鲁泰Ａ(000726)鲁泰Ｂ2005年年度报告摘要（英文版）

LU THAI TEXTILE CO., LTD. SUMMARY OF ANNUAL REPORT 2005 (Adjustment in accordance with IAS) §1. Important Notes 1.1 Board of Directors, Supervisory Committee, directors, supervisors and senior executives of Lu Thai Textile Co., Ltd. (hereinafter referred to as the Company) hereby confirm that there are no any important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents.. The Summary of Annual Report 2005 is abstracted from the Annual Report; Investors are suggested to read the full text of the Annual Report to learn more details. 1.2 No director, supervisor and senior executive stated that he/she couldn’t ensure the correctness, accuracy and completeness of the contents of the Annual Report or had any objection for this report. 1.3 Mr. Xu Zhinan and Mr. Chen Ruimou, Director of the Company, and Mr. Wang Yonggui, Independent Director of the Company, were absent from the Board meeting; Director Mr. Xu Zhinan and Director Mr. Chen Ruimou entrusted Mr. Liu Shizhen, Chairman of the Board of the Company, to vote on his behalf respectively, and Independent Director Wang Yonggui entrusted Independent Director Mr. Zhou Zhiji to vote on his behalf. 1.4 China Rightson Certified Public Accountants and PricewaterhouseCoopers Zhong Tian CPAs Limited Company respectively issued the domestic and international standard unqualified Auditors’ Report for the Company. 1.5 Chairman of the Board of the Company Mr. Liu Shizhen, Chief Financial Officer Mr. Liu Zibin and Financial Principal Ms. Zhang Hongmei hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. 1.6 This annual report is written in both Chinese and English. Should there be any difference in interpretation of the two versions, the Chinese version shall prevail. §2. Company Profile 2.1 Basic information Short form of the stock LUTHAI A, LUTHAI B Stock code 000726, 200726 Listed stock exchange Shenzhen Stock Exchange Registered address: No. 11, Mingbo Road, High-tech Industry Development Zone, Zibo, Shandong Registered address and office address Office address: No. 81, Songling East Road, Zichuan District, Zibo, Shandong Postcode of registered address: 255086 Postal code Postcode of office address: 255100 Internet web site of the Company www.lttc.com.cn E-mail of the Company lttc@public.zbptt.sd.cn 1 2.2 Contact person and method Secretary of the Board Securities Affairs Representative Name Qin Guiling Zheng Weiyin No. 81, Songling East Road, Zichuan No. 81, Songling East Road, Zichuan Contact address District, Zibo, Shandong District, Zibo, Shandong Telephone (86)533-5285166; 5418361 (86)533-5285166; 5418361 Fax (86)533-5418833; 5282188 (86)533-5418833; 5282188 E-mail qinguiling@lttc.com.cn wyzheng@lttc.com.cn §3. Summary of Accounting Data and Financial Indexes 3.1 Major accounting data Unit: RMB’000 Increase/decrease 2005 2004 2003 over last year（％） Income from main operations 2,233,104 1,890,862 18.10% 1,270,512 Total profit 387,004 323,272 19,71% 231,325 Net profit 314,531 277,772 13.23% 195,156 Net cash flow arising from 420,215 279,092 50.57% 82,277 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 4,403,649 3,977,156 10.72% 2,584,956 Shareholder’s equity (excluding 1,721,309 1,565,675 9.94% 1,446,327 minority interests) 3.2 Major financial indexes Increase/decrease over 2005 2004 2003 last year（％） Earnings per share (RMB/share) 0.74 0.66 12.12% 0.46 An increase of 0.53 Return on equity 18.27% 17.74% 13.49% percent Net cash flow per share arising from 0.99 0.66 50.00% 0.19 operating activities (RMB/share) Increase or decrease At the end At the end At the end from the end of of 2005 of 2004 of 2003 previous year（％） Net assets per share (RMB/share) 4.07 3.71 9.70% 3.42 3.3 Difference in net profit as audited by Chinese Accounting Standard (CAS) and International Accounting Standard (IAS) √Applicable □Inapplicable Unit: RMB’000 2 CAS IAS Net profit 311,450 314,530 1. Accounts receivable over two years was reckoned into 1,789 capital reserve under CAS, while was reckoned into profit and loss under IAS 2. Writing off reserve for equity investment confirmed in 531 capital reserve under CAS 3. Writing off amortization of goodwill under CAS 1,585 4. Writing off long-term investment as of 2004 of Lu Ming -22 confirmed according to equity method Explanation on the difference 5. Parent company’s homemade equipment was confirmed 994 as deferred income under IAS 6. Lufeng Textile and Dye Co., Ltd.’s interests were -2,511 capitalized under CAS, while the said interests were written off under IAS 7. Depreciation of Lufeng Textile and Dye Co., Ltd.’s 115 capitalization of interest allotted in 2005 under CAS, while the said interests were written off under IAS Less: Gains and losses of minority shareholders -599 §4. Changes in Share Capital and Particulars about Shareholders 4.1 Statement of change in share (Unit: share) Increase/decrease Before the change After the change this time (+, - ) Type of shares Number of Number of Proportion Subtotal Proportion shares shares I. Nontradable shares 118,232,400 27.99% 0 118,232,400 27.99% 1. Sponsors’ shares 118,232,400 27.99% 0 118,232,400 27.99% Including: 0 0.00% 0 0 0.00% Shares held by the State Share held by domestic 59,116,200 13.99% 0 59,116,200 13.99% legal person Share held by foreign 59,116,200 13.99% 0 59,116,200 13.99% legal person Others 0 0.00% 0 0 0.00% 2. Raised legal person’s 0 0.00% 0 0 0.00% shares 3. Inner employees 0 0.00% 0 0 0.00% shares 4. Preference shares or 0 0.00% 0 0 0.00% others 3 II. Tradable shares 304,200,000 72.01% 0 304,200,000 72.01% 1. RMB ordinary shares 141,960,000 33.61% 0 141,960,000 33.61% 2. Domestically listed 162,240,000 38.41% 0 162,240,000 38.41% foreign shares 3. Overseas listed 0 0.00% 0 0 0.00% foreign shares 4. Others 0 0.00% 0 0 0.00% III. Total shares 422,432,400 100.00% 0 422,432,400 100.00% 4.2 Statement of shares held by the top ten shareholders and the top ten shareholders of tradable share Unit: share Total number of shareholders 26,460 Particulars about shares held by the top ten shareholders Total Number of Share Type of Full name of Shareholder Proportion number of nontradable pledged shareholders shares held shares held or frozen ZIBO LUCHENG TEXTILE Other 14.00% 59,116,200 59,116,200 0 INVESTMENT CO., LTD. Foreign TAILUN TEXTILE CO., LTD. 14.00% 59,116,200 59,116,200 0 shareholder DBS VICKERS (HONG KONG) LTD Tradable B shares 3.10% 13,132,498 A/C CLIENTS HTHK-VALUE PARTNERS Tradable B shares 1.65% 6,993,222 INTELLIGENT FD-CHINA B SHS FD HAITONG – BANK OF CHINA – Tradable A shares 1.59% 6,745,721 FORTIS BANK HAIFUTONG INCOME GROWTH Tradable A shares 1.42% 6,000,000 SECURITIES INVESTMENT FUND CITIC CLASSIC ALLOCATION Tradable A shares 1.30% 5,500,000 SECURITIES INVESTMENT FUND BBH BOS S/A FIDELITY FD - Tradable B shares 1.23% 5,200,000 CHINA FOCUS FD HTHK/CMG FSGUFP-CMG FIRST Tradable B shares 1.18% 5,020,262 STATE CHINA GROWTH FD TOYO SECURITIES ASIA Tradable B shares 1.10% 4,657,847 LIMITED-A/C CLIENT. Particulars about shares held by the top ten shareholders of tradable share Name of shareholders Numbers of tradable shares held Type of shares DBS VICKERS (HONG KONG) LTD 13,132,498 Domestically listed foreign share A/C CLIENTS HTHK-VALUE PARTNERS 6,993,222 Domestically listed foreign share INTELLIGENT FD-CHINA B SHS FD 4 HAITONG – BANK OF CHINA – 6,745,721 RMB ordinary share FORTIS BANK HAIFUTONG INCOME GROWTH 6,000,000 RMB ordinary share SECURITIES INVESTMENT FUND CITIC CLASSIC ALLOCATION 5,500,000 RMB ordinary share SECURITIES INVESTMENT FUND BBH BOS S/A FIDELITY FD - 5,200,000 Domestically listed foreign share CHINA FOCUS FD HTHK/CMG FSGUFP-CMG FIRST 5,020,262 Domestically listed foreign share STATE CHINA GROWTH FD TOYO SECURITIES ASIA 4,657,847 Domestically listed foreign share LIMITED-A/C CLIENT. ZHU SHENG DI 4,600,000 Domestically listed foreign share PACIFIC DRAGON FUND L.L.C 3,813,571 Domestically listed foreign share Explanation on associated The above shareholders are tradable shareholders. The Company was relationship among the above unknown whether there is any associated relationship or shareholders or consistent action acting-in-concert among the top ten shareholders of tradable share. 4.3 Particulars about controlling shareholders and actual controller of the Company 4.3.1 Particulars about change in controlling shareholders and actual controller of the Company □Applicable √Inapplicable 4.3.2 Introduction of situation on the controlling shareholder and actual controller Zibo Lucheng Textile Investment Co., Ltd. is the first largest shareholder of the Company as well as the actual controller of the Company. Legal representative: Liu Zibin Registered capital: RMB 63.26 million Business scope: Zibo Lucheng Textile Investment Co., Ltd. (hereinafter referred to as Lucheng Investment) was engaged in investment textile, electric power and pharmacy; knitwear and the relevant import and export business; retail of lubricating oil, gas oil and diesel oil; Chinese meal and wholesale and retail of general merchandise and etc.. Lucheng Investment is the first largest shareholder of the Company as well as the actual controlling shareholder of the Company. The original name of Lucheng Investment is Zibo Lucheng Textile Co., Ltd., which was founded on Sep. 25, 1998 based on Zibo No. 7th Cotton Textile Plant, sponsor of the Company. It is a Limited Company that its shares held by natural persons. On Oct. 13, 2004, Zibo Lucheng Textile Co., Ltd. changed its registration for industry and commerce as Zibo Lucheng Textile Investment Co., Ltd. presently. Ended Apr. 21, 2005, its registered capital increased to RMB 63.26 million. Of them, Mr. Liu Shizhen held 21% equity of Lucheng Investment, and is the first largest shareholder of Lucheng Investment as well as the actual controller of Lucheng Investment. Basic information of Liu Shizhen: Chinese nationality, he has not enjoy the residence power in the other 5 country or area; he took the post of Chairman of the Board and General Manager of the Company since 1990. As at the end of the report period, Lucheng Investment held 59.1162 million sponsors’ shares of the Company, taking 14% of total share capital of the Company, and the said shares have not been listed for trade. At the end of the report period, the said shares have not been frozen and pledged. 4.3.3 Property right and controlling relationship between the actual controller of the Company and the Company is as follows: Liu Shizhen ↓ 21% Zibo Lucheng Textile Investment Co., Ltd. ↓ 14% Lu Thai Textile Co., Ltd. §5. Particulars about Directors, Supervisors and Senior Executives 5.1 Particulars about changes in shares held by directors, supervisors and senior executives and their remuneration Drawing Total payment payment from Number of Number of drawn from the holding holding Reasons on the Company shareholding Name Title Sex Age Office term shares at the shares at the change in the report companies or year-begin year-end period other related (RMB’0000) parties or not (Yes / No) Chairman of the May 12, 2004- Liu Shizhen Male 66 171,974 171,974 73.71 No Board May 12, 2007 Vice Chairman May 12, 2004- Xu Zhinan Male 76 0 0 6.83 Yes of the Board May 12, 2007 Director and May 12, 2004- Liu Zibin concurrently Male 41 May 12, 2007 0 0 32.28 No CFO Tengyuan May 12, 2004- Director Male 66 0 0 213.09 No Yingli May 12, 2007 May 12, 2004- Chen Ruimou Director Male 62 0 0 6.83 No May 12, 2007 Director and May 12, 2004- Wang concurrently Male 45 May 12, 2007 20,280 20,280 35.69 No Fangshui Chief Engineer 6 May 12, 2004- Sun Zhigang Director Male 44 23,930 23,930 18.71 No May 12, 2007 Director and May 12, 2004- concurrently May 12, 2007 Qin Guiling Female 40 24,336 24,336 30.89 No Secretary of the Board Independent May 12, 2004- Wang Yonggui Male 37 0 0 3.60 No director May 12, 2007 Independent May 12, 2004- Hong Xiaobin Male 33 0 0 3.60 No director May 12, 2007 Independent May 12, 2004- You Shisong Male 69 0 0 3.60 No director May 12, 2007 Independent May 12, 2004- Wu Yuhua Male 62 0 0 3.60 No director May 12, 2007 Independent May 12, 2004- Zhou Zhiji Male 43 0 0 3.60 No director May 12, 2007 Supervisor and May 12, 2004- concurrently May 12, 2007 Li Tongmin Manager of Male 50 26,769 26,769 34.53 No Production Dept. Supervisor and May 12, 2004- concurrently May 12, 2007 Zhao Kegui Manager of Male 60 40,560 40,560 34.68 No Base Construct Dept. Supervisor and May 12, 2004- concurrently May 12, 2007 Zhu Lingwen Male 52 56,784 56,784 18.71 No Manager of Layout Dept. Total - - - - 364,633 364,633 - 523.95 - §6 Report of the Board of Directors 6.1 Discussion and analysis by the management team In the report period, the income from main businesses of the Company totaled RMB 2,233,104,000, up by 18.10 percent year-on-year, the foreign exchange made through export amounted to USD 210,486,000, up by 27.16 percent year-on-year, the profit from main businesses was RMB 684,186,000, up by 27.77 percent year-on-year, while the net profit totaled RMB 314,531,000, up by 13.23 percent year-on-year. In the report period, the main businesses, the main profit sources and compositions had not changed. In the report period, the Company had started the 50-million-meter colored woven cloth project and the project of 5-million-shirt production lines project, which originally had been planned to be constructed with the proceeds raised through 7 convertible bonds. The construction of these projects would increase the Company’s financial expenses in a short term, but it would also upgrade the products, technology and market competitiveness of the Company onto a brand new stage, and further strengthen the Company’s influence and competitiveness in the international shirt-use colored woven cloth area. Right now, the progress of these projects went smoothly. One 1.5-million production line of the shirt project had been launched into production in October 2005, while 10-million capacity of the colored woven cloth project would be launched into production in the second half of 2006 and the cloth project would be launched into production successively at the end of 2007 or in the middle of 2008. In the report period, our country had conducted reform to the RMB exchange rate mechanism. As a company focusing on export, the revaluation of RMB would directly lead to the Company’s high production costs and influence the operation feats. However, the dye and chemical materials, components of the machinery equipments and some ginned cotton all depended upon import, which could offset against part of the negative influences exerted upon the operation achievements. Part of the liabilities of the Company was foreign exchange loans, and that also could offset part of the influences caused by RMB revaluation to some extent. Apart from these, the products of the Company had some bargaining power, and the prices of some products could be raised to reduce the influence of the RMB revaluation. But overall, RMB revaluation would be a trend for a long term, and to a company depending on export like the Company, its influence would also be a long-term factor. In the report period, the Company also made some breakthroughs in the scientific research aspect, with 13 new products developed and 134 technological transformations. The Company also declared 10 patented technologies, of which 4 had been granted the patents for invention. The mass production of some outside materials, especially the 200s/2 fine count, LT·AM high-quality iron-free colored woven outside materials, XLA resilient materials, pure cotton colored woven rinsing materials, cotton velvet series, COOLMAX water-absorbing drip-dry materials, and photo-catalyst antibiosis materials, etc, had signaled the Company’s leading position in the area of shirt-use colored woven cloth and that the Company’s technological capacity had ascend to the internationally advanced level. In the report period, the Company had established the Donghua University Luthai R&D Center together with Donghua University. The Company planned to invest an initial amount totaling RMB 5 million, for the research and development of some scientific subjects, including “the technological transfer of the separate discharge and recycling of clear wastewater and turbid wastewater generated from textile printing dyeing”, “the popularization of new environment-friendly Richcel fabric”, “technological transformation and popularization of the liquid ammonia processing in the textile industry”, and the “development of the poly-component new fabric textile materials”, etc, so as to provide the Company with strong technological reserves. The Company had engaged Professor Ji Guobiao, who is one of the first academicians of the China Academy of Engineering and expert in the chemical fabric engineering technology, as the Company’s Technological Advisor. Professor Ji Guobiao would provide technological advices and instruction for the further technological research 8 and product development of the Company, which would effectively promote the Company’s technological progress and further upgrade the technological content and international competitiveness of the Company’s products. 6.2 Main businesses classified according to industry and product Unit: RMB’0000 Main businesses classified according to industry Increase or decrease Income Profit ratio Increase or decrease of income from main Increase or decrease of from Cost of main of main of profit ratio of main Industry or product businesses cost of main businesses main businesses businesses businesses year-on-year year-on-year (percent) businesses (percent) year-on-year (percent) (percent) Agriculture 3,716.00 2,884.00 22.39 percent -73.43 percent -72.12 percent -14.08 percent Cotton spinning and 163,393.00 113,437.00 30.57 percent 13.86 percent 9.61 percent 9.60 percent weaving Clothes manufacture 45,799.00 30,214.00 34.03 percent 51.58 percent 68.93 percent -1.10 percent Production and supply of power, 6,420.00 5,684.00 11.46 percent 175.44 percent 149.68 percent 391.85 percent steam and hot water Processing of Chinese traditional medicinal crops and 1,716.00 1,331.00 22.44 percent -7.41 percent -6.29 percent -3.86 percent Chinese patented medicines Others 2,267.00 1,343.00 40.76 percent 1,546.19 percent 949.14 percent 478.98 percent Main businesses classified according to products Cotton yarn 4,128.00 3,679.00 10.88 percent 32.44 percent -0.74 percent 57.54 percent Shirt-use colored 159,265.00 109,758.00 31.08 percent 13.44 percent 10.00 percent 7.43 percent woven cloth Shirt 45,799.00 30,214.00 34.03 percent 51.58 percent 68.93 percent -1.10 percent Ginned cotton 3,716.00 2,884.00 22.39 percent -73.43 percent -72.12 percent -14.08 percent Chinese patented 1,716.00 1,331.00 22.44 percent -7.41 percent -6.29 percent -3.86 percent medicines Power and steam 6,420.00 5,684.00 11.46 percent 175.44 percent 149.68 percent 391.85 percent Others 2,267.00 1,343.00 40.76 percent 1,546.19 percent 949.14 percent 478.98 percent 6.3 Main businesses classified according to regions Unit: RMB’0000 Income from main Increase or decrease of income from main Regions businesses businesses year-on-year (percent) Japan and South Korea 36,234.00 18.32 percent Hong Kong 33,353.00 25.26 percent Southeast Asia 44,974.00 -18.38 percent 9 Europe and America 48,517.00 153.67 percent Others 6,779.00 135.97 percent Homeland 53,453.00 -2.34 percent 6.4 Use of raised proceeds □Applicable √Inapplicable Projects changed □Applicable √Inapplicable 6.5 Projects invested with non-raised proceeds √Applicable □Inapplicable Unit: RMB’0000 Profit-making status Name of project Amount Progress of the project It had been launched into This project had no 3rd liquid ammonia finishing production line 3,805.00 production in separate accounting. July 2005. 12.21 percent of the total planned The project is still Project of 50-million-meter colored woven investment of 11,600.00 under construction cloth RMB 0.95 right now. billion had been finished. 23.07 percent of One of the production the planned lines with an annual investment of capacity of 1.5 Project of 5-million-shirt production line 2,301.00 RMB 99.72 million shirts had million had been been launched into finished. production. It had been Project of 60000-spindle spinning of Luqun launched into This project had no 13,500.00 Textile, a controlling subsidiary production in separate accounting. October 2005. Total 31,206.00 - - 6.6 Explanation given by the Board on the “qualified opinions” of the Certified Public Accountants □Applicable √Inapplicable 6.7 Preplan of profit distribution or capitalization of public reserves made by the Board √Applicable □Inapplicable The profit distribution preplan for the year 2005 as proposed at the 16th meeting of the 4th Board of Directors is as follows: 10 Based upon the share capital totaling 422,432,400 shares as at the end of 2005, a cash dividend of RMB 3.00 (pretax) would be granted for each 10 shares to all shareholders. The dividends for B share would be converted into HKD before being distributed (tax exempted according to GSF (1993) No. 45) according to the middle price of the benchmark exchange rate of the People’s Bank of China on the next day after the convening of the Shareholders’ General Meeting 2005. The real dividends totaled RMB 126,729,720.00 according to the plan, and the remaining profit would be carried down to the later year. The aforesaid preplan still need the examination and approval of the Shareholders’ General Meeting 2005. There was profit made by the Company in the report period, but no cash profit distribution preplan had been proposed: □Applicable √Inapplicable §7 Significant Events 7.1 Purchase of assets □Applicable √Inapplicable 7.2 Sales of assets □Applicable √Inapplicable 7.3 Important guarantees √Applicable □Inapplicable Unit: RMB’0000 External guarantees of the Company (excluding guarantees for shareholding subsidiaries) Name of Date of occurrence For related Guarantee Guarantee Guarantee Accomplished companies (agreement signing parties or not amount type term or not guaranteed day) (yes or no) Total guarantee amount occurred in the report period 38,087.66 Total guarantee balance at the end of the report period 42,358.78 Guarantees for shareholding subsidiaries by the Company Total guarantee amount occurred in the report period for shareholding 38,087.66 subsidiaries Total guarantee balance at the end of the report period for shareholding 42,358.78 subsidiaries Total guarantee amount of the Company (including guarantees for shareholding subsidiaries) Total guarantee amount 42,358.78 Proportion of the Company’s net assets taken by the total guarantee amount 24.38 percent Including: Guarantee amount for shareholders, the actual controller or its related 0.00 parties Guarantee amount for the debts of the guaranteed companies with an 0.00 asset-liability ratio of over 70 percent, directly or indirectly The amount by which the total guarantee amount exceeded 50 percent of 0.00 the net assets Total amount of the above three guarantees 0.00 11 7.4 Significant related transactions 7.4.1 Related transactions concerning routine operation √Applicable □Inapplicable Unit: RMB’0000 Purchasing products and Selling products and offering accepting labor service from labor service to related parties related parties Related parties Proportion taking up Proportion taking up Amount the amount of the same Amount the amount of the same kind of transactions kind of transactions Lucheng Textile Investment 44.79 94.93 percent 1,206.70 95.15 percent Co., Ltd Taimei Tie Co., Ltd 1.25 2.65 percent 49.78 3.93 percent Stanluian Cosmetics Co., Ltd 1.14 2.42 percent 11.68 0.92 percent Total 47.18 100.00 percent 1,268.16 100.00 percent An amount of RMB 460,400 occurred during the related transactions of the Listed Company selling products or providing labor service to the controlling shareholder or its subsidiaries in the report period. 7.4.2 Related credits and liabilities current □Applicable √Inapplicable Capital occupation and plan for clearing: □Applicable √Inapplicable Could the clearing plan guarantee the ultimate solving of the capital occupation problem before the end of 2006 or not: □Yes □No √Inapplicable 7.5 Financing entrustment □Applicable √Inapplicable 7.6 Implementation of commitments 7.6.1 Timetable of the share merger reform The Company has not entered into the process of share merger reform yet. However, it is estimated that the finishing of the share merger reform would be no later than Dec. 31, 2006. 7.6.2 Other commitments □Applicable √Inapplicable 7.7 Significant lawsuits and arbitrations □Applicable √Inapplicable §8 Report of the Supervisory Committee √Applicable □Inapplicable 12 The Supervisory Committee believed that the operation of the Company had been in conformity with the laws and regulations, the Financial Report had been true and accurate, the use of the raised proceeds had been legal and the related transactions had been fair and square. §9 Financial Report (International Accounting Standards) 9.1 Auditing opinions Report of the Auditors 2006/SH-061/KZGJ/JSHL To the Shareholders of Luthai Textile Company Limited: We have audited the accompanying consolidated balance sheet of Luthai Textile Company Limited (the “Company”) and its subsidiaries (together, the “Group”) as of 31 December 2005 and the related consolidated statements of income, cash flows and changes in shareholders’ equity for the year then ended. These financial statements set out on pages 2 to 31 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accompanying consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2005, and of the results of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Zhong Tian CPAs Limited Company 21 March 2006 13 9.2 Financial statements 9.2.1 Consolidated income statement LUTHAI TEXTILE COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 (All amounts in RMB thousands unless otherwise stated) Year ended 31 December Notes 2005 2004 Sales 2 2,233,104 1,890,862 Cost of goods sold (1,548,918) (1,355,375) Gross profit 684,186 535,487 Other income 53,302 28,004 Selling and marketing costs (62,771) (63,453) Administrative expenses (202,300) (142,189) Operating profit 3 472,417 357,849 Finance costs – net 4 (85,405) (34,617) Share of results before tax of unconsolidated subsidiaries 12 (9) 40 Profit before income tax 387,003 323,272 Income tax expense 6 (50,346) (37,547) Profit for the year 336,657 285,725 Attributable to: Shareholders of the Company 314,531 277,772 Minority interest 22,126 7,953 336,657 285,725 Earnings per share for profit attributable to the shareholders of the Company during the year (basic and diluted) 7 RMB 0.74 RMB 0.66 14 9.2.2 Consolidation balance sheet LUTHAI TEXTILE COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2005 (All amounts in RMB thousands unless otherwise stated) 31 December Notes 2005 2004 ASSETS Non-current assets Property, plant and equipment 9 2,797,701 2,421,823 Land use rights 10 134,116 140,546 Intangible assets 11 33,556 36,006 Investments in unconsolidated subsidiaries 12 424 5,280 Available-for-sale investment 13 215 215 2,966,012 2,603,870 Current assets Inventories 14 809,444 597,991 Receivables and prepayments 15 413,059 423,937 Cash and cash equivalents 16 192,861 293,149 Restricted deposits 17 22,273 58,209 1,437,637 1,373,286 Total assets 4,403,649 3,977,156 15 LUTHAI TEXTILE COMPANY LIMITED CONSOLIDATED BALANCE SHEET (CONTINUED) AS OF 31 DECEMBER 2005 (All amounts in RMB thousands unless otherwise stated) 31 December Notes 2005 2004 EQUITY Capital and reserves attributable to shareholders of the Company Ordinary shares 21 422,432 422,432 Share premium 21 695,390 695,390 Reserves 22 209,280 160,073 Retained earnings 394,207 287,780 1,721,309 1,565,675 Minority interests 196,578 163,205 Total equity 1,917,887 1,728,880 LIABILITIES Non-current liabilities Borrowings 19 483,965 586,177 Deferred Income 20 4,417 5,411 Other liabilities 13,189 14,659 501,571 606,247 Current liabilities Trade and other payables 18 619,074 513,608 Current income tax liabilities 2,422 874 Borrowings 19 1,362,695 1,127,547 1,984,191 1,642,029 Total liabilities 2,485,762 2,248,276 Total equity and liabilities 4,403,649 3,977,156 16 9.2.3 Consolidated statement of changes in equity LUTHAI TEXTILE COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2005 (All amounts in RMB thousands unless otherwise stated) Attributable to shareholders Minority Total Notes Of the Company interest equity Share Share Retained capital premium Reserves earnings Balance at 1 January 2004 422,432 695,390 116,600 211,905 96,180 1,542,507 (158,412 Dividend relating to 2003 - - - ) (2,272) (160,684) Profit for the year - - - 277,772 7,953 285,725 Transfer to reserves 22 - - 43,485 (43,485) - - Addition of investment in subsidiaries - - - - 61,344 61,344 Currency translation difference - - (12) - - (12) Balance at 31 December 2004 422,432 695,390 160,073 287,780 163,205 1,728,880 Balance at 1 January 2005 422,432 695,390 160,073 287,780 163,205 1,728,880 Dividend relating to 2004 - - - (158,412) (4,213) (162,625) Profit for the year - - - 314,531 22,126 336,657 Transfer to reserves 22 - - 49,692 (49,692) - - Addition of investment in subsidiaries - - - - 15,460 15,460 Currency translation difference - - (485) - - (485) Balance at 31 December 2005 422,432 695,390 209,280 394,207 196,578 1,917,887 17 9.2.4 Consolidated cash flow statement LUTHAI TEXTILE COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 (All amounts in RMB thousands unless otherwise stated) Year ended 31 December Notes 2005 2004 Cash flows from operating activities Cash generated from operations 23 567,185 361,250 Interest paid (98,172) (47,914) Income tax paid (48,798) (34,244) Net cash generated from operating activities 420,215 279,092 Cash flow from investing activities Acquisition of subsidiary, net of cash acquired - (9,678) Purchase of property, plant and equipment (540,433) (973,613) Purchase of land use rights (534) (10,221) Purchase of intangible assets (3,501) (10,350) Proceeds from sale of property, plant and equipment 4,071 718 Proceeds from sale of investment 160 2,186 Interest received 3,338 3,265 Cash paid relating to purchase of minority interests (1,108) - Net cash used in investing activities (538,007) (997,693) Cash flow from financing activities Proceeds from borrowings 1,088,585 1,974,249 Repayments of borrowings (922,832) (1,030,212) Dividend paid to Company’s shareholders (158,412) (158,412) Dividend paid to minority shareholders (6,377) (2,272) Proceeds from minority shareholders 16,540 25,640 Net cash generated from financing activities 17,504 808,993 Net increase / (decrease) in cash and cash equivalents (100,288) 90,392 Cash and cash equivalents at beginning of the year 293,149 202,757 Cash and cash equivalents at end of the year 16 192,861 293,149 9.3 Detailed explanation on the changes in the accounting policies, accounting estimation or accounting methods compared with the latest Annual Report □Applicable √Inapplicable 9.4 Content of significant accounting errors, amounts changed, reasons and influences □Applicable √Inapplicable 18 9.5 Detailed explanation on the changes in the consolidation scope compared with the latest Annual Report □Applicable √Inapplicable Board of Directors Lu Thai Textile Co., Ltd. Mar. 23, 2006 19