*ST舜喆B(200168)雷伊Ｂ2004年年度报告（英文版）

GUANGDONG RIEYS GROUP COMPANY LTD. ANNUAL REPORT 2004 April, 2005 Section I. Important Notice & Contents Important Notice The Board of Directors of Guangdong Rieys Group Company 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 that would render any statement misleading. Shenzhen Pengcheng Certified Public Accountant Ltd. issued unqualified Auditors’ Report for the Company. Chairman of the Board Mr. Chen Hongcheng and Chief Financial Officer Mr. Li Guoqiang hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. Contents Section Ⅰ. Important Notice-------------------------------------------------------------------- Section Ⅱ. Company Profile-------------------------------------------------------------------- Section Ⅲ. Summary of Financial Highlight and Business Highlight--------------------- Section Ⅳ. Changes in Capital Shares and Particulars about Shareholders-------------- Section Ⅴ . Particulars about Directors, Supervisors, Senior Executives and Employees------------------------------------------------------------------------------------------ Section Ⅵ. Administrative Structure----------------------------------------------------------- Section Ⅶ. Brief Introduction to the Shareholders’ General Meeting -------------------- Section Ⅷ. Report of the Board of Directors ----------------------------------- ------------- Section Ⅸ. Report of the Supervisory Committee------------------------------------------- Section Ⅹ. Significant Events------------------------------------------------------------------ Section Ⅺ. Financial Report-------------------------------------------------------------------- Section Ⅻ. Documents for Reference---------------------------------------------------------- 1 Section II. Company Profile 1. Legal Name of the Company In Chinese: 广东雷伊（集团）股份有限公司 Abbr. In Chinese: 雷伊 In English: GUANGDONG RIEYS GROUP COMPANY LTD. Abbr. in English: Rieys 2. Legal Representative: Mr. Chen Hongcheng 3. Secretary of the Board of Directors: Mr. Zhou Haolin E-mail: zhl@200168.com Securities Affairs Representative: Mr. Xu Wei E-mail: xw@200168.com Contact Tel: 0755-82960823 Fax: 0755-82960383 Contact Address: Secretariat of the Board of Directors, 26th Floor of Jiangsu Bldg., Yitian Road, Futian District, Shenzhen 4. Registered Address: Meixin Industrial Park of Jun Bu Town, Puning, Guangdong Office Address: 26th Floor of Jiangsu Bldg., Yitian Road, Futian District, Shenzhen Post Code: 518000 Company’s Internet Website: http://www.rieys.com E-mail of the Company: rieys@200168.com 5. Newspapers Chosen for Disclosing the Information of the Company: Securities Times and Hong Kong Ta Kung Pao Internet Website Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn The Place Where the Annual Report is Prepared and Placed: Secretariat of the Board of Directors, 26th Floor of Jiangsu Bldg., Yitian Road, Futian District, Shenzhen 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: RIEYS-B Stock Code: 200168 7. Initial registered date: Nov. 17, 1997 Initial registered place: Industrial and Commercial Administration Bureau of Guangdong Province Registered number of business license of enterprise legal person: 4400001000088 Registered number of tax: 445281231131833 Domestic accounting agency engaged by the Company: Name: Shenzhen Pengcheng Certified Public Accountant Ltd. Address: 5th Floor, Baofeng Building, No. 2006 of Dongmen South Road, Shenzhen International accounting agency engaged by the Company: Name: Baker Tilly Hong Kong Limited Certified Public Accountant Address: 12th Floor, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong Section III. Summary of Financial Highlight and Business Highlight 1. Major financial data as of the year 2004 (Unit: RMB) Items Year 2004 Total profit 83,447,690 Net profit 53,052,158 2 Net profit after deducting non-recurring gains and losses 35,174,174 Profit from main operations 193,079,579 Other operating profit 9,900,558 Operating profit 86,826,290 Investment income -4,617,713 Subsidy income 2,006,641 Net non-operating income/expenses -767,528 Net cash flow arising from operating activities 8,272,202 Net increase/decrease in cash and cash equivalents 8,438,100 Note: Items of deducted non-recurring gains and losses and the amounts involved: Items of non-recurring gains and losses (gains+, losses-) Amount (Year 2004) Collection of income tax of subsidiaries checked and ratified in 15,777,070 shanghai Various government subsidies 2,006,641 Capital occupied received from non-financing enterprises reckoned into 5,805,646 gains and losses of current period Gains and losses from short-term investment 37,906 Other non-operating income/expenses after deducting daily reserve for -767,528 impairment losses of assets allotted by the Company based on regulations of Accounting System for Business Enterprise Switching back various reserves for impairment losses allotted over the 2,153,788 previous years Impact on income tax -1,660,198 Impact on minority interests -5,475,341 Total non-recurring gains and losses 17,877,984 The explanation on the difference between the auditing results under CAS and IAS: Profit after tax of the Company as of the year 2004 as audited by Shenzhen Pengcheng Certified Public Accountant Ltd. under CAS and by Baker Tilly Hong Kong Limited Certified Public Accountant under IAS was RMB 53,052,158 and RMB 53,210,001 respectively. The adjustment for the differences is as follows: (Unit: RMB) Consolidation Statement for Year 2004 Profit after tax audited by Shenzhen Pengcheng Certified Public 53,052,158 Accountant Ltd.: Adjustment in accordance with IAS: Writing off confirmation of trademark right -Withdrawal of depreciation occurred from fixed assets after 27,000 assessment appreciation Writing off organization expenses -105,077 Deferred tax 235,920 Profit after tax audited by Baker Tilly Hong Kong Limited Certified 53,210,001 Public Accountant: 2. Financial indexes over the recent three years: (Unit: RMB) Indexes 2004 2003 2002 Income from main operations 651,717,620 488,288,750 476,822,720 Net profit 53,052,158 47,579,585 40,145,854 Total assets 1,279,012,027 1,117,318,635 958,492,660 Shareholder’s equity (excluding minority interests) 515,279,642 458,700,621 411,121,036 Earnings per share (RMB/share) 0.17 0.18 0.23 Weighted average earnings per share 0.17 0.18 0.23 Fully diluted earnings per share 0.17 0.18 0.23 3 Net assets per share (RMB/share) 1.62 1.72 2.32 Net assets per share after adjustment (RMB/share) 1.61 1.72 2.32 Net cash flow per share arising from operating activities 0.03 0.23 0.56 Return on equity (%) 10.30 10.37 9.76 3. Supplemental statement of income statement: Return on equity (%) Earnings per share (RMB/share) Profit in the report period Fully Weighted Fully Weighted diluted average diluted average Profit from main operations 37.47% 39.79% 0.61 0.61 Operating profit 16.85% 17.89% 0.27 0.27 Net profit 10.30% 10.93% 0.17 0.17 Net profit after deducting non-recurring 6.83% 7.25% 0.11 0.11 gains and losses 4. Particulars about changes in shareholders’ equity during the report period (Unit: RMB) Total Capital Surplus Statutory Retained Items Share capital shareholder’s reserve reserve welfare fund profit equity Amount at the year-begin 265,500,000 75,152,634 74,953,854 12,651,285 43,094,133 458,700,621 Increase in the report year 53,100,000 3,526,863 8,174,282 2,724,761 53,052,158 56,579,021 Decrease in the report year 26,550,000 34,724,282 Amount at the year-end 318,600,000 52,129,497 83,128,136 15,376,046 61,422,009 515,279,642 1. Reason on change of share capital: The Company implemented 2003 profit distribution plan at the rate of 1 bonus shares for every 10 shares and convert capital reserve into share capital at the rate of 1 share for every 10 shares. 2. Reason on change of capital reserve: the balance of equity investment occurred from investment of fixed assets and convert capital public reserve into share capital. 3. Reason on change of surplus reserve is due to withdrawal in the report period. 4. Reason on change of statutory welfare fund is due to withdrawal in the report period. 5. Reason on change of retained profit is due to profit realized in the report period and bonus share. 6. Reason on change of shareholders’ equity is due to profit realized in the report period. Section IV. Changes in Share Capital and Particulars about Shareholders (I) Particulars about the changes in share capital 1. Statement of change in shares in the report period Statement of change in shares as of the year 2004 Unit: share Increase/decrease of this time (+, -) Before the After the Items Capitalization change Share Additional change Bonus shares of public Others Subtotal Allotment issuance reserve I. Unlisted shares 1. Sponsors’ shares 136,687,500 +13,668,750 +13,668,750 +27,337,500 164,025,000 Including: State-owned share Domestic legal person’s shares 136,687,500 +13,668,750 +13,668,750 +27,337,500 164,025,000 Foreign legal person’s shares Others 4 2. Raised legal person’s shares 3. Inner employees’ shares 4. Preference shares or others Including: Transferred / allotted shares Total unlisted shares 136,687,500 +13,668,750 +13,668,750 +27,337,500 164,025,000 II. Listed shares 1. RMB ordinary shares 2.Domestically listed foreign 128,812,500 +12,881,250 +12,881,250 +25,762,500 154,575,000 shares 3. Overseas listed foreign shares 4. Others Total listed shares 128,812,500 +12,881,250 +12,881,250 +25,762,500 154,575,000 III. Total shares 265,500,000 +26,550,000 +26,550,000 +53,100,000 318,600,000 2. Issuance and listing of shares (1) The Company had not issued any shares or the derived securities in recent three years. (2) Particulars about bonus shares and transferring into share capital from capital reserve during the report period: In May, 2004, the Company implemented the 2003 profit distribution plan and transferring into share capital from capital reserve, based on total share capital amounting to 265,500,000 shares as at the end of the year 2003, distributed the profit to the whole shareholders at the rate of 1 bonus shares for every 10 shares and meanwhile converted the capital reserve into share capital at the rate of 1 share for every 10 shares, and totaled to 53,100,000 shares. The Company’s total share capital was 318,600,000 shares after bonus shares and transferring into share capital. (3) There existed no inner employees’ shares in the Company. (II) Particulars about shareholders 1. Ended Dec. 31, 2004, the Company has 17,435 shareholders in total. 2. Particulars about shares held by the main shareholders of the Company (1) Ended Dec. 31, 2004, particulars about shares held by the top ten shareholders of the Company: Unit: share Increase or Number of Pledged or Nature of No. Full name of Shareholders decrease in the shares held at Proportion Type of shares frozen shareholders year the year-end Shenzhen Shenghengchang Legal person 1 Industrial Co., Ltd. +19,642,500 117,855,000 36.99% Non-circulating Pledged shares Shenzhen Risheng Legal person 2 Investment Co., Ltd. +5,670,000 34,020,000 10.68% Non-circulating Pledged shares 3 CHEN MEI XIANG +1,537,313 25,753,588 8.08% Circulating Unknown B-share Shantou Lianhua Industrial Legal person 4 +2,025,000 12,150,000 3.81% Non-circulating Pledged Co., Ltd. shares SKANDIA GLOBAL 5 -2,264,027 4,606,541 1.45% Circulating Unknown B-share FUNDS PLC 6 WANG YING +127,900 767,398 0.24% Circulating Unknown B-share 7 YAO JIN GEN +82,620 495,720 0.16% Circulating Unknown B-share 8 PAN XIU LING +411,240 411,240 0.13% Circulating Unknown B-share BEST RELIANCE 9 +9,691 371,841 0.12% Circulating Unknown B-share INVESTMENTS LTD 10 CHENG AI XUE +36,930 346,680 0.11% Circulating Unknown B-share (2) Ended Dec. 31, 2004, particulars about shares held by the top ten shareholders of circulation share of the Company: Holding the circulation No. Full name of Shareholders Type (A, B, H shares or others) shares at the end of year 1 CHEN MEI XIANG 25,753,588 B-share 2 SKANDIA GLOBAL FUNDS PLC 4,606,541 B-share 3 WANG YING 767,398 B-share 5 4 YAO JIN GEN 495,720 B-share 5 PAN XIU LING 411,240 B-share BEST RELIANCE INVESTMENTS 6 371,841 B-share LTD 7 CHENG AI XUE 371,700 B-share 8 LIANG, JIA 346,680 B-share 9 LIU SHU WEN 317,738 B-share 10 CAI LIN ZI 316,980 B-share Notes: a. Shenzhen Shenghengchang Industrial Co., Ltd., Shenzhen Risheng Investment Co., Ltd. and Shantou Lianhua Industrial Co., Ltd. jointly provided a pledged guarantee for the loan applied by the Company from China Construction Bank Shenzhen Branch With the Company’s shares held by them. For details, please refer to the public notice published on Securities Times and Hong Kong Ta Kung Pao dated Aug. 28, 2003 and Oct. 29, 2003. b. Particulars about associated relationships among the top ten shareholders, among the top ten shareholders of circulation share and among the top ten shareholders and the top ten shareholders of circulation share: There existed associated relationship among Shenzhen Shenghengchang Industrial Co., Ltd., Ms. Chen Meixiang, Shenzhen Risheng Investment Co., Ltd. and Shantou Lianhua Industrial Co., Ltd., and they belonged to the consistent actors regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Company. The Company was not aware of the associated relationship among the other shareholders. 3. About the controlling shareholder of the Company (1) The controlling shareholder of the Company is Shenzhen Shenghengchang Industrial Co., Ltd. (hereafter referred to as Shenghengchang Industrial), who holds 117.855 million shares of the Company, taking up 36.99% of the total share capital. The registered capital of this company is RMB 98 million, hereinto Mr. Chen Hongcheng holds 70% equity of Shenghengchang Industrial, while Mr. Chen Honghai holds 30% equity of Shenghengchang Industrial. Its registered place: 5th Floor, Hubei Baofeng Building, Bao’an South Road, Shenzhen; legal representative: Ding Lihong. The business scope of Shenghengchang Industrial: sales of hardware, AC parts, building materials, electronic products and car fittings. (2) Mr. Cheng Hongcheng is the actual controller of Shenghengchang Industrial. Mr. Chen Hongcheng was engaged in operation and management of the enterprise for over 20 years. He was once Chairman of the Board and concurrently President of Puning Hongxing Weaving and Clothing Co., Ltd., and executive director of Puning Haicheng Industrial Co., Ltd.. Mr. Chen Hongcheng is the standing commissar of Political Consultative Conference of Puning, the deputy of the National People’s Congress of Jieyang City and Guangdong Province. In 1998, Mr. Chen was awarded as the excellent village and township entrepreneur of Guangdong province, the advanced member of Guangdong Industry and Commerce Union, and the advanced member of Guangdong Chamber of Commerce. In 1999, Jieyang municipality People’s Government awarded him as the advanced individual of splendor undertaking; Vice Chairman of Costume Association of Guangdong Province; Vice Chairman of Costume Association of Shenzhen City. CHEN HONG CHEGN CHEN HONG HAI holding 70% equity holding 30% equity 持有 36.99％股份 SHENZHEN SHENGHENGCHANG INDUSTRIAL CO., LTD. THE COMPANY 4. Particulars about other shareholders of legal person’s share holding over 10% of shares (including 10%): 6 Shenzhen Risheng Investment Co., Ltd. was founded on Sep. 8, 2000, whose registered capital is RMB 25 million, among which Ms. Chen Xuewen holds 80.4% equity and Mr. Ding Lihong holds 19.6% equity. The legal representative is Ms. Chen Xuewen. The business scope of Shenzhen Risheng Investment Co., Ltd.: to invest and initiate industries (the detailed project till further declared); domestic commerce, material supply and marketing industry (excluding special operating, special controlling and specialized commodity); investment consultation and information consultation (excluding limited projects). Section V. Particulars about Directors, Supervisors, Senior Executives and Employees I. Directors, supervisors and senior executives of the Company 1. Basic information Number of Number of Name Gender Age Title Office term holding shares at holding shares the year-begin at the year-end Chairman of the Board and May, 2003 - Chen Hongcheng Male 47 0 0 concurrently President May, 2006 Vice Chairman of the May, 2003 - Zheng Yujian Male 38 0 0 Board May, 2006 May, 2003 - Chen Honghai Male 51 Director 0 0 May, 2006 May, 2003 - Ding Lihong Male 34 Director 0 0 May, 2006 May, 2003 - Fang Meidi Female 59 Independent Director 0 0 May, 2006 May, 2003 - Cai Shaohe Male 44 Independent Director 0 0 May, 2006 May, 2003 - Yang Xinfa Male 36 Independent Director 0 0 May, 2006 Chairman of the May, 2003 - Yan Mingfei Male 37 0 0 Supervisory Committee May, 2006 May, 2003 - Liu Li Female 36 Supervisor 0 0 May, 2006 May, 2003 - Xu Wei Male 28 Supervisor 0 0 May, 2006 May, 2003 - Zhang Yongli Male 46 Vice President 0 0 May, 2006 Vice President, Secretary May, 2003 - Zhou Haolin Male 35 0 0 of the Board May, 2006 May, 2003 - Li Guoqiang Male 35 Chief Financial Officer 0 0 May, 2006 The first largest shareholder of the Company is Shenzhen Shenghengchang Industrial Co., Ltd., in which Mr. Chen Hongcheng takes the post of Director, Mr. Chen Honghai takes the posts of Director and General Manager, and Mr. Ding Lihong takes the post of Chairman of the Board with the long-tenure of office. 2. Particulars about main work experience of present directors, supervisors and senior executives, and their other posts or part-time jobs in companies other than the shareholding company: Chairman of the Board and President, Mr. Chen Hongcheng, was born in 1958; he has college education and China nationality. He was once Chairman of the Board and concurrently President of Puning Hongxin Weaving and Clothing Co., Ltd., and executive director of Puning Haicheng Industrial Co., Ltd.. At present he is the standing commissar of political consultative conference of Puning, Guangdong, the deputy of the National People’s Congress of Jieyang City and Guangdong Province, Vice Chairman of Costume Association of Guangdong Province and Vice Chairman of Costume Association of Shenzhen City. He currently holds the post of legal representative of the subsidiary companies of the Company, namely Puning Tianhe Manufacturing and Clothing Co., Ltd., Shanghai Tongrui Apparel Co., Ltd., Guangdong Liwei Dressing Co., Ltd., Beijing Baowei Apparel Co., Ltd., Guangdong Gangwei Apparel Co., Ltd., Sichuan Baodewei Trading Co., Ltd., Guangzhou Ruicheng Trade Co., Ltd., Guangzhou Ruitang Trade Co., Ltd., Shanghai Jiancheng Trading Co., Ltd. and Shanghai Baowei Apparel Co., Ltd., 7 and as Director of Shanghai Baodewei Apparel Co., Ltd.. Vice Chairman of the Board, Mr. Zheng Yujian, was born in 1967 and graduated from university, and he has China nationality. He ever took the post of factory director of Puning Jichang Garments Manufacturer and Director and concurrently General Manager of Puning Hongxing Weaving & Clothing Co., Ltd.. Director Mr. Chen Honghai was born in 1954 and graduated from university, and he has China nationality. He ever took the post of workshop director of Puning Songxing Garments Manufacturer and operation section chief, manager of Puning Hongxing Weaving & Clothing Co., Ltd. and supervisor of the Company. Director Mr. Ding Lihong was born in 1971 and graduated from junior college, and has China nationality. He was once office director of Puning Hongxing Weaving & Clothing Co., Ltd., director of general manager office of Puning Jianyang Industrial Co., Ltd. and Secretary of the Board of Directors and vice President of Guangdong Rieys Group Company Ltd.. Independent Director Ms. Fang Meidi was born in 1946; she got a master degree and was awarded Certified Business Executive, and has China nationality. She took the post of general manager of Shanghai Silk Import and Export Company. Now she is in charge of vice president of Shanghai Oriental International Group Co., Ltd.. Independent Director Mr. Cai Shaohe was born in 1961. He got a master degree and was awarded Certified Public Account, and has China nationality. He took the post of accounting superintedent and financial group leader of local state-run Chenghai Winery and vice superintendent and superintendent in auditing firm of Chenghai City. He is now in charge of chief accountant of Chenghai City Fengye CPA firm. Independent Director Mr. Yang Xinfa was born in 1969; he is on-study graduate and has China nationality. He ever worked in Huan Dexin Law Firm, Hunan Tianqiao Law Firm, Hunan Yinlian Law Firm and Guangdong Guoyang Law Firm, and ever took the post of secretary of board of directors of the Company. Now he is the lawyer of Guangdong Bohe Law Firm. Chairman of the Supervisory Committee, Mr. Yan Mingpei was born in 1968, bachelor degree and engineer, and has China nationality. He took the post of assistant engineer of Shantou Teye Power Development Co., Ltd. and engineer of Shantou Special Economic Region Talents Exchange Center. Now he is in charge of general manager of Shantou Lianzhihua Information and Technology Co., Ltd.. Supervisor Ms. Liu li was born in 1969, economist and bachelor degree, and has China nationality. She graduated from Beijing University of Clothing Technology on major of clothing design, then studied at Zhongnan Industry College on major of science and engineering and obtained master degree. She was ever instructor of Hunan Normal University, designer of Hong Kong Lideng Garments Co., Ltd. and principal of planning department of Embry Form Co., Ltd.. Now she is in charge of Chairman of the Board of subsidiary companies of the Company as Shenzhen Rieys Industrial Co., Ltd. and Shenzhen Heyiyi Fashion Co., Ltd.. Supervisor Mr. Xu Wei was born in1977, bachelor degree of economics and law, and has China nationality. He was ever representative in charge of security affairs of Shenzhen International Enterprise Co., Ltd. and now he takes the post of securities affairs representative of the Company. Mr. Zhang Yongli, Vice president, bachelor degree and economist, was born in 1959 and graduated from Naval Engineering Institute, and has China nationality. He took the post of assistant of the Navy Shanghai Base, the office director of Shenzhen Yanshan Industry Trading Co., Ltd, general manager of Haikou Lanyuan Corporation Company, vice general manager of Guangdong Baoli South Import and Export Company. Now he is in charge of general manager of Guangdong Liwei Dressing Co., Ltd., Chairman of the Board of Shanghai Baodewei Apparel Co., Ltd. and Dezhou Zhonghe Garments Co., Ltd., legal representative, executive director and concurrently manager of Beijing Baodewei Apparel Co., Ltd., director and concurrently general manager of Guangzhou Ruitang Trade Co., Ltd. and Guangzhou Ruicheng Trade Co., Ltd., supervisor of Sichuan Baodewei Trading Co., Ltd. and Shanghai Jiancheng Trading Co., Ltd.. 8 Mr. Zhou Haolin, Vice president and secretary of the board of directors, economist, was born in 1970 and got bachelor degree. He graduated from Shenzhen University on major of business management and has China nationality. He took the post of secretary of the board of directors and manager of investment department in Shenzhen International Enterprise Co., Ltd.. He now is in charge of Chairman of Board of Shenzhen Chuang’er Fashion Clothing Co., Ltd. of the subsidiary company of the Company, and Directors of Shenzhen Rieys Industrial Co., Ltd. and Shenzhen Tianqi Clothing Manufacturer Co., Ltd.. Mr. Li Guoqiang, Chief Financial Officer, was born in 1970 and was awarded MBA degree, CCAP, Accountant; he is Chinese and engaged in social audit, capital assessment and corporation consultation, etc. for many years. He ever took the post in Shenzhen Zhongtian Audit and CPA Firm and Authuranderson Huaqiang CPA Firm. He is now in charge of directors of the subsidiary companies of the Company as Puning Rieys Paper Industry Co., Ltd., Shanghai Tongrui Apparel Co., Ltd. and Shanghai Baodewei Apparel Co., Ltd.. 2. Particulars about the annual remuneration The Board of Directors determined the remuneration of directors, supervisors and senior executives based on the Articles of Association of the Company. The total amount of annual salary drew by directors, supervisors and senior executives in office at present from the Company was RMB 716,440. Of them, (1) one enjoyed the annual salary over RMB 100,000; (2) four enjoyed the annual salary between RMB 50,000 and RMB 100,000 respectively; (3) five enjoyed the annual salary under RMB 50,000. The total remuneration of the top three directors drawing the highest payment was RMB 90,000. The total remuneration of the top three senior executives drawing the highest payment was RMB 360,000. Independent Director of the Company drew their annual allowance of RMB 30,000 respectively from the Company. 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 and regulations and Articles of Association. Vice Chairman of the Board Mr. Zheng Yujian, Director Mr. Chen Honghai, Director Mr. Ding Lihong and Chairman of the Supervisory Committee Mr. Yan Mingfei received no payment from the Company. Of them, Director Chen Honghai and Director Ding Lihong drew the annual remuneration from Shenzhen Shenghengchang Industrial Co., Ltd.. 3. Directors, supervisors and senior executives leaving the office in the report period In the report period, the Company’s directors, supervisors and senior executives remained unchanged. II. About employees Ended Dec. 31, 2004, the Company and its subsidiaries have totally 4500 employees in office with details as follows: 1. Composing of professional: 2900 production personnel, 960 salespersons, 210 technicians, 150 QC personnel, 95 financial personnel, and 210 administrative personnel. 2. Background of education: 8 persons with high-grand titles; 75 persons with secondary-grand titles; 180 persons with primary titles. 3. The Company has no retirees. Section VI. Administrative Structure I. Administration of the Company The Company established and perfected its administrative structure such as Shareholders’ General Meeting, Board of Directors and Supervisory Committee and strictly standardized the Company’s operation since the Company was founded in accordance with Company Law, Securities Law and Administration Rules of Listed Companies and the relevant laws and 9 regulations, and constituted and consummated the Articles of Association of the Company and the relevant other systems in line with the relevant rules and strengthened the management of investor relationship. At present, the Company’s independent directors has reached one third of members of the Board of Directors. The Company existed no punishment and attention such as open censure, open aviso criticism, internal criticism and administrative punishment decision letter made by SSE. In order to further perfect the Company’s administrative structure and standardized the Company’s operation, the Company periodically called its senior executives to study the relevant laws and regulations, continually promoted and consummated performance evaluation, incentive and restriction mechanism of the managers, and brought the functions of independent directors, the special committees of the Board and the Supervisory Committee into full play in the Company’s operation and management. The actual situations of the Company’s administrative structure basically accorded with the requirements of Administration Rules of Listed Companies and so on. The Company has revised and constituted the relevant internal management documents according to the Rules for Listing of Shares (2004 Revision) enacted by Shenzhen Stock Exchange. II. Implementation of duties of independent directors With the Guide Opinion on Establishing Independent Directors System in Listed Companies as guidance, and strictly according to the regulations of the relevant laws and rules, three independent directors of the Company seriously and diligently performed their duties and actively attended the Board meeting and shareholders’ general meeting, and carefully examined all proposals of the Board and made independent opinion in the report period, and played an important role in enhancing the independent of the Board, strengthening the function of strategic management of the Board, balancing of rights of the Board and concentrating on the legal rights and interests of the small and middle investors, and played an active promotion role in scientific decision-making of the Board and normative operation of the Company, and veritably protected the interests of the Company and the vast investors. Name of Times that should be Times of Times of Times of independent attend the Board personal commission absence directors meeting presence presence Cai Shaohe 9 9 0 0 Yang Xinfa 9 9 0 0 Fang Meidi 9 7 0 2 During the report period, the Company’s independent directors did not propose the objection on all proposals of the Board and other proposals of the Company. III. The Company was separated with the controlling shareholder, Shenzhen Shenghengchang Industrial Co., Ltd. in business, personal, assets, organization and financing 1. In respect of business, the Company’s production and operation was completely independent the control shareholder. The activities of production and operation such as production, supply and sale were made decision by the Company. The Company need not depend on the control shareholder to conduct the activities of production and operation. The Company has independent systems of purchase, sale and production as well as independent and complete business and self-operation ability. There is no competition in the same industry between the controlling shareholder and the Company and the subsidiaries of the controlling shareholders have no same or similar business with the Company. 2. In respect of personal, Chairman of the Board of the Company is elected by the Board and is not the legal representative of the controlling shareholder. Chairman of the Board, President, Vice President, person in charge of financing, secretary of the Board of Directors and other senior executives did not take management posts and receive remuneration in the controlling shareholder. The Company established special human resources and administration department and independently managed the work of labor, personnel and salary. 10 3. In respect of assets, the Company had independent and complete system of production, management and sale and affiliates. The trademark and real estate were independently held by the Company and there existed no situation that the principal shareholder or related parties occupied the assets of the Company in any wrong way. 4. In respect of organization, the Company established perfect organization system and had independent financial center, human resources and administration department, capital operation department, auditing department and other administration and functional departments. The Shareholders’ General Meeting, the Board of Directors, the Supervisory Committee independently operated and they were separated from the big shareholder. 5. In respect of financing, the Company established independent financial settlement system and financial management system according to Accounting System for Business Enterprise and so on. The Company established independent financial department, independently opened account in bank and paid tax. The Company does not share one bank account with the controlling shareholder. Section VII. Brief Introduction to Shareholders’ General Meeting In the report period, the Company has held the 2003 Shareholders’ General Meeting and the 1st Extraordinary Shareholders’ General Meeting for 2004. I. 2003 Shareholders’ General Meeting On Feb. 27, 2004, the 1st Meeting of the 3rd Board of Directors for 2004 of the Company examined and approved the proposal on holding the 2003 Shareholders’ General Meeting and Notification of the Meeting was published on Securities Times and Hong Kong Ta Kung Pao dated Mar. 2, 2004. The 2003 Shareholders’ General Meeting was held at the conference room of the Company in Meixin Industrial Park, Junbu Town, Puning at 10:00 a.m. on Apr. 5, 2004. Totally 5 shareholders and shareholder’s proxies, who hold 158,172,140 shares in total, attended the Shareholders’ General Meeting, taking 59.6% of total share capital of the Company (including 136,687,500 domestic shares, taking 51.4% of total share capital of the Company; 21,484,640 foreign shares, taking 8.1% of total share capital), which was in compliance with the provisions in Company Law and Articles of Association of the Company. The Company’s directors, supervisors, senior executives and lawyers engaged have attended the Meeting as non-voting delegates and the following proposals have been examined and passed in the Meeting by means of registered voting: 1. 2003 Work Report of the Board of Directors; 2. 2003 Work Report of the Supervisory Committee; 3. Financial Report for 2003; 4. 2003 Profit Distribution Preplan and Conversion of Capital Reserve into Share Capital; 5. Amending Articles of Association of the Company; 6. Engaging Shenzhen Pengcheng Certified Public Accountants and Baker Tilly Hong Kong Limited Certified Public Accountants as domestic auditor and international auditor of the Company respectively; the Company respectively paid the remuneration of auditing work amounting to RMB 260,000. The resolutions of the Meeting were published on Securities Times and Hong Kong Ta Kung Pao dated Apr. 6, 2004. II. Extraordinary Shareholders’ General Meeting for 2004 On Apr. 29, 2004, the 3rd Meeting of the 3rd Board of Directors for 2004 of the Company examined and approved the proposal on holding the 1st Extraordinary Shareholders’ General Meeting for 2004, and the Company published Notification of the Meeting on Securities Times and Hong Kong Ta Kung Pao dated Apr. 30, 2004. The 1st Extraordinary Shareholders’ General Meeting for 2004 was held at the Company’s conference room in Meixin Industrial Park, Junbu Town, Puning at 10:00 a.m. on May 31, 2004. The Meeting was presided over by Chairman of the Board Mr. Chen Hongcheng. Totally 6 11 shareholders and shareholder’s proxies attended the Shareholders’ General Meeting, holding 190,281,618 shares in total, taking 59.7% of total share capital of the Company (including 164,025,000 domestic shares, taking 51.5% of total share capital of the Company, and 26,256,618 foreign shares, taking 8.2% of total share capital), which was in compliance with the provisions in Company Law and Articles of Association of the Company. The Company’s directors, supervisors, senior executives and lawyers engaged have attended the Meeting as non-voting delegates and the following proposals have been considered and passed in the Meeting by registered voting: 1. The proposal on the Company accorded with the conditions of additionally issuing domestically listed foreign shares (B shares) and listing; 2. Voted item by item the proposal on additionally issuing domestically listed foreign shares (B shares); 3. Voted item by item the proposal on submitting to the Shareholders’ General Meeting to authorize the Board of Directors to conduct the relevant matters of the said additional issuance of domestically listed foreign shares (B shares); 4. The proposal on period of validity of the said additional issuance of domestically listed foreign shares (B shares); 5. The proposal on feasibility of using of the raised proceeds from additional issuance of domestically listed foreign shares (B shares); 6. Special Report on the Use of the Previous Raised Proceeds; 7. Explanation of the Board of Directors on the Use of the Previous Raised Proceeds; 8. Disposal plan on Undistributed Profits. The resolutions of the Meeting were published on Securities Times and Hong Kong Ta Kung Pao dated Jun. 1, 2004. Section VIII. Report of the Board of Directors I. Discussion and analysis to the operation in the report period: In the report period, the Company kept a good development tendency and its achievement has increased by a certain margin compared with the same period of 2003. In 2004, the Company realized income from main operations amounting to RMB 652 million, up 33.47% year-on-year; and realized profit from main operations of RMB 193.08 million, an increase of 22.42% compared with the same period of last year, which was mainly because that the Company adjusted the sales policies of products and enlarged the sales of domestic brand garments, resulting in raise of sale volume; and realized net profit of RMB 53.05 million, an increase of 11.50% than over the same period of last year. The Company’s operating expenses has increased by 60% compared with the same period of last year, which was mainly because of the increase of the Company’s export sales and brand apparel sales; expenses of income tax has increased by 273% than that in the same period of last year, which was mainly because that the Company’s total profit has risen and Puning Tianhe (the controlling subsidiary of the Company) in the current period was in the first collection period of halving of income tax. II. Operation (I) Scope of main operations and its operation 1. Scope of main operations: The Company is mainly engaged in the self-operation and agency of import and export business of all commodities and technology except for the export commodities organized and operated jointly by the national and the import commodities whose operations in the companies are checked and ratified by the national, operation of processing & assembly with supplied materials, “ processing raw materials on clients’ demands, assembling parts for the clients and processing according to the clients’ samples or engaging in compensation trade”, and business of counter trade and transit trade (operated based on [98] WJMZSH Zi No. 1225 document). Production, processing and sales of garments, knitting and textiles, sales of industrial production materials 12 (excluding gold, silver, automobiles and chemical dangerous goods), hardware, transport, electric and chemical products (excluding chemical dangerous goods), general merchandise, furniture and craft & arts products (excluding gold and silver jewelry), grain and oil products, agricultural and byproducts (excluding grain and cotton) and planting and storage of crops, and all kinds of investment. 2. Operation: (1) Classified according to Income from main operations Gross profit of operation industries (RMB) (RMB) Garments manufacturing 651,717,620 194,273,287 (2) Classified according to Income from main operations Gross profit of operation areas (RMB) (RMB) Sales of export garments 442,058,099 74,724,731 Sales of domestic garments 209,659,521 119,548,556 (II) Operation and achievements of main holding companies and share-holding companies A. Business of Men’s Clothing The following 11 companies were engaged in brand marketing business of man’s clothing, and mainly took the agents of production and sales of American brands such as “Sbpolo”, “Jeep” and “Sideout” in Chinese Mainland. Of which, Guandong Liwei Fashion Manufacture Co., Ltd. was engaged in the production of brand apparel; Shanghai Jiacheng Trading Co., Ltd. was mainly engaged in sales business of the Group; Sichuan Baodewei Trading Co., Ltd. and Guangzhou Ruicheng Trade Co., Ltd. are two speciality shops which are engaged in the clothing brand and are established based on the needs of Industrial and Commercial Registration; and other companies such as Shanghai Tongrui Apparel Co., Ltd. were engaged in sales business of brand apparels. International Internet websites of agency brands are as follows: http://www.sbpolo.com.cn., http://www.jeep-apparel.com.cn and http://www.sideout.com.cn. 1. Guangdong Liwei Dressing Co., Ltd. is mainly engaged in the production of brand apparel with registered capital of RMB 500,000, whose 70% equity was held by the Company. In the report period, this company’s total assets was RMB 71,612,300, and net profit realized was RMB -141,200. 2. Shanghai Baowei Apparel Co., Ltd. is mainly engaged in the sales business of brand apparel such as SBPOLO with registered capital of RMB 1,000,000, whose 70% equity was held by the Company. In the report period, this company’s total assets was RMB 75,477,900, and net profit realized was RMB 31,768,600. 3. Shanghai Tongrui Apparel Co., Ltd. is mainly engaged in the sales business of brand apparel such as SBPOLO with registered capital of RMB 1,200,000, whose 70% equity was held by the Company. In the report period, this company’s total assets was RMB 22,415,300, and net profit realized was RMB -164,700. 4. Guangdong Gangwei Apparel Co., Ltd. is mainly engaged in the sales business of brand apparel such as SBPOLO with registered capital of RMB 5,000,000, whose 70% equity was held by the Company. In the report period, this company’s total assets was RMB 1,173,000, and net profit realized was RMB -1,153,700. 5. Beijing Baowei Apparel Co., Ltd. is mainly engaged in the sales business of brand apparel such as SBPOLO with registered capital of RMB 500,000, whose 70% equity was held by the Company. In the report period, this company’s total assets was RMB 2,156,800, and net profit realized was RMB -344,800. 13 6. Beijing Baodewei Apparel Co., Ltd. is mainly engaged in the sales business of brand apparel such as SBPOLO with registered capital of RMB 500,000, whose 70% equity was held by the Company. In the report period, this company’s total assets was RMB 2,522,000, and net profit realized was RMB -1,756,400. 7. Guangzhou Ruitang Trade Co., Ltd. is mainly engaged in the sales business of brand apparel such as SBPOLO with registered capital of RMB 500,000, whose 70% equity was held by the Company. In the report period, this company’s total assets was RMB 483,700, and net profit realized was RMB -16,300. 8. Shanghai Baodewei Apparel Co., Ltd. is mainly engaged in the sales business of brand apparel such as SBPOLO with registered capital of RMB 1,000,000, whose 70% equity was held by the Company. In the report period, this company’s total assets was RMB 20,095,900, and net profit realized was RMB 15,729,700. 9. Shanghai Jiacheng Trading Co., Ltd. is mainly engaged in the sales business of the Group of brand clothing such as SBPOLO with registered capital of RMB 500,000, whose 70% equity was held by the Company. In the report period, this company’s total assets was RMB 2,514,700, and net profit realized was RMB 1,459,300. 10. Sichuan Baodewei Trading Co., Ltd. is a speciality shop with registered capital of RMB 300,000, whose 70% equity was held by the Company. It is mainly engaged in retail business of brand apparel such as SBPOLO. In the report period, this company’s total assets was RMB 446,200, and net profit realized was RMB -180,000. 11. Guangzhou Ruicheng Trade Co., Ltd. is a speciality shop with registered capital of RMB 500,000, whose 70% equity was held by the Company. It is mainly engaged in retail business of brand apparel such as SBPOLO. In the report period, this company’s total assets was RMB 481,200, and net profit realized was RMB -18,600. As a necessary result, the parallel operation framework among the aforesaid companies operating brands of men’s clothing resulted in the reiteration of organization arrangement, and was difficult to realize the resource sharing. Thus, the Company decided to adjust framework of the subsidiaries operating brands garments of men’s leisure-wear. Through adjustment, the Company will realize unified management, unified purchasing, unified production and unified marketing, and realize optimization and resource sharing, and reduce operation links, and streamline organs, and further enhance efficiency, and cause more scientific, more reasonable and more high-efficient to business flow, accordingly, further upgrade the achievements of brand sales business, and lay the foundations for development of enterprise becoming specialized brand marketing enterprise of men’s clothing. B. Brand Business of Women’s Clothing 1. Shenzhen Chuanger Fashion Co., Ltd. is mainly engaged in the production and sales of women’s brand “MISSK” of Hong Kong in mainland of China with registered capital of RMB 12,000,000, whose 51% equity was held by the Company. Its international Internet website is http://www.misskfashion.com. In the report period, this company’s total assets was RMB 28,122,300, and net profit realized was RMB 1,710,000. 2. Shenzhen Heyiyi Fashion Co., Ltd. is mainly engaged in the production and sales of women’s brand “AXARA” of France in China with registered capital of RMB 10,000,000, whose 51% equity was held by the Company. Its international Internet website is http://axara-hyy.com.cn. In the report period, this company’s total assets was RMB 18,349,600, and net profit realized was 14 RMB -151,200. C. Production Business of Garments 1. Puning Tianhe Textile Manufactory Co., Ltd. is mainly engaged in the processing and export business of OEM garments with registered capital of HKD 50,000,000, whose 75% equity was held by the Company. In the report period, this company’s total assets was RMB 381,379,400, and net profit realized was RMB 50,729,100. 2. Dongguan Jinjing Textile Manufactory Co., Ltd. is mainly engaged in the production processing and sales of high-grade wool garments with registered capital of USD 12,800,000, whose 75% equity was held by the Company. In the report period, this company’s total assets was RMB 93,101,800, and net profit realized was RMB -336,500. D. Other 1. Puning Rieys Paper Co., Ltd. is mainly engaged in the production and sales of corrugated paper series products with high strength with registered capital of USD 29,000,000, whose 51% equity was held by the Company. In the report period, this company’s total assets was RMB 266,420,600. 2. Shenzhen Rieys Industrial Co., Ltd. is mainly engaged in the import and export business with registered capital of RMB 50,000,000, whose 90% equity was held by the Company. In the report period, this company’s total assets was RMB 136,274,700, and net profit realized was RMB 6,333,100. (III) Main suppliers and customers The total amount of purchase of the top five suppliers took 49% of the total annual amount of purchase. The total amount of sales of the top five customers took 44% of the total annual amount of sales. (IV) Problems and difficulties arising from the operation and their solutions 1. In 2004, the Company developed to good tendency, while there still existed some problems in operation, mainly manifesting as follows: (1) The Company consistently kept and developed core business of production and export of clothes. Therefore, export tax-rebation was a significant element affecting operating achievements of the Company. In 2003, the State adjusted the export tax-rebation rate down by 3% averagely. In the adjustment, most of textile decreased from 17% to 13%. From Jan. 1, 2004, no matter what enterprise export goods in what type of trading, it should observe the regulated export tax-rebation rate, which produced certain influence on the production and operation of the Company. In 2004, the influence on the Company was that it coursed the operating cost of export clothing rise to RMB 14,128,200. For the further, adjustment like that of export rebation rate would cause effect on the operating achievements of the Company. (2) Tightly based on the core business of clothes operation, through implementing series of active and steady brand marketing expanding plans, the Company has realized transition from single clothes production to clothes production and brand marketing paralleled. At present, brand marketing of the Company possessed certain popularity at home and the market share rate improved constantly, which provided another important profit source of the Company. However, since the Company listed on the market, it had no new direct financing channel. At present, the Company lied in rapid expanding stage demanding great amount of capital. Therefore, the Company could invest with short-term financing from banks. The Company had made up development strategy of setting up clothes brand group, but single financing channel restricted the implantation of development strategy. (3) Papermaking industry involved by the Company was intensive industry of capital, technology and resources, and need various talents in chemistry, machinery and electronics. In the aspect of characteristics and detail business, papermaking industry had much dissimilarity with textile 15 industry. It existed new business risks. 2. With respect to this situation, the Company mainly adopted following measures to solve the above problems: (1) With regarding the increase and declination of tax preferable policies, the Company would actively implement determined development strategy and consistently cultivate new profit increasing points. Meanwhile, the Company would strengthen internal financial management, cut down operating costs, dig out inner potentiality, reduce product costs, improve market share rate to decrease adverse influences brought by tax policies. Meanwhile, speed-up of tax rebation of enterprise would reduce insufficiency for tax rebation timely, which would improve capital turnover speed of the Company and reduce capital occupation level of the Company and cut down financial expenses; simultaneously, from 2004, central finance afford interests for the total amount of export tax rebation owed to the enterprises, which would reduce financial burden of export enterprises. (2) The Company would adopt various measures to dig out potentiality itself: (i) strengthen call-back of accounts receivable and other accounts receivable, and inflow capital; (ii) through reorganize resources of every brand and organize system, optimize resources arrangement, further decreased operating costs; (iii) continue to implement refinancing application to CSRC at the adequate time. (3) The Company adjusted development mind, put clothes as core business and decided to strengthen and large core business. The Company would not conduct trans-industry development and concentrate resources into core business. The Company would actively introduce management and technology staff at home and abroad, and at the same moment, strengthened education and training on inner staff of the Company to reduce the application period of the Company into paper-making industry and speed up implementation of project. III. Investment (I) In the report period, the Company’s long-term equity investment decreased by RMB 4,655,619, which was mainly because in the report period, the Company amortized the equity investment balance of Shanghai Baowei Apparel Co., Ltd., Guangdong Liwei Apparel Co., Ltd., Guangdong Gangwei Apparel Co., Ltd., Beijing Baowei Apparel Co., Ltd., and Shenzhen Chuanglian Information Network Technology Co. Ltd.. (II) In the report period, the Company had no application of the proceeds newly raised. (III) Investment of the proceeds not raised by shares offering in the report period 1. In the report period, the Company increased investment of RMB 5.1 million in cash to Shenzhen Heyiyi Fashion Co., Ltd.. After increasing investment, registered capital of Shenzhen Heyiyi Fashion Co., Ltd. attained to RMB 10 million and the Company held 51% equity. 2. The Company invested RMB 0.35 million in cash and set up Guangzhou Ruitang Trade Co., Ltd. with Mr. Zhang Yongli. The Company held 70% equity. 3. The Company invested RMB 0.35 million in cash and set up Shanghai Jiancheng Trading Co., Ltd. with Mr. Zhang Yongli. The Company held 70% equity. The company mainly operates in purchasing business of Group including brand clothes including Santa Polo etc.. 4. The Company invested RMB 0.35 million in cash and set up Sichuan Baodewei Trading Co., Ltd. with Mr. Zhang Yongli. The Company held 70% equity. This company is a speciality shop which are engaged in the clothing brand and are established based on the needs of Industrial and Commercial Registration. 5. The Company invested RMB 0.35 million in cash and set up Guangzhou Ruicheng Trade Co., Ltd. with Mr. Zhang Yongli. The Company held 70% equity. This company is a speciality shop which are engaged in the clothing brand and are established based on the needs of Industrial and Commercial Registration. 6. The Company was assigned 70% equity of Shanghai Baodewei Apparel Co., Ltd. at the price of RMB 0.7 million. The commerce and trade change corresponding to Shanghai Baodewei Apparel Co., Ltd. has accomplished. 7. The Company invested USD 14.79 million and set up Sino-foreign joint venture Puning Rieys 16 Paper Industry Co., Ltd. with Japan New Century Trade Co. Ltd., and the Company held 51% equity. The Company has accomplished investment on Puning Rieys Paper Industry Co., Ltd. with total investment amount of RMB 122,353,300; Japan New Century Trade Co. Ltd., another shareholder of Rieys Paper Industry, has invested RMB 78,409,222. At present, it is conducting implementation of draining channels. 8. The Company invested USD 9.6 million and set up sino-foreign enterprise Dongguan Jinjing Textile Manufactory Co., Ltd. with Guangkang (Hong Kong) Co., Ltd.. The Company held 75% equity. At present, the company was equipped 56 pieces of “STOLL” computer woolen machine exported from Germany and 5 pieces of floriated work station and relevant supplementary facilities, with operating areas over 7,000 square meters and over 300 employees. The company implemented production in the second half of 2004. 9. The Company planned to invest USD 22.35 million and establish Sino-foreign enterprise Puning Tianye Chemical Simulation Textile Co., Ltd. with Japan YAMASHITA Commercial Co., Ltd.. The Company held 75% equity. The project was in the stage of prophase preparing. 10. The controlling subsidiary of the Company, Shenzhen Rieys Industrial Co., Ltd. established wholly owned subsidiary, Tianrui (Hong Kong) Trade Co., Ltd., which signed Agreement on Transferring Equity of Puning Tianhe Textile Manufactory Co., Ltd. on Dec. 16, 2004 with Hong Kong Xingli Trade Corporation. Tianrui (Hong Kong) Trade Corporation was assigned 25% equity of Puning Tianhe Textile Manufactory Co., Ltd. held by Hong Kong Xingli Trade Corporation at the price of HKD 12,500,000 (translated into RMB 13,315,441). IV. Financial status and operating results in the report period Items Amount at the end of Amount at the end of Increased and 2004 (RMB) 2003 (RMB) decrease rate (%) Total assets 1,279,012,027 1,117,318,635 14.47 Shareholders’ equity 515,279,642 458,700,621 12.33 Profit from main 193,079,579 157,715,935 22.42 operations Net profit 53,052,158 47,579,585 11.50 Net increase in cash 8,438,100 -90,773,086 109.30 and cash equivalents Main reasons for changes: Total assets: The annual profitability and liabilities increased. Shareholders’ equity: It is the profitability in the report period. Profit from main operations: The gross profit ratio increased. Net profit: sustaining development of clothing export and sales business in home; Net increase in cash and cash equivalents: increase of cash flow arising from investing activities V. In the report period, the production and operation environment, macro-policies and regulations experienced changed, which had no material impact on the financial status and operating results of the Company. VI. Routine work of the Board of Directors (I) In the report period, the Board meetings and resolutions was as follows: In the report period, the Board of Directors of the Company totally held 9 meetings. 1. The 1st Meeting of the 3rd Board of Directors for 2004 of the Company was held in the Company’s Conference Room, 26/F, Jiangsu Building, Yitian Road, Futian, Shenzhen on Feb. 27, 2004. The following proposals have been considered and passed in the Meeting: (1) Work Report 2003 of the Board; (2) Financial Settlement Report 2003; (3) Preplan of Profit Distribution and Capital Public Reserve into Share Capital 2003; (4) Annual Report 2003 and its Summary; (5) Revising Articles of the Association; (6) Making up Internal Auditing System; (7) Proposal on Reengaging Domestic and Overseas CPAs and the Remuneration; 17 (8) Proposal on Holding 2003 Shareholders’ General Meeting; 2. The 2nd Meeting of the 3rd Board of Directors for 2004 of the Company was held in the Company’s Conference Room, 26/F, Jiangsu Building, Yitian Road, Futian, Shenzhen on Apr. 16, 2004. The following proposals have been considered and passed in the Meeting: 2004 1st Quarterly Report 3. The 3rd Meeting of the 3rd Board of Directors for 2004 of the Company was held in the Company’s Conference Room, 26/F, Jiangsu Building, Yitian Road, Futian, Shenzhen on April 29th, 2004. The following resolutions have been considered and passed in the Meeting: (1) Proposal on the Company in Compliance with Provisions for Increase Investment to Issue Domestically Listed Foreign Shares (B-share) and List on the Market; (2) Proposal on Increasing Investment to issue Domestically Listed Foreign Shares (B-share); (3) Proposal on Submitting Shareholders’ General Meeting to Authorize the Board Full Rights to Transact Relevant Affairs about Increasing Investment to issue Domestically Listed Foreign Shares (B-share); (4) Proposal on Period of Validity of Increasing Investment to issue Domestically Listed Foreign Shares (B-share); (5) Proposal on Analysis of Feasibility of Increasing Investment to issue Domestically Listed Foreign Shares (B-share) for Raising Proceeds; (6) Special Report on Usage of Raised Proceeds Last Time; (7) Explanation of the Board on Usage of Raised Proceeds Last Time; (9) Preplan on Disposing Retained Profit; (10) Proposal on Holding 1st Provisional Shareholders’ General Meeting in 2004. 4. The 4th Meeting of the 3rd Board of Directors for 2004 of the Company was held in the Company’s Conference Room, 26/F, Jiangsu Building, Yitian Road, Futian, Shenzhen on April 30th, 2004. The following proposal has been considered and passed in the Meeting: Providing guarantee for Palm Spring Property Development (Shenzhen) Co., Ltd.. 5. The 5th Meeting of the 3rd Board of Directors for 2004 of the Company was held in the Company’s Conference Room, 26/F, Jiangsu Building, Yitian Road, Futian, Shenzhen on Jun. 11, 2004. The following proposal has been considered and passed in the Meeting: Providing guarantee for maximum comprehensive credit line amounting to RMB 60 mil of Shenzhen Rieys Industrial Co., Ltd. applying from Shenzhen Nanshan sub-branch of Agricultural Bank of China. 6. The 6th Meeting of the 3rd Board of Directors for 2004 of the Company was held in the Company’s Conference Room, 26/F, Jiangsu Building, Yitian Road, Futian, Shenzhen on Jul. 27, 2004. The following proposal has been considered and passed in the Meeting: Proposal on Exempting Joint Paying Responsibility of the Company for Paying Articles that Shenzhen Shenhengchang Industrial Co., Ltd. was assigned equity of Shenzhen Yuanwang City Multi-media Computer Co., Ltd.. 7. The 7th Meeting of the 3rd Board of Directors for 2004 of the Company was held in the Company’s Conference Room, 26/F, Jiangsu Building, Yitian Road, Futian, Shenzhen on Aug. 2, 2004. The following proposals have been considered and passed in the Meeting: (1) Semi-annual Report 2004 and its Summary; (2) Adjusting the Structure of Subsidiaries Operating Men’s Casual Brand Wearing with Shanghai Tongrui Apparel Co., Ltd. as the core. 8. The 8th Meeting of the 3rd Board of Directors for 2004 of the Company was held in the Company’s Conference Room, 26/F, Jiangsu Building, Yitian Road, Futian, Shenzhen on Oct. 27, 2004. The following proposals have been considered and passed in the Meeting: (1) 3rd Quarterly Report of 2004; (2) Providing guarantee for Palm Spring Property Development (Shenzhen) Co., Ltd.. 8. The 9th Meeting of the 3rd Board of Directors for 2004 of the Company was held in the Company’s Conference Room, 26/F, Jiangsu Building, Yitian Road, Futian, Shenzhen on Dec. 17, 2004. The following proposal has been considered and passed in the Meeting: 18 Tianrui (Hong Kong) Trade Corporation was assigned 25% equity of Puning Tianhe Textile Manufactory Co., Ltd.. (II) The Board of Directors’ implementation to Shareholders’ General Meeting in the report period: The Company’s Shareholders’ General Meeting for 2003 held on Apr. 5, 2004 considered and passed profit distribution and plan and project on converting capital public reserve into share capital for 2003: based on profit after tax amounting to RMB 47,579,585 in 2003 as audited by Shenzhen Pengcheng Certified Public Accountants, after being appropriated 10% of the said profit as statutory surplus public reserve amounting to RMB 4,757,959 and being appropriated 5% as welfare fund amounting to RMB 2,378,979 and adding retained earnings carried down from the end of 2002 amounting to RMB 2,651,487, the total profit available for distribution to shareholders was RMB 43,094,133. The profit distribution plan and project on converting capital public reserve into share capital in 2003 was: Based on total share capital amounting to 265,500,000 shares dated Dec. 31, 2003, allotting 1 bonus shares for every 10 shares by using the retained earnings, converting capital public reserve into share capital amounting to 1 share for every 10 shares, all of which totally amounts to 1 share converted and 1 share allotted for every 10 shares. The Company’s total share capital shall be expanded to 318,600,000 after the plan was implemented. The Board of Directors of the Company published implementation notice on dividends distribution and capital public reserve’s converting into share capital for 2003 on Securities Times and Hong Kong Ta Kung Pao dated May 10, 2004 and confirmed that the final trading date, ex-right date and listing date of new circulated shares are May 10, May 18, and May 20, 2004 respectively. The profit distribution plan and project on converting capital public reserve into share capital for 2003 is now completed in implementation. 2. 2004 1st Provisional Shareholders’ General Meeting of the Company held on May 31, 2004 examined and approved Proposal on the Company Increasing Investment to Issue Domestically Listed Foreign Shares (B-share) and List on Market VII. Profit distribution preplan and preplan on converting capital public reserve into share capital for the year Ended Dec. 31st, 2004, the profit after tax of the year audited and confirmed by Shenzhen Pengcheng Certified Public Accountants and Baker Tilly Hong Kong Limited Certified Public Accountants according to Chinese Accounting Standards and International Accounting Standards respectively was RMB 53,052,158 and RMB 53,210,001 respectively. According to the principle of the lower amount in profit distribution, based on the profit after tax amounting to RMB 53,052,158 in 2004 audited by Shenzhen Pengcheng Certified Public Accountants, after being appropriated as statutory surplus public reserve amounting to RMB 5,449,521 and 5% as public welfare fund amounting to RMB 2,724,761 and adding retained earnings carried down from end of 2003 amounting to RMB 43,094,133 and subtracting the dividend of ordinary shares transferred into share capital amounting to RMB 26,550,000, thus the total profit available for distributing to shareholders is RMB 61,422,009. The profit distribution preplan and project on converting capital public reserve into share capital in 2004 is: based on total number of shares amounting to 318,600,000 shares on Dec. 31st, 2004, the Company allots cash dividend at the rate of HKD 0.5 for every 10 shares by using retained earnings, which totally amounts to allotting cash dividends HKD 15,930,000. VIII. Other issues: (I) Special explanations of public accountants on capital occupation by the controlling shareholder and other related parties: According to Notification of Problems on Standardizing Capital Current of Listed Companies and Related Parties and Listed Companies’ Guarantee for External (ZJF [2003] No. 56) of CSRC, the auditing organization of the Company issued Explanation on Special-item Auditing of Capital’s Occupancy of Principal Shareholder of Guangdong Rieys (Group) Company Ltd. and Other Related Parties: 19 To all shareholders of of Guangdong Rieys (Group) Co., Ltd.: We accepted the entrusting of Guangdong Rieys (Group) Co., Ltd. (“the Company”) and conducted the special-item check for capital’s occupancy of the principal shareholder and other related parties of the Company ended as at Dec. 31, 2004. The duties of the management of the Company are supplying the true, legal and complete original written materials, manuscripts or oral attestation on capital’s occupancy of the principal shareholder and other related parties, and “Statement of Capital of Listed Companies Occupied by Related Parties” and our duties are providing auditing explanation on capital’s occupancy of the principal shareholder and other related parties of the Company according to our special-item check. We conducts our check according to Notification of Problems on Standardizing Capital Current of Listed Companies and Related Parties and Listed Companies’ Guarantee for External (ZJF [2003] NO. 56) of CSRC. In the process of check, according to Independent Auditing Rule of CPA of China, we made cautious investigation and implemented check procedure that we believed to be necessary. The special-item auditing explanation is only used to submit to the relevant supervision and management department by the Company and can not be used for any other aim. 1. The controlling shareholders and other related parties (1) The controlling shareholders of the Company are as follows: Name of shareholders Kind of shares Percentage of shares held Shenzhen Shenghengchang Initiator Juridical person Industrial Co., Ltd. share 36.99% Shenzhen Risheng Investment Initiator Juridical person Co., Ltd. share 10.68% Chen Meixiang Foreign capital shares in circulation 8.08% Shantou Lianhua Industrial Initiator Juridical person Co., Ltd. share 3.81% Shenzhen Shenghengchang Industrial Co., Ltd. is the principal shareholder of the Company and holds 65,475,000 shares of the Company, taking by 36.99% of the total shares of the Company. There is associated relationship among of Shenzhen Shenghengchang Industrial Co., Ltd., Shenzhen Risheng Investment Co., Ltd., Shantou Lianhua Industrial Co., Ltd. and Mrs. Chen Meixiang and they belong to coincident action persons and are the controlling shareholders. 2. Other related parties Except for the controlling subsidiaries in the consolidated accounting statement, the related parties that have related current with the Company are as follows: Name of related parties Relationship with the Company HK Xinli Trade Co., Ltd. Shareholder of the controlling subsidiary of the Company Hong Kong Xinli Trade Co., Ltd. transferred 25% share equity of Tianhe Company on Nov. 30, 2004 to Tianrui Hong kong Co., Ltd.. 2. Capital’s occupancy of the controlling shareholder and other related parties (excluding the controlling subsidiaries in the consolidated accounting statement) Items Dec. 31, Increase this Decrease Dec. 31, Reason for Type of 2003 year this year 2004 occupation payment I. Operating occupation Accounts receivable: Hong Kong Normal Xinli Trade Co., 24,581,850 31,088,598 55,670,448 0 purchase Cash Ltd. and sale 3. Based on the materials that the Company provided and our check, ended as at Dec. 31, 2004, the Company and its controlling subsidiaries have no the following situations: 20 (1) Onerously or voluntarily lend the Company’s capital to the controlling shareholder and other related parties for use; (2) Provide entrust loan to related parties through bank and non-bank finance organizations; (3) Entrust the controlling shareholders and other related parties to invest; (4) Issue trade acceptance draft without real trade background for the controlling shareholder and other related parties; (5) Repay debts in place of the controlling shareholders and other related parties. 4. Others The 6th meeting of 3rd Board of the Company was held on Jul. 27, 2004. On Nov. 6, 2001, the Company signed Agreement with Shenzhen Yuanwang Technology Industrial & Trade Company and Shenhengchang that the Company would undertake joint payment responsibilities for the paying term that Shenhengchang was assigned 51% equity of Shenzhen Yuanwang City Munit-media Computer Co., Ltd. held by Shenzhen Yuanwang Technology Industrial & Trade Company at the price of RMB 16 mil.. Nemely, provided that Shenhengchang couldn’t pay or couldn’t pay on time, the Company would take payment responsibilities. According to the requirement of the Company, Shenhengchang Company had paid RMB 8 mil to the Company. Provided that the Company eventually took joint payment responsibilities, the Company would use directly and unconditionally for the purpose of undertaking relevant responsibilities and obligations of payment. Shenzhen Pengcheng Certified Public Accountants CPA of China Shenzhen China Hou Lixun (II) Special explanations and independent opinions of independent directors on the accumulative guarantees and guarantees in the report period of the Company as well as particulars of the implementation of relevant regulations: According to China ZJF [2003] No.56 Notification of Problems on Standardizing Capital Current of Listed Companies and Related Parties and Listed Companies’ Guarantee for External, cautious investigation concerning the capital current of related parties and external guarantees of the Company has been made. 1. Special Auditing Explanations on Capital Occupied Between Controlling Shareholders and Other Related Parties of Guangdong Rieys Group Company Ltd. produced by the Company’s auditing institution has truly reflected the Company’s situation. 2. The Company prudently carried out the duty of information disclosure on external guarantees strictly according to the relevant regulations of Listing Rules and Article of Association of the Company, and provided the certified public accountant the whole external guarantee items of the Company according to the facts and regulations. The total external guarantee of the Company amounted to RMB 14 million, taking up 2.72% of the net assets. The guaranteed parties had provided the Company counter guaranty exceeding the guarantee amount. The Company accumulatively provided guarantees amounting to RMB 116.904 million (calculated according to the proportion of shares of the subsidiaries held by the Company directly and indirectly) for controlling subsidiaries, taking 22.69% of net assets. The Company had no guarantee on the condition of overdue. 3. According to the requirements of the securities supervision and administration departments, the Company had amended the Article of Association of the Company and improved the examination and approval procedure of external guarantees as well as the credit standard of the guaranteed object. Meanwhile, the Company also strengthened the supervision and control of the external guarantee examination and approval procedure and the credit status of the guaranteed object, and would take measures to gradually reduce external guarantee amount. Section IX. Report of the Supervisory Committee I. Work of the Supervisory Committee in the report period Besides the supervisors attending the Board meeting of the Company as non-voting delegates, 21 the Supervisory Committee totally held two meetings: 1. The 1st meeting of the 2nd Supervisory Committee for 2004 was held on the morning of Feb. 27, 2004 at the meeting room on 26/F, Tower A, Jiangsu Bulg., Yitian Road, Futian District, Shenzhen. The following resolutions were examined and approved in this meeting: 1) Work Report 2003 of the Supervisory Committee; 2) Annual Report 2003 and its Summary; 3) Opinions of the Supervisory Committee on the operation of the Company in 2003. 2. The 2nd meeting of the 3rd Supervisory Committee for 2004 was held at the meeting room of the Company, on 26/F, Tower A, Jiangsu Building, Yitian Road, Futian District, Shenzhen on the morning of Aug. 2, 2004. The following resolutions were examined and approved: Semi-annual Report 2004 and its Summary II. Authorized by the Shareholders’ General Meeting, the Supervisory Committee and all supervisors performed the supervision duties according to the present laws and regulations of the State, the Article of Association and Rules of Procedure of the Supervisory Committee: (I) The Company’s operation according to laws In the report period, the Supervisory Committee conducted supervision and investigation about every item of work of the Company. The Company could strictly operate according to relevant policies, regulations of the State and the Articles of Association. Based on the principle of prudently operating and effectively preventing and minimizing risks, the Company had established a relatively perfect internal control system. While performing their duties in the Company, directors, general managers or other senior executives had no cases that were against laws, regulations, or Articles of Association, or did harm to the interests of the Company. (II) Financial situation of the Company The financial department of the Company could strictly carried out relevant State regulations, and no deed that was against the Company Law, Articles of Association or any other laws or regulations had been founded. The unqualified Auditor’s Report for the year 2004, which issued by Shenzhen Pengcheng Certified Public Accountant Ltd. and Baker Tilly Hong Kong Limited Certified Public Accountants, objectively and truly reflected the financial status and operating achievements of the Company. (III) In the report period, the Company had not used raised proceeds: (IV) Purchase of assets by the Company during the report period: 1. The Company acquired 50% equity of Shanghai Baodewei Apparel Co., Ltd. held by Mr. Zhang Yongli, 10% equity of Shanghai Baodewei Apparel Co., Ltd. held by Mr. Liu Wenbo and 10% equity of Shanghai Baodewei Apparel Co., Ltd. held by Mr. Lv Yi, which was no such case that these transactions had done harm to the interests of the shareholders or investors. 2. Tianrui (Hong Kong) Trading Co., Ltd., the sole corporation of the Company’s controlling subsidiary Shenzhen Rieys Industrial Co., Ltd., acquired 25% equity of Puning Tianhe Textile Manufactory Co., Ltd. held by Hong Kong Xingli Trading Corporation, which was no such case that the transaction had done any harm to the interests of the shareholders or investors. In the report period, the Company had no significant sales of assets. (V) Related transactions of the Company in the report period: 1. In the report period, the Company acquired 50% equity of Shanghai Baodewei Apparel Co., Ltd held by related party Mr. Zhang Yongli, and jointly invested and established Guangzhou Ruicheng Trade Co., Ltd, Guangzhou Ruitang Trade Co., Ltd, Shanghai Jiancheng Trading Co., Ltd., and Sichuan Baodewei Trading Co., Ltd. with Mr. Zhang, which was no such case that the said transactions had done harm to the interests of the shareholders or investors. 2. In the report period, Tianrui (Hong Kong) Trade Co., Ltd, the sole corporation of the Company’s controlling subsidiary Shenzhen Rieys Industrial Co., Ltd., acquired 25% equity of Puning Tianhe Textile Manufactory Co., Ltd. held by the related party Hong Kong Xingli Trade Co., Ltd. with whom Tianrui (Hong Kong) Trade Co., Ltd had no controlling relationship, which was no such case that the transaction had done any harm to the interests of shareholders or 22 investors. Section X. Important Events I. Significant lawsuits and arbitrations The Company had no significant lawsuits or arbitrations in the report period. II. Significant purchases within the report year (I) In the report period, the Company had increased investment to Shenzhen Heyiyi Fashion Co., Ltd.. (For more details, please refer to Item 1 of (II), III, and Section VIII.) (II) In the report period, with a total amount of RMB 0.7 million in cash, the Company acquired 50% equity of Shanghai Baodewei Apparel Co., Ltd. held by Mr. Zhang Yongli, 10% equity of Shanghai Baodewei Apparel Co., Ltd. held by Mr. Liu Wenbo and 10% equity of Shanghai Baodewei Apparel Co., Ltd. held by Mr. Lv Yi respectively. After acquirement, the Company held 70% equity of Shanghai Baodewei Apparel Co., Ltd., while Mr. Zhang Yongli continued to hold 30% equity of Shanghai Baodewei Apparel Co., Ltd.. The relevant industrial and commercial registration change of Shanghai Baodewei Apparel Co., Ltd. has been fulfilled. (III) In the report period, Tianrui (Hong Kong) Trade Co., Ltd., which is a sole corporation established by the Company’s controlling subsidiary Shenzhen Rieys Industrial Co., Ltd. (the Company holds its 90% equity) in Hong Kong, signed the Agreement on Transferring Equity of Puning Tianhe Textile Manufactory Co., Ltd. with Hong Kong Xingli Trade Co., Ltd. on Dec. 16, 2004. Tianrui (Hong Kong) Trade Co., Ltd. acquired 25% equity of Puning Tianhe Textile Manufactory Co., Ltd. held by Hong Kong Xingli Trade Co., Ltd. at the price of HKD 12.5 million (converting into RMB 13,315,441). Hong Kong Xingli Trade Co., Ltd. enjoyed the accumulative undistributed profit (unaudited) of Puning Tianhe Textile Manufactory Co., Ltd. before Nov. 30, 2004. Ended Nov. 30, 2004 amounting to RMB 132,142,800. At present, the relevant industrial and commercial change procedures are in process. III. In the report period, the Company had no significant related transactions. (For details, please refer to the Relationship and Transaction among the Related Parties in the Financial Report.) IV. Significant guarantees made by the Company in the report period 1. External guarantees made by the Company in the report period The Company provided a guarantee not exceeding RMB 14 million for Palm Spring Property Development (Shenzhen) Co., Ltd. from Industrial Bank, Shenzhen Technology Sub-Branch, and the guarantee term was 6 months since the contract-signing day. The guaranteed party provided a counter-guarantee to the Company with a large villa with construction area of 829.19 sq.m., which is located in the second phase of Palm Spring Villa, Yinhu, Luohu District, Shenzhen, and houses numbered complex 2F and 3F (with construction area of 706.12 sq.m.), which the guaranteed party owned the whole disposition rights. For details, please refer to the public notice of the Company published on Securities Times and Hong Kong Ta Kung Pao dated Oct. 28, 2004. 2. The guarantees provided by the Company to its subsidiaries within the report period 1) The Company provided joint responsibility guarantees for a one-year circulation fund loan of RMB 30 million from Shanghai Pudong Development Bank Shenzhen Branch, a one-year circulation fund loan of RMB 10 million from Hua Xia Bank Bao’an Sub-Branch, a one-year the highest comprehensive credit line amounting to RMB 60 million (the actual recurring amounted to RMB 20 million) from Agricultural Bank of China Nanshan Sub-Branch in Shenzhen respectively, which all had been applied by the Company’s controlling subsidiary Shenzhen Rieys Industrial Co., Ltd.. For details, please refer to the public notice of the Company published on Securities Time and Hong Kong Ta Kung Pao dated Jun. 15, 2004. 2) The Company respectively provided a joint responsibility guarantee contract for a loan line of circulation fund amounting to RMB 60 million (the actual occurring amount was RMB 50 million) from China Everbright Bank Guangzhou Branch, which had been applied by the Company’s controlling subsidiary Puning Tianhe Textile Manufactory Co., Ltd., and provided a guarantee for a loan of RMB 13 million from Puning Liusha Credit Cooperatives, which has been applied by the Puning Tianhe Textile Manufactory Co., Ltd.. For details, please refer to the 23 notification of the Company published in Securities Time and Hong Kong Ta Kung Pao dated Nov. 8, 2003. 3) The Company provided a guarantee for a maximum comprehensive credit line amounting to RMB 5 million applied by Shenzhen Chuang’er Fashion Co., Ltd. (the controlling subsidiary of the Company) from Shenzhen Commercial Bank Huanggang Sub-branch (the actual occurring amount was RMB 2.9 million). The external guarantee of the Company is totally amounting to RMB 14 million, taking up 2.72% of net assets; the Company accumulatively provided guarantee amou nting to RMB 116.904 million for controlling subsidiaries (calculated according to the proportion of shares of the subsidiaries held by the Company), taking up 22.69% of net assets. There was no guarantee on the condition of overdue. V. Commitments made by the Company or shareholders holding more than 5% shares in the report period or lasting to the report period 1. For details concerning commitments made by the Company in the report period or lasting into the report period, please refer to Item 1, 7, 8, and 9 of (II), III, Section VIII or the content in note IX of the Financial Report. 2. Shenzhen Shenghengchang Industrial Co., Ltd. promised to appropriate an amount not less than RMB 8 million to the Company before Aug. 30, 2004 as a protective measure for the Company, so as to thoroughly put an end to the payment responsibility the Company had shouldered during the transaction agreement by which Shenzhen Shenghengchang Industrial Co., Ltd. was transferred 51% stock rights of Shenzhen Yuanwangcheng Multi-Media Computer Co., Ltd.. For details, please refer to the notification of the Company published on Securities Time and Hong Kong Ta Kung Pao dated Jul. 29, 2004. On Aug. 30, 2004, Shenzhen Shenghengchang Industrial Co., Ltd. appropriated RMB 8 million to the Company. VI. The Company continued to engage Shenzhen Pengcheng Certified Public Accountant Ltd. and Baker Tilly Hong Kong Limited Certified Public Accountants as domestic and foreign accountant respectively in the report period. The total remunerations paid the accounting agencies in 2004 amounted to RMB 0.6 million. Remuneration paid to accounting agencies: Shenzhen Pengcheng Certified Baker Tilly Hong Kong Public Accountant Agent Limited Certified Public Accountants Total remuneration for 2004 RMB 0.3 million RMB 0.3 million Term of auditing service 2 years 2 years VII. In the report period, the Board of Directors, the Supervisory Committee, directors, supervisors or other senior executives of the Company had not been inspected, administratively punished or criticized with circulars by CSRC, nor had been condemned publicly by Shenzhen Stock Exchange. VIII. Events after the report period The Company provided a fund of USD 0.42 million in cash together with the Australian company SOMANCO PTY. LTD. to found the Sino-foreign joint venture company Dezhou Zhonghe Apparel Co., Ltd., of which the Company held 70% stock rights. On Jan. 6, 2005, approved by the Industrial and Commercial Administrative Bureau of Dezhou, Shandong Province, Dezhou Zhonghe Apparel Co., Ltd. was established. Section XI. Financial Report 1. Auditors’ Report (attached) Section XII. Documents for Reference 1. Accounting statements with the signatures and seals of legal representative, financial principal and person in charge of accounting 24 2. Original of Auditor’s Report with seals of accounting agencies and certified public accountants and seals and signatures of certified public accountants 3. Originals of all documents and manuscripts of public notifications of the Company ever disclosed publicly in Securities Times and Hong Kong Ta Kung Pao designated by CSRC. The Report is prepared both in Chinese and English. Should there be any difference in interpretation between the two versions, the Chinese version shall prevail. Board of Directors of Guangdong Rieys Group Company Ltd. Apr. 11, 2005 25 AUDITORS’ REPORT TO THE SHAREHOLDERS OF GUANGDONG RIEYS (GROUP) COMPANY LIMITED: (Incorporated in the People’s Republic of China with limited liability) We have audited the accompanying consolidated balance sheet of Guangdong Rieys (Group) Company Limited (the “Company”) and its subsidiaries (the “Group”) as of December 31, 2004, the related consolidated income statement, consolidated cash flow statement and consolidated statement of changes in equity for the year then ended. The financial statements set out on pages 2 to 25 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these 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 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 present fairly, in all material respects, the financial position of the Group as of December 31, 2004 and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. BAKER TILLY HONG KONG LIMITED Certified Public Accountants Hong Kong April 11, 2005 26 GUANGDONG RIEYS (GROUP) COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2004 (Expressed in thousands of Renminbi except for earnings per share) Notes 2004 2003 Sales 651,718 488,289 Cost of sales (458,638) (330,573) Gross profit 193,080 157,716 Other operating income, net 3 11,177 5,796 Distribution costs (56,010) (35,114) General and administrative expenses (43,405) (39,696) Profit from operations 104,842 88,702 Finance costs, net 4 (21,588) (15,232) Share of gain of an associate 116 58 Profit before tax 5 83,370 73,528 Income tax expenses 6 (7,870) (450) Profit after tax 75,500 73,078 Minority interests 24 (22,290) (25,495) Net profit for the year 53,210 47,583 Dividends 7 26,550 70,800 As restated Earnings per share - Basic and diluted 8 RMB0.17 RMB0.15 The accompanying notes are an integral part of these financial statements. - 27 - GUANGDONG RIEYS (GROUP) COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2004 (Expressed in thousands of Renminbi) Notes 2004 2003 ASSETS Non-current assets Property, plant and equipment, net 9 535,431 407,322 Land use rights, net 10 12,683 12,960 Goodwill 11 35,484 40,255 Computer software and other deferred assets 12 1,435 1,983 Prepayments for property, plant and equipment 13 95,976 35,237 Prepayments for long-term investments 14 - 60,900 Investments in an associate 16 12,961 12,845 Deferred tax assets 17(b) 3,798 3,562 697,768 575,064 Current assets Marketable securities 18 300 648 Inventories, net 19 95,918 74,648 Trade and other receivables, net 20 267,406 222,607 Prepayments 1,208 1,790 Advances to suppliers 21 131,779 85,287 Taxes recoverable 17(a) 21,946 57,523 Cash and cash equivalents 22 59,995 121,556 578,552 564,059 Total assets 1,276,320 1,139,123 LIABILITIES AND EQUITY Current liabilities Trade payables 79,533 131,305 Accruals and other payables 51,370 25,825 Short-term bank loans 23 504,900 383,300 Taxes payable 17(c) 7,965 2,331 643,768 542,761 Minority interests 24 119,448 136,468 Equity Share capital 25 318,600 265,500 Reserves 26 131,732 150,108 Retained earnings 62,772 44,286 513,104 459,894 Total liabilities and equity 1,276,320 1,139,123 The accompanying notes are an integral part of these financial statements. - 28 - GUANGDONG RIEYS (GROUP) COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2004 (Expressed in thousands of Renminbi) Reserves Statutory Share Share revenue Discretionary Retained Notes capital premium reserves reserve earnings Total Balances at January 1, 2003 177,000 92,854 30,817 27,000 84,640 412,311 Net profit for the year - - - - 47,583 47,583 Dividends 7, 25 70,800 - - - (70,800) - Issue of shares 25 17,700 (17,700) - - - - Appropriation from retained earnings - Statutory revenue reserves 26 - - 7,137 - (7,137) - - Discretionary reserve - - - 10,000 (10,000) - Balances at December 31, 2003 265,500 75,154 37,954 37,000 44,286 459,894 Net profit for the year - - - - 53,210 53,210 Dividends 7, 25 26,550 - - - (26,550) - Issue of shares 25 26,550 (26,550) - - - - Appropriation from retained earnings - Statutory revenue reserves 26 - - 8,174 - (8,174) - Balances at December 31, 2004 318,600 48,604 46,128 37,000 62,772 513,104 The accompanying notes are an integral part of these financial statements. - 29 - GUANGDONG RIEYS (GROUP) COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2004 (Expressed in thousands of Renminbi) Note 2004 2003 OPERATING ACTIVITIES Profit from operations 83,370 73,528 Adjustments for: Provision for doubtful debts 4,660 4,504 (Write back of) Provision for obsolete stocks (2,436) 724 Write back of provision for marketable securities - (25) Depreciation of property, plant and equipment 21,904 20,001 Loss on disposal of property, plant and equipment 31 - Amortization of land use rights 277 303 Amortization of goodwill 4,771 4,771 Amortization of computer software and other deferred assets 577 615 Share of gain of an associate (116) (58) Interest expenses 29,767 18,828 Interest income (8,976) (4,598) Operating profit before working capital changes 133,829 118,593 (Increase) Decrease in inventories (18,834) 13,869 Increase in trade and other receivables (59,944) (7,276) (Increase) Decrease in prepayments (45,911) 11,590 (Decrease) Increase in trade payables (51,772) 649 Increase in accruals and other payables 25,545 1,665 Cash (used in) generated from operations (17,087) 139,090 Interest paid (29,767) (18,828) Taxes refunded (paid) 33,105 (9,406) Net cash (used in) generated from operating activities (13,749) 110,856 INVESTING ACTIVITIES Purchases of property, plant and equipment (102,601) (155,423) Net proceeds from disposals of marketable securities 348 430 Increase in prepayments for property, plant and equipment (82,396) (35,237) Decrease (Increase) in prepayments for long-term investment 4,891 (60,900) Interest received 9,944 4,598 Net proceeds from disposals of property, plant and equipment 90 15,055 Decrease in other deferred assets (28) (1,072) Net cash flows used in investing activities (169,752) (235,549) FINANCING ACTIVITIES Increase in short-term bank loans 121,600 61,500 Decrease in long-term bank loan - (60,000) Contribution from minority shareholders 5,740 4,419 Dividends paid (5,400) - Net cash flows generated from financing activities 121,940 5,919 Net decrease in cash and cash equivalents (61,561) (115,774) Cash and cash equivalents, beginning of year 121,556 237,330 Cash and cash equivalents, end of year 22 59,995 121,556 The accompanying notes are an integral part of these financial statements. - 30 - GUANGDONG RIEYS (GROUP) COMPANY LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2004 (Expressed in thousands of Renminbi unless otherwise stated) 1. ORGANIZATION AND OPERATIONS Guangdong Rieys (Group) Company Limited (the “Company”) was incorporated as a joint stock limited company in the People’s Republic of China (the “PRC”) on November 17, 1997. Pursuant to the approval document No. [2000] 133 issued by the China Securities Regulatory Commission on September 29, 2000, the Company issued 69,000,000 domestically listed foreign shares (“B shares”) with a par value of RMB1 each and these shares were listed on the Shenzhen Stock Exchange on October 17, 2000. The Company and its subsidiaries (hereinafter referred to as the “Group”) are principally engaged in the production and sale of clothes. 2. PRINCIPAL ACCOUNTING POLICIES The principal accounting policies adopted in preparing the consolidated financial statements of the Group are as follows: Basis of presentation The consolidated financial statements of the Group are prepared in accordance with International Financial Reporting Standards (“IFRS”) and have been prepared under the historical cost convention. Principles of consolidation The consolidated financial statements include the Company and its subsidiaries made up to December 31. Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power; has the power to govern the financial and operating policies; to appoint or remove the majority of the members of the board of directors; or to cast majority of votes at the meetings of the board of directors. Details of the subsidiaries are set out on Note 15 below. The results of subsidiaries acquired or disposed of during the year are included in the consolidated financial statements from the effective date of acquisition or up to the date of disposal, as appropriate. The equity and net income attributable to minority shareholders’ interests are shown separately in the consolidated balance sheet and consolidated income statement respectively. All significant inter-company balances and transactions, including inter-company profit and unrealized profit and losses, within the Group are eliminated on consolidation. Cash and cash equivalents For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and demand deposits, and short-term highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand. For the purpose of the consolidated balance sheet, cash and bank balances comprise cash on hand and at banks, less any overdrafts in use. - 31 - 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Marketable securities Marketable securities are stated at their fair values on the basis of their quoted market prices at the balance sheet date, on an individual investment basis. The gains or losses arising from changes in the fair value of a security are credited or charged to the income statement in the period in which they arise. The transactions are recorded at the trade date. Accounts receivable and other receivables Provision is made against accounts receivable and other receivables to the extent they are considered to be doubtful. Accounts receivable and other receivables in the balance sheet are stated net of such provision. Inventories Inventories are stated at the lower of cost and net realizable value. Cost, calculated on the weighted average basis, comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present locations and conditions. Net realizable value is determined based on the anticipated sales proceeds less estimated costs to be incurred to completion and selling expenses, after making due allowance for obsolete or slow-moving items. Associates An associated company is a company, not being a subsidiary, in which an equity interest is held for the long term purposes and significant influence is exercised in its management. The consolidated income statement includes the Group’s share of the results of associated companies for the year, and the consolidated balance sheet includes the Group’s share of the net assets of the associated companies. Property, plant and equipment and depreciation Property, plant and equipment, other than construction-in-progress (“CIP”), are stated at cost less accumulated depreciation and accumulated impairment loss. The initial cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after the property, plant and equipment have been ready for its intended use, such as repairs and maintenance and overhaul costs, are charged to the income statement in the period in which they are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed asset, the expenditure is capitalized as an additional cost of that asset. Depreciation is calculated using the straight-line method to write off the cost, after taking into account the estimated residual value (5% of the initial cost), of each asset over its expected useful life. The expected useful lives are as follows: Buildings 35 years Machinery and equipment 10 years Motor vehicles and office equipment 5-8 years Leasehold improvements 2-5 years The useful life 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. When assets are sold or retired, their cost and accumulated depreciation and accumulated impairment loss are eliminated from the accounts and any gains or losses resulting from their disposals are included in the consolidated income statement. - 32 - 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (h) Property, plant and equipment and depreciation (Continued) CIP represents plant and properties under construction or installation and is stated at cost less any impairment losses. CIP is not depreciated and its cost includes direct cost of construction, plant and equipment and other direct costs plus borrowing costs which include interest charges and exchange differences arising from foreign currency borrowings used to finance these projects during the construction period, to the extent that they are regarded as adjustment to interest costs. CIP is reclassified to the appropriate category of property, plant and equipment when completed and ready for use. (i) Land use rights Land use rights are stated at cost less accumulated amortization and accumulated impairment loss. Amortization is calculated using the straight-line method to write off the cost over the terms of the leases. (j) Goodwill The excess of the cost of an acquisition over the Company’s interest in the fair value of the net identifiable assets and liabilities acquired as at the date of the exchange transaction is recorded as goodwill and recognized as an asset in the balance sheet. With respect to investments in associates, goodwill is included in the carrying amount of the investment. The identifiable assets and liabilities recognized upon acquisition are measured at their fair values as at that date. Any minority interest is stated at the minority’s proportion of the fair values. Goodwill is carried at cost less accumulated amortization and accumulated impairment loss. Goodwill is amortized on a straight-line basis over a period not more than 10 years. Amortization of goodwill is included in operating expenses. The carrying balances are reviewed at each balance sheet date to assess the probability of continuing future benefits. If there is an indication that goodwill may be impaired, the recoverable amount is determined for the cash-generating unit to which the goodwill belongs. If the carrying amount is more than the recoverable amount, an impairment loss is recognized. (k) Operating leases Leases of assets under which substantially all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Leases payments under operating leases are recognized as an expense on a straight-line basis over the lease term. Aggregate benefit of incentives provided by the lessor is recognized as a reduction of rental expense over the lease term on a straight-line basis. (l) Provisions A provision is recognized when, and only when an enterprise has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation. (m) Minority interests Minority interests include their proportion of the fair values of identifiable assets and liabilities recognized upon acquisition of a subsidiary. - 33 - 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (n) Revenue recognition Provided it is probable that the economic benefits associated with a transaction will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognized on the following bases: (i) Sale of goods Revenue is recognized when the significant risks and rewards of ownership of the goods have been transferred to the buyer. (ii) Rental income Rental income is recognized on an accruals basis. (iii) Subcontracting income, consultancy income and warehouse service income Revenue from sale of subcontracting services, consultancy and warehouse service is recognized when the services are rendered. (iv) Franchise income Franchise income is recognized when entitlement to the income is ascertained. (v) Interest income Interest income from bank deposits is recognized on a time proportion basis that takes into account the effective yield on the assets. (o) Taxation The income tax charge is based on profit for the year and considers deferred taxation. Deferred taxes are calculated using the liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled based on tax rates enacted or substantially enacted at the balance sheet date. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the balance sheet date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are recognized regardless of when the timing difference is likely to reverse. Deferred tax assets and liabilities are not discounted and are classified as non-current assets (liabilities) in the balance sheet. Deferred tax assets are recognized when it is probable that sufficient taxable profits will be available against which the deferred tax assets can be utilized. At each balance sheet date, the Group re-assesses unrecognized deferred tax assets and the carrying amount of deferred tax assets. The Group recognizes a previously unrecognized deferred tax assets to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. The Group conversely reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized. Current tax and deferred tax are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly to equity. A deferred tax liability is recognized for all taxable temporary differences, unless the deferred tax liability arises from goodwill for which amortization is not deductible for tax purposes. Other taxation is provided on the basis of the relevant PRC tax regulations. - 34 - 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (p) Subsidy income Subsidy income from the government is recognized only when there is reasonable assurance that the Company has complied with the conditions attaching to them and the subsidy income has been received. (q) Foreign currency translation Each entity within the Group maintains its books and records in RMB, which is not freely convertible. The measurement currency of each entity within the Group is considered to be RMB. Transactions in other currencies are translated into RMB at exchange rates prevailing at the time of transactions. Monetary assets and liabilities denominated in other currencies at the balance sheet date are re-translated at exchange rates prevailing at that date. Non-monetary assets and liabilities in other currencies are translated at historical rates. Exchange differences arising on the settlement of monetary items at rates different from those at which they were initially recorded during the periods are recognized in the statement of income in the period in which they arise. On consolidation the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange difference arising, if any, are classified as equity and translated to the Group’s exchange reserve. Such translation differences are recognized as income or as expenses in the period in which the operation is disposed of. (r) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sales, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognized in the income statement in the period in which they incurred. (s) Pension scheme Pursuant to the relevant regulations of the PRC government, the Company and its subsidiaries operating in the PRC have participated in central pension schemes (the "Schemes") operated by local municipal governments, whereby the Company and its subsidiaries in the PRC are required to contribute a certain percentage of the basic salaries of their employees to the Scheme to fund their retirement benefits. The local municipal governments undertake to assume the retirement benefits obligations of all existing and future retired employees of the subsidiaries in the PRC. The only obligation of the Group with respect to the Schemes is to pay the ongoing required contributions under the Schemes mentioned above. Contributions under the Schemes are charged to the income statement as incurred. (t) Financial instruments Financial assets and financial liabilities carried on the balance sheet include cash and cash equivalents, trade and other receivables, long-term investments, investment in an associate, payables, balances with related party and borrowings. The accounting policies on recognition and measurement of these items are disclosed in the respective accounting policies mentioned in Note 2. - 35 - 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) (t) Financial instruments (Continued) 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. When the rights and obligations regarding the manner of settlement of financial instruments depend on the occurrence or non-occurrence of uncertain future events or on the outcome of uncertain circumstances that are beyond the control of both the issuer and the holder, the financial instruments is classified as a liability unless the possibility of the issuer being required to settle in cash or another financial asset is remote at the time of issuance, in which case the instrument is classified as equity. (u) Impairment of assets An assessment is made at each balance sheet date of whether there is any indication of impairment of any assets, or whether there is any indication that an impairment loss previously recognized for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset's recoverable amount is estimated. An asset's recoverable amount is calculated as the higher of the asset's value in use or its net selling price. An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, when the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortization), had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, when the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset. (v) Segment reporting The Group is organized on a national basis into one major operating business. The divisions are the basis upon which the Group reports its primary segment information. Financial information on business and geographical segments is presented in Note 30. (w) Contingencies Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the financial statements but disclosed when an inflow of economic benefits is probable. (x) Subsequent events Post-year-end events that provide additional information about a company’s position at the balance sheet date or those that indicate the going concern assumption is not appropriate are reflected in the financial statements. Post-year-end events that are not adjusting events are disclosed in the notes when material. - 36 - 3. OTHER OPERATING INCOME, NET 2004 2003 Rental income less outgoings 7,916 2,044 Financial subsidy income 2,007 2,834 Franchise fees 1,049 - Subcontracting fees 326 - Consultancy fees 593 1,000 Warehouse services fees 148 - Others 757 78 Less: Donation and others (1,679) (160) 11,117 5,796 Financial subsidy income was granted by and received from the Shenzhen Finance Bureau and the Shanghai Jinshan Fengjing Economic Development Administrative Committee in 2004 for the purpose of supporting the local enterprises and the refunds on value added tax, business tax and enterprise income tax respectively. 4.FINANCE COSTS, NET 2004 2003 Interest income from bank deposits (3,170) (2,299) Interest income from outstandings due from third parties (5,806) (5,672) Interest expenses on bank loans 29,767 22,428 Exchange losses, net 278 515 Others 519 260 21,588 15,232 Interest on the outstandings due from third parties is charged at a rate of 6% per annum. 5. PROFIT BEFORE TAX Profit before tax was determined after charging (crediting) the following: 2004 2003 Staff costs - Wages and salaries 23,608 31,849 - Provision for staff and workers’ bonus and welfare fund 3,851 3,693 - Contribution to defined contribution pension schemes 3,006 1,030 Depreciation of property, plant and equipment 21,904 20,001 Amortization of land use rights 277 303 Amortization of goodwill 4,771 4,771 Amortization of computer software and other deferred assets 577 615 Loss on disposals of property, plant and equipment 31 - Share of gain of an associate (116) (58) Cost of sales 458,638 330,573 Rentals of office buildings under operating leases 6,057 3,298 (Write back of) Provision for obsolete stocks (2,436) 724 Provision for doubtful debts 4,660 4,504 Exchange losses, net 278 515 6. TAXATION Two subsidiaries, Puning Tianhe Garment Manufacturing Factory Co., Ltd. (“Puning Tianhe”) and Dongguan Jinjing Textile Co., Ltd. (“Dongguan Jinjing”) are Sino-foreign companies. In accordance with rule 8 of the “Policy on Profits Tax on Foreign Investment and Enterprises in the PRC”, any profit tax liabilities arising from the taxable profit of these companies for the first and second profit making years will be waived. Any profits tax liabilities arising from the third to fifth years thereafter will be subject to a discount of 50%. - 37 - 6. TAXATION (CONTINUED) For the year ended December 31, 2004, Puning Tianhe is subject to income tax at the rate of 12%. For the year ended December 31, 2004, Dongguan Jinjing does not has any assessable profits. In accordance with Shenzhen Municipal Government [1988] rule 232 and the tax exemption notice issued by the Shenzhen State Tax Bureau (Document no. [2004] 125), one of the subsidiary, Shenzhen Tianqi Garment Manufacturing Co., Ltd. (“Shenzhen Tianqi”), has been granted tax exemption from the Shenzhen State Tax Bureau, any profit tax liabilities arising from the taxable profit of this company for the first and second profit making years will be waived. Any profits tax liabilities arising from the third to fifth years thereafter will be subject to a discount of 50%. For the year ended December 31, 2004, this company does not have any provision for taxation. In accordance with the “Provisional Regulation on Profits Tax in the PRC “ and the agreed taxable rate stipulated by the Tax Bureau in Jinshan, Shanghai, the profits tax of Shanghai Boldway Fashion Co., Ltd. (“Shanghai Boldway”), Shanghai Tongrui Fashion Co., Ltd. (“Shanghai Tongrui”) and Shanghai Bolderway Fashion Co., Ltd. (“Shanghai Bolderway”) are assessed based on 0.5% of the monthly sales revenue. Shenzhen Rieys Industrial Co., Ltd. (“Shenzhen Rieys”), Shenzhen Heyiyi Fashion Co., Ltd. (“Shenzhen Heyiyi”) and Shenzhen Chuanger Garment Co., Ltd. (“Shenzhen Chuanger”) are subject to income tax at the rate of 15%. Other than the above companies, all companies within the Group are subject to income tax at the rate of 33%. Details of income tax expense charged (refunded) during the year are as follows: 2004 2003 Current income tax expense 8,106 2,175 Deferred tax arising from temporary differences (236) (1,725) 7,870 450 Reconciliation of income tax: 2004 2003 Profit before taxation of the Group 83,370 73,528 Tax calculated at rate of 33% (2003: 33%) 27,512 24,265 Effect of different tax rates of subsidiaries (19,604) (23,796) Effect of share of results of an associate (38) (19) 7,870 450 7. DIVIDENDS 2004 2003 Dividends declared during the year 26,550 70,800 Dividends declared after year-end (See Note 32) 15,930 26,550 In accordance with the relevant regulations in the PRC and the Articles of Association of the Company, the Company declared dividends based on the lower of retained earnings as reported in the statutory accounts and the financial statements prepared in accordance with IFRS. As the statutory accounts are prepared in accordance with the generally accepted accounting principles in the PRC (the “PRC GAAP”), the retained earnings as reported in the statutory accounts will be different from the amounts as reported in the consolidated financial statements prepared in accordance with IFRS. As of December 31, 2004, the retained earnings before final dividends reported in the statutory accounts were approximately RMB61,422,000 (2003: approximately RMB43,094,000). - 38 - 8. EARNINGS PER SHARE The calculation of basic earnings per share was based on the consolidated net profit attributable to shareholders for the year ended December 31, 2004 of approximately RMB53,210,000 (2003: approximately RMB47,583,000), divided by the weighted average number of shares in issue during the year of 318,600,000 shares (2003: 318,600,000* shares). Diluted earnings per share do not differ from basic earnings per share as there were no dilutive potential ordinary shares as of year-end. * The numbers of ordinary shares in issue and deemed to be issued in 2003 have been restated for the effect of a bonus issue as detailed in note 25 to the accounts. 9. PROPERTY, PLANT AND EQUIPMENT, NET Motor Machinery vehicles and and office Leasehold Buildings equipment equipment improvements CIP Total Cost As at 1 January 2004 87,672 133,080 21,509 7,871 215,830 465,962 Additions arising from acquisition of a subsidiary - 15 63 60 - 138 Additions 330 1,118 4,905 2,600 149,549 158,502 Reclassifications - 3 (3) - - - Transfer from CIP - 45,368 - - (45,368) - Transfer to advances to suppliers - - - - (8,477) (8,477) Disposals - - (342) - - (342) As at 31 December 2004 88,002 179,584 26,132 10,531 311,534 615,783 Accumulated depreciation As at 1 January 2004 7,092 41,233 7,817 2,498 - 58,640 Addition arising from acquisition of a subsidiary - 1 15 13 - 29 Reclassifications - 1 (1) - - - Charge for the year 2,631 13,393 3,167 2,713 - 21,904 Disposals - - (221) - - (221) As at 31 December 2004 9,723 54,628 10,777 5,224 - 80,352 Net book value As at 31 December 2004 78,279 124,956 15,355 5,307 311,534 535,431 As at 31 December 2003 80,580 91,847 13,692 5,373 215,830 407,322 As of December 31, 2004 and 2003, there are no borrowing costs capitalized in the property, plant and equipment. As of December 31, 2004, buildings and machinery with net book values of approximately RMB30,740,000 (2003: RMB44,590,000) and RMB20,630,000 (2003: Nil) respectively have been pledged as collaterals for the Group’s short-term bank loans (see Note 23). Buildings and Machinery Land use CIP warehouses and equipment rights Total As at 1 January 2004 12,040 199,190 4,600 215,830 Additions 80,331 35,421 33,797 149,549 Transfer to property, plant and equipment - (45,368) - (45,368) Transfer to advances to suppliers - (8,477) - (8,477) As at 31 December 2004 92,371 180,766 38,397 311,534 - 39 - 9. PROPERTY, PLANT AND EQUIPMENT, NET (CONTINUED) As of the balance sheet date, management is in the process of applying to obtain the land use right certificates from the local authorities for two pieces of land in Puning. The directors are of the opinion that the underlying values of property, plant and equipment as of December 31, 2004 are not less than their carrying values. 10. LAND USE RIGHTS, NET 2004 2003 Cost Beginning of year and end of year 15,122 15,122 Accumulated amortization Beginning of year 2,162 1,859 Charge for the year 277 303 End of year 2,439 2,162 Net book value End of year 12,683 12,960 Beginning of year 12,960 13,263 Land use rights comprise land use fees paid to the land administration authorities for the rights to use the lands where the Group companies’ factory buildings in Punning are located. 11. GOODWILL 2004 2003 Shanghai Boldway 25,940 25,940 Shanxi Chuanglian Information Network Technology Co., Ltd. (“Shanxi Chuanglian”) 11,838 11,838 Guangdong Leader Way Co., Ltd. (“Guangdong Leader Way”) 4,426 4,426 Guangdong Gang Wei Fashion Co., Ltd. (“Guangdong Gang Wei”) 2,995 2,995 Beijing Boldway Fashion Co., Ltd. (“Beijing Boldway”) 2,514 2,514 47,713 47,713 Less: Accumulated amortization (12,229) (7,458) 35,484 40,255 12. COMPUTER SOFTWARE AND OTHER DEFERRED ASSETS 2004 2003 Cost 11,344 11,315 Less: Accumulated amortization (9,909) (9,332) 1,435 1,983 40 13. PREPAYMENTS FOR PROPERTY, PLANT AND EQUIPMENT 2004 2003 Construction Beginning of year 13,580 - Additions 49,365 13,580 Transfer to CIP (62,945) - End of year - 13,580 Machinery Beginning of year 21,657 - Additions 95,976 21,657 Refunds as a result of the cancellation of the purchase order (21,657) - End of year 95,976 21,657 Total 95,976 35,237 Prepayments for property, plant and equipment represent the amounts prepaid to build new factories and deposits for purchases of machinery for garment manufacturing. 14. PREPAYMENTS FOR LONG-TERM INVESTMENTS Prepayments for long-term investments represented the amounts prepaid to acquire the equity interests in certain companies incorporated in the PRC. As the transfers of these equity interests was completed during the year, the balance has been transferred to long-term investment and eliminated on consolidation. 15. INVESTMENTS IN SUBSIDIARIES As of December 31, 2004, the Company directly owned equity interests in the following subsidiaries. Except for Tian Rui (HK) Trading Company Limited (“Tian Rui”) which was incorporated in Hong Kong, all subsidiaries were incorporated in the PRC: Attributable Date of equity Name incorporation Registered capital interests Principal activities RMB’000 HKD’000USD’000 Shenzhen Rieys December 7, 50,000 90% Investment and 2000 liaison of export business Puning Tianhe December 28, 50,000 97.5% Manufacturing of 2001 garment Shenzhen Chuanger February 8, 12,000 51% Trading of garment 2001 Guangdong Leader Way March 25, 500 70% Manufacturing and 1999 trading of garment Guangdong Gang Wei March 25, 5,000 70% Trading of garment 1999 Beijing Boldway November 11, 500 70% Trading of garment 1998 Shanghai Boldway April 5, 1999 1,000 70% Trading of garment Puning Rieys Paper Mill Co., May 8, 2003 29,000 51% Manufacturing and Ltd. sales pf paper Shanghai Tongrui August 6, 1,200 70% Trading of garment 2003 Beijing Bao Dewei Fashion November 28, 500 70% Trading of garment Co., Ltd. 2003 - 41 - 15. INVESTMENTS IN SUBSIDIARIES (CONTINUED) Attributable Date of equity Name incorporation Registered capital interests Principal activities RMB’000 HKD’000USD’000 Dongguan Jinjing October 23, 12,800 75% Manufacturing of 2003 garment Shenzhen Heyiyi (Note 1) December 30, 10,000 51% Trading of garment 2002 Shenzhen Tianqi (Note 2) April 5, 2004 1,000 55% Manufacturing of garment Guangzhou Ruicheng Trade May 24, 2004 500 70% Business has not yet Co., Ltd. (Note 2) been commenced Guangzhou Ruitang Trade Co., May 24, 2004 500 70% Business has not yet Ltd. (Note 2) been commenced Shanghai Jiancheng May 31, 2004 500 70% Trading of garment Commerce and Trade Co., Ltd. (Note 2) Sichuan Baodewei Commerce March 19, 300 70% Trading of garment and Trade Co., Ltd. (Note 2) 2004 Tian Rui (Note 2) November 17, - 90% Business has not yet 2004 been commenced Shanghai Bolderway (Note 3) November 28, 1,000 70% Trading of garment 2001 Note 1: This is the company newly acquired on May 20, 2004. Note 2: These are newly established during the year. Note 3: This is the company newly acquired on January 8, 2004. 16. INVESTMENTS IN AN ASSOCIATE As of December 31, 2004, the Company directly owned equity interests in the following associate which was incorporated in the PRC: Date of Register Attributable incorporati ed equity Name on capital interest Principal activities Shanxi May 7, 45,000 27.7% Development, manufacturing and Chuanglian 1999 sales of communication product and provision of technica services As of December 31, 2004, investment in the associate comprised: 2004 2003 Unlisted shares, at cost 13,162 13,162 Less : Share of post-acquisition loss (201) (317) 12,961 12,845 The directors of the Company are of the opinion that the underlying value of the associate was not less than its carrying value as of December 31, 2004. - 42 - 17. DEFERRED TAX, TAXES RECOVERABLE AND TAXES PAYABLE The Group is subject to Value Added Tax (VAT). The applicable tax rate for domestic sales is 17% while that for export sales is 0%. Input VAT from purchases of raw materials and other production imports can be netted off against output VAT from sales. Input VAT on purchases of raw materials used to produce goods for export sales is refundable. VAT payable or receivable is the net difference between periodic output and input VAT. (a) Taxes recoverable 2004 2003 Prepaid enterprise income tax 2,079 2,005 VAT recoverable, net 19,867 55,518 21,946 57,523 (b) Deferred tax assets 2004 2003 Deferred tax relating to provision for doubtful debts 3,821 2,698 Deferred tax relating to provision for obsolete stocks (20) 864 Others (3) - 3,798 3,562 (c) Taxes payable 2004 2003 Enterprise income tax 6,072 357 City construction tax 384 777 Others 1,509 1,197 7,965 2,331 18. MARKETABLE SECURITIES 2004 2003 Listed securities, at market value - 348 Listed funds, at market value 300 300 300 648 19. INVENTORIES, NET 2004 2003 Raw materials 13,770 9,959 Work-in-progress 512 3,888 Finished goods 80,728 63,419 Sub-contracting materials 1,090 - 96,100 77,266 Less: Provision for obsolete stocks - Raw materials (115) (115) - Finished goods (67) (2,503) (182) (2,618) 95,918 74,648 - 43 - 20. TRADE AND OTHER RECEIVABLES, NET 2004 2003 Trade receivables 198,641 111,095 Other receivables 81,601 95,106 Amounts due from related parties (Note 27(c)) - 24,582 280,242 230,783 Less : Provision for doubtful debts (12,836) (8,176) 267,406 222,607 At December 31, 2004, other receivables of RMB8,776,000 (2003: RMB57,746,000) are interest bearing. Interest is charged on the outstanding balances at a rate of 6% per annum. 21. ADVANCES TO SUPPLIERS At December 31, 2004, advances to suppliers of RMB74,473,000 (2003: Nil) are interest bearing. Interest is charged on the outstanding balances at a rate of 6% per annum. 22. CASH AND CASH EQUIVALENT 2004 2003 Cash on hand 3,548 1,178 Bank current deposits 26,447 20,378 Bank time deposits 30,000 100,000 59,995 121,556 At December 31, 2004, bank time deposits of RMB30,000,000 (2003: RMB100,000,000) have been pledged to bank to secure the general banking facilities of the Group. 23. SHORT-TERM BANK LOANS During the year, interest as charged at rates ranging from 4.536% to 9.558 % (2003: from 4.2038% to 6.6375%) per annum. 2004 2003 Amounts guaranteed by shareholders and directors (Note 27(b)) 414,000 226,000 Amounts guaranteed by the Company to subsidiaries 29,900 26,000 Amounts secured by machinery and guaranteed by a shareholder and directors (Note 9 and Note 27(b)) 20,000 - Amounts guaranteed by a third party and a director (Note 27(b)) 20,000 - Amounts secured by buildings (Note 9) 11,000 71,300 Amounts secured by buildings and guaranteed by directors (Note 9 and Note 27(b)) 10,000 - Amounts guaranteed by a third party - 60,000 504,900 383,300 - 44 - 24. MINORITY INTERESTS 2004 2003 Balance at beginning of year 136,468 28,146 Share of net profit of subsidiaries 22,290 25,495 New investment in subsidiaries 5,740 82,827 Disposal of certain equity interest in a subsidiary to a company within the group (39,650) - Dividend paid (5,400) - Balance at end of year 119,448 136,468 25. SHARE CAPITAL As of December 31, 2004, the share capital included promoters’ shares and B shares, which ranked pari passu. The details of registered, issued and fully paid share capital were as follows: 2004 2003 2004 2003 Number of shares RMB’000 RMB’000 (in thousands) Unlisted Promoters’ shares of RMB1 each 136,688 91,125 136,688 91,125 Issue of 13,668,800 (2003: 36,450,000) shares of 13,669 36,450 13,669 36,450 RMB1 each as dividends Issue of 13,668,800 (2003: 9,112,500) shares of 13,669 9,113 13,669 9,113 RMB1 each from share premium account Listed B shares of RMB1 each 128,812 85,875 128,812 85,875 Issue of 12,881,200 (2003: 34,350,000) shares of 12,881 34,350 12,881 34,350 RMB1 each as dividends Issue of 12,881,200 (2003: 8,587,500) shares of 12,881 8,587 12,881 8,587 RMB1 each from share premium account 318,600 265,500 318,600 265,500 Pursuant to a resolution passed at the annual general meeting on February 27, 2004, dividends were paid to all shareholders by issuing 1 share of every 10 shares and by converting share premium to share capital by issuing 1 share for every 10 shares. 26. RESERVES According to the Company Laws of the PRC and Articles of Association of the Company, the Company is required to provide certain statutory reserves which are appropriated from the net profit as reported in the statutory accounts prepared in accordance with the PRC GAAP. Accordingly, the Company shall set aside 10% of its net profit for statutory revenue reserve fund (except where the fund has reached 50% of the Company’s registered capital) and 5% for the statutory common welfare fund. The Company may make appropriations from its net profit to the discretionary revenue reserve fund upon approval by shareholders. These reserves cannot be used for purposes other than those of which they are created and are not distributed as cash dividends without the prior approval by shareholders under certain conditions. The directors have resolved that the statutory common welfare fund is to be utilized to build or acquire capital items, such as dormitories and other facilities for the Group’s employees, and cannot be used to pay for staff welfare expenses. Title to these capital items will remain with the Group. For the year ended December 31, 2004, the directors proposed that 10% and 5% (2003: 10% and 5%) of the net profit as reported in the statutory accounts be appropriated to statutory revenue reserve fund and statutory common welfare fund, totaling approximately RMB8,174,000 (2003: approximately RMB7,137,000). The resolution is subject to approval by shareholders in the annual general meeting. 27. RELATED PARTY TRANSACTIONS - 45 - 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 party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. (a) Relationship Name Relationship Hong Kong Hing Lee Trading Company The shareholder holding 25% equity interest of a (“Hing Lee”) subsidiary and these equity interests have been fully disposed at of November 30, 2004 Shenzhen Sheng Heng Chang Industrial Co., One of the shareholders holding 36.99% equity interest Ltd. (“Sheng Heng Chang”) of the Company Shenzhen Risheng Investment Co., Ltd. One of the shareholders holding 10.68% equity interest (“Risheng Investment”) of the Company Shantou Lianhua Industrial Co., Ltd. One of the shareholders holding 3.81% equity interest (“Shantou Lianhua”) of the Company Chen Meixiang One of the shareholders holding 8.08% equity interest of the Company New Century Trading Company Limited The shareholder holding 49% equity interest of a (“New Century”) subsidiary Chen Hongcheng Chairman and director of the Company Ding Lihong One of the director of the Company and the shareholder holding 10% equity interest of a subsidiary (b) Transactions 2004 2003 Sales of goods to Hing Lee 31,089 40,215 Purchases of goods from Hing Lee 577 10,487 Purchases of machinery from New Century 93,444 - The above sales and purchase transactions were made at prices comparable to those offered to other third parties. 2004 2003 Guarantee of short-term bank loans provided by Sheng Heng Chang, Risheng Investment, Shantou Lianhua, Chen Meixiang, Chen Hongcheng and Ding Lihong 464,000 226,000 (c) Balances with related parties 2004 2003 Amounts due from Hing Lee (repayment in accordance with the sales contracts) - 24,582 Amounts due to Hing Lee (repayment in accordance with the purchase agreement) (Included in accruals and other payables) 1,459 6,302 Amount due to Sheng Heng Chang (no fixed term of repayment) (Included in accruals and other payables) 8,000 - The above balances are all unsecured and interest free. 28. CONTINGENT LIABILITIES 46 As of December 31, 2004, the Company provide a guarantee to third party for a short-term bank loan of RMB14,000,000 (2003: RMB78,000,000) and provide a guarantee to Sheng Heng Chang for acquisition of a company of RMB16,000,000 (2003: RMB16,000,000). 29. FINANCIAL INSTRUMENTS (a) Financial risk management The Group’s activities expose it to a variety of financial risks, including credit risk, interest rate risk, liquidity risk and foreign exchange risk. Financial risk management is carried out by the Finance Department under policies approved by the Board of Directors. (i) Credit risk The carrying amounts of cash and cash equivalents, trade and other receivables represent the Group’s maximum exposure to credit risk in relation to financial assets. Cash is placed with reputable banks. The majority of the Group’s trade receivables related to sales of goods from third party customers. The Group performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on trade receivables. The Group maintains a provision for doubtful debts and actual losses have been within management’s expectations. For the year ended December 31, 2004, approximately 44% of the Group’s turnover was made to top five customers (2003: approximately 51%). As of December 31, 2004, no single customer accounted for greater than 19% (2003: approximately 13%) of total trade receivables. No other financial assets carry a significant exposure to credit risk. (ii) Interest rate risk The directors believe that the Group’s exposure to interest rate risk of financial assets and liabilities as of December 31, 2004 was minimal since their deviation from their respective fair values was not significant. (iii) 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. (iv) 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 are denominated in HKD and USD and, over the past five years, there has been no significant fluctuation in the exchange rates between RMB and USD and HKD. (b) Fair value estimation In assessing the fair value of other financial instruments, the Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date as follows: (i) Cash and cash equivalents and short-term bank loans The carrying amount of cash and cash equivalents and short-term bank loans approximates their fair value due to the short-term maturity of these financial instruments. 47 29. FINANCIAL INSTRUMENTS (CONTINUED) (b) Fair value estimation (Continued) (ii) Receivables and payables The carrying amount of receivables and payables, which are all subject to normal trade credit terms, approximates their fair values. (iii) Balances with related parties No disclosure of fair values is made for balances with related parties as it is not practicable to determine their fair values with sufficient reliability since these balances are non-interest bearing and have no fixed repayment terms. (iv) Long-term investment and investment in an associate The fair value of long-term investment and investment in an associate cannot be reliably estimated and disclosed because these investments do not have quoted market price in an active market and other methods for estimating fair value for these investments are clearly inappropriate or unworkable. (v) Long-term bank loans The fair value of long-term bank loans is based on the current rates available for debt with the same maturity and credit-rating risk profile. As of December 31, 2004, the difference between the fair values and carrying amounts of the Group’s long-term bank loans was minimal since the difference between the current rates and the historical rates of such long-term bank loans was not significant. 30. SEGMENT INFORMATION (a) Business segment The Group conducts its business within one business segment - the business of production and sales of clothes. (b) Geographical segments The Group’s activities are mainly conducted in Mainland China and Hong Kong and Overseas outside China. The geographical segments are primary reporting segments of the Group. An analysis by geographical segments is as follows: - 48 - 30. SEGMENT INFORMATION (CONTINUED) Hong Kong and Mainland China Overseas Unallocated Total 2004 2003 2004 2003 2004 2003 2004 2003 Revenue from external 209,660 165,702 442,058 322,587 - - 651,718 488,289 customers Segment results 118,355 80,037 74,725 77,679 - - 193,080 157,716 Other operating income 11,177 5,796 - - - - 11,177 5,796 Unallocated expenses - - - - (99,415) (74,810) (99,415) (74,810) Profit from operations 129,532 85,833 74,725 77,679 (99,415) (74,810) 104,842 88,702 Finance costs, net - - - - (21,588) (15,232) (21,588) (15,232) Share of gain of an 116 58 - - - - 116 58 associate Income tax expenses - - - - (7,870) (450) (7,870) (450) Minority interests - - - - (22,290) (25,495) (22,290) (25,495) Net profit for the year 129,648 85,891 74,725 77,679 (151,163) (115,987) 53,210 47,583 Segment assets 1,263,359 1,126,278 - - - - 1,263,359 1,126,278 Investment in an associate 12,961 12,845 - - - - 12,961 12,845 Total assets 1,276,320 1,139,123 - - - - 1,276,320 1,139,123 Total liabilities 643,768 542,761 - - - - 643,768 542,761 Substantially all the capital expenditures of the Group are in Mainland China. 31. COMMITMENTS (a) Capital commitments 2004 2003 Contracted but not provided in respect of: - Property, plant and equipment 72,505 11,943 Authorized but not contracted in respect of: - Capital contribution to the investee companies not yet contributed 18,483 18,646 90,988 30,589 (b) Operating lease commitments Total future minimum lease payments under non-cancelable operating leases are as follows: 2004 2003 Office buildings and shops - Within one year 3,056 3,585 - Within two to five years 5,098 3,779 - Over five years 3,532 - 11,686 7,364 - 49 - 32. SUBSEQUENT EVENTS Pursuant to a resolution passed at the Board of Directors’ meeting dated April 11, 2005, the Company declared final dividends to all shareholders of Rmb0.05 (2003: issue 1 share) for every 1 share (2003: 10 shares), based on the total number of shares of 318,600,000 shares as of December 31, 2004. The total amount of cash dividends proposed was Rmb15,930,000 (2003: Nil). The Company did not propose to convert any share from share premium account (2003: issue 1 share for every 10 shares). The resolutions are subject to the approval by the shareholders in the annual general meeting. 33. IMPACT OF IFRS ADJUSTMENTS ON NET PROFIT/NET ASSETS The Group’s consolidated financial statements were prepared in conformity with IFRS as if those standards had been applied consistently throughout the years. This basis of accounting differs from that used in the statutory accounts of the Group prepared in accordance with PRC GAAP. The principal adjustments made to conform to IFRS are as follows: Net profit for the year ended Net assets as of December 31, December 31, 2004 2003 2004 2003 As reported in the statutory accounts 53,052 47,579 634,728 595,169 Impact of adjustments: - Reversal of recognition and amortization of trademark - 648 - - - Reversal of revaluation on fixed assets - - (3,527) - - Reversal of depreciation on revalued fixed assets 27 - 27 - - Deferred tax 236 1,725 3,798 3,562 - Pre -operating expenses (105) (2,369) (2,474) (2,369) As restated in the Group’s IFRS financial statements 53,210 47,583 632,552 596,362 34. APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved by the board of directors on April 11, 2005. 50