Ecogreen 2003

EcoGreen Fine Chemicals Group Limited
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EcoGreen Fine Chemicals Group Limited
(incorporated in the Cayman Islands with limited liability)

*
ANNUAL REPORT 2003
*For identification purposes only
2 Corporate Information
3 Financial Highlights
4 Chairmans Statement
6 Management Discussion and Analysis
14 Directors and Senior Managements Profile
18 Directors Report
26 Auditors Report to the Shareholders
27 Balance Sheet
28 Notes to the Accounts
31 Auditors Report to the Directors
33 Proforma Consolidated Profit and Loss Account
34 Proforma Consolidated Balance Sheet
35 Proforma Consolidated Cash Flow Statement
36 Proforma Consolidated
Statement of Changes in Equity
37 Notes to the Proforma Consolidated Accounts
72 Financial Summary
C O N T E N T S
EcoGreen Fine Chemicals Group Limited 2
Corporate Information
Auditors
PricewaterhouseCoopers
Certified Public Accountants
Legal advisers
Chiu & Partners
Principal bankers
The Hongkong and Shanghai Banking
Corporation Limited
China Construction Bank, Xiamen Branch
Principal share registrar and transfer office
Bank of Bermuda (Cayman) Limited
36C Bermuda House, 3rd Floor
P.O. Box 513GT
Dr. Roys Drive
George Town
Grand Cayman
Cayman Islands
British West Indies
Hong Kong branch share registrar and transfer office
Tengis Limited
Ground Floor
Bank of East Asia Harbour View Centre
56 Gloucester Road
Wanchai
Hong Kong
Internet addresses
http://www.ecogreen.com
http://www.doingcom.com
Stock Code
2341
Key Dates
Closure of register of members:
18th May 2004 to 21st May 2004
(both days inclusive)
Date of annual general meeting:
21st May 2004
Executive Directors
Mr. Yang Yirong (Chairman & President)
Mr. Gong Xionghui
Ms. Lu Jiahua
Mr. Lin Zhigang
Mr. Ho Wan Ming
Non-executive Director
Mr. Yang Chiming#
Independent Non-executive Directors
Dr. Zheng Lansun
*
#
Mr. Yau Fook Chuen
*
#
Mr. Wong Yik Chung, John
*
#
*
Audit committee members
# Renumeration committee members
Company secretary
Mr. Lam Kwok Kin ACCA, AHKSA
Registered office
Century Yard
Cricket Square
Hutchins Drive
P.O. Box 2681 GT
George Town
Grand Cayman
Cayman Islands
British West Indies
Head office and principal place of
business in Hong Kong
Unit No. 508
5th Floor, Tower 2
Lippo Centre
89 Queensway
Hong Kong
3 Annual Report 2003
Financial Highlights
TURNOVER BY GEOGRAPHICAL LOCATION
Year ended 31st December
2003 2002 % of change
RMB000 RMB000
Turnover 223,152 146,761 +52.1%
Profit attributable to shareholders 54,680 33,926 +61.2%
Earnings per share basic (RMB cents) 18 11 +63.6%
Return on total assets 19.3% 17.4% +1.9%
Total assets 283,850 194,535 +45.9%
Shareholders equity 85,888 42,272 +103.2%
Gross profit margin 38.8% 38.0% +0.8%
Net profit margin 24.5% 23.1% +1.4%
TURNOVER
PROFIT ATTRIBUTABLE TO SHAREHOLDERS
PRC
Hong Kong
Others
2003
2002
250,000
200,000
150,000
100,000
50,000
0
2002 2003 2000 2001
75,261
114,259
146,761
223,152
RMB 000
Compound Annual Growth Rate (CAGR):+43.7%
2002 2003 2000 2001
15,520
20,805
33,926
54,680
60,000
50,000
40,000
30,000
20,000
10,000
0
RMB 000
CAGR:+52.2%
9.2%
6.3%
84.5%
10.1%
8.7%
81.2%
Chairmans Statement
I am pleased to present to shareholders our first annual report since the listing of the Companys Shares on the
Main Board of The Stock Exchange of Hong Kong Limited (the Stock Exchange) on 9th March 2004.
The year of 2003 was significant to the Group in terms of growth and corporate development. During the year,
the Group devoted to the preparation for the listing and fulfilled the stringent requirements of the international
equity market and successfully enhanced its management standard through the listing exercise. With the
dedication of all our staff, the Group successfully listed on the Stock Exchange on 9th March 2004. The listing
has laid down a new milestone to the Group. It was well received among institutional and public investors. The
public offer was over subscribed by 391.8 times and the net proceeds raised amounted to approximately
RMB149.2 million (equivalent of HK$140.8 million), a token of the confidence of the investors towards the
prospects of the fine chemical products industry in the Peoples Republic of China (the PRC) and the Group.
In addition, the Group was awarded the Leading Enterprise in the Forestry Industry in Fujian Province
() by the Forestry Bureau of Fujian Province () and Finance Bureau
of Fujian Province () in 2003. Also, the Group was recognised as a New High Technology
Enterprise () by the Department of Science and Technology of Xiamen ().
The leading position of the Group in terms of operation scale and level of technology is widely recognised in
the PRC.
BUSINESS REVIEW
In 2003, the Group achieved a remarkable growth. Turnover reached RMB223.2 million, representing an increase
of 52.1% over 2002. Profit for the year increased by 61.2% to approximately RMB54.7 million. Basic earnings per
share was approximately RMB18 cents.
The products of the Group are extensively applied in pharmaceutical, healthcare, beauty and cosmetics, personal
care, household and sanitary industries. With the increasing health consciousness of the public, together with
the wide recognition of the effectiveness of chiral pharmaceutical products, the demand of the three major
product groups of the Group, namely (i) chiral pharmaceuticals raw materials and pharmaceutical intermediates,
(ii) natural pharmaceutical raw materials, and (iii) aroma chemicals, is surging. As a result, the Group has benefited
from such continuously growing market demand.
Moreover, since the completion of the enhancement project on the Groups production facilities in the second
half of 2002, the annual processing capacity of botanic essential oils increased by 1,500 metric tonnes to 9,500
metric tonnes, which led to an increase in production output and consequently sales. As to the production
capability, the Group had increased the product types from 9 to over 30 types of products and product
diversification was achieved. Through further development of high value-added fine chemical products, gross
profit margin was improved. The percentage of the Groups turnover generated by the high value-added chiral
pharmaceuticals raw materials and pharmaceutical intermediates increased to 10% in 2003 as compared to 5%
in 2002. As a result, gross profit margin and net profit margin increased by 0.8% and 1.4% respectively.
Chairmans Statement
BUSINESS OUTLOOK
Looking ahead, Business specialisation and product diversification remains to be the development direction
of the Group. Leveraging on the existing business model, the Group will enhance its core technological edge
to expediate product diversification and tap into downstream products.
After the completion of the expansion of the Groups production facilities, the Groups annual processing capacity
of botanic essential oils will further increase to 11,000 metric tonnes and four new high value-added chiral
pharmaceuticals raw materials and pharmaceutical intermediates will be launched to the market. Meanwhile,
the construction of a new multi-purpose plant with a total floor area of 16,000 sq.m. will commence in the
second half of 2004 and is expected to be completed by 2005. The Group will also actively expand its overseas
business by establishing a logistic support centre in Rotterdam, Europe.
For research and development, apart from the joint investment with Xiaman University in an enterprise for the
research and development of biological and chemical medicines, the Group will continue the collaboration
with other academics and research institutions through Industry University Research Partnership ()
to develop new products and production technologies, so as to maintain our leading position. On the other
hand, the Group will continually employ additional professionals and acquire sophisticated equipments to lay
down a solid foundation for future development.
On behalf of the Board , I would like to express my sincere gratitude to our shareholders, clients, suppliers and
staff for their trust and support towards the Group since their effort and hard work are essential to our growth
and success. I would like to invite all shareholders to witness our future remarkable development in the years to
come, and we look forward to achieve an impressive performance in the year 2004.
Yang Yirong
Chairman
Hong Kong, 20th April 2004
Management Discussion and Analysis
EcoGreen Fine Chemical Group Limited (the Company) and its subsidiaries (the Group) is the leading
natural fine chemicals company in the PRC and is principally engaged in the research and development,
production and sales of fine chemical products. Using botanic essential oils as raw material, the fine chemical
products are extensively applied in pharmaceutical industry, healthcare industry and personal care industry.
The Groups fine chemical products are broadly categorised into three main product groups, namely (i) chiral
pharmaceuticals raw materials and pharmaceutical intermediates which are principally used in the production
of chiral pharmaceuticals, (ii)
natural pharmaceutical raw
materials which are used as
functional ingredients in the
production of healthcare
products, and (iii) aroma
chemicals which are broadly
used as ingredients in flavor
and fragrance products to be
applied in a wide range of
personal care products,
cosmetics and household
products.
BUSINESS REVIEW
Riding on the impressive performance in previous years, the Group continued to record a remarkable business
growth for the year ended 31st December 2003. Turnover and profit attributable to shareholders reached
RMB223.2 million and RMB54.7 million, respectively, representing a year-on-year increase of 52.0% and 61.4%
as compared to RMB146.8 million and RMB33.9 million in 2002. For the four years ended 31st December 2003,
the compound annual growth rates for the Groups turnover and net profit amounted to approximately 43.7%
and 52.2% respectively. Earnings per share also increased from RMB11 cents in 2002 to RMB18 cents in 2003.
The notable growth in turnover was mainly attributable to the launching of two new chiral pharmaceuticals raw
materials and pharmaceutical intermediates and one new aroma chemical products during the year and the
impact of a full years operation of the enhancement of the Groups production facilities which was completed
in June 2002, the annual processing capacity of botanic essential oils was increased from 8,000 metric tonnes to
9,500 metric tonnes. With the expansion of the Groups sales volume, together with the benefits brought forth
by economies of scale and improvement of operational efficiency, the Group successfully adopted a competitive
pricing policy for its products.
In addition, the Group has continued to enlarge its customer base through expansion of sales and distribution
network to overseas market. In 2003, overseas sales of the Groups fine chemical products surged significantly
by 85% as compared to that of 2002.
During the year of 2003, the gross profit margin of the Group increased from 38.0% in 2002 to 38.8% in 2003.
The improvement was attributable to the improvement of operational efficiency, economies of scale of
production and the change in sales mix towards higher gross profit margin products.
OPERATIONAL REVIEW
Product Diversification
Leveraged on its advanced production technologies and techniques, the Group is well positioned to develop
new products in a timely manner and swiftly adjust the product mix in accordance with the market demand.
During the year under review, approximately 30 types of fine chemical products were produced. An analysis of
the Groups turnover by product types and the gross profit margin of the Groups products for the year ended
31st December 2003 and 31st December 2002 is as follows:
Gross profit Gross profit
Turnover margin Turnover margin
2003 2003 2002 2002
RMB000 % RMB000 %
Chiral pharmaceuticals raw materials
and pharmaceutical intermediates 21,374 78.5 6,727 68.5
Natural pharmaceutical raw materials 59,253 38.2 42,712 37.9
Aroma chemicals 142,525 34.6 97,322 36.1
223,152 38.8 146,761 38.0
With the Groups emphasis on the development of fine chemical products that are mainly applied as functional
ingredients or intermediates for a wide range of downstream applications, the growing demand for downstream
products in the PRC and the international market lead to an overall increase in the demand for the Group
products. Above all, the growth in turnover of chiral pharmaceuticals raw materials and pharmaceutical
intermediates was faster than other products of the Group, contributing to a change of sales mix. With the
increase of turnover of the high-margin chiral pharmaceuticals raw materials and pharmaceutical intermediates,
its contribution to the Groups gross profit becomes more predominant.
TURNOVER BY PRODUCT TYPES
GROSS PROFIT BY PRODUCT TYPES
and pharmaceutical intermediates
Natural pharmaceutical raw materials
Aroma chemicals
2003 2002
2003 2002
and pharmaceutical intermediates
Natural pharmaceutical raw materials
Aroma chemicals
26.5%
9.6%
63.9%
4.6%
29.1%
66.3%
54.9%
19.2%
25.9%
64.5%
28.1%
7.4%
The sales of chiral pharmaceuticals raw materials and pharmaceutical
intermediates increased by 217.7% to RMB21.4 million in the year ended 31st
December 2003, from RMB6.7 million in the previous year. It accounted for
9.6% (2002: 4.6%) of the Groups turnover. The market launch of new products,
comprising intermediary polysaccharides and resveratrol which are of higher
profit margins and the cessation of selling lower profit margin pseudo ionone
contributed to the impressive increase of the gross profit margin of this
product group.
The sales of natural pharmaceutical intermediates increased by 38.7% to
RMB59.3 million in the year ended 31st December 2003, from RMB42.7 million
in the previous year. It accounted for 26.6% (2002: 29.1%) of the Groups
turnover. The progressive growth in the sales of the Groups natural
pharmaceutical raw materials was the result of an increasing demand for
downstream products in the PRC. The Groups economies of scale, continuous
refining of production technology and the reduction in unit production cost
of the Groups natural pharmaceutical raw materials improved the gross profit
margin of this product group for the year.
The sales of aroma chemicals increased by 46.4% to RMB142.5 million in the
year ended 31st December 2003, from RMB97.3 million in the previous year.
It accounted for 63.9% (2002: 66.3%) of the Groups turnover. The prominent
overseas sales of the Groups products and the enhancement of the Groups
processing capacity of botanic essential oils were the driving force of the
remarkable increase in the sales of aroma chemicals. With a view of satisfying
the needs of some of the Groups largest customers and utilising redundant
production capacity in the production plant, the Group received orders of
some new aroma chemicals with lower gross profit margin, which caused the
decrease in the overall gross profit margin of the Groups aroma chemicals in
2003.
Extensive Clientele Base
The Group has established a solid and extensive customer base with over
100 customers, including trading companies and industrial companies that
are the major multinational manufacturers of pharmaceuticals, flavour and
fragrance products. During the year 2003, turnover generated from the Groups
five largest customers reduced from 26.0% to 20.7%. The Groups extensive customer base minimises the adverse
impact of any over-exposure to a particular customer, industry or any significant seasonal fluctuation in sales
pertaining to any particular industry.
Production Facilities
The Groups existing production facilities have a site area of
approximately 27,000 sq. m. and an aggregate gross floor area of
approximately 8,400 sq. m. located in Xiamen, Fujian Province, PRC.
The Groups facilities enjoy close proximity to Xiamens container port
and extensive transportation network, ensuring efficient delivery and
reduction of transportation costs. After the enhancement project on
the existing production facilities which was completed in 2002, the
annual processing capacity of botanic essential oils of the Group
increased from 8,000 metric tonnes to 9,500 metric tonnes. Based on
optimal product mix, the average annual utilisation rate of the existing
production facilities is approximately 91%.
Research and Development
For the year ended 31st December 2003, product development
costs incurred and capitalised by the Group amounted to
approximately RMB6.2 million (2002: RMB1.5 million) whereas
the Groups amortisation of product development costs
amounted to RMB2.2 million (2002: RMB2.1 million), representing
2.8% (2002: 1.0%) and 1.0% (2002: 1.4%), respectively, of the
Groups turnover.
With the availability of sophisticated ancillary facilities and the
abundant resources provided by a number of PRC academic and
research institutes, the Group bolstered its research and
development capability through the collaborations with some
leading academic and research institutes in the PRC, including
Xiamen University, Nanjing University, The Shanghai Institute of
Organic Chemistry of Chinese Academy of Sciences and The
Guangzhou Institute of Chemistry of Chinese Academy of
Sciences.
During the year, the Group has cooperated with Xiamen
University Assets Operations Co., Ltd. to invest in Xiamen Xiada
Taigu Pharmaceutical Co., Ltd., a domestic enterprise established
in the PRC which is principally engaged in the research and
development of biological and chemical pharmaceutical
products. As at 31st December 2003, the Group had 10% (2002:
Nil) interest in this company.
RECOGNITIONS
In December 2003, Xiamen Doingcom Chemical Co., Ltd., one of the subsidiaries of the Company, was accredited
with a ISO9001: 2000 certificate for its Quality Management System for its unparalleled management of the
research and development, manufacture and service of flavor and fragrance, botanic aroma essential oils and
their derivants.
Chemical wastes discharged by the Groups production facilities were kept under the statutory level and complied
with the requirements of the environmental authority under the local government. In addition, Xiamen Doingcom
Chemical Co., Ltd. was accredited ISO14001: 1996 certificate in December 2003 for its eminent Environmental
Management System implement on the research and development, manufacture and service of aroma flavour
and fragrance, botanic aroma essential oils and their derivants as well as the associated environmental
management activities.
EMPLOYEES AND REMUNERATION POLICY
As at 31st December 2003, the Group has 218 full-time employees of which 215 are based in the PRC and 3 in
the Hong Kong office. The Group has always maintained a good relationship with its employees and training is
provided to its staff on business knowledge including information on the application of the Groups products
and to maintain clients relationship. Remuneration packages offered to the staff are in line with the prevailing
market terms and reviewed on a regular basis. Discretionary bonuses may be rewarded to employees after
assessment of the Groups and the individuals performance.
The Group participates in state-sponsored retirement plans which are administered by the local government in
the PRC for its PRC based employees. The Group has also set up a retirement scheme in accordance with the
mandatory provident fund requirements prescribed by the Mandatory Provident Fund Schemes Ordinance for
all its Hong Kong based employees.
The Group has also adopted a share option scheme on 16th February 2004 for the purpose of providing incentives
and rewards to eligible participants who contribute to the success of the Groups operations. The Directors
may, at their discretion, invite any employees or Directors of the Group and other selected participants as set
out in the scheme, to subscribe for shares in the Company. For the period up to the date of this report, no
share options had been granted under the share option scheme.
FINANCIAL REVIEW
Liquidity, Financial Resources and Capital Structure
During the year under review, the Groups primary source of funding included cash generated from operating
activities and credit facilities provided by its principal banks in the PRC. Net cash inflow from operating activities
amounting to approximately RMB22.7 million (2002: RMB22.8 million) which was resulted from the Groups
capability in working capital management to develop and strengthen a net cash surplus from operation. As at
31st December 2003, the Group had cash and bank deposits of approximately RMB65.9 million (2002: RMB11.7
million).
The Groups financial position remains healthy. As at 31st December 2003, the net current assets and the current
ratio of the Group were approximately RMB40.9 million (2002: RMB23.0 million) and 1.32 (2002: 1.31), respectively.
As at 31st December 2003, the Group had total assets of approximately RMB283.9 million (2002: RMB194.5
million), bank borrowings of approximately RMB90.6 million (2002: RMB59.0 million), government loans from
State Development and Reform Commission, Xiamen Development Planning Commission and other PRC
government bureaus to finance the Groups product development activities and expansion of production facilities
of approximately RMB36.2 million (2002: RMB31.0 million), convertible bonds of RMB37.2 million (2002: RMB37.2
million), trade and other payables of approximately RMB34.0 million (2002: RMB25.1 million) and shareholders
equity of approximately RMB85.9 million (2002: RMB42.3 million).
The Groups gearing ratio as at 31st December 2003, which is represented by the ratio of total debts to total
assets, was approximately 57.7% (2002: 65.9%). Moreover, the Groups return on assets was about 19.3% (2002:
17.4%), which indicated that the Groups assets were employed and utilised efficiently and effectively.
With the positive cash inflow from operations, its available banking facilities and the proceeds from the
Companys issue of new shares and the exercise of over-allotment option at the time of listing on the Stock
Exchange on 9th March 2004, which, after deduction of related issuance expenses, amounted to approximately
RMB149.2 million (equivalent of HK$140.8 million), the Group has sufficient financial resources to meet its
commitments, working capital requirements and future investments for expansion.
Charges on assets
The Groups bank borrowings were secured by pledge of certain of the Groups land and buildings of
approximately RMB37.2 million (2002: RMB38.3 million), corporate guarantees provided by certain unrelated
third parties of approximately RMB25.5 million (2002: RMB19.5 million) and pledge of input value-added tax
recoverable of approximately RMB3.1 million (2002: nil).
Contingent Liabilities
As at 31st December 2003, corporate guarantees in the amount of RMB1.5 million (2002: RMB1.0 million) were
provided by the Group for bank loans of an unrelated third party. Subsequent to 31st December 2003, such
guarantees were released.
Capital Commitment
As at 31st December 2003, the Group had capital commitments of approximately RMB21.0 million (2002: RMB9.1
million) in respect of purchases of property, plant and equipment and construction-in-progress, capital injection
to a subsidiary and product development projects.
Treasury Policies and Exposure to Fluctuations in Exchange Rates
The Groups transactions are mainly denominated in Renminbi, United States dollars and Hong Kong dollars
with operation mainly in the PRC. As at 31st December 2003, the Groups bank borrowings were denominated
in Renminbi and bearing interest at rates ranging from 5.6% to 6.6% per annum whereas the Groups cash and
cash equivalents denominated in Renminbi amounted to 97.2% of the total balance with the remaining balance
denominated in United States dollars and Hong Kong dollars. The Groups exposure to the foreign exchange
fluctuations was minimal and has not experienced any material difficulties or affects the operations or liquidity
as a result of fluctuations in currency exchange rates during the year. Nevertheless, the Group will conduct
periodic review of its exposure to foreign exchange risk and may use financial instrument for hedging purpose
when considered appropriate.
Business Outlook
Looking ahead, the Group will capitalise on the surging market demand for chiral drugs, natural pharmaceuticals
and personal care product, with the view of propelling business growth. Business specialisation and product
diversification has been, and will continue to be, the goal for the Groups long-term development.
Leveraging its solid foundation for aroma chemicals products, the Group will further strengthen and expand
this market, while diversifying its existing product portfolio to other fine chemicals products. The Group
endeavors to utilise botanic essential oils as the principal raw material and develop new products with high
growth potential. High value-added products, comprising mainly chiral pharmaceuticals raw materials and
pharmaceutical intermediates and natural pharmaceutical raw materials, will further be developed in order to
increase the Groups market share and the sales of the abovementioned products.
The Group will complete the expansion of the existing production facilities by 2004 and the construction of a
new plant by 2005. The expansion will enhance the Groups processing capacity of botanic essential oils to
11,000 metric tonnes and to 16,000 metric tonnes in 2004 and 2005, respectively, and strengthen its plan for
business expansion.
With the objective of maintaining intimate customer relationship and creating customer values, the Group will
actively establish direct communication channels with product users to thoroughly understand customers needs
and adopt a more effective control over distribution channels, so as to respond to market changes and customers
needs. The setting up of a representative office in Guangzhou enables the Group to have direct access to
potential users, which motivates further expansion of the extensive customer base in the PRC. To increase
direct exports to overseas market, the Group endeavors to provide comprehensive and quality services and
establish a strong foothold in the European and the US market by setting up logistics support centre in Rotterdam,
the Netherlands, the transportation and logistics hub of Europe, as well as a representative office in New York,
the US in 2005.
Amidst the backdrop of the promising market, the
Group will continue to seek for appropriate
opportunities to acquire advanced research and
development facilities and recruit high caliber
professionals for speeding up the effective
commercialisation of its research and development
results. Leverage on its unique market insight,
unrivalled research and development competence
and sound fi nanci al posi ti on, the Group i s
conf i dent of capt ur i ng any cooper at i on
opportunities with renowned local and overseas
research institutes and further enhancing its long-
term competitiveness.
Directors and Senior Managements Profile Directors and Senior Managements Profile
DIRECTORS
Mr. YANG Yirong
Executive Director
Mr. Yang Yirong (), aged 42, is the Chairman
and President of the Group. Mr.Yang is responsible
for strategic planning and formulation of overall
corporate development policy for the Group. Mr.
Yang holds a bachelor degree in science, majoring in
chemistry from Huaqiao University () in 1982.
Prior to founding the Group in 1994, Mr. Yang has
extensi ve experi ence i n the f i ne chemi cal s
manufacturing and trading and has more than 10
years of experience in natural organic chemistry
research.
Ms. LU Jiahua
Executive Director
Ms. Lu Jiahua (), aged 37, is the Vice President
of corporate control of the Group. Ms. Lu oversees
the finance and accounting and human resources
functions for the Group in the PRC. Prior to joining
the Group in April 2002, Ms. Lu has 14 years of
experience in accounting, financial management,
administration management and internal auditing in
a number of pharmaceutical and fine chemical
manufacturing enterprises. Ms. Lu holds a bachelor
degree and a master degree in economics and
corporate management from Xiamen University (
).
Mr. GONG Xionghui
Executive Director
Mr. Gong Xionghui (), aged 40, is the Vice
President of operations of the Group, responsible for
general manufacturing operations and research and
development functions for the Group. Mr. Gong
oversees the research and development department
and other operational departments including the
producti on department, qual i ty management
department and logistic centre of the Group. Mr.
Gong holds a master degree in chemical engineering
from Xi amen Uni versi ty ( ) and has
accumulated over 16 years of experience in fine
chemicals industry and qualified as an ISO 9000
auditor in the PRC in 1998. He joined the Group in
September 1999.
Mr. LIN Zhigang
Executive Director
Mr. Lin Zhigang (), aged 33, is the head of Sales
and Marketing Department and is responsible for
overseas and domestic sales and the marketing
management of the Group. Mr. Lin holds a bachelor
degree i n economi cs obtai ned from Xi amen
University (). Prior to joining the Group in
June 1996, he worked in a foreign investment
enterprise and has concrete experience in sales and
marketing management, business development and
production management.
Directors and Senior Managements Profile
DIRECTORS (Continued)
Mr. HO Wan Ming
Executive Director
Mr. Ho Wan Ming (), aged 44, is responsible
for the overseas affairs of the Group. Mr. Ho
graduated from Huaqiao University ()
majoring in chemistry and chemical engineering. He
accumulated over 20 years of extensive experience
i n i nternati onal tradi ng, pl ant management,
corporate management and publ i c rel ati ons
management from a various types of sectors including
petrochemicals, cosmetic and beverage. Mr. Ho
joined the Group in June 2002.
Dr. ZHENG Lansun
Independent Non-executive Director
Dr. Zheng Lansun (), aged 49, is a member of
the National Committee of the 10th Chinese Peoples
Political Consultative Conference (
), representi ng the
technology sector. He is also a qualified academician
() of the Chinese Academy of Sciences (
). Dr. Zheng received a doctoral degree in
philosophy from Rice University in the United States
of America and has engaged in chemistry related
research activities at Xiamen University. He was
appointed as an independent non-executive Director
in February 2004.
Mr. WONG Yik Chung, John
Mr. Wong Yik Chung, John (), aged 37, is a
qualified accountant and has over 12 years of public
accounting and financial consulting experience in the
PRC, Hong Kong, Australia and Southeast Asia. Mr.
Wong is a member of Australian Society of Certified
Practising Accountants and the Hong Kong Society
of Accountants. Mr. Wong graduated from the
Flinders University of South Australia with a master
degree in applied finance and is currently engaging
in a range of financial consulting services stationing
in Shanghai, the PRC. He was appointed as an
independent non-executive Director in February
2004.
Mr. YANG Chiming
Mr. Yang Chi mi ng ( ) , aged 52, i s an
entrepreneur who stations in Taiwan and is the cousin
of Mr.Yang Yirong. Mr. Yang has extensive experience
i n busi ness management and manufacturi ng
operation at manufacturing industries. He also
assisted the Group in providing opinions with respect
to management of i nvestments proj ects and
operations. Mr. Yang joined the Group in May 2002
and was appointed as a Director is October 2003 and
was then appointed as a non-executive Director in
February 2004.
Mr. YAU Fook Chuen
Mr. Yau Fook Chuen (), aged 46, is a practising
accountant and has over 14 years of experience in
public accountancy practice which covers company
secretarial service, accountancy, auditing and
taxation. Mr. Yau is a member of the Association of
Chartered Certified Accountants and the Hong Kong
Society of Accountants. Mr. Yau is currently the
propri etor of Yau & Wong, Certi fi ed Publ i c
Accountants in Hong Kong. He was appointed as an
independent non-executive Director in February
2004.
SENIOR MANAGEMENT
Ms. Chen Hua (), aged 32, oversees the
I nvestment Management Department and i s
responsible for coordinating and monitoring the
execution of investment projects of the Group. Ms.
Chen graduated from the University of Shanghai for
Science and Technology (formerly known as Shanghai
Institute of Mechanics ()) and has more
than eight years of experience in sales and marketing,
publ i c rel ati on admi ni strati on and corporate
management. She joined the Group in March 1995.
Mr. Shi Jinlei (), aged 32, is a senior consultant
of the Group. Mr. Shi is a qualified accountant and
lawyer in the PRC and is responsible for advising the
management on corporate development strategy in
legal and financial aspect. Mr. Shi holds a bachelor
degree of science major in chemistry from Sichuan
University (), a master degree of law and a
doctorate degree of economics from Xiamen
2001, Mr. Shi has extensive experience in investment
banking business.
Mr. Yin Xiande (), aged 63, is the head of
Research & Devel opment Department and i s
directing the research and development projects in
products and technologies. Mr. Yin graduated from
the Wuhan University () with a chemistry
degree major in organic synthesis. He has served at
the Chinese Academy of Sciences () for
research projects in the areas of organic chemistry,
fine chemistry, catalytic science and material science
for more than 20 years and obtained senior engineer
qualification specialised in fine chemicals. He has
been entitled to receive an extraordinary grant from
the State Council () of the PRC Government.
Mr. Yin joined the Group in July 2001.
Mr. Lin Weiqing (), aged 33, is the head of
Accounting Department. Mr. Lin is responsible for
managing the accounting functions of the Group in
the PRC. Mr. Lin holds an economics degree major
in accountancy from Xiamen University ()
and was qualified as an accountant specialises in
corporate accounts by the Ministry of Finance in
China. Mr. Lin has more than 10 years of working
experience in finance and accounting. Mr. Lin joined
the Group in March 2002.
Mr. Zheng Jinzhuan (), aged 33, is the head of
the Logistics Center and is responsible for procuring,
inventory and logistics management of the Group.
Mr. Zheng graduated in chemical engineering faculty
from Fuzhou University () and he is a
qualified chemical engineer. Prior to joining the
Group in January 2000, Mr. Zheng worked in a number
of multinational fine chemicals companies and has
extensive experience in fine chemicals industry.
Mr. Li Xiaoliang (), aged 29, is the head of
Corporate Devel opment Department. Mr. Li
graduated from Jiangxi University of Traditional
Chinese Medicine () in pharmacy and
holds a master degree of business administration
from Xiamen University (). Mr. Li joined the
Group in March 2001.
SENIOR MANAGEMENT (Continued)
Mr. Zhang Yonglai (), aged 61, is the head of
Production Department and is responsible for the
Groups production functions. Mr. Zhang graduated
from the Chemical Engineering Academy of Beijing
( presently known as Beijing University
of Chemical Technology ()) with an
organic chemistry degree major in organic synthesis.
Mr. Zhang has extensive experience in constructing
as well as managing large-scale chemical production
facilities and he also received chemical engineering
awards for achievements in development of new
advance coal gas production technology. Mr. Zhang
joined the Group in March 1999.
Mr. Jiang Yuming (), aged 37, is the head of
Quality Management Department and is responsible
for establishing and supervising the quality control
system for the Group. Mr. Jiang holds a post-
graduate study in analytical chemistry from Hebei
September 2003, Mr. Jiang worked in a chemical plant
and is a qualified chemical engineer.
Lam Kwok Kin (), aged 30, is the financial
controller and company secretary of the Company.
Mr. Lam holds a bachelor degree in accountancy and
is an associate member of the Association of
Chartered Certified Accountants and the Hong Kong
Society of Accountants. Prior to joining the Group in
October 2003. He worked with an international
accounting firm and was the financial controller and
company secretary of a company listed on the Stock
Exchange. Mr. Lam has accumulated extensive
experience in auditing, accounting, budgeting and
company secretarial works.
Directors Report Directors Report
The directors of EcoGreen Fine Chemicals Group Limited (the Company) (the Directors) are pleased to
present their first report together with the audited accounts of the Company for the period ended 31st December
2003 and the audited proforma consolidated accounts of the Company and its subsidiaries (the Group) for
the year ended 31st December 2003.
GROUP REORGANISATION
The Company was incorporated in the Cayman Islands on 3rd March 2003 as an exempted company with
limited liability under the Companies Law of the Cayman Islands. On 16th February 2004, the Company acquired
the entire issued share capital of EcoGreen Fine Chemicals Limited, a company incorporated in the British
Virgin Islands, through a share exchange (the Reorganisation) and consequently became the holding company
of the subsidiaries as set out in Note 33 to the proforma consolidated accounts. Details of the Reorganisation
and the basis of presentation of the accounts of the Company and the proforma consolidated accounts of the
Group are set out in Note 1 to the accounts.
Shares of HK$0.10 each in the share capital of the Company (Shares, each a Share) have been listed on the
Main Board of The Stock Exchange of Hong Kong Limited (the Stock Exchange) since 9th March 2004 (the
Listing Date).
PRINCIPAL ACTIVITIES AND GEOGRAPHICAL ANALYSIS OF OPERATIONS
The Company is an investment holding company. The principal activities of the subsidiaries are the research
and development, production and sale of fine chemicals products from natural resources for use in aroma
chemicals and pharmaceutical products.
An analysis of the Groups performance for the year by business and geographical segments is set out in Note
3 to the proforma consolidated accounts.
RESULTS AND DIVIDENDS
Apart from the change in share capital of the Company as set out in Note 3 to the Companys accounts, no
other transactions were carried out by the Company during the period from 3rd March 2003 (date of
incorporation) to 31st December 2003.
The results of the Group for the year are set out in the proforma consolidated accounts on page 33.
No dividend has been paid or declared by the Company since its incorporation. The directors do not recommend
the payment of a final dividend by the Company for the period.
During the year, dividends of RMB7,600,000 (2002: RMB23,750,000) were paid by a subsidiary of the Company
out of the subsidiarys retained earnings which were attributable to the Group.
Directors Report
RESERVES
There was no movement in the reserve of the Company during the period from 3rd March 2003 (date of
incorporation) to 31st December 2003. As at 31st December 2003, the Group had no reserves available for
distribution to its shareholders.
Movements in reserves of the Group during the year are set out in Note 28 to the proforma consolidated
accounts.
PROPERTY, PLANT AND EQUIPMENT
Details of movements in property, plant and equipment during the year are set out in Note 12 to the proforma
consolidated accounts.
SHARE CAPITAL
Details of movements in share capital of the Company are set out in Note 26 to the proforma consolidated
accounts.
PRE-EMPTIVE RIGHTS
There are no provision for pre-emptive rights under the Companys articles of association or the laws of the
Cayman Islands, which would oblige the Company to offer new shares on a pro-rata basis to existing shareholders.
FINANCIAL SUMMARY
A summary of the results and of the assets and liabilities of the Group for the last four financial years is set out
on page 72.
SHARE OPTIONS
Pursuant to a written resolution of the shareholders of the Company passed on 16th February 2004, a share
option scheme (the Share Option Scheme) was approved and adopted.
The purpose of the Share Option Scheme is to enable the Group to grant options to selected participants as
incentives or rewards for their contributions to the Group. All directors, employees, suppliers of goods or
services, customers, persons or entities that provide research, development or other technological support to
the Group, shareholders and advisers or consultants of the Group are eligible to participate in the Share Option
Scheme.
The total number of Shares which may be allotted and issued upon exercise of all options to be granted under
the Share Option Scheme and any other share option scheme adopted by the Company must not in aggregate
exceed 10% of the Shares of the Company in issue on the Listing Date.
Directors Report
SHARE OPTIONS (Continued)
The Company may renew this 10% limit with shareholders approval provided that each such renewal may not
exceed 10% of the Shares in the Company in issue as at the date of the shareholders approval.
The maximum number of Shares which may be issued upon exercise of all outstanding options granted and yet
to be exercised under the Share Option Scheme and any other share option scheme adopted by the Company
must not in aggregate exceed 30% of the Shares in issue from time to time.
Unless approved by shareholders of the Company, the total number of Shares issued and to be issued upon
the exercise of the options granted to each participant (including both exercised and outstanding options)
under the Share Option Scheme or any other share option scheme adopted by the Company in any 12-month
period must not exceed 1% of the Shares in issue.
An option must be exercised in accordance with the terms of the Share Option Scheme at any time during a
period to be determined and notified by the Directors to each grantee, which period may commence from the
date of the offer for the grant of option is made, but shall end in any event not later than 10 years from the date
on which the offer for the grant of the option is made, subject to the provisions for early termination thereof.
An option may be accepted by a participant within 21 days from the date of the offer for the grant of the option
and the amount payable on acceptance of the grant of an option is HK$1.
Unless otherwise determined by the Directors and stated in the offer for the grant of options to a grantee,
there is no minimum period required under the Share Option Scheme for the holding of an option before it can
be exercised.
The subscription price for the Shares under the Share Option Scheme shall be a price determined by the
Directors but shall not be less than the highest of:
(a) the closing price of the Shares as stated in the daily quotation sheet of the Stock Exchange for trade in
one or more board lots of the Shares on the date of the offer for the grant;
(b) the average closing price of the Shares as stated in the daily quotation sheets of the Stock Exchange for
the five business days immediately preceding the date of the offer for the grant; and
(c) the nominal value of a Share.
The Share Option Scheme will remain in force for a period of 10 years commencing on the date on which the
Share Option Scheme is adopted.
As at the date of approval of the accounts, no options had been granted under the Share Option Scheme.
Directors Report
DIRECTORS
The Directors who held office during the year and up to the date of this report are:
Executive Directors
Mr. Yang Yirong (Chairman & President) (appointed on 24th March 2003)
Mr. Gong Xionghui (appointed on 28th October 2003)
Ms. Lu Jiahua (appointed on 28th October 2003)
Mr. Ho Wan Ming (appointed on 28th October 2003)
Mr. Lin Zhigang (appointed on 12th February 2004)
Mr. Yang Chiming (appointed on 28th October 2003)
Independent Non-executive Directors
Dr. Zheng Lansun (appointed on 12th February 2004)
Mr. Yau Fook Chuen (appointed on 12th February 2004)
Mr. Wong Yik Chung, John (appointed on 12th February 2004)
In accordance with articles 108(A) of the Companys articles of association, Mr. Gong Xionghui and Ms. Lu
Jiahua will retire from office by rotation and, being eligible, offers themselves for re-election at the forthcoming
annual general meeting.
The independent non-executive Directors were appointed for an initial term of one year and will be renewable
automatically for successive term of one year until terminated by not less than three months notice in writing
served by either party or the other.
DIRECTORS SERVICE CONTRACTS
Each of Mr. Yang Yirong, Mr. Gong Xionghui, Ms. Lu Jiahua, Mr. Lin Zhigang and Mr. Ho Wan Ming, all being
executive Directors, has entered into a service contract with the Company for an initial term of three years
commencing from 1st January 2004, and will continue thereafter for successive terms of one year until terminated
by not less than three months notice in writing served by either party on the other.
DIRECTORS INTERESTS IN CONTRACTS
Save as disclosed in this annual report and other than in connection with the Groups reorganisation in preparation
for the listing of the Shares on the Main Board of The Stock Exchange, no contracts of significance in relation to
the Groups business to which the Company, its subsidiaries was a party and in which a Director of the Company
had a material interest, whether directly or indirectly, subsisted at the end of the period or at any time during
the period.
Directors Report
BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT
Biographical details of Directors and senior management are set out on page 14 of the annual report.
DIRECTORS AND CHIEF EXECUTIVES INTERESTS AND SHORT POSITIONS IN SHARES
The Company became a listed company on 9th March 2004. The interests and short positions of the Directors
and chief executives in the Shares, underlying shares or debentures of the Company and its associated
corporations (within the meaning of Part XV of the Securities and Futures Ordinance (SFO), as recorded in
the register maintained by the Company under Section 352 of the SFO; or as notified to the Company and the
Stock Exchange pursuant to the Divisions 7 and 8 of Part XV of the SFO (including interests or short positions
which the Directors or the chief executives were taken or deemed to have under such provisions of the SFO)
and the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing
Rules as at the date of this report, were as follows:
Interests in ordinary Shares:
Percentage of
Number of the Companys
Name of directors Nature of interest ordinary Shares held issued share capital
Mr. Yang Yirong Interest of a controlled 193,263,158 46.57%
corporation (Note a)
Mr. Yang Chiming Interest of a controlled 14,210,526 3.42%
corporation (Note b)
Mr. Gong Xionghui Interest of a controlled 11,368,421 2.74%
corporation (Note c)
Ms. Lu Jiahua Interest of a controlled 8,526,316 2.05%
corporation (Note d)
Mr. Ho Wan Ming Interest of a controlled 7,105,263 1.71%
corporation (Note e)
Mr. Lin Zhigang Interest of a controlled 5,684,211 1.37%
corporation (Note f)
Notes:
(a) These Shares are registered in the name of and beneficially owned by Marietta Limited, the entire issued share
capital of which is registered in the name of and beneficially owned by Mr. Yang Yirong. Under the SFO, Mr. Yang
Yirong is deemed to be interested in all the Shares held by Marietta Limited.
(b) These Shares are registered in the name of and beneficially owned by Rowe Investments Ltd., the entire issued share
capital of which is registered in the name of and beneficially owned by Mr. Yang Chiming. Under the SFO, Mr. Yang
Chiming is deemed to be interested in all the Shares held by Rowe Investments Ltd.
Directors Report
DIRECTORS AND CHIEF EXECUTIVES INTERESTS AND SHORT POSITIONS IN SHARES
(Continued)
Notes: (Continued)
(c) These Shares are registered in the name of and beneficially owned by Dragon Kingdom Investment Limited, the
entire issued share capital of which is registered in the name of and beneficially owned by Mr. Gong Xionghui. Under
the SFO, Mr. Gong Xionghui is deemed to be interested in all the Shares held by Dragon Kingdom Investment
Limited.
(d) These Shares are registered in the name of and beneficially owned by Sunwill Investments Limited, the entire issued
share capital of which is registered in the name of and beneficially owned by Ms. Lu Jiahua. Under the SFO, Ms. Lu
Jiahua is deemed to be interested in all the Shares held by Sunwill Investments Limited.
(e) These Shares are registered in the name of and beneficially owned by Veazey Finance Corp., the entire issued share
capital of which is registered in the name of and beneficially owned by Mr. Ho Wan Ming. Under the SFO, Mr. Ho
Wan Ming is deemed to be interested in all the Shares held by Veazey Finance Corp.
(f) These Shares are registered in the name of and beneficially owned by Active Wealth Limited, the entire issued share
capital of which is registered in the name of and beneficially owned by Mr. Lin Zhigang. Under the SFO, Mr. Lin
Zhigang is deemed to be interested in all the Shares held by Active Wealth Limited.
Save as disclosed above, as at the date of this report, to the knowledge of the Company, none of the Directors
and chief executives of the Company had or was deemed to have any interests or short positions in the Shares
or the underlying shares or debentures of the Company and any of its associated corporations (within the
meaning of Part XV of the SFO) that was required to be recorded pursuant to section 352 of the SFO, or as
otherwise notified to the Company and the Stock Exchange pursuant to the Divisions 7 and 8 of Part XV of the
SFO and the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing
Rules.
SUBSTANTIAL SHAREHOLDERS INTERESTS AND SHORT POSITIONS IN SHARES
The Company became a listed company on 9th March 2004. The interests and short positions of the persons,
other than Directors and chief executives of the Company, in the Shares and underlying Shares and debentures
of the Company, as notified to the Company pursuant to Division 2 and 3 of Part XV of the SFO; or as recorded
in the register required to be kept by the Company pursuant to Section 336 of the SFO as at the date of this
report, were as follows:
Interests in ordinary Shares:
Number of ordinary Shares
Corporate
Personal interests Percentage of
interests (interest of the Companys
(held as controlled issued
Name beneficial owner) corporation) Total shares capital
New Margin Venture Capital Co. Ltd. 21,315,789 21,315,789 5.14%
Sino-Alliance International, Ltd. (Note) 21,315,789 21,315,789 5.14%
Shanghai Alliance Investment, Ltd. (Note) 21,315,789 21,315,789 5.14%
Directors Report
SUBSTANTIAL SHAREHOLDERS INTERESTS AND SHORT POSITIONS IN SHARES (Continued)
Note: These Shares are registered in the name of New Margin Venture Capital Co. Ltd., the entire issued share capital of
which is beneficially owned by Sino-Alliance International, Ltd. which is wholly owned by Shanghai Alliance Investment,
Ltd., an investment vehicle of Shanghai Municipal Government. Under the SFO, Sino-Alliance International, Ltd. and
Shanghai Alliance Investment, Ltd. are deemed to be interested in all the Shares held by New Margin Venture Capital
Co. Ltd.
Save as disclosed above, no person, other than the Directors and chief executives of the Company, whose
interests are set out in the section DIRECTORS AND CHIEF EXECUTIVES INTERESTS AND SHORT POSITIONS
IN SHARES above, had registered an interest or short position in the Shares or underlying shares and debentures
of the Company that was required to be recorded pursuant to section 336 of the SFO and the Company had
not been notified of any persons interests and short positions in the Shares or underlying shares or debentures
of the Company which fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO as at
the date of this report.
ARRANGEMENTS TO PURCHASE SHARES OR DEBENTURES
At no time during the period was the Company, or any of its subsidiaries, a party to any arrangements to
enable the Directors of the Company to acquire benefits by means of the acquisition of Shares in, or debentures
of, the Company or any other body corporate and neither the Directors or the chief executives, nor any of their
spouses or children under the age of 18, had any right to subscribe for the securities of the Company, or had
exercised any such right.
MANAGEMENT CONTRACTS
No contracts concerning the management and administration of the whole or any substantial part of the business
of the Company were entered into or existed during the period.
MAJOR CUSTOMERS AND SUPPLIERS
The percentage of sales and purchases for the year attributable to the Groups major customers and suppliers
are as follows:
Sales
the largest customer 5%
five largest customers combined 21%
Purchases
the largest supplier 13%
five largest suppliers combined 42%
None of the Directors, their associates or any shareholder of the Company which, to the knowledge of the
Directors, owned more than 5% of the Companys issued share capital, had any interest in the share capital of
the Groups five largest customers and five largest suppliers.
Directors Report
CONNECTED TRANSACTIONS
Significant related party transactions entered into by the Group during the year ended 31st December 2003,
which do not constitute connected transactions under the Listing Rules, are disclosed in Note 32 to the proforma
consolidated accounts.
In the opinion of the Directors, there were no other related party transactions, which also constitute connected
transactions under the Listing Rules, entered into by the Group the year ended 31st December 2003.
CODE OF BEST PRACTICE
In the opinion of the Directors, the Company has complied with the Code of Best Practice (the Code) as set
out in Appendix 14 of the Listing Rules in the period between the Listing Date and the date of this report.
AUDIT COMMITTEE
The Companys audit committee, comprising three independent non-executive Directors, was formed on 16th
February 2004 with written terms of reference in compliance with the Code. The primary duties of the audit
committee are to review and supervise the financial reporting process and internal control system of the Group
and to provide comments and advice to the Board. The audit committee has reviewed the audited accounts of
the Company and audited proforma consolidated accounts of the Group for the year ended 31st December
2003.
PURCHASE, SALE OR REDEMPTION OF THE COMPANYS LISTED SHARES
There were no purchases, sales or redemptions of the Companys listed securities by the Company or any
of its subsidiaries during the period.
SUBSEQUENT EVENTS
Saved as disclosed in the notes to the proforma consolidated accounts, no other significant event has taken
place subsequent to 31st December 2003.
AUDITORS
The accompanying accounts have been audited by PricewaterhouseCoopers who retire and, being eligible,
offer themselves for re-appointment.
On behalf of the Directors
YANG YIRONG
Chairman & President
Auditors Report Auditors Report
22nd Floor Princes Building
Central Hong Kong
AUDITORS REPORT TO THE SHAREHOLDERS OF
ECOGREEN FINE CHEMICALS GROUP LIMITED
We have audited the accounts of EcoGreen Fine Chemicals Group Limited (the Company) on pages 27 to 30
which have been prepared in accordance with accounting principles generally accepted in Hong Kong.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Companys directors are responsible for the preparation of accounts which give a true and fair view. In
preparing accounts which give a true and fair view it is fundamental that appropriate accounting policies are
selected and applied consistently.
It is our responsibility to form an independent opinion, based on our audit, on those accounts and to report our
opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept
liability to any other person for the contents of this report.
BASIS OF OPINION
We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society
of Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and
disclosures in the accounts. It also includes an assessment of the significant estimates and judgements made
by the directors in the preparation of the accounts, and of whether the accounting policies are appropriate to
the circumstances of the Company, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered
necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the accounts
are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the accounts. We believe that our audit provides a reasonable basis for our
opinion.
OPINION
In our opinion the accounts give a true and fair view of the state of affairs of the Company as at 31st December
2003 and have been properly prepared in accordance with the disclosure requirements of the Hong Kong
Companies Ordinance.
As at 31st December 2003
Balance Sheet
Balance Sheet
2003
Note RMB000
Share capital 3
YANG YIRONG LU JIAHUA
Director Director
Notes to the Accounts Notes to the Accounts
1. COMPANY BACKGROUND, GROUP REORGANISATION AND BASIS OF PRESENTATION
EcoGreen Fine Chemicals Group Limited (the Company) was incorporated in the Cayman Islands on
3rd March 2003 as an exempted company with limited liability under the Companies Law of the Cayman
Islands. Its shares have been listed on the Main Board of The Stock Exchange of Hong Kong Limited
since 9th March 2004.
Upon incorporation on 3rd March 2003, the Company had an authorised share capital of HK$100,000,
divided into 1,000,000 shares of HK$0.1 each. It allotted and issued as nil paid a total of 450,000 ordinary
shares during the period ended 31st December 2003. Apart from the foregoing, no other transactions
were carried out by the Company during the period from 3rd March 2003 (date of incorporation) to 31st
December 2003.
Subsequent to 31st December 2003 (period end), on 16th February 2004, the Company acquired the
entire issued share capital of EcoGreen Fine Chemicals Limited, a company incorporated in the British
Virgin Islands, through a share exchange (the Reorganisation) and consequently became the holding
company of the subsidiaries as set out in Note 33 to the accompanying proforma consolidated accounts.
As the Reorganisation took place on 16th February 2004, the current group structure resulting from the
Reorganisation did not exist at any day during the period ended 31st December 2003. The Companys
accounts as at and for the period from 3rd March 2003 (date of incorporation) to 31st December 2003
have not reflected the effect of the Reorganisation in accordance with Statement of Standard Accounting
Practice No. 27 Accounting for group reconstructions (SSAP 27) issued by the Hong Kong Society
of Accountants because SSAP 27 specifies that accounts should not incorporate a combination which
occurs after the date of the most recent balance sheet included in the accounts even though the
reorganisation occurred after such date meets the definition of a group reconstruction.
The Companys Directors consider that it will provide additional information by presenting proforma
consolidated accounts of the Group using merger accounting by treating the Group as a continuing
entity. On this basis, the accompanying proforma consolidated accounts as at and for the year ended
31st December 2003 have presented the state of affairs, results of operations and cash flows of the
companies now comprising the Group as if the structure of the Group resulting from the Reorganisation
had been in existence throughout the year and the share capital of the Company outstanding immediately
after the share exchange in connection with the Reorganisation and the related subsequent capitalisation
issue as described in Note 4, totalling 300,000,000 shares of HK$0.1 each, had been in existence
throughout the year.
Notes to the Accounts
2. PRINCIPAL ACCOUNTING POLICIES
The accounts have been prepared under the historical cost convention and in accordance with accounting
principles generally accepted in Hong Kong and comply with accounting standards issued by the Hong
Kong Society of Accountants.
3. SHARE CAPITAL
Number Nominal
of shares value
Note RMB000
Ordinary shares of HK$0.1 each
Authorised:
Upon incorporation on 3rd March 2003 (i) 1,000,000 106
Issued:
Allotted and issued nil paid (ii)
on 24th March 2003 1
on 28th October 2003 449,999
At 31st December 2003 450,000
Notes:
(i) On 3rd March 2003 (date of incorporation), the authorised share capital of the Company was RMB106,000
(equivalent of HK$100,000), divided into 1,000,000 ordinary shares of HK$0.1 each.
(ii) On 24th March 2003 and 28th October 2003, 1 share and 449,999 shares of the Company were allotted and
issued as nil paid, respectively.
Notes to the Accounts
4. SUBSEQUENT EVENTS
In addition to those disclosed elsewhere in the accounts, the following significant events have taken
place subsequent to 31st December 2003:
(i) On 10th February 2004, 25,000 shares of the Company were allotted and issued as nil paid.
(ii) On 16th February 2004, the authorised share capital of the Company was increased from
RMB106,000 (equivalent of HK$100,000) to RMB212,000,000 (equivalent of HK$200,000,000), by
the creation of additional 1,999,000,000 shares of HK$0.1 each.
(iii) On 16th February 2004, the Company:
(a) credited as fully paid at par value of HK$0.1 each 475,000 ordinary shares of the Company,
which were previously allotted and issued as nil paid; and
(b) further allotted and issued 475,000 ordinary shares of the Company, credited as fully paid
at par value of HK$0.1 each,
as consideration of and in exchange for the entire issued share capital of EcoGreen Fine Chemicals
Limited in connection with the Reorganisation (see Note 1).
(iv) On 16th February 2004, 299,050,000 ordinary shares of the Company were allotted and issued,
credited as fully paid at par value of HK$0.1 each to the then existing shareholders of the Company
in proportion to their respective shareholding, by the capitalisation of RMB31,699,300 (equivalent
of HK$29,905,000) from the share premium account. Such allotment and capitalisation were
conditional on the share premium account being credited as a result of the new shares issued in
connection with a listing of the Companys shares on The Stock Exchange of Hong Kong Limited
as described in (vi) below.
(v) On 16th February 2004, a share option scheme was approved and adopted. Details of the share
option scheme are set out in Note 27 to the accompanying proforma consolidated accounts.
(vi) On 8th March 2004, the Company issued 115,000,000 ordinary shares of HK$0.1 each at
approximately RMB1.46 (equivalent of HK$1.38) per share in connection with a listing of the
Companys shares on The Stock Exchange of Hong Kong Limited, and raised net proceeds of
approximately RMB149,245,000 (equivalent of HK$140,797,000).
5. APPROVAL OF ACCOUNTS
The accounts were approved by the Board of Directors on 20th April 2004.
Auditors Report
22nd Floor Princes Building
Central Hong Kong
AUDITORS REPORT TO THE DIRECTORS OF
ECOGREEN FINE CHEMICALS GROUP LIMITED
We have audited the proforma consolidated accounts of EcoGreen Fine Chemicals Group Limited (the
Company) and its subsidiaries (together the Group) on pages 33 to 71 which have been prepared in
accordance with the accounting policies set out in Note 2 to the proforma consolidated accounts, which comply
with accounting principles generally accepted in Hong Kong, except that the effect of the group reorganisation
entered into after the balance sheet date has been accounted for using merger accounting, which is not in
accordance with the requirements of Statement of Standard Accounting Practice Number 27 Accounting for
group reconstructions (SSAP 27) issued by the Hong Kong Society of Accountants. Although the group
reorganisation meets the definition of a group reconstruction under SSAP 27, SSAP 27 specifies that the accounts
should not incorporate a combination which occurs after the date of the most recent balance sheet included in
the accounts.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Companys directors are responsible for the preparation of proforma consolidated accounts which are
properly prepared in accordance with the accounting policies set out in Note 2 to the proforma consolidated
accounts. In preparing such proforma consolidated accounts it is fundamental that appropriate accounting
policies are selected and applied consistently.
It is our responsibility to form an independent opinion, based on our audit, on those proforma consolidated
accounts and to report our opinion solely to you, as a body, in accordance with our agreed terms of engagement,
and for no other purpose. We do not assume responsibility towards or accept liability to any other person for
the contents of this report.
Auditors Report
BASIS OF OPINION
We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society
of Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and
disclosures in the proforma consolidated accounts. It also includes an assessment of the significant estimates
and judgements made by the directors in the preparation of the proforma consolidated accounts, and of whether
the accounting policies are appropriate to the circumstances of the Group, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered
necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the proforma
consolidated accounts are free from material misstatement. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the proforma consolidated accounts. We believe that our audit
provides a reasonable basis for our opinion.
OPINION
In our opinion the proforma consolidated accounts as at and for the year ended 31st December 2003 have
been properly prepared in accordance with the accounting policies set out in Note 2 to the proforma consolidated
accounts and the disclosure requirements of the Hong Kong Companies Ordinance.
For the year ended 31st December 2003
Proforma Consolidated Profit and Loss Account
2003 2002
Note RMB000 RMB000
Turnover 3 223,152 146,761
Cost of sales (136,593) (91,004)
Gross profit 86,559 55,757
Other revenues 3 691 5,183
Selling and distribution expenses (8,481) (4,534)
General and administrative expenses (16,915) (14,432)
Operating profit 4 61,854 41,974
Finance costs 5 (7,174) (5,244)
Profit before taxation 54,680 36,730
Taxation 6 (711)
Profit after taxation 54,680 36,019
Minority interests (2,093)
Profit attributable to shareholders 54,680 33,926
Dividends 7 7,600 23,750
Proforma earnings per share
Basic 9 RMB0.18 RMB0.11
Proforma Consolidated Balance Sheet
2003 2002
Note RMB000 RMB000
Non-current assets
Property, plant and equipment 12 99,440 85,295
Goodwill 13 258 543
Product development costs 14 15,597 11,619
Investment securities 15 400 200
Total non-current assets 115,695 97,657
Current assets
Inventories 16 21,485 16,174
Trade and bills receivables 17 70,618 24,432
Prepayments and other receivables 18 10,172 15,394
Loans receivable 10,000
Due from a director 32 19,160
Cash and bank deposits 19 65,880 11,718
Total current assets 168,155 96,878
Current liabilities
Due to a director 32 (2,136)
Short-term bank borrowings 20 (54,600) (18,000)
Long-term bank borrowings, current portion 24 (8,000)
Other borrowings, current portion 21 (30,900) (31,700)
Trade and bills payables 22 (12,842) (14,204)
Accruals and other payables 23 (18,701) (9,938)
Deferred income on government grants,
current portion (114)
Total current liabilities (127,293) (73,842)
Net current assets 40,862 23,036
Total assets less current liabilities 156,557 120,693
Non-current liabilities
Long-term bank borrowings 24 (28,000) (41,000)
Other borrowings 21 (5,270) (270)
Convertible bonds 25 (37,151) (37,151)
Deferred income on government grants (248)
Total non-current liabilities (70,669) (78,421)
Net assets 85,888 42,272
Representing
Share capital 26 101 101
Reserves 28 85,787 42,171
Shareholders equity 85,888 42,272
YANG YIRONG LU JIAHUA
Director Director
Proforma Consolidated Cash Flow Statement
2003 2002
Note RMB000 RMB000
Cash flows from operating activities
Net cash inflow generated from operations 29(a) 26,101 29,354
Interest received 957 183
Interest paid (4,387) (4,474)
Income tax paid (2,241)
Net cash inflow from operating activities 22,671 22,822
Cash flows from investing activities
Acquisition of property, plant and equipment (18,525) (15,360)
Increase in product development costs (6,216) (1,487)
Increase in investment securities (200)
Proceeds from disposal of investment securities 6,500
Dividends from unlisted investment securities 29
Acquisition of additional interests in subsidiaries (8,865)
Increase in loans receivable (10,000)
Repayment of loans receivable 10,000
Decrease/(increase) in amount due from a director 11,560 (22,451)
Net cash outflow from investing activities (3,381) (51,634)
Net cash inflow/(outflow) before financing activities 19,290 (28,812)
Cash flow from financing activities 29(b)
Addition of short-term bank loans 57,900 18,000
Repayment of short-term bank loans (21,300) (41,500)
Increase in amount due to a director 2,136
Addition of long-term bank loans 25,000
Repayment of long-term bank loans (5,000)
Addition of other borrowings 5,600 26,870
Repayment of other borrowings (1,000) (26,000)
Share issuance costs (3,464) (393)
Proceeds from issue of convertible bonds 37,151
Convertible bonds issuance costs (4,360)
Proceeds from issue of shares of a subsidiary 496
Net cash inflow from financing activities 34,872 35,264
Increase in cash and cash equivalents 54,162 6,452
Cash and cash equivalents at 1st January 11,718 5,266
Cash and cash equivalents at 31st December 65,880 11,718
Proforma Consolidated Statement of Changes in Equity
2003 2002
Note RMB000 RMB000
Total equity at 1st January 42,272 31,993
Issue of shares of a subsidiary 496
Share issuance costs 28 (3,464) (393)
Dividend paid (7,600) (23,750)
Total equity at 31st December 85,888 42,272
Notes to the Proforma Consolidated Accounts Notes to the Proforma Consolidated Accounts
1. COMPANY BACKGROUND, GROUP REORGANISATION AND BASIS OF PRESENTATION
EcoGreen Fine Chemicals Group Limited (the Company) was incorporated in the Cayman Islands on
3rd March 2003 as an exempted company with limited liability under the Companies Law of the Cayman
Islands. Its shares have been listed on the Main Board of The Stock Exchange of Hong Kong Limited
since 9th March 2004.
Upon incorporation on 3rd March 2003, the Company had an authorised share capital of HK$100,000,
divided into 1,000,000 shares of HK$0.1 each. It allotted and issued as nil paid a total of 450,000 ordinary
shares during the period ended 31st December 2003. Apart from the foregoing, no other transactions
were carried out by the Company during the period from 3rd March 2003 (date of incorporation) to 31st
December 2003.
Subsequent to 31st December 2003 (year end), on 16th February 2004, the Company acquired the entire
issued share capital of EcoGreen Fine Chemicals Limited, a company incorporated in the British Virgin
Islands, through a share exchange (the Reorganisation) and consequently became the holding company
of the subsidiaries as set out in Note 33.
As the Reorganisation took place on 16th February 2004, the current group structure resulting from the
Reorganisation did not exist at any day during the year ended 31st December 2003. The Companys
accounts as at and for the period from 3rd March 2003 (date of incorporation) to 31st December 2003
have not reflected the effect of the Reorganisation in accordance with Statement of Standard Accounting
Practice No. 27 Accounting for group reconstructions (SSAP 27) issued by the Hong Kong Society
of Accountants because SSAP 27 specifies that accounts should not incorporate a combination which
occurs after the date of the most recent balance sheet included in the accounts even though the
reorganisation occurred after such date meets the definition of a group reconstruction.
The Companys Directors consider that it will provide additional information by presenting proforma
consolidated accounts of the Group using merger accounting by treating the Group as a continuing
entity. On this basis, the proforma consolidated accounts as at and for the year ended 31st December
2003 have presented the state of affairs, results of operations and cash flows of the companies now
comprising the Group as if the structure of the Group resulting from the Reorganisation had been in
existence throughout the year and the share capital of the Company outstanding immediately after the
share exchange in connection with the Reorganisation and the related subsequent capitalisation issue
as described in Note 26, totalling 300,000,000 shares of HK$0.1 each, had been in existence throughout
the year.
Comparative figures as at and for the year ended 31st December 2002 have been presented on the
same basis, except for the acquisitions of additional interests in Xiamen Doingcom Chemical Co., Ltd.,
Xiamen Sinoloon Import and Export Co., Ltd. and Xiamen Sinotek Enterprise Development Co., Ltd.
from third parties during the year ended 31st December 2002 (see Note 33), which do not meet the
definition of a group reconstruction under SSAP 27, were accounted for by acquisition accounting.
Notes to the Proforma Consolidated Accounts
2. PRINCIPAL ACCOUNTING POLICIES
The principal accounting policies adopted in the preparation of these accounts are set out below:
(a) Basis of preparation
The proforma consolidated accounts have been prepared under the historical cost convention
and in accordance with accounting principles generally accepted in Hong Kong and comply with
accounting standards issued by the Hong Kong Society of Accountants, except for the adoption
of merger accounting in respect of the Reorganisation as described in Note 1, which is not in
compliance with SSAP 27.
(b) Consolidation
The proforma consolidated accounts include the accounts of the Company and its subsidiaries
made up to 31st December.
Subsidiaries are those entities in which the Company, directly or indirectly, controls more than
one half of the voting power, has the power to govern the financial and operating policies, to
appoint or remove the majority of the members of the board of directors, or to cast majority of
votes at the meetings of the board of directors.
The results of subsidiaries acquired or disposed of during the year are included in the proforma
consolidated profit and loss account from the effective date of acquisition or up to the effective
date of disposal, as appropriate.
All significant intra-group transactions and balances within the Group are eliminated on
consolidation.
Minority interests represent the interests of outside shareholders in the operating results and net
assets of subsidiaries.
(c) Goodwill/Negative goodwill
Goodwill represents the excess of the cost of acquisition over the fair value of the Groups share
of the net assets of the acquired subsidiaries at the date of acquisition. Goodwill is amortised on
a straight-line basis over its estimated useful life of five years. Where an indication of impairment
exists, the carrying amount of goodwill is assessed and written down immediately to its recoverable
amount.
2. PRINCIPAL ACCOUNTING POLICIES (Continued)
(c) Goodwill/Negative goodwill (Continued)
Negative goodwill represents the excess of the fair value of the Groups share of the net assets of
the acquired subsidiaries at the date of acquisition over the cost of acquisition. It 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 Groups plan for the acquisition
and can be measured reliably, but which do not represent identifiable liabilities at the date of
acquisition, 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 value of the non-monetary assets acquired, is recognised in the profit and loss account
over the remaining weighted average useful life of those assets of twenty-two years; negative
goodwill in excess of the fair value of those non-monetary assets is recognised in the profit and
loss account immediately.
(d) Revenue recognition
Revenue from sale of goods is recognised on the transfer of risks and rewards of ownership,
which generally coincides with the time when the goods are shipped/delivered to customers and
title has passed.
Interest income is recognised on a time proportion basis, taking into account the principal amounts
outstanding and the interest rates applicable.
(e) Property, plant and equipment
(i) Construction-in-progress
Construction-in-progress, representing buildings and machinery on which construction work
has not been completed and machinery pending installation, is stated at cost, which
includes construction expenditures incurred, cost of machinery, and other direct costs
capitalised during the construction and installation period, less any accumulated impairment
losses. No depreciation is provided in respect of construction-in-progress until the
construction and installation work is completed. On completion, the construction-in-
progress is transferred to appropriate categories of property, plant and equipment.
(ii) Other property, plant and equipment
Other property, plant and equipment, comprising land and buildings, plant and machinery,
leasehold improvements, office furniture, fixtures and equipment, and motor vehicles, are
stated at cost less accumulated depreciation and any accumulated impairment losses.
Major costs incurred in restoring property, plant and equipment to their normal working
condition are charged to the profit and loss account. Improvements are capitalised and
depreciated over their expected useful lives.
(e) Property, plant and equipment (Continued)
(iii) Depreciation
Leasehold land is depreciated over the period of the lease. Other property, plant and
equipment are depreciated at rates sufficient to write off their costs less any accumulated
impairment losses and estimated residual value over their expected useful lives on a
straight-line basis. The principal annual rates are as follows:
Land 1.4% to 2%
Buildings 3.3%
Plant and machinery 6.7% to 20%
Leasehold improvements 20%
Office furniture, fixtures and equipment 20%
Motor vehicles 20%
The depreciation methods and useful lives are reviewed periodically to ensure that the
methods and rates of depreciation are consistent with the expected pattern of economic
benefits from property, plant and equipment.
(iv) Impairment and gain or loss on sale
At each balance sheet date, both internal and external sources of information are considered
to assess whether there is any indication that assets included in property, plant and
equipment are impaired. If any such indication exists, the recoverable amount of the asset
is estimated and where relevant, an impairment loss is recognised to reduce the asset to
its recoverable amount. Such impairment losses are recognised in the profit and loss
account.
The gain or loss on disposal of property, plant or equipment is the difference between the
net sales proceeds and the carrying amount of the relevant asset, and is recognised in the
profit and loss account.
(f) Research and development costs
Research costs are expensed as incurred. Costs incurred on development projects relating to the
design, development and testing of new or improved products are recognised as product
development costs where the technical feasibility and intention of completing the product under
development has been demonstrated and the resources are available to do so, costs are
identifiable and there is an ability to sell or use the asset that will generate probable future
economic benefits. Such development costs are recognised as an asset and amortised on a
straight-line basis over a period of five years to reflect the pattern in which the related economic
benefits are recognised. Development costs that do not meet the above criteria are expensed as
incurred. Development costs previously recognised as an expense are not recognised as an asset
in a subsequent period.
Where an indication of impairment exists, the carrying amount of any product development cost
is assessed and written down immediately to its recoverable amount.
(g) Investment securities
Investment securities are stated at cost less any accumulated impairment losses.
The carrying amounts of individual investments are reviewed at each balance sheet date to assess
whether the fair values have declined below the carrying amounts. When a decline other than
temporary has occurred, the carrying amount of such securities will be reduced to their fair value.
The impairment loss is recognised as an expense in the profit and loss account. This impairment
loss is written back to the profit and loss account when the circumstances and events that led to
the write-downs or write-offs cease to exist and there is persuasive evidence that the new
circumstances and events will persist for the foreseeable future.
(h) Inventories
Inventories comprise raw materials, work-in-progress and finished goods, and are stated at the
lower of cost and net realisable value. Cost, calculated on the weighted average basis, comprises
materials, direct labour and an appropriate proportion of all production overhead expenditure.
Net realisable value is determined on the basis of anticipated sales proceeds less estimated
selling expenses.
(i) Accounts receivable
Provision is made against receivables, including trade, loans and other receivables, to the extent
that they are considered to be doubtful. Receivables in the balance sheet are stated net of such
provision.
(j) Deferred taxation
Deferred taxation 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 accounts. Taxation
rates enacted or substantively enacted by the balance sheet date are used to determine deferred
taxation. 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 taxation is provided on temporary differences arising on investments in subsidiaries,
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.
(k) 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, the reimbursement is recognised as a separate asset but only when
the reimbursement is virtually certain.
(l) Government grants
A government grant is initially recognised as deferred income when there is a reasonable assurance
that the Group will comply with the conditions attaching with it and that the grant will be received.
Grants relating to income are recognised in the profit and loss account on a systematic basis over
the period to match with the related costs which they are intended to compensate. Grants relating
to assets are recognised in the profit and loss account on a straight-line basis over the expected
useful lives of the related assets.
(m) Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction or production of an
asset that necessarily takes a substantial period of time to get ready for its intended use or sale
are capitalised as part of the cost of that asset.
All other borrowing costs are expensed in the period in which they are incurred.
(n) Employee benefits
(i) Employee leave entitlements
Employee entitlements to annual leave are recognised when they accrue to employees. A
provision is made for the estimated liability for annual leave as a result of services rendered
by employees up to the balance sheet date. Employee entitlements to sick leave and
maternity leave are not recognised until the time of leave.
(ii) Pension obligations
The Groups contributions to defined contribution retirement schemes are expensed as
incurred.
(o) Contingent liabilities and 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. A contingent liability is
not recognised but is disclosed in the notes to the accounts. When a change in the probability of
an outflow occurs so that outflow is probable, they 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 accounts when an inflow of economic benefits is probable. When inflow is virtually
certain, an asset is recognised.
(p) Operating leases
Leases where substantially all the risks and rewards of ownership of assets remain with the leasing
company are accounted for as operating leases. Payments made under operating leases net of
any incentives received from the leasing company are charged to the profit and loss account on
a straight-line basis over the lease periods.
(q) Translation of foreign currencies
Transactions in foreign currencies are translated at exchange rates ruling at the transaction dates.
Monetary assets and liabilities expressed in foreign currencies at the balance sheet date are
translated at rates of exchange ruling at the balance sheet date. Exchange differences arising in
these cases are dealt with in the profit and loss account.
The balance sheets of subsidiaries expressed in foreign currencies are translated at the rates of
exchange ruling at the balance sheet date while the profit and loss accounts are translated at
average rates. Exchange differences are dealt with as a movement in reserves.
(r) Segment reporting
In accordance with the Groups internal financial reporting, the Group has determined that business
segments be presented as the primary reporting format and geographical segments as the
secondary reporting format.
Segment assets consist of property, plant and equipment, product development costs, inventories,
receivables and other operating assets. Segment liabilities consist of operating liabilities and
exclude taxation. Capital expenditure comprises additions to property, plant and equipment and
product development costs.
In respect of geographical segment reporting, turnover and segments results are determined
based on the destination of shipment/delivery of goods. Total assets, liabilities, capital
expenditures and depreciation and amortisation are based on where the assets and liabilities are
located.
(s) 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, bank deposits or cash investments with a maturity of three months or less from the date of
investment, and bank overdrafts.
3. TURNOVER, REVENUES AND SEGMENT INFORMATION
(a) Turnover and revenues
The Group is principally engaged in the production of fine chemicals from natural resources for
use in aroma chemicals and pharmaceutical products. The Groups turnover and revenues were
as follows:
2003 2002
RMB000 RMB000
Turnover
Sale of merchandise (net of value-added tax) 223,152 146,761
Other revenues
Interest income from
bank deposits 333 183
loans receivable 320 304
Amortisation of deferred income
on government grants 38
Gain on disposal of unlisted investment securities 4,667
Dividend income from unlisted investment
securities 29
691 5,183
Total revenues 223,843 151,944
3. TURNOVER, REVENUES AND SEGMENT INFORMATION (Continued)
(b) Segment information
No segment information by business segment is presented as the Group operates in one business
segment manufacturing and selling of fine chemicals.
An analysis of the Groups turnover and segment results by geographical location, which is
determined based on the destination of shipment/delivery of goods, is as follows:
2003 2002
RMB000 RMB000
Turnover
Mainland China 181,136 124,092
Hong Kong 19,410 9,210
Others 22,606 13,459
223,152 146,761
Segment results
Mainland China 53,274 36,111
Hong Kong 3,640 1,879
Others 4,940 3,984
61,854 41,974
No geographical analysis of assets, liabilities, capital expenditures, depreciation and amortisation
is presented as substantially all of the Groups assets and liabilities are located in Mainland China.
4. OPERATING PROFIT
Operating profit is stated after charging and crediting the following:
2003 2002
RMB000 RMB000
Charging
Employment costs (including directors emoluments)
(Note 10) 7,750 7,032
Depreciation of property, plant and equipment 4,380 4,120
Amortisation of
goodwill (included in general and administrative expenses) 324 221
product development costs (included in general and
administrative expenses) 2,238 2,086
Provision for slow-moving and obsolete inventories 731 139
Provision for bad and doubtful debts 2,450 992
Operating leases rental in respect of rented premises 551 410
Net exchange loss 32
Auditors remuneration 638 106
Crediting
Amortisation of
negative goodwill (included in general and
administrative expenses) 39 2
deferred income on government grants
(included in other revenues) 38
Net exchange gain 35
5. FINANCE COSTS
2003 2002
RMB000 RMB000
Interest expense on
bank borrowings wholly repayable within five years 4,387 3,918
government loans wholly repayable within five years 128
other loans wholly repayable within five years 514
convertible bonds 1,206 387
5,721 4,819
Amortisation of convertible bonds issuance costs 1,453 425
7,174 5,244
6. TAXATION
2003 2002
RMB000 RMB000
Current taxation
Mainland China enterprise income tax 711
Notes:
(i) Hong Kong profits tax
No Hong Kong profits tax was provided as the Group had no assessable profit arising in or derived from
Hong Kong.
(ii) Mainland China enterprise income tax
The subsidiaries established in Xiamen, Fujian Province, Mainland China are subject to Mainland China
enterprise income tax at a rate of 15% (2002: 15%). In February 2002, Xiamen Sinotek Enterprise Development
Co., Ltd., a subsidiary, transformed from a domestic enterprise to a wholly foreign owned enterprise and
obtained exemption from Mainland China Tax Bureau for payment of enterprise income tax for two years
starting from the coming first year of profitable operations, followed by a 50% reduction in enterprise income
tax for the next three years. In August 2003, Xiamen Doingcom Chemical Co., Ltd. was accredited as a New
High Technology Enterprise and accordingly is exempted from payment of enterprise income tax for two
years starting from the first year of profitable operations, followed by a 50% reduction in enterprise income
tax for the next three years.
(iii) Overseas income taxes
The Company was incorporated in the Cayman Islands as an exempted company with limited liability under
the Companies Law of the Cayman Islands and, accordingly, is exempted from payment of Cayman Islands
income tax.
6. TAXATION (Continued)
Notes (Continued):
(iii) Overseas income taxes (Continued)
The Companys subsidiaries established in the British Virgin Islands were incorporated under the International
Business Companies Acts of the British Virgin Islands and, accordingly, are exempted from payment of the
British Virgin Islands income tax.
(iv) Mainland China value-added tax
The subsidiaries established in Mainland China are subject to Mainland China value-added tax (VAT) at
17% of revenue from sale of goods in Mainland China and 2% of revenue from sale of goods outside Mainland
China. Input VAT paid on purchases can be used to offset output VAT levied on sales to determine the net
VAT recoverable/payable.
The taxation on the Groups profit before taxation differs from the theoretical amount that would arise
using the relevant enterprise income tax rate in Mainland China, where substantially all of the Groups
profit was earned, and the reconciliation was as follows:
2003 2002
RMB000 RMB000
Calculated at Mainland China enterprise income
tax rate of 15% 8,202 5,510
Effect of
tax exemption (8,946) (4,702)
tax losses not probable to be utilised in the
foreseeable future and not recognised 1,070 525
utilisation of previously unrecognised tax losses (367) (658)
others 41 36
Taxation 711
As at 31st December 2003, the Group has unrecognised tax losses of approximately RMB25,140,000
(2002: RMB20,453,000), which can be carried forward to offset against future taxable income. Included in
the tax loss as at 31st December 2003 was a loss of RMB8,161,000 that will expire during the period from
2004 to 2008, while other losses can be carried forward indefinitely. The deferred tax benefit of such tax
losses was not recognised as it was not probable that future taxable profit will be available against which
the unutilised tax losses can be utilised.
7. DIVIDENDS
No dividend has been paid or declared by the Company since its incorporation.
The following dividends were paid by a subsidiary out of its retained earnings to its then shareholders
before the Reorganisation:
2003 2002
RMB000 RMB000
Xiamen Sinotek Enterprise Development Co., Ltd.,
amount attributable to
the Group 7,600 23,750
the then minority shareholder pursuant to
an agreement in connection with the acquisition
of additional interest in the company 400 1,250
8,000 25,000
All dividends were settled by offsetting amounts due from a director at the instructions of the relevant
shareholders.
8. EMPLOYEE RETIREMENT BENEFITS
As stipulated by rules and regulations in Mainland China, the Group contributes to a state-sponsored
retirement plan for its employees in Mainland China, which is a defined contribution plan. The Group
and its employees contribute approximately 16% to 17% and 5% to 6%, respectively, of the employees
salary as specified by the local government, and the Group has no further obligations for the actual
payment of pensions or post-retirement benefits beyond the annual contributions. The state-sponsored
retirement plan is responsible for the entire pension obligations payable to retired employees.
The Group has arranged for its Hong Kong employees to join the Mandatory Provident Fund Scheme
(the MPF Scheme), a defined contribution scheme managed by an independent trustee. Under the
MPF Scheme, each of the Group and its Hong Kong employees makes monthly contributions to the
scheme at 5% of the employees earnings as defined under the Mandatory Provident Fund legislation.
Both the Groups and the employees contributions are subject to a cap of HK$1,000 per month.
During the year, the aggregate amounts of the Groups contributions to the aforementioned pension
schemes were approximately RMB245,000 (2002: RMB365,000). As at 31st December 2003, the Group
was not entitled to any forfeited contributions to reduce the Groups future contributions.
9. PROFORMA EARNINGS PER SHARE
The basic proforma earnings per share is calculated based on the proforma profit attributable to
shareholders of RMB54,680,000 (2002: RMB33,926,000) and weighted average number of 300,000,000
(2002: 300,000,000) shares deemed to be in issue during the year as if the share capital of the Company
outstanding immediately after the share exchange in connection with the Reorganisation and the related
subsequent capitalisation issue as described in Note 26 had been in existence throughout the year.
Diluted proforma earnings per share is not presented as the Company has no dilutive potential ordinary
shares as at 31st December 2003 (2002: Nil).
10. EMPLOYMENT COSTS (INCLUDING DIRECTORS EMOLUMENTS)
2003 2002
RMB000 RMB000
Wages, salaries and allowances 7,505 6,667
Retirement benefit defined contribution plan 245 365
7,750 7,032
11. DIRECTORS AND SENIOR MANAGEMENTS EMOLUMENTS
(a) Directors emoluments
The aggregate amounts of emoluments paid/payable to executive directors of the Company
were as follows:
2003 2002
RMB000 RMB000
Fees
Other emoluments
Salaries and other allowances 2,691 1,444
2,740 1,457
None of the directors waived any emoluments during the year ended 31st December 2003 (2002:
Nil).
11. DIRECTORS AND SENIOR MANAGEMENTS EMOLUMENTS (Continued)
(a) Directors emoluments (Continued)
The emoluments of the directors fell within the following bands:
2003 2002
Nil to RMB1,060,000 (equivalent of HK$1,000,000) 4 4
RMB1,060,001 (equivalent of HK$1,000,001) to
RMB1,590,000 (equivalent of HK$1,500,000) 1 1
5 5
(b) Five highest paid individuals
The five individuals whose emoluments were the highest in the Group for the year ended 31st
December 2003 include four (2002: three) directors whose emoluments are reflected in the analysis
presented above. The emoluments payable to the remaining individuals are as follows:
2003 2002
RMB000 RMB000
Salaries and other allowances 165 181
170 191
The emoluments of the remaining individuals fell within the following band:
2003 2002
Nil to RMB1,060,000 (equivalent of HK$1,000,000) 1 2
(c) During the year ended 31st December 2003, no emoluments were paid to the directors of the
Company or the five highest paid individuals as an inducement to join or as compensation for
loss of office (2002: Nil).
12. PROPERTY, PLANT AND EQUIPMENT
Movements were:
Leasehold
improvements,
Land and Plant and office furniture Motor Construction-
buildings machinery and equipment vehicles in-progress Total
RMB000 RMB000 RMB000 RMB000 RMB000 RMB000
Cost
At 1st January 2003 48,014 38,378 2,176 2,158 1,288 92,014
Additions 528 78 214 521 17,184 18,525
Transfers 419 1,573 (1,992 )
At 31st December 2003 48,961 40,029 2,390 2,679 16,480 110,539
Accumulated depreciation
At 1st January 2003 1,879 2,951 849 1,040 6,719
Charge for the year 1,273 2,462 362 283 4,380
At 31st December 2003 3,152 5,413 1,211 1,323 11,099
Net book value
At 31st December 2003 45,809 34,616 1,179 1,356 16,480 99,440
At 31st December 2002 46,135 35,427 1,327 1,118 1,288 85,295
All land and buildings are located in Mainland China. Land and buildings with a net book value of
approximately RMB40,809,000 (2002: RMB41,135,000) are located on land held under land use rights for
a period of 50 to 70 years up to April 2043 to December 2065. The remaining balance of RMB5,000,000
(2002: RMB5,000,000) represented a deposit for the acquisition of a piece of land in Mainland China.
12. PROPERTY, PLANT AND EQUIPMENT (Continued)
Analysis of construction-in-progress is:
2003 2002
RMB000 RMB000
Construction costs of buildings 5,095 65
Cost of machinery 11,385 1,223
16,480 1,288
Certain land and buildings with a net book value of approximately RMB37,197,000 (2002: RMB38,260,000)
were pledged as collateral for the Groups bank borrowings (see Notes 20 and 24).
13. GOODWILL
Movements were:
Negative
Goodwill goodwill Total
RMB000 RMB000 RMB000
Cost
At 1st January 2003 and at 31st December 2003 1,625 (863) 762
Accumulated amortisation
At 1st January 2003 (221) 2 (219)
Charge for the year (324) 39 (285)
At 31st December 2003 (545) 41 (504)
Net book value
At 31st December 2003 1,080 (822) 258
At 31st December 2002 1,404 (861) 543
14. PRODUCT DEVELOPMENT COSTS
Product development costs represent costs incurred on design, development and testing of new or
improved fine chemicals.
Movements were:
2003 2002
RMB000 RMB000
Cost
At 1st January 16,308 14,821
Additions 6,216 1,487
At 31st December 22,524 16,308
Accumulated amortisation
At 1st January 4,689 2,603
Charge for the year 2,238 2,086
Net book value
15. INVESTMENT SECURITIES
2003 2002
RMB000 RMB000
Unlisted equity interest, at cost
Guangxi Wuzhou Joint Stock Co., Ltd. (i) 200 200
Xiamen Xiada Taigu Pharmaceutical Co., Ltd. (ii) 200
400 200
Notes:
(i) Guangxi Wuzhou Joint Stock Co., Ltd. is a domestic enterprise established in Mainland China and is principally
engaged in the manufacturing and trading of fine chemicals. As at 31st December 2003, the Group had
approximately 0.2% (2002: 0.2%) interest in this company.
(ii) Xiamen Xiada Taigu Pharmaceutical Co., Ltd. is a domestic enterprise established in Mainland China and is
principally engaged in the research and development of biological and chemical pharmaceutical products.
As at 31st December 2003, the Group had a 10% (2002: Nil) interest in this company.
16. INVENTORIES
2003 2002
RMB000 RMB000
Raw materials 9,454 3,758
Work-in-progress 1,104 1,546
Finished goods 12,073 11,285
22,631 16,589
Less: Provision for slow-moving and obsolete inventories (1,146) (415)
21,485 16,174
As at 31st December 2003, inventories of approximately RMB21,485,000 (2002: RMB16,174,000) were
stated at net realisable value.
17. TRADE AND BILLS RECEIVABLES
The credit period granted by the Group to its customers is generally around 60 to 90 days. The aging
analysis of trade and bills receivables is as follows:
2003 2002
RMB000 RMB000
0 to 30 days 33,002 13,799
31 to 60 days 23,962 7,551
61 to 90 days 13,558 2,304
91 to 180 days 3,386 1,082
181 to 365 days 152 688
74,060 25,424
Less: Provision for bad and doubtful debts (3,442) (992)
70,618 24,432
18. PREPAYMENTS AND OTHER RECEIVABLES
2003 2002
RMB000 RMB000
Prepayment for purchases of raw materials 4,233 4,301
Deferred convertible bonds issuance costs (i) 2,482 3,935
Net input value-added tax recoverable (ii) 3,090 711
Advances to
an export agent 2,669
employees 212 3,062
Interest receivable 304
Other receivables 155 412
10,172 15,394
Notes:
(i) Convertible bonds issuance costs are amortised on a straight-line basis over the period of the bonds.
(ii) Input value-added tax recoverable of approximately RMB3,090,000 (2002: Nil) was pledged as collateral for
the Groups short-term bank loans (see Note 20).
19. CASH AND BANK DEPOSITS
As at 31st December 2003, cash and bank deposits of approximately RMB64,042,000 (2002: RMB6,232,000)
were denominated in Chinese Renminbi, which is not a freely convertible currency in the international
market and its exchange rate is determined by the Peoples Bank of China.
20. SHORT-TERM BANK BORROWINGS
2003 2002
RMB000 RMB000
Short-term bank loans 54,600 18,000
As at 31st December 2003, short-term bank loans bear interest at rates ranging from 5.6% to 6.4% per
annum (2002: 5.8% to 6.9% per annum) and are secured by the following:
(i) Pledge of certain land and buildings with a net book value of approximately RMB37,197,000 as at
31st December 2003 (2002: RMB38,260,000) (see Note 12);
(ii) Pledge of input value-added tax recoverable of approximately RMB3,090,000 (2002: Nil) (see Note
18); and
(iii) Corporate guarantees provided by an unrelated third party of RMB9,500,000 (2002: RMB3,500,000).
In November 2003, the relevant bank has agreed in principle to release the corporate guarantees
and to replace the same with security from the Company and/or its subsidiaries upon the listing
of the Companys shares on The Stock Exchange of Hong Kong Limited.
21. OTHER BORROWINGS
2003 2002
RMB000 RMB000
Government loans (i) 36,170 30,970
Other loans 1,000
36,170 31,970
Analysed as:
Amounts repayable within a period:
not exceeding one year 30,900 31,700
more than one year but not exceeding two years 270
more than two years but not exceeding five years 270
more than five years 5,000
36,170 31,970
Less: Amounts repayable within one year included
under current liabilities (30,900) (31,700)
5,270 270
21. OTHER BORROWINGS (Continued)
Note:
(i) Government loans represent loans from State Development and Reform Commission, Xiamen Development
Planning Commission and other Mainland China government bureaus to finance the Groups product
development activities and expansion of production facilities. These loans are unsecured and non-interest
bearing, except for an amount of RMB5,000,000 as at 31st December 2003 (2002: Nil) which bears interest at
2.55% per annum. As at 31st December 2003, government loans of RMB21,170,000 (2002: RMB20,970,000)
shall be repayable on terms and conditions to be determined between the government bureaus and the
Group upon completion of the relevant project, government loans of RMB10,000,000 (2002: RMB10,000,000)
will be repayable in 2004, and government loans of RMB5,000,000 (2002: Nil) will be repayable in 2018.
22. TRADE AND BILLS PAYABLE
The aging analysis of trade and bills payable is as follows:
2003 2002
RMB000 RMB000
0 to 30 days 4,806 6,988
31 to 60 days 2,256 2,861
61 to 90 days 2,633 4,132
91 to 180 days 2,565 221
181 to 365 days 475 2
Over 365 days 107
12,842 14,204
23. ACCRUALS AND OTHER PAYABLES
2003 2002
RMB000 RMB000
Payable for construction and purchase of property,
plant and equipment 3,400 3,987
Net output value-added tax payable 7,830 2,019
Accruals for
general and administrative expenses 4,681 2,606
convertible bonds interest 1,551 345
government loans interest 128
Payable for professional fees 1,111 981
18,701 9,938
24. LONG-TERM BANK BORROWINGS
Details of long-term bank borrowings were:
2003 2002
RMB000 RMB000
Amounts repayable within a period
not exceeding one year 8,000
more than one year but not exceeding two years 28,000 5,000
more than two years but not exceeding three years 36,000
36,000 41,000
Less: Amounts repayable within one year included
under current liabilities (8,000)
28,000 41,000
24. LONG-TERM BANK BORROWINGS (Continued)
Long-term bank loans bear interest at rates ranging from 6.5% to 6.6% per annum (2002: 6.4% to 6.6%
per annum) and are secured by the following:
(i) Pledge of certain land and buildings with a net book value of approximately RMB37,197,000 as at
31st December 2003 (2002: RMB38,260,000) (see Note 12); and
(ii) Corporate guarantees provided by an unrelated third party of RMB16,000,000 (2002:
RMB16,000,000). Such corporate guarantees were subsequently released in February 2004
following the repayment of the corresponding loans.
25. CONVERTIBLE BONDS
Pursuant to subscription agreements dated 9th July 2002 and 8th August 2002, EcoGreen Fine Chemicals
Limited, a wholly-owned subsidiary, issued convertible bonds of approximately RMB37,151,000 (equivalent
of US$4,500,000). The convertible bonds are unsecured, denominated in United States Dollars, bear
interest at 3.0% per annum, and are convertible (in multiples of US$450,000) from 10th October 2002 to
9th September 2005 into shares of the Company or EcoGreen Fine Chemicals Limited as described
below, or are repayable upon maturity on 9th September 2005 if not converted. If the conversion takes
place before a listing of the Companys shares on The Stock Exchange of Hong Kong Limited (the
Listing), the full conversion of such convertible bonds will enable the bondholder to a 10% interest in
EcoGreen Fine Chemicals Limited. If the conversion takes place after the Listing, the conversion will be
for the shares of the Company at a price of (i) 120% of the offer price of the Companys shares upon the
Listing during the period from the seventh month to the twelfth month after the Listing, and (ii) 140% of
the offer price thereafter to 9th September 2005, and no conversion can be made within the first six
months following the Listing.
Subsequent to 31st December 2003, on 10th February 2004, convertible bonds of RMB18,575,500
(equivalent of US$2,250,000) were converted into 5,000 shares of US$1 each of EcoGreen Fine Chemicals
Limited, representing approximately 5.3% interest in EcoGreen Fine Chemicals Limited. In addition, the
Company issued replacement convertible bonds in the principal amount of RMB18,575,500 (equivalent
of US$2,250,000) to replace and exchange for the remaining outstanding convertible bonds. The terms
of the replacement convertible bonds are substantially the same as that of the old convertible bonds,
except that the replacement convertible bonds are only convertible into shares of the Company instead
of shares of EcoGreen Fine Chemicals Limited.
26. SHARE CAPITAL
Movements during the year ended 31st December 2003 and up to the date of the Listing on 9th March
2004 were:
Number Nominal
of shares value
Note RMB000
Ordinary shares of HK$0.1 each
Authorised:
Upon incorporation on 3rd March 2003 (i) 1,000,000 106
Increase in authorised share capital (iii) 1,999,000,000 211,894
At 9th March 2004, date of the Listing 2,000,000,000 212,000
Issued and fully paid:
Allotted and issued nil paid (ii)
on 24th March 2003 1
on 28th October 2003 449,999
on 10th February 2004 25,000
On acquisition of EcoGreen Fine Chemicals
Limited
nil paid shares credited as fully paid (ii)(a) 50
consideration shares issued (ii)(b) 475,000 51
Capitalisation issue credited as fully paid
conditional on the share premium account
of the Company being credited as a result
of the issue of new shares of the Company
in connection with the Listing (iv) 299,050,000
Proforma share capital of the Group
at 31st December 2002 and 2003 300,000,000 101
New issue of shares (v) 115,000,000 12,190
Capitalisation of share premium account (iv) 31,699
At 9th March 2004, date of the Listing 415,000,000 43,990
26. SHARE CAPITAL (Continued)
Notes:
(i) On 3rd March 2003 (date of incorporation), the authorised share capital of the Company was RMB106,000
(equivalent of HK$100,000), divided into 1,000,000 ordinary shares of HK$0.1 each.
(ii) On 24th March 2003, 28th October 2003 and 10th February 2004, 1 share, 449,999 shares and 25,000 shares of
the Company were allotted and issued as nil paid, respectively. On 16th February 2004, the Company:
(a) credited as fully paid at par value of HK$0.1 each 475,000 ordinary shares of the Company, which
were allotted and issued as nil paid; and
(b) further allotted and issued 475,000 ordinary shares of the Company, credited as fully paid at par
value of HK$0.1 each,
as consideration of and in exchange for the entire issued share capital of EcoGreen Fine Chemicals Limited
in connection with the Reorganisation (see Note 1).
(iii) On 16th February 2004, the authorised share capital of the Company was increased from RMB106,000
(equivalent of HK$100,000) to RMB212,000,000 (equivalent of HK$200,000,000), by the creation of additional
1,999,000,000 shares of HK$0.1 each.
(iv) On 16th February 2004, 299,050,000 ordinary shares of the Company were allotted and issued, credited as
fully paid at par value of HK$0.1 each to the then existing shareholders of the Company in proportion to their
respective shareholding, by the capitalisation of RMB31,699,300 (equivalent of HK$29,905,000) from the share
premium account. Such allotment and capitalisation were conditional on the share premium account being
credited as a result of the new shares issued in connection with the Listing as described in (v) below.
(v) On 8th March 2004, the Company issued 115,000,000 ordinary shares of HK$0.1 each at approximately RMB1.46
(equivalent of HK$1.38) per share in connection with the Listing, and raised net proceeds of approximately
RMB149,245,000 (equivalent of HK$140,797,000).
27. SHARE OPTION SCHEME
Pursuant to a resolution of the shareholders of the Company passed on 16th February 2004, a share
option scheme (the Share Option Scheme) was approved and adopted. Under the Share Option
Scheme, the Companys Directors may, at their sole discretion, grant to any employee, director, supplier
of goods or services, customer, person or entity that provides research, development or other
technological support to the Group, shareholder and adviser or consultant of the Group to subscribe for
shares in the Company at a price of not less than the higher of (i) the closing price of shares as stated in
the daily quotation sheet of The Stock Exchange of Hong Kong Limited (the Stock Exchange) on the
date of the offer of grant; or (ii) the average closing price of shares as stated in the daily quotation
sheets of the Stock Exchange for the five trading days immediately preceding the date of the offer of
grant; and (iii) the nominal value of a share. A nominal consideration of HK$1 (equivalent of RMB1.06) is
payable on acceptance of the grant of an option. The maximum number of shares which may be issued
upon the exercise of all outstanding options granted and yet to be exercised under the Share Option
Scheme and any other share option scheme adopted by the Group from time to time must not in
aggregate exceed 30% of the share capital of the Company in issued from time to time. The Share
Option Scheme will remain in force for a period of 10 years up to February 2014.
As at the date of approval of the proforma consolidated accounts, no options had been granted under
the Share Option Scheme.
28. RESERVES
Share
Capital Contributed Statutory issuance Retained
reserve (i) surplus (ii) reserves (iii) costs earnings Total
RMB000 RMB000 RMB000 RMB000 RMB000 RMB000
At 31st December 2001 643 4,750 17,495 22,888
Capital contribution from an
executive director and an indirect
substantial shareholder 9,500 9,500
Share issuance costs (393) (393)
Dividends (23,750) (23,750)
At 31st December 2002 643 9,500 4,750 (393) 27,671 42,171
Share issuance costs (3,464) (3,464)
Transfer 5,000 (5,000)
Dividends (7,600) (7,600)
At 31st December 2003 643 9,500 9,750 (3,857) 69,751 85,787
Notes:
(i) Capital reserve represents the difference between the nominal value of the shares of the subsidiaries acquired
pursuant to the Reorganisation over the nominal value of the share capital of the Company issued in exchange
therefor.
(ii) Contributed surplus represents the capital contribution from an executive director and an indirect substantial
shareholder of the Company, as part of a group reorganisation exercise.
(iii) According to the articles of association of the relevant subsidiaries established in Mainland China and the
Mainland China rules and regulations, Mainland China subsidiaries are required to transfer not less than 10%
of their net profit as stated in the accounts prepared under Mainland China accounting regulations to statutory
reserves before the corresponding Mainland China subsidiaries can distribute any dividend. Such a transfer
is not required when the amount of statutory reserves reach 50% of the corresponding subsidiaries registered
capital. The statutory reserves shall only be used to make up losses of the corresponding subsidiaries, to
expand the corresponding subsidiaries production operations, or to increase the capital of the corresponding
subsidiaries. Upon approval by resolutions of the corresponding subsidiaries shareholders in general meetings,
the corresponding subsidiaries may convert their statutory reserves into registered capital and issue bonus
capital to existing owners in proportion to their existing ownership structure.
29. PROFORMA CONSOLIDATED CASH FLOW STATEMENT
(a) Reconciliation of profit before taxation to net cash inflow generated from operations
2003 2002
RMB000 RMB000
Adjustment for:
Depreciation of property, plant and equipment 4,380 4,120
Gain on disposal of unlisted investment securities (4,667)
Dividend income from unlisted investment securities (29)
Amortisation of
goodwill 324 221
negative goodwill (39) (2)
product development costs 2,238 2,086
deferred income on government grants (38)
Interest income (653) (487)
Interest expense 7,174 5,244
Operating profit before working capital changes 68,066 43,216
Increase in inventories (5,311) (5,407)
Increase in trade and bills receivables (46,186) (1,593)
Decrease/(increase) in prepayments and
other receivables 3,465 (5,792)
(Decrease)/increase in trade and bills payables (1,362) 2,742
Increase/(decrease) in accruals and other payables 7,429 (3,812)
Net cash inflow generated from operations 26,101 29,354
29. PROFORMA CONSOLIDATED CASH FLOW STATEMENT (Continued)
(b) Analysis of changes in financing
Short-term Long-term Other Convertible
bank loans bank loans borrowings bonds
RMB000 RMB000 RMB000 RMB000
At 31st December 2001 41,500 16,000 31,100
New loans/borrowings 18,000 25,000 26,870
Repayments (41,500) (26,000)
Issue of convertible bonds 37,151
At 31st December 2002 18,000 41,000 31,970 37,151
New loans/borrowings 57,900 5,600
Repayments (21,300) (5,000) (1,000)
Others (400)
At 31st December 2003 54,600 36,000 36,170 37,151
(c) Cash and cash equivalents
Cash and cash equivalents represent cash and bank deposits.
(d) Major non-cash transaction
Dividends of RMB7,600,000 for the year ended 31st December 2003 (2002: RMB23,750,000)
declared by a subsidiary to its then shareholders were settled by offsetting amounts due from a
director at the instructions of the relevant shareholders.
30. CONTINGENT LIABILITIES
The Group had the following contingent liabilities:
2003 2002
RMB000 RMB000
Guarantees for bank loans of an unrelated third party 1,500 1,000
In February 2004, the above guarantees were released.
31. COMMITMENTS
(a) Operating leases
The Group had future aggregate minimum lease payments under non-cancellable operating leases
in respect of rented premises as follows:
2003 2002
RMB000 RMB000
Not later than one year 1,063 473
Later than one year and not later than five years 2,669 186
Later than five years 325
4,057 659
(b) Capital commitments
2003 2002
RMB000 RMB000
Authorised and contracted but not provided for
Construction-in-progress and property, plant
and equipment 6,950
Product development projects 5,000
Capital injection to a subsidiary (i) 9,092 9,092
21,042 9,092
Note:
(i) According to the Articles of Association of Xiamen Hoozyn Life Chemistry Technology Limited, a
subsidiary, the Group has to make capital contribution of RMB11,570,000 (equivalent of US$1,400,000)
within two years after its establishment in June 2002. As at 31st December 2003, the Group has made
capital contribution of approximately RMB2,478,000 (equivalent of US$299,700).
32. RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability, directly or indirectly, 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.
(a) Significant transactions with related parties are summarised below:
2003 2002
RMB000 RMB000
Personal guarantee provided by Mr. Ho Wan Ming
to a landlord in respect of a rental agreement
entered into by a wholly-owned subsidiary (i) 178 483
Sales to Fujian Qingshan Zhangzhou Perfumery
Industry Co., Ltd. (ii) 765
Export service fees charged by Xiamen Zhongji
Import & Export Co., Ltd. (iii) 59
Notes:
(i) Mr. Ho Wan Ming is an executive director and an indirect shareholder of the Company. In February
2004, the relevant landlord has agreed in principle that such personal guarantee will be released and
replaced by a guarantee or other security from the Company and/or its subsidiaries upon the Listing.
(ii) Fujian Qingshan Paper Holdings Co., Ltd. was a minority owner of Xiamen Doingcom Chemical Co.,
Ltd., a subsidiary, up to 10th December 2002. Fujian Qingshan Zhangzhou Perfumery Industry Co.,
Ltd. is a subsidiary of Fujian Qingshan Paper Holdings Co., Ltd., and the Group also held 5% equity
interest in Fujian Qingshan Zhangzhou Perfumery Industry Co., Ltd. up to 9th December 2002. The
transactions with Fujian Qingshan Zhangzhou Perfumery Industry Co., Ltd. prior to 10th December
2002 were classified as related party transactions.
(iii) The majority owner and a director of Xiamen Zhongji Import & Export Co., Ltd. was a former director
and former minority owner of certain subsidiaries of the Group. He disposed of his entire equity
interests in the subsidiary to the Group in April 2002 and ceased to be a director of those subsidiaries
since 7th June 2002. The transactions with Xiamen Zhongji Import & Export Co., Ltd. prior to 7th June
2002 were classified as related party transactions.
In the opinion of the Companys Directors and the Groups management, the above sales to
Fujian Qingshan Zhangzhou Perfumery Industry Co., Ltd. and the export service provided by
Xiamen Zhongji Import & Export Co., Ltd. were carried out in the usual course of business of the
Group, on normal commercial terms, and in accordance with terms of the contracts entered into
by the Group and the related parties.
32. RELATED PARTY TRANSACTIONS (Continued)
(b) Amount due (to)/from a director was:
2003 2002
RMB000 RMB000
Mr. Yang Yirong, an executive director (2,136) 19,160
Maximum balance outstanding during the year was:
2003 2002
RMB000 RMB000
Mr. Yang Yirong, an executive director 27,511 22,109
Balance with a director was unsecured, non-interest bearing and with no pre-determined
repayment terms.
(c) During the year ended 31st December 2003, the Groups bank borrowings were secured by, among
others, personal guarantee of RMB2,000,000 (2002: Nil) provided by Mr. Yang Yirong, an executive
director and an indirect substantial shareholder of the Company. Such personal guarantee was
released in September 2003 following the repayment of the corresponding loan.
33. PARTICULARS OF SUBSIDIARIES
Details of the subsidiaries of the Company as at 31st December 2003, on the assumption that the
Reorganisation had been effective as at that date, are as follows:
Percentage
of equity
interest
attributable
Place of incorporation/ Issued and fully to the
Name operation Principal activities paid up capital Group (i)
EcoGreen Fine Chemicals British Virgin Islands Investment holding US$90,000 100%
Limited (formerly known
as Islesound
Manufacturing Limited)
EcoGreen Fine Chemicals British Virgin Islands Investment holding US$1 100%
Manufacturing Limited
(formerly known as
Vertical Assault
Investments Limited)
Rich Success Technology Hong Kong Research and HK$10,000 100%
Limited development of
fine chemicals
Sino Bright International Hong Kong Trading of fine HK$10,000 100%
Trading Limited chemicals
Xiamen Doingcom Chemical Mainland China Manufacturing and RMB23,450,000 100% (iii), (v)
Co., Ltd. (ii) sale of fine
chemicals
Xiamen Hoozyn Life Mainland China Research and US$299,700 (iv) 100%
Chemistry Technology development of
Limited (ii) fine chemicals
Xiamen Sinoloon Import and Mainland China Investment holding RMB7,000,000 100% (vi)
Export Co., Ltd. (ii) and trading of fine
chemicals
Xiamen Sinotek Enterprise Mainland China Manufacturing and RMB20,000,000 100% (vii)
Development Co., Ltd. (ii) sale of fine
chemicals
33. PARTICULARS OF SUBSIDIARIES (Continued)
Notes:
(i) The shares of EcoGreen Fine Chemicals Limited are held directly by the Company. The shares of other
subsidiaries are held indirectly.
(ii) Xiamen Doingcom Chemical Co., Ltd. is a limited liability enterprise established in Xiamen, Fujian Province,
Mainland China for a term of 10 years up to October 2007. Xiamen Hoozyn Life Chemistry Technology Limited
is a wholly foreign owned enterprise established in Xiamen, Fujian Province, Mainland China for a term of 10
years up to June 2012. Xiamen Sinoloon Import and Export Co., Ltd. is a wholly foreign owned enterprise
established in Xiamen, Fujian Province, Mainland China for a term of 17 years up to April 2012. Xiamen
Sinotek Enterprise Development Co., Ltd. is a wholly foreign owned enterprise established in Xiamen, Fujian
Province, Mainland China for a term of 20 years up to July 2016.
(iii) On 11th December 2002, the Groups 60% interest in Xiamen Doingcom Chemical Co, Ltd. was pledged to a
former minority owner of Xiamen Doingcom Chemical Co., Ltd. in respect of certain corporate guarantees
granted by that entity relating to certain of the Groups bank loans. The pledge was released in February
2004.
(iv) The Group is committed to make capital contribution to Xiamen Hoozyn Life Chemistry Technology Limited
of RMB11,570,000 (equivalent of US$1,400,000) within two years after its establishment in June 2002, of which
approximately RMB2,478,000 (equivalent of US$299,700) had been made as at 31st December 2003.
(v) Prior to 10th December 2002, Xiamen Sinotek Enterprise Development Co., Ltd. had a 40% interest in Xiamen
Doingcom Chemical Co., Ltd. and Xiamen Sinoloon import and Export Co., Ltd. had a 13% interest in Xiamen
Doingcom Chemical Co., Ltd. On 11th December 2002, Xiamen Sinotek Enterprise Development Co., Ltd.
acquired the remaining 47% interest in Xiamen Doingcom Chemical Co., Ltd. for a cash consideration of
RMB6,502,000.
(vi) Prior to 27th April 2002, Xiamen Sinotek Enterprise Development Co., Ltd. had a 60% interest in Xiamen
Sinoloon Import and Export Co., Ltd. On 12th March 2001, the Group entered into the equity transfer
agreement for the acquisition of the remaining 40% interest in Xiamen Sinoloon Import and Export Co., Ltd.
for a cash consideration of RMB1,863,000. The acquisition became effective on 28th April 2002.
(vii) Prior to 6th February 2002, the Group had a 95% interest in Xiamen Sinotek Enterprise Development Co.,
Ltd. On 12th March 2001, the Group entered into the equity transfer agreement for the acquisition of the
remaining 5% interest in Xiamen Sinotek Enterprise Development Co., Ltd. for a cash consideration of
RMB500,000. The acquisition became effective on 7th February 2002.
34. SIGNIFICANT SUBSEQUENT EVENTS
Saved as disclosed elsewhere in the proforma consolidated accounts, no other significant event has
taken place subsequent to 31st December 2003.
35. APPROVAL OF PROFORMA CONSOLIDATED ACCOUNTS
The proforma consolidated accounts were approved by the Board of Directors of the Company on 20th
April 2004.
Financial Summary
RESULTS
Year ended 31st December
2000 2001 2002 2003
Turnover 75,261 114,259 146,761 223,152
Operating profit 19,768 26,984 41,974 61,854
Finance cost (2,220) (2,578) (5,244) (7,174)
Profit before taxation 17,548 24,406 36,730 54,680
Taxation (3,568) (4,772) (711)
Profit after taxation 13,980 19,634 36,019 54,680
Minority interests 1,540 1,171 (2,093)
Profit for the year 15,520 20,805 33,926 54,680
ASSETS, LIABILITIES AND MINORITY INTERESTS
As at 31st December
2000 2001 2002 2003
Total assets 118,425 154,650 194,535 283,850
Total liabilities (83,646) (114,997) (152,263) (197,962)
Minority interests (9,581) (7,660)
Shareholders equity 25,198 31,993 42,272 85,888
Notes: The results of the Group for the three years ended 31st December 2000, 2001 and 2002 and its assets, liabilities and
minority interests were extracted from the Companys Prospectus dated 27th February 2004, which also set out the
details of the basis of presentation of the consolidated accounts. The results of the Group for the year ended 31st
December 2003 and its assets, liabilities and minority interests as at 31st December 2003 are set out on pages 33 and
34 respectively, of this annual report and are presented on the basis set out in Note 1 to the proforma consolidated
accounts.

Ecogreen 2003

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Ecogreen 2003

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EcoGreen Fine Chemicals Group Limited

(incorporated in the Cayman Islands with limited liability)

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