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8777
-1 (
Sin
otra
ns)
\ 21
/04/
2003
\ M
10
Company Profile
Sinotrans Limited (“Sinotrans” or the “Company”) is a joint stock
limited company incorporated in the People’s Republic of China
(the “PRC”) on 20 November 2002 with China National Foreign
Trade Transportation (Group) Corporation (“Sinotrans Group
Company”) as its sole promoter. The Company was listed
successfully on The Stock Exchange of Hong Kong Limited on 13
February 2003.
Sinotrans and its subsidiaries (collectively the “Group”) is a
leading provider of logistics services in China. The Group’s core
services are freight forwarding, express services and shipping
agency services and its support services include storage and
terminal services, trucking and marine transportation.
The Group’s services operations cover the fast-growing coastal
regions of China including: Guangdong, Fujian, Shanghai, Zhejiang,
Jiangsu, Hubei, Lianyungang, Shandong, Tianjin, Liaoning and other
strategic regions. Also, the Group has an extensive and well-
established domestic service network and an overseas agency
network.
Contents
2 Corporate Information
3 Financial Highlights
5 Chairman’s Statement
9 Management Discussion and Analysis ofResults of Operations and Financial Position
24 Directors, Supervisors & Senior Management
30 Report of the Directors
39 Report of the Supervisory Committee
41 Notice of Annual General Meeting
44 Auditors’ Report
45 Consolidated Profit and Loss Account
46 Consolidated Balance Sheet
48 Balance Sheet
49 Consolidated Cash Flow Statement
51 Consolidated Statement of Changesin Owner’s Equity
52 Notes to the Financial Statements
USING OUR CONNECTIONS
MOTION AND MOTIVATION
2
Corporate Information
LEGAL NAME OF THE COMPANY:SINOTRANS LIMITED
DATE OF COMMENCEMENT OF THECOMPANY’S REGISTRATION:20 November 2002
REGISTERED ADDRESS ANDHEADQUARTERS OF THE COMPANY:Sinotrans Plaza AA43, Xizhimen BeidajieHaidian DistrictBeijingPeople’s Republic of China100044
PLACE OF BUSINESS IN HONG KONG:21/F, Great Eagle Centre23 Harbour RoadWanchaiHong Kong
LEGAL REPRESENTATIVE OF THECOMPANY:Mr. Zhang Bin
COMPANY SECRETARY:Mr. Gao Wei
INVESTOR AND MEDIA RELATIONS:Securities and Legal Affairs DepartmentTel: (86) 10 6229-6667Fax: (86) 10 6229-6600Email: [email protected]: www.sinotrans.com
HONG KONG SHARE REGISTRAR:Computershare Hong Kong InvestorServices LimitedRoom 1901–5, 19th FloorHopewell Centre,183 Queen’s Road East,Hong Kong
H SHARE LISTING:The Stock Exchange of Hong Kong Limited
ABBREVIATION OF THE COMPANY’SSHARES:中國外運 (SINOTRANS)
STOCK CODE:598
SPONSOR:BOCI Asia Limited35/F., Bank of China Tower1 Garden RoadHong Kong
Credit Suisse First Boston (Hong Kong) Limited45th Floor, 2 Exchange Square8 Connaught PlaceCentralHong Kong
PRINCIPAL BANKERS:Bank of China1 Fuxingmennei StreetXicheng DistrictBeijing 100818China
Shenzhen Development Bank158 Fuxingmennei StreetXicheng DistrictBeijing 10031China
Bank of Communications33 Fuchengmenwai Financial StreetXicheng DistrictBeijing 100032China
AUDITORS:International auditors:PricewaterhouseCoopers22nd FloorPrince’s BuildingCentralHong Kong
PRC auditors:PricewaterhouseCoopersZhong Tian CPAs Company Limited12th Floor, Shui On Plaza333 Huai Hai Zhong LuShanghai 200021People’s Republic of China
LEGAL ADVISERS:As to Hong Kong law:Richards Butler20th FloorAlexandra HouseChater RoadCentralHong Kong
As to PRC law:Haiwen & PartnersRoom 1711Silver TowerNo. 2, Dong San Huan North RoadChaoyang DistrictBeijing 100027PRC
Financial Highlights
3
As at 31 December1999 2000 2001 2002
RMB$’000 RMB$’000 RMB$’000 RMB$’000
Total assets 4,584,196 6,074,104 6,158,637 7,386,735Total liabilities 3,662,136 4,039,351 3,805,980 4,833,721Minority interests 98,166 506,740 573,681 679,786Owner’s equity 823,894 1,528,013 1,778,976 1,873,228
Note 1: As China National Foreign Trade Transportation(Group) Corporation (“Sinotrans GroupCompany”) controlled the business transferred tothe Company before the reorganisation andcontinues to control the Company after thereorganisation in 2002 (See Note 1 to thefinancial statements, the “Reorganisation”), theconsolidated financial statements of the Groupfor the years ended 31 December 1999, 2000,2001 and 2002 have been prepared as areorganisation of business under common controlin a manner similar to a pooling-of-interests. Theconsolidated financial statements of the Groupfor the years ended 31 December 1999, 2000,2001 and 2002 present the results of the Groupas if it had been in existence throughout theperiod, rather than from the date on which theReorganisation was completed.
Note 2: Basic and diluted earnings per share for the yearsended 31 December 1999, 2000, 2001 and 2002
have been computed by dividing the profit for theyear by 2,624,087,200 shares, being the numberof shares issued and outstanding upon the legalformation of the Company on 20 November 2002as if such shares had been outstanding for allyears presented. As there are no potentiallydiluted securities, there is no difference betweenbasic and diluted earnings per share.
Note 3: Sinotrans Air Transportation DevelopmentCompany Limited (“Sinoair”), one of theCompany’s subsidiaries issued shares in its initialpublic offering on the Shanghai Stock Exchangein 2000. Sinoair received net cash proceeds ofapproximately RMB955,520,000 from theissuance. Following the issuance of shares to thepublic, the equity interest held by the Companydecreased from 94.13% to 70.36%, while theGroup’s share of net assets of the subsidiaryincreased from approximately RMB385,333,000to approximately RMB988,420,000, resulting in again of approximately RMB603,087,000.
Profit before taxation
1,400,000
1999 2000 2001 2002
800,000
600,000
200,000
0
400,000
1,000,000
1,200,000
RMB’000
931,547
765,117
1,240,288
435,912
Profit for the year
1,200,000
1999 2000 2001 2002
600,000
400,000
200,000
0
800,000
1,000,000
RMB’000
1,034,008
452,303
572,222
258,187
Earnings per share, basic and diluted
0.40
1999 2000 2001 2002
0.25
0.20
0.10
0
0.15
0.30
0.35
RMB
0.05
14,000,000
1999 2000 2001 2002
8,000,000
6,000,000
2,000,000
0
4,000,000
10,000,000
12,000,000
RMB’000
Turnover
7,792,650
9,968,878
11,049,805
13,550,411
0.220.17
0.39
0.10
4
Chairman’s Statement
With the successful listing of
the Company, Sinotrans’
corporate governance
framework and standard,
our management model and
quality, as well as our
operating strategies and
performance have
undergone a close scrutiny
by the international capital
markets and are well
recognised . The listing
would also provide further
growth potential for the
Group’s development in the
future.
4
Chairman’s Statement
5
To the Shareholders,
On behalf of the Board of Directors and all our
staff members, I am pleased to present to the
shareholders the annual results of Sinotrans
Limited (the “Company”) for the year ended
31 December 2002.
REORGANISATION AND LISTING OF THE
COMPANY
The year 2002 was a significant one in the
history of the Company. On 20 November
2002, the Company was established pursuant
to a group reorganisation of China National
Foreign Trade Transportation (Group)
Corporation (“Sinotrans Group Company”).
Sinotrans Group Company, which as the sole
promoter, transferred to the Company a
substantial portion of its businesses located in
the fast-growing coastal regions of China as
well as in certain other strategic regions
throughout China, making the Company and
its subsidiaries (collectively the “Group”) a
leading provider of logistics services in China.
The Company was successfully listed on The
Stock Exchange of Hong Kong on 13 February
2003. With the successful listing of the
Company, our corporate governance
framework and standard, our management
model and quality, as well as our operating
strategies and performance have undergone a
close scrutiny by the international capital
markets and are well recognised. The listing
would also provide further growth potential for
the Group’s development in the future.
REVIEW OF OPERATIONS
The Chinese economy continued its upward
trend in the year 2002. Compared with the
corresponding period in 2001, the GDP in
2002 was up by 8%, foreign trade up by
21.8% and foreign direct investment up by
12.5%. This sustained economic growth had
accelerated the development of the logistics
and transportation industry in China.
The Group is a leading provider of logistics
services in China. Opportunity was taken
during the reorganisation in preparation for
listing in 2002 to maximise the utilisation of
our resources and expertise, competitive
strengths and profound experience. The robust
economy and the strong development of the
logistics and transportation industry in China
provided an ideal business environment. Our
competitive edges were greatly enhanced
through the concerted efforts of all our
employees, improvement of service networks,
6
Chairman’s Statement
further standardisation of business processes
and renewal and upgrade of information
technology. This process was further assisted
through more effective internal control by way
of firmer budgetary and management controls
as well as credit management, and the
introduction and implementation of the
ORACLE ERP financial system. As a result, we
were able to raise our competitiveness and
elevate the market position of our various
operations, thereby bringing in satisfactory
operating results to realise our profit target.
Turnover of the Group for the year 2002 was
RMB13.55 billion, an increase of 22.6% over
the same period last year. Profit for the year
was RMB572 million, an increase of 26.5%
over the same period last year. Rapid growth
was witnessed in the volume, revenue and
profit in the various core operations of the
Group.
BUSINESS AND PROSPECTS
We believe that the Chinese economy will
maintain a growth rate of 7% or higher in
2003. This in turn will spur further expansion
in the transportation and logistics industry.
2003 will see the Group operating
independently for the first complete financial
year. We are fully aware of the opportunities
and challenges ahead. We, together with all
our colleagues, will set the pursuit of
shareholders’ interest as our prime objective.
We will concentrate on ensuring growth,
effectiveness, efficiency and return on
investment for the Group as well as to achieve
regulated, effective and transparent corporate
governance. In terms of development
strategies, we will endeavour:
• to strengthen the overall business mix, to
further standardise business processes, to
enhance the competitiveness of our
Chairman’s Statement
7
products, and to achieve a steady growth
in operating results;
• to integrate asset and capital operations,
to improve business network and to raise
the overall service capability;
• to fully implement the ORACLE ERP
financial system, to establish a uniform
financial management and control system
and to raise the standard of financial risk
management; and
• to set up a uniform human resources and
performance appraisal system, to improve
the framework of human resources and to
foster a corporate culture based on
people and their competence, exploration
and innovation.
We will strive to offer our utmost efforts in
achieving an overall satisfactory performance
for the operation of the Group to fulfill our
commitment to the shareholders.
I would like to take this opportunity to express
our most sincere appreciation to all our
shareholders and customers for their sustained
trust and support. I look forward to their
continued support in the future.
On behalf of the Board, I would also like to
thank all our staff members who are key to
our success.
Zhang Bin
Chairman
15 April 2003
8
Management Discussion and Analysis of Results of Operations and Financial Position
With our well-established
service network and
integrated service strategy
and competence, together
with our experienced
management team, strong
customer base and customer
handling experience, as well
as our firm and sound
financial policies and
healthy financial position,
our management is full of
confidence in the business
prospects in 2003.
8
Management Discussion and Analysis of Results of Operations and Financial Position
9
You should read the following discussion and
analysis in conjunction with the consolidated
financial statements of the Company and its
subsidiaries (collectively the “Group”) and the
accompanying notes thereto included
elsewhere in this Annual Report. The Group’s
consolidated financial statements have been
prepared in accordance with International
Financial Reporting Standards (“IFRS”). These
consolidated financial statements and the
discussion and analysis below assume that the
Group’s current structure had been in
existence throughout the years presented.
OVERVIEW OF OUR OPERATIONS
We are a leading provider of logistics services
in China with access to a nationwide service
network and an overseas agency network. Our
core services include freight forwarding,
express services and shipping agency services,
while our support services comprise storage
and terminal services, marine transportation
and other services. Our well-established service
network as well as our united and integrated
services strategy and competence enable us to
provide integrated logistics services to our
customers.
Our operating results are divided into the
following six segments:
• freight forwarding;
• express services;
• shipping agency;
• storage and terminal services;
• marine transportation; and
• other services, of which trucking is the
primary service.
The operating results from our integrated
logistics services are included in the above
business segments, with most of such results
being included as part of our freight
forwarding results and some being included as
part of storage and terminal services results,
depending on the source of the business and
the nature of the services.
OUTLOOK OF OUR OPERATIONS
The global politics and economy still harbour
not a few of uncertainties in 2003. The
upheaval in the Middle East will affect
adversely the global economic recovery and
development. Nevertheless, China, in which
our operations situate, continues to maintain
strong growth in its economy. With further
liberalisation of its market, China will enjoy
sustained increment in both its external trade
volume and direct investment from overseas
investors, enlarging further the size of its trade
market and benefiting immediately the
transportation and logistics industry we engage
in. As a result, our operations are offered rapid
development potential.
10
Management Discussion and Analysis of Results of Operations and Financial Position
The uncertainties in global economic
development and the competition pressure
brought by further liberalising the PRC market
may, to a certain extent, affect the business
development of the Group. However, with our
well-established service network and integrated
service strategy and competence, together with
our experienced management team, strong
customer base and customer handling
experience, as well as our firm and sound
financial policies and healthy financial position,
our management is full of confidence in the
Group’s business prospects in 2003.
OPERATING STATISTICS
The table below sets forth certain of the Group’s operating statistics by business segments for the years
indicated:
For the year ended
31 December
2002 2001
Freight forwarding
Sea freight forwarding (in millions of tonnes)
Bulk cargo 4.8 6.5
Container cargo 24.3 19.4
Air freight forwarding (in millions of kilograms) 159.1 135.5
Rail freight forwarding (in millions of tonnes)
Bulk cargo 3.3 3.3
Container cargo 0.4 0.5
Road freight forwarding (in millions of tonnes)
Bulk cargo 0.3 0.4
Container cargo 0.9 0.6
Express services
Packages (in millions of units) 9.5 7.4
Shipping agency
Net registered tonnes (in millions of tonnes) 155.4 129.8
Vessel calls 42,920 36,011
Storage and terminal services
Warehouses (in millions of tonnes) 17.2 16.3
Terminals (in millions of tonnes) 5.3 3.6
Marine transportation
TEUs 769,175 564,526
Other services
Trucking (in millions of tonnes) 3.0 3.0
Management Discussion and Analysis of Results of Operations and Financial Position
11
RESULTS OF OPERATIONS
The table below presents the Group’s selected financial information for the years indicated:
For the year ended
31 December
2002 2001
(RMB in millions, except for
per share and number of
shares data)
Turnover 13,550.4 11,049.8
Other revenues 41.9 32.3
Total revenues 13,592.3 11,082.1
Transportation and related charges (10,074.3) (8,085.1)
Total revenues, net of transportation and related charges 3,518.0 2,997.0
Depreciation and amortisation (186.3) (152.8)
Operating costs, excluding depreciation and amortisation:
— Staff costs (1,012.9) (856.2)
— Repairs and maintenance (79.9) (69.3)
— Fuel (214.7) (155.9)
— Travel and promotional expenses (179.2) (147.2)
— Office and communications expenses (118.8) (101.1)
— Rental expenses (578.3) (525.7)
— Other operating expenses (254.5) (265.7)
Operating profit 893.4 723.1
Finance income, net 28.0 31.0
921.4 754.1
12
Management Discussion and Analysis of Results of Operations and Financial Position
For the year ended
31 December
2002 2001
(RMB in millions, except for
per share and number of
shares data)
Share of results of associates before taxation 10.1 11.0
Profit before taxation 931.5 765.1
Taxation (244.2) (207.3)
Profit after taxation 687.3 557.8
Minority interests (115.1) (105.5)
Profit for the year 572.2 452.3
Profit distribution (478.0) (74.6)
Earnings per share, basic and diluted (1) RMB0.22 RMB0.17
Number of shares (in millions)(1) 2,624.1 2,624.1
Note:
(1) Basic and diluted earnings per share for the years
ended 31 December 2002 and 2001 have been
computed by dividing the profit for the year by
2,624,087,200 shares, being the number of shares
issued and outstanding upon the legal formation of
the Company on 20 November 2002 as if such
shares had been outstanding for all years
presented. As there are no potentially diluted
shares, there is no difference between basic and
diluted earnings per share.
The information included in the above table and
in our discussion in this section is presented in a
format which differs in certain respects from the
Group’s consolidated financial statements. In
particular, we have included an additional line
item - total revenues, net of transportation and
related charges.
We record the Group’s turnover in respect of
some segments, such as freight forwarding, on
a gross basis, being the full amount we charge
our customers before deducting the
transportation and related charges we pay to
third party transport carriers who provide the
transportation services. We record the Group’s
turnover in respect of certain other services,
Management Discussion and Analysis of Results of Operations and Financial Position
13
such as shipping agency, on a net basis, in that
the amount we record as turnover excludes the
amounts we incur to third party service
providers that are necessary to generate the
Group’s turnover.
We have therefore presented the additional
line item — total revenues, net of
transportation and related charges — so that
you can better compare and analyse the
Group’s revenues after deducting the
transportation and related charges which we
incur to third party transport carriers who
provide the relevant transportation services
that we effectively pass on to our customers.
The table below sets forth the Group’s
turnover by business segments and their
respective percentage of total turnover before
inter-segment elimination for the years
indicated:
Turnover by business segments (RMB in millions)
380.7 2.6% Shipping agency
10,324.9 71.7% Freight forwarding
1,950.5 13.5% Marine transportation
1,150.8 8.0% Express services
446.4 3.1% Storage and terminal services
151.0 1.1% Other services
2002
376.7 3.2% Storage and terminal services
8,393.4 71.4% Freight forwarding
1,616.3 13.7% Marine transportation
853.4 7.3% Express services
353.4 3.0% Shipping agency
166.7 1.4% Other services
2001
8,512.1 76.7% Eastern China
1,545.3 13.9% Southern China
905.0 8.2% Northern China
137.1 1.2% Other locations
2001
Turnover by geographical segments (RMB in millions)
2002
10,180.0 74.2% Eastern China
1,946.5 14.2% Southern China
1,310.6 9.5% Northern China
290.3 2.1% Other locations
Notes:
(1) Eastern China includes core strategic locations inJiangsu, Shanghai, Zhejiang, Fujian andShandong and the operations of Sinoair(Sinotrans Air Transportation Development Co.,Ltd., a listed company on the Shanghai StockExchange. Stock name: Sinotrans Air; stock code:600270) in Shanghai, Jiangsu, Zhejiang, Anhui,Fujian, Jiangxi and Shandong.
(2) Southern China includes core strategic locationsin Guangdong, Shenzhen and Hubei and theoperations of Sinoair in Hubei, Hunan,Guangdong, Guangxi, Hainan, Guizhou andYunnan.
The table below sets forth the Group’s turnover
by geographical segments and their respective
percentage of total turnover before inter-
segment elimination for the years indicated:
14
Management Discussion and Analysis of Results of Operations and Financial Position
(3) Northern China includes core strategic locationsin Liaoning, Tianjin and the operations of Sinoairin Beijing, Tianjin, Hebei, Shanxi, Inner Mongoliaand Henan.
(4) Other locations primarily includes air freight
forwarding and express services operated by
Sinoair and certain of our jointly controlled
entities in locations other than the above.
Eastern China accounted for 74.2% of total
turnover before inter-segment elimination for the
year ended 31 December 2002 primarily due to
the fact that Eastern China comprises the more
economically developed regions of China.
The table below sets forth the Group’s
operating profit/(loss) derived from each of the
segment results. Each segment result is defined
as the turnover for that segment less direct
operating expenses but before deducting
unallocated costs. The segment results are
presented as an amount of the Group’s
combined segment results for the years
indicated:
COMPARISON AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL
POSITION FOR THE YEAR ENDED 31
DECEMBER 2002
Turnover
The Group’s total turnover increased 22.6%
from RMB11,049.8 million in 2001 to
RMB13,550.4 million in 2002, mainly due to
the increase in turnover from freight
forwarding, marine transportation and express
services. Moreover, by further restructuring its
business operations, the Group enjoyed the
benefits arising from integrated and
standardised operations. As a result, the Group
achieved better resources allocation and
economies of scale. On top of that, the Group
implemented an employee incentive plan
which also led to the increase in turnover.
Freight forwarding
Our freight forwarding services for import and
export cargo encompasses both container
cargo and bulk cargo. Meanwhile, we offer
ancillary services to our customers including
arranging for customs declaration and
clearance, preparation of documentation,
consolidation and distribution, trucking and
warehousing. In addition, we also have the
ability to provide special services such as
project and trade fair cargo transportation. We
use our Electronic Data Interchange (“EDI”)
technology extensively in our freight
forwarding operations.
300
250
175
150
100
50
25
-25
2001
Freight
forwarding
Express
services
Shipping
agency
Storage and
terminal services
Marine
transportation
Other
services
2002
0
75
125
200
225
275
325RMB millions
The table below sets forth the Group’s operating profit/(loss)derived from each of our segment results
316.6
255.5
237.5
292.5
199.0
215.1
76.356.0 9.7 -2.1
-7.7
34.6
Management Discussion and Analysis of Results of Operations and Financial Position
15
We believe that in the freight forwarding
sector, price and quality of service are the
major factors of gaining the market share, and
we also believe the main features of quality of
service are professional, safe and reliable
service and quick response to customers’
demand. Apart from competitive price, we also
think that experienced staff, strong customer
base and our expertise in providing value-
added service are our invaluable competitive
edges.
Turnover from our freight forwarding services
increased 23.0% to RMB10,324.9 million in
2002 from RMB8,393.4 million in 2001.
Income from containers sea freight forwarding
services and air freight forwarding services are
the largest components of the turnover from
freight forwarding. The number of containers
handled by sea freight forwarding services
increased 22.9% to 2.58 million TEUs in 2002
from 2.10 million TEUs in 2001, while the
amount of cargo handled by our air freight
forwarding services increased 17.4% from
135,500 tonnes in 2001 to 159,100 tonnes in
2002. The growth in freight forwarding
revenue in 2002 was mainly due to our ability
to maintain a relatively faster pace of business
development in the economic growth.
Express services
A substantial portion of our express services
operation is carried out by the Company’s
subsidiary, Sinoair, which is a listed company in
the PRC.
We offer a range of international express
services through our joint ventures and
partnerships with international express services
providers such as DHL, UPS and OCS. The
services portfolio includes door-to-door
custom-cleared delivery services to over 200
countries and regions worldwide and
guaranteed on time delivery. Our EDI
technology enables customs clearance of
shipments in advance of their arrival. In
addition, each shipment is assigned a unique
barcoded airwaybill enabling us and our
customers, via the internet, to track the status
of a shipment. We believe that our advanced
tracking systems allow us to save costs as well
as facilitate secure and reliable delivery
services.
16
Management Discussion and Analysis of Results of Operations and Financial Position
Turnover from our express services increased
34.8% to RMB1,150.8 million in 2002 from
RMB853.4 million in 2001. The number of
documents and packages handled increased
28.9% to 9.54 million pieces in 2002 from
7.40 million pieces in 2001. The growth was
primarily due to the new services provided by
the Group and the increase in the number of
our branches. Moreover, in 2002, the average
weight per document and package handled by
us increased as compared to 2001 and
therefore, the growth in turnover was higher
than the growth in the number of documents
and packages handled.
Shipping agency
We have well-established shipping agency
operations in many major ports in China
including Dalian, Fuzhou, Guangzhou,
Lianyungang, Ningbo, Qingdao, Shanghai,
Shenzhen, Tianjin and Xiamen.
We conduct our shipping agency business
under the “Sinoagent” brand and have,
through offering standardised services,
established a good reputation amongst
shipping companies.
We believe our strength lies in our large freight
forwarding customer base, our good
reputation in the market, and our long-
established business relationship with many of
the major shipping companies. Good
coordination between our freight forwarding
activities and our shipping agency operations
enables us to extract synergies between these
two businesses.
Turnover from our shipping agency services
increased 7.7% to RMB380.7 million in 2002
from RMB353.4 million in 2001. The number of
containers we handled increased 29.2% to 4.65
million TEUs in 2002 from 3.60 million TEUs in
2001. Net registered tonnage of vessels handled
by our shipping agency services also increased
19.7% from 129.8 million tonnes in 2001 to
155.4 million tonnes in 2002. The number of
vessel calls we managed increased 19.2% from
36,011 in 2001 to 42,920 in 2002. Our
turnover and volume growth in shipping agency
services were primarily due to our enhanced
effort in customer service and marketing and
our ability to maintain a relatively faster pace of
business development. However, due to the
increasing competition and the decline in our
agency fee rates in response to the decline in
the market rates, the turnover growth from the
volume growth was partially offset.
Storage and terminal services
Our storage and terminal services play an
important supporting role to our freight
forwarding and integrated logistics services.
Management Discussion and Analysis of Results of Operations and Financial Position
17
The aggregate turnover from storage and
terminal services amounted to RMB446.4
million in 2002, a 18.5% growth from
RMB376.7 million in 2001. Our warehouses
handled 17.22 million tonnes of cargo in 2002,
a 5.6% increase from 16.30 million tonnes in
2001; cargo tonnage handled in terminals
increased 47.8% from 3.60 million tonnes in
2001 to 5.32 million tonnes in 2002, mainly
because of the increased production capacity
such as terminal loading/ unloading facilities in
recent years and the more integrated cargo-
handling capability at terminals, resulted from
the acquisition of two terminal operating
companies on 30 June and 30 September 2002
respectively. Moreover, while enhancing its
import and export business, the Group
proactively developed its domestic goods
handling business in 2002, boosting the
percentage of its domestic trading goods
handling volume over total storage and
terminal business volume from 5.4% in 2001
to 22.7% in 2002. However, the fee scale for
handling domestic trading goods was lower
than that of handling import and export
trading goods, leaving the increment in
turnover smaller than that of business volume.
Marine transportation
In support of our freight forwarding operations
and to further develop our international
network in accordance with our business
strategy, we have established liner and feeder
operations in many important manufacturing
and trading centers.
Turnover from our marine transportation
services increased 20.7% from RMB1,616.3
million in 2001 to RMB1,950.5 million in 2002.
The volume of containers shipped by the
Group rose to 769,175 TEUs in 2002, a 36.3%
up compared to the 564,526 TEUs in 2001.
The growth could be largely attributed to our
new shipping lines and capacity in the second
half year in 2002, driving the turnover to
increase; yet the revenue growth in marine
transportation was partially offset by the
fluctuation in international sea freight rates.
Other services
Turnover from other services, primarily from
our trucking services, decreased 9.4% from
RMB166.7 million in 2001 to RMB151.0 million
in 2002. The Group shipped 3 million tonnes
of cargo in 2002, same as 2001. Due to the
market competition, the business suffered a
decrease in freight rates that led to the
decrease in turnover.
TRANSPORTATION AND RELATED CHARGES
Transportation and related charges increased
24.6% from RMB8,085.1 million in 2001 to
RMB10,074.3 million in 2002 primarily due to
the increased volume of business.
18
Management Discussion and Analysis of Results of Operations and Financial Position
TOTAL REVENUES, NET OF
TRANSPORTATION AND RELATED CHARGES
In 2002, total revenues, net of transportation
and related charges increased 17.4% to
RMB3,518.0 million from RMB2,997.0 million
in 2001, while the turnover increased 22.6%.
This is primarily due to the increase in
transportation costs and related charges at a
higher rate resulted from intense competition.
DEPRECIATION AND AMORTISATION
Depreciation and amortisation increased
21.9% from RMB152.8 million in 2001 to
RMB186.3 million in 2002 primarily as a result
of increased fixed assets and intangible assets.
OPERATING COSTS, EXCLUDING
DEPRECIATION AND AMORTISATION
In 2002, our operating costs, excluding
depreciation and amortisation, were
RMB2,438.3 million, a 15.0% increase from
RMB2,121.1 million in 2001. The increase in
operating costs, excluding depreciation and
amortisation, was primarily due to the
increased expenditure on staff costs, lease
payments, travel and promotional expenses,
office and communications expenses and fuel
costs. The increase in staff costs was primarily
due to the wage adjustment in our companies
in Zhejiang, Shanghai, Jiangsu and Guangdong
and also the establishment of new express
services branches by Sinoair. The increase in
fuel costs was due to the increase in marine
transportation capacity and the rise of
international petroleum price, leading to the
37.7% increase in fuel costs in 2002. On the
other hand, our business development also
boosted our lease payments, travel and
promotional expenses and the office and
communications expenses in 2002 accordingly.
OPERATING PROFIT
In 2002, our operating profit was RMB893.4
million, an increase of 23.6% from RMB723.1
million in 2001 primarily as a result of the
increase in business volume. Operating profit
as a percentage of total revenues, net of
transportation and related charges, increased
from 24.1% in 2001 to 25.4% in 2002
primarily as a result of growth in total
revenues, net of transportation and related
charges combined with improved controls on
operating costs.
TAXATION
Taxation increased 17.8% to RMB244.2 million
in 2002 from RMB207.3 million in 2001 primarily
as a result of the increase in taxable income.
Taxation as a percentage of profit before tax
decreased from 27.1% in 2001 to 26.2% in
2002. It was primarily due to the decrease in
expenses not deductible for taxation purposes
and the increase in non-assessable income in
2002.
Management Discussion and Analysis of Results of Operations and Financial Position
19
MINORITY INTERESTS
Minority interests increased 9.1% to RMB115.1
million in 2002 from RMB105.5 million in 2001
primarily as a result of the increase in the
profits contributed by Sinoair, of which we are
the holding company.
PROFIT FOR THE YEAR
Profit for the year of the Group increased
26.5% to RMB572.2 million in 2002 from
RMB452.3 million in 2001.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Reorganisation, Sinotrans Group
Company owned the Group’s operations.
Through the Reorganisation, the Group became
a separate group, both operationally and
financially. Therefore, the historical information
contained herein concerning liquidity and
capital resources of the Group is derived from
movements in the Group’s consolidated balance
sheets and profit and loss accounts and does
not necessarily represent actual movements in
cash. Accordingly, such movement may not be
indicative of the Group’s liquidity and capital
resources in the future or what the Group’s
liquidity and capital resources would have been
had the Group been a separate, stand-alone
entity during the years presented.
Our principal source of working capital is cash
generated from our operations.
The following table summarises our cash flows for each of the two years ended 31 December 2002 and
2001:
For the year ended
31 December
2002 2001
(RMB in millions)
Net cash inflow from operating activities 564.4 590.5
Net cash used in investing activities (162.4) (533.6)
Net cash used in financing activities (43.5) (292.6)
Cash and cash equivalents at end of year 2,342.0 1,983.5
20
Management Discussion and Analysis of Results of Operations and Financial Position
OPERATING ACTIVITIES
Net cash from operating activities decreased
4.4% from RMB590.5 million for the year
ended 31 December 2001 to RMB564.4 million
for the year ended 31 December 2002
primarily due to a RMB752.8 million increase in
trade and other receivables for the year ended
31 December 2002 as compared to a
RMB233.6 million decrease for the year ended
31 December 2001, and also due to tax paid
increased from RMB204.0 million for the year
ended 31 December 2001 to RMB256.5 million
for the year ended 31 December 2002, which
was partially offset by a RMB531.4 million
increase in trade payables for the year ended
31 December 2002 (a RMB347.3 million
decrease for the year ended 31 December
2001). The increase in trade receivables for the
year ended 31 December 2002 was primarily
due to the growth in both business scale and
revenue. The average age of trade receivables
for the year ended 31 December 2002 and
2001 were 61 days and 64 days respectively.
The increase in trade payables for the year
ended 31 December 2002 was also primarily
due to the growth in both business scale and
revenue.
INVESTING ACTIVITIES
In 2002, net cash used in investing activities
consisted primarily of the RMB345.3 million
purchase of property, plant and equipment
and the RMB83.1 million purchase of
intangible assets and land use rights, which
was partially offset by the reduction of
RMB243.3 million of term deposits with an
initial term of over three months. In 2001, net
cash in investing activities consisted primarily
of the RMB308.0 million purchase of property,
plant and equipment, increase of RMB229.2
million of terms deposits with an initial term of
over three months and the RMB57.8 million
purchase of land use rights, primarily for our
express services.
FINANCING ACTIVITIES
Net cash used in financing activities was
RMB43.5 million for the year ended 31
December 2002, and net cash used in
financing activities was RMB292.6 million for
the year ended 31 December 2001. It was
mainly because of the reduction in bank loan
repayment, the curtailment in profit
distribution and the absence of net
distributions to Sinotrans Group Company in
Management Discussion and Analysis of Results of Operations and Financial Position
21
2002. In 2002, cash outflows in financing
activities included repayment of borrowings of
RMB99.1 million, dividends for minority
shareholders of RMB39.0 million and increase
in pledged deposits of RMB23.4 million, and it
was partially offset by the additional bank
borrowings.
CAPITAL EXPENDITURES
For the year ended 31 December 2002, the
RMB428.4 million capital expenditures
consisted primarily of RMB105.7 million for
construction-in-progress, of which RMB56.0
million was for the investment in constructing
a warehouse at Shanghai Pudong airport for
air transportation, RMB12.0 million for the
financial network projects of the headquarters,
RMB18.8 million for restructuring of
warehouses and terminals in Guangdong,
RMB13.8 million for the container yards
construction in Shanghai; RMB84.19 million for
vehicles, of which RMB32.0 million was for
purchasing express and freight forwarding
vehicles for air transportation; RMB56.27
million for plant and equipment, of which
RMB22.0 million was for purchasing
warehouse and terminal equipments in
Guangdong and RMB21.56 million was for the
use in air transportation; RMB67.44 million for
office facilities, of which RMB33.29 million was
for purchasing office facilities such as
computers for the Sinoair branch companies;
RMB70.2 million for purchasing land use rights
and prepayment for land use rights.
CONTINGENCIES AND GUARANTEES
As at 31 December 2002, the contingent
liabilities of the Group amounted to
approximately RMB62.4 million, primarily
arising from outstanding loan guarantees of
RMB9.9 million for the obligations of certain
related parties and certain third party entities,
pending lawsuits of RMB42.5 million and bills
discounted with recourse of approximately
RMB10.0 million. Except as described above
and apart from intragroup liabilities, the Group
did not have any outstanding at the close of
business on 31 December 2002 loan capital
(issued or agreed to be issued), bank overdrafts
and liabilities under acceptances or other
similar indebtedness, debentures, mortgages,
charges or loans or acceptance credits or hire
purchase commitments, finance lease
commitments, guarantees, indemnities or other
material contingent liabilities.
22
Management Discussion and Analysis of Results of Operations and Financial Position
GEARING RATIO
As at 31 December 2002, the gearing ratio of
the Group was 74.6% (2001: 71.1%), which
was derived from the sum of liabilities and
minority interests over total assets on 31
December 2002.
FOREIGN EXCHANGE RATE RISK
A substantial portion of our turnover and
transportation and related charges are
denominated in US dollars, which provides a
natural currency hedge. The Renminbi,
however, is our functional and reporting
currency since it is the legal currency of the
PRC, the primary economic environment in
which we operate, and we are required under
PRC regulations to convert the US dollars
received, net of expenses, into Renminbi within
a prescribed period of time. We have not used
any forward contracts or currency borrowings
to hedge our exposure to foreign currency risk.
The foreign currency is converted into
Renminbi within one year at the latest.
The Renminbi is not a freely convertible
currency. The rules and regulations of the
Chinese government limit our ability to
establish a foreign currency account and our
ability to use or exchange foreign currency.
Actions taken by the Chinese government
could cause future exchange rates to vary
significantly from current or historical exchange
rates. Although the Renminbi to US dollar
exchange rate has been relatively stable since
1994, we cannot predict nor give any
assurance of its future stability. Fluctuations in
exchange rates may adversely affect the value,
translated or converted into US dollars or Hong
Kong dollars, of our net assets, earnings and
any declared dividends. We cannot give any
assurance that any future movements in the
exchange rate of the Renminbi against the US
dollars and other foreign currencies will not
adversely affect our results of operations and
financial position (including ability to pay
dividends). We believe that significant
appreciation in the Renminbi against major
foreign currencies may have a material adverse
impact on our results of operations.
CREDIT RISK
The extent of our credit exposure is
represented by an aggregated balance of trade
receivables and other receivables, trading
investments, pledged deposits and term
deposits with an initial term of over three
months. The maximum credit exposure in the
event that other parties fail to perform their
Management Discussion and Analysis of Results of Operations and Financial Position
23
obligation under these financial instruments
was approximately RMB3,206.8 million and
RMB2,625.4 million as at 31 December 2002
and 2001 respectively. In addition, we made
certain prepayments on behalf of customers,
prepaid certain expenses and provided certain
deposits, the aggregate of which was
RMB235.0 million and RMB225.0 million as at
31 December 2002 and 2001 respectively.
EMPLOYEES
The Group had 13,462 employees as at the
end of 2002. The Group has long been
concerned with its employees’ development
and it organised various training programs
including occupational skills, professional
knowledge, and laws and regulations. The
Group spares no effort in its implementation of
the Performance-assessment System that links
staff’s performance and their salary level, in
order to improve the quality of staff and their
working initiative. In addition, the Group has
implemented the Share Appreciation Rights
Scheme and Long-term Performance Unit
Scheme on its management level, as an
incentive for their utmost efforts.
ACQUISITIONS AND DISPOSALS
Save as disclosed in the Company’s prospectus
dated 29 January 2003, there were no material
acquisitions and disposals of subsidiaries or
associated companies of the Company in 2002.
Directors, Supervisors & Senior Management
24
DIRECTORS
Zhang Bin, age 47, is an
executive director and the
chairman of the board of the
Company. He graduated from
Lanzhou Institute of Railway
in January 1982. He then
joined China National Foreign
Trade Transportation
Corporation (“Sinotrans
Group Company”) and
worked in its port department
from January 1982 to June
1988. After that, he was
stationed in the United States,
working with China
Interocean Transport Inc. from
1988 to 1992. Later, he
resumed his service in
Sinotrans Group Company as
vice general manager of the
port department. From
January 1993 to February
1997, he acted as deputy
general manager and general
manager of SINOAIR. He was
promoted to be executive
director and vice president of
Sinotrans Group Company in
1997. In May 2001, he was
appointed to be president of
Sinotrans Group Company. He
obtained from Peking
University the International
Master of Business
Administration degree in May
2002. Mr. Zhang is now, also
the chairman of SINOAIR.
Zhang Jianwei , age 46, is
an executive director and
president of the Company.
Mr. Zhang has been employed
by Sinotrans Group Company
since 1980 with experience in
Sinotrans Group Company’s
financial department, overseas
enterprises management
department and chartering
department. Mr. Zhang was
seconded to China InterOcean
Transport Inc. in the United
States in 1988 to serve as
assistant president. In 1993,
Mr. Zhang became the deputy
general manager of China
National Chartering
Corporation and later became
its general manager. In 1997,
he was promoted to be
assistant president of
Sinotrans Group Company.
Then in 1997, Mr. Zhang
became Sinotrans Group
Company’s executive director
and vice-president. Mr. Zhang
obtained his Master of
Business Administration
degree from China Europe
International Business School
in 1998.
Tao Suyun, age 49, is an
executive director and vice-
president of the Company.
Ms. Tao has worked with
Sinotrans Group Company
since 1979 and became
deputy general manager of
the Shipping Europe
Department in 1986. She was
seconded to SINORICK
Shipping Agency Co. in
Hamburg, Germany from
1989 to 1993 to serve as
general manager. She later
returned to work as general
manager with the Sinotrans
Group Company’s liner
shipping division. In 1995, Ms.
Tao was promoted to become
assistant president and served
as Sinotrans Group
Company’s vice-president and
executive director from 1997.
Ms. Tao obtained her Master
of Business Administration
degree from China Europe
International Business School
in 2002.
Directors, Supervisors & Senior Management
25
Pan Deyuan, age 54, is an
executive director of the
Company. Mr. Pan joined
Sinotrans Group Company in
1997 as executive director
and vice president. Before
that, he served in China
Resources Group, China
Machinery Import and Export
Company and Ministry of
Foreign Trade and Economic
Cooperation respectively. Mr.
Pan relinquished his post as
director in January 2003 due
to a change in posting.
Liu Guilin, age 58, is an
executive director of the
Company. Mr. Liu began his
career with Sinotrans Group
Company’s Shanghai
operations in 1962. He served
various posts during his 40
years service with Sinotrans
Group Company including
department manager,
assistant to general manager,
deputy general manager and
later, general manager of
Sinotrans Group Company’s
Shanghai operations. In 1999,
Mr. Liu was promoted to
become the vice chairman and
general manager of Sinotrans
Group Company’s Shanghai
operations. From 2002, Mr.
Liu became the chairman of
Sinotrans Eastern Company
Limited. Mr. Liu passed away
on 12 February 2003 due to
illness at the age of 58.
Yang Yuntao, age 37, is a
non-executive director of the
Company. Mr. Yang
commenced working for
Sinotrans Group Company
after receiving his bachelor of
laws degree from Jilin
University School of Law in
1988. He was deputy general
manager of the port
administration department in
Sinotrans Group Company
before being transferred to be
the general manager of the
legal affairs department in
1996. Mr. Yang obtained his
Master of Laws degree from
University of International
Business and Economics in
1999. He was appointed vice
president of Sinotrans (Hong
Kong) Holdings Limited in
2002.
Directors, Supervisors & Senior Management
26
Koo Kou Hwa, age 77, is an
independent non-executive
director of the Company. Mr.
Koo has been employed by
Tai Chong Cheang Steamship
Co. (H.K.) Ltd. since 1983 and
is currently its chairman. He
studied in the Faculty of
Ocean Shipping, University of
Pennsylvania, Philadelphia,
U.S.A. and the Faculty of
Maritime Law and Chartering
& Ship Brokerage, School of
World Trade, New York,
U.S.A.
Mr. Koo is member to various
marine industry associations,
including the Hong Kong Port
& Maritime Board of HKSAR
(HKPMB), the American
Bureau of Shipping (ABS) and
the Bureau Veritas (B.V.). He
is also the chairman of the
Hong Kong Shipowners
Association and chairman of
the Asia Shipowners Forum.
He has been a council
member and the vice-
chairman of the Executive
Committee of The
International Association of
Independent Tanker Owners
since 1993 and 2000
respectively.
Sun Shuyi, age 63, is an
independent non-executive
director of the Company. He
is currently serving as
independent non-executive
directors for three other
companies — Galaxy Fund
Management Co. Ltd., China
Southern Fund Management
Co. Ltd. and Dongfeng
Automobile Co. Ltd which is
listed on the Shanghai Stock
Exchange. Mr. Sun had
worked in various ministries of
the central government
before, including serving as
the deputy director of the
office of the Central Leading
Group on Finance and
Economic Affairs, the vice-
minister of the Ministry of
Personnel and the vice-
secretary general of the
Central Enterprise Working
Committee. Mr. Sun
graduated from the University
of Science and Technology of
China in 1963.
SUPERVISORS
Li Jianzhang, age 47, is a
supervisor of the Company.
During Mr. Li’s career, he has
worked in various
governmental departments.
Mr. Li started working at
Sinotrans Group Company in
May 2001. In July 2001, Mr.
Li was promoted to become a
director of Sinotrans Group
Company.
Directors, Supervisors & Senior Management
27
Wang Xiaozheng, age 32, is
a supervisor of the Company.
Mr. Wang began his career at
Sinotrans Group Company
and served in the chartering
department and the enterprise
management department of
Sinotrans Group Company
from 1994 to 1997. Since
1998, Mr. Wang began
serving at the investment
department of the Sinotrans
Group Company and was
promoted to become the
deputy general manager of
the investment department in
2000. Since November 2002,
Mr. Wang began serving at
the strategy & planning
department of the Company
and was appointed the deputy
general manager.
Zhang Junkuo, age 42, is an
independent supervisor of the
Company. Mr. Zhang began
his career at the Development
Research Center of the State
Council where he was
engaged in various positions,
including, director of the
Research Institute of Market
Economy, deputy secretary-
general of the Academic
Committee, deputy director of
the Comprehensive Economic
Research Department as well
as directing a number of
research programs. During
2001 and 2002, Mr. Zhang
was a visiting scholar at the
department of finance at
Loyola University Chicago as
well as a short-term
consultant at the World Bank
in Washington D.C. in the
United States. Mr. Zhang has
published various articles and
has also received significant
awards such as the Sun Ye-
fang Economics Prize in 1998.
Mr. Zhang obtained his
Master of Economics degree
from the Economic Research
Institute of Huazhong
University of Science and
Technology in 1985.
COMPANY SECRETARY
Gao Wei, age 37, is the
company secretary. Mr. Gao
began his career in the legal
department of Sinotrans
Group Company in 1993. In
1997, Mr. Gao began working
as the vice-general manager
of legal department of
Sinotrans Group Company. In
the same year, he became the
deputy manager in the
restructuring office of the
Sinotrans Group Company
and became the vice-general
manager of Sinotrans Group
Company’s management
department in 1999. During
the same year, Mr. Gao began
to serve as the vice-general
manager of SINOAIR and was
later promoted to become
SINOAIR’s general manager in
2001. Mr. Gao obtained his
Master of Economics degree
in the Central University of
Finance and Economics in
1993 and his doctorate
degree in laws in the
University of International
Business and Economics in
1999.
Directors, Supervisors & Senior Management
28
SENIOR MANAGEMENT
Wang Lin, age 44, is a vice
president of the Company.
Mr. Wang started his career
with Sinotrans Group
Company in 1983 by serving
in the Ningbo branch of
Sinotrans Zhejiang Company
Limited. In 1996, Mr. Wang
was promoted to the general
manager of Sinotrans Ningbo
Company Limited. In 1998, he
became the general manager
of Sinotrans Zhejiang
Company Limited which
merged with Sinotrans Ningbo
Company in the same year. In
1999, Mr. Wang became the
general manager of Sinotrans
Jiangsu Company Limited and
a director of Sinotrans Group
Company. Mr. Wang was
appointed vice president of
the Company and the general
manager of Sinotrans Eastern
Company Limited in 2002 and
from March 2003, he also
acts as chairman of Sinotrans
Eastern Company Limited.
Zeng De, age 56, is a vice-
president of the Company.
Mr. Zeng began his career
with Sinotrans Group
Company’s Guangdong
operations in 1976 and was
seconded to Hong Kong in
1985 to serve as general
manager of Eternal Way
Limited. In 1999, he returned
to Guangdong to become the
general manager of Sinotrans
Group Company’s Guangdong
operations. In 2000, Mr. Zeng
was promoted to become a
director of Sinotrans Group
Company.
Wu Dongming, age 40, is a
vice president of the
Company. Mr. Wu began his
career in the Sinotrans Group
Company in 1986 and served
as assistant general manager
at TNT Skypak-Sinotrans
Company from 1988 to 1990.
In 1990, Mr. Wu served as
department manager at
Sinoair and later became
general manager of
Associated International
Freight Forwarding Co., Ltd.
in 1995. In 1997, Mr. Wu
began serving as the deputy
managing director of DHL-
Sinotrans.
Directors, Supervisors & Senior Management
29
Liu Hongling, age 49, is the
chief financial officer of the
Company. Ms. Liu started
working in Sinotrans Group
Company’s financial
department in 1987. Ms. Liu
served as vice-general
manager in Sinotrans Group
Company’s financial
department since 1990 and
was later promoted to
become the general manager
in 1997. Ms. Liu obtained her
bachelor degree in economics
from the People’s University
of China in 1983.
Liu Minsheng*, age 47, chief
information officer of the
Company. Mr. Liu joined
Sinotrans Group Company in
1983 in Human Resources
Department. From 1985 on,
Mr. Liu had been serving in
Sinotrans Group Company’s IT
Centre and later acted as
general manager until
February 1996 when he was
appointed as deputy director
general of China International
Electronic Commerce Center
of the Ministry of Foreign
Trade and Economic
Cooperation of the PRC. In
November 1998, Mr. Liu
began to work as deputy
director general of
Commercial Network and
Sites Development Centre of
the National Domestic Trade
Bureau of China. In January
2003, Mr. Liu resumed his
service in Sinotrans. Mr. Liu
has participated in and led
many prominent domestic
information technology
projects and won for times
national IT awards.
*Mr. Liu’s appointment was
approved by the Board of
our Company on 15 April
2003.
Yu Jianmin, age 38, is the
assistant president of the
Company. Mr. Yu began
working in the liner
department of Sinotrans
Group Company in 1990 and
was seconded to serve as the
chief representative at
Sinotrans Group Company’s
Italian representative office in
1993. In 1998, he returned to
China to serve as vice-general
manager of Sinotrans Group
Company’s investment
management department.
Since 1999, Mr. Yu served as
the general manager of
Sinotrans Group Company’s
logistics development
department. Mr. Yu obtained
his master degree from the
Dalian Maritime University in
1990. He also obtained his
Master of Business
Administration degree from
the China Europe
International Business School
in 2002.
30
Report of the Directors
The directors of the Company herein present
their report and audited financial statements of
the Company and its subsidiaries ( the
“Group”) for the year ended 31 December
2002.
REORGANISATION
The Company was incorporated as a joint stock
limited company in the PRC on 20 November
2002 for the purpose of reorganising its
businesses and assets in preparation for the
listing of H shares of the Company on the
main board of the Stock Exchange of Hong
Kong. Details of the reorganisation and the
basis for preparing the financial statements are
set out in Notes 1 and 2 to the financial
statements.
PRINCIPAL ACTIVITIES AND GEOGRAPHIC
ANALYSIS OF OPERATIONS
The principal activities of the Company are
freight forwarding, express services, shipping
agency services, storage and terminal services,
marine transportation and trucking services.
Details of an analysis of the Group’s turnover
from operating activities by principal activity
and geographic area of operations for the year
are set out in Note 4 to the financial
statements.
SUBSIDIARIES, JOINTLY CONTROLLED
ENTITIES AND ASSOCIATED COMPANIES
The activities of the Company’s subsidiaries,
jointly controlled entities and associated
companies are set out in Notes 16, 17 and 18
to the financial statements.
RESULTS
The Group’s results for the year ended 31
December 2002 are set out in the financial
statements on page 45.
DIVIDENDS
Pursuant to the Reorganisation Agreement, the
Company paid a special dividend of RMB478
million to Sinotrans Group Company on 27
March 2003, which was equivalent to the
estimated net profit during the period
commencing from 1 January 2002 to 30
November 2002 (the last day of the calendar
month of its incorporation) calculated in
accordance with the PRC accounting standards.
Since the actual net profit during the period
from 1 January 2002 to 30 November 2002 was
below RMB478 million, pursuant to the
Reorganisation Agreement, Sinotrans Group
Company is required to repay the difference of
RMB29,400 to the Company before 30 June
2003.
Apart from the said special dividend, the Board
of Directors does not propose to pay any
dividend for the year 2002.
BANK LOANS
Details of the bank loans of the Company and
the Group are set out in Note 28 to the
financial statements.
Report of the Directors
31
MAJOR CUSTOMERS AND SUPPLIERS
In 2002, sales to the five largest customers and
purchases from the five largest suppliers of the
Group accounted for less than 30% of the
Group’s aggregate turnover and purchases
respectively.
For the year ended 31 December 2002, none
of the directors, supervisors, their respective
associates and shareholder (who to the
knowledge of the Board is interested in more
than 5% of the shares of the Company) had
any interest in the five largest customers and
the five largest suppliers of the Group.
CONNECTED TRANSACTIONS
Details of the connected transactions of the
Group for the year ended 31 December 2002
are set out in Note 37 to the financial
statements. Directors of the Company have
unanimously confirmed that the transactions,
all of which took place prior to our listing in
February 2003, were carried out on normal
commercial terms in the ordinary course of
business of the Group, save as the transactions
disclosed in the prospectus of the Company.
FIXED ASSETS
Details of the movement in the fixed assets of
the Group in the year are set out in Note 13 to
the financial statements.
TAXATION
Details of the taxation of the Company and the
Group as at 31 December 2002 are set out in
Note 9 to the financial statements.
RESERVES
Details of the movements in the reserves of the
Group and the Company in the year are set
out in the financial statements on page 51 and
page 123 respectively.
DISTRIBUTABLE RESERVES
Distributable reserves of the Company as at 31
December 2002 were approximately
RMB22.945 million.
32
Report of the Directors
SHARE CAPITAL
Share capital of the Company for the year ended 31 December 2002 is as follows:
% of Issued
Name Nature of Shares Number of Shares Share Capital
China National Foreign Trade Domestic shares 2,624,087,200 100%
Transportation (Group)
Corporation
Details of the change in the share capital of
the Company upon completion of the listing
on 13 February 2003 and the exercise of Over-
allotment Option on 17 February 2003 are set
out in Note 31 to the financial statements.
SUBSTANTIAL SHAREHOLDERS’ INTERESTS
IN SHARES
As at 31 December 2002, to the best
knowledge of the directors, no substantial
shareholder was recorded in the register
required to be kept by the Company pursuant
to Section 336 of the Securities and Futures
Ordinance, as the Company was not then
listed.
PURCHASE, SALE AND REDEMPTION OF
LISTED SECURITIES OF THE COMPANY
There was no purchase, sale or redemption of
any of the H Shares by any member of the
Group during the year ended 31 December
2002, as the Company’s H Shares were only
issued and listed in February 2003.
DIRECTORS AND SUPERVISORS
The directors and supervisors of the Company
during the period were as follows:
Executive Directors:
Zhang Bin
Zhang Jianwei
Tao Suyun
Pan Deyuan
Liu Guilin
Report of the Directors
33
Independent Non-executive Directors:
Koo Kou Hwa
Sun Shuyi
Supervisors:
Li Jianzhang
Wang Xiaozheng
Independent Supervisor:
Zhang Junkuo
The above members of the Board and the
Supervisory Committee were all elected or
appointed in our founding meeting held on 19
November 2002.
In accordance to the Articles of Association of
the Company, all directors and supervisors are
appointed for a term of three years and are
eligible for re-election upon the expiry of the
term.
CHANGES IN DIRECTORS, SUPERVISORS
AND SENIOR MANAGEMENT
During the period ended 31 December 2002,
there were no changes in the directors and
senior management of the Company.
Mr. Pan Deyuan, executive director of the
Company, resigned on 14 January 2003 due to
a change in posting.
Mr. Yang Yuntao, non-executive director of
the Company, was appointed on 14 January
2003.
Mr. Liu Guilin, executive director of the
Company, passed away on 12 February 2003.
Mr. Liu Minsheng, chief information officer of
the Company, was appointed on 15 April
2003.
BIOGRAPHY OF DIRECTORS, SUPERVISORS
AND SENIOR MANAGEMENT
The biographies of the directors, supervisors
and senior management are set out on pages
24 to 29.
DIRECTORS’ AND SUPERVISORS’ INTEREST
IN SHARES
As at 31 December 2002, none of the
directors, supervisors or persons associated
with them had any interest in the shares of the
Company or its associated corporations (within
the meaning of the Securities and Futures
34
Report of the Directors
Ordinance) that is required to be declared to
the Company and the Stock Exchange of Hong
Kong under Section 341 of the Securities and
Futures Ordinance (including those interest
accounted or deemed to be held as defined in
Section 344 and 345 of the Securities and
Futures Ordinance), or as recorded in the
register maintained by the Company under
Section 352 of the Securities and Futures
Ordinance, or as required by the Model Code
for directors of listed companies in dealing in
securities.
DIRECTORS’ AND SUPERVISORS’ SERVICE
CONTRACTS
All of the executive directors and supervisors
(excluding Mr. Zhang Junkuo, who is an
independent supervisor) of the Company had
entered into service contracts, with a term of
three years respectively, with the Company on
20 January 2003.
The Company has not entered into any service
contract not determinable by the Company
within 1 year without compensation (other
than statutory compensation) with any director
or supervisor.
DIRECTORS’ AND SUPERVISORS’ INTEREST
IN CONTRACTS
For the year ended 31 December 2002, no
director or supervisor had a material interest in
any contract of the Company to which the
Company, its subsidiaries, its ultimate holding
company or its fellow subsidiaries was a party.
DIRECTORS’ AND SUPERVISORS’ RIGHTS TO
ACQUIRE SHARES OR DEBENTURES
At no time during the year ended 31
December 2002 was the Company, its
subsidiaries, its ultimate holding company or its
fellow subsidiaries a party to any arrangement
to enable the Company’s directors or
supervisors to acquire benefits by means of the
acquisition of shares in or debentures of the
Company or any other body corporate.
PENSION SCHEME
Details of the Group’s pension scheme for the
year ended 31 December 2002 are set out in
Note 29 to the financial statements.
TAX RELIEF AND EXEMPTION
The Company is not aware that holders of
securities of the Company are entitled to any
tax relief or exemption by reason of their
holding of such securities.
Report of the Directors
35
PRE-EMPTIVE RIGHTS
There are no provisions for pre-emptive rights
under the Company’s Articles of Association or
the laws of the PRC.
CODE OF BEST PRACTICE
To the best knowledge of the directors, the
Company has complied with the Code of Best
Practice, as set out in Appendix 14 of the Rules
Governing the Listing of Securities on the Stock
Exchange of Hong Kong Limited (“Listing
Rules”), throughout the period commencing 20
November 2002 (the date of the Company’s
incorporation) to 31 December 2002.
AUDIT COMMITTEE
The Company has set up an audit committee
and has established written terms of reference
for the committee in accordance with the
Code of Best Practice, as set out in Appendix
14 of the Listing Rules. The principal activities
of the audit committee include the
appointment of external auditor, review and
supervision of the Group’s financial reporting
process and internal controls as well as to offer
advice and recommendations to the Board of
Directors. The audit committee comprises one
executive director and two independent non-
executive directors. The current committee
members are Ms. Tao Suyun, Mr. Koo Kuo
Hwa and Mr. Sun Shuyi.
PROPOSED APPOINTMENT OF DIRECTORS
The Company is pleased to report that Mr. Li
Jianzhang has been nominated for election as
an executive director, and that Ms. Liu Jinghua,
Mr. Jerry Hsu, Mr. Ken Torok and Mr. Lee
Chong Kwee have been nominated for election
as non-executive directors(1). Their biographies
are as follows:
Li Jianzhang, age 47, has worked in several
Government departments. Mr. Li joined
Sinotrans Group Company in May 2001. In July
2001, he became the executive director of
Sinotrans Group Company and he was
appointed as a supervisor of the Company in
November 2002.
Liu Jinghua, age 40, joined Sinotrans Group
Company in 1989 and worked in the Financial
Department and Liner Department before she
was seconded to DHL-Sinotrans Beijing to be
its financial manager in 1992. Soon afterwards,
she was promoted to be DHL-Sinotrans’
National Financial Controller and in 1999
36
Report of the Directors
became National HR Manager. Ms. Liu was
appointed General Manager of the Financial
Department of Sinotrans Group Company in
October 2002. Ms. Liu graduated from the
Central University of Finance and Economics in
1987 and obtained her EMBA in the School of
Management of State University of New York
at Buffalo in December 2000.
Jerry Hsu, age 52, is the Regional Director of
DHL International(2) managing China, Hong
Kong, Taiwan, Korea Peninsula and Mongolia.
Prior to joining DHL in 2001, Mr. Hsu held
various senior management positions in
Daimler Chrysler Corporation in the US
headquarters starting in the late 70s and also
managed its key Asian markets in Japan, China
and Taiwan between 1988 and 2002 with
overall operational and P&L responsibilities. Mr.
Hsu obtained a master’s degree in International
Economics and Politics from the University of
Detroit in 1975. In line with other senior
executives of the DPWN Group, Mr. Jerry Hsu
has been granted stock options in the
securities of Deutsche Post World Net. Mr. Hsu
also holds directorships in various companies
within the DPWN Group.
Ken Torok, age 50, is President of UPS(3) Asia
Pacific and is responsible for UPS operations in
more than 40 countries and territories,
including UPS owned operations, joint ventures
and agent relationships throughout the Asia
Pacific region. Mr. Torok began his UPS career
in the USA in 1975 in operations in the
company’s East Carolina district. He continued
to take on positions of increasing
responsibility, becoming a hub manager in
Wisconsin and Managing Director of UPS Utah.
Prior to becoming President of UPS Asia Pacific
in 2003, Mr. Torok was Managing Director of
UPS South Florida. A native of Long Island,
New York, Mr. Torok graduated with a degree
in business and economics from North Carolina
State University. As with other senior
employees of UPS, Mr. Torok has minor equity
interests in UPS.
Lee Chong Kwee, age 47, is the CEO of Exel(4)
Asia-Pacific. Mr. Lee began his career with Exel
(formerly MSAS Global Logistics) in 1997 and
became Regional Chief Executive for South &
East Asia in 1999. Mr. Lee was appointed CEO
Asia-Pacific in July 2000. Mr. Lee has extensive
experience in the transportation industry,
having spent 17 years with Singapore Airlines
Report of the Directors
37
in senior management positions in Hong Kong,
USA, Japan, UK and Singapore, before joining
Exel. Mr. Lee studied Mathematics at the
University of Malaya, and also holds a diploma
in accounting and finance. In 2002, Mr. Lee
was appointed by the Singapore Government
to serve on the board of directors of JTC
Corporation, Singapore’s leading provider of
industrial space solutions. Mr. Lee also sits on
the board of PSB Certification Limited,
Singapore’s lSO-certification body. As Mr. Lee
holds a senior position in the Exel Group, he
has minor equity interests in several companies
within the Exel Group. Mr. Lee also holds
directorships in various companies within the
Exel Group.
The appointment of Mr. Li Jianzhang, Ms. Liu
Jinghua, Mr. Jerry Hsu, Mr. Ken Torok and Mr.
Lee Chong Kwee as the Company’s directors is
subject to shareholders’ approval at the Annual
General Meeting to be held on 18 June 2003.
(1) Pursuant to the strategic placing agreements
made between our Company and DHL, UPS and
Exel respectively, each of the strategic investors
has nominated a person to the board of our
Company. In this connection, DHL, UPS and Exel
have respectively nominated Jerry Hsu, Ken Torok
and Lee Chong Kwee as directors. While, for the
purposes of the Listing Rules, each of the
nominee directors has interests (by way of
minority equity interests or stock options or
directorships) in competing businesses (i.e. those
of the strategic investors, each being a major
international company in the transportation and
logistics industry), our Company has been and
continues to carry on its business independently
of and at arms length from, those businesses
and through its joint ventures and cooperation
arrangements with those strategic investors.
(2) DHL Worldwide Express BV (“DHL”) is a member
of the Deutsche Post World Net Group (“DPWN
Group”) whose business operations are global
mail, express delivery, logistics and financial
services serving both in Europe and around the
world. The DPWN Group’s express delivery
business operations in China are held through
DHL, which formed a 50/50 joint venture with
Sinoair in 1986. This joint venture has helped to
establish a business relationship between our
Group and the DPWN Group.
(3) UPS Inc. (“UPS”) is a package delivery company
and a provider of specialised transportation and
logistics services worldwide. Our Group has
worked closely with UPS since 1988 when we
signed an agency agreement providing for our
Company to handle pick up and delivery for UPS
in China. In December 1998, we signed a
memorandum of understanding with UPS
providing for a five year strategic partnership.
(4) Exel plc. (“Exel”) is a UK listed, FTSE 100
company, which provides supply chain
management solutions to its customers around
the world. Exel’s range of logistics solutions
encompasses the whole supply chain from design
and consulting through freight forwarding,
warehousing and distribution services to
38
Report of the Directors
integrated information management and e-
commerce support. A joint venture company,
Exel-Sinotrans Freight Forwarding Co. Ltd. (“Exel-
Sinotrans”), was formed between Sinoair and
Exel in 1996, which specialises in providing
integrated logistics solutions to its customers in
China.
MAJOR POST-BALANCE SHEET DATE
EVENTS
Details of major post-balance sheet date events
are set out in Note 38 to the financial
statements.
AUDITORS
PricewaterhouseCoopers and
PricewaterhouseCoopers Zhong Tian CPAs
Company Limited were the Company’s
international auditors and PRC auditors
respectively for the year ended 31 December
2002. A resolution for the re-appointment of
PricewaterhouseCoopers as the international
auditors and PricewaterhouseCoopers Zhong
Tian CPAs Company Limited as the PRC
auditors will be proposed at the forthcoming
Annual General Meeting.
By Order of the Board
Zhang Bin
Chairman
15 April 2003, Beijing, PRC
Report of the Supervisory Committee
39
To the Shareholders,
During the year 2002, the Supervisory
Committee of Sinotrans Limited (the
“Company”) had adhered strictly to the
stipulations of the Company Law of the PRC,
the Rules Governing the Listing of Securities on
the Stock Exchange of Hong Kong, the Articles
of Association of the Company and other
relevant statutory requirements, and, on the
principle of good faith, had discharged its
rights and duties with diligence, pragmatism
and prudence to safeguard the interest of the
shareholders.
We attended meetings of the directors and
general meetings, thereby enabling us to
supervise and monitor effectively all major
operating activities of the Company, the
discharge of duties by the Directors and senior
management and their compliance of related
laws and regulations.
We are of the opinion that the Company had
observed the stipulations of the various laws
and regulations as well as the Articles of
Association of the Company and had operated
in conformity with all relevant requirements
without any violation or misconduct. The
Board of Directors had followed the
procedures as required by relevant laws and
the Articles of Association of the Company in
convening shareholders’ meetings of the
Company in 2002. The resolutions carried at
these meetings were within the requirements
of relevant laws and regulations and the
Articles of Association of the Company. No
acts that are against the interests of the
shareholders or the Company had been found.
The Board of Directors and senior management
of the Company had discharged their duties
with due care, diligence and innovation. They
had made significant contributions to the
development of the Company, thereby
ensuring the best results for the Company.
While discharging their duties, no violation of
any laws and regulations and the Articles of
Association of the Company had been
committed.
We had reviewed conscientiously the auditors’
report of the Company as presented by
PricewaterhouseCoopers and are of the
opinion that the financial statements present
fairly the financial position of the Company as
at 31 December 2002, and operating results of
the Company for the year then ended in all
material aspects.
Mr. Li Jianzhang, member of the Supervisory
Committee, will resign as supervisor after this
supervisory meeting due to a change in his
work responsibilities.
40
Report of the Supervisory Committee
The Company is pleased that Ms. Su Yi (蘇誼 )
has been nominated for election as a
supervisor. Her biography is as follows:
Ms. Su Yi (蘇誼 ), 49, joined Sinotrans Group
Company in December 1986. She has been
appointed a divisional vice general manager
and general manager. Since 1995, she has
been appointed the general manager of
Human Resources Department in Sinotrans
Group Company.
The appointment of Ms. Su Yi as a member of
the Supervisory Committee is subject to
shareholders’ approval in the Annual General
Meeting to be held on 18 June 2003.
We will continue to supervise the operations of
the Company as guided by the relevant PRC
state laws and regulations as well as the
Articles of Association of the Company to
fulfill our duties as entrusted by the
shareholders.
By Order of the Supervisory Committee
Li Jianzhang
Chairman of the Supervisory Committee
15 April 2003, Beijing, PRC
Notice of Annual General Meeting
41
NOTICE IS HEREBY GIVEN that the Annual General Meeting of Sinotrans Limited (the “Company”) for
the year 2002 will be held at Room 1609, Sinotrans Plaza A, A43, Xizhimen Beidajie, Haidian District,
Beijing 100044, the People’s Republic of China on Wednesday, 18 June 2003 at 9:00 a.m. for the
following purposes:
AS ORDINARY BUSINESS
1. to review and approve the report of the board of directors of the Company for the year ended 31
December 2002;
2. to review and approve the report of the supervisory committee of the Company for the year ended 31
December 2002;
3. to review and approve the audited accounts of the Company and the auditors’ report for the year
ended 31 December 2002;
4. to review and approve the profit distribution proposal of the Company for the year ended 31
December 2002;
5. to re-appoint Messrs. PricewaterhouseCoopers as the international auditors of the Company and
PricewaterhouseCoopers Zhong Tian CPAs Company Limited as the PRC auditors of the Company,
and to authorise the directors of the Company to fix their remuneration;
6. (i) to elect Li Jianzhang as a director of the Company;
(ii) to elect Liu Jinghua as a director of the Company;
(iii) to elect Jerry Hsu as a director of the Company;
(iv) to elect Ken Torok as a director of the Company;
(v) to elect Lee Chong Kwee as a director of the Company;
(vi) to elect Su Yi as a supervisor of the Company; and
42
Notice of Annual General Meeting
AS SPECIAL BUSINESS
7. to consider and if thought fit to pass the following resolution as a special resolution of the Company:
(i) “THAT subject to the appointment of the new directors at the Annual General Meeting to which
this notice relates, Article 93 of the Articles of Association of the Company be and is hereby
amended by deleting the sentence “The Company shall have a Board of Directors comprising 7
directors” and replacing it with the following: “The Company shall have a Board of Directors
comprising 11 directors”.”
By order of the Board
Gao Wei
Company Secretary
Beijing, China
15 April 2003
Registered Office
Sinotrans Plaza A
A43, Xizhimen Beidajie
Haidian District
Beijing
People’s Republic of China
100044
Notes:
1. The Register of Members of the Company will be closed from 19 May 2003 to 18 June 2003, both
days inclusive, during which period no share transfers will be registered. To qualify for attendance at
the Annual General Meeting, all transfers accompanied by the relevant share certificates must be
lodged with the Company’s Branch Share Registrar in Hong Kong, Computershare Hong Kong
Investor Services Limited of Rooms 1901—1905, 19/F., Hopewell Centre, 183 Queen’s Road East,
Wanchai, Hong Kong, not later than 4:00 p.m. on 16 May 2003, for registration.
Notice of Annual General Meeting
43
2. Shareholders intending to attend the Annual General Meeting shall give written notice of the same to
the Company, which shall be lodged at the registered office of the Company on or before 4:00 p.m.
on 29 May 2003.
3. Shareholders entitled to attend and vote at the Annual General Meeting are entitled to appoint one
or more persons (whether or not a shareholder of the Company) as their proxy to attend and vote on
behalf of themselves.
4. In order to be valid, the form of proxy, together with a duly notarised power of attorney or other
document of authority, if any, under which the form is signed must be deposited at the registered
office of the Company not later than 24 hours before the time for holding the Annual General
Meeting.
5. New directors and supervisor
Pursuant to the terms of the strategic placing agreements signed between the Company and three
strategic investors (DHL Worldwide Express BV, UPS Air Couriers of America Limited and Exel plc) prior
to the Company’s IPO, each of these strategic investors are entitled to nominate a director to the
Board of Directors of the Company. In this connection, DHL Worldwide Express BV, UPS Air Couriers
of America Limited and Exel plc have respectively nominated Jerry Hsu, Ken Torok and Lee Chong
Kwee as directors. If elected, they will become non-executive directors of the Company. In addition,
the Company proposes to appoint Li Jianzhang and Liu Jinghua as directors and Su Yi as a supervisor.
The profiles of the six candidates for directors and supervisor mentioned above are set out in the
Company’s annual report.
6. Special resolution
The purpose of the proposed amendments of the Articles of Association of the Company is to allow
for the increase in the number of directors as a result of the proposed appointments of directors
nominated by the strategic investors and the Company.
44
Auditors’ Report
TO THE SHAREHOLDERS OF
SINOTRANS LIMITED
(a joint stock limited company incorporated in the People’s Republic of China with limited liability)
We have audited the accompanying balance sheet of Sinotrans Limited (the “Company”) and consolidated
balance sheet of the Company and its subsidiaries (hereinafter collectively referred to as the “Group”) as at
31 December 2002, and the related consolidated profit and loss account, consolidated cash flow statement
and consolidated statement of changes in owner’s equity for the year then ended. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those Standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company and the Group as at 31 December 2002, and the results of operations of the Group and its cash
flows for the year then ended in accordance with International Financial Reporting Standards and comply
with the disclosure requirements of the Hong Kong Companies Ordinance.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, 15 April 2003
2002 2001
Note RMB’000 RMB’000
Turnover 4 13,550,411 11,049,805
Other revenues 41,890 32,279
13,592,301 11,082,084
Transportation and related charges (10,074,347) (8,085,125)
Staff costs 6 (1,012,848) (856,244)
Depreciation and amortisation (186,267) (152,756)
Repairs and maintenance (79,863) (69,251)
Fuel (214,745) (155,937)
Travel and promotional expenses (179,163) (147,199)
Office and communications expenses (118,825) (101,108)
Rental expenses (578,329) (525,680)
Other operating expenses (254,537) (265,727)
Operating profit 893,377 723,057
Finance income, net 8 28,053 31,039
921,430 754,096
Share of results of associates before taxation 10,117 11,021
Profit before taxation 7 931,547 765,117
Taxation 9 (244,243) (207,291)
Profit after taxation 687,304 557,826
Minority interests (115,082) (105,523)
Profit for the year 572,222 452,303
Earnings per share, basic and diluted 12 RMB0.22 RMB0.17
45
Consolidated Profit and Loss AccountFor the year ended 31 December 2002
2002 2001
Note RMB’000 RMB’000
ASSETS
Non-current assets
Property, plant and equipment 13 1,220,162 1,014,981
Prepayment for acquisition of land use rights 43,500 —
Land use rights 14 167,725 140,084
Intangible assets 15 20,710 9,226
Investments in associates 18 24,367 50,007
Other non-current assets 56,235 30,120
Deferred tax assets 9 52,900 62,499
1,585,599 1,306,917- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Current assets
Prepayments, deposits and other current assets 19 234,993 224,964
Inventories 20 17,288 17,837
Trade and other receivables 21 2,676,765 1,884,909
Trading investments 22 10,818 1,284
Pledged deposits 23 28,666 5,260
Term deposits with initial term of over three months 24 490,580 733,929
Cash and cash equivalents 25 2,342,026 1,983,537
5,801,136 4,851,720- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Total assets 7,386,735 6,158,637
46
Consolidated Balance SheetAs at 31 December 2002
2002 2001
Note RMB’000 RMB’000
EQUITY AND LIABILITIES
Share capital 31 2,624,087 2,624,087
Reserves 32 (750,859) (845,111)
Owner’s equity 1,873,228 1,778,976- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Minority interests 679,786 573,681- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Non-current liabilities
Borrowings 28 710 1,851
Deferred tax liabilities 9 1,618 1,957
Early retirement, termination and supplementary pension
benefits obligations 29 — 534,117
Long-term payable to ultimate holding company 29 331,716 —
Provisions 30 85,881 111,322
Other liabilities 3,649 1,940
423,574 651,187- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Current liabilities
Trade payables 26 2,328,662 1,779,209
Other payables, accruals and other current liabilities 27 1,261,082 565,750
Receipts in advance from customers 392,773 397,444
Current tax liabilities 9 161,463 188,585
Borrowings 28 61,614 42,384
Salary and welfare payable 204,553 181,421
4,410,147 3,154,793- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Total liabilities 4,833,721 3,805,980- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Total equity and liabilities 7,386,735 6,158,637
Zhang Bin
Director
Zhang Jianwei
Director
47
Consolidated Balance SheetAs at 31 December 2002
2002
Note RMB’000
ASSETS
Non-current assets
Property, plant and equipment 13 28,217
Intangible assets 15 8,692
Investments in subsidiaries 16 2,797,631
Other non-current assets 20,752
Deferred tax assets 9 3,006
2,858,298- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Current assets
Prepayments, deposits and other current assets 19 281
Trade and other receivables 21 153,532
Cash and cash equivalents 25 27,760
181,573- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Total assets 3,039,871
EQUITY AND LIABILITIES
Share capital 31 2,624,087
Reserves 32 (750,859)
Owner’s equity 1,873,228- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Non-current liabilities
Long-term payable to ultimate holding company 29 331,716- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Current liabilities
Other payables, accruals and other current liabilities 27 834,927- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Total liabilities 1,166,643- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Total equity and liabilities 3,039,871
Zhang Bin
Director
Zhang Jianwei
Director
48
Balance SheetAs at 31 December 2002
2002 2001
Note RMB’000 RMB’000
Cash flows from operating activities
Cash generated from operations 33(a) 827,986 800,419
Interest paid (7,023) (5,963)
Tax paid (256,536) (203,973)
Net cash inflow from operating activities 564,427 590,483- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Cash flows from investing activities
Net cash outflow from acquisition of subsidiaries/a jointly
controlled entity 33(b) (8,026) (10,246)
Increase in investments in associates (392) (4,618)
Purchase of property, plant and equipment (345,297) (308,034)
Proceeds from disposal of property, plant and equipment 26,918 25,709
Purchase of intangible assets (12,851) (8,087)
Purchase of land use rights (26,712) (57,844)
Prepayment for acquisition of land use rights (43,500) —
Proceeds from disposal of intangible assets 155 —
Increase in other non-current assets (25,494) (2,594)
Purchase of trading investments (34,534) —
Decrease/(increase) in term deposits with initial term of over
three months 243,349 (229,171)
Proceeds from disposal of trading investments 27,356 15,385
Interest income received 33,325 36,722
Dividends received from associates 3,240 9,194
Net cash used in investing activities (162,463) (533,584)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
49
Consolidated Cash Flow StatementFor the year ended 31 December 2002
2002 2001
Note RMB’000 RMB’000
Cash flows from financing activities
New bank borrowings 114,205 87,394
Repayments of bank borrowings (99,051) (151,411)
New other borrowings 21,750 117
Repayments of other borrowings (21,945) (400)
Profit distribution — (74,647)
Distributions to, net of contributions from
Sinotrans Group Company 32 — (126,693)
Contributions from minority shareholders in subsidiaries 3,999 7,001
Dividends to minority shareholders in subsidiaries (39,027) (45,583)
(Increase)/decrease in pledged deposits (23,406) 11,657
Net cash used in financing activities (43,475) (292,565)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Net increase/(decrease) in cash and cash equivalents 358,489 (235,666)
Cash and cash equivalents at 1 January 1,983,537 2,219,203
Cash and cash equivalents at 31 December 2,342,026 1,983,537
50
Consolidated Cash Flow StatementFor the year ended 31 December 2002
Reserves
Share
capital
Capital
reserve
Statutory
surplus
reserve
Statutory
public
welfare
fund
Retained
profits Total
Note RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
(Note 31) (Note 31)
As at 1 January 2001 2,624,087 (1,096,074) — — — 1,528,013
Profit for the year — 452,303 — — — 452,303
Profit distribution — (74,647) — — — (74,647)
Distributions to, net of
contributions from
Sinotrans Group
Company 1,32 — (126,693) — — — (126,693)
As at 31 December
2001 2,624,087 (845,111) — — — 1,778,976
As at 1 January 2002 2,624,087 (845,111) — — — 1,778,976
Profit for the year — — — — 572,222 572,222
Special dividend 11 — — — — (477,970) (477,970)
Transfer to reserves 32 — — 2,699 1,350 (4,049) —
As at 31 December
2002 2,624,087 (845,111) 2,699 1,350 90,203 1,873,228
51
Consolidated Statement of Changes in Owner’s EquityFor the year ended 31 December 2002
1. GROUP REORGANISATION AND PRINCIPAL ACTIVITIES
The Company was established in the People’s Republic of China (‘‘PRC’’) on 20 November 2002 as a joint
stock company with limited liability as a result of a group reorganisation of China National Foreign Trade
Transportation (Group) Corporation (‘‘Sinotrans Group Company’’) in preparation for a listing of the
Company’s H shares on the Main Board of The Stock Exchange of Hong Kong Limited (the
‘‘Reorganisation’’). The initial registered capital of the Company is RMB2,624,087,200, consisting of
2,624,087,200 shares of par value of RMB1.00 per share. The Company and its subsidiaries are
hereinafter referred to as the ‘‘Group’’.
Sinotrans Group Company was established in 1950 as a ministerial-level state-owned enterprise under
the Ministry of Foreign Trade and Economic Co-operation of the PRC. It acted as the sole freight
forwarding agent of the PRC Government. Through a series of business development initiatives and
expansion plans, Sinotrans Group Company has expanded its business scope from providing only freight
forwarding services to a wide range of transportation and logistics services. Sinotrans Group Company is
currently 100% owned by the PRC Government.
Pursuant to the Reorganisation, the Company issued 2,624,087,200 ordinary shares of RMB1.00 per
share (‘‘Domestic Shares’’) in exchange for (i) various assets and liabilities related to the freight
forwarding, express services and shipping agency businesses at certain core strategic locations in the
provinces or municipalities of Guangdong, Fujian, Zhejiang, Shanghai, Hubei, Jiangsu, Shandong, Tianjin
and Liaoning of the PRC, (ii) various assets and liabilities related to selected support operations including
storage and terminal services, trucking and marine transportation at these core strategic locations and
(iii) in addition to those described above, equity interests in certain subsidiaries, jointly controlled entities
and associates engaged in freight forwarding, express services, shipping agency and international multi-
modal transportation services in the PRC (collectively the ‘‘Transferred Businesses’’). Sinotrans Group
Company retained (i) the businesses of freight forwarding, shipping agency, storage and terminal
services, trucking and marine transportation, and express service agents located outside the core
strategic locations, (ii) certain businesses and support operations at these strategic locations to be
wound down or which are surplus to the requirements of the Group, (iii) ship chartering and fleet
management operations and container leasing operations, (iv) equity interests in certain jointly
controlled entities and associates which could not be transferred to the Company due to the absence of
consents of the joint venture partners in these entities, (v) certain non-core businesses and (vi) the
ownership of certain assets and liabilities including staff quarters, certain office buildings, bank
balances, investments in securities, borrowings, claims, contingent and tax liabilities (collectively the
‘‘Excluded Businesses’’).
52
Notes to the Financial Statements
2. BASIS OF PREPARATION
As Sinotrans Group Company controlled the Transferred Businesses before the Reorganisation and
continues to control the Company after the Reorganisation, the consolidated financial statements of the
Group for the years ended 31 December 2002 and 2001 have been prepared as a reorganisation of
businesses under common control in a manner similar to a pooling-of-interests. Accordingly, the assets
and liabilities transferred to the Company have been stated at historical amounts.
The consolidated financial statements of the Group for the years ended 31 December 2002 and 2001
present the results of the Group as if it had been in existence throughout the period and as if the
Transferred Businesses were transferred to the Company by Sinotrans Group Company at 1 January
2001 or when such businesses were acquired by Sinotrans Group Company, whichever is later. The
Company’s directors are of the opinion that the financial statements prepared on this basis present fairly
the consolidated financial position, consolidated results of operations and consolidated cash flows of the
Group as a whole. Therefore, the net profit for the year ended 31 December 2002 includes the
consolidated results of operations before the Reorganisation.
The consolidated financial statements include the historical cost of operations related to the Transferred
Businesses. Expenses that could be specifically identified include the following:
. purchased transportation and related services;
. staff costs (excluding those attributable directly to administration staff);
. depreciation (excluding those attributable directly to property, plant and equipment used for
general and administrative function);
. repairs and maintenance;
. fuel;
. selling and distribution expenses;
. taxes other than income taxes; and
. finance costs.
53
Notes to the Financial Statements
2. BASIS OF PREPARATION (continued)
Costs for which a specific identification method was not practical include only general and
administrative expenses, which are allocated to the Group by Sinotrans Group Company based on the
average of the percentages of the respective historical employee numbers, assets and turnover of the
Transferred Businesses to the total respective historical employee numbers, assets and turnover of
Sinotrans Group Company during the years ended at 31 December 2002 and 2001.
As the Reorganisation was conducted during the year ended 31 December 2002, the financial
statements of the Company have been prepared from the date of its incorporation and, accordingly,
there are no comparative figures in the Company’s balance sheet as at 31 December 2001.
The financial statements have been prepared in accordance with International Financial Reporting
Standards (‘‘IFRS’’), including International Accounting Standards and Interpretations issued by the
International Accounting Standards Board. The financial statements have been prepared under the
historical cost convention as modified by the revaluation of trading investments at fair value as disclosed
in the accounting policies in Note 3 below.
The preparation of financial statements in accordance with IFRS requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the year. Actual results could differ from these estimates.
3. PRINCIPAL ACCOUNTING POLICIES
(a) Basis of consolidation
The results of operations of subsidiaries and the share attributable to minority interests are
accounted for in the consolidated profit and loss account. The results of operations of jointly
controlled entities are accounted for by proportionate consolidation as described in Note 3(c).
54
Notes to the Financial Statements
3. PRINCIPAL ACCOUNTING POLICIES (continued)
(b) Subsidiaries
Subsidiary undertakings, which are those entities in which the Group has an interest of more than
one half of the voting rights or otherwise has power to exercise control over the operations, are
consolidated. Subsidiaries are included from the date on which control is transferred to the Group
and are excluded from the date that control ceases. All intercompany transactions, balances and
unrealised gains on transactions between group companies are eliminated; unrealised losses are
also eliminated unless cost cannot be recovered.
Investments in subsidiaries are accounted for using the equity method in the Company’s financial
statements. Equity accounting involves recognising in the profit and loss account the Company’s
share of the subsidiaries’ profit or loss for the year. The Company’s interests in the subsidiaries are
carried in the balance sheet at amounts that reflect its share of the net assets of the subsidiaries
and include goodwill on acquisition.
(c) Jointly controlled entities
A jointly controlled entity is a joint venture in respect of which a contractual arrangement is
established between the participating venturers and whereby the Group together with the other
venturers undertake an economic activity which is subject to joint control and none of the
venturers has unilateral control over the economic activity. The Group’s interests in jointly
controlled entities are accounted for by proportionate consolidation. Under this method the Group
includes its share of the jointly controlled entities’ individual income and expenses, assets and
liabilities and cash flows in the relevant components of the financial statements.
The Group recognises the portion of gains or losses on the sale of assets or provision of services to
jointly controlled entities that it is attributable to the other venturers. The Group does not
recognise its share of profits or losses from jointly controlled entities that result from the purchase
of assets or services by the Group from jointly controlled entities until the Group resells the assets
or services to an independent party. However, if a loss on the transaction provides evidence of a
reduction in the net realisable value of current assets or an impairment loss, the loss is recognised
immediately.
55
Notes to the Financial Statements
3. PRINCIPAL ACCOUNTING POLICIES (continued)
(d) Associates
Investments in associates are accounted for by the equity method of accounting. These are
undertakings over which the Group generally has between 20% and 50% of the voting rights, or
over which the Group has significant influence, but which it does not control.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent
of the Group’s investment in the associates; unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred.
Equity accounting is discontinued when the carrying amount of the investment in an associate
reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the
associate.
Gains and losses on disposals of investments in associates are determined by comparing proceeds
with carrying amount and are included in operating profit.
(e) Revenue recognition
Turnover comprises the value of charges for the sale of services to third parties net of
disbursements made on behalf of customers. Turnover/revenues are recognised on the following
bases:
(i) Freight forwarding
Revenue is recognised when the freight forwarding services are rendered, which generally
coincides with the date of departure for outward freight and the date of arrival for inward
freight, where the Group effectively acts as a principal in arranging transportation of goods
for customers, revenue recognised generally includes the carrier’s charges to the Group.
Where the Group effectively acts as an agent for the customers, revenue recognised
comprises fees for services provided by the Group.
(ii) Shipping agency
Revenue from shipping agency services is recognised upon completion of services, which
generally coincides with the date of departure of the relevant vessel from port.
56
Notes to the Financial Statements
3. PRINCIPAL ACCOUNTING POLICIES (continued)
(e) Revenue recognition (continued)
(iii) Express services
Revenue from express services is recognised upon delivery of the relevant document or
package.
(iv) Marine transportation
Revenue from liner shipping and feeder services is recognised when the services are rendered.
For uncompleted voyage at the end of a reporting period, revenue is allocated between
reporting periods based on relative transit time in each reporting period.
(v) Storage and terminal services
Revenue from the provision of storage and terminal services is recognised when the services
are rendered.
(vi) Trucking
Revenue from the provision of trucking services is recognised when the services are rendered.
(vii) Rental income
Rental income under operating leases of warehouse and depots is recognised on an accrual
basis.
(viii) Interest income
Interest income is recognised on a time proportion basis, taking into account the principal
amounts outstanding and the interest rates applicable.
(ix) Dividend income
Dividend income is recognised when the right to receive payment is established.
Advance payments and deposits received from customers prior to the provision of services and
recognition of the related revenues are presented as current liabilities.
57
Notes to the Financial Statements
3. PRINCIPAL ACCOUNTING POLICIES (continued)
(f) Land use rights
Land use rights are stated at cost less accumulated amortisation and impairment losses. Cost
represents consideration paid for the rights to use the land on which various warehouses,
container storage areas and buildings are situated for periods varying from 10 to 50 years.
Amortisation of land use right is calculated on a straight-line basis over the period of the land use
right.
(g) Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated depreciation and
impairment losses. Depreciation is calculated on a straight-line basis to write off the cost of assets
to their residual values over their estimated useful lives as follows:
Buildings 20 – 50 years
Leasehold improvements Over the shorter of the remaining term of the leases or
the estimated useful lives
Port and rail facilities 20 – 40 years
Containers 8 – 15 years
Plant and machinery 5 – 10 years
Motor vehicles and vessels 5 – 10 years
Furniture and office equipment 3 – 6 years
Assets under construction represent buildings under construction and plant and equipment
pending installation, and are stated at cost. Costs include construction and acquisition costs, and
interest charges arising from borrowings used to finance the assets during the period of
construction or installation and testing. No provision for depreciation is made on assets under
construction until such time as the relevant assets are completed and ready for intended use.
Property, plant and equipment are reviewed periodically for impairment losses whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable.
58
Notes to the Financial Statements
3. PRINCIPAL ACCOUNTING POLICIES (continued)
(g) Property, plant and equipment (continued)
When the carrying amount of an asset is greater than its estimated recoverable amount, it is
written down immediately to its recoverable amount. Estimated recoverable amount is determined
based on estimated discounted future cash flows of the cash-generating unit at the lowest level to
which the asset belongs. The recoverable amount is the higher of value in use or net selling price.
Gains and losses on disposals are determined by comparing proceeds with carrying amount and are
included in operating profit.
(h) Intangible assets
(i) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s
share of the net assets of the acquired subsidiary/jointly controlled entity at the date of
acquisition. Goodwill is amortised using the straight-line method over its estimated useful life
of 20 years.
Negative goodwill represents the excess of the fair value of the Group’s share of the net
assets acquired over the cost of acquisition. Negative goodwill is presented in the same
balance sheet classification as goodwill. To the extent that negative goodwill relates to
expectations of future losses and expenses that are identified in the Group’s plan for the
acquisition and can be measured reliably, but which do not represent identifiable liabilities,
that portion of negative goodwill is recognised in the profit and loss account when the future
losses and expenses are recognised. Any remaining negative goodwill, not exceeding the fair
values of the non-monetary assets acquired, is recognised in the profit and loss account over
the remaining weighted average useful life of those assets; negative goodwill in excess of the
fair values of those assets is recognised in the profit and loss account immediately.
59
Notes to the Financial Statements
3. PRINCIPAL ACCOUNTING POLICIES (continued)
(h) Intangible assets (continued)
(ii) Computer software development costs
Generally, costs associated with developing or maintaining computer software programmes
are expensed as incurred. However, costs that are directly associated with identifiable and
unique software products controlled by the Group and have probable economic benefit
exceeding the cost beyond one year, are recognised as intangible assets. Direct costs include
staff costs of the software development team and an appropriate portion of relevant
overheads.
Expenditure which enhances or extends the performance of computer software programmes
beyond their original specifications is recognised as a capital improvement and added to the
original cost of the software. Computer software development costs recognised as assets are
amortised using the straight-line method over their useful lives, not exceeding a period of 3
years.
(iii) Impairment of intangible assets
Intangible assets are reviewed periodically for impairment losses whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable.
When the carrying amount of an asset is greater than its estimated recoverable amount, it is
written down immediately to its recoverable amount. Estimated recoverable amount is
determined based on estimated discounted future cash flows of the cash-generating unit at
the lowest level to which the asset belongs. The recoverable amount is the higher of value in
use or net selling price.
(i) Trading investments
Investments that are acquired principally for the purpose of generating a profit from short-term
fluctuations in price are classified as trading investments and included in current assets. All
purchases and sales of investments are recognised on the trade date, which is the date that the
Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading
investments are subsequently carried at fair value at each reporting date. Realised and unrealised
gains and losses arising from changes in the fair value of trading investments are included in the
profit and loss account in the period in which they arise.
60
Notes to the Financial Statements
3. PRINCIPAL ACCOUNTING POLICIES (continued)
(j) Operating leases
(i) A group company is the lessee
Leases where a significant portion of the risks and rewards of ownership are retained by the
lessor are classified as operating leases. Payments made under operating leases (net of any
incentives received from the lessors) are charged to the profit and loss account on a straight-
line basis over the period of the lease.
(ii) A group company is the lessor
Assets leased out under operating leases are included in property, plant and equipment in the
balance sheet. They are depreciated over their expected useful lives on a basis consistent with
similar owned property, plant and equipment. Rental income (net of any incentives given to
lessees) is recognised on a straight-line basis over the lease term.
(k) Inventories
Supplies, consumables and spare parts are stated at cost determined by the first-in, first-out (FIFO)
method, less any provision for obsolescence.
(l) Trade receivables
Trade receivables are carried at original invoice amounts less provision made for impairment of
these receivables. Such provision for impairment of trade receivables is established if there is
objective evidence that the Group will not be able to collect all amounts due according to the
original term of receivables. The amount of the provision is the difference between the carrying
amount and the recoverable amount, being the present value of expected cash flows, discounted
at the market rate of interest for similar borrowers.
(m) Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash
flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks,
other short-term highly liquid investments with original maturities of three months or less, and
bank overdrafts. In the balance sheet, bank overdrafts are included in borrowings in current
liabilities.
61
Notes to the Financial Statements
3. PRINCIPAL ACCOUNTING POLICIES (continued)
(n) Borrowings
Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. In
subsequent periods, borrowings are stated at amortised cost using the effective yield method; any
difference between proceeds (net of transaction costs) and the redemption value is recognised in
the profit and loss account over the period of the borrowings.
(o) Borrowing costs
Interest costs on borrowings to finance the construction of property, plant and equipment are
capitalised, during the period of time that is required to complete and prepare the asset for its
intended use. No borrowing costs were capitalised during the years as the amounts were
immaterial. All other borrowing costs are expensed as incurred.
(p) Deferred income taxes
Deferred income tax is provided in full, using the liability method, on temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the financial
statements. The principal temporary differences arise from gain on deemed disposal of investment
in a subsidiary, depreciation on property, plant and equipment, amortisation of intangible asset,
provision for impairment of receivables, write-off of pre-operating and other deferred expenses,
provision for litigation claims and tax value of losses carried forward. Tax rates enacted or
substantively enacted by the balance sheet date are used to determine deferred income tax.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries,
associates and jointly controlled entities, except where the timing of the reversal of the temporary
difference can be controlled and it is probable that the temporary difference will not reverse in the
foreseeable future.
62
Notes to the Financial Statements
3. PRINCIPAL ACCOUNTING POLICIES (continued)
(q) Employee benefits
(i) Pension obligations
The full-time employees of the Group are covered by various government-sponsored pension
plans under which the employees are entitled to a monthly pension based on certain
formulas. The relevant government agencies are responsible for the pension liability to these
retired employees. The Group contributes on a monthly basis to these pension plans. Under
these plans, the Group has no obligation for post-retirement benefits beyond the
contributions made. Contributions to these plans are expensed as incurred.
In addition, the Group provided supplementary pension subsidies to employees who retired
prior to the Reorganisation. The cost of providing these pension subsidies is charged to the
profit and loss account using the projected unit credit method so as to spread the service cost
over the average service lives of the retirees. The pension obligation is measured as the
present value of the estimated future cash flows using interest rates of government securities
which have terms to maturity approximating the terms of the related liability. Actuarial gains
and losses are recognised in the year in which they were incurred. Employees who retire after
the date of Reorganisation are not entitled to such supplementary pension subsidies.
(ii) Termination and early retirement benefits
Employee termination and early retirement benefits are recognised in the period in which the
Group entered into an agreement with the employee specifying the terms of redundancy, or
after the individual employee has been advised of the specific terms.
(iii) Housing benefits
The Group sold staff quarters to its employees, subject to a number of eligibility
requirements, at preferential prices. When staff quarters are identified as being subject to
sale under these arrangements, the carrying value of the staff quarters is written down to the
net recoverable amount. Upon sale, any difference between sales proceeds and the carrying
amount of the staff quarters is charged to the profit and loss account.
63
Notes to the Financial Statements
3. PRINCIPAL ACCOUNTING POLICIES (continued)
(q) Employee benefits (continued)
(iii) Housing benefits (continued)
The above discounted quarters allocation plans have been phased out in accordance with the
policies of the PRC Government. In 1998, the State Council of the PRC issued a circular which
stipulated that the sale of quarters to employees at preferential prices should be withdrawn.
In 2000, the State Council further issued a circular stating that cash subsidies should be made
to the employees following the withdrawal of allocation of staff quarters. However, the
specific timetable and procedures of implementation of these policies are to be determined
by individual provincial or municipal government based on the particular situation of the
province or municipality.
Based on the relevant detailed local government regulations promulgated, certain entities
within the Group have adopted cash housing subsidy plans. In accordance with these plans,
for those eligible employees who have not been allocated with quarters at all or who have
not been allocated with quarters up to the prescribed standards before the discounted
quarters sale plans were terminated, the Group is required to pay them one-off cash housing
subsidies based on their years of service, positions and other criteria. These cash housing
subsidies are charged to the profit and loss account in the year in which it was determined
that the payment of such subsidies is probable and the amounts can be reasonably estimated.
In respect of certain entities which have not adopted any cash housing subsidiary plans,
based on the available information and its best estimate, the Group estimated the required
provision for these cash housing subsidies when the State Council circular in respect of cash
subsidies was issued.
Pursuant to the Reorganisation, the ultimate holding company has agreed to bear any further
one-off cash housing subsidies in excess of the amount provided for in the consolidated
financial statements of the Group of RMB74,560,000 at the time of the Reorganisation.
Employees joining the Group after the incorporation of the Company are not entitled to any
one-off cash housing subsidies.
64
Notes to the Financial Statements
3. PRINCIPAL ACCOUNTING POLICIES (continued)
(q) Employee benefits (continued)
(iii) Housing benefits (continued)
In addition, all full-time employees of the Group are entitled to participate in various
government-sponsored housing funds. The Group contributes on a monthly basis to these
funds based on certain percentages of the salaries of the employees. The Group’s liability in
respect of these funds is limited to the contributions payable in each period.
(r) Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result
of past events, it is probable that an outflow of resources will be required to settle the obligation,
and a reliable estimate of the amount can be made. Where the Group expects a provision to be
reimbursed, for example under an insurance contract, the reimbursement is recognised as a
separate asset but only when the reimbursement is virtually certain.
(s) Financial instruments
(i) Financial risk factors
The Group’s activities expose it to a variety of financial risks, including the effects of changes
in debt and equity market prices, foreign currency exchange rates and interest rates.
— Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from
various currency exposures primarily with respect to the United States Dollar. The Group
has not used any forward contracts or currency borrowings to hedge its exposure to
foreign exchange risk.
— Interest rate risk
The Group’s income and operating cash flows are substantially independent of changes
in market interest rates. The Group has no significant interest-bearing assets. As at 31
December 2001 and 2002, substantially all of its borrowings were at fixed rates. The
Group has not used any interest rate swaps to hedge its exposure to interest rate risk.
65
Notes to the Financial Statements
3. PRINCIPAL ACCOUNTING POLICIES (continued)
(s) Financial instruments (continued)
(i) Financial risk factors (continued)
— Credit risk
The extent of the Group’s credit exposure is represented by an aggregated balance of
trade receivables and other receivables, trading investments, pledged deposits and term
deposits with an initial term of over three months. The maximum credit risk exposure in
the event that other parties fail to perform their obligations under these financial
instruments was approximately RMB3,206,829,000 (2001 : RMB2,625,382,000) as at
31 December 2002. In addition, the Group made certain prepayments on behalf of
customers, prepaid certain expenses and provided certain deposits, the aggregate of
which was RMB234,993,000 (2001 : RMB224,964,000) as at 31 December 2002.
(ii) Loan guarantees
The Group had acted as the guarantor for various external borrowings by certain fellow
subsidiaries under the ultimate holding company and certain third party entities. As at 31
December 2002, it acted as the guarantor for certain other related parties and third party
entities. These loan guarantees were provided to assist those entities in obtaining the
necessary funding for their business development and working capital requirements.
Pursuant to the Reorganisation, all guarantees given by the Group for the benefit of the
ultimate holding company and fellow subsidiaries have been released or withdrawn prior to
the listing of the Company’s shares.
In the case of default by these entities on the repayment of the related borrowings, the
Group may be required to pay the guaranteed amounts as disclosed. If the Group is required
to make payments under those guarantees in the case of default by the borrowers, it will
generally be entitled to claim against the borrowers to recover the amounts paid.
The Group periodically reviews its exposure under these guarantees and has laid down
policies specifying the required approvals prior to the provision of further guarantees.
The Group accounts for these guarantees and potential recovery from the borrowers as
contingent liabilities and contingent assets and the applicable accounting policy is set out in
Note 3(u).
66
Notes to the Financial Statements
3. PRINCIPAL ACCOUNTING POLICIES (continued)
(s) Financial instruments (continued)
(iii) Fair value estimation
The fair value of publicly traded trading securities is based on quoted market prices at the
balance sheet date.
In assessing the fair value of non-traded financial instruments, the Group uses a variety of
methods and makes assumptions that are based on market conditions existing at each
balance sheet date. Quoted market prices or dealer quotes for the specific or similar
instruments are used for long-term borrowings. Other techniques, such as estimated
discounted value of future cash flows, are used to determine fair value for the remaining
financial instruments.
The face values less any estimated credit adjustments for financial assets and liabilities with a
maturity of less than one year are assumed to approximate their fair values. The fair value of
financial liabilities for disclosure purposes is estimated by discounting the future contractual
cash flows at the current market interest rate available to the Group for similar financial
instruments.
(t) Foreign currency translation
Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the
transactions. Gains and losses resulting from the settlement of such transactions and from the
translation of monetary assets and liabilities denominated in foreign currencies are recognised in
the profit and loss account. The individual items in the financial statements of foreign operations
that are integral to the operations of the Group are translated as if all its transactions had been
entered into by the Group itself.
(u) Contingent liabilities and contingent assets
A contingent liability is a possible obligation that arises from past events and whose existence will
only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not
wholly within the control of the Group. It can also be a present obligation arising from past events
that is not recognised because it is not probable that outflow of economic resources will be
required or the amount of obligation cannot be measured reliably.
67
Notes to the Financial Statements
3. PRINCIPAL ACCOUNTING POLICIES (continued)
(u) Contingent liabilities and contingent assets (continued)
A contingent liability is not recognised but is disclosed in the notes to the financial statements.
When a change in the probability of an outflow occurs so that outflow is probable, it will then be
recognised as a provision.
A contingent asset is a possible asset that arises from past events and whose existence will be
confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly
within the control of the Group.
Contingent assets are not recognised but are disclosed in the notes to the financial statements
when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is
recognised.
(v) Profit distributions and dividends
Profit distributions and dividends proposed or declared after the balance sheet date are disclosed
as a post balance sheet date event and are not recognised as a liability at the balance sheet date.
(w) Segment reporting
A segment is a distinguishable component of the Group that is engaged either in providing
products or services (business segment), or in providing products or services with a particular
economic environment (geographical segment), which is subject to risks and rewards that are
different from those of other segments.
Unallocated costs represent corporate expenses. Segment assets consist primarily of property,
plant and equipment, intangible assets, inventories, operating receivables and cash, and mainly
exclude deferred tax assets and investments in associates. Segment liabilities mainly comprise
operating liabilities and exclude items such as current and deferred tax liabilities. Capital
expenditures mainly comprise additions to property, plant and equipment and intangible assets.
Operating expenses of a functional unit are allocated to the relevant segment which is the
predominant user of the services provided by the unit. Operating expenses of other shared services
which cannot be allocated to a specific segment are included as unallocated costs.
68
Notes to the Financial Statements
3. PRINCIPAL ACCOUNTING POLICIES (continued)
(w) Segment reporting (continued)
In respect of geographical segment, turnover is based on the geographical locations in which the
business operations are located. Total assets and capital expenditures are where the assets are
located.
(x) Related parties
Related parties are those parties which have the ability, directly or indirectly, to control the other
party or exercise significant influence over the other party in making financial and operating
decisions. Parties are also considered to be related if they are subject to common control or
common significant influence.
The Group is a large group of companies under the ultimate holding company and has significant
transactions and relationships with members of the ultimate holding company. Because of these
relationships, it is possible that the terms of these transactions are not the same as those that
would result from transactions among wholly unrelated parties.
The ultimate holding company itself is owned by the PRC government. There are also other
enterprises directly or indirectly owned or controlled by the PRC government (‘‘state-owned
enterprises’’). A portion of the Group’s business activities are conducted with state-owned
enterprises. Furthermore, the PRC government itself represents a major customer of the Group
both directly through its numerous authorities and indirectly through its numerous affiliates and
other organisations. The Group considers that these sales are activities in the ordinary course of
business in the PRC and has not disclosed such sales as related party transactions.
69
Notes to the Financial Statements
4. TURNOVER AND SEGMENT INFORMATION
(a) Primary reporting format — business segments
The Group is organised in 5 main business segments:
(i) Freight forwarding
The Group’s freight forwarding services primarily involve, at the instruction of its customers,
arranging transportation of goods to designated consignees at other locations within
specified time limits. Other ancillary services include arranging for customs declaration and
clearance, preparation of the documentation, consolidation and distribution, drayage and
warehousing.
(ii) Shipping agency
The Group provides shipping agency services to shipping companies which include:
. attending to the formalities for a vessel’s entry into or departure from ports;
. arranging piloting, berthing, loading and discharging of vessels;
. arranging cargo space booking and shipping documentation on behalf of carriers;
. signing bills of lading;
. arranging shipments and transhipment of cargoes and containers;
. managing container control; and
. collecting freight and settling payment on behalf of carriers.
(iii) Express services
The Group’s express services comprise express delivery of documents, packages and heavy
weight freight, as well as small parcel shipments with guaranteed delivery times.
70
Notes to the Financial Statements
4. TURNOVER AND SEGMENT INFORMATION (continued)
(a) Primary reporting format — business segments (continued)
(iv) Marine transportation
The Group’s marine transportation services primarily comprise liner services to and from the
West Coast of North America, within Asia, as well as coastal and river feeder services in the
Yangtze River Area and Pearl River Delta in the PRC.
(v) Storage and terminal services
The Group’s storage and terminal services comprise the following operations:
. warehousing — providing cargo handling and storage services;
. container yards — providing container handling and space management services;
. container freight stations — providing services in connection with storage and vanning/
devanning of containers; and
. terminals — providing berthing, loading/unloading and warehousing services.
Other operations of the Group mainly comprise trucking and other related support services. None
of them are of a sufficient size to be reported separately.
71
Notes to the Financial Statements
4. TURNOVER AND SEGMENT INFORMATION (continued)
(a) Primary reporting format — business segments (continued)
As at and for the year ended 31 December 2002
Freight
forwarding
Shipping
agency
Express
services
Marine
transportation
Storage and
terminal
services Others
Inter-segment
elimination Group
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Turnover — External 9,703,902 371,094 1,123,035 1,787,281 434,931 130,168 — 13,550,411
Turnover — Inter-segment 621,038 9,613 27,810 163,207 11,470 20,789 (853,927) —
10,324,940 380,707 1,150,845 1,950,488 446,401 150,957 (853,927) 13,550,411
Segment results 316,647 215,084 292,542 34,579 76,278 (7,749) — 927,381
Unallocated costs (34,004)
Operating profit 893,377
Finance income, net 28,053
921,430
Share of results of associates before
taxation 10,117
Profit before taxation 931,547
Taxation (244,243)
Profit after taxation 687,304
Minority interests (115,082)
Profit for the year 572,222
Assets
Segment assets 3,941,818 863,577 1,666,716 973,051 516,435 109,239 (850,085) 7,220,751
Investments in associates 24,367
Unallocated assets 141,617
Total assets 7,386,735
Liabilities
Segment liabilities 2,811,676 684,114 306,449 943,392 139,030 51,772 (730,324) 4,206,109
Unallocated liabilities 627,612
Total liabilities 4,833,721
Other information
Capital expenditures 216,644 6,150 108,782 8,891 80,362 7,531 — 428,360
Depreciation 94,612 4,808 28,570 11,093 30,058 5,936 — 175,077
Amortisation 5,871 452 1,795 1,034 1,987 51 — 11,190
Impairment loss on fixed assets 272 — — — — — — 272
Other non-cash expenses/(income) (8,093) 520 763 (2,055) 511 414 — (7,940)
72
Notes to the Financial Statements
4. TURNOVER AND SEGMENT INFORMATION (continued)
(a) Primary reporting format — business segments (continued)
As at and for the year ended 31 December 2001
Freight
forwarding
Shipping
agency
Express
services
Marine
transportation
Storage and
terminal
services Others
Inter-segment
elimination Group
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Turnover — External 7,828,789 338,812 851,110 1,522,334 357,544 151,216 — 11,049,805
Turnover — Inter-segment 564,639 14,555 2,274 94,006 19,126 15,479 (710,079) —
8,393,428 353,367 853,384 1,616,340 376,670 166,695 (710,079) 11,049,805
Segment results 255,485 199,004 237,541 9,703 56,020 (2,102) — 755,651
Unallocated costs (32,594)
Operating profit 723,057
Finance income, net 31,039
754,096
Share of results of associates before
taxation 11,021
Profit before taxation 765,117
Taxation (207,291)
Profit after taxation 557,826
Minority interests (105,523)
Profit for the year 452,303
Assets
Segment assets 3,452,348 789,972 1,546,319 435,665 375,672 89,044 (662,907) 6,026,113
Investments in associates 50,007
Unallocated assets 82,517
Total assets 6,158,637
Liabilities
Segment liabilities 2,561,822 551,745 351,879 635,308 112,332 85,890 (655,084) 3,643,892
Unallocated liabilities 162,088
Total liabilities 3,805,980
Other information
Capital expenditures 178,173 10,321 127,722 15,219 34,866 7,664 — 373,965
Depreciation 81,823 4,579 19,097 10,481 24,862 5,255 — 146,097
Amortisation 2,595 389 1,749 791 1,030 105 — 6,659
Other non-cash expenses 37,853 18,952 7,753 506 8,736 47 — 73,847
73
Notes to the Financial Statements
4. TURNOVER AND SEGMENT INFORMATION (continued)
(b) Secondary reporting format — geographical segments
The Group’s businesses operate in four main geographical areas within the PRC:
(i) Northern China — Including core strategic locations in Liaoning, Tianjin as well as the
operations of Sinotrans Air Transportation Development Co., Ltd. (‘‘Sinoair’’), a subsidiary of
the Company, in Beijing, Tianjin, Hebei, Shanxi, Inner Mongolia and Henan.
(ii) Eastern China — Including core strategic locations in Jiangsu, Shanghai, Zhejiang, Fujian and
Shandong, as well as the operations of Sinoair in Shanghai, Jiangsu, Zhejiang, Anhui, Fujian,
Jiangxi and Shandong.
(iii) Southern China — Including core strategic locations in Guangdong, Shenzhen and Hubei, as
well as the operations of Sinoair in Hubei, Hunan, Guangdong, Guangxi, Hainan, Guizhou
and Yunnan.
(iv) Other locations — Including primarily the air freight forwarding and express services operated
by Sinoair and certain of the jointly controlled entities of the Group in locations other than
the above.
74
Notes to the Financial Statements
4. TURNOVER AND SEGMENT INFORMATION (continued)
(b) Secondary reporting format — geographical segments (continued)
As at and for the year ended 31 December 2002
Turnover —
External
Turnover —
Inter-segment
Total
turnover
Segment
results
Total
assets
Capital
expenditures
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Northern China 1,304,563 6,026 1,310,589 54,640 1,842,333 65,489
Eastern China 10,050,602 129,386 10,179,988 720,874 4,264,229 204,411
Southern China 1,910,306 36,175 1,946,481 124,456 1,018,732 145,576
Other locations 284,940 5,435 290,375 27,411 151,427 12,884
Inter-segment elimination — (177,022) (177,022) — (55,970) —
13,550,411 — 13,550,411 927,381 7,220,751 428,360
Unallocated costs (34,004)
Operating profit 893,377
Investments in associates 24,367
Unallocated assets 141,617
Total assets 7,386,735
75
Notes to the Financial Statements
4. TURNOVER AND SEGMENT INFORMATION (continued)
(b) Secondary reporting format — geographical segments (continued)
As at and for the year ended 31 December 2001
Turnover —
External
Turnover —
Inter-segment
Total
turnover
Segment
results
Total
assets
Capital
expenditures
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Northern China 903,715 1,236 904,951 47,481 1,718,742 79,408
Eastern China 8,471,824 40,290 8,512,114 600,686 3,453,044 215,420
Southern China 1,539,567 5,696 1,545,263 103,246 757,348 68,264
Other locations 134,699 2,456 137,155 4,238 133,204 10,873
Inter-segment elimination — (49,678) (49,678) — (36,225) —
11,049,805 — 11,049,805 755,651 6,026,113 373,965
Unallocated costs (32,594)
Operating profit 723,057
Investments in associates 50,007
Unallocated assets 82,517
Total assets 6,158,637
76
Notes to the Financial Statements
5 DIRECTORS’ AND SENIOR MANAGEMENT’S EMOLUMENTS
(a) Directors’ emoluments
During the year, there were no emoluments paid and payable by the Company to the directors of
the Company. The aggregate amounts of the emoluments paid and payable to the directors of the
Company by the Group in respect of their services rendered for managing the businesses of the
Group during the year are as follows:
2002 2001
RMB’000 RMB’000
Fees — —
Other emoluments for executive directors
— Basic salaries, housing allowances, other allowances
and benefits in kind 772 759
— Discretionary bonuses 1,230 539
2,002 1,298
These represent historical amounts incurred by the Group during the year. Remuneration of
directors and supervisors of the Company may change after the listing of the Company.
No directors of the Company waived any remuneration during the year (2001 : Nil).
The emoluments of the directors were within the following band:
Number of directors
2002 2001
Nil – RMB1,000,000 5 5
77
Notes to the Financial Statements
5. DIRECTORS’ AND SENIOR MANAGEMENT’S EMOLUMENTS (continued)
(b) Five highest paid individuals
The five individuals whose emoluments were the highest in the Group during the year are as
follows:
2002 2001
Directors 3 4
Senior management 2 1
The five individuals whose emoluments were the highest in the Group during the year include
three (2001 : four) directors whose emoluments are reflected in the analysis presented in Note (a).
Details of remuneration of senior management amongst the five highest paid individuals are as
follows:
2002 2001
RMB’000 RMB’000
Basic salaries, housing allowances and other allowances
and benefits in kind 317 241
Discretionary bonuses 596 135
913 376
The emoluments of these senior management fell within the following band:
Number of individuals
2002 2001
Nil – RMB1,000,000 2 1
During the years, no emoluments have been paid by the Group to the directors or any of the five
highest paid individuals as an inducement to join or upon joining the Group or as compensation for
loss of office.
78
Notes to the Financial Statements
6. STAFF COSTS
Staff costs during the year which included remuneration to directors and supervisors of the Company
and senior management are as follows:
2002 2001
Note RMB’000 RMB’000
Wages and salaries 701,999 557,690
Housing benefits (a) 32,749 20,790
Contributions to the pension plans (b) 73,387 59,412
Cost of supplementary pension subsidies to retirees (c)
— current service cost 1,047 5,689
— interest cost 738 3,433
— actuarial gains and losses (29,923) (3,045)
Termination benefits and early retirement benefits (d) 17,978 35,705
Welfare and other expenses 214,873 176,570
1,012,848 856,244
(a) These include the Group’s loss on disposal of staff quarters, contributions to government
sponsored housing funds (at rates ranging from 5% to 22% of the employees’ basic salary) and
cash housing subsidies paid and payable to certain employees during the year.
(b) The employees of the Group participate in various pension plans organised by the relevant
municipal and provincial government under which the Group was required to make monthly
defined contributions to these plans at rates ranging from 5% to 29%, dependent upon the
applicable local regulations, of the employees’ basic salary for the year.
(c) The Group provided supplementary pension subsidies to employees who retired prior to the
Reorganisation. The cost of providing these pension subsidies is charged to the profit and loss
account so as to spread the service cost over the average service lives of the retirees. Employees
who retire after the date of Reorganisation are not entitled to such pension subsidies.
79
Notes to the Financial Statements
6. STAFF COSTS (continued)
(d) Certain employees of the Group were directed to retire early or their employment services were
terminated during the year. Employee termination and early retirement benefits are recognised in
the profit and loss account in the year in which the Group entered into an agreement specifying
the terms of redundancy, or after the individual employee has been advised of the specific terms.
These specific terms vary among the terminated or early retired employees depending on various
factors including position, length of service and district of the employee concerned.
The Group has no other obligations for the payment of pension and other post-retirement benefits of
employees or retirees other than the payments discussed above.
As at 31 December 2002, the Group had approximately 13,462 employees (2001 : 15,926).
7. PROFIT BEFORE TAXATION
Profit before taxation is stated after crediting and charging the following:
2002 2001
RMB’000 RMB’000
Crediting
Rental income 9,565 11,142
Interest income 33,325 36,722
Gain on disposal of property, plant and equipment 2,265 4,689
Fair value gains on trading investments 2,356 2,503
Reversal of provision for impairment of receivables 7,940 —
Charging
Depreciation
— owned property, plant and equipment 173,400 144,508
— owned property, plant and equipment leased
out under operating leases 1,677 1,589
Loss on disposal of property, plant and equipment 4,744 4,426
Auditors’ remuneration 7,863 —
Provision for impairment of property, plant and equipment 272 —
Operating leases
— land and buildings 112,783 79,314
— plant and equipment 465,546 446,366
Provision for impairment of receivables and bad debts written off — 39,207
Amortisation of land use rights and intangible assets 11,190 6,659
80
Notes to the Financial Statements
8. FINANCE INCOME, NET
2002 2001
RMB’000 RMB’000
Interest income on bank balances 33,325 36,722
Interest expense on bank loans and overdrafts (6,923) (5,902)
Interest expense on other loans which are wholly repayable within five years (100) (61)
Exchange gains, net 6,649 5,635
Bank charges (4,898) (5,355)
28,053 31,039
No borrowing costs were capitalised during the year (2001 : Nil).
9. TAXATION
Taxation in the consolidated profit and loss account represents:
2002 2001
RMB’000 RMB’000
Provision for PRC income tax
— current 232,656 214,762
— deferred taxation charge/(credit) 9,260 (9,824)
241,916 204,938
Share of taxation attributable to associates 2,327 2,353
244,243 207,291
The provision for PRC current income tax is based on the statutory rate of 33% (2001 : 33%) of the
assessable income of each of the companies and enterprises now comprising the Group as determined
in accordance with the relevant PRC income tax rules and regulations for the years ended 31 December
2002 and 2001, except for certain subsidiaries or jointly controlled entities which are taxed at
preferential rates ranging from 0% to 30% (2001 : 0% to 30%) based on the relevant PRC tax laws and
regulations.
81
Notes to the Financial Statements
9. TAXATION (continued)
(a) The reconciliation between the Group’s actual tax charge and the amount which is calculated
based on the statutory tax rate of 33% in the PRC is as follows:
2002 2001
RMB’000 RMB’000
Profit before taxation 931,547 765,117
Tax calculated at the statutory tax rate of 33% 307,411 252,489
Utilisation of prior year unrecognised tax losses (2,198) (3,008)
Deferred tax benefits arising from tax losses in certain entities not
recognised 3,454 5,155
Non-taxable income (25,593) (13,961)
Expenses not deductible for tax purposes 15,092 29,057
Preferential tax rate on the income of certain subsidiaries/jointly
controlled entities (55,268) (63,453)
Others 1,345 1,012
Tax charge 244,243 207,291
82
Notes to the Financial Statements
9. TAXATION (continued)
(b) Deferred income taxes are calculated in respect of temporary differences under the liability method
using the tax rates which are expected to apply at the time of reversal of the temporary
differences.
The movement in the deferred taxation accounts is as follows:
Deferred tax assets:
The Group The Company
2002 2001 2002
RMB’000 RMB’000 RMB’000
As at 1 January 62,499 52,554 —
(Decrease)/increase during the year (9,599) 9,945 3,006
As at 31 December 52,900 62,499 3,006
Provided for in respect of:
Provision for impairment of receivables 27,957 33,185 —
Provision for one-off cash housing subsidies 17,215 18,239 —
Provisions for pensions and other post
retirement benefits — 1,889 —
Provision for claims 2,948 7,027 —
Write-off of other current assets — 1,341 —
Other temporary differences 4,780 818 3,006
52,900 62,499 3,006
Temporary differences for which deferred tax
assets were not recognised:
Provision for impairment of receivables 3,612 2,285 —
Depreciation on property, plant and equipment 635 912 635
Losses carried forward 8,607 — —
Write-off of other current assets — 1,406 —
Others 2,492 — 2,492
15,346 4,603 3,127
83
Notes to the Financial Statements
9. TAXATION (continued)
Deferred tax liabilities:
The Group
2002 2001
RMB’000 RMB’000
As at 1 January 1,957 1,836
(Decrease)/increase during the year (339) 121
As at 31 December 1,618 1,957
Provided for in respect of:
Depreciation on property, plant and equipment 1,594 1,426
Other temporary differences 24 531
Total deferred tax liabilities 1,618 1,957
The temporary differences associated with the Group’s underlying investments in subsidiaries,
associates and jointly controlled entities amounted to approximately RMB610,203,000 (2001 :
RMB610,203,000) as at 31 December 2002 for which deferred tax liabilities have not been
recognised. Within the above amounts was a gain of RMB603,087,000 arising from deemed
disposal of the Company’s share of net assets of Sinoair after the issuance of shares by the latter in
connection with its initial public offering on the Shanghai Stock Exchange during the year ended
31 December 2000.
84
Notes to the Financial Statements
9. TAXATION (continued)
(c) Current tax liabilities represent:
The Group
2002 2001
RMB’000 RMB’000
Enterprise income tax 117,311 160,131
Business tax 33,825 24,234
Other taxes 10,327 4,220
161,463 188,585
10. PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The profit attributable to shareholders is dealt with in the accounts of the Company to the extent of
approximately RMB94,252,000.
11. DIVIDEND
Pursuant to the Reorganisation, the Company agreed to distribute a special dividend to Sinotrans Group
Company representing the consolidated net profit of the Group for the period from 1 January 2002 to
30 November 2002 determined in accordance with PRC accounting standards, which amounted to
approximately RMB477,970,000. The Group has distributed such an amount to Sinotrans Group
Company by the end of March 2003.
The board of directors does not recommend the payment of any other dividend for the year ended 31
December 2002.
12. EARNINGS PER SHARE
Basic and diluted earnings per share for the years ended 31 December 2002 and 2001 have been
computed by dividing the profit for the year by 2,624,087,200 shares, being the number of shares
issued and outstanding upon the legal formation of the Company on 20 November 2002 as if such
shares had been outstanding for all years presented. As there are no potentially diluted securities, there
is no difference between basic and diluted earnings per share.
85
Notes to the Financial Statements
13. PROPERTY, PLANT AND EQUIPMENT
The Group
Buildings
Leasehold
improvements
Port and
rail
facilities Containers
Plant and
machinery
Motor
vehicles
and vessels
Furniture
and office
equipment
Assets
under
construction
2002
Total
2001
Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Cost
At beginning of year 528,551 30,581 65,914 22,835 220,751 487,958 279,017 83,233 1,718,840 1,488,535
Additions 26,038 5,452 — 253 56,273 84,192 67,436 105,653 345,297 308,034
Acquisition of
subsidiaries/a jointly
controlled entity 30,399 — 4,438 124 18,575 2,286 1,722 7,086 64,630 6,182
Disposals (13,395) — — (46) (16,842) (30,178) (16,655) (2,500) (79,616) (83,911)
Transfer upon completion 126,845 9,166 — — 6,689 5,416 2,092 (150,208) — —
At end of year 698,438 45,199 70,352 23,166 285,446 549,674 333,612 43,264 2,049,151 1,718,840
Accumulated depreciation
At beginning of year (135,421) (10,756) (28,197) (14,108) (126,614) (248,403) (140,360) — (703,859) (616,227)
Depreciation for the year (29,207) (5,800) (7,929) (2,782) (12,676) (67,520) (49,163) — (175,077) (146,097)
Disposals 5,391 — — 23 10,066 21,649 13,090 — 50,219 58,465
Impairment losses — — — — — (272) — — (272) —
At end of year (159,237) (16,556) (36,126) (16,867) (129,224) (294,546) (176,433) — (828,989) (703,859)
Net book value
At end of year 539,201 28,643 34,226 6,299 156,222 255,128 157,179 43,264 1,220,162 1,014,981
At beginning of year 393,130 19,825 37,717 8,727 94,137 239,555 138,657 83,233 1,014,981 872,308
86
Notes to the Financial Statements
13. PROPERTY, PLANT AND EQUIPMENT (continued)
The Company
Furniture and
office
equipment
Assets under
construction Total
RMB’000 RMB’000 RMB’000
Cost
As at 1 January 2002 — — —
Transferred from Sinotrans Group Company
upon incorporation 9,722 11,655 21,377
Additions 7,296 — 7,296
As at 31 December 2002 17,018 11,655 28,673- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Accumulated depreciation
As at 1 January 2002 — — —
Depreciation for the year (456) — (456)
As at 31 December 2002 (456) — (456)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Net book value
As at 31 December 2002 16,562 11,655 28,217
Property, plant and equipment pledged as security for bank loans were as follows:
The Group
2002 2001
RMB’000 RMB’000
Net book value of property, plant and equipment pledged 28,916 16,326
Corresponding borrowings (18,882) (12,230)
87
Notes to the Financial Statements
14. LAND USE RIGHTS
The Group
2002 2001
RMB’000 RMB’000
Cost 189,685 160,273
Accumulated amortisation (21,960) (20,189)
Net book value 167,725 140,084
15. INTANGIBLE ASSETS
The Group
Software Goodwill 2002 Total 2001 Total
RMB’000 RMB’000 RMB’000 RMB’000
Cost
At beginning of year 16,345 (193) 16,152 6,823
Additions 12,851 8,207 21,058 8,984
Acquisition of a jointly controlled
entity — — — 345
Disposals (343) — (343) —
At end of year 28,853 8,014 36,867 16,152- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Accumulated amortisation
At beginning of year (7,116) 190 (6,926) (2,240)
Amortisation for the year (8,855) (564) (9,419) (4,686)
Disposals 188 — 188 —
At end of year (15,783) (374) (16,157) (6,926)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Net book value
At end of year 13,070 7,640 20,710 9,226
At beginning of year 9,229 (3) 9,226 4,583
88
Notes to the Financial Statements
15. INTANGIBLE ASSETS (continued)
The Company
Software
RMB’000
Cost
As at 1 January 2002 —
Transferred from Sinotrans Group Company upon incorporation 7,948
Additions 1,758
As at 31 December 2002 9,706- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Accumulated amortisation
As at 1 January 2002 —
Amortisation for the year (1,014)
As at 31 December 2002 (1,014)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Net book value
As at 31 December 2002 8,692
16. INVESTMENTS IN SUBSIDIARIES
The Company
2002
RMB’000
Investments at cost:
Unlisted equity interests 1,471,911
Shares listed in the PRC 1,278,378
2,750,289
Share of undistributed post-acquisition profits less losses 97,475
Dividends received (50,133)
2,797,631
89
Notes to the Financial Statements
16. INVESTMENTS IN SUBSIDIARIES (continued)
Shares listed in the PRC represent 70.36% equity interest in Sinoair, a company listed on the Shanghai
Stock Exchange. The market value of those listed shares was RMB4,205,887,736 as at 31 December
2002.
The following is a list of the principal subsidiaries at 31 December 2002 :
Name
Country/place of operation
& incorporation/date of
incorporation/legal status
Issued share/
paid up capital
Equity interest
held by the
Principal activitiesCompany Group
China Marine Shipping
Agency Company
Limited
Beijing, the PRC
11 December 2002
Limited liability company
RMB12,000,000 90% 100% Shipping agency
Sinotrans International
Multimodal
Transportation Company
Limited
Beijing, the PRC
26 December 2002
Limited liability company
RMB9,801,195 90% 100% Freight forwarding
Sinotrans Air Transportation
Development Company
Limited
Beijing, the PRC
11 October 1999
Joint stock company with
limited liability
RMB365,851,200 70.36% 70.36% Air freight
forwarding and
express services
Dalian JD Cargo
International Co., Ltd.
Dalian, the PRC
31 March 1994
Limited liability company
RMB6,000,000 — 42.22% Air freight
forwarding
Sinotrans Ningbo
International Air Freight
Co., Ltd.
Ningbo, the PRC
2 May 1995
Limited liability company
RMB3,000,000 — 42.22% Air freight
forwarding
Shanghai Xin Yun Logistic
Co., Ltd.
Shanghai, the PRC
9 February 2002
Limited liability company
RMB5,000,000 — 69.66% Freight forwarding
90
Notes to the Financial Statements
16. INVESTMENTS IN SUBSIDIARIES (continued)
Name
Country/place of operation
& incorporation/date of
incorporation/legal status
Issued share/
paid up capital
Equity interest
held by the
Principal activitiesCompany Group
Sinotrans Network
Technology Company
Limited
Beijing, the PRC
11 December 2001
Limited liability company
RMB5,000,000 60% 88.14% Information
technology
services
Shanghai Huafu
Commercial Co., Ltd
Shanghai, the PRC
31 July 1998
Limited liability company
RMB1,110,000 — 63.32% Trading and related
services
Sinotrans Eastern Company
Limited
Shanghai, the PRC
29 November 2002
Limited liability company
RMB823,164,416 95% 100% Freight forwarding,
shipping agency
and express
services
Sinotrans Jiangsu Company
Limited
Nanjing, the PRC
11 December 2002
Limited liability company
RMB100,000,000 10% 100% Freight forwarding,
shipping agency
and express
services
Sinotrans Zhejiang
Company Limited
Ningbo, the PRC
9 December 2002
Limited liability company
RMB100,000,000 10% 100% Freight forwarding,
shipping agency
and express
services
Sinotrans Hubei Company
Limited
Wuhan, the PRC
22 December 1999
Limited liability company
RMB5,000,000 10% 100% Freight forwarding
Sinotrans Container Lines
Company Limited
Shanghai, the PRC
24 April 1998
Limited liability company
RMB9,837,907 10% 100% Marine
transportation
91
Notes to the Financial Statements
16. INVESTMENTS IN SUBSIDIARIES (continued)
Name
Country/place of operation
& incorporation/date of
incorporation/legal status
Issued share/
paid up capital
Equity interest
held by the
Principal activitiesCompany Group
China Marine Shipping
Agency Shanghai
Company Limited
Shanghai, the PRC
20 December 2002
Limited liability company
RMB3,000,000 — 100% Shipping agency
Sinotrans Changjiang
Shipping Company
Limited
Shanghai, the PRC
13 December 2000
Limited liability company
RMB10,000,000 — 100% Marine
transportation
Sinotrans Shanghai
Customs Broker
Company Limited
Shanghai, the PRC
29 May 1998
Limited liability company
RMB1,500,000 — 100% Freight forwarding
Shanghai Huafa
International
Transportation Co., Ltd
Shanghai, the PRC
14 June 1991
Sino-foreign equity joint
venture
US$10,777,500 — 67% Freight forwarding,
warehousing and
trucking
Shanghai Huafatengfei
International
Transportation Company
Limited
Shanghai, the PRC
19 September 2001
Limited liability company
RMB5,000,000 — 60.3% Warehousing
Shanghai Sinotrans
Songjiang Logistic
Company Limited
Shanghai, the PRC
7 August 2001
Limited liability company
RMB5,000,000 — 85.18% Freight forwarding
Shanghai Jinling
International Freight
Transportation Co., Ltd
Shanghai, the PRC
10 December 1992
Sino-foreign equity joint
venture
US$2,050,000 — 51% Freight forwarding
92
Notes to the Financial Statements
16. INVESTMENTS IN SUBSIDIARIES (continued)
Name
Country/place of operation
& incorporation/date of
incorporation/legal status
Issued share/
paid up capital
Equity interest
held by the
Principal activitiesCompany Group
China Marine Shipping
Agency Changshu
Company Limited
Changshu, the PRC
15 January 1998
Limited liability company
RMB1,800,000 — 50% Shipping agency
Jiangsu Fortunate
International Company
Limited
Nanjing, the PRC
22 April 1995
Sino-foreign equity joint
venture
RMB9,296,000 20% 70% Freight forwarding
Sinotrans Nanjing Customs
Broker Company Limited
Nanjing, the PRC
27 December 2002
Limited liability company
RMB1,500,000 — 100% Freight forwarding
Sinotrans Suzhou Customs
Broker Company Limited
Suzhou, the PRC
17 August 2000
Limited liability company
RMB1,500,000 — 100% Freight forwarding
Sinotrans Zhenjiang
Customs Broker
Company Limited
Zhenjiang, the PRC
30 December 2002
Limited liability company
RMB1,500,000 — 100% Freight forwarding
Sinotrans Changzhou
Customs Broker
Company Limited
Changzhou, the PRC
20 April 1995
Limited liability company
RMB1,600,000 — 100% Freight forwarding
China Marine Shipping
Agency Jiangsu
Company Limited
Nanjing, the PRC
31 December 2002
Limited liability company
RMB3,000,000 — 100% Shipping agency
China Marine Shipping
Agency Zhangjiagang
Company Limited
Zhangjiagang, the PRC
26 December 2002
Limited liability company
RMB3,000,000 — 100% Shipping agency
93
Notes to the Financial Statements
16. INVESTMENTS IN SUBSIDIARIES (continued)
Name
Country/place of operation
& incorporation/date of
incorporation/legal status
Issued share/
paid up capital
Equity interest
held by the
Principal activitiesCompany Group
China Marine Shipping
Agency Nantong
Company Limited
Nantong, the PRC
27 December 2002
Limited liability company
RMB3,000,000 — 100% Shipping agency
China Marine Shipping
Agency Zhenjiang
Company Limited
Zhenjiang, the PRC
30 December 2002
Limited liability company
RMB3,000,000 — 100% Shipping agency
China Marine Shipping
Agency Changzhou
Company Limited
Changzhou, the PRC
22 January 2002
Limited liability company
RMB3,000,000 — 100% Shipping agency
China Marine Shipping
Agency Yangzhou
Company Limited
Yangzhou, the PRC
10 August 1995
Limited liability company
RMB1,550,000 — 100% Shipping agency
China Marine Shipping
Agency Zhoushan
Company Limited
Zhoushan, the PRC
24 December 2002
Limited liability company
RMB3,000,000 — 100% Shipping agency
China Marine Shipping
Agency Taizhou
Company Limited
Taizhou, the PRC
20 December 2002
Limited liability company
RMB3,000,000 — 100% Shipping agency
China Marine Shipping
Agency Wenzhou
Company Limited
Wenzhou, the PRC
27 December 2002
Limited liability company
RMB3,000,000 — 100% Shipping agency
China Marine Shipping
Agency Ningbo Co., Ltd
Ningbo, the PRC
7 August 1996
Limited liability company
RMB8,000,000 — 60% Shipping agency
94
Notes to the Financial Statements
16. INVESTMENTS IN SUBSIDIARIES (continued)
Name
Country/place of operation
& incorporation/date of
incorporation/legal status
Issued share/
paid up capital
Equity interest
held by the
Principal activitiesCompany Group
Sinotrans Ningbo
International Freight
Forwarding Co., Ltd
Ningbo, the PRC
20 August 1996
Limited liability company
RMB5,000,000 — 60% Freight forwarding
Sinotrans Ningbo Int’l
Container Transportation
Company Limited
Ningbo, the PRC
2 May 1995
Limited liability company
RMB5,000,000 — 60% Freight forwarding
Ningbo Transocean Int’l
Forwarding Agency
Company Limited
Ningbo, the PRC
24 February 1993
Limited liability company
RMB8,300,000 — 60% Freight forwarding
Sinotrans Ningbo Jiuling
Storage & Transportation
Company Limited
Ningbo, the PRC
2 March 1998
Limited liability company
RMB2,000,000 — 64% Trucking
Sinotrans Fujian Company
Limited
Xiamen, the PRC
5 December 2002
Limited liability company
RMB223,257,966 90% 100% Freight forwarding,
shipping agency
and express
services
Sinotrans Fujian Customs
Broker Company Limited
Fuzhou, the PRC
30 December 2002
Limited liability company
RMB1,500,000 — 100% Freight forwarding
Sinotrans Xiamen Logistics
Company Limited
Xiamen, the PRC
30 August 2000
Limited liability company
RMB22,500,000 — 100% Freight forwarding,
warehousing
China Marine Shipping
Agency Fujian Company
Limited
Fuzhou, the PRC
31 December 2002
Limited liability company
RMB3,000,000 — 100% Shipping agency
95
Notes to the Financial Statements
16. INVESTMENTS IN SUBSIDIARIES (continued)
Name
Country/place of operation
& incorporation/date of
incorporation/legal status
Issued share/
paid up capital
Equity interest
held by the
Principal activitiesCompany Group
Minan Shipping & Enterprise
Corp. Ltd
Fuzhou, the PRC
1 March 1985
Sino-foreign equity joint
venture
US$3,000,000 — 75% Marine
transportation
Sinotrans Guangdong
Company Limited
Guangzhou, the PRC
11 December 2002
Limited liability company
RMB774,498,932 90% 100% Freight forwarding,
shipping agency
and express
services
Sinotrans Shenzhen
Customs Broker
Company Limited
Shenzhen, the PRC
12 November 1993
Limited liability company
RMB2,120,000 — 100% Freight forwarding
Sinoway Shipping Limited Hong Kong
6 October 1987
Limited liability company
HK$1,000,000 — 100% Marine
transportation
Guangdong Transport
Limited
Hong Kong
29 November 1983
Limited liability company
HK$1,000,000 — 100% Marine
transportation
Guangdong Eternal Way
International Freight Co.,
Ltd.
Guangzhou, the PRC
29 January 1996
Sino-foreign equity joint
venture
US$3,000,000 — 51% Freight forwarding
Jiangmen Foreign Trade
Terminal Co., Ltd.
Jiangmen, the PRC
6 November 2000
Sino-foreign co-operative
joint venture
RMB6,600,000 — 60% Warehousing, depot
and cargo
terminal services
96
Notes to the Financial Statements
16. INVESTMENTS IN SUBSIDIARIES (continued)
Name
Country/place of operation
& incorporation/date of
incorporation/legal status
Issued share/
paid up capital
Equity interest
held by the
Principal activitiesCompany Group
Jiangmen Foreign
Transportation &
Enterprises Company
Limited
Jiangmen, the PRC
18 November 1987
Sino-foreign co-operative
joint venture
RMB13,800,000 — 60% Freight forwarding
Zhongshan Sinoway
Transportation Corp. Ltd
Zhongshan, the PRC
28 July 1988,
Sino-foreign co-operative
joint venture
US$5,140,000 — 59.45% Warehousing, depot
and cargo
terminal services
Sinotrans Shandong
Company Limited
Qingdao, the PRC
9 December 2002
Limited liability company
RMB162,219,942 90% 100% Freight forwarding,
shipping agency
and express
services
Qingdao Bonded Zone
Lianfeng Customs Broker
Company Limited
Qingdao, the PRC
21 March 1997
Limited liability company
RMB500,000 — 100% Freight forwarding
Qingdao Golden Express
International
Transportation Service
Co., Ltd.
Qingdao, the PRC
24 February 1993
Sino-foreign equity joint
venture
US$1,000,000 — 75% Freight forwarding
Qingdao Liantong Customs
Broker Co., Ltd.
Qingdao, the PRC
20 November 1992
Sino-foreign equity joint
venture
US$600,000 — 75% Freight forwarding
97
Notes to the Financial Statements
16. INVESTMENTS IN SUBSIDIARIES (continued)
Name
Country/place of operation
& incorporation/date of
incorporation/legal status
Issued share/
paid up capital
Equity interest
held by the
Principal activitiesCompany Group
Sinotrans Shandong
Hongzhi International
Container Transportation
Co., Ltd.
Qingdao, the PRC
5 January 1993
Sino-foreign equity joint
venture
RMB14,054,000 — 75% Freight forwarding
Shandong Hongyun
Container Engineering
Co., Ltd.
Qingdao, the PRC
5 October 1992
Sino-foreign equity joint
venture
US$1,000,000 — 70% Container
maintenance
Sinotrans Tianjin Company
Limited
Tianjin, the PRC
3 December 2002
Limited liability company
RMB57,363,906 90% 100% Freight forwarding,
shipping agency
and express
services
Tianjin Tianshan
International Forwarding
Co., Ltd.
Tianjin, the PRC
7 October 1986
Sino-foreign equity joint
venture
RMB18,000,000 20% 60% Trucking and freight
forwarding
Sinotrans Liaoning
Company Limited
Dalian, the PRC
2 December 2002
Limited liability company
RMB48,966,940 90% 100% Freight forwarding,
shipping agency
and express
services
China Marine Shipping
Agency Liaoning
Company Limited
Dalian, the PRC
30 December 2002
Limited liability company
RMB3,000,000 — 100% Shipping agency
Sinotrans Liaoning Ocean
Shipping Supply Co., Ltd
Dalian, the PRC
12 May 1992
Limited liability company
RMB500,000 — 100% Shipping agency
98
Notes to the Financial Statements
16. INVESTMENTS IN SUBSIDIARIES (continued)
Name
Country/place of operation
& incorporation/date of
incorporation/legal status
Issued share/
paid up capital
Equity interest
held by the
Principal activitiesCompany Group
Sinotrans Landbridge
Transportation Company
Limited
Lianyungang, the PRC
2 December 2002
Limited liability company
RMB44,382,238 90% 100% Freight forwarding,
shipping agency
and express
services
The names of some of the subsidiaries referred to as above represent management’s translation of the
Chinese names of these companies as no English names have been registered.
17. INTERESTS IN JOINTLY CONTROLLED ENTITIES
The following is a list of the principal jointly controlled entities at 31 December 2002, which are held by
the Company indirectly through its subsidiaries.
Name
Country/place of operation
& incorporation/date of
incorporation/legal status
Issued share/
paid up capital
Percentage of interest
in ownership/voting
power/profit sharing
held by the
Principal activitiesCompany Group
Ningbo Southeast
International Freight
Company Limited
Ningbo, the PRC
25 September 1992
Sino-foreign equity joint
venture
US$1,000,000 — 55% Freight forwarding
Ningbo Taiping
International Trade
Transportation
Company Limited
Ningbo, the PRC
6 July 1992
Sino-foreign equity joint
venture
US$3,750,000 — 50% Freight forwarding,
warehousing and
trucking
99
Notes to the Financial Statements
17. INTERESTS IN JOINTLY CONTROLLED ENTITIES (continued)
Name
Country/place of operation
& incorporation/date of
incorporation/legal status
Issued share/
paid up capital
Percentage of interest
in ownership/voting
power/profit sharing
held by the
Principal activitiesCompany Group
Shanghai Huasing
International Container
Freight Transportation
Co., Ltd.
Shanghai, the PRC
2 July 1993
Sino-foreign equity joint
venture
US$10,000,000 — 60% Freight forwarding,
warehousing and
trucking
Shanghai Express
International Co, Ltd.
Shanghai, the PRC
13 June 1994
Sino-foreign equity joint
venture
US$4,000,000 20% 51% Freight forwarding,
warehousing and
trucking
Shanghai Hua You
International
Forwarding Co., Ltd.
Shanghai, the PRC
22 August 1997
Sino-foreign equity joint
venture
US$2,000,000 — 51% Freight forwarding,
warehousing
Nittsu Sinotrans Logistic
Dalian Co., Ltd
Dalian, the PRC
23 July 1992
Sino-foreign equity joint
venture
US$2,550,000 — 50% Freight forwarding
DHL-Sinotrans
International
Air Courier Ltd.
Beijing, the PRC
25 June 1986
Sino-foreign equity joint
venture
US$13,000,000 — 35.18% Express services
100
Notes to the Financial Statements
17. INTERESTS IN JOINTLY CONTROLLED ENTITIES (continued)
Name
Country/place of operation
& incorporation/date of
incorporation/legal status
Issued share/
paid up capital
Percentage of interest
in ownership/voting
power/profit sharing
held by the
Principal activitiesCompany Group
Sinotrans-OCS
International
Express Co., Ltd.
Beijing, the PRC
13 December 1995
Sino-foreign equity joint
venture
US$2,240,000 — 35.18% Express services
Rex International
Forwarding Co., Ltd.
Beijing, the PRC
13 July 1994
Sino-foreign equity joint
venture
US$1,840,000 — 35.18% Air freight
forwarding
Exel-Sinotrans Freight
Forwarding
Co., Ltd.
Beijing, the PRC
15 May 1996
Sino-foreign equity joint
venture
US$1,360,000 — 35.18% Air freight
forwarding
Beijing Sinotrans
International Travel
Service Co., Ltd.
Beijing, the PRC
18 September 2000
Limited liability company
RMB2,000,000 — 35.18% Tourism information
services
The names of some of the jointly controlled entities referred to as above represent management’s
translation of the Chinese names of these companies as no English names have been registered.
101
Notes to the Financial Statements
17. INTERESTS IN JOINTLY CONTROLLED ENTITIES (continued)
The aggregate amounts of assets, liabilities, revenues and expenses attributable to the Group’s interests
in the jointly controlled entities are summarised as follows:
2002 2001
RMB’000 RMB’000
Current assets 589,048 584,871
Non-current assets 215,400 187,919
Current liabilities 426,391 455,813
Non-current liabilities 2,900 2,177
Revenue 2,166,155 1,325,577
Expenses (1,907,895) (1,138,167)
The capital commitments related to the Group’s interests in the jointly controlled entities are
summarised as follows:
2002 2001
RMB’000 RMB’000
Authorised and contracted for but not recorded 698 1,567
Authorised but not contracted for 84,094 40,567
84,792 42,134
An analysis of the above capital commitments by nature is as follows:
2002 2001
RMB’000 RMB’000
Acquisition of property, plant and equipment 84,792 42,134
102
Notes to the Financial Statements
17. INTERESTS IN JOINTLY CONTROLLED ENTITIES (continued)
The following is a summary of the significant contingent liabilities related to the Group’s interests in the
jointly controlled entities:
2002 2001
RMB’000 RMB’000
Outstanding loan guarantees 2,143 900
Pending lawsuits 4,469 4,469
Others 3,250 —
9,862 5,369
18. INVESTMENTS IN ASSOCIATES
The Group
2002 2001
RMB’000 RMB’000
Unlisted investments, at cost 18,909 44,210
Share of undistributed post-acquisition profits less losses 8,698 14,991
Dividends received (3,240) (9,194)
24,367 50,007
103
Notes to the Financial Statements
18. INVESTMENTS IN ASSOCIATES (continued)
The following is a list of the principal associates at 31 December 2002 :
Name
Country/place of operation
& incorporation/date of
incorporation/legal status
Issued share/
paid up capital
Equity interest
held by the
Principal activitiesCompany Group
Jiangmen Gaosha Agency
Company Limited
Jiangmen, the PRC
10 May 1996
Limited liability company
RMB500,000 — 30% Freight forwarding
Ningbo Beilun Donghua
Container Transportation
Service Co. Ltd.
Ningbo, the PRC
29 July 1997
Limited liability company
RMB4,000,000 — 18% Warehousing
Shanghai Industrial
Sinotrans International
Transportation Company
Limited
Shanghai, the PRC
20 March 2002
Sino-foreign equity joint
venture
RMB1,000,000 — 40% Freight forwarding
Suzhou Transtar Logistic
Co., Ltd
Suzhou, the PRC
18 January 1999
Sino-foreign co-operative
joint venture
RMB5,000,000 — 23.45% Warehousing
Shanghai Shen Chi Storage
& Transportation
Company Limited
Shanghai, the PRC
18 July 2002
Limited liability company
RMB3,000,000 — 30% Freight forwarding
AMS Global Transportation
Co., Ltd.
Beijing, the PRC
29 June 1991
Sino-foreign equity joint
venture
US$1,860,000 — 14.07% Air freight
forwarding
Sinotrans Air Logistic Co.,
Ltd
Beijing, the PRC
5 March 1999
Limited liability company
RMB10,000,000 — 30.96% Storage and
terminal services
104
Notes to the Financial Statements
18. INVESTMENTS IN ASSOCIATES (continued)
Name
Country/place of operation
& incorporation/date of
incorporation/legal status
Issued share/
paid up capital
Equity interest
held by the
Principal activitiesCompany Group
Hangzhou Economic &
Technology Foreign-
Trading Co., Ltd.
Hangzhou, the PRC
18 February 1997
Limited liability company
RMB500,000 — 28.14% Freight forwarding,
storage and
terminal services
Shanghai Hu Wan Logistic
Co., Ltd
Shanghai, the PRC
21 May 1997
Limited liability company
RMB800,000 — 25.51% Trading
China International
Exhibition Transportation
Company Limited
Beijing, the PRC
20 July 1988
Limited liability company
RMB2,000,000 — 50% Freight forwarding
The names of some of the associates referred to as above represent management’s translation of the
Chinese names of these companies as no English names have been registered.
19. PREPAYMENTS, DEPOSITS AND OTHER CURRENT ASSETS
The Group The Company
2002 2001 2002
RMB’000 RMB’000 RMB’000
Prepayments on behalf of customers 184,134 190,456 —
Prepaid expenses 46,967 29,770 —
Others 3,892 4,738 281
234,993 224,964 281
105
Notes to the Financial Statements
20. INVENTORIES
Inventories mainly comprise supplies, consumables and spare parts. As at 31 December 2002,
inventories stated at net realisable value amounted to approximately RMB4,265,000 (2001 :
RMB3,184,000).
21. TRADE AND OTHER RECEIVABLES
The Group The Company
2002 2001 2002
RMB’000 RMB’000 RMB’000
Trade receivables 2,082,033 1,438,145 —
Bills receivable 6,617 11,347 —
Other receivables 111,748 102,757 4
Due from related parties 476,367 332,660 153,528
2,676,765 1,884,909 153,532
(a) Trade receivables
The Group
2002 2001
RMB’000 RMB’000
Trade receivables 2,160,336 1,549,385
Less: Provision for impairment of receivables (78,303) (111,240)
2,082,033 1,438,145
106
Notes to the Financial Statements
21. TRADE AND OTHER RECEIVABLES (continued)
(a) Trade receivables (continued)
Aging analyses of trade receivables at the respective balance sheet dates are as follows:
The Group
2002 2001
RMB’000 RMB’000
Within 6 months 2,045,551 1,353,651
Between 6 and 12 months 44,421 62,943
Between 1 and 2 years 21,660 48,977
Between 2 and 3 years 12,626 19,726
Over 3 years 36,078 64,088
2,160,336 1,549,385
The credit period of the Group’s trade receivables generally ranges from 3 to 6 months.
(b) Bills receivable are bills of exchange with maturity dates of within 6 months.
(c) Other receivables
The Group The Company
2002 2001 2002
RMB’000 RMB’000 RMB’000
Deposits receivable 94,638 91,607 —
Advances to other entities 1,171 2,445 —
Dividend and investment income receivables 3,349 4,352 —
Others 27,630 25,181 4
126,788 123,585 4
Less: Provision for impairment of receivables (15,040) (20,828) —
111,748 102,757 4
107
Notes to the Financial Statements
21. TRADE AND OTHER RECEIVABLES (continued)
(d) Due from related parties
The amounts due from related parties can be analysed as follows:
The Group The Company
2002 2001 2002
RMB’000 RMB’000 RMB’000
Trade receivables:
Ultimate holding company and fellow
subsidiaries 112,954 98,565 —
Jointly controlled entities 5,627 16,644 —
Associates 15 4,879 —
Other related parties 149,977 145,896 —
268,573 265,984 —
Less: Provision for impairment of receivables (12,387) (5,354) —
256,186 260,630 —
Other receivables:
Ultimate holding company and fellow
subsidiaries 211,708 74,147 146,932
Jointly controlled entities 8,654 448 6,596
Associates 2,368 11,864 —
Other related parties 6,858 5,992 —
229,588 92,451 153,528
Less: Provision for impairment of receivables (9,407) (20,421) —
220,181 72,030 153,528
Total:
Ultimate holding company and fellow
subsidiaries 324,662 172,712 146,932
Jointly controlled entities 14,281 17,092 6,596
Associates 2,383 16,743 —
Other related parties 156,835 151,888 —
498,161 358,435 153,528
Less: Provision for impairment of receivables (21,794) (25,775) —
476,367 332,660 153,528
108
Notes to the Financial Statements
21. TRADE AND OTHER RECEIVABLES (continued)
(d) Due from related parties (continued)
Other receivables from related parties are generally unsecured and non-interest bearing.
Other receivables from ultimate holding company and fellow subsidiaries have been subsequently
settled following the listing of the Company’s shares. Other receivables from other related parties
are repayable on demand.
The Group makes provision for impairment of receivables based on both specific review and
general provision. For major balances in trade and other receivables, the provision is made after
considering the amount due, creditworthiness of the customers and other qualitative factors. For
other balances, a general provision is made at progressive percentages when the amount due is
over six months.
The aging of the amounts due from ultimate holding company, fellow subsidiaries, jointly
controlled entities, associates and other related parties, which are trading in nature, is summarised
as follows:
The Group
2002 2001
RMB’000 RMB’000
Within 6 months 220,762 236,386
Between 6 and 12 months 26,965 12,837
Between 1 and 2 years 11,860 10,093
Between 2 and 3 years 3,127 2,168
Over 3 years 5,859 4,500
268,573 265,984
109
Notes to the Financial Statements
22. TRADING INVESTMENTS
The Group
2002 2001
RMB’000 RMB’000
Listed securities outside Hong Kong 10,818 1,284
Trading investments comprising principally marketable equity securities are stated at fair value at the
close of business at year end. Fair value is estimated by reference to the quoted bid prices.
23. PLEDGED DEPOSITS
The Group
2002 2001
RMB’000 RMB’000
Term deposits with initial term of over three months 28,666 5,260
Corresponding borrowings 12,507 1,100
The corresponding borrowings represent borrowings from banks.
24. TERM DEPOSITS WITH INITIAL TERM OF OVER THREE MONTHS
(a) As at 31 December 2002, approximately RMB428,131,000 (2001 : RMB568,657,000) of the
Group’s term deposits with initial term of over three months was denominated in Renminbi and
deposited with banks in the PRC. The conversion of these Renminbi denominated balances into
foreign currencies is subject to the rules and regulations of foreign exchange control promulgated
by the PRC government.
(b) As at 31 December 2002, approximately RMB61,866,000 (US$7,474,000) (2001 :
RMB148,053,000 (US$17,909,000)) of the Group’s term deposits with initial term over three
months was denominated in the United States Dollar. Other term deposits with initial term over
three months are denominated in various foreign currencies.
110
Notes to the Financial Statements
24. TERM DEPOSITS WITH INITIAL TERM OF OVER THREE MONTHS (continued)
(c) The weighted average effective interest rate on term deposits with initial term of over three
months was 1.82% (2001 : 2.01%) for the year ended 31 December 2002.
25. CASH AND CASH EQUIVALENTS
(a) As at 31 December 2002, approximately RMB1,353,200,000 (2001 : RMB1,032,854,000) and
RMB27,760,000 (2001 : RMB Nil) of the Group’s and the Company’s bank balances and cash was
denominated in Renminbi and deposited with banks in the PRC. The conversion of these Renminbi
denominated balances into foreign currencies is subject to the rules and regulations of foreign
exchange control promulgated by the PRC government.
(b) The weighted average effective interest rate on short term bank deposits as set out in Note (a)
above was 1.64% (2001 : 1.46%) for the year ended 31 December 2002.
26. TRADE PAYABLES
The Group
2002 2001
RMB’000 RMB’000
Trade payables 2,229,576 1,700,268
Due to related parties 99,086 78,941
2,328,662 1,779,209
111
Notes to the Financial Statements
26. TRADE PAYABLES (continued)
(a) Trade payables
The normal credit period for trade payables generally ranges from 1 to 3 months. Aging analyses of
trade payables at the respective balance sheet dates are as follows:
The Group
2002 2001
RMB’000 RMB’000
Within 6 months 1,992,288 1,387,220
Between 6 and 12 months 91,837 109,923
Between 1 and 2 years 93,139 114,837
Between 2 and 3 years 24,088 25,578
Over 3 years 28,224 62,710
2,229,576 1,700,268
(b) Due to related parties — trade payables
The amounts due to related parties, which are trading in nature, can be analysed as follows:
The Group
2002 2001
RMB’000 RMB’000
Ultimate holding company and fellow subsidiaries 65,375 60,542
Jointly controlled entities 4,930 3,104
Associates — 2,441
Other related parties 28,781 12,854
99,086 78,941
112
Notes to the Financial Statements
26. TRADE PAYABLES (continued)
(b) Due to related parties — trade payables (continued)
The aging of the amounts due to the ultimate holding company, fellow subsidiaries, jointly
controlled entities, associates and other related parties is summarised as follows:
The Group
2002 2001
RMB’000 RMB’000
Within 6 months 69,713 26,929
Between 6 and 12 months 9,106 28,058
Between 1 and 2 years 10,578 12,276
Between 2 and 3 years 6,413 6,552
Over 3 years 3,276 5,126
99,086 78,941
27. OTHER PAYABLES, ACCRUALS AND OTHER CURRENT LIABILITIES
The Group The Company
2002 2001 2002
RMB’000 RMB’000 RMB’000
Other payables and accruals 197,537 200,150 10,245
Due to related parties 1,063,545 365,600 824,682
1,261,082 565,750 834,927
113
Notes to the Financial Statements
27. OTHER PAYABLES, ACCRUALS AND OTHER CURRENT LIABILITIES (continued)
(a) Other payables and accruals
The Group The Company
2002 2001 2002
RMB’000 RMB’000 RMB’000
Payables for property, plant and equipment 12,825 53,431 1,137
Customers’ deposits 69,981 43,967 —
Accrued expenses 41,339 30,970 9,108
Dividends payable to minority shareholders of
subsidiaries 27,156 28,419 —
Advances from other entities 23,613 25,973 —
Others 22,623 17,390 —
197,537 200,150 10,245
(b) Due to related parties
The amounts due to related parties can be analysed as follows:
The Group The Company
2002 2001 2002
Note RMB’000 RMB’000 RMB’000
Ultimate holding company and fellow
subsidiaries (ii) 1,031,747 317,164 824,682
Jointly controlled entities 915 930 —
Associates 10,868 15,894 —
Other related parties 20,015 31,612 —
1,063,545 365,600 824,682
114
Notes to the Financial Statements
27. OTHER PAYABLES, ACCRUALS AND OTHER CURRENT LIABILITIES (continued)
(b) Due to related parties (continued)
(i) Amounts due to related parties of a non-trade nature are generally unsecured and non-
interest bearing. Except for the items disclosed in Note (ii) below, amount due to the ultimate
holding company and fellow subsidiaries of a non-trade nature are repayable within six
months from the listing of the Company’s shares. Amounts due to other related parties of
such nature have no fixed repayment terms.
(ii) Included in the amount due to the ultimate holding company and fellow subsidiaries as at 31
December 2002 is the current portion of the Group’s long-term payable to the ultimate
holding company for the early retirement, termination and supplementary pension benefit
obligations of approximately RMB165,858,000 (See Note 29 for details). In addition, a special
dividend of approximately RMB477,970,000 is also included in the amount due to the
ultimate holding company and fellow subsidiaries. (See Note 11 for details).
115
Notes to the Financial Statements
28. BORROWINGS
(a) Borrowings include bank borrowings and other borrowings which are analysed as follows:
The Group
2002 2001
RMB’000 RMB’000
Current:
Bank borrowings 60,667 41,680
Current portion of non-current borrowings 947 704
61,614 42,384- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Non-current:
Bank borrowings 710 1,656
Other borrowings — 195
710 1,851- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Total borrowings 62,324 44,235
Borrowings:
Unsecured 1,657 2,555
Secured 60,667 41,680
62,324 44,235
The carrying amounts of the borrowings at the respective balance sheet dates approximated their
fair values based on the prevailing borrowing rates available for loans with similar terms and
maturities.
116
Notes to the Financial Statements
28. BORROWINGS (continued)
(b) The Group’s non-current bank borrowings and other borrowings were repayable as follows:
The Group
2002 2001
RMB’000 RMB’000
Bank borrowings:
Within 1 year 697 704
Between 1 and 2 years 710 704
Between 2 and 5 years — 704
Beyond 5 years — 248
1,407 2,360
Less: Current portion (697) (704)
710 1,656
Other borrowings:
Within 1 year 250 —
Between 1 and 2 years — 195
250 195
Less: Current portion (250) —
— 195
Total:
Within 1 year 947 704
Between 1 and 2 years 710 899
Between 2 and 5 years — 704
Beyond 5 years — 248
1,657 2,555
Less: Current portion (947) (704)
710 1,851
117
Notes to the Financial Statements
28. BORROWINGS (continued)
(c) Securities
The Group
2002 2001
RMB’000 RMB’000
Term deposits with initial term of over three months pledged 28,666 5,260
Net book value of property, plant and equipment pledged 28,916 16,326
Guarantee provided by ultimate holding company and fellow
subsidiaries of the Group — 5,840
Guarantee provided by companies within the Group 28,953 23,910
Guarantee provided by third parties 325 —
Corresponding borrowings 60,667 41,680
The weighted average effective interest rate of the borrowings was 5.28% (2001 : 5.73%) for the
year ended 31 December 2002.
Pursuant to the Reorganisation, all guarantees provided by the ultimate holding company and
fellow subsidiaries of the Group have been released or withdrawn prior to the listing of the
Company’s shares.
118
Notes to the Financial Statements
29. EARLY RETIREMENT, TERMINATION AND SUPPLEMENTARY PENSION BENEFITS OBLIGATIONS
Prior to the Reorganisatons, the Group paid supplementary pension subsidies to its retired employees
who retired prior to the Reorganisation. In addition, the Group was committed to make periodic benefits
payments to certain former employees who were terminated or asked to retire early in accordance with
various rationalisation programmes adopted by the Group prior to the Reorganisation. Pursuant to the
Reorganisation, the Group and the ultimate holding company have agreed that the Group’s obligations
to make these early retirement, termination and supplementary pension benefits payments as at 30 June
2002 are assumed by the ultimate holding company and the actual payments of these obligations will be
made by the ultimate holding company. Accordingly, an amount due to the ultimate holding company
in the amount of RMB497,574,000 was recorded by the Group as at 31 December 2002, which is to be
settled in three equal instalments on 31 December 2003, 2004 and 2005 :
Obligations of
Early
retirement
benefits
Termination
benefits
Supple-
mentary
pension
subsidies Total
Long-term
payable to
ultimate
holding
company
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at 1 January 2001 56,504 38,799 439,456 534,759 —
Additional provision 23,604 12,101 6,077 41,782 —
Payment for the year (20,476) (6,449) (15,499) (42,424) —
As at 31 December 2001 59,632 44,451 430,034 534,117 —
As at 1 January 2002 59,632 44,451 430,034 534,117 —
Additional provision 10,206 7,772 — 17,978 —
Reversal of provision — — (28,138) (28,138) —
Payment for the period (12,417) (5,847) (8,119) (26,383) —
As at 30 June 2002 57,421 46,376 393,777 497,574 —
Transferred to long-term payable
to ultimate holding company (57,421) (46,376) (393,777) (497,574) 497,574
Less: Current portion recorded in
other payables, accruals
and other current liabilities
(Note 27(b)(ii)) — — — — (165,858)
Long-term portion — — — — 331,716
119
Notes to the Financial Statements
29. EARLY RETIREMENT, TERMINATION AND SUPPLEMENTARY PENSION BENEFITS OBLIGATIONS
(continued)
The above obligations as at 31 December 2001 and 30 June 2002 were actuarially determined by a PRC
insurance company using the projected unit credit method.
The material actuarial assumptions used in valuing these obligations are as follows:
(a) Discount rate adopted: 4.5% for the six months ended 30 June 2002 (2001 : 4.1%).
The effect of the above changes in discount rates was reflected as actuarial gains and losses and
charged to the profit and loss account in the year of change;
(b) Medical cost trend rate: 5% (2001 : 5%);
(c) Mortality: Average life expectancy of residents in the PRC;
(d) No survivorship adjustment was included in the termination calculation or in the period up to
normal retirement date for the early retirees. A survival adjustment was however included in
calculating the normal component for the early retirees; and
(e) Medical costs paid to early retirees are assumed to continue until the death of the retirees.
120
Notes to the Financial Statements
30. PROVISIONS
One-off cash
housing
subsidies Guarantees
Outstanding
claims Total
RMB’000 RMB’000 RMB’000 RMB’000
Note (a) Note 34(a) Note 34(b)
As at 1 January 2001 88,464 9,310 21,294 119,068
Provisions — 4,172 — 4,172
Utilised during the year (11,918) — — (11,918)
As at 31 December 2001 76,546 13,482 21,294 111,322
As at 1 January 2002 76,546 13,482 21,294 111,322
Utilised during the year (10,086) (1,450) (13,905) (25,441)
As at 31 December 2002 66,460 12,032 7,389 85,881
(a) This represents the Group’s provision for one-off cash housing subsidies. Certain provincial
governments have not yet promulgated the detailed local regulations in relation to the reformed
housing subsidy policies and certain entities within the Group have not yet adopted any formal
cash housing subsidy plans. In respect of certain entities which have not adopted any cash housing
subsidy plans, based on the available information and its best estimate, the Group estimated a
provision of RMB55,271,000 which was charged to the profit and loss account in the year ended
31 December 2000 when the State Council issued a circular regarding the cash housing subsidies
in the PRC. However, because of the significant uncertainties involved in view of the absence of
detailed local government regulations and formal cash housing subsidy plans for these entities, this
estimate is subject to a high degree of measurement uncertainty. Actual cash housing subsidies
eventually to be paid out may differ significantly from this estimate. The ultimate holding company
has agreed to bear any further one-off cash housing subsidies in the excess of the amount of
RMB74,560,000 provided for in the Group’s consolidated financial statements at the time of the
Reorganisation.
121
Notes to the Financial Statements
31. SHARE CAPITAL
The Company
2002
RMB’000
Registered, issued and fully paid 2,624,087,200 domestic shares of RMB1.00 each 2,624,087
The Company’s initial registered share capital was RMB2,624,087,200, divided into 2,624,087,200
ordinary shares of par value RMB1.00 each. 2,624,087,200 of these ordinary shares were state-owned
domestic shares, representing 100% of the initial registered share capital. Such shares were issued to
the ultimate holding company in consideration for the assets and liabilities related to the Group’s
existing business as at 31 December 2001 transferred from the ultimate holding company.
The share capital presented in the consolidated balance sheet as at 31 December 2001 represents the
initial registered share capital issued by the Company pursuant to the Reorganisation in exchange for the
Transferred Businesses, which is deemed to have been in issue throughout the accounting periods
presented in these accounts in accordance with the basis of preparation referred to in Note 2. The net
value of the assets and liabilities transferred from the ultimate holding company was converted into the
Company’s legal capital with all the then existing reserves eliminated and the resulting difference
credited to capital reserve. Accordingly, a capital reserve being the difference between the amount of
share capital issued and the historical net asset value of the Transferred Businesses as at 1 January 2001
was presented. Retained profits of the Transferred Businesses prior to 31 December 2001 were
capitalised and incorporated in the capital reserve pursuant to the Reorganisation and accordingly they
were not separately disclosed for the year ended 31 December 2001.
In February 2003 the Company completed its global initial public offering (‘‘Global Offering’’).
1,787,406,000 H shares were issued by the Company which comprise 1,624,915,000 shares offered by
the Company and 162,491,000 shares offered by the ultimate holding company. As a result, the issued
share capital of the Company increased to 4,249,002,200 shares, comprising 2,461,596,200 domestic
shares and 1,787,406,000 H shares, representing 57.9% and 42.1% of the issued capital, respectively.
All the domestic state-owned ordinary shares and H shares rank pari passu in all material respects except
that the dividends to holders of H shares are declared in RMB but paid in Hong Kong Dollar.
122
Notes to the Financial Statements
32. RESERVES
The Group
As part of the Reorganisation as described in Note 1, certain businesses were retained by Sinotrans
Group Company. The distributions to, net of contributions from Sinotrans Group Company in the
consolidated statement of changes in owner’s equity during the year ended 31 December 2001
represented the net cash inflow from or outflow to the Excluded Businesses retained by Sinotrans Group
Company.
The Company
Capital
reserve
Statutory
surplus
reserve
Statutory
public
welfare
fund
Retained
profits Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Upon incorporation (845,111) — — 477,970 (367,141)
Profit for the period — — — 94,252 94,252
Special dividend — — — (477,970) (477,970)
Transfer to reserves — 2,699 1,350 (4,049) —
At 31 December 2002 (845,111) 2,699 1,350 90,203 (750,859)
The Company was incorporated in November 2002 to take over the assets and liabilities related to the
Group’s existing business. The amount of capital reserve upon incorporation represented the difference
between the amount of share capital issued and the historical net asset value of the Transferred
Businesses as at 31 December 2001. The amount of retained profits upon incorporation of the Company
represented the Company’s share of the profit of the Transferred Businesses for the period from 1
January 2002 to 30 November 2002 under the equity method of accounting, which is attributable to
Sinotrans Group Company pursuant to the Reorganisation, see Note 11.
123
Notes to the Financial Statements
32. RESERVES (continued)
In accordance with the relevant PRC regulations and the Articles of Association of the Company, every
year the Company is required to transfer 10% of the profit after taxation determined in accordance with
PRC accounting standards to a statutory surplus reserve until the balance reaches 50% of the registered
share capital. Such reserve can be used to reduce any losses incurred and to increase share capital.
Except for the reduction of losses incurred, any other usage should not result in this reserve balance
falling below 25% of the registered share capital.
In accordance with the relevant PRC regulations and the Articles of Association of the Company, every
year the Company is required to transfer between 5% to 10% of the profit after taxation determined in
accordance with PRC accounting standards to a statutory public welfare fund. The use of this fund is
restricted to capital expenditure for employees’ collective welfare facilities, the ownership in respect of
which belongs to the Group. The statutory public welfare fund is not available for distribution to
shareholders except under liquidation. Once the capital expenditure on staff welfare facilities has been
made, an equivalent amount must be transferred from the statutory public welfare fund to the
discretionary surplus reserve, a reserve which can be used to reduce any losses incurred or to increase
share capital. The Company decided to transfer 5% of its net profit determined in accordance with PRC
accounting standards to the statutory public welfare fund for the period ended 31 December 2002.
Subsequent to the Reorganisation, in accordance with the Articles of Association of the Company,
retained profits available for distribution by the Company will be deemed to be the lower of the
amounts determined in accordance with PRC accounting standards and the amount determined in
accordance with IFRS. As at 31 December 2002, the amount of retained profits available for distribution
was approximately RMB22,945,000, being the amount determined in accordance with PRC accounting
standards.
124
Notes to the Financial Statements
33. NOTES TO CONSOLIDATED CASH FLOW STATEMENT
(a) Reconciliation of operating profit to cash generated from operations
2002 2001
RMB’000 RMB’000
Profit for the year 572,222 452,303
Interest income (33,325) (36,722)
Interest expense 7,023 5,963
Loss/(gain) on disposal of property, plant and equipment 2,479 (263)
Fair value gains on trading investments (2,356) (2,503)
(Write back)/charge of provision for impairment of receivables
and bad debts written off (7,940) 39,207
Depreciation of property, plant and equipment 175,077 146,097
Impairment losses of property, plant and equipment 272 —
Amortisation of intangible assets 9,419 4,686
Amortisation of land use rights 1,771 1,973
Share of results of associates, net of taxation (7,790) (8,668)
Minority interests 115,082 105,523
Operating profit before working capital changes 831,934 707,596
Decrease/(increase) in deferred tax assets 9,599 (9,945)
Increase in prepayments, deposits and other current assets (9,657) (4,479)
Decrease/(increase) in inventories 1,453 (1,386)
(Increase)/decrease in trade and other receivables (752,757) 233,598
(Decrease)/increase in deferred tax liabilities (339) 121
Decrease in early retirement, termination and pension benefits
obligations (36,543) (642)
Increase in other liabilities 1,709 1,275
Decrease in provisions (25,441) (7,746)
Increase/(decrease) in trade payables 531,363 (347,346)
Increase in other payables, accruals and other current liabilities 37,555 4,469
Decrease in receipts in advance from customers (7,007) (5,233)
Increase in income and other taxes liabilities 228,645 208,838
Increase in salary and welfare payable 17,472 21,299
Cash generated from operations 827,986 800,419
125
Notes to the Financial Statements
33. NOTES TO CONSOLIDATED CASH FLOW STATEMENT (continued)
(b) Purchase of subsidiaries
(i) On 30 June 2002, the Group acquired an additional 12.5% equity interest in Zhongshan
Sinoway Transportation Corp. Ltd., an associate, from a third party for a cash consideration
of RMB9,340,000 and, as a result of which, the latter became a non-wholly owned subsidiary
of the Group. The acquisition is accounted for by acquisition accounting. Details of the assets
and liabilities acquired are as follows:
RMB’000
Assets/liabilities acquired (at 100% interest):
Property, plant and equipment 42,344
Trade and other receivables 16,229
Cash and cash equivalents 4,939
Trade payables (1,218)
Other payables, accruals and other current liabilities (10,436)
Receipts in advance from customers (2,336)
Current tax liabilities (524)
Salary and welfare payable (3,011)
45,987
12.5% interest acquired by the Group 5,748
Goodwill on acquisition 3,592
Cash consideration paid 9,340
Net cash outflow in respect of the acquisition is analysed as follows:
Cash and cash equivalents (at 100% attributable interest) 4,939
Cash paid (9,340)
(4,401)
126
Notes to the Financial Statements
33. NOTES TO CONSOLIDATED CASH FLOW STATEMENT (continued)
(b) Purchase of subsidiaries (continued)
(ii) On 30 September 2002, the Group acquired an additional 11.7% equity interest in Jiangmen
Foreign Transportation & Enterprises Company Limited, an associate, from a third party for a
cash consideration of RMB6,787,000 and, as a result of which, the latter became a non-
wholly owned subsidiary of the Group. The acquisition is accounted for by acquisition
accounting. Details of the assets and liabilities acquired are as followings:
RMB’000
Assets/liabilities acquired (at 100% interest):
Property, plant and equipment 22,286
Land use rights 2,700
Other non-current assets 621
Prepayments, deposits and other current assets 372
Inventories 904
Trade and other receivables 14,930
Cash and cash equivalents 3,162
Trade payables (16,872)
Other payables, accruals and other current liabilities (3,513)
Current tax liabilities (245)
Borrowings (3,130)
Salary and welfare payable (2,649)
18,566
11.7% interest acquired by the Group 2,172
Goodwill on acquisition 4,615
Cash consideration paid 6,787
Net cash outflow in respect of the acquisition is analysed as follows:
Cash and cash equivalents (at 100% attributable interest) 3,162
Cash paid (6,787)
(3,625)
127
Notes to the Financial Statements
34. CONTINGENT LIABILITIES
The following is a summary of the Group’s significant contingent liabilities:
The Group
2002 2001
Note RMB’000 RMB’000
Outstanding loan guarantees (a) 9,933 186,729
Bills discounted with recourse 9,959 5,860
Pending lawsuits (b) 42,545 95,577
Others — 2,004
62,437 290,170
(a) The Group had acted as the guarantor for various external borrowings by certain fellow
subsidiaries under the ultimate holding company and certain third party entities. As at 31
December 2002, it acted as the guarantor for certain other related parties and certain third party
entities. Provisions as set out in Note 30 has been made for those guarantees where management
believes it is probable that the Group will have to pay up those guarantees and at amounts based
on its best estimate. Other outstanding guarantees are disclosed as contingent liabilities above.
Pursuant to the Reorganisation, all guarantees given by the Group for the benefit of the ultimate
holding company and fellow subsidiaries have been released or withdrawn prior to the listing of
the Company’s share.
(b) The Group has been named in a number of lawsuits arising in the ordinary course of business.
Provisions as set out in Note 30 has been made for the probable losses to the Group on those
claims when management can reasonably estimate the outcome of the lawsuits taking into
account the legal advice. No provision has been made for pending lawsuits when the outcome of
the lawsuits cannot be reasonably estimated or management believes the probability of loss is
remote.
(c) The above amounts do not include those items for which provision have been made as disclosed in
Note 30.
128
Notes to the Financial Statements
35. CAPITAL COMMITMENTS
The Group has the following outstanding capital commitments not provided for in the consolidated
financial statements:
The Group
2002 2001
RMB’000 RMB’000
Authorised and contracted for but not recorded 37,823 133,425
Authorised but not contracted for 36,875 278,895
74,698 412,320
An analysis of the above capital commitments by nature is as follows:
Acquisition of property, plant and equipment 65,986 314,320
Construction commitment 320 15,260
Purchase of software 8,392 45,540
Others — 37,200
74,698 412,320
The Company did not have any material capital commitments at 31 December 2002.
129
Notes to the Financial Statements
36 OPERATING LEASE COMMITMENTS
(a) The Group as leasee
The Group has commitments to make the following future minimum lease payments under non-
cancellable operating leases:
The Group
2002 2001
RMB’000 RMB’000
Land and buildings
— Not later than one year 51,675 51,245
— Later than one year but not later than five years 108,930 97,266
— Later than five years 129,684 126,363
Plant and machinery
— Not later than one year 242,130 107,599
— Later than one year but not later than five years 158,638 22,987
— Later than five years — 560
691,057 406,020
130
Notes to the Financial Statements
36 OPERATING LEASE COMMITMENTS (continued)
(b) The Group as lessor
The Group has contracted with customers for the following future minimum lease receivables
under non-cancellable operating leases as follows:
The Group
2002 2001
RMB’000 RMB’000
Land and buildings
— Not later than one year 3,436 2,192
— Later than one year but not later than five years 2,416 3,851
— Later than five years 1,340 2,877
Plant and machinery
— Not later than one year 204 108
— Later than one year but not later than five years 340 —
7,736 9,028
The Company did not have any material lease commitments at 31 December 2002.
37. SIGNIFICANT RELATED PARTY TRANSACTIONS
In addition to the related party transactions undertaken in connection with the Reorganisation described
in Note 1 above, during the year, the Group entered into various transactions with related parties
including the ultimate holding company and fellow subsidiaries, associates, jointly controlled entities
and joint venture partners of jointly controlled entities of the Group, and entities, directly or indirectly,
controlled or significantly influenced by the ultimate holding company.
131
Notes to the Financial Statements
37. SIGNIFICANT RELATED PARTY TRANSACTIONS (continued)
The aggregate income and expenses arising from the related party transactions are summarised as
follows:
Profit and loss items:
The Group
2002 2001
RMB’000 RMB’000
Transactions with ultimate holding company and fellow
subsidiaries:
Revenue:
Revenue from provision of services 384,403 393,826
Rental income from vessels leased out 495 522
Management fee income 5,450 4,319
Expenses:
Service fees (330,382) (432,151)
Rental expenses for office buildings (30,517) (34,794)
Rental expenses for containers (41,107) (36,050)
Rental expenses for warehouse and depots (5,240) (4,442)
Rental expenses for ships (38,390) (60,914)
Rental expenses for motor vehicles (3,884) (4,011)
Rental expenses for machinery and equipment (3,539) (3,475)
Management fees (5,842) (6,350)
Others:
Guarantees provided by the Group for the benefit of ultimate holding
company and fellow subsidiaries — 174,229
Guarantees provided by ultimate holding company — 5,840
Transactions with associates of the Group:
Revenue:
Revenue from provision of services 10 7,054
Expenses:
Service fees (436) (15,283)
Rental expenses for trucks — (360)
132
Notes to the Financial Statements
37. SIGNIFICANT RELATED PARTY TRANSACTIONS (continued)
The Group
2002 2001
RMB’000 RMB’000
Transactions with jointly controlled entities (after elimination of
the Group’s proportionate interests in those jointly controlled
entities):
Revenue:
Revenue from provision of services 64,198 87,450
Expenses:
Service fees (21,480) (14,962)
Others:
Guarantees provided by the Group for the benefit of jointly
controlled entities 5,393 900
Transactions with joint venture partners in jointly controlled
entities (attributable to the Group’s interests in those jointly
controlled entities):
Revenue:
Pick-up and delivery revenue 250,352 212,668
Revenue from provision of services 2,868 4,554
Expenses:
Transportation and related charges (276,749) (200,418)
Service fees (10,073) (3,451)
Management fees (5,823) (4,818)
Transactions with other related parties:
Revenue:
Revenue from provision of pick-up and delivery services 186,424 121,248
Incentive bonus receivable 57,560 68,695
Revenue from provision of services 17,621 16,094
Expenses:
Service fees (19,187) (5,692)
Rental expenses for ships (6,665) (6,387)
Others:
Guarantees provided by the Group for the benefit of joint venture
partners in jointly controlled entities 9,933 12,500
133
Notes to the Financial Statements
37. SIGNIFICANT RELATED PARTY TRANSACTIONS (continued)
These transactions are entered into at terms agreed with these related parties in the ordinary course of
business. The guarantees given by the Group for the benefit of the ultimate holding company and fellow
subsidiaries and vice versa have been released prior to the listing of the Company’s shares.
In addition to the above, the ultimate holding company has assumed the Group’s obligations to make
benefits payments to certain of the Group’s former employees and retirees (see Note 29) and agreed to
bear any further one-off cash housing subsidies in excess of the amount of approximately
RMB74,560,000 provided for in the financial statements of the Group at the time of the Reorganisation
(see Note 30).
Balance sheet items:
The Group
2002 2001
RMB’000 RMB’000
Balances with the ultimate holding company and fellow
subsidiaries:
Trade and other receivables 324,662 172,712
Trade payables (65,375) (60,542)
Other payables, accruals and other liabilities (1,031,747) (317,164)
Long-term payable (331,716) —
Balances with jointly controlled entities:
Trade and other receivables 14,281 17,092
Trade payables (4,930) (3,104)
Other payables, accruals and other liabilities (915) (930)
Balances with associates of the Group:
Trade and other receivables 2,383 16,743
Trade payables — (2,441)
Other payables, accruals and other liabilities (10,868) (15,894)
Balances with other related parties:
Trade and other receivables 156,835 151,888
Trade payables (28,781) (12,854)
Other payables, accruals and other liabilities (20,015) (31,612)
For the balance sheet items, other related parties primarily represent the joint venture partners in jointly
controlled entities. Other receivables from related parties and amounts due to related parties have
repayment terms as disclosed in Note 21 and Note 27 respectively.
134
Notes to the Financial Statements
38. SUBSEQUENT EVENTS
The following events took place subsequent to 31 December 2002 and up to the date of this report:
(a) Subsequent to 31 December 2002, the Group entered into certain significant agreements with the
ultimate holding company:
On 14 January 2003, the Group entered into a business service agreement with the ultimate
holding company which regulates the provision of transportation and logistics services and
ancillary services by members of the Group to the ultimate holding company (including its
subsidiaries and associates) and vice versa. The business service agreement contemplates that the
relevant members of the Group and the ultimate holding company (including its subsidiaries and
associates) will enter into contracts for specific services and for the leasing of certain assets as and
when necessary, in compliance with the terms of the business service agreement.
The business service agreement also provides for the following:
. Leasing of certain vessels by the Group for aggregate charter hire of approximately
RMB29,000,000.
. Leasing of certain containers by the Group with an estimated annual rental of approximately
RMB56,000,000.
. Leasing of certain motor vehicles by the Group.
The Group has also entered into a master lease agreement providing for the leasing of certain
office premises, warehouses, container yards/freight stations and other properties for a term of 20
years at an annual rental of approximately RMB69,000,000.
(b) In February 2003 the Company completed the Global Offering resulting in total shares outstanding
of 4,249,002,200 of which 2,461,596,200 shares are owned by the ultimate holding company and
1,787,406,000 shares are owned by the public (See Note 31).
135
Notes to the Financial Statements
38. SUBSEQUENT EVENTS (continued)
(c) On 31 March 2003, the Company obtained an approval from the Ministry of Finance and the State
Administration of Taxation of the PRC that the additional depreciation and amortisation on the
asset revaluation surplus of approximately RMB839,800,000, arising from the Reorganisation and
recorded by various entities comprising the Group in their financial statements prepared under PRC
accounting standards, is deductible for enterprise income tax purposes. Since the Group did not
recognise the above asset revaluation surplus in its financial statements prepared in accordance
with IFRS, a deferred tax asset of approximately RMB226,700,000 arose as a result of the approval,
which will be recognised and credited into capital reserve during the year ending 31 December
2003.
(d) On 10 April 2003, the Board of Directors of Sinoair proposed a cash dividend of RMB0.25 per share
totaling approximately RMB91,462,000, of which approximately RMB27,109,000 is attributable to
the minority shareholders. The proposed dividend is subject to the shareholder’s approval at their
next general meeting.
39. ULTIMATE HOLDING COMPANY
The Company’s directors regard Sinotrans Group Company, a company established in the PRC, as the
ultimate holding company of the Company.
40. APPROVAL OF FINANCIAL STATEMENTS
The financial statements were approved by the board of directors on 15 April 2003.
136
Notes to the Financial Statements