Medlive Technology Co., Ltd. — Interim / Quarterly Report 2003

Aug 18, 2003

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

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

2003 INTERIM RESULTS ANNOUNCEMENT

The Board of Directors (“Board”) of Guangdong Kelon Electrical Holdings Company Limited (the “Company”) is pleased to announce the unaudited consolidated interim financial statements of the Company and its subsidiaries (the “Group”) for the six months ended 30 June 2003 (the “Period”), together with the unaudited comparative figures for the corresponding period in 2002 or the audited comparative figures as at 31 December 2002. The consolidated interim financial statements have not been audited but have been reviewed by the Audit Committee of the Company and the Auditors.

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2003

(Prepared under International Financial Reporting Standards)

Notes Turnover 3 Cost of sales Gross profit Other operating income Distribution costs Administrative expenses Other operating expenses Profit from operations Finance costs Share of results of associates Profit before taxation 4 Taxation 5 Profit after taxation Minority interests Net profit for the period Dividends 6 Basic earnings per share 7	For the six months ended 30 June 2003 2002 RMB’000 RMB’000 (Unaudited) (Unaudited) 3,315,066 2,550,332 (2,510,141) (1,833,170) 804,925 717,162 35,420 31,702 (467,012) (446,944) (150,098) (130,472) (7,332) (12,783) 215,903 158,665 (60,546) (52,796) (5,808) 2,421 149,549 108,290 (6,026) (2,855) 143,523 105,435 (1,291) (537) 142,232 104,898 – – RMB0.14 RMB0.11

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CONDENSED CONSOLIDATED BALANCE SHEET

At 30 June 2003

(Prepared under International Financial Reporting Standards)

Notes Non-current assets Property, plant and equipment 8 Interests in associates Amounts due from related companies Other assets Goodwill Negative goodwill Current assets Inventories Trade and other receivables 9 Taxation recoverable Pledged bank deposits Bank balances and cash Current liabilities Trade and other payables 10 Trade deposits from customers Warranty provision Taxation payable Bank borrowings – amount due within one year Net current assets Capital and reserves Share capital 11 Reserves Minority interests Non-current liabilities Bank borrowings – amount due after one year Pension liabilities Other payables	30.6.2003 RMB’000 (Unaudited) 2,391,314 248,931 85,603 39,510 39,993 (83,821) 2,721,530 1,483,613 3,525,032 1,838 1,099,670 802,925 6,913,078 3,624,444 812,033 76,265 4,951 1,664,045 6,181,738 731,340 3,452,870 992,007 1,767,428 2,759,435 220,120 400,000 61,887 11,428 473,315 3,452,870	31.12.2002 RMB’000 (Audited) 2,504,342 234,486 85,603 25,912 42,187 (86,216) 2,806,314 1,123,326 2,366,365 2,703 730,447 686,638 4,909,479 2,636,678 337,666 105,031 11,534 1,025,398 4,116,307 793,172 3,599,486 992,007 1,598,061 2,590,068 218,829 714,767 67,683 8,139 790,589 3,599,486

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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2003

(Prepared under International Financial Reporting Standards)

At 1 January 2002 Net loss for the year Contribution by a shareholder of an associate Exchange differences on translation of financial statements of operations outside Mainland China and gains not recognised in the condensed consolidated income statement At 1 January 2003 Utilisation of the Company’s reserves to make up for the Company’s accumulated losses Share of reserves of an associate Net profit for the period At 30 June 2003 At 1 January 2002 Net profit for the period Exchange differences on translation of financial statements of operations outside Mainland China and gains not recognised in the condensed consolidated income statement At 30 June 2002	Share capital RMB’000 992,007 – – –	Share premium RMB’000 2,160,621 – – –	Statutory reserves RMB’000 343,743 – – –	Capital reserve RMB’000 – – 1,773 –	Revaluation reserve RMB’000 373,570 – – –	Accumulated Translation (losses) reserve profits RMB’000 RMB’000 RMB’000 (3,450) (1,367,123) 2,499,368 – 84,593 84,593 – – 1,773 4,334 – 4,334 884 (1,282,530) 2,590,068 – 1,194,186 – – – 27,135 – 142,232 142,232 884 53,888 2,759,435 (3,450) (1,367,123) 2,499,368 – 104,898 104,898 6,561 – 6,561 3,111 (1,262,225) 2,610,827	Accumulated Translation (losses) reserve profits RMB’000 RMB’000 RMB’000 (3,450) (1,367,123) 2,499,368 – 84,593 84,593 – – 1,773 4,334 – 4,334 884 (1,282,530) 2,590,068 – 1,194,186 – – – 27,135 – 142,232 142,232 884 53,888 2,759,435 (3,450) (1,367,123) 2,499,368 – 104,898 104,898 6,561 – 6,561 3,111 (1,262,225) 2,610,827	Accumulated Translation (losses) reserve profits RMB’000 RMB’000 RMB’000 (3,450) (1,367,123) 2,499,368 – 84,593 84,593 – – 1,773 4,334 – 4,334 884 (1,282,530) 2,590,068 – 1,194,186 – – – 27,135 – 142,232 142,232 884 53,888 2,759,435 (3,450) (1,367,123) 2,499,368 – 104,898 104,898 6,561 – 6,561 3,111 (1,262,225) 2,610,827
	992,007 – – –				373,570 – – –	884 – – –
	992,007	1,195,597	114,581	28,908	373,570	884	53,888	2,759,435
	992,007 – –	2,160,621 – –	343,743 – –	– – –	373,570 – –
	992,007	2,160,621	343,743	–	373,570	3,111

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CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 June 2003

(Prepared under International Financial Reporting Standards)

Net cash from operating activities Net cash used in investing activities Net cash from (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the period Effect of foreign exchange rate changes Cash and cash equivalents at end of the period	For the six months ended 30 June 2003 2002 RMB’000 RMB’000 (Unaudited) (Unaudited) 305,566 503,533 (513,159) (281,281) 323,880 (343,250) 116,287 (120,998) 686,638 651,196 – 4,556 802,925 534,754

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

For the six months ended 30 June 2003

1. GENERAL

Guangdong Kelon Electrical Holdings Company Limited (the “Company”) was established in the People’s Republic of China (the “PRC”) on 16 December 1992. Its H shares were listed on The Stock Exchange of Hong Kong Limited on 23 July 1996 and its A shares were listed on the Shenzhen Stock Exchange on 13 July 1999.

The Group is principally engaged in the manufacture and sale of refrigerators and air-conditioners.

The condensed financial statements have been prepared in accordance with International Financial Reporting Standard 34 “Interim financial reporting” and with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

2. ACCOUNTING POLICIES

The condensed financial statements have been prepared under the historical cost convention, except for the revaluation of certain property, plant and equipment, and in accordance with International Financial Reporting Standards (“IFRS”). The accounting policies adopted are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2002.

3. SEGMENT INFORMATION

The Group is principally engaged in the manufacture and sale of refrigerators and air-conditioners. Analysis of financial information by business segment is as follows:

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		For the six months ended 30.6.2003	For the six months ended 30.6.2003	For the six months ended 30.6.2003		For the six months	ended 30.6.2002	ended 30.6.2002
		Air-	Freezers			Air-	Freezers
	Refrigerators	conditioners	**and others **	Consolidated	Refrigerators	conditioners	and others	Consolidated
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Turnover	1,445,221	1,641,370	228,475	3,315,066	1,190,463	1,359,869	–	2,550,332
Profit from operations	103,738	92,188	19,977	215,903	72,582	86,083	–	158,665
Profit after taxation but
before minority interests	76,931	54,040	12,552	143,523	44,539	60,896	–	105,435
Minority interests	(1,291)	–	–	(1,291)	(537)	–		(537)
Net profit for the period	75,640	54,040	12,552	142,232	44,002	60,896	–	104,898

The refrigerator’s business does not have seasonality. The air-conditioner’s business has seasonality, with the low season from August to November of each year.

No segment information by geographical location is presented because substantially all of the Group’s activities are carried out in the PRC.

4. PROFIT BEFORE TAXATION

Profit before taxation in the condensed consolidated income statement was determined after charging (crediting) the following items:

Amortisation of goodwill Depreciation Interest expense Interest income Release of negative goodwill to income TAXATION The amount consists of: PRC enterprise income tax (“EIT”) The Company and its subsidiaries Associates	For the six months ended 30 June 2003 2002 RMB’000 RMB’000 2,194 50 166,539 216,115 60,546 53,795 (8,537) (11,249) (2,395) – For the six months ended 30 June 2003 2002 RMB’000 RMB’000 5,934 2,799 92 56 6,026 2,855

5. TAXATION

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

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The Company was incorporated in Shunde, Guangdong Province and, pursuant to “Income Tax Law of the PRC for Enterprises with Foreign Investment and Foreign Enterprises” (“Income Tax Law”), is normally subject to EIT at a rate of 24%, which is applicable to enterprises located in coastal open economic zone. Together with the local enterprise income tax rate of 3%, the aggregate EIT rate is 27%.

The Company’s subsidiaries, Guangdong Kelon Refrigerator Co., Ltd., Guangdong Kelon AirConditioner Co., Ltd., Shunde Rongqi Kelon Fittings Co., Ltd., Shunde Rongsheng Plastic Products Co., Ltd. and Guangdong Kelon Mould Co., Ltd., established in coastal open economic zone, are subject to an EIT rate of 24%. Together with 3% of the local enterprise income tax, the aggregate EIT rate is 27%. Pursuant to Income Tax Law, they are entitled to preferential tax treatment with full exemption from EIT for two years starting from the first profitable year of operations, after offsetting all tax losses brought forward from the previous years (for a maximum period of five years), followed by a 50% reduction in tax rate for the next three years.

A subsidiary of the Company, Chengdu Kelon Refrigerator Co., Ltd., is subjected to an EIT rate of 30%. Together with 3% of the local enterprise income tax, the aggregate EIT rate is 33%. A subsidiary of the Company, Yingkou Kelon Refrigerator Co., Ltd., established in coastal open economic zone, is subject to an EIT rate of 24%. Together with 3% of the local enterprise income tax, the aggregate EIT rate is 27%. Pursuant to Income Tax Law, they are also entitled to preferential tax treatment, with full exemption from income tax for two years starting from the first profitable year of operations, after offsetting all tax losses brought forward from the previous years (for a maximum period of five years), followed by a 50% reduction in tax rate for the next three years.

6. DIVIDENDS

The directors do not recommend the payment of an interim dividend for the six months ended 30 June 2003. No interim dividend was declared for the same Period last year.

7. BASIC EARNINGS PER SHARE

The calculation of basic earnings per share was based on the unaudited consolidated net profit of RMB142,232,000 for the six months ended 30 June 2003 (six months ended 30 June 2002: RMB104,898,000) divided by 992,006,563 ordinary shares (2002: 992,006,563 ordinary shares) in issue during the Period.

8. ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT

During the Period, the Group spent RMB140,950,000 (2002: RMB127,449,000) on the acquisition of property, plant and equipment.

9. TRADE AND OTHER RECEIVABLES

Trade receivables – third parties Notes receivable – third parties Other receivables – third parties Amounts due from related companies	30.6.2003 RMB’000 1,165,403 746,875 1,591,906 20,848 3,525,032	31.12.2002 RMB’000 381,536 622,628 1,355,277 6,924
		2,366,365

Sales are usually settled by cash on delivery. The Group allows a longer credit period of about one year for large and well established customers.

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Trade receivables were generated mainly from the sales of refrigerators and air-conditioners. At the reporting date, almost all trade receivables were aged less than one year.

10. TRADE AND OTHER PAYABLES

Trade payables – third parties Notes payable – third parties Other payables – third parties Amounts due to related companies	30.6.2003 RMB’000 1,340,230 1,440,717 841,788 1,709 3,624,444	31.12.2002 RMB’000 732,498 942,592 959,411 2,177
		2,636,678

At the reporting date, the accounts payable were aged less than one year.

11. SHARE CAPITAL

There were no movements in the issued capital of the Company in the Period.

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of the Group’s cash and bank deposits, short-term borrowings and other current financial assets and liabilities approximate their fair value due to the short-term maturity of these instruments.

The carrying amount of the long-term bank loans approximate the fair value of these loans.

13. RELATED PARTY TRANSACTIONS

The following is a summary of significant transactions carried out in the ordinary course of business between the Group and related parties for the six months ended 30 June 2003 and the respective balances with the related companies as of 30 June 2003:

I. Transactions with related companies

		For the six months	For the six months
		ended 30 June
		2003		2002
		RMB’000	RMB’000
Sale	of goods/raw materials to:
–	Chongqing Kelon Electrical Appliance Company
	Limited (“Chongqing Kelon”)(note c (vii))	–	53,945
–	Shunde Wangao Import & Export Co., Ltd.
	(“Wangao Co”)(note c (iv))	–	34,159
–	Chongqing Kelon Rongsheng Refrigerator Sales
	Co., Ltd. (“Chongqing Rongsheng”)(note c (viii))	49,329	33,213
–	Shunde Huaao Electronics Company Limited
	(“Huaao Electronics”)(note c (iii))	–		4,267
–	Guangdong Kelon Refrigerator Co., Ltd.
	(formerly Guangdong Sanyo Kelon Refrigerator
	Co., Ltd.) (“Sanyo Kelon”)(note c (ix))	–		3,685

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Purchase of goods/raw materials from: – Chengdu Xinxing Electrical Appliance Holdings Company Limited (“Chengdu Xinxing”)(note c (xi)) – Huaao Electronics_(note c (iii)) – Wangao Co(note c (iv)) – Hainan Greencool Environmental Protection Engineering Co., Ltd. (“Hainan Greencool”) (note b (i)) – Shunde Kelon Household Electrical Appliance Company Limited (“Kelon HEA”)(note c (vi)) – Others Loan guarantee provided by: – Greencool Enterprise Development Company Limited (“Greencool Enterprise”) – Guangdong Kelon (Rongsheng) Group Company Limited (“GKG”) Other transactions: Interest charged to Chengdu Xinxing(note c (xi)) Sale of property, plant and equipment to Huaao Electronics(note c (iii)) Logistic management fee paid to Guangzhou Antaida Logistic Co. Ltd. (“Guangzhou Antaida”)(note c (xii)) Advertising fee paid to Communication and You Holdings Company Limited (“C&Y”)(note c (x)) II. Balances due from/to related companies Balance due from GKG (note a), included in other receivables – third parties Balances due from related companies Amounts due within one year: – Chengdu Xinxing (trade balance) – Others Amounts due after one year: – Chengdu Xinxing(note c (xi)) – Employee Union(note c (v))_	20,689 – – – – – 385,000 – 993 – (2,687) – 30.6.2003 RMB’000 684,993 20,848 1,555 22,403 34,000 51,603 85,603 108,006	22,044 144,120 46,969 27,000 16,538 21 250,000 340,000 1,606 1,223 (1,017) (350) 31.12.2002 RMB’000 684,993 – 6,924 6,924 34,000 51,603 85,603 92,527

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Balances due to related companies – Hainan Greencool_(note b (ii))_ – Others	311 1,398 1,709	149 2,028
		2,177

Notes:

(a) Transactions with GKG

The transactions with GKG are summarised as follows:

(i) Change of shareholdings

Pursuant to the “Contract of shares transfer of Guangdong Kelon Electrical Holdings Company Limited” and “Supplementary Contract of shares transfer of Guangdong Kelon Electrical Holdings Company Limited” signed between GKG, former single largest shareholder of the Company, and Greencool Enterprise dated 29 October 2001 and 5 March 2002 respectively, the transaction was completed on 18 April 2002. Greencool Enterprise became the single largest shareholder of the Company.

In April 2002, GKG transferred the remaining shareholdings of the Company to Shunde Economic Consultancy Company, Shunde Dong Heng Development Company Limited and Shunde Xin Hong Enterprise Company Limited.

No shareholdings were held by GKG after the completion of the transactions as mentioned above. Any business undertaken between GKG and the Group would no longer constitute any related party relationship.

(ii) Debt settlement arrangement

On 21 November 2002, the Company entered into several conditional agreements with GKG and/or other relevant parties in order to settle the balance due from GKG and the amount due from the Employee Union of RMB684,993,000 (net of allowance of RMB172,409,000) and RMB51,603,000 respectively. Pursuant to these agreements, the above outstanding debts will be settled by transferring the land use right in respect of a parcel of residential land located at Shunde, Guangdong Province, the PRC (the “Land”) and several trademarks (the “Trademarks”) to the Group. The aggregate fair values of the Land and the Trademarks approximate the aggregate carrying amount of the balance due from GKG and the amount due from the Employee Union. As a result, no reversal of allowance for balance due from GKG is made.

The above outstanding debts will be completely settled after the transfer of the Land and the Trademarks being completed and the Company will make a further announcement upon such completion.

Details of the above are set out, inter alia, in the circular dated 12 December 2002 issued by the Company.

Up to the report date, the Group has obtained the land use right certificate of the Land and the application of transfer of the Trademarks is still in progress.

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(iii) Licence agreement on the use of trademark

Under a licence agreement (“Licence Agreement”) dated 6 July 1996 entered into between the Company and GKG, GKG granted to the Company an exclusive right to use the trademarks “Kelon” and “Ronshen” for no consideration (a) as registered in the PRC and Hong Kong; and/or (b) as may from time to time be registered and/or in respect of which applications for registration may be made with the trademarks registry of any other territory by GKG; and/or (c) all “Kelon” or “Ronshen” trademark registrations as may be assigned to GKG from time to time on freezers, refrigerators and other similar or related products and such other products as may be requested by the Company from time to time which are not objected by GKG, on a worldwide basis, for a term equivalent to the period of validity of the relevant registration. With the prior written consent of the Company, GKG may use and allow third party to use, such trademarks on production other than the types of products covered by the Licence Agreement. At present, the Group has been using the trademarks of “Kelon” and “Ronshen” on the refrigerators products and “Kelon” on the air-conditioners products under the Licence Agreement.

(b) Transactions with Hainan Greencool

Transactions with Hainan Greencool are summarised as follows:

• (i) During the six months ended 30 June 2002, the Company purchased CFC-free refrigerants from Hainan Greencool of RMB27,000,000.

• (ii) For the six months ended 30 June 2002, the Company received entering and CFC installation fees from 198 engineering units authorised by Greencool Technology Holdings Limited on behalf of Hainan Greencool in the PRC at RMB35,000 per unit, totalling RMB6,930,000. Up to 30 June 2003, RMB6,619,000 had been paid to Hainan Greencool and the balance payable of RMB311,000 was outstanding as at 30 June 2003.

(c) Transactions with other related parties

Other related party transactions are summarised as follows:

• (i) On 23 December 2001, GKG entered into a debt transfer agreement with the Company and Greencool Enterprise. The debt transfer agreement was subsequently revised on 22 March 2002. In accordance with the agreements, the acquisition cost was RMB348,000,000. For the settlement arrangement, GKG transferred its debt owing to the Company, amounting to RMB348,000,000, to Greencool Enterprise. As at 31 December 2001, an amount of RMB150,000,000 had been settled by Greencool Enterprise. Further payment of RMB198,000,000 was made by Greencool Enterprise on 25 April 2002 and the total debt of RMB348,000,000 had been fully settled as at 31 December 2002.

• (ii) The Group through a wholly-owned subsidiary, Shunde Jiake Electronic Company Limited (“Jiake Electronic”), entered into an agreement with GKG on 26 November 2001 to acquire GKG’s entire interest in Kelon Advertising, Kelon HEA, Huaao Electronics and Wangao Co.

On 6 August 2002, the transfer of shares of Kelon Advertising, Wangao Co and Huaao Electronics held by GKG to Jiake Electronic was completed. The acquisition of Kelon HEA was completed on 4 September 2002.

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• (iii) Huaao Electronics was formerly a subsidiary of GKG. During the year ended 31 December 2002, GKG transferred its entire equity interest in Huaao Electronics to the Group and Huaao Electronics became a subsidiary of the Company.

• (iv) Wangao Co was formerly an associate of the Group and a subsidiary of GKG. During the year ended 31 December 2002, GKG transferred its entire equity interest in Wangao Co to the Group and Wangao Co became a subsidiary of the Company.

• (v) During the year ended 31 December 2001, the Company provided funds of RMB116,000,000 to Employee Union, an employee association owned by the employees of the Company and controlled through their delegates. As at 30 June 2003, the amount due from Employee Union in this connection amounted to approximately RMB51,603,000 (31 December 2002: RMB51,603,000).

• (vi) Kelon HEA was formerly an associate of the Group and also a subsidiary of GKG. During the year ended 31 December 2002, GKG transferred its entire equity interest in Kelon HEA to the Group and Kelon HEA became a subsidiary of the Company.

• (vii) Chongqing Kelon is an associate of the Group.

• (viii) Chongqing Rongsheng is an associate of the Group.

• (ix) Sanyo Kelon was formerly an associate of the Group. It became a subsidiary of the Company during the year ended 31 December 2002.

• (x) C&Y is an associate of the Group.

As at 30 June 2003, the Group provided corporate guarantees of RMB3,975,000 (31 December 2002: RMB3,975,000) for banking facilities granted to C&Y.

• (xi) The Company made prepayments amounting to an aggregate of RMB34,000,000 indirectly through its subsidiary, Chengdu Kelon Refrigerator Co., Ltd. (“Chengdu Kelon”), to Chengdu Xinxing, which is an associate of Chengdu Engine (Group) Company Limited (“Chengdu Engine”), the minority investor of Chengdu Kelon. As consideration of such prepayment, Chengdu Xinxing agreed to repay Chengdu Kelon by supplying an agreed number of refrigeration parts together with interest payments at an annual rate of approximately 9%. The prepayment was guaranteed by Chengdu Engine and Chengdu Kelon has the right to deduct from any dividends payable to Chengdu Engine the outstanding amount of any payments (in whatever form) due from Chengdu Xinxing directly or indirectly to the Company.

• (xii) Guangzhou Antaida is an associate of the Group. The Group and Guangzhou Antaida entered into a logistic service agreement, pursuant to which Guangzhou Antaida provides transportation service to the Group. A 4% service fee is charged on delivery and discharge of goods.

(d) Pricing of the related party transactions

The pricing of the transactions set out in (a) to (c) above was determined with reference to comparable market prices and/or with reference to the term of the relevant agreements.

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(e) Terms of the related party balances

Save as the balance due from Chengdu Xinxing, all related party balances are unsecured, non-interest bearing and repayable on demand.

(f) Violation of listing rules

As disclosed in the Company’s announcement on 13 March 2002, the Group was not in compliance with the listing rules and regulations of The Stock Exchange of Hong Kong Limited and Shenzhen Stock Exchange with regard to certain of its connected transactions. The relevant Stock Exchanges have indicated to the Company that they reserve the right to take any action, if appropriate, under the relevant listing rules and regulations against the Company and/or the responsible directors.

14. CAPITAL COMMITMENTS

Capital expenditure for acquisition of property, plant and equipments contracted for but not provided in the condensed financial statements	30.6.2003 RMB’000 19,026	31.12.2002 RMB’000 37,910

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

The condensed consolidated balance sheet of the Group prepared under IFRS and that prepared under PRC accounting standards and regulations have the following major differences:

Net assets as per condensed financial statements prepared under IFRS Adjustment on property, plant and equipment revaluation and related depreciation Net assets as per financial statements prepared under PRC accounting standards and regulations	30.6.2003 RMB’000 2,759,435 (12,693) 2,746,742	31.12.2002 RMB’000 2,590,068 (15,067)
		2,575,001

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

Net profit for the period as per condensed financial statements prepared under IFRS Adjustments on property, plant and equipment revaluation and related depreciation Adjustments on amortisation of goodwill Net profit for the period as per financial statements prepared under PRC accounting standards and regulations	For the six months ended 30 June 2003 2002 RMB’000 RMB’000 142,232 104,898 2,374 7,732 – 50 144,606 112,680	For the six months ended 30 June 2003 2002 RMB’000 RMB’000 142,232 104,898 2,374 7,732 – 50 144,606 112,680
		112,680

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There are differences in other items in the condensed financial statements due to differences in classification between IFRS and PRC accounting standards and regulations.

REVIEW CONCLUSION OF INDEPENDENT REVIEW REPORT

On the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the interim financial report for the six months ended 30 June 2003.

Without modifying our review conclusion, we draw to your attention that the comparative condensed consolidated income statement for the six months ended 30 June 2002 disclosed in the interim financial report may not be comparable with the figures for the current period. The previous auditors explained in their auditors’ report on the financial statements for the year ended 31 December 2001 that they were unable to obtain reasonable representations and assurances on which they could rely for the purposes of their audit and there were no satisfactory audit procedures that they could perform to obtain reasonable assurance that all material transactions were properly recorded and completely disclosed. Against this background, we were unable to conclude as to whether the net assets of the Group as at 31 December 2001 were free from material misstatement. Any adjustments to the opening net assets of the Group as at 1 January 2002 would affect the profit of the Group for the six months ended 30 June 2002.

INTERIM DIVIDENDS

At a meeting of the Board held on 15 August 2003, the Board resolved not to declare any interim dividend for the six months ended 30 June 2003. No interim dividends were distributed for the corresponding period last year.

MANAGEMENT DISCUSSION AND ANALYSIS

1. Results Review

After the successful turnaround from a loss-making position to a profit-making position in 2002, the Group has continued to achieve satisfactory results. During the Period, the Group’s turnover increased by approximately 30.0% as compared to the corresponding period in 2002, amounting to approximately RMB3,315 million. Net profit grew by approximately 35.6% to approximately RMB142 million, while basic earnings per share was RMB0.14.

2. Business Review

Adhering to the management concept of “Technologically Led and Profitability Driven”, the Group continued to improve the technological benefits of its products and to strictly enforce its cost control measures. At the same time, the Group actively expanded the application of its unique and leading inventions – “Shuang Xiao Wang” and “Independent Multi-cycling Refrigeration” (IMCR) technologies in new products. Riding on its advantage in product differentiation of the Children’s Refrigerator (“I-box”) product line and the pricing advantage of the new “Kombine” brand, the Group has successfully expanded its market share, which in turn has made a significant contribution to the increase in the Group’s total turnover.

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Rapid Increase – Export Operations

The Group manufactures air-conditioners and refrigerators for world renowned international home appliance corporations and distributors through its OEM services, and has maintained excellent results. In the first half of 2003, the Group’s revenue from its export operations significantly increased by 93% as compared to the corresponding period last year, remaining as an important growth driver of the Group’s profit and income.

With its export market currently extending to 75 countries and regions around the world, coupled with its pricing and product quality advantages, the Group’s export sales grew rapidly. In the first half of 2003, export sales volume and revenue for refrigerators rose by 136.8% and 114.9% respectively as compared to the corresponding period last year, with the relevant sales revenue already exceeding the total export revenue from refrigerators recorded in 2002. Export sales volume and revenue for air-conditioners increased by 95.4% and 70.6% respectively as compared to the corresponding period last year.

Stable Growth – Refrigerator Operations

During the Period, the Group achieved noticeable growth for its refrigerator operations. Total sales revenue from refrigerators recorded an increase of approximately 21.4%, with domestic sales volume and revenue growing by 24.8% and 9.4% respectively as compared to the corresponding period last year.

The Group is committed to product and technology innovations. Further to the development of its world-leading IMCR technology, the Group developed refrigerators with triple and quadruple cycling technologies during the Period. These new products have satisfied the needs of the high-end customers for free selection of temperatures in multiple compartments, precise control of temperature, and the need for environmentally friendly and energy saving features.

Intense Competition – Air-conditioner Operations

Despite the outbreak of SARS and a relatively cool summer, the overall performance of the air-conditioner operations recorded a steady growth during the Period. Turnover increased by approximately 20.7% as compared to the corresponding period last year. The domestic sales of air-conditioners both in terms of sales volume and turnover grew by 52.7% and 6.3% respectively as compared to the corresponding period in 2002.

However, competition in the air-conditioner market remained extremely intense. The market price of the products has been decreasing at a faster rate than the decrease in the Group’s production costs. Many manufacturers have been forced to sell their products at prices that are lower than their costs, exerting strong pressure on the Group’s product prices. As a result, the Group is not able to make a forecast on the profit contribution from its air-conditioner operations this year.

Well-Defined Positioning – Multi-Branding Strategies

On top of its three existing brands – “Kelon”, “Huabao” and “Ronshen”, the Group introduced products under a new brand “Kombine” at the end of 2002 to capture the low-end market.

14

With the implementation of comprehensive and distinctive branding strategies, the Group successfully achieved all-embracing coverage in the high-, mid- and low-end markets. This has not only led to excellent sales performance, but has also expanded the Group’s market share. In the refrigerator market for example, the Group has strived for the highend market with the world’s first IMCR refrigerators, and has endeavoured to satisfy the demand for good function-to-value ratio from the mid- to high-end markets with its computerised refrigerators. At the same time, the Group launched the world’s first Children’s Refrigerator – the “I-box” to open up and lead in the children’s consumer market. The Group uses traditional mechanical refrigerators such as those under the “Kombine” brand to expand its market share in the low-end market.

Pricing Advantage – Cost Controls

During the Period, the Group accomplished noticeable results in cost controls. In addition to cutting down the procurement costs of raw materials and components through the analysis of market trends and the employment of flexible purchasing rules, the Group also lowered the design cost of products by optimising the designs of the products and the refrigerating systems. These factors partially offset the increase in production costs caused by the increased cost of raw materials in the first half of 2003.

Sales Channel Expansion – “ 龍霸行動 ”

The Group launched “龍霸行動 ” throughout the PRC in 2003 to actively expand its sales channels, and has achieved satisfactory results. As at June 2003, the number of wholesalers, direct retailers and franchised retailers for “Kelon”, “Huabao” and “Kombine” air-conditioners increased by 33%, 25% and 80% respectively as compared to June 2002. The point of sale for refrigerators has also doubled as compared to the same period last year, bringing the Group’s point of sale coverage for refrigerators in the PRC to approximately 80%.

Improving Competitiveness – “Project of Perfection”

The Group continued to implement the “Project of Perfection” as launched in 2002, aiming for meticulous design, delicate manufacturing techniques, elegant products and attentive customer services. The initiative establishes the Group’s vision to enhance the competitive edge of its products and to achieve leading international standards.

3. Future Prospects

With the hard work of the entire company, the Company’s special treatment (“ST”) status has been ultimately removed, and the Company is posed on the brink of a bright future. Looking to the future, the Group will strive to maintain its competitiveness in possessing leading technologies, and is dedicated to strengthen its leading position in the domestic refrigeration appliances industry in the PRC. The Group will also actively promote its “Shuang Xiao Wang” and IMCR products, and further expand the application of these advanced technologies to more product lines to enhance the overall technological benefits of its products. This will lead to new driving forces for growth and bring greater competitive edge in the highly competitive market.

The Group will adhere to the “Project of Perfection” and continue to improve product quality and production techniques, with the vision to achieving international standards and attaining a leading position globally.

15

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

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

4.

Significant Events

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

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

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

SOURCES OF WORKING FUNDS AND CAPITAL

The Group’s net cash inflow from operating activities for the six months ended 30 June 2003 amounted to RMB305,566,000.

As at 30 June 2003, the Group had bank balances and cash on hand totaling approximately RMB802,925,000 and bank loan balances of approximately RMB2,064,045,000.

The Company’s total capital expenditure for the six months ended 30 June 2003 amounted to RMB513,159,000.

As at 30 June 2003, the net proceeds from the Group’s initial public offering and subsequent placement of H shares and public offer of A shares have been applied as the Group’s capital expenditure and working capital.

As at 30 June 2003, the gearing ratio of the Group was 74.8%.

TRUST DEPOSITS

As at 30 June 2003, the Company did not have any trust deposits or fixed deposits with any financial institution in the PRC, which are allowed to be withdrawn only upon maturity. All of the Company’s deposits have been placed with commercial banks in the PRC and Hong Kong and the Company has not encountered any difficulty in withdrawing the deposits.

UNIFIED INCOME TAX AND LOCAL TAX BENEFIT

The Company is subject to an income tax rate of 27% since 2002.

16

HUMAN RESOURCES AND EMPLOYEES’ REMUNERATION

As at 30 June 2003, the Group had approximately 6,180 employees, of which 2,148 were professional staff, representing 34.76% of the total number of employees. Eleven of the Group’s employees hold a doctorate’s degree while 234 hold a master’s degree. There were 556 employees with an official title of middle rank or above. Employees below the age of 30 represent 45.84% of the Group’s total number of employees. Besides, the Group has 285 retired staff. For the half year ended 30 June 2003, the Group’s staff payroll amounted to RMB84,191,154 (corresponding period in 2002: RMB92,116,180).

CHARGE ON THE GROUP’S ASSETS

As at 30 June 2003, the Group’s properties, plant and equipment with a value of approximately RMB1,122,040,000 (31 December 2002: RMB453,961,000) were pledged as security for the Group’s bank borrowings.

EXPOSURE TO FLUCTUATIONS IN EXCHANGE RATES AND ANY RELATED HEDGES

As most of the sales and purchases of the Group were denominated in Renminbi, the Group had no significant exposure to exchange rate fluctuations. No financial instruments were used by the Group for hedging exchange rate risk.

CONTINGENT LIABILITIES

As at 30 June 2003, the Group had contingent liabilities of RMB3,975,000 in relation to a guarantee for loan facilities granted to a related party.

SHARE CAPITAL STRUCTURE

As at 30 June 2003, there was no change in the share capital structure of the Company and the structure was as follows:

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

As at 30 June 2003, there were 74,372 shareholders in total, of which the top ten/substantial shareholders were as follows:

17

	**Increase/ **	Shareholdings
	decrease	**at the end **	Proportion to
Name of	during	of the	total share		Nature
Shareholders	the Period	Period	capital (%)	Share class	of Shares
Greencool Enterprise Development	0	204,775,755	20.64	Unlisted	Legal person
Company Limited				shares	shares
Shunde Economic Consultancy	0	68,666,667	6.92	Unlisted	Legal person
Company				shares	shares
Guotai Junan Securities	+46,650,000	60,890,000	6.14	Listed	H shares
(Hong Kong) Limited				shares
Shunde Xin Hong Enterprise	0	57,436,439	5.79	Unlisted	Legal person
Company Limited				shares	shares
Shenyin Wanguo Securities	–10,649,000	38,563,000	3.89	Listed	H shares
(H.K.) Limited				shares
First Shanghai Securities Limited	+7,133,000	38,070,000	3.84	Listed	H shares
				shares
Bank of China (Hong Kong) Ltd.	–10,130,000	28,033,000	2.83	Listed	H shares
				shares
The Hongkong and Shanghai	–21,440,637	24,568,601	2.48	Listed	H shares
Banking Corporation Ltd.				shares
Hang Seng Bank Ltd.	–3,799,000	17,846,000	1.80	Listed	H shares
				shares
Citibank N.A.	–2,633,166	15,330,206	1.55	Listed	H shares
				shares

Descriptions of shareholding connections among the top ten shareholders:

1. None of the top ten shareholders has any connection with any of the others.

2. During the Period, no shares held by any shareholder who holds 5% or more legal person shares were subject to any charges, freezing orders or other arrangements.

3. During the Period, there was no change in the single largest shareholder or ultimate controlling entity of the Company.

18

INTERESTS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVES

As at 30 June 2003, the interests or short positions (including interests or short positions which they are deemed or taken to have under the relevant provisions of the Securities and Futures Ordinance) of the directors, supervisors and chief executive of the Company in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance) as recorded in the register required to be kept by the Company under Section 352 of the Securities and Futures Ordinance were as follow:

Name Gu Chu Jun_(i) Gu Chu Jun(ii)_ He Si	Position Director Director Supervisor	Type of Interest Number of Shares Corporate 204,775,755 Legal Person Shares Corporate 3,830,000 H Shares Personal/Family 50,000 A Shares	Number of Shares

Notes:

• (i) Greencool Enterprise Development Company Limited owns 204,775,755 legal person shares in the Company, representing approximately 20.64% of the existing issued share capital of the Company. Mr. Gu Chu Jun owns 90% of the total investment in Greencool Enterprise Development Company Limited.

• (ii) Mr. Gu Chu Jun is the substantial shareholder of Greencool Technology Holdings Limited (a company listed on the Hong Kong Stock Exchange Growth Enterprise Market) and owns approximately 62.5% of its share interests. Two subsidiaries of Greencool Technology Holdings Limited held 3,830,000 H Shares of the Company, representing approximately 0.39% of the issued share capital of the Company.

Save as disclosed above, as of 30 June 2003, the Company was not aware of any interests or short positions (including interests or short positions which they are deemed or taken to have under the relevant provisions of the Securities and Futures Ordinance) held by the directors, supervisors and chief executive of the Company which are required, pursuant to the provisions of Divisions 7 and 8 of Part XV of the Securities and Futures Ordinance or pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to be notified to the Company and the Stock Exchange.

PURCHASE, SALE AND REDEMPTION OF SHARES

During the Period, neither the Company nor any of its subsidiaries purchased, sold or redeemed any securities of the Company or its subsidiaries.

STATEMENT OF AFFAIRS RELATED TO THE 2002 AUDITORS’ REPORT

In response to the opinion issued by the present auditors in respect of the 2002 financial report of the Company (“Auditors’ Report”), the Company has issued an explanation in its 2002 Annual Report, and it wishes to further explain as follows:

19

1. As the financial statements of the Company for the year 2001 were not audited by the present auditors and the former auditors issued a disclaimer opinion for the year 2001, the present auditors were therefore unable to conclude as to whether the financial data as at 31 December 2001 present a true and fair view. As a result, a qualified opinion in respect of the profit of the Company in 2002, etc. was issued for the year 2002 due to the limitations of the audit scope. The management of the Company understood the reasons for the auditors’ opinion. As the management did not discover any material deviation from the balances of the 2001 figures after a period of more than one year, the correctness of the financial data announced in 2002 was confirmed.

2. The audit of one of the Company’s associates, the shares of which were listed on the Shenzhen Stock Exchange, had not yet been completed as at the date of release of the Company’s 2002 annual results announcement. This resulted in the auditors of the Company being unable to complete the verification of the value of the said associate due to the limitation of scope and a qualified opinion was rendered in respect of the matter. The management of the Company had directly enquired with the said associate as to its financial status for 2002, and arrived at a preliminary conclusion that the financial status of the associate was not expected to have a material impact on the value of the Group’s investment in the associate. Subsequently, the associate published its audited 2002 annual report and there were no material differences between its financial status and the data then obtained by the Company. Accordingly, the Company considered that the value of the associate reflected in the Company’s 2002 annual report was fair.

AUDIT COMMITTEE

The Company established the Audit Committee on 16 August 2002. The principal duties of the Audit Committee include the review and supervision of the Group’s financial reporting process and internal controls. The Audit Committee comprises two independent non-executive directors, Mr. Chan Pei Cheong, Andy and Mr. Li Kung Man. The Audit Committee has reviewed the Group’s unaudited interim report for the six months ended 30 June 2003 before it was tabled for the Board’s approval. The review of the unaudited interim financial statements was conducted in conjunction with the external auditors of the Group.

CODE OF BEST PRACTICE

The Director are not aware of any information that would reasonably indicate that the Company is not, or was not, for any part of the Period, in compliance with the Code of Best Practice as set out in Appendix 14 to the Listing Rules.

PUBLICATION OF DETAILED RESULTS ANNOUNCEMENT ON THE STOCK EXCHANGE OF HONG KONG LIMITED’S WEBSITE

A detailed results announcement containing all the information in respect of the Company required by paragraphs 46(1) to 46(6) of Appendix 16 of the Listing Rules will be published on The Stock Exchange of Hong Kong Limited’s website in due course.

20

DOCUMENT AVAILABLE FOR INSPECTION

The original 2003 interim report signed by the chairman is available for inspection at the following address:

The Secretariat of the Board

Guangdong Kelon Electrical Holdings Company Limited No. 8 Ronggang Road Ronggui, Shunde Guangdong Province China

By Order of the Board Gu Chu Jun Chairman

Shunde, 15 August 2003

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

(1) PRINCIPAL FINANCIAL OPERATIONS DURING THE PERIOD

1. Principal Financial Statistics and Indicators

					Change of the
					amounts at the
					end of the Period
		(Unit:	RMB)		as compared
				As at	with the
		As at	31	December	beginning of
		30 June 2003		2002	2003 (%)
Current assets	6,763,577,262		4,862,868,408		39.09%
Current liabilities	6,030,975,934		4,068,730,484		48.23%
Total assets	9,474,543,099		7,656,539,329		23.74%
Shareholders’ equity
(excluding minority
interests)	2,746,742,128		2,575,000,833		6.67%
Net assets per share		2.77		2.60	6.67%
Adjusted net assets per	share	2.56		2.39	7.15%

21

					Change of the
					amounts at the
					end of the Period
			(Unit: RMB)		as compared
				As at	with the
			As at	31 December	beginning of
		30 June 2003		2002	2003 (%)
	Net profit	144,606,105		112,681,302	28.33%
	Net profit deducted by
	extraordinary
	profit	146,455,095		113,778,916	28.72%
	Earnings per share		0.15	0.11	28.33%
	Return on net assets		5.26%	4.38%	20.31%
	Net cash flow from
	operating activities	334,133,780		155,283,907	115.18%
2.	Items of Extraordinary Profit (Loss) During			the Period
					(Unit: RMB)
	Extraordinary items				Amount
	Non-operating income				4,624,096
	Non-operating expense				(799,968)
	Amortisation on equity investment		difference		(6,666,088)
	Interest received from related party				992,970
	Total extraordinary profit (loss)				(1,848,990)
3.	Difference on Net Profit Calculated in Accordance with				the International
	Financial Reporting Standards (“IFRS”) and PRC accounting standards and
	regulations (“PRC GAAP”)

	(Unit: RMB)
Items	Net profit during
	the Period
Reported in accordance with IFRS	142,231,903
Reported in accordance with PRC GAAP	144,606,105
Difference	(2,374,202)

The calculation formulae for the key financial indicators are as follows:

= Earnings per share net profit/weighted average number of ordinary shares outstanding for the Period Return on net assets = net profit/shareholders’ equity as at the end of the Period x 100%

22

Net assets per share	=	shareholders’ equity as at the end of the Period/
		number of ordinary shares outstanding as at the
		end of the Period
Adjusted net assets	=	(shareholders’ equity as at the end of the Period –
per share		accounts receivable with aging over 3 years –
		deferred expenditures – long-term deferred
		expenditures)/number of ordinary shares
		outstanding as at the end of the Period
Net cash flow from	=	Net cash flow from operating activities/number
operating activities		of ordinary shares outstanding as at the end of
per share		the Period

(2) DETAILS OF NEW APPOINTMENT AND RESIGNATION OF THE DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY DURING THE PERIOD

At the Company’s 2002 Annual General Meeting held on 18 May 2003, the resignation of Ms. Yu Xiaoyang as an independent non-executive director of the Company for personal reasons, and the appointment of Mr. Xu Xiaolu as an independent non-executive director of the Company were approved (for details, please refer to the announcements published in “中國證券報 ”, “證券時報 ”, “Ta Kung Pao”, “Hong Kong Economic Journal” and “China Daily” on 20 May 2003).

(3) CHANGES IN TOTAL ASSETS, LONG-TERM LIABILITIES, SHAREHOLDER’S EQUITY, PROFIT FROM PRINCIPAL OPERATIONS AND NET PROFIT OF THE COMPANY DURING THE PERIOD

(Unit: RMB)

(Unit: RMB)
	**Figures at **	Figures at the
	the end of	beginning	Increase/
Indicators	the Period	of 2003	decrease (%)
Total assets	9,474,543,099	7,656,539,329	23.74%
Long-term liabilities	473,314,724	790,588,699	-40.13%
Shareholders’ equity	2,746,742,128	2,575,000,833	6.67%
Profit from principal operations	807,052,477	717,162,794	12.53%
Net profit	144,606,105	112,681,302	28.33%

Analysis of reasons for the changes:

1. The increase in total assets is caused by the increase in shareholders’ equity and the concurrent increases in current assets and current liabilities.

2. The decrease in long-term liabilities is caused by a repayment of long term liabilities in the sum of RMB150,000,000 and the transfer of long-term borrowings to long-term liabilities payable within one year increasing by approximately RMB160,000,000 during the Period.

3. The increase in shareholders’ equity is due to the profit realised during the Period.

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1. The increase in profit from principal operations is due to the increase in sales during the Period.

2. The increase in net profit is due to the increase in sales and the decrease in costs of management.

(4) ANALYSIS OF REVENUE FROM PRINCIPAL OPERATIONS BY GEOGRAPHIC SEGMENT

• (Unit: ’0000RMB)

Revenue from Operation indicators principal operations Domestic market 246,492 Overseas market 85,015 Total 331,507	Increase ratio (%) 17% 93%
	30%

(5) STATEMENT OF PRINCIPAL OPERATIONS BY INDUSTRY/PRODUCT

(Unit: ’0000RMB)

(Unit: ’0000RMB)
				Change in	Change in
				revenue	cost of	Change in
				from principal	principal	gross profit
				operations as	operations	margin
			compared	as compared	as compared
	Revenue			to	to	with
	from	Cost of	**Gross **	**corresponding **	**corresponding **	corresponding
	principal	principal	profit	period last	period last	period last
By product	operations	operations	margin (%)	year (%)	year (%)	year (%)
Refrigerators	144,522	102,281	29.23%	21.39%	20.69%	0.41%
Air Conditioners	164,137	129,515	21.09%	20.70%	31.40%	-6.42%
Freezers	13,931	11,438	17.90%	–	–	–
Others	8,916	7,542	15.41%	–	–	–

(6) INVESTMENTS OF THE COMPANY DURING THE PERIOD

1. During the Period, there was no application of raised funds nor was there an application of raised funds in the previous period that continued through to the Period.

2. Progress on significant investments made by the Company without raising funds:

3. (a) During the Period, Jiangxi Kelon Industrial Development Co. Ltd., which was set up by the Company in June 2002, was still in its construction phase. However, the Company expects that it will be put into production before the end of 2003.

24

• (b) On 28 May 2003, a joint venture agreement was entered into between the Company and 杭州西冷集團有限公司 , pursuant to which a joint venture company, 杭州科龍製冷電器有限公司 (「杭州科龍」), was established. The registered capital was RMB200,000,000. The Company holds a 70% interest in 杭州科龍 while 杭州西冷集團有限公司 holds the remaining 30% interest.

(7) HIGHLIGHTS ON ACQUISITIONS MADE BY THE COMPANY DURING THE PERIOD OR PREVIOUS PERIODS BUT CONTINUING THROUGH TO THE PERIOD

1. On 14 September 2002, the Company acquired the operational assets from 吉林 吉諾爾電器（集團）有限公司 for a consideration of RMB40,000,000 and, on this basis, established 吉林科龍電器有限公司 on 6 November 2002. As at the end of the Period, 吉林科龍電器有限公司 was already in the trialproduction phase.

2. In July 2002, the Company acquired the 56% interest which was held by external parties in its associated company, Guangdong Sanyo Kelon Refrigerator Co. Ltd., at a consideration of RMB3. Such company became a wholly-owned subsidiary of the Company, and was renamed as Guangdong Kelon Refrigerator Co. Ltd. The share transfer has been completed as at the end of the Period.

(8) OTHER SIGNIFICANT EVENTS

1. During the Period, neither the Company nor any of its subsidiaries was involved in any material litigation or arbitration.

2. During the Period, the Company was not involved in any material connected transactions, guarantee or other significant events that may have a material impact on the Company.

3. During the Period, there was no trust, subcontract and lease of other companies’ assets by the Company and there was no trust, subcontract and lease of the Company’s assets by other companies.

(9) PRINCIPLE FINANCIAL STATEMENTS FOR A-SHARE

BALANCE SHEET

(Prepared in accordance with PRC GAAP) At 30 June 2003

(Denominated in RMB)

25

ASSETS 1. CURRENT ASSETS: Bank balances and cash Notes receivable Accounts receivable Other receivables Prepayments Inventories Deferred expenditures Other current assets Total current assets 2. LONG-TERM INVESTMENTS: Long-term equity investments Total long-term investments 3. FIXED ASSETS Fixed assets, cost Less: Accumulated depreciation Fixed assets, net Less: Provision for impairment of fixed assets Fixed assets, net Construction in progress Total fixed assets 4. INTANGIBLE ASSETS AND OTHER ASSETS Intangible assets Long-term deferred expenditures Long-term receivable above 1 year Total intangible assets and other assets TOTAL ASSETS	Group 30 June 2003 31 December 2002 (Unaudited) (Audited) 1,902,594,833 1,417,085,462 746,874,538 622,627,806 1,166,958,252 381,535,897 1,315,604,102 1,222,868,831 135,538,051 89,011,737 1,483,612,796 1,123,325,956 11,295,877 6,411,749 1,098,813 970 6,763,577,262 4,862,868,408 223,526,174 198,173,987 223,526,174 198,173,987 3,594,118,098 3,635,836,132 (1,679,131,592) (1,586,467,593) 1,914,986,506 2,049,368,539 (36,927,236) (61,375,205) 1,878,059,270 1,987,993,334 14,990,566 11,323,062 1,893,049,836 1,999,316,396 314,849,234 313,881,774 193,937,685 196,695,856 85,602,908 85,602,908 594,389,827 596,180,538 9,474,543,099 7,656,539,329	Company 30 June 2003 31 December 2002 (Unaudited) (Audited) 1,380,080,025 1,065,118,299 653,878,775 613,597,439 278,194,451 275,661,469 2,545,257,568 2,107,281,156 44,576,451 36,549,630 770,552,085 679,131,994 3,976,853 5,135,474 970 970 5,676,517,178 4,782,476,431 1,359,382,660 1,223,334,010 1,359,382,660 1,223,334,010 1,416,384,295 1,420,958,597 (536,557,753) (509,851,837) 879,826,542 911,106,760 – – 879,826,542 911,106,760 7,613,888 7,550,688 887,440,430 918,657,448 194,454,745 198,209,350 57,999,735 66,644,180 51,602,908 51,602,908 304,057,388 316,456,438 8,227,397,656 7,240,924,327

26

LIABILITIES AND SHAREHOLDERS’ EQUITY

1. CURRENT LIABILITIES: Short-term loans Notes payable Accounts payable Advance from customers Accrued payroll Staff welfare payable Dividends payable Taxes payables Payable to others Other Payables Accruals Provision Long-term loan due within 1 year Total current liabilities 2. LONG-TERM LIABILITIES Long-term loan Long-term payable Accrued liabilities of investee enterprise Total long-term liabilities TOTAL LIABILITIES 3. MINORITY INTEREST 4. SHAREHOLDERS’ EQUITY Share capital Capital reserve Revenue reserve Including: Statutory common welfare fund Accumulated losses Exchange difference Total shareholders’ equity TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	1. CURRENT LIABILITIES: Short-term loans Notes payable Accounts payable Advance from customers Accrued payroll Staff welfare payable Dividends payable Taxes payables Payable to others Other Payables Accruals Provision Long-term loan due within 1 year Total current liabilities 2. LONG-TERM LIABILITIES Long-term loan Long-term payable Accrued liabilities of investee enterprise Total long-term liabilities TOTAL LIABILITIES 3. MINORITY INTEREST 4. SHAREHOLDERS’ EQUITY Share capital Capital reserve Revenue reserve Including: Statutory common welfare fund Accumulated losses Exchange difference Total shareholders’ equity TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	1,449,045,154 1,440,716,764 1,319,381,499 812,032,842 43,655,125 6,073,916 – (24,256,828) 1,545,495 402,829,517 288,687,714 76,264,736 215,000,000 6,030,975,934 400,000,000 73,314,724 – 473,314,724 6,504,290,658 223,510,313 992,006,563 1,515,106,771 114,580,901	960,164,036 942,591,729 739,184,874 337,665,921 44,211,152 3,986,906 52,409 39,849,854 2,944,393 616,737,987 211,076,574 105,031,134 65,233,515 4,068,730,484 714,766,571 75,822,128 – 790,588,699 4,859,319,183 222,219,313 992,006,563 2,452,995,887 343,742,703	535,700,000 1,805,112,639 652,933,647 638,044,910 7,434,440 1,293,069 – 16,032,797 318,981 433,528,772 231,830,222 76,264,736 215,000,000 4,613,494,213 400,000,000 65,781,108 394,452,224 860,233,332 5,473,727,545 – 992,006,563 1,515,106,771 114,580,901	400,000,000 1,075,014,036 652,568,689 300,245,037 30,370,421 1,489,938 – 62,552,141 2,029,317 519,065,990 185,670,788 105,031,134 60,000,000 3,394,037,491 690,000,000 70,126,659 494,015,291 1,254,141,950 4,648,179,441 – 992,006,563 2,452,995,887 343,742,703
	Including: Statutory common welfare fund	114,580,901	114,580,901	114,580,901	114,580,901
		126,862,052 (1,814,159) 2,746,742,128 9,474,543,099	(1,211,930,161) (1,814,159) 2,575,000,833 7,656,539,329	133,790,035 (1,814,159) 2,753,670,111 8,227,397,656	(1,194,186,108) (1,814,159) 2,592,744,886 7,240,924,327

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STATEMENTS OF INCOME AND PROFIT APPROPRIATION

(Prepared in accordance with PRC GAAP) For the six months ended 30 June 2003 (Denominated in RMB)

Group For the six For the six months ended months ended 30 June 2003 30 June 2002 (Unaudited) (Unaudited) 1. Revenue from principal operations 3,315,066,447 2,550,506,407 Less: Cost of sales (2,507,767,367) (1,833,169,517) Sales tax (246,603) (174,096) 2. Profit from principal operations 807,052,477 717,162,794 Add: Other operating profit (loss) 15,708,524 10,374,662 Less: Distribution costs (466,765,323) (446,943,789) Administrative expenses (141,579,779) (123,083,746) Financial Expenses (53,643,822) (41,547,584) 3. Operating profit (loss) 160,772,077 115,962,337 Add: Investment (loss) income (12,783,202) (4,284,922) Subsidy income 18,190 – Non-operating income 4,624,096 4,921,767 Less: Non-operating expenses (799,968) (974,981) 4. Total profit 151,831,193 115,624,201 Less: Income Tax (5,934,088) (2,799,256) Add: Minority interests (1,291,000) (143,643) 5. Net profit 144,606,105 112,681,302 Add: (accumulated losses) retained earnings, beginning of period (1,211,930,161) (1,313,207,151) Add: Utilisation of statutory common reserve to make up accumulated losses 229,161,802 – Utilisation of capital reserve to make up accumulated losses 965,024,306 –

Company For the six For the six months ended months ended 30 June 2003 30 June 2002 (Unaudited) (Unaudited) 2,328,509,987 2,078,130,087 (1,924,172,394) (1,478,480,580) (136,151) (120,272) 404,201,442 599,529,235 1,209,348 (690,253) (408,659,880) (414,782,070) (9,102,811) (18,854,128) (24,281,566) (33,967,159) (36,633,467) 131,235,625 168,476,327 (20,723,080) 18,190 – 2,506,806 2,456,337 (577,821) (287,580) 133,790,035 112,681,302 – – – – 133,790,035 112,681,302 (1,194,186,108) (1,285,391,909) 229,161,802 – 965,024,306 –

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6. Profit available for appropriation Less: Statutory common reserve surplus Statutory common welfare fund 7. Profit available for distribution Less: Discretionary reserve Dividends on ordinary Shares 8. Unallocated profit	Group For the six For the six months ended months ended 30 June 2003 30 June 2002 (Unaudited) (Unaudited) 126,862,052 (1,200,525,849) – – – – 126,862,052 (1,200,525,849) – – – – 126,862,052 (1,200,525,849)	Company For the six For the six months ended months ended 30 June 2003 30 June 2002 (Unaudited) (Unaudited) 133,790,035 (1,172,710,607) – – – – 133,790,035 (1,172,710,607) – – – – 133,790,035 (1,172,710,607)

STATEMENT OF IMPAIRMENT PROVISION FOR ASSETS (Prepared in accordance with PRC GAAP) For the six months ended 30 June 2003 (Unit: RMB)

		31 December 2002	Provision	Written back	30 June 2003
1.	Provision for
	doubtful accounts	319,294,128	1,794,704	(15,660,398)	305,428,434
	Including:
	Accounts receivable	140,506,141	1,794,704	(15,660,398)	126,640,447
	Other receivables	178,787,987	–	–	178,787,987
2.	Provision for impairment
	loss of short-term
	investments	–	–	–	–
	Including:
	Investments in
	stock securities	–	–	–	–
3.	Provision for impairment
	of inventories	136,726,986	–	(35,417,848)	101,309,138
	Including:
	Finished goods	85,729,527	–	(4,961,082)	80,768,445
	Raw materials	–	–	–	–
	Work-in-progress	50,997,459	–	(30,456,766)	20,540,693
4.	Provision for impairment
	in value of long-term
	investments	71,200,641	–	–	71,200,641
	Including:
	Long-term equity
	investments	71,200,641	–	–	71,200,641

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5.	Provision for impairment
	of fixed assets	61,375,205	–	(24,447,969)	36,927,236
	Including:
	Buildings, machinery
	and equipment	61,375,205	–	(24,447,969)	36,927,236

CASH FLOW STATEMENTS

(Prepared in accordance with PRC GAAP) For the six months ended 30 June 2003

I. Cash flows from operating activities: Cash received from sale of goods or rendering of services Other cash received relating to operating activities Sub-total of cash inflows Cash paid for purchases of goods and services Cash paid to and on behalf of employees Tax paid Other cash paid relating to operating activities Sub-total of cash outflows Net cash flows from operating activities II. Cash flows from investing activities: Net cash receipt from disposals of fixed assets, intangible assets and other long-term assets Other cash received relating to investing activities Sub-total of cash inflows	For the six months ended 30 June 2003 Group Company (Unaudited) (Unaudited) 3,263,357,958 2,478,701,340 28,888,308 11,099,675 3,292,246,266 2,489,801,015 2,426,390,916 1,917,309,407 213,901,174 85,637,720 39,767,214 28,408,063 278,053,182 77,363,279 2,958,112,486 2,108,718,469 334,133,780 381,082,546 10,611,877 8,230,434 – – 10,611,877 8,230,434	For the six months ended 30 June 2002 Group Company (Unaudited) (Unaudited) 2,762,516,763 2,331,027,036 43,788,659 385,016,735 2,806,305,422 2,716,043,771 1,974,905,410 1,771,128,458 144,444,705 61,061,020 23,922,545 3,685,839 507,748,855 938,260,214 2,651,021,515 2,774,135,531 155,283,907 (58,091,760) 15,806,721 – 215,785,585 210,473,592 231,592,306 210,473,592	For the six months ended 30 June 2002 Group Company (Unaudited) (Unaudited) 2,762,516,763 2,331,027,036 43,788,659 385,016,735 2,806,305,422 2,716,043,771 1,974,905,410 1,771,128,458 144,444,705 61,061,020 23,922,545 3,685,839 507,748,855 938,260,214 2,651,021,515 2,774,135,531 155,283,907 (58,091,760) 15,806,721 – 215,785,585 210,473,592 231,592,306 210,473,592
			2,716,043,771
			1,771,128,458 61,061,020 3,685,839 938,260,214
			2,774,135,531
			(58,091,760)
			– 210,473,592
			210,473,592

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Cash paid for acquisition of fixed assets, intangible assets and other long-term assets 113,034,347 Cash paid for acquisition of investments 11,000,000 Other cash paid relating to investing activities 369,222,378 Sub-total of cash outflows 493,256,725 Net cash flows from investing activities (482,644,848) III. Cash flows from financing activities: Cash received from the borrowings 1,174,700,000 Sub-total of cash inflows 1,174,700,000 Cash paid for repayment of borrowings 850,818,968 Cash paid for distribution of dividends, profits or interest expenses 59,082,971 Sub-total of cash outflows 909,901,939 Net cash flows from financing activities 264,798,061 IV. Effect of foreign exchange rate changes on cash – V. Net increase (decrease) in cash and cash equivalents 116,286,993 Supplemental Information 1. Reconciliation of net profit to net cash flows from operating activities: Net profit 144,606,105 Add: Minority interests 1,291,000 Provision for impairment loss of assets (49,283,542) Depreciation of fixed assets 109,782,501 Amortisation of intangible assets 5,745,841 Amortisation of long-term expenditures 51,128,245 Decrease in deferred expenditure (less: increase) (4,884,128) Increase in accruals (less: decrease) 49,356,351	12,744,123 35,000,000 335,602,720 383,346,843 (375,116,409) 325,000,000 325,000,000 324,300,000 27,307,131 351,607,131 (26,607,131) – (20,640,994) 133,790,035 – (52,499,389) 31,861,157 3,754,605 11,918,239 1,158,621 14,480,746	76,797,879 – – 76,797,879 154,794,427 950,000,000 950,000,000 1,328,021,163 55,059,500 1,383,080,663 (433,080,663) 6,560,068 (116,442,261) 112,681,302 143,643 4,278,734 130,571,860 5,333,355 83,214,110 (2,358,757) 44,390,361	18,558,878 – – 18,558,878 191,914,714 910,000,000 910,000,000 990,000,000 42,602,965 1,032,602,965 (122,602,965) – 11,219,989 112,681,302 – 1,644,500 64,290,202 4,460,716 11,467,617 (523,571) (6,316,980)

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Loss from disposal of fixed assets, intangible assets and other long-term assets 43,823,154 Financial expenses 58,518,953 Investment profit (add: loss) 12,783,202 Increase in inventories (add: decrease) (324,868,992) Increase in operating receivables (add: decrease) (1,036,162,821) Decrease in operating payables (less: decrease) 1,272,297,911 Net cash flows from operating activities 334,133,780 2. Net increase (decrease) in cash and cash equivalents: Cash at the end of period 802,925,133 Less: Cash at the beginning of period 686,638,140 Net increase (decrease) in cash and cash equivalents 116,286,993	595,756 30,219,421 (168,476,327) (53,937,628) (478,800,825) 907,018,135 381,082,546 335,587,025 356,228,019 (20,640,994)	395,406 41,547,584 4,284,922 (601,741,368) (272,109,840) 604,652,595 155,283,907 534,754,303 651,196,564 (116,442,261)	– 33,967,158 17,716,721 (509,475,463) 163,008,849 48,987,189 (58,091,760) 392,578,825 381,358,836 11,219,989

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

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