Medlive Technology Co., Ltd. - Annual Report 2002

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GUANGDONG KELON ELECTRICAL HOLDINGS COMPANY LIMITED 廣東科龍電器股份有限公司

(A joint stock limited company incorporated in the People’s Republic of China with limited liability)

ANNOUNCEMENT OF RESULTS FOR THE YEAR ENDED 31 DECEMBER 2002

The Board of Directors of Guangdong Kelon Electrical Holdings Company Limited (the “Company”) announces the audited consolidated results of the Company and its subsidiaries (collectively the “Group” or “Kelon”) for the year ended 31 December 2002 (the “Reporting Period”) together with the 2001 comparative figures, prepared in accordance with International Financial Reporting Standards (“IFRS”) as follows:

CONSOLIDATED INCOME STATEMENT

Notes Turnover 1 Cost of sales Gross profit Other operating income Distribution costs Administrative expenses Other operating expenses Profit (loss) from operations 3 Finance costs Share of results of associates Profit (loss) before taxation Taxation 4 Profit (loss) after taxation Minority interests Net profit (loss) for the year Basic earnings (loss) per share 5	2002 RMB’000 4,878,257 (3,869,102) 1,009,155 201,766 (791,764) (131,020) (6,540) 281,597 (90,637) (4,134) 186,826 (3,031) 183,795 389 184,184 RMB0.19	2001 RMB’000 (As restated) 4,381,616 (3,574,714) 806,902 53,487 (1,206,014) (978,038) (83,782) (1,407,445) (96,295) (611) (1,504,351) – (1,504,351) 12,995 (1,491,356) RMB(1.50)

Notes:

1. TURNOVER

Turnover represents the net amount received and receivable for goods sold during the year. An analysis of the Group’s turnover is as follows:

Sales of refrigerators Sales of air-conditioners Sales of freezers Sales of product components	2002 RMB’000 2,252,045 2,337,240 103,979 184,993 4,878,257	2001 RMB’000 2,164,254 2,177,207 – 40,155
		4,381,616

2. BUSINESS SEGMENTS

Business segments

For management purposes, the Group is currently organised into three main operating divisions - refrigerators, air-conditioners and freezers. These divisions are the basis on which the Group reports its primary segment information.

Segment information about these businesses is presented below:

Year 2002

Income statement

Refrigerators RMB’000 TURNOVER External sales 2,252,045 Inter-segment sales – Total revenue 2,252,045	Air- conditioners RMB’000 2,337,240 – 2,337,240	Freezers RMB’000 103,979 – 103,979	Others RMB’000 184,993 375,553 560,546	Elimination RMB’000 – (375,553) (375,553)	Consolidated RMB’000 4,878,257 –
					4,878,257

Inter-segment sales are charged at prevailing market rates.

RESULT

Segment result Unallocated corporate expenses Profit from operations Finance costs Share of results of associates	320,164 17	222,250	(34,453) (1,398)	(209,582) (2,753)	–	298,379 (16,782)
						281,597 (90,637) (4,134)

Profit before taxation Taxation Profit after taxation *Year 2001*	186,826 (3,031) 183,795

Income statement

Air- Refrigerators conditioners Others RMB’000 RMB’000 RMB’000 TURNOVER External sales 2,164,254 2,177,207 40,155 Inter-segment sales – – 467,010 Total revenue 2,164,254 2,177,207 507,165 Inter-segment sales are charged at prevailing market rates. RESULT Segment result and loss from operations (608,300) (740,611) (58,534) Finance costs Share of results of associates (611) Loss before taxation 3. PROFIT (LOSS) FROM OPERATIONS Profit (loss) from operations has been arrived at after charging: Amortisation of goodwill Depreciation of property, plant and equipment 4. TAXATION Taxation consists of: The People’s Republic of China (the “PRC”) enterprise income tax Hong Kong Profits Tax	Air- Refrigerators conditioners Others RMB’000 RMB’000 RMB’000 TURNOVER External sales 2,164,254 2,177,207 40,155 Inter-segment sales – – 467,010 Total revenue 2,164,254 2,177,207 507,165 Inter-segment sales are charged at prevailing market rates. RESULT Segment result and loss from operations (608,300) (740,611) (58,534) Finance costs Share of results of associates (611) Loss before taxation 3. PROFIT (LOSS) FROM OPERATIONS Profit (loss) from operations has been arrived at after charging: Amortisation of goodwill Depreciation of property, plant and equipment 4. TAXATION Taxation consists of: The People’s Republic of China (the “PRC”) enterprise income tax Hong Kong Profits Tax	Air- Refrigerators conditioners Others RMB’000 RMB’000 RMB’000 TURNOVER External sales 2,164,254 2,177,207 40,155 Inter-segment sales – – 467,010 Total revenue 2,164,254 2,177,207 507,165 Inter-segment sales are charged at prevailing market rates. RESULT Segment result and loss from operations (608,300) (740,611) (58,534) Finance costs Share of results of associates (611) Loss before taxation 3. PROFIT (LOSS) FROM OPERATIONS Profit (loss) from operations has been arrived at after charging: Amortisation of goodwill Depreciation of property, plant and equipment 4. TAXATION Taxation consists of: The People’s Republic of China (the “PRC”) enterprise income tax Hong Kong Profits Tax	Elimination Consolidated RMB’000 RMB’000 – 4,381,616 (467,010) – (467,010) 4,381,616 – (1,407,445) (96,295) (611) (1,504,351) 2002 2001 RMB’000 RMB’000 1,597 16,014 442,263 346,317 2002 2001 RMB’000 RMB’000 1,903 – 1,128 –	Elimination Consolidated RMB’000 RMB’000 – 4,381,616 (467,010) – (467,010) 4,381,616 – (1,407,445) (96,295) (611) (1,504,351) 2002 2001 RMB’000 RMB’000 1,597 16,014 442,263 346,317 2002 2001 RMB’000 RMB’000 1,903 – 1,128 –
			–
			2002 RMB’000 1,597 442,263 2002 RMB’000 1,903 1,128

Taxation attributable to the Company and its subsidiaries

3,031

–

The Company and its subsidiaries provide for taxation on the basis of its statutory profit for financial reporting purposes, adjusted for income and expense items which are not assessable or deductible for income tax purposes after considering all available tax benefits.

As at 31 December 2002, deferred tax assets not recognised in the financial statements were analysed into:

Tax losses Miscellaneous provisions Revaluation of property, plant and equipment	2002 RMB’000 423,817 120,763 (34,166) 510,414	2001 RMB’000 366,023 126,887 (34,166) 458,744

5. BASIC EARNINGS (LOSS) PER SHARE

The calculation of basic earnings (loss) per share for the year is based on the net profit for the year of RMB184,184,000 (2001: net loss for the year of RMB1,491,356,000) and on 992,006,563 shares (2001: 992,006,563 shares) outstanding during the year.

No diluted earnings (loss) per share have been presented as these were no dilutive potential ordinary shares in issue in either 2002 and 2001.

6. PRIOR PERIOD ADJUSTMENTS

The effect of correction of accounting errors accounted for as prior period adjustments is as follows:

Overprovision of advertising expenses Excess loss of minority shareholders of subsidiaries taken by the Group	2002 RMB’000 79,681 – 79,681	2001 RMB’000 – (158,116) (158,116)

MANAGEMENT DISCUSSION AND ANALYSIS

1. Results Review

Under the leadership of the new management team, Kelon has successfully turned around from a loss-making position to a profit-making position within a year and has recorded encouraging results. In 2002, the Group recorded a turnover of RMB4,878,257,000, representing an increase of approximately 11.33% as compared to 2001. Net profit reached RMB184,184,000. Basic earnings per share were RMB0.19.

The substantial improvement in the Group’s profitability was attributable to three factors. Firstly, the Group places strong emphasis on product quality and continues to improve the technological level of its products, leading to an increase in its products’ total added value and brand recognition among consumers. As a result, smaller scales of price cut on “Kelon”

refrigerators and air-conditioners as well as “Ronshen” refrigerators were maintained despite increasingly intense competition, ensuring the Group’s profit level in 2002. Secondly, overall costs were reduced as the average cost of sales of refrigerators and air-conditioners declined by 13.05% and 8.78% respectively as compared to 2001. Distribution and administrative expenses also declined by 57.75% during the Reporting Period. Thirdly, overall turnover recorded an increase of 11.33% as compared to last year, with the turnover from the air-conditioning and refrigeration businesses rising by 7.35% and 4.06% respectively.

Turnover Structure Analysis

Despite intense competition in the domestic appliances market, the domestic sales of airconditioners recorded increases in the Reporting Period both in terms of sales volumes and revenues, growing by 21% and 10.62% respectively as compared to 2001. The sales volumes and revenues of the domestic sales of refrigerators were basically maintained.

The Group’s export sales performance maintained its growth momentum. Export sales volumes and revenues for refrigerators increases by 14.8% and 44.5% respectively as compared to 2001. Export sales for air-conditioners increases by 4.6% and 0.4% as compared to last year.

Healthy Financial Standing

During the Reporting Period, the Group continued to exercise stringent financial management. Riding on its strong foundation from previous years, the Group was able to maintain its sound financial standing. This was reflected in the following areas:

For the year ended 31 December 2002, the Group’s total assets reached RMB7,827,009,000, with net assets of RMB2,701,284,000. Bank balances and cash amounted to RMB1,417,085,000. Current assets stood at RMB4,934,479,000.

During the Reporting Period, the Group cleared its old inventories at a discount, basically eliminating all old inventories and greatly improving the liquidity and quality of its total inventory.

2. Operations Review

High Technology Products

Kelon believes that “leading technology” is the key to continuous corporate development, and thus this approach has been adopted in Kelon’s product development. During the Reporting Period, Kelon launched three major products that led the industry:

Kelon’s “Shuang Xiao Wang” Cooling and Heating Air-Conditioner – A pioneer in the domestic air-conditioner industry, it adopts internationally patented technology, and uses the highly efficient and environmentally-friendly “Greencool Refrigerants”, to optimize the performance of its cooling and heating functions. The cooling efficiency of the “Shuang Xiao Wang” Cooling and Heating Air-Conditioner is high at 3.8, which is 65% higher than the national standard and 40% higher than the national energy-saving standard. Its heating efficiency also leads in the industry at a high of 4.2, which is 83% higher than the national standard and 56% higher than national energy-saving standard.

Kelon’s IMCR (Independent Multi-cycling Refrigeration) Refrigerator – This refrigerator uses multi-cycling technology for the first time in the world’s refrigeration industry. This revolutionary technology enables individual cooling and freezing operations, bringing the energy savings level of the refrigerators to new highs. IMCR technology not only places Kelon well ahead of the competition, it also opens up more room for higher profitability.

Ronshen’s Children’s Refrigerator (“I-box”) – This refrigerator pioneers in product categorization by age. It was regarded as a breakthrough in the refrigeration industry in 2002 in terms of product innovation and market segmentation. The Children’s Refrigerator is tailor-made with 16 patents, providing individual storage for children’s food and eradicating bacteria in food as stored in regular adult refrigerators. This Children’s Refrigerator also adopts durable antibacterial additives as developed by national research organizations, with an antibacterial rate as high as 99.9% and with antibacterial effectiveness also lasting for over 10 years. Its antibacterial as well as its freshness preservation capabilities are 30% to 40% higher than regular refrigerators.

“Project of Perfection”

Kelon’s refrigerators and air-conditioners are the front-runners in China’s domestic appliances industry in terms of technology, quality and product design. To speed up their adaptation to the international market, as well as to confront the challenges of globalization, Kelon implemented its “Project of Perfection” during the Reporting Period. Meticulous design, delicate manufacturing techniques, elegant products and attentive services are the guidelines adhered to, to enhance Kelon’s competitive edge and raise the products to leading international standards. Through this “Project of Perfection”, not only are quality controls and product design enhanced, wastage in any single production process is minimized and the corporate management process is optimized.

Cost Controls

Kelon turned around from a loss-making position to a profit-making position this year mainly due to the leadership of its visionary management, and their “Profitability Driven” objective, which resulted in stringent cost controls during the Reporting Period.

Kelon implemented an open tender resources procurement system during the Reporting Period, reducing the procurement costs of raw materials and components. The Group also lowered product costs reasonably by optimizing product design. In 2002, Kelon’s production cost for an air-conditioner decreased 13.05% as compared to the previous year, while the production cost for a refrigerator dropped 8.78% as compared to last year. The lower costs allow Kelon to benefit from higher flexibilities in price reductions and in market expansion.

In addition, Kelon optimized the management of its overall sales network and administrative processes, reducing the costs of sales and administrative expenses by 8.24% and 86.60% respectively during the Reporting Period.

In July 2002, Kelon adopted a “Cost-Optimization Strategy” by cooperating with China Southern Airlines Company Limited. This cooperation will help Kelon reduce its freight cost by more than 30% annually.

“Total Carefree” Customer Services

“Total Carefree” customer services are among the first batch of domestic appliances service brand names registering its service trademark. Its service scope covers research of consumer needs, product research and manufacturing, as well as a total service package offered during the sales processes. The aim is to achieve 100% customer satisfaction while realizing the service mission to offer total carefree services. Currently, Kelon has over 2,800 service partners, with about 30,000 staff working directly for Kelon’s after-sales services. In the past 3 years, Kelon’s customer satisfaction level has increased by 10%.

Comprehensive Branding Strategies

Kelon’s products have been sold under the “Kelon”, “Ronshen” and “Huabao” brands for many years. The “Kelon” and “Ronshen” brands are well-known PRC trademarks, targeting the high- to mid-end markets. These brands have been widely applied to a range of product series for air-conditioners, refrigerators, freezers and small home appliances.

The “Combine” brand is a new brand launched by Kelon in 2002 to capture the low-end market and to expand its market share. Riding on Kelon’s competitive advantages in terms of professional refrigeration technology, product quality and services, the “Combine” products are priced at the same level as third-tier domestic appliances, filling the gap which exists in the low-end market, and raising overall industry standards in the low-end market. In addition, capitalizing on Kelon’s nationwide after-sales service network, customers of these “Combine” products can enjoy “Total Carefree” services support to the same service quality as offered by Kelon for its top-tier brands.

The launch of the “Combine” brand, coupled with the existing “Kelon” and “Ronshen” brands for refrigerators and air-conditioners which are positioned for the high- to mid-end markets, and the “Huabao” brand which targets the mid- to low-end markets, enables Kelon’s four brands to complement each other nicely in their market positioning, completely embracing the high-, mid- and low-end product lines. Kelon thus becomes the sole enterprise in the PRC to offer domestic refrigeration appliances with four different market positions, but with one core strategic mission.

Internationalization Strategy

During the Reporting Period, Kelon continued to export products to the international market through OEM and has achieved excellent results. Export volumes increased by 14.3% and the export amount rose by 24.75%.

In addition, the Group established an International Cooperation Department during the Reporting Period, led by professionals with extensive overseas experience. They streamlined the internal organization and management, as well as sales channels, to enhance efficiency and strengthen the team, accelerating its adaptation to the international marketplace.

Significant Events

On 18 April 2002, the share transfer procedures between Greencool Enterprise Development Company Limited (“Greencool”) and Guandong Kelon (Rongsheng) Group Company Limited (“GKG”) were completed and Greencool became the single largest shareholder of Kelon, holding 204,775,755 legal person shares, representing 20.64% of Kelon’s total issued capital.

On 18 June 2002, the resolution to appoint 德勤華永會計師事務所 and Deloitte Touche Tohmatsu as Kelon’s auditors in mainland China and Hong Kong for the year ended 31 December 2002 was approved at the Annual General Meeting.

On 16 August 2002, the resolution to set up an audit committee was approved by Kelon’s Board of Directors, and Mr. Chan Pei Cheong, Andy was appointed as the chairman of the audit committee.

On 21 November 2002, Kelon entered into a debt settlement agreement with GKG, its previous single largest shareholder. GKG agreed to transfer the 「科龍」、「容聲」 and 「容升」 trademarks to Kelon to settle the debt owed to Kelon. Concurrently, GKG agreed to procure that a parcel of residential land located at Wai Huan Road, Ronggui District, Shunde City with a total area of 399,614 square metres be transferred by the Land Development Centre, which is owned by the government of the Ronggui Perfecture, to Kelon for settlement of the remaining debt owed by GKG to Kelon. Upon completion of the relevant procedures stipulated in the agreements, the debt owed by GKG to Kelon will be completely settled.

3. Prospects

With the reforms in strategy and operations in 2002, Kelon has managed to extricate itself from the unfavourable past. However, anticipating even more intense competition in the domestic appliances market, the Group will take a steady approach in its future development, moving cautiously to obtain success. Kelon’s long-term vision is to become a leading international domestic appliances manufacturer, while its short-term strategy is to consolidate its development in China and move on to expand its international markets gradually.

In the future, the Group will continue to implement stringent cost controls by comprehensively and closely monitoring all aspects of its activities, including procurement, production and distribution, with a view to strengthening the Group’s profitability. In addition, the Group will expand the applications of its “Shuang Xiao Wang” and IMCR technologies to more product lines to enhance the overall technological benefit of its products, to achieve a competitive edge in the highly competitive marketplace.

The Group believes that a talented team is the driving force for corporate development. To face globalization and tackle market competition, the Group will continue to recruit and promote top quality, high-tech personnel to build an international team.

Furthermore, with Greencool becoming its single largest shareholder, Kelon has introduced the international experience and networks of the Greencool Group’s management to Kelon, thereby strengthening the Group’s competitive advantages in its internationalization, as it grows into a leading enterprise in the refrigeration industry.

FINAL DIVIDENDS

The Group recorded a profit of RMB184,184,000 in the year 2002, resulting in a decrease in the accumulated losses from RMB1,367,123,000 in 2001 to RMB1,182,939,000 in 2002. The directors resolved not to pay any dividend for the year 2002 and not to capitalize any reserve funds (no dividend was paid by the Group for the year ended 31 December 2001).

LIQUIDITY AND SOURCES OF FUNDS

Net cash inflow for operating activities was approximately RMB459,315,000 (2001: net cash outflow of approximately RMB111,631,000) for the year ended 31 December 2002.

As of 31 December 2002, the Company had bank balances and cash amounting to approximately RMB1,417,085,000 (2001: RMB778,191,000), and bank loans amounting to approximately RMB1,740,164,000 (2001: RMB1,558,230,000).

Total capital expenditures for the year 2002 amounted to approximately RMB216,916,000 (2001: RMB218,306,000) and the major expenditure item was the purchase of new equipment for operating purpose and fixtures for promotion purpose. The capital expenditures were funded by the working capital of the Group.

HUMAN RESOURCE AND EMPLOYEES’ REMUNERATION

As of 31 December 2002, the Group had approximately 6,500 employees (2001: 7,400), of which 2,799 were professional staff, representing 43.23% of the total number of employees. Six of the Company’s employees hold a doctorate’s degree while 82 hold a master’s degree. There were 580 employees with an official title of middle rank or above. Staff below the age of 30 represent 51.86% of the total workforce of the Company. In addition, the Company currently has 285 retired staff. Staff cost (including pension costs) for the year ended 31 December 2002 amounted to approximately RMB301,283,000 (2001: RMB309,683,000).

The Company believes that human resource is the primary impetus to the strong growth of a corporate. The Company will continue to strengthen the training of the existing staff, as well as to recruit higher caliber personnel with good qualification and extensive experience, especially professionals with international background, so as to lay down a strong foundation for the Company to become a leading international electrical appliances manufacturer.

BASIC MEDICAL INSURANCE SCHEME FOR EMPLOYEES

Since 1 January 2002, the Company has implemented the policy of basic medical insurance for employees according to the Provisional Rules of Basic Medical Insurance in Shunde City (順德市基本醫療保險暫行規定 ) issued by the People’s Government of Shunde City on 2 December 2000. Pursuant to the relevant accounting requirements of the PRC, the amount involved is stated as the Company’s welfare expenditure.

The directors of the Company consider that the above scheme has no significant impact on the Company’s financial condition nor the consolidated income statement and balance sheet of the Company.

CHARGES ON THE GROUP’S ASSETS

As of 31 December 2002, the Group’s property, plant and equipment of approximately RMB453,961,000 (2001: RMB199,477,000) were pledged as security for the Group’s bank borrowings.

EXPOSURE TO EXCHANGE RATE FLUCTUATION

Since substantially all of the Group’s sales and purchases were denominated in RMB, the Group had no significant exposure to exchange rate fluctuation and no financial instrument was used to hedge exchange rate risk.

CONTINGENT LIABILITIES

As of 31 December 2002, the Group had contingent liabilities in relation to guarantee for loan facilities granted to a related party of approximately RMB3,975,000.

SHARE CAPITAL STRUCTURE

As of 31 December 2002, the share capital structure of the Company was as follows:

Domestic shares H shares A shares Total	Number of Shares 337,915,755 459,589,808 194,501,000 992,006,563	Percentage of Total Issued Share Capital (%) 34.06 46.33 19.61
		100.00

TOP TEN/SUBSTANTIAL SHAREHOLDERS

As of 31 December 2002, the Company has a total of 78,037 shareholders. The top ten shareholders of the Company (including shareholders who registered an interest of more than 10% of the issued share capital of the Company) were as follows:

Statement of share capital movement

Unit: number of shares

	Movement	Shareholding
	during the	at the end		Nature of
Name of Shareholder	year	of the year	Percentage	shares	Class
			(%)
Greencool Enterprise Development	+204,775,755	204,775,755	20.64	Unlisted	Domestic
Company Limited (“Greencool”)					shares
Shunde Economic Consultancy	+68,666,667	68,666,667	6.92	Unlisted	Domestic
Company					shares
Shunde Xin Hong Enterprise	+57,436,439	57,436,439	5.79	Unlisted	Domestic
Company Limited					shares
Shenyin Wanguo Securities
(H.K.) Limited	+41,048,000	49,212,000	4.96	Listed	H shares
The Hongkong and Shanghai Banking	-19,852,416	46,009,238	4.64	Listed	H shares
Corporation Limited
Bank of China (Hong Kong) Limited	+940,000	38,163,000	3.85	Listed	H shares
First Shanghai Securities Limited	+30,805,000	30,937,000	3.12	Listed	H shares
Hang Seng Bank Limited	+12,890,000	21,645,000	2.18	Listed	H shares

Citibank, N.A.	-6,654,430	17,963,372	1.81	Listed	H shares
Guotai Junan Securities
(Hong Kong) Limited	+3,826,000	14,240,000	1.44	Listed	H shares

Notes:

(1) During the Reporting Period, no shares held by the above top ten shareholders were subject to any charges or freezing orders.
(2) None of the above top ten shareholders were connected or belong to persons acting in concert under the Administrative Rules on the Disclosure of Information on Shareholding Movement of Shareholders of Listed Company (上市公司股東持股變動資訊披露管理辦法 ).

INTERESTS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE

As of 31 December 2002, the directors, supervisors and chief executive of the Company had the following beneficial interests (within the meaning of the Securities (Disclosure of Interests) Ordinance (“SDI Ordinance”)) in the Company’s PRC domestic shares, A shares or H shares of RMB1.00 each as recorded in the Register required to be kept by the Company pursuant to Section 29 of the SDI Ordinance:

Name	Position	Nature of Interest	Number of Shares
Mr. Gu Chu Jun	Director	Corporate	204,775,755 legal person shares*
		Corporate	3,830,000 H shares**
Ms. He Si	Supervisor	Personal/family	50,000 A shares***

Greencool is the single largest shareholder of the Company and holds 204,775,755 legal person shares of RMB1.00 each in the Company, representing approximately 20.64% of the existing issued share capital of the Company. Mr. Gu Chu Jun holds 90% of the total investment of Greencool.
** Mr. Gu Chu Jun is a substantial shareholder of Greencool Technology Holdings Limited, a company listed on the Growth Enterprise Market of the Stock Exchange, controlling approximately 62.5% of the shareholding of such company. Two subsidiaries of Greencool Technology Holdings Limited hold 3,830,000 H shares in the Company, representing approximately 0.39% of the issued share capital of the Company.
*** As at 2 June 2002, three years have lapsed since the issue of the Company’s A shares and accordingly, application can be made for the listing of the domestic employee shares of the Company. The domestic employee shares of the Company were listed on the Shenzhen Stock Exchange on 18 July 2002 (for details, please refer to the announcements published in China Securities Daily (中國證券報 ), Securities Times Daily (證券時報 ), Hong Kong Economic Journal and HK iMail on 16 July 2002). For changes in the share capital structure of the Company before and after the listing of the domestic employee shares, please refer to the statement of share capital movement as set out in the aforesaid announcements. According to the Listing Rules of the Shenzhen Stock Exchange (深圳證券交易所上市規則 ), the 50,000 domestic employee shares held by Ms. He Si, being a senior management of the Company, were still subject to a moratorium notwithstanding the listing of the Company’s domestic employee shares.

Save as disclosed above, the Company had no notice of any interests required to be recorded under Section 29 of the SDI Ordinance or pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as of 31 December 2002.

PURCHASE, SALE OR REDEMPTION OF SHARES

During the year ended 31 December 2002, neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of the Company’s listed shares.

CODE OF BEST PRACTICE

On 2 January 2003, the Company announced that it has received on 30 August 2002 from the Guangzhou Securities Administration Office of the China Securities Regulatory Commission a notice containing instructions to the Company to make remedial changes to certain problems relating to its financial management and accounting audits within a prescribed period. The Company has made changes to such matters pursuant to the notice and has rectified the problems relating to its financial management and accounting audits before 2002.

Save as disclosed above, the board of directors considers that the Company has complied with the Code of Best Practice as set out in Appendix 14 of The Rules Governing the Listing of Securities on the Stock Exchange throughout the year ended 31 December 2002.

DETAILED ANNUAL RESULTS ANNOUNCEMENT

A detailed annual results announcement containing all the information required by paragraphs 45(1) to 45(3) of Appendix 16 of The Rules Governing the Listing of Securities on the Stock Exchange will be published on the Stock Exchange’s website (http://www.hkex.com.hk) in due course.

By the order of the Board of Guangdong Kelon Electrical Holdings Company Limited Gu Chu Jun Chairman

Shunde, the PRC, 31 March 2003

REPORT OF THE AUDITORS

TO THE SHAREHOLDERS OF

GUANGDONG KELON ELECTRICAL HOLDINGS COMPANY LIMITED 廣東科龍電器股份有限公司

(A Sino-foreign joint venture joint stock limited company established in the People’s Republic of China)

We have audited the financial statements on pages 8 to 52 which have been prepared in accordance with International Financial Reporting Standards other than as set out below.

Respective responsibilities of directors and auditors

The Company’s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you.

Basis of opinion

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants except that the scope of our work was limited as explained below.

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Company and the Group, consistently applied and adequately disclosed.

We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. However, the evidence available to us was limited as follows.

The previous auditors explained in their auditors’ report on the financial statements for the year ended 31 December 2001 that they were unable to obtain reasonable representations and assurances on which they could rely for the purposes of their audit and there were no satisfactory audit procedures that they could perform to obtain reasonable assurance that all material transactions were properly recorded and completely disclosed. Against this background, we are unable to conclude as to whether the net assets of the Group (as adjusted) as at 31 December 2001 were free from material misstatement. Any adjustments to the opening net assets of the Group would affect the profit of the Group for the year ended 31 December 2002. Also, the comparative figures as at 31 December 2001 shown in the consolidated balance sheet and in the consolidated income statement for the year then ended may not be comparable with the figures for the current year.
Interests in associates of approximately RMB234,486,000 as at 31 December 2002 and the share of results of associates of approximately RMB4,134,000 for the year then ended incorporate certain associates on the basis of unaudited management accounts. Accordingly, we were unable to satisfy ourselves that the above amounts are free from material misstatement. Any adjustment to these amounts would affect the net assets of the Group as at 31 December 2002 and the profit of the Group for the year then ended.

In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Qualified opinion arising from limitations of audit scope and from disagreements about accounting treatment

As described in more detail in note 5, in July 2002 Kelon Development Company Limited (“Kelon Development”) acquired the remaining 56% interest in joint venture company Guangdong Kelon Refrigerator Co., Ltd. (formerly Guangdong Sanyo Electric Kelon Refrigerator Co., Ltd ) (“Sanyo Kelon”) from three parties, including Japan Sanyo Electrical Corporation (“Japan Sanyo”), the Company’s former joint venture partner. In July 2002, Japan Sanyo repaid on behalf of Sanyo Kelon bank loans in the sum of RMB154 million. A supplemental agreement dated 8 November 2002 between the Company, Japan Sanyo, Sanyo Kelon and Kelon Development documents that, as a result of the repayment by Japan Sanyo, the rights of Sanyo Kelon to use the Japan Sanyo brand names, to produce Sanyo Kelon refrigerators and to access relevant technological information were terminated. Following the form of the supplemental agreement, the directors consider that the payment

by Japan Sanyo constitutes compensation to the Group for the termination of these rights. On this basis, the amount of RMB154 million has been recognised in the income statement as compensation income.

However, the following evidence is also relevant. Firstly, under the original Brand Name Agreement and Technology Transfer Agreement entered into between Sanyo Kelon and Japan Sanyo, a change of shareholder empowers Japan Sanyo to terminate the agreement, without the question of compensation arising. Secondly, according to the Share Transfer Agreement and the Agreement relating to Sharing of Guaranteed Liability, the payment in the sum of RMB154 million by Japan Sanyo was a pre-requisite of the share transfer. Thirdly, Japan Sanyo was already obligated in connection with a guarantee given in respect of bank borrowings of Sanyo Kelon amounting to RMB180 million. And fourthly, the share transfer took place after the payment of RMB154 million by Japan Sanyo. This evidence indicates that the payment of RMB154 million was made by Japan Sanyo as an integral part of the arrangements whereby the shares of Sanyo Kelon were sold to the Group and also that the payment was not in substance in the nature of compensation. On this basis, in our opinion, the payment should properly have been taken into consideration in the determination of the amount of goodwill or negative goodwill arising on the acquisition of these shares by the Group. This would have resulted in the derecognition of compensation income of RMB154 million and the reversal of impairment losses in respect of goodwill and other income statement credits of approximately RMB79 million. In this way, the net assets of the Group would have been reduced by RMB75 million as at 31 December 2002 and the profit of the Group reduced by the same amount for the year then end.

Included within inventories as at 31 December 2002 are inventories (mainly stocks of spare parts) with a book value of approximately RMB25 million. Although these inventories were fully provided for in the year 2001, in the current year the provision has been reversed by the directors. However, according to the stock movement records, there has been no significant usage of these inventories during 2002. In view of the slow moving nature of these inventories, in our opinion the provision made in 2001 should be reinstated and the net assets of the Group as at 31 December 2002 and profit of the Group for the year then ended reduced accordingly.

Except for any adjustments that might have been found to be necessary had we been able to obtain sufficient evidence concerning the matters described in the basis of opinion section of this report and except for the effect of the disagreements about accounting treatment referred to above, in our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 31 December 2002 and of the profit and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitations on our work described in the basis of opinion section of this report:

we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and
we were unable to determine whether proper books of account had been kept.

Hong Kong, 28 March 2003

SUPPLEMENTARY INFORMATION AS REQUIRED BY THE STOCK EXCHANGE OF HONG KONG LIMITED IN RELATION TO THE COMPANY’S A SHARE ANNUAL RESULTS ANNOUNCEMENT

1. Particulars of the Company

1. Particulars

Stock Name ST Kelon Stock Code 000921 Listed on Shenzhen Stock Exchange and The Stock Exchange of Hong Kong Limited Registered Address and No. 8, Ronggang Road, Ronggui, Shunde, Place of Business Guangdong Province, the PRC Postal code 528303 Website http://www.kelon.com Email [email protected]

2. Contact person and contact details

	Secretary for the Board	Company Secretary
Name	Liu Cong Meng	Gary Li Chi Sing
Correspondence	No. 8, Ronggang Road, Ronggui,	No. 8, Ronggang Road, Ronggui, Shunde,
Address	Shunde, Guangdong Province, the PRC	Guangdong Province, the PRC
Telephone	0765-8362570	0765-8362570
Fax	0765-8361055	0765-8361055
Email	[email protected]	[email protected]
	Representative for matters relating to securities
Name	Zhong Liang
Correspondence Address	No. 8, Ronggang Road, Ronggui, Shunde, Guangdong Province, the PRC
Telephone	0765-8362570
Fax	0765-8361055
Email	[email protected]

2. Accounting Data and Financial Indices

1. Major accounting data

Major accounting data				Unit: RMB
			Change over
	2002	2001	prior year	2000
			(%)
Revenue from principal
business	4,878,257,017	4,381,616,368	11.33%	4,410,880,037
Total profit	203,511,146	(1,489,548,691)	113.66%	1,007,150,805
Net profit	200,868,415	(1,475,892,124)	113.61%	662,677,775
Net profit before
extraordinary items	115,410,880	(1,416,346,413)	106.21%	(662,677,775)

	End of	Eng of	Change	End of
	year of	year of	over	year of
	2002	2001	prior year	2000
			(%)
Total assets	7,767,755,554	6,509,847,794	19.32%	6,893,105,945
Shareholders’ interests excluding
minority interests	2,686,217,058	2,470,316,183	8.74%	3,957,879,122
Net cash flow from
operating activities	499,784,760	148,093,735	237.48%	1,051,526,957

2. Major financial indices

			Change over
	2002	2001	prior year	2000
			(%)
Earnings per share	0.2025	-1.4878	113.61%	-0.84
Earnings per share	–	–	–	–
Return on net assets (%)	7.48%	-59.75%	112.52%	-19%
Return on net assets calculated on
the net profit before extraordinary items	4.30%	-57.33%	107.50%	-19%
Net cash flow from operating
activities per share	0.5038	0.1493	237.44%	1.06
	End of	End of	Change	End of
	year of	year end of	over	year of
	2002	2001	prior year	2000
			(%)
Net assets per share	2.7079	2.49	8.75%	3.99
Adjusted net assets per share	2.61	2.21	18.10%	3.75

3. Difference between the PRC and overseas accounting standards Unit: RMB

PRC Overseas accounting standards accounting standards Net profit 200,868,400 184,184,000

Adjustment under IFRS: adjustment on property, plant and equipment revaluation and related depreciation totalling (RMB16,684,000).

3. Changes in share capital and shareholders

1. Change in the single largest shareholder and its ultimate controlling beneficiary

Name of the new single Greencool Enterprise Development largest shareholder Company Limited

Name of ultimate controlling Gu Chu Jun beneficiary of the new single largest shareholder

Date of change 18 April 2002 Date and newspapers on which 19 April 2002 announcement was published China Securities Daily (中國證券報 ), Securities Times Daily (證券時報 ), Hong Kong Economic Journal and HK iMail

2. Particulars of the single largest shareholder and its ultimate controlling beneficiary

Greencool Enterprise Development Company Limited, the single largest shareholder of the Company, is a continuing limited liability company established according to laws of the PRC in October 2001 and its address is at 8/F, Rongshan Building, No. 88 Rongqi Road Central (容奇大道中 ), Ronggui, Shunde, Guangdong Province, the PRC. The company is primarily engaged in the development, manufacturing and sales of refrigeration equipments and parts and cholroflurocarbon-free (CFC-free) refrigerants, research and development of refrigerating technology, and the development, manufacturing and sales of computer and broadband networking facilities. The registered capital of Greencool Enterprise Development Company Limited is RMB1,200,000,000. Shareholding Structure: 90% of the equity interests of Greencool Enterprise Development Company Limited is owned by Mr. Gu Chu Jun and the remaining 10% is owned by Mr. Gu Shan Hong. The company’s legal representative is Mr. Gu Chu Jun.

4. Directors, Supervisors and Senior Management

1. Movement of shareholdings of directors, supervisors and senior management and their employment in shareholder companies

				Shareholding	Shareholding	Shareholding
					at the	at	Reason
				Term	beginning	the end of	of
Name	Position	Gender	Age	of office	of the year	the year	movement
Gu Chu Jun	Chairman	Male	44	2001.12.23–	0	0	Nil
				2004.12.23
Liu Cong Meng	Vice Chairman and	Male	58	2001.12.23–	0	0	Nil
	President			2004.12.23
Li Zhen Hua	Vice Chairman	Male	51	2001.06.18–	0	0	Nil
				2004.06.18
Yan You Song	Executive Director and	Male	38	2001.12.23–	0	0	Nil
	Vice President			2004.12.23
Zhang Hong	Executive Director	Male	41	2001.12.23–	0	0	Nil
				2004.12.23
Fang Zhi Guo	Executive Director	Male	41	2001.12.23–	0	0	Nil
				2004.12.23

Chan Pei Cheong,	Independent Non-executive	Male	42	2001.12.23–	0	0	Nil
Andy	Director			2004.12.23
Li Kung Man	Independent Non-executive	Male	46	2002.12.29–	0	0	Nil
	Director			2005.12.29
Yu Xiaoyang	Independent Non-executive	Female	47	2001.12.23–	0	0	Nil
	Director			2004.12.23
Jiang Bao Jun	Supervisor	Male	36	2002.06.18–	0	0	Nil
				2005.06.18
Bai Yun Feng	Supervisor	Male	41	2002.12.29–	0	0	Nil
				2005.12.29
He Si	Supervisor	Female	49	2002.06.18–	50,000	50,000	Nil
				2005.06.18
Gary Li Chi Sing	Secretary for the Board	Male	48	2002.09.02–	0	0	Nil
				2005.09.02
Lin Lan	Vice President	Male	45	2002.09.09–	0	0	Nil

2 Employment of directors and supervisors in shareholder company

				Entitlement
		Position in		to emolument
Name Shareholder Company	Shareholder Company		Duration	or allowance
Gu Chu Jun Greencool Enterprise Development		Director	2001.10 – present	Nil
Company Limited
Liu Cong Meng Greencool Enterprise Development	Standing Vice President		2001.10 – present	Nil
Company Limited
Remuneration of directors, supervisors and senior management for the year
Aggregate remuneration for the year		RMB12,900,000
Total remuneration of the
three highest paid directors		RMB4,800,000
Total remuneration of the
three highest paid senior management		RMB4,800,000
Allowance for independent directors		HK$360,000 per person per year
Other benefits for independent directors		Nil
Names of directors and supervisors
who do not receive remuneration or
benefits from the Company		Nil
Band of remuneration		Number of persons
RMB1,000,001 – 2,000,000		4
Below RMB1,000,000		13

3. Remuneration of directors, supervisors and senior management for the year

5. Operations of the Company

1. Analysis of principal business by industry

				Revenue	Cost	Change of
	Revenue			difference	difference	gross profit
By industry	from	Cost of	Gross	compared	compared	margin
or by	principal	principal	profit	to prior	to prior	over
product	business	business	margin	year	year	prior year
			(%)	(%)	(%)	(%)
Refrigerator	2,252,046,000	1,648,538,000	26.80	4.06	(7.15 )	55.25
Air Conditioner	2,337,240,000	1,980,182,000	15.28	7.35	8.58	0.99
Freezer	103,979,000	93,159,000	10.41	360.69	690.53	129.95
Other	184,992,000	130,660,000	29.37	11.33	6.55	33.92
Basis of pricing of related
party transactions		On market	rates at arm’s length
Explanation on the necessity	and
continuity of the related		To enhance	the price performance		ratio of the
party transactions		Group’s refrigerators and air conditioners

2. Analysis of principal business by region

			Revenue from	Revenue difference compared	Revenue difference compared
	Region	principal business		to prior year
					(%)
	Domestic		409,757.7		8.5
	Overseas		78,068		29.05
	Total		487,825.7		37.55
3.	Suppliers and customers
	Aggregate purchases			Percentage of
	from the top five suppliers		499,908,973	total purchases	13.44%
	Aggregate sales to			Percentage of
	the top five customers		384,209,030	total sales	8.15%

4. Analysis of the material changes in operating results and profit structure as compared to the previous year

In 2002, the Company successfully turned from a loss-making position to a profitmaking position, and the net profit was RMB200,868,415 (A shares). This was primarily due to an increase in sales revenues over the previous year and an overall decrease in operating costs of the Company.

6. Explanations of the board of directors of the Company in respect of matters under the auditors’ opinion.

The financial statements of the Group for 2001 were not audited by the current auditors. As the previous auditors were of the view that they were unable to form an audit opinion, this has led to the current auditors not being able to conclude their opinion on whether the financial data for the year ended 31 December 2001 provide a true and fair view. The management of the Company understands the reasons for such decision. The management has not, over the course of more than a year, found any material errors in the year-end balances for 2001. Therefore, they are satisfied with the accuracy of the announced profit figures for 2002. The year-end balances for 2002 have been duly audited and brought forward to the coming year. As such, it is expected that there will be no such qualified opinion for the next results announcement.
The audit of an associate of the Group has not yet been completed. Subject to the limitation of the scope of audit, this has resulted in the auditors of the Group being unable to complete the vertification of the value of the said associate and a qualified opinion was rendered in respect of the matter. The management of the Group has directly enquired with the said associate as to its financial status for 2002, and has arrived at a preliminary conclusion that the financial status of the associate is not expected to have a material impact on the Group’s investment in the associate. However, the final conclusion cannot be drawn only after the financial statements have been audited.
The Group was offered compensation of RMB154,000,000 by a shareholder of an associate pursuant to the said shareholder’s disposal of its shareholding and termination of the licensing of the relevant trademark. The management of the Company and the auditors have different opinions as to the accounting treatment of such amount. The management of the Company considers such compensation was reached through mutual negotiations between the parties and agreeing on the consideration of the single transaction, and the amount of RMB75,000,000, being net of the goodwill of RMB79,000,000 arising from the acquisition of the relevant equity interests, shall be classified as profits from non-operating activities. However, the auditors’ explanation based on the agreements are as follows: 1) transfer of shareholdings automatically triggers the termination right to use the relevant trademark; 2) the payment made by the relevant shareholder of the associate is a prerequisite of the share transfer; 3) a guarantee has been given by the relevant shareholder to the associate; 4) such compensation amount has been paid prior to the share transfer. As a result of the above factors, the auditors are of the view that part of the compensation shall be reflected on capital reserve. As such, the auditors have expressed a qualified opinion on the accounting treatment of such item. However, the management and the auditors consider that the gain in the Group’s net assets shall be RMB75,000,000.
Part of the raw materials included in the year-end balance for inventory were found to be over a year old on the books, but may still be used for production. Provision for obsolescence previously made for such raw materials was reclassified as available for production purpose. Accordingly, the previous provision of RMB25,000,000 included in the opening balance has been reversed. However, the auditors have expressed their qualified opinion to such adjustment as they find that there has been no significant usage of such raw materials as indicated by the stock movement records.

7. Significant Events

1. Acquisition of assets

			Contribution
			to the Company’s	Related party
			net profit	transaction
			for the period	(if yes,
Other parties to the			from the date	please state
transaction and the			of acquisition	the basis
assets acquired	Date of acquisition	Consideration	to the year end	for pricing)
Acquisition of 56% equity interests	3 July 2002	RMB3	13,112,788	No
in Sanyo Kelon, then an associate
of the Company
Acquisition of the operational assets	14 September 2002	RMB40 million	–	No
of吉林吉諾爾電器（集團）公司
from the Economic and Trade
Commission of Jilin City
(吉林市經濟貿易委員會)

2. Implementation of committed projects

On 18 June 2001, the Board of Directors of the Company (“the Board”) resolved to approve the profit distribution policy for the year 2002. The Board proposed to make no less than one profit distribution in 2002. Approximately 30% to 50% of the net profit of the Company for the year 2002 would be used for distribution, principally by way of cash bonus. Before implementation of such distribution policy, a proposal for distribution will be prepared by the Board and to be laid before the shareholders’ general meeting for the shareholders’ consideration and approval. In addition, the Board shall retain the right to make any adjustment to such policy in accordance with the development and profits of the Company. As the Company recorded an accumulated loss of RMB1,182,939,000 as of 31 December 2002, the Board resolved not to proceed with the profit distribution for the year 2002.

3. Performance of duties by the independent directors

At present, the Board has retained three financial and industry professionals as independent non-executive directors of the Company. The independent non-executive directors have discharged their duties in an independent manner. They have reviewed the systematic operation of the Company and expressed their independent and fair opinions on the related party transactions which occurred during the reporting period (“Reporting Period”).

8. Report of the Supervisory Committee

(1) Meetings of the supervisory committee

During the Reporting Period, the supervisory committee convened meetings four times.

(1) A meeting of the supervisory committee was held on 24 April 2002 at the conference room of the Company’s head office. The meeting was attended by two out of four supervisors and was chaired by Wang Kun You. The annual results announcement for the year 2001, the budget, the profit and loss statement and other financial reports for the year 2001 and the report of the supervisory committee for the year 2001 were considered and approved at the meeting. The meeting also approved the resignation of Li Di Qiang, He Zheng Guang and Wang Kun You as supervisors for work reasons, whereas He Si will remain as supervisor and Wang Kang Ping and Jiang Bao Jun were appointed as new supervisors of the Company and this was to be submitted to the general meeting for the approval of the shareholders.
(2) A meeting of the supervisory committee was held on 26 August 2002 at the conference room of the Company’s head office. The meeting was attended by all three supervisors. The interim report for the first half of 2002 and the summary for the interim report for the first half of 2002 were considered and approved at the meeting.
(3) A meeting of the supervisory committee was held on 28 October 2002 at the conference room of the Company’s head office. The meeting was attended by all three supervisors. The report for the third quarter of 2002 was considered and approved at the meeting.
(4) A meeting of the supervisory committee was convened by way of written resolutions on 11 November 2002 at the conference room of the Company’s head office. The meeting was attended by all three supervisors and the following resolutions were considered and approved:
1. that the resignation of Wang Kang Ping as a supervisor of the Company by reason of the change of his work be approved;
2. that the nomination of Mr. Bai Yun Feng as a supervisor of the Company be considered and approved; and
3. that the proposal to amend the Articles of Associations of the Company be considered and approved.
(2) Work progress and independent opinions of the supervisory committee

1. Lawful operation of the Company

The supervisory committee has monitored the proceedings of the shareholders’ general meeting, procedures for convening meetings of the Board, the resolutions, implementation of general meeting resolutions by the Board and the performance of duties of the directors and senior management of the Company according to duties conferred to it by the Company Law, the Securities Law, the Articles of Association and other relevant laws and regulations.

The supervisory committee considered that the Board will implement resolutions of the shareholders’ general meeting faithfully, that its decision making process has complied with the requirements of the Company Law and the Articles of

Association, and that it has exercised its powers within the scope of authorisation of the shareholders’ general meeting. It was also the opinion of the supervisory committee that the directors and senior management of the Company have discharged their duties in the Company faithfully and diligently, and were in compliance with the provisions of the Articles of Association and the directions of the shareholders’ general meeting and the Board.

The supervisory committee was not aware of any breach of laws, regulations or the Articles of Association of the Company nor any acts which prejudice the Company’s interests during the discharge of duties by the Company’s directors and senior management.

2. Financial status of the Company

The supervisory committee considered it understandable for 德勤華永會計師事務所 to issue an audit report with explanatory statement in connection with its audit of the Company’s accounting report for the year 2002. The committee has completely accepted explanations on the financial report made by the Board.

3. Use of proceeds from public offer

No public offer and use of proceeds thereof were made by the Company in 2002.

4. Opinion on the disposals and acquisitions of assets

The supervisory committee considered that disposals and acquisitions of assets by the Company during the Reporting Period are conducted in an open, fair and impartial manner and that there was no prejudice to shareholders’ interests or loss of assets of the Company incurred in such disposals and acquisitions.

5. Opinion on related party transactions

The supervisory committee considered that related party transactions of the Company during the Reporting Period were conducted on normal commercial terms at arm’s length and in a fair manner. The committee was not aware of any acts which were prejudicial to the interests of the Company and its shareholders within such transactions.

9. Financial Report

Balance Sheet

Prepared in accordance with the PRC GAAP

Unit: RMB

Items Current Assets: Bank balances and cash Notes receivable Accounts receivable Other receivables Prepayments Inventories Deferred expenditures Other current assets Total current assets Long-term Investments: Long-term equity investments Fixed Assets: Fixed assets, cost Less: Accumulated depreciation Fixed assets, net Less: Provision for impairment loss of fixed assets Fixed assets, net Construction-in-progress Disposal of fixed assets Total fixed assets Intangible assets and other assets: Intangible assets Long-term deferred expenditures Other long-term assets Total intangible assets and other assets Total assets Current Liabilities: Short-term loans Notes payable Accounts payable Advance from customers Accrued payroll Staff welfare payable Dividends payable Taxes payables Payable to others	2002.12.31 Parent Consolidation Company 1,417,085,462 1,065,118,299 622,627,806 613,597,439 381,535,897 275,661,469 1,222,868,831 2,107,281,156 89,011,737 36,549,630 1,148,325,956 704,131,994 6,411,749 5,135,474 970 970 4,887,868,408 4,807,476,431 284,390,212 1,309,550,235 3,635,836,132 1,420,958,597 (1,586,467,593) (509,851,837) 2,049,368,539 911,106,760 (61,375,205) – 1,987,993,334 911,106,760 11,323,062 7,550,688 – – 1,999,316,396 918,657,448 313,881,774 198,209,350 196,695,856 66,644,180 85,602,908 51,602,908 596,180,538 316,456,438 7,767,755,554 7,352,140,552 960,164,036 400,000,000 942,591,729 1,075,014,036 739,184,874 652,568,689 337,665,921 300,245,037 44,211,152 30,370,421 3,986,906 1,489,938 52,409 – 39,849,854 62,552,141 2,944,393 2,029,317	2001.12.31 Parent Consolidation Company 778,191,077 492,198,063 351,188,636 346,601,619 220,899,049 127,250,589 920,145,160 1,944,443,323 68,102,966 16,158,696 1,225,838,916 801,622,736 4,302,593 1,075,281 592,731 592,731 3,569,261,128 3,729,943,038 259,892,540 1,180,880,569 3,383,892,823 1,410,203,800 (1,278,861,600) (409,811,665) 2,105,031,223 1,000,392,135 (59,137,584) – 2,045,893,639 1,000,392,135 31,187,206 16,597,973 – – 2,077,080,845 1,016,990,108 300,569,053 209,127,331 210,904,281 108,379,846 92,139,947 58,139,947 603,613,281 375,647,124 6,509,847,794 6,303,460,839 1,323,309,386 965,700,000 678,710,489 824,359,379 578,148,753 9,318,641 440,396,170 432,266,240 55,442,703 35,287,596 2,392,998 798,006 3,187 – (157,832,050) (168,419,901) 4,287,088 2,443,887

Other payables Accruals Provision Long-term loans due within one year Other current liabilities Total current liabilities Non-current liabilities: Long-term loans Debentures Long-term payable Total non-current liabilities Deferred Tax: Deferred tax liabilities Total liabilities Minority interests Shareholders’ equity: Share capital Capital reserve Common reserve	616,737,987 211,076,574 105,031,134 65,233,515 – 4,068,730,484 714,766,571 75,822,128 – 790,588,699 – 4,859,319,183 222,219,313 992,006,563 2,464,620,687 343,742,703	519,065,990 185,670,788 105,031,134 60,000,000 – 3,394,037,491 690,000,000 70,126,659 494,015,291 1,254,141,950 – 4,648,179,441 – 992,006,563 2,464,620,687 343,742,703	73,887,114 310,054,445 157,356,546 204,958,929 965,158 3,672,080,916 29,961,937 116,492,478 – 146,454,415 – 3,818,535,331 220,996,280 992,006,563 2,451,222,837 343,742,703	439,111,897 297,993,595 157,356,546 200,000,000 – 3,196,215,886 – 113,263,739 495,849,789 609,113,528 – 3,805,329,414 – 992,006,563 2,451,222,837 343,742,703
Including: Statutory common welfare fund	114,580,901	114,580,901	114,580,901	114,580,901
Accumulated losses (1,112,338,736) (1,094,594,683) (1,313,207,151) (1,285,391,909) Exchange difference (1,814,159) (1,814,159) (3,448,769) (3,448,769) Total shareholders’ equity 2,686,217,058 2,703,961,111 2,470,316,183 2,498,131,425 Total liabilities and shareholders’ equity 7,767,755,554 7,352,140,552 6,509,847,794 6,303,460,839 Statement of Income and Profit Appropriation Prepared in accordance with the PRC GAAP Unit: RMB 2002 2001 Parent Parent Items Consolidation Company Consolidation Company 1. Revenue from principal operations 4,878,257,017 4,069,394,196 4,381,616,368 3,698,319,059 Less: Cost of sales (3,852,539,111) (3,209,655,362) (3,615,716,071) (3,061,260,085) Sales tax (265,104) (214,873) (70,884) (68,134)

2. Profit from principal operations Add: Other operating profit (loss) Less: Distribution costs Administrative expenses Financial expenses 3. Profit (loss) from operations Add: Investment loss Subsidy income Non-operating income Less: Non-operating expenses 4. Profit (loss) before taxation Less: Income tax Minority interests 5. Net profit (loss) Add: (Accumulated losses) retained earnings at beginning of the year Other transfer in 6. Loss available for appropriation Less: Statutory common reserve fund Statutory common welfare fund Staff welfare and bonus fund Reserve fund Enterprise expansion fund Return of profits 7. Loss available for distribution Less: Dividends on preferential shares Discretionary reserve Dividends on ordinary shares Dividends transferred to share capital 8. Accumulated losses at end of the year Items Supplemental information: 1. Proceeds from sale or disposal of departments or invested companies 2. Loss incurred by natural disasters 3. Increase (or decrease) of total profit from change of accounting policy	1,025,452,802 170,612,542 (791,497,880) (34,899,332) (75,536,164) 294,131,968 (96,479,357) 16,805 9,941,494 (4,099,764) 203,511,146 (3,031,454) 388,723 200,868,415 (1,313,207,151) – (1,112,338,736) – – – – – – (1,112,338,736) – – – – (1,112,338,736) 2002 Consolidation – – –	859,523,961 (4,231,250) (764,887,134) 187,038,190 (54,012,477) 223,431,290 (33,369,594) 16,805 1,584,742 (866,017) 190,797,226 – – 190,797,226 (1,285,391,909) – (1,094,594,683) – – – – – – (1,094,594,683) – – – – (1,094,594,683) Parent Company – – –	765,829,413 636,990,840 19,930,301 9,098,660 (1,126,262,303) (1,070,577,944) (911,607,048) (597,308,928) (86,687,871) (54,337,938) (1,338,797,508) (1,076,135,310) (99,063,264) (371,073,107) 64,764 64,764 21,529,992 13,826,125 (73,282,675) (14,759,354) (1,489,548,691) (1,448,076,882) – – 13,656,567 – (1,475,892,124) (1,448,076,882) 162,684,973 162,684,973 – – (1,313,207,151) (1,285,391,909) – – – – – – – – – – – – (1,313,207,151) (1,285,391,909) – – – – – – – – (1,313,207,151) (1,285,391,909) 2001 Parent Consolidation Company – – – – – –

4. Increase (or decrease) of total profit from change of accounting estimates – 5. Loss incurred from debt restructuring – 6. Increase of total profit from accounting error – 7. Others – Cash Flow Statement Prepared in accordance with the PRC GAAP Items 1. Cash flows from operating activities: Cash received from sales of good or rendering of services Refund of tax and levies Cash received from other operating activities Sub-total of cash inflows Cash paid for purchases of goods and services Cash paid to and on behalf of employees Tax paid Other cash paid relating to operating activities Sub-total of cash outflows Net cash flows from operating activities 2. Cash flows from investing activities: Cash received from disposal of investment Cash received from investment income Net cash received from disposals of fixed assets, intangible assets and other long-term assets Other cash received relating to investing activities Sub-total of cash inflows Cash paid for acquisition of fixed assets, intangible assets and other long-term assets Cash paid for acquisition of investments Other cash paid for relating to investing activities Sub-total of cash outflows Net cash flows from investing activities		– – – –	– – – – 79,680,965 107,496,207 – – Unit: RMB 2002 Parent Consolidation Company 4,599,555,916 4,340,024,516 – – 24,638,444 13,772,281 4,624,194,360 4,353,796,797 3,491,550,189 3,291,622,581 329,590,993 154,073,311 109,248,030 71,367,624 194,020,388 213,147,377 4,124,409,600 3,730,210,893 499,784,760 623,585,904 56,909,618 – – – 48,769,648 282,277 204,537,039 204,537,039 310,216,305 204,819,316 264,510,707 43,113,074 – 147,763,896 603,452,809 598,051,003 867,963,516 788,927,973 (557,747,211) (584,108,657)

3. Cash flows from financing activities: Cash received from investment Cash received from the borrowings Other cash received relating to financial activities Sub-total of cash inflows Cash paid for repayment of borrowings Cash paid for distribution of dividends, profit or interest expenses Other cash paid relating to financing activities Sub-total of cash outflows Net cash flows from financing activities 4. Effect of foreign exchange rate changes on cash 5. Net increase (decrease) in cash and cash equivalents Supplemental information: 1. Reconciliation of net profit to net cash flows from operating activities: Net profit Add: Provision for impairment loss of assets Depreciation of fixed assets Amortisation of intangible assets Amortisation of long-term expenditures Increase in deferred expenditures Decrease in accruals Loss (gain) from disposal of fixed assets, intangible assets and other long-term assets Loss from write-off of fixed assets Financial expenses Investment loss Deferred tax credit Decrease in inventories Increase in operating receivables Increase in operating payables Others Minority interests Net cash flows from operating activities 2. Non-cash investing and financing activities: Debts transferred to capital Convertible bonds due within one year Fixed assets purchased under finance lease	– 1,454,465,000 –
	1,454,465,000
	1,272,530,166 90,008,597 –
	1,362,538,763
	91,926,237
	1,477,790
	35,441,576
	499,784,760
	– – –

3. Net increase (decrease) in cash and cash equivalents: Cash at the end of period Less: Cash at the beginning of year Add: Cash equivalent at the end of year Less: Cash equivalent at the beginning of year Net increase (decrease) in cash and cash equivalents	686,638,140 356,228,019 651,196,564 381,358,836 – – – – 35,441,576 (25,130,817)

10. DIFFERENCE BETWEEN THE INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE PRC

This financial statement is prepared in accordance with the Generally Accepted Accounting Principles of the PRC, and is different from the financial statement prepared in accordance with the IFRS.

As at 31 December 2002, the net profit and net assets for the year as stated in the statutory financial statements was RMB 200,868,000 and RMB 2,686,217,000 respectively, the major adjustments made to the net profit and net assets based on the IFRS are as follows:

Amount stated in financial statement as per PRC GAAP IFRS Adjustment – Adjustment on property, plant and equipment revaluation and related depreciation Amount stated in financial statement as per IFRS	Net profit Net Assets as at for 2002 31 December 2002 RMB ‘000 RMB ‘000 200,868 2,686,217 (16,684) 15,067 184,184 2,701,284

REPORT OF THE AUDITORS OF GUANGDONG KELON ELECTRICAL HOLDINGS COMPANY LIMITED FOR THE YEAR 2002

De Shi Bao (Shen) Zi (03) No. P0267

TO THE SHAREHOLDERS OF GUANGDONG KELON ELECTRICAL HOLDINGS COMPANY LIMITED

We have audited the accompanying balance sheets of the Company and the Group as of 31 December 2002 and the related statements of income and cash flows of the Company and the Group for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit is accordance with Independent Auditing Standards for Chinese Certificated Public Accountants. Our audit included such tests of the accounting records and such other auditing procedure as we considered necessary in the circumstances of the Company and the Group.

The previous auditors explained in their auditors’ report on the financial statements for the year ended 31 December 2001 that they were unable to obtain reasonable representations and assurances on which they could rely for the purposes of their audit and there were no satisfactory audit procedures that they could perform to obtain reasonable assurance that all material transactions were properly recorded and completely disclosed. Against this background, we are unable to conclude as to whether the net assets and consolidated net assets of the Company and the Group as at 31 December 2001 were free from material misstatement. Any adjustments to the opening net assets of the Company and the Group would affect the net profit of the Company and the Group for the year ended 31 December 2002. Also, the comparative figures as at the beginning of the year shown in the Company’s and the Group’s balance sheet, in the statement of income and profit appropriation and in the cash flow statement for the year then ended may not be comparable with the figures for the current year.
The investment profit and loss in華意壓縮機股份有限公司 , an associate of the Company, was not recognised by equity method as the Company could not obtain the audited financial statements of such associate for the year 2002 ended 31 December. Accordingly, we are unable to determine the effects of profit and loss of such investment in the year on the net assets of the Company as at 31 December 2002 and its profit for the year then ended had such profit and loss been recognised by equity method.
As described in more detail in note 34, in July 2002 Kelon Development Company Limited (“Kelon Development”) acquired the remaining 56% interest in joint venture company Guangdong Sanyo Electric Kelon Refrigerator Co., Ltd (“Sanyo Kelon”) from three parties, including Japan Sanyo Electrical Corporation (“Japan Sanyo”). In June 2002, Japan Sanyo paid on behalf of Sanyo Kelon bank loans in the sum of RMB154 million. A supplemental agreement dated in 8 November 2002 between the Company, Japan Sanyo, Sanyo Kelon and Kelon Development documents that, as a result of the repayment by Japan Sanyo, the rights of Sanyo Kelon to use the Japan Sanyo brand names, to produce Sanyo Kelon refrigerators and to access relevant technical information were terminated. Following the form of the supplemental agreement, the directors consider that the payment by Japan Sanyo constitutes compensation to the Company for the termination of these rights. On this basis, the amount of RMB154 million has been recognised in the income statement as compensation income.

However, the following evidence is relevant. Firstly, under the original Brand Name Agreement entered into between Sanyo Kelon and Japan Sanyo, a change of shareholder automatically triggers the termination of the agreement, without the question of compensation arising. Secondly, according to the Share Transfer Agreement and the Agreement relating to Sharing of Guaranteed Liability, the payment in the sum of RMB154 million by Japan Sanyo was a pre-requisite of the share transfer. Thirdly, Japan Sanyo was already obligated in connection with a guarantee given in respect of bank borrowings of Sanyo Kelon amounting to RMB180 million. And fourthly, the share transfer took place after the payment of RMB154 million by Japan Sanyo.

On the above basis, in our opinion, the payment of RMB154 million should have been charged to the capital reserve of Sanyo Kelon’s financial statements. It should also be considered together with a repayment of bank loan of RMB26.42 million made by the Company on behalf of Sanyo Kelon in the Group’s financial statements, to the effect that profit for the year should have been reduced by approximately RMB75 million. In addition, the repayment should properly have been taken into consideration in the determination of the equity investment difference arising on the acquisition of these shares by the Group.

The provision in respect of obsolete inventories of approximately RMB25 million made in the previous year has been reversed in the current year. However, according to the stock movement records, there has been no significant usage of these inventories during 2002. In view of the slow moving nature of these inventories, in our opinion the previous provision should be re-instated and the net assets of the Company as at 31 December 2002 and net profit for the year then ended reduced accordingly.

Except for matters covered above, in our opinion, the financial statements comply with the relevant requirements of the Accounting Standards for Business Enterprises and Accounting System for Business Enterprises, and present fairly, in all material respects, the financial statement position of the Company and Group as of 31 December 2002 and the result of their operations and cash flows for the year then ended. The accounting policies have been consistently applied.

Shanghai, the PRC, 28 March 2003

NOTICE OF 2002 ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the board of directors of Guangdong Kelon Electrical Holdings Company Limited (the “Company”) has decided to hold the 2002 Annual General Meeting (the “AGM”) of the Company at 10:00 a.m. on Sunday, 18 May 2003, at the Meeting Room of the Company’s head office in Shunde, Guangdong Province to deal with the following matters:

(1) to consider and approve the 2002 Report of the Directors of Guangdong Kelon Electrical Holdings Company Limited;
(2) to consider and approve the 2002 Report of the Supervisory Committee of Guangdong Kelon Electrical Holdings Company Limited;
(3) to consider and approve the 2002 audited financial statements of Guangdong Kelon Electrical Holdings Company Limited;
(4) to consider and approve the proposal for profit distribution of 2002 profit;
(5) to consider and approve the proposal to utilize the Company’s statutory common reserve and capital reserve to make up for the Company’s accumulated losses; and
(6) to consider and approve the proposal to change the Company’s independent non-executive director.

By the order of the Board of Guangdong Kelon Electrical Holdings Company Limited Gu Chu Jun Chairman

Shunde, the PRC, 31 March 2003

Notes:

(a) Holders of the Company’s shares whose names appear on the register of members of the Company as at the close of business on 18 April 2003 will be entitled to attend the AGM or any adjournment thereof if they complete and return the attendance confirmation slip for receipt by the Company on or before 28 April 2003 (9 a.m. – 5 p.m.). Please refer to the attendance confirmation slip for details.

(b) Persons holding H shares of RMB1.00 each of the Company (“H Shares”) should note that the register of members of H Shares will be closed from 18 April 2003 to 18 May 2003 (both days inclusive), during which period no share transfer will be effected.
(c) A shareholder entitled to attend and vote at the AGM may appoint a proxy or proxies (whether he or she is a shareholder of the Company or not) to attend and vote instead of him or her. Each shareholder (or his/her proxy or proxies) shall be entitled to cast one vote for each share held. The completion and deposit of a form of proxy will not preclude any shareholder from attending and voting at the AGM or any adjournment thereof.
(d) Shareholders must appoint a proxy or proxies in writing. Such instrument should be signed by the person appointing the proxy or proxies or by his or her authorised attorney. If the form of proxy is signed by an attorney, the document appointing the attorney must be certified by a notary. To be valid, a notarially certified power of attorney or other authority (if any) and the form of proxy must be received by the Secretary’s Office 24 hours prior to the commencement of the AGM. A form of proxy for use at the AGM will be despatched to the shareholders in due course.
(e) The AGM is expected to last for half a day. Shareholders attending the AGM will be responsible for their own transportation and accommodation expenses.
(f) The address of the Secretary’s Office is:

The Secretary’s Office of the Board of Directors of Guangdong Kelon Electrical Holdings Company Limited

No.8 Ronggang Road Ronggui, Shunde Guangdong Province Tel : (86-765) 8362570 Fax : (86-765) 8361055 Post code : 528303 Contact person : Zhong Liang, Yu Wan Li

Announcement on the Resolutions of the Meeting of the Fourth Board of Directors of Guangdong Kelon Electrical Holdings Company Limited

A meeting (the “Meeting”) of the fourth board of directors of Guangdong Kelon Electrical Holdings Company Limited (the “Company”) was held on 28 and 31 March 2003 at the conference room of the Company’s head office. The Meeting was attended by eight out of the nine directors and Ms. Yu Xiaoyang, non-executive director, was unable to attend the Meeting due to personal reason. Mr. Jiang Bao Jun, Ms. He Si and Mr. Bai Yun Feng, members of the Supervisory Committee, also attended the Meeting. The Meeting was held in accordance with the Company Law of the People’s Republic of China and the Articles of Association of the Company. The Meeting was chaired by Mr. Gu Chu Jun, and the following resolutions were considered and approved:

That the annual report of Guangdong Kelon Electrical Holdings Company Limited for the year 2002 and the results announcement of Guangdong Kelon Electrical Holdings Company Limited for the year 2002 be adopted, and the chairman of the Board, Mr Gu Chu Jun, be authorised to sign such report and announcement;
That the Report of the Directors of Guangdong Kelon Electrical Holdings Company Limited for the year 2002 be adopted;

That the audited financial statements of Guangdong Kelon Electrical Holdings Company Limited for the year 2002 be adopted;
That the profit distribution proposal of the Company for the year 2002 be approved: The Company recorded a profit of RMB184,184,000 for the year 2002, resulting in a decrease in accumulated losses from RMB1,367,123,000 in 2001 to RMB1,182,939,000 in 2002. The board of directors resolved not to pay any dividend for the year 2002 and not to capitalise any reserve funds;
That the proposal to utilize the Company’s statutory common reserve and capital reserve to make up for the Company’s accumulated losses be approved;
That the explanations of the Board of directors of the Company in matters under the auditors’ opinion be approved.
That the resolution relating to the application for a cancellation of the special treatment on the Company’s shares be approved: During the reporting period of 2002, the Company successfully turned from a loss-making position to a profit-making position within a short period of one year under the leadership of the new management. The net turnover was RMB4,878,257,000 and the net profit after extraordinary profit and loss amounted to RMB184,184,000. Net asset per share was RMB2.94. According to the relevant requirements in Rule 9.2.4 of Chapter 9 of the Listing Rules of the Shenzhen Stock Exchange (as revised in 2002), the Company has decided to apply to the Shenzhen Stock Exchange for a cancellation of the special treatment on the Company’s shares;
That the resignation of Ms. Yu Xiaoyang, an independent non-executive director, tendered to the Company on 2 December 2002 be approved, and that the nomination of Mr. Xu Xiaolu (biography attached as follows) as an independent non-executive director of the Company be approved and be submitted to the shareholders’ meeting for consideration and approval. The above change in directors shall be effective upon the new independent nonexecutive director being elected in the general meeting; and
That the date for the 2002 Annual General Meeting of the Company (the “AGM”) be fixed on 18 May 2003, the agenda of which is contained in the AGM Notice.

By the order of the Board of Guangdong Kelon Electrical Holdings Company Limited Gu Chu Jun Chairman

Shunde, the PRC, 31 March 2003

Profile of the Independent Non-executive Director

Xu Xiaolu

Mr. Xu was born in June 1956 and belongs to the Hui nationality. He graduated from the Faculty of Finance and Trade (財政貿易系 ) of Beijing Economic Institute in July 1982.

Mr. Xu held various positions in the finance bureau of 中國石油天然氣總公司 (Ministry of Petroleum Industry) as deputy section chief, section chief and head of division from July 1982 to May 1993. He worked in CNPC (Hong Kong) Limited from May 1993 to December 1999. During this period, he served in the company as an executive director from 1993 to 1996, as the

managing director from 1996 to 1997, and as the vice-chairman and general manager from 1997 to 1999. From December 1999 to June 2000, Mr. Xu served in PetroChina Company Limited as the assistant secretary for the board of directors, authorised representative in Hong Kong and investor relations officer. He joined Sino Infotech Holdings Limited as a managing director since July 2000.

Announcement on the Resolutions of the Meeting of the Third Supervisory Committee of Guangdong Kelon Electrical Holdings Company Limited

A meeting (the “Meeting”) of the third Supervisory Committee of Guangdong Kelon Electrical Holdings Company Limited (the “Company”) was held on 28 March 2003 at the Company’s conference room. The Meeting was attended by all three supervisors and was held in accordance with the Company Law of the People’s Republic of China and the Articles of Association of the Company. The following resolutions were considered and approved:

That the annual report of Guangdong Kelon Electrical Holdings Company Limited for the year 2002 and the results announcement of Guangdong Kelon Electrical Holdings Company Limited for the year 2002 be considered and approved;
That the audited financial statements of Guangdong Kelon Electrical Holdings Company Limited for the year 2002 be considered and approved;
That the report of the Supervisory Committee of Guangdong Kelon Electrical Holdings Company Limited for the year 2002 be considered and approved; and
That Mr. Jiang Bao Jun be elected as the chairman of the Supervisory Committee of the Company.

Supervisory Committee of

Guangdong Kelon Electrical Holdings Company Limited

Shunde, the PRC, 31 March 2003

“Please also refer to the published version of this announcement in China Daily”

AI assistant

Medlive Technology Co., Ltd. — Annual Report 2002

50436_rns_2003-04-01_c0c0b794-ed16-4866-a435-cb2a539a09d6.pdf

GUANGDONG KELON ELECTRICAL HOLDINGS COMPANY LIMITED 廣東科龍電器股份有限公司

ANNOUNCEMENT OF RESULTS FOR THE YEAR ENDED 31 DECEMBER 2002

CONSOLIDATED INCOME STATEMENT

Notes:

1. TURNOVER

2. BUSINESS SEGMENTS

Business segments

Year 2002

RESULT

5. BASIC EARNINGS (LOSS) PER SHARE

6. PRIOR PERIOD ADJUSTMENTS

MANAGEMENT DISCUSSION AND ANALYSIS

1. Results Review

Turnover Structure Analysis

Healthy Financial Standing

2. Operations Review

“Project of Perfection”

Cost Controls

“Total Carefree” Customer Services

Comprehensive Branding Strategies

Internationalization Strategy

Significant Events

3. Prospects

FINAL DIVIDENDS

LIQUIDITY AND SOURCES OF FUNDS

HUMAN RESOURCE AND EMPLOYEES’ REMUNERATION

BASIC MEDICAL INSURANCE SCHEME FOR EMPLOYEES

CHARGES ON THE GROUP’S ASSETS

EXPOSURE TO EXCHANGE RATE FLUCTUATION

CONTINGENT LIABILITIES

SHARE CAPITAL STRUCTURE

TOP TEN/SUBSTANTIAL SHAREHOLDERS

Statement of share capital movement

INTERESTS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE

PURCHASE, SALE OR REDEMPTION OF SHARES

CODE OF BEST PRACTICE

DETAILED ANNUAL RESULTS ANNOUNCEMENT

REPORT OF THE AUDITORS

TO THE SHAREHOLDERS OF

GUANGDONG KELON ELECTRICAL HOLDINGS COMPANY LIMITED 廣東科龍電器股份有限公司

Respective responsibilities of directors and auditors

Basis of opinion

Qualified opinion arising from limitations of audit scope and from disagreements about accounting treatment

SUPPLEMENTARY INFORMATION AS REQUIRED BY THE STOCK EXCHANGE OF HONG KONG LIMITED IN RELATION TO THE COMPANY’S A SHARE ANNUAL RESULTS ANNOUNCEMENT

1. Particulars of the Company

2. Accounting Data and Financial Indices

3. Changes in share capital and shareholders

4. Directors, Supervisors and Senior Management

5. Operations of the Company

1. Analysis of principal business by industry

6. Explanations of the board of directors of the Company in respect of matters under the auditors’ opinion.

7. Significant Events

1. Acquisition of assets

2. Implementation of committed projects

8. Report of the Supervisory Committee

1. Lawful operation of the Company

2. Financial status of the Company

3. Use of proceeds from public offer

4. Opinion on the disposals and acquisitions of assets

5. Opinion on related party transactions

9. Financial Report

Balance Sheet

10. DIFFERENCE BETWEEN THE INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE PRC

REPORT OF THE AUDITORS OF GUANGDONG KELON ELECTRICAL HOLDINGS COMPANY LIMITED FOR THE YEAR 2002

TO THE SHAREHOLDERS OF GUANGDONG KELON ELECTRICAL HOLDINGS COMPANY LIMITED

NOTICE OF 2002 ANNUAL GENERAL MEETING

Notes:

Announcement on the Resolutions of the Meeting of the Fourth Board of Directors of Guangdong Kelon Electrical Holdings Company Limited

Profile of the Independent Non-executive Director

Xu Xiaolu

Announcement on the Resolutions of the Meeting of the Third Supervisory Committee of Guangdong Kelon Electrical Holdings Company Limited

Supervisory Committee of

Guangdong Kelon Electrical Holdings Company Limited

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