Medlive Technology Co., Ltd. — Annual Report 2007

Apr 24, 2008

HISENSE KELON ELECTRICAL HOLDINGS COMPANY LIMITED

海信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: 00921)

ANNOUNCEMENT OF RESULTS

FOR THE YEAR ENDED 31 DECEMBER 2007

All members (the “Director”) of the board of directors (“the Board”) of Hisense Kelon Electrical Holdings Company Limited (the “Company”) announces the annual consolidated results of the Company and its subsidiaries (collectively the “Group” or “Kelon”) for the year ended 31 December 2007 together with the 2006 comparative figures, prepared in accordance with the International Financial Reporting Standards (“IFRS”) as follows:

Summary of H Shares Financial Statements and Their Relevant Notes

Consolidated Income Statement

For the year ended 31 December 2007

	Notes		2007		2006
			RMB’000		RMB’000
					(Restated)
Turnover	4		8,319,960		6,564,257
Cost of sales			(6,942,789)		(5,474,785)
Gross profit			1,377,171		1,089,472
Other income and gains	6		570,905		409,305
Distribution costs			(1,126,269)		(869,207)
Administrative expenses			(397,500)		(390,978)
Other operating expenses	7		(133,500)		(56,815)
Profit from operations			290,807		181,777
Dilution loss on share reform of an associate			-		(16,317)
Share of results of associates			2,247		3,590
Finance costs	8		(78,530)		(140,672)
Profit before income tax	9		214,524		28,378
Income tax (expense)/ credit	10		(10,867)		20,871
Profit for the year			203,657		49,249
Attributable to:
- Equity holders of the Company			238,712		69,989
- Minority interests			(35,055)		(20,740)
			203,657		49,249
Dividends			-		-
Earnings per share attributable to equity holders of the Company	11
- Basic and diluted			RMB0.24		RMB0.07

Consolidated Balance Sheet

At 31 December 2007

	Notes			2007		2006
				RMB’000		RMB’000
						(Restated)
ASSETS
Non-current assets
Property, plant and equipment				1,383,062		1,612,767
Investment properties				38,192		26,144
Payments for leasehold land held forown use under operating leases				305,392		372,533
Interests in associates				82,839		78,981
Available-for-sale financial assets				1,220		-
Intangible assets				168,112		125,831
Goodwill				-		-
Deferred tax assets				11,300		21,387
Total non-current assets				1,990,117		2,237,643
Current assets
Inventories				940,284		919,837
Trade and other receivables	12			1,307,209		1,119,733
Taxation recoverable				585		827
Other financial assets				9,479		-
Pledged bank deposits				70,133		248,257
Cash and cash equivalents				76,395		142,247
Total current assets				2,404,085		2,430,901
Non-current assets held for sale				20,369		-
Total assets				4,414,571		4,668,544
LIABILITIES
Current liabilities
Trade and other payables	13			3,093,181		3,093,956
Trade deposits received				406,379		488,587
Other financial liabilities				6,158		-
Provisions				144,006		169,995
Taxation payable				27,856		26,663
Other liabilities				55,793		46,978
Bank borrowings				1,310,972		1,556,702
Total current liabilities				5,044,345		5,382,881
Non-current liabilities
Other liabilities				-		13,594
Total non-current liabilities				-		13,594
Total liabilities				5,044,345		5,396,475
Net current liabilities				(2,640,260)		(2,951,980)
Total assets less current liabilities				(629,774)		(714,337)
TOTAL NET LIABIILTIES				(629,774)		(727,931)
Capital and reserves attributable toequity holders of the Company
Share capital				992,007		992,007
Share premium				1,195,597		1,195,597
Statutory reserves				114,581		114,581
Capital reserve				266,672		309,733
Foreign exchange reserve				29,111		14,956
Accumulated losses				(3,382,740)		(3,621,452)
				(784,772)		(994,578)
Minority interests				154,998		266,647
TOTAL EQUITY				(629,774)		(727,931)

NOTES

1. BASIS OF PREPARATION

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”) and the International Financial Reporting Interpretations Committee (“IFRIC”) of the IASB. IFRSs include International Financial Reporting Standards, International Accounting Standards (“IAS”) and Interpretations (collectively referred to as “IFRSs”). In addition, the consolidated financial statements also comply with the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

(b)Basis of preparation

As at 31 December 2007, the Group’s current liabilities exceeded its current assets by approximately RMB 2,640 million (2006: RMB2,952 million, in which, the Group also has outstanding short-term loans in the aggregate of approximately RMB1,311 million (2006: RMB1,557 million) of which approximately RMB18 million (2006: RMB255 million) were overdue as at 31 December 2007. The Company’s management confirmed that most of the Group’s bankers have expressed their intention to renew/grant credit facilities to the Group upon maturity. However, in the absence of written confirmation from the bankers, there is no assurance that the Group can obtain an extension of all such facilities as the debts fall due. Based on the operating budget prepared, the directors are of the opinion that the Group will have sufficient working capital to finance its normal operations and to meet its financial obligations as they fall due for the foreseeable future and have prepared the consolidated financial statements on a going concern basis.

The consolidated financial statements for the year ended 31 December 2007 comprise the Company and its subsidiaries and the Group’s interests in associates. The measurement basis used in the preparation of the financial statements is the historical cost except for certain financial instruments which are measured at fair value.

The accounting policies and bases adopted in the preparation of these financial statements differ in some respects from those used in the statutory accounts of the group entities which are prepared in accordance with generally accepted accounting principles and relevant financial regulations in the PRC.

The Ministry of Finance of the PRC issued a series of new and revised Accounting Standards for Business Enterprises (the “New Chinese Accounting Standards, CAS”) on 15 February 2006. The New CAS has become effective from 1 January 2007 for listed companies in the PRC. The Company and all its subsidiaries located in the PRC started to prepare their PRC statutory financial statements in accordance with the New CAS for accounting periods beginning on or after 1 January 2007. The differences arising from the restatement of the result of operations for compliance with IFRSs, if any, are adjusted in these financial statements but will not be taken up in the accounting books of the Group.

1. Summary of the effects of the changes in accounting policies

The financial statements for the year ended 31 December 2007 include a restatement of the 2006 financial statements as a result of the change in accounting policy of the measurement basis of the property, plant and equipment, details and effects of the change are explained below:

					2006
					RMB’000
	Income statement:
	Decrease in administrative expenses (i)				771
	Increase in profit for the year				771
					RMB
	Increase in basic profit per share				0.001

					2006
					RMB’000
					Dr/ (Cr)
	Balance sheet:
	Increase in cost of property, plant and equipment (ii)				99,229
	Increase in accumulated depreciation and impairment of property, plant and equipment (ii)				(88,087)
	Increase in total assets				11,142
	Increase in retained earnings as at 1 January (i) and (iii)				(103,304)
	Increase in profit for the year (i)				(771)
	Decrease in revaluation reserve as at 1 January (ii) and (iii)				373,570
	Increase in capital reserve as at 1 January (i) and (iii)				(280,637)
	Increase in equity at 31 December				(11,142)

(i) In prior years, certain property, plant and equipment held for use in production or supply of goods or services, or for administrative purpose are stated in the balance sheet at their revalued amounts, being the fair value on basis of their existing use at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment loss (revaluation model) in accordance with the provisions of IAS 16. During the year, the Company restated these property, plant and equipment at cost less any subsequent accumulated depreciation and subsequent accumulated impairment loss (cost model) in accordance with the provisions of IAS 16, to be in alignment with the accounting policy for property, plant and equipment adopted in its PRC statutory financial statements.

(ii) The changes resulted in an increase in the cost by approximately RMB99,229,000, and an increase in accumulated depreciation and impairment of property, plant and equipment by approximately RMB88,087,000.

(iii) The revaluation reserve brought forward of RMB373,570,000 as at 31 December 2006 arose from valuation of property, plant and equipment and the restructuring of the Company. The amount was reclassified to retained earnings and capital reserve by approximately RMB103,304,000 and RMB280,637,000 respectively in order to conform with current year presentation of financial statements.

1. ADOPTION OF NEW OR REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

In the current year, the Group has applied all the new and revised standards, amendments and interpretations (“new IFRSs”) issued by the IASB, that are relevant to its operation and effective for accounting periods beginning on or after 1 January 2007. The adoption of the new IFRSs had no material effect on how the results for the current or prior accounting periods have been prepared and presented except for the following items.

The adoption of “IFRS 7 Financial Instruments: Disclosure” and “Amendment to IAS 1, Presentation of Financial Statements: Capital Disclosures” resulted in more disclosures in respect of financial instruments and an additional disclosure on capital management policy, respectively. Comparative information has been restated for a consistent presentation or included to reflect the new requirements.

The Group has not yet applied the following new standards, amendment or interpretations that have been issued but are not yet effective. The directors of the Company anticipated that the application of these new IFRSs will have no material impact on the financial statements of the Group.

IAS 1 (Revised)	Presentation of Financial Statements 1
IAS 23 (Revised)	Borrowing Costs 1
IAS 27 (Revised)	Consolidated and Separate Financial Statements 5
IAS 32 and IAS 1 Amendments	Puttable Financial Instruments and Obligations Arising on Liquidation 1
IFRS 2 Amendment	Share-based Payments – Vesting Conditions and Cancellations 1
IFRS 3 (Revised)	Business Combinations 5
IFRS 8	Operating Segments 1
IFRIC – Interpretation 11	Group and Treasury Share Transactions 4
IFRIC – Interpretation 12	Service Concession Arrangements 3
IFRIC – Interpretation 13	Customer Loyalty Programmes 2
IFRIC – Interpretation 14	IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction3

1 Effective for annual periods beginning on or after 1 January 2009

2 Effective for annual periods beginning on or after 1 July 2008

3 Effective for annual periods beginning on or after 1 January 2008

4 Effective for annual periods beginning on or after 1 March 2007

5 Effective for annual periods beginning on or after 1 July 2009

1. TURNOVER

Turnover and revenue represent the net amounts received and receivable for goods sold during the year. An analysis of the Group’s revenue for the year is as follows:

			2007		2006
			RMB’000		RMB’000
	Sales of refrigerators		4,324,808		3,327,896
	Sales of air-conditioners		3,214,875		2,533,360
	Sales of freezers		324,821		231,972
	Sales of product components		455,456		471,029
			8,319,960		6,564,257

1. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

The Group is organised into four main operating divisions – refrigerators, air-conditioners, 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 ended 31 December 2007

(i) Consolidated income statement

			Refrigerators		Air- conditioners		Freezers		Product components		Elimination		Consolidated
			RMB’000		RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
	Turnover
	External sales		4,324,808		3,214,875		324,821		455,456		-		8,319,960
	Inter-segment sales		-		-		-		603,559		(603,559)		-
	Total revenue		4,324,808		3,214,875		324,821		1,059,015		(603,559)		8,319,960

Inter-segment sales are charged at prevailing market rates.

	Result
	Segment result		305,559		9,872		17,464		(24,940)		-		307,955
	Unallocated corporate expenses												(17,148)
	Profit from operations												290,807
	Share of results of associates		1,168		868		88		123		-		2,247
	Finance costs												(78,530)
	Profit before income tax												214,524
	Income tax expense												(10,867)
	Profit for the year												203,657

(ii) Consolidated balance sheet

			Refrigerators		Air- conditioners		Freezers		Product components		Consolidated
			RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
	Assets
	Segment assets		2,290,306		1,212,432		166,650		471,722		4,141,110
	Interests in associates		49,680		32,247		842		70		82,839
	Unallocated corporate assets										190,622
	Consolidated total assets										4,414,571
	Liabilities
	Segment liabilities		1,871,830		1,375,441		108,200		237,725		3,593,196
	Unallocated corporate liabilities										1,451,149
	Consolidated total liabilities										5,044,345

(iii) Other information

			Refrigerators		Air- conditioners		Freezers		Product components		Consolidated
			RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
	Additions of property, plant and equipment		232,366		44,458		11,464		20,733		309,021
	Additions of investment properties		619		405		11		-		1,035
	Additions of payments for leasehold land held for own use under operating leases		16,605		-		-		-		16,605
	Additions of intangible assets		26,327		20,395		464		296		47,482
	Depreciation of property, plant and equipment		115,296		72,579		10,284		38,022		236,181
	Depreciation of investment properties		2,462		1,120		29		76		3,687
	Amortisation of intangible assets		1,212		1,032		123		1,552		3,919
	Amortisation of payments for leasehold land held for own use under operating leases		9,310		4,092		723		1,430		15,555
	Impairment loss on property, plant and equipment		1,564		-		-		25,094		26,658
	Impairment loss on intangible assets		-		-		-		1,282		1,282
	Impairment loss on payments for leasehold land held for own use under operating leases		17,189		-		-		-		17,189
	Loss on disposal of property, plant and equipment, net		40,788		7,595		(342)		2,515		50,556
	Write down of inventories to net realisable value, net		2,013		846		431		8,664		11,954

Year ended 31 December 2006(Restated)

(i) Consolidated income statement

			Refrigerators		Air- conditioners		Freezers		Product components		Elimination		Consolidated
			RMB’000		RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
	Turnover
	External sales		3,327,896		2,533,360		231,972		471,029		-		6,564,257
	Inter-segment sales		-		-		-		671,840		(671,840)		-
	Total revenue		3,327,896		2,533,360		231,972		1,142,869		(671,840)		6,564,257

Inter-segment sales are charged at prevailing market rates.

	Result
	Segment result		151,035		22,693		10,027		(11,779)		-		171,976
	Unallocated corporate income												9,801
	Profit from operations												181,777
	Dilution loss on share reform of an associate												(16,317)
	Share of results of associates		1,819		1,385		127		259		-		3,590
	Finance costs												(140,672)
	Profit before income tax												28,378
	Income tax credit												20,871
	Profit for the year												49,249

(ii) Consolidated balance sheet

			Refrigerators		Air- conditioners		Freezers		Product components		Consolidated
			RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
	Assets
	Segment assets		1,909,175		1,509,343		416,819		666,897		4,502,234
	Interests in associates		40,041		30,481		2,791		5,668		78,981
	Unallocated corporate assets										87,329
	Consolidated total assets										4,668,544
	Liabilities
	Segment liabilities		1,752,636		1,621,186		184,471		275,021		3,833,314
	Unallocated corporate liabilities										1,563,161
	Consolidated total liabilities										5,396,475

(iii) Other information

			Refrigerators		Air- conditioners		Freezers		Product components		Consolidated
			RMB’000		RMB’000		RMB’000		RMB’000		RMB’000
	Additions of property, plant and equipment		79,256		47,244		8,261		6,716		141,477
	Additions of intangible assets		486		443		141		105		1,175
	Depreciation of property, plant and equipment		153,127		66,961		15,575		11,849		247,512
	Depreciation of investment properties		-		-		-		641		641
	Amortisation of intangible assets		3,232		713		125		56		4,126
	Amortisation of payments for leasehold land held for own use under operating leases		8,099		4,522		879		949		14,449
	Impairment of property, plant and equipment		12,999		12,149		6		5		25,159
	Write down of inventories to net realisable value		35,867		6,434		-		399		42,700

Geographical segments

The following table provides an analysis of the Group’s turnover by geographical markets with reference to locations of customers:

			2007		2006
			RMB’000		RMB’000
	The PRC
	Mainland China		4,821,614		4,300,110
	Hong Kong		257,188		259,792
			5,078,802		4,559,902
	Europe		883,350		525,854
	America		926,332		613,349
	Others		1,431,476		865,152
			8,319,960		6,564,257

The Group’s operations are carried out in the PRC and almost all of the production facilities of the Group are located in the PRC. Therefore, presentation of segment assets by geographical locations is not shown.

1. OTHER INCOME AND GAINS

An analysis of the Group’s other income and gains is as follows:

			2007		2006
			RMB’000		RMB’000
	Gain on disposal of raw materials		53,884		114,139
	Gain on disposal of property, plant and equipment		16,040		24,588
	Gain on disposal of payments for leasehold land held for own use under operating leases		284,351		38,597
	Gain on disposal of investment properties		60,258		-
	Gain on debts settlement with suppliers		4,422		10,231
	Gain on fair value change of other financial assets		9,479		-
	Partial recovery of an impaired receivable		57,072		-
	Gain on disposal of a subsidiary		4,509		-
	Interest income		3,753		5,238
	Penalty income		12,166		7,843
	Rental income		20,721		7,723
	Reversal of impairment loss on trade and other receivables		12,564		61,012
	Reversal of provision for sales rebates		-		37,593
	Subsidy income		6,236		70,511
	Others		25,450		31,830
			570,905		409,305

1. OTHER OPERATING EXPENSES

An analysis of the Group’s other operating expenses is as follows:

			2007		2006
			RMB’000		RMB’000
	Loss on fair value change of other financial liabilities		6,375		-
	Loss on disposal of property, plant and equipment		66,596		19,408
	Impairment loss on intangible assets		1,282		-
	Impairment loss on payments for leasehold land held for own use under operating leases		17,189		-
	Impairment loss on property, plant and equipment		26,658		25,159
	Loss on disposal of raw materials		-		10,047
	Loss on non-deductible input value added tax		4,894		-
	Penalty		2,544		1,145
	Others		7,962		1,056
			133,500		56,815

8. FINANCE COSTS

			2007		2006
			RMB’000		RMB’000
	Interest on:
	- bank borrowings wholly repayable within five years		63,597		100,196
	- discounted note receivables		4,308		21,125
			67,905		121,321
	Others		10,625		19,351
			78,530		140,672

9. PROFIT BEFORE INCOME TAX

			2007		2006
			RMB’000		RMB’000
					(Restated)
	Profit before income tax is stated after charging/(crediting):
	Inventories recognised as an expense
	- Upon sales of goods		6,944,208		5,515,190
	- Upon sales of raw materials		425,839		507,582
	Staff costs (including directors’ and supervisors’ remuneration)
	- Basic salaries, housing and other allowances and benefits in kind		589,735		506,843
	- Defined contribution pension cost		41,135		31,223
			630,870		538,066
	Auditors’ remuneration		4,800		5,551
	Research and development costs		58,857		11,925
	Impairment loss on trade and other receivables		13,546		-
	Write down of inventories to net realisable value		11,954		42,700
	Foreign exchange loss, net		40,970		28,619
	Share of income tax of associates		6,277		6,091

10. INCOME TAX EXPENSE /(CREDIT)

			2007		2006
			RMB’000		RMB’000
	Income taxes consist of:
	Current tax
	- PRC enterprise income tax (“EIT”)		266		516
	- Hong Kong Profits Tax		514		-
	Deferred tax		10,087		(21,387)
			10,867		(20,871)

Taxation is calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

The Company and its subsidiaries provide for taxation on the basis of their statutory profits 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.

The Company and its subsidiaries which are established and operating in the PRC are subject to EIT at a statutory rate of 33% for 2007.

On 16 March 2007, the Fifth Plenary Session of the Tenth National People’s Congress passed the Corporate Income Tax Law of the PRC (“new tax law”) which will take effect on 1 January 2008. As a result of the new tax law, the statutory income tax rate will change from 33% to 25% with effect from 1 January 2008. The preferential tax rate currently enjoyed by the Company will be gradually transitioned to the new standard rate of 25% over a five-year transitional period. The Group estimates that the preferential income tax rate currently enjoyed by the Group will expire at the earlier of the end of the existing preferential tax period or the five-year transitional period. The change in the carrying amount of the deferred tax assets and liabilities, as a result of the change in tax rate, is reflected in the consolidated financial statements for the year ended 31 December 2007.

The Company was established in Shunde, Guangdong Province and, pursuant to the “Income Tax Law of the PRC for Enterprises with Foreign Investment and Foreign Enterprises” (“Income Tax Law”), is normally subject to national EIT at a rate of 24%, which is applicable to enterprises located in coastal open economic zones. Together with the local EIT rate of 3%, the aggregate EIT is at a rate of 27%. Since June 2003, the Company has been classified as a high new technology enterprise and is entitled to national EIT at a rate of 15%. Together with the local EIT at a rate of 3%, the aggregate EIT is at a rate of 18%.

The Company’s subsidiaries, Guangdong Kelon Air-Conditioner Co., Ltd., Hisense Ronshen (Guangdong) Freezer Co., Ltd, Guangdong Kelon Mould Co., Ltd, Shunde Ronshen Plastic Products Co., Ltd., Hisense Ronshen Yingkou Refrigerator Co. Ltd., and Hisense Ronshen Yangzhou Refrigerator Co., Ltd established in coastal open economic zones, are subject to national EIT at a rate of 24%. Together with the local EIT at a rate of 3%, the aggregate EIT are at a rate of 27%. Hisense Ronshen (Guangdong) Refrigerator Co., Ltd, as a company established in coastal open economic zones, is also classified as a high new technology enterprise in year 2007 and subject to national EIT at a rate of 15%, together with the local EIT at a rate of 3%, the aggregate EIT is at a rate 18%.

Guangdong Kelon Fittings Co., Ltd (“Kelon Fittings”) established in coastal open economic zones and was classified as an advanced technology enterprise. In year 2007, Kelon Fittings is subject to EIT at a preferential rate of 12%, which is half deduction of national EIT with fully exemption from local EIT.

Pursuant to Income Tax Regulations related to Development Strategy of Western Region of Mainland China, Chengdu Kelon Refrigerator Co., Ltd. (“Chengdu Kelon”), a subsidiary of the Company is subject to a preferential EIT at a rate of 24%. Together with the local EIT at a rate of 3%, Chengdu Kelon is subject to the aggregate EIT at a rate of 27%.

Other subsidiaries of the Group which are established and operating in the PRC are subject to EIT at a statutory rate of 33% for the year 2007.

Except for Kelon Electric Appliance Co., Ltd., no provision for Hong Kong Profits Tax has been made as the subsidiaries in Hong Kong did not generate assessable profits during the year. Hong Kong Profits Tax has been provided at the rate of 17.5% on the estimated assessable profit of last year.

A reconciliation between income tax expense/ (credit) and accounting profit at applicable tax rate is as follows:

			2007		2006
			RMB’000		RMB’000
					(Restated)
	Profit before income tax		214,524		28,378
	Less: Share of result of associates		(2,247)		(3,590)
			212,277		24,788
	Tax at the PRC statutory rate of 33%		70,051		8,180
	Effect of different tax rates of subsidiaries operating in other jurisdictions		(3,087)		1,560
	Effect of exemption granted and preferential tax treatment		(60,314)		(18,718)
	Tax effect of expenses not deductible for tax purposes		25,622		1,826
	Tax effect of revenue not taxable for tax purposes		(9,503)		(290)
	Tax effect of tax losses and other deductible temporary differences not recognised		24,387		165,844
	Utilisation of tax losses previously not recognised		(36,289)		(179,273)
	Income tax expense/(credit)		10,867		(20,871)

At the balance sheet date, deferred tax assets arising on tax losses carried forward had been recognised to the extent it is probable that future taxable profit will be available against which the unused tax losses can be utilised.

11. EARNINGS PER SHARE

The calculation of basic and diluted earnings per share attributable to equity holders of the Company for the year is based on the net profit attributable to equity holders of the Company for the year of RMB 238,712,000, (2006 (restated): RMB69,989,000) and 992,006,563 shares (2006: 992,006,563 shares) outstanding during the year.

There were no dilutive potential ordinary shares in issue in both years.

12. TRADE AND OTHER RECEIVABLES

Included in trade and other receivables were trade receivables of net carrying amount of RMB 442,835,000 (2006: 290,166,000). The aging analysis of trade receivables is as follows:

			2007		2006
			RMB’000		RMB’000
	Within three months		396,038		252,966
	Three to six months		34,126		30,938
	Six months to one year		13,695		9,691
	Over one year		186,423		194,211
	Less: Provision for impairment of trade receivables		(187,447)		(197,640)
	At 31 December		442,835		290,166

Normal credit term of 30 days is granted to customers. The Group allows a credit period of up to one year for large and well-established customers. Sales are usually settled by cash on delivery for small and new customers. Trade receivables are non-interest bearing.

13. TRADE AND OTHER PAYABLES

Included in trade and other payables were trade payables amounted to RMB1,152,853,000 (2006: RMB1,415,803,000). The aging analysis of trade payables is as follow:

			2007		2006
			RMB’000		RMB’000
	Within one year		995,092		1,177,093
	One to two years		70,838		196,857
	Two to three years		64,796		30,937
	Over three years		22,127		10,916
			1,152,853		1,415,803

14. DIFFERENCES BETWEEN IFRS AND PRC GAAP AS APPLICABLE TO THE GROUP

The consolidated shareholders’ equity of the Group prepared under IFRS and that prepared under PRC GAAP have the following major differences:

		2007		2006
		RMB’000		RMB’000
				(Restated)
Equity attributable to equity holders of the Company as per financial statements prepared under IFRS		(784,772)		(994,578)
Adjustment on contribution from minority shareholders		-		26,684
Adjustment on restructuring costs expensed		11,684		-
Adjustment on dilution loss on share reform of an associate		16,317		16,317
Amortisation of trademark		(16,712)		(16,712)
Adjustment on impairment and amortisation of goodwill		-		(57,253)
Non-recognition of deferred tax assets		-		(21,387)
Equity attributable to equity holders of the Company as per financial statements prepared under PRC GAAP as previously reported		(773,483)		(1,046,929)
Effect of adoption of China Accounting Standards 2006 (“CAS 2006”) effective on 1 January 2007
Write off of equity investment difference arising from business combinations under common control		-		57,253
Recognition of deferred tax assets		-		21,387
Equity attributable to equity holders of the Company as per consolidated financial statements prepared under PRC GAAP as restated		(773,483)		(968,289)

The consolidated net profit prepared under IFRS and that prepared under PRC GAAP have the following major differences:

		2007		2006
		RMB’000		RMB’000
				(Restated)
Net profit attributable to equity holders of the Company as per financial statements prepared under IFRS		238,712		69,989
Adjustment on restructuring costs expensed		11,684		-
Recognition of long outstanding payables in capital reserve		-		(27,479)
Amortisation of trademark		-		(16,712)
Adjustment on impairment and amortisation of goodwill		-		(1,396)
Release of negative goodwill to income		-		4,790
Non-recognition of deferred tax assets		-		(21,387)
Adjustment on dilution loss on share reform of an associate		-		16,317
Net profit attributable to equity holders of the Company as per financial statements prepared under PRC GAAP		250,396		24,122
Effect of adoption of China Accounting Standards 2006 (“CAS 2006”) effective on 1 January 2007
Recognition of deferred tax assets		-		21,387
Retrospective adjustment on amortisation of goodwill and release of negative goodwill to income		-		(3,394)
Equity attributable to equity holders of the Company as per consolidated financial statements prepared under PRC GAAP as restated		250,396		42,115

There are differences in other items in the financial statements due to differences in classification between IFRS and PRC GAAP.

BASIS FOR QUALIFIED OPINION

It was reported by the Company that the previous controlling shareholder, Guangdong Greencool Enterprise Development Company Limited (“Greencool Enterprise”), had entered into a series of activities/ transactions during the period from 2001 to 2005 which had been harmful to the Group, including but not limited to unauthorised use of the Group’s funds, fictitious sales of goods and scrap materials, unreasonable prepayments and purchases of raw materials and property, plant and equipment at unreasonable quantities and prices. These transactions were conducted through Greencool Enterprise, its affiliates and/or companies suspected to be connected with the Company’s former chairman, Mr. Gu Chu Jun (“Mr. Gu”). As at 31 December 2007, the aggregate amount of receivables and aggregate amount of payables due from/to these companies were approximately RMB286 million (net of an accumulated impairment loss of RMB364 million) and RMB132 million respectively which were reflected in the consolidated balance sheet at 31 December 2007 as “Amounts due from Greencool Enterprise and its affiliates” and “Amounts due from companies suspected to be connected with Mr. Gu” within current assets and “Amounts due to Greencool Enterprise and its affiliates” and “Amounts due to companies suspected to be connected with Mr. Gu” within current liabilities. Due to the irregularity of the transactions mentioned above and limitation of information available to us, we were unable to satisfy ourselves concerning the validity of these transactions, the appropriateness of the accumulated impairment and the recoverability of the carrying amounts. Any adjustments found to be necessary would affect the opening accumulated losses as at 1 January 2007, the net liabilities as at 31 December 2007 and the profit for the year then ended.

QUALIFIED OPINION ARISING FROM LIMITATION OF AUDIT SCOPE

In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to satisfy ourselves as to the matters set out in the basis for qualified opinion section of this report, the financial statements give a true and fair view of the state of the Group’s affairs as at 31 December 2007 and of its profit and cash flows for the year then ended in accordance with International Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Without further qualifying our opinion, we draw attention to note 2(b) (equivalent to note 1(b) to this announcement) to the financial statements which indicates that the Group’s current liabilities exceeded its current assets by approximately RMB2,640 million as at 31 December 2007. These conditions, along with other matters as set forth in note 2(b) to the financial statements, include the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern. The directors are of the opinion that the Group will have sufficient working capital to finance its normal operations and to meet its financial obligations as they fall due for the foreseeable future and have prepared the consolidated financial statements on a going concern basis.

Management Discussion And Analysis

Performance Review

Year 2007 was a challenging year. During the past year, while the prices of global energy and raw materials surged; the consumer price index and production price index climbed up incessantly; the financing environment became worsen under domestic monetary stringency and increasing financing costs; the export sector was aggravated by the expanding trade surplus under continued appreciation of Renminbi. Against this background, enterprises were exposed to mounting pressure on operation and difficulties in the internationalization process, and the influence is expected to continue in 2008.

In response to such critical situation, the Company adhered to its operating strategy of “creating product advantages, accelerating cash flow, enhancing management efficiency, reinforcing people training, achieving synergy”. During the Reporting Period, the Company recorded a turnover from its principal operations of RMB8,319,960,000, representing an increase of 26.75% as compared to the corresponding period in 2006. Net profit was RMB203,657,000, representing an increase of 154,408,000 as compared to the corresponding period of 2006, and the profit attributable to equity holders was RMB238,712,000.

Operation Structure

During the Reporting Period, the sales revenues of refrigerator business, air-conditioner business and freezer and other businesses accounted for 51.98%,38.64% ,3.90%and5.47% of the total turnover of the principal operations of the Company, respectively, representing an increase of 29.96%, 26.90% ,40.03%and -3.31% as compared to the same period last year.

On the other hand, domestic and export sales accounted for 57.95% and 42.05% of the total turnover of the principal operations of the Company, respectively, representing an increase of 12.13% and 54.51% as compared to the same period last year.

Refrigerator Business

During the Reporting Period, with aggressive exploration of different markets, the Company successfully achieved substantial increases in sales and relatively significant enhancement of its products’ overall profitability. For the domestic market, apart from adopting a number of measures such as reinforced product promotion, increased investments in research and development, and improved production efficiency, the Company also intensified advertising efforts to exert and amplify the advantages of the “Ronshen” brand, and effectively enhanced the operating results of the refrigerator business and obtained significant increases in sales and effective enhancement of profitability. The refrigerator business reached its annual sales target in domestic market in 2007. In respect of the export market, the Company fostered strong strategic cooperation with most of its international customers and achieved noticeable increases in its scale. However, because of a number of other factors such as the increases in the prices of major raw materials for the manufacture of refrigerators in 2007, appreciation of Renminbi, the profit margin of exported refrigerators narrowed and led to a decrease in the overall profit margin of refrigerator products as compared to the previous reporting period. In the next reporting period, the Company will focus on improving the sales structure of export products through expanding the overseas market for large-volume refrigerator, especially the export business of hi-tech products under its own brand with higher gross profit margin, with the objective to further enhance the overall profitability of refrigerator products.

During the Reporting Period, the refrigerator business of the Company achieved a sales revenues of approximately RMB4,325 million, representing a year-on-year growth of 29.96%, maintaining a leading position in the industry in the PRC.

Air-conditioner Business

During the Reporting Period, the Company aggressively developed the domestic and overseas markets, achieving considerable increase in the sales of air-conditioners. For the domestic market, the Company further developed its core technologies and launched a number of energy-saving, high efficiency products to expand its scale of sales. However, as the air-conditioner product market in the PRC concentrated and homogeneous competition of air-conditioner products intensified, the scale of domestic sales of air-conditioners still lagged behind that of its major competitors. For the export market, the Company successfully regained its lost major accounts upon resumption of operation, and achieved an increase in sales of air-conditioners which significantly outperformed the industry average, coupled with an increasing market share. The Company strengthened its efforts in increasing the technological content of its products and enhancing its product structures in response to the pressure from intense market competition and rising costs of raw materials.

During the Reporting Period, the air-conditioner business of the Company realized a sales income of approximately RMB3,215 million, representing a year-on-year growth of 26.90%.

Freezer Business

During the Reporting Period, the Company aggressively explored the domestic and international markets, especially the direct sales market, and achieved remarkable results. The direct sales business was set to target. At the medium- to-high-end customers with the provision of custom-made services to develop unique and custormerized products. Currently, the Company has established strong strategic cooperation with a number of customers of well-known brands with the aim to refresh the market image of its freezers and to ensure sustainable and stable growth of the freezer business.

Technology, Research and Development

During the Reporting Period, the Company upheld the operation objective of “creating product advantages and talent training” and strengthen the development of research and development capabilities, especially the research and development of medium-to-high-end products to the technological quality, healthy and energy-saving capabilities of the products. In 2007, the Company obtained 103 patents in total, of which 39 patents were related to refrigerators and 56 were related to air-conditioners;

In 2007, the Company was accredited as “outstanding” in the examination of the First Enterprises with Intellectual Property Right Advantages in the Guangdong Province. Also, its key research and development programs including “mobile air-conditioners with indoor/ outdoor ventilation”, “high efficiency air duct parameter design and test of air duct with high efficiency and value enhancement research” were awarded Top Patent Award of the Guangdong Province and Science and Technology Award of Guangdong Province in 2007, respectively.

At the 2007 Innovation Design Ceremony & China Wuxi International Industrial Design Expo, Ronshen BCD-288WYM refrigerator was awarded the only “Best Outlook Award” in the refrigerators section; whereas the “Fengshang” series dual high-efficiency air-conditioner launched by Kelon air-conditioners in 2007 was awarded the “iF Industrial Design Award” for its innovative and unique outlook.

In respect of the research and development for freezer products, the Company enjoys a leading position within the industry in the PRC for its core technologies such as energy-saving and preservation, as well as its testing and management capabilities. On the other hand, “Ronshen” freezers has completed the introduction and assimilation of Japan’s Toshiba freezer products during the Reporting Period, which further consolidated and confirmed the leading position of the Company’s freezers in the PRC in terms of technology.

Analysis on the Influence Factors of the Results

The management of the Company was of the view that, the growth in the turnover from its principal operations and net profits was mainly attributable to the overall growth of the PRC economy and the industry, increase in idle assets disposal and revitalized revenues, as well as to the operation quality enhancement measures adopted by the Company during the Reporting Period. However, as the Company was generally in a stage of recovery, the results for the Reporting Period still fell below the planned objectives as a result of the multiple operation difficulties brought by historical problems and the pre-investment made by the Company for the purpose of long-term development.

Analysis of the main reasons for the growth in results:

(1) The amount of cash recovered from the disposal of idle assets during the Reporting Period played an important role in meeting the demand for production capital by the Company during the peak season and in protecting the reputation of the Company, and enhanced its assets structure and quality to a certain extent. It also made significant contribution to the profits for the Reporting Period.

(2) Expanded scale of sales generated increasing turnover from domestic and export sales. In respect of domestic sales, the Company focused on the important regions and reinforced the support for the sales network of the third and fourth markets, which gradually regained the confidence of the distributors. For export sales, the Company leveraged on its technology and product advantages to forcefully explore the overseas markets, strengthening the cooperation with its major international customers and regaining the market shares lost in the prior periods, realizing an increase in sales that outperformed the industry average.

(3) During the Reporting Period, the Company continued to strengthen its research and development efforts to enhance the embedded technological content of the products in respect of health and energy-saving, and successively launched French door refrigerators featuring innovative designs and air-conditioner products with high energy-saving efficiency, which were highly appraised by the market. In particular, the Company stepped up the technological cooperation at the international level in respect of high-end technologies, and completed the introduction of Japan’s Toshiba freezer multi-door refrigerator during the Reporting Period. This has established a new height in the manufacture of refrigerators and brought along new development opportunities for the refrigerator industry.

(4) Proactively enhancement of product sales structure, and deepening of brand position efforts to various segments including product research and development, production and manufacture and marketing, expansion into the high-end product market and improvement of the product profit margin. The concept provided a strong guidance for the corresponding operating activities of the Company and as a result successfully enhanced the profit margin of the Company’s principal products. Of which, the profit margin of refrigerator products for domestic sales showed a notable increase as compared to the corresponding period of last year and enhanced the overall operating results of the Group.

(5) During the Reporting Period, fundamental management standard represented by reinforced capital control was enhanced. the Company stepped up its fundamental management with a particular focus on the fundamental management of capital control. The reserve and production cash flow for all business segments of the Company was unanimously accelerated as compared to the corresponding periods. In particular, the reserve cash flow of the production bases has basically reached the advanced level in the industry. At the same time, the internal procedures of the Company were further streamlined, whereas various systems were implemented scientifically and specifically. These measures have invigorated the environment of management and promoted the management efficiency.

(6) Implementation of a number of informatization projects, such as the SAP project and PLM project of the air-conditioner business, and the CRM project of the marketing section. The implementation of these projects have significantly promoted the operation efficiency of the Company and facilitated the management standardization of the Company.

Through the above offers, the operation quality of the Company showed considerable improvement as compared to the previous periods, but on the other hand, the results of the Company was adversely affected by the following factors.

1. With the consolidation of the air-conditioner industry and increasing brand concentration, although the Company recorded significant growth in revenues from the air-conditioner business of the Company during the Reporting Period, the growth was still below the planned objectives and economies of scale were not achieved. The overall scale of the Company’s air-conditioner business still needed to be improved.
2. Increase in sales expense of the Company exceeded the increase in revenues. It was one of the important factors that affected the results of the Company during the Reporting Period. Aimed at enhancing its brand image and reputation，the Company significantly increased its advertising input and brand promotion during the Reporting Period and reinforced the establishment of channels and sales network to regain market confidence for the long-term development of the Company.

(3) Some production bases of the Company were still out of production and in a state of sustained loss due to historical reasons. This has to a certain extent impaired the scale of operation of the Company and its recovery and growth.

Outlook of 2008

Look forward 2008, we are open to exceptional business opportunities: continuous growth of the PRC economy; the significant business opportunities brought to China by the 2008 Olympic Games; the forceful implementation of the State’s policy on agriculture, rural areas and farmers, as well as the Project for “Taking Household Appliances to Rural Areas” recently promulgated by the Ministry of Commerce. All these will strongly stimulate the expenditure on the home appliances market, creating an immense headroom of growth for the market. At the same time, the consumer, suppliers and distributors resumed their confidence in the Company as its branding and sales network gradually recuperated; the Company’s products possess advantages in energy-saving, high-efficiency and environmental friendliness, which are fully compatible with the State’s energy-saving and environmental protection policies, and empower the Company with remarkable technological and product advantages. These opportunities will enable the Company to maintain positive growth for the forthcoming year. However, at the same time, it is foreseeable that the competition on the global household appliances market would intensify in 2008, taking into account significant increase in the prices of energy and raw materials around the world; worsening of financing environment under stringent domestic credit and increased financing costs; continued rapid appreciation of Renminbi; increased costs of sea freight and non-tariff barriers. All these have exposed home appliances enterprises to additional risks

In 2008, the Company will uphold the operating strategy of “creating product advantages, enhancing product quality, maximizing production capacity, accelerating cash flow, reinforcing talent training”, with the objective to improve the operating results of the Company:

(1) Originally, the direction of our research and development work was further confirmed to be: fortify research of foundation technologies and track our competitors and internationally advanced technologies, complemented by other measures such as self-development, introduction and assimilation and external cooperation, with the objective of mastering the most advanced technologies on the international and domestic levels. On the one hand, we will devote to closely tracking the demand and construct a reliable, enhanced and consistent technological platform to rapidly implement the transition to technology-oriented products, in order to enable the launch of new products with competitive edge timely. In view of the specific products, for refrigerators, we will continue to increase our investment in energy-saving technologies to further consolidate and reinforce our leading position in the industry, while at the same time we will pinpoint our efforts to enhance the preservation technologies, design of product structure and industrial outlook design. For the air-conditioner products, we will also continue to increase our investment in energy-saving technologies to further consolidate and reinforce our leadership in the industry, while at the same time we will look into the details such as adoption of new models of heat exchanger to improve comfort, reliability and compatibility. On the other hand, we will implement a series of measures including reinforcing talent training and introduction, strengthening the introduction of external technologies and external cooperation, as well as adjusting the internal research and development system, with the objective to systematically rationalize the management of the research and development section and thereby increase the research and development efficiency and enhance the quality of work. In 2008, the research and development efforts of the Company will be put more on the transformation of high technology contents, with an effective enhancement of the technological content of our products. With this actual inifination for enhancement of the current and future competitiveness of our products, we look forward to enhancing our brand image and stimulating sales with our products.

(2) In 2008, the Company will continue to leverage on its quality advantages to maintain the establishment of the quality system, and adopt the approach of preventive management. Product quality control is further reinforced through multi-point quality control such as stringent quality inspection for external components, control of design responsibility, standardization of production site.

(3) In order to ensure the supply of materials to satisfy the demand from the expansion of the after market, the Company will concentrate on enhancing the production capacity for its products and breaking through the production bottlenecks. On one hand, the Company will actively promote the renovation work in respect of various technologies, including the commencement of production line for large volume refrigerator sand renovation of production facilities involved in the key bottlenecks to increase the production efficiency. On the other hand, the Company will renovate the staff quarters and canteens for junior grade staff to improve the living conditions of the employees, so as to retain and attract talents and resolve the lack of labor supply.

(4) In respect of the domestic market, the Company will continue to strengthen its marketing capabilities with the forceful construction and enhancement of the channels. Coupled with the existing network of each different product, channel exploration and innovation of marketing models will be conducted in response to the specific situation with reinforced planning.

(5) In respect of overseas business, the Company will further enhance the structure of export products, expand the export channels, increase the proportion of high-end products, continue to consolidate the advantages of cooperation with international major brand and customers, create long-term strategic partnerships, continue to increase the scale of export, improve the profitability of export sales and facilitate the process of internationalization;

(6) Parallel to the training of talents, the Company will make an effort to recruit external talents and project teams upon appropriate organization and planning, with a special focus on the recruitment of high-end talents from overseas to resolve the major conflicts such as business, lack of technical supervisors, structural shortage of talents from the fundamentals, in order to accommodate to the needs of enterprise upgrade and internationalization.

(7) The Company will aggressively proceed with the assets reorganization with the Hisense Group to increase the operating scale of the Company’s principal products, enhance the Company’s assets quality and further promote its financial structure, with the objective of upgrading the Company’s competitiveness.

Looking ahead, the Company faces both opportunities and challenges. The management will ride on the trend of the industry and leverage on its own advantages, striving for improvements and enhancement. The management of the Company is of the view that the Company has successfully go through the most difficult situation and is on the track of sustained healthy development. Backed by the enthusiastic expectation and sincere trust of its shareholders and the relentless efforts of all our staff, the Company will do its best to accomplish the operating objectives for 2008.

FINAL DIVIDENDS

The Group recorded a profit of RMB203,657,000 for the year 2007.The Board resolved not to pay any dividend for the year 2007 and not to capitalize any reserve funds (no dividend was paid by the Group for the year ended 31 December 2006).

LIQUIDITY AND SOURCES OF FUNDS

Net cash used in operating activities was approximately RMB10,418,000 (2006: net cash generated from operating activities amounted to approximately RMB883,996,000) for the year ended 31 December 2007.

As at 31 December 2007, the Company had bank deposits and cash (including pledged bank balances) amounting to approximately RMB146,528,000 (2006: RMB390,504,000), and bank loans amounting to approximately RMB1,310,972,000 (2006: RMB1,556,702,000).

Total capital expenditures for the year 2007 amounted to approximately RMB374,143,000 (2006: RMB142,652,000).

HUMAN RESOURCES AND EMPLOYEES’ REMUNERATION

As at 31 December 2007, the Group had approximately 22,141 employees, mainly comprising 2,484 technical staff, 6,234 sales representatives, 415 financial staff, 741administrative staff and 12,267 production staff. Four of the Company’s employees hold a doctorate degree while 80 and 1,826 Company’s employees hold master’s degree and bachelor’s degree, respectively. There were 382 employees with an title at mid-level or above. In addition, the Company currently has 31 resigned or retired staff. For the year ended 31 December 2007, the staff costs of the Company amounted to approximately RMB630,870,000 (2006: RMB538,066,000).

CHARGES ON THE GROUP’S FIXED ASSETS

As at 31 December 2007, the Group’s property, plant and equipment (including leasehold land held for own use) and investment properties of approximately RMB694,080,000 (2006(restated): RMB817,907,000) were pledged as security for the Group’s bank borrowings.

EXPOSURE TO EXCHANGE RATE FLUCTUATION

Since the majority of the Group’s purchase and overseas sales during the Reporting Period were denominated in foreign currency, the Group had certain extent of exposure to exchange rate fluctuation, The Group has used financial instruments such as discounted export bills, import/export documentary bills, and heate risk.

PUBLIC FLOAT

As at 24 April 2008, based on publicly available information and to the knowledge of the Directors, 25% or above of the total issued share capital of the Company are held by the public. Therefore, the public float of the Company satisfies the requirements stipulated under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

MATERIAL LITIGATIONS

As at 24 April 2008, the Company and its subsidiaries were involved in 23 litigations which, in each cases the target claim amount was more than RMB 10 million the total target claim amount was RMB922,009,100.

AUDIT COMMITTEE

The sixth session of the audit committee of the Company has reviewed the announcement and report of the final results of the Company for the year ended 31 December 2007.

CAPITAL EXPENDITURE

The Group expects that the capital expenditure for 2008 will be approximately RMB233,130,000.

DEPOSIT IN TRUST

As at 31 December 2007, the Company did not own any deposit in trust in any financial institution in the PRC. All of the Company’s deposits are placed with the commercial banks in the PRC and Hong Kong.

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

As at 31 December 2007, the Group had long-term bank borrowings of RMB 0 (2006: RMB 0) and cash and cash equivalents of RMB76,395,000 (2006: RMB 142,247,000), of which over 24.30% are denominated in Renminbi.

RATIO OF TOTAL ASSETS TO TOTAL LIABILITIES

As at 31 December 2007, the ratio of total assets to total liabilities of the Group was 87.50%.

INDEPENDENCE OF THE INDEPENDENT NON-EXECUTIVE DIRECTORS

The sixth session of the Board has received the written confirmations from all of the independent non-executive Directors in respect of their independence in accordance with the requirements under Rule 3.13 of the Listing Rules, and considers that all the existing independent non-executive Directors are in compliance with the relevant requirements under Rule 3.13 of the Listing Rules and are still independent persons.

SERVICE CONTRACTS AND INTERESTS IN CONTRACTS OF DIRECTORS AND SUPERVISORS

No service contract has been entered into with any Directors and supervisors of the sixth Board. The Directors and supervisors of the sixth Board of the Company have not directly or indirectly held any material interests in any material contracts during 2007.

INDEPENDENT NON-EXECUTIVE DIRECTORS’ REVIEWS OF CONTINUING CONNECTED TRANSACTIONS

The independent non-executive Directors of the sixth Board have reviewed the continuing connected transactions of the Company for the year 2007 and confirmed that these transactions were conducted in the ordinary course of business of the Company on normal commercial terms which were fair and reasonable and in the interests of the shareholders of the Company as a whole.

MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) as set out in the Listing Rules as its code for securities transactions by the Directors. After specific enquiries made to the Directors of the sixth session of the Board, Mr. Tang Ye Guo, Mr. Wang Shi Lei, Ms. Yu Shu Min, Mr. Lin Lan, Ms. Liu Chun Xin, Mr. Zhang Sheng Ping, Mr. Lu Qing and Mr. Cheung Yui Kai, Warren and to the former directors, Mr. Yang Yun Duo and Mr. Xiao Jian Lin and to the newly appointed Director, Mr. Zhang Ming, they all confirmed that they had complied with the Model Code during their terms of office.

SHARE CAPITAL STRUCTURE

As at 31 December 2007, the share capital structure of the Company was as follows:

Class of shares	Number of shares	Percentage to the total issued share capital（%）
A Shares	532,416,755	53.67%
H Shares	459,589,808	46.33%
Total	992,006,563	100%

TOP TEN/SUBSTANTIAL SHAREHOLDERS

(1) As at 31 December 2007, the Company has a total of 41,399 shareholders, of which the top ten/substantial shareholders were as follows: Shareholdings of the top ten shareholders

Name of Shareholder	Nature of Shareholder	Percentage to the total issued shares capital of the Company	Percentage to the issued class shares of the Company	No. of Shares Held	No. of Shares Held Subject to Selling Restrictions	No. of Pledged or Frozen Shares
Qingdao Hisense Air-conditioning Company Limited	Domestic Non-stated-owned Person	24.08%	70.69%	238,872,074	238,872,074	0
The Hongkong and Shanghai Banking Corporation Limited	Foreign Shareholder	9.35%	20.19%	92,781,829	0	Unknown
Foshan City Shunde District Economic Consultancy Company	Domestic Non-stated-owned Person	6.92%	20.32%	68,666,667	68,666,667	0
Shenyin Wanguo Securities (H.K.) Limited	Foreign Shareholder	5.55%	11.99%	55,097,000	0	Unknown
Bank of China  (Hong Kong) Limited	Foreign Shareholder	4.92%	10.62%	48,794,000	0	Unknown
Guotai Junan Securities (Hong Kong) Limited	Foreign Shareholder	4.12%	8.90%	40,920,000	0	Unknown
First Shanghai Securities Limited	Foreign Shareholder	2.61%	5.63%	25,860,000	0	Unknown
Hang Seng Securities Limited	Foreign Shareholder	2.04%	4.40%	20,235,000	0	Unknown
Standard Chartered Bank (HK) Ltd.	Foreign Shareholder	1.12%	2.42%	11,109,500	0	Unknown
BOCI Securities Limited	Foreign Shareholder	0.83%	1.79%	8,216,000	0	Unknown

Notes: As at 31 December 2007, as shown in the register of substantial shareholders kept according to Section 336 of the Securities and Futures Ordinance under the Laws of Hong Kong (the “SFO”), the top seven shareholders among the above top 10 shareholders above maintained short positions in the issued share capital of the Company:

Shareholdings of top ten tradable without selling restrictions Shareholders
Name of Shareholder	Number of Tradable Shares without Selling Restrictions	Class of Shares
The Hongkong and Shanghai Banking Corporation Limited	92,781,829	H Shares
Shenyin Wanguo Securities(H.K.) Limited	55,097,000	H Shares
Bank of China  (Hong Kong) Limited	48,794,000	H Shares
Guotai Junan Securities (Hong Kong) Limited	40,920,000	H Shares
First Shanghai Securities Limited	25,860,000	H Shares
Hang Seng Securities Limited	20,235,000	H Shares
Standard Chartered Bank (HK) Ltd.	11,109,500	H Shares
BOCI Securities Limited	8,216,000	H Shares
Sun Hung Kai Investment Services LTD.	7,983,000	H Shares
Chiyu Banking Corporation LTD.	6,868,000	H Shares

Notes: The Company is not aware whether any one of the top ten holders of listed shares is connected with each other or any one of them is a party acting in concert with any of the other nine shareholders as defined in Administrative Measures for Information Disclosure of the Shareholders of Listed Companies.

(2) Profile of the controlling shareholder of the Company

①Qingdao Hisense Air-Conditioning Co., Ltd., the controlling shareholder of the Company, was incorporated on 17 November 1995 with a registered capital of RMB 674.79 million. Its registered address is Changsha Road, Hi-tech Industrial Zone, Qingdao, the PRC and the legal representative is Mr. Tang Ye Guo. It is primarily engaged in researching and manufacturing of air-conditioners, injection moulds and provision of after-sale repairing services for its products.

②The beneficial controller of the Company is Hisense Group Company Limited which was incorporated at No. 17, Donghai West Road, Shinan, Qingdao in August 1979. Zhou Houjian is the legal representative of Hisense Group, a wholly state-owned enterprise with a registered capital of RMB806,170,000. Its scope of business are: the entrusted operation of state-owned assets; the manufacture and sale of, and provision of after-sale services for TV sets, VCD and DVD players, audio sets, broadcasting appliances, air-conditioners, electronic computers, telephones, communication products, internet products and electronic products; software development and internet services; consultation advices for technical development; the self-operated import and export business; foreign economic and technical cooperation; self-operated ownership transaction, brokerage and information services; the engagement in the property and casualty business as approved by the China Insurance Regulatory Commission; and the in industrial travel (expiring on 6 June 2008).

The final beneficial controller of the Company is the State-owned Assets Supervision and Administration Commission of Qingdao People’s Government.

③Relationship between the Company and its Beneficial Controlling Shareholders:

Qingdao State-owned Assets Supervision and Administration Commission

100%

Hisense Group Company Limited

55.58%

Qingdao Hisense Electric Holdings Company Limited

93%

Qingdao Hisense Air-Conditioner Company Limited

23.15%

Hisense Kelon Electrical Holdings Company Limited

（4）During the Reporting Period, there was no change in the controlling shareholder of the Company.

（5）No shareholders of the Company own more than 10% (including 10%) of its shares .

INTERESTS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVES IN THE SHARES

As at 31 December 2007, none of the members of the sixth Board, supervisors and the chief executive of the Company and any of their associates held any interests or short positions in any shares, underlying shares and debentures of the Company and any of its associated corporations, as recorded in the register maintained by the Company pursuant to Section 352 of the SFO.

MAJOR CUSTOMERS AND SUPPLIERS

For the year ended 31 December 2007, the aggregate amount of the Company’s purchases from the top five suppliers was RMB 894 million, representing 12.88% of total purchase amount of the Company for the year and the aggregate sales amount of the top five customers was RMB1,588 million, representing 19.08% of total sales amount of the Company for the year. As at 31 December 2007, none of the Directors, their associates or shareholders of the Company, who, to the knowledge of the Company, hold 5% or more of the shares in the Company, have any interest in the above suppliers or customers.

PURCHASE, SALE OR REDEMPTION OF SHARES

For the year ended 31 December 2007, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company’s listed shares.

CORPORATE GOVERNANCE

To the knowledge of the Company, the Company has complied with the Code on Corporate Governance Practices during the Reporting Period. In order to further consummate the corporate governance structure and upgrade corporate management level, and supervise the Company’s standardized, the company has set up the Nomination Committee and the Strategic Committee during the Reporting Period, and has formulated the corresponding work rules.

All information about the annual report required by Appendix 16 to the Listing Rules will be published on the Stock Exchange’s website (http://www.hkex.com.hk) and the Company’s website (http://www.kelon.com ) in due course.

SUSPENSION OF TRADING IN H SHARES OF THE COMPANY

At the request of the Company, the trading in the H shares of the Company was suspended from 28 April 2005 to 10 May 2005, and has remained suspended since 10:00 a.m. on 16 June 2005, initially following various press releases regarding the investigation by the China Securities and Regulatory Commission on Greencool Technology Holdings Limited in connection with the possible misappropriation of funds of the Company. Greencool Technology Holdings Limited was then an indirect shareholder of the Company controlled by Mr. Gu Chu Jun, who was the then executive director and chairman of the Company and the controlling shareholder of Guangdong Greencool Enterprise Development Company Limited, the then single largest shareholder of the Company.

The Company is currently reviewing the relevant documents in relation to the suspension of H shares, the events leading to such suspension and the actions taken by the Company, and has submitted a resumption proposal to the The Stock Exchange of Hong Kong Limited for approval.

By Order of the Board

Hisense Kelon Electrical Holdings Company Limited

Tang Ye Guo

Chairman

Foshan City, Guangdong, the PRC, 24 April 2008

As at the date of this announcement, the Company’s directors are Mr. Tang Ye Guo, Mr. Wang Shi Lei, Ms. Yu Shu Min, Mr. Lin Lan ,Ms. Liu Chun Xin and Mr. Zhang Ming,; and the Company’s independent non-executive directors are Mr. Zhang Sheng Ping, Mr. Lu Qing and Mr.Cheung Yui Kai, Warren.

Note: Supplementary information as required by The Stock Exchange of Hong Kong Limited in relation to the Company’s A share annual results announcement (prepared in accordance with PRC GAAP)

Ⅰ. Investments of the Company during the Reporting Period

1. During the Reporting Period, the Company did not raise any capital and no capital raised during any prior period was used during the Reporting Period.

2. Material Investment excluding raising of capital during the Reporting Period

(1) As at the end of the Reporting Period, the equity transfer procedures in relation to the transfer of the 30% equity interest of Chengdu Kelon from Chengdu Engine (Group) Company Limited to the Company was completed. The Company is now holding 100% of the equity interest of Chengdu Kelon.

(2) During the Reporting Period, the Company has invested the sum of RMB1,500,000 to establish Chengdu Hisense Refrigerator Co., Ltd. with Guangdong Pearl River Electric Refrigerator Company Limited, a wholly owned subsidiary of the Company.

Ⅱ. Particulars of the changes in the shares of the Company holding by Directors, supervisors and senior management and the remuneration received from the Company.

Name	Current Position	Sex	Age	Appointment period	No. of shares held at the beginning of the year	No. of shares held at the end of the year	Total remuneration received from the Company during the Reporting Period(including tax) (RMB ten thousand)	Whether received in shareholder’s entities or other related companies
Tang Ye Guo	Director, Chairman	Male	45	2006.6.26-2009.6.26	0	0	80	No
Wang Shi Lei	Director	Male	40	2007.1.4- 2009.6.26	0	0	64	No
President	2006.11.13- 2009.11.13
Yu Shu Min	Director	Female	57	2006.6.26-2009.6.26	0	0	0	Yes
Lin Lan	Director	Male	50	2006.6.26-2009.6.26	0	0	0	Yes
Liu Chun Xin	Director	Female	39	2007.8.8- 2009.6.26	0	0	40	No
Vice President	2006.10.31- 2009.10.31
Zhang Ming	Vice President	Male	37	2006.6.26-2009.6.26	0	0	24	No
Director	2008.4.16-2009.6.26
Zhang Sheng Ping	Independent Non-Executive Director	Male	43	2006.6.26-2009.6.26	0	0	6	No
Lu Qing	Independent Non-Executive Director	Male	41	2006.6.26-2009.6.26	0	0	6	No
Cheung Yui Kai, Warren	Independent Non-Executive Director	Male	40	2006.6.26-2009.6.26	0	0	23.28	No
Guo Qing Cun	Supervisor	Male	54	2006.12.5-2009.6.26	0	0	0	Yes
Zhou Zhao Li	Supervisor	Male	39	2006.12.5-2009.6.26	0	0	0	Yes
Liu Zhan Cheng	Supervisor	Male	30	2006.6.23-2009.6.26	0	0	20	No
Su Yu Tao	Vice President	Male	42	2007.3.23-2010.3.23	0	0	29	No
Wang Jiu Cun	Vice President	Female	54	2006.6.26 -2009. 6.26	13,800	15,456	40.30	No
Jia Shao Qian	Vice President	Male	36	2007.1.30 -2010.1.30	0	0	21.33	No
Shi Yong Chang	Vice President	Male	48	2008.1.30 -2011.1.30	0	0	0	No
Zhou Xiao Tian	Vice President	Male	49	2008.3.3- 2011.3.3	0	0	0	No
Zhong Liang	Secretary to the Board	Male	30	2006.9.7 to date	0	0	16.05	No
Yang Yun Duo	Former Director, Former Vice Chairman	Male	52	2007.1.4- 2008.2.26	0	0	56	No
Xiao Jian Lin	Former Director	Male	40	2006.6.26-2007.6.21	0	0	0	Yes
Dai Zu Mian	Former Company Secretary	Male	31	2006.9.7- 2007.8.28	0	0	42.48	No
Total	—	—	—	—	13,800	15,456	468.44	-

Note: (1) Except for the non- executive directors ,the other directors of the Company have never received director’s fees, but for certain executive directors who are also senior management of the Company, their remunerations as the senior management of the Company are determined by the remuneration and assessment committee along with the Board. Out of these directors, the remunerations of directors Tang Ye Guo, Yang Yun Duo ,Wang Shi Lei and Liu Chun Xin were remunerations for their being the Chairman of the Board and senior management of the Company during the Reporting Period. Details of the tax-embedded remunerations received by the existing directors, supervisors and senior management from the Company during the Reporting Period are set out in the table above.

（2）The exchange rate of Hong Kong dollars against RMB is 1:0.97.

（3）Except for Ms. Wang Jiu Cun (Vice President) holds shares of the Company, none of other Directors, supervisors and senior managements hold any share of the Company. Particulars of the changes in shareholdings of the shares of the company held by Ms.Wang Jiu Cun during the Reporting Period is set out as follows:

Name	Position	No. of shares held at the beginning of the year	No. of shares increase during the Reporting Period	No. of shares decrease during the Reporting Period	No. of shares held at the end of the period	Reasons for movement
Wang Jiu Cun	Vice President	13800	1656	－	15456	As a result of the share reform,1,656 shares were granted during the Reporting Period.

Ⅲ.The auditor’s report was issued by Shenzhen Dahua Tiancheng Certified Public Accountants for the Company containing qualified opinion. The Board explained the matters relating to the qualified auditors’ opinion in detail as follows:

Reserved Matter 1: “As described in Notes 6.4, 6.6, 11 and 15 to the financial statements of the annual report of A share, a series of related parties’ transactions and unusual cash flows occurred between the Company and its former largest shareholder, Guangdong Greencool Enterprise Development Limited and its related parties (the “Greencool Companies”) during the period from October 2001 to July 2005.In addition, the Greencool Companies, through certain specified third party companies such as Tianjin Lixin Commercial Trading Development Company Limited, involved in a series of unusual cash flows with the Company in the same period. Such transactions and unusual cash flows as well as the suspected fund embezzlement have been reported to the Company, and are pending for judgment. Your Company received Civil Judgment (Fo Zhong Fa Min Er Chu Zi No. 93 and 94 (2006)) from the Guangdong Province Foshan Intermediate Court (hereafter abbreviated “Foshan Intermediate Court”) on 10 September 2007 and Civil Judgment (Fo Zhong Fa Min Er Chu Zi No. 153, 154, 175, 181, 182, 185 and 186 (2006)) from the Guangdong Province Foshan Intermediate Court on 31 March 2008, which stated that Foshan Intermediate Court has made first trial judgment on the nine cases in respect of the litigation initiated by your Company against the Greencool Companies and the case of specified third party companies in favour of your Company. The counterparty of the above nine litigations appealed from the judgment and the case is currently under hearing. As at 31 December 2007, the balance of the accounts receivables of the Company from the Greencool Companies and the above specified third party companies amounted to RMB651 million. The Company has made a provision of RMB364 million in respect of the accounts receivables from Greencool Companies and the above specified third party companies. We were unable to adopt appropriate audit procedures to obtain sufficient and appropriate audit evidence to ascertain whether the estimated provision for bad debts is reasonable and the assessment and calculation of the receivables is reasonable.

Explanation：

As the Company and its former single largest shareholder, Guangdong Greencool Enterprise Development Company Limited, and its related parties or through its third party companies had a series of related parties’ transactions and irregular cash inflow/outflow during the period from 2001 to 2005. The aforesaid transactions, irregular cash inflow/outflow and suspected funds embezzlement have been formally investigated by relevant authorities. As at 31 December 2007 the balance of the accounts receivables of the Company from Greencool Companies and the aforesaid specified third party companies amounted to RMB651,000,000.

The Company has estimated, based on the available information about the cases at present, the recoverable amount of accounts receivables due from Greencool Companies and specified third party companies, meanwhile the Company has made a provision of RMB364 million. The bases of the estimate include : the information regarding the properties of Greencool Companies sealed and frozen by the Court as applied by the Company, and the initial analysis report on the aforesaid fund embezzlement prepared by the lawyer of the Company. As analyzed by the lawyer, the properties of Greencool Companies available for settlement amounted to approximately RMB1,000,000,000, and the total claim amount against Greencool Companies by the creditors to the court amounted to approximately RMB2,400,000,000. The amount claimed by the Company for the fund embezzlement of Greencool Companies amounted to RMB792,000,000. There is possibility that the credit balance be settled based on the proportion of property to the debts. Based on the estimated settlement proportion, and that the case is still in the progress, the court has not yet acknowledged the amount of the Company’s claim of the debts, the Board of the Company estimated the recoverable amount and made a provision of RMB364,000,000 for bad debts.

Meanwhile, the law firm to this case declared that, apart from the case handled by them, they cannot guarantee the accuracy of the information and the data related to other relevant cases nor the results of those cases. Further, whether the relevant subsidiaries of the Company are qualified to participate in the property appropriation of Greencool Companies is dependent on the decision of the Court.

The Board considers that the provision for bad debts is an accounting estimate,The handling method of this accounts receivable does not contravene any relevant requirements of the Accounting System for Business Enterprises. Although the Guangdong Province Foshan Intermediate Court has made first trial judgment on the nine cases in respect of the litigation initiated by the Company against the Greencool Companies, the counterparty has lodged an appeal, and the abovementioned judgment is therefore not yet effective. The Board is of the view that: as there is no material difference for the degree of judgment for the recoverability of this receivable between 2007 and 2006, this qualified opinion will not affect the fairness in the preparation of the statement of profit of the Company in 2007.

After the court has made its judgment and the settlement proportion, the Company will, pursuant to the determined recoverable proportion, adjust retrospectively the 2005 financial statements (balance sheet and income statement), and the relevant items in the balance sheet as at 31 December 2006 and 31 December 2007. The Company has taken measures to sequestrate the properties of Greencool Companies which are available for settlement. The Company will also pay attention to the progress of the case and make its best efforts to ensure its rights as a creditor.

Ⅳ. Other Discloseable Matters

(I) Material litigations and arbitrations of the Company

1. General status of the litigations

As of the date of this report, the Company and its subsidiaries were involved in 153 litigations with a total claim amount of RMB980,410,400, US$13,750,719.19and involving land of 125,266.26 square metres.

Among the aforementioned litigations involving the Company and its subsidiaries, the Company and its subsidiaries acted as plaintiffs in 29 cases with a total claim amount of RMB922,454,200 and as defendants in 124 cases involving an amount of RMB57,956,200, US$13,750,719.19 and land of 125,266.26 square metres.

Among the aforementioned litigations involving the Company and its subsidiaries, there are 23 litigations and arbitrations as disclosed above involving an amount exceeding RMB10,000,000 each (with a total claim amount of RMB922,009,100,US$13,750,719.19), 130 litigations with a claim amount less than RMB10,000,000 each (with a total claim amount of RMB58,401,300 and land of 125,266.26 square metres).

1. Additional new litigations

From 1 January 2007 to the date of this report, the Company and its subsidiaries were involved in 159 new litigations (of which 38 litigations are closed cases with a total claim amount of RMB59,455,900) with a total claim amount of RMB204,719,400.The Company and its subsidiaries acted as plaintiff in 14 cases (of which 6 litigations as disclosed above are closed case with a total claim amount of RMB29,175,100) with a total claim amount of RMB152,004,300. . The Company and its subsidiaries acted as defendants in 145 cases (of which 32 litigations are closed cases with a total claim amount of RMB30,280,800) with a total claim amount of RMB52,715,100. .

Among the aforementioned new litigations involving the Company and its subsidiaries, there are 4 litigations and arbitrations as disclosed above involving an amount exceeding RMB10,000,000 each (with a total claim amount of RMB147,192,000), 155 litigations with a claim amount less than RMB10,000,000 each (with a total claim amount of RMB57,527,400).

Background information on new litigations involving target claim amount over RMB10,000,000:

(in ten thousand RMB)

No.	Name of case	Date of Prosecution	Target Claim Amount	Background information of the case	Progress of the Case
1	Litigation initiated by Ronshen Refrigerator against Xi’an Kelon	8 June 2007	9,998.41	The Company claimed against the defendant for the repayment of the loan of RMB89.1841million and the related interest amounting to RMB10.8 million.	Ronshen Refrigerator received Civil Judgment (Fo Zhong Fa Li Bao Zi No.241 (2007)) and the summon from the Intermediate People’s Court of Foshan City on 22 June 2007,which stated that, as applied by Ronshen Refrigerator, on 13 June, 2007, Foshan Intermediate Court issued an order of freezing the bank deposit of Xi’an Kelon amounting to RMB89,000,000 or sealing up and distraining its assets of such equivalent amount. The trial of this case has been postponed.
2	Litigation initiated by the Company against Zhejiang Hangxiao Ganggou Holdings Company Limited (“Hangxiao Ganggou”)	28 March 2007	1,154.70	The Company alleged that Hangxiao Ganggou failed to complete the construction works according to the terms of the contact and has to pay default compensation	On 21 November 2007, a judgment on first trial was made in the Intermediate People’s Court of Foshan City as follows: dismiss the litigation claim of the Company, and the Company shall be liable for case acceptance fee of RMB67,745. The Company lodged an appeal on receiving the judgment. On 30 January 2008, the case was heard together with the case against the Company by Hangxiao Ganggou in Higher Court of Guangdong, and is now pending for judgment.
3	Litigation initiated by Guangzhou Mei Kou Jia Food Company Limited（廣州美口佳食品有限公司）against Ronshen Freezer	9 April 2007	1,000.00	The plaintiff filed the litigation alleging that the freezers sold by Kelon failed to meet the requirements stipulated in the contract.	Intermediate People’s Court of Foshan City issued a letter of civil conciliation on 14 September 2007.
4	Litigation initiated by the Company against Shangqiu Kelon	21 June 2007	2,566.09	The Company claimed against the defendant for the repayment of the loan of RMB21,590,900, the related interest amounting to RMB4,070,000 and to assume the litigation costs of the case.	Intermediate People’s Court of Foshan City made a judgment on 13 December 2007: Shangqiu Kelon to repay all loan amounting to RMB21,590,867.88 and related interest to the Company, and the litigation costs of RMB17,510 and RMB157,594 shall be assumed by the Company and Shangqiu Kelon respectively.

3. The status of completed litigations

From 1 January 2007 to the date of this report , the Company and its subsidiaries were involved in 59 closed litigations with a total claim amount of RMB340,900,000.

The Company and its subsidiaries acted as plaintiffs in 9 cases with a total claim amount of RMB216,421,400 and as defendants in 50 cases involving an amount of RMB124,778,600.

Among the aforementioned closed cases involving the Company and its subsidiaries, there are 6 litigations involving an amount exceeding RMB10,000,000 each (with a total claim amount of RMB290,755,200), 53 litigations with a claim amount less than RMB10,000,000 each (with a total claim amount of RMB22,532,900).

Background information on litigations involving target claim amount over RMB10,000,000:

(in ten thousand RMB)

No.	Name of case	Date of Prosecution	Target Claim Amount	Background Information of the Case	Progress of the Case
1	Litigation initiated by Guangzhou Mei Kou Jia Food Company Limited（廣州美口佳食品有限公司）against Ronshen Freezer	9 April 2007	1,000.00	The plaintiff filed the litigation alleging that the freezers sold by the Company failed to meet the requirements stipulated in the contract.	Intermediate People’s Court of Foshan City issued a letter of civil conciliation on 14 September 2007. Ronshen Freezer had provided the freezers according to the contract and the plaintiff shall pay according to the contract.
2	Litigation initiated by the Company against Shangqiu Kelon	21 June 2007	2,566.09	The Company claimed against the defendant for the repayment of the loan of RMB21,590,900, the related interest amounting to RMB4,070,000 and to assume the litigation costs of the case.	Intermediate People’s Court of Foshan City made a judgment on 13 December 2007: Shangqiu Kelon to repay all loan amounting to RMB21,590,867.88 and related interest to the Company, and the litigation costs of RMB17,510 and RMB157,594 shall be assumed by the Company and Shangqiu Kelon respectively. The related assets of Shangqiu Kelon have been frozen, but have not been executed yet.
3	Litigation initiated by Jilin City Commercial Bank Jiangbei Branch against Jilin Kelon and the Company	8 December 2006	1,805.79	The Plaintiff claimed for principal and related interest.	On 15 May 2007, It was judged by the Court that the Company did not need to bear any responsibility.
4	Litigation against Jiangxi Kelon and Kaifeng Kelon Air-Conditioner Co., Ltd. (“Kaifeng Kelon”) by Kaifeng Economic Technology Development (Group) Company in relation to joint venture contract	30 July 2005	2,716.00	The plaintiff applied for a pre-trial security order from the court to seize properties worth of RMB18,000,000 of Jiangxi Kelon and Kaifeng Kelon. The plaintiff applied for a security order from the court during the trial and the court ordered to seize properties worth of RMB9,160,000of Jiangxi Kelon and Kaifeng Kelon.	On 27 August 2007, Henan Province Kaifeng Economic Technology Development (Group) Company (河南省開封經濟技術開發（集團）公司) and Jiangxi Kelon signed an Equity Transfer Agreement, pursuant to which, Jiangxi Kelon transferred all the shareholdings held in Kaifeng Kelon to Henan Province Kaifeng Economic Technology Development (Group) Company, and the case was closed (please see the announcement published by the Company on 31 October 2007 for details).
5	Litigation against Foshan Shunde Jiegao Investments Company Limited (佛山市順德區捷高投資有限公司) by Kelon Electrical	21 August 2006	18,227.11	In respect of the dispute over the land transfer money, the Company has taken the litigation to the Higher Court of Guangdong to request an order against the counterparty to settle the transfer money of the state-owned land and the related interests incurred for the overdue amount and bear the litigation costs of the case.	The Company and the defendant, , Ronggui Rural Credit Cooperative of Shunde signed a “Settlement Agreement ” on 18th April 2007, the three parties agreed to dispose the subject land and use the proceeds in repayment of the debt owing by the defendant to the Company and Ronggui Rural Credit Cooperative of Shunde, (please see the announcement published by the Company on 20 April 2007 for details). The Company transferred its rights to the debt to Foshan Shunde Shunrong Investments Company Limited on 31 May 2007 (please see the announcement published by the Company on 13 June 2007).
6	Litigation initiated by China Construction Bank Corporation – Nanchang Changbei Branch against Jiangxi Kelon and the Company	2005	Outstanding amount of 2760.53	China Construction Bank Corporation – Nanchang Changbei Branch applied to the court for pre-trial security order on the basis of disputes over the loan contract and guarantee contract with target claim amount of RMB140 million. On 5 August 2005, the High Court of Jiangxi Province ordered to freeze Jiangxi Kelon’s 80% shareholdings in Shangqiu Kelon. With various negotiations between the parties, so far, Jiangxi Kelon has repaid the Plaintiff full amount. The plaintiff is now in the process of withdrawing his claim in High Court of Jiangxi Province	Jiangxi Kelon has repaid the amount and the plaintiff is in the process of withdrawing the claim.

4．Progress of material litigations involving target claim amount over RMB10,000,000 that were carried forward from prior years and which have not been closed

(in ten thousand RMB)

Litigation involving Greencool Companies and the specified third parties
No.		Name of case	Counterparty		Target claim amount		Background information of the case		Progress of the Case
1		Litigation initiated by Kelon Air-Conditioner against Guangdong Greencool, Gu Chu Jun and Jiangxi Kesheng Industry and Trading Company Limited (“Jiangxi Kesheng”)	Guangdong Greencool, Gu Chu Jun and Jiangxi Kesheng		1,863.00		Under the authorisation by Gu Chu Jun, Guangdong Greencool, taking benefits from its role as a substantial shareholder, misused its controlling position in the Company that, on 20 February 2005, it infringed the legal interests of the plaintiff by making use of the name of Jiangxi Kesheng so as to avoid the regulatory restrictions on connected transaction and misappropriated RMB 18.63 million of the plaintiff		The hearing was commenced in Intermediate People’s Court of Foshan City on 27 June 2007. The case is now pending for judgment.
2		Litigation initiated by Jiangxi Kelon Industrial Development Co., Ltd. (“Jiangxi Kelon”) against Guangdong Greencool, Gu Chu Jun, Greencool Refrigerant (China) Company Limited (“Tianjin Greencool”), Hainan Greencool Environmental Protection Engineering Co., Ltd. (“Hainan Greencool”)and Jinan San Ai Fu Petrochemical Co., Ltd.(“Jinan San Ai Fu”)	Guangdong Greencool, Gu Chu Jun, Tianjin Greencool, Hainan Greencool and Jinan San Ai Fu		8,160.00		On 20 January 2005, under the authorisation of Gu Chu Jun, Guangdong Greencool, taking benefits from its role as a substantial shareholder, misused its controlling position in the company in such a that, on 20 January 2005, it made use the name of Jinan San Ai Fu to enter into a sale and purchase contract with Tianjin Greencool and misappropriated RMB 81.60 million of the plaintiff		The hearing was commenced in Intermediate People’s Court of Foshan City on 14 June 2007. The case is now pending for judgment.
3		Litigation initiated by Shenzhen Kelon Procurement Co Ltd. (“Shenzhen Kelon”), against Guangdong Greencool, Tianjin Lixin Commercial Trading Development Company Limited (“Tianjin Lixin”), Greencool Procurement Centre (Shenzhen) Co., Ltd. (“Shenzhen Greencool”) and Gu Chu Jun	Guangdong Greencool, Tianjin Lixin, Shenzhen Greencool and Gu Chu Jun		8,960.03		Under the authorisation by Gu Chu Jun, Guangdong Greencool, taking benefits from its role as a substantial shareholder, misued its controlling position in the Company to procure the plaintiff to enter into a sale and purchase contract with Tianjin Lixin regarding the purchase of 12,700 tons of steel. The plaintiff made the payments by two installments to Tianjin Lixin on 26 April 2005 and 27 April 2005 respectively, and Tianjin Lixin transferred the amounts collected to Shenzhen Greencool. The plaintiff has not received any steel supply from Tianjin Lixin. Guangdong Greencool and Gu Chu Jun misused their controlling position in the Company and infringed the legal interests of the plaintiff.		The hearing was commenced in Intermediate People’s Court of Foshan City on 27 June 2007. The case is now pending for judgment.
4		Litigation initiated by Kelon Fittings against Guangdong Greencool, Tianjin Xiangrun Commercial Trading Development Company Limited (“Tianjin Xiangrun”), Shenzhen Greencool and Gu Chu Jun	Guangdong Greencool, Tianjin Xiangrun, Shenzhen Greencool and Gu Chu Jun		9,741.22		Under the authorisaton by Gu Chu Jun, Guangdong Greencool, taking benefits from its role as a substantial shareholder, misued its controlling position in the Company to procure the plaintiff to enter into a sale and purchase contract with Tianjin Xiangrun regarding the purchase of 8,820 tons of steel from Tianjin Xiangrun. The plaintiff made the payments by installments to Tianjin Xiangrun on 26, 27 and 28 April 2005, respectively, but the plaintiff did not receive any steel supply from Tianjin Xiangrun. Guangdong Greencool and Gu Chu Jun misused their controlling position in the Company and misappropriated RMB97.41 million of the plaintiff.		The hearing was commenced in Intermediate People’s Court of Foshan City on 27 June 2007. The case is now pending for judgment.
5		Litigation initiated by Kelon Air-Conditioner against Guangdong Greencool, Jinan San Ai Fu, Tianjin Greencool, Hainan Greencool and Gu Chu Jun	Guangdong Greencool, Jinan San Ai Fu, Tianjin Greencool, Hainan Greencool and Gu Chu Jun		4,080.00		Under the authorisaton by Gu Chu Jun, Guangdong Greencool, Tianjin, taking benefits from its role as a substantial shareholder, misused its controlling position in the company to procure the plaintiff to enter into a sale and purchase contract with Jinan San Ai Fu to purchase 300 tons of environment-friendly refrigerant, and paid a price of RMB40,800,000 on 1 April 2005, but Jinan San Ai Fu failed to deliver the goods. The funds was transferred to Greencool companies. Guangdong Greencool and Mr Gu Chu Jun misused their controlling position in the Company and misappropriated RMB 40.8 million of the plaintiff		The hearing was commenced in the Intermediate People’s Court of Foshan City on 13 June 2007. The case is now pending for judgment.
6		Litigation initiated by Jiangxi Kelon against Guangdong Greencool, Aike Enterprises (Tianjin) Co., Ltd. and Gu Chu Jun	Guangdong Greencool, Tianjin Greencool, Aike Enterprises (Tianjin) Co., Ltd. and Gu Chu Jun		9,000.00		Under the authorisaton by Gu Chu Jun, Guangdong Greencool, taking benefits from its role as a substantial shareholder, misused its controlling position in the company and misappropriated RMB90 million of the plaintiff.		On 30 August 2007, the Intermediate People’s Court of Foshan City made the judgment for Guangdong Greencool , Gu Chu Jun, Greencool Refrigerant (China) Company Limited to pay the plaintiff an amount of RMB90,000,000; the defendant shall be liable for case acceptance fee and claim security expenses in a total of RMB91,0530 The counterparty has already lodged an appeal, the judgment is not yet effective.
7		Litigation initiated by Jiangxi Kelon against Guangdong Greencool, Tianjin Greencool and Gu Chu Jun	Guangdong Greencool, Tianjin Greencool, Gu Chu Jun		7,500.00		Under the authorisaton by Gu Chu Jun, Guangdong Greencool, taking benefits from its role as a substantial shareholder, misused its controlling position in the company and misappropriated RMB75 million of the plaintiff.		On 30 August 2007, the Intermediate People’s Court of Foshan City made the judgment for Guangdong Greencool , Gu Chu Jun and Tianjin Greencool to pay the plaintiff an amount of RMB75,000,000; the defendant shall be liable for case acceptance fees and claim security expenses in a total of RMB760,530 The counterparty has already lodged an appeal, the judgment is not yet effective.
8		Litigation initiated by Yangzhou Kelon against Guangdong Greencool, Gu Chu Jun and Yangzhou Greencool Venture Capital Company Limited (“Yangzhou Greencool”)	Guangdong Greencool, Gu Chu Jun and Yangzhou Greencool		4,000.00		Under the authorisaton by Gu Chu Jun, Guangdong Greencool, taking benefits from its role as a substantial shareholder, misused its controlling position in the company in such a way that during the course of negotiation conducted in early 2004 by the Company with the management committee of Yangzhou Economic Development Zone (hereinafter referred to as the “Zone”) with respect to the production of “Twin Door Freezers” (also named “Huge Freezers”) in the Zone, Gu Chu Jun deliberately misrepresented the relationship between the Company and Greencool to the management committee of the Zone for the purpose of attracting the large-sized investment projection. As such, the finance bureau of the Zone granted the “Development Encouragement Fund” amounting to RMB40 million, that should have been paid to Yangzhou Kelon as an incentive subsidy on a “levy first and refund later” basis, to Yangzhou Greencool, a private company owned by Gu Chu Jun.		The hearing was commenced in Intermediate People’s Court of Foshan City on 23 November 2007 and a judgment on first trial was made on 28 January 2008 in favors of Yangzhou Kelon. But with the counterparty lodging an appeal, the judgment is not yet effective.
9		Litigation initiated by Jiangxi Kelon against Guangdong Greencool, Gu Chu Jun, Jiangxi Keda Plastic Technology Company Limited (“Jiangxi Keda”) and Greencool Procurement (Shenzhen) Co., Ltd. (“Greencool Procurement”)	Guangdong Greencool, Gu Chu Jun, Jiangxi Keda and Shenzhen Greencool		1,300.00		Under the authorisaton by Gu Chu Jun, Guangdong Greencool, taking benefits from its role as a substantial shareholder, misused its controlling position in the company, in such a way that, for the purpose of embezzlement of Jiangxi Kelon’s fund, Gu Chu Jun and certain Greencool companies made the Plaintiff transfer a total sum of RMB13 million to Jiangxi Keda on 20 May 2005 and thereafter made Jiangxi Keda transfer such fund immediately to Greencool Procurement. The four defendants failed to return such fund to the Plaintiff as at the date hereof. The transfer of such fund from the Plaintiff to Greencool Procurement was not substantiated by any genuine transaction. Guangdong Greencool and Gu Chu Jun misused their controlling position in the company and misappropriated RMB13 million of the plaintiff.		The hearing was commenced in Intermediate People’s Court of Foshan City on 23 November 2007 and a judgment on first trial was made on 28 January 2008 in favour of Jiangxi Kelon. But with the counterparty lodging an appeal, the judgment is not yet effective.
10		Litigation initiated by the Company’s Hubei Branch against Guangdong Greencool, Gu Chu Jun and Wuhan Changrong Electrical Appliance Company Limited (“Wuhan Changrong”).	Guangdong Greencool, Gu Chu Jun and Wuhan Changrong		2,984.37		Under the authorisaton by Gu Chu Jun, Guangdong Greencool, taking benefits from its role as a substantial shareholder, misused its controlling position in the company, in such a way that,, during the period from 15 December 2004 to 31 December 2004, Wuhan Changrong took delivery of a large number of air-conditioners and other goods from the Plaintiff without making any payment. The defaulted payment of RMB29,843,700 has not yet been settled. The said connected transaction was conducted without going through normal internal approval procedures of the Company and the Plaintiff and no announcement has been issued on it. Therefore it is Guangdong Greencool and Gu Chu Jun misused their controlling position in the Company and misappropriated RMB29.8437 million of the plaintiff.		The hearing was commenced in the Intermediate People’s Court of Foshan City on 23 November 2007The case is now pending for judgment.
11		Litigation initiated by Jiangxi Kelon against Guangdong Greencool, Zhuhai City Longjia Refrigerant Co., Ltd. (“Zhuhai Longjia”) and Gu Chu Jun	Guangdong Greencool, Zhuhai Longjia and Gu Chu Jun		2,860.00		Under the authorisaton by Gu Chu Jun, Guangdong Greencool, taking benefits from its role as a substantial shareholder, misused its controlling position in the company to procure Jiangxi Kelon to transfer RMB11 million to the bank account of Zhuhai Longjia on 24 December 2003 and further transferred RMB17.6 million on 15 December, 2004. Such transfers of funds were not supported by any transactions and were not recorded in the Plaintiff’s accounts. Guangdong Greencool and Gu Chu Jun misused their controlling position in the Company and misappropriated RMB28.6 million of the plaintiff.		Intermediate People’s Court of Foshan City has proceeded with the case on 23 November 2007 and made a judgment on first trial on 25 January 2008 in favour of Jiangxi Kelon. But with the counterparty lodging an appeal, the judgment is not yet effective.
12		Litigation initiated by Jiangxi Kelon against Guangdong Greencool, Gu Chu Jun and Zhuhai Defa Air-conditioner Fittings Company Limited (“Zhuhai Defa”)	Guangdong Greencool, Gu Chu Jun and Zhuhai Defa		2,140.00		Under the authorisaton by Gu Chu Jun, Guangdong Greencool, taking benefits from its role as a substantial shareholder, misused its controlling position in the company to procure the plaintiff to transfer RMB9 million and RMB12.40 million to the bank account of Zhuhai Defa on 24 December 2003 and on 15 December 2004 respectively. Such transfers of funds were not supported by any transactions and were not recorded in the Plaintiff’s accounts. Guangdong Greencool and Gu Chu Jun misused their controlling position in the company and misappropriated RMB21.40 million of the plaintiff.		The hearing was commenced in Intermediate People’s Court of Foshan City on 23 November 2007 and a judgment on first trial was commenced on 25 January 2008 in favour of Jiangxi Kelon. But with the counterparty lodging an appeal, the judgment is not yet effective.
13		Litigation initiated by Jiangxi Kelon against Guangdong Greencool, Gu Chu Jun and Wuhan Changrong	Guangdong Greencool, Gu Chu Jun and Wuhan Changrong		2,000.00		Under the authorisaton by Gu Chu Jun, Guangdong Greencool, taking benefits from its role as a substantial shareholder, misused its controlling position in the company to procure the plaintiff , to transfer RMB20 million to the bank account of Wuhan Changrong on 23 December 2003. Such transfer of funds was not supported by any transactions and was not recorded in the Plaintiff’s accounts. Guangdong Greencool and Gu Chu Jun misused their controlling position in the company and misappropriated RMB20.00 million of the plaintiff.		The hearing was commenced in Intermediate People’s Court of Foshan City on 23 November 2007 and a judgment on first trial was made on 25 January 2008 in favour of Jiangxi Kelon. But with the counterparty lodging an appeal, the judgment is not yet effective.
14		Litigation initiated by the Company and its Anhui Branch against Guangdong Greencool, Gu Chu Jun and Hefei Weixi Home Appliances Co., Ltd. (“Hefei Weixi”)	Guangdong Greencool, Gu Chu Jun and Hefei Weixi		1,869.48		Under the authorisaton by Gu Chu Jun, Guangdong Greencool, taking benefits from its role as a substantial shareholder, misused its controlling position in the company, in such a way that, Hefei Weixi took delivery of a large number of air-conditioners and refrigerators from the Plaintiffs without making any payment during the period from 31 December 2003 to August 2005, and the defaulted payments of RMB16,075,400 and RMB2,619,400 due to the Anhui Branch and the Company, respectively, have not yet been settled. The connected transaction above was conducted without going through normal internal approval procedures of the Company and no announcement has been issued on it, therefore, it is attributive to the misuse of Guangdong Greencool and Gu Chu Jun of their controlling position in the company against the interests of the plaintiff.		The hearing was commenced in Intermediate People’s Court of Foshan City on 23 November 2007 The case is now pending for judgment.
15		Litigation initiated by Kelon Air-Conditioner against Guangdong Greencool, Gu Chu Jun and Hainan Greencool Environmental Protection Engineering Co. Ltd. (“Hainan Greencool”)	Greencool, Gu Chu Jun and Hainan Greencool		1,228.94		Under the manipulation of Guangdong Greencool and Gu Chu Jun, the plaintiff entered into a purchase and sale agreement with Hainan Greencool under which the plaintiff purchased 100 tons of Greencool refrigerant at a unit price of RMB135,000 per ton. After execution of the above agreement, the Plaintiff made a payment of RMB13,437,900 to Hainan Greencool for the refrigerant under the direction of Guangdong Greencool and Gu Chu Jun. However, according to the subsequent investigation and assessment conducted by the plaintiff, the price of the refrigerant quoted by Hainan Greencool was about 10 times the normal market price and the refrigerant under the agreement was only value at RMB1,148,500. In other words, Hainan Greencool illegally embezzled the funds of the plaintiff in the amount of RMB12,289,400 by way of connected transaction. The above connected transaction was not subject to the normal approval procedures by the Plaintiff and was not disclosed to the public Therefore, it constitutes an embezzlement of the Plaintiff’s funds by the controlling shareholder and its connected companies. Guangdong Greencool and Gu Chu Jun misused their position in the Company and acted against the interests of the plaintiff.		The hearing was commenced in Intermediate People’s Court of Foshan City on 23 November 2007. . The case is now pending for judgment.
16		Litigation initiated by the Company against Guangdong Greencool, Zhuhai Greencool Refrigeration and Engineering Co., Limited (“Zhuhai Greencool”), Beijing Greencool Refrigerant Replacement Engineering Co., Limited (“Beijing Greencool”), Hainan Greencool and Gu Chu Jun	Guangdong Greencool, Zhuhai Greencool, Beijing Greencool, Hainan Greencool and Gu Chu Jun		1,375.46		During the course of controlling and operating the Plaintiff, Guangdong Greencool and Gu Chu Jun forcibly integrated the businesses of Greencool Companies with those of the Company, and took control of the manpower, financial resources and materials for promoting the businesses of Greencool at the Company’s cost. Given that “Greencool Authorized Project Agent” did not make payment to Greencool Companies, Guangdong Greencool manipulated the Company to settle the above-mentioned franchise fees and the payment for purchasing refrigerants on behalf of the “Greencool Authorized Project Agent”. With respect to such payments, the Company was manipulated to pay RMB35,175,000 to Zhuhai Greencool, RMB3,960,000 to Beijing Greencool and RMB2,673,000 to Hainan Greencool. So far, there is an outstanding amount of RMB13,754,600 paid by the Company to the companies under the name of Greencool under manipulation not yet recovered. The above actions conducted by the Defendants were neither approved by the Board and the general meeting under the laws and the articles of association of the Company, nor disclosed to the public.		The hearing was commenced in Intermediate People’s Court of Foshan City on 23 November 2007 and a judgment on first trial was made on 29 January 2008 in favour of the Company. But with the counterparty lodging an appeal, the judgment is not yet effective.
17		Litigation initiated by Kelon Air-Conditioner against Guangdong Greencool, Gu Chu Jun and Greencool Technology Development (Shenzhen) Company Limited (“Shenzhen Greencool Technology”)	Guangdong Greencool, Gu Chu Jun and Shenzhen Greencool Technology		3,200.00		From 31 March 2003 to 14 April 2003, under the manipulation of Gu Chu Jun and his Greencool Companies, the plaintiff transferred the cumulative payment to Shenzhen Greencool Technology amounted to RMB32 million, and no repayment has been made to date. As such transfer of funds was not supported by any transactions, the act of the controlling shareholder and its associated companies constitutes an embezzlement of the listed company’s funds.		The hearing was commenced in Intermediate People’s Court of Foshan City on 23 November 2007. The case is now pending for judgment.
18		Litigation initiated by Kelon Air-Conditioner against Guangdong Greencool, Gu Chu Jun and Greencool Technology Environmental Protection Engineering (Shenzhen) Co., Ltd. (“Shenzhen Greencool Environmental”)	Guangdong Greencool, Gu Chu Jun and Shenzhen Greencool Environmental		3,300.00		From 6 May 2003 to 23 June 2003, under the manipulation of Guangdong Greencool and Gu Chu Jun, Kelon Air-Conditioner transferred the cumulative amount of RMB33 million from Kelon Air-Conditioner to Shenzhen Greencool Environmental was , and no repayment has been made to date. As the funds transferred from the Plaintiff to Shenzhen Greencool Environmental were not based on any transactions, Guangdong Greencool and Gu Chu Jun misused their controlling position in the company and acted against the interest of the company.		The hearing was commenced in the Intermediate People’s Court of Foshan City on 23 November 2007. The case is now pending for judgment.
19		Litigation initiated by Yangzhou Kelon against Guangdong Greencool, Yangzhou Greencool Venture Capital Company Limited and Gu Chu Jun	Guangdong Greencool, Yangzhou Greencool and Gu Chu Jun		3,500.00		Under the authorisation by Gu Chu Jun, Guangdong Greencool, taking benefits from its role as a substantial shareholder, misused its controlling position in the Company in such a way that in the course of investment in Yangzhou Kelon, Gu Chu Jun declared repeatedly to the Management Committee of the Economic Development Zone that the company was a subsidiary of Greencool and Greencool was the owner of the company during the negotiation and purchase of land. Thus, the Finance Bureau of Economic Development Zone was misled to deposit the incentive fund of RMB35 million to the bank account of Yangzhou Greencool, an associated company of Guangdong Greencool (which was a company solely owned by Gu Chu Jun), instead of Yangzhou Kelon.		The hearing was commenced in Intermediate People’s Court of Foshan City on 13 June 2007 and a judgment first trial was made on on 4 February 2008 in favour of Yangzhou Kelon. But with the counterparty lodging an appeal, the judgment is not yet effective.
Other litigations
No.	Name of case		Counterparty	Target claim amount		Background information of the case		Progress of the Case
1	Litigation initiated by CNA/MC Appliance Corporation against the Company and Kelon International Incorporation		Can International. Inc./MC Appliance Corporation	USD13,750,719.19		The plaintiff alleged that it entered into a contract with the defendant on 29 December 2003 to purchase 108,108 units of MCBR1000W refrigerators, but the defendant failed to perform its obligations as set out in the contract on a timely basis and that the goods delivered were defective. The Company has a right to allege against本公司有权并提起反诉追偿货款98万多美元。		The Company has lodged a counter claim. The case is now being heard.
2	Litigation against the Company initiated by Zhejiang Hangzhou Hangxiao Ganggou Holdings Company Limited (“Hangxiao Ganggou”)		Hangxiao Ganggou	1,985.30		The plaintiff alleged that it had undertaken the construction works of the Company’s plain warehouse factories No. 1 and No. 2 pursuant to a construction contract with the Company. The plaintiff filed proceeding against the Company for the payment of RMB1,193,000 in construction fees and RMB17,660,000 in default penalties and the cost of legal proceedings. The Company defaulted in payment of RMB1,193,000 of construction fees. The proceeding was resumed in Intermediate People’s Court of Foshan City in March 2007. Hangxiao Ganggou has amended the claim for construction fees to RMB1,170,000.		The hearing was commenced in the Intermediate People’s Court of Foshan City in March 2007. The second court session was scheduled in June 2007 and the case would be tried together with the litigation against Hangxiao Ganggou by the Company. The petition against the Company by Hangxiao Ganggou was dismissed, and Hangxiao Ganggou shall be liable for the case acceptance fees. Hangxiao Ganggou lodged an appeal, and the High Court of Guangdong heard the case together with the case against Hangxiao Ganggou by the Company on 30 January 2008. The case is now pending for judgment.

(II) Particulars on the disposal of assets, takeover and merger during the Reporting Period.

1. Acquisition of assets, takeovers and mergers by the Company during the Reporting Period

No acquisition of assets, takeovers and mergers were made by the Company during the Reporting Period.

1. Disposal of assets during the Reporting Period

Unit: RMB ten thousand

Transaction counterpart	Disposed assets	Date of disposal	Net account value	Transaction price	Net profit attributable to the disposed assets from the beginning of the year to the date of disposal	Gain or loss on disposal	Percentage to total profit	Connected transaction or not	Basis of pricing	Completion of transfer of relevant assets
Haogang Commerce	Buildings and land use rights	May 2007	413.14	644.18	192.98	192.98	0.85%	No	By Tender	Yes
Hongke Trade	Buildings and land use rights	May 2007	2,264.94	2,900.00	351.81	351.81	1.56%	No	By Tender	Yes
Gateway Limited	Buildings	March 2007	6,688.40	12,329.54	5,517.84	5,517.84	24.39%	No	Tender	Yes
Fuji Elevator	Buildings	June 2007	676.38	1,635.54	865.00	865.00	3.82%	No	Tender	Yes
Chengdu Arterial Road Company	Buildings and land use rights	December 2007	6,218.12	38,006.40	23,982.21	23,982.21	106.02%	No	By Tender	Yes

Note: The disposals made by the Company during the Reporting Period mainly consisted of idle assets. It would help to optimize the assets structure of the Company. The disposals posed no impact on the continuity of operation and stability of the management of the Company.

(III) Particulars of the Company’s material related parties’ transactions during the Reporting Period

1. Related parties’ transactions related to ordinary operation

During the Reporting Period, the Company and Hisense Group Company Limited (“Hisense Group”) and its relevant subsidiaries and Huayi Compressor Holdings Company Limited (“Huayi Compressor”) and its subsidiaries, entered into certain ordinary related parties’ transactions, details of which are as follows:

Unit: RMB ten thousand

Related parties	Subject of the related parties’ transaction	Pricing policy	Sale of products and provision of services to related parties		Purchase of goods and receipt of services from related parties
			Transaction amount	Percentage of total amount of similar transactions	Transaction amount	Percentage of total amount of similar transactions
Hisense Zhejiang	Purchase of air-conditioner products	Arrived at after arm’s length negotiations between both parties			33,413.95	4.80%
Hisense Zhejiang	Purchase of materials for air-conditioners	Arrived at after arm’s length negotiations between both parties			28.45	0.00%
Hisense Zhejiang	Sales of plastic parts of air-conditioners	Arrived at after arm’s length negotiations between both parties	969.00	0.12%
Hisense Shandong	Purchase of air-conditioner products	Arrived at after arm’s length negotiations between both parties			11,456.11	1.65%
Hisense Shandong	Purchase of materials for air-conditioners	Arrived at after arm’s length negotiations between both parties			636.23	0.09%
Hisense Shandong	Sales of air-conditioner finished products	Arrived at after arm’s length negotiations between both parties	12,459.70	1.50%
Hisense Shandong	Sales of components of air-conditioner	Arrived at after arm’s length negotiations between both parties	566.33	0.07%
Hisense Nanjing	Purchase of refrigerator finished products	Arrived at after arm’s length negotiations between both parties			10,312.81	1.48%
Hisense Nanjing	Purchase materials of refrigerator	Arrived at after arm’s length negotiations between both parties			220.11	0.03%
Hisense Beijing	Sales of refrigerator finished products	Arrived at after arm’s length negotiations between both parties	11,030.00	1.32%
Huayi Compressor	Purchase of compressors	Arrived at after arm’s length negotiations between both parties			6,299.71	0.91%
Huayi Jingzhou	Purchase of compressors	Arrived at after arm’s length negotiations between both parties			430.00	0.06%
Jiaxibeila	Purchase of compressors	Arrived at after arm’s length negotiations between both parties			15,450.14	2.22%
Chongqing Kelon	Sale of refrigerators	Agreed price	6,475.64	0.78%
Total			31,500.67	3.79%	78,247.51	11.27%

Among which, the connected transactions amount for the sale of products or provision of labour service by the Company to its controlling shareholders and its subsidiaries reached RMB250,250,300.

1. Related Parties’ Transaction Arising from the Transfer of Assets and Equity

During the Reporting Period, Jiangxi Kelon, a subsidiary of the Company, signed an “Equity Transfer Agreement” with 河南省開封經濟技術開發（集團）公司(Henan Province Kaifeng Economic Technology Development (Group) Company) (“Henan Development”) on 27 August 2007, pursuant to which, Jiangxi Kelon transferred its 70% equity interest in Kaifeng Kelon to Henan Development. Pursuant to the related requirements of the Listing Rules, the above transaction constituted a connection transaction (please see the announcement published by the Company on 31 October 2007 on the designated media for disclosure of information for details). As at today, the equity transfer procedures have been completed.

1. The Company does not have any other material related parties’ transactions.

(ⅳ) Funds Embezzled For Non-operating Purposes And The Their Settlement Progress.

1. Amount of funds embezzled for non-operating purposes at beginning of the Reporting Period and end of the Reporting Period

Unit: RMB (in ten thousand)

Outstanding amount of funds of the Company embezzled by the former substantial shareholders, its subsidiaries, specified third parties and other related parties for non-operating purpose (in ten thousand)		Total amount recovered during this period (in ten thousand)	Settlement Method	Amount recovered	Time of Settlement
1 January 2007	31 December 2007
68,921.99	65,514,.95	3,407.04	Offsetting with the consideration for equity transfer (Note 1)	3400	24 April 2007
Collection of outstanding payments (Note 2)	7.04	May 2007

Note 1: On 24 April 2007, the equity transfer procedure of the 30% equity interest of Chengdu Kelon from Chengdu Engine (Group) Co., Ltd. to the Company was completed. According to the agreement, the loan of RMB34,000,000 owed by Chengdu Xinxing to Chengdu Kelon will be repaid by Chengdu Engine (Group) Co., Ltd. and set off against the consideration for the equity transfer of Chengdu Kelon.

Note 2: During the Reporting Period, the Company collected the outstanding payments of RMB70,400 from Shunde Yunlong Consultancy Service Limited.

As at the end of the Reporting Period, the total funds of the Company embezzled by the former substantial shareholder and its subsidiaries, specified third parties and other related parties for non-operating reasons amounted to RMB655.1495 million in aggregate, of which, a total amount of RMB650.6941 million was embezzled by the former substantial shareholder (Guangdong Greencool) and its associated companies (Greencool companies) and specified third parties while the remaining balance of RMB4.4554 million was embezzled by other related parties.

1. No additional embezzlement occurred during the Reporting Period.

2. Illustration from the Board on the failure to resolve the matter of embezzlement completely by the Company at the end of the Reporting Period:

During the Reporting Period, the Company has stepped up its effort to recover the embezzled funds pursuant to the requirements of the “Notice on Expediting the Loan Recovering Process” (Zheng Jian Gong Si Zi 2006 No. 92). By the end of 2007, the Company has recovered RMB70,400 from other related parties. The Company has initiated 20 proceedings against the embezzlers, namely Gu Chu Jun and Guangdong Greencool, as the former controlling shareholder, specified third parties and other related parties, of which 9 cases have received judgments on first trial. But with the counterparties lodging appeals, as at the reporting date, the judgments made are not yet effective.

Recovering arrangement on the funds embezzled by Greencool companies and the specified third parties and its development:

（1）The Company has initiated 20 proceedings with the total claim amount of RMB792 million.

As at the reporting date, the Intermediate People’s Court of Foshan City heard the above cases separately and judgments on first trial were made in respect of 9 cases (please see “Material Litigations and Arbitrations ” of this report). But with the counterparties lodging appeals, the judgments made are not yet effective. The Company is well prepared to respond to the appeals. As at today, the proceedings against Greencool companies and the specified third parties by the Company are still in process.

（2）Recovering Arrangement on the funds embezzled by other parties and its development

The embezzled funds amounted to RMB34,000,000 was embezzled by a related party, Chengdu Xinxing Electrical Appliance Holdings Company Limited (“Chengdu Xinxing”). During the Reporting Period, the Company entered into an agreement with Chengdu Xinxing and its major shareholder, Chengdu Engine, pursuant to which, the Company acquired 30% shares of Chengdu Kelon held by Chengdu Engine, and the amount of RMB34,000,000 of the Company occupied by Chengdu Xinxing was assumed by Chengdu Engine, and the amount was deducted from the equity transfer price to be paid by the Company, which winded up the outstanding amount of occupation by Chengdu Xinxing. With respect to the embezzlement of the funds of the Company’s subsidiary Shunde Huaao Electrics Company Limited (“Huaao”) amounting to RMB4,525,800 embezzled by Shunde Yunlong Consultancy Service Company Limited (“Yunlong”), the Company has obtained certain valuable assets from Yunlong. The funds can be recovered after disposal of such assets.

The Company fully understands that the settlement of embezzled funds constitutes an irrevocable obligation of management of Company. The Company will put its greatest effort to recover the funds and reinforce communication with relevant judiciary authorities, gathering more evidence and secure the possible success in litigation to the most extent.

(V) Material contracts and their performance

1. External guarantee

Unit: RMB (in ten thousand)

External guarantee made by the Company (excluding guarantees to its subsidiaries)
Guaranteed party	Date (the day of signing the agreement)	Guaranteed amount	Type of guarantee		Period of guarantee	Completion or not	Whether in favour of any related party (yes or no)
Sichuan Keming	September 2007	1500			Six months	No	No
Total actual guaranteed amount during the Reporting Period				1500
Total balance of the actual guaranteed amount at the end of the Reporting Period				1500
Guarantees made by the Company to its subsidiaries
Total actual guaranteed amount to subsidiaries during the Reporting Period				112,706.07
Total balance of the actual guaranteed amount to subsidiaries at the end of the Reporting Period				28,728.35
Total guarantee made by the Company (including the guarantees to subsidiaries)
Total guaranteed amount				30,228.35
Percentage of the total guaranteed amount to absolute net assets of the Company				48.87%
Attributable to:
Guaranteed amount provided to shareholders, actual controlling parties and their related parties				0
Guaranteed amount provided directly or indirectly to guaranteed objects with gearing ratio over 70%				4,042.15
Total guaranteed amount over 50% of the net asset
Total guarantee amount of the above three guarantees*				4,042.15

DEFINITIONS

In the report, unless the context requires otherwise, the following terms or expressions shall have the following meanings:

“Company”, the Company”	Hisense Kelon Electrical Holdings Company Limited
“Hisense Air-Conditioning”	Qingdao Hisense Air-conditioning Company Limited
“Hisense Electrical Appliances”	Qingdao Hisense Electric Co., Ltd.
“Ronshen Freezer”	Hisense Ronshen (Guangdong) Freezer Company Limited
“Hisense Group”	Hisense Group Company
“Hisense Marketing”	Qingdao Hisense Marketing Company Limited
“Economic Consultancy”	Foshan Shunde Economic Consultancy Company
“Dong Heng Consultancy”	Foshan Shunde Dong Heng Information Consultancy Service Company Limited
“Guangdong Greencool”	Guangdong Greencool Enterprise Development Company Limited
“Greencool Companies”	Guangdong Greencool and other related parties
“Kelon Air-Conditioner”	Guangdong Kelon Air-Conditioner Co., Ltd.
“Kelon Fittings”	Guangdong Kelon Fittings Co., Ltd.
“Chengdu Kelon”	Hisense(Chengdu) Refrigerator Co., Ltd.
“Jiangxi Kelon”	Jiangxi Kelon Industrial Development Co., Ltd.
“Yangzhou Kelon”	Hisense Ronshen (Yangzhou) Refrigerator Co., Ltd.
“Kaifeng Kelon”	Kaifeng Kelon Air-Conditioner Co., Ltd., a former subsidiary of the Company and had transferred.
“Jilin Kelon”	Jilin Kelon Electrical Co Ltd.
“Huayi Compressor”	Huayi Compressor Holdings Company Limited
“Jiangxi Kesheng”	Jiangxi Kesheng Industry and Trading Company Limited
“Tianjin Greencool”	Greencool Refrigerant (China) Company Limited
“Hainan Greencool”	Hainan Greencool Environmental Protection Engineering Co. Ltd.
“Jinan San Ai Fu”	Jinan San Ai Fu Petrochemical Company Limited
“Shenzhen Kelon”	Shenzhen Kelon Procurement Co Ltd.
“ Greencool Procurement”	Greencool Procurement (Shenzhen) Co., Ltd.
“Tianjin Xiangrun”	Tianjin Xiangrun Trading Development Company Limited
“Zhongshan Dongyue”	Zhongshan Dongyue Appliance Company Limited
“Chengdu Xinxing”	Chengdu Xinxing Electrical Appliance Holdings Company Limited
“Yangzhou Greencool”	Yangzhou Greencool Venture Capital Company Limited
“Keda Plastic”	Jiangxi Keda Plastic Technology Company Limited
“Wuhan Changrong”	Wuhan Changrong Electrical Appliance Company Limited
“Zhuhai Longjia”	Zhuhai City Longjia Refrigerant Co., Ltd.
“Zhuhai Defa”	Zhuhai Defa Air-conditioner Fittings Company Limited
“Hefei Weixi”	Hefei Weixi Home Appliances Co., Ltd.
“Zhuhai Greencool”	Zhuhai Greencool Refrigeration and Engineering Co., Limited
“Beijing Greencool”	Beijing Greencool Refrigerant Replacement Engineering Co., Limited
“Shenzhen Greencool Technology”	Greencool Technology Development (Shenzhen) Company Limited
“Shenzhen Greencool Environmental”	Greencool Technology Environmental Protection Engineering (Shenzhen) Co., Ltd.
“Hangxiao Ganggou”	Zhejiang Hangzhou Hangxiao Ganggou Holdings Company Limited
“Construction Bank”	China Construction Bank Corporation
“Gateway Limited ”	Gateway Limited(佳玮有限公司)
“Fuji Elevator”	Guangdong Fuji Elevator Co., LTD.
“Hongke Trade”	Foshan Shunde District Hongke Trade Co., LTD.
“Haogang Commerce”	Foshan Shunde District Haogang Commerce Co., LTD.
“Chengdu Arterial Road Company”	The Headquarters for Arterial Road Construction of Chengdu
“Chengfa Engine”	Chengfa Engine (Group) Co., LTD.
“Sichuan Keming”	Sichuan Keming Electrical Co., LTD.
“KPMG”	KPMG
“Intermediate People’s Court of Foshan City”	Intermediate People’s Court of Foshan City
“CSRC”	China Securities Regulatory Commission
“Shenzhen Stock Exchange”	Shenzhen Stock Exchange
“RMB”	Renminbi
“Stock Exchange”	The Stock Exchange of Hong Kong Limited