LU THAI TEXTILE CO., LTD — Annual Report 2003

Apr 1, 2004

LU THAI TEXTILE CO., LTD. SUMMARY OF ANNUAL REPORT 2003

(Adjustment based on International Accounting Standards)

§1. IMPORTANT NOTES

1.1 The Board of Directors of Luthai Textile Co., Ltd. (hereinafter referred to as the Company) and its directors hereby confirm that there are no any important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. The summary of annual report 2003 is abstracted from the full text of annual report; the investors are suggested to read the full text of annual report to understand more details.

1.2 No director stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of the Annual Report or have objection for this report. 1.3 Mr. Chen Youhan, Mr. Xu Zhinan, Mr. Chen Ruimou and Mr. Wang Yonggui, Director of the Company, were absent from the Board meeting due to some reasons;

Mr. Xu Zhinan and Mr. Chen Ruimou entrusted Mr. Liu Shizhen, Chairman of the Board, to vote on them behalf, Independent Director Mr. Wang Yonggui entrusted Independent Director Zhou Zhiji to vote on his behalf, Mr. Chen Youhan did not entrust other to vote.

1.4 Shandong Zhengyuan Certified Public Accountants & Ltd. issued an unqualified Auditors’ Report for the Company.

1.5 Chairman of the Board of the Company Mr. Liu Shizhen, Chief Accountant Mr. Su Huasheng and Person in Charge of Financing Ms. Qu Qingfeng hereby confirm that the Financial Report enclosed in the Annual Report is true and complete.

This annual report is written in both Chinese and English. Should there be any difference in interpretation of the two versions, the Chinese version shall prevail.

§2. COMPANY PROFILE

2.1 Basic information

§2. COMPANY PROFILE 2.1 Basic information
Shortformofthe stock	LUTHAI A,LUTHAI B
Stock code	000726,200726
Listed stockexchange	ShenzhenStock Exchange
Registered address	No. 11, Mingbo Road, High-tech Industrial DevelopmentZone,Zibo, Shandong
Office address	No. 81, Songling East Road, Zichuan District, Zibo
Post code	255100
Internet web site of the Company	www.lttc.com.cn
E-mail of the Company	lttc@public.zbptt.sd.cn

2.2 Contact person and method

Name	Secretary of the Board of Directors	Authorized representative in charge of securities affairs
	QinGuiling	Zheng Weiyin

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Contact address	No. 81, Songling East Road, Zichuan District, Zibo	No. 81, Songling East Road, Zichuan District, Zibo, No. 11, Mingbo Road, High-tech Industrial Development Zone, Zibo
Telephone	(86)533-5285166	(86)533-5285166;3586827
Fax	(86)533-5282188	(86)533-5282188
E-mail	qinguiling@lttc.com.cn	wyzheng@lttc.com.cn

§3. SUMMARY OF ACCOUNTING DATA AND FINANCIAL INDEXES

3.1 Major accounting data

Unit: RMB’000

	2003	2002	Increase/decrease from the previous year（％）	2001
Income from main operations	1,270,512	950,880	33.61%	785,693
Totalprofit	231,325	152,986	51.21%	139,358
Netprofit	195,156	128,542	51.82%	120,518
Net profit after deducting non-recurring gains and losses	192,635	129,482	48.77%	125,964
	At the end of 2003	At the end of 2002	Increase/decrease from the end of previousyear（％）	At the end of 2001
Total assets	2,584,956	1,785,690	44.76%	1,477,554
Shareholder’s equity (excluding minorityinterests)	1,446,327	1,356,751	6.60%	1,314,320
Net cash flow arising from operatingactivities	82,277	269,188	-69.44%	-34,797

3.2 Major financial indexes Unit: RMB

	2003	2002	Increase/decrease from the previous year（％）	2001
Earningsper share	0.46	0.37	24.32 %	0.45
Earnings per share (it calculated based on new share capital if share capital was changed.)	0.46	--	--	--
Return on equity (%)	13.49%	9.47%	42.45%	9.17%
Return on equity as calculated based on net profit after deducting non-recurring gains and losses(%)	13.32%	9.54%	39.62 %	9.58 %
Net cash flow per share arising from operatingactivities	0.19	0.76	-75.00 %	-0.13
	At the end of 2003	At the end of 2002	Increase or decrease from the end of	At the end of 2001

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			previousyear（％）
Net assetsper share	3.42	3.85	-11.17%	4.85
Net assets per share after adjustment	3.42	3.84	-10.94%	4.84

3.3 Difference of net profit as audited by Chinese Accounting Standard (CAS) and International Accounting Standard (IAS)

• √ Applicable □ Inapplicable

Unit: In RMB’000

		Unit: In RMB’000
	CAS	IAS
Netprofit	191,734	195,156
Explanation on the difference	Depreciation of RMB –3,000,000 and other operating income of RMB –422,000

§4. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS

4.1 Statement of changes in shares of the Company

Unit: shares

	Before the change	Increase / decrease in this time (+, -)	Increase / decrease in this time (+, -)	Increase / decrease in this time (+, -)	After the change
		Capitalization of public reserve	Others	Subtotal
I. Unlisted shares
1. Sponsors’ shares	98,527,000	19,705,400	0	19,705,400	118,232,400
Including: State-owned share				0	0
Domestic legal person’s shares	49,263,500	9,852,700		9,852,700	59,116,200
Foreign legalperson’s shares	49,263,500	9,852,700		9,852,700	59,116,200
Others				0	0
2. Raised legal person’s shares				0	0
3. Inner employees’ shares	33,800,000	6,760,000	-40,560,000	-33,800,000	0
4. Preference shares or others				0	0
Total unlisted shares	132,327,000	26,465,400	-40,560,000	-14,094,600	118,232,400
II. Listed shares
1. RMB ordinaryshares	84,500,000	16,900,000	40,560,000	57,460,000	141,960,000
2. Domestically listed foreign shares	135,200,000	27,040,000		27,040,000	162,240,000
3. Overseas listed foreign shares				0	0
4. Others				0	0
Total listed shares	219,700,000	43,940,000	40,560,000	84,500,000	304,200,000
III. Total shares	352,027,000	70,405,400	0	70,405,400	422,432,400

4.2 Particulars about change in shares held by the top ten shareholders and the top ten shareholders of circulation share

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Total number of shareholders at the end of report period	Total number of shareholders at the end of report period	Total number of shareholders at the end of report period	40,096	40,096	40,096	40,096
	Particulars about shares held bythe topten shareholders
Name of Shareholder	Increase / decrease in the report year (share)	Shares held at the year-end (share)	Proportion (%)	Type of shares (Circulating/No n-circulating)	Number of share pledged or frozen	Nature of shareholders (State-owned shareholder/foreign shareholder)
ZIBO LUCHENG TEXTILE CO., LTD.	9,852,700	59,116,200	13.99	Non-circulating	59,116,200	State-owned shareholder
TAILUN TEXTILE CO.,LTD.	9,852,700	59,116,200	13.99	Non-circulating	0	Foreign shareholder
BTFE-VALUE PARTNERS INTELLIGENT FD-CHINA B SHS FD（B-share）	6,279,360	7,657,622	1.81	Circulating	Unknown	Foreign shareholder
SOUTH CAPITAL NOMINEES LIMTED（B-share）	1,360,153	5,520,153	1.31	Circulating	Unknown	Foreign shareholder
ZHU SHENG DI（B-share）	3,007,103	4,937,482	1.17	Circulating	Unknown	Foreign shareholder
YIN FENG SECURITIES INVESTMENT FUNDS（A-share）	3,298,251	4,675,354	1.11	Circulating	Unknown	Foreign shareholder
DEUTSCHE BANK AG LONDON （B-share）	3,449,437	4,387,103	1.04	Circulating	Unknown	Foreign shareholder
TOYO SECURITIES ASIA LIMIYED-A/C CLIENT（B-share）	1,364,280	3,729,728	0.88	Circulating	Unknown	Foreign shareholder
VALUE PARTNERS INTELLIGENT FUNDS CHINESE MAINLAND FOCUS FUND（B-share）	3,384,741	3,384,741	0.80	Circulating	Unknown	Foreign shareholder
DAIWA SECS EMBC AC ITOCHU HONG KONG LTD	-600,000	3,300,000	0.78	Circulating	Unknown	Foreign shareholder
Explanation on associated relationship among the top ten shareholders or consistent action	Among the top ten shareholders, the top two shareholders are sponsor shareholders of the Company. The Company was unknown whether there exists associated relationship or consistent action among the other shareholders.

Particulars about shares held bythe topten shareholders of circulation share	Particulars about shares held bythe topten shareholders of circulation share	Particulars about shares held bythe topten shareholders of circulation share
Shareholders’ name (full name)	Number of circulation share held at theyear-end(share)	Type (A-share, B-share, H-share and other)
BTFE-VALUE PARTNERS INFELLIGE	7,657,622	B-share
SOUTH CAPITAL NOMINEES LIMTED	5,520,153	B-share
ZHU SHENG DI	4,937,482	B-share
YIN FENG SECURITIES INVESTMENT FUNDS	4,675,354	A-share
DEUTSCHE BANK AG LONDON	4,387,103	B-share

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TOYO SECURITIES ASIA LIMIYED-A/C	3,729,728	B-share
VALUE PARTNERS INTELLIGENT FU	3,384,741	B-share
DAIWA SECS EMBC AC ITOCHU HO	3,300,000	B-share
MERRILL LYNCH PIERCE FENNER	3,134,744	B-share
GOOD CAPTURE INVESTMENTS	3,055,500	B-share
Explanation on associated relationship among the top ten shareholders of circulation share	The Company was unknown whether there exists associated relationship or consistent action among the top ten shareholders of circulation share.

4.3 Particulars about controlling shareholders and actual controller of the Company

4.3.1 Particulars about change in controlling shareholders and actual controller of the Company □ Applicable √ Inapplicable

4.3.2 Introduction to the information of the controlling shareholder and other actual controller

Zibo Lucheng Textile Co., Ltd. (hereinafter referred to as “Lucheng Textile”): Its legal representative is Liu Zibin, and registered capital is RMB 8.67 million. Lucheng Textile was engaged in production and marketing of textile, knitwear, garments and other sewing products. Lucheng Textile was the first largest shareholder of the Company as well as the actual controlling shareholder. Lucheng Textile was founded in Sep. 1998 based on Zibo the 7[th] Cotton Textile Plant, original sponsor of the Company. It is a Limited Company that its shares held by natural persons. Of them, Mr. Liu Shizhen held 21% of total shares, which is the first largest shareholder of Lucheng Textile. Basic information of Liu Shizhen: Chinese nationality, he has not enjoy the residence power in the other country or area; he took the post of Chairman of the Board and General Manager of the Company for a term of six years. As at the end of the report period, Lucheng Textile held 59.1162 million shares of the Company, taking 14% of total share capital of the Company, and the said shares have not been listed for trade, while was pledged to Min Sheng Bank for loan since July 2003, the pledging term was from July 3, 2003 to July 3, 2004. The said public notice was published in Shanghai Securities News, Securities Times and Ta Kung Pao dated July 5, 2003.

§5. PARTICULARS ABOUT DIRECTORS, SUPERVISORS AND SENIOR

5.1 Particulars about changes in shares held by directors, supervisors and senior executives

						Unit: share	Unit: share
Name	Title	Sex	Age	Office term	Shares held at the year-begin	Shares held at the year-end	Reason of change

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Liu Shizhen	Chairman of the Board/General Manager	Male	64	May 7, 2001- May 7, 2004	143,312	171,974	Converting public reserve into share capital
Chen Youhan	Vice Chairman of the Board	Male	71	May 7, 2001- May7, 2004	0	0
Xu Zhinan	Director and concurrently Deputy General Manager	Male	73	May 7, 2001- May 7, 2004	0	0
Liu Zibin	Director and concurrently Deputy General Manager	Male	39	May 7, 2001- May 7, 2004	0	0
Tengyuan Yingli	Director	Male	64	May 7, 2001- May7, 2004	0	0
Chen Ruimou	Director	Male	60	May 7, 2001- May7, 2004	0	0
Su Huasheng	Director and concurrently Chief Accountant	Male	60	May 7, 2001- May 7, 2004	33,124	39,749	Converting public reserve into share capital
Wang Fangshui	Director and concurrently Chief Engineer	Male	43	May 7, 2001- May 7, 2004	16,900	20,280	Converting public reserve into share capital
Sun Zhigang	Director	Male	42	May 7, 2001- May 7, 2004	19,942	23,930	Converting public reserve into share capital
Qin Guiling	Director and concurrently Secretary of the Board	Female	38	May 7, 2001- May 7, 2004	20,280	24,336	Converting public reserve into share capital
Wang Yonggui	Independent director	Male	35	May 7, 2001- May 7, 2004	0	0
Hong Xiaobin	Independent director	Male	31	May 7, 2001- May7, 2004	0	0
You Shisong	Independent director	Male	68	May 7, 2001- May7, 2004	0	0
Wu Yuhua	Independent director	Male	60	May 7, 2001- May 7, 2004	0	0
Zhou Zhiji	Independent director	Male	41	May 7, 2001- May7, 2004	0	0
Li Tongmin	Supervisor and concurrently Manager of Production Dept.	Male	48	May 7, 2001- May 7, 2004	22,308	26,769	Converting public reserve into share capital
Zhao Kegui	Supervisor and concurrently Chief Economist	Male	57	May 7, 2001- May 7, 2004	33,800	40,560	Converting public reserve into share capital
Zhu Lingwen	Supervisor and concurrently Manager of Layout Dept.	Male	50	May 7, 2001- May 7, 2004	47,320	56,784	Converting public reserve into share capital

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5.2 Particulars about directors, supervisors holding the post in Shareholding Company √ Applicable □ Inapplicable

Name	Name of shareholding Company	Title in shareholding Company	Office term	Drawing the payment from the Company (Yes / No)
Liu Zibin	Zibo Lucheng Textile Co., Ltd.	Chairman of the Board and concurrentlyGeneral Manager	Since 2000 to now	Yes
Xu Zhinan	Tailun Textile Co., Ltd.	Chairman of the Board	Since 1999 to now	Yes

5.3 Particulars about the annual payment of directors, supervisors and senior executives

executives
Total annualpayment	RMB 4,565,000
Total annual payment of the top three directors drawing the highestpayment	RMB 2,033,000
Total annual payment of the top three senior executives drawingthe highestpayment	RMB 2,033,000
Allowance of independent director	RMB36,000 perperson/ year
Other treatment of Independent Directors	The Company reimbursed the relevant expenses of business trip.
Name of directors and supervisors received no payment orallowancefromthe Company	Chen Youhan
Limits ofpayment	Numberofpersons
RMB 770,000～RMB 820,000	2
RMB 400,000 ～RMB 430,000	2
RMB300,000 ～RMB 400,000	6
RMB70,000 ～RMB 100,000	3

§ 6. Report of the Board of Directors

6.1 Discussion and analysis to the whole operation in the report period

In the report period, the whole operation of the Company was as follows: The Company realized an income from main operations of RMB 1,270,512,000 in the whole year, an export income of USD 126,623,000, a profit from main operations of RMB 418,057,000 and a net profit of RMB 195,156,000, which increased by 33.61%, 31.54%, 51.86% and 51.82% respectively compared with the previous year.

In the report period, the expansion project of COM spinning of 20,000 ingots has been put into production; instruments installation of the expansion project of trimming of liquid ammonia has been finished and put into practical operation, the capital of both projects is raised from additionally issued A-shares. The projects invested by self-owned capital were: Invested RMB 88.72 million for the technique reconstruction of top grade colored weaving production; Invested RMB 35.76 million and established Xinjiang Lutai Harvest Cotton Co., Ltd. of which the Company held 51% equity, through the implementation of the above projects, the production chain of the Company was prolonged, the instruments of the yarn-dyed fabric was perfected, production structure was more reasonable, the added-value of the products was

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increased, marketing competition power of the products was strengthened and profit earning capability was increased. Invested RMB 60 million and established Zibo Lutai Huanzhong Medicine making Co., Ltd., 75% equity was held by the Company. In the report period, the Company fully exerted its advantages in scale, market and capital, etc., increased the reserve of cotton and yarn used in production in the early stage of this period, at the same time strengthened production management and cost control, reduced the effect of the volatile cotton price on the Company’s production. In the report period, the Company made full use of the favorable market credit and clients’ resources accrued for years, actively developed the business of order on Internet, effectively decreased the grave influence of emergency SARS in the report period, made the production and operation maintained favorable trend and further increased the Company’s operation profit.

In the report period, the Company further increased its input of technique innovation and strengthened development. In 2003, led by the science and technology committee of the Company, the Company developed 13 new technique items, conquered the technique of trimming fold of outside material of liquid ammonia super united, realized the bulk production of the pure cotton double elasticity trimming technique. The success of practical weaving of XLA elastic outside material filled the blank of our country. At present, the products of the Company have 28 serials, nearly 100000 specs and varieties and satisfied the requirements of all kinds of clients. The Company will meet the people’s increasing living requirements better by developing technique, increase the metabolism of the products and upgrade the outside material of the yarn-dyed fabric of shirts.

In the report period, the Company continued to implement the international standardization management of ISO9000 and ISO140000, finished the transition of ISO9000 from 1994 version to 2000 version. In August of 2003, the Company smoothly passed the professional health safety management system attestation of OHSMS18000, made the system management of the Company further improved.

6.2 Statement of main operations classified according to industries or products Unit: RMB’0000

Classified according to industries or products	Income from main operations (RMB)	Cost of main operations (RMB)	Gross profit ratio (%)	Increase/decrease in income from main operations over the last year (%)	Increase/decreas e in cost of main operations over the last year (%)	Increase/decrease in gross profit ratio over the last year (%)
Cotton textile industry	104,075.80	70,797	31.98	29.87	22.14	15.58
Manufacture of garments	21,968.50	14,023.60	36.16	47.14	42.48	6.07
Agriculture	1,006.90	724.90	28.01	0.00	0.00	0.00
Including: related transactions	0.00	0.00	-	0.00	0.00	0.00
Spinning	2,030.10	1,924.60	5.20	36.34	96.19	-84.76

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Yarn-dyed outside materialofshirts	101,819.90	68,718.60	32.51	31.78	22.75	18.05
Shirts	21,968.50	14,023.60	36.16	47.14	42.48	6.07
Lint	1,006.90	724.90	28.01	0.00	0.00	0.00
Others	225.80	153.80	31.89	-83.68	-84.59	13.59
Including: related transactions	0.00	0.00	-	0.00	0.00	0.00
Pricing rules for related transactions	Based on the fair market principle
Necessity and durative of related transactions	Without a certain necessity and durative

6.3 Particulars about main operations classified according to areas

Unit: RMB’0000

		Unit: RMB’0000
Areas	Income from main operations (RMB)	Increase/decrease in income from main operations over the lastyear(%)
Japan and Korea	27,151.70	21.37
HongKong	27,547.40	21.68
Southeast Asia	29,646.30	23.33
Europe and America	17,744.70	13.97
Others	516.30	0.41
Mainland of China	24,444.80	19.24
Total	127,051.20	100.00

6.4 Particulars about the customers of purchase and sales

Unit: RMB’0000

Total amount of purchase of the topfive suppliers	38,680.00	Proportion in the total amount ofpurchase	37.72%
Total amount of sales of the topfive sales customers	47,100.00	Proportion in the total amount of sales	37.07%

6.5 Operation of share-holding companies (applicable to the situation where investment equity takes over 10% of its net profit)

□ Applicable √ Inapplicable

6.6 Explanation on reasons of material changes in main operations and its structure

□ Applicable √ Inapplicable

6.7 Explanation on reasons of material changes in profitability capability of main operations (gross profit ratio) than that in the last year

√ Applicable □ Inapplicable

In the sales of main products of the Company, the gross profit ratio of yarn-dyed fabric and shirts increased by 18.05% and 6.07% respectively over the same period of

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last year, which was mainly due to the increase in sales price of yarn-dyed fabric and shirts. The gross profit ratio of cotton yarn decreased by 84.76% over the same period of last year, which was mainly because that the Company consolidated the statements with Dongying Luxin, a controlling subsidiary of the Company.

6.8 Analysis to reasons of material changes in operating results and profit structure compared with the previous year √ Applicable □ Inapplicable

In the report period, the Company’s total assets increased by 44.37% over the same period of last year, which was mainly because that Xinjiang Lu Thai Harvest Cotton Company Limited, Shandong Lu Thai Huanzhong Pharmaceutical Co., Ltd. and Hong Kong (Lu Thai) Co., Ltd. were newly listed in the consolidated scope. Shareholders’ equity increased by 15.25% over the same period of last year, which was mainly due to the said three companies newly increased in the consolidated scope and increase in net profit realized in the report period. Profit from main operations increased by 52.54% over the same period of last year, which was mainly due to the increase in sales income and enhancement of gross profit ratio of products in the report period. Net profit increased by 52.72% over the same period of last year, which was mainly due to the increase in sales income and enhancement of gross profit ratio of products in the report period. Net increase in cash and cash equivalents increased by 2422.47% over the same period of last year, which was mainly due to the said three companies newly increased in the consolidated scope in the report period.

Analysis to reasons of material changes in the whole financial position than that in the last year

√ Applicable □ Inapplicable

The reason for changes was that there were such three controlling subsidiaries newly increased in the scope of consolidated statements, namely Xinjiang Lu Thai Harvest Cotton Company Limited, Hong Kong (Lu Thai) Co., Ltd. and Shandong Lu Thai Huanzhong Pharmaceutical Co., Ltd..

6.9 Explanation on the past, current and future important effects of the material changes in production and operation environment, macro-policies and regulations on the Company’s financial position and operating results

√ Applicable □ Inapplicable

The Company’s main products are mainly exported and the export takes over 80% in the whole sales. In 2004, the export drawback rate released by the State to the textile decreases by 4%, which shall impact a certain influence on the Company’s operation. As a textile enterprise, the Company’s main productive raw materials are cotton and cotton yarn. In 2004, the high price of cotton in the domestic market shall influence on the Company’s productive cost by a certain extent. Based on fully considering its influence, the Company has also established corresponding measures in such aspects as control on productive cost and sales price of products and is striving for reducing the said influence to the minimum.

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6.10 Completion of the profit estimation

• Applicable √ Inapplicable

• 6.11 Completion of the business plan □ Applicable √ Inapplicable

6.12 Application of the raised proceeds √ Applicable □ Inapplicable

Unit: RMB’0000

				Unit:	RMB’0000
Total amount of raised proceeds	86,770.00	Total amount of raised proceeds used in the report year	14,984.61	Total amount of raised proceeds used accumulatively	86,770.00
Committed projects	Planned amount of input	Change projects or not	Actual amount of input	Accrued amount of earnings	Compliance with planned progress and estimated earnings or not
Technical renovation project of top grade yarn-dyed outsidematerial	26,731.00	No	27,849.00	0.00	Yes
Technical renovation project of rear trimming of top grade outsidematerial	10,004.14	Yes	9,527.55	0.00	Yes
Trimming project of liquid ammonia	5,000.00	No	5,581.78	0.00	Yes
COM spinning project of 20,000ingots	13,500.00	No	14,263.40	0.00	Yes
Dongying Tianxin joint venture project	6,500.00	No	6,500.00	760.97	Yes
Supplement of circulating funds	7,000.00	No	7,000.00	0.00	Yes
Technical renovation project ofspinning	3,027.00	No	3,170.59	0.00	Yes
Renovation project of bleaching and dyeing equipments	3,192.00	No	3,305.40	0.00	Yes
Constituent company of HongKong	636.00	No	636.66	14.62	Yes
Expansion project of COM spinning of 20,000 ingots	12,000.00	No	13,762.32	0.00	Yes
Total	87,590.14	-	91,596.70	775.59	-

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Explanation on not reaching planned progress and earnings (in detailed projects)

At the end of the report period, the investment projects with the proceeds raised through additionally offering of A shares has all been finished and put into production and operation. Except that the projects of “Dongying Tianxin joint venture project” and “Constituent company of Hong Kong” in the said projects were calculated independently, other projects were just single working procedure and were not calculated independently with their benefits all reflected in the earnings of yarn-dyed fabric.

Explanation on reasons and procedures of change (in detailed projects)

Reason of change of technical renovation project of rear trimming of top grade outside material: the price of equipments decreased than the predicted through bidding purchase, saving funds of RMB 56,250,000. After examined and approved by 2001 Shareholders’ General Meeting, the planned investment of this project was changed from RMB 156,300,000 to RMB 100,041,400 and the saved funds amounting to RMB 56,250,000 was put into the expansionproject of 20,000 ingots COM spinning.

Particulars about the changed projects √ Applicable □ Inapplicable

Unit: RMB’0000

	Unit: RMB’0000	Unit: RMB’0000	Unit: RMB’0000	Unit: RMB’0000	Unit: RMB’0000
Total amount of capital of changed investment projects	5,625.00
Projects after change	Corresponding projects committed originally	Planned input amount of changed projects	Actual amount of input	Accrued amount of earnings	Compliance with planned progress and estimated earnings or not
COM spinning project of 20,000 ingots	Technical renovation project of rear trimming of top grade outside material	15,630.00	10,004.14	0.00	Yes
Total	-	15,630.00	10,004.14	0.00	-
Explanation on not reaching planned progress and earnings (in detailedprojects)	This project was just a working procedure in the Company’s production and was not calculated independently with benefits reflected in the whole benefits in yarn-dyed fabric.

6.13 Application of the proceeds not raised through shares offering √ Applicable □ Inapplicable

Unit: RMB’0000

Names of projects	Amount of projects	Progress of projects	Earnings of projects
Technical renovation project of top gradeyarn-dyed fabric	8,872.00	Finished	Reflecting in the whole benefits ofyarn-dyed fabric.
XinjiangLu Thai Harvest	3,576.00	Established	Realizingnetprofit amountingto

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Cotton Company Limited			RMB 324,200 in the report period.
Shandong Lu Thai Huanzhong Pharmaceutical Co., Ltd.	6,000.00	Under construction	No earnings in the report period
Total	18,448.00	-	-

6.14 Explanation of the Board of Directors on the “Qualified Opinion” made by the Certified Public Accountants

□ Applicable √ Inapplicable

6.15 Business plan as of the next year of the Board of Directors (If it has)

√ Applicable □ Inapplicable

In the new year, the Company shall further strengthen the market expansion with both emphasis in domestic and foreign markets; deepen the cost management and increase the income and reduce the expenditure; effectively implement internationally standardized management such as ISO9000, ISO14000 and OHSMS18000 etc.. I. Operating tasks

The Company plans to accomplish output of yarn-dyed fabric amounting to 75 million meters (converted into 78 weft) and shirts amounting to 5.20 million pieces of standard pieces. Moreover, it plans to create foreign currency from export amounting to USD 150 million and sales income amounting to RMB 1500 million.

II. The investment projects in the new year are as follows:

(1) Investing RMB 210 million to implement the expansion project of 40,000 ingots of COM spinning. The project is to be conducted by two stages, one is to be put into production in the 2[nd] quarter of 2004 and the 2[nd] stage is to be put into production in the 1[st] quarter of 2005. (2) Investing RMB 180 million to conduct the technical reform project of high-graded yarn-dyed fabric, which is to be put into production in the 3[rd] quarter of 2004. (3) It is planned to jointly establish Lufeng Weaving and Dyeing Co., Ltd. with Hong Kong United Fashion Co., Ltd.. This company is mainly engaged in the production and sales of outside materials of weaving and dyeing with registered capital amounting to RMB 100 million, where the Company invests RMB 75 million, taking 75% of the registered capital. (4) Investing RMB 30 million to conduct the production line project of high-graded shirts with annual output amounting to 2 million pieces, which is to be put into production in June 2004.

Profit estimation of the next year (If it has) □ Applicable √ Inapplicable

6.16 The preplan on the profit distribution and capitalization of capital public reserve of the Board of Directors

The Board of the Company suggested the profit distribution preplan for year 2003 as follows: based on the total share capital amounting to 422,432,400 shares at the end of year 2003, distributing cash dividends amounting to RMB 3.75 (tax included) for every 10 shares, of which, for B shares, the dividends were paid according to HKD

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converted from middle price of norm exchange released by People’s Bank of China in the next day when Annual Shareholders’ General Meeting 2003 is held (Tax exempted according to the provisions in GS (1993) No. 45 document).

§ 7. Significant Events

7.1 Purchase of assets

√ Applicable □ Inapplicable

Unit: RMB’0000

Transaction parties and the assets purchased	Date of purchase	Purchase price	Contribution to net profit of the Company of the assets purchased from the date of purchase to the year-end	Related transaction or not (if yes, explain principle ofpricing)
Xinjiang Awati County Fengshou No. 3 Field	June 16, 2003	3,576.00	32.42	Non-related transactions

7.2 Sales of assets

□ Applicable √ Inapplicable

Influence on consistence of business and stability of managers caused by the issues interfered in purchase and sale

The issues of purchase and sale have no influence on consistence of business and stability of managers.

7.3 Important guarantee

• √ Applicable □ Inapplicable

Unit: RMB’0000

Name of the Company guaranteed	Date of happening (date of signing agreement)	Amount of guarantee	Guarantee type	Guarantee term	Complete implementation or not	Guarantee for related party (yes or not)
Xinjiang Lu Thai Fengshou Cotton Co., Ltd.	Nov. 18, 2003	10,000.00	Joint liabilities guarantee	Dec. 10, 2003- Dec. 10, 2004	No	No
Total amount of guarantee				0.00
Total balance ofguarantee				0.00
Including: total balance of related guarantee				0.00
Total amount of guarantee the listed company provided for its share-controlling subsidiaries				0.00
Total amount of guarantee breaking regulations				0.00
Proportion of total amount ofguarantee in net assets of the Company				0.00

7.4 Related credits and liabilities current

□ Applicable √ Inapplicable

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7.5 Entrusted assets

□ Applicable √ Inapplicable

7.6 Implementation of commitment items

√ Applicable □ Inapplicable

In 2003, 2002 profit distribution proposal promised by the Company was implemented completely in May 2003, the invested projects has been finished on schedule. There are no commitments in other respects.

7.7 Significant lawsuit and arbitration

□ Applicable √ Inapplicable

7.8 Particulars about the performance of obligations of Independent Directors

In the report period, according to the requirements of the Guide Opinions on Establishing System of Independent Director in Listed Company, on May 8,2003, the 2002 Annual Shareholders’ General Meeting additionally elected Mr. Wang Yonggui,

Mr. You Shisong and Mr. Hong Xiaobing as the independent directors of the Company, they attended the 18[th] , 19[th] , 20[th] , 21[st] , 22[nd] , 23[rd] , 24[th] meeting of the 3[rd] Board of Directors following this meeting. Independent Director Mr. Zhou Zhiji and Mr. Wu Yuhua attended all the meetings of Board of Directors of the Compnay in the report period. The Independent Directors implemented their responsibilities by offering advices for the Company’s production and operation.

§8.Report of the Supervisory Committee

I. Particulars about work of the Supervisory Committee in the report year

In the report year, the Supervisory Committee totally held three meetings and attended eight meetings of the Board of Directors as non-voting delegates. The meetings of the Supervisory Committee are as follows:

1. The 8[th] meeting of the 3[rd] Supervisory Committee was held in the meeting room in the 2/F of the Company on Mar. 26, 2003. Three supervisors were expected to attend the meeting and actually all of them were present. The meeting was held in conformity with the regulations of Company Law and the Company’s Articles of Association. The meeting mainly examined and approved Annual Report for 2002 and Summary and Work Report for 2002.

2. The 9[th] meeting of the 3[rd] Supervisory Committee was held in the meeting room of the Company on Apr. 22, 2003. Three supervisors were expected to attend the meeting and actually all of them were present. The meeting was held in conformity with the regulations of Company Law and the Company’s Articles of Association. The meeting mainly examined and approved Proposal on Disengaging Post of Director of Mr. Li Jinghe.

3. The 10[th] meeting of the 3[rd] Supervisory Committee was held in the 6[th] meeting room of the Company on Aug. 18, 2003. Three supervisors were expected to attend the meeting and actually all of them were present. The meeting was held in conformity with the regulations of Company Law and the Company’s Articles of Association. The meeting examined and approved Semiannual Report for 2003 and Summary.

II. Independent opinions expressed by the Supervisory Committee

1. Particulars about operation according to law

In the report period, the Supervisory Committee of the Company examined wholly and patiently the procedure of decision-making of the Company, implementation of internal control system and duties of directors and managers and believed that the

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internal control system of the Company was perfect and the procedure of decision-making was normative and found no actions of breaking laws, regulations and Articles of Association or harmful of the interest of the Company.

1. Inspection of the Company’s financing

The Supervisory Committee has checked the financial reports made by Shandong Zhengyuan Hexin Certified Public Accountants and PricewaterhouseCoopers China Certified Public Accountants and thought conformably the reports have truthfully and accurately reflected the Company’s financial status and business results.

The Supervisory Committee checked relevant procedure and result of appropriation of provision for partial inventories’ price-falling and provision for fixed assets’ deprecation of the Company and believed that it was in accordance with the regulation of Notification on Relevant Items of Dealing Well with Provision for Every Asset’s Depreciation by Listed Companies, and the appropriation base and proportion was in accordance with the regulation of the Company’s internal control system and the actual situation of the Company. The appropriation was in favor of the further improvement of assets’ quality of the Company and dropped the risk of assets to the lowest and was in favor of the further development of the Company. The influence of the appropriation on the operation result of the Company this year: an decrease of net profit of this year totally RMB 21.27 million, taking by 1.41% of audited net assets of the Company at the end of 2003. The Supervisory Committee believed it in the reasonable scope.

1. The actual investment item of the last raised capital was in conformity with promised investment item. Bur for COM Spinning Item of 20,000 Ingots, 2001 Annual Shareholders’ General Meeting approved to change its investment means from establishing a joint enterprise named Zibo Luhua Textiles Co., Ltd. by and Zibo Thaimei Ties Co., Ltd. the Company which invests 90% to investing independently by the Company. The investment scale had no change. The investment has been put into operation in July 2002.

Ended as at Dec. 31, 2003, the last raised capital of the Company has been finished using.

1. Whether the trade price of purchase and sale of assets of the Company is reasonable or not.

In the report period, the 18[th] meeting of the 3[rd] Board of Directors of the Company decided to invest RMB 35.76 million and purchase the net assets of Xinjiang Awati County Fengshou No. 3 Field, accounting for 51% of net assets after assessment, invested in the net assets and established Xinjiang Lu Thai Fengshou Cotton Co., Ltd. with the employees of the original No. 3 Field. The registered capital of the company is RMB 70.12 million and the Company holds 51% equity. As the basic date of June 30, 2002, Shenzhen Sinocoms Appraisal Co., Ltd. assessed the purchased assets and issued the assessment report with ZQXZPBZ (2002) NO. A140. Meanwhile, Xinjiang Xinde Limited Certified Public Accountants audited the financial situation of Fengshou No. 3 Field ended as at Feb. 28, 2003 and issued the auditor’s report with XXDKSZ (2003) NO. 218. The purchase of assets existed no internal transaction, the purchase price was fair and reasonable and there was no phenomenon of damaging right and interest of partial shareholders and causing running off of the Company’s assets. The Company has no sale of assets in the report period.

1. Whether the related transactions are fair

In opinion of the Supervisory Committee, the related transactions of the Company were based on the fairness, justness and publicity and there existed no transactions

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harmful of the interest of listed company.

1. Shandong Zhengyuan Hexin Certified Public Accountants and PricewaterhouseCoopers China Certified Public Accountants issued auditor’s reports with non-reservation opinion according to domestic and international accounting rules.

§ 9. Financial Report

9.1 Auditor’s Opinion

Report of the Auditors

To the Shareholders of Luthai Textile Joint Stock Company Limited

We have audited the accompanying consolidated balance sheet of Luthai Textile Joint Stock Company Limited (the “Company”) and its subsidiaries (the “Group”) as of 31 December 2003 and the related consolidated income and cash flow statements for the year then ended. These consolidated financial statements set out on pages 2 to 29 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Group as of 31 December 2003 and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

PricewaterhouseCoopers Zhong Tian CPAs 28 March 2004

9.2 Financial statement

LUTHAI TEXTILE JOINT STOCK COMPANY LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003

(all amounts in RMB thousands) Notes Sales 1 Cost of sales Gross profit Other operating income Distribution costs	Year ended 31 December
	2003 2002 1,270,512 950,880 (852,455) (675,602)
	418,057 275,278 29,057 6,557 (50,203) (38,383)

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Administrative expenses Operating profit 2 Finance cost – net 3 Share of result in a non-consolidated subsidiary 11 Profit from ordinary activities before tax 5 Income tax expense 5 Group profit after tax Minority interest 20 Net profit 6 Earnings per share (basic and diluted) 6	(154,951) (88,399)
	241,960 155,053 (10,625) (2,057) (10) (10)
	231,325 152,986 (33,721) (21,692)
	197,604 131,294 (2,448) (2,752)
	195,156 128,542
	RMB 0.46 RMB 0.37

LUTHAI TEXTILE JOINT STOCK COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2003

AS OF 31 DECEMBER 2003
(all amounts in RMB thousands) Notes ASSETS Non-current assets Property, plant and equipment, net 8 Land use rights 9 Intangible assets 10 Investment in a non-consolidated subsidiary 11 Available-for-sale investment 12 Current assets Inventories 13 Receivables and prepayments 14 Cash and cash equivalents 15 Total assets (all amounts in RMB thousands) Notes ASSETS	31 December		31 December
	2003 1,403,031 96,786 9,626 431 215	2003 1,510,089 1,074,867	2002 1,040,905 32,446 11,074 6,808 215	2002 1,091,448 694,242
	458,271 413,839 202,757		283,764 239,572 170,906
		2,584,956		1,785,690
	2003 2003		2002 2002

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Non-current assets Property, plant and equipment, net 8 Land use rights 9 Intangible assets 10 Investment in a non-consolidated subsidiary 11 Available-for-sale investment 12 Current assets Inventories 13 Receivables and prepayments 14 Cash and cash equivalents 15 Total assets	1,403,031 96,786 9,626 431 215	1,510,089 1,074,867	1,040,905 32,446 11,074 6,808 215	1,091,448 694,242
	458,271 413,839 202,757		283,764 239,572 170,906
		2,584,956		1,785,690

LUTHAI TEXTILE JOINT STOCK COMPANY LIMITED CONSOLIDATED BALANCE SHEET (CONTINUED) AS OF 31 DECEMBER 2003

(all amounts in RMB thousands) Notes SHAREHOLDERS’ EQUITY Capital and reserves Ordinary shares 19 Share premium 19 Reserves 21 Retained earnings Minority interest 20 LIABILITIES Non-current liabilities Borrowings 17 Other liabilities Current liabilities Trade and other payables 16 Current tax liabilities Borrowings 17	31 December 2003 2003 422,432 695,390 116,600 211,905 1,446,327 96,180 - 2,673 2,673 310,144 2,982 726,650 1,039,776	31 December
		2002 2002 352,027 765,795 86,878 152,051 1,356,751 44,621 15,000 - 15,000 237,953 6 131,359 369,318

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Total liabilities				1,042,449	1,042,449				384,318
Total shareholders’ equity and				2,584,956					1,785,690
liabilities
LUTHAI TEXTILE JOINT STOCK COMPANY LIMITED
CONSOLIDATED STATEMENT	OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED 31 DECEMBER			2003
			Share	Share			Retained
(all amounts in RMB thousands)	Notes		capital	premium	Reserves		earnings		Total
Balance at 1 January 2002		270,790		847,032	66,887		129,611		1,314,320
Dividend relating to
year 2001			-	-		-	(86,111)		(86,111)
Net profit	6		-	-		-	128,542		128,542
Transfer to reserves	21		-	-	19,991		(19,991)		-
Capitalisation of share premium
	19		81,237	(81,237)		-		-	-
Balance at 31 December 2002		352,027		765,795	86,878		152,051		1,356,751
Balance at 1 January 2003		352,027		765,795	86,878		152,051		1,356,751
Dividend relating to
year 2002			-	-		-	(105,608)		(105,608)
Net profit	6
			-	-		-	195,156		195,156
Transfer to reserves	21		-	-	29,694		(29,694)		-
Capitalisation of share premium
	19		70,405	(70,405)		-		-	-
Currency translation difference			-	-		28		-	28
Balance at 31 December 2003		422,432		695,390	116,600		211,905		1,446,327
LUTHAI TEXTILE JOINT STOCK COMPANY LIMITED
CONSOLIDATED CASH FLOW	STATEMENT
FOR THE YEAR ENDED 31 DECEMBER			2003
						Year ended 31 December
(all amounts in RMB thousands)				Notes			2003		2002
Cash flow from operating activities
Net profit						195,156			128,542
Adjustment for:
Minority interest				20			2,448		2,752
Tax				5			33,721		21,692
Depreciation				8		109,162			66,479
Amortisation of land use rights				9			4,545		3,263

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Amortisation of intangible assets 10 Impairment charge of property, plant and equipment 8 Loss on disposal of property, plant and equipment 2 Gain on disposal of a non-consolidated subsidiary Provision for inventories 2 Impairment charge of investment 2 Share of result in a non-consolidated subsidiary 11 Provision for/(reversal of) doubtful debts Interest expenses 3 Interest income 3 Dividend income Changes in working capital Inventories Receivables and prepayments Trading investments Trade and other payables Cash generated from operations Interest paid Tax paid Net cash generated from operating activities	3,777 2,493 10,809 - 2,803 231 - (14) 10,463 6,828 2,300 - 10 10 10,522 (218) 16,158 6,653 (2,844) (2,959) (8) -
	399,022 235,752 (177,389) (29,451) (94,645) (42,897) - 40,000 2,192 97,551
	129,180 300,955 (16,158) (6,653) (30,745) (25,114)
	82,277 269,188

LUTHAI TEXTILE JOINT STOCK COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2003

FOR THE YEAR ENDED 31 DECEMBER 2003
(all amounts in RMB thousands) Notes Cash flow from investing activities Investment in a non-consolidated subsidiary 11 Proceeds from consolidation of Luthai (Hong Kong) Textile Co., Ltd. (“Luthai HK”) 11 Acquisition of subsidiary Xinjiang Luthai, net of cash acquired (Note A) Purchase of property, plant and equipment Purchase of land use rights	Year ended 31 December
	2003 2002 - (6,367) 6,367 25,444 - (464,876) (313,388) (22,972) (24,164)

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Purchase of intangible assets Proceeds from sale of property, plant and equipment Proceeds from disposal of a non-consolidated subsidiary Dividend received Interest received Net cash used in investing activities Cash flow from financing activities Proceeds from borrowings Repayments of borrowings Dividend paid to group shareholders Dividend paid to minority shareholders Proceeds from minority shareholders Net cash generated from financing activities Increase/(decrease) in cash and cash equivalents Movement in cash and cash equivalents At beginning of year Increase/(decrease) in cash and cash equivalents At end of year 15	(2,329) (124) 10,373 525 - 7,214 8 - 2,844 2,959
	(445,141) (333,345)
	864,618 153,867 (381,327) (7,508) (106,211) (86,126) (2,365) - 20,000 2,552
	394,715 62,785
	31,851 (1,372)
	170,906 172,278 31,851 (1,372)
	202,757 170,906

Note to the Cash Flow Statement

A. Acquisition Of A Subsidiary

On 18 June 2003, the group acquired 51% of the share capital of Xinjiang Luthai Harvest Cotton Co., Ltd. (“Xinjiang Luthai”).

The assets and liabilities arising from the acquisition are as follows: (all amounts in RMB thousands)

Cash Inventory Receivables and prepayments Property, plant and equipment, net Trade and other payables Borrowing Net assets of the subsidiary Total purchase price at the Group’s 51% share of the net assets of the subsidiary Less: Cash of the subsidiary acquired Net cash inflow on acquisition of the subsidiary	61,204 6,074 85,773 82,055 (65,315) (99,673)
	70,118
	35,760 (61,204)
	(25,444)

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9.3 Accounting policy, accounting assessment and settlement method has no change compared with the latest annual report.

9.4 Explanation on change of consolidation scope compared with the latest annual report

In the report period, Xinjiang Lu Thai Fengshou Cotton Co., Ltd., whose 51% equity was held by the Company, Zibo Lu Thai Huanzhong Pharmaceutical Co., Ltd., whose 75% equity was held by the Company, were put into the consolidation scope.

Board of Directors of Luthai Textile Co., Ltd. Apr. 1, 2004

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