晨鸣纸业(000488)2007年年度报告摘要(英文版)

Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 Stock ID: Chenming Paper, Chenming B Stock Code: 000488, 200488 Announcement No. 2008-013 SHANDONG CHENMING PAPER HOLDINGS LIMITED Summary of Annual Report 2007 §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 version. 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 All of the directors presented the board meeting. 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. Liu Junwu, the Chief Financial Officer, and Mr. Tan Yuhua, the Financial Manager declares the truthfulness and completeness of the financial statements carried in this report. §2 Company Profile 2.1 Company Profile Stock ID Chenming Paper , Chenming B Stock Code 000488、200488 Stock Exchange Shenzhen Stock Exchange Reg. Add. No. 595 Shencheng Rd., Shouguang City, Shandong Province Post Code 262700 Office address No. 595 Shencheng Rd., Shouguang City, Shandong Province Post Code: 262700 Website http://www.chenmingpaper.com Email. chenmmingpaper@163.com 2.2 Liaison People Secretary of the Board Representative of Stock Affairs Name Hao Yun Fan Yingjie, Sun Wenke No. 595 Shencheng Rd., Shouguang City, No. 595 Shencheng Rd., Shouguang City, Address Shandong Province Shandong Province Tel. 0536－2158977、2158011 0536－2158011、2156488 Fax. 0536－2158640 0536－2158640 Email. chenmmingpaper@163.com chenmmingpaper@163.com 1 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 §3 Financial Highlights 3.1 Major accounting data In RMB Yuan Increase/dec Year 2007 Year 2006 Year 2005 rease (%) Not adjusted Adjusted Adjusted Not adjusted Adjusted 9,722,346,097.7 Turnover 15,164,742,450.26 11,814,092,426.36 11,983,464,568.89 26.55% 9,943,474,093.62 2 Total profit 1,489,336,202.56 891,269,259.51 615,690,757.28 141.90% 863,409,212.92 890,129,267.73 Net profit attributable to the 967,636,172.39 602,967,195.37 356,907,182.90 171.12% 602,433,342.24 616,044,602.83 shareholders of the listed company Net profit attributable to shareholders of listed company 884,374,053.66 436,232,957.51 396,061,925.60 123.29% 531,906,232.30 551,964,382.34 after deducting of non-recurring gain/loss Cash flow generated by 1,013,718,841.3 1,324,263,125.01 1,008,558,176.84 1,008,558,176.84 31.30% 1,013,718,841.30 business 0 operation, net Increase/dec End of 2007 End of 2006 End of 2005 rease (%) Not adjusted Adjusted Adjusted Not adjusted Adjusted 17,959,414,107. Gross Assets 22,011,108,257.29 20,547,990,949.39 20,558,560,560.77 7.07% 17,488,260,546.89 77 Owners’ 5,465,605,443.0 (shareholders’) 8,745,035,011.85 6,010,124,970.09 6,151,642,343.81 42.16% 5,654,830,619.26 9 equity 3.2 Major financial indices In RMB Yuan Increase/dec Year 2007 Year 2006 Year 2005 rease (%) Not adjusted Adjusted Adjusted Not adjusted Adjusted Basic gains per 0.60 0.4425 0.26 130.77% 0.4451 0.45 share Diluted gains per 0.59 0.4415 Not applicable - 0.4451 0.415 share Basic earning per share after deducting of 0.55 0.3201 0.29 89.66% 0.393 0.403 non-recurring gains/losses Net income on 11.06% 10.03% 5.80% 5.26% 11.02% 10.89% asset, fully diluted Net income on 12.64% 10.83% 6.06% 6.58% 11.74% 11.98% asset, weighted Net income on 10.11% 7.26% 6.44% 3.67% 9.73% 9.76% asset, fully diluted 2 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 and deducted non-recurring gain/loss Net income on asset after deducting of 11.55% 7.84% 6.73% 4.82% 10.37% 10.74% non-recurring gain/loss Net Cash flow per share generated by 0.7761 0.7385 0.7385 5.09% 0.7489 0.7489 business operation Increase/dec End of 2007 End of 2006 End of 2005 rease (%) Not adjusted Adjusted Adjusted Not adjusted Adjusted Net asset per share attributable to 5.1250 4.4009 4.5045 13.78% 4.038 4.18 shareholders of the Company Non-recurring gain and loss items √ applicable □ not applicable In RMB Yuan Non-recurring gain and loss items Amount Net gain/loss from disposal of non-working capital -9,748,342.61 Government subsidy 102,004,487.80 Net gain/loss from debt reorganization 1,088,135.44 Negative goodwill formed by purchasing of minor share equity 24,040,943.45 Net amount of other non-operational gain/expenses other than the 11,734,011.08 above Influence of income tax of non-recurring gain/loss -21,695,055.51 Influenced amount of minor shareholders -24,162,060.92 Total 83,262,118.73 Items accounted on fair value basis √ applicable □ not applicable In RMB Yuan Balance at the beginning Balance at the end of Projects Change of current term Influence on current profit of term term Biological assets 19,514,433.24 92,159,871.29 24,415,400.31 24,415,400.31 accounted at fair value Derivate financial instruments accounted at 0.00 5,955,480.00 5,955,480.00 5,955,480.00 fair value Total 19,514,433.24 98,115,351.29 30,370,880.31 30,370,880.31 3.3 Difference between domestic and international accounting standard √ applicable □ not applicable In RMB Yuan Domestic accounting standard Overseas accounting standard: Net profit 1,218,541,189.29 1,252,584,099.57 Net asset 10,580,559,664.96 10,180,295,419.17 According to China Enterprise Accounting Standard, receiving of national bond special fund and special payables Statement about the are accounted into capital reserves; whereas according to the IAS, they are accounted into differed income and diversity amortized to the useful life of the fixed asset. 3 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 §4 Changes in Share Capital & Particulars about Shareholders 4.1. Statement of Changes in Shares in Shares Before the change Changed (+,-) After the change Issuing Transferred Bonus Amount Proportion of new from Others Sub-total Amount Proportion shares shares reserves I. Shares with conditional 354,809,141 25.98% -15,308,688 -15,308,688 339,500,453 19.90% subscription 1. State-owned shares 2. State-owned legal 328,573,657 24.06% 328,573,657 19.26% person shares 3. Other domestic 26,235,484 1.92% -15,308,688 -15,308,688 10,926,796 0.64% shares Incl. Non-government 9,517,139 0.70% -9,517,139 -9,517,139 domestic legal person shares Domestic 16,718,345 1.22% -5,791,549 -5,791,549 10,926,796 0.64% natural person shares 4. Share held by foreign investors Incl. Shares held by foreign legal persons Foreign natural person shares II. Shares with unconditional 1,010,861,014 74.02% 355,984,474 355,984,474 1,366,845,488 80.10% subscription 1. Common shares in 453,363,529 33.20% 355,984,474 355,984,474 809,348,003 47.43% RMB 2. Foreign shares in 557,497,485 40.82% 557,497,485 32.67% domestic market 3. Foreign shares in overseas market 4. Others III. Total of capital 1,365,670,155 100.00% 340,675,786 340,675,786 1,706,345,941 100.00% shares Change of conditional shares In shares Conditional shares Released this Increased Conditional shares Date of Name of the shareholder Reason of condition at beginning of year year this year at end of year releasing Shouguang Chenming Commitment in share Mar 29, 328,573,657 0 0 328,573,657 Share Holding Co., Ltd. equity relocation 2010 Shanghai Xinglong Commitment in share Apr 17, 3,303,671 3,303,671 0 0 Investment Co., Ltd. equity relocation 2007 Commitment in share Apr 17, People’s Post Press 3,053,302 3,053,302 0 0 equity relocation 2007 Meilin Zhengda Commitment in share Apr 17, Investment Group Co., 1,221,321 1,221,321 0 0 equity relocation 2007 Ltd. Shouguang Huadong Commitment in share Apr 17, Construction Materials 1,022,855 1,022,855 0 0 equity relocation 2007 Co., Ltd. Shandong Chenming 732,790 732,790 0 0 Commitment in share Apr 17, 4 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 Power Plant Ltd. equity relocation 2007 Weifang New Commitment in share Apr 17, Continental Investment 122,133 122,133 0 0 equity relocation 2007 Consultants Ltd. Weifang Shenzhou Tech. Commitment in share Apr 17, 61,067 61,067 0 0 Ltd. equity relocation 2007 Shares held by Nov 01, Executive shares 16,718,345 5,807,949 16,400 10,926,796 executives of the 2010 Company are frozen. Total 354,809,141 15,325,088 16,400 339,500,453 － － 4.2 Top 10 shareholders and top 10 holders of unconditional shares in Shares Total of shareholders 147,136 Top 10 Shareholders Share Conditional Pledged or Name of the shareholder Properties of shareholder Total shares proportion % shares frozen Shouguang Chenming Share Holding Co., State-owned legal person 19.26% 328,573,657 328,573,657 18,653,854 Ltd. Domestic China Agriculture Bank – Zhongyou Core non-state-owned legal 3.82% 65,131,793 0 0 Growth Stock Investment Fund person Domestic China Agriculture Bank – Zhongyou Core non-state-owned legal 2.63% 44,946,700 0 0 Best Portfolio Stock Investment Fund person Domestic China Industrial & Commercial Bank – non-state-owned legal 2.18% 37,241,842 0 0 Nuo’an Stock Investment Fund person BONY-DREYFUS PIFI-DREYFUS Overseas legal person 2.03% 34,583,845 0 0 PREMIER GREATER CHINA Domestic China Construction Bank – Penghua Value non-state-owned legal 1.21% 20,671,486 0 0 Advantage Stock Investment Fund person BBH BOS S/A FIDELITY FD - CHINA Overseas legal person 1.20% 20,527,600 0 0 FOCUS FD Domestic Lizhu Pharmacy Group Co., Ltd. non-state-owned legal 1.11% 18,988,090 0 0 person MIRAE ASSET CHINA SOLOMON Overseas legal person 1.06% 18,164,012 0 0 EQUITY INVESTMENT TRUST 1 Domestic Joincare Pharmacy Group Co., Ltd. non-state-owned legal 1.06% 18,116,585 0 0 person 5 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 Top 10 holders of unconditional shares Name of the shareholder Unconditional shares Category of shares China Agriculture Bank – Zhongyou Core 65,131,793 RMB common shares Growth Stock Investment Fund China Agriculture Bank – Zhongyou Core Best 44,946,700 RMB common shares Portfolio Stock Investment Fund China Industrial & Commercial Bank – Nuo’an 37,241,842 RMB common shares Stock Investment Fund BONY-DREYFUS PIFI-DREYFUS PREMIER Foreign shares placed in domestic 34,583,845 GREATER CHINA exchange China Construction Bank – Penghua Value 20,671,486 RMB common shares Advantage Stock Investment Fund BBH BOS S/A FIDELITY FD - CHINA FOCUS Foreign shares placed in domestic 20,527,600 FD exchange Lizhu Pharmacy Group Co., Ltd. 18,988,090 RMB common shares MIRAE ASSET CHINA SOLOMON EQUITY Foreign shares placed in domestic 18,164,012 INVESTMENT TRUST 1 exchange Joincare Pharmacy Group Co., Ltd. 18,116,585 RMB common shares UBS WARBURG CUSTODY PTE LTD. Swiss Foreign shares placed in domestic 16,415,585 Bank exchange Among the top 10 shareholders, Shouguang Chenming Share Controlling Co., Ltd. – the controlling shareholder of the Company as a state-owned legal person, is not connected with any other shareholders or current share holders. And there isn’t action-in-concert relationship either according to the Administration Criteria of Information Disclosure of Listed Companies. China Agriculture Bank – Notes to relationship or “action Zhongyou Core Growth Stock Investment Fund and China Agriculture Bank – Zhongyou Core Best in concert” among the top ten Portfolio Stock Investment Fund are under common control of Zhongyou Venture Fundation Co., Ltd. shareholders. Jiangkangyuan Pharmacy is the first shareholder of Lizhu Pharmacy Group Co., Ltd.The Company is not informed whether there is any relationship between any of the other shareholders, neither any relationship regarded by the Administration Criteria of Information Disclosure of Listed Companies as action-in-concert. 4.3 Particulars about the holding shareholder and the substantial holder 4.3.1 Change in holding shareholder and the substantial holder □applicable √ not applicable 4.3.2 Particulars about Controlling Shareholder and the Substantial Controller (1) Shouguang Chenming Share Holding Co., Ltd. is the controlling shareholder of the Company which is holding more than 5% of the capital shares. It was incorporated on December 30th 2005 with registered capital of RMB1.685 billion. Mr. Chen Hongguo is the legal representative of the company. Its business range is investment in industries of paper-making, power plant, thermal power, and forestry. It was holding 328,573,657 of state-owned shares at the end of the report term, which was 19.26% of the total share capital. The 18,653,854 shares used as supplementary shares in share equity relocation program were temporarily managed by Shenzhen Branch of China Securities Depository & Clearing Corporation Ltd. None of other shares was put into amortizing or freezing. (2) Shouguang State-owned Asset Administrative Bureau is the controlling shareholder of Shouguang Chenming Share Holding Co., Ltd. It is holding 75.73% of the shares of Shouguang Chenming Share Holding Co., Ltd. Mr. Zhang Yuhua is the legal representative. It is the administrative and supervisory body of state-owned properties in Shouguang City. 6 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 4.3.3 Holding relationship chart Shouguang State-owned Asset Administrative Bureau ↓75.73% Shouguang Chenming Share Holding Co., Ltd. ↓19.26％ SHANDONG CHENMING PAPER HOLDINGS LIMITED §5 Directors, Supervisors and Senior Executives 5.1 Changing in shareholding and remuneration of the directors, supervisors and senior executives Remuneration Incentive shares granted Take Shares Shares accepted Market remuneration Job Job held at the held at the Cause of from the Rate price from Name Position Sex Age started ended beginning end of change company in Executable Executed of at end shareholding of term term report term shares shares or related shares of (RMB0’000) term parties? Apr Apr Chen Chairman M 43 30 30, 6,334,527 6,334,527 160.76 0 0 0.00 0.00 No Hongguo 2007 2010 Vice Apr Apr Yin Chairman, M 50 30 30, 3,231,520 3,231,520 106.80 0 0 0.00 0.00 No Tongyuan GM 2007 2010 Director Apr Apr Li Feng and sales M 35 30 30, 471,818 471,818 66.00 0 0 0.00 0.00 No officer 2007 2010 Apr Apr Xing Director M 42 30 30, 355,561 355,561 66.00 0 0 0.00 0.00 No Fangtong 2007 2010 Apr Apr Wu Bingyu Director M 42 30 30, 428,107 428,107 11.80 0 0 0.00 0.00 No 2007 2010 Apr Apr Hou Director M 46 30 30, 628,915 628,915 60.00 0 0 0.00 0.00 No Huancai 2007 2010 Apr Apr Zhou Director M 46 30 30, 125,307 125,307 30.00 0 0 0.00 0.00 No Shaohua 2007 2010 Apr Apr Gan Zhihe Director M 63 30 30, 0 0 4.00 0 0 0.00 0.00 No 2007 2010 Apr Apr Zhao Wei Director M 48 30 30, 0 0 4.00 0 0 0.00 0.00 No 2007 2010 Cao Director M 44 Apr Apr 0 0 4.00 0 0 0.00 0.00 No 7 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 Chunyu 30 30, 2007 2010 Apr Apr Diao Independent M 43 30 30, 0 0 4.00 0 0 0.00 0.00 No Yuntao Director 2007 2010 Apr Apr Wang Independent M 49 30 30, 0 0 4.00 0 0 0.00 0.00 No Zhihua Director 2007 2010 Apr Apr Zhou Independent F 44 30 30, 0 0 4.00 0 0 0.00 0.00 No Chengjuan Director 2007 2010 Apr Apr Wang Independent F 45 30 30, 0 0 4.00 0 0 0.00 0.00 No Yumei Director 2007 2010 Apr Apr Independent Liu Yingjie M 33 30 30, 0 0 10.00 0 0 0.00 0.00 No Director 2007 2010 Apr Apr Gao Junjie Supervisor M 37 30 30, 39,606 39,606 8.24 0 0 0.00 0.00 No 2007 2010 Apr Apr Wang Ju Supervisor F 42 30 30, 0 0 14.94 0 0 0.00 0.00 No 2007 2010 Apr Apr Yang Supervisor F 40 30 30, 0 0 7.71 0 0 0.00 0.00 No Hongqin 2007 2010 Apr Apr Zhao Supervisor M 34 30 30, 0 0 7.19 0 0 0.00 0.00 No Shujun 2007 2010 Apr Apr Liu Supervisor M 36 30 30, 0 0 6.90 0 0 0.00 0.00 No Wenzheng 2007 2010 Vice Apr Apr Wang General M 34 30 30, 209,200 209,200 31.20 0 0 0.00 0.00 No Baoliang Manager 2007 2010 Vice Apr Apr Geng General M 34 30 30, 437,433 437,433 51.00 0 0 0.00 0.00 No Guanglin Manager 2007 2010 Vice Apr Apr Purchase Ren Wei General M 46 30 30, 92,800 109,200 24.00 0 0 0.00 0.00 No of shares Manager 2007 2010 Vice Apr Apr Li Xueqin General F 42 30 30, 429,348 429,348 28.80 0 0 0.00 0.00 No Manager 2007 2010 Vice Apr Apr Hao Yun General M 45 30 30, 708,441 708,441 30.00 0 0 0.00 0.00 No Manager 2007 2010 Vice Apr Apr Xia General M 43 30 30, 70,700 70,700 36.00 0 0 0.00 0.00 No Guangchun Manager 2007 2010 Vice Apr Apr Wang General M 45 30 30, 195,600 195,600 24.00 0 0 0.00 0.00 No Zaiguo Manager 2007 2010 Vice Apr Apr Wang General M 44 30 30, 0 0 20.00 0 0 0.00 0.00 No Shihong Manager 2007 2010 Fang Lijun Vice M 38 Apr Apr 436,851 436,851 28.04 0 0 0.00 0.00 No General 30 30, 8 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 Manager 2007 2010 Apr Apr Liu Junwu CFO M 46 30 30, 0 0 19.20 0 0 0.00 0.00 No 2007 2010 Vice Apr Apr Dong General M 45 30 30, 196,794 196,794 12.22 0 0 0.00 0.00 No Jianwen Manager 2007 2010 Total - - - - - 14,392,528 14,408,928 - 888.80 0 0 - - - Future shares and conditional shares hold by or granted to the above persons. □applicable √ not applicable §6 Report of the Board 6.1 Report of the Executives I. Business review (I). Summary of Operation In 2007, the civil paper manufacturing industry experienced change of winter to spring. In the first half year, along with increasing prices of the raw materials, the manufacturing cost increased. And because the redundant manufacturing capacity accumulated in the previous term broke the balance of the manufacturing and supply, most products’ price went lower continuously; some countries setting up international protectionism barriers led the paper manufacturing industry go to the valley. According to the difficulties in the first half of the year, the management of the Company deployed measures: enhancing the management on purchasing, sale, accounting management, environment protecting and energy saving, administration and etc, emphasizing on the operation of new products, improving equipment operation quality, exploiting the civil and aboard market. According to the data of the first half year of 2007 of the National Bureau of Statistics of China, in the first half year, the production volume of the paper and paper board slowed down which obviously lower than that of the last year; and the stock of products increased; the loss rate of the losing enterprise increased. And the industrial centralization showed out obviously, according to these facts above, the management figured firmly: “the national energy saving, consumption reducing, environment protection and waster reducing policies, and the macroscopical policies on eliminating slow enterprises in the paper manufacturing industry in the “11th five years” period further improved the confidence of the future progress in the paper manufacturing industry.” In the second half year, along with the enhancing of the national macroscopical adjustment especially on enterprises with high energy consumption and high waste distribution, the government continuously worked out a series of policies on energy saving and reducing waste distribution and eliminating slow enterprises which required the paper manufacturing industry to reduce 2300000 tons manufacturing capacity which centralizing on the intermit and low end culture paper made by grass, the elimination caused serious absence of culture paper and high price, which led to little difference between intermit and low end with the high end culture paper and requirement moved to high end paper with price increasing. And according the customs head office’ data, the national importing of paper and paper board decreased year by year from 2005, especially the high end paper such as light-weight coated paper and coated art paper, carton board paper and board paper. In the recent years, along with the manufacturing capacity expanding of the large paper manufacturing enterprise, more international fist class paper manufacturing equipments were imported in, the national paper manufacturing level increased highly and some data showed most volume of the exporting paper increased compared to the last year such as newsprint paper, light weight coated paper, coated art paper and carton board paper and etc. the decreasing of paper importing and increasing of paper exporting improved the civil manufacturing and supply to some extend, the reason of price increasing of carton board paper, coated art paper and newsprint paper changed from cost to requirement. The management figured: in 2007, although the paper manufacturing material price was still high, the increasing rate slowed down, and the civil and the aboard competition was still tough, the manufacturing capacity of paper and paper board increased with a low increasing rate in 2007 compared to the last year. Along with the enhancing of national policy of energy saving and waste reducing, some slow enterprises were eliminated, industrial centralization showed out further, affected by the facts above, the Company had high developing period in 2007. 9 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 The Company’s manufacturing scale expanded along with new product of some new constructed projects, and the Company enhanced the management on sale which led to high increasing sale, and with the price increasing of main products, the income of 2007 increased highly. 1. Summary of operation During the period, the Company implemented machine made papers of 2870000 tons with a increasing rate of 18.11% which increased 440000 tons compared to the last year, the main operation income was RMB15,164,742,500 with a increasing rate of 26.55% which increased RMB3,181,177,900 compared to the last year, the main business cost increased RMB2,366,271,700 with a increasing rate of 24.37%, the main business profit and net profit attributable to the shareholders of the Company were RMB1,284,844,000 and RMB967,636,200 respectively with increasing of 96.33% and 171.12% compared to the last year. The main reasons of increasing: the Company’s 300,000 tons level calendar-colored paper production line and Jilin Chenming annual 180,000 tons level production line began production at the end of 2006 and the beginning of 2007 separately, and at the same time the manufacturing capacity increased stably by efficient measures of old production line upgrading and enhancing management. The main papers of news paper increased 270,000 tons and woodfree tape increased 40,000 tons and other paper increased about 90,000 tons, the total paper increasing was 440,000 tons, and the prices of the Company’s main paper products increased highly at the end of 2007, which led to significant increasing of main business income, main business profit, and net profit. On the other hand, due to initializing of the new accounting standard, the Company adjusted the initial figures of the beginning of year (including net profit attributable to the shareholders of the listed company). For details please see the Financial Report attached herein. 2. Project construction The Company continuously persisted healthy developing, scientific devotion, optimizing structure and principals of accuracy, fastness, goodness, focusing on on-building projects on the aspects of human resource, resource, finance, which assured projects smooth progress. (1) Annual production 98,000 tons office deinked waste paper pulp project. The building construction and equipments installation finished in 2007 and the project would begin to product officially at the end of January 2008. (2) 120,000 tons cast coated paper project. The building construction was at the end procedure, now the equipments installation was in procedure, and will begin production in Jun 2008. (3) 30,000 tons/day paper-manufacturing waste water recycle project. The construction and equipments installation was finished, and began production. The recycled waste water was in accordance with the drinking water standard. (4) Shandong Yujing Hotel project. Construction, decoration and equipments debug was basically finished, the management was ready , the hotel was official opened in April 2008. (5) Zhanjian Chenming 700,000 wood pulp project. The main supplier was ready, cleaning the factory, internal and external roads construction, employment, rules construction was in procedure, which helped the further project beginning construction; has defined the tree planting task and target to fasten the tree planting speed with evaluation measures to implement contracted 300,000 Chinese acre units. And fasten the cooperation of Forestry with Leizhou Forestry Bureau to consolidate the basis for Zhanjian wood pulp project. 3. Management and innovation (1) In 2007, the Company conducted manufacturing, sale, management joint meeting system, the chairman of the Board convoked joint meeting every month with the management, subsidiaries’ main manager, the managers above prime representative of sale districts, analyzed strictly the economic operation affairs of every product type and equipments, searched and presented issues, and solved the issues separately with regulating measures, on the weak management procedures of the Company and the subsidiaries, the company established professional groups of technology, environment protection, energy saving, equipment, dispatch, cost, electricity, safety to enhance professional management to help the companies to find and solve the existing issues, which improved the management level effectively. (2) During the period, coordinating with national technology centers and post doctor research station, the 10 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 Company enhanced cooperation with international first class enterprises of French Arjowiggins and South Africa SAPPI, and fasted the innovation steps, developed low weight one side coated art paper, fruit packet paper and anti-oil paper step by step. Also the Company has optimize product structure, improved the market competition. And experimentally developed Environmentally-sound release coated raw paper, fruit package raw paper, snow wood-free paper, six times coated art paper, has gotten the technical references and technology data to support further beginning production. The Company enhanced the trial and promotion of the cloth-coat technical recipe which improved products quality and reduced manufacturing cost by adjusting technical recipes, the light-coated paper factory reduced the manufacturing cost about RMB100 for each ton product by upgrading the part equipment which had constrained the paper manufacturing speed, which increased the paper manufacturing speed and increased the manufacturing capacity; and the coated art paper upgraded the transporting part of the paper machine, the transporting speed increased from 1300m/minute to 1400m/minute. On energy saving and waste reducing, the Shouguang area part of the Company consumed a little more than 700,000 tons standard charcoal units, the energy consumption for RMB10,000 was 1.032 tons standard charcoal units which decreased 16.23% compared to that of 2005, saved 142,300 tons standard charcoal units, the energy consumption for RMB10,000 and main product unit consumption was in the top three among one thousand civil enterprises. During the period, the company’s “Chenming” trade mark was referred as the “China famous brand” by the State Administration for Industry and Commerce. The Company was honored chosen into “China top 500 enterprises in 2007” by Chinese Enterprises Association and Chinese Enterpriser Association, ranked 201, and at the same time ranked 101 in the “China Top 500 Manufacturing Enterprise”. The Company was honored chosen into “Chinese Top 100 Listed Companies” by a influential media. The Company was honored as the Excellent Foreign Invested Enterprise, Customs Honest Enterprise, National excellent Culture construction Light-industry Group, Shandong Light-industry Famous Enterprise and etc. The four products of gelatine printing paper, feather-weight coated paper, coated art paper, coated card paper were ranked as “National inspection-exempt product” by the General Administration of Quality Supervision, Inspection and Quarantine. The Company was honored as “Shandong Advanced Enterprise on Comprehensively Utilizing Resource” The chairman of the Board Chen, Honguo was honored the National Labor Day Medal, and two employees were honored as the National Light Industrial Model Worker. (II) 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. The major product lines are: art paper, light-coated paper, news paper, kraft liner board, double-offset paper, cartoon board, and writing paper. 11 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 1. Major business segment In RMB10 thousand Distribution on industries Major Increase/decrease of Change of major Decrease/ increase of On industry or Major business Major business major business turnover business cost major business profit product turnover business cost profit ratio (%) over last year over previous year (%) Machine-made paper 1,385,561.05 1,104,007.94 20.32 28.53 26.22 1.45 Power supply 6,899.59 5,892.48 14.60 15.22 94.55 -34.82 Construction 86,990.96 72,736.37 16.39 6.39 7.85 -1.13 materials Chemical products 9,200.41 4,589.15 50.12 22.31 -19.73 26.12 for paper making Paper machines 36.50 - - - Others 27,822.24 20,222.21 27.32 -80.12 53.71 4.91 Total 1,516,474.25 1,207,448.15 20.38 26.55 24.37 1.39 Distribution on products Lightweight coated 18.66 paper 188,980.93 153,716.55 5.07 3.50 1.24 Duplex press paper 207,208.52 161,857.60 21.89 23.70 20.66 1.97 Writing paper 25,327.34 19,487.61 23.06 -30.98 -29.64 -1.47 Art paper 231,166.53 177,418.22 23.25 22.44 20.03 1.54 News press paper 198,152.39 160,148.88 19.18 97.43 97.94 -0.21 Paperboard 91,694.42 76,724.80 16.33 18.21 17.75 0.33 White paper board 235,138.35 193,050.77 17.90 18.12 16.93 0.83 2. Geographic segment (RMB0’000) Regions Major business turnover Increase/decrease of major business turnover (%) Mainland China 1,155,036.02 30.40 US 25,006.27 -25.62 HK 30,326.07 42.06 Japan 33,418.94 -14.39 South Africa 29,253.01 26.81 Other countries 112,520.73 49.70 Total 1,385,561.05 28.53 3. Major suppliers and clients The purchasing from the top 5 suppliers was amounted to 7.55% of the total purchasing of the year. The sales to the top 5 clients was amounted to 5.03% of the total sales of the year. 12 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 (III) Statement on the major changing in company asset structure and expenses compare with the same period of last year In RMB Yuan year 2007 Year 2006 Ratio in total assets of Difference Items Portion in total assets of At the end of term 2007- At the end of term 2006 Notes receivable 1,676,684,054.95 7.62% 939,705,242.42 4.57% 3.05% Account receivable 1,660,020,696.84 7.54% 1,720,291,295.31 8.37% -0.83% Inventories 1,744,492,612.36 7.93% 1,841,184,203.10 8.96% -1.03% Property investment 29,902,980.19 0.14% 30,601,525.68 0.15% -0.01% Long-term share equity 96,289,936.43 0.44% 85,801,487.18 0.42% 0.02% investment Fixed assets 13,243,156,039.93 60.17% 9,523,489,397.32 46.32% 13.84% Construction in process 904,753,634.02 4.11% 4,111,992,678.09 20.00% -15.89% Bank loan 8,317,941,137.54 37.79% 6,575,783,590.76 31.99% 5.80% Other current liability 506,212,916.67 2.30% 2,026,019,444.42 9.85% -7.55% About the major factors of the changes (1) Note receivable: In the report term, the Company’s 300K ton SC-paper line was put into production, the productivity was expanded. For those frequent buyers, the Company used relative looser payment conditions. Short-term acceptance drafts are acceptable from lump-sum buyers with tight money. (2) Fixed assets: In the report term ,the 300K ton SC-paper line and 180K ton LWC paper line were completed and transferred into fixed assets. (3) Construction in process: major change in the report term was caused by operation of the 300K ton SC-paper production line and Jilin Chenming 180K ton LWC paper production line, which have been completed in the report term and transferred into fixed and the construction in process were decreased thereof. Measurement properties adopted by the Company in accounting of main assets: The Company adopts historic costs at the measurement basis, but the followings are measured at fair value: (1) Financial assets accounted at fair value and accounted into current income (See note 2 of the Notes to the Financial Statements) (2) Consumable biological assets (See note 17 of the Notes to Financial Statements) Statement of influence of the change in assets which are accounted at fair value: Items Project Way to obtain Balance at Dec. Balance at Dec. Influence on fair value 31, 2007 31, 2007 current income Transactional Derivate Quotation of 5,955,480.00 5,955,480.00 financial assets financial financial instrument organization Consumable Consumable Note (1) 92,159,871.29 19,514,433.24 24,415,400.31 biological assets forestry assets For transactional financial assets and consumable biological assets, the Company adopts the following methods in estimation of fair values: (1) Derivate financial instruments: the fair value of long-term foreign currency contracts are decided at the difference between the current value of contract price and the current price. The Company adopts the difference of 13 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 exchange rate in the contract and the exchange rate at the same deliver day with December 31, 2007. (2) Consumable biological assets: Independent appraisal agent will take the location of the biological assets, and the price in the active market in Zhanjiang and Fujian to decide the market value of the wood. In estimation of the future cash flow, they will consider the following factors: 1) Nominal price of the predicted harvest. 2) Predicted wood income will depend on the experts opinion and judgment on the anticipated wood stock and production rate. 3) Predicted cost of raising the existing biological assets. 4) Predicted sales cost will include the harvest cost and shipping costs. (IV) Notes to major change in gain/loss comparing with the previous year in RMB Increase (+) and Items Accumulated this year Accumulated last year decrease (-) Turnover 15,164,742,450.26 11,983,464,568.89 26.55% Operation cost 12,074,481,475.02 9,708,209,802.96 24.37% Operation profit 3,072,406,550.44 2,255,727,027.63 36.2% Operational expenses 783,289,341.85 678,174,266.91 15.50% Administrative expense 530,820,858.29 516,548,939.45 2.76% Financial expenses 392,163,050.56 451,449,468.40 -13.13% Investment income -9,461,550.75 80,100,746.64 -111.81% Income tax expenses 270,795,013.27 100,741,186.90 168.80% Net profit attributable to the shareholders of the 967636172 .39 356907182.90 171.12% parent co. Major factors about the changes (1) For changes of turnover, business costs, business profit and net profit attributable to the shareholders of the parent company please see the 1st part of Overall business situation in the report term. (2) Operation costs increased by 105.12 million, which was a 15.5% over the same period of last year. Which was caused by increasing of freights. (3) Financial expenses has decreased by RMB59.29 million, which was a decrease of 13.13% from the same period of previous year, which was caused by appreciation of RMB and movement of foreign currency rates, thus the exchange gain has increased. (4) Investment income has decreased by RMB89.56 million, which has decreased by 111.81%. This was caused by gains from disposal of controlled subsidiaries in 2006. (5) Income tax expenses has increased by RMB170.05 million, which has increased by 168.8%. This was caused by operation of the new projects and the sales and gross profit have increased thereof. 14 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 (V) Cash flow generated by business operation in the report term In RMB Yuan Items Current term Same period of last term Increase (+) and decrease (-) Net Cash flow generated by business operation 31.3% 1,324,263,125.01 1,008,558,176.84 Net cash flow from investment -977,001,495.03 -2,798,207,813.23 65.08% Net cash flow from financing -512,996,336.43 1,652,483,753.34 -131.04% Note: In the cash flow statement, the bank accepted notes received and not expired are not reflected in the “Cash received from providing of goods and services” as cash inflow. Correspondingly, the bank accepted notes not expired are not reflected in the “Cash paid for accepting goods and services” or investment by notes in “Cash paid for purchasing of fixed assets, intangible assets, and other long-term assets”. Major causes of change: (1) Increasing of net cash flow from business operation was caused by operating of the new projects and the profit has increased. (2) Increasing of net cash flow from investment was caused by: most of the investment in the 300K ton SC-paper line and 180K ton LWC paper line was made in 2006. (3) Decreasing of net cash flow from financing was caused by proceeds of the short-term bonds of RMB2 billion issued in 2006 was received in the report term. (V) Cash flow generated by business operation in the report term In RMB Yuan Items Current term Same period of last term Increase (+) and decrease (-) Cash received from providing of goods and services 17,559,157,609.86 10,769,181,718.98 63.05% Tax returned 75,372,967.36 10,902,714.70 591.32% Other cash inflow related to operation 118,630,782.11 190,595,684.89 -37.76% Sub-total of cash inflow from business activities 17,753,161,359.33 10,970,680,118.57 61.82% Cash paid for purchasing of merchandise and services 13,113,761,335.78 8,003,818,969.28 63.84% Cash paid to or paid for the employees 456,658,601.33 412,570,576.56 10.69% Taxes paid 1,093,026,679.69 836,855,006.21 30.61% Other cash paid related to operation 897,589,922.49 708,877,389.68 26.62% Sub-total of cash outflow from business activities 15,561,036,539.29 9,962,121,941.73 56.20% Net Cash flow generated by business operation 2,192,124,820.04 1,008,558,176.84 117.35% 15 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 (VI) Business performance of major controlled subsidiaries Business Share Registered Capital Name of the subsidiary Main products Net profit Property portion capital scale Wuhan Chenming Paper Holding paper Writing paper, news 50.93% 21,136.70 213,739.13 15,275.62 Ltd. making paper Shandong Chenming Paper Group paper 100% Kraft liner paper 37,620.00 126,224.85 11,468.68 Qihe Paper Board Ltd. making Shandong Chenming Power Plant power production and sales of 51% 9,955.31 73,296.58 8,086.07 Ltd. plant power and heat paper News paper and light Jilin Chenming Paper Co., Ltd. 100% 40,000 225,109.27 -6,294.09 making coated paper paper Chibi Chenming Paper Ltd. 35.7883% Duplex press paper 17,741.94 46,619.70 5,191.18 making paper USD172 mil. Jiangxi Chenming Paper Ltd. 51% coated paper 365,973.93 15,107.88 making Pulp and chemistry Yanbian Chenming Paper Ltd. Pulp 76.73% 8163.3 34,715.82 4,922.03 products (VII) Statement on single subsidiary whose net profit (or investment gains) takes over 5% of the Company’s net profit In RMB 10 thousand Major business Main business Net profit attributable Portion in the Name of companies Net profit turnover profit to the Company Company’s net profit % Wuhan Chenming Paper 164,181.19 33,200.18 15,275.62 7,779.87 8.04% Holding Ltd. Shandong Chenming Paper 157,808.9 25,186.29 11,468.68 11,468.68 11.85% Group Qihe Paper Board Ltd. Jiangxi Chenming Paper Ltd. 193,572.28 36,488.04 15,107.88 7,705.02 7.96% II. Prospect 1. Industrial trend and future development plan The Company is engaged in paper making industry of light industry. As one of the important basic material industry, paper-making industry is featured high-tech, capital intensive, and large scale. At present, the domestic paper industry is in the stage of high speed development, the annual consuming of paper is growing faster along with the growth of GDP. In June 2007, the national government has produced the “Overall plan of energy saving and pollution reducing”, which said that 6.5 million ton of the out-of-date paper mills will be closed down in the period of “11th 5-year-plan”. In which, 2.3 million will be closed in 2007. At the end of October 2007, National Development and Reformation Committee released the “Paper-Making Industry Development Policies”, which setout detailed rules for the development target, administrative mechanism, development pattern, structural adjustment, resource saving, environment protection, investment activities, market entrance, market administration and consumer ideology. These have provided powerful support for better market order and merit development environment. As the judgment of the executive of the Company, the whole industry will have these main features in coming years: domestic paper-making industry is in merit development, and the GDP of the country will keep growing at a high and steady speed, this will bring better prospect for the whole industry; as the second large producer and consumer country, the average consuming of paper products is far lower than those developed countries. Thus paper making industry has plenty room of development. At present the domestic paper industry is primarily 16 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 moving toward large scale, specialization, and globalisation. Integration of forestry, pulp, and paper-making will be the future trend of the industry. As the leading paper mill enterprise, the Company will expand its global market share and realize integration of forestry, pulp-making and paper-making. To keep the Company’s productivity in a constant growth, the management of Chenming figured out the following policies: (1) Break through the bottleneck of raw material supplying, enforce cost control Attaches great importance to the construction of Zhanjiang Project. The 3000 thousand MU forest base project in Zhanjiang has been pushed forward on schedule, the preparation works have basically accomplished, and the constructions will be started in the 1st half of 2007. Upon accomplish of the project, the raw material structure of the Company will be formed mainly by self-made pulp and wasted paper as the secondary input. The imported pulp will be further decreased, which will release the Company from the restriction of upriver resources. This will strongly support the consistent growth of the Company and has an strategic influence on the Company’s future. (2) Devote in developing of high-end product developing and production, lift up domestic and overseas market share Depending on the national level R&D center and Post-doctorial workstation, the Company will further reinforce the R&D in developing of new products and improving of quality. Reinforce overall cooperation with international manufacturers, to introduce advanced administration, production and sales experiences. Keep enlarge the investment to expand productivity, construct several high-tech production lines to lift up product class, push the company up to the leading row in the global industry. (3) Attach great importance to environmental protection and target on energy saving and concordance development The Company keeps promoting the concept of “environment protection prior to the development of enterprise”, aiming to make the Company an energy efficiency and environment friendly enterprise. Along with the enforcing of environment related national policies, the Company will accelerate the construction of recyclable economy with focusing on material recycling and pollution control. (4) Keep increase business operation efficiency The Company will further optimize the production flow and equipment, expand productivity and quality. Further improve management system including consolidated sales and purchase system, as well as the consolidation of financial instruments to lower financial costs. (5) Fully adopt the advantage of capital operation, realize low cost expanding The paper industry of China is now in the process of integration. For purpose of rapid expanding at low costs, and fully use the advantage of capital operation, the company will keep searching for appropriate object to takeover or merger to serve the Company’s geographic layout. 2. Business plan for year 2008 The management believes that, following with the elimination of out-of-date productivities and enforce of energy policies, and many other factors such as the Olympic Games in Beijing, the prospect of the industry will still at an inclining trend. It will be another year of rapid growth. According to the Company’s development strategy, 2008 will be the year to switch to the fast lane of development and structural adjustment. Issuing of H shares will be one of the focuses. The target will be output and sales of over 3 million ton, revenue of RMB18 billion, and RMB1.8 billion of operation profit. (1) Accelerate structural adjustment Adjustment will be done on products with lower value adding and higher energy consuming. Those out-of-date equipment and technologies will be eliminated. Construction of new projects will be accelerated to lift up the class of product lines. Research will be reinforced to introduce new project reserves. (2) Reinforce innovation Against the national level R&D center and post-doctorial workstation, along with the cooperation with international leading manufacturers, the Company will fully accelerate the introducing of global state-of-art 17 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 technologies and resources. Reconstruction of the pulp making lines will be accelerated to further optimize the raw material structure. New products such as direct coat paper, Semigloss Paper, re-stickable paper, decoration paper, original wall paper, and SC-B paper. (3) Reinforce energy saving and pollution reduction Attach great importance to water consuming reduction. New techniques and equipment will be employed to increase recycling of water. The 30K ton/ day wastewater processing yard will be well managed to increase water recycling rate. It will be promoted to the whole company as soon as the project is mature. Processing of solid pollution wastes will also be reinforced and target at saving 44.6K ton standard coal, and energy consuming on RMB10 thousand will be reduced by 5% from that of the 2007. (4) Accelerating of the integration of forestry, pulp making, and paper making Carefully organize and coordinate to speedup the construction of Zhanjiang Chenming project. Target is set on accomplishing 80% of equipment contracting and 20% of installation. Forest construction will be increased by 400K Mu. A production chain will be formed with forestry, pulp, and paper making. (5) Reinforce trademark promotion and expanding of domestic and overseas markets Enforce marketing by lifting up qualities to the best level of the industry. Along with cooperation with global leading manufacturers, the Company will reinforce the establishing of a global sales network. (6) Reinforce capital operation, carry forward issuing of H shares To support the construction of pulp project in Zhanjiang, the Company will further develop financial resources. It has been decided to issue H shares. The Board of Directors will manage the preparation works according to the authorization by the Shareholders’ Meeting. This financing approach will significantly improve the Company’s capital-liability layout, and completely satisfy the need of capital in construction of pulp project in Zhanjiang. It will inject power to the consistent developing of the Company. 3. Risk factors in future development and achieving of business targets To prevent economic overheating, the central government has adopted tight monetary policies. Cash flow problem has become the challenging factor and will therefore accelerate integration of the paper-making industry. The Company will properly use its good reputation and wide financial resources to resolve the risks brought by tight monetary policies. 4. Future requirements of capital, resources and application plans Following with the expanding of business scale, especially the construction of Zhanjiang Project with investment of RMB9.432 billion. The Company will face a rapid growing of demand in capital input. As one of the largest paper-making enterprise with A and B shares issued to the market, the Company has merit reputation and wide financial resources. (1) When the proposal of issuing H shares was adopted by the Shareholders’ Meeting, the Board of Directors will go all out to carry forward the works. It is expected to obtain HKD3 billion of proceeds through issuing of the H shares, and 90% of the proceeds will be used in Zhangjiang project. (2) A bank group led by National Development Bank will provide RMB6 billion of long-term loans which will support the construction of Zhanjiang project. (3) Reinforce market and sales force. Along with expanding of sales, the Company will speedup capital circulation by clearing of debts. (4) To satisfy the need of operation of the controlled subsidiaries, the Company has applied for RMB18.05 billion of loans. (5) By issuing of short-term bonds to banks, the Company will further reduce financial costs and optimize the liability structure and support the working capital. 18 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 6.2 Principal businesses distribution on industries/products In RMB 10 thousand Yuan Distribution on industries Change of Change of Operation profit Change of cost operation profit On industry or product Turnover Operation cost income over last ratio over last year % ratio over last year % year % Machine-made paper 1,385,561.05 1,104,007.94 20.32% 28.53% 26.22% 1.45% Power and heating 6,899.59 5,892.48 14.60% 15.22% 94.55% -34.82% Construction materials 86,990.96 72,736.37 16.39% 6.39% 7.85% -1.13% Chemical products for 9,200.41 4,589.15 50.12% 22.31% -19.73% 26.12% paper making Paper machines 0.00 0.00 0.00% 0.00% 0.00% 0.00% Others 1,020.95 749.53 26.59% 5,082.70% 53.71% 4.91% Distribution on products Lightweight coated paper 188,980.93 153,716.55 18.66% 5.07% 3.50% 1.24% Duplex press paper 207,208.52 161,857.60 21.89% 23.70% 20.66% 1.97% Writing paper 25,327.34 19,487.61 23.06% -30.98% -29.64% -1.47% Art paper 231,166.53 177,418.22 23.25% 22.44% 20.03% 1.54% News press paper 198,152.39 160,148.88 19.18% 97.43% 97.94% -0.21% Paperboard 91,694.42 76,724.80 16.33% 18.21% 17.75% 0.33% White paper board 235,138.35 193,050.77 17.90% 18.12% 16.93% 0.83% 6.3 Major businesses distribution on regions In RMB 10 thousand Yuan Regions Turnover Change of income over last year % Mainland China 1,155,036.02 30.40% US 25,006.27 -25.62% HK 30,326.07 42.06% Japan 33,418.94 -14.39% South Africa 29,253.01 26.80% Other countries 112,520.73 49.70% Total 1,385,561.05 28.53% 6.4 Using of proceeds from financing actions □applicable √ not applicable Changing of projects □applicable √ not applicable 19 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 6.5 Using of fund from other sources √ applicable □ not applicable In RMB 10 thousand Yuan Amount of the Projects Investment progress of the project Turnover of the project project 300K ton SC-paper As of the end of the report term, the investment accomplished was Realized RMB113,597,000 of project and auxiliary 392,600.00 RMB3.095 billion. The production line has been put into operation net profit in the report year. projects As of the end of report term, RMB218 million of investment has 120K ton art paper Not put into production in the 38,000.00 accomplished. At present the project is in equipment installation project Report Term stage, and will be put into operation in June 2008. 98K ton waste paper As of the end of report term, RMB193 million has been invested Not put into production in the 34,000.00 deink pulp project and the project will be put into operation in January 1 2008. Report Term As of the end of report term, RMB118 million has been invested, Not put into production in the Yujing Hotel project 23,000.00 and the hotel will launch for business in April 2008. Report Term As of the end of the report term, the investment accomplished Jilin 180K ton light Net profit realized in the report 80,000.00 was RMB836 million. The 30 SC-paper production line has coat paper term was RMB55.31 million. been put into operation Total 567,600.00 - - 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 As audited by Deloitte Touche Tohmatsu CPA Ltd., for year 2007, the net profit in the consolidated statements was RMB1,218,541,189.29, in which the net profit attributable to the shareholders of the parent company was RMB967,636,172.39, the net profit in the parent company statements was RMB810,513,519.05. According to the Articles of Association, RMB81,051,351.9 was provided as statutory reserves, thus the distributable profit realized in year 2007 was RMB886,584,820.49, less dividend paid for year 2006 of RMB204,761,512.92, plus the retained profit of RMB1,894,827,041.81 at the beginning of year after adjusted, the distributable profit at this time was RMB2,576,650,349.38. Upon the total capital shares of 1,706,345,941, RMB1.6 (tax included) of cash dividend will be distributed to each 10 shares. Totally RMB273,015,350.56 (tax included) will be distributed. Accounted of 30.79% of the of the net profit attributable to the shareholders of the Company in the consolidated financial statements after deducting of statutory reserves, and 37.43% of the net profit of the parent company’s financial statements after deducting of statutory reserves. The Balance of RMB2,303,634,998.82 will be retained over to next year. No cash dividend proposal was raised though the Company is making profit for the report term. □applicable √ not applicable §7 Significant Events 7.1 Acquisition □applicable √ not applicable 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 20 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 7.3 Significant Guarantees √ applicable □ not applicable In RMB 10 thousand Yuan External Guarantee (Exclude controlled subsidiaries) Guarantee provided Amount Type of Completed Date of contract Term Related party or not to guaranteed guarantee or not Total occurred in the report term 0.00 Total of balance of guarantee at the end of 0.00 report term Guarantee provided to controlled subsidiaries Total of guarantee provided to subsidiaries in 53,862.47 the report term Total of balances of guarantees to the 90,282.47 subsidiaries at the end of report term Total of guarantee (including provided to controlled subsidiaries) Total of guarantees 90,282.47 Proportion of the total guarantee in the net 10.32% asset of the Company Including: Guarantee provided to shareholders, 0.00 substantial controller and their related parties Total of guarantee provided directly or indirectly to parties with liability/asset ratio 34,191.38 over 70% Guarantees totalled over 50% of the net asset 0.00 Total of the above 3 items 90,282.47 7.4 Significant Related Transactions 7.4.1 Related transactions regarding normal operation □applicable √ not applicable 7.4.2 Related credit and debt transaction □applicable √ not applicable 7.4.3 Capital adoption and clearance in year 2007 □applicable √ not applicable Capital adoption newly occurred in 2007 □applicable √ not applicable If the clearance of non-business adoption of capital is not finished up to the end of 2007, please provide reasons and plans for it. □applicable √ not applicable 7.5 Financing proxy √Applicable □ Non-applicable Amount Term of entrust Practical gains Consignee Mean of reward Practical gains entrusted Started on Expired on collected 21 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 At contract interest China Merchants Bank 248,900.00 Jul 26 2006 May 25 2017 13,086.00 13,086.00 rate Total 248,900.00 - - - 13,086.00 13,086.00 Note: In the report term, to save financial costs and increase revenue, and regulate capital transaction with the controlled subsidiaries. The Company provided capital of RMB2.489 billion to Jilin Chenming, Wuhan Chenming, and Yanbian Chenming through banks in term of entrusted loans. For details please see Note 10. Including: As of the end of report term, the principal and gains not receivable were accumulated to RMB0.00. 7.6 Fulfilling of consent issues √ applicable □ not applicable The share relocation plan has been accomplished on March 29th 2006, Shouguang State-owned Asset Administration Bureau and other holders of non-negotiable shares will pay part of their shares to A-share holders at 2.6 shares upon each 10 shares. In the report term, Shouguang State-owned Asset Administration Bureau was replaced by Shouguang Chenming Share Holding Co., Ltd. as the controlling shareholder of the Company. Shouguang Chenming Share Holding Co., Ltd. has committed to carry forward the commitments made by Shouguang State-owned Asset Administration Bureau, which are: 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 on consideration price at the day next to the registration day. Shouguang State-owned Asset Bureau shall transfer the shares at ratio of 5% of the total A shares upon the closing of market at the 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 Chenming Share Holding Co., Ltd. shall not put the shares in market in 48 months from the launching of share relocation plan. 3. Whenever the share equity relocation scheme was approved, Shouguang Chenming Share Holding Co., Ltd. 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. In the report term, the controlling shareholder was fulfilling the commitment made for the relocation plan. All of the shares held are conditional negotiable shares. The shareholding status is not changed comparing with the negotiable day of the conditional shares. 7.7 Material Lawsuits/Arbitrations √ applicable □ not applicable 1. In the report term, the Company raised lawsuit against Foshan Shunde Xingchen Paper Co., Ltd. (referred as “Xingchen Paper” hereinafter). Upon careful investigation, the Company has raised lawsuit against this company, and adopted certain legal measures to retrieve the accounts. At present, Shandong Shouguang People’s Court has issued Civil Mediation Agreement and Civil Judgment to require Xingchen Paper to pay the debts of RMB8.1323 million, RMB7.2808 million, and RMB26.7618 million respectively and the overdue penalties. The Company is doing its best to retrieve the debts through lawsuit and mediation actions. In the report term, the Company has provided bad debt provisions amounted to RMB89 million. Details are available in the announcements released with China Securities Journal, Hong Kong Commercial Daily and http://www.cninfo.com.cn on July 10th 2007. 2. Lawsuit raised in previous years: in the report term, Shandong Provincial High Court has issued the civil judgment and the Company is judged to pay the contractors RMB689.6 thousand and related interests. The company has appealed again to the high court. This issue has been disclosed in annual report 2004. 7.8 Notes to the other Significant Events and their Influences and Analysis on the Solutions 7.8.1 Securities investment □applicable √ not applicable 22 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 7.8.2 Holding of shares of other listed companies □applicable √ not applicable 7.8.3 Holding of shares of non-public financial entities □applicable √ not applicable 7.8.4 Trading of shares of other listed companies □applicable √ not applicable §8 Report of the Supervisory Committee √ applicable □ not applicable I. Performing of duties In the report term, the whole supervisors were performing there duties in accordance with the Company Law, the Articles of Association, Meeting Criteria of Supervisory Committee, and under the principle of diligent. They monitored the legal operation of businesses, finance, and related transactions of the Company and inspected the subsidiaries regarding their accounting, purchasing of raw materials, sales of goods, and related transactions. They have been supporting the legal operation and healthy development of the Company. II. Meetings of the Supervisory Committee 1. The 8th meeting of the 4th term of Committee was held on April 6, 2007. The proposal about the Annual Report 2006, proposal on initial figures of financial statement of year 2006 under IAS, and proposal to elect the new term of Supervisory Committee. Resolutions were announced by China Securities Journal, Hong Kong Commercial Daily and www.cninfo.com.cn dated April 10, 2007. 2. The 1st meeting of the 5th term of Supervisory Committee was held on April 30, 2007. Proposals adopted at the meeting were the election of Chairman of Committee and the Supervisory Committee Meeting Criteria. Resolutions were announced by China Securities Journal, Hong Kong Commercial Daily and www.cninfo.com.cn dated May 9, 2007. 3. The 2nd meeting of the 5th term of Supervisory Committee was held on August 23, 2007. The Interim Report 2007 was examined at the meeting. 4. The 3rd meeting of the 5th term of Supervisory Committee was held on October 28, 2007. The 3rd Quarterly Report 2007, the proposal about leasing the assets of Heilongjiang Sida Paper Co. ,Ltd. were examined at the meeting. Resolutions were announced by China Securities Journal, Hong Kong Commercial Daily and www.cninfo.com.cn dated October 30, 2007. III. Independent opinions of the Supervisory Committee 1. Operation According to the Law (1) In the report term, the Company has been conducting its businesses according to the Company Law, Securities Law, Articles of Association and relative national regulations. Information disclosures were conducted under the principles of truthfulness, completeness, accuracy, and duly. No false or misleading information was released. (2) The Board of Directors and the executives have undertaken all of the rights and responsibilities setout by the Company Law, Securities Law, and the Articles of Association, fully executed the resolutions adopted by the Shareholders’ Meeting and Board of Directors. The decision-making processes and business operations were legal. A mature internal control system has been established. No illegal behaviour was found which offends the interests of the Company. 2. Inspection on finance Deloitte Touche Tohmatsu CPA Ltd. has issued the Standard Auditors’ Report without qualified opinion on the Financial Statements of the Company. The committee deems that the auditors’ reports is reflecting the financial status and business results of the company frankly, objectively, and justly. 3. Using of proceeds from share placing. In the report term, the proceeds from the latest financing action were used in accordance with the descriptions of the Placing Prospectus. No investment has been made to projects other than that of set by the prospectus. 4. Purchasing or disposing of assets In the report term, the Company incorporated Fuyu Chenming Paper Co., Ltd., and leased the assets of Heilongjiang Sida Paper Co., Ltd. for 2 years. This transaction was conducted with fairness and justice, and fair price. No under-table trade or offending the interests of the Company or the shareholders happened. 5. Related transactions Related transactions occurred during the report term was on a fair and reasonable base, harmed no benefit of the company. 23 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 §9 Financial Report 9.1 Auditor’s Opinion Auditor’s Report Standard report without qualified opinion Auditors’ Report 9.2 Financial Statements 9.2.1 Balance Sheet Prepared by: Shandong Chenming Paper Holdings Co., Ltd. Ended December 31, 2007 RMB Yuan At the end of term Beginning of term Items Consolidated Parent company Consolidated Parent company Current asset: Monetary fund 740,621,843.91 348,948,724.68 826,269,791.68 431,939,246.80 Settlement provision Outgoing call loan Trading financial assets 5,955,480.00 Notes receivable 1,676,684,054.95 998,809,409.00 939,705,242.42 530,093,631.70 Account receivable 1,660,020,696.84 1,466,109,588.60 1,720,291,295.31 1,507,460,934.43 Prepayment 574,014,801.43 279,890,382.88 499,099,133.80 240,994,361.18 Insurance receivable Reinsurance receivable Provisions of Reinsurance contracts receivable Interest receivable Dividend receivable 42,933,862.14 11,192,644.92 Other account receivable 196,162,672.11 776,521,148.45 139,917,156.53 1,186,663,494.27 Repurchasing of financial assets Inventories 1,744,492,612.36 721,354,749.54 1,841,184,203.10 767,688,945.32 Entrusted loans due in 1 year 1,864,000,000.00 Non-current asset due in 1 year Other current asset Total of current asset 6,597,952,161.60 6,498,567,865.29 5,966,466,822.84 4,676,033,258.62 Non-current assets Entrusted loan 625,000,000.00 1,934,000,000.00 Loans and payment on other’s behalf disbursed Disposable financial asset Expired investment in possess Long-term receivable Long-term share equity investment 96,289,936.43 2,194,652,949.31 85,801,487.18 2,016,138,436.26 Property investment 29,902,980.19 29,902,980.19 30,601,525.68 30,601,525.68 Fixed assets 13,243,156,039.93 6,555,767,873.32 9,523,489,397.32 3,908,343,238.61 Construction in process 904,753,634.02 275,351,308.78 4,111,992,678.09 2,949,824,756.28 Engineering material 44,433,213.61 6,850,752.92 22,009,470.38 8,821,504.25 Fixed asset disposal Production physical assets Gas & petrol Intangible assets 822,301,826.32 377,022,979.83 691,526,824.69 279,673,932.07 R&D expense Goodwill 20,283,787.17 20,283,787.17 Long-term prepaid expenses 56,513,234.75 48,744,147.79 Differed income tax asset 103,361,571.98 72,516,429.65 38,129,986.39 38,386,721.36 Consumable biological asset 92,159,871.29 19,514,433.24 Other non-current asset Total of non-current assets 15,413,156,095.69 10,137,065,274.00 14,592,093,737.93 11,165,790,114.51 Total of assets 22,011,108,257.29 16,635,633,139.29 20,558,560,560.77 15,841,823,373.13 Current liabilities Short-term loans 3,594,000,057.28 3,350,420,391.17 1,298,654,533.79 883,743,888.55 24 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 Loan from Central Bank Deposit received and hold for others Call loan received Trade off financial liabilities Notes payable 130,056,316.74 121,487,222.14 47,201,892.31 Account payable 1,656,706,980.62 1,332,552,331.70 1,511,968,573.51 1,385,033,481.89 Prepayment received Account received in advance 170,286,629.21 92,126,887.49 193,388,136.60 147,372,278.27 Selling of repurchased financial assets Fees and commissions receivable Employees’ wage payable 234,880,219.06 119,224,432.42 158,086,526.80 89,211,807.99 Tax payable 102,444,450.86 100,151,250.80 76,276,789.18 25,901,541.84 Interest payable Dividend payable 36,075.17 36,075.17 699,815.30 699,815.30 Other account payable 305,050,016.38 278,838,344.66 305,164,253.22 291,092,497.92 Reinsurance fee payable Insurance contract provision Entrusted trading of securities Entrusted selling of securities Non-current liability due in 1 year 667,746,417.91 586,144,500.00 249,100,117.61 201,540,000.00 Short-term financing bonds payable 506,212,916.67 2,026,019,444.42 2,026,019,444.42 Other current liability Total of current liability 7,367,420,079.90 5,980,981,435.55 5,866,560,082.74 5,050,614,756.18 Non-current liabilities Long-term borrowings 4,056,194,662.35 2,899,617,835.94 5,028,028,939.36 3,713,779,535.94 Bond payable 1,769,029,413.28 1,769,029,413.28 Long-term payable Special payable Expected liabilities Differed income 830,000.00 5,690,000.00 1,000,000.00 Differed income tax liability 6,103,850.08 Other non-recurring liabilities Total of non-current liabilities 4,063,128,512.43 2,899,617,835.94 6,802,748,352.64 5,483,808,949.22 Total of liability 11,430,548,592.33 8,880,599,271.49 12,669,308,435.38 10,534,423,705.40 Owners’ equity (or shareholders’ equity) Practical capital collected (or share capital) 1,706,345,941.00 1,706,345,941.00 1,365,670,155.00 1,365,670,155.00 Capital reserves 3,737,991,906.21 3,827,378,359.74 2,248,456,018.32 2,326,171,951.80 Less: Shares in stock Surplus reserves 723,742,920.58 711,553,338.67 642,691,568.68 630,501,986.77 Common risk provision Retained profit 2,576,650,349.38 1,509,756,228.39 1,894,827,041.81 985,055,574.16 Different of foreign currency translation 303,894.68 -2,440.00 Total of owner’s equity belong to the parent company 8,745,035,011.85 7,755,033,867.80 6,151,642,343.81 5,307,399,667.73 Minor shareholders’ equity 1,835,524,653.11 1,737,609,781.58 Total of owners’ equity 10,580,559,664.96 7,755,033,867.80 7,889,252,125.39 5,307,399,667.73 Total of liabilities and owners’ equity 22,011,108,257.29 16,635,633,139.29 20,558,560,560.77 15,841,823,373.13 25 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 9.2.2 Income Statement Prepared by: Shandong Chenming Paper Holdings Co., Ltd. Jan-Dec 2007 RMB Yuan Current term Same period last year Items Consolidated Parent company Consolidated Parent company I. Total business income 15,164,742,450.26 12,552,589,262.55 11,983,464,568.89 9,995,012,923.32 Incl. Business income 15,164,742,450.26 12,552,589,262.55 11,983,464,568.89 9,995,012,923.32 Interest income Insurance fee earned Fee and commission received II. Total business cost 13,900,807,779.78 11,804,833,303.74 11,409,144,687.97 9,739,841,560.58 Incl. Business cost 12,074,481,475.02 10,887,601,388.35 9,708,209,802.96 8,918,947,928.44 Interest expense Fee and commission paid Insurance discharge payment Net claim amount paid Net insurance policy reserves provided Insurance policy dividend paid Reinsurance expenses Business tax and surcharge 17,854,424.80 282,690.99 19,527,738.30 2,915,266.62 Sales expense 783,289,341.85 397,932,244.92 678,174,266.91 349,623,630.37 Administrative expense 530,820,858.29 210,224,821.41 516,548,939.45 210,126,069.56 Financial expenses 392,163,050.56 303,883,491.96 451,449,468.40 291,318,847.32 Asset impairment loss 102,198,629.26 4,908,666.11 35,234,471.95 -33,090,181.73 Plus: Gains from change of fair value (“-“ for loss) 30,370,880.31 Investment gain (“-“ for loss) -9,461,550.75 222,885,767.76 80,100,746.64 185,604,918.78 Incl. Investment gains from affiliates -9,461,550.75 -9,461,550.75 -447,423.62 -447,423.62 Gains from currency exchange (“-“ for loss) III. Operational profit (“-“ for loss) 1,284,844,000.04 970,641,726.57 654,420,627.56 440,776,281.52 Plus: Non business income 232,218,083.67 47,503,266.20 200,909,734.73 75,281,815.84 Less: Non-business expenses 27,725,881.15 10,417,366.26 239,639,605.01 234,698,849.20 Incl. Loss from disposal of non-current assets 27,181,945.34 10,400,342.17 7,988,440.80 4,412,413.20 IV. Gross profit (“-“ for loss) 1,489,336,202.56 1,007,727,626.51 615,690,757.28 281,359,248.16 Less: Income tax expenses 270,795,013.27 197,214,107.46 100,741,186.90 56,284,478.90 V. Net profit (“-“ for net loss) 1,218,541,189.29 810,513,519.05 514,949,570.38 225,074,769.26 Net profit attributable to the owners of parent 967,636,172.39 810,513,519.05 356,907,182.90 225,074,769.26 company Minor shareholders’ equity 250,905,016.90 158,042,387.48 VI. Earnings per share: (I) Basic earnings per share 0.60 0.50 0.26 0.17 (II) Diluted earnings per share 0.59 0.50 0.43 0.33 26 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 9.2.3 Cash Flow Statement Prepared by: Shandong Chenming Paper Holdings Co., Ltd. Jan-Dec 2007 RMB Yuan Current term Same period last year Items Consolidated Parent company Consolidated Parent company I. Net cash flow from business operation Cash received from sales of products and 15,346,933,191.88 14,486,782,584.79 10,769,181,718.98 7,739,197,098.18 providing of services Net increase of customer deposits and capital kept for brother company Net increase of loans from central bank Net increase of inter-bank loans from other financial bodies Cash received against original insurance contract Net cash received from reinsurance business Net increase of client deposit and investment Net increase of trade financial asset disposal Cash received as interest, processing fee, and commission Net increase of inter-bank fund received Net increase of repurchasing business Tax returned 75,372,967.36 10,902,714.70 Other cash received from business operation 118,085,044.97 539,291,856.66 190,595,684.89 895,513,753.64 Sub-total of cash inflow from business 15,540,391,204.21 15,026,074,441.45 10,970,680,118.57 8,634,710,851.82 activities Cash paid for purchasing of merchandise and 11,811,905,431.94 12,261,934,180.86 8,003,818,969.28 6,333,971,738.70 services Net increase of client trade and advance Net increase of savings in central bank and brother company Cash paid for original contract claim Cash paid for interest, processing fee and commission Cash paid for policy dividend Cash paid to staffs or paid for staffs 487,126,693.03 180,749,301.33 412,570,576.56 155,608,913.68 Taxes paid 1,039,124,100.69 561,696,003.74 836,855,006.21 316,469,932.96 Other cash paid for business activities 877,971,853.54 470,013,272.89 708,877,389.68 627,528,747.98 Sub-total of cash outflow from business 14,216,128,079.20 13,474,392,758.82 9,962,121,941.73 7,433,579,333.32 activities Cash flow generated by business operation, 1,324,263,125.01 1,551,681,682.63 1,008,558,176.84 1,201,131,518.50 net II. Cash flow generated by investing Cash received from investment retrieving 620,000,000.00 136,880,491.49 168,742,730.70 Cash received as investment gains 200,606,101.29 555,074.17 136,054,534.00 Net cash retrieved from disposal of fixed assets, 15,746,133.62 962,227.06 6,748,567.10 998,906.35 intangible assets, and other long-term assets Net cash received from disposal of subsidiaries or other operational units Other investment-related cash received 5,610,000.00 1,000,000.00 Sub-total of cash inflow due to investment 15,746,133.62 821,568,328.35 149,794,132.76 306,796,171.05 activities Cash paid for construction of fixed assets, 884,022,116.21 677,874,762.20 2,814,159,750.79 1,981,383,117.12 intangible assets and other long-term assets Cash paid as investment 108,725,512.44 1,338,426,063.80 133,842,195.20 2,517,353,310.00 Net increase of loan against pledge Net cash received from subsidiaries and other operational units Other cash paid for investment activities Sub-total of cash outflow due to investment 992,747,628.65 2,016,300,826.00 2,948,001,945.99 4,498,736,427.12 activities Net cash flow generated by investment -977,001,495.03 -1,194,732,497.65 -2,798,207,813.23 -4,191,940,256.07 III. Cash flow generated by financing Cash received as investment 37,554,000.00 25,500,000.00 Incl. Cash received as investment from minor 27 Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 shareholders Cash received as loans 8,076,267,182.50 6,241,624,261.50 9,631,688,684.69 7,848,743,769.78 Cash received from bond placing 496,965,000.00 2,000,000,000.00 1,992,000,000.00 Other financing-related cash received Subtotal of cash inflow from financing 8,610,786,182.50 6,241,624,261.50 11,657,188,684.69 9,840,743,769.78 activities Cash to repay debts 6,137,101,438.52 4,053,206,228.24 9,278,895,054.00 6,545,880,803.36 Cash paid as dividend, profit, or interests 897,534,770.36 620,902,705.10 675,860,480.85 408,771,000.37 Incl. Dividend and profit paid by subsidiaries to minor shareholders Cash paid for short-term bonds 2,000,000,000.00 2,000,000,000.00 Other cash paid for financing activities 89,146,310.05 117,291,492.65 41,949,396.50 Subtotal of cash outflow due to financing 9,123,782,518.93 6,791,400,425.99 9,996,704,931.35 6,954,651,803.73 activities Net cash flow generated by financing -512,996,336.43 -549,776,164.49 1,660,483,753.34 2,886,091,966.05 IV. Influence of exchange rate alternation on cash and -4,759,232.11 -3,154,716.00 16,333,899.38 3,137,355.62 cash equivalents V. Net increase of cash and cash equivalents -170,493,938.56 -195,981,695.51 -112,831,983.67 -101,579,415.90 Plus: Balance of cash and cash equivalents at the 784,320,395.18 431,939,246.80 897,152,378.85 533,518,662.70 beginning of term VI. Balance of cash and cash equivalents at the end of 613,826,456.62 235,957,551.29 784,320,395.18 431,939,246.80 term 28 Shandong Chenming Pape 7.2.4 Change in Owners’ Equities Prepared by: Shandong Chenming Paper Holdings Co., Ltd. Ended December 31, 2007 RMB Yuan Amount of the Current Term Owners’ Equity Attributable to the Parent Company Owners’ Equity Attributab Less: Minor Less: Items Practical capital Common Total of owners’ Practical capital Shares Surplus shareholders’ Shares Su collected (or Capital reserves risk Retained profit Others equity collected (or Capital reserves in reserves equity in re share capital) provision share capital) stock stock I. Balance at the end of 1,365,670,155.00 2,248,456,018.32 642,691,568.68 1,894,827,041.81 -2,440.00 1,737,609,781.58 7,889,252,125.39 1,353,539,920.00 1,824,530,228.15 616,1 last year Plus: Change of 132,268,797.96 -35,1 accounting policy Correcting of previous errors II. Balance at the 1,365,670,155.00 2,248,456,018.32 642,691,568.68 1,894,827,041.81 -2,440.00 1,737,609,781.58 7,889,252,125.39 1,353,539,920.00 1,956,799,026.11 581,0 beginning of current year III. Changed in the current 340,675,786.00 1,489,535,887.89 81,051,351.90 681,823,307.57 306,334.68 97,914,871.53 2,691,307,539.57 12,130,235.00 291,656,992.21 61,6 year (“-“ for decrease) (I) Net 967,636,172.39 250,905,016.90 1,218,541,189.29 profit (II) Gains/losses accounted 1,000,000.00 306,334.68 1,306,334.68 into owners’ equity directly 1. Change in fair value of sellable financial assets, net 2. Influence of change in other owners’ equity of invested enterprises on equity basis 3. Influence of income tax Shandong Chenming Pape related to owners’ equity items 4. 1,000,000.00 306,334.68 1,306,334.68 Others Total of (I) 1,000,000.00 967,636,172.39 306,334.68 250,905,016.90 1,219,847,523.97 and (II) (III) Investment or decreasing 340,675,786.00 1,488,535,887.89 37,554,000.00 1,866,765,673.89 12,130,235.00 291,656,992.21 of capital by owners 1. Investment 37,554,000.00 37,554,000.00 by owners 2. Amount of shares paid and 229,399,276.97 accounted as owners’ equity 3. 340,675,786.00 1,488,535,887.89 1,829,211,673.89 12,130,235.00 62,257,715.24 Others (IV) Profit 81,051,351.90 -285,812,864.82 -139,553,201.91 -344,314,714.83 61,6 allotment 1. Providing of 81,051,351.90 -81,051,351.90 61,6 surplus reserves 2. Providing of common risk provisions 3. Allotment to the owners -204,761,512.92 -139,553,201.91 -344,314,714.83 (or shareholders) 4. Others (V) Internal transferring -50,990,943.46 -50,990,943.46 of owners’ equity 1. Capitalizing of capital reserves (or to capital shares) 2. Capitalizing of surplus reserves (or to capital shares) 3. Shandong Chenming Pape Making up losses by surplus reserves 4. -50,990,943.46 -50,990,943.46 Others IV. Balance at the end of 1,706,345,941.00 3,737,991,906.21 723,742,920.58 2,576,650,349.38 303,894.68 1,835,524,653.11 10,580,559,664.96 1,365,670,155.00 2,248,456,018.32 642,6 this term Shandong Chenming Paper Holdings Ltd. Summary of Annual Report 2007 9.3 Explanation on changes of accounting policies, accounting estimation, and accounting method √ applicable □ not applicable The Company initialized the Enterprise Accounting Standard (2006) since January 1, 2007. Major accounting policies have been demonstrated in Note 4. The Company is a PLC with A shares and B shares in the market. Thus it is required to make financial statements according to domestic accounting standard and IAS. According to “Interpretation of the Enterprise Accounting Standard No.1”, for those trades or events make no difference under the two accounting standards, they are adjusted in the comparative financial statements according to Standard No.38, Article 5-19 and on base of the financial statements provided under IAS. 9.4 Content, amount, reason and impact of major accounting errors □applicable √ not applicable 9.5 Explanation on changes of consolidation range comparing with the previous annual report √ applicable □ not applicable Subsidiaries newly added to the consolidated financial statements 1. Shouguang Chenming Modern Logistics Co., Ltd. As approved by the Ministry of International Trade and Co-operation, Shouguang Chenming Modern Logistics Co., Ltd. was incorporated on March 26, 2007 with registered capital of RMB10 million. The Company is holding 100% of the shares. 2. Chenming Art Paper Co., Ltd. As approved by Shandong Development and Reformation Committee, Shouguang Chenming Art Paper Co., Ltd. was founded by the Company and Arjowiggins HKK2 Limited in Shouguang Shandong with registered capital of USD20 million. In which the Company inputted USD15 million to hold 75% of the shares, while Arjowiggins HKK2 Limited invested RMB5 million to hold 25% of the shares. Its main businesses are manufacturing and sales of the Company’s products. 3. Jilin Chenming Machinery Co., Ltd. Jilin Chenming Machinery Co., Ltd. was incorporated on April 27, 2007 solely by Jilin Chenming Paper Co., Ltd. Registered capital was RMB600 thousand, and Jilin Chenming is holding 100% of the shares. 4. Nanchang Chenming Forestry Co., Ltd. Jiangxi Chenming Paper Co., Ltd., the controlled subsidiary of the Company founded Nanchang Chenming Forestry Co., Ltd. on June 29, 2007 with registered capital of RMB1 million. Jiangxi Chenming Paper Co., Ltd. is holding 100% of the shares. 5. Fuyu Chenming Paper Co., Ltd. Fuyu Chenming Paper Co., Ltd. was incorporated by the Company on October 15, 2007 with registered capital of RMB20 million. The Company is holding 100% of the shares. 32