晨鸣纸业(000488)晨鸣Ｂ2005年年度报告摘要（英文）

Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 SHANDONG CHENMING PAPER HOLDINGS LIMITED Summary of Annual Report 2005 §1 Important Declaration 1.1 The Board of Directors and the directors of the Company guarantee that there are no significant omissions, fictitious or misleading statements carried in the Report and we will accept individual and joint responsibilities for the truthfulness, accuracy and completeness of the Report. This summary is abstracted from the completed text of Annual Report 2005, for details of the report please go to the complete text. 1.2 None of the directors, supervisors, nor senior executives is holding uncertain opinion or disagreement over the truthfulness, accuracy, and completeness over the Annual Report. 1.3 Director(s) absented the board meeting Name of the Director Reason of absent Consignee Hu Changqing Due to illness None Guo Xiucheng On business travel Hu Wenhe Zhou Shaohua On business travel Hou Huancai Wang Zhihua On business travel Liu Xueyan Liu Chengzhen On business travel Wu Bingyu 1.4 Deloitte Touche Tohmatsu CPA Ltd. has issued the standard auditing report without qualified opinion. 1.5 Mr. Chen Hongguo, the Chairman of Board, Mr. Yu Shiyong, the Chief Financial Officer, and Mr. Zhu Xiangzhi, the Financial Manager declares the truthfulness and completeness of the financial statements carried in this report. 1 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 §2 Company Profile 2.1 Company Profile Stock ID G Chenming, Chenming B Stock Code 000488、200488 Stock Exchange Shenzhen Stock Exchange Registered address Registered address: No. 595 Shencheng Rd., Shouguang City, Shandong Province and office address Office address: No. 595 Shencheng Rd., Shouguang City, Shandong Province Post code of the registered address: 262700 Post Code Post code of the office address: 262700 Website http://www.chenmingpaper.com Email. cmzqb@chenming.com.cn 2.2 Liaison people Secretary of the Board Representative of Stock Affairs Name Hao Yun Wang Wei No. 595 Shencheng Rd., Shouguang City, No. 595 Shencheng Rd., Shouguang City, Address Shandong Province Shandong Province Tel. 0536－2158977 0536－2158011 Fax. 0536－2158640 0536－2158640 Email. cmzqb@chenming.com.cn zqbwangwei@tom.com §3 Financial Highlights 3.1 Major accounting data In RMB Yuan Increase/decrease Year 2005 Year 2004 2003 (%) Major business income 9,722,346,097.72 7,064,613,089.05 37.62% 5,819,073,195.58 Total profit 863,409,212.92 847,436,670.72 1.88% 847,587,681.32 Net profit 602,433,342.24 503,721,298.14 19.60% 627,141,183.07 Net profit deducted non-recurring 531,906,232.30 453,120,230.74 １７．３８％ 463,726,694.46 gain/loss Cash flow generated by business 616,688,666.62 1,013,718,841.30 406,238,392.59 149.54% operation, net Increase/decrease End of 2005 End of 2004 End of 2003 (%) Gross Assets 17,969,414,107.7715,850,290,151.74 13.37%10,230,861,065.03 Shareholders’Equity (Exclude 5,465,605,443.09 4,839,068,873.63 12.95% 4,371,048,361.78 Minority Shareholders’Equity) 2 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 3.2 Major financial indices In RMB Yuan Year Year Increase/decrease 2003 2005 2004 (%) Earnings per share 0.4451 0.5611 -0.12% 0.6986 Earnings per share (Note) 0.4411 - - - Net earnings / capital ratio 11.02% 10.41% 0.61 14.35% Net earnings / capital ratio basing on net profit after 9.73% 9.36% 0.37 10.61% deducting of non-recurring gain/loss (%) Net Cash flow per share generated by business operation 0.7489 0.4525 65.50% 0.6869 End of End of Increase/decrease End of 2005 2004 (%) 2003 Net asset per share ４．０３８０ 5.39 -25.05% 4.89 Net asset per share, adjusted ３．９３３９ 5.3257 -25.65% 4.8001 Note: In case of the capital share was changed during the period between the report date and the date when it is disclosed, then the new capital share will be adopted as the basis of earnings per share. Non-recurring gain and loss items √ applicable □ not applicable In RMB Yuan Non-recurring gain and loss items Amount Non-business income 7,317,986.15 Non-business expenditure -31,343,824.34 Allowance income 120,092,902.71 Bad debt provision written back 14,125,007.97 Influence of income tax of non-recurring gain/loss 30,915,797.58 Influence of minor shareholders of non-recurring gain/loss -8,749,164.97 Total 70,527,109.94 3 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 3.3 Diversity between the international and domestic accounting standards √ applicable □ not applicable In RMB Yuan Domestic Accounting Standard Overseas accounting standard: Net profit 602,433,342.24 606,197,330.07 The Company prepared the financial statements upon both Chinese Accounting Standard and International Accounting Standard. Which were suggesting the net profit (consolidated) of RMB602,433,000 and RMB606,197,000 respectively. Namely the international financial statement was suggesting a RMB3,764,000 of net profit more than that of the domestic financial statement. This was because: ① Relative amortizing adjustment and trademark re-evaluation increased the net profit by RMB3.199 million. ② The government special fund regarding purchasing of fixed assets is re-classified from capital reserves into differed income, which increased the profit by RMB17.383 million. ③ The loss from foreign currency loans exchanging, which increased the profit by RMB2.472 million. Statement ④ Adjustment of credit of equity investment and relative amortizing, which decreased the about the profit by RMB4.486 million. diversity ⑤ The government special fund regarding purchasing of properties, plants and equipment is re-classified from capital reserves into differed income, which increased the net profit by RMB4.382 million. ⑥ Prediction of equity part of convertible bond, decreased the profit by RMB5.338 million ⑦ Predicted interests of convertible bond, decreased the profit by RMB63.044 million ⑧ The opening expenses written into gain/loss, decreased the profit by RMB10.204 million. ⑨ The income from debt re-organizing transferred from capital reserves to other business income, increased the profit by RMB35.075 million. ⑩ Reimburse of advances, increased the net profit by RMB3.917 million. 4 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 §4 Changes in Share Capital & Particulars about Shareholders 4.1. Statement of Changes in Shares In shares Before the change Changed (+,-) After the change Bonus Transferred from Amount Portion(%) Others Sub-total Amount Portion(%) shares reserves I. None negotiable shares 290,060,557 32.31 58,012,111 87,018,167 -3145,030,275 435,090,832 32.14 1. Promoter’s shares 290,060,557 32.31 58,012,111 87,018,167 -3145,030,275 435,090,832 32.14 Incl. State-owned shares 281,895,451 31.40 56,379,090 84,568,635 0140,947,725 422,843,176 31.24 Domestic legal person 8,165,106 0.91 1,633,021 2,449,532 -3 4,082,550 12,247,656 0.90 shares Overseas legal person shares Others 2. Legal person shares placed 3. Employees’shares 4. Preference shares or others II. Negotiable shares 607,667,346 67.69 121,533,469 182,300,2046,948,069310,781,742 918,449,088 67.86 1. Common shares in 236,002,356 26.29 47,200,471 70,800,7076,948,069124,949,247 360,951,603 26.67 RMB 2. Foreign shares in 371,664,990 41.40 74,332,998 111,499,497 0185,832,495 557,497,485 41.19 domestic market 3. Foreign shares in overseas market 4. Others III. Total of capital 897,727,903 100 179,545,580 269,318,3716,948,066455,812,0171,353,539,920 100.00 shares 4.2 List of top 10 shareholders and current share holders. In shares Total of shareholders 53,143 Top 10 Shareholders Name of the shareholder Properties of Share Total shares Non-negotiable Pledged or shareholder proportion % shares held frozen Shouguang State-owned Assets Administrative State-owned 31.24%422,843,176 422,843,176 0 Bureau DBS VICKERS（HONG KONG）LTD A/C Foreign shares 2.74% 37,121,219 0 0 CLIENTS Fenghe Value Security Investment Foundation Others 1.66% 22,469,404 0 0 Bank of China –Jiashi Service Industries Securities Others 1.41% 19,026,405 0 0 Investment Foundation SUN HUNG KAI INVESTMENT SERVICES Foreign shares 1.30% 17,539,197 0 0 LTD-CUSTOMERS A/C CHINA INTL MARINE CONTAINERS (HONG Foreign shares 1.02% 13,770,000 0 0 KONG)LTD KWONG WAH INVESTMENT (SHOUGUANG) Foreign shares 0.88% 11,955,756 0 0 LIMITED CREDIT SUISSE HONG KONG Foreign shares 0.81% 10,913,889 0 0 China Industrial & Commercial Bank –Boshi Best Others 0.70% 9,517,583 0 0 Stocks Investment Foundation JPMBLSA RE FTIF TEMPLETON CHINA FUND Foreign shares 0.58% 7,881,000 0 0 GTI5497 5 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 Top 10 Current Share Holders Current shares Name of the shareholder Category of shares held Foreign shares placed in domestic DBS VICKERS（HONG KONG）LTD A/C CLIENTS 37,121,219 exchange Fenghe Value Security Investment Foundation 22,469,404 RMB common shares Bank of China –Jiashi Service Industries Securities Investment 19,026,405 RMB common shares Foundation SUN HUNG KAI INVESTMENT SERVICES LTD-CUSTOMERS A/C 17,539,197 Foreign shares placed in domestic exchange CHINA INTL MARINE CONTAINERS (HONG KONG)LTD 13,770,000 Foreign shares placed in domestic exchange Foreign shares placed in domestic KWONG WAH INVESTMENT (SHOUGUANG) LIMITED 11,955,756 exchange CREDIT SUISSE HONG KONG 10,913,889 Foreign shares placed in domestic exchange China Industrial & Commercial Bank –Boshi Best Stocks Investment 9,517,583 RMB common shares Foundation Foreign shares placed in domestic JPMBLSA RE FTIF TEMPLETON CHINA FUND GTI5497 7,881,000 exchange GUOTAI JUNAN SECURIES HONG KONG LIMITED 6,880,727 Foreign shares placed in domestic exchange Notes to relationship or “action in concert”among the top ten shareholders. Fenghe Value Security Investment Foundation, Taihe Security Investment Foundation and Bank of China – Jiashi Service Industries Securities Investment Foundation are under the same manager –Jiashi Foundation Management Co., Ltd. The Company is not informed whether there is relationship between the above parties regarding action in concert. 4.3 Change in Controlling Shareholder and the Actual Controller 4.3.1 Change in Controlling Shareholder and the Actual Controller □applicable √ not applicable 4.3.2 Particulars about Controlling Shareholder and the Actual Controller Shandong Shouguang State-owned Asset Administration Bureau is the controlling shareholder of the Company which is holding more than 5% of the capital shares. Feng Xingyuan is the legal representative of the Bureau It is the administrative and supervisory body of state-owned properties in Shouguang City. It was holding 422,843,176 of promoter’s state-owned shares at the end of the report term, which was 31.24% of the total share capital. None of the shares was put into amortizing and freezing. The controlling shareholder has not been changed in the report term. 4.3.3 Controlling relationship chart Ｓｈｏｕｇｕａｎｇ Ｓｔａｔｅ－ｏｗｎｅｄ Ａｓｓｅｔｓ Ａｄｍｉｎｉｓｔｒａｔｉｖｅ Ｂｕｒｅａｕ ↓ 31.24％ ＳＨＡＮＤＯＮＧ ＣＨＥＮＭＩＮＧ ＰＡＰＥＲ ＨＯＬＤＩＮＧＳ ＬＩＭＩＴＥＤ 6 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 §5 Directors, Supervisors and Senior Executives 5.1 Changing in shareholding and remuneration of the directors, supervisors and senior executives Remuneratio Accept n accepted Shares held at remuneration Shares held at from the Name Position Sex Age Job term the beginning from the end of term company in of term shareholding or report term related parties (RMB0’000) Chen Chairman M 41Sept. 1 2004 - Sept. 1 2007 549,794 824,691 185.20No Hongguo Yin Vice M 48Sept. 1 2004 - Sept. 1 2007 309,188 463,782 180.70No Tongyuan Chairman, GM Guo Director M 40Sept. 1 2004 - Sept. 1 2007 99,500 149,250 159.20No Xiucheng Zhou Director M 44Sept. 1 2004 - Sept. 1 2007 66,300 99,450 104.90No Shaohua Wu BingyuDirector M 36Sept. 1 2004 - Sept. 1 2007 66,300 99,450 122.60No Hou Director M 44Sept. 1 2004 - Sept. 1 2007 97,733 146,599 105.10No Huancai Hu Wenhe Director M 60Sept. 1 2004 - Sept. 1 2007 76,778 115,167 50.00No Xing Director M 40Oct. 25 2005 - Sept. 1 2007 24,900 37,350 95.90No Fangtong Liu Director M 36Sept. 1 2004 - Sept. 1 2007 66,300 99,450 12.80No Chengzhen Hu Director M 40Sept. 1 2004 - Sept. 1 2007 70,655 105,983 13.90No Changqing Liu Independent M 67Sept. 1 2004 - Sept. 1 2007 0 0 4.00No Xueyan Director Zhao Independent M 44Sept. 1 2004 - Sept. 1 2007 0 0 4.00No Jinghua Director Wang Independent M 47Sept. 1 2004 - Sept. 1 2007 0 0 4.00No Zhihua Director Diao Independent M 41Sept. 1 2004 - Sept. 1 2007 0 0 4.00No Yuntao Director Zhou Independent F 42Sept. 1 2004 - Sept. 1 2007 0 0 4.00No Chengjuan Director Zheng Supervisor M 38Sept. 1 2004 - Sept. 1 2007 20,956 31,434 13.90No Liyong Sun Supervisor M 35Sept. 1 2004 - Sept. 1 2007 0 0 5.80No Dianming Gao Junjie Supervisor M 35Sept. 1 2004 - Sept. 1 2007 20,955 31,433 6.90No Liu Supervisor M 34Sept. 1 2004 - Sept. 1 2007 0 0 5.70No Wenzheng Ren Supervisor M 38Sept. 1 2004 - Sept. 1 2007 0 0 5.50No Guang’ai Wang Vice M 32Sept. 1 2004 - Sept. 1 2007 0 0 34.10No Baoliang General Manager Vice Ren Wei General M 44Sept. 1 2004 - Sept. 1 2007 0 0 12.90No Manager Vice Geng M 32Sept. 1 2004 - Sept. 1 2007 49,700 74,550 68.60No Guanglin General Manager Vice Fang Lijun General M 36Sept. 1 2004 - Sept. 1 2007 48,916 73,374 43.50No Manager Vice Li Xueqin General F 43Sept. 1 2004 - Sept. 1 2007 38,438 57,657 25.20No Manager 7 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 Vice Hao Yun General M 43Sept. 1 2004 - Sept. 1 2007 81,133 121,699 25.30No Manager Vice Xia General M 41Jun. 27 2005 - Sept. 1 2007 0 0 21.10No Guangchun Manager Vice Zheng Yuanzhi General M 39Jun. 27 2005 - Sept. 1 2007 0 0 0.00No Manager Vice Wang General M 40Sept. 1 2004 - Sept. 1 2007 5,238 7,857 25.30No Zaiguo Manager Yu CFO M 43Sept. 1 2004 - Sept. 1 2007 0 0 19.20No Shiyong Total - - - - 1,692,784 2,539,176 1,363.30 - Note: Changing of shareholding status of directors and senior managements was caused by the dividend distribution and capitalization of common reserves implemented for year 2004. 8 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 §6 Report of the Board 6.1 Report of the Executives (I) Operation Review 1. General In 2005, the Company was confronted with a situation of keen competition of the domestic and foreign market, insisted on internationalization development strategy, used the advanced international management experience for referenc e, persisted on the market orientation, unceasingly enhanced construction of the marketing team, brought the superiority of talents and equipment into full play through continuous technical innovation. As a result, the Company achieved steady growth in production output, sales income and economic benefits. The Company has enjoyed a leading position in economic benefits in the sector successively for eleven years in China. In the report period, the Company fulfilled an output of machine-made paper by 2.065 million tons, a 30.68% growth over the same period of the previous year; realized income from principal business amounting to RMB9,722.35 million, a 37.62% growth over the previous year; profit from principal business amounting to RMB 1,945.49 million, a 17.68% growth over the previous year; net profit amounting RMB 602.43 million, a 19.60% growth over the previous year. In 2005, the Company continued to insist on the strategy of “expansion at low cost and development in a rolling way”, successfully acquired assets of Jilin Paper, established Jilin Chenming so that the regional layout tends to be more rational. The Company won the bid of Zhanjiang wood pulp project of the National Development and Reform Commission, with annual capacity of 700,000 tons of bleached sulfate pulp and the supporting project of 3 million mu of afforestation, having made a substantial step in the project of integration of forestry, pulp and paper. The projects have been in good progress. Such big projects as 300,000 T coated white board, 250,00 T chemithermomechanical pulp, 200,000 T and low weight coated paper and supporting projects, etc. have further optimized the structure of the Company’s products so that the proportion of high grade paper has further increased and a solid foundation has been laid for consolidating the Company’s leading position in the industry. 2. Major business and operation situation The company is in the paper manufacturing industry, which is a light-industry. The Company is mainly engaged in production and sales of machine-make paper and paperboard, papermaking raw materials, papermaking machinery, power and heat supply. Formulating of income and profit of major businesses (1) Distribution on industries Major business Major business cost Major business profit Industry turnover (RMB0,000) (RMB0’000) (RMB0’000) Machine-made paper 888,981.44 705,273.08 183,708.36 Power supply 4,975.60 4,289.18 686.42 Construction materials 54,451.82 47,014.95 7,436.87 Chemical products for paper making 16,471.95 12,752.20 3,719.75 Paper machines 7,333.04 5,995.96 1,337.08 Others 20.76 36.73 -15.97 9 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 (2) Distribution on products RMB0’000 Increase/decreas Change of major Change of major Major business Major business Major business e of major Major products business cost business profit over income cost profit business over last year last year (%) turnover (%) Lightweight coated 74.72 90.22 98,205.49 80,423.88 17,781.61 paper 27.67 Duplex press paper 128,488.06 100,229.42 28,258.64 32.33 35.80 21.33 Writing paper 40,420.84 30,509.38 9,911.46 -2.63 -5.46 7.25 Art paper 241,580.10 189,759.54 51,820.56 33.36 43.97 5.01 News press paper 87,001.95 64,284.31 22,717.64 24.78 30.25 11.51 Paperboard 78,052.04 67,158.29 10,893.75 2.86 4.95 -8.35 White paper board 120,902.22 103,920.14 16,982.08 (3) Distribution on regions Regions Major business turnover (RMB0’000) Major business profit (RMB0’000) East 282,501.8 58,029.54 North 166,471.36 34,195.38 South 161,294.54 33,132.00 Mid-south 78,004.63 16,023.17 North-east 38,420.8 7,892.13 South-west 38,247.54 7,856.54 North-west 18,537.03 3,807.75 Overseas 105,503.74 21,671.84 Total 888,981.44 182,608.35 (4) Major suppliers and clients The purchasing from the top 5 suppliers was amounted to 6.54% of the total purchasing of the year. The sales to the top 5 clients was amounted to 5.77% of the total sales of the year. 3. Statement on the major changing in company asset structure and expenses compare with the same period of last year In the report term, the major changing in company asset structure and expenses were due to the original value of fixed assets and borrowings. (1) Original value of fixed assets: RMB7,550,120,000 at the beginning of year, while RMB13,141,350,000 at the end of year. This was caused by the completion of 300k ton coated white board project, 250k ton BCTMP hot mill chemical pulp and anaerobe processing system, and 200k ton low-ration coating paper project under the controlled subsidiary Jiangxi Chenming, construction of new area of Shanghai Chenming, 200k cube meter mid-fiber board product line of Heze Chenming, and 2*100k cube meter wooden mid-density fiber project, as well as purchased in the report term. In which: RMB1,400.20 million of 300k ton coated white board project; RMB415.55 million of 250k ton BCTMP hot mill chemical pulp and anaerobe processing system; RMB2,629.69 million of 200k ton low-ration coating paper project; RMB152.90 million of new area of Shanghai Chenming; RMB117.54 million of 200k 10 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 cube meter mid-fiber board product line of Heze Chenming; RMB115.34 million of 2*100k cube meter wooden mid-density fiber project; RMB629.56 million of newly purchased assets. (2) Borrowings: The total of short-term borrowings, long-term borrowings, and long-term liabilities due in one year was RMB5,252.62 million at the beginning of year, while it was RMB6,562.25 million at the end. It has increased by RMB1,309.63 million. It was caused by the increasing of loans for 300k ton coated white board project, Jiangxi Chenming 200k ton low-ration coated paper project and the newly launched 300k ton super press paper project, Jilin Chenming 180 k ton light coated paper project and other technical reforming projects. (3) Operational expenses: RMB536.61 million of current term, and 396.04 million of previous term, which has increased by RMB140.57 million. This was caused by expanding of company scale and increasing of sales volume. (4) Administrative expenses: RMB495.44 of current term, RMB336.26 of previous term, which has increased by RMB159.18 million. This was caused by the booking of opening expenses for Jiangxi Chenming and Beijing Tianbao, which increased the current expenses. Increasing of account receivable and increasing of bad debt provision provided for the current term. The increasing of providing awarding fund for senior executives for year 2004. 4. Particulars about the formulating of cash flow in the report term (1) Cash flow generated by business operation: RMB1,013.72 million of current term, RMB426.24 million of previous term. This was caused by the enforcing of sales and cash received from sales of goods has increased. (2) Cash flow from investment activities: RMB-2,458.14 million of current term, RMB-3,937.65 million of previous term. This was because most of the investment in 300k ton coated white board project and Jiangxi Chenming 200k ton low-ration coated paper project has been made in 2004. (3) Cash flow from financing activities: RMB751.70 of current term, RMB4,064.54 million of previous term. This was because the investment on 300k ton coated white board project and Jiangxi Chenming 200k ton low-ration coated paper project was minor in the current term. The newly launched 300k ton super press paper project is predicted for total investment of RMB2,405.60 million and of which RMB278.11 million was scheduled for this term. It was minor relatively. 5. Business performance of major controlled subsidiaries (1) Controlled subsidiary –Wuhan Chenming Hanyang Paper Holdings Co., Ltd. Registered capital RMB211,367,000 Shareholding portion: 50.93% Major products: ordinary paper, press paper Gross asset at the end of report term: RMB2,380,282,500 Output of machine made paper in 2005: 352.5 K ton Sales income: RMB1,627,009,400 Net profit: RMB189,326,000 (2) Controlled subsidiary –Shandong Chenming Paper Group Qihe Paperboard Co., Ltd. Registered capital RMB376,200,000 Shareholding portion: 99.9468% Major products: paperboard Gross asset at the end of report term: RMB1,287,523,000 Output of paperboard and corrugated paperboard in 2005: 397K ton Sales income: RMB1,191,600,300 Net profit: RMB75,582,400 11 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 (3) Controlled subsidiary –Shandong Chenming Power Supply Holdings Co., Ltd. Registered capital RMB99,553,100 Shareholding portion: 51% Major products: electricity and heat power supply Gross asset at the end of report term: RMB618,637,700 Sales income: RMB604,977,200 Net profit: RMB14,077,100 (4) In September 2005, the Company sponsored the establishing of Jilin Chenming Paper Co., Ltd. The registered capital was RMB45 million. The Company is holding 70% of the capital share. Jilin Chenming conducted the acquisition of Jilin Paper Holdings Co., Ltd. and reconstruction over the equipment of Jilin Paper Holdings Co., Ltd. The production line was put into production in October 2005. The major product is newspaper paper. For this project has just been launched and in an unsteady condition with lower productivity and higher cost. It has realized output of 13.8 thousand ton, and sales income of RMB47.5077 million. The net profit was RMB-5.4651 million. The total asset at the end of the report term was RMB904.2026 million. (5) Controlled subsidiary –Chibi Chenming Paper Co., Ltd. Registered capital RMB177,419,400 Shareholding portion: 35.7883% Major products: Double plastic coated paper Gross asset at the end of report term: RMB4467,230,900 Output volume: 82.2K ton Sales income: RMB401,527,700 Net profit: RMB35,414,800 (6) Controlled subsidiary –Jiangxi Chenming Paper Co., Ltd. Registered capital RMB1,424,160,000 Shareholding portion: 47.154% Production launched in: August 2005 Major products: Coated paper Opening expenses amortized currently: RMB30 million Gross asset at the end of report term: RMB3,588,557,900 Output volume: 141.2 K ton Sales income: RMB449,439,600 Net profit: RMB-85,151,100 (7) Controlled subsidiary –Yanbian Chenming Paper Co., Ltd. Registered capital RMB81,633,000 Shareholding portion: 76.73% Major products: Wood pulp, machine-made paper Gross asset at the end of report term: RMB399,786,600 Output volume: 110.2K ton Sales income: RMB368,533,700 Net profit: RMB7,394,800 12 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 (II) Outlook of future development 1. Development Trend of the Industry and the Future Competition Pattern The Company is engaged in paper making industry of light industry. At present, the domestic paper industry is in the stage of high speed development, with significant characteristic of integration. Such a characteristic is not only exhibited in layout of the producers and regions, but also in control of the upstream wood resources for paper making. Forest-paper integration project is encouraged by the central government. Therefore, development of wood-paper integration has been the focus of paper making enterprises. The success in bidding of Zhanjiang wood pulp project has undoubtedly made the Company get the preemptive opportunity in this respect. This is an opportunity but more importantly this shows all circles of life are confident with us. The characteristic that projects need huge amount of funds and long term recovery of a forest-paper integration project is also a challenge we have to face. Meanwhile, with the huge demand and growth potential of the domestic paper market, international paper giants and domestic leading paper makers are in droves investing huge amount of funds in developing new production lines. In the future years, the concentrated release of paper making production and capacity of China’s paper industry is also a period of great change of competition pattern. A great many of enterprises are progressively withdrawing from the competition, improvement of the concentration of the industry shall become important characteristic of China’s paper industry development in this stage; an enterprise’s scale, grade and quality of products, cost control and environmental protection, etc. shall become the key of survival and development of the enterprise. 2. Future Opportunity and Strategy In 2005, according to the Catalogue of Industrial Structure Adjustment promulgated by National Development and Reform Commission, forestry-paper integration based wood pulp, paper and board production projects are the projects for encouragement. Facing the opportunities of great integration of the domestic paper industry, the Company shall bring its superiority in scale, cost, technology and regions into full play, do a good job in new project construction so as to realize the scale expansion objective. Meanwhile, the Company shall insist on the internationalization development strategy and comply with practice of internationalized paper enterprises in terms of production scale, market sales, enterprise management, capital operation, technology and equipment and human resource, etc. (1) Optimizing structure of raw materials and devoting great effort to develop base of raw materials According to the national policy of forest-paper integration, with the success in bidding for Zhanjiang Forest-Paper Integration Project as the moment, accelerate investigation and verification of the project, ensure the project construction and developing forest base to be carried out simultaneously. Focus shall be put on construction of forest bases in Guangdong, Guangxi, Shandong and the middle reaches of the Yangtze River so as to form a raw material structure with wood pulp as the principal, making full use of rec ycled paper and gradually eliminating straw pulp so as to reduce the reliance on imported wood pulp, reduce the restriction of the upper stream resource and insist on the road of forest- paper integration. (2) Continue to increase investment, unceasingly make technical innovation, bring the superiority of innovation in scientific research into full play and improve R & D ability. Directing at the characteristic of paper industry being an industry with intensification of funds and technology, the Company shall make full use of the opportunity of cooperation with international giant paper makers and positively introduce international up-to-date technology. (3) Devote efforts to implement internationalization development strategy. Continue to enhance cooperation with international well-known paper makers and institutions of relevant industry, finance and scientific research, make full use of foreign capital and advanced technology. On the basis of making good cooperation with XINMAOLIN of Korea, SAPPI of South Africa, International Finance Organization and French partner, positively look for new cooperation opportunity. When opportunity is ripe, it is possible to establish pulp mill abroad. Meanwhile, attach great importance on introducing international advanced management mode, promote the Company to comply with international first class enterprises on overall basis and heave the core competitiveness of the Company. 13 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 (4) Improve the market system and devote every effort to realize marketing based added value. In the first quarter of 2006, the Company and a Canadian partner executed a white card paper sales contract with annual volume of 100,000 tons per year, launched partial white card paper in the international market; did a good job in sales work of new products, with the market as the orientation, enhanced market development of high value added new products, such as light paper, environmental protection paper, A3 art paper, cigarette card paper; while doing a good job in the domestic market, continuously expanded the export share with building international famous brand as the objective. 3. Business plan for year 2006 and key acts Year 2006 is the starting of the 11th 5-year-plan, and is also the key period of high speed developing of the Company. The Company will do its best in the following aspects: (1) The Company will go all out to develop new business growth points. First of all, great effort will be done to improve the operation of Jiangxi Chenming, White Paperboard Company and Jilin Chenming. Make sure they will become the new growth point of the Company. Secondly, new products with higher value-adding and technical content will be emphasized to optimize the structure of product lines. (2) Speedup the construction of new projects to maintain the advantages. Resources of human, capital, and facilities will be fully supporting the projects of Super Press Paper project of Shouguang Chenming and Light Coating Paper of Jilin Chenming to make sure they will be put into production in the year. The integrating project in Zhanjiang will be accelerated to ensure the corresponding progress with the construction of woods base. (3) Upon the existing market, the Company will go for the market for the new products aggressively. This will be the marketing force in advance to the operation of 300k ton super-press paper project of Shouguang Chenming and 200k ton low-ration coated paper project of Jilin Chenming. (4) Enforce the overall controlling of the economical circle, increase the efficiency of resources, to built the Company a environmental friend enterprise. (5) Keep forward the education and training programs to brush up the employees’capability. 4. Future needs in fund, plans for usage of fund, and source of fund. Following with the expanding of business scale and launching of new projects and technical reconstruction of equipment, the needs for fund will be growing significantly in the coming years. As the largest enterprise in the paper industry of the country, the Company has wide resources of financing, including placing of both A-shares and B-shares. (1) Enforce the sales and increase the retrieving of sales income. Fully utilize the Company’s own fund. (2) With adopting of the Company’s good image in credit and popularity, introduce bank loans and international financial cooperation. (3) Adopt the preference policies provide by the national government on Zhanjiang Wood Pulp Project, obtain financial support from national and municipal finance bodies. (4) Under the precondition of approved by the Board of Directors and the Shareholders’General Meeting, issue more than RMB2.1 billion of short-term bonds to support the needs of current fund in the years in future. 5. Rick facts that may possibly impact the Company’s future development and the countermeasures 14 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 Price variation: The major products of the Company are machine-made papers, which are greatly influenced by the national policy on the industry. In recent years, the productivity has been increasing rapidly, which brought severe competition. A lot of products were starting to decline in prices. Furthermore, the prices of raw materials were variable and unsteady, which will bring certain impact on the Company’s business performance. In viewing of the above, the Company will keep tightening the controlling of costs and further develop the advantage in business scale. On the other hand, the Company will further improve the structure of product lines and raw materials, develop high value-adding products and enforce the controlling over the upper-resources, especially woods resources, to reduce the dependent on raw material supplying from the market. (2) Risk brought by alternation of national policies: The national government has adopted “support the bigger and limit the smaller”policy over paper manufacturing industry. The large-scale manufacturers are positively supported. As the leader of the industry, the Company was fully supported by the government on every level. In case of any alternation of national policies, it will influence the Company’s operation and development at a certain level. Focusing on the national policy risks, the Company will expand rapidly by fully adopting the supports that are available at present. All of the projects the Company had launched were those which satisfying the national industrial policy and to be replacing the imported products and high in value adding. Meanwhile the Company will keep studying and following with the national policies to grasp the trend of overall planning, to make sure the Company’s development is complying with the national policy on the industry. (3）Technical risks in developing of new products: facing the severe competition in the market, the Company keeps developing new products with higher technique and higher value adding. Though it is a long process from laboratory research, to middle test, scaled production and finally to be accepted by the market. Risk of failure in developing exists all through the process. Focusing on these risks, the Company will be depending on the national-level technical center and post-doctorial workstation under the Company. An innovative mechanism has long be promoted to reinforce and upgrade the cooperation with researching institutes, laboratories, and education bodies all over the country and abroad. Meanwhile, the Company also pay attention on the combination of new projects intake and developing of new products, to fully adopt the advantages of the new projects and the existing businesses of the Company to reduce the risks to the lowest limit. 15 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 6.2 Principal businesses classified based on industries/products In RMB0’000 Distribution on industries Decrease/ Increase/decrease of Change of major increase of major On industry or Major business Major business Major business major business business cost over last business profit product income cost profit ratio (%) turnover (%) year over previous year Paper making 888,981.44 706,373.09 20.54% 25.63% 28.32% 23.42% Power, steam, 4,975.60 3,189.18 35.90% -5.27% -44.69% 11.90% water supply Other construction 54,451.82 47,014.95 13.66% 50.36% 58.30% 27.47% business Manufacturing of special chemical 16,471.95 127,520.00 22.58% 58.64% 66.16% 36.66% products Other special 7,333.04 5,995.96 18.23% 39.79% 56.72% 41.23% equipment Distribution on products Lightweight 98,205.49 80,423.88 18.11% 42.77% 47.43% -6.67% coated paper Duplex press 128,488.06 100,229.42 21.99% 24.43% 26.36% -2.00% paper Writing paper 40,420.84 30,509.38 24.52% -2.70% -5.77% 2.26% Art paper 241,580.10 189,759.54 21.45% 25.01% 30.54% -5.79% News press paper 87,001.95 64,284.31 26.11% 19.86% 23.23% -3.11% Paperboard 78,052.04 67,158.29 13.96% 2.78% 4.71% -1.70% White paper 120,902.22 103,920.14 14.05% board 6.3 Major businesses distribution on regions In RMB0’000 Regions Major business income Increase/decrease of major business turnover (%) East 282,501.80 -3.65 North 166,471.36 18.69 South 161,294.54 41.3 Mid-south 78,004.63 1.23 North-east 38,420.80 -30.05 South-west 38,247.54 38.83 North-west 18,537.03 27.6 Overseas 105,503.74 81.22 Total 888,981.44 20.53 16 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 6.4 Utilization of fund raised from financing actions √ applicable □ not applicable In RMB0’000 Total of fund raised and Total of proceeds 195,622.00 utilized Accumulated fund used 175,465.00 Committed projects Planned Changed or Practical Profitability Schedule Profit prediction investment not investment fulfilled or not fulfilled? 300Kt coated white board 83,760.00 No 83,760.00 3536 Yes Yes Pollution treatment and recycling 17,300.00 No 7,800.00 Yes Yes IT and modern logistics system 17,800.00 No 1,361.00 Yes Yes 200Kt low-ration coated paper of Jiangxi 51,699.00 No 51,699.00 -8515.11 Yes Yes Chenming 150T/D chemical-mechanical pulp 8,708.00 No 8,708.00 2960 Yes Yes Supplementary current capital 25,000.00 No 22,137.00 Yes No Total 204,267.00 - 175,465.00 - - - Statement for overdue (in detailed projects) Statement for reason of changing and procedure (in detailed projects) Changing of projects □applicable √ not applicable 6.5 Utilizing of non-raised fund √ applicable □ not applicable In RMB0’000 Projects Amount of the project Progress of the project Turnover of the project 00K ton super press paper 244,200Under construction - project (headquarter) Total - - 6.6 Statement on the none-standard opinion issued by the CPA □applicable √ not applicable 6.7 Profit distribution or capitalizing of common reserves adopted by the Board of Directors √ applicable □ not applicable 1. As provided by Tianjian Certified Public Accountant Co., Ltd., the net profit the Company realized in year 2005 has been: RMB602,433,342.24. As stipulated by the Articles of Association, after providing of statutory common reserves of RMB47,920,787.08 at 10%, providing of statutory public welfare of RMB47,920,787.08 at 10%, the distributable profit of year 2005 should be RMB506,591,768.08. Plus the attributable profit of RMB1,434,092,349.94 at the beginning of year, less the dividend of RMB269,318,673.30 distributed for year 2004, the profit attributable to the shareholders was RMB1,671,365,444.72. 2. Dividend distribution preplan for year 2005 Upon the total capital share of 1,353,539,920 shares at the end of 2005, RMB1.20 of cash dividend will be distributed to each 10 shares of the entire shareholders (tax included). Totally RMB162，424，790.40 will be 17 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 distributed as cash dividend (tax included). The dividend will be distributed upon the substantial capital shares at the registration day. For the Company is in the convertible period of the bonds, the total capital shares can be increased, though the Company will still distribute the dividend at RMB1.20 upon each 10 shares (tax included). Therefore the practical dividend may possibly exceeds RMB162，424，790.40 No cash dividend proposal was raised though the Company is making profit for the report term. □applicable √ not applicable 18 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 §7 Significant Events 7.1 Acquisition √ applicable □ not applicable In RMB0’000 Net profit Debt & The other contributed since Related Completely Date of credit party of Assets Price the day of trade transaction Pricing policies transferred or purchase transferred trade till the end of or not not or not report term With reference to similar equipment, upon the Fixed assets, present condition of the Jilin Paper intangible assets Sept. 8 equipment, under the No debt Holdings (land using 74,000 -546.51No Yes 2005 principle of fairness and bounded Co., Ltd. right), other related assets public, decided through negotiation 7.2 Selling of property □applicable √ not applicable Impact of the issues said in 7.1 and 7.2 on the continuity and stability of the management Upon completion of the acquisition, Jilin Chenming Paper Co., Ltd. will form a productivity of 400k ton of machine-made paper, which will further improve the structure of the Company’s product lines, and help in enlarge the market share. 7.3 Significant guarantee √ applicable □ not applicable In RMB0’000 External Guarantee (Exclude controlled subsidiaries) Guarantee provided to Date of contract Amount guaranteed Type of Term Completed or Related party guarantee not or not Total occurred in the report term Total of balance of guarantee at the end of report term Guarantee provided to controlled subsidiaries Total of guarantee provide to controlled subsidiaries in the report 155,321.21 term Total of balance of guarantee provide to controlled subsidiaries in the 192,386.15 report term Total of guarantee (including controlled subsidiaries) Total of guarantees Proportion of the total guarantee in the net asset of the Company Including: Guarantee provided to shareholders, substantial controller and their related parties Total of guarantee provided directly or indirectly to parties with liability/asset ratio over 70% Guarantees totaled over 50% of the net asset Total of the above 3 items 19 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 7.4 Significant Related Transactions 7.4.1 Related transactions regarding normal operation √ applicable □ not applicable In RMB0’000 Sales of products or labor service to the Purchasing of products or labor services from Related parties related parties the related parties Amount of Ratio in similar Amount of transaction Ratio in similar trades transaction trades Qingzhou Chenming Transformed Amylum ０ ０ ６８０．０４ ９％ Qingzhou Chenming Transformed Amylum Co., Ltd. １，４２３．８４ ７％ Total １，４２３．８４ ７％ ６８０．０４ ９％ Including: The related transactions of the Company selling products to the controlling shareholders and its subsidiaries were amounted to RMB0.00. 7.4.2 Related credit and debt interchange √ applicable □ not applicable In RMB0’000 Provide money to the related partiesAccept money from the related parties Related parties Amount occurred Balance Amount occurred Balance Shouguang Liben Paper Ltd. 1,423.84 115.60 Qingzhou Chenming Transformed Amylum Ltd. 680.04 265.12 Total 1,423.84 115.60 680.04 265.12 Including: RMB0.00 provided by the Company to the controlling shareholder or its subsidiaries, and the balance was RMB0.00. Capital adoption and returning plan □applicable √ not applicable Whether or not the returning plan for the adopted capital is to be completed for certain. □ Yes □ No √ Not applicable 7.4.3 In the report period, through review by the 11th meeting of the 4th Board of Directors, Wuhan Chenming, Qihe Chenming and Jilin Chenming, three of the Company’s controlled subsidiaries, executed Counter-Guarantee Mortgage Contract with Industrial and Commercial Bank of China Shandong Weifang Branch (hereinafter referred to as “Industrial and Commercial Bank of China Weifang Branch respectively. The aforesaid subsidiaries are going to use part of their fixed assets and land use right as mortgage to provide counter-guarantee for the convertible debentures of the Company. This transaction related to undertaking of obligation of the counter-guarantee for Shouguang Municipal Bureau of State-owned Assets Supervision and Administration, forming a related transaction with Shouguang Municipal Bureau of State-owned Assets Supervision and Administration. About the subjects for the related transaction: (1) Wuhan Chenming (whose equity is held by the Company by 50.93%)shall use its land, real estate, machines and equipment as counter-guarantee mortgage. The book value of the aforesaid assets is RMB 1228.757 million and the appraised value is RMB 1315.515 million. 20 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 (2) Qihe Chenming (whose equity is held by the Company by 99.9468%)shall use its land and machines and equipment as counter-guarantee mortgage. The book value of the aforesaid assets is RMB 577.217 million and the appraised value is RMB 788.9518 million. (3) Jilin Chenming (whose equity is held by the Company by 70%)shall use its land, real estate, machines and equipment as counter-guarantee mortgage. The book value of the aforesaid assets is RMB 740 million and the appraised value is RMB 1560.2315 million. The total book value of the assets for mortgage of the aforesaid three subsidiaries is RMB 2545.974 million and appraised value is RMB 3664.6983 million. The independent directors of the Company expressed their independent opinion on the said transaction and regarded the transaction as a related transaction. The purpose of the said transaction is to ensure the normal production and operation and successful conduction of the reform for decentralization of the equity of the Company and offer counter-guarantee for the RMB 2 billion of the convertibel debentures already issued. At present, the proceeds raised from the RMB 2 billion of convertible depentures has already put into operation and is expected to bring about good return to the Company’s shareholders. The aforesaid counter-guarantee mortgage shall not affect the Company’s normal production and operation or result in extra risks. The voting procedures for the said transaction complies with the relevant regulations and the Articles of Association of the Company and the price of the transaction was decided based on the appraisal result and is fair in pricing. For the detail about the aforesaid related transaction, refer to the information disclosed on China Securities Journal and Hong Kong Commercial Daily dated December 31, 2005. On February 8, 2006, 2006 1st Extraordinary Shareholders’Meeting reviewed and approved the above transaction. 7.5 Financing proxy □applicable √ not applicable 7.6 Fulfilling of consent issues 7.6.1 Commitment for share relocation process 1. Details of commitments The Company completed the implementation of the equity separation reform plan on March 29, 2006. Shouguang Municipal Bureau of State-owned Assets Supervision and Administration, the Company’s controlling shareholders, and other shareholders of non- negotiable shares paid 2.6 shares for every 10 shares to all the shareholders of negotiable A-shares. In addition, the shareholders of non- negotiable shares committed that, according to the Company’s 2005 –2007 Audited Financial Report (a standard unqualified auditor’s report), if the composite growth rate of the Company’s profit in 2005 to 2007 was lower than 20% (the sum of the product of the corresponding growth rate of each year from 2005 to 2007 extracted with the cubic root was lower than 20%), the supplemental valuable consideration equity record date (the 10th trading date after publication of 2007 Annual Report) and supplemental valuable consideration implementation announcement would be determined within 5 trading days upon publication of 2007 Annual Report. The valuable consideration would be completed in implementation in the next trading day of the supplemental valuable consideration equity record date. Shouguang Municipal Bureau of State-owned Assets Supervision and Administration would transfer free of charge 5% of the total negotiable A-shares to the shareholders of negotiable A-shares with no restricted sales conditions registered upon closing of the record date for the equity with supplemental valuable consideration on the date of implementing the equity registration according to the said plan. (Should change take place in total share capital due to dividend distribution, conversion of capital public reserve from the equity registration date of implementing this plan to the record date for the equity with supplemental valuable consideration, the quantity of shares corresponding to the said supplemental valuable consideration arrangement would be adjusted accordingly. ) Special commitment: 21 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 (1) According to the financial statements of 2005-2007 (standard auditing report without qualified opinion), in case the integrated increment of net profit during 2005-2007 is lower than 20% (namely the cube root of the multiplied increasing ratios over the previous year during 2005-2007 is lower than 20%), the equal supplementary share equity registration date shall be confirmed within 5 working days after the Annual Report 2007 is published (The 10th day after the Annual Report 2007 is published.) and announcement on the supplementary of share equity. The supplementary share equity shall be implemented at the 2nd day next to the registration day. Shouguang State-owned Asset Bureau sha ll transfer the shares at ratio of 5% of the total A shares upon the closing of market at the supplementary registration date to the holder of shares without subscription limitation. (In case of the share capital is changed due to distribution of bonus shares or capitalizing of common reserves during the registration date of this plan and the supplementary registration date, the amount of supplementary shares shall be adjusted correspondingly.) (2) Shouguang State-owned Asset Administrative Bureau shall not put the shares into trading within 48 months after the implementation of share equity relocation scheme. (3) Whenever the share equity relocation scheme was approved, Shouguang State-owned Asset Administrative Bureau shall propose dividend plan in the Shareholders’General Meetings of 2005, 2006, and 2007. The proposed dividend distribution shall not lower than 30% of the distributable profit realized in the current year (namely the balance of net profit realized in the current year which has deducted the common reserves and statutory public welfares), and promises to vote affirmative on the proposal in the Shareholders’General Meeting. 2. Fulfilling of the commitments The share equity relocation plan has been completed on March 29th 2006, Shouguang State-owned Assets Administrative Bureau is fulfilling the commitment provided in the plan. 3. Violating of the commitment □applicable √ not applicable 7.6.2 Other commitments □applicable √ not applicable 7.7 Material Lawsuits/Arbitrations √ applicable □ not applicable The lawsuit about the engineering payment has entered the stage of justice appraisal, it will enter the court trial stage after the results are provided. 22 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 23 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 §8 Report of the Supervisory Committee √ applicable □ not applicable In the report term, the Supervisory Committee was exercising its duty with respecting of the shareholders’benefit. The committee presented the Board meetings and performed inspection on the legality of the financial activities and performing of duties of the directors, managers and other senior managements. §9 Financial Report 9.1 Auditor’s Opinion Standard auditing statement without qualified opinion 9.2 Financial Statements 24 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 9.2.1 Balance Sheet Prepared by: Shandong Chenming Paper Holdings Co., Ltd. Ended December 31st 2005 RMB Yuan At the end of term Initial Items Consolidated Parent company Consolidated Parent company Current asset: Monetary fund 1,006,358,691.91 582,318,662.70 1,594,144,437.40 682,941,544.18 Short-term investment Notes receivable 510,125,716.95 236,676,178.17 355,254,470.07 166,232,472.92 Dividend receivable 30,546,681.86 11,227,650.00 Interest receivable Account receivable 1,424,647,094.65 1,283,251,626.85 1,056,177,704.68 624,949,466.40 Other account receivable 218,849,821.70 1,737,150,199.61 175,756,572.67 1,108,691,959.32 Advance account 326,071,657.87 121,951,785.04 419,984,595.68 215,698,274.11 Allowance receivable Inventories 2,174,779,264.45 859,436,722.72 1,611,938,179.51 838,016,858.01 Expense to be amortized 7,467,121.16 4,032,949.52 6,234,788.66 4,625,912.81 Long-term credit invest expire in 1 year Other current asset Total of current asset 5,668,299,368.69 4,855,364,806.47 5,219,490,748.67 3,652,384,137.75 Long-term investment: Long-term share equity 5,843,440.51 2,323,148,570.07 708,455.83 2,158,705,956.05 investment Long-term credit investment 142,210.00 142,210.00 142,210.00 142,210.00 Total of long-term investment 5,985,650.51 2,323,290,780.07 850,665.83 2,158,848,166.05 Consolidated price difference -20,413,163.50 -24,899,541.57 Fixed asset: Original value of fixed assets 13,141,351,140.78 5,821,014,491.53 7,550,120,019.50 3,954,910,751.73 Less: Accumulated depreciation 2,402,359,372.90 1,454,284,100.09 1,719,052,422.41 1,025,360,173.47 Net fixed assets 10,738,991,767.88 4,366,730,391.44 5,831,067,597.09 2,929,550,578.26 Less: Fixed asset impairment provision Net fixed asset 10,738,991,767.88 4,366,730,391.44 5,831,067,597.09 2,929,550,578.26 Engineering material 48,510,535.99 2,843,904.62 257,407,289.02 Construction in progress 1,232,223,678.56 810,907,262.79 4,404,456,425.97 1,612,980,714.69 Fixed asset disposal Total of fixed assets 12,019,725,982.43 5,180,481,558.8510,492,931,312.08 4,542,531,292.95 Intangible and others: Intangible assets 238,655,438.66 71,373,383.85 95,236,085.95 65,953,265.84 Long-term expenses to be amortized 36,747,667.48 41,781,339.21 Other long-term assets Total of intangible and other assets 275,403,106.14 71,373,383.85 137,017,425.16 65,953,265.84 Deferred tax: Deferred tax debit Total of assets 17,969,414,107.7712,430,510,529.2415,850,290,151.7410,419,716,862.59 25 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 Current liabilities Short-term loans 4,463,141,400.00 2,848,935,900.00 3,298,879,364.75 2,013,188,367.75 Notes payable 117,589,277.53 62,986,900.04 9,095,109.60 Account payable 1,550,657,327.12 1,049,274,128.55 1,339,044,758.25 372,387,501.44 Account received in advance 192,725,604.27 247,249,769.68 225,569,740.76 281,990,318.14 Prepaid wages 10,580,204.14 2,429,755.61 Welfare payable 13,294,619.65 21,569,411.60 2,427,321.17 Dividend payable 419,113.13 419,113.13 775,471.21 775,471.21 Tax payable 31,133,610.71 -46,095,743.29 98,462,736.64 18,033,010.12 Other accounts to be delivered 915,435.72 389.14 584,802.30 26,440.47 Other account payable 312,888,158.27 115,752,502.91 271,315,156.35 128,369,185.09 Reserved expenses 20,033,329.41 4,155,541.89 10,540,646.33 7,901,073.79 Expected liabilities Long-term liability expire in 1 year 268,006,748.19 124,161,400.00 305,329,500.00 174,829,500.00 Other current liability Total of current liability 6,981,384,828.14 4,406,839,902.05 5,583,596,453.40 2,999,928,189.18 Long-term liabilities Long-term borrowings 1,831,097,639.85 573,373,035.94 1,648,405,988.04 458,627,535.94 Bond payable 1,966,230,711.66 1,966,230,711.66 2,009,627,777.77 2,009,627,777.77 Long-term payable Special payable 320,000.00 6,080,000.00 Other long-term liability Total of long-term liability 3,797,648,351.51 2,539,603,747.60 3,664,113,765.81 2,468,255,313.71 Deferred tax: Deferred tax credit Total of liability 10,779,033,179.65 6,946,443,649.65 9,247,710,219.21 5,468,183,502.89 Minor shareholders’equity 1,724,775,485.03 1,763,511,058.90 Owners’equity (or shareholders’ equity) Practical capital collected (or share 1,353,539,920.00 1,353,539,920.00 897,727,903.00 897,727,903.00 capital) Less: returned investment Practical capital (or share capital), 1,353,539,920.00 1,353,539,920.00 897,727,903.00 897,727,903.00 net Capital reserves 1,824,530,228.15 2,067,983,390.70 1,986,920,344.63 2,201,151,085.34 Surplus reserves 616,169,850.22 603,980,268.31 520,328,276.06 508,138,694.15 Incl. Statutory public welfare 282,364,065.83 251,607,673.84 234,443,278.75 232,924,350.69 Un-distributed profit 1,671,365,444.72 1,458,563,300.58 1,434,092,349.94 1,344,515,677.21 Incl. Cash dividend 89,772,790.30 89,772,790.30 Investment loss not recognized yet Different of foreign currency translation Total of owners’equity (or 5,465,605,443.09 5,484,066,879.59 4,839,068,873.63 4,951,533,359.70 shareholders’equity) Total of liabilities and owners’ 17,969,414,107.7712,430,510,529.2415,850,290,151.7410,419,716,862.59 equity (or shareholders’equity) Legal representative: Chen Honguo, Financial Superior: Yu Shiyong, Manager of Accounting Dept. Zhu Xiangzhi 26 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 9.2.2 Income statements Prepared by: Shandong Chenming Paper Holdings Co., Ltd. Jan-Jun 2005 RMB Yuan Current term Same period last year Items Consolidated Parent company Consolidated Parent company I. Major business turnover 9,722,346,097.728,557,397,818.917,064,613,089.053,895,516,626.93 Less: Major business cost 7,753,621,043.167,505,103,857.515,389,608,600.753,096,298,329.11 Major business tax and surtax 23,233,923.04 8,204,254.01 21,730,971.27 467,817.35 II. Major business profit (“-“for loss) 1,945,491,131.521,044,089,707.391,653,273,517.03 798,750,480.47 Plus: Other business profit (“-“for loss) 22,557,209.35 10,819,080.58 23,402,883.40 11,445,919.51 Less: Business expenses 536,608,445.64 298,180,199.73 396,042,235.97 143,695,809.28 Administrative expense 495,438,620.50 254,667,918.58 336,263,238.52 156,896,469.46 Financial expenses 193,176,724.68 93605744.80 195,735,144.48 129,235,788.56 III. Operational profit (“-“for loss) 742,824,550.05 408454924.86 748,635,781.46 380,368,332.68 Plus: Investment gains (“-“for loss) 5,134,984.68 118,708,899.51 6,864,868.23 189,309,478.76 Allowance income 139,475,516.38 45673194.81 100,905,936.59 19,929,107.00 Non-business income 7,317,986.15 1,811,901.90 5,992,907.12 1,042,298.96 Less: Non-business expenses 31,343,824.34 10,577,664.30 14,962,822.68 2,003,159.42 IV. Gross profit (“-“for loss) 863,409,212.92 564,071,256.78 847,436,670.72 588,646,057.98 Less: Income tax 201,563,005.15 84,863,385.95 206,403,742.22 107,435,429.27 Minor shareholders’equity 59,412,865.53 137,311,630.36 Plus: Investment loss occurred this term but not recognized V. Net profit (“-“for loss) 602,433,342.24 479,207,870.83 503,721,298.14 481,210,628.71 Plus: Retained profit at the beginning of 1,434,092,349.941,344,515,677.211,116,385,967.841,049,319,964.54 term Other transferred in VI. Distributable profit 2,036,525,692.181,823,723,548.041,620,107,265.981,530,530,593.25 Less: Statutory surplus reserves 47,920,787.08 47,920,787.08 48,121,062.87 48,121,062.87 Drawing of statutory public welfare 47,920,787.08 47,920,787.08 48,121,062.87 48,121,062.87 Employee award and welfare fund Reserves Enterprise development fund Profit returned to investment VII. Distributable profit 1,940,684,118.021,727,881,973.881,523,865,140.241,434,288,467.51 Less: Preference share dividend payable Optional surplus reserves Common share dividend payable 89,772,891.30 89,772,891.30 89,772,790.30 89,772,790.30 Common share dividend transferred to 179,545,782.00 179,545,782.00 capital (or share capital) VIII. Undistributed profit 1,671,365,444.721,458,563,300.501,434,092,349.941,344,515,677.21 Income statement (Appendix) 1. Income from selling and disposal of department or invested entities 2. Loss from nature disasters 3. Increasing (or decreasing) of gross profit by changing of accounting policies 4. Increasing (or decreasing) of gross profit by changing of accounting estimation 5. Loss from debt reconstruction 6. Others Legal representative: Chen Honguo, Financial Superior: Yu Shiyong, Manager of Accounting Dept. Zhu Xiangzhi 27 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 9.2.3 Cash flow statement Prepared by: Shandong Chenming Paper Holdings Co., Ltd. Jan-Jun 2005 RMB Yuan Current term Items Consolidated Parent company I. Net cash flow from business operation Cash received from sales of products or services 10,868,502,041.82 9,412,864,809.48 Tax returned 19,382,613.67 Other cash inflow related to operation 161,126,108.37 175,796,633.24 Subtotal of cash inflow 11,049,010,763.86 9,588,661,442.72 Cash paid for purchasing of merchandise and services 8,128,589,980.24 7,615,901,304.41 Cash paid to staffs or paid for staffs 425,120,808.45 180,255,782.83 Taxes paid 860,876,756.53 476,130,007.66 Other cash paid related to operation 620,704,377.34 1,164,025,493.21 Subtotal of cash outflow 10,035,291,922.56 9,436,312,588.11 Cash flow generated by business operation, net 1,013,718,841.30 152,348,854.61 II. Cash flow generated by investing Cash received from returning of investment Cash received as investment profit 61,336,318.14 Net cash received from disposal of fixed assets, intangible assets and 1,844,061.69 other long-term assets Other cash received related to investment Subtotal of cash inflow 1,844,061.69 61,336,318.14 Cash paid to acquire fixed assets, intangible assets and other long-term 2,433,985,236.21 869,376,119.18 assets Cash paid for investment 26,000,000.00 95,290,000.00 Other cash paid related to investment Subtotal of cash outflow 2,459,985,236.21 964,666,119.18 Net cash flow generated by investment -2,458,141,174.52 -903,329,801.04 III. Cash flow generated by financing Proceeds from investments 22,717,375.73 Cash received from loans 6,492,572,346.37 3,602,113,970.00 Other cash received related to financing 240,000.00 Subtotal of cash inflow 6,515,529,722.10 3,602,113,970.00 Cash paid for recovering of debt 5,182,971,811.12 2,702,289,037.75 Cash paid for dividend, profit or interest 463,080,965.11 246,403,126.08 Other cash paid related to financing 117,773,418.33 48,800,000.00 Subtotal of cash outflow 5,763,826,194.56 2,997,492,163.83 Net cash flow generated by financing 751,703,527.54 604,621,806.17 IV. Influence of exchange rate movement 3,530,522.25 4,740,033.90 V. Net increase of cash and cash equivalents -689,188,283.43 -141,619,106.36 28 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 Appendix of Cash Flow Statement 1. Net profit adjusted to cash flow of business operation Net profit 602,433,342.24 479,207,870.83 Plus: Asset impairment provision drawn 54,624,225.02 108,399,518.90 Depreciation of fixed assets 767,120,539.61 444,265,068.81 Amortizing of intangible assets 6,742,851.06 4,026,018.29 Amortizing of long-term expenses 30,133,204.70 Decrease of expenses to be amortized (Less: increase) -1,232,332.50 592,963.29 Increase of reserved expenses (Less: decrease) 4,857,785.16 2,955.50 Cash lost from treatment of fixed assets, intangible assets and other 23,095,243.24 8,312,142.43 long-term assets (less: gains) Loss of disposing fixed assets Financial expenses 253,385,125.31 152,932,892.34 Investment loss (less: gains) -5,134,984.68 -118,708,899.51 Credit of deferred tax (less: debit) Decreasing of inventories (less: increasing) 562,841,084.94 21,419,864.71 Decrease (less: increase) in operating receivables 521,210,390.78 1,366,857,135.82 Increase (less: decrease) in operating payables 302,332,452.33 461,595,324.26 Others Minor shareholders’equity 59,412,865.53 Cash flow generated by business operation, net 1,013,718,841.30 152,348,854.61 2. Investment and financing activities not involving with cash Liabilities converted to capital Convertible bond expire in 1 year Fixed assets leased through financing 3. Net increasing of cash and cash equivalents Balance of cash at period end 897,152,378.85 533,518,662.70 Less: Initial balance of cash 1,586,340,662.28 675,137,769.06 Plus: Balance at the end of term of cash and equivalents Less: Balance at the beginning of term, cash and equivalents Net increasing of cash and cash equivalents -689,188,283.43 -141,619,106.36 Legal representative: Chen Honguo, Financial Superior: Yu Shiyong, Manager of Accounting Dept. Zhu Xiangzhi 9.3 Explanation on changes of accounting policies, accounting estimation, and accounting method □applicable √ not applicable 9.4 Content, amount, reason and impact of major accounting errors □applicable √ not applicable 9.5 Details about changing of consolidation range comparing with the previous annual report √ applicable □ not applicable 1. Zhanjiang Chenming Forestry Development Co., Ltd. On December 7th 2005, the Company invested together with Wang Zaiguo (natural person) to establish Zhanjiang Chenming Forestry Development Co., Ltd. The new company was registered to RMB1 million of capital. In which the Company invested RMB0.9 million and took 90% of the capital share. Wang Zaiguo invested RMB0.1 million 29 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2005 and took 10% of the capital share. 2. Jilin Chenming Paper Co., Ltd. On September 1st 2005, the Company invested together with Shenzhen Kaihua Technologies Development Co., Ltd. to establish Jilin Chenming Paper Co., Ltd. The new company was registered to RMB45 million of capital. In which the Company invested RMB31.50 million and took 70% of the share, while Shenzhen Kaihua Technologies Development Co., Ltd. invested RMB13.50 million and took 30% of the capital share. 3. Juancheng Chenming Plate Co., Ltd. On June 6th 2005, the indirectly controlled subsidiary of the Company –Heze Chenming Plate Co., Ltd. and the Company invested together to establish Juancheng Chenming Plate Co., Ltd. with registered capital of RMB15 million. In which the Company invested RMB14.99 million and took 99.93% of the capital share. Heze Chenming Plate Co., Ltd. invested RMB10 thousand and took 0.07% of the capital share. 4. Shandong Yujing Hotel Co., Ltd. On June 6th 2005, the Company invested together with WELL SPREAD DEVELOPMENT LIMITED to establish Shandong Yujing Hotel Co., Ltd. The registered capital was USD13.9057 million. The Company taks 70% of the capital share. As of June 24th 2005, the Company has put RMB21 million (equal to USD2.5393 million) in the investment, takes 18.26%. While WELL SPREAD DEVELOPMENT LIMITED has put HKD8.466 million (equal to USD1.0883 million) in the investment, takes 7.83%. 5. Yangjiang Chenming Forestry Development Co., Ltd. On December 8th 2005, the Company invested together with Chen Guihua (natural person) to establish Yangjiang Chenming Forestry Development Co., Ltd. The new company was registered to RMB1 million of capital. In which the Company invested RMB0.9 million and takes 90% of the capital share. Chen Guihua invested RMB0.1 million and takes 10% of the capital share. THE BOARD OF DIRECTORS OF SHANDONG CHENMING PAPER HOLDINGS CO., LTD. APRIL 19, 2006 30