*ST舜喆B(200168)雷伊Ｂ2005年年度报告摘要（英文版）

Stock Code: 200168 Short Form of the Stock: Rieys B No. 2006-009 GUANGDONG RIEYS GROUP COMPANY LTD. SUMMARY OF ANNUAL REPORT 2005 §1. Important Notes 1.1 The Board of Directors, the Supervisory Committee, directors, supervisors and senior executives 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. 1.2 No director, supervisor as well as senior executive stated that he/she couldn’t ensure the correctness, accuracy and completeness of the contents of the Annual Report or had any objection for this report. 1.3 All directors attended the Board meeting. 1.4 Shenzhen Pengcheng Certified Public Accountants Ltd. issued an unqualified Auditors’ Report with emphasis events for the Company, the Board of Directors and the Supervisory Committee also made the corresponding explanation in details for the relevant matters, the investors are suggested to notice the content. 1.5 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. 1.6 This report has been prepared in Chinese and English version respectively. In the event of difference in interpretation between the two versions, the Chinese report shall prevail. §2. Company Profile 2.1 Basic information Short form of the stock RIEYS-B Stock code 200168 Listed stock exchange Shenzhen Stock Exchange Registered address and office address Registered address: Meixin Industrial Park of Jun Bu Town, Puning, Guangdong Office address: 12th Floor of Orient Plaza, Dongmen Middle Road, Luohu District, Shenzhen Post code Post code of registered address: 518000 Post code of office address: 518001 Internet website of the Company http://www.rieys.com E-mail of the Company rieys@200168.com 2.2 Contact person and contact method Secretary of the Board Securities Affairs Representative Name Xu Wei Contact address Secretariat, on 12th Floor of Orient Plaza, Dongmen Middle Road, Luohu District, Shenzhen Telephone 0755-82250045 -1- Fax 0755-82251182 E-mail xw@200168.com §3. Summary of Accounting Data and Financial Indexes 3.1 Major accounting data Unit: RMB Increase/decrease 2005 2004 compared with the 2003 last year（％） Income from main 459,048,558.00 651,717,620.00 -29.56% 488,288,750.00 operations Total profit 33,218,864.00 83,447,690.00 -60.19% 75,249,621.00 Net profit 12,618,709.00 53,052,158.00 -76.21% 47,579,585.00 Net profit after deducting 1.44 6.83 -78.92% 7.15 non-recurring gains and losses Net cash flow from 2,661,258.00 8,272,202.00 -67.83% 61,272,944.00 operating activities Increase/decrease At the end of At the end of compared with the At the end of 2005 2004 end of last year 2003 （％） Total assets 1,244,935,379.00 1,279,012,027.00 -2.66% 1,117,318,635.00 Shareholder’s equity (excluding minority 511,278,582.00 515,279,642.00 -0.78% 458,700,621.00 interests) 3.2 Major financial indexes Increase/decrease 2005 2004 compared with the 2003 last year（％） Earnings per share 0.04 0.17 -76.47% 0.18 Earnings per share 0.00 - - - (Note) Return on equity (%) 2.47% 10.30% -7.83% 10.37% Return on equity calculated based on net profit after deducting 1.44% 6.83% -5.39% 7.15% non-recurring gains and losses (%) Net cash flow per share arising from operating 0.01 0.03 -66.67% 0.23 activities Increase/decrease At the end of At the end of At the end of compared with the 2005 2004 2003 end of last year（％） Net assets per share 1.60 1.62 -1.23% 1.72 Net assets per share 1.57 1.61 -2.48% 1.72 after adjustment Note: Earnings per share was calculated based on new share capital if the Company’s share capital from the end of report period to disclosure date of this report had been changed. Items of non-recurring gains and losses √Applicable □Inapplicable Unit: RMB Items of non-recurring gains and losses Amount Local preferential income tax 1,953,230.00 Various government subsidies 33,433,283.00 Capital occupied received from non-financing enterprises reckoned 4,638,037.00 into gains and losses of current period Short-term investment income 5,940.00 Other non-operating income/expenses after deducting daily reserve for impairment losses of assets allotted by the Company based on -3,280,884.00 regulations of Accounting System for Business Enterprise Subtotal 6,749,606.00 Less: impact on income tax 93,139.00 Impact on minority interests 1,416,408.00 Total non-recurring gains and losses 5,240,259.00 3.3 Difference of net profit as audited by Chinese Accounting Standard (CAS) and International Accounting Standard (IAS) √Applicable □Inapplicable Unit: RMB’0000 CAS IAS Net profit 12,618,709.00 8,192,430.00 Net profit Shareholders’ equity Year 2005 Year 2004 Year 2005 Year 2004 Amount confirmed under PRC Accounting Standards 12,618,710 53,052,158 632,230,664 634,727,540 Adjustment in accordance with IFRS: -Writing off confirmation of Explanation trademark right 6,158,388 - 6,158,388 - on the -writing off appraised increment for fixed assets - - -3,526,836 -3,526,836 difference -writing off depreciation of appraised increment for fixed assets 66,000 27,000 93,000 27,000 -Depreciation of fixed assets (8,602,910) - (8,602,910) - -Amortization of organization expense (4,447,580) (105,077) (6,921,657) 2,474,077 -Deferred tax 2,399,822 235,920 6,197,742 3,797,920 Amount confirmed under IFRS 8,192,430 53,210,001 625,628,391 632,551,547 §4. Changes in Share Capital and Particulars about Shareholders 4.1 Statement of change in share √Applicable □Inapplicable Unit: share Increase/decrease Before the change After the change in this time (+,- ) Type of shares Number of Proportion Number of Proportion Subtotal shares (%) shares (%) I. Nontradable shares 164,025,000 51.48% 0 164,025,000 51.48% 1. Sponsors’ shares 164,025,000 51.48% 0 164,025,000 51.48% Including: Shares held 0 0.00% 0 0 0.00% by the State Share held by domestic 164,025,000 51.48% 0 164,025,000 51.48% legal person Share held by foreign 0 0.00% 0 0 0.00% legal person Others 0 0.00% 0 0 0.00% 2. Raised legal person’s 0 0.00% 0 0 0.00% shares 3. Inner employees 0 0.00% 0 0 0.00% shares 4. Preference shares or 0 0.00% 0 0 0.00% others II. Tradable shares 154,575,000 48.52% 0 154,575,000 48.52% 1. RMB ordinary shares 0 0.00% 0 0 0.00% 2. Domestically listed 154,575,000 48.52% 0 154,575,000 48.52% foreign shares 3. Overseas listed 0 0.00% 0 0 0.00% foreign shares 4. Others 0 0.00% 0 0 0.00% III. Total shares 318,600,000 100.00% 0 318,600,000 100.00% 4.2 Statement of shares held by the top ten shareholders and the top ten tradable shareholders Total number of shareholders at the end of report period 16,701 Particulars about shares held by the top ten shareholders Number of Type of Total number Share pledged Full name of Shareholder Proportion nontradable shareholders of shares held or frozen shares held Shenzhen Shenghengchang Other 36.99% 117,855,000 117,855,000 117,855,000 Industrial Co., Ltd. Shenzhen Risheng Investment Other 10.68% 34,020,000 34,020,000 34,020,000 Co., Ltd. Foreign CHEN MEI XIANG 8.08% 25,753,588 0 shareholder Shantou Lianhua Industrial Co., Other 3.81% 12,150,000 12,150,000 12,150,000 Ltd. WANG YING Foreign 0.26% 834,398 0 0 shareholder HUANG HONG ZHUO Foreign 0.16% 495,770 0 0 shareholder YAO JIN GEN Foreign 0.16% 495,720 0 0 shareholder GUOTAI JUNAN SECURIERS Foreign HONGKONG LIMITED shareholder 0.14% 460,239 0 0 PAN XIU LING Foreign shareholder 0.13% 411,240 0 0 ZHENG LIN Foreign shareholder 0.12% 391,160 0 0 Particulars about shares held by the top ten tradable shareholders Name of shareholders Numbers of tradable shares held Type of shares CHEN MEI XIANG 25,753,588 Domestically listed foreign shares WANG YING 834,398 Domestically listed foreign shares HUANG HONG ZHUO 495,770 Domestically listed foreign shares YAO JIN GEN 495,720 Domestically listed foreign shares GUOTAI JUNAN SECURIERS 460,239 Domestically listed foreign shares HONGKONG LIMITED PAN XIU LING 411,240 Domestically listed foreign shares ZHENG LIN 391,160 Domestically listed foreign shares YANG SHENG MING 376,260 Domestically listed foreign shares CHENG AI XUE 371,700 Domestically listed foreign shares ABN AMRO BANK NV 350,000 Domestically listed foreign shares There existed associated relationship among Shenzhen Shenghengchang Explanation on Industrial Co., Ltd., Ms. Chen Meixiang, Shenzhen Risheng Investment Co., Ltd. associated relationship and Shantou Lianhua Industrial Co., Ltd., and they belonged to the consistent among the above actors regulated by the Management Measure of Information Disclosure on shareholders or Change of Shareholding for Listed Company. The Company was not aware of the acting-in-concert associated relationship among the other shareholders. 4.3 Particulars about the controlling shareholders and actual controllers of the Company 4.3.1 Particulars about change in the controlling shareholders and actual controllers of the Company □Applicable √Inapplicable 4.3.2 Introduction to detail situation for the controlling shareholders and the actual controllers 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. 3. Mr. Chen Hongcheng holds 70% equity of Shenghengchang Industrial, while Mr. Chen Honghai holds 30% equity of Shenghengchang Industrial. Shenghengchang Industrial holds 36.99% equity of Guangdong Rieys (Group) Company Ltd. 4.3.3 The property right and controlling relationship between the Company and the actual controller are as follows: CHEN HONG CHEGN CHEN HONG HAI holding 70% equity holding 30% equity SHENZHEN SHENGHENGCHANG INDUSTRIAL CO., LTD. holding 36.9% equity THE COMPANY §5. Particulars about Directors, Supervisors and Senior Executives 5.1 Particulars about changes in shares held by directors, supervisors and senior executives Drawing Total payment Number payment from the Number of drawn from shareholding of holding Reasons holding the companies Name Title Sex Age Office term shares at on shares Company in or other the change at the the report related year-begin year-end period parties or (RMB’0000) not (Yes / No) Chen Chairman of May 1, 2003- M 48 0 0 18.60 No Hongcheng the Board May 31, 2006 Zheng May 1, 2003- Director M 39 0 0 3.00 No Yujian May 31, 2006 Chen May 1, 2003- Director M 52 0 0 3.00 Yes Honghai May 31, 2006 May 1, 2003- Ding Lihong Director M 35 0 0 3.00 Yes May 31, 2006 Independent May 1, 2003- Fang Meidi F 60 0 0 3.00 No Director May 31, 2006 Independent May 1, 2003- Cai Shaohe M 45 0 0 3.00 No Director May 31, 2006 Independent May 1, 2003- Yang Xinfa M 37 0 0 3.00 No Director May 31, 2006 Chairman of May 1, 2003- Yan Mingfei the Supervisory M 38 0 0 1.00 No May 31, 2006 Committee May 1, 2003- Liu Li Supervisor F 37 0 0 5.55 No May 31, 2006 May 1, 2003- Xu Wei Supervisor M 29 0 0 5.55 No May 31, 2006 Zhang May 1, 2003- Vice President M 47 0 0 8.32 No Yongli May 31, 2006 Vice President May 1, 2003- Zhou Haolin and secretary M 36 0 0 9.75 No May 31, 2006 of the Board May 1, 2003- Li Guoqiang CFO M 36 0 0 9.75 No May 31, 2006 Total - - - - 0 0 - 76.52 - §6 Report of the Board of Directors 6.1 Discussion and analysis by the management team In the report period, the Company suffered influence from several factors such as macro-control, Renminbi appreciation and trade friction of textile and garments between America and China, so the achievement of the Company reduced by a certain margin compared with the same period of 2004. In 2005, the Company realized income from main operations amounting to RMB 460 million, down by 29% over the same period of last year, and profit from main operations amounting to RMB 180 million, a decrease of 5% compared with the same of last year, as well as net profit of RMB 12.62 million, a drop of 76.21% than that in the same period of last year. The Company will perform business from the following aspects in the new year: 1. Strengthening restoration of processing business for export OEM In 2005, the Company suffered influence from several factors such as Renminbi appreciation and trade friction of textile products between America and China, under the situation without veracious forecasting in cost, quota and taxation, the Company only controlled risk through accepting order in cautious way, resulting in decrease of processing volume obviously, thus, the said business reduced by a big margin. The said is traditional main operation of the Company, the company had the quite advantages in order, production and sale, along with settlement of trade dispute of textile products between America and China, the situation became clear gradually, the Company restored the cooperation relationship with original customers, the said will be restored step by step in the new year, and throughput also will pick up clearly to original level in the previous year. 2. Continuing to strengthen and enlarge brand operation and choose an opportunity to establish self-owned brand International known brands acted as an agent by the subsidiaries of the Company obtained outstanding achievements in the recent years, market share rate has risen continually, income and profit from main operations and increase step by step, self-run league network spread all over the major cities in China. (1) Operating agent brand in the recent years caused the Company accumulating the plenty experiences in brand operation and management, which established the foundation for promoting self-owned brand in the proper time; (2) the Company clarified the development orientation with logistics as one of core competition of brand operation, supporting computer technology, promoting network establishment of the lager-scale logistics center, which formed a logistics system sustaining larger-scale sales. (3) Through integration to customers, assets, network and personnel, realizing resource sharing, reducing cost and enhancing efficiency. 3. Picking up establishment of paper-making plant and input early Puning Rieys Paper Co., Ltd. invested by the Company could not put in production due to many reasons. Up to now, Rieys Paper has completed the installation of its first and second production lines and the installation of the third production line is also about to be completed. Rieys Paper has conducted trial operation for the installed equipments. Approved by Puning Municipal Government, the external sewage disposal channel for the factory area of Rieys Paper has already been constructed and internal sewage discharging channel is under construction. Only when the construction of the above-mentioned sewage discharging infrastructures is completed can the regular production be started. The Company also will adopt several measures in the new year in order to ensure the said project go on smoothly. 4. Integrating and optimizing existing resources, revitalizing assets and improving the Company’s operation situation The Company did not new financing channel since listing of the Company. In the report period, meeting the macro-control of the State, and shrinking loan scale by the bank, which affected the Company’s capital normal allocation. In the new year, the Company will quicken callback of accounts receivable and other receivables in order to reflow capital; the Company will optimize resource collocation, saving cost through integrating source and organization system of all brand so as to improve financial status; the Company will revitalize stock assets and settle capital problem through various ways. 6.2 Main operations classified according to industries or products Unit: RMB’0000 Increase or decrease of Increase or Increase or income from decrease of cost decrease of Classified Profit ratio of Income from main Cost of main main from main profit ratio of according to main operations operations operations operations main operations industries operations compared with compared with compared with the last year the last year (%) the last year (%) (%) Clothing 45,904.86 27,376.60 39.95% -29.56% -40.15% 10.33% manufacturing Increase or Increase or Increase or Classified Profit ratio of Income from main Cost of main decrease of decrease of cost decrease of according to main operations operations income from from main Profit ratio of products operations main operations main operations operations compared with compared with compared with the last year (%) the last year (%) the last year (%) Naught 0.00 0.00 0.00% 0.00% 0.00% 0.00% 6.3 Main operations classified according to area Unit: RMB’0000 Areas Income from main operations Increase/decrease of income from main operations over the last year (%) Sales of export clothing 20,540.37 -53.53% Sales of clothing at home 24,648.08 17.56% Clothing processing 716.41 100.00% 6.4 Application of the raised proceeds □Applicable √Inapplicable Particulars about the changed projects □Applicable √Inapplicable 6.5 Application of the non-raised proceeds √Applicable □Inapplicable Unit: RMB’0000 Name of project Amount Progress Income of project Dezhou Zhonghe Fashion 350.00 Established Sale income of 4956 Co., Ltd. Total 350.00 - - 6.6 Explanation of the Board of Directors on the “Qualified Opinion” made by the Certified Public Accountants √Applicable □Inapplicable The CPA engaged by the Company issued an unqualified Auditors’ Report with emphasis events for the year 2005 for the Company, the Board of Directors made the following explanation on the aforesaid events: (I) About Rieys Paper Project: Rieys Paper was founded on May 8, 2003 with registered capital of USD 29 million, a Sino-foreign joint venture enterprise, whose business scope included production of series products such as high strength corrugated paper. The Company invested USD 14.79 million in Rieys Paper, taking up 51% of registered capital, of which, USD 11.29 million was used in paying expenses that the Company introducing facilities and auxiliary facilities, transportation expense and knocked-down expense, USD 3 million was used in investment of land, plant and power facilities, USD 0.5 million was used in current capital of joint venture company. Japan New Century Trading Co., Ltd. invested USD 14.21 million with paper making facilities, taking up 49% of registered capital. The Company has already finished the financial contribution and capital verification for Rieys Paper. Japan New Century made the financial contribution with the mechanical equipments worth RMB 78.5 million Yuan and failed to make the equipment contribution of RMB 39.443 million Yuan as per the stipulated date. Ended Dec. 31, 205, total asset of Rieys Paper was RMB 336.01 million, as well as liabilities amounting to RMB 135.25 million and net assets of RMB 200.76 million. At present, Rieys Paper has completed main construction projects such as plant, storage and etc., Rieys Paper has completed the installation of its first and second production lines and the installation of the third production line is also about to be completed, and stored up American waste paper used in production continuously within two to three months. Approved by Puning Municipal Government, the external sewage disposal channel for the factory area of Rieys Paper has already been constructed. In line with the relevant requirements of Environmental Protection Bureau of the State, the additional internal sewerage disposal facilities for the factory area of Rieys Paper was under checking and accepting. Only when the checking and accepting of the above-mentioned sewage disposal facilities, the aforesaid sewerage disposal facilities will be put in production formally. The Company was also adopting comprehensive feasibility measures, for insistent, adjusting capital using structure and investment structure, receiving back various capital occupied, seeking external financing ways and so on, to ensure capital demand that Rieys Paper Co., Ltd manufactured and operated formally. (II) About Projects of Tianye Chemical Fiber, Garments Design Center and Production line of Jean On May 30, 2005, the 1st extraordinary shareholders’ general meeting formed the resolution on directionally additionally issuing domestically listed foreign shares. The raised proceeds of RMB 450 million were used in investment of Tianye Chemical Fiber, Garments Design Center and Production Line of Jean. The Company invested the prophase project with self-owned capital, planed to quicken project construction after raising proceeds, reducing project construction period. But the said directional additional issuance did not be approved, resulted in no follow-up capital input. At present, the company has suspended the additional investment for the aforesaid three projects. The Company also would appraise the said projects investment referring the existing capital status. At the same time, the Company was negotiating with the relevant companies to require handing back capital over paid. Up to now, Shantou Kefa Company has handed back accounts in advance amounting to RMB 3.5 million, and Shantou Dongying Company has handed back withdrew accounts in advance amounting to RMB 2.3 million. 6.7 The preplan on the profit distribution and capitalization of capital reserve made by the Board of Directors □Applicable √Inapplicable The Company did not appropriate distribution preplan in cash though the Company achieved the profit in the report period √Applicable □Inapplicable Reasons for not proposing any preplan of cash profit Use and use plan of the distribution while profit had been made in the report period retained profit of the Company As a result that the Company’s all business developed quickly, current capital demand in operating activities continually increased, meanwhile, for cutting down bank loan scale step by The undistributed profit would be step, and ensuring capital demand and steady development of the used to supplement current Company consequently, thus, the Board of Directors plan to capital of the Company. decide that the profit distribution preplan for the year 2005 was: neither to distribute profit nor to convert public reserve into share capital. §7 Significant Events 7.1 Purchase of assets □Applicable √Inapplicable 7.2 Sales of assets □Applicable √Inapplicable 7.3 Important guarantees √Applicable □Inapplicable External guarantees of the Company (excluding guarantees for shareholding subsidiaries) Date of occurrence For related Name of companies Guarantee Guarantee Guarantee Accomplished (agreement signing parties or not guaranteed amount type term or not day) (yes or no) Total guarantee amount occurred in the report period 10,072.50 Total guarantee balance at the end of the report period 10,072.50 Guarantees for shareholding subsidiaries by the Company Total guarantee amount occurred in the report period for shareholding subsidiaries 10,072.50 Total guarantee balance at the end of the report period for shareholding subsidiaries 0.00 Total guarantee amount of the Company (including guarantees for shareholding subsidiaries) Total guarantee amount 10,072.50 Proportion of the Company’s net assets taken by the total guarantee amount 19.70% Including: Guarantee amount for shareholders, the actual controller or its related parties 0.00 Guarantee amount for the debts of the guaranteed companies with an asset-liability ratio of over 70 percent, directly or indirectly 0.00 The amount by which the total guarantee amount exceeded 50 percent of the net assets 0.00 Total amount of the above three guarantees 0.00 7.4 Significant related transactions 7.4.1 Related transactions concerning routine operation □Applicable √Inapplicable 7.4.2 Related credits and liabilities current □Applicable √Inapplicable Capital occupation and plan for clearing: □Applicable √Inapplicable Could the clearing plan guarantee the ultimate solving of the capital occupation problem before the end of 2006 or not: □Yes □No √Inapplicable 7.5 Financing entrustment □Applicable √Inapplicable 7.6 Implementation of commitments □Applicable √Inapplicable 7.6.1 Other commitments □Applicable √Inapplicable 7.7 Significant lawsuits and arbitrations □Applicable √Inapplicable §8 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, the Supervisory Committee totally held two meetings: 1. The 1st meeting of the 3rd Supervisory Committee for 2005 was held at the meeting room of the Company on 26/F, Tower A, Jiangsu Bulg., Yitian Road, Futian District, Shenzhen on the morning of Apr. 11, 2005. The following resolutions were examined and approved in this meeting: 1) Work Report 2004 of the Supervisory Committee; 2) Annual Report 2004 and its Summary; 3) Revised the Rules of Procedure for the Supervisory Committee; 4) Opinions of the Supervisory Committee on the operation of the Company in 2004. 2. The 2nd meeting of the 3rd Supervisory Committee for 2005 was held at the meeting room of the Company on 28/F, Centre Business Bulg., 1st Fuhua Road, Futian District, Shenzhen on Aug. 19, 2005. The following resolutions were examined and approved in this meeting: Semi-annual Report 2005 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 for 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 members of the Supervisory Committee attended the Board meeting as non-voting delegate. 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 In the report period, the Supervisory Committee seriously performed their duties to inspect the Company’s financial status, the Supervisory Committee believed that the unqualified Auditor’s Report for the year 2005, 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 related transactions did not harm interests of shareholders and investors. (IV) Agreeing the special explanation of emphasis events on Auditors’ Report 2005 made by the Board of Directors. §9 Financial Report 9.1 Auditing opinion The unqualified auditors’ report with emphasis events. 9.2 Financial statement 9.3 Detailed explanation on the changes in the accounting policies, accounting estimation or accounting methods compared with the latest Annual Report □Applicable √Inapplicable 9.4 Content of significant accounting errors, amounts changed, reasons and influences □Applicable √Inapplicable 9.5 Detailed explanation on the changes in the consolidation scope compared with the latest Annual Report √Applicable □Inapplicable Comparing with consolidated statement of the last year, the Company additionally increased Dezhou Zhonghe Fashion Co., Ltd.. Board of Directors of Guangdong Rieys Group Company Ltd. Apr. 29, 2006 GUANGDONG RIEYS (GROUP) COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2005 (Expressed in Renminbi (“RMB”) thousands, except for earnings per share) Notes 2005 2004 Sales 459,049 651,718 Cost of sales (274,618) (458,638) Gross profit 184,431 193,080 Other operating income, net 5 5,459 11,177 Distribution costs (72,734) (56,010) General and administrative expenses (63,743) (43,405) Profit from operations 53,413 104,842 Finance costs, net 6 (27,039) (21,588) Share of gain of an associate 19 116 Profit before income tax 7 26,393 83,370 Income tax expenses 8 (2,577) (7,870) Profit for the year 23,816 75,500 Attributable to: Equity holders of the Company 8,193 53,210 Minority interests 15,623 22,290 23,816 75,500 Dividends 9 16,620 26,550 Earnings per share for profit attributable to the equity holders of the Company during the year - Basic and diluted 10 RMB0.0257 RMB0.17 The accompanying notes are an integral part of these financial statements. GUANGDONG RIEYS (GROUP) COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2005 (Expressed in Renminbi thousands) Notes 2005 2004 ASSETS Non-current assets Property, plant and equipment, net 11 502,564 535,431 Land use rights, net 12 27,966 12,683 Goodwill 13 39,267 35,484 Computer software and other deferred assets 14 1,046 1,435 Prepayments for property, plant and equipment 15 98,008 95,976 Investments in an associate 17 12,980 12,961 Deferred tax assets 18(b) 6,198 3,798 688,029 697,768 Current assets Marketable securities 19 300 300 Inventories, net 20 116,045 95,918 Trade and other receivables, net 21 323,546 267,406 Prepayments 2,052 1,208 Advances to suppliers 22 88,327 131,779 Taxes recoverable 18(a) 12,579 21,946 Cash and cash equivalents 23 10,203 59,995 553,052 578,552 Total assets 1,241,081 1,276,320 LIABILITIES Current liabilities Trade payables 55,606 79,533 Accruals and other payables 65,411 51,370 Short-term bank loans 24 486,281 504,900 Taxes payable 18(c) 8,153 7,965 615,451 643,768 EQUITY Capital and reserves attributable to equity holders of the Company Share capital 25 318,600 318,600 Reserves 26 133,426 131,732 Retained earnings 52,652 62,772 504,678 513,104 Minority interests 120,952 119,448 Total equity 625,630 632,552 Total liabilities and equity 1,241,081 1,276,320 The accompanying notes are an integral part of these financial statements. - 14 - GUANGDONG RIEYS (GROUP) COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2005 (Expressed in Renminbi thousands) Minority Total Attributable to equity holders of the Company interests equity Statutory Share Share revenue Discretionary Retained Notes capital premium reserves reserve earnings Balances at January 1, 2004 265,500 75,154 37,954 37,000 44,286 136,468 596,362 Net profit for the year - - - - 53,210 22,290 75,500 New investment in subsidiaries - - - - - 5,740 5,740 Disposal of certain equity interest in a subsidiary to a company within the Group - - - - - (39,650) (39,650) Dividends 9 26,550 - - - (26,550) (5,400) (5,400) Issue of shares 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 62,772 119,448 632,552 Net profit for the year - - - - 8,193 15,623 23,816 Dividends 9 - - - - (16,619) (15,599) (32,218) Additional capital injection to a subsidiaries - - - - - 1,480 1,480 Appropriation from retained earnings - Statutory revenue reserves 26 - - 1,694 - (1,694) - - Balances at December 31, 2005 318,600 48,604 47,822 37,000 52,652 120,952 625,630 The accompanying notes are an integral part of these financial statements. - 15 - GUANGDONG RIEYS (GROUP) COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2005 (Expressed in Renminbi thousands) Note 2005 2004 OPERATING ACTIVITIES Profit from operations 26,393 83,370 Adjustments for: Provision for doubtful debts 14,177 4,660 Provision (Write back of provision) for obsolete stocks 384 (2,436) Depreciation of property, plant and equipment 33,304 21,904 Loss on disposal of property, plant and equipment 25 31 Amortization of land use rights 595 277 Amortization of goodwill - 4,771 Amortization of computer software and other deferred assets 579 577 Share of gain of an associate (19) (116) Interest expenses 28,787 29,767 Interest income (4,773) (8,976) Operating profit before working capital changes 99,452 133,829 Increase in inventories (20,510) (18,834) Increase in trade and other receivables (55,857) (59,944) Decrease / (Increase) in prepayments 42,608 (45,911) Decrease in trade payables (23,927) (51,772) Increase in accruals and other payables 12,954 25,545 Cash (used in) generated from operations 54,720 (17,087) Interest paid (28,787) (29,767) Taxes refunded 4,577 33,105 Net cash (used in) generated from operating activities 30,510 (13,749) INVESTING ACTIVITIES Purchases of property, plant and equipment (22,591) (102,601) Net proceeds from disposals of marketable securities - 348 Increase in prepayments for property, plant and equipment (11,553) (82,396) Decrease in prepayments for long-term investments - 4,891 Interest received 135 9,944 Net proceeds from disposals of property, plant and equipment 3,250 90 Decrease in other deferred assets (190) (28) Net cash flows used in investing activities (30,949) (169,752) FINANCING ACTIVITIES (Repayments of) New short-term bank loans (18,619) 121,600 Contribution from minority shareholders 1,480 5,740 Dividends paid (32,220) (5,400) Net cash flows generated from financing activities (49,359) 121,940 Net decrease in cash and cash equivalents (49,792) (61,561) Cash and cash equivalents, beginning of year 59,995 121,556 Cash and cash equivalents, end of year 23 10,203 59,995 T - 16 - T - 17 -