200721742487349

CONTENTS
CONTENTS COMPANY BACKGROUND FINANCIAL SUMMARY CHAIRMANS STATEMENT REPORT OF THE DIRECTORS NOTICE TO AGM ANHUI CONCH CEMENT COMPANY LIMITED AND SUBSIDIARIES AUDITORS REPORT ANHUI CONCH CEMENT COMPANY LIMITED AND SUBSIDIARIES CONSOLIDATED PROFIT AND LOSS ACCOUNTS ANHUI CONCH CEMENT COMPANY LIMITED CONSOLIDATED BALANCE SHEET ANHUI CONCH CEMENT COMPANY LIMITED AND SUBSIDIARIES BALANCE SHEET ANHUI CONCH CEMENT COMPANY LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO FINANCIAL STATEMENTS DIRECTORS AND SUPERVISORS CORPORATE INFORMATION 1 2 4 5 10 20 23 24 25 27 28 31 52 54
COMPANY BACKGROUND
Anhui Conch Cement Company Limited (Anhui Conch or the Company) was established in 1997 and is mainly engaged in the production and sale of high grade cement and clinker the margin for which is higher than that for lower grade products. At present, the Group is the largest manufacturer of cement in the PRC in terms of sales and production volumes as well as one of the major suppliers of high grade cement to Shanghai, Anhui Province, Jiangsu Province, Zhejiang Province, Fujian Province, Jiangxi Province and other coastal provinces in southern China. The principal products of the Company include standard Chinese grades #525 and #425 ordinary portland cement, portland cement and portland blast furnace slag cement. The Group is the largest supplier of grade #525 cement for Shanghai and has an average market share of 35% in the region for the past three years. The products of the Group are extensively used in a number of large-scale construction and infrastructure projects in Shanghai. The Group has two existing production plants, Ningguo Cement Plant and Baimashan Cement Plant, which are respectively located in Ningguo City and Wuhu City of Anhui Province. In addition, the Company has acquired 75% interest in Anhui Hailuo Cement Product Co. Ltd. in Ningguo City of Anhui Province, which has a daily production capacity of 2,000 tonnes of clinkers and a 60% interest in of Ningbo Hailuo Cement Co. Ltd., which operates a cement grinding mill with an annual production capacity of 700,000 tonnes. The Group employs the dry process rotary kiln method in its production process to increase its overall energy efficiency and to effectively control production costs, and through the economies of scale to achieve a stronger competitive edge. All cement and clinker products of the Company are sold under the Conch and Huangshan trademarkes. The excellent quality of the Groups products is well-known in the PRC. The Group has representative offices for marketing in Shanghai, Ningbo and Nanjing. The shares of the Company became listed on The Stock Exchange of Hong Kong on 21 October 1997. As at 31 December 1997, the Group had 5,100 employees.
COMPANY BACKGROUND
Organizational Chart:
(continued)
Anhui Conch Cement Company Limited
Ningguo Cement Plant
100%
Shanghai Sales Division
Ningbo Sales Division
Baimashan Cement Plant
100%
Nanjing Sales Division
Wenzhou Sales Division
Anhui Hailuo Cement Product Co. Ltd
75%
Xiamen Sales Division
Taizhou Sales Division
Ningbo Hailuo Cement Co. Ltd
60%
Jiujiang Sales Division
Nanchang Sales Division
Anhui Zhujiaqiao Cement Co. Ltd
40%
Anqing Sales Division
Fuzhou Sales Division
Tongling Hailuo Cement Co. Ltd
68.2%
Subei Sales Division
Chaoshan Sales Division
Northern Anhui Sales Division
FINANCIAL SUMMARY
TURNOVER
761.8 716.1 627.9 600 674.5
RMB million 800
400
200 1996 1997
1994
1995
For the year ended 31 December
PROFIT AFTER MINORITY INTEREST
RMB million
170.1 181.1 169.1 139.6
200
150
100
50 1996 1997
1994
1995
For the year ended 31 December
CHAIRMANS STATEMENT
(continued)
I am pleased to present the audited annual results of Anhui Conch Cement Company Limited for the financial year ended 31 December 1997. The results were prepared in accordance with International Accounting Standards, and, on behalf of the staff, I herewith extend our gratitude to all shareholders.
Results and Profit Distribution

For the financial year ended 31 December 1997, the Company and its subsidiaries (the Group) achieved a turnover of RMB761.789 million and a profit after minority interest of RMB170.07 million which is 1.23% higher than the forecast profit of RMB168 million stated in the Companys prospectus dated 7 October 1997. Earnings per share were RMB0.24.
Mr. Guo Wansen, Chairman and General Manager of the Group
The board of directors and the supervisory committee of the Company jointly recommend a final dividend of RMB0.02 per share, totalling RMB19.67 million, for the financial year ended 31 December 1997. Subject to the approval of the shareholders at the annual general meeting to be held on Friday, 12 June 1998, and the proposed final dividend will be paid on Friday, 12 June 1998 to the shareholders whose names appear on the Register of Members of the Company on Monday, 11 May 1998.
Business review
The Company became listed in 1997 and continued to develop during 1997, despite unfavourable business environment, the macroeconomic measures adopted by the PRC have had a continuing adverse effect on the pace of public and private construction projects, and the Asian financial crisis have dampened confidence and slowed investments. During the year, the Group continued its strategy of maintaining low cost, high efficiency, high quality and reasonable prices and, through the close co-ordination of its production, sales and delivery services, the Group had been successful in achieving greater production and sales volumes than its competitors, successfully implemented its business and expansion plans and set out in the Companys prospectus and established and fostered a strong corporate identity in the market. A Summary of various business operations of the Group for the year is set out below.
Production of cement and clinker

As at 31 December, 1997, total cement production was 2,659,300 tonnes, a 7% increase over last years production volume, and total clinker production was 2,631,100 tonnes, a 19% increase over last year. Both the cement and clinker production volumes exceeded the previous records of the Group.
CHAIRMANS STATEMENT
Sale of cement and clinker
(continued)
The export and domestic sales of cement amounted to a total of 2,588,600 tonnes, which marked an increase of 235,300 tonnes or 10% from last years figure. The total clinker sold was 410,000 tonnes, an increase of 346,600 tonnes or 546% as compared with last year. The total of volume of 2,998,600 tonnes of cement and clinker were sold during the year represents a 23.9% increase over 1996. Out of the total domestic sale volume, Ningbuo Hailuo Cement Co., Ltd. 2,353,300 tonnes were domestic sale, which represents an increase of 331,200 tonnes or 16.4% from last years figure; and 76,300 tonnes were domestic sale clinker, as compared with no significant domestic sale of clinker in 1996. Exported cement amounted to 235,300 tonnes, which represented a decrease of 95,900 tonnes or 29% as compared with last year; exported clinker amounted to 329,500 tonnes, which represented an increase of 269,800 tonnes or 550% over last years figure. The Group expanded its domestic sales network during 1997. The establishment of 10 sales divisions in northern Anhui, Wenzhou, Taizhou, Nanchang, Fuzhou, Chaoshan, Anqing, Jiujiang, Xiamen and Subei had boosted the total number of sales divisions to 13 by the end of the year.
Control of costs
Electricity tariffs were raised in the PRC in 1997. Despite this, the Group had successfully lowered the unit cost its electricity consumption and minimised the impact of increased electricity tariff on the Groups profit by making appropriate adjustments to working hours to fully utilise off peak electricity and centrally allocated electricity quotas. Moveover, through centralized procurement of raw materials and fuels, the Group had successfully controlled the cost of fuel by striving to obtain the most favourable prices.
Construction-in-progress, the Baimashan dry production line with annual production of 700,000 tonnes of clinker.
At the same time, the Group effectively reduced various costs and expenses through measures such as an increase in production volume, the adjustment of product mix and the trial implementation of a system of accountablility for achieving cost targets, all of which contributed to a continual increase in the Groups profit.
CHAIRMANS STATEMENT
Capital expenditures
(continued)
The Group had implemented two technological improvement projects for its production lines during 1997. One was the improvement of the bucket elevator technology of the raw material warehouse of Ningguo Cement Plant. The second project was the improvement of the bulk cement despatch and delivery system of Baimashan Cement Plant. In addition, on 7 November 1997, the Company completed its acquisition of a 75% interest in Anhui Hailuo Cement Product Co. Ltd. (the Hailou Plant), whose clinker production line has a daily production capacity of 2,000 tonnes, and on 20 November 1997, acquired a 60% interest in Ningbo Hailuo Cement Co., Ltd., whose cement grinding mill has an annual production capacity of 700,000 tonnes. The Company also entered into a joint venture agreement with TCC Hong Kong Cement (International) Limited to build a cement grinding mill with an annual production capacity of 700,000 tonnes at the Anhui Wuhu Zhujiaqiao Foreign Trade Pier of the PRC on 6 November 1997. The Company will hold a 40% equity interest in the mill. Pursuant to the provisions of the share transfer agreement dated 23 September 1997, the Company paid Anhui Conch Holdings Company Limited (the Holdings Company) a 10% deposit for the acquisition of a 68.2% equity interest in Tongling Hailuo Cement Co. Ltd. (the Tongling Plant). Construction underway includes the construction of the Baimashan clinker production line with an annual production capacity of 700,000 tonnes, the construction of which was commenced in June 1997 and production is expected to commence in October 1998. All operations of the Group advanced smoothly during 1997. The guidance of the Directors and Supervisors and the contributions of our staff were indispensable, and I would also like to extend our gratitude to all shareholders and all others for their support and encouragement.
To be acquisited, the Tongling Hailuo Co. Ltd.
Outlook for the year 1998

Despite facing an unfavourable climate for its operations in 1997, the Group managed to achieve satisfactory results. The Group has gained useful experience in its successful competition in the international market, and is fully confident of its future development. Looking forward to 1998, gave the stable political environment in the PRC and the recent election of a new cabinet, it is expected that the GDP growth rate will be maintained at a figure higher than 8% with the inflation rate controlled at below 3%. The PRC government has also undertaken not to devaluate the Renminbi. Faced with the impact of the financial crisis in Southeast Asia on export trading, the PRC government will increase its investment in infrastructure construction, such as roads, water conservation projects, railway, electricity, urban construction and environmental protection. At the same time, the
CHAIRMANS STATEMENT
proposed reform of the domestic housing programme with spur construction of residential properties and will benefit the Group. These factors will directly result in the demand for cement, especially medium to high grade cement, being the principal products of the Group, to increase substantially.
(continued)
One of the most significant challenges for the PRC economy is the proposed structural reform of its industries and products. The cement industry is a focus The pier of Tongling Hailuo Cement Co., Ltd. with million-tonne handling capacity of such structural reform. The objectives of these reforms are to increase the production quantity of high grade cement, to stop producing low grade cement, and to close down small local cement plants which consume a large amount of energy and heavily pollute the environment. 1998 with be a critical year for the structural reform of the cement industry, and the Group expects to benefit from these reforms. Apart from the production and sale of high grade cement, the Group will increase its annual production capacity to 2,000,000 tonnes of commodity clinker (a semi finished clinker product), and supply its clinker products to cement plants which have been instructed by the State to convert into cement grinding mills. Apart from assisting in the structual reform of the cement industry, the sale of clinker will also have the effect of enlarging the Groups market share. Following the commencements of production of the cement clinker production line of Hailuo Plant (which has a daily production capacity of 2,000 tonnes) and the cement grinding mill of Ningbo Hailuo Cement Co., Ltd. (which has a production capacity of 700,000 tonnes), completion of the acquisition of Tongling Plant (which has a production capacity of 1,400,000 tonnes) as well as completion of the Baimashan clinker production line (which has an annual production capacity of 700,000 tonnes), the production capacity will be significantly increased by the end of 1998. The production of high value added high grade cement will be doubled accordingly. The Group will respond to the market demand, fully utilises the capacity of its facilities, and adjust its product mix to enhance its competitiveness. The Group with the proactive steps to expand its market in the PRC market in 1998. Apart from focusing on the sale of high grade bulk cement and cement products for dams and roads, the Group will continue to develop its sales divisions and plans to set up silo terminals at at strategic rivers, coastal ports and cities (such as Xiamen, Shantou, Taizhou, Wenzhou and Nanjing) so as to increase the number of storage and transportation points. The special task force formed by the Group has already completed data collection, feasibility verification, research and planning in relation to the construction of silo terminals, at Shantou, Taizhou, Wenzhou, Fuzhou and Hefei to enhance our competitive edge in the market. The Group plans to implement two technological improvement projects during the year. The first one is to improve the coolers of the production line of Ningguo Cement Plant, which has a daily production capacity of 4,000 tonnes. The project, when completed will increase the daily production of the line from 4,000 tonnes to 4,500 tonnes, equivalent to an increase in annual increment of 150,000 tonnes of clinker.
CHAIRMANS STATEMENT
(continued)
The other project is to change the wet process production of the Baimashan No.2 kiln into a dry process. Upon completion of the project, the annual production capacity of the kiln will increase by 100,000 tonnes, energy consumption will be lowered and the unit cost of cement production will be further reduced. The Group will continue to work on reducing production costs and fully implement a system of accountability for achieving cost targets for all principal departments of the Group so as to reduce operational costs. Construction of the joint venture cement grinding plant with an annual production capacity of 700,000 tonnes at Wuhu Foreign Trade Pier which the Group plans to build with TCC Hong Kong Cement (International) Limited will commence in early 1998. It is planned that construction of the plant will be completed and production will begin in the first half of 1999. In addition, subject to market demends and policies of the PRC government, the Group intends to implement the second phase expansion of the Tongling Plant. Apart from the acquisition of quality assets and expanding to the Groups production capacities, the Group with the proactive steps to procure overseas capital and strategic investment to codevelop the PRC cement industry. As part of its longer term business strategy, the Group is actively formulating plans to develop down stream cement products, production technology and a five-year environmental protection plan. The PRC government forecast that the economy will grow at an average rate of 8% for the remaining three years of this century. It is believed that the current policy of the state to selectively increase public spending on basic agricultural construction, infrastructure facilities including water conservation projects, roads and railway, environmental protection projects, high technology industries, technological reforms of enterprises as well as residential housing programmes in for the purpose of achieving such growth rate. Directors believe that the planned increased investment will help bring a substantial increase in the demand for cement products, particularly the medium and high grade cement products of the Group. Accordingly, the Directors are optimistic about the prospects and performance of the cement industry in the current year. All members of the Company will demonstrate the enterprise spirit of being united, creative, respectful of and dedicated to their occupation. We will work even harder so as to perform better in respect of cost, quality, productivity and environmental protection to enhance our competitiveness and achieve greater returns for all shareholders.
Guo Wensan Chairman and General Manager Wuhu City, Anhui, the PRC, 22 April 1998
EPORT OF THE
DIRECTORS (continued)
The Directors of the Company are pleased to present their report and the audited financial statements of the Group for the year ended 31 December 1997 to the shareholders.
1. PRINCIPAL ACTIVITIES
The Group is principally engaged in the production and sale of grade #525 and grade #425 ordinary portland cement, portland cement and portland blast furnace slag cement, the majority of The Board of Directors: (Front from right to left : Kang Woon, Guo Wensan, Wang which are used in the construction Yanmou, Li Shunan; Back from right to left : Guo Jingbin, Zhu Dejin, Yu Biao) projects of high rise buildings and infrastructures, such as hydroelectric power stations, dams, bridges, ports, airports and roads.
2. MAJOR WORK OF THE DIRECTORS IN 1997

Major work of the Directors in 1997 included incorporation of the Company on 1 September 1997 and completion of the reorganisation between the Company and its holding company, Anhui Conch Holdings Company Limited (Holdings Company) on that day. The listing of the Companys shares on The Hong Kong Stock Exchange on 17 October 1997, the organization of extraordinary shareholders meetings, the implementation of the resolutions passed by the extraordinary shareholders meetings, the making of decisions on significant matters relating to the Companys production and operation, as well as the review and approval of the annual production and business plans and material construction projects of the Group.
3. RESULTS AND DIVIDENDS

The results of the Group for the year ended 31 December 1997 and the state of affairs of the Group as at such date are set out in the accompanying financial statement on pages 24 to 51. Based on these financial statements, which were prepared in accordance with the International Accounting Standards, the profit after minority interest of the Group was RMB170.07 million. The Board of Directors of the Company recommended to make allocations in respect of the shareholders equity for the year ended 31 December 1997 as follows: (1) pursuant to the Articles of Association of the Company, an allocation of 10% of the profit after taxation, amounting to RMB9.527 million, was made to the statutory public reserve fund; (2) pursuant to the Articles of Association of the Company, an allocation of 10% of the profit after taxation, amounting to RMB9.527 million, was made to the statutory public welfare fund; and (3) a final dividend of RMB0.02 per share shall be distributed. Subject to the approval of shareholders at the forthcoming Annual General Meeting convented for Friday, 12 June 1998, final dividend is expected to be distributed on Friday, 12 June 1998 to shareholders whose names appear on the register of members on Monday, 11 May 1998. The above recommendation on the distribution of dividends made by the Directors will be submitted to the Annual General Meeting this year for approval.
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EPORT OF THE
4. FINANCIAL SUMMARY
1997 1996 1995 1994 (in RMB 000) 627,928 181,146
Income from principal operations Net profit
761,789 170,070
674,521 139,571
716,054 169,113
5. DISCUSSION AND ANALYSIS REGARDING CHANGE IN PROFIT FOR THE YEAR 1997
In 1997, the PRC continued to implement moderately stringent macroeconomic policies and market demands were weak, leading to a fall in the price of cement. During the year, the prices of cement and clinker, the products of the Groups principal operations, fall 8% compared with 1996 and this had adversely affected the profit of the Group. While the product prices dropped, the prices of raw materials, fuels and auxiliary materials required for the Groups production showed different percentages of decrease. In addition, by imposing strict control over expenses, the Group had managed to its unit production costs. These factors have all contributed to the growth in the Groups profits. The Board of Directors believes that in 1998, given the impetus brought about by the governments macroeconomic policies, the construction market will recover and the price of cement will stablise and resume its rising trend. Together with the efforts being made by the Group to increases sales volume by expanding productivity, the Directors expect satisfactory performance for the current year.
6. IMPACT OF CHANGES IN TAX RATE AND INTEREST RATE

Pursuant to the provisions of Anhui Provincial Department of Finance and No.432 Document of Anhui Provincial Local Tax Bureau, the income tax payable by the Group for the year of 1997 was nil. Interest rate was lowered from 10.08% to 8.64% during the year, which resulted in a reduction in the interest expenses paid by the Group. Details of the changes in tax rate and interest rate applicable to the Group for the year ended 31 December 1997 were set out in Notes 8 and 25 to the accompanying financial statements.
7. MAJOR CUSTOMERS AND SUPPLIERS

For the financial year ended 31 December 1997, the aggregate sales attributable to the Groups five largest customers represents 18% of the total sales of the Group while the aggregate purchases attributable to the Groups five largest suppliers represents 44% of the total purchases of the Group. None of the directors, the supervisors, the Holdings Company and its subsidiaries, or their respective associates (as defined by the Listing Rules) had any interests in the five largest customers or suppliers of the Group for the year ended 31 December 1997. All payments for the principal raw materials and energy consumed by the Group were made in RMB.
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EPORT OF THE
8. SALES AND PERCENTAGE OF SALES BY REGIONS

Four months ended 31 December 1997
Sales Volume Region Shanghai Jiangsu province Zhejiang province Fujian province Jiangxi province Guangdong province Anhui province (tonnes) Sales (RMB in ten thousand) Percentage of Sales (%)
Year ended 31 December 1997

Sales Volume (tonnes) Sales (RMB in ten thousand) Percentage of Sales (%)
Others
Foreign Trade Total
221,282.60 60,158.62 90,978.01 157,328.82 91,221.77 23,491.61 414,646.66 1,394.67 117,240.86 1,177,743.62
5,029.92 1,369.19 2,072.02 3,630.10 2,089.70 552.35 9,788.27 32.50 3,456.65 28,020.70
17.95% 582,682.54 4.89% 130,746.79 7.39% 117,052.59 12.96% 216,785.01 7.46% 159,672.48 1.97% 21,043.45 34.93% 1,165,404.43 0.12% 36,203.25 12.33% 564,748.48
14,374.56 3,286.68 2,796.32 5,332.87 3,976.26 506.44 28,717.27 664.77 17,055.33 76,710.50
18.74% 4.28% 3.65% 6.95% 5.18% 0.66% 37.44% 0.87% 22.23% 100.00%
100.00% 2,994,339.02
SALES AND PERCENTAGE OF SALES BY PRODUCT TYPES

Four months ended 31 December 1997
Sales Volume Type (tonnes) Sales (RMB in ten thousand) Percentage of Sales (%)
Year ended 31 December 1997

Sales Volume (tonnes) Sales (RMB in ten thousand) Percentage of Sales (%)
Ordinary portland cement 525 425 Portland cement 525R
561,742.10 73,936.43
13,707.35 1,560.131
48.92% 1,642,119.27 5.57% 184,866.05
41,882.62 4,085.149
54.60% 5.33%
87,509.10
2,518.469
8.99%
269,124.11
8,851.038
11.54%
Portland blast furnace slag cement 525 48,829.23 425 185,778.12 Clinker Total 219,948.64 1,177,743.62
1,092.349 4,126.64 5,015.761 28,020.70
3.90% 14.72% 17.90%
80,258.71 412,235.64 405,735.24
1,830.83 9,496.602 10,564.26 76,710.50
2.39% 12.38% 13.76% 100.00%
100.00% 2,994,339.02
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EPORT OF THE
SALES BY REGION
SALES BY PRODUCT TYPES
Clinker 13.76% #525 Cement 68.53%
#425 Cement 17.71%
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EPORT OF THE
9. CONNECTED TRANSACTIONS
Clay Supply Agreement During the year ended 31 December 1997, the Group had purchased, as required in its ordinary course of business, all of the clay required for the production of its cement products from the Holdings Company pursuant to the Clay Supply Agreement entered into between the Company and the Holdings Company on 23 September 1997. The amount of charges borne by the Group have been audited by the auditors, details of which are set out in note 27 to the financial statements. Trademark Licensing Agreement and Import and Export Agency Contract The Holdings Company has agreed to arrange export of cement products of the Group without charge from 1 September 1997 to 31 December 1997, and to waive the royalty charge for the use of the Conch and Huangshan trademarks, details of which are set out in note 27 to the financial statements. Composite Services Agreement The Company and the Holdings Company have entered into a composite services agreement for a term of 10 years commencing from 1 September 1997, being the date of incorporation of the Company. Under the agreement, the Holdings Company has agreed to provide or arrange services, facilities and supplies for the Group without charge until 31 December 1997. The service charges have been audited by the auditors, details of which are set out in note 27 to the financial statements. Confirmation by the Independent Directors about the Connected Transactions During the year, all connected transactions of the Company Shanghai Jingmao Tower used Conch Cement were conducted on normal commercial terms during its for construction ordinary course of business and have been reviewed by the auditors. The connected transactions listed have all been approved by the non-executive directors of the Company.
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EPORT OF THE
10. SHARE CAPITAL AND SHAREHOLDERS

(1) Share capital structure The Groups H shares were listed on The Stock Exchange of Hong Kong Limited on 21 October 1997 and thereafter, no other arrangement for new issue, placing and consolidation was made during the year. As at 31 December 1997, the share capital structure of the Company was as follows: Percentage of the total share capital of the Group (%) 63.3 36.7 100.0
Number of shares A shares H shares Total share capital 622,480,000 361,000,000 983,480,000
Further details are set out in note 1 to the accompanying financial statements (2) Summary of trading in the Shares of the Company during the year H shares HK$ 2.25 1.35 2.25 0.99 163,955,000 shares
Opening price on the first trading date Closing price on the last trading date at year end The Highest trading price during the year The Lowest trading price during the year The total trading volume during the year (number of shares traded)
As at 31 December 1997, the total number of shareholders of the Group numbered 535 among whom, Anhui Conch Holdings Company Limited, on behalf of the State, held 622.48 million A shares, representing 63.3% of the total issued share capital of the Company and HKSCC Nominees Limited held 355.734 million H shares, representing 36.17% of the total issued share capital of the Company. Save for the shares held by these two companies, as at 31 December 1997, the Group was not aware of any interests held by any third party which were required to be disclosed pursuant to section 6(1) of the Securities (Disclosure of Interests) Ordinance (Chapter 396 of the Laws of Hong Kong).
11. USE OF PROCEEDS

The proceeds from the H share offer by the Company, after deduction of listing expenses, amounted to RMB 835,056,000 will be applied as follows: (1) as to approximately RMB 206,758,000, for the acquisition of a 75% equity interest in Anhui Hailuo Cement Co. Ltd. on 7 November 1997;
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EPORT OF THE
(2) as to approximately RMB 43,450,000, as 10% deposit for the acquisition of a 68.2% equity interest in Anhui Tongling Hailuo Cement Company Limited; (3) as to approximately RMB 57,000,000, for the construction of a new production line at Baimashan Cement Plant with an installed annual capacity to produce 700,000 tonnes of clinker. (4) as to approximately RMB 7,450,000, for the establishment, with TCC Hong Kong Cement (International) Limited, of Anhui Zhujiaqiao Cement Co., Ltd., a sino foreign-equity joint venture for the construction and operation of a cement grinding station with an annual production capacity of 700,000 tonnes of cement; (5) as to approximately RMB 274,100,000, for investment in short-term PRC treasury bonds; (6) as to approximately RMB 175,100,000, for the repayment of loans. As 31 December 1997, a total of RMB 763,858,000 had been applied out of the net proceed of new issue of the H shares proceeds. The application of these proceeds had been in accordance with the plan set out in the prospectus of the Group. The balance of the net procceds as at the end of 1997 was RMB71,198,000. Such balance has been placed with banks in the PRC as short-term and longterm deposits.
12. DIRECTORS AND SUPERVISORS SERVICE CONTRACTS, INTERESTS IN SHARE CAPITAL AND CONTRACTS
There was no change in the directors or supervisors of the Company for the year. The qualifications of the directors and supervisors are set out on page 52 and 53 of this annual report. Each of the directors and supervisors has entered into a service contract with the Group for a term of 3 years, commencing from 1 September 1997. None of the directors, supervisors or their spouse or children under 18 held any shares and debentures or other interests in the Group, or were granted any rights to subscribe for shares or debentures of the Group nor exercised any such rights. During the year, none of the directors or supervisors of the Group held any material interests in any contracts entered into by the Group or its subsidiaries.
13. CODE OF BEST PRACTICE FOR THE DIRECTORS

As at 31 December 1997, the Group was not aware of any events which did not comply with the Code of Best Practice set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.
14. PURCHASE, SALE OR ALLOTMENT OF SHARES

Save for the allotment of A Shares to Anhui Conch Holdings Company Limited upon the Companys incorporation on 1 September 1997 and the allotment of H shares pursuant to the Companys prospectus dated 7 October 1997, neither the Group nor any of its subsidiaries had purchased, sold or allotted any shares of the Group during the year ended 31 December 1997.
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EPORT OF THE
15. REMUNERATION OF DIRECTORS AND SUPERVISORS

For the year ended 31 December 1997, the aggregate amount paid to the executive directors of the Company was RMB172,000 and the aggregate amount paid to the supervisors was RMB75,000. The remuneration paid to each director and supervisor was less than HK$1,000,000. Both the pension schemes of the executive directors and supervisors have been organised under the employee pension scheme of the Company, details of which are set out in Note 7 to the accompanying financial statements on page 36 of this annual report. (All the remuneration of the two non-executive directors of the Company was paid by their units.)
16. THE HIGHEST PAID INDIVIDUALS

The five highest paid individuals of the Group during the year were either directors or supervisors of the Group. Details of their remuneration are set out in note 6 to the accompanying financial statements.
17. RETIREMENT INSURANCE SCHEME

Details of the old-age pension are set out in note 7 to the accompanying financial statements. For the year ended 31 December 1997, the old-age pension charged to the profit and loss account of the Group amounted to RMB8,784,000.
18. STAFF ACCOMMODATION

The Group does not own any quarters for staff accommodation nor operate any scheme for the provision of staff accommodation. Pursuant to applicable regulations of the PRC, the Group and its staff are required to pay contributions to government authorities at a certain percentage of the salaries of the staff towards a housing reserve fund. Apart from the payment of the Groups share of such contributions, the Group has no other liability for the provision of housing or housing benefits to its staff.
19. STAFF, REMUNERATION AND TRAINING

As at 31 December 1997, the Company had Group had a total of 5,100 employees. The aggregate remuneration for staff for the year was RMB47,736,000. The Group organised different levels and forms of training courses with the assistance of tertiary institutes for staff training for the longer term benefit of the Group. The Group also arranged some of its employees to receive tuition and on-site training abroad in preparation for the commencement of operations of the improvement project of the Baimashan Cement Plant, which is capable of producing 700,000 tonnes of cement clinker annually, as well as other infrastructure projects of the Group.
20. FIXED ASSETS

Details of movements in fixed assets of the Group during the year ended 31 December 1997 are set out in note 12 to the accompanying financial statements prepared in accordance with International Accounting Standards.
21. TOTAL ASSETS

As at 31 December 1997, the total assets of the Groupdetermined in accordance with PRC accounting principles amounted to about RMB2,446,151,000.
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EPORT OF THE
22. RESERVES
Details of movements in various reserves of the Group during the year ended 31 December 1997 are set out in note 29 to the accompanying financial statements prepared in accordance with International Accounting Standards.
23. LOANS AND CAPITALISATION OF INTEREST

Details of the loans of the Group for the year ended 31 December 1997 are set out in the note 25 to the accompanying financial statements. The interest on construction-in-progress capitalised for the year was RMB 1,437,000, details of which are set out in note 5 to the accompanying financial statements.
24. MATERIAL LITIGATION

None of the Company, its subsidiaries or their respective directors, supervisors, senior officers had been involved in any material litigation during the year ended 31 December 1997.
25. AUDITORS
The financial statements of the Group prepared in accordance with the PRC accounting principles and those in accordance with International Accounting Standards were audited by Arthur Andersen Hua Qiang Certified Public Accountants and Arthur Anderson & Co. respectively. The two accountants firms will retire upon expiration of their term of appointment and have offered themselves for re-appointment.
26. DISCLOSURE OF SIGNIFICANT EVENTS

On 1 September 1997, the Company are incorporated as a joint stock company pursuant to the PRC Company Law. On the same day, it completed the reorganisation of its assets, liabilities and business with its holding company, Anhui Conch Holdings Company Limited. On 7 October 1997, the Company issued a proxy prospectus offering 361,000,000 H shares to the public for subscription and placing at HK$2.28 per H share. The offering, which was sponsored and managed by Jardine Fleming Securities Limited, was oversubscribed and a total of RMB835 million, net of expenses, was raised. Listing of the H shares took place on 21 October 1997. The currnt Articles of Association of the Company as amended pursuant to the PRC Company Law, Special Regulations of the State Council on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies, and Mandatory Provisions for the Articles of Association of Companies to be Listed Overseas issued by the Securities Commission of the State Council and the State Commission for Restructuring the Economic System of the PRC and Rules Governing the Listing of Securities of The Stock Exchange of Hong Kong Limited were adopted by a special resolution passed at the shareholders general meeting held on 1 September 1997 and came into effect on 10 September 1997 upon the approval by the State Commission for Restructuring the Economic System of the PRC.
18
EPORT OF THE
The Company completed its acquisition of a 75% equity interests in Hailuo Plant from the Holdings Company on 7 November 1997 pursuant to an agreement entered into on 23 September 1997 between the Holdings Company and the Company. The aggregate considertion for the acquisition paid by the Company was RMB 206,800,000. Details of this acquisition are set out in the prospectus of the Company. As a result of the acquisition, the Groups annual production capacity of clinker was increased by about 600,000 tonnes (or 27%) to 2,800,000 tonnes.
The million-tonne capacity pier of Beilun Company, Ningbo
The Company entered into a joint venture contract with TCC Hong Kong Cement (International) Limited (a listed company on The Stock Exchange of Hong Kong Limited), on 6 November 1997 to establish a sino foreign joint venture enterprise, Anhui Zhujiaqiao Cement Co., Ltd., for the construction and operation of a cement grinding mill with an annual production capacity of 700,000 tonnes. The joint venture enterprise is located at Zhujiaqiao Pier in Wuhu, Anhui Province with a convenient waterway through Changjiang to transport products to customers. The Company will invest US$6,000,000 (approximately HK$46,800,000) in the joint venture, and will hold 40% of its registered capital. As at 31 December 1997, the Company had paid US$900,000 towards the registered capital of that enterprise. The Company entered into an equity transfer agreement on 20 November 1997 and acquired a 60% equity interest in Ningbo Hailuo Cement Co. Ltd. at a consideration of approximately RMB 99,825,000. Ningbo Hailuo Cement Co., Ltd. operates a powder grinding mill with an annual grinding capacity of 700,000 tonnes of clinker in Ningbo, Zhejiang, the PRC. It also owns a pier that handles 1,200,000 tonnes of cement products per annum. The shareholding structure of that company before and after the acquisition are as follows: Before acquisition The Group Ningbo Economic Construction Investment Company SDIC Building Materials & Chemical Industry Company Ningbo Building Materials Industry Company Ningbo Beilun Economic Construction Development Company Zhejiang Province Beilun Power Station Engineering Construction Company 39.5% 33.0% 17.5% 5.0% 5.0% 100% By order of the Board Guo Wansen Chairman and General Manager Wuhu City, Anhui, the PRC, 22 April 1998 After acquisition 60% 15% 15% 10% 100%
19
NOTICE TO AGM
(continued)
NOTICE IS HEREBY GIVEN that the Annual General Meeting of Anhui Conch Cement Company Limited (the Company) in respect of the financial year ended 1997 will be held at the registered office of the Company at 9:00 a.m. on Friday, 12 June 1998 for the following purposes: 1. 2. 3. 4. 5. to consider and approve the work report of the Board of Directors for the year 1997; to consider and approve the work report of the Supervisory Committee for the year 1997; to consider and approve the PRC and IAS audited financial statements for the year 1997; to consider and approve the proposal for the distribution of profits for the year 1997; to consider and approve the grant of a general manadate to the Board of Directors to declare the payment and fix the amount of the interim dividends for the financial year ending 31 December 1998; to consider and approve the appointment of the PRC and international auditors of the Company and to authorise the Board of Directors to fix their remuneration; to consider and approve the following resolution as a special resolution: (a) That, subject to the limitations imposed by (c) and (d) below and in accordance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the Company Law of the PRC (in each case as amended from time to time), a general unconditional mandate be and it is hereby granted to the Board of Directors to exercise once or more than once during the Relevant Period (as defined below) all the powers of the Company to allot and issue new shares on such terms and conditions the Board of Directors may determine and that, in the exercise of their power to allot and issue shares, the authority of the Board of Directors shall include (without limitation): (i) the determination of the class and number of the shares to be issued;
6.
7.
(ii) the determination of the issue price of the new shares; (iii) the determination of the launching and closing dates of the new issue; (iv) the determination of the class and number of new shares (if any) to be issued to the existing shareholders; (v) the making and granting of offers, agreements and options as may be necessary in the exercise of such powers; and (vi) in the case of an offer or allotment of shares to the shareholders of the Company, excluding shareholders who are resident outside the Peoples Republic of China or the Hong Kong Special Administrative Region on account of prohibitions or requirements under overseas laws or regulations or for some other reasons which the Board of Directors consider expedient;
20
NOTICE TO AGM
(continued)
(b) the approval in paragraph (a) shall authorise the Directors during the Relevant Period to make and grant offers, agreement and options which might require the shares relating to the exercise of the authority thereunder being allotted and issued after the expiry of the Relevant Period; (c) the aggregate amount of domestic shares and overseas foreign listed share to be allotted or conditionally or unconditionally agreed to be allotted (whether pursuant to the exercise of options or otherwise) by the Board of Directors of the Company pursuant to the authority granted under paragraph (a) above (excluding any shares allotted due to the conversion of the capital reserve fund into capital in accordance with the Company Law of the PRC or the Articles of Association of the Company) shall not exceed 20% of the respective aggregate amount of the issued domestic shares and overseas foreign listed shares of the Company at the date of this Resolution; (d) the Board of Directors of the Company shall exercise the authority granted under in paragraph (a) above (i) in accordance with the Company Law of the PRC and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (in each case as amended from time to time) and (ii) subject to the approval of the China Securities Regulatory Commission and relevant authorities of the PRC; (e) for the purposes of this Resolution: Relevant Period means the period from the date of the passing of this Resolution until whichever is the earlier of: (i) the conclusion of the next annual general meeting of the Company; and
(ii) the date on which the powers granted by this Resolution is revoked or varied by a special resolution of the shareholders in general meeting; (f) subject to the approval granted to the Board of Directors by relevant authorities and in accordance with the Company Law of the PRC, to increase the Companys registered share capital corresponding to the relevant amount of shares allotted in the event of an exercise of the authority pursuant to paragraph (a) of this Resolution, provided that the registered share capital of the Company shall not exceed RMB1,180.176 million.
(g) subject to the Listing Committee of The Stock Exchange of Hong Kong Limited granting listing of, and premission to deal in, the H shares of the Companys share capital proposed to be issued by the Company and the approval of the China Securities Regulatory Commission for the issue of such shares being granted, the Board of Directors be and they are hereby authorised to amend, as they may deem appropriate and necessary, Articles 23, 24 and 27 of the Articles of Association of the Company to reflect the change in the share capital structure of the Company in the event of an exercise of the authority granted under paragraph (a) to allot and issue new shares.; 8. any other matters
21
NOTICE TO AGM
Notes: 1. Persons entitled to attend
(continued)
Holders of H shares whose names appear on the register of members of the Company maintained by HKSCC Registrars Limited at 4:00 pm on Monday, 11 May 1998 are entitled to attend the Annual General Meeting after completing the registration procedures for the meeting. 2. Registration for attendance at the Annual General Meeting (1) H share holders who intend to attend the Annual General Meeting must complete the reply slip below and deposit the same, together with photocopies of the transfers, share certificates or receipts of share transfer and their identity cards, at the legal address of the Company by Saturday, 23 May 1998 (without prejudice to their right of attendance). If proxies are appointed, shareholders shall also deposit the instrument for the appointment of the proxy and a photocopy of the proxys identity card with the Company. Shareholders may deliver the documents required for registration to the registered office of the Company in person, by mail or by facsimile (+86 553 384 4550). Upon receipt of the requisite documents, the Company will complete the registration procedures for attendance at the Annual General Meeting on behalf of the shareholder and send a duplicate copy of the meeting attendance card to the shareholder by mail or facsimile. Shareholders attending the meeting must produce the duplicate copy or facsimile copy of the meeting attendance cards and exchange them for formal meeting attendance cards.
(2)
3.
Appointment of proxies (1) Every shareholder entitled to attend and vote at the Annual General Meeting is entitled to appoint in writing one or more proxies (whether being a shareholder of the Company or not) to attend and vote at the meeting on his behalf. Proxies of the shareholders must be appointed in writing and the appointment must be signed by the shareholders or their agents who have been duly authorised in writing. If the instrument of appointment is signed by an agent of the shareholder, the power of attorney or other authority of the agent must be notarially certified. In order to be valid, the notarially certified copy of such power of attorney or other authority, together with the instrument for the appointment of the proxy, shall be deposited at the Companys registrar for H shares, HKSCC Registrars Limited at the address given in Note 5 below, not less than 24 hours before the time appointed for holding of the Annual General Meeting. If a shareholder appoints more than one proxy, his proxies may only exercise his appointors voting rights if the resolution concerned is to be decided by poll.
(2)
(3)
4.
The Annual General Meeting is expected to take half a day. Shareholders or their proxies attending the meeting will bear their own lodging and travelling costs. The register of members of the Company will close from 4:00 p.m. on Monday, 11 May 1998 to Friday, 12 June 1998, both days inclusive. In order to qualify for attendance at the Annual General Meeting and the proposed dividend of RMB0.02 per H share, transfers accompanied by share certificates and other appropriate documents must be lodged with the Companys share register and transfer office for H shares, HKSCC Registrars Limited at 2nd Floor, Vicwood Plaza, 199 Des Voeux Road Central, Hong Kong, by 4:00 p.m. on Monday, 11 May, 1998.
5.
By order of the Board Guo Wensan Chairman & General Manager Wuhu City, Anhui, the PRC, 22 April, 1998
22
AUDITORS REPORT
!"
Arthur Andersen & Co Certified Public Accountants 25/F., Wing On Centre 111 Connaught Road Central Hong Kong
Auditors Report to the Shareholders of ANHUI CONCH CEMENT COMPANY LIMITED (incorporated in the Peoples Republic of China with limited liability) We have audited the financial statements of Anhui Conch Cement Company Limited ( the Company) and its subsidiaries ( hereinafter together with the Company referred to as the Group) on pages 24 to 51 which have been prepared in accordance with International Accounting Standards.
Respective responsibilities of directors and auditors

The Companys directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you.
Basis of opinion
We conducted our audit in accordance with International Standards on Auditing. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Company and of the Group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Opinion
In our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 1997, and of the profit and cash flows of the Group for the period from 1 September 1997 (date of incorporation) to 31 December 1997 and have been properly prepared in accordance with International Accounting Standards and the disclosure requirements of the Hong Kong Companies Ordinance. ARTHUR ANDERSEN & CO. Hong Kong, 22 April 1998
23
CONSOLIDATED PROFIT AND LOSS ACCOUNTS

Notes
ANHUI CONCH CEMENT COMPANY LIMITED AND SUBSIDIARIES
FOR THE PERIOD FROM 1 SEPTEMBER 1997 (DATE OF INCORPORATION) TO 31 DECEMBER 1997 (Amounts expressed in thousands of Renminbi (RMB) except for earnings per share)
From 1 September 1997 to 31 December 1997
Pro forma 1997 1996 (Note 1) (Note 1) 761,789 171,344 83 171,427 674,521 139,571 139,571
Turnover, net Profit before exceptional item Exceptional item Profit before taxation Provision for income tax
279,010 52,493
4 5 8
83 52,576
Profit after taxation Minority interest Profit after minority interest Transfer to reserves Dividends Unappropriated profit for the period Earnings per share
52,576 (1,357) 51,219
171,427 (1,357) 170,070
139,571 139,571
29 10,29
(19,054) (19,670)
29 11
12,495 RMB 0.06 RMB 0.24 RMB 0.22
24
CONSOLIDATED BALANCE SHEET

AS OF 31 DECEMBER 1997 (Amounts expressed in thousands of Renminbi)
Notes FIXED ASSETS, net CONSTRUCTION-IN-PROGRESS INTANGIBLE ASSETS DEFERRED ASSETS INVESTMENTS IN ASSOCIATED COMPANIES CURRENT ASSETS: Inventories Prepayments and other receivables Due from Holdings Due from related companies Trade receivables, net Short-term investment Cash and cash equivalents 12 13 14 15 1,269,694 93,741 40,701 21,283
17
48,452
18 19 20,27 21,27 22 23 24
123,066 49,546 6,110 76,937 289,908 274,100 134,037 953,704
CURRENT LIABILITIES: Current portion of long-term loans Other payables and accruals Dividends payable Taxes payable Due to related companies Trade payables Short-term bank loans
25 (b) 26 10 8 21,27 25 (a)
45,419 147,248 19,670 11,914 31,261 60,883 119,550 435,945
NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES
517,759
1,991,630
25
CONSOLIDATED BALANCE SHEET

(continued)
Notes NON-CURRENT LIABILITIES Long-term loans, net of current portion 25 (b) Minority interest
116,549 70,276 186,825
NET ASSETS REPRESENTING: SHARE CAPITAL RESERVES SHAREHOLDERS EQUITY
1,804,805
28 29
983,480 821,325 1,804,805
Approved by the Board of Directors on 22 April 1998: GUO WENSAN Chairman & General Manager GUO JINBIN Executive Director & Deputy General Manager
26
BALANCE SHEET
FIXED ASSETS, net
ANHUI CONCH CEMENT COMPANY LIMITED
Notes 50 16 1,258,799
INVESTMENTS IN SUBSIDIARIES INVESTMENTS IN ASSOCIATED COMPANIES CURRENT ASSETS: Prepayments and other receivables Due from Holdings Due from related companies Trade receivables, net Short-term investment Cash and cash equivalents
17
48,452
19 20,27 21,27 22 23 24
22,196 50,733 5,548 117,162 274,100 78,079 547,818
CURRENT LIABILITIES: Other payables and accruals Dividends payable Taxes payable Due to related companies
10 8 21,27
7,249 19,670 375 23,020 50,314
NET CURRENT ASSETS NET ASSETS REPRESENTING: SHARE CAPITAL RESERVES SHAREHOLDERS EQUITY
497,504 1,804,805
28 29
983,480 821,325 1,804,805
27
CONSOLIDATED STATEMENT OF CASH FLOWS

Cash flows from operating activities Profit before taxation Adjustments for: Investment income Interest income Interest expenses Depreciation of fixed assets Net loss on disposals of fixed assets Amortisation of intangible assets Amortisation of deferred assets Provision for inventory obsolescence Provision for bad and doubtful debts (Increase) Decrease in operating assets Inventories Prepayments and other receivables Due from Holdings Due from related companies Trade receivables Increase (Decrease) in operating liabilities Other payables and accruals Taxes payable Due to related companies Trade payables Cash generated from operations
FOR THE PERIOD FROM 1 SEPTEMBER 1997 (DATE OF INCORPORATION) TO 31 DECEMBER 1997 (Amounts expressed in thousands of Renminbi)
52,576
(3,824) (6,488) 10,516 27,761 40 273 634 112 2,375 (10,025) (12,544) (4,747) 19,837 (115,621) 78,717 (8,849) 19,204 3,059 53,006
Returns on investments and servicing of finance Investment income received Interest received Interest paid Cash outflow from returns on investment and servicing of finance
349 4,881 (8,862)
(3,632)
28

Taxation Income tax paid Income tax rebated Net cash outflow from taxation Cash flows from investing activities Increase in short-term investment Increase in investments in associated companies Purchase of fixed assets and construction-in-progress Payments for deferred assets Net cash outflow from investing activities Cash flow from financing activities Additions of long-term loans Repayments of long-term loans Additions of short-term bank loans, net of repayments Net proceeds from issuance of H shares Proceeds from minority interest Exchange gain on long-term loans Net cash inflow from financing activities Increase in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period (b)
(continued)
(20,573) 20,573
(274,100) (48,452) (a) (482,425) (1,359)
(806,336)
50,000 (20,000) (80,750) 835,056 68,919 (667)
852,558 95,596
38,441
134,037
29

NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS
(a) Supplemental cash flow information Increase in fixed assets and construction-in-progress Less: Transfer from construction-in-progress
(continued)
939,988 (457,563) 482,425
(b) Analysis of changes in financing activities during the period from 1 September 1997 to 31 December 1997 Proceeds from H Share issuance
Short-term bank loans Balance as at 1 September 1997 Proceeds from issuance of H shares Issuance costs for H share offering Additions of loans
Long-term loans
Total
200,300
132,635
332,935
880,943
880,943
74,350
50,000
(45,887)
(45,887) 124,350
Repayments of loans
(155,100)
(20,000)
(175,100)
Translation adjustments Balance as at 31 December 1997
(667)
(667)
119,550
161,968
835,056
1,116,574
The accompanying notes form an integral part of these financial statements.
30
NOTES TO FINANCIAL STATEMENTS (continued)

AS OF 31 DECEMBER 1997 (Amounts expressed in thousands of Renminbi (RMB) unless otherwise stated)
1. ORGANISATION AND BASIS OF PRESENTATION OF FINANCIAL STATEMENTS

Anhui Conch Cement Company Limited (the Company) was incorporated in the Peoples Republic of China (PRC) on 1 September 1997 as a joint stock limited company. The Company and its subsidiaries are collectively referred to as the Group. The principal activities of the Group are the manufacture and sale of cement products. Pursuant to a reorganisation on 1 September 1997, the Company acquired the assets and assumed the liabilities of Ningguo Cement Plant and Baimashan Cement Plant, and the related cement manufacturing business of Anhui Conch Holdings Company Limited (Holdings) by issuance of 622,480,000 State-owned shares (A shares) of the Company with a par value of RMB 1.00 each. The Company subsequently issued 361,000,000 overseas public shares (H shares) on 17 October 1997, which were listed on The Stock Exchange of Hong Kong Limited on 21 October 1997. In accordance with the Reorganisation Agreement between the Company and Holdings, the reorganisation was completed on 1 September 1997, the date of incorporation of the Company. Accordingly, the results of operations of the cement business are included only for the period from 1 September 1997 to 31 December 1997. For comparison purposes, pro forma profit and loss accounts for the years ended 31 December 1997 and 1996 have been prepared as if the current structure had been in existence throughout the years ended 31 December 1997 and 1996.
2. PRINCIPAL ACCOUNTING POLICIES

The financial statements have been prepared in accordance with International Accounting Standards (IAS), and the disclosure requirements of the Hong Kong Companies Ordinance and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. This basis of accounting differs from that used in the preparation of the Companys and of the Groups statutory accounts which are prepared in accordance with accounting principles and financial regulations applicable to joint stock limited companies in the PRC (Statutory Accounts). The adjustments made to conform the Statutory Accounts of the Group to IAS are shown in Note 30. The principal accounting policies adopted in preparing financial statements of the Company and of the Group which conform to IAS are summarised below: (a) Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intra-group transactions and balances have been eliminated on consolidation. A subsidiary is a company in which the Company (i) holds, directly and indirectly, more than 50 per cent of its issued voting share capital or equity interest as a long-term investment, or (ii) has the power to cast the majority of votes at meetings of the management committee or the board of directors. (b) Associated companies An associated company is a company, not being a subsidiary, in which the Company holds 20 per cent or more of its issued voting share capital or equity interest as a long-term investment and is in a position to exercise significant influence over its management and its financial and operating policy decisions. The results of associated companies are accounted for using the equity method of accounting.
31

2. PRINCIPAL ACCOUNTING POLICIES (continued)

(c) Fixed assets and depreciation Fixed assets are stated at cost less accumulated depreciation. Major expenditures on modifications and betterments of fixed assets which will result in future economic benefits are capitalised; while expenditures on maintenance and repairs are expensed when occurred. Depreciation of fixed assets is provided using the straight-line method over the estimated useful lives of the fixed assets, after taken into consideration an estimated residual value of five per cent. of the cost (no residual value is considered for land use right). The estimated useful lives are as follows: Land use right Buildings Plant and machinery Furniture, fixtures and office equipment Transportation equipment 50 years 30 years 15 years 5 years 5 years
Gain or loss on disposals of fixed assets is recognised in the profit and loss account based on the net disposal proceeds less the carrying amount of the assets. (d) Construction-in-progress Construction-in-progress represents buildings and plant facilities under construction and machinery and equipment under installation, and is stated at cost. This includes the construction costs of plant facilities, the purchase and installation costs of machinery and equipment and interest charges arising from borrowings used to finance these assets during the period of construction and installation. (e) Deferred assets Deferred assets are stated at cost less accumulated amortisation. Amortisation of deferred assets is provided using the straight-line method over five to ten years. (f) Intangible assets Intangible assets are stated at cost less accumulated amortisation. Amortisation of intangible assets is provided using the straight-line method over twenty years. (g) Inventories Inventories are stated at the lower of cost and net realisable value. Costs of raw materials are based on invoice price calculated using the weighted average costing method. Costs of work-inprocess and finished goods include direct materials, direct labour and an attributable proportion of production overheads. Net realisable value is the price at which inventories can be sold in the normal course of business after deducting all further costs of production, marketing, selling and distribution. Provision is made for obsolete, slow-moving or defective items where appropriate. (h) Foreign currency translation The Company maintains its books and accounting records in Renminbi (RMB). Foreign currency transactions are translated into RMB at the exchange rates quoted by the Peoples Bank of China at the dates of the transactions. Monetary assets and liabilities denominated in foreign currency are translated into RMB using the exchange rates prevailing at the balance sheet date. The resulting differences are included in the determination of net profit.
32

2. PRINCIPAL ACCOUNTING POLICIES (continued)

(i) Turnover Turnover is recognised upon transfer of title which normally occurs upon delivery of goods to customers. Turnover represents revenues from the sale of manufactured finished goods, net of sales discounts and returns, as well as miscellaneous income from delivery services. (j) Repair and maintenance expenses Repair and maintenance expenses are provided over the annual maintenance cycle for major machinery and equipment. (k) Research and development expenditures Research and development expenditures are charged to expense as incurred. (l) Taxation The Group provides for taxation on the basis of its profit for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes. Deferred taxation is provided under the liability method and relates to the tax effects of material timing differences between profit as computed for taxation purposes and profit as stated in the accompanying financial statements. Deferred tax assets are not recognised unless the related benefits are expected to crystallise in the foreseeable future.
3. TURNOVER, net
Turnover comprised: From 1 September 1997 to 31 December 1997 Gross sales less discounts and returns Less: Turnover taxes Pro forma 1997 1996
280,207 (1,197) 279,010
767,105 (5,316) 761,789
679,716 (5,195) 674,521
The Company is subject to Value-Added Tax (VAT), which is charged on the selling price at a general rate of 17 per cent. An input credit is available whereby input VAT previously paid on purchases can be used to offset the output VAT on sales to determine the net VAT payable. VAT is not included in gross sales. The Company is also subject to the following turnover taxes, which are recorded as deductions from gross sales: City Development Tax, levied at five to seven per cent. of net VAT payable. Education Supplementary Tax, levied at three per cent. of net VAT payable.
33

4. EXCEPTIONAL ITEM
Exceptional item represents bank interest income arising from the subscription money obtained during the initial public offering of the Companys H shares in 1997.
5. PROFIT BEFORE TAXATION

Profit before taxation in the consolidated profit and loss account was determined after charging or crediting the following items: From 1 September 1997 to 31 December 1997 After charging: Interest expenses on bank loans repayable within five years on other loans repayable within five years Pro forma 1997 1996
9,559 957 10,516
24,659 3,361 28,020
14,918 4,996 19,914
Less: Amounts capitalised in construction-in-progress and fixed assets Net interest expenses Depreciation of fixed assets Amortisation of deferred assets Amortisation of intangible assets Provision for bad and doubtful debts Provision for inventory obsolescence Pensions (Note 7) Provision for staff welfare and bonus Repair and maintenance expenses Research and development expenditures Auditors remuneration After crediting: Interest income Bank deposits Others (Note 27 (a)) Investment income (Note 23) Foreign exchange gain
10,516 27,761 634 273 2,375 112 2,829 5,034 16,374 1,389
(1,437) 26,583 50,690 701 273 6,136 112 8,784 9,408 43,066 1,418
(354) 19,560 30,138 150 2,233 12,463 7,938 50,731 51 102
4,881 1,607 3,824 90
5,899 3,388 3,824 402
2,176 1,134
34

6. DIRECTORS, SUPERVISORS AND SENIOR EXECUTIVES EMOLUMENTS

(a) Details of directors and supervisors emoluments were: From 1 September 1997 to 31 December 1997 Fees for executive directors Fees for non-executive directors Fees for supervisors Other emoluments for executive directors Basic salaries and allowances Bonus * Pension Other emoluments for non-executive directors Other emoluments for supervisors 47 9 2 25 83 * Bonus is discretionary in nature (b) Details of emoluments paid to the five highest paid individuals (including directors, supervisors and employees) were: From 1 September 1997 to 31 December 1997 Basic salaries and allowances Bonus * Pension 47 9 2 58 Number of directors Number of supervisors 5 5 * Bonus is discretionary in nature Pro forma 1997 140 27 5 172 5 5 1996 148 8 156 4 1 5 Pro forma 1997 140 27 5 75 247 1996 129 25 69 223
35

6. DIRECTORS, SUPERVISORS AND SENIOR EXECUTIVES EMOLUMENTS (continued)

All of the five highest paid individuals were directors, supervisors or senior executives of the Company, and whose emoluments are included in Note 6 (a). The emoluments paid to each of the five highest paid individuals (including directors, supervisors and employees) during the period from 1 September 1997 to 31 December 1997 were less than RMB 1,070,000 ( equivalent of HK$ 1,000,000). During the period, no emoluments were paid to the five highest paid individuals (including directors, supervisors and employees) as an inducement to join the Group or as compensation for loss of office.
7. PENSION SCHEME
All full-time employees in the Group are covered by a pension scheme. Pursuant to a notice dated 23 July, 1997 issued by Anhui Labour Bureau, the Group is required to make annual contributions to Holdings at a rate of 20 to 23 per cent. of the salary and certain amounts of bonuses of the staff for pension benefits, and Holdings is responsible for the ultimate pension liability to the staff.
8. TAXATION
(a) Enterprise Income Tax From 1 September 1997 to 31 December 1997 Taxation Current Rebate 20,573 (20,573) Pro forma 1997 60,465 (60,465) 1996
The Group is ordinarily subject to Enterprise Income Tax (EIT) levied at a rate of 33 per cent of taxable income based on its audited accounts prepared in accordance with the laws and regulations in the PRC. Pursuant to a notice (Cai Yu Zi [1997] No. 432) dated 20 June 1997 issued by Anhui Finance Bureau, the Group was entitled to a full rebate of EIT for the year ended 31 December 1997. Thereafter, the Group will be entitled to a rebate of taxes from Anhui Finance Bureau equal to 18 per cent. of the Groups taxable income in respect of EIT paid to Anhui Local Taxation Bureau. No expiration date is stated in the notice. Accordingly, the Groups effective EIT rate after 1 January 1998 will be 15 per cent. However, there is no assurance that the Group will always be able to enjoy such preferential tax treatment. Pursuant to another notice (Wan Di Shui Zi [1997] No. 291) dated 20 June 1997 issued by Anhui Local Taxation Bureau and Anhui Finance Bureau and another notice (Shi Fu [1997] No. 99) dated 26 June, 1997 issued by Wuhu City Government, the EIT for Ningguo Cement Plant and Baimashan Cement Plant in 1996 was nil.
36

8. TAXATION (continued)
There were no Hong Kong profits tax liabilities as the Group did not earn any income subject to Hong Kong profits tax. As at 31 December 1997, there were no material unprovided deferred tax liabilities. (b) Value-Added Tax The Group is subject to Value-Added Tax (VAT) on its sales and purchases, which is levied at 17 per cent on the gross turnover upon sale or purchase of merchandise. Input VAT paid on purchases of raw materials, semi-finished products, and other direct inputs can be used to offset the output VAT on sales. Following the implementation of VAT, Ministry of Finance (MOF) and the State Administration of Taxation (SAT) of the PRC directed enterprises to segregate from the inventory balance as at 1 January 1994, a deemed input VAT calculated at 14 per cent of the inventory balance as at 1 January 1994. MOF and SAT also stipulated that this deemed input VAT, which was recorded as a deferred asset as at 1 January 1994, could be offset against future output VAT under specific circumstances. In April 1995, MOF and the SAT issued another directive to allow enterprises to offset the unutilised balance of the deemed input VAT as of 1 January 1995 against their output VAT over a period of five years. During the period 1 September 1997 to 31 December 1997, the Group utilised approximately RMB 1,375,000 of the deemed input VAT to offset output VAT.
9. PROFIT AFTER TAXATION

The consolidated profit after taxation included a profit of approximately RMB 7,207,000 dealt with in the financial statements of the Company before accounting for the results of subsidiaries and associated companies using the equity method of accounting.
10. DIVIDENDS
In accordance with its articles of association, the Company declares dividends based on the lesser of the consolidated unappropriated profit reported in the statutory accounts and that reported in the consolidated financial statements prepared in accordance with IAS. As of 31 December 1997, profit available for distribution to shareholders after transfers to reserves and the final dividend amounted to RMB 11,607,000. On 22 April 1998, the Board of Directors proposed a dividend of RMB 0.02 (HK$ 0.019) per share, totalling RMB 19,670,000 for the period from 1 September 1997 to 31 December 1997. The proposed dividend is subject to ratification by the shareholders, and has been recorded in the accompanying financial statements.
37

11. EARNINGS PER SHARE

The calculation of earnings per share was based on the profit after minority interest of RMB51,219,000 divided by the weighted average number of 847,365,000 shares in issue during the period from 1 September 1997 to 31 December 1997. For comparative purposes, pro forma earnings per share for the full year of 1997 were calculated based on the pro forma full year profit after minority interest of RMB170,070,000 and on the weighted average number of 697,647,000 shares as if the A shares had been in issue during the full year of 1997. Pro forma earnings per share for the 1996 fiscal year were calculated based on the pro forma profit after minority interest of RMB 139,571,000 and on 622,480,000 A shares as if they had been in issue during the year of 1996.
12. FIXED ASSETS

GROUP Movements in fixed assets were as follows: Furniture, fixture and TransPlant and office portation buildings Machinery equipment equipment
Land use rights Cost: Balance as at 31 September 1997 Additions (including transfers from construction-inprogress) Disposals Balance as at 31 December 1997 Accumulated depreciation: Balance as at 1 September 1997 Charge for the period Write-back on disposals Balance as at 31 December, 1997 Net book value: Balance as at 31 December 1997 Balance as at 1 September 1997
Total
189,778
471,586
779,457
69,534
28,020
1,538,375
11,221
129,379
298,940
35,691 (181)
4,310
479,541 (181)
200,999
600,965
1,078,397
105,044
32,330
2,017,735
1,301 1,301
155,403 5,198 160,601
496,041 15,677 511,718
54,831 3,808 (141) 58,498
14,146 1,777 15,923
720,421 27,761 (141) 748,041
199,698 189,778
440,364 316,183
566,679 283,416
46,546 14,703
16,407 13,874
1,269,694 817,954
38

12. FIXED ASSETS (continued)

(a) Upon establishment of the Company, the fixed assets, land use rights and limestone mining licence of Holdings were injected into the Company at an amount based on a valuation performed jointly by Chesterton Petty Limited (the Valuer), a qualified valuer in Hong Kong, and China Consultants of Accounting and Financial Management. Inc. E !"#$%&'F, an independent professional valuation firm in the PRC. The valuation was based on a combination of open market value and replacement cost. The revalued amount was approved by the State Assets Administration Bureau in the PRC. Fixed assets and land use rights which were carried at a net book value of RMB285,551,000 as of 30 April 1997 were revalued at RMB825,230,000, resulting in a surplus of approximately RMB539,679,000 which has been recorded in the accompanying consolidated financial statements of the Group for the period ended 31 December 1997. (b) Provision of depreciation (excluding amortisation of land use right) for the period from 1 September 1997 to 31 December 1997 included additional depreciation of approximately RMB 12,010,000 relating to the surplus arising from the revaluation of fixed assets. This additional depreciation is not deductible for PRC EIT tax purposes. However, because the Group was not subject to EIT in 1997, there was no effect on profit after taxation for the period. (c) The land use rights are for a period of 50 years from the establishment of the Company in September 1997 to September 2047.
13. CONSTRUCTION-IN-PROGRESS
GROUP 31 December 1997 Balance as at 1 September 1997 Additions Transfer to fixed assets Balance as at 31 December 1997 Representing: Cost of construction Interest on borrowings capitalised 90,857 460,447 (457,563) 93,741
93,524 217 93,741
39

14. INTANGIBLE ASSETS

GROUP Limestone mining licences were revalued at RMB 40,974,000 ( See Note 12 (a) ) upon establishment of the Company and will be amortised over a period of 20 years.
15. DEFERRED ASSETS

GROUP 31 December 1997 Deemed input VAT (see Note 8 (b)) Utility expansion fee Others 5,791 10,440 5,052 21,283
16. INVESTMENTS IN SUBSIDIARIES

COMPANY 31 December 1997 Unlisted investments, at cost Share of post-acquisition profit Amount due from subsidiaries 1,145,000 44,012 69,787 1,258,799 Detail of the Companys subsidiaries, which are consolidated in the Groups financial statements, as at 31 December 1997 were as follows: Name of Subsidiaries Ningguo Cement Plant !"#$%&'( Country of establishment and date of establishment PRC 21 January 1985 Groups equity interest 100% (directly held) 100% (directly held) 75% (directly held) Registered capital RMB 422,260,000 RMB 200,220,000 US$ 29,980,000
Principal activities Manufacture and sale of clinker and cement products Manufacture and sale of clinker and cement products Manufacture and sale of clinker and cement products
Baimashan Cement Plant PRC !"#$%&'() 22 April 1994 Anhui Hailuo Cement Product Co, Ltd (Hailuo) !"#$%&' PRC 23 June 1994
40

17. INVESTMENT IN ASSOCIATED COMPANIES

GROUP AND COMPANY 31 December 1997 Unlisted investments, at cost 48,452
Details of the Companys associated companies, all of which are limited liability companies, as at 31 December 1997, were as follows: Name of associated Companies Ningbo Hailuo Cement Co. Ltd. !"#$%&' Anhui Jujiaqiao Cement Co. Ltd. !"#$%&'( Country of establishment and date of establishment PRC 3 April 1993 PRC 18 December 1997 Groups equity interest 27.3% (directly held) 40% (directly held) Registered capital RMB 150,000,000 US$ 15,000,000
Principal activities Manufacture and sale of clinker and cement products Manufacture and sale of clinker and cement products
(a) On 20 November 1997, the Company entered into an acquisition agreement to acquire 60 per cent. equity interest in Ningbo Hailuo Cement Co. Ltd (Ningbo Cement) for RMB99,825,000. As at 31 December 1997, the Company has paid RMB 41,000,000. Ningbo Cement has had no operations to date other than pre-operating activities. (b) Anhui Jajiaqiao Bridge Cement Co. Ltd is a joint venture established on 18 December 1997 and owned by the Company and TCC Hong Kong Cement (International) Limited (TCC HK), which holds 97,364,000 of the Companys H shares. According to the articles of association, the Company and TCC HK will own 40 per cent. and 60 per cent. of the registered capital respectively. As of 31 December 1997, the Company had injected US$900,000 (RMB7,452,000) which represented the first phase of its capital injection. The joint venture is planning to build cement production facilities.
18. INVENTORIES
GROUP 31 December 1997 Raw materials Work in process Finished goods 85,162 14,483 28,664 128,309 (5,243) 123,066
Less: Provision for obsolescence
41

19. PREPAYMENTS AND OTHER RECEIVABLES

GROUP 31 December 1997 Amount withheld by underwriter (Settled in 1998) VAT refund for export sales Prepayment to suppliers Recoverable transportation costs Others 20,400 5,530 6,087 5,343 12,186 49,546
COMPANY 31 December 1997 Amount withheld by underwriter (Settled in 1998) Others 20,400 1,796 22,196
20. DUE FROM HOLDINGS

GROUP AND COMPANY The amount due from Holdings arose from receivables from export sales received on behalf of the Group by Holdings as an agent and is unsecured, bears interest at 12 per cent. per annum and is repayable on demand.
21. DUE FROM/TO RELATED COMPANIES

The amounts due from/to related companies arose from ordinary business transactions, are unsecured, non-interest bearing and repayable upon demand, and are as follows: GROUP Due from related companies 31 December 1997 Anhui Hailuo Construction Material Co. Ltd Ningbo Cement (Note 17 (a)) Other related companies 51,018 10,099 15,820 76,937
42

21. DUE FROM/TO RELATED COMPANIES (continued)

Due to related companies 31 December 1997 Tongling Hailuo Cement Company Limited (Note 27 (ii)) Ningchong Packaging Material Bags Co. Ltd. Other related companies 23,020 5,849 2,392 31,261 COMPANY Due from related company 31 December 1997 Ningbo Cement (Note 17 (a)) 5,548 5,548 Due to related company 31 December 1997 Tongling Hailuo Cement Company Limited (Note 27 (ii)) 23,020 23,020
22. TRADE RECEIVABLES, net

GROUP 31 December 1997 Trade receivables Less: provision for bad and doubtful debts Trade receivables, net COMPANY 31 December 1997 Trade receivables Less: provision for bad and doubtful debts Trade receivables, net 118,873 (1,711) 117,162 312,499 (22,591) 289,908
43

23. SHORT-TERM INVESTMENT

GROUP AND COMPANY The Company invested in PRC Government debentures through an agent investment company. As at 31 December 1997, the investment totalled RMB274,100,000.
24. CASH AND CASH EQUIVALENTS

GROUP 31 December 1997 Cash on hand Bank deposits: Current deposits Time deposits 12 92,131 41,894 134,037 COMPANY 31 December 1997 Cash on hand Bank deposits: Current deposits Time deposits 3 36,677 41,399 78,079
25. LOANS
GROUP (a) Short-term bank loans As at 31 December 1997, the Group had short-term bank loans of RMB 119,550,000, which were used primarily to finance working capital needs. The bank loans are denominated in RMB, unsecured, and bear interest at rates ranging from 2.88 per cent to 11.088 per cent per annum.
44

25. LOANS (continued)

(b) Long-term loans Details of long-term loans are as follows: Bank loans Amount repayable within a period not exceeding one year more than one year but not exceeding two years more than two years but not exceeding five years 31 December 1997 Other loans Total
20,000 20,000 33,000 73,000 (20,000) 53,000
25,419 25,419 38,130 88,968 (25,419) 63,549
45,419 45,419 71,130 161,968 (45,419) 116,549
Less: Current portion of long-term loans
(i) Bank loans are denominated in RMB, unsecured, and bear interest at rates ranging from 11.16 per cent to 11.7 per cent per annum. (ii) Other loans represented unsecured loans granted by the Kuwait Fund For Arab Economic Development through the PRC State Construction Material Bureau ( !"#$%&). These loans are denominated in Kuwait Dinar and bear interest at a rate of 4 per cent per annum.
26. OTHER PAYABLES AND ACCRUALS

GROUP 31 December 1997 Advances from customers Accrued salaries Accrued utility expenses Accrued interest expenses Accrued harbour expenses and loading expenses Provision for staff welfare (provided at 14 per cent. of total salaries) Provision for pensions Payables for construction in progress Others 15,084 6,823 12,036 1,507 10,715 2,641 25,828 39,413 33,201 147,248
45

27. RELATED PARTY TRANSACTIONS

(a) Details of transactions between the Group and Holdings were as follow: From 1 September 1997 to 31 December 1997 Acquisition of 75 per cent. equity interest of Anhui Hailuo Cement Product Co. Ltd. (i) Deposit for acquisition of 68.2 per cent. equity interest of Tongling Hailuo Cement Co. Ltd. (ii) Export Sales on behalf of the Group (iii) Interest income (Note 20) Purchase of clay (i) Pro forma 1997 1996
206,758
206,758
43,450
43,450
46,646 1,607 50
171,208 3,388 50
122,660
On 7 November 1997, the Company acquired a 75 per cent interest in Anhui Hailuo Cement Product Co. Ltd.(Hailuo plant) from Holdings for RMB 206,758,000 with proceeds from its H share issuance. The purchase price was based on the net asset value of the Hailuo plant, after adjustment for the revaluation of the assets based on an independent appraisal.
(ii) The Company has agreed to acquire the 68.2 per cent equity interest in Tongling Hailus Cement Co. Ltd (Tongling) owned by Holdings. On 30 October 1997, the Company made a 10 per cent downpayment amounting to RMB43,450,000 to Holdings for such acquisition (Note 32(b)). The purchase price was based on the net asset value of the Tongling plant, after adjustment for the revaluation of the assets based on an independent appraisal. (iii) The Company has entered into an import and export agency agreement with Holdings to appoint Holdings as its agent for export sales of cement products of the Group.
46

27. RELATED PARTY TRANSACTIONS (continued)

Subsequent to the reorganisation on 1 September 1997, the Company entered into certain agreements with Holdings relating to the use of trademarks and the provision of certain services. During the period Holdings agreed not to charge the Group for these services. Details of the expenses waived are as follows: From 1 September 1997 to 31 December 1997 Trademark license fees Import and export agency fees Tenancy fees Composite services fees 504 567 374 3,467 4,912 Fees for these services will be charged to the Company starting 1 January 1998. (b) Details of transactions between the Group and related companies were as follows: From 1 September 1997 to 31 December 1997 Purchase of cement package materials (i) Sales agent of cement and clinker (ii) Purchase of construction services Sales of cement products Purchase of transportation services (iii) Pro forma 1997 1996
15,227 21,922 5,245 15,167 399
41,702 29,667 8,567 62,580 3,113
50,065 8,050 119,469 6,570
(i) The Group purchases package material from subsidiaries and an associated company of Holdings. (ii) The Group sold cement and clinker on behalf of Hailuo and Tongling as a sole agent. Hailuo was acquired by the Company on 7 November 1997, Tongling is presently in the trial production stage (iii) The Group purchases certain transportation services from a company owned by staff of the Group and Holdings.
47

27. RELATED PARTY TRANSACTIONS (continued)

(c) Details of transactions between the Group and associated companies were as follow: From 1 September 1997 to 31 December 1997 Sales of cement products Ningbo Cement Pro forma 1997 1996
12,905
12,905
28. SHARE CAPITAL

The authorised, issued and fully paid share capital of the Company is RMB 983,480,000 divided into 983,480,000 shares of RMB1.00 each. As of 31 December 1997, details of share capital are as follows: Percentage State-owned shares ( A shares) Overseas public shares ( H shares) 63.3% 36.7% 100% Number of Shares 622,480,000 361,000,000 983,480,000 Amount 622,480 361,000 983,480
The Company issued 361,000,000 H shares with par value of RMB 1.00 each on 17 October 1997 at an issue price of RMB2.44 (HK$ 2.28) per share. The H shares were listed on the Stock Exchange of Hong Kong on 21 October 1997. A shares and H shares rank pari passu in all respects.
48

29. RESERVES
Movements of reserves during the period from 1 September 1997 to 31 December 1997 were as follows: GROUP Share premium Premium arising from issuance of A shares Premium arising from issuance of H shares Expenses on issuance of H shares Profit after minority interest Profit appropriations Proposed dividends (Note 10) End of period Statutory surplus reserve Statutory public Unappropriated welfare fund profit
Total
315,720 519,943 (45,887) 789,776 Note 29(a)
9,527 9,527 Note 29(b)
9,527 9,527 Note 29(c)
51,219 (19,054) (19,670) 12,495
315,720 519,943 (45,887) 51,219 (19,670) 821,325
COMPANY Share premium Premium arising from issuance of A shares Premium arising from issuance of H shares Expenses on issuance of H shares Profit after minority interest Profit appropriations Proposed dividends (Note 10) End of period Statutory Surplus Reserve Statutory Public Unappropriated Welfare Fund profit
Total
315,720 519,943 (45,887) 789,776 Note 29(a)
5,033 5,033 Note 29(b)
5,033 5,033 Note 29(c)
51,219 (10,066) (19,670) 21,483
315,720 519,943 (45,887) 51,219 (19,670) 821,325
49

29. RESERVES (continued)

(a) Share Premium Share premium represents net assets acquired from Holdings in excess of par value of the A shares issued, and proceeds from the issuance of H shares in excess of their par value, net of underwriting commissions, organisation costs and professional fees. (b) Statutory Surplus Reserve In accordance with the Company Law and the Companys articles of association, the Company and its subsidiaries shall appropriate 10 per cent of their annual statutory net income (after offsetting any prior years losses) to the statutory surplus reserve account respectively. When the balance of such reserve reaches 50 per cent of each entitys share capital, any further appropriation is optional. The statutory surplus reserve can be utilised to offset prior years losses or to issue bonus shares. However, such statutory surplus reserve must be maintained at a minimum of 25 per cent of share capital after such issuance. (c) Statutory Public Welfare Fund According to the relevant financial regulations of the PRC and the Companys articles of association, the Company and its subsidiaries are also required to allocate 5 per cent to 10 per cent of their annual statutory net income to a statutory public welfare fund to be used for the collective welfare of their employees. For the period from 1 September 1997 to 31 December 1997, the directors have resolved that 10 per cent of statutory profit after taxation of each entity be appropriated to this fund. All obligations with respect to staff housing are the responsibility of Holdings.
30. IMPACT OF IAS ADJUSTMENTS ON PROFIT AFTER MINORITY INTEREST AND NET ASSETS
The Group has prepared a separate set of statutory accounts in accordance with PRC laws and financial regulations (PRC GAAP). Differences between PRC GAAP and IAS resulted in differences in the reported balances of net assets and profit after minority interest of the Group which are summarised and explained as follows: Profit after minority interest from 1 September 1997 to 31 December 1997 As reported in the Statutory Accounts IAS adjustments: Provision for bad and doubtful debts Additional provision for inventory obsolescence As reported under IAS 50,331 1,000 (112) 51,219 Net assets as of 31 December 1997 1,823,381 (13,333) (5,243) 1,804,805
50

31. ULTIMATE HOLDING COMPANY

The directors of the Company consider Anhui Conch Holdings Company Limited, which is incorporated in the PRC, to be its ultimate holding company.
32. COMMITMENTS
(a) Capital commitments mainly relate to purchases of machinery and equipment for production purposes. Capital commitments outstanding as at 31 December 1997 not provided for in the accounts were as follow: Contracted but not provided for Authorised but not contracted for 139,209 20,000 159,209 (b) The Company has entered into an agreement with Holdings to acquire its 68.2 per cent interest in the Tongling plant for a total amount of RMB 434,465,000 in 1998 (Note 27 (a)). (c) According to the articles of association, the Company will inject an additional US$5,100,000 (RMB42,227,000) into Anhui Jujiaqiao Cement Co. Ltd. in 1998 (Note 17 (b)). (d) According to the articles of association and acquisition agreement of Ningbo Cement, the Company will inject an additional RMB58,825,000 to acquire 60 per cent of the equity of Ningbo Cement in 1998 (Note 17 (a)).
51
DIRECTORS AND SUPERVISORS (continued)

EXECUTIVE DIRECTORS
Mr. Guo Wensan , aged 42, is a senior engineer and is the Chairman of the Board of Directors of the Company, He is also the General Manager of the Company and is responsible for the overall management of the Groups business. Mr. Guo graduated from the faculty of Building Materials of Shanghai Tongji University in 1978 and joined Ningguo Cement Plant in 1980. Mr. Guo has held various posts at Ningguo Cement Plant, including deputy manager and manager of manufacturing branch, deputy director of plant affairs office, deputy director of enterprise management office, director of production safety department, deputy director of personnel and enterprise management divisions, deputy manager of production and equipment divisions and general manager of Ningguo Cement Plant. Mr. Guo has received a number of awards such as the Wuyi labour prize and model labour in national building materials system. Mr. Guo is also the chairman of Holdings, Tongling Plant, and Hailuo Plant. Mr. Li Shunan, aged 59, is an engineer and is the Deputy General Manager of the Company and the general manager of Ningguo Cement Plant. Mr. Li is responsible for the Groups production planning and coordination and raw material supply, Mr. Li is also responsible for the Groups quality control and research and development activities. Mr. Li joined Ningguo Cement Plant upon his graduation from the College of Building Materials in August 1980. Mr. Li has held various posts in Ningguo Cement Plant including deputy manager of manufacturing branch, director of production safety department, manager of manufacturing branch and deputy general manager of Ningguo Cement Plant. Mr. Li is also the vice chairman of Holdings and a director of Tongling Plant. Mr. Zhu Dejin, aged 49, is an economist and is the Deputy General Manager of the Company. Mr. Zhu is responsible for the Groups repair and maintenance, safety, and environmental and pollution controls activities, Mr. Zhu graduated from shipping Teachers School in 1976 and later joined Ningguo Cement Plant as director of affairs office, party deputy secretary, chairman of labour union. Mr. Zhu joined Tongling Plant in September 1995. Mr. Zhu is also a director of Holdings since its establishment and the vice chairman and general manager of Tongling Plant. Mr. Guo Jingbin, aged 39, is an engineer and is Deputy General Manager of the Company. Mr. Guo joined Ningguo Cement Plant upon his graduation from Shanghai College of Building Materials in February 1980. Mr. Guo is responsible for the Groups finance, human resources, training, development and investment activities. Mr. Guo has held various posts at Ningguo Cement Plant including those of deputy director of electricity department, director of automatic measurement department, officer of plant affairs office head of personnel department, and deputy manager of the plant, Mr. Guo is also a director of Holdings and a director of Tongling Plant. Mr. Yu Biao, aged 43, is an engineer and is Deputy General manager of Company and general manager of Baimashan Cement Plant, Mr. Yu is responsible for the Groups sales and marketing activities. Mr. Yu joined Ningguo Cement Plant upon his graduation from Anhui College of Building Materials in August 1980. Mr. Yu has held various posts at Ningguo Cement Plant including those of workshop officer of the Shengli branch office, deputy director of foreign co-operation department, director of second-line construction department, assistant to the manager and the director of the development department. Mr. Yu is also the assistant to the general manager of Holdings.
52
DIRECTORS AND SUPERVISORS (continued)

NON-EXECUTIVE DIRECTORS
Dr. Wang Yanmou, aged 65, was appointed an independent non-executive Director on 10 September 1997. Dr. Wang obtained his bachelor degree from PRC Southeastern University in 1956 and his master degree from Saint Petersburg Construction University of the former USSR in 1962. Dr. Wang has board experience in the building materials industry in China and has held various positions in China Building Materials Research Institute and State Bureau of Building Materials Industry and was Chief of the State Bureau of Building Materials Industry. In 1992, Dr. Wang was elected Chairman of the China Portland Cement Society Council. Dr. Wang is also a consultant to the Expert Committee of the China International Construction Consultant Company since 1997. Mr. Kang Woon, aged 34, was appointed an independent non-executive Director on 10 September 1997. He holds a doctor degree in Jurisprudence from the University of Texas at Austin. Mr. Kang is an attorney-atlaw of the Supreme Court of the State of New York, United States of America and a member of the Bar Association of Frankfurt am Main, Federal Republic of Germany. He has been associated with Jones, Day, Reavis & Pogue, an international law firm, since August 1990.
SUPERVISORS
Mr. Wang Jun, aged 40, is a senior engineer, Mr. Wang joined Ningguo Cement Plant upon his graduation from the physics faculty of Anhui University in 1982. Mr. Wang has held various posts at Ningguo Cement Plant including those of deputy director of energy measurement department and deputy director of automatic measurement department. Mr. Wang is also head of the Companys human resources department. Mr. Ji Qinying, aged 41, is an engineer. Mr. Ji joined Ningguo Cement Plant upon his graduation from Shanghai School of Building Materials in 1980. Mr. Ji has held various posts at Ningguo Cement Plant including those of deputy Secretary of the Communist Youth League Committee, deputy manager of manufacturing branch, director of mechanical department and deputy director of operation department. Mr. Ji is also a member of the Party Committee of Holdings, and Secretary of the Party Committee and deputy general manager of Tongling Plant. Mr. Jin Yuxiang, aged 54, is a political engineer and secretary of the Party Committee at Baimashan Cement Plant. Mr. Jin joined Baimashan Cement Plant in 1978 and has held the posts of deputy director of party committee office at Changjiang Cement Plant deputy manager of Baimashan Cement Plant and chairman of the trade union. Mr. Jin completed a course in Party and Polities Administration at Wuhu City Partys School in 1990. Mr. Jin is also Secretary of the Party Committee of Baimashan Cement Plant.
53
CORPORATE INFORMATION
SPONSOR
Jardine Fleming Securities Limited 45th Floor, Jardine House 1 Connaught Place Hong Kong
PRINCIPAL BANKERS
Construction Bank of China, Wuhu City Branch Construction Bank of China, Ningguo City Branch Industrial and Commercial Bank of China, Wuhu City Branch Industrial and Commercial Bank of China, Ningguo City Branch Bank of China, Wuhu City Branch Bank of China, Ningguo City Branch
LEGAL ADVISERS TO THE COMPANY

As to Hong Kong Law: Chiu & Partners 41st Floor, Jardine House 1 Connaught Place Hong Kong As to PRC Law: Jingtian Associates Room 323, Towercrest Plaza 3 Maizidian West Road Chaoyang District Bejing PRC
LEGAL ADDRESS AND HEAD OFFICE

209 Renmin Road Wuhu City Anhui Province PRC
PRINCIPAL PLACE OF BUSINESS IN HONG KONG

41st Floor, Jardine House 1 Connaught Place Hong Kong
AUDITORS AND REPORTING ACCOUNTANTS

Arthur Andersen & Co. Certified Public Accountants 25th Floor, Wing On Centre 111 Connaught Road Central Hong Kong
COMPANY SECRETARIES
Guo Jingbin Chiu Pak Yue, Leo LL.B.
TELEPHONE
+86 553 385 5338
H SHARE REGISTRAR AND TRANSFER OFFICE

HKSCC Registrars Limited 2nd Floor, Vicwood Plaza 199 Des Voeux Road Central Hong Kong
FAX
+86 553 384 4550
54

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CONTENTS

Anhui Conch Cement Company Limited

Ningguo Cement Plant

Shanghai Sales Division

Ningbo Sales Division

Baimashan Cement Plant

Nanjing Sales Division

Wenzhou Sales Division

Anhui Hailuo Cement Product Co. Ltd

Xiamen Sales Division

Taizhou Sales Division

Ningbo Hailuo Cement Co. Ltd

Jiujiang Sales Division

Nanchang Sales Division

Anhui Zhujiaqiao Cement Co. Ltd

Anqing Sales Division

Fuzhou Sales Division

Tongling Hailuo Cement Co. Ltd

Subei Sales Division

Chaoshan Sales Division

Northern Anhui Sales Division

RMB million 800

200 1996 1997

For the year ended 31 December

PROFIT AFTER MINORITY INTEREST

170.1 181.1 169.1 139.6

For the year ended 31 December

Results and Profit Distribution

Mr. Guo Wansen, Chairman and General Manager of the Group

Production of cement and clinker

To be acquisited, the Tongling Hailuo Co. Ltd.

Outlook for the year 1998

2. MAJOR WORK OF THE DIRECTORS IN 1997

3. RESULTS AND DIVIDENDS

Income from principal operations Net profit

6. IMPACT OF CHANGES IN TAX RATE AND INTEREST RATE

7. MAJOR CUSTOMERS AND SUPPLIERS

8. SALES AND PERCENTAGE OF SALES BY REGIONS

Year ended 31 December 1997

SALES AND PERCENTAGE OF SALES BY PRODUCT TYPES

Year ended 31 December 1997

Ordinary portland cement 525 425 Portland cement 525R

48.92% 1,642,119.27 5.57% 184,866.05

1,092.349 4,126.64 5,015.761 28,020.70

3.90% 14.72% 17.90%

80,258.71 412,235.64 405,735.24

1,830.83 9,496.602 10,564.26 76,710.50

2.39% 12.38% 13.76% 100.00%

SALES BY PRODUCT TYPES

Clinker 13.76% #525 Cement 68.53%

#425 Cement 17.71%

10. SHARE CAPITAL AND SHAREHOLDERS

11. USE OF PROCEEDS

13. CODE OF BEST PRACTICE FOR THE DIRECTORS

14. PURCHASE, SALE OR ALLOTMENT OF SHARES

15. REMUNERATION OF DIRECTORS AND SUPERVISORS

16. THE HIGHEST PAID INDIVIDUALS

17. RETIREMENT INSURANCE SCHEME

18. STAFF ACCOMMODATION

19. STAFF, REMUNERATION AND TRAINING

20. FIXED ASSETS

21. TOTAL ASSETS

23. LOANS AND CAPITALISATION OF INTEREST

24. MATERIAL LITIGATION