东沣B退(200160)帝贤Ｂ2005年年度报告摘要（英文版）

CHENGDE DIXIAN TEXTILE CO., LTD. SUMMARY OF ANNUAL REPORT 2005 §1. Important Notice 1.1 The Board of Directors，Supervisory Committee of Chengde Dixian Textile Co., Ltd. (hereinafter referred to as the Company) and its directors, supervisors and senior executives individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions or errors which would render any statement misleading. The summary of annual report 2005 is abstracted from the full text of 2005 annual report; the investors are suggested to read the full text of annual report to understand more details. 1.2 No directors stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of the Annual Report or have objection for this report. 1.3 Name of absent director Name Reason of absence Name of entrustee Mr. Wang Yaguang Due to business Mr. Wang Enyuan 1.4 Shenzhen Pan-China Schinda Certified Public Accountant audited the domestic financial report of the Company and issued the unqualified Auditors’ Report with emphasized issues for the Company. And Hong Kong Charles Chan, Ip & Fung CPA Ltd audited the international financial report and issued disclaimer of opinion report. The Board of Director, Supervisory Committee of the Company made definitions on the relevant matters, the investors paid attention to read. 1.5 Chairman of the Board of the Company Mr. Wang Shuxian, Chief Financial Officer Mr. Zhang Jing and Person in Charge of Accounting Organ (Accounting Officer) Xu Fenglan hereby confirm that the Financial Report of the Annual Report is true and complete. §2. Company Profile 2.1 Basic information Short form of the stock DIXIAN B Stock code 200160 Listed stock exchange Shenzhen Stock Exchange Registered address and office address Registered address: Xiabancheng Town, Chengde County, Hebei Office address: Xiabancheng Town, Chengde County, Hebei Post code Post code of registered address: 067400 Post code of office address: 067400 Internet web site of the Company http://www.dxtex.com E-mail of the Company dxgs-9@heinfo.net 2.2 Contact person and method 1 Secretary of the Board Securities Affairs Representative Name Chen Zhiguo Li Yang Contact address Xiabancheng Town, Chengde County, Xiabancheng Town, Chengde County, Hebei Hebei Telephone (86)314-3115048 (86)314-3115049 Fax (86)314-3182013 (86)314-3182013 E-mail dxgs-9@heinfo.net dxgs-9@heinfo.net §3. Summary of Accounting Data and Financial Indexes 3.1 Major accounting data Unit: RMB Increase/decrease 2005 2004 2003 over last year（％） Income from main operations 289,738,020.15 525,685,638.38 -44.88% 523,600,120.73 Total profit 22,216,038.51 112,829,922.20 -80.31% 184,182,798.70 Net profit 20,306,135.88 105,127,475.36 -80.68% 143,046,586.23 Net profit after deducting 20,210,082.85 104,980,695.82 -80.75% 140,043,395.00 non-recurring gains and losses Net cash flow arising from 28,712,097.90 77,842,558.55 -63.12% 124,500,520.00 operating activities Increase/decrease At the end of At the end of At the end of from the end of 2005 2004 2003 previous year（％） Total assets 2,761,726,330.29 2,992,390,844.89 -7.71% 2,310,992,830.72 Shareholder’s equity (excluding 1,319,847,999.32 1,298,142,307.03 1.67% 696,775,076.35 minority interests) 3.2 Major financial indexes Unit: RMB Increase/decrease 2005 2004 2003 over last year（％） Earnings per share 0.03 0.18 -83.33% 0.33 Earnings per share (note) 0.03 - - - Return on equity 1.54% 8.10% -6.56% 20.53% Return on equity as calculated based on net profit after deducting 1.53% 8.07% -6.54% 20.10% non-recurring gains and losses Net cash flow per share arising 0.05 0.13 -61.54% 0.28 from operating activities Increase/decrease At the end At the end from the end of At the end of 2005 of 2004 of 2003 previous year（％） Net assets per share 2.24 2.21 1.36% 1.59 Net assets per share after 2.23 2.20 1.36% 1.58 adjustment Note: Earnings per share were calculated based on new share capital if share capital was changed from the end of the report period to disclosure date of the report. 2 Items of non-recurring gains and losses √Applicable □Inapplicable Unit: RMB Items of non-recurring gains and losses Amount Income from compensation 38,290.68 Add: Other income 341,945.12 Less: Expenditure of penalty 59,832.80 Less: Expenditure of donation 5,050.00 Less: Other expenditure 186,442.40 Total 128,910.60 3.3 Difference in net profit as audited by Chinese Accounting Standard (CAS) and International Accounting Standard (IAS) √Applicable □Inapplicable Unit: RMB CAS IAS Net profit 20,306,135.88 20,306,135.88 Explanation on the difference There was no difference in net profit. §4. Changes in Share Capital and Particulars about Shareholders 4.1 Statement of changes in share Unit: Share Increase/decrease of this Before the change After the change time (+, - ) Amount Proportion Subtotal Amount Proportion Items 204,000,000 34.66% 0 204,000,000 34.66% 204,000,000 34.66% 0 204,000,000 34.66% I. Unlisted 0 0.00% 0 0 0.00% Shares 1. Sponsors’ 19,289,424 3.28% 0 19,289,424 3.28% shares Including: 0 0.00% 0 0 0.00% State-owned 184,710,576 31.38% 0 184,710,576 31.38% share Domestic legal 0 0.00% 0 0 0.00% person’s shares Foreign legal 0 0.00% 0 0 0.00% person’s shares Others 0 0.00% 0 0 0.00% 2. Raised legal 384,600,000 65.34% 0 384,600,000 65.34% person’s shares 3. Inner employees’ 0 0.00% 0 0 0.00% shares 4. Preference 384,600,000 65.34% 0 384,600,000 65.34% shares or others II. Listed 0 0.00% 0 0 0.00% Shares 1. RMB 0 0.00% 0 0 0.00% ordinary shares 3 2.Domestically listed foreign 588,600,000 100.00% 0 588,600,000 100.00% shares 4.2 Statement of shares held by the top ten shareholders and the top ten shareholders of circulation share Unit: Share Total amount of shareholders 15,147 Particulars about shares held by the top ten shareholders Numbers of Proportion of Increase/decrease in Full name of Shareholders Nature of shareholder Total of shares held non-circulating shares shares held 2005 held Wang Shuxian Natural person 29.49% 173,604,000 173,604,000 173,604,000 China Southern Securities Circulating B-share 15.41% 90,700,000 Co., Ltd. China Southern Securities Circulating B-share 3.27% 19,235,055 (HK) Co., Ltd. Chengde North IndustrialDomestic legal person 2.62% 15,431,376 Corporation share Wang Zhengsong Natural person 1.89% 11,106,576 11,106,576 0 DEUTSCHE BANK AG Circulating B-share 1.20% 7,090,267 LONDON RIPPERTON ASSETS Circulating B-share 1.20% 7,084,388 LIMITED CSSC INTL LTD Circulating B-share 1.11% 6,530,000 Wang Wensheng Circulating B-share 1.03% 6,048,339 China Medium & Small Enterprise Development Circulating B-share 1.00% 5,880,000 Funds Co., Ltd. Particulars about shares held by the top ten shareholders of circulation shares Shareholders’ name (full name) Shareholders’ name (full name) Type of shares China Southern Securities Co., Ltd. 90,700,000 Domestically listed foreign shares China Southern Securities (HK) Co., Ltd. 19,235,055 Domestically listed foreign shares DEUTSCHE BANK AG LONDON 7,090,267 Domestically listed foreign shares RIPPERTON ASSETS LIMITED 7,084,388 Domestically listed foreign shares CSSC INTL LTD 6,530,000 Domestically listed foreign shares Wang Wensheng 6,048,339 Domestically listed foreign shares China Medium & Small Enterprise 5,880,000 Domestically listed foreign shares Development Funds Co., Ltd. PERFECT SPACE INVESTMENTS 4,542,989 Domestically listed foreign shares MAIN FORCES ASSETS LIMITED 4,046,700 Domestically listed foreign shares CHINA SOUTHERN CORPORATE 3,790,000 Domestically listed foreign shares FINANCEL LIMITED Wang Shuxian and Wang Zhengsong are parent child relationship so as to exist related relationship; China Southern Securities (Hong Kong) Co., Ltd and CSSC INTL LTD belong to subsidiaries of CSSC Co., Ltd. so as to exist related relationship. Among the Explanation on associated relationship top ten shareholders, the Company is unknown whether there exists associated among the aforesaid shareholders relationship or belongs to the consistent actor regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Company among the other shareholders. 4.3 Particulars about the controlling shareholders and actual controller of the Company 4.3.1 Particulars about change in the controlling shareholders and actual controller of the Company 4 □Applicable √Inapplicable 4.3.2 Introduction of especial situation for the controlling shareholder and actual controller The controlling shareholder of the Company is Wang Shuxian; and also is the first largest shareholder of the Company as well as actual controller of the Company. His information is as follows: Mr. Wang Shuxian, Chinese nationality, who has not enjoy the residence power in the other country or area. He is one of the sponsors of the Company and holds 173,604,000 shares of the Company at present. Mr. Wang Shuxian is founder of the Company. In 1986, Xiaban County Knitting Factory was founded in Xiabancheng town of Chengde, Hebei. Over ten years, the Company has developed into the largest base of manufacture and exporter of textile in North China from small to large, developing into the largest base of production and export in knitting products in North China. In 1994, he has established Hebei Dixian Textile Group Co., and it has been changed into joint-stock company on Nov. 3, 1999. Approved by CSRC, DIXIAN B successfully listed with Shenzhen Stock Exchange for trade on Sep. 29, 2000. The Company has become the first B-share listed company controlled by person. Now, Mr. Wang Shuxian is Chairman of the Board of the Company. 4.3.3 Property right and controlling relationship between the actual controller of the Company and the Company is as follows: WANG SHU XIAN 29.49% CHENGDE DIXIAN TEXTILE CO., LTD. 公司 5. Particulars about the Directors, Supervisors and Senior Executives 5.1 Particulars about changes in shares held by directors, supervisors and senior executives Draw the Total remuneratio remunerati Share held n drew from the Shares held Reason on from oth Company Name Title Sex Age Term office at the of er sharehold in the report year-begin change er units or at the period associates or year-end (RMB’0000) not Chairman of Oct.30,2005- No Wang Shuxian Male 52 173,604,000 173,604,000 0.00 No the Board Oct. 30,2008 change Director, Oct.30,2005- Shi Bainian General Male 34 0 0 5.90 No Oct. 30,2008 Manager Oct.30,2005- Song Yushan Director Male 65 0 0 4.32 No Oct. 30,2008 5 Oct.30,2005- Wang Huilai Director Male 51 0 0 4.32 No Oct. 30,2008 Oct.30,2005- Du Qingfeng Director Male 44 0 0 4.32 No Oct. 30,2008 Oct.30,2005- Lan Wenzhi Director Female 47 0 0 4.32 No Oct. 30,2008 Deputy Oct.30,2005- Liu Fumin General Male 32 0 0 4.32 No Oct. 30,2008 Manager Deputy Oct.30,2005- Song Shiqiang General Male 32 0 0 4.32 No Oct. 30,2008 Manager Deputy Oct.30,2005- Huo Xuejun General Male 33 0 0 4.32 No Oct. 30,2008 Manager Independent Oct.30,2005- Wang Enyuan Male 64 0 0 2.20 No Director Oct. 30,2008 Independent Oct.30,2005- Li Wei Male 34 0 0 2.20 No Director Sep.6,2007 Independent Oct.30,2005- Wang Yaguang Male 53 0 0 2.20 No Director Sep.6,2007 Deputy Wang Oct.30,2005- No General Male 29 11,106,576 11,106,576 4.32 No Zhengsong Oct. 30,2008 change Manager Oct.30,2005- Xu Xue Supervisor Male 57 0 0 2.17 No Oct. 30,2008 Oct.30,2005- Li Xianfu Supervisor Male 60 0 0 1.18 No Oct. 30,2008 Oct.30,2005- Sun Zhenyu Supervisor Male 43 0 0 2.95 No Oct. 30,2008 Oct.30,2005- Yao Fenglan Supervisor Female 40 0 0 2.17 No Oct. 30,2008 Oct.30,2005- Xu Huafeng Supervisor Male 33 0 0 1.18 No Oct. 30,2008 Chief Oct.30,2005- Zhang Jing Financial Male 35 0 0 4.32 No Oct. 30,2008 Officer Secretary of Oct.30,2005- Chen Zhiguo Board of Male 33 0 0 4.32 No Oct. 30,2008 Directors Total - - - - 184,710,576 184,710,576 - 65.35 - §6. Report of the Board of Directors 6.1 Discussion and analysis to the whole operation in the report period In the report period, the normal operation of the Company was influenced by the stopping production due to the difficult of capital turnover and the breaking of fund chain. 1. After releasing the notice of suspension production on the breaking of the fund chain of the Company and its subsidiaries, part of banks responded violently, even appealed to laws. The raised fund of the Company mainly used for restoring production and technological transformation, which resulted in part of loans exceeding the time limit. With the gradual restoration of production of the Company, 6 after part of bank deeply investigated and surveyed the Company, they provided continuous loans for the Company, such as Tianjin Pudong Development Bank, Dalian Pudong Development Bank and Chengde Bank of China, etc. Chairman of the Company, Mr. Wang Shuxian, held 173,604,000 shares of the Company, of which 8o million shares were judicially frozen by Intermediate People’s Court of Dalian, 93.604 million shares were judicially frozen by Intermediate People’S Court of Shenzhen. At present, the Company did not know any news about the progress of handling the shares of Chairman of the Company Mr. Wang Shuxian. The Company is taking positive measures to negotiate with the banks on solving the loans exceeded the time limit. 2. The fund of the Company became nervous and the production restored slowly because it did not carry out any exterior financing after the breaking of the fund chain. In addition, influenced by the geographical location of the Company, most of the synthetic silk and the cotton yarn sold to Yangtze River Delta and Pearl River Delta, and the transportation charges will be higher. In order to overcome these difficulties, the Company carried out large-scale technological transformations over the advanced yarn spinning equipment made in Japan: the yarn spinning equipments with original production capability of 30 completely were transformed into larger count single yarn and folded yarn with production capability of 80 of the ultra-fine additional value; the method reduced the outputs and values of the yarns of the Company, but it could decease the occupied amount of the current fund of the Company and overcome the difficulty of insufficient fund. At the same time, it reduced the freight volume of the products, decrease the proportion between the transportation charges and sales income and improve the competitive abilities of the products. In 2006, the transformed yarn spinning machines which were put into production will achieve above 800,000 spindles which accounts for 70% of the whole yarn spinning machine. At present, the Company has approximately 1.2 million spindles of yarn spinning machine, and the volume of the spinning machine remains second in China. 3. Chengde Xingye Papermaking Co.,Ltd ,the controlling subsidiary of the Company, carried out the production by using the imported waste paper as the raw material at the beginning of establishment of it. The main products sold to Shandong and Yangtze River Delta by road transportation. Starting from the second half of 2004, the transportation charges increased largely and newly built lots of papermaking plants in the sales regions. Compared to the local papermaking plants, the papers of the Company needed to spend more transportation costs of transportation and transportation charges of transportation, and the transportation flowed obviously backwards and did not conform to the rule of industrial production. Under the situation of the increased transportation charges, the Company faced with keen competition and had no benefits to obtain. In light of that, the Papermaking Company started up the second scheme prepared in the building of the company; it namely was to manufacture papers of the wood-pulp with wooden around Chengde and Daxinganling Area. In order to achieve the goals, the Company invested no less than 7 RMB 50 million on the technological transformation of papermaking, which was namely changing wastepaper pulp into wood-pulp, and the correspondent transformation on the sewage treatment. At present, Chengde Xingye Papermaking Co.,Ltd and its subsidiary has the whole waste papermaking with the production capability of 450,000 tons per year. Due to the lack of current fund, it can not conduct debugging of the products. Under these circumstances, the company cannot fully achieve the production goal by its own ability; it needs to get exterior supports. The Company now is negotiating cooperation with other papermaking enterprises. The project was the Forest-Paper Integration Project encouraged by the government; it will exert the advantages made paper by wood. In addition, the Company will sign a treaty with Daxing’ anling area on project of pulp-making with 300,000 tons to solve the problem on raw material supply for the paper plant of the Company. 4. The Company locates in northern side of Beijing, which is 220 kilometers form Beijing; but it is under the control the municipal government of Hebei, and is backward in the economical development. Except that the four state-owned banks, Rural Credit Cooperation and Urban Credit Cooperation, there was no other commercial banks. Chengde governs eight counties and three districts, but has not increased any loans supports for the manufacturing companies since 2005. The three original companies of Chengde: Chengde Iron and Steel Group Co., Ltd, Lolo Group, Chengde Dixian Textile Co.,Ltd, two of which were annexed, the last of which seek for annexation and merger with other partner including the state-owned companies to give good return to the shareholders to make the Company to shake off the nervous condition limited by the local financial environment. Chengde Dixian Textile Co.,Ltd and its subsidiaries have large assets with land area of 3000 acres and building area of about 700,000 square meters; the Company paid the maintenance charges, repair charges of lots of equipments and winter heating bills, additionally it needed to pay the expenses of amortization of the expenses and the interest of bank loans. Although the Company has large high quality assets and lots of yarn spinning machine and papermaking machine which could gain profits, it can not collect the enough current capital; thus it caused many advanced equipment cannot be used ,make profits and give good return to the shareholders. At present, a lot of lands, plants and equipments were not mortgaged. Chairman of the Company Mr. Wang Shuxian expressed apologies and remorse for the present situation. Since 1986 of the establishment of the Company, the Company was always the superior customer for many banks to provide for loans; especially, the Company signed long-term friendship and cooperation agreement exclusively with Industrial and Commercial Bank of China without other banks. After the macroeconomic regulation, Industrial and Commercial Bank of China withdrew positively and other banks were permitted to enter, but the time was not enough. In order to express apologies and remorse, Chairman Mr. Wang Shuxian committed to draw remuneration only amounted to RMB 1 until the success of normal operation of the equipment and merger or reorganization of the Company. The management of the 8 Company had confidence on successful reorganization, restoring the production and achieving the production. The Company strengthened the management, reduced the expenditures, revitalized the unused assets and made profits for the Company and gave good return for the shareholders. II. Review to the operation of the Company in the report period (I) Overall operations in the report period In 2005, influenced by the limit of fund and production suspension, the achievements of the Company reduced largely compared to the same period of last year. Without the new supports of loans, the Company adopted the following measures to help ourselves, such as sales of inventories, revitalization of asset, speeding up the sales and drawing back the fund capital; and the Company gradually restored the production. However, after the breaking of fund chain, and without other external financing including the bank loans, the fund of the Company was very intense; especially in the restoration of production of the Company, the necessary technological transformation was taken on the yarn spinning machine and paper-making machine, and the participated results were not good due to the limit of fund and low speed. The income from main operation amounted to RMB 289,738,020.15 with a decrease of 44.88% compared to last year , profit from main operation amounted to RMB 67,456,586.09 with a decrease of 60.77% with the same period of last year, the net profit amounted to RMB 20,306,135.88 with a decease of 80.68% compared to last year . 6.2 Statement of main operations classified according to industries or products Unit: RMB’0000 Main operations classified according to industries Increase/decrea Gross Increase/decrease Increase/decreas Income Cost of se in gross Classified according profit ratio in income from e in cost of from main main profit ratio of to industries or of main main operations main operations operations operations main operation products operation over the last year over the last (RMB) (RMB) over the last (%) (%) year (%) year (%) Clothing 13,348.62 7,488.56 43.90% -36.62% -40.37% 3.52% manufacturing Cotton textile 11,260.21 11,565.83 -2.71% -44.73% -24.36% -27.66% Papermaking 4,364.97 3,173.75 27.29% -60.79% -57.83% -5.10% Main operations classified according to products Sales of knit wears 13,348.62 7,488.56 43.90% -36.62% -40.37% 3.52% Spinning and 11,260.21 11,565.83 -2.71% -44.73% -24.36% -27.66% synthetic silks Sales of paper 4,364.97 3,173.75 27.29% -60.79% -57.83% -5.10% 6.3 Particulars about main operations classified according to areas Unit: RMB’0000 9 Areas Income from main Increase/decrease in income from main operations (RMB) operations over the last year (%) Asia 15,902.49 -33.41% North China 4,967.76 -58.69% South China 5,842.79 -60.58% East China 1,758.21 Middle China 206.33 100.00% Northeast 296.23 -75.57% 6.4 Application of the raised proceeds □ Applicable √ Inapplicable Particulars about the changed projects □ Applicable √ Inapplicable 6.5 Application of the proceeds not raised through shares offering √ Applicable □ Inapplicable Unit: RMB’0000 Name of projects Amount of projects Progress of projects Earnings of projects Chengde Banhe Chemical Simulation Textile Co., 4,698.00 It is on the progress Naught Ltd. Chengde Dahua Paper 20,621.57 It is on the progress Naught Co., Ltd Total 25,319.57 - - 6.6 Explanation of the Board of Directors on the “Qualified Opinion” made by the CPAs √Applicable □ Inapplicable In 2005, Shenzhen Pan-China Schinda Certified Public Accountant audited the domestic financial report of the Company and issued the unqualified Auditors’ Report with emphasized issues for the Company. And Hong Kong Charles Chan, Ip & Fung CPA Ltd audited the international financial report and issued disclaimer of opinion report. Definitions on the relevant matters by The Board of Director are as follows: 1. Certification of Land Using Right The Company purchase land about amounting to 600 acres, RMB 37 million were paid to the farmers for land transferring in 2005, and the Certification of Land Using Right was taken on the process. The matter is common in China and in accordance with relevant regulations. 2. Investment on the equipment of Xingye Papermaking Xingye Papermaking was jointly established by the Company and Hong Kong Zhanxi International Co., Ltd and obtained the enterprise legal business license on March 12, 2001. The foreign shareholder Hong Kong Zhanxi invested Xingye Papermaking with equipment and the values of equipment invested by Hong Kong Zhanxi was more than RMB 95,450,000 over the capital it should invested. In Sep. 2004, the Company signed the agreement with Hong Kong Zhanxi, on which the ownership of equipment with values of more than RMB 95,450,000 belonged to Hong Kong Zhanxi, and the Company temporarily regarded as the liabilities 10 payable to Hong Kong Zhanxi; and the Company will list the aforesaid equipment into other long-term assets and equivalently list into other long-term liabilities. According to the agreement, the Company can use the equipment without and payment, at the same time, Hong Kong Zhanxi will agree to use the equipment for loan mortgage with the demand of the Company. Meanwhile, stipulated by the agreement the Company will further negotiate with Hong Kong Zhanxi on the disposal of assets. Ended as Dec. 31, 2005, the Company has been pledged on the equipment, and there were no any negotiate results on the equipment between the Company and Hong Kong Zhanxi. 3. Verifying the share capital of Dahua Paper Dahua Papar is Sino-foreign joint venture with the shareholding by Xingye Papermaking, Chengde Xingye Papermaking Co., Ltd negotiated with Japan New Century Trading Co., Ltd to distribute capitals with the current equipment, plants, land using rights of Xingye Papermaking Co., Ltd. According to national relevant stipulations and joint venture agreement of joint venture corporation, the investment on plants and equipment need the appraisal, verifying, issuance of verification report of the capital or equipment by CPA and Appraiser engaged by the new-established joint ventures. At present, the papermaking machine from the relevant party of Japan has not yet fully been in the place and thus did not has qualification on verifying capital; before it did not get confirmation on the distribution of capital the two parties concerned, the Chinese party will distribute capital in book value, and until the joint party issue the appraisal and verification report, the account will be adjusted according to accounting standard. 4. Increasingly issue B shares to verify capital With the approval of ZJFXZ [2004] No.101 promulgated by the CSRC, Chengde Dixian Textile Co., Ltd ( with the following as “the Company”) increased to distribute 0.15 billion domestically listed foreign shares of B-shares in July, 2004. During the period of increasing distribution, due to various reason, the organized investors just subscribe 1,300,000 shares, China Southern Securities Co., Ltd (with the following as “Nanfang Securities”) acted as the recommended institution and main contractor of the distribution, finally sales 148,700,000 shares of the Company, which were accounted for 99.13% of the total distribution, and of which 58,700,000 shares were subscribed in RMB. With the approval of State Administration of Foreign Exchange on subscription of B-share in RMB, the shares were not audited by the China Certified Public Accountant; the Company has not changed the procedure of industry and commerce until now. At present, the Company is taking active negotiation with the relevant departments. It made whole members of Board of the Company puzzled that the said issue settlement 2004 had obtained the agreement from Hong Kong Charles Chan, Ip & Fung CPA Ltd. however, in 2005 the said CPAs denied the said issue settlement and presented as main item of limited scope, it is obvious ill will and deny itself. General shareholders are suggested to pay attention to the said issue. 5. Production suspension and technological reform on Xingye Papermaking In 2005, the Company took technological reform on part of equipments of Xingye Papermaking Co., Ltd, which mainly transformed making pulp with waste paper into making pulp with wood, and transformed the technologies of treatment of sewage. Due to the short of fund, part of production of Xingye Papermaking almost stopped in 2005. Installation and debugging on part 11 of production line which is not put into production are undertaken smoothly due to short of fund, although the company did not stop the installation and debugging. The Company plan to conduct reorganization on project of papermaking and debts conformity. After reorganization, Xingye Papermaking will become the shareholding company of the Company, and effectively relieve the fund pressure of the Company, Papermaking Company can also bring in new strategic investors to solve its own fund, and restore the normal operations. 6. Sustainable operation of the Company In recent year, the Company expanded rapidly in operation scale, invested lots of fund on textiles and papermaking, due to the long term of project; it did not bring in ideal achievements at present. Since the banks adjusted the loan policy in the end of 2004 and did not increase loan and loan amount on the Company, which resulted in nervous condition in fund of the Company and large-scale production in the end 2004. At the beginning of 2005, due to releasing the notice on suspension production of breaking of chain fund of the Company, part of banks responded violently and even sued to court, part of banks requested to repay the loans in advance or did not allow repaying the old loans by borrowing new loans and continue to lend loans. The fund raised by the Company was mainly used for production restoration and technological transformation and resulted part of loan exceeding the time limit. With the gradual restoration of production, part of conduct deep investigation on the Company, and continued to lend loans to the Company. Tianjing Pudong Development Bank, Dalian Pudong Development Bank, Chengde Bank of China continued to lend loans to the Company. Under the circumstances of no increasing loan, the Company gradually restored the production by sales of inventory, revitalization of assets, speeding up sales and taking back monetary fund, and help by ourselves. Especially in the restoration of production, the Company took necessary technological transformation on the equipments of textile and papermaking. But due the breaking of fund chain and no other external financing including the bank loan, the nervous condition in fund of the Company still remained. Ended as Dec. 31, 2005, about RMB 828,340,000.00 of bank loan will come to time limit or already exceeded the time limit, including RMB 117,829,536.60 which exceeded the time limit, RMB 80,824,254.97 for the discount of commercial acceptance were sued in the court by Dalian Road Sub-branch of Guangdong Development Bank, Lianhua Road Sub-branch of Shenzhen Everbright Bank of China and Shijiazhuang Branch of Huaxia Bank. The largest shareholders Mr. Wang Shuxian made commitments to repay the loans by his 173,604,000 shares (accounting for 29.49% of the total shares), which were judicially frozen. The equity of Chengde Dixian Fashion Co., Ltd, Chengde Xingye Papermaking Co., Ltd and Chengde Banhe Chemical Simulation Textile Co., Ltd held by the Company were sealed up by the court, and the period of sealing was from March 1, 2006 to Aug. 31, 2006. Ended as Dec. 31, 2005, the operating fund of the Company was RMB -563, 218, 636, 11. The Board of Directors of the Company thought, although the Company was in nervous condition of fund, the sustainable operation still had no problems and had development potentials and futures. At present, the fund of the Company was nervous, the operation still relatively stable. The asset liability ratio was low and had good cooperation basis with the banks, several banks restored the 12 business relationship with the Company and continue to lend loan or allow repaying the old loans by borrowing new loans, all the banks hope the Company could get rid of the shortage of fund. In light of fund sue, at present, no bank implemented the sued results, the banks still seek for other settling ways with the Company. In order to solve the fund, the Company plan to integrate with the assets and liabilities, bring in strategic investment or seek for other ways to financing, and improve the financial status of the Company. The Company had lots of lands, plants and equipments which can gain profits, all are the basic factors of the sustainable operation of the Company. With the gradual operation of equipments of textile and papermaking, they will bring in huge economic effects of the Company, and the nervous condition will effectively be improved. The Company had almost 3000 acres lands and 700,000 square kilometers plant and lots advanced machines, have huge development potentials, and the difficulties were temporary. The Board of Directors of the Company thought, with the passing of time, the aforesaid matters will finally satisfactorily solved. With objective existing of the aforesaid 1st to 6th problems, domestic CPA Shenzhen Pan-China Schinda Certified Public Accountant and international CPA Hong Kong Charles Chan, Ip & Fung CPA Ltd have different opinions, they are as follows: Domestic CPA Shenzhen Pan-China Schinda Certified Public Accountant conducted deep investigation and acknowledge to the problems, and in accordance with the real condition of the Company, it emphasized that the aforesaid matters will influence the possibilities on sustainable operation of the Company. If there were no external financial support or timely and effectively reorganizations, the sustainable operation of the Company will remain uncertainties; and issued he unqualified Auditors’ Report with emphasized issues for the Company. International CPA Hong Kong Charles Chan, Ip & Fung CPA Ltd took the reasons of nervous arrangement in auditing date and shortage of personnel, and broke it word to delay issuing international auditor’s report for several times. The Company publicly published relevant explanations on newspapers dated April 18, April 22 of 2006, and arouse the dissatisfaction of Hong Kong Charles Chan, Ip & Fung CPA Ltd. The CPA just appointed two personnel to arrive the Company, verified the account, gathered relevant material and data, and went back Hong Kong to draft report with the spending time in the Company of no more than 48 hours from the evening of March 36, 2006 to morning of March 29, 2006. Before Hong Kong Charles Chan, Ip & Fung CPA Ltd should issue the report, they did not negotiate and communicate with the Company, and asked the opinions of the Company. Hong Kong Charles Chan, Ip & Fung CPA Ltd did not fully get to know the conditions of the Company, in order to exempt the responsibility, issued the Financial Auditor’s Report not in the method of goodwill and responsibility, refused to express any opinions on the sustainable operation of the Company, and then issued disclaimer of opinion report. Meanwhile entirely groundless compiled in financial report as follows: “directors thought if the said subsidiary lastingly stop running, the said assets should be confirmed as provision for depreciation of assets.”(Refers to item 3 of 31st attachment in international financial report), Board of Directors make announcement hereby of never having such idea or showing meaning like this. They made decision without authorization to 13 weave a rough and contradictory financial report which made Directors unsatisfied. We are not intended to preclude the possibility that be legally subject to relevant liability. In view of that Hong Kong Charles Chan, Ip & Fung CPA Ltd caused losses and damaged to the general investors and the Company, the Company will retain the legal means to protect the rights of the Company and legitimate equity of shareholders of the Company. 6.7 The preplan of profit distribution and capitalization of capital public reserve of the Board of Directors √ Applicable □ Inapplicable After being audited by Shenzhen Pan-China Schinda Certified Public Accountants and Hong Kong CCIF Certified Public Accountants Limited in line with Chinese Accounting System and International Accounting Standards respectively, the Company’s net profit after consolidation as of the year 2005 was RMB 20,306,135.88, and the net profit of parent company was RMB 18,106,135.88. In accordance with the relevant regulations of Company Law and Articles of Association of the Company, after appropriating 10% of net profit as statutory public reserve amounting to RMB 1,810,613.59 and appropriating 5% of net profit as statutory public welfare amounting to RMB 905,306.79, adding the remained profit from last year after distribution, the profit available for distribution to shareholders was RMB 256,081,554.26. The plan for distribution of 2005 profit of the Company: Taking the total shares 588,600,000 in the end of 2005 as the cardinal number, 2 bonus shares issued for each 10 shares. In 2005, the Company did not concert capital public reserve into shares. This preplan should be submitted to Shareholders’ General Meeting for examination. The Company didn’t appropriate share distribution preplan though the Company achieved the profit in the report period √Applicable □Inapplicable The reasons why the Company did not appropriate share Purpose and using plan of the distribution preplan though the Company achieved the undistributed profit of the Company profit in the report period In 2005, breaking of the fund chain, and no support of new bank loans result in nervous condition of the Company. The Company has been used the profits on the turnover and The Company has been used the profits on the development of business; thus it didn't conduct turnover and development of business of the cash distribution. In order to concurrently Company. consider the development of the Company and the benefits of shareholders, the Company decided to adopt the distribution plan of 2 bonus shares issued for each 10 shares. §7 Significant Events 7.1 Purchase of assets 14 □ Applicable √ Inapplicable 7.2 Sales of assets □ Applicable √ Inapplicable 7.3 Significant guarantees √ Applicable □ Inapplicable Unit: RMB’0000 Particulars about the external guarantee of the Company (Barring the guarantee for the controlling subsidiaries) Guarantee Name of the Date of happening Complete Amount of Guarantee for related Company (date of signing Guarantee term Implementation guarantee type party (yes or guaranteed agreement) or not not) Guangdong Counter Rieys Group Dec. 29, 2004 2,000.00 Half year No No guarantee Co., Ltd. Total amount of guarantee in the report period 2,000.00 Total balance of guarantee at the end of the report period 0.00 Guarantee of the Company for the controlling subsidiaries Total amount of guarantee for controlling subsidiaries in the report period 0.00 Total balance of guarantee for controlling subsidiaries at the end of the report 11,783.00 period Particulars about the external guarantee of the Company (Including the guarantee for the controlling subsidiaries) Total amount of guarantee 11,783.00 The proportion of the total amount of guarantee in the net assets of the 8.93% Company Including: Amount of guarantee for shareholders, actual controller and its related parties 0.00 The debts guarantee amount provided for the guarantee of which the 0.00 assets-liability ratio exceeded 70% directly or indirectly Proportion of total amount of guarantee in net assets of the Company exceeded 0.00 50% Total amount of the aforesaid three guarantees 0.00 7.4 Significant related transaction 7.4.1 Related transaction connected to operations √Applicable □Inapplicable Unit: RMB’0000 Selling products and providing Purchasing products and Related parties service to related parties accepting service to related parties 15 Transaction Proportion in Transaction Proportion in amount the same kind of amount the same kind of transaction transaction amount amount Shenzhen Lingfeng Textile Industrial 855.56 19.60% 0.00 0.00% Co., Ltd. Japan New Century Trading Co., Ltd 4,027.37 30.17% 1,340.33 97.57% Japan Kitanihon Spinning Co., Ltd. 3.12 0.03% 0.00 0.00% Suningbanhe Chemical Simulation 22.03 0.20% 0.00 0.00% Textile Co., Ltd Total amount 4,908.08 50.00% 1,340.33 97.57% Including: In the report period, the amount of the listed Company sold the products or provided labor forces to/for controlling shareholders and its subsidiaries was amounting to RMB 0.00. 7.4.2 Related credits and liabilities current 7.4.2 Current related credits and liabilities √Applicable □Inapplicable Unit: RMB’0000 Supply funds to related parties Related parties supplied funds to the Company Related parties Occurred amount Balance Occurred amount Balance Shenzhen Lingfeng Textile Industrial Co., Ltd. 703.66 1,039.18 -217.57 8,082.43 Japan Kitanihon Spinning Co., Ltd. 0.32 39.82 0.00 0.00 Chengde Dahua Paper Co., Ltd 3,273.33 4,347.76 0.00 0.00 Suningbanhe Chemical Simulation Textile Co., Ltd 2,622.44 2,622.44 0.00 0.00 Chengde Chengyi Paper Co., Ltd. 63.72 63.72 0.00 0.00 Chengde Chengshi Thread Co., Ltd. 401.42 401.42 0.00 0.00 Shenzhen Lingfeng Textile Industrial Co., Ltd. 57.43 677.43 0.00 0.00 Japan New Century Trading Co., Ltd 3,079.20 3,079.20 0.00 0.00 Japan New Century Trading Co., Ltd 542.95 2,285.20 0.00 0.00 Wang Shuxian 0.00 0.00 -236.43 442.20 Hong Kong Zhanxi International Co., Ltd. 0.00 0.00 0.00 9,545.00 Total 10,744.47 14,556.17 -454.00 18,069.63 Including: In the report period, the capital amount the listed company provided to controlling shareholder and its subsidiaries was RMB 0.00 and the balance was RMB 0.00. Use of funds and plan on paying off the debt □ Applicable √ Inapplicable 16 The plan could be settled down use of funds before the end of 2006 totally or not □ Yes □ No √ Inapplicable 7.5 Entrusted assets management □ Applicable √ Inapplicable 7.6 Implementation of commitments 7.6.1 Other Commitments √Applicable □Inapplicable In the report period or lasting to the report period, the Company or the shareholders who held 5% or above did not make commitments on the operations and finances of the Company. 7.7 Significant lawsuit and arbitrations √Applicable □Inapplicable 1. The loan disputes between Dalian Road Branch of Guangdong Development Bank and the Company: On March 17, 2005, Dalian Intermediate People’s Court of Liaoning justified that the Company repaid the principal amounting to RMB 800 million and interest. Dalian Road Branch of Guangdong Development Bank applied to the court to judicially freeze the sponsor shares amounting to 80,000,000(accounting for 13.59% of the total shares of the Company) held by Chairman of the Company Mr. Wang Shuxian, at present, they has not been defrosted, and also had not learned any dealing with shares held by Chairman of the Company Mr. Wang Shuxian. 2. The loan disputes between Lianhua Road Branch of Shenzhen Everbright Bank of China and the Company: On Oct.17, 2005, Shenzhen Intermediate People’s Court justified that the Company repaid the principal amounting to RMB 80.83 million and interest. Lianhua Road Branch of Shenzhen Everbright Bank of China applied to the court to judicially freeze the sponsor shares amounting to 93,604,000(accounting for 15.9% of the total shares of the Company) held by Chairman of the Company Mr. Wang Shuxian, at present, they has not been defrosted, and also had not learned any dealing with shares held by Chairman of the Company Mr. Wang Shuxian. On Feb. 24, 2006, Notice on Assisting in Enforcement issued by Shenzhen Intermediate People’s Court [(2005)SZFMECZNo. 177] about the debts disputing among Shenzhen Lianhua Roan Subbranch of China Everbright Bank, Shenzhen Lingfeng, and other total five defendants by Chengde Commercial and Industrial Administration Bureau, with the details as follows: a. Sealing up the 75% equity of Fashion Company held by the Company; b, Sealing uo the 54% equity of Xingye 17 Papermaking held by the Company; c, Sealing up 20% equity of Banhe Chemical Simulation Textile held by Fashion Company with the sealing value of RMB 850,000,000 as the maximum. The period of sealing up is from March 1, 2006 to August 31, 2006. 3. The loan disputes between Shijiazhuang Branch of Huaxia Bank and the Company: On Nov. 22, 2005, Hebei High People's Court justified that the Company repaid the principal amounting to RMB 20 million and interest, and repaid the principal amounting to RMB 17.83 million and interest of acceptance advance fund. At present, the funds the said lawsuits concerned have not been repaid, and the three lawsuits did not have essential progress; the bank is seeking for other solutions with the Company. §8. Report of the Supervisory Committee √Applicable □ Inapplicable Meetings of the Supervisory Committee held in the report period and decisions made In the report period, Supervisory Committee of the Company held four meetings, with details as follows: 1. The 7th meeting of the 2nd Supervisory Committee was held in the meeting room on the 2nd floor of the Company on Apr. 10, 2005. The meeting examined and approved the following resolutions: (1) Examined and approved the Work Report of the Supervisory Committee 2004; (2) Examined and approved the Financial Audit Report 2004; (3) Examined and approved the Annual Report 2004 and Summary of the Annual Report. 2. The 8th meeting of the 2nd Supervisory Committee was held in the meeting room on the 2nd floor of the Company on the morning of Aug. 16, 2005. The meeting examined and approved the following resolution: Examined and approved the Semi-Annual Report 2005 and Summary 3. The 9th meeting of the 2nd Supervisory Committee was held in the meeting room on the 2nd floor of the Company on the morning of Sep. 28, 2005. 5 supervisors should attend the meeting and actually 5 supervisors attended the meeting. The meeting examined and approved the following resolutions: (1) Examined and approved the Proposal on the Election of Changes of Supervisory Committee; (2)The Supervisory Committee recommended Yao Fenglan, Xu Huafeng, Sun Zhenyu as the supervisor candidates of the shareholder representatives of the third supervisory committee, and submitted to the 1st Extraordinary Shareholder’s General Meeting 2005 for election; (3) According to the stipulations of the Articles of Association, with the election of Employee’s Representative Conference of the Company, Xu Xue and Li Xianfu 18 were recommended as the representative supervisors of the 3rd Supervisory Committee. 4. The 1st meeting of the 3rd Supervisory Committee was held in the meeting room on the 2nd floor of the Company on the morning of Nov. 31, 2005. 5 supervisors should attend the meeting and actually 4 supervisors attended the meeting. The meeting examined and approved the following resolutions: Elected Mr. Xu Xue as the chairman of the 3rd Supervisory Committee of the Company Independent opinions of the supervisory committee on Auditor’s Report issued by the Certified Public Accountants Shenzhen Pan-China Schinda Certified Public Accountants and Hong Kong CCIF Certified Public Accountants Limited issued the unqualified Auditor’s Report with emphasize issues for 2005 Financial Statement of the Company. The Board of Director of the Company regarded that it is in accordance with the operations and finances of the Company, and the Supervisory Committee did not have matters with special explanations. §9. Financial Report 9.1 Auditor’s opinions AUDITORS’ REPORT TO THE SHAREHOLDERS OF CHENGDE DIXIAN TEXTILE CO., LTD. (INCORPORATED IN THE PEOPLE’S REPUBLIC OF CHINA WITH LIMITED LIABILITY) We have audited the accompanying consolidated balance sheet of Chengde Dixian Textile Co., Ltd. (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) as of 31 December 2005 and the related consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement for the year then ended. These financial statements set out on pages 5 to 43 are the responsibility of the Company’s management. Except as discussed in the following paragraphs, 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 examination, 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 statements presentation. We believe that our audit provides a reasonable basis for our opinion. 19 LIMITATION OF SCOPE 1. Limitation of Scope – Ownership of land lease premium As explained in note 12 to the financial statements, the land use right registration document was not yet obtained for the land lease premium amounting to RMB36,967,000. We have not obtained sufficient appropriate audit evidence to satisfy ourselves on the ownership of the aforementioned land lease premium. 2. Limitation of Scope – Validity of capital injection in the form of machinery and equipment As fully explained in note 14(a) to the financial statements, the minority shareholder of a subsidiary injected capital in the subsidiary in the form of machinery and equipment amounting to RMB95,450,000 in value more than that required. The Group regarded the over-injected machinery and equipment as non-current assets and included the same amount as other non-current liabilities to the minority shareholder. We were not able to obtain adequate explanations or assurance regarding the circumstances surrounding the excessive amount of capital injection, or otherwise to satisfy ourselves as to the propriety and appropriateness of accounting entry, and hence the fairness of balances of the aforementioned amount as included in the non-current assets and non-current liabilities in notes 14 and 24 respectively. 20 AUDITORS’ REPORT TO THE SHAREHOLDERS OF CHENGDE DIXIAN TEXTILE CO., LTD. (INCORPORATED IN THE PEOPLE’S REPUBLIC OF CHINA WITH LIMITED LIABILITY) (Continued) LIMITATION OF SCOPE (Continued) 3. Limitation of Scope – Valuation of interest in an associate As further described in note 13(a) to the financial statements, an associate of the Company, 承德大華紙業有限公司 has not yet commenced business up to the date of this report. The capital invested amounting to RMB206,216,000, mainly in the form of property, plant and equipment injected by the Group, represents interest in the associate. However, as included in the investment in the associate, a capital injection amounting to approximately RMB187,563,000 was not supported with capital verification report being issued by the qualified PRC certified public accountants, and we were unable to carry out alternative procedures to verify the validity of the capital injection and satisfy ourselves on the valuation of the interest in that associate. 4. Limitation of Scope - Issuance of B shares As further explained in note 19(a), 150,000,000 B shares of nominal value RMB1 at a consideration of HK$3.32 each were issued during the year ended 31 December 2004. Out of which, 91,300,000 shares were issued for Hong Kong dollars and 58,700,000 shares were issued for Renminbi Yuan (“Renminbi shares”). The organization for capital verification considered that the issuance of Renminbi shares had to be authorized by the government department which controls the foreign exchange, thus the issue of Renminbi shares were not verified by PRC certified public accountants and the procedures for the change of business registration was not carried out completely. As detailed in the note 17 of the financial statements of the Company for the year ended 31 December 2004, approved by the board of directors on 11 April 2005, the circumstance of this incident had been disclosed. We had noted that, during the year ended 31 December 2005, the board of directors did not take any possible steps to rectify this situation. Thus, we had not been provided with sufficient audit evidence as to the impact and consequence of this incident. 5. Limitation of Scope – Carrying value of a subsidiary which operations had been suspended As detailed in note 31(3) to the financial statements, owing to the insufficient financial resources of the Group, the operations of a subsidiary, Xingye Papermaking Co. Ltd. was suspended during the year. Included in the consolidated balance sheet are components of assets and liabilities of the subsidiary, with net assets value of RMB882,665,000 contributed to the Group as at 31 December 2005. We are unable to obtain sufficient reliable financial information about the future operational capability to contribute future income to the Group. Any adjustment in this respect would have a consequential impact on the net results of the Group for the year ended 31 December 2005 and its financial position as at 31 December 2005. The net assets value and the carrying value of property, plant and equipment of the subsidiary at the balance sheet date amounted to RMB882,665,000 and RMB849,100,000 respectively. 21 AUDITORS’ REPORT TO THE SHAREHOLDERS OF CHENGDE DIXIAN TEXTILE CO., LTD. (INCORPORATED IN THE PEOPLE’S REPUBLIC OF CHINA WITH LIMITED LIABILITY) (Continued) LIMITATION OF SCOPE (Continued) We were unable to carry out alternative audit procedures to satisfy ourselves as to the matters set out in paragraphs 1 to 5 above. Any adjustment that might have been found to be necessary in respect of the matters set out above would have a consequential effect on the financial position of the Group as at 31 December 2005, the net profit and cash flows of the Group for the year then ended and the related disclosures in the financial statements. FUNDAMENTAL UNCERTAINITIES In forming our opinion, we have considered the adequacy of the disclosure made in note 1(b) to the financial statements concerning the overdue bank borrowings and other payable as at 31 December 2005. Pursuant to which, these overdue bank borrowings and other payables amounting to RMB117,830,000 and RMB80,824,000 respectively were part and partial of other payables and accrued charges together with short-term borrowings amounting to RMB133,515,000 and RMB828,340,000 respectively due to various creditors including bank creditors. A court judgment had been made in favor of the creditors and banks. As a result, 173,604,000 shares of the Company owned by a major shareholder were frozen by the PRC judiciary. According to the court judgment after the balance sheet date, the shares of the subsidiaries of Dixian Fashion Company Limited, Xingye Papermaking Company Limited, and Chengde Banhe Fibre Textile Company Limited were sealed up for the period from 1 March 2006 to 31 August 2006. It is uncertain at this stage whether and how the Group can be able to repay the overdue bank borrowings and other payables. Attention should be drawn that the Group’s ability to continue as a going concern is dependent upon the attainment of profitable and positive cash flow operations, the restructuring/refinancing of its debts and the continuing financial support of its bankers. The financial statements which show net current liabilities of RMB561,819,000 as at 31 December 2005 have been prepared on a going concern basis, the validity of which depends upon continuing financial support being available. The financial statements do not include any adjustments that would result from a failure to obtain such financial support. We consider that appropriate disclosures have been made but the inherent uncertainties surrounding the circumstances under which the Group might successfully continue to adopt the going concern basis are so material or pervasive that we have disclaimed our opinion. 22 AUDITORS’ REPORT TO THE SHAREHOLDERS OF CHENGDE DIXIAN TEXTILE CO., LTD. (INCORPORATED IN THE PEOPLE’S REPUBLIC OF CHINA WITH LIMITED LIABILITY) (Continued) DISCLAIMER OF OPINION Because of the significance of the possible effects of the limitation in evidence available to us as set out in paragraphs 1 to 5 of the preceding paragraphs, and the fundamental uncertainty relating to the appropriateness of the going concern basis as set out above, we were unable to form an opinion as to whether the financial statements give a true and fair view of the state of the affairs of the Group as of 31 December 2005 and of the profit and cash flows of the Group for the year then ended in accordance with International Financial Reporting Standards, as published by International Accounting Standards Board. C1238-2005_Cons 23 CHENGDE DIXIAN TEXTILE CO., LTD. CONSOLIDATED INCOME STATEMENT FOR THE ENDED 31 DECEMBER 2005 Note 2005 2004 RMB’000 RMB’000 TURNOVER 4(c) 289,738 525,686 COST OF SALES (222,281) (353,744) GROSS PROFIT 67,457 171,942 OTHER OPERATING INCOME 844 5,067 DISTRIBUTION COST (7,227) (9,759) ADMINISTRATIVE EXPENSES (21,850) (19,217) OTHER OPERATING EXPENSES (251) (413) PROFIT FROM OPERATIONS 5 38,973 147,620 FINANCE COSTS, NET 7 (16,757) (33,508) SHARE OF RESULTS OF AN ASSOCIATE BEFORE TAX - (1,283) PROFIT BEFORE TAXATION 22,216 112,829 INCOME TAX EXPENSE 8 (1,495) (6,027) 24 NET PROFIT FOR THE YEAR 20,721 106,802 ATTRIBUTABLE TO: - Equity holders of the Company 20,306 105,127 - Minority interest 21 415 1,675 20,721 106,802 EARNINGS PER SHARE - Basic 10 RMB0.03 RMB0.22 - Diluted 10 N/A N/A The notes on pages 9 to 43 form an integral part of these financial statements. 25 CHENGDE DIXIAN TEXTILE CO., LTD. CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2005 Note 2005 2004 RMB’000 RMB’000 ASSETS Non-current assets Property, plant and equipment 11 1,797,858 1,911,180 Land lease premium 12 111,349 77,332 Prepayments for property, plant and equipment 33,367 45,993 Interests in associates 13 253,196 56,579 Deferred tax assets 23 314 314 Other non-current assets 14 97,761 97,817 2,293,845 2,189,215 Current assets Land lease premium 12 1,400 1,074 Inventories 15 212,891 215,911 Trade receivables 16 81,969 162,615 Other receivables and prepayments 17 167,553 191,953 Cash and bank balances 18 4,068 231,623 467,881 803,176 Current liabilities Trade payables 25 32,935 282,375 Other payables and accrued charges 26 133,515 137,430 Current income tax liabilities 34,910 21,703 Borrowings 22(b) 828,340 294,530 (1,029,700) (736,038) Net current (liabilities)/assets (561,819) 67,138 Total assets less current liabilities 1,732,026 2,256,353 Non-current liabilities Borrowings 22(a) - 480,000 Deferred tax liabilities 23 2,195 2,195 Other non-current liabilities 24 110,950 125,355 (113,145) (607,550) NET ASSETS 1,618,881 1,648,803 EQUITY AND LIABILITIES Capital and reserves 19 588,600 588,600 Share capital 20 731,248 709,542 Reserves 1,319,848 1,298,142 MINORITY INTEREST 21 299,033 350,661 1,618,881 1,648,803 Approved and authorised for issue by the board of directors on 25 April 2006. 26 Director Director The notes on pages 9 to 43 form an integral part of these financial statements. 27 CHENGDE DIXIAN TEXTILE CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2005 Share Share Capital Revaluation Statutory Retained Minority capital premium reserve reserve reserves earnings interest Total (Note 19) (Note 20) (Note 20) (Note 20) (Note 20) (Note 21) RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Balance at 1/1/2005 588,600 367,178 - 24,819 79,054 238,491 350,661 1,648,803 Net profit for the year - - - - - 20,306 - 20,306 Appropriation from net profit (Note 20) - - - - 2,716 (2,716) - - Share of net profit of subsidiaries - - - - - - 415 415 Adjustment to consolidation - - - - - - (52,043) (52,043) Increase in capital reserve - - 1,400 - - - - 1,400 Balance at 31/12/2005 588,600 367,178 1,400 24,819 81,770 256,081 299,033 1,618,881 Balance at 1/1/2004 438,600 17,756 - 24,819 62,955 149,463 277,340 970,933 Net profit for the year - - - - - 105,127 - 105,127 Appropriation from net profit (Note 20) - - - - 16,099 (16,099) - - Share issue 150,000 - - - - - - 150,000 Share premium less issuance costs - 349,422 - - - - - 349,422 Capital injection in subsidiaries - - - - - - 80,730 80,730 Share of net profit of subsidiaries - - - - - - 1,675 1,675 Adjustment to consolidation - - - - - - (9,084) (9,084) Balance at 31/12/2004 588,600 367,178 - 24,819 79,054 238,491 350,661 1,648,803 The notes on pages 9 to 43 form an integral part of these financial statements. 28 CHENGDE DIXIAN TEXTILE CO., LTD. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 Note 2005 2004 RMB’000 RMB’000 CASH FLOWS (USED IN)/FROM OPERATING ACTIVITIES Cash (used in)/generated from operations 27 (67,545) 25,737 Taxes paid - (1,979) NET CASH (USED IN)/GENERATED FROM OPERATING ACTIVITIES (67,545) 23,758 CASH FLOWS FROM INVESTING ACTIVITIES (38,047) (27,434) Purchases of property, plant and equipment (113,048) (314,703) Interest received 2,577 3,462 NET CASH USED IN INVESTING ACTIVITIES (148,518) (338,675) CASH FLOWS FROM FINANCING ACTIVITIES 29 53,810 517,302 Borrowings raised - (570,050) Repayment of borrowings - 497,538 Issue of share capital (18,165) (34,130) Interest paid (47,137) - Interests in associates NET CASH (USED IN)/ FROM FINANCIING ACTIVITIES (11,492) 410,660 (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (227,555) 95,743 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 231,623 135,880 CASH AND CASH EQUIVALENTS AT END OF YEAR 18 4,068 231,623 The notes on pages 9 to 43 form an integral part of these financial statements. 30 9.3 Explanation on changes of accounting policy, accounting estimation and settlement method compared with the latest annual report □ Applicable √ Inapplicable 9.4 Contents, correct amount, reason and its influence of significant accounting errors □ Applicable √ Inapplicable 9.5 Explanation on change of consolidated scope compared with the latest annual report □ Applicable √ Inapplicable 31