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Ecogreen 2003 annual report. Hong Kong listed company
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EcoGreen Fine Chemicals Group Limited
EcoGreen
FineChem
icalsG
roup
Limited
Ann
ualR
eport2003
*
*
*
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 Limited2
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
3Annual Report 2003
Financial Highlights
TURNOVER BY GEOGRAPHICAL LOCATION
Year ended 31st December2003 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 20032000 2001
75,261
114,259
146,761
223,152
RMB 000Compound Annual Growth Rate (CAGR):+43.7%
2002 20032000 2001
15,520
20,805
33,926
54,68060,000
50,000
40,000
30,000
20,000
10,000
0
RMB 000CAGR:+52.2%9.2%
6.3% 84.5%
10.1%
8.7% 81.2%
EcoGreen Fine Chemicals Group Limited4
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.
5Annual Report 2003
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
EcoGreen Fine Chemicals Group Limited6
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.
Management Discussion and Analysis
7Annual Report 2003
Management Discussion and Analysis
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.
EcoGreen Fine Chemicals Group Limited8
Management Discussion and Analysis
TURNOVER BY PRODUCT TYPES
GROSS PROFIT BY PRODUCT TYPES
Chiral pharmaceuticals raw materialsand pharmaceutical intermediates
Natural pharmaceutical raw materials
Aroma chemicals
2003 2002
2003 2002
Chiral pharmaceuticals raw materialsand 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%
9Annual Report 2003
Management Discussion and Analysis
The sales of chiral pharmaceuticals raw materials and pharmaceuticalintermediates increased by 217.7% to RMB21.4 million in the year ended 31stDecember 2003, from RMB6.7 million in the previous year. It accounted for9.6% (2002: 4.6%) of the Groups turnover. The market launch of new products,comprising intermediary polysaccharides and resveratrol which are of higherprofit margins and the cessation of selling lower profit margin pseudo iononecontributed to the impressive increase of the gross profit margin of thisproduct group.
The sales of natural pharmaceutical intermediates increased by 38.7% toRMB59.3 million in the year ended 31st December 2003, from RMB42.7 millionin the previous year. It accounted for 26.6% (2002: 29.1%) of the Groupsturnover. The progressive growth in the sales of the Groups naturalpharmaceutical raw materials was the result of an increasing demand fordownstream products in the PRC. The Groups economies of scale, continuousrefining of production technology and the reduction in unit production costof the Groups natural pharmaceutical raw materials improved the gross profitmargin of this product group for the year.
The sales of aroma chemicals increased by 46.4% to RMB142.5 million in theyear 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 prominentoverseas sales of the Groups products and the enhancement of the Groupsprocessing capacity of botanic essential oils were the driving force of theremarkable increase in the sales of aroma chemicals. With a view of satisfyingthe needs of some of the Groups largest customers and utilising redundantproduction capacity in the production plant, the Group received orders ofsome new aroma chemicals with lower gross profit margin, which caused thedecrease in the overall gross profit margin of the Groups aroma chemicals in2003.
Extensive Clientele Base
The Group has established a solid and extensive customer base with over100 customers, including trading companies and industrial companies thatare the major multinational manufacturers of pharmaceuticals, flavour andfragrance 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 adverseimpact of any over-exposure to a particular customer, industry or any significant seasonal fluctuation in salespertaining to any particular industry.
Production Facilities
The Groups existing production facilities have a site area ofapproximately 27,000 sq. m. and an aggregate gross floor area ofapproximately 8,400 sq. m. located in Xiamen, Fujian Province, PRC.The Groups facilities enjoy close proximity to Xiamens container portand extensive transportation network, ensuring efficient delivery andreduction of transportation costs. After the enhancement project onthe existing production facilities which was completed in 2002, theannual processing capacity of botanic essential oils of the Groupincreased from 8,000 metric tonnes to 9,500 metric tonnes. Based onoptimal product mix, the average annual utilisation rate of the existingproduction facilities is approximately 91%.
EcoGreen Fine Chemicals Group Limited10
Management Discussion and Analysis
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.
11Annual Report 2003
Management Discussion and Analysis
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.
EcoGreen Fine Chemicals Group Limited12
Management Discussion and Analysis
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.
13Annual Report 2003
Management Discussion and Analysis
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 financial position, the Group is
conf ident of captur ing any cooperat ion
opportunities with renowned local and overseas
research institutes and further enhancing its long-
term competitiveness.
EcoGreen Fine Chemicals Group Limited14
Directors and Senior Managements ProfileDirectors 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
extensive experience in the f ine chemicals
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
production department, quality management
department and logistic centre of the Group. Mr.
Gong holds a master degree in chemical engineering
from Xiamen University ( ) 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 in economics obtained from Xiamen
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.
15Annual Report 2003
Directors and Senior Managements Profile
DIRECTORS (Continued)
Mr. HO Wan MingExecutive DirectorMr. Ho Wan Ming ( ), aged 44, is responsiblefor 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
in international trading, plant management,
corporate management and public relations
management from a various types of sectors including
petrochemicals, cosmetic and beverage. Mr. Ho
joined the Group in June 2002.
Dr. ZHENG LansunIndependent Non-executive DirectorDr. Zheng Lansun ( ), aged 49, is a member ofthe National Committee of the 10th Chinese Peoples
Political Consultative Conference ( ), representing thetechnology sector. He is also a qualified academician
( ) of the Chinese Academy of Sciences ( ). Dr. Zheng received a doctoral degree inphilosophy 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, JohnIndependent Non-executive DirectorMr. Wong Yik Chung, John ( ), aged 37, is aqualified 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 ChimingNon-executive DirectorMr. Yang Chiming ( ) , aged 52, is anentrepreneur who stations in Taiwan and is the cousin
of Mr.Yang Yirong. Mr. Yang has extensive experience
in business management and manufacturing
operation at manufacturing industries. He also
assisted the Group in providing opinions with respect
to management of investments projects 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 ChuenIndependent Non-executive DirectorMr. Yau Fook Chuen ( ), aged 46, is a practisingaccountant 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
proprietor of Yau & Wong, Certif ied Public
Accountants in Hong Kong. He was appointed as an
independent non-executive Director in February
2004.
EcoGreen Fine Chemicals Group Limited16
Directors and Senior Managements Profile
SENIOR MANAGEMENT
Ms. Chen Hua ( ), aged 32, oversees the
Investment Management Department and is
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,
public relation administration 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
University ( ). Prior to joining the Group in
2001, Mr. Shi has extensive experience in investment
banking business.
Mr. Yin Xiande ( ), aged 63, is the head of
Research & Development Department and is
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 Development 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.
17Annual Report 2003
Directors and Senior Managements Profile
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
University ( ). Prior to joining the Group in
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.
EcoGreen Fine Chemicals Group Limited18
Directors ReportDirectors 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
19Annual Report 2003
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.
EcoGreen Fine Chemicals Group Limited20
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
21Annual Report 2003
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)
Non-executive Director
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.
EcoGreen Fine Chemicals Group Limited22
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
23Annual Report 2003
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, theentire issued share capital of which is registered in the name of and beneficially owned by Mr. Gong Xionghui. Underthe SFO, Mr. Gong Xionghui is deemed to be interested in all the Shares held by Dragon Kingdom InvestmentLimited.
(d) These Shares are registered in the name of and beneficially owned by Sunwill Investments Limited, the entire issuedshare capital of which is registered in the name of and beneficially owned by Ms. Lu Jiahua. Under the SFO, Ms. LuJiahua 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 sharecapital of which is registered in the name of and beneficially owned by Mr. Ho Wan Ming. Under the SFO, Mr. HoWan 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 sharecapital of which is registered in the name of and beneficially owned by Mr. Lin Zhigang. Under the SFO, Mr. LinZhigang 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%
EcoGreen Fine Chemicals Group Limited24
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
25Annual Report 2003
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
Hong Kong, 20th April 2004
EcoGreen Fine Chemicals Group Limited26
Auditors ReportAuditors Report
PricewaterhouseCoopers22nd Floor Princes BuildingCentral Hong Kong
AUDITORS REPORT TO THE SHAREHOLDERS OFECOGREEN FINE CHEMICALS GROUP LIMITED(incorporated in the Cayman Islands with limited liability)
We have audited the accounts of EcoGreen Fine Chemicals Group Limited (the Company) on pages 27 to 30which 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. Inpreparing accounts which give a true and fair view it is fundamental that appropriate accounting policies areselected and applied consistently.
It is our responsibility to form an independent opinion, based on our audit, on those accounts and to report ouropinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or acceptliability 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 Societyof Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts anddisclosures in the accounts. It also includes an assessment of the significant estimates and judgements madeby the directors in the preparation of the accounts, and of whether the accounting policies are appropriate tothe 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 considerednecessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the accountsare free from material misstatement. In forming our opinion we also evaluated the overall adequacy of thepresentation of information in the accounts. We believe that our audit provides a reasonable basis for ouropinion.
OPINION
In our opinion the accounts give a true and fair view of the state of affairs of the Company as at 31st December2003 and have been properly prepared in accordance with the disclosure requirements of the Hong KongCompanies Ordinance.
PricewaterhouseCoopersCertified Public Accountants
Hong Kong, 20th April 2004
As at 31st December 2003
Balance Sheet
27Annual Report 2003
Balance SheetAs at 31st December 2003
2003
Note RMB000
Share capital 3
YANG YIRONG LU JIAHUA
Director Director
EcoGreen Fine Chemicals Group Limited28
Notes to the AccountsNotes 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.
29Annual Report 2003
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.
EcoGreen Fine Chemicals Group Limited30
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.
31Annual Report 2003
Auditors Report
PricewaterhouseCoopers22nd Floor Princes BuildingCentral Hong Kong
AUDITORS REPORT TO THE DIRECTORS OF
ECOGREEN FINE CHEMICALS GROUP LIMITED
(incorporated in the Cayman Islands with limited liability)
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.
EcoGreen Fine Chemicals Group Limited32
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.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, 20th April 2004
33Annual Report 2003
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
EcoGreen Fine Chemicals Group Limited34
Proforma Consolidated Balance SheetAs at 31st December 2003
2003 2002Note RMB000 RMB000
Non-current assetsProperty, plant and equipment 12 99,440 85,295Goodwill 13 258 543Product development costs 14 15,597 11,619Investment securities 15 400 200
Total non-current assets 115,695 97,657
Current assetsInventories 16 21,485 16,174Trade and bills receivables 17 70,618 24,432Prepayments and other receivables 18 10,172 15,394Loans receivable 10,000Due from a director 32 19,160Cash and bank deposits 19 65,880 11,718
Total current assets 168,155 96,878
Current liabilitiesDue 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 liabilitiesLong-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 101Reserves 28 85,787 42,171
Shareholders equity 85,888 42,272
YANG YIRONG LU JIAHUADirector Director
35Annual Report 2003
For the year ended 31st December 2003
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
EcoGreen Fine Chemicals Group Limited36
Proforma Consolidated Statement of Changes in EquityFor the year ended 31st December 2003
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)
Profit attributable to shareholders 54,680 33,926
Dividend paid (7,600) (23,750)
Total equity at 31st December 85,888 42,272
37Annual Report 2003
Notes to the Proforma Consolidated AccountsNotes 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.
EcoGreen Fine Chemicals Group Limited38
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.
39Annual Report 2003
Notes to the Proforma Consolidated Accounts
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.
EcoGreen Fine Chemicals Group Limited40
Notes to the Proforma Consolidated Accounts
2. PRINCIPAL ACCOUNTING POLICIES (Continued)
(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