鲁泰Ａ(000726)鲁泰Ｂ2003年年度报告摘要（英文版）

LU THAI TEXTILE CO., LTD. SUMMARY OF ANNUAL REPORT 2003 (Adjustment based on International Accounting Standards) §1. IMPORTANT NOTES 1.1 The Board of Directors of Luthai Textile Co., Ltd. (hereinafter referred to as the Company) and its directors hereby confirm that there are no any important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. The summary of annual report 2003 is abstracted from the full text of annual report; the investors are suggested to read the full text of annual report to understand more details. 1.2 No director stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of the Annual Report or have objection for this report. 1.3 Mr. Chen Youhan, Mr. Xu Zhinan, Mr. Chen Ruimou and Mr. Wang Yonggui, Director of the Company, were absent from the Board meeting due to some reasons; Mr. Xu Zhinan and Mr. Chen Ruimou entrusted Mr. Liu Shizhen, Chairman of the Board, to vote on them behalf, Independent Director Mr. Wang Yonggui entrusted Independent Director Zhou Zhiji to vote on his behalf, Mr. Chen Youhan did not entrust other to vote. 1.4 Shandong Zhengyuan Certified Public Accountants & Ltd. issued an unqualified Auditors’Report for the Company. 1.5 Chairman of the Board of the Company Mr. Liu Shizhen, Chief Accountant Mr. Su Huasheng and Person in Charge of Financing Ms. Qu Qingfeng hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. This annual report is written in both Chinese and English. Should there be any difference in interpretation of the two versions, the Chinese version shall prevail. §2. COMPANY PROFILE 2.1 Basic information Short form of the stock LUTHAI A, LUTHAI B Stock code 000726, 200726 Listed stock exchange Shenzhen Stock Exchange Registered address No. 11, Mingbo Road, High-tech Industrial Development Zone, Zibo, Shandong Office address No. 81, Songling East Road, Zichuan District, Zibo Post code 255100 Internet web site of the Company www.lttc.com.cn E-mail of the Company lttc@public.zbptt.sd.cn 2.2 Contact person and method Secretary of the Board of Authorized representative in charge of Directors securities affairs Name Qin Guiling Zheng Weiyin 1 Contact No. 81, Songling East Road, No. 81, Songling East Road, Zichuan address Zichuan District, Zibo District, Zibo, No. 11, Mingbo Road, High-tech Industrial Development Zone, Zibo Telephone (86)533-5285166 (86)533-5285166;3586827 Fax (86)533-5282188 (86)533-5282188 E-mail qinguiling@lttc.com.cn wyzheng@lttc.com.cn §3. SUMMARY OF ACCOUNTING DATA AND FINANCIAL INDEXES 3.1 Major accounting data Unit: RMB’000 Increase/decrease 2003 2002 from the previous 2001 year（％） Income from main operations 1,270,512 950,880 33.61% 785,693 Total profit 231,325 152,986 51.21% 139,358 Net profit 195,156 128,542 51.82% 120,518 Net profit after deducting 192,635 129,482 48.77% 125,964 non-recurring gains and losses Increase/decrease At the end At the end At the end from the end of of 2003 of 2002 of 2001 previous year（％） Total assets 2,584,956 1,785,690 44.76% 1,477,554 Shareholder’s equity (excluding 1,446,327 1,356,751 6.60% 1,314,320 minority interests) Net cash flow arising from 82,277 269,188 -69.44% -34,797 operating activities 3.2 Major financial indexes Unit: RMB Increase/decrease 2003 2002 from the previous 2001 year（％） Earnings per share 0.46 0.37 24.32 % 0.45 Earnings per share (it calculated based on new share capital if share 0.46 -- -- -- capital was changed.) Return on equity (%) 13.49% 9.47% 42.45% 9.17% Return on equity as calculated based on net profit after deducting 13.32% 9.54% 39.62 % 9.58 % non-recurring gains and losses (%) Net cash flow per share arising 0.19 0.76 -75.00 % -0.13 from operating activities At the end At the end Increase or decrease At the end of of 2003 of 2002 from the end of 2001 2 previous year（％） Net assets per share 3.42 3.85 -11.17% 4.85 Net assets per share after 3.42 3.84 -10.94% 4.84 adjustment 3.3 Difference of net profit as audited by Chinese Accounting Standard (CAS) and International Accounting Standard (IAS) √Applicable □Inapplicable Unit: In RMB’000 CAS IAS Net profit 191,734 195,156 Depreciation of RMB –3,000,000 and other operating income of Explanation on the difference RMB –422,000 §4. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS 4.1 Statement of changes in shares of the Company Unit: shares Increase / decrease in this time (+, -) Before the Capitalization After the change of public Others Subtotal change reserve I. Unlisted shares 1. Sponsors’shares 98,527,000 19,705,400 0 19,705,400 118,232,400 Including: State-owned share 0 0 Domestic legal person’ s shares 49,263,500 9,852,700 9,852,700 59,116,200 Foreign legal person’ s shares 49,263,500 9,852,700 9,852,700 59,116,200 Others 0 0 2. Raised legal person’ s shares 0 0 3. Inner employees’shares 33,800,000 6,760,000 -40,560,000 -33,800,000 0 4. Preference shares or others 0 0 Total unlisted shares 132,327,000 26,465,400 -40,560,000 -14,094,600 118,232,400 II. Listed shares 1. RMB ordinary shares 84,500,000 16,900,000 40,560,000 57,460,000 141,960,000 2. Domestically listed foreign 135,200,000 27,040,000 27,040,000 162,240,000 shares 3. Overseas listed foreign shares 0 0 4. Others 0 0 Total listed shares 219,700,000 43,940,000 40,560,000 84,500,000 304,200,000 III. Total shares 352,027,000 70,405,400 0 70,405,400 422,432,400 4.2 Particulars about change in shares held by the top ten shareholders and the top ten shareholders of circulation share 3 Total number of shareholders at the end of report period 40,096 Particulars about shares held by the top ten shareholders Increase / Number Nature of Shares held decrease in Type of shares of share shareholders at the Proportion Name of Shareholder the report (Circulating/No pledged (State -owned year-end (%) year n-circulating) or frozen shareholder/foreign (share) (share) shareholder) ZIBO LUCHENG TEXTILE CO., 9,852,700 59,116,200 13.99 Non-circulating 59,116,200 State-owned LTD. shareholder TAILUN TEXTILE CO., LTD. 9,852,700 59,116,200 13.99 Non-circulating 0 Foreign shareholder BTFE-VALUE PARTNERS 6,279,360 7,657,622 1.81 Circulating Unknown Foreign shareholder INTELLIGENT FD-CHINA B SHS FD（B-share） SOUTH CAPITAL NOMINEES 1,360,153 5,520,153 1.31 Circulating Unknown Foreign shareholder LIMTED（B-share） ZHU SHENG DI（B-share） 3,007,103 4,937,482 1.17 Circulating Unknown Foreign shareholder YIN FENG SECURITIES 3,298,251 4,675,354 1.11 Circulating Unknown Foreign shareholder INVESTMENT FUNDS（A-share） DEUTSCHE BANK AG LONDON 3,449,437 4,387,103 1.04 Circulating Unknown Foreign shareholder （B-share） TOYO SECURITIES ASIA 1,364,280 3,729,728 0.88 Circulating Unknown Foreign shareholder LIMIYED-A/C CLIENT（B-share） VALUE PARTNERS INTELLIGENT 3,384,741 3,384,741 0.80 Circulating Unknown Foreign shareholder FUNDS CHINESE MAINLAND FOCUS FUND（B-share） DAIWA SECS EMBC AC ITOCHU -600,000 3,300,000 0.78 Circulating Unknown Foreign shareholder HONG KONG LTD Explanation on associated relationship Among the top ten shareholders, the top two shareholders are sponsor shareholders of the Company. among the top ten shareholders or The Company was unknown whether there exists associated relationship or consistent action among consistent action the other shareholders. Particulars about shares held by the top ten shareholders of circulation share Shareholders’name (full name) Number of circulation share held Type (A-share, B-share, at the year-end (share) H-share and other) BTFE-VALUE PARTNERS 7,657,622 B-share INFELLIGE SOUTH CAPITAL NOMINEES 5,520,153 B-share LIMTED ZHU SHENG DI 4,937,482 B-share YIN FENG SECURITIES 4,675,354 A-share INVESTMENT FUNDS DEUTSCHE BANK AG LONDON 4,387,103 B-share 4 TOYO SECURITIES ASIA 3,729,728 B-share LIMIYED-A/C VALUE PARTNERS 3,384,741 B-share INTELLIGENT FU DAIWA SECS EMBC AC ITOCHU 3,300,000 B-share HO MERRILL LYNCH PIERCE 3,134,744 B-share FENNER GOOD CAPTURE INVESTMENTS 3,055,500 B-share Explanation on associated The Company was unknown whether there exists associated relationship among the top ten relationship or consistent action among the top ten shareholders of shareholders of circulation share circulation share. 4.3 Particulars about controlling shareholders and actual controller of the Company 4.3.1 Particulars about change in controlling shareholders and actual controller of the Company □Applicable √Inapplicable 4.3.2 Introduction to the information of the controlling shareholder and other actual controller Zibo Lucheng Textile Co., Ltd. (hereinafter referred to as “Lucheng Textile”): Its legal representative is Liu Zibin, and registered capital is RMB 8.67 million. Lucheng Textile was engaged in production and marketing of textile, knitwear, garments and other sewing products. Lucheng Textile was the first largest shareholder of the Company as well as the actual controlling shareholder. Lucheng Textile was founded in Sep. 1998 based on Zibo the 7th Cotton Textile Plant, original sponsor of the Company. It is a Limited Company that its shares held by natural persons. Of them, Mr. Liu Shizhen held 21% of total shares, which is the first largest shareholder of Lucheng Textile. Basic information of Liu Shizhen: Chinese nationality, he has not enjoy the residence power in the other country or area; he took the post of Chairman of the Board and General Manager of the Company for a term of six years. As at the end of the report period, Lucheng Textile held 59.1162 million shares of the Company, taking 14% of total share capital of the Company, and the said shares have not been listed for trade, while was pledged to Min Sheng Bank for loan since July 2003, the pledging term was from July 3, 2003 to July 3, 2004. The said public notice was published in Shanghai Securities News, Securities Times and Ta Kung Pao dated July 5, 2003. §5. PARTICULARS ABOUT DIRECTORS, SUPERVISORS AND SENIOR 5.1 Partic ulars about changes in shares held by directors, supervisors and senior executives Unit: share Shares Shares held Name Title Sex Age Office term held at the at the Reason of change year-begin year-end 5 Converting public Chairman of the May 7, 2001- Liu Shizhen Male 64 143,312 171,974 reserve into share Board/General Manager May 7, 2004 capital Vice Chairman of the May 7, 2001- Chen Youhan Male 71 0 0 Board May 7, 2004 Director and concurrently May 7, 2001- Xu Zhinan Male 73 0 0 Deputy General Manager May 7, 2004 Director and concurrently May 7, 2001- Liu Zibin Male 39 0 0 Deputy General Manager May 7, 2004 Tengyuan Yingli May 7, 2001- Director Male 64 0 0 May 7, 2004 May 7, 2001- Chen Ruimou Director Male 60 0 0 May 7, 2004 Converting public Director and concurrently May 7, 2001- Su Huasheng Male 60 33,124 39,749 reserve into share Chief Accountant May 7, 2004 capital Converting public Director and concurrently May 7, 2001- Wang Fangshui Male 43 16,900 20,280 reserve into share Chief Engineer May 7, 2004 capital Converting public May 7, 2001- Sun Zhigang Director Male 42 19,942 23,930 reserve into share May 7, 2004 capital Converting public Director and concurrently May 7, 2001- Qin Guiling Female 38 20,280 24,336 reserve into share Secretary of the Board May 7, 2004 capital May 7, 2001- Wang Yonggui Independent director Male 35 0 0 May 7, 2004 May 7, 2001- Hong Xiaobin Independent director Male 31 0 0 May 7, 2004 May 7, 2001- You Shisong Independent director Male 68 0 0 May 7, 2004 May 7, 2001- Wu Yuhua Independent director Male 60 0 0 May 7, 2004 May 7, 2001- Zhou Zhiji Independent director Male 41 0 0 May 7, 2004 Supervisor and Converting public May 7, 2001- Li Tongmin concurrently Manager of Male 48 22,308 26,769 reserve into share May 7, 2004 Production Dept. capital Supervisor and Converting public May 7, 2001- Zhao Kegui concurrently Chief Male 57 33,800 40,560 reserve into share May 7, 2004 Economist capital Supervisor and Converting public May 7, 2001- Zhu Lingwen concurrently Manager of Male 50 47,320 56,784 reserve into share May 7, 2004 Layout Dept. capital 6 5.2 Particulars about directors, supervisors holding the post in Shareholding Company √Applicable □Inapplicable Drawing the payment Name Name of shareholding Company Title in shareholding Company Office term from the Company (Yes / No) Chairman of the Board and Since 2000 Liu Zibin Zibo Lucheng Textile Co., Ltd. Yes concurrently General Manager to now Since 1999 Yes Xu Zhinan Tailun Textile Co., Ltd. Chairman of the Board to now 5.3 Particulars about the annual payment of directors, supervisors and senior executives Total annual payment RMB 4,565,000 Total annual payment of the top three directors drawing RMB 2,033,000 the highest payment Total annual payment of the top three senior executives RMB 2,033,000 drawing the highest payment Allowance of independent director RMB 36,000 per person/ year Other treatment of Independent Directors The Company reimbursed the relevant expenses of business trip. Name of directors and supervisors received no payment Chen Youhan or allowance from the Company Limits of payment Number of persons RMB 770,000 ～ RMB 820,000 2 RMB 400,000 ～ RMB 430,000 2 RMB 300,000 ～ RMB 400,000 6 RMB 70,000 ～ RMB 100,000 3 §6. Report of the Board of Directors 6.1 Discussion and analysis to the whole operation in the report period In the report period, the whole operation of the Company was as follows: The Company realized an income from main operations of RMB 1,270,512,000 in the whole year, an export income of USD 126,623,000, a profit from main operations of RMB 418,057,000 and a net profit of RMB 195,156,000, which increased by 33.61%, 31.54%, 51.86% and 51.82% respectively compared with the previous year. In the report period, the expansion project of COM spinning of 20,000 ingots has been put into production; instruments installation of the expansion project of trimming of liquid ammonia has been finished and put into practical operation, the capital of both projects is raised from additionally issued A-shares. The projects invested by self-owned capital were: Invested RMB 88.72 million for the technique reconstruction of top grade colored weaving production; Invested RMB 35.76 million and established Xinjiang Lutai Harvest Cotton Co., Ltd. of which the Company held 51% equity, through the implementation of the above projects, the production chain of the Company was prolonged, the instruments of the yarn-dyed fabric was perfected, production structure was more reasonable, the added-value of the products was 7 increased, marketing competition power of the products was strengthened and profit earning capability was increased. Invested RMB 60 million and established Zibo Lutai Huanzhong Medicine making Co., Ltd., 75% equity was held by the Company. In the report period, the Company fully exerted its advantages in scale, market and capital, etc., increased the reserve of cotton and yarn used in production in the early stage of this period, at the same time strengthened production management and cost control, reduced the effect of the volatile cotton price on the Company’ s production. In the report period, the Company made full use of the favorable market credit and clients’resources accrued for years, actively developed the business of order on Internet, effectively decreased the grave influence of emergency SARS in the report period, made the production and operation maintained favorable trend and further increased the Company’ s operation profit. In the report period, the Company further increased its input of technique innovation and strengthened development. In 2003, led by the science and technology committee of the Company, the Company developed 13 new technique items, conquered the technique of trimming fold of outside material of liquid ammonia super united, realized the bulk production of the pure cotton double elasticity trimming technique. The success of practical weaving of XLA elastic outside material filled the blank of our country. At present, the products of the Company have 28 serials, nearly 100000 specs and varieties and satisfied the requirements of all kinds of clients. The Company will meet the people’ s increasing living requirements better by developing technique, increase the metabolism of the products and upgrade the outside material of the yarn-dyed fabric of shirts. In the report period, the Company continued to implement the international standardization management of ISO9000 and ISO140000, finished the transition of ISO9000 from 1994 version to 2000 version. In August of 2003, the Company smoothly passed the professional health safety management system attestation of OHSMS18000, made the system management of the Company further improved. 6.2 Statement of main operations classified according to industries or products Unit: RMB’0000 Classified according to Income from Cost of main Gross Increase/decrease Increase/decreas Increase/decrease industries or products main operations profit in income from e in cost of main in gross profit ratio operations (RMB) ratio (%) main operations operations over over the last year (RMB) over the last year the last year (%) (%) (%) Cotton textile industry 104,075.80 70,797 31.98 29.87 22.14 15.58 Manufacture of 21,968.50 14,023.60 36.16 47.14 42.48 6.07 garments Agriculture 1,006.90 724.90 28.01 0.00 0.00 0.00 Including: related 0.00 0.00 - 0.00 0.00 0.00 transactions Spinning 2,030.10 1,924.60 5.20 36.34 96.19 -84.76 8 Yarn-dyed outside 101,819.90 68,718.60 32.51 31.78 22.75 18.05 material of shirts Shirts 21,968.50 14,023.60 36.16 47.14 42.48 6.07 Lint 1,006.90 724.90 28.01 0.00 0.00 0.00 Others 225.80 153.80 31.89 -83.68 -84.59 13.59 Including: related 0.00 0.00 - 0.00 0.00 0.00 transactions Pricing rules for related Based on the fair market principle transactions Necessity and durative Without a certain necessity and durative of related transactions 6.3 Particulars about main operations classified according to areas Unit: RMB’0000 Areas Income from main operations Increase/decrease in income (RMB) from main operations over the last year (%) Japan and Korea 27,151.70 21.37 Hong Kong 27,547.40 21.68 Southeast Asia 29,646.30 23.33 Europe and America 17,744.70 13.97 Others 516.30 0.41 Mainland of China 24,444.80 19.24 Total 127,051.20 100.00 6.4 Particulars about the customers of purchase and sales Unit: RMB’0000 Total amount of purchase 38,680.00 Proportion in the total 37.72% of the top five suppliers amount of purchase Total amount of sales of the 47,100.00 Proportion in the total 37.07% top five sales customers amount of sales 6.5 Operation of share- holding companies (applicable to the situation where investment equity takes over 10% of its net profit) □Applicable √Inapplicable 6.6 Explanation on reasons of material changes in main operations and its structure □Applicable √Inapplicable 6.7 Explanation on reasons of material changes in profitability capability of main operations (gross profit ratio) than that in the last year √Applicable □Inapplicable In the sales of main products of the Company, the gross profit ratio of yarn-dyed fabric and shirts increased by 18.05% and 6.07% respectively over the same period of 9 last year, which was mainly due to the increase in sales price of yarn-dyed fabric and shirts. The gross profit ratio of cotton yarn decreased by 84.76% over the same period of last year, which was mainly because that the Company consolidated the statements with Dongying Luxin, a controlling subsidiary of the Company. 6.8 Analysis to reasons of material changes in operating results and profit structure compared with the previous year √Applicable □Inapplicable In the report period, the Company’s total assets increased by 44.37% over the same period of last year, which was mainly because that Xinjiang Lu Thai Harvest Cotton Company Limited, Shandong Lu Thai Huanzhong Pharmaceutical Co., Ltd. and Hong Kong (Lu Thai) Co., Ltd. were newly listed in the consolidated scope. Shareholders’ equity increased by 15.25% over the same period of last year, which was mainly due to the said three companies newly increased in the consolidated scope and increase in net profit realized in the report period. Profit from main operations increased by 52.54% over the same period of last year, which was mainly due to the increase in sales income and enhancement of gross profit ratio of products in the report period. Net profit increased by 52.72% over the same period of last year, which was mainly due to the increase in sales income and enhancement of gross profit ratio of products in the report period. Net increase in cash and cash equivalents increased by 2422.47% over the same period of last year, which was mainly due to the said three companies newly increased in the consolidated scope in the report period. Analysis to reasons of material changes in the whole financial position than that in the last year √Applicable □Inapplicable The reason for changes was that there were such three controlling subsidiaries newly increased in the scope of consolidated statements, namely Xinjiang Lu Thai Harvest Cotton Company Limited, Hong Kong (Lu Thai) Co., Ltd. and Shandong Lu Thai Huanzhong Pharmaceutical Co., Ltd.. 6.9 Explanation on the past, current and future important effects of the material changes in production and operation environment, macro-policies and regulations on the Company’ s financial position and operating results √Applicable □Inapplicable The Company’s main products are mainly exported and the export takes over 80% in the whole sales. In 2004, the export drawback rate released by the State to the textile decreases by 4%, which shall impact a certain influence on the Company’ s operation. As a textile enterprise, the Company’ s main productive raw materials are cotton and cotton yarn. In 2004, the high price of cotton in the domestic market shall influence on the Company’s productive cost by a certain extent. Based on fully considering its influence, the Company has also established corresponding measures in such aspects as control on productive cost and sales price of products and is striving for reducing the said influence to the minimum. 10 6.10 Completion of the profit estimation □Applicable √Inapplicable 6.11 Completion of the business plan □Applicable √Inapplicable 6.12 Application of the raised proceeds √Applicable □Inapplicable Unit: RMB’0000 Total amount of raised 86,770.00 Total amount 14,984.61 Total amount of raised 86,770.00 proceeds of raised proceeds used proceeds used accumulatively in the report year Committed projects Planned Change Actual Accrued amount of Compliance with amount of projects or not amount of earnings planned progress and input input estimated earnings or not Technical renovation No Yes project of top grade 26,731.00 27,849.00 0.00 yarn-dyed outside material Technical renovation Yes Yes project of rear trimming of 10,004.14 9,527.55 0.00 top grade outside material Trimming project of liquid No Yes 5,000.00 5,581.78 0.00 ammonia COM spinning project of No Yes 13,500.00 14,263.40 0.00 20,000 ingots Dongying Tianxin joint No Yes 6,500.00 6,500.00 760.97 venture project Supplement of circulating No Yes 7,000.00 7,000.00 0.00 funds Technical renovation No Yes 3,027.00 3,170.59 0.00 project of spinning Renovation project of No Yes bleaching and dyeing 3,192.00 3,305.40 0.00 equipments Constituent company of No Yes 636.00 636.66 14.62 Hong Kong Expansion project of No Yes COM spinning of 20,000 12,000.00 13,762.32 0.00 ingots Total 87,590.14 - 91,596.70 775.59 - 11 Explanation on not reaching At the end of the report period, the investment projects with the proceeds raised planned progress and earnings through additionally offering of A shares has all been finished and put into production (in detailed projects) and operation. Except that the projects of “Dongying Tianxin joint venture project”and “Constituent company of Hong Kong” in the said projects were calculated independently, other projects were just single working procedure and were not calculated independently with their benefits all reflected in the earnings of yarn-dyed fabric. Explanation on reasons and Reason of change of technical renovation project of rear trimming of top procedures of change (in grade outside material: the price of equipments decreased than the predicted detailed projects) through bidding purchase, saving funds of RMB 56,250,000. After examined and approved by 2001 Shareholders’ General Meeting, the planned investment of this project was changed from RMB 156,300,000 to RMB 100,041,400 and the saved funds amounting to RMB 56,250,000 was put into the expansion project of 20,000 ingots COM spinning. Particulars about the changed projects √Applicable □Inapplicable Unit: RMB’0000 Total amount of capital 5,625.00 of changed investment projects Projects after change Corresponding Planned Actual amount Accrued Compliance with projects committed input of input amount of planned progress originally amount of earnings and estimated changed earnings or not projects COM spinning project Technical renovation Yes of 20,000 ingots project of rear 15,630.00 10,004.14 0.00 trimming of top grade outside material Total - 15,630.00 10,004.14 0.00 - Explanation on not This project was just a working procedure in the Company’s production and was not reaching planned calculated independently with benefits reflected in the whole benefits in yarn-dyed fabric. progress and earnings (in detailed projects) 6.13 Application of the proceeds not raised through shares offering √Applicable □Inapplicable Unit: RMB’0000 Names of projects Amount of Progress of Earnings of projects projects projects Technical renovation project 8,872.00 Finished Reflecting in the whole benefits of top grade yarn-dyed fabric of yarn-dyed fabric. Xinjiang Lu Thai Harvest 3,576.00 Established Realizing net profit amounting to 12 Cotton Company Limited RMB 324,200 in the report period. Shandong Lu Thai Huanzhong 6,000.00 Under No earnings in the report period Pharmaceutical Co., Ltd. construction Total 18,448.00 - - 6.14 Explanation of the Board of Directors on the “Qualified Opinion” made by the Certified Public Accountants □Applicable √Inapplicable 6.15 Business plan as of the next year of the Board of Directors (If it has) √Applicable □Inapplicable In the new year, the Company shall further strengthen the market expansion with both emphasis in domestic and foreign markets; deepen the cost management and increase the income and reduce the expenditure; effectively implement internationally standardized management such as ISO9000, ISO14000 and OHSMS18000 etc.. I. Operating tasks The Company plans to accomplish output of yarn-dyed fabric amounting to 75 million meters (converted into 78 weft) and shirts amounting to 5.20 million pieces of standard pieces. Moreover, it plans to create foreign currency from export amounting to USD 150 million and sales income amounting to RMB 1500 million. II. The investment projects in the new year are as follows: (1) Investing RMB 210 million to implement the expansion project of 40,000 ingots of COM spinning. The project is to be conducted by two stages, one is to be put into production in the 2nd quarter of 2004 and the 2nd stage is to be put into production in the 1st quarter of 2005. (2) Investing RMB 180 million to conduct the technical reform project of high- graded yarn-dyed fabric, which is to be put into production in the 3rd quarter of 2004. (3) It is planned to jointly establish Lufeng Weaving and Dyeing Co., Ltd. with Hong Kong United Fashion Co., Ltd.. This company is mainly engaged in the production and sales of outside materials of weaving and dyeing with registered capital amounting to RMB 100 million, where the Company invests RMB 75 million, taking 75% of the registered capital. (4) Investing RMB 30 million to conduct the production line project of high- graded shirts with annual output amounting to 2 million pieces, which is to be put into production in June 2004. Profit estimation of the next year (If it has) □Applicable √Inapplicable 6.16 The preplan on the profit distribution and capitalization of capital public reserve of the Board of Directors The Board of the Company suggested the profit distribution preplan for year 2003 as follows: based on the total share capital amounting to 422,432,400 shares at the end of year 2003, distributing cash dividends amounting to RMB 3.75 (tax included) for every 10 shares, of which, for B shares, the dividends were paid according to HKD 13 converted from middle price of norm exchange released by People’ s Bank of China in the next day when Annual Shareholders’General Meeting 2003 is held (Tax exempted according to the provisions in GS (1993) No. 45 document). §7. Significant Events 7.1 Purchase of assets √Applicable □Inapplicable Unit: RMB’0000 Related Contribution to net profit of the transaction or Transaction parties and the Company of the assets Date of purchase Purchase price not (if yes, assets purchased purchased from the date of explain principle purchase to the year-end of pricing) Xinjiang Awati County Non-related June 16, 2003 3,576.00 32.42 Fengshou No. 3 Field transactions 7.2 Sales of assets □Applicable √Inapplicable Influence on consistence of business and stability of managers caused by the issues interfered in purchase and sale The issues of purchase and sale have no influence on consistence of business and stability of managers. 7.3 Important guarantee √Applicable □Inapplicable Unit: RMB’0000 Guarantee Name of the Date of happening Complete Amount of Guarantee for related Company (date of signing Guarantee term implementation guarantee type party (yes or guaranteed agreement) or not not) Xinjiang Lu Thai Joint Dec. 10, 2003- Fengshou Nov. 18, 2003 10,000.00 liabilities No No Dec. 10, 2004 Cotton Co., guarantee Ltd. Total amount of guarantee 0.00 Total balance of guarantee 0.00 Including: total balance of related guarantee 0.00 Total amount of guarantee the listed company provided for its share-controlling 0.00 subsidiaries Total amount of guarantee breaking regulations 0.00 Proportion of total amount of guarantee in net assets of the Company 0.00 7.4 Related credits and liabilities current □Applicable √Inapplicable 14 7.5 Entrusted assets □Applicable √Inapplicable 7.6 Implementation of commitment items √Applicable □Inapplicable In 2003, 2002 profit distribution proposal promised by the Company was implemented completely in May 2003, the invested projects has been finished on schedule. There are no commitments in other respects. 7.7 Significant lawsuit and arbitration □Applicable √Inapplicable 7.8 Particulars about the performance of obligations of Independent Directors In the report period, according to the requirements of the Guide Opinions on Establishing System of Independent Director in Listed Company, on May 8,2003, the 2002 Annual Shareholders’General Meeting additionally elected Mr. Wang Yonggui, Mr. You Shisong and Mr. Hong Xiaobing as the independent directors of the Company, they attended the 18th , 19th , 20th , 21st , 22nd, 23rd, 24th meeting of the 3rd Board of Directors following this meeting. Independent Director Mr. Zhou Zhiji and Mr. Wu Yuhua attended all the meetings of Board of Directors of the Compnay in the report period. The Independent Directors implemented their responsibilities by offering advices for the Company’ s production and operation. §8.Report of the Supervisory Committee I. Particulars about work of the Supervisory Committee in the report year In the report year, the Supervisory Committee totally held three meetings and attended eight meetings of the Board of Directors as non-voting delegates. The meetings of the Supervisory Committee are as follows: 1. The 8th meeting of the 3rd Supervisory Committee was held in the meeting room in the 2/F of the Company on Mar. 26, 2003. Three supervisors were expected to attend the meeting and actually all of them were present. The meeting was held in conformity with the regulations of Company Law and the Company’ s Articles of Association. The meeting mainly examined and approved Annual Report for 2002 and Summary and Work Report for 2002. 2. The 9th meeting of the 3rd Supervisory Committee was held in the meeting room of the Company on Apr. 22, 2003. Three supervisors were expected to attend the meeting and actually all of them were present. The meeting was held in conformity with the regulations of Company Law and the Company’ s Articles of Association. The meeting mainly examined and approved Proposal on Disengaging Post of Director of Mr. Li Jinghe. 3. The 10th meeting of the 3rd Supervisory Committee was held in the 6th meeting room of the Company on Aug. 18, 2003. Three supervisors were expected to attend the meeting and actually all of them were present. The meeting was held in conformity with the regulations of Company Law and the Company’ s Articles of Association. The meeting examined and approved Semiannual Report for 2003 and Summary. II. Independent opinions expressed by the Supervisory Committee 1. Particulars about operation according to law In the report period, the Supervisory Committee of the Company examined wholly and patie ntly the procedure of decision- making of the Company, implementation of internal control system and duties of directors and managers and believed that the 15 internal control system of the Company was perfect and the procedure of decision- making was normative and found no actions of breaking laws, regulations and Articles of Association or harmful of the interest of the Company. 2. Inspection of the Company’s financing The Supervisory Committee has checked the financial reports made by Shandong Zhengyuan Hexin Certified Public Accountants and PricewaterhouseCoopers China Certified Public Accountants and thought conformably the reports have truthfully and accurately reflected the Company’ s financial status and business results. The Supervisory Committee checked relevant procedure and result of appropriation of provision for partial inventories’ price- falling and provision for fixed assets’ deprecation of the Company and believed that it was in accordance with the regulation of Notification on Relevant Items of Dealing Well with Provision for Every Asset’ s Depreciation by Listed Companies, and the appropriation base and proportion was in accordance with the regulation of the Company’ s internal control system and the actual situation of the Company. The appropriation was in favor of the further improvement of assets’quality of the Company and dropped the risk of assets to the lowest and was in favor of the further development of the Company. The influence of the appropriation on the operation result of the Company this year: an decrease of net profit of this year totally RMB 21.27 million, taking by 1.41% of audited net assets of the Company at the end of 2003. The Supervisory Committee believed it in the reasonable scope. 3. The actual investment item of the last raised capital was in conformity with promised investment item. Bur for COM Spinning Item of 20,000 Ingots, 2001 Annual Shareholders’General Meeting approved to change its investment means from establishing a joint enterprise named Zibo Luhua Textiles Co., Ltd. by and Zibo Thaimei Ties Co., Ltd. the Company which invests 90% to investing independently by the Company. The investment scale had no change. The investment has been put into operation in July 2002. Ended as at Dec. 31, 2003, the last raised capital of the Company has been finished using. 4. Whether the trade price of purchase and sale of assets of the Company is reasonable or not. In the report period, the 18th meeting of the 3rd Board of Directors of the Company decided to invest RMB 35.76 million and purchase the net assets of Xinjiang Awati County Fengshou No. 3 Field, accounting for 51% of net assets after assessment, invested in the net assets and established Xinjiang Lu Thai Fengshou Cotton Co., Ltd. with the employees of the original No. 3 Fie ld. The registered capital of the company is RMB 70.12 million and the Company holds 51% equity. As the basic date of June 30, 2002, Shenzhen Sinocoms Appraisal Co., Ltd. assessed the purchased assets and issued the assessment report with ZQXZPBZ (2002) NO. A140. Meanwhile, Xinjiang Xinde Limited Certified Public Accountants audited the financial situation of Fengshou No. 3 Field ended as at Feb. 28, 2003 and issued the auditor ’ s report with XXDKSZ (2003) NO. 218. The purchase of assets existed no internal transaction, the purchase price was fair and reasonable and there was no phenomenon of damaging right and interest of partial shareholders and causing running off of the Company’ s assets. The Company has no sale of assets in the report period. 5. Whether the related transactions are fair In opinion of the Supervisory Committee, the related transactions of the Company were based on the fairness, justness and publicity and there existed no transactions 16 harmful of the interest of listed company. 6. Shandong Zhengyuan Hexin Certified Public Accountants and PricewaterhouseCoopers China Certified Public Accountants issued auditor’ s reports with non-reservation opinion according to domestic and international accounting rules. §9. Financial Report 9.1 Auditor’ s Opinion Report of the Auditors To the Shareholders of Luthai Textile Joint Stock Company Limited We have audited the accompanying consolidated balance sheet of Luthai Textile Joint Stock Company Limited (the “Company”) and its subsidiaries (the “Group ”) as of 31 December 2003 and the related consolidated income and cash flow statement s for the year then ended. These consolidated financial statements set out on pages 2 to 29 are the responsibility of the Company’ s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Group as of 31 December 2003 and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Zhong Tian CPAs 28 March 2004 9.2 Financial statement LUTHAI TEXTILE JOINT STOCK COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 Year ended 31 December (all amounts in RMB thousands) Notes 2003 2002 Sales 1 1,270,512 950,880 Cost of sales (852,455) (675,602) Gross profit 418,057 275,278 Other operating income 29,057 6,557 Distribution costs (50,203) (38,383) 17 Administrative expenses (154,951) (88,399) Operating profit 2 241,960 155,053 Finance cost – net 3 (10,625) (2,057) Share of result in a non-consolidated subsidiary 11 (10) (10) Profit from ordinary activities before tax 5 231,325 152,986 Income tax expense 5 (33,721) (21,692) Group profit after tax 197,604 131,294 Minority interest 20 (2,448) (2,752) Net profit 6 195,156 128,542 Earnings per share (basic and diluted) 6 RMB 0.46 RMB 0.37 LUTHAI TEXTILE JOINT STOCK COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2003 31 December 31 December (all amounts in RMB thousands) Notes 2003 2003 2002 2002 ASSETS Non-current assets Property, plant and equipment, net 8 1,403,031 1,040,905 Land use rights 9 96,786 32,446 Intangible assets 10 9,626 11,074 Investment in a non-consolidated subsidiary 11 431 6,808 Available-for-sale investment 12 215 215 1,510,089 1,091,448 Current assets Inventories 13 458,271 283,764 Receivables and prepayments 14 413,839 239,572 Cash and cash equivalents 15 202,757 170,906 1,074,867 694,242 Total assets 2,584,956 1,785,690 31 December 31 December (all amounts in RMB thousands) Notes 2003 2003 2002 2002 ASSETS 18 Non-current assets Property, plant and equipment, net 8 1,403,031 1,040,905 Land use rights 9 96,786 32,446 Intangible assets 10 9,626 11,074 Investment in a non-consolidated subsidiary 11 431 6,808 Available-for-sale investment 12 215 215 1,510,089 1,091,448 Current assets Inventories 13 458,271 283,764 Receivables and prepayments 14 413,839 239,572 Cash and cash equivalents 15 202,757 170,906 1,074,867 694,242 Total assets 2,584,956 1,785,690 LUTHAI TEXTILE JOINT STOCK COMPANY LIMITED CONSOLIDATED BALANCE SHEET (CONTINUED) AS OF 31 DECEMBER 2003 31 December 31 December (all amounts in RMB thousands) Notes 2003 2003 2002 2002 SHAREHOLDERS’EQUITY Capital and reserves Ordinary shares 19 422,432 352,027 Share premium 19 695,390 765,795 Reserves 21 116,600 86,878 Retained earnings 211,905 152,051 1,446,327 1,356,751 Minority interest 20 96,180 44,621 LIABILITIES Non-current liabilities Borrowings 17 - 15,000 Other liabilities 2,673 - 2,673 15,000 Current liabilities Trade and other payables 16 310,144 237,953 Current tax liabilities 2,982 6 Borrowings 17 726,650 131,359 1,039,776 369,318 19 Total liabilities 1,042,449 384,318 Total shareholders’equity and 2,584,956 1,785,690 liabilities LUTHAI TEXTILE JOINT STOCK COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’EQUITY FOR THE YEAR ENDED 31 DECEMBER 2003 Share Share Retained (all amounts in RMB thousands) Notes capital premium Reserves earnings Total Balance at 1 January 2002 270,790 847,032 66,887 129,611 1,314,320 Dividend relating to year 2001 - - - (86,111) (86,111) Net profit 6 - - - 128,542 128,542 Transfer to reserves 21 - - 19,991 (19,991) - Capitalisation of share premium 19 81,237 (81,237) - - - Balance at 31 December 2002 352,027 765,795 86,878 152,051 1,356,751 Balance at 1 January 2003 352,027 765,795 86,878 152,051 1,356,751 Dividend relating to year 2002 - - - (105,608) (105,608) Net profit 6 - - - 195,156 195,156 Transfer to reserves 21 - - 29,694 (29,694) - Capitalisation of share premium 19 70,405 (70,405) - - - Currency translation difference - - 28 - 28 Balance at 31 December 2003 422,432 695,390 116,600 211,905 1,446,327 LUTHAI TEXTILE JOINT STOCK COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 Year ended 31 December (all amounts in RMB thousands) Notes 2003 2002 Cash flow from operating activities Net profit 195,156 128,542 Adjustment for: Minority interest 20 2,448 2,752 Tax 5 33,721 21,692 Depreciation 8 109,162 66,479 Amortisation of land use rights 9 4,545 3,263 20 Amortisation of intangible assets 10 3,777 2,493 Impairment charge of property, plant and equipment 8 10,809 - Loss on disposal of property, plant and equipment 2 2,803 231 Gain on disposal of a non-consolidated subsidiary - (14) Provision for inventories 2 10,463 6,828 Impairment charge of investment 2 2,300 - Share of result in a non-consolidated subsidiary 11 10 10 Provision for/(reversal of) doubtful debts 10,522 (218) Interest expenses 3 16,158 6,653 Interest income 3 (2,844) (2,959) Dividend income (8) - Changes in working capital 399,022 235,752 Inventories (177,389) (29,451) Receivables and prepayments (94,645) (42,897) Trading investments - 40,000 Trade and other payables 2,192 97,551 Cash generated from operations 129,180 300,955 Interest paid (16,158) (6,653) Tax paid (30,745) (25,114) Net cash generated from operating activities 82,277 269,188 LUTHAI TEXTILE JOINT STOCK COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2003 Year ended 31 December (all amounts in RMB thousands) Notes 2003 2002 Cash flow from investing activities Investment in a non-consolidated subsidiary 11 - (6,367) Proceeds from consolidation of Luthai (Hong Kong) Textile Co., Ltd. (“Luthai HK”) 11 6,367 Acquisition of subsidiary Xinjiang Luthai, net of cash acquired (Note A) 25,444 - Purchase of property, plant and equipment (464,876) (313,388) Purchase of land use rights (22,972) (24,164) 21 Purchase of intangible assets (2,329) (124) Proceeds from sale of property, plant and equipment 10,373 525 Proceeds from disposal of a non-consolidated subsidiary - 7,214 Dividend received 8 - Interest received 2,844 2,959 Net cash used in investing activities (445,141) (333,345) Cash flow from financing activities Proceeds from borrowings 864,618 153,867 Repayments of borrowings (381,327) (7,508) Dividend paid to group shareholders (106,211) (86,126) Dividend paid to minority shareholders (2,365) - Proceeds from minority shareholders 20,000 2,552 Net cash generated from financing activities 394,715 62,785 Increase/(decrease) in cash and cash equivalents 31,851 (1,372) Movement in cash and cash equivalents At beginning of year 170,906 172,278 Increase/(decrease) in cash and cash equivalents 31,851 (1,372) At end of year 15 202,757 170,906 Note to the Cash Flow Statement A. Acquisition Of A Subsidiary On 18 June 2003, the group acquired 51% of the share capital of Xinjiang Luthai Harvest Cotton Co., Ltd. (“Xinjiang Luthai”). The assets and liabilities arising from the acquisition are as follows : (all amounts in RMB thousands) Cash 61,204 Inventory 6,074 Receivables and prepayments 85,773 Property, plant and equipment, net 82,055 Trade and other payables (65,315) Borrowing (99,673) Net assets of the subsidiary 70,118 Total purchase price at the Group’s 51% share of 35,760 the net assets of the subsidiary Less: Cash of the subsidiary acquired (61,204) Net cash inflow on acquisition of the subsidiary (25,444) 22 9.3 Accounting policy, accounting assessment and settlement method has no change compared with the latest annual report. 9.4 Explanation on change of consolidation scope compared with the latest annual report In the report period, Xinjiang Lu Thai Fengshou Cotton Co., Ltd., whose 51% equity was held by the Company, Zibo Lu Thai Huanzhong Pharmaceutical Co., Ltd., whose 75% equity was held by the Company, were put into the consolidation scope. Board of Directors of Luthai Textile Co., Ltd. Apr. 1, 2004 23