深圳中冠纺织印染股份有限公司

Shenzhen Victor Onward Textile Industrial Co., Ltd.

Annual Report 2004

April 2005

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Shenzhen Victor Onward Textile Industrial Co., Ltd. Annual Report for 2004

Important Notes Important Note: The Board of Directors of Shenzhen Victor Onward Textile Industrial Co., Ltd. (hereinafter referred to as the Company) and its directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions or errors which would render any statement misleading. Mr. Hu Yongfeng, Chairman of the Board of the Company, Mr. Sun Zhiping, General Manager who is mainly in charge of accounting affairs, and Mr. Zhang Jinliang, Person in Charge of Financial & Accounting Organ hereby confirm that the Financial Report of the Annual Report is true and complete.

Contents Important Notes---------------------------------------------------------------------------------- Section 1. Company Profile-------------------------------------------------------------------- Section 2. Summary of Accounting Highlights and Business Highlights------------- Section 3. Changes in Share Capital and Particulars about Shareholders----------- Section 4. Particulars about Directors, Supervisors, Senior Executives and Employees------------------------------------------------------------------------------------------ Section 5. Administrative Structure ------------------------------------------------------------ Section 6. Particulars about Shareholders’ General Meeting-------------------------------- Section 7. Report of the Board of Directors------------------------------------------------- Section 8. Report of the Supervisory Committee------------------------------------------ Section 9. Significant Events------------------------------------------------------------------- Section 10. Financial Report------------------------------------------------------------------- Section 11. Documents for Reference --------------------------------------------------------

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Section I. Basic Information about the Company I. Chinese Name of the Company:深圳中冠纺织印染股份有限公司 Name in English: Shenzhen Victor Onward Textile Industrial Co., Ltd. II. Legal Representative: Hu Yongfeng III. Secretary to the Board of Directors: Chen Xing Contact address: Flat C, 10/F, Real Estate Building, Renmin Nan Road, Shenzhen Tel：（755）82323864 Fax：（755）8233 9100 E-mail：cx@chinaszvo.com Securities affair representative: Jiang Xiujuan Contact address: Flat C, 10/F, Real Estate Building, Renmin Nan Road, Shenzhen Tel：（755）82325084 Fax：（755）82339100 E-mail：jxj@chinaszvo.com IV. Registered address: 26 Kuipeng Road, Kuiyong Town, Longgang District, Shenzhen Business address: 26 Kuipeng Road, Kuiyong Town, Longgang District, Shenzhen Contact address: Flat C, 10/F, Real Estate Building, Renmin Nan Road, Shenzhen Zip Code: 518119 Website: http:/ www.chinaszvo.com E-mail：szvo@chinaszvo.com V. Press for information disclosure: Securities Times and Ta Kong Pao Website for information disclosure: http://www.cninfo.com.cn The Place Where the Annual Report of the Company is Prepared and Placed: Flat C,

10/F, Real Estate Building, Renmin Nan Road, Shenzhen City VI. Stock Exchange for Listing: Shenzhen Stock Exchange Stock abbreviation: Shen Victor Onward A Shares and B Shares Stock Code: 000018 200018 VII. Other Relevant Information of the Company 1. The date and place when and where the Company made its first registration: The Company was first registered as Shenzhen Victor Onward Printing and Dyeing Co., Ltd. in Shenzhen in 1984. The Company changed its registration and was registered as Shenzhen Victor Onward Textile Industrial Co., Ltd. in Shenzhen in 1991. 2. Registration No. of Legal Entity Business License: 100625 3. Tax Registration No.: 440301618801483 4. The name and business address of the Certified Public Accountants engaged by the Company Name: PricewaterhouseCoopers Zhongtian Certified Public Accountants Address:37/F, Diwang Commercial Center, Xinxing Plaza, No. 5002, Shennan East Road, Shenzhen, China Section II. Summary of Accounting Highlights and Business Highlights I. Main Profit Indicators of 2004

Unit: RMB'0000 Item Amount Total profit 105 Net profit 89 Net profit after deducting non-recurring gains and 88

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losses Profit from key business 4213 Profit from other businesses 76 Operating profit 58 Investment income 62 Subsidy income 0 Net amount of non-operating income/expenditure -15 Net cash flows per share from operating activities 3981 Net increase of cash and cash equivalent 966

Difference adjustment statement of accounting report:

Net profit Net capital Jan.-Dec., 2004 Jan.-Dec., 2003 Dec. 31, 2004 Dec. 31, 2003I. Statement balance of the Group compiled by EAS

886,965 1,566,030 312,442,877 311,140,450

The adjustment in accordance with IAS:

1. Switch back the part of Hong Kong house property assessment in accordance with IAS

486,568 485,980 -9,192,495 -9,696,179

2. Difference of disposal long-term share equity disposal in accordance with IAS

234,234 65,143 -843,514 -359,226

3 、 Charge against long-term unredeemed payables so as to confirmed incomes

272,563 -

4. Others -2,295,465 -2,299,369 II. Balance after adjustment in accordance with IAS

1,880,330 2,117,153 300,111,403 298,785,676

PricewaterhouseCoopers Zhongtian CPAs Co., Ltd has audited the 2004 Accounting Statement compiled by the Group in accordance with International Accounting Standard. Items of deducting non-recurring gains and losses and the involved amounts are as following:

Unit: RMB’0000 Net losses rising from disposal of fixed assets 42.89Short-term investment losses 0.77With drawled long-term investment decrease preparation in the previous year -14.50Non-business income -36.26Other non-business cost 7.94Income tax influence amount of non-recurring gains and losses -1.46

II. Highlights of accounting data and financial indicators in the latest three years

Unit: RMB'0000 Items 2004 2003 2002

Income from key business 26434 20826 16174 Net profit 89 157 135

Total assets 52907 39034 37645 Shareholders' equity 31244 31114 30826

Earnings per share (RMB) 0.005 0.009 0.008

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Net assets per share (RMB) 1.847 1.840 1.825 Net assets per share after adjustment

(RMB) 1.832 1.827 1.814

Net cash flow per share from operating activities (RMB)

0.235 -0.088 0.095

Return on net assets 0.28% 0.50% 0.44% Return on equity calculated on basis

of net profit after deducting non-operating gains and losses

0.28% 0.26% 0.44%

III. The attachment of profit statement Return on equity

% Earnings per share

(RMB)

Profit in the report period

Fully diluted

Weighted average

Fully diluted

Weighted average

Profit from main operations 42130271 13.47% 13.53% 0.2491 0.2491 Operating profit 575994 0.18% 0.19% 0.0034 0.0034 Net profit 886965 0.28% 0.28% 0.0052 0.0052 Net profit after deducting non-recurring gains and losses 880853 0.28% 0.28% 0.0052 0.0052

IV. Particulars about Changes in Shareholders' Equity in the Report Period

Unit: RMB

Item Share capital Capital

common reserve

Surplus common reserve

Statutory public

welfare fund

Retained profit

Currency conversion difference

Total shareholders'

equity Balance at the

year-begin 169,142,,356 29,722,897 53,328,718 3,765,995 6,324,709 52,621,770 311,140,450

Increase in this period 989,594 133,045 44,348 886,965 2,009,604

Decrease in this period 133,045 574,132 707,177

Balance at the year-end 169,142,356 30,712,491 53,461,763 3,810,343 7,078,629 52,047,638 312,442,877

Section III. Particulars about Changes in Share Capital and Shareholders I. The changes in share capital

Item Before this change Increase or decrease this time (+/-) After this change

(Number at the year-begin)

Share allotment

Bonus shares

Capitalization of common reserve fund

Others Subtotal (Number at the year-end)

I. Non-negotiable shares

1. Promoter's shares 79,489,253 79,489,253

Of which: State-owned shares

47,359,859 47,359,859

Domestic corporate shares 32,129,394 32,129,394

Overseas corporate shares 0 0

Others

2. Raised corporate shares

3. Staff shares 0 0

4. Preferred shares or others

Total non-negotiable shares 79,489,253 79,489,253

II. Negotiable shares

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1. RMB common shares 20,231,200 20,231,200

2. Domestically listed foreign-capital shares

69,421,903 69,421,903

2. Overseas listed foreign-capital shares

3. Others

Total negotiable shares 89,653,103 89,653,103

III. Total shares 169,142,356 169,142,356

II. Share issue and listing 1. The Company has never issued shares or derived securities within the previous three years as of the end of the report period. 2. The total number of the shares of and its structure of the Company remained unchanged within the previous three year by the end of the report period. III. Introduction to shareholders 1. Total number of shareholders at the end of the period: At the end of 2004, the Company had 22,125 registered shareholders in total including 14,561 shareholders of A shares and 7,564 shareholders of B shares. 2. Particulars about the shareholding of the top ten shareholders at the end of report period

Full name of shareholders Increase/decrease

in the year

Quantity of shares held at the end

of year

Propor-tion (%)

Quantity of pledged or

frozen sharesType of shares held

① Union Holdings Co., Ltd. 0 47,359,859 28 Promoter's state-owned shares

② Style-Success Ltd. 0 24,466,029 14.46 B shares

③ Shenzhen Textile (Group) Holdings Co., Ltd. 0 24,458,231 14.46 12,229,115 Domestic legal shares

④ Union Developing Group Co., Ltd. 0 7,671,163 4.54 Domestic legal shares

⑤ Rich Crown Investment Co., Ltd. 0 6,114,556 3.62 B shares

⑥ Shing Ying Chieh -115,468 5,446,261 3.22 B shares ⑦ Chen Song 0 398,400 0.24 B shares

⑧ Huang Weili +21,300 226,562 0.13 B shares

⑨ Zhong Yonglai +27,100 223,700 0.13 B shares

⑩ Zhu Ruihong +19,400 192,608 0.11 B shares [Note 1]: The controlling shareholder of the above-mentioned largest shareholder Union Holdings Co., Ltd. is Union Developing Group Ltd. It is unknown whether there exists related relationship among the other circulation shareholders or belongs to the consistent actors promulgated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Company among the other circulation shareholders. [Note 2]: Shenzhen Textile Group Holdings Co., Ltd., the second largest shareholder of the Company, pledged 12,229,115 shares accounting for 7.23% of 24,458,231 promoter's corporate shares to Shenzhen Shenfang Building Sub-branch of Merchant Bank to provide guarantee for the loan of RMB 20 million extended to it. The freezing

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period of the pledged shares started from December 20, 2002. 3. Introduction to the largest shareholder of the Company Name of the largest shareholder of the Company: Shenzhen Union Holdings Ltd. Legal representative: Dong Binggen Date of establishment: September 11, 1989 Business scope: Production of and dealing in various fabrics, garments chemical fibers and textile equipment, domestic commerce, material supply and marketing (excluding monopolized commodities), management of self-owned properties, processing with imported materials and designs, internal introduction and foreign cooperation, assembling with imported spare parts and cooperation in compensation trade. Registered capital：RMB 449.5551 million Nature of enterprise: Share-holding system Registered address: Shanghai Municipality 4. Particulars about the actual controller of the Company In the report period, the actual controller of the Company remains unchanged. Name of the actual controller: Union Developing Group Ltd. Legal representative: Dong Binggen Date of establishment: Aug. 23, 1983 Nature of Union Development Group Ltd.: enterprise directly under Central People’s Government, one of the 520 national key enterprises. Registered capital: RMB 90.61 million Business scope: self-operate and act as agent for import and export business of the other commodities and technologies excluding the import commodities organized unitedly and jointly operated by the state and import commodities operated by the company authorized by the state, assembling with imported spare parts and cooperation in compensation trade, processing with imported materials, counter selling and transfer trade (pursuant to (1999) WJMZSHZ No.193 Document), export-oriented commodities sold at home business, textile technical consultant service, realty management, leasing service; contract with overseas textile field projects and domestic international biding projects; the import and export of equipment and material required by the above-mentioned overseas projects; sending contract workers to abroad to implement the aforesaid overseas projects (pursuant to (98) WJMZSHZ No. 3109 Document); vehicles sale(including cars). The property right and controlling relationship between Union Developing Group Ltd. and the Company is as follows:

40.15% 4.54%

28%

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UNION HOLDINGS LTD.

SHENZHEN VICTOR ONWARD TEXTILE INDUSTRIAL CO., LTD.

UNION DEVELOPING GROUP LTD.

5. Introduction to other legal person shareholders holding over 10% of total shares (1) Shenzhen Textile Holdings Co., Ltd. Legal Representative: Guang Tongke Date of establishment: August 1994 Business scope: Production and processing textiles, garments, decoration cloth, belts, trademark belt, bicycle, handicraft; purchase and sales of general goods, special-purpose textile equipment, accessories for textile equipment, meters, standard parts, leather products, textile raw materials, dyes, electronic products, grain, oil, foods; development and dealing of real estate, import and export business, holding exhibitions. Registered capital：163.4160 million Nature of enterprise: Share-holding system Registered address: Shenzhen (2) Style-Success Ltd. Legal representative: Miss Amy Wang Date of establishment: November 1999 Business scope: investment 6. Basic information about the top ten shareholders holding negotiable shares of the Company

Name of shareholder No. of shares held at the year-end

Type of shares held

1 Style-success Limited 24,466,029 B shares 2 Rich Crown Investment Co., Ltd. 6,114,556 B shares 3 Shing Ying Chieh 5,446,261 B shares 4 Chen Song 398,400 B shares

5 Huang Weili 226,562 B shares

6 Zhong Yonglai 223,700 B shares

7 Zhu Ruihong 192,608 B shares

8 Zhu Guoming 191,220 B shares

9 Li Jiying 178,900 B shares

10 Zhang Jifang 170,000 B shares Section IV Directors, Supervisors, Senior Executives and Employees I. Basic information about directors, supervisors and senior executives

Name Gender Age Title Term of

office

Date of beginning and

ending

Shares held at the

year-begin

Shares held at the year-end

Increase/decrease amount

Reason of increase/decrease

Hu Yongfeng Male 42 Board chairman 3 years May, 2003- May, 2006 0 0 Naught

Li Zhihua Male 45 Deputy

chairman of the Board

3 years May, 2003- May, 2006 0 0 Naught

Song Tao Male 52 Deputy

chairman of the Board

3 years May, 2003- May, 2006 0 0 Naught

Ding Yue Male 47 Director 3 years May, 2003- May, 2006 0 0 Naught

Guan Tongke Male 58 Director 3 years May, 2003- May, 2006 0 0 Naught

Sun Zhiping Male 40 Director/General manager 3 years May, 2003-

May, 2006 0 0 Naught

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Mai Jianguang Male 43 Independent

director 3 years May, 2003- May, 2006 0 0 Naught

Li Weiping Male 51 Independent director 3 years May, 2003-

May, 2006 0 0 Naught

Shu Man Fe- male 39 Independent

director 3 years Dec., 2003- May, 2006 0 0 Naught

Dong Binggen Male 55

Convener of the Supervisory Committee

3 years May, 2003- May, 2006 0 0 Naught

Gui Liping Fe- male 46 Supervisor 3 years May, 2003-

May, 2006 0 0 Naught

Cai Wanqing Male 54 Supervisor 3 years May, 2003- May, 2006 0 0 Naught

Chen Jingqiu Male 62 Deputy GM 3 years May, 2003- May, 2006 0 0 Naught

Ye Jianzhong Male 49 Deputy GM 3 years May, 2003- May, 2006 0 0 Naught

Zhang Jinliang Male 42 Deputy GM 1.5 years Dec., 2004-

May, 2006 0 0 Naught

Chen Xing Male 31 Board secretary 3 years May, 2003- May, 2006 0 0 Naught

Particulars about directors and supervisors holding positions at corporate shareholders

Name Name of corporate shareholders Position Term of office

Whether receiving

remuneration or subsidy

Dong Binggen Shenzhen Union Holdings Ltd.

Chairman of the board of directors

Jun. 18, 2004- Jun. 17, 2007 No

Dong Binggen Union Developing Group Co., Ltd.

Secretary of Party committee, chairman of board of directors and GM

June 2001 till now Yes

Ding Yue Union Developing Group Co., Ltd. Deputy general manager July 1998 till

now Yes

Ding Yue Shenzhen Union Holdings Ltd.

Convener of the supervisory committee

Jun. 18, 2004- Jun. 17, 2007 No

Hu Yongfeng Union Developing Group Co., Ltd. Deputy general manager July 1998 till

now Yes

Hu Yongfeng Shenzhen Union Holdings Ltd.

Deputy chairman of the Board

Jun. 18, 2004- Jun. 17, 2007 No

Guan Tongke Shenzhen Textile Holdings Co., Ltd.

Chairman of the board of directors

Jun.30, 2003- Jun.29, 2006 Yes

Gui Liping Union Developing Group Co., Ltd.

Deputy chief accountant and manager of Finance Dept.

Feb., 2001 till now Yes

II. Particulars about main work experience and post or part-time job of present directors, supervisor and senior executives excluding in shareholder’s unit Directors: Mr. Hu Yongfeng, a male with bachelor degree, was born in July 1962 and graduated from Southeast Textile Technology Institute in 1983. He is ever took the post of section chief of state textile headquarters general office, he is now in charge of deputy general manager of Union Developing Group Co., Ltd. and chairman of the Board of Union Holdings Ltd., and he took the position of chairman of the Board of the Company from Oct., 2000 till now. Deputy chairman of the Board Mr. Li Zhihua, male with bachelor degree, was born in Jan., 1960 and graduated from New York University. He is a merchant and is engaging import and export business in

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USA for a long time, and he took the post of deputy chairman of the Board of the Company from Sep., 2000 till now. Mr. Song Tao, male with junior college, was born in July 1952 and ever took the post of workshop superintendent, deputy plant manager and plant manager of Jiangsu Changzhou Dongfeng Printing and Dyeing Plant; he is now in charge of general manager of Shenzhen Nanhua Printing and Dyeing Co., Ltd. and held the position of deputy chairman of the board of the Company from September 2000. Director and general manager: Mr. Sun Zhiping, male with bachelor degree, was born in Mar., 1965 and graduated from Tianjin Textile Technology University in 1987. He took turns of teacher of Tianjin Textile Technology University, engineer of Shenzhen Textile Trades Society, general manager of Union Realty Management Co., Ltd., general manager of the Company and plant manager of Printing and Dyeing Plant, etc., he took the position of chairman of the board and general manager of the Company from Sep., 2000 till now. Directors: Mr. Ding Yue, male with bachelor degree, was born in Mar., 1958 and graduated from Lanzhou University in 1983. He took the turns of deputy section chief of personnel labor department of Textile Technology Department, section chief of personnel labor department of textile headquarters, deputy director of personnel labor department of textile headquarters and concurrently director of talents exchange center of Textile Headquarters and chairman of the Board of Union Holdings Co., Ltd., he is now in charge of deputy general manager of Union Developing Group Co., Ltd. and convener of the supervisory committee of Union Holdings Co., Ltd., and held the position of director of the Company from June 2002 till now. Mr. Guan Tong, male with bachelor degree, was born in Feb., 1947. He ever took the post of office director of Shenzhen Geologic Branch, deputy secretary of Party Committee and deputy general manager of Shenzhen Textile Industrial Company, he is now in charge of secretary of Party Committee and chairman of the Board of Shenzhen Textile Group Co., Ltd., and he held the position of director of the Company from Sep., 2000 till now. Independent directors: Mr. Mai Jianguang, male with bachelor degree, was born in July 1961 and graduated from Hong Kong Polytechnic University in 1985. He ever took the post of top management copartner of south-China district of Andersen Company, and now he is in charge of chairman of Hong Kong venFUND Investment Co., Ltd., venFUND Pioneer Investment Management (Shenzhen) Co., Ltd. and venFUND Enterprise Management and Consultant (Shenzhen) Co., Ltd., and held the position of independent director from June 2002 till now. Mr. Li Weiping, male with bachelor degree, was born in Feb., 1952 and graduated from Party School of Central Committee, and ever took the post of political instructor and commissar of PLA, minister of Party affairs personnel department of 999Group; he is now in charge of deputy secretary of Party of 999Group, and he held the position of independent director of the Company from May 2003 till now. Ms. Shu Man, female with master degree, was born in Feb., 1965 and graduated from economic management institute of Qinghua University. She took the post of chairman of the board of America Comfort Co., Ltd., deputy president of Shenzhen council for the promotion of middle and small enterprises, chairman of the board of Hong Kong Wande Investment Co., Ltd., deputy president of National US-China Friendship Association, deputy president of Zhejiang Chamber of Commerce of US, deputy

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president of Shenzhen Futian C of C, deputy president of Shenzhen Guranattee Benefit Society, etc., and now she is in charge of chairman of Shenzhen Huarong Investment and Guarantee Co., Ltd., and took the post of independent director of the Company from Sep., 2003 till now. Supervisors: Mr. Dong Binggen, male, an engineer with bachelor degree, was born in July 1949 and graduated from East China Textile Technology Institute. He ever took the post of deputy president of Zhejiang Silk Technology Institute, general manager of China Clothes Headquarters and board chairperson of China Clothes Association, etc.; he is now in charge of secretary of Party Committee, chairman of the board and general manager of Shenzhen Union Developing Group Co., Ltd. and chairman of the Board of Shenzhen Union Holdings Co., Ltd., and held the position of convener of the supervisory committee of the Company from June 2002 till now. Ms. Gui Liping, female, an accountant with junior college, was born in July 1958. She ever worked in the 2nd section of the 3rd Line of MOC, treasure’s office of Shanghai Cotton Textile the 13th Plant and treasure’s ministry of Shanghai Cotton Textile Company; she is now in charge of general accountant and manager of financial department of Union Developing Co., Ltd., and held the position of supervisor of the Company from Sep., 2000 till now. Mr. Cai Wanqing, male with bachelor degree, was born in Nov., 1950 and graduated from Middle China Science and Technology University. He ever took the post of plant director of Yichang Printing and Dyeing Plant, deputy general manager of Nanhua Printing and Dyeing Co., Ltd., deputy general manager of Union Trade Co., Ltd. and office director of the Company; he is now in charge of general manager of Shenzhen Vea opel Co., Ltd. and held the position of supervisor of the Company from June 2002 till now. Deputy general manager: Mr. Ye Jianzhong, male with junior college degree, was born in March 1955. He ever took the post of vice director of Changshu Printing and Dyeing Headquarters, vice-secretary of Party Committee and deputy general manager of Nanhua Printing and Dyeing Co., Ltd., general manager assistance and plant director of Printing and Dyeing plant of the Company, and held the position of deputy general manager of the Company from March 2001 till now. Mr. Chen Jingqiu, male with bachelor degree, was born in Jan., 1942. He is engaged in sales of textile printing and dyeing field over 20 years and is rich in sales business experience of Hong Kong and overseas. He took the position of deputy general manager of the Company from Jan. 2000 till now and the administration totaled 16 years. Mr. Zhang Jinliang, male, a senior accountant with bachelor degree, was born in May 1962. He ever took the post of senior section chief of Shenyang Dispatch and Shenzhen Dispatch of Audit Administration, manager of operation department of Shenzhen Property Union Holdings Co., Ltd., deputy director and director of auditing office of Union Developing Group Co., Ltd., deputy general manager of Shenzhen Union Holdings Co., Ltd. and general manager of Yuyao Union Textile Co., Ltd., and he held the position of deputy general manager of the Company from Dec.2004 till now. Secretary of the Board of Directors: Mr. Chen Xing, male with doctor degree, was born in March 1973 and graduated from Dongbei University; he ever took the post of business manager of operation office of Union Developing Group Co., Ltd. and held the position of secretary of the Board of

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the Company from March 2002 till now. III. Annual remuneration of directors, supervisors and senior executives In 2004, Annual remuneration drew by directors, supervisors and senior executives in current office was in determined by the relevant regulations on salary management and grade standard of the Company and discharged per mensem. Total amount of annual remuneration RMB 935,000The total amount of the remuneration of the top three directors receiving the remuneration of the highest amount

RMB 240,000

The total amount of the remuneration of the top three senior executives receiving the remuneration of the highest amount

RMB 610,000

Subsidy of independent directors RMB 30,000 / person /year

Other benefits of independent directors

The traveling expenses of independent directors for attending board meetings and shareholders' general meetings and the expenses from exercising powers and functions according to the Articles of Association of the Company shall be borne by the Company and included in the administration expenses of the Company.

Name of directors and supervisors not receiving remuneration and subsidy from the Company

Dong Binggen, Li Zhihua, Hu Yongfeng, Guang Tongke, Song Tao, Ding Yue and Gui Liping.

Range of remuneration Number of personRMB 200,000 – RMB 300,000 1RMB 100,000 - RMB 190,000 4RMB 30,000 - RMB 100,000 6 IV. Change in directors, supervisors and senior executives in the report period On Mar. 9, 2004, the 4th meeting of the 4th Board of Directors of the Company examined and approved Proposal on Adjustment of Members of Operating Leader Group of the Company, agreed that Ms. Wang Xihui would no longer took the post of deputy general manager and financial general supervisor of the Company due to change of the work, named by general manager, engaged Ms. Sun Yaqin the deputy general manager of the Company. On Dec.17, 2004, the 1st provisional meeting of the Board of Directors of the Company examined and approved Proposal on Adjustment of Members of Operating Leader Group of the Company, agreed that Mr. Su Tingfang resigned the post of deputy general manager of the Company due to age and Ms. Sun Yaqin resigned the posts of deputy general manager and concurrently financial manager of the Company due to health. Recommended by Union Holdings Co., Ltd. and named by general manager, engaged Mr. Zhang Jinliang as deputy general manager and concurrently financial manager of the Company. V. Staffs: By the end of the report period, the Company had 418 staff members in total, including 33 managerial employees, 358 production employees, 20 sales employees (including those of Hong Kong Co.), 7 financial employees, 191 professional technicians and 35 professionals with senior and semi-senior professional titles. The Company has provided social insurance to its staff according to relevant regulations of

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the government.

Section V Company Administration Structure Strictly according to the requirements of laws and regulations including the Company Law, the Securities Law and relevant laws and regulations of CSRC, the Company has constantly perfected its legal person administration structure, established modern enterprise system, standardized its operation, formulated Rules of Procedure of Shareholders' General Meeting, Rules of Procedure of the Board of Directors, Rules of Procedure of the Supervisory Committee and Independent Director's Work System and included them revised Articles of Association of the Company. In the report period，the 3rd meeting of the fourth board of directors of the Company, as required by ZJF (2003) No. 56 Document, adopted the Proposal for Amending the Articles of Association of the Company and added articles including the one concerning "external guarantee" etc. items, and constituted the Internal Control System of Shenzhen Victor Onward Textile Industrial Co., Ltd. These rules met requirements of the documents issued by CSRC in respect of the standardization of the administration of listed companies. Their main content is as follows: 1. Shareholders and shareholders' general meeting: The Company convened and held shareholders' general meeting strictly according to the requirements of Opinions on Standardization of Shareholders' General Meeting of Listed Companies, formulated Rules of Procedure of Shareholders' General Meeting, ensured all shareholders, especially medium and small shareholders, enjoy equal position and can fully exercise their own rights. 2. Relationship between the controlling shareholder and the Company: The acts of the controlling shareholder of the Company were standardized. It did not exceed the authority of the shareholders' general meeting to directly or indirectly intervene with the decision-making and operating activities of the Company. The Company is independent from its controlling shareholder in respect of personnel, assets, finance, organ and business. The board of directors, the supervisory committee and internal organ of the Company are able to operate independently. 3. Directors and the board of directors: The Company elected directors strictly according to the director selection and appointment procedure specified in the Articles of Association of the Company and will further perfect director selection and appointment procedure and actively promote system of cumulative voting. The member composition of the board of directors of the Company complied with the requirements of laws and regulations. The board of directors of the Company formulated Rules of Procedure of the Board of Directors. Directors of the Company were able to attend board meetings and shareholders' general meetings with responsible attitude, actively participate in relevant training, get familiar with relevant laws and regulations and understand the rights, obligations and responsibilities of director. The Company has established independent director system according to Guiding Opinions on the Establishment of Independent Director System at Listed Companies issued by CSRC. The numbers of independent directors are 3 people. 4. Supervisors and the supervisory committee: The number and composition of the Supervisory Committee of the Company complied with the requirements of laws and regulations. The Supervisory Committee of the Company formulated the Rules of Procedure of the Supervisory Committee. The supervisors of the Company were able to perform their duties seriously, take the attitude of being responsible for all shareholders and supervise the legality and regulation conformity of the Company's finance and the duty performance of the directors, managers and other senior

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executives of the Company. 5. Performance evaluation and encouragement and regulating mechanism The Company established the system of subsidy for independent directors and directors and remuneration for senior executives. The Company will further improve and perfect overall remuneration system, establish fair and transparent performance appraisal standard and stimulation and restriction mechanism for directors, supervisors and executives. 6. Interested parties: The Company was able to fully respect and safeguard the legal rights and interests of the interested parties including banks, other creditors, employees and consumers and promote its sustained and healthy development together with interested parties. 7.Information disclosure and transparency: The Company designated the secretary to the board of directors to be responsible for information disclosure, reception of shareholder and consultation. In the report period, the Company was able to truly, accurately, completely and timely disclose relevant information according to the provisions of laws, regulations and the Articles of Association of the Company. The Company will continue to operate in a standardized way strictly according to the requirements of relevant laws and regulations including the Company Law, further perfect company administration structure and establish and improve various regulations in light of the gap with the requirements of Standards of Administration of Listed Companies, ensure the maximization of shareholders' interests and safeguard the lawful rights and interests of all shareholders. II. Particulars about duty performance of independent directors The Company has perfected independent director system in the Articles of Association of the Company according to Guiding Opinions on the Establishment of Independent Director System at Listed Companies issued by CSRC. The board of directors of the Company now has three independent directors, taking up one third of the total number of directors. These Three independent directors have consciously performed their duties according to the principles of good faith and diligence since they came into office. The Board of Directors of the Company held totally six times and these three independent directors were able to attend board meetings of the Company in person and expressed their independent opinions on significant related transactions and so on of the Company. III. The separation of the Company from its controlling shareholder in five respects The Company is independent from its controlling shareholder in respect of personnel, assets, finance, organization and business. The particulars are as follows: 1. Business: The Company has complete business and the ability of independent operation. It is completely independent from its controlling shareholder in respect of business. 2. Personnel: The Company is independent in respect of labor, personnel and wage management. The general manager and other senior executives of the Company all received remuneration from the Company, who neither held position at nor received remuneration from the controlling shareholder. 3. Assets: The Company has complete assets. Its property rights are definite and not related to its controlling shareholder and other shareholders. 4. Organization: The Company established an organizational structure that is completely independent of its controlling shareholder. The board of directors, the supervisory committee and internal organs of the Company are able to operate independently. 5. Finance: The Company has independent finance. It set up independent finance

13

department and established independent financial accounting system. It has standardized and independent financial and accounting system and financial control system applicable to branches and subsidiaries. The Company independently pays taxes according to law. It opened accounts with banks independently. The Company and its controlling shareholder do not use the same bank account.

IV. Appraisal and stimulation of the senior executives of the Company in the report period In the report period, the board of directors of the Company conducted annual appraisal of senior executives, gradually practiced public and competitive recruitment and enhanced the overall quality and management level of the management team. The board of directors of the Company is planning to establish remuneration and appraisal committees and will establish relevant incentive system as soon as possible and further improve performance appraisal standard and stimulation and restriction mechanism. Section VI. Brief Introduction of Shareholders' General Meeting In the report period, the Company held two shareholders' general meetings. The particulars are as follows: I. The 1st provisional shareholders’ general meeting of 2004 1. Particulars about the notification, convening and holding of the shareholders’ general meeting On Mar. 11, 2004, the board of directors of the Company published the Notice of Holding 2004 Provisional Shareholders' General Meeting of Shenzhen Victor Onward textile Industrial Co., Ltd. on Securities Times and Hong Kong Commercial Daily. 2004 provisional shareholders' general meeting of the Company was held in the meeting room on the 16/F of Shenzhen Union Building in the afternoon of Apr. 16, 2004 as scheduled and was presided by chairman of the Board Mr. Hu Yongfeng. 5 shareholders and shareholders’ representatives attended the meeting with amounting to 110,069,838 shares of share equity, taking up 65.08%. Therein 3 shareholders represented domestic capital with amounting to 79,489,253 shares; 2 shareholders represented overseas capital with amounting to 30,580,585 shares. Lawyer Mr. Chen Dong of Guangdong Shengdain Law Firm attended the Meeting and testified and issued law position paper. 2. Particulars about disclosure of the resolution and notice resolution approved by the shareholders’ general meeting The meeting examined and adopted the following proposals by voting: (1) Joint-founding Zhejiang Hualian Huangzhou Gulf Pioneer Co., Ltd. (arranging); (2) Changing the Registration Address of the Company; (3) Amendment of Articles of Association. The resolution notice of the shareholders’ general meeting has been published on Securities Times and Hong Kong Commercial Daily dated Apr. 17, 2004. II. The annual shareholders’ general meeting of 2003 1. Particulars about the notification, convening and holding of the shareholders’ general meeting On Apr. 20, 2004, the board of directors of the Company published the Notice of Holding 2003 Annual Shareholders' General Meeting of Shenzhen Victor Onward textile Industrial Co., Ltd. on Securities Times and Hong Kong Commercial Daily. 2004 annual shareholders' general meeting of the Company was held in the meeting room on the 16/F of Shenzhen Union Building in the afternoon of May 21, 2004 as

14

scheduled and was presided by chairman of the Board Mr. Hu Yongfeng. 5 shareholders and shareholders’ representatives attended the meeting with amounting to 110,069,838 shares of share equity, taking up 65.08%. Therein 3 shareholders represented domestic capital with amounting to 79,489,253 shares; 2 shareholders represented overseas capital with amounting to 30,580,585 shares. Lawyer Mr. Chen Dong of Guangdong Shengdain Law Firm attended the Meeting and testified and issued law position paper. 2. Particulars about disclosure of the resolution and notice resolution approved by the shareholders’ general meeting The meeting examined and adopted the following proposals by voting: (1) 2003 Work Report of the Board of Directors of the Company; (2) 2003 Work Report of the Supervisory Committee of the Company; (3) 2003 Annual Report of the Company and its Summary; (4) 2003 Profit Distribution Preplan and 2004 Profit Distribution Policy of the Company. The resolution notice of the shareholders’ general meeting has been published on Securities Times and Hong Kong Commercial Daily dated May 22, 2004. Section VII. Report of Board of Directors I. Discussion and analysis of operating status Influenced by near abolishment of textile quota, in 2004, printing and dyeing market went downwards. For expecting the price-declining of pure cotton products exported to US, customers slowed down the steps of their orders with lowering price, which gave a big impact on the Company, because products of the Company were exported to US. In addition, since 2001, printing and dyeing enterprises enlarged productivity on big scale, and the competition got fiercer. In 2004, sharp increase in prices of international energy market directly resulted in quick-rising of costs in printing and dyeing industry and shortage of water caused by abnormal climate seriously affected normal production of the Company. Encountered with various and deep pressure, the Company facilitated operating good will and benign information channels formed for many years, reinforced trade of Victor Onward (Hong Kong) Company, developed and cultivated customers; meanwhile further consummated product structure and increased epiboly proportion, decreased orders draining resulted by price element to promote profitability of unit product. With tough efforts for one year, in 2004 the Company made profits totaling RMB 1,146,000. II. Operation in the report period (I) Scope of core business and its operation status 1. The Company is mainly engaged in the production and processing (printing and dyeing) and sales of various high-grade fabrics of pure cotton, pure linen, polyester-mixed cotton, linen cotton and mixed fiber and finished garments. 2. The income from main operations earned by the Company in the report period mainly includes the income from printing and dyeing business. In the report period, the total income from main operation and the net profit of the Company was RMB 264.34 million and RMB 0.887 million respectively, an increase of 26.93% and a decrease of 43.63% over the same period of the previous year respectively. (1) Income from and cost of core business in terms of industry are as follows:

Unit: RMB’0000 Industry Operating income Operating cost Operating gross profitFabrics bleaching, printing and dyeing

25460 21431 4029

15

Fabrics trade 641 554 87 Garment trade 333 236 97 (2) Income from and cost of main operation in terms of areas are as follows:

Unit: RMB’0000 Areas Operating income Operating cost Operating gross profitMainland China 22156 19630 2526 Hong Kong, China 4278 2591 1687 2. The line of business or product whose income or profit accounts for over 10% of total income from main operation or profit from main operation in the report period

Unit: RMB Industry Sales income Sales cost Gross profit ratio

Fabrics bleaching, printing and dyeing 254,603,324 214,306,114 15.83

3. The profit structure and key business structure in the report period did not change much compared with the previous report period. In 2004, the Company directly held equity of Shenzhen Veal Opel Garment Co., Ltd. attaining to 90%, so the Company listed Veal Opel Company into consolidation scope of the Company. Veal Opel Company mainly engaged in sale of garments. In 2004, its sales income took 1.26% of the total revenue of the Company. (II) The operating status of main controlling subsidiaries and joint ventures 1. Victor Onward Printing and Dyeing (Hong Kong) Co., Ltd. Victor Onward Printing and Dyeing (Hong Kong) Limited is a wholly-owned subsidiary of the Company. It was registered by the Company for developing foreign market in Hong Kong in 1984 with registered capital of HKD 5 million. The Company holds 100% of its shares. It mainly engaged in supplying raw materials to the Company and marketing the Company's products. At present, the company owns commercial office building, warehouses and a full-size vehicle transportation fleet. It has total assets of about HKD 121.49 million. It is the Company's marketing center, financial center and investment center in Hong Kong and abroad. It suffered loss amounting to HKD 0.34 mil in 2004. 2. Shenzhen Nanhua Printing and Dyeing Co., Ltd. Shenzhen Nanhua Printing and Dyeing Co., Ltd. was established on July 21, 1988 with registered capital of HKD 85.49 million. The Company holds 51.16% of its shares. It mainly engaged in printing and dyeing of various garment fabrics. It has assets of about RMB 134.28 mil and suffered losses amounting to RMB 12.4 mil in 2004. 3. Shenzhen Veal Opel Garment Co., Ltd. Shenzhen Veal Opel Garment Co., Ltd. was set up on Jan. 27, 1997 with the registered capital amounting to RMB 1 mil. The Company held 90% equity. This company mainly engaged in domestic commerce, materials supply and marketing (excluding special operating, special controlling and special selling products). In 2004, it suffered loss amounting to RMB 0.91 mil. 4. Investment income of single shareholding company influencing net profit of the Company over 10% included Shenzhen Lianchang Printing and Dyeing Co., Ltd. and Zhejiang Hualian Hanhzhou Gulf Pioneer Co., Ltd.. (III) Major Suppliers and Customers The Company's main products are printing and dyeing products, including various pure cotton, pure linen, polyester-mixed cotton, linen-mixed cotton and blended high-grade fabrics. The raw materials for the production (grey fibre, dyeing chemicals and fuel) are mainly imported. The products are mainly exported to Hong Kong, Japan, Europe and America. Victor Onward Printing and Dyeing (Hong Kong)

16

Limited, a wholly-owned subsidiary of the Company, is mainly responsible for supply of raw materials and sales of products. The total amount of purchase from the top five suppliers accounted for 26% of the Company's total annual purchase amount. The total amount of sales to the top five customers accounted for 29% of the Company's total annual sales amount. (IV) Problems and difficulties occurred in operation and solutions Sharp increase in energy prices, tight power supply and shortage of water due to sustainable dry in East of Shenzhen since 2004 brought relatively big troubles to the production and operation of the Company. In 2005, the Company sped up adjustment, further optimized assets structure, enhanced profitability of core business, realized turnover of core business based on sale adjustment in recent years. Meanwhile, the Company would strengthen disposal and adjustment of deposited assets of other business lines, researched for carrying out sustainable development strategy of Shen Victor Onward, kept cultivating new economy increasing point with digital printing as the core, push traditional development of core business with models, boosted upgrading of products with marketing and solidified core competitive edge of Shen Victor Onward with talents. IV. Investment of the Company in the report period (I) In the report period, the Company didn’t raise proceeds and use raised proceeds of last time but lasting to the report period. (II) In the report period, non-raised proceeds project was jointly setting up Zhejiang Hualian Hangzhou Gulf Pioneer Co., Ltd.. On Dec. 28, 2003, wholly subsidiary of the Company, Victor Onward (Hong Kong) Co., Ltd. signed Investment Letter of Intent with Shenzhen Hualian Development Investment Co., Ltd., Shanghai Huashun Investment Management Co., Ltd., China Textile Holdings (Hong Kong) Ltd. and Chuangjie Development Co., Ltd.. They planned to jointly invest USD 29.9 mil to set up a joint venture in Hangzhou, Zhejiang province, China. The operating scope includes initiating industry, project management and service and property management etc.. It mainly engaged in development of project of commercial walking street in Bingjiang District, Hangzhou. Victor Onward (Hong Kong) Co., Ltd. invested USD 7.475 mil in cash, taking 25% of the registered capital of the joint venture. As approved by the Board of the Company on Mar. 9, 2004, the intention was examined and approved by 2004 1st Provisional Shareholders’ General Meeting held on Apr. 16, 2004. At the end of the report period, actual investment of Victor Onward (Hong Kong) Co., Ltd. in this company was amounting to USD 7.475 mil, taking 100% of the investment acquired. Zhejiang Hualian Hangzhou Gulf Pioneer Co., Ltd. presently lay in first stages and had no investment income. V. Financial position and operating status of the Company

Unit: RMB Item 2004 2003 Increase or decrease Total assets 529,067,471 390,342,262 138,725,209Shareholders' equity 312,442,877 311,140,450 1,302,427Profit from main operation 42,130,271 29,398,793 12,731,478Net profit 886,965 1,566,030 -679,065Net increase of cash and cash equivalents

9,659,251 -3,159,645 12,818,896

Main reasons for change： Total assets and profit from core business increased mainly because the consolidation scope of 2004 accounting statements of the Company changed, increasing Shenzhen Nanhua Printing and Dyeing Co., Ltd., Shenzhen Veal Opel Garment Co., Ltd. and

17

Shengzhong Industrial Co., Ltd.; Increase in shareholders’ equity mainly resulted from increase of capital public reserve and net profit realized this year: differences of equity investment and accounts payable not able to pay, formed in acquiring 1.6% equity of Shenzhen Nanhua Printing and Dyeing Co., Ltd. this year, increased capital public reserve amounting to RMB 0.99 mil; this year, the Company realized net profit amounting to RMB 0.89 mil. The net profit decreased this year, mainly because entering into after-quota time, situation of international market became ambiguous, orders of international purchasers sharply shrank, and the industrial competition turned unprecedently fierce; oil price of international market kept high and costs rose up by a big margin; supply of water and power was insufficient; and the cotton price fluctuated heavily. Net increase of cash and cash equivalents was RMB 12.82 mil, mainly because in 2004 export tax-rebation was received and borrowings increased. VI. Influence of the changes in production and operation environment and macro policies on the Company Tight supply of raw materials, especially the price rising-up of fuel and dyestuff, urged the increase in the production costs of the Company. VII. Routine Work of the Board of Directors (I) Board meetings and resolutions in the report period During the report period, the Board totally held six meetings. (1) The 4th meeting of the 4th Board of Directors of the Company was held at the meeting room on 16/F of Shenzhen Union Building on the morning of Mar. 9, 2004. The said meeting was presided over by Mr. Hu Yongfeng, Chairman of the Board of the Company. Nine directors should be present at the meeting and actually eight of them attended it, and supervisors and senior executives of the Company attended the Meeting as nonvoting delegates. The meeting examined and approved the following resolutions by means of voting: ① Established Zhejiang Hualian Hangzhou Gulf Pioneer Co., Ltd. (in preparation) ② Changed Registered Address of the Company; ③ Technology Renovation Project of the Company for Year 2004; ④ Acquired the Partial Equity of Shenzhen Huaguanli Trade Co., Ltd.; ⑤ Applied Comprehensive Credit Line of RMB 100 Million from Industrial Bank; ⑥ Adjusted the Members of Management Team of the Company. The public notice on resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on Mar. 11, 2004. (2) The 5th meeting of the 4th Board of Directors of the Company was held at the meeting room on 16/F of Shenzhen Union Building on the morning of Apr. 16, 2004. The said meeting was presided over by Mr. Hu Yongfeng, Chairman of the Board of the Company. Nine directors should be present at the meeting and actually eight of them attended it, and supervisors and senior executives of the Company attended the Meeting as nonvoting delegates. The meeting examined and approved the following resolutions by means of voting: ① 2003 Work Report of the Company; ② 2003 Auditors’ Report of the Company for A-share and B-share; ③ Profit Distribution Preplan for 2003 and Profit Distribution Policy for 2004 of the

18

Company; ④ 2003 Annual Report and Summary of 2003 Annual Report of the Company; ⑤ Proposal on Holding 2003 Annual Shareholders' General Meeting. The public notice on resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on Apr. 20, 2004. (3) The 6th meeting of the 4th Board of Directors of the Company was held on Apr. 26, 2004 by means of communication voting. The meeting examined and unanimously adopted the First Quarterly Report for 2004 of the Company. The public notice on resolution of this meeting was published on Securities Times and Hong Kong Commercial Daily on Apr. 28, 2004. (4) The 7th meeting of the 4th Board of Directors of the Company was held at the meeting room on 16/F of Shenzhen Union Building on the morning of Aug. 24, 2004. The said meeting was presided over by Mr. Hu Yongfeng, Chairman of the Board of the Company. Nine directors should be present at the meeting and actually all of them attended it, and supervisors and senior executives of the Company attended the Meeting as nonvoting delegates. The meeting examined and approved 2004 Semi-annual Report and Summary of 2004 Semi-annual Report. The public notice on resolution of this meeting was published on Securities Times and Hong Kong Commercial Daily on Aug. 26, 2004. (5) The 8th meeting of the 4th Board of Directors of the Company was held on Oct. 27, 2004 by means of communication voting. The meeting examined and unanimously adopted the Third Quarterly Report for 2004 of the Company. The public notice on resolution of this meeting was published on Securities Times and Hong Kong Commercial Daily on Oct. 28, 2004. (6) The 1st extraordinary meeting of the 4th Board of Directors of the Company was held on the morning of Dec. 17, 2004 by means of communication voting. Nine directors should be present at the meeting and actually all of them attended it. The meeting examined and approved the following resolutions: ① Adjusted the Members of Management Team of the Company; ② Internal Control System of Shenzhen Victor Onward Textile Industrial Co., Ltd. ③ Realized properties of the partial real estates related without main operations in cash based on market price, including commercial housing of 2186.8 sq. m. located in Liantang Industry Zone of Shenzhen, workshop of 9241.7 sq. m. located in Tower C, No. 4 of Suning Industry Zone of Suzhou, property of 4890 square feet on 13/F of Zhongyi Hengsheng Center of Kowloon of Hong Kong and etc.. The Board of Directors authorized General Manager to handle the relevant affairs such as confirmation of property, paying land price after the normal time, assets evaluation and agreement transfer and etc. related with these and subscribed law documents related with these. The public notice on resolutions of this meeting was published on Securities Times and Hong Kong Commercial Daily on Dec. 18, 2004. (II) Implementation by the Board of Directors of the resolutions of the shareholders' general meeting

19

The Board of Directors of the Company strictly implemented the resolutions of shareholders' general meetings and the matters authorized by shareholders' general meetings according to the provisions of Company Law and the Articles of Association of the Company. 1. 2003 Annual Shareholders' General Meeting of the Company examined and adopted the Proposal of Profit Distribution for 2003 of the Company: The Company was neither to distribute dividends for 2003 nor convert capital reserve into share capital. 2. According to the resolutions of the First Shareholders' General Meeting for 2004 of the Company, the Company has changed the registered address of the Company and correspondingly amended the Articles of Association of the Company. 3. According to the resolutions of the First Shareholders' General Meeting for 2004 of the Company, the Company has jointly established Zhejiang Hualian Hangzhou Gulf Pioneer Co., Ltd., and the corresponding capital has fully funded. VIII. Profit distribution preplan for 2004 As audited by PricewaterhouseCoopers Zhongtian Certified Public Accountants, the total profit and net profit after tax of the Company for the year 2004 was RMB 1,046,186 and RMB 886,965 respectively; after appropriating 10% of profit after tax amounting to RMB 88,697 as statutory surplus reserve and 5% profit after tax amounting to RMB 44,348 statutory public welfare fund, and profit available for distribution at the year-end was RMB 753,920, adding undistributed profit of RMB 6,324,709 at the year-beginning, and the total profit available for distribution was RMB 7,078,629. Whereas the Company will demand a large amount of funds for investment and equipment renovation in the future, it decided neither to distribute the profit for 2004 nor convert capital reserve into share capital. Profit Distribution Policy for 2005: Due to the demand of funds in respect of operation and investment, the Company also will not distribute the profit and undistributed profit for 2005. The Board of Directors determines the distribution preplan for 2005 according to the actual situations of the Company, and makes the corresponding adjustment according to the Company’s operation development. 2. The reasons why the Company did not distribute profit in cash and usage and plan of undistributed profit Due the bigger demand for funds in the recent year, thus the Company did not distribute profit for 2004 in cash, and undistributed profit would be used in investment and equipment renovation of the Company principally. IX. Other matters 1. In the report period, the financial and auditing organization was PricewaterhouseCooper Zhongtian Certified Public Accountants engaged by the Company, and remained unchanged. 2. In the report period, the newspapers of information disclosure chosen by the Company were Securities Times and Hong Kong Commercial Daily, and remained unchanged. In 2005, the newspapers of information disclosure chosen by the Company were changed into Securities Times and Ta Kung Pao. 3. The Company seriously conducted self-scrutiny according to the requirements of Circular on Standardizing Capital Current between Listed Company and Related Parties and External Guarantees and Other Several Problems of Listed Company (ZJF [2003] No. 56 document) released by CSRC. In the report period, there existed no the situation on capital of the Company occupied by the controlling shareholder in the

20

Company. The special explanation of CPAs on capital occupation by the controlling shareholder and other related parties of the Company:

Special Audit Statement on Capital Occupation by the Related Parties of Shenzhen Victor Onward Textile Industrial Co., Ltd. and illegal Guarantee

PricewaterhouseCoopers Zhongtian (2005) No. X

To the Board of Directors of Shenzhen Victor Onward Textile Industrial Co., Ltd.: We accepted entrustment and audited the consolidated balance sheet of Shenzhen Victor Onward Textile Industrial Co., Ltd. ("the Company") and its subsidiaries ("the Group") as at December 31, 2004 and the related consolidated income statement, the consolidated statement of profit distribution and the consolidated cash flows statement for the year then ended pursuant to the Independent Auditing Standards of Chinese CPAs and express an unqualified Auditors’ Report with PricewaterhouseCoopers Zhongtian (2005) No. 1539 on April 13, 2005.

In accordance with the requirements of Circular on Standardizing Capital Current between Listed Company and Related Parties and External Guarantees and Other Several Problems of Listed Company (ZJF [2003] No. 56 document) released by CSRC and State-owned Assets Supervision and Administration Commission of the State Council, the Company prepared the statement of the capital occupation by its related parties and illegal guarantee as of December 31, 2004 ("the Statement") attached hereto. The Company’s responsibility is to prepare and disclose the Statement according to facts and ensure its truthfulness, lawfulness and completeness. We checked the information in the Statement against the accounting information rechecked by us when auditing the accounting statement of the Company for 2004 and relevant content of audited accounting statement and found no discrepancy in all material aspects. We did not perform additional auditing procedure for the information in the Statement except for the auditing procedure related with the transactions of related parties performed by us when we audited the accounting statement for 2004. In order to further understand the capital occupation by the related parties of the Company and illegal guarantee, the Statement attached hereafter should be read together with the consolidated accounting statement audited by us. This letter shall only be used by the Company for disclosing situations of capital occupation by the related parties and guarantee, which shall not be used for any other purpose.

Appendix 1. Statement of Capital of Listed Company Occupied by the Related Parties of Shenzhen Victor Onward Textile Industrial Co., Ltd. Appendix 2. Statement of Illegal Guarantee Provided by Shenzhen Victor Onward Textile Industrial Co., Ltd. Pricewaterhouse Coopers

21

Zhong Tian CPAs Limited Company CPA: Xu Lizhou Shanghai·PRC CPA: Cao Cuili April 13, 2005

22

Appendix I Unit: HKD’0000

Name of related

parties

Relationships

between

related parties

and listed

company

Corresponding

item in

accounting

statement

Balance at the

period-begin

Increase due

to increase

of

consolidated

scope

Debit

occurred

amount

Credit

occurred

amount

Balance at the

period-end

Amount of

reserve for

bad debts

withdrawn

Way and reason

of occupation

Way of refund Capital occupation

out of line forbidden

by No. 56

Document or not

Remark

A B C D E1 E F G H I J K L

Accounts

receivable - 2.7 - - 2.7 -

Purchasing due

to demand of

operation

No Union Developing

Group Co., Ltd.

The

controlling

shareholder of

the Company Other

receivables 10.6 - - 10.6 0 - Funds advanced

Repayment in

cash No

Shenye-Hualian

(Kong Hong) Co.,

Ltd.

Wholly-owned

subsidiary of

the controlling

shareholder of

the Company

Accounts

receivable 36.9 132.7 - - 169.6 -

Purchasing due

to demand of

operation

No

Shenzhen Union

Trade Co., Ltd.

Wholly-owned

subsidiary of

the controlling

shareholder of

the Company

Accounts

receivable - 5.9 - - 5.9 -

Purchasing due

to demand of

operation

No

Statement of Fund Occupation by the Controlling Shareholder and Related Parties ofShenzhen Victor Onward Textile Industrial Co., Ltd.

For the Year Ended December 31 2004

23

Shenzhen

Lianchang Printing

and Dyeing Co.,

Ltd.

Affiliated

company of

the Company

Other

receivables 56 - - 26.8 29.2 29.2

Purchasing due

to demand of

operation

Repayment in

cash No

Shenzhen Union

Developing

Investment Co.,

Ltd.

Wholly-owned

subsidiary of

the controlling

shareholder of

the Company

Other

receivables 70.8 - - 61.2 9.6 9.6

Borrowing due

to difficulty of

working capital

Replacement

of assets No

Shenzhen Huaye

Textile Dyeing Co.,

Ltd.

Wholly-owned

subsidiary of

the controlling

shareholder of

the Company

Other

receivables - 93.7 - 93.7 84.9

Borrowing due

to difficulty of

working capital

No

174.3 235 - 98.6 310.7 114.1

24

Explanation: 1. The capital of the Company occupied by the subsidiaries of the Company has been fully offset while it was consolidated, which did not reflect in the above list. Including: Name of companies Dec. 31, 2004 Dec. 31, 2003 HKD’0000 HKD’0000Shenzhen Vea Opel Clothing Co., Ltd. (i) 552.8 654.4Shengzhong Enterprise Co., Ltd. (ii) 107.8 32Victor Onward Printing and Dyeing (Hong Kong) Co., Ltd.

6001.9 4943.6

6662.5 5630.9 (i) The former name of Shenzhen Vea Opel Clothing Co., Ltd. is Shenzhen Huaguanli Trade Co., Ltd.. In 2003, this company was an affiliated company of the Company, whose balance of accounts receivable as at Dec. 31, 2003 was not offset. In 2004, this company became a subsidiary of the Company, and the corresponding balance as at Dec. 31, 2004 was offset while it was consolidated. (ii) Shengzhong Enterprise Co., Ltd. was not brought into the consolidated scope in 2003, and the balance as at Dec. 31, 2003 was not offset; while this company was brought into the consolidated scope in 2004, and the balance as at Dec. 31, 2004 was offset when it was consolidated. Shenzhen Victor Onward Textile Industrial Co., Ltd. Detail Statement of Illegal Guarantee Provided by Listed Company For the Year as at Dec. 31, 2004

Warrantor (listed company and subsidiaries of

listed company)

Name of warrantee

Relationship between

warrantee and listed company

Amount of

guarantee

Beginning date of

guarantee

Closing date of

guarantee

Whether there exists guarantee

responsibility or not

Way of guarantee

Type of illegal

guarantee

Note

A B C D E F G H I J Naught Naught Naught Naught Naught Naught Naught Naught Naught Naught

4. The amount of accumulative and current-period external guarantee provided by the Company was RMB 0.00. Opinions of Independent Directors on the Accumulative and Current-period External Guarantee Provided by the Company: According to the gist of Circular on Standardizing Capital Current between Listed Company and Related Parties and External Guarantees and Other Several Problems of Listed Company (ZJF [2003] No. 56 document) (“the Circular”) issued by CSRC, we, as the Company's independent directors，seriously examined the status of the external guarantee provided by the Company with practical attitude and hereby give our opinions on relevant issues: According to the result of our prudent investigation，the Company did not provide guarantee to its controlling shareholder and other related parties, any noncorporate entity or individual against regulations nor did the controlling shareholder and other related parties force the Company to provide guarantee to others as of the end of the report period. Section VIII. Report of the Supervisory Committee I Meetings of the Supervisory Committee In the report period, the Supervisory Committee held three meetings in total. (i) The 4th meeting of the 4th Supervisory Committee was held on the morning of Mar. 9,

- 25 -

2004 in the meeting room on the 16th floor of Shenzhen Union Building. Convener of the Supervisory Committee of the Company Mr. Dong Binggen presided at the meeting. 3 people should attend, and actually all 3 had attended. The meeting examined and approved through voting the Proposal on Establishing the Zhejiang Hualian Hangzhou Gulf Pioneer Co., Ltd. (in preparation) with joint fund. Resolution notifications of this meeting had been published in Securities Times and Hong Kong Commercial Daily dated Mar. 11, 2004. (ii) The 5th meeting of the 4th Supervisory Committee was held on the afternoon of Apr. 16, 2004 in the meeting room on the 16th floor of Shenzhen Union Building. Convener of the Supervisory Committee of the Company Mr. Dong Binggen presided at the meeting. 3 people should attend, and actually all 3 had attended. The meeting examined and approved the following resolutions through voting: 1. Work Report 2003 of the Company 2. Auditors’ Report 2003 for A-share and B-share of the Company 3. Profit Distribution Preplan of 2003 and Profit Distribution Policy of 2004 of the Company 4. Annual Report 2003 and Summary of Annual Report 2003 of the Company 5. Proposal on holding the 2003 Shareholders’ General Meeting of the Company Resolution notifications of this meeting had been published in Securities Times and Hong Kong Commercial Daily dated Apr. 20, 2004. (iii) The 6th meeting of the 4th Supervisory Committee was held on the morning of Aug. 24, 2004 in the meeting room on the 16th floor of Shenzhen Union Building. Convener of the Supervisory Committee of the Company Mr. Dong Binggen presided at the meeting. 3 people should attend, and actually all 3 had attended. The meeting examined and approved through voting the Semi-Annual Report 2004 and Summary of Semi-Annual Report 2004 of the Company. Resolution notifications of this meeting had been published in Securities Times and Hong Kong Commercial Daily dated Aug. 26, 2004. II In the report period, the Supervisory Committee had carefully performed its duty, and expressed its independent opinions on the following items as follows: 1. The Company’s operation according to law In the report period, the Company operated strictly according to Company Law, Securities Law and the Articles of Association of the Company as well as other relevant laws and regulations. The procedure of decision of the Board of Directors of the Company was legal and its internal control system was perfect. The directors, managers and other senior administrative personnel of the Company all fully performed their duties during their work and none of their acts were found against the laws, regulations or the Articles of Association of the Company, nor done harm to the Company's interests. 2.Inspection of the financial status of the Company. The Supervisory Committee carefully checked and examined the financial materials of the Company, such as the Financial Report 2004 of the Company audited by PricewaterhouseCoopers Zhongtian Certified Public Accountants, and held that the Company’s financial status in 2004 was good and its financial structure was reasonable. The unqualified Auditors' Report 2003 of the Company furnished by PricewaterhouseCoopers Zhongtian Certified Public Accountants was true and truly reflected the financial situation and operating achievements of the Company. 3. The Company did not raise funds in the report period. The practical projects in which the proceeds raised the last time since the Company’s listing had been invested were in accordance with the projects committed to invest in.

- -

26

4. Neither insider dealing nor act that would do harm to the rights and interests of part of the shareholders or cause the loss of the Company's assets was found in respect of the transaction price of the assets purchased or sold by the Company. 5. The Company and related enterprises (companies) made fair transactions according to the market prices. The joint investment made by the Company and related enterprises conformed to the Company’s interests and the procedure of decision was in accordance with the Articles of Association of the Company and relevant regulations stipulated in Stock Listing Rules by Shenzhen Stock Exchange. Related directors had abided by the avoidance system. Related transactions were fare and square and had done no harm to the interests of the Company or medium or small shareholders. 6. This year, PricewaterhouseCoopers Zhongtian Certified Public Accountants had provided standard and unqualified Auditors’ Report for the Financial Report 2004 of the Company Section IX. Important Events I. In the report period, the Company had no significant lawsuits or arbitrations. II. Purchases and sales of assets, takeovers and mergers made by the Company in the report period According to the resolutions of the 4th meeting of the 4th Board of Directors of the Company held on Mar. 9, 2004, and the resolutions of the Shareholders’ General Meeting held on May 10th, 2004 by Shenzhen Huaguanli Trade Co., Ltd., the Company was transferred 65% share equity of Shenzhen Huaguanli Trade Co., Ltd. (this company has been renamed as Shenzhen Vea Opel Garment Co., Ltd.) held by Shenzhen Union Developing Investment Co., Ltd. at the price of RMB 0.65 million. In the report period, this purchase of share equity had finished the registration formalities of industrial and commercial change, and Shenzhen Vea Opel Garment Co., Ltd. had been included in the mergers of the Annual Report 2004. In 2004, the loss of this company amounted to RMB 0.91 million. Shenzhen Vea Opel Garment Co., Ltd. mainly engages in the project of children’s garment. The aforesaid purchase bore no influence on the continuity of the Company’s businesses or stability of the administrative level, and it was just an attempt of the Company in exploring new possible developing directions. III Important related transactions 1. Goods on consignment for further processing: Name of related party 2004 2003 Lianchang Printing and Dyeing 514,172 344,607 2. Joint investment: Approved by the 1st provisional meeting in 2004 of the Shareholders’ General Meeting of the Company held on Apr. 16, 2004, the wholly-owned subsidiary of the Company VO Printing & Dyeing (HK) Co., Ltd. jointly invested USD 29.9 million along with Shenzhen Union Developing Investment Co., Ltd., Shanghai Huashun Investment Management Co., Ltd., China Textile Holdings (Hong Kong) Ltd. and Chuangjie Development Co., Ltd., and established Zhejiang Hualian Hangzhou Gulf Pioneer Co., Ltd.. The business scale of this company included starting industries, project management and service, as well as housing property management, etc, and this company mainly engaged in the development of the Commercial Pedestrian Street of

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Binjiang District, Hangzhou. Of the joint investment, VO Printing & Dyeing (HK) Co., Ltd. provided USD 7.475 million in cash, taking up 25% of the company’s registered capital. 3. Creditor’s rights, liabilities and guarantees: Account receivable Name of related party Dec. 31, 2004 Dec. 31, 2003 Shen Ye Union 1,804,098 392,774 Union Development Group Co., Ltd. 28,239 - Shenzhen Union Trade Co., Ltd. 62,412 - 1,894,749 392,774 Other receivables Name of related party Dec. 31, 2004 Dec. 31, 2003 Lianchang Printing and Dyeing 310,926 596,434 Union Developing 102,219 112,928 Shenzhen Huaye Textile Dyeing Co., Ltd. 996,648 - Union Development Group Co., Ltd. - 754,922 1,409,793 1,464,284 Other payables Name of related party Dec. 31, 2004 Dec. 31, 2003 Union Development Group Co., Ltd. 16,291,275 - 16,291,275 - 4. Other important related transactions There was no other important related transaction. IV Important contracts and implementation 1. In the report period, the Company had not entrusted, contracted or leased other companies’ assets, nor had other companies entrusted, contracted or leased assets of the Company. 2. External guarantees in the report period There was no external guarantee in the report period. Guarantees for holding subsidiaries: Unit: HKD

Dec. 31, 2004 Dec. 31, 2004Guarantee for the bank loan of Nanhua Printingand Dyeing

7,506,803 7,506,803

3. In the report period, the Company had not entrusted others with cash assets management. 4. Other important contracts There was no other important contract. V Commitments made by the Company or shareholders holding more than 5% shares equity 1. Capital commitments (1) On the day of balance sheet, the following capital expenditure commitments had been signed and needed not to be confirmed in the Accounting Statement: On Feb. 8, 2001, Hong Kong Victor Onward and Union Holdings signed the Letter of Investment Intent on establishing Ningbo Union New Material Technology Co., Ltd. (‘Ningbo Union’) through joint investment. According to this letter of intent, the

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registered capital of Ningbo Union would be RMB 0.7 billion, of which, the amount provided by Hong Kong Victor Onward would be RMB 0.175 billion, taking up 25%, while the amount provided by Union Holdings would be RMB 0.525 billion, taking up 75%. The Shareholders’ General Meeting 2000 of the Company held on Jun. 30, 2001 had already approved this investment project. Ended this report day, the joint-investment parties had not formally signed the Joint Investment Contract on the above-mentioned investment intent. (2)On the day of balance sheet, other capital expenditure commitments that had been signed and needed not to be confirmed in the Accounting Statement were as follows: (Unit: HKD)

Dec. 31, 2004 Dec. 31, 2003 Premises, buildings and machinery facilities 80,662 - Invisible assets 122,215 - 202,877 - 2. Operating lease commitments According to the signed irrevocable operating lease contracts, the lowest rents payable in the future could be summarized as follows: (Unit: HKD)

Dec. 31, 2004 Dec. 31, 2003 Within 1 year 729,967 - Within 1 to 2 years 654,967 - Within 2 to 3 years 549,967 - Over 3 years 274,984 -

2,209,885 - The operating lease commitment was the building lease commitment between the subsidiary Vea Opel, which had been included in the mergers of this year, and Nanhua Xingye. VI Engagement and disengagement of certified public accountants In the report period, the Company renewed the engagement of PricewaterhouseCoopers Zhongtian Certified Public Accountants to do the auditing work of the Company. The renumeration the Company had paid the Certified Public Accountants in the report period was HKD 0.55 million; this Certified Public Accountants had provided auditing services to the Company for 3 years. VII In the report period, the Company, directors, supervisors or senior administrative personnel of the Company had not been inspected by the CSRC, received administrative penalty, circulating criticism from the CSRC, or criticized publicly by the Stock Exchange, etc. VIII Other important events There was no other important event.

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Section X. Financial Report TO THE SHAREHOLDERS OF SHENZHEN VICTOR ONWARD TEXTILE INDUSTRIAL COMPANY LIMITED (Incorporated as a joint stock limited company in the People’s Republic of China) We have audited the accompanying consolidated balance sheet of Shenzhen Victor Onward Textile Industrial Company Limited (the “Company”) and its subsidiaries (the “Group”) as of 31 December 2004 and the related consolidated statements of income, cash flows and changes in shareholders’ equity for the year then ended. These consolidated financial statements set out on pages 2 to 31 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as of 31 December 2004, and the results of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers Zhong Tian CPAs Limited Company 13 April 2005

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II. Financial Report

SHENZHEN VICTOR ONWARD TEXTILE INDUSTRIAL COMPANY LIMITED CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2004 Notes 2004 2003 HKD’000 HKD’000 Sales 4 248,270 195,931

Cost of sales (208,701) (168,272)

Gross profit 39,569 27,659

Other operating income 2,468 2,480

Distribution costs (10,756) (7,213)

Administrative expenses (23,403) (18,133)

Other operating expenses (1,250) (1,243)

Other gains – net 2,470 1,966

Profit from operations 9,098 5,516

Finance costs – net 7 (5,584) (1,811)

Share of results of associates before tax 15 (1,598) (758)

Profit before tax 5 1,916 2,947

Income tax expense 8 (591) (989)

Group profit before minority interest 1,325 1,958

Minority interest 26 441 34

Net profit 1,766 1,992

Earnings per share (expressed in Hong Kong dollar per share)

– basic and diluted 9 0.01 0.01 The accompanying notes form an integral part of this consolidated financial statement.

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SHENZHEN VICTOR ONWARD TEXTILE INDUSTRIAL COMPANY LIMITED

CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2004

Notes 2004 2003 HKD’000 HKD’000ASSETS Non-current assets Property, plant and equipment 11 158,851 103,285Investment properties 12 28,150 26,422Leasehold land payments 13 2,448 -Intangible assets 14 (3,915) 410Investments in associates 15 61,252 28,166Available-for-sale investments 16 29,585 29,449 276,371 187,732Current assets Inventories 17 90,128 67,933Receivables and prepayments 18 83,998 82,978Due from related parties 30 1,869 6,563Trading investments 19 44 51Pledged deposits 20 7,820 6,000Cash and cash equivalents 20 36,050 26,969 219,909 190,494 Total assets 496,280 378,226

Shareholders’ equity Share capital 24 207,871 207,871Reserves 25 52,185 51,120Retained earnings 22,083 21,374 282,139 280,365 Minority interest 26 28,195 335 LIABILITIES Non-current liabilities Long-term borrowings 23 2,296 -Deferred income 21 1,032 -Due to original shareholders 1 14,754 14,754 18,082 14,754 Current liabilities Trade and other payables 22 47,882 29,298Due to related companies 30 17,716 -Current tax liabilities 786 1,865Short-term borrowings 23 101,480 51,609 167,864 82,772 Total liabilities 185,946 97,526 Total equity and liabilities 496,280 378,226 The accompanying notes form an integral part of this consolidated financial statement.

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SHENZHEN VICTOR ONWARD TEXTILE INDUSTRIAL COMPANY LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2004

Reserves

Share capitalShare

premiumOther

reservesRetained earnings Total

HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 (Note 24) (Note 25) (Note 25) Balances at 1 January 2003 207,871 11,826 39,073 19,603 278,373Net profit for the year - - - 1,992 1,992Transfer to statutory reserves - - 221 (221) -

Balances at 31 December 2003 207,871 11,826 39,294 21,374 280,365

Balances at 1 January 2004 207,871 11,826 39,294 21,374 280,365Net profit for the year - - - 1,766 1,766Currency translation differences - - 8 - 8Transfer to reserves for long outstanding

payables written back and negative goodwill (Note 25(c)) - - 932

(932) -Transfer to statutory reserves - - 125 (125) -

Balances at 31 December 2004 207,871 11,826 40,359 22,083 282,139

The accompanying notes form an integral part of this consolidated financial statement.

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SHENZHEN VICTOR ONWARD TEXTILE INDUSTRIAL COMPANY LIMITED

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004

Notes 2004 2003 HKD’000 HKD’000 Cash flows from operating activities Cash generated/(used in) from operations 28 38,622 (13,396)

(5,190) (2,102)Tax paid (1,198) (713) Net cash generated from/(used in)operating activities

Interest paid

32,234 (16,211) Cash flows from investing activities

29

17,533

Investment in an associate 15 (58,320) - (6,412) (3,998)

Purchase of intangible assets (59) (410)Proceeds from disposal of property, plant and

equipment

Acquisition of subsidiaries and effect of consolidation of Rich Sino, net cash received -

Purchase of property, plant and equipment 14

174 1,647Proceeds from disposal of trading investments - 2,858Government subsidies received 21 1,032 -Interest received 173 276Dividend received 1,550 1,555 Net cash (used in)/generated from investing activities (44,329) 1,928 Cash flows from financing activities Proceeds from borrowings 134,060 107,910Repayments of borrowings (112,884) (96,744) Net cash generated from/(used in) financing activities 21,176 11,166 Net increase/(decrease) in cash and cash

equivalents

9,081 (3,117) Cash and cash equivalents at beginning of year 26,969 30,086 Cash and cash equivalents at end of year 20 36,050 26,969

The accompanying notes form an integral part of this consolidated financial statement.

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1 General Shenzhen Victor Onward Textile Industrial Company Limited (the “Company”) was established as a joint stock limited company in the People’s Republic of China (the “PRC”) in 1991 subsequent to a reorganization to rationalize the Company’s structure in preparation for the listing of its shares. Its domestically listed Rmb ordinary shares (“A Shares”) and domestically listed foreign investment shares (“B Shares”) have been listed on the Shenzhen Stock Exchange since 1992. The predecessor of the Company was Victor Onward Printing & Dyeing Company Limited (“VOPDCL”), which was a Sino-foreign equity joint venture enterprise registered in the PRC. VOPDCL was established on 26 March 1984. On 19 November 1991, the Shenzhen Municipal Government approved the reorganization of VOPDCL into a joint stock limited company and the change of its name to the Company’s present name. The Company together with its subsidiaries are hereinafter collectively referred to as the “Group”. Upon the reorganization of the Company, the People’s Bank of China specifically approved that any future revaluation surplus arising from subsequent revaluation of the properties of Victor Onward Printing & Dyeing (Hong Kong) Company Limited (“VO(HK)”), a wholly-owned subsidiary of the Company, would be attributable to the original shareholders of the Company. Such properties were revalued as of 31 January 1992, resulted in a revaluation surplus of approximately HKD14,754,000 and was recorded as amount due to original shareholders. The shareholders in concern have agreed not to call for immediate repayment of the surplus, which would be offset against payment for any future subscription of shares by them. The Group is principally engaged in the bleaching, dyeing, printing, finishing of woven fabrics and garment trading. The address of the Company’s registered office is as follows: Flat C, 10/F, Real Estate Building Renmin Road, S. Shenzhen, China

2 Accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements of the Group are set out below.

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2 Accounting policies (Cont’d)

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below:

(a) Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), which include International Accounting Standards and Interpretations issued by the International Accounting Standards Board. The consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of available-for-sale investment securities and financial assets and liabilities held-for-trading. This basis of accounting differs from that used in the statutory financial statements of the Group which were prepared in accordance with generally accepted accounting principles and relevant financial regulations applicable to enterprises in the PRC (“PRC GAAP”). Appropriate adjustments have been made to these consolidated financial statements to conform to IFRS, but such adjustments are not incorporated in the Group’s statutory financial statements. The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current event and actions, actual results ultimately may differ from those estimates.

(b) Group accounting (1) Subsidiaries

Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. The existence and effect of potential voting rights that are presently exercisable or presently convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill. See note 2 (h) for the accounting policy on goodwill. Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated; unrealized losses are also eliminated unless cost cannot be recovered. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

Details of the Group’s subsidiaries are shown in note 31.

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2 Accounting policies (Cont’d)

(b) Group accounting (Cont’d)

(2) Associates

Investments in associates are accounted for by the equity method of accounting. Under this method the Company’s share of the post-acquisition profits or losses of associates is recognized in the income statement and its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Associates are entities over which the Group generally has between 20% and 50% of the voting rights, or over which the Group has significant influence, but which it does not control. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s investment in associates includes goodwill (net of accumulated amortisation and accumulated impairment charge) on acquisition. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognize further losses, unless the Group has incurred obligations or made payments on behalf of the associates. Details of the Group’s associates are set out in Note 15.

(c) Foreign currency translation

(1) Measurement currency

Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the measurement currency”). The consolidated financial statements are presented in Hong Kong dollars (“HKD”), which is the measurement currency of the Company.

(2) Transactions and balances

Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing on the first day of the month in which the transactions took place. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognized in the income statement.

Translation differences on debt securities and other monetary financial assets measured at fair value are included in foreign exchange gains and losses. Translation differences on non-monetary items are reported as part of the fair value gain or loss.

(3) Group companies

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Income statements and cash flows of certain subsidiary, which present its financial statements in Renminbi, are translated into the Group’s reporting currency at average exchange rates for the year and its balance sheets are translated at the exchange rates ruling on 31 December.

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2 Accounting policies (Cont’d)

(d) Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment loss. Depreciation is calculated on the straight-line method to write off the cost of each asset to their residual values (which are estimated at 10% of cost) over their estimated useful lives as follows: Buildings in Hong Kong 20 - 50 years Buildings in the PRC 20 - 30 years Plant and machinery 5 - 14 years Motor vehicles 4 - 5 years Furniture, fixtures and office equipment 5 years Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. Interest costs on borrowings to finance the construction of property, plant and equipment are capitalized during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. Construction-in-progress represents equipment under installation or testing. Construction in progress is stated at cost which includes all expenditures and other direct costs, prepayments and deposits attributable to the installation and interest charges arising from borrowings used to finance the installation during the installation period. Depreciation is not provided on construction-in-progress until the related asset is completed for intended use and transferred to property, plant and equipment.

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2 Accounting policies (Cont’d)

(e) Investment property

Investment property, principally comprising office buildings, is held for long-term rental yields and is not occupied by the Group. Investment property is recorded at cost less accumulated depreciation less impairment loss. Depreciation is calculated on the straight-line method to write off the cost of investment property to their residual values over their estimated useful life. Where the carrying amount of investment property is greater than its fair value, it is written down to its recoverable amount. The fair value of investment property is determined by the discounted cash flow method based on the reasonable anticipative investment return rate.

(f) Impairment of long lived assets Property, plant and equipment and other non-current assets, including prepaid lease, goodwill and intangible assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows.

(g) Investments The Group classified its investments in debt and equity securities into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets; for the purpose of these financial statements short term is defined as 3 months. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets; during the period the Group did not hold any investments in this category. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Purchases and sales of investments are recognized on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading and available-for-sale investments are subsequently carried at fair value. Held-to-maturity investments are carried at amortized cost using the effective yield method. Realized and unrealized gains and losses arising from changes in the fair value of trading investments and of available-for-sale investment are included in the income statement in the period in which they arise.

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2 Accounting policies (Cont’d)

(g) Investments (Cont’d)

The fair value of investments are based on quoted bid prices or amounts derived from cash flow models. Fair values for unlisted equity securities are estimated using applicable price/earnings or price/cash flow ratios refined to reflect the specific circumstances of the issuer. Equity securities for which fair values cannot be measured reliably are recognized at cost less impairment.

(h) Leasehold land payments Leasehold land payments are up-front payments to acquire a long-term interest in land. These payments are stated at cost and amortised over the period of lease on a straight-line basis, net of accumulated impairment charge.

(i) Intangible assets Goodwill

The excess of the cost of an acquisition over the Company’s interest in the fair value of the net identifiable assets and liabilities acquired as of the date of the exchange transaction is recorded as goodwill and recognized as an asset in the balance sheet. With respect to investments in associates, goodwill is included in the carrying amount of the investment. The identifiable assets and liabilities recognized upon acquisition are measured at their fair values as at that date. Any minority interest is stated at the minority’s proportion of the fair values. When, subsequent to acquisition, additional evidence becomes available to assist with the estimation of the amounts assigned to identifiable assets and liabilities, those amounts and the amount assigned to goodwill (or negative goodwill) are adjusted to the extent that such adjustments are made by the end of the first annual accounting period commencing after acquisition and do not increase the carrying amount of goodwill above its recoverable amount. Otherwise, such adjustments to the identifiable assets and liabilities are recognized as income or expense. In respect of business combination for which the agreement date is before 31 March 2004, goodwill is stated at cost less accumulated amortisation, which is based on a straight-line basis over the estimated useful life, and impairment losses. In respect of business combination for which the agreement date is on or after 31 March 2004, goodwill is stated at cost less any accumulated impairment losses. As from 1 January 2005, goodwill is no longer amortised but is tested annually for impairment. The amortisation period is determined at the time of the acquisition based upon the particular circumstances and ranges from 5 to 12.5 years. The unamortized balances are reviewed at each balance sheet date to assess the probability of continuing future benefits. If there is an indication that goodwill may be impaired, the recoverable amount is determined for the cash-generating unit to which the goodwill belongs. If the carrying amount is more than the recoverable amount, an impairment loss is recognized.

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2 Accounting policies (Cont’d)

(h) Intangible assets (Cont’d)

Negative goodwill

Negative goodwill is recognized in the income statement as follows: (1) to the extent that negative goodwill relates to expected future losses and expenses that

are identified in the Company’s plan for the acquisition and can be measured reliably but which cannot be accrued for at the date of acquisition, that portion of negative goodwill is recognized as income when the future losses and expenses are recognized.

(2) the amount of negative goodwill not exceeding the fair values of acquired identifiable

non-monetary assets is recognized as income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets.

(3) the amount of negative goodwill in excess of the fair values of acquired identifiable

non-monetary assets is recognized as income immediately. Negative goodwill is presented in the same balance sheet classification as goodwill. With respect to associates, negative goodwill is included in the carrying value of the investment.

Computer software Intangible assets are computer software. Acquired computer software are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful lives (five years).

(j) Operating leases (1) A Group company is the lessee

Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

(2) A Group company is the lessor

Assets leased out under operating leases are included in property, plant and equipment in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of any incentives given to lessees) is recognized on a straight-line basis over the lease term.

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2 Accounting policies (Cont’d)

(k) Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realizable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses.

(l) Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is an objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers.

(m) Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, but exclude pledged deposits.

(n) Borrowings Borrowings are recognized initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings.

(o) Retirement scheme The Group participates in a defined contribution retirement scheme (the “Scheme”) operated by the local government. Contributions to the Scheme are charged to the staff costs in the period to which the contributions are related.

(p) Taxation Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

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2 Accounting policies (Cont’d)

(q) Provisions

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain.

(r) Revenue recognition Revenue from sales of goods is recognized when significant risks and rewards of ownership of the goods are transferred to the buyers, which generally coincides with the time when delivery is made. Sales are shown net of sales taxes and discounts, and after eliminating sales within the Group. Interest income is recognized on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group.

(s) Dividends Dividends are recorded in the Group’s consolidated financial statements in the period in which they are approved by the Group’s shareholders.

(t) Government grant A government grant is recognised, when there is a reasonable assurance that the Group will comply with the conditions attaching with it and that the grant will be received. Grants relating to income are deferred and recognised in the profit and loss account over the period necessary to match them with the costs they are intended to compensate. Government grants relating to the purchase of fixed assets are included in non-current liabilities as deferred income and are credited to the profit and loss account on a straight-line basis over the expected lives of the related assets.

(u) Segment reporting Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments.

(v) Comparatives Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.

2 Accounting policies (Cont’d)

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(w) Financial instruments

Financial instruments carried on the balance sheet mainly include cash and cash equivalents, available-for-sale investments, receivables, payables and borrowings. Available-for-sale investments and account receivables are stated at their carrying amounts determined in accordance with notes 2(g) and 2(l) respectively. Other financial assets and financial liabilities without a quoted market price in an active market are measured at cost subject to impairment review.

3 Financial risk management

(a) Foreign exchange risk Most of the transactions of the Group were made in HKD and Renminbi (“RMB”). In the opinion of the directors, the Group does not have significant foreign exchange risk exposure.

(b) Interest rate risk

The interest rates of borrowings of the Group are disclosed in Note 20. As of 31 December 2004, change in interest rates would not have material impact on

the Group’s operating results and operating cash flows.

(c) Credit risk The carrying amount of cash and cash equivalents, trade receivables, other receivables and due from related companies represented the Group’s maximum exposure to credit risk in relation to financial assets. Cash is placed with reputable banks and the weighted average effective interest rate on deposits was 0.3425% per annum. Majority of the Group’s trade receivables relates to sales of goods to third party customers. The Group performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on trade receivables. The Group maintains a provision for doubtful debts and actual loses have been within the management’s expectation. No other financial assets carry a significant exposure to credit risk.

(d) Fair values The carrying amounts of the Company ’s cash and cash equivalents, trade and other receivables and payables, due from related parties, borrowings and due to related parties approximate to their fair values because of the short maturity of these instruments.

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45

4 Sales and segment information

No segment information is presented as the Group operates substantially in bleaching and dyeing in the PRC, which accounted for more than 90% (2003: more than 90%) of the consolidated revenue and results of the Group. No geographical segment information is presented as the Group conducted its sales substantially in Hong Kong, which accounted for more than 90% (2003: more than 90%) of the consolidated revenue and results of the Group.

5 Profit before tax The following items have been included in arriving at profit from operations: 2004 2003 HKD’000 HKD’000 Depreciation on property, plant and equipment

(Notes 11 and 12) - owned assets 16,018 10,316- owned assets leased out under operating leases 1,293 1,214

Losses/(gains) on disposal of property, plant and equipment 403 (442) Dividend income (1,550) (1,555) Reversal of impairment for available-for-sale investments (136) - Trading investments (Note 19) - fair value losses 7 -

- profit on sale - (526) Amortisation of intangible assets (Note 14) (775) 37 Inventories

– costs of inventories recognized as expense (included in ‘Cost of sales’) 208,701 131,700

– provision for inventories (Note 17) [919] 709 Trade and other receivables – provision for bad and doubtful

debts 1,963 9,780 Staff costs (Note 6) 25,592 14,375

6 Staff costs 2004 2003 HKD’000 HKD’000 Wages and salaries 23,369 13,294Pension costs – defined contribution plans 2,223 1,081 25,592 14,375 The average number of employees in 2004 was approximately 760 (2003: 390).

7 Finance costs – net

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46

2004 2003 HKD’000 HKD’000 Interest expense on bank borrowings 5,029 2,102Interest income (173) (276)Net foreign exchange transaction losses 728 (220)Others - 205 5,584 1,811

8 Taxation 2004 2003 HKD’000 HKD’000

PRC income tax (note (a)) 257 169Share of tax of associates - 180Hong Kong profits tax (note (b)) 334 640 591 989

(a) The Company was regarded as an export-oriented foreign investment enterprise in the Shenzhen Special Economic Zone, the PRC. The applicable income tax rate of the Company was 10%. The other PRC subsidiaries of the Group are domiciled in the Shenzhen Special Economic Zone, and the applicable income tax rates were 15%.

(b) Hong Kong taxation represented the amount provided at the rate of 17.5% (2003: 17.5%) on the estimated assessable profits for the year.

(c) The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the basis tax rate of the home country of the Company as follows: 2004 2003 HKD’000 HKD’000 Profit before tax 1,913 2,947

Income tax provision calculated at the effective tax rate of 10% (2003: 10%) 191 295Effect of different tax rate in other region (38) 240Effect of tax preferential period (93) (60)Tax losses on certain subsidiaries not recognised as

deferred tax assets

69 -Income not subject to tax (232) (262)Expenses not deductible for tax purposes 694 776Tax charge 591 989

(d) Deferred tax assets have not been accounted for as it is uncertain that temporary differences

will be reversed significantly in the near future.

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47

9 Earnings per share

Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. 2004 2003

Net profit attributable to shareholders (HKD) 1,766,000 1,992,000Number of ordinary shares in issue 169,142,356 169,142,356Basic earnings per share (HKD per share) 0.01 0.01 The Company has no dilutive potential ordinary shares and as a result, basic and diluted earnings per share are the same.

10 Dividends In accordance with relevant regulations of the PRC and the Articles of Association of the Company, the Company declares dividends based on the lower of retained earnings as reported in the statutory financial statements and the financial statements prepared in accordance with IFRS. As the statutory financial statements have been prepared in accordance with PRC accounting standards and relevant accounting regulation, the retained earnings as reported in the statutory financial statements will be different from the amount reported in the consolidated financial statements prepared in accordance with IFRS. As of 31 December 2004, the retained earnings before final dividends reported in the statutory financial statements were HKD6,671,394 (2003: HKD5,963,288).

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48

11 Property, plant and equipment

Buildings in Hong Kong

Buildings in the PRC

Machinery

Motor vehicles

Furniture, fixtures and

office equipment

Construction in progress

Total

HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 HKD’000 HKD’000

Cost

Beginning of year 14,518 63,454 127,987 6,537 5,875 324 218,695 Acquisition of

subsidiaries and effect of consolidation of Rich Sino (note 29) 3,497 65,500 68,476 2,040 10,049 12 149,574

Additions - 270 2,780 280 540 6,345 10,215

Transfer to investmenproperties (note 12) (1,956) (2,515) - - - - (4,471)

Disposals - (320) (2,319) (318) (638) (30) (3,625)

End of year 16,059 127,367 202,022 8,539 15,884 517 370,388

Accumulated depreciation

Beginning of year 4,401 25,366 77,579 5,137 2,927 - 115,410 Acquisition of

subsidiaries and effect of consolidation of Rich Sino (note 29) - 28,841 46,716 1,648 7,087 - 83,752

Charge for the year 489 3,726 10,306 666 831 - 16,018

Transfer to investmentproperties (note 12) (1,064) (386) - - - - - (1,450)

Disposals - (3) (1,343) (748) (99) - (2,193)

End of year 3,826 57,544 132,718 6,703 10,746 - 211,537

Net book value

End of year 12,233 69,823 69,304 1,836 5,138 517 158,851

Beginning of year 10,117 38,088 50,408 1,400 2,948 324 103,285

As at 31 December 2004, there were buildings in the PRC, with a cost of approximately HKD55,640,000 and net book value of approximately HKD28,749,000, for which the relevant property certificates had not been obtained from the government authorities, as the buildings are located in the land granted by the government. Up to the report date, the Company is applying for purchase the related land use right. As at 31 December 2004, certain buildings and investment properties (note 12), with a net book value of HKD49,888,000 were pledged for facilities of letter of credit and certain bank borrowings (note 23).

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12 Investment properties

2004 2003 HKD’000 HKD’000

Cost Beginning of year 38,364 38,364 Transfer from property, plant and equipment (note 11) 4,471 - End of year 42,835 38,364

Accumulated depreciation Beginning of year 11,942 10,728 Transfer from property, plant and equipment (note 11) 1,450 - Charge for the year 1,293 1,214 End of year 14,865 11,942

Net book value End of year 28,150 26,422 Beginning of year 26,422 27,636

Independent valuer has not been employed to determine the fair value of the investment properties. Their fair values as at 31 December 2004, which was determined by management of the Company by using discounted cash flow method, approximate their net book value.

13 Leasehold land payments 2004 2003 HKD’

000 HKD’000

Cost

Beginning of year - -Acquisition of subsidiaries (note 29) 12,771 End of year 12,771 -

Accumulated amortisation

Beginning of year - -Acquisition of subsidiaries (note 29) 9,844 Charge for the year 479 -End of year 10,323 -

Net book value

End of year 2,448 -Beginning of year - -

(a) Leasehold land payments were granted by Town Planning and Land Administration

Bureau of Shenzhen for a period of 20 years. (b) As at 31 December 2004, certain bank borrowings are secured on leasehold land

payments with the net book value of HKD2,448,000 (2003: nil) (note 23).

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14 Intangible assets

GoodwillNegative goodwill

Computer software Total

HKD’000 HKD’000 HKD’000 HKD’000Cost Beginning of year - - 410 410 Transfer from investment in associates (note 15) * - (7,610) - (7,610)Acquisition of subsidiaries (note 29) 601 (676) - (75)Additions - - 59 59

End of year 601 (8,286) 469 (7,216)

Accumulated amortisation Beginning of year - - - - Transfer from investment in associates (note 15) * - (2,526) - (2,526)Charge for the year - (861) 86 (775)

End of year - (3,387) 86 (3,301)

Net book value End of year 601 (4,899) 383 (3,915)

Beginning of year - - 410 410

* It represented the goodwill on acquisition of Shenzhen South China Dyeing & Printing Co.,

Ltd. (“Nahua”) transferred from investment in associates to intangible assets as Nahua became a consolidated entity in 2004 (note 29).

15 Investments in associates

2004 2003 HKD’000 HKD’000 At beginning of year 28,166 29,104 Transfer to investment in subsidiaries - Investment cost (27,958) - - Negative goodwill 5,084 - Increase in investments during the year * 58,320 - Amortization of goodwill and negative goodwill (762) - Share of results before tax (1,598) (758)Share of tax - (180)Share of results after tax (1,598) (938)At end of year 61,252 28,166 Representing: 2004 2003 HKD’000 HKD’000 Share of net assets of assoicates 58,238 29,474 Goodwill 3,014 4,019

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51

Negative goodwill - (5,327)-At end of year 61,252 28,166

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15 Investments in associates (Cont’d)

Movements in goodwill and negative goodwill were as follows:

Goodwill

Negative goodwill

HKD’000 HKD’000 Cost

Beginning of year 6,029 (7,610)Transfer to intangible assets (note 14) - 7,610 End of year 6,029 -

Accumulated amortisation

Beginning of year (2,010) 2,283 Charge for the year (1,005) 243 Transfer to intangible assets (note 14) - (2,526)End of year (3,015) -

Net book value End of year 3,014 - Beginning of year 4,019 (5,327) The principal associates, all of which are unlisted, are: Country of

incorporation Percentage of

interest held Zhejiang Union Hangzhou Bay Co., Ltd. (“Union Hangzhou”) * Hangzhou 25%Shenzhen Lianchang Printing & Dyeing Co., Ltd. (“Lianchang”) ** Shenzhen 37.5% * Union Hangzhou was newly incorporated during the year and the Group made an

investment amounting to HK$58,320,000. ** On 5 January 1999, the Group had entered into a share transfer agreement with Heater

Industrial Limited, a Hong Kong based company, to purchase 37.5% of the total equity interest of Lianchang. The consideration for the purchase had been fully paid to Heater Industrial Limited up to 31 December 2001. Up to the report date, the filing procedures for the relevant government authorities’ approval were still in progress. The management considered that the investments in Lianchang should be accounted for using the equity method of accounting starting from 1 January 2002 as the Group started to exercise its significant influence on Lianchang since then. Under this method, the Group’s share of the post-acquisition profits or losses shall be 37.5% according to the relevant stipulation of the share transfer agreement.

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16 Available-for-sale investments

2004 2003

HKD’000 HKD’000

Listed, at cost 4,250 4,250 Less: impairment provisions for listed investment (3,787) (3,923) Listed, at fair value 463 327Unlisted, at cost 29,122 29,122 29,585 29,449 Available-for-sale investments comprise a 0.5% shareholding in an unlisted company and a 1.7% shareholding in a company listed on the Stock Exchange of Hong Kong Limited (the “HKSE”). Listed investments are fair valued by reference to the HKSE quoted bid prices at the close of business on 31 December. Unlisted investment is stated at cost less accumulated impairment loss as its fair value cannot be measured reliably.

17 Inventories

2004 2003 HKD’000 HKD’000 Raw materials 57,389 50,924Work in progress 8,460 5,716Finished goods 29,136 12,900 94,985 69,540Less: Provision for obsolescence (4,857) (1,607) 90,128 67,933

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18 Receivables and prepayments

2004 2003 HKD’000 HKD’000 Trade receivables 91,195 70,714 Value added tax, refundable 6,538 19,228 Prepayments 549 1,800 Other receivables 3,443 3,776 99,901 95,518 Less: Provision for bad and doubtful debts (15,903) (12,540) 83,998 82,978

19 Trading investments 2004 2003 HKD’000 HKD’000 Hong Kong listed equity securities, cost 51 51 Less: fair value losses for trading investments (7) - 44 51 The trading investments are traded in active markets and are valued at market value at the close of business on 31 December by reference to quoted bid prices.

20 Cash and cash equivalents 2004 2003 HKD’000 HKD’000 Cash at bank and in hand 37,178 18,304 Short term bank deposits 6,692 14,665 Less: Pledged deposits (7,820) (6,000) 36,050 26,969 The weighted average effective interest rate on short term bank deposits was 0.3425% (2003: 0.6146%) and these deposits have an average maturity of 30 days. The pledged deposits represented deposits pledged with banks to obtain certain banking facilities.

21 Deferred income Deferred income represent the government subsidies received, which was used exclusively for certain qualified projects which were still in progress as at 31 December 2004.

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55

22 Trade and other payables

2004 2003 HKD’000 HKD’000 Trade payables 29,766 25,401 Other payables 14,958 1,935 Advance from customers 458 Accrued expenses 2,700 1,962 47,882 29,298

23 Borrowings 2004 2003

HKD’000 HKD’000 Borrowings from banks Current portion - Guaranteed borrowings (note (a), (c)) 74,687 18,846 - Pledged borrowings (note (b), (c)) 26,793 - 101,480 51,609 Non-current portion - Pledged borrowings (note (b), (c)) 2,296 -

103,776 51,609

(a) As at 31 December 2004, guaranteed borrowings included HKD23,502,000 which was guaranteed by Union Development Group Co., Ltd., a related party of the Group, and the remaining HKD51,185,000 which was guaranteed by the group companies.

(b) As at 31 December 2004, pledged borrowings were secured over certain buildings

with net book value of HKD29,089,000 (note 11) and leasehold land payments with net book value of HKD2,448,000 (note 13).

(c) The effective interest rates for these borrowings were ranging from 4.3% to 6.7%

(2003: 3.2% to 5.3%).

24 Share capital As of 31 December, the authorized, issued and fully paid share capital of the Company comprised:

2004 2003 Number of

shares

AmountNumber of

shares

Amount HKD’000 HKD’000 HKD’000 HKD’000

“A Shares”, par value of RMB1 each 99,720 122,554 99,720 122,554“B Shares”, par value of RMB1 each 69,422 85,317 69,422 85,317 169,142 207,871 169,142 207,871 Pursuant to the articles of association of the Company, A Shares and B Shares are registered ordinary shares and carry equal rights.

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25 Reserves

(a) Share premium

Share premium represents the premium on the issuance of A Shares and B Shares.

(b) Other reserves

(i) Pursuant to the relevant PRC regulations and the Articles of Association of the Company,

profit after the taxation shall be appropriated in the following sequence:

(1) make up accumulated losses, if any; (2) transfer 10% of the profit after tax to the statutory surplus reserve. When the

balance of the statutory surplus reserve reaches 50% of the share capital, such transfer need not be made;

(3) transfer 5% to 10% of the profit after tax to the statutory public welfare fund; (4) transfer to the discretionary surplus reserve with an amount approved by the

shareholders at general meetings; (5) distribute dividends to shareholders. The amounts transferred to the reserve funds shall be based on the profit after tax of the Company’s statutory financial statements.

(ii) Statutory surplus reserve and discretionary surplus reserve According to the relevant PRC regulations, statutory surplus reserve and discretionary surplus reserve can be used to make up losses or to increase share capital. Except for the reduction of the reserves due to losses incurred, any other usage should not result in the reserves falling below 25% of the registered capital.

(iii) Statutory public welfare fund According to relevant PRC regulations, the use of statutory public welfare fund is restricted to capital expenditures for collective employee welfare facilities. The statutory public welfare fund is not available for distribution to shareholders except in liquidation. According to a document issued by the Ministry of Finance, when the statutory public welfare fund is utilised, an amount equal to the lower of cost of the assets and the balance of the statutory public welfare fund is transferred from the statutory public welfare fund to the discretionary surplus reserve. On disposal of the relevant assets, the original transfers from the statutory public welfare fund are reversed.

For the year ended 31 December 2004, the directors proposed appropriations of 10% and 5% (2003: 10% and 5%) of the net profit of the Company’s statutory financial statements, totalling HKD124,960 (2000: HKD221,004), to the statutory surplus reserve fund and statutory public welfare fund respectively.

(c) Long outstanding payables written back and negative goodwill were recognised in the income statement and amortised on a straight line basis over the weighted average useful life of the identifiable non-monetary assets respectively in accordance with IFRS, whereas it was written back to capital reserve in the statutory financial statements. Accordingly, the amount written back was transferred from retained earnings to capital reserve.

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57

25 Reserves (Cont’d)

(d) Profit available for distribution to shareholders Pursuant to the relevant PRC regulations, profit available for distribution to shareholders shall be the lower of the retained earnings determined according to PRC accounting standards and regulations as appeared in the statutory financial statements and the retained earnings adjusted according to IFRS. According to the statutory financial statements as of 31 December 2004, HKD6,671,394 is available for distribution to shareholders (2003: HKD5,963,288).

26 Minority interests 2004 2003 HKD’000 HKD’000 At beginning of year 335 369 Acquisition of subsidiaries (note 29) 28,301 - Share of net loss of the subsidiaries (441) (34)At end of year 28,195 335

27 Commitments

(a) Capital commitments As at 31 December 2004, capital expenditures contracted for at the balance sheet date but not recognized in the financial statements are as follows: On 8 February 2001, VO(HK), the subsidiary of the Company, has entered into a letter of intent with Shenzhen Union China Holdings Ltd. to set up a foreign-invested join venture in Ningbo, the PRC. According to the letter of intent, the share capital of the joint venture is RMB700 million, of which VO(HK) owns 25%, amounting to RMB175 million. Up to the report date, there is no formal contract signed between the parties in respect of the above investment. As at 31 December 2004, other capital expenditures contracted for at the balance sheet date but not recognized in the financial statements are as follows: 2004 2003 HKD’000 HKD’000 Properties, plant and equipment 81 - Computer software 122 - 203 -

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27 Commitments (Cont’d)

(b) Operating lease commitments At 31 December 2004, the future aggregate minimum lease payments under non cancellable operating leases in respect of warehouses are as follows: 2004 2003 HKD’000 HKD’000 Not later than 1 year 730 - Later than 1 year and not later than 5 years 1,480 - 2,210 -

28 Cash generated from/(used in) operations 2004 2003 HKD’000 HKD’000

Net profit 1,766 1,992 Adjustments for: Minority interest (note 26) (441) (34)Income tax (note 8) 591 989 Depreciation (notes 11 and 12) 17,311 11,530 Amortisation of leasehold land payments (note 13) 479 - Amortisation of intangible asset (note 14) (775) 37 Impairment charges 2,753 10,898 Losses/(gains) on disposal of property, plan and equipment 403 (442)Gain from disposal of trading investments - (526)Dividend received (1,550) (1,555)Share of results of associates before tax (note 15) 1,598 721 Interest expenses 5,028 2,102 Interest income (173) (276) Changes in working capital (excluding the effects of

acquisition of subsidiaries and consolidation of Rich Sino):

Inventories (2,174) (10,053)Trade and other receivables 16,869 (41,068)Due from related parties 4,694 4,282 Trade and other payables (7,626) 8,007 Increase in pledged deposits (131) - Cash generated from/(used in) operations 38,622 (13,396)

Principal non-cash transactions

The consideration to acquire 65% equity interest in Vea Opel was settled by crediting amount due from a fellow subsidiary, Shenzhen Union Development Company limited (“SUDC”).

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29 Acquisition and consolidation of subsidiaries

On 31 March 2004, the Group acquired 1.6% of equity interest in Shenzhen South China Dyeing & Printing Co., Ltd (“Nahua”) from Liquidation Committee of Changzhou Die Qiu Textile Group Company, and this increased the total equity interest of Nahua held by the Group to 51.16%. Accordingly, the financial statements of Nahua and South China Corporation Ltd. (“SCC”), a wholly-owned subsidiary of Nahua, were consolidated since 31 March 2004. On 31 May 2004, the Company acquired 65% of equity interest in Shenzhen Vea Opel Costume Co., Ltd. (“Vea Opel”, formally known as Shenzhen Huaguanli Trading Co., Ltd. ) from SUDC, and this increased the total equity interest of Vea Opel held by the Company to 90%. Accordingly, the financial statements of Vea Opel were consolidated since 31 May 2004. Rich Sino Enterprise Co., Ltd. (“Rich Sino”), a wholly-owned subsidiary of the Group, had been dormant since February 1999 and hence its financial statements had not been consolidated from 1999 to 2003. Pursuant to a board resolution, Rich Sino resumed operation on 1 January 2004, and thus the financial statements of Rich Sino were consolidated since 1 January 2004. Details of net assets of Nahua and Vea Opel acquired and negative goodwill/goodwill on acquisition of subsidiaries were as follows: Nahua Vea Opel Total HKD’000 HKD’000 HKD’000Purchase consideration - Cash paid 251 - 251 - Through settlement of amount due from SUDC - 612 612Total consideration 251 612 863 Fair value of net assets acquired/consolidated (927) (11) (938)

(Negative goodwill)/Goodwill (676) 601 (75)

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29 Acquisition and consolidation of subsidiaries (Cont’d)

The assets and liabilities of respective subsidiaries at the date of acquisition (1 January 2004 for consolidation of Vea Opel) were as follows:

Nahua Vea Opel Rich Sino Total HKD’000 HKD’000 HKD’000 HKD’000Cash and cash equivalents 17,289 348 147 17,784Pledged deposits 1,689 - - 1,689Property, plant and equipment (note 11) 65,613 73 135 65,821Leasehold land payments (note 13) 2,926 - - 2,926Inventories 17,378 3,809 252 21,439Receivables and prepayments 30,177 680 137 30,994Borrowings (30,991) - - (30,991)Trade and other payables (27,822) (4,893) (1,033) (33,748)Due to related parties (18,316) - - (18,316)Fair value of net assets 57,943 17 (362) 57,598Attributable to minority interests (note 26) (28,299) (2) - (28,301)Investment cost originally recorded by the Group (28,717) (4) - (28,721)Fair value of net assets acquired/consolidated 927 11 (362) 576(Negative goodwill)/Goodwill (note 14) (676) 601 - (75)Total consideration 251 612 - 863 Less: Settlement of amount due from SUDC - (612) (612)Cash and cash equivalents of subsidiaries acquired/consolidated 17,289 348 147 17,784Cash inflow on acquisition of subsidiaries and consolidation of

Rich Sino 17,038

348 147 17,533

30 Related party transactions

The Company’s major shareholder is Union Development Group of China Ltd. (“Union Development”), who directly holds 4.54% of the Company’s issued shared and indirectly holds another 27.99% through its subsidiary, namely Shenzhen Union China Holdings Ltd. In addition to the related party transactions disclosed in the report, the Group entered into the following significant related party transactions in the normal course of its business and on an arm’s-length basis: 2004 2003 HKD’000 HKD’000 Processing consigned to: Lianchang 483 324

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61

30 Related party transactions (Cont’d)

Year end balances with related parties: 2004 2003 HKD’000 HKD’000 Trade receivables from related parties 1,781 4,187 Other receivables from related parties 1,325 3,740 3,106 7,927 Less: Provision for bad and doubtful debts (1,237) (1,364)

1,869 6,563

The above balances were non-interest bearing, unsecured and repayable on demand. 2004 2003 HKD’000 HKD’000 Loan from Union Development * 15,316 - Dividends due to minority shareholders ** 2,400 - 17,716 - * The loan was granted by Union Development on 6 January 2002 to finance the working

capital of Nahua, which is interest bearing at prevailing market rate and with no fixed repayment terms.

** It represented the dividends due to the shareholders of Nahua before its reorganisation.

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31 Principal subsidiaries

As of 31 December 2004, the Company directly/indirectly held the following subsidiaries:

Name

Date and place of

incorporation

Registered

capital Principal activities Percentage of equity

interest held 2004 2003Consolidated subsidiaries VO(HK)

2 December 1983, Hong Kong

HKD2,400,002 Procurement of materials, marketing of printed and dyed woven fabrics and investment holdings

100% 100%

Victor Onward Digital Printing

Co., Ltd. (“VO Digital”) 18 April 2002, Hong Kong

HKD2,000,000 Manufacturing and sale of printed and dyed woven fabrics

75% 75%

Nanhua 21 July 1988,

Shenzhen HKD85,494,700 Manufacturing and sale of printed

and dyed woven fabrics 51.16% 49.56%

SCC 4 January

1996, Hong Kong

HKD10,000 Sales agent of Nahua 100% 100%

Vea Opel 27 January

1997, Shenzhen

RMB1,000,000 Designing and sale of garment 90% 25%

Rich Sino 9 November

1993, Hong Kong

HKD1,000,000 Sale of printed and dyed woven fabrics

100% 100%

32 Comparative figures

Certain comparative figures have been reclassified to conform to the current year’s presentation.

33 Approval of financial statements The consolidated financial statements had been approved for issue by the Board of Directors on 13 April 2005.

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63

Section XI. List of Documents Available for Reference 1. Original of the Annual Report 2. Accounting Statement carrying the personal signatures and seals of the person in charge and financial controller of the Company 3. Original of the Auditors’ Report carrying the seal of PricewaterhouseCoopers Zhongtian Certified Public Accountants and the personal signatures of the CPAs 4. Originals of all the Company’s documents and original manuscripts of the notifications published in the newspapers designated by the CSRC in the report period 5. Articles of Association of the Company

Board of Directors of

Shenzhen Victor Onward Textile Industrial Co., Ltd. Apr. 14, 2005

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