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www.global-reports.com

2

CorporateProfile

3

CorporateInformation

6

Chairman’sStatement

12

Five-year FinancialHighlights

16

ManagementDiscussion andAnalysis

26

CorporateGovernance Report

34

Directors and SeniorManagement

39

Report ofDirectors

52

Independentauditors’ report

55

Balance Sheet

56

ConsolidatedIncome Statements

54

ConsolidatedBalance Sheet

57

ConsolidatedStatement ofChanges in Equity

59

Notes to theConsolidatedFinancial Statements

97

Information forShareholders

58

Consolidated CashFlow Statement

Contents


Xiwang Sugar Holdings Company Limited 2006 Annual Report 2

Corporate Profile

Xiwang Sugar Holdings Company Limited (“Xiwang Sugar” or the “Company”) and its subsidiaries

(collectively, the “Group”) is a leading crystallised glucose producer in the PRC in terms of

production capacity. According to an evaluation conducted by the China Fermentation Industry

Association, the Group ranked the first amongst the 20 largest enterprises in the People’s Republic

of China (the “PRC”) producing starch based glucose in 2006.

The Group’s products can broadly be divided into corn-based biochemical products and corn

refined products. Corn-based biochemical products include crystallised glucose, glucose syrup,

lysine products and glutamic acids. Corn refined products include corn gluten meal, corn germ,

animal feed and starch paste. These products are widely used in the food and beverage,

pharmaceutical, fermentation and chemical industries.

The Group’s corn-based biochemical products and corn refined products are marketed and sold to

customers in approximately 25 provinces and autonomous regions in the PRC and exported to

approximately 26 overseas regions/countries which include Korea, Japan, the Philippines, Malaysia,

Vietnam, Pakistan, Indonesia, Australia, Belgium, Germany, Turkey, the Netherlands and Chili.

The Group’s production facilities are located in Zouping County of Shandong Province, the PRC.

The Group adopts a vertically integrated production model and employs unique production

technologies to fully utilise different parts of corn kernels, the major raw materials in producing

and refining different products, so as to effectively minimise wastage and environmental pollution

while improving the overall production efficiency. The Group’s environmental protection system

received ISO14001:1996 certificate in September 2004 and the Group was awarded by the State

Administration for Environmental Protection as a “National Environmental Friendly Corporation” in

October 2005.


Xiwang Sugar Holdings Company Limited 2006 Annual Report3

Corporate Information

EXECUTIVE DIRECTORSMr. WANG Yong, ChairmanMr. WANG LiangDr. LI WeiMr. WANG Cheng QingMr. HAN ZhongMr. LIU Ji Qiang

NON-EXECUTIVE DIRECTORMr. LIU Heng Fang

INDEPENDENT NON-EXECUTIVEDIRECTORSMr. SHI Wei ChenMr. SHEN ChiMr. WONG Kai Ming

AUDIT COMMITTEEMr. WONG Kai Ming, ChairmanMr. SHI Wei ChenMr. SHEN Chi

RENUMERATION ANDNOMINATION COMMITTEEMr. WANG Liang, ChairmanMr. SHI Wei ChenMr. SHEN Chi

COMPANY SECRETARYMr. LEUNG Shu Sun, Sunny, FCCA, CGA, CPA

AUTHORISED REPRESENTATIVESMr. WANG YongMr. LEUNG Shu Sun, SunnyMr. SUN Xin Hu

(Alternate to Mr. WANG Yong andMr. LEUNG Shu Sun, Sunny)

QUALIFIED ACCOUNTANTMr. LEUNG Shu Sun, Sunny, FCCA, CGA, CPA

AUDITORSPricewaterhouseCoopersCertified Public Accountants22nd FloorPrince’s BuildingCentralHong Kong

LEGAL ADVISERSAs to Hong Kong law:Chiu & Partners41st Floor, Jardine House1 Connaught PlaceHong Kong

As to PRC law:Jingtian & Gongcheng15th FloorThe Union Plaza20 Chaoyangmenwai DajieBeijing 100020The PRC

As to Bermuda law:Conyers Dill & Pearman2901, One Exchange Square8 Connaught PlaceCentralHong Kong

COMPLIANCE ADVISERCCB International Capital LimitedSuites 2815-21, 28th FloorTwo Pacific Place88 QueenswayAdmiraltyHong Kong


CONTINUOUSGROWTH INTURNOVER

Turnover in amount 2006 2005 ChangeRMB’000 RMB’000 (%)

Corn based biochemical productsCrystallised glucose 521,677 458,074 13.88Glucose syrup 109,149 122,746 -11.08Lysine products 302,485 170,286 77.63Glutamic acids 7,517 – N/ACorn refined products 444,117 286,605 54.96Overall 1,384,945 1,037,711 33.46

Turnover in volume 2006 2005 ChangeTonne Tonne (%)

Corn based biochemical productsCrystallised glucose 209,692 200,768 4.44Glucose syrup 56,138 77,954 -27.99Lysine products 39,544 26,590 48.72Glutamic acids 1,642 – N/ACorn refined products 294,854 205,605 43.41Overall 601,870 510,917 17.80



Chairman’s Statement





To all shareholders:

On behalf of the board of directors (the “Board”) of

the Company, I am pleased to present you the

audited results of Xiwang Sugar Holdings Company

Limited (“Xiwang Sugar” or the “Company”) and

its subsidiaries (collectively, the “Group”) for the

year ended 31 December 2006.

RESULTS

The results of the Group for the year ended 31 December 2006 were encouraging and recorded

remarkable growth. Turnover increased to approximately RMB1,384,945,000, representing an

increase of 33.5%. Profit attributable to equity holders of the Company elevated by 38.3% to

approximately RMB290,225,000. Earnings per share was RMB0.356. Such outstanding

performance was attributable to Xiwang Sugar’s effort in capturing opportunities arising from the

demand for glucose in domestic and overseas markets, management’s strategy which safeguarded

shareholders’ interests, and the notion of providing higher returns for shareholders and upkeeping

the standard of corporate governance.

DIVIDEND

The Company will distribute approximately 40% of its net profit for the year ended 31 December

2006. The board of directors (the “Board” or the “Directors”) of the Company proposed the

payment of a dividend of RMB0.14 per share for the year under review.

BUSINESS REVIEW

During the past few years, in order to capture the fast expanding market, we embarked on an

aggressive production capacity expansion program. After the completion of our new starch paste

and glucose production plants in the first quarter of 2007, the annual production capacity of

starch paste increased from 400,000 tonnes to 1,000,000 tonnes while the production capacity of

crystallised glucose increased from 250,000 tonnes to 800,000 tonnes. According to the China

Fermentation Industry Association, Xiwang Sugar continued to rank the first amongst the 20

largest starch based sweetener manufacturers in the PRC in 2006. In July 2006, Xiwang Sugar was

awarded as “Zhong Guo Tong Du” (中國糖都 ) by the China National Food Industry Association

reinforcing the international image of the Group and its brand value.




The results of the Group for the year ended 31

December 2006 were encouraging and recorded

remarkable growth. Turnover increased to

approximately RMB1,384,945,000, representing

an increase of 33.5%.

During the year, the Group has successfully expanded its domestic sales network of crystallised

glucose which now covers the southern part of the PRC and the coastal regions in the eastern

region of the PRC. The number of sales office in the PRC increased from 7 in 2005 to 17 in 2006.

The Group also strengthened its sales support, marketing and after-sale services of its existing

distribution centers. These help to reinforce the corporate image and strengthen the sales capacity

of the Group.

In order to expand its vertically integrated production, the Group has endeavored to expand

downstream operations, and has already commenced the production of glutamic acid since

October 2006. The Group also introduced an innovated natural sweetener made by corn starch:

Crystallised Fructose-Glucose, which is 10% sweeter than cane sugar and is, literally, a substitute

of cane sugar with great development potentiality. It is expected that this new product will

contribute positively to our financial result in the years ahead.

PROSPECTS AND PLANS

2007 is a year during which Xiwang Sugar will face both opportunities and challenges. Corn is the

major raw material of Xiwang Sugar. Due to huge demand in the domestic corn downstream

processing industry, the price of corn has been soaring since the third quarter in 2006. As a

leading glucose producer in the country, Xiwang Sugar will leverage on the advantage of large

scale production to minimize its cost and maintain a steady growth of its profits through measures

stated as follows:

1. Apart from sourcing corn kernel in Shandong province, we will diversify the sources of our

raw material from other provinces and overseas. During the year under review, we

purchased 52,000 tonnes of corn from the US. The Group will continue to apply for import

quotas of corn from the government in 2007;

2. Leveraged on the proprietary production technology on crystallised glucose, the Group will

continue to improve the production technology on the Crystallised Fructose-Glucose.

Crystallised Fructose-Glucose will be introduced to the market in the second half of 2007

and will become a new source of profit;

3. Capitalizing on the leading position in the PRC, the Group will launch Glutamic acids and

Monosodium Glutamate (MSG) in the PRC and other Asian markets which is expected to

bring high return to the Group.




Looking forward, the Group will make its best endeavors to capture increasing market

opportunities and growth potentials through mass production capacity, vertically integrated

production system, strong research and development capability and highly experienced

management experts, and strives to become a leading glucose producer in the world and create

satisfactory returns for shareholders.

On behalf of Xiwang Sugar, I would like to take this opportunity to express my heartfelt gratitude

to our clients, business partners and shareholders for their support and trust and to all our staff for

their efforts and dedication.

Wang YongChairman

Hong Kong, 30 March 2007


Turnover

RMB1,384.9mup 33.5% fromRMB1,037.7m (2005)

Operating profit

RMB316.4mup 38.6% fromRMB228.3m (2005)

Earning per share

RMB0.356down 2.5% fromRMB0.365 (2005)


The Group’s overall gross profit in 2006 increased byapproximately RMB103.8 million, representing an increaseof approximately 39.7% as compared to that of 2005.The overall gross profit margin slightly increased fromabout 25.2% in 2005 to about 26.4% in 2006. Theincrease in gross profit margin was mainly attributable tothe increase in the average selling price of crystallisedglucose, glucose syrup and animal feed.

PROGRESSTHROUGHINNOVATION



Five-YearFinancial Highlights

For the year ended 31 December

2002 2003 2004 2005 2006

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

Turnover 61,758 302,933 602,736 1,037,711 1,384,945Gross profit 4,959 61,623 118,491 261,237 365,046

Operating profit 2,173 56,627 110,554 228,262 316,439

Profit before income tax 1,557 45,093 94,472 209,813 290,225Profit for the year 1,083 39,762 81,651 209,813 290,225

Profit attributable to equity holders 737 37,523 78,829 209,813 290,225

Earnings per share (basic) (RMB) 0.001 0.067 0.141 0.365 0.356Dividend

– special dividend – – – 80,000 –

– final dividend – – – 7,000 –– proposed final dividend – – – – 115,871

As at 31 December

2002 2003 2004 2005 2006

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

Total assets 198,269 451,986 669,141 1,387,545 2,195,490

Non-current assets 74,991 267,040 351,036 696,297 1,285,459Current assets 123,278 184,946 318,105 691,248 910,031

Shareholders’ equity 80,677 118,493 271,941 840,962 1,171,401

Non-current liabilities – 10,000 184,680 234,680 664,314Current liabilities 98,242 302,197 212,520 311,903 359,775

Total liabilities 98,242 312,197 397,200 546,583 1,024,089

Cash and cash equivalents 784 10,915 52,971 502,043 662,609

For the year ended 31 December

2002 2003 2004 2005 2006

Current ratio 1.3 0.6 1.5 2.2 2.5

Net debt to equity ratio (%) 19.2 70.9 74.2 N/A 17.8Inventory turnover days (*) 56 85 52 35 43

Debtor turnover days (*) 101 37 19 16 19

Creditor turnover days (*) 18 7 5 13 12

(*) Weighted average on closing balances



Five-Year Financial Highlights

SalesFor the year ended 31 December

Profit for the yearFor the year ended 31 December

Gross profit margin and net profit marginFor the year ended 31 December

Total assetsAs at 31 December

Shareholders’ equityAs at 31 December


9.4%

44.9%

26.4%

Crystallised glucose Glucose syrup Lysine products

Gross Profit

2006 2005 Change

RMB’000 RMB’000 (%)

Corn based biochemical products

Crystallised glucose 163,977 136,217 20.38

Glucose syrup 34,308 36,576 -6.20

Lysine products 69,595 50,158 38.75

Glutamic acids 845 – N/A

Corn refined products 96,321 38,286 151.58

Overall 365,046 261,237 39.74

GROSSPROFIT BYPRODUCTCATEGORIES

2006 2005

19.1%

0.2%

52.1%

14.7%

14.0%

19.2%

Glutamic acids Corn refined products



Management Discussion and Analysis

Management Discussionand Analysis

BUSINESS REVIEW

Fuelled by a favorable market environment characterized by continued economic growth and rising

purchasing power in the PRC, the Group continued to achieve remarkable results in 2006. The

improvement of living standard helped promote health consciousness among the population in the

PRC. Cane sugar is currently widely used in a variety of food and beverage products. More health-

conscious consumers prefer starch sweeteners such as glucose as they are more easily absorbed by

the human body and is less sweet than cane sugar. Coupled with the surge in the cane sugar price

in the first half of 2006, an increasing number of manufacturers, particularly those in the food and

beverage industry, are looking for substitutes for cane sugar. Moreover, the growth in various

industries such as chemical, fermentation and pharmaceutical industries also increased the demand

for crystallised glucose, which is widely used as a raw material for their products. As a result of the

strong demand, the selling price of our major products and the turnover of the Group increased

substantially as compared with 2005.

In solidifying our position as a leading manufacturer of starch-based sweetener in the PRC, we

placed strong emphasis on four core areas that were crucial to our success: (i) strengthening our

market-leader position, (ii) enhancing operating efficiency, (iii) strengthening research and

development (“R&D”) capability and (iv) strengthening quality control of our products.

(i) Strengthening our market-leader position

Aggressive production capacity expansion program

During the past few years, in order to capture the fast expanding market, we embarked on

an aggressive production capacity expansion program. After the completion of our new

starch paste and glucose production plants in the first quarter of 2007, the annual

production capacity of starch paste increased from 400,000 tonnes to 1,000,000 tonnes

while the production capacity of crystallised glucose increased from 250,000 tonnes to

800,000 tonnes.




Expanding geographical coverage

During the year under review, the Group has successfully expanded its domestic sales

network of crystallised glucose which now covers the southern part of the PRC and the

coastal regions in the eastern region of the PRC. The number of sales offices in the PRC

increased from 7 in 2005 to 17 in 2006. The Group also strengthened its sales support,

marketing and after-sale services of its existing distribution centers. These help to reinforce

the corporate image and strengthen the sales capacity of the Group.

The Group is aggressively expanding its overseas customer base. During the year under

review, we made good progress in penetrating into overseas markets. Revenues from our

overseas markets jumped about 147.9% from approximately RMB65.2 million in 2005 to

approximately RMB161.6 million in 2006. Revenue from overseas market as a percentage of

Group’s turnover increased from about 6.3% in 2005 to about 11.7% in 2006. The

revenue was derived from overseas markets in the Asia Pacific region, Middle East and

Europe.

Commitment to environmental protection practices

The Group considers that the implementation of environmental protection practices and the

maintenance of high environmental standards are among the Group’s valuable assets and a

competitive strength. By pursuing a recyclable production chain, all components extracted

from corn kernels and most of the residual materials generated from the production

process are being utilized. The Company was accredited with an ISO certification for its

environmental protection system in 2004 and awarded as one of the National

Environmental Friendly Corporations in October 2005.

(ii) Enhancing operating efficiency

Vertically integrated production line

We have a highly vertically integrated production line. Our production facilities are

connected by an enclosed pipeline system to enhance overall production efficiency,

minimize wastage of water and raw materials and avoid contamination. With our recyclable

production system, we are able to utilize each of the components of a corn kernel. We use

recycled steam water instead of fresh underground water to lower production cost. During

the year under review, our R&D team successfully developed new production technologies

to improve our overall production efficiency.

With the new production capacities for starch paste and crystallised glucose, the Group can

further benefit from economy of scale, which will improve the overall profitability and

efficiency.




Sourcing of raw materials

During the year under review, the average corn price increased by about 3% compared

with 2005. As corn kernel is our major raw material for production and accounted for over

75% of our cost of sales, the Group has carried out the following measures to maintain a

stable source of high quality corn kernel at a reasonable price:

(a) Forming strategic alliances with our major suppliers and entering into longer term

supply contracts for the purchase of corn.

(b) Diversifying the sources of our raw material from other provinces and overseas -

During the year under review, we purchased 52,000 tonnes of corn from the US.

The Group will continue to apply for import quotas of corn from the Government of

the PRC in 2007.

(c) Increasing our storage capacity of corn - Our new corn warehouse, was completed

in the first quarter of 2007 which increased our total storage capacity for corn from

approximately 54,000 tonnes to approximately 250,000 tonnes.

(iii) Strengthening R&D capability

Xiwang Sugar’s strong R&D team constantly strives to improve production techniques and

develop new technologies and products to further enhance its core capabilities. During the

year under review, our R&D efforts continued to drive our growth as we continued to

launch new higher-value products to the market. An important development is the

invention of a new type of starch sweetener, namely, Crystallised Fructose-Glucose (CFG).

As the new product is healthier and 10% sweeter than cane sugar, this product will be

targeted at customers in the food and beverage industry. The Group is currently applying

for a patent for this product and expects to commence mass production of this product in

2007. We have sent samples of this new product to our existing and prospective customers.

The responses have been encouraging and we expect this new product will contribute

positively to our financial results in the years ahead.

(iv) Strengthening quality control of our products

The Group has always placed strong emphasis on the quality control of its products by

establishing quality control procedures for each production process. The Group has

obtained ISO certifications and was approved as a glucose quality inspection centre for the

China Fermentation Industry Association, which represented extensive market recognition

of its quality control system.




FINANCIAL REVIEW

During the year under review, the Group has achieved continuous growth in turnover and net

profit. Turnover increased to approximately RMB1,384.9 million, representing a significant rise of

about 33.5% as compared to approximately RMB1,037.7 million in the previous year. Net profit

for the year was approximately RMB290.2 million representing an increase of about 38.3% as

compared to approximately RMB209.8 million in 2005. Basic earnings per share for the year was

RMB0.356 (2005: RMB0.365).

TURNOVER

The Group’s turnover by product types is as follows:

Year

2006 2005

% % Percentage

RMB’000 to sales RMB’000 to sales Change

Corn refined products 444,117 32.1 286,605 27.6 54.9

Corn-based biochemical

products 940,828 67.9 751,106 72.4 25.2

Total 1,384,945 100.0 1,037,711 100.0 33.5




The significant increase in turnover in 2006 as compared to 2005 was mainly due to the following

reasons:

Firstly, as the Group launched its lysine products in May 2005, contribution from the sales of lysine

products were fully reflected in this year’s turnover. Sales of lysine products increased by about

77.6% from approximately RMB170.3 million in 2005 to approximately RMB302.5 million in 2006.

Secondly, the selling prices for crystallised glucose and glucose syrup increased as a result of the

surging price of cane sugar in the first half of 2006. The average selling price of crystallised

glucose and glucose syrup increased from approximately RMB2,660 and approximately RMB1,840

per ton in 2005 to approximately RMB2,911 and approximately RMB2,274 per ton in 2006.

Thirdly, the sales of corn refined products, particularly animal feed and starch paste, increased

substantially compared with 2005. The sales of corn refined products increased by about 54.9%

from approximately RMB286.6 million to approximately RMB444.1 million over the 2005.

GROSS PROFIT

The Group’s overall gross profit in 2006 increased by approximately RMB103.8 million,

representing an increase of approximately 39.7% as compared to that of 2005. The overall gross

profit margin slightly increased from about 25.2% in 2005 to about 26.4% in 2006. The increase

in gross profit margin was mainly attributable to the increase in the average selling price of

crystallised glucose, glucose syrup and animal feed.

OTHER GAINS, OPERATING EXPENSE AND FINANCE COSTS

Other gains

The increase in other gains by approximately RMB6.1 million in 2006 was mainly due to the

increase in interest income by approximately RMB3.7 million and the subsidy income from the PRC

Government for the development of new products of approximately RMB2.8 million.

Selling and marketing costs

Selling and marketing costs increased by approximately RMB7.1 million from approximately

RMB28.7 million to approximately RMB35.8 million. Such an increase was principally a result of the

increase in sales commission and transportation costs which were in line with the growth in

turnover. Sales commission represented the commissions paid to salesmen of the Group and was

calculated with reference to the sales of products generated by the respective salesmen.

Transportation costs mainly represented export and local transportation expenses for the sales of

products. Selling and marketing costs as a percentage of turnover decreased to about 2.6% in

2006 (2005: about 2.8%).




Administrative expenses

Administrative expenses increased by approximately RMB14.7 million from approximately RMB8.3

million to approximately RMB23.0 million. The increase was mainly due to the increase in expenses

for the newly established Hong Kong office, staff costs, amortization of land use right acquired

during the year, administrative costs associated with the maintenance cost of listing and an

increase in professional costs. Administrative expenses expressed as a percentage of the Group’s

turnover increased to about 1.7% in 2006 (2005: about 0.8%).

Finance costs

Finance costs mainly represented bank interest expenses amounting to approximately RMB26.6

million and RMB18.1 million in 2006 and 2005 respectively. Bank interest expenses increased

sharply in 2006 mainly due to the increase in bank borrowings during the year to finance the

capital expenditure and general working capital requirements of the Group.

PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

Profit attributable to equity holders of the Company for the year ended 31 December 2006 was

approximately RMB290.2 million, which represented an increase of 38.3% from approximately

RMB209.8 million in 2005. Net profit margin (profit for the year expressed as a percentage of

sales) attributable to equity holders of the Company for the year was 21.0%, representing an

increase of 0.8% as compared to 20.2% in 2005.

LIQUIDITY, CAPITAL RESOURCES AND GEARING RATIO

For the year ended 31 December 2006, the net cash inflow from operations of the Group

amounted to approximately RMB243.8 million, as compared with net cash inflow of approximately

RMB230.7 million for 2005.

Net borrowing (cash and cash equivalents less bank borrowings) as at 31 December 2006

amounted to approximately RMB208.5 million, representing a decrease of approximately

RMB365.9 million as compared with the net cash position as at 31 December 2005. The change of

net cash position in 2005 to net borrowing position in 2006 was mainly due to the increase in

fixed assets investment amounting to approximately RMB647.5 million in 2006. As at 31 December

2006, the consolidated bank borrowings of the Group were approximately RMB871.1 million

(2005: approximately RMB344.7 million), representing an increase of about 152.7% or

approximately RMB526.4 million over that as at the previous year end date. The Group’s net debt

gearing ratio (bank borrowings net of cash on hand and bank deposits to equity) was

approximately 17.8% (2005: Nil).

The Group entered into an unsecured syndicated loan agreement for a loan facility of up to US$60

million on 21 November 2006 for the future capital expenditure requirements and working capital

requirements of the Group. The interest rate applied to these facilities is London Interbank Offered

Rate (LIBOR) plus 100 basis points. These facilities enabled the Group to increase the proportion of

non-RMB loans to the Group’s total loans. In addition, the Group could also better utilize its RMB

income and accelerate the repayment of RMB loans in order to maximize the benefit from the

appreciation of RMB brought to the Group.




CONTINGENT LIABILITIES

As at 31 December 2006, the Group had no material contingent liabilities.

FOREIGN EXCHANGE RISK

Most of the Group’s income and expenses are denominated in Renminbi. For the year ended 31

December 2006, the Group did not experience any material difficulties or negative effects on its

operations or liquidity due to currency exchange rate fluctuation. The Group did not enter into any

foreign exchange hedging arrangement during the year ended 31 December 2006.

HUMAN RESOURCES

As at 31 December 2006, the Group had about 2,044 employees (2005: 1,403 employees).

In addition to basic remuneration packages and discretionary bonuses for Directors and employees,

share options may also be granted to Directors and eligible employees based on the Group’s

results and the performance of individuals.

FUTURE PROSPECTS AND DEVELOPMENT STRATEGIES

2007 is the second year of the implementation of the Eleventh Five-Year Plan of the PRC. The

economy in the PRC will be gradually transforming from an investment driven model to a

consumption driven model, helping the PRC to become one of the world’s consumption giants.

China’s increasing purchasing power will drive the demand for consumer products which will in

turn lead to an increasing demand for the Company’s products. The growth in various processing

industries will lead to the increase in demand for crystallised glucose, which can be widely applied

as raw material in various industries such as fermentation, chemical, food and beverage and

pharmaceutical industries.

In order to leverage on these growth trends, the Group is establishing new production facilities to

further expand the production capacity to capture these rising opportunities. The Group

contemplates to increase each of the production capacity of starch paste and crystallised glucose

by 600,000 tonnes and 550,000 respectively. The new production facilities for starch paste and

crystallised glucose commenced production in the first quarter of 2007. Through establishment of

new production facilities, the Group’s leading position in glucose industry in the PRC will be

further strengthened.

Due to the weak market condition of lysine products, the Group switched the production of lysine

products to glutamic acid which is a raw material for monosodium glutamate (“MSG”) in late

2006. The production facility of glutamic acids is similar to that of lysine products and the demand

for glutamic acids is strong in the market. The annual production capacity of glutamic acids will be

increased to 80,000 tonnes in the 3rd quarter of 2007.




In response to the increasing cane sugar demand and the persistent gap between the supply and

demand of cane sugar in the PRC, the Group successfully developed a new product, namely,

Crystallised Fructose-Glucose. As the new product is healthier and sweeter than cane sugar, the

Group will target this product to customers in the food and beverage industries. The Group is

currently applying for a patent for this product and expects to commence mass production of this

product in 2007. Samples sent to existing and potential customers have been met with positive

feedback and the Group expects this new product to be an important growth driver for the

coming years.

In addition to actively expanding the production capacity to meet the growing demand for

glucose, the Group strives to step up its sales and marketing efforts in the overseas markets,

especially in other Asian and European countries. Moreover, the Group values its relationship with

its customers by strengthening its sales support, marketing and after-sale services as well as

reinforcing its corporate image and expanding its customer network.

Looking forward, the Group will leverage on its scale of production capacity, vertically integrated

operation model, strong research and development capability and experienced and professional

management team to capture new business opportunities and explore potential market, with the

view to becoming a global leading starch-based sweetener producer and maximizing shareholders’

returns.


In response to the increasing cane sugar demand and thepersistent gap between the supply and demand of canesugar in the PRC, the Group successfully developed a newproduct, namely, Crystallised Fructose-Glucose. As thenew product is healthier and sweeter than cane sugar, theGroup will target this product to customers in the foodand beverage industries.

GROWTHIN PRODUCTS



Corporate Governance Report

Corporate GovernanceReport

CORPORATE GOVERNANCE PRACTICES

Xiwang Sugar Holdings Company Limited (the “Company”) has adopted the Code on Corporate

Governance Practices (the “CG Code”) as set out in Appendix 14 to the Rules Governing the

Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) as its own

code of corporate governance. The directors of the Company (the “Directors”) consider that

during the year ended 31 December 2006 (the “Review Period”), the Company has complied with

the code provisions under the CG Code and a majority of the recommended best practices of the

CG Code.

The Directors are committed to upholding the corporate governance of the Company to ensure

that formal and transparent procedures are in place to protect and maximise the interests of the

shareholders. Set out below is a detailed discussion of the major corporate governance practices

adopted and observed by the Company during the Review Period or where applicable, up to the

date of this report.

A. DIRECTORS’ SECURITIES TRANSACTIONS

The Company has adopted the Model Code for Securities Transactions by Directors of Listed

Issuers (the “Model Code”) as set out in Appendix 10 to the Listing Rules as its own

securities dealing code for the Directors. Having made specific enquiry of all Directors, all

Directors confirmed that they had complied with the required standard set out in the Model

Code throughout the Review Period.

B. BOARD OF DIRECTORS

(i) Board composition

The Board currently comprises a combination of six executive Directors, one non-

executive Director and three independent non-executive Directors. As at 31

December 2006, the Board consisted of the following Directors:

Executive Directors

Mr. WANG Yong (Chairman)

Mr. WANG Liang (Chief executive officer)

Dr. LI Wei

Mr. WANG Cheng Qing

Mr. HAN Zhong

Mr. LIU Ji Qiang




Non-executive Director

Mr. LIU Heng Fang

Independent non-executive Directors

Mr. SHI Wei Chen

Mr. YU Xiao Lei*

Mr. WONG Kai Ming

* Mr. YU Xiao Lei resigned as independent non-executive Director on his own accord on 14February 2007. On the same date, Mr. SHEN Chi was appointed as an independent non-executive Director.

The executive Directors, with the assistance from the senior management, forms the

core management team of the Company. The executive Directors have the overall

responsibility for formulating the business strategies and development plan of the

Group and the senior management are responsible for supervising and executing the

plans of the Company and its subsidiaries (collectively, the “Group”).

(ii) Board meetings

During the Review Period, 8 full board meetings were held, at which:

– the Directors approved the capital expenditure for review period which

amounted to approximately amounted RMB720 million;

– the Directors approved a discloseable transaction of the Company in relation

to the acquisition of a parcel of land for the construction of a new glucose

production plant;

– the Directors approved a connected transaction in relation to the

engagement of two connected parties of the Company for the construction

of new production plants;

– the Directors approved the annual results of the Group for the year ended 31

December 2005 and reviewed the results announcement, annual report and

the circular to the shareholders of the Company in relation to the proposed

grant of the general and repurchase mandates proposal;

– the Directors approved the issue of 24,000,000 shares to CCB International

Finance Limited pursuant to an amended and restated option deed dated as

of 21 November 2005; and the issue of shares to the holders of share options

of the Company upon receipt of their exercise notices;

– the Directors approved the interim results of the Group for the six months

ended 30 June 2006;




– the Directors approved a term loan facility of up to US$60,000,000; and

– the Directors approved the acquisition of two parcel of land use right

approximately amounted RMB85 million.

Prior notices convening the meetings of the Board were despatched to the Directors

setting out the matters to be discussed. At the meetings, the Directors were

provided with the relevant documents to be considered and approved. The company

secretary of the Company is responsible for keeping minutes for the meetings of the

Board.

(iii) Attendance record

The following is the attendance record of the full board meetings held by the Board

during the Review Period:

Attendance at meeting

Executive Directors

Mr. WANG Yong (Chairman) 8/8

Mr. WANG Liang (Chief executive officer) 7/8

Dr. LI Wei 7/8

Mr. WANG Cheng Qing 6/8

Mr. HAN Zhong 7/8

Mr. LIU Ji Qiang 7/8


Mr. LIU Heng Fang 4/8


Mr. SHI Wei Chen 3/8

Mr. YU Xiao Lei 5/8

Mr. WONG Kai Ming 8/8

(iv) Independent non-executive Directors

In compliance with Rule 3.10(1) of the Listing Rules, the Company has appointed

and maintained to have during the review period, three independent non-executive

Directors. The Board considers that all independent non-executive Directors have

appropriate and sufficient industry or finance experience and qualifications to carry

out their duties so as to protect the interests of shareholders of the Company. One

of the independent non-executive Directors, Mr. WONG Kai Ming, has over 20 years

in the accounting and finance fields and is a fellow member of the Association of

Chartered Certified Accountants and a practising member of the Hong Kong

Institute of Certified Public Accountants.




The Company has also received the annual written confirmations from Mr. SHI Wei

Chen, Mr. SHEN Chi and Mr. WONG Kai Ming in respect of their independence.

Based on such confirmations, the Board considers that all independent non-executive

Directors are being considered to be independent.

The independent non-executive Directors who have attended the meetings of the

Board have provided independent judgment on the issues discussed.

(v) Relationship among members of the Board

There is no family relationship between any of the Directors or chief executive

officer. All of them are free to exercise their independent judgment.

C. CHAIRMAN AND CHIEF EXECUTIVE OFFICER

The roles of the chairman and the chief executive officer are segregated. Mr. WANG Yong

is the chairman of the Board who is principally responsible for formulation of plans and

policies of the Group while Mr. WANG Liang is the chief executive officer of the Company

who takes charge of the supervision of the execution of the plans and policies determined

by the Board. The chairman also chairs the Board meetings and briefs the Board members

on the issues discussed at the Board meetings.

D. NON-EXECUTIVE DIRECTORS

The non-executive Director, Mr. LIU Heng Fang, was appointed for a term of three years

commencing on 6 November 2005 which may be terminated by either party by giving to

the other not less than one month’s prior notice in writing.

Mr. SHI Wei Chen, Mr. YU Xiao Lei and Mr. WONG Kai Ming were appointed for a term of

three years commencing on 6 November 2005 which may be terminated by either party by

giving to the other not less than three months’ prior notice in writing. Pursuant to a

cancellation agreement dated 14 February 2007 entered into between the Company and

Mr. YU Xiao Lei, the parties agreed to terminate the term of appointment as independent

non-executive Director on 14 February 2007.

On the same day, Mr. SHEN Chi was appointed as an independent non-executive Director

for a term of three years which may be terminated by either party by giving to the other

not less than three month’s prior notice in writing.

E. REMUNERATION OF DIRECTORS

The Company established a remuneration committee with written terms of reference in

compliance with the CG Code. During the Review Period, the remuneration committee

comprised Mr. WANG Liang (chairman), Mr. SHI Wei Chen and Mr. YU Xiao Lei. The

primary duties of the remuneration committee are to review and determine the terms of

remuneration packages, bonuses and other compensation payable to the Directors and

senior management.




The remuneration committee has not held any meeting during the Review Period as the

remuneration package and the service agreement of each Director had been considered and

approved at a full Board meeting held before the establishment of the remuneration

committee. It is the Company’s policy that the remuneration package of each Director and

senior management shall be determined by reference to the duties, responsibilities,

experience and qualifications of each candidate.

F. NOMINATION OF DIRECTORS

The Company established a nomination committee with written terms of reference in

compliance with the CG Code. During the Review Period, the nomination committee

comprised Mr. WANG Liang (chairman), Mr. SHI Wei Chen and Mr. YU Xiao Lei. The

primary duties of the nomination committee are to make recommendations to the Board on

the nominees for appointment as Directors and senior management of the Group.

The nomination committee has not held any meeting during the Review Period as the

Company has not appointed any new Director or senior management staff during the

Review Period.

According to the bye-laws of the Company, one-third of the Directors are subject to

retirement by rotation or, if their number is not three or a multiple of three, then the

number nearest to but not less than one-third shall retire from the office and offer

themselves for re-election. The Directors to be retired by rotation shall be those who have

been longest in office since their last appointment. At a full Board meeting held on 30

March 2007, the Directors reviewed the performance of the Directors who would retire at

the forthcoming annual general meeting of the Company and approved to recommend the

re-election of such Directors at the forthcoming annual general meeting of the Company.

G. AUDITORS’ REMUNERATION

For the year ended 31 December 2006, the Company has not appointed

PricewaterhouseCoopers to provide non-audit services. A breakdown of the remuneration

paid by the Group to its external auditors are as follows:

For the year ended

31 December 2006

(RMB’000)

Service rendered

Annual audit services

– PricewaterhouseCoopers 2,500

– Others 162

Non-audit services Nil




H. AUDIT COMMITTEE

The Company has established an audit committee with written terms of reference based onthe provisions and recommended practices of the CG Code. The primary duties of the auditcommittee are to review and supervise the financial reporting process and internal controlsystems of the Group. During the Review Period, members of the audit committeecomprised Mr. WONG Kai Ming (chairman), Mr. SHI Wei Chen and Mr. YU Xiao Lei. Duringthe Review Period, the audit committee has held 4 meetings, at which:

– the audit committee members have discussed with the external auditors of theCompany on the internal control and financial reporting systems of the Group;

– the audit committee members have reviewed and discussed with the externalauditors of the Company the Group’s consolidated financial statements for the yearended 31 December 2005, who were of the opinion that such statement compliedwith the applicable accounting standards, the Stock Exchange and legalrequirements, and that adequate disclosures have been made;

– the audit committee also reviewed the reasonableness and fairness of the continuingconnected transactions of the Company for the year ended 31 December 2005; and

– the audit committee members have reviewed the Group’s financial results for the sixmonths ended 30 June 2006.

The following is the attendance record of the committee meetings held by the auditcommittee during the Review Period:

Attendance at meeting

Mr. SHI Wei Chen 1/4Mr. YU Xiao Lei 4/4Mr. WONG Kai Ming 4/4

I. DIRECTORS’ AND AUDITORS’ ACKNOWLEDGEMENT

All Directors acknowledge their responsibility for preparing the financial statements for theyear ended 31 December 2006. The reporting responsibilities of the Company’s externalauditors, Messrs. PricewaterhouseCoopers, are set out in the Auditors’ Report on page 52.

J. INTERNAL CONTROL

With a view to enhancing the Group’s internal control system, the Company has establishedan internal audit department to review the effectiveness of the internal control measures.The Board acknowledged that it is responsible for the Company’s system of internal controland for reviewing its effectiveness. The Board will conduct periodical review on the progressof the improvement and enhancement with an effort to enhance the internal controlmeasures of the Group.

On behalf of the Board

WANG YongChairman



Looking forward, the Group will make its best endeavorsto capture increasing market opportunities and growthpotentials through mass production capacity, verticallyintegrated production system, strong research anddevelopment capability and highly experiencedmanagement experts, and strives to become a leadingglucose producer in the world and create satisfactoryreturns for shareholders.

POTENTIALTO NOURISH



Directors and Senior Management

Directors and SeniorManagement

WANG Yong (王勇), aged 56, is our chairman and executive

Director. Mr. WANG is one of our founders. Mr. WANG was

the legal representative of 鄒平縣西王社會福利油棉廠

(Zouping County Xiwang Social Benefits Oil and Cotton

Factory*) from 1986 to 1992 and of 鄒平縣西王實業總公司

(Zouping County Xiwang Industrial Head Company*) from April

1993 to 1996 and the managing director of 山東西王集團有

限公司 (Shandong Xiwang Group Company Limited*)

(“Xiwang Group”) from 1996 to 2001. Mr. WANG has been

the chairman of the board of directors of Xiwang Group since

2001. Mr. WANG has been assessed by 山東省濱州地區職稱

改革領導小組 (Shandong Province Binzhou Prefecture

Professional Title Reform Leading Group*) as an economist. Mr.

WANG was awarded 全國勞動模範 (The National Labour Role

Model*) by the State Council in April 2000 and was appointed

as the vice president of the third council of China Fermentation

Industry Association in December 2004.

Mr. WANG was awarded prizes and titles, including 中華人民

共和國農業部二零零零年全國鄉鎮企業質量管理先進工作者

(The National Advanced Worker in Quality Management of

Township Enterprise awarded by the Ministry of Agriculture of

the PRC in Year 2000*), 中華人民共和國農業部第四屆全國

鄉鎮企業家 (The Fourth National Township Entrepreneur

Award of the Ministry of Agriculture of the PRC in 2001) and

中華人民共和國農業部「八五」全國鄉鎮企業科技進步先進工

作者 (National Advanced Worker in Technological Progress of

Township Enterprise of the Eighth Five-year plan awarded by

the Ministry of Agriculture of the PRC*). Mr. WANG received

secondary education in the PRC. Mr. WANG was appointed as

our executive Director on 1 March 2005.

* For identification purposes only

DIRECTORSExecutive Directors




WANG Liang (王亮), aged 36, is our chief executive officerand executive Director. Mr. WANG Liang is one of ourfounders. Mr. WANG Liang is responsible for our overallmanagement. Mr. WANG Liang started to work at the XiwangGroup in 1998 and has been the general manager of XiwangSugar since 2001. Mr. WANG Liang studied mechanicalengineering at a professional school in the PRC and graduatedin 1998. Mr. WANG Liang was appointed as our executiveDirector on 1 March 2005.



Dr. LI Wei (李偉), aged 30, is our executive Directorresponsible for the manufacturing, production technology andquality control functions. Dr. LI obtained a doctorate certificatein food science from Southern Yangtze University (江南大學 )on 4 April 2003, and has been the chief engineer of 山東西王糖業有限公司 (Shandong Xiwang Sugar Industry Co., Ltd.*)(“Xiwang Sugar”) since May 2003. Dr. LI is the spouse of Mr.SUN Xin Hu, one of our senior management. Dr. LI wasappointed as our executive Director in November 2005.

WANG Cheng Qing (王呈青), aged 43, is our executiveDirector and one of our founders. Mr. WANG Cheng Qing wasthe head of the finance department of 韓店建築公司 (HandianConstruction Company*) from August 1988 to September1990, the deputy general manager of Handian ConstructionCompany from September 1990 to August 1992, the head ofthe finance department of 鄒平縣西王實業總公司 (ZoupingCounty Xiwang Industrial Head Company*) from August 1992to July 1994, assistant to the general manager of 鄒平縣西王實業總公司 (Zouping County Xiwang Industrial HeadCompany*) from July 1994 to 1996 and the deputy generalmanager of Xiwang Group from 1996 to 2001. Mr. WANGCheng Qing has been the director of Xiwang Group since2001. Mr. WANG Cheng Qing received secondary education inthe PRC. Mr. WANG Cheng Qing was appointed as ourexecutive Director in November 2005.





HAN Zhong (韓忠), aged 51, is our executive Director and oneof our founders. Mr. HAN is responsible for the overall financialmanagement of the Group. Mr. HAN was the deputy head ofthe finance department of 鄒平縣棉紡織廠 (Zouping CountyCotton Mill*) from 1980 to 1997 and started to worked atXiwang Group in June 1997. Mr. HAN graduated from 山東省中華會計函授學校鄒平分校 (Shandong Chinese Accountant’sSchool, Zouping*) in 1990. Mr. HAN obtained the accountant’squalification in the PRC in December 1992. Mr. HAN wasappointed as our executive Director in November 2005.



LIU Heng Fang (劉恆芳), aged 59, is our non-executive Director and one of our founders. Mr. LIU

Heng Fang was the general manager and chairman of the board of director of a sino-foreign joint

venture company from April 1980 to 1995 and the general manager of Xiwang Group from March

1997 to 2000. Mr. LIU Heng Fang has been the vice chairman of the board of directors of the

Xiwang Group since 2001. Mr. LIU Heng Fang received secondary education in the PRC. Mr. LIU

Heng Fang was appointed as our non-executive Director in November 2005.


SHI Wei Chen (石維忱), aged 50, is our independent non-executive Director. Mr. SHI is a

professor and has been the president of China Fermentation Industry Association since November

1999. Mr. SHI was a senior engineer in the Food Industry Department (食品工業司 ) of the

Ministry of Light Industry of the PRC (中國輕工業部 ), the deputy head of 內蒙古烏蘭察布盟經委

(Commission for Economic & Trade of Wulanchabu League of Inner Mongolia*) from March 1991

to April 1992, the deputy head of 中國輕工業部食品工業食品造紙部任綜合辦公室

(Administration Office of the Food Processing and Paper Making Department of Food Industry of

the Ministry of Light Industry of the PRC*) from May 1992 to February 1998, and the head of

國家輕工業局食品管理中心 (Food Management Centre of the China National Bureau of Light

Industry*) from March 1998 to October 1999. Mr. SHI was appointed as our independent non-

executive Director in November 2005.

LIU Ji Qiang (劉紀強), aged 37, is our executive Directorresponsible for our sales management. Mr. LIU started to workat the Xiwang Group in 1994, and was the deputy salesgeneral manager of Shandong Starch from 2000 to 2001. Mr.LIU has been deputy sales general manager of Xiwang Sugarsince 2001. Mr. LIU was appointed as our executive Director inNovember 2005.




YU Xiao Lei (于小鐳), aged 43, is our independent non-executive Director. Mr. YU has been the

president and chief executive of 中企港咨詢集團有限公司 (Zhong Qi Gang Consultancy Group

Limited*) since April 2000. Mr.YU obtained the Master of Economics from Beijing College of

Economics (北京經濟學院 ) (now known as Capital University of Economics and Business (首都經

濟貿易大學 ) in 1988 and the Doctor in Philosophy in Economics from Finance Research Institute

of Finance Department (財政部財政科學科研所 ) in 1992. Mr. YU worked in a number of

accounting firms in the PRC in the period between 1992 and 2000. Mr. YU serves as an

independent director on a number of PRC companies. Mr. YU was appointed as our independent

on-executive Director in November 2005 and resigned on his own accord in February 2007.

SHEN Chi (沈箎), aged 49, is our independent non-executive Director. Mr. SHEN has extensive

experience in the food industry in the PRC. Mr. Shen is currently the Secretariat (秘書長 ) of the

China National Food Industry Association (中國食品工業協會 ). From March 1982 to January

1984, Mr. Shen was the deputy head of the Secretariat of the General Office of the State

Commission for Economic & Trade (國家經委辦公廳秘書處 ). From February 1984 to October

1987, Mr. Shen worked in the chief editor’s office of China Food News (中國食品報總編室 ). From

October 1987 to April 1990, Mr. Shen was the head of the Economic Division of China Enterprise

News (中國企業報社經濟部 ). From 1990 onwards, Mr. Shen worked with the China National

Food Industry Association (中國食品工業協會 ) as deputy secretariat and secretariat, and as deputy

head and head of its statistics and information division (統計信息部 ) respectively. Mr. SHEN was

appointed as our independent non-executive Director in February 2007.

WONG Kai Ming (黃啟明), aged 52, is our independent non-executive Director. Mr. WONG has

over 20 years in the accounting and finance fields and is presently the proprietor of Wong Kai

Ming, Certified Public Accountant. Mr. Wong holds a higher diploma in accountancy and a

bachelor of arts in accountancy degree from the Hong Kong Polytechnic University (formerly

known as Hong Kong Polytechnic). Mr. WONG is a fellow member of the Association of Chartered

Certified Accountants and a practising member of the Hong Kong Institute of Certified Public

Accountants. Mr. WONG was appointed as our independent non-executive Director in November

2005.

SENIOR MANAGEMENT

SUN Xin Hu (孫新虎), aged 32, is the head of our business development department. Mr. SUN

joined us in July 2003. Mr. SUN had over four years’ experience in an international fast food chain

in China. Mr. SUN graduated from Shandong Institute of Light Industry (山東輕工業學院 ) with a

bachelor degree in food science in 1997 and Southern Yangtze University (江南大學 ) with a

master degree in food science in 2004. Mr. SUN is the spouse of Dr. LI Wei, our executive Director.

Mr. SUN has been appointed as the alternate to our authorised representatives.





LEUNG Shu Sun, Sunny (梁樹新), aged 44, is our company secretary, qualified accountant and

financial controller. Mr. LEUNG joined us in April 2005 and is responsible for the financial

management and company secretarial functions of the Group. Mr. LEUNG had over 16 years’

experience in accounting, treasury management, budgeting, and corporate finance. Mr. LEUNG

graduated from the Hong Kong Polytechnic University (formerly known as Hong Kong Polytechnic)

with a professional diploma in accountancy in 1987 and obtained a master degree in business

administration from the University of South Australia in 1997. Mr. LEUNG is a fellow member of

the Chartered Association of Certified Accountants, an associate member of Hong Kong Institute

of Certified Public Accountants and a member of Certified General Accountants’ Association of

Canada.

ZHANG Qing Sheng (張慶生), aged 29, is the head of crystallised glucose factory No. 1 and

No. 2. Mr. ZHANG joined us in September 2002 and was responsible for the production

management in crystallised glucose factory No. 1 and No. 2. Mr. ZHANG graduated from 遼寧石

油化工大學 (Liaoning University of Petroleum and Chemical Technology) in 2002 with a bachelor

degree in engineering.

WANG An (王安), aged 41, is the manager of the production department of Xiwang Sugar since

its establishment. Mr. WANG An graduated from 濱州師範專科學校 (Binzhou Teachers’ Training

School*) (currently known as 濱州學院 (Binzhou Institute*)) with a diploma in physics education in

July 1993. Mr. WANG An joined Xiwang Group in June 1994. Mr. WANG An has also been the

factory head of lysine production plant since its establishment.

Anastase Hagenimana, aged 42, is the head of the technology development centre of Xiwang

Sugar. He obtained a doctorate certificate in food science from Southern Yangtze University (江南

大學 ) in July 2005, and joined Xiwang Sugar in August 2005. Mr. Hagenimana has broad

experience in the research and development of food products.

Most of the above senior management and technical staff have stayed with us since the

establishment of Xiwang Sugar and the commencement of operations of its main production

plants, namely, glucose production plants no. 1 and 2, starch processing plant, animal feed

processing plant and lysine production plant. All these members are responsible for the daily

management of Xiwang Sugar and its production plants, including implementing the decisions

made by the core management team, overseeing the production process, the sales and production

activities and other essential operations.




Report of Directors

The board of directors (the “Board” or the “Directors”) of Xiwang Sugar Holdings Company

Limited (the “Company”) is pleased to present its annual report together with the audited

consolidated financial statements of the Company and its subsidiaries (collectively, the “Group”)

for the year ended 31 December 2006.

PRINCIPAL ACTIVITIES

The Group is principally engaged in the manufacture, distribution and sale of corn refined products

and corn-based biochemical products. During the year ended 31 December 2006, the Group’s

products were sold mainly in the PRC while some were exported to various countries. An analysis

of the Group’s performance for the year by business and geographical segments is set out in note

5 to the financial statements. The activities of its principal subsidiaries are set out in note 9 to the

audited consolidated financial statements.

DIVIDENDS

The Directors recommend the payment of a final dividend of RMB0.14 per share in respect of the

year ended 31 December 2006, totalling approximately RMB115,871,000. Subject to shareholders’

approval at the forthcoming annual general meeting of the Company, the final dividend will be

paid in cash on or about 31 May 2007 to shareholders whose names appear on the register of

members of the Company on 18 May 2007.

PROPERTY, PLANT AND EQUIPMENT

Details of movements in the property, plant and equipment of the Group during the year under

review are set out in note 6 to the consolidated financial statements.

BORROWINGS

Details of the Group’s borrowings as at 31 December 2006 are set out in note 16 to the

consolidated financial statement.

SHARE CAPITAL

Details of movements in the Company’s share capital for the year ended 31 December 2006 are

set out in note 13 to the consolidated financial statements.



Report of Directors

FIVE YEAR FINANCIAL SUMMARY

A summary of the results and of the assets and liabilities of the Group for the last five financial

years is set out on page 12.

SHARE OPTION SCHEME

The Company adopted a share option scheme (the “Scheme”) on 6 November 2005. The purpose

of the Scheme is to enable the Group to grant options to selected participants as incentives or

rewards for their contribution to the Group.

The principal terms of the Scheme are summarised as follows:

The maximum number of shares of the Company which may be issued upon exercise of all options

granted and to be granted under the Scheme and any other schemes of the Group must not

exceed 80,000,000 shares, being 10% of shares in issue on the date of listing of the shares on

The Stock Exchange of Hong Kong Limited (the “Listing Date”) unless shareholders’ approval has

been obtained. Shares of the Company which may fall to be issued upon the exercise of options

granted and not yet exercised under the Scheme and any other schemes must not in aggregate

exceed 30% of the shares in issue from time to time.

The maximum number of shares issued and to be issued upon exercise of the options granted to

any eligible person (including exercised and outstanding options) in any 12-month period shall not

exceed 1% of the issued shares from time to time.

The subscription price for the shares under the Scheme shall be such price as the Board may in its

absolute discretion determine at the time of grant of the option but the subscription price shall not

be less than the highest of (i) the closing price of a share as stated in the Stock Exchange’s daily

quotation sheets on the date of the Board approving the grant of an option, which must be a

business day (the “Offer Date”); (ii) the average closing price of a share as stated in the Stock

Exchange’s daily quotation sheets for the five business days immediately preceding the Offer Date;

and (iii) the nominal value of a share.

An option may be exercised in whole or in part in accordance with the terms of the Scheme at any

time during the period commencing immediately after the business day on which the option is

deemed to be granted and accepted in accordance with the Scheme (the “Commencement Date”)

and expiring on such date of the expiry of the option as the Board may in its absolute discretion

determine and which shall not exceed ten years from the Commencement Date but subject to the

provisions for early termination thereof as set out in the Scheme.

Upon acceptance of the option, the grantee shall pay HK$1.00 to the Company as consideration

for the grant.

The Scheme shall be valid and effective for a period of ten years commencing on 9 December

2005.



Report of Directors

During the year ended 31 December 2006, options carrying rights to subscribe for a total of

4,000,000 shares of the Company of HK$0.10 each (each, a “Share”) were granted under the

Scheme. No option granted under the Scheme was exercised. No option lapsed or was cancelled

during the period under review.

Details of the options granted under the Scheme during the period under review are as follows:

Outstanding Outstandingas at as at Exercise

Class of Date of During the year ended 31 December 2006 1 January 31 December price pergrantee grant Granted Exercised Cancelled Lapsed 2006 2006 Share Exercise period

(Note 2) (HK$)

Employees 9 January 2,000,000 – – – – 2,000,000 2.50 1 January 2007-(Note 1) 2006 31 December 2016

2,000,000 – – – – 2,000,000 2.50 1 January 2008-31 December 2017

4,000,000 – – – – 4,000,000

Notes:

1. Employees include employees of the Group (other than the Directors) working under employmentcontracts with the Group which are regarded as “continuous contracts” for the purpose of theEmployment Ordinance (Chapter 57 of the Laws of Hong Kong).

2. The closing price of the Shares as stated in the Stock Exchange’s daily quotations sheet on 6 January2006, being the trading day immediately preceding the date of grant of options, was HK$2.275 perShare.

3. The value of options is set out in note 13 to the consolidated financial statement.

PRE-IPO SHARE OPTION

Pursuant to an amended and restated option deed dated 21 November 2005 (the “Option Deed”),

the Company granted an option (the “Pre-IPO Share Option”) to CCB International Finance Limited

(“CCBI Finance”) which CCBI Finance may, at its sole discretion and in accordance with the

specified basis, subscribe for shares of the Company, which shall in aggregate be equivalent to up

to three per cent. of the shares of the Company in issue on the Listing Date. The Pre-IPO Share

Option may be exercised during the period from the expiry of the first six months from the Listing

Date to the last day of 48th month after the Listing Date (both days inclusive). The exercise price

of the Pre- IPO Share Option shall, subject to adjustments, be HK$1.88 per share.

On 4 July 2006, CCBI Finance exercised the Pre-IPO Share Option in full at an exercise price of

HK$1.88 per share, pursuant to which an aggregate of 24,000,000 Shares were allotted and

issued to CCBI Finance on 12 July 2006.



Report of Directors

PRE-EMPTIVE RIGHTS

There are no provisions for pre-emptive rights under the Company’s bye-laws or the laws of

Bermuda, being the jurisdiction in which the Company was incorporated, which would oblige the

Company to offer new shares on a pro rata basis to existing shareholders.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES OF THE COMPANY

Neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the

Company’s listed securities during the year under review.

RESERVES

Details of movements in the reserves of the Group during the year are set out in note 14 to the

consolidated financial statements and in the consolidated statement of changes in equity.

MAJOR CUSTOMERS AND SUPPLIERS

For the year ended 31 December 2006, sales to the Group’s five largest customers accounted for

22.6% of the Group’s turnover.

For the year ended 31 December 2006, the largest supplier accounted for approximately 7.4% of

the Group’s total cost of purchase and the five largest suppliers accounted for approximately

32.5% of the Group’s total cost of purchase.

None of the Directors or any of their associates or any shareholders (which, to the best knowledge

of the Directors, own more than 5% of the Company’s issued share capital) had any beneficial

interest in the Group’s five largest customers or five largest suppliers during the year ended 31

December 2006.



Report of Directors

DIRECTORS AND DIRECTORS’ SERVICE CONTRACTS

The Directors during the year under review and up to the date of this report were:

Executive Directors

Mr. WANG Yong (Chairman)

Mr. WANG Liang

Dr. LI Wei

Mr. WANG Cheng Qing

Mr. HAN Zhong

Mr. LIU Ji Qiang


Mr. LIU Heng Fang


Mr. SHI Wei Chen

Mr. YU Xiao Lei (resigned on 14 February 2007)

Mr. WONG Kai Ming

Mr. SHEN Chi (appointed on 14 February 2007)

Mr. SHEN Chi will retire as Director and, being eligible, offer himself for re-election as Director at

the forthcoming annual general meeting in accordance with Bye-law 86(2) of the Bye-laws of the

Company.

In addition, in accordance with Bye-Law 87(1) of the Bye-laws of the Company, each of Mr.

WONG Yong, Mr. LIU Heng Fang and Mr. WANG Cheng Qing will retire as Director by rotation at

the forthcoming annual general meeting and, being eligible, offer himself for re-election as

Director.

Each of the executive Directors has entered into a service agreement with the Company for a term

of three years commencing on 6 November 2005. Each of these service agreements may be

terminated by either party by giving to the other not less than three months’ prior notice in

writing.

Mr. LIU Heng Fang has been appointed for a term of three years commencing on 6 November

2005 which may be terminated by either party by giving to the other not less than one month’s

prior notice in writing.

Each of Mr. SHI Wei Chen, Mr. YU Xiao Lei and Mr. WONG Kai Ming has been appointed for an

initial term of three years commencing on 6 November 2005 which may be terminated by either

party by giving to the other not less than three months’ prior notice in writing. Pursuant to a

cancellation agreement dated 14 February 2007 entered into between the Company and Mr. YU

Xiao Lei, the parties agreed to terminate the term of appointment as independent non-executive

Director on 14 February 2007.



Report of Directors

Mr. SHEN Chi has been appointed for an initial term of three years commencing on 14 February

2007 which may be terminated by either party by giving to the other not less than three months’

prior notice in writing.

Save as disclosed above, none of the directors has a service contract with the Company or any of

its subsidiaries which is not terminable by the Group within one year without payment of

compensation, other than statutory compensation.

The Company has received from each of the independent non-executive Directors an annual

confirmation of independence pursuant to Rule 3.13 of Rules Governing the Listing of Securities

on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and the Company considered

all the independent non-executive Directors to be independent.

DIRECTORS’ AND SENIOR MANAGEMENT’S BIOGRAPHIES

Biographical details of the Directors and the senior management of the Group are set out on

pages 34 to 38 of the annual report.

DIRECTORS’ INTERESTS IN CONTRACTS OF SIGNIFICANCE

Save as disclosed in the paragraph headed “Related party transactions” below and in note 26 to

the consolidated financial statements, no Director had a material interest, either directly or

indirectly, in any contract of significance to the business of the Group to which the Company, its

holding company or any of its subsidiaries was a party during the year under review.

DIRECTORS’ RIGHTS TO ACQUIRE SHARES OR DEBENTURES

Save as disclosed above, at no time during the year were rights to acquire benefits by means of an

acquisition of shares in, or debentures of, the Company granted to any Director or their respective

spouse or minor children, or were any such rights exercised by them; or was the Company, its

holding Company or any of its subsidiaries a party to any arrangement to enable the Directors to

acquire such rights in any other body corporate.



Report of Directors

DIRECTORS’ INTERESTS IN SHARES, UNDERLYING SHARES ANDDEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATIONS

As at 31 December 2006, the interests and short positions of the Directors and chief executive ofthe Company in the shares, underlying shares and debentures of the Company or any of itsassociated corporations (within the meaning of Part XV of the Securities and Futures Ordinance(Cap. 571, Laws of Hong Kong) (“SFO”)) as recorded in the register required to be kept by theCompany under section 352 of the SFO, or were required, pursuant to the Model Code forSecurities Transactions by Directors of Listed Issuers contained in the Listing Rules, to be notified tothe Company and the Stock Exchange, were as follows:

Percentageshareholding in

Company/Name the same class ofof associated Number and class securities as atcorporations Name of directors Capacity of securities 31 December 2006

(Note 1)

Company WANG Yong Interest of a 520,000,000 62.84%controlled ordinary sharescorporation (L) (Note 3)(Note 2)

Xiwang Holdings WANG Yong Beneficial owner 5,842 shares (L) 58.42%Limited(“XiwangHoldings”)

Xiwang Investment WANG Yong Interest of a 3 shares (L) 100%Company Limited controlled(“Xiwang corporationInvestment (BVI)”) (Note 2)

Xiwang Holdings LIU Heng Fang Beneficial owner 266 shares (L) 2.66%

Xiwang Holdings WANG Cheng Qing Beneficial owner 230 shares (L) 2.30%

Xiwang Holdings WANG Liang Beneficial owner 230 shares (L) 2.30%

Xiwang Holdings HAN Zhong Beneficial owner 177 shares (L) 1.77%

Xiwang Holdings LI Wei Beneficial owner 89 shares (L) 0.89%

Xiwang Holdings LIU Ji Qiang Beneficial owner 89 shares (L) 0.89%

Notes:

(1) The letter “L” represents the director’s interests in the shares.

(2) Mr. WANG Yong holds 58.42% of the issued share capital of Xiwang Holdings which in turn holds100% interests in Xiwang Investment (BVI).

(3) These shares are registered in the name of Xiwang Investment (BVI). Mr. WANG Yong is deemed to beinterested in all shares of the Company in which Xiwang Investment (BVI) is interested.



Report of Directors

SUBSTANTIAL SHAREHOLDERS AND OTHER PERSONS WHO ARE REQUIREDTO DISCLOSE THEIR INTERESTS PURSUANT TO PART XV OF THE SFO

(a) Substantial shareholders of the Company

As at 31 December 2006, the following shareholders (other than the directors and chief

executive of the Company whose interests and short positions in the shares and underlying

shares of the Company are set out above) had interests or short positions in the shares and

underlying shares of the Company as recorded in the register required to be kept by the

Company under section 336 of the SFO:

Approximate

Number of percentage of

Name of substantial shares of the interest as at

shareholders Capacity Company held 31 December 2006

(Note 1)

Xiwang Investment Beneficial owner 520,000,000 62.84%

(BVI) ordinary shares

(L)

Xiwang Holdings Interest of a 520,000,000 62.84%

controlled ordinary shares

corporation (Note 2) (L)

Zhang Shufang Interest of spouse 520,000,000 62.84%

ordinary shares

(L)

JPMorgan Chase & Co. Investment manager 22,508,000 2.72%

(Note 3) ordinary shares

(L)

Custodian corporation/ 19,548,000 2.36%

approved lending ordinary shares

agent (L)



Report of Directors

Notes:

(1) The letter “L” represents the entity’s interests in the shares.

(2) Xiwang Investment (BVI) is a wholly owned subsidiary of Xiwang Holdings.

(3) Of these shares, 19,548,000 shares were registered in the name of JPMorgan Chase Bank,N.A. and 22,508,000 shares were registered in the name of JF Asset Management Limited.JPMorgan Chase Bank, N.A. is wholly owned by JPMorgan Chase & Co.. JF Asset ManagementLimited is wholly owned by JPMorgan Asset Management (Asia) Inc. which is in turn whollyowned by JPMorgan Asset Management Holdings Inc.. JPMorgan Asset Management HoldingsInc. is wholly owned by JPMorgan Chase & Co.. By virtue of the provisions of Divisions 2 and 3of Part XV of the SFO, JPMorgan Chase & Co. is deemed to be interested in the shares held byJPMorgan Chase Bank, N.A. and JF Asset Management Limited.

According to the corporate substantial shareholder notice filed by JPMorgan Chase & Co. on29 November 2006, 19,548,000 shares held by JPMorgan Chase & Co. was in lending pool.

(b) Other persons who are required to disclose their interests pursuant to Part XV of

the SFO

Save as disclosed in the paragraph headed “Directors’ interests in shares, underlying shares

and debentures of the Company and its associated corporations” and paragraph (a) above,

as at 31 December 2006, no other person had interests or short positions in the shares and

underlying shares of the Company which are required to be recorded in the register

required to be kept by the Company under section 336 of the SFO.



Report of Directors

CONNECTED TRANSACTIONS

The following are the details of the connected transactions undertaken by the Group during the

year ended 31 December 2006 which were subject to reporting requirements under Chapter 14A

of the Listing Rules.

A. The following continuing connected transactions are non-exempt continuing connected

transactions under Rule 14A.35 of the Listing Rules and waivers from strict compliance with

the announcement and/or independent shareholders’ approval requirement have been

granted by the Stock Exchange.

Annual caps

For the year ended For the year ended For the year ended

31 December 2005 31 December 2006 31 December 2007

1 Sales of corn germs by RMB80 million RMB100 million RMB150 million

Shandong Xiwang Sugar

Industry Co., Ltd. (“Xiwang

Sugar”) to Shandong

Xiwang Savola Oil and

Fats Company Limited

(“Xiwang Savola Oil”)

2 Sales of glucose syrup by RMB3.1 million RMB3.2 million RMB3.4 million

Xiwang Sugar to Shandong

Xiwang Leavening Company

Limited (“Xiwang Leavening”)

3 Purchase sewage services by RMB2.55 million RMB2.60 million RMB2.75 million

Xiwang Sugar from Shandong

Xiwang Group Company Limited

(“Xiwang Group”)

4 Purchase of packaging bags by RMB25 million RMB41 million RMB49 million

Xiwang Sugar from Shandong

Biyundong Alcohol and

Water Company Limited

(“Biyundong Alcohol”)

5 Xiwang Sugar purchases RMB8.4 million RMB8.4 million RMB8.4 million

corn germ dregs from

Xiwang Savola Oil

Details of the total transaction amount of each of the above continuing connected

transactions during the year ended 31 December 2006 and the description of the

connection relationship are set out in note 26 to the consolidated financial statements.



Report of Directors

The independent non-executive Directors have reviewed the above continuing connected

transactions and confirmed that the transactions have been entered into:

(1) in the ordinary course and usual course of business of the Company;

(2) on normal commercial terms or terms no less favourable to the Company than terms

available to or from independent third parties; and

(3) in accordance with the relevant agreement governing them on terms that are fair

and reasonable and in the interests of the shareholders of the Company as a whole.

The transaction amount in respect of each type of the continuing connected transactions

above during the year under review has not exceeded the annual cap for that transaction.

B. The following connected transaction was subject to reporting and announcement

requirements.

On 19 April 2006, the Group appointed Shandong Xiwang Steel Structure Co., Ltd

(“Xiwang Steel Structure”) and Zouping Xiwang Construction Company Limited (“Xiwang

Construction”) to undertake a new glucose production plant and a new starch processing

plant (the “Construction Project”) for the Group. The total contract price of the

Construction Project is approximately RMB27,811,000. Xiwang Steel Structure is responsible

for the production and construction of the steel structure of the production plants while

Xiwang Construction is responsible for the corresponding construction works under the

Construction Project. Xiwang Steel Structure and Xiwang Construction are subsidiaries of

Xiwang Group.

GENERAL DISCLOSURE PURSUANT TO RULE 13.18 OF THE LISTING RULES

On 21 November 2006, the Company (as borrower), Master Team International Limited (a wholly

owned subsidiary of the Company) (as guarantor), Oversea-Chinese Banking Corporation Limited

(as the mandated lead arranger), certain financial institutions (as lenders) and Oversea-Chinese

Banking Corporation Limited, Hong Kong Branch (as agent) entered into a facility agreement

(“Facility Agreement”) which contained specific performance obligations on Mr. WANG Yong

(“Mr. Wang”), the chairman (“Chairman”) of the Board and Xiwang Investment (BVI), both being

the controlling shareholders of the Company.

The Facility Agreement is for a term loan facility of up to US$60,000,000, the final maturity date

of which shall be the date falling three years from the date of the Facility Agreement or, in respect

of any part of the loan facility in respect of which an extension has been agreed pursuant to the

Facility Agreement, the date falling five years from the date of the Facility Agreement.



Report of Directors

The Facility Agreement provides that so long as there remains any amount outstanding under the

Facility Agreement:

(1) Xiwang Investment (BVI), a company incorporated in the British Virgin Islands, shall, directly

or indirectly, own not less than 45 per cent. of the entire issued share capital of the

Company and there shall be no major change in the shareholdings in Xiwang Investment

(BVI); and

(2) the Company shall ensure that Mr. WANG remains as Chairman of the Company and the

single largest shareholder of the Company through his attributable interests in Xiwang

Holdings and Xiwang Investment (BVI).

A breach of any of the above specific performance obligations would constitute a default under

the Facility Agreement. Such default would permit the lenders to accelerate the maturity of the

indebtedness under the Facility Agreement. As at the date of this annual report, the indebtedness

under the Facility Agreement remained outstanding.

CORPORATE GOVERNANCE

A report on the principal corporate governance practices adopted by the Company is set out on

pages 26 to 31 of this annual report.

MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS

The Company has adopted the Model Code for Securities Transactions by Directors of Listed

Issuers (the “Model Code”) as set out in Appendix 10 to the Listing Rules. Having made specific

enquiry of all Directors, all Directors confirmed that they had complied with the required standard

set out in the Model Code throughout the year under review.

AUDIT COMMITTEE

The Company has established an audit committee with written terms of reference based upon the

provisions and recommended practices of the Code on Corporate Governance Practices. The

primary duties of the audit committee are to review and supervise the financial reporting process

and internal control systems of the Group. At present, members of the audit committee comprise

Mr. WONG Kai Ming (chairman), Mr. SHI Wei Chen and Mr. SHEN Chi, being the three

independent non-executive Directors.

The Group’s consolidated financial statements for the year ended 31 December 2006 have been

reviewed by the audit committee, who was of the opinion that such statement complied with the

applicable accounting standards, the Stock Exchange and legal requirements, and that adequate

disclosures have been made.



Report of Directors

SUFFICIENCY OF PUBLIC FLOAT

Based on information that is publicly available to the Company and within the knowledge of the

Directors, the Company has maintained sufficient public float as at the date of this report.

USE OF PROCEEDS FROM THE COMPANY’S INITIAL PUBLIC OFFERING

Up to the date of this report, net proceeds of approximately HK$419.4 million from the

Company’s initial public offering in December 2005 were utilised as follows:

– RMB60.0 million have been utilised for the repayment of bank loans advanced by Bank of

China; and

– approximately RMB368 million have been utilised for the acquisition of a plot of land and

the construction of a new glucose production plant having annual production of 550,000

tonnes of glucose and a new starch processing plant having an annual production of

600,000 tonnes of starch paste.

ANNUAL GENERAL MEETING

The forthcoming annual general meeting of the Company will be held on Friday, 18 May 2007.

CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from Wednesday, 16 May 2007 to Friday,

18 May 2007, both days inclusive, during which period no transfer of shares will be effected. All

transfers accompanied by the relevant certificates must be lodged with the Company’s transfer

office and share registrar in Hong Kong, Tricor Investor Services Limited at 26th Floor, Tesbury

Centre, 28 Queen’s Road East, Hong Kong for registration no later than 4:00 p.m. on Tuesday,

15 May 2007.

AUDITORS

There has been no change to the Company’s auditors since its incorporation. The consolidated

financial statements have been audited by PricewaterhouseCoopers who will retire and, being

eligible, offer themselves for re-appointment. A resolution will be proposed at the forthcoming

annual general meeting to re-appoint PricewaterhouseCoopers as auditors of the Company.

On behalf of the Board

WANG Yong

Chairman




IndependentAuditors’ Report

INDEPENDENT AUDITOR’s REPORT

TO THE SHAREHOLDERS OF XIWANG SUGAR HOLDINGS COMPANY LIMITED

(incorporated in Bermuda with limited liability)

We have audited the consolidated financial statements of Xiwang Sugar Holdings Company

Limited (the “Company”) and its subsidiaries (together, the “Group”) set out on pages 54 to 96,

which comprise the consolidated and company balance sheets as at 31 December 2006, and the

consolidated income statement, the consolidated statement of changes in equity and the

consolidated cash flow statement for the year then ended, and a summary of significant

accounting policies and other explanatory notes.

Directors’ responsibility for the financial statements

The directors of the Company are responsible for the preparation and the true and fair

presentation of these consolidated financial statements in accordance with Hong Kong Financial

Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the

disclosure requirements of the Hong Kong Companies Ordinance. This responsibility includes

designing, implementing and maintaining internal control relevant to the preparation and the true

and fair presentation of financial statements that are free from material misstatement, whether

due to fraud or error; selecting and applying appropriate accounting policies; and making

accounting estimates that are reasonable in the circumstances.

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our

audit and to report our opinion solely to you, as a body, in accordance with Section 90 of the

Companies Act 1981 of Bermuda and for no other purpose. We do not assume responsibility

towards or accept liability to any person for the contents of this report.



Independent Auditors’ Report

We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong

Kong Institute of Certified Public Accountants. Those standards require that we comply with

ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether

the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the financial statements. The procedures selected depend on the auditor’s

judgement, including the assessment of the risks of material misstatement of the financial

statements, whether due to fraud or error. In making those risk assessments, the auditor considers

internal control relevant to the entity’s preparation and true and fair presentation of the financial

statements in order to design audit procedures that are appropriate in the circumstances, but not

for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An

audit also includes evaluating the appropriateness of accounting policies used and the

reasonableness of accounting estimates made by the directors, as well as evaluating the overall

presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a

basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the state of

affairs of the Company and of the Group as at 31 December 2006 and of the Group’s profit and

cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards

and have been properly prepared in accordance with the disclosure requirements of the Hong

Kong Companies Ordinance.

PricewaterhouseCoopers

Certified Public Accountants




CONSOLIDATED BALANCE SHEETAs at 31 December

2006 2005Note RMB’000 RMB’000

ASSETSNon-current assets

Property, plant and equipment 6 821,570 626,316Leasehold land 7 167,141 9,037Construction in progress 8 296,748 611Prepayment for leasehold land – 60,333

1,285,459 696,297

Current assetsInventories 10 135,872 78,211Trade and other receivables 11 106,671 82,898Amounts due from related companies 26(d) 4,879 28,096Cash and cash equivalents 12 662,609 502,043

910,031 691,248

Total assets 2,195,490 1,387,545

EQUITYAttributable to equity holders of the Group

Share capital 13 86,175 83,708Share premium 13 461,305 416,558Other reserves 14 199,965 124,133Retained earnings

– Proposed final dividend 115,871 7,000– Others 308,085 209,563

Total equity 1,171,401 840,962

LIABILITIESNon-current liabilities

Borrowings 16 664,314 234,680

Current liabilitiesTrade and other payables 15 145,775 124,857Dividends payable 22 – 3,014Amounts due to related companies 26(d) 7,200 74,032Borrowings 16 206,800 110,000

359,775 311,903

Total liabilities 1,024,089 546,583

Total equity and liabilities 2,195,490 1,387,545

Net current assets 550,256 379,345

Total assets less current liabilities 1,835,715 1,075,642

The notes on pages 59 to 96 are an integral part of these consolidated financial statements.

WANG Yong WANG LiangDirector Director



BALANCE SHEETAs at 31 December

2006 2005Note RMB’000 RMB’000

ASSETSNon-current assets

Investment in a subsidiary 9 – –Amount due from a subsidiary 9 1,053,366 627,955

1,053,366 627,955

Current assetsTrade and other receivables 7,042 32,488Amount due from a subsidiary 9 96,080 –Amounts due from Group companies 46,300 –Cash and cash equivalents 999 1,891

150,421 34,379

Total assets 1,203,787 662,334

EQUITYAttributable to equity holders of the Company

Share capital 13 86,175 83,708Share premium 13 461,305 416,558Other reserves 14 151,442 151,442Retained losses (17,184) (4,724)

Total equity 681,738 646,984

LIABILITIESNon-current liabilities

Borrowings 16 421,200 –

Current liabilitiesTrade and other payables 4,049 2,652Borrowings 16 96,800 –Dividend payable – 3,014Amounts due to a subsidiary – 7,465Amounts due to related companies – 540Amounts due to immediate holding company – 1,679

100,849 15,350

Total equity and liabilities 1,203,787 662,334

Net current assets 49,572 19,029

Total assets less current liabilities 1,102,938 646,984


WANG Yong WANG LiangDirector Director



CONSOLIDATED INCOME STATEMENTSYear ended 31 December

2006 2005

Note RMB’000 RMB’000

Turnover 5 1,384,945 1,037,711

Cost of goods sold 17 (1,019,899) (776,474)

Gross profit 365,046 261,237

Other gains – net 18 10,156 4,054

Selling and marketing costs 17 (35,775) (28,697)

Administrative expenses 17 (22,988) (8,332)

Operating profit 316,439 228,262

Finance costs 20 (26,214) (18,449)

Profit before income tax 290,225 209,813

Income tax expense 21 – –

Profit for the year 290,225 209,813

Attributable to:

Equity holders of the Company 290,225 209,813

Earnings per share for profit attributable to

equity holders of the Company (RMB per share)

– basic 23 0.356 0.365

– diluted 23 0.352 0.365

Dividend

– special dividend 22 – 80,000

– proposed final dividend 22 115,871 7,000




CONSOLIDATED STATEMENT OF CHANGES IN EQUITYYear ended 31 December

Attributable to Total

equity holders of the Company equity

Share

Capital and

share Other Retained

premium reserves earnings

Note RMB’000 RMB’000 RMB’000 RMB’000

(Note 28) (Note 28)

Balance at 1 January 2005 (1,206) 180,691 92,456 271,941

Shares issued upon incorporation and

before initial public offering of shares

of the Company (“IPO”) 13(a) 106 – – 106

Capitalisation issue 13(b), 14 58,237 (58,237) – –

Shares issued in an IPO 13(c) 437,423 – – 437,423

Effects of group reorganisation 14(a) – 1,679 – 1,679

Pre-IPO share options granted 13(d) 5,706 – (5,706) –

Profit for the year – – 209,813 209,813

Special dividend for 2005 22 – – (80,000) (80,000)

Balance at 31 December 2005 500,266 124,133 216,563 840,962

Balance at 1 January 2006 500,266 124,133 216,563 840,962

Employee share option scheme

– value of service provided 13(d) 835 – – 835

Proceeds from pre-IPO share option

exercised 13(d) 46,379 – – 46,379

Appropriation to reserves 14(b) – 75,832 (75,832) –

Profit for the year – – 290,225 290,225

Final dividend for 2005 22 – – (7,000) (7,000)

Balance at 31 December 2006 547,480 199,965 423,956 1,171,401




CONSOLIDATED CASH FLOW STATEMENTYear ended 31 December

2006 2005

Note RMB’000 RMB’000

Cash flows from operating activities

Cash generated from operations 24 270,402 258,993

Interest paid (26,559) (18,148)

Income tax paid – (10,120)

Net cash generated from operating activities 243,843 230,725

Cash flows from investing activities

Payments for acquisition of property, plant and equipment (547,417) (197,975)

Payments for leasehold land (100,129) (63,626)

Interest received 4,844 1,192

Net cash used in investing activities (642,702) (260,409)

Cash flows from financing activities

Proceeds from the issuance of ordinary shares 46,379 430,552

Contributions from equity holders – 1,785

Payment of share issuance costs (3,374) (21,488)

Proceeds from borrowings 748,000 295,000

Repayment of borrowings (221,566) (205,000)

Decrease in pledged bank deposits – 15,000

Advance from related companies – 39,893

Dividends paid (10,014) (76,986)

Net cash generated from financing activities 559,425 478,756

Net increase in cash and cash equivalents 160,566 449,072

Cash and cash equivalents at beginning of the year 502,043 52,971

Cash and cash equivalents at end of the year 662,609 502,043




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 GENERAL INFORMATION

Xiwang Sugar Holdings Company Limited (the “Company”) and its subsidiaries (together the “Group”) are

principally engaged in the manufacture, distribution and sale of corn germ, corn gluten meal, animal feeds,

crystallised glucose, glucose syrup and lysine within and outside of the People’s Republic of China (the “PRC”).

Details of the principal subsidiaries of the Group are set out in Note 9 to the consolidated financial statements.

The company is a limited liabilities company incorporated in Bermuda on 21 February 2005. The address of its

registered office is Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. The Company has its primary

listing on The Stock Exchange of Hong Kong Limited.

The English names of some of the companies referred to in the consolidated financial statements represent

management’s best efforts at translating the Chinese names of these companies as these companies have not

adopted formal English names.

These consolidated financial statements are presented in thousands of units of Renminbi (“RMB’000"), unless

otherwise stated. These consolidated financial statements have been approved for issue by the Board of Directors

on 30 March 2007.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out

below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of presentation

The consolidated financial statements of Xiwang Sugar Holdings Company Limited have been prepared in

accordance with Hong Kong Financial Reporting Standards (“HKFRS“). The consolidated financial

statements have been prepared under the historical cost convention.

The preparation of financial statements in conformity with HKFRS requires the use of certain critical

accounting estimates. It also requires management to exercise its judgement in the process of applying

the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas

where assumptions and estimates are significant to the consolidated financial statements, are disclosed in

Note 4.

(a) Amendments to published standards effective in 2006

HKAS 19 (Amendment), Employee Benefits, is mandatory for the Group’s accounting periods

beginning on or after 1 January 2006. It introduces the option of an alternative recognition

approach for actuarial gains and losses. Since the Group does not participate in any defined

benefits retirement schemes, the amendments did not have any impact on the current year

financial statements.




2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

2.1 Basis of presentation (continued)

(b) Standards and interpretations to existing standards that are not yet effective and have not been early

adopted by the Group

• HKFRS 7, Financial instruments: Disclosures, and the complementary Amendment to HKAS

1, Presentation of Financial Statements – Capital Disclosures, introduces new disclosures

relating to financial instruments. The Group will apply HKFRS 7 from 1 January 2007, but is

not expected to have any impact on the classification and valuation of the Group’s financial

instruments.

• HK(IFRIC)-Int 8, Scope of HKFRS 2 (effective for annual periods beginning on or after 1 May

2006). HK(IFRIC)-Int 8 requires consideration of transactions involving the issuance of equity

instruments – where the identifiable consideration received is less than the fair value of the

equity instruments issued – to establish whether or not they fall within the scope of HKFRS

2. The Group will apply HK(IFRIC)-Int 8 from 1 January 2007, but it is not expected to have

any impact on the Group’s consolidated financial statements; and

• HK(IFRIC)-Int 10, Interim Financial Reporting and Impairment (effective for annual periods

beginning on or after 1 November 2006). HK(IFRIC)-Int 10 prohibits the impairment losses

recognised in an interim period on goodwill, investments in equity instruments and

investments in financial assets carried at cost to be reversed at a subsequent balance sheet

date. The Group will apply HK(IFRIC)-Int 10 from 1 January 2007.

(c) Interpretation to existing standards that are not yet effective and not relevant for the Group’s operations

The following interpretations to existing standards have been published that are mandatory for the

Group’s accounting periods beginning on or after 1 May 2006 or later periods but are not relevant

for the Group’s operations:

• HK(IRFIC)-Int 7, Applying the Restatement Approach under IAS/HKAS 29, Financial

Reporting in Hyperinflationary Economies (effective from 1 March 2006). HK(IFRIC)-Int 7

provides guidance on how to apply requirements of IAS/HKAS 29 in a reporting period in

which an entity identifies the existence of hyperinflation in the economy of its functional

Currency, when the economy was not hyperinflationary in the prior period. As none of the

group entities is operating in a hyperinflationary economy, HK(IFRIC)-Int 7 is not relevant to

the Group’s operations; and

• HK(IFRIC)-Int 9, Reassessment of embedded derivatives (effective for annual periods

beginning on or after 1 June 2006). HK(IFRIC)-Int 9 requires an entity to assess whether an

embedded derivative is required to be separated from the host contract and accounted for

as a derivative when the entity first becomes a party to the contract. Subsequent

reassessment is prohibited unless there is a change in the terms of the contract that

significantly modifies the cash flows that otherwise would be required under the contract,

in which case reassessment if required. HK(IFRIC)-Int 9 is not relevant to the Group’s

operations.





2.1 Basis of presentation (continued)

(d) Standards, amendments and interpretations effective in 2006 but not relevant for the Group’s operations

The following standards, amendments and interpretations are mandatory for accounting periods

beginning on or after 1 January 2006 but are not relevant to the Group’s operations:

• HKAS 21 Amendment – New Investment in a Foreign Operation;

• HKAS 39 Amendment – Cash Flow Hedge Accounting of Forecast Intragroup Transactions;

• HKAS 39 Amendment – The Fair Value Option;

• HKAS 39 and IFRS 4 Amendment – Financial Guarantee Contracts;

• HKFRS 6, Exploration for and Evaluation of Mineral Resources;

• HKFRS 1 Amendment – First-time Adoption of International Financial Reporting Standards

and IFRS 6 (Amendment), Exploration for and Evaluation of Mineral Resources;

• HK(IFRIC)-Int 4, Determining whether an Arrangement contains a Lease;

• HK(IFRIC)-Int 5, Rights to Interests arising from Decommissioning, Restoration and

Environmental Rehabilitation Funds; and

• HK(IFRIC)-Int 6, Liabilities arising from Participating in a Specific Market – Waste Electrical

and Electronic Equipment.

2.2 Consolidation

The consolidated financial statements include the financial statements of the Company and all of its

subsidiaries made up to 31 December.

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to

govern the financial and operating policies generally accompanying a shareholding of more than one half

of the voting rights. The existence and effect of potential voting rights that are currently exercisable or

convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are

de-consolidated from the date that control ceases.





2.2 Consolidation (continued)

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group.

The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and

liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are

measured initially at their fair values at the acquisition date, irrespective of the extent of any minority

interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable

net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net

assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between group companies are

eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an

impairment of the asset transferred. Accounting policies of subsidiaries have been changed where

necessary to ensure consistency with the policies adopted by the Group.

In the Company’s balance sheet the investments in subsidiaries are stated at cost less provision for

impairment losses (Note 2.7). The results of subsidiaries are accounted by the Company on the basis of

dividend received and receivable.

2.3 Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are

subject to risks and returns that are different from those of other business segments.

A geographical segment is engaged in providing products or services within a particular economic

environment that are subject to risks and returns that are different from those of segments operating in

other economic environments.

2.4 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the

currency of the primary economic environment in which the entity operates (the “functional

currency”). The consolidated financial statements are presented in RMB, which is the Company’s

functional currency and presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates

prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the

settlement of such transactions and from the translation at year-end exchange rates of monetary

assets and liabilities denominated in foreign currencies are recognised in the income statement.





2.4 Foreign currency translation (continued)

(c) Group companies

The results and financial position of all the group entities (none of which has the currency of a

hyperinflationary economy) that have a functional currency different from the presentation

currency are translated into the presentation currency as follows:

a. assets and liabilities for each balance sheet presented are translated at the closing rate at

the date of that balance sheet;

b. income and expenses for each income statement are translated at average exchange rates

(unless this average is not a reasonable approximation of the cumulative effect of the rates

prevailing on the transaction dates, in which case income and expenses are translated at

the dates of the transactions); and

c. all resulting exchange differences are recognized as a separate component of equity.

2.5 Property, plant and equipment

Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes

expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as

appropriate, only when it is probable that future economic benefits associated with the item will flow to

the Group and the cost of the item can be measured reliably. All other repairs and maintenance are

charged to the income statement during the financial period in which they are incurred.

Depreciation is calculated using the straight-line method to allocate their cost to their residual values over

their estimated useful lives, as follows:

Buildings 40 years

Plant and machinery 15 years

Equipment and motor vehicles 5-10 years

The assets’ residual values are ranged from 5% to 10% of their cost. Their residual values and useful lives

are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying

amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with carrying amount and are

included in the consolidated income statements.





2.6 Leasehold land

Leasehold land are up-front payments to acquire the right of use of a long-term interest in land. These

payments are stated at cost and amortised over the period of lease on a straight-line basis.

2.7 Impairment of assets

Assets that have an indefinite useful life or have not yet available for use are not subject to amortisation

and are tested annually for impairment. Assets that are subject to amortisation are reviewed for

impairment whenever events or changes in circumstances indicate that the carrying amount may not be

recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount

exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to

sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for

which there are separately identifiable cash flows (cash-generating units). Assets other than goodwill that

suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

2.8 Inventories

Inventories are stated at the lower of cost or net realisable value. Cost is determined using the weighted

average method. The cost of finished goods and work in progress comprises raw materials, direct labour,

other direct costs and related production overheads (based on normal operating capacity).

A production process may result in more than one product being produced simultaneously. When the

costs of conversion of each product are not separately identifiable, they are allocated based on the

relative sales value of each product.

Net realisable value is the estimated selling price in the ordinary course of business, less applicable

variable selling expenses.

2.9 Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised

cost using the effective interest method, less provision for impairment. A provision for impairment of

trade and other receivables is established when there is objective evidence that the Group will not be able

to collect all amounts due according to the original terms of the receivables. Significant financial

difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and

default or delinquency in payments are considered indicators that the trade receivable is impaired. The

amount of the provision is the difference between the asset’s carrying amount and the present value of

estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the

assets is reduced through the use of an allowance account, and the amount of the loss is recognised in

the income statement within selling and marketing costs. When a trade receivable is uncollectible, it is

written off against the allowance account for trade receivables. Subsequent recoveries of amounts

previously written off are credited against selling and marketing costs in the income statement.





2.10 Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly

liquid investments with original maturities of three months or less, net of pledged bank deposits.

2.11 Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares

are shown in equity as a deduction from the proceeds.

2.12 Trade payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using

the effective interest method.

2.13 Borrowings and borrowing costs

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are

subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and

the redemption value is recognised in the income statement over the period of the borrowings using the

effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer

settlement of the liability for at least 12 months after the balance sheet date.

Interest costs on borrowings to finance the construction of property, plant and equipment are capitalised

during the period of time that is required to complete and prepare the asset for its intended use. Other

borrowing costs are expensed.

2.14 Deferred income tax

Deferred income tax is provided in full, using the liability method, on temporary differences arising

between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial

statements. However, the deferred income tax is not accounted for if it arises from initial recognition of

an asset or liability in a transaction other than a business combination that at the time of the transaction

affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates

(and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to

apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will

be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except

where the timing of the reversal of the temporary difference is controlled by the Group and it is probable

that the temporary difference will not reverse in the foreseeable future.





2.15 Employee benefits

(a) Retirement benefits scheme

The Group participates in defined contribution retirement schemes organised by the local

government authorities in the PRC. Employees are entitled to an annual pension equivalent to a

fixed portion of their basic salaries at their retirement dates. The Group is required to make

contributions to the retirement schemes at a rate of 18% (2005: 20%) of the standard salary of

those employees and have no further obligation for post-retirement benefits.

The Group contributes to a defined contribution retirement plan in Hong Kong which is available

to all employees based in Hong Kong, the assets of which are held in separate trustee-

administered funds. The retirement plan is funded by payments from the employees and the

Group. The Group has no further payment obligations once the contributions have been paid.

The contributions are charged to the consolidated income statement of the Group as they become

payable in accordance with the rules of the schemes/plan.

(b) Share-based compensation

The fair value of the employee services received in exchange for the grant of the options is

recognised as an expense. The total amount to be expensed over the vesting period is determined

by reference to the fair value of the options granted, excluding the impact of any non-market

vesting conditions (for example, profitability and sales growth targets). Non-market vesting

conditions are included in assumptions about the number of options that are expected to vest. At

each balance sheet date, the entity revises its estimates of the number of options that are

expected to vest. At each balance sheet date, the entity revises its estimates of the number of

options that are expected to vest. It recognises the impact of the revision of original estimates, if

any, in the income statement, with a corresponding adjustment to equity.

The proceeds received net of any directly attributable transaction costs are credited to share capital

(nominal value) and share premium when the options are exercised.

2.16 Provisions

Provisions for environmental restoration, restructuring costs and legal claims are recognised when: the

Group has a present legal or constructive obligation as a result of past events; it is probable that an

outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.

Restructuring provisions comprise lease termination penalties and employee termination payments.

Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in

settlement is determined by considering the class of obligations as a whole. A provision is recognised even

if the likelihood of an outflow with respect to any one item included in the same class of obligations may

be small.





2.16 Provisions (continued)

Provisions are measured at the present value of the expenditures expected to be required to settle the

obligation using a pre-tax that reflects current market assessments of the time value of money and the

risks specific to the obligation. The increase in the provision due to passage of time is recognised as

interest expense.

2.17 Revenue recognition

Revenue comprises the fair value for the sale of goods, net of value-added tax, rebates and discounts and

after eliminated sales within the Group. Revenue is recognised as follows:

(a) Sales of goods

Sales of goods are recognised when a group entity has delivered products to the customer, the

customer has accepted the products and collectibility of the related receivables is reasonably

assured.

(b) Interest income

Interest income is recognised on a time-proportion basis using the effective interest method. When

a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being

the estimated future cashflow discounted at original effective interest rate of the instrument, and

continues unwinding the discount as interest income. Interest income on impaired loans is

recognised using the original effective interest rate.

2.18 Government subsidy

Government subsidy is recognised at its fair value as other gains when there is a reasonable assurance

that the Group will comply with the conditions attaching with it and that the subsidy will be received.

Grants relating to costs are deferred and recognised in the income statement over the period necessary to

match them with the costs they are intended to compensate.

2.19 Operating lease

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are

classified as operating leases. Payments made under operating leases (net of any incentives received from

the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

2.20 Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial

statements in the period in which the dividends are approved by the Company’s shareholders.




3 FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk

and price risk), credit risk, liquidity risk and interest-rate risk.

(a) Market risk

(i) Foreign exchange risk

The Group mainly operates in the PRC with most of the transactions settled in RMB. The

conversion of RMB denominated balances into foreign currencies is subject to the rates and

regulations of foreign exchange control promulgated by the PRC government.

A large portion of the proceeds from borrowings denominated in foreign currencies have

been invested into subsidiaries in the PRC or exchanged to RMB in order to reduce the

exposure arising from future fluctuations in the exchange rate of RMB, which is expected to

be in a favourable trend to the Group. Nevertheless, certain amount of Hong Kong dollars

(“HK$”) is retained within the Group because the Company is required to pay dividends in

HK$ in the future when dividends are declared.

(ii) Price risk

The Group is exposed to commodity price risk, especially for corn kernels which are the

major raw materials of the products of the Group. It has not used any commodity futures

to hedge its price risk exposure.

(b) Credit risk

The Group has no significant concentration of credit risk. It has policies in place to ensure that

sales of products are made to customers with an appropriate credit history.

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding

through an adequate amount of committed credit facilities. The proceeds received from the IPO of

the Company and borrowings have improved the liquidity position of the Group. Due to the

dynamic nature of the underlying businesses, the Group aims at maintaining flexibility in funding

by arranging banking facilities and other external financing.

(d) Interest rate risk

As the Group has no significant interest-bearing assets, the Group’s income and operating cash

flows are substantially independent of changes in market interest rates. The Group’s interest rate

risk mainly arises from borrowings. Borrowings issued at fixed rates expose the Group to fair value

interest rate risk. The Group has not used any interest rate swaps to hedge its exposure to interest

rate risk.




3 FINANCIAL RISK MANAGEMENT (continued)

3.2 Fair value estimation

The nominal values less any estimated credit adjustments for financial assets and liabilities with a maturity

of less than one year are assumed to approximate their fair value due to their short maturity. The fair

value of financial assets and liabilities for disclosure purposes is estimated by discounting the future

contractual cash flows at the current market interest rate available to the Group for similar financial

instruments. The fair values of non-current borrowings are disclosed in Note 16.

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors,

including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by

definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of

causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are

discussed below.

Towards the end of 2006, a new starch plant constructed by Shandong Xiwang Bio-chem Technology Limited

(“Xiwang Technology”) commenced its commercial production activities. However, the costs of the completed

property, plant and equipment utilised in the production had not been finalised with the contractors/vendors.

The amounts are required to be independently assessed by a third party valuer as well as to be jointly agreed

with the constractors/vendors. Consequently, the directors of Xiwang Sugar have made their best estimate on

the costs incurred based on the original and supplementary contract and quotation amounts agreed with the

vendors and contractors as well as confirmation and advice provided by the vendors and contractors.

Should the final assessed and agreed values of the relevant property, plant and equipment differ from the costs

that were initially measured and recognised, such differences will affect the cost of the property, plant and

equipment and corresponding depreciation charges of the period in which such determination is made. As at 31

December 2006, the accrued construction cost of the Group was approximately RMB35,000,000.




5 SEGMENT INFORMATION

Primary reporting format – business segments

The Group is organised on a nationwide basis in the PRC with three main business segments in 2005. In 2006,

the Group reorganised its business into two main business segments:

(1) Manufacture and sales of (i) crystallised glucose and glucose syrup from the processing of starch paste;

and (ii) Lysine products from the processing of glucose syrup (hereinafter collectively referred to as the

“Corn-based biochemical products”); and

(2) Manufacture and sales of corn gluten meal, corn germ and animal feed from the processing of sweet

corn (hereinafter collectively referred to as the “Corn refined products”).

The turnover of the Group represents sales of goods.

Year ended 31 December 2005

Corn-based

biochemical Corn refined

products products Unallocated Group

RMB’000 RMB’000 RMB’000 RMB’000

Total gross segment sales 751,106 705,974 – 1,457,080

Intra-segment sales – (419,369) – (419,369)

Sales 751,106 286,605 – 1,037,711

Operating profit 175,854 58,813 (6,405) 228,262

Finance costs (18,449)

Profit before income tax 209,813

Income tax expense (Note 21) –

Profit for the year 209,813

Total assets 639,433 212,418 535,694 1,387,545

Total liabilities 177,145 22,893 346,545 546,583

Depreciation (Note 6) 17,080 6,458 – 23,538

Amortisation (Note 7) 184 – – 184

Capital expenditures (Note 6, 7, 8) 306,825 2,239 – 309,064




5 SEGMENT INFORMATION (continued)


Corn-based

biochemical Corn refined

products products Unallocated Group

RMB’000 RMB’000 RMB’000 RMB’000

Total gross segment sales 940,828 909,557 – 1,850,385

Intra-segment sales – (465,440) – (465,440)

Sales 940,828 444,117 – 1,384,945

Operating profit 228,625 86,887 927 316,439

Finance costs (26,214)

Profit before income tax 290,225

Income tax expense (Note 21) –

Profit for the year 290,225

Total assets 1,068,549 452,161 674,780 2,195,490

Total liabilities 93,018 54,642 876,429 1,024,089

Depreciation (Note 6) 26,962 6,330 – 33,292

Amortisation (Note 7) 2,095 263 – 2,358

Capital expenditures (Note 6, 7, 8) 464,458 220,687 – 685,145

Unallocated costs represent corporate expenses. Inter-segment transfers or transactions are entered into under

the terms and conditions agreed by both parties.

Segment assets consist primarily of property, plant and equipment, construction in progress, inventories and

receivables. Unallocated assets comprise cash and cash equivalents.

Segment liabilities comprise operating liabilities. Unallocated liabilities comprise items such as taxation and

borrowings.

Capital expenditures comprise additions to property, plant and equipment, leasehold land and construction in

progress (Notes 6, 7, 8).




5 SEGMENT INFORMATION (continued)

Secondary reporting format – geographical segments

The Group’s two business segments operate in two main geographical areas.

The Group’s revenue is mainly generated within PRC. However, the Group’s export sales accounted for more

than 10% of its total sales in 2006.

2006 2005

Revenue RMB’000 RMB’000

PRC 1,223,365 972,543

Other countries/places 161,580 65,168

1,384,945 1,037,711

Revenue is allocated based on the country in which the customer is located.

2006 2005

Total assets RMB’000 RMB’000

PRC 2,155,158 1,353,070

Other countries/places 24,281 –

2,179,439 1,353,070

Unallocated assets 16,051 34,475

2,195,490 1,387,545

Total assets are allocated based on where the assets are located.

2006 2005

Capital expenditure RMB’000 RMB’000

PRC 684,955 309,064

Other countries/places 190 –

685,145 309,064

Capital expenditure is allocated based on where the assets are located.




6 PROPERTY, PLANT AND EQUIPMENT

Equipment

Plant & and motor

Buildings machinery vehicles Total

RMB’000 RMB’000 RMB’000 RMB’000

At 31 December 2005

Cost 99,898 576,495 957 677,350

Accumulated depreciation (3,983) (46,825) (226) (51,034)

Net book amount 95,915 529,670 731 626,316


Opening net book amount 64,926 186,857 314 252,097

Additions 2,091 92,123 532 94,746

Transfers from construction in progress (Note 8) 29,778 273,233 – 303,011

Depreciation charge (880) (22,543) (115) (23,538)

Closing net book amount 95,915 529,670 731 626,316

At 31 December 2006

Cost 191,371 713,483 1,042 905,896

Accumulated depreciation (8,578) (75,328) (420) (84,326)

Net book amount 182,793 638,155 622 821,570


Opening net book amount 95,915 529,670 731 626,316

Additions 1,529 11,807 85 13,421

Transfers from construction in progress (Note 8) 89,944 125,181 – 215,125

Depreciation charge (4,595) (28,503) (194) (33,292)

Closing net book amount 182,793 638,155 622 821,570

As at 31 December 2006, certain property of the Group with a carrying value of approximately RMB43,932,000

(2005: RMB45,661,000) and certain plant and machinery with a carrying value of approximately

RMB291,116,000 (2005: RMB124,950,000) had been pledged for bank borrowings of the Group.

Depreciation charge has been recognised as a component of cost of goods sold and ending balance of

inventories.




7 LEASEHOLD LAND

It mainly represents land use rights associated with parcels of land located in the PRC held on leases of periods

between 10 to 50 years.

RMB’000


Opening net book amount 6,342

Additions 3,293

Disposals (414)

Amortisation charge (184)

Closing net book amount 9,037

At 31 December 2005

Cost 9,414

Accumulated amortisation (377)

Net book amount 9,037


Opening net book amount 9,037

Additions 160,462

Disposals –

Amortisation charge (2,358)

Closing net book amount 167,141

At 31 December 2006

Cost 169,876

Accumulated amortisation (2,735)

Net book amount 167,141

As at 31 December 2006, certain leasehold land of the Group with a carrying value of approximately

RMB67,964,942 (2005: RMB9,036,605) had been pledged for bank borrowings of the Group.




8 CONSTRUCTION IN PROGRESS

2006 2005

RMB’000 RMB’000

Beginning of the year 611 92,597

Additions 511,262 211,025

Transferred to property, plant and equipment (Note 6) (215,125) (303,011)

End of the year 296,748 611

Construction in progress (“CIP”) mainly comprises construction costs incurred for the construction of a new

starch and glucose production plant. Interest costs incurred from the related borrowings were capitalised as part

of the construction costs of CIP amounting to approximately RMB4,261,000 for the year ended 31 December

2006 (2005: RMB2,821,000). The capitalisation rate was 6.59% (2005: 7.02%) per annum.

9 INVESTMENT IN AND LOANS TO A SUBSIDIARY

(a) Investments in subsidiary

Investment in a subsidiary represents the Company’s investment in the entire issued share capital of

Master Team International Limited (“Master Team”) amounting to US$1 (equivalent to approximately

RMB8).

The following is a list of the principal subsidiaries of the Group as at 31 December 2006, all of which are

limited liability companies:

Issued share and

Place of fully paid-up Principal activities and Interest

Name incorporation capitaland place of operations held

Held directly:

Master Team International Limited British Virgin Islands US$1 Investment holding, 100%

(the “BVI”) the BVI

Held indirectly:

Shandong Xiwang Sugar Industry The PRC RMB438,000,000 Manufacture and sales of 100%

Co., Ltd. crystallised glucose and

lysine products, the PRC

Shandong Xiwang Bio-Chem The PRC RMB355,000,000 Manufacture and sales of 100%

Technology Co., Ltd. crystallised glucose

(“Xiwang Technology”) products, the PRC

Xiwang Sugar (Hong Kong) Hong Kong HKD1,000 Export trading of glucose 100%

Limited and other products,

Hong Kong




9 INVESTMENT IN AND LOANS TO A SUBSIDIARY (continued)

(b) Amount due from a subsidiary

The amount represented the intercompany loans due from Master Team to the Company.

2006 2005

RMB’000 RMB’000

Amount due from Master Team

– quasi-equity (i) 697,169 627,955

– advance (ii) 452,277 –

1,149,446 627,955

Less non-current portion (1,053,366) 627,955

Current portion – advance (ii) 96,080 –

(i) The amount is neither planned nor likely to be settled in the foreseeable future. Accordingly, the

directors of the Company consider that amount as quasi-equity in nature.

(ii) The whole advance balance is non-interest bearing and unsecured. The non-current portion

amounting to RMB356,197,000 is due for repayment in 2009.

10 INVENTORIES

2006 2005

RMB’000 RMB’000

Cost

Raw materials 92,433 54,206

Work in progress 17,605 12,324

Finished goods 25,834 11,681

135,872 78,211

The cost of inventories recognised as expenses and included in cost of goods sold amounted to approximately

RMB1,019,899,000 for the year ended 31 December 2006 (2005: RMB776,474,000).

As at 31 December 2006, there were no inventories stated at net realisable value (2005: Nil).




11 TRADE AND OTHER RECEIVABLES

2006 2005

RMB’000 RMB’000

Trade receivables 85,250 42,899

Amount due from CCB International Capital Limited – 32,337

Other receivables 21,421 7,662

106,671 82,898

Some major customers are allowed with credit periods of 30 to 180 days while most trading made with other

customers are on cash on delivery basis, or with prepayment of the full sales amounts be made before goods

delivery.

Ageing analysis of the gross trade receivables is as follows:

2006 2005

RMB’000 RMB’000

0 -30 days 65,186 26,759

31-60 days 17,563 9,780

61-90 days 218 2,341

Over 90 days 2,283 4,019

85,250 42,899

12 CASH AND CASH EQUIVALENTS

2006 2005

RMB’000 RMB’000

Cash at bank and in hand 662,609 502,043




13 SHARE CAPITAL AND SHARE PREMIUM

Details of the share capital of the Company are as follows:

Number of

shares Share Share

(thousands) capital premium Total

RMB’000 RMB’000 RMB’000

At 1 January 2005 – – (1,206) (1,206)

Shares issued upon incorporation

and before IPO (a) 1,000 106 – 106

Capitalisation issue (b) 559,000 58,237 – 58,237

Shares issued upon IPO net of costs (c) 243,552 25,365 412,058 437,423

Pre-IPO share options granted (d) – – 5,706 5,706

At 31 December 2005 803,552 83,708 416,558 500,266

Proceeds from Pre-IPO share

option exercised (d) 24,000 2,467 43,912 46,379

Employee share option

scheme-value of

service provided (d) – – 835 835

At 31 December 2006 827,552 86,175 461,305 547,480

The total authorised number of ordinary shares are 200 million shares (2005: 200 million shares) with a par value

of HK$0.1 per share (2005: HK$0.1 per share). All issued shares are fully paid.

(a) The Company was incorporated on 21 February 2005 with an authorised capital of 1,000,000 ordinary

shares of HK$0.10 each. On the date of incorporation, 1,000,000 ordinary shares of HK$0.10 were issued

to Xiwang Investment Company Limited (“Xiwang Investment”) at par for cash, in the amount of

HK$100,000 (equivalent to approximately RMB106,000) in order to provide initial working capital to the

Company. Pursuant to a shareholders’ resolution dated 30 March 2005, the authorised share capital of

the Company was increased to HK$900,000, comprising 9,000,000 ordinary shares of par value of

HK$0.1 each. On the same date, the Company issued one ordinary share of HK$0.10 to Xiwang

Investment in exchange for all the issued share capital of Master Team. On 31 May 2005, the Company

issued one additional ordinary share of HK$0.10 to Xiwang Investment as a consideration for the

assignment from Xiwang Investment to it the rights of and entitlement to two loans due from Master

Team.




13 SHARE CAPITAL AND SHARE PREMIUM (continued)

(b) According to written resolutions of the sole shareholders of the Company passed on 6 November 2005

and amended on 25 November 2005, the authorised share capital of the Company was increased to

HK$200,000,000, divided into 2,000,000,000 ordinary shares of par value of HK$0.1 each. In addition,

the Directors of the Company were authorised to capitalise an amount of HK$55,900,000 from the

capital reserves of the Company for the allotment of 558,999,998 ordinary shares to Xiwang Investment

at par value as paid up in full.

(c) As a result of the initial public offering of shares of the Company consummated on 9 December 2005, a

total of 240,000,000 ordinary shares of HK$0.1 per share were issued at HK$1.88 each and fully paid up

in cash. On 29 December 2005, additional 3,552,000 shares were issued at HK$1.88 each and fully paid

up in cash.

(d) Share options

(i) Pre-IPO share option

An option deed was executed by the Company on 8 July 2005 (the “Option Grant Date”), which

was subsequently replaced by an amended and restated deed dated 21 November 2005, that

certain stock options (“Pre-IPO Share Option”) were granted to a lender (the “Grantee”) at an

exercise price of HK$1.88 per share. Upon the Option Grant Date, the directors of the Company

made an assessment and concluded that this option grant was not related to services performed

for the Company or the Group and accordingly, no expenses were recognised in the consolidated

income statements of the Group pursuant to the requirements under HKFRS 2 “Share-based

payments”. Instead, fair value of these Pre-IPO Share Option was accounted for as a deemed

distribution made by the Company to Xiwang Investment, the shareholder of the Company. These

share options could not be exercised until 6 June 2006. On 12 July 2006, such granted share

option had been fully exercised by the Grantee at the pre-determined exercise price.

(ii) Share option scheme

A share option scheme was approved and adopted by the Company according to a written

resolution passed on 6 November 2005 (the “Share Option Scheme”). The Share Option Scheme is

made to enable the Group to grant options to select participants as incentives or rewards for their

contribution to the Group. According to the Share Option Scheme, the Company can issue options

to participants. The total number of shares that may be issued upon exercise of all outstanding

options to be granted under the Share Option Scheme and any other share option schemes of the

Company must not exceed 80,000,000 shares in aggregate. 4,000,000 share options were granted

to employees of the Group in January 2006 at an exercise price of HK$2.50 per share under the

Share Option Scheme for the service of the employees provided/to be provided to the Company

for the years 2006 and 2007. Not more than 50% of the granted options could be exercised after

31 December 2006 while the remaining can be exercised after 31 December 2007. Upon the

approval of the financial statements, 100,000 share options had been exercised.




13 SHARE CAPITAL AND SHARE PREMIUM (continued)

(d) Share options (continued)

Movements in the number of share options (including Pre-IPO share option) outstanding and their related

weighted average exercise prices are as follows:

2006 2005

Average Average

exercise price exercise price

in HK dollar Options in HK dollar Options

per share (thousands) per share (thousands)

At 1 January 1.88 24,000 – –

Granted 2.50 4,000 1.88 24,000

Exercised 1.88 (24,000) – –

At 31 December 2.50 4,000 1.88 24,000

The Pre-IPO Share Options exercised in 2006 resulted in 24,000,000 ordinary shares (2005: Nil) issued at

HK$1.88 each. The weighted average share price of the Company at the time these options were

exercised was HK$4.72 per share.

Share options outstanding as of the end of the year have the following expiry date and exercise price.

Exercise Number of

price HK$ options

Expiry date per share (in thousands)

31 December 2015 2.50 4,000

The fair value of options granted during the year ended 31 December 2006 determined using the

Binomial Option Pricing Model (2005: Dividend Adjusted Black Scholes Option Pricing Model) was

approximately RMB1,670,000 (2005: RMB5,706,000). The significant inputs into the model were share

price of HK$2.50 (2005: HK$1.88); at the grant date, the exercise price shown above; volatility of 30%

(2005: 25.22% to 28.28%); dividend yield of 0.36% (2005: 5.11%); an expected average option life of

540 days (2005: 900 days); and annual risk-free interest rate of 3.766% (2005: 2.372%). The volatility

measured at the standard deviation of continuously compounded share returns is based on the

Company’s 180-day historical share price before 31 July 2006.




14 OTHER RESERVES

Group

Capital Statutory

reserve reserves Total

RMB’000 RMB’000 RMB’000

Balance at 1 January 2005 173,581 7,110 180,691

Capitalisation issue (Note 13(b)) (58,237) – (58,237)

Effects of group reorganisation (a) 1,679 – 1,679

Balance at 31 December 2005 117,023 7,110 124,133

Appropriation to reserves (b) – 75,832 75,832

Balance at 31 December 2006 117,023 82,942 199,965

Company

Capital reserve

RMB’000

Balance at 1 January 2005 –

Share capital subscriptions made by shareholders (a) 209,679

Transfer to share capital pursuant to the capitalisation issue

(Note 13(b)) (58,237)

Balance at 31 December 2005 and 2006 151,442

(a) The capital reserve of RMB209,679,000 arising from the issuance of the one ordinary share by the

Company to Xiwang Investment (mentioned in Note 13(a)) was offset by RMB208,000,000 paid by Master

Team for acquiring the entire equity interests of its subsidiaries in 2005 pursuant to the group

reorganisation carried out in 2005.

(b) In accordance with the relevant government regulations in the PRC and the provisions of the articles of

association of Xiwang Sugar, it is required to appropriate at each year end 10% and 5% respectively of

the profit for the year after setting off the accumulated losses brought forward (based on figures reported

in the statutory financial statements) to a statutory surplus reserve account and a statutory public welfare

fund account. Xiwang Sugar had made appropriations at 10% and 5% to the statutory surplus reserve

account and statutory public welfare fund account respectively for the years ended 31 December 2005

and 2006. These reserves are required to be retained in Xiwang Sugar for designated usages.




15 TRADE AND OTHER PAYABLES

2006 2005

RMB’000 RMB’000

Trade payables 17,169 39,637

Other payables 106,479 64,399

Other taxes payables 8,374 3,348

Deposits and advance from customers 13,753 17,473

145,775 124,857

The Group usually settles the amounts due to various vendors within a period of 30 to 90 days.

Approximately RMB89,738,000 of other payables as at 31 December 2006 represents payables to vendors of

property, plant and equipment in relation to the construction of the new starch and glucose production plants

and the improvement of lysine plant of the Group.

Ageing analysis of the trade payables is as follows:

2006 2005

RMB’000 RMB’000

0-30 days 15,146 33,278

31-60 days 1,023 1,910

61-90 days 350 3,105

Over 90 days 650 1,344

17,169 39,637




16 BORROWINGS

All borrowings are relating to loans borrowed by the Group and the Company from financial institutions. An

analysis is as follows:

Group Company

2006 2005 2006 2005

Note RMB’000 RMB’000 RMB’000 RMB’000

Non-current

Bank borrowings-secured (a) 243,114 234,680 – –

Bank borrowings-unsecured (b) 421,200 – 421,200 –

664,314 234,680 421,200 –

Current

Bank borrowings-secured

– Short term bank borrowings (a) 90,000 110,000 – –

– Current portion of long

term bank borrowings (a) 20,000 – – –

Bank borrowings-unsecured

– Short term bank borrowings 50,000 – 50,000 –

– Current portion of long

term bank borrowings (b) 46,800 – 46,800 –

206,800 110,000 96,800 –

871,114 344,680 518,000 –

(a) The above long-term and short-term bank borrowings are secured by certain property and plant and

machinery (Note 6) and leasehold land (Note 7) of the Group.

(b) The amount represents the amount fully drawn down from a syndicated loan facility (the “Loan”)

arranged by Oversee-Chinese Banking Corporation Limited (“OCBC”) with its Hong Kong Branch as the

agent in the amount of USD60,000,000 (equivalent to RMB468,000,000). The Loan is guaranteed by

Master Team and interest is levied at the London Interbank offered rate (“LIBOR”) plus 1%. The Loan is

repayable by semi-annual instalments within 3 years starting from 21 November 2006. Subject to the

agreement of the lenders of the Loan, the Company may further apply to extend the repayment period to

5 years from 21 November 2006.




16 BORROWINGS (continued)

As at the end of the years presented, the Group’s bank borrowings were repayable as follows:

Group Company

2006 2005 2006 2005

RMB’000 RMB’000 RMB’000 RMB’000

Within one year 206,800 110,000 96,800 –

In the second year 123,600 100,000 93,600 –

In the third to fifth year 540,714 134,680 327,600 –

871,114 344,680 518,000 –

The weighted average effective annual interest rates at each of the balance sheet date were as follows:

Group Company

2006 2005 2006 2005

Bank borrowings 6.640% 6.732% 6.375% –

The carrying amounts and fair value of the non-current bank borrowings are as follows:

Group Company

2006 2005 2006 2005

RMB’000 RMB’000 RMB’000 RMB’000

Carrying amounts 664,314 234,680 421,200 –

Fair values 669,320 240,251 421,931 –

The fair values are determined based on cash flow discounted using a rate based on the annual borrowing rate

of 6.556% for 2006 (2005: 5.826%).




16 BORROWINGS (continued)

The carrying amounts of the borrowings are denominated in the following currencies:

Group Company

2006 2005 2006 2005

RMB’000 RMB’000 RMB’000 RMB’000

RMB 353,114 344,680 – –

USD 468,000 – 468,000 –

HKD 50,000 – 50,000 –

871,114 344,680 518,000 –

The Group had the following undrawn available borrowing facilities:

2006 2005

RMB’000 RMB’000

Floating rate

Expired within one year 130,000 40,000

17 EXPENSES BY NATURE

2006 2005

RMB’000 RMB’000

Depreciation and amortisation 35,650 23,722

Employee benefit expenses (Note 19) 26,098 21,981

Changes in inventory levels of finished goods and work in progress (19,434) (5,331)

Raw materials and consumables used 834,083 648,575

Transportation expenses 17,537 13,901

Utility expenses 126,177 89,148

Auditor’s remuneration 2,662 1,568

Other expenses 55,889 19,939

Total cost of goods sold, selling and marketing costs

and administrative expenses 1,078,662 813,503

Representing:

Cost of goods sold 1,019,899 776,474

Selling and marketing costs 35,775 28,697

Administrative expenses 22,988 8,332

1,078,662 813,503




18 OTHER GAINS – NET

2006 2005

RMB’000 RMB’000

Interest income 4,844 1,192

Subsidy income 2,781 –

Others 2,531 2,862

10,156 4,054

19 EMPLOYEE BENEFIT EXPENSES

2006 2005

RMB’000 RMB’000

Wages, salaries and other staff benefits 24,062 20,980

Pension costs – defined contribution plans 1,201 1,001

Share option granted to employees 835 –

26,098 21,981

(a) Director’s emoluments

The remuneration of each Director of the Company for the year ended 31 December 2006 is set out

below:

Employer’s Compensation

contribution for loss of

Discretionary Inducement Other to pension office as

Name of Director Fees Salary bonuses fees benefits scheme director Total

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

Mr. Wang Yong – 300 – – – – – 300

Mr. Wang Liang – 250 – – – 2 – 252

Mr. Wang Chengqing – 150 – – – – – 150

Mr. Liu Hengfang – 150 – – – – – 150

Mr. Han Zhong – 150 – – – – – 150

Ms. Li Wei – 200 – – – 2 – 202

Mr. Liu Jiqiang – 150 – – – 2 – 152

Mr. Shi Weichen – 100 – – – – – 100

Mr. Yu Xiaolei – 100 – – – – – 100

Mr. Wong Kaiming – 150 – – – – – 150




19 EMPLOYEE BENEFIT EXPENSES (continued)

(a) Director’s emoluments (continued)

The remuneration of each Director of the Company for the year ended 31 December 2005 is set out

below:

Employer’s Compensation

contribution for loss of

Discretionary Inducement Other to pension office as

Name of Director Fees Salary bonuses fees benefits scheme director Total

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

Mr. Wang Yong – 50 – – – 2 – 52

Mr. Wang Liang – 74 – – – 2 – 76

Mr. Wang Chengqing – 25 – – – – – 25

Mr. Liu Hengfang – 25 – – – 2 – 27

Mr. Han Zhong – 47 – – – – – 47

Ms. Li Wei – 55 – – – – – 55

Mr. Liu Jiqiang – 56 – – – – – 56

Mr. Shi Weichen – 17 – – – – – 17

Mr. Yu Xiaolei – 17 – – – – – 17

Mr. Wong Kaiming – 26 – – – – – 26

No director received any emolument from the Group as an inducement to join or leave the Group or

compensation for loss of office. No director waived or has agreed to waive any emoluments during the

years presented.

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group in 2006 include three directors

(2005: two) whose emoluments are reflected in the analysis presented above. The emoluments payable to

the remaining two individuals in 2006 (2005: three) are as follows:

2006 2005

RMB’000 RMB’000

Basic salaries, share options and benefits in kind 1,639 518

Pensions 44 6

1,683 524




19 EMPLOYEE BENEFIT EXPENSES (continued)

(b) Five highest paid individuals (continued)

The emoluments fell within the following band:

Number of individuals

2006 2005

Emolument bands

RMB nil-RMB1,000,000 (HK$ nil-HK$1,000,000) 1 3

RMB1,000,000-RMB2,000,000 (HK$1,000,000-HK$2,000,000) 1 –

2 3

20 FINANCE COSTS

2006 2005

RMB’000 RMB’000

Interest expenses – bank borrowings 30,820 20,969

Less: amount capitalised as construction in progress (Note 8) (4,261) (2,821)

26,559 18,148

Net foreign exchange translation (gain)/losses (345) 301

26,214 18,449

21 INCOME TAX EXPENSE

(a) Pursuant to the rules and regulations of Bermuda and the BVI, the Group was not subject to any income

tax in Bermuda and the BVI during the years presented.

No Hong Kong profits tax was provided as the Group had no assessable profit arising in or derived from

Hong Kong.

Xiwang Sugar and Xiwang Technology were approved to be a production enterprise with foreign

investment by the relevant government authority in the PRC. Accordingly, the applicable enterprise

income tax (“EIT”) rate of these companies is 30% and the local tax rate is 3%, resulting in an aggregate

tax rate of 33%. These companies are also entitled to full exemption from EIT for two years and followed

by three years of a 50% tax reduction, commencing from the first profit-making year, after netting off

losses carried forward (“EIT Tax Holiday”). The EIT Tax Holidays of Xiwang Sugar commenced in 2005 and

accordingly, no provision for EIT had been made by Xiwang Sugar for the year ended 31 December 2006

(2005: Nil). Xiwang Technology started its business operations towards the end of 2006 and it reported

losses during the year, accordingly, no EIT provision had been made for the year ended 31 December

2006.




21 INCOME TAX EXPENSE (continued)

(b) The tax on the Group’s profit before tax differs from the theoretical amount that would arise using

weighted average tax rate applicable to profits of the group companies as follows:

2006 2005

RMB’000 RMB’000

Profit before tax 290,225 209,813

Tax calculated at tax rate of 33% applicable to profits in PRC 95,774 69,238

Utilisation of previously unrecognised deferred tax assets (35) (144)

Expenses not deductible for tax purposes (190) –

Effect of tax holidays (Note a) (95,549) (69,094)

Tax charge – –

(c) As at 31 December 2006, no provision for deferred taxation had been recognised as there were no

material temporary differences arising between the tax bases of assets and liabilities and their carrying

amounts in the consolidated financial statements (2005: Nil).

22 DIVIDEND

Pursuant to a resolution passed on 21 July 2005 and approved by the then sole shareholder of the Company, a

special dividend of RMB80,000,000 was declared and paid.

The dividend paid in 2006 in respect of the year ended 31 December 2005 was RMB7,000,000 (RMB0.0087 per

share). A dividend in respect of the year ended 31 December 2006 of RMB0.14 per share, amounting to a total

dividend of approximately RMB115,871,000, is to be proposed at the Annual General Meeting on 18 May 2007.

These financial statements do not reflect this dividend payable.

2006 2005

RMB’000 RMB’000

Special dividend – 80,000

Interim dividend paid – –

Proposed final dividend of RMB0.14 (2005: RMB0.0087)

per ordinary share 115,871 7,000

115,871 87,000




23 EARNINGS PER SHARE

(a) Basic

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company

by the weighted average number of ordinary shares in issue during the year.

2006 2005

Profit attributable to equity holders of the Company (RMB’000) 290,225 209,813

Weighted average number of ordinary shares in issue (thousands) 814,927 575,152

Basic earnings per share (RMB per share) 0.356 0.365

(b) Dilluted

Diluted earnings per share is calculated adjusting the weighted average number of ordinary shares

outstanding to assume conversion of share options. For the share options a calculation is done to

determine the number of shares that could have been acquired at fair value (determined as the average

annual market share price of the Company’s shares) based on the monetary value of the subscription

rights attached to outstanding share options. The number of shares calculated as above is compared with

the number of shares that would have been issued assuming the exercise of the share options.

2006 2005

Profit attributable to equity holders of the Company (RMB’000) 290,225 209,813

Weighted average number of ordinary shares in issue (thousands) 814,927 575,152

Adjustments for share options (thousands) 8,601 38

Weighted average number of ordinary shares for diluted

earnings per share (thousands) 823,528 575,190

Diluted earnings per share (RMB per share) 0.352 0.365




24 CASH GENERATED FROM OPERATIONS

Reconciliation of profit for the year to cash generated from operations is as follows:

2006 2005

RMB’000 RMB’000

Profit for the year 290,225 209,813

Adjustment for:

– Income tax expenses – –

– Depreciation (Note 6) 33,292 23,538

– Amortisation (Note 7) 2,358 184

– Share based payments 835 –

– Interest income (4,844) (1,192)

– Interest expenses 26,559 18,148

Changes in working capital:

– Inventories (57,661) (35,908)

– Trade and other receivables (23,773) (20,533)

– Amounts due from related companies 23,217 6,301

– Trade and other payables (15,671) 59,574

– Amounts due to related companies (4,135) (932)

Cash generated from operations 270,402 258,993

25 COMMITMENTS

Capital expenditure at the balance sheet date but not yet incurred is as follows:

2006 2005

RMB’000 RMB’000

Property, plant and equipment

– Contracted but not provided for 145,460 –

– Authorised but not contracted for – 336,723

145,460 336,723




26 RELATED PARTY TRANSACTIONS

The Group is controlled by the Xiwang Investment (incorporated in BVI), which owns about 63% of the

Company’s shares. The remaining about 37% of the shares are held by public. The ultimate holding company of

the Group is Xiwang Holdings Limited (incorporated in BVI). The directors consider Mr. Wang Yong to be the

ultimate controlling party of the Group.

During the period ended 31 December 2006, the Group had undertaken transactions with the following related

companies:

English Name Chinese Name Relationship with the Company

Xiwang Group 山東西王集團有限公司 Company controlled by the

shareholders of Xiwang

Holdings Limited

Shandong Starch (Note) 山東西王澱粉有限公司 Subsidiary of Xiwang Group

Shandong Xiwang Savola Oil and Fats 山東西王沙渥拉油脂有限 Subsidiary of Xiwang Group

Co., Ltd. (“Xiwang Savola Oil”) 責任公司

Shandong Biyundong Alcohol and Water 山東碧雲洞酒水有限 Subsidiary of Xiwang Group

Co., Ltd. (“Biyundong Alcohol”) 責任公司

Shandong Xiwang Leavening Co., Ltd 山東西王酵母有限公司 Subsidiary of Xiwang Group

(“Xiwang Leavening”)

Zouping Xiwang Construction Company 鄒平西王建築 Subsidiary of Xiwang Group

Limited (“Xiwang Construction”) 有限責任公司

Shandong Xiwang Steel Structure Co., Ltd 山東西王鋼結構有限公司 Subsidiary of Xiwang Group

(“Xiwang Steel Structure”)

Xiwang Group Import and Export Trading 山東西王進出口貿易 Subsidiary of Xiwang Group

Company (“Xiwang Import & Export”) 有限公司

Shandong Xiwang Steel Co., Ltd. 山東西王鋼鐵有限公司 Subsidiary of Xiwang Group

(“Xiwang Steel”)

Note: Shandong Starch ceased to be a related party of the Group since June 2005 when all of its equity interest held by theshareholders of Xiwang Holdings Limited was disposed. Accordingly, the related party transactions made withShandong Starch disclosed below were up to May 2005.




26 RELATED PARTY TRANSACTIONS (continued)

In addition to the related party transactions as disclosed in other notes to these financial statements, the Group

had the following significant transactions carried out with related parties during the year ended 31 December

2006:

(a) Sales of goods

2006 2005

RMB’000 RMB’000

Sales of corn germs

– Xiwang Savola Oil 78,820 74,527

Sales of glucose syrup

– Xiwang Leavening 3,139 3,100

Sales of corn gluten meal

– Xiwang Import & Export – 5,722

Sales of starch paste

– Shandong Starch – 5,046

81,959 88,395

The pricing of these transactions was determined based on mutual negotiation and agreement reached

between the Group and the related parties on each individual transaction.

(b) Purchases of goods and services

2006 2005

RMB’000 RMB’000

Purchase of corn germ dregs


Purchase of packaging materials

– Biyundong Alcohol 27,770 19,311

Purchase of corn fibre


Purchase of corn slurry


Purchase of corn gluten meal


33,471 36,357

The pricing of these transactions was determined based on mutual negotiation and agreement reached

between the Group and the related parties on each individual transaction.





(b) Purchases of goods and services (continued)

2006 2005

RMB’000 RMB’000

Supply of electricity and steam


– Xiwang Steel – 548

Exportation services

– Xiwang Import & Export – 1,359

Construction of property, plant and equipment

– Xiwang Steel Structure 6,216 4,197

– Xiwang Construction 12,434 2,276

Sewage services

– Xiwang Group 732 252

– Shandong Starch – 269

Xiwang Steel Structure and Xiwang Construction provided services to the Group for construction of new

production plants at prices and terms determined based on mutual agreement between the parties.

(c) Key management compensation

2006 2005

RMB’000 RMB’000

Basic salaries and benefits in kind 2,813 1,281

Termination benefits – –

Pensions 30 16

Other long-term benefits – –

Share-based payments 835 –

3,678 1,297

The Group’s key management include directors (executive and non-executive) and senior management.





(d) Balances due from/to related parties

2006 2005

RMB’000 RMB’000

Receivables (iii)

Amounts outstanding, end of the years


– Biyundong Alcohol 84 –

– Xiwang Investment – 871

– Xiwang Leavening – 436

4,879 28,096

Maximum amounts outstanding during the year

– Xiwang Group (ii) 170,475 234,567


– Xiwang Import & Export 3 5,774

– Xiwang Steel Structure 716 991

– Xiwang Cereal – 970

– Xiwang Construction 7 98

– Xiwang Levening 742 –

– Biyundong Alcohol 1,716 –

Payables (iii)

– Xiwang Steel Structure 2,152 798

– Xiwang Group 191 71,329

– Xiwang Construction 4,847 –

– Biyundong Alcohol – 1,905

– Wang Yong 10 –

7,200 74,032

(i) The related parties are all under the control of Mr. Wang Yong.

(ii) The balance represents advance (the “Advance”) made by Xiwang Sugar to Xiwang Group for

placing deposits with corn kernels suppliers in order to procure the corn kernel supplies on behalf

of Xiwang Sugar. Xiwang Group is not entitled to any commission/handling fees and other kinds

of consideration for making such arrangements.

(iii) All the current accounts maintained with related parties aged within one year as at 31 December

2006 (2005 – same). They are interest-free, unsecured and repayable upon demand.




27 DISTRIBUTABLE RESERVES

As at 31 December 2006, the Company had no reserves available for distribution to the equity holders of the

Company (2005: Nil). The accumulated profits are retained by subsidiaries and had not been distributed to the

Company as at 31 December 2006.

28 COMPARATIVE FIGURES

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



Information forShareholders

ANNUAL REPORT

This annual report is printed in English and Chinese and is available on The Stock Exchange of

Hong Kong Limited’s corporate website at www.hkex.com.hk and the Company’s website at

www.xiwang.com.cn.

CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from Wednesday, 16 May 2007 to Friday,

18 May 2007 (both dates inclusive), during which no transfer of shares will be registered. In order

to qualify for the proposed final dividend, all transfers of shares accompanied by the relevant share

certificates must be lodged with the Company’s branch registrar in Hong Kong, Tricor Investor

Services Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong no later than

4:00 p.m. on Tuesday, 15 May 2007.

ANNUAL GENERAL MEETING

The annual general meeting of the Company is expected to be held on Friday, 18 May 2007. A

notice convening the annual general meeting will be published in the South China Morning Post

(English) and the Hong Kong Economic Times (Chinese) in due course.

REGISTERED OFFICE

Clarendon House

2 Church Street

Hamilton HM 11

Bermuda

HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS IN THE PRC

Xiwang Industrial Area

Zouping County

Shandong Province

The PRC



Information for Shareholders

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

Room 1206A, 12th Floor

West Tower, Shun Tak Centre

168-200, Connaught Road Central

Hong Kong

PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

Butterfield Fund Services (Bermuda) Limited

Rosebank Centre

11 Bermudiana Road

Pembroke HM 08

Bermuda

HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE

Tricor Investor Services Limited

26th Floor, Tesbury Centre

28 Queen’s Road East

Wanchai

Hong Kong

PRINCIPAL BANKERS

Agricultural Bank of China, Zouping Sub-branch

Bank of China, Zouping Sub-branch

Bank of Communications, Jinan Branch

China Construction Bank

China CITIC Bank, Jinan Branch

Bank of East Asia, Limited

Standard Chartered Bank (Hong Kong) Limited

STOCK INFORMATION

Stock Code: 2088

(Listed on the Main Board of The Stock Exchange of Hong Kong Limited)

Trading board lot size: 2,000 shares

SUMMARY OF IMPORTANT DATES

Announcement of 2006 annual results 30 March 2007

Last day for registration of the proposed final dividend for 2006 15 May 2007

Book close dates for proposed final dividend 16 May to 18 May 2007

Annual General Meeting 18 May 2007

Expected payment date of the proposed final dividend for 2006 31 May 2007


D 56789:; C MNO

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