From the CEO's Desk

28th August 2004

It is with pride and pleasure that we can announce that our new facilities - factory, office, and warehouse - are virtually completed and ready for occupation over the next 4 weeks. This has been a major undertaking that has been completed to a high standard and within previously agreed timelines. The completion of the new facilities for furniture leather and automotive leather will allow for the next stage of relocating existing businesses to a new layout and allowing for some increased production capacity and improved flexibility. This will take place over the next 6 months with little disruption to production capacity.

Over the last six months we have seen a positive period of production for shoe leather with improvements in performance on volume and quality. We are very satisfied with the progress of this division that remains the cornerstone of the SRL leather business. We continue to have good support from our major accounts with whom we work in achieving a program of continuous improvement. We are implementing new quality standards and systems to ensure our business continues to progress.

One of the outstanding features of the current period is the increase in our furniture leather business. This division continues to grow at over a hundredfold increase on 2003 and is becoming a leading quality supplier to key USA and European manufacturers. We foresee the division continuing this trend and becoming a major contributor to the business as we improve the range of quality leathers being offered to our customers. We now have a strongly established management team and a workforce that is becoming increasingly skilled in leather manufacture. The move to new facilities will only enhance the business.

In a very difficult market – reported to be the worst in memory - our garment leather division is making progress and is profitable on a reorganized business model. We are confident we will remain one of the leading suppliers of garment leather in China , especially as a specialty supplier on New Zealand lambskin where we have major expertise.

One of the most exciting developments that coincides with the completion of the new facility is the prospect of entry into the automotive leather market in China . This booming market will open up major business opportunities for SRL as a leading supplier for our partner – GST AutoLeather – one of the major global suppliers of auto leather. We will prepare to make commercial production in early 2005 with a growth program continuing over succeeding years.

All of the above places SRL at the center of the China and global leather business as one of the key suppliers in many sectors of the industry. This could not be done without a very committed team of people who dedicate significant time to seeing SRL's positive contribution to the global leather industry. My thanks go to the team for their support of the vision and the continued drive for excellence.

I look forward to reporting more major positive milestones as we progress over the balance of 2004. The leather business is a competitive and difficult business, but with a commitment to quality and a will to continue to improve and succeed, we will see the company remain at the forefront of the China leather business.

Yours truly,
CEO – Shanghai Richina Leather