鲁泰Ａ(000726)鲁泰Ｂ2001年年度报告（英文版）

LUTHAI TEXTILE CO., LTD. 2001 ANNUAL REPORT Important: Board of Directors of LUTHAI TEXTILE CO., LTD. (hereinafter referred to as the Company) hereby confirms that there are no any important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. This report is written in both Chinese and English. Should there be any difference in interpretation of the two versions, the Chinese version shall prevail. In the 8th meeting of the 3rd Board of Directors of the Company, Director Chen Ruimo entrusted Chairman of the Board Liu Shizhen to vote on behalf of him. Other directors Mr. Chen Youhan, Mr. Xu Zhinan and Mr. Li Jinghe were absent from the meeting without entrusting proxies to attend. I. COMPANY PROFILE 1. Name of the Company: In Chinese: 鲁泰纺织股份有限公司 In English: LUTHAI TEXTILE CO., LTD. 2. Legal Representative: Liu Shizhen 3. Secretary of the Board of Directors: Qin Guiling Authorized Representative in Charge of Securities Affairs: Zheng Weiyin Tel: (86) 533-5285166 Fax: (86) 533-5282188 Liaison Address: No. 81, Songling East Road, Zichuan district, Zibo 4. Registered Address: No. 81, Songling East Road, Zichuan district, Zibo Office Address: No. 81, Songling East Road, Zichuan district, Zibo Post Code: 255100 E-mail: lttc@public.zbptt.sd.cn Internet Web Site: www.lttc.com.cn 5. Newspapers for Disclosing the Information of the Company: Securities Times, Shanghai Securities News and Ta Kung Pao The Place Where the Annual Report is Prepared and Placed: Securities Department of the Company Internet Web Site for Publishing the Annual Report: http://www.cninfo.com.cn 6. Stock Exchange Listed with: Shenzhen Stock Exchange 1 Short Form of the Stock: LUTHAI A, LUTHAI B Stock Code: 000726, 200726 II. FINANCIAL HIGHLIGHTS AND BUSINESS HIGHLIGHTS 1. Accounting data as of the year 2001 Unit: In RMB’000 Total profit 139,358 Net profit 120,518 Net profit after deducting non-recurring gains and losses 125,965 Profit from main business lines 232,256 Profit from other business lines 4,569 Operating profit 133,608 Investment income 1,611 Subsidy income - Net cash flows arising from operating activities -34,797 Net increase in cash and cash equivalents -444,378 Notes: Net profit after deducting non-recurring gains and losses composed current assets of RMB 57,000, net losses of disposal of fixed assets of RMB 5,231,000; provision for devaluation of fixed assets of RMB 1,258,000; income from penalty of RMB 221,000; RMB 207,000 others. Infect of income tax was up to RMB 557,000. Explanation on difference in net profit under IAS and CAS Unit: in RMB ‘000 2001 1.Profit before tax under IAS 139,358 Adjustment: Depreciation -3,000 Deferred personnel training expenses written off -2,451 Long outstanding creditors written off -940 Profit before tax of the Company under CAS 132,967 Provision for income tax 19,002 Minority shareholder’s equity -162 Net profit 114,127 2. Net assets under IAS 1,314,320 Effect of accumulated amount as of past year Capital public reserve 44,362 Retained profit -118,670 Net assets under CAS 1,240,012 Note: In the report year, the net profit of the Company was not been distributed according to IAS. 2 2. Major accounting and financial highlights over the past three years at end of the report year Items 2001 2000 1999 Income from main business lines (RMB’000) 785,694 485,929 398,139 Net profit (RMB’000) 120,518 87,447 71,269 Total assets (RMB’000) 1,477,554 1,401,298 591,811 Shareholders’ equity (RMB’000) 1,314,320 1,271,161 316,985 Earnings per share (RMB/share) 0.45 0.42 0.45 Net assets per share (RMB/share) 4.58 6.10 2.00 Return on equity (%) 9.17 6.88 22.48 Net assets per share after adjustment (RMB/share) 4.84 6.08 2.00 Net cash flows per share arising from operating -0.13 0.39 0.56 activities (RMB/share) 3. Supplementary financial indexes Net profit after deducting Net profit Financial indexes non-recurring losses and gains Consolidation Consolidation Weighted average return on equity 9.05% 9.46% Fully diluted return on equity 9.17% 9.58% Weighted average earnings per share (RMB/share) 0.45 0.47 Fully diluted earnings per share (RMB/share) 0.45 0.47 4. Particulars about Changes in Shareholders’ Equity during the Report Year Unit: In RMB’000 Share Share Capital public Retained Total Shareholders’ Item capital premium reserve profit Equity Amount at year-begin 208,300 887,054 68,657 107,150 1,271,161 Increase in this report year 62,490 20,698 120,518 203,706 Decrease in this report year 62,490 98,057 160,547 Amount at year-end 270,790 824,564 89,355 129,611 1,314,320 Reason for changes: Decrease of share premium was due to the Company transferred capital public reserve into share capital dur ing the report year; increase of capital public reserve was due to allot surplus capital public reserve and public welfare fund according to 2001 Distribution Preplan; increase of retained profit was due to realize net profit of 2001, decrease of retained profit was due to distribute profit of 2000 and allot surplus capital public reserve and public welfare fund. 3 III. PARTICULARS ABOUT THE CHANGES IN SHARES CAPITAL AND SHAREHOLDERS 1. Particulars about changes in shares Statement of Changes in Shares of the Company (Unit: 000 shares) Increase/decrease of this time (+ , - ) Before the After the Share Bonus Capitalization of Others Sub- change change Allotment shares public reserve total Ｉ． Unlisted Shares 1. Promoters’ shares Including: State-owned shares Domestic juristic person’s shares 29,150 8,745 37,895 Foreign juristic person’s shares 29,150 8,745 37,895 Others 2. Raised juristic person’s shares 3. Staff shares 20,000 6,000 26,000 4. Preference shares or others Total unlisted shares 78,300 23,490 101,790 . Listed Shares 14000 1. RMB ordinary shares 50,000 15,000 65,000 2. Domestically listed foreign shares 80,000 24,000 104,000 3. Overseas listed foreign shares 4. Others Total listed shares 130,000 39,000 169,000 . Total shares 208,300 62,490 270,790 2. Listing and issuance a. The Company issued 50 million RMB ordinary shares to increase its share capital in December 2000 at the price of RMB 17.80 per share. The said shares were listed for trade at Shenzhen Stock Exchange on December 25, 2000. b. The Company issued 80 million domestically listed foreign shares in August 1997 at the price of HKD 1.93 per share. The said shares were listed for trade at Shenzhen Stock Exchange on August 19, 1997. c. The Company issued 10 million staff shares in February 1993 at the price of RMB 4 per share with the par value of RMB 2 per share. The Company split the shares with par value of RMB 2 per share into shares with par value of RMB 1 per share in April 1994. After the splitting, the number of staff shares changed to 20 million. The said staff shares were entrusted to Shandong Securities Registration Co., Ltd. in April 1997 and were entrusted to Shenzhen Securities Registration Co., Ltd. in December 2000. These shares will not be listed for trade until three years after the issuance of A shares to increased the share capital of the Company. 4 3. About shareholders at end of the report year (1) At end of the report year, the Company had totally 44437 shareholders, including 9569 shareholders domestically listed foreign shares. (2) Particulars about the shares held by the top ten shareholders Number at beginning Increase or Number at end of Proportion in No. Shareholders’ name of the report year decrease the report year the total shares (share) (share) (share) (%) 1 ZIBO LUCHENG TEXTILE CO., LTD. 29,150,000 +8,745,000 37,895,000 14% 2 TAILUN TEXTILE CO., LTD. 29,150,000 +8,745,000 37,895,000 14% 3 SOUTH CAPITAL NOMINEES 0 +3,532,100 3,532,100 1.30% LIMITED (B-share) 4 DAIWA SECS EMBC AC ITOCHU 5,000,000 -1,764,650 3,235,350 1.19% HONG KONG LTD (B-share) 5 CBNY S/A PNC/SKANDIA SELECT 3,111,004 -199,713 2,911,291 1.08% FUND/CHINA EQUITY AC (B-share) 6 HUA AN CHUANGXIN SECURITIES 0 +2,363,394 2,363,394 0.87% INVESTMENT FUND (A-share) 7 YULONG SECURITIES INVESTMENT 675,992 +1,544,159 2,220,151 0.82% FUND (A-share) 8 ANSHUN SECURITIES INVESTMENT 595,992 +1,537,440 2,133,432 0.79% FUND (A-share) 9 RIPPERTON ASSETS LIMITED 0 +2,000,200 2,000,200 0.74% (B-share) 10 SSBT/THE CHINA FUND-UH1 UHOI 0 +1,990,000 1,990,000 0.73% (B-share) Note: Among the top ten shareholders, the first shareholder and the second shareholder are the promoter, and the change of shares held by them was due to the Company transferred capital public reserve into share capital during the report period. The change of shares held by the third shareholder to the tenth shareholder was due to they purchase and sell A shares and B shares of the Company. There exists no association relationship among the top ten shareholders. (3) Brief introduction of the control shareholder holding over 5% (including 5%) of the total shares Zibo Lucheng Textile Co., Ltd. (hereinafter referred to as “the Lucheng Textile”) Legal representative: Liu Zibin Registration capital: RMB 8.67 million Business scope: engaged in dealing of textile, knitwear, garments and other sewing products Note: Zibo Lucheng Textile Co., Ltd. is the first largest shareholder of the Company as well as the actual control shareholder. The Lucheng Textile was 5 established in Sep. 1998 and based on Zibo the 7th Cotton Textile Plant, original promoter of the Company. At end of the year 2001, the Lucheng Textile holds 37.895 promoters’ shares of the Company, taking 14% of total shares of the Company, and the said shares have not been listed for trade, pledged and frozen. Tailun (Thailand) Textile Co., Ltd. (hereinafter referred to as “the Tailun Textile”) Legal representative: Xu Zhinan Business scope: Spinning Note: Tailun (Thailand) Textile Co., Ltd. is the coordinate first largest shareholder of the Company. At end of the year 2001, the Tailun Textile holds 37.895 foreign promoters’ shares, taking 14% of total shares. The said shares have not been listed for trade, pledged and frozen. IV. PARTICULARS ABOUT DIRECTOR, SUPERVISOR, SENIOR EXECUTIVE AND STAFF 1. Director, supervisor and senior executive Number of holding shares Office term (share) Name Title Gender Age Amount at Amount at end beginning of the of the report report year year Liu Shizhen Chairman of the Board, Male 62 May 7, 2001-May 7, 2004 84,800 110,240 General Manager Chen Youhan Vice Chairman of the Board Male 69 May 7, 2001-May 7, 2004 Xu Zhinan Director, Male 72 May 7, 2001-May 7, 2004 Deputy General Manager Li Jinghe Director Male 77 May 7, 2001-May 7, 2004 Chen Ruimou Director Male 58 May 7, 2001-May 7, 2004 Su Huasheng Director, Male 58 May 7, 2001-May 7, 2004 19,600 25,480 Chief Accountant Sun Zhigang Director Male 40 May 7, 2001-May 7, 2004 11,800 15,340 Wang Fangshui Director, Male 41 M ay 7, 2001-May 7, 2004 10,000 13,000 Chief Engineer Qin Guiling Director, Secretary of the Female 36 May 7, 2001-May 7, 2004 12,000 15,600 Board of Directors Liu Zibin Director Male 37 May 7, 2001-May 7, 2004 Tengyuan Yingli Director Male 62 May 7, 2001-May 7, 2004 Li Tongmin Supervisor, Male 46 May 7, 2001-May 7, 2004 13,200 17,160 Manager of Production Dept. Zhu Lingwen Supervisor, Manager of Male 48 May 7, 2001-May 7, 2004 28,000 36,400 Foreign Business Dept. Zhao Kegui Supervisor, Male 55 M ay 7, 2001-May 7, 2004 20,000 26,000 Chief Economist Note: The change of shares held by directors, supervisors and senior executives was 6 due to the Company transferred capital public reserve into share capital during the report year. 2. Particulars about the annual salary Directors and supervisors assume the office of senior executive at the same time, the Company will pay annual salary and bonus to them according to their office, contribution and wage system of the Company. There are 4 directors and supervisor in office at present received no pay from the Company, they are Chen Youhan, Xu Zhinan, Li Jinghe and Chen Ruimou. Of them, Xu Zhinan drew his annual salary from Tailun Textile Co., Ltd.. The total annual salary of directors, supervisors and senior executives received from the Company was RMB 2,622,700. The amount to the top three directors was RMB 1,550,700; the amount to the top three senior executives was RMB 1,550,700. The limits of annual salary drew by directors, supervisors and senior executives: one person enjoys his annual salary over RMB 1,000,000, three persons enjoy RMB 200,000 to 300,000, five persons enjoy RMB 100,000 to 200,000 and one person enjoys under RMB 50,000. About change in directors during the report year: Director Li Zhenwei and Zhao Keshu resigned the post of director due to the expiration of their term of office. Liu Zibin and Sun Zhigang were elected the member of the 3rd Board of Directors in 2000 Shareholders’ General Meeting. V. ADMINISTRATIVE STRUCTURE I. Particulars about the Company’s administrative structure Strictly pursuant to Company Law, Securities Law and relevant laws and regulations stipulated by China Securities Regulatory Commission, the Company constantly improved its legal person administrative structure, established a sound modern enterprise system, standardized the Company’s operational mechanism, formulated Articles of Association, and made further revision and improvement on the Articles of Association as per requirements of various laws and regulations. The status of the Company’s administrative structure is as follows: 1. Shareholders and Shareholders’ General Meeting: The Company convened and held Shareholders’ General Meeting according to Articles of Association and other relevant regulations, and ensured all shareholders could enjoy equal rights based on shares they held. The Company disclosed its important information on three newspapers and websites designated by China Securities Regulatory Commission as well as its own website as per requirements by Rules of Shenzhen Stock Exchange on Stock Listing so as to ensure all shareholders could enjoy their rights to know facts. The Company has made Rules of Procedures of the Shareholders’ General Meeting according to regular documents regarding administration of listed companies like Rules of Administration for Listed Companies. The formulated Rules of Procedures of the Shareholders’ General Meeting was submitted to the Shareholders’ General Meeting for approval before coming into effect. 2. Control Shareholder and the Company: The Company has realized absolute separation in personnel, assets and finance from its control shareholder (the 7 Company’s first large shareholder), and is independent in organization, production and business operation as well as in business accounting, paying taxes as per rules, undertaking liabilities and risks. There existed no occupation of listed companies’ assets by control shareholder. 3. Directors and the Board of Directors: The Company elected and engaged directors according to relevant regulations in the Articles of Association. Number and formation of directors were in conformity with requirements of relevant laws and regulations. Directors were able to perform their duties loyally, honestly and reliably and diligently on the basis of maximum interests of all shareholders. The Company has made Rules of Procedures of the Board of Directors according to regular documents regarding administration like Rules of Administration for Listed Companies. The formulated Rules of Procedures of the Board of Directors were submitted to the Shareholders’ Meeting for approval before coming into effect. 4. Performance evaluation, encouragement and binding mechanism: The Company proposes to set up a special committee of the Board of Directors after all independent directors take office. Upon establishment of all committees, the Company will set up and perfect encouragement and binding mechanism of all directors, supervisors and senior executives. 5. Relevant Beneficiaries: The Company has been respecting and safeguarding legal rights and interests of the banks and other creditors, employees, customers, communities and other parties of related. 6. Particulars about sustained information disclosure: The Company was able to disclose significant information accurately, promptly and completely on three newspaper and websites designated by China Securities Regulatory Commission and its own website strictly according to relevant requirements in Rules of Shenzhen Stock Exchange on Stock Listing. The secretary of the Board of Directors was responsible for disclosing information, receiving visitors, answering queries and contacting shareholders, etc. The Company has made System of Information Disclosure according to relevant regular documents like Rules of Administration for Listed Companies, which was submitted to the Board of Directors for approval. 7. The Company has made corresponding revision on the Articles of Association based on requirements of Rules of Administration for Listed Companies and Guide Opinions on Establishing System of Independent Directors in Listed Companies. The Company hasn’t engaged independent directors yet, but has already elected two candidates of independent directors and proposed to submit them to the Shareholders’ General Meeting of 2001 for approval. II. Particulars about performance of duties by independent directors The Board of Directors has revised some articles in the Articles of Association according to Guide Opinions on Establishing System of Independent Directors in Listed Companies and elected two candidates of independent directors who will take office after being submitted to the Shareholders’ General Meeting for review and approval. 8 III. Separation of business, personnel, assets, organization and finance from control shareholder 1) Separation of business: The Company was absolutely separated from control shareholder in business and had absolutely independent system of production, supplying and sales and independent operation capability of making decision by itself. 2) Separation of personnel: The Company was absolutely independent in terms of labor, personnel and payroll management, and held independent and complete capability of making decision by itself. 3) Separation of assets: The Company had integrated legal person property right and possessed independent production system, auxiliary production system and equipment; held independent ownership of intangible assets such as industrial property right, trademark, and non-patent technologies, etc. 4) Separation of organization: The Company was independent in organization and never shared office with control shareholder. 5) Separation of finance: The Company had an independent finance department, independent accounting assessment system and financial management system, and independent bank account. VI. BRIEFINGS ON THE SHAREHOLDERS’ GENERAL MEETING The Company held altogether two times of Shareholders’ General Meeting in the report year, namely the Shareholders’ General Meeting of 2000 and the 1st Extraordinary Shareholders’ General Meeting. Guangdong Bo Yang Lawyers’ Firm issued legal position papers on the two meetings. 1. The Shareholders’ General Meeting of 2000 was held on May 10, 2001 in the company. The resolutions reviewed and passed in the meeting and the legal position papers issued by Guangdong Bo Yang Lawyers’ Firm on this Shareholders’ General Meeting were published on Securities Times, Shanghai Securities and Hong Kong Commercial Daily dated May 11, 2001. 2. The 1st Extraordinary Shareholders’ General Meeting was published on September 12, 2001 in the company. The resolutions reviewed and passed in the meeting and the legal position papers issued by Guangdong Bo Yang Lawyers’ Firm were published on Securities Times, Shanghai Securities and Hong Kong Commercial Daily dated September 13, 2001. VII. REPORT OF THE BOARD OF DIRECTORS I. Operation (I) Principal Business Scope and the Operation 1. The Company is mainly engaged in manufacture and sale of various textiles and garment products in an intensive vertical comprehensive mode with principal product as dyed yarn fabric for shirts. As the largest dyed yarn fabric manufacture in Asia, the Company enjoys a market covering over thirty counties and districts including Japan, 9 Korea, the UK, and Italy, etc. and over 86% products of the Company are for export. 2. Major products and the operation Unit: in RMB’000 Revenue Cost Gross profit Products 2001 2000 2001 2000 2001 2000 Yarn 35,443 278 35,722 1,616 -279 -1,339 Grey cloth 3,999 815 4,288 737 -290 78 Dyed yarn fabric 623,454 403,519 444,687 274,794 178,768 128,725 Shirt 114,022 76,889 65,425 49,120 48,597 27,769 Others 8,776 4,427 6,316 4,523 2,460 -95 Total 785,694 485,928 556,438 330,790 229,256 155,138 3. Market share of major products Unit: in RMB’000 Item 2001 Percent (%) 2000 Percent (%) Japan 147,501 18.77 70,491 14.51 Hong Kong 271,004 34.49 185,289 38.13 Southeast Asia 162,668 20.71 105,569 21.73 Europe 56,169 7.15 41,593 8.56 South Africa 27,051 3.44 26,061 5.36 Others 8,674 1.10 -- -- PRC 112,627 14.34 56,926 11.71 Total 785,694 100.00 485,929 100.00 Businesses generating over 10% income from main business lines for the Company are dyed yarn fabric for shirts under the classification of textile industry and shirts under the classification of garment industry, which realized respectively 79.35% and 14.51% of the revenue. 4. Neither main business nor products mix of the Company experienced significant changes in the report period. (II) Major Supplier and Customer The calculated purchase amount of the top five supplier, RMB 299 million, accounts for 41.70% of the total purchase amount in the report period. The calculated sales amount of the top five customers, RMB 448 million, accounts for 57.06% of the total sales of the amount in the report period. (III) Problems and Difficulties Occurred in the Operation and the Counter Measures Enjoying smooth development in both production and operation, the Company confronted no significant problems and difficulties in the report period. (IV) Disclosure of the Profit Forecast The Company has disclosed a forecast on profit and income from main business lines as of the report period in its A-share additional issuance Memorandum in Nov. 2000. 10 The actual amount does not exceed the forecast by 20%. II. Continue Application of Raised Proceeds in the Report Period 1. Comparing of committed investment projects and actual investment projects Unit: In RMB’000 Actual investment Committed Actual Committed investment projects Proportion projects investment investment 1. Technical Innovation on High-grade Dyed Same as commitment 267,310 271,826.6 101.69% Yarn Fabric 2. Technical Innovation on Fine-settlement Same as commitment 156,300 54,041.4 34.58% for High-grade Dyed Yarn Fabric 3. Cooperation with Tongying Tianxin Same as commitment 65,000 65,000 100.00% 4. Supplementing circular funds Same as commitment 70,000 70,000 100.00% 5. Reform on Liquid Ammonia Same as commitment 50,000 24,734.2 49.47% 6. Innovation on weaving Same as commitment 30,270 31,705.9 104.74% 7. Innovation on dying equipments Same as commitment 31,920 33,054 103.55% 8. Establishing Luthai Hong Kong Co., Ltd. Same as commitment 6,360 0 0 9. Project of 20,000 ingots COM yarn Same as commitment 135,000 14,584.5 10.80% Total 812,160 564,946.6 Notes: Projects No. 1 to No. 4 were committed in the previous additional A-share issuance. Projects No. 5 to No. 8 were approved in Shareholders General Meeting after the completion of the previous additional A-share issuance. The balance raised proceeds were utilized to return the bank loan and invest in the national bond. 2. Particulars about investment projects without changes (1) Project of Technical Innovation on High-grade Dyed Yarn Fabric, the I, II, and III phase, went into operation in the report period, and realized a revenue of RMB 221.31 million and a profit of RMB 44.12 million. (2) Dongying Luxin Textile Co., Ltd., incorporated by the Company and Dongying Tianxin, was registered on March 1, 2001 and went into operation. It realized a revenue of RMB 59.49 million and a profit of RMB 1.9526 million in the report period. 3. Particulars about investment projects with changes (1) Investing method of the project of COM Yarn Production Lines with capacity of 20000 ingots was changed in the report period. The Company originally planned to independently invest in the project with RMB 135 million, but later decided to cooperate with Zibo Taimei Tie Co, Ltd. to jointly establish Zibo Luhua Textile Co., Ltd. (“Zibo Luhua”) for the project. Registered capital of Zibo Luhua is RMB 8 million including RMB 7.2 million from the Company, 90% of the total. This change in investment of committed project has been approved in the 5th Meeting of the 3rd Board of Directors pending to the Shareholders’ General Meeting for approval. Relevant Notice on Resolutions, Notice on Related Transaction and Notice on 11 Changes of Application of Raised Proceeds has been published in Securities Times, Shanghai Securities News and Hong Kong Commercial Daily dated Dec. 22, 2001, (2) Planned investment in the project of Technical Innovation on Fine-settlement for High-grade Dyed Yarn Fabric was up to RMB 156.3 million. After construction of the plant being completed and one production line going into operation in the report period, the Company adjusted certain technique configure based on the changes in the market, and lowered the equipment purchase price by means of public bidding, which reduced the necessary investment in the project for the target annual productivity of 60 million meters. As a result, the project need only RMB 46 million to be completed and RMB 56.52 were saved. The Company planned to invest this RMB 56.52 million in the project of 20,000 ingots COM yarns production expansion, pending to the Shareholders’ General Meeting 2001 for approval. III. Analysis on Financial Status and Achievement of Operation (I) Accounting data as of the report period Unit: in RMB’000 Item Dec. 31, 2001 Dec. 31, 2000 Changes (%) Total assets 1,477,554 1,401,298 5.44 Long-term liabilities 0 0 Shareholders’ equity 1,314,320 1,271,161 3.40 Profit from main business lines 232,256 155,728 49.14 Net profit 120,518 87,447 37.82 (II) Causes of the change in accounting data Total profit of the Company of as at the end of the report period amounted to RMB 1,477,554,000, an increase of 5.44% over the same period of previous year, which was mainly due to the increase in minority shareholders’ equity, surplus public reserve and retained profit, etc. Long-term liabilities remained unchanged in the report period. Shareholders’ equity was increased by 3.40% mainly due to the increase in surplus public reserve and retained profit. Profit from main business lines and net profit were increased by 49.14% and 37.82% respectively mainly due to the enlargement in production and increase in turnover and sales. IV. Operation Prospect for the year 2002 (following data not audited by Certified Public Accountants) In the year 2002, the Company will further develop its market home and abroad; strengthen its cost management and expense control; improve its management system and optimize the resources allocation; reinforce its technical innovation; attach great emphasis on the quality management and effectively implement ISO9000 and ISO14000 international standard management. Considering the progress of the Company’s new projects, the Company set following targets for the year 2002: 1. Annual turnover Yarn: 3,171 tons (60 courts in average); Dyed yarn fabric: 5.8 thousand meters (73 pick density), an increase of 20.83% over the previous year; 12 Shirt: 3.8 million standard pieces, an increase of 26.67% over the previous year; 2. Foreign currency income: USD 0.1 billion, an increase of 15.73% over the previous year; 3. Sales revenue: RMB 1 billion, an increase of 34.59% over the previous year; 4. Investment (1) Continue the project of 20,000 ingots COM yarn, the project of Technical Innovation on Fine-settlement for High- grade Dyed Yarn Fabric and the project of Reform on Liquid Ammonia. (2) Invest RMB 9 million self-owned funds to conduct technical innovation on the dying plant; (3) Invest RMB 5.1 million self-owned funds to conduct technical innovation on the weaving plant; (4) Invest RMB 23 million self-owned funds to introduce production lines with annual capacity of 1.5 million high-grade shirts; (5) Invest RMB 120 million over-raised-proceeds from additional A-share issuance in the 20000 ingots COM yarn expansion project. V. Profit Distribution Preplan for the year 2001: The Company realized a net profit of RMB 114,439,698.23 in the year 2001 as audited by Shandong Zhengyuan Hexin Certified Public Accountants. Pursuant to provisions in Company Law and Articles of Association of the Company, 10% and 5% of the net profit amounting to RMB 11,443,969.82 and RMB 5,721,984.91 shall be allotted as statutory public reserve and statutory welfare fund respectively. So profit attributable was up to RMB 97,273,743.50. The Board of Directors proposed following profit distribution preplan: 1. Based on the Company’s total share capital as at the end of 2001, 270.79 million shares, profit is to be distributed to shareholders at the rate of RMB 3.18 for every 10 shares (tax included). Dividend for B share shall be converted into HK dollar at the exchange rate of RMB 1.06: HKD 1.00, that is, profit is to be distributed to shareholders of B share at the rate of HKD 3.00 for every 10 shares (tax exempted as regulated in GSF [1993] No. 45 document). 2. Distributed profit amounts to RMB 86,111,220.00 and the balance profit totaling RMB 11,162,523.50 is carried down to the next year. 3. Based on the Company’s total share capital as at the end of 2001, 270.79 million shares, public reserve is to be transferred into share capital at the rate of 3 for 10. The above profit distribution plan is subject to the examination of Shareholders’ General Meeting for implementation. Estimated profit distribution policy for the year 2002: the Company will conduct profit distribution at least once in 2002. No less than 50% attributable profit as of 2002 and 100% retained profit as of 2001 is to be distributed in 2002. The distribution will take the form of cash. In addition, the Company will transfer capital public reserve into share capital at least once in 2002 at the rate of no higher than 3 for 10. For implementation of above policy, the Board of Directors will propose preplan based on the Company’s actual situation in 2002 to the Shareholders’ General Meeting for examination. The Board of Director preserves the rights to adjust the 13 policy according to actual situation of the Company in 2002. VIII. REPORT OF THE SUPERVISORY COMMITTEE I. Particulars about work of the Supervisory Committee in the report year In the report year, the Company’s supervisors have attended all the five board meetings as non-voting delegates. The Company held altogether four meetings of the Supervisory Committee, particulars of which are as follows: 1.The 1st meeting of the Supervisory Committee was held in the company on March 18, 2001. All three supervisors that should attend the meeting were present. The meeting reviewed and passed the following items: (1) Work Report of the Supervisory Committee of 2000 (2) Proposal on Election of Next Supervisory Committee The public notices on resolutions of this meeting were published on Securities Times, Shanghai Securities and Hong Kong Commercial Daily dated March 20, 2001. 2. The 2nd meeting of the Supervisory Committee was held in the company on May 10, 2001 with all three supervisors attending the meeting. Li Tongwei was elected chairman of the 3rd Supervisory Committee in the meeting. The public notices on resolutions of the meeting were published on Securities Times, Shanghai Securities and Hong Kong Commercial Daily dated May 11, 2001. 3. The 3rd meeting of the Supervisory Committee was held in the company on July 31, 2001 with all three supervisors attending the meeting. The meeting reviewed and passed the following items: (1) Interim Report of 2001 and its summary (2) Appraisal on Work in the First Half of Year 2001 The public notices on resolutions of the meeting were published on Securities Times, Shanghai Securities and Hong Kong Commercial Daily dated August 2, 2001. 4. The 4th meeting of the Supervisory Committee was held in the company on December 20, 2001 with all three supervisors attending the meeting. The meeting reviewed and passed the following items: (1) Discussed issues on proposal of establishing Zibo Lu Hua Textile Co., Ltd with Zibo Tai Mei Ties Co., Ltd. (2) Proposal on Changing Investment Mode in the Project of the 20000 Ingots of COM Spinning The public notices on the meeting’s resolution were published on Securities Times, Shanghai Securities and Hong Kong Commercial Daily dated October 22, 2001. II. Independent opinions expressed by the Supervisory Committee 1. Particulars about operation according to law: The Company’s decision-making procedures were legal. The Company had a rather complete internal control mechanism. The Company’s directors and managers haven’t violated laws, regulations and articles of association or damaged the Company’s interests while performing their duties. 2. Inspection of the Company’s financial status: The Supervisory Committee has 14 checked the financial reports made by Shangdong Zhengyuan Hexin Certified Public Accountants and PricewaterhouseCoopers Certified Public Accountants and thought the reports have truthfully reflected the Company’s financial status and business results. 3. The actual project invested with capital raised last time was in line with the promised one, and procedures of investment with surplus capital raised last time were in conformity with relevant regulations. Issues on changing of investment mode of the COM spinning project and changing of investment amount in after-arrangement projects will be submitted to the Shareholders’ General Meeting of 2001 for review and approval before application. 4. There were no purchase and sales of assets in the report year. 5. The Supervisory Committee believed that the interrelated transactions were fair and they haven’t damaged interests of listed companies. 6. Shangdong Zhengyuan Hexin Certified Public Accountants and PricewaterhouseCoopers Certified Public Accountants issued non-reservation domestic and foreign audit reports of 2001 respectively. IX. SIGNIFICANT EVENTS I. About material lawsuit, arbitration: There were no material lawsuit and arbitration in the report year. II. There were no purchase, sales of assets and merger and consolidation occurred in the report year. III. Significant relationship and interrelated transactions in the report year. The Company’s interrelated transactions were purchase and sales of commodities and providing labor and services, but the total accumulated interrelated transaction amount neither reached RMB 30 million nor amounted to 5% of net assets audited lately. The Company had no interrelated transactions of transfer of assets or share equity. Details about the interrelated transactions in the report year please see notes of the financial statement of auditor’s report, Item No. 22 “Interrelated Transaction”. IV. Important contracts and their implementation 1. In the report year, the Company had kept as custodian, contracted or leased any other company’s assets as follows: In the report year, the Company leased right of using 92.09 mu of land and 6484.71 m2 of premises from Zibo Lu Cheng Textile Co., Ltd. Rent of the year was equivalent to RMB 2,097,600. 2. Important guarantee: The Company hadn’t provided any guarantee to outside company in the report year. 3. In the report year and before the report year, the Company had never entrusted any other party to manage the Company’s cash assets. 4. Important contracts signed in the report year. A. The Company signed Equipment Purchase Contracts with purchase amount of US$1.254 million, US$887,000 and US$ 5.291 million respectively. B. The Company signed Automatic Cone Winder Equipment Purchase Contract with Osaka Ri Jin Corporation with contract amount of US$ 1.355 million. 15 V. Particulars about promises made by the Company or shareholder who held over 5% of total shares: The Company implemented its profit distribution plan of 2000 in May of 2001. In the year 2001, about 50% of the realized net profit would be used for cash dividend distribution. The distribution policy would be adjusted accordingly based on actual condition of 2001 and will be submitted to the Shareholders’ General Meeting for approval. This promise has been reflected in the Profit Distribution Preplan of 2001 submitted to this boarding meeting. VI. The Company reengaged Shangdong Zhengyuan Hexin Certified Public Accoutants and PricewaterhouseCoopers China Co., Ltd as its financial auditing organizations, who were paid RMB 350000 and RMB 700000 of auditing fees respectively in the report year. VII. In the report year, the Company, the Board of Directors or its directors had neither been checked, given administrative punishment or given circular notices of criticism by China Securities Regulatory Commission nor been condemned publicly by the Stock Exchange. VIII. There were no other important events in the report year. X. FINANCIAL REPORT Report of the auditors To the Members of Luthai Textile Joint Stock Company Limited We have audited the accompanying consolidated balance sheet of Luthai Textile Joint Stock Company Limited (the Company) and its subsidiaries (the Group) as of 31 December 2001 and the related consolidated income and consolidated cash flow statements for the year then ended. These consolidated financial statements set out on pages 2 to 26 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the consolidated financial statements presents fairly in all material respects the financial position of the Group as of 31 December 2001 and the results of its operations and its cash flows for the year then ended in accordance with International Accounting Standards. 16 PricewaterhouseCoopers 27 March 2002 LUTHAI TEXTILE JOINT STOCK COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2001 Year ended 31 December (all amounts in RMB thousands) Notes 2001 2000 Sales 1 785,694 485,929 Cost of sales (553,438) (330,201) Gross profit 232,256 155,728 Other operating income 4,569 2,777 Distribution costs (32,856) (19,334) Administrative expenses (70,361) (27,277) Operating profit 2 133,608 111,894 Finance income/(costs) – net 3 4,139 (12,596) Investment income/(loss) 14 1,611 (83) Profits from ordinary activities before tax 139,358 99,215 Tax 5 (19,002) (11,845) Group profit after tax 120,356 87,370 Minority interests 20 162 77 Net profit 6 120,518 87,447 Earnings per share 6 RMB 0.45 RMB 0.42 LUTHAI TEXTILE JOINT STOCK COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2001 31 December 31 December 17 (all amounts in RMB thousands) Notes 2001 2001 2000 2000 ASSETS Non-current assets Property, plant and equipment 8 768,511 489,577 Intangible assets 9 13,443 10,893 Long-term investments 10 7,866 686 789,820 501,156 Current assets Inventories 11 261,141 150,095 Receivables and prepayments 13 214,315 133,391 Trading investments 14 40,000 - Cash and cash equivalents 15 172,278 616,656 687,734 900,142 Total assets 1,477,554 1,401,298 EQUITY AND LIABILITIES Capital and reserves Ordinary shares 19 270,790 208,300 Share premium 19 824,564 887,054 Reserves 21 89,355 68,657 Retained earnings 129,611 107,150 1,314,320 1,271,161 Minority interests 20 39,897 5,059 Current liabilities Trade and other payables 16 81,822 68,015 Current tax liabilities 41,515 33,051 Borrowings 17 24,012 - 123,337 125,078 Total equity and liabilities 1,477,554 1,401,298 LUTHAI TEXTILE JOINT STOCK COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2001 18 (all amounts in RMB thousands) Notes Share Share Reserves Retained Total capital premium earnings Balance at 1 January 2000 158,300 70,325 55,767 32,593 316,985 Net profit - - - 87,447 87,447 Reserves 21 - - 12,890 (12,890) - Issue of shares 50,000 816,729 - - 866,729 Balance at 31 December 2000 208,300 887,054 68,657 107,150 1,271,161 Balance at 1 January 2001 208,300 887,054 68,657 107,150 1,271,161 Net profit - - - 120,518 120,518 Reserves 21 - - 20,698 (20,698) - Dividend relating to 2000 - - - (77,359) (77,359) Capitalisation of share premium 19 62,490 (62,490) - - - Balance at 31 December 2001 270,790 824,564 89,355 129,611 1,314,320 An analysis of components of reserves is presented in Note 21. LUTHAI TEXTILE JOINT STOCK COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2001 Year ended 31 December (all amounts in RMB thousands) Notes 2001 2000 Cash flow from operating activities Net profit before taxation 139,358 99,215 Adjustment for: Depreciation 8 47,194 30,852 Amortisation of intangible assets 9 2,711 625 Impairment charges of property, plant and equipment 8 1,258 - Losses on disposal of property, plant and equipment 5,276 - Inventory provision 11 6,889 - Investment loss on equity accounting 10 20 87 Provision for doubtful debts 2 4,721 787 Interest expenses 3 221 11,091 Interest income 3 (5,825) (1,808) Dividend income (3) (4) 201,820 140,845 19 Changes in working capital Inventories (117,935) (4,536) Trade and other receivables (82,674) (71,393) Trading investments (40,000) - Payables 27,590 65,015 Cash (used in)/generated from operations (11,199) 129,931 Interest paid (221) (11,091) Tax paid (23,377) (36,904) Net cash (used in)/generated from operating ctivities (34,797) 81,936 Cash flow from investing activities Investment in new subsidiary (7,200) - Purchase of property, plant and equipment 8 (299,003) (168,833) Purchase of intangible assets 9 (5,261) (5,363) Proceeds from sale of property, plant & equipment 8 306 - Dividend received 3 4 Interest received 3 5,825 1,808 Net cash used in investing activities (305,330) (172,384) Cash flow from financing activities Proceeds from issue of ordinary shares 866,729 - Proceeds from short-term borrowings 366,511 - Repayments of short-term borrowings 17 (24,012) (491,191) Repayments of long-term payables of letters of credit - (8,162) Dividend paid to group shareholders 7 (80,239) (54,623) Proceeds from minority shareholders 20 2,898 - Net cash (used in)/ generated from financing activities (104,251) 682,162 (Decrease)/Increase in cash and cash equivalents (444,378) 591,714 Movement in cash and cash equivalents At start of year 616,656 24,942 (Decrease)/Increase in cash and cash equivalents (444,378) 591,714 20 At end of year 15 172,278 616,656 Non-cash transactions The principal non-cash transactions are the capitalisation of share premium (Note 19) and the injection of property, plant and equipment by a minority shareholder as capital contribution into a subsidiary established during the year (Note 23). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2001 (In the notes all amounts are shown in RMB thousands unless otherwise stated) ACCOUNTING POLICIES Background information Luthai Textile Joint Stock Company Limited (“the Company”) is a joint stock company established in Shandong province of the People’s Republic of China (“PRC”). The principal activities of the Company and its subsidiaries (“the Group”) are the manufacture and sale of various textiles and garment products, including yarn, dyed yarn fabric and shirts. The Group operates in PRC and employs over 5,200 full time employee. The address of the Company’s registered office is as follows: 81 Songling East Road Zichuan, Zibo Shandong, PRC The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: A. Basis of preparation The consolidated financial statements have been prepared in accordance with and comply with International Accounting Standards (“IAS”). The consolidated financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below. B. Consolidation Except as disclosed in Note 23, subsidiary undertakings, which are those companies in which the Group, directly or indirectly has an interest of more than one half of the voting rights or otherwise has power to exercise control over the operations, are consolidated. Subsidiaries 21 are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. All intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. The accounting policies for subsidiaries are consistent with the policies adopted by the Group. A listing of the Group’s principal subsidiaries is set out in Note 23. C. Foreign currencies The Group maintains its books and accounting records in Renminbi. Foreign currency transactions in Group companies are accounted for at the exchange rates prevailing at the date of the transactions. Foreign currency monetary assets and liabilities are translated at the applicable exchange rates prevailing at the balance sheet date. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement. D. Property, plant and equipment Property, plant and equipment are stated at cost less depreciation. Property, plant and equipment contributed by a minority shareholder are initially recorded at their approved appraised value upon contribution to a subsidiary. Depreciation is calculated on the straight-line method to write off the cost of the each asset to their residual value, estimated at 10 per cent of cost, over its estimated useful life as follows: Land use rights 10 -13 years Buildings 20 years Plants and machinery 13 years Electronic equipment and motor vehicles 5 years Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised, during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed. The land use rights will be renewed upon expiration of their present use period. 22 E. Intangible assets Expenditure on acquired intangible assets is capitalised and amortised using the straight-line method over their estimated beneficial period as follows: Electricity use rights 10 years Water use rights 10 years F. Long–term investments As disclosed in Note 23, investment in a controlled entity is accounted for by the equity method of accounting in the consolidated statements. This investment is stated at historical cost, less provision for permanent diminution in value, if any. Unrealised gains on transactions between the Group and this entity are eliminated to the extent of the Group’s interest in the associated undertakings. In addition, investment in another controlled entity is accounted for by the cost method of accounting in the consolidated statements. There have been no unrealised gains on transactions between the Group and this entity. Investment where the Group has less than 20% of the voting rights, or no significant influence, is carried at cost less any amount provided for diminution in value as determined by the Directors. Dividends are recognised when received. The detail of the investment is shown in Note 10. G. Investments At 1 January 2001 the Group adopted IAS 39 and classified its investments into the following categories: trading, held-to-maturity and available-for-sale. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets. Investments with fixed maturity that the management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets; during the year the Group did not hold any investments in this category. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; these are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets; during the year the Group did not hold any investments in this category. Management determines the appropriate classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. 23 All purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading and available-for-sale investments are subsequently carried at fair value, whilst held-to-maturity investments are carried at amortised cost using the effective yield method. Realised and unrealised gains and losses arising from changes in the fair value of trading investments and of available-for-sale investments are included in the income statement in the period in which they arise. H. Leases Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. I. Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined by the weighted-average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads, but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and estimated selling expenses. J. Trade receivables Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts at the year end. Bad debts are written off when identified. K. Notes receivable Notes receivables are carried at face value of the notes. L. 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 in hand and deposits held at call with banks. 24 M. Share capital (1) Ordinary shares with discretionary dividends are classified as equity. (2) External costs directly attributable to the issuance of new shares are shown as a deduction in equity from the proceeds. (3) Dividends on ordinary shares are recognised in equity in the period in which they are declared. N. Borrowings Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. In subsequent periods, borrowings are stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. O. Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The principal temporary differences arise from depreciation on property, plant and equipment, provisions for receivables, inventories and property, plant and equipment. Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. P. Defined contributions to pension scheme The Group participates in a government pension scheme. The annual contribution amount is provided based on the amount determined by the local government agency. Under this scheme, retirement benefits of existing and retired employees are assured by the National United Retirement Fund and the Group has no further obligations beyond the annual contributions. It is the directors’ intention to continue making such payments in the future. Q. Revenue recognition Sales are recognised upon delivery of products and customer acceptance. Sales are shown net of value added tax and discounts, and after eliminating sales within the Group. Other revenues earned by the Group are recognised on the following bases: Interest income – on an accrual basis, unless collectibility is in doubt. Dividend income – when the payment is received. R. Comparatives 25 Comparative figures have been adjusted to conform with changes in presentation in the current year. 1 Sales Sales represent invoiced sales of textile products to third parties and related companies, net of value added tax and discounts, and comprise the following: 2001 2000 Sales outside the PRC - Asia Hong Kong 271,004 185,289 Japan 147,501 70,491 Rest of Asia 162,668 105,569 581,173 361,349 - Europe 56,169 41,593 - South America 27,051 26,061 - Others 8,674 - Sales within the PRC 112,627 56,926 785,694 485,929 2 Operating profit The following items have been included in arriving at operating profit: 2001 2000 Depreciation on property, plant and equipment (Note 8) 47,194 30,852 Impairment of property, plant and equipment (included in “Administrative expenses”) (Note 8) 1,258 - Loss on disposal of property, plant and equipment 5,276 - Amortisation of intangible assets (included in “Administrative expenses”) (Note 9) 2,711 625 Operating lease rentals payable – property 4,345 1,962 Trading investments - profit on sale (included in “Investment income”) (Note 14) (1,628) - 26 Staff costs (Note 4) 69,182 44,458 Cost of inventory included in cost of sales 418,271 214,840 Provision for doubtful debts 4,721 787 Provision for inventories (Note 11) 6,889 - 3 Finance income/(cost) - net 2001 2000 Interest income 5,825 1,808 Net foreign exchange transaction gains/(losses) 1,648 (736) Interest expenses (221) (11,091) Others (3,113) (2,577) 4,139 (12,596) 4 Staff costs 2001 2000 Wages and salaries 36,016 56,092 Defined contribution plan 3,295 5,593 Housing fund 2,070 2,887 Welfare 3,077 4,610 44,458 69,182 Average number of persons employed by the Group during the year: Full time 2,303 3,264 Part time 2,312 1,318 3,621 5,576 5 Income tax Taxation represents income tax on taxable income based on the statutory accounts of the Company and its subsidiaries. In accordance with the relevant statutory tax rate in the coastal open zone where the Company, a manufacturing enterprise, is located, the 27 Company is subject to a statutory tax rate of 24 per cent. Beginning from 1995, the Company has been granted a concessionary tax rate of 12 per cent subject to its export sales exceeding 70 per cent of total sales. The Local Ministry of Foreign Trade and Economic Cooperation has verified that export sales for the year ended 31 December 2001 had exceeded 70 per cent of total sales. Accordingly, the income tax has been provided at 12 per cent. The reconciliation of IAS profit before tax and PRC income tax expense is as follow: 2001 2000 IAS profit before tax of the Group 139,358 99,215 Differences between IAS and PRC accounting principles: Temporary differences Depreciation (3,000) (3,387) Deferred training expenses written off in PRC report (2,451) 2,451 Long outstanding creditors written off (940) - PRC profit before tax of the Group 132,967 98,279 Tax calculated at a tax rate of 12% (2000: 12%) 15,956 11,793 Effect of different tax rates of subsidiaries 1,145 62 Tax on capital reserves 113 - Income not subject to tax (10) - Effect of expenses not deductible for tax purposes 1,788 - Tax charge 19,002 11,845 As of 31 December 2001, the Group has no significant deferred tax assets and liabilities. 6 Earnings per share Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. 2001 2000 Net profit attributable to shareholders 120,518 87,447 Weighted average number of ordinary shares in issue (thousands) 270,790 210,230 Basic earnings per share (RMB per share) 0.45 0.42 28 7 Dividends per share At the Annual General Meeting to be held in May 2002, dividends in respect of 2001 of RMB0.318 per share is to be proposed. Total dividends amounted to RMB86,111,220. These financial statements do not reflect this dividend payable, which will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending 31 December 2002. The dividends declared in respect of 2000 and 1999 were, respectively, RMB77,359,000 and RMB50,339,000. 8 Property, plant and equipment Land use Buildings Plants & Electronic Construction Total rights machinery equipment & in progress motor vehicles Year ended 31 December 2000 Opening net book amount 10,302 66,596 244,129 5,878 14,989 341,894 Additions - 1,284 2,743 1,024 173,484 178,535 Transfer of construction in progress - 5,358 24,957 680 (30,995) - Depreciation charge (Note 2) (1,710) (3,459) (24,451) (1,232) - (30,852) Closing net book amount 8,592 69,779 247,378 6,350 157,478 489,577 At 31 December 2000 Cost 27,546 84,584 376,473 12,754 157,478 658,835 Accumulated depreciation (18,954) (14,805) (129,095) (6,404) - (169,258) Net book amount 8,592 69,779 247,378 6,350 157,478 489,577 Land use Buildings Plants & Electronic Construction Total rights machinery equipment & in progress motor vehicles Year ended 31 December 2001 Opening net book amount 8,592 69,779 247,378 6,350 157,478 489,577 Additions 4,909 12,323 58,409 4,278 256,019 335,938 Transfer of construction in progress - 81,642 254,290 6,405 (342,337) - Disposals - - (8,183) (369) - (8,552) Impairment charge (Note 2) - - (1,258) - - (1,258) Depreciation charge (Note 2) (1,956) (5,590) (37,401) (2,247) - (47,194) Closing net book amount 11,545 158,154 513,235 14,417 71,160 768,511 At 31 December 2001 Cost 21,846 179,908 686,666 19,314 71,160 978,894 Accumulated depreciation (10,301) (21,754) (173,431) (4,897) - (210,383) 29 Net book amount 11,545 158,154 513,235 14,417 71,160 768,511 The impairment charge of RMB1,258,000 in 2001 (2000: nil) represents the net book value of certain plants and machinery, from which no future economic benefits could be derived in substance. As at 31 December 2001, certain buildings with remaining depreciation period of 7 to 19 years are situated on land where the land use rights will expire within the next 3 to 12 years. The directors believe that all the land use rights held by the Company would be renewed under a reasonable price upon the expiration of their present use period, and would cover the remaining depreciation period of the buildings situated on them. 9 Intangible assets Electricity Water use Total use rights rights Year ended 31 December 2000 Opening net book amount 3,550 2,605 6,155 Additions 1,763 3,600 5,363 Amortisation charge (Note 2) (307) (318) (625) Closing net book amount 5,006 5,887 10,893 At 31 December 2000 Cost 10,807 6,791 17,598 Accumulated amortisation (5,801) (904) (6,705) Net book amount 5,006 5,887 10,893 Electricity Water use Total Use rights rights Year ended 31 December 2001 Opening net book amount 5,006 5,887 10,893 Additions 1,004 4,257 5,261 Amortisation charge (Note 2) (1,700) (1,011) (2,711) Closing net book amount 4,310 9,133 13,443 At 31 December 2001 30 Cost 8,080 11,042 19,122 Accumulated amortisation (3,770) (1,909) (5,679) Net book amount 4,310 9,133 13,443 10 Long-term investments 2001 2000 At beginning of year 686 773 Share of results before tax (20) (87) Addition (Note 23(c)) 7,200 - At end of year 7,866 686 Other than the investment as disclosed in Note 23(a) and Note 23(c), the detail information of long-term investment is as follows: Country of incorporation % Interest held Zibo Stanluian Cosmetics Co., Ltd. PRC 10.5% Long-term investments comprises unquoted equity investments, and are stated at cost as their fair value cannot be reliably determined without incurring excessive costs. 11 Inventories 2001 2000 Raw materials (at cost) 101,408 40,166 Raw materials (at net realisable value) 20,883 - Work in progress (at cost) 73,276 57,955 Finished goods (at cost) 63,409 51,974 Finished goods (at net realisable value) 2,165 - 261,141 150,095 12 Financial instruments 31 The Group’s financial instruments comprise cash and liquid resources, trading investments, notes receivable, and various working capital items, such as trade receivables and trade payables, etc that arise from operations. 13 Receivables and prepayments 2001 2000 Trade receivables 14,876 11,883 Provision for doubtful debts (880) (594) 13,996 11,289 Other receivables 12,212 4,350 Provision for doubtful debts (935) (1,015) 11,277 3,335 Notes receivable 63,832 46,031 VAT tax refund 58,737 13,187 Prepayments 57,254 56,775 Amount due to Tianxin (Note 22) 2,731 - Employee housing loans 6,488 2,774 214,315 133,391 Notes receivable s represent irrevocable letters of credit denominated in foreign currencies received from customers, with maturity dates within one year of balance sheet date. 14 Trading investments The trading investments are traded in active markets and are valued at market value at the close of business on 31 December by reference to Government Bonds Exchange quoted bid prices. Trading investments are classified as current assets because they are expected to be realised within twelve months of the balance sheet date. In the cash flow statement, trading investments are presented within the section on operating activities as part of changes in working capital. In the income statement, changes in fair values of trading investments are recorded in investment income (Note 2). 32 15 Cash and cash equivalents 2001 2000 Cash at bank and in hand 54,413 77,897 Short term bank deposits 117,865 538,759 172,278 616,656 The interest rates on short term bank deposits range from 0. 75% to 5.10% (2000: 1.89% to 4.63%) per annum. For the purposes of the cash flow statement, the cash and cash equivalents comprise the following: 2001 2000 Cash and bank balances 172,278 616,656 16 rade and other payables 2001 2000 Trade payables 47,984 31,902 Notes payable 500 - Dividend payables 534 3,414 Accrued expenses 4,814 6,319 Payroll and welfare payables 7,138 5,375 Advances from customers 5,043 6,578 Amount due to shareholder – Lucheng (Note 22) 1,291 1,486 Other payables 14,518 12,941 81,822 68,015 17 Borrowings 2001 2000 Current Bank borrowings – secured - 24,012 The interest rate of the borrowings was fixed as follows: 2001 2000 33 The weighted average effective interest rates at the balance sheet date were as follows: - bank loans - 6.45% 18 Commitments Capital commitments Capital expenditure contracted for at the balance sheet date but not recognised in the financial statements is as follows: 2001 2000 Property, plant and equipment 106,864 74,996 Capital contribution to a new subsidiary - 65,000 106,864 139,996 Operating lease commitments – where the Group is a lessee The future aggregate minimum lease payments are as follows: 2001 2000 Not later than 1 year 3,740 1,985 Later than 1 year and not later than 5 years 11,675 7,939 Later than 5 years 17,862 19,847 33,277 29,771 19 Ordinary shares and share premium 2001 2000 Number of shares (in thousands) 270,790 208,300 Registered, issued and fully paid ordinary shares of RMB 1.00 each (a) Non-tradable - Domestic corporate shares 37,895 29,150 - Foreign corporate shares 37,895 29,150 - Employee shares 26,000 20,000 34 (b) Tradable - A shares 65,000 50,000 - B shares 104,000 80,000 270,790 208,300 Share premium 824,564 887,054 Total 1,095,354 1,095,354 19 Ordinary shares and share premium (continued) All shares rank pari passu in all respects. Pursuant to the resolutions of the Annual General Meeting of the Company on 10 May 2001, the Board of Directors of the Company capitalised Share Premium as at 31 December 2000 on a 3-for-10 basis. After the capitalisation, the total Share Capital of the Company increased from 208.30 million shares to 270.79 million shares. 20 Minority interests 2001 2000 At beginning of year 5,059 2,239 Addition (Note 23) 35,000 2,897 Share of net losses of subsidiaries (162) (77) At end of year 39,897 5,059 21 Reserves 2001 2000 Capital reserves 22,468 22,468 Statutory common reserve and public welfare funds, and discretionary common reserve fund 66,887 46,189 89,355 68,657 The PRC laws and regulations require PRC enterprises to provide for statutory common reserve fund and statutory public welfare fund which are appropriated from net profit as reported in the statutory accounts prepared under the PRC accounting regulations prior to any dividend appropriation. All statutory common reserve fund and statutory public welfare fund are created for specific purposes. 35 The Company is required to allocate at least 10 per cent of its net profit to the statutory common reserve fund until this fund reaches 50 per cent of the registered capital. The statutory common reserve fund can only be used, upon approval by the relevant authorities, to offset accumulated losses or to increase capital. However, the remaining unconverted statutory common reserve fund should be maintained at a minimum of 25 per cent of registered capital. An appropriation of 10 per cent of net profit has been allocated to the statutory common reserve fund for the year ended 31 December 2001 (2000: 10 per cent). An appropriation of 5 per cent of net profit has been made to the statutory public welfare fund for the year ended 31 December 2001 (2000: 5 per cent). This fund should be used for the collective welfare of the employees. According to the PRC listing rules and relevant regulations, distributions of profit should be made based on the lower of the distributable reserves and retained earnings as stated in the statutory accounts and the distributable reserves and retained earnings as stated in the accounts prepared in accordance with IAS. On this basis, the distributable reserves and retained earnings of the Company as of 31 December 2001 were RMB97,273,744 (2000: RMB80,702,000). In accordance with the Company’s Articles of Association, an appropriation to a discretionary common reserve fund can be made after the statutory appropriations, subject to shareholders’ approval at the Annual General Meeting. At the Annual General Meeting to be held in May 2002, no discretionary common reserve fund is to be proposed (2000: RMB3,341,573). The movement in statutory and discretionary reserve funds were as follows: 2001 2000 At beginning of year 46,189 33,299 Statutory common reserve fund 11,571 8,593 Statutory public welfare fund 5,785 4,297 Discretionary common reserve fund 3,342 - At end of year 66,887 46,189 22 Related party transactions Related parties are set out below: Zibo Lucheng Textile Co., Ltd. (“Lucheng”) Significant and controlling shareholder Dongying City Tianxin Woven Co., Ltd. Minority shareholder of Dongying Luxin Woven 36 (“Tianxin”) Co., Ltd. (Note 23) Qingdao Luthai International Trading Co., Ltd. Non-wholly owned subsidiary being accounted (“Qingdao Luthai”) by the equity method a) Transactions between the Company and Lucheng i) Sales of goods 2001 2000 Shirts - 10,374 Slow-moving and scraped fabric and fragmentary cloths 211 330 Shirts processing income and other sales 650 - 861 10,704 The directors believe that the above transactions were carried out on commercial terms and conditions and at market prices. ii) Purchases of goods and services 2001 2000 Fabric and fragmentary cloths 953 558 Other garment products 405 - 1,358 558 The directors believe that the purchases of the fabric and fragmentary cloths and other garment products were carried out on commercial terms and conditions and at market prices. iii) Salaries of temporary staff Salaries paid to Lucheng for the temporary staff provided on commercial terms and conditions and at market prices, approximated RMB20,339,000 (2000: RMB14,210,000). iv) Lease agreement On 10 April 2000, the Company signed a lease agreement with Lucheng for a piece of land and certain buildings on this land. Lucheng has guaranteed a lease term of 15 years, which is renewable annually based on calendar year, with monthly lease payments of 37 RMB121,854 and RMB43,541 for the land and certain buildings respectively. The areas of the land and building leased are 61,424.03 m2 and 6,484.07 m2 respectively. The Company has constructed its new Luthai Industrial Park on this land in the year 2001. Lucheng’s cost of acquiring the said land and buildings was RMB6,500,000. The directors believe that this lease was carried out on commercial terms and conditions and at market prices. Lease payments in year 2001 amounted to RMB1,982,000 (2000: RMB1,487,000). b) Transactions between a subsidiary (Dongying Luxin) and its minority shareholder (Tianxin) i) Sales of goods 2001 2000 Cotton yarns related products 16,393 - The directors believe that the sales were carried out on commercial terms and conditions and at market prices. ii) Purchases of goods and services Basis 2001 2000 Cotton yarns related raw material Market price 6,982 - Cotton yarns related semi-finished goods Market price 2,093 - Tools and auxiliary materials Cost 4,770 - Utilities Cost plus 10% 5,002 - 18,847 - iii) Acquisition of property, plant and equipment 2001 2000 Acquisition of property, plant and equipment 28,404 - Approximately RMB19,423,000 of property, plant and equipment were acquired at prices based on the assets appraisal report issued by Shandong HaiTian Certified Public Accountants Co., Ltd. dated 24 October 2001. The remaining property, plant and equipment amounting to RMB8,981,000 were acquired at book value. iv) Purchase of general services 38 On 24 February 2001, Dongying Luxin signed an agreement with Tianxin related to the rental of buildings and daily services from Tianxin. The directors believe that this agreement was carried out on commercial terms and conditions and on market prices. Relevant payments in year 2001 approximated RMB1,572,000 (2000: nil). c) Transactions between the Company and Qingdao Luthai In 2001, there was no purchase of fabric and fragmentary cloths from Qingdao Luthai (2000: RMB520,000). d) Directors’ and supervisory committee members’ remuneration In 2001, the total remuneration of the directors and the supervisory committee members was RMB2,623,000 (2000: RMB840,000). 23 Principal subsidiary undertakings Particulars of the Company’s subsidiaries, all of which are incorporated and operate in the PRC, are as follows: Name Country of % Interest held Principal activities incorporation and proportion of voting rights 2001 2000 Qingdao Luthai International Trading PRC 75% 75% General trading Co., Ltd. (“Qingdao Luthai”) (a) Beijing Luthai Shirt Co., Ltd. (“Beijing PRC 60% 60% Manufacture and Luthai”) sales of textiles and garment products Beijing Innovative Garment Co., Ltd. PRC 60% 60% Manufacture and (“Beijing Innovative”) sales of shirts Dongying Luxin Woven Co., Ltd. PRC 65% - Manufacture and (“Dongying Luxin”) (b) sales of cotton yarns related products 39 Zibo Luhua Textile Co., Ltd. PRC 90% - Manufacture and (“Luhua”) (c) sales of textiles and garment products (a) As the financial statements of Qingdao Luthai were not material to the Group, it had been accounted for by the equity method of accounting in the consolidated statements. (b) On 23 February 2001, Dongying Luxin was established by the Company and Tianxin, with an ownership of 65% and 35% respectively. The registered and paid-up capital of Dongying Luxin is RMB100 million. (c) On 17 December 2001, Luhua was established by the Company and Zibo Thaimei Ties Co., Ltd. (“Thaimei”), with an ownership of 90% and 10% respectively. Thaimei is 75% owned by Lucheng, the Company’s significant and controlling shareholder. The registered and paid-up capital of Luhua is RMB8 million. Since Luhua is still in pre-operating stage as at 31 December 2001 and its financial statements were not material to the Group, it is being accounted for by the cost method of accounting in the consolidated statements. XI. DOCUMENTS AVAILABLE FOR REFERENCE I. Accounting statements carried with personal signatures and seals of legal representative, general accountants and person in charge of handling accounting affairs. II. Original of Auditors’ Report carried with the seal of Certified Public Accountants as well as personal signatures and seals of certified public accountants; III. Originals of all documents and manuscripts of Public Notices of the Company disclosed in public in Securities Times, Shanghai Securities News and Hong Kong Commercial Daily. Board of Directors of Luthai Textile Co., Ltd. March 29, 2002 40