本钢板Ｂ(200761)2008年年度报告（英文版）

本钢板材股份有限公司 B E N G A N G S T E E L P L AT E S C O . , LT D . Annual Report 2008 (Prepared Under Chinese Accounting Standard) April 15, 2009 Important Statement 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. None of the directors, supervisors, and senior executives demonstrated uncertainty or disagreement about the truthfulness, accuracy, and completeness of this report. All of the 7 directors presented the board meeting. Shulun Pan Certified Public Accountants Co., Ltd. issued the standard auditing report without qualified opinion for the Company. Chairman of the Board – Mr. Yu Tianchen, Chief Financial Officer – Mr. Kang Wei, and Head of Accounting Dept. – Mr. Zuo Zhanguo hereby declare: the authenticity and integrality of the report are guaranteed. This report is prepared both in English and Chinese. Should any conflict in interpreting, the Chinese version shall prevail. 7 Table of Contents I. Company Profile ................................................................................................................................... 9 II. Financial Highlight ............................................................................................................................ 10 III. Particulars About the Capital Share and Shareholders ..................................................................... 13 IV. Particulars about the Directors, Supervisors, Senior Management and Employees ......................... 18 V. Administrative Structure .................................................................................................................... 22 VI. Particulars about the Shareholders’ Meeting.................................................................................... 25 VII. Report of the Board of Directors .................................................................................................... 26 VIII. Report of the Supervisory Committee ........................................................................................... 38 IX. Significant Events ............................................................................................................................ 40 X. Financial Report ................................................................................................................................ 51 XI. Documents For Reference................................................................................................................ 51 8 I. Company Profile 1. Legal Name of the Company in Chinese: 本钢板材股份有限公司 In English: BENGANG STEEL PLATES CO., LTD Legal name in short form: BSP 2. Legal representative Yu Tianchen 3. Secretary of the Board: Zhang Jichen, Stock Affair Representative: Lu Xiaoyong Contact address: No.16, Renmin Road, Pingshan District, Benxi City, Liaoning Tel: 0414－7828360 7828734 Fax: 0414－7824158 7827004 Email：bgbczjc761@126.coom 4. No.18 Guangtie Rd., Pingshan District, Benxi City, Liaoning Office address: No.16, Renmin Road, Pingshan District, Benxi City, Liaoning, Post Code: 117000 Email: bgbctwg＠mail.bxptt.ln.cn 5. Information disclosure media stipulated by the company: China Securities Journal, Security Times, Hong Kong Commercial Daily Annual reports also published online at: http://www.cninfo.com.cn Place where the annual report is prepared and ready for reference: Stock Affair Department, 16th Renmin Rd., Pingshan, Benxi, Liaoning 6. Stock listed in: Shenzhen Stock Exchange (1) Short Form of B-Shares: BENGANGBAN-B Stock Code: 200761 (2) Short Form of the Stock of A-Shares: BENGANGBANCAI Stock Code: 000761 7. Misc. information: Initial business registration on: June 27 1997 Business registration renewed on: June 15, 2007 Business registration renewed with: Liaoning Commerce & Industry Administration Bureau Business license number: 2100001049024 Taxation registration number: 210502242690243 Oraganization code: 24269024-3 Public accountant engaged by the Company: Shulun Pan Certified Public Accountants Co., Ltd. Address: 4/F 61 Nanjing Rd. East, Huangpu, Shanghai 9 II. Financial Highlight 1. Gross profit and composition In RMB Items Indices Total profit 241,303,453.08 Net profit 165,089,865.35 Net profit deducted non-recurring gain/loss 164,428,397.60 4,090,909,567.11 Main business profit Other business profit 219,740,401.01 241,554,464.14 Operation profit -251,011.06 None business income / expense, net Cash flow generated by business operation, net 4,292,599,078.14 Net increasing of cash and cash equivalents -84,832,515.50 Note: Non-recurring gain/loss excluded are Gain/loss of non-current assets -19,768,988.26 Government subsidies accounted into current gain/loss account, other than those closely related to the Company’s common business, comply with the 1,722,295.00 national policy and continues to enjoy at certain fixed rate or amount. Gain/loss from debt reorganization 6,680,217.50 Other non-business income and expenditures other 11,115,464.70 than the above Influenced amount of income tax 912,478.81 Total 661,467.75 10 2. Major accounting data and finance indices in the latest 3 years In RMB Yuan 3.1 Major accounting data Increase/decrease Year 2008 Year 2007 Year 2006 (%) Not adjusted Adjusted Adjusted Not adjusted Adjusted Turnover 38,702,329,077.52 31,351,596,494.84 31,351,596,494.84 23.45% 26,711,849,276.37 26,711,849,276.37 Total profit 241,303,453.08 2,164,911,653.58 2,164,911,653.58 -88.85% 2,031,835,341.06 2,031,835,341.06 Net profit attributable to the 165,089,865.35 1,698,949,701.78 1,592,000,891.26 -89.63% 1,651,359,285.62 1,625,954,120.51 shareholders of the listed company Net profit attributable to shareholders of listed 164,428,397.60 1,633,258,814.28 1,526,310,003.76 -89.23% 1,624,134,970.34 1,635,658,145.75 company after deducting of non-recurring gain/loss Cash flow generated by 4,292,599,078.14 2,745,350,761.29 2,745,350,761.29 56.36% 2,108,712,699.89 2,108,712,699.89 business operation, net Increase/decrease End of 2008 End of 2007 End of 2006 (%) Not adjusted Adjusted Adjusted Not adjusted Adjusted Gross Assets 32,718,649,648.86 29,356,299,029.54 29,356,299,029.54 11.45% 26,954,121,899.21 27,164,567,536.69 Owners’ (shareholders’) 15,826,633,584.69 16,740,762,529.86 16,633,813,719.34 -4.85% 16,037,701,834.45 15,982,612,828.08 equity Share capital 3,136,000,000.00 3,136,000,000.00 3,136,000,000.00 0.00% 3,136,000,000.00 3,136,000,000.00 2.2 Major financial indices Year Increase/decrease Year 2007 Year 2006 2008 (%) Not Not Adjusted Adjusted Adjusted adjusted adjusted Basic earnings per share (Yuan/share) 0.05 0.5418 0.5100 -90.20% 0.7172 0.7061 Diluted earnings per share (Yuan/share) 0.05 0.5418 0.5100 -90.20% 0.5266 0.5185 Basic earnings per share less non-recurring gain/loss (Yuan/share) 0.05 0.5208 0.4867 -89.73% 0.7053 0.7103 Fully diluted net income/asset ratio 1.04% 10.15% 9.57% -8.53% 10.30% 10.17% (%) Weighted average net income/asset ratio (%) 1.01% 10.38% 9.76% -8.75% 11.91% 13.67% Fully diluted net income/asset ratio less non-recurring gain/loss (%) 1.04% 9.76% 9.18% -8.14% 10.13% 10.23% Weighted average net income/asset ratio less non-recurring 1.01% 10.16% 9.36% -8.35% 11.93% 13.44% gain/loss(%) 11 Net Cash flow per share generated by business operation (yuan/share) 1.3688 0.8754 0.8754 56.36% 0.6724 0.6724 End of Increase/decrease End of 2007 End of 2006 2008 (%) Not Not Adjusted Adjusted Adjusted adjusted adjusted Net asset per share attributable to the shareholders of the listed company 5.0468 5.3383 5.3041 -4.85% 5.1141 5.0965 (Yuan/share) 3. Supplementary form of the Cash Flow Statement Year 2008 Year 2007 Net return on equity Earnings per share Net return on equity Profit of the (%) (RMB) (%) Earnings per share report period On full On full On full On full amortizing weighted amortizing weighted amortizing weighted amortizing weighted basis average basis average basis average basis average Net profit 1.04 1.01 0.05 0.050 9.57 9.76 0.51 0.51 Earnings per share after deducting of non-recurring gain/loss 1.04 1.01 0.05 0.050 9.18 9.36 0.4867 0.4867 4. Change in shareholders’ equity RMB Yuan Items Share capital Capital reserves Surplus reserves Retained profit Total of shareholders’ equity Beginning of term 3,136,000,000 8,705,011,134.76 903,594,226.77 3,889,208,357.81 16,633,813,719.34 Increased this year 31,250,000.00 17,683,282.45 165,089,865.35 214,023,147.80 Decreased this year 1,021,203,282.45 1,021,203,282.45 End of term 3,136,000,000 8,736,261,134.76 921,277,509.22 3,033,094,940.71 15,826,633,584.69 12 III. Particulars About the Capital Share and Shareholders 1. Statement of change in capital shares Statement of change in capital shares (Ended Dec. 31, 2008, 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 2,575,226,800 82.12% -56,803,350 -56,803,350 2,518,423,450 80.31% subscription 1. State-owned shares 2. State-owned legal person 2,575,200,000 82.12% -56,800,000 -56,800,000 2,518,400,000 80.31% shares 3. Other 0 0.00% 0 0 0 0.00% domestic shares Incl. Non-government domestic legal person shares Domestic natural person shares 4. Share held by foreign investors Incl. Shares held by foreign legal persons Foreign natural person shares 5. Management 26,800 0.00% -3,350 -3,350 23,450 0.00% shares II. Shares with unconditional 560,773,200 17.88% 56,803,350 56,803,350 617,576,550 19.69% subscription 1. Common 160,773,200 5.13% 56,803,350 56,803,350 217,576,550 6.94% shares in RMB 2. Foreign shares in 400,000,000 12.76% 400,000,000 12.76% domestic market 3. Foreign shares in overseas market 4. Others III. Total of 3,136,000,000 100.00% 3,136,000,000 100.00% capital shares 13 Change of conditional shares in Shares Conditional Conditional Name of the shares at Released Increased Reason of Date of shares at end of shareholder beginning of this year this year condition releasing year year Commitment in Benxi Steel April 29 2,575,200,000 56,800,000 0 2,518,400,000 share equity (Group) Ltd. 2008 relocation Total 2,575,200,000 56,800,000 0 2,518,400,000 － － Current shares with limitation to sell (conditional shares) held by Bengang Group were amounted to 575,200,000 shares at the day when the share relocation scheme was implemented. On August 28, 2006, the Company placed 2 billion shares privately to Bengang Group, the amount of current shares with limitation to sell held by Bengang Group was increased to 2,575,200,000 shares thereon. On April 29, 2008, there were 56,800,000 conditional shares held by Bengang Group released from the limitation. Thus the amount of current shares with limitation to sell held by Bengang Group was reduced to 2,518,400,000 shares thereon. 2. Share issuing and listing The previous three times of share placing prior to the end of the report term. (1) At June 10 – 12 1997, the Company issued 400 million domestic listing foreign shares(B-share) in Shenzhen Stock Exchange, the placing price was HKD2.38 when listed on July 8, 1997. On November 3, 1997, issued the domestic listing RMB common stock (A-Share) 120 million shares in Shenzhen Stock Exchange, issue price was RMB5.40, listing date was January 15th, 1998. On July 16th 1998, the 108 million employees’ shares were approved to be listed in the stock exchange. (2) On June 30, 2006, the Company issued 2 billion A shares privately to Bengang Group and use the proceeds to purchase the steel & iron assets of the Group. It was approved by China Securities Regulatory Commission on June 30th 2006. On August 28 2006, as approved by China Securities Depository & Clearing Corporation Ltd. Shenzhen Office, the registration and conditional placing procedures of the 2 billion new shares were completed. On September 28 2006, the privately placed shares were approved by Shenzhen Stock Exchange to be placed in the stock market on October 9th 2006. Category of the share: Renminbi common shares (A shares); amount placed: 2 billion shares; subscribing price: RMB4.6733 yuan/share; The newly placed shares are conditional shares. They are not able to be transferred in 36 months since the date when they are registered to the name of Bengang Group, i.e. August 28 2006. 14 3. Particulars about the shareholders and substantial controller (1) Number of shareholders at the end of report term was 66,970 (2) Shareholding status of the top 10 shareholders Top 10 Shareholders Properties of Share Pledged or Name of the shareholder Total shares Conditional shares shareholder proportion % frozen State-owned Benxi Steel (Group) Ltd. 82.12% 2,575,200,000 2,518,400,000 4,000,000 legal person DREYFUS PIFI-DREYFUS Overseas natural 1.43% 44,875,855 0 0 PREMIER GREATER CHINA person GOVERNMENT OF Overseas natural SINGAPORE INV. CORP.- 1.05% 32,871,918 0 0 person A/C "C" China Construction Bank – Shangtou Morgan China Domestic natural 0.73% 22,854,983 0 0 Advantage Securities person Investment Fund GSIC A/C MONETARY Overseas natural AUTHORITY OF 0.46% 14,311,705 0 0 person SINGAPORE HTHK/BTDL-ASIAN Overseas natural 0.19% 6,034,082 0 0 MARKET LEADERS FUND person Overseas natural Li Minggong 0.17% 5,276,986 0 0 person Overseas natural APS CHINA ALPHA FUND 0.15% 4,616,701 0 0 person China Industrial & Commercial Bank – Zhongyin Domestic natural 0.14% 4,500,000 0 0 Dynamic Strategy Stock person Investment Fund RENAISSANCE CHINA Overseas natural 0.12% 3,760,556 0 0 PLUS FUND person Top 10 holders of unconditional shares Name of the shareholder Unconditional shares Category of shares Benxi Steel (Group) Ltd. 56,800,000 RMB common shares DREYFUS PIFI-DREYFUS PREMIER Foreign shares placed in 44,875,855 GREATER CHINA domestic exchange GOVERNMENT OF SINGAPORE INV. CORP.- Foreign shares placed in 32,871,918 A/C "C" domestic exchange China Construction Bank – Shangtou Morgan 22,854,983 RMB common shares China Advantage Securities Investment Fund GSIC A/C MONETARY AUTHORITY OF Foreign shares placed in 14,311,705 SINGAPORE domestic exchange HTHK/BTDL-ASIAN MARKET LEADERS Foreign shares placed in 6,034,082 FUND domestic exchange Foreign shares placed in Li Minggong 5,276,986 domestic exchange Foreign shares placed in APS CHINA ALPHA FUND 4,616,701 domestic exchange China Industrial & Commercial Bank – Zhongyin 4,500,000 RMB common shares Dynamic Strategy Stock Investment Fund Foreign shares placed in RENAISSANCE CHINA PLUS FUND 3,760,556 domestic exchange Notes to relationship or “action It is unknown to the Company whether there is any related connection or ‘Action in in concert” among the top ten Concert’ as described by Rules of Information Disclosing Regarding Changing of shareholders. Shareholding Status of Listed Companies existing among the above shareholders. There were 4 million shares under pledge: In the lawsuit event of China Xinda Asset Management Co., 15 Ltd. Shenyang Office against Dandong Chemical Fibre (Group) Co., Ltd. for overdue payment, China Xinda Asset Management Co., Ltd. Shenyang Office claimed Bengang Group to undertake the guarantee responsibility, and requested Liaoning Provincial High Court to freeze the 4 million shares of the Company held by Bengang Group in Shenzhen Stock Exchange. On December 25, 2008, Bengang Group signed the credit transferring contract with China Xinda Asset Management Co., Ltd. Shenyang Office, by which Bengang Group tookover the credit held by China Xinda Asset Management Co., Ltd. Shenyang Office in Dandong Chemical Fibre (Group) Co., Ltd., and the guarantee responsibilities of Bengang Group was released thereon. China Xinda Asset Management Co., Ltd. Shenyang Office promised to release the 4 million shares said above upon completion of consideration payment made by the Group according to the contract. 4. Particulars about the controlling shareholder Name of controlling shareholder: Benxi Steel (Group) Co., Ltd. Legal representative: Yu Tianchen Incorporation date: July 10, 1996 Registration Capital: RMB5.37 billion Business scope: steel smelt, mine exploitation, panel rolling, oxygen manufacturing, pipe manufacturing, power generating, coal industry, special steel material manufacturing, heating, supply of the water, electricity, wind and gas, metal processing, electro mechanics builds, device manufacturing, architecture installation, railway, highway transportation, import and export trade, traveling industry, construction material , refractory material , measuring device instrument, goods and materials supply and marketing, development of real estate, scientific research, design , information service, property management, telecommunication, processing of waste iron, property leasing (to the extent of liscenced to the subsidiary companies), exchange of steel material, and recycling of waste oils. The property right and control relationship between the Company and substantial controller are shown as the following chart: Liao Ning State-owned Asset Administration Committee 100% Benxi Steel (Group) Co. Ltd. 82.12% Bengang Steel Plate Co. Ltd (1) There is no legal person shareholders holding shares more than 10% (including 10%) except for the controlling shareholder - Benxi Steel (Group) Co. Ltd. 16 (2) Top 10 holders of conditional shares in shares Shares with Date when Newly added No. Name of the holder conditioned trading is Conditions tradable shares subscription allowed 2008-03-14 56,800,000 Not to place or sell the Benxi Steel (Group) 2009-03-14 480,000,000 shares in 24 months since 1 2,575,200,000 Ltd. the day of share equity 2011-01-01 2,038,400,000 relocation is completed. 17 IV. Particulars about the Directors, Supervisors, Senior Management and Employees 1. Profiles of the directors, supervisors and senior executives of the Company, and their annual remunerations Remuneration Incentive shares granted Take Shares Shares accepted Market remuneration held at held at Cause from the Job Job Rate price from Name Position Sex Age the the of company in Executable Executed started ended of at end shareholding beginning end of change report term shares shares shares of or related of term term (RMB0’000 term parties? before tax) May Yu Jul 26 Chairman M 56 18 13,400 13,400 0.00 0 0 0.00 0.00 Yes Tianchen 2003 2010 Vice Nov May Kang Chairman, M 54 6, 18 0 0 10.59 0 0 0.00 0.00 No Wei GM 2007 2010 Director, Nov May Zhang Secretary of M 52 6, 18 10.59 0 0 0.00 0.00 No Jichen the Board 2007 2010 April May Zhao Director M 49 26, 18 0 0 0.00 0 0 0.00 0.00 Yes Wei 2007 2010 May Zhong Independent Jul 26 F 53 18 0 0 2.40 0 0 0.00 0.00 No Tianli Director 2003 2010 May Xue Independent Jul 26 M 55 18 0 0 2.40 0 0 0.00 0.00 No Xiangxin Director 2003 2010 April May Tian Independent M 60 26, 18 0 0 2.40 0 0 0.00 0.00 No Binfu Director 2007 2010 Chairman May Liu of the Jul 26 M 56 18 0 0 0.00 0 0 0.00 0.00 Yes Junyou supervisory 2003 2010 committee May May Cao Supervisor M 42 18 18 0 0 0.00 0 0 0.00 0.00 Yes Aimin 2007 2010 May May Liu Supervisor M 54 18 18 0 0 0.00 0 0 0.00 0.00 Yes Engquan 2007 2010 May May Li Supervisor M 43 25, 18 0 0 4.32 0 0 0.00 0.00 No Binqiang 2004 2010 Jun May Wang Pu Supervisor M 46 26, 18 0 0 7.56 0 0 0.00 0.00 No 2008 2010 Vice Mar May Zhang General M 56 17, 18 0 0 10. 59 0 0 0.00 0.00 No guohua Manager 2005 2010 Total - - - - - 13,400 13,400 - 53．85 - - - 18 Note: 1. As of the end of report term, Mr. Yu Tiancheng was holding 13,400 shares of the Company, and no change occurred in the report term. Mr. Liang Guangde was holding 13,400 shares, which had been released from limitation to sell. None of other directors, supervisors or management is holding shares of the Company. 2. Annual remunerations for directors, supervisors and managements were paid in accordance with document Benbanfa (2007)56 and other regulations. 2. Profiles of directors and supervisors Directors: Yu Tianchen, Male, doctorial degree, senior engineer, Mr. Yu once held the position of head of PR department of Bengang No.2 Steel Factory; secretary and vice secretary of Party Committee of Bengang Construction Company; General Manager of No.3 Construction Company; secretary of Party Committee and chairman of the board of Bengang Construction Co.; Vice General manager of Bengang Group Co; Vice Chairman, vice secretary of Party Committee, General Manager of Bengang Group, and Chairman of Bengang Steel Plate Co., Ltd. Mr. Yu is now taking the position of Chairman of the board, general manager and vice secretary of Party Committee of Bengang Group Co. (since April 2008) and chairman of the board of Bengang Steel Plate Co., Ltd. Mr. Kang Wei, college education. Once held the position of Vice CCP Secretary of Coke Factory; Vice Chief of Coke Factory; Chief and Chief CCP Secretary of Coke Factory of Begang Group; Chief and Chief CCP Secretary of Coke Factory of Bengang Steel Plate Co., Ltd.; Vice General Manager and Chief of Coke Factory of Bengang Steel Plate Co., Ltd.; Vice General Manager and General Manager of Bengang Steel Plate Co., Ltd.; At present he’s the Vice Chairman and General Manager of Bengang Steel Plate Co., Ltd. Zhang Jichen, male, postgraduate degree, senior engineer. Once vice manager of Fire-resistant Material Factory and Company of Bengang Group, vice chief secretary of the CCP committee, manager; chief secretary of CCP committee of Labor Service Co. of Bengang Group, chief secretary of the CCP committee of Residue Co., of the Company, the vide director of planning department of Bengang Group; director and substitution Secretary of the Board of Bengang Steel Plate Co., Ltd.; At present he’s the secretary of Board of the Company. Zhao Wei, male, master degree, certified senior engineer. Once he was the chief of mould workshop of No.2 steel-making factory, director of technical department, office manager of chief engineer, director of technical quality division, and head of operation planning department of Bengang Group, the head of development strategy department of Bengang Group. He’s been the head of Planning and Finance Division of Bengang Group since October 2008. Independent Directors: Zhong Tianli, Female, she is the professor of North-east University Business School and president of Financial Management Institute. She was studied in the finance of the Northeastern finance and economics university from September of 1978 to July of 1982, obtained the bachelor's degree of economics; Studied as a graduate student in the Northeastern accountancy department of finance and economics university from September of 1986 to July of 1989, obtained the economics master's degree; Between Sept. 2000 and June 2003, she’s studying in Northeast University in doctorial course and got doctorial degree thereafter.Took the post as Singaporean Nanyang Technology University (NTU) Asia and commercial visiting researcher of research center from March of 1995 to March of 1996. Xue Xiangxin, male, a steel metallurgical doctoral supervisor of Northeastern University now, scientific and technical place division chief , Northeastern University material and metallurgical resources of metallurgical institute and chief of research institute of environmental project of Northeastern University. He was studied an academic program of metallurgical physical chemistry in 19 the colored metallurgy of the Northeastern technical college (Northeastern University now) from 1974 to 1977. Left the school to receive training and take the post as the assistant in 1977, studied for the master's degree in the Northeastern technical college from 1980 to 1983, and obtained the master's degree in May of 1983; enter the Northeastern surface process technology research institute of technical college and work, take the post as the assistant after graduating. Studied for the doctorate, was promoted to a lecturer in 1988 in the metallurgical specialty of Northeastern technical college steel in April of 1985, and obtained the engineering doctorate in June of 1990; Promoted to the associate professor in June of 1991; Promoted to professor in 1998. Tian Bingfu, male, chief secretary of Liaoning Public Company Association. 1986-1990, he’s the vice chief of overseas Chinese office of Liaoning Provincial Government. 1990-1993, vice director of policy study office of Shenyang CCP Committee. 1993-1999, director of Shenyang Securities Regulatory Commission. 1999-2003, investigator of Liaoning Securities Regulatory Commission. 2003- present, Chief Secretary of Liaoning Public Company Association. Supervisors: Liu Junyou, male, university eduction, senior political profession. Mr. Liu once held the position of directors of Party Committee of Benxi Subordinate Institution of municipal Party committee of the Communist Party of China; propaganda ministers and committee members of the Benxi Communist Party of China municipal Party subordinate committee of working committee of organization,; director of Supervisory Bureau of Benxi , member of leading Party group; vice director of management committee of hot spring development district, member of leading Party; director of Benxi office of building materials industry, member of Party Committee; vice Secretary, member of leading Party group of Benxi Gongyuan cement (group); vice secretary and director of Supervisory Bureau of discipline inspection commission of Benxi; Mr. Liu is now taking the position of the standing commissioner of Party Committee, ministry of office and discipline committee director of Bengang Group (since August 2000), chairman of the Supervisory Committee of the Company. Cao Aimin, male, postgraduate degree, senior accountant. Once head of capital division of finance department, and director of department, the head of financial department of Bengang Group. Chief Accountant and Head of Planning and Finance Division; He’s the Chief Accountant of Bengang Group since April 2008. Liu Enquan, male, college graduate, senior political profession. Once the chief of CCP committee office of No.2 Iron Factory, director of organization division, secretary of discipline committee. Currently he’s the vice director of personnel department of Bengang Group. (Since November 2004) Li Bingqiang, Male, university degree, he was once held the position of vice director, director of casting workshop and vice director of production department of the Company; director of sheet metal mold arrangement office of casting factory. He’s now the chief of Workshop No.2 of steel making factory. Wang Pu, male, college education, senior political profession. Once he was the office manager of the Trade Union of Bengang Group. At present he’s the Chairman of Trade Union of Power Plant of the Company. Executives: Zhang Guohua, Male, univerisity graduate, certified accountant. Mr. Zhang was once the director , assistant to the Chief, and Deputy Chief of the accounting dept. of Bengang Group. Vice General Manager and Director of Planning and Accounting Dept. of the Company. He is now the Vice General Manager and Director of Securities Dept. of the Company. Note: None of the current directors (independent directors are not included) and supervisors is working full time or part time for organizations other than shareholding organizations. 20 3. Directors and supervisors elected or resigned, executives employed or dismissed in the report term (1) As adopted at the 6th meeting of the 4th term of Board held on May 26 2008, Mr. Li Mohua was approved to resign from the position of General Manager for his age and change of job. The Board of Directors has assigned Mr. Kang Wai to takeover the position of General Manager. For change of job, Mr. Li Mingwen, Mr. Zhang Qingbo, and Mr. Feng Jianmin were released from the positions of Vice General Manager. The resolutions of the meeting were announced on China Securities Journal, Securities Times, and Hong Kong Commercial Daily dated May 27, 2008. (2) As elected by the Annual General Meeting 2007 held on June 26 2008, Mr. Kang Wei and Mr. Zhang Jichen were elected the new directors of the 4th term of Board, while Mr. Wang Pu was elected the supervisor of the 4th term of Supervisory Committee. Mr. Li Mohua was released from the position of director for his age and change of job. Mr. Liang Guangde was released from the position of director as applied by himself. Mr. Zhang Jichen was released from the position of supervisor for job engagement. The resolutions of the meeting were announced on China Securities Journal, Securities Times, and Hong Kong Commercial Daily dated June 27, 2008. (3) As adopted by the 7th meeting of the 4th term of Board held on June 26, 2008, Mr. Li Mohua has resigned from the position of Vice Chairman and Mr. Kang Wei was elected to takeover the position. Mr. Liang Guangde was released from the position of secretary of board as applied by himself. The responsibilities of secretary of board were temporarily substituted by director Mr. Zhang Jichen. (4) On November 27, 2008, as adopted at the 11th meeting of the 4th term of Board, for Mr. Zhang Jichen obtained the Certificate for Secretary of Board from Shenzhen Stock Exchange during his substitution period for the position of Secretary, the Board of Directors decided to engage Mr. Zhang Jichen the Secretary of Board officially. 4. Particulars about the employees There are 25949 employees in position by the end of the report term. (1) Classified by occupations: production people are 22230, count for 85.67%; sales people are 152, count for 0.59%; technology people are 1184, count for 4.56%; finance people are 92, count for 0.35% and administration people are 2291, count for 8.83%. (2) Classified by education level: postgraduate graduate 297, account for 1.14%, university graduates 2954, count for 11.38%; college graduates 6242, count for 24.05%; secondary vocational, technical and high school degree are 6057, count for 23.34%;others are 10399 and count for 40.09%. (3) There are 15221 retired employees get pensions form the Company. 21 V. Administrative Structure 1. Company Administration The Company unceasingly makes progress on legal person administration structure, establishing modern organization system and operation in legally by according to the regulations and requirements of Company Law, Securities Law, Listing Company administration Principle and the Guiding Opinion of Establishing Independent Director System in Listing Company, as well as The Notification of Lift Up the Quality of Listed Companies issued by China Securities Regulatory Commission and trans-approved by the National Government. The controlling shareholder was acting its rights as sponsor legally. Basically no competition was conducted against the Company’s business operation. The Company has established a long-term controlling shareholder behaving system. The shareholders’ meetings have been operated with clear responsibilities and clear meeting criteria. Regulations were established to give convenient to the public investors to participate in decision making process. Online voting system was opened to public shareholders to vote on major issues of the Company. Shareholders’ meetings were held legally according to the laws, regulations, regulatory regulations, and the Articles of Association. The Board of Directors, Supervisory Committee, and executives were working with clear responsibilities and meeting criteria. All of the directors, supervisors, and executives were fulfilling their duties. Administrative systems have been established regarding internal controlling, finance, decision-making over major investment, decision-making over related transactions, and other internal criteria. The systems are reviewed and assessed periodically, and relative information is released. The Company has also established internal restricting mechanism and responsibility tracking mechanism. Responsibilities are clearly undertaken and invalid decision-making is effectively restricted. Information disclosure regulations were established and executed to ensure authentic, precise, complete, timely, and fair information disclosure. Special administrative operation of the Company In March 2007, China Securities Regulatory Commission published the “Notice on Performing of Special Administrative Operation in Listed Companies”, which was requiring the listed companies to enhance their special administrative operations. The Company has conducted all of the three stages of the operation which was: self inspection, public inquiry, and improving practice. On May 21, 2007, the Company convened a meeting to make arrangement for the special operation, and established a leading team in which the Chairman was the first responsible person. Directors, supervisors, and executives were arranged to study the relative documents regarding the special administrative operation. From early June to late July 2007, the Company performed serious self-inspection and proposed improvement measures upon analyzing on the existing problems. The self-inspection report and improving plan were formed and submitted to Liaoning Office of China Securities Regulatory Commission. On August 24, 2007, at the 2nd meeting of the 4th term of Board, the Self-inspection Report and Improving Plan were examined and passed, and disclosed by China Securities Journal, Securities Times, Hong Kong Commercial Daily as well as the website of Shenzhen Stock Exchange. At the end of Oct 2007, the Liaoning Office of China Securities Regulatory Commission had a special evaluation on the Company’s administration, and issued document (Liaoning Securities Regulatory 2007.93) titled “Opinions to the Administration of the Bengang Steel Plate Co., Ltd.” in which stated that the Board of Directors has not established professional committees, the employee representative proportion in the supervisor committee are not more than one third, capital management system need to 22 be consummated. The Company put great attention on fasten working procedures, will implement the above works in time as required. In the report term, the Company has performed all of the self-inspection works and undertook improvement measures according to the opinions provide above. Works stated in the improvement plan were accomplished on schedule. (1) Establishing of professional committees in the Board On April 23, 2008, the Board revised the Articles of Association to add in articles regarding the Auditing Committee, Nominating Committee, Remuneration and Assessment Committee, and Strategy Committee, and setout the responsibilities of each. The revising proposal was passed at the Shareholders’ Meeting held on June 26, 2008. According to the revised Articles of Association, the Board approved the list of members of the Auditing Committee, Nominating Committee, Remuneration and Assessment Committee, and Strategy Committee, as well as the meeting criteria of each committee. Announcement was released on China Securities Journal, Securities Times and Hong Kong Commercial Daily dated July 24, 2008. (2) Number of employee supervisors in the Supervisory Committee has satisfied the requirement, which was one third of the total As nominated by the Employees’ Congress, the Shareholders’ Meeting held on June 26, 2008 approved Mr. Wang Pu as the supervisor of the Supervisory Committee. The requirement of the number of employee supervisor should over one third of the total was satisfied. The announcement was released on China Securities Journal, Securities Times and Hong Kong Commercial Daily dated June 27, 2008. (3) Further improved and consummated the financing proceed administrative system According to the requirements of CSRC and administrative departments, the Company has established the “Financing Proceed Administrative System” which was passed at the 5th meeting of the 4th term of Board held on April 23, 2008. The announcement was released on China Securities Journal, Securities Times and Hong Kong Commercial Daily dated April 26, 2008. In the report term, the Company further improved its internal controlling system and systematic construction, performed self-assessment, and established a self-inspection mechanism. To fully use the supervisory function of the Auditing Committee on preparing of financial reports, the “Annual Report Criteria of Auditing Committee” was produced in accordance with the relative regulations of CSRC. The Company will keep following with the regulations of CSRC and Shenzhen Stock Exchange and carry forward the special administration operation as a long-term work. 2. Performance of the Independent Directors Independent directors attended the entire shareholder meeting and the board meeting and played an important role on important strategy, routine work and maintenance the legality right of the Company and entireness shareholder by according to the law, regulation and Article Association's given responsibility in reporting term. The independent directors were performing their duties faithfully by attending the Board meetings, providing professional and constructive advises, supervising the executive works, and guarding the legal interests of the Company and all of the shareholders. As empowered by the laws, regulations and the Articles of Association, the independent directors performed their special duties and provided independent opinions on the major issues such as related transactions. All of the related transactions that were subject to the approval of the Shareholders’ Meeting were inspected by the independent directors and independent opinions were issued upon them. All of the independents who were not able to attend the Board Meetings had carefully observed the proposals and empowered another independent director to vote at the meeting on their behalf. 23 Independent directors’ presenting of board meetings Name of Times of board Presented Presented by Independent Absent Remark meetings to present personally proxy Director Zhong Tianli 7 7 0 0 Out for business, Xue Xiangxin 7 3 4 0 entrusted Zhong Tianli to vote Out for business, Tian Binfu 7 6 1 0 entrusted Zhong Tianli to vote Note: No dissenting opinion was issued by the independent directors on any of the issues discussed at the Board Meetings. 3. Separation status in such aspects as personnel, assets, financial affairs, institution, business, etc between the Company and controlling shareholders. The Company is separated from the controlling shareholder in aspects of personnel, assets, financial affairs, institution, business, etc. and has its own independent and complete business operation. 1) In business operation: the Company has its own production and business planning, financial affairs check and calculate, personnel, raw material supplies and products selling business system independently and completely, . 2) In personnel: The Company and controlling shareholder are separate in such aspects as labor, personnel and salary management. Such senior executives as company's chairman, general manager, vice general manager, secretary of Board of Directors, etc. get salary from the Company, and have not held the important position beyond a director in shareholder's unit. 3) In Asset: The Company is separated from the controlling shareholder's clearly in asset. The Company has its own independent purchase, production, and marketing system. 4) In organization: The internal operations of the Company are independent; organization structuring and working function are totally independent. 5) In finance: The company has independent financial & accounting department, the accounting and financial management system were are complete and operated independently, and has bank account and pay taxes independently. 4. Self-assessment on internal controlling system of the Company According to the Internal Control System Standard issued by the Department of Finance and China Securities Regulatory Commission, and Instructions on Internal Control System of PLC issued by Shenzhen Stock Exchange, the Company further improved its administrative structure and the effective working procedures of the Board. In construction of the internal controlling system, the Company further enhanced the internal controlling works: (1) The Company has established strict placement responsibility system. (2) Internal reporting system was further improved to make sure the information flow among the Board, the Supervisory Committee, and the executives, which reduce the risks and weaknesses to the lowest limit. 24 (3) The Company has organized a internal controlling team formed by managers and directors of key departments of the Company. The Company performed the followings to enhance the internal control: (1) Meetings were held among department executives about implementing of Internal Control Basic Rules, urge them to observe the risk controlling point enforce their ability in internal control, further improve the business operation flow and risk controlling system. (2) The internal control operation team helped the departments and factories to revise their business routines and apply risk analyzing in key processes, further clarified department responsibilities to effectively control risks. (3) Periodic inspections were done on the details of purchasing and payment, sales and revenue, inventory, fixed assets, expenses, capital management, investment management, and remunerations. Effective supervisory and responding systems were established. 5. Opinions on self-evaluation on internal control system by the supervisory Committee (1) According to the regulations of the China Securities Regulatory Commission and the Shenzhen Stock Exchange, the Company obeyed internal control criteria, established complete internal control system according to own characteristics to ensure the routine operation to keep the asset safe and integrate. (2) The Company had a complete internal control system, and qualified employees in internal audit department to ensure the complete supervision on the Company’s internal main operations. (3) In 2008 there were no disobey of the Guide for Listed Company Internal Control issued by the Shenzhen Stock Exchange. Overall, the Committee thought the self evaluation of the Company’s internal control system completely, actually, accurately reflected the Company’s actual operations. 6. Opinions on self-evaluation on internal control system by the independent directors During the period, the Board of Directors revised and evaluated series of administrative rules, the internal control system was complete. The Company’s internal control activities were conducted based on the internal control rules, the Company strictly controlled on asset management, related transaction, engineering projects, major capital raising, external sponsion, information release which completely, effectively assured the normal operations. The self evaluation on internal control system were in accordance with the Company’s realness. 7. During the period, the Company had not established any new evaluation and incentive scheme for the executives. VI. Particulars about the Shareholders’ Meeting The Company held shareholders’ annual meeting once in the report term, and no special meeting was 25 convened.. The Shareholders’ Annual Meeting 2007 was held on June 26, 2008, the resolutions were released by China Securities Journal, Securities Times, and Hong Kong Commercial Daily dated June 27, 2008. VII. Report of the Board of Directors 1. Review of Company’s operation during the period of report (1) The year 2008 is the extraordinary year in company's development history. Over the past year, the company's production and management experienced the historical unpredictable and rare challenge and test. I. Southern low-temperature and freezing rain and snow, causing serious damage to power facilities, resulting in large-area power outages, disruption of rail, transport tension to the serious impact on normal production. II. after Wenchuan earthquake“5.12”, people in disaster areas as a result of active support to earthquake relief, blocked the railway transport and influenced the entering of raw fuel as well as shipping-out of the product . III. In order to ensure the success and peace of the Olympic Games, certain goods are embargoed. During the Olympic Games in order to ensure the stable, high-yielding and safe production, the company stores in advance so that inventory increased. And the raise of fuel prices and inventory increased funds occupancy. IV. The U.S. sub-loan crisis and the global economic crisis led to a drastic drop in steel prices. The market has no confidence, and a number of steel factories have to reduce production. The four major aspects of the external situation led the company business in face of unprecedented trouble and challenge. Adhere to the scientific development concept, in-depth analysis of the situation, come up with strategies to calm the crisis in the search for life, to carry out the situation education, so that the company's decision-making is converted into the confidence and action of the large number of employees. In accordance with the quality, diversity and internationalization of the overall development strategy, we study hard skills and work hard to ensure stable production and operation. And we have made new achievements in the development. They include as follows: To digest a variety of constraints to achieve stability in the production, in face of the grim internal and external situation, the company under scientific command, calmly deal with the impact to eliminate a variety of unfavorable factors influencing the production and operation to ensure a steady production. I. Seize the source of production and ensure fuel supply. During icy weather in the southern and a great earthquake, procurement and transportation management departments strengthen coordination with the rail transport to ensure the material supply, particular before the Olympics. II. Seize the arteries of production organization; strengthen the effective functioning of equipment. The various function departments are in charge of close coordination of the main plant, auxiliary plant and maintenance system. Blast furnace 5#,6#,7# in iron work is completed Converter furnace 2# in steelwork, hot rolling line 1700mm、1880mm in hot rolling mill and rolling line and cold rolling mill equipment repair and maintenance tasks are completed, guaranteeing the key equipment in good condition. III. Seize new projects of the rapid production efficiency; focus on the connection between 26 doing the elimination of outdated production capacity and production of new projects. Adhere to the principle of concentrate; balance the material supply to do a good job for the new line 1#. Make strong expansion of market space to achieve 100% order. The company considers the market expansion as the primary measure to deal with the grave challenge. I. Make a nationwide dragnet investigation in steel enterprises and timely grasp the customer's dynamic operation and financial situation. Downturn in the market, the main leaders in company led to know the market and to analyze together with the consumers. They propagandize the equipment, products, sales and other advantages to the user. With the increase of confidence in ourselves and the user, realize the contract. II. Hold the double-win concept, develop new customs continuously. III. Insist on technological innovation, further the research and development of new products。 IV. Expand international market at our best. With the success of a number of high value-added products to the international market, special steel exports also achieved a breakthrough in the history of zero. Accelerate the technological transformation and achieve key project’s production efficiency. In response to market challenges, through the course of the economic crisis, the company focused in the new development projects. These projects must be adjusted to enhance the product structure and level. These must provide solutions to significant resources problem with the principle of energy saving and environmental protection and continue to accelerate the pace of transformation. Throughout the transformation process, always based on the level of world-class equipment, a world-class product quality, energy saving and environmental protection at world-class standard, adhere to sophisticated design, meticulous organization, and precise management, fine construction, to ensure that the design and construction of 100% high-quality. After entering in July, in view that the steel market had a serious impact on the situation, the company accelerated the pace of construction projects to promote the new No. 1 blast furnace, boiler No. 9 and 8, 9, coke oven is built one after another to complete the transformation. Vigorously develop the circular economy; energy-saving gas emissions targets make new breakthroughs. In accordance with the "iron and steel industry development policy," Company makes efforts to strengthen energy-saving emission reduction. I. The company engages in research activities. Compared with the same period last year, overall energy consumption reduces per ton 17kg / t, fresh water reduces consumption per ton 1.12t / t, coke rate reduces 42kg / t. II. Actively promote the transformation of key energy-saving projects. Compiled and organized the implementation of the company's "Eleventh Five-Year" energy planning. Pollution abatement has been implemented in 24 key projects and achieved emission reduction SO27000 tons and smoke-dust emission reduction 2967 tons. In company-wide, stable operation of environmental protection facilities achieved more than 97%. The passing rate of pollution factor increases by 0.42 percent year-on-year. Green plant building has been further strengthened. Strengthen safety production system. The company focuses on building a secure production environment I. Seriously implement occupational health and safety management system, adjust the security commission's members to re-clear the member units’ secure production duties. Bring the work of occupational health and occupational safety management into the evaluation system. At the same time, increase the accountability of the security incidents and serious deal with the related person. II. Grasp the basic management of safety, strict implement safe production responsibility system, re-assess and amend the company's management procedures manual. Every units and departments carry out the internal audit III. Conscientiously implement the special safety inspection requirements of the State Council, carry out safety inspections to strengthen the secure the inspection particularly during the Olympic 27 Games. 93 issue of rectification is completed. IV. Vigorously carry out the work of safety education and publicity. Various types of security training courses at all levels are organized about 242 times. 15621 trainers have participated. V. Increase capital investment. Investment of 24,927,100 Yuan and 40 safety projects are completed. Throughout the year "three zero" is achieved that no personal injury & death, no fire incident and no major equipment accident. Adhering to corporate management, in order to effectively deal with the crisis, the company insist on using information technology to stimulate industrialization and to promote the ERP project. Phase 1 is completed in due time, finance management will work in Jan.1 2010.In the same time, Increase the performance appraisal management, comment on the performance appraisal monthly. Especially in July after the outbreak of the global economic crisis, the company has strengthened the focus on cost control as the center of the enterprise management. I. Improve our production cost management. Aiming at advanced indicators of advanced iron and steel industry at home and abroad, actively promote the standard cost management. II. Strengthen the procurement management and strict control the procurement plan, optimize the structure of inventory. Adhering to the dynamic market, implement scientific procurement tender, reduce inventory reserves and move the overstock of material to be available to meet the needs of the production of construction III. Strengthen the budget management. All construction projects must be in accordance to market demand and efficiency which decide the under construction and postponed construction so as to ease the financial pressure. IV. Strengthen quality management, implement the work of tender implementing seriously and adopt a quality system rehabilitation assessment, CE marked product supervisory system for monitoring, audits TS16949 and enter the control phase of Six Sigma projects. V. Strengthen the measures management. the company primary and secondary detection rate has achieved 100%, detection rate of the third level has achieved 90%. VI. Strengthen the financial management of the entire cost of the production process consumption; re-approve the cost of indicators to increase the business efficiency. VII. Enhance site management, especially carry out comprehensive management of the surrounding environment to ensure the plant order and reduced material wastage. In the report term, the Company has realized iron output of 7.43 million ton, increased by 3.05%; steel output of 7.4 million ton, increased by 0.27%; hot plate output of 6.66 million ton, decreased by 0.75%. In the whole year, the Company realized main business turnover of RMB38.7 billion, increased by 23.45%, and net profit RMB165 million, decreased by 89.6%. (2) Main business and operations The Company is engaged in the production and processing of of steel smelting, panel rolling. It has not been changed during the report term. The major businesses layout, the profitability of the major businesses, market status, asset and profit structure, and cash flow status are as the followings: 28 A. Distribution of main business on industries and products RMB0’000 Distribution on industries Change of Change of Change of On industry or Operation operation profit Turnover Operation cost income over cost over last product profit ratio ratio over last last year % year % year % Industry 3,363,416.69 2,954,325.74 12.16% 20.08% 27.70% -16.10% Distribution on products Steel plate 3,271,082.31 2,873,559.68 12.15% 19.16% 26.49% -16.00% Steel billet 41,198.44 36,036.80 12.53% 407.23% 470.12% 187.00% Others 51,135.94 44,729.26 12.53% 7.01% 26.56% -49.00% B. Geographic distribution of products Major business Proportion in major Proportion in major Regions Main business profit turnover business income business profit Northeast 12,454,172,469.41 37.03% 1,544,348,425.34 37.75% North 5,201,997,092.52 15.47% 589,412,229.29 14.41% East 7,832,075,254.91 23.29% 1,401,285,129.84 34.25% Northwest 98,880,744.56 0.29% 12,388,497.92 0.30% Southwest 0.00 0.00% Mid-south 2,705,625,657.03 8.04% -125,736,075.99 -3.07% Export 5,341,415,726.18 15.88% 669,211,360.71 16.36% Total 33,634,166,944.61 100.00% 4,090,909,567.11 100.00% C. Distribution on regions In RMB 10 thousand Yuan Change of income over last year Regions Turnover % Northeast 1,245,417.25 41.85% North 520,199.71 -10.33% East 783,207.53 -10.22% Northwest 9,888.07 -47.65% Southwest 0.00 -100.00% Mid-south 270,562.57 573.00% Export 534,141.57 29.86% 29 D. Major suppliers and clients Total of purchases from top 5 Portion in total 6,398,793,294.91 22.17% suppliers purchasing Total of sales to top 5 buyers 14,826,064,012.41 Portion in total sales 38.31% E. Composition of assets and profit Changed over Items Year 2008 Portion % year 2007 Portion % the previous year % Gross Assets 32,722,333,254.16 - 29,356,299,029.54 - 11.47 Account receivable 507,305,392.11 1.55 817,330,942.52 2.78 -37.93 Other account receivable 111,144,143.81 0.34 110,954,057.98 0.38 0.17 Inventories 7,859,743,442.03 24.02 4,605,043,499.66 15.69 70.68 Fixed assets 15,114,030,741.42 46.19 13,708,841,478.55 46.70 10.25 Construction in process 3,871,536,579.58 11.83 3,394,891,623.53 11.56 14.04 Short-term loans 2,887,352,200.00 8.82 2,638,685,960.00 8.99 9.42 Long-term borrowings 2,018,558,759.20 6.17 1,935,210,198.02 6.59 4.31 F. Change in three expenses and income tax Changed over the previous Items Year 2008 Year 2007 year % Sales expense 738,183,045.50 56,170,341.63 32.73 Administrative 2,168,897,763.93 1,738,707,568.74 24.74 expense Financial 328,304,259.41 07,993,829.89 6.59 expenses Income tax 76,213,587.73 72,910,762.32 -86.70 Note: Cause of changes Sales expense of the current year was RMB738,183,045.50, which were mainly freight, tariff, and refunding. It increased by RMB182,012,703.87 at rate of 32.73%. It was caused by increasing of refunding in 2008 due to market situation. Overhead of current year was RMB2,168,897,763.93, which was mainly insurance fee, fixed asset maintenance fee, and office expenses. It increased by RMB430,190,195.19 at 24.74% of rate, which was caused by increasing of salaries and fixed asset repairing fees. Financial expenses increased by RMB20.31 million, which was caused by increasing of borrowings and interests. Decreasing of income tax expenses was caused by decreasing of gross profit in the current year. 30 F. Cash flow compositions Changed over last Items Year 2008 year 2007 year (%) Cash flow generated by business operation, net 4,292,599,078.14 2,745,350,761.29 56.36 Net cash flow generated by investment -2,688,922,333.52 -2,619,662,110.59 2.64 Net cash flow generated by financing -1,892,345,482.25 -127,143,534.43 1,388.35 G. Particulars about the controlled subsidiaries The 7 sales companies including Tianjin Bengang Steel Trade Co., Ltd., Wuxi Bengang Sales Co., Ltd., and Nanjin Bengang Material Co., Ltd. are fully-owned subsidiaries, or cross-owned subsidiaries acquired in asset restructure program from Bengang Group. Their main business are sales of metal materials and steel products. H. During the reporting period, situations of the company's technology innovation, energy-saving emission reduction During the reporting period，the Company enhance the market competitiveness by accelerating the pace of the base construction for plate products. In accordance with the scientific concept of development "fast and good" requirement, it comprehensively promotes the optimization and upgrading of industrial structure. It persists in using high technology to transform traditional industries through independent innovation, digestion and absorption of new and adjustment of product structure; expanding the domestic market and involving into the international market. Through high-tech product development，we continuous upgrade the high-precision ratio of the total amount of products and from low-grade products to high-product. In response to market challenges, through the course of the economic crisis, the company focused in the new development projects. These projects must be adjusted to enhance the product structure and level. These must provide solutions to significant resources problem with the principle of energy saving and environmental protection and continue to accelerate the pace of transformation. Throughout the transformation process, always based on the level of world-class equipment, a world-class product quality, energy saving and environmental protection at world-class standard, adhere to sophisticated design, meticulous organization, and precise management, fine construction, to ensure that the design and construction of 100% high-quality. In accordance with the comprehensive, coordinated and sustainable development, the company vigorously develops the circular economy and energy-saving gas emissions. In accordance with the "iron and steel industry development policy," Company makes efforts to strengthen energy-saving emission reduction. I. The company engages in research activities in company-wide. Compared with the same period last year, overall energy consumption reduces per ton 17kg / t, fresh water reduces consumption per ton 1.12t / t, coke rate reduces 42kg / t. II. Actively promote the transformation of key energy-saving projects. Compiled and organized the implementation of the company's "Eleventh Five-Year" energy planning. Pollution abatement has been implemented in 24 key projects and achieved emission reduction SO27000 tons and smoke-dust emission reduction 2967 tons. In company-wide, stable operation of environmental protection facilities achieved more than 97%. The passing rate of pollution factor increases by 0.42 percent year-on-year. Green plant building has been further strengthened. 31 2. Outlook for the company's future development (1) The development of the industry trends and the competition in the market structure In 2009, the company either faces the test of market uncertainty, a crucial year of life and death struggle, or management level being leapt to the image as a result of production scale over ten million ton. The quality of plate base construction is pivotal. Therefore, to do the production and operation in 2009 and overcome the economic crisis caused by the severe impact of the company, the maintenance of the overall situation of reform, development and stability, the achievement of "Eleventh Five-Year Plan" determine the objectives that of great significance. Throughout 2009, the economic development of the situation is that challenges and opportunities and difficulties co-exist. From the perspective of challenges, outside the enterprise, the consequences of a slowdown in 2009 cased by the economic crisis will be deeply felt and uncertainties may arise at any time. a serious contradiction between manufacturing cost and selling prices will not be resolved in a short period, resulting in imbalance between production scale and economy. Inside the company，With the commissioning of new projects, the manufacturing processes do not match, and imbalance appears between the steel output and the rolled steel output, increasing the degree of difficulty to production organization, raw materials transport, logistics support, product development and marketing. (2) the company’s opportunities and challenges I. Macro-economic environment will be improved. Capital growth, domestic demand expansion, the structure transfer policy by Central Committee and State Council issued will effectively promote economic and social development. It will further expand low-cost housing, nomads’ settlement, canopy house transformation and projects such as the people's livelihood, further speed up the railways, highways, airports, power grids, water conservancy and other infrastructure, and further intensify the energy-saving emission reduction, ecological protection, further strengthen the reconstruction of disaster areas, as well as the implementation of value-added tax restructuring, to encourage technological upgrading of enterprises, encourage enterprises to upgrade. These will bring about us the opportunities. In the same time, after the economic crisis, in iron and steel industry a number of manufacturers have cut production. It is bound to alleviate contradiction in market supply and demand and help us to occupy and expand market. II. The company's strengths and potential will be brought into full play. First of all, the Benxi Group, relying on its own mines, the advantages of self-sufficiency in raw materials, can greatly slow down the impact of economic crisis. Secondly, the main equipment companies have reached a world-class level, so that market competitive has significantly enhanced. Thirdly, the company created high-tech content and high value-added products system so as to further consolidate the company's first rank in iron and steel industry in China. Fourthly，we have a relatively perfect sales network and huge and stable customer base covering the key areas in domestic market and in the world. Our products are not able to occupy the domestic market but also be exported to Europe, the United States and Asia and other countries and regions. Fifthly, due to a corporate culture of a hundred year history, there is a troop being able to work hard. Cadres, workers and staff members who have advanced technology are the fundamental strength to overcome difficulties. (3) The overall objective of production and management in 2009 Fully implement the Party's 17 and the Third Plenary Session of 17 the spirit of Deng Xiaoping Theory and "Three Represents" as guidance, in-depth implementation of the scientific development concept. In accordance with the quality, variety and overall international business development strategy, centering on the economic benefits, the company speed up the market-oriented development, focusing on product structure adjustment and capacity improvement for sustainable development. It solidly advances the construction to ensure fast development and good company. In accordance with the guiding ideology, the overall objective of production in 2009 is that: climbing high in production target, i.e. a pig iron production 10 million tons, 10 million tons of crude steel, 10 million tons of hot-rolled plates, cold rolled 1,550,000 tons; Promote high-quality, high value-added products research and development such as car plate, X80, oil pipeline. ratio of High-performance sheet metal products over more than 80%; ensure that the high-speed, key construction projects completed on schedule time and with sufficient 32 production efficiency; achieve high growth in efficiency and the profit over the previous year; Adhere to high management standard, low production costs and focus on energy-saving emission reduction; achieve the advanced level in the domestic industry; achieve the "three zero." in production security. In accordance with the above objectives, the focus in 2009 is to do the work of the following aspects. I. Scientific organize production and ensure capital growth II. Strengthen marketing and expand products share III. Adhere to independent innovation, focus on R & D of new products IV. Accelerate the construction of key projects with quality and production efficiency. V. Study hard and comprehensively promote the management of innovation VI. Deepen the cycle of economic development, highlight the work of energy-saving emission reduction. (3) Capital requirement, application plan and capital source. In year 2009, the capital expenditures are mainly operational outflow, the expenditures are planned to RMB35 billion, engineering project of RMB4 billion. Mainly used in reconstruction of continuous casting line, energy saving reconstruction of converter, and 180 dephosphorization converter, reconstruction of coke furnace, and silicon steel project. The operation and investing capital is mainly from sales income and bank loans. (4) Main risks and solutions. As the result of the global financial crisis, the prices of iron ore and coal decreased, but the fuel and marine transportation were facing fluctuating factors. These are influencing the profitability and stability of the Company’s operation. Releasing of production capability in the country and stuck in export made the market competition more severe. The Company has achieved great improvement in product structure improving, though still need to upgrade its anti-risk ability. Great pressure still exist in the whole industry. Through years of technical reconstruction, the Company has achieved great progress in production techniques. But there is still gap with the leading enterprises in the world. To handle the aforesaid risks, the Company will enhance internal management, quality control, and marketing territory. Adjust product structure, increase output of “double high” products, enrich product lines, and develop profit-making points. Carry on cost controlling policies, further enhance initial cost controlling, enforce process cost control, keep promote collective bidding in purchasing approach, make sure the cost controlling system will be effectively operated in the Company, to form the advantages in cost control and enforce the Company in market competition. 33 (5) Investments A. The controlled subsidiaries Relationship Legal Registered Shareholding Consolidated Company invested in Reg. Add. Business Scope to the representative Capital % or not Company Wholesale and retaining of metal materials, Xiamen Bengang Zhang steel, pig iron, 500K Steel & Iron Sales Xiamen 100 Subsidiary Consolidated Guoming electro-mechanic Yuan Ltd. products, hardware, electronics Sales of steel, pig iron, chemical materials (except for dangerous Tianjin Bengang Steel chemicals and 3 mil. Tianjin Liu Chuang 100 Subsidiary Consolidated & Iron Trading Ltd. easy-to-make Yuan poison chemicals), construction materials, and mineral products Sales of metal materials, chemical materials and products (dangerous products Wuxi Bengang Steel 1 mil. Wuxi Pang Zonghua excluded), 100 Subsidiary Consolidated & Iron Sales Co., Ltd. Yuan general machinery and accessory, electronic machinery and instruments, and hardware Sales of construction materials, chemical materials (dangerous products excluded), Nanjing Bengang hardware, 1.15 mil Nanjin Pang Zonghua 100 Subsidiary Consolidated Material Sales Ltd. (exclude gas Yuan engine scooters), electronic products, hot rolled plate, cool rolled plate, and pig iron. Process of metal materials. Yantai Bengang Iron Wholesale, 500K Yantai Song Xingang 100 Subsidiary Consolidated and Steel Sales Ltd. retailing, Yuan 34 construction materials, fire-resistance materials, steel, chemical products (except for dangerous products) Metal materials, construction materials, hardware Harbin Bengang Steel (except for 500K Harbin Fei Jixi 100 Subsidiary Consolidated & Iron Sales Ltd. wireless phone Yuan equipment), electro-mechanic products, home electronics. Sales of steel, pig iron, electronic Changchun Bengang machinery and 500K Iron and Steel Sales Changchun Li Zhichao instruments, 100 Subsidiary Consolidated Yuan Ltd. general machinery, construction material B. In the report term, the non-financing capital was used as the followings: In the report term, using of non-financing funds were as the followings: In 2008, the Company totally applied RMB4,861,980,000 in technical reconstruction. 1. Powder coal furnace reconstruction: planned for RMB78.61 million, started in 2008. Invested RMB69.16 million as of the end of 2008. Completed in 2008. 2. Dephosphorization engineering: planned for RMB72.88 million, started in 2008. Invested RMB71.43 million as of the end of 2008. Completed in 2008. 3. No.3 Heating furnace: planned for RMB120.60 million, started in 2006. RMB54.96 occurred in 2008, accumulated to RMB116.61 million as of the end of 2008. Completed in 2008. 4. Improving engineering of hot rolling line 1700: planned for RMB188.80 million, started in 2007. RMB83.34 occurred in 2008, accumulated to RMB184.31 million as of the end of 2008. Completed in 2008. 5. Successive reconstruction of continues rolling: planned for RMB210.093 million, started in 2003. Invested RMB196.99 million as of the end of 2008. Completed in 2008. 6. Super thin cool rolling plate reconstruction: planned for RMB1126.19 million, started in 2006. RMB165.18 million invested in 2008, and accumulated to RMB970.36 million at end of 2008. Has already transferred to fixed assets. Successive improving works will be finished in 2009. 7. Reconstruction of No.8 blast furnace: planned for RMB2179.05 million of investment, started in 2006. RMB889.6 million occurred in 2008 and accumulated to RMB1812.76 million as of the end of 2008 (including RMB1527.32 million transferred to fixed assets), will be completed in 2009. 8. Environmental reconstruction of material yard: planned for RMB703.12 million of investment, started in 2005. RMB239.60 million occurred in 2008 and accumulated to RMB564.33 million as of the end of 2008 (including RMB3.45 million transferred to fixed assets), will be completed in 2009. 9. IT engineering: planned for RMB185 million, started in 2005. RMB48.46 million invested in 2008, and accumulated to RMB98.35 million at end of 2008. Will be finished in 2009. 10. 180 ton converter project: planned for RMB1500 million of investment, started in 2003. RMB89.42 35 million occurred in 2008 and accumulated to RMB1433.54 million as of the end of 2008 (including RMB1074.08 million transferred to fixed assets), will be completed in 2009. 11. Reconstruction of No.8 and 9 coke furnace: planned for RMB1335.41 million of investment, started in 2006. RMB733.91 million occurred in 2008 and accumulated to RMB875.40 million as of the end of 2008 (including RMB769.35 million transferred to fixed assets), will be completed in 2009. 12. Reconstruction of continues casting line: planned for RMB1552.15 million, started in 2007. RMB1142.90 million invested in 2008, and accumulated to RMB1272.05 million at end of 2008. Will be finished in 2009. 13. Energy saving reconstruction of converter system: planned for RMB780 million, started in 2007. RMB42.83 million invested in 2008, and accumulated to RMB65.24 million at end of 2008. Will be finished in 2010. 14. Ma’erlin oxide ore pellet project: planned for RMB429.37 million, started in 2007. RMB291.75 million invested in 2008, and accumulated to RMB315.72 million at end of 2008. Will be finished in 2009. 15. Packaging and loading system: planned for RMB125.29 million, started in 2008. Invested RMB107.78 million as of the end of 2008. Will be completed 2009. (7) Routine works of the Board A. Particulars about the board meetings and resolutions The Board of Directors held 7 meetings in the report term as the followings: The 5th meeting of the 4th term of Board was held on April 23, 2008, and the resolutions were released on April 26, 2008 by China Securities Journal, Securities Times, and Hong Kong Commercial Daily. The 6th meeting of the 4th term of Board was held on May 26, 2008, and the resolutions were released on May 27, 2008 by China Securities Journal, Securities Times, and Hong Kong Commercial Daily. The 7th meeting of the 4th term of Board was held on June 26, 2008, and the resolutions were released on June 27, 2008 by China Securities Journal, Securities Times, and Hong Kong Commercial Daily. The 8th meeting of the 4th term of Board was held on July 22, 2008, and the resolutions were released on July 24, 2008 by China Securities Journal, Securities Times, and Hong Kong Commercial Daily. The 9th meeting of the 4th term of Board was held on August 19, 2008, and the resolutions were released on August 22, 2008 by China Securities Journal, Securities Times, and Hong Kong Commercial Daily. The 10th meeting of the 4th term of Board was held on October 27, 2008, and the resolutions were released on October 28, 2008 by China Securities Journal, Securities Times, and Hong Kong Commercial Daily. The 11th meeting of the 4th term of Board was held on November 27, 2008, and the resolutions were released on November 29, 2008 by China Securities Journal, Securities Times, and Hong Kong Commercial Daily. B. Execution of the resolutions of Shareholders’ Meeting by the Board Execution of profit distribution plan for year 2007 As approved by the Shareholders’ Annual Meeting 2007 held on June 26, 2008, the profit distribution plan for year 2007 was: Basing on the total capital shares of 3,136,000,000 shares at present, cash dividend of RMB3.20 will be distributed to each 10 shares (tax included. RMB2.88 was practically distributed to each 10 shares after tax to the public individual A-share holders and investment foundations). According to the Articles of Association, dividend for foreign investors’ shares (B-shares) was distributed in Hong Kong Dollar at the middle rate published by People’s Bank of China at the 1st working day after this dividend plan was adopted by the shareholders’ meeting (June 27, 2008), i.e. 1 HKD = 0. 8794 RMB. (Dividend for B-shares are free of tax temporarily.) 36 The Dividend Distribution Announcement for Year 2007 was released on July 24, 2008 by China Securities Journal, Securities Times, and Hong Kong Commercial Daily. And was implemented thereafter. Performance of duties by the Auditing Committee and Remuneration Committee To fully use the active functions of the professional committees of the Board, enhance the efficiency, quality, and scientificity of the decision-making process, on April 23, 2008, the Board revised the Articles of Association to add in articles regarding the Auditing Committee, Nominating Committee, Remuneration and Assessment Committee, and Strategy Committee, and setout the responsibilities of each. The revising proposal was passed at the Shareholders’ Meeting held on June 26, 2008. On July 22, 2008, according to the revised Articles of Association, the Board approved the list of members of the Auditing Committee, Nominating Committee, Remuneration and Assessment Committee, and Strategy Committee, as well as the meeting criteria of each committee. To fully use the supervisory function of the Auditing Committee on preparing of financial reports, the “Annual Report Criteria of Auditing Committee” was produced in accordance with the relative regulations of CSRC. The Auditing Committee has fully inspected the financial information, the internal controlling system, and the legality in operation of the Company during the works to prepare the Annual Report 2008. It communicated with Shulun Pan Certified Public Accountants Co., Ltd. before they started audition works in the Company to ensure the works would be duly completed. Meanwhile, it provided full evaluation on the process and quality of jobs done by the CPA. The Auditing Committee agrees to extend the services of Shulun Pan Certified Public Accountants Co., Ltd. as the public auditor of the Company for year 2009. The Remuneration and Assessment Committee examined and inspected the annual remunerations of the directors, supervisors and executives during preparing of the Annual Report 2008, and agreed to submit to the Board of Directors. (8) Profit distribution or common reserve capitalization plan of the current year As audited by Shulun Pan Certified Public Accountants Co., Ltd., the net profit realized in 2008 was RMB165,089,865.35. According to the Articles of Association, after providing 10% of statutory common reserves amounted to RMB17,683,282.45, the distributable profit realized in 2008 was RMB147,406,582.90, plus RMB3,889,208,357.81 undistributed profit retained at the beginning of year, and less dividend of RMB1,003,520,000 distributed for the previous year, the profit distributable to the shareholders was RMB3,033,094,940.71. The dividend plan for year 2008 is: upon the total capital shares amounted to 3,136,000,000 shares at December 31st 2008, RMB0.50 (tax included) of dividend will be distributed upon each 10 shares to the whole shareholders. The dividend for common shares is totaled to RMB156,800,000 at this time. The balance of RMB2,876,294,940.71 will be carried over to the next fiscal year. (9) Other issues A. The Company appoints China Securities Journal, Securities Times, and Hong Kong Commercial Daily as the official information disclosure presses, which remain unchanged in the year. B. Special statement of the CPA on the capital adoption by the controlling shareholder and other related parties Pursuant to the “Notice on regulations about capital transaction with related parties and providing of external guarantees” (证监发「2003 」 56 号) issued by China Securities Regulatory Commission, the CPA issued the “Special statement of the CPA on the capital adoption by the controlling shareholder and other related parties”. As of December 31, 2008, no capital adoption by the controlling shareholder and other related parties was discovered. C. Opinions of the independent directors: “Through investigation, the external guarantees occurred in 2008 and accumulated there before are zero, and no illegal providing of guarantee happened. Capital transactions with the controlling shareholder and other related parties under its control were normal business transactions. No illegal adoption of capital happened.” 37 VIII. Report of the Supervisory Committee 1. Works of the Supervisory Committee in the report term The Supervisory Committee convened 4 meetings during the report term: The 4th meeting of the 4th term of Supervisory Committee was held on April 23, 2008, the resolutions adopted were the followings: “Supervisory Committee’s Annual Report 2007”; “Board of Directors’ Annual Report 2007”; “Annual Report 2007 and the Summary”; “Financial Settlement Report 2007”; “The 1st Quarterly Report 2008”; “Profit Distribution Plan 2007”; “Proposal on Engaging of CPA for Year 2008”; “The Financing Proceed Administrative System”; “Proposal on Routine Related Transactions”; “Proposal on Investment Framework Plan 2008”; “Proposal on Revising of the Articles of Association”; “Proposal on Changing of the Supervisors”; “Proposal on Holding of Shareholders’ Annual Meeting 2007”. The resolutions were released by China Securities Journal, Securities Times, and Hong Kong Commercial Daily dated April 26, 2008. The 5th meeting of the 4th term of Supervisory Committee was held on July 22, 2008. The “Report on Administrative Improvement” was passed at the meeting, and was released by China Securities Journal, Securities Times, and Hong Kong Commercial Daily dated July 24, 2008. The 6th meeting of the 4th term of Supervisory Committee was held on August 19, 2008, the resolutions adopted were the followings: “The Interim Report 2008” “The proposal on establishing of sales companies in Shanghai and Guangzhou”. The resolutions were released by China Securities Journal, Securities Times, and Hong Kong Commercial Daily dated August 22, 2008. The 7th meeting of the 4th term of Supervisory Committee was held on October 27, 2008, the 3rd Quarterly Report 2008 was adopted at the meeting. Resolutions were released by China Securities Journal, Securities Times, and Hong Kong Commercial Daily dated October 28, 2008. The 8th meeting of the 4th term of Supervisory Committee was held on November 27, 2008. The “Proposal on selling continuous casting billet was passed at the meeting, and was released by China Securities Journal, Securities Times, and Hong Kong Commercial Daily dated November 29, 2008. 38 2. Independent opinions of the Supervisory Committee regarding the related issues in 2008 The Supervisory Committee of the Company performed its duties according to the Company Law, Securities Law and the Articles of Association focusing on legality of daily operation, financial operation, etc. It was to protect the overall interests of the Company and the masses of shareholders, the Supervisory Committee issued the independent opinion on the relevant issues in report term as follows: (1) Legality of business operation The Supervisory Committee attended and observed Company's shareholder meetings and every conference of Board of Directors, and played an important role on resolution’s formulated, implemented guarantee function during the report term. The Supervisory Committee of the Company considered that the production of the Company was in good condition of operation. Company directors accorded with Company’s article and regulation while carrying out company's work and did not violate laws and regulations, Article Association or any behavior that harmful to the interests of the Company and shareholder. The Supervisory Committee of the Company considered, the Company’s management of production and operation had responsible as devoted to their duty, had not violated laws and regulations, Article Association or any behavior harmful to the interests of the Company and shareholder while carrying out company's work, the Company made the proper strategy of business and Company’s management is doing well and with high-efficiency. (2) Inspection on financial operation The finance statement was audited by Shulun Pan Certified Public Accountants Co., Ltd. and they issued standard auditor’s report without qualified opinion, the finance report of the Company was frankly, objectively, and precisely reflecting the status of finance and business performance of the Company. (3) Related transactions Related transactions were done on fair base according to contracts or agreements, no interest of the Company was violated. 39 IX. Significant Events 1. In the report period, the Company didn’t involve in any material lawsuits or arbitrations. 2. No bankruptcy or reorganizing issues occurred in the report term needs to be disclosed. 3. In the report term, the Company holds no shares of other PLCs, nor shares of financial institutions such as commercial banks, security dealers, insurance companies, trust companies, or future companies, and made no trading of other PLCs’ shares. 4. In the report term, the Company conducted none of purchasing, selling of assets, nor merger of enterprises. 5. In the report term, the Company conducted no implementation of share option incentive program. 6. Material related transactions in the report term: (1) Relationships with the related parties Benxi Iron & Steel (Group) Co., Ltd. is the parent company and substantial controller of the Company, this hasn’t been changed in the report term. 1) Controlling Related Parties Registered Share portion Voting rights Organization Name of the subsidiaries Reg. Add. capital % % code Benxi Steel (Group) Co., Ltd. Benxi 5.369 bil 82.12 82.12 Xiamen Bengang Steel Sales Ltd. Xiamen 0.5 mil 100.00 100.00 Wuxi Bengang Steel Sales Ltd. Wuxi 1 mil 100.00 100.00 Tianjin Bengang Steel Trading Ltd. Tianjin 3 mil 100.00 100.00 Nanjing Bengang Material Sales 100.00 100.00 Ltd. Nanjin 1.15 mil Yantai Bengang Steel Sales Ltd. Yantai 0.5 mil 100.00 100.00 HarbinBengang Steel&Iron SalesLtd. Harbin 0.5 mil 100.00 100.00 Changchun Bengang Steel Sales 100.00 100.00 Ltd. Changchun 0.5 mil 2) Registered capital of the related parties with controlling relationship and their changes Name of the subsidiaries Beginning of termIncreased this termDecreased this termEnd of term Benxi Steel (Group) Co., Ltd. 5.369 bil 5.369 bil Xiamen Bengang Steel Sales Ltd. 0.5 mil 0.5 mil Wuxi Bengang Steel Sales Ltd. 1 mil 1 mil Tianjin Bengang Steel Trading Ltd. 3 mil 3 mil Nanjing Bengang Material Sales Ltd. 1.15 mil 1.15 mil Yantai Bengang Steel Sales Ltd. 0.5 mil 0.5 mil HarbinBengang Steel&Iron SalesLtd. 0.5 mil 0.5 mil Changchun Bengang Steel Sales Ltd. 0.5 mil 0.5 mil 40 3) Shareholding of Related Parties with Controlling Relationship ProportionIncreasedDecreased Name of the subsidiaries Beginning of term End of termProportion this term this term Benxi Steel (Group) Co., Ltd. 2.57520 bil 82.12 2.57520 bil 82.12 Xiamen Bengang Steel Sales Ltd. 0.5 mil 100.00 0.5 mil 100.00 Wuxi Bengang Steel Sales Ltd. 1 mil 100.00 1 mil 100.00 Tianjin Bengang Steel Trading Ltd. 3 mil 100.00 3 mil 100.00 Nanjing Bengang Material Sales Ltd. 1.15 mil 100.00 1.15 mil 100.00 Yantai Bengang Steel Sales Ltd. 0.5 mil 100.00 0.5 mil 100.00 Harbin Bengang Steel & Iron Sales Ltd. 0.5 mil 100.00 0.5 mil 100.00 Changchun Bengang Steel Sales Ltd. 0.5 mil 100.00 0.5 mil 100.00 3) Related Parties without Controlling Relationship Names of the related parties Relation with the Company Benxi Steel (Group) Machinery Co., Ltd. Same parent Bengang Group International Trading Ltd. Same parent Benxi Steel (Group) Tengda Holdings Ltd. Same parent Guangshou Free Trade Zone Bengang Sales Co., Ltd. Same parent Shanghai Bengang Steel & Iron Trading Co., Ltd. Same parent Shanghai Bengang Steel Goods Ltd. Same parent Liaoning Bengang Steel & Iron Trading Co., Ltd. Same parent Dalian Boluole Steel Tube Ltd. Same parent Shenyang North Bengang Sales Ltd. Same parent Benxi Steel (Group) Steel Process and Logistics Co., Ltd. Same parent Benxi Steel (Group) Construction & Repairing Co., Ltd. Same parent Bengang Fire-resistance Material Co. Same parent Benxi Steel (Group) Metallurgy Residues Co., Ltd. Same parent Liaoning Metallurgy Technician College Same parent Benxi Steel (Group) Industrial Development Co., Ltd. Same parent Benxi Steel (Group) Construction Co., Ltd. Same parent Yinkou Bengang International Logistics Co., Ltd. Same parent Benxi Steel (Group) Real-estate Development Co., Ltd. Same parent Benxi Steel (Group) Education Center Same parent Benxi Steel (Group) Drilling Tools Co., Ltd. Same parent Benxi Iron & Steel (Group) Designing and Research Institute Same parent Benxi Iron & Steel (Group) Information and Automatic Technologies Co., Ltd. Same parent Benxi Steel (Group) News Center Same parent Benxi Steel (Group) New Industrial Development Co., Ltd. Same parent Benxi Steel (Group) Mining Co., Ltd. Same parent Benxi Steel (Group) Electronics Co., Ltd. Same parent Benxi Steel (Group) Thermal Power Development Co., Ltd. Same parent Bengang Puxiang Cool Rolling Steel Sheet Co., Ltd. Same parent Benxi Steel & Iron (Group) Inspection Co., Ltd. Same parent 3. Related transactions 1) Pricing policies Transactions between the Company and related parties were conducted according to the related agreements or normal market trade terms. 2) Related transaction agreements (1) On December 28, 2005, the Company entered a comprehensive service agreement with Bengang Group, by which Bengang Group supplies the Company with raw materials, auxiliary 41 materials, supporting services, and property leasing, meanwhile, the Company supplies Bengang Group with raw materials, auxiliary materials, power, spare parts, trademark and patents, supporting services and waste materials. According to the agreement, the pricing principles are: A: The pricing of subjects purchased from Bengang Group : Pricing of raw materials: Price of fine iron ore will not higher than the average customs C&F price from countries like Brazil and Australia in the last half year, plus inland freight, port fee, and quality adjustment price. Quality adjustment on prices will be basing on the weighted average of imported fine iron ore in the first half of year, and on the basis of 10 yuan per ton to 1% of quality difference. The price for iron ore pellets shall not higher than the weighted average price offered by the 3rd parties during the previous half-year. The price will be adjusted each half-year. The price for recycled steel will not be higher than the weighted average of the recycled steel the Company purchased from the independent 3rd parties in the previous month, and to be decided upon negotiation. Pricing of auxiliary materials: limestone, fire resistance material and auxiliary materials provided by Bengang Group will be at market price. Pricing of spare parts: the spare parts manufactured by the Group itself will be at market price. Trucking service: on market price. Pricing of the heating service of the dwelling house for staff and workers: carried out according to the price set forth by the national government. Workshop and equipment maintaining services: maintaining services are priced upon negotiation. Designing and engineering service will be at national government price. Construction service: construction services provided by Bengang Group to the Company will be at market price. Printing, newspapers, media and other publications: on national government price. Education facilities and services: education facilities, vocational education programs, and onsite training courses provided by Bengang Group are at market price. Pricing of agency service: The export business was entrusted to Bengang Group before the Company obtains its own export business license. All business involved are conducted according to normal commercial practices. Agency fees are determined through negotiation between the two parties case by case and within the range of 0.5% to 1.5% of the total value of the trade. When the Company is authorized to do import & export trade, the agent service can be terminated on beforehand notice. Bengang Group is not the sole agent of the Company, namely the Company has the right to choose another party to do the agent. Pricing of telephone, fax and the TV service: carried out according to the price set forth by the national government. Office spaces: on market price during the effective period of this agreement. 42 Car service: on market price during the effective period of this agreement. Property management: on market price during the effective period of this agreement. Packing service: on market price during the effective period of this agreement. Labor safety services: on market price during the effective period of this agreement. Pricing of trademark: Bengang Group allows the Company to use “Bengang” trademark by free. However the Company can’t allow any other parties to use it. The Company has the right to register its own trademark at any time. B: Pricing of the products sold to Bengang Group Hot-rolled steel sheet: carried out according to the weighting average price of the same quality products which our company sold to the independent third party in the previous month. Pricing of public service: Power from the Group was on the market price plus transferring cost. The supplies from the Company to Bengang Group, i.e. oxygen, nitrogen, argon, blast furnace gas, coke furnace gas, steam, clean water, fresh water, recycling water, and soft water, are at complete costs plus national surplus tax and reasonable profit. Railway transportation, quality test, measuring, weighting: at national price. Iron and steel scrap, including the iron material: carried out according to the market price. Spare parts: spare parts provided to the Group by the Company are on purchasing price plus 1% of purchasing expenses. R&D service: R&D that Bengang Group can’t do by itself are provided by the Company. The expenses shall be the national price. (2) Land rent from Bengang Group to the Company, it was agreed to carry forward the Land Using Right Rent Agreement” which is effective at present. Namely the price is RMB6.24 /m2/year. 43 2. Related transactions of purchasing of products and accepting of services Amount of the Current Amount of the Previous Term Term Subjects of Portion Related parties the related Portion in Amount in Amount transactions annual RMB0’000 annual RMB0’000 trade % trade % Benxi Steel & Iron (Group) Ltd. Raw materials 2,788.73 0.08 405.23 0.02 Benxi Steel & Iron (Group) Ltd. Maintaining 21,850.17 0.64 18,818.19 0.71 Benxi Steel & Iron (Group) Ltd. Labor service 1,157.80 0.03 Benxi Steel & Iron (Group) Ltd. Land rent 6,136.88 0.18 5,114.05 0.19 Acquisition Benxi Steel & Iron (Group) Ltd. 25,043.93 0.95 payment Bengang Puxiang Cool Rolling Steel Sheet Raw materials 110,118.01 3.20 102,643.26 3.89 Co., Ltd. Bengang Puxiang Cool Rolling Steel Sheet Stock 133,015.92 3.87 Co., Ltd. products Bengang Group Mineral Co., Ltd. Labor service 1,575.49 0.05 271.46 0.01 Bengang Group Mineral Co., Ltd. Raw materials 335,489.29 9.76 336,816.71 12.76 Bengang Group Mineral Co., Ltd. Transportation 203.08 0.01 570.97 0.02 Residue Bengang Group Metallurgy Residue Ltd. 2,491.89 0.07 2,208.49 0.08 treatment Bengang Group Metallurgy Residue Ltd. Raw materials 12,751.05 0.37 4,583.72 0.17 Repairing Bengang Group Metallurgy Residue Ltd. 256.53 0.01 services Bengang Group Steel Process & Logistics Process fee 78.12 89.87 Ltd. Bengang Group Property Development Ltd. Raw materials 5,352.54 0.16 3,533.02 0.13 Bengang Group Property Co., Ltd. Rental 20.79 24.45 Property Bengang Group Property Co., Ltd. management 265.49 0.01 44.56 fee Project Bengang Group Property Co., Ltd. 680.01 0.02 2,566.50 0.10 payment Bengang Group Property Co., Ltd. Freight 20.66 Repairing Bengang Group Property Co., Ltd. 110.94 services Bengang Group Machinery Ltd. Spare part 25,760.71 0.75 27,059.69 1.03 Engineering Bengang Group Machinery Ltd. 5,268.92 0.15 892.05 0.03 fee Repairing Bengang Group Machinery Ltd. 29.93 1,838.57 0.07 services Bengang Group Machinery Ltd. Raw materials 358.08 0.01 114.05 Bengang Group Machinery Ltd. Industry water 50.38 88.87 Bengang Group Construction Ltd. Spare parts 8,875.08 0.26 234.32 0.01 Engineering Bengang Group Construction Ltd. 8,308.12 0.24 61,264.89 2.32 fee Repairing Bengang Group Construction Ltd. 2,056.70 0.06 14,173.24 0.54 services Bengang Group Construction Ltd. Raw materials 3,829.33 0.11 1,706.85 0.06 Bengang Group Construction Ltd. Transportation 267.87 0.01 666.37 0.03 Fixed asset Bengang Group Construction Ltd. maintenance 430.77 0.02 fee paid Benxi Steel (Group) Industrial Development Spare parts 178.48 0.01 137.00 0.01 Ltd. Benxi Steel (Group) Industrial Development Raw materials 15,216.91 0.44 10,786.22 0.41 Ltd. Benxi Steel (Group) Industrial Development Repairing 228.64 0.01 1,915.89 0.07 Ltd. services Benxi Steel (Group) Industrial Development Transportation 1,143.47 0.03 1,637.58 0.06 Ltd. 44 Amount of the Current Amount of the Previous Term Term Subjects of Portion Related parties the related Portion in Amount in Amount transactions annual RMB0’000 annual RMB0’000 trade % trade % Benxi Steel (Group) Industrial Development Project 831.78 0.02 594.42 0.02 Ltd. payment Material and Benxi Steel (Group) Construction Ltd. 422.73 0.01 391.94 0.01 parts Benxi Steel (Group) Construction Ltd. Engineering 5,686.14 0.17 1,957.97 0.07 Benxi Steel (Group) Construction Ltd. Maintaining 1,955.53 0.06 7,111.47 0.27 Fixed asset Benxi Steel (Group) Construction Ltd. maintenance 96.22 fee paid Bengang Electronics Co., Ltd. Raw materials 7,505.70 0.22 6,893.30 0.26 Engineering Bengang Electronics Co., Ltd. 95.76 527.35 0.02 fee Bengang Electronics Co., Ltd. Spare parts 542.43 0.02 138.16 0.01 Repairing Bengang Electronics Co., Ltd. 85.47 1,512.50 0.06 services Bengang Electronics Co., Ltd. Heating 32.13 Benxi Steel (Group) Drilling Tools Co., Ltd. Spare parts 1,659.12 0.05 1,722.07 0.07 Bengang Group New Industry Development Labour 757.01 0.02 536.21 0.02 Co., Ltd. security fee Bengang Group New Industry Development Material and 30.78 Co., Ltd. dinner Liaoning Metallurgy Technician College Training fee 221.29 0.01 272.94 0.01 Liaoning Metallurgy Technician College Spare parts 3,919.94 0.11 2,084.44 0.08 Liaoning Bengang Steel & Iron Trading Raw materials 4,725.63 0.14 Co., Ltd. Bengang Group Training Center Training fee 688.21 0.02 1,748.60 0.07 Project Bengang Group Training Center 222.98 0.01 payment Bengang Group International Trading Ltd. Raw materials 14,978.56 0.44 Import & Bengang Group International Trading Ltd. export agency 4,215.51 0.12 3,731.93 0.14 fee Imported Bengang Group International Trading Ltd. 78,143.84 2.27 74,531.61 2.82 equipment Benxi Steel (Group) Information and Spare parts 1,879.68 0.05 2,782.37 0.11 Automatic Tech. Ltd. Fixed asset Benxi Steel (Group) Information and maintenance 83.05 Automatic Tech. Ltd. fee paid Benxi Steel (Group) Information and Engineering 3,604.91 0.10 2,863.17 0.11 Automatic Tech. Ltd. fee Benxi Steel (Group) Information and Repairing 696.24 0.03 Automatic Tech. Ltd. services Bengang Group Thermal Power Heating fee 585.51 0.02 1,692.89 0.06 Development Co., Ltd. Bengang Fire-resistance Material Co. Raw materials 78,790.88 2.29 44,231.71 1.68 Press and Bengang Group Press Center 118.17 182.40 0.01 media Repairing Bengang Group Press Center 10.00 services Engineering Benxi Steel (Group) Designing Institute 10,072.13 0.29 1,287.01 0.05 fee Benxi Steel (Group) Designing Institute Design 1,618.80 0.05 43.56 Repairing Benxi Steel (Group) Designing Institute 87.01 46.80 services Yinkou Bengang International Logistics Port service 5,343.20 0.16 17,149.03 0.65 Co., Ltd. Total 934,113.60 27.17 801,243.37 30.34 45 4) Sales of products and labor services Amount of the Current Amount of the Previous Subjects of the Term Term Related parties related Portion in Portion in Amount Amount transactions similar similar RMB0’000 RMB0’000 trade % trade % Benxi Steel & Iron (Group) Ltd. Products 40,208.35 1.04 15,669.74 0.50 Material and Benxi Steel & Iron (Group) Ltd. 103,722.87 2.68 22,704.53 0.72 parts Benxi Steel & Iron (Group) Ltd. Power supply 11,467.81 0.30 209.41 0.01 Benxi Steel & Iron (Group) Ltd. Commission 596.70 0.02 Bengang Group International Trading Ltd. Products 534,141.57 13.80 411,329.43 13.12 Dalian Boluole Steel Tube Ltd. Products 10,046.80 0.26 9,345.22 0.30 Guangshou Free Trade Zone Bengang Sales Co., Products 52,548.14 1.36 43,543.24 1.39 Ltd. Shanghai Bengang Steel & Iron Trading Co., Ltd. Products 92,728.22 2.40 94,212.95 3.01 Liaoning Bengang Steel & Iron Trading Co., Ltd. Products 53,423.01 1.38 63,745.23 2.03 Bengang Group Steel Process & Logistics Ltd. Products 52,715.33 1.36 38,600.98 1.23 Bengang Group Steel Process & Logistics Ltd. Power supply 32.79 64.20 Bengang Group Steel Process & Logistics Ltd. Rental 100.00 Bengang Group Dahe Industry Co., Ltd. Power supply 21.02 25.46 Benxi Steel (Group) Industrial Development Ltd. Products 217.38 0.01 Material and Benxi Steel (Group) Industrial Development Ltd. 8,943.52 0.23 8,343.65 0.27 parts Benxi Steel (Group) Industrial Development Ltd. Power supply 43.18 76.30 Bengang Group Construction Ltd. Products 485.60 0.01 Material and Bengang Group Construction Ltd. 65,570.20 1.69 32,103.99 1.02 parts Bengang Group Construction Ltd. Power supply 787.36 0.02 329.31 0.01 Bengang Group Construction Ltd. Rental 3.49 Bengang Group Machinery Ltd. Power supply 4,303.52 0.11 3,062.30 0.10 Material and Bengang Group Machinery Ltd. 2,860.72 0.07 parts Material and Bengang Group Mineral Co., Ltd. 113,819.87 2.94 95,854.09 3.06 parts Bengang Group Mineral Co., Ltd. Power supply 57,189.32 1.48 48,113.70 1.53 Freight Bengang Group Mineral Co., Ltd. 1,019.60 0.03 1,188.45 0.04 income Bengang Group Mineral Co., Ltd. Coke income 411.7 0.01 3,581.31 0.11 Bengang Group Mineral Co., Ltd. Commission 48.04 Bengang Group New Industry Development Co., Power supply 22.22 58.18 Ltd. Material and Benxi Steel (Group) Construction Ltd. 8,338.46 0.22 4,483.61 0.14 parts Benxi Steel (Group) Construction Ltd. Power supply 1,955.53 0.05 172.36 0.01 Material and Bengang Group Metallurgy Residue Ltd. 6,765.02 0.17 1,565.25 0.05 parts Bengang Group Metallurgy Residue Ltd. Power supply 247.49 0.01 200.86 0.01 Freight Bengang Group Metallurgy Residue Ltd. 90.44 36.07 income Bengang Electronics Co., Ltd. Power supply 118.72 162.00 0.01 Bengang Puxiang Cool Rolling Steel Sheet Co., Products 664,112.33 17.16 517,480.38 16.51 Ltd. Bengang Puxiang Cool Rolling Steel Sheet Co., Material and 46,302.62 1.20 44,504.67 1.42 Ltd. parts Bengang Puxiang Cool Rolling Steel Sheet Co., Power supply 26,824.08 0.69 21,398.03 0.68 Ltd. Gains from Bengang Puxiang Cool Rolling Steel Sheet Co., service 199.64 0.01 502.46 0.02 Ltd. providing Bengang Puxiang Cool Rolling Steel Sheet Co., Freight 734.61 0.02 788.48 0.03 Ltd. income 46 Amount of the Current Amount of the Previous Subjects of the Term Term Related parties related Portion in Portion in Amount Amount transactions similar similar RMB0’000 RMB0’000 trade % trade % Bengang Puxiang Cool Rolling Steel Sheet Co., Commission 223.33 0.01 Ltd. Bengang Group Thermal Power Development Power supply 9,382.25 0.24 8,039.85 0.26 Co., Ltd. Bengang Group Thermal Power Development Commission 25.97 Co., Ltd. Bengang Group Property Co., Ltd. Power supply 52.23 67.07 Bengang Group Construction Supervisory Co., Power supply 0.62 Ltd. Bengang Group Medical Co., Ltd. Power supply 16.77 24.70 Liaoning Metallurgy Technician College Coal 170.81 Bengang Fire-resistance Material Co. Power supply 2,163.73 0.06 1,980.58 0.06 Freight Bengang Fire-resistance Material Co. 393.63 0.01 65.19 income Total 1,975,596.61 51.05 1,493,633.23 47.65 5) Receivable & payable with related parties End of term RMB0’000 Beginning of year RMB0’000 Portion Portion Related parties Book inthe Bad debt Book in the Bad debt balance category provision balance category provision % % Account receivable Bengang Group Machinery Ltd. 1,868.24 2.18 1,868.49 1.62 Bengang Group Thermal Power Development 855.62 1.00 24,009.47 20.79 Co., Ltd. Bengang Puxiang Cool Rolling Steel Sheet Co., 10,918.19 9.46 Ltd. Bengang Group Construction Ltd. 309.44 0.27 Benxi Steel (Group) Industrial Development 4,557.41 5.32 1,824.42 1.58 Ltd. Bengang Group New Industry Development 42.47 0.05 137.50 0.12 Co., Ltd. Bengang Fire-resistance Material Co. 491.19 0.43 Bengang Group Metallurgy Residue Ltd. 5,890.44 6.88 Sub-total 13,214.18 15.43 39,558.7 34.27 Advance account Bengang Group International Trading Ltd. 65,712.47 19.11 Benxi Steel (Group) Construction Ltd. 25.60 0.02 37.07 0.01 Bengang Group Construction Ltd. 6,002.61 3.82 19,249.99 5.60 Benxi Steel (Group) Industrial Development 71.67 0.02 Ltd. Benxi Steel (Group) Drilling Tools Co., Ltd. 0.47 Bengang Puxiang Cool Rolling Steel Sheet Co., 10,405.47 6.62 14,959.25 4.35 Ltd. Benxi Steel (Group) Medical Co. Ltd. 2.00 Benxi Steel (Group) Machinery Co., Ltd. 5,943.90 3.78 Sub-total 22,380.05 14.24 100,030.45 29.09 Account payable Bengang Fire-resistance Material Co. 11,761.35 1.71 1,091.73 0.31 Liaoning Bengang Steel & Iron Trading Co., 3,221.61 0.47 43.35 0.01 Ltd. Liaoning Metallurgy Technician College 1,602.20 0.23 821.27 0.23 Benxi Steel & Iron (Group) Ltd. 6,883.84 1.95 Benxi Steel (Group) Drilling Tools Co., Ltd. 713.84 0.10 765.65 0.22 Bengang Group New Industry Development 0.89 158.71 0.05 Co., Ltd. Bengang Group Property Co., Ltd. 621.84 0.09 59.76 0.02 47 Bengang Group Construction Supervisory Co., 54.00 0.01 Ltd. Benxi Xingye Therapy and Sanitary Co., Ltd. 56.85 0.01 32.06 0.01 Benxi Yitong Pipe Co., Ltd. 54.00 0.01 58.44 0.02 Bengang Group Machinery Ltd. 1,319.08 0.19 3,753.35 1.07 Bengang Group Construction Ltd. 546.66 0.08 23,947.71 6.80 Bengang Group Mineral Co., Ltd. 6,588.26 0.96 38,486.36 10.92 Benxi Steel (Group) Industrial Development 5,992.16 0.87 5,390.35 1.53 Ltd. Benxi Steel (Group) Construction Ltd. 504.24 0.07 10,227.51 2.90 Bengang Group Metallurgy Residue Ltd. 6,354.47 0.92 3,115.94 0.88 Benxi Steel (Group) Information and 2,066.70 0.30 1,105.93 0.31 Automatic Tech. Ltd. Bengang Group Electronics Co., Ltd. 780.60 0.11 463.75 0.13 Benxi Steel (Group) Designing Institute 3,823.83 0.55 106.51 0.03 Benxi Steel (Group) News Center 106.61 0.03 Benxi Steel (Group) Education Center 481.68 0.07 Benxi Steel (Group) Thermal Power 7.67 Development Co., Ltd. Sub-total 46,551.93 6.75 96,618.83 27.42 Other account payable Bengang Group Machinery Ltd. 12.62 0.02 28.36 0.09 Shanghai Bengang Steel & Iron Trading Co., 721.10 1.03 98.50 0.33 Ltd. Benxi Steel (Group) Construction Ltd. 2,734.53 3.92 531.03 1.76 Benxi Steel (Group) Industrial Development 1,392.92 1.99 980.79 3.25 Ltd. Bengang Group Construction Ltd. 9,046.83 12.96 8,001.12 26.54 Bengang Group Property Co., Ltd. 156.50 0.22 294.50 0.98 Benxi Steel (Group) Information and 391.52 0.56 1,101.92 3.65 Automatic Tech. Ltd. Bengang Group New Industry Development 399.69 0.57 74.07 0.25 Co., Ltd. Benxi Electronics Co., Ltd. 874.57 1.25 770.75 2.56 Bengang Group Training Center 285.63 0.41 13.82 0.05 Dalian Boluole Steel Tube Ltd. 223.07 0.32 285.13 0.95 Bengang Fire-resistance Material Co. 298.00 0.99 Guangshou Free Trade Zone Bengang Sales 339.81 0.49 Co., Ltd. Benxi Steel (Group) Designing Institute 139.46 0.20 750.71 2.49 Liaoning Metallurgy Technician College 6.00 0.01 25.83 0.09 Bengang Group International Trading Ltd. 11,057.04 15.84 Bengang Group Mineral Co., Ltd. 450.83 0.65 10.13 0.03 Bengang Group Steel Process & Logistics Ltd. 664.39 0.95 Benxi Steel & Iron (Group) Ltd. 2,914.85 4.17 Liaoning Bengang Steel & Iron Trading Co., 968.33 1.39 Ltd. Benxi Steel (Group) News Center 225.07 0.32 Bengang Puxiang Cool Rolling Steel Sheet Co., 37.60 0.05 Ltd. Bengang Group Thermal Power Development 0.26 Co., Ltd. Sub-total 33,042.62 47.32 13,264.66 44.01 Account received in advance Dalian Boluole Steel Tube Ltd. 611.63 0.30 1,353.43 0.54 Bengang Group Steel Process & Logistics Ltd. 3,030.23 1.50 539.6 0.21 Bengang Group Construction Ltd. 178.72 0.09 5.30 Benxi Steel (Group) Industrial Development 20.76 0.01 421.02 0.17 Ltd. Guangshou Free Trade Zone Bengang Sales 3,152.12 1.56 1,045.89 0.41 Co., Ltd. Benxi Steel & Iron (Group) Ltd. 7,753.58 3.84 Liaoning Bengang Steel & Iron Trading Co., 2,822.72 1.40 7,472.55 2.96 Ltd. 48 Shanghai Bengang Steel & Iron Trading Co., 3,642.65 1.80 5,350.03 2.12 Ltd. Tianjin Bengang Steel Plate Processing and 2,850.00 1.41 Delivery Co., Ltd. Benxi Steel (Group) Drilling Tools Co., Ltd. 3.25 Bengang Puxiang Cool Rolling Steel Sheet Co., 4,105.81 2.03 Ltd. Bengang Group Mineral Co., Ltd. 0.67 Bengang Group New Industry Development 0.03 Co., Ltd. Sub-total 28,168.92 13.94 16,191.07 6.41 Notes payable Bengang Group Construction Ltd. 657.53 0.36 Benxi Steel (Group) Industrial Development 701.69 0.38 70.00 0.20 Ltd. Liaoning Bengang Steel & Iron Trading Co., 770.00 0.42 Ltd. Bengang Group New Industry Development 10.00 0.01 Co., Ltd. Bengang Fire-resistance Material Co., Ltd. 4,910.00 2.66 50.00 0.14 Benxi Steel (Group) Information and 80.00 0.23 Automatic Tech. Ltd. Bengang Group Machinery Ltd. 2,268.30 1.23 Bengang Group Property Co., Ltd. 915.00 0.50 Bengang Group Mineral Co., Ltd. 248.00 0.13 Bengang Electronics Co., Ltd. 1,230.00 0.67 Sub-total 11,710.52 6.36 200.00 0.57 Other account receivable Bengang Puxiang Cool Rolling Steel Sheet Co., 1,025.90 6.38 950.56 6.10 Ltd. Bengang Group Construction Ltd. 1.16 0.01 Bengang Group Supervisory Co., Ltd. 25.00 0.16 25.00 0.16 Bengang Group Machinery Ltd. 338.84 2.11 Bengang Group Mineral Co., Ltd. 1.41 0.01 Benxi Steel (Group) Industrial Development 168.59 1.05 Ltd. Bengang Group Steel Process & Logistics Ltd. 0.08 Guangzhou Bengang Trade Co., Ltd. 100.00 0.62 Shanghai Bengang Metallurgy Tech. Ltd. 500.00 3.11 Sub-total 2,159.82 13.44 976.72 6.27 Long-term payable Benxi Steel & Iron (Group) Ltd. 25,043.93 100.00 Sub-total 25,043.93 100.00 (3) Statement on the necessity and consistency of the related transactions To keep a steady supply of resources, the Company still needs to purchase major materials such as mineral powder from the Group. On the other hand, the power supply department and purchasing department still provides power and parts to the Group. For some companies under the controlling of the Group need to purchase finished products from the Company for further process. Therefore the sales to the Group and accepting of labor and training services will last for a period of time. To fully adopt the overseas marketing channels the Group has, the Company accepted the import & export services from Bengang International Trading Ltd. which is under full possession of the Group. (4) No non-operational capital adoption happened between the Company and the controlling shareholder or other related parties. (5) No related transactions happened in the report term in term of external joint investment with related parties. 7. Major contracts and fulfilling (1) The Company has never been involved in such events as keeping as custodian, contracted or 49 leased any other company’s assets and vice versa in the report period. (2) No providing of external guarantee occurred in the report term. (3) No providing or accepting of cash asset management to or from other parties occurred during the report term. (4) No other material contract engaged in the report term. 8. Commitment issues made by share holders with 5% or above share equities occurred in or last to the report term. Shareholder Commitments Fulfilling Fulfilling of commitments status Benxi Steel 1. After launching of the share relocation Under From the day of the share equity relocation was (Group) Co., program, Bengang Group has committed not processing implemented till the day when this report is Ltd. to trade or transfer its shares in 24 months released, none of the shares of the Company held since the day when they are allowed to trade by Bengang Group was traded in the market or in the stock exchange, and not more than 5% of the total capital share of the Company transferred to others. None of the shares newly between the 24th month and the 36th month. placed to the Group for acquiring of the steel & 2. Bengang Group committed not to put the newly iron assets of the Group was traded in the market placed shares in the market or sell to others in 36 months since the date when the share registration is or transferred to others. No situation occurred that done. the Group is not fulfilling or not completely 3. From completion day of this acquisition up to the end of 2010, Bengang Group will hold not lower fulfilling the commitments. than 65% of the Company’s shares (Except for selling to strategic investors by way that is allowed by national policies. However the acceptor shall carry over the original commitment.) 4. When the Group is trading or transferring the shares it holds in the Company before the end of 2010, the prices shall not lower than the net asset per share provided by the latest auditing report. Bengang Group committed that the proceeds from trading of the shares, by breaching of faith as said above, will be transferred to the possession of the Company. 5. Bengang Group promises to be responsible for the losses due to its failure or partially failure in fulfilling of the above responsibilities. The above commitments are under processing at present and no breaching of commitment has occurred.