Chairman Statement    

2005 has been a challenging year for Full  Apex as we were impacted by rising raw  material prices as a result of the sustained hike in oil prices.

Dear shareholders,

　　On behalf of your Board of Directors, I present you the Annual Report of Full Apex for the financial year ended 31 December 2005 (“FY 2005” ).

A Year in Review

　　We have been steadily improving our topline results since our listing. For FY2005, we registered a turnover growth of 10.2% to RMB909.1 million, driven mainly by higher sales of cold and hot-filled PET bottles used for carbonated beverages and non-carbonated beverages as a result of increased production capacity from our new plants in Tianjin, Shenzhen, Jiedong and Zhangjiang.

　　However, our bottomline continued to be affected by rising raw material costs. As a result, the Group's gross profit margin declined from 29.6% in FY2004 to 27.4% in FY2005. Our production capacity expansion programme during the year also resulted in additional depreciation and amortization charges.

　　Coupled with the expiry of a 50% income tax relief granted to a subsidiary of the Group at the end of FY2004, the Group reported a marginal decline in net profit attributable to shareholders from RMB 145.4 million in FY2004 to RMB 144.1 million in FY2005.

　　But through it all, we ended the year with a strong balance sheet and cash and cash equivalents of RMB395.3 million.

Rollout of New PET Bottle Plants

　　Our production capacity expansion drive gained momentum in FY2005 as we continued to press on with our production capacity expansion plans to enlarge our market share and capability to ride on the growth in demand for PET bottles from the beverage industry in China .

　　During the year under review, three new PET bottle production plants located in Shenzhen, Jiedong and Zhanjiang in Guangdong province commenced operations in April, June and August respectively. As a result, our annual production capacity increased 40% from 951 million PET bottles as at end FY2004 to 1,331 million PET bottles as at end FY2005.

　　As a sign of the Group's continuous efforts in forging a closer co-operation with our major customer, we secured supply agreements to supply not less than 70% of Shenzhen Pepsi-Cola Beverage Company Limited Jiedong Branch and Shenzhen Pepsi-Cola Beverage Company Limited's annual PET bottle demand over the next five years.

　　Besides meeting the fat-growing demands of our key customers in the prosperous Guangdong province, our new PET bottle plants are also strategically located to tap expansion opportunities into potential new markets in the neighbouring Fujian , Hainan and Guangxi provinces.

Strategic Move to Vertically Integrate Operations

　　In FY2005, we made a strategic decision to further vertically integrate our operations and expand upstream into the manufacture and sale of bottle grade PET chips, which is the raw material of PET bottles, one of the Group's main products.

　　We are investing approximately US$90 million to establish a PET chips production plant (the “PET Plant”) which is expected to have a production capacity of 200,000 metric tons. Our current consumption of PET chips is about one third of the projected total production of the PET Plant in the first year. When completed in early 2007, we believe the PET Plant will be the largest bottle grade PET chips production plant in South China .

　　With the PET Plant, we are confident that we will be able to better manage our raw material costs, expand our customer base and broaden revenue streams. This will in turn enhance our competitive position in the market and increase the Group's profitability in the long run.

　　As a vote of confidence for our strong credit standing, we secured a 5-year syndicated loan of US$39 million with Oversea-Chinese Banking Corporation Limited and several financial institutions to partially fund the project.

Outlook

　　With the progressive rollout of new PET bottle production plants in FY2005, we expect the impact of our production capacity expansion programme to be fully realized in FY2006.

　　In February 2006, an additional PET bottle production line within our existing PET bottle production plant in Tianjin (the “Tianjin Plant”) commenced operations, raising the Tianjin Plant's annual production capacity from 150 million to 450 million cold or hot-filled PET bottles. The Group's total annual production capacity now stands at 1,661 million cold or hot-filled PET bottles. We are pleased to report that we have doubled our total annual production capacity of PET bottles from 801 million in FY2003 to 1,631million in FY2006.

　　Looking ahead, we expect the utilization rates of our PET bottle production plants in Shenzhen, Jiedong, Zhanjiang and Tianjin to improve progressively with the market expansion of our major customers in these regions. We are confident that the higher volume will enable us to capture a larger market share and strengthen our financial performance in the years to come.

　　While our prospects remain upbeat for FY2006, we remain vulnerable to external factors beyond the Group's control that may impede our performance, in particular higher raw material price.