Medlive Technology Co., Ltd. - Annual Report 2003

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)

(Stock Code: 921)

ANNOUNCEMENT OF RESULTS FOR THE YEAR ENDED 31 DECEMBER 2003

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 2003 (the “Reporting Period”) together with the 2002 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 from operations 3 Finance costs Share of results of associates Profit before taxation Taxation 4 Profit after taxation Minority interests Net profit for the year Basic earnings per share 5	2003 RMB’000 6,168,110 (4,508,317) 1,659,793 91,902 (1,002,753) (382,161) (5,711) 361,070 (122,463) (29,614) 208,993 (11,676) 197,317 (6,147) 191,170 RMB0.19	2002 RMB’000 4,878,257 (3,869,102) 1,009,155 47,766 (791,764) (76,611) (6,540) 182,006 (90,637) (4,134) 87,235 (3,031) 84,204 389 84,593 RMB0.09

Notes:

1. TURNOVER

Turnover represents the net amounts 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	2003 2002 RMB’000 RMB’000 3,016,247 2,252,045 2,680,590 2,337,240 211,467 103,979 259,806 184,993 6,168,110 4,878,257

2. BUSINESS SEGMENTS

Business segments

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

Segment information about these businesses is presented below:

Year 2003

Income statement

Air- Refrigerators conditioners RMB’000 RMB’000 TURNOVER External sales 3,016,247 2,680,590 Inter-segment sales – – Total revenue 3,016,247 2,680,590 Inter-segment sales are charged at prevailing market rates. RESULT Segment result 205,952 150,986 Unallocated corporate expenses Profit from operations Finance costs Share of results of associates (14,481) (12,870) Profit before taxation Taxation Profit after taxation	Product Freezers components Elimination Consolidated RMB’000 RMB’000 RMB’000 RMB’000 211,467 259,806 – 6,168,110 – 959,071 (959,071) – 211,467 1,218,877 (959,071) 6,168,110 25,352 (8,705) – 373,585 (12,515) 361,070 (122,463) (1,015) (1,248) – (29,614) 208,993 (11,676) 197,317	Product Freezers components Elimination Consolidated RMB’000 RMB’000 RMB’000 RMB’000 211,467 259,806 – 6,168,110 – 959,071 (959,071) – 211,467 1,218,877 (959,071) 6,168,110 25,352 (8,705) – 373,585 (12,515) 361,070 (122,463) (1,015) (1,248) – (29,614) 208,993 (11,676) 197,317
		6,168,110
		373,585 (12,515)
		361,070 (122,463) (29,614)
		208,993 (11,676)
		197,317

Year 2002

Income statement

Air- Refrigerators conditioners RMB’000 RMB’000 TURNOVER External sales 2,252,045 2,337,240 Inter-segment sales – – Total revenue 2,252,045 2,337,240 Inter-segment sales are charged at prevailing market rates. RESULT Segment result 307,664 209,750 Unallocated corporate expenses Profit from operations Finance costs Share of results of associates 17 – Profit before taxation Taxation Profit after taxation PROFIT FROM OPERATIONS Profit from operations has been arrived at after charging: Amortisation of goodwill Amortisation of intangible assets Depreciation of property, plant and equipment Loss on disposal of property, plant and equipment TAXATION Taxation consists of: PRC enterprise income tax (“EIT”) Hong Kong Profits Tax Taxation attributable to the Company and its subsidiaries	Product Freezers components Elimination RMB’000 RMB’000 RMB’000 103,979 184,993 – – 375,553 (375,553) 103,979 560,546 (375,553) (109,044) (209,582) – (1,398) (2,753) 2003 RMB’000 17,306 14,093 373,841 2,629 2003 RMB’000 11,676 – 11,676	Consolidated RMB’000 4,878,257 – 4,878,257 198,788 (16,782) 182,006 (90,637) (4,134) 87,235 (3,031) 84,204 2002 RMB’000 15,333 – 442,263 748 2002 RMB’000 1,903 1,128 3,031

3. PROFIT FROM OPERATIONS

4. TAXATION

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 the balance sheet date, deductible temporary differences not recognised in the financial statements were analysed into:

Tax losses Miscellaneous provisions	2003 RMB’000 1,050,870 456,523 1,507,393	2002 RMB’000 1,670,522 447,270
		2,117,792

No deferred tax asset has been recognised in relation to such deductible temporary differences due to the unpredictability of future profit streams.

5. BASIC EARNINGS PER SHARE

The calculation of basic earnings per share for the year is based on the net profit for the year of RMB191,170,000 (2002: RMB84,593,000) and on 992,006,563 shares (2002: 992,006,563 shares) outstanding during the year.

No diluted earnings per share have been presented as there were no dilutive potential ordinary shares in issue in either 2003 and 2002.

6. DIFFERENCES BETWEEN IFRS AND PRC ACCOUNTING STANDARDS AND REGULATIONS AS APPLICABLE TO THE GROUP

The consolidated income statement of the Group prepared under IFRS and that prepared under PRC accounting standards and regulations have the following major differences:

Net profit for the year as per financial statements prepared under IFRS Adjustment on property, plant and equipment revaluation and related depreciation Net profit for the year as per financial statements prepared under PRC accounting standards and regulations MANAGEMENT DISCUSSION AND ANALYSIS	2003 RMB’000 191,170 11,010 202,180	2002 RMB’000 84,593 16,684
		101,277

1. Results Review

In 2003, building on the strong foundation laid in 2002, Kelon experienced rapid development and recorded encouraging results. Turnover reached RMB6,168,110,000, representing a surge of approximately 26.44% as compared to 2002. Net profit attributable to shareholders amounted to RMB191,170,000, representing a substantial increase of approximately 125.99% over last year. Basic earnings per share were RMB0.19. In order to prepare for the rapid development in the future, the Board of Directors does not recommend payment of a final dividend for 2003.

The encouraging results during the Reporting Period were mainly attributable to the propensity of the international home appliance corporations procuring in China. With its price competitiveness, product quality as well as technological advantages, Kelon’s OEM export sales were able to grow rapidly.

In addition, the Group firmly believes that the provision of high technology and high value-added products is the key to win and consolidate market leadership in the highly competitive domestic appliances industry. The Group was hence committed to improving the technological level of its products, leading to the successful launch of various new products. Riding on this competitive advantage, the Group successfully captured the high-, mid- and low-end markets with the effective multi-branding marketing strategy. The Group’s domestic distribution network was also extended into towns and villages through actively building sales channels in local markets, contributing to the steady growth in domestic sales.

Furthermore, the raw material costs of steel and plastics did not have significant impact on the Group’s cost structure, attributable to the economies of scale which enable Kelon to enjoy a lower production cost than its peers in the industry. In 2002, the Group greatly reduced its costs through strengthened management and the implementation of an open tender procurement system. In 2003, Kelon further controlled its costs through enlarging the scale of production, lowering the management cost, as well as improving the bargaining power by coordinating joint procurement with Kelon’s sister company, Hefei Meiling Co., Ltd., during the Reporting Period. Although intense market competition has put pressure on product prices, Kelon was able to achieve a gross profit margin of approximately 26.90% in 2003.

Turnover Structure Analysis

During the Reporting Period, the Group’s sales revenues of refrigerators and air-conditioners accounted for 48.90% and 43.46% respectively of the Group’s total income, while the remaining 7.64% of the total income came from the steadily growing freezers and small appliances business.

Domestic sales accounted for 70.32% of the Group’s total turnover. For export sales, the Group’s OEM business achieved excellent results as its revenue in 2003 surged 145.2% over 2002, contributing 29.82% to the Group’s total income, and became one of the main growth drivers for the Group’s income and profit.

Healthy Financial Standing

During the Reporting Period, the Group continued to exercise stringent financial management. Riding on its strong foundation from the previous year, the Group was able to maintain its sound financial standing.

As at 31 December 2003, the Group’s total assets reached RMB9,513,632,000, with net assets of RMB2,810,866,000. Bank balances and cash (including pledged bank deposits) amounted to RMB2,120,039,000. Current assets stood at RMB6,112,670,000.

2. Operations Review

Strong Surge in Export Sales

The Group manufactures air-conditioners and refrigerators for world renowned international home appliance corporations through its OEM services. During the Reporting Period, export sales maintained its excellent performance and continued to be one of the main contributors to the growth of the Group’s revenue and profit.

The fierce competition in the OEM market has exerted pressure on the downward adjustment of product prices. With the cost, product quality and technological advantages of its OEM products, the Group experienced rapid growth in its sales orders both in terms of sales volume and sales revenues. At present, the Group’s OEM products are sold to 75 countries and regions around the world, with sales from the Asia Pacific region and Europe contributing the most to the Group’s turnover.

Satisfactory Growth in Refrigerator and Freezer Business

In 2003, Kelon’s refrigerator business saw encouraging results, which was attributable to the strong R&D capabilities and hence the industry-leading product features and technologies. During the Reporting Period, the Group further expanded the application of its Independent Multi-cycling Refrigeration (IMCR) technology, and successfully launched the industry-leading “Kelon”, “Ronshen” refrigerators with triple and quadruple cycling technologies after conducting detailed market research and product planning.

In addition, Kelon launched its “Combine” refrigerator series in January 2003, which enabled the Group to achieve comprehensive market segmentation. With the “European style at Affordable Prices” marketing strategy, coupled with an excellent channel promotion, the “Combine” refrigerators received overwhelming responses at its launch, bringing favourable profits to Kelon.

Riding on its the well-established advantage on economies of scale, the Group was able to maintain its costs at competitive levels effectively during the Reporting Period, which was positive in maintaining an excellent level of gross profit.

Sustained Competition Faced by Air-Conditioner Business

Despite the impact of the Severe Acute Respiratory Syndrome (SARS) outbreak in 2003, the Group’s airconditioner business grew steadily during the Reporting Period.

However, competition in the air-conditioner market remained extremely intense. The market price of the products has been decreasing at a faster rate than the decrease in the Group’s production costs. Many manufacturers have been forced to sell their products at prices that are lower than their costs, exerting strong pressure on the Group’s product prices and affecting the contribution of the air-conditioner business in the year to the Group’s overall profit.

With its multi-branding marketing strategy, and the technological advantage of Kelon’s air-conditioners, the Group was able to uphold its competitive advantages under the highly competitive market environment.

Good Performance of Small Home Appliances Business

The small home appliances market also saw a year of intense competition. However, by integrating its marketing and sales operations, establishing a dedicated sales department, and sharing the sales channels with the air-conditioner and refrigerator operations, Kelon greatly enhanced the distribution network coverage for the small home appliances. Adding to the launch of the “Combine” small home appliance series to capture the low-end market, these measures benefited the significant growth of the small home appliances business.

High Technology Products

Kelon believes that “leading technology” is the key to sustainable and healthy corporate development. During the Reporting Period, Kelon launched a number of industry-leading products:

Kelon “Digital Shuang Xiao Wang” Cooling and Heating Air-Conditioner

Riding on the patented technology of the Kelon “Shuang Xiao Wang” cooling and heating air-conditioners launched in 2002, the Group launched the “Digital Shuang Xiao Wang” cooling and heating air-conditioners during the Reporting Period, breaking a new record in terms of energy efficiencies.

Compared with the proprietary technology of the “Shuang Xiao Wang” cooling and heating air-conditioners launched in 2002, the cooling efficiency of Kelon “Digital Shuang Xiao Wang” cooling and heating airconditioners rose from 3.8 to 6.0, while the heating efficiency also increased from 4.2 to 6.0, which is 160% higher than the national standard of 2.3 and 120% higher than the national energy-saving standard of 2.7. This is the highest level attained among international peers.

Kelon Refrigerators with Triple and Quadruple Cycling Technologies

Further to the launch of its IMCR technology in 2002, the Group extended the application and developed refrigerators with triple and quadruple cycling technologies during the Reporting Period. Surpassing the competitors once again, these new products met the needs of high-end consumers for free selection of temperatures in multiple compartments, precise control of temperature, and the need for environmentally friendly and energy saving features, offering Kelon room to strive for higher profits.

Energy-Saving Refrigerators Receiving International Recognition

Over the past 20 years, Kelon has been fully committed to improving the energy-saving levels of its products. With Greencool Enterprise Development Company Limited (“Greencool”) becoming Kelon’s single largest shareholder, the refrigerators’ energy-savings levels have been raised further through the synergy effect of Kelon’s strong technological background and Greencool’s world-leading refrigeration technology.

In 2002, the Group launched the first IMCR refrigerator in the PRC, which consumed only 0.38 watt of electricity per day and brought about lower electricity usage, more energy savings and more convenience. In 2003, the Group broke the record of energy consumption again by developing the BCD-209 model refrigerator with 0.35 watt of electricity consumption per unit per day and energy savings of 0.94 watt of electricity consumption per unit per day. Reaching the A++ grade in European energy efficiency levels, this BCD-209 model refrigerator has broken the world record with the lowest energy consumption level per litre per day. Furthermore, it has received the only “Energy Saving Grand Prix” as well as the “Energy Saving Improvement Award” under the refrigerator manufacturer incentive program in China’s Energy Saving and CFC-Substitute Refrigerator Project. The project was initiated by the United Nations Development Programme, the Global Environmental Facility, the State Administration of Environmental Protection and the China Household Electrical Appliances Association.

Enhancing Product Competitiveness through “Project of Perfection”

During the Reporting Period, Kelon continued to implement the “Project of Perfection”, aiming at meticulous design, delicate manufacturing techniques, elegant products and attentive customer services. The initiative establishes the Group’s vision to enhance the competitiveness of Kelon’s products and to achieve leading international standards. Through the “Project of Perfection”, not only are quality controls and product designs enhanced, wastage in each production process is minimized and the corporate management process is optimized, largely offsetting the pressure on production costs caused by the increased cost of raw materials.

Well-Defined Positioning through Multi-Branding Strategy

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 at 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 well-received by users.

To capture the low-end market and to enlarge market share, Kelon launched the “Combine” brand in 2003, earning overwhelming market responses right from the start.

The success of the “Combine” brand facilitates Kelon’s all-embracing coverage in the high-, mid-, and lowend markets, contributing positively to the Group’s turnover and profit.

Cost Controls

Kelon accomplished significant results in cost controls during the Reporting Period. In addition to cutting down the procurement costs of raw materials and components through the analysis of market trends and the employment of flexible purchasing rules, the Group also lowered the design cost of products by optimizing the designs of the products and the refrigerating systems. This partially offset the pressure on production costs caused by the increased cost of raw materials.

Economies of Scale Realized by Kelon-Meiling Cooperation

Kelon’s single largest shareholder, Greencool, acquired a 20.03% equity interest in Hefei Meiling Co. Ltd. (“Meiling”), an A- and B-share listed large-scale domestic refrigeration appliance manufacturer in China, and has become Meiling’s single largest shareholder. The combined refrigerator capacity of Kelon and Meiling place both parties in a highly influential position in the industry in Asia.

To leverage the advantage of economies of scale, Kelon and Meiling cooperated in every aspect from procurement, R&D, sales and marketing, to servicing network. Through mutually complementing their competitive advantages and sharing of resources, significant results were achieved in enhancing the competitiveness of both enterprises. In terms of procurement cooperation, Kelon and Meiling jointly procured through a global open tendering exercise for over 500 categories in August 2003 to enhance bargaining power. Over 1,300 suppliers from the domestic and overseas markets participated in the tender. For sales channel cooperation, Kelon and Meling organized the “2004 Kelon – Meiling Distributors Annual Meeting” in Hefei in December 2003, in which there were close to 1,500 participating dealers exhibiting nearly 200 categories of products under the “Kelon”, “Ronshen”, “Meiling” and “Combine” brands. These initiatives laid a solid foundation for cooperations of the two enterprises in the coming year.

Record Breaking Production Efficiency

In 2003, under the management’s internationalized production management model, Kelon’s production efficiencies were greatly enhanced and production cycles shortened, strengthening its market responsiveness. For example, production cycle of air-conditioners was shortened from 15 days to 9 days, with the daily productivity of indoor and outdoor products rising 22% and 21% respectively. Its highest productivity in a single month also broke the record by achieving a 52.2% growth as compared with 2002.

Sales Channel Expansion through “龍霸行動 ”

In 2003, the Group launched the “龍霸行動 ” throughout the PRC to actively expand its sales channels. Professionals were assigned to the second-, third- and fourth-tier markets in the PRC for the development and planning of sales channel and network expansion. As of December 2003, the number of the Group’s airconditioner wholesalers, direct retailers and franchised retailers largely increased by 28%, 46% and 102% respectively as compared with the same period in 2002. The point of sale for refrigerators also grew by 109% as compared to the same period in 2002, bringing the Group’s point of sale coverage for refrigerators in the PRC to approximately 76% and achieving the target as set in early 2003.

Optimization of Management and R&D Teams

During the Reporting Period, Kelon was dedicated to the internationalization of the management team. The newly recruited senior management, instrumental in Kelon’s future development, are familiarizing themselves with the culture of Kelon, and they are building a strong foundation for Kelon to compete in the international marketplace.

The Group’s international sales department recruited talents throughout the world during the Reporting Period, doubling its overseas sales team members. To uplift the quality of its middle to senior management team, Kelon established a post-graduate human resources recruitment team in 2003, facilitating the number of master and doctorate staff members to increase in folds. At present, 50% of the Group’s senior management members obtained post-graduate degrees. In addition, the Group organized a “Chairman’s MBA Training Class” to optimize its human resources in terms of management, technology, as well as sales and marketing. After introducing 400 university graduates to the Group in 2002, Kelon recruited another 1,500 university graduates and 500 fellows during the Reporting Period.

For the R&D talents, Kelon’s R&D team had 700 members as of December 2003, whom have demonstrated economies of scale and contributed much to the Group’s R&D achievements.

Basic Medical Insurance Scheme for Employees

Since 1 January 2002, 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, and the relevant accounting requirements of the PRC, the Group has implemented the basic medical insurance policy for its employees. Such amount involved has already been stated as the Group’s welfare expenditure.

Significant Events

On 18 May 2003, the resignation of Ms. Yu Xiaoyang as an independent non-executive director of the Company and the appointment of Mr. Xu Xiaolu as an independent non-executive director of the Company were approved at the Annual General Meeting.

On 18 May 2003, the resolution to utilize the Company’s statutory common reserve and capital reserve to make up for the Company’s accumulated losses was approved at the Annual General Meeting.

On 4 June 2003, the Shenzhen Stock Exchange cancelled the special treatment on the Company’s A shares. The stock name abbreviation of the Company on Shenzhen Stock Exchange has been reinstated as “科龍電器 ”.

3. Prospects

With the dedicated effort of the entire Group, Kelon’s special treatment (“ST”) status has been ultimately removed, and the Group is posed on the brink of a bright future. Looking forward, the Group will strive to maintain its competitiveness in possessing leading technologies as well as strengthen its leading position in the domestic refrigeration appliances industry in the PRC.

The Group will also actively promote its proprietary “Shuang Xiao Wang” and IMCR technologies, and further expand the application of these advanced technologies to more product lines to enhance the overall technological benefits of its products. This will lead to new driving forces for growth and bring greater competitive edge in the highly competitive market.

In addition, the Group will continue to implement its comprehensive multi-branding strategies to strengthen the market coverage and to gain a larger market share. The Group will also strictly control product quality and production costs to increase the market competitiveness and the profitability of its products.

Over the past two years, despite the impact of price increase in raw materials, the Group’s cost controls achievemments were at the highest level amongst industry peers, which contributed significantly to the Group’s profitability. In the future, the Group will be dedicated to lowering the costs incurred throughout every process, from finished products getting off the production line to their delivery to the consumers. The Group will also lift its profitability to a higher level through optimizing the organizational structure and enhancing efficiency.

Competition in the PRC’s domestic refrigeration appliances industry will remain intense, while market competition in the air-conditioner industry in 2004 will be even more severe. The Group hence is unable to make a projection on the future profitability of its air-conditioner business. On the other hand, competition in the refrigerator industry is comparatively under control, making the Group confident in the future development of its refrigerator business. Strong growth in the export business is expected to be one of the main growth drivers in the Group’s future development.

Looking forward, by strengthening its internationalization strategy in addition to maintaining its leading position in the PRC market, the Group is set to work towards its goal of becoming a leading international domestic appliances manufacturer.

FINAL DIVIDENDS

The Group recorded a profit of RMB191,170,000 in the year 2003. The directors resolved not to pay any dividend for the year 2003 and not to capitalize any reserve funds (no dividend was paid by the Group for the year ended 31 December 2002).

LIQUIDITY AND SOURCES OF FUNDS

Net cash inflow for operating activities was approximately RMB993,394,000 (2002: net cash inflow of approximately RMB351,440,000) for the year ended 31 December 2003.

As of 31 December 2003, the Company had bank balances and cash (including pledged bank deposits) amounting to approximately RMB2,120,039,000 (2002: RMB1,417,085,000), and bank loans amounting to approximately RMB1,808,772,000 (2002: RMB1,775,435,000).

Total capital expenditures for the year 2003 amounted to approximately RMB289,412,000 (2002: RMB216,916,000) 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 2003, the Group had approximately 6,200 employees (2002: 6,500), mainly comprising 700 technical staff, 220 sales representatives, 370 financial staff, 80 administrative staff and 3,830 production staff. 15 of the Company’s employees hold a doctorate’s degree while 383 and 1,268 hold a master’s degree and a bachelor’s degree respectively. There were 536 employees with an official title of middle rank or above. In addition, the Company currently has 306 retired staff. Staff cost (including pension costs) for the year ended 31 December 2003 amounted to approximately RMB412,227,000 (2002: RMB301,283,000).

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 more high 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.

CHARGES ON THE GROUP’S ASSETS

As of 31 December 2003, the Group’s property, plant and equipment of approximately RMB1,067,711,000 (2002: RMB453,961,000) 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 Renminbi, the Group had no significant exposure to exchange rate fluctuation and no financial instrument was used to hedge exchange rate risk.

CONTINGENT LIABILITIES

As at 31 December 2003, the Group had no contingent liabilities (2002: guarantee for loan facilities granted to a related party of approximately RMB3,975,000).

AUDIT COMMITTEE

The Audit Committee of the Company has reviewed and confirmed the final result announcement and report for the year ended 31 December 2003.

CAPITAL EXPENDITURE

The Group expects that the capital expenditure for 2004 is approximately RMB350,000,000, and the Group’s capital resources are sufficient to finance its capital expenditure and day to day operating requirements.

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

As at 31 December 2003, the Group had long-term bank borrowings of RMB544,354,000 (2002: RMB714,767,000) and cash and cash equivalents of RMB726,905,000 (2002: RMB686,638,000), of which over 90% are denominated in RMB.

GEARING RATIO

As at 31 December 2003, there is no significant adverse changes to the Group’s gearing ratio as compared with last year.

INTERESTS IN CONTRACTS OF DIRECTORS AND SUPERVISORS

As at 31 December 2003 or during the year, the Company and its subsidiaries have not entered into any material contracts with jointly controlled entities, in which the Directors and Supervisors directly or indirectly have any significant interests.

SHARE CAPITAL STRUCTURE

As of 31 December 2003, the share capital structure of the Company was as follows:

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

TOP TEN/SUBSTANTIAL SHAREHOLDERS

As of 31 December 2003, the Company has a total of 68,996 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

		Shareholdings
Name of	Movement	as at		Nature of
Shareholder	during the year	year end	Percentage	shares	Class
			(%)
Greencool Enterprise Development	0	204,775,755	20.64	Unlisted	Legal person
Company Limited (“Greencool”)					shares
The Hongkong and Shanghai	+63,515,121	109,524,359	11.04	Listed	H shares
Banking Corporation Limited
Shunde Economic Consultancy	0	68,666,667	6.92	Unlisted	Legal person
Company					shares
Shunde Xin Hong Enterprise	0	57,436,439	5.79	Unlisted	Legal person
Company Limited					shares
Guotai Junan Securities	+30,869,000	45,109,000	4.55	Listed	H shares
(Hong Kong) Limited
Shenyin Wanguo Securities	-15,328,000	33,884,000	3.42	Listed	H shares
(H.K.) Limited
Morgan Stanley Dean Witter	+31,179,000	31,319,000	3.16	Listed	H Shares
Hong Kong Securities Ltd
Standard Chartered Bank	+21,971,200	29,326,000	2.96	Listed	H shares
First Shanghai Securities Limited	-3,938,000	26,999,000	2.72	Listed	H shares
Citibank, N.A.	+5,331,312	23,294,684	2.35	Listed	H shares

Notes:

(1) During the Reporting Period, other than the holders of legal person shares, the Company was not in a position to know whether the shares held by the rest of the above top ten shareholders were subject to any charge or moratorium.

(2) Other than the holders of legal person shares, the Company was not in a position to know whether the rest of the above top ten shareholders were connected persons or parties 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）.

TEN LARGEST SHAREHOLDERS OF LISTED SHARES

Name of shareholders	Shareholdings	Class
	as at year end	(A, B, H or
	(Share)	others)
The Hongkong and Shanghai Banking Corporation Limited	109,524,359	H Shares
Guotai Junan Securities (Hong Kong) Limited	45,109,000	H Shares
Shenyin Wanguo Securities (H.K.) Limited	33,884,000	H Shares
Morgan Stanley Dean Witter Hong Kong Securities Ltd	31,319,000	H Shares
Standard Chartered Bank	29,326,000	H Shares
First Shanghai Securities Limited	26,999,000	H Shares
Citibank, N.A.	23,294,684	H Shares
哈爾濱哈里投資股份有限公司	15,397,503	A Shares
Dah Sing Bank, Ltd.	15,000,000	H Shares
Deutsche Bank A.G.	10,750,000	H Shares

INTERESTS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE

At 31 December 2003, the interests and short positions of the directors, supervisors and the chief executive of the Company and their associates in the shares and underlying shares of the Company and its associated corporations, as recorded in the register maintained by the Company pursuant to Section 352 of the Securities and Futures Ordinance (“SFO”), or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, were as follows:

			Percentage of
			the relevant	Percentage of
			class of issued	the total issued
		Number of issued	share capital	share capital
Name	Capacity	ordinary shares held	of the Company	of the Company
Gu Chu Jun	Held by controlled	204,775,755 legal	60.60%	20.64%
	corporation	person shares (note a)
	Held by controlled	3,830,000 H shares	0.83%	0.39%
	corporation	(note b)
He Si	Beneficial owner	50,000 A shares	0.03%	0.01%

Notes:

(a) Gu Chu Jun owns a 90% equity interest in Greencool, a limited liability company established in the People’s Republic of China and the single largest shareholder of the Company. Greencool owned 204,775,755 legal person shares in the Company as at 31 December 2003.
(b) Gu Chu Jun owns approximately 62.5% of the issued share capital of Greencool Technology Holdings Limited (“Greencool Technology”), a company listed on the Growth Enterprise Market of the Stock Exchange. Two subsidiaries of Greencool Technology held 3,830,000 H shares in the Company as at 31 December 2003.

Other than as disclosed above, none of the directors, supervisors, chief executive nor their associates had any interests or short positions in any shares, underlying shares or debentures of the Company or any of its associated corporations as at 31 December 2003.

PURCHASE, SALE OR REDEMPTION OF SHARES

During the year ended 31 December 2003, neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of the Company’s listed shares.

CODE OF BEST PRACTICE

None of the Directors of the Company is aware of any information that would reasonably indicate that the Company is not, or was not for any part of the Reporting Period in compliance with the Code of Best Practice as set out in Appendix 14 of the Listing Rules.

PUBLICATION OF ANNUAL REPORT

The Company’s annual report 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 District, Foshan City, Guangdong, the PRC, 19 April 2004

As at the date of this announcement, the Company’s executive directors include Mr. Gu Chu Jun, Mr. Liu Cong Meng, Mr. Li Zhen Hua, Mr. Yan You Song, Mr. Zhang Hong and Mr. Fang Zhi Guo; and the independent non-executive directors include Mr. Chan Pei Cheong, Andy, Mr. Li Kung Man and Mr. Xu Xiao Lu.

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 7 to 45 which have been prepared in accordance with International Financial Reporting Standards.

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 solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Basis of opinion

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants. 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 and performed 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. 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.

Opinion

In our opinion the financial statements give a true and fair view of the state of affairs of the Group as at 31 December 2003 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.

Without qualifying our auditors’ opinion, we draw to your attention that the comparative consolidated income statement for the year ended 31 December 2002 disclosed in the financial statements may not be comparable with the figures for the current year. 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 were unable to conclude as to whether the net assets of the Group as at 31 December 2001 were free from material misstatement. Any adjustments to the opening net assets of the Group as at 1 January 2002 would affect the profit of the Group for the year ended 31 December 2002.

Hong Kong, 19 April 2004

1. Particulars of the Company

Particulars

Stock Name	Guangdong 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, Foshan City
Place of Business	Guangdong Province, China
Postal code	528303
Website	Http:\www.kelon.com
Email	[email protected]

Contact person and contact details

Secretary for the Board	Liu Cong Meng
Company Secretary	Gary Li Chi Sing
Correspondence Address	No. 8 Ronggang Road, Ronggui, Shunde, Foshan City
	Guangdong Province, China
Telephone	(0757) 28362570
Fax	(0757) 28361055
Email	[email protected]

Representative for matters relating to securities

Name	Zhong Liang
Correspondence Address	No. 8 Ronggang Road, Ronggui, Shunde, Foshan City
	Guangdong Province, China
Telephone	(0757) 28362570
Fax	(0757) 28361055
Email	[email protected]

2. Accounting Data and Financial Indices

Major accounting data

					Change over
			2003	2002	prior year	2001
			(RMB)	(RMB)	(%)	(RMB)
	Revenue from principal
	business	6,168,109,963		4,878,257,017	26.44	4,381,616,368
	Profit (loss) before
	taxation	220,003,504		103,919,721	111.71	-1,489,548,691
	Net profit (loss)	202,180,248		101,276,990	99.63	-1,475,892,124
	Net profit (loss) before
	extraordinary items	193,095,839		92,819,455	108.03	-1,416,346,413
		End of year		End of year	Change over	End of year
			of 2003	of 2002	prior year	of 2001
			(RMB)	(RMB)	(%)	(RMB)
	Total assets	9,432,791,214		7,656,539,329	23.20	6,509,847,794
	Shareholders’ interests
	excluding minority
	interests	2,808,730,941		2,575,000,833	9.08	2,470,316,183
	Net cash flow from
	operating activities	1,010,219,751		499,784,760	102.13	148,093,735
2.	Major financial indices
					Change over
			2003	2002	prior year	2001
					(%)
	Earnings per share (RMB)		0.20	0.10	100.00	-1.49
	Return on net assets (%)		7.20%	3.93%	83	-59.75%
	Return on net assets
	calculated on
	the net profit (loss)
	before extraordinary items	(%)	6.87%	3.60%	91	-57.33%
	Net cash flow from operating
	activities per share (RMB)		1.02	0.50	102	0.15
		End of year of		End of year of	Change over	End of year of
			2003	2002	prior year	2001
					(%)
	Net assets per share (RMB)		2.83	2.60	9	2.49
	Adjusted net assets
	per share (RMB)		2.64	2.40	10	2.21

Difference between the PRC and International accounting standards

PRC International Accounting Standards Accounting Standards

Net profit (RMB’0000) 20,218 19,117 Description of differences Adjustment on fixed assets revaluation and related depreciation

3. Share Issue and Listing

(1) The Company did not issue any new shares and derivatives for the three years ended the end of the reporting period;
(2) There was no change in the Company’s total shares and shareholding structure during the reporting period;
(3) The Company has no existing internal staff shares.

4. Major Details of Directors, Supervisors and Senior Management

Movement of shareholdings of directors, supervisors and senior management

						Shareholding	Shareholding
						at the	at the
						beginning of	end of
Name	Position	Gender		Age	Term of office	the year	the year
Gu Chu Jun	Chairman		Male	45	2001.12.23-2004.12.23	0	0
Liu Cong Meng	Vice chairman and president		Male	59	2001.12.23-2004.12.23	0	0
Li Zhen Hua	Vice chairman		Male	52	2001.12.23-2004.12.23	0	0
Yan You Song	Executive director and		Male	39	2001.12.23-2004.12.23	0	0
	vice president
Zhang Hong	Executive director		Male	42	2001.12.23-2004.12.23	0	0
Fang Zhi Guo	Executive director		Male	42	2001.12.23-2004.12.23	0	0
Chen Bi Chang	Independent non-executive		Male	43	2001.12.23-2004.12.23	0	0
	director
Li Gong Min	Independent non-executive		Male	47	2002.12.29-2004.12.23	0	0
	director
Xu Xiao Lu	Independent non-executive		Male	48	2003.5.18-2004.12.23	0	0
	director
Jiang Bao Jun	Supervisor		Male	37	2002.06.18-2004.12.23	0	0
Bai Yun Feng	Supervisor		Male	42	2002.12.29-2004.12.23	0	0
He Si	Supervisor	Female		50	2002.06.18-2004.12.23	50,000	50,000
Li Zhi Cheng	Secretary for the Board		Male	49	2002.09.02-2004.12.23	0	0
Lin Lan	Vice president		Male	46	2002.09.09-Now	0	0

Employment of directors and supervisors in shareholder company

Mr. Gu Chu Jun concurrently holds office as a director of Greencool Enterprise Development Company Limited since October 2001.

Remuneration of directors, supervisors and senior management for the year

Total remunerations of Directors, Supervisors and Senior Management of the Company for the year 2003 was RMB17,140,000; total remunerations of the three highest paid directors was RMB9,600,000; total remunerations of the three highest paid senior management was RMB4,200,000; allowance and other benefits of independent non-executive directors was RMB1,440,000. During the Reporting Period, remunerations and allowances of Directors, Supervisors and Senior Management of the Company were received from the Company.

Directors, Supervisors and Senior Management of the Company whose remunerations for the year 2003 fell within the following bands are as follows:

Executive Directors:(Unit: RMB)	Number
RMB0 to RMB1,000,000	2
RMB1,000,001-RMB2,000,000	3
RMB5,000,001-RMB6,000,000	1
Non-Executive Directors:
RMB0-RMB1,000,000	4
Supervisors:
RMB0-RMB1,000,000	3
Senior Management(including Directors)
RMB0-RMB1,000,000	1
RMB1,000,001-RMB2,000,000	3

Names and Reasons of Directors, Supervisors and Senior Management of the Company who left office during the period

At the 2002 annual general meeting convened by the Company on 18 May 2003, a resolution to replace a director of the Company was passed whereby Ms Yu Xiao Yang resigned as independent non-executive director of the Company, and Mr. Xu Xiao Lu was appointed as independent nonexecutive director of the Company.

5. Operations of the Company

Revenues and profits from principal business by region were as follows:

		Revenue from
Operating indices	principal business		Growth rate
	(RMB ten thousand)		(%)
Domestic Market		432,879	4.8
Overseas Market		183,932	146.4
Total		616,811	26.44
Details on Principal Businesses and Products
			Gross
Principal Products	Sales Revenue	Sales Cost	Profit Margin
	(RMB ten thousand)	(RMB ten thousand)	(%)
Refrigerators	301,625	213,640	29.17
Air-Conditioners	268,059	203,651	24.03
Freezers	21,147	16,203	23.38
Others	25,980	14,826	46.25

Details on Principal Businesses and Products
Major Suppliers and Customers

The total purchases from the top five suppliers, amounting to RMB743,210,000 represented 13% of the Company’s total purchases for the year, while the total sales to the top five customers amounting to RMB361,840,000, accounted for 6% of the Company’s total sales for the year.

6. Application of Raised Funds

During the Reporting Period, neither did the Company raise any funds nor apply any funds raised in the previous period and carried forward to the reporting period.

7. Progress and revenues on significant investment projects without raising funds

During the Reporting Period, the investment of the Company increased by RMB235,020,540 as compared to the year 2002, representing an increase of 19.29%, details of which are as follows:

(1) The Company has completed the first-phase investment in Jiangxi Kelon Industrial Development Co. Ltd, which was set up by the Company in 2002 and was currently put into production. The company is principally engaged in the production of home appliances such as air-conditioners and dehumidifiers;
(2) In September 2002, the Company established Jilin Kelon Electric Co. Ltd (吉林科龍電器有限公司 ). Jilin Kelon Electric Co. Ltd has completed the expansion of its productivity by the end of the Reporting Period and the expanded capacity has been utilised;
(3) On 28 May 2003, the Company and Kelon Development Co. Ltd (科龍發展有限公司 ), a whollyowned subsidiary of the Company, entered into a contact with Hangzhou Xileng (Group) Co. Ltd (杭州西泠集團有限公司 ) for the joint investment in establishment of Hangzhou Kelon Electric Co. Ltd (“Hangzhou Kelon”) 杭州科龍製冷電器有限公司 (「杭州科龍」) with a registered capital of US$24,100,000. Hangzhou Kelon is principally engaged in the production of refrigerators, freezers and relevant accessories. The Company and its wholly owned subsidiary hold a 70% interest in Hangzhou Kelon while Hangzhou Xileng (Group) Co. Ltd holds the remaining 30% interest. Hangzhou Kelon has completed its first-phase construction works and equipment improvement and commenced production;
(4) On 30 October 2003, Jiangxi Kelon Industrial Development Co. Ltd, a subsidiary of the Company, entered into a joint investment agreement with the Administrative Committee of Henan Kaifeng Economy and Technology Development Zone (河南省開封經濟技術開發區管委會 ) and Henan Kaifeng Economy and Technology Development (Group) Co. Ltd (河南省開封經濟技術開發集團有限公司 ), for the joint establishment of Kaifeng Kelon Air-conditioners Co. Ltd (“Kaifeng Kelon”) (開封科龍空調有限責任公司 ) (「開封科龍」) with a registered capital of RMB60,000,000, in which the Company holds a 70% interest. Kaifeng Kelon is principally engaged in the production of air-conditioners and accessories;
(5) In July 2003, the Company established, Yangzhou Kelon Electric Co. Ltd (“Yangzhou Kelon”) (揚州科龍電器有限公司 ) (「揚州科龍」) in Yangzhou, Jiangsu province, with a registered capital of US$29,800,000. Yangzhou Kelon is engaged in the production of refrigerators, freezers and accessories;
(6) On 30 September 2003, Jiangxi Kelon Industrial Development Co. Ltd, an indirect wholly-owned subsidiary of the Company, made a joint investment with Yangzhou Kelon Electric Co. Ltd in the establishment of Shangqiu Kelon Electric Co. Ltd (“Shangqiu Kelon”) (商丘科龍電器有限公司 ) 「商丘科龍」( ) with a registered capital of RMB150,000,000. Shangqiu Kelon is engaged in the production of freezers and ice machines; and
(7) On 3 December 2003, the Company and Kelon Development Co. Ltd (“Kelon Development”), a wholly-owned subsidiary of the Company, invested US$29,980,000 to establish Zhuhai Kelon Development Co. Ltd. (“Zhuhai Kelon”) (珠海科龍實業發展有限公司 ) in Zhuhai, Guangdong Province, in which the Company holds a 75% equity interest and Kelon Development holds the remaining 25% equity interest. Zhuhai Kelon is principally engaged in the production of semiconductor refrigerators and absorbent refrigerators.

8. Analysis on the Company’s financial status and business results

Below is the movements of the net increase in the Company’s total assets, long-term liabilities, shareholder’s equity, profits from principal operation, net profits, cash and cash equivalents for the year:

	At beginning of	At end
	the year	of the year	Change
Indices	(RMB million)	(RMB million)	(%)
Total assets	7,656.54	9,432.79	23.20
Long-term liabilities	790.58	607.13	-23.20
Shareholder’s equity	2,575.00	2,808.73	9.08
Profits from principal operation	1,025.45	1,684.54	64.27
Net profits	101.28	202.18	99.63
Net increase in cash and cash equivalents	35.44	40.27	13.63

Analysis on movements:

The increase in total assets was attributable to the growth of turnover, increase in bank deposit and notes receivable and accounts receivable
The decrease in long-term liabilities was mainly attributable to the decrease of long-term borrowings
The increase in shareholder’s equity was mainly attributable to the realization of net profit for the year
The profits from principal operation was mainly attributable to the increase of revenue and decrease in costs
The net profits was mainly attributable to the launch of hi-tech products and the increase of overall sales
The net increase in cash and cash equivalents was mainly attributable to the cashflow generated from operating activities

9. Report of Supervisory Committee

(i) Meetings of Supervisory Committee

During the Reporting Period, the supervisory committee convened a total of five meetings as follows:

(1) On 28 March 2003, a meeting of the supervisory committee of the Company was held at the conference room of the Company’s head office. At the meeting the following were considered and approved: The annual report of Guangdong Kelon Electrical Holdings Company Limited for the year 2002; the highlights on the annual report of Guangdong Kelon Electrical Holdings Company Limited for the year 2002; the audited annual financial statements of Guangdong Kelon Electrical Holdings Company Limited for the year 2002 and the report of Supervisory Committee of Guangdong Kelon Electrical Holdings Company Limited for the year 2002. The meeting also approved the selection of Jiang Bao Jun as chairman of the Supervisory Committee of the Company.
(2) On 3 April 2003, a meeting of the supervisory committee of the Company was held at the conference room of the Company’s head office. At the meeting the amended annual report of Guangdong Kelon Electrical Holdings Company Limited for the year 2002, the highlights on the annual report of Guangdong Kelon Electrical Holdings Company Limited for the year 2002 and the audited annual financial statements of Guangdong Kelon Electrical Holdings Company Limited for the year 2002 were considered and approved.

(3) On 25 April 2003, a meeting of the supervisory committee of the Company was held at the conference room of the Company’s head office. At the meeting the first quarterly report of the Company for the year 2003 and the resolution on reappointment of Auditor of the Company presented to the Board of Directors of the Company were considered and approved.
(4) On 15 August 2003, a meeting of the supervisory committee of the Company was held at the conference room of the Company’s head office. At the meeting the text of the half-yearly results announcement of the Company for the year 2003 and the highlights on the half-yearly results announcement of the Company for the year 2003 were considered and approved.
(5) On 28 October 2003, a meeting of the supervisory committee of the Company was held at the conference room of the Company’s head office. At the meeting the third quarterly report of the Company for the year 2003 were considered and approved.
(ii) Work progress and independent opinions of the supervisory committee
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 Supervisor Committee considered that significant decisions of the Company were scientific and reasonable and the procedures of the decisions were lawful and reasonable; the Company has established and fine tuned various internal management and control systems; the Directors and Senior Management of the Company discharged their duties in the Company diligently, and conducted no acts which were in violation of the laws, regulations, articles of association or with prejudice to the Company’s interests during the performance of their duties.

Inspection of financial status of the Company

After careful inspection of the financial system and status of the Company and review the unqualified audit report issued by 德勤華永會計師事務所 in connection with its audit of the Company’s financial report for the year 2003, the supervisory committee considered that the financial report of the company for the year 2003 truly reflected the finance status and operating results of the Company.

Opinion on the disposal and acquisition of assets

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

Opinion on related party transactions

The supervisory committee considered that related party transactions of the Company during the Reporting Period were conducted 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.

10. Significant Events

(1) The Company was neither involved in any material litigation nor significant arbitration during the Reporting Period
(2) Acquisition and sales of assets and merger by absorption
(3) Substantial related party transactions

During the Reporting Period, the Company has not entered into any substantial related party transactions.

(4) Material contracts and their performance
External guarantees

The aggregate external guarantees provided by the Company amounted to RMB10,387,600. An aggregate external guarantee of RMB45,710,000 was provided on behalf of Jiaxipera, a subsidiary of Huayi Compressor Holding Company Limited in which the Company holds a 22.725% equity interest. Therefore, the external guarantee provided by the Company amounted to RMB10,387,600.

Particulars of guarantees provided by the Company to principal subsidiaries during the Reporting Period are as follows.
(Unit: RMB ten thousand)

							Whether
							security provided
Secured objects	Date (Day	Secured	Security	Security		Performance	by related
	of agreement)	Amount	Type	Period		complete or not	party (Y or N)
Chengdu Kelon	2002-12-28	495.00	Joint & Several	2003-1-30	2004-1-25	Y	N
Refrigerator Co., Ltd.			Liabilities
Chengdu Kelon	2003-3-20	1,000.00	Joint & Several	2003-3-20	2004-3-20	Y	N
Refrigerator Co., Ltd.			Liabilities
Chengdu Kelon	2002-12-28	497.00	Joint & Several	2003-3-25	2004-3-24	Y	N
Refrigerator Co., Ltd.			Liabilities
Chengdu Kelon	2002-12-28	298.00	Joint & Several	2003-4-2	2004-4-1	Y	N
Refrigerator Co., Ltd.			Liabilities
Chengdu Kelon	2002-12-28	199.00	Joint & Several	2003-4-7	2004-4-6	Y	N
Refrigerator Co., Ltd.			Liabilities
Chengdu Kelon	2003-3-20	700.00	Joint & Several	2003-4-16	2004-4-16	Y	N
Refrigerator Co., Ltd.			Liabilities
Chengdu Kelon	2002-12-28	497.00	Joint & Several	2003-4-22	2004-4-21	Y	N
Refrigerator Co., Ltd.			Liabilities
Chengdu Kelon	2002-12-28	1,000.00	Joint & Several	2003-6-5	2004-4-28	Y	N
Refrigerator Co., Ltd.			Liabilities
Chengdu Kelon	2002-12-28	497.00	Joint & Several	2003-5-7	2004-5-6	Y	N
Refrigerator Co., Ltd.			Liabilities
Chengdu Kelon	2002-12-28	497.00	Joint & Several	2003-5-12	2004-5-11	Y	N
Refrigerator Co., Ltd.			Liabilities
Chengdu Kelon	2002-12-28	995.00	Joint & Several	2003-6-10	2004-5-17	Y	N
Refrigerator Co., Ltd.			Liabilities
Chengdu Kelon	2002-12-28	975.00	Joint & Several	2003-6-12	2004-6-11	Y	N
Refrigerator Co., Ltd.			Liabilities
Guangdong Kelon	2003-3-7	2,000.00	Joint & Several	2003-3-7	2003-9-7	Y	N
Refrigerator Co., Ltd.			Liabilities
Guangdong Kelon	2003-3-7	3,000.00	Joint & Several	2003-3-7	2003-9-7	Y	N
Air-Conditioner			Liabilities
Co., Ltd

Chengdu Kelon	2003-4-1	700.00	Joint & Several	2003-4-1	2003-10-1	Y	N
Refrigerator Co., Ltd.			Liabilities
Guangdong Kelon	2003-6-10	10,000.00	Joint & Several	2003-6-10	2003-12-9	Y	N
Refrigerator Co., Ltd.			Liabilities
Guangdong Kelon	2003-7-24	8,000.00	Joint & Several	2003-7-24	2003-12-19	Y	N
Refrigerator Co., Ltd.			Liabilities
Guangdong Kelon	2003-9-19	5,000.00	Joint & Several	2003-9-19	2004-3-19	N	N
Refrigerator Co., Ltd.			Liabilities
Guangdong Kelon	2003-7-10	6,000.00	Joint & Several	2003-7-10	2004-7-10	N	N
Refrigerator Co., Ltd.			Liabilities
Guangdong Kelon	2003-10-9	5,000.00	Joint & Several	2003-10-9	2004-10-9	N	N
Air-Conditioner			Liabilities
Co., Ltd
Jiangxi Kelon Industrial	2003-5-15	4,000.00	Joint & Several	2003-5-15	2004-5-15	N	N
Development Co., Ltd.			Liabilities
Guangdong Kelon	2003-12-17	423.45	Joint & Several	2003-12-17	2004-3-17	N	N
Refrigerator Co., Ltd.			Liabilities
Guangdong Kelon	2003-12-17	6,642.55	Joint & Several	2003-12-17	2004-6-15	N	N
Refrigerator Co., Ltd.			Liabilities
Guangdong Kelon	2003-12-17	2,934.00	Joint & Several	2003-12-17	2004-6-16	N	N
Refrigerator Co., Ltd.			Liabilities
Guangdong Kelon	2003-12-19	8,000.00	Joint & Several	2003-12-19	2004-6-18	N	N
Refrigerator Co., Ltd.			Liabilities
Total amount of
security incurred							69,350.00
Total balance of security							38,000.00
Including balance of related
party security							–
Total amount of security
provided for subsidiaries
by listing company							69,350.00
Total amount of
non-performance security							–
Proportion of total security
to net assets of the company

No assignment of finance management and borrowings of the company during the year

No assignment of finance management and borrowings of the company existed during the reporting period, nor was there any plans of the company related to assignment of finance management and borrowings of the company as at end of the reporting period.

4. Material contracts

Save as disclosed herein, the Company has not entered into any other material contracts during the Reporting Period.

(5) Report on internal inspection of capital exchange, use of funds and provision of external guarantees by controlling shareholders and other related parties

As provided by “ The Notice on implementation of ‘Notice on certain questions of standardizing capital exchange with related parties and external guarantees of listed companies ‘“ (Guangzhou Zhengjian [2003] No.189 ) issued by the Guangzhou Security Regulatory Office (廣州證券監管辦公室 ), and subject to the contents of “The Notice on certain questions of standardizing capital exchange with related parties and external guarantees of listed companies” (Zhengjianfa [2003] No. 56, hereinafter the “Notice”), the Company organized specialists to carry out careful internal inspection of the capital exchange and use of funds and provision of external guarantees by the controlling shareholders and other related parties, details of which are reported as follows:

Internal inspection of external guarantees
As at the day of this report, the Company has not provided any guarantees to its shareholders, principal subsidiaries of shareholders, subsidiaries of shareholders, other related parties and any non-legal persons units and individuals holding less than 50% shares of the Company, nor has it provided any anti-law guarantees;
The Company has carried out necessary review procedure in accordance with the Notice in provision of guarantees for principal subsidiaries.
Internal inspection of use of funds
Based on internal inspection, there were no case of use of funds of the Company by shareholders, principal subsidiaries of shareholders, subsidiaries of shareholders, other related parties and any non-legal persons units or individuals holding less than 50% shares of the company.
Use of fund within the Group resulted from business relationship between the Company and principal subsidiaries:

Other receivables and account receivables: At 31 October 2003, total balance of RMB 2,644,080,000, including RMB 862,050,000 due from Rong Sheng Group and RMB 51,600,000 due from labor union under compromise agreements. The balance is related to business relationship such as production/S&P of principal subsidiaries of Rong Sheng group. (See Table 1 below)

Table 1: Statistics of the Use of Fund of Listed Company

										Amount at			Accumulated			Accumulated
			Relationship	Deadline	Starting	Corresponding			Amount at	beginning of			amounts			amounts
			between	for use of	date for use		items in		end of period	period for use			debited to			credited to
Stock		User of	user and listing	remaining	of remaining		financial		for use of	of fund			user of fund			user of fund		Way of	Usage of
code	Abbreviation	fund	Company	fund	fund		statements	fund (RMB’0000)		(RMB’0000)			(RMB’0000)			(RMB’0000)		funding	fund	Remarks
A	B	C	D	E1	E2	F1	G1	F2	G2	F3	G3	F4		G4	F5		G5	H	I	J
000921	Kelon	Chengdu	Subsidiary	2003-10-31	2003-12-31	Other	–	3,400		3,400	0			0			0	Borrowing	Advances	–
		Kelon				receivables													to working
																			capital
	Kelon	Chengdu	Subsidiary	As above	As above	Other	–	11,731		11,785	0	165		0	219		0	S&P	Production	RMB21,360,000
		Kelon				receivables														payable
	Kelon	Yingkou	Subsidiary	As above	As above	Other	–	0	0	3,500		0			3,500			Borrowing	Advances	–
		Kelon				receivables													to working
																			capital
	Kelon	Yingkou	Subsidiary	As above	As above	Other	–	2,245	0	2,159	5	92		2	6		7	S&P	Production	RMB17,880,000
		Kelon				receivables														payable
	Kelon	Kelon Air	Subsidiary	As above	As above	Other	–	7,319	0	-17,663	0	438,773		0	413,791		0	S&P	ProductionRMB183,280,000
		Conditioner				receivables														payable
	Kelon	Kelon	Subsidiary	As above	As above	Other	–	38,337	0	-3,534	0	244,652		0	202,782		0	S&P	Production	–
		Refrigerator				receivables
	Kelon	Kelon	Subsidiary	As above	As above	–	Receivables	0	17	0	1	0		30	0		15	S&P	Production	RMB50,390,000
		Refrigerator																		payable
	Kelon	Pearl River	Subsidiary	As above	As above	Other	–	43,400	0	44,045	0	518		0	1,163		0	S&P	Sales	–
						receivables
	Kelon	Kelon Electric	Subsidiary	As above	As above	Other	–	8,091	0	8,059	0	96		0	64		0	Borrowing	Advances	–
						receivables													to working
																			capital

–

– – – – – – –

Kelon	Kelon	Subsidiary	As above	As above	Other	–	-8,746	0	-8,711	0	69	0	104	0	Borrowing		Advances	–
	Development				receivables												to working
																	capital
Kelon	Wetherell	Subsidiary	As above	As above	Other	–	-434	0	-432	0	3	0	5	0	Borrowing		Advances	–
	Development				receivables												to working
																	capital
Kelon	KII	Subsidiary	As above	As above	Other	–	-147	0	-146	0	1	0	2	0	Borrowing		Advances	–
					receivables												to working
																	capital
Kelon	Kelon Japan	Subsidiary	As above	As above	Other	–	-985	0	-985	0	0	0	0	0	Acted as		Advances	–
					receivables										an agent	to service fee
Kelon	Kelon Fittings	Subsidiary	As above	As above	Other	–	48,924	0	64,904	0	31,876	0	47,856	0	S&P		Production	–
					receivables
Kelon	Kelon Mould	Subsidiary	As above	As above	Other	–	8,969	0	7,917	0	1,052	0	0	0	S&P		Production	–
					receivables
Kelon	Rongsheng	Subsidiary	As above	As above	Other	–	16,714	0	13,779	0	2,978	0	43	0	S&P		Production	–
	Plastic				receivables
Kelon	GKG	Former	As above	As above	Other	–	86,205	0	86,205	0	0	0		0	Borrowing		Advances	–
		subsidiary			receivables												to working
																	capital
Kelon	Employee	Organization	As above	As above	Other	–	5,160	0	5,160	0	0	0		0	Borrowing	Capital turnover		–
	Union	established by			receivables
		staff of the
		Company
Kelon	Huaao	Subsidiary	As above	As above	Other	–	-7,109	0	-9222	0	2,253	0	140	0	S&P		Production	RMB60,000
	Electronic				receivables													payable
Kelon	Kelon	Subsidiary	As above	As above	Other	–	10,123	0	-2617	0	26,533	0	13,792	0	S&P		Production	RMB830,000
	Freezers				receivables													payable
	(科龍冷櫃)
Kelon	Kelon HEA	Subsidiary	As above	As above	Other	–	7,411	0	3555	0	7,361	0	3,504	0	S&P		Production	–
					receivables
Kelon	Qifei	Subsidiary	As above	As above	Other	–	3	0	0	0	7	0	3	0	Acted as		Advances to	–
	(崎輝服務)				receivables										an agent		service fee
Kelon	Wangao Co	Subsidiary	As above	As above	Other	–	2,813	0	-355	0	3,398	0	230	0	S&P		Production	–
					receivables
Kelon	Beijing	Subsidiary	As above	As above	Other	–	-1,440	0	-1,479	0	40	0	0	0	S&P		Production	–
	Hengsheng				receivables
Kelon	Jia Ke	Subsidiary	As above	As above	Other	–	-2,845	0	-3,309	0	464	0	0	0	Borrowing		Advances to	–
	Electronics				receivables											working capital
Kelon	Kelon Tiandi	Subsidiary	As above	As above	Other	–	-500	0	-500	0	0	0	0	0	Borrowing		Advances to	–
					receivables											working capital
Kelon	Kelon Shikong	Subsidiary	As above	As above	Other	–	-500	0	-500	0	0	0	0	0	Borrowing		Advances to	–
					receivables											working capital
Kelon	Sichuan	Subsidiary	As above	As above	Other	–	-28	0	532	0	0	0	560	0	S&P		Sales	–
	Rongsheng				receivables
Kelon	Jilin Kelon	Subsidiary	As above	As above	Other	–	704	0	400	0	2,306	0	2,001	0	S&P		Advances to	RMB4,720,000
					receivables											working capital		payable
Kelon	Hangzhou	Subsidiary	As above	As above	Other	–	200	0	0	0	200	0	0	0	S&P		Advances to	–
	Kelon				receivables											working capital
Kelon	Jiangxi Kelon	Subsidiary	As above	As above	Other	–	4,920	0	-80	0	5,000	0	0	0	S&P		Sales	–
					receivables
Kelon	Jiangxi Kelon	Subsidiary	As above	As above	–	Receivables	0	-19,545	0	-9542	0	149,510	0	159,513	S&P		Sales	–
Sub Total:	–	–	–	–	–	–	283935	-19528	205867	-9536	767837	149542	689765	159535	–		–	–

(6) Performance of publicly disclosed undertakings by the company or shareholders representing 5% or more of the shareholdings

No publicly disclosed undertakings by the Company or shareholders representing 5% or more of the shareholdings existed or continued during the Reporting Period.

(7) The appointment and dismissal of and payment of remuneration to accountants firm

At the general meeting of the Company on 18 May 2003, the “Proposal on re-appointment of corporate auditors was passed whereby Deloitte Touche Tohmatsu and 德勤華永會計師事務所 were respectively re-appointed as the auditors of Company in Hong Kong and Mainland China. As at end of the Reporting Period, the corporate auditors have provided auditing service to the company for about two financial years. During the Reporting Period, a total remuneration of RMB4,200,000 was paid to Deloitte Touche Tohmatsu and 德勤華永會計師事務所 , and related operating costs and travelling expenses were borne by the Company.

(8) During the Reporting Period, neither the Company nor the board and directors of the Company was subject to any investigation by the CSRC or administrative penalty or notice of criticism by the administrative department under the CSRC, or public censure by any stock exchange;
(9) Specific explanation by the Company’s registered accountants on use of funds by controlling shareholders of the Company and other related parties

Specific explanation on the use of funds by the controlling shareholders of Guangdong Kelon Electrical Holdings Company Limited and other related parties

To the Board of DIrectors of Guangdong Kelon Electrical Holdings Company Limited

We have been appointed to carry out the audit of the balance sheets of Guangdong Kelon Electrical Holdings Company Limited (the “Company”) and the Group as at 31 December 2003 and the Statement of Income and Profit Appropriation of the Company and the Group for the year ended 31 December 2003 in accordance with Independent Auditing Standards for Chinese Certificated Public Accountants and issued an unqualified auditor’s report, document number De Shi Bao (Shen) Zi (04) P0685.

According to the requirements of 《關於規範上市公司與關聯方資金往來及上市公司對外擔保若干問題的通知》 promulgated by the China Securities Regulatory Commission and the Stateowned Assets Regulatory Commission under State Council Regulatory Commission, the Company prepared a report on the Company’s use of fund (the “Report”) for the year ended 31 December 2003 annexed in this letter.

The Company is responsible for the preparation and the disclosure of the Report and shall ensure its accuracy, legality and the completeness. We have reconciled the information provided in the Report with the accounting information reviewed in connection with our audit of the Company’s financial statements for the year of 2003 and the relevant information as stated in the audited financial reports, no significant discrepancy is found. Save as the audit on the related parties transactions carried out in connection with our audit to the financial statements for the year 2003, we did not carry out additional audit procedures for the information provided in the Report.

This letter is solely prepared for the purpose of reporting to China Securities Regulatory Commission in relation to the use of funds by the controlling shareholders of the Company and other related parties for the year of 2003 and shall not be used for any other purpose without our prior written consent.

德勤華永會計師事務所有限公司 Shanghai, the PRC

19 April 2004

Appendix I

Amount: in ten thousand

	Name of
	related			Accounting	Year-end
Use of fund	parties	Relationship	Amount	category	balance	Remarks
Assigned loan	Nil	Nil	Nil	Nil	Nil	Nil
Assigned investments by
related parties	Nil	Nil	Nil	Nil	Nil	Nil
Issue of commercial bills of
acceptance with no
substantial transactions	Nil	Nil	Nil	Nil	Nil	Nil
Repayment of loans	Nil	Nil	Nil	Nil	Nil	Nil
Others (such as advances)	Nil	Nil	Nil	Nil	Nil	Nil

(10) Specific independent opinions by independent non-executive directors on the Company’s accumulated and current external guarantees

Mr. Cheng Bi Chan, Mr. Li Gong Ming and Mr. Xu Xiao Nu (all being independent non-executive directors of the Company) presented their special statements and independent opinions on the accumulated and current security to external parties of the Company, the major contents and conclusive opinions of which are as follows:

In accordance with the regulations and requirements of the “Notice Concerning the Regulation on the Flow of Funds between Listed Companies and their Connected Parties and the Provision of Security by Listed Companies to external Parties” (Zhengjian 【2003】No.56) issued by the China Securities Regulatory Commission and State-owned Assets Supervision Council, we, with bona fides, have carried out due diligence and careful investigation on the security provided by Kelon Electronic Holdings Company Limited to external parties, details of which are reported as follows:

(1) During the Reporting Period, the Company has not provided any security to its controlling shareholders, other connected parties, any non-legal entities and individuals holding less than 50% shares of the Company;
(2) During the Reporting Period, the Company has no case of security provided to external parties the total amount of which exceeded 50% of net assets as shown in its latest consolidated financial statement;
(3) The accumulated and current external security of the Company amounted to RMB10,387,600. The total accumulated external security of RMB45,710,000 was provided in favour of Jiaxipera, the subsidiaries of Huayi Compressor Holding Company Limited in which the Company holds a 22.725% equity interest. Therefore, the external security of the Company amounted to RMB 10,387,600.
(4) To strictly control the risks of external security, the Board of the Company shall, as required by the security regulatory authority, add to the amended “Article of Association” relevant terms in relation to the procedures and scope of authority of the external security as well as particulars of the secured parties. It is also required that any security provided by the Company to external parties shall be subject to written consent by two thirds of all members of the Board or approval from shareholders’ General meeting, that the Company shall not directly or indirectly provide any loan security where the secured parties has a gearing ratio of more than 70%.

(11) Financial Report

Balance Sheet 2003.12.31

Preparation Company: Guangdong Kelon Electrical Holdings Company Limited Unit: RMB

Assets Current Assets: Bank balances and cash Notes receivable Accounts receivable Other receivables Prepayments Subsidy receivables Inventories Deferred expenditures Total current assets Long-term investments Long-term equity investments Fixed Assets: Fixed assets, cost Less: Accumulated depreciation Fixed assets, net book value Less: Provision for impairment loss of fixed assets Fixed assets, net value Construction in progress Total fixed assets Intangible Assets and Other Assets: Intangible assets Long-term deferred expenditure Long-term receivables due after one year Total intangible assets and other assets Total assets	Consolidation at the end of the year 2,120,038,297 734,877,589 731,120,036 133,664,884 165,879,789 187,704,983 1,945,617,637 14,966,645 6,033,869,860 172,383,399 3,694,855,619 1,802,715,334 1,892,140,285 61,471,947 1,830,668,338 117,845,210 1,948,513,548 1,073,068,727 170,955,680 34,000,000 1,278,024,407 9,432,791,214	The Company at the end of the year 1,595,877,944 548,232,619 261,438,092 1,652,631,976 20,599,915 – 961,962,539 13,870,001 5,054,613,086 1,458,354,550 1,427,389,640 584,404,702 842,984,938 – 842,984,938 33,015,098 876,000,036 953,917,703 43,368,194 – 997,285,897 8,386,253,569	Consolidation at beginning of the year 1,417,085,462 622,627,806 381,535,897 1,057,874,066 89,011,737 164,994,765 1,123,325,956 6,412,719 4,862,868,408 198,173,987 3,635,836,132 1,586,467,593 2,049,368,539 61,375,205 1,987,993,334 11,323,062 1,999,316,396 318,011,667 192,565,963 85,602,908 596,180,538 7,656,539,329	The Company at beginning of the year 1,065,118,299 613,597,439 275,661,469 2,107,281,156 36,549,630 – 679,131,994 5,136,444
				4,782,476,431
				1,223,334,010
				1,420,958,597 509,851,837
				911,106,760 –
				911,106,760 7,550,688
				918,657,448
				198,209,350 66,644,180 51,602,908
				316,456,438
				7,240,924,327

Balance Sheet (2) 2003.12.31

Preparation Company: Guangdong Kelon Electrical Holdings Company Limited Unit: RMB

	Consolidation	The Company	Consolidation	The Company
	at the end	at the end	at beginning	at beginning
	of the year	of the year	of the year	of the year
Liabilities and Shareholders’ Equity
Current Liabilities:
Short-term loans	858,900,000	310,000,000	960,164,036	400,000,000
Notes payable	1,938,635,005	1,940,688,655	942,591,729	1,075,014,036
Accounts payable	1,401,689,440	365,938,682	739,184,874	652,568,689
Advance from customers	456,523,479	414,162,842	337,665,921	300,245,037
Accrued payroll	28,064,768	9,858,676	44,211,152	30,370,421
Staff welfare payable	220,777	–	3,986,906	1,489,938
Taxes payables	(32,821,459)	(48,587,455)	39,849,854	62,552,141
Payable to others	5,833,042	230,783	2,944,393	2,029,317
Other payables	406,206,061	649,808,149	616,790,396	519,065,990
Accruals	221,235,587	191,113,522	211,076,574	185,670,788
Provision for liabilities	89,556,581	89,556,581	105,031,134	105,031,134
Long-term liabilities due within
one year	405,517,722	400,000,000	65,233,515	60,000,000
Total current liabilities	5,779,561,003	4,322,770,435	4,068,730,484	3,394,037,491
Long-term liabilities:
Long-term loans	544,353,852	525,000,000	714,766,571	690,000,000
Long-term payable	62,778,960	57,986,314	75,822,128	70,126,659
Accrued liabilities of
investee enterprise	–	335,383,123	–	494,015,291
Total long-term liabilities	607,132,812	918,369,437	790,588,699	1,254,141,950
Total liabilities	6,386,693,815	5,241,139,872	4,859,319,183	4,648,179,441
Minority Interests	237,366,458	–	222,219,313	–
Shareholders’ Equity:
Share capital	992,006,563	992,006,563	992,006,563	992,006,563
Capital reserve	1,516,787,706	1,840,635,588	2,452,995,887	2,452,995,887
Revenue reserve	114,580,901	114,580,901	343,742,703	343,742,703
Including: Statutory common
welfare fund	114,580,901	114,580,901	114,580,901	114,580,901
Accumulated profits (losses)	184,436,195	197,890,645	(1,211,930,161)	(1,194,186,108)
Exchange difference	919,576	–	(1,814,159)	(1,814,159)
Total shareholders’ equity	2,808,730,941	3,145,113,697	2,575,000,833	2,592,744,886
Total liabilities and
shareholders’ equity	9,432,791,214	8,386,253,569	7,656,539,329	7,240,924,327

Statement of Income and Profit Appropriation 2003

Preparation Company: Guangdong Kelon Electrical Holdings Company Limited Unit: RMB

Items 1. Revenue from principal operations Less: Cost of sales Sales tax 2. Profit from principal operations Add: Other operating profit (loss) Less: Distribution costs Administrative expenses Financial expenses 3. Operating profit (loss) 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 Add: Unappropriated profits (accumulated losses), beginning of the year Utilisation of capital reserve to make up accumulated losses Utilisation of revenue reserve to make up accumulated losses 6. Profit (loss) available for appropriation Less: Appropriations to statutory common reserve fund Appropriations to statutory common welfare fund 7. Profit (loss) available for appropriation to shareholders Less: Appropriations to discretionary reserve Dividends on ordinary shares 8. Unappropriated profits (accumulated loss), end of year	Consolidation for the year 6,168,109,963 4,483,202,710 362,373 1,684,544,880 48,399,942 1,002,390,964 364,897,076 100,397,258 265,259,524 (50,182,698) 18,190 10,402,787 5,494,299 220,003,504 11,676,111 6,147,145 202,180,248 (1,211,930,161) 965,024,306 229,161,802 184,436,195 – – 184,436,195 – – 184,436,195	The Company for the year 5,338,472,342 4,321,611,797 306,774 1,016,553,771 5,345,511 832,122,148 91,675,644 37,616,150 60,485,340 132,529,717 18,190 7,196,799 2,339,401 197,890,645 – – 197,890,645 (1,194,186,108) 965,024,306 229,161,802 197,890,645 – – 197,890,645 – – 197,890,645	Consolidation for previous year 4,878,257,017 3,852,539,111 265,104 1,025,452,802 16,612,542 791,497,880 59,899,332 75,536,164 115,131,968 (17,070,782) 16,805 9,941,494 4,099,764 103,919,721 3,031,454 (388,723) 101,276,990 (1,313,207,151) – – (1,211,930,161) – – (1,211,930,161) – – (1,211,930,161)	The Company for previous year 4,069,394,196 3,209,655,362 214,873 859,523,961 (4,231,250) 764,887,134 (162,038,190) 54,012,477 198,431,290 (107,961,019) 16,805 1,584,742 866,017 91,205,801 – – 91,205,801 (1,285,391,909) – – (1,194,186,108) – – (1,194,186,108) – – (1,194,186,108)

Cash Flow Statement 2003

Preparation Company: Guangdong Kelon Electrical Holdings Company Limited Unit: RMB

Items 1. Cash flows from operating activities: Cash received from sales of goods and 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 Cash paid relating to other operating activities Sub-total of cash outflows Net cash flows from operating activities 2 . Cash flows from investing activities: Cash received from acquisition of subsidiaries 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 relating to investing activities Sub-total of cash outflows Net cash flows from investing activities	Consolidation for the year 7,541,307,010 100,603,053 8,624,168 7,650,534,231 5,196,396,395 438,566,099 199,542,039 805,809,947 6,640,314,480 1,010,219,751 – 10,616,021 22,122,290 32,738,311 349,838,222 – 662,686,299 1,012,524,521 (979,786,210)	The Company Consolidation The Company for the year for previous year for previous year 6,208,775,706 4,599,555,916 4,340,024,516 18,190 – – 8,641,980 24,638,444 13,772,281 6,217,435,876 4,624,194,360 4,353,796,797 4,627,547,141 3,491,550,189 3,291,622,581 178,782,591 329,590,993 154,073,311 148,224,752 109,248,030 71,367,624 611,505,524 194,020,388 213,147,377 5,566,060,008 4,124,409,600 3,730,210,893 651,375,868 499,784,760 623,585,904 – 56,909,418 – 11,720,563 48,769,648 282,277 18,795,238 204,537,039 204,537,039 30,515,801 310,216,105 204,819,316 87,899,447 264,510,507 43,113,074 88,666,950 – 147,763,896 555,675,410 603,452,809 598,051,003 732,241,807 867,963,316 788,927,973 (701,726,006) (557,747,211) (584,108,657)

3.	Cash flows from financing activities:
	Capital contribution from minority
	shareholders of subsidiaries	9,000,000	–	–	–
	Cash received from borrowings	1,418,900,000	1,075,000,000	1,454,465,000	1,180,000,000
	Sub-total of cash inflows	1,427,900,000	1,075,000,000	1,454,465,000	1,180,000,000
	Cash paid for repayment of borrowings	1,350,165,357	990,000,000	1,272,530,166	1,190,000,000
	Cash paid for distribution of
	dividends, profit or interests expenses	68,939,001	58,565,627	90,008,597	54,608,064
	Other cash paid relating to
	financing activities	1,000,000	1,000,000	–	–
	Sub-total of cash outflows	1,420,104,358	1,049,565,627	1,362,538,763	1,244,608,064
	Net cash flows from financing activities	7,795,642	25,434,373	91,926,237	(64,608,064)
4.	Effect of foreign exchange rate
	changes on cash	2,037,353	–	1,477,790	–
5.	Net increase (decrease) in cash and
	cash equivalents	40,266,536	(24,915,765)	35,441,576	(25,130,817)
Cash Flow Statement (continued)
2003
Preparation Company: Guangdong Kelon		Electrical Holdings Company Limited
Supplemental Information: Unit: RMB
		Consolidation	The Company	Consolidation	The company
Items		for the year	for the year	for previous year	for previous year
1.	Reconciliation of net profit to
	cash flows from operating activities:
	Net profit	202,180,248	197,890,645	101,276,990	91,205,801
	Add: Minority interests	6,147,145	–	(388,723)	–
	Provision (reversal of provision)
	for impairment
	loss of assets	48,679,206	30,812,035	(246,564,161)	(266,496,625)
	Depreciation of fixed assets	238,967,996	79,753,505	245,868,462	100,635,167
	Amortization of intangible assets	31,115,320	25,088,249	13,547,960	8,218,113
	Amortization of long-term
	expenditures	123,984,537	23,090,855	179,347,229	28,566,834
	Decrease in deferred
	expenditures
	(Less: increase)	(8,553,926)	(8,733,557)	(2,109,156)	(4,060,193)
	Increase in accruals
	(Less: decrease)	13,818,429	(6,866,548)	(121,675,246)	(164,648,219)
	Loss from disposal of
	fixed assets, intangible
	assets and other
	long-term assets
	(Less: gains)	832,307	(1,160,844)	748,140	(63,386)

	Financial expenses	43,157,295	37,181,376	90,008,597	54,608,064
	Investment loss
	(Less: gains)	42,344,814	(132,529,717)	17,070,782	107,961,019
	Decrease in inventories
	(Less: increase)	(857,552,716)	(313,642,580)	464,434,244	334,393,833
	Decrease in operating
	receivables
	(Less: increase)	(324,509,072)	45,258,647	(629,736,039)	(570,198,817)
	Increase in operating payables
	(Less: decrease)	1,448,608,168	674,233,802	387,955,681	903,464,313
	Others	1,000,000	1,000,000	–	–
	Net cash flows from
	operating activities	1,010,219,751	651,375,868	499,784,760	623,585,904
2.	Investing and financing activities
	not involving in cash receipts
	and payments
	Replace accounts receivables with
	intangible assets	736,595,440	736,595,440	–	–
3.	Net increase in cash and cash
	equivalents:
	Cash and cash equivalent
	at end of year	726,904,676	331,312,254	686,638,140	356,228,019
	Less: Cash and cash equivalent
	at beginning of year	686,638,140	356,228,019	651,196,564	381,358,836
	Net increase in cash and
	cash equivalents	40,266,536	(24,915,765)	35,441,576	(25,130,817)

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

AI assistant

Medlive Technology Co., Ltd. — Annual Report 2003

50436_rns_2004-04-20_77bcc02c-f3f3-489c-af16-9f43c6ad0a6a.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 2003

CONSOLIDATED INCOME STATEMENT

1. TURNOVER

2. BUSINESS SEGMENTS

Year 2003

3. PROFIT FROM OPERATIONS

4. TAXATION

5. BASIC EARNINGS PER SHARE

6. DIFFERENCES BETWEEN IFRS AND PRC ACCOUNTING STANDARDS AND REGULATIONS AS APPLICABLE TO THE GROUP

1. Results Review

Turnover Structure Analysis

Healthy Financial Standing

2. Operations Review

Strong Surge in Export Sales

Satisfactory Growth in Refrigerator and Freezer Business

Sustained Competition Faced by Air-Conditioner Business

Good Performance of Small Home Appliances Business

High Technology Products

Enhancing Product Competitiveness through “Project of Perfection”

Well-Defined Positioning through Multi-Branding Strategy

Cost Controls

Economies of Scale Realized by Kelon-Meiling Cooperation

Record Breaking Production Efficiency

Sales Channel Expansion through “龍霸行動 ”

Optimization of Management and R&D Teams

Basic Medical Insurance Scheme for Employees

Significant Events

3. Prospects

FINAL DIVIDENDS

LIQUIDITY AND SOURCES OF FUNDS

HUMAN RESOURCE AND EMPLOYEES’ REMUNERATION

CHARGES ON THE GROUP’S ASSETS

EXPOSURE TO EXCHANGE RATE FLUCTUATION

CONTINGENT LIABILITIES

AUDIT COMMITTEE

CAPITAL EXPENDITURE

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

GEARING RATIO

INTERESTS IN CONTRACTS OF DIRECTORS AND SUPERVISORS

SHARE CAPITAL STRUCTURE

TOP TEN/SUBSTANTIAL SHAREHOLDERS

TEN LARGEST SHAREHOLDERS OF LISTED SHARES

INTERESTS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE

Notes:

PURCHASE, SALE OR REDEMPTION OF SHARES

CODE OF BEST PRACTICE

PUBLICATION OF ANNUAL REPORT

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

Opinion

1. Particulars of the Company

Representative for matters relating to securities

3. Share Issue and Listing

4. Major Details of Directors, Supervisors and Senior Management

5. Operations of the Company

6. Application of Raised Funds

7. Progress and revenues on significant investment projects without raising funds

8. Analysis on the Company’s financial status and business results

9. Report of Supervisory Committee

10. Significant Events

4. Material contracts

(7) The appointment and dismissal of and payment of remuneration to accountants firm

Specific explanation on the use of funds by the controlling shareholders of Guangdong Kelon Electrical Holdings Company Limited and other related parties

To the Board of DIrectors of Guangdong Kelon Electrical Holdings Company Limited

Appendix I

(10) Specific independent opinions by independent non-executive directors on the Company’s accumulated and current external guarantees

(11) Financial Report

Statement of Income and Profit Appropriation 2003

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