Annual Report 2004 - china.com.cn · PDF fileE-mail: [email protected] 4. Registered address: No.16, Renmin Road, Pingshan District, Benxi City, Liaoning Province Post Code: 117000

本钢板材股份有限公司

BENGANG STEEL PLATES CO., LTD.

Annual Report 2004 (Prepared Under International Accounting Standard)

April 12th 2005

2

Important Notes

The members of the Board and the Company acknowledge being responsible for the truthfulness, accuracy, and completeness of the announcement. Not any false record, misleading statement or significant omission carried in this announcement.

No director against the guarantee about the authenticity, accuracy and integrality of this report’s content.

Beijing TIN WHA CPAs and Ho and Ho & Company CPAs issued the standard audit report for the Company with the fair and true opinion.

The Chairman of the Board and General Manager– Mr. Li Mohua, Accounting Principal – Mr. Zhang Guohua hereby declare: the truthfulness and completeness of the report are guaranteed.

This report is prepared both in English and Chinese. When there is any conflict in understanding, the Chinese version shall prevail.

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Table of Contents

I. Company Profile........................................................3

II. Financial Highlight .....................................................4

III. The change of the capital stock and shareholder's situation .....................7

IV. Particulars about the Directors, Supervisors and Employees.....................9

V. Management structure..................................................12

VI. The Shareholders’ Meeting .............................................13

VII. Report of the Board of Directors ........................................14

VIII. The Supervisory Committee Report .....................................23

IX. Significant Events ....................................................28

X Financial Report .....................................................37

XI Documents for Reference .............................................38

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I. Company Profile

1. 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: Mr. Li Mohua

3. Secretary of the Board: Mr. Liang Guangde

Liaison of stock affair: Mr. Lu Xiaoyong

Address: No.16, Renmin Road, Pingshan District, Benxi City, Liaoning Province

Tel: 0414 7828360 7828010

Fax: 0414 7824158 7827004

E-mail: [email protected]

4. Registered address: No.16, Renmin Road, Pingshan District, Benxi City, Liaoning Province

Post Code: 117000

E-mail: [email protected]

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, No.16, Renmin

Road, Pingshan District, Benxi City, Liaoning Province

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-Share: BENGANGBANCAI Stock Code: 000761

7. Misc. information:

Business registration renewed on: April 28, 1999

Business registration renewed with: Liaoning Provincial Commerce & Industry Administration Bureau

Business license number: 2100001049024

Taxation registration number: 210502242690243

Public accountant invited by the Company:

Beijing TIN WHA CPA

Address: 17th Floor, Zhonghua Building, Fuxingmenwai Street, Beijing

Ho and Ho & Company CPAs

Address: Room 304, Leunfa Business Center, No. 2-12 Queen’s Road West, Hong Kong

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II. Financial Highlight

1. Amount of Profit and Formulation In RMB’000

Items Indices

Gross profit 912,073.00

Net profit 700,425.00

Net profit deducted non-recurring gain/loss 701,350.00

Major business profit 1,207,765.00

Other business profit -30,406.00

Operation profit 943,147.00

None business income / expense (net) -33,189.00

Net Cash flow generated by business operation 2,027,329.00

Net increasing of cash and cash equivalents 631,400.00

Items Index

Gross profit 912,073.00

Net profit 700,425.00

Net profit deducted non-recurring gain/loss 701,350.00

Major business profit 1,207,765.00

Operation profit -30,406.00

None business income / expense (net) 943,147.00

Net Cash flow generated by business operation -33,189.00

Net increasing of cash and cash equivalents 2,027,329.00

Note: Non-recurring gain/loss excluded are

Gain/loss from disposal of fixed assets -2,200.00

None-business expenses deducting impairment provision 819.00

Impairment provisions carried back -

Impact of income tax of above items 456.00

Total -925.00

6

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2. Major accounting data and finance index in the prior 3 years of the Company (Unit: RMB)

2004 2003 2002 Items

Adjusted Not adjusted

Major business turnover 17,349,451.00 11,210,196.00 7,750,477.00 7,750,477.00

Net profit 700,425.00 473,512.00 346,120.00 346,120.00

Gross Assets 8,164,472.00 7,398,116.00 7,319,306.00 6,997,687.00

Shareholders’ Equity (Exclude

Minority Shareholders’ Equity) 5,119,611.00 4,646,386.00 4,172,874.00 4,172,874.00

Earnings per share (diluted) 0.62 0.42 0.30 0.30

Earnings per share (weighted) 0.62 0.42 0.30 0.30

Net asset per share 4.5067 4.0901 3.6733 3.6733

Net asset per share, adjusted 4.5034 4.0867 3.6715 3.6715

Net Cash flow per share generated by

business operation 1.78 0.75 0.66 0.66

Earnings per share after deducting of

non-recurring gain/loss 0.62 0.41 0.32 0.32

Net earnings / capital ratio (diluted) 13.68% 10.19% 8.29% 8.29%

Net earnings / capital ratio (Weighted) 14.02% 10.74% 8.24% 8.24%

Net earnings / capital ratio after

deducting of non-recurring gain/loss

(diluted) 13.70% 9.93% 8.80% 8.80%

Note: Accounting office made ascend adjustment on in advance account and prepay account in 2002 during this

report term. Please find more details on annotation 23 of accounting statement.

3. Profit Statement Attach Table

2004 2003 Net earnings / capital

ratio (%) Per Share Income Net earnings / capital

ratio (%) Earnings per share Profit of the report period On full

amortizing basis

weighted average

On full amortizing

basis weighted average

On full amortizing


On full amortizing


Major business profit 23.59% 24.17% 1.0632 1.0632 19.68% 20.74% 0.8051 0.8051

Operation profit 18.42% 18.88% 0.8302 0.8302 17.31% 18.23% 0.7078 0.7078

Net profit 13.68% 14.02% 0.6166 0.6166 10.19% 10.74% 0.4168 0.4168

Earnings per share after deducting of non-recurring gain/loss Profit after equity 13.70% 14.04% 0.6174 0.6174 9.93% 10.47% 0.4063 0.4063

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4. The status of shareholders’ equity movement

In RMB’000

Items Share capital

Share capital

premium

Provision

revised

Statutory

reserves

Un-distributed

profit

Total of

shareholders’

equity

Initial 1,136,000.00 1,403,670.00 293,348.00 381,875.00 1,431,493.00 4,646,386.00

Increased

this year 109,809.00 701,692.00 701,692.00

Decreased

this year 1,267.00 337,009.00 338,276.00

At the end

of term 1,136,000.00 1,403,670.00 292,081.00 491,684.00 1,796,176.00 4,627,927.00

Reason of change

1. The revised reserves decreased by RMB1,267,000 was due to revised fixed assets.

2. The statutory reserves increased by RMB109,809,000, which was drawing of statutory surplus reserves and public reserves

on 10% and 5% of the net profit realized.

3. The profit not distributed has increased by RMB701,692,000, which was due to the net profit realized in the year. The

decreasing of RMB337,009,000 was due to the dividend distributed for the previous year.

5. Diversity between the financial statements prepared under China Accounting Standard and “International

Financial Report Standard”.

Year 2004 Year 2003 RMB’000 RMB’000 Net profit carried by the financial statements under China Accounting Standard 732,062 524,724

Adjustment

- Depreciation drawn on increasing of fixed assets (2,532) (43,101)

- Buildings, plant and equipment revised (29,683) - - Defered taxation - (9,796) - Gains from debt reconstruction 578 1,685

(31,637) (51,212)

Net profit carried by the financial statements under IAS 700,425 473,512

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The followings are the analysing on the influence of significant diversity between the two accounting system on

the shareholders’ equity:

Year 2004 Year 2003 RMB’000 RMB’000 Shareholders’ equity prepared under China Accounting Standard 4,902,711 4,397,271 Adjustment: - Depreciation drawn on increasing of fixed assets 321,764 321,764 - Buildings, plant and equipment revised (89,894) (87,362) - Defered taxation (29,683) - - Gains from debt reconstruction 14,713 14,713 216,900 249,115

Shareholders’ equity prepared under IAS 5,119,611 4,646,386

III. The change of the capital stock and shareholder's situation

(I) Movement of Capital Share

1. Share movement table of the Company (End on 31th Dec. 2004 Unit: share)

Changed (+,-) Before the change

Share allotted

Bonus shares

Common reserves Transfer shares

Others Sub-total

After the change

I. None negotiable shares 1. Promoter’s shares Including: State holding shares Domestic legal person shares Overseas legal person shares Others 2. Legal person shares placed 3. Employees’ shares 4.Preference shares or others Total of non-negotiable shares II. Negotiable shares 1. Common shares in RMB 2. Foreign shares in domestic market 3. Foreign shares in overseas market 4. Others Total of negotiable shares III. Total of capital shares

616,000,000

616,000,000

30 000

616,030,000

119,970,000 400,000,000

519,970,000 1,136,000,000

616,000,000

616,000,000

30,000

616,030,000

119,970,000 400,000,000

519,970,000

1,136,000,000

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2. The issuance of stocks and listing situation

(1) Share placing status in 3 years prior to the end of the report term

The Company issued shares once in 3 years prior to the end of the report term. The Company issued domestic

listing foreign capitals share (B-share) 400 million shares in Shenzhen Stock Exchange, the placing price is

HKD2.38 on Oct. 12th 1997, the listing date was on July 8 , 1997 and the quantity was 400 million shares that

got permission to be listed circulating. On November 3, 1997, issued the domestic listing RMB common stock

(A-Share) 120 million shares in Shenzhen Stock Exchange, issue price is RMB5. 40, listing date was January

15th, 1998, the quantity was 108 million shares that got permission to be listed circulating.

(2) The issued to society 12 million shares of the 120 million RMB common stock was staff shares, the

issuing date was November 3 , 1997, the issue price was RMB5. 40, company's staff shares were listed and

circulated on July 16, 1998. The listing quantity is 11,970,000 shares to get permission this year and still have

30,000 shares which holding by senior executives were frozen.

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(II) Shareholder status

1. The total amount of shareholders is 89470 at the end of report term.

2. Holding status of the top 10 shareholders (End of Dec. 31th 2004)

No. Name of the shareholder Amount of

holding

Proportion in

capital share

(%)

Nature of the

share

1

2

3

4

5

6

7

8

9

10

Benxi Steel (Group) Co., Ltd.

DEUTCHE BANK AG LONDON

MELLON/VIRGINIA REIREMENT SYSTEM

ACADINA EMERGING MARKETS EQUITY

FUND

Zeng Xinrong

Li Weiqin

YULAN DANG DE FERREYRA

UBOC A/C UAM FUNDS INC ACADIAN

EMERGING MKTS PORT

Zhang Zukun

Fang Yijun

616,000,000

5,763,934

3,484,300

3,160,206

2,616,100

2,579,300

2,212,900

2,066,180

2,005,100

1,785,740

54.23

0.51

0.31

0.28

0.23

0.23

0.19

0.18

0.18

0.16

State-owned

legal person

share

Foreign shares

Foreign shares

Foreign shares

Foreign shares

Foreign shares

Foreign shares

Foreign shares

Foreign shares

Foreign shares

Note:

(1) Benxi Steel (group) Co. Ltd is the controlling shareholder of the Company, it holds shares on behalf of the

country, and the holding shares have not been listed as negotiable stocks.

(2) There is no related transaction relationship between Benxi Steel (group) Co. Ltd and other shareholders

among of the top 10 shareholders.

(3) There is only 1 shareholder - Benxi Steel (group) Co. Ltd is holding more than 5% (including 5%) of the

Company’s share, its holding shares have not increased and decreased change status this year and the

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situation of hypothecating , freezing etc. has not happened in its holding shares.

3. The introduction of controlling shareholder's status of the Company

Name of controlling shareholder: Benxi Steel (Group) Co., Ltd.

Legal representative: Zhang Yingfu

Established date: July 10th 1996

Registration Capital: RMB 4,700 million

Company's classification: State-own proprietorship, Authorized Business

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 , counting device instrument , goods and materials supply and marketing, development of real estate ,

scientific research , design , information service ,etc.. Authorized operate and manage state-own assets.

The property right and control relationship between the Company and actual controller are shown as the

follow picture:

100%

54.23%

State-own assets committee of Liaoning Province

Benxi Steel (Group) Co. Ltd.

Bengang Steel Plate Co. Ltd

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4. There is no legal person shareholders holding shares more than 10% (including 10%) except for the

controlling shareholder Benxi Steel (Group) Co. Ltd. of the Company.

5. Holding status of the top 10 currency share shareholders (End of Dec. 31th 2004)

No. Name of shareholder Amount of holding Proportion in capital share (%)

Nature of the share

1 2 3

4 5 6 7

8 9 10

DEUTCHE BANK AG LONDON

MELLON/VIRGINIA REIREMENT SYSTEM ACADIAN EMERGING MARKETS EQUITY FUND

Zeng Xinrong

Li Weiqin

YULAN DANG DE FERREYRA UBOC A/C UAM FUNDS INC ACADIAN EMERGING MKTS PORT

Zhang Zukun

Fang Yijun

Huang Liandi

5,763,934 3,484,300 3,160,206

2,616,100 2,579,300 2,212,900 2,066,180 2,005,100 1,785,740 1,763,924

1.4410 0.8711 0.7901 0.6540 0.6448 0.5532 0.5165 0.5013 0.4464 0.4410

Foreign shares Foreign shares Foreign shares

Foreign shares Foreign shares Foreign shares Foreign shares

Foreign shares Foreign shares Foreign shares

Note: the related transaction relationship between this the top 10 currency share shareholders are unknown.

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IV. Particulars about the Directors, Supervisors and Employees

(I) Profiles of the directors, supervisors and senior executives of the Company

Name Sex Age Position Job term Hold share at the beginning

of the year

Hold share at

the end of the year

Remarks

Li Mohua Male 56 Chairman of the Board,General

Manager

July 26th 2003-July 26th 2006

Yu Tianzhen Male 52 Vice Chairman of

the Board


10000 10000

Get reward form

Shareholder Unit

Liang Guangde Male 50

Director,Vice General manager

and Secretary of The

Board of Directors


10000 10000

Liyu Male 49 Director July 26th

2003-July 26th 2006

Get reward form

Shareholder Unit

Zhang Guiyu Male 45 Director


Guan Dianguo Male 58

Employee Representative

Director


Zhong Tianli Female 49 Independent

Director


Xue Xiangxin Male 51 Independent

Director


Liu Junyou Male 52

Chairman of Supervisory Committee


He Yusheng Male 54

Vice Chairman of Supervisory Committee


Get reward form

Shareholder Unit

Yu Ping Female 52 Supervisor May 25th

2004-May 25th 2007

Get reward form

Shareholder Unit

Zhang Fuchen Male 55


Supervisor


Li Bingqiang Male 39


Supervisor

May 25th 2004-May 25th 2007

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(II) The status of director and supervisor work in shareholding parties

Name Position Work Period

Li Mohua Director of Benxi Steel (Group) Co., Ltd. April 1996-Present

Yu

Tianzhen

Director and General Manager of Benxi Steel (Group)

Co., Ltd.

Feb. 2001-Present

Li Yu Vice general accountant of Benxi Steel (Group) Co., Ltd. Nov. 2004-Present

Liu Junyou Discipline inspection commission secretary of Benxi Steel (Group) Co., Ltd.

August 2000-Present

He

yusheng

Vice General Economist of Benxi Steel (Group) Co.,

Ltd.

Nov. 2004-Present

Yuping Director of Audit office of Benxi Steel (Group) Co., Ltd. August 2003-Present

(III) Major working experience of director and supervisor

Status of the members of director:

Li Mohua, Male, age 56, postgraduate degree, senior economist, Mr. Li once held the position of Minister of

propaganda department , Vice director of Bengang No.2 Steel Factory; Manager and secretary of Party

Committee of Bengang Roller Factory and Roller Casting Company; director and secretary of Party

Committee of Bengang Group Co. No.2 Steel Factory; the standing commissioner of Party Committee and vice

general manager of Bengang Group Co.; Mr. Li now is taking the position of the standing commissioner of

Party Committee of Bengang Group Co. and the chairman of the board and general manager of Bengang Steel

Plate Co., Ltd..

Yu Tianzhen, Male, age 52, postgraduate degree, senior economist, Mr. Yu once held the position of Minister of

propaganda 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; Mr. Yu is now taking the position of Vice chairman of the board, general manager and vice secretary of

Party Committee of Bengang Group Co. and vice chairman of the board of Bengang Co., Ltd..

Liang Guangde, Male, age 50, postgraduate degree, senior engineer, Mr. Liang once held the position of vice

factory director and director of Bengang No. 2 steel-making Factory; factory director of Cold-rolled sheet metal

Factory of Bengang Group; factory director of Hot Continuous Rolling factory of Bengang Steel Plate Co., Ltd.;

Mr. Liang is now taking the position of vice general manager and secretary of the Board of Directors of

Bengang Steel Plate Co., Ltd..

Liyu, Male, age 49, Master degree, senior accountant, Mr. Li once held the position of vice section

16

chief of Cost office of finance department and section chief of taxation office of Bengang Co., Ltd..; minister of

finance office and minister of pricing office of Bengang Co., Ltd..; Mr. Li is now taking the position of vice

general accountant of Bengang Group Co.

Zhang Guiyu, Male, age of 45, University degree, senior engineer, Mr. Zhang once held the position of director

assistant, vice director and acting factory director of Steel-making Factory; Mr. Zhang is now taking the

position of director of Steel-making Factory.

Guan Dianguo, Male, age 58, College degree, senior Zheng gong professional. Mr. Guan once held the position

of director of labor union office of Bengang Co.; Minister of propaganda department of labor union office of

Bengang Co.; chairman of Electromechanical Installation Company of Bengang Group Co., Ltd.; acting

chairman of labor union of Bengang Steel Plate Co., Ltd. Mr. Guan is now taking the position of special affair

work.

Status of the members of independent directors:

Zhong Tianli, Female, age 49, 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, 51 years old, a steel metallurgical discipline 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 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 a professor in 1998.

Status of the members of supervisor:

Liu Junyou, male, 52 years old, the academic credentials of the university, senior political and ideological work

17

teacher. 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.

He Xusheng, male, 54 years old, college degree, senior economist, Mr. He once held the position of vice section

chief of Planning office of Bengang Co., Ltd.; assistant minister of planning department and assets management

division director of Bengang Group Co., Ltd.; vice-minister of enterprise management department of Bengang

Group Co., Ltd; acting minister, minister of planning department of Bengang Group Co., Ltd.; He is now taking

the position of the vice chief economist of Bengang Group Co., Ltd..

Zhang Fuchen, Male, 55 year old, university degree, engineer. Mr. Zhang once held the position of assistant

director and vice director of Bloom Factory; chairman of labor union of Hot Continuous Rolling Factory; He is

now taking the position of vice director, chairman of labor union and Discipline Committee secretary of Hot

Continuous Rolling Factory.

Yuping, Female, 52 years old, university degree, she was once held the position of vice director, director,

assistant of director and vice section chief of audit office of Bengang Group Co., Ltd..

Li Bingqiang, Male, 39 years old, university degree, he was once held the position of vice director, director of

casting workshop and vice director of production department of the Company; he is now taking the position of

director of sheet metal mold arrangement office of casting factory.

Note: there are no statuses shown that the incumbent directors (independent directors are not included) and

supervisors are working as full time or part time to other organizations but only work for shareholder’s

organization.

(IV) Annual Reward Status

1. The director, supervisor and senior executive getting the salary from the company monthly according to the

regulation about salary management and classification standard in 2004.

The total amount of reward (including base pay, related bonus, welfare, housing allowance and other allowances,

etc.) of incumbent director, supervisor and senior management receive form the Company every year is around

RMB306,400, the total amount of the top 3 director reward is RMB183,700, the total amount of the top 3

supervisor reward is RMB107,400.

Allowance of Independent Director is: RMB20, 000 per person per year

18

there are 13 incumbent director, supervisor and senior management of the Company, 6 of them (Independent

director is not included) get reward from the Company, there are 1 person get total reward RMB 15,000-40,000;

2 people receive RMB40,000-50,000;3 people receive RMB 50,000-100,000 in one year.

(V) Name and reason of director, supervisor and senior management people to leave their

post in reporting period.

Mr. Sunxiao and Wuwei not longer take the position of director of the Company in reporting period.

(VI) The status of employee of the Company

There are 3,843 employees in position by the end of Dec.31th 2004.

1. Classified by occupations: production people are 3,227, count for 83.96%; Marketing people are 49, count for

1.28%; technology people are 285, count for 7.42%; finance people are 35, count for 0.91% and

administration people are 247, count for 6.43%.

2. Classified by education level: graduate degree are 24, count for 0.63%; university degree are 512, count for

13.32%; college degree are 524, count for 13.64%, secondary specialized , technical and high school degree

are 1,575, count for 40.98%;others are 1,208 and count for 31.43%.

3. There are 1,686 retired employees get retirement pay form the Company.

V. Management structure

(I) 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. The Company and sharecontrolling shareholder – Benxi Steel (Group)

Co., Ltd carried out separation on employee, finance and assets, institution and operation were independent as

well. The Company formulated and passed Investor Relationship Management System and Internal Control

System in the reporting period and all these contact and communication with investors strengthen company’s

internal management in order to promote company’s criterion operation.

(II) Position implementation status of independent director

Independent director attended the entire shareholder meeting and the board meeting and played an important

19

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 status of independent director attends of the Board of Directors

Name of Independent

Director

Number of board meetings shall

present

Presented personally

(Times)

Presented by consignee (Times)

Absent (Times) Remarks

Zhong Tianli 4 4 0 0

Xue Xiangxin 4 2 2 0 Went on errands and entrusted Zhong Tian Li to vote

Note: The independent director has not put forward the objection to relevant items that the Company passed.

(III) Separation status in such aspects as personnel, assets, financial affairs, institution,

business, etc between the Company and controlling shareholders.

1. The aspect s of 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.

2. Assets aspect: The Company and controlling shareholder's relationships between ownership and management

of enterprises are clear, have independent purchase, production, marketing system.

3. Financial affairs aspect: The company has independent financial accounting, the accountant checks and

calculates system and financial management system were improved are complete, applied the independent

bank account and pay taxes independently.

4. Organization aspect: The internal of the Company operates independently; organization structuring and

working function are totally independent.

5. Business: Company have independence improved production business plan, financial affairs check and

calculate , personnel , raw material supplies and products selling business system.

20

VI. The Shareholders’ Meeting

The Company held shareholder meeting once in 2004.

(I) The status of the shareholders' meeting on notice, convening and holding

The Board of Directors of the Company published the announcement about holding 2003 shareholder meeting

on China Securities Journal, Security Times and Hong Kong Commercial Daily on April 23rd 2004.

the 2003 shareholders' meeting held on May 25, 2004 by the Company in Bengang Hotel in Benxi city Liaoning

Province, the consignee of shareholder and shareholder who attend meeting amount is 19, representative

632,378,394 shares, accounts for 55.67% of the total amount of the Company's shares, B-share consignee of

shareholder and shareholder amount is 17, representative shares are 16,368,394 shares, accounts for 4.09 of the

B-share share.

(II)The Passed or Rejected Proposals of Shareholders Meeting and The Publishing Disclose Date and Newspaper of Resolutions.

The meeting examined and passed the following reports and proposals by voting method.

1. The 2003Board of Directors Working Report. 2. The 2003 Supervisory Committee Working Report. 3. The 2003 Annual Report and Abstract of the Company. 4. The 2003 Finance Final Accounts Report of the Company. 5. The 2003 Profit Distribution Proposal of the Company. 6. With Regard to the Modification Proposal of Articles of Association of the Company. 7. With Regard to the Replacing Supervisor Proposal of the Company. 8. The Proposal of Investing on Building No.4 Converter Casting Project 9. With Regard to the Proposal of Investing on Rebuilding 1700mm Hot Rolling Mill. 10. With Regard to the Proposal of Modification Integration Service Agreement. 11. With Regard to the Proposal of Modification Depreciation Life of Regular Assets. 12. With Regard to the Proposal of Hiring Beijing TIN WHA CPAs and Ho and Ho & Company CPAs as

Auditor in 2003 and 2004.

The announcement of resolution of the shareholder meeting was published on China Securities Journal, Security

Times and Hong Kong Commercial Daily on May 28th 2004.

(III) The status of voting and replacing director and supervisor of the Company.

This shareholder meeting has examined and passed the proposal of replacing supervisor, Yuping and Li

Bingqiang were voted to be supervisor of the Company.

21

VII. Report of the Board of Directors

(I) Analyzing and discussing of operation status

Under the powerful continuously growth situation of steel market at home and abroad in 2004 and the

competition is getting fierce day by day, the Company catches market opportunities, effort to increase

production and revenue, improve product quality, develop " double high products " in a more cost-effective

manner, expanding the production and selling constantly, fully utilize strategy of revitalizing old industrial base

of the Northeast of implementation that the 16th National Congress of Communist Party of China puts forward

to assign, adhere to the scientific development view, accelerate technological transformation in an all-round

way , make great efforts to strengthen the key competitiveness. Overcome by every possible means of fire

material rise in price and some original fuel in short supply and transportation disadvantage, finished several

producing operations objective in an all-round way and had made the good achievement. In report period, the

output of steel finished 4.98 million tons, increased by 14% compared with the same period of last year;

finished hot-rolled plate output 4,220,000 tons, increase by 5% compared with the same period of last year.

Achieved major business income of RMB 17.3 billion mainly in the whole year, increase by 15% compared

with that of last year; Core business profit is RMB 1.2 billion, increase by 26% compared with the same period

of last year; Net profit is RMB0.73 billion, increase by 40% compared with the same period of last year.

(II) Business Status of the Report Term

1. Major business scope and its operation status

(1)The Company is engaged in the sale of steel smelting, panel rolling and other relevant products, the final

products are mainly hot-rolled panel and part of cast steel mold.

(2)The formulate status of major businesses income and major businesses profit of the Company.

Products Major business income

Proportion in major business income

Major business profit

Proportion in major business profit

Molten steel 487,823,918.80 2.81% 8,291,155.66 0.69%

Steel mold 1,358,125,277.44 7.83% 171,828,637.77 14.20%

Continuous casting billet 15,286,537,841.61 88.11% 1,013,705,381.70 83.76%

Hot Plate 77,858,618.35 0.45% 1,801,766.87 0.15%

Disposal of materials 139,105,813.60 0.80% 14,671,009.24 1.21%

Others 17,349,451,469.80 1,210,297,951.24

Total 10,398,620,144.95 742,607,342.77

Including: related transactions 487,823,918.80 2.81% 8,291,155.66 0.69%

Molten steel 1,085,897,088.11 6.26% 204,622,677.96 16.91%

Hot Plate 8,685,837,270.59 50.06% 515,023,712.15 42.55%

Others 139,061,867.45 0.80% 14,669,797.00 1.21%

(3)The major business income and profit status of major product distribution of the company

22

Regions Major business income Proportion in major

business income Major business profit Proportion in major

business profit North 2,239,896,163.26 12.91% 156,255,184.33 12.91% North-east 8,750,345,743.00 50.44% 610,424,228.33 50.44% East 4,092,101,767.78 23.59% 285,465,070.43 23.59% Mid-south 227,966,488.61 1.31% 15,902,945.09 1.31% North-west 9,525,765.27 0.05% 664,517.50 0.05% South-west - 0.00% - 0.00% Export 2,029,615,541.88 11.70% 141,586,005.55 11.70% Total 17,349,451,469.80 1,210,297,951.24

(4) The contrast status of Company’s major product distributing in area:

Regions Major business income Increased/Decreased

compared to last year North 2,239,896,163.26 28.05% North-east 8,750,345,743.00 58.93% East 4,092,101,767.78 29.43% Mid-south 227,966,488.61 -60.68% North-west 9,525,765.27 19.30% South-west - -100.00% Export 2,029,615,541.88 890.02% Total 17,349,451,469.80

(5) The formulation status of major business income manages more than 10%’s major product of the Company.

Products Major business income Major business cost Gross profit ratio %

Continuous rolling billet 1,358,125,277.44 1,186,296,639.67 12.65%

Hot Plate 15,286,537,841.61 14,272,832,459.91 6.63%

Including: related transactions 9,771,734,358.70 9,052,087,968.59

Continuous rolling billet 1,085,897,088.11 881,274,410.15 18.84%

Hot Plate 8,685,837,270.59 8,170,813,558.44 5.93%

Note: This term’s major product of hot plate’s gross profit decreased compared to the last year is due to the

price of entire raw material market of steel increasing continually. The portion of continuous rolling billet has

increased in gross profit due to the increasing of export.

2. The Status of Major Suppliers and Clients

Total amount of the top 5 vendors 8,627,422,882.58 Proportion in purchasing total amount 96.09% Total amount of the top 5 buyers 4,646,903,084.17 Proportion selling total amount 41.45%

23

3. Problem, Difficulty and Solution Appearing in Operating

The major problem and difficulty of the Company in reporting period is: the contradiction among increased

production and revenue, firing materials rising in price and transportation shortage; contradiction among

transform overall with the safety in production and achieving the high production; contradiction among highly

expend on market of scale and marketing of steel trade, etc. For this reason, the Company has taken the

following main measures:

(1) Fully utilize various kinds of modernized means, collect the market information, analyze the market trend

scientifically, especially in some original fuel prices, rush to purchase in the fierce market, through the

market information in time and accurately adopt the strategic on the purchase of compare with price and

quality, adopt the feasible measure on the premise of guaranteeing the original fuel to supply and reduce the

purchase cost by every possible means.

(2) In order to guarantee the high production and accelerate technological transformation to advance together ,

organize and produce necessary transportation and various kinds of energy medium scientifically and

rationally, insist exploit potentialities inwards , produce by focusing on the demand in different period ,

adjust and protect operation management style scientifically, take the essential restriction and assistant

measure to the production , guarantee major production with possible method. And in order to make an

increased output on steel and hot rolling plate under the situation of altering technology in a large-scale.

(3) Accommodate the need of building good quality steel plate base, face the highly competition of steel

industry, base on the long-term development strategy that make a further improvement on production and

client; develop a set of new clients. At present, the proportion of hot plate direct selling user has up to 64%.

(4) In order to overcome the unfavorable factor of the main original fuel raised in price by a wide margin ,

comparing to the advanced level of energy consumption of process with other companies which is in the

same industry, devote more efforts on management constantly, require strictly , examine strictly. Make the

main economic technical indicator have certain improvement.

24

(III) Investment status

Utilizing of fund raised previously:

The fund raised in share placing of year 2000 has already been put into utilization completely. The details have

been disclosed in the interim report and annual report of 2000.

Utilization of non-raised fund:

During the report period, the company finishes RMB939,430,000 of investment in technological

transformation with the own fund. The concrete conditions are as follows:

1. 1’225ton crane project, started in 2004. Investment accumulated to RMB7.39 million at the end of 2004. Will

be finished in 2004

2. Molten iron pre-process project: planned to invest RMB29.64 million, started in 2003 Investment of

RMB15.80 million occurred in the year of 2003, and accumulated to RMB25.95 million, will be finished in

2004.

3. 13 sector project: planned to invest RMB13.60 million, started in 2003, RMB12.11 million occurred in 2003,

accumulated to RMB15.33 million till the end of 2004, and will be completed in 2004.

4. Furnace disassembling machine project: planned to invest RMB2.2 million, started in 2003, RMB1.66

million occurred in this term, accumulated to RMB2.09 million till the end of 2004, this project is expected to

be completed in 2004.

5. Roller polishing shop project: planned to invest RMB60.31 million, started in 2003, RMB20.73 million

occurred in 2003, accumulated to RMB60.74 million till the end of 2004, and was completed in 2004.

6. 5# heating furnace project: planned to invest RMB91.46 million, started in 2003, RMB110 thousand occurred

in 2003, accumulated to RMB82.78 million till the end of this term, this project was completed at the end of

2004.

7. Electric motor purchased in small batch. Started in 2004, accumulated to RMB3.5 million. Finished in 2004.

8. Cutting machine purchased in small batch. Started in 2004, accumulated to RMB72 thousand. Finished in

2004.

9. Electric motor purchased in small batch. Started in 2004, accumulated to RMB460 thousand. Finished in

2004.

10. Magnetic drills purchased in small batch. Started in 2004, accumulated to RMB720 thousand at end of 2004.

Finished in 2004.

11. 3# heating furnace project: planned to invest RMB78.00 million, started in 2002. RMB4.91 million occurred

in 2003, accumulated to RMB5.41 million till the end of 2004, this project is in preparation stage.

25

12. 4# heating furnace project: planned to invest RMB1,352,632,000, started in 2003. RMB9.34 million

occurred in 2003, accumulated to RMB680.26 million till the end of 2004, this project will completed in 2006.

13. Air compressor station: Total investment RMB8 million, started in 2004, accumulated to RMB3.1 million at

the end of 2004. Will be completed in 2005.

14. Miller reforming project: Total investment RMB9.23 million, started in 2004, accumulated to RMB6.5

million at the end of 2004. Will be completed in 2005.

15. Renewing project of No.4 crane: total investment RMB2.6 million, started in 2004. Accumulated to

RMB650 thousand at the end of 2004. Will be completed in 2005.

16. Annex eforming project: Total investment RMB210.93 million, started in 2003, RMB29.49 million occurred

in 2003, accumulated to RMB191.23 million at the end of 2004. Will be completed in 2005.

17. Square billet project: total investment of RMB263.6861 million, started in 2005, will be completed in 2006.

(IV) Finance status of the Company

Items Year2004 Year2003

Increase/

Decrease (%)

Gross Assets 8,164,472.00 7,398,116.00 10.36% Long-term liabilities 311,862.00 325,688.00 -4.25% Shareholders’ equity 3,983,611.00 3,510,386.00 13.48% Net Cash flow per share generated

by business operation 1.78 0.75 137.37%

Note: Reason of movement

1. The increased gross assets were mainly caused by the healthy currency capital of market and the increased

account receivable this year.

2. The decreased long-term liabilities was mainly caused by the reimburse loan of bank this year.

3. The stockholder's equity increased was mainly resulted from the reason that the achieved net profit

increased this year.

4. The net amount of the cash flow increased, it was mainly caused by company's products sales volume, price

were higher compared with last year and the selling returned money and increased payment of collecting

from customer for goods this year.

26

Items Year 2004 Year 2003 Increase/Decrease (%)

Turnover 17,349,451.00 11,210,196.00 54.76%

Sales cost 16,141,686.00 10,295,582.00 56.78%

Gross profit 1,207,765.00 914,614.00 32.05%

Periodic expense 265,286.00 187,823.00 41.24%

Other business

expenses/income -33,189.00 -3,364.00 886.59%

Net profit 700,425.00 473,512.00 47.92%

Note: Reason of movement

1. Major business income increased was caused mainly by sales volume increased compared last year and the increased sales price.

2. Major business cost increased was caused mainly by sales volume increased compared last year and the increased sales price of raw materials.

3. Major business profit increased was caused mainly by sales volume increased compared last year and the increased sales price.

4. Periodic expenses decreased were caused mainly by export harbor incidental expenses decreased of sales expenses.

5. Non-business expenditure reduced was mainly resulted from not counting and withdrawing the reducing prepares value of fixed assets this year.

6. The net profit increased was resulted mainly from the reason that this year’s core business profit increased compared with last year.

(V) During the report period, there is no great change on production environment , macro

policy and regulation of the Company, and no status on already, ongoing or be going to

influence the Company's financial situation and management performance.

(VI) Major Work on Year 2005

It will be an implementation of scientific development thinking year of 2005, consolidate the macro adjustments

and controls achievement, the key year of keeping social healthy situation of economy. The company should

catch the historical opportunity tightly, reforming, transforming and get development with the scientific

development thinking, quickening the steps of developing in an all-round way and confirm 2005 as " Year of

quality and variety ".

27

1. Organize production efficiency with science and achieve the whole year goal of high production. It should

focus on the imbalance illogicality between major product’s increased fuel and transportation, make an

effort on the connection of different processing working procedures insure hot plate can finish the

production of 5,550,000 tons and steel production of 7,000,000 tons.

2. Insist on taking market as the direction, advance the effective adjustment, optimization and upgrading of

product structure in a more cost-effective manner. According to the demand of following new-type and

catch the development opportunity of national macro adjustment and control policy; insist on adjusting

product structure during development, promote the product’s classification during adjusting. Target at the

top-grade field and develop and exploits double-mutual steel , anti-corrosion container steel of hot rolling

and other kind of high quality steel and achieve batch manufacture gradually.

3. Adhere to the demand for the scientific development thinking, combine with the overall plan of the Company built the high quality steel panel base in order to meet the effective adjustment of product

structure and development of optimization and upgrading strategy, accelerate technological transformation

in an all-round way. Not only to guarantee the cross year project finished construction and go into

production, and also manage well of the newly-built project construction. It also should doing a good job

basis on key technological transformation of this year, according to the development goal of " eleven five ",

and start on planning of the third round of transformation and previous work.

4. According to the demand of developing recycle economy; make great efforts to the measure on saving energy, reducing cost and environmental pollution. With fast promotion of equipment, no only to close, stop,

eliminate the high consume energy , with serious pollution draggle technology and equipment successively,

fully utilize existing resources and energy as a basic that strengthen the recycling of the energy and usable

second hand resource during steel production process. Meanwhile , it should take the corresponding

measure and make the comprehensive energy consumption of steel drop to under 900 kilograms per ton of

steel, the steel consumes fresh water drop to under 8 tons per ton of steel, the converter steel material

consumes reaches the national leading level, achieves smelting steel with minus energy in an all-round way.

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(VII) The Status of the Board of Directors’ Routine Work.

1. The status of the Board of Directors meeting and the content of resolution.

The Board of Directors held 4 meetings during the report period and the details are as following:

---- Bengang Steel Plate Co. Ltd held The 5th Session of the 3rd Term of Board of Directors Meetings on 15th in

March of 2004 in the conference room of second floor of the Company Benxi City Liaoning Province. The

meeting has examined and passed the following proposals: (1) Proposal of dismissing

PriceWaterHouseCoopers CPA; (2) Proposal of hiring Beijing TIN WHA CPAs and Ho and Ho &

Company CPAs as auditor in 2003.

The resolution announcement of this meeting was published on Hong Kong Commercial Daily, China Securities

Journal and Security Times on Mar. 16th 2004.

---- Bengang Steel Plate Co. Ltd held The 6th Session of the 3rd Term of Board of Directors Meetings on 20th

in April of 2004 in the conference room of second floor of the Company Benxi city Liaoning Province. The

meeting has examined and passed the following proposals: 1 2003 Work Report of The Board of Directors; (2)

2003 Annual Report and Abstract; (3) 2004 First Quarterly Report; (4) 2003 Finance Final Accounts Report; (5)

Year 2003 Profit Distribution plan; (6) Proposal about Modify Article of Association; (7) Proposal about

applying to withdraw especially dealing with stock; (8) Proposal of investing to build No.4 converter steel

casting project; (9) Proposal of investing on supporting and rebuilding 1700mm hot continuous steel rolling mill;

(10) Proposal of modifying integration service agreement; (11) Proposal of assets arrangement of blooming

steel rolling factory; (12) Proposal of modifying classify depreciation life of fixed assets; (13) Proposal of

continually recruit Beijing TIN WHA CPAs and Ho & Company CPAs as auditor; (14) Proposal of holding

2003 shareholder meeting.


Journal and Security Times on April 23th 2004.

--- Bengang Steel Plate Co. Ltd held The 7th Session of the 3rd Term of Board of Directors Meetings on July

28th 2004 in the conference room of second floor of the Company Benxi city Liaoning Province. This meeting

examined and passed 2004 Semi-Annual Report and Abstract of Bengang Co., Ltd.


Journal and Security Times on July 31th 2004.

--- Bengang Steel Plate Co. Ltd held The 8th Session of the 3rd Term of Board of Directors Meetings on Oct.


examined and passed the following proposals: (1) 2004 Third Quarterly Report of Bengang Co., Ltd. (2)

Proposal about accelerates draw depreciation.


Journal and Security Times on Oct. 22th 2004.

29

2. The implementation status of the Board of Directors against the shareholder meeting

Implementation status of 2003 profit distribution proposal

The 2003 shareholder meeting has examined and passed on 25th May 2003 that the distribution plan of 2003

was: Benchmark with the total capital stock (1,136,000,000 shares) on Dec. 31th 2003 that distribute to all

shareholders every 10 shares with cash bonus RMB2.00 (including taxation), plan to distribute the common

stock dividend altogether this time in RMB 227,200,000.00, the surplus RMB 1,253,577,420.82 was transferred

to succeeding year as the retained earning.

The Board of Directors of the Company has published the 2003 dividend distribution implementation

announcement on Jun 29th 2004 on Hong Kong Commercial Daily, China Securities Journal and Security

Times. The date of the stock right registering of this dividend distribution was on July 5th 2004, the divide

taxation date was on July 6th 2004.

(VIII) This profit distribution plan or capital common funds capitalizing of reserve

As audited by Beijing TIN WHA CPA, the Company has realized the net profit of RMB732,062,544.19 in year

2004. As provided by the Article of Association of the Board, the statutory surplus reserves was drawn at 10%

amounted to RMB73,206,254.42, and statutory public welfare was drawn at 5% amounted to RMB36,603,127.21.

After the drawing of the statutory surplus reserves and public welfare, the net profit distributable for year 2004

was RMB395,053,162.56, plus the retained profit from year 2003 of RMB1,480,777,420.82, the profit

distributable was totaled to RMB1,875,830,583.38.

Therefore the dividend plan for year 2004 is as: Basing on the total capital shares of

1,136,000,000 shares ended Dec. 31 2004, cash dividend of RMB2.00 will be distributed to

each 10 shares (tax included). There totally RMB227,200,000.00 of common share dividend

will be distributed. The retained RMB1,648,630,583.38 will be carried over the next year as

un-distributed profit.

(IX) Misc.

The selected information disclosing presses by the Company were: Hong Kong Commercial Daily, China

Securities Journal and Security Times and it will not make any change this year.

(X) The audit options of CPAs on Related Transaction

According to " about the notice of standardize listed company and related transaction party’s capital exchanges

and listed company guarantees external’s several questions " (China Securities Regulatory Commission issued

No.56 [2003 ] ) , the registered CPA has made a special description on the Company’s controlling shareholder

and other related transaction party occupied capital and audited the suggestion as follows: (1) The content of

controlling shareholder and other related transaction party had carry out relevant legal procedures and published

30

announcement on specified newspapers; (2) The amount of money of the related transaction has already

disclosed in the accounting statement annotations of the annual report in 2003; (3) The reason of the related

transaction party occupied the capital was occupied as operational use.

(XI) Independent opinions of the independent directors on the external guarantees and

accumulation occurred in this term:

VIII. Report of the Supervisory Committee

(I) The Status of Supervisory Committee Meeting During Report Term

There are 3 supervisory committee meeting was held during the report term

---Bengang Steel Plate Co. Ltd held The 4th Session of the 3rd Term of Board of Directors Meetings on April.


examined and passed the following proposals: 1 2003 Work Report of The Supervisory Committee; (2)

Proposal about replacing supervisor; (3)2003 Annual Report and Abstract; (4) 2004 First Quarterly Report; (5)

Year 2003 Profit Distribution plan; 6) Proposal about Modify Article of Association; (7) Proposal about

applying to withdraw especially dealing with stock; (8) Proposal of investing to build No.4 converter steel

casting project; (9) Proposal of investing on supporting and rebuilding 1700mm hot continuous steel rolling mill;

(10) Proposal of modifying integration service agreement; (11) Proposal of assets arrangement of blooming

steel rolling factory; (12) Proposal of modifying classify depreciation life of fixed assets.

--- Bengang Steel Plate Co. Ltd held The 5th Session of the 3rd Term of Board of Directors Meetings on July


examined and passed 2004 Semi-Annual Report and Abstract of Bengang Co., Ltd.

Bengang Steel Plate Co. Ltd held The 8th Session of the 3rd Term of Board of Directors Meetings on Oct. 20th

2004 in the conference room of second floor of the Company Benxi city Liaoning Province. This meeting

examined and passed the following proposals: (1) 2004 Third Quarterly Report of Bengang Co., Ltd. (2)

Proposal about accelerates draw depreciation.

(II) The Supervisory Committee of the Company Issued its Independent Opinion on 2004

Relevant Proceeding.

The board of supervisors of the Company according to Company Law, Securities Law and relevant agreement

of Article of Association focus on legal routine operation, standardize financial operation, etc. carefully carry

out supervise work and this have protected the whole interests of the Company and the masses of shareholders,

31

the Supervisory Committee issued the independent opinion on the relevant situations in report term as follows:

1.The legal operation status of the Company

The Supervisory Committee joined and attended the Company's shareholder meeting 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 in 2004

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-efficient.

2. Examining the finance status of the Company

The finance statement was audited by Beijing TIN WHA CPAs and Ho and Ho & Company CPAs and they

issued standard and without qualified opinion audit report, the finance report of the Company trueness,

impersonality and accurately shown the status of finance and business harvest of the Company.

3. It did not show the Company sold and purchase assets.

4. The Company was fairly traded according to the contract or agreement and there was no harmful to interests

of company shown.

IX. Significant Events

1 No importance lawsuit and arbitrage transactions this year.

2 No purchasing and selling assets, no merge transaction of the Company during the report term.

3 The importance related transaction during the report term.

(I) Related Parties’ Relationship

1) The related transaction parties which is existing control relationship at the end of Dec. 31th 2003

Name of Company Reg. Add. Major

Business

Relationship with the Company

Business type

Legal Representative

Bengang Group Co. Ltd.

Benxi city Liaoning Province

Steel Steel casting

Parent company

State own Zhang Yingfu

32

2) The registration capital of the related parties with controlling relationship and the change thereof

Name of company 2002.12.31 Increased this year Decreased this year 2003.12.31

Bengang Group Co., Ltd. RMB 4,700 million RMB 4,700 million

3) The shareholding of the related parties with controlling relationship and the change thereof

2002.12.31 Increased this year 2003.12.31 Name of company

Amount % Amount % Amount %

Bengang Group Co., Ltd. RMB613,440,000 54 RMB613,440,000 54

4) Non-controlling related parties

Name of the parties Relation with the Company Benxi Steel (Group) Machinery Co., Ltd. Same parent Benxi Steel (Group) Transportation Co., Ltd. Same parent Benxi Steel (Group) Tengda Holdings Ltd. Same parent Benxi Steel (Group) International Trading Co., Ltd. Same parent Benxi Economic Development Zone Bengang Jufeng Development Co., Ltd. Same parent

Benxi Steel (Group) Iron Co., Ltd. Same parent Benxi Steel (Group) Special Steel Co., Ltd. Same parent Tianjin Benchu Goods Trading Ltd. Same parent Guangshou Free Trade Zone Bengang Sales Co., Ltd. Same parent Nanjing Bengang Steel Sales Ltd. Same parent Shanghai Bengang Steel Sales Ltd. Same parent Dalian Boluole Steel Tube Ltd. Same parent Benxi Steel (Group) Special Steel Electronic Installation Co., Ltd. Same parent Haerbin Bengang International Trading Ltd. Same parent Bengang Xi’an Goods Trading Ltd. Same parent Tianjin Bengang Steel Trading Ltd. Same parent Wuxi Bengang Steel Sales Ltd. Same parent Yantai Bengang Steel Sales Ltd. Same parent Xiamen Bengang Steel Sales Ltd. Same parent Shenyang North Bengang Sales Ltd. Same parent Chengchun Bengang Steel Sales Ltd. Same parent Benxi Steel (Group) Steel Process and Logistics Co., Ltd. Same parent Benxi Steel (Group) Construction & Repairing Co., Ltd. Same parent Benxi Steel (Group) Fire Resistance Co., Ltd. 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 Bengang Group International Trading Ltd. Shenyang Branch Same parent Benxi Steel (Group) Education Center Same parent Benxi Steel (Group) Drilling Tools Co., Ltd. Same parent Benxi Steel (Group) Designing Institute Same parent Benxi Steel (Group) Information and Automatic Tech. 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

33

(II) Related Transaction Agreement

1) On December 18, 2003, our company concluded with BenGang Steel Group Company for a comprehensive

service agreement of validity for three years, which is valid on January 1, 2004. It includes buying raw

materials, auxiliary material, energy power, repair piece spare part, transport services from BenGang Steel

Group Company, and our company sells products to the group. According to the request of this agreement, the

pricing principle of the relevant project is as follows:

A: The pricing of purchasing projects from BengGang Steel Group Company:

Pricing of the raw materials:

The price of the molten iron is the average of current price of molten iron of the same quality in the domestic

pig iron market. The suitable price is not higher than the average price, which Bengang Steel Group Company

sold to independent third party's customer's last January;

The price of scrap steel is the price in scrap steel market plus the process cost, where the scrap steel market

price is the weighted average of the price of scrap steel in bulk, which Bengang Steel Group Company

purchased from independent third party last three months. The process cost is the cost which Bengang Steel

Group Company made the scrap steel into shape. It is adjusted and authorized once every year for the

above-mentioned process cost.

The auxiliary materials all adopt the market price

The pricing of the energy motive force: Except the electricity in market price brought from Bengang Steel

Group Company plus the cost of retransferring as the transaction price, other energy motive force adopts the

complete cost plus the national additional tax;

Pricing of the spare part of the repair piece: buying the spare part of the repair piece processed by Bengang

Steel Group Company follows the pricing standard of complete cost plus national additional tax.

Pricing of the automobile traffic expense: The railway traffic expense is the national price, automobile

transportation is the market price.

Pricing of maintaining the factory building and overhauling and safeguarding of the equipments: The

maintenance cost is confirmed according to the working degree of difficulty and the work load of both sides.

Pricing of quality monitoring, measuring and weighting: carried out according to the state fixed price.

Pricing of the listing service: Bengang Steel Group acted as agent to finish before our company failed to obtain

the power to engage in import and export trade, the agent commission is according to 1.5% of the total value of

the cargoes imported and exported. If obtained the power to engage in import and export trade, the company has

the right to notify the Bengang Group Company to stop the agent relation. Bengang Steel Group is not a sole

34

agent of our company, our company has the right to choose the independent third party to finish acting for the

business.

Pricing of the design and the project service: carried out according to the state fixed price.

Pricing of the heating service of the dwelling house for staff and workers: carried out according to the state

fixed price.

Pricing of telephone, fax and the TV service: carried out according to the state fixed price.

Pricing of the newspaper and other publications: carried out according to the state fixed price.

Pricing of educational facilities: carried out according to the educational facility market leasing price or the

market price.

Pricing of office and business rooms: Bengang Steel Group does not collect and lease the expenses within the

date of this agreement.

Fee of trade mark: RMB 25,200 per year.

Patent: Bengang Steel Group does not collect patent using right.

B: Pricing of the products that our company sold to Bengang Steel 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.

Molten steel: carried out according to manufacturing cost plus the national additional tax.

Iron and steel scrap, including the iron material: carried out according to the market price.

2) According to the Liao Tu Pi Zi No.6(1997) issued on Mar. 5th 1997 by Liaoning province Land Management

Department, and it’s agreed documentation of land price assessing identification, land assets arrangement

proposal and the lease contract of land using right which was signed between the Company and Bengang Group

Co. Ltd on April 7th 1997 that the Company had the authority of leasing Bengang Group Co. Ltd land which is

located in house building of Bengang Group Co. Ltd with pay and the contract took effect in 50 years. Hereby,

the Company pays for land rental charge to Bengang Group Co. Ltd every year was about RMB2, 673,000. The

rental charge will be adjusted after 5 years of leasing period, and adjust once to the afterwards every three years.

The Company signed the supplementary agreement of the lease contract of the right to use the land with

Bengang Group Co. Ltd on April 6 , 2002, both parties agrees that the rental charge of the right to use the land

remains unchanged up to April 7 , 2005.

35

(III) Related Party Transactions

Pricing strategy: the transaction price between the Company and related transaction parties were according to

the relevant agreements or market trade agreement to confirm.

1) Sales Products

A. Selling goods to the related transaction parties which existing control relationship:

In RMB

Year 2003 Year 2002 Name of company

Amount Proportion in Income % Amount Proportion in Income %

Bengang Group Co., Ltd. 4,808,224,388 27.35 3,027,092,446 27.00

B. Selling goods to the related transaction parties which were not existing control relationship:

In RMB

Year 2004 Year 2003

Name of company Amount

count in

turnover Amount

count in

turnover

Benxi Steel (Group) International Trading Co., Ltd. 2,030,091,873 11.55 90,068,047 0.80

Tianjin Benchu Goods Trading Ltd. 1,981,637. 0.01 23,415,428 0.21

Tianjin Bengang Steel Trading Ltd. 666,604,139 3.79 603,162,516 5.38

Haerbin Bengang International Trading Ltd. 100,963,455 0.57 119,403,986 1.07

Shanghai Bengang Steel Goods Ltd. 311,667,358 1.77 147,689,834 1.32

Nanjing Bengang Steel Sales Ltd. 318,780,720 1.81 273,166 0.00

Wuxi Bengang Steel Sales Ltd. 234,665,915 1.33 309,397,622 2.76

Guangshou Free Trade Zone Bengang Sales Co., Ltd. 61,427,031 0.35 151,592,599 1.35

Bengang Xi’an Goods Trading Ltd. 9,525,765 0.05 7,984,637 0.07

Yantai Bengang Steel Sales Ltd. 617,121,116 3.51 440,542,158 3.93

Benxi Steel (Group) Special Steel Co., Ltd. 323,444,201 1.84 198,338,994 1.77

Benxi Steel (Group) Tengda Holdings Ltd. 24,605,740 0.14 40,589,427 0.36

Shanghai Bengang Steel Sales Ltd. - - 26,306,638 0.23

Xiamen Bengang Steel Sales Ltd. 191,277,332 1.09 111,940,689 1.00

Shenyang North Bengang Sales Ltd. 186,658,633 1.06 62,598,282 0.56

Chengchun Bengang Steel Sales Ltd. 85,207,053 0.48 4,292,459 0.04

Dalian Boluole Steel Tube Ltd. 162,976,137 0.93 94,281,509 0.84

Benxi Steel (Group) Steel Process & Logistics Ltd. 263,039,782 1.50 32,433,322 0.29

Benxi Steel (Group) Construction Ltd. 190,082,336 1.08 - -

Benxi Steel (Group) Industrial Development Ltd. 71,297 0.00 - -

36

Benxi Steel (Group) Construction Ltd. 22,159,087 0.13 - -

Total 5,802,350,607 32.99 2,464,311,313.00 21.98

2) Purchasing Raw, Complement Materials and Spare Parts

A. Purchasing raw materials, assistant materials and spare parts form related transaction parties which were

existing control relationship: In RMB

Year 2003 Year 2002 Name of company

Amount Proportion in cost% Amount Proportion in

cost%

Bengang Group Co. Ltd. (raw materials) 11,877,306,051 73.59 6,187,625,962 60.46

Bengang Group Co. Ltd. (assistant materials and spare parts) 813,040,207 5.04 915,875,964 8.95

Total 12,690,346,258 78.63 7,103,501,926 69.42

The transactions regarding raw materials increased over 2004, which was caused by great increasing of sales.

B. Purchasing Goods form Related Transaction Parties which were not existing related transaction relationship:

In RMB

Year 2004 Year 2003 Name of company Amount Proportion in

cost% Amount Proportion in cost%

Benxi Steel (Group) Iron Co., Ltd.

2,150,015,663 13.32 1,347,499,159 13.17

Benxi Steel (Group) Machinery Co., Ltd. 66,928,349 0.41 73,713,473 0.72

Benxi Steel (Group) Mining Co., Ltd. 109,931,240 0.68 88,878,625 0.87

Benxi Steel (Group) Construction Co., Ltd. 43,971,960 0.27 - -

Benxi Steel (Group) Transportation Co., Ltd. 2,412,103 0.01 - -

Benxi Steel (Group) Electronics Co., Ltd. 1,284,371 0.01 - -

Liaoning Metallurgy Technician College 1,384,321 0.01 - -

Total 2,375,928,007 14.71 1,510,091,257 14.76

37

3) Other Related Transactions: In RMB

Items Year 2004 Year 2003 With the Group

Power supply 800,652,861 755,180,345 Transportation 48,193,945 65,956,630 Repairing 51,127,567 181,642,609 Trademark 25,200 25,200 Land using 2,673,192 2,673,192

Inspection and testing 6,087,164 - Benxi Steel (Group) Trucking Co., Ltd.

Transportation

9,895,030 16,130,138

Repairing 1,160,000

Bengang Group International Trading Ltd.

Export commission 30,444,233 3,111,352 Import commission 3,098,258 1,304,690

Import of equipment 275,764,686

Benxi Steel (Group) Special Steel Co., Ltd.

Repairing 927,820 1,383,916 Yinkou Bengang International Logistics Co., Ltd.

Port fee 23,877,550 2,745,667 Benggang Group Real-estate Co., Ltd.

Property management 229,796 209,130 Benxi Steel (Group) New Industrial Development Co., Ltd.

Labour security fee 1,395,742 1,123,190 Benxi Economic Development Zone Bengang Jufeng Development Co., Ltd.

Packaging 21,195,004 - Benxi Steel (Group) Construction Co., Ltd.

Construction 280,808,079 - Repairing 45,993,687 - Benxi Steel (Group) Information and Automatic Tech. Ltd.

Engineering 20,374,473 - Repairing 3,746,460 - Benxi Steel (Group) Construction & Repairing Co., Ltd.

Engineering 31,467,881 - Repairing 8,955,677 - Benxi Steel (Group) Designing Institute

Designing 3,642,170 - Benxi Steel (Group) Industrial Development Co., Ltd.

Repairing 4,438,811 - Benxi Steel (Group) Electronics Co., Ltd.

Repairing 5,344,648 - Benxi Steel (Group) Iron Co., Ltd.

Transportation 4,975,342 - Benxi Steel (Group) Metallurgy Residues Co., Ltd.

Transportation 18,533,653 - Benxi Steel (Group) Thermal Power Development Co., Ltd.

Heating 2,299,292 - Benxi Steel (Group) Mining Co., Ltd.

Transportation 1,760,225 -

4) The balance of related transaction parties of account receivable and account payable:

In RMB

Items Dec. 31 2004 December 31th 2003 Notes receivable

38

Benxi Steel (Group) Special Steel Co., Ltd. - 7,000,000 Yantai Bengang Steel Sales Ltd. 1,550,000 13,500,000 Wuxi Bengang Steel Sales Ltd. - 62,270,000 Benxi Steel (Group) Steel Process and Logistics Co., Ltd. - 4,500,000 Tianjin Bengang Steel Trading Ltd. - 16,260,000 Dalian Boluole Steel Tube Ltd. 3,811,448 1,400,000 Nanjing Bengang Steel Sales Ltd. 200,000 -

Total 5,561,448 104,930,000 Notes payable

Liaoning Metallurgy Technician College 433,800 - Benxi Steel (Group) Electronics Co., Ltd. 338,900 - Benxi Steel (Group) Construction Ltd. 102,700 - Benxi Steel (Group) Drilling Tools Co., Ltd. 63,600 - Benxi Steel (Group) Trucking Co., Ltd. 27,100 - Benxi Steel (Group) Industrial Development Co., Ltd. 4,400 -

Total 970,500 - Account receivable

Benxi Steel (Group) Special Steel Co., Ltd. 73,049,191 53,494,842 Benxi Steel (Group) International Trading Co., Ltd. 102,939,282 - Tianjin Benchu Goods Trading Ltd. - 24,436,060 Guangshou Free Trade Zone Bengang Sales Co., Ltd. - 6,711,719 Wuxi Bengang Steel Sales Ltd. - 6,406,844 Xiamen Bengang Steel Sales Ltd. - 6,367,585 Shanghai Bengang Steel Goods Ltd. - 2,725,494

Total 175,988,473 100,142,544 Account payable

Benxi Steel (Group) Special Steel Co., Ltd. - 7,567,853 Benxi Steel (Group) Transportation Co., Ltd. - 3,771899 Benxi Steel (Group) Electronics Co., Ltd. - 1,728,593 Benxi Steel (Group) Metallurgy Residues Co., Ltd. - 5,620,695 Benxi Steel (Group) Industrial Development Co., Ltd. - 7,392,619 Bengang Group 90,259,473 32,775,640 Benxi Steel (Group) Construction & Repairing Co., Ltd. 42,507,063 39,787,830 Benxi Steel (Group) Designing Institute 2,608,370 1,067,000 Benxi Steel (Group) Machinery Co., Ltd. 25,022,051 8,852,609 Benxi Steel (Group) Construction Co., Ltd. 68,482,194 66,879,047 Benxi Steel (Group) Drilling Tools Co., Ltd. 487,130 - Benxi Steel (Group) Information and Automatic Tech. Ltd. 5,460,591 -

Total 234,826,872 175,443,785 Advance account Bengang Group 804,095,162 1,509,043,149 Total 804,095,162 1,509,043,149 Account received in advance

Bengang Group 129,478,951 323,773,235 Benxi Steel (Group) Tengda Holdings Ltd. 264,995 6,620,166 Dalian Boluole Steel Tube Ltd. 23,152,334 26,282,411 Tianjin Bengang Steel Trading Ltd. 99,244,800 108,679,718

Benxi Steel (Group) Steel Process and Logistics Co., Ltd. 66,284,791 28,685,365 Yantai Bengang Steel Sales Ltd. 71,765,925 27,456,234 Haerbin Bengang International Trading Ltd. 9,359,356 22,979,791 Shenyang North Bengang Sales Ltd. 22,358,460 18,304,165 Chengchun Bengang Steel Sales Ltd. 8,262,277 11,467,306 Bengang Xi’an Goods Trading Ltd. 410,465 2,345,957 Shanghai Bengang Steel Goods Ltd. 14,132,107 - Nanjing Bengang Steel Sales Ltd. 44,138,686 - Wuxi Bengang Steel Sales Ltd. 92,217 - Guangshou Free Trade Zone Bengang Sales Co., Ltd. 15,860,506 - Xiamen Bengang Steel Sales Ltd. 9,147,578 -

Total 513,953,448 576,594,348 Other account receivable

Bengang Group 6,102,245 1,090,000 Benxi Steel (Group) Construction & Repairing Co., Ltd. 100,000 100,000

Benxi Steel (Group) Fire Resistance Co., Ltd. - 42,375 Benxi Steel (Group) International Trading Co., Ltd. 7,802,238 2,440,000 Benxi Steel (Group) Construction Co., Ltd. 19,832,584 - Benxi Steel (Group) Machinery Co., Ltd. 1,033,977 - Benxi Steel (Group) Education Center 84,455 -

39

Total 34,955,499 3,672,375 Other account payable

Bengang Group 53,054,493 12,992,986 Benxi Economic Development Zone Bengang Jufeng

Development Co., Ltd. 4,124,503 3,480,051

Benxi Steel (Group) International Trading Co., Ltd. 15,758,743 1,847,212 Benxi Steel (Group) Construction & Repairing Co., Ltd. - 5,928,449 Liaoning Metallurgy Technician College 620,334 1,147,113 Benxi Steel (Group) Transportation Co., Ltd. 6,085,818 - Benxi Steel (Group) Electronics Co., Ltd. 3,238,672 - Benxi Steel (Group) News Center 547,964 - Benxi Steel (Group) New Industrial Development Co., Ltd. 289,366 - Benxi Steel (Group) Industrial Development Co., Ltd. 7,575,687 - Benxi Steel (Group) Metallurgy Residues Co., Ltd. 1,742,851 - Benxi Steel (Group) Mining Co., Ltd. 5,890 -

Benxi Steel (Group) Special Steel Co., Ltd. 7,507,902 - Benxi Steel (Group) Machinery Co., Ltd. 1,038,112 -

Total 101,590,335 25,395,811

(IV) Material Contracts and Implementation

1. The Company has never been involved in such events as keeping as custodian, contracted or leased any

other company’s assets and vice versa in the report period or extended from the previous years.

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.

40

(V) There was no external guarantee or illegal guarantee occurred in the report term or last

to report term.

(VI) Auditing Expenses

The Company pay for annual audit fee to Beijing TIN WHA CPAs and Ho and Ho & Company CPAs RMB

1,100,000.The period of audit services period that Beijing TIN WHA CPAs and Ho and Ho & Company CPAs

offer to the Company was 12 months.

(VII) In the report period, the Company, the Board of Directors or any director had never

been inspected, experienced administrative penalty or been criticized by circulating a notice

of criticism by China Securities Regulatory Commission, or condemned in public by

Shenzhen Stock Exchange.

(VIII) There was no material events and proceeding which was suppose to disclosing but did

not disclosing during the report term.

X Financial Report

1. Accounting Statement (Attached)

2. Accounting Statement annotations (Attached)

XI Documents for Reference

I Accounting Statement with signed and stamped by the principal of legal representative, director of

accounting work principal and accounting institution;

II Audit report original documentation with accounting office stamp and registered CPA signature and

stamp;

III All of the disclosed documentation original and announcement original of the Company which had

published on China Securities Journal, Hong Kong Commercial Daily and Security Times during the report

41

term.

The Board of Directors of Bengang Steel Plate Co. Ltd

Mr. Li Mohua, the Chairman of Board

April 12th 2005

42

Bengang Steel Plates Co., Limited

Report and Financial Statements

For the year ended 31st December 2004

43

Ho and Ho & Company

Certified Public Accountants

Hong Kong


Report and financial statements

For the year ended 31st December 2004

Content

Pages

Report of the auditors

1

2

1

Income statement

Balance sheet

3

Statement of changes in equity 4

Cash flow statement

5 – 6

Notes to the financial statements

7 – 36

1

REPORT OF THE AUDITORS

To the shareholders of Bengang Steel Plates Co., Limited

(incorporated in the People’s Republic of China

with limited liability)

We have audited the accompanying balance sheet of Bengang Steel Plates Co., Limited (the “Company”) as of 31st December 2004 and the related statements of income, cash flows and statement of changes in equity for the year then ended. These financial statements 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 as promulgated by the International Federation of Accountants. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of 31st December 2004, and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards promulgated by the International Accounting Standards Board.

2

Ho and Ho & Company

Certified Public Accountants

12th April 2005, Hong Kong


Financial statements for the year ended 31st December 2004

2

Income statement for the year ended 31st December 2004

(Expressed in Renminbi Thousand Yuan)

Note 2004 2003

RMB’000 RMB’000

Turnover 4 17,349,451 11,210,196

Cost of sales (16,141,686) (10,295,582)

Gross profit 1,207,765 914,614

Other operating income 5 2,783 5,479

Selling expenses (127,302) (61,346)

Administrative expenses (106,910) (51,303)

Other operating expenses 6 (33,189) (3,364)

Profit from operations 7 943,147 804,080

Finance costs, net 8 (31,074) (75,174)

Profit before tax 912,073 728,906

Income tax expenses 9 (211,648) (255,394)



3

Net profit for the year 700,425 473,512

Earning per share – basic 10 RMB 0.62 RMB 0.42



4

Balance sheet as at 31st December 2004


Note 2004 2003

RMB’000 RMB’000

Assets

Non-current assets

Property, plant and equipment 13 3,553,450 3,346,888

Construction in progress 14 319,168 94,149

Deferred tax assets 15 14,713 14,713

Total non-current assets 3,887,331 3,455,750

Current assets

Inventories 16 1,627,268 841,007

Accounts receivable 17 177,062 117,408

Bills receivable 18 77,758 378,485

Prepaid expenses and other current assets 19 975,136 1,571,919

Prepaid tax 20 15,704 30,352

Bank balances and cash 21 1,404,213 1,003,195



5

Total current assets 4,277,141 3,942,366

Total assets 8,164,472 7,398,116



6

Balance sheet as at 31st December 2004


Note 2004 2003

RMB’000 RMB’000

Equity and Liabilities

Shareholders’ equity

Share capital 22 1,136,000 1,136,000

Reserves 23 3,983,611 3,510,386

5,119,611 4,646,386

Non-current liabilities

Bank loans – repayable after one year 24 311,862 325,688

Current liabilities

Accounts payable 25 437,762 284,847

Bills payable 10,000 20,756

Other payable and accrued charges 26 193,517 95,920

Receipt in advance 27 1,829,228 1,411,136

Bank loans – repayable within one year 24 262,492 613,383



7

Total current liabilities 2,732,999 2,426,042

Total liabilities 3,044,861 2,751,730

Total equity and liabilities 8,164,472 7,398,116

The financial statements on pages 2 to 36 were approved and authorized for issue by the Board of Directors on 12th April 2005 and are signed on its behalf by:

Director Director



8

Statement of changes in equity for the year ended 31st December 2004


Total equity

RMB’000

Balance at 1st January 2003 4,172,874

Net profit for the year 473,512

Balance at 31st December 2003 and 1st January 2004 4,646,386

Payment of 2003 final dividends (227,200)

Net profit for the year 700,425

Balance at 31st December 2004 5,119,611

0

Cash flow statement for the year ended 31st December 2004


2004 2003

RMB’000 RMB’000

Profit from operations 943,147 804,080

Adjustments for:

Depreciation on property, plant and equipment 578,498 455,762

Impairment losses on property, plant and equipment written back on disposal

- (25,963)

Loss on disposal of property, plant and equipment 31,884 23,615

Unrealised exchange loss 360 (20,062)

1,553,889 1,237,432

Operating cash flows before movements in working capital

Increase in inventories (786,261) (108,511)

Increase in accounts receivable (59,654) (75,000)

Decrease (increase) in bills receivable 300,727 (247,887)

Decrease in prepaid expenses and other current assets 596,783 102,140

Increase in accounts payable 152,915 160,128

-1-

(Decrease) increase in bills payable (10,756) 20,756

Increase in receipt in advance 418,092 108,533

Increase (decrease) in other payable and accrued charges

97,597 (16,419)

Cash generated from operations 2,263,332 1,181,172

Income tax paid (197,000) (258,000)

Interest paid (38,285) (67,389)

Bank charges paid (718) (1,706)

Net cash from operating activities 2,027,329 854,077

-2-

Cash flow statement for the year ended 31 st December 2004


2004 2003

RMB’000 RMB’000

Net cash from operating activities 2,027,329 854,077

Investing activities

Receipt of interest income 7,569 13,983

Proceeds from disposal of property, plant and equipment

1,564 5,598

Acquisition of property, plant and equipment (1,043,527) (99,487)

Increase in fixed deposits with maturity more than three months

456,421 (109,505)

Increase in guarantee deposits (226,039) -

Net cash used in investing activities (804,012) (189,411)

Financing activities

Dividends paid (227,200) -

New bank loans - -

Repayment of bank loans (364,717) (667,645)

-3-

Net cash used in financing activities (591,917) (667,645)

Increase (decrease) in cash and cash equivalents 631,400 (2,979)

Cash and cash equivalents at beginning of year 428,579 431,558

Cash and cash equivalents at end of year (note 21)

Bank balances and cash 1,059,979 428,579

-4-

Notes to the financial statements for the year ended 31st december 2003

1. GENERAL INFORMATION

Bengang Steel Plates Co., Ltd. (the “Company”) was incorporated as a joint stock limited company in the People’s Republic of China (the “PRC”) on 27th June 1997. The Company’s Domestically Listed Foreign Shares (“B shares”) and Domestic Shares (“A shares”) were listed on the Shenzhen Stock Exchange in July 1997 and November 1997 respectively.

The directors considered that Benxi Iron and Steel (Group) Limited (“the Parent Company”) is the ultimate parent company of the Company.

The Company is principally engaged in steel smelting, metallurgy, processing and distribution business of related products in the PRC.

As at 31st December 2004, the Company has 3,842 (2003: 3,678) employee.

2. CHANGE OF ACCOUNTING ESTIMATE

After reviewing the using of the Company’s property, plant and equipment, the Directors resolved to reduce the useful life of the assets (except for plant and equipment) by 40% with effect from 1st July 2004. This change in accounting estimate was applied prospectively. Accordingly, the depreciation charge for property, plant and equipment for the year was increased by RMB134,124,000, the profit for the year and the shareholders’ equity as at 31st December 2004 was reduced by RMB143,124,000.

3. PRINCIPAL ACCOUNTING POLICIES

a) Statement of compliance

-5-

The financial statements of the Company have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) promulgated by the International Accounting Standards Board (“IASB”). IFRS includes International Accounting Standards (“IAS”) and related interpretations.

The Company maintains its accounting records and prepares its statutory financial statements in accordance with the accounting principles and the PRC Accounting Standards for Business Enterprises and the Accounting System for Business Enterprises (“Statutory Financial Statements”).

-6-

3. PRINCIPAL ACCOUNTING POLICIES (continued)

a) Statement of compliance (continued)

The accounting policies and basis adopted to the preparation of the Statutory Financial Statements differ in certain respects from IFRS. The differences arising from the restatement of the results of operations and the net assets for compliance with IFRS are adjusted in financial statements but will not be taken up in the accounting records of the Company.

b) Basis of preparation

The financial statements have been prepared in Renminbi (“RMB”), the currency in which the majority of the Company’s transactions are denominated.

Except for certain property, plant and equipment which are stated at their revalued value, the financial statements have been prepared on the historical cost basis.

The accounting policies have been consistently applied by the Company and are consistent with those of the previous year.

The principal accounting policies adopted in this report are set out below:

c) Foreign currency transactions

Transactions in foreign currencies are translated to RMB at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet dates are re-translated to RMB at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities denominated in foreign currencies, that are stated at historical cost are translated to RMB at the foreign exchange rate ruling at the date of the transaction. Exchange gains and losses are recognized as income or expense in the income statement.

-7-

3. PRINCIPAL ACCOUNTING POLICIES (continued)

d) Property, plant and equipment

i) Owned assets

Property, plant and equipment are stated at cost or valuation (note 13b) less accumulated depreciation and impairment losses. The cost for self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads and borrowing costs.

Where an item of property, plant and equipment comprises major components having difference useful lives, they are accounted for as separate items of property, plant and equipment.

ii) Subsequent expenditure

Expenditure incurred to replace a component of an item of property, plant and equipment, including inspection and overhead expenditure, is capitalized. Other subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property, plan and equipment. All other expenditure is recognized in the income statement as an expense as incurred.

iii) Depreciation

Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment, and major components that are accounted for separately. The estimated useful lives are as follows:

Estimated useful life

-8-

Plant and buildings 8 30 years

Machinery and equipment 2.4 9 years

Motor vehicles and office equipment 3 10.8 years

iv) Disposals

Gains or losses arising from the retirement or disposal of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated income statement on the date of retirement or disposal.

-9-


e) Construction in progress

Construction in progress represents properties under construction and is stated in the consolidated balance sheet at cost less impairment losses.

Construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use.

No depreciation is provided in respect of construction in progress.

f) Impairment

The carrying amounts of long-lived assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to the recoverable amount. The recoverable amount is the greater of the net selling price and the value in use. In determining the value in use, expected future cash flows generated by the asset are discounted to their present value. The amount of the reduction is recognized as an expense in the consolidated income statement unless the asset is carried at revalued amount for which an impairment loss is recognized directly against any related revaluation reserve to the extent that the impairment loss does not exceed the amount held in the revaluation reserve for that the same asset.

The Company assesses at each balance sheet date whether there is any indication that an impairment loss recognized for an asset in prior years may no longer exist. An impairment loss is reversed if there has been a favorable change in the estimates used to determine the recoverable amount. A subsequent increase in the recoverable amount of an asset, when the circumstances and events that led to the write-down or write-off cease to exist, is recognized as income unless the asset is carried at revalued amount. Reversal of an impairment loss on a revalued asset is credited to the revaluation reserve except for impairment loss which was previously recognized as

-10-

an expense in the consolidated income statement; a reversal of such impairment loss is recognized as income; a reversal of such impairment loss is recognized as income. The reversal is reduced by the amount that would have been recognized as depreciation had the write-down or write-off not occurred.

-11-


g) Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses.

The cost of inventories is calculated based on the weighted average costing method and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity.

h) Trade and other receivables

Trade and other receivables are stated at cost less allowance for doubtful accounts. An allowance for doubtful accounts is provided based upon the evaluation of the recoverability of these accounts at the balance sheet date.

i) Cash equivalents

Cash equivalents represent short-term, highly liquid investments that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value.

j) Interest-bearing borrowings

Interest-bearing borrowings are recognized initially at cost, less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognized in the income statement over the period of the borrowings on an effective interest basis.

-12-

k) Trade and other payables

Trade and other payables are stated at their cost.

-13-


l) Provisions

A provision is recognized in the balance sheet when the Company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risk specific to the liability.

m) Dividends

Dividends on ordinary shares are recognized as a liability in the period in which they are declared.

n) Revenue

Revenue from the sale of goods is recognized in the income statement when the significant risks and rewards of ownership have been transferred to the buyer.

o) Expenses

i) Operating lease payments

Payments made under operating lease are recognized in the income statement on straight-line basis over the terms of the respective leases. Lease incentive received is recognized in the income statement as an integral part of the total lease expense. Contingent rental are charged to the income statement in the accounting period in which they are incurred.

ii) Net financing costs

-14-

Net financing costs comprise interest payable on borrowings, calculated using the effective interest rate method, interest receivable on funds invested and foreign exchange gains and losses.

Interest income is recognized in the income statement as it accrues, taking into account the effective yield on the assets.

Interest expenses are recognized in the income statement using the effective interest rate method.

-15-


p) Retirement benefits

The Company participates in retirement schemes operated by local authorities and the annual cost of providing retirement benefits is charged to the consolidated income statement according to the contribution determined by the relevant schemes. The Company has no further liability to the retirement schemes operated by the local authorities.

q) Income tax

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognized in the income statement except to the extent that it relates to items recognized directly to equity, in which case it is recognized in equity.

Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment of tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Initial recognition of assets or liabilities that affect neither accounting nor taxable profit is regarded as temporary difference which is not provided for. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asst can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

-16-

r) Segment reporting

A segment is a distinguishable component of the Company that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segment.

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4. TURNOVER

Turnover represents invoiced sales to customers less discounts and returns. The major revenue recognized for the year is as follows:

2004 2003

RMB’000 RMB’000

Hot plates 15,286,538 10,652,707

Steel billets 1,358,125 204,141

Molten steel 487,824 193,770

Scrap material 77,858 67,919

Others 139,106 91,659

17,349,451 11,210,196

5. OTHER OPERATING INCOME

2004 2003

RMB’000 RMB’000

Sales of raw material, net 80 -

-18-

Gain on debts restructuring 578 1,685

Gain on disposal of property, plant and equipment 696 3,794

Receipt of default payments 1,429 -

2,783 5,479

6. OTHER OPERATING EXPENSES

2004 2003

RMB’000 RMB’000

Penalties 609 718

Donations - 1,198

Loss on disposal of property, plant and equipment 32,580 27,409

Written back of impairment loss on property, plant and equipment on disposal - (25,961)

33,189 3,364

7. PROFIT FROM OPERATIONS

-19-

Profit from operations has been stated after charging:-

2004 2003

RMB’000 RMB’000

Staff costs

-salaries and wages 124,184 90,279

-retirement benefits contribution 35,445 24,380

- other staff welfare 17,240 12,639

-early retirement scheme 24,620 -

201,489 127,298

Depreciation on property, plant and equipment

Written back of impairment loss on property, plant and equipment on disposal 578,498 455,762

Loss on disposal of property, plant and equipment, net - (25,961)

Rental expenses for land use rights 31,884 27,409

Written back of provision for loss in inventories 2,673 2,673

Decrease in provision for bad debts - (3,600)

184 (125)

-20-

8. NET FINANCE COSTS

2004 2003

RMB’000 RMB’000

Interest expenses 38,285 67,389

Interest income (7,569) (13,983)

Exchange loss (360) 20,062

Bank charges 718 1,706

31,074 75,174

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9. INCOME TAX EXPENSES

Income tax expenses in income statement represent:

2004 2003

RMB’000 RMB’000

PRC enterprise income tax

Current year 211,648 245,598

Deferred taxation (Note 14) - 9,796

211,648 255,394

The income tax rate applicable to the Company is 33% (2003: 33%) .

A reconciliation of the expected tax with the actual tax expense is as follows:-

2004 2003

RMB’000 RMB’000

Profit before tax 912,073 728,906

-22-

Expected PRC income tax expense at a statutory tax rate 300,984 240,539

Non-deductible expenses 10,664 14,855

Tax credit granted (100,000) -

211,648 255,394

10. EARNINGS PER SHARE

The earnings per share for the year ended 31st December is calculated based on the net profit for the year of RMB700,425,000 (2003: RMB473,512,000) and the weighted average number of ordinary shares outstanding during the year of 1,136,000,000 shares (2003: 1,136,000,000 shares).

The amount of diluted earning per share is not presented as there were no dilutive potential ordinary shares in expositing during the years presented.

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11. DIVIDEND

Pursuant to a resolution passed at the Directors’ meeting on 12th April 2005, a final dividend of RMB0.20 (2003: RMB0.20) per share totaling RMB227,200,000 (2003: RMB227,200,000) was proposed for shareholders’ approval at the Annual General Meeting. Dividends proposed after the balance sheet date has not been recognized as a liability at the balance sheet date.

12. EMPLOYEE BENEFIT PLAN

As stipulated by the regulation of the PRC, the Company participates in a defined contribution retirement plans organized by municipal and provincial government for its staff. The Company has no other material obligations for the payment of pension benefits associated with these plans beyond the annual contribution described above. The Company’s contribution to the defined contribution plans is recognized as an expense in the income statement as incurred. The Company’s contribution for the year was RMB35,445,000 (2003: RMB24,380,000)

On 1st April 2004, the Company announced an early retirement scheme whereby the employees effectively retire from their work before the statutory retirement age. These employees are still subject to the management of the Company. They will be entitled to a reduced monthly salary and certain staff welfare by the Company. Upon the statutory retirement age, the reduced salary and staff welfare will be replaced by statutory pension which a government agency is responsible for, and the Company has no further obligation for the payments of retirement or other post-retirement benefits of these employees. During the year, the company had paid RMB24,620,000 for the Scheme. As at 31st December 2004, the Management estimated that the future payments of the reduced salary and staff welfare expected to be incurred amounted to approximately RMB 127,491,000 which was no recognized in the balance sheet.

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13. PROPERTY, PLANT AND EQUIPMENT

Plant and equipment

Machinery and

equipment

Motor vehicle and office equipment Total

RMB’000 RMB’000 RMB’000 RMB’000

Cost or valuation

At 1st January 2004 995,787 4,553,678 20,900 5,570,365

Additions - 169 25 194

Transfer from construction in progress

210,676 607,345 293 818,314

Disposals (7,855) (38,206) (1,383) (47,444)

At 31st December 2004 1,198,608 5,122,986 19,835 6,341,429

Representing:

Cost 292,926 1,985,038 3,600 2,281,564

Valuation 905,682 3,137,948 16,235 4,059,865

1,198,608 5,122,986 19,835 6,341,429

Accumulated depreciation

At 1st January 2004 347,267 1,868,314 7,896 2,223,477

-25-

Charge for the year 37,194 535,159 6,145 578,498

Written back on disposal (1,745) (11,680) (571) (13,996)

At 31st December 2004 382,716 2,391,793 13,470 2,787,979

Net book value

At 31st December 2004 815,892 2,731,193 6,365 3,553,450

At 31st December 2003 648,520 2,685,364 13,004 3,346,888

a) All of the buildings owned by the Company are located in the PRC under medium lease (lease periods of 20 years or more but less than 50 years).

b) For the purpose of the group restructuring of the Parent Company, the Company was established as a joint stock company in 1997. Part of business operations and certain assets and liabilities of the Parent Company were transferred to the Company. These assets and liabilities had been revalued an independent PRC qualified valuer on 16th March 1997 according to the relevant regulations and on such basis reflected in the Company’s financial statements.

On 15th April 2002, the property, plant equipment were revalued by an independent PRC qualified valuer on the market price basis. The surplus arising therefrom was transferred to the revaluation reserves.

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14. CONSTRUCTION IN PROGRESS

2004 2003

RMB’000 RMB’000

At beginning of year 94,149 11,513

Additions 1,043,333 96,941

Transfer to property, plant and equipment (818,314) (14,305)

At end of year 319,168 94,149

15. DEFERRED TAX ASSETS

Deferred tax has been provided for using liabilities at the prevailing tax rate of 33% (2003: 33%) on the temporary differences. The major components of the deferred tax assets are as follows:

2004 2003

RMB’000 RMB’000

Provision for bad debts 10,368 10,368

Provision for loss in inventories 4,345 4,345

-27-

14,713 14,713

16. INVENTORIES

2004 2003

RMB’000 RMB’000

Raw materials 6,618 4,155

Work in progress 988,290 368,512

Finished goods 456,506 273,592

Spare parts 189,021 207,915

1,640,435 854,174

Less: Provision for loss (13,167) (13,167)

1,627,268 841,007

At 31st December 2004, inventories stated at net realisable value was RMB3,664,000 (2003: RMB16,715,000).

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17. ACCOUNTS RECEIVABLE

2004 2003

RMB’000 RMB’000

Related parties (note 33) 175,988 100,143

Third parties 33,360 49,469

209,348 149,612

Less: Provision for bad debts (32,286) (32,204)

177,062 117,408

18. BILLS RECEIVABLE

2004 2003

RMB’000 RMB’000



77,758 378,485

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19. PREPAID EXPENSES AND OTHER CURRENT ASSETS

2004 2003

RMB’000 RMB’000

Related parties (note 33) 839,050 1,512,715


Other receivable 8,913 20,554

Other tax recoverable 66,080 -

Prepaid expenses 1,710 1,820

Less: Provision for bad debts 976,662 1,573,343

(1,526) (1,424)

975,136 1,571,919

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20. PREPAID TAX

At 31st December 2004 and 2003, the prepaid tax represents the enterprise income tax paid in advance. It can be utilized to offset the future tax payable.

21. CASH AND CASH EQUIVALENTS

For the purpose of the cash flow statement, cash and cash equivalents represent:

2004 2003

RMB’000 RMB’000

Bank balance and cash 1,404,213 1,003,195

Less: Fixed deposits with maturity more than 3 months (118,195) (574,616)

Pledged deposits (226,039) -

1,059,979 428,579

22. SHARE C`APITAL

2004 2003

RMB’000 RMB’000

-31-

Issued and fully paid:

616,000,000 state-owned A shares of RMB1 each 616,000 616,000

120,000,000 public-owned A shares of RMB1 each 120,000 120,000

400,000,000 public-owned B shares of RMB 1 each 400,000 400,000

1,136,000 1,136,000

A shares and B shares rank pari passu in all material respect.

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23. RESERVES

Share

premium

Assets revaluation

reserves Statutory reserves

Retained profits Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1st January 2003 1,072,187 618,926 303,166 1,042,595 3,036,874

Reclasification 331,483 (301,080) - (30,403) -

Eliminated on disposal of property, plant and equipment - (24,498) - 24,498 -

Net profit for the year - - - 473,512 473,512

Transfer - - 78,709 (78,709) -

At 31st December 2003 and 1st January 2004 1,403,670 293,348 381,875 1,431,493 3,510,386

Payment of 2003 final dividends - - - (227,200) (227,200)

Eliminated on disposal of property, plant and equipment - (1,267) - 1,267 -

Net profit for the year - - - 700,425 700,425

Transfer - - 109,809 (109,809) -

At 31st December 2004 1,403,670 292,081 491,684 1,796,176 3,983,611

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a) Share premium and assets revaluation reserve

Share premium represents net assets acquired from the Parent company in excess of par value of state shares issued and proceeds from the issuance of A shares and B shares in excess of their par value, net of expenses directly relating to the issue of the shares. Share premium may be converted into shares capital by the issue of new shares to shareholders in proportion to their existing shareholdings or by increasing the par value of the shares currently held by them

Assets revaluation reserve represents the surplus on revaluation of property, plant and equipment. Any decrease in valuation is first offset against an increase on earlier valuation in respect of the same asset and is thereafter charged to the income statement. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus is transferred to accumulated profits.

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23. RESERVES (continued)

b) Statutory surplus reserve

According to the PRC Laws and the Company’s Articles of Association, the Company is to provide certain statutory reserves which are appropriated from the net profit as reported in the statutory accounts. Accordingly, the Company shall set aside 10% of its net profit for statutory reserves fund (except where the reserve balance has reached 50% of the Company’s registered share capital) and 5% to 10% for the statutory public welfare fund. The Company may make appropriations from its net profit to the discretionary common reserve funds upon approval by shareholders. These reserves cannot be used for purposes other than those for which they are created and are not distributable as cash dividends without the prior approval by Shareholders under certain conditions.

When the statutory reserve fund is not sufficient to cover the priors’ losses, the current year’s net profit will first be used to compensate the previous losses before the appropriations to the statutory common reserve fund and statutory public welfare fund.

The Directors propose, subject to Shareholders’ approval, the transfer of RMB109,809,000 (2003: RMB78,709,000) being 10% and 5% (2003: 10% and 5%) of the net profit for the year as showed in the Statutory financial statements.

c) Retained profits available for distribution

According to the Company’s Articles of Association, the amount of retained profits available for distribution to shareholders of the Company is the lower of the amount determined in accordance with the PRC Accounting g Rules and Regulations and the amount determined in accordance with IFRS. At 31st December 2004, the amount of retained profits available for distribution was RMB 1,796,176,000 (2003: RMB 1,431,493,000), being the amount determined in accordance with the PRC Accounting Rules and Regulations.

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24. BANK LOANS

2004 2003

RMB’000 RMB’000

Guaranteed 414,844 679,561

Unsecured or not guaranteed 159,510 259,510

574,354 939,071

Less: Amount repayable within one year (262,492) (613,383)

311,862 325,688

The interest rates for long-term bank loans are from 2.10% to 5.76% 2003 2.10% to 5.76% The guaranteed is provided by the Parent Company (Note 32)

The maturity of the bank loans are as follows:

2004 2003

RMB’000 RMB’000

Within one year 262,492 613,383

In more than one but less than two years 50,492 212,492

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In more than two but less than five years 228,381 81,215

More than five years 32,989 31,981

574,354 939,071

Less: Amount repayable within one year (262,492) (613,383)

311,862 325,688

25. ACCOUNTS PAYABLE

2004 2003

RMB’000 RMB’000

Related parties (note33) 234,827 175,444


437,762 284,847

26. OTHER PAYABLE AND ACCRUED CHARGES

-37-

2004 2003

RMB’000 RMB’000


Tax other than income tax 801 10,249

Accrued salaries and welfare 8,359 5,538

Other payable 82,767 54,605

193,517 95,920

27. RECEIPT IN ADVANCE

2004 2003

RMB’000 RMB’000

Accrued salaries and welfare 513,954 576,594

Other payable 1,315,274 834,542

1,829,228 1,411,136

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28. FINANCIAL INSTRUMENTS

a) Financial risks and risks management

The main risks arising from the Company’s financial instruments are business risk, interest rate risk, foreign currency risk and credit risk. The Company does not have any written risk management policies and guidelines. However, the board of directors meets periodically to analyze and formulate measures to manage the Company’s exposure to these risks. Generally, the Company introduces conservative strategies on its risk management. As the Company’s exposure to these risks is kept to a minimum, the Company has not used any derivatives and other instruments for hedging purposes. The Company does not hold or issue derivative financial instruments for trading purposes. The board of directors reviews and agrees policies for managing each of these risks and they are summarized below:

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28. FINANCIAL INSTRUMENTS (continued)

a) Financial risks and risks management (continued)

i) Business risk

The Company conducts its operations in the PRC and accordingly is subject to special considerations and significant risks. These include risks associated with, inter alias, the political, economic and legal environment, influence of national authorities over price regulations and competitions in the industry.

ii) Interest rate risk

The interest rates and terms of repayment of the bank loans of the Company are disclosed in note 28. The Company has no significant concentration of interest rate risk.

iii) Foreign currency risk

The Company’s businesses are principally located in the PRC and all transactions are conducted in RMB, except for the purchases of some machinery and equipment. As at 31 st December 2004, all of the Company’s assets and liabilities were denominated in RMB except that small amount of cash and cash equivalents were denominated in foreign currency. Fluctuation of exchange rates of RMB against foreign currencies will not significantly affect the Company’s results of operation.

iv) Credit risk

The Company’s cash and cash equivalents are mainly deposits with state-owned banks in the PRC.

-40-

The carrying amount of the trade receivables and cash included in the financial statements represent the Company’s maximum exposure to credit risk in relation to its financial assets. The Group has no other financial assets carrying significant exposure to credit risk. The Company has no significant concentrations of credit risk.

-41-

28. FINANCIAL INSTRUMENTS

b) Fair value of financial instruments

Financial instruments of the Company mainly consist of cash and bank balances, trade receivables, other current assets trade payable, other payables and long term interest bearing loans.

The carrying amount of the Company’s financial instruments approximated their value as at 31 st December 2004 because of the short term maturities of these instruments except for long-term interest bearing loans. It was not practicable to estimate the fair value of the long term loans of RMB574,354,000 as the instruments are not marketable.

The carrying amount of the Company’s long term interest bearing loans approximated its fair value based on borrowing rates currently for loans with similar terms maturities.

Fair value estimates are made at a specific point in time and based on relevant market information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

29. OPERATING LEASE COMMITMENT

The minimum lease payment under irrevocable operating leases is as follows:

2004 2003

RMB’000 RMB’000

-42-

Within one year 2,673 2,673

More than one but less than five years 10,692 10,692

More than five years 101,583 104,256

114,948 117,621

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30. CAPITAL COMMITMENT

At 31st December 2003 and 2004, there was capital commitment so far as not provided for in the financial statements:

2004 2003

RMB’000 RMB’000

Acquisition of fixed assets

Contracted 225,900 -

Authorised but not contracted 19,100 -

245,000 -

On 20th April 2004, a resolution concerning the construction No. 4 stove and the improvement works of the1700mm hot pressing machine was passed at the sixth meeting of the third terms of the Company’s board of directors. The total costs for the above works was RMB945,722,000 and RMB191,663,100 respectively. The works will be completed in 2005.

The above resolution has been passed at the 2003 general meeting on 25th May 2004.

31. CONTINGENT LIABILITIES

At 31st December 2003 and 2004, the Company had no material contingent liabilities.

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32. RELATED PARTIES TRANSACTIONS

Companies are considered to be related if one company has ability, directly or indirectly, to control the other company or exercise significant influence over the other company in making financial and operating decisions. Companies are also considered to be related if they ate subject to common control or common significant influence.

The principal related party transactions with the Parent Company and follow subsidiaries, which were carried out in the ordinary course of business, are as follows:

2004 2003

RMB’000 RMB’000

Sale of goods 10,397,331 5,491,404

- the Parent Company(i) 4,807,293 3,027,092

- 本溪钢铁(集团)国际经济贸易有限公司 2,030,092 90,068

- 天津本钢钢铁贸易有限公司 666,604 603,163

- 烟台本钢钢铁销售有限公司 617,121 440,542

- 本溪钢铁(集团)特殊钢有限公司 323,444 198,339

- 南京本钢钢铁销售有限公司 318,781 273

- 上海本钢钢铁物资有限公司 311,667 147,690

- 本溪钢铁(集团)钢材加工配送有限责任公司 263,040 32,433

- 无锡本钢钢铁销售有限公司 234,666 309,398

- 厦门本钢钢铁销售有限公司 191,277 111,941

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- 沈阳北方本钢钢铁销售有限公司 186,659 62,598

- 大连波罗勒钢管有限公司 162,976 94,282

- 哈尔滨本钢经济贸易有限公司 100,963 119,404

- 长春本钢钢铁销售有限公司 85,207 4,292

- 广州保税区本钢销售有限公司 61,427 151,593

- 本溪钢铁(集团)腾达股份有限公司 24,606 40,589

- 上海本钢钢铁销售有限公司 - 26,307

- 天津本储物资经销有限公司 1,982 23,415

- 本钢西安物资销售有限公司 9,526 7,985

Sale of raw material 213,243 -

- the Parent Company 931 -

- 本溪钢铁(集团)建设有限责任公司 190,082 -

- 本溪钢铁(集团)修建有限责任公司 22,159 -

- 本溪钢铁(集团)实业发展有限责任公司 71 -

Purchase of raw materials(i) 14,008,082 7,535,125

- the Parent Company 11,858,066 6,187,626

- 本溪钢铁(集团)铁业有限责任公司 2,150,016 1,347,499

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32. RELATED PARTIES TRANSACTIONS (continued)

2004 2003

RMB’000 RMB’000

Purchase of power from the Parent Company(i) 832,902 755,180

Purchase of accessories (i) 1,038,952 1,078,468

- the Parent Company 813,040 915,876

- 本溪钢铁(集团)石灰石矿 109,931 88,879

- 本溪钢铁(集团)机械制造有限责任公司 66,928 73,713


- Others 5,081 -

Payment of repair and maintenance expenditure(i) 121,696 183,027




- 本溪钢铁(集团)电气有限责任公司 5,345 -

- 本溪钢铁(集团)实业发展有限责任公司 4,439 -

- 本溪钢铁(集团)信息自动化有限责任公司 3,746 -

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- Others 2,088 1,384

Payment of trqansactions charges(i) 83,358 82,087


- 本溪钢铁(集团)冶金渣有限公司 18,534 -

- 本溪钢铁(集团)汽车运输有限公司 9,895 16,130

- 本溪钢铁(集团)铁业有限公司 4,975 -

- 本溪钢铁(集团)矿业有限公司 1,760 -

Payment of construction fee(i) 336,292 -



- 本溪钢铁(集团)信息自动化有限责任公司 20,374 -

- 本溪钢铁(集团)设计研究院 3,642 -

Payment of package fee to 本溪经济开发区本钢聚丰发展有限公司 21,195 5,341

Payment of agency to 本溪钢铁(集团)国际经济贸易有限公司(i) 33,542 4,416

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Payment of sundry expenses to 营口本钢国贸物流有限公司 23,878 2,746

32. RELATED PARTIES TRANSACTIONS (continued)

2004 2003

RMB’000 RMB’000

Payment of rental to the Parent Company (ii) 2,673 2,673

Payment of testing fee to the Parent Company (i) 6,087 -

Payment of air-conditioning fee to 本溪钢铁(集团)热力开发有限责任公司 2,299 -

Payment of property management fee to 本溪钢铁(集团)房地产有限责任公司 230 209

Payment of trade mark use fee to the Parent Company (i) 25 25

The transactions were entered into on normal commercial terms.

i) On 14th April 1997, the Company and the Parent Company entered into a Comprehensive Services Agreement governing, inter alia, the purchases of raw

-49-

materials, energy and electric power and accessories and spare parts, provision of freight and maintenance services and etc., effective from the date of the incorporation of the Company with a term of five years. On 1st November 2001, the Company signed a Supplementary Agreement to Comprehensive Services Agreement with the Parent Company to extend the term to 31st December 2006.

ii) According to an approval document “Liao Tu Pi Zi (1997) No.6” issued by the Land Bureau of Liaoning Province on 5 March 1997 regarding the valuation of land and the related arrangements, and the Land Use Right Lease Contract entered into between the Company and the Parent Company on 7 April 1997, the Company is authorized to lease the land on which its plants and buildings are located from the Parent Company at an agreed fee. The term of the lease contract is 50 years. The initial rent payable by the Company to the Parent Company was approximately RMB2,673,000 per annum. The rent will be adjusted after the first five years of the lease and subsequently at an interval of three years. On 6th April 2002, the Company signed a supplementary agreement to the Land Use Right Lease Contract with the Parent Company to maintain the same amount of rent until 7th April 2005.

iii) As of 31st December 2004, the Company had loans amounting to RMB414,844,000 (2003:RMB679,561,000) guaranteed by the Parent Company (note 24).

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33. BALANCES WITH RELATED PARTIES

2004 2003

RMB’000 RMB’000

Accounts receivable 175,988 100,143

- 本钢集团国际经济贸易有限公司 102,939 -

- 本溪钢铁(集团)特殊钢有限责任公司 73,049 53,495

- 天津本储物资经销有限公司 - 24,436

- 广州保税区本钢销售有限公司 - 6,712

- 无锡本钢钢铁销售有限公司 - 6,407

- 厦门本钢钢铁销售有限公司 - 6,368

- 上海本钢钢铁销售有限公司 - 2,725

Bills receivable 5,562 104,930

- 大连波罗勒钢管有限公司 3,812 1,400

- 无锡本钢钢铁销售有限公司 - 62,270

- 天津本钢钢铁贸易有限公司 - 16,260


- 本溪钢铁(集团)特殊钢有限责任公司 - 7,000

- 本溪钢铁(集团)钢材加工配送有限责任公司 - 4,500

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- 南京本钢钢铁销售有限公司 200 -

Prepaid expenses and other receivables 839,050 1,512,715

- the Parent Company 810,281 1,510,133


- 本溪钢铁(集团)国际贸易有限公司 7,802 2,440

- 本溪钢铁(集团)机械制造有限责任公司 1,034

- Others 100 142

Trade payables 234,827 175,444


- 本溪钢铁(集团)建设有限责任公司 68,482 66,879

- 本溪钢铁(集团)修建有限责任公司 42,507 39,788

- 本溪钢铁(集团)机械制造有限责任公司 25,022 8,853

- 本钢特钢机电安装公司 - 7,568

- Others 8,556 19,580

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33. BALANCES WITH RELATED PARTIES (continued)

2004 2003

RMB’000 RMB’000

Other payables 101,590 25,528


- 本溪钢铁(集团)国际经济贸易有限公司 15,759 1,847

- 本溪钢铁(集团)实业发展有限责任公司 7,576 -

- 本钢特钢机电安装公司 7,508 -

- 本溪钢铁(集团)汽车运输有限责任公司 6,086

- 本溪经济开发区本钢聚丰发展有限公司 4,124 3,480

- 本溪钢铁(集团)电气有限责任公司 3,239 -

- 本溪钢铁(集团)冶金渣有限责任公司 1,743 -

- 本溪钢铁(集团)机械制造有限责任公司 1,038 -

- Others 1,463 7,208

Receipt in advance 513,954 576,594


- 天津本钢钢铁贸易有限公司 99,245 108,680


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- 本溪钢铁(集团)钢材加工配送有限责任公司 66,285 28,685

- 南京本钢钢铁销售有限公司 44,139 -

- 沈阳北方本钢钢铁销售有限公司 22,359 17,907

- 大连波罗勒钢管有限公司 23,152 26,282

- 广州保税区本钢销售有限公司 15,861 -

- 上海本钢钢铁物资有限公司 14,132 -

- 哈尔滨本钢经济贸易有限公司 9,359 22,980

- 厦门本钢钢铁销售有限公司 9,148 -

- 长春本钢钢铁销售有限公司 8,262 8,632

- 本溪钢铁(集团)腾达股份有限公司 265 6,620

- 本钢(集团)国际经济贸易有限公司 - 3,233

- 本钢西安物资销售有限公司 410 2,346

- 无锡本钢钢铁销售有限公司 92 -

34. SEGMENT INFORMATION

The Company is engaged in steel industrial. As the Company operates in only one industry and in one location, no segment information is presented.

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35. DIFFERENCES BETWEEN FINANCIAL STATEMENTS PREPARED UNDER THE PRC ACCOUNTING RULES AND REGULATIONS AND IFRS

Other than the differences in the classifications of certain financial captions and the accounting for the items described below, there are no material differences between the Company’s financial statements prepared under the PRC Accounting Rules and Regulations and IFRS. The major differences are:

i) Depreciation on revalued assets

Certain assets of the Company are stated at their revalued value in the financial statements prepared under IFRS while they are stated at cost in the financial statements prepared under the PRC Accounting Rules and Regulation. Accordingly, the depreciation charge of these assets under IFRS and the PRC Accounting Rules and Regulations is different.

ii) Provision for deferred tax

Under the PRC Accounting Rules and Regulation, the Company selected to adopted “Tax payable method” in accounting for the income tax expense. Under this method, tax expenses for the current period are the amount paid or payable for current period only. However, under IFRS, income tax expenses include not only tax for current period but also deferent taxation.

iii) Gain from debt restructuring

Under the PRC Accounting Rules and Regulations, gain from debt restructuring should be credited to capital reserve. Under IFRS, gain from debt re-structuring should be recognized as income.

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35. DIFFERENCES BETWEEN FINANCIAL STATEMENTS PREPARED UNDER THE PRC ACCOUNTING RULES AND REGULATIONS AND IFRS (continued)

Effects of major differences between the PRC Accounting Rules and Regulations and IFRS on net profit are analyzed as follows:

Note 2004 2003

RMB’000 RMB’000

Net profit under the PRC Accounting Rules and Regulations 732,062 524,724

Adjustment:

- Depreciation on revalued assets (i) (2,532) (43,101)

- Disposal of revalued assets (i) (29,683) -

- Deferred taxation (ii) - (9,796)

- Gain on debt restructuring (iii) 578 1,685

(31,637) (51,212)

Net profit under IFRS 700,425 473,512

Effects of major differences between the PRC Accounting Rules and Regulations and IFRS on shareholders’ fund are analyzed as follows:

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Note 2004 2003

RMB’000 RMB’000

Shareholders’ fund under the PRC Accounting Rules and Regulations 4,902,711 4,397,271

Adjustments:

- Revaluation of assets (i) 321,764 321,764

- Depreciation on revalued assets (i) (89,894) (87,362)

- Disposal of revalued assets (i) (29,683) -

- Gain on debt restructuring (ii) 14,713 14,713

216,900 249,115

Shareholders’ fund under IFRS 5,119,611 4,646,386