Lu Thai Textile Co., Ltd. Annual Report 2017 LU THAI TEXTILE CO., LTD. ANNUAL REPORT 2017 April 2018 1 Lu Thai Textile Co., Ltd. Annual Report 2017 Part I Important Notes, Table of Contents and Definitions The Board of Directors (or the “Board”), the Supervisory Board as well as the Directors, Supervisors and senior management of Lu Thai Textile Co., Ltd. (the “Company”) hereby guarantee the factuality, accuracy and completeness of the contents of this Report, and shall be jointly and severally liable for any misrepresentations, misleading statements or material omissions in this Report. Liu Zibin, the Company’s legal representative, Zhang Hongmei, the Company’s Chief Accountant, and Zhang Keming, the Company’s Financial Manager hereby guarantee that the Financial Statements carried in this Report are factual, accurate and complete. Except for the following Directors, all the other Directors attended in person the Board meeting for the review of this Report. Reason for not attending in Name Office title Proxy person Zeng Facheng Director For reason of work Xu Zhinan Xu Jianjun Independent Director For reason of work ZhaoYao Pan Ailing Independent Director For reason of work Wang Xinyu Bi Xiuli Independent Director For reason of work ZhaoYao The Company has described in detail in this Report the possible risks. Please refer to the contents about the major risks and countermeasures in “Outlook of the Company’s future development” in “Part IV Company Performance Discussion and Analysis” of this Report. Securities Times, Shanghai Securities News, China Securities Journal, Ta Kung Pao (HK) and www.cninfo.com.cn have been designated by the Company for its information disclosure in 2018. And all information about the Company shall be subject to what’s disclosed on the aforesaid media. Investors are kindly reminded to pay attention to investment risks. Investors are advised to read the full text of this Report carefully and pay attention to the risk warning and uncertainties stated in Part IV, “Outlook of the Company’s Future Development”. The Board has considered and approved the following dividend payout proposal for common shareholders for the Reporting Period: based on the total shares of 922,602,311, a cash dividend of RMB5.00 (tax inclusive) per 10 shares would be distributed to all the common shareholders, with no share dividend. This Report has been prepared in both Chinese and English. Should there be any discrepancies or misunderstandings between the two versions, the Chinese version shall prevail. 2 Lu Thai Textile Co., Ltd. Annual Report 2017 Table of Contents Part I Important Notes, Table of Contents and Definitions ........................................................... 2 Part II Company Profile and Key Financial Information.............................................................. 5 Part III Business Summary ............................................................................................................. 10 Part IV Company Performance Discussion and Analysis ............................................................ 13 Part V Significant Events ................................................................................................................ 32 Part VI Share Changes and Shareholder Information ................................................................. 50 Part VII Preferred Shares ............................................................................................................... 57 Part VIII Directors, Supervisors, Senior Management and Staff................................................ 58 Part IX Corporate Governance ...................................................................................................... 69 Part X Corporate Bonds .................................................................................................................. 79 Part XI Financial Statements .......................................................................................................... 80 Part XII Documents Available for Reference .............................................................................. 207 3 Lu Thai Textile Co., Ltd. Annual Report 2017 Definitions Term Definition Lu Thai Textile Co., Ltd. and its consolidated subsidiaries, except where the The “Company”, “Issuer” or “we” context otherwise requires Lu Thai Textile Co., Ltd. exclusive of subsidiaries, except where the context Parent, Parent Company otherwise requires The Board of Directors The Board of Directors of Lu Thai Textile Co., Ltd. The Supervisory Board The Supervisory Board of Lu Thai Textile Co., Ltd. CSRC China Securities Regulatory Commission RMB, RMB’0,000 In RMB yuan, in RMB ten thousand yuan The “Company Law” The “Company Law of the People‘s Republic of China” The “Securities Law” The “Securities Law of the People‘s Republic of China” The “Reporting Period” or “Current Period” The period from January 1, 2017 to December 31, 2017 4 Lu Thai Textile Co., Ltd. Annual Report 2017 Part II Company Profile and Key Financial Information I Corporate Information Stock name Lu Thai A, Lu Thai B Stock symbol 000726, 200726 Changed stock name (if any) N/A Stock exchange Shenzhen Stock Exchange Company name in Chinese 鲁泰纺织股份有限公司 Abbr. 鲁泰纺织 Company name in English (if LU THAI TEXTILE CO., LTD. any) Abbr. (if any) LTTC Legal representative Liu Zibin Registered address No. 11, Mingbo Road, High-tech Industry Development Zone, Zibo, Shandong, P.R.China Zip code 255086 No. 81, Songling East Road, Zichuan District, Zibo, Shandong, P.R.China; No. 11, Mingbo Road, Office address High-tech Industry Development Zone, Zibo, Shandong, P.R.China Zip code 255100; 255086 Company website www.lttc.com.cn Email address lttc@lttc.com.cn II Contact Information Board Secretary Securities Representative Name Qin Guiling Zheng Weiyin and Li Kun No. 81, Songling East Road, Zichuan No. 81, Songling East Road, Zichuan Address District, Zibo, Shandong, P.R.China District, Zibo, Shandong, P.R.China Tel. 0533-5266188 0533-5285166 Fax 0533-5418805 0533-5418805 Email address qinguiling@lttc.com.cn wyzheng@lttc.com.cn,likun@lttc.com.cn III Media for Information Disclosure and Place where this Report Is Kept Newspapers designated by the Company for Securities Times, Shanghai Securities News, China Securities Journal and information disclosure Ta Kung Pao (HK) Website designated by CSRC for publication of this www.cninfo.com.cn 5 Lu Thai Textile Co., Ltd. Annual Report 2017 Report Place where this Report is kept The Securities Department of the Company IV Company Registered Information and Alterations Unified social credit code 91370300613281175K Changes in main business scope of the No changes Company since going public (if any) Changes of controlling shareholder (if any) No changes V Other Information The independent certified public accounting (or “CPA”) firm hired by the Company: Name Ruihua Certified Public Accountants LLP 5-11F, West Tower, China Overseas Property Plaza, Block No. 7, Compound No. 8, Xibinhe Office address Road, Yongdingmen, Dongcheng District, Beijing, P.R.C. Accountants writing signatures He Feng and Cui Xiaoli The independent sponsor hired by the Company to exercise constant supervision over the Company in the Reporting Period: □ Applicable √ Not applicable The independent financial advisor hired by the Company to exercise constant supervision over the Company in the Reporting Period: □ Applicable √ Not applicable VI Key Financial Information Indicate by tick mark whether there is any retrospectively restated datum in the table below. √ Yes □ No The reasons for the retrospective restatements: Business mergers under the same control. 2017-over-201 2016 2015 2017 6 change Before Restated Restated Before Restated 6,409,224,044. 5,981,751,344. 5,990,493,909. 6,173,322,778. 6,173,322,778. Sales revenue (RMB) 6.99% 97 63 36 61 61 Net income attributable to shareholders of the listed 841,150,934.75 805,446,326.99 808,760,025.91 4.01% 712,193,243.19 712,193,243.19 company (RMB) Net income attributable to 780,637,833.47 759,471,125.12 762,785,364.02 2.34% 718,263,125.89 718,263,125.89 shareholders of the listed 6 Lu Thai Textile Co., Ltd. Annual Report 2017 company before nonrecurring gains and losses (RMB) Net cash flows from operating 1,038,035,053. 1,310,765,281. 1,314,732,284. 1,027,595,404. 1,027,595,404. -21.05% activities (RMB) 43 28 45 34 34 Basic earnings per share 0.91 0.85 0.85 7.06% 0.75 0.75 (RMB/share) Diluted earnings per share 0.91 0.85 0.85 7.06% 0.75 0.75 (RMB/share) Weighted average return on 11.87% 11.71% 11.70% 0.17% 10.66% 10.66% equity (%) Change of December 31, December 31, December 31, 2016 2017 over December 31, 2015 2017 December 31, 2016 Before Restated Restated Before Restated 10,170,624,027 9,407,103,263. 9,464,604,315. 9,091,170,499. 9,091,170,499. Total assets (RMB) 7.46% .75 34 39 22 22 Equity attributable to 7,230,942,770. 6,937,985,729. 6,970,913,125. 6,837,113,075. 6,837,113,075. shareholders of the listed 3.73% 16 19 59 58 58 company (RMB) VII Accounting Data Differences under Chinese Accounting Standards (CAS) and International Financial Reporting Standards (IFRS) and Foreign Accounting Standards 1. Net Income and Equity Differences under CAS and IFRS √ Applicable □ Not applicable Unit: RMB Net income attributable to shareholders of the Equity attributable to shareholders of the listed listed company company 2017 2016 Closing amount Opening amount Under CAS 841,150,934.75 808,760,025.91 7,230,942,770.16 6,970,913,125.59 Adjustments as per IFRS Impact on domestic equipment tax credit recognized as 329,000.00 725,000.00 -329,000.00 deferred income under IFRS Under IFRS 841,479,934.75 809,485,025.91 7,230,942,770.16 6,970,584,125.59 7 Lu Thai Textile Co., Ltd. Annual Report 2017 2. Net Income and Equity Differences under CAS and Foreign Accounting Standards □ Applicable √ Not applicable No such differences for the Reporting Period. 3. Reason for Accounting Data Differences under CAS and Foreign Accounting Standards □ Applicable √ Not applicable VIII Key Financial Information by Quarter Unit: RMB Q1 Q2 Q3 Q4 Sales revenue 1,273,058,505.40 1,717,401,191.03 1,631,824,401.03 1,786,939,947.51 Net income attributable to 157,994,708.53 235,075,273.02 197,038,648.01 251,042,305.19 shareholders of the listed company Net income attributable to shareholders of the listed company 155,049,414.60 230,031,743.85 179,229,437.40 216,327,237.62 before nonrecurring gains and losses Net cash flows from operating -73,576,928.32 416,496,686.62 491,110,150.27 204,005,144.86 activities Indicate by tick mark whether any of the financial data in the table above or their summations differs materially from what have been disclosed in the Company’s quarterly or semi-annual reports. □ Yes √ No IX Nonrecurring Gains and Losses √ Applicable □ Not applicable Unit: RMB Item 2017 2016 2015 Note Gains and losses on disposal of non-current assets (inclusive of offset allowance for -1,326,737.85 -8,321,693.49 -4,666,157.56 asset impairments) Government subsidies charged to current profit and loss (exclusive of government subsidies given in the Company’s ordinary 66,031,583.92 64,121,633.01 43,266,788.43 course of business at fixed quotas or amounts as per government’s uniform standards ) Current gains and losses on subsidiaries 4,145,908.17 acquired through business mergers under 8 Lu Thai Textile Co., Ltd. Annual Report 2017 same control from period-beginning to merger dates, net Gains and losses on changes in fair value of trading financial assets and liabilities & investment income from disposal of trading financial assets and liabilities and 4,794,598.32 3,212,471.16 -29,145,915.85 available-for-sale financial assets (exclusive of effective portion of hedges that arise in the Company’s ordinary course of business) Non-operating revenue and expense other 4,638,779.84 3,925,471.62 3,432,535.47 than above Less: Income tax effects 8,690,224.28 3,065,544.25 12,302,309.25 Non-controlling interests effects (net 9,080,806.84 13,897,676.16 6,654,823.94 of tax) Total 60,513,101.28 45,974,661.89 -6,069,882.70 -- Explanation of why the Company classifies an item as a nonrecurring gain/loss according to the definition in the Explanatory Announcement No. 1 on Information Disclosure for Companies Offering Their Securities to the Public—Nonrecurring Gains and Losses, or reclassifies any nonrecurring gain/loss item listed in the said explanatory announcement as a recurring gain/loss: □ Applicable √ Not applicable No such cases for the Reporting Period. 9 Lu Thai Textile Co., Ltd. Annual Report 2017 Part III Business Summary I Main Business Scope of the Company in Reporting Period Is the Company subject to any disclosure requirements for special industries? No. Lu Thai, unremittingly taking “creating wealth, contributing to the society, clothing the country and boosting the development of the world” as its mission, has been practicing the value of “people foremost policy, rigorous scientific attitude, client oriented principle and integrity for win-win outcome” for a long time. It is devoted to improving and expanding its industrial chain, making it a renowned textile and garment business group combing cotton breeding, spinning, bleaching and dyeing, neatening, testing, garment making and marketing. Lu Thai produces and sells middle and high-grade yarn-dyed fabric and dyeing fabric for shirts and garment. It claimed its fame for its comprehensive management, R&D ability, advanced technology, international development plan and stable quality. Moreover, it also attaches great importance to improve the added value of its products, explore the emerging market and renew its service philosophy. With natural fabric as its flagship, multi-component functional fiber fabric as its spearhead and wash-and-wear non-ironing technology as its core competency, the Company kept a watchful eye on the latest consumption trend. Great attention was paid to improve its healthy product series so as to satisfy the needs from the diversified and personalized market. Lu Thai had already become the largest world renowned manufacturer for high-grade yarn dyed fabric and premium-brand shirts. It had paved its development pattern featured in going green, low-carbon growth, science and technology and humanism. Its operation performance was always among the top comparing to its peers. 80% of Lu Thai’s products were exported over 30 countries and regions in the world, including America, EU and Japan. The export percentage for high-grade yarn dyed fabric--a self-owned brand attained 70% of its export volume, accounting for 18% of the world’s export market. II Significant Changes in Major Assets 1. Significant Changes in Major Assets Major assets Reason for significant changes in the period Long-term equity investments stood at RMB97,536,732.02 on December 31, 2017, up 100.00% compared to the opening amount, primarily driven by the new investment by Equity assets the Parent Company in Ningbo Meishan Bonded Port Area Haohong Equity Investment Partnership (L.P.) in the Current Period. Engineering materials stood at RMB56,913,806.06 on December 31, 2017, down 51.41% Engineering materials compared to the opening amount, primarily driven by the decrease in Lu Thai Vietnam’s equipment to be installed. 2. Major Assets Overseas √ Applicable □ Not applicable Asset Source Value Location Operating Measures Earnings As a Major 10 Lu Thai Textile Co., Ltd. Annual Report 2017 model taken to generated percentage of impairment ensure asset the risk safety Company’s net value (%) Main Lu Thai management (Hong Kong) 149,293,602. Incorporated Hong Kong Marketing personnel 1,864,122.58 1.92% None Textile Co., 65 sent by the Ltd. Company Main Lu Thai management (America) Incorporated 7,467,403.40 New York Marketing personnel -874,210.66 0.10% None Textile Co., sent by the Ltd. Company Main Lu Thai management (Cambodia) 141,093,933. Manufacturin Incorporated Svay Rieng personnel 6,960,560.40 1.81% None Textile Co., 46 g sent by the Ltd. Company Main Lu Thai management (Burma) 80,653,559.5 Manufacturin Incorporated Rangoon personnel -3,895,125.02 1.04% None Textile Co., 7 g sent by the Ltd. Company Main Lu Thai management (Vietnam) 964,981,422. Manufacturin Incorporated Tay Ninh personnel -3,299,669.64 12.41% None Textile Co., 42 g sent by the Ltd. Company Main Lu An management 109,097,323. Anjiang, Manufacturin -12,333,879.4 Garments Incorporated personnel 1.40% None 90 Vietnam g 9 Co., Ltd. sent by the Company III Core Competitiveness Analysis Is the Company subject to any disclosure requirements for special industries? No. The comprehensive management ability, research and development ability, technological accumulation and global planning of the Company’s whole industry chain are the Company's core competitiveness, which did not change during the Reporting Period. 1. A complete industrial chain and a global network: The Company boasts a complete industrial chain from cotton planting, yarning, 11 Lu Thai Textile Co., Ltd. Annual Report 2017 dyeing, weaving and post-processing to cloth manufacturing, and thus enjoys the cost advantage brought by complete steps for producing high-end dyed textile. The Company has set up production bases in Cambodia, Burma, Vietnam, etc., a design agency in Italy and a market service agency in America, which helps give full play to its international resources, form a global business network and solidify its internationally leading position as a yarn-dyed fabric maker. 2. The sound comprehensive management capacity and an efficient quality control system: The Company has passed ISO9000 quality management system, ISO14000 environmental management system, OHSAS18000 occupational health safety management system, and SA8000 social accountability management system successively from 1995. Ever since 2007, the Company has also passed WRAP: 1999 global garment production social accountability standard, C-TPAT: 2004 anti-terrorism standard, OE100 and GOTS organic cotton system certification and CNAS national laboratory recognition, to realize the internationalization and standardization of the Company’s management. In order to pursue the operational management of performance excellence and better the Company’s performance and capability, the Company has gradually introduced GB/T19580-2004 -Standards for Performance Excellence Evaluation, created “Great Quality” system and promoted management innovation, to ensure the Company’s business quality. 3. It enjoyed strong R&D capability and high-end technological platform for cooperation. The Company highly valued self-dependent innovation and made full use of various technology platforms, inclusive of the National Enterprise Technical Center, National Talent-in draught Demonstration Base and Shandong Engineering and Technological Research Center. Moreover, Lu Thai also reinforced its technical cooperation with scientific research institutes, colleges and universities, strategic clines and major suppliers. It was committed to cutting-edge technical research, and transformed itself from product development to technical researches step by step. What’s more, the Company also upgraded itself from overcoming key technological difficulties to master technical principles and set up industrial standards. In the past, it only focused on technical innovation, but now, it is exploring new technology on one hand and boosting innovation on the other for better growth. Consequently, the Company pushed forward its development in a green, low-carbon and cyclic manner and strengthened its vitality and growing momentum. Meanwhile, the share of technology to its development was also increased, which could push forward industrial up gradation. 4. It boasted considerate and efficient customer’s service. With customer-oriented principle as its guidance, the Company comprehensively enhanced its quality control so as to persistently provide high standard service and set up an industry-leading brand image, which, in return, could help to win customer’s satisfaction and market recognition. Quality awareness was weaved into every step of the manufacturing process and the impeccable quality traceability ensured product reputation. Objective analysis and thinking in the customer’s perspective was the Company’s service rule, which also helped to win the customers’ trust. 12 Lu Thai Textile Co., Ltd. Annual Report 2017 Part IV Company Performance Discussion and Analysis I Overview In 2017, the Company continued to push forward its strategies of “Improve Quality and Efficiency” and “Overall Internationalization”. It kept improving its management capability to ensure a highly efficient production and operation system through improvements through the system, adoption of an excellent performance-promoted model, great efforts in improving the Lu Thai Production System (LTPS), and systematic supply chain management. In 2017, the Company established a global management and control information platform to further promote the integration of “information technology and industrialization” within the Company. Additionally, it continued to pursue high-tech, stylish and green products, adopt a low-carbon, sustainable development model, and actively take on social responsibility. For 2017, the Company recorded sales revenue of RMB6.409 billion, operating income of RMB1.001 billion, net income attributable to its shareholders of RMB841 million, and net income before non-recurring gains and losses of RMB781 million, up 6.99%, 3.96%, 4.01% and 2.34% respectively compared to 2016. During the Reporting Period, the main business and main profit sources and their structures of the Company remained unchanged. During the Reporting Period, the Company built an internationalized management and control information platform for integration informatization and industrialization. It had successively constructed and implemented a series of information management and control platforms and system software such as APS advanced planning application, cotton sorting process management system, group procurement and inventory management information platform and cost management system, customs supervision information platform and new OA system. The independently developed " yarn-dyed fabric full process industrial control system V1.0" with a multi-network integration, group management and control, multi-language support, remote control and other functions was granted the computer software copyright. This system can be popularized and applied as a module in yarn-dyed factories. In addition, the ERP established by the Company can achieve interconnection with the customs information system to establish a customs supervision information platform for automatic sending of customs declaration data, building a rapid customs clearance capability, and thus the Company becomes the first pilot enterprise of work order reporting in the textile industry. During the Reporting Period, the Company was named "Demonstration Enterprise of Textile Industry on Smart Manufacturing Practice for 2017" by the China Textile Engineering Society, and also was named "Demonstration Enterprise on Manufacturing Item Champion" by the Ministry of Industry and Information Technology and China Federation of Industrial Economics. During the Reporting Period, in terms of R&D and innovation, the Company focused on the overall strategic goal to tackle the problems of "bottleneck" technology. In 2017, 226 technical projects of the Company were initiated, covering areas of spinning, weaving, dyeing, treatment, garment manufacturing, energy, environmental protection, information and branding, among which, the projects of "research and application development of key technologies for yarn and fabric color digitization" and "R&D and industrial application of key technologies for salt-free dyeing of reactive dyes" won the first prize in scientific and technological progress granted by the China National Textile And Apparel Council. For new product development, 16 projects were initiated by the Company, among which the development of 37.5 temperature control products, Lu Thai durable white fabrics, wrinkle-free products and freon-free waterproof products had all been successfully completed and the Company had received orders of mass production. In 2017, the projects of "key processing technology of high quality easy-care cotton fabric" and "key technology and application of hygroscopic quick-drying comfortable fabric production" jointly developed by the Company and Jiangnan University, Donghua University and other universities were recognized as the "13th Five-Year" national key research projects, and both projects had been launched for implementation. In 2017, the Company was awarded 3 prizes in scientific and technological progress granted by the China National Textile And Apparel Council, participated in the formulation of 6 national and industrial standards, and was granted 22 licensing patents. Up to now, the Company has successfully developed more than 600 new technologies and new products, among 13 Lu Thai Textile Co., Ltd. Annual Report 2017 which 46 products have passed the provincial and ministerial level scientific and technological achievements appraisal, including 12 international leading items and 29 international advanced items. Moreover, the Company was granted 49 national, provincial and ministerial awards, and undertook 17 science and technology projects above provincial and ministerial level and 11 major research projects of national and provincial level. In addition, the Company was granted 289 licensing patents 1 software copyright, and hosted or participated in the formulation of 38 national and industrial standards. During the Reporting Period, in terms of green environmental protection, the Company held the development concept of innovation, coordination, green, open and sharing. It implemented the basic national policy of resource conservation and environmental protection, and aimed to increase energy efficiency and develop energy-saving production processes. The Company intended to accelerate the construction of a resource-saving and environment-friendly society to achieve win-win in economic development and environmental improvement and provide strong support for ecological civilization establishment. Based on the management model of "source governance, process management and control, and end governance", the Company made great efforts on recovery and comprehensive utilization of ammonia, alkali and PVA as well as odor and waste gas treatment, greatly improving the surrounding environmental quality and occupational health and safety of company workplaces. The Company had made chemicals and chemical substances available for inspection and control, and ensured the traceability of chemical substances in fabric products. It had been awarded the honorary title of "Operation Leading Enterprise in Supply Chain Chemical Management Innovation 2020" granted by CNTAC-ZDHC. In 2017, the Company continued to improve its pollution control facilities and upgraded its waste-water treatment facilities to reduce the total COD emissions by 14.9% year-on-year. The treated water quality was superior to the national Class A emission standards. Honors such the "Advanced Energy-saving Enterprise in Shandong", "Water Efficiency Leader of Key Water-use Enterprises" and "Industry Leading Unit of The Fourth Low Carbon Shandong" were granted to the Company. The Company set up a steering group to be in charge of water-saving management, established a long-term water-saving management mechanism, and carried out water-use processes and technical improvements to improve utilization efficiency of water resources and reduce water consumption of unit product. Therefore, the water use indicators and product water consumption indicators of the Company were lower than the average level of water-saving enterprises. During the Reporting Period, in terms of innovation management, the Company launched the Lu Thai Production System (LTPS) and focused on the basic guideline of "Building new dynamics for economic development with quality improvement". It levered potential tapping, quality and efficiency improvement, development difficulties solving, transformation and upgrading by the implementation of excellent performance and LTPS for the development of new dynamics. In order to solve the seven major problems on wastes, six pilot plants were established for the three major production systems of yarn-dyed, garment production, and printing and dyeing, where work plans were determined and implemented focused on quality, delivery, inventory and low cost for improvement. The Company performed quarterly evaluations of the 39 plants of the Group on the three production systems from the perspectives of 6S and visual management, TPM management, on-site control indicators and LTPS improvement, and granted rewards for encouragement. Moreover, the Company continued to carry out company-level management improvement projects by organizing internal and external experts to establish 149 management projects to further improve management efficiency by the promotion and development of the projects. During the Reporting Period, in the promotion of independent design, the Company made full use of domestic and foreign resource advantage and followed the "market + design" concept to carry out targeted fabrics and clothing R&D and design based on the diversity of customer needs. In 2017, the Industrial Design Center of the Company was recognized as a national industrial design center by the Ministry of Industry and Information Technology. At the same time, the Company was awarded the "National Fashion Research Center for Yarn-dyed Fabrics" by the China Textile Information Center (TIC) and China Textiles Development Center. As the only national trend research center for yarn-dyed fabrics, the Company publishes fabric fashion trends for the industry every two quarters each year. In 2017, the Company won the "Product Development Contribution Award of China National Textile And Apparel Council". The Lu Thai GRFF pure cotton fabric was recommended by the China Cotton Textile Industry Association as the "Most Influential Product Brand" of China's cotton textile industry in 2017. In addition, in the "2017 China International Fashion 14 Lu Thai Textile Co., Ltd. Annual Report 2017 Fabric Design Competition", the design of the Company "Time Fusion" won the "Best Cotton Textile Technology Innovation Award" and the design "Cross the Jungle" won the "Best Market Application Award". The printed fabrics "Falling Petals" and "Blue Waves" developed by the holding subsidiary of the Company, Lufeng Weaving & Dyeing, won the "Best Market Application Award" and "Best Environmental Technology Application Award". The company design works "Chalk Coloring", "Chess and Blossom Charm", "Lines in the Green Wood" and "Essence of Nature" won the "Excellent Award for Spring/Summer Chinese Fashion Fabrics 2018". The works of the Company "Secondary Fusion", "Dazzling Camouflage", "Iron Jungle" and "Dream Magic", "Illusions", "Dreaming the Operatic Circle" and "The Field" of the holding subsidiary Lufeng Weaving & Dyeing won the "Excellence Award for Autumn/Winter Chinese Fashion Fabric 2018/19". At the current stage, Lu Thai, with natural fabric as its flagship, multi-component functional fiber fabric as its spearhead, wash-and-wear non-ironing technology as its core competency, the latest consumption trend as its guidance and internationalized industrial manufacturing as its basis, is sparing every effort to attain a global integrated development, so as to ensure its leading position in the yarn-dyed shirt fabric sector. II Analysis of Main Business 1. Summary For the Reporting Period, the Company recorded sales revenue of RMB6.409 billion (a 6.99% year-over-year increase); cost of sales of RMB4.477 billion (an 11.73% year-over-year increase), including selling expense of RMB144 million (a 9.32% year-over-year drop) and administrative expense of RMB652 million (a 1.49% year-over-year drop); research and development expense of RMB328 million (a 13.31% year-over-year increase); and net cash flows from operating activities of RMB1.038 billion (a 21.05% year-over-year drop). 2. Revenue and Cost (1) Breakdown of Sales Revenue Unit: RMB 2017 2016 As a percentage of As a percentage of Change Sales revenue total sales revenue Sales revenue total sales revenue (%) (%) Total 6,409,224,044.97 100% 5,990,493,909.36 100% 6.99% By operating division Textile and Apparel 5,906,736,459.03 92.16% 5,559,988,040.46 92.81% 6.24% Cotton 35,606,856.03 0.56% 12,617,667.25 0.21% 182.20% Electricity and steam 103,870,652.93 1.62% 111,228,572.38 1.86% -6.62% Others 363,010,076.98 5.66% 306,659,629.27 5.12% 18.38% By product category Fabric products 4,624,849,307.12 72.16% 4,342,679,194.97 72.49% 6.50% Shirts 1,281,887,151.91 20.00% 1,217,308,845.49 20.32% 5.31% 15 Lu Thai Textile Co., Ltd. Annual Report 2017 Cotton 35,606,856.03 0.56% 12,617,667.25 0.21% 182.20% Electricity and steam 103,870,652.93 1.62% 111,228,572.38 1.86% -6.62% Others 363,010,076.98 5.66% 306,659,629.27 5.12% 18.38% By operating segment Hong Kong 246,434,343.62 3.84% 243,268,777.10 4.06% 1.30% Japan And South 413,874,632.85 6.46% 367,116,617.59 6.13% 12.74% Korea Southeast Asia 1,976,448,225.47 30.84% 1,973,589,974.34 32.95% 0.14% Europe and America 1,044,242,539.46 16.29% 1,065,910,735.22 17.79% -2.03% Others 376,849,171.78 5.88% 429,694,336.29 7.17% -12.30% Mainland China 2,351,375,131.79 36.69% 1,910,913,468.82 31.90% 23.05% (2) Operating Division, Product Category or Operating Segment Contributing over 10% of Sales Revenue or Income √ Applicable □ Not applicable Is the Company subject to any disclosure requirements for special industries? No. Unit: RMB YoY change in Gross margin YoY change in YoY change in Sales revenue Cost of sales gross margin percentage sales revenue cost of sales percentage By operating division Textile and 5,906,736,459.03 4,090,113,368.00 30.76% 6.24% 10.12% -2.44% apparel By product category Fabric products 4,624,849,307.12 3,170,487,809.95 31.45% 6.50% 10.09% -2.23% Shirts 1,281,887,151.91 919,625,558.05 28.26% 5.31% 10.24% -3.21% By operating segment Southeast Asia 1,976,448,225.47 1,355,637,274.13 31.41% 0.14% 3.54% -2.25% Europe and 1,044,242,539.46 738,077,277.54 29.32% -2.03% 2.33% -3.01% America China 2,351,375,131.79 1,660,758,668.76 29.37% 23.05% 29.80% -3.68% Main business data of the previous year restated according to the changed statistical caliber for the Reporting Period □ Applicable √ Not applicable 16 Lu Thai Textile Co., Ltd. Annual Report 2017 (3) Whether Revenue from Physical Sales Is Higher than Service Revenue √ Yes □ No Operating division Item Unit 2017 2016 Change Sales volume (0,000 meters) 23,921.03 22,035.33 8.56% Textile and fabric Output (0,000 meters) 26,614.99 25,185.85 5.67% Stock (0,000 meters) 2,790 3,286.52 -15.11% Sales volume (0,000 pieces) 1,962.29 1,844.13 6.41% Textile and apparel Output (0,000 pieces) 1,914.08 1,856.04 3.13% Stock (0,000 pieces) 105.56 126.66 -16.66% Sales volume (ton) 2,110.48 618.91 241.00% Cotton Output (ton) 16,737.17 11,013.71 51.97% Stock (ton) 8,092.61 3,760.35 115.21% Sales volume (000 KWH) 65,661.68 95,570.01 -31.29% Electricity Output (000 KWH) 401,967.71 406,457.36 -1.10% Stock (000 KWH) Sales volume (ton) 307,504.69 318,171.76 -3.35% Steam Output (ton) 1,235,609.78 1,235,811.79 -0.02% Stock (ton) Reason for any over 30% YoY movements in the data above √ Applicable □ Not applicable 1. Sales volume of cotton in 2017 increased by 241.00% as compared with last year, mainly due to the increase of external cotton sales from related companies of Xinjiang Lu Thai. Output in 2017 increased 51.97% as compared with last year, mainly because most of the seed cotton purchased by Xinjiang Lu Thai in 2016 that was in rolling season (2016.9-2017.3) was produced and warehoused in 2017, which was influenced by public inspect of cotton Stock in 2017 increased 115.21% as compared with last year, mainly due to the newly added production line of Xinjiang Lu Thai Textile in 2018, and the increase of inventory to produce cotton yarn. 2. Sales volume of electricity in 2017 decreased 31.29% as compared with last year, mainly due to the decrease of non-related sales of electricity of Xinsheng Thermal Power. (4) Execution Progress of Major Signed Sales Contracts in Reporting Period □ Applicable √ Not applicable (5) Breakdown of Cost of Sales By operating division and product category Unit: RMB 17 Lu Thai Textile Co., Ltd. Annual Report 2017 2017 2016 Operating Percentage of Percentage of Item Change division Cost of sales total cost of sales Cost of sales total cost of sales (%) (%) Textile and Cost of sales 4,090,113,368.00 91.36% 3,714,143,672.96 92.69% 10.12% apparel Cotton Cost of sales 32,882,009.84 0.73% 11,742,505.52 0.29% 180.03% Electricity and Cost of sales 110,812,770.78 2.48% 96,995,072.89 2.42% 14.25% steam Other Cost of sales 243,239,636.06 5.43% 184,220,439.28 4.60% 32.04% Unit: RMB 2017 2016 Percentage of Percentage of Product category Item Change Cost of sales total cost of sales Cost of sales total cost of sales (%) (%) Fabric products Cost of sales 3,170,487,809.95 70.82% 2,879,947,896.50 71.87% 10.09% Shirts Cost of sales 919,625,558.05 20.54% 834,195,776.46 20.82% 10.24% Cotton Cost of sales 32,882,009.84 0.73% 11,742,505.52 0.29% 180.03% Electricity and Cost of sales 110,812,770.78 2.48% 96,995,072.89 2.42% 14.25% steam Other Cost of sales 243,239,636.06 5.43% 184,220,439.28 4.60% 32.04% Note: Manufacture Product Period Raw material Labor cost Depreciation Energy Total expenses 2017 55.02% 17.51% 5.41% 13.47% 8.59% 100.00% Fabric 2016 54.82% 17.01% 5.22% 12.86% 10.09% 100.00% 2017 55.53% 37.50% 2.16% 0.92% 3.89% 100.00% Shirts 2016 57.10% 37.24% 2.07% 0.83% 2.76% 100.00% (6) Change in Scope of Consolidated Financial Statements for Reporting Period √ Yes □ No Chengshun Thermal Power, a subsidiary of Xinsheng Thermal Power, was added into consolidated financial statements. (7) Major Change in Business Scope or Product or Service Range in Reporting Period □ Applicable √ Not applicable 18 Lu Thai Textile Co., Ltd. Annual Report 2017 (8) Main Customers and Suppliers Main customers: Total sales to top 5 customers (RMB) 1,160,240,554.18 Ratio of total sales to top 5 customers to annual total sales 18.10% (%) Ratio of total sales to top 5 customers to annual total sales 0.00% from the related party (%) Information about the top 5 customers Serial No. Name of customer Sales (RMB) Proportion in annual total sales (%) 1 SBT 341,377,693.23 5.33% 2 OLYMP 232,356,968.38 3.63% 3 TAL 230,952,151.17 3.60% CHENFENG (JIANGSU) GARMENT CO., 4 177,860,580.60 2.78% LTD. 5 PVH-PTU 177,693,160.80 2.77% Total -- 1,160,240,554.18 18.10% Other information about the main customers □ Applicable √ Not applicable Main suppliers Total purchases from top 5 suppliers (RMB) 722,284,106.95 Ratio of total purchases from top 5 suppliers to annual 16.88% total purchases (%) Ratio of total purchases from top 5 suppliers to annual 0.00% total purchases from related party (%) Information about the top 5 suppliers Serial No. Name of supplier Purchase amount (RMB) Proportion in annual total purchases (%) ZIBO POWER SUPPLY COMPANY OF 1 STATE GRID SHANDONG ELECTRIC 187,900,456.31 4.39% POWER COMPANY 2 ALLENBERG COTTON CO. 171,370,321.64 4.00% AKSU YONGXING COTTON 3 146,639,967.60 3.43% INDUSTRY CO., LTD JESS SMITH AND SONS COTTON, 4 126,625,297.40 2.96% LLC XINJIANG PRODUCTION AND 5 89,748,064.00 2.10% CONSTRUCTION CORPS COTTON 19 Lu Thai Textile Co., Ltd. Annual Report 2017 AND LINEN COMPANY Total -- 722,284,106.95 16.88% Other information about the main suppliers □ Applicable √ Not applicable 3. Expense Unit: RMB 2017 2016 Change Reason for material change Selling expenses 144,061,780.39 158,869,993.22 -9.32% Administrative expenses 651,530,968.94 661,355,141.82 -1.49% Increase of exchange losses resulting Finance costs 63,342,671.31 20,949,153.10 202.36% from changes in exchange rate 4. R&D Input √ Applicable □ Not applicable With leading the technology development in the industry as the goal, the research staff of the Company work hard in new product development, new technology promotion and transformation of new technological results to productivity to explore ways for transforming the business mode, adjusting the structure and extending the industrial chain. These efforts will promote the Company’s development towards an energy-saving and environment-friendly enterprise and truly achieve the sustainable development. Particulars about the R&D input 2017 2016 Change Number of R&D personnel 1,673 1,703 -1.76% R&D personnel as a percentage 11.72% 10.81% 0.91% of total employees R&D expense (RMB) 328,403,990.29 289,826,541.83 13.31% R&D expense as a percentage 5.12% 4.84% 0.28% of sales revenue Capitalized R&D expense 0.00 0.00 0.00% (RMB) Capitalized R&D expense as a percentage of total R&D 0.00% 0.00% 0.00% expense Reason for any significant YoY change in the proportion of R&D expense in sales revenue: □ Applicable √ Not applicable Reason for any sharp variation in the percentage of the capitalized R&D expense and rationale □ Applicable √ Not applicable 5. Cash Flows Unit: RMB 20 Lu Thai Textile Co., Ltd. Annual Report 2017 Item 2017 2016 Change Subtotal of cash generated by 6,543,494,895.58 6,183,425,459.46 5.82% operating activities Subtotal of cash used in 5,505,459,842.15 4,868,693,175.01 13.08% operating activities Net cash flows from operating 1,038,035,053.43 1,314,732,284.45 -21.05% activities Subtotal of cash generated by 84,563,735.04 34,625,847.40 144.22% investing activities Subtotal of cash used in 828,490,043.09 914,985,442.61 -9.45% investing activities Net cash flows from investing -743,926,308.05 -880,359,595.21 15.50% activities Subtotal of cash generated by 2,389,256,879.43 2,254,527,867.50 5.98% financing activities Subtotal of cash used in 2,626,785,842.65 2,807,150,042.60 -6.43% financing activities Net cash flows from financing -237,528,963.22 -552,622,175.10 57.02% activities Net increase in cash and cash 17,523,075.19 -109,710,957.16 115.97% equivalents Main influence factors for any significant YoY changes in the items above √ Applicable □ Not applicable During the Reporting Period, cash generated by operating activities was RMB84,563,735.04 with a year on year increase of 144.22%, mainly due to the recovery and sales of marketable securities; net increase in cash and cash equivalents was RMB17,523,075.19 with a year on year increase of 115.97%, mainly due to the increase of net cash flows from financing activities, and decrease of payment of cash for debt and the repurchase of paying B share in the same period of last year. Reasons for any big difference between the net operating cash flows and the net profits in the Reporting Period □ Applicable √ Not applicable III Non-Core Business Analysis √ Applicable □ Not applicable Unit: RMB Percentage of pretax Amount Source/Reason Recurring or not income (%) Gains on delivery and losses on equity investment of Investment income 2,331,330.34 0.23% financial assets (financial No liabilities) such as forward exchange settlement 21 Lu Thai Textile Co., Ltd. Annual Report 2017 Inventory falling price Asset impairments 37,330,674.24 3.72% provision, fixed assets No impairment provision, etc Non-operating 12,122,767.09 1.21% Claims for compensations No income Non-operating Donations, losses on damage 9,022,725.64 0.90% No expense of non-current assets IV Analysis of Assets and Liabilities 1. Material Change in Asset Composition Unit: RMB December 31, 2017 December 31, 2016 Change in Percentage of Percentage of percentag Reason for material change Value total assets Value total assets e (%) (%) (%) 693,989,293.3 Monetary funds 6.82% 667,304,702.34 7.05% -0.23% 8 Accounts 334,080,524.0 3.28% 293,129,727.93 3.10% 0.18% receivable 5 2,100,661,221. 1,817,542,870. Inventories 20.65% 19.20% 1.45% 93 99 Investing real 24,563,544.58 0.24% 25,844,090.56 0.27% -0.03% estate Long-term equity 97,536,732.02 0.96% 0.00% 0.96% investment 5,421,295,850. 5,273,148,708. Fixed assets 53.30% 55.71% -2.41% 03 20 Construction in 157,421,820.6 1.55% 177,075,655.16 1.87% -0.32% progress 8 Short-term 1,135,124,996. 11.16% 873,261,856.02 9.23% 1.93% borrowings 40 Long-term 0.00% 135,678,044.89 1.43% -1.43% borrowings 2. Assets and Liabilities Measured at Fair Value √ Applicable □ Not applicable Unit: RMB 22 Lu Thai Textile Co., Ltd. Annual Report 2017 Gains/losses on Cumulative fair Allowance for fair value Purchased in Sold in Opening value changes impairment for Closing Item changes in Reporting Reporting balance charged to Reporting balance Reporting Period Period equity Period Period Financial assets 1. Financial assets measured at fair value of which changes are recorded 0.00 33,000.00 60,000,000.00 60,330,000.0 into current gains/losses (excluding derivative financial assets) Subtotal of 0.00 33,000.00 60,000,000.00 60,330,000.0 financial assets Total of above 0.00 33,000.00 60,000,000.00 60,330,000.0 Financial 0.00 0.00 liabilities Material change in the measurement attributes of the main assets in the Reporting Period: □ Yes √ No 3. Restricted Asset Rights as of End of Reporting Period Xinjiang Lu Thai, the subsidiary of the Company, took book value of RMB248,632,100.00 inventory, RMB4,316,209.51 fixed asset, and RMB103,162,544.14 land use right as mortgage, and RMB16,000,000.00 certificate of deposit as pledge to obtain the short-term borrowings from Bank of RMB440,000,000.00. Monetary fund RMB1,350,080.52 whose ownership was restricted, of which, RMB1,200,000.00 was the deposit to handle the letter of credit of Xinjiang Lu Thai; RMB150,080.52 was the deposit to handle the letter of guarantee of the Company’s subsidiary of Lufeng Weaving & Dyeing. V Investments Made 1. Total Investment Amount √ Applicable □ Not applicable Total investment amount of Reporting Total investment amount of last year Change Period (RMB) (RMB) 100,000,000.00 0.00 100.00% 23 Lu Thai Textile Co., Ltd. Annual Report 2017 2. Material Equity Investments Made in Reporting Period √ Applicable □ Not applicable Unit: RMB Investm Return Index Main The Source ent on Any to busines Amoun Compa Project Way of of Term of Type of progres investm legal Disclos disclose Investe s scope t of ny’s Joint ed investm investm investm investm s as of ent in matter ure date d e of investm stake in investor earning ent ent ent ent balance Reporti involve (if any) informa investe ent investe s funds sheet ng d tion (if e e date Period any) Haohon g Haojun Equity Investm Invest ent and ment Manage Partner ment Equity Newly 100,00 Self-ow ship Co., Finishe -2,463, 10/31/2 2017-0 investm establis 0,000.0 33.33% ned 3 years Funds 0.00 No Enterpr Ltd in d 267.98 017 44 ent hed 0 funds ise in Ningbo Ningbo Meisha Meisha n n bonded bonded area area 100,00 -2,463, Total -- -- 0,000.0 -- -- -- -- -- -- 0.00 -- -- -- 267.98 0 3. Material Non-Equity Investments Ongoing in Reporting Period □ Applicable √ Not applicable 4. Financial Investments (1) Securities Investments □ Applicable √ Not applicable No such cases during the Reporting Period. (2) Investments in Derivative Financial Instruments √ Applicable □ Not applicable 24 Lu Thai Textile Co., Ltd. Annual Report 2017 RMB’0,000 Proporti on of closing Actua investm l Related- Type of Amount Impairm ent Initial Opening Amount Closing gain/l party derivativ purchas ent amount Operato investm Beginni Ending investm sold in investm oss in Relation transacti e ed in provisio in the r ent ng date date ent Reportin ent Repor on or investme Reportin n (if Compan amount amount g Period amount ting not nt g Period any) y’s Perio closing d net assets (%) Forward Commer Non-rel exchange 110,898. 01/19/2 12/15/2 110,898. 110,898. 419.3 cial No 0 0 ated settleme 18 017 017 18 18 4 bank nt Commer foreign Non-rel 139,675. 01/03/2 03/29/2 139,675. 119,875. cial No exchange 0 19,800 2.55% 61.93 ated 82 017 018 82 82 bank option forward Commer Non-rel exchange 05/22/2 10/18/2 cial No 9,839.24 0 9,839.24 9,839.24 0 -6.57 ated transacti 017 017 bank ons Commer foreign Non-rel 06/20/2 06/30/2 cial No exchange 12,937.1 0 12,937.1 12,937.1 0 4.76 ated 017 017 bank swap 273,350. 273,350. 253,550. 479.4 Total -- -- 0 19,800 2.55% 34 34 34 6 Capital source for derivative Self-owned funds investment Lawsuit (if applicable) No Disclosure date of board announcement on approval of 04/28/2017 derivative investment (if any) Disclosure date of general meeting announcement on approval of derivative investment (if any) Risk analysis and risk control The Company conducted derivatives products transaction in order for hedging. And it was measures for derivative products held operated by installments, with the relevant amount not more than the planned derivatives 25 Lu Thai Textile Co., Ltd. Annual Report 2017 in Reporting Period (including but not products transactions. And all derivatives products transaction was zero-deposit. Meanwhile, limited to market risk, liquidity risk, the Company had a complete risk control system for sufficient analysis and prevention of credit risk, operation risk, legal risk, possible risks such as market risks, liquidity risk and credit risk, operation risk and risk of etc.) laws and regulations. 1. Market risk: when the international and domestic economic situations change, the corresponding changes in exchange rates and interest rates may have an adverse impact on the financial derivatives transactions of the Company. Precautionary measures to be taken include: the Company chooses risk-controlled financial derivative tools with simple structure and good liquidity to carry out the hedging business, strictly controls the scale of financial derivatives trading by staged operations, and adjusts the strategy according to market changes in a timely manner. 2. Liquidity risk and credit risk: a credit risk arising from failure of the contractually due Company or counterparty in performing the contract due to liquidity or factors other than liquidity. Precautionary measures to be taken include: the Company determines the upper limit of derivatives transaction amounts according to production and operation scale as well as foreign exchange income, and conducts operations by stage according to the budget of future collections and disbursement. The derivative trades are free of guarantee deposit and can still be guaranteed in performance after the contract expires by means of extension and balance settlement etc. to prevent the Company from credit damages due to lack of liquidity. The Company selects financial institutions with strong capability and good reputation as a counterparty and signs standard derivative trading contracts to strictly control credit risk of the counterparty. 3. Operation risk: The derivative transactions had high specialty and complexity, so imperfect internal operation procedures, staffs and external events would make the Company to undertake risks during the transaction. Risk control measures: The Company promulgated strict authorization and approval system and perfect regulatory mechanism, formulated the operation procedures and approval procedures system to conduct derivative products transaction, established special risk control positions, implemented strict authorization and post checks and balances system, meanwhile, it improved the overall quality of relevant personnel through strengthening the professional ethics education and business training for them. Besides, it established the System of Reporting the Abnormal Situation Timely to lower the operation risks to the maximum. 4. Risk concerning laws and regulations: The Company conducted derivatives products transaction in strict accordance with State relevant laws and rules, if there were no standard operation procedures and strict approval procedures, it was easy to cause compliant and regulatory risks existing in the validity and feasibility of contract, commitments and other legal documents signed. Risk control measures: The Company carefully studied and mastered laws, regulations relevant to derivative products transaction, formulated internal control rules for the forward settlement hedging business, standardized the operation procedures, and strengthened the compliant examination on derivative products transaction business. The Company carries out derivative trading business upon fulfillment of relevant approval procedures, complying 26 Lu Thai Textile Co., Ltd. Annual Report 2017 with relevant national laws and regulations, the "Articles of Association", "Lu Thai Derivatives Trading Management System" and the relevant provisions of the "Proposal on the Company's Derivatives Trading Plan" reviewed and passed at the seventh meeting of the eighth session of the Board of Directors held on April 26, 2017. Moreover, the Company fulfilled the relevant information disclosure obligations. 1. As of December 31, 2017, the Company held a total of 5 undue financial derivative contracts, totaling US$ 32.5 million, all of which were foreign exchange options. The contract expires at the latest by March 2018. Financial derivatives accounted for 2.55% of Changes in market prices or fair value the net assets at the end of the reporting period. 2. From January to December of 2017, the of invested derivatives in Reporting mature financial derivatives of the Company amounted to US$ 382.1841 million, generating Period (fair value analysis should an income of RMB 4.7946 million, including the expiry long-term foreign exchange include specific analysis methods as settlement of US$162.2818 million, which generated an income of RMB4.1934 million. The well as relevant assumptions and mature foreign exchange options amounted to US$185.8 million, generating an income of parameters) RMB619,300. The long-term foreign exchange sale amounted to US$14.5023 million, generating a loss of RMB65,700. The mature foreign exchange swap amounted to US$ 19 million, generating an income of RMB 47,600. Significant changes in the Company’s accounting policy and specific accounting principles for derivatives No significant changes in Reporting Period when compared to last period The Company’s independent directors Xu Jianjun, Zhao Yao, Bi Xiuli, Pan Ailing and Wang Xinyu, concerning conducting derivatives business, have issued the following professional advice: We are of the opinion that it will strengthen the Company’s competitiveness to use Specific opinion from independent derivative transactions with focus on forward settlement and purchase as an effective tool to directors on the Company’s avoid foreign exchange risks, to strengthen the relevant internal control and to carry out the derivatives investment and risk loss and risk prevention measures so as to improve the operation and management. In control conducting derivative transactions with focus on forward settlement and purchase, the Company follows a legal approval procedure, has sound relevant institutions and keeps the risks relatively controllable. No harm has been done to the interests of the Company’s shareholders. 5. Use of Funds Raised □ Applicable √ Not applicable No such cases in this Reporting Period. VI Sale of Major Assets and Equity Interests 1. Sale of Major Assets □ Applicable √ Not applicable No such cases in this Reporting Period. 27 Lu Thai Textile Co., Ltd. Annual Report 2017 2. Sale of Major Equity Interests □ Applicable √ Not applicable VII Main Controlled and Joint Stock Companies √ Applicable □ Not applicable Main subsidiaries and joint stock companies with an over 10% influence on the Company’s net profit Unit: RMB Relationship Main Company business Registered Sales Operating with the Total assets Net assets Net income name scope capital revenue income Company Lufeng Weaving & 706,160,000. 1,597,948,86 1,399,594,34 1,664,817,65 118,651,864. 104,083,484. Subsidiary Fabric Dyeing Co., 00 3.87 7.43 9.70 43 23 Ltd. Subsidiaries obtained or disposed in the Reporting Period □ Applicable √ Not applicable Particulars about the main controlled and joint stock companies: Lufeng Weaving & Dyeing Co., Ltd. (hereinafter called “Lufeng Weaving & Dyeing”) is the holding subsidiary corporation of the Company. Registration place: Zibo, Shandong; registered capital: RMB 706.160 million. It was authenticated to be high-tech enterprise in October 2014, and authenticated to be high-tech enterprise again for re-evaluation in 2017, mainly manufacturing and selling textile printing and dyeing products and the products of clothing and garments. Its export income accounted for more than 75%. During the Reporting Period, market required more and more on the production and environmental protection of printing and dyeing products. Lufeng Weaving & Dyeing had been further acknowledged in market as an enterprise with normative operation and the focus on environmental protection and sustainable development. At the same time, the R & D and innovation of Lufeng Weaving & Dyeing constantly progressed. With the rise of the transfer ratio of scientific and technological achievements, proportion of the sale of new products with high additional value rose largely. In 2017, operation revenue of Lufeng Weaving & Dyeing was RMB 1.665 billion, increasing for 3.58% comparing with that of the last year. In another aspect, thanks to comprehensive budget management, costs control and investment in new products R & D, net profit RMB 0.104 billion was achieved in 2017, decreasing for 24.02% comparing with that of the last year. VIII Structured Bodies Controlled by the Company □ Applicable √ Not applicable IX Outlook for the Future Development of the Company 1. Industry competition and development trend China's textile industry possesses outstanding advantages in the global textile industry, mainly in terms of capital, technology and labor efficiency, etc. Although the cost of production factors is increasing, China's textile industry still has an outstanding advantage in the global competition. At present, the production capacity of yarn-dyed fabrics for high-end shirts in the world is about 800 28 Lu Thai Textile Co., Ltd. Annual Report 2017 million meters. Pure cotton-dyed fabrics have always been the fabric used for the production of middle and high-end shirts due to their high color fastness, clear texture, rich colors, comfortableness and good air permeability. In recent years, with the increase of domestic environmental protection requirements and production costs, and the trend of state transformation and upgrading, some low-end and small yarn-dyed production capacities gradually quit the market, and production capacities have been concentrated on large companies, while the demand for yarn-dyed fabrics for shirts is changing to small quantity, variety, diversity, functionality and leisure. 2. Development strategy of the Company The Company is a large-scale textile enterprise with a complete industrial chain integrating cotton cultivation, spinning, dyeing, weaving, post-treatment and garment manufacturing. It is the world's largest production base for yarn-dyed fabrics for shirts, providing blending of three major series of shirt fabrics of pure cotton and natural fiber, cotton and natural fiber as well as cotton and functional fiber. In order to maintain the outstanding advantages of the Company in global shirt-dyed fabrics, the Company is pushing intelligent manufacturing upgrades and integrating domestic and foreign advantageous resources to deepen internationalization of the Company with regional advantages. The Company combines quality innovation and customer needs, and innovates the marketing model with advantages of resources in each channel. High-end shirt customization services are provided to meet various needs of customers. Furthermore, the Company increases investment in innovation to improve R&D and design and develop new fabrics. The Company holds the concept of low-carbon environmental protection for sustainable economic development. 3. Business plan (the following description does not constitute any commitment of the Company) (1) In terms of corporate governance, in order to ensure the healthy, stable and sustainable development of the Company at the institutional level, the Company will establish an internal control system to improve organizational structure, corporate governance structure and risk prevention mechanism. (2) In terms of market development, the Company will follow the business philosophy of "combining end-customer demand with R&D, design and sales services". Based on the stability of existing markets, the Company will adjust operation models, establish diversified sales models and explore new markets to increase domestic market share and balance the development of domestic and foreign markets. (3) In terms of corporate management, with the goal of "improving quality and increasing efficiency", the Company will fully develop the group system and deeply practice the model of excellence performance. Relying on the Lu Thai Production System (LTPS) and supply chain management, the Company creates a global procurement network to improve the enterprise management system and company upgrade. (4) In terms of brand building, the Company focuses on quality to integrate corporate philosophy and culture into brand building with innovation. Based on customer demand, the Company innovated the marketing model and integrated online and offline channel resources to push forward the process of brand internationalization and upgrading. (5) In terms of industrial overall arrangement, in order to maintain the leading position of the Company in the global yarn-dyed industry, the Company rationally allocates domestic and foreign resources and improves production efficiency while keeping product quality relying on the advantages of Milan and U.S. companies in market development, design and R&D, customer service and talent development, and the cost advantages of Southeast Asian production bases. 4. Capital needs, sources and planning During the reporting period, the new spinning production line with a capacity of 76,000 spindles of the yarn manufacture project Phase II of Lu Thai (Vietnam) Textile Co., Ltd. has been set up. The drawing plans for production workshops have been completed, and the construction was started in December 2017. The expansion project of yarn dyed fabric with a capacity of 40 million meters in Vietnam is in the preparatory stage. With regards to the Vietnam Garment Factory Phase II, the drawing design of production workshops of the expansion project of high-end shirt manufacturing with a capacity of 3 million pieces was completed, and the construction started in December 2017. The funds of the above projects were offered by wholly-owned subsidiaries with their self-owned and self-raised capital. 29 Lu Thai Textile Co., Ltd. Annual Report 2017 5. Risks that bring adverse impact to company development strategy and business objectives and countermeasures of the Company (1) Economic environment: the world economy is getting better, but trade protectionism and economic policies of advanced economies, especially the uncertain risks of monetary policy, pose greater threats to the recovery of the world economy, producing a certain degree of uncertainty on the market environment that the Company faces. Meanwhile, the new development of China’s economy shows more characteristics such as speed change, structural adjustment and dynamic changes. The economic trend towards stability. To cope with these impacts, the Company will work hard to maintain the international market and develop the domestic market to balance development of domestic and foreign sales. (2) Fluctuations in raw material prices: the raw cotton used by the Company is long-staple cotton, whose price is affected by many factors such as market supply and demand, climate, policies, exchange rates and quotas. Furthermore, with the development of environmental protection policies, the cost of dyeing auxiliaries also increased. Therefore, besides ensuring the stable supply of long-staple cotton by the subsidiary in Xinjiang, the Company must study the market dynamics to reduce the cost fluctuations due to changes in raw cotton price, and develop with the concept of green and environmental protection to meet environmental protection requirements. (3) Exchange rate changes: at present and in the future, the Company will continue to sell its products mainly in the international market for a long period of time, and US dollars willaccount for a relatively larger portion in sales revenue. In addition, the main machinery and equipment and some of its raw materials of the Company are also imported. The foreign currencies payment for imports includes US dollar and other currencies. Moreover, the commissioning of the Company's overseas production base and subsequent expansion of investment will increase the use of US dollar. Therefore, the Company will still be sensitive to the impact of exchange rate changes. In order to reduce adverse influence of exchange rate fluctuation, the Company adopted the following measures: firstly, the Company positively conducted foreign exchange hedging, using forward FX sales and purchase, forward foreign exchange trading and option portfolios to avoid some risks Secondly, the Company made reasonable arrangement on settlement day and currency structure and conclusion of agreements on fixed foreign exchange rate to avoid exchange rate-related risks. Thirdly, the Company adjusted the Renminbi and foreign-currency liabilities structure to control financial costs. Fourthly, according to the fluctuation trend of exchange rates, the Company properly adjusted imports of raw and auxiliary materials to partially offset the influence of exchange rate fluctuations on the Company. X Visits Paid to the Company for Purposes of Research, Communication, Interview, etc. 1. In this Reporting Period √ Applicable □ Not applicable Date Way of visit Type of visitor Main inquiry information 02/23/2017 One-on-one meeting Institution About basic information of the Company 03/30/2017 By phone Institution About basic information of the Company 08/30/2017 By phone Institution About basic information of the Company 10/27/2017 By phone Institution About basic information of the Company Times of visit 4 Number of visiting institutions 46 Number of visiting individuals 0 Number of other visiting entities 0 30 Lu Thai Textile Co., Ltd. Annual Report 2017 Significant undisclosed information disclosed, No revealed or leaked 31 Lu Thai Textile Co., Ltd. Annual Report 2017 Part V Significant Events I Profit Distribution and Converting Capital Reserve into Share Capital for Common Shareholders Formulation, execution or adjustments of profit distribution policy, especially cash dividend policy, for common shareholders in this Reporting Period □ Applicable √ Not applicable Profit distribution plans (or preliminary plans) for the common shareholders and plans (or preliminary plans) for turning capital reserves into share capital for the recent three years (including the Reporting Period) 1. The 2017 annual profit allocation pre-plan reviewed and approved at the 16st Session of the 8th Board of Directors: Based on the total 922,602,311 shares on December 31, 2017, the Company is to distribute a cash dividend of RMB5.00 for every 10 shares (including tax). The individual income tax for Share A shall be subject to related regulations under CS [2015] No. 101 Notice on Certain Question about the Differentiated Individual Income Tax Policy for Share Dividend of Listed Companies jointly issued by Ministry of Finance, SAT, and CSRC; and that for Share B shall be conversed to HKD based on the central parity rate on interbank exchange market released by the People’s Bank of China on the following day after shareholder’s meeting (for foreign shareholders, tax is free pursuant to CSZ (1994) No. 020 regulations; and non-residential corporate shareholders is entitled to a 10% reduction of enterprise income tax according to related regulations under Enterprise Income Tax Law of the People’s Republic of China). Based on the 922,602,311 shares, the Company should distribute a cash dividend of RMB5.00 per 10 shares. The aforesaid profit distribution plan is subject to the final approval of the 2017 annual meeting of shareholders. 2. The 2016 annual profit allocation pre-plan reviewed and approved at the 5st Session of the 8th Board of Directors: Based on the total 922,602,311 shares on December 31, 2016, the Company is to distribute a cash dividend of RMB5.00 for every 10 shares (including tax). The individual income tax for Share A shall be subject to related regulations under CS [2012] No. 85 Notice on Certain Question about the Implementation of Differentiated Individual Income Tax Policy for Share Dividend of Listed Companies jointly issued by Ministry of Finance, SAT, and CSRC; and that for Share B shall be conversed to HKD based on the central parity rate on interbank exchange market released by the People’s Bank of China on the following day after shareholder’s meeting (for foreign shareholders, tax is free pursuant to CSZ (1994) No. 020 regulations; and non-residential corporate shareholders is entitled to a 10% reduction of enterprise income tax according to related regulations under Enterprise Income Tax Law of the People’s Republic of China). Based on the above distribution plan, the Company actually distributed RMB 461,301,155.50 dividends. Such plan was implemented in June 2017 after the review and approval on 2016 shareholder’s meeting convened on May12, 2017. 3. The 2015 annual profit allocation pre-plan reviewed and approved at the 31th Session of the 7th Board of Directors: By December 31 of 2015, (the total shares of 954,407,896as at 31 Dec. 2016 minus the 1,350,600 B-shares repurchased in the year), the Company is to distribute a cash dividend of RMB5.00 distributed for every 10 shares (including tax). The individual income tax for Share A was subject to related regulations under CS [2012] No. 85 Notice on Certain Question about the Implementation of Differentiated Individual Income Tax Policy for Share Dividend of Listed Companies jointly issued by Ministry of Finance, SAT, and CSRC; and that for Share B shall be conversed to HKD based on the central parity rate on interbank exchange market released by the People’s Bank of China on the following day after shareholder’s meeting (for foreign shareholders, tax was free pursuant to CSZ (1994) No. 020 regulations; and non-residential corporate shareholders were entitled to a 10% reduction of enterprise income tax according to related regulations under Enterprise Income Tax Law of the People’s Republic of China). In the profit distribution, 24,707,749 repurchased but not yet canceled shares in the special account for repurchased shares on the 32 Lu Thai Textile Co., Ltd. Annual Report 2017 book closure date were excluded. As such, the Company actually distributed RMB 465,525,373.50 dividends for 2015. The aforesaid profit distribution plan was implemented in June 2016 after being reviewed and approved by the Shareholders’ General Meeting 2015 held on April 29, 2016. Cash dividends distributed to the common shareholders in the recent three years (including the Reporting Period) Unit: RMB Net profits Proportion in net attributable to profits attributable Cash dividend (tax shareholders of the to shareholders of Ratio of cash Cash dividend in Year dividend in other included) Company in the Company in other forms forms consolidated consolidated statements statements (%) 2017 461,301,155.50 841,150,934.75 54.84% 0.00 0.00% 2016 461,301,155.50 808,760,025.91 57.04% 0.00 0.00% 2015 465,525,373.50 712,193,243.19 65.37% 0.00 0.00% Indicate by tick mark whether the Company made profit in this Reporting Period and the profit distributable to common shareholders of the Company was positive, but it did not put forward a proposal for cash dividend distribution to its common shareholders □ Applicable √ Not applicable II Proposal for Profit Distribution and Converting Capital Reserve into Share Capital for this Reporting Period √ Applicable □ Not applicable Bonus shares for every 10 shares (share) 0 Dividend for every 10 shares (RMB) (tax included) 5.00 Increased shares for every 10 shares (share) 0 Total shares as basis for preliminary distribution 922602311 plan (share) Total cash dividends (RMB) (tax included) 461,301,155.50 Distributable profit (RMB) 3,630,102,526.37 Percentage of cash dividends in the total profit to 54.84% be distributed (%) Cash dividend policy Where the Company is at a mature stage of development and has plans for considerable spending, in profit distribution, cash dividends shall reach at least 40% in the total profit to be distributed. Details about the proposal for profit distribution and converting capital reserve into share capital 1. Based on the total 922,602,311 shares on December 31, 2017, the Company is to distribute a cash dividend of RMB5.00 for every 10 shares (including tax). The individual income tax for Share A shall be subject to related regulations under CS [2015] No. 101 Notice on Certain Question about the Differentiated Individual Income Tax Policy for Share Dividend of Listed Companies 33 Lu Thai Textile Co., Ltd. Annual Report 2017 jointly issued by Ministry of Finance, SAT, and CSRC; and that for Share B shall be conversed to HKD based on the central parity rate on interbank exchange market released by the People’s Bank of China on the following day after shareholder’s meeting (for foreign shareholders, tax is free pursuant to CSZ (1994) No. 020 regulations; and non-residential corporate shareholders is entitled to a 10% reduction of enterprise income tax according to related regulations under Enterprise Income Tax Law of the People’s Republic of China). 2. Implementing above-mentioned distribution plan with RMB461,301,155.50dividend distribution, and the retained profits RMB3,630,102,526.37 shall be carried forward to the future. Note: if the equity base in preliminary distribution plan is not for sure, specific circumstances need to be described in the details of preliminary profit distribution plan; if the system check can’t be passed, please contact staff and supervisor of periodic report timely. The Company didn’t distribute the cash dividend, and there was no bonus share and no turn from capital reserve to share capital of 2017. III Fulfillment of Commitments 1. Commitments of the Company’s Actual Controller, Shareholders, Related Parties and Acquirer, as well as the Company and Other Commitment Makers, Fulfilled in this Reporting Period or Ongoing at the Period-end □ Applicable √ Not applicable No such cases in this Reporting Period. 2. Where there had been an Earnings Forecast for an Asset or Project and this Reporting Period was still within the Forecast Period, Explain why the Forecast has been Reached for this Reporting Period. □Applicable √ Not applicable IV Occupation of the Company’s Funds by the Controlling Shareholder or its Related Parties for Non-operating Purposes □ Applicable √ Not applicable No such cases in this Reporting Period. V Explanations Given by the Board of Directors, the Supervisory Board and the Independent Directors (if any) regarding the “Modified Auditor’s Report” Issued by the CPAs Firm for this Reporting Period □ Applicable √ Not applicable VI YoY changes in accounting policies, estimations and methods √ Applicable □ Not applicable Contents and reasons Approval procedure Remark Before May 1, 2017, inventories of the Approved by the 7th Meeting of the 8th For it is unpractical to confirm the 34 Lu Thai Textile Co., Ltd. Annual Report 2017 Company shall be measured at planned Board of Directors of the Company on accumulative influences from the changes cost when acquired. When acquired and April 26, 2017 of the accounting policies, according to the delivered, it shall be measured as per the rules of Accounting Standards for Business weighted average method. According to Enterprises - Changes in Accounting the requirements of refining operation Policies and Estimates and Correction of management of the Company, in order to Errors, the changes in accounting policies further strengthen the refinement of adopted prospective application method, financial accounting, the Company which was implemented from May 1, changed the pricing method of acquired 2017. inventories from planned cost to actual cost from May 1, 2017, and changed the pricing of delivered grey yarn, dyed yarn, and plus material from the weighted average method to first-in first-out method. Accounting Standards for Business Enterprises No. 42—Held-for-sale Non-current Assets, Disposal Groups and On April 28, 2017, the Ministry of Finance Discontinued Operation standardize the released Accounting Standards for classification, measurement, and list of Business Enterprises No. held-for-sale non-current assets and 42—Held-for-sale Non-current Assets, disposal group, and the list of termination Disposal Groups and Discontinued operation. Operation (CaiKuai [2017] No. 3), which According to Notice of the Ministry of came into force from May 28, 2017. Approved by the Resolutions on the 16th Finance on Revision and Issuance of On December 25, 2017, the Ministry of Meeting of the 8th Board of Directors of Format of General Financial Statements of Finance issued the “Notice on Revision the Company on April 15, 2018 Enterprises, the Company adjusted the and Issuance of Format of General presentation of financial statement. The Financial Statements of Enterprises” amount adjusted to “assets disposal (CaiKuai [2017] No. 30) to revise the income” in 2017 was RMB1,242,000.54, format of general finance statements of and the amount adjusted to “assets disposal enterprises and apply to financial income” in 2016 was RMB-6,843,361.94. statements in 2017 and the subsequent The changes in accounting policies had no periods. significant influences on financial situations, operating results, and cash flows of the Company. On May 10, 2017, the Ministry of Finance released Circular on Issuance and Revision Government subsidy related to routine of Accounting Standards for Business activities happened after January 1, 2017 Approved by the Resolutions on the 9th Enterprises No. 16—Government Subsidy shall be calculated into other income; Meeting of the 8th Board of Directors of (CaiKuai [2017] No. 15), and revised government subsidy that has nothing to do the Company on August 28, 2017 Accounting Standards for Business with routine activities shall be calculated Enterprises No. 16—Government Subsidy, into non-operating income. which was implemented in the scope of all 35 Lu Thai Textile Co., Ltd. Annual Report 2017 companies who execute accounting standards for business enterprises from June 12, 2017. VII Retroactive Restatement due to Correction of Material Accounting Errors in this Reporting Period □ Applicable √ Not applicable No such cases in this Reporting Period. VIII YoY Changes in the Scope of the Consolidated Financial Statements √ Applicable □ Not applicable Chengshun Thermal Power, a subsidiary of Xinsheng Thermal Power, was added into the consolidated financial statements. IX Engagement and Disengagement of CPAs Firm Current CPAs firm Name of domestic CPAs firm Ruihua Certified Public Accountants (LLP) Remuneration of domestic CPAs firm (RMB’0,000)) 173.50 Consecutive years of audit services provided by domestic CPAs 5 firm Name of certified public accountants from domestic CPAs firm He Feng, Cui Xiaoli Consecutive years of audit services provided by certified public 3 accountants from domestic CPAs firm Indicate by tick mark whether the CPAs firm was changed in this Reporting Period. □ Yes √ No CPAs firm, financial advisor or sponsor engaged for internal control audit √ Applicable □ Not applicable On May 12, 2017, the Company held the Annual Meetings of Shareholders for 2016, which reviewed and approved the Proposal on Engagement of the 2017 Financial Audit and Internal Control Auditor. The Company paid RMB435,000 in total for the internal control audit. X Possibility of Listing Suspension or Termination after Disclosure of this Report □ Applicable √ Not applicable XI Bankruptcy and Restructuring □ Applicable √ Not applicable No such cases in this Reporting Period. 36 Lu Thai Textile Co., Ltd. Annual Report 2017 XII Significant Litigations and Arbitrations □ Applicable √ Not applicable No such cases in this Reporting Period. XIII Punishments and Rectifications □ Applicable √ Not applicable No such cases in this Reporting Period. XIV Credit Conditions of the Company as well as its Controlling Shareholder and Actual Controller □ Applicable √ Not applicable XV Implementation of any Equity Incentive Plan, Employee Stock Ownership Plan or other Incentive Measures for Employees □ Applicable √ Not applicable No such cases in this Reporting Period. XVI Significant Related-party Transactions 1. Related-party Transactions Relevant to Routine Operation □ Applicable √ Not applicable No such cases in this Reporting Period. 2. Related Transactions Regarding Purchase or Sales of Assets or Equity Interests √ Applicable □ Not applicable Profits Book Estimated and losses Contents value of value of Transferr Index to Relation Type of Method of Related of Pricing transferre transferre ed price Disclosur disclosed with the transactio of transactio party transactio principle d assets d assets (RMB’0, e date informati Company n settlement n n (RMB’0, (RMB’0, 000) on (RMB’0, 000) 000) 000) Lucheng Purchasin For Controllin Assessed Textile g all details, g Purchasin value of 09/16/201 Investme equities 1,359.75 2,343.04 2,343.04 Cash 0 see sharehold g equity net 7 nt Co., of holding Announc er assets Ltd subsidiary ement on 37 Lu Thai Textile Co., Ltd. Annual Report 2017 held by Related controllin Transacti g ons of sharehold Lucheng er Textile Co., Ltd (No. 2017-035 ) disclosed on www.cnin fo.com.cn Reason for great difference of transferred price and book value or assessed value (if No any) Influences on operating results and No financial situations of the Company The achievement of the performance in the Reporting Period if related transactions No involved in results appointment 3. Related Transactions Regarding Joint Investments in Third Parties □ Applicable √ Not applicable No such cases in the Reporting Period. 4. Credits and Liabilities with Related Parties √ Applicable □ Not applicable Whether existed non-operating credits and liabilities with related parties √ Yes □ No Note: please pay attention to choose it from the aboved “whether exists non-operating credits and liabilities with related parties” Credits of related parties to account receivable Whether Amount Amount existed newly received in Relation occupation Opening added in Current Related Formation balance current interest with the of the Funds (RMB’0,00 current Interest rate Closing party reason (RMB’0,00 Company period period balance(RM for 0) 0) (RMB’0,00 B’0,000) 0) (RMB’0,00 non-operati 0) ng purposes 38 Lu Thai Textile Co., Ltd. Annual Report 2017 Influences from credits of related parties on operating results and financial situations of the Company Liabilities of parties related to account payable Amount Amount Opening newly added returned in Current Relation with Formation Related party balance in current current Interest rate interest Closing the Company reason (RMB’0,000) period period (RMB’0,000) balance(RMB (RMB’0,000) (RMB’0,000) ’0,000) Lucheng The Parent Currencies 985.47 16,763 11,848.71 4.35% 104.44 5,900 Textile Company deposit Wholly-own Limin Purified ed subsidiary Currencies 0 700 700 4.35% 3.59 Water of Lucheng deposit Textile Wholly-own ed subsidiary Currencies Lujia Property 0 60 4.35% 1.94 60 of Lucheng deposit Textile Wholly-own Luqun Real ed subsidiary Currencies 0 900 900 4.35% 5.03 Estate of Lucheng deposit Textile Joint-stock Shidanlu Company of Currencies 0 275 130 4.35% 2.91 145 Company Lucheng deposit Textile Controlling subsidiary of Currencies Taimei Ties 0 500 370 4.35% 7.32 130 Lucheng deposit Textile Influences from liabilities of parties related on operating No results and financial situations of the Company 5. Other Significant Related Transactions □ Applicable √ Not applicable 39 Lu Thai Textile Co., Ltd. Annual Report 2017 No such cases in the Reporting Period. XVII Significant Contracts and Execution 1. Entrustment, Contracting and Leasing (1) Entrustment □ Applicable √ Not applicable No such cases in the Reporting Period. (2) Contracting □ Applicable √ Not applicable No such cases in the Reporting Period. (3) Leasing □ Applicable √ Not applicable No such cases in the Reporting Period. 2. Significant Guarantees □ Applicable √ Not applicable (1) Guarantees Provided by the Company RMB’0,000 Particulars on external guarantee of the Company and its subsidiaries (excluding guarantees for subsidiaries) Date of disclosure Whether Whether Date of making of relevant Actual the guarantee Name of guarantee Guarantee guarantee (date Type of Guarantee announcem amount of guarantee ing for object limit of signing guarantee period ents on guarantee has been related agreement) guarantee fulfilled parties limit Particulars about guarantee of the Company for subsidiaries Date of Whether Whether disclosure Date of making Actual the guarantee Name of guarantee of relevant Amount of guarantee (date amount of Type of Guarantee guarantee ing for object announcem guarantee of signing guarantee guarantee period has been related ents on agreement) fulfilled parties guarantee 40 Lu Thai Textile Co., Ltd. Annual Report 2017 limit Five years Guarantee of since the Lu Thai (Vietnam) joint and 01/25/2017 6,534.2 approval of No Yes Textile Co., Ltd. several the board of liability the Company Two years Guarantee of since the Lu Thai (Vietnam) joint and 01/25/2017 5,227.36 288.75 approval of No Yes Textile Co., Ltd. several the board of liability the Company Two years Guarantee of since the Lu Thai (Vietnam) joint and 01/25/2017 3,920.52 approval of No Yes Textile Co., Ltd. several the board of liability the Company Two years Guarantee of since the Lu An Garments Co., joint and 01/25/2017 26,790.22 487.64 approval of No Yes Ltd. several the board of liability the Company Five years Guarantee of since the Lu Thai (Vietnam) joint and 01/25/2017 19,602.6 approval of No Yes Textile Co., Ltd. several the board of liability the Company Two years Guarantee of since the Lu Thai (Vietnam) joint and 01/25/2017 6,534.2 approval of No Yes Textile Co., Ltd. several the board of liability the Company Two years Guarantee of Lu Thai (Vietnam) since the joint and Textile Co., Ltd./Lu 01/25/2017 17,969.05 approval of No Yes several An Garments Co., Ltd. the board of liability the Company Three years Guarantee of Xinjiang Lu Thai since the joint and Good Yield Cotton 10/14/2017 15,000 10/12/2017 approval of No Yes several Co., Ltd. the board of liability the Company 41 Lu Thai Textile Co., Ltd. Annual Report 2017 Five years since the Guarantee of approval of Lu Thai (Vietnam) joint and 10/27/2017 67,955.68 10/25/2017 8,880.13 the No Yes Textile Co., Ltd. several shareholders’ liability meeting of Company Total amount of actual Total amount of approved guarantee for subsidiaries guarantee for subsidiaries during 169,533.83 3,344.2 during the Reporting Period the Reporting Period (B1) (B2) Total amount of actual Total amount of approved guarantee for subsidiaries at guarantee for subsidiaries at the 169,533.83 9,656.52 the end of the Reporting end of the Reporting Period (B3) Period (B4) Guarantees provided by subsidiaries for subsidiaries Disclosure date on Guarante Actual relevant Actual e for a Amount for occurrence date Type of Period of Executed Guaranteed party announcem guarantee related guarantee (date of guarantee guarantee or not ent of amount party or agreement) guaranteed not amount Guarantee of Xinjiang Lu Thai joint and 10/14/2017 30,000 10/12/2017 12 months No Yes Textile Co., Ltd. several liability Total actual occurred Total guarantee line approved for amount of guarantee for the the subsidiaries during the 30,000 0 subsidiaries during the Reporting Period (C1) Reporting Period (C2) Total actual guarantee Total guarantee line that has been balance for the subsidiaries approved for the subsidiaries at the 30,000 0 at the end of the Reporting end of the Reporting Period (C3) Period (C4) Total guarantee amount provided by the Company (total of the above-mentioned three kinds of guarantees) Total actual occurred Total guarantee line approved amount of guarantee during during the Reporting Period 199,533.83 3,344.2 the Reporting Period (A1+B1+C1) (A2+B2+C2) Total guarantee line that has been 199,533.83 Total actual guarantee 9,656.52 42 Lu Thai Textile Co., Ltd. Annual Report 2017 approved at the end of the balance at the end of the Reporting Period (A3+B3+C3) Reporting Period (A4+B4+C4) Proportion of total guarantee amount (A4+B4+C4) to the net 1.34% assets of the Company Of which: Amount of guarantee provide for shareholders, actual controller 0 and related parties (D) Amount of guarantee provided directly or indirectly for guarantee 0 objects with asset-liability ratio reaching over 70% (E) Balance between 50% of net assets and total amount of guarantee 30,000 which exceeds 50% of net assets (F) Sum total of the above three guaranteed amounts (D+E+F) 30,000 According to “Agreement on Counter Guarantee” signed on October 12, 2017 between Lu Thai Company and Xinjiang Lu Explanations about joint and several liability for repayment in Thai Company, Xinjiang Lu Thai Company, the warrantee respect of undue guarantee (if any) Xinjiang Lu Thai Company provided the corresponding amount of counter guarantee for Lu Thai Company. Explanation about external guarantee violating established The Company never provided guarantees for companies except procedure (if any) controlling subsidiaries. Explanations about guarantees provided with complex methods (2) Particulars about illegal external guarantee □ Applicable √ Not applicable No such cases in the Reporting Period. 3. Entrusted Cash Management (1) Entrusted Cash Management √ Applicable □ Not applicable Overviews of entrusted cash management during the Reporting Period RMB’0,000 Specific type Capital resources Amount incurred Undue Balance Overdue amount Trusted financial Self-owned funds 5,000 5,000 0 products Others Self-owned funds 6,000 6,000 0 Total 11,000 11,000 0 Particulars of entrusted cash management with single significant amount or low security, bad liquidity, and no capital preservation 43 Lu Thai Textile Co., Ltd. Annual Report 2017 √ Applicable □ Not applicable RMB’0,000 Wheth Overv er iew of Amou Actual Amou there the nt of recove nt Wheth is item Metho actual ry of Annua Estima withdr er go wealth and d of profits profits Name Type Type Resou l yield te awn throug manag the Amou Initial Ended Use of payme or or of the of the of the rce of for profit impair h ement relate nt date Date fund nt losses losses trustee trustee product funds refere (if ment stator entrust d determ in in nce any) provis proced ment index ination Report Report ion (if ures plan for ing ing any) in inquiri Period Period future ng (if or not any) Repay capital with Zhong Trust Consta Self-o Miya 9/14/2 09/14/ interes Not hang compa nt 5,000 wned Baobe 7.20% 360 No Yes 017 2018 ts yet Trust ny return funds i when expire d Accou nt receiv Shang Repay ables hai capital bonds Gophe with Fund Consta Self-o of r Asset 12/18/ 01/18/ interes Not compa nt 3,000 wned Guang 7.60% 228 No Yes Manag 2017 2019 ts yet ny return funds dong ement when Cheng Co., expire xing Ltd d and Jingdo ng Shang Granti Repay hai ng capi Gophe Fund Consta Self-o trust tal 12/22/ 12/22/ Not r Asset compa nt 3,000 wned loans whe 8.50% 255 No Yes 2017 2019 yet Manag ny return funds to n ement Jiexin expi Co., Financ red 44 Lu Thai Textile Co., Ltd. Annual Report 2017 Ltd e with ann ual inte rest s pay men t Total 11,000 -- -- -- -- -- -- 843 0 -- 0 -- -- -- Whether there is the case where the principal cannot be recovered at maturity or other case which may cause impairment for entrusted asset management □ Applicable √ Not applicable (2) Entrusted Loans √ Applicable □ Not applicable Overviews of entrusted loans during the Reporting Period RMB’0,000 Total amount incurred Capital resources Undue Balance Overdue amount 0 No 0 0 Particulars of entrusted loans with single significant amount or low security, bad liquidity, and no capital preservation □ Applicable √ Not applicable Whether there is the case where the principal cannot be recovered at maturity or other case which may cause impairment for entrusted loans □ Applicable √ Not applicable 4. Other Significant Contracts □ Applicable √ Not applicable No such cases in this Reporting Period. XVIII Social Responsibilities 1. Social Responsibilities Taken The Company has prepared social responsibilities report for 2017, for details, see Social Responsibilities Report disclosed simultaneously with Annual Report 2017 of the Company. 45 Lu Thai Textile Co., Ltd. Annual Report 2017 2. Targeted Measures Taken to Help People Lift themselves out of Poverty (1) Plan for Targeted Measures No (2) Outline of Targeted Measures in the Reporting Period The Company continued to subsidize the education and poor students in poor areas and continued to carry out the social poverty alleviation in 2017. The Company will continue to subsidize staff in difficulty and help designated poor villages to solve actual difficulties for staffs for the year. (3) Results of Targeted Measures Indicator Measurement unit Number/Progress I. General condition —— —— Of which: 1. capital RMB’0,000 101.1 II. Itemized investment —— —— 1. Out of poverty by industrial development —— —— 2. Out of poverty by transferring employment —— —— 3. Out of poverty by relocating —— —— 4. Out of poverty by education —— —— Of which: 4.3 improve the invested RMB’0,000 44.29 amounts n educational resources of poor areas 5. Out of poverty by improving health —— —— 6. Out of poverty by protecting ecological —— —— environment 7. Subsidy for the poorest —— —— 8. Social poverty alleviation —— —— Of which: 8.2 the invested amounts in RMB’0,000 37.05 designated poverty alleviation 9. Other items —— —— Of which: 9.2 the invested amounts RMB’0,000 19.76 III. Received awards(contents and rank) —— —— (4) Subsequent Targeted Measure Plans No 46 Lu Thai Textile Co., Ltd. Annual Report 2017 3. Particulars Relevant to Environmental Protection Is the Company or any of its subsidiaries a heavily polluting business identified by the environmental protection authorities of China? Yes Name of Name of the main Carried Number of Distribution Emission Verified Company or pollutants Emission emission Total Excessive discharge of discharge concentratio total its and method standard of emission emission outlet outlet n emission subsidiaries characteristi pollutants cs Emission standard of COD are COD are Huangjiapu water COD≤180m 804.54 tons 1495.08 Industrial pollutants in Lu Thai COD and g/L; and and tons and Continuous Park; textile Textile Co., ammonia 2 ammonia ammonia ammonia No discharge East Zone dyeing and Ltd nitrogen nitrogen≤5 nitrogen nitrogen Industrial finishing mg/L are are 149.51 Park industry: 32.53tons tons GB 4287-2012 Emission standard of COD are COD are water COD≤155m 321.43 tons 575.985 Lufeng Lufeng pollutants in COD and g/L; and and tons and Weaving & Continuous chief textile ammonia 1 ammonia ammonia ammonia No Dyeing Co., discharge discharge dyeing and nitrogen nitrogen≤3. nitrogen nitrogen Ltd. outlet finishing 5mg/L are 6.959 are 57.6 industry: tons tons GB 4287-2012 Ultra-low emission No. 2 SO2 are SO2 are modificati SO2: 36.63 tons 217.84 tons Zibo Production on list ≤35mg/m3、 /a and NQx /a and NQx Xinsheng plant of LZJBF SO2, NQx, Continuous NQx: ≤100 are 302.1 are 622.41 Thermal 3 Xinsheng (2016) No No and smoke discharge mg/m3 and tons /a and tons /a and Power Co., Thermal 46 of smoke: ≤10 smoke are smoke are Ltd. Power Emission mg/m3 6.515 tons 62.24 tons standard of /a. /a. air pollutants of Thermal 47 Lu Thai Textile Co., Ltd. Annual Report 2017 Power Plant in Shangdong Province Discharge Lu Thai into sewage Beside QCVN40: (Vietnam) plant in the 445,000 Sewage 1 sewage / 2011/BTN / No Textile Co., park district tons plant MT Ltd. after treatment Lu Thai Direct QCVN19: (Vietnam) discharge Beside 0.15 billion Exhaust gas 2 / 2009/BTN / No Textile Co., after boiler room m3 MT Ltd. teratment Construction of pollution prevention equipment and operation condition Lu Thai Textile Co., Ltd. and its holding subsidiary Lufeng Weaving & Dyeing Co., Ltd. strictly implement the "Three Simultaneous" management system for environmental protection in project constructions. The companies are equipped with complete facilities for waste gas and waste water treatment. In 2017, Lu Thai Textile Co., Ltd. and its holding subsidiary Lufeng Weaving & Dyeing Co., Ltd. carried out the waste water treatment system transformation project to improve the treated water quality and reduce the impact on subsequent municipal waste water treatment plants. The river water quality and local ecological environment were improved. Support teams were set up to be responsible for daily operation maintenance and inspection to guarantee the normal operation of facilities. Both the exhaust emission and waste water discharge meet the emission standards. The wholly-owned subsidiary Zibo Xinsheng Thermal Power Co., Ltd. enforces the "Three Simultaneous" management system for environmental protection in extension project construction in accordance with the government requirements, and adopts the "limestone-gypsum method" to reduce emission concentration of sulfur dioxide, the "SNCR+SCR method" to reduce emission concentration of nitrogen oxides, and the "five-field electrostatic precipitator + wet electrostatic precipitator" to reduce soot emission concentration. The overall system works well. The waste water treatment project of the wholly-owned subsidiary Lu Thai (Vietnam) Textile Co., Ltd. is designed to treat 3,000 tons of sewage water daily, and the project was completed for operation on schedule in 2017. The Company adopts a comprehensive treatment process of "pre-materialization + A2O biochemistry + post-materialization + ozone oxidation" for waste water treatment, and the treated water quality is better than the QCVN 40:2011/BTNMT A-level emission standards stipulated by the Vietnam government. The treated waste water is all discharged to the waste water treatment station in the park. Treated water quality analysis for 2017: The COD (mean value) was 42.35 mg/L, the chrominance (mean value) was 34.57, the ammonia nitrogen (mean value) was 0.87 mg/L, and the total phosphorus (mean value) was 0.12 mg/L. All the parameters met the A-level emission standards set in the "Regulations on Parameters of Industrial Drainage in Vietnam" (QCVN40:2011/BTNMT). Waste water discharge in the whole year met the standards without violation. The total amount of waste water discharged in the year was 445,000 tons, among which, the chemical oxygen demand (COD) was 18.845 tons, ammonia nitrogen (NH3-N) was 387.15 kg and total phosphorus (TP) was 53.4 kg. The Company is equipped with multi-pipe and water film dust-separation devices to process the exhaust gas discharged from boilers of the Company. In 2017, all the equipment was in normal operation, and the exhaust gas inspection parameters were lower than the QCVN19:2009/BTNMT emission standards set by Vietnam government. Environmental impact assessment of projects and other environmental protection administrative licensing In 2017, Lu Thai Textile Co., Ltd. completed the acceptance of environmental protection of 3 environmental impact assessment projects, namely the high-end dyed fabric technical renovation project in the western region, the production line technological renovation project of high-grade jacquard fabric with an annual output of 1.8 million meters of No. 2 weaving factory and the 48 Lu Thai Textile Co., Ltd. Annual Report 2017 intelligent dyeing production and energy and water saving technological renovation project. The Company also completed the review and approval of 2 environmental assessment projects, namely treatment and comprehensive improvement project of PVA waste water at high concentration of Lu Thai Textile (I) and treatment and comprehensive improvement project of PVA waste water at high concentration of Lu Thai Textile (II). The environmental protection review and approval of liquid membrane separation of dyeing waste water and treatment station comprehensive upgrading projects of the holding subsidiary Lufeng Weaving & Dyeing Co., Ltd. were completed. The wholly-owned subsidiary Zibo Xinsheng Thermal Power Co., Ltd. got the "Approval of Environmental Impact Assessment Report of the Environmental Protection Department of Shandong Province on the Extension Project of Zibo Xinsheng Thermal Power Co., Ltd." (LHS [2015] No. 241) in accordance with the regulations, and the first phase of the project was put into trial operation at the end of 2017. The completion acceptance of the environmental protection project for the spinning and dyeing zone of the wholly-owned subsidiary Lu Thai (Vietnam) Co., Ltd. has been recognized, and the EIA report for the spinning and dyeing industrial park Phase II is under application. Emergency plan for environmental incidents In 2017, Lu Thai Textile Co., Ltd. prepared the Emergency Plan for Environmental Incidents for the head office and factories in eastern district, which was filed with Zibo Environmental Protection Bureau Xichuan Branch. The wholly-owned subsidiary Zibo Xinsheng Thermal Power Co., Ltd. has formulated the "Emergency Plan for Environmental Incidents" and filed it with the environmental protection management department. The identification and risk assessment of environmental risk sources, prevention and early warning mechanisms, emergency protection and supervision and management were included in the plan. The wholly-owned subsidiary Lu Thai (Vietnam) Co., Ltd. has prepared emergency plans for different environmental incidents to reduce their impacts. Environmental self-monitoring programme In accordance with the requirements of environmental protection authorities, Lu Thai Textile Co., Ltd. formulates environmental self-testing plan for the following year in December of each year, and implements the self-monitoring plan to submit data to Zibo Automatic Environmental Monitoring System. The wholly-owned subsidiary Zibo Xinsheng Thermal Power Co., Ltd. complies with the requirements of superior environmental protection authorities to meet discharge standards by online real-time monitoring of environmental protection data. The wholly-owned subsidiary Lu Thai (Vietnam) Co., Ltd. installed an on-line monitoring device for real-time treated water quality monitoring. In addition, the Company invites external qualified testing organizations to carry out inspections on waste water, sludge and exhaust gas every quarter, and provides reports to environmental inspection departments. Other environment information that should be disclosed No Other related environment protection information No XIX Other Significant Events □ Applicable √ Not applicable No such cases in the Reporting Period. XX Significant Events of Subsidiaries □ Applicable √ Not applicable 49 Lu Thai Textile Co., Ltd. Annual Report 2017 Part VI Share Changes and Shareholder Information I Share Changes 1. Share Changes Unit: share Before Increase/decrease (+/-) After Increase Percentag New Bonus from Percentag Number Other Subtotal Number e (%) issues shares capital e (%) reserve 119,375,2 119,079,9 I. Restricted shares 12.94% -295,296 -295,296 12.91% 40 44 3. Shares held by other 1,142,840 0.12% -295,296 -295,296 847,544 0.09% domestic corporations Shares held by domestic 1,142,840 0.12% -295,296 -295,296 847,544 0.09% natural persons 4. Shares held by foreign 118,232,4 118,232,4 12.82% 12.82% investors 00 00 Among which: Shares held 118,232,4 118,232,4 12.82% 12.82% by foreign corporations 00 00 803,227,0 803,522,3 87.06% 295,296 295,296 87.09% II. Non-restricted shares 71 67 560,822,4 561,150,4 60.79% 327,971 327,971 60.82% 1. RMB ordinary shares 60 31 2. Domestically listed foreign 242,404,6 242,371,9 26.27% -32,675 -32,675 26.27% shares 11 36 922,602,3 922,602,3 III. Total shares 100.00% 0 0 100.00% 11 11 Reasons for any share changes: √ Applicable □ Not applicable Due to the adjustment of unlock of senior managers’ shares and lock of share increase of Shenzhen branch of China Securities Depository and Clearing Corporation Limited, 295,296 shares of “limited sales condition shares-domestic natural person holding” of the Company decreased. Approval of share changes: □ Applicable √ Not applicable 50 Lu Thai Textile Co., Ltd. Annual Report 2017 Transfer of share ownership: □ Applicable √ Not applicable Effects of share changes on the basic EPS, diluted EPS, net assets per share attributable to common shareholders of the Company and other financial indexes of the prior year and the prior period: □ Applicable √ Not applicable Other contents that the Company considers necessary or is required by the securities regulatory authorities to disclose: □ Applicable √ Not applicable 2. Changes in Restricted Shares √ Applicable □ Not applicable Unit: share Reason for Name of Opening Unlocked in Increased in Closing restricted Date of lock-up/unlockin shareholder restricted shares Reporting Period Reporting Period shares unlocking g Locked the 6 months after Qin Guiling (Lu shareholding of the departure 0 0 19,500 19,500 Thai B) the Senior Executives Locked the 6 months after Liu Zilong (Lu shareholding of the departure 0 0 9,375 9,375 Thai B) the Senior Executives Locked the 6 months after Pan Pingli (Lu Thai shareholding of the departure 19,950 0 3,800 23,750 B) the Senior Executives Total 19,950 0 32,675 52,625 -- -- II Issuance and Listing of Securities 1. Securities (Excluding Preference Shares) Issued in this Reporting Period □ Applicable √ Not applicable 2. Changes in Total Shares of the Company and the Shareholder Structure, as well as the Asset and Liability Structures 51 Lu Thai Textile Co., Ltd. Annual Report 2017 □ Applicable √ Not applicable 3. Existing Employee-held Shares □ Applicable √ Not applicable III Shareholders and Actual Controller 1. Total Number of Shareholders and their Shareholdings Unit: share Total number of preference Total number of Total number of shareholders common preference with resumed Total number shareholders at shareholders with voting rights at of common the prior 62,667 61,943 resumed voting 0 the prior 0 shareholders at month-end rights at the month-end the period-end before the period-end (if any) before the disclosure of this (see note 8) disclosure of this Report Report (if any) (see note 8) 5% or greater shareholders or the top 10 shareholders Total Increase/ Pledged or frozen shares Number Number Sharehold shares decrease of of Name of Nature of ing held at during restricted non-restric shareholder shareholder percentag the this Status Number shares ted shares e (%) period-en Reporting held held d Period Zibo Lucheng Domestic 140,353,5 140,353,5 Textile Investment non-state-owned 15.21% 0 0 83 83 Co., Ltd. corporation Tailun (Thailand) Foreign 118,232,4 118,232,4 12.82% 0 0 Textile Co., Ltd. corporation 00 00 Central Huijin Assets State-owned 20,315,30 20,315,30 2.20% 0 0 Management Co., corporation 0 0 Ltd. T.ROWE PRICE Foreign 19,948,21 19,948,21 2.16% 0 0 INTL corporation 9 9 52 Lu Thai Textile Co., Ltd. Annual Report 2017 DISCOVERY FUND Hong Kong Foreign 17,826,15 17,826,15 Securities Clearing 1.93% 11654438 0 corporation 5 5 Co., Ltd China Securities Domestic Finance 15,679,09 15,679,09 non-state-owned 1.70% 0 0 Corporation 1 1 corporation Limited Bank of China Limited-Hua’an Domestic New Silk Road 10,990,00 10,990,00 non-state-owned 1.19% 3790000 0 Theme Equity 0 0 corporation Securities Investment Fund Hong Kong Monetary Foreign 0.91% 8,414,637 4031977 0 8,414,637 Authority-self-own corporation ed funds RBC EMERGING MARKETS Foreign 0.74% 6,785,384 356700 0 6,785,384 SMALL CAP corporation EQUITY FUND LYNAS ASIA Foreign 0.72% 6,682,153 -5757847 0 6,682,153 FUND corporation Strategic investors or general corporations becoming top-ten N/A shareholders due to placing of new shares (if any) (see Note 3) Zibo Lucheng Textile Investment Co., Ltd. is the largest shareholder of the Company and the actual controller. Tailun (Thailand) Textile Co., Ltd. is the second largest shareholder as Related or acting-in-concert parties well as sponsor of foreign capital of the Company. All of other shareholders are people among the shareholders above holding circulating A share or circulating B share and the Company is not able to confirm whether there is associated relationship or concerted action among other shareholders. Shareholdings of the top ten non-restricted shareholders Number of non-restricted shares held at the Type of shares Name of shareholder period-end Type Number Zibo Lucheng Textile Investment Co., RMB common 140,353,583 140,353,583 Ltd. shares Central Huijin Assets Management 20,315,300 RMB common 20,315,300 53 Lu Thai Textile Co., Ltd. Annual Report 2017 Co., Ltd. shares Domestically T.ROWE PRICE INTL DISCOVERY 19,948,219 listed foreign 19,948,219 FUND shares Hong Kong Securities Clearing Co., RMB common 17,826,155 17,826,155 Ltd shares China Securities Finance Corporation RMB common 15,679,091 15,679,091 Limited shares Bank of China Limited-Hua’an New RMB common Silk Road Theme Equity Securities 10,990,000 10,990,000 shares Investment Fund Hong Kong Monetary RMB common 8,414,637 8,414,637 Authority-self-owned funds shares Domestically RBC EMERGING MARKETS 6,785,384 listed foreign 6,785,384 SMALL CAP EQUITY FUND shares Domestically LYNAS ASIA FUND 6,682,153 listed foreign 6,682,153 shares Domestically HTHK-MANULIFE CHINA VALUE 5,730,938 listed foreign 5,730,938 FUND shares Explanation about associated relationship and concerted action Zibo Lucheng Textile Investment Co., Ltd. is the largest shareholder of the Company and among the top ten shareholders not the actual controller. Tailun (Thailand) Textile Co., Ltd. is the second largest shareholder as subject to trading moratorium as well well as sponsor of foreign capital of the Company. All of other shareholders are people as between the top ten shareholders holding circulating A share or circulating B share and the Company is not able to confirm not subject to trading moratorium and whether there is associated relationship or concerted action among other shareholders. the top ten shareholders Particulars about the top 10 common shareholders participating in margin N/A trading (if any) (Notes 4) Indicate by tick mark whether any of the top ten common shareholders or the top ten non-restricted common shareholders of the Company conducted any promissory repo during this Reporting Period. □ Yea √ No No such cases in this Reporting Period. 54 Lu Thai Textile Co., Ltd. Annual Report 2017 2. Information about the Controlling Shareholder Nature of controlling shareholder: controlled by individual Type of controlling shareholder: corporation Name of controlling Legal representative Date of establishment Organization code Business scope shareholder / company principal Investment on textile, Zibo Lucheng Textile electricity and chemical; Liu Deming 09/25/1998 91370303164200391J Investment Co., Ltd. purchase, process and sale of cotton; retail service etc. Particulars about shareholding of controlling shareholders controlling and holding shares N/A of other listed companies during the Reporting Period Change of the controlling shareholder during this Reporting Period □ Applicable √ Not applicable No such cases in this Reporting Period. 3. Information about the Actual Controller Nature of actual controller: domestic individual Type of actual controller: individual Whether gain the right of residence in other countries or Name of the actual controller Nationality regions or not Liu Zibin China No Liu Deming China No Liu Zibin is the Chairman of the Board and GM of Lu Thai Textile Co., Ltd. , Liu Professions and titles Deming is the Chairman of the Board and GM of Zibo Lucheng Textile Investment Co., Ltd. Particulars about listed companies with shares ever held by the actual controller over N/A the past 10 years Change of the actual controller during this Reporting Period □ Applicable √ Not applicable No such cases in this Reporting Period. Ownership and control relations between the actual controller and the Company 55 Lu Thai Textile Co., Ltd. Annual Report 2017 Liu Zibin Liu Deming 4% 21% Zibo Lucheng Textile Investment Co., Ltd. 0.02% 15.21% Lu Thai Textile Co., Ltd. The actual controller controls the Company in the means of entrustment or other means of assets management □ Applicable √ Not applicable 4. 10% or Greater Corporate Shareholders √ Applicable □ Not applicable Legal representative / Date of Name of corporate shareholder Registered capital Business scope company principal establishment 600 million baht 600 million baht (Thai) Tailun (Thailand) Textile Co., Ltd. Xu Zhinan 01/29/1985 (Thai) 5. Limitations on Shareholding Decrease by the Company’s Controlling Shareholder, Actual Controller, Reorganizer and Other Commitment Makers □ Applicable √ Not applicable 56 Lu Thai Textile Co., Ltd. Annual Report 2017 Part VII Preferred Shares □ Applicable √ Not applicable No preferred shares in the Reporting Period. 57 Lu Thai Textile Co., Ltd. Annual Report 2017 Part VIII Directors, Supervisors, Senior Management and Staff I Changes in Shareholdings of Directors, Supervisors and Executive Officers Increase Decrease Opening Other Closing in this in this Office Incumben Starting Ending sharehold increase/d sharehold Name Gender Age date of date of Reporting Reporting title t/former tenure tenure ing ecrease ing Period Period (share) (share) (share) (share) (share) Chairman 06/06/200 06/05/201 Liu Zibin Current Male 53 148,290 148,290 , GM 7 9 Xu Vice 05/06/200 06/05/201 Current Male 88 Zhinan President 4 9 Fujiwara 05/07/199 06/05/201 Director Current Male 78 Hidetoshi 8 9 Chen 04/16/200 06/05/201 Director Current Male 74 Ruimou 0 9 Zeng 06/06/200 06/05/201 Director Current Male 67 Facheng 7 9 Director and Vice Wang 05/07/199 06/05/201 GM and Current Male 57 146,753 146,753 Fangshui 8 9 Chief Engineer Liu 05/12/201 06/09/201 Director Current Male 27 Deming 7 9 Director Qin and 05/07/199 06/05/201 Current Female 52 107,042 19,500 126,542 Guiling Chairman 8 9 Secretary Director Zhang and Chief 06/06/201 06/05/201 Current Female 48 92,500 92,500 Hongmei Accounta 6 9 nt Independ Xu 06/06/201 06/05/201 ent Current Male 44 Jianjun 3 9 Director Independ 09/19/201 06/05/201 Zhao Yao Current Male 48 ent 4 9 58 Lu Thai Textile Co., Ltd. Annual Report 2017 Director Independ 06/06/201 06/05/201 Bi Xiuli ent Current Female 51 6 9 Director Independ Pan 06/06/201 06/05/201 ent Current Female 53 Ailing 6 9 Director Independ Wang 06/06/201 06/05/201 ent Current Male 51 Xinyu 6 9 Director Superviso Li 09/19/201 06/05/201 ry Board Current Male 62 176,164 176,164 Tongmin 4 9 Chairman Liu Superviso 06/06/200 06/05/201 Current Male 50 10,000 10,000 Zilong r 7 9 Dong Superviso 06/06/200 06/05/201 Current Male 49 5,000 5,000 Shibing r 7 9 Zhang 06/06/200 06/05/201 Vice GM Current Male 50 52,150 52,150 Jianxiang 7 9 Vice GM, Wang 06/06/200 06/05/201 Product Current Male 55 83,700 83,700 Jiabin 7 9 Manager Vice GM, Zhang Managem 06/06/200 06/05/201 Current Male 48 73,100 73,100 Shougang ent 7 9 Manager Vice GM, Zhang GM of 06/06/200 06/05/201 Current Male 46 80,300 80,300 Zhanqi Lufeng 7 9 Company Manager Fujiwara of clothes 12/09/201 06/05/201 Matsuzak marketing Current Male 45 4 9 a departme nt Zhang Financial 06/06/200 06/05/201 Current Male 50 77,700 77,700 Keming Manager 7 9 06/08/201 06/05/201 Li Wenji CIO Current Male 51 10,000 10,000 6 9 Pan Customs Current Male 50 06/06/200 06/05/201 130,496 3,800 134,296 59 Lu Thai Textile Co., Ltd. Annual Report 2017 Pingli Manager 7 9 Vice GM Lv 06/06/200 06/05/201 of Lufeng Current Male 50 33,750 33,750 Yongchen 7 9 Company Yu Energy 06/06/200 06/05/201 Shouzhen Business Current Male 50 83,100 83,100 7 9 g Manager GM assistant, Wang manager 06/06/201 06/05/201 Changzha of fabric Current Male 44 22,500 22,500 3 9 o marketing departme nt Manager of brand Quan expandin 06/06/201 06/05/201 Current Male 51 27,750 27,750 Peng g 3 9 departme nt Manager of Shang garments 06/06/201 06/05/201 Chenggan productio Current Male 45 30,000 30,000 3 9 g n departme nt Total -- -- -- -- -- -- 1,380,295 33,300 0 0 1,413,595 II Changes in Directors, Supervisors and Executive Officers √ Applicable □ Not applicable Name Position Type Date Reason Appointed and Liu Deming Director 05/12/2017 Elected as Director of the 8th Board of the Directors. dismissed III Brief Biographies Professional backgrounds, main working experience and current responsibilities in the Company of the incumbent directors, supervisors and executive officers 1. Mr. Liu Zibin: Director and concurrently General Manager of the Company. He was born in 1965, and achieved Master Degree. From Oct. 2004 to Jun. 2007, he acted as Chairman of the Board of Zibo Lucheng Textile Investment Co., Ltd, now concurrently was Chairman of the Board of Xinjiang Lu Thai Good Yield Cotton Co., Ltd., Xinjiang Lu Thai Textile, Lufeng Weaving & Dyeing, 60 Lu Thai Textile Co., Ltd. Annual Report 2017 Luqun Textile, Xinsheng Thermal Power, Chengshun Thermal Power, Shanghai Li Thai, and Beijing Lu Thai Youxian, and the President of Lu Thai (America), Director of Lu Thai (Hong Kong). 2. Mr. Xu Zhinan: Vice Chairman of the Board of the Company. He was born in 1930, Thailand Nationality. Since 2004, he has been acting as Director and Vice Chairman of the Board of the Company, and General Manager of Tailun (Thailand) Textile Co., Ltd. 3. Mr. Fujiwara Hidetoshi: Director of the Company. He was born in 1940, Japanese Nationality. Since 1998, he has been holding post of Director of Lu Thai Company, and Director of Lufeng Weaving & Dyeing Co., Ltd. 4. Mr. Chen Ruimou: Director of the Company. He was born in 1944, and holder of bachelor degree. From 1998 to now, he has been Director of the Company. 5. Mr. Zeng Facheng, Director of the Company, was born in 1951, Thailand nationality. He acts as Chairman of the Board of GOLD MINE GARMENT CO., LTD. and BLOSSOM GARMENT MANUFACTURING (THAILAND) CO., LTD. 6. Mr. Wang Fangshui: Director, Vice General Manager and Chief Engineer of the Company. He was born in 1961, holder of MBA degree. Since 1998, he has been Director and Chief Engineer of the Company, and concurrently is Director of Xinjiang Lu Thai Good Yield Cotton Co., Ltd., Lufeng Weaving & Dyeing, Xinjiang Lu Thai Luqun Textile, and the Executive Director of Lu Thai (Burma). 7. Mr. Liu Deming: Director, Assistant of GM of the Company. He was born in 1990, and achieved Master Degree. He is the Chairman and GM of Zibo Lucheng Textile Investment Co., Ltd, and the supervisor of Beijing Lu Thai Youxian. 8. Ms. Qin Guiling: Director, and Secretary to the Board of the Company. She was born in 1966, holder of MBA degree. Since 1998, she has been Director and Secretary to the Board of the Company, and Supervisory Board Chairman of Xinjiang Lu Thai. 9. Ms. Zhang Hongmei: Chief Accountant. She was born in 1970; holder of MBA degree and senior accountant. She had served successively as Chief of cost section of financial department of Lu Thai Textile Co., Ltd., director of the accounting department and deputy chief accountant. Now she serves as Chief Accountant of the Company. At the same time, she is the director of Luqun Textile, and supervisor of Beijing Lu Thai Youxian. 10. Mr. Xu Jianjun: Independent Director of the Company, born in 1974, master degree holder. Once took the post of Senior Staff Member of Head Office of Bank of China, Legal Counsel, lawyer at Beijing Jingtian Gongsheng Law Firm. From August of 2004 up to now, serves as a partner of Beijing Deheng Law Firm. Now he is taking a post of partner and Deputy Director of Beijing Deheng Law Firm. 11. Mr. Zhao Yao: Independent Director of the Company, born in 1970, master degree holder, associate professor of accounting, master tutor and successively acted as member of a council of Accounting Association in Shandong Province, executive member of the council of Shandong Province Institute of CPAs, member of Shandong Province internal control consultant experts, member of Shandong Province accounting criterion consultant experts and currently act as Director of Department of Accounting of Shandong University of Technology. 12. Ms. Bi Xiuli: female, independent director of the Company, born in 1967, master. She worked as a judge of Zibo Intermediate People's Court from 1990 to 1996, worked as a lawyer of Beijing Jingwei Law Firm from 2002 to 2003, worked as a lawyer of Beijing King & Capital Law Firm from 2003 to 2004, worked as a partner of Beijing JunZeJun Law Offices from 2004 to 2011 and works as a partner of Beijing DeHeng Law Offices now. 13. Ms. Pan Ailing: female, independent director of the Company, born in 1965, doctor of economics, postdoctor of financial management. Now, she works as a professor, doctoral supervisor and academic leader of accounting in School of Management of Shandong University, the director of investment and financing research center of Shandong University, a member of Shandong Accounting Society, an executive member of Shandong Research Society of Comparative Management and a visiting professor of Taiwan Soochow University. 14. Mr. Wang Xinyu: male, independent director of the Company, born in 1967, master, certified public accountant, certified tax agent and certified public assets estimator. From December 2007 to August 2013, he worked in Zhonglei Accounting Firm as the vice general manager of Shandong branch. Now he works as the senior partner and director of Shandong branch of Reanda Certified Public Accountants (special general partnership). 15. Mr. Li Tongmin: male, chairman of board of supervisors of the Company, born in 1956, technical secondary school education. 61 Lu Thai Textile Co., Ltd. Annual Report 2017 Now he works as chairman of the labor union of the Company. From October 1993 to 2010, he worked as supervisor, vice general manager and the manager of production department of the Company. 16. Mr. Liu Zilong: Supervisor of the Company. He was born in 1968, holder of MBA degree. From 2002 to present, he was General Manager of Lu Thai (Hong Kong). 17. Mr. Dong Shibing: Supervisor of the Company. He was born in 1969, graduated from technical secondary school. He ever took the post of Deputy Director of the General Manager Office of the Company, and now holds post of Manager of Property Management Company. 18. Mr. Zhang Jianxiang: male, vice general manager of the Company & the executive director of Lu Thai Textile Garment Engineering Research Institute, born in 1968, Master of Business Administration. He once worked as the manager of quality management department of the Company and the director of textile finishing factory. 19. Mr. Wang Jiabin: General Manager Assistant and Manager of Production Department of the Company, head of security checkpoint of production department. He was born in 1963, MBA and once acted as Manager of Dyeing Business Department. 20. Mr. Zhang Shougang: Assistant General Manager, Garment Division Manager of the Company. He was born in 1970, MBA and senior engineer, once was Director of Weaving Factory, Manager of Weaving Business Department and Manager of Quality Control Department in the Company. 21. Mr. Zhang Zhanqi: General Manager Assistant and deputy General Manager in Lufeng Weaving & Dyeing of the Company. He was born in 1972, MBA, once worked as Director of Fabric Finishing Plant and Manager of Quality Control Department. 22. Mr. Fujiwara Matsuzaka: Manager of clothes marketing department of the Company. He was born in 1973 and had acted as General Manager of International Business Department I of the Company. 23. Mr. Li Wenji: male, CIO & manager of information department of the Company, born in 1967. He once worked as a teacher in Shandong University of Finance and Economics. From July 2005 to now, he works as the manager of information department of the Company. In 2016, he was employed as chief information officer of the Company. 24. Mr. Zhang Keming: Manager of Financial Department of the Company. He was born in 1968, MBA and senior accountant. From 2002 to 2006, he held the post of Deputy Manager of Financial Department; from Apr. 2006 to present, he has acted as General Manager of Financial Department. 25. Mr. Pan Pingli: Customs Manager of the Company. He was born in 1968 and MBA degree holder. He ever acted as General Manager of International Business Department of the Company. 26. Mr. Lv Yongchen: Deputy General Manager of Lufeng Weaving and Dyeing Co., Ltd. He was born in 1968 and MBA degree holder. From 2002 to 2010, he acted as Deputy Manager of International Business Department in the Company. 27. Mr. Yu Shouzheng: Energy Business Manager of the Company. He was born in 1968, MBA degree holder and engineer. He once worked as Director of Dynamic Department in the Company. From 2007 to present, he has acted as Manager of Energy Business Department in the Company. 28. Mr. Wang Changzhao: GM assistant, manager of fabric marketing department of the Company. He was born in 1974 and had acted as General Manger Assistant of International Business Department. 29. Mr. Quan Peng: Manager of brand expanding department of the Company. He was born in 1967, MBA degree holder. From 2004 to present, he has acted as Marketing Manager. 30. Mr. Shang Chenggang: manager of garments production department of the Company, born in 1973. He once worked as the vice director and director of general manager office, the manager of enterprise manager department and the representative of managers. Posts concurrently held in shareholding entities √Applicable □Not applicable Name of Posts held in Start date of Whether receiving Name of shareholders’ companies Expiration employers shareholders’ tenure subsidies and 62 Lu Thai Textile Co., Ltd. Annual Report 2017 companies Date of tenure remuneration in shareholders’ companies Liu Zibin Zibo Lucheng Textile Investment Co., Ltd. Director 02/26/1999 No Xu Zhinan Tailun (Thailand) Textile Co., Ltd. Chairman 01/29/1985 No Chairman and Liu Deming Zibo Lucheng Textile Investment Co., Ltd. 02/01/2017 No GM Mr. Liu Zibin is the Director of Zibo Lucheng Textile Investment Co., Ltd., holding 4% equities of Zibo Lucheng Explanations Textile Investment Co., Ltd. Basic information of Mr. Liu Zibin: Chinese, no right of residence in other countries about holding or regions. Mr. Liu Deming holds the post of Chairman and GM of Zibo Lucheng Textile Investment Co., Ltd., posts in holding 21% equities of Zibo Lucheng Textile Investment Co., Ltd. Basic information of Mr. Liu Deming: shareholders’ Chinese, no right of residence in other countries or regions. Mr. Xu Zhinan is the sponsor of foreign capital of the companies Company, shareholder of Tailun (Thailand) Textile Co., Ltd. and Tailun (Thailand) Textile Co., Ltd. is the second largest shareholder of the Company. Basic information about Mr. Xu Zhinan: Thai. Posts held concurrently in other entities √Applicable □Not applicable Whether Posts held in receiving Name of Start date of Expiration Date Name of other companies shareholders’ subsidies and employers tenure of tenure companies remuneration in other companies Xinjiang Lu Thai Good Yield Cotton Co., Ltd., Xinjiang Lu Thai Textile Co., Ltd., Lufeng Weaving & Dyeing Co., Ltd. Zibo Chairman, Luqun Textile Co., Ltd., Zibo Xinsheng Director, Thermal Power Co., Ltd., Zibo Chengshun Chairman of Liu Zibin Thermal Power Co., Ltd., Shanghai Lu Thai 12/07/2015 No Supervisory Textile Garment Co., Ltd., Beijing Lu Thai Board, and Youxian E-commerce Co., Ltd., Lu Thai GM (America) Textile Co., Ltd. Lu Thai (HK) Textile Co., Ltd, Beijing Sichuang Garment Co., Ltd Xinjiang Lu Thai Good Yield Cotton Co., Ltd., Xinjiang Lu Thai Textile Co., Ltd., Wang Fangshui Lufeng Weaving & Dyeing Co., Ltd. Zibo Director 06/17/2003 No Luqun Textile Co., Ltd., Lu Thai (Burma) Textile Co., Ltd. Beijing Lu Thai Youxian E-commerce Co., Liu Deming Supervisor 08/21/2017 No Ltd. Xinjiang Lu Thai Good Yield Cotton Co., Supervisory Qin Guiling 06/17/2003 No Ltd. Board 63 Lu Thai Textile Co., Ltd. Annual Report 2017 Chairman Zibo Luqun Textile Co., Ltd., Beijing Lu Director and Zhang Hongmei 06/17/2003 Thai Youxian E-commerce Co., Ltd. Supervisor Xu Jianjun Beijing Deheng Law Offices Partner 08/01/2004 Yes Associate Zhao Yao Shandong University of Technology 03/01/2001 Yes Professor Bi Xiuli Beijing Deheng Law Offices Partner 01/01/2011 Yes Shandong University School of Pan Ailing Professor 07/01/1986 Yes Management Reanda Certified Public Accountants Wang Xinyu Director 08/01/2013 Yes Shandong Branch Explanations about Except independent directors, other companies directors, supervisors, senior executives are holding posts in are all employment in controlling subsidiaries of the Company. other companies Punishments imposed in the recent three years by the securities regulators on the incumbent directors, supervisors and executive officers as well as those who left in this Reporting Period □ Applicable √ Not applicable IV Remuneration of Directors, Supervisors and Executive Officers Decision-making procedure, determination basis and actual remuneration payment of directors, supervisors and executive officers Decision-making Remuneration committee under the board of directors is responsible for formulating assessment procedures of standards of directors and senior executives and conducting assessment; for formulating and reviewing remuneration of directors, remuneration policy and program of directors and senior executives; it is responsible for the board of supervisors, senior directors. The remuneration committee, according to appraisal results of position performance and executives motivation and restriction plan for senior executives, proposes amount of payment and methods of reward for directors and senior executives and submits the above resolutions to the board of directors for ratification after the approval by voting. Determinate basis of The Chief Accountant Office, the Corporate Management Department and the HR Department of the remuneration of directors, Company was responsible for preparations for the decision-making of the Remuneration and Appraisal supervisors, senior Committee by providing relevant information of the Company as follows: (I) accomplishment of main executives financial and business objectives; (II) accomplishment of relevant indicators of other listed companies in the sector; (III) work scope and main responsibilities of senior management staff. The remuneration committee appraised directors and senior management staff according to the completion situation of the Company’s performance and the annual appraisal results of senior management staff were put forward according to the performance appraisal results and the senior staff incentive and disciplinary plan. Upon approval by voting, the results were reported to the Board of Directors for approval. Actual payment of The number of incumbent directors, supervisors and senior executives is 30, among which there are 30 64 Lu Thai Textile Co., Ltd. Annual Report 2017 remuneration of directors, persons actually receiving remuneration from the Company. Till December 31, 2017, the total amount of supervisors, senior annual payment drawn from the Company by directors, supervisors and senior executives is RMB21. executives 8813million (before tax). Remuneration of directors, supervisors and executive officers in this Reporting Period Unit: RMB'0,000 Whether gained Total before-tax remuneration remuneration Name Position Gender Age Current/former from the related gained from the parties of the Company Company Chairman and Liu Zibin Male 53 Current 115.7 No GM Xu Zhinan Vice President Male 88 Current 36.1 No Fujiwara Director Male 78 Current 440.98 No Hidetoshi Chen Ruimou Director Male 74 Current 36.1 No Zeng Facheng Director Male 67 Current 1.19 No Director and Vice Wang Fangshui GM and Chief Male 57 Current 132.42 No Engineer Liu Deming Director Male 27 Current 4.94 No Director and Qin Guiling Chairman Female 52 Current 127.62 No Secretary Director and Zhang Hongmei Female 48 Current 89.11 No Chief Accountant Independent Xu Jianjun Male 44 Current 4.8 No Director Independent Zhao Yao Male 48 Current 4.8 No Director Independent Bi Xiuli Female 51 Current 4.8 No Director Independent Pan Ailing Female 53 Current 4.8 No Director Independent Wang Xinyu Male 51 Current 4.8 No Director Supervisory Li Tongmin Male 62 Current 128.6 No Board Chairman 65 Lu Thai Textile Co., Ltd. Annual Report 2017 Liu Zilong Supervisor Male 50 Current 63.6 No Dong Shibing Supervisor Male 49 Current 62.15 No Zhang Jianxiang Vice GM Male 50 Current 84.69 No Vice GM, Wang Jiabin Male 55 Current 87.93 No Product Manager Vice GM, Zhang Shougang Management Male 48 Current 77.85 No Manager Vice GM, GM of Zhang Zhanqi Male 46 Current 78.19 No Lufeng Company Manager of Fujiwara clothes marketing Male 45 Current 114.01 No Matsuzaka department Financial Zhang Keming Male 50 Current 71.41 No Manager Li Wenji CIO Male 51 Current 49.07 No Customs Pan Pingli Male 50 Current 58.91 No Manager Vice GM of Lv Yongchen Male 50 Current 61.52 No Lufeng Company Energy Business Yu Shouzheng Male 50 Current 61.18 No Manager GM assistant, manager of fabric Wang Changzhao Male 44 Current 60.37 No marketing department Manager of brand Quan Peng expanding Male 51 Current 60.94 No department Manager of Shang garments Male 45 Current 59.55 No Chenggang production department Equity incentives for directors, supervisors and executive officers in this Reporting Period □ Applicable √ Not applicable 66 Lu Thai Textile Co., Ltd. Annual Report 2017 V Employees 1. Number, Functions and Educational Backgrounds of Employees Number of the serving employees of the parent company 14,277 (person) Number of the serving employees of the major subsidiaries 10,926 (person) Total number of the serving employees (person) 25,203 Total number of the employees receiving the salary of the 25,203 Reporting Period (person) Number of the left and retired employees that the parent company and the major subsidiaries should undertake the 0 expenses (person) Component difference Category Number (person) Production personnel 18,871 Sales personnel 549 Technical personnel 5,206 Financial personnel 75 Administrative personnel 502 Total 25,203 Educational background Category Number (person) Doctor 4 Master 93 Bachelor 1,119 College 6,072 High school and below 17,915 Total 25,203 2. Employee Remuneration Policy The Company has formulated a remuneration management system with its principle being “payment according to one’s work and more pay for more work”. Through post evaluation and through researches of Social salary levels carried out as multi-faceted, as well as the formulation of the reasonable salary management system, fully demonstrates the internal fairness, self-fairness and external fairness. It has greatly motivated the employees and enhanced the corporate management. 67 Lu Thai Textile Co., Ltd. Annual Report 2017 3. Employee Training Plans Trainings will be carried out according to requirements of the Company’s strategic development planning, improvement of employees’ capability, performance management, employees’ career planning, etc. The annual training plan is determined by carrying out researches on training needs. And the training courses fall into three major categories, i.e. management, technical skills and general knowledge. Through these trainings, the Company will improve the knowledge structure of its employees, improve their job skills and increase their comprehensive quality to provide excellent human resources for the long-term, sustained and stable development of the Company. 4. Labor Outsourcing □ Applicable √ Not applicable 68 Lu Thai Textile Co., Ltd. Annual Report 2017 Part IX Corporate Governance I Basic Situation of Corporate Governance The Company continued to perfect the corporate governance structure, establish and perfect the modern enterprise system and ensure the efficient and standardized operation of the Company’s Shareholders’ General Meeting, Board of Directors, Board of Supervisors and Senior Executives strictly according to Company Law, Securities Law and Governing Rules for Listed Company as well as relevant stipulations and requirements from CSRC. It formed a relationship of clear division of rights and responsibilities, assuming each own functions and check and balance each other between the management organ, decision-making organ, supervisory organ and management layer, so as to provide a good internal operational environment for the Company’s standardized and efficient operation. During the Reporting Period, the Company revised Articles of Lu Thai Textile Co., Ltd. and Authorized Management System of Lu Thai Textile Co., Ltd. At present, there is no difference between the actual situation of the Company’s corporate governance structure and the requirements on the corporate governance of CSRC and Shenzhen Stock Exchange. 1. Shareholders and Shareholders’ General Meeting The Company convened and held the Shareholders’ General Meeting in strict accordance with the stipulation of the Rules of Procedure for Shareholders’ General Meeting. In 2017, as for the convening conditions of extraordinary general meetings and the medias of information disclosure, the Company revised part of the regulations of the Articles of Association and Rules of Procedure of the Shareholders' General Meeting of Lu Thai Textile Co., Ltd. according to the requirements of the Rules of Procedure of the Shareholders' General Meeting of Listed Companies and Index of Articles of Listed Companies (revised in 2016), which ensured that the convening conditions were in line with the actual situations of the Company and the information disclosure was timely and accurate. 2. The relationship between the principal shareholders and the Company The Company’s principal shareholders acted according to relevant standards without directly or indirectly intervening the Company’s decision-making and operating activities; the Company was independent with its principal shareholders in business, personnel, assets, organization, finance, and the Company’s Board of Directors, Supervisory Committee and Internal Organs could completely independent to operate. There was no situation about annexing the assets or occupation of funds of the Company by principal shareholders or other events on infringing the interest of the Company and other shareholders. 3. The directors and Board of Directors The Company nominated and elected directors in strict accordance with the Articles of Association, the structure of the Board of Directors and the number of independent directors was in compliance with the requirement of laws and regulations. Besides, it established four special committees such as Strategy Committee, Nomination Committee, Audit Committee and Remuneration & Appraisal Committee in accordance with the Rules of Procedure for the Board of Directors, and accordingly promulgated the work rules for the committees. The committees clearly understood their responsibilities and operated well. The directors and independent directors completely enjoyed the rights stipulated in Company Law and Articles of Association, which ensure the scientific and impartial decision made by the Board of Directors of the Company. During the Reporting Period, the Company revised the Rules of Procedure of the Board of Directors of Lu Thai Textile Co., Ltd. according to the actual situation and revised the number of the Directors, and review permission of Board of Directors to assets disposal, external guarantee for assets pledge, related-party transactions, and investment plan of derivatives. 4. Supervisors and Supervisory Committee The Company’s Supervisory Committee and supervisors conscientiously performed their duties by strictly implementing relevant regulations of Articles of Association and the Rules of Procedure for Supervisory Committee, and conducted effective supervision on the Company’s finance, the legal and regulatory compliance of directors and senior executive in duty performance. During the 69 Lu Thai Textile Co., Ltd. Annual Report 2017 Reporting Period, according to Index of Articles of the Listed Companies (revised in 2016), the Company revised the Rules of Procedure of the Supervisory Board of Lu Thai Textile Co., Ltd combined with the revision of Articles of Association. 5. Information disclosure In order to ensure the truthfulness, accuracy, completeness and timeliness of company information disclosure, during the reporting period, the Company made revision on the "Information Disclosure Management System of Lu Thai Textile Co., Ltd." in accordance with the "Administrative Measures for the Disclosure of Information of Listed Companies ", "Stock Listing Rules (Revised in 2014)" of Shenzhen Stock Exchange, and " Standard Operation of Companies Listed on the Main Board (Revised in 2015)" and other relevant provisions as well as the "Notice on Further Improving Investor Protection in the Capital Market of Shandong Province (LZJF [2017] No. 6 Document)" issued by the Shandong Securities Regulatory Bureau. 6. Investor relations management During the reporting period, to maintain good communication with investors, the Company accepted on-site investigations and consultations of investors through on-site investigations and telephone consultations, and promptly answered questions asked by investors on the SZSE Easy-IR. During the reporting period, based on actual situation, the Company made revision on the "Information Disclosure Management System of Lu Thai Textile Co., Ltd." in accordance with the relevant laws, regulations, normative documents of the "Stock Listing Rules of Shenzhen Stock Exchange", "Guidelines for Relations between Listed Companies and Investors", "Guidelines of the Shenzhen Stock Exchange for the Standard Operation of Listed Companies on the Main Board" and the Articles of Associations. Any significant incompliance with the regulatory documents issued by the CSRC governing the governance of listed companies □ Yes √ No No such cases in this Reporting Period. II Independence of Businesses, Personnel, Asset, Organizations and Finance which are Separate from the Controlling Shareholder 1. As for the business: the Company completely separates from the controlling shareholders in the business that possesses the entirely independent production, supply and sales system and the autonomous operating ability. 2. As for the personnel: the Company remains completely independent in the Human Resources aspects such as the labor, the personnel and the wages with entirely independent self-controlling ability. 3. As for the assets: the Company possesses the entire and independent legal person property right with independent and perfect the production system, auxiliary production systems and supporting facilities; and possesses the independent ownership of the intangible assets such as the i Industrial property, trademarks, non-patented technology. 4. As for the institution: the organizations and institutions of the Company are all independent and perfect that there is no any situation of working with the controlling shareholders. 5. As for the finance: the Company possesses independent financial departments with normative financial accounting system and financial management system as well as internal control system with independent bank account. III Horizontal Competition □ Applicable √ Not applicable 70 Lu Thai Textile Co., Ltd. Annual Report 2017 IV Annual and Special Meetings of Shareholders Convened during this Reporting Period 1. Meetings of Shareholders Convened during this Reporting Period Proportion of Index to the Session Type investors' Convening date Disclosure date disclosed participation Announcement on the Resolution of the Meeting (No.: 2017-010) disclosed on March 22, 2017 2017 1st Extraordinary on Securities Times, Extraordinary 0.00% 03/21/2017 03/22/2017 General Meeting China Securities General Meeting Journal, Shanghai Securities News, Ta Kung Pao, and http://www.cninfo.co m.cn Announcement on the Resolution of the Meeting (No.: 2017-023) disclosed on May 13, 2017 on 2016 Annual General Annual General Securities Times, 0.00% 05/12/2017 05/13/2017 Meeting Meeting China Securities Journal, Shanghai Securities News, Ta Kung Pao, and http://www.cninfo.co m.cn Announcement on the Resolution of the Meeting (No.: 2017-030) disclosed on August 25, 2017 2017 2nd Extraordinary on Securities Times, Extraordinary 0.00% 08/24/2017 08/25/2017 General Meeting China Securities General Meeting Journal, Shanghai Securities News, Ta Kung Pao, and http://www.cninfo.co m.cn 71 Lu Thai Textile Co., Ltd. Annual Report 2017 Announcement on the Resolution of the Meeting (No.: 2017-047) disclosed on November 9, rd 2017 3 2017 on Securities Extraordinary Extraordinary 0.00% 11/08/2017 11/09/2017 Times, China General Meeting General Meeting Securities Journal, Shanghai Securities News, Ta Kung Pao, and http://www.cninfo.co m.cn 2. Special Meetings of Shareholders Convened at the Request of Preference Shareholders with Resumed Voting Rights □ Applicable √ Not applicable V Performance of Independent Directors in this Reporting Period 1. Attendance of Independent Directors in Board Meetings and General Meetings of Shareholders Attendance of independent directors in Board Meetings and General Meetings of Shareholders Absent in Due presence Presence in Presence in Presence Presence in Absence in Board in Board Board Board General Independent Board Board Meetings for Meetings in Meetings by Meetings Meetings of director name Meetings on Meetings two this Reporting telecommunica through a Shareholders site (times) (times) consecutive Period (times) tion (times) proxy (times) (times) times Xu Jianjun 10 1 8 1 0 No 0 Zhao Yao 10 2 8 0 0 No 0 Bi Xiuli 10 1 8 1 0 No 0 Pan Ailing 10 2 8 0 0 No 0 Wang Xinyu 10 2 8 0 0 No 1 Notes to non-attendance in Board Meetings in person for two consecutive times Not applicable. 2. Objections Raised by Independent Directors on Issues of the Company Indicate by tick mark whether any independent directors raised any objections on issues of the Company. □ Yes √ No No such cases in this Reporting Period. 72 Lu Thai Textile Co., Ltd. Annual Report 2017 3. Other Details about the Performance of Duties by Independent Directors Indicate by tick mark whether any suggestions from independent directors were adopted by the Company. √ Yes □ No Suggestions from independent directors adopted or not adopted by the Company: The Independent Directors of the Company had not raised any objection to the proposals and other events approved and reviewed by the Board of the Directors while executed the carefully review on the events needed advices and put forward the professional suggestion and advice as well as stated 15 independent advices which improved the scientificity and objectivity of the decision-making that exerted the due role on the supervision mechanism for improving the Company. VI Performance of Duties by Specialized Committees under the Board during this Reporting Period I. Duty fulfillment of Audit Committee under the Board 1. Major work of the 2017 annual report of the Audit Committee: (1) The Audit Committee had held the 2017 the 1st Meeting of the Audit Committee on the Financial Audit Work in the meeting room of the Company on November 17, 2017 and the meeting had confirmed the time and arrangement plan of the 2017 annual financial audit work unanimously with the 2017 Audit Institution Ruihua CPAs (LLP). (2) On January 27, 2018, the Audit Committee had held the 2nd Meeting of the 2017 Audit Work, which reviewed and submitted the financial report audited by Ruihua CPAs (LLP) and issued the written advice. (3) During the audit process, the Company had been maintained the contract and communication with the project leader of Ruihua CPAs (LLP) by the methods such as the telephones and e-mails and had been urged which to submit the audit report within the appointed time. (4) The 3rd Meeting on 2017 Annual Audit and the 2017 Annual Work Conference, were convened by the Committee on April 15, 2018, where the following proposals were approved as resolutions, namely, the audited 2017 Financial Report of the Company, the Summary Report on the Audit Conducted by Ruihua CPAs (LLP) on the Company’s 2017 Financial Report. 2. Written opinions, summary report of the annual audit, and resolutions of 2017 Work Conference on Annual Report by Audit Committee (1) According to the Rules for Audit Committee of the Board Concerning Annual Reports of Lu Thai Textile Co., Ltd., the Audit Committee shall perform its duties of conducting supervision and checks in the Company’s preparation and disclosure of its annual reports. The Committee reviewed the 2017 financial and accounting statements prepared by the Company’s Financial Department before the presence of the registered accountants for the annual audit, and expressed its opinion as follows: 1. The financial and accounting statements were prepared in accordance with the Company’s accounting policy with proper application of the accounting policy and reasonable accounting estimates, which were in line with the New Accounting Standards for Business Enterprises, the Accounting System for Business Enterprises, and the relevant regulations issued by the Ministry of Finance of PRC; 2. The subsidiary statements included in the Company’s consolidated statements were complete in terms of contents, providing an accurate basis for the statement combination; 3. The Company’s financial statements were found objective, factual and accurate with no major misstatements or information omission. 4. Since there is still a certain period of time from this review of the financial statements to the formal issuance of the auditor’s report and the financial statements, the Company’s Financial Department is advised to pay close attention to and carefully handle the 73 Lu Thai Textile Co., Ltd. Annual Report 2017 matters after the balance sheet date, so as to ensure the fairness, factuality and completeness of the financial statements. The Audit Committee is of the opinion that the financial and accounting statements are ready to be submitted to the registered accountants for audit. (2) Audit Committee’s written opinion on the Company’s financial statements after the preliminary audit opinion was issued by Ruihua CPAs (LLP): According to the Rules for Audit Committee of the Board Concerning Annual Reports of Lu Thai Textile Co., Ltd., the Audit Committee shall perform its duties of conducting supervision and checks in the Company’s preparation and disclosure of its annual reports. We effectively communicated with the said CPA firm (LLP) at the beginning of the audit. And we once again reviewed the Company’s 2017 financial and accounting statements following the preliminary audit opinion to the Company’s 2017 financial statements issued by the CPA firm (LLP), and expressed our opinions as follows: In accordance with the New Accounting Standards for Business Enterprises and the Company’s relevant financial rules, the financial statements were prepared in a rational and standardized way, which fairly, factually, accurately and completely presented the Company’s assets, liabilities, shareholders’ equity and operation results by December 31, 2017. The Audit Committee is of the opinion that the Company’s 2017 financial and accounting statements preliminarily audited by RSM China Certified Public Accountants (Special General Partnership) are ready to be submitted to the 16th Session of the 8th Board of the Directors for review. (3) Resolutions made at 2017 Annual Work Conference of Audit Committee of the Board The Audit Committee of the Board of Lu Thai Textile Co., Ltd. held its 2017 Annual Work Conference at Banyang Villa Meeting Room of the Company on April 15, 2018. Three persons were supposed to attend the meeting, and all three of them were in fact present at the meeting as well as the Chief Accountant, the Manager Assistant of the Audit Department, the project responsible person of Lu Thai of Ruihua CPAs attended the meeting. Mr. Zhao Yao, Chairman of the Audit Committee, presided over the meeting, and Chief Accountant and Chief Auditor of the Audit Department sat in on the meeting. The meeting was convened in accordance with the Company Law and the Articles of Association of the Company. And the following proposals were passed by vote at the meeting: I. With 3 favorable votes, 0 negative votes and no abstentions, the 2017 Financial Report of the Company audited by Ruihua CPAs (LLP) was passed; II. With 3 favorable votes, 0 negative votes and no abstentions, the Summary Report on the Audit Conducted by Ruihua CPAs (LLP) on the Company’s 2017 Financial Report was passed; III. With 3 favorable votes, 0 negative votes and no abstentions, the Company paid RMB1.735 million to the said CPAs firm as fees for the 2017 annual financial report audit and internal control audit. IV. With 3 favorable votes, 0 negative votes and no abstentions, the Proposal on Employment of Ruihua CPAs (LLP) as the Company’s audit agency for 2018 Finance and Internal Control was passed. The Committee agrees to submit the above-mentioned proposals I and III and IV to the Board of Directors for examination on the 16th Session of the 8th Board of Directors. II. Duty performance of Remuneration Committee affiliated to the Board of Directors 1. The Remuneration Committee of the Board of Lu Thai Textile Co., Ltd. held the First Conference in 2017 at Banyang Villa Meeting Room of the Company on March 28, 2017. Five persons were supposed to attend the meeting, and all of them were in fact present at the meeting. The meeting held by the Company met with the relevant regulations of Company Law and the Articles of Association of the Company and reviewed and approved the Proposal on the 2016 Appraisal Result of the Senior Executives of Lu Thai Company by the voting method and agreed to submit the above-mentioned proposal to the Board of Directors for examination on the 6th Session of the 8th Board of Directors. 2. According to authorization of the 6th Meeting of the 8th Board of Directors of Lu Thai, remuneration committee of board of directors of Lu Thai Textile Co., Ltd. held the second meeting of 2017 in the meeting room of Panyang Villa Meeting Room of the Company on May 23, 2017. Five persons should attend the meeting and five persons actually attended the meeting. Among the five 74 Lu Thai Textile Co., Ltd. Annual Report 2017 persons, Bi Xiuli, Wang Xinyu, Zhao Yao, and Pan Ailing voted in the form of communication. Chief accountant and the secretary of board of directors also attended the meeting. The meeting accorded with relevant stipulations in Company Law and Articles of Company. Proposal for Risk Fund Assessment and Release Amount for 2016 weas passed at the meeting in voting form. III. Duty execution of the strategy committee of board of directors The Strategy Committee of Board of Directors of Lu Thai Textile Co., Ltd. held the 1st Conference of 2017 in the meeting room of Panyang Villa Meeting Room of the Company on March 28, 2017. 13 persons should attend the meeting and 13 persons actually attended the meeting. Chief accountant also attended the meeting. This meeting was hosted by Liu Liu Zibin, the president of strategy committee. The meeting accorded with relevant stipulations in Company Law and Articles of Association and passed the following proposals in voting form. 1. Overall Strategic Objectives of Yarn Dyed Fabric of Lu Thai Textile Co., Ltd. for 2017-2019. 2. Overall Strategic Objectives of Shirts Processing of Lu Thai Textile Co., Ltd. for 2017-2019. 3. Brand, R&D, human resources, fabric information, and clothing manufacture information engineering sub-plan. 4. 2018 Annual Operation Plan of Lu Thai Textile Co., Ltd. IX. Duty performance of nominations committee affiliated to the Board of Directors 1. The Company held the 1st meeting of 2017 of the nominations committee of the 8th Board of Directors on June 8, 2017 according to the relevant regulations of the Company Law and Articles of Association, with 6 favorable votes, 0 negative votes and no abstentions, which reviewed and approved the Proposal on Nominating Candidates of the 8th Board of Directors. Mr. Liu Deming was nominated as the candidate of the director of the 8th Board of Director, and the term of office will expire until June 5, 2019. It was submitted to the 6th Session of the 8th Board of Directors for approval, and the 6th Session of the 8th Board of Directors reviewed and approved the proposal. VII Performance of Duties by the Supervisory Board Did the Supervisory Board find any risks to the Company during its supervision in this Reporting Period? □ Yes √ No The Supervisory Board raised no objections in this Reporting Period. VIII Appraisal and Incentive for Executive Officers In the Reporting Period, Remuneration Committee of the Board of Directors appraised operating achievements of the Company for the year 2016 according to Incentive and Restricted Proposal for Senior Executives of Lu Thai Textile Co., Ltd, and drew up incentive proposal for senior executives, which will be executed after review and approval by the 6st Session of the 8th Board of Directors dated March 28, 2017. During the Reporting Period, the Company constantly improved the performance evaluation mechanism and made the evaluation and incentive of the Senior Executives concerned with the Company’s performances and the individual working results. According to the overall development strategy and the annual operating target of the Company at the period-begin, the Company confirms the annual performance comprehensive indication and the management duty of each Senior Executives, and executes the performance examination and the redemption of the rewards and punishment for the Senior Executives by the Remuneration and Examination Committee affiliated to the Board of Directors at the year-end. The Company will constantly improve the evaluation and incentive mechanism that to tightly concern the salary of the Senior Executives with the management level and the operating performance so that to fully mobilize and inspire the initiative and creativity of them. 75 Lu Thai Textile Co., Ltd. Annual Report 2017 IX Internal Control 1. Serious Internal Control Defects Found in this Reporting Period □ Yes √ No 2. Internal Control Self-evaluation Report Disclosure date of the Self-appraisal 04/17/2018 Report on Internal Control For details, please refer to the Self-appraisal Report on Internal Control of Lu Thai Disclosure index of the Self-appraisal Textile Co., Ltd. simultaneously disclosed on www.cninfo.com.cn with the 2017 Report on Internal Control Annual Report of the Company. The proportion of total assets included in evaluation scope entities in the 88.41% Company's total assets of the consolidated financial statements The proportion of operation revenue included in evaluation scope entities in 90.71% the Company's operation revenue of the consolidated financial statements Defect judging standards Category Financial Report Non-Financial Report Great defect: malpractices of the Directors, Great defect: violated the national laws Supervisors and Senior Executives; the and regulations; the decision-making of Company revised the published financial the enterprise was not scientific that led report; the CPA founded the current financial to the mistakes of itself; outflow of the report occurred significant misstatement management personnel or the technician while during the operating process of the personnel was serious; frequently internal control could not founded the appeared the negative news from the misstatement; the supervision of the Audit Media; the significant business lacked of Committee and the internal audit institution systematic control or the systematic Qualitative criteria of the Company on the internal control was control was invalid; the result of the invalid. Significant defeat: had not abide by internal control assessment which was the generally accepted accounting principles the great defect event had not been to choose and apply the accounting policies; revised. Significant defeat: violated the had not built up the anti-fraud and significant enterprise internal regulations that counterbalance mechanism and control caused rather serious losses; significant measures; during the financial report business lacked of systematic control; process, there occurred single or multiple outflow of the rather important personnel defects which not reached the recognition was serious; the Media reported the 76 Lu Thai Textile Co., Ltd. Annual Report 2017 standard of the significant defeat but negative news that caused rather serious influenced the true and accurate target of the negative influence; rather important financial report. General defect: other business lacked of systematic control or internal control defect which had not the systematic control was invalid; the constructed as the great defeat, significant results of the internal control assessment defect. which as the significant defect had not been revised. General defect: other internal control defect which had not constructed as the great defeat, significant defect. Great defect: the direct financial losses Great defect: misstatement≥2% of the total were more than RMB6 million or had profits amount; misstatement≥0.3% of the been formally and externally disclosed total assets amount; misstatement≥0.3% of and caused negative influences on the the total operating income; disclosure of the periodical report of the misstatement≥0.4% of the total owners’ Company. Significant defect: the direct equities amount. Significant defect: 1% of financial losses were of RMB3 million the total profits amount ≤misstatement<2% (including RMB3 million)-RMB6 of the total profits amount; 0.15% of the total million or had been punished by the assets amount ≤misstatement<0.3% of the state-owned government sectors while total assets amount; 0.15% of the total Quantitative criteria not caused negative influences on the operating amount ≤misstatement<0.3% of disclosure of the periodical report of the the total operating amount; 0.2% of the total Company. General defect: the direct owners’ equities amount financial losses were of RMB0.5 million ≤misstatement<0.4% of the total owners’ (including RMB0.5 million)-RMB 3 equities amount. General defect: million or had been punished by the misstatement<1% of the total profits amount; below-provincial (including the misstatement<0.15% of the total assets provincial level) government sectors amount; misstatement<0.15% of the total while not caused negative influences on operating income; misstatement<0.2% of the the disclosure of the periodical report of total owners’ equities amount. the Company. Number of significant defects of financial 0 report (piece) Number of significant defects of non- 0 financial report (piece) Number of important defects of financial 0 report (piece) Number of important defects of 0 non-financial report (piece) X Auditor’s Report on Internal Control √ Applicable □ Not applicable 77 Lu Thai Textile Co., Ltd. Annual Report 2017 Audit opinion paragraphs in the Audit Report on Internal Control IV. Audit opinion of the internal control of the financial report We believe that the Company has made valid internal control on financial report in all significant aspects on December 31, 2017 according to the Basic Rules for Enterprise Internal Control and other relevant stipulations. Particulars about Audit Report on Disclosure Internal Control Disclosure date of the Audit Report 04/17/2018 on Internal Control Disclosure index of the Audit For details, please refer to the Auditor’s Report on Internal Control on www.cninfo.com.cn at Report on Internal Control the same time of disclosing the Company’s 2017Annual Report. Type of Audit Report on Internal Unqualified auditor’s report Control Whether there is significant defect No in non-financial report Indicate by tick mark whether any modified opinions are expressed by the CPAs firm in its auditor’s report on the Company’s internal control. □ Yes √ No Indicate by tick mark whether the auditor’s report on the Company’s internal control issued by the CPAs firm is consistent with the self-evaluation report of the Board. √ Yes □ No 78 Lu Thai Textile Co., Ltd. Annual Report 2017 Part X Corporate Bonds Are there any corporate bonds publicly offered and listed on the stock exchange, which were undue before the approval date of this Report or were due but could not be redeemed in full? No. 79 Lu Thai Textile Co., Ltd. Annual Report 2017 Part XI Financial Statements I Independent Auditor’s Report Type of auditor’s opinion Standard unqualified opinion Date of signing the auditor’s report 04/15/2017 Name of the auditor Ruihua Certified Public Accountants LLP No. of the auditor’s report RHSZ[2018] No.37040003 Name of CPA He Feng, Cui Xiaoli Text of the Auditor’s Report To the shareholders of Lu Thai Textile Co., Ltd: I Opinion We have audited the financial statements of Lu Thai Textile Co., Ltd. (hereinafter referred to as the “Company”), which comprise the consolidated and parent company balance sheets as of December 31, 2017, the consolidated and parent company statements of income, cash flows and changes in owners’ equity for the year then ended, as well as the notes to the financial statements. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated and parent company financial position of the Company at December 31, 2017, and the consolidated and parent company operating results and cash flows for the year then ended, in conformity with the Chinese Accounting Standards (CAS). II Basis for Opinion We conducted our audits in accordance with the Audit Standards for Chinese Registered Accountants. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for Audit of Financial Statements section of our report. We are independent of the Company in accordance with the China Code of Ethics for Certified Public Accountants, and we have fulfilled our other ethical responsibilities in accordance with the said Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. III Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. And key audit matter identified in our audit is summarized as follows: (I) Recognition of income 1. Item description The sales income of Lu Thai Textile Co., Ltd. mainly comes from sales of yarn-dyed fabrics and shirts. The operation income of the Company in 2017 was RMB 6,409,224,000, of which export income accounted for 65.71%. As stated in "Note IV 22 Income" of the financial statements, for the income from domestic sales, the amount of product sales income is recognized when the products are delivered to purchaser according to the contract. The income is also recognized when the purchase price has been recovered or the receipt certificate has been received and the related economic benefits are likely to flow into the Company, and the product-related costs can be measured in a reliable way. For the income from export sales, the amount of sales income is recognized when products 80 Lu Thai Textile Co., Ltd. Annual Report 2017 are declared and depart from port according to the contract, and the bill of lading is received. The income is also recognized when the purchase price has been recovered or the receipt certificate has been received and the related economic benefits are likely to flow into the Company, and the product-related costs can be measured in a reliable way. Since income is one of the key performance indicators of Lu Thai Textile Co., Ltd., there is an inherent risk that the management manipulates income to achieve specific goals or expectations, therefore, we identify income recognition as a key audit item. 2. Audit response (1) Evaluate and test the rationality of the internal control design related to income recognition and the operation effectiveness. (2) Understand and assess the rationality of accounting policies related to income recognition by interviews with management and review of relevant contract terms. (3) Perform analysis procedures on income and costs, and analyze the rationality of fluctuations in sales volume, unit price and gross profit of each month and each year. (4) Check the supporting documents such as sales contracts, delivery receipts, invoices, customs declarations, shipping orders and receipts. (5) Confirm the balances of major customers and the amount of transactions, and execute the procedure of customs confirmation of the amount of export income for the year 2017. (6) Perform cut-off tests on the income recognized before and after the balance sheet date, check the delivery receipts, customs declarations, shipping orders and receipts etc. to assess whether the income is recognized within appropriate period. (II) Depreciation of inventory 1. Item description As of December 31, 2017, the inventory balance of Lu Thai Textile Co., Ltd. was RMB2,153,891,300.00 and the inventory depreciation reserve was RMB53,230,100.00. As stated in "Notes IV 10 Inventory" and "Notes VI 7 Inventory" of the financial statements, inventories are measured by cost or net realizable value, which is lower. The management determines the net realizable value of inventories with significant judgments and estimates, and therefore, we identify inventory depreciation as a key audit item. 2. Audit response (1) Understand the process of provision for inventory depreciation reserves, evaluate and test the internal control related to preparation for inventory depreciation. (2) Monitor the inventory and check the inventory condition, check whether the defective and long-lived inventory have been identified. (3) Check the inventory age analysis sheet. (4) Test the calculation table for inventory depreciation preparation to assess the rationality of estimated selling price, and compare the post-sales price with the estimated selling price. IV Other Information The Company’s management is responsible for the other information. The other information comprises all of the information included in the Company’s 2017 Annual Report other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. V Responsibilities of Management and Those Charged with Governance for Financial Statements 81 Lu Thai Textile Co., Ltd. Annual Report 2017 The Company’s management (hereinafter referred to as the “Management”) is responsible for the preparation of the financial statements that give a fair view in accordance with CAS, and for designing, implementing and maintaining such internal control as the management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the management either intends to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. VI Auditor’s Responsibilities for Audit of Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with CAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with CAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: (1) Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. (2) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. (3) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the management. (4) Conclude on the appropriateness of the management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required by CAS to draw users’ attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. (5) Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. (6) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the Company audit. We remain solely responsible for our audit opinion. 82 Lu Thai Textile Co., Ltd. Annual Report 2017 We communicate with those charged with governance regarding the planned scope and timing of the audit and significant audit findings, including any noteworthy deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Ruihua Certified Public Accountants LLP Chinese CPA (Engagement Partner): Beijing China Chinese CPA: April 15, 2018 II Financial Statements Currency unit for the statements in the notes to the financial statements: RMB 1. Consolidated Balance Sheet Prepared by Lu Thai Textile Co., Ltd. December 31, 2017 Unit: RMB Item December 31, 2017 December 31, 2016 Current assets: Monetary assets 693,989,293.38 667,304,702.34 Settlement reserve Interbank loans granted Financial assets at fair value through profit or loss Derivative financial assets Notes receivable 139,276,742.34 84,161,909.91 Accounts receivable 334,080,524.05 293,129,727.93 Prepayments 146,463,066.38 212,488,120.48 Premiums receivable Reinsurance receivables Receivable reinsurance contract reserve 83 Lu Thai Textile Co., Ltd. Annual Report 2017 Interest receivable 590,003.07 Dividends receivable Other receivables 56,182,782.04 46,720,732.97 Financial assets purchased under resale agreements Inventories 2,100,661,221.93 1,817,542,870.99 Assets classified as held for sale Current portion of non-current assets Other current assets 118,588,703.34 108,332,246.24 Total current assets 3,589,832,336.53 3,229,680,310.86 Non-current assets: Loans and advances to customers Available-for-sale financial assets 84,533,000.00 24,500,000.00 Held-to-maturity investments Long-term receivables 2,310,000.00 Long-term equity investments 97,536,732.02 Investment property 24,563,544.58 25,844,090.56 Property, plant and equipment 5,421,295,850.03 5,273,148,708.20 Construction in progress 157,421,820.68 177,075,655.16 Construction materials 56,913,806.06 117,120,463.50 Proceeds from disposal of property, plant and equipment Productive living assets 1,381,292.75 Oil and gas assets Intangible assets 498,948,301.48 384,253,077.39 R&D expense Goodwill 20,613,803.29 20,613,803.29 Long-term prepaid expense 107,877,194.52 114,227,364.54 Deferred income tax assets 74,697,159.71 63,190,080.76 Other non-current assets 36,390,478.85 31,259,468.38 Total non-current assets 6,580,791,691.22 6,234,924,004.53 Total assets 10,170,624,027.75 9,464,604,315.39 Current liabilities: Short-term borrowings 1,135,124,996.40 873,261,856.02 Borrowings from central bank 84 Lu Thai Textile Co., Ltd. Annual Report 2017 Customer deposits and deposits from banks and other financial institutions Interbank loans obtained Financial liabilities at fair value through profit or loss Derivative financial liabilities Notes payable 7,301,771.85 Accounts payable 366,265,132.65 257,635,466.41 Advances from customers 119,785,945.48 97,929,002.93 Financial assets sold under repurchase agreements Handling charges and commissions payable Payroll payable 316,836,488.95 315,678,103.92 Taxes payable 33,055,090.58 77,775,673.14 Interest payable 1,572,231.86 1,165,730.47 Dividends payable 441,113.64 441,113.64 Other payables 127,090,009.25 79,744,084.66 Reinsurance payables Insurance contract reserve Payables for acting trading of securities Payables for acting underwriting of securities Liabilities directly associated with assets classified as held for sale Current portion of non-current 62,750,292.49 liabilities Other current liabilities Total current liabilities 2,170,223,073.15 1,703,631,031.19 Non-current liabilities: Long-term borrowings 135,678,044.89 Bonds payable Including: Preferred shares Perpetual bonds Long-term payables Long-term payroll payable 93,843,473.02 79,122,422.89 Specific payables 85 Lu Thai Textile Co., Ltd. Annual Report 2017 Provisions Deferred income 126,737,092.32 95,990,489.79 Deferred income tax liabilities 2,904,899.46 2,341,089.87 Other non-current liabilities 1,840,000.00 1,840,000.00 Total non-current liabilities 225,325,464.80 314,972,047.44 Total liabilities 2,395,548,537.95 2,018,603,078.63 Owners’ equity: Share capital 922,602,311.00 922,602,311.00 Other equity instruments Including: Preferred shares Perpetual bonds Capital reserves 699,493,593.82 761,280,557.83 Less: Treasury shares Other comprehensive income 16,810,574.22 53,293,544.89 Specific reserve Surplus reserves 962,933,579.06 891,870,522.68 General reserve Retained earnings 4,629,102,712.06 4,341,866,189.19 Total equity attributable to owners of 7,230,942,770.16 6,970,913,125.59 Parent Company Non-controlling interests 544,132,719.64 475,088,111.17 Total owners’ equity 7,775,075,489.80 7,446,001,236.76 Total liabilities and owners’ equity 10,170,624,027.75 9,464,604,315.39 Legal representative: Liu Zibin Chief Accountant: Zhang Hongmei Financial Manager: Zhang Keming 2. Parent Company Balance Sheet Unit: RMB Item December 31, 2017 December 31, 2016 Current assets: Monetary assets 267,809,829.78 177,016,859.63 Financial assets at fair value through profit or loss Derivative financial assets Notes receivable 93,244,480.81 64,421,665.52 86 Lu Thai Textile Co., Ltd. Annual Report 2017 Accounts receivable 305,903,590.98 297,026,110.33 Prepayments 81,471,605.69 139,013,057.80 Interest receivable 220,590.38 Dividends receivable Other receivables 519,788,239.57 340,458,208.20 Inventories 1,164,055,145.96 1,086,364,931.72 Assets classified as held for sale Current portion of non-current assets Other current assets 53,657,308.33 1,126,006.88 Total current assets 2,486,150,791.50 2,105,426,840.08 Non-current assets: Available-for-sale financial assets 72,533,000.00 12,500,000.00 Held-to-maturity investments Long-term receivables Long-term equity investments 1,816,493,348.06 1,711,021,866.04 Investment property 15,536,968.08 14,829,443.58 Property, plant and equipment 2,811,046,847.91 3,019,132,803.64 Construction in progress 25,703,496.87 25,796,329.33 Construction materials 1,609,204.75 663,894.82 Proceeds from disposal of property, plant and equipment Productive living assets Oil and gas assets Intangible assets 249,994,817.83 229,433,475.02 R&D expense Goodwill Long-term prepaid expense Deferred income tax assets 51,474,007.76 62,042,513.61 Other non-current assets 27,077,391.31 8,831,098.34 Total non-current assets 5,071,469,082.57 5,084,251,424.38 Total assets 7,557,619,874.07 7,189,678,264.46 Current liabilities: Short-term borrowings 622,438,413.87 503,005,010.24 Financial liabilities at fair value through profit or loss 87 Lu Thai Textile Co., Ltd. Annual Report 2017 Derivative financial liabilities Notes payable 6,124,239.92 Accounts payable 147,883,359.29 158,737,347.81 Advances from customers 52,314,250.61 54,552,285.78 Payroll payable 240,391,459.47 240,389,712.34 Taxes payable 17,297,415.92 47,790,003.82 Interest payable 973,134.21 646,147.15 Dividends payable 441,113.64 441,113.64 Other payables 22,933,385.28 19,309,386.42 Liabilities directly associated with assets classified as held for sale Current portion of non-current liabilities Other current liabilities Total current liabilities 1,110,796,772.21 1,024,871,007.20 Non-current liabilities: Long-term borrowings Bonds payable Including: Preferred shares Perpetual bonds Long-term payables Long-term payroll payable 93,843,473.02 79,122,422.89 Specific payables Provisions Deferred income 80,580,249.14 62,691,326.97 Deferred income tax liabilities 4,950.00 Other non-current liabilities Total non-current liabilities 174,428,672.16 141,813,749.86 Total liabilities 1,285,225,444.37 1,166,684,757.06 Owners’ equity: Share capital 922,602,311.00 922,602,311.00 Other equity instruments Including: Preferred shares Perpetual bonds Capital reserves 759,836,702.91 759,793,238.92 88 Lu Thai Textile Co., Ltd. Annual Report 2017 Less: Treasury shares Other comprehensive income 28,050.00 Specific reserve Surplus reserves 959,824,839.42 888,761,783.04 Retained earnings 3,630,102,526.37 3,451,836,174.44 Total owners’ equity 6,272,394,429.70 6,022,993,507.40 Total liabilities and owners’ equity 7,557,619,874.07 7,189,678,264.46 3. Consolidated Income Statement Unit: RMB Item 2017 2016 1. Operating revenue 6,409,224,044.97 5,990,493,909.36 Including: Sales revenue 6,409,224,044.97 5,990,493,909.36 Interest revenue Premium revenue Handling charge and commission revenue 2. Cost of operating revenue 5,469,545,482.56 5,023,662,230.26 Including: Cost of sales 4,477,047,784.68 4,007,101,690.65 Interest expense Handling charge and commission expense Surrenders Net claims paid Net amount provided as insurance contract reserve Expenditure on policy dividends Reinsurance premium expense Taxes and surtaxes 96,231,603.00 86,527,783.76 Selling expense 144,061,780.39 158,869,993.22 Administrative expense 651,530,968.94 661,355,141.82 Finance costs 63,342,671.31 20,949,153.10 Asset impairment losses 37,330,674.24 88,858,467.71 Add: Gains on changes in fair value (“-” 63,992,131.36 for losses) Investment income (“-” for loss) 2,331,330.34 -60,779,660.20 89 Lu Thai Textile Co., Ltd. Annual Report 2017 Including: Share of profit or loss of -2,463,267.98 joint ventures and associates Foreign exchange gains (“-” for losses) Asset disposal income (“-” for loss) 1,242,000.54 -6,843,361.94 Other income 58,099,783.92 3. Operating income (“-” for loss) 1,001,351,677.21 963,200,788.32 Add: Non-operating income 12,122,767.09 73,687,483.32 Less: Non-operating expense 9,022,725.64 7,118,710.24 4. Pretax income (“-” for loss) 1,004,451,718.66 1,029,769,561.40 Less: Income tax expense 121,132,609.06 173,382,412.36 5. Net income (“-” for net loss) 883,319,109.60 856,387,149.04 5.1 Net income from continuing 883,319,109.60 856,387,149.04 operations (“-” for net loss) 5.2 Net income from discontinued operations (“-” for net loss) Attributable to owners of Parent 841,150,934.75 808,760,025.91 Company Attributable to non-controlling 42,168,174.85 47,627,123.13 interests 6. Other comprehensive income, net of -36,482,970.67 36,202,772.58 tax Attributable to owners of Parent -36,482,970.67 36,202,772.58 Company 6.1 Items that will not be reclassified to profit or loss 6.1.1 Changes in net liabilities or assets caused by remeasurements on defined benefit pension schemes 6.1.2 Share of other comprehensive income of investees that will not be reclassified to profit or loss under equity method 6.2 Items that may subsequently be -36,482,970.67 36,202,772.58 reclassified to profit or loss 6.2.1 Share of other comprehensive income of investees that will be reclassified to profit or loss under equity method 6.2.2 Gains/Losses on changes in fair value of available-for-sale financial 28,050.00 assets 90 Lu Thai Textile Co., Ltd. Annual Report 2017 6.2.3 Gains/Losses arising from reclassification of held-to-maturity investments to available-for-sale financial assets 6.2.4 Effective gains/losses on cash flow hedges 6.2.5 Differences arising from translation of foreign -36,511,020.67 36,202,772.58 currency-denominated financial statements 6.2.6 Other Attributable to non-controlling interests 7. Total comprehensive income 846,836,138.93 892,589,921.62 Attributable to owners of Parent 804,667,964.08 844,962,798.49 Company Attributable to non-controlling 42,168,174.85 47,627,123.13 interests 8. Earnings per share 8.1 Basic earnings per share 0.91 0.85 8.2 Diluted earnings per share 0.91 0.85 Where business mergers under the same control occurred in the current period, the net income achieved by the merged parties before the business mergers was RMB4,145,908.17, with the amount for last year being RMB3,313,698.92. Legal representative: Liu Zibin Chief Accountant: Zhang Hongmei Financial Manager: Zhang Keming 4. Parent Company Income Statement Unit: RMB Item 2017 2016 1. Sales revenue 5,146,496,112.54 5,078,847,567.10 Less: Cost of sales 3,736,059,702.41 3,604,147,665.88 Taxes and surtaxes 70,180,764.01 59,722,954.27 Selling expense 91,517,514.19 85,012,619.20 Administrative expense 442,784,766.99 458,281,382.46 Finance costs 21,229,673.23 15,651,562.69 Asset impairment losses 12,803,852.07 104,344,445.08 Add: Gains on changes in fair value 39,527,800.00 (“-” for losses) 91 Lu Thai Textile Co., Ltd. Annual Report 2017 Investment income (“-” for loss) 20,371,762.61 21,172,648.92 Including: Share of profit or loss -2,463,267.98 of joint ventures and associates Asset disposal income (“-” for -14,364,342.23 1,556,063.22 loss) Other income 41,705,496.22 2. Operating income (“-” for loss) 819,632,756.24 813,943,449.66 Add: Non-operating income 5,449,927.03 29,667,999.54 Less: Non-operating expense 4,693,009.37 2,265,787.24 3. Pretax income (“-” for loss) 820,389,673.90 841,345,661.96 Less: Income tax expense 109,759,110.09 110,212,874.41 4. Net income (“-” for net loss) 710,630,563.81 731,132,787.55 4.1 Net income from continuing 710,630,563.81 731,132,787.55 operations (“-” for net loss) 4.2 Net income from discontinued operations (“-” for net loss) 5. Other comprehensive income, net of 28,050.00 tax 5.1 Items that will not be reclassified to profit or loss 5.1.1 Changes in net liabilities or assets caused by remeasurements on defined benefit pension schemes 5.1.2 Share of other comprehensive income of investees that will not be reclassified into profit or loss under equity method 5.2 Items that may subsequently be 28,050.00 reclassified to profit or loss 5.2.1 Share of other comprehensive income of investees that will be reclassified into profit or loss under equity method 5.2.2 Gains/Losses on changes in fair value of available-for-sale financial 28,050.00 assets 5.2.3 Gains/Losses arising from reclassification of held-to-maturity investments to available-for-sale financial assets 5.2.4 Effective gains/losses on 92 Lu Thai Textile Co., Ltd. Annual Report 2017 cash flow hedges 5.2.5 Differences arising from translation of foreign currency-denominated financial statements 5.2.6 Other 6. Total comprehensive income 710,658,613.81 731,132,787.55 7. Earnings per share 7.1 Basic earnings per share 7.2 Diluted earnings per share 5. Consolidated Cash Flow Statement Unit: RMB Item 2017 2016 1. Cash generated by or used in operating activities: Proceeds from sale of commodities 6,219,235,885.20 5,883,566,531.04 and rendering of services Net increase in customer deposits and deposits from banks and other financial institutions Net increase in loans from central bank Net increase in loans from other financial institutions Premiums received on original insurance contracts Net proceeds from reinsurance Net increase in deposits and investments of policy holders Net increase in proceeds from disposal of financial assets at fair value through profit or loss Interest, handling charges and commissions received Net increase in interbank loans obtained Net increase in proceeds from repurchase transactions Tax rebates received 219,602,657.95 197,711,424.88 93 Lu Thai Textile Co., Ltd. Annual Report 2017 Cash generated by other operating 104,656,352.43 102,147,503.54 activities Subtotal of cash generated by operating 6,543,494,895.58 6,183,425,459.46 activities Payments for goods and services 3,405,465,059.44 2,825,602,104.24 Net increase in loans and advances to customers Net increase in deposits in central bank and in interbank loans granted Payments for claims on original insurance contracts Interest, handling charges and commissions paid Policy dividends paid Cash paid to and for employees 1,537,319,127.10 1,428,732,145.22 Taxes paid 305,512,465.13 380,705,302.09 Cash used in other operating 257,163,190.48 233,653,623.46 activities Subtotal of cash used in operating 5,505,459,842.15 4,868,693,175.01 activities Net cash flows from operating activities 1,038,035,053.43 1,314,732,284.45 2. Cash generated by or used in investing activities: Proceeds from disinvestments Investment income received Net proceeds from disposal of property, plant and equipment, 8,757,416.99 2,104,478.61 intangible assets and other long-lived assets Net proceeds from disposal of subsidiaries or other business units Cash generated by other investing 75,806,318.05 32,521,368.79 activities Subtotal of cash generated by investing 84,563,735.04 34,625,847.40 activities Payments for acquisition of property, plant and equipment, intangible assets 617,226,044.44 873,466,208.61 and other long-lived assets Payments for investments 210,000,000.00 Net increase in pledged loans granted Net payments for acquisition of 94 Lu Thai Textile Co., Ltd. Annual Report 2017 subsidiaries and other business units Cash used in other investing 1,263,998.65 41,519,234.00 activities Subtotal of cash used in investing 828,490,043.09 914,985,442.61 activities Net cash flows from investing activities -743,926,308.05 -880,359,595.21 3. Cash generated by or used in financing activities: Capital contributions received 500,000.00 Including: Capital contributions by 500,000.00 non-controlling interests to subsidiaries Increase in borrowings 2,156,301,279.43 2,215,183,445.08 Net proceeds from issuance of bonds Cash generated by other financing 232,455,600.00 39,344,422.42 activities Subtotal of cash generated by financing 2,389,256,879.43 2,254,527,867.50 activities Repayment of borrowings 1,924,349,996.85 2,047,960,531.26 Payments for interest and dividends 524,005,417.80 497,559,966.43 Including: Dividends paid by 12,023,566.38 12,023,566.38 subsidiaries to non-controlling interests Cash used in other financing 178,430,428.00 261,629,544.91 activities Subtotal of cash used in financing 2,626,785,842.65 2,807,150,042.60 activities Net cash flows from financing activities -237,528,963.22 -552,622,175.10 4. Effect of foreign exchange rate -39,056,706.97 8,538,528.70 changes on cash and cash equivalents 5. Net increase in cash and cash 17,523,075.19 -109,710,957.16 equivalents Add: Cash and cash equivalents, 659,116,137.67 768,827,094.83 beginning of the period 6. Cash and cash equivalents, end of the 676,639,212.86 659,116,137.67 period 6. Parent Company Cash Flow Statement Unit: RMB Item 2017 2016 1. Cash generated by or used in operating activities: 95 Lu Thai Textile Co., Ltd. Annual Report 2017 Proceeds from sale of commodities 5,031,327,920.20 5,092,041,690.19 and rendering of services Tax rebates received 147,979,834.16 151,105,262.23 Cash generated by other operating 48,434,983.38 31,468,452.51 activities Subtotal of cash generated by operating 5,227,742,737.74 5,274,615,404.93 activities Payments for goods and services 2,835,545,725.67 2,705,013,474.52 Cash paid to and for employees 1,101,800,926.25 1,072,276,579.49 Taxes paid 203,201,646.35 185,976,982.65 Cash used in other operating 149,048,367.90 136,946,899.89 activities Subtotal of cash used in operating 4,289,596,666.17 4,100,213,936.55 activities Net cash flows from operating activities 938,146,071.57 1,174,401,468.38 2. Cash generated by or used in investing activities: Proceeds from disinvestments Investment income received 17,976,433.62 55,179,470.68 Net proceeds from disposal of property, plant and equipment, 3,857,174.49 1,413,254.61 intangible assets and other long-lived assets Net proceeds from disposal of subsidiaries or other business units Cash generated by other investing 369,607,376.66 2,931,847.14 activities Subtotal of cash generated by investing 391,440,984.77 59,524,572.43 activities Payments for acquisition of property, plant and equipment, intangible assets 158,989,610.94 163,318,218.59 and other long-lived assets Payments for investments 217,934,750.00 137,295,249.67 Net payments for acquisition of subsidiaries and other business units Cash used in other investing 547,733,600.00 346,158,324.00 activities Subtotal of cash used in investing 924,657,960.94 646,771,792.26 activities Net cash flows from investing activities -533,216,976.17 -587,247,219.83 3. Cash generated by or used in 96 Lu Thai Textile Co., Ltd. Annual Report 2017 financing activities: Capital contributions received Increase in borrowings 1,549,844,124.40 1,498,632,773.04 Net proceeds from issuance of bonds Cash generated by other financing 86,890,400.00 activities Subtotal of cash generated by financing 1,636,734,524.40 1,498,632,773.04 activities Repayment of borrowings 1,387,780,386.17 1,543,292,096.38 Payments for interest and dividends 473,154,729.91 474,745,698.14 Cash used in other financing 69,000,000.00 253,629,544.91 activities Sub-total of cash used in financing 1,929,935,116.08 2,271,667,339.43 activities Net cash flows from financing activities -293,200,591.68 -773,034,566.39 4. Effect of foreign exchange rate -20,935,533.57 1,570,774.33 changes on cash and cash equivalents 5. Net increase in cash and cash 90,792,970.15 -184,309,543.51 equivalents Add: Cash and cash equivalents, 177,016,859.63 361,326,403.14 beginning of the period 6. Cash and cash equivalents, end of the 267,809,829.78 177,016,859.63 period 7. Consolidated Statements of Changes in Owners’ Equity 2017 Unit: RMB 2017 Equity attributable to owners of Parent Company Other equity Non-co Other Retaine Total Item instruments Less: ntrollin Share Capital compre Specific Surplus General d owners’ Prefer Perpet Treasur g capital reserves hensive reserve reserves reserve earning equity red ual Other y shares interests income s shares bonds 922,60 4,341,8 7,446,0 1. Balances as of 761,280 53,293, 891,870 475,088 2,311. 66,189. 01,236. end of prior year ,557.83 544.89 ,522.68 ,111.17 00 19 76 Add: Adjustments for changed accounting 97 Lu Thai Textile Co., Ltd. Annual Report 2017 policies Adjustments for corrections of previous errors Adjustments for business mergers under same control Other adjustments 2. Balances as of 922,60 4,341,8 7,446,0 761,280 53,293, 891,870 475,088 beginning of the 2,311. 66,189. 01,236. ,557.83 544.89 ,522.68 ,111.17 year 00 19 76 3. Increase/ decrease in the -61,786, -36,482, 71,063, 287,236 69,044, 329,074 period (“-” for 964.01 970.67 056.38 ,522.87 608.47 ,253.04 decrease) 3.1 Total -36,482, 841,150 42,168, 846,836 comprehensive 970.67 ,934.75 174.85 ,138.93 income 3.2 Capital -61,786, 38,900, -22,886, increased and 964.01 000.00 964.01 reduced by owners 3.2.1 Common shares 500,000 500,000 increased by .00 .00 shareholders 3.2.2 Capital increased by holders of other equity instruments 3.2.3 Share-based payments included in owners’ equity -61,786, 38,400, -23,386, 3.2.4 Other 964.01 000.00 964.01 -553,91 -494,87 3.3 Profit 71,063, -12,023, 4,411.8 4,921.8 distribution 056.38 566.38 8 8 3.3.1 71,063, -71,063, Appropriation to 056.38 056.38 surplus reserves 3.3.2 98 Lu Thai Textile Co., Ltd. Annual Report 2017 Appropriation to general reserve 3.3.3 -482,85 -494,87 Appropriation to -12,023, 1,355.5 4,921.8 owners (or 566.38 0 8 shareholders) 3.3.4 Other 3.4 Carryforwards within owners’ equity 3.4.1 Increase in capital (or share capital) from capital reserves 3.4.2 Increase in capital (or share capital) from surplus reserves 3.4.3 Surplus reserves used to make up losses 3.4.4 Other 3.5 Specific reserve 3.5.1 Withdrawn for the period 3.5.2 Used during the period 3.6 Other 922,60 4,629,1 7,775,0 4. Balances as of 699,493 16,810, 962,933 544,132 2,311. 02,712. 75,489. end of the period ,593.82 574.22 ,579.06 ,719.64 00 06 80 2016 Unit: RMB 2016 Equity attributable to owners of Parent Company Non-co Other equity Other ntrollin Total Item Less: Retaine Share instruments Capital compre Specific Surplus General g owners’ Treasur d capital reserves hensive reserve reserves reserve interest equity Prefer Perpet Other y shares earnings income s 99 Lu Thai Textile Co., Ltd. Annual Report 2017 red ual shares bonds 955,75 1,007,1 4,053,0 7,276,5 1. Balances as of 11,610, 17,090, 815,648 439,484 8,496. 46,166. 79,857. 97,630. end of prior year 721.68 772.31 ,504.28 ,554.42 00 97 70 00 Add: Adjustments for changed accounting policies Adjustments for corrections of previous errors Adjustments for 7,840,0 2,777,3 18,996, 29,613, business mergers 00.00 69.75 327.73 697.48 under same control Other adjustments 2. Balances as of 955,75 1,014,9 4,072,0 7,306,2 11,610, 17,090, 818,425 439,484 beginning of the 8,496. 86,166. 76,185. 11,327. 721.68 772.31 ,874.03 ,554.42 year 00 97 43 48 3. Increase/ -33,15 -253,70 decrease in the -11,610, 36,202, 73,444, 269,790 35,603, 139,789 6,185. 5,609.1 period (“-” for 721.68 772.58 648.65 ,003.76 556.75 ,909.28 00 4 decrease) 3.1 Total 36,202, 808,760 47,627, 892,589 comprehensive 772.58 ,025.91 123.13 ,921.62 income 3.2 Capital -33,15 -253,70 -275,25 -11,610, increased and 6,185. 5,609.1 1,072.4 721.68 reduced by owners 00 4 6 3.2.1 -33,15 -253,70 -275,25 Common shares -11,610, 6,185. 6,278.0 1,741.3 increased by 721.68 00 5 7 shareholders 3.2.2 Capital increased by holders of other equity instruments 3.2.3 Share-based payments included in owners’ equity 3.2.4 Other 668.91 668.91 100 Lu Thai Textile Co., Ltd. Annual Report 2017 -538,97 -477,54 3.3 Profit 73,444, -12,023 0,022.1 8,939.8 distribution 648.65 ,566.38 5 8 3.3.1 73,444, -73,444, Appropriation to 648.65 648.65 surplus reserves 3.3.2 Appropriation to general reserve 3.3.3 -465,52 -477,54 Appropriation to -12,023 5,373.5 8,939.8 owners (or ,566.38 0 8 shareholders) 3.3.4 Other 3.4 Carryforwards within owners’ equity 3.4.1 Increase in capital (or share capital) from capital reserves 3.4.2 Increase in capital (or share capital) from surplus reserves 3.4.3 Surplus reserves used to make up losses 3.4.4 Other 3.5 Specific reserve 3.5.1 Withdrawn for the period 3.5.2 Used during the period 3.6 Other 922,60 4,341,8 7,446,0 4. Balances as of 761,280 53,293, 891,870 475,088 2,311. 66,189. 01,236. end of the period ,557.83 544.89 ,522.68 ,111.17 00 19 76 101 Lu Thai Textile Co., Ltd. Annual Report 2017 8. Parent Company Statements of Changes in Owners’ Equity 2017 Unit: RMB 2017 Other equity instruments Other Less: Retaine Total Item Share Capital comprehe Specific Surplus Preferre Perpetu Treasury d owners’ capital Other reserves nsive reserve reserves d shares al bonds shares earnings equity income 3,451,8 1. Balances as of 922,602, 759,793,2 888,761,7 6,022,993 36,174. end of prior year 311.00 38.92 83.04 ,507.40 44 Add: Adjustments for changed accounting policies Adjustments for corrections of previous errors Other adjustments 2. Balances as of 3,451,8 922,602, 759,793,2 888,761,7 6,022,993 beginning of the 36,174. 311.00 38.92 83.04 ,507.40 year 44 3. Increase/ decrease in the 71,063,05 178,266 249,400,9 43,463.99 28,050.00 period (“-” for 6.38 ,351.93 22.30 decrease) 3.1 Total 710,630 710,658,6 comprehensive 28,050.00 ,563.81 13.81 income 3.2 Capital increased and 43,463.99 43,463.99 reduced by owners 3.2.1 Common shares increased by shareholders 3.2.2 Capital increased by holders of other equity instruments 3.2.3 102 Lu Thai Textile Co., Ltd. Annual Report 2017 Share-based payments included in owners’ equity 3.2.4 Other 43,463.99 43,463.99 -532,36 3.3 Profit 71,063,05 -461,301, 4,211.8 distribution 6.38 155.50 8 3.3.1 71,063,05 -71,063, Appropriation to 6.38 056.38 surplus reserves 3.3.2 -461,30 Appropriation to -461,301, 1,155.5 owners (or 155.50 0 shareholders) 3.3.3 Other 3.4 Carryforwards within owners’ equity 3.4.1 Increase in capital (or share capital) from capital reserves 3.4.2 Increase in capital (or share capital) from surplus reserves 3.4.3 Surplus reserves used to make up losses 3.4.4 Other 3.5 Specific reserve 3.5.1 Withdrawn for the period 3.5.2 Used during the period 3.6 Other 3,630,1 4. Balances as of 922,602, 759,836,7 959,824,8 6,272,394 28,050.00 02,526. end of the period 311.00 02.91 39.42 ,429.70 37 103 Lu Thai Textile Co., Ltd. Annual Report 2017 2016 Unit: RMB 2016 Other equity instruments Other Less: Retaine Total Item Share Capital comprehe Specific Surplus Preferre Perpetu Treasury d owners’ capital Other reserves nsive reserve reserves d shares al bonds shares earnings equity income 3,259,3 1. Balances as of 955,758, 1,013,498 11,610,72 815,648,5 6,032,637 42,039. end of prior year 496.00 ,848.06 1.68 04.28 ,165.81 15 Add: Adjustments for changed accounting policies Adjustments for corrections of previous errors Other adjustments 2. Balances as of 3,259,3 955,758, 1,013,498 11,610,72 815,648,5 6,032,637 beginning of the 42,039. 496.00 ,848.06 1.68 04.28 ,165.81 year 15 3. Increase/ decrease in the -33,156, -253,705, -11,610,7 73,113,27 192,494 -9,643,65 period (“-” for 185.00 609.14 21.68 8.76 ,135.29 8.41 decrease) 3.1 Total 731,132 731,132,7 comprehensive ,787.55 87.55 income 3.2 Capital -33,156, -253,705, -11,610,7 -275,251, increased and 185.00 609.14 21.68 072.46 reduced by owners 3.2.1 Common shares -33,156, -253,706, -11,610,7 -275,251, increased by 185.00 278.05 21.68 741.37 shareholders 3.2.2 Capital increased by holders of other equity instruments 3.2.3 Share-based payments included 104 Lu Thai Textile Co., Ltd. Annual Report 2017 in owners’ equity 3.2.4 Other 668.91 668.91 -538,63 3.3 Profit 73,113,27 -465,525, 8,652.2 distribution 8.76 373.50 6 3.3.1 73,113,27 -73,113, Appropriation to 8.76 278.76 surplus reserves 3.3.2 -465,52 Appropriation to -465,525, 5,373.5 owners (or 373.50 0 shareholders) 3.3.3 Other 3.4 Carryforwards within owners’ equity 3.4.1 Increase in capital (or share capital) from capital reserves 3.4.2 Increase in capital (or share capital) from surplus reserves 3.4.3 Surplus reserves used to make up losses 3.4.4 Other 3.5 Specific reserve 3.5.1 Withdrawn for the period 3.5.2 Used during the period 3.6 Other 3,451,8 4. Balances as of 922,602, 759,793,2 888,761,7 6,022,993 36,174. end of the period 311.00 38.92 83.04 ,507.40 44 105 Lu Thai Textile Co., Ltd. Annual Report 2017 III. Company Profile Lu Thai Textile Co., Ltd. (hereinafter referred to as the “Company”) is a joint venture established by Zibo Lucheng Textile Investment Co., Ltd (originally named Zibo Lucheng Textile Co., Ltd, hereinafter referred to as Lucheng Textile) and Thailand Tailun Textile Co., Ltd. On Feb. 3, 1993, the Company is approved by the former Ministry of Foreign Trade and Economy of the State (1993) in WJMZEHZ No. 59 to convert into a joint-stock enterprise. Zibo Administration for Industry and Commerce issued the Company corporate business license with the registration No. of QGLZZZ No. 000066. In July 1997, the Company is approved by the Securities Committee of the Department of the State in the ZWF (1997) No. 47 to issue 80 million shares of domestically listed foreign share( B-shares) at the price of RMB 1.00 per share. Upon approved by Shenzhen Stock Exchange with No. (1997) 296 Listing Notice, the Company is listed on the Shenzhen Stock Exchange on August 19, 1997 with B-shares stock code of 200726. On November 24, 2000, approved by ZJGSZ [2000] No.199 by CSRC, the Company increased publication of 50 million shares of general share (A-shares) at the book value of RMB 1.00, which are listed on the Shenzhen Stock Exchange on December 25, 2000 with A-shares stock code of 000726 through approval by Shenzhen Stock Exchange with No. (2000) 162 Listing Notice. As approved by 2000 Shareholders’ General Meeting in May, 2001, the Company carried out the distribution plan that 10 shares of capital public reserve are converted to 3 more shares for each 10 shares. As approved by Resolutions of 2001 Shareholders’ General Meeting in June 2002, the Company implemented the distribution plan that 10 shares of capital public reserve are converted 3 more shares for each 10 shares again. As approved by 2002 Shareholders’ General Meeting in May 2003, the Company implemented the distribution plan that 10 shares of capital public reserve are 2 more shares for each 10 shares, and inner employees’ shared increased to 40.56 million shares. As examined and approved by ZJGSZ No. [2000] 199 of CSRC, the inner employees’ shares will start circulation 3 years later since listing on the A-share market. On Dec. 25, 2003, the inner employees’ shares reach 3 years since listing on the A-share stock market, and they set out circulation on Dec.26, 2003. As approved by the Shareholders’ General Meeting 2006 held in June 2007, the Company implemented the plan on converting 10 shares to all its shareholders with capital reserves for every 10 shares. After capitalization, the registered capital of the Company was RMB 844.8648 million. The Company, in accordance with the official reply on approving Lu Thai Textile Co., Ltd. to issue additional shares (ZJXK [2008] No. 890 document) from CSRC, issued the Renminbi common shares (A shares) amounting to 150 million shares on 8 Dec. 2008. According to the relevant resolution of the 2nd Special Shareholders’ General Meeting for 2011, the relevant resolution of the 15th Session of the 6th Board of Directors, the Opinion of China Securities Regulatory Commission on the Restricted Share Incentive Plan of Lu Thai Textile Co., Ltd. (Shang-Shi-Bu-Han [2011] No. 206), the Company applied for a registered capital increment of RMB 14.09 million, which was contributed by restricted share incentive receivers with monetary funds. In accordance with the resolution of Proposal on Repurchasing and Canceling Partial Restricted Shares already Granted for the Original Incentive Targets not Reaching the Incentive Conditions made at the 23rd Session of the 6th Board of Directors on 13 Aug. 2012, the Company canceling a total of 60,000.00 shares already granted for the original incentive targets not reaching the incentive conditions. According to the second temporary resolution of Proposal on counter purchase of part of the domestic listed foreign share (B share) on 25 Jun. 2012, the Company counter purchase domestic listed foreign share (B share) 48,837,300 shares. According to the Proposal on Repurchase and Cancel Part of Unlocked Restricted Share of the Original Incentive Personnel not Conforming to the Incentive Condition, Proposal on Repurchase and Cancel unlocked Restricted Share in Second Unlocked Period of all the Incentive Personnel reviewed and approved by the 26th meeting of 6th session of the board of the directors on 27 Mar. 2013, the Company repurchase and cancel 4,257,000 shares owned by original people whom to motivate. According to the Proposal on Repurchase and Write-off of Partly of the Original Incentive Targets Not Met with the Incentive Conditions but Granted Restricted Shares approved on the 11th Session of the 7th Board of Directors on 11 Jun. 2014, to execute repurchase and write-off of the whole granted shares of 42,000 shares of the original incentive targets not met with the incentive targets of the Company. As per the Proposal on Buy-back of Some A- and B-shares considered and approved as a resolution at the 1st special meeting of shareholders on August 5, 2015, the Company repurchased 33,156,200 domestically listed foreign shares (B-shares). As of December 31, 2017, the registered capital of the Company was RMB922.6023 million. 106 Lu Thai Textile Co., Ltd. Annual Report 2017 The Company’s registered address: No. 11, Mingbo Road, Hi-tech Development Zone, Zibo, Shandong The Company’s legal representative: Liu Zibin The Company’s business scope includes the production, processing and sales business of cotton yarn, yarn dyed fabrics, shirts, fashion accessories, health underwear and other textile products and their mating products; design, R&D and technology services of the textile and garment products; acquisition and export of products not under exclusive rights or quota licenses; and hotel, guesthouses, catering, conferences, and training services; rental business of the self-owned houses and land; the construction and management of the purified water projects. The Company’s financial statements have been approved for issue by the Board of Directors of the Company on April 15, 2018. There were 16 subsidiaries included into the consolidation scope of the Company in 2017, and for the details, please refer to Notes IX. “Equities among Other Entities”. There was 1 increased subsidiary in the consolidation scope as compared with last year, and please refer to Notes VIII. “Changes in Consolidation Scope” for details. IV Basis for Preparation of Financial Statements 1. Preparation Basis With the going-concern assumption as the basis and based on transactions and other events that actually occurred, the Group prepared financial statements in accordance with The Accounting Standards for Business Enterprises—Basic Standard issued by the Ministry of Finance with Decree No. 33 and revised with Decree No. 76, the 42 specific accounting standards, the Application Guidance of Accounting Standards for Business Enterprises, the Interpretation of Accounting Standards for Business Enterprises and other regulations issued and revised from February 15, 2006 onwards (hereinafter jointly referred to as “the Accounting Standards for Business Enterprises”, “China Accounting Standards” or “CAS”), as well as the Rules for Preparation Convention of Disclosure of Public Offering Companies No.15 – General Regulations for Financial Reporting (revised in 2014) by China Securities Regulatory Commission. In accordance with relevant provisions of the Accounting Standards for Business Enterprises, the Group adopted the accrual basis in accounting. Except for some financial instruments, the financial statements were based on historical costs for measurement. Non-current asset held for sale was priced according to the lower one between the amount of fair value minus estimated costs and the original book value which complies with the conditions of holding for sale. If impairment occurred on an asset, an impairment reserve was withdrawn accordingly pursuant to relevant requirements. V Important Accounting Policies and Estimations Is the Company subject to any disclosure requirements for special industries? No. Indication of specific accounting policies and estimations: The Company and each subsidiary mainly engage in the production and operation of textile products. The Company and each subsidiary according to the actual production and operation characteristics and the regulations of the relevant ASBE, formulated certain specific accounting polices and accounting estimates of the transactions and events such as recognizing the revenues, and please refer to each description of the section for details. As for the notes to the important accounting judgment and estimations made by the management level, please refer to the 27. “Other important accounting policies and estimations” of the section. 107 Lu Thai Textile Co., Ltd. Annual Report 2017 1. Statement of Compliance with the Accounting Standards for Business Enterprises The financial statements prepared by the Company are in compliance with in compliance with the Accounting Standards for Business Enterprises, which factually and completely present the Company’s, and the Company’s financial positions as at December 31, 2017, business results and cash flows for the year of 2017 and other relevant information. In addition, the Company’s and the Company’s financial statements meet the requirements of disclosing financial statements and notes thereto stated in the Rules for Preparation Convention of Disclosure of Public Offering Companies No.15 – General Regulations for Financial Reporting (revised in 2014) by China Securities Regulatory Commission. 2. Fiscal Year The Company’s fiscal periods include fiscal years and fiscal periods shorter than a complete fiscal year. The Company’s fiscal year starts on 1 Jan. and ends on 31 Dec. of every year according to the Gregorian calendar. 3. Operating Cycle Normal operating cycle refers to the period from the Group purchases the assets for processing to realize the cash or cash equivalents. The Group regards 12 months as an operating cycle and regards which as the partition criterion of the mobility of the assets and liabilities. 4. Recording Currency Renminbi (RMB) is regarded as the prevailing currency used in the main economic circumstances of the Company and its domestic subsidiaries. The Company and its domestic subsidiaries adopt RMB as the recording currency. The Company and its overseas subsidiaries confirm to adopt HK Dollar, US Dollar and Vietnamese Dong as the recording currency according their major economic environment of the operating. When preparing the financial statements for the Reporting Period, the Company adopted RMB as the recording currency. 5. Accounting Treatment Methods for Business Combinations under the Same Control or not under the Same Control Business combinations, it is refer to two or more separate enterprises merge to form a reporting entity transactions or events. Business combination is divided into under the same control and those non under the same control. (1) Business combinations under the same control A business combination under the same control is a business combination in which all of the combining enterprises are ultimately controlled by the same party or the same parties both before and after the business combination and on which the control is not temporary. In a business combination under the same control, the party which obtains control of other combining enterprise(s) on the combining date is the combining party, the other combining enterprise(s) is (are) the combined party. The “combining date” refers to the date on which the combining party actually obtains control on the combined party. The assets and liabilities that the combining party obtains in a business combination shall be measured on the basis of their carrying amount in the combined party on the combining date. As for the balance between the carrying amount of the net assets obtained by the combining party and the carrying amount of the consideration paid by it (or the total par value of the shares issued), the additional paid-in capital (share premium) shall be adjusted. If the additional paid-in capital (share premium) is not sufficient to be offset, the retained earnings shall be adjusted. 108 Lu Thai Textile Co., Ltd. Annual Report 2017 The direct cost for the business combination of the combining party shall be recorded into the profits and losses at the current period. (2) Business combinations not under the same control A business combination not under the same control is a business combination in which the combining enterprises are not ultimately controlled by the same party or the same parties both before and after the business combination. In a business combination not under the same control, the party which obtains the control on other combining enterprise(s) on the purchase date is the acquirer, and other combining enterprise(s) is (are) the acquiree. For a business combination not under the same control, the combination costs shall include the fair values, on the acquisition date, of the assets paid, the liabilities incurred or assumed and the equity securities issued by the acquirer in exchange for the control on the acquiree, the expenses for audit, legal services and assessment, and other administrative expenses, which are recorded into the profits and losses in the current period. The trading expenses for the equity securities or debt securities issued by the acquirer as the combination consideration shall be recorded into the amount of initial measurement of the equity securities or debt securities. The involved contingent consideration shall be recorded into the combination costs at its fair value on the acquiring date. Where new or further evidences emerge, within 12 months since the acquiring date, against the existing circumstances on the acquiring date and the contingent consideration thus needs to be adjusted, the combined goodwill shall be adjusted accordingly. The combination costs of the acquirer and the identifiable net assets obtained by it in the combination shall be measured according to their fair values at the acquiring date. The acquirer shall recognize the positive balance between the combination costs and the fair value of the identifiable net assets it obtains from the acquiree as business reputation. Where the combination costs are less then the fair value of the identifiable net assets it obtains from the acquiree, the acquirer shall re-examine the measurement of the fair values of the identifiable assets, liabilities and contingent liabilities it obtains from the acquiree as well as the combination costs. If, after the reexamination, the combination costs are still less than the fair value of the identifiable net assets it obtains from the acquiree, the acquirer shall record the balance into the profits and losses of the current period. As for the deductible temporary differences the acquirer obtains from the acquiree which are not recognized into deferred income tax liabilities due to their not meeting the recognition standards, if new or further information shows that the relevant situation has existed on the acquiring date and the economic benefits brought by the deductible temporary differences the acquirer obtains from the acquiree on the acquiring date can be realized, they shall be recognized into deferred income tax assets and the relevant goodwill shall be reduced. Where the goodwill is not sufficient to be offset, the difference shall be recognized into the profits and losses in the current period. In other circumstances than the above, where the deductible temporary differences are recognized into deferred income tax assets on the acquiring date, they shall be recorded into the profits and losses in the current period. In a business combination not under same control realized by two or more transactions of exchange, according to about the 5th Notice about the Treasury Issuing the Accounting Standards for Enterprises (Finance accounting) [2012] No. 19 Criterion about the “package deal” (see 6 (2) in this section), Whether the deals are “package deal” or not, belong to the “package deal”, see the previous paragraphs described in this section and 13. “long term equity investment transaction” in this section and conduct accounting treatment, those not belong to the "package deal" distinguish between the individual financial statements and the consolidated financial statements and conduct relevant accounting treatment. In the individual financial statements, the sum of the book value and new investment cost of the Company holds in the acquiree before the acquiring date shall be considered as initial cost of the investment. Other related comprehensive gains in relation to the equity interests that the Company holds in the acquiree before the acquiring date shall be treated on the same basis as the acquiree directly disposes the related assets or liabilities when disposing the investment (that is, except for the corresponding share in the changes in the net liabilities or assets with a defined benefit plan measured at the equity method arising from the acquiree’s re-measurement, the others shall be transferred into current investment gains). In the Company’s consolidated financial statements, as for the equity interests that the Company holds in the acquiree before the acquiring date, they shall be re-measured according to their fair values at the acquiring date; the positive difference between their fair values and carrying amounts shall be recorded into the investment gains for the period including the acquiring date. Other related comprehensive gains in relation to the equity interests that the Company holds in the acquiree before the acquiring date shall be 109 Lu Thai Textile Co., Ltd. Annual Report 2017 treated on the same basis as the acquiree directly disposes the related assets or liabilities when disposing the investment (that is, except for the corresponding share in the changes in the net liabilities or assets with a defined benefit plan measured at the equity method arising from the acquiree’s re-measurement, the others shall be transferred into current investment gains on the acquiring date). 6. Methods for Preparing Consolidated Financial Statements (1) Principle for determining the consolidation scope The consolidation scope for financial statements is determined on the basis of control. The term “control” is the power of the Company upon an investee, with which it can take part in relevant activities of the investee to obtain variable returns and is able to influence the amount of returns. The consolidated financial statements comprise the financial statements of the Company and its subsidiaries. A subsidiary is an enterprise or entity controlled by the Company. Once any changes in the relevant facts or situations resulted in any changes in the elements involved in the aforesaid definition of “control”, the Company shall carry out a reassessment. (2) Methods for preparing the consolidated financial statements Subsidiaries are fully consolidated from the date on which the Company obtains control on their net assets and operation decision-making and are de-consolidated from the date when such control ceases. As for a disposed subsidiary, its operating results and cash flows before the disposal date has been appropriately included in the consolidated income statement and cash flow statement; and as for subsidiaries disposed in the current period, the opening items in the consolidated balance sheet are not adjusted. For a subsidiary acquired in a business combination not under the same control, its operating results and cash flows after the acquiring date have been appropriately included in the consolidated income statement and cash flow statement, and the opening items and comparative items in the consolidated financial statements are not adjusted. For a subsidiary acquired in a business combination under the same control or a combined party obtained in a takeover, its operating results and cash flows from the beginning of the Reporting Period of the combination to the combination date have been appropriately included in the consolidated income statement and cash flow statement, and the comparative items in the consolidated financial statements are adjusted at the same time. The financial statements of subsidiaries are adjusted in accordance with the accounting policies and accounting period of the Company during the preparation of the consolidated financial statements, where the accounting policies and the accounting periods are inconsistent between the Company and subsidiaries. For a subsidiary acquired from a business combination not under the same control, the individual financial statements of the subsidiary are adjusted based on the fair value of the identifiable net assets at the acquisition date. All significant inter-group balances, transactions and unrealized profits are offset in the consolidated financial statements. The portion of a subsidiary’s shareholders’ equity and the portion of a subsidiary’s net profits and losses for the period not held by the Company are recognized as minority interests and minority shareholder profits and losses respectively and presented separately under shareholders’ equity and net profits in the consolidation financial statements. The portion of a subsidiary’s net profits and losses for the period that belong to minority interests is presented as the item of “minority shareholder profits and losses” under the bigger item of net profits in the consolidated financial statements. Where the loss of a subsidiary shared by minority shareholders exceeds the portion enjoyed by minority shareholders in the subsidiary’s opening owners’ equity, minority interests are offset. Where the Company losses control on its original subsidiaries due to disposal of some equity investments or other reasons, the residual equity interests are re-measured according to the fair value on the date when such control ceases. The summation of the consideration obtained from the disposal of equity interests and the fair value of the residual equity interests, minus the portion in the original subsidiary’s net assets measured on a continuous basis from the acquisition date that is enjoyable by the Company according to the original shareholding percentage in the subsidiary, is recorded in investment gains for the period when the Company’s control on the subsidiary ceases. Other comprehensive incomes in relation to the equity investment in the original subsidiary are treated on 110 Lu Thai Textile Co., Ltd. Annual Report 2017 the same accounting basis as the acquiree directly disposes the relevant assets or liabilities (that is, except for the changes in the net liabilities or assets with a defined benefit plan resulted from re-measurement of the original subsidiary, the rest shall all be transferred into current investment gains) when such control ceases. And subsequent measurement is conducted on the residual equity interests according to the No. 2 Accounting Standard for Business Enterprises —Long-term Equity Investments or the No. 22 Accounting Standard for Business Enterprises—Recognition and Measurement of Financial Instruments. For details, see 13. “Long Term Equity Investment” or 9. “Financial Instruments” in this section. Where the Company losses control on its original subsidiaries due to step by step disposal of equity investments through multiple transactions, it need to distinguish the Group losses control on its subsidiaries due to disposal of equity investments whether belongs to a package deal. All the transaction terms, conditions and economic impact of the disposal of subsidiaries’ equity investment are in accordance with one or more of the following conditions, which usually indicate the multiple transactions, should be considered as a package deal for accounting treatment. ① These deals are at the same time or under the condition of considering the influence of each other to concluded; ② These transactions only be as a whole can achieve a complete business result; ③ The occurrence of a deal depends on at least one other transactions;④ A deal alone is not economical, but it is economical with other trading together. Those not belong to a package deal, each of them a deal depends on circumstances respectively conduct accounting treatment in accordance with the applicable principles of “part disposal of subsidiaries of a long-term equity investment under the condition of not losing control on its subsidiaries” (see 13 (2) ④ in this section) and “Where the Company losses control on its original subsidiaries due to disposal of some equity investments or other reasons” (see the front paragraph) relevant transactions of the Company losses control on its subsidiaries due to disposal of equity investments belonging to a package deal, considered as a transaction and conduct accounting treatment. However, Before losing control, every disposal cost and corresponding net assets balance of subsidiary of disposal investment are confirmed as other comprehensive income in consolidated financial statements, which together transferred into the current profits and losses in the lose of control, when the Company losing control on its subsidiary. 7. Recognition Standard for Cash and Cash Equivalents The term “cash” refers to cash on hand and deposits that are available for payment at any time. The term “cash equivalents” refers to short-term (within 3 months from the purchase date) and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. 8. Foreign Currency and Accounting Method for Foreign Currency (1) Accounting treatments for translation of foreign currency transactions As for a foreign currency transaction, the Company shall convert the amount in a foreign currency into amount in its bookkeeping base at the spot exchange rate (usually referring to the central parity rate announced by the People’s Bank of China, the same below) of the transaction date, while as for such transactions as foreign exchange or involving in foreign exchange, the Company shall converted into amount in the bookkeeping base currency at actual exchange rate the transaction is occurred. (2) Accounting treatments for translation of foreign currency monetary items and non-monetary items On the balance sheet date, the foreign currency monetary items shall be translated at the spot exchange rate on the balance sheet date. The exchange difference arising from the difference between the spot exchange rate on the balance sheet date and the spot exchange rate at the time of initial recognition or prior to the balance sheet date shall be recorded in the profits and losses in the current period, excluding the following situations: ① the exchange difference arising from foreign currency loans related to acquisition of fixed assets shall be treated at the principle of capitalization of borrowing costs; ② the exchange difference arising from the hedging instruments used for effective hedging of net overseas operation investments shall be recorded into other comprehensive incomes, and shall be recognized into current gains and losses when the net investments are disposed; and ③ the exchange difference arising from change in the book balance of foreign currency monetary items available for sale except the amortized costs shall be recorded 111 Lu Thai Textile Co., Ltd. Annual Report 2017 into other comprehensive gains and losses. For the preparation for consolidated financial statement involved in foreign operations, if there are items of foreign currency monetary of net investment in foreign operations in essence, then the balance of exchange generated by changes in exchange rate shall included into other comprehensive income; when disposing foreign operations, it shall be converted into the disposal of the current profits and losses. A foreign currency non-monetary item measured at the historical costs shall still be translated at the spot exchange rate on the transaction date. Where the foreign non-monetary items measured at the fair value shall be converted into amount in its bookkeeping base currency at spot exchange rate, the exchange gains and losses arising thereof shall be treated as change in fair value, and recorded into the current period gains and losses or as other comprehensive incomes. (3) Translation of foreign currency financial statements When it involves overseas business in preparing the consolidated financial statement, for the translation difference of foreign currency monetary items of net investment in overseas business arising from the change in exchange rate, it shall be recorded into the item of “difference of foreign currency financial statement translation” under the owners’ equity; and be recorded into disposal gains and losses at current period when disposing overseas business. The foreign currency financial statement of overseas business should be translated in to RMB financial statement by the following methods: The asset and liability items in the balance sheets shall be translated at a spot exchange rate on the balance sheet date. Among the owner’s equity items, except for the items as “undistributed profits”, other items shall be translated at the spot exchange rate at the time when they are incurred. The income and expense items in the profit statements shall be translated at the spot exchange rate of the transaction date. The undistributed profits at year-begin is the undistributed profits at the end of last year after the translation; undistributed profits at year-end shall be listed as various distribution items after the translation; after the translation, the balance between assets and the sum of liabilities and owners’ equities shall be recorded into other comprehensive gains and losses as difference of foreign currency translation. Where an enterprise disposes of an overseas business without the control right, it shall shift the differences, which is presented under the items of the owner’s equities in the balance sheet and which arises from the translation of foreign currency financial statements relating to this overseas business, into the disposal profits and losses of the current period by all or proportion of the disposed overseas business. Foreign cash flow shall be translated at the spot exchange rate of the date of cash flow incurred. The influence of exchange rate on the cash flow shall be adjustment item and individually listed in the cash flow statement. And the opening balance and the actual balance of last year shall be listed at the amounts after translation of foreign currency financial statement in last year. Where the control of the Company over an overseas operation ceases due to disposal of all or some of the Company’s owner’s equity in the overseas operation or other reasons, the foreign-currency statement translation difference belonging to the parent company’s owner’s equity in relation to the overseas operation which is stated under the shareholders’ equity in the balance sheet shall be all restated as gains and losses of the disposal period. Where the Company’s equity in an overseas operation decreases due to disposal of some equity investment or other reasons but the Company still has control over the overseas operation, the foreign-currency statement translation difference in relation to the disposed part of the overseas operation shall be recorded into minority interests instead of current gains and losses. If what’s disposed is some equity in an overseas associated enterprise or joint venture, the foreign-currency statement translation difference related to the overseas operation shall be recorded into the gains and losses of the current period of the disposal according to the disposal ratio. 9. Financial Instruments The Company recognizes a financial asset or liability when it becomes a party of the relevant financial instrument contract. Financial assets and liabilities are measured at fair value in initial recognition. As for the financial assets and liabilities measured at fair value 112 Lu Thai Textile Co., Ltd. Annual Report 2017 of which changes are recorded into current gains and losses, the relevant dealing expenses are directly recorded into gains and losses; and the dealing expenses on other kinds of financial assets and liabilities are included in the amounts initially recognized. (1) Determination of the fair value of main financial assets and financial liabilities Fair value refers to the price that a market participant shall receive for selling an asset or shall pay for transferring a liability in an orderly transaction on the measurement date. As for the financial assets or financial liabilities for which there is an active market, the quoted prices in the active market shall be used to determine the fair values thereof. The quoted prices in the active market refers to the prices available from stock exchange, broker’s agencies, guilds, pricing organization and etc., which represent the actual trading price under equal transaction. Where there is no active market for a financial instrument, the enterprise concerned shall adopt value appraisal techniques, including the prices adopted by the parties, who are familiar with the condition, in the latest market transaction upon their own free will, the current fair value obtained by referring to other financial instruments of the same essential nature, the cash flow capitalization method and the option pricing model, etc., to determine its fair value. (2) Classification, recognition and measurement of financial assets The purchase and sale of financial assets under the normal ways shall be recognized and stopped to be recognized respectively at the price of transaction date. Financial assets shall be classified into the following four categories when they are initially recognized: (a) the financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period, (b) the investments which will be held to their maturity; (c) loans and the account receivables; and (d) financial assets available for sale. ① The financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period Including transactional financial assets and the financial assets which are designated to be measured at their fair value when they are initially recognized and of which the variation is recorded into the profits and losses of the current period; The financial assets meeting any of the following requirements shall be classified as transactional financial assets:A. The purpose to acquire the said financial assets is mainly for selling them in the near future; B. Forming a part of the identifiable combination of financial instruments which are managed in a centralized way and for which there are objective evidences proving that the enterprise may manage the combination by way of short-term profit making in the near future; C. Being a derivative instrument, excluding the designated derivative instruments which are effective hedging instruments, or derivative instruments to financial guarantee contracts, and the derivative instruments which are connected with the equity instrument investments for which there is no quoted price in the active market, whose fair value cannot be reliably measured, and which shall be settled by delivering the said equity instruments. A transactional financial asset is subsequently measured at the fair value. The gains and losses arising from the fair value changes, as well as the dividend and interest incomes from the financial asset, are recorded in the gains and losses for the current period. ② Held-to-maturity investment The term "held-to-maturity investment" refers to a non-derivative financial asset with a fixed date of maturity, a fixed or determinable amount of repo price and which the enterprise holds for a definite purpose or the enterprise is able to hold until its maturity. For the held-to-maturity investment adopting actual interest rate method, which is measured at the post-amortization costs, the profits and losses that arise when such financial assets or financial liabilities are terminated from recognition, or are impaired or amortized, shall be recorded into the profits and losses of the current period. The actual interest rate method refers to the method by which the post-amortization costs and the interest incomes of different installments or interest expenses are calculated in light of the actual interest rates of the financial assets or financial liabilities (including a set of financial assets or financial liabilities). The actual interest rate refers to the interest rate adopted to cash the future cash flow of a financial asset or financial liability within the predicted term of existence or within a shorter applicable term into the current carrying amount of the financial asset or financial liability. When the actual interest rate is determined, the future cash flow shall be predicted on the basis of taking into account all the 113 Lu Thai Textile Co., Ltd. Annual Report 2017 contractual provisions concerning the financial asset or financial liability (the future credit losses shall not be taken into account).and also the various fee charges, trading expenses, premiums or reduced values, etc., which are paid or collected by the parties to a financial asset or financial liability contract and which form a part of the actual interest rate. ③ Loans and the accounts receivables Loans and the accounts receivables refer to non-derivative financial assets, which there is no quotation in the active market, with fixed recovery cost or recognizable. Financial assets that are defined as loans and the accounts receivables by the Company including notes receivables, accounts receivables, interest receivable, dividends receivable and other receivables etc.. Loans and the accounts receivables are made follow-up measurement on the basis of post-amortization costs employing the effective interest method. Gains or loss arising from the termination recognition, impairment occurs or amortization shall be recorded into the profits and losses of the current period. ④ Assets available for sales Assets available for sales including non-derivative financial asset that has been assigned as assets available for sales on the initial recognition and financial assets excluded those measured at fair value and of which the variation into profits and losses of the current period, they are some financial assets, loans and accounts receivables, held-to-maturity investment. The cost at the period-end of the available-for-sale liabilities instruments should be confirmed according to its amortized cost method, that is the initially recognized amount which deduct the principal that had been repaid, to plus or minus the accumulative amortization amount formed by the amortization between the difference of the initially recognized amount and the amount on the due date that adopted the actual interest rate method, and at the same time deduct the amount after the impairment loss happened. The cost at the period-end of the available-for-sale liabilities instruments is its initial cost. Financial assets available-for-trade are subsequently measured at fair value, and gains or losses arising from changes in the fair value are recognized as other comprehensive income,and be carried forward when the said financial assets stopped recognition, then it shall be recorded into the profits and losses of the current period. But, the equity instrument investment which neither have quotation in the active market nor its fair value could not be reliable measured, as well as the derivative financial assets that concern with the equity instruments and should be settled through handing over to its equity instruments, should take the follow-up measurement according to the cost. Interest receive during the holding of assets available for sales and cash dividends with distribution announcement by invested companies, it shall be recorded into the profits and losses of the current period. (3) Impairment of financial assets The Company assesses at the balance sheet date the carrying amount of every financial asset except for the financial assets that measured by the fair value. If there is objective evidence indicating a financial asset may be impaired, a provision is provided for the impairment. The Company carries out a separate impairment test for every financial asset which is individually significant. As for a financial asset which is individually insignificant, an impairment test is carried out separately or in the financial asset group with similar credit risk. Where the financial asset (individually significant or insignificant) is found not impaired after the separate impairment test, it is included in the financial asset group with similar credit risk and tested again on the group basis. Where the impairment loss is recognized for an individual financial asset, it is not included in the financial asset group with similar credit risk for an impairment test. ① Impairment on held-to maturity investment, loans and receivables The financial assets measured by cost or amortized cost write down their carrying value by the estimated present value of future cash flow. The difference is recorded as impairment loss. If there is objective evidence to indicate the recovery of value of financial assets after impairment, and it is related with subsequent event after recognition of loss, the impairment loss recorded originally can be reversed. The carrying value of financial assets after impairment loss reversed shall not exceed the amortized cost of the financial assets without provisions of impairment loss on the reserving date. 114 Lu Thai Textile Co., Ltd. Annual Report 2017 ② Impairment of available-for-sale financial assets When it judged that the decrease of fair value of the available-for-sale equity instrument investment is serious and not temporarily after comprehensive considering relevant factors, it reflected that the available-for-sale equity instrument investment occurred impairment. Of which, the “serious decline” refers to the accumulative decline range of the fair value over 20%; while the “non-temporary decline” refers to the consecutive decline time of the fair value over 12 months. Where an available-for-sale financial asset is impaired, the accumulative losses arising from the decrease of the fair value of the capital reserve which is directly included are transferred out and recorded in the profits and losses for the current period. The accumulative losses transferred out are the balance obtained from the initially obtained cost of the said financial asset after deducting the principals as taken back, the amortized amount, the current fair value and the impairment loss originally recorded in the profits and losses. Where the impairment loss has been recognized for an available-for-sale financial asset, if, within the accounting periods thereafter, there is any objective evidence proving that the value of the said financial asset has been restored and the restoration is objectively related to the events that occur after the impairment loss was recognized, the originally recognized impairment loss is reversed. The impairment losses on the available-for-sale equity instrument investments are reversed and recognized as other comprehensive incomes, and the impairment losses on the available-for-sale liability instruments are reversed and recorded in the profits and losses for the current period. The impairment loss incurred to an equity instrument investment for which there is no quoted price in the active market and whose fair value cannot be reliably measured, or incurred to a derivative financial asset which is connected with the said equity instrument investment and which must be settled by delivering the said equity investment, is not reversed. (4) Recognition and measurement of financial asset transfers Where a financial asset satisfies any of the following requirements, the recognition of it is terminated: ① The contractual rights for collecting the cash flow of the said financial asset are terminated; ② The said financial asset has been transferred and nearly all of the risks and rewards related to the ownership of the financial asset to the transferee; or ③ The said financial asset has been transferred. And the Company has ceased its control on the said financial asset though it neither transfers nor retains nearly all of the risks and rewards related to the ownership of the financial asset. Where the Company neither transfers nor retains nearly all of the risks and rewards related to the ownership of a financial asset, and it does not cease its control on the said financial asset, it recognizes the relevant financial asset and liability accordingly according to the extent of its continuous involvement in the transferred financial asset. The term "continuous involvement in the transferred financial asset" refers to the risk level that the enterprise faces resulting from the change of the value of the financial asset. If the transfer of an entire financial asset satisfies the conditions for stopping recognition, the difference between the amounts of the following 2 items is recorded in the profits and losses of the current period: (1) The book value of the transferred financial asset; and (2) The sum of consideration received from the transfer, and the accumulative amount of the changes of the fair value originally recorded in other comprehensive incomes. If the transfer of partial financial asset satisfies the conditions to stop the recognition, the book value of the transferred financial asset is apportioned between the portion whose recognition has been stopped and the portion whose recognition has not been stopped according to their respective relative fair value, and the difference between the amounts of the following 2 items is included into the profits and losses of the current period: (1) The summation of the consideration received from the transfer and the portion of the accumulative amount of changes in the fair value originally recorded in other comprehensive incomes which corresponds to the portion whose recognition has been stopped; and (2) The amortized carrying amounts of the aforesaid amounts. In respect of the assets using recourse to sell or using endorsement to transfer, the Company needs to determine whether almost all of the risks and rewards of the financial asset ownership are transferred. If almost all of the risks and rewards of the financial asset ownership had been transferred to the transferee, derecognize the financial assets. For almost all of the risks and rewards of the financial asset ownership retained, do not end to recognize the financial assets. For which neither transfer or retain almost all of the 115 Lu Thai Textile Co., Ltd. Annual Report 2017 risks and rewards of the financial asset ownership, continuously judge whether the Company retain the control of the assets, and conduct accounting treatment according to the principle of mentioned in the previous paragraphs. (5) Classification and measurement of financial liabilities In the initial recognition, financial liabilities are divided into the financial liabilities measured at fair values and whose changes are recorded in current gains and losses and other financial liabilities. Financial liabilities are initially recognized at their fair values. As for a financial liability measured at fair value and whose changes are recorded in current gains and losses, the relevant trading expense is directly recorded in the profits and losses for the current period. As for other financial liabilities, the relevant trading expenses are recorded in the initially recognized amounts. ① Financial liabilities measured at fair values and whose changes are recorded in current gains and losses Such financial liabilities are divided into transactional financial liabilities and financial liabilities designated to be measured at fair values and whose changes are recorded in current gains and losses in the initial recognition under the same conditions where such financial assets are divided into transactional financial assets and financial assets designated to be measured at fair values and whose changes are recorded in current gains and losses in the initial recognition. Financial liabilities measured at fair values and whose changes are recorded in current gains and losses are subsequently measured at their fair values. Gains or losses arising from the fair value changes, as well as the dividend and interest expenses in relation to the said financial liabilities, are recorded in the profits and losses for the current period. ② Other financial liabilities As for a derivative financial liability connected to an equity instrument for which there is not quoted price in an active market and whose fair value cannot be reliably measured and which must be settled by delivering the equity instrument, it is subsequently measured on the basis of costs. Other financial liabilities are subsequently measured according to the amortized cost using the actual interest rate method. Gains or losses arising from de-recognition or amortization of the said financial liabilities is recorded in the profits and losses for the current period. (6) De-recognition of financial liabilities Only when the prevailing obligations of a financial liability are relieved in all or in part may the recognition of the financial liability be terminated in all or partly. Where the Company (debtor) enters into an agreement with a creditor so as to substitute the existing financial liabilities by way of any new financial liability, and if the contractual stipulations regarding the new financial liability is substantially different from that regarding the existing financial liability, it terminates the recognition of the existing financial liability, and at the same time recognizes the new financial liability. Where the recognition of a financial liability is totally or partially terminated, the enterprise concerned shall include into the profits and losses of the current period for the gap between the book value which has been terminated from recognition and the considerations it has paid (including the non-cash assets it has transferred out and the new financial liabilities it has assumed) (7) Derivatives and embedded derivatives Derivative financial instruments include derivatives are initially measured at fair value at the date when the derivative contracts are entered into and are substantially re-measured at fair value. The resulting gain and loss is recognized in profit or loss. An embedded derivative is separated from the hybrid instrument, where the hybrid instrument is not designated as a financial asset or financial liability at fair value though profit or loss, and the treated as a standalone derivative if (a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; and (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative. If the Company is unable to measure the embedded derivative separately either at acquisition or at a subsequent balance sheet date, it designates the entire hybrid instrument as a financial asset or financial liability at fair value through profit or loss. (8) Offsetting financial assets and financial liabilities When the Company has a legal right that is currently enforceable to set off the recognized financial assets and financial liabilities, 116 Lu Thai Textile Co., Ltd. Annual Report 2017 and intends either to settle on a net basis, or to realize the financial asset and settle the financial liability simultaneously, a financial asset and a financial liability shall be offset and the net amount is presented in the balance sheet. Except for the above circumstances, financial assets and financial liabilities shall be presented separately in the balance sheet and shall not be offset. (9) Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. The Company issues (including refinancing), re-purchases, sells or written-offs the equity instrument as the disposing of the changes of the equity. The Group not recognized the changes of the fair value of the equity instrument. The transaction expenses related to the equity transaction would be deducted from the equity. All types of distribution (excluding stock dividends) made by the Company to holders of equity instruments are deducted from shareholders’ equity. The Company does not recognize any changes in the fair value of equity instruments. 10. Receivables (1) Accounts Receivable with Significant Single Amount for which the Bad Debt Provision is Made Individually Receivables with the amount of RMB 5 million or more than Judgement basis or monetary standards of provision for bad RMB 5 million should recognize as the receivables with debts of the individually significant accounts receivable significant single amount. The Company made an independent impairment test on receivables with significant single amounts; the financial assets without impairment by independent impairment test should be Method of individual provision for bad debts of the individually included in financial assets portfolio with similar credit risk to significant accounts receivable take the impairment test. Receivables was recognized with impairment should no longer be included in receivables portfolio with similar credit risk to take the impairment test. (2) Accounts Receivable which the Bad Debt Provision is withdrawn by Credit Risk Characteristics Name of portfolios Bad debt provision method Aging group Aging analysis method In the groups, adopting aging analysis method to withdraw bad debt provision: √ Applicable □ Not applicable Withdrawal proportion for accounts Withdrawal proportion for other accounts Age receivable (%) receivable (%) Within 1 year (including 1 year) 5.00% 5.00% 1-2 years 10.00% 10.00% 2-3 years 20.00% 20.00% Over 3 years 30.00% 30.00% In the groups, adopting balance percentage method to withdraw bad debt provision: □ Applicable √ Not applicable 117 Lu Thai Textile Co., Ltd. Annual Report 2017 In the groups, adopting other methods to withdraw bad debt provision: □ Applicable √ Not applicable (3) Accounts Receivable with an Insignificant Single Amount but for which the Bad Debt Provision is Made Independently Receivables have dispute with the other parties or involving lawsuit and arbitration; receivables have obvious indication Reason of individually withdrawing bad debt provision showing that the debtors are likely to fail to perform the duty of repayment, etc. The Company made independent impairment test on receivables with insignificant amount but with the following characteristics, if any objective evidence shows that the accounts receivable has been impaired, impairment loss shall be recognized on the basis Withdrawal method for bad debt provision of the gap between the current values of the future cash flow lower than its book value so as to withdraw provision for bad debts: receivables involved in disputes, lawsuits or arbitrations; receivables with clear signs that the debtor is not likely to repay; and the like. 11. Inventory Is the Company subject to any disclosure requirements for special industries? No. (1) Classification Inventories mainly include raw materials, work-in-progress, product processed on entrustment, consumptive biological assets and stock products etc. (2) Valuation method of inventories acquiring and issuing Inventories shall be measured at actual cost when acquired, and the cost of the inventories including the procurement cost, processing cost and other costs. Grey yarn, dyed yarn, and plus material shall be measured at first-in first-out method when acquired and delivered; other inventories shall be measured as per the weighted average method (3) Basis for determining net realizable value of inventories and provision methods for decline in value of inventories Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion, the estimated costs necessary to make the sale and relevant taxes. Net realizable value is determined on the basis of clear evidence obtained, and takes into consideration the purpose of holding inventories and effect of post balance sheet events. At the balance sheet date, inventories are measured at the lower of the cost and net realizable value. If the net realizable value is below the cost of inventories, a provision for decline in value of inventories is made. The provision for inventories decline in value is determined by the difference of the cost of individual item less its realizable value. After the provision for decline in value of inventories is made, if the circumstances that previously caused inventories to be written down below cost no longer exist so that the net realizable value of inventories is higher than their cost, the original provision for decline in value is reversed and the reversal is included in profit or loss for the period. (4) The perpetual inventory system is maintained for stock system. 118 Lu Thai Textile Co., Ltd. Annual Report 2017 (5) Amortization method of the low-value consumption goods and packing articles For the low-value consumption goods, should be amortized by one-off amortization method when consuming; and for the packing articles, should be amortized by one-off amortization method when consuming. 12. Assets Held for Sale The Company classifies an asset into held-for-sale when its book value is mainly recovered by selling (including the exchanges of non-monetary assets with commercial substance) instead of a non-current asset or disposal group. Specific standards are simultaneously satisfying the following conditions: A asset or disposal group can be sold immediately under current conditions based on the practice of selling such assets or disposal groups in similar transactions; the Company has already made a resolution on sale plan and obtained a confirmed purchase commitment; and the sale is expected to will be completed within one year. A disposal group refers to a group of assets that are disposed of together as a whole by sale or other means in a transaction and the liabilities directly related to these assets transferred in the transaction. Where the asset group or combination of asset groups to which a disposal group belongs apportions the goodwill acquired in the business combination in accordance with the "Accounting Standards for Enterprises No. 8 - Asset Impairment", the disposal group shall include the goodwill allocated to it. When the Company initially measures or re-measures on the balance sheet date the non-current assets and disposal groups classified as held-for-sale, If the book value is higher than the fair value minus the net amount of the sale costs, the book value will be written down to the net amount of fair value minus the sale costs, and the amount written down will be recognized as impairment loss of assets and included in the current profit and loss, and provision for impairment of held-for-sale assets will be made at the same time. For the confirmed amount of impairment loss of assets of the disposal groups held for sale, the book value of goodwill of the disposal groups will be offset first, and then the book value of various non-current assets applicable to the measurement of Accounting Standards for Business Enterprises No. 42 - Non-current Assets and Disposal Groups Held for Sale and Termination of Operations (hereinafter referred to as “Held for sale standards”) in the disposal groups will be offset according to the proportions. If the net amount that the fair value of the disposal groups held for sale on the follow-up balance sheet date minus the sale costs increases, the previous written-down amount will be restored, and reversed to the asset impairment loss confirmed after the assets being classified as held-for-sale. The reversed amount will be included in the current profit or loss. And its book value shall be increased proportionately to the proportion of the book value of various non-current assets measured by the disposal group in addition to goodwill applicable to the measurement of held-for-sale norms; The book value of deducted goodwill and the non-current assets applicable to the measurement of held-for-sale norms will not be reversed if the asset impairment loss is recognized before it is classified as held for sale. Non-current assets held for sale or non-current assets in the disposal group are not subject to depreciation or amortization. Interest and other expenses of liabilities in the disposal group held for sale will be confirmed as before. When a non-current asset or disposal group ceases be classified as held-for-sale or a non-current asset is removed out from the held-for-sale disposal group due to failure in meeting the classification conditions for the category of held-for-sale, it will be measured by one of the followings whichever is lower: (1) The book value before being classified as held for sale will be adjusted according to the depreciation, amortization or impairment that would have been recognized under the assumption that it was not classified as held for sale; (2) The recoverable amount. 13. Long-term Equity Investments The long-term equity investments of this part refer to the long-term equity investments that the Company has control, joint control or significant influence over the investees. The long-term equity investment that the Company does not have control, joint control or significant influence over the investees, should be recognized as available-for-sale financial assets or be measured by fair value with the changes should be included in the financial assets accounting of the current gains and losses, and please refer the details of the 119 Lu Thai Textile Co., Ltd. Annual Report 2017 accounting polices to “9. financial instrument” in this section. Joint control, refers to the control jointly owned according to the relevant agreement on an arrangement by the Company and the relevant activities of the arrangement should be decided only after the participants which share the control right make consensus. Significant influence refers to the power of the Company which could anticipate in the finance and the operation polices of the investees, but could not control or jointly control the formulation of the policies with the other parties. (1) Recognition of investment costs As for long-term equity investments acquired by enterprise merger, if the merger is under the same control, the share of the book value of the owner’s equity of the merged enterprise, on the date of merger, is regarded as the initial cost of the long-term equity investment. The difference between the initial cost of the long-term equity investment and the payment in cash, non-cash assets transferred as well as the book value of the debts borne by the merging party shall offset against the capital reserve. If the capital reserve is insufficient to dilute, the retained earnings shall be adjusted. If the consideration of the merging enterprise is that it issues equity securities, it shall, on the date of merger, regard the share of the book value of the shareholder's equity of the merged enterprise on the consolidated financial statement of the ultimate control party as the initial cost of the long-term equity investment. The total face value of the stocks issued shall be regarded as the capital stock, while the difference between the initial cost of the long-term equity investment and total face value of the shares issued shall offset against the capital reserve. If the capital reserve is insufficient to dilute, the retained earnings shall be adjusted. For the long-term investment required from the business combination under different control, the initial investment cost regarded as long-term equity investment on the purchasing date according to the combination cost, the combination costs shall be the sum of the fair values of the assets paid, the liabilities incurred or assumed and the equity securities issued by the Company. The commission fees for audit, law services, assessment and consultancy services and other relevant expenses occurred in the business combination by the combining party or the purchase party, shall be recorded into current profits and losses upon their occurrence. Besides the long-term equity investments formed by business combination, the other long-term equity investments shall be initially measured by cost, the cost is fixed in accordance with the ways of gaining, such as actual cash payment paid by the Company, the fair value of equity securities issued by the Company, the agreed value of the investment contract or agreement, the fair value or original carrying amount of exchanged assets from non-monetary assets exchange transaction, the fair value of the long-term equity investments, etc. The expenses, taxes and other necessary expenditures directly related with gaining the long-term equity investments shall also be recorded into investment cost. (2) Subsequent measurement and recognition of gains or losses A long-term equity investment where the investing enterprise has joint control (except for which forms into common operators) or significant influence over the investors should be measured by equity method. Moreover, long-term equity investment adopting the cost method in the financial statements, and which the Company has control on invested entity. ① Long-term equity investment measured by adopting cost method The price of a long-term equity investment measured by adopting the cost method shall be included at its initial investment cost and append as well as withdraw the cost of investing and adjusting the long-term equity investment. The return on investment at current period shall be recognized in accordance with the cash dividend or profit announced to distribute by the invested entity, except the announced but not distributed cash dividend or profit included in the actual payment or consideration upon gaining the investment. ② Long-term equity investment measured by adopting equity method If the initial cost of a long-term equity investment is more than the Company's attributable share of the fair value of the invested entity's identifiable net assets for investment, the initial cost of the long-term equity investment may not be adjusted. If the initial cost of a long-term equity investment is less than the Company's attributable share of the fair value of the invested entity's identifiable net assets for the investment, the difference shall be included in the current profits and losses and the cost of the long-term equity investment shall be adjusted simultaneously. 120 Lu Thai Textile Co., Ltd. Annual Report 2017 When measured by adopting equity method, respectively recognize investment income and other comprehensive income according to the net gains and losses as well as the portion of other comprehensive income which should be enjoyed or be shared, and at the same time adjust the book value of the long-term equity investment; corresponding reduce the book value of the long-term equity investment according to profits which be declared to distribute by the investees or the portion of the calculation of cash dividends which should be enjoyed; for the other changes except for the net gains and losses, other comprehensive income and the owners’ equity except for the profits distribution of the investees, should adjust the book value of the long-term equity investment as well as include in the capital reserve. The investing enterprise shall, on the ground of the fair value of all identifiable assets of the invested entity when it obtains the investment, recognize the attributable share of the net profits and losses of the invested entity after it adjusts the net profits of the invested entity. If the accounting polices adopted by the investees is not accord with that of the Company, should be adjusted according to the accounting policies of the Company and the financial statement of the investees during the accounting period and according which to recognize the investment income as well as other comprehensive income. For the transaction happened between the Company and associated enterprises as well as joint ventures, if the assets launched or sold not form into business, the portion of the unrealized gains and losses of the internal transaction, which belongs to the Company according to the calculation of the enjoyed proportion, should recognize the investment gains and losses on the basis. But the losses of the unrealized internal transaction happened between the Company and the investees which belongs to the impairment losses of the transferred assets, should not be neutralized. The Company shall recognize the net losses of the invested enterprise until the book value of the long-term equity investment and other long-term rights and interests which substantially form the net investment made to the invested entity are reduced to zero. However, if the Company has the obligation to undertake extra losses, it shall be recognized as the estimated liabilities in accordance with the estimated duties and then recorded into investment losses at current period. If the invested entity realizes any net profits later, the Company shall, after the amount of its attributable share of profits offsets against its attributable share of the un-recognized losses, resume recognizing its attributable share of profits. For the long-term equity investment held by the Company before the first execution of the new accounting criterion on 1 Jan. 2007 of the associated enterprises and joint ventures, if there is debit difference of the equity investment related to the investment, should be included in the current gains and losses according to the amount of the straight-line amortization during the original remained period. ③ Acquiring shares of minority interest In the preparation for the financial statements, the balance existed between the long-term equity investment increased by acquiring shares of minority interest and the attributable net assets on the subsidiary calculated by the increased shares held since the purchase date (or combination date), the capital reserves shall be adjusted, if the capital reserves are not sufficient to offset, the retained profits shall be adjusted. ④ Disposal of long-term equity investment In the preparation of financial statements, the Company disposed part of the long-term equity investment on subsidiaries without losing its controlling right on them, the balance between the disposed price and attributable net assets of subsidiaries by disposing the long-term equity investment shall be recorded into owners’ equity; where the Company losses the controlling right by disposing part of long-term equity investment on such subsidiaries, it shall treated in accordance with the relevant accounting policies in 6. (2) “Method on preparation of combined financial statements” in this section. For other ways on disposal of long-term equity investment, the balance between the book value of the disposed equity and its actual payment gained shall be recorded into current profits and losses. For the long-term equity investment measured by adopting equity method, if the remained equity after disposal still adopts the equity method for measurement, the other comprehensive income originally recorded into owners’ equity should adopt the same basis of the accounting disposal of the relevant assets or liabilities directly disposed by the investees according to the corresponding proportion. The owners’ equity recognized owning to the changes of the other owners’ equity except for the net gains and losses, other comprehensive income and the profits distribution of the investees, should be transferred into the current gains and losses according 121 Lu Thai Textile Co., Ltd. Annual Report 2017 to the proportion. For the long-term equity investment which adopts the cost method of measurement, if the remained equity still adopt the cost method, the other comprehensive income recognized owning to adopting the equity method for measurement or the recognition and measurement standards of financial instrument before acquiring the control of the investees, should adopt the same basis of the accounting disposal of the relevant assets or liabilities directly disposed by the investees and should be carried forward into the current gains and losses according to the proportion; the changes of the other owners’ equity except for the net gains and losses, other comprehensive income and the profits distribution among the net assets of the investees which recognized by adopting the equity method for measurement, should be carried forward into the current gains and losses according to the proportion. 14. Investment Real Estates Measurement model of investment real estate Costing method measurement Depreciation or amortization method The investment real estate refers to the real estate gaining the rent or capital appreciation or both. It includes rented land use right, holding land use right to be transferred after the appreciation and rented building, etc. The investment real estate is measured initially according to the cost. The subsequent expenses related with the investment real estate shall be calculated into the cost of investment real estate if the economic benefit related with the asset may flow in and the cost may be measured reliably. Other subsequent expenses shall be calculated in the current profits and losses at the occurrence. The Company adopts the cost mode to conduct the subsequent measurement on the investment real estate, depreciates or amortizes according to the policy consistent with the house building or land use right. The devaluation test method and devaluation provision method for the investment real estate can be seen in Section 20 “Long-term Asset Devaluation”. When the self-use real estate or stock is converted to the investment real estate or the investment real estate is converted to the self-use real estate, the book value before the conversion shall be the entry value after the conversion. When the investment real estate is disposed, or out of usage permanently, and it is expected not to get the economic benefit from the disposal, the confirmation on the investment real estate shall be terminated. The disposal income for the sales, transferring, scrap or damage of the investment real estate deducing the book value and related tax shall be calculated in the current profits and losses. 15. Fixed Assets (1) Recognition Conditions The term “fixed assets” refers to the tangible assets that simultaneously possess the features as follows: (a) they are held for the sake of producing commodities, rendering labor service, renting or business management; and (b) their useful life is in excess of one fiscal year. The fixed assets are only recognized when the relevant economic benefits probably flow in the Company and its cost could be reliable measured. The fixed assets should take the initial measurement according to the cost and at the same time consider the influences of the factors of the estimated discard expenses. (2) Depreciation Method Category of fixed assets Method Useful life Salvage value Annual deprecation Housing and building Average method of 5-30 0-10% 3.00%-20.00% 122 Lu Thai Textile Co., Ltd. Annual Report 2017 useful life Average method of Machinery equipments 10-18 0-10% 5.00%-10.00% useful life Average method of Transportation vehicle 5 0-10% 18.00%-20.00% useful life Electronic equipments Average method of 5 0-10% 18.00%-20.00% and others useful life (3) Recognition Basis, Pricing and Depreciation Method of Fixed Assets by Finance Lease The “finance lease” shall refer to a lease that has transferred in substance all the risks and rewards related to the ownership of an asset. Its ownership may or may not eventually be transferred. The fixed assets by finance lease shall adopt the same depreciation policy for self-owned fixed assets. If it is reasonable to be certain that the lessee will obtain the ownership of the leased asset when the lease term expires, the leased asset shall be fully depreciated over its useful life. If it is not reasonable to be certain that the lessee will obtain the ownership of the leased asset at the expiry of the lease term, the leased asset shall be fully depreciated over the shorter one of the lease term or its useful life. 16. Construction in Progress Is the Company subject to any disclosure requirements for special industries? No. Construction in process is measured at actual cost. Actual cost comprises construction costs, borrowing costs that are eligible for capitalization before the fixed assets being ready for their intended us and other relevant costs. Construction in process is transferred to fixed assets when the assets are ready for their intended use. See the details of the impairment test method of the impairment provision withdrawal method of the construction in progress to 20 “Long-term assets impairment” in this section. 17. Borrowing Costs Borrowing costs include interest on borrowings, amortization of discounts or premiums, ancillary expenses and exchange differences arising from foreign currency borrowings. The capitalization of borrowing costs, which can be directly attributable to asset acquisition or construction, starts when asset expenditure or borrowing cost are generated, or the asset acquisition or construction is launched to enable the asset to meet the predefined conditions for use or sale, and ends when the acquired or constructed asset conforming to capitalization conditions meet the predefined conditions for use or sale. The other borrowing costs are recognized as expenses in the current period. The actual interest expenses incurred in the current period of specific borrowings shall be capitalized by subtracting the interest income earned by the bank from unused borrowing funds or investment income gained from temporary investment. For general borrowings, the amount to be capitalized shall be determined based on the weighted average of total asset expenditure exceeding the specific borrowing multiplied by the capitalization rate of general borrowings. The capitalization rate is determined based on the weighted average interest rate of general borrowings. During the capitalization period, the foreign exchange differences on foreign currency specific borrowings shall be capitalized. The exchange differences on foreign currency general borrowings shall be included in the current profits and losses. Assets eligible for capitalization refer to assets such as fixed assets, investment real estate and inventory that require a considerable 123 Lu Thai Textile Co., Ltd. Annual Report 2017 amount of time for acquisition or construction to be ready for use or sale. If the acquisition or construction process of the assets eligible for capitalization is stopped unexpectedly for more than 3 months, the capitalization of borrowing costs shall be suspended until the asset acquisition or construction resumes. 18. Biological Assets (1) Consumptive biological assets Consumptive biological assets refer to the biological assets held for sale or to be harvested as agricultural products in future, including crops, vegetables under growing, timber production forest and domestic animals for sale. The consumptive biological assets shall be measured based on cost. All costs for planting, creating, cultivating or raising of consumptive biological assets shall be the necessary expenses directly added to such assets that accrued before harvest, including any loan that satisfies capitalization conditions. Subsequent expenses for keeping and feeding the consumptive biological assets after the harvest should be recognized as the losses and gains of the current period. Upon harvest or sale, the cost of consumptive biological assets shall be based on its book value through weighted average. On the date of Balance Sheet, the consumptive biological assets shall be measured with lower of cost and net realizable value, and the method for confirming the reserve for inventory price drop shall be adopted to confirm the reserve for price drop of consumptive biological assets. If the impacts of depreciation disappear, the depreciation amount shall be recovered, and the reserve for price drop originally accrued shall be reversed. Such amount reversed shall be recognized as loss and gain for the current period. If consumptive biological assets change its usage to be as productive biological assets, the cost after such change shall be confirmed based on the book value when the usage is changed. If consumptive biological assets are changed as public biological assets, depreciation shall be taken into consideration pursuant to Corporate Accounting Rules No.8 – Assets Depreciation. When depreciation occur, accrued the depreciation reserve first and then confirm based on the book value after such accrual. (2) Productive biological assets Productive biological assets refer to agricultural products produced, and biological assets held for labor provision or lease, including economic forest, firewood forest, productive animals and labor animals. The productive biological assets shall be measured based on cost. All costs for creating or fostering productive biological assets shall be the necessary expenses directly added to such assets that accrued before it reaches expected production purpose, including any loan that satisfies capitalization conditions. The Company shall withdraw the depreciation of the productive biological assets by adopting the straight-line method since the second month of its useful life. Useful life, expected net salvage value and annual depreciation rate of each productive biological assets are as below: Category Useful life (Year) Expected net salvage value Annual deprecation (%) (%) Livestock 5 5% 19 The Company shall review the service life, expected net residuals and depreciation method of the productive biological assets at least by the end of the year. In case of any change, it shall be deemed as accounting estimate change. The difference between proceedings from disposal (sale, loss, death or damage) of the productive biological assets deducted by book value and related tax shall be recognized as loss and gain for the current period. The Company shall check on the date of Balance Sheet whether there is a depreciation sign for the productive biological assets. If yes, estimate the recoverable amount. Such recoverable amount shall be estimated based on single asset item. If it is difficult, the recoverable amount of the portfolio shall be confirmed based on the portfolio such assets belong to. If the recoverable amount of the assets is lower than book value, reserve for asset depreciation shall be accrued based on such difference, and recognized as loss and gain for the current period. The above assets impairment losses once be recognized should not be reversed during the accounting periods afterwards. 124 Lu Thai Textile Co., Ltd. Annual Report 2017 If the productive biological assets changed the usage as the consumptive biological assets, the cost after the change should be recognized as the book value when changing the usage; of the productive biological assets changed the usage as non-profit living assets, should be recognized according to the book value after the withdrawal of the impairment provision in accord with the regulation of No. 8 of ASBE - Assets Impairment for considering whether there was impairment and should withdraw the impairment provision in ahead of it. 19. Intangible Assets (1) Pricing Method, Useful Life and Impairment Test The term “intangible asset” refers to the identifiable non-monetary assets possessed or controlled by enterprises which have no physical shape. The intangible assets shall be initially measured according to its cost. The costs related with the intangible assets, if the economic benefits related to intangible assets are likely to flow into the enterprise and the cost of intangible assets can be measured reliably, shall be recorded into the costs of intangible assets; otherwise, it shall be recorded into current profits and losses upon the occurrence. The use right of land gained is usually measured as intangible assets. For the self-developed and constructed factories and other constructions, the related expenditures on use right of land and construction costs shall be respectively measured as intangible assets and fixed assets. For the purchased houses and buildings, the related payment shall be distributed into the payment for use right of land and the payment for buildings, if it is difficult to be distributed, the whole payment shall be treated as fixed assets. For intangible assets with a finite service life, from the time when it is available for use, the cost after deducting the sum of the expected salvage value and the accumulated impairment provision shall be amortized by straight line method during the service life. While the intangible assets without certain service life shall not be amortized. At the end of period, the Company shall check the service life and amortization method of intangible assets with finite service life, if there is any change, it shall be regarded as a change of the accounting estimates. Besides, the Company shall check the service life of intangible assets without certain service life, if there is any evidence showing that the period of intangible assets to bring the economic benefits to the enterprise can be prospected, it shall be estimated the service life and amortized in accordance with the amortization policies for intangible assets with finite service life. (2) Accounting Policy for Internal Research and Development Expenditures The expenditures for internal research and development projects of an enterprise shall be classified into research expenditures and development expenditures. The research expenditures shall be recorded into the profit or loss for the current period. The development expenditures shall be confirmed as intangible assets when they satisfy the following conditions simultaneously, and shall be recorded into profit or loss for the current period when they don’t satisfy the following conditions. ① It is feasible technically to finish intangible assets for use or sale; ② It is intended to finish and use or sell the intangible assets; ③ The usefulness of methods for intangible assets to generate economic benefits shall be proved, including being able to prove that there is a potential market for the products manufactured by applying the intangible assets or there is a potential market for the intangible assets itself or the intangible assets will be used internally; ④ It is able to finish the development of the intangible assets, and able to use or sell the intangible assets, with the support of sufficient technologies, financial resources and other resources; ⑤ The development expenditures of the intangible assets can be reliably measured. 125 Lu Thai Textile Co., Ltd. Annual Report 2017 As for expenses that can’t be identified as research expenditures or development expenditures, the occurred R & D expenses shall be all included in current profits and losses. (3) Impairment testing method and provision-making method for intangible assets See 20 “Impairment of long-term assets” in this section. 20. Impairment of Long-term Assets For non-current financial Assets of fixed Assets, projects under construction, intangible Assets with limited service life, investing real estate with cost model, long-term equity investment of subsidiaries, cooperative enterprises and joint ventures, the Company should judge whether decrease in value exists on the date of balance sheet. Recoverable amounts should be tested for decrease in value if it exists. Other intangible Assets of reputation and uncertain service life and other non-accessible intangible assets should be tested for decrease in value no matter whether it exists. If the recoverable amount is less than book value in impairment test results, the provision for impairment of differences should include in impairment loss. Recoverable amounts would be the higher of net value of asset fair value deducting disposal charges or present value of predicted cash flow. Asset fair value should be determined according to negotiated sales price of fair trade. If no sales agreement exists but with asset active market, fair value should be determined according to the Buyer’s price of the asset. If no sales agreement or asset active market exists, asset fair value could be acquired on the basis of best information available. Disposal expenses include legal fees, taxes, cartage or other direct expenses of merchantable Assets related to asset disposal. Present value of predicted asset cash flow should be determined by the proper discount rate according to Assets in service and predicted cash flow of final disposal. Asset depreciation reserves should be calculated on the basis of single Assets. If it is difficult to predict the recoverable amounts for single Assets, recoverable amounts should be determined according to the belonging asset group. Asset group is the minimum asset combination producing cash flow independently. In impairment test, book value of the business reputation in financial report should be shared to beneficial asset group and asset group combination in collaboration of business merger. It is shown in the test that if recoverable amounts of shared business reputation asset group or asset group combination are lower than book value, it should determine the impairment loss. Impairment loss amount should firstly be deducted and shared to the book value of business reputation of asset group or asset group combination, then deduct book value of all assets according to proportions of other book value of above assets in asset group or asset group combination except business reputation. After the asset impairment loss is determined, recoverable value amounts would not be returned in future. 21. Long-term Deferred Expenses Long-term deferred expenses refer to general expenses with the apportioned period over one year (one year excluded) that have occurred but attributable to the current and future periods. The long-term deferred expenses mainly including land contract fees, land rental fees and house rental fees, and etc. And the long-term deferred expense shall be amortized by the straight-line method averagely within the benefit period. 22. Payroll (1) Accounting Treatment of Short-term Compensation Short-term compensation mainly including salary, bonus, allowances and subsidies, employee services and benefits, medical insurance premiums, birth insurance premium, industrial injury insurance premium, housing fund, labor union expenditure and personnel education fund, non-monetary benefits etc. The short-term compensation actually happened during the accounting period 126 Lu Thai Textile Co., Ltd. Annual Report 2017 when the active staff offering the service for the Company should be recognized as liabilities and is included in the current gains and losses or relevant assets cost. Of which the non-monetary benefits should be measured according to the fair value. (2) Accounting Treatment of the Welfare after Departure Welfare after demission mainly includes basic endowment insurance and unemployment insurance and welfare plans after demission include setting drawing plan. Where the setting drawing plan is adopted, the corresponding payable and deposit amount should be included into the relevant assets cost or the current gains and losses when happen. (3) Accounting Treatment of the Demission Welfare The Company relieves the labor relation with the employees before the due date of the labor contacts or puts forward the advice of providing the compensation for urging the employees volunteered to receive the downsizing and when the Company could not unilaterally withdraw the demission welfare owning to the relieving plan of the labor relation or the downsizing advice, should confirm the liabilities of the employees’ salary from the demission welfare on the earlier day between the cost confirmed by the Company and the cost related to the reorganization of the payment of the demission welfare and includes which in the current gains and losses. But as for the demission welfare be estimated that could not be completed paid within 12 months after the end of the annual Reporting Period, should be handled according to the other long-term employee’s salary. The internal retire plan of the employees should be handled by adopting the same principles of the above demission welfare. The Company includes the salary and the paid social insurance charges planed to pay by the personnel retreated inside during the period from the date when ceased the services to the normal retire date in the current gains and losses (demission welfare) when met with the recognition conditions of the estimated liabilities. (4) Accounting Treatment of the Welfare of Other Long-term Staffs The other long-term welfare that the Company offers to the staffs, if met with the setting drawing plan, should be accounting disposed according to the setting drawing plan, while the rest should be disposed according to the setting revenue plan. 23. Revenue Is the Company subject to any disclosure requirements for special industries? No. (1) Selling products No revenue from selling goods may be recognized unless the following conditions are met simultaneously: the significant risks and rewards of ownership of the goods have been transferred to the buyer by the enterprise; the enterprise retains neither continuous management right that usually keeps relation with the ownership nor effective control over the sold goods; the relevant amount of revenue can be measured in a reliable way; the relevant economic benefits may flow into the enterprise; and the relevant costs incurred or to be incurred can be measured in a reliable way. As for the revenues from the domestic sales products, the Company deliveries the products to the buyers according to the contracts agreement, and the revenues amount of the products sales had been confirmed with the goods payment had been withdrawn or had received the receipt voucher of which the relevant economic benefits probably flow into the enterprise as well as the relevant costs of the products could be reliable measured when being confirming as the revenues. As for the revenues from the export sales products, the Company executes the customs declaration and the products departure according to the contracts agreement, and the Company had acquired the bill of lading with the revenues amount of the products sale 127 Lu Thai Textile Co., Ltd. Annual Report 2017 had been confirmed and the goods payment had been withdrawn or had had received the receipt voucher of which the relevant economic benefits probably flow into the enterprise as well as the relevant costs of the products could be reliable measured when being confirming as the revenues. (2) Providing labor services If the Company can reliably estimate the outcome of a transaction concerning the labor services it provides, it shall recognize the revenue from providing services employing the percentage-of-completion method on the date of the balance sheet. The completed proportion of a transaction concerning the providing of labor services shall be decided by the proportion of the labor service already provided to the total labor service to provide. The outcome of a transaction concerning the providing of labor services can be measured in a reliable way, means that the following conditions shall be met simultaneously: ① The amount of revenue can be measured in a reliable way; ② The relevant economic benefits are likely to flow into the enterprise; ③ The schedule of completion under the transaction can be confirmed in a reliable way; and ④ The costs incurred or to be incurred in the transaction can be measured in a reliable way. If the outcome of a transaction concerning the providing of labor services can’t be measured in a reliable way, the revenue from the providing of labor services shall be recognized in accordance with the amount of the cost of labor services incurred and expected to be compensated, and make the cost of labor services incurred as the current expenses. If it is predicted that the cost of labor services incurred couldn’t be compensated, thus no revenue shall be recognized. Where a contract or agreement signed between Company and other enterprises concerns selling goods and providing of labor services, if the part of sale of goods and the part of providing labor services can be distinguished from each other and can be measured respectively, the part of sale of goods and the part of providing labor services shall be treated respectively. If the part of selling goods and the part of providing labor services can’t be distinguished from each other, or if the part of sale of goods and the part of providing labor services can be distinguished from each other but can’t be measured respectively, both parts shall be conducted as selling goods. (3) Royalty revenue In accordance with relevant contract or agreement, the amount of royalty revenue should be recognized as revenue on accrual basis. (4) Interest revenue The amount of interest revenue should be measured and confirmed in accordance with the length of time for which the Company’s monetary fund is used by others and the agreed interest rate. 24. Government Subsidies (1) Judgment Basis and Accounting Treatment of Government Subsidies Related to Assets The government subsidy refers to the Company gets the monetary and non-monetary assets for free from the government, excluding the capital that the government invests as the investor who enjoys the corresponding owner’s equity. It can be divided into the asset-related government subsidy and income-related government subsidy. The Company defines the obtained government subsidy for the acquisition and construction or forming the long-term asset in other ways as the asset-related government subsidy; other government subsidies are defined as the income-related government subsidy. If the government document does not clearly prescribe the subsidy object, the following ways shall be adopted to divide the subsidy into the income-related government subsidy and asset-related government subsidy: (1) The government document clears the specific project for the subsidy, it shall divide according to the relative ratio of asset expenditure amount and entry cost expenditure amount to be formed in the budget of specific project, review according to the division ratio at each balance sheet date, and change when necessary; (2) The government document only makes the general expression on the usage without indicated specific project, it shall be the income-related government subsidy. If the government subsidy is monetary asset, it shall be measured according to the received or receivable amount. If the government subsidy is non-monetary asset, it shall be measured according to the fair value; it the fair value can’t be got reliably, it shall be measured according to the nominal amount. The government subsidy measured according to the nominal amount shall be calculated 128 Lu Thai Textile Co., Ltd. Annual Report 2017 in the current profits and losses directly. The asset-related government subsidy shall be confirmed as the deferred income, and it shall be calculated into the current profits and losses by stages in reasonable and systematic way within the service life of related asset. Government subsidies related to routine activities of the Company shall be calculated into other income or offset related costs according to the essence of economic business; government subsidies that have nothing to do with routine activities shall calculated into non-operating income. When the confirmed government subsidy needs to be returned and there is the related deferred income balance, the related deferred income book balance shall be deducted, and the surpassing part shall be calculated into the current profits and losses; If in other situations, it shall be calculated in the current profits and losses directly. (2) Judgment Basis and Accounting Treatment of Government Subsidies Pertinent to Incomes The Company usually confirms and measures the government subsidy according to the received amount when receiving actually. However, the financial support fund which can be received complying with the related conditions prescribed in the financial support policy indicated by the conclusive evidence shall be measured according to the receivable amount. The following conditions shall be met for the government subsidy measured by the receivable amount: (1) The receivable subsidy amount has been confirmed by the authorized government department, or it can be measured reasonably according to the officially released provisions related with the financial fund management method, and it is expected there is no major uncertainty for the amount; (2) It is based on the financial support project and financial fund management method actively opened released officially by the local financial department and according to the provision in Government Information Disclosure Provisions, the management method shall be universal (any enterprise complying with the prescribed condition can apply) rather than for the specific enterprise; (3) The related subsidy approval document has clearly promised the appropriate term, and the appropriation of the amount shall have the corresponding financial budget for the guarantee, therefore, it can ensure to receive within the prescribed term reasonably. The income-related government subsidy to compensate the related expense and loss later shall be confirmed as the deferred income, and it shall be calculated in the current profits and losses during the period to confirm the related costs or losses; the occurred related costs or losses for compensation shall be calculated in the current profits and losses directly. For government subsidy including the asset-related government subsidy and the income-related government subsidy at one time, accounting treatment shall be conducted respectively to distinguish the different parts; if it is difficult to distinguish, then it shall be classified into the income-related government subsidy 25. Deferred Income Tax Assets/Deferred Income Tax Liabilities (1) Income tax of the current period On the balance sheet date, for the current income tax liabilities (or assets) of the current period as well as the part formed during the previous period, should be measured by the income tax of the estimated payable (returnable) amount which be calculated according to the regulations of the tax law. The amount of the income tax payable which is based by the calculation of the current income tax expenses, are according to the result measured from the corresponding adjustment of the pre-tax accounting profit of this Reporting Period which in accord to the relevant regulations of the tax law. (2) Deferred income tax assets and deferred income tax liabilities The difference between the book value of certain assets and liabilities and their tax assessment basis, as well as the temporary difference occurs from the difference between the book value of the items which not be recognized as assets and liabilities but could confirm their tax assessment basis according to the regulations of the tax law, the deferred income tax assets and the deferred income tax liabilities should be recognized by adopting liabilities law of the balance sheet. No deferred tax liability is recognized for a temporary difference arising from the initial recognition of goodwill, the initial 129 Lu Thai Textile Co., Ltd. Annual Report 2017 recognition of assets or liabilities due to a transaction other than a business combination, which affects neither accounting profit nor taxable profit (or deductible loss). Besides, no deferred tax assets is recognized for the taxable temporary differences related to the investments of subsidiary companies, associated enterprises and joint enterprises, and the investing enterprise can control the time of the reverse of temporary differences as well as the temporary differences are unlikely to be reversed in the excepted future. Otherwise, the Group should recognize the deferred income tax liabilities arising form other taxable temporary difference. No deferred taxable assets should be recognized for the deductible temporary difference of initial recognition of assets and liabilities arising from the transaction which is not business combination, the accounting profits will not be affected, nor will the taxable amount or deductible loss be affected at the time of transaction. Besides, no deferred taxable assets should be recognized for the deductible temporary difference related to the investments of the subsidiary companies, associated enterprises and joint enterprises, which are not likely to be reversed in the expected future or is not likely to acquire any amount of taxable income tax that may be used for making up such deductible temporary differences. Otherwise, the Company shall recognize the deferred income tax assets arising from a deductible temporary difference basing on the extent of the amount of the taxable income that is likely to be acquired to make up such deductible temporary differences For any deductible loss or tax deduction that can be carried forward to the next year, the corresponding deferred income tax asset shall be determined to the extent that the amount of future taxable income to be offset by the deductible loss or tax deduction to be likely obtained. On the balance sheet date, the deferred income tax assets and the deferred income tax liabilities shall be measured at the tax rate applicable to the period during which the assets are expected to be recovered or the liabilities are expected to be settled. The book value of deferred income tax assets shall be reviewed at each balance sheet date. If it is unlikely to obtain sufficient taxable income to offset against the benefit of the deferred income tax asset, the book value of the deferred income tax assets shall be written down. Any such write-down should be subsequently reversed where it becomes probable that sufficient taxable income will be available. (3) Income tax expenses Income tax expenses include current income tax and deferred income tax. The rest current income tax and the deferred income tax expenses or revenue should be included into current gains and losses except for the current income tax and the deferred income tax related to the transaction and events that be confirmed as other comprehensive income or be directly included in the shareholders’ equity which should be included in other comprehensive income or shareholders’ equity as well as the book value for adjusting the goodwill of the deferred income tax occurs from the business combination. (4) Offset of income tax The current income tax assets and liabilities of the Company should be listed by the written-off net amount which intend to executes the net amount settlement as well as the assets acquiring and liabilities liquidation at the same time while owns the legal rights of settling the net amount. The deferred income tax assets and liabilities of the Company should be listed as written-off net amount when having the legal rights of settling the current income tax assets and liabilities by net amount and the deferred income tax and liabilities is relevant to the income tax which be collected from the same taxpaying bodies by the same tax collection and administration department or is relevant to the different taxpaying bodies but during each period which there is significant reverse of the deferred income assets and liabilities in the future and among which the involved taxpaying bodies intend to settle the current income tax and liabilities by net amount or are at the same time acquire the asset as well as liquidate the liabilities. 130 Lu Thai Textile Co., Ltd. Annual Report 2017 26. Lease (1) Accounting Treatment of Operating Lease (1) Business of operating leases recorded by the Group as the lessee The rent expenses from operating leases shall be recorded by the lessee in the relevant asset costs or the profits and losses of the current period by using the straight-line method over each period of the lease term. The initial direct costs shall be recognized as the profits and losses of the current period. The contingent rents shall be recorded into the profits and losses of the current period in which they actually arise. (2) Business of operating leases recorded by the Group as the lessor The rent incomes from operating leases shall be recognized as the profits and losses of the current period by using the straight-line method over each period of the lease term. The initial direct costs of great amount shall be capitalized when incurred, and be recorded into current profits and losses in accordance with the same basis for recognition of rent incomes over the whole lease term. The initial direct costs of small amount shall be recorded into current profits and losses when incurred. The contingent rents shall be recorded into the profits and losses of the current period in which they actually arise. (2) Accounting Treatments of Financial Lease (1) Business of finance leases recorded by the Company as the lessee On the lease beginning date, the Company shall record the lower one of the fair value of the leased asset and the present value of the minimum lease payments on the lease beginning date as the entering value in an account, recognize the amount of the minimum lease payments as the entering value in an account of long-term account payable, and treat the balance between the recorded amount of the leased asset and the long-term account payable as unrecognized financing charges. Besides, the initial direct costs directly attributable to the leased item incurred during the process of lease negotiating and signing the leasing agreement shall be recorded in the asset value of the current period. The balance through deducting unrecognized financing charges from the minimum lease payments shall be respectively stated in long-term liabilities and long-term liabilities due within 1 year. Unrecognized financing charges shall be adopted by the effective interest rate method in the lease term, so as to calculate and recognize current financing charges. The contingent rents shall be recorded into the profits and losses of the current period in which they actually arise. (2) Business of finance leases recorded by the Company as the lessor On the beginning date of the lease term, the Company shall recognize the sum of the minimum lease receipts on the lease beginning date and the initial direct costs as the entering value in an account of the financing lease values receivable, and record the unguaranteed residual value at the same time. The balance between the sum of the minimum lease receipts, the initial direct costs and the unguaranteed residual value and the sum of their present values shall be recognized as unrealized financing income. The balance through deducting unrealized financing incomes from the finance lease accounts receivable shall be respectively stated in long-term claims and long-term claims due within 1 year. Unrecognized financing incomes shall be adopted by the effective interest rate method in the lease term, so as to calculate and recognize current financing revenues. The contingent rents shall be recorded into the profits and losses of the current period in which they actually arise. 27. Other Significant Accounting Policies and Estimates Due to the internal uncertainty of operating activities, the Company needs to make judgments, estimates and assumptions for carrying amounts of statement items that can’t be measured accurately during the process of applying accounting policies. Such judgments, 131 Lu Thai Textile Co., Ltd. Annual Report 2017 estimates and assumptions are made on the basis of the past experience of Company’s management staffs and on the consideration of other relevant factors. Such judgments, estimates and assumptions have effect on reporting amount of incomes, expense, assets and liabilities, as well as disclosure of contingent liabilities on the balance sheet date. However, the uncertainty of such estimates may results in major adjustments of carrying amounts of assets or liabilities that will be influenced in future. The Company shall have a check on the aforesaid judgments, estimates and assumptions at fixed intervals on the basis of sustainable operation. As for the change in accounting estimates that only effects on the current period of the change, the affected amount thereof shall be recognized at current period of the change. As for accounting estimates that effects on both the current period of the change and future periods, the affected amount thereof shall be recognized at current period of the change and future periods. On balance sheet date, major fields requiring judgments, estimates and assumptions on amounts of financial statement items by the Company are as follows: (1) Classification of leases In line with rules in Accounting Standards for Enterprises No. 21 – Leases, the Company classifies leases into operating leases and finance leases. Upon the classification, the management staffs need to make analysis and judgments on whether to essentially transfer all risks and remuneration relating to the ownership of leased-out assets to the lessee, or whether the Company has essentially undertaken all risks and remuneration relating to the ownership of leased-in assets. (2) Withdrawal of bad debt provisions The Company shall, in accordance with accounting policies of receivables, calculate bad debt provisions by adopting allowance method. Impairment of accounts receivable is based on the assessment of the recovery of accounts receivable. Identification of impairment of accounts receivable requires judgments and estimates by management staffs. The difference between actual outcomes and originally estimated outcomes, which will influence the carrying amount of accounts receivable and bad debt provisions thereof in the estimated period of the change, shall be withdrawn or reversed. (3) Inventory depreciation reserves The Company shall calculate whichever is lower between the cost and realizable net value in light of inventory accounting policies. As for inventories of which the cost is higher than the realizable net value and inventories which are obsolete and unsalable inventory depreciation reserves shall be withdrawn. Impairment of inventories to realizable net value is based on the assessment of the marketing of inventories and realizable net value thereof. Identification of inventory impairment requires well-established evidences by management staffs, as well as judgments and estimates based on consideration of the purpose of holding inventories and other factors such as events occurring after the date of balance sheet. The difference between actual outcomes and originally estimated outcomes, which will influence the carrying amount of inventories and inventory depreciation reserves in the estimated period of the change, shall be withdrawn or reversed. (4) Fair values of financial instruments As for financial instruments not existing in active trading market, the Company shall determine their fair values by all kinds of assessment methods, which include model analysis of discounted cash flow and etc. During the assessment, the Company needs to assess for respects such as future cash flows, credit risks, market volatility, correlation, and choose appropriate discount rate. Such related assumptions have uncertainty, of which the change will effect on fair values of financial instruments. (5) Impairment of financial assets available for sale To a large extent, whether the impairment of financial assets available for sale is recognized or not relies on the judgments and assumptions of the management staffs. In that way, the Company shall be certain about whether to recognize impairment losses of financial assets available for sale in the profit statement. During the process of making judgments and assumptions, the Company needs to evaluate how much the fair value of such investment is less than its cost, how long such investment will last, and the financial condition and short-term business outlook of the invested parties, which include industry status, technology transform, credit rating, default rate and risks from the opposite parties. (6) Impairment provisions of non-financial non-current assets 132 Lu Thai Textile Co., Ltd. Annual Report 2017 The Company shall judge whether there is sign of impairment of non-current assets other than financial assets on balance sheet date. Intangible assets with uncertain service lives, besides being conducted with annual impairment test every year, have to accept impairment tests when there is sign of impairment. Other non-current assets except for financial assets have to accept impairment tests when there is sign indicating the carrying amount thereof is unrecoverable. When the carrying amounts of the asset or group assets are higher than the recoverable amounts, namely whichever is higher between the net amount through deducting disposal charges from the fair value and the present value of the estimated future cash flow, impairment occurs. The net amount of the fair value of an asset minus the disposal expenses shall be determined in light of the amount of the basis of the price as stipulated in the sales agreement or the observable market price in the fair transaction minus the incremental cost directly subject to the disposal of the asset. When estimating present value of future cash flows, it is necessary to make significant judgments on characters of the asset or asset group, such as output, sales price, related operating costs, and discount used to calculate the present value. When estimating recoverable amount, the Company shall adopt all relevant materials that can be required, including estimates relating to output, sales price and relevant operating costs judged by rational and supportable assumptions. The Company tests whether there is impairment of good will at least for every year, which requires itself to estimate the present value of the future cash flow of group assets or combination of group assets. When estimating the present value of the future cash flow, the Company needs to estimate the cash flow arising from future group assets or combination of group assets, and at the same time choose appropriate discount rate to determine the present value of the future cash flow. (7) Depreciation and amortization Upon consideration on the salvage value of investment real estates, fixed assets and intangible assets, the Company shall withdraw depreciation and amortization by straight-line method over their service lives. The Company checks on service lives at fixed intervals, so as to determine the amounts of depreciation expenses and amortization expenses at each period. Service lives are confirmed in accordance with the past experience on similar assets of the Company, along with renewed technology of expectation. If any significant change occurred to previous estimated, depreciation expenses and amortization expenses will be adjusted in future period. (8) Deferred income tax assets In a limit providing large possibility of offset losses from sufficient taxable profits, the Group shall recognize deferred income tax assets in line with all unused tax losses, which requires management staffs of the Group to estimate the time when future taxable profits occurs and the amount thereof by applying plenty of judgments and combining tax planning strategies, so as to determine the amount of the recognizable deferred income tax assets. (9) Income taxes There’s certain uncertainty of disposal and calculation of taxes of partial transactions in normal operating activities. It is uncertain whether some pre-taxed items can set aside the approvals by tax authorities or not. If there are differences between the ultimate recognition outcomes and the originally estimated amounts of such tax issues, then such differences shall effect on the current income tax and deferred income tax during the ultimate recognition period. (10) Measurement of fair value Some of assets and liabilities in financial statement of the Company are measured by fair value. When estimating the fair value of a asset or liability, the Company adopts the available and observable market data. During the process of confirming the fair value of various assets and liabilities, relevant information of the adopted valuation technique and input value was disclosure in Note XI. 133 Lu Thai Textile Co., Ltd. Annual Report 2017 28. Changes in Main Accounting Policies and Estimates (1) Change of Accounting Policies √ Applicable □ Not applicable Content and reason for changes Approval procedures Remark Before May 1, 2017, inventories of the Company shall be measured at planned cost when acquired. When acquired and For it is unpractical to confirm the delivered, it shall be measured as per the accumulative influences from the changes weighted average method. According to of the accounting policies, according to the the requirements of refining operation rules of Accounting Standards for Business management of the Company, in order to Approved by the 7th Meeting of the 8th Enterprises - Changes in Accounting further strengthen the refinement of Board of Directors of the Company on Policies and Estimates and Correction of financial accounting, the Company April 26, 2017 Errors, the changes in accounting policies changed the pricing method of acquired adopted prospective application method, inventories from planned cost to actual which was implemented from May 1, cost from May 1, 2017, and changed the 2017. pricing of delivered grey yarn, dyed yarn, and plus material from the weighted average method to first-in first-out method. Accounting Standards for Business Enterprises No. 42—Held-for-sale Non-current Assets, Disposal Groups and On April 28, 2017, the Ministry of Finance Discontinued Operation standardize the released Accounting Standards for classification, measurement, and list of Business Enterprises No. held-for-sale non-current assets and 42—Held-for-sale Non-current Assets, disposal group, and the list of termination Disposal Groups and Discontinued operation. Operation (CaiKuai [2017] No. 3), which According to Notice of the Ministry of came into force from May 28, 2017. th Approved by the Resolutions on the 16 Finance on Revision and Issuance of On December 25, 2017, the Ministry of Meeting of the 8th Board of Directors of Format of General Financial Statements of Finance issued the “Notice on Revision the Company on April 15, 2018 Enterprises, the Company adjusted the and Issuance of Format of General presentation of financial statement. The Financial Statements of Enterprises” amount adjusted to “assets disposal (CaiKuai [2017] No. 30) to revise the income” in 2017 was RMB1,242,000.54, format of general finance statements of and the amount adjusted to “assets disposal enterprises and apply to financial income” in 2016 was RMB-6,843,361.94. statements in 2017 and the subsequent The changes in accounting policies had no periods. significant influences on financial situations, operating results, and cash flows of the Company. On May 10, 2017, the Ministry of Finance Approved by Resolutions on the 9th Government subsidy related to routine 134 Lu Thai Textile Co., Ltd. Annual Report 2017 released Circular on Issuance and Revision Meeting of the 8th Board of Directors of activities happened after January 1, 2017 of Accounting Standards for Business the Company on August 28, 2017 shall be calculated into other income; Enterprises No. 16—Government Subsidy government subsidy that has nothing to do (CaiKuai [2017] No. 15), and revised with routine activities shall be calculated Accounting Standards for Business into non-operating income. Enterprises No. 16—Government Subsidy, which was implemented in the scope of all companies who execute accounting standards for business enterprises from June 12, 2017. (2) Significant Changes in Accounting Estimates □ Applicable √ Not applicable VI Taxes 1. Main Taxes and Tax Rates Category of tax Taxable basis Tax rate Calculated the output tax at 17%, 11%, 6%, 5%, 3% and 0% of taxable income and VAT paid the VAT by the amount after 17%, 11%, 6%, 5%, 3%, 0% deducting the deductible withholding VAT at current period. Paid at 7%, 5%, 1% of the circulating tax Urban maintenance and construction tax 7%, 5%, 1% actually paid Paid at 0%, 15%, 16.5% and 25% of Enterprise income tax 0%, 15%, 16.5%, 25% taxable income respectively Notes of the disclosure situation of the taxpaying bodies with different enterprises income tax rate Taxpayer Income tax rate The Company 15% Lufeng Weaving & Dyeing Co., Ltd. (hereinafter refer to as 15% “Lufeng Weaving & Dyeing”) Lu Thai (Hong Kong) Textile Co., Ltd. (hereinafter refer to as 16.50% “Lu Thai Hong Kong”) Xinjiang Lu Thai Harvest Cotton Co., Ltd. (“Xinjiang Lu Thai”) 25% Zibo Luqun Textile Co., Ltd. (hereinafter refer to as “Luqun 25% Textile”) Zibo Xinsheng Power Co., Ltd. hereinafter refer to as “Xinsheng 25% Power”) 135 Lu Thai Textile Co., Ltd. Annual Report 2017 Beijing Innovative Garment Co., Ltd. (hereinafter referred to as 25% “Beijing Innovative” Shanghai Lu Thai Textile & Garments Co., Ltd. (hereinafter 25% referred to as “Shanghai Lu Thai”) Beijing Lu Thai Youxian Electronic Commerce Co., Ltd. 25% (hereinafter referred to as “Beijing Youxian”) Zibo Chengshun Heating Co., Ltd. (hereinafter referred to as 25% “Chengshun Heating”) Zibo Helijie Energy-saving Technology Service Co., Ltd. 25% (hereinafter referred to as “Helijie”) Xinjiang Lu Thai Textile Co., Ltd. (hereinafter referred to as 15% “Xinjiang Textile”) Lu Thai (Cambodia) Textile Co., Ltd. (hereinafter referred to as 0% “Lu Thai Cambodia”) Lu Thai (Burma) Textile Co., Ltd. (hereinafter referred to as “Lu 0% Thai Burma”) Lu Thai (Vietnam) Textile Co., Ltd. (hereinafter referred to as 0% “Lu Thai Vietnam”) Lu An Garments Co., Ltd. (hereinafter referred to as “Lu An 0% Garments” Lu Thai (America) Textile Co., Ltd. (hereinafter referred to as Refer to 2. Tax Preference presented as follows for details “Lu Thai America” 2. Tax Preference According to the "On the Recognition of 2078 Enterprises as High-tech Enterprises for 2017 such as WeihaiTuozhan Fiber Co., Ltd." (LK Zi[2018 ] No. 37) issued Department of Science and Technology of Shandong Province, Shandong Provincial Finance Department, State Administration of Taxation of Shandong Province and Local Taxation Bureau of Shandong Province, the Company and the holding subsidiary Lufeng Weaving and Dyeing Co., Ltd. were identified as high-tech enterprises. Pursuant to Article 28 of the "Law of the PRC on Enterprise Income Tax” and the No. 76 Announcement published by the State Administration of Taxation in 2015, namely "Management of Preferential Policy on Corporate Income Tax" and the " Measures for the Administration of the Recognition of Hi-tech Enterprises" GKFH [2016] No. 195 revised and published by the Ministry of Science and Technology, Ministry of Finance and State Administration of Taxation, the Company and the holding subsidiary Lufeng Weaving and Dyeing Co., Ltd. enjoy a corporate income tax rate of 15%. According to the "Notice of the Ministry of Finance, the General Administration of Customs and the State Administration of Taxation on Tax Policy Issues concerning Further Implementing the Western China Development Strategy " (CS[2011] No. 58), Xinjiang Textile Co., Ltd., the subsidiary of Lu Thai in Xinjiang, enjoys a preferential corporate income tax rate of 15%. Lu Thai (Hong Kong) Textile Co., Ltd. (hereinafter refers as Lu Thai (Hong Kong) Textile), the wholly-owned subsidiary company of the Company, was incorporated in Hong Kong SAR, whose profit tax shall be paid at tax rate of 16.5%. The wholly own subsidiary Lu Thai Cambodia, according to the Lu Thai Cambodia Profits tax free approval issued by Investment Committee of Cambodia, Lu Thai Cambodia enjoys tax preference of tax free on corporate income tax of 3 (3 years start-up period) + 3 (3 years tax holiday)+1 (1 year grace period). If profit during the 3 year start-up period then turn into 3 years tax holiday, after 136 Lu Thai Textile Co., Ltd. Annual Report 2017 grace period, enterprise income tax rate was of 20%. The wholly own subsidiary Lu Thai Burma, according to the Burma’s Special Economic Zone Law issued by Pyidaungsu Hluttaw, Lu Thai Burma enjoys tax preference on corporate income tax of 7 (7 years tax holiday) + 5 (5 years tax revenues drop by half) + 5 (re-invest the profits within 1 year and continues to enjoy the half tax revenues 5 years afterwards). After grace period, enterprise income tax rate was of 25%. The wholly-owned subsidiary Lu Thai (Vietnam) Textile Co., Ltd. shall enjoy the preference of enterprise income tax at 3 years’ starting term + 2 years’ duty-free term + 4 years’ half-tax term according to the investment license issued by Vietnamese Fudong Industrial Zone Management Committee, and it will enter into 2 years’ duty-free term if it is profitable within 3 years’ starting term. The enterprise income tax rate shall be 20% after the preference term ends. The Company shall enjoy 17% of the preference tax rate within 10 years since the tax year to get the first production and operation income, and the enterprise income tax rate shall be 20% after the preference term ends. The wholly-owned subsidiary Lu An Garments Co., Ltd. shall enjoy the preference of enterprise income tax at 3 years’ starting term + 2 years’ duty-free term + 4 years’ half-tax term according to the investment license issued by Vietnamese Anjiang Province Economic Zone Management Committee, and it will enter into duty-free term if the profitability is realized at any year within 3 years’ starting term. The Company shall enjoy 17% of the preference tax rate within 10 years since the tax year to get the first production and operation income, and the enterprise income tax rate shall be 20% after the preference term ends. Lu Thai America, the wholly-owned subsidiary of the Company registered in New York, America, was imposed the federal enterprise income tax at progressive tax rate in excess of specific amount of 15%-39%, and imposed the New York Enterprise income tax at the rate of 6.5%. The income tax rate shall be 6.5% when the sales income in New York was below USD1 million, while 8.85% when above USD1 million. VII. Notes to Main Items of Consolidated Financial Statements 1. Monetary Funds Unit: RMB Item Closing balance Opening balance Cash on hand 8,040,420.28 3,229,473.38 Bank deposits 668,598,792.58 655,886,664.29 Other monetary funds 17,350,080.52 8,188,564.67 Total 693,989,293.38 667,304,702.34 Of which: total amount deposited 54,911,636.96 98,109,438.71 oversees Other notes Note: On Dec. 31, 2017, the monetary capital with restricted ownership of the Company was of RMB17,350,080.52 (Dec. 31, 2016: RMB8,188,564.67), which was the fixed deposit receipt of RMB16,000,000.00 pledged in order to obtain the short-term loan (See 23 and 58 in this Section), the cash deposit of 1,200,000.00 for opening the L/C by the Company’s subsidiary Xinjiang Lu Thai and the margin of RMB150,080.52 for opening L/G by the Company’s subsidiary Lufeng Weaving & Dyeing. 137 Lu Thai Textile Co., Ltd. Annual Report 2017 2. Notes Receivable (1) Notes Receivable Listed by Category Unit: RMB Item Closing balance Opening balance Bank acceptance bill 28,926,913.53 12,263,703.90 L/C 110,349,828.81 71,898,206.01 Total 139,276,742.34 84,161,909.91 (2) Notes Receivable which Had Endorsed by the Company or Had Discounted and Had not Due on the Balance Sheet Date at the Period-end Unit: RMB Amount of recognition termination at the Amount of not terminated recognition at Item period-end the period-end Bank acceptance bill 184,749,663.81 Total 184,749,663.81 3. Accounts Receivable (1) Accounts Receivable Disclosed by Category Unit: RMB Closing balance Opening balance Book balance Bad debt provision Book balance Bad debt provision Category Withdra Book Proportio wal Proportio Withdrawal Book value Amount Amount value Amount Amount n proportio n proportion n Accounts receivable withdrawn bad debt 351,991, 17,911,3 334,080,5 308,637 15,507,82 293,129,72 provision according 100.00% 5.09% 100.00% 5.02% 919.14 95.09 24.05 ,549.96 2.03 7.93 to credit risks characteristics 351,991, 17,911,3 334,080,5 308,637 15,507,82 293,129,72 Total 100.00% 5.09% 100.00% 5.02% 919.14 95.09 24.05 ,549.96 2.03 7.93 Accounts receivable with significant single amount for which bad debt provision separately accrued at the period-end □ Applicable √ Not applicable In the groups, accounts receivable adopting aging analysis method to accrue bad debt provision: 138 Lu Thai Textile Co., Ltd. Annual Report 2017 √ Applicable □ Not applicable Unit: RMB Closing balance Aging Accounts receivable Bad debt provision Withdrawal proportion Subitem within 1 year Within 1 year 347,017,932.00 17,350,896.58 5.00% Subtotal within 1 year 347,017,932.00 17,350,896.58 5.00% 1 to 2 years 4,636,989.14 463,698.91 10.00% 2 to 3 years 42,998.00 8,599.60 20.00% Over 3 years 294,000.00 88,200.00 30.00% Total 351,991,919.14 17,911,395.09 5.09% Notes of the basis for the determination of the group: In the groups, accounts receivable adopting balance percentage method to withdraw bad debt provision: □ Applicable √ Not applicable In the groups, accounts receivable adopting other methods to withdraw bad debt provision: (2) Bad Debt Provision Withdrawn, Reversed or Collected during the Reporting Period The withdrawal amount of the bad debt provision during the Reporting Period was of RMB2,410,128.05; the amount of the reversed or collected part during the Reporting Period was of RMB0.00. (3) The Actual Write-off Accounts Receivable Unit: RMB Item Amount Actual write-off accounts receivable 6,554.99 (4) Top 5 of the Closing Balance of the Accounts Receivable Collected according to the Arrears Party The total amount of the Company’s top 5 of the closing balance of the accounts receivable collected according to the arrears party was RMB102,408,407.58, 29.09% of the total balance of account receivable at period-end. The relevant total balance of bad debt provision was RMB5,120,420.38. 4. Prepayment (1) Listed by Aging Analysis Unit: RMB Closing balance Opening balance Aging Amount Proportion Amount Proportion 139 Lu Thai Textile Co., Ltd. Annual Report 2017 Within 1 year 145,673,771.77 99.46% 211,403,422.01 99.49% 1 to 2 years 625,210.35 0.43% 805,437.09 0.38% 2 to 3 years 162,029.49 0.11% 242,576.42 0.11% Over 3 years 2,054.77 0.00% 36,684.96 0.02% Total 146,463,066.38 -- 212,488,120.48 -- Notes of the reasons of the prepayment aging over 1 year with significant amount but failed to settle in time: (2) Top 5 of the Closing Balance of the Prepayment Collected according to the Prepayment Target The total amount of top 5 of the closing balance of the prepayment collected according to the prepayment target was RMB 63,315,827.06, 43.23% of total balance of prepayment at period-end. Other notes: 5. Interest Receivable (1) Category of Interest Receivable Unit: RMB Item Closing balance Opening balance Fixed term deposit 590,003.07 Total 590,003.07 6. Other Accounts Receivable (1) Other Accounts Receivable Disclosed by Category Unit: RMB Closing balance Opening balance Book balance Bad debt provision Book balance Bad debt provision Category Withdra Book Proportio wal Proportio Withdrawal Book value Amount Amount value Amount Amount n proportio n proportion n Other accounts receivable withdrawn 62,067,8 5,885,02 56,182,78 52,492, 5,771,278 46,720,732. bad debt provision 100.00% 9.48% 100.00% 10.99% 08.10 6.06 2.04 011.83 .86 97 according to credit risks characteristics 62,067,8 5,885,02 56,182,78 52,492, 5,771,278 46,720,732. Total 100.00% 9.48% 100.00% 10.99% 08.10 6.06 2.04 011.83 .86 97 140 Lu Thai Textile Co., Ltd. Annual Report 2017 Other receivable with single significant amount and withdrawal bad debt provision separately at the end of the Period: □ Applicable √ Not applicable In the groups, other accounts receivable adopting aging analysis method to withdraw bad debt provision: √ Applicable □ Not applicable Unit: RMB Closing balance Aging Other accounts receivable Bad debt provision Withdrawal proportion Subitem within 1 year Within 1 year 50,524,037.28 2,526,201.87 5.00% Subtotal within 1 year 50,524,037.28 2,526,201.87 5.00% 1 to 2 years 434,035.33 43,403.54 10.00% 2 to 3 years 175,000.00 35,000.00 20.00% Over 3 years 10,934,735.49 3,280,420.65 30.00% Total 62,067,808.10 5,885,026.06 9.48% Notes of the basis for the determination of the group: In the groups, other accounts receivable adopting balance percentage method to withdraw bad debt provision: □ Applicable √ Not applicable In the groups, other accounts receivable adopting other methods to withdraw bad debt provision: □ Applicable √ Not applicable (2) Bad Debt Provision Withdrawal, Reversed or Recovered in the Reporting Period The amount of bad debt provision was RMB168,904.97, the amount of reversed or recovered bad debt provision in the Reporting Period RMB0.00. (3) Particulars of Other Accounts Receivable Actually Verified during the Reporting Period Unit: RMB Item Amount Other accounts receivable actually verified 55,157.77 (4) Other Accounts Receivable Classified by Account Nature Unit: RMB Nature Closing book balance Opening book balance Export taxes refund 26,928,248.68 18,563,850.28 Advance payment 19,470,920.20 17,597,169.14 Pledge and guarantee 5,915,873.52 3,777,964.01 141 Lu Thai Textile Co., Ltd. Annual Report 2017 Lending and petty cash 1,533,438.12 1,404,072.87 Other 8,219,327.58 11,148,955.53 Total 62,067,808.10 52,492,011.83 (5) Top 5 of the Closing Balance of the Other Accounts Receivable Collected according to the Arrears Party Unit: RMB Closing balance of Name of units Nature Closing balance Aging Proportion% bad debt provision Export taxes refund Export taxes refund 24,262,563.08 Within 1 year 39.09% 1,213,128.15 receivable Advance money receivable of the Advance money 4,909,766.50 Within 1 year 7.91% 245,488.33 fundraising houses Deposits for wages Deposits for wages paid to migrant paid to migrant 2,955,620.10 Over 3 years 4.76% 886,686.03 workers of Zichuan workers of District, Zibo infrastructure works Finance Bureau of Export tax refunds of Zichuan District, 2,665,685.60 Over 3 years 4.29% 799,705.68 the local government Zibo Advance money receivable of the Advance money 2,024,208.67 Within 1 year 3.26% 101,210.43 heating Total -- 36,817,843.95 -- 59.32% 3,246,218.62 7. Inventory Whether the Company needs to comply with the disclosure requirements of the real estate industry No (1) Category of Inventory Unit: RMB Closing balance Opening balance Item Falling price Falling price Book balance Book value Book balance Book value reserves reserves Raw materials 859,429,529.00 1,172,453.02 858,257,075.98 720,197,267.25 620,979.00 719,576,288.25 Goods in process 508,535,945.66 508,535,945.66 412,808,521.45 412,808,521.45 Inventory goods 754,961,464.17 51,653,377.28 703,308,086.89 731,266,751.73 64,673,863.30 666,592,888.43 142 Lu Thai Textile Co., Ltd. Annual Report 2017 Consumptive 1,531,621.67 404,221.67 1,127,400.00 1,141,156.72 671,556.72 469,600.00 biological assets Assigned processing 29,432,713.40 29,432,713.40 18,095,572.86 18,095,572.86 products Total 2,153,891,273.90 53,230,051.97 2,100,661,221.93 1,883,509,270.01 65,966,399.02 1,817,542,870.99 Whether the Company needs to comply with the disclosure requirements of Shenzhen Stock Exchange Industry Information Disclosure Guidelines No. 4 - Listed companies engaged in seed industry and planting business No (2) Falling Price Reserves of Inventory Unit: RMB Increased amount Decreased amount Item Opening balance Reverse or Closing balance Withdrawal Other Other write-off Raw materials 620,979.00 1,172,453.02 620,979.00 1,172,453.02 Inventory goods 64,673,863.30 23,993,839.93 37,014,325.95 51,653,377.28 Consumptive 671,556.72 54,032.48 321,367.53 404,221.67 biological assets Total 65,966,399.02 25,220,325.43 37,956,672.48 53,230,051.97 Item Specific basis of withdrawal of Reasons for reversal Reasons for write-off falling price reserves of inventory The lower one between cost of Sale in this year Raw materials each item of inventory and its realizable net value. The lower one between cost of Sale in this year Inventory goods each item of inventory and its realizable net value. Consumptive biological The lower one between cost of Sale in this year assets each item of inventory and its realizable net value. Notes: ① Due to the quality problem in the garment accessories of partial raw materials, raw yarn and dyed yarn of finished goods and long age of partial shirts and fabric at the year-end as well as the falling market price of the consumptive biological assets-Hu-sheep, the costs of inventories became higher than the realizable net value, and the Company withdrew the provision for falling price of inventories according to their balance. ② Lu Thai (Xinjiang) Textile Co., Ltd., the Company’s subsidiary got the short-term borrowing of RMB210,000,000.00 pleadged with the inventory with book value of RMB248,632,100.00. 143 Lu Thai Textile Co., Ltd. Annual Report 2017 (3) Notes of the Closing Balance of the Inventory which Includes Capitalized Borrowing Expenses (4) Completed Unsettled Assets Formed from the Construction Contact at the Period-end 8. Other Current Assets Unit: RMB Item Closing balance Opening balance Prepaid income tax to be deducted 302,275.14 1,325,487.99 VAT input tax to be deducted 68,286,428.20 41,038,664.17 Sales the shares 65,968,094.08 Financial products 50,000,000.00 Total 118,588,703.34 108,332,246.24 Other notes: 9. Available-for-sale Financial Assets (1) List of Available-for-sale Financial Assets Unit: RMB Closing balance Opening balance Item Depreciation Depreciation Book balance Book value Book balance Book value reserves reserves Available-for-dale debt 60,033,000.00 60,033,000.00 instruments: Available-for-sale equity 67,282,600.00 42,782,600.00 24,500,000.00 67,282,600.00 42,782,600.00 24,500,000.00 instruments: Measured by fair 60,033,000.00 60,033,000.00 value Measured by cost 67,282,600.00 42,782,600.00 24,500,000.00 67,282,600.00 42,782,600.00 24,500,000.00 Total 127,315,600.00 42,782,600.00 84,533,000.00 67,282,600.00 42,782,600.00 24,500,000.00 144 Lu Thai Textile Co., Ltd. Annual Report 2017 (2) Available-for-sale Financial Assets Measured by Fair Value at the Period-end Unit: RMB Category of Available-for-sale equity Available-for-sale debt available-for-sale Total instruments instruments financial assets Equity instrument costs/debt instrument 60,000,000.00 60,000,000.00 amortization costs Fair value 60,033,000.00 60,033,000.00 Accumulative amount of changes in fair value 33,000.00 33,000.00 included in other comprehensive income Impairment amount withdrawn (3) Available-for-sale Financial Assets Measured by Cost at the Period-end Unit: RMB Book balance Depreciation reserves Shareholdi Cash ng bonus of Investee Period-beg Period-beg proportion the Increase Decrease Period-end Increase Decrease Period-end in in among the Reporting investees Period Yantai Rongchan g Pharmacy Co., Ltd. (hereinafte 55,282,600 55,282,600 42,782,600 42,782,600 3.13% r refer to .00 .00 .00 .00 as “Rongcha ng Pharmacy” ) Shandong Hongqiao Power Co., 12,000,000 12,000,000 19.38% Ltd. .00 .00 (Hongqiao Power) 67,282,600 67,282,600 42,782,600 42,782,600 Total -- .00 .00 .00 .00 (3) Changes of the Impairment of the Available-for-sale Financial Assets during the Reporting Period Unit: RMB 145 Lu Thai Textile Co., Ltd. Annual Report 2017 Category of the Available-for-sale equity Available-for-sale debt available-for-sale financial Total instruments instruments assets Withdrawn impairment balance 42,782,600.00 42,782,600.00 at the period-begin Withdrawn impairment balance 42,782,600.00 42,782,600.00 at the period-end 10. Long-term Accounts Receivable (1) Long-term Accounts receivable Unit: RMB Closing balance Opening balance Discount rate Item Bad debt Bad debt Book balance Book value Book balance Book value range provision provision Financing lease 2,310,000.00 2,310,000.00 10.54% accounts Of which: unrealized 55,437.00 55,437.00 financing income Total 2,310,000.00 2,310,000.00 -- 11. Long-term Equity Investment Unit: RMB Increase/decrease Closing Gains and Adjustme Cash Withdraw balance Additiona losses nt of Opening Reduced Changes bonus or al of Closing of Investee l recognize other balance investmen of other profits impairme Other balance impairme investmen d under comprehe t equity announce nt nt t the equity nsive d to issue provision provision method income I. Joint ventures II. Associated enterprises Ningbo Mei shan 100,000,0 -2,463,26 97,536,73 Bonded 00.00 7.98 2.02 Poer Area Haohong 146 Lu Thai Textile Co., Ltd. Annual Report 2017 Equity Investme nt Partnershi p (L.P) (hereinaft er referred to as “Haohong Investme nt”) 100,000,0 -2,463,26 97,536,73 Subtotal 00.00 7.98 2.02 100,000,0 -2,463,26 97,536,73 Total 00.00 7.98 2.02 Other notes 12. Investment Property (1) Investment property adopted the cost measurement mode √Applicable □ Not applicable Unit: RMB Item Houses and buildings Land use right Construction in process Total I. Original book value 1. Opening balance 35,848,151.08 35,848,151.08 2. Increased amount of 134,231.32 134,231.32 the Period (1) Purchase (2) Inventory/fixed assets / transfer of project 134,231.32 134,231.32 under construction (3) Enterprise combination increase 3. Decreased amount of the Period (1) Disposal (2) Other transfers 147 Lu Thai Textile Co., Ltd. Annual Report 2017 4. Closing balance 35,982,382.40 35,982,382.40 II. Accumulative depreciation 1. Opening balance 10,004,060.52 10,004,060.52 2. Increased amount of 1,414,777.30 1,414,777.30 the Period (1) Withdrawal or 1,414,777.30 1,414,777.30 amortization 3. Decreased amount of the Period (1) Disposal (2) Other transfers 4. Closing balance 11,418,837.82 11,418,837.82 III. Depreciation reserves 1. Opening balance 2. Increased amount of the Period (1) Withdrawal 3. Decreased amount of the Period (1) Disposal (2) Other transfers 4. Closing balance IV. Book value 1. Closing book value 24,563,544.58 24,563,544.58 2. Opening book value 25,844,090.56 25,844,090.56 13. Fixed Assets (1) List of Fixed Assets Unit: RMB 148 Lu Thai Textile Co., Ltd. Annual Report 2017 Electronic Houses and Machinery Transportation Item equipment and Total buildings equipment equipment others I. Original book value: 1. Opening 3,003,765,886.38 5,941,366,922.97 69,429,718.17 108,713,752.93 9,123,276,280.45 balance 2. Increased 208,153,190.55 463,149,612.30 7,726,194.10 15,090,956.38 694,119,953.33 amount of the period (1) Purchase 2,326,953.12 256,029,802.86 7,726,194.10 10,982,282.94 277,065,233.02 (2) Transfer of project under 205,826,237.43 207,119,809.44 4,108,673.44 417,054,720.31 construction (3) Enterprises combination increase 3. Decreased 75,910,347.45 391,290,078.67 1,550,052.01 5,124,394.42 473,874,872.55 amount of the period (1) Disposal or 7,510,494.72 62,639,610.19 1,278,538.07 4,890,261.96 76,318,904.94 scrap (2) Transferred into 134,231.32 134,231.32 investment property (3) Transferred into construction in 46,380,318.04 305,622,079.88 352,002,397.92 progress (4) Other decrease 21,885,303.37 23,028,388.60 271,513.94 234,132.46 45,419,338.37 4. Closing balance 3,136,008,729.48 6,013,226,456.60 75,605,860.26 118,680,314.89 9,343,521,361.23 II. Accumulated desperation 1. Opening 816,572,289.59 2,881,216,670.95 50,462,170.42 74,337,166.12 3,822,588,297.08 balance 2. Increased 91,617,551.83 277,500,291.61 4,450,570.19 8,833,897.82 382,402,311.45 amount of the period (1) Withdrawal 91,617,551.83 277,500,291.61 4,450,570.19 8,833,897.82 382,402,311.45 3. Decreased 19,425,109.86 289,657,965.25 1,120,500.94 4,699,475.40 314,903,051.45 amount of the period (1) Disposal or 2,182,298.38 52,437,036.04 1,047,280.95 4,618,229.43 60,284,844.80 scrap (2) Transferred into 16,272,025.52 235,175,418.39 251,447,443.91 construction in 149 Lu Thai Textile Co., Ltd. Annual Report 2017 progress (3) Other decrease 970,785.96 2,045,510.82 73,219.99 81,245.97 3,170,762.74 4. Closing balance 888,764,731.56 2,869,058,997.31 53,792,239.67 78,471,588.54 3,890,087,557.08 III. Depreciation reserves 1. Opening 4,830,670.26 22,596,691.34 27,269.67 84,643.90 27,539,275.17 balance 2. Increased 1,145,314.29 8,358,377.50 27,624.00 9,531,315.79 amount of the period (1) Withdrawal 1,145,314.29 8,358,377.50 27,624.00 9,531,315.79 3. Decreased 3,082,567.66 1,831,565.50 18,503.68 4,932,636.84 amount of the period (1) Disposal or 3,082,567.66 1,831,565.50 18,503.68 4,932,636.84 scrap 4. Closing balance 2,893,416.89 29,123,503.34 27,269.67 93,764.22 32,137,954.12 IV. Book value 1. Closing book 2,244,350,581.03 3,115,043,955.95 21,786,350.92 40,114,962.13 5,421,295,850.03 value 2. Opening book 2,182,362,926.53 3,037,553,560.68 18,940,278.08 34,291,942.91 5,273,148,708.20 value (2) Fixed Assets Leased out from Operation Lease Unit: RMB Item Closing book value Houses and buildings 62,670,502.74 Total 62,670,502.74 (3) Details of Fixed Assets Failed to Accomplish Certificate of Property Unit: RMB Item Book value Reason Ongoing inspection, surveying, Weaving and yarn dying workshop 105,329,978.75 verification to application procedures by Housing authorities Employee’s dormitory building of eastern 43,929,532.94 Same with above area of industrial park Spinning Fourth factory workshop 93,848,170.38 Same with above 150 Lu Thai Textile Co., Ltd. Annual Report 2017 Employee’s dormitory building of western 125,869,506.33 Same with above area of industrial park Eastern sample plant 30,925,295.14 Same with above Lufeng weaving dye workshop 130,621,668.04 Same with above Xinjiang construction project of 67,895,445.45 Same with above 100,000-spindle spinning production line Other notes Note: ①Lu Thai (Xinjiang) Textile Co., Ltd., the Company’s subsidiary got the short-term borrowing of RMB130,000,000.00 mortgaged with the fixed assets with book value of RMM4,316,209.51 and the land use right with book value of RMB1,688,508.95 and pledged with the deposit of RMB16,000,000.00. For details, please refer to 23 and 58 in this Section. ②The original book value and other decrease in accumulative depreciation of fixed assets in the Reporting Period were exchange rate difference generated from the conversion of overseas subsidiaries’ recording currency into RMB due to the fluctuation of the exchange rates. 14. Construction in Progress (1) List of Construction in Progress Unit: RMB Closing balance Opening balance Item Depreciation Depreciation Book balance Book value Book balance Book value reserves reserves Roof transformation engineering of for the whole eastern weaving complex workshop Reform project of Xinsheng 6,192,038.65 6,192,038.65 13,387,636.75 13,387,636.75 Thermal Power Expansion project of Xinsheng 744,000.00 744,000.00 72,155,299.06 72,155,299.06 Thermal Power Energy conservation 9,607,705.02 9,607,705.02 project of Helijie Heat supply engineering of 1,805,751.30 1,805,751.30 21,966,774.45 21,966,774.45 Chengshun Heating 151 Lu Thai Textile Co., Ltd. Annual Report 2017 Reform engineering of 77,875,603.13 77,875,603.13 100,000-spindle spinning Lu Thai 34,325,323.53 34,325,323.53 26,114,552.04 26,114,552.04 (Vietnam) project Phase II of Lu Thai (Vietnam) 4,922,411.28 4,922,411.28 project Project of Lu An 3,371,413.19 3,371,413.19 3,966,433.79 3,966,433.79 Garments Other retails 28,185,279.60 28,185,279.60 29,877,254.05 29,877,254.05 projects Total 157,421,820.68 157,421,820.68 177,075,655.16 177,075,655.16 (2) Changes of Significant Construction in Progress Unit: RMB Of Amount Proporti which: Accumul that on the Capitaliz Other ative transferr estimate amount ation rate Estimate decrease amount Name of Opening Increase ed to Closing d of the Project of the of the Capital d d amount of item balance d amount fixed balance project progress capitaliz interests resources number of the capitaliz assets of accumul ed of the period ed the ative interests period interests period input of the period Roof transfor mation engineeri ng of for the 36,000,0 44,913,4 44,913,4 100.00% 100.00% Other whole 00.00 37.52 37.52 eastern weaving complex worksho p Reform 28,000,0 13,387,6 12,511,2 19,706,8 6,192,03 92.00% 92.00% Other project 00.00 36.75 13.40 11.50 8.65 152 Lu Thai Textile Co., Ltd. Annual Report 2017 of Xinshen g Thermal Power Expansio n project of 240,000, 72,155,2 126,662, 198,073, 744,000. Xinshen 84.00% 84.00% Other 000.00 99.06 676.94 976.00 00 g Thermal Power Energy conserva tion 9,000,00 9,607,70 9,607,70 100.00% 100.00% Other project 0.00 5.02 5.02 of Helijie Heat supply engineeri 38,000,0 21,966,7 14,667,9 34,828,9 1,805,75 ng of 96.00% 96.00% Other 00.00 74.45 42.42 65.57 1.30 Chengsh un Heating Reform engineeri ng of 156,000, 144,344, 66,469,3 77,875,6 85.00% 85.00% Other 100,000- 000.00 984.37 81.24 03.13 spindle spinning Lu Thai 242,282, 26,114,5 10,122,2 1,911,46 34,325,3 (Vietnam 99.00% 99.00% Other 300.00 52.04 35.06 3.57 23.53 ) project Phase II of Lu 52,750,0 4,922,41 4,922,41 Thai 9.00% 9.00% Other 00.00 1.28 1.28 (Vietnam ) project Project 93,035,7 3,966,43 4,291,18 4,676,94 209,260. 3,371,41 of Lu An 88.00% 88.00% Other 00.00 3.79 3.61 3.59 62 3.19 Garment 153 Lu Thai Textile Co., Ltd. Annual Report 2017 s Other 29,877,2 37,165,5 38,777,4 79,988.4 28,185,2 retails Other 54.05 13.89 99.87 7 79.60 projects 895,068, 177,075, 399,601, 417,054, 2,200,71 157,421, Total -- -- -- 000.00 655.16 598.49 720.31 2.66 820.68 15. Engineering Material Unit: RMB Item Closing balance Opening balance Specific materials 6,491.45 Specific equipment 56,913,806.06 117,113,972.05 Total 56,913,806.06 117,120,463.50 Other notes: 16. Productive Biological Assets (1) Productive Biological Assets Adopted Cost Measurement Mode √ Applicable □ Not applicable Unit: RMB Item Planting industry Livestock Forestry Aquaculture Total Hu sheep I. Original book value 1. Opening 1,805,109.43 1,805,109.43 balance 2. Increased 437,306.32 437,306.32 amount of the period (1) Outsourcing 260,950.00 260,950.00 (2) Self 176,356.32 176,356.32 cultivate 3. Decreased 2,242,415.75 2,242,415.75 amount of the period (1) Disposal 878,387.78 878,387.78 (2) Other 1,364,027.97 1,364,027.97 4. Closing balance 154 Lu Thai Textile Co., Ltd. Annual Report 2017 II. Accumulative depreciation 1. Opening 423,816.68 423,816.68 balance 2. Increased 334,157.96 334,157.96 amount of the period (1) Withdrawal 334,157.96 334,157.96 3. Decreased 757,974.64 757,974.64 amount of the period (1) Disposal 439,426.09 439,426.09 (2) Other 318,548.55 318,548.55 4. Closing balance III. Depreciation reserves 1. Opening balance 2. Increased amount of the period (1) Withdrawal 3. Decreased amount of the period (1) Disposal (2) Other 4. Closing balance IV. Book value 1. Closing book value 2. Opening book 1,381,292.75 1,381,292.75 value 17. Intangible Assets (1) List of Intangible Assets Unit: RMB Software use Item Land use right Patent right Non-patent right Brand use rights Total rights I. Original book 155 Lu Thai Textile Co., Ltd. Annual Report 2017 value 1. Opening 479,972,935.82 1,985,176.47 180,000.00 300,000.00 482,438,112.29 balance 2. Increased amount of the 124,787,353.74 6,530,503.67 131,317,857.41 period (1) Purchase 124,787,353.74 6,530,503.67 131,317,857.41 (2) Internal R &D (3) Increase from enterprise combination 3. Decrease in the Reporting Period (1) Disposal 4. Closing 604,760,289.56 1,985,176.47 6,710,503.67 300,000.00 613,755,969.70 balance II. Total accrued amortization 1. Opening 96,720,842.54 1,224,192.36 180,000.00 60,000.00 98,185,034.90 balance 2. Increased amount of the 14,321,731.37 198,517.68 2,072,384.27 30,000.00 16,622,633.32 period (1) 14,321,731.37 198,517.68 2,072,384.27 30,000.00 16,622,633.32 Withdrawal 3. Decrease in the Reporting Period (1) Disposal 4. Closing 111,042,573.91 1,422,710.04 2,252,384.27 90,000.00 114,807,668.22 balance III. Depreciation reserves 1. Opening balance 2. Increased 156 Lu Thai Textile Co., Ltd. Annual Report 2017 amount of the period (1) Withdrawal 3. Decrease in the Reporting Period (1) Disposal 4. Closing balance IV. Book value 1. Book value of 493,717,715.65 562,466.43 4,458,119.40 210,000.00 498,948,301.48 the period-end 2. Book value of 383,252,093.28 760,984.11 240,000.00 384,253,077.39 the period-begin The proportion of the intangible assets formed from the internal R&D through the Company to the balance of the intangible assets at the period-end was 0.00% 18. R&D Expenses Unit: RMB Opening Closing Item Increase Decrease balance balance Product 328,403,990. 328,403,990. development 29 29 328,403,990. 328,403,990. Total 29 29 Other notes 19. Goodwill (1) Original Book Value of Goodwill Unit: RMB Name of the investees or the Opening balance Increase Decrease Closing balance events formed goodwill Xinsheng Power 20,563,803.29 20,563,803.29 Helijie 50,000.00 50,000.00 157 Lu Thai Textile Co., Ltd. Annual Report 2017 Total 20,613,803.29 20,613,803.29 (2) Impairment Provision of Goodwill Unit: RMB Name of the investees or the Opening balance Increase Decrease Closing balance events formed goodwill Xinsheng Power Helijie Notes of the testing process of goodwill impairment, parameters and the recognition method of goodwill impairment losses: Refer to V-20 for details of the testing method of goodwill impairment. Other notes 20. Long-term Unamortized Expenses Unit: RMB Amortization Item Opening balance Increased amount Other decrease Closing balance amount Land contracting fee 26,793,269.36 1,153,160.00 1,252,786.44 26,693,642.92 of Xinjiang Luthai Decoration fee of 873,759.86 8,099.80 865,660.06 Xinjiang Lu Thai Land rent of 86,894,972.90 1,926,938.87 4,819,414.86 80,148,619.17 overseas subsidiaries Housing rent of 539,122.28 350,104.63 19,745.28 169,272.37 overseas subsidiaries Total 114,227,364.54 2,026,919.86 3,537,929.74 4,839,160.14 107,877,194.52 Other notes Note: Other decrease was the exchange rate difference generated from the conversion of overseas subsidiaries’ recording currency into RMB due to the fluctuation of exchange rates. 21. Deferred Income Tax Assets/Deferred Income Tax Liabilities (1) Deferred Income Tax Assets Had not Been Off-set Unit: RMB Closing balance Opening balance Item Deductible temporary Deferred income tax Deductible temporary Deferred income tax 158 Lu Thai Textile Co., Ltd. Annual Report 2017 difference assets difference assets Assets impairment 140,256,135.72 22,531,008.74 140,373,275.47 22,088,126.23 provision Unrealized internal sales 100,706,925.35 11,627,841.87 81,198,211.62 9,319,462.09 gain and loss One-time listed 5,405,702.23 1,351,425.56 2,901,238.68 725,309.67 decoration expenses Payroll payable 124,021,657.72 18,701,206.18 110,698,173.59 17,032,239.77 Deferred income 126,737,092.32 20,485,677.36 94,231,052.79 14,024,943.00 Total 497,127,513.34 74,697,159.71 429,401,952.15 63,190,080.76 (2) Deferred Income Tax Liabilities Had not Been Off-set Unit: RMB Closing balance Opening balance Item Taxable temporary Deferred income tax Taxable temporary Deferred income tax difference liabilities difference liabilities Depreciation of fixed 16,820,058.15 2,899,949.46 14,188,423.45 2,341,089.87 assets Available-for-sale 33,000.00 4,950.00 financial assets Total 16,853,058.15 2,904,899.46 14,188,423.45 2,341,089.87 (3) List of Unrecognized Deferred Income Tax Assets Unit: RMB Item Closing balance Opening balance Deductible temporary difference 11,690,891.52 17,124,084.90 Deductible losses 27,993,886.84 28,727,921.83 Total 39,684,778.36 45,852,006.73 (4) Deductible Losses of Unrecognized Deferred Income Tax Assets will Due in the Following Years Unit: RMB Years Closing amount Opening amount Remark Y 2018 97,981.65 125,946.78 Y 2019 1,456,659.23 1,456,659.23 Y 2020 18,458,244.61 22,245,128.73 159 Lu Thai Textile Co., Ltd. Annual Report 2017 Y 2021 4,250,703.45 4,250,703.45 Y 2022 3,730,297.90 Total 27,993,886.84 28,078,438.19 -- Other notes: 22. Other Non-current Assets Unit: RMB Item Closing balance Opening balance Prepayment for equipment 28,984,077.85 5,853,067.38 Prepayment for land 7,406,401.00 25,406,401.00 Total 36,390,478.85 31,259,468.38 Other notes: 23. Short-term Loans (1) Category of Short-term Loans Unit: RMB Item Closing balance Opening balance Mortgage loan 440,000,000.00 310,000,000.00 Guaranteed loan 28,254,022.53 33,987,976.00 Credit loan 666,870,973.87 529,273,880.02 Total 1,135,124,996.40 873,261,856.02 Notes of the category for short-term loans: Refer to VII-7, 13, 17 and 58 in this Section for details about the category and amount of mortgaged assets for mortgage loans. 24. Notes Payable Unit: RMB Category Closing balance Opening balance Commercial acceptance bill 2,441,810.45 Trade acceptance 4,859,961.40 Total 7,301,771.85 The total unpaid notes payable due at the Period-end was RMBXXX. 160 Lu Thai Textile Co., Ltd. Annual Report 2017 25. Accounts Payable (1) List of Accounts Payable Unit: RMB Item Closing balance Opening balance Purchase of goods 219,463,023.43 151,401,411.93 Engineering equipment 134,864,245.66 86,280,441.98 Other 11,937,863.56 19,953,612.50 Total 366,265,132.65 257,635,466.41 26. Advance from Customers (1) List of Advance from Customers Unit: RMB Item Closing balance Opening balance Advance from goods 119,785,945.48 97,929,002.93 Total 119,785,945.48 97,929,002.93 27. Payroll Payable (1) List of Payroll Payable Unit: RMB Item Opening balance Increase Decrease Closing balance I. Short-term salary 315,597,802.11 1,443,695,983.97 1,442,481,692.91 316,812,093.17 II. Post-employment benefit-defined 80,301.81 150,331,653.75 150,387,559.78 24,395.78 contribution plans III. Termination benefits 352,232.50 352,232.50 Total 315,678,103.92 1,594,379,870.22 1,593,221,485.19 316,836,488.95 (2) List of Short-term Salary Unit: RMB Item Opening balance Increase Decrease Closing balance 1. Salary, bonus, 273,092,937.14 1,282,333,309.52 1,288,098,112.33 267,328,134.33 allowance, subsidy 161 Lu Thai Textile Co., Ltd. Annual Report 2017 2. Employee welfare 50,521,004.35 50,521,004.35 3. Social insurance 42,846.03 70,774,399.38 70,782,014.41 35,231.00 Including: 1. Medical 35,918.60 55,556,064.52 55,563,182.42 28,800.70 insurance premiums Work-related injury 6,110.95 7,796,382.28 7,797,428.16 5,065.07 insurance Maternity insurance 816.48 7,421,952.58 7,421,403.83 1,365.23 4. Housing fund 667.07 13,904,994.48 13,904,368.55 1,293.00 5. Labor union budget and employee education 42,461,351.87 26,162,276.24 19,176,193.27 49,447,434.84 budget Total 315,597,802.11 1,443,695,983.97 1,442,481,692.91 316,812,093.17 (3) List of Drawing Scheme Unit: RMB Item Opening balance Increase Decrease Closing balance 1. Basic pension benefits 73,723.82 144,833,728.00 144,884,815.12 22,636.70 2. Unemployment 6,577.99 5,497,925.75 5,502,744.66 1,759.08 insurance Total 80,301.81 150,331,653.75 150,387,559.78 24,395.78 Other notes: The Company, in line with the requirement, participate the endowment insurance, unemployment insurance scheme and so on, according to the scheme, the Company monthly pay to the scheme in line with 18% and 0.7% of the endowment insurance base, except the monthly payment, the Company no longer shoulder the further payment obligation, the relevant expense occurred was recorded into current profits and losses or related assets costs. 28. Taxes Payable Unit: RMB Item Closing balance Opening balance VAT 2,639,133.26 8,584,752.76 Corporate income tax 13,934,074.08 46,545,105.37 Personal income tax 1,453,967.09 1,377,020.01 Urban maintenance and construction tax 3,036,340.88 6,314,742.98 Stamp duty 400,579.00 469,422.60 Property tax 4,618,710.82 4,484,688.82 Land use tax 4,537,230.07 4,428,494.17 162 Lu Thai Textile Co., Ltd. Annual Report 2017 Education surcharge 1,314,401.95 2,798,858.01 Local education surcharge 876,267.97 1,865,905.35 Local water conservancy facility 217,869.46 906,683.07 construction fund Resource tax 26,516.00 Total 33,055,090.58 77,775,673.14 Other notes: 29. Interest Payable Unit: RMB Item Closing balance Opening balance Interest payable on short-term borrowings 1,572,231.86 1,165,730.47 Total 1,572,231.86 1,165,730.47 Significant overdue interest: Unit: RMB Borrower Overdue amount Overdue reason Other notes: 30. Dividends Payable Unit: RMB Item Closing balance Opening balance Dividends payable to individual 441,113.64 441,113.64 shareholders by the Company Total 441,113.64 441,113.64 Other notes, including significant unpaid dividends payable over one year, the unpaid reason shall be disclosed: Note: Dividends payable which were unpaid over one year were previous cash dividends not received by individual shareholders yet. 31. Other Accounts Payable (1) Other Accounts Payable Listed by Nature of the Account Unit: RMB Item Closing balance Opening balance The deposit and guarantee 19,600,682.80 19,268,467.36 Collecting payment on behalf of others 17,030,878.91 22,870,555.86 Intercourse funds 66,354,397.71 12,496,663.17 163 Lu Thai Textile Co., Ltd. Annual Report 2017 Other 24,104,049.83 25,108,398.27 Total 127,090,009.25 79,744,084.66 (2) Other Significant Accounts Payable with Aging Over One Year Unit: RMB Item Closing balance Unpaid/ Un-carry-over reason Cotton and Linen Company 11,925,000.00 Received deposit of sale contract Total 11,925,000.00 -- Other notes 32. Non-current Liabilities Due within 1 Year Unit: RMB Item Closing balance Opening balance Long-term loans due within one year 62,750,292.49 Total 62,750,292.49 Other notes: 33. Long-term Loan (1) Category of Long-term Loans Unit: RMB Item Closing balance Opening balance Guaranteed loans 62,750,292.49 135,678,044.89 Less: Long-term loans due within one year -62,750,292.49 (Note VII-32 in this Section) Total 135,678,044.89 Notes of the category of long-term loans: Other notes including interest rate range: 34. Long-term Payroll Payable (1) List of Long-term Payroll Payable Unit: RMB Item Closing balance Opening balance III. Other long-term welfare 93,843,473.02 79,122,422.89 164 Lu Thai Textile Co., Ltd. Annual Report 2017 Total 93,843,473.02 79,122,422.89 35. Government Subsidies (1) List of government subsidies initially recognized in the Reporting Period Item Amount Related to assets Related to income Whet her Deferred income Offset Deferred Other income Non-ope Offset the actual the income rating cost expenses ly book income receiv value ed of assets Project of intelligent 5,027,400.00 5,027,400.00 Yes dyeing production and technical transformation of energy-saving water Technical transformation 1,813,000.00 1,813,000.00 Yes project of high-grade yarn-dyed fabric Financial support fund 1,950,000.00 1,950,000.00 Yes for sewage treatment and re-use of recycled water Technical transformation 9,000,000.00 9,000,000.00 Yes project of digital workshop of bobbin yarn-dyed Subsidy for overseas 100,000.00 100,000.00 Yes investment Subsidy for equipment 685,200.00 685,200.00 Yes investment in technological transformation Ultra-low emission 12,700,000.00 12,700,000.00 Yes transformation fund for utility boiler Subsidy for the technical 1,200,000.00 1,200,000.00 Yes transformation project of low-emission Subsidy for application 584,000.00 584,000.00 Yes R&D of high quality 165 Lu Thai Textile Co., Ltd. Annual Report 2017 dope dyeing fiber Subsidy for Key 1,050,000.00 1,050,000.00 Yes Technology R & D of textile equipment with good shape preservation Subsidy for key 420,000.00 420,000.00 Yes technology R & D of preparation of comfortable and cool fabric with function of moisture absorption Interest subsidy for 857,500.00 857,500.00 Yes import Interest subsidy for loans 6,044,300.00 6,044,300.00 Yes Incentive funds for talent 300,000.00 300,000.00 Yes support Subsidy for constructing 920,000.00 920,000.00 Yes network platform Subsidy for dyed 400,000.00 400,000.00 Yes integrated system of information management and control Subsidy for quality 100,000.00 100,000.00 Yes control innovation Project subsidy for 500,000.00 500,000.00 Yes production mode consultancy of TPS Toyota Subsidy for technical 146,000.00 146,000.00 Yes service project of standardized management Rewards for enterprises 300,000.00 300,000.00 Yes with outstanding performance in energy-saving Rewards for energy 30,000.00 30,000.00 Yes system management and construction 166 Lu Thai Textile Co., Ltd. Annual Report 2017 Subsidy for the 400,000.00 400,000.00 Yes industrialization of 3D functional garments Subsidy for municipal 50,000.00 50,000.00 Yes key talents introduction project Subsidy for export credit 135,200.00 135,200.00 Yes insurance premium Government subsidy for 56,000.00 56,000.00 Yes trade show in Las Vegas Government subsidy for 740,200.00 740,200.00 Yes brand construction Government subsidy for 49,700.00 49,700.00 Yes service trade Government subsidy for 500,000.00 500,000.00 Yes gifted and talented persons in Zibo Science & Technology 1,140,700.00 1,140,700.00 Yes Process Award Subsidy for 50,000.00 50,000.00 Yes post-doctoral counterpart funds Subsidy for the 13,700,000.00 13,700,000.00 Yes reconstruction of landscape Subsidy for internship 277,020.00 277,020.00 Yes and employment Subsidy for municipal 300,000.00 300,000.00 Yes standardized projects Government subsidy for 1,380,028.92 1,380,028.92 Yes employing people with job hunting difficulties Subsidy for Mount Tai 1,000,000.00 1,000,000.00 Yes Industry Talents Project Subsidy for R & D 179,700.00 179,700.00 Yes Subsidy for posts and 12,649,472.47 12,649,472.47 Yes subsidy for social security 167 Lu Thai Textile Co., Ltd. Annual Report 2017 Subsidy for stabilizing 5,228,735.00 5,228,735.00 Yes posts Subsidy for dynamic 1,200.00 1,200.00 Yes monitoring unemployment Subsidy for Zibo 200,000.00 200,000.00 Yes Academician Workstation Rewards for outstanding 100,000.00 100,000. Yes performance 00 management Subsidy for systematic 140,000.00 140,000.00 Yes development, popularization of products and training Mayor Quality Award 30,000.00 30,000.00 Yes Subsidy for export credit 40,800.00 40,800.00 Yes insurance premium Government subsidy for 100,000.00 100,000.00 Yes Shandong Science & Technology Progress Award Incentive fund for 30,000.00 30,000.00 Yes enterprises with advantage in patent creation Patent subsidy 50,000.00 50,000.00 Yes Subsidy for booth fee 21,509.43 21,509.43 Yes Special subsidy for 30,000.00 30,000.00 Yes energy-saving and consumption reduction Support fund for 30,000.00 30,000.0 Yes enterprises and 0 economic community Subsidy for strategic 900,000.00 900,000. Yes emerging industry in 00 autonomous region Subsidy from the 20,000.00 20,000.00 Yes federation trade unions 168 Lu Thai Textile Co., Ltd. Annual Report 2017 in Awat County Subsidy for electric 1,261,152.00 1,261,152.00 Yes charge Cotton yarn freight 3,449,703.38 3,449,703.38 Yes subsidies Subsidy for social 2,931,175.20 2,931,175.20 Yes security Subsidy for newly 1,285,000.00 1,285,000.00 Yes increased employment Subsidy for new 129,778.00 129,778.00 Yes employment of security personnel by private enterprises in four districts of South Xinjiang Subsidy for pre-job 495,849.05 495,849.05 Yes training Subsidy for village-level 80,000.00 80,000.00 Yes comprehensive cultural service in Awat County Subsidies for 2,723,300.00 2,723,300.00 Yes transferring Xinjiang cotton to warehouses out of Xinjiang Project subsidy for 820,000.00 820,000.00 Yes energy management Total 96,833,623.45 32,475,600.00 2,054,000.00 1,030,00 6,901,800.00 —— 54,372,223.45 0.00 (2) List of government subsidies recorded into the current gains and losses Item Related to Recorded into other Recorded Offset cost assets/income income into expenses non-operatin g income Land subsidy Related to assets 1,393,157.88 Subsidy for green power Related to assets 1,022,818.80 Subsidy for the technical transformation project of Related to assets 105,109.44 low-emission Subsidy for equipment investment in Related to assets 27,136.64 169 Lu Thai Textile Co., Ltd. Annual Report 2017 technological transformation Production project of 230,000-spindle spinning Related to assets 222,607.08 and 35,000-spindle spinning Project of production line of 1,800,000-meter Related to assets high-grade jacquard fabric Project of intelligent dyeing production and Related to assets technical transformation of energy-saving water Project of intelligent dyeing production and Related to assets 94,615.44 technical transformation of energy-saving water Project of intelligent dyeing production and Related to assets 187,261.92 energy-saving and water-saving Technical transformation project of high-grade Related to assets 112,144.32 yarn-dyed fabric Financial support fund for sewage treatment and Related to assets 77,312.79 re-use of recycled water Technical transformation project of digital Related to assets 3,495.14 workshop of bobbin yarn-dyed Project of digital workshop of bobbin yarn-dyed Related to assets 98,901.10 Subsidy for hu-sheep Related to assets 132,999.96 Subsidy for cotton picker Related to assets 180,000.00 Subsidy for cotton seed-breeding Related to assets 69,999.96 Interest subsidy for import Related to income 857,500.00 Interest subsidy for loans Related to income 6,044,300.00 Incentive funds for supporting talents Related to income 300,000.00 Subsidy for constructing network platform Related to income 920,000.00 Subsidy for dyed integrated system of information Related to income 400,000.00 management and control Subsidy for quality control innovation Related to income 100,000.00 Project subsidy for production mode consultancy Related to income 500,000.00 of TPS Toyota Subsidy for technical service project of Related to income 146,000.00 standardized management Rewards for enterprises with outstanding Related to income 300,000.00 performance in energy-saving Rewards for energy system management and Related to income 30,000.00 construction 170 Lu Thai Textile Co., Ltd. Annual Report 2017 Subsidy for the industrialization of 3D functional Related to income 400,000.00 garments Subsidy for municipal key talents introduction Related to income 50,000.00 project Subsidy for export credit insurance premium Related to income 135,200.00 Government subsidy for trade show in Las Vegas Related to income 56,000.00 Government subsidy for brand construction Related to income 740,200.00 Government subsidy for service trade Related to income 49,700.00 Government subsidy for gifted and talented Related to income 500,000.00 persons in Zibo Science & Technology Process Award Related to income 1,140,700.00 Subsidy for post-doctoral counterpart funds Related to income 50,000.00 Subsidy for the reconstruction of landscape Related to income 13,700,000.00 Subsidy for internship and employment Related to income 277,020.00 Subsidy for municipal standardized projects Related to income 300,000.00 Government subsidy for employing people with Related to income 1,380,028.92 job hunting difficulties Subsidy for Mount Tai Industry Talents Project Related to income 1,000,000.00 Subsidy for R & D Related to income 179,700.00 Subsidy for posts and subsidy for social security Related to income 12,649,472.47 Subsidy for stabilizing posts Related to income 5,228,735.00 Subsidy for dynamic monitoring unemployment Related to income 1,200.00 Subsidy for Zibo Academician Workstation Related to income 200,000.00 Rewards for outstanding performance Related to income 100,000.00 management Subsidy for systematic development, Related to income 140,000.00 popularization of products and training Mayor Quality Award Related to income 30,000.00 Subsidy for export credit insurance premium Related to income 40,800.00 Government subsidy for Shandong Science & Related to income 100,000.00 Technology Progress Award Incentive fund for enterprises with advantage in Related to income 30,000.00 patent creation Patent subsidy Related to income 50,000.00 171 Lu Thai Textile Co., Ltd. Annual Report 2017 Subsidy for booth fee Related to income 21,509.43 Special subsidy for energy-saving and Related to income 30,000.00 consumption reduction Support fund for enterprises and economic Related to income 30,000.00 community Subsidy for strategic emerging industry in Related to income 900,000.00 autonomous region Subsidy from the federation trade unions in Awat Related to income 20,000.00 County Subsidy for social security Related to income 2,931,175.20 Subsidy for electric charge Related to income 1,261,152.00 Cotton yarn freight subsidies Related to income 3,449,703.38 Subsidy for newly increased employment Related to income 1,285,000.00 Subsidy for new employment of security Related to income 129,778.00 personnel by private enterprises in four districts of South Xinjiang Subsidy for pre-job training Related to income 495,849.05 Subsidy for village-level comprehensive cultural Related to income 80,000.00 service in Awat County Subsidies for transferring Xinjiang cotton to Related to income 2,723,300.00 warehouses out of Xinjiang Project subsidy for energy management Related to income 820,000.00 Total —— 58,099,783.92 1,030,000.00 6,901,800.00 36. Deferred Income Unit: RMB Item Opening balance Increase Decrease Closing balance Formation reasons Government Government 95,935,052.79 34,529,600.00 3,727,560.47 126,737,092.32 subsidies subsidies Unrealized financing 55,437.00 55,437.00 Finance lease incomes Total 95,990,489.79 34,529,600.00 3,782,997.47 126,737,092.32 -- Items involved in government subsidies: Unit: RMB Opening Amount of Amount Amount Amount Other Closing Related to the Item balance newly accrued in accrued in offset cost changes balance assets/ 172 Lu Thai Textile Co., Ltd. Annual Report 2017 subsidy non-business other income expenses income income Subsidy for 60,658,927.2 59,265,769.3 Related to 1,393,157.88 land 1 3 assets Subsidy for 34,452,125.5 32,375,600.0 64,626,322.9 Related to 2,201,402.63 equipment 8 0 5 assets Subsidy for production Related to 824,000.00 132,999.96 691,000.04 biological assets assets Subsidy for Related to overseas 100,000.00 100,000.00 assets investment Subsidy for R Related to 2,054,000.00 2,054,000.00 &D assets 95,935,052.7 34,529,600.0 126,737,092. Total 3,727,560.47 -- 9 0 32 Other notes: 37. Other Non-current Liabilities Unit: RMB Item Closing balance Opening balance Other 1,840,000.00 1,840,000.00 Total 1,840,000.00 1,840,000.00 Other notes: 38. Share Capital Unit: RMB Increase/decrease (+/-) Opening Capitalization Closing Newly issue balance Bonus shares of public Other Subtotal balance share reserves The sum of 922,602,311.00 922,602,311.00 shares Other notes: 173 Lu Thai Textile Co., Ltd. Annual Report 2017 39. Capital Reserves Unit: RMB Item Opening balance Increase Decrease Closing balance Capital premium 702,301,338.34 61,830,428.00 640,470,910.34 Other capital reserves 58,979,219.49 43,463.99 59,022,683.48 Total 761,280,557.83 43,463.99 61,830,428.00 699,493,593.82 Other notes, including changes and reason of change: Note: The capital reserves decreased RMB61,830,428.00 in the Reporting Period which was caused by Chengshun Heating’s decrease in capital reserves of RMB23,430,428.00; The debt remission with the subsidiary Beijing innovative was equal to transferring parts of profits to minority shareholders for offsetting capital reserves of RMB38,400,000.00. 40. Other Comprehensive Income Unit: RMB Reporting Period Less: Amount transferred into profit and loss in the Amount After-tax After-tax Opening current period Less: Closing Item incurred attribute to attribute to balance that income tax balance before the Parent minority recognized expense income tax Company shareholder into other comprehensive income in prior period I. Other comprehensive income not reclassified into profits or losses Of which: changes of net assets and liabilities of defined benefit plans recalculated Share in other comprehensive income cannot be reclassified into profits or losses in investment entity under the equity method II. Other comprehensive reclassified 53,293,544.8 -36,478,020 -36,482,970 16,810,57 4,950.00 into profits or losses 9 .67 .67 4.22 Share in other comprehensive income 174 Lu Thai Textile Co., Ltd. Annual Report 2017 reclassified into profits or losses in investment entity under the equity method Profits or losses of change in fair value of available-for-sale financial 33,000.00 4,950.00 28,050.00 28,050.00 assets Held-to-maturity investment reclassified as available-for-sale financial assets profits and losses Effective hedging gains and losses on cash flows Converted difference of the 53,293,544.8 -36,511,020 -36,511,020 16,782,52 foreign currency financial statement 9 .67 .67 4.22 53,293,544.8 -36,478,020 -36,482,970 16,810,57 Total of other comprehensive income 4,950.00 9 .67 .67 4.22 41. Surplus Reserves Unit: RMB Item Opening balance Increase Decrease Closing balance Statutory surplus 888,528,950.10 71,063,056.38 959,592,006.48 reserves Discretional surplus 3,341,572.58 3,341,572.58 reserves Total 891,870,522.68 71,063,056.38 962,933,579.06 Notes to the surplus reserves including the notes to the increase/decrease during the Reporting Period as well as the reasons: In accordance with the applicable regulations stipulated in Corporation Law and Articles of Association, the Company withdrew the statutory surplus reserves at 10% of net profits. 42. Retained Profits Unit: RMB Item Reporting Period Same period of last year Retained profits of period-end of last year before 4,341,866,189.19 4,053,079,857.70 adjustments Total retained profits of period-begin in the 18,996,327.73 adjustment (“+” means up; “-“means down) Opening balance of retained profits after 4,341,866,189.19 4,072,076,185.43 adjustments 175 Lu Thai Textile Co., Ltd. Annual Report 2017 Add: Net profit attributable to owners of the 841,150,934.75 808,760,025.91 Company Less: Withdrawal of statutory surplus reserves 71,063,056.38 73,444,648.65 Withdrawal of discretional surplus reserves Withdrawal of general risk reserves Dividend of common stock payable 482,851,355.50 465,525,373.50 Dividend of common stock transferred as share capital Others Closing retained profits 4,629,102,712.06 4,341,866,189.19 List of adjustment of opening retained profits: 1) RMB000 opening retained profits was affected by retrospective adjustment conducted according to the Accounting Standards for Business Enterprises and relevant new regulations. 2) RMB000 opening retained profits was affected by changes on accounting policies. 3) RMB000 opening retained profits was affected by correction of significant accounting errors. 4) RMB18,996,327.73 opening retained profits was affected by changes in combination scope arising from same control. 5) RMB000 opening retained profits was affected totally by other adjustments. 43. Revenue and Cost of Sales Unit: RMB Reporting Period Same period of last year Item Sales revenue Cost of sales Sales revenue Cost of sales Main operations 6,117,830,993.82 4,289,552,667.57 5,715,045,686.89 3,840,569,957.03 Other operations 291,393,051.15 187,495,117.11 275,448,222.47 166,531,733.62 Total 6,409,224,044.97 4,477,047,784.68 5,990,493,909.36 4,007,101,690.65 44. Business Tax and Surcharges Unit: RMB Item Reporting Period Same period of last year Urban maintenance and construction tax 29,433,844.39 30,239,685.31 Education surcharge 12,875,631.00 13,667,756.39 Resource tax 26,516.00 Property tax 19,773,203.46 13,107,952.04 Land use tax 18,594,973.00 12,854,644.38 Vehicle and vessel usage tax 125,398.56 61,044.20 176 Lu Thai Textile Co., Ltd. Annual Report 2017 Stamp duty 3,904,063.89 2,558,253.84 Business tax 593,989.16 Local education surcharge 8,583,754.04 9,111,881.84 Local water conservancy facility 2,914,218.66 4,332,576.60 construction fund Total 96,231,603.00 86,527,783.76 Other notes: Note: Refer to Note VI Tax for details of payable standards for various taxes and surcharges. 45. Sales Expenses Unit: RMB Item Reporting Period Same period of last year Salary 38,293,547.89 50,423,791.03 Transport fees 39,722,184.43 34,708,081.50 Advertising expense 16,846,415.91 12,619,004.10 Mall costs 2,188,487.89 8,740,936.16 Terminal Handing charges 13,661,450.06 10,170,488.09 Depreciation charge 5,364,151.04 5,654,563.26 Sales service fee 3,439,035.08 6,656,203.48 Business travel charges 5,101,239.69 4,928,478.09 Rental charges 1,105,273.12 1,524,816.35 Design charges 2,355,173.94 2,209,686.15 Other 15,984,821.34 21,233,945.01 Total 144,061,780.39 158,869,993.22 Other notes: 46. Administration Expenses Unit: RMB Item Reporting Period Same period of last year R&D expenses 328,403,990.29 289,826,541.83 Salary 107,277,843.02 133,042,320.62 Taxes 14,735,118.17 Depreciation charge 24,973,816.12 25,890,615.46 Warehouse funding 27,431,827.37 24,187,533.53 177 Lu Thai Textile Co., Ltd. Annual Report 2017 Travel expense 26,081,106.36 24,028,836.88 Rental charges 14,440,878.80 14,837,609.14 Labor-union expenditure 15,289,305.43 14,792,241.78 Employee education budget 10,872,970.81 10,797,684.26 Amortization of intangible assets 11,112,088.24 10,442,349.46 Transport fees 10,015,673.62 6,941,005.81 Other 75,631,468.88 91,833,284.88 Total 651,530,968.94 661,355,141.82 Other notes: 47. Financial Expenses Unit: RMB Item Reporting Period Same period of last year Interest expenses 23,753,894.13 19,159,848.99 Less: Interest income 7,488,918.00 5,883,468.28 Less: Amount of capitalized interest Exchange gains and losses 39,937,734.42 953,185.06 Other 7,139,960.76 6,719,587.33 Total 63,342,671.31 20,949,153.10 Other notes: 48. Asset Impairment Loss Unit: RMB Item Reporting Period Same period of last year I. Bad debt loss 2,579,033.02 -2,186,419.66 II. Inventory falling price loss 25,220,325.43 46,520,981.23 III. Impairment losses on available-for-sale 42,782,600.00 financial assets VII. Impairment losses of fix asset 9,531,315.79 1,741,306.14 impairment loss Total 37,330,674.24 88,858,467.71 Other notes: 49. Gains and Losses from Changes in Fair Value Unit: RMB 178 Lu Thai Textile Co., Ltd. Annual Report 2017 Source Reporting Period Same period of last year Financial assets measured by fair value and the changes be included in the current 17,296,256.36 profits and losses Financial liabilities measured by fair value and the changes included in the current 46,695,875.00 gains and losses Total 63,992,131.36 Other notes: 50. Investment Income Unit: RMB Item Reporting Period Same period of last year Investment income received from long-term -2,463,267.98 equity measured by equity method Investment income received from financial assets measured by fair value and the changes 1,381,926.82 be included in the current profits and losses during holding period Investment income received from disposal of financial assets measured by fair value and the 4,794,598.32 -62,161,587.02 changes be included in the current profits and losses during holding period Total 2,331,330.34 -60,779,660.20 Other notes: 51. Return on Disposal of Assets Unit: RMB Source Reporting Period Same period of last year Return on Disposal of fixed assets 1,242,000.54 -6,843,361.94 Total 1,242,000.54 -6,843,361.94 52. Other Income Unit: RMB Source Reporting Period Same period of last year Government subsidies 58,099,783.92 179 Lu Thai Textile Co., Ltd. Annual Report 2017 Total 58,099,783.92 53. Non-operating Gains Unit: RMB Recorded in the amount of the Item Reporting Period Same period of last year non-recurring gains and losses Government subsidies 64,121,633.01 Gains from damage and 6,834.95 scrapping of non-current assets Government subsidies unrelated to the normal operation of the 1,030,000.00 1,030,000.00 Company Other 11,092,767.09 9,559,015.36 11,092,767.09 Total 12,122,767.09 73,687,483.32 12,122,767.09 Government subsidies included into the current gains and losses: Unit: RMB Whether subsidies Special Related to Distribution Distribution influence the Reporting Same period Item Nature subsidy or assets/related entity reason current Period of last year not income profits and losses or not Other notes: 54. Non-operating Expenses Unit: RMB Recorded in the amount of the Item Reporting Period Same period of last year non-recurring gains and losses Donation 5,004,075.00 1,558,693.43 5,004,075.00 Losses from damage and 2,568,738.39 1,485,166.50 2,568,738.39 scrapping of non-current assets Other 1,449,912.25 4,074,850.31 1,449,912.25 Total 9,022,725.64 7,118,710.24 9,022,725.64 Other notes: 180 Lu Thai Textile Co., Ltd. Annual Report 2017 55. Income Tax Expense (1) Lists of Income Tax Expense Unit: RMB Item Reporting Period Same period of last year Current income tax expense 132,080,828.42 174,301,006.07 Deferred income tax expense -10,948,219.36 -918,593.71 Total 121,132,609.06 173,382,412.36 (2) Adjustment Process of Accounting Profit and Income Tax Expense Unit: RMB Item Reporting Period Total profits 1,004,451,718.66 Current income tax expense accounted by tax and relevant 150,667,757.80 regulations Influence of different tax rate suitable to subsidiary 7,805,719.32 Influence of income tax before adjustment 629,616.91 Influence of non-taxable income -8,413,254.05 Influence of not deductable costs, expenses and losses 1,794,068.47 Influence of deductable losses of deferred income tax assets -16,302,949.41 derecognized used in previous period Influence of deductible temporary difference or deductible losses 1,026,518.68 of deferred income tax assets derecognized in Reporting Period. Influence of plus deducting costs -15,830,353.58 Changes in the balance of period-begin deferred income tax -244,515.08 assets/liabilities due to the adjustment of tax rate Income tax expense 121,132,609.06 Other notes 56. Cash Flow Statement (1) Other Cash Received Relevant to Operating Activities Unit: RMB Item Reporting Period Same period of last year Government subsidies 64,358,023.45 62,996,866.30 181 Lu Thai Textile Co., Ltd. Annual Report 2017 Claim income 1,292,703.23 2,439,371.55 Recovery of employee borrowings, petty 24,879,575.61 8,734,686.33 cash and deposit Collection for employees 5,363,500.00 18,969,901.19 Other 8,762,550.14 9,006,678.17 Total 104,656,352.43 102,147,503.54 Notes: (2) Other Cash Paid Relevant to Operating Activities Unit: RMB Item Reporting Period Same period of last year Freight and miscellaneous charges 59,083,362.18 53,789,783.05 Rental charges 18,504,054.24 23,992,282.87 Advertising expense 4,890,771.45 4,894,117.88 Business travel charges 29,550,544.27 26,296,270.48 Insurance 5,350,729.67 9,157,201.71 Audit advisory announcement fee 4,519,003.71 5,195,501.86 Decoration & repair expenses 9,540,186.72 6,068,058.70 Donation 5,004,075.00 1,558,693.43 Pre-payment 10,793,990.64 7,752,260.57 Payment of employee borrowings, petty 28,801,006.36 12,028,200.74 cash and deposit Other 81,125,466.24 82,921,252.17 Total 257,163,190.48 233,653,623.46 Notes: (3) Other Cash Received Relevant to Investment Activities Unit: RMB Item Reporting Period Same period of last year Interest income 6,894,588.05 6,536,543.36 Income from forward foreign exchange 4,858,596.97 Sale of securities 63,962,133.03 24,602,898.61 Income from holding of tradable financial 1,381,926.82 assets during holding period Option cost 91,000.00 182 Lu Thai Textile Co., Ltd. Annual Report 2017 Total 75,806,318.05 32,521,368.79 Notes: (4) Other Cash Paid Relevant to Investment Activity Unit: RMB Item Reporting Period Same period of last year forward settlement exchange loss 63,998.65 41,519,234.00 Payment of deposit for the L/C of 1,200,000.00 equipment purchase Total 1,263,998.65 41,519,234.00 Notes: (5) Other Cash Received Relevant to Financing Activities Unit: RMB Item Reporting Period Same period of last year Return of loan guarantees 8,000,000.00 29,754,422.42 Recovery of intercourse accounts 191,980,000.00 9,590,000.00 Government subsidies related to assets 32,475,600.00 Total 232,455,600.00 39,344,422.42 Notes: (6) Other Cash Paid Relevant to Financing Activities Unit: RMB Item Reporting Period Same period of last year Return of the B-share buy-back amount 253,629,544.91 The certificates of deposit pledged 16,000,000.00 8,000,000.00 Payment of intercourse accounts 139,000,000.00 Cash consideration paid in the business 23,430,428.00 combination under the same control Total 178,430,428.00 261,629,544.91 Notes: 183 Lu Thai Textile Co., Ltd. Annual Report 2017 57. Supplemental Information for Cash Flow Statement (1) Supplemental Information for Cash Flow Statement Unit: RMB Supplemental information Reporting Period Same period of last year 1. Reconciliation of net profit to net cash -- -- flows generated from operating activities Net profit 883,319,109.60 856,387,149.04 Add: Provision for impairment of assets 37,330,674.24 88,858,467.71 Depreciation of fixed assets, of oil-gas 384,151,246.71 363,238,407.58 assets, of productive biological assets Amortization of intangible assets 16,622,633.32 12,302,441.42 Long-term unamortized expenses 3,537,929.74 2,627,785.85 Losses on disposal of fixed assets, intangible assets and other long-term assets (gains: -1,242,000.54 6,843,361.94 negative) Losses on retirement of fixed assets 2,568,738.39 1,478,331.55 Losses from variation of fair value -63,992,131.36 Financial cost (gains: negative) 63,104,510.55 13,951,394.66 Investment loss (gains: negative) -2,331,330.34 60,779,660.20 Decrease in deferred income tax assets -11,507,078.95 -1,066,989.23 (gains: negative) Increase in deferred income tax liabilities 558,859.59 148,395.52 (“-” means decrease) Decrease in inventory (gains: negative) -270,382,003.89 -92,876,874.35 Decrease in accounts receivable from -63,289,943.78 30,153,001.02 operating activities (gains: negative) Increase in payables from operating 28,069,308.79 35,899,882.90 activities (decrease: negative) Other -32,475,600.00 Net cash flows generated from operating 1,038,035,053.43 1,314,732,284.45 activities 2. Investing and financing activities that do -- -- not involving cash receipts and payment: 3. Net increase in cash and cash equivalents -- -- Closing balance of cash 676,639,212.86 659,116,137.67 Less: Opening balance of cash 659,116,137.67 768,827,094.83 184 Lu Thai Textile Co., Ltd. Annual Report 2017 Net increase in cash and cash equivalents 17,523,075.19 -109,710,957.16 (2) Cash and Cash Equivalents Unit: RMB Item Closing balance Opening balance I. Cash 676,639,212.86 659,116,137.67 Including: Cash on hand 8,040,420.28 3,229,473.38 Bank deposit on demand 668,598,792.58 655,886,664.29 III. Closing balance of cash and cash 676,639,212.86 659,116,137.67 equivalents Other notes: 58. The Assets with Restricted Ownership or Use Right Unit: RMB Item Closing book value Restricted reason Pledged for short-term loans, as cash Monetary capital 17,350,080.52 deposit of L/G and L/C Inventory 248,632,100.00 Mortgaged for short-term loans Fixed assets 4,316,209.51 Mortgaged for short-term loans Intangible assets 103,162,544.14 Mortgaged for short-term loans Total 373,460,934.17 -- Other notes: 59. Foreign Currency Monetary Items (1) Foreign Currency Monetary Items Unit: RMB Closing foreign currency Closing balance of converting Item Exchange rate balance to RMB Monetary capital Including: USD 81,791,849.81 6.5342 534,444,305.01 EUR 55,295.47 7.8023 431,431.85 HKD 16,493,608.85 0.8359 13,787,007.63 JPY 16,809,184.00 0.0579 973,251.74 THB 190.19 0.2000 38.00 185 Lu Thai Textile Co., Ltd. Annual Report 2017 SGD 1.90 4.8831 9.28 GBP 2,380.86 8.7792 20,902.05 AUD 6.03 5.0928 30.71 CHF 37.94 6.6779 253.36 SEK 920.00 0.7921 728.73 Dong 19,603,870,691.00 0.000288 5,645,914.76 MMK 207,312,216.61 0.00479 993,122.80 Accounts receivable Including: USD 36,973,156.24 6.5342 241,589,997.51 HKD 7,387,921.00 0.8359 6,175,563.16 Dong 15,456,009,548.00 0.000288 4,445,099.37 Notes receivable: USD 16,168,756.43 6.5342 105,649,888.28 HKD 5,622,611.00 0.8359 4,699,940.53 Other accounts receivable USD 868,482.11 6.5342 5,674,828.81 JPY 375,700.00 0.0579 21,753.03 Dong 1,088,790,163.00 0.000288 313,571.57 Accounts payable USD 4,823,602.62 6.5342 31,518,390.17 JPY 45,504,228.37 0.0579 2,634,193.27 EUR 476,032.87 7.8023 3,714,633.67 Dong 22,516,901,797.94 0.000288 6,475,789.60 Other accounts payable USD 509,640.00 6.5342 3,330,089.69 HKD 28,000.00 0.8359 23,405.20 MMK 12,250.00 0.00479 58.68 Dong 4,210,268,592.00 0.000288 1,212,478.91 Short-term loans USD 106,382,571.15 6.5342 695,124,996.40 Long-term loans due within one year USD 9,603,362.69 6.5342 62,750,292.49 Other notes: 186 Lu Thai Textile Co., Ltd. Annual Report 2017 (2) Notes to Overseas Entities Including: for Significant Oversea Entities, Main Operating Place, Recording Currency and Selection Basis Shall Be Disclosed; if there Are Changes into Recording Currency, Relevant Reasons Shall Be Disclosed. √ Applicable □ Not applicable The operating places of Company’s subsidiaries Lu Thai (Hong Kong), Lu Thai (Cambodia), Lu Thai (Burma) Co., Ltd. (hereinafter referred to as “Lu Thai (Burma)”) Lu Thai (America) and Lu Thai (Vietnam) Co., Ltd. , Lu An Garments Co., Ltd. were Hong Kong, Cambodia, Burma, America, Vietnam, Vietnam, and the recording currency respectively was HKD, USD, USD, USD , Dong and Dong. VIII. Changes of Merger scope 1. Business Combination under the Same Control (1) Business Combination under the Same Control during the Reporting Period Unit: RMB Basis for the Income from Net profits constitution the from this Recognition Income Net profits Proportion of of the period-begin Reporting Combined Combination basis of during the during the the equity business to the Period to the party date combination period of period of obtained combination combination combination date comparison comparison under the date of the date of the same control combination combination Under the Transfer of Chengshun control of the 16,295,560.3 15,255,896.3 100.00% 11/01/2017 controlling 4,145,908.17 3,313,698.92 Heating same final 9 2 power controller Other notes: (2) Combination Cost Unit: RMB Combination cost Chengshun Heating --Cash 23,430,428.00 --Book value of non-cash assets 160,000.00 Notes of consideration and the changes: Other notes: (3) The Book Value of the Assets and Liabilities of the Combined Party on Combining Date Unit: RMB 187 Lu Thai Textile Co., Ltd. Annual Report 2017 Chengshun Heating Item Combination date Period-end of last period Assets: 64,796,672.73 57,661,052.05 Monetary capital 1,798,102.66 4,336,916.85 Accounts receivable 3,717,550.07 Inventory 2,867,097.92 842,429.14 Fixed assets 52,265,026.01 28,813,248.40 Prepayment 430,766.93 618.97 Other accounts receivable 151,147.47 457,897.50 Other current assets 639,495.01 796,356.86 Construction in progress 2,876,582.75 22,407,296.20 Deferred income tax assets 50,903.91 6,288.13 Liabilities: 49,553,368.16 24,573,655.65 Accounts payable 2,416,599.70 5,096,903.35 Advance from customers 7,810,602.25 8,477,688.31 Payroll payable 51,417.05 59,654.01 Tax payable 479.66 560,966.47 Other accounts payable 39,274,269.50 10,378,443.51 Net assets 15,243,304.57 33,087,396.40 Net assets obtained 15,243,304.57 33,087,396.40 Contingent liabilities of the combined party undertaken in combination Other notes: IX. Equity in Other Entities 1. Equity in Subsidiary (1) The Structure of the Enterprise Group Main operating Nature of Holding percentage (%) Name Registration place Way of gaining place business Directly Indirectly Beijing Wholesale and Beijing Beijing 60.00% Set-up Innovative retail industry Luthai (Hong Wholesale and Hong Kong Hong Kong 100.00% Set-up Kong) retail industry Wholesale and Shanghai Luthai Shanghai Shanghai 100.00% Set-up retail industry 188 Lu Thai Textile Co., Ltd. Annual Report 2017 Business Manufacturing combination not Xinjiang Luthai Xinjiang Xinjiang 59.92% industry under the same control Lufeng Weaving Manufacturing Zibo Zibo 75.00% Set-up & Dyeing industry Manufacturing Luqun Textile Zibo Zibo 100.00% Set-up industry Business Manufacturing combination not Xinsheng Power Zibo Zibo 100.00% industry under the same control Xinjiang Textile Manufacturing Xinjiang Xinjiang 59.92% Set-up (sub-subsidiary) industry Business Helijie combination not Zibo Zibo Service 100.00% (sub-subsidiary) under the same control Business Chengshun Manufacturing combination Heating Zibo Zibo 100.00% industry under the same (sub-subsidiary) control Wholesale and Beijing Youxian Beijing Beijing 90.00% Set-up retail industry Lu Thai Manufacturing Cambodia Cambodia 100.00% Set-up (Cambodia) industry Manufacturing Lu Thai (Burma) Burma Burma 100.00% Set-up industry Lu Thai Wholesale and America America 100.00% Set-up (America) retail industry Lu Tha Manufacturing Vietnam Vietnam 100.00% Set-up i(Vietnam) industry Manufacturing Lu An Garments Vietnam Vietnam 100.00% Set-up industry Notes: holding proportion in subsidiary different from voting proportion: Basis of holding half or less voting rights but still been controlled investee and holding more than half of the voting rights not been controlled investee: Basis for the control over the significant structured entities included into the consolidated scope: Basis for determining the Company as the agent or the principal: Other notes: 189 Lu Thai Textile Co., Ltd. Annual Report 2017 (2) Significant Non-wholly-owned Subsidiary Unit: RMB The profits and losses Declaring dividends Balance of minority Shareholding proportion Name attributable to the distributed to minority shareholder at closing of minority shareholder minority shareholders shareholder period Xinjiang Luthai 40.08% 16,896,555.94 12,023,566.38 196,443,076.98 Lufeng Weaving & 25.00% 23,794,192.35 347,671,908.14 Dyeing Holding proportion of minority shareholder in subsidiary different from voting proportion: Other notes: (3) The Main Financial Information of Significant not Wholly Owned Subsidiary Unit: RMB Closing balance Opening balance Non-curr Non-curr Non-curr Non-curr Name Current Total Current Total Current Total Current Total ent ent ent ent assets assets liabilities liabilities assets assets liabilities liabilities assets liability assets liability Xinjiang 533,910, 552,920, 1,086,83 593,505, 4,950,67 598,456, 528,219, 350,642, 878,862, 402,356, 5,428,01 407,784, Luthai 300.91 939.85 1,240.76 546.28 5.96 222.24 890.20 671.38 561.58 617.55 8.92 636.47 Lufeng Weaving 756,065, 841,883, 1,597,94 168,738, 29,616,0 198,354, 592,276, 843,971, 1,436,24 111,025, 29,711,1 140,737, & 670.02 193.85 8,863.87 484.34 32.10 516.44 639.42 262.60 7,902.02 894.92 43.90 038.82 Dyeing Unit: RMB Reporting Period Same period of last year Total Total Name Operation Operating Operation Operating Net profit comprehensi Net profit comprehensi revenue cash flow revenue cash flow ve income ve income Xinjiang 477,021,975. 47,297,093.4 47,297,093.4 -18,512,573.3 440,825,035. 61,554,812.9 61,554,812.9 17,047,373.8 Luthai 57 1 1 0 33 5 5 0 Lufeng 1,664,817,65 104,083,484. 104,083,484. 140,455,230. 1,607,276,25 136,980,576. 136,980,576. 104,830,712. Weaving & 9.70 23 23 55 7.49 95 95 63 Dyeing Other notes: 190 Lu Thai Textile Co., Ltd. Annual Report 2017 2. Equity in Joint Venture Arrangement or Associated Enterprise (1) Main Financial Information of Significant Associated Enterprise Unit: RMB Closing balance/ Reporting Period Opening balance /same period of last year Haohong Investment Haohong Investment Current assets 128,880,401.95 Non-current assets 163,879,055.06 Total assets 292,759,457.01 Current liabilities 150,000.00 Total liabilities 150,000.00 Equity attributable to shareholders of the 292,609,457.01 Parent Company Net assets shares calculated at the 97,536,732.02 shareholding proportion Book value of investment to associated 97,536,732.02 enterprises Net profits -7,390,542.99 Total comprehensive income -7,390,542.99 Other notes X. The Risk Related Financial Instruments Main financial instruments of the Company included: Loans, accounts receivable, accounts payable, etc., all the details of the financial instruments, see related projects of “Section VI”. The risk associated with these financial instruments, as well as the Company’s risk management policy to reduce these risks which were described below. The Company's management managed and supervised these risks to ensure that the above risk was controlled in a limited scope. The Company use sensitivity analysis technology to analyze the reasonable of risk variables, influence of probable changes to the current profits and Stockholders' equity. Because rarely any risk variables change in isolation, and the correlation between variables for the eventual impact of the change of a risk variables will have a significant effect, thus, the aforesaid content was processing under the assumption of the change of each variable was conducted independently. (I) Risk management objectives and policies The goals of Company engaged in the risk management is to achieve the proper balance between the risks and benefits, reduced the negative impact to the Company operating performance risk to a minimum, maximized the profits of shareholders and other equity investors. Based on the risk management goal, the basic strategy of the Company's risk management is determine and analyze the various risks faced by the Company, set up the bottom line of risk and conducted appropriate risk management, and timely supervised various risks in a reliable way and controlled the risk within the range of limit. 1. Market risk (1) Foreign exchange risk 191 Lu Thai Textile Co., Ltd. Annual Report 2017 Foreign exchange risk is referred to the risk incurred due to loss of changes in exchange rate. Foreign exchange risk is referred to the risk incurred due to loss of changes in exchange rate. The Company’s foreign exchange risk was mainly related to USD, HKD and EUR, excepting the Company’s several subsidiaries purchase and sale, in USD, HKD and Dong, the other main business settled by RMB. On 31 Dec. 2016, in addition to the following assets or liabilities in statement was USD, HKD and EUR, the Company’s assets or liabilities was RMB balance. The foreign exchange risk incurred by assets and liabilities of foreign balance may have impact to the operation results of the Company. Item Closing amount Opening amount Cash and cash equivalents 556,296,995.92 295,220,057.63 Notes receivable 110,349,828.81 71,898,206.01 Account receivable 252,210,660.04 201,635,005.83 Other accounts receivable 6,010,153.41 5,624,249.98 Other current assets 65,968,094.08 Accounts payable 44,343,006.71 47,263,170.03 Other accounts payable 4,566,032.47 4,286,466.39 Short-term loans 695,124,996.40 563,261,856.02 Long-term loans due within one year 62,750,292.49 Long-term loans 135,678,044.89 Sensitive analysis of foreign exchange risk: Base on the foreign currency monetary assets and liabilities, and ignoring other factors, influence of change of exchange rate to current profits and losses and equity of shareholders was followed: Change Reporting Period Same period of last year Influence to the Influence to equity of Influence to the profits Influence to equity of profits shareholders shareholders Up 10% against RMB -5,234,092.49 -5,234,092.49 14,763,070.22 14,763,070.22 Down 10% against RMB 5,234,092.49 5,234,092.49 -14,763,070.22 -14,763,070.22 (2) Interest rate risk The risk of cash flow changes of financial instruments due to change of interest rate mainly was related bank loan (for details, see23 in this Section). Sensitive analysis of interest rate risk: Influence of interest increasing 100 BP to current profits and losses and equity of shareholders before tax was followed: Change Reporting Period Same period of last year Influence to the profits Influence to equity of Influence to the profits Influence to equity of shareholders shareholders Increase 100 BP -11,312,164.38 -10,086,733.25 -7,634,051.31 -6,516,890.66 Decrease 100 BP 11,312,164.38 10,086,733.25 7,634,051.31 6,516,890.66 2. Credit risk 192 Lu Thai Textile Co., Ltd. Annual Report 2017 On Dec. 31, 2017, credit risk what may lead to the financial losses was the other party of the contract failed to fulfill the obligations and causes loss of the Company’s financial assets, which including: book value of financial assets recognized in consolidated balance sheet. In order to reduce the credit risk, the Company established a special team be responsible for the determination of credit limit to conduct credit approval, and perform other supervising procedures to ensure that taking necessary measures to recycle expired claims. In addition, the Company at each balance sheet date, review every single receivables recycling situation, to ensure that the money unable to recycle withdrawn provision for bad debt fully. Thus, the Company management believed that have assume the credit risk the Company shouldered had been greatly reduced. The Company's working capital was in bank with higher credit rating, so credit risk of working capital was low. 3. Liquidity Risk When manage liquidity risk, the Company keep administrators deemed sufficient cash and cash equivalents and supervised it to meet the need of the operation of the Company and reduce the influence of cash flow volatility. The Company management supervised the usage of bank loan and ensured to comply with the loan agreement. In the end of Reporting Period, the Company held cash and bank deposit of RMB694 million. In recent two years, the average of net cash flow of operation activities was RMB1.176 billion. The Company believed that the liquidity risk was insignificant. XI. The Disclosure of the Fair Value 1. Closing Fair Value of Assets and Liabilities Calculated by Fair Value Unit: RMB Closing fair value Item Fair value measurement Fair value measurement Fair value measurement Total items at level 1 items at level 2 items at level 3 I. Consistent fair value -- -- -- -- measurement (II) Available-for-sale 60,033,000.00 60,033,000.00 financial assets (1) Debt instrument 60,033,000.00 60,033,000.00 investment (2) Equity tool investment (3) Others Total assets of consistent 60,033,000.00 60,033,000.00 fair value measurement 193 Lu Thai Textile Co., Ltd. Annual Report 2017 2. Valuation Technique Adopted and Nature and Amount Determination of Important Parameters for Consistent and Inconsistent Fair Value Measurement Items at Level 2 As for the fund investment without active markets in available-for-sale financial assets, the determination of its fair value was based on the evaluation on the balance sheet date provided by the asset manager. XII. Related Party and Related Transaction 1. Information Related to the Parent Company Proportion of voting Proportion of share rights owned by Name of parent held by parent Registration place Nature of business Registered capital parent company company company against the against the Company Company (%) (%) Zibo Lucheng Textile, chemistry Textile Investment Zibo RMB63,260,000 15.21% 15.21% and investment Co., Ltd. Information on the Parent Company The final controllers of the Company were Mr. Liu zibin and Mr. Liu Deming. Other notes: 2. Subsidiaries of the Company Refer to Note IX-1. Equity in Subsidiaries for details. 3. Information on the Joint Ventures and Associated Enterprises of the Company Refer to IX-2. Equity in Joint Ventures or Associated Enterprises in this Section. 4. Information on Other Related Parties of the Company Name Relationship Zibo Stanluian Cosmetics Co., Ltd. (hereinafter called Joint-stock company “Stanluian”) Zibo Taimei Ties Co., Ltd. (hereinafter called Taimei Ties) Majority-owned subsidiary of the Parent Company Zibo Limin Purified Water Co., Ltd. (hereinafter called Limin Wholly-owned subsidiary of the Parent Company Purified Water) Zibo Luqun Land Co., Ltd (hereinafter called Luqun Land) Wholly-owned subsidiary of the Parent Company Zibo Lurui Fine Chemical Co., Ltd. (hereinafter referred to as Majority-owned subsidiary of the Parent Company Lurui Chemical) Zibo Lujia Property Management Co. , Ltd. (hereinafter referred Wholly-owned subsidiary of the Parent Company 194 Lu Thai Textile Co., Ltd. Annual Report 2017 to as Lujia Property) Shandong Chengshun Petrochemical Co., Ltd. (hereinafter Wholly-owned subsidiary of the Parent Company referred to as Chengshun Petrochemical) Other notes 5. List of Related-party Transactions (1) Information on Acquisition of Goods and Reception of Labor Service (Unit: Ten Thousand Yuan) Information on acquisition of goods and reception of labor service Unit: RMB Whether exceed trade The approval trade credit or not Whether Same period of last Related party Content Reporting Period credit exceed trade credit or year not Towel, sock, oil product, supermarket retail, welfare, electronic Zibo Lucheng products, computer Textile Investment 13,051,075.96 18,183,300.00 No 12,157,996.07 equipment, Co., Ltd. computer supplies, paper core, hose processing fees, etc. Goods processing Taimei Ties 1,072,762.83 1,300,000.00 No 922,555.61 fee Recycled water, Limin Purified sewage treatment, 23,742,561.84 25,850,000.00 No 19,438,805.23 Water materials Chengshun Gas 19,719,905.39 29,000,000.00 No 742,901.39 Petrochemical Lurui Fine Auxiliaries 91,452,731.48 117,000,000.00 No 81,933,412.13 Chemical Information of sales of goods and provision of labor service Unit: RMB Related party Content Reporting Period Same period of last year Sales of materials, electricity, running water, gas, LED Lucheng Textile 805,523.94 1,163,940.37 lamp, garment, basic yarn and dyed yarn, etc. 195 Lu Thai Textile Co., Ltd. Annual Report 2017 Sales of electricity, heating Taimei Ties 17,715.81 20,180.03 charges Sales of materials, electricity, Stanluian Company 52,431.80 36,152.79 and running water Sales of materials, garment, Limin Purified Water 71,473.11 4,913.20 and LED lamp Sales of garments, LED lamp, fabric, yarn, water & Lurui Fine Chemical 442,833.05 579,514.02 electricity and lunch components Sales of materials and Lujia Property 68,442.42 43,831.55 recycled water Notes: (2) Information of Related Lease The Company was lessor: Unit: RMB The lease income confirmed in The lease income confirmed in Name of lessee Category of leased assets Reporting Period last year Zibo Lucheng Textile Houses and buildings 30,857.15 292,836.83 Investment Co., Ltd. Lurui Fine Chemical Houses and buildings 8,183.64 4,091.82 The Company was lessee: Unit: RMB The lease income confirmed in lessor Category of leased assets Category of leased assets Reporting Period Zibo Lucheng Textile Rent of land 3,614,857.20 3,675,104.80 Investment Co., Ltd. Zibo Lucheng Textile Rent of gas station 501,714.24 510,076.16 Investment Co., Ltd. Zibo Lucheng Textile Rent of land and buildings 11,460,190.52 12,404,419.08 Investment Co., Ltd. Luqun Property Rent of land and buildings 1,394,285.64 4,017,523.76 Notes of related lease (3) Inter-bank Lending of Capital of Related Parties Unit: RMB 196 Lu Thai Textile Co., Ltd. Annual Report 2017 Amount borrowed and Related-party Initial date Due date Explanation loaned Borrowed Borrowed by the Zibo Lucheng Textile Company’s subsidiaries 59,000,000.00 10/24/2017 12/31/2018 Investment Co., Ltd. Xinsheng Power and Chengshun Heating Borrowed by the Lujia Property 600,000.00 03/30/2017 12/31/2018 Company’s subsidiary Chengshun Heating Borrowed by the Stanluian Company 1,450,000.00 08/17/2017 12/31/2018 Company’s subsidiary Chengshun Heating Borrowed by the Taimei Ties 1,300,000.00 03/31/2017 12/31/2018 Company’s subsidiary Chengshun Heating Loaned (4) Rewards for the Key Management Personnel Unit: RMB Item Reporting Period Same period of last year Rewards for the key management 21881300 24486300 personnel 6. Receivables and Payables of Related Parties (1) Payables Unit: RMB Name of item Related party Closing book balance Opening book balance Accounts payable: Lurui Fine Chemical 790,533.58 Zibo Lucheng Textile 9,214.58 Investment Co., Ltd. Total 799,748.16 Other accounts payable: Zibo Lucheng Textile 60,456,317.14 9,854,741.01 Investment Co., Ltd. 197 Lu Thai Textile Co., Ltd. Annual Report 2017 Lujia Property 620,010.00 Stanluian Company 1,473,828.33 Taimei Ties 1,362,942.08 Total 63,913,097.55 9,854,741.01 XIII. Commitments and Contingency 1. Significant Commitments Significant commitments on the balance sheet date Capital commitments Item Closing balance (RMB Ten Opening balance (RMB Ten thousand Yuan) thousand Yuan) Commitments signed but hasn’t been recognized in financial statements -- Commitment for constructing and purchasing 6,364.72 20,581.71 long-term assets Total 6,364.72 20,581.71 2. Contingency (1) Significant Contingency on Balance Sheet Date As of Dec. 31, 2017, there was no significant contingency for the Company to disclose. (2) In Despite of no Significant Contingency to Disclose, the Company Shall Also Make Relevant Statements. There was no significant contingency for the Company to disclose. XIV. Events after Balance Sheet Date 1. Profit Distribution Unit: RMB 198 Lu Thai Textile Co., Ltd. Annual Report 2017 XIV. Notes of Main Items in the Financial Statements of the Parent Company 1. Accounts Receivable (1) Accounts Receivable Classified by Category Unit: RMB Closing balance Opening balance Book balance Bad debt provision Book balance Bad debt provision Category Withdra Book Proportio wal Proportio Withdrawal Book value Amount Amount value Amount Amount n proportio n proportion n Accounts receivable with significant single amount for 102,459 102,459,6 24.68% 100.00% which bad debt ,665.95 65.95 provision separately accrued Accounts receivable withdrawn bad debt 322,076, 16,172,6 305,903,5 312,659 15,633,26 297,026,11 provision according 100.00% 5.02% 75.32% 5.00% 206.04 15.06 90.98 ,373.66 3.33 0.33 to credit risks characteristics 322,076, 16,172,6 305,903,5 415,119 118,092,9 297,026,11 Total 100.00% 5.02% 100.00% 28.45% 206.04 15.06 90.98 ,039.61 29.28 0.33 Accounts receivable with significant single amount for which bad debt provision separately accrued at the period-end: □ Applicable √ Not applicable In the groups, accounts receivable adopting aging analysis method to accrue bad debt provision: √ Applicable □ Not applicable Unit: RMB Closing balance Aging Accounts receivable Bad debt provision Withdrawal proportion Subitem within 1 year Within 1 year 320,700,110.68 16,035,005.53 5.00% Subtotal within 1 year 320,700,110.68 16,035,005.53 5.00% 1 to 2 years 1,376,095.36 137,609.53 10.00% Total 322,076,206.04 16,172,615.06 5.02% Notes of the basis for the determination of the group: In the groups, accounts receivable adopting balance percentage method to withdraw bad debt provision: 199 Lu Thai Textile Co., Ltd. Annual Report 2017 □ Applicable √ Not applicable In the groups, accounts receivable adopting other methods to withdraw bad debt provision: (2) Bad Debt Provision Withdrawal, Reversed or Recovered in the Reporting Period The withdrawal amount of the bad debt provision during the Reporting Period was of RMB-5,913,759.23; the amount of the reversed or collected part during the Reporting Period was of RMB0.00. (3) Particulars of the Actual Verification of Accounts Receivable during the Reporting Period Unit: RMB Item Amount Accounts receivable verified actually 96,006,554.99 Of which, the verification of significant accounts receivable: Unit: RMB Whether occurred Name of the entity Nature Amount Reason Procedure because of related party transactions Under the process of Beijing Innovative Intercourse accounts 96,000,000.00 Approval of the GM No cancellation Total -- 96,000,000.00 -- -- -- Notes of the verification of accounts receivable: (4) Top Five of Account Receivable of Closing Balance Collected by Arrears Party The total amount of top five of account receivable of closing balance collected by arrears party was RMB132,731,214.06, accounting for 41.21% of total closing balance of account receivable, and the relevant closing balance of bad debt provision withdrawn was RMB6,636,560.70. 2. Other Accounts Receivable (1) Other Account Receivable Classified by Category Unit: RMB Closing balance Opening balance Book balance Bad debt provision Book balance Bad debt provision Category Withdra Book Proportio wal Proportio Withdrawal Book value Amount Amount value Amount Amount n proportio n proportion n Other accounts 486,974, 93.16% 486,974,1 317,675 92.64% 317,675,16 200 Lu Thai Textile Co., Ltd. Annual Report 2017 receivable with 195.33 95.33 ,160.04 0.04 significant single amount for which bad debt provision separately accrued Other accounts receivable withdrawn 35,729,4 2,915,36 32,814,04 25,228, 2,445,924 22,783,048. bad debt provision 6.84% 8.16% 7.36% 9.69% 08.00 3.76 4.24 972.17 .01 16 according to credit risks characteristics 522,703, 2,915,36 519,788,2 342,904 2,445,924 340,458,20 Total 100.00% 0.56% 100.00% 0.71% 603.33 3.76 39.57 ,132.21 .01 8.20 Other receivable with single significant amount and withdrawal bad debt provision separately at end of period √ Applicable □ Not applicable Unit: RMB Closing balance Other accounts receivable Other accounts (unit) Bad debt provision Withdrawal proportion Withdrawal reason receivable no impairment of the Lu Thai (Vietnam) 404,392,797.42 individual test no impairment of the Lu An Garments 82,581,397.91 individual test Total 486,974,195.33 -- -- In the groups, other accounts receivable adopting aging analysis method to withdraw bad debt provision: √ Applicable □ Not applicable Unit: RMB Closing balance Aging Other accounts receivable Bad debt provision Withdrawal proportion Subitem within 1 year Within 1 year 30,939,672.96 1,546,983.65 5.00% Subtotal within 1 year 30,939,672.96 1,546,983.65 5.00% 1 to 2 years 280,702.00 28,070.20 10.00% 2 to 3 years 124,000.00 24,800.00 20.00% Over 3 years 4,385,033.04 1,315,509.91 30.00% Total 35,729,408.00 2,915,363.76 8.16% Notes of the basis for the determination of the group: In the groups, other accounts receivable adopting balance percentage method to withdraw bad debt provision: □ Applicable √ Not applicable 201 Lu Thai Textile Co., Ltd. Annual Report 2017 In the groups, other accounts receivable adopting other methods to withdraw bad debt provision: □ Applicable √ Not applicable (2) Bad Debt Provision Withdrawn, Reversed or Collected during the Reporting Period The amount of bad debt provision was RMB469,439.75, the amount of reversed or recovered bad debt provision in the Reporting Period RMBXXX. Of which, the current bad debt provision reversed or collected with significant amount: Unit: RMB Name of the entity Reversed or collected amount Method (3) Other Accounts Receivable Classified by the Nature Unit: RMB Nature Closing book balance Opening book balance Intercourse funds 486,974,195.33 317,675,160.04 Export rebates 16,370,989.66 7,802,287.09 Payment on behalf 14,593,482.76 13,285,751.37 Guarantee deposit and cash deposit 2,532,658.50 442,488.00 Borrowings and petty cash 1,044,226.03 1,013,029.29 Other 1,188,051.05 2,685,416.42 Total 522,703,603.33 342,904,132.21 (4) Top 5 of the Closing Balance of the Other Accounts Receivable Collected according to the Arrears Party Unit: RMB Proportion to total closing balance of Closing balance of Name of units Nature Closing balance Aging other accounts bad debt provision receivable Lu Thai (Cambodia) Intercourse funds 404,392,797.42 Within 1 year 77.37% Lu An Garments Intercourse funds 82,581,397.91 Within 1 year 15.80% Refund of tax for Export rebates 16,370,989.66 Within 1 year 3.13% 818,549.48 export receivable Accounts receivable Advance money for of advance money for the social security the social security undertake by the 4,836,084.96 Within 1 year 0.92% 241,804.25 undertake by the individual of the individual of the employee employee 202 Lu Thai Textile Co., Ltd. Annual Report 2017 Pre-paid heating Pre-paid 2,024,208.67 Within 1 year 0.39% 101,210.43 charges Total -- 510,205,478.62 -- 97.61% 1,161,564.16 3. Long-term Equity Investment Unit: RMB Closing balance Opening balance Item Depreciation Depreciation Book balance Book value Book balance Book value reserves reserves Investment to the 1,744,156,616.04 25,200,000.00 1,718,956,616.04 1,736,221,866.04 25,200,000.00 1,711,021,866.04 subsidiary Investment to joint ventures and 97,536,732.02 97,536,732.02 associated enterprises Total 1,841,693,348.06 25,200,000.00 1,816,493,348.06 1,736,221,866.04 25,200,000.00 1,711,021,866.04 (1) Investment to the Subsidiary Unit: RMB Withdrawn Closing balance impairment Investee Opening balance Increase Decrease Closing balance of impairment provision in the provision Reporting Period Beijing Innovative 25,200,000.00 25,200,000.00 25,200,000.00 Xinjiang Luthai 147,303,034.16 147,303,034.16 Xinsheng Power 176,340,737.93 176,340,737.93 Lufeng Weaving & 529,620,000.00 529,620,000.00 Dyeing Luqun Textile 171,784,550.00 171,784,550.00 Luthai (Hong 128,771,800.00 128,771,800.00 Kong) Shanghai Luthai 20,000,000.00 20,000,000.00 Lu Thai 108,242,335.38 108,242,335.38 (Cambodia) Lu Thai (America) 6,774,300.00 3,434,750.00 10,209,050.00 Lu Thai(Burma) 62,337,238.57 62,337,238.57 Beijing Youxian 9,000,000.00 4,500,000.00 13,500,000.00 203 Lu Thai Textile Co., Ltd. Annual Report 2017 Lu Thai (Vietnam) 318,034,810.00 318,034,810.00 Lu An Garments 32,813,060.00 32,813,060.00 Total 1,736,221,866.04 7,934,750.00 1,744,156,616.04 25,200,000.00 (2) Investment to Joint Ventures and Associated Enterprises Unit: RMB Increase/decrease Closing Gains and Adjustme Cash Withdraw balance Additiona losses nt of Opening Reduced Changes bonus or al of Closing of Investee l recognize other balance investmen of other profits impairme Other balance impairme investmen d under comprehe t equity announce nt nt t the equity nsive d to issue provision provision method income I. Joint ventures II. Associated enterprises Haohong 100,000,0 -2,463,26 97,536,73 Investme 00.00 7.98 2.02 nt 100,000,0 -2,463,26 97,536,73 Subtotal 00.00 7.98 2.02 100,000,0 -2,463,26 97,536,73 Total 00.00 7.98 2.02 4. Revenues and Operating Costs Unit: RMB Reporting Period Same period of last year Item Sales revenue Cost of sales Sales revenue Cost of sales Main operations 4,912,726,656.13 3,548,107,954.49 4,807,878,511.56 3,378,032,986.90 Other operations 233,769,456.41 187,951,747.92 270,969,055.54 226,114,678.98 Total 5,146,496,112.54 3,736,059,702.41 5,078,847,567.10 3,604,147,665.88 Other notes: 5. Investment Income Unit: RMB Item Reporting Period Same period of last year Long-term equity investment income 17,976,433.62 55,179,470.68 204 Lu Thai Textile Co., Ltd. Annual Report 2017 accounted by cost method Investment income from disposal of -2,463,267.98 long-term equity investment Investment income received from disposal of -199,507.76 long-term equity investment Investment income received from disposal of financial assets measured at fair value and 4,858,596.97 -33,807,314.00 the changes recorded into the current gains and losses Total 20,371,762.61 21,172,648.92 XVI. Supplementary Materials 1. Non-recurring Gains and Losses during this Reporting Period √ Applicable □ Not applicable Unit: RMB Item Amount Note Gains/losses on the disposal of non-current -1,326,737.85 assets Tax rebates, reductions or exemptions due to approval beyond authority or the lack of 66,031,583.92 official approval documents Current net gains and losses of the subsidiary from the period-begin to the combination 4,145,908.17 date generated from the business combination under the same control Gain/loss from change of fair value of transactional assets and liabilities, and investment gains from disposal of transactional financial assets and liabilities 4,794,598.32 and available-for-sale financial assets, other than valid hedging related to the Company’s common businesses Other non-operating income and expenses 4,638,779.84 other than the above Less: Income tax effects 8,690,224.28 Minority interests effects 9,080,806.84 Total 60,513,101.28 -- Explain the reasons if the Company classifies an item as an extraordinary gain/loss according to the definition in the Explanatory 205 Lu Thai Textile Co., Ltd. Annual Report 2017 Announcement No. 1 on Information Disclosure for Companies Offering Their Securities to the Public—Extraordinary Gains and Losses, or classifies any extraordinary gain/loss item mentioned in the said explanatory announcement as a recurrent gain/loss item □ Applicable √ Not applicable 2. Return on Equity (ROE) and Earnings Per Share (EPS) EPS (Yuan/share) Profit as of Reporting Period Weighted average ROE (%) EPS-basic EPS-diluted Net profit attributable to common 11.87% 0.91 0.91 shareholders of the Company Net profit attributable to common shareholders of the Company after 11.02% 0.85 0.85 deduction of non-recurring profit and loss 3. Differences between Accounting Data under Domestic and Overseas Accounting Standards (1) Differences of Net Profit and Net Assets Disclosed in Financial Reports Prepared under International and Chinese Accounting Standards √ Applicable □ Not applicable Unit: RMB Net profit Net asset Reporting Period Same period of last year Closing balance Opening balance According to Chinese 841,150,934.75 808,760,025.91 7,230,942,770.16 6,970,913,125.59 accounting standards Items and amounts adjusted according to international accounting standards: Impact on domestic equipment tax credit recognized as deferred 329,000.00 725,000.00 -329,000.00 income under international accounting standards According to international 841,479,934.75 809,485,025.91 7,230,942,770.16 6,970,584,125.59 accounting standards 206 Lu Thai Textile Co., Ltd. Annual Report 2017 Part XII Documents Available for Reference 1. The financial statements signed and stamped by the Company’s legal representative, Chief Accountant and Financial Manager; 2. The original copy of the Independent Auditors’ Report carrying the seal of the CPA firm, as well as the personal signatures of the engagement certified public accountants. 3. The originals of all the Company’s announcements and documents disclosed to the public during the Reporting Period on Securities Times, Shanghai Securities News, China Securities Journal and Ta Kung Pao. Chairman of the Board: Liu Zibin Lu Thai Textile Co., Ltd. April 17, 2018 207