东沣B退(200160)帝贤Ｂ2002年年度报告(英文版)

CHENGDE DIXIAN TEXTILE CO. LTD. 2002 ANNUAL REPORT Mar. 2003 Chengde · PRC Contents Section 1. Important Notes--------------------------------------------------------------------- Section 2. Company Profile-------------------------------------------------------------------- Section 3. Summary of Accounting Highlights and Business Highlights------------- Section 4. Changes in Share Capital and Particulars about Shareholders----------- Section 5. Particulars about Directors, Supervisors, Senior Executives and Employees------------------------------------------------------------------------------------------ Section 6. Administrative Structure --------------------------------------------------------- Section 7. Particulars about Shareholders’ General Meeting--------------------------- Section 8. Report of the Board of Directors------------------------------------------------- Section 9. Report of the Supervisory Committee------------------------------------------ Section 10. Significant Events------------------------------------------------------------------ Section 11. Financial Report------------------------------------------------------------------- Section 12. Documents for Reference -------------------------------------------------------- 1 Section 1. Important Notes Important Note: The Board of Directors of Chengde Dixian Textile Co., Ltd. (hereinafter referred to as the Company) and its directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions or errors which would render any statement misleading. Chairman of the Board of the Company Mr. Wang Shuxian, Chief Financial Supervisor Mr. Zhang Jing and Person in Charge of Accounting Mr. Sun Li hereby confirm that the Financial Report of the Annual Report is true and complete. PricewaterhouseCoopers (China) Co., Ltd. audited the Company’s Financial Report and issued a standard unqualified Auditors’ Report for the Company. Section 2. Company Profile 1. Legal Name of the Company In Chinese: 承德帝贤针纺股份有限公司 In English: CHENGDE DIXIAN TEXTILE CO., LTD. 2. Legal Representative: Wang Shuxian 3. Secretary of Board of Directors: Chen Zhiguo Authorized Representative in Charge of Securities Affairs: Du Qingfeng Contact Address: Xiaban City, Chengde Region, Hebei Province Tel: (86) 314-3115049、3115048 Fax: (86) 314-3182013 E-mail: dxgs-9@heinfo.net 4. Registered Address: Xiaban City, Chengde Region, Hebei Province Office Address: Xiaban City, Chengde Region, Hebei Province Post Code: 067400 Company’s Internet Web Site: http://www.dxtex.com E-mail: dxgs-9@heinfo.net 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times (domestic) and Ta Kung Pao (overseas) Internet Web Site for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Securities Department of the Company Contact Tel: (86) 314-3115049 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: DIXIAN B Stock Code: 200160 2 7. Other Relevant Information of the Company Date of initial registration: Nov. 3, 1999 Date of changed registration: Jul. 4, 2002 Registered address: Industry and Commerce Administration Bureau of Hebei Province (No. 316, Tiyu South Street, Shijiazhuang, Hebei) Registered number for business license of the Company: 1300001001372 1/1 Registered number of taxation of the Company: 130821106576876 International Accountant: PricewaterhouseCoopers (China) Co., Ltd. Office address: No. 333, Huaihai Middle Road, Shanghai Chinese Accountant: PricewaterhouseCoopers Zhongtian Certified Public Accountant & Co. Office address: No. 333, Huaihai Middle Road, Shanghai Custodian agent of the non-circulating shares of the Company: Shenzhen Branch of China Securities Registration and Cleaning Co., Ltd. Name of lawyer firm engaged by the Company: Beijing Jin Cheng Lawyer Firm Office address: 17/F, East Sea Center, No. J24, Jian Guo Men Wai Ave., Chaoyao District, Beijing Section 3. Summary of Accounting Highlights and Business Highlights I. Summary of accounting data as of the year 2002 Items RMB’000 Operating Profit 149,244 Net Profit 115,303 Gross profit 180,730 Profit from other business lines (378) Net cash flows arising from operating activities 304,998 Net increase/ decrease in cash and cash equivalents 3,374 II. Explanation of the difference in the net profit as audited by domestic and international certified public accountants respectively. In the year 2002, as audited by PricewaterhouseCoopers Zhongtian Certified Public Accountant & Co. according to Chinese Accounting Standards, the Company’s net profit was RMB 115,303,000; as audited by PricewaterhouseCoopers (China) Co., Ltd. according to International Accounting Standards, net profit was RMB 115,303,000. There was no difference in net profit. III. Major accounting data and financial indexes over previous three years ended of the report year 2001 2000 Items Unit 2002 Before After Before After adjustment adjustment adjustment adjustment Income from core business RMB’000 463,088 290,282 290,283 284,014 284,014 Net Profit RMB’000 115,303 66,095 66,534 65,169 65,608 Total assets RMB’000 1,839,661 1,173,490 1,180,744 930,903 930,903 3 Shareholders’ equity（excluding RMB’000 553,728 441,936 449,820 387,236, 387,797 minority interests） Earnings per share RMB/share 0.32 0.31 0.31 0.30 0.31 Net assets per share RMB/share 1.51 2.06 2.04 1.80 1.80 Net cash flows per share arising RMB/share 0.44 0.29 0.29 0.32 0.32 from operating activities Return on equity % 21 15 15 16 17 Weighted average earnings per RMB/share 0.35 0.31 0.31 0.51 0.51 share IV. In accordance with Regulations on the Information Disclosure of Companies Publicly Issuing Shares (No. 9) released by China Securities Regulatory Commission, in the year 2002, the Company’s return on equity and earnings per share as calculated based on calculating method of fully diluted and weighted average: Return on equity Earnings per share (RMB) Profit in the report period Fully Weighted Fully Weighted diluted average diluted average Profit from core business 33% 36% 0.49 0.55 Operating profit 25% 28% 0.38 0.42 Net profit 21% 23% 0.32 0.35 V. Changes in shareholders’ equity in the report year (Unit: In RMB） Statutory Total Capital public Surplus Items Share capital public welfare Retained profit shareholders’ reserve public reserve fund equity Amount at the 215,000,000 153,256,833 24,202,745 8,045,632 45,965,406 438,424,984 period-begin Increase in the report 150,500,000 17,295,525 5,765,175 115,303,505 283,099,030 period Decrease in the 107,500,000 60,295,525 167,795,525 report period Amount at the 365,500,000 45,756,833 41,498,270 13,832,757 100,973,386 553,728,489 period-end Reason of changes Bonus shares; Shares capital Withdrawal in Withdrawal in Realization of Realization of shares capital transferred this period this period profit; Profit; transferred from public distribution of distribution of from public reserve profit as of this dividends reserve year Section 4. Changes in Share Capital and Particulars about Shareholders I. Changes in Share Capital (1) Statement of changes in share 4 Unit: Share Increase/decrease in this time (+, - ) Before the After the Capitalization of change Bonus shares change public reserve I. Unlisted Shares 1. Promoters’ shares 100,000,000 20,000,000 50,000,000 170,000,000 Including: State-owned shares Domestic legal person’s shares 9,455,600 1,891,120 4,727,800 16,074,520 Foreign legal person’s shares Others 90,544,400 18,108,880 45,272,200 153,925,480 2. Raised legal person’s shares 3. Inner employee’s share 4. Preference shares or others Total Unlisted shares 100,000,000 20,000,000 50,000,000 170,000,000 Ⅱ. Listed Shares 1. RMB ordinary shares 2.Domestically listed foreign shares 115,000,000 23,000,000 57,500,000 195,500,000 3. Overseas listed foreign shares 4. Others Total Listed shares 115,000,000 23,000,000 57,500,000 195,500,000 Ⅲ. Total shares 215,000,000 43,000,000 107,500,000 365,500,000 (2) Issuance and Listing Approved by China Securities Regulatory Commission (CSRC) with ZJFXZ [2000] No. 121 Document on Aug. 29, 2000, the Company successfully issued 100 million domestically listed foreign shares (B-share) to overseas investors with par value RMB 1.00 per share on Sep. 19, 2000, at the issuance price of RMB 2.11 per share, converting into HK$ 1.99 per share. 100 million domestically listed foreign shares were listed with Shenzhen Stock Exchange for trade on Sep. 29, 2000. According to documents of CSRC, from Sep. 29 to Oct. 29, 2000, the Company exercised its 15% over-allotment option to issue additional 15 million B shares, which were listed with Shenzhen Stock Exchange for trade on Oct. 27, 2000. In the report year, the Company implemented the 2001 Profit Distribution Plan (bonus shares at the rate of 2 bonus shares for every 10 shares and convert the capital public reserve into share capital at the rate of 5 shares for every 10 shares), so as to the total shares of the company was changed (for detail, please refer to statement of changes in share). II. About shareholders (1) Ended on Dec. 31, 2002, the Company had totally 11002 shareholders, including 5 ones of promoters’ shares and 10997 ones of domestically listed foreign shares. (2) Change of shares held by shareholder holding over 5% (including 5%) of total shares of the Company Number of shares at the Increase / decrease in the Number of shares at Name period-begin (share) report year (+,-) period-end (share) Wang Shuxian 85100000 59570000 144670000 Note: Wang Shuxian is main promoter of the Company. At the end of report year, he held 144670000 natural person’s shares as well as unlisted shares for circulating, taking 39.58% of the total shares of the Company. There was no pledge or frozen in 5 the shares held by Wang Shuxian in the report year. (3) Particulars about the shares held by the top ten shareholders as follows: (Ended Dec. 31, 2002) Number of Nature of shareholder Holding shares Type of shares Proportion share (State-owned Name of shareholders at the year-end (circulating/non- (%) pledged or shareholder / foreign (share) circulating) frozen shareholder) WANG SHU XIAN 144,670,000 39.58 Non-circulating No Natural person CHENGDE NORTH 12,859,480 3.52 Non-circulating No Domestic legal INDUSTRIAL CORPORATION person’s share WANG ZHENG SONG 9,255,480 2.53 Non-circulating No Natural person CHINA SOUTHERN CAPITAL 5,522,620 1.51 Circulating Unknown Foreign shares LIMITED (B-share in circulating) CSSC INTL LTD 5,445,100 1.49 Circulating Unknown Foreign shares (B-share in circulating) CHINA MIDDLING & SMALL 5,017,550 1.37 Circulating Unknown Foreign shares ENTERPRISE DEVELOPMENT (B-share in circulating) FUND CO., LTD. MESABI ASSETS LIMITED 4,838,200 1.32 Circulating Unknown Foreign shares (B-share in circulating) MAIN FORCES ASSETS 4,259,130 1.17 Circulating Unknown Foreign shares LIMITED (B-share in circulating) WONG, YU LUI 4,000,000 1.09 Circulating Unknown Foreign shares (B-share in circulating) GRAND LOYAL INVESTMENT 3,932,800 1.08 Circulating Unknown Foreign shares LTD (B-share in circulating) Notes: WANG SHU XIAN is main promoter and controlling shareholder of the Company, who holds natural person’s shares (non-circulating shares); Hebei Chengde North Industrial Corporation is one of the promoters of the Company, who holds domestic legal person’s shares (non-circulating shares); WANG ZHENG SONG is one of the promoters of the Company, who holds natural person’s shares (non-circulating shares); other shareholders hold B shares in circulating. Among the top ten shareholders, the Company is unknown whether there exists associated relationship among the other shareholders except that WANG SHU XIAN and WANG ZHENG SONG are the relationship of father and son. (4) The controlling shareholder of the Company is Wang Shuxian; and also is the first largest shareholder of the Company as well as actual controller of the Company. His information is as follows: Mr. Wang Shuxian, 49, Chinese nationality, who has not enjoy the residence power in the other country or area. He is one of the promoters of the Company and holds 144,670,000 shares of the Company at present. Mr. Wang Shuxian is founder of the Company. In the year 1986, Xiaban County Knitting Factory was founded in Xiaban 6 town of Chengde, Hebei. Over ten years, the Company has developed into the largest base of manufacture and exporter of textile in North China from small to large. In 1994, he has established Hebei Dixian Textile Group Co., and it has been changed into joint-stock company on Nov. 3, 1999. Approved by CSRC, DIXIAN B successfully listed with Shenzhen Stock Exchange for trade on Sep. 29, 2000. The Company has become the first B-share listed company controlled by person. Now, Mr. Wang Shuxian is Chairman of the Board. Section 5. Particulars about the Directors, Supervisors and Senior Executives and Employees I. Particulars about directors, supervisors and senior executives (1) Basic information Table 1 Annual payment Name Title Gender Age Office term Note (RMB) Chairman of the Oct. 29, 2002- Drawing from Wang Shuxian Male 49 60000 Board Oct. 29, 2005 the Company Director, Oct. 29, 2002- Drawing from Shi Bainian Male 31 51840 General Manager Oct. 29, 2005 the Company Oct. 29, 2002- Drawing from Song Yushan Director Male 62 43200 Oct. 29, 2005 the Company Director, Deputy Oct. 29, 2002- Drawing from Wang Huilai Male 48 43200 General Manager Oct. 29, 2005 the Company Oct. 29, 2002- Drawing from Du Qingfeng Director Male 41 43200 Oct. 29, 2005 the Company Director, Deputy Oct. 29, 2002- Drawing from Lan Wenzhi Female 44 43200 General Manager Oct. 29, 2005 the Company Oct. 29, 2002- Drawing from Wang Enyuan Independent director Male 61 20000 Oct. 29, 2005 the Company Oct. 29, 2002- Drawing from Li Wei Independent director Male 32 20000 Oct. 29, 2005 the Company Oct. 29, 2002- Drawing from Wang Yaguang Independent director Male 50 20000 Oct. 29, 2005 the Company Wang Deputy General Oct. 29, 2002- Drawing from Male 26 43200 Zhengsong Manager Oct. 29, 2005 the Company Oct. 29, 2002- Drawing from Song Kuiwu Supervisor Male 62 19280 Oct. 29, 2005 the Company Oct. 29, 2002- Drawing from Li Xianfu Supervisor Male 57 10640 Oct. 29, 2005 the Company Oct. 29, 2002- Drawing from Sun Zhenyu Supervisor Male 40 27920 Oct. 29, 2005 the Company 7 Oct. 29, 2002- Drawing from Yao Fenglan Supervisor Female 37 10640 Oct. 29, 2005 the Company Oct. 29, 2002- Drawing from Xu Huafeng Supervisor Male 30 10640 Oct. 29, 2005 the Company Chief Financial Oct. 29, 2002- Drawing from Zhang Jing Male 32 19280 Supervisor Oct. 29, 2005 the Company Secretary of Board of Oct. 29, 2002- Drawing from Chen Zhiguo Male 30 19280 Directors Oct. 29, 2005 the Company Notes: Chairman of the Board Mr. Wang Shuxian is promoter of the Company, who holds 85,100,000 non-circulating shares of the Company at the year-begin, but 144,670,000 non-circulating shares at the year-end; deputy general manager Mr. Wang Zhengsong is one of the promoters of the Company, who holds 5,444,400 non-circulating shares of the Company at the year-begin, but 9,255,480 non-circulating shares at the year-end. The change in shares held by them is because the Company implemented the 2001 Profit Distribution Plan (bonus shares at the rate of 2 bonus shares for every 10 shares and convert the capital public reserve into share capital at the rate of 5 shares for every 10 shares) in the report year. The other directors, supervisors and senior executives of the Company have not hold shares of the Company. (2) Particulars about directors, supervisors holding the position in Shareholding Company Drawing the payment Name of Shareholding Title in Shareholding Name Office term from the Shareholding Company Company Company (Yes / No) Chengde North Industrial Song Yushan Legal Representative From 1999 to now No Corporation Chengde Dragon and Phoenix Song Yushan Legal Representative From Oct. 2002 to now No Dressing Co. Chengde Xiaban Town Song Yushan Legal Representative From 1999 to now No Hongxing Plastic Factory (3) Particulars about the annual payment of directors, supervisors and senior executives Directors, supervisors and senior executives in current office drew their payment from the Company totally amounting to RMB 505,520. Total annual payment of the top three directors drawing the highest payment was RMB 155,040; total annual payment of the top three senior executives drawing the highest payment was RMB 138,240. Allowance and subsidy of Wang Enyuan, Li Wei and Wang Yaguang, the independent directors of the Company, amounted to RMB 20,000 per year respectively. The Company reimbursed the reasonable charges according to the actual situation which independent directors attended the meeting of the Board, shareholders’ general meeting or exercise their functions and powers in accordance with the relevant laws 8 and regulations and Articles of Association. There are 17 directors, supervisors and senior executives in office at present. Three independent directors receive RMB 20,000 of allowance and subsidy respectively every year; the other 14 all receive payment from the Company. Of them, 2 persons enjoy over RMB 50,000 per year, 5 persons enjoy between RMB 40,000 to 50,000 per year respectively, 10 persons enjoys between RMB 10,000 to 30,000. (4) Leaving and reason of directors, supervisors and senior executives in the report period ① In the report period, the office term of the 1st Directors, Supervisors and Senior Executives of the Company has expired. The Company held Shareholders’ General Meeting to elect new Board of Directors at expiration of office terms on Oct. 29, 2002. After the renewal, the particulars about the 2nd Directors, Supervisors and Senior Executives were in the Table 1 of this section. ② The change of the members of the 2nd Board of Directors compared with the members of the 1st Board of Directors was as follows: Director Mr. Chen Qing left his post and Mr. Wang Enyuan was elected as Independent Director (The reason of his leaving: the Company received the Letter of Examination Opinions on Independent Director of Chengde Dixian Textile Co., Ltd. promulgated by CSRC Shijiazhuang Special Office on June 28, 2002, which states that since the Company has the debit and credit relationship of funds with Chengde Branch of Industrial and Commercial Bank of China, it suggests the Company adjust to Independent Director Mr. Chen Qing. The Company adjusted accordingly in the renewal). The other member of the Board of Directors remained unchanged. ③ After the renewal, the members of the 2nd Supervisory Committee remained unchanged in comparison with the 1st Supervisor Committee. ④ Particular about change in senior executives: The Company newly additional elected Mr. Wang Zhengsong as Deputy General Manager, who took charge the overseas affairs. Deputy General Manager Mr. Wang Huilai no longer concurrently took the post of Secretary of the Board of Directors and Mr. Chen Zhiguo was engaged as the Secretary of the Board of Directors. The other Senior Executives remained unchanged. II. Particulars about employees At the end of 2002, there were 9682 in-service employees, including 9274 production and piecework personnel, 78 sales personnel, 185 technicians, 43 financial personnel and 102 administrative personnel; of which 726 persons got the college and technical secondary school’s degree or above, taking 7.4% of the total number of employees. The Company implemented the employees labor insurance and welfare system stipulated by the relevant laws and regulations of local areas and the nation. 9 Section 6. Administrative Structure (I) Administration of the Company Strictly according to the Company Law, Securities Law and requirements of other relevant laws and regulations, the Company continuously improved the legal person administration structure of the Company, established modern enterprise system and standardized the operation of the Company. There is no significant difference between the actual administration of the Company and the normative documents on administration of listed companies released by China Securities Regulatory Commission. The major representation is as follows: (1) Shareholders and the Shareholders’ General Meeting: The Company set up Rules of Procedure of the Shareholders’ General Meeting, called and held the Shareholders’ General Meeting strictly according to the requirement of normative opinions of the Shareholders’ General Meeting and the procedure of the meeting was legal. Related transactions were fair and reasonable and the pricing basis has been fully disclosed. The Company didn’t provided guarantee for the shareholders and related parties. (2) Relation of the control shareholder and the listed company: The Company and the control shareholder are completely independent in terms of personal, assets, financing, organization and businesses and the Board of Directors, the Supervisory Committee and internal organization can operate independently. (3) Directors and the Board of Directors: The Company elected directors strictly according to the procedure stated in the Articles of Association and engaged independent directors according to relevant requirement. All directors can take the responsibilities in a diligent attitude on behalf of the maximum interest of the Company and the shareholders. The Board of Directors established Rules of procedure of the Board of Directors, implemented patiently the regulations of laws, rules and the Articles of Association of the Company, treated all shareholders fairly and concentrated on the interest of relevant beneficial parties. (4) Supervisors and the Supervisory Committee: The Supervisory Committee established Rules of procedure of the Supervisory Committee. The supervisors can take their duties and supervise over the compliance with laws and regulations of the implementation of the financing, directors, managers and other senior executives’ duties in a attitude responsible for all shareholders and protected the legal right and interest of the Company and the shareholders. (5) Performance evaluation and encouragement and binding mechanism: The Company perfected actively a fair and transparent performance evaluation criteria and encouragement mechanism for directors, supervisors and senior executives. Engagement of senior executives is open, transparent and in line with stipulations of laws and regulations. (6) For relevant beneficial parties: The Company has been fully respecting and safeguarding the legal rights and interests of the bank, other creditors, employees, customers and other parties of related interests. The Company kept the Company’s sustained development and realized the maximum interest of the shareholders. Meanwhile, the Company specially concentrate on the social welfare, environment protect and commonweal in the area. 10 (7) Information disclosure and transparency: The Company authorized the secretary to the Board of Directors to be responsibility for information disclosure, reception of the shareholders’ interviewing and consultation. The Company could disclose relevant information in a true, accurate, complete and timely manner strictly according to regulations of laws, legislations and the Articles of Association so as to ensure equal chance for all shareholders to obtain information. (II) Performance of Independent Directors The Board of Directors of the Company engaged 3 independent directors, taking one third of the directors of the Company according to the Guide Opinions for Establishing Independent Director System in Listed Companies released by CSRC. The independent directors played a full role in the Board of Directors and expressed their opinions for some significant issues of the Company and performed an active function on the scientific decision-making and normative operation of the Board of Directors and preserved the interest of the Company and all shareholders in a diligent and responsible attitude. (III) Separation in businesses, personal, assets, organization and financing of the Company and control shareholder. (1) In respect of personal: The labor, personal and wage management of the Company is completely independent and the manager, vice manager and other senior executives received salaries in the Company. (2) In respect of assets: The Company as an independent legal person has full property right of legal person and has independent production system, accessorial production system and auxiliary equipment. Industrial property right, trademark, non-patent technology and other intangible assets all belong to the listed company. The Company has independent purchase and sales system. (3) In respect of financing: The Company has independent financing department, whole, independent and normatively operated business accounting system and financial administration system and independent bank account. (4) In respect of organization independence: The Company’s organizations are wholly independent and the offices of the Company are wholly separated from the control shareholder. (5) In respect of business: The Company is independent with the control shareholder in terms of businesses and has independent and whole business and operation ability. (IV) Evaluation and encouragement mechanism of performance of senior executives The Company established Detailed Rules of General Manager to normalize the work of senior executives. Meanwhile, in the method of testing and evaluation, the Company confirmed the performance of senior executives according to respective indexes and implementation of work and added float reward on the basis of basic annual salary to mobilize the activeness of senior executives. The above personal was evaluated through testing by the Board of Directors and supervised by the Supervisory Committee. 11 Section 7. Particulars about Shareholders’ General Meeting (I) Holding of Shareholders’ General Meeting in 2002 In the report year, the Company has held one provisional shareholders’ general meeting and one annual shareholders’ general meeting. (1) The Company published the public notice on holding 2001 Annual Shareholders’ General Meeting on Securities Times and Hong Kong Ta Kung Pao dated Feb. 9,2002. The Annual Shareholders’ General Meeting was held in the meeting room on the 3rd floor of the Company at 9:00am on Mar.12, 2002(Xiaban Town of Chengde County). 8 shareholders and shareholders’ representatives attended the meeting, representing 150,366,962 shares, taking 69.9% of the total shares of the Company in compliant with the regulation of PRC Company Law and the Article of Association of the Company. The directors, supervisors and senior executives of the Company participated in the meeting as non-voting delegates. The meeting examined and approved the following proposals by voting. 1.Examined and approved 2001 Work Report of the Board of Director; 2.Examined and approved 2001 Annual Report; 3.Examined and approved 2001 Financial Auditor’s Report; 4.Examined 2001 Profit Distribution Proposal and 2002 Profit Distribution Policy; 5.Examined and approved the proposal on reengaging Andersen Company and Andersen · Huaqiang Certified Accountants as the domestic and international auditors respectively of the Company in 2002; 6.Examined and approved the proposal on Article of Association after amendment; 7.Examined and approved the reward of the directors and independent directors of the Company; 8.Examined and approved Rules of Procedure of the Shareholders’ General Meeting, Rules of Procedure of the Board of Directors and Rules of Procedure of the Supervisory Committee; 9.Examined and approved the proposal on the Company’s according with the condition of reissuing A-share; 10.Examined item by item the proposal on the project of applying for the reissuing A-share; 11.Examined the proposal on the feasibility of the investment project of the raised capital from the reissuing; 12.Examined and approved the proposal on using bank loan to make paper before the raised capital from the reissuing is collected and repaying bank loan with the raised capital after the success reissuing; 13.Examined and approved the proposal on the duration of the resolution of reissuing A-share; 14.Examined and approved the proposal on applying for the Shareholders’ General Meeting to authorize the Board of Directors to conduct the relevant matters of reissuing A share; 15.Examined and approved the proposal on conducting of non-distributed profit; 12 16.Examined and approved the explanation of the use of the last raised capital; 17.Examined and approved 2001 work report of the Supervisory Committee; The resolutions public notice of the Shareholders’ General Meeting was published on Securities Times and Hong Kong Ta Kung Pao dated Mar.13, 2002. (2) The Company published the public notice of holding the 1st extraordinary Shareholders’ General Meeting for the year 2002 on Securities Times and Hong Kong Ta Kung Pao dated Sep.28, 2002. The extraordinary Shareholders’ General Meeting was held in the meeting room on the 3rd floor of the Company at 9:00am on Oct.29, 2002(Xiaban Town of Chengde County). 7 shareholders and shareholders’ representatives attended the meeting, representing 238,917,003 shares, taking 69.9% of the total shares of the Company in compliant with the regulation of PRC Company Law and the Article of Association of the Company. The directors, supervisors and senior executives of the Company participated in the meeting as non-voting delegates. The meeting examined and approved the following proposals by voting. 1.Examined and approved the Article of Association of the Company after amendment; 2.Examined and approved Work Report of the 1st Board of Directors; 3.Examined and approved Work Report of the 1st Supervisory Committee; 4.Examined and approved the proposal on election at expiration of office terms of the Board of Directors; 5.Examined and approved the proposal on work allowance of independent directors; 6.Examined and approved the proposal on election at expiration of office terms of the Supervisory Committee; 7.Examined and approved the proposal on the Company in compliant with the condition of reissuing; 8.Examined item by item and approved the proposal on applying for reissuing not over 150 million domestically listed foreign shares and amended the 6th item of the proposal as follows according to the shareholder of the Company, Mr.Wang Shuxian’s suggestion: issuing method: issuing at a stipulated price in net work to the public investors and institution investors (excluding the forbidders by the law and regulations) and who opened the stock account of domestically listed foreign shares in Shenzhen Stock Exchange and the original shareholders holding circulated B shares may purchase at a some proportion or issuing in other methods allowed by China Securities Regulatory Commission. 9.Examined item by item and approved the proposal on applying for reissuing not over 100 million shares of RMB ordinary shares (A shares); 10.Examined and approved applying for the Shareholders’ General Meeting to authorize the Board of Directors to conduct the relevant matters of the reissuing; 11.Examined and approved the proposal on the duration of the resolutions of the reissuing; 12.Examined and approved the proposal on the feasibility of the investment project of the raised capital from the reissuing; 13.Examined and approved the proposal on conducting of non-distributed profit; 13 14.Examined and approved the explanation of the use of the last raised capital; 15.Examined and approved the proposal on using bank loan to make paper before the raised capital from the reissuing is collected and repaying bank loan with the raised capital after the success reissuing; 16.Examined and approved the proposal on changing of auditing institutions; 17.Examined and approved the proposal on establishing a special commission of the Board of Directors; 18.Examined and approved the proposal on management method of the raised capital’s use of Chengde Dixian Textiles Co., Ltd. 19.Examined and approved the proposal on actions regulations of the control shareholder of Chengde Dixian Textiles Co., Ltd. The resolutions public notice of the Shareholders’ General Meeting was published on Securities Times and Hong Kong Ta Kung Pao dated Oct.30, 2002. (II) Election and changing of the directors and supervisors of the Company In the report year, the directors, the supervisors and senior executives conducted the election at expiration of office terms. The members of the 2nd Board of Directors includes Wang Shuxian, Shi Bainian, Song Yushan, Du Qingfeng, Wang Huilai, Lan Wenzhi, Li Wei, Wang Yaguang, Wang Enyuan and among of them, Wang Yaguang, Wang Enyuan are independent directors. The independent director of Mr. Chen Qin left his post and Mr. Wang Enyuan was engaged as independent director. There is no change on other directors. The members of the 2nd Supervisory Committee includes Song Kuiwu, Li Xianfu, Yao Fenglan, Sun Zhenyu, Xu Huafeng and there is no change compared with the 1st Supervisory Committee. Section 8 Report of the Board of Directors Ⅰ. Discussion and analysis of the whole operation in the report period In the report period, the Company kept a good development trend and saw a big increase of the achievements. The output of main products, the income from main business lines and the profits from main business lines all increased by a big margin compared with the previous year. In 2002,the income from main business lines was RMB 463,087,869, an increase of 59.5% compared with the corresponding period of the previous year. The profit from main business lines was RMB 180,729,740, an increase of 61.9 % than that of the corresponding period of the previous year and the net profit realized was RMB 115,303,505, and increase of 73.3 % compared with the corresponding period of the previous year. The main reason was: (1) In the report period, the Company smoothly finished the technical renovation project invested with the raised proceeds, which made the quality and grade of the knitwear products further enhance and thus made the sales income and profits of knit wears steadily increase. (2) In the report period, the equipments of spinning and synthetic silk of Chengde Dixian Fashion Co., Ltd., a joint venture subsidiary of the Company, were 14 gradually put into production and operation with increasing output and steady quality, and formed the prosperous situation of production and marketing, besides, the sales income and profits increased by once compared with the corresponding period of the previous year, which was the main reason of the large increase of the performance of the Company at present. (3) In the report period, the Company mainly invested in the project of Chengde Industrial Papermaking Co., Ltd., which got along well. 200,000 tons of production equipments had been put into trial production and this papermaking company realized a sales income of RMB 44,994,783 and a net profit of RMB 7,383,191 in 2002. The project was a new industry to the Company, so some difficulties were unavoidable in the stage of installation debugging and trial production. However, the management of the Company had enough confidence and ability to complete this project successfully. After the project being put into the production and operation formally, it will impose large impact on the Company’s financial position and production and operating results. In the report period, the Company invested large funds in introducing equipments and the construction of the papermaking company, which made the circulating capital be negative temporarily, while the Board of Directors of the Company thought, along with the gradual input into production and operation of the investment projects of the Company, the fast increase of the main business will bring large funds to the Company and the Company shall positively carry through the direct and indirect financing, try hard to improve the liability structure of the Company and arrange the plan of production and operation in a reasonable and effective way so as to improve the situation of circulating capital. Ⅱ. The operation in the report year (Ⅰ) The main business scope and operation of the Company 1. Main business scope The main business of the Company is the production and sales of various knit wear, yarns, chemical fiber synthetic silks and various kinds of papers and their products. 2. Business operation (1) Classified according Income from main business Profit from main business to industries (In RMB) （In RMB） Textile and garments 420,321,226 171,175,460 industry Paper industry 42,766,643 9,554,280 At present, the income from main business lines and the business profits of the Company was arising from textile industry. (2) Classified according to the regions Income from main business Sales cost (In RMB) (In RMB) Sales abroad Asia 274,412,663 137,329,152 Sales at home 15 North China 30,171,372 23,427,275 South China 99,977,378 77,357,327 East China 49,546,456 37,352,769 Northeast 8,980,000 6,841,606 (3) Classified according to products Sales income of Sales cost Gross interest products (In RMB) (In RMB) rate Shinned yarn and synthetic silk 173,465,879 135,243,164 22.03% Garments 246,855,347 113,902,602 53.86% Papers 42,766,643 33,212,363 22.34% In the report year, the Company has great input in the papermaking project. After the project is put in normal operation, the Company’s business achievement will be greatly improved. Then the Company’s main business will be changed from garments and textile into garments and textile and papermaking in parallel. (Ⅱ) Business operation and achievement of the Company’s main holding subsidiaries and share-holding companies Hebei Xiabancheng Knit Wears Co., Ltd. is the Company’s wholly owned subsidiary, with a registered capital of USD4 million. Its main product is knit wears and it has an assets scale of RMB 408,776,470. In the report year, it completed a sales income of RMB 258,821,568 with a total profit of RMB 98,428,692 and net profit of RMB93, 136,155. Chengde Dixian Fashion Co., Ltd. is a Sino-foreign joint venture company, which was jointly invested by Japanese Guoyufa Company and the Company. It has a registered capital of USD24 million. The Company holds 75% equity of this company, whose main products are yarns and synthetic silks. The asset of this company is RMB 476,029,859. In the report year, this joint venture company realized a sales income of RMB 229,574,334 with a net profit of RMB 32,044,178. Chengde Industrial Papermaking Co., Ltd. was founded on May 9, 2001, which was a papermaking company jointly established by Hong Kong Zhanxi International Limited and the Company, with a registered capital of USD100 million. The Company holds 75% equity of this company whose main products are varied kinds of papers. The projects of this joint venture are still in construction and partial equipments have already been put into trial production. In the report period, the papermaking company realized a sales income of RMB 44,994,783 and a net profit of RMB 7,383,191. Chengde North Japan Textile Co., Ltd. is a Sino-foreign manufacturing joint stock enterprise jointly set up by the Company, North Japan Textile Co., Ltd. of Japan and Y’S Corporation Co. Ltd. (hereinafter referred to as “ Yufa Company”), which got the business license of enterprise’s legal person on Dec. 13, 2002 with a registered capital of RMB USD1 million. The Company holds 50% of its equity while North Japan 16 Textile and Yufa Company holds 40% and 10% of its equity respectively. Ended Dec. 31, 2002, the registered capital of this company had not yet been put into and thus this company had not yet started the production and operation formally. Jinfu Investment is the wholly owned overseas subsidiary of the Company, registered to establish in Weijing Isle controlled by Britain with the authorized capital of USD$50,000 and the issuance capital of USD$1. At present, except of owning 25% equity of Xiabancheng Knit wears, Jinfu Investment is mainly engaged in the collection of the relevant materials of European and American markets for the Company and the market expansion. (Ⅲ) Major suppliers and customers The total purchase amount of the top five suppliers accounts for 12% of the Company’s total purchase amount. The total sales amount of the top five customers accounts for 47% of the Company’s total sales amount. (Ⅳ) Problems, difficulties and solutions occurred during the Company’s operation (1) The papermaking industry is a newly involved industry of the Company, with huge investment scale and high requirement for arts and crafts and technology, which a capital and labor-intensive industry. Since the papermaking industry is the Company’s rising industry, the Company is still not familiar in the aspects of technology and management. There is still a shortage of skilful technicians and experienced managers, which will restrict the normal operation of the papermaking industry of the Company within certain period and influence the maximization of the Company’s profit to a certain extent. In view of the problems and shortages of the Company in the papermaking industry, the Company has worked out the solution plan. The Company has employed 20 professionals in papermaking at home and abroad and assigned them to each production loop. Meanwhile, the employees working in the papermaking industry are strictly selected. Those young people with high cultural level, strong professional ability and fast technology learning are chosen to make pre-post training before going to their post, which ensures the high quality and excellence of papermaking employee team and In addition, the Company will also send some technical personnel to the famous domestic and foreign papermaking producers to learn their advantages and then serve the production and business management of Dixian Company to ensure the realization of papermaking industry as a new point of economic increase. (2) In order to catch the opportunity to enter into the market, before the implementation of additional issuance, the Company invested large funds in 17 introducing the equipments and the construction of the papermaking company, which made the circulating capital become negative temporarily. Thus, the Company shall carry through positively the direct and indirect financing work and try hard to improve the liability structure of the Company. The Company shall establish the actual workable capital use plan, arrange the capital use in a reasonable way and strictly invest and manage the fixed assets so as to ensure the application of the production capital and ensure the normal operation of the Company’s circulating capital. (Ⅲ) Investment of the Company (Ⅰ) Investment of the Proceeds Raised through Share Offering There was no such situation that the application of raised proceeds in the report period or proceeds raised before the report period continuing to the report period. (Ⅱ) Investment of the proceeds not Raised by Share Offering In the report period, the Company continuously increased the investment to the Papermaking Company with a newly increased investment of RMB132, 555,000. At present, the project of Joint Stock Company is still in the serious process of construction. Partial production line has been put into trial production. In 2002, Papermaking Company realized a sales income of RMB 44,994,783 and a net profit of RMB 7,383,191. (Ⅳ) Financial position of the Company Unit: in RMB’000 Amount of Increase/decreas End of 2002 End of 2001 increase/decrease e rate (%) 1.Total assets 1,839,661 1,173,490 666,170 56.8% Including: 1,542,351 958,668 583,683 60.9% non-current assets Current assets 297,310 222,076 75,234 33.9% 2. Total liabilities 1,025,540 583,552 442,028 75.7% Including: 250,960 213,763 37,197 17.4% long-term liabilities Current liabilities 774,580 379,789 394,791 104% 3. Shareholders’ 553,728 449,820 103,908 23.1% equity 4. Profit from core 180,730 111,643 69,087 61.9% business 5. Net profit 115,303 66,534 48,768 73.3% Net increase of 3,373 -187,123 cash and cash equivalents Main reasons of increase/decrease: Total assets: The Company has been carrying out technical innovation and extension projects in big scale and the production scale has been expanded. The fixed assets and circulating funds have been increased by a big margin. 18 Liabilities: Due to the technical innovation and expansion of the production and the enlargement of the production scale of the Company, the bank loan and other loans increased. Shareholders’ equity: Profit created in the report year: Profit from the main business: the increase of the output of all the products and the production and sales of newly added synthetic silks and papers. Net profit: due to the increase of the income from main business (Ⅴ) In the report year, no significant changes have taken place in the production and operation environment, macro-policies, laws and regulations and thus the Company’s financial position and operation achievements have not been significantly affected. (Ⅵ) PricewaterhouseCoopers Zhongtian Certified Public Accountant & Co. and PricewaterhouseCoopers (China) Co., Ltd. provided standard unqualified domestic and international Auditors’ Report respectively for the Company. (Ⅶ) Business development plan of new year 1. In 2003, the Company shall continue to reinforce the internal management and cost control, dig the internal potential, improve the efficiency by enhancing management and try to offer better return to the investors. 2. The Company shall keep and expand the sales of products in the Japanese market, simultaneously, try hard to increase the export of products to the areas of Korea and Hongkong. It will positively develop the domestic market, establish the sales network of domestic products, increase the sales shares of domestic market and ensure the connection of production and sales of the Company’s products. 3. To adjust the product structure and look for new point of profit increase. The Company shall span into the industry of papermaking while keeping the advantages of products of knitwears and textiles. To positively bring the efficiency of spinning and papermaking equipments into play and increase the output of products of cotton yarn and papermaking so that the Company’s main business will develop into the parallelism of knit wears, textiles and papermaking, oriented into the diversified development. (VIII) Routine work of the Board of Directors (Ⅰ).The meetings and resolutions of the Board of Directors in the report year, In 2002, the Board of Directors had totally held nine Board Meetings: 1. The 13th meeting of the first Board of Directors was held on the morning of Feb. 7, 2002. The meeting examined and adopted the following resolutions: 1) 2001 Work Report of the Board of Directors 2) 2001 Annual Report and its Summary 19 3) 2001 Annual Financial Auditors’ Report 4) 2001 Profit Distribution Proposal 5) Proposal on Renewal of Arthur Andersen Co. and Arthur Andersen· Huaqiang Certified Public Accountants as the International and Domestic Auditors of the Company in 2002 Respectively 6) Proposal of the Articles of Associations After Revision 7) Proposal on the Remuneration of Directors and Independent Directors 8) Rules of Procedures of Shareholders’ General Meeting and Rules of Procedures of the Board of Directors After Revision 9) Proposal on the Company’s Compliance with the Condition of Issuing Additional A Shares 10) Proposal of Application of Issuance Plan of Issuing Additional A Shares 11) Proposal of Feasibility of Planned Investment Project of Proceeds Raised Through This Additional Issuance 12) Proposal on Using Bank Loan to Construct the Papermaking Project Before Gaining the Proceeds Raised Through Issuing Additional A Shares and Using the Raised Proceeds to Repay the Bank Loan After the Success of Additional Issuance 13) Proposal of Period of Validity of the Resolution of This Additional Issuance of A Shares 14) Proposal on Requesting Shareholders’ General Meeting to Authorized the Board of Directors to Deal With the Relevant Issues of This Additional Issuing A Shares 15) Proposal on Disposal Plan of Undistributed Profit 16) Proposal on Holding 2001 Shareholders’ General Meeting The aforesaid resolutions were published on Securities Times and Hong Kong Ta Kung Pao dated Feb 9, 2002. 2. The 14th Meeting of the 1st Board of Directors was held in the Conference Room in the 3/F, Dixian Building on the morning of Feb. 26, 2002. The following resolutions were adopted in the Meeting: 1) Explanation of the Application of Proceeds Raised Through the Previous Share Offering. 2) The Meeting examined the Provisional Proposal on Increase of the Board of Directors’ Explanation of Application of Proceeds Raised Through the Previous Share Offering In Annual Shareholders’ General Meeting promulgated by the Supervisory Committee, and agreed to submit this proposal as the new proposal to 2001 Shareholders’ General Meeting for examination and approval. The aforesaid resolutions were published on Securities Times and Hong Kong Ta Kung Pao dated Feb 27, 2002. 3.The 15th Meeting of the 1st Board of Directors was held on April 22, 2002. The following resolutions were examined and adopted in the Meeting: The 1st Quarter Report of 2002 of the Company The aforesaid resolutions were published on Securities Times and Hong Kong Ta Kung Pao dated April 22, 2002. 4. The 16th Meeting of the 1st Board of Directors was held on the morning of May 29, 2002. The following resolutions were examined and adopted in the Meeting: 1) Issue of Investment Increase and Adjustment of Investment Proportion of 20 Both Parties of the Company’s Joint Subsidiary Chengde Industrial Papermaking Co., Ltd. 2) Self-inspection Report of Establishing Modern Enterprise System of Listed Companies 3) System of Information Disclosure of Enterprises 4) Proposal on the Company’s Compliance with Information Disclosure Pact of Listed Companies of Hebei The aforesaid resolutions were published on Securities Times and Hong Kong Ta Kung Pao dated May 30, 2002. 4. The 17th Meeting of the 1st Board of Directors was held on June 12, 2002. The following resolutions were examined and adopted in the Meeting: Proposal on the Company’s Repaying the Old Loans and Borrowing the New Loans. The aforesaid resolutions were published on Securities Times and Hong Kong Ta Kung Pao dated June 13, 2002. 5. The 18th Meeting of the 1st Board of Directors was held on Aug. 26, 2002. The following resolutions were examined and adopted in the Meeting: 1) 2002 Semi-annual Report and its Summary 2) 2002 Semi-annual Financial Auditors’ Report 3) 2002 Semi-annual Profit Distribution Plan The aforesaid resolutions were published on Securities Times and Hong Kong Ta Kung Pao dated Aug. 28, 2002. 6. The 19th Meeting of the 1st Board of Directors was held on Sept. 25, 2002. The following resolutions were examined and approved in the Meeting: 1) Proposal on Revision of Articles of Association 2) Work Report of the 1st Board of Directors 3) Proposal on Renewal Election of Board of Directors 4) Proposal on Work Allowance of Independent Directors 5) Proposal on the Company’s Compliance with the Condition of Additional Issuance 6) Proposal on Issuance Plan of Application of Additional Issuing No More Than 150,000,000 Domestic Listed Foreign Shares (B Shares) or No More Than 100,000,000 RMB Ordinary Shares (A Shares) 7) Proposal on Requesting Shareholders’ General Meeting to Authorize the Board of Directors to Deal With the Relevant Issues of the Additional Issuance 8) Proposal on Period of Validity of the Additional Issuance 9) Proposal on the Feasibility Plan of Planned Investment Project of Proceeds Raised Through the Additional Issuance 10) Proposal on Disposal Plan of the Undistributed Profit 11) Explanation of the Board of Directors on the Application of the Proceeds Raised Through the Previous Share Offering 12) Proposal on Using Bank Loan to Construct the Papermaking Project Before Gaining the Proceeds Raised Through the Additional Issuance and Using the Raised Proceeds to Repay the Bank Loan After the Success of Additional Issuance 13) Proposal on Change of Auditors 21 14) Proposal on Establishment of Relevant Special Committee of the Board of Directors 15) Proposal on the Application Management Measure of Raised Proceeds of Chengde Dixian Textile Co., Ltd. 16) Proposal on the Normative Operation of Control Shareholders of Chengde Dixian Textile Co., Ltd. 17) Proposal on Holding the 1st Extraordinary Shareholders’ General Meeting of 2002 The aforesaid resolutions were published on Securities Times and Hong Kong Ta Kung Pao dated Sept. 28, 2002. 7. The 20th Meeting of the 1st Board of Directors was held on Oct. 15, 2002. The 3rd Quarter Report of 2002 was examined and adopted in the Meeting. The aforesaid resolutions were published on Securities Times and Hong Kong Ta Kung Pao dated on Oct. 16, 2002. 8. The 1st Meeting of the 2nd Board of Directors was held on Oct. 29, 2002. The following resolutions were examined and adopted in the Meeting: 1) Election of Mr. Wang Shuxian as Chairman of the Board of Directors 2) Engagement of Mr. Shi Bainian as the Company’s General Manager according to the nomination of the Chairman of the Board of Directors 3) Engagement of Mr. Wang Huilai and Ms. Lan Wenzhi and Mr. Wang Zhengsong as the Company’s Deputy General Manager according to the nomination of General Manager 4) Engagement of Mr. Zhang Jing as the Company’s Chief Financial Supervisor 5) Engagement of Mr. Chen Zhiguo as the Company’s Secretary of the Board of Directors and Mr. Du Qingfeng as the Securities Affairs Representative 6) Election of Mr. Wang Shuxian, Mr. Du Qingfeng and Mr. Li Wei as the Committeemen of the Strategy Committee of the Board of Directors and Mr. Wang Shuxian as the Committee Director 7) Election of Mr. Wang Huilai, Mr. Wang Yaguang and Mr. Wang Enyuan as the Committeemen of the Auditing Committee of the Board of Directors and Mr. Wang Yaguang as the Committee Director The aforesaid resolutions were published on Securities Times and Hong Kong Ta Kung Pao dated Oct. 30, 2002. (Ⅱ). Implementation of the resolutions of Shareholders’ General Meeting by the Board of Directors: In the report year, the Board of Directors had seriously implemented all the resolutions adopted by the Shareholders’ General Meeting strictly according to the resolutions and authorization of the Shareholders’ General Meeting in accordance with the PRC Company Law, the Securities Law and the Articles of Association, and other laws and regulations with the details as follows: 1. Implementation of Profit Distribution of 2001 On March 12, 2002, the Company held 2001 Shareholders’ General Meeting and approved the 2001 Profit Distribution Plan: the Company distributed cash dividends and bonus shares to the shareholders at the rate of cash RMB 0.53 and 2 bonus shares respectively for every 10 shares and converted the capital public reserve into share capital of 5 shares for every 10 shares based on the total share capital of 215,000,000 22 shares as at the end of 2001. The aforesaid resolutions were published on Securities Times and Hong Kong Ta Kung Pao dated March 13, 2002. The Company published the Public Notice of Implementation of Dividend Distribution and Share Capital Conversion on April 2, 2002. The last trading date of the dividend distribution was on April 8, 2002 and the date of ex dividend (ex right) was on April 9, 2002. The aforesaid distribution and conversion of bonus shares was directly booked into the securities account of the shareholders on April 11, 2002. The beginning date of B bonus shares trading was on April 12, 2002. The dividends of B shareholders were accounted into the custodian securities brokers or custodian banks and the dividend of the initiators had been distributed directly by the Company. 2.In the report period, after the approval of Shareholders’ General Meeting, the Company planned to issue additional B shares or A shares and the Board of Directors positively organized the implementation, but the Company’s issuing additional shares still must pass the approval of China Securities Regulatory Commission. In order not to miss the opportunity and to catch it, in the report year the Company made use of the bank loans and self-owned funds to carry through the construction of the raised proceeds project according to the authorization of Shareholders’ General Meeting although the raised proceeds of the Company was still not available. Ⅸ. Preplan of Profit Distribution and Converting Capital Public Reserve into Share Capital as of the year Audited by PricewaterhouseCoopers Zhongtian Certified Public Accountants & Co., and PricewaterhouseCoopers (China) Co., Ltd. as per Chinese Accounting Standards and International Accounting Standards respectively, the net profit as of the year of 2002 of the Company was both RMB 115, 303,505. According to the relevant regulations of Company Law and the Company’s Articles of Association, 10% of the net profit would be appropriated as statutory public reserve amounting to RMB 11, 530,350 and 5% of the net profit would be appropriated as the statutory public welfare fund amounting to RMB 5,765,175. In addition to the balance profit after distribution in the previous year, the profit available for distribution for shareholders was RMB 100, 973,386. Due to the large capital investment of the project of joint stock papermaking of the Company, to meet the interests of both the development of the Company and the shareholders, the Board of Directors decided the preplan of profit distribution as of 2002 of the Company as: based on the total share capital of RMB 365,500,000 shares at the end of 2002, the Company planned to distribute two bonus shares for every 10 shares and carried down the balance to the next year. The Company would not convert any capital public reserve into share capital in the report year. This profit distribution preplan should be submitted to the Shareholders’ General Meeting for examination. Ⅹ. Analysis of particulars about the change in accounting policy of the Board of Directors Commencing from January 1, 2002, the Company’s accounting disposal measure of income tax was revised from the way of taxation payable to tax payment’s influence 23 on accounting and according to the regulation of Enterprise Accounting Rules, the Company applied retroactive adjustment measure to the change of this accounting policy, which impacted on the net profit and relevant net profit of each year with details as follows: Unit: RMB In 2002 In 2001 The Group Increase of net profit — 439,000 Increase of withdrawal of surplus public reserve — (65,850) Increase of undistributed profit in year-beginning 746,300 373,150 Decrease of capital public reserve (4,390,000) (4,390,000) Accumulative increase of surplus public reserve 131,700 131,700 Accumulative decrease of net assets (3,512,000) (3,512,000) The Company Increase of net profit — 439,000 Increase of withdrawal of surplus public reserve — (65,850) Increase of undistributed profit in year-beginning 746,300 373,150 Decrease of capital public reserve (4,390,000) (4,390,000) Accumulative increase of surplus public reserve 131,700 131,700 Accumulative decrease of net assets (3,512,000) (3,512,000) Ⅺ. Other issues In the report year, the newspapers for information disclosure designated by the Company were Securities Times and Hong Kong Ta Kung Pao, which remained unchanged. Section 9. Report of the Supervisory Committee (I) Meetings and resolutions of the Supervisory Committee in the report period In the report year, the Supervisory Committee had held four meetings with the details as follows: 1.The 7th meeting of the 1st Supervisory Committee was held in the meeting room on the 3rd floor of the Company’s office building on Feb.7, 2002. The meeting examined and approved the following resolutions. (1) 2001 Work Report of the Supervisory Committee; (2) 2001 Financial Auditors’ Report. (3) 2001 Annual Report and its summary (4) Rules of Procedure of the Supervisory Committee after adjustment The aforesaid resolutions of the meeting were published in Securities Times and Ta Kung Pao respectively dated Feb.9, 2002 (5) The 8th meeting of the 1st Supervisory Committee was held in the morning of Aug. 26, 2002. The meeting examined and approved the following resolutions: (6) 2002 Semi report and the Summary. (7) 2002 Interim Financial Auditors’ Report. (8) 2002 Interim Profit Distribution Preplan The aforesaid resolutions of the meeting were published in Securities Times and Ta Kung Pao respectively dated Aug.28, 2002. (9) The 9th meeting of the 1st Supervisory Committee was held in the morning of Sep.25, 2002. The meeting examined and approved the following resolutions: 24 a. Work Report of the 1st Supervisory Committee b. Proposal on Election at the Expiration of Office Terms of the Supervisory Committee The aforesaid resolutions of the meeting were published in Securities Times and Hong Kong Ta Kung Pao respectively dated Sep.28, 2002. (10) The 10th meeting of the 1st Supervisory Committee was held in the morning of Oct.29th, 2002. The meeting examined and approved the following resolutions: Mr. Song Kuiwu was elected the Chairman of the 2nd Supervisory Committee in the meeting. The aforesaid resolution of the meeting was published in Securities Times and Hong Kong Ta Kung Pao respectively dated Oct.30, 2002. (II) Operation According to the Law The Supervisory Committee conducted supervision over the procedures of holding boarding meetings, resolutions, implementation of the resolutions of the Shareholders’ General Meeting by the Board of Directors, status of the senior executives in implementing their duties and the Company’s management system. In our opinion, in 2002, the Board of Directors carried out the operation in a standardized way strictly according to the PRC Company Law, the Securities Law, the Listing Rules, the Articles of Association and other relevant rules and regulations. The directors have been working seriously and with responsibility and made operation decision in a scientific and reasonable way. They have further improved the internal management and control system, established good internal control mechanism. We have found no directors or senior executives ever involved in any actions against the law, rules and regulations, the Articles of Association or harmful to the Company’s interest. (III) Financial Inspection We have made careful inspection of the Company’s financial system and financial position. In our opinion, the Company’s financial report of the year 2001 has truly reflected the Company’s financial position and operation achievements. The auditors’ report and the auditors’ opinion on the relevant issues produced by PricewaterhouseCoopers (China) Co., Ltd. and PricewaterhouseCoopers Zhongtian Certified Public Accountants & Co. are objective and fair. (IV) In our opinion, the Company’s related transactions have been conducted in a fair and reasonable way and there has existed no issues harmful to the shareholders’ right or interest or in connection with loss of the Company’s assets. (V) Implementation of the Resolutions of the Shareholders’ General Meeting Members of the Supervisory Committee have participated in board meetings and the Shareholders’ General Meeting as non-voting delegates. The Supervisory Committee has no objection against various reports and proposals submitted by the Board of Directors to the Shareholders’ General Meeting for examination. The supervisors have conducted supervision over the implementation of the resolutions of the Shareholders’ General Meeting. In our opinion, the Board of directors has seriously implemented the resolutions of the Shareholders’ General Meeting. (VI) Other issues necessary to be clarified The domestic and the international auditors engaged by the Company have produced unqualified auditors’ report for the Company’s 2002 Financial Statements. We have nothing to clarify. Section 10. Significant Events (I) In the year 2002, the Company had been involved in one lawsuit The Company appealed to require Tianjin Taida Co., Ltd. for the payments for goods 25 and the compensation of over RMB9.8 million and continuing the implementation of the contracts. The court has frozen the account capital of RMB10 million of Tianjin Taida Co., Ltd. After the investigation based on the witnesses, Hebei Province Chengde Intermediate People’s Court has judged to end the Contract of Machining Taida Cotton Warm Underwear assigned by the Company and Tianjin Taida Co., Ltd. and meanwhile require Tianjin Taida Co., Ltd. to pay the machining expenses, payments for semi finished goods, keeping expenses and payment for breaching the contract of total RMB7, 669, 962.71. Tianjin Taida Co., Ltd. has appealed to Hebei Province Higher Court and at present, the lawsuit has no final result. (II) In the report year, the Company had been involved in no material purchase, sales of assets, or any assets absorption, or any merger. (III) Related Transactions (refer to the Auditors’ Report) (IV) Important Contracts and Implementation In the report year, the Company had implemented various business contracts in a normal way and had never been involved in any significant dispute arising from any contract. (1) In the report year, the Company had never kept as custodian, contracted or leased any other company’s assets and vice versa. (2) In the report year, the Company provided the guarantee for the loan of RMB60, 000,000 of Guangdong Rieys Co., Ltd. in a mutual guarantee method. The public notice of the guarantee was published on Securities Times and Ta Kung Pao dated Sep.26, 2002. (3) In the report year, the Company had never entrusted any other party to manage the Company’s cash assets and has no plan of entrusting any party to manage the assets in the future either. (V) The commitments of the Company and the shareholders holding over 5% of the Company’s total shares in the report year or the time extending to the report year. The Company’s 2001 Profit Distribution Resolution is that Based on the total share capital of 215,000,000 shares ended 2001, the Company planed to distribute cash dividend at the rate of RMB 0.53 for every 10 shares (including tax) and bonus shares at the rate of 2 bonus shares for every 10 shares. In addition, the Company planed to convert the capital public reserve into share capital at the rate of 5 shares for every 10 shares. The Company has implemented the profit distribution resolution in April 2002. (VI) The Company received the notice of PricewaterhouseCoopers Zhongtian Certified Public Accountants & Co. and learned that the business in Hong Kong and the mainland in China of Andersen · Huaqiang Certified Public Accountants which was responsible for the Company’s audit had been formally merged into the PricewaterhouseCoopers Zhongtian Certified Public Accountants & Co. Thus, the audit of the Company’s financial report for the year 2002 is as follows: PricewaterhouseCoopers Zhongtian Certified Public Accountants & Co. is the domestic audit and PricewaterhouseCoopers (China) Co., Ltd. is the international audit. The expenses of audit on 2002 semi report and annual report was totally RMB 1.4 million. PricewaterhouseCoopers (China) Co., Ltd. and PricewaterhouseCoopers Zhongtian Certified Public Accountants & Co. have provided the audit service for the Company for one year. (VII) In the report year, the Company, the Board of Directors or its directors, the Supervisory Committee or its supervisors and other senior executives had never been investigated, underwent administrative punishment or had been criticized through public notice by China Securities Regulatory Commission; and had never been condemned by the stock exchange in public either. 26 China Securities Regulatory Commission Shijiazhuang Office conducted a circuiting inspection of the Company from Nov. 25, 2002 to Nov. 30, 2002 and issued the Notice about Neatening and Reforming of Chengde Dixian Textile Co. Ltd. in a Stipulated Time which arose the high emphasis of the Company. The Company held special meetings in time to neaten and reform the problems brought forward in the inspection. Neatening and Reforming Report was published on Securities Times and Ta Kung Pao dated Jan.10, 2003. (VIII) In the report year, the Company, Japanese Northern Japan Textiles Co., Ltd. and Y’S Corporation Co., Ltd. established the joint venture named Chengde Northern Japan Textiles Co., Ltd. whose registered capital is USD1 million. The three parties hold 50%, 40% & 10% share equity respectively of the new company, which deals with production and sales of spring silk with high capacity. (IX) In the report year, the Company’s subsidiary, Chengde Dixian Fashion Co., Ltd and Japan Shanxia Commerce Co., Ltd. established a joint venture named Chengde Banhe Copy Fabric Co., Ltd. whose registered capital is USD15 million. The two parties invested USD5.25 million and USD9.75 million, taking 35% and 65% of registered capital respectively of the new company which deals with production and sales of superior copy clothing, yarn and compound silk. (X) In the report year, the Board of Director, the Supervisory Committee and other senior executives conducted an election at expiration of office terms. Section 11. Financial Report Auditors’ Report To the shareholders of Chengde Dixian Textile Co., Ltd. (Incorporated in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Chengde Dixian Textile Co., Ltd. (the “Company”) and its subsidiaries (the “Group”) as of 31 December 2002 and the related consolidated income and cash flow statements for the year then ended. These consolidated financial statements 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 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 financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2002 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers 7 April 2003 9.2 Accounting statement 27 CHENGDE DIXIAN TEXTILE CO., LTD. CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 For the year ended 31 December Notes 2002 2001 RMB’000 RMB’000 Sales 3,28(a) 463,088 290,283 Cost of sales 28(a) (282,358) (178,640) Gross profit 180,730 111,643 Other operating income (378) 1,990 Distribution costs (11,945) (6,138) Administrative expenses 28(e) (19,183) (19,851) Profit from operations 4 149,224 87,644 Finance costs - net 6 (9,936) (7,066) Profit before tax 139,288 80,578 Income tax expense 7 (13,886) (9,853) Profit before minority interest 125,402 70,725 Minority interest 19 (10,099) (4,191) Net profit 115,303 66,534 Dividends 8 11,395 22,790 Earnings per share - Basic 9 RMB0.32 RMB0.18 - Diluted 9 N/A N/A The accompanying notes form an integral part of these financial statements. CHENGDE DIXIAN TEXTILE CO., LTD. 28 CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2002 Notes 31 December 2002 31 December 2001 RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 10 1,333,976 751,875 Land use right 11 87,698 81,655 Prepayment for property, plant and equipment 28(d) 69,895 122,385 Investment in an associate 12 11,000 - Prepayment for investment 12 36,338 - Deferred tax assets 21 969 - Other non-current assets 2,475 2,753 1,542,351 958,668 Current assets Inventories 13 102,545 94,961 Trade receivables 14,28(d) 84,844 48,796 Other receivables and prepayments 15,28(d) 18,029 49,801 Cash and bank balances 16 91,892 28,518 297,310 222,076 Total assets 1,839,661 1,180,744 EQUITY AND LIABILITIES Capital and reserves Share capital 17 365,500 215,000 Reserves 18 188,228 234,820 553,728 449,820 Minority interest 19 260,393 137,372 Non-current liabilities Borrowings 20(a) 220,000 180,000 Deferred tax liabilities 21 3,073 3,512 Other non-current liabilities 22 27,887 30,251 250,960 213,763 Current liabilities Trade payables 23,28(d) 172,948 44,166 Other payables and accrued charges 24,28(d) 181,026 28,415 Current income tax liabilities 2,430 267 Borrowings 20(b) 418,176 306,941 Total liabilities 774,580 379,789 Total equity and liabilities 1,839,661 1,180,744 The accompanying notes form an integral part of these financial statements. CHENGDE DIXIAN TEXTILE CO., LTD. 29 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2002 Reserves Share Share Revaluation Statutory Retained capital premium reserve reserves earnings Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note17) (Note 18) (Note 18) (Note 18) (Note 18) For the year ended 31 December 2002 and the year ended 31 December 2001 Balance at 1 January 2001 215,000 128,438 24,819 14,223 23,596 406,076 Net profit for the year - - - - 66,534 66,534 Appropriation from net profit (Note 18) - - - 9,980 (9,980) - Dividends - - - - (22,790) (22,790) Balance at 31 December 2001 215,000 128,438 24,819 24,203 57,360 449,820 Net profit for the year - - - - 115,303 115,303 Appropriation from net profit (Note 18) - - - 17,295 (17,295) - Transfer from retained earnings and reserves to share capital (Note 17) 150,500 (107,500) - - (43,000) - Dividends (Note 18) - - - - (11,395) (11,395) Balance at 31 December 2002 365,500 20,938 24,819 41,498 100,973 553,728 The accompanying notes form an integral part of these financial statements. CHENGDE DIXIAN TEXTILE CO., LTD. 30 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 For the year ended 31 December Notes 2002 2001 RMB’000 RMB’000 Cash flows from operating activities Cash generated from operations 25 328,522 100,226 Interest paid (10,394) (27,802) Taxes paid (13,130) (16,665) Net cash generated from operating activities 304,998 55,759 Cash flows from investing activities Purchases of property, plant and equipment (382,554) (310,225) Time deposits placed (60,000) - Interests received 1,090 9,526 Net cash used in investing activities (441,464) (300,699) Cash flows from financing activities Borrowings raised 151,235 112,778 Payment of dividends (11,395) (54,961) Net cash generated from financing activities 139,840 57,817 Increase/(Decrease) in cash and cash equivalents 3,374 (187,123) Cash and cash equivalents at beginning of year 28,518 215,641 Cash and cash equivalents at end of year 16 31,892 28,518 The accompanying notes form an integral part of these financial statements. CHENGDE DIXIAN TEXTILE CO., LTD. 31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED 31 DECEMBER 2002 1. General Chengde Dixian Textile Co., Ltd. (the “Company”) was incorporated as a joint stock limited company in the People’s Republic of China (the “PRC”) on 3 November 1999 pursuant to a reorganization in preparation for the listing of its shares. Pursuant to the approval document No. [2000]121 issued by the China Securities Regulatory Commission dated 29 August 2000, the Company issued 115,000,000 domestically listed foreign shares (“B shares”) with a par value of RMB1 each. The Company’s B shares were listed on the Shenzhen Stock Exchange on 29 September 2000. Pursuant to the resolution of the shareholders’ meeting dated 29 October 2002, the Company planned to issue not more than 100,000,000 shares of RMB Ordinary Shares (“A shares”) or not more than 150,000,000 shares of B shares. The Company and its subsidiaries (hereinafter collectively referred to as the “Group”) are principally engaged in the production and sale of clothes, synthetic fibers and various kinds of paper products. The address of the registered office of the Company is Xiaban Town, Chengde County, Hebei Province, the PRC. The total number of employees of the Group as of 31 December 2002 was approximately 9,682 (31 December 2001: approximately 9,339). 2. Accounting policies (a) Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) including International Accounting Standards and interpretations issued by the International Accounting Standards Board. This basis of accounting differs from that used in the preparation of the Company's statutory financial statements (“PRC statutory financial statements”). The PRC statutory financial statements of the Company and its subsidiaries comprising the Group have been prepared in accordance with the relevant accounting principles and regulations applicable to them, as appropriate in the PRC. Appropriate adjustments have been made to the PRC statutory financial statements to conform with IFRS. Differences arising from the restatement have not been incorporated in the statutory accounting records of the Group. The consolidated financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below. The consolidated financial statements have been prepared under the going concern basis. 32 2. Accounting policies (Cont’d) (a) Basis of preparation (Cont’d) As of 31 December 2002, the Group had a negative working capital of approximately RMB477,270,000 and capital commitments of approximately RMB294,150,000 (Note 27 (a)). This was mainly due to the Group’s significant capital expenditures in relation to the establishment of the paper making business of Chengde Xingye Papermaking Co., Ltd. (“Xingye Papermaking”), a subsidiary of the Company. The directors considered that, with the commencement of operations of this business in 2002, sales of the Group would increase and would bring in additional cash flows to the Group. In addition, the Company renewed short-term bank borrowings of RMB160,000,000 in January 2003 and such bank borrowings will mature in 2006. The Company has also obtained consent from related banks for the increase of the Company’s banking facilities in 2003. The directors are of the opinion that the Group has satisfactory measures to meet future cash flow requirements. (b) Group accounting (1) Subsidiaries Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies, are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Details of the Group’s subsidiaries are set out in Note 29. (2) Associates Investments in associates are accounted for by the equity method of accounting. Associates are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Details of the Group’s associate are set out in Note 12. 33 2. Accounting policies (Cont’d) (c) Foreign currencies (1) Measurement currency Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”). The consolidated financial statements are presented in RMB, which is the measurement currency of the parent. (2) Transactions and balances Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange 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. (3) Group companies Income statements and cash flows of the foreign entity are translated into the Group’s measurement currency at average exchange rates for the year and its balance sheets are translated at the exchange rates ruling on 31 December. Exchange differences arising from the translation of the net investment in foreign entities are taken to shareholders’ equity. When a foreign entity is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. (d) Financial instruments Financial assets and financial liabilities carried on the balance sheet include cash and bank balances, receivables, prepayments, payables and borrowings. The accounting policies on recognition and measurement of cash and bank balances, trade receivables and borrowings are disclosed in the respective accounting policies found in Note 2. All other financial assets without a quoted market price in an active market are measured at cost subject to impairment review. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement on initial recognition. Interest, dividends, gains, and losses relating to a financial instrument classified as a liability are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity. Financial instruments are offset when the Group companies have a legally enforceable right to offset and intend to settle either on a net basis or to realize the asset and settle the liability simultaneously. 34 2. Accounting policies (Cont’d) (e) Property, plant and equipment Property, plant and equipment are initially measured at cost. Subsequent to initial recognition, property, plant and equipment are stated at revalued amounts less accumulated depreciation and accumulated impairment loss. Depreciation is calculated on the straight-line method to write off the revalued amount, after taking into account the estimated residual value, of each asset over its expected useful life. The expected useful lives are as follows: Buildings 25 years Paper making equipment 20 years Other machinery and equipment 7-14 years Motor vehicles and office equipment 5-10 years The useful lives of assets and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property, plant and equipment. Valuation by independent valuers is performed periodically. Any increase in valuation is credited to the revaluation reserve in shareholders' equity; any decrease is first offset against an increase on earlier valuation in respect of the same asset and is thereafter charged to the consolidated income statement. Increase in revaluation directly related to a previous decrease in carrying amount for the same investment that was recognized as an expense is credited to income to the extent that it offsets the previously recorded reduction. The gain or loss on disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognized in the consolidated income statement. When revalued assets are sold, the amounts included in the revaluation reserve are transferred to retained earnings. Repairs and maintenance are charged to the income statement during the accounting period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalized during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed. (f) Land use right Land use right is stated at cost less accumulated amortization. Amortization is calculated using the straight-line method to write off the cost over a period of 50 years. 35 2. Accounting policies (Cont’d) (g) Inventories Inventories are stated at the lower of cost or net realisable value. Cost is determined using 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 (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. (h) Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. (i) Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. (j) Borrowings Borrowings are recognized initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognized in the consolidated income statement over the period of the borrowings. (k) Operating 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. (l) Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The Group recognises a provision for onerous contracts when the expected benefits to 36 be derived from a contract are less than the unavoidable costs of meeting the obligations under the contract. 37 2. Accounting policies (Cont’d) (m) Revenue recognition Revenue comprises the invoiced value for the sale of goods and services net of value-added tax, rebates and discounts, and after eliminating sales within the Group. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Interest income is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. Dividends are recognised when the right to receive payment is established. (n) Taxation The Group companies provide for income taxes on the basis of their profit for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes. 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 consolidated financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. (o) Dividends Dividends are recorded in the Group’s consolidated financial statements in the period in which they are approved by the Group’s shareholders. (p) Pension scheme The Group participates in a defined contribution retirement scheme organized by the government pursuant to the PRC laws and regulations. The Group’s contribution to the scheme is provided monthly to a government agency based on 26% of the standard salary set by the local government, of which 20% is borne by the Group and the remainder is borne by the employee. The government agency is responsible for the pension liabilities relating to such employee on their retirement and the Group has no liability beyond what is paid. Contributions to the plans are charged to the consolidated income statement as incurred. 38 2. Accounting policies (Cont’d) (q) Impairment of assets (i) Financial instruments Financial instruments are reviewed for impairment at each balance sheet date. For financial assets carried at amortized cost, whenever it is probable that the Group will not collect all amounts due according to the contractual terms of loans or receivables, an impairment or bad debt loss is recognized in the consolidated income statement. Reversal of impairment losses previously recognized is recorded when the decrease in impairment loss can be objectively related to an event occurring after the write-down. Such reversal is recorded in income. However, the increased carrying amount is only recognized to the extent it does not exceed what amortized cost would have been had the impairment not been recognized. (ii) Assets other than financial instruments Assets other than financial instruments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognized in the consolidated income statement or treated as a revaluation decrease for property, plant and equipment that are carried at revalued amount to the extent that the impairment loss does not exceed the amount held in the revaluation reserve for the same asset. The recoverable amount is the higher of an asset’s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm’s length transaction less the costs of disposal while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit. Reversal of impairment losses recognized in prior years is recorded when there is an indication that the impairment losses recognized for the asset no longer exist or have decreased. The reversal is recorded in the consolidated income statement or as a revaluation increase. However, the increased carrying amount of an asset due to a reversal of an impairment loss is recognized to the extent it does not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for that asset in prior years. (r) Comparatives Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year. 39 3. Sales For the year ended 31 December 2002 2001 RMB’000 RMB’000 Sales of clothes 246,855 200,793 Sales of synthetic fibers 173,466 89,490 Sales of paper 42,767 - 463,088 290,283 The Group conducts its business in the textile and papermaking industries. No segment information is presented as the Group operates in one geographical segment. In addition, the operation in the papermaking industry is not significant. 4. Profit from operations The following items have been charged in arriving at profit from operations: For the year ended 31 December 2002 2001 RMB’000 RMB’000 Depreciation of property, plant and equipment (Note 10) 42,097 22,437 Amortization of land use right 513 248 Amortization of other assets 277 618 Cost of inventory 239,727 141,351 Operating lease rentals in respect of property 1,055 1,346 Provision for bad and doubtful debts 236 179 Provision for inventory losses 3,666 1,951 Staff costs (Note 5) 50,762 34,713 5. Staff costs For the year ended 31 December 2002 2001 RMB’000 RMB’000 Wages and salaries 45,432 31,233 Contributions to retirement benefits scheme 3,513 2,231 Other social security costs 1,817 1,249 50,762 34,713 40 6. Finance costs - net For the year ended 31 December 2002 2001 RMB’000 RMB’000 Interest income (1,090) (7,427) Interest expenses 10,394 13,609 - Interest on bank borrowings 37,941 27,802 Less: amounts capitalized in construction-in-progress (27,547) (14,193) Net foreign exchange transaction losses 262 516 Bank charges 370 368 Net financial expense 9,936 7,066 Average capitalization rate 6.89% 6.88% 7. Income tax expense For the year ended 31 December 2002 2001 RMB’000 RMB’000 Current income tax 15,294 10,292 Deferred tax relating to the origination and reversal of temporary differences (Note 21) (1,408) (439) Tax charge 13,886 9,853 The Company and its major operating subsidiaries are subject to income tax at the rate of 33%, of which the enterprise income tax (“EIT”) rate is 30% and the local income tax (“LIT”) rate is 3%. In accordance with the “Income Tax Laws of the PRC for Enterprises with Foreign Investment” (“FIE EIT Laws”), Hebei Xiaban City Textile Co., Ltd. (“Xiaban City Textile”) will be entitled to a 50% reduction of EIT and full exemption of LIT in the year in which its export sales exceed 70% of the total sales in that year. For the year ended 31 December 2002, export sales of Xiaban City Textile exceeded 70% of the total sales and EIT was provided at the rate of 15% (2001: 15%). Chengde Dixian Fashion Co., Ltd. (“Dixian Fashion”) and Xingye Papermaking are both foreign investment enterprises. In accordance with FIE EIT Laws, foreign investment enterprises are entitled to full exemption of EIT for two years starting from its first profit-making year, after offsetting available tax losses carried forward from prior years, and 50% reduction for the three years thereafter. 2002 is the second profit-making year of Dixian Fashion, after offsetting available tax losses carried forward from prior years, and the applicable tax rate is nil (2001: Nil). Xingye Papermaking commenced operation in 2002. Consequently, the applicable tax rate is nil. 41 7. Income tax expense (Cont’d) The reconciliation of the tax charges that would arise using the statutory tax rate to the effective tax charge is as follows: For the year ended 31 December 2002 2001 RMB’000 RMB’000 Profit before tax 139,288 80,578 Tax calculated at the statutory tax rate of 33% (2001: 33%) 45,965 26,591 Effect of tax holidays (32,079) (16,738) Tax charge 13,886 9,853 8. Dividends In accordance with relevant regulations of the PRC and the Articles of Association of the Company, the Company declares dividends based on the lower of retained earnings as reported in the statutory financial statements and the financial statements prepared in accordance with IFRS. As the statutory financial statements have been prepared in accordance with PRC accounting standards and relevant accounting regulations (“PRC GAAP”), retained earnings reported therein will be different from the amount reported in the accompanying consolidated financial statements. Pursuant to the resolution of the board of directors' meeting dated 7 February 2002, the Company declared cash dividends to all shareholders in the ratio of HK$0.5 for every 10 shares. The total amount of cash dividends was RMB11,395,000 and was approved by the shareholders in the annual general meeting held on 12 March 2002. As of 31 December 2002, the retained earnings before final dividends reported in the statutory financial statements were approximately RMB100,973,000 (31 December 2001: RMB57,360,000). 9. Earnings per share The calculation of basic earnings per share is based on the consolidated net profit for the year ended 31 December 2002 of approximately RMB115,303,000 (for the year ended 31 December 2001: approximately RMB66,534,000), divided by the weighted average number of shares in issue during the year ended 31 December 2002 of 365,500,000 shares (for the year ended 31 December 2001: 365,500,000 shares). No diluted earnings per share was presented as there were no dilutive potential ordinary shares as of year end. 42 10. Property, plant and equipment Movement in property, plant and equipment were as follows: Machinery Motor vehicles and and office Construction-in- Buildings equipment equipment progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 For the year ended 31 December 2001 Opening net book amount 47,753 133,457 2,749 291,082 475,041 Additions 24 53,063 3,222 243,070 299,379 Transfers 10,716 234,802 - (245,518) - Disposals (108) - - - - Depreciation charge (2,963) (18,793) (681) - (22,437) Closing net book amount 55,422 402,529 5,290 288,634 751,875 At 31 December 2001 Cost or valuation 69,256 543,818 9,144 288,634 910,852 Accumulated depreciation (13,834) (141,289) (3,854) - (158,977) Net book amount 55,422 402,529 5,290 288,634 751,875 For the year ended 31 December 2002 Opening net book amount 55,422 402,529 5,290 288,634 751,875 Additions 17 332 234 623,615 624,198 Transfers 85,695 180,739 - (266,434) - Depreciation charge (3,314) (37,904) (879) - (42,097) Closing net book amount 137,820 545,696 4,645 645,815 1,333,976 At 31 December 2002 Cost or valuation 154,968 724,889 9,378 645,815 1,535,050 Accumulated depreciation (17,148) (179,193) (4,733) - (201,074) Net book amount 137,820 545,696 4,645 645,815 1,333,976 (a) The Group’s property, plant and equipment were last revalued on 31 July 1999 by independent professional valuers on a replacement cost basis. The revaluation surplus net of applicable income taxes amounting to approximately RMB24,819,000 were credited to revaluation reserve. The Group’s property, plant and equipment acquired subsequent to the last revaluation have not been revalued and are stated at cost less accumulated depreciation. The directors are of the opinion that the carrying amounts of property, plant and equipment do not differ materially from their fair values at the balance sheet date. 43 10. Property, plant and equipment (Cont’d) Had all the property, plant and equipment been carried at cost less accumulated depreciation and accumulated impairment loss, the carrying amounts of each class of assets would have been as follows: 31 December 2002 31 December 2001 RMB’000 RMB’000 Buildings 131,693 48,166 Machinery and equipment 534,484 388,031 Motor vehicles and office equipment 4,517 5,066 Construction-in-progress 645,815 288,634 1,316,509 729,897 (b) Construction-in-progress comprises: 31 December 2002 31 December 2001 RMB’000 RMB’000 Cost of construction, plant and equipment and other direct costs 615,679 273,811 Borrowing costs capitalized 27,457 14,823 643,136 288,634 (c) As of 31 December 2002, property, plant and equipment at cost or, as the case may be, revalued amount of approximately RMB923,370,000 (31 December 2001: approximately RMB474,396,000) were pledged for the Group’s borrowings (see Note 20). The directors are of the opinion that the recoverable amount of property, plant and equipment was not less than their carrying amount as of 31 December 2002. 11. Land use right 31 December 2002 31 December 2001 RMB’000 RMB’000 Cost 91,340 84,784 Accumulated amortization (3,642) (3,129) Net book amount 87,698 81,655 Land use right comprises land use fees paid to the land administration authorities for the right to use a piece of land where the Group companies’ factory buildings in Chengde are located. As of 31 December 2002, land use right at cost of approximately RMB91,340,000 (31 December 2001: approximately RMB27,294,000) were pledged for the Group’s borrowings (see Note 20). 44 12. Investment in an associate 31 December 2002 31 December 2001 RMB’000 RMB’000 At beginning of year - - Additions 11,000 - At end of year 11,000 - Details of the associate are as follows: Percentage Place of of equity Registered Name incorporation interest held capital Registered capital Chengde Banhe Fiber Textile Hebei, PRC 35% USD15,000,000 Production and sales of Co., Ltd. (“Banhe”) knitwear and textiles The associate is unlisted, newly incorporated during the year ended 31 December 2002 and has not yet commenced operations. As of 31 December 2002, the Group had a prepayment amounted to approximately RMB36,338,000 for purchase of equipment for the associate. Such prepayment will be transferred to the investment in the associate after the equipment arrives from the suppliers and the legal title passes to the associate. 13. Inventories 31 December 2002 31 December 2001 RMB’000 RMB’000 Raw materials, at cost 16,504 35,178 Work-in-progress, at cost 63,031 39,393 Finished goods, at cost 28,627 22,341 108,162 96,912 Less: provision for obsolescence (5,617) (1,951) 102,545 94,961 14. Trade receivables 31 December 2002 31 December 2001 RMB’000 RMB’000 Trade receivables (Note 28(d)) 85,618 49,334 Less: Provision for bad and doubtful debts (774) (538) 84,844 48,796 45 15. Other receivables and prepayments 31 December 2002 31 December 2001 RMB’000 RMB’000 Other receivables 12,177 33,156 Deferred expenses 73 970 Prepayments 5,779 15,675 18,029 49,801 16. Cash and cash balances 31 December 2002 31 December 2001 RMB’000 RMB’000 Cash on hand 245 740 Current deposits at bank 31,647 27,778 Time deposits at bank 60,000 - 91,892 28,518 For the purposes of the cash flow statement, cash and cash equivalents comprise the following: 31 December 2002 31 December 2001 RMB’000 RMB’000 Cash and bank balance 91,892 28,518 Time deposits (60,000) - 31,892 28,518 As of 31 December 2002, all time deposits, of which the maturity was within one year, were pledged for the discount of the Group’s trade acceptance to banks (see Note 23). 46 17. Share capital As of 31 December 2002, share capital included promoters’ shares and B shares, all of which ranked pari passu in all respects with each other. Details of share capital are as follows: 31 December 31 December 31 December 31 December 2002 2001 2002 2001 Number of shares RMB’000 RMB’000 (in thousands) Registered, issued and fully paid: Unlisted - Promoters’ shares of RMB1 each 170,000 100,000 170,000 100,000 Listed - B shares of RMB1 each 195,500 115,000 195,500 115,000 365,500 215,000 365,500 215,000 Movements in share capital during the year are as follows: For the year ended For the year ended 31 December 31 December 2002 2001 2002 2001 Number of shares RMB’000 RMB’000 (in thousands) Balance, beginning of year 215,000 215,000 215,000 215,000 Transfer from retained earnings and reserves* 150,500 - 150,500 - Balance, end of year 365,500 215,000 365,500 215,000 * Pursuant to a resolution in the annual general meeting dated 12 March 2002, the distribution plan for the year ended 31 December 2001 included bonus shares of 2 shares per 10 shares held appropriated from retained earnings (amounting to RMB 43,000,000), and capitalization of share premium of 5 shares per 10 shares held (amounting to RMB 107,500,000). 47 18. Reserves (a) Share premium and revaluation reserve Share premium represents the premium on the issuance of B shares. Revaluation reserve represents the revaluation surplus arising from the valuation of property, plant and equipment (see Note 10 (a)). Pursuant to the relevant PRC regulations, share premium and revaluation reserve can only be used to increase share capital. (b) Statutory reserves According to the Company Law of the PRC and Articles of Association of the Company, the Company is required to provide the following statutory reserves which are appropriated from the net profit as reported in the statutory financial statements prepared in accordance with PRC GAAP: (i) Statutory surplus reserve funds The Group is required each year to transfer 10% of the profit after tax as reported under the PRC statutory financial statements to the statutory surplus reserve funds until the balance reaches 50% of the registered share capital. This reserve can be used to make up any losses incurred or to increase share capital. Except for the reduction of losses incurred, any other usage should not result in this reserve balance falling below 25% of the registered capital. (ii) Statutory public welfare funds The Group is required each year to transfer 5% of the profit after taxation as reported under the PRC statutory financial statements to the statutory public welfare funds. This reserve is restricted to capital expenditure for employees' collective welfare facilities that are owned by the Group. The statutory public welfare funds is not available for distribution to shareholders (except on liquidation). For the year ended 31 December 2002, the directors of the Company proposed that 10% and 5% (2001: 10% and 5%) of the net profit as reported in the statutory accounts be appropriated to statutory reserve funds and statutory common welfare funds respectively, totalling approximately RMB17,295,000 (2001: approximately RMB9,980,000). The resolution is subject to approval by shareholders in the annual general meeting. 19. Minority interest 31 December 2002 31 December 2001 RMB’000 RMB’000 At beginning of year 137,732 - Capital injection in subsidiaries 120,350 136,819 Share of net profit of subsidiaries 10,099 4,191 Dividends paid (7,788) (3,638) At end of year 260,393 137,372 48 20. Borrowings (a) Non-current borrowings 31 December 2002 31 December 2001 RMB’000 RMB’000 Secured bank borrowings 220,000 180,000 These borrowings bear interest at a rate of 6.82% (2001: ranging from 6.83% to 8.1%) per annum and are secured by property, plant and equipment and land use right of the Group (see Notes 10, 11). The maturity of long-term borrowings are as follows: 31 December 2002 31 December 2001 RMB’000 RMB’000 Over one year but within two years 220,000 180,000 (b) Current borrowings 31 December 2002 31 December 2001 RMB’000 RMB’000 Bank borrowings - Secured bank borrowings 416,626 305,296 - Unsecured bank borrowings 1,550 1,645 418,176 306,941 Borrowings of RMB385,626,000 (31 December 2001: RMB275,296,000) are secured by property, plant and equipment and land use right of the Group (see Notes 10, 11), borrowings of RMB30,000,000 (31 December 2001: RMB30,000,000) are guaranteed by Guangdong Rieys Co., Ltd., an independent third party, and borrowings of RMB1,000,000 (31 December 2001: Nil) are guaranteed by Zhongqiao Knitwears Chengde Co., Ltd., another independent third party. These borrowings bear interest ranging from 3.75% to 8.71% (2001: 6.42% to 8.71%) per annum. 49 21. Deferred income taxes Deferred income taxes are calculated in full on temporary differences under the liability method using an enacted tax rate of 15% (2001: 15%). The movements in deferred tax assets and liabilities are as follows: Credit to income Year ended 31 December 2001 1 January 2001 statement 31 December 2001 RMB’000 RMB’000 RMB’000 Deferred tax liabilities Assessable temporary differences on revaluation reserve of property, plant and equipment (3,951) 439 (3,512) Credit to income Year ended 31 December 2002 31 December 2001 statement 31 December 2002 RMB’000 RMB’000 RMB’000 Deferred tax assets Deductible temporary difference on provision for inventory obsolescence - 843 843 Deductible temporary difference on provision for doubtful debts - 126 126 - 969 969 Deferred tax liabilities Assessable temporary differences on revaluation reserve of property, plant and equipment (3,512) 439 (3,073) (3,512) 1,408 (2,104) 22. Other non-current liabilities Other non-current liabilities mainly represented land use fees payable for the acquisition of land use rights. The balances were unsecured, interest free and repayable within three years. 23. Trade payables 31 December 2002 31 December 2001 RMB’000 RMB’000 Trade payables 65,718 28,716 Notes payable 107,230 15,450 172,948 44,166 50 23. Trade payables (Cont’d) Notes payable of RMB90,000,000 (31 December 2001: Nil) are trade acceptance issued by the Company to its subsidiaries. All of these trade acceptance have been discounted to banks, of which RMB30,000,000 are guaranteed by Guangdong Rieys Co., Ltd., an independent third party, and RMB60,000,000 are guaranteed by the Group’s time deposits (Note 16). 24. Other payables and accrued charges 31 December 2002 31 December 2001 RMB’000 RMB’000 Advance from customer 3,808 1,350 Salary payable 19,311 4,097 Accrued charges 2,235 3,692 Other payables (Note 28(d)) 155,672 19,276 181,026 28,415 25. Cash generated from operations For the year ended 31 December 2002 2001 RMB’000 RMB’000 Net profit 115,303 66,534 Adjustments for: Minority interest 10,099 4,191 Tax (Note 7) 13,886 9,853 Depreciation (Note 10) 42,097 22,437 Amortization of land use right (Note 11) 513 248 Amortization of other assets 277 618 Provision for bad and doubtful debts (Note 14) 236 179 Provision for inventory obsolescence (Note 13) 3,666 1,951 Interest expenses (Note 6) 10,394 13,609 Interest income (Note 6) (1,090) (7,427) Changes in working capital: Increase in inventories (11,250) (39,180) Increase in trade receivables (36,284) (16,502) Decrease in prepayments and other receivables 31,773 52,007 Increase in trade payables 127,744 12,846 Increase / (decrease) in accruals and other payables 23,961 (20,916) Decrease in other non-current liabilities (2,803) (222) Cash generated from operations 328,522 100,226 51 26. Financial instruments (a) Fair values The carrying amounts of the Group’s cash and bank balances, trade and other receivables, prepayments, payables and short-term borrowings approximate their fair values because of the short maturity of these instruments. The fair value of long-term borrowings is based on the current rates available for debt with the same maturity and credit-rating risk profile. As of 31 December 2002, the difference between the fair values and carrying amounts of the Group’s long-term borrowings was minimal since the difference between the current rates and the historical rates of such long-term borrowings was not significant. (b) Credit risk The carrying amounts of cash and bank balances, trade and other receivables and prepayments represented the Group’s maximum exposure to credit risk in relation to financial assets. Cash is placed with reputable banks and the weighted average effective interest rate on deposits was 1.98% per annum. Majority of the Group’s trade receivables relate to sales of goods. The Group performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on trade receivables. Group procedures are in force to ensure that sales are made to customers with an appropriate credit history and do not exceed an acceptable credit exposure limit. The Group’s credit exposure relating to its major customer Y’S Corporation is disclosed in Note 28. The Group maintains a provision for doubtful debts and actual losses have been within management’s expectation. No other financial assets carry a significant exposure to credit risk. (c) Interest rate risk The directors believe that Group’s exposure to interest rate risk of financial assets and liabilities as of 31 December 2002 was minimal since their deviation from their respective fair values was not significant. (d) Liquidity risk The Group policy is to maintain sufficient cash and cash equivalents or have available funding through an adequate amount of committed credit facilities to meet its current use in operations. (e) Foreign exchange risk The foreign exchange risks of the Group occur due to the fact that the Group has business activities denominated in foreign currencies. The Group did not enter into any foreign exchange forward contracts to hedge against foreign currency fluctuations. However, the directors believe that the Group’s exposure to foreign exchange risk was minimal since most of the Group’s foreign currency transactions 52 are denominated in USD and, over the past five years, there has been no significant fluctuation in the exchange rates between RMB and USD. 27. Commitments (a) Capital commitments As of 31 December 2002, capital expenditure contracted for at balance sheet date but not recognized in the consolidated financial statements is as follows: 31 December 2002 31 December 2001 RMB’000 RMB’000 Investment in subsidiaries 294,150 574,000 (b) Operating lease commitments As of 31 December 2002, the Group had an operating lease agreement for plant. The future aggregate minimum lease payments under non cancellable operating leases for each of the following periods are as follows: 31 December 2002 31 December 2001 RMB’000 RMB’000 - Within one year 1,000 1,000 - Later than one year and not later than five years 4,000 4,000 - Later than five years 22,000 23,000 27,000 28,000 28. Related party transactions and relationships Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Y’S Corporation is the Company’s major customer with long-term relationship. The Company also entered into an equity joint venture agreement with Y’S Corporation to set up Dixian Fashion during 2000. The directors are of the opinion that Y’S Corporation is a related party of the Company. Century Win International Holding Ltd. (“Century Win Co.”), a company incorporated in Hong Kong, entered into an equity joint venture agreement with the Company to set up Xingye Papermaking in 2001. The directors are of the opinion that Century Win Co. is a related party of the Company. Chengde Xingye Trading Co., Ltd. (“Trading Co.”) and the Company are under common control by Mr. Wang Shuxian. As a result, the directors are of the opinion that Trading Co. is a related party of the Company. 53 28. Related party transactions and relationships (Cont’d) (a) The Group had the following significant transactions with Y’S Corporation: For the year ended 31 December 2002 2001 RMB’000 RMB’000 Sales of goods to Y’S Corporation 86,048 53,700 Purchase of raw materials from Y’S Corporation 877 - Machinery purchased by Y’S Corporation on behalf of the Group 4,250 14,622 The above transactions were carried out on commercial terms and conditions and at market prices. (b) Settlements between related parties: Pursuant to an agreement dated 20 November 2002, Trading Co. agreed to settle the amount due to the Company by Y’S Corporation amounted to RMB14,000,000 on behalf of Y’S Corporation. The receivable from Trading Co. arising from this transaction had been offset with the Company’s payable to Trading Co. (c) Transfer of tax payable: Pursuant to the document [2003] No.1 issued by the State Tax Bureau of Chengde County, the EIT and value added tax (“VAT”) payable as of 31 December 2001 of Xiaban City Textile and Dixian Fashion would be transferred to and settled by Trading Co. Therefore, approximately RMB19,156,000 was transferred in 2002 and become an amount payable to Trading Co. 54 28. Related party transactions and relationships (Cont’d) (d) The Group had the following significant balances with related parties: 31 December 2002 31 December 2001 RMB’000 RMB’000 Prepayments for purchase of machinery - Y’S Corporation 18,872 14,622 Trade receivables - Y’S Corporation 24,173 23,474 Other receivables and prepayments - Y’S Corporation - 1,168 Trade payables - Y’S Corporation 877 - Other payables and accrued charges - Trading Co. 18,275 16,421 - Century Win Co.* 128,650 - *The payable to Century Win Co. represented the value of machinery contributed by Century Win Co. in excess of its required capital contribution to Xingye Papermaking (see Note 29). Trade receivables were repayable within 3 months and other balances were repayable on demand. All balances with related parties were unsecured and interest free. (e) Directors’ remuneration The total remuneration of the directors for the year ended 31 December 2002 approximately RMB506,000 (for the year ended 31 December 2001: RMB413,000). 55 29. Subsidiaries As of 31 December 2002, the Company had the following subsidiaries: Percentage of equity interest Place of held Name incorporation Direct Indirect Registered capital Principal activities Xiaban City Textile Hebei, PRC 75% 25% USD4,000,000 Production and sale of clothes Dixian Fashion Hebei, PRC 75% - USD24,000,000 Production and sale of clothes and synthetic fibers Xingye Papermaking Hebei, PRC 75% - USD100,000,000 Production and sale of various kinds of paper products Gold Axe Investment Group British Virgin 100% - USD1 Investment holding and liaison of Limited (“Gold Axe”) Islands export business Xingye Papermaking is a Sino-foreign equity joint venture incorporated on 9 May 2001 pursuant to an equity joint venture agreement between the Company and Century Win Co. As of 31 December 2002, the Company and Century Win Co. had paid in capital of approximately RMB329,373,000 and RMB207,500,000 respectively. According to the joint venture agreement, the remaining registered capital would be contributed in full by the Company and Century Win Co. within three years from the business license date of Xingye Papermaking (the “Investment Period”). During the year ended 31 December 2002, Century Win Co. contributed approximately RMB128,650,000 more of machinery than its required capital contribution to Xingye Papermaking (see Note 28(d)). According to an agreement signed between the Company and Century Win Co. on 18 March 2002, in case that the Company cannot contribute the remaining registered capital during the Investment Period, the above said payable to Century Win Co. will be converted into its additional capital contribution to Xingye Papermaking. The share of equity interests in Xingye Papermaking between the Company and Century Win Co. will also be re-determined according to the actual capital contributed by each party at such time. 30. Contingent liabilities As of 31 December 2002, the Group provided a guarantee to Guangdong Rieys Co., Ltd., an independent third party, in respect of a short-term bank loan of RMB60,000,000 (31 December 2001: RMB30,000,000). This bank loan bears interest at 5.85% (2001: 5.85%) per annum and will mature in September 2003. 31. Post balance sheet events In January 2003, the Company renewed short-term bank borrowings of RMB160,000,000 and such bank borrowings will mature in 2006. Pursuant to the resolution of the Board of Directors dated 7 April 2003, bonus shares of 2 share per 10 shares held amounting to RMB73,100,000 will be appropriated to all the shareholders. The resolution is subject to approval by shareholders in the annual general meeting. 32. Approval of financial statements The consolidated financial statements were approved by the Board of Directors on 7 April 2003. 56 Section 12. Documents for Reference 1. Accounting statements carried with personal signatures and seals of legal representative, person in charge of the financial affairs and person in charge of accounting institution. 2. Original of Auditors’ Report carried with the seal of Certified Public Accountants as well as personal signatures and seals of certified public accountants; 3. Originals of all documents and manuscripts of Public Notices of the Company disclosed in public on Securities Times and Ta Kung Pao. The Company will provide timely the above documents for reference provided that China Securities Regulatory Commission or Stock Exchange demands or shareholders requires according to the regulations and Articles of Association. Note: This report is prepared in both Chinese and English. Should there be any difference in interpretation between the two versions, the Chinese version shall prevail. Board of Directors of Chengde Dixian Textile Co., Ltd. Apr. 9, 2003 57