2012 Sustainability Report — Diamond Group · Contents Energy consumption Water Emission of Greehouse Waste Effluent Chemicals management About us Environment Economic performance

Run a limited corporation with unlimited responsibiilty Run a limited corporation with unlimited responsibiilty

— Diamond Group

2012 Sustainability Report

Letter from the CEO

Bang Y. L in

Pres iden t

Diamond Group

Our vision “to create a happiness enterprise” gives Diamond endless

opportunities to do good for people and the environment. The “happiness” is not

just for customers or potential customers. It also covers our employees, our

shareholders, and people in our local communities, as well as various other

stakeholders and beyond. We believe what is good for society is good for

Diamond. We are passionate about creating a successful business where we act in

a responsible way through small and large actions. It is our way of being, and our

way to spread “happiness”.

This is why sustainability is very much a core part of Diamond's strategic

direction. Since our first Sustainability Report publication in 2010, our

commitment has not wavered – and 2011 was no exception. Last year's progress

reflects how our commitment to sustainability and social responsibility has

deepened as we have integrated these initiatives into

our business operations. This integrated approach has strengthened our

sus ta inabi l i ty and soc ia l respons ib i l i ty in i t ia t ives and our bus iness

performance, by making our manufacturing process and work place more

sustainable, involving with local communities at the grassroots level to build

school and promote local education, helping us recruit and retain the best

talent, enhancing our relationships with our stakeholders, while inspiring our

employees to be there best on the road to achieving double digit growth in every

quarter.

In 2011, we continued to strengthen our position as a responsible sustainable

manufacturer with our own operations by moving closer to our goal to reduce

energy, water consumption, green house gas, waste water emission, and waste

creation by 5% per year for 5 consecutive years. Over the course of the year, we

also introduced programs to further promote diversity in our workforce as well

as develop our next

generation of leaders and talent. Markedly improving our employee satisfaction

and motivation. And new initiatives in funding, building, and even running new

schools and educational programs in our local community, not only promotes the

well-being of future generations, but benefits those we serve – employees,

shareholders, customers, and other stakeholders. Perhaps most importantly, this

commitment has excited and engaged Diamond people all over.

Many of our ambitions and endeavors to create “the happiness enterprise”

involve risks, and we are aware that we will make mistakes along the way. We are

constantly learning new things, and must remain honest about the areas where we

can improve – continuing to share our progress. Thank you for letting us share

some of them through this report. We look forward to continuing with our

customers, industry partners, employees, and stakeholders as we help the world

become a “happier” place.

Sincere ly

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Contents

Ene rgy consumpt ion

Wate r

Emis s ion o f Greehouse

Was t e

Eff l uen t

Chemica l s managemen t

About us

Environment

Economic performance

Economy

Abou t D iamond Group

Abou t t h i s r epo r t

Ska t eho lde r ' s i n t e rv i ew

Labor p r ac t i c e and decen t work

Employmen t

Turnove r r a t e

Labo r & managemen t r e l a t i ons

Occupa t i ona l hea l t h and s a f e ty

Equa l pay

Compl i ance

Human r i gh t s

Non-d i s c r im ina t i on

Freedom o f Assoc i a t i on and Co l l ec t i ve Ba rga in ing

Ch i ld l abo r

Fo rced and compu l so ry l abo r

P roduc t

Se l f Dec l a r a t i on

GRI Con ten t I ndex

GRI pe r fo rmance i nd i ca to r

GRI

Social

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343536

About us

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are a leading manufacturer of high performance athletic, sports, casual,

indoor, outdoor, working shoes and snow boots. Our major customers are PUMA,

MIZUNO, LACOSTE, TIMBERLAND, UNDER AMORE, HEAD, etc.

Founded in 1972, Diamond Group, in Taichung Taiwan, is a private enterprise with

over 15,000 employee world wide, major in Taiwan, China, Vietnam, Cambodia, and

Indonesia.

Diamond Group is headquartered in Taiwan and it coordinates all operations,

such as development, production, logistics and related departments. As we are a

private-owned enterprise, each different level manager has their own different

authority and responsibility according to the business requirement. We have

factories in China, Vietnam, Cambodia and Indonesia, and even have a Puma

developing village in Vietnam. Please see distribution map as follows:

We

About Diamond Group

This report regards to China area, not including Shoeway. In China area,

there is Taiway sports com. Ltd in Dongguan, Shineway & Shoeway com.

Ltd in Hunan separately. Shineway has four sub factories; they are CDH1,

CDH3, CDH6 and CDH8. Shoeeay is purchased by Diamond in the midyear

of 2010, becoming the outsole factory of Diamond. For a certain limitation

in data collection, this report will not contain Shoeway. All data of this

report come from the financial statistics, Human Resource data and the

environment & human rights data.

Production organizational chart of China area in 2011 as below:

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About this reportThis is the second Sustainability Report issued by Diamond Group and is

intended to communicate our sustainability efforts and performance to

stakeholders. The information in this report covers the calendar year for 2011

which corresponds to our financial year. For quantitative measures of

performance, the report includes data for the year 2010 to help readers

identifying trends and year-on-year comparison. Additionally, this report was

prepared using the Global Reporting Initiative's (GRI) G3.1 Reporting

Guidelines, which is the world's most widely used sustainability reporting

framework. We self-declare this report to satisfy the GRI Application Level B.

Feedback

We welcome your feedback on this report.

Please contact Temper Lin at [email protected]

Sincere ly

Temper Lin

S .A.F.E . Off icer

Diamond Group

Director of PUMA staying at Diamond factory

Michael Yang

He is the director of PUMA who stays at our

factory and audit related things: confirming

whether qual i ty of PUMA shoes are OK;

Participating in trial order meeting of PUMA and

giving guidance; following up settlement of every

new style and guaranteeing quantity producing

smoothly; confirming all material test and its

quality; making sure each operation in producing

is according to SOP; giving guidance for

producing to make sure we can finish the order and

shipment on time.

Stakeholder's interview

Staff of Hunan

Zhu Jide

This staff was recommended into the factory in

Hunan by his friend on February 13, 2012. He is a

worker of printing section. His major job is

reticular and stereoscopic printing.

“ Working at Shineway because of the rational

salary and closing to home. The salary system is

paid by piece, so that the amount of wages is totally

according to personal ability. The salary is open

and fair, what's more, the staff knows the source

and calculation of the salary. Every month, we

choose outstanding staff through public appraisal,

and reward them which will encourage the

rewarded staff and spur the others.”

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Cadre of Hunan　

Wei Yong

The chief of cutting and stitching section in CDH1.

“In Dec.12, 2009, I entered into Diamond group again. I'm

Diamond group provide a large stage and equal chance to

everybody. When I first come into diamond in October 1998, I

was a worker, loading & unloading the container every day. It's

the company that gives me the chance to cultivate and prove

myself. Though working in a place far from home, we can still

feel warm and help ourselves.”

The Chief of Education Bureau in Lanshan county,

Yongzhou city, Hunan Province

Liao Guoguang

Taking charge of the overall bureau of education; in charge of

leading in enterprise and investment, as well as supervising and

guiding related work of education.

"The diamond is permanent and remote, which spreads forever.

Diamond group has made enormous contribution to education of

Lanshan, especially the launch of Pine & Pearl project, giving

financial aid to poor students of Lanshan. The project has

sponsored over 300 poor students in Lanshan and subsidized more

than RMB350,000 yuan since 2006. It is deserved to be called "love"

enterprises. I believe that the primary school to be found in 2012 will

be a high-standard, good quality and high-level school in Lanshan.

This school will cultivate much more outstanding talents for Lanshan.

We hope that Diamond group can introduce advanced teaching idea

and management for our county, and also make great efforts to run a

characteristic school and build development economic zone in

Lanshan. On behalf of citizen of Lanshan and its education, thank you

for your unselfish help.Meanwhile, I hope that the Pine & Pearl

project will go on. Finally, wish us to be happy in cooperation! "

Tong Hong Tannery

As one of Diamond Group great split leather supplier, Tong Hong

Tannery always considers environment protection is one of our

major duty and obligation.

“Diamond Group has been making their great efforts to protect

environment and also make improvement, as well as encourage its

suppliers to do it. To reduce the energy consumption and efficiency,

we also invested large sums of money on production

equipment improvement such as Y-shape energy saving

drums, 5 layers vacuum drying machine, water recycle

system, steam recycle system, develop new water based PU

transfer coating system...to make sure we do not waste any

precious energy and make our company more sustainable.

Tong Hong also participated in PUMA S.A.F.E program, no

matter on OHS or human right aspects, we are willing to

follow PUMA guidance and make good cooperation with

our customers as well.

It is our great honor to work tightly with PUMA and

Diamond Group to reduce the impact to the environment. It

is our mission and also inevitable responsibility. We

believe there is always room for improvement in Tong

Hong Tannery Group and we are continuously to do so.”

Head of Special Secondary School in

Lanshan county, Yongzhou city

Wang Yunzhong

For school managing, it regards “developing vocational

education and serving local economy” as its guiding

principle for running a school. It tries hard to recommend

c o o p e r a t i o n b e t w e e n s c h o o l a n d e n t e r p r i s e , a n d

successfully run a class named "Shineway Footwear and

management" with Diamond group cooperation.

" It's valuable for Diamond group to set up powerful

cooperation with us to devoted education, as they produce

several ten million pairs of shoes every year. What's more,

Diamond makes great efforts to promote the development of

our school and making investment through "cooperation

between school and enterprise" step by step. Diamond is a

responsible enterprise with development potentiality! "

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Economic Performance

As footwear moves from Dongguan into hinterland successively, we Diamond

group choose a good place with green mountains and clear waters, Hunan.

Diamond group expands the investment of Hunan constantly, and adjust its

output in Dongguan, keeping China area's whole gross output value increasing by

more than 10% every year. The measures we take are as below: control Man-hour,

promote efficiency, lower the material cost, reduce mistake in calculating

consumption, cut down the stock of the material in process and rational

utilization stock. We are confident to keep 10% in 2012.

Picture I: Tendency of China area's gross output value

In addition, while ensuring the increase of annual output, we also make

system of factory profit, Department Amoeba and KPI Index to access the

factory, department and personal performance to set up benign assessment

mechanism among the factories, making enterprises expand and develop

constantly. The system of factory profit mainly examining factory, i.e.

accessing the factory supervisor's performance by actual profit rate of each

month, and also checking the operating state of each factory through the

Out put Val ue ( t en t housand USD)

6086

8819

10255

0

2000

4000

6000

8000

10000

12000

2009 2010 2011

Economy

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profit, Department Amoeba and KPI Index to access the factory, department and

personal performance to set up benign assessment mechanism among the factories,

making enterprises expand and develop constantly. The system of factory profit mainly

examining factory, i.e. accessing the factory supervisor's performance by actual profit

rate of each month, and also checking the operating state of each factory through the

profit; Department amoeba means calculating profit state based on monthly data of each

department. Personal KPI aims to access state of individual work, based on

accomplishment ratio and wrong rate of his routine work of every month. The above

three items can help individual finish his own work errorless and in time, at the same

time, can check profit state of the department , and even control the cost of the

department well.

We will improve the insufficient for above mentioned. Regarding group's annual goal

as the theme, we should reach the index goals ahead, and prevent from influence on the

index of output benefit in advance. We will finish our community responsibility, in a

situation that making a profit.

The company has been adhering to the principle of equal employment all the time

in the staff recruit, do not assign to the race, the age, sex, religion, faith, etc., offer

fair employment opportunity to applicant, and provide more managing jobs to the

local staff. Local administrative staff rate is 66% in the wholly administrative staff

at present, compared with 2010, have rise by 8%, which means giving local staff

much more chance to study and self-promotion.

Picture II: Contrast of administrative staff between in 2010 and 2011

1914

37

19

0

10

20

30

40

2010 2011

Chinese Taiwanese

Environment

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course, we also make knowledge of environmental protection widely available, such as

in orientation training, officer's on-the-job training, the manual of staff, etc. In 2011,

aiming to strengthen staff's awareness of environmental protection, we start to specify a

whole month to giving publicity to environmental protection; open a course of

chemicals management and chemicals omission exercise half a year. Making shoes for

over 30 years, we clearly know the important of environment. So we give priority to

environmental protection material; produce green products; even introduce advanced

technology to reduce the consumption of energy and environmental pollution.

Main material proportion of China area in 2011 is as follows：

The environment is the condition that the mankind depends on for existence, and also the

foundation of human development. As a member of earth village, we have responsibility

and obligation to protect the ecological balance and environment, and also aim to protecting

environment and taking action starts from me. We formulate environmental performance

indicator based on related environmental regulation and requirement, the consumption of

water and electricity, the stationary and hazardous emission reduced firmly by 5% each

year; the emission & effluent is up to standard; No complaint on environmental pollution. In

order to guarantee the Environmental Management can be carried out effectively, we take

great measures as below: reach the environmental management objectives and prevent the

emergence of calamity incident by making a system named Environmental Monitoring and

Measuring Management; Standardize the management of company effluent & emission &

waste & chemicals through regulations; collect and analyze Environmental-KPI data every

month, then make the key indicator public in monthly meeting and ask Occupational Health

& Safety Commission to analyze and self-criticism. Of

Environment

Major Materials of China Area in 2011

53%

8%

17%

22%

Leat her

PU

Fabr i c

Foam

The total amount of China area's energy consumption in 2011 is 10,423,112kwh,

among which 85% (8,859,645 kWh) is for production, and the other 15% (1563467

kWh) is for daily life. The power consumption of one pair of shoes is 0.97kwh. It is

the goal that we continuously reduce power consumption by 5% each year. We

establish “Energy Management Program”, " Regulations of Air Conditioner

Management” & “Regulations of Power Management” to control power for work

and daily life. At the same time, we ask our staff to shut down the power when go off

work, the cadre has to double check whether all power is closed; arrange security

guard and cadre on duty in the daytime, and senior manager on duty at night to

guarantee all power is closed, thus reducing unnecessary waste. We have priority to

purchase the energy-efficient products and do a good job of resource recovery;

install the solar water heater in senior manager's dormitory; utilize remaining

energy of the air compressor to boil water for staff having a shower, greatly reducing

Energy Consumption

the power consumption. In 2011, we changed into using energy-efficient LED

light which can reduce power consumption 56.55kwh every day, 1187.55kwh

every month and 14250.6kwh every year; Adapting 10 traditional electric heat

oven into infrared oven, which can save 17kwh one day (one set in 8h), 170kwh

10 days (ten sets in 8h), 3740kwh every month and 44880kwh every year

12,809,03510,423,112

0

5,000,000

10,000,000

15,000,000

2010 2011

Comparison Chart of Power Consumption in China Area between in 2010

and 2011 (Unit:kwh)

2010

2011

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WaterThe 3 total amount of water usage in China Area is 360,560 m in 2011, among which 98%

3 3(353,349 m ) is for daily life, and the other 2% (7,211 m ) is for production. There is 80% waste

water can be recycling through the sewage disposal device, mainly used to water flowers and

plants every day, spray roof for cooling, and wash the bathroom. In order to guarantee the water

consumption reduced by 5% every year, we standardize water usage through “Energy

Management Program”, install energy-efficient water halter to reduce the amount of water

consumption, and arrange security guard & cadre on duty to inspect the whole factory's water

usage, thus reducing the unnecessary waste. AS Shineway expand its production and construct a

factory building for two Assembling lines & Sample department, including cutting, stitching

and assembly, the total water consumption added by 0.23% in 2011, compared with 2010. We

will continuously improve it and try best to reach the goal 5%.

359,731

360,560

359,000

359,500

360,000

360,500

361,000

2010 2011

Comparison Chart of Water Consumption in China Area between in 2010

and 2011(Unit:m3)

2010

2011

Emission of Greenhouse

As one of the main greenhouse gas, carbon discharge (CO ) has been universally 2

condemned for its large amount of discharge with aggravation of the human activity,

causing global warming and some other environmental changes of the climate. Since

2009, the energy-conservation lights have taken over the fluorescent lamp saving power

35% everyday; use infrared oven instead of traditional electric lamp can save power

40% everyday; install solar water heater in senior manager's dormitory can save 80%;

altering air compressor into energy conversion machine and reusing the remaining

energy have a distinct energy-saving effect. We are always trying our best to reduce

discharge of CO . In 2011, we changed into using energy-efficient LED light which can 2

reduce power consumption 56.55kwh & discharge of CO 0.045 tons every day, 0.936 2

tons every month, 11.234 tons every year; Adapting 10 traditional electric heat oven into

infrared oven, which can save 17kwh one day (one set in 8h), 170kwh 10 days (ten sets

in 8h); reduce discharge of CO 2.814 tons every month, 33.771 tons every year. The 2

total discharge of CO is 8,202.435 tons in 2011, dropped by 18.7%, compared with 2

2010.

10097.4738202.435

0

2000

4000

6000

8000

10000

12000

2010 2011

Comparison Chart of CO2 Discharge in China Area between in 2010 and

2011(Unit:ton)

2010

2011

With the increasing of population, the development of economy and the improvement

of the people's lives, more and more rubbish endangering the environment that we are

depending on for existence. We try our best to reduce damage to the environment by

lowering the quantity of the rubbish. For living garbage, we demand to forbid using the

disposable bowls & chopsticks and plastic bag; install drinking fountain at every

workshop to prevent the staff buying the bottled water; fully utilize recycled writing

paper to reduce white pollution. For industrial rubbish, we specify a place to leaving

rubbish. Classify the rubbish produced in production process to be recycled, and

Waste

appoint a worker to collect it twice to be put on the rubbish place every day. The

waste with no dangerous account for 98% between recycling & unrecoverable offal,

to be handled by the local qualified recycle bin; the waste with dangerous only

account for 2% between recycling & unrecoverable offal, to be handled by qualified

organization which specify recycling to avoid aggravating the danger to the

environment because of dealing with improperly.

Classification and Recycling Ratio of China Area's

Effluent in 2011

93%

2%2%2%

1%

0%

Recycled paper / cardboard

Recycled fabric

Recycled effluent without hazardous

Effluent without hazardous cannot be

recycled

Recycled effluent witht hazardous

Effluent with hazardous cannot be recycled

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Effluent

In the shoes manufacturing industry, the industrial sewage mainly produced by printing. For our

company, all printing of the products are finished by our co-operate factory. That is to say, 99%

of effluent comes from daily life, and the other 1% is industrial sewage produced by water-

washing machine of outsole manufactory. We invite organization specifying in recycling to give

an estimate and help us set up the pipeline to make effluent flow into the specialty barrel alone,

and then to be cleared up regularly by the organization, which avoids environmental pollution

caused by leaking or improperly management.

Chemicals Management

90% of chemicals we used comes from suppliers which appointed by our customer, and the

other 10% is from the supplier screened strictly by purchasing department with analysis

according to the regulations of ISO19001; but the chemicals will not be used until the trial

products with chemicals pass the laboratory test. For chemicals management, there is an

independent chemicals warehouse equipped with spray type fire extinguisher, pneumatic

ventilation facilities and protective equipment; and also with Material Safety Data Sheet

(MSDS) and List of Chemicals on the wall. All chemicals are classified and preserved with

secondary protection. For chemicals use, there is also an independent room to mix glue with

spray type fire extinguisher, pneumatic ventilation facilities, protective equipment and

MSDS, as well as thermometer and shower device. The operator is asked to wear on all the

protection equipment when mixing glue. The chemicals used online all mark MSDS, and the

worker must wear protected gloves and carbon gauze mask; each shaping line is furnished

with eyewash platform. For instance, anything get in touch with chemicals, such as glue

brushing, chemicals container, cloth used to wipe chemicals, etc., are regarded as dangerous

waste, to be collected and retrieved by the qualified recovery organization. All people get in

touch with chemicals have to attend pre-job training; invite manufacturer of glue & potion

to hold a training meeting for chemicals management & use & leaking twice a year. We

forbid using chemicals contain benzene, toluene, trichloroethylene, trans-dichloroethylene,

etc. to ensure the products' security. Regarding good quality of products as competence, we

have priority to adopt the water based instead of solvent based in order to reduce the

influence on environment. There is zero injury or leaking accident caused by improper

management or use of chemicals so far.

Social

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SocialLabor Practices and Decent Work

People's benefit comes first which is Diamond group's core culture. We aims to

"Thinking and worried based on staff and the staff's success is our company's

achievement." We care about every employee's growth and their future. We keep our

staff not only by treatment, but also by career and emotions. Every employee can get

respect and justice to enrich both their soul and fortune. There are many associations

(i.e. computer, song and dance, and basketball, the painting & calligraphy and English),

library, clinic, trade union, minitype super market, Internet cafe and various kinds of

recreational facilities (i.e. table tennis, badminton, basketball, billiards, etc.) for the

staff to enjoy work and living. We hope that our staff can cultivate themselves and make

contributions to the company, and even the society.

The system “The Standard Management of the Wages” is made by Planning

Department and agreed by the representatives of staff and trade union to put into

practice. The structure of the wages is as follows: Salary should be paid = Basic

wage + overtime pay + performance bonus (efficiency bonus + technological bonus)

+ multi-functional working skills bonus + seniority/meal allowance + outside

lodging subsidy; In the meanwhile, Shineway paid by hourly or output bonus

payment system, and choose which one is higher to pay. The staff can check their

salary and if there are any questions, they can find the help from their supervisor or

trade union.

In order to encouraging new staff to grasp the technical ability and know the

environment well as soon as possible, we arrange the cadre in the same line to help

them. Human Resource Department and Planning Department set up a bonus system

for those stuff who pass the working skills exam; who grasps working skills quickly

as a rookie. How much can the cadre get the bonus based on assessments from his

supervisor and the new employee he teached: if excellent, the bonus will be RMB60;

if good, that will be RMB50; if qualified, that will be RMB40. One month later,

when the new employee gets qualified in the probation period, he can get bonus

RMB50; if not qualified, he has to leave the company.

Human Resource and Logistic Service Department hold new employee's discussion

once every half a month; hold a discussion twice every two months for those who have

been in the company for 2 month or 6 month or even 2 years. The holder writes down

some questions the staff reflecting, and then announce it when solve the problem. Any

employee can supervise the whole process of handling problem until it is well solved.

Human Resource Department set up a system “Standard of Education and Training

Management” providing a chance to study and prove for staff. All staff needs to attend

New Employee Orientation, Induction Training, and even On-the-job Training

according to different post demands. The company will hold one or two training courses

to select cadre every year, anyone can enroll in the course according to his own

willingness and ability. If qualified, the trainee can be promoted in three month later.

Every employee fully possesses the right of freedom of association. In order to help

staff cultivate themselves, improve their life quality, and realize the goal "healthy,

happy and new life", the Trade Union formulate the system “Methods of Associations

Management” with a purpose says " serve for staff's life; serve for company's

development; serve for staff's improvement and development”. In the dull season of

production, the associations hold much more activities, so that most of staff can

participate in.

The company cares the health and safety of stuff, gives special treatment to the

disadvantaged, and also set up the system “Methods of the Disadvantaged

Management”. For the Juvenile Workers, pregnant woman and disabled person, we

adjust their post and control their over time. Human Resource Department

announces overtime notes and post details of the disadvantaged every week.

On the day of Dragon Boat Festival, the Mid-autumn Festival or Spring Festival,

the Trade Union will give gifts to the staff, making the staff feel the joy just like at

home. We hold the birthday party for stuff each quarter, large-scale sports meeting

and Spring Festival Party every year. Moreover, in order to make staff together with

their family when coming off work, Shineway started to arrange shuttle cars for

their working on in 2009. There are 13 shuttle cars for 500 employees in 2011. The

company will plan activity and welfare of this quarter for staff on Trade Union

Congress each month.

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68.50%

31.50%

67.40%

32.60%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

Female Male

2010

2011

9.09%

12.00%

6.04%

4.65%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

16-18 18-35 35-45 45+

Turnover rate by Age

9.09%

12.00%

6.04%

4.65%

8.33%

10.56%9.84% 10.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16-18 18-35 35-45 45+

2011

2010

Henan: 14.52%

Hubei: 4.25%

Hunan: 60.13%

Sichuan:8.63%

Jiangxi: 3.01%

Guizhou: 1.46%

Guangxi: 1.99%

Employment

There are around 6,000 employees of Taiway and Shineway in 2011. Comparing with 2010, the

number increases about 1,000. The staff are mainly distributed in the province of Hunan

(60.13%), Henan (14.52% ), Sichuan (8.63% ), Hubei (4.25% ), Jiangxi (3.01% ), Guizhou

(1.46% ), and Guangxi (1.99%) . The proportion of staff in Hunan is the highest, because there

are many factories in Hunan. And the others' proportion, such as Guangdong, Shanxi, Fujian,

Yunnan, Shandong, Zhejiang, Jiangsu, Hebei, is smaller than 1%, so that they will not be listed.

Turnover rate

The flow of personnel is much bigger, because the majority of people prefer to work at

hometown for more and more factories moved into hinterland in 2011. China's New Year is

nearly on Februarys every year. In order to enjoy and celebrate the New Year holidays, most

employees choose to leave their jobs temporarily, leading a peak period of personnel's loss in

February each year. Though we give staff an alternative holiday, grant bonus of Spring Festival

to prevent person's loss, the loss rate is still higher than any other months. The average turnover

rate of 2010 is 8.89%, compared with 2011, dropped by 1.66%. Please see the monthly turnover

rate in 2010 & 2011 as below.

8.20%9.11%

21.92%

12.10%10.49%

9.40% 10.00%8.48%

9.82% 9.53%8.52% 9.04%

10.55%9.20%

12.64% 12.56%

7.50%8.10% 8.44% 8.60%

7.90% 8.12% 7.86% 7.78% 7.96%8.89%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ave.

2010

2011

Among the terminated employees, the age of 18 to 35 accounts for 77.19% of the total; 35 to

45 accounts for 21.63%; the others account for 1.18%. The same as in 2010, the age of 45 is

relatively stable because of the limitations of age and working opportunity. The staff with age of

18 to 35 is the floating population and most of them leaving office because of family factors.

In 2011, we offered more than 6,000 jobs. Jobs in footwear are major stitching and it is

considered as women's work in China. In 2010, Diamond Group had 68.5% female workers and

31.5% male workers; in 2011, 67.4% female workers and 32.6% male workers. It is relatively

difficult to recruit, because more and more people go back to home to get a job recently. In 2011,

we recruited much more male workers, for the male is much fit for cutting and lasting. Training for Cadre Training for Cadre Sports meeting

23

24

Labor & Management Relations

In 2011, we recruited the Juvenile Workers, pregnant woman and disabled people

protected by Collective Agreement. Juvenile Workers are engaged in the appropriate

posts as per national laws and regulations; their overtime cannot exceed 36 hours in

one month; they will have the physical examinations before work, one year later and

the age of 18. The pregnant woman can't work in non-working day, or be engaged in

jobs under taboo. Moreover they have the right to enjoy maternity leave on the basis

of national regulations; apply for meal & lounge special for pregnant woman; get

consolation money of RMB600. The disabled people are forbidden to engage in the

special jobs or work in non-working days; if they are unable to do their jobs because

of disabled, the company will arrange the suitable posts for them after consulting.

Besides, the company grants RMB360 to the disabled every year. The proportions of

Juvenile Workers, pregnant woman and disabled people are as below:

The total number of proportion

0.41%

0.27%

0.14%

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

Minor Pregnant woman Disabled person

Occupational Health and Safety

The company pays attention to the staff's life safety and health, and set up a Council

for Environment, Health & Safety, called EHS for short. There is a training course of

health & safety for new staff. We provide PPE for labor protection (glove / earplug

/gauze mask wait); give an annual physical examination; offer herb tea in summer.

There is also a regularly inspection for machinery equipment everyday. Medical kits

are placed at each workshop with personal management. There is no occupational

disease or death caused by industrial injury in 2011, but few industrial accidents

resulted in improperly operations, accounting for 0.83% of the total number of staff in

2011; the days of absence from duty account for 0.06% of total attendance days. Here

is the proportion of industrial injury in 2010 and 2011.

0.83%

0.06%

0.71%

0.05%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

Industrial scale Industrial accident rate

2011

2010

Equal Pay

The company runs a system paid by hourly or piece, on the basis of the principle, equal pay for

equal work and distribution according to work. We pay the salary in fully accordance with

national laws and regulations, transfer wages into staff's bank accounts on the 25th every month

with salary details sheet signed. All staff has the right to enjoy a sick leave, annual leave,

marriage leave, funeral leave, and other legal holidays leave with paid. Workers' monthly salary

is about RMB1800 yuan to RMB3000 yuan. But the male workers' salary is higher by 12% than

female workers', because of physical capacity for some skilled jobs, such as toe lasting, side

lasting, heel lasting and sole sticking in Assembly; as earlier mentioned, there is technological

bonus in staff's salary, and male workers' technological bonus is relatively higher than female's

as due to their skilled jobs. As a result, male workers' salary is higher.

Compliance

The company is strictly in compliance with national laws and regulations; work out

perfect systems of recruitment management, including Management System of Labor

Contract, System of Wages and Welfare, to ensure and uphold the rights of staff; select

representatives of Trade Union in each department to offer avenues for staff to express

demands and even develop staff's informal discussion; add seven mailbox in living area

to promote communication between the staff and administrator. In order to make it

convenient for staff leaving office, a turnover mailbox is added, too. After probationary

period, the staff can leave office in one month later, so long as he makes an appointment

of turnover. So, any staff can leave office based of regulations, if he wants to. The

company has not violated the laws and regulations in 2011, just the same as in the past.

25

26

0 0

0

1

2

3

4

5

2010 2011

Comparison Chart of Discrimination Case between 2010 and 2011

2010 2011

Human Rights

Article I of “Universal Declaration of Human Rights” says: “Everyone born free and

equal in dignity & rights". On the basis of Article I, we establish a SAFE organization to

supervise and restrain all factories should observe and ensure all regulations of human

rights. In order to guarantee that the human rights standard could fully carry out, every

year, we arrange at least two training courses to promote cadre's cognition of human

rights, thus avoiding improper management leaded by the lack of human rights

cognition. We extract relevant human rights standard and grievance-redress mechanism

into staff's manual and training material for new staff, making all employees understand

and use the power of human rights. We have systems to standardize the freedom of

association and collective bargaining, child labor, non-discrimination, forced and

compulsory labor. Moreover, we set a performance indictor of human rights, i.e. zero

child labor, discrimination and compulsory labor, to check if the factory is in

accordance with human rights.

Non-discrimination

We totally observe stipulations of “Convention No. 111 ", do not assign to the race, faith,

age, sex, religion, political view, sex orientation or the position, etc. in recruitment, and

offer the equal employment opportunity without collecting any expenses; we totally observe

“Convention No. 111 " regulation says equal pay for equal work between male and female

workers. In order to guarantee that the staff can be fully respected in their jobs, we work out

the "System of No Harassment, No Discrimination and No Retaliation", clearly stipulating:

in the job, no one will be discriminate against for the difference of sex, age, race, religion,

marriage, physiology, surname, district, religious belief, etc.; If any staff feel discriminated

against, he can complain by the help of SAFE group, HR, Trade Union, mailbox (manager's

mailbox, director's mailbox, COO mailbox, S.A.F.E mailbox, etc.). Verifying the complaint

through investigation, we will give administrative penalty to the person liable. There is zero

discrimination case in 2011, same as in 2010.

Freedom of Association and Collective Bargaining

We totally comply with regulations of “Convention No. 87”, and all staff can enjoy the

right of freedom of association. We set up “Methods of Associations Management” to

help employees form associations freely. There are 9 associations now; they are football

club, basketball club, song and dance club, badminton club, computer club, English

study club, painting & calligraphy club, Rose club for assistants and Bamboo club. The

total number of association member is about 400 in 2011, accounting for 7% of the total

in China area. Comparing with in 2010, it is up by 1.2%.

352

400

320

340

360

380

400

2010年社團人數 2011年社團人數

2011年與2010年社團人數對比示意圖

2010年社團人數

2011年社團人數

We make “Equal Consultation and Collective Contract System" to coordinate the

relations of labor and management; to safeguard worker's labor rights and interests; to

arouse the enthusiasm of workers to promote the development of company. The staff

can put forward their requests for wages to company for salary adjustment,

welfare improving and working environment improving. The draft agreed by

both of them can be implemented when it was passed by the Trade Union

Congress. On February 28, 2011, staff of Shineway put forward the collective

bargaining in comprehensive performance award (named Attendance Bonus),

and then the attendance bonus is raised to RMB100 from RMB50 per month after

reaching a consensus through collective bargaining. As a result, the overall

salary raises about 4% (hourly wage was RMB1100, plus the attendance bonus

RMB100 is to RMB1200, increased 9%; piece wage was RMB1600, plus the

added attendance bonus RMB50, is to be raised by 3.1%).

27

28

0 0

0

1

2

3

4

5

2010 2011

Comparison Chart of Child Labor's No. between 2010 and 2011

2010 2011

Child Labor

The child labor refers to being under the age of 16, working in the enterprise and getting

economic incomes. We totally observe the stipulations of “Convention No. 182", "Convention

No. 138" and "Convention No. 79", never hire the worker who is under the age of 16. Some

applicants use fake ID card for various reasons. For those people, firstly, we arrange

experienced personnel engaged in recruitment to discern ID card; secondly, use ID

identification device from the Police Department to discern it; then discern and filter it through

reporting system of floating population linking with public security organization; finally, ask

staff to apply a bank card for wage in Postal Bank and the clerk can help us to discern and filter.

The inspection and discernment of public security organization and the bank help us thoroughly

prevent misapplying the child labor. We did not hire any child laborer in 2011 or in the past, and

will not in the future.

Forced and Compulsory Labor

We totally abide by the stipulations of "Convention No. 29 " and "Convention No. 105 ", do

not force staff to working, respect and safeguard the dignity of human personality in the

workplace, do not adopt any kind of forced labor, harasses, maltreats or corporal

punishment. We insist on preventing forced and compulsory labor by following methods: a:

follows the voluntary principle, does not collect any registration fee while recruiting the

staff, will not force anyone to come to the company, will not withhold any certificate; b: on

quitting time (including noontime), the staff can come in and go out of the factory with

wearing recognition card; c: on working time, the staff can ask for leave by filling a form and

go back to dormitory to have a rest, while he is ill or has something emergency; d: toilet time

is unrestricted on working time; e: only when the staff agree to and sign a sheet of voluntary

overtime can arrange them work overtime. f: transfer wages to staff's account on the 25th

every month without delay or mortgage, avoiding bonded labor; g: probation staff should

apply for leaving jobs 3 days in advance, while formal staff should 30 days in advance, then

labor contract can be cancelled; in addition, the staff can leave jobs timely if he has

something important or emergency. h: provide a channel for appealing, such as S.A.F.E

group, HR, Trade Union, Mailbox. Verifying the complaint through investigation, we will

give administrative penalty to the person liable or even fire him in serious casement. There

were no cases of forced and compulsory labor in 2011 or before.

Product

With the development of social economy, people's quality requirement of products is not only

for using but also for the security of the products, healthy, hygiene and environmental. In order

to meet the constantly increase of consumer demands, and also to protect the earth through

energy-conservation and emission reduction, we Diamond Group pay much attention on the

quality policy like: "Give great priority to the customer; focus on the quality; improve

constantly; pursue being apex.” Continue to deepen construction of the ISO9001 Quality

Management System, strictly control the quality in the engineering, materials procurement,

manufacture and shipping inspection, to exceed the customer's expectation, reduce scrap and

waste.

To ensure the material quality, safety and protection by selecting, managing and monitoring

our supplier. We are not only giving the materials to the relevant authoritative department to

make harmful substance test, but do basic inspection and physical properties test in our own

Testing Department.

For the new style shoes, we have specialized engineering staff who carry on the trial of each

stages, and have a meeting to discuss questions occurred in trial process to prevent impacts on

quality and output. And our engineering staff will make a standard named “Introduction of

Production Process”, and SOP for production department.

In mass production, we prefer to choose the outstanding staff, namely, all staffs need to be

trained before on duty (educate the quality idea, customer requests and standard), ensuring

that they have the ability finish their jobs. In the production process, for different style, we

need to advocate the focal point of quality and precautions to the staff again. For semi-

manufactured and finished goods, we have a specialized QC group to supervise, guide and

inspection; the uppers, found to be unqualified should be redo and cannot be flowed into the

next section until it is qualified in inspection. Then write down problems and quantities for

bas quality, to be gathered and examined quality KPI. And then review it on the meeting at

the end of the month.

In order to ensure the quality of shipping shoes could reach customer's requirement, we

set up QA group to examine the finished shoes. If founding defected shoes, QA will ask the

production line to repack immediately. When passing the re-inspection, the finished shoes

could ship out. QA will record the defected and secondary grade shoes. Repack data will also

be recorded on the sheet and the person liable has to provide a report about it. This data sheet

will also be gathered at the end of the month. Then have a self-improvement on the meeting.

After shipment, if any customer or consumer find quality problems, Sales department

will deal with the problem and pay the claim depend on situation. At the same time, we will

feedback to the production department liable to prevent the same problems happen.

29

30

2010 2011 No. Name of Suppliers Goods

Scores Grades Scores Grades

1 EverTech Outsole 89.87 A 89.8 A

2 Try On Outsole 88.16 A 88.16 A

3 Planbase Outsole 92.56 A 92.56 A

4 Fitday Outsole 92.83 A 92.83 A

5 Yin Hua Lasting 98 A 98 A

6 SanFang PU 96 A 90 A

7 PrimeAsia Leather 95 A 98 A

8 TongHong Leather 93 A 87 A

9 WeiShen Insock 91.8 A 91.8 A

1. For the suppliers winning the biding, both in 2010 and 2011, the audit rate of

qualification is 100%; the qualified rate of material is 98.9%; the qualified rate of physical

test is 97.99%; the overall result makes a progress comparing in 2010, but has not reached

goal of 99%. Please see the data as following:

100%

99%

99%

100%

97.80%

97%

100%

98.50%

98.00%

96% 96% 97% 97% 98% 98% 99% 99% 100% 100% 101%

Audit rate of qualification for

suppliers wining biding

Qualified rate of material

Qualified rate of physical test

2012

2010

Goal

In order to increase the qualified rate of materials and physical test, the company takes

great measures as below.

First of all, strengthen to assess the material suppliers through arranging purchaser to

patrol their factories: a. to check if their production facility is perfect or qualified; if they

have enough source materials for goods; if their quality system is perfect; if detection device

is up to standard; if their source material is qualified; and any other conditions,

such as surrounding of factory and warehouse, financial status, delivery schedule is

steady or not, the price is rational or not, etc.. Moreover, we will reward and punish

according to the results of assessment.

Grade Scores Proposal

A 80~100 Increase orders as per circumstances；Enjoy the priority to develop samples.

B 60~79 None.

C 60 Cut down orders as per circumstances；Cancel its purchasing application without improvement within limited time or being C grade twice continuously.

Secondly, enhance to confirm the samples before mass production. When founding

the sample is unqualified, the purchaser will notify the supplier, ask them to improve it

and deliver sample goods to us again. If it is still unqualified, we will cancel its

qualification.

Results of accessing for supplier both in 2010 and 2011:

2. Please see the results of assessment in 2011 for quality performance in

each production process as below. Among which repair rate in stitching,

scrapping rate of finished & semi-manufactured shoes, Secondary grade rate

in inspection are within target zone, but repack rate in Assembly is not. Here is

the data:

31

32

In order to make the repack rate in Assembly within target area in 2012, the

company will take great measures as below:

1> Resolve all quality problems completely appeared in the process of

developing and trial;

2> Strengthen quality control since purchasing materials, reject unusual

Date No. Amount of

Money USD Points Reasons Solutions

Feb. 2011 1 1089.11

Damaged on

stitching and turn

portion

Great force on tongue

because of stitching and turn.

Tongue has been changed into 3D

tongue for future orders.

Bonded in outsole

Improper operation of

brushing in Assembly and

over high gesture when

sticking outsole

Strict requirement on brushing and

sole pressing timely

Jun. 2011 1 542.75 Yellow on vamp of

LACOSTE

Yellow on vamp because of

material bleeding

Change materials. And then

transfer to Vietnam factory because

of high cost.

Jul. 2011 1 95.15 Bonded in outsole

of LACOSTE

Surface on foxing and outsole

is too small resulting lack of

force

Prove process when complaint

occur and increase pressing force.

Orders have been transferred

Amount 3 1727.01

6.0%

8.0%

3.2%2.6%

7.23%

11.17%

0.39%

3.54%

5.79%

8.12%

2.76%

0.1%0.08%

0.06%0.21%

-1.0%

1.0%

3.0%

5.0%

7.0%

9.0%

11.0%

Repair rate ofstitching

Repair rate of lasting Scrapping rate offinished & semi-

manufactured

Repack rate B-grade rate ofinspection

Goal

2010

2011

3. The results of complaint, incurring expenses, in 2011 as below:

materials timely before production;

3> The workers have to observe the correct SOP and manual of production

procedure in production;

4> The cadre of QC has to patrol workshop to pinpoint problems and deal

with it in time; if it is serious, the cadre can demand to stop production and

then reorganize it. The production line can start to until the problem is

solved.

5> Discovering the same quality problems are appeared many times, the

QA can request the supervisor of this workshop to find out cause and make

an improvement; if not be improved in time, the QA will hand in a notice of

unusual quality and trace it.

6> The inspector needs to patrol the workshop to pinpoint the problems and

then handle it in time.

In order to avoid customer complaint, the company work out the "Customer Complaint

or Reject Operation Introduction" to standardize procedure; ask the department liable to

plan a improvement measures , to be regarded as the basis of KPI assess for the cadre , to

reduce the probability of customer complaint and compensation.

Self Declaration (Application Level)

I hereby declare that to the best of my understanding this report fulfills the

requirements for a GRI G3.1 Application Level B.

33

34

GRI Content Index

GRI performance indicator

35

36

S tra te g y a n d A n a l ys i s P a g e

1 .1 S ta te m e n t f ro m th e m o s t s e n i o r d e c i s i o n m a k e r 1

1 .2 D e s cri p ti o n f o r m a jo r i n f l u e n ce , ri s k a n d o p p o rtu n i t i e s 1

O rg a n i z a ti o n a l P ro f i l e

2 .1 N a m e o f th e o rg a n i z a ti o n 5

2 .2 P ri m a ry b ra n d s , p ro d u cts a n d / o r s e rvi ce s 5

2 .3 O p e ra ti o n a l s tru ctu re o f th e o rg a n i z a ti o n 5

2 .4 Lo ca ti o n o f o rg a n i z a ti o n ’s h e a d q u a rte rs 5

2 .5 N u m b e r o f co u n tri e s w h e re th e o rg a n i z a ti o n o p e ra te s 5

2 .6 N a tu re o f o w n e rs h i p a n d l e g a l f o rm 5

2 .7 M a rk e ts s e rve d b y th e o rg a n i z a ti o n 5

2 .8 S ca l e o f th e re p o rti n g o rg a n i z a ti o n 5

2 .9 S i g n i f i ca n t ch a n g e s d u ri n g th e re p o rti n g p e ri o d re g a rd i n g s i z e , s tru ctu re , o r o w n e rs h i p 6

2 .1 A w a rd s re ce i ve d i n th e re p o rti n g p e ri o d 2 8

R e p o rt P a ra m e te rs

3 .1 R e p o rti n g p e ri o d 7

3 .2 D a te o f l a s t re p o rt 7

3 .3 R e p o rti n g cyc l e 7

3 .4 Co n ta ct p o i n t f o r q u e s ti o n s 7

3 .5 P ro ce s s f o r d e f i n i n g re p o rt co n te n t 7

3 .6 B o u n d a ry o f th e re p o rt 6

3 .7 A n y s p e c i f i c l i m i ta ti o n s o n th e s co p e o r b o u n d a ry o f th e re p o rt 6

3 .8 B a s i c o f re p o rt 6

3 .9 M e th o d s a n d m o d e l o f d a ta m e a s u re m e n t 6

3 .1 2 G R I C o n te n t I n d e x 3 5

3 .1 3 P o l i c y a n d m e a s u re ta k e n f o r o rg a n i z a t i o n ’s e xte rn a l e xa m i n a t i o n f o r re p o rt N o n e

G o ve rn a n c e , C o m m i tm e n ts a n d E n g a g e m e n t

4 .1 G o ve rn a n c e s tru c tu re o f th e o rg a n i z a t i o n 1

4 .2 I n d i c a te w h e th e r th e C h a i r o f th e h i g h e s t g o ve rn a n c e b o d y i s a l s o a n e xe c u t i ve o f f i c e r 2

4 .3 W h e th e r o rg a n i z a t i o n h a s a u n i ta ry b o a rd s tru c tu re 5

4 .4M e c h a n i s m s f o r s h a re h o l d e rs a n d e m p l o ye e s to p ro vi d e re c o m m e n d a ti o n s o r d i re c t i o n to th e

h i g h e s t g o ve rn a n c e b o d y.1 2

4 .5 B a s i s f o r i d e n t i f i c a t i o n a n d s e l e c t i o n o f s ta k e h o l d e rs w i th w h o m to e n g a g e 1 2

4 .6 P ro c e s s e s i n p l a c e f o r th e h i g h e s t g o ve rn a n c e b o d y to e n s u re c o n f l i c ts o f i n te re s t a re a vo i d e d . 5

4 .7 P ro c e s s f o r d e te rm i n i n g th e c o m p o s i t i o n o f th e m e m b e rs o f th e h i g h e s t g o ve rn a n c e b o d y 1

4 .8 I n te rn a l l y d e ve l o p e d s ta te m e n ts o f m i s s i o n o r va l u e s 1

4 .9 F re q u e n c y w i th w h i c h th e h i g h e s t g o ve rn a n c e b o d y a s s e s s e s s u s ta i n a b i l i ty p e rf o rm a n c e . 1

4 .1 P ro c e s s e s f o r e va l u a t i n g th e h i g h e s t g o ve rn a n c e b o d y’s o w n p e rf o rm a n c e 1 2

4 .1 1 E xp l a n a t i o n o f w h e th e r a n d h o w th e p re c a u t i o n a ry a p p ro a c h o r p ri n c i p l e 1 2

4 .1 2E xte rn a l l y d e ve l o p e d e c o n o m i c , e n vi ro n m e n ta l , a n d s o c i a l c h a rte rs , p ri n c i p l e s , o r o th e r

i n i t i a t i ve s to w h i c h th e o rg a n i z a t i o n s u b s c ri b e s o r e n d o rs e s .2 7

4 .1 3 M e m b e rs h i p s i n a s s o c i a t i o n s 2 7

4 .1 4 L i s t o f s ta k e h o l d e r g ro u p s e n g a g e d b y th e o rg a n i z a t i o n . 8

4 .1 5 B a s i s f o r i d e n t i f i c a t i o n a n d s e l e c t i o n o f s ta k e h o l d e rs w i th w h o m to e n g a g e . 8

4 .1 6 A p p ro a c h e s to s ta k e h o l d e r e n g a g e m e n t 8

4 .1 7 K e y to p i c s a n d c o n c e rn s th a t h a ve b e e n ra i s e d th ro u g h s ta k e h o l d e r e n g a g e m e n t, 8

EC1

Direct economic valuegenerated and distributed, including revenues, operating

costs, employee compensation, donations and other community investments,

retained earnings, and payment to capital providers and governments.

12

EC7Procedures for local hiring and proportion of senior management hired from

the local community at significant locations of operation.13

EN1 Materials used by weight or volume 15

EN3 Direct energy consumption by primary energy source. 16

EN4 Indirect energy consumption by primary source. 16

EN8 Total water withdrawal by source. 17

EN16 Total direct and indirect greenhouse gas emissions by weight 17

EN21 Total water discharge by quality and destination 17

EN22 Total weight of waste by type and disposal method 18

Contents Pages

GRI

Performance

Indicators

LA1 Total workforce by employment type, employment contract, and region 23

LA2 Total number and rate of employee turnover by age group, gender, and region. 23

LA4 Total number and rate of employee turnover by age group, gender, and region 28

LA7Rates of injury, occupational diseases, lost days, and absenteeism, and total

number of work-related fatalities by region23

LA14 Ratio of basic salary of men to women by employee category. 26

HR4 Total number of incidents of discrimination and actions taken. 27

HR5

Operations identified in which the right to exercise freedom of association and

collective bargaining may be at significant risk, and actions taken to support

these rights.

28

HR6Operations identified as having significant risk for incidents of child labor,

and measures taken to contribute to the elimination of child labor.29

HR7

Operations identified as having significant risk for incidents of forced or

compulsory labor, and measures taken to contribute to the elimination of

forced or compulsory labor.

29

SO8Monetary value of significant fines and total number of non-monetary

sanctions for non-compliance with laws and regulations.28

PR9Monetary value of significant fines for non-compliance with laws and

regulations concerning the provision and use of products and services.30