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Net proceeds of the raised funds : 2,006,850,200 Yuan Total amount of the raised funds with  its purpose changed: None Percentage of total amount of the raised funds with its purpose changed: None					Cumulative raised funds utilized: 2,006,850,200 Yuan Total amount of the raised funds used between January 29, 2008 and December 31, 2008: 2,006,850,200 Yuan¡¡
Investment projects			Total investment amount of the raised funds		Cumulative investment amount of the raised funds as of December 31, 2010					Date on which the project is available for intended use
Item No.	Committed investment project	Actual investment project	Committed investment amount *	Actual investment amount		Committed investment amount *	Actual investment amount		Difference between actual investment amount and committed investment amount
1	Xiangfan 4,000 t/d clinker cement production line	Xiangfan 4,000 t/d clinker cement production line	399,430,000	399,430,000		399,430,000	399,430,000		-	October 2006
2	Zhaotong 4,000 t/d clinker cement production line	Zhaotong 4,000 t/d clinker cement production line	200,982,000	200,982,000		200,982,000	200,982,000		-	September 2006
3	Wuhan 2,000,000 t/y cement grinding station	Wuhan 2,000,000 t/y cement grinding station	182,889,000	182,889,000		182,889,000	182,889,000		-	November 2007
4	Yangxin Phase II 4,800 t/d clinker cement production line	Yangxin Phase II 4,800 t/d clinker cement production line	253,704,000	253,704,000		253,704,000	253,704,000		-	January 2007
5	Xianning 4,000 t/d clinker cement production line	Xianning 4,000 t/d clinker cement production line	353,820,000	353,820,000		353,820,000	353,820,000		-	December 2007
6	Reducing debts of the Company	Reducing debts of the Company	616,025,200	616,025,200		616,025,200	616,025,200		-
	Total		2,006,850,200	2,006,850,200		2,006,850,200	2,006,850,200		-

Before the Company and its subsidiaries (hereinafter referred to as ¡°the Group¡±) received the funds raised from previous offering on January 29, 2008, the Group had made preliminary investment in the following projects with self-raised funds and borrowings: Xiangfan 4,000 t/d clinker cement production line, Zhaotong 4,000 t/d clinker cement production line, Wuhan 2,000,000 t/y cement grinding station, Yangxin Phase II 4,800 t/d clinker cement production line, and Xianning 4,000 t/d clinker cement production line.  As of December 31, 2007, the five aforesaid projects had been completed and put into production.

 

As of December 31, 2010, the funds raised from previous offering in amount of 2,006,850,200 Yuan had been used up, including 1,390,825,000 Yuan used to replace the preliminary investment with self-raised funds and borrowings, and 616,025,200 Yuan used to reduce the debts of the Company.

 

2. Profit of Projects Invested by the Funds Raised from Previous Offering

 

Independent accounting was maintained for the following three projects: Zhaotong 4,000 t/d clinker cement production line (hereinafter referred to as ¡°Zhaotong project¡±), Wuhan 2,000,000 t/y cement grinding station (hereinafter referred to as ¡°Wuhan grinding station¡±), and Xianning 4,000 t/d clinker cement production line (hereinafter referred to as ¡°Xianning project¡±).  The Company did not maintain independent accounting for Yangxin Phase II 4,800 t/d clinker cement production line (hereinafter referred to as ¡°Yangxin project Phase II¡±).  As of June 30, 2009, Xiangfan 4,000 t/d clinker cement production line (hereinafter referred to as ¡°Xiangfan project phase I¡±) is an independent accounting entity.  After Xiangfan Phase II 4,000 t/d clinker cement production line was put into production in July 2009, the Company did not maintain independent accounting for Xiangfan phase I project.

 

When calculating the actual profit of independent accounting entities, the raw material cost was accounted for as such materials were purchased from a third party by the Group, and period expenses were net of those payable to related parties under the Group, so as to maintain consistency with the profit disclosed in the Statement of Offering.

 

For investment projects for which the Company did not maintain independent accounting, the Company calculates profit of the project (pre-tax profit) on the following basis:

 

(1) Sales revenue and sales cost: sales revenue and sales cost of the project were attributed to products produced by the project, and the raw material cost in the sales cost is calculated as the Group purchased such material from a third party;

 

(2) Period expense: sales expense and administration expense attributable to the project is calculated at the percentage of its sales revenue in total sales revenue; financial expense is calculated in proportion to the capital engaged by the project, excluding expenses payable to related parties under the Group;

 

(3) For the purpose of profit estimation, income tax is not taken into consideration.

As of December 31, 2010, profit of projects invested by the funds raised from previous offering is as follows:

 

In RMB Yuan

Actual investment projects		Cumulative capacity utilization rate of  the investment projects as of December 31, 2010 *	Committed profit **		Actual profit / (loss) for the previous three years			Cumulative profit realized as of December 31, 2010	Whether estimated profit is achieved
Item No.	Project name				2008	2009	2010***
1	Xiangfan 4,000 t/d clinker cement production line	84.84%	87,940,000		58,737,800	74,614,400	63,570,709	252,062,109	Note (1)
2	Zhaotong 4,000 t/d clinker cement production line	80.11%	107,660,000		113,847,500	176,250,200	155,397,281	467,040,181	Note (2)
3	Wuhan 2,000,000 t/y cement grinding station	20.11%	28,040,000		(17,797,000)	(23,592,100)	(14,331,544)	(59,416,644)	Note (3)
4	Yangxin Phase II 4,800 t/d clinker cement production line	75.77%	75,350,000		34,672,000	33,900,100	27,856,496	128,002,696	Note (4)
5	Xianning 4,000 t/d clinker cement production line	82.43%	87,000,000		29,600,500	52,276,200	47,133,206	131,594,006	Note (5)
	Total		385,990,000		219,060,800	313,448,800	279,626,148	919,282,348

 

*   Cumulative capacity utilization rate of the investment projects refers to the actual net overall equipment utilization rate of the investment project for the period from when the investment project is available for intended use to December 31, 2010.  Net overall equipment utilization rate is a standard indicator for assessing utilization of capacity of cement industry.  For Wuhan 2,000,000 t/y cement grinding station, it refers to the net overall equipment utilization rate of the cement grinding equipment; and in case of other projects, it refers to the net overall utilization rate of capacity of the kiln.

 

**  Committed profit refers to the estimated total average profit per annum after the project reaches full capacity as disclosed in the Statement of Offering.

 

*** Actual profit 2010 is based on the non-audited Financial Report 2010 formulated by the Company.

 

In general, the projects invested by the funds raised from previous offering have gone through the preliminary stage for equipment commissioning.  Due to short energy supply in China, raw coal price and electricity price greatly differed from the estimates in the feasibility study.  In addition, due to redundant construction in cement industry, overcapacity becomes a common problem in cement industry in 2010, which had significant negative impact on sales price of cement.  

 

(1)    Below is the comparison between the output, sales revenue and total profit of Xiangfan project for the recent three years and committed figures indicated in the Statement of Offering.

 

 

Xiangfan project was put into production in October 2006.  Through market exploring, its profit increased dramatically in 2007.  

 

In 2008, Xiangfan project overcame the impact of snow disaster, put more efforts in market exploring, better utilized its capacity and started normal and stable production.  Its sales revenue realized in 2008 reached and exceeded the estimated figure disclosed in the Statement of Offering.  However, raw coal price and electricity price went up dramatically in comparison to the estimates in the feasibility study of the Statement of Offering, which had material adverse impact on profit of the project.

 

In 2009, as other new cement clinker production lines in regional market where Xiangfan project was located were put into operation in succession, supply began to surpass demand on local cement market, which exerted negative impact on sales price of cement products.  Despite the foregoing background, the project realized total profit of 74,614,400 Yuan in 2009.  This figure almost reach the expected profit disclosed in the Statement of Offering, the profitability has been improved gradually.

 

Since 2010, as other new cement clinker production lines in the region further released their capacity, supply seriously surpassed demand on local cement market.  Cement price in the first three quarters was consistently at a comparatively low level, which gravely exerted material adverse impact on profitability of the project.  The project realized total profit of 63,570,700 Yuan in 2010. 

 

As key projects including inner ring road and outer ring road of Xiangfan and Gucheng-Zhuxi Express came into the boom season of construction, demand for cement on local market will remain vigorous in future.  The Company plans to further enhance competitiveness of its products on regional market and improve profit of the project by exerting M&As within the region, improving its brand building and management expertise.

 

 

(2)    Zhaotong project was officially put into production in September 2006.  In 2007, it was successfully awarded the contracts of some key projects, which increased its output, and the project started profiting.  During the last three years, the brand awareness of the Company enhanced, thus the Company gradually consolidated its market position.  Variation of cement price in the region offset the adverse impact of increases in raw coal and electricity cost.  Therefore, the project realized profits of 113,850,000 Yuan, 176,250,200 Yuan and 155,397,300 Yuan respectively in 2008, 2009 and 2010, exceeding the expected profits disclosed in the Statement of Offering.  

 

(3)    Wuhan cement grinding station project was put into production in November 2007.  However, after its completion, the production line could not put into normal operation due to delay in relocation of residents living in the surrounding area and subsequent adjustment to planning of surrounding cities.  As of December 31, 2010, the cumulative capacity utilization rate was merely 20.11%, incurring loss on the project.

 

(4)    Comparison between the output, sales revenue and total profit of Yangxin project for the recent three years and the committed figures indicated in the Statement of Offering is set forth as follows: