Increase in restricted cash Proceeds on disposal of investments in securities Proceeds on disposal of property, plant and equipment Acquisition of Jining III Acquisition of Zhongyan NET CASH FLOW USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Bank borrowings raised Repayment to Parent Company and its subsidiary companies in respect of consideration for acquisition of Jining III Dividend paid Repayments of bank borrowings Dividend paid to a minority shareholder of a subsidiary Issues of shares, net of share issue expenses NET CASH FLOW FROM (USED IN) FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING CASH AND CASH EQUIVALENTS, ENDING, REPRESENTED BY BANK BALANCES AND CASH Additional cash flow information: Cash paid during the year for: Interest Income taxes	Year ende 2002 RMB’000 1,225,064 851,119 777 (27,620 ) 6,624 (1,386 ) 1,093 (2,209 ) (104,091 ) (93,818 ) 231,301 21,674 (56,492 ) 90,973 (43,419 ) 84,048 56,074 2,239,712 (1,282,445 ) (842,471 ) (88,702 ) (30,138 ) (21,761 ) 52,206 47,800 – – (2,165,511 ) 1,600,000 (567,242 ) (287,000 ) (400,000 ) (592 ) – 345,166 419,367 1,124,806 1,544,173 147,361 446,786	d December 31, 2001 RMB’000 970,945 819,638 777 (27,620 ) 6,624 (2,260 ) 5,811 – 145,380 (157,373 ) (282,451 ) (21,674 ) 79,275 186,763 (16,528 ) 52,658 (149,726 ) 1,610,239 – (677,936 ) (51,757 ) – (30,000 ) – 13,686 (1,204,133 ) 1,941 (1,948,199 ) – (601,452 ) (235,340 ) – – 1,454,804 618,012 280,052 844,754 1,124,806 37,109 562,888

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003

14

YANZHOU COAL MINING COMPANY LIMITED

NOTES TO THE FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The Company also prepares a set of financial statements in accordance with the relevant accounting principles and regulations applicable to PRC enterprises (“PRC GAAP”). Differences between IFRS and PRC GAAP are stated in note 16.

The financial statements reflect additional disclosures to conform with the disclosure requirements of the Hong Kong Companies Ordinance and with presentations customary in the United States of America.

Differences between IFRS and accounting principles generally accepted in the United States of America (“US GAAP”) are stated in note 17.

2.

SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared under the historical cost convention, as modified for the revaluation of financial instruments.

The accounting policies adopted are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31st December, 2001, except for the adoption of new accounting policies as described below.

Service income is recognized when services are provided.

Revenue recognition

Service income is recognized when services are provided.

Property, plant and equipment

Depreciation is provided to write off the cost of item of Railway Structure over its estimated useful lives, after taking into account its estimated residual value, using the Straight line method. The estimated useful lives of Railway Structure is 15 to 25 years.

Goodwill

Goodwill of Railway Assets is capitalized and amortized on a straight line basis over a period of ten to twenty years. Additional goodwill resulting from future contingent consideration payments in respect of acquisition of Railway Assets will be amortized on a straight line basis over the remaining life of the original period of ten to twenty years.

Government grants

Government grants are recognized over the periods necessary to match them with the related costs. If the grants do not relate to any specific expenditures incurred by the Group, they are reported separately as other operating income. If the grants subsidise an expense incurred by the Group, they are deducted in reporting the related expense. Grants relating to depreciable assets are presented as a deduction from the cost of the relevant asset.

3.

SEGMENT INFORMATION

Business segments

For management purposes, the Group is currently organized into two operating divisions – coal mining and coal railway transportation. These divisions are the basis on which the Group reports its primary segment information.

Principal activities are as follows:

Coal mining	–	Underground mining, preparation and sales of coal
Coal railway transportation	–	Provision of railway transportation services

Segment information about these businesses is presented below:

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 15

YANZHOU COAL MINING COMPANY LIMITED

INCOME STATEMENT

For the year ended December 31, 2002 Coal railway Coal mining transportation Eliminations RMB’000 RMB’000 RMB’000 GROSS REVENUE External 7,772,315 142,471 – Inter-segment – 386,823 (386,823 ) Total 7,772,315 529,294 (386,823 ) Inter-segment revenue is charged at prices pre-determined by the relevant governmental authority. RESULT Segment results 1,791,446 271,272 – Unallocated corporate expenses Unallocated corporate income Operating income Interest expenses Income before income taxes Income taxes Income before minority interest	Consolidated RMB’000 7,914,786 –
	7,914,786
	2,062,718 (226,795 )
	1,835,923 30,218
	1,866,141 (117,929 )
	1,748,212 (523,148 )
	1,225,064

Note: No segment information for the years ended December 31, 2001 is presented as the Group was engaged primarily in the coal mining business during those years.

BALANCE SHEET

ASSETS Segment assets LIABILITIES Segment liabilities	At December 31, 2002 Coal railway Corporate Coal mining transportation and others RMB’000 RMB’000 RMB’000 9,861,375 1,162,372 1,900,298 1,346,568 56,000 1,521,507	Consolidated RMB’000 12,924,045
		2,924,075

OTHER INFORMATION

Capital additions Amortization of goodwill Release of negative goodwill to income Depreciation of property, plant and equipment and land use rights Amortization of mining rights Loss on disposal of property, plant and equipment Allowance for doubtful debts	For the year ended De Coal railway Coal mining transportation RMB’000 RMB’000 802,090 1,166,898 777 – (27,620 ) – 764,470 75,519 6,624 – 1,093 – 66,204 –	cember 31, 2002 Corporate and others RMB’000 5,547 – – 11,130 – – –	Consolidated RMB’000 1,974,535 777 (27,620 ) 851,119 6,624 1,093 66,204

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003

16

5. COST OF SALES AND SERVICE PROVIDED

YANZHOU COAL MINING COMPANY LIMITED

The number of employees of each of the Group’s principal divisions are as follows:

Coal mining Coal railway transportation SALES OF COAL AND TRANSPORTATION COSTS OF COAL Domestic sales of coal, gross Less: Transportation costs Domestic sales of coal, net Export sales of coal, gross Less: Transportation costs Export sales of coal, net Net sales of coal	A 2002 24,623 3,249 27,872 Year ende 2002 RMB’000 3,939,953 525,998 3,413,955 3,832,362 1,032,416 2,799,946 6,213,901	t December 31, 2001 23,689 –
		23,689
		d December 31, 2001 RMB’000 3,014,933 415,121
		2,599,812
		3,354,716 1,078,518
		2,276,198
		4,876,010

4. SALES OF COAL AND TRANSPORTATION COSTS OF COAL

Net sales of coal represents the invoiced value of coal sold and is net of returns, discounts, sales taxes and transportation costs if the invoiced value includes transportation costs to the customers.

Sales taxes consist primarily of a resource tax calculated at the rate of RMB1.20 per metric tonne (“tonne”) of the imputed quantity of raw coal sold and are paid to the local tax bureau. The resource tax for each of the three years ended December 31, 2002 and 2001 amounted to RMB44,712,000 and RMB40,351,000 respectively.

Materials Wages and employee benefits Electricity Depreciation Land subsidence, restoration, rehabilitation and environmental costs Repairs and maintenance Annual fee and amortization of mining rights (note) Transportation costs Others	Year ende 2002 RMB’000 752,513 757,532 278,407 813,761 232,030 346,290 19,604 43,239 119,525 3,362,901	d December 31, 2001 RMB’000 643,664 572,202 218,579 784,477 210,939 276,791 19,604 22,632 63,695
		2,812,583

Note: The Parent Company and the Company have entered into a mining rights agreement pursuant to which the Company has agreed to pay to the Parent Company effective from September 25, 1997 an annual fee of RMB12,980,000 as compensation for the Parent Company’s agreement to give up the mining rights associated with the Group’s mines other than Jining III. The annual fee is subject to change after a ten-year period.

The cost of the mining rights of Jining III of approximately RMB132,479,000 acquired in 2001 is amortized on a straight line basis over twenty years.

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 17

YANZHOU COAL MINING COMPANY LIMITED

6. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Retirement benefits scheme contributions Wages and employee benefits Additional medical insurance Depreciation Amortization of goodwill Distribution charges Allowance for doubtful debts Resource compensation fees Repairs and maintenance Research and development Staff training costs Freight charges Others	Year ende 2002 RMB’000 334,120 164,549 29,710 37,358 777 54,524 66,204 73,762 8,668 30,657 26,272 14,016 390,442 1,231,059	d December 31, 2001 RMB’000 265,825 75,717 – 35,161 777 57,970 2,508 31,240 8,247 23,026 23,991 5,532 229,637
		759,631

7.

OTHER OPERATING INCOME

Gain on sales of auxiliary materials Government grants (note) Interest income from bank deposits Interest income from investments in securities Release of negative goodwill to income Write back of allowance for doubtful debts Others	Year ende 2002 RMB’000 21,277 20,157 28,737 1,481 27,620 – 4,457 103,729	d December 31, 2001 RMB’000 21,233 – 39,863 – 27,620 29,180 –
		117,896

Note: Government grants represents the amount granted to the Group in respect of its export sales activities in prior years and received during the year.

8. INTEREST EXPENSES

Interest expenses on: – bank borrowings wholly repayable within 5 years – bank borrowings not wholly repayable within 5 years – bills receivable discounted without recourse Deemed interest expenses No interest was capitalized during the relevant periods.	Year ende 2002 RMB’000 3,666 72,072 2,235 39,956 117,929	d December 31, 2001 RMB’000 1,924 – – 59,595
		61,519

9. INCOME TAXES

Income taxes Deferred tax credit	Year ende 2002 RMB’000 524,534 (1,386 ) 523,148	d December 31, 2001 RMB’000 391,488 (2,260
		389,228

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 18

YANZHOU COAL MINING COMPANY LIMITED

The Company is subject to an income tax rate of 33% on its taxable income. A reconciliation between the provision for income taxes computed by applying the standard PRC income tax rate to income before income taxes and the actual provision for income taxes is as follows:

10.

Standard income tax rate in the PRC Standard income tax rate applied to income before income taxes Reconciling items: Transfer to future development fund deductible for tax purpose but not charged to income under IFRS Amortization of the revaluation surplus of low-priced consumables deductible for tax purposes but not for accounting purposes under IFRS Release of negative goodwill not subject to tax Deemed interest not deductible for tax purposes Allowance for doubtful debts not deductible for tax purposes Government grants received not subject to tax Others Income taxes Effective income tax rate EARNINGS PER SHARE AND PER ADS	Year ende 2002 RMB’000 33% 576,910 (76,101 ) – (9,115 ) 13,185 23,681 (6,652 ) 1,240 523,148 30%	d December 31, 2001 RMB’000 33% 448,857 (67,364 ) (1,212 ) (9,115 ) 19,666 – – (1,604 ) 389,228 29%

The calculation of the earnings per share for the years ended December 31, 2002 and 2001 is based on the net income for the year of RMB1,221,999,000 and RMB970,945,000 and on the weighted average of 2,870,000,000 shares and 2,807,507,000 shares shares in issue, respectively, during the year.

The earnings per ADS have been calculated based on the net income for the relevant periods and on one ADS being equivalent to 50 shares.

11. BILLS AND ACCOUNTS RECEIVABLE

Total bills receivable Total accounts receivable Less: Allowance for doubtful debts Total bills and accounts receivable, net	THE G A THE CO At Dece 2002 RMB’000 239,974 639,038 (76,083 ) 802,929	ROUP ND MPANY mber 31, 2001 RMB’000 155,883 596,233 (57,864 ) 694,252

Bills receivable represent unconditional orders in writing issued by or negotiated from customers of the Group for completed sale orders which entitle the Group to collect a sum of money from banks or other parties.

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 19

YANZHOU COAL MINING COMPANY LIMITED

An analysis of the allowance for doubtful debts for 2002 and 2001 follows:

Balance at January 1 Additional allowance charged to income Direct write-off charged against allowance Allowance written back to income Balance at December 31	THE G A THE CO 2002 RMB’000 57,864 64,604 (46,385 ) – 76,083	ROUP ND MPANY 2001 RMB’000 87,044 – – (29,180
		57,864

According to the credit rating of different customers, the Group allows a range of credit periods to its trade customers not exceeding 180 days.

The following is an aged analysis of bills and accounts receivable at the reporting date:

1 – 180 days 181 – 365 days 1 – 2 years 2 – 3 years Over 3 years	THE G A THE CO At Dece 2002 RMB’000 551,795 182,371 99,633 38,388 6,825 879,012	ROUP ND MPANY mber 31, 2001 RMB’000 513,080 119,096 105,443 8,258 6,239
		752,116

12. INVENTORIES

COST Auxiliary materials, spare parts and small tools Coal products	THE GR At Decem 2002 RMB’000 309,246 267,333 576,579	OUP ber 31, 2001 RMB’000 269,510 170,372 439,882	THE COM At Decemb 2002 RMB’000 302,164 267,333 569,497	PANY er 31, 2001 RMB’000 255,981 170,372
				426,353

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003

20

YANZHOU COAL MINING COMPANY LIMITED

13. SHAREHOLDERS’ EQUITY

The Company has to set aside 10% of its net income for the statutory common reserve fund (except where the fund has reached 50% of the Company’s registered capital) and 5% to 10% of its net income for the statutory common welfare fund.

Balance at January 1, 2001 Additional issue of shares, net of share issue expenses of RMB77,253,000 Net income Appropriations to reserves Dividends Balance at December 31, 2001 Balance at January 1, 2002 Net income Appropriations to reserves Dividends Balance at December 31, 2002	Share capital RMB’000 2,600,000 270,000 – – – 2,870,000 2,870,000 – – – 2,870,000	Share premium RMB’000 2,087,723 1,184,804 – – – 3,272,527 3,272,527 – – – 3,272,527	Future development fund RMB’000 111,748 – – – – 111,748 111,748 – 743,489 – 855,237	Statutory common reserve fund RMB’000 244,631 – – 94,465 – 339,096 339,096 – 49,024 – 388,120	Statutory common welfare fund RMB’000 122,315 – – 47,233 – 169,548 169,548 – 24,512 – 194,060	Retained earnings RMB’000 1,703,208 – 970,945 (141,698) (235,340) 2,297,115 2,297,115 1,219,279 (817,025) (287,000) 2,412,369	Total RMB’000 6,869,625 1,454,804 970,945 – (235,340)
							9,060,034
							9,060,034 1,219,279 – (287,000)
							9,992,313

14. RELATED PARTY BALANCES AND TRANSACTIONS

The amounts due to the Parent Company and its subsidiary companies are non-interest bearing and unsecured.

The amounts due to the Parent Company and its subsidiary companies as at December 31, 2002 included the present value of the outstanding balance that arose from the funding of the acquisition of the mining rights of Jining III as of January 1, 2001 discounted using the market rate of bank borrowings.

Amounts due to Parent Company and its subsidiary companies Within one year More than one year, but not exceeding two years More than two years, but not exceeding five years Exceeding five years Total due Less: amount due within one year Amount due after one year	THE G AND THE At Dece 2002 RMB’000 285,308 10,483 27,721 23,137 346,649 285,308 61,341	ROUP COMPANY mber 31, 2001 RMB’000 757,387 11,115 29,515 31,826
		829,843 757,387
		72,456

Except for the amounts disclosed above, the amounts due to the Parent Company and/or its subsidiary companies have no specific terms of repayments.

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003

21

YANZHOU COAL MINING COMPANY LIMITED

During the periods, the Group had the following significant transactions with the Parent Company and/or its subsidiary companies:

Income Sales of coal Gain on sales of auxiliary materials Utilities and facilities Railway transportation services Expenditure Utilities and facilities Annual fee for mining rights Purchases of supply materials Railway transportation services Repair and maintenance services Social welfare and support services Technical support and training Road transportation services	Year ended 2002 RMB’000 110,403 12,385 5,000 496 1,350 12,980 409,117 – 239,297 186,657 15,130 33,208	December 31, 2001 RMB’000 73,675 11,586 5,810 – 600 12,980 143,213 248,876 207,550 150,860 15,130 6,302

During the periods, the Group had the following significant transactions with a related party, certain management members of which are also management members of the Group:

Sales of coal	Year ended 2002 RMB’000 37,693	December 31, 2001 RMB’000 35,440

Certain expenditure for social welfare and support services (excluding medical and child care expenses) of RMB66,500,000 and RMB56,220,000 for each of the two years ended December 31, 2002 and 2001, respectively, and for technical support and training of RMB15,130,000 for each of the two years ended December 31, 2002 and 2001, have been charged by the Parent Company at a negotiated amount per annum, subject to changes every year.

The above transactions were charged either at market prices or based on terms agreed by both parties.

On January 1, 2001, the Company acquired Jining III from the Parent Company (see the section headed “Disclosure of Significant Event”).

On January 1, 2002, the Company acquired Railway Assets from the Parent Company (see the section headed “Disclosure of Significant Event”).

In addition to the above, the Company participates in a multi-employer scheme of the Parent Company in respect of retirement benefits.

15. SIGNIFICANT RELATED PARTY TRANSACTIONS (Under PRC GAAP)

• (1) The followings are related parties where a control relationship exists:

Name of related parties	Registration address	Major business	Relationship	Quality	Status Representative
Yankuang Group	40 Fu Shan Road	Industry Processing	Major shareholder	State-owned	Zhao Jing Che
	Zoucheng City, Shandong
Zhongyan Trade	No.1 Industrial Zone,	International Trade	Subsidiary	Limited	Shao Hua Zhen
	Qingdao Free Trade Zone

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 22

YANZHOU COAL MINING COMPANY LIMITED

• (2) For the related parties where a control relationship exists, the registered capital and the changes therein are as follows:

Yankuang Group Zhongyan Trade	December 31, 2001 and 2002 RMB 3,090,336,000
	2,100,000

• (3) For the related parties where a control relationship exists, the proportion and changes of equity interest are as follows:

	December	31,	2001	and 2002
	RMB			%
Yankuang Group	1,670,000,000			58.19
Zhongyan Trade	1,000,000			52.38

• (4) Nature of relationship with related parties where a control relationship does not exist:

Name of related parties	Relationship with the Company
Zoucheng Nanmei Shipping Co. Ltd.	Common key management members

• (5) Significant transactions entered with the Company and above-mentioned related parties in current year:

• (a) The transactions between the Company and the subsidiary which the Company can exercise control over and whose financial statements are included in the consolidated financial statements were eliminated.

• (b) Acquisition of railway transportation business

• (c) Acquisition of Jining III

• (d) Sales and purchases

SALES AND SERVICE PROVIDED Sales of coal – Zoucheng Nanmei Shipping Co., Ltd. – Yankuang Group Subtotal Railway transportation services income – Yankuang Group Public utilities and facilities income – Yankuang Group Gain on sales of material and spare parts – Yankuang Group PURCHASES Yankuang Group	2002 RMB’000 37,693 110,403 148,096 496 5,000 12,385 165,977 409,117	2001 RMB’000 35,440 73,675
		109,115
		– 5,810 11,586
		126,511
		143,213

The price of the above transaction is determined according to market price or negotiated price.

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003

23

YANZHOU COAL MINING COMPANY LIMITED

(e) Amount due to or from related parties

Account Company Accounts receivable Yankuang Group Other receivables Yankuang Group Prepayments Yankuang Group Notes payable Yankuang Group Accounts payable Yankuang Group Advance from customers Yankuang Group Other payables Yankuang Group Long-term payable due within one year Yankuang Group Long-term payables Yankuang Group	December 31, 2002 RMB 10,491,800 54,484,900 12,125,593 77,102,293 7,020,000 55,433,118 15,355,725 262,964,418 13,247,800 92,735,160 446,756,221	December 31, 2001 RMB 12,416,512 160,504,483 26,547,580
		199,468,575
		160,000,000 33,456,343 – 29,308,749 636,633,816 105,983,040
		965,381,948

• (f) Other transactions

• (1) Pursuant to an agreement signed between the Company and Yankuang Group, Yankuang Group manages the retirement benefits, medical benefits and other benefits of the two companies and makes combined payments of the total retirement benefits of the two companies to the government department in charge of the related funds. Amount included as expenses of the Company for the year ended December 31, 2002 and 2001 are RMB437,677,000 and RMB347,145,000 respectively.

• (2) Pursuant to an agreement signed by the Company and Yankuang Group, the department and subsidiary of Yankuang Group provided the following services and charged related service fees during the year:

Repairs and maintenance Technical support and training fee Mining rights fees Public utilities expenses Road transportation fee Gases and eructate expenses Buildings management fee Children tuition fee Railway transportation fee Others Total	2002 RMB’000 239,297 15,130 12,980 1,350 33,208 11,970 37,200 16,600 – 17,330 385,065	2001 RMB’000 207,550 15,130 12,980 600 6,302 11,020 30,970 13,320 248,876 14,230
		560,978

The price of the transaction is determined according to market price or negotiated price.

• (3) Total amount of salaries paid to key management, including salaries, welfare and subsidies paid in the form of cash, goods and others, for the year ended December 31, 2002 and 2001 are RMB1,918,814 and RMB1,341,265, respectively.

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003

24

YANZHOU COAL MINING COMPANY LIMITED

(4) During the year 2002 and 2001, the Company and Yankuang Group have made payments or collected receipts to or from individual third party or government authorities on behalf of each other, in respect of goods purchased, services received and other expenses. These payments and receipts made on behalf of the other have been recorded in other payables.

16. SUMMARY OF DIFFERENCES BETWEEN IFRS AND PRC GAAP

The consolidated financial statements prepared under IFRS and those prepared under PRC GAAP have the following major differences:

• (i) adjustment of future development fund (see note 32), which is charged to income before income taxes under PRC GAAP, to shareholders’ equity;

• (ii) elimination of the revaluation surplus on low-priced consumables recognized on the establishment of the Company in 1997 and subsequently amortized to the statement of income under PRC GAAP;

• (iii) recognition of a deferred tax asset under IFRS for the tax consequence of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities;

• (iv) negative goodwill arising under IFRS for the acquisition of Jining III is recognized as income in the statement of income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets. No negative goodwill is recognized under PRC GAAP;

• (v) the installments payable to the Parent Company for the acquisition of Jining III have been stated at present value discounted using market rates under IFRS while under PRC GAAP, the instalments payable are stated at gross amounts. Accordingly, deemed interest expense arises on the installments payable to the Parent Company under IFRS and no such interest expenses recognized under PRC GAAP; and

• (vi) dividends proposed by the directors after the balance sheet date and subject to approval in the annual general meeting are adjusted in the consolidated financial statements under PRC GAAP as at the balance sheet date.

The following table summarizes the differences between IFRS and PRC GAAP:

As per consolidated financial statements prepared under IFRS Impact of IFRS adjustments in respect of: – transfer to future development fund which is charged to income before income taxes under PRC GAAP – amortization of revaluation surplus on low-priced consumables recognized on the establishment of the Company under PRC GAAP – deferred tax effect on temporary differences not recognized under PRC GAAP – release of negative goodwill to income – deemed interest expenses – proposed final dividend – others As per consolidated financial statements prepared under PRC GAAP	Net incom the year e Decembe 2002 RMB’000 1,221,999 (230,610 ) – (1,386 ) (27,620 ) 39,956 – 777 1,003,116	e for nded r 31, 2001 RMB’000 (restated-see note below) 970,945 (204,134 ) (3,672 ) (2,260 ) (27,620 ) 59,595 – 3,399 796,253	Net asse as at December 2002 RMB’000 9,995,033 – – (88,807 ) (55,240 ) 99,551 (298,480 ) 6,517 9,658,574	ts 31, 2001 RMB’000 9,060,034 – – (87,421 ) (27,620 ) 59,595 (287,000 ) 5,740 8,723,328

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003

25

YANZHOU COAL MINING COMPANY LIMITED

Note: According to a clarification of the relevant regulations obtained from the Ministry of Finance during the year ended December 31, 2002, the requirement of the Company to transfer an annual amount to the future development fund was not changed upon cancellation of the requirements for contributions to NCIB and SCMIB. Such amounts, representing RMB6 per tonne of raw coal mined, were required to be charged to income before income taxes, on a retrospective basis, under PRC GAAP. Accordingly, the Group’s net income for the years ended December 31, 2001 and 2000 under PRC GAAP have been restated and reduced by RMB204,134,000 and RMB164,738,000, respectively.

There are also differences in other items in the consolidated financial statements due to differences in classification between IFRS and PRC GAAP.

17. SUMMARY OF DIFFERENCES BETWEEN IFRS AND US GAAP

The consolidated financial statements are prepared in accordance with IFRS, which differ in certain significant respects from US GAAP. The significant differences relate principally to the accounting for the acquisitions of Jining II, Jining III and Railway Assets, the cost bases of property, plant and equipment and land use rights and related adjustments to deferred taxation.

Under IFRS, the acquisitions of Jining II, Jining III and Railway Assets have been accounted for using the purchase method which accounts for the assets and liabilities of Jining II, Jining III and Railway Assets at their fair value at the date of acquisition. Any excess of the purchase consideration over the fair value of the net assets acquired is capitalized as goodwill and amortized over a period of ten to twenty years. Any excess of the fair value of the net assets acquired over the purchase consideration is recorded as negative goodwill, which is presented as a deduction from the assets of the Group in the consolidated balance sheet. The Group releases the negative goodwill to the statement of income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets.

Under US GAAP, as the Group, Jining II, Jining III and Railway Assets are entities under the common control of the Parent Company, the assets and liabilities of Jining II, Jining III and Railway Assets are required to be included in the consolidated balance sheet of the Group at historical cost. The difference between the historical cost of the assets and liabilities of Jining II, Jining III and Railway Assets acquired and the purchase price paid is recorded as an adjustment to shareholders’ equity.

In applying the pooling of interest method, the financial statement items of the combining enterprises for the period in which the combination occurs and for any comparative periods disclosed should be included in the financial statements of the combined enterprises as if they had been combined from the beginning of the earliest period presented. The effect of accounting for the acquisition of Railway Assets using the pooling of interest method on the gross revenue and net income under US GAAP for the year ended December 31, 2001 and 2000 is as follows:

Gross revenue As previously reported Pooling of interest adjustment: Gross revenue from Railway Assets Less: Elimination of inter-segment transactions As restated Net income As previously reported Pooling of interest adjustment: Net income from Railway Assets As restated	Year ende 2001 RMB’000 6,369,649 427,430 (247,756 ) 6,549,323 1,058,878 168,675 1,227,553	d December 31, 2000 RMB’000 4,843,515 307,284 (208,889 ) 4,941,910 812,323 106,249 918,572

Under IFRS, the mining rights of Jining III are stated at purchase consideration less amortization. Mining rights are amortized on a straight line basis over twenty years, being the useful life estimated based on the total proven and probable reserves of the coal mine. Under US GAAP, as both the Group and Jining III are entities under the common control of the Parent Company, the mining rights have to be restated at nil cost and no amortization on mining rights will be recognized. However, a deferred tax asset relating to the capitalization of mining rights is required to be recognized under US GAAP as a higher tax base resulting from the capitalization is utilized for PRC tax purposes.

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 26

YANZHOU COAL MINING COMPANY LIMITED

Under IFRS, property, plant and equipment and land use rights have been stated based on their respective fair values at the date of acquisition even for cases involving transaction between entities under common control. The fair value amount becomes the new cost basis of the assets of the Company formed from the reorganization and depreciation is based on such new basis. Under US GAAP, when accounting for a transfer of assets or exchange of shares between entities under common control, the entity that receives the net assets or equity interests shall initially recognize the assets and liabilities transferred at their carrying amounts in the accounts of the transferring entity at the date of transfer. Accordingly, property, plant and equipment and land use rights are restated at the historical cost and no additional depreciation on the fair value amounts will be recognized under US GAAP. However, a deferred tax asset relating to the difference in cost bases between the fair value at the date of acquisition and historical cost is required to be recognized under US GAAP and the tax basis of the assets is the fair value amount at the date of acquisition.

The adjustments necessary to restate net income and shareholders’ equity in accordance with US GAAP are shown in the tables set out below.

Net income as reported under IFRS US GAAP adjustments: Additional depreciation charged on fair valued property, plant and equipment and land use rights Additional deferred tax charge due to a higher tax base resulting from the difference in cost bases of property, plant and equipment and land use rights and capitalization of mining rights Amortization of negative goodwill on acquisition of Jining III Amortization of mining rights of Jining III Amortization of goodwill arising on acquisition of Jining II Loss of Jining III included in the Group using the pooling of interest method Profit of Railway Assets included in the Group using the pooling of interest method Net income under US GAAP Earnings per share under US GAAP Earnings per ADS under US GAAP	Year ende 2002 RMB’000 1,221,999 188,178 (64,284 ) (27,620 ) 6,624 777 – – 1,325,674 RMB0.46 RMB23.10	d December 31, 2001 RMB’000 970,945 164,684 (56,532 ) (27,620 ) 6,624 777 – 168,675 1,227,553 RMB0.44 RMB21.86

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 27

YANZHOU COAL MINING COMPANY LIMITED

Shareholders’ equity as reported under IFRS US GAAP adjustments: Difference in cost bases of property, plant and equipment and land use rights Additional depreciation charged on fair valued property, plant and equipment and land use rights Additional deferred tax asset due to a higher tax base resulting from the difference in cost bases of property, plant and equipment and land use rights Goodwill arising on acquisition of Jining II Negative goodwill arising on acquisition of Jining III, net Mining rights of Jining III Additional deferred tax asset due to a higher tax base resulting from capitalization of mining rights Net assets of Railway Assets incorporated under pooling of interest – current assets – property, plant and equipment and land use rights, net – deduct: difference in cost bases of property, plant and equipment and land use rights – current liabilities Consideration payable on acquisition of Railway Assets Goodwill arising on acquisition of Railway Assets Shareholders’ equity under US GAAP	At D 2002 RMB’000 9,995,033 (2,561,032 ) 937,329 535,822 (11,660 ) 82,861 (119,231 ) 39,346	At D 2002 RMB’000 9,995,033 (2,561,032 ) 937,329 535,822 (11,660 ) 82,861 (119,231 ) 39,346	ecember 31, 2001 RMB’000 9,060,034 (1,982,444 ) 749,151 406,987 (12,437 ) 110,481 (125,855 ) 41,532
	– – – –		142,821 1,136,758 (578,588 ) (36,993 )
	– – (40,000 ) 8,858,468		663,998 (1,242,586 ) – 7,668,861

Under US GAAP, the Group’s total assets would have been RMB11,787,480,000 and RMB11,070,997,000 at December 31, 2002 and 2001, respectively.

(II) Financial Information Prepared under PRC GAAP

BALANCE SHEET

At December 31, 2002

ASSETS CURRENT ASSETS Bank balances and cash Current investments Notes receivable Dividends receivable Accounts receivable Other receivables Prepayments Subsidies receivable Inventories Deferred expenses TOTAL CURRENT ASSETS Long-term equity investments	D 2002 RMB 1,595,933,728 88,702,100 239,974,223 – 573,446,193 223,141,786 146,339,631 342,595,878 576,579,303 110,560,888 3,897,273,730 31,897,684	The Group ecember 31, 2001 RMB (Restated) 1,154,806,342 49,997,305 155,883,666 – 550,784,838 401,119,702 88,165,432 419,145,249 439,882,298 111,048,395 3,370,833,227 1,760,419	T D 2002 RMB 1,592,397,958 88,702,100 239,974,223 655,479 573,446,193 222,698,314 145,812,599 342,595,878 569,496,944 110,560,888 3,886,340,576 36,672,090	he Company ecember 31, 2001 RMB (Restated) 1,150,155,924 49,997,305 155,883,666 – 550,784,838 400,993,716 94,810,318 419,145,249 426,352,865 111,048,395
				3,359,172,276
				4,470,322

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003

28

YANZHOU COAL MINING COMPANY LIMITED

FIXED ASSETS Fixed assets at cost Less: Accumulated depreciation FIXED ASSETS, NET Materials for constructing fixed assets Fixed assets under construction TOTAL FIXED ASSETS INTANGIBLE ASSETS TOTAL ASSETS LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Notes payable Accounts payable Advances from customers Salaries and wages payable Dividends payable Taxes payable Other payables Provision Long-term payable due within one year TOTAL CURRENT LIABILITIES LONG-TERM LIABILITIES Long-term loan Long-term payable TOTAL LONG-TERM LIABILITIES TOTAL LIABILITIES MINORITY INTEREST SHAREHOLDERS’ EQUITY Share capital Capital reserves Surplus reserves Including: Statutory common welfare fund Unappropriated profits TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	13,632,796,969 5,480,779,065 8,152,017,904 1,899,659 123,022,757 8,276,940,320 777,436,629 12,983,548,363 108,001,674 557,175,701 171,826,093 46,389,189 298,480,000 206,139,942 542,999,385 83,043,947 13,247,800 2,027,303,731 1,200,000,000 92,735,160 1,292,735,160 3,320,038,891 4,936,449 2,870,000,000 4,454,521,340 582,343,347 194,141,761 1,751,708,336 9,658,573,023 12,983,548,363	11,702,052,041 4,492,985,894 7,209,066,147 1,697,068 268,991,536 7,479,754,751 497,874,780 11,350,223,177 275,860,000 553,982,959 122,908,153 36,130,872 287,000,000 104,422,929 381,314,134 120,196,012 636,633,816 2,518,448,875 – 105,983,040 105,983,040 2,624,431,915 2,463,683 2,870,000,000 4,223,911,394 431,712,152 143,904,051 1,197,704,033 8,723,327,579 11,350,223,177	13,631,983,945 5,480,563,829 8,151,420,116 1,899,659 123,022,757 8,276,342,532 777,436,629 12,976,791,827 108,001,674 556,939,363 170,508,547 46,389,189 298,480,000 206,021,490 542,851,634 83,043,947 13,247,800 2,025,483,644 1,200,000,000 92,735,160 1,292,735,160 3,318,218,804 – 2,870,000,000 4,454,521,340 582,179,477 194,059,826 1,751,872,206 9,658,573,023 12,976,791,827	11,701,559,317 4,492,836,855
				7,208,722,462 1,697,068 268,991,536
				7,479,411,066
				497,874,780
				11,340,928,444
				275,860,000 552,320,331 122,794,582 36,130,872 287,000,000 103,629,887 377,052,325 120,196,012 636,633,816
				2,511,617,825
				– 105,983,040
				105,983,040
				2,617,600,865
				–
				2,870,000,000 4,223,911,394 431,712,152 143,904,051 1,197,704,033
				8,723,327,579
				11,340,928,444

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 29

YANZHOU COAL MINING COMPANY LIMITED

STATEMENT OF INCOME AND PROFITS APPROPRIATION

For the year ended December 31, 2002

Revenue from major operations Less: Cost of major operations Sales taxes and surcharges Profit from major operations Add: Profit from other operations Less: Operating expenses Administrative expenses Financial expenses Operating profit Add: Investment income Subsidy income Non-operating income Less: Non-operating expenses Total profits Less: Income taxes Minority interest Net profit Add: Unappropriated profits at the beginning of the year Profits available for appropriation Less: Appropriations to statutory common reserve fund Appropriations to statutory common welfare fund Profits available for appropriation to shareholders Less: Ordinary share dividend Unappropriated profits at the end of the year	D 2002 RMB 8,055,258,906 3,593,511,138 140,473,141 4,321,274,627 30,153,221 1,647,447,268 1,134,279,470 49,561,176 1,520,139,934 3,687,968 20,156,972 8,573,766 21,844,181 1,530,714,459 524,534,221 3,064,740 1,003,115,498 1,197,704,033 2,200,819,531 100,393,485 50,237,710 2,050,188,336 298,480,000 1,751,708,336	The Group ecember 31, 2001 RMB (Restated) 6,469,352,955 3,016,717,921 99,704,041 3,352,930,993 26,483,329 1,551,609,369 665,965,451 (34,833,265 ) 1,196,672,767 – – 7,880,206 16,812,063 1,187,740,910 391,487,645 – 796,253,265 807,888,757 1,604,142,022 79,625,327 39,812,662 1,484,704,033 287,000,000 1,197,704,033	T D 2002 RMB 8,055,258,906 3,599,065,977 140,473,141 4,315,719,788 23,403,996 1,643,682,040 1,133,135,406 49,580,917 1,512,725,421 7,059,098 20,156,972 8,573,766 21,833,000 1,526,682,257 523,566,759 – 1,003,115,498 1,197,704,033 2,200,819,531 100,311,550 50,155,775 2,050,352,206 298,480,000 1,751,872,206	he Company ecember 31, 2001 RMB (Restated) 6,469,352,955 3,016,717,921 99,704,041 3,352,930,993 26,483,329 1,551,609,369 665,965,451 (34,833,265 ) 1,196,672,767 – – 7,880,206 16,812,063 1,187,740,910 391,487,645 – 796,253,265 807,888,757 1,604,142,022 79,625,327 39,812,662 1,484,704,033 287,000,000 1,197,704,033

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 30

YANZHOU COAL MINING COMPANY LIMITED

SUPPLEMENTAL INFORMATION:

Effect on changes in accounting
treatment of Wei Jian Fei
– Decrease in total profits	230,609,946	204,134,184	230,609,946	204,134,184
– Increase in capital reserves	230,609,946	204,134,184	230,609,946	204,134,184

CASH FLOW STATEMENT

For the year ended December 31, 2002

CASH FLOW FROM OPERATING ACTIVITIES Cash received from sales of goods or rendering of services Taxes refunded Other cash received relating to operating activities SUB-TOTAL OF CASH INFLOWS Cash paid for goods and services Cash paid to and on behalf of employees Taxes and surcharges paid Other cash paid relating to operating activities SUB-TOTAL OF CASH OUTFLOWS NET CASH FLOW FROM OPERATING ACTIVITIES CASH FLOW FROM INVESTING ACTIVITIES Cash received from disposal of investments Cash received from returns on investment Net cash received from disposal of fixed assets and other long-term assets Cash received from acquisition of a subsidiary SUB-TOTAL OF CASH INFLOWS	D 2002 RMB 8,564,833,180 76,549,371 1,095,669,128 9,737,051,679 2,507,018,482 1,365,705,578 816,698,078 2,664,269,943 7,353,692,081 2,383,359,598 53,685,273 – 47,799,358 – 101,484,631	The Group ecember 31, 2001 RMB 7,185,415,721 214,033,232 666,944,161 8,066,393,114 2,060,777,762 994,990,361 1,096,236,752 2,262,708,458 6,414,713,333 1,651,679,781 – – 13,685,621 1,940,515 15,626,136	T D 2002 RMB 8,554,804,872 76,549,371 1,093,233,717 9,724,587,960 2,502,928,837 1,365,615,347 813,695,443 2,659,437,508 7,341,677,135 2,382,910,825 53,685,273 651,148 47,799,358 – 102,135,779	he Company ecember 31, 2001 RMB 7,185,415,721 214,033,232 666,944,161
				8,066,393,114
				2,060,777,762 994,990,361 1,096,236,752 2,262,708,458
				6,414,713,333
				1,651,679,781
				– – 13,685,621 –
				13,685,621

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 31

YANZHOU COAL MINING COMPANY LIMITED

Cash paid to acquire fixed
assets and other long-term assets	842,469,768	684,193,133	842,149,469	684,193,133
Cash paid for investments	118,839,365	51,757,724	118,839,365	54,467,627
Cash paid for acquisition of Jining III	–	1,204,133,000	–	1,204,133,000
Cash paid for acquisition of Railway Assets	1,282,444,340	–	1,282,444,340	–
Increase in restricted cash	21,760,596	30,000,000	21,760,596	30,000,000
SUB-TOTAL OF CASH OUTFLOWS	2,265,514,069	1,970,083,857	2,265,193,770	1,972,793,760
NET CASH FLOW FROM
INVESTING ACTIVITIES	(2,164,029,438 )	(1,954,457,721 )	(2,163,057,991 )	(1,959,108,139 )
CASH FLOW FROM
FINANCING ACTIVITIES
Cash received from issue of share capital	–	1,454,803,875	–	1,454,803,875
Cash received from borrowings	1,600,000,000	–	1,600,000,000	–
SUB-TOTAL OF CASH INFLOWS	1,600,000,000	1,454,803,875	1,600,000,000	1,454,803,875
Cash repayment of borrowings	400,000,000	–	400,000,000	–
Cash paid for acquisition of Jining III	636,633,896	636,633,960	636,633,896	636,633,960
Cash paid for distribution of dividends	287,000,000	235,340,000	287,000,000	235,340,000
Dividend paid to minority shareholder
by a subsidiary	591,974	–	–	–
Cash paid for interest expenses	75,737,500	–	75,737,500	–
SUB-TOTAL OF CASH OUTFLOWS	1,399,963,370	871,973,960	1,399,371,396	871,973,960
NET CASH FLOW FROM
FINANCING ACTIVITIES	200,036,630	582,829,915	200,628,604	582,829,915
EFFECT OF FOREIGN EXCHANGE
RATE CHANGES ON CASH	–	–	–	–
NET INCREASE IN CASH AND
CASH EQUIVALENTS	419,366,790	280,051,975	420,481,438	275,401,557

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003

32

YANZHOU COAL MINING COMPANY LIMITED

The Group The Company December 31, December 31, 2002 2001 2002 2001 RMB RMB RMB RMB (Restated) (Restated)

SUPPLEMENTAL INFORMATION: RECONCILIATION OF NET PROFIT TO NET CASH FLOW FROM OPERATING ACTIVITIES Net profit Add: Minority interest Provision for diminution in value of assets Depreciation of fixed assets Provision for Wei Jian Fei Amortization of intangible assets and other assets Losses on disposal of fixed assets and other long-term assets Decrease (increase) in deferred expenses Financial expenses Loss (profit) on investment Decrease (increase) in inventories Decrease (increase) in operating receivables Increase (decrease) in operating payables NET CASH FLOW FROM OPERATING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS: Cash at the end of the year Less: Cash at the beginning of the year NET INCREASE IN CASH AND CASH EQUIVALENTS	1,003,115,498 3,064,740 66,203,577 869,077,231 230,609,946 19,816,651 1,093,362 487,507 75,737,500 (3,687,968 ) (131,235,706 ) 162,089,489 86,987,771 2,383,359,598 1,544,173,132 1,124,806,342 419,366,790	796,253,265 – (26,671,722 ) 811,750,331 204,134,184 30,433,568 5,811,569 (76,316,068 ) – – (163,450,978 ) 19,945,412 49,790,220 1,651,679,781 1,124,806,342 844,754,367 280,051,975	1,003,115,498 – 66,203,577 869,011,035 230,609,946 19,816,651 1,093,362 487,507 75,737,500 (7,059,098 ) (137,682,780 ) 169,578,893 91,998,734 2,382,910,825 1,540,637,362 1,120,155,924 420,481,438	796,253,265 – (26,671,722 ) 811,750,331 204,134,184 30,433,568 5,811,569 (76,316,068 ) – – (163,450,978 ) 19,945,412 49,790,220 1,651,679,781 1,120,155,924 844,754,367 275,401,557

Please also refer to the published version of this announcement in South China Morning Post dated on 14-42003.

YANZHOU COAL MINING COMPANY LIMITED 14-4-2003 33