Medlive Technology Co., Ltd. - Proxy Solicitation & Information Statement 2009

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a licensed securities dealer or registered institution in securities, a bank manager, solicitor, professional accountant, or other professional adviser.

If you have sold or transferred all your shares in HISENSE KELON ELECTRICAL HOLDINGS COMPANY LIMITED, you should at once hand this circular to the purchaser or transferee or to the licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities of the Company.

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)

MAJOR AND CONNECTED TRANSACTION: ACQUISITION OF THE TARGET GROUP FROM QINGDAO HISENSE AIR-CONDITIONING COMPANY LIMITED AND APPLICATION FOR WHITEWASH WAIVER

Financial Adviser to Qingdao Hisense

Financial Adviser to the Company

South China Capital Limited

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

A letter from the Board is set out on pages 12 to 61 of this circular.

A notice convening the EGM to be held at 2:00 p.m. on 31 August 2009 at the conference room of the Company’s head office, Shunde District, Foshan City, Guangdong Province, the PRC is set out on pages N-1 to N-6 of this circular. A notice convening the CSM to be held at the conference room of the Company’s head office, Shunde District, Foshan City, Guangdong Province, the PRC at 3:00 p.m. (or immediately after the conclusion or adjournment of the class meeting of the A Shareholders) on 31 August 2009 is set out on pages N-7 to N-11 of this circular.

Forms of proxy for use at the EGM and the CSM are enclosed with this circular. If you are not able to attend the meeting in person, you are requested to complete and return the enclosed proxy form in accordance with the instructions printed thereon and lodge the same with the Company’s branch share registrar in Hong Kong, Hong Kong Registrars Limited at Rooms 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 24 hours before the time fixed for holding the EGM or the CSM or any adjournment thereof. Completion and delivery of the form of proxy will not preclude you from attending and voting at the meeting or any adjournment thereof if you so wish.

31 July 2009

CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
EXPECTED TIMETABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
LETTER FROM THE BOARD
— Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
— The Acquisition Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
— Shareholding structure of the Company before and after the Completion . .	19
— Information of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
— Information of Qingdao Hisense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
— Information of the Target Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
— Asset valuation of the Target Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
— Property interests of the Hisense Kelon Group . . . . . . . . . . . . . . . . . . . . . .	41
— Property interests of the Target Group . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42
— Financial effect of the Acquisition on the Hisense Kelon Group . . . . . . . . .	44
— Reasons for and benefits of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . .	50
— Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	52
— Working capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	53
— Financial and trading prospects of the Enlarged Group. . . . . . . . . . . . . . . .	53
— Material change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	55
— Implications of the Takeovers Code and Whitewash Waiver . . . . . . . . . . . .	55
— Implications of the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	56
— Continuing connected transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	57
— CSRC Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	57
— Voting arrangement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	57
— EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	58
— CSM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	59
— Independent Board Committee and Independent Financial Adviser. . . . . . .	60
— Recommendation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	60
— Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	61
— Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	61
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . .	62
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER. . . . . . . . . . . . .	63
APPENDIX I: FINANCIAL INFORMATION OF THE HISENSE KELON
GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
APPENDIX II: ACCOUNTANTS’ REPORT OF THE TARGET GROUP . . .	II-1

— i —

CONTENTS

		Page
APPENDIX III:	MANAGEMENT DISCUSSION AND ANALYSIS OF THE
	TARGET GROUP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
APPENDIX IV:	UNAUDITED PRO FORMA FINANCIAL INFORMATION
	OF THE ENLARGED GROUP. . . . . . . . . . . . . . . . . . . . . .	IV-1
APPENDIX V:	IFRS 2009 PROFIT FORECASTS. . . . . . . . . . . . . . . . . . . . .	V-1
APPENDIX VI:	IFRS RESULTS ESTIMATE. . . . . . . . . . . . . . . . . . . . . . . . .	VI-1
APPENDIX VII:	SUMMARY OF THE PRC VALUATION REPORTS. . . . . . .	VII-1
APPENDIX VIII:	VALUATION REPORT OF THE ENLARGED GROUP . . . .	VIII-1
APPENDIX IX:	GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . .	IX-1
NOTICE OF EXTRAORDINARY GENERAL MEETING. . . . . . . . . . . . . . . . . .		N-1
NOTICE OF CLASS MEETING OF H SHAREHOLDERS. . . . . . . . . . . . . . . . . .		N-7

— ii —

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions have the following meanings:

“A Shareholders” holders of A Shares “A Shares” domestic ordinary shares of the Company with a nominal value of RMB1.00 each and are listed on the Shenzhen Stock Exchange
“Acquisition Agreement” the agreement entered into between the Company and Qingdao Hisense in relation to the Acquisition dated 29 June 2009
“Acquisition” the acquisition of the Target Group by the allotment and issue of the Consideration Shares as contemplated under the Acquisition Agreement
“Announcement” the announcement of the Company regarding the Acquisition dated 16 July 2009
“Articles of Association” the articles of association of the Company as amended from time to time
“Asset Valuer” 中聯資產評估有限公司 (China United Assets Appraisal Co., Ltd), an independent firm of qualified PRC valuers with the relevant qualifications to engage in securities business
“associate(s)” has the meaning ascribed to it under the Listing Rules “Board” the board of Directors “BVI” the British Virgin Islands “Changxing Jingwei” 長興經緯建設開發有限公司 (Changxing Jingwei Construction Development Co., Ltd.), an Independent Third Party

— 1 —

DEFINITIONS

“Company” 海信科龍電器股份有限公司 (Hisense Kelon Electrical Holdings Company Limited), a company incorporated in the PRC with limited liability and listed on the main board of the Stock Exchange and Shenzhen Stock Exchange

“Completion” the completion of the Acquisition “Completion Date” the date on which Completion takes place, which shall be the last business day of the month in which the last of all the Conditions to the Acquisition Agreement has been satisfied

“concert party” or “party has the meaning given to the term “parties acting in acting in concert” concert” in the Takeovers Code
“Conditions” conditions precedent to the Acquisition Agreement and “Condition” means any of them
“connected person(s)” has the meaning ascribed to it under the Listing Rules “Consideration Shares” not exceeding 362,048,187 A Shares to be issued by the Company to Qingdao Hisense as contemplated under the Acquisition Agreement
“CSM” the class meeting of H Shareholders to be held at the conference room of the Company’s head office, Shunde District, Foshan City, Guangdong Province, the PRC at 3:00 p.m. (or immediately after the conclusion or adjournment of the class meeting of the A Shareholders) on 31 August 2009 for the purpose of considering by the Independent Shareholders the Acquisition, notice of which is set out on pages N-7 to N-11 of this circular

“CSRC” China Securities Regulatory Commission

— 2 —

DEFINITIONS

“CSRC Waiver” the waiver in respect of the obligation of Qingdao Hisense to acquire further Shares by way of an offer which would otherwise arise under the Takeover Procedures as a result of the allotment and issue of the Consideration Shares by the Company to Qingdao Hisense and the resulting increase in the number of A Shares held by Qingdao Hisense

“Director(s)” the director(s) of the Company
“EGM” the fourth 2009 extraordinary general meeting of the Company to be held at the conference room of the Company’s head office, Shunde District, Foshan City, Guangdong Province, the PRC at 2:00 p.m. on 31 August 2009 for the purpose of considering by the Shareholders the Acquisition, the Whitewash Waiver, the CSRC Waiver and the authorisation of the Board to deal with all matters relating to the allotment and issue of Consideration Shares, notice of which is set out on pages N-1 to N-6 of this circular
“Enlarged Group” the Hisense Kelon Group as enlarged by, or taking into account the impact of, the interests in the Target Group pursuant to the Acquisition
“Executive” the Executive Director of the Corporate Finance Division of the SFC or any delegate of the Executive Director
“Experts” the experts who have given their advice, letters or reports for the inclusion in this circular, including BDO Limited (previously known as BDO McCabe Lo Limited), South China Capital Limited, Access Capital Limited, Jones Lang LaSalle Sallmanns Limited, 北京天銀律師事務所 (Beijing Tianyin Law Firm) and 中聯資產評估有限公司 (China United Assets Appraisal Co., Ltd)
“Financial Adviser to Qingdao Hisense”
Daiwa Securities SMBC Hong Kong Limited, a corporation licensed to conduct type 1 (dealing in securities), type 2 (dealing in futures contracts), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO, being the financial adviser to Qingdao Hisense

— 3 —

DEFINITIONS

“Financial Adviser to the South China Capital Limited, a corporation licensed to Company” conduct type 6 (advising on corporate finance) regulated activity under the SFO, being the financial adviser to the Company
“GDP” gross domestic product “H Shareholders” holders of H Shares “H Shares” overseas listed foreign shares of the Company with a nominal value of RMB1.00 each and are listed on the Stock Exchange
“Hisense Beijing” 海信（北京）電器有限公司 (Hisense (Beijing) Electric Company Limited), a company incorporated under the laws of the PRC with limited liability
“Hisense Electric” 青島海信電器股份有限公司 (Qingdao Hisense Electric Co., Ltd.), a company incorporated under the laws of the PRC with limited liability and listed on the Shanghai Stock Exchange
“Hisense Electronic” 青島海信電子產業控股股份有限公司 (Qingdao Hisense Electronic (Holdings) Company Limited), a joint stock limited company incorporated in the PRC, the shareholding of which is owned as to 51.01% by Hisense Group Co. and 48.99% by the management group and key employees of Hisense Group Co.
“Hisense Group” Hisense Group Co. and its Subsidiaries but excluding members of the Target Group
“Hisense Group Co.” 海信集團有限公司 (Hisense Company Limited), a stateowned enterprise incorporated under the laws of the PRC with limited liability and under the auspices of Qingdao SASAC

— 4 —

DEFINITIONS

“Hisense Hitachi”	青島海信日立空調系統有限公司(Qingdao Hisense Hitachi
	Air-conditioning Systems, Co., Ltd.), a sino-foreign equity
	joint venture enterprise incorporated under the laws of the
	PRC
“Hisense International”	海信國際（控股）有限公司(Hisense International (Holdings)
	Company Limited), a limited company incorporated in
	the British Virgin Islands, a wholly-owned subsidiary of
	Hisense Electronic
“Hisense Kelon Group”	collectively, the Company and its Subsidiaries from time to
	time
“Hisense Marketing”	青島海信營銷有限公司(Qi ngd ao Hisense Ma rket i ng
	Company Limited), a company incorporated under the laws
	of the PRC with limited liability
“Hisense Marketing	the assets, business operation and liabilities of Hisense
Business”	Marketing for and in relation to the operation of sales and
	marketing of the white goods products produced by Hisense
	Shandong, Hisense Zhejiang, Hisense Beijing and its
	subsidiary, Hisense Nanjing
“Hisense Mould”	青島海信模具有限公司(Qingdao Hisense Mould Company
	Limited), a company incorporated under the laws of the
	PRC with limited liability
“Hisense Nanjing”	海信（南京）電器有限公司(Hisense (Nanjing) Electric Co.,
	Ltd.), a company incorporated under the laws of the PRC
	with limited liability
“Hisense Optical”	青島海信光學有限公司(Qingdao Hisense Optical Co., Ltd.),
	a company incorporated under the laws of the PRC with
	limited liability
“Hisense Shandong”	海信（山東）空調有限公司( H isen se (Sha ndong) A i r-
	conditioning Company Limited), a company incorporated
	under the laws of the PRC with limited liability

— 5 —

DEFINITIONS

“Hisense Zhejiang”	海信（浙江）空調有限公司(Hisense (Zhejiang) Air-condition
	Co., Ltd.), a company incorporated under the laws of the
	PRC with limited liability
“Hitachi Air Conditioning”	Hitachi Air Conditioning Systems Co., Ltd., an Independent
	Third Party
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“IASB”	International Accounting Standards Board
“IFRS”	International Financial Reporting Standards adopted by the
	IASB
“IFRS 2009 Profit	the profit forecasts of the Hisense Kelon Group and the
Forecasts”	Target Group and the pro forma profit forecast of the
	Enlarged Group for the year ending 31 December 2009
	prepared in accordance with IFRS
“IFRS Results Estimate”	the estimated profit of the Hisense Kelon Group attributable
	to the equity holders of the Company for the six months
	ended 30 June 2009 prepared in accordance with IFRS
“Independent Board	the independent committee of the Board, comprising Mr.
Committee”	Zhang Sheng Ping, Mr. Lu Qing and Mr. Cheung Yui
	Kai, Warren, all of whom are independent non-executive
	Directors, formed to advise the Independent Shareholders as
	to the Acquisition and the Whitewash Waiver
“Independent Financial	Access Capital Limited, a corporation licensed under the
Adviser”	SFO for carrying out type 1 (dealing in securities), type
	4 (advising on securities), type 6 (advising on corporate
	finance) and type 9 (asset management) regulated activities,
	being the independent financial adviser to the Independent
	Board Committee and the Independent Shareholders in
	respect of the Acquisition and the Whitewash Waiver

— 6 —

DEFINITIONS

“Independent Shareholders other than Qingdao Hisense, its associates Shareholder(s)” and parties acting in concert with it and any person who is involved in, or interested in, the Acquisition and/or the Whitewash Waiver, who are entitled to attend and vote at the relevant shareholders’ meeting of the Company under the applicable laws and regulations and the Articles of Association “Independent Third to the best of the Directors’ knowledge, information and Party(ies)” belief having made all reasonable enquiry, third parties independent of the Company and its connected persons “Latest Practicable Date” 29 July 2009, being the latest practicable date for ascertaining certain information contained in this circular prior to the printing of this circular “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange “Nanjing Aipulaisi” 南京愛普萊斯高新科技有限公司 (Nanjing Aipulaisi High and New Technology Company Limited), an Independent Third Party “Nanjing Yilaite” 南京伊萊特高新科技工業園有限責任公司 (Nanjing Yilaite High and New Technology Industrial Park Limited Liability Company) (formerly known as 南京蘇寧高新科技工業園有限公司 (Nanjing Suning High-Tech Industrial Park Co. Ltd.)), an Independent Third Party “PRC” the People’s Republic of China “PRC Enlarged Group Profit the pro forma forecast of the net profit of the Enlarged Forecast” Group attributable to equity holders of the Company for the year ending 31 December 2009 prepared in accordance with PRC GAAP and on the bases and assumptions set out in “PRC Target Group Profit Forecast and PRC Enlarged Group Profit Forecast” in the section headed “Letter from the Board” in this circular “PRC GAAP” generally accepted accounting principles in the PRC

— 7 —

DEFINITIONS

“PRC Profit Forecasts” the PRC Target Group Profit Forecast and the PRC Enlarged Group Profit Forecast

“PRC Report” the (draft) report relating to the non-public issue of Shares (A Shares) by the Company for acquiring assets and connected transactions（海信科龍電器股份有限公司非公開發行股份（ A 股）購買資產暨關聯交易報告書（草案）） published by the Company in the PRC in accordance with PRC regulatory requirements, and as an overseas regulatory announcement pursuant to Rule 13.09(2) of the Listing Rules on the date of the Announcement
“PRC Results Estimate”
the estimated results of the Hisense Kelon Group for the six months ended 30 June 2009 prepared in accordance with PRC GAAP and published by the Company in the PRC Results Estimate Announcement
“PRC Results Estimate the announcement in respect of the estimated results of the Announcement” Hisense Kelon Group for the six months ended 30 June 2009 prepared in accordance with PRC GAAP and published by the Company on 8 July 2009
“PRC Target Group Profit the pro forma forecast of the net profit of the Target Group Forecast” attributable to equity holders of the Company for the year ending 31 December 2009 prepared in accordance with PRC GAAP and on the bases and assumptions set out in “PRC Target Group Profit Forecast and PRC Enlarged Group Profit Forecast” in the section headed “Letter from the Board” in this circular
“PRC Valuation” the asset valuation of the Target Group conducted by the Asset Valuer in accordance with PRC regulatory requirements in connection with the Acquisition
“PRC Valuation Reports” the reports of the PRC Valuation made by the Asset Valuer and published on 16 July 2009
“Qingdao Hisense”

青島海信空調有限公司 (Qingdao Hisense Air-conditioning Company Limited), a company incorporated in the PRC with limited liability, the shareholding of which is owned as to 93.33% by Hisense Electronic and 6.67% by Hisense International

— 8 —

DEFINITIONS

“Qingdao SASAC”	青島市國有資產監督管理委員會(Qingdao State-owned
	Assets Supervision and Administrative Committee)
“Relevant Period”	the period commencing six months preceding the date of the
	Announcement and ending on the Latest Practicable Date
“RMB”	Renminbi yuan, the lawful currency of the PRC
“SFC”	Securities and Futures Commission of Hong Kong
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“Shareholders”	holders of Shares
“Shares”	share(s) of RMB1.00 each in the capital of the Company,
	comprising the A Shares and the H Shares
“Shenzhen Listing Rules”	Rules Governing Listing of Stocks on Shenzhen Stock
	Exchange（深圳證券交易所股票上市規則）
“Shenzhen Stock Exchange”	Shenzhen Stock Exchange（深圳證券交易所）of the PRC
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subsidiary” or	has the meaning defined in sections 2 and 2B of the
“Subsidiaries”	Companies Ordinance (Cap. 32 of the Laws of Hong Kong)
“substantial shareholder”	has the meaning ascribed to it under the Listing Rules
“Taiwan Hitachi”	Taiwan Hitachi Co., Ltd., an Independent Third Party
“Takeovers Code”	The Hong Kong Code on Takeovers and Mergers
“Takeover Procedures”	上市公司收購管理辦法(the Administration of the Takeover
	of Listed Companies Procedures) promulgated by CSRC on
	31 July 2006
“Target Group”	55% of the equity interests in Hisense Beijing which in turn
	holds 60% of the equity interests in Hisense Nanjing, 100%
	of the equity interests in Hisense Shandong, 51% of the
	equity interests in Hisense Zhejiang, 78.7% of the equity
	interests in Hisense Mould, 49% of the equity interests in
	Hisense Hitachi and the Hisense Marketing Business

— 9 —

DEFINITIONS

“Union Trading”

Union Trading Co., Ltd., an Independent Third Party

“White Goods” the general term by which white-coloured household electrical appliances are commonly known which include, but not limited to, air-conditioners and refrigerators
“White Goods Business”

the White Goods business operated by the Target Group

“Whitewash Waiver” a waiver in respect of the obligation on Qingdao Hisense and parties acting in concert with it to make a mandatory offer to the Shareholders to acquire the Shares in issue not already owned or agreed to be acquired by Qingdao Hisense and parties acting in concert with it as a result of the issue of the Consideration Shares, in accordance with Note 1 of the Notes on dispensations from Rule 26 of the Takeovers Code
“Xuehua Group” Beijing Xuehua Group Company Limited（北京雪花電器集團公司）, an Independent Third Party
“Zhejiang Xianke” Zhejiang Xianke Electrical Appliance Manufacturing Co., Ltd.（浙江先科電器製造有限公司）, an Independent Third Party
“%” per cent.

EXCHANGE RATE CONVERSION

For reference purposes only and except as otherwise noted, this circular contains translations of Renminbi amounts into Hong Kong dollars at a rate of HK$1.00 = RMB0.88149. Such translations are for reference only and no representation is made, and none should be construed as being made, that the Renminbi amounts set out in this circular could have been or could be converted into Hong Kong dollars, as the case may be, at any particular rate on such date or any other date.

PRC COMPANY NAMES

The English names of companies incorporated or established in the PRC as disclosed in this circular are translation of their respective official Chinese names for identification purposes only.

— 10 —

EXPECTED TIMETABLE

Expected Timetable (Note)

Latest time for lodging transfer of Shares

in order to qualify for attendance

at the EGM and CSM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:30 p.m., 24 July 2009

Register of members of the Company closes (both dates inclusive). . . . . . . . . . . . . . . . . . . . . . . . . . . 25 July 2009 to 31 August 2009

Date of despatch of this circular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 July 2009

Latest date for returning the reply slip for the EGM . . . . . . . . . . . . . . . . . . 11 August 2009

Latest date for returning the reply slip for the CSM . . . . . . . . . . . . . . . . . . 11 August 2009

Latest time for lodging proxy forms for the EGM . . . . . . . . . . . 2:00 p.m., 30 August 2009

Latest time for lodging proxy forms for the CSM . . . . . . . . . . . .3:00 p.m., 30 August 2009

Time and date of the EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2:00 p.m., 31 August 2009

Time and date of the class meeting

of the A Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2:30 p.m., 31 August 2009

(or immediately after the conclusion or adjournment of the EGM)

Time and date of the CSM . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3:00 p.m., 31 August 2009

(or immediately after the conclusion or adjournment of the class meeting of the A Shareholders)

Publication of results of the EGM and the class meetings . . . . . . . . . . . . . . 31 August 2009

Note: If there is any change of the above expected timetable, a separate announcement will be made by the Company.

— 11 —

LETTER FROM THE BOARD

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)

Executive Directors: Registered Office: Mr. Tang Ye Guo No. 8 Ronggang Road Mr. Zhou Xiao Tian Ronggui Street Ms. Yu Shu Min Shunde District Mr. Lin Lan Foshan City Ms. Liu Chun Xin Guangdong Province Mr. Zhang Ming the PRC Independent non-executive Directors: Principal place of business in Hong Kong: Mr. Zhang Sheng Ping Room 3104-06 Mr. Lu Qing Singga Commercial Centre Mr. Cheung Yui Kai, Warren No. 148 Connaught Road West Hong Kong 31 July 2009

To the Shareholders

Dear Sir or Madam,

MAJOR AND

CONNECTED TRANSACTION:

ACQUISITION OF THE TARGET GROUP FROM QINGDAO HISENSE AIR-CONDITIONING COMPANY LIMITED AND APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

On 16 July 2009, the Company announced that, it (as purchaser) has entered into the Acquisition Agreement with Qingdao Hisense (as vendor), for the acquisition of the interest in the Target Group which operates the White Goods Business.

— 12 —

LETTER FROM THE BOARD

The purpose of this circular is:

(a) to provide you with further information on, among other things, the Acquisition and the Whitewash Waiver;
(b) to provide you with the recommendations of the Independent Board Committee in respect of the Acquisition and the Whitewash Waiver;
(c) to provide you with the advice of Access Capital Limited, the independent financial adviser, to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition and the Whitewash Waiver; and
(d) to provide you with the notices of the EGM and CSM which will be convened for the purposes of considering and, if thought fit, approving the Acquisition and the transactions contemplated thereunder, the authorisation of the Board to deal with all matters relating to the allotment and issue of Consideration Shares, the Whitewash Waiver and the CSRC Waiver.

Shareholders should be aware that the Acquisition is conditional upon a number of Conditions as set out in the paragraph headed “Conditions to Completion” below and the Acquisition may or may not proceed. In particular, the granting of (i) the Whitewash Waiver by the Executive and (ii) the CSRC Waiver, is subject to the approval by the Independent Shareholders at the EGM by way of poll.

THE ACQUISITION AGREEMENT

Parties

Purchaser: The Company

Vendor: Qingdao Hisense Date: 29 June 2009

Assets to be acquired:

(1) 55% of the equity interests in Hisense Beijing, which in turn holds 60% of the equity interests in Hisense Nanjing;
(2) 100% of the equity interests in Hisense Shandong;

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LETTER FROM THE BOARD

(3) 51% of the equity interests in Hisense Zhejiang;
(4) 78.7% of the equity interests in Hisense Mould;
(5) 49% of the equity interests in Hisense Hitachi; and
(6) Hisense Marketing Business.

Consideration

The consideration for the Acquisition is RMB1,238,204,800 (equivalent to approximately HK$1,404,672,543), which has been arrived at after arm’s length negotiations between the parties using the valuation of the Target Group derived based on the cost approach by the Asset Valuer as a major consideration, and with reference to various other factors including, but not limited to, the financial results, the business conditions and the prospects of the Target Group, the interests of the holders of A Shares and H Shares and other similar transactions in the market. When considering such factors, Qingdao Hisense and the Company have reviewed various data available to them, including the financial information disclosed in the Announcement, industry information, market trading data of comparable listed companies and analysis provided by their respective advisers.

The Company and Qingdao Hisense agreed that, if the audited net asset value in accordance with PRC GAAP of the Target Group as at the Completion Date is less than its audited pro forma net asset value in accordance with PRC GAAP as at 30 April 2009 (details of which have been disclosed in the section headed “Financial Information of the Target Group” in the Announcement), Qingdao Hisense shall make up the difference in cash. If the audited net asset value in accordance with PRC GAAP of the Target Group as at the Completion Date is more than its audited pro forma net asset value in accordance with PRC GAAP as at 30 April 2009, the Company will not be required to pay such excess amount to Qingdao Hisense. The “audited pro forma net asset value” is the pro forma net asset value of the Target Group as at 30 April 2009 audited by BDO Guangdong Dahua Delu Certified Public Accountants.

The audit for the net asset value of the Target Group as at the Completion Date will be completed within 60 days after Completion. Although it takes time to perform the audit work on the net asset value of the Target Group and the audited net asset value will not be available upon Completion, the finalization of the audit on the net asset value of the Target Group will not affect the completion of the Acquisition as the adjustment to the consideration would be done after Completion.

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LETTER FROM THE BOARD

Payment method

The Consideration Shares shall be issued as fully paid and shall rank pari passu in all respects with the A Shares in issue. Upon occurrence of any “ex-right and ex-dividend” events, such as distribution of dividends, bonus issue and capitalization of the capital reserve fund, prior to the issue of the Consideration Shares, the issue price shall be subject to the corresponding “ex-right and ex-dividend” adjustments and the number of shares to be issued shall be adjusted accordingly based on any adjustments of the issue price.

The number of Consideration Shares to be issued is subject to the final approval by the CSRC, but in any event shall not exceed 362,048,187 Shares.

The maximum number of the Consideration Shares to be issued represents approximately 36.50% of the Company’s existing issued share capital and approximately 26.74% of the Company’s issued share capital as enlarged by the issue of the Consideration Shares.

The Issue Price

The issue price of RMB3.42 (equivalent to approximately HK$3.88) per Consideration Share was determined after arm’s length negotiation between the Company and Qingdao Hisense with reference to the average trading price of the Company’s A Shares as quoted on the Shenzhen Stock Exchange for the 20 trading days immediately preceding its suspension of trading on 9 April 2009. It represents:

(a) a discount of approximately 8.56% to RMB3.74 (equivalent to approximately HK$4.24), the closing price of the A Shares on the Shenzhen Stock Exchange on 8 April 2009, being the last trading day immediately prior to the suspension of trading in the A Shares on 9 April 2009;
(b) a discount of approximately 3.66% to RMB3.55 (equivalent to approximately HK$4.03), the average closing price of the A Shares on the Shenzhen Stock Exchange for the last 10 trading days immediately prior to the suspension of trading in the A Shares on 9 April 2009;

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LETTER FROM THE BOARD

(c) a premium of approximately 5.23% over RMB3.25 (equivalent to approximately HK$3.69), the average closing price of the A Shares on the Shenzhen Stock Exchange for the last 30 trading days immediately prior to the suspension of trading in the A Shares on 9 April 2009; and
(d) a premium of approximately 178.05% over HK$1.40 (equivalent to approximately RMB1.23), the closing price of the H Shares on the Stock Exchange on 26 June 2009, being the last trading day immediately prior to the Announcement.

Corporate Structure before and after Completion

The following diagrams illustrate the corporate and shareholding structures of the Hisense Kelon Group and the Hisense Group immediately before and after Completion.

Structure of the Hisense Group and the Hisense Kelon Group

Immediately before Completion

==> picture [427 x 360] intentionally omitted <==

----- Start of picture text -----

White Goods Business to be acquired
Qingdao SASAC
100%
Hisense Group Co.
(a PRC state owned company) 51.01%
51.01%
Hisense Electronic
(a PRC company)
93.33% 100%
Hisense International
(a BVI company)
6.67%
Qingdao Hisense
(a PRC company)
100%
Hisense Marketing
(a PRC company) 25.22%
49% 78.7% 100% 51% 55%
Hisense Hisense Hisense Marketing Hisense Shandong Hisense Zhejiang Hisense Beijing Company
Hitachi Mould Business (a PRC company) (a PRC company) (a PRC company) (a PRC company)
company)(a PRC company)(a PRC 60%
Hisense Nanjing
Existing
(a PRC company) business of the
Company
----- End of picture text -----

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LETTER FROM THE BOARD

Immediately after Completion

==> picture [426 x 405] intentionally omitted <==

----- Start of picture text -----

Qingdao SASAC
100%
Hisense Group Co.
(a PRC state owned company)
51.01%
Hisense Electronic
(a PRC company)
93.33% 100%
Hisense International
(a BVI company)
6.67%
Qingdao Hisense
(a PRC company)
45.21% 100%
Company Hisense Marketing
(a PRC company) (a PRC company)
49% 78.7% 100% 51% 55%
Hisense Hisense Hisense Shandong Hisense Zhejiang Hisense Beijing Existing business
Hitachi Mould Hisense of the Company
Marketing (a PRC company) (a PRC company) (a PRC company)
(a PRC (a PRC Business
company) company)
60%
Hisense Nanjing
(a PRC company)
----- End of picture text -----*

on the assumption that 362,048,187 Consideration Shares will be issued by the Company to Qingdao Hisense in respect of the Acquisition

Conditions to Completion

Completion is subject to, among other things, the following Conditions set out in the Acquisition Agreement being satisfied:

(a) the continued listing of the A Shares and H Shares on the Shenzhen Stock Exchange and the Stock Exchange, respectively;
(b) the approval by the Independent Shareholders at the EGM of (i) the Acquisition by the Company and (ii) the Whitewash Waiver and the CSRC Waiver;
(c) the approval by the Independent Shareholders of H Shares eligible to attend and vote at the CSM of the Acquisition by the Company;

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LETTER FROM THE BOARD

(d) the approval by the Independent Shareholders of A Shares eligible to attend and vote at the class meeting of the A Shareholders of the Acquisition by the Company;
(e) the granting of the following approvals from the relevant PRC regulatory authorities in accordance with the applicable PRC laws:
(i) the approval to the Company by CSRC of the Acquisition and the issue of Consideration Shares and the granting of the CSRC Waiver; and
(ii) the approval from Qingdao SASAC for the Acquisition, and the completion of the filing of the valuation result of the Target Group with Qingdao SASAC;
(f) all relevant approvals from Hong Kong authorities in accordance with the law and regulations in Hong Kong, including, without limitation, the Executive granting to Qingdao Hisense and parties acting in concert with it the Whitewash Waiver;
(g) the granting of the following third party consents and agreement:
(i) the consent of the major creditors of Hisense Marketing in relation to the Hisense Marketing Business;
(ii) the waiver by the holders of pre-emptive rights in relation to the interests in the Target Group of their pre-emptive rights; and
(iii) permission and agreement by any other third party who has rights under the Acquisition; and
(h) the representations and warranties given by Qingdao Hisense and the Company to each other in the Acquisition Agreement remaining true and accurate.

Pursuant to the Acquisition Agreement, if any of the Conditions is not fulfilled by the parties to the Acquisition Agreement within 12 months from the date of the approvals obtained at the EGM and the relevant class meetings referred to in (b), (c) and (d) above (or such later date as the parties to the Acquisition Agreement may agree in writing), the Acquisition Agreement will lapse and all obligations and liabilities of all parties thereunder will cease. None of the Conditions (a) to (h) above may be waived by the Company or Qingdao Hisense.

As at the Latest Practicable Date, Conditions (a) and (g) above have been fulfilled.

Completion

Completion is expected to take place on the last business day of the month in which the last of all the Conditions have been fulfilled.

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LETTER FROM THE BOARD

Following the Completion, each of Hisense Beijing, Hisense Nanjing, Hisense Shandong, Hisense Zhejiang and Hisense Mould will become Subsidiaries of the Company and their financial results will be consolidated into the financial statements of the Hisense Kelon Group. Hisense Hitachi will become a jointly controlled entity of the Company and its financial position and results will be accounted for by the Company under the equity method of accounting.

Undertakings

Qingdao Hisense has undertaken that it will not transfer the Consideration Shares, as well as the Shares originally held by Qingdao Hisense, for a period of 36 months after the allotment and issue and the registration of the Consideration Shares with the Shenzhen branch of China Securities Depository and Clearing Corporation Limited under the name of Qingdao Hisense.

Qingdao Hisense has agreed that in compliance with relevant laws and regulations, after Completion, it and its controlled entities will not participate or engage in any new businesses which compete or may compete with the existing businesses of the Target Group and the Hisense Kelon Group.

SHAREHOLDING STRUCTURE OF THE COMPANY BEFORE AND AFTER THE COMPLETION

Set out below is a table showing, for the purpose of illustration, the shareholding structure of the Company before and after the issue of the Consideration Shares, and assuming that the maximum number of Consideration Shares will be issued by the Company to Qingdao Hisense and that save for the Consideration Shares, no further Shares will be issued by the Company after the date of the Announcement until Completion:

As at the date of the Announcement Shareholders Type of Shares Number of Shares % Qingdao Hisense and parties acting in concert with it Qingdao Hisense A Shares 250,173,722 25.22 Sub-total A Shares 250,173,722 25.22 Public A Shareholders A Shares 282,243,033 28.45 Public H Shareholders H Shares 459,589,808 46.33 Total 992,006,563 100.00	Upon the issue of the maximum number of the Consideration Shares Type of Shares Number of Shares % A Shares 612,221,909 45.21 A Shares 612,221,909 45.21 A Shares 282,243,033 20.85 H Shares 459,589,808 33.94 1,354,054,750 100.00	Upon the issue of the maximum number of the Consideration Shares Type of Shares Number of Shares % A Shares 612,221,909 45.21 A Shares 612,221,909 45.21 A Shares 282,243,033 20.85 H Shares 459,589,808 33.94 1,354,054,750 100.00
		45.21 20.85 33.94 100.00

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LETTER FROM THE BOARD

As at the date of this circular, the Company has not issued any convertible securities, options, warrants or other similar rights.

As described in the paragraph headed “Payment method” above, the Company has agreed to issue not more than 362,048,187 Consideration Shares to Qingdao Hisense to satisfy the consideration payable by the Company under the Acquisition Agreement. Assuming that the maximum number of Consideration Shares will be issued by the Company to Qingdao Hisense, Qingdao Hisense is expected to be directly or indirectly interested in approximately 45.21% in the share capital of the Company immediately after the Completion as enlarged by the issue of such Consideration Shares and Qingdao Hisense will become the controlling shareholder (as defined under the Listing Rules) of the Company.

Save as disclosed above, Qingdao Hisense and parties acting in concert with it do not hold any other securities of the Company.

INFORMATION OF THE COMPANY

The Company is principally engaged in the manufacture and sales of refrigerators and airconditioners.

INFORMATION OF QINGDAO HISENSE

Qingdao Hisense is a limited liability company established on 17 November 1995 in the PRC. After Completion, Qingdao Hisense will mainly be a holding company with its shareholding in the Company as its major asset. Qingdao Hisense is currently owned as to 93.33% by Hisense Electronic and as to 6.67% by Hisense International.

Hisense Electronic is a limited liability company established on 1 May 2001 in the PRC. It is a holding company. Hisense Electronic is currently owned as to 51.01% by Hisense Group Co. and 48.99% by the management group and key employees of Hisense Group Co.

Hisense International is a limited liability company established on 9 March 2005 in the BVI. It is a holding company and is a wholly-owned subsidiary of Hisense Electronic.

Hisense Group Co. is a limited liability company established on 2 August 1979 in the PRC and is under the auspices of the Qingdao SASAC. It is a holding company.

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LETTER FROM THE BOARD

It is the intention of Qingdao Hisense to continue to carry on the business of the Company and not to introduce any material change on the continuance of the employment of the employees of the Hisense Kelon Group. Qingdao Hisense does not intend to introduce any material change to the existing businesses, operations or assets of the Hisense Kelon Group (including any redeployment of the fixed assets of the Hisense Kelon Group).

INFORMATION OF THE TARGET GROUP

The Target Group is principally engaged in manufacture and sales of White Goods including air-conditioners, refrigerators and washing machines as well as moulds in the PRC.

Air-conditioner manufacturing

The Target Group’s air-conditioner manufacturing operation is primarily carried out through Hisense Shandong, Hisense Zhejiang and Hisense Hitachi.

(1) Hisense Shandong

1.1 Background

Name: Hisense Shandong Address: 1 Hisense Road, Nancun Town, Pingdu, Qingdao

Legal representative: Wang Shi Lei Registered capital: RMB500,000,000 Corporate nature: Single person company with limited liability

Scope of business: Research and development, manufacture and sale of air-conditioning products and injection moulds and provision of after-sale services for products (The relevant permits for operation will be required if any of the business activities mentioned above is subject to approvals and permits)

Term of operation: 8 November 2007 to 7 November 2017

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LETTER FROM THE BOARD

1.2 History

On 8 November 2007, Qingdao Hisense established Hisense Shandong by way of investment of cash of RMB150,000,000. On 27 November 2007, Qingdao Hisense increased the registered capital of Hisense Shandong to RMB500,000,000 through the injection of all of the operating assets of Pingdu Plant, including all land, plants and machinery and equipment. Upon completion of the capital increase, Qingdao Hisense and Hisense Shandong entered into a creditor’s right and debt transfer agreement, pursuant to which Qingdao Hisense transferred its operating assets (including liabilities) in relation to the manufacture and sale of air-conditioners to Hisense Shandong. Both parties also entered into a creditor’s right and debt transfer agreement with certain third parties. As a result, Hisense Shandong has taken over all of the businesses of manufacture and sale of air-conditioners of Qingdao Hisense.

1.3 Operating status

Hisense Shandong is principally engaged in the manufacture and sale of household air-conditioners, and the provision of relevant technical services and training. It strives to become a specialized manufacturer and service provider in household air-conditioners with advanced technology and leading production capacity. Hisense Shandong has the biggest and the most advanced production base of inverter air-conditioners in the PRC at present, with an annual production capacity of over 2,000,000 sets. Hisense Shandong produced 750,000 sets of air-conditioners in 2008.

(2) Hisense Zhejiang

2.1 Background

Name: Hisense Zhejiang

Address: Nor th of Cent ral Avenue, Changxing Cou nt y Economic and Technological Development Zone Legal representative: Liu Wen Zhong Registered capital: RMB110,000,000

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LETTER FROM THE BOARD

Corporate nature:

Company with limited liability (invested by foreign invested enterprise)

Scope of business:

P roduct ion a nd sale of ai r- cond it ioner s a nd manufacture and sale of other household appliances, provision of related technical services, and import and export of goods and technologies (excluding the businesses prohibited by the laws and administrative regulations; and in case of the restricted businesses under the laws and administrative regulations, the relevant approval(s) or licence(s) of operation shall be obtained)

Term of operation: 22 April 2005 to 21 April 2020

2.2 History

On 22 April 2005, Qingdao Hisense and Zhejiang Xianke jointly established Hisense Zhejiang as a joint venture company with a registered capital of RMB110,000,000. Qingdao Hisense contributed a total of RMB56,100,000, of which RMB34,100,000 was in cash and RMB22,000,000 was by injection of intangible assets (representing 51% of the registered capital of Hisense Zhejiang); and Zhejiang Xianke made its contribution of RMB53,900,000 in specie, including land, plants and equipment and machinery (representing 49% of the registered capital of Hisense Zhejiang).

On 25 March 2009, Zhejiang Xianke entered into an equity transfer agreement with Changxing Jingwei, pursuant to which it was agreed that 49% equity interests in Hisense Zhejiang shall be transferred to Changxing Jingwei at a price of RMB148,000,000. The relevant procedures for the registration of the change in shareholders at the administration for industry and commerce department to effect the above transfer of equity interests have been completed.

2.3 Operating status

Hisense Zhejiang is principally engaged in the manufacture of household airconditioners and the related products. It has equipment such as advanced automatic helium leakage detectors, and is well-equipped with an advanced integrated production and inspection line, a quality assurance system established according to the international quality assurance standards and a

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LETTER FROM THE BOARD

sound management system. It is the second largest inverter air-conditioner production base equipped with advanced technology next to Hisense Shandong in the PRC. Through continuous expansion, the production capacity of Hisense Zhejiang will increase to 1,500,000 sets of inverter air-conditioners. Hisense Zhejiang produced 475,600 sets of air-conditioners in 2008.

(3) Hisense Hitachi

3.1 Background

Name:

Hisense Hitachi

Address: 218 Qian Wan Gang Road, Qingdao Economic and Technological Development Zone

Legal representative: 西耕一 (Nishi Koichi)

Registered capital: US$12,100,000

Corporate nature: Sino-foreign equity joint venture enterprise

Scope of business: Research and development, manufacture and sale of commercial air-conditioning systems, sale of selfproduced products and provision of after-sale services (The relevant permits for operation will be required if any of the business activities mentioned above is subject to approvals and permits)

Term of operation: 8 January 2003 to 8 January 2053

3.2 History

In January 2003, Hisense Hitachi was established as a sino-foreign equity joint venture enterprise by a co-investment of Hisense Group Co., Hitachi Air Conditioning, Taiwan Hitachi and Union Trading with a registered capital of US$12,100,000. Hisense Group Co. contributed US$5,929,000 (accounting for 49% of the registered capital); Hitachi Air Conditioning contributed US$3,509,000 (accounting for 29% of the registered capital); Taiwan Hitachi contributed US$2,420,000 (accounting for 20% of the registered capital); and Union Trading contributed US$242,000 (accounting for 2% of the registered capital). Hisense Group Co. and Hitachi Air Conditioning have joint control over Hisense Hitachi.

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LETTER FROM THE BOARD

By an agreement dated 8 May 2009, Hisense Group Co. transferred 49% of the equity interest in Hisense Hitachi to Qingdao Hisense. It was agreed that the consideration for such transfer would be determined based on the valuation result which has been filed with the relevant authorities of state-owned assets supervision and administration.

3.3 Operating status

Hisense Hitachi is principally engaged in the research and development, manufacture and sale of household and commercial-use central airconditioning system units. Its household and commercial-use air-conditioning unit products are equipped with state of the art technologies for inverter VRF air-conditioning systems, and situate in a leading position among the industry in terms of outstanding performance and high quality. Hisense Hitachi is the largest production base for inverter VRF air-conditioners of Hitachi Air Conditioning outside Japan. It also represents the application of the latest results of the research and development of Hitachi Air Conditioning in the PRC.

The production base of Hisense Hitachi located at Hisense Information Technology Park has a site area of 100,000 square metres, and is equipped with internationally-advanced manufacturing facilities and well-equipped laboratories. Hisense Hitachi has built a product system based mainly on inverter VRF air-conditioning systems to satisfy the needs of both commercial and household users. Its products are widely used in different settings, such as offices, guest houses, apartments, villas, shops and restaurants. Since the commencement of production, Hisense Hitachi has recorded stable growth in its business.

Refrigerator Manufacturing

The Target Group’s refrigerator manufacturing operation is primarily conducted through Hisense Beijing and its subsidiary, namely Hisense Nanjing.

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LETTER FROM THE BOARD

(1) Hisense Beijing

1.1 Background

Name:

Hisense Beijing

Address: 36 Qingyuan Road, Daxing District, Beijing

Legal representative: Zhou Xiao Tian

Registered capital: RMB85,710,000

Corporate nature: Company with limited liability (invested by foreign invested enterprise)

Scope of business: Manufacture of refrigerator products and other household electrical appliances; sale of self-produced products; import and export of goods and technologies and provision of import and export agency services

Term of operation: 13 June 2002 to 12 June 2012

1.2 History

On 13 June 2002, Hisense Group Co. and Xuehua Group jointly established Hisense Beijing as a joint venture company with a registered capital of RMB85,710,000. Hisense Group Co. contributed a total of RMB47,140,500, including intangible assets amounting to RMB17,140,500 and cash (representing 55% of the registered capital of Hisense Beijing) and Xuehua Group made its contribution of RMB38,569,500 in specie, including land and equipment (representing 45% of the registered capital of Hisense Beijing).

On 12 September 2002, Hisense Group Co. transferred its 55% equity interests in Hisense Beijing to Hisense Electric at a consideration of RMB47,140,500.

On 25 September 2007, Qingdao Hisense and Hisense Electric entered into an agreement which was approved at the general meeting of Hisense Electric, pursuant to which Hisense Electric transferred its 55% equity interests in Hisense Beijing to Qingdao Hisense at a consideration of RMB133,046,800. The Company would like to clarify that the information relating to the aforementioned transaction as set out in the Company’s announcement dated 8 May 2009 was not accurate and should not be relied on.

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LETTER FROM THE BOARD

1.3 Operating status

Hisense Beijing is principally engaged in the research and development, manufacture and sale of refrigerators. With its internationally leading patented technologies in vector inverter, digital preservation and optimized control in multi-cycle refrigeration system for refrigerators, Hisense Beijing has launched over 100 product models in 7 major series, mainly including vector refrigerators and super energy-saving refrigerators. Its products are exported to the regions such as Europe, America, South Africa and Southeast Asia. In 2008, Hisense Beijing produced 647,000 units of refrigerators.

(2) Hisense Nanjing

2.1 Background

Name: Hisense Nanjing

Address: 19 He n g Fe i Ro a d , Na nji n g E c o n o m ic a n d Technological Development Zone

Legal representative: Zhou Xiao Tian

Registered capital: RMB128,691,500

Corporate nature: Company with limited liability

Scope of business:

Research and development, manufacture and sale of f luorine-free refrigeration products and other home electrical appliances. Import and export of various goods and technologies self-manufactured and distributed (except goods and technologies under operation restriction or prohibited for import and export by the State)

Term of operation: 12 January 2005 to 10 January 2020

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LETTER FROM THE BOARD

2.2 History

Hisense Nanjing was jointly established by Hisense Beijing and Nanjing Yilaite on 12 January 2005 as a joint venture company with a registered capital of RMB80,580,000. Hisense Beijing made a contribution in cash of RMB36,260,000 and by way of non-patent technologies of RMB12,090,000 (representing 60% of the registered capital of Hisense Nanjing); and Nanjing Yilaite made a contribution of RMB32,230,000 by land use rights (representing 40% of the registered capital of Hisense Nanjing).

On 20 October 2005, Nanjing Yilaite entered into an equity transfer agreement with Nanjing Aipulaisi, pursuant to which Nanjing Yilaite transferred its 40% equity interests in Hisense Nanjing to Nanjing Aipulaisi at a consideration of RMB9,500,000. Nanjing Yilaite completed the procedure for the change of the industrial and commercial registration for this equity transfer on 9 November 2005.

On 20 August 2006, Hisense Beijing and Nanjing Aipulaisi entered into the “Hisense (Nanjing) Electric Company Limited Capital Increase Phase 2 Agreement”, pursuant to which Hisense Beijing made an additional capital contribution to Hisense Nanjing in cash of RMB21,650,200 and in intangible assets of RMB7,216,700; and Nanjing Aipulaisi made a contribution of RMB19,244,600 in machinery and equipment. Upon completion of this capital increase, the registered capital of Hisense Nanjing increased to RMB128,691,500 and the proportion of shareholdings of both shareholders remained unchanged.

2.3 Operating status

Hisense Nanjing is principally engaged in the manufacture, operation and sale of refrigerators. Hisense Nanjing currently has two production lines of refrigerators with an annual production capacity of 1,000,000 units. In 2008, Hisense Nanjing produced 665,800 units of refrigerators.

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LETTER FROM THE BOARD

Mould Manufacturing

The Target Group’s mould manufacturing operation is primarily conducted through Hisense Mould.

(1) Hisense Mould

1.1 Background

Name:

Hisense Mould

Address:

North New Industry Zone, Qingdao Economic and Technological Development Zone (Shang’ma Town, Chengyang District)

Legal representative: Ma Ming Tai

Registered capital: RMB27,642,015

Corporate nature: Company with limited liability

Scope of business:

General operations: design, manufacture and sale of moulds; machine processing; design and manufacture of jigs; wholesaling, retailing and “four-agency” business; mould materials, standard components, parts, jigs and measuring tools, CAD/CAM system products, automatic off ice system and related consumables; plastic injection, painting/brushing and processing; development, design, sale and system integration of intelligent instruments and meters and opto-mechatronic equipments; import and export of self-manufactured goods and technologies

Date of incorporation: 28 September 1996

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LETTER FROM THE BOARD

1.2 History

On 28 September 1996, Qingdao Hisense Electric Company and Hisense Optical jointly invested in the establishment of Hisense Mould. Qingdao Hisense Electric Company made a contribution of RMB21,472,562 in specie, including buildings, structures and machinery and equipment (representing 98.7% of the registered capital); Hisense Optical made a contribution of RMB282,000 in specie, including machinery and equipment (representing 1.3% of the registered capital).

In December 1996, Qingdao Hisense Electric Company was renamed Qingdao Hisense Group Company, and was again renamed Hisense Group Company in April 1998. On 28 December 2000, Hisense Group Company was restructured to become Hisense Group Co., and still held 98.7% equity interests in Hisense Mould at that time.

On 5 September 2005, Hisense Mould convened a general meeting for consideration of capital increase. Pursuant to the “Approval in relation to the Increase in Registered Capital of Qingdao Hisense Mould Company Limited” (Qing Guo Zi Chan Quan [2005] No. 85) of Qingdao SASAC, it was unanimously approved that 47 persons (including Wang Pei Song, an individual shareholder) should make contribution of RMB7,470,000 to be converted into a share capital of RMB5,887,453 at a premium ratio of 1:1.2688. They held an aggregate of 21.3% equity interests in Hisense Mould after the capital increase.

After the above capital increase, the shareholders and shareholding structure of Hisense Mould were as follows:

	Contribution	Shareholding	Form of
Name of Shareholder	Amount	Percentage	Contribution
	(RMB)
Hisense Group Co.	21,472,562	77.68%	Contribution in
			specie
Hisense Optical	282,000	1.02%	Contribution in
			specie
47 natural person	5,887,453	21.30%	Contribution in
shareholders			cash
including Liu Dian
Wei
Total	27,642,015	100%	—

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LETTER FROM THE BOARD

On 29 July 2006, natural person shareholders Fang Xian Long and Dai Hui Zhong entered into an equity transfer agreement, pursuant to which it was agreed that Fang Xian Long shall transfer the capital contribution in an amount of RMB157,629 in Hisense Mould (accounting for 0.57% of the registered capital of Hisense Mould) to Dai Hui Zhong at a price of RMB200,000. On the same day, natural person shareholders Xie Feng and Zhao Bing Bing entered into an equity transfer agreement, pursuant to which it was agreed that Xie Feng shall transfer the capital contribution in an amount of RMB39,407 in Hisense Mould (accounting for 0.14% of the registered capital of Hisense Mould) to Zhao Bing Bing at a price of RMB50,000.

On 16 April 2009, natural person shareholders Dong Zhuang Zhi and Yao Shu Lin entered into an equity transfer agreement, pursuant to which it was agreed that Dong Zhuang Zhi shall transfer the capital contribution in an amount of RMB39,407 in Hisense Mould (accounting for 0.14% of the registered capital of Hisense Mould) to Yao Shu Lin at a price of RMB50,000.

On 16 April 2009, natural person shareholders Ma Feng and Ji Jian entered into an equity transfer agreement, pursuant to which it was agreed that Ma Feng shall transfer the capital contribution in an amount of RMB118,222 in Hisense Mould (accounting for 0.43% of the registered capital of Hisense Mould) to Ji Jian at a price of RMB150,000.

By an agreement dated 8 May 2009, Hisense Group Co. transferred 77.68% of the equity interest in Hisense Mould to Qingdao Hisense. By another agreement of the same date, Hisense Optical transferred 1.02% of the equity interest in Hisense Mould to Qingdao Hisense. It was agreed in both of the above agreements that the consideration for the respective transfers would be determined based on the valuation result which has filed with the relevant authorities of state-owned assets supervision and administration.

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1.3 Operating status

Hisense Mould was established in 1996. After more than 10 years of development, Hisense Mould has become one of the most specialized largescale suppliers of plastic injection moulds for household appliances in the PRC. Hisense Mould carries out its businesses in the industry of mould and injection, moulding, painting/brushing and processing and the related services. Hisense Mould utilizes CAD/CAM/CAE technologies to proactively promote the research and development and manufacture of plastic injection and painting/brushing mould products with moulding machines of high-precision, high-quality and high-efficiency. The principal businesses of Hisense Mould include design of industrial products, as well as the design, processing, manufacture and plastic injection of moulds. It possesses an annual processing and production capacity of approximately 500 sets of large plastic injection moulds up to 60 tones, and approximately 200 sets of precision moulds. In 2007, Hisense Mould was chosen by China Die & Mould Industry Association as one of the Top 50 Enterprises in China’s Die & Mould Industry.

White Goods Sales and Marketing

Hisense Marketing Business

Hisense Marketing Business comprises the assets and liabilities of Hisense Marketing in relation to the sales and marketing operations of the White Goods products produced by Hisense Shandong, Hisense Zhejiang, Hisense Beijing and its subsidiary, Hisense Nanjing. The relevant assets mainly include fixed assets, comprising equipment (electronic or otherwise), cars and machineries as well as inventories of raw materials and finished products of refrigerators and air-conditioners. The relevant liabilities mainly include trade payables and customers’ prepayments.

Financial Information of the Target Group

The entities and businesses comprising the Target Group were commonly controlled by Hisense Group Co., the ultimate holding company of the Target Group, for the three years ended 31 December 2008 and the four months ended 30 April 2009. The combined financial information of the Target Group has been prepared on the basis as if the entities and the businesses comprising the Target Group had formed a group and such group structure had been in existence throughout the period, or since their respective dates of incorporation or establishment.

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The combined income statements of the Target Group have been prepared as if the current structure had been in existence throughout the period or since their respective dates of incorporation or establishment whichever is earlier. The combined balance sheets of the Target Group as at 31 December 2006, 2007, 2008 and 30 April 2009 have been prepared to present the assets and liabilities as if the current structure of the Target Group had been in existence as at the above-mentioned dates.

Since Hisense Shandong took over the production and sales operations of air-conditioning business of Qingdao Hisense gradually from 8 November 2007, the combined financial information of the Target Group includes the track record of the air-conditioning business of Qingdao Hisense.

By an agreement dated 31 March 2009, Hisense Mould transferred 95% of the equity interest in 青島海信塑料製品有限公司 (Qingdao Hisense Plastic Products Limited), including 100% of the equity interest in 青島海平電器配件有限公司 (Qingdao Haiping Electric Parts Limited), to Hisense Optical at a consideration of RMB1,879,456.53. The relevant registration procedures at the relevant PRC authorities have not yet been completed as at 30 April 2009. As such, the combined financial information of the Target Group for the three years ended 31 December 2008 and the four months ended 30 April 2009 includes the financial positions and results of 青島海信塑料製品有限公司 (Qingdao Hisense Plastic Products Limited) and 青島海平電器配件有限公司 (Qingdao Haiping Electric Parts Limited) throughout the period.

The financial position and results of Hisense Hitachi have been accounted for in the combined financial information of the Target Group under the equity method of accounting throughout the period.

The Acquisition is considered as a business combination involving entities under common control because the Company and the Target Group are ultimately controlled by Hisense Group Co. both before and after the Acquisition, and that control is not transitory. Such business combination under common control is outside the scope of IFRS 3 “Business Combinations” issued by IASB. In the absence of a standard under IFRSs in relation to the accounting for business combinations under common control, Accounting Guideline 5 “Merger Accounting for Common Control Combinations” issued by Hong Kong Institute of Certified Public Accountants, being pronouncements of standard-setting bodies other than the IASB that use a similar conceptual framework, is referred to in accounting for the Acquisition.

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LETTER FROM THE BOARD

Hisense Group Co. exercises its control over the Hisense Kelon Group through Qingdao Hisense, the largest shareholder of the Company who currently holds approximately 25.22% equity interest in the Company, and upon completion of the Acquisition will hold approximately 45.21% in the share capital of the Company as enlarged by the issue of the Consideration Shares and assuming that the maximum number of Consideration Shares will be issued by the Company to Qingdao Hisense, and is therefore considered as the ultimate holding company of the Hisense Kelon Group. Hisense Group Co. has control over the Hisense Kelon Group by virtue of Qingdao Hisense’s power to govern the financial and operating policies of the Hisense Kelon Group so as to obtain benefits from the activities of the Hisense Kelon Group through its power to cast majority votes at the meetings of the board of directors of the Company as prescribed under IFRS 3 and its de facto control over the majority of the voting rights of the Company’s shareholders’ meetings as commented by IASB in the IASB Update issued in October 2005.

The summary financial information of the Target Group for the three years ended 31 December 2006, 2007 and 2008 and the four months ended 30 April 2009, respectively as extracted from the audited combined financial statements of the Target Group prepared in accordance with all applicable IFRS are set out as follows:

	As at	As at	As at	As at
	31 December	31 December	31 December	30 April
	2006	2007	2008	2009
	(RMB million)	(RMB million)	(RMB million)	(RMB million)
Total assets	2,452.7	2,612.8	2,278.1	2,896.8
Total liabilities	1,745.1	1,763.2	1,390.5	1,948.8
Net assets	707.6	849.6	887.5	948.0
	For the	For the	For the	For the
	year ended	year ended	year ended	four months
	31 December	31 December	31 December	ended 30 April
	2006	2007	2008	2009
	(RMB million)	(RMB million)	(RMB million)	(RMB million)
Turnover	4,572.0	5,088.7	4,795.4	1,505.9
Gross profit	1,106.9	1,180.8	965.9	355.5
Profit before income tax expense	134.5	186.5	27.0	86.4
Profit attributable to owners of the
Target Group	100.8	123.7	38.1	59.8

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LETTER FROM THE BOARD

Management’s discussion and analysis of financial condition and results of operation

Management’s discussion and analysis of the financial condition and results of operation of the Target Group for the three years ended 31 December 2006, 2007 and 2008 and the four months ended 30 April 2009 prepared in accordance with IFRS, respectively is set out in Appendix III to this circular.

ASSET VALUATION OF THE TARGET GROUP

In accordance with the relevant PRC regulatory requirements including “上市公司重大資產重組管理辦法” (“Administrative Measures for Major Asset Restructuring of Listed Companies”), the Company has appointed an independent firm of qualified PRC valuers to conduct a valuation of the Target Group.

In accordance with clause 18 of the Administrative Measures for Major Asset Restructuring of Listed Companies, the Asset Valuer is required to use two or more approaches in conducting the valuation of the Target Group. Therefore, the Asset Valuer has used both the cost approach and income approach in its valuation of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business. As advised by the Asset Valuer, although there is no specification in the relevant PRC regulatory requirements on the valuation approaches to be used, the two approaches used by the Asset Valuer (i.e. the cost approach and the income approach) are the most commonly used approaches for transactions similar in nature to the Acquisition. The Asset Valuer has adopted the value derived from the cost approach as the final valuation result for each of the entities concerned.

By using the cost approach, the Asset Valuer has derived equity values of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business by estimating the market value of assets, netting with the liabilities verified, of each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business as at 30 April 2009. The Asset Valuer estimated the market value of each of the above assets mainly by reference to the actual condition of the assets, the relevant information of open market transactions and the prevailing open market prices of the assets, assuming the continual use of the assets. The amounts of liabilities were estimated by verifying against the relevant book value amounts. The valuations derived by the Asset Valuer using the cost approach for 100% of Hisense Shandong, 51% of Hisense Zhejiang, 55% of Hisense Beijing (including the respective interests in Hisense Nanjing), 78.7% of Hisense Mould, 49% of Hisense Hitachi and 100% of Hisense Marketing Business as of 30 April 2009 were approximately RMB727.46 million, approximately RMB92.14 million, approximately RMB157.87 million, approximately RMB138.96 million, approximately RMB180.73 million and approximately RMB-58.95 million, respectively.

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By using the income approach, the Asset Valuer has derived equity values of each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business mainly by estimating the aggregate net present value of (i) a stream of four years and eight months projected net cashf low commencing from 1 May 2009 and (ii) the terminal value of such businesses. The valuations derived by the Asset Valuer using the income approach for 100% of Hisense Shandong, 51% of Hisense Zhejiang, 55% of Hisense Beijing (including the respective interests in Hisense Nanjing), 78.7% of Hisense Mould, 49% of Hisense Hitachi and 100% of Hisense Marketing Business as of 30 April 2009 were approximately RMB729.02 million, approximately RMB92.12 million, approximately RMB161.84 million, approximately RMB142.78 million, approximately RMB188.01 million and approximately RMB-57.77 million, respectively.

The Asset Valuer has made the following major assumptions in the valuation under the income approach:

There is no material change in the PRC macro-economic policies and policies which govern the industry that the relevant entity is engaged;
There is no material change in the socio-economic environment of the relevant entities, tax policies and tax rates;
Management of the relevant entities will continue to act with due care and the ways of operation and modes of management of the relevant entities will be same as the valuation date;
There is no material change in the assets size, structure, principal business, product portfolio, revenue and cost structure, sales policies and cost control policies, etc;
There is no material change in cost composition, which will instead maintain the trend in the recent years and adjust in accordance with the change in operation size. Finance cost represents the costs incurred on funds raised for operation or capital purposes. Short term loans are regarded as recurring financing needs under normal operation and will be repaid by new borrowings. No interest income from bank deposit and other income/loss (except loan interest expenses) have been taken into account for the valuation; and
Effect of inflation has not been taken into account. Pricing standard and pricing mechanism as at the valuation date have been used for the valuation.

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Valuation derived from income approach is often affected by the accuracy of forecasts on the future business development and profit of a company. In light of the recent volatile economic environment and the uncertainties associated with the forecasts, valuation using cost approach shall reflect the equity value of the subject more objectively. Therefore, the Asset Valuer has adopted the value derived from the cost approach as the valuation result for each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business. Although the Asset Valuer has not adopted the value derived from the income approach as the final valuation result for the Target Group, the relevant valuation figures have been disclosed in the Announcement for the information of the Shareholders.

The valuation of the Target Group has been prepared to provide an indication to the PRC regulators and PRC Shareholders of the business valuation of the Target Group and not as a representation of the level of profit that the Target Group will be able to achieve in any specific period.

The Directors consider the potential tax liability resulting from the sale of the Target Group at the amount of the valuation is unlikely to be crystallised as the Company has no present intention to sell the Target Group upon completion of the Acquisition.

Pursuant to Rule 14.61 of the Listing Rules and Rule 11.1(a) of the Takeovers Code, any valuation of assets (other than land and buildings) or businesses acquired by a listed issuer based on discounted cash flows or projections of profits, earnings or cash flows and where it is possible to derive a forecast of profits from such valuations, will normally be regarded as a profit forecast. Accordingly, such valuations of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business will be regarded as profit forecasts, and therefore, the Company is required to comply with Rules 14.62 and 14A.56(8) of the Listing Rules and Rule 10 of the Takeovers Code.

Pursuant to Rules 14.62 and 14A.56(8) of the Listing Rules and Rule 10 of the Takeovers Code, financial advisers must satisfy themselves that the forecast has been prepared by the directors with due care and consideration and, auditors or reporting accountants must satisfy themselves that the forecast, so far as the accounting policies and calculations are concerned, has been properly compiled on the basis of the assumptions made.

However, the Company has not complied with Rules 14.62 and 14A.56(8) of the Listing Rules and Rule 10 of the Takeovers Code due to the following reasons:

(1) The Independent Financial Adviser indicated that it could not report on the valuation prepared using income approach in view of the high uncertainty involved in cash flow projections for such a long period.

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(2) In reviewing the accounting policies and calculations for profit forecasts, auditors or reporting accountants are required to observe Auditing Guideline 3.341 “Accountants’ Report On Profit Forecasts” (“AG 3.341”) issued by the Hong Kong Institute of Certified Public Accountants. As stated in AG 3.341, it is exceptional to issue report on profit forecast for a future accounting period, and if required, should in any case be limited to the immediate succeeding period and only if a significant part of the current period has already elapsed. It is further stated in AG 3.341 that “in practice, it is unusual to issue report on a forecast for a succeeding period unless: (a) at least 10 months of the current period has elapsed; and (b) the company’s operations lend themselves to reasonably accurate forecasting such as in the case of a property investment company.” . Given that the Asset Valuer has derived equity values of each of the entities within the Target Group mainly by estimating the aggregate net present value of (i) a stream of projected net cash flow for a period of four years and eight months commencing from 1 May 2009 and (ii) the terminal value of such businesses, it is impracticable for auditors or reporting accountants to report on the valuation prepared by the Asset Valuer using the income approach.

In any event, the valuations of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business conducted by the Asset Valuer using the income approach do not comply with the standards required by Rules 14.62 and 14A.56(8) of the Listing Rules or Rule 10 of the Takeovers Code because of the following reasons:

(1) Six individual valuations have been prepared for each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business. The valuation of the Target Group is the arithmetic sum of the six individual valuations. However, a combined valuation has not been made up for the Target Group as a whole. Such approach has not taken into account the synergy for entities bundled together. For example, stronger bargaining power due to economies of scale arisen from combining different entities into the Target Group as a whole, have not been taken into account. On the other hand, elimination of related party transactions among the entities on a combined basis, have not been taken into account;
(2) By using the income approach, the Asset Valuer has derived equity values of each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business mainly by estimating the aggregate net present value of (i) a stream of projected net cash flow for a period of four years and eight months commencing from 1 May 2009 and (ii) the terminal value of such businesses. However, the income projections for each of

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the entities in the Target Group are based on accounts of the relevant entities, which have been prepared in accordance with PRC GAAP and do not take into account any adjustments which may have to be made when those accounts and projections are prepared in accordance with IFRS; and

(3) The cash flow projections are based on the management accounts of each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business, which have been prepared in accordance with PRC GAAP and do not take into account any adjustments which may have to be made when those management accounts are audited. Further, in deriving an intrinsic discounted value, the projections of net profits have been prepared on the assumption that each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business will operate on a normalised basis. In other words, events which do not arise out of the ordinary course of the existing business of each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business have not been taken into account, whereas typically when preparing a profit forecast, all foreseeable events and their effects will be taken into consideration in its preparation. Hence, it is not possible to simply adopt projections of net profits and regenerate a set of profit forecasts.

Furthermore, the Asset Valuer has made certain assumptions about projections of net profits of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business based on its own judgment as to what would be appropriate for a company in the same industry, as opposed to applying consistent accounting policies previously adopted by these companies. While the directors of the Target Group have provided information to the Asset Valuer to assist with the preparation of such valuation, neither they nor the Directors have any influence on the Asset Valuer in the preparation of such valuation, including in respect of any projections or estimates. Hence, such valuation should not be regarded as an indication of the forecast profit of the Target Group for any period.

The valuation of the Target Group has been prepared by the Asset Valuer in compliance with PRC regulatory requirements. It does not meet the standards required by Rules 14.62 and 14A.56(8) of the Listing Rules or Rule 10 of the Takeovers Code. Nevertheless, having considered the information provided in relation to the asset valuation of the Target Group conducted by the Asset Valuer in accordance with PRC regulatory requirements as described above and on the basis that the Announcement and this circular contain the profit forecast of the Target Group for the year ending 31 December 2009 that are already subject to Rules 14.62 and 14A.56(8) of the Listing Rules, the Stock Exchange is prepared to permit the publication of the result of the PRC Valuation (i.e. the results of the valuation derived

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by adopting the cost and income approaches) in the Announcement and this circular, with additional information explaining why the valuation derived by the Asset Valuer using the income approach does not meet the standards required by Rules 14.62 and 14A.56(8) of the Listing Rules.

In view of the PRC regulatory requirements and having considered the information provided in relation to the PRC Valuation, the Executive is prepared to permit the publication of the results of the valuation derived by adopting the income approach in the Announcement and this circular, with additional information explaining why the valuation derived by the Asset Valuer using the income approach does not meet the standards required by Rule 10 of the Takeovers Code.

In addition, disclosure of results of the PRC Valuation in the Announcement is not strictly in compliance with the disclosure requirements of Rule 11.1 of the Takeovers Code. Shareholders should note that the PRC Valuation has been disclosed in the Announcement without the Company having complied in full with Rule 11.1 of the Takeovers Code. As additional time is required by the Company to comply with Rule 11.1 of the Takeovers Code, the Executive is prepared to permit the publications of the results of the valuation of the Target Group in the Announcement on the basis that the Company has undertaken to procure disclosure of summary of the PRC Valuation Reports (in English and Chinese) prepared in accordance with Rule 11 of the Takeovers Code (except for the valuation derived by using income approach which does not meet the standards required by Rules 10 and 11.1(a) of the Takeovers Code; and Rule 11.1(b) of the Takeovers Code) will be published on the website of the Stock Exchange within 5 business days from the date of the Announcement and in this circular.

A valuation report on the relevant property interests prepared by an international valuer in accordance with Rule 11 of the Takeovers Code, Rule 5.05 and practice note 16 of the Listing Rules has been included as Appendix VIII to this circular. As to the relevant property interests, their asset values set out in the PRC Valuation Reports may be different from those that may be expressed in the valuation report as set out in Appendix VIII to this circular.

Shareholders and potential investors should, therefore, exercise caution in placing reliance on the results of the PRC Valuation in assessing the merits and demerits of the Acquisition and the Whitewash Waiver.

The full version of the valuation reports for each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business prepared by the Asset Valuer, each of which contains the respective valuation for each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and

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Hisense Marketing Business derived by the Asset Valuer using both the cost and income approaches, have been published by the Company in Chinese only as overseas regulatory announcements pursuant to Rule 13.09(2) of the Listing Rules on the same day when the Company published the Announcement and have also been included in the documents to be on display under Note 1(f) to Rule 8 of the Takeovers Code. Summary of the PRC Valuation Reports (in English and Chinese) prepared in accordance with Rule 11 of the Takeovers Code (except for the valuation derived by using income approach which does not meet the standards required by Rules 10 and 11.1(a) of the Takeovers Code; and Rule 11.1(b) of the Takeovers Code) was published on the website of the Stock Exchange on 22 July 2009 and has been included as Appendix VII to this circular. The Company has also complied with Rule 11.1(b) of the Takeovers Code in this circular. The Financial Adviser to the Company has reviewed and discussed with the Directors the qualifications of the Asset Valuer and is of the view that the Asset Valuer has skills and understanding to undertake the PRC Valuation competently. In addition, the Financial Adviser to the Company is of the opinion that the PRC Valuation has been made after due care and consideration. A copy of the letter issued by the Financial Adviser to the Company in accordance with Rule 11.1(b) of the Takeovers Code is set out in Appendix VII to this circular.

PROPERTY INTERESTS OF THE HISENSE KELON GROUP

As at the Latest Practicable Date, the Hisense Kelon Group owned 23 properties in total, being properties numbered 1-21 and 31-32 respectively as set out in Appendix VIII to this circular.

With respect to properties numbered 11 to 13 and 19, the Hisense Kelon Group had not obtained any proper title certificate due to the missing of certain related documents and records, which were arisen due to historical reasons. Therefore, the Hisense Kelon Group is uncertain about the date of obtaining the relevant certificates.

With respect to property numbered 14, the Hisense Kelon Group has not obtained any proper title certificate for 5 buildings with total gross floor area of approximately 2,202 sq.m.. One of the buildings is used for the manufacturing of ABS board but the contractor failed to provide the required construction completion documents. For the remaining four buildings, the Hisense Kelon Group did not apply for the relevant construction permits because those buildings are constructed as temporary buildings in view of their relatively simple structure. In view of the above, the Hisense Kelon Group cannot apply for the relevant title certificates for the 5 buildings concerned at this stage.

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With respect to property numbered 20, the Hisense Kelon Group has not obtained any proper title certificate for a building with gross floor area of approximately 13,130 sq.m.. However, the Hisense Kelon Group has obtained the relevant Construction Work Planning Permit, Construction Work Commencement Permit and Construction Work Completion and Inspection Certificate. The Company will apply for the relevant title certificate for such building and it is expected that the title certificate will be available by the end of 2009. According to the Company’s PRC legal advisers, there will be no material legal impediment for the Hisense Kelon Group to apply for the relevant title certificate.

With respect to property numbered 21, the Hisense Kelon Group has not obtained any proper title certificate for 9 buildings with total gross floor area of approximately 38,547.77 sq.m.. However, the Hisense Kelon Group has obtained the relevant Construction Work Planning Permit and Construction Work Commencement Permit. The Company will apply for the relevant title certificates for such buildings and it is expected that the title certificates will be available by the end of 2009. According to the Company’s PRC legal advisers, there will be no material legal impediment for the Hisense Kelon Group to apply for the relevant title certificates of the buildings.

With respect to property numbered 32, the Hisense Kelon Group has not obtained any proper land use rights certificate. The Hisense Kelon Group is now applying for all the relevant construction permits and land use rights of the property. However, as it involves lengthy government approval process, the Hisense Kelon Group is uncertain about the date of obtaining the relevant certificate.

PROPERTY INTERESTS OF THE TARGET GROUP

The principal production facilities and administrative offices of the Target Group, being properties numbered 22, 25 to 26, 28 to 30 and 33 respectively as set out in Appendix VIII to this circular, are located in Beijing, Shandong, Jiangsu and Zhejiang in the PRC. Those facilities and offices occupy a total site area of approximately 893,909.89 sq.m. and as at the Latest Practicable Date, had a total gross floor area of approximately 367,495.71 sq.m.

As at the Latest Practicable Date, the Target Group had not obtained real estate title certificates in relation to 11 buildings and 1 car parking lot occupied by it in the PRC. The total gross floor area of the buildings was approximately 32,220.5 sq.m. and no commercial value has been attributed to any of the properties mentioned above.

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With respect to the car parking lot with gross floor area of approximately 20 sq.m., being the property numbered 23 occupied for car parking purpose, the real estate title certificate of which has not been obtained due to the missing of certain related documents and records arisen due to historical reasons. The Target Group will apply for the relevant real estate title certificate for this property but is uncertain about the date of obtaining the relevant certificate.

With respect to the 3 buildings with total gross floor area of approximately 432.5 sq.m., being the property numbered 28 occupied for production purpose, the real estate title certificates of which have not been obtained. The Company’s PRC legal advisers have confirmed that the buildings which are used as a high voltage power distribution room, security room and dangerous goods storage room respectively were part of the temporary buildings attached to a piece of land that was contributed as registered capital into Hisense Zhejiang. As no value was attached to these buildings at the time of transfer, no real estate title certificate was applied by the Target Group in respect of such buildings.

With respect to the 7 buildings with total gross floor area of approximately 24,610 sq.m., being the property numbered 29 occupied for production and office purposes, the real estate title certificates of which have not been obtained. The Target Group has obtained the relevant Construction Work Planning Permit. The Target Group is applying for the Construction Work Commencement Permit and waiting for the official inspection. According to the Company’s PRC legal advisers, there will be no material legal impediment for the Target Group to apply for the relevant title certificates of the buildings in condition that the Construction Work Commencement Permit and Construction Work Completion and Inspection Certificate of such buildings have been obtained after the official inspection.

With respect to the building with gross floor area of approximately 7,158 sq.m., being the property numbered 33 occupied for office purpose, the real estate title certificate of which has not been obtained. The Target Group has obtained the relevant Construction Work Planning Permit and Construction Work Commencement Permit, but not the Inspection Certificate, in respect of the building. The Company’s PRC legal advisers have confirmed that there will be no material legal impediment for the Target Group to apply for the relevant title certificate of the building in condition that the Inspection Certificate has been obtained.

The Directors are of the view that the lack of land use right certificates and building ownership certificates for the above buildings and car parking lot have no material effect on the normal production and operations of the Target Group, nor the interests of the Company and its shareholders as a whole.

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LETTER FROM THE BOARD

Particulars of the property interests of the Target Group are set out in the property valuation report of the Enlarged Group in Appendix VIII to this circular. Jones Lang LaSalle Sallmanns Limited has valued those property interests as at 30 April 2009.

The table below sets forth the reconciliation of the property interests of the Target Group from its accountants’ report as at 30 April 2009 set out in Appendix II to this circular and the valuation of those property interests as at 30 April 2009.

Net book value of property interests of the Target Group as at 30 April 2009 — Land and buildings Valuation surplus as at 30 April 2009 Valuation as at 30 April 2009 per Appendix VIII	RMB’000 494,305
	246,531
	740,836

FINANCIAL EFFECT OF THE ACQUISITION ON THE HISENSE KELON GROUP

In respect of the financial impact of the Acquisition to the Hisense Kelon Group, the Directors considered the relevant unaudited pro forma financial information prepared under IFRS as set out in Appendix IV to this circular.

On a pro forma combined basis and compared with the relevant audited financial information of the Hisense Kelon Group,

(i) total net assets as at 31 December 2008 would increase by approximately RMB880.1 million to approximately RMB21.5 million; and
(ii) the liabilities would increase by approximately RMB1,287.9 million to approximately RMB5,834.1 million as at 31 December 2008.

Prospective financial information of the Target Group and the Enlarged Group

PRC Target Group Profit Forecast and PRC Enlarged Group Profit Forecast

In compliance with PRC laws and regulations and pursuant to the requirements of CSRC in respect of substantial acquisitions by PRC listed companies, the Company has published

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in the PRC Report the PRC Target Group Profit Forecast and the PRC Enlarged Group Profit Forecast prepared on the following assumptions:

(1) The restructuring of the Target Group has been completed on 1 January 2009 and in the absence of unforeseen circumstances, the pro forma forecast net profit attributable to equity holders of the Target Group for the year ending 31 December 2009 is approximately RMB63.81 million (equivalent to approximately HK$72.38 million); and
(2) The Company acquires the interest of the Target Group and the acquisition having been completed on 1 January 2009 and in the absence of unforeseen circumstances, the pro forma forecast net profit attributable to equity holders of the Enlarged Group for the year ending 31 December 2009 is approximately RMB112.78 million (equivalent to approximately HK$127.94 million).

The PRC Target Group Profit Forecast and the PRC Enlarged Group Profit Forecast have been prepared in compliance with PRC laws and regulations and pursuant to the requirements of CSRC. They constitute profit forecasts under Rule 10 of the Takeovers Code. However, the PRC Target Group Profit Forecast and the PRC Enlarged Group Profit Forecast do not meet the standards required by Rule 10 of the Takeovers Code, and neither the Financial Adviser to the Company nor the Independent Financial Adviser has reported on whether the PRC Target Group Profit Forecast and the PRC Enlarged Group Profit Forecast have been prepared by the Directors after careful enquiry, due care and consideration and neither have the auditors of the Company reported on whether the PRC Target Group Profit Forecast and the PRC Enlarged Group Profit Forecast, so far as the accounting policies and calculations are concerned, have been properly prepared on the basis of the assumptions made. Nevertheless, in view of the PRC regulatory requirements, the Executive is prepared to permit the publication of the PRC Target Group Profit Forecast and the PRC Enlarged Group Profit Forecast in the Announcement and this circular.

Shareholders and potential investors should, therefore, exercise caution in placing reliance on the PRC Target Group Profit Forecast and the PRC Enlarged Group Profit Forecast in assessing the merits and demerits of the Acquisition and the Whitewash Waiver.

The Directors have prepared the IFRS 2009 Profit Forecasts based on the assumption that the Company’s acquisition of the interest of the Target Group having been completed on 1 January 2009, as well as those assumptions stated respectively in Appendix V to this circular.

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LETTER FROM THE BOARD

IFRS 2009 Profit Forecasts

The forecast profit of the Hisense Kelon Group and the Target Group and pro forma forecast of the Enlarged Group for the year ending 31 December 2009 will be not less than RMB37.88 million (equivalent to approximately HK$42.98 million), RMB63.81 million (equivalent to approximately HK$72.38 million) and RMB100.33 million (equivalent to approximately HK$113.82 million) respectively. The IFRS 2009 Profit Forecasts, together with the letters issued by the auditors of the Company, the Financial Adviser to the Company and the Independent Financial Adviser, are set out in Appendix V to this circular.

The IFRS 2009 Profit Forecasts are prepared for illustrative purposes only based on the judgments and assumptions of the Directors, and because of its nature, they do not provide any assurance or indication that any event will take place in the future and may not give a true picture of the results of the Enlarged Group for the year ending 31 December 2009.

Since there was a convergence of PRC GAAP to IFRS starting from 1 January 2007, except for expenditure of approximately RMB12,449,000 incurred in relation to the Acquisition is recognised as an expense in the period in which it is incurred in accordance with IFRS whereas such expense is capitalised in prepayments in accordance with PRC GAAP, there is no other material reconciling item between the profit forecasts prepared under the PRC GAAP and those prepared under IFRS. The auditor of the Company is of the same view in this regard based on the work performed in relation to the IFRS 2009 Profit Forecasts.

In addition, the IFRS 2009 Profit Forecasts also constitute profit forecasts under Rules 14.62 and 14A.56(8) of the Listing Rules and Rule 10 of the Takeovers Code. In compliance with the requirement under Rule 10 of the Takeovers Code and Rules 14.62 and 14A.56(8) of the Listing Rules, the IFRS 2009 Profit Forecasts have been reported on in accordance with the Takeovers Code and the Listing Rules. The auditors are of opinion that so far as the accounting policies and calculations are concerned, the IFRS 2009 Profit Forecasts have been properly compiled in accordance with the assumptions made by the Directors as set out in Appendix V to this circular and are presented on a basis consistent in all material respects with the accounting policies adopted in preparing the financial statements of the Hisense Kelon Group and the Target Group for the year ended 31 December 2008. Each of the Financial Adviser to the Company and the Independent Financial Adviser has satisfied itself that the IFRS 2009 Profit Forecasts have been made with careful enquiry, due care and consideration. The requisite reports from BDO Limited, the Financial Adviser to the Company and the Independent Financial Adviser have been lodged with the Executive and the Stock Exchange and included in this circular. The principal assumptions adopted in the preparation of the IFRS 2009 Profit Forecasts and the relevant reports are set out in Appendix V to this circular. The Directors considered

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LETTER FROM THE BOARD

that the above profit forecasts for the year ending 31 December 2009 remain valid as at the Latest Practicable Date.

The Directors have also confirmed that they have made the IFRS 2009 Profit Forecasts after due and careful enquiry in compliance with the Listing Rules.

Shareholders should note that the IFRS 2009 Profit Forecasts have been disclosed in the Announcement without the Company having complied in full with Rule 10 of the Takeovers Code. Therefore, Shareholders should not rely on the IFRS 2009 Profit Forecasts before having an opportunity to review the reports from the Financial Adviser to the Company, the Independent Financial Adviser and the auditor of the Company as set out in this circular.

Shareholders and potential investors should, therefore, exercise caution in placing reliance on the IFRS 2009 Profit Forecasts in assessing the merits and demerits of the Acquisition and the Whitewash Waiver.

Financial information of the Hisense Kelon Group

The audited financial statements of the Hisense Kelon Group for the three years ended 31 December 2008 which have been prepared in accordance with IFRS are set out in Appendix I to this circular.

As disclosed in the PRC Results Estimate Announcement, the Company’s unaudited net profit attributable to the holders of the parent company for the six months ended 30 June 2009 prepared in accordance with PRC GAAP was estimated to be approximately RMB150 million, representing a significant increase in the range of 100-150% as compared to the six months ended 30 June 2008.

The PRC Results Estimate Announcement was made in accordance with relevant PRC regulatory requirements and Rule 13.09(1) of the Listing Rules.

The changes in results were attributed to the following reasons:

As compared with the corresponding period last year, the production costs were under effective control during the reporting period, which was mainly attributable to a remarkable success of a series of cost reduction measures adopted by the Company. This resulted in an increase in the gross profit margin of the products during the reporting period.

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LETTER FROM THE BOARD

Exchange losses of the Company decreased due to a relatively gentle fluctuation of the exchange rate during the reporting period as compared with the corresponding period last year.

The PRC Results Estimate has been prepared in compliance with PRC laws and regulations. It constitutes profit forecasts under Rule 10 of the Takeovers Code. However, the PRC Results Estimate does not meet the standards required by Rule 10 of the Takeovers Code, and neither the Financial Adviser to the Company nor the Independent Financial Adviser has reported on whether the PRC Results Estimate has been prepared by the Directors after due care and consideration and neither have the auditors of the Company reported on whether the PRC Results Estimate, so far as the accounting policies and calculations are concerned, have been properly prepared on the bases adopted. Nevertheless, in view of the PRC regulatory requirements, the Executive is prepared to permit the publication of the PRC Results Estimate in this circular. Shareholders and potential investors should, therefore, exercise caution in placing reliance on the PRC Results Estimate in assessing the merits and demerits of the Acquisition and the Whitewash Waiver.

The Directors have prepared the IFRS Results Estimate based on the bases stated in Appendix VI to this circular.

IFRS Results Estimate

The estimated profit of the Hisense Kelon Group attributable to the equity holders of the Company for the six months ended 30 June 2009 prepared in accordance with IFRS was estimated to be approximately RMB149.24 million (equivalent to approximately HK$169.31 million).

Since there was a convergence of PRC GAAP to IFRS starting from 1 January 2007, except for expenditure of approximately RMB6 million incurred in relation to the Acquisition is recognised as an expense in the period in which it is incurred in accordance with IFRS whereas such expense is capitalised in prepayments in accordance with PRC GAAP, there is no other material reconciling item between the estimated profit of the Hisense Kelon Group attributable to the equity holders of the Company for the six months ended 30 June 2009 prepared under the PRC GAAP and that prepared under IFRS. The auditor of the Company is of the same view in this regard based on the work performed in relation to the IFRS Results Estimate.

In addition, the IFRS Results Estimate also constitutes profit forecasts under Rule 10 of the Takeovers Code. In compliance with the requirement under Rule 10 of the Takeovers Code, the IFRS Results Estimate has been reported on in accordance with the Takeovers Code and the requisite reports from BDO Limited, the Financial Adviser to the Company and the Independent Financial Adviser have been lodged with the Executive and included in this circular.

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LETTER FROM THE BOARD

The principal bases adopted in the preparation of the IFRS Results Estimate and the relevant reports from BDO Limited, the Financial Adviser to the Company and the Independent Financial Adviser are set out in Appendix VI to this circular. The Directors considered that the above IFRS Results Estimate remains valid as at the Latest Practicable Date.

Pro forma financial information of the Enlarged Group

The unaudited pro forma financial information of the Enlarged Group as at 31 December 2008 which has been prepared in accordance with IFRS and in compliance with Rule 4.29 of the Listing Rules is set out in Appendix IV to this circular.

In compliance with PRC regulatory requirements, the Company has published the audited pro forma income statements for the year ended 31 December 2008 and the four months ended 30 April 2009 and audited pro forma balance sheets as at 31 December 2008 and 30 April 2009 of the Enlarged Group prepared in accordance with PRC GAAP in the PRC Report, which has been published by the Company on the date of the Announcement as an overseas regulatory announcement pursuant to Rule 13.09(2) of the Listing Rules.

Shareholders and potential investors are advised to exercise caution in placing reliance on such pro forma financial information of the Enlarged Group, and to refer, instead, to the audited financial information of the Hisense Kelon Group and unaudited pro forma financial information of the Enlarged Group as at 31 December 2008 prepared in accordance with IFRS and the IFRS 2009 Profit Forecasts prepared in accordance with IFRS as included in Appendices IV and V to this circular, respectively, in assessing the merits and demerits of the Acquisition and the Whitewash Waiver.

The Directors do not consider that the aforesaid audited pro forma financial information of the Enlarged Group, prepared in accordance with PRC GAAP, as disclosed in the PRC Report, is material for Shareholders and potential investors to assess the merits and demerits of the Acquisition and the Whitewash Waiver because the pro forma statement of assets and liabilities of the Enlarged Group as at 31 December 2008 and the IFRS 2009 Profit Forecasts, which comply with the relevant Listing Rules and are therefore more relevant, are set out in Appendices IV and V to this circular, respectively. The Directors do not consider the non-inclusion of the aforesaid audited financial information of the Hisense Kelon Group and audited pro forma financial information of the Enlarged Group prepared in accordance with PRC GAAP in the Announcement and this circular to be misleading.

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LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE ACQUISITION

(1) The Acquisition is expected to enable the Enlarged Group to become one of the most competitive market leaders in the White Goods industry in the PRC

The Directors believe that the Acquisition will enable the Enlarged Group to become one of the most competitive market leaders in the refrigerator and air-conditioner sectors of the PRC and further strengthen the leadership position of the Hisense Kelon Group in the White Goods industry of the PRC. Through integration with the White Goods Business of the Hisense Group, the Enlarged Group is expected to consolidate and rationalize its operation and resources allocation structure to optimize its product portfolio, production locations, technology development, brand promotion, and domestic and international channel management. The Directors believe that the Acquisition will lead to changes in the competitive landscape of the White Goods industry in the PRC with the Enlarged Group moving up to be one of the most competitive market leaders in the industry.

(2) The financial position of the Enlarged Group is expected to be significantly improved

The Enlarged Group will benefit from the relatively stronger balance sheet of the Target Group as compared with the Hisense Kelon Group. As compared to the audited negative equity position of the Company under IFRS of approximately RMB859 million as at 31 December 2008 (which is extracted from the annual report of the Company for the year ended 31 December 2008 published on 27 April 2009 in accordance with the Listing Rules), acquisition of the Target Group with an audited positive net assets value under IFRS of approximately RMB888 million as at 31 December 2008 (which is extracted from the audited financial statements of the Target Group and the report of which is set out as Appendix II to this circular) will change the equity position of the Enlarged Group to positive net assets value of approximately RMB21 million, after net of intra-group adjustment. The bank borrowings to total assets ratio of the Enlarged Group will also be significantly reduced by combining the Target Group and the Company, which have corresponding ratios under the IFRS of approximately 2.9% and approximately 49.2% respectively as at 31 December 2008. Hence, the financial position of the Enlarged Group will be reinforced by the Acquisition.

(3) The Enlarged Group will benefit from economies of scale and cost-savings

Upon Completion, the Enlarged Group will have a consolidated annual production capacity of more than 10 million sets of refrigerators and more than 6 million sets of air-conditioners. The production facilities, including refrigerator production plants in Beijing, Liaoning, Jiangsu, Guangdong and Sichuan, and air-conditioner production plants in Shandong, Zhejiang, and Guangdong, are all strategically located in the most developed and populated areas in the PRC.

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LETTER FROM THE BOARD

The Enlarged Group will strive to leverage such production capacity and geographic locations of its production facilities to achieve cost-savings and operation efficiencies from economies of scale, and synergies derived through integration in raw material procurement, production, sales and marketing, after sales services, working capital utilization, and research and development.

(4) Overall brand recognition will be enhanced through combined strength of the multiple brands of the two groups

The Enlarged Group intends to adopt a multi-brand strategy to capitalize on the established goodwill of the existing brands of the two groups — “Hisense”, “Kelon” and “Ronshen”. Given the size and diversity of the PRC market, a multiplebrand strategy would better satisfy demand from various market segments. The combination of the three different brands will allow the Enlarged Group to extend its brand coverage to new market segments and lift its overall brand recognition in both the domestic and international markets.

(5) Management efficiency will be improved through streamlining corporate and management structures

Upon Completion, the Enlarged Group will be able to consolidate the management of the two groups and improve management efficiency through streamlining corporate and management structures. The Enlarged Group intends to strengthen its supervision and internal control by establishing better alignment of the responsibilities, powers and economic rewards of the subsidiaries and associates. While the Enlarged Group will provide a centralized platform to support the operation of its subsidiaries and associates, the member companies will be required to be responsible for their own profits and losses.

(6) Competition with the Hisense Group will be eliminated

After Completion, the White Goods businesses including air-conditioners and refrigerators would be operated under the Hisense Kelon Group. The Hisense Group will operate the multimedia businesses such as televisions, communications business and real estate businesses. The Acquisition will effectively eliminate competition between the Hisense Kelon Group and its largest shareholder, Hisense Group Co., in the White Goods business and therefore enhance the corporate governance of the Enlarged Group.

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LETTER FROM THE BOARD

(7) Connected transactions between the Hisense Kelon Group and the Hisense Group will be substantially reduced

Under the current group structure, a large part of the sourcing, sales and other production and operation activities of the Hisense Kelon Group was made through the sourcing system and marketing channels of the Hisense Group, which has led to a large amount of connected transactions between the Hisense Kelon Group and the Hisense Group.

After Completion, the Hisense Kelon Group will be primarily engaged in the White Goods businesses while the Hisense Group will focus on, among others, multimedia businesses. It is expected that connected transactions between the Hisense Group and the Hisense Kelon Group in respect of White Goods businesses will be substantially reduced.

In light of the above, the Directors are of the view that the terms of the Acquisition Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

INDEBTEDNESS

At the close of business on 30 June 2009, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Hisense Kelon Group had outstanding bank and other loans of approximately RMB1,714 million, comprising secured bank loans of approximately RMB330 million, trade and bills receivable discounted with recourse of approximately RMB469 million, unsecured bank loans of approximately RMB496 million and unsecured other loan from a fellow subsidiary of approximately RMB419 million. The Target Group had outstanding bank and other loans of approximately RMB252 million, comprising bills discounted with recourse of approximately RMB99 million and unsecured other loan from a fellow subsidiary of approximately RMB153 million.

As at 30 June 2009, bank loans of the Hisense Kelon Group amounting to approximately RMB330 million are secured by certain plant and machinery, investment properties and land use rights of the Hisense Kelon Group. Unsecured bank and other loans of the Hisense Kelon Group amounting to approximately RMB915 million are guaranteed by Hisense Group Co..

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LETTER FROM THE BOARD

The Hisense Kelon Group is a defendant in certain lawsuits as well as the plaintiff in other proceedings arising in the ordinary course of business. The amount involved in the litigations against the Hisense Kelon Group relates mainly to sales, purchases and expenditures incurred by the Hisense Kelon Group and most of them were recorded as liabilities of the Hisense Kelon Group at the close of business on 30 June 2009. While the outcomes of such contingencies, lawsuits or other proceedings cannot be determined at present, management believes that any resulting liabilities will not have material adverse effect on the financial position or operating results of the Hisense Kelon Group.

Save as aforesaid, the Hisense Kelon Group and the Target Group did not have, at the close of business on 30 June 2009, outstanding liabilities or any mortgages, charges, debentures, loan capital, bank overdrafts, loans, liabilities under acceptance or other similar indebtedness, hire purchase or finance lease obligations or any guarantees or other material contingent liabilities.

WORKING CAPITAL

The Directors are satisfied after due and careful enquiry that after taking into account the existing banking facilities available, facilities granted by a fellow subsidiary, guarantee to the banks provided by Hisense Group Co., financial support from Hisense Group Co., and the existing cash and bank balances, the Enlarged Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of publication of this circular, in the absence of unforeseeable circumstances.

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

The Hisense Kelon Group is principally engaged in the production and sale of airconditioners and refrigerators. It is currently one of the largest manufacturers in the White Goods industry in the PRC.

The PRC economy has undergone a sustained economic growth over the past decades. According to China Statistical Yearbook 2008, China’s GDP increased substantially from approximately RMB7,118 billion in 1996 to approximately RMB24,953 billion in 2007, with compound annual growth rate of approximately 12.1%. According to World Bank’s projection on China’s GDP growth, the PRC real GDP is expected to grow annually at the rate of approximately 7.2% and 7.7% in 2009 and 2010 respectively. The strong purchasing power of the PRC resident is evidenced by the increase in the per capita GDP for the period from 2001 to 2007. Per capita GDP has increased from approximately RMB8,622 in 2001 to approximately RMB18,934 in 2007, representing compound annual growth rate of approximately 14.0%. The affluent PRC economy has brought about an invaluable opportunity for the development of the White Goods Industry in the PRC.

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LETTER FROM THE BOARD

In anticipation of the increasing demand of white good products in the domestic markets as a result of the expected growth in the PRC GDP, the Board is optimistic about the future prospects of the Hisense Kelon Group’s business and operating results.

However, the Hisense Kelon Group, at present, does not have any concrete plan for capital expenditure for the year ending 31 December 2009.

Given the strength on the leading position of the Hisense Kelon Group in the PRC white goods industry, its production scale, its strong customer base, and professional management, the Board believes that the Acquisition will enable it to expand its domestic business, enhance its operation efficiencies from economies of scale, and further strengthen its financial position.

As a whole, the Hisense Kelon Group is expected to consolidate and rationalize its operation and resources allocation structure to optimize its product portfolio, production locations, technology development, brand promotion, and domestic and international channel management. The Directors believe that such strategy following the integration of the White Goods Business of the Hisense Group, the Enlarged Group will be able to be one of the most competitive market leaders in the industry.

However, save as the above and those information stated in this circular, Shareholders and potential investors shall also evaluate the following risks relating to the White Goods industry in the PRC:

(i) changes in existing government policies or political, legal (including changes in legislations, regulations or rules), regulatory, fiscal, economic, market conditions, or the macro-economy measures in the PRC may lead to a decrease in demand of white goods products, or changes in interest rates, and may have an adverse impact on the financial position of the Enlarged Group;
(ii) the material costs as well as the salary of labor may increase which will increase the cost in the white goods manufacturing process, this may have a negative impact on the Enlarged Group’s results and financial position; and
(iii) the product recalls and repurchases as a result of the change in the existing consumer laws and regulations or the adoption of the new laws and regulations in the future that have onerous compliance obligation, this may adversely affect the Enlarged Group’s operations and financial position.

In respect of the management, it is proposed that all existing directors of the Hisense Kelon Group and the Target Group will remain in their positions. Mr. Tang Ye Guo will continue to act as chairman of the Hisense Kelon Group.

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LETTER FROM THE BOARD

MATERIAL CHANGE

As at the Latest Practicable Date, there was no material change in the financial or trading position or outlook of the Hisense Kelon Group since 31 December 2008, being the date to which the latest published audited financial statements of the Hisense Kelon Group were made up.

IMPLICATIONS OF THE TAKEOVERS CODE AND WHITEWASH WAIVER

Assuming that the maximum number of Consideration Shares will be issued by the Company to Qingdao Hisense, the shareholding interest of Qingdao Hisense in the Company will increase from approximately 25.22% as at the date of the Announcement to approximately 45.21% in the share capital of the Company immediately after the Completion as enlarged by the issue of the Consideration Shares. As such, Qingdao Hisense and its concert parties will, upon Completion, be required to make a mandatory general offer to the Shareholders to acquire the Shares and all other securities of the Company in issue not already owned or agreed to be acquired by Qingdao Hisense and parties acting in concert with it under Rule 26.1 of the Takeovers Code unless a waiver pursuant to Note 1 of the Notes on dispensations from Rule 26 of the Takeovers Code is granted by the Executive.

A formal application has been made by Qingdao Hisense to the Executive for the Whitewash Waiver pursuant to Note 1 of the Notes on dispensations from Rule 26 of the Takeovers Code. The Whitewash Waiver, if granted by the Executive, would be subject to, among other things, the approval by the Independent Shareholders at the EGM by way of poll. It is a condition precedent to Completion that the Whitewash Waiver is granted by the Executive. If the Whitewash Waiver is not granted by the Executive or if the Conditions (if any) imposed thereon are not fulfilled, the Acquisition will not proceed. In such case, the requirement for Qingdao Hisense to make a mandatory general offer under Rule 26 of the Takeovers Code as a result of the Acquisition will not be triggered.

Save as disclosed above and in the section headed “Shareholding structure of the Company before and after the Completion” of this circular, none of Qingdao Hisense and parties acting in concert with it owned, controlled or directed any shares, convertible securities, warrants, options or derivatives in respect of the Shares as at the Latest Practicable Date.

The Executive has indicated that it will agree, subject to the approval by the Independent Shareholders at the EGM by way of poll, to waive Qingdao Hisense and parties acting in concert with it from any obligation to make a general offer for all the Shares under Rule 26 of the Takeovers Code as a result of the Company’s allotment and issue of the Consideration Shares for payment of the consideration for the Acquisition.

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LETTER FROM THE BOARD

There is no outstanding derivative in respect of relevant securities (as defined in the Takeovers Code) in the Company which has been entered into by Qingdao Hisense or any person acting in concert with it as at the Latest Practicable Date.

None of Qingdao Hisense or its concert parties has dealt in any securities of the Company during the 6 months prior to the date of the Announcement.

Save for the proposed issuance of the Consideration Shares, there is no arrangement (whether by way of option, indemnity or otherwise) in relation to the Shares or the shares of Qingdao Hisense and which might be material to the Whitewash Waiver as at the Latest Practicable Date.

As at the Latest Practicable Date, save for the Acquisition Agreement, there was no agreement or arrangement to which Qingdao Hisense is party which relates to the circumstances in which it may or may not invoke or seek to invoke a precondition or a condition to the Acquisition or the Whitewash Waiver.

None of Qingdao Hisense or any person acting in concert with it had borrowed or lent any relevant securities (as defined in the Takeovers Code) of the Company as at the Latest Practicable Date.

As at the Latest Practicable Date, there was no agreement, arrangement or understanding between Qingdao Hisense or any of its concert parties and any other person that the Consideration Shares to be acquired by Qingdao Hisense under the Acquisition Agreement would be transferred, charged or pledged to that person.

IMPLICATIONS OF THE LISTING RULES

As each of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) is 25% or more but less than 100%, the Acquisition constitutes a major transaction for the Company under Rule 14.06 of the Listing Rules. As at the date of the Announcement, Qingdao Hisense is a substantial shareholder of the Company holding approximately 25.22% of the entire issued share capital of the Company and is a connected person of the Company under the Listing Rules. As such, the Acquisition also constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules. The Acquisition is therefore subject to the announcement, reporting and independent shareholders’ approval requirements under Chapters 14 and 14A of the Listing Rules.

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LETTER FROM THE BOARD

Accordingly, the Acquisition and the Whitewash Waiver are subject to the approval by the Independent Shareholders at the EGM while the Acquisition is also subject to the approval of the A Shareholders and H Shareholders in separate class meetings, and in each case, by way of poll. Qingdao Hisense and its associates and parties acting in concert with Qingdao Hisense will abstain from voting for the approval of the Acquisition and the Whitewash Waiver at the EGM.

An Independent Board Committee has been formed to advise the Independent Shareholders on the Acquisition and the Whitewash Waiver and the Independent Financial Adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders on the Acquisition and the Whitewash Waiver.

CONTINUING CONNECTED TRANSACTIONS

The Company is in the process of collecting information relating to transactions that could become continuing connected transactions as a result of the completion of the Acquisition. The Company will comply with the relevant requirements under the Listing Rules in respect of any connected transactions that would continue to take place as a result of and after the Acquisition as and when appropriate.

CSRC WAIVER

The allotment and issue of the Consideration Shares by the Company to Qingdao Hisense under the Acquisition and the resulting increase in the number of A Shares held by Qingdao Hisense would, unless the CSRC Waiver is obtained, result in Qingdao Hisense having to acquire further Shares by way of an offer in accordance with the Takeover Procedures. Subject to the approval of the Acquisition by the Shareholders (other than Qingdao Hisense, its associates, concert parties and any person who is involved or interested in the Acquisition and/or the Whitewash Waiver) in the EGM, Qingdao Hisense will apply to CSRC for the grant of the CSRC Waiver.

VOTING ARRANGEMENT

Under the requirements of the Articles of Association, the Listing Rules and the Shenzhen Listing Rules, the Acquisition is subject to the following approvals by way of poll where Qingdao Hisense, its associates and parties acting in concert with it will abstain from voting on the relevant resolutions:

(i) the approval of more than two-thirds of the Independent Shareholders and exercising valid voting rights on the relevant resolutions and present (in person or by proxy) at the EGM;

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LETTER FROM THE BOARD

(ii) the approval of more than two-thirds of the holders of H Shares and exercising valid voting rights on the relevant resolutions and present (in person or by proxy) at the CSM; and
(iii) the approval of more than two-thirds of the holders of A Shares and exercising valid voting rights on the relevant resolutions and present (in person or by proxy) at a class meeting of A Shareholders.

Qingdao Hisense, its associates and parties acting in concert with it will also abstain from voting on the resolutions relating to the Acquisition by issuance of the Consideration Shares, the allotment and issue of the Consideration Shares, the authorisation of the Board to deal with all matters relating to the allotment and issue of the Consideration Shares, the Whitewash Waiver and the CSRC Waiver in the EGM, and on the resolutions relating to the Acquisition by issuance of the Consideration Shares, the allotment and issue of the Consideration Shares and the authorisation of the Board to deal with all matters relating to the allotment and issue of Consideration Shares in the CSM.

The CSRC Waiver, other than subject to the approval of the CSRC, will also be subject to, among other things, the approval of the Shareholders other than Qingdao Hisense, parties acting in concert with it and parties considered to be in association with it under the Shenzhen Listing Rules at the EGM by way of poll.

EGM

A notice of the EGM to be held at 2:00 p.m. on 31 August 2009 at the conference room of the Company’s head office, Shunde District, Foshan City, Guangdong Province, the PRC, at which relevant resolutions will be proposed to approve, among other things, the Acquisition by issuance of the Consideration Shares to Qingdao Hisense, the Whitewash Waiver, the CSRC Waiver and the authorisation of the Board to deal with all matters relating to the allotment and issue of Consideration Shares, is enclosed.

Form of proxy for use at the EGM is enclosed with this circular. Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Hong Kong Registrars Limited at Rooms 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 24 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the EGM or any adjourned meeting should you so desire.

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LETTER FROM THE BOARD

In accordance with Article 8.28 of the Articles of Association, a poll may be demanded in any general meeting of the Company by:

(A) the chairman of the meeting; or
(B) at least two Shareholders with voting rights or their proxies; or
(C) one or more Shareholder(s) (including their proxies) representing, individually or in aggregate, 10% or more of all shares carrying the voting rights at the general meeting.

Pursuant to Rule 13.39(4) of the Listing Rules, all votes casted at the EGM will be taken by poll and it is contemplated the chairman of the meeting will make such demand at the EGM and will announce the results of the poll in the manner prescribed under Rule 13.39(5) of the Listing Rules.

CSM

A notice of the CSM to be held at 3:00 p.m. (or immediately after the conclusion or adjournment of the class meeting of the A Shareholders) on 31 August 2009 at the conference room of the Company’s head office, Shunde District, Foshan City, Guangdong Province, the PRC, at which relevant resolutions will be proposed to approve, among other things, the Acquisition by issuance of the Consideration Shares to Qingdao Hisense and the authorisation of the Board to deal with all matters relating to the allotment and issue of Consideration Shares, is enclosed.

Form of proxy for use at the CSM is enclosed with this circular. Whether or not you are able to attend the CSM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Hong Kong Registrars Limited at Rooms 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 24 hours before the time appointed for the holding of the CSM or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the CSM or any adjourned meeting should you so desire.

In accordance with Article 8.28 of the Articles of Association, a poll may be demanded in any general meeting of the Company by:

(A) the chairman of the meeting; or

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LETTER FROM THE BOARD

(B) at least two Shareholders with voting rights or their proxies; or
(C) one or more Shareholder(s) (including their proxies) representing, individually or in aggregate, 10% or more of all shares carrying the voting rights at the general meeting.

Pursuant to Rule 13.39(4) of the Listing Rules, all votes casted at the CSM will be taken by poll and it is contemplated the chairman of the meeting will make such demand at the CSM and will announce the results of the poll in the manner prescribed under Rule 13.39(5) of the Listing Rules.

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee, comprising Mr. Zhang Sheng Ping, Mr. Lu Qing and Mr. Cheung Yui Kai, Warren, the three independent non-executive Directors, has been established for the purpose of advising the Independent Shareholders on the Acquisition and the Whitewash Waiver. No member of the Independent Board Committee has any interest or involvement in the transactions contemplated under the Acquisition Agreement or the Whitewash Waiver. The full text of the letter from the Independent Board Committee is set out on page 62 of this circular.

Access Capital Limited has been appointed by the Company, with the approval of the Independent Board Committee, as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on the Acquisition and the Whitewash Waiver. The text of the letter of advice from the Independent Financial Adviser containing their recommendations and the principal factors they have taken into account in arriving at their recommendation is set out on pages 63 to 99 of this circular.

RECOMMENDATION

The Directors (including the independent non-executive Directors) consider that the terms of the Acquisition are normal commercial terms, fair and reasonable, and the Acquisition and the Whitewash Waiver are in the best interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the special and ordinary resolutions to be proposed at the EGM and/or the CSM. The Board also considers that the CSRC Waiver is in the interests of the Company and the Shareholders as a whole and recommends the Independent Shareholders to vote in favour of the relevant resolutions at the EGM.

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LETTER FROM THE BOARD

MISCELLANEOUS

Under Rules 13.73, 14.41 and 14A.20 of the Listing Rules, an issuer should despatch a circular to its shareholders at the same time as (or before) the issuer gives notice of the general meeting to approve the transaction referred to in this circular. Given that the Company is a PRC issuer and subject to a 45-day notice period requirement under the PRC Company Law and its articles of association for convening a Shareholders’ meeting, the Company has applied for, and the Stock Exchange has granted, a waiver from strict compliance with Rules 13.73, 14.41 and 14A.20 of the Listing Rules to issue the notices of the EGM and the CSM before despatch of this circular.

ADDITIONAL INFORMATION

Your attention is drawn to the letter from the Independent Board Committee, the letter from the Independent Financial Adviser, the financial information of the Hisense Kelon Group as well as other information contained in the Appendices to this circular before considering whether to vote for or against the resolutions to be proposed at the EGM and/or the CSM for approving the Acquisition, the Whitewash Waiver, the CSRC Waiver and the authorisation of the Board to deal with all matters relating to the allotment and issue of Consideration Shares as set out in the notice of the EGM and notice of the CSM contained in this circular.

Yours faithfully,

By Order of the Board of

Hisense Kelon Electrical Holdings Company Limited

Tang Ye Guo

Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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)

31 July 2009

To the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTION: ACQUISITION OF THE TARGET GROUP FROM QINGDAO HISENSE AIR-CONDITIONING COMPANY LIMITED AND APPLICATION FOR WHITEWASH WAIVER

We refer to the circular issued by the Company to Shareholders dated 31 July 2009 (the “Circular”) of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires.

Access Capital Limited has been appointed to act as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders with regard to the Acquisition and the Whitewash Waiver. The text of the letter of advice from the Independent Financial Adviser containing their recommendations and the principal factors they have taken into account in arriving at their recommendation are set out on pages 63 to 99 of the Circular. Independent Shareholders are recommended to read the letter of advice from the Independent Financial Adviser, the letter from the Board contained in the Circular as well as the additional information set out in the Appendices to the Circular.

Having considered the terms of each of the Acquisition and the Whitewash Waiver and the advice of the Independent Financial Adviser, we are of the opinion that the Acquisition and the Whitewash Waiver are in the interests of the Company and the Shareholders as a whole. We also consider that the terms of the Acquisition are fair and reasonable so far as the Independent Shareholders are concerned. We therefore recommend that the Independent Shareholders vote in favour of the relevant resolutions to be proposed at the EGM and/or the CSM to approve the Acquisition and the Whitewash Waiver.

Yours faithfully, For and on behalf of

Independent Board Committee

Mr. Zhang Sheng Ping Mr. Lu Qing Mr. Cheung Yui Kai, Warren

Independent non-executive Directors

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the text of the letter of advice from Access Capital Limited to the Independent Board Committee and the Independent Shareholders prepared for inclusion in this circular.

==> picture [100 x 46] intentionally omitted <==

Suite 606, 6th Floor Bank of America Tower 12 Harcourt Road Central Hong Kong

31 July 2009

To the Independent Board Committee and

the Independent Shareholders of

Hisense Kelon Electrical Holdings Company Limited

Dear Sirs,

MAJOR AND

CONNECTED TRANSACTION

ACQUISITION OF THE TARGET GROUP FROM QINGDAO HISENSE AIR-CONDITIONING COMPANY LIMITED AND APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition and the Whitewash Waiver, details of which are set out in the circular to the Shareholders dated 31 July 2009 (the “Circular”), of which this letter forms part. This letter contains our advice to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition and the Whitewash Waiver. Unless otherwise stated, terms defined in the Circular have the same meanings in this letter.

On 16 July 2009, the Board announced that the Company entered into the Acquisition Agreement with Qingdao Hisense on 29 June 2009, pursuant to which the Company has conditionally agreed to acquire from Qingdao Hisense the Target Group at a consideration of RMB1,238,204,800 (equivalent to approximately HK$1,404,672,543) which will be

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

satisfied in full by the allotment and issue of not more than 362,048,187 Consideration Shares by the Company to Qingdao Hisense at the issue price of RMB3.42 (equivalent to approximately HK$3.88) per Consideration Share.

As each of the applicable percentage ratio (as defined in Rule 14.07 of the Listing Rules) is 25% or more but less than 100%, the Acquisition constitutes a major transaction for the Company under Rule 14.06 of the Listing Rules. As at the date of the Acquisition Agreement and the Latest Practicable Date, Qingdao Hisense is a substantial shareholder of the Company holding approximately 25.22% of the entire issued share capital of the Company and is therefore a connected person of the Company under the Listing Rules. Accordingly, the Acquisition also constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules and is subject to the announcement, reporting and independent shareholders’ approval requirements under Chapters 14 and 14A of the Listing Rules.

In addition, since the shareholding interest of Qingdao Hisense in the Company will increase from approximately 25.22% as at the date of the Announcement to approximately 45.21% immediately after Completion as a result of the issue of the Consideration Shares. Accordingly, Qingdao Hisense and its concert parties will, upon Completion, be required to make a mandatory general offer to the Shareholders to acquire the Shares and all other securities of the Company in issue not already owned or agreed to be acquired by Qingdao Hisense and parties acting in concert with it under Rule 26.1 of the Takeovers Code unless a waiver pursuant to Note 1 of the Notes on dispensations from Rule 26 of the Takeovers Code is granted by the Executive.

As at the date hereof, the Company has three independent non-executive Directors, namely, Mr. Zhang Sheng Ping, Mr. Lu Qing and Mr. Cheung Yui Kai, Warren. The Independent Board Committee, comprising all of the independent non-executive Directors, has been established for the purpose of advising the Independent Shareholders on the terms of the Acquisition and the Whitewash Waiver. Each of Mr. Zhang Sheng Ping, Mr. Lu Qing and Mr. Cheung Yui Kai, Warren has confirmed that he does not have any direct or indirect conflict of interest in the Acquisition and the Whitewash Waiver. Based on such confirmation, we consider that all three independent non-executive Directors are eligible to be members of the Independent Board Committee to advise the Independent Shareholders in respect of the Acquisition and the Whitewash Waiver.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As the independent financial adviser to the Independent Board Committee and the Independent Shareholders, our role is to give an independent opinion to the Independent Board Committee and the Independent Shareholders as to whether or not the Acquisition and the Whitewash Waiver are fair and reasonable and in the interests of the Company and the Shareholders as a whole, and how the Independent Shareholders should vote in respect of the resolutions to approve the Acquisition and the Whitewash Waiver at the EGM.

BASIS OF OUR OPINION

In formulating our advice, we have relied solely on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Company and/or the Directors. We have assumed that all such statements, information, opinions and representations contained or referred to in the Circular or otherwise provided or made or given by the Company and/or its senior management staff and/or the Directors and for which it is/they are solely responsible were true and accurate and valid at the time they were made and given and continue to be true and valid as at the date of the Circular. We have assumed that all the opinions and representations made or provided by the Directors and/or the senior management staff of the Company contained in the Circular have been reasonably made after due and careful enquiry. We have also sought and obtained confirmation from the Company and/or its senior management staff and/or the Directors that no material facts have been omitted from the information provided and referred to in the Circular.

We consider that we have reviewed all information and documents which are made available to us to enable us to reach an informed view and to justify our reliance on the information provided so as to provide a reasonable basis for our advice. We have no reason to doubt the truth, accuracy and completeness of the statements, information, opinions and representations provided to us by the Company and/or its senior management staff and/or the Directors and their respective advisers or to believe that material information has been withheld or omitted from the information provided to us or referred to in the aforesaid documents. We have not, however, carried out any independent verification of the information provided, nor have we conducted any independent investigation into the business and affairs of the Hisense Kelon Group or the Target Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS CONSIDERED

In formulating our opinion regarding the Acquisition and the Whitewash Waiver, we have taken into consideration the following principal factors:

I. The Acquisition

1. Background information and reasons for the Acquisition

(a) Information on the Hisense Kelon Group

The Company was incorporated in the PRC on 16 December 1992 and, together with its subsidiaries, is principally engaged in the manufacture and sales of refrigerators and air-conditioners. As stated in the Company’s annual report for the year ended 31 December 2008 (the “2008 Annual Report”), for each of the year ended 31 December 2007 and 2008, approximately 61.0% and 65.4%, respectively, of the Hisense Kelon Group’s turnover was derived from the PRC market (including Hong Kong) with the rest derived from European, American and other overseas markets.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is a summary of the Hisense Kelon Group’s operating results and financial position extracted from the Company’s annual reports:

	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December
	2006	2007	2008
	RMB’000	RMB’000	RMB’000
	(Audited and	(Audited)	(Audited)
	restated)
Turnover
— Sales of refrigerators	3,327,896	4,324,808	4,189,049
— Sales of air-conditioners	2,533,360	3,214,875	3,024,028
— Sales of freezers	231,972	324,821	397,572
— Sales of product components	471,029	455,456	442,260
	6,564,257	8,319,960	8,052,909
Gross profit	1,089,472	1,377,171	1,236,300
Other income and gains	409,305	570,905	201,701
Distribution costs	(869,207)	(1,126,269)	(1,081,498)
Administrative expenses	(390,978)	(397,500)	(432,835)
Other operating expenses	(56,815)	(133,500)	(71,529)
Profit/(loss) from operations	181,777	290,807	(148,861)
Profit/(loss) for the year	49,249	203,657	(237,520)
Attributable to:
— Equity holders of the Company	69,989	238,712	(231,896)
— Minority interests	(20,740)	(35,055)	(5,624)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

		As at 31 December
	2006	2007	2008
	RMB’000	RMB’000	RMB’000
	(Audited and	(Audited)	(Audited)
	restated)
Non-current assets	2,237,643	1,990,117	1,991,145
Non-current assets held for sale	—	20,369	—
Current assets	2,430,901	2,404,085	1,696,361
Current liabilities	(5,382,881)	(5,044,345)	(4,546,134)
Non-current liabilities	(13,594)	—	—
Net current liabilities	(2,951,980)	(2,640,260)	(2,849,773)
Total net liabilities	(727,931)	(629,774)	(858,628)

We have noted from the Company’s annual report for 2006 (the “2006 Annual Report”) that the Company’s auditors (the “Auditors”), BDO Limited (previously known as BDO McCabe Lo Limited), had expressed a qualified opinion on the financial statements of the Company and its Subsidiaries for the year ended 31 December 2006 arising from limitation of audit scope. In particular, due to the limitation of information available on and the irregularity of a series of activities/transactions entered into by Guangdong Greencool Enterprise Development Company Limited (“Greencool Enterprise”), which is the previous controlling shareholder of the Company, its affiliates and/or companies suspected to be connected with Mr. Gu Chu Jun (“Mr. Gu”), who is a former executive Director and the former chairman of the Company, during the period from October 2001 to July 2005 including but not limited to unauthorised use of the Hisense Kelon 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, the Auditors were unable to satisfy themselves concerning the validity of the aforesaid transactions and the appropriateness of the accumulated impairment and the recoverability of the carrying amounts of the receivables and payables due from/to

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

the suspected companies at approximately RMB286 million (net of an accumulated impairment loss of RMB364 million) and RMB132 million, respectively, as at 31 December 2006. Any adjustments found to be necessary would affect the net liabilities of the Hisense Kelon Group as at 31 December 2006 and the profit for the year then ended. Except for the effects of such adjustments (if any), the Auditors opined that the financial statements give a true and fair view of the state of the Hisense Kelon Group’s affairs as at 31 December 2006 and of its profit and cash flows for the year then ended.

For the year ended 31 December 2006, the Hisense Kelon Group recorded a turnover of approximately RMB6,564.3 million and a net profit of approximately RMB49.2 million. As compared to the substantial amount of the net loss of approximately RMB3,790.6 million for the year 2005, the positive financial results for the year 2006 represents a significant turnaround of the Hisense Kelon Group’s financial performance. As explained in the 2006 Annual Report, such turnaround was mainly due to the fact that (i) the costs and expenses incurred by the Company were significantly lower than the preceding year as a result of the gradual implementation and adoption of various costs control measures during 2006 and the substantial improvement in gross profit margin; (ii) the Company received subsidies from the PRC Government for technological upgrade and innovation in the sum of RMB70 million during the year; and (iii) there were revenues from the disposal of idle assets by the Company.

As noted in the 2006 Annual Report, despite the adverse impact on the confidence of the financial institutions, suppliers and customers on the Company caused by the incident of the investigation by the China Securities and Regulatory Commission (the “CSRC”) on the Hisense Kelon Group for alleged breaches of the securities laws and regulations in the PRC since 5 April 2005 as a result of the formal investigation by the PRC’s Public Security Bureau in connection with economic crimes suspected to be committed by Mr. Gu and other former senior management officers responsible for the finance of the Hisense Kelon Group, the Hisense Kelon Group was able to improve gradually its production and sales activities with the profit margin of products and the liquidity of assets being further enhanced during 2006.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As for the year ended 31 December 2007, due to the limitation of information available on and the irregularity of a series of activities/ transactions entered into by Greencool Enterprise, its affiliates and/or companies suspected to be connected with Mr. Gu during the period from October 2001 to July 2005 and the validity of the aforesaid transactions and the appropriateness of the accumulated impairment and the recoverability of the carrying amounts of the receivables and payables due from/to the suspected companies as mentioned in the 2006 Annual Report, the Auditors had also expressed a qualified opinion on the financial statements of the Company and its Subsidiaries for the year ended 31 December 2007 arising from limitation of audit scope.

For the year ended 31 December 2007, the Hisense Kelon Group recorded a turnover of approximately RMB8,320.0 million, representing an increase of approximately 26.7% from the preceding year’s turnover of approximately RMB6,564.3 million. For the same period, the Hisense Kelon Group recorded a net profit of approximately RMB203.7 million, which represents a significant improvement over the net profit of approximately RMB49.2 million for the financial year 2006. As explained in the Company’s annual report for 2007 (the “2007 Annual Report”) and further advised by the Company, while 2007 had been a challenging year for PRC home appliance manufacturers there were 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 RMB; and increased costs of sea freight and non-tariff barriers, the improvement in the Hisense Kelon Group’s profitability was mainly attributable to the overall growth of the PRC economy and the industry, increase in idle assets disposal and revitalised revenues, as well as to the operation quality enhancement measures adopted by the Company during the year.

Nevertheless, as set out in the 2007 Annual Report, despite the considerable improvement as compared to the previous years, the growth of the revenues for the Hisense Kelon Group’s air-conditioner business was still below the planned objectives and economies of scale was not achieved. In addition, as the Company aimed at enhancing its brand image and reputation, it had significantly increased the advertising and brand promotion expenses during the year, which resulting in the increase in sales expense exceeded the increase in revenues. Some

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

production bases of the Hisense Kelon Group were still out of production and in a state of sustained loss due to the prolonged suspension in the past. In summary, the Company is generally still in a recovery stage. As a number of historical problems have brought numerous difficulties to the Company, the Company still failed to achieve its targets during the financial year 2007.

For the year ended 31 December 2008, the Hisense Kelon Group recorded an audited turnover of approximately RMB8,052.9 million (representing a slight decrease of approximately 3.2% from the turnover of approximately RMB8,320.0 million for the preceding year) and a net loss of approximately RMB237.5 million, compared to a net profit of approximately RMB203.7 million for the year ended 31 December 2007.

As explained in the 2008 Annual Report, the significant deterioration of the Hisense Kelon Group’s financial performance with substantial loss for the year is due to (i) the absence of significant revenue from the disposal of idle assets for the year resulting in a decrease in the nonrecurring revenue for 2008 by RMB315,000,000 as compared to 2007; (ii) in light of the global financial crisis, the consumption and demand in overseas markets shrank remarkably and the Company recorded a significant decrease in its export business; (iii) as a result of the appreciation of RMB as well as the significant fluctuation of exchange rates, the Company recorded a larger amount of exchange loss for 2008 of approximately RMB65.8 million; and (iv) due to the slowdown of both domestic and overseas markets resulted from industrial depression and lower temperature during the summer time, the sales size and gross profit margin of the Company fell below the expected targets and in particular, the air-conditioner business recorded remarkable decrease in both production and sales volume as compared to 2007.

As stated in the 2008 Annual Report, in order to overcome the adverse factors, the Company undertook a series of measures to reduce its losses, such as lowering the production cost, raising the manufacturing efficiency, increasing the technological level of products and increasing the product competitiveness to maintain a stable and healthy operation.

As at 31 December 2008, the Hisense Kelon Group had total current assets of approximately RMB1,991.1 million and total current liabilities of approximately RMB4,546.1 million, representing net current

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

liabilities of approximately RMB2,849.8 million. As at 31 December 2008, the Hisense Kelon Group had total outstanding borrowings of approximately RMB1,814.9 million, consisting of bank loans of approximately RMB1,314.9 million and other loans borrowed from a wholly-owned subsidiary of Hisense Group Co. totaling RMB500 million. As at 31 December 2008, the total net liabilities of the Hisense Kelon Group amounted to approximately RMB858.6 million.

(b) Information on Qingdao Hisense and Hisense Group Co.

As set out in the Letter from the Board, Qingdao Hisense is a limited liability company established on 17 November 1995 in the PRC and is currently owned as to 93.33% by Hisense Electronic and as to 6.67% by Hisense International, which is a wholly-owned subsidiary of Hisense Electronic. After Completion, Qingdao Hisense will mainly be a holding company with its shareholding in the Company as its major asset. Hisense Electronic is a limited liability company established on 1 May 2001 in the PRC and is currently owned as to 51.01% by Hisense Group Co. and 48.99% by the management group and key employees of Hisense Group Co. Hisense Group Co. is a limited liability company established on 2 August 1979 in the PRC and is under the auspices of the Qingdao SASAC.

Based on the foregoing, we note that Hisense Group Co. is the ultimate holding company of Qingdao Hisense. Based on the information available from the website of Hisense Group Co., it is one of the major electronic companies in the PRC. Hisense Group Co. is headquartered in Qingdao, the PRC and has operational presence in every major continent and sells its products to more than 100 countries worldwide. The scope of business of Hisense Group Co. includes, among others, the manufacture and sales of television sets, refrigerators, freezers, washing machines, small household appliances, VCD and DVD players, audio sets, broadcasting appliances, air-conditioners, electronic computers, telephones, communication products, internet products and electronic products and the provision of related services. In addition, we note that 青島海信電器股份有限公司 (Hisense Electric Co., Ltd.) (“Hisense Electric”), of which Hisense Group Co. was beneficially interested in approximately 48.4% of the issued share capital as at the Latest Practicable Date, has been listed on the Shanghai Stock Exchange of the PRC since 1997. The following financial results of Hisense Electric for

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

each of the three years ended 31 December 2008 are extracted from its annual report for the year ended 31 December 2008.

	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December
	2006	2007	2008
	RMB’000	RMB’000	RMB’000
	(Audited)	(Audited)	(Audited)
Turnover	13,775,240	14,838,636	13,407,101
Net profits attributable to equity holders	130,554	203,044	224,969
Net assets as at year end	2,659,814	2,804,797	2,959,187

As indicated above, Hisense Electric experienced growth in net profits attributable to equity holders from 2006 to 2008 whereas its turnover increased in 2007 but decreased in 2008. As stated in its latest annual report for the year ended 31 December 2008, the turnover of Hisense Electric mainly represented sales of televisions and approximately 91.0% of its turnover was generated from the sales of televisions. As at 31 December 2008, Hisense Electric had audited net assets of approximately RMB2,959.2 million.

(c) Reasons for the Acquisition

As set out in the Letter from the Board, the Directors consider that the Acquisition will have the following benefits:

the Acquisition is expected to enable the Enlarged Group to become one of the most competitive market leaders in the White Goods industry in the PRC;
the financial position of the Enlarged Group is expected to be significantly improved;
the Enlarged Group will benefit from economies of scale and cost-savings;
overall brand recognition will be enhanced through combined strength of the multiple brands of the two groups;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

management efficiency will be improved through streamlining corporate and management structures;
competition with the Hisense Group will be eliminated; and
connected transactions between the Hisense Kelon Group and the Hisense Group will be substantially reduced.

In addition, as set out in the Letter from the Board, Qingdao Hisense has agreed that after Completion, it and its controlled entities will not participate or engage in any new businesses which compete or may compete with the existing businesses of the Target Group and the Hisense Kelon Group.

Based on the above benefits, the Directors are of the view that the entering into of the Acquisition Agreement is in the interests of the Company and the Shareholders as a whole.

As mentioned above, Qingdao Hisense is a substantial shareholder of the Company holding approximately 25.22% of the entire issued share capital of the Company as at the Latest Practicable Date. In view of the substantial interest of Hisense Group Co. in the Company, we consider it commercially reasonable and sensible for Hisense Group Co. to assist the Company by way of injection of the White Goods Business with the aim to turnaround and improve the Company’s operations in addition to Hisense Group Co.’s existing support to the Company such as guarantee to the banks.

Given that (i) the Target Group has demonstrated a profitable track record during the three years ended 31 December 2008 and four months ended 30 April 2009; and (ii) the Acquisition is expected to have a positive impact on the financial position of the Hisense Kelon Group (particulars of the Target Group and the financial effects of the Acquisition are set out in the sections headed “Information on the Target Group” and “Financial effects of the Acquisition”, respectively, below), we consider that the Acquisition is in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Terms of the Acquisition Agreement

Pursuant to the Acquisition Agreement, the Company has conditionally agreed to acquire from Qingdao Hisense the Target Group at a consideration of RMB1,238,204,800 (equivalent to approximately HK$1,404,672,543) (the “Consideration”). As set out in the Letter from the Board, the Consideration under the Acquisition Agreement has been arrived at after arm’s length negotiations between the parties using the valuation of the Target Group derived based on the cost approach by the Asset Valuer as a major consideration, and with reference to various other factors including, but not limited to, the financial results, the earnings potential and the prospects of the Target Group, the interests of the holders of A Shares and H Shares and other similar transactions in the market. When considering such factors, Qingdao Hisense and the Company have reviewed various data available to them, including the financial information disclosed in the Announcement, industry information, market trading data of comparable listed companies and analysis provided by their respective advisers.

In addition, the Company and Qingdao Hisense agreed that, if the audited net asset value in accordance with PRC GAAP of the Target Group as at the Completion Date is less than its audited pro forma net asset value in accordance with PRC GAAP as at 30 April 2009, Qingdao Hisense shall make up the difference in cash. If the audited net asset value in accordance with PRC GAAP of the Target Group as at the Completion Date is more than its audited pro forma net asset value in accordance with PRC GAAP as at 30 April 2009, the Company will not be required to pay such excess amount to Qingdao Hisense. The “audited pro forma net asset value” is the pro forma net asset value of the Target Group as at 30 April 2009 audited by BDO Guangdong Dahua Delu Certified Public Accountants.

The consideration will be satisfied in full by the allotment and issue of not more than 362,048,187 Consideration Shares by the Company to Qingdao Hisense at the issue price of RMB3.42 (equivalent to approximately HK$3.88) per Consideration Share, being the average trading price of the A Shares for the 20 trading days immediately preceding the date of the announcement on resolutions passed at the 9th meeting of 2009 of the sixth Board. The Consideration Shares shall be issued as fully paid and shall rank pari passu in all respects with the A Shares in issue. Upon occurrence of any “exright and ex-dividend” events, such as distribution of dividends, bonus issue and capitalisation of the capital reserve fund, prior to the issue of the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Consideration Shares, the issue price shall be subject to the corresponding “ex-right and ex-dividend” adjustments and the number of Shares to be issued shall be adjusted accordingly based on any adjustments of the issue price.

The number of Consideration Shares to be issued is subject to the final approval by the CSRC, but in any event shall not exceed 362,048,187 Shares. The maximum number of the Consideration Shares to be issued represents approximately 36.50% of the Company’s existing issued share capital and approximately 26.74% of the Company’s issued share capital as enlarged by the issue of the Consideration Shares.

As set out in the Letter from the Board, the issue price of RMB3.42 (equivalent to approximately HK$3.88) per Consideration Share (the “Issue Price”) was determined after arm’s length negotiation between the Company and Qingdao Hisense with reference to the average closing price of the Company’s A Shares as quoted on the Shenzhen Stock Exchange for the 20 trading days immediately preceding its suspension of trading on 9 April 2009 and represents:

(i) a discount of approximately 8.56% to RMB3.74 (equivalent to approximately HK$4.24), the closing price of the A Shares on the Shenzhen Stock Exchange on 8 April 2009, being the last trading day immediately prior to the suspension of trading in the A Shares on 9 April 2009 (the “Last Trading Day”);
(ii) a discount of approximately 3.66% to RMB3.55 (equivalent to approximately HK$4.03), the average closing price of the A Shares on the Shenzhen Stock Exchange for the last 10 trading days immediately prior to the suspension of trading in the A Shares on 9 April 2009;
(iii) a premium of approximately 5.23% over RMB3.25 (equivalent to approximately HK$3.69), the average closing price of the A Shares on the Shenzhen Stock Exchange for the last 30 trading days immediately prior to the suspension of trading in the A Shares on 9 April 2009; and
(iv) a premium of approximately 178.05% over HK$1.40 (equivalent to approximately RMB1.23), the closing price of the H Shares on the Stock Exchange on 26 June 2009, being the last trading day immediately prior to the Announcement.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As set out in the Letter from the Board, Qingdao Hisense has undertaken that it will not transfer the Consideration Shares, as well as the Shares originally held by Qingdao Hisense, for a period of 36 months after the allotment and issue and the registration of the Consideration Shares with the Shenzhen branch of China Securities Depository and Clearing Corporation Limited under the name of Qingdao Hisense.

Given the Consideration of approximately RMB1,238.2 million and the current financial position of the Hisense Kelon Group with audited total net liabilities of approximately RMB858.6 million as at 31 December 2008, we consider the satisfaction of the Consideration by way of the issue of the Consideration Shares to be fair and reasonable and in the interests of the Company and the Shareholders as a whole. As regard the cash payment to adjust for, if any, the shortfall in the audited net asset value in accordance with the PRC GAAP of the Target Group as at the Completion Date, we also consider such arrangement under the Acquisition Agreement to be fair and reasonable given the fact that (i) the total number of the Consideration Shares to be issued has to be fixed as at the date of the Acquisition Agreement and the Company cannot after Completion revoke any Consideration Shares that have been issued to cater for the shortfall of the net asset value of the Target Group as at the date of Completion, and (ii) such cash payment will be determined objectively based on an audit to be conducted by independent auditors.

3. Information on the Target Group

The Target Group is principally engaged in manufacturing and sales of White Goods including air-conditioners, refrigerators and washing machines as well as moulds in the PRC. Pursuant to the Acquisition Agreement, the Target Group consists of:

(i) 55% of the equity interests in Hisense Beijing, which in turn holds 60% of the equity interests in Hisense Nanjing;
(ii) 100% of the equity interests in of Hisense Shandong;
(iii) 51% of the equity interests in Hisense Zhejiang;
(iv) 78.7% of the equity interests in Hisense Mould;
(v) 49% of the equity interests in Hisense Hitachi; and
(vi) Hisense Marketing Business.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Target Group’s air-conditioner manufacturing operation is primarily carried out through Hisense Shandong, Hisense Zhejiang and Hisense Hitachi, whereas its refrigerator manufacturing operation is primarily carried out through Hisense Beijing and Hisense Nanjing. The Target Group’s mould manufacturing operation is primarily carried out through Hisense Mould. In addition to the equity interests in Hisense Shandong, Hisense Zhejiang, Hisense Beijing, Hisense Nanjing and Hisense Hitachi, the Target Group also has assets transferred from Hisense Marketing which are mainly for use in the sales and marketing operations of the White Goods products produced by Hisense Shandong, Hisense Zhejiang, Hisense Beijing and Hisense Nanjing. Set out below are the particulars of the aforesaid companies which comprise the Target Group.

Hisense Beijing

Hisense Beijing was established on 13 June 2002 as a limited liability company in the PRC with a registered capital of RMB85,710,000. As at the Latest Practicable Date, the registered capital of Hisense Beijing was held as to 55% and 45% by Qingdao Hisense and Xuehua Group, respectively. The business scope of Hisense Beijing includes manufacture of refrigerator products and other household electrical appliances; sale of self-produced products; import and export of goods and technologies and provision of import and export agency services. As set out in the Letter from the Board, the major business of Hisense Beijing is the research and development, manufacture and sale of refrigerators. With its internationally leading patented technologies in vector inverter, digital preservation and optimized control in multi-cycle refrigeration system for refrigerators, Hisense Beijing has launched over 100 product models in 7 major series, mainly including vector refrigerators and super energy-saving refrigerators. Its products are exported to the regions such as Europe, America, South Africa and Southeast Asia. In 2008, Hisense Beijing produced 647,000 units of refrigerators.

Hisense Nanjing

Hisense Nanjing was jointly established by Hisense Beijing and Nanjing Yilaite on 12 January 2005 as a joint venture company with a registered capital of RMB80,580,000. Following the completion of an equity transfer agreement between Nanjing Yilaite and Nanjing Aipulaisi on 9 November 2005 and a capital injection pursuant to an agreement dated 20 August 2006 made between Hisense Beijing and Nanjing Aipulaisi, the registered capital

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

of Hisense Nanjing has increased to RMB128,691,500 and is held effectively as to 60% and 40% by Hisense Beijing and Nanjing Yilaite, respectively. The business scope of Hisense Nanjing includes the research and development, manufacture and sale of fluorine-free refrigeration products and other home electrical appliances; import and export of various goods and technologies self-manufactured and distributed (except goods and technologies under operation restriction or prohibited for import and export by the State). Hisense Nanjing is principally engaged in the manufacture, operation and sale of refrigerators. Hisense Nanjing currently has two production lines of refrigerators with an annual production capacity of 1,000,000 units. In 2008, Hisense Nanjing produced 665,800 units of refrigerators.

Hisense Shandong

Hisense Shandong was established by Qingdao Hisense by way of investment of cash of RMB150,000,000 on 8 November 2007 as a limited liability company in the PRC. On 27 November 2007, Qingdao Hisense increased the registered capital of Hisense Shandong to RMB500,000,000 and upon completion of the capital increase, Qingdao Hisense and Hisense Shandong entered into a creditor’s right and debt transfer agreement, pursuant to which Qingdao Hisense transferred its operating assets (including liabilities) in relation to the manufacture and sale of air-conditioners to Hisense Shandong. Both parties also entered into a creditor’s right and debt transfer agreement with certain third parties. As a result, Hisense Shandong has taken over all of the businesses of manufacture and sale of air-conditioners of Qingdao Hisense.

The business scope of Hisense Shandong includes research and development, manufacture and sale of air-conditioning products and injection moulds and provision of after-sales maintenance services for products. Hisense Shandong is principally engaged in the manufacture and sale of household airconditioners, and the provision of relevant technical services and training. It strives to become a specialised manufacturer and service provider in household air-conditioners with advanced technology and leading production capacity. Hisense Shandong has the biggest and the most advanced production base of inverter air-conditioners in the PRC at present, with an annual production capacity of over 2,000,000 sets. Hisense Shandong produced 750,000 sets of air-conditioners in 2008.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Hisense Zhejiang

Hisense Zhejiang was established on 22 April 2005 as a limited liability company in the PRC with a registered capital of RMB110,000,000. As at the Latest Practicable Date, the registered capital of Hisense Zhejiang was held as to 51% and 49% by Qingdao Hisense and Changxing Jingwei, respectively. The business scope of Hisense Zhejiang includes production of air-conditioners and manufacture and sale of other household appliances, provision of related technical services, and import and export of goods and technologies (excluding the businesses prohibited by the laws and administrative regulations; and in case of the restricted businesses under the laws and administrative regulations, the relevant approval(s) or licence(s) of operation shall be obtained).

As set out in the Letter from the Board, the major business of Hisense Zhejiang is the manufacture of household air-conditioners and related products. It has equipment such as advanced automatic helium leakage detectors, and is well-equipped with an advanced integrated production and inspection line, a quality assurance system established according to the international quality assurance standards and a sound management system. It is the second largest inverter air-conditioner production base equipped with advanced technology next to Hisense Shandong in the PRC. Through continuous expansion, the production capacity of Hisense Zhejiang will increase to 1,500,000 sets of inverter air-conditioners. Hisense Zhejiang produced 475,600 sets of air-conditioners in 2008.

Hisense Mould

Hisense Mould was established jointly by Hisense Electric Company and Hisense Optical on 28 September 1996. Following completion of a series of equity transfer agreements, the registered capital of Hisense Mould was as at the Latest Practicable Date held as to 77.68% by Hisense Group Co., 1.02% by Hisense Optical and 21.30% by certain natural person shareholders, respectively. By an agreement dated 8 May 2009, Hisense Group Co. transferred 77.68% of the equity interest in Hisense Mould to Qingdao Hisense. By another agreement of the same date, Hisense Optical transferred 1.02% of the equity interest in Hisense Mould to Qingdao Hisense. It was agreed in both of the aforesaid agreements that the consideration for the respective transfers would be determined based on the valuation result which have been filed with the relevant authorities of state-owned assets supervision and administration.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The business scope of Hisense Mould includes design and manufacture of moulds; machine processing; design and manufacture of jigs; wholesaling, retailing and “four-agency” business; mould materials, standard components, parts, jigs and measuring tools, CAD/CAM system products, automatic office system and related consumables; plastic injection, painting/brushing and processing; development, design, sale and system integration of intelligent instruments and meters and opto-mechatronic equipments; import and export of self-manufactured goods and technologies.

As set out in the Letter from the Board, after more than 10 years of development, Hisense Mould has become one of the most specialized largescale suppliers of plastic injection moulds for household appliances in the PRC. Hisense Mould carries out its businesses in the industry of mould and injection, moulding, painting/brushing and processing and the related services. Hisense Mould utilizes CAD/CAM/CAE technologies to proactively promote the research and development and manufacture of plastic injection and painting/brushing mould products with moulding machines of high-precision, high-quality and high-efficiency. The principal businesses of Hisense Mould include design of industrial products, as well as the design, processing, manufacture and plastic injection of moulds. It possesses an annual processing and production capacity of approximately 500 sets of large plastic injection moulds up to 60 tones, and approximately 200 sets of precision moulds. In 2007, Hisense Mould was chosen by China Die & Mould Industry Association as one of the Top 50 Enterprises in China’s Die & Mould Industry.

Hisense Hitachi

Hisense Hitachi was established on 8 January 2003 as a sino-foreign equity joint venture enterprise in the PRC with a registered capital of US$12.1 million. As at the Latest Practicable Date, the registered capital of Hisense Hitachi was held as to 49% by Hisense Group Co., 29% by Hitachi Air Conditioning, 20% by Taiwan Hitachi and 2% by Union Trading. The business scope of Hisense Hitachi includes research and development and manufacture of commercial air-conditioning systems, sale of self-produced products and provision of after-sale services. Hisense Group Co. and Hitachi Air Conditioning have joint control over Hisense Hitachi. By an agreement dated 8 May 2009, Hisense Group Co. transferred 49% of the equity interest in Hisense Hitachi to Qingdao Hisense. It was agreed that the consideration for such transfer would be determined based on the valuation result which has been filed with the relevant authorities of state-owned assets supervision and administration.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As set out in the Letter from the Board, Hisense Hitachi is principally engaged in the research and development, manufacture and sale of household and commercial-use central air-conditioning system units. Its household and commercial-use air-conditioning unit products are equipped with state of the art technologies for inverter VRF air-conditioning systems, and situate in a leading position among the industry in terms of outstanding performance and high quality. Hisense Hitachi is the largest production base for inverter VRF air-conditioners of Hitachi Air Conditioning outside Japan.

Hisense Marketing Business

As set out in the Letter from the Board, Hisense Marketing Business comprises the assets and liabilities of Hisense Marketing in relation to the sales and marketing operations of the White Goods products produced by Hisense Shandong, Hisense Zhejiang, Hisense Beijing and Hisense Nanjing. The relevant assets mainly include fixed assets, comprising equipment (electronic or otherwise), cars and machineries as well as inventories of raw materials and finished products of refrigerators and air-conditioners. The relevant liabilities mainly include trade payables and customers’ prepayments.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is a summary of the Target Group’s results of operations for each of the three years ended 31 December 2008 and the four months ended 30 April 2009 (the “Reporting Period”) extracted from the accountants’ report on the Target Group (the “Accountants’ Report”) contained in Appendix II to the Circular:

Turnover Sales of air-conditioners Sales of refrigerators Sale of injection moulds Sale of other white-coloured household electrical appliances Cost of sales Gross Profit Other income and gains Distribution costs Administrative expenses Profit from operations Profit for the year/period from continuing operations Profit attributable to owners of the Target Group	Year ended 31 December 2006 2007 2008 (Audited) (Audited) (Audited) RMB’000 RMB’000 RMB’000 2,648,013 2,957,585 2,490,235 1,696,112 1,895,178 2,052,271 122,812 133,668 125,175 105,092 102,279 127,764 4,572,029 5,088,710 4,795,445 (3,465,097) (3,907,921) (3,829,567) 1,106,932 1,180,789 965,878 79,165 117,103 123,011 (934,325) (1,007,677) (935,717) (116,452) (123,057) (135,928) 135,320 167,158 17,244 94,353 144,578 36,270 100,805 123,677 38,093	Four months ended 30 April 2008 2009 (Unaudited) (Audited) RMB’000 RMB’000 1,151,835 613,742 685,356 785,909 41,991 63,276 36,774 42,960 1,915,956 1,505,887 (1,480,091) (1,150,394) 435,865 355,493 27,733 39,773 (339,076) (268,124) (45,268) (48,947) 79,254 78,195 82,658 71,850 78,670 59,763

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As noted from the above table, the Target Group was operating profitably for each of the three years ended 31 December 2008 and the four months ended 30 April 2009. The turnover of the Target Group represented the net amounts received and receivable for the sales of air-conditioners, refrigerators, injection moulds and other White Goods during the Reporting Period and the Target Group’s business operations, customers and production facilities are all located in the PRC. Sales of air-conditioners represented the largest business segment of the Target Group for each of the three years ended 31 December 2008. However, for the four months ended 30 April 2009, sales of air-conditioners dropped significantly and sales of refrigerators became the largest business segment and accounted for over 50% of the Target Group’s turnover for the period. For each of the three years ended 31 December 2008 and the four months ended 30 April 2009, the Target Group recorded a gross profit of approximately RMB1,106.9 million, RMB1,180.8 million, RMB965.9 million and RMB355.5 million, representing a gross profit margin of approximately 24.2%, 23.2%, 20.1% and 23.6%, respectively. During the same periods, the profit attributable to the owners of the Target Group was approximately RMB100.8 million, RMB123.7 million, RMB38.1 million and RMB59.8 million, representing a net profit margin of approximately 2.2%, 2.4%, 0.8% and 4.0%, respectively.

As explained in Appendix III to the Circular, the substantial increase in the Target Group’s turnover in 2007 was due to the introduction of the Multi-DC Inverter air-conditioners and Vector Inverter refrigerators by the Target Group in 2006 and the first half of 2007, respectively. As further advised by the Directors, the turnover of the refrigerator business has increased significantly since 2006 as a result of the popularity of the newly introduced vector inverter refrigerators in the PRC. On the other hand, while the sales of air-conditioners had increased for 2007, there was a slight decrease in the segment contribution from the air-conditioner business as a result of the intense competition in the air-conditioners market which had caused substantial drop in both sale price and profit margin. For the year ended 31 December 2007, profit from operations amounted to approximately RMB167.2 million, representing a substantial increase of approximately 23.6% from 2006. As noted in the Accountants’ Report, such increase of profit from operations was mainly attributable to the significant increase in the government grant during the year which had been recorded by the Target Group as other income and gains. For the year ended 31 December 2007, the profit attributable to the owners of the Target Group was approximately RMB123.7 million.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the year ended 31 December 2008, the Target Group recorded an overall turnover of approximately RMB4,795.4 million, representing a decrease of approximately 5.8% from 2007. As explained by the Directors, such decrease in turnover was mainly due to the fall of the sales of air-conditioners. The demands for air-conditioners are sensitively affected by macroeconomic factors, the economic slowdown in the second half of 2008 had adversely affected the sales of air-conditioners. In addition, due to the substantial increase in the cost of raw materials such as metal and plastics during 2008, the overall gross profit margin of the Target Group had dropped from approximately 23.2% for 2007 to approximately 20.1% for 2008 and the net profit margin had dropped from approximately 2.4% to 0.8% for the same reason. As such, profit from operations for 2008 amounted to approximately RMB17.2 million, representing a significant decline of approximately 89.7% from 2007. For the year ended 31 December 2008, the profit attributable to the owners of the Target Group was approximately RMB38.1 million.

As a result of significant decrease in the demand for the White Goods following the outbreak of the global financial turmoil in the second half of 2008, the turnover of the Target Group for the four months ended 30 April 2009 had dropped significantly when compared to the turnover for the corresponding period in 2008. Nevertheless, due to the fact that the cost of raw materials had been continuously falling since the end of 2008, the Target Group was able to improve its overall gross profit margin. In particular, the Target Group recorded a gross profit margin of approximately 23.6% for the four months ended 30 April 2009, which was substantially higher than the overall gross profit margin of approximately 20.1% for the year of 2008. For the four months ended 30 April 2009, profit from operations and profit attributable to the owners of the Target Group were approximately RMB78.2 million and RMB59.8 million, respectively.

As at 30 April 2009, the Target Group had audited total current assets of approximately RMB1,844.8 million and audited total current liabilities of approximately RMB1,948.8 million, representing net current liabilities of approximately RMB104.0 million. As at 30 April 2009, the Target Group had audited total non-current assets of approximately RMB1,052.0 million. Based on the audited combined statements of financial position of the Target Group as at 30 April 2009, its principal assets were trade and other receivables of approximately RMB1,168.2 million, inventories of approximately RMB621.0 million, property, plant and equipment of approximately RMB787.5 million and interests in jointly controlled entity of approximately RMB118.1 million. The Target Group also had payments for leasehold land held for own use

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under operating leases which amounted to approximately RMB108.4 million as at 30 April 2009. The cash and cash equivalents of the Target Group amounted to approximately RMB47.9 million.

The current liabilities of the Target Group as at 30 April 2009 were mainly trade and other payables of approximately RMB1,562.4 million and trade deposits received of approximately RMB160.4 million. As at 30 April 2009, all of the bank borrowings of the Target Group of approximately RMB123.0 million was payable on demand or within one year, of which approximately RMB105.0 million were unsecured. During the Reporting Period, the bank borrowings of the Target Group were charged at the interest rates ranging from approximately 6% to 7.7% per annum. As at 30 April 2009, the Target Group had net assets of approximately RMB948.0 million which comprised the non-controlling interests of approximately RMB226.9 million and the capital and reserves attributable to the owners of the Target Group of approximately RMB721.1 million.

Further details of the analysis on the financial performance and financial position of the Target Group during the Reporting Period are set out in the Accountants’ Report and Appendix III to the Circular.

4. Evaluation of the Consideration and the Issue Price

Based on the audited profits attributable to the owners of the Target Group of approximately RMB38.1 million for the financial year ended 31 December 2008 as shown in the Accountants’ Report, the Consideration of approximately RMB1,238.2 million for the acquisition of the Target Group under the Acquisition Agreement would represent a price-to-earnings ratio (“PER”) of approximately 32.5 times. In addition, based on the capital and reserves attributable to the owners of the Target Group of approximately RMB721.1 million as at 30 April 2009, the Consideration represents a premium of approximately 71.7% over such capital and reserves.

In order to assess the reasonableness of the Consideration, we have attempted to compare it with the market statistics of all those companies which have A shares listed on either Shanghai Stock Exchange or Shenzhen Stock Exchange as at the Last Trading Day, the principal businesses of which include the manufacture and sales of air-conditioners, refrigerators, freezers and other White Goods electronic appliances in the PRC and which recorded profitable

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results in their latest financial year (the “Comparable Companies”). Details of our findings on the Comparable Companies are summarised in the following table.

						Premium/
				Net asset value		(discount) as
				(net of any non-		represented
				controlling		by the closing
			Basic earnings	interests) per		price over the
			per share	share		latest net
		Closing	set out in	set out in the		asset value
		price	the latest	latest		(net of any non-	Market
		as at the	published	published	PER as at	controlling	capitalisation
		Last	audited	audited	the Last	interests) as	as at
Company		Trading	financial	financial	Trading	at the Last	the Last
(stock code)	Principal activities	Day	statements	statements	Day	Trading Day	Trading Day
		(RMB)	(RMB)	(RMB)	(times)	(%)	(RMB’ million)
Gree Electric	manufacture and sale of air	26.01	1.6800	5.9700	15.5	335.7	32,574.8
Appliances, Inc. of	conditioners and the related
Zhuhai (000651)	components
GuangDong Media	manufacture and sale of household	10.36	0.5500	2.5200	18.8	311.1	19,591.5
Electric Appliances	electronics and compressors
Co., Ltd. (000527)	including household air
	conditioners, commercial air
	conditioners, compressors,
	refrigerators and washing
	machines
Hefei Meiling Co.,	manufacturer of household electric	4.42	0.0609	2.5632	72.6	72.4	1,828.3
Ltd. (000521)	appliances including household
	refrigerators, ice cubers,
	cryogenic equipment and air
	conditioners
Qingdao Aucma	manufacture and sale of	5.72	0.0400	1.3003	143.0	339.9	1,950.7
Company Limited	refrigerators and freezers, as
(600336)	well as electric-driven vehicles
Qingdao Haier Co.,	manufacture and sale of household	9.46	0.5740	5.0600	16.5	87.0	12,662.4
Ltd. (600690)	electric appliances including
	refrigerators, freezers, air
	conditioners, dishwashers,
	microwave ovens, gas stoves,
	washing machines and other
	household electric appliances
Sichuan Changhong	manufacture and distribution of	4.32	0.0160	4.7300	270.0	(8.7)	8,200.3
Electric Co., Ltd.	household appliances including
(600839)	televisions, air conditioners,
	audio/video products, digital
	products, kitchen and bathroom
	products, digital set-top
	boxes, China Compulsory
	Certification (3C) information
	products, business products and
	refrigerators
Average					89.4	189.6	12,801.3
The Target Group		N/A	N/A	N/A	32.5	71.7	N/A

Source: Thomson One (www.thomsonone.com) and the respective annual reports of the Comparable Companies

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As shown in the above table, the PER of the Comparable Companies ranges from approximately 15.5 times to 270.0 times, with an average of approximately 89.4 times. On this basis, the PER of approximately 32.5 times as represented by the Consideration of approximately RMB1,238.2 million over the audited profit attributable to the owners of the Target Group of approximately RMB38.1 million for the financial year ended 31 December 2008 would represent the middle value among all the PERs of the Comparable Companies and is significantly less than their average ratio of approximately 89.4 times.

Given that the audited profit of the Target Group for 2008 was significantly lower than that of the previous two financial years as a result of the global financial crisis during the year, we consider that the use of one financial year, i.e. the audited results for the financial year 2008 only, may not be able to give an indication of the financial performance of the Target Group under normal market conditions. Accordingly, we have also attempted to use the average audited profits attributable to the owners of the Target Group over the last three financial years in our analysis. In this connection and based on such audited profits of approximately RMB100.8 million, RMB123.7 million and RMB38.1 million for the financial years ended 31 December 2006, 2007 and 2008, respectively, as shown in the Accountants’ Report, the average audited profit attributable to the owners of the Target Group for the latest three financial years amount to approximately RMB87.5 million and the Consideration of approximately RMB1,238.2 million would represent a PER of approximately 14.2 times. On this basis, such PER of approximately 14.2 times would represent the lowest ratio among all the PERs of the Comparable Companies and is significantly less than their average ratio of approximately 89.4 times.

As regards the price-to-book ratio (“PBR”), i.e. the closing price of the share over its net asset value (net of any non-controlling interests) as at the Last Trading Day, of the Comparable Companies, we note that five out of a total of six Comparable Companies had the PBR at premium ranging from approximately 72.4% to 339.9%. The premium of approximately 71.7%, being the premium of the Consideration as represented by it over the audited capital and reserves attributable to the owners of the Target Group of approximately RMB721.1 million as at 30 April 2009 represents the lowest percentage among all the premiums of the Comparable Companies and is also significantly lower than their average percentage of approximately 189.6%. Since the market prices of a majority of the Comparable Companies represented a premium

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over their respective net asset values, we consider the Consideration to be comparable and in line with the general market valuation of companies in a business similar to that of the Target Group.

In general, valuation based on asset values is more appropriate when valuing businesses under liquidation or asset-based businesses such as property investment companies. Given the industrial business nature and profitable track record of the Target Group, we consider that the use of PER, being one of the most commonly used references for valuing industrial companies with profitable operating results, to be more relevant in assessing the reasonableness and fairness of the Consideration.

In the present case, both the PER of about 32.5 times (as represented by the Consideration over the audited profit attributable to the owners of the Target Group for the latest financial year 2008) and the PER of about 14.2 times (as represented by the Consideration over the average audited profit attributable to the owners of the Target Group for the latest three financial years 2006, 2007 and 2008) fall within or below the range of the PER of the Comparable Companies and are significantly lower than the average PER of the Comparable Companies of approximately 89.4 times. On this basis, we are of the view that the Consideration of approximately RMB1,238.2 million under the Acquisition Agreement is fair and reasonable. Furthermore, as set out in Appendix V to the Circular and in compliance with the PRC laws and regulations and pursuant to the requirements of CSRC in respect of substantial acquisitions by PRC listed companies, the Directors have prepared the IFRS 2009 Profit Forecasts under which the forecast profit attributable to the equity holders of the Target Group for the year ending 31 December 2009 is approximately RMB63.8 million. In light of such forecast profit of the Target Group, the Consideration of approximately RMB1,238.2 million would represent a slightly higher PER of approximately 19.4 times. Nevertheless, such PER is also significantly lower than the average PER of approximately 89.4 times of the Comparable Companies and still represents only the third lowest among the PERs of the Comparable Companies. Accordingly, having taken into account the forecast profit attributable to the equity holders of the Target Group for the year ending 31 December 2009, we are still of the view that the Consideration of approximately RMB1,238.2 million under the Acquisition Agreement is fair and reasonable.

As noted in the Letter from the Board, a valuation report on the Target Group has been prepared in compliance with the relevant PRC regulatory requirements to provide an indication to the PRC regulators and the PRC

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Shareholders of the business values of the Target Group (the “PRC Valuation Report”). However, as stated in the Letter from the Board, such PRC Valuation Report does not meet the standards as required by Rules 14.62 and 14A.56(8) of the Listing Rules and Rule 10 of the Takeovers Code. There is a warning statement in the Letter from the Board that the Shareholders and potential investors should exercise caution in placing reliance on the PRC Valuation Report in assessing the merits and demerits of the Acquisition and the Whitewash Waiver. In this connection, we have not placed any reliance on the PRC Valuation Report in assessing the fairness and reasonableness of the Acquisition. In forming our opinion regarding the Acquisition, we do not consider the PRC Valuation Report to be relevant to our analysis.

As mentioned above, the Consideration will be satisfied in full by the allotment and the issue of not more than 362,048,187 Consideration Shares by the Company to Qingdao Hisense at the Issue Price of RMB3.42, which was determined after arm’s length negotiation between the Company and Qingdao Hisense with reference to the average closing price of the Company’s A Shares as quoted on the Shenzhen Stock Exchange for the 20 trading days immediately preceding its suspension of trading on 9 April 2009.

Having considered that (i) as the Hisense Kelon Group had net liabilities of approximately RMB858.6 million as at 31 December 2008, the Shares had no value as far as net assets are concerned; (ii) the Hisense Kelon Group had a net loss of approximately RMB237.5 million for the year ended 31 December 2008, so it may not be feasible to assess the PER of the Company and to compare it with the PER of the Consideration; (iii) the Issue Price represented a slight premium of approximately 5.23% over the average closing price of approximately RMB3.25 per A Share for the 30 consecutive trading days up to and including the Last Trading Day; and (iv) the expected positive effect of the Acquisition on the Hisense Kelon Group’s financial position (details of which are set out in the section headed “Possible financial effects of the Acquisition” below), we are also of the view that the Issue Price is fair and reasonable.

5. General prospects of the White Goods market in the PRC

According to the China Statistical Yearbook 2008 (中國統計年鑑2008) compiled by the National Bureau of Statistics of China (中華人民共和國國家統計局), the total population in China amounted to 1.32 billion at the year end of 2007 with an average annual compound growth rate of approximately 0.7% over the years from 1997 to 2007. With a population of over 1.3 billion, China

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

represents a huge consumer market with enormous potential by its sheer size alone. On the other hand, China’s gross domestic product (“GDP”) has grown from approximately RMB7,806.1 billion to RMB25,148.3 billion from 1997 till 2007, representing an over threefold increase since 1997.

In addition, according to the China Statistical Yearbook 2008, the per capita annual disposable income of the PRC’s urban households grew from approximately RMB5,160 to approximately RMB13,786 from 1997 till 2007 (representing an average annual compound growth rate of approximately 10.3%), whereas the per capita annual net income of the PRC’s rural households grew from approximately RMB2,090 to approximately RMB4,140 during the same period (representing an average annual compound growth rate of approximately 7.1%). With household income increasing, consumer spending is expected to rise. Based on the information published on the website of the National Bureau of Statistics of China as at the Latest Practicable Date, the total retail sales of household appliances and video appliances in the PRC grew from approximately RMB95.3 billion to RMB237.1 billion from 2002 till 2007, representing an average annual compound growth rate of approximately 20.0%. As China has been experiencing continuous economic growth over the years and with rising household income and spending power and improving living standard in China, we believe that the demand for household electrical appliances in China market remains strong.

Greater home ownership levels and increasing floor space of residential buildings in the urban and rural areas of the PRC in recent years have also generated higher demand for and spending on household electrical appliances. In particular, according to the China Statistical Yearbook 2008, the per capita floor space of residential buildings in the PRC’s urban areas grew from approximately 17.8 square metres to 27.1 square metres from 1997 till 2006 (representing an average annual compound growth rate of approximately 4.8%), whereas that in the rural areas grew from approximately 22.5 square metres to 31.6 square metres from 1997 till 2007 (representing an average annual compound growth rate of approximately 3.5%). On the other hand, according to the China Statistical Yearbook 2008, one of the major spending areas of the PRC’s urban households was on household facilities, articles and services, and that the per capita annual consumption on household facilities, articles and services of the PRC’s urban households increased from approximately RMB316.9 to RMB601.8 from 1997 till 2007, representing an average annual compound growth rate of approximately 6.6%.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the China Statistical Yearbook 2008, on average, every 100 rural households in China only owned approximately 26.1 refrigerators and 8.5 airconditioners in 2007, whereas every 100 urban households in China owned approximately 95.0 refrigerators and 95.1 air-conditioners. We note that the year 2009 is the fourth year of the 11th Five-Year Program for Economic and Social Development (2006-2010) promulgated by the National People’s Congress of the PRC. In general, the goal of the 11th Five-Year Program is to promote a more balanced, equitable, and sustainable growth of the PRC’s economy through strategies directed at boosting private consumption, and promoting income equality, rural development, and environmental protection. In particular, rural development is one of the main emphases of the Chinese Government and it pledges to raise the income level of the rural households and promote public services in the countryside.

With the aim to reduce the inequality between urban and rural households and to boost the domestic sales with the PRC market, the PRC government adopted the “Home Appliances Subsidiary Policy for Rural Villages (家電下鄉政策)” (the “Subsidy Policy”). Pursuant to the Subsidy Policy, the PRC government would provide a 13% subsidy to farmers who bought designated brands (which include the “Hisense” brand and the “Kelon” brand) of color TV sets, refrigerators and mobile phones in the three agricultural provinces of Shandong, Henan, and Sichuan. On 1 February 2009, the PRC government expanded the Subsidy Policy nationwide to benefit all rural people and added four more products: motorcycles, personal computers, water heaters and airconditioners. According to an article dated 1 February 2009 of Xinhua News, the official press agency of the PRC government, with the effects of the global financial crisis spreading throughout the world, the government is looking to tap domestic consumption, especially in unexploited rural markets. As set out in the Letter from the Board regarding the expected benefits of the Acquisition, the combination of the three different brands (i.e. “Hisense”, “Kelon” and “Ronshen”) will allow the Enlarged Group to extend its brand coverage to new market segments and lift its overall brand recognition in both the domestic and international markets. Following Completion, the Enlarged Group will be able to produce White Goods under not only the “Kelon” brand but also the “Hisense” brand. Accordingly, we are of the view that the Acquisition will be able to enhance the benefits of the Subsidy Policy to the Enlarged Group with an additional designated brand name.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to Xinhua News, China has more than 50,000 townships and the number of rural households accounts for 68 percent of the total families. According to Xinhua News, Mr. Fu Ziying, Vice Minister of Commerce of the PRC, stated on 1 February 2009 that the Subsidy Policy could help stimulate rural consumption amounting to 920 billion yuan, drive up growth of retail sales of consumer goods in rural areas by 2.5 percentage points, and realise household appliance sales of 480 million units. According to Xinhua News, Mr. Yao Jian, the spokesperson of the Ministry of Commerce of the PRC, stated on 15 June 2009 that approximately 2.23 million units of household appliances were sold under the Subsidy Policy in May 2009. The total value of the household appliances sold under the Subsidy Policy in May 2009 is approximately RMB4 billion, representing an increase of 42% over the preceding month. As at the end of May 2009, there were approximately 9.87 million units of household appliances sold under the Subsidy Policy valuing at approximately RMB15.3 billion. With the 13% subsidy on household appliances, it is expected that the sales of household appliance in rural household will continue to increase.

Furthermore, as part of the recent stimulus policies of the PRC Government to boost domestic consumption, the State Council has announced a pilot program of home appliance replacement and set several provinces and cities, including Beijing, Shanghai, Tianjin, Fuzhou, Changsha and provinces of Jiangsu, Zhejiang, Shandong, Guangdong, as pilots for the replacement of used TV sets, refrigerators, washing machines, air conditioners and computers. In particular, the PRC government will set aside RMB2 billion to subsidise purchases of home appliances and consumers who hand in certain used electronic products, namely, TV sets, refrigerators, washing machines, airconditioners and computers, and buy new ones can receive a subsidy worth 10% of the prices on the new electronic products.

Based on the information from the National Bureau of Statistics of China as at the Latest Practicable Date, retail sales kept solid growth in China as the world’s third largest economy turned to domestic consumption for growth after exports tumbled. In particular, retail sales of consumer goods rose approximately 15.0% in the first half of 2009 (on a year-on-year basis) to approximately RMB5,871.1 billion. For the six months ended 30 June 2009, the retail sales in cities reached RMB3,983.3 billion, up by 14.4% as compared to the same period last year, and the retail sales at and below county level stood at RMB1,887.8 billion, representing an increase of approximately 16.4% on a year-on-year basis.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

With (i) a population of over 1.32 billion, (ii) an expected stable economic growth in the future, (iii) rising household income and spending power and improving living standard, (iv) the PRC government’s policy of raising rural household’s living condition through the Subsidy Policy, and (v) the pilot program of home appliance replacement introduced in China recently to boost domestic consumption, China still represents a huge consumer market with enormous potential. Accordingly, we are generally of the view that the demand for household electrical appliances including air-conditioners and refrigerators in China market is promising.

6. Possible financial effects of the Acquisition

(i) Accounting effect

Following completion of the Acquisition, each of Hisense Beijing, Hisense Nanjing, Hisense Shandong, Hisense Zhejiang and Hisense Mould will become a subsidiary of the Company and their financial results will be consolidated into the Hisense Kelon Group’s financial results with the corresponding treatment of the equity interests not owned by the Hisense Kelon Group as non-controlling interests in its consolidated financial statements.

As mentioned above, the forecast profit attributable to the equity holders of the Target Group for the year ending 31 December 2009 would be approximately RMB63.8 million. Given such anticipated profitable results of the Target Group, we are of the view that, as far as for the year 2009 is concerned, the Acquisition is expected to contribute positively to the earnings of the Hisense Kelon Group following Completion, which is in the interests of the Company and the Shareholders as a whole.

(ii) Liquidity and sufficiency of working capital

Based on the Company’s audited consolidated balance sheet as at 31 December 2008 set out in the Annual Report, the Hisense Kelon Group had total current assets of approximately RMB1,991.1 million and total current liabilities of approximately RMB4,546.1 million, representing net current liabilities of approximately RMB2,849.8 million or a current ratio of approximately 0.44. In addition, the Hisense Kelon Group had total net liabilities of approximately RMB858.6 million as at 31

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

December 2008 and the gearing ratio of the Hisense Kelon Group as at 31 December 2008 was approximately 123.3%, as represented by the Hisense Kelon Group’s total liabilities of approximately RMB4,546.1 million over its total assets of approximately RMB3,687.5 million.

As mentioned above, the Consideration will be satisfied in full by the allotment and the issue of not more than 362,048,187 Consideration Shares by the Company to Qingdao Hisense. As such, the Acquisition is not expected to have any impact on the cashflow of the Hisense Kelon Group immediately upon Completion. Based on the unaudited pro forma financial information of the Enlarged Group set out in Appendix IV to the Circular, prepared on the assumption that the Acquisition had been completed on 31 December 2008, the Enlarged Group’s total current assets and total current liabilities would be approximately RMB2,782.4 million and RMB5,824.1 million, respectively, representing net current liabilities of approximately RMB3,041.7 million or a current ratio of approximately 0.48. Given that such current ratio is slightly higher than the Hisense Kelon Group’s current ratio of approximately 0.44 as at 31 December 2008, we are of the view that it is in the interests of the Company and the Shareholders as a whole.

We note that the Target Group had net current liabilities of approximately RMB184.5 million and RMB104.0 million as at 31 December 2008 and 30 April 2009, respectively. We understand from the Company that this is because the Target Group’s average trade payables credit period of 60-90 days is longer than the average trade receivables credit period of 30-45 days. Therefore, larger trade payables balance was recorded as compared with the trade receivables balance. We also note that three of the six Comparable Companies had net current liabilities as at 31 December 2008. As such, we are of the view that the level of the liabilities of Target Group is comparable to the market.

Furthermore, the Acquisition would significantly improve the existing financial position of the Hisense Kelon Group since the Enlarged Group would have net assets of approximately RMB21.5 million following Completion, as compared to the Hisense Kelon Group’s net liabilities of approximately RMB858.6 million as at 31 December 2008. In this connection, the gearing ratio of the Enlarged Group would also decrease to approximately 99.6%, as compared to the gearing ratio of the Hisense Kelon Group of approximately 123.3% as at 31 December 2008.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As stated in Appendix IV to the Circular regarding the working capital of the Enlarged Group, the Directors, after due and careful enquiry, are satisfied that after taking into account the existing banking facilities available, facilities granted by a fellow subsidiary, guarantee to the banks provided by Hisense Group Co., financial support from Hisense Group Co., and the existing cash and bank balances, the Enlarged Group has sufficient working capital for at least the next 12 months from the date of the Circular. As such, we concur with the view of the Directors that the Enlarged Group will have sufficient working capital to meet its debts as and when they fall due.

(iii) Capital and reserves attributable to equity holders of the Company

As mentioned above, based on the unaudited pro forma financial information of the Enlarged Group prepared on the assumption that the Acquisition had been completed on 31 December 2008, the Acquisition is expected to improve the financial position of the Hisense Kelon Group following Completion as there will be a significant turnaround in the net asset position — from net liabilities of approximately RMB858.6 million to net assets of approximately RMB21.5 million. Accordingly, we are of the view that the Acquisition is expected to have a positive effect on the capital and reserves attributable to equity holders of the Company, which is in the interests of the Company and the Shareholders as a whole.

In summary, as the Consideration will be fully satisfied with the issuance of the Consideration Shares, the Acquisition will not result in any undue financial burden to the Hisense Kelon Group immediately upon Completion. Based on the pro forma financial information of the Enlarged Group, it is expected that the Acquisition will significantly reduce the net liabilities of the Hisense Kelon Group and improve both the current ratio and gearing ratio of the Enlarged Group. In addition, the Acquisition is expected to contribute positively to the future earnings of the Hisense Kelon Group following Completion. Given the overall favourable impact expected to be brought by the Acquisition, we are of the view that the Acquisition is in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

7. Dilution effect on shareholding

As at the Latest Practicable Date, the Independent Shareholders were interested in approximately 74.78% (comprising approximately 28.45% and 46.33% held by the A Share Shareholders and the H Share Shareholders, respectively) of the issued share capital of the Company. If the Acquisition Agreement is approved and becomes unconditional, the Company will issue not more than 362,048,187 Consideration Shares to Qingdao Hisense, representing approximately 36.50% of the existing issued share capital of the Company or approximately 26.74% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares. On this basis, the aggregate shareholding interests of the Independent Shareholders in the Company will be reduced to approximately 54.79% (comprising approximately 20.85% and 33.94% held by the A Share Shareholders and the H Share Shareholders, respectively), representing a dilution of approximately 26.73% from their existing holdings of 74.78%.

Having considered (i) the Target Group has demonstrated a profitable track record; (ii) the Acquisition is expected to have a positive impact on the financial position of the Hisense Kelon Group; and (iii) both the Consideration and the Issue Price are fair and reasonable, we are of the view that the dilution on the shareholding interests of the Independent Shareholders in the Company due to the issue of the Consideration Shares under the Acquisition is acceptable.

III. the Whitewash Waiver

As a result of the Acquisition and on the assumption that the Company will issue the maximum number of 362,048,187 Consideration Shares to Qingdao Hisense immediate upon Completion, the shareholding interest of Qingdao Hisense in the Company will increase from approximately 25.22% as at the Latest Practicable Date to approximately 45.21% as enlarged by the issue of the Consideration Shares. As such, unless a waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code is granted by the Executive, Qingdao Hisense and its concert parties will, upon Completion, be required to make a mandatory general offer to the Shareholders to acquire the Shares and all other securities of the Company in issue not already owned or agreed to be acquired by Qingdao Hisense and parties acting in concert with it under Rule 26.1 of the Takeovers Code. A formal application has been made by Qingdao Hisense to the Executive for the Whitewash Waiver pursuant

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

to Note 1 of the Notes on dispensations from Rule 26 of the Takeovers Code. The Whitewash Waiver, if granted by the Executive, would be subject to, among other things, the approval of the Independent Shareholders at the EGM by way of poll.

Based on our analysis of the terms of the Acquisition, the background of the Company, the business and financial performance of the Target Group, the basis for the Consideration and the Issue Price and the expected financial effects of the Acquisition as set out above, we consider that the Acquisition is in the interests of the Company and the Shareholders as a whole. If the Whitewash Waiver is not granted by the Executive or if the Whitewash Waiver is not approved by the Independent Shareholders, the Acquisition Agreement will be terminated in accordance with its terms and the Company will lose all the benefits and business opportunities that are expected to be brought by the successful completion of the Acquisition. Accordingly, we are of the view that for the purposes of implementing the Acquisition as discussed above, the grant of the Whitewash Waiver is in the interests of the Company and the Shareholders as a whole and is fair and reasonable as far as the Independent Shareholders are concerned.

RECOMMENDATION

In formulating our recommendation to the Independent Board Committee and the Independent Shareholders, we have considered the above principal factors and reasons, in particular, the following:

(i) The financial and trading positions of the Hisense Kelon Group have been adversely affected by the global financial crisis and the fluctuation of raw material prices in 2008 and incurred a substantial loss for the year ended 31 December 2008. Given the substantial interests of Hisense Group Co. in the Company, it is commercially sensible for Hisense Group Co. to assist the Hisense Kelon Group in improving its operations and competitiveness by way of the injection of the White Goods Business through the Acquisition.
(ii) The Target Group has demonstrated a profitable track record during the Reporting Period and the demand for household electrical appliances including air-conditioners and refrigerators in China market appears to be promising.
(iii) The terms of the Acquisition Agreement including the Consideration and the Issue Price are fair and reasonable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iv) In view of the expected benefits of the Acquisition and in particular, the expected improvement in the financial position of the Hisense Kelon Group as set out in the section headed “Possible financial effects of the Acquisition” in this letter, the resulting dilution on the existing shareholding interests of the Independent Shareholders in the Company is acceptable.
(v) For the purposes of implementing the Acquisition, the grant of the Whitewash Waiver is in the interests of the Company and the Shareholders as a whole and is fair and reasonable as far as the Independent Shareholders are concerned.

Based on the above, we are of the opinion that the Acquisition and the Whitewash Waiver are in the interests of the Company and the Shareholders as a whole and their respective terms are fair and reasonable. Accordingly, we would advise the Independent Board Committee and the Independent Shareholders that the Independent Shareholders should vote in favour of the relevant resolutions to approve the Acquisition and the Whitewash Waiver at the EGM.

Yours faithfully,

For and on behalf of Access Capital Limited Alexander Tai Principal Director

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

A. SUMMARY OF FINANCIAL STATEMENTS

The following is a summary of the audited consolidated results, assets, and liabilities of the Hisense Kelon Group prepared under IFRS for the three years ended 31 December 2008 which are extracted from the respective annual reports of the Hisense Kelon Group. All such financial information should be read in conjunction with the audited consolidated financial statements and accompanying notes, which are included in the Hisense Kelon Group’s annual reports. There were no extraordinary and exceptional items identified for each of the three years ended 31 December 2008. There were qualifications to each of the auditors’ reports in respect of the Hisense Kelon Group’s financial statements for the three years ended 31 December 2008. The qualified audit opinions for each of the Hisense Kelon Group’s financial statements for the three years ended 31 December 2008 are set out in Part C of this Appendix. The audited financial statements and accompanying notes of the Hisense Kelon Group for the year ended 31 December 2008, as extracted from the Group’s 2008 annual report, are set out in Part B of this Appendix.

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Consolidated Income Statement

For the year ended 31 December 2008

Turnover Cost of sales Gross profit Other income and gains Distribution costs Administrative expenses Other operating expenses (Loss)/profit from operations Dilution loss on share reform of an associate Share of results of associates Finance costs (Loss)/profit before income tax Income tax (expense)/credit (Loss)/profit for the year Attributable to: — Equity holders of the Company — Minority interests Dividends (Loss)/earnings per share attributable to equity holders of the Company — Basic and diluted	2006 RMB’000 6,564,257 (5,474,785) 1,089,472 409,305 (869,207) (390,978) (56,815) 181,777 (16,317) 3,590 (140,672) 28,378 20,871 49,249 69,989 (20,740) 49,249 — RMB0.07	2007 RMB’000 8,319,960 (6,942,789) 1,377,171 570,905 (1,126,269) (397,500) (133,500) 290,807 — 2,247 (78,530) 214,524 (10,867) 203,657 238,712 (35,055) 203,657 — RMB0.24	2008 RMB’000 8,052,909 (6,816,609) 1,236,300 201,701 (1,081,498) (432,835) (71,529) (147,861) — 4,197 (89,771) (233,435) (4,085) (237,520) (231,896) (5,624) (237,520) — RMB(0.23)

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Consolidated Balance Sheet

As at 31 December 2008

ASSETS Non-current assets Property, plant and equipment Investment properties Payments for leasehold land held for own use under operating leases Interests in associates Interests in jointly controlled entity Available-for-sale financial assets Intangible assets Goodwill Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Taxation recoverable Other financial assets Pledged bank deposits Cash and cash equivalents Total current assets Non-current assets held for sale Total assets	2006 RMB’000 (Restated) 1,612,767 26,144 372,533 78,981 — — 125,831 — 21,387 2,237,643 919,837 1,119,733 827 — 248,257 142,247 2,430,901 — 4,668,544	2007 RMB’000 1,383,062 38,192 305,392 82,839 — 1,220 168,112 — 11,300 1,990,117 940,284 1,307,209 585 9,479 70,133 76,395 2,404,085 20,369 4,414,571	2008 RMB’000 1,363,074 35,565 286,835 86,589 33,750 4,550 167,135 — 13,647
			1,991,145
			505,528 1,050,415 943 6,019 23,240 110,216
			1,696,361
			—
			3,687,506

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

LIABILITIES Current liabilities Trade and other payables Trade deposits received Other financial liabilities Provisions Taxation payable Other liabilities Borrowings Total current liabilities Non-current liabilities Other liabilities Total non-current liabilities Total liabilities Net current liabilities Total assets less current liabilities NET LIABILITIES Capital and reserves attributable to equity holders of the Company Share capital Share premium Statutory reserves Capital reserve Foreign exchange reserve Accumulated losses Equity attributable to equity holders of the Company Minority interests TOTAL EQUITY	2006 RMB’000 (Restated) 3,093,956 488,587 — 169,995 26,663 46,978 1,556,702 5,382,881 13,594 13,594 5,396,475 (2,951,980) (714,337) (727,931) 992,007 1,195,597 114,581 309,733 14,956 (3,621,452) (994,578) 266,647 (727,931)	2007 RMB’000 3,093,181 406,379 6,158 144,006 27,856 55,793 1,310,972 5,044,345 — — 5,044,345 (2,640,260) (629,774) (629,774) 992,007 1,195,597 114,581 266,672 29,111 (3,382,740) (784,772) 154,998 (629,774)	2008 RMB’000 2,178,071 354,243 13,611 114,215 27,342 43,704 1,814,948 4,546,134 — — 4,546,134 (2,849,773) (858,628) (858,628) 992,007 1,195,597 114,581 266,638 37,891 (3,614,636) (1,007,922) 149,294 (858,628)

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APPENDIX I FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

B. FINANCIAL STATEMENTS OF THE KELON GROUP FOR THE YEAR ENDED 31 DECEMBER 2008

Consolidated Income Statement

For the year ended 31 December 2008

Notes Turnover 5 Cost of sales Gross profit Other income and gains 7 Distribution costs Administrative expenses Other operating expenses 8 (Loss)/profit from operations Share of results of associates Finance costs 10 (Loss)/profit before income tax 11 Income tax expense 14 (Loss)/profit for the year Attributable to: — Equity holders of the Company — Minority interests Dividends (Loss)/earnings per share attributable to equity holders of the Company 15 — Basic and diluted	2008 RMB’000 8,052,909 (6,816,609) 1,236,300 201,701 (1,081,498) (432,835) (71,529) (147,861) 4,197 (89,771) (233,435) (4,085) (237,520) (231,896) (5,624) (237,520) — RMB(0.23)	2007 RMB’000 8,319,960 (6,942,789) 1,377,171 570,905 (1,126,269) (397,500) (133,500) 290,807 2,247 (78,530) 214,524 (10,867) 203,657 238,712 (35,055) 203,657 — RMB0.24

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Consolidated Balance Sheet

As at 31 December 2008

Notes ASSETS Non-current assets Property, plant and equipment 16 Investment properties 17 Payments for leasehold land held for own use under operating leases 18 Interests in associates 20 Interests in jointly controlled entity 21 Available-for-sale financial assets 22 Intangible assets 23 Goodwill 24 Deferred tax assets 25 Total non-current assets Current assets Inventories 26 Trade and other receivables 27 Taxation recoverable Other financial assets 28 Pledged bank deposits Cash and cash equivalents Total current assets Non-current assets held for sale 29 Total assets	2008 RMB’000 1,363,074 35,565 286,835 86,589 33,750 4,550 167,135 — 13,647 1,991,145 505,528 1,050,415 943 6,019 23,240 110,216 1,696,361 — 3,687,506	2007 RMB’000 1,383,062 38,192 305,392 82,839 — 1,220 168,112 — 11,300
		1,990,117
		940,284 1,307,209 585 9,479 70,133 76,395
		2,404,085
		20,369
		4,414,571

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Notes LIABILITIES Current liabilities Trade and other payables 30 Trade deposits received Other financial liabilities 28 Provisions 31 Taxation payable Other liabilities 32 Borrowings 33 Total current liabilities Net current liabilities NET LIABILITIES Capital and reserves attributable to equity holders of the Company Share capital 34 Share premium Statutory reserves 43(a) Capital reserve Foreign exchange reserve Accumulated losses Equity attributable to equity holders of the Company Minority interests TOTAL EQUITY	2008 RMB’000 2,178,071 354,243 13,611 114,215 27,342 43,704 1,814,948 4,546,134 (2,849,773) (858,628) 992,007 1,195,597 114,581 266,638 37,891 (3,614,636) (1,007,922) 149,294 (858,628)	2007 RMB’000 3,093,181 406,379 6,158 144,006 27,856 55,793 1,310,972 5,044,345 (2,640,260) (629,774) 992,007 1,195,597 114,581 266,672 29,111 (3,382,740) (784,772) 154,998 (629,774)

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 December 2008

As at 1 January 2007 Share of reserves of associates Acquisition of additional interests in a subsidiary (Note 38) Disposal of a subsidiary (Note 39) Exchange differences on translation Profit for the year As at 31 December 2007 As at 1 January 2008 Share of reserves of associates Additional interest acquired in subsidiaries Exchange differences on translation Loss for the year As at 31 December 2008	Share capital RMB’000 992,007 — — — — — 992,007 992,007 — — — — 992,007	Share premium RMB’000 1,195,597 — — — — — 1,195,597 1,195,597 — — — — 1,195,597	Statutory reserves (Note 43(a)) RMB’000 114,581 — — — — — 114,581 114,581 — — — — 114,581	Capital reserve RMB’000 309,733 1,611 (44,672) — — — 266,672 266,672 (34) — — — 266,638	Foreign exchange reserve Accumulated losses RMB’000 RMB’000 14,956 (3,621,452) — — — — — — 14,155 — — 238,712 29,111 (3,382,740) 29,111 (3,382,740) — — — — 8,780 — — (231,896) 37,891 (3,614,636)	Equity attri- butable to equity holders of the Company RMB’000 (994,578) 1,611 (44,672) — 14,155 238,712 (784,772) (784,772) (34) — 8,780 (231,896) (1,007,922)	Minority interests RMB’000 266,647 — (36,716) (36,880) (2,998) (35,055) 154,998 154,998 — (80) — (5,624) 149,294	Total equity RMB’000 (727,931) 1,611 (81,388) (36,880) 11,157 203,657
								(629,774)

								(629,774) (34) (80) 8,780 (237,520)
								(858,628)

— I-8 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 December 2008

		2008	2007
	Notes	RMB’000	RMB’000
Cash flows from operating activities
(Loss)/profit before income tax		(233,435)	214,524
Adjustments for:
Share of results of associates		(4,197)	(2,247)
Interest income		(1,447)	(3,753)
Interest expense		89,771	67,905
Depreciation of property, plant and
equipment		214,386	236,181
Depreciation of investment properties		2,627	3,687
Amortisation of intangible assets		7,892	3,919
Amortisation of payments for leasehold
land held for own use under operating
leases		13,042	15,555
Impairment loss on property, plant and
equipment		5,056	26,658
Impairment loss on intangible assets		—	1,282
Impairment loss on payments for leasehold
land held for own use under operating
leases		—	17,189
(Gain)/loss on disposal of property, plant
and equipment, net		(2,975)	50,556
Impairment loss on trade and other
receivables		14,369	13,546
Partial recovery of an impaired receivable		—	(57,072)
Reversal of impairment loss on trade and
other receivables		(2,095)	(12,564)
Write down of inventories to net realisable
value, net		17,428	11,954
Gain on disposal of investment properties		—	(60,258)
Loss/(gain) on disposal of a subsidiary		10,568	(4,509)
Gain on disposal of payments for leasehold
land held for own use under operating
leases		—	(284,351)

— I-9 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Notes Loss/(gain) on fair value change of other financial assets and other financial liabilities, net Gain on disposal of an associate Gain on disposal of non-current assets held for sale Operating profit before working capital changes Decrease/(increase) in inventories Increase in trade and other receivables (Decrease)/increase in trade and other payables Decrease in trade deposits received Decrease in provisions Decrease in other liabilities Cash used in operations Tax (paid)/refund, net Net cash flows used in operating activities Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Proceeds from disposal of property, plant and equipment Decrease in pledged bank deposits Purchase of investment properties Proceeds from disposal of investment properties Proceeds from disposal of an associate Proceeds from disposal of available-for- sale financial assets Proceeds from disposal of non-current assets held for sale	2008 RMB’000 10,913 (296) (52,888) 88,719 416,018 (31,475) (754,744) (52,136) (29,791) (12,089) (375,498) (7,304) (382,802) (276,485) (7,647) 46,437 46,893 — 5,233 709 2,920 10,573	2007 RMB’000 (3,104) — — 235,098 (33,310) (133,790) 32,274 (80,577) (25,989) (4,779) (11,073) 655 (10,418) (236,149) (47,482) 197,544 178,124 (1,035) 100,289 — — —

— I-10 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Notes Purchase of payments for leasehold land held for own use under operating leases Investment in available-for-sale financial assets Disposal of a subsidiary, net of cash acquired/(disposed) 39 Interest received Proceeds from disposal of payments for leasehold land held for own use under operating leases Investment in a jointly controlled entity Net cash flows (used in)/from investing activities Cash flows from financing activities Borrowings raised Interest paid Proceeds on transfer of trade and other receivables Repayment of borrowings Repayment to a shareholder Net cash flows from/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents at end of year representing cash and bank balances 40	2008 RMB’000 — (6,250) 415 1,447 195,258 (33,750) (14,247) 2,448,943 (89,771) — (1,926,966) — 432,206 35,157 76,395 (1,336) 110,216	2007 RMB’000 (16,605) (1,220) (23) 3,753 131,485 — 308,681 1,780,780 (67,905) 142,000 (2,026,510) (191,004) (362,639) (64,376) 142,247 (1,476) 76,395

— I-11 —

APPENDIX I FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

Notes to the Financial Statements

31 December 2008

1. GENERAL INFORMATION

Hisense Kelon Electrical Holdings Company Limited (the “Company”) is a public limited company incorporated in the People’s Republic of China (hereinafter referred to as the “PRC”) on 16 December 1992. Its H shares are listed on The Stock Exchange of Hong Kong Limited on 23 July 1996 and its A shares are listed on the Shenzhen Stock Exchange on 13 July 1999.

The Company was formerly named Guangdong Kelon Electrical Holdings Company Limited （廣東科龍電器股份有限公司）and has changed its name to Hisense Kelon Electrical Holdings Company Limited（海信科龍電器股份有限公司）since 21 June 2007.

As at 31 December 2006, Qingdao Hisense Air-Conditioner Company Limited (“Hisense Air-Conditioner”) held 262,212,194 shares of domestic legal person shares of the Company, representing 26.43% of total share capital of the Company.

In December 2006, a share reform scheme (the “Share Reform Scheme”) was set up for converting the Company’s domestic legal person shares, which were not freely transferable, into the Company’s freely transferable A shares (the “Transferable Shares”). Pursuant to the provisions in the Share Reform Scheme, Hisense Air-Conditioner undertakes that it will make advance allocation of shares to respective A shares shareholders on behalf of other domestic legal person shareholders who have not explicitly given consent to participate in the Share Reform Scheme. As a result, Hisense Air-Conditioner obtained 238,872,074 Transferable Shares of the Company subject to certain selling restrictions on 29 March 2007 when the Share Reform Scheme was approved in the A shares general meeting.

On 28 March 2008, the proposed Acquisition of White Goods Assets of Hisense AirConditioner (the “Acquisition”) was rejected by the Merger and Reorganisation Review Committee of the CSRC (China Securities Regulatory Commission). Pursuant to the Share Reform Scheme completed on 29 March 2007, Hisense Air-Conditioner made a compensation of 9,725,059 shares calculated based on 0.5 shares for every 10 transferable A shares held by such holders as registered on 10 April 2008 as that the Acquisition was not completed by 29 March 2008. The share held by Hisense Air-Conditioner was reduced to 229,147,015 shares, representing 23.10% of the Company’s total share capital.

On 10 April 2008 and 19 June 2008, two domestic legal person shareholders joined to convert their non-freely transferable shares into the Transferable Shares of the Company. Pursuant to the provisions in the Share Reform Scheme, these domestic legal person shareholders availed 5,228,907 A shares to Hisense Air-Conditioner. Accordingly, the total number of A shares held by Hisense Air-Conditioner were increased to 234,375,922 shares, representing 23.63% of the Company’s total share capital.

As at 31 December 2008, Hisense Air-Conditioner held 250,173,722 shares representing 25.22% of the Company’s total share capital and continued to be the major single largest shareholder of the Company.

— I-12 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

The English names by which some of the companies are referred to in these financial statements represent management’s best efforts in translating their Chinese names as no English names have been registered for these companies. The Group, comprising the Company and its subsidiaries, is principally engaged in the manufacture and sale of refrigerators and air-conditioners. The address of the registered office and principal place of business of the Company is No. 8 Ronggang Road, Ronggui, Shunde, Foshan, the PRC.

2. BASIS OF PREPARATION

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards 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 2008, the Group incurred a loss of RMB238 million and accumulated losses of approximately RMB3,615 million. Its current liabilities exceeded current assets by approximately RMB2,850 million (2007: RMB2,640 million) in which the Group has outstanding short-term loans in the aggregate of approximately RMB1,815 million (2007: RMB1,311 million). These conditions indicate the existence of a material uncertainty, which may cast significant doubt on the Group’s ability to continue as a going concern. Nevertheless, the directors are of the opinion that the Group will be able to finance its future working capital and financial requirements based on (i) loan and draft discount financing available from Hisense Finance Company Ltd. (“Hisense Finance”) with maximum loan amount and service fee payable not exceeding annual cap of RMB1 billion and RMB25 million respectively on a revolving basis; (ii) continuous financial support available from Hisense Group Holdings Company Ltd. (“Hisense Group”), the holding company of Hisense Air-Conditioner in form of providing corporate guarantees to lenders; and (iii) cash flow forecasts projected by the Group’s management showing adequate cash flows from its future operation.

The consolidated financial statements for the year ended 31 December 2008 comprise the Company and its subsidiaries, the Group’s interests in associates and jointly controlled entity. The measurement basis used in the preparation of the financial statements is historical cost except for certain financial instruments which are measured at fair value as explained in the accounting policies set out below.

(c) Use of estimates and judgments

The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other various factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

— I-13 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgments made by management in the application of IFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next financial year are disclosed in Note 45.

(d) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Renminbi (“RMB”), which is the Company’s functional and presentation currency.

3. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

(a) Application of International Financial Reporting Standards

In the current year, the Group has applied, for the first time, the following amendments and new interpretations issued by the IASB and IFRIC that are effective for the current accounting period of the Group. The adoption of the following amendments and new interpretations had no material effect on the results or financial position of the Group for the current or prior accounting periods and no prior period adjustment has been recognised.

Amendments to IAS 39 and IFRS 7 Reclassification of Financial Assets IFRIC – Interpretation 11 IFRS 2 – Group and Treasury Share Transactions IFRIC – Interpretation 12 Service Concession Arrangements IFRIC – Interpretation 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and Their Interaction

(b) Potential impact arising on the new accounting standards not yet effective

The Group has not yet applied the following new standards, amendment or interpretations that have been issued but are not yet effective. There will be changes in disclosure required by IFRS 8 and IAS 1 (Revised) and the adoption of IAS 23 (Revised) may result in changes in accounting policies in future. The adoption of IFRS 3 (Revised) may affect the accounting for business combination for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. IAS 27 (Revised) will affect the accounting treatment for changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control, which will be accounted for as equity transactions.

The directors of the Company are in the process of making an assessment of the potential impact of the application of the other new or revised standards, amendments and interpretations and it is so far concluded that there will have no material effect on how the results and financial position of the Group are prepared and presented.

— I-14 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

IFRSs (Amendments) Improvements to IFRSs1 Amendments to IFRS 1 and IAS 27 Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate2 Amendments to IFRS 7 Improving Disclosures about Financial Instruments2 Amendments to IFRIC – Int 9 and Embedded Derivatives4 IAS 39 IFRS 1 (Revised) First-time Adoption of International Financial Reporting Standards3 IFRS 2 Amendment Share-based Payments – Vesting Conditions and Cancellations2 IFRS 3 (Revised) Business Combinations3 IFRS 8 Operating Segments2 IAS 1 (Revised) Presentation of Financial Statements2 IAS 23 (Revised) Borrowing Costs2 IAS 27 (Revised) Consolidated and Separate Financial Statements3 Amendments to IAS 32 and IAS1 Puttable Financial Instruments and Obligations Arising on Liquidation 2 Amendment to IAS 39 Eligible Hedged Items3 IFRIC – Interpretation 13 Customer Loyalty Programmes5 IFRIC – Interpretation 15 Agreements for the Construction of Real Estate2 IFRIC – Interpretation 16 Hedges of a Net Investment in a Foreign Operation6 IFRIC – Interpretation 17 Distributions of Non-cash Assets to Owners3 IFRIC – Interpretation 18 Transfer of Assets from Customers7

1 Effective for annual periods beginning on or after 1 January 2009 except the amendments to IFRS 5, effective for annual periods beginning on or after 1 July 2009

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

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

4 Effective for annual periods ending on or after 30 June 2009

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

6 Effective for annual periods beginning on or after 1 October 2008

7 Effective for transfer of assets from customers received on or after 1 July 2009

4. PRINCIPAL ACCOUNTING POLICIES

(a) Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries (“the Group”) as at 31 December each year. Inter-company transactions and balances between group companies are therefore eliminated in full in preparing the consolidated financial statements.

On acquisition, the assets and liabilities of the relevant subsidiaries are measured at their fair values at the date of acquisition. The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective dates of acquisition or up to the effective dates of disposal, as appropriate.

— I-15 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Minority interests represent the portion of the net assets of subsidiaries attributable to interests that are not owned by the Company, whether directly or indirectly through subsidiaries, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. Minority interests are presented in the consolidated balance sheet within equity, separately from equity attributable to the equity holders of the Company. Minority interests in the results of the Group are presented on the face of the consolidated income statement as an allocation of the total profit or loss for the year attributable to minority interests and the equity shareholders of the Company.

Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses applicable to the minority, are charged against the Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the Group’s interest is allocated all such profits until the minority’s share of losses previously absorbed by the Group has been recovered.

The Group applies a policy of treating transactions with minority interests as transactions with equity owners of the Group. For purchases from minority interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is deducted from equity. For disposals to minority interests, differences between any proceeds received and the relevant share of minority interests are also recorded in equity.

(b) Subsidiaries

A subsidiary is an entity over which the Company is able to exercise control. Control is achieved where the Company, directly or indirectly, has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

(c) Associates

Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, that other entity is classified as an associate. Associates are accounted for using equity method whereby they are initially recognised in the consolidated balance sheet at cost and thereafter, their carrying values are adjusted for Group’s share of the post-acquisition change in the associate’s net assets — except that losses in excess of the Group’s investment in the associate are not recognised unless there is an obligation to make good those losses.

Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors’ interests in the associate. The investor’s share in the associate’s profits and losses resulting from these transactions is eliminated against the carrying value of the associate.

Any premium paid for an associate above the fair value of the Group’s share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the investment and is not amortised or separately tested for impairment, but the entire carrying amount of investment is subject to impairment test in accordance with IAS 36 (Note 4(s)).

— I-16 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

(d) Joint ventures

A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity which is subject to joint control and none of the participating parties has unilateral control over the economic activity.

The Group’s share of post acquisition results of jointly controlled entity is included in the consolidated income statement. The Group’s interests in jointly controlled entity is accounted for using the equity method and is initially recorded at cost and adjusted thereafter for the post acquisition changes in the Group’s share of the net assets of the jointly controlled entity.

Results of jointly controlled entity are accounted for by the Company on the basis of dividends received and receivable. The Company’s interests in jointly controlled entities are stated at cost less impairment losses, if any.

Unrealised profits and losses resulting from transactions between the Group and its jointly controlled entity is eliminated to the extent of the Group’s interest in the jointly controlled entity, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are immediately recognised in the income statement.

(e) Goodwill

Goodwill represents the excess of the cost of a business combination over the interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair values of assets given, liabilities assumed and equity instruments issued, plus any direct costs of acquisition.

Goodwill arising from acquisition of a subsidiary is capitalised as a separate asset with any impairment in carrying value being charged to the consolidated income statement.

Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated income statement.

For the purpose of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units that are expected to benefit from the synergies of the acquisition. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired.

For goodwill arising on an acquisition in a financial year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount to each asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated income statement. An impairment loss for goodwill is not reversed in subsequent periods.

— I-17 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

(f) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

The cost of property, plant and equipment includes its purchase price and the costs directly attributable to the acquisition of the item.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged in the consolidated income statement during the financial period in which they are incurred.

Property, plant and equipment are depreciated so as to write off their cost net of expected residual value over their estimated useful lives on a straight-line basis. The useful lives, residual value and depreciation method are reviewed, and adjusted if appropriate, at each balance sheet date. The useful lives are as follows:

Leasehold land and buildings 20 to 50 years Plant, machinery and equipment 5 to 10 years Moulds 3 years Motor vehicles 5 years

An asset is written down immediately to its recoverable amount if its carrying amount is higher than the asset’s estimated recoverable amount.

Construction in progress represents buildings, plant and machinery on which construction work has not been completed and which, upon completion, management intends to hold for production purposes. Construction in progress is carried at costs which include development and construction expenditure incurred and interest and other direct costs attributable to the development less any accumulated impairment losses. On completion, construction in progress is transferred to other property, plant and equipment at cost less accumulated impairment losses. No depreciation is provided in respect of construction in progress until it is completed and is ready for its intended use.

The gain or loss on disposal of an item of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the consolidated income statement.

(g) Investment properties

Investment properties are properties held to earn rentals or for capital appreciation and not occupied by the Group. Investment properties are carried at cost less accumulated depreciation and accumulated impairment losses, if any.

Depreciation is provided using the straight-line method to write off the cost of the investment properties over their estimated useful lives of 20 to 50 years. Where the carrying amount of an investment property is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

— I-18 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

(h) Payments for leasehold land held for own use under operating leases

Payments for leasehold land held for own use under operating leases represent up-front payments to acquire long-term interests in lessee-occupied properties. These payments are stated at cost and are amortised over the period of the lease on a straight-line basis to the consolidated income statement.

(i) Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to lessee. All other leases are classified as operating leases.

The Group as lessor

Rental income from operating leases is recognised in the consolidated income statement on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

The Group as lessee

Assets held under finance leases are initially recognised as assets of the Group at their fair value or, if lower, the present value of the minimum lease payments. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the consolidated income statement over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor.

The total rentals payable under the operating leases are charged to the consolidated income statement on a straight-line basis over the lease term. Lease incentives received are recognised as an integrated part of the total rental expense, over the term of the lease.

The land and buildings elements of property leases are considered separately for the purposes of lease classification. When the lease payments cannot be allocated reliably between land and building elements, the entire lease payments are included in the cost of leasehold land and buildings as a finance lease in property, plant and equipment.

(j) Intangible assets (other than goodwill)

(i) Externally acquired intangible assets

Externally acquired intangible assets are initially recognised at cost. Subsequently, intangible assets with finite useful lives are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is provided on a straight-line basis over their useful lives. Intangible assets with indefinite useful lives are carried at cost less any accumulated impairment losses. The amortisation expense and impairment loss are included within administrative expenses in the consolidated income statement.

— I-19 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Intangible assets separate from goodwill, are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques.

The significant intangibles recognised by the Group, their useful economic lives are as follows:

Intangible	Useful economic life
Trademarks	Indefinite
Software	4 years
Non-patented technologies	4 to 10 years

(ii) Internally generated intangible assets (research and development costs)

Expenditure on internally developed products is capitalised if it can be demonstrated that:

It is technically feasible to develop the product for it to be sold;
Adequate resources are available to complete the development;
There is an intention to complete and sell the product;
The Group is able to sell the product;
Sale of the product will generate future economic benefits; and
Expenditure on the project can be measured reliably.

Capitalised development costs are amortised over the periods the Group expects to benefit from selling the products developed. The amortisation expense is included within administrative expenses in the consolidated income statement.

Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the consolidated income statement as incurred.

(iii) Impairment

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually by comparing their carrying amounts with their recoverable amounts, irrespective of whether there is any indication that they may be impaired. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

When an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years.

Intangible assets with finite lives are tested for impairment when there is an indication that an asset may be impaired.

— I-20 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

(k) Financial instruments

(i) Financial assets

The Group classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired. Financial assets at fair value through profit or loss are initially measured at fair value and all other financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.

Financial assets at fair value through profit or loss: These assets include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments or financial guarantee contracts. Gains or losses on investments held for trading are recognised in the consolidated income statement.

Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated as a financial asset at fair value through profit or loss, except where the embedded derivative does not significantly modify the cash flows or it is clear that the separation of the embedded derivative is prohibited.

Financial assets may be designated upon initial recognition as at fair value through profit or loss if the following criteria are met: (i) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognising gains or loss on them on a different basis; (ii) the assets are part of a group of financial assets which is managed and its performance evaluated on a fair value basis according to a documented management strategy; or (iii) the financial asset contains an embedded derivative that would need to be separately recorded.

At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in the consolidated income statement in the period in which they arise.

Loans and receivables: These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade debtors), and also incorporate other types of contractual monetary asset. At each balance sheet date subsequent to initial recognition, they are carried at amortised cost using the effective interest method, less any identified impairment losses.

— I-21 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Available-for-sale financial assets: These assets are non-derivative financial assets that are designated as available for sale or are not included in other categories of financial assets and comprise the Group’s strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities. At each balance sheet date subsequent to initial recognition, these assets are carried at fair value with changes in fair value recognised directly in equity.

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition.

(ii) Impairment loss on financial assets

Objective evidence that the asset is impaired includes observable data that comes to the attention of the Group including the following loss events:

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
granting concession to a debtor because of debtors’ financial difficulty; or
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation.

For loans and receivables

An allowance for impairment loss is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms. The amount of provision is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount is recognised in the income statement. When the asset is uncollectible, it is written off against the allowance account. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

For available-for-sale financial assets

Where a decline in the fair value constitutes objective evidence of impairment, the amount of the loss is removed from equity and recognised in the consolidated income statement.

Any impairment loss recognised in the consolidated income statement on available-for-sale debt investments is subsequently reversed if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

— I-22 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

For available-for-sale equity investment, any increase in fair value subsequent to an impairment loss is recognised directly in equity.

For available-for-sale equity investment that is carried at cost, the amount of impairment loss is measured as the difference between the carrying amount of the asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss shall not be reversed.

(iii) Financial liabilities

The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liabilities were incurred. Financial liabilities at fair value through profit or loss are initially measured at fair value and financial liabilities at amortised costs are initially measured at fair value net of transaction costs that are directly attributable to the issue of the financial liabilities.

Financial liabilities at fair value through profit or loss: Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognised in the consolidated income statement.

Where a contract contains one or more embedded derivatives, the entire hybrid contract may be designated as a financial liability at fair value through profit or loss, except where the embedded derivative does not significantly modify the cash flows or it is clear that separation of the embedded derivative is prohibited.

Financial liabilities may be designated upon initial recognition as at fair value through profit or loss if the following criteria are met: (i) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the liabilities or recognising gains or losses on them on a different basis; (ii) the liabilities are part of a group of financial liabilities which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management strategy; or (iii) the financial liability contains an embedded derivative that would need to be separately recorded.

At each balance sheet date subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in the income statement in the period in which they arise.

— I-23 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Financial liabilities at amortised cost include the following items:

Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently measured at amortised cost using effective interest method.
Bank borrowings and the debt element of convertible debt issued by the Group, which are initially recognised at the amount advanced net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the balance sheet. Interest expense in this context includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

Gains or losses are recognised in the consolidated income statement when the liabilities are derecognised as well as through the amortisation process.

(iv) Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

(v) Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. A financial guarantee contract issued by the Group and not designated as at fair value through profit or loss is recognised initially at its fair value less transaction costs that are directly attributable to the issue of the financial guarantee contract. Subsequent to initial recognition, the Group measures the financial guarantee contract at the higher of: (i) the amount determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18 Revenue.

(vi) Derecognition

The Group derecognises a financial asset when the contractual rights to the future cash flows in relation to the financial asset expire or when the financial asset has been transferred and the transfer meets the criteria for derecognition in accordance with IAS 39.

The Group derecognises a financial liability when the obligation under the liability is discharged or cancelled or expired.

— I-24 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

(l) Inventories

Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

(m) Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale when:

they are available for immediate sale;
management is committed to a plan to sell;
it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn;
an active programme to locate a buyer has been initiated;
the asset or disposal group is being marketed at a reasonable price in relation to its fair value; and
a sale is expected to complete within 12 months from the date of classification.

Non-current assets and disposal groups classified as held for sale are measured at the lower of:

their carrying amount immediately prior to being classified as held for sale in accordance with the Group’s accounting policy; and
fair value less costs to sell.

Following their classification as held for sale, non-current assets (including those in a disposal group) are not depreciated.

The results of operations disposed of during the year are included in the consolidated income statement up to the date of disposal.

(n) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and sales related taxes. Sales of goods are recognised when goods are delivered and title has passed.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Rental income under operating leases is recognised on a straight-line basis over the term of the relevant lease.

Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.

— I-25 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Subsidy income is recognised when the rights to receive the income is established and approved.

Penalty income is recognised when triggering events to receive payment occur and the amount of payment can be reliably measured.

(o) Income taxes

Income taxes for the year comprise current tax and deferred tax.

Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purposes and is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date.

Deferred tax arises from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for tax purposes and is accounted for using the balance sheet liability method. Except for recognised assets and liabilities that affect neither accounting nor taxable profits, deferred tax liabilities are recognised for all temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is measured at the tax rates expected to apply in the period when the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted at the balance sheet date.

Income taxes are recognised in the consolidated income statement except when they relate to items directly recognised to equity in which case the taxes are also directly recognised in equity.

(p) Foreign currency

Transactions entered into by group entities in currencies other than the currency of the primary economic environment in which it operates (the “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Nonmonetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in the income statement in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the income statement for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which case, the exchange differences are also recognised directly in equity.

— I-26 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

On consolidation, the results of foreign operations are translated into the presentation currency of the Group (i.e. RMB) at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the rates approximating to those ruling when the transactions took place are used. All assets and liabilities of foreign operations are translated at the rate ruling at the balance sheet date. Exchange differences arising on translating the opening net assets at opening rate and the results of foreign operations at actual rate are recognised directly in equity (the “foreign exchange reserve”). Exchange differences recognised in the income statement of group entities’ separate financial statements on the translation of long-term monetary items forming part of the Group’s net investment in the foreign operation concerned are reclassified to the foreign exchange reserve.

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the income statement as part of the profit or loss on disposal.

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation on or after 1 January 2005 are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising are recognised in the foreign exchange reserve.

(q) Employee benefits

The Group’s subsidiaries incorporated in the PRC makes monthly contributions to a state-sponsored defined contribution scheme for the local staff. The contributions are made at a specific percentage on the standard salary pursuant to laws of the PRC and relevant regulation issued by local social security authorities.

In addition, the Group manages a defined contribution Mandatory Provident Fund Scheme (the “MPF Scheme”), a defined contribution scheme managed by an independent trustee for those employees who are eligible to participate in the MPF scheme. The Group makes contributions based on a percentage of the eligible employees’ salaries funded by the Group and are charged to the income statement as they become payable in accordance with the rules of the MPF scheme.

(r) Borrowing costs

Borrowing costs attributable directly to the acquisition, construction or production of assets which require a substantial period of time to be ready for their intended use or sale, are capitalised as part of the cost of those assets. Income earned on temporary investments of specific borrowings pending their expenditure on those assets is deducted from borrowing costs capitalised.

All other borrowing costs are recognised in the consolidated income statement in the period in which they are incurred.

— I-27 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

(s) Impairment of other assets

At each balance sheet date, the Group reviews the carrying amounts of the following assets to determine whether there is any indication that those assets have suffered an impairment loss or an impairment loss previously recognised no longer exists or may have decreased:

property, plant and equipment and investment properties;
payments for leasehold land held for own use under operating lease;
interests in associates; and
interests in jointly controlled entity.

If the recoverable amount (i.e. the greater of the fair value less costs to sell and value in use) of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

(t) Government grants

Government grants are recognised when there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the consolidated income statement over the expected useful life of the relevant asset by equal annual instalments.

(u) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, which will probably result in an outflow of economic benefits that can be reasonably estimated. Provisions are not recognised for future operating losses.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, the existence of which will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(v) Warranty obligation

The Group provides free repairing services for its products and free replacement of the major components of its products for one to three years after sales.

— I-28 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

The costs of the warranty obligation under which the Group agrees to remedy defects in its products are accrued at the time the related sales are recognised. Provision for warranty is accrued based on the estimated costs of fulfilling the total obligation, including handling and transportation costs. The costs are estimated by management based on sales volume and past experience of repairs or returns. The assumptions used to estimate the warranty provision are reviewed periodically in light of actual results.

5. 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:

Sales of refrigerators Sales of air-conditioners Sales of freezers Sales of product components	2008 RMB’000 4,189,049 3,024,028 397,572 442,260 8,052,909	2007 RMB’000 4,324,808 3,214,875 324,821 455,456
		8,319,960

6. 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.

— I-29 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Segment information about these businesses is presented below:

Year ended 31 December 2008

(i) Consolidated income statement

Refrigerators Air- conditioners RMB’000 RMB’000 Turnover External sales 4,189,049 3,024,028 Inter-segment sales — — Total revenue 4,189,049 3,024,028 Inter-segment sales are charged at prevailing Result Segment result (10,256) (89,570) Unallocated corporate expenses Share of results of associates 2,183 1,560 Finance costs Loss before income tax expense Income tax expense Loss for the year	Freezers Product components Elimination Consolidated RMB’000 RMB’000 RMB’000 RMB’000 397,572 442,260 — 8,052,909 — 406,148 (406,148) — 397,572 848,408 (406,148) 8,052,909 market rates. 2,518 (28,971) — (126,279) (21,582) 207 247 — 4,197 (89,771) (233,435) (4,085) (237,520)	Freezers Product components Elimination Consolidated RMB’000 RMB’000 RMB’000 RMB’000 397,572 442,260 — 8,052,909 — 406,148 (406,148) — 397,572 848,408 (406,148) 8,052,909 market rates. 2,518 (28,971) — (126,279) (21,582) 207 247 — 4,197 (89,771) (233,435) (4,085) (237,520)
		8,052,909

		(126,279) (21,582) 4,197 (89,771)
		(233,435) (4,085)
		(237,520)

(ii) Consolidated balance sheet

Refrigerators Air- conditioners Freezers Product components RMB’000 RMB’000 RMB’000 RMB’000 Assets Segment assets 1,806,597 952,716 173,896 428,188 Interests in associates 56,283 28,574 1,732 — Unallocated corporate assets Consolidated total assets Liabilities Segment liabilities 1,403,727 854,319 120,234 206,043 Unallocated corporate liabilities Consolidated total liabilities	Consolidated RMB’000 3,361,397 86,589 239,520
	3,687,506

	2,584,323 1,961,811
	4,546,134

— I-30 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

(iii) Other information

		Air-		Product
	Refrigerators	conditioners	Freezers	components	Consolidated
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Additions of property, plant and
equipment	187,453	33,026	27,658	26,363	274,500
Additions of intangible assets	4,484	2,263	600	300	7,647
Depreciation of property, plant and
equipment	108,686	66,358	9,490	29,852	214,386
Depreciation of investment
properties	2,003	598	26	—	2,627
Amortisation of intangible assets	4,253	3,166	230	243	7,892
Amortisation of payments for
leasehold land held for own use
under operating leases	8,244	2,923	735	1,140	13,042
Impairment loss on property,
plant and equipment	—	—	—	5,056	5,056
Gain/(loss) on disposal of property,
plant and equipment, net	309	(306)	(2,662)	(316)	(2,975)
Gain on disposal of non-current
assets held for sale	34,623	17,499	766	—	52,888
Write down of inventories
to net realisable value, net	3,980	11,520	497	1,431	17,428

— I-31 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Year ended 31 December 2007

(i) Consolidated income statement

Refrigerators Air- conditioners RMB’000 RMB’000 Turnover External sales 4,324,808 3,214,875 Inter-segment sales — — Total revenue 4,324,808 3,214,875 Inter-segment sales are charged at prevailing Result Segment result 305,559 9,872 Unallocated corporate expenses Share of results of associates 1,168 868 Finance costs Profit before income tax expense Income tax expense Profit for the year	Freezers Product components RMB’000 RMB’000 324,821 455,456 — 603,559 324,821 1,059,015 market rates. 17,464 (24,940) 88 123	Elimination Consolidated RMB’000 RMB’000 — 8,319,960 (603,559) — (603,559) 8,319,960 — 307,955 (17,148) — 2,247 (78,530) 214,524 (10,867) 203,657	Elimination Consolidated RMB’000 RMB’000 — 8,319,960 (603,559) — (603,559) 8,319,960 — 307,955 (17,148) — 2,247 (78,530) 214,524 (10,867) 203,657
			8,319,960

			307,955 (17,148) 2,247 (78,530)
			214,524 (10,867)
			203,657

(ii) Consolidated balance sheet

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

	3,593,196 1,451,149
	5,044,345

— I-32 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

(iii) Other information

		Air-		Product
	Refrigerators	conditioners	Freezers	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

Geographical segments

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

The PRC Mainland China Hong Kong Europe America Others	2008 RMB’000 4,908,477 357,652 5,266,129 582,678 824,377 1,379,725 8,052,909	2007 RMB’000 4,821,614 257,188
		5,078,802 883,350 926,332 1,431,476
		8,319,960

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

— I-33 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

7. OTHER INCOME AND GAINS

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

Gain on disposal of raw materials Gain on disposal of scrap materials Gain on disposal of property, plant and equipment Gain on disposal of payments for leasehold land held for own use under operating leases Gain on disposal of non-current assets held for sale (Note 29) Gain on disposal of investment properties Gain on debts settlement with suppliers Gain on fair value change of other financial assets (Note 28) Gain on disposal of a subsidiary_(Note 39) Interest income Penalty income(i) Rental income Partial recovery of an impaired receivable Reversal of impairment loss on trade and other receivables (Note 27) Subsidy income(ii)_ Others	2008 RMB’000 15,924 44,745 6,650 — 52,888 — 4,639 10,928 — 1,447 9,509 17,757 — 2,095 23,046 12,073 201,701	2007 RMB’000 27,190 26,694 16,040 284,351 — 60,258 4,422 9,479 4,509 3,753 12,166 20,721 57,072 12,564 6,236 25,450
		570,905

(i) The penalty income represented mainly compensation received from suppliers for the supply of defective materials and parts used in the production. The compensation amount was determined with reference to actual costs incurred by the Group.
(ii) The subsidy income represented mainly subsidies received from relevant authorities in the PRC for encouraging production and business development in Chengdu and relocation of certain manufacturing plants in Shunde.

— I-34 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

8. OTHER OPERATING EXPENSES

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

Loss on fair value change of other financial liabilities (Note 28) Loss on disposal of property, plant and equipment Impairment loss on intangible assets Impairment loss on payments for leasehold land held for own use under operation leases Impairment loss on property, plant and equipment Loss on non-deductible input value added tax Loss on disposal of a subsidiary_(Note 39)_ Penalty Donation Others	2008 RMB’000 31,235 9,625 — — 5,056 — 10,568 8,752 2,305 3,988 71,529	2007 RMB’000 6,375 66,596 1,282 17,189 26,658 4,894 — 2,544 162 7,800
		133,500

9. DEPRECIATION AND AMORTISATION

An analysis of the Group’s depreciation of property, plant and equipment and investment properties is as follows:

Amount charged as cost of sales Amount included in distribution costs Amount included in administrative expenses Amount included in other operating expenses	2008 RMB’000 176,215 6,458 34,340 — 217,013	2007 RMB’000 191,500 6,346 40,847 1,175
		239,868

An analysis of the Group’s amortisation of intangible assets and payments for leasehold land held for own use under operating leases is as follows:

	2008	2007
	RMB’000	RMB’000
Amount included in administrative expenses	20,934	19,474

— I-35 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

10. FINANCE COSTS

Interest on: Bank borrowings wholly repayable within five years Discounted note receivables Others 11. (LOSS)/PROFIT BEFORE INCOME TAX (Loss)/profit before income tax is stated after charging: Inventories recognised as an expense — upon sales of goods — upon sales of raw materials/scrap materials — write-down of inventories Staff costs (including directors’ and supervisors’ remuneration) — Basic salaries, housing and other allowances and benefits in kind — Defined contribution pension cost Auditors’ remuneration Research and development costs Impairment loss on trade and other receivables_(Note 27)_ Foreign exchange loss, net	2008 RMB’000 66,057 18,863 84,920 4,851 89,771 2008 RMB’000 6,799,137 493,479 17,428 592,743 49,162 641,905 3,567 64,112 14,369 65,773	2007 RMB’000 63,597 4,308
		67,905 10,625
		78,530

		2007 RMB’000 6,932,254 425,839 11,954 589,735 41,135
		630,870 4,800 58,857 13,546 40,970

— I-36 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

12. DIRECTORS’ AND SUPERVISORS’ EMOLUMENTS

The amounts of emoluments paid and payable to the directors and supervisors of the Company by the Group are as follows:

Year ended 31 December 2008 Executive directors Tang Ye Guo Yu Shu Min Lin Lan Wang Shi Lei_(i) Liu Chun Xin Zhang Ming(iv) Yang Yun Duo(v) Independent non-executive directors Zhang Sheng Ping Lu Qing Cheung Yui Kai, Warren Supervisors Guo Qing Cun Zhou Zhao Li(iii) Gao Zhong Xiang(ii)_ Liu Zhan Cheng	Fees Basic salaries, housing and other allowances and benefits in kind RMB’000 RMB’000 — 740 — — — — — 550 — 360 — 273 — 40 60 — 60 — 240 — — — — — — — — 183 360 2,146	Defined contribution pension cost RMB’000 4 — — 4 4 4 1 — — — — — — 4 21	Discretionary bonuses RMB’000 — — — — — — — — — — — — — — —	Total RMB’000 744 — — 554 364 277 41 60 60 240 — — — 187
				2,527

(i) Mr. Wang Shi Lei was resigned on 4 December 2008.

(ii) Mr. Gao Zhong Xiang was appointed on 26 August 2008.

(iii) Mr. Zhou Zhao Li was resigned on 7 August 2008.

(iv) Mr. Zhang Ming was appointed on 26 February 2008

(v) Mr. Yang Yun Duo was resigned on 26 February 2008.

— I-37 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

The amounts of emoluments paid and payable to the directors and supervisors of the Company by the Group are as follows:

Year ended 31 December 2007 Executive directors Tang Ye Guo Yang Yun Duo_(i) Yu Shu Min Lin Lan Xiao Jian Lin(ii) Wang Shi Lei(iii) Liu Chun Xin(iv)_ Independent non-executive directors Zhang Sheng Ping Lu Qing Cheung Yui Kai, Warren Supervisors Guo Qing Cun Zhou Zhao Li Liu Zhan Cheng	Fees Basic salaries, housing and other allowances and benefits in kind RMB’000 RMB’000 — 600 — 400 — — — — — — — 460 — 117 60 — 60 — 233 — — — — — — 100 353 1,677	Defined contribution pension cost RMB’000 15 15 — — — 13 2 — — — — — 4 49	Discretionary bonuses RMB’000 200 160 — — — 180 50 — — — — — 100 690	Total RMB’000 815 575 — — — 653 169 60 60 233 — — 204
				2,769

(i) Mr. Yang Yun Duo was appointed on 4 January 2007 and resigned on 26 February 2008.

(ii) Mr. Xiao Jian Lin was resigned on 21 June 2007.

(iii) Mr. Wang Shi Lei was appointed on 4 January 2007.

(iv) Ms. Liu Chun Xin was appointed on 8 August 2007.

Bonus granted to directors and supervisors are based on performance and subject to directors’ discretion.

There was no arrangement under which a director or a supervisor waived or agreed to waive any remuneration for the years ended 31 December 2008 and 2007.

None of the directors and supervisors received compensation for the loss of office as a director or a supervisor of the Group in connection with the management of the affairs of the Group for the years ended 31 December 2008 and 2007.

— I-38 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

13. INDIVIDUALS WITH HIGHEST EMOLUMENTS

Of the five highest paid individuals of the Group, two (2007: three) are directors of the Group whose emoluments are included in Note 12 above. The emoluments of the remaining three individuals (2007: two) are as follows:

Basic salaries, housing and other allowances and benefits in kind Discretionary bonuses	2008 RMB’000 1,357 — 1,357	2007 RMB’000 716 120
		836

The emoluments set out above of these individuals are within the following bands:

Nil to RMB909,000 (2007: Nil to RMB969,000) (equivalent to Nil to HKD1,000,000) INCOME TAX EXPENSE Income taxes consist of: Current tax — PRC enterprise income tax (“EIT”) — Hong Kong Profits Tax Deferred tax	2008 Number of staff 3 2008 RMB’000 6,257 175 (2,347) 4,085	2007 Number of staff 2

		2007 RMB’000 266 514 10,087
		10,867

14. INCOME TAX EXPENSE

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, Hisense Ronshen (Guangdong) Refrigerator Co., Ltd. and Guangdong Kelon Mould Co., Ltd are entitled to a preferential tax rate of 15% as “high technology” company for 2008.

Hisense Ronshen Yangzhou Refrigerator Co., Ltd. (“Yangzhou Kelon”), Chengdu Kelon Refrigerator Co., Ltd. (“Chengdu Kelon”), and Hisense Ronshen (Guangdong) Freezer Co., Ltd. (“Kelon Freezer”) are foreign invested enterprises, enjoying the 5-year tax holiday starting from the first profit making year with full exemption for the first two years, followed by half exemption for the consecutive three years.

— I-39 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Other subsidiaries of the Group, which are established and operating in the PRC are subject to EIT at a standard rate of 25% for the year ended 31 December 2008.

Hong Kong Profits Tax has been changed from 17.5% to the rate of 16.5% and is applied on the assessable profit for the year 2008.

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

(Loss)/profit before income tax _Less:_Share of results of associates Tax at the PRC statutory rate of 25% (2007: 33%) Effect of different tax rates of subsidiaries operating in other jurisdictions Effect of exemption granted and preferential tax treatment Tax effect of expenses not deductible for tax purposes Tax effect of revenue not taxable for tax purposes Tax effect of tax losses and other deductible temporary differences not recognised Under provision in respect of prior years Utilisation of tax losses previously not recognised Income tax expense	2008 RMB’000 (233,435) (4,197) (237,632) (59,408) (1,774) 6,875 2,580 (8,039) 72,843 6,411 (15,403) 4,085	2007 RMB’000 214,524 (2,247) 212,277 70,051 (3,087) (60,314) 25,622 (9,503) 24,387 — (36,289) 10,867

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 (Note 25).

15. (LOSS)/EARNINGS PER SHARE

The calculation of basic and diluted loss/earnings per share attributable to equity holders of the Company for the year is based on the net loss attributable to equity holders of the Company for the year of RMB231,896,000 (2007: net profit attributable to equity holders of the Company of RMB238,712,000) and 992,006,563 shares (2007: 992,006,563 shares) outstanding during the year.

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

— I-40 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

16. PROPERTY, PLANT AND EQUIPMENT

Year ended 31 December 2008

Cost At 1 January 2008 Exchange differences Additions at cost Disposals Disposal of a subsidiary_(Note 39) Reclassification At 31 December 2008 Accumulated depreciation and impairment At 1 January 2008 Exchange differences Depreciation for the year Impairment provided for the year Elimination on disposals Disposal of a subsidiary(Note 39)_ Reclassification At 31 December 2008 Net book value At 31 December 2008	Leasehold land and buildings RMB’000 1,090,156 — 3,520 (21,392) (24,408) 85,669 1,133,545 426,284 — 67,714 — (10,290) (5,845) — 477,863 655,682	Plant, machinery and equipment RMB’000 1,890,578 (62) 61,352 (164,632) (33,717) 126,472 1,879,991 1,408,274 (42) 84,113 5,056 (151,748) (13,060) 7,294 1,339,887 540,104	Moulds RMB’000 227,796 — 54,762 (36,114) — 14,559 261,003 134,757 — 59,858 — (29,799) — 14 164,830 96,173	Motor vehicles Construction in progress RMB’000 RMB’000 35,004 179,196 (87) — 2,349 152,517 (21,761) (11,943) (180) — 393 (227,093) 15,718 92,677 28,263 42,090 (86) — 2,701 — — — (20,543) — (129) (7,708) 332 (7,640) 10,538 26,742 5,180 65,935	Total RMB’000 3,422,730 (149) 274,500 (255,842) (58,305) —
					3,382,934
					2,039,668 (128) 214,386 5,056 (212,380) (26,742) —
					2,019,860

					1,363,074

— I-41 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Year ended 31 December 2007

Cost At 1 January 2007 Exchange differences Additions at cost Disposals Disposal of a subsidiary_(Note 39) Reclassified to investment properties (Note 17) Reclassified to non-current assets held for sale Reclassification At 31 December 2007 Accumulated depreciation and impairment At 1 January 2007 Exchange differences Depreciation for the year Impairment provided for the year Elimination on disposals Disposal of a subsidiary(Note 39) Reclassified to investment properties (Note 17)_ Reclassified to non-current assets held for sale Reclassification At 31 December 2007 Net book value At 31 December 2007	Leasehold land and buildings RMB’*000* 1,259,060 (1,302) 14,004 (177,197) (24,137) (81,461) (56,555) 157,744 1,090,156 492,837 (749) 72,473 — (62,669) (4,201) (25,785) (44,338) (1,284) 426,284 663,872	Plant, machinery and equipment RMB’000 2,060,243 (243) 39,995 (302,263) (13,524) — — 106,370 1,890,578 1,547,839 (213) 105,386 16,050 (258,648) (3,245) — — 1,105 1,408,274 482,304	Moulds RMB’000 227,017 — 63,906 (59,876) (12,674) — — 9,423 227,796 138,712 — 56,587 62 (48,130) (12,674) — — 200 134,757 93,039	Motor vehicles Construction in progress RMB’000 RMB’000 43,432 290,506 (111) — 206 190,910 (8,164) (28,673) (354) (15) — — — — (5) (273,532) 35,004 179,196 34,517 53,586 (109) — 1,735 — — 10,546 (7,585) (22,042) (274) — — — — — (21) — 28,263 42,090 6,741 137,106	Total RMB’000 3,880,258 (1,656) 309,021 (576,173) (50,704) (81,461) (56,555) — 3,422,730
					2,267,491 (1,071) 236,181 26,658 (399,074) (20,394) (25,785) (44,338) —
					2,039,668
					1,383,062

— I-42 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

The net book value of the Group’s leasehold land and buildings comprise properties situated on land held under medium-term leases in:

PRC, other than in Hong Kong Japan	2008 RMB’000 633,644 22,038 655,682	2007 RMB’000 640,219 23,653
		663,872

Certain of the Group’s “Leasehold land and buildings” and “Plant, machinery and equipment” with an aggregate net book value of approximately RMB38,998,000 (2007: RMB3,333,000) and RMB29,339,000 (2007: RMB395,000) have been frozen by relevant local PRC courts which are undergone legal proceedings.

“Leasehold land and buildings” and “Plant, machinery and equipment” with net book values of approximately RMB340,363,000 (2007: RMB444,444,000) and nil (2007: RMB21,033,000) respectively, have been pledged as security for the Group’s bank borrowings.

17. INVESTMENT PROPERTIES

Cost At 1 January Exchange differences Additions at cost Disposals Reclassified from property, plant and equipment_(Note 16) At 31 December Accumulated depreciation and impairment At 1 January Exchange differences Depreciation for the year Elimination on disposals Reclassified from property, plant and equipment(Note 16)_ At 31 December Carrying amount at 31 December Directors’ valuation at fair value	2008 RMB’000 57,356 — — — — 57,356 19,164 — 2,627 — — 21,791 35,565 53,538	2007 RMB’000 28,201 (990) 1,035 (52,351) 81,461
		57,356
		2,057 (44) 3,687 (12,321) 25,785
		19,164
		38,192

		54,698

The Group’s investment properties are situated in the PRC under medium term leases. The valuation for the investment properties at 31 December 2008 were determined by the directors by reference to the market price for similar properties.

Investment properties with net book values of approximately RMB1,937,000 (2007: RMB2,568,000) has been pledged as security for the Group’s bank borrowings.

— I-43 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

18. PAYMENTS FOR LEASEHOLD LAND HELD FOR OWN USE UNDER OPERATING LEASES

The Group’s payments for leasehold land held for own use under operating leases comprise:

Leasehold land in PRC: — Medium-term leases Carrying amount at 1 January Reclassified to non-current assets held for sale Additions at cost Charge for the year Impairment provided for the year_(ii) Disposal of a subsidiary(Note 39)_ Disposals Carrying amount at 31 December	2008 RMB’000 286,835 305,392 — — (13,042) — (5,515) — 286,835	2007 RMB’000 305,392 372,533 (8,152) 16,605 (15,555) (17,189) (13,084) (29,766) 305,392

(i) At 31 December 2008, certain of the Group’s land with an aggregate net book value of approximately RMB19,425,000 (2007: RMB9,800,000) have its legal title frozen by relevant local PRC courts which are undergone legal proceedings.
(ii) In July 2004, Shangqiu Kelon Electrical Company Limited (“Shangqiu Kelon”), Shangqiu Bing Xiong Freezing Facilities Company Limited (“Shangqiu Bing Xiong”), and the Administration Committee of Shangqiu Economic and Technological Development Zone （商丘經濟技術開發區管委會）(“Shangqiu Administrative Committee”) entered into a three-party land transfer agreement under which all parties agreed that Shangqiu Kelon acquires a piece of land use right with 187 acres from Shangqiu Bing Xiong at a consideration of approximately RMB36 million. Under the land transfer agreement, it was agreed that Shangqiu Kelon develops the land and meets minimum production and sales requirements after the development is completed. However, the land has not been developed nor has Shangqiu Kelon met the minimum production and sales requirements thereafter.

In August 2005, Shangqiu Kelon received a notice from Shangqiu Administrative Committee claiming that it has breached the three-party land transfer agreement for not fulfilling the minimum production and sales requirements and requesting that Shangqiu Kelon surrenders the land use right. The local court froze the land accordingly. The Company has made an impairment loss of approximately RMB18 million against the carrying amount of the land use right for the probable loss that may arise as a result of the event for the year ended 2005.

In mid 2007, through a local source, the Company further realised that the land use right has been confiscated by Henan Shangqiu Bureau of Land and Resources (“SQBLR”) in November 2006 for the reason of delayed development.

In October 2008, the local court reached its judgment that Shangqiu Kelon should surrender the land use right but Shangqiu Kelon lodged an appeal against the local court’s judgment.

— I-44 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

In the consolidated financial statements for 2007, the carrying amount of such land use right has been fully impaired by a further impairment loss of approximately RMB17 million for the maximum loss that may arise.

(iii) At 31 December 2008, the carrying amount of payments for leasehold land held for own use under operating leases pledged as security for the Group’s bank borrowings amounted to approximately RMB180,142,000 (2007: RMB226,035,000).

19. INTERESTS IN SUBSIDIARIES

Details of the Company’s principal subsidiaries as at 31 December 2008 are listed under a table as follows:

	Place and date of		Percentage of ownership/	Percentage of ownership/
	incorporation/		profit	share
Name	establishment	Registered capital	Directly	Indirectly	Principal activities
Entities operating in the
PRC:
Shunde Rongsheng Plastic	PRC_(i)_	US$15,827,400	44.92%	25.13%	Manufacture of plastic
Co., Ltd.	18 October 1991				parts
Guangdong Kelon Mould	PRC_(i)_	US$15,056,100	40.22%	29.89%	Manufacture of moulds
Co., Ltd.	20 July 1994
Hisense Ronshen	PRC_(i)_	US$26,800,000	70%	30%	Manufacture and sale of
(Guangdong) Refrigerator	25 December 1995				refrigerators
Co., Ltd.
Kelon Freezer	PRC_(i)_	RMB237,000,000	44%	56%	Manufacture and sale of
	25 December 1995				freezers
Guangdong Kelon Air-	PRC_(i)_	US$36,150,000	60%	—	Manufacture and sale of
Conditioner Co., Ltd.	19 March 1996				air-conditioners
Chengdu Kelon	PRC_(i)_	RMB200,000,000	75%	25%	Manufacture and sale of
	19 November 1996				refrigerators
Hisense Ronshen Yingkou	PRC_(i)_	RMB200,000,000	42%	36.79%	Manufacture and sale of
Refrigerator Co., Ltd.	15 December 1996				refrigerators
Yangzhou Kelon	PRC_(i)_	US$29,800,000	74.33%	25.67%	Manufacture and sale of
	23 December 1996				refrigerators
Shunde Kelon Household	PRC_(ii)_	RMB10,000,000	25%	75%	Manufacture and sale of
Electrical Appliance	16 July 1999				electrical household
Company Limited					appliances
Guangdong Kelon	PRC_(i)_	US$5,620,000	70%	30%	Manufacture and sale of
Fittings Co., Ltd.	24 November 1999				spare parts for
					air-conditioners and
					refrigerators
Shunde Huaao Electronics	PRC_(ii)_	RMB10,000,000	—	70%	Manufacture and sale of
Co., Ltd.	23 November 2000				electronic products
(“Huaao Electronics”)

— I-45 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

	Place and date of		Percentage of ownership/	Percentage of ownership/
	incorporation/		profit	share
Name	establishment	Registered capital	Directly	Indirectly	Principal activities
Shunde Wangao Import &	PRC_(ii)_	RMB3,000,000	20%	80%	Import and export
Export Co., Ltd.	7 June 2001				business
Shunde Jiake Electronic	PRC_(ii)_	RMB60,000,000	70%	30%	IT and communication
Company Limited	12 October 2001				technology and
					micro-electronics
					technology
					development
Xi’an Kelon Cooling Co.,	PRC_(ii)_	RMB202,000,000	60%	—	Manufacture and sale
Ltd. (“Xi’an Kelon”)	20 March 2002				of spare parts for
					refrigerators
Jiangxi Kelon Industrial	PRC_(i)_	US$29,800,000	60%	40%	Manufacture and sale
Development Co., Ltd.	24 June 2003				of refrigerators, air-
					conditioners and
					other household
					appliances
Hangzhou Kelon Electrical	PRC_(i)_	RMB 24,000,000	100%	—	Manufacture and sale of
Co., Ltd. (“Hangzhou	22 August 2003				refrigerators
Kelon”)
Shangqiu Kelon	PRC_(ii)_	RMB150,000,000	—	100%	Manufacture and sale of
	23 September 2003				refrigerators
Zhuhai Kelon Industrial	PRC_(i)_	US$29,980,000	75%	25%	Manufacture and sale of
Development Co., Ltd.	3 December 2003				refrigerators
Hisense (Chengdu)	PRC_(i)_	RMB5,000,000	100%	—	Manufacture and sale of
Refrigerator Co., Ltd.	28 March 2007				refrigerators
Entities operating in
Hong Kong:
Pearl River Electric	Hong Kong	HK$400,000	—	100%	Trading in materials
Refrigerator Company	26 July 1985				and parts for
Limited					refrigerators and
					import and export
					business
Kelon Electric Appliances	Hong Kong	HK$10,000	—	100%	Property investment
Co., Ltd.	29 August 1991
Kelon Development	Hong Kong	HK$5,000,000	100%	—	Investment holding
Company Limited	17 August 1993
Kelon International Inc.	British Virgin Islands	US$50,000	—	100%	Investment holding and
	13 January 1999				sale of refrigerators
					and air-conditioners

— I-46 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

(i) Established as a sino-foreign equity joint venture in the PRC.
(ii) Established as a limited liability company in the PRC.
(iii) The financial statements of Jiangxi Combine Electrical Appliance Co., Ltd. (“Jiangxi Combine”) was excluded from the consolidated financial statements. Jiangxi Combine has not commenced active business since its establishment. The management considers that the impact of not consolidating Jiangxi Combine is insignificant to the Group.

None of the subsidiaries had issued any debt securities at the end of the year.

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results or assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

20. INTERESTS IN ASSOCIATES

Share of net assets Goodwill Listed investment Unlisted investment Fair value of listed investment Details of the goodwill are as follows: Cost At 1 January and 31 December Impairment At 1 January and 31 December Carrying amount at 31 December	2008 RMB’000 86,589 — 86,589 82,934 3,655 86,589 197,364 2008 RMB’000 131,207 131,207 —	2007 RMB’000 82,839 —
		82,839

		78,179 4,660
		82,839

		164,070

		2007 RMB’000 131,207
		131,207
		—

— I-47 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Details of the Group’s principal associates as at 31 December 2008 are listed under a table as follows:

	Place and date		Percentage of ownership/	Percentage of ownership/
	of incorporation/		profit sharing
Name	establishment	Registered capital	Directly	Indirectly	Principal activities
Huayi Compressor Holdings	PRC_(i)_	RMB324,581,218	18.26%	—	Manufacture and sale
Company Limited	13 June 1996				of compressors
(“Huayi”)
Attend Logistics Co., Ltd.	PRC_(ii)_	RMB10,000,000	20%	—	Provision of logistics
(“Attend Logistics”)	11 July 2001				and storage services

(i) Established as a joint stock limited company.
(ii) Established as a limited liability company.
(iii) Notwithstanding the Company’s equity interest in Huayi is 18.26%, which is less than 20%, the Company continues to possess the power to participate in the financial and operating policy decision of Huayi and account for its interest in Huayi under the equity method.

The summarised financial information in respect of the Group’s associates is set out below:

Total assets Total liabilities Net assets Revenue Profit for the year	2008 RMB’000 2,120,231 (1,423,711) 696,520 3,108,161 23,229	2007 RMB’000 2,471,410 (1,831,894
		639,516

		2,766,448

		8,654

The financial statements of Huayi and Attend Logistics have been audited by Sichuan Jun He Certified Public Accountants Co., Ltd. and Guangdong Branch of China Regal CPA respectively.

21. INTERESTS IN JOINTLY CONTROLLED ENTITY

	2008	2007
	RMB’000	RMB’000
Share of net assets	33,750	—

— I-48 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Details of the Group’s jointly controlled entity as at 31 December 2008 are listed under a table as follows:

	Place and date		Percentage of ownership/	Percentage of ownership/
	of incorporation/		profit sharing
Name	establishment	Registered capital	Directly	Indirectly	Principal activities
Hisense-Whirlpool (Zhejiang)	PRC	RMB450,000,000	50%	—	Manufacture and
Electric Appliances Co.,	4 November 2008				sale of washing
Ltd. (“Hisense-Whirlpool”)					machines, other
(i)					electrical appliances
					and provision of
					after-sales and
					related consultation
					services.

(i) Established as a sino-foreign limited equity joint venture in the PRC.

On 4 November 2008, the Company established a jointly controlled entity, Hisense-Whirlpool with Whirlpool (Hong Kong) Company Limited and both parties agreed to make capital contribution of RMB225,000,000 each. The Company will contribute for 50% of equity interests in the jointly controlled entity.

During the year ended 31 December 2008, both parties have injected approximately RMB33,750,000 each into Hisense-Whirlpool. In the opinion of the directors, HisenseWhirlpool did not have material results in the year or formed a substantial portion of the net assets of the Group during the year ended 31 December 2008.

22. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Unquoted long-term equity investments in the PRC, at cost_(a) Impairment loss(b)_	2008 RMB’000 11,799 (7,249) 4,550	2007 RMB’000 8,469 (7,249)
		1,220

(a) During the year ended 31 December 2008, the Company made an investment of RMB3,800,000 in Qingdao Hisense International Marketing Co., Ltd.（青島海信國際營銷有限公司）, which was incorporated in the PRC on 24 January 2008 with a registered capital of RMB20,000,000.
(b) All unquoted long-term equity investments are measured at cost less impairment at the balance sheet date as the directors of the Company are of the opinion that their fair value cannot be measured reliably.

— I-49 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

23. INTANGIBLE ASSETS

Trademarks *(i)* Non-patented technologies *(ii)* RMB’000 RMB’000 Year ended 31 December 2008 Cost At 1 January 2008 521,858 44,248 Additions at cost 2,552 4,289 Disposal of a subsidiary_(Note 39) — — Write off — — At 31 December 2008 524,410 48,537 Accumulated amortisation and impairment At 1 January 2008 403,480 514 Charge for the year — 4,822 Disposal of a subsidiary(Note 39) — — Elimination on write off — — At 31 December 2008 403,480 5,336 Carrying amount At 31 December 2008 120,930 43,201 Year ended 31 December 2007 Cost At 1 January 2007 521,858 537 Additions at cost — 43,711 Disposal of a subsidiary(Note 39) — — Write off — — At 31 December 2007 521,858 44,248 Accumulated amortisation and impairment At 1 January 2007 403,480 377 Charge for the year — 137 Impairment provided for the year — — Disposal of a subsidiary(Note 39)_ — — Elimination on write off — — At 31 December 2007 403,480 514 Carrying amount At 31 December 2007 118,378 43,734	Software systems *(ii)* RMB’000 37,324 806 (8) (1,139) 36,983 31,324 3,070 (4) (411) 33,979 3,004 33,751 3,771 (8) (190) 37,324 26,458 3,782 1,282 (8) (190) 31,324 6,000	Total RMB’000 603,430 7,647 (8) (1,139) 609,930 435,318 7,892 (4) (411) 442,795 167,135 556,146 47,482 (8) (190) 603,430 430,315 3,919 1,282 (8) (190) 435,318 168,112

— I-50 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

(i) Impairment tests for trademarks

Trademarks represent the rights of using「科龍」,「容聲」,「容升」and「華寶」brands in producing refrigerators and air-conditioners.「科龍」,「容聲」and「容升」was recognised in October 2003 and「華寶」was recognised in October 2008.

Prior to 1 January 2005, the cost of trademarks is amortised on a straight-line basis over their estimated useful lives of 10 years. With effect from 1 January 2005 and in accordance with the provisions of IAS 38, trademarks are assessed to have indefinite useful lives and therefore are not amortised but tested for impairment for each reporting date and where an indicator of impairment exists.

Due to the significant loss incurred in 2005 and the business interruption in May 2005, the management conducted an impairment assessment on the trademarks. The recoverable amount of trademarks was determined based on value-in-use calculations with the support of valuation performed by independent third party valuer. As a result of such assessment, trademarks had been assessed to be impaired by approximately RMB338,247,000 as at 31 December 2005.

As at 31 December 2008, the management performed self-assessment and concluded that there was no further impairment of the trademarks.

The carrying amount of the trademarks has been allocated to cash generating units relevant to the business segments of the Group for impairment testing, which is summarised as follows:

Air-conditioners Refrigerators	2008 RMB’000 41,025 79,905 120,930	2007 RMB’000 38,473 79,905
		118,378

The recoverable amounts of Segment Air-conditioners and Segment Refrigerators have been determined from value in use calculations based on cash flow projections from formally approved budgets covering a five-year period to 31 December 2013 with a discount rate of 15%. The cash flows beyond the five-year period are extrapolated using a steady 2% growth rate, which does not exceed the long-term average growth rate of the products. The resulting value of the trademarks as at 31 December 2008 was higher than their carrying amount. Management believes that the key assumptions currently applied are reasonable and supportable. In view of the current market condition, if the expected long-term average growth rate is below 1%, an impairment loss may be considered necessary.

(ii) Non-patented technologies and software systems are amortised over their estimated useful lives of 4 to 10 years.

— I-51 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

24. GOODWILL

Year ended 31 December 2008 Cost At 1 January 2008 and 31 December 2008 Impairment At 1 January 2008 and 31 December 2008 Carrying amount At 31 December 2008 Year ended 31 December 2007 Cost At 1 January 2007 and 31 December 2007 Impairment At 1 January 2007 and 31 December 2007 Carrying amount At 31 December 2007	*RMB’000* 47,033 47,033
	—
	47,033 47,033
	—

25. DEFERRED TAX ASSETS

Deferred tax assets of the Group were arising from deductible temporary differences and tax losses carried forward to the extent it is probable that future taxable profit will be available against which the unused tax losses can be utilised, based on all available evidence. Net movement for the year is as follows:

At 1 January Recognition for the year Utilisation of tax losses for the year Effect of change in tax rate At 31 December	2008 RMB’000 11,300 2,347 — — 13,647	2007 RMB’000 21,387 7,183 (9,317) (7,953)
		11,300

— I-52 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

The following are the major deferred tax assets/ (liabilities) and movements thereon for the year:

Assets/(liabilities) Depreciation allowance and provisions RMB’000 At 1 January 2008 7,183 Credit to income statement for the year 2,347 At 31 December 2008 9,530 At 31 January 2007 — Credit/(charge) to income statement for the year 7,183 Effect of change in tax rate — At 31 December 2007 7,183	Tax losses RMB’000 4,117 — 4,117 21,387 (9,317) (7,953) 4,117	Total RMB’000 11,300 2,347
		13,647

		21,387 (2,134) (7,953)
		11,300

For the purpose of balance sheet presentation, certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes:

	2008	2007
	RMB’000	RMB’000
Deferred tax assets	13,647	11,300

The unused tax losses carried forward and deductible temporary differences not recognised in the consolidated financial statements due to unpredictability of future profit streams are as follows:

Unused tax losses Deductible temporary differences	2008 RMB’000 2,505,260 611,917 3,117,177	2007 RMB’000 2,170,960 911,032
		3,081,992

— I-53 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

The PRC tax losses can only be carried forward for a maximum period of five years and the Hong Kong tax losses can be carried forward indefinitely. The expiry of unused tax losses for which no deferred tax assets have been recognised is as follows:

Tax losses will expire in 2008 Tax losses will expire in 2009 Tax losses will expire in 2010 Tax losses will expire in 2011 Tax losses will expire in 2012 Tax losses will expire in 2013 Tax losses can be carried forward indefinitely	2008 RMB’000 — 44,748 1,129,327 608,022 291,502 332,436 99,225 2,505,260	2007 RMB’000 7,068 44,748 1,097,025 649,153 145,268 — 227,698
		2,170,960

26. INVENTORIES

Raw materials Work in progress Finished goods	2008 RMB’000 84,257 16,712 404,559 505,528	2007 RMB’000 195,695 42,333 702,256
		940,284

As at 31 December 2008, the carrying amount of inventories pledged for bank borrowings amounted to Nil (2007: RMB40,000,000).

27. TRADE AND OTHER RECEIVABLES

Trade receivables_(i), (iii) & (iv) Notes receivable(i) Other receivables(ii) & (iii) Amounts due from Greencool Enterprise and its affiliates (v) Amounts due from companies suspected to be connected with Mr. Gu(v) Amounts due from Hisense Group(Note 36 III a) Amounts due from associates(Note 36 III b) Amounts due from other related companies(Note 36 III c)_	2008 RMB’000 458,947 62,453 207,646 72,061 213,217 36,086 5 — 1,050,415	2007 RMB’000 442,835 2,740 540,497 72,061 214,217 28,821 322 5,716
		1,307,209

— I-54 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

(i) As at 31 December 2008, included in trade and notes receivable was an amount of RMB179,279,000 (2007: RMB73,072,000) being pledged for bank borrowings.

The aging analysis of trade receivables is as follows:

Within three months Three to six months Six months to one year Over one year _Less:_Provision for impairment of trade receivables At 31 December	2008 RMB’000 412,441 36,832 9,541 160,500 (160,367) 458,947	2007 RMB’000 396,038 34,126 13,695 186,423 (187,447)
		442,835

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.

Trade receivables that were neither past due nor impaired related to customers for whom there was no recent history of default.

An aging analysis of trade receivables that are past due but not impaired is as follows:

Less than three months past due More than three months but less than twelve months past due More than twelve months past due Amount past due at balance sheet date but not impaired_(Note a)_	2008 RMB’000 77,609 16,023 2,267 95,899	2007 RMB’000 20,311 13,531 172
		34,014

(a) The balance that was past due but not impaired related to a number of customers that had a good track record with the Group. Based on the past experience, the management estimated that the carrying amounts could be fully recovered.
(ii) As at 31 December 2008, other receivables principally comprised of value-added tax recoverable and prepayment to suppliers of RMB88,898,000 (2007: RMB147,308,000) and RMB38,079,000 (2007: RMB83,228,000) respectively. As at 31 December 2007, other receivable also included receivable from disposal of payments for leasehold land held for own use under operating leases and investment properties of RMB251,065,000 and RMB5,233,000 respectively.

The management has assessed the recoverability of the balance of other receivables and considered no further provision for impairment is needed.

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

(iii) The below table reconciled the allowance of impairment loss on trade and other receivables for the year:

At 1 January Impairment loss recognised Bad debt written off Reversal of impairment loss previously recognised At 31 December	2008 RMB’000 579,160 14,369 (38,806) (2,095) 552,628	2007 RMB’000 676,758 13,546 (41,508) (69,636)
		579,160

The Group recognised impairment loss on trade and other receivables by individual assessment based on the accounting policy stated in Note 4(k)(ii).

(iv) As at 31 December 2008, the Group has trade and other receivables denominated in USD of approximately RMB300,038,000 (2007: RMB245,000,000).
(v) On 13 December 2006, the share transfer transaction between Greencool Enterprise and Hisense Air-Conditioner was completed. Upon the completion, Mr. Gu, Greencool Enterprise and its affiliates and companies suspected to be connected with Mr. Gu were no longer connected with the Group. Accordingly, no related party disclosure was made in respect of Greencool Enterprise and its affiliates and companies suspected to be connected with Mr. Gu for the period.

As at 31 December 2008, accu mulated impai r ment loss of approximately RMB345,968,000 (2007: RMB344,968,000) and RMB18,985,000 (2007: RMB18,985,000) were recorded in respect of amounts due from companies suspected to be connected with Mr. Gu and amounts due from Greencool Enterprise and its affiliates.

28. OTHER FINANCIAL ASSETS AND LIABILITIES

During the year, the Group entered into a number of foreign currency forward exchange contracts to manage its foreign exchange rates exposures arising from ordinary course of business. These contracts are primarily denominated in the currencies of the Group’s principal markets. At the balance sheet date, the details of outstanding contracts are as follows:

— contracted to sell USD in exchange for RMB — contracted to sell Euro in exchange for RMB — contracted to sell AUD in exchange for RMB — contracted to sell Euro in exchange for USD — contracted to sell GBP in exchange for USD — contracted to buy USD	2008 Notional amounts Forward rates RMB’000 198,969 6.4510 to 6.6302 11,890 8.6845 to 8.8412 4,804 4.6586 to 4.6843 25,988 1.2575 to 1.4898 10,460 1.4868 to 1.4901 78,593 0.1542 to 0.1546	2008 Notional amounts Forward rates RMB’000 198,969 6.4510 to 6.6302 11,890 8.6845 to 8.8412 4,804 4.6586 to 4.6843 25,988 1.2575 to 1.4898 10,460 1.4868 to 1.4901 78,593 0.1542 to 0.1546

		0.1542 to 0.1546

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

— contracted to sell USD in exchange for RMB — contracted to buy USD	2007 Notional amounts Forward rates RMB’000 208,181 7.0653 to 7.2936 203,330 0.1379 to 0.1436	2007 Notional amounts Forward rates RMB’000 208,181 7.0653 to 7.2936 203,330 0.1379 to 0.1436

		0.1379 to 0.1436

The foreign currency forward exchange contracts are required to be settled net in cash on maturity date and were measured at fair value at balance sheet date. These contracts are mature within one year from the balance sheet date. The fair value loss, net of the foreign currency forward exchange contracts for the year ended 31 December 2008 is RMB20,307,000 (2007: fair value gain, net of the foreign currency forward exchange contracts RMB3,104,000). The fair values of these contracts are based on market values of equivalent instruments provided by counterparty financial institutions at the balance sheet date.

29. NON-CURRENT ASSETS HELD FOR SALE

In May 2007, the Group entered into a sale and purchase agreement to dispose certain lands and buildings to an independent third party. The sales transaction has been completed during the year ended 31 December 2008. The Group recognised a gain of RMB52,888,000 upon the completion of the transaction which is included in other income and gains (Note 7) of the consolidated income statement.

30. TRADE AND OTHER PAYABLES

Trade payables Notes payable Other payables Accruals Amounts due to Greencool Enterprise and its affiliates Amounts due to companies suspected to be connected with Mr. Gu Amounts due to Hisense Group_(Note 36 III a) Amounts due to associates(Note 36 III b) Amounts due to other related companies (_Note 36 III c) The aging analysis of trade payables is as follows: Within one year One to two years Two to three years Over three years	2008 RMB’000 819,919 445,750 469,080 184,363 13,050 114,939 79,990 43,522 7,458 2,178,071 2008 RMB’000 638,531 76,948 25,298 79,142 819,919	2007 RMB’000 1,152,853 770,960 616,756 165,679 13,050 118,461 205,184 40,200 10,038
		3,093,181

		2007 RMB’000 995,092 70,838 64,796 22,127
		1,152,853

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

As at 31 December 2008, the Group has trade and other payables denominated in USD of approximately RMB29,301,000 (2007: RMB45,000,000).

31. PROVISIONS

At 1 January 2008 Additional provision in the year Utilisation of provision At 31 December 2008 At 1 January 2007 Additional provision in the year Utilisation of provision At 31 December 2007	*Warranty(i)*** RMB’000 133,420 3,554 (53,901) 83,073 165,783 66,643 (99,006) 133,420	*Legal(ii)*** RMB’000 10,586 20,556 — 31,142 4,212 10,471 (4,097) 10,586	Total RMB’000 144,006 24,110 (53,901)
			114,215

			169,995 77,114 (103,103)
			144,006

(i) The Group provides free repairing services on its products and free replacement of the major components of its products for one to three years after date of sale. The warranty provision is estimated by management based on past experience. The assumptions used to estimate the warranty provision are reviewed periodically in light of actual results.
(ii) The Group is currently involved in a number of legal disputes. The amount provided represents the directors’ best estimate of the Group’s liability having taken legal advice. Uncertainties exist as to whether claims will be settled out of court or if not whether the Group is successful in defending any action.

32. OTHER LIABILITIES

Employee benefits_(i) Government grants(ii)_	2008 RMB’000 14,320 29,384 43,704	2007 RMB’000 30,820 24,973
		55,793

(i) The amounts represent accrued contributions to a defined contribution pension scheme for its employees during the period from 1993 to 2001. Settlement of employee benefits payable was mutually agreed by the Company and the committee of the Company’s staff union.
(ii) The amounts represent government grants received for the Group’s research and development activities. Government grants recognised as income for the year amounted to approximately RMB23,046,000 (2007: RMB6,236,000).

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

33. BORROWINGS

Bank loan_(i) Other loan(ii)_ Borrowings due within one year Analysed as: Secured Unsecured	2008 RMB’000 1,314,948 500,000 1,814,948 651,089 1,163,859 1,814,948	2007 RMB’000 1,310,972 —
		1,310,972

		773,812 537,160
		1,310,972

(i) As at 31 December 2008, bank borrowings of approximately RMB651,089,000 (2007: RMB773,812,000) were secured by pledge of property, plant and equipment (Note 16), investment properties (Note 17), payments for leasehold land held for own use under operating leases (Note 18), inventories (Note 26), trade and notes receivable (Note 27).

The bank borrowings carry interest at rates per annum ranging as follows:

	2008	2007
Fixed-rate borrowings	4.32% to 8.02%	5.47% to 8.35%
Variable-rate borrowings	PRC National	—
	benchmark interest
	rate (4.78% to 6.12%)

At 31 December 2008, included in bank borrowings were amount of approximately RMB29,629,000 (2007: RMB9,000,000) in respect of financial guarantees provided to banks in favour of certain distributors of the Group. Under the guarantee arrangements, the Group assumed the repayment responsibilities of the banks’ issued acceptance notes after it utilised the credit facilities granted to the distributors by such banks. The management assessed that this guarantee arrangements would not result in the Group picking up additional credit risks or financial contingencies in favour of the distributors. These financing arrangements would however result in a reclassification of trade deposits received to bank borrowings.

At 31 December 2008, included in bank borrowings was an amount of approximately RMB186,829,000 (2007: RMB89,946,000) in respect of notes and trade receivables factored to banks with recourse.

(ii) The other loans represented borrowings from Hisense Finance, which were guaranteed by Hisense Group and bear interest at rates ranging from 4.20% to 5.52% per annum and are repayable within one year.

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

34. SHARE CAPITAL

Share of RMB1 each: 459,589,808 (2007: 459,589,808) H shares 298,311,835 (2007: 314,587,227) transferable A shares that are subject to selling restrictions 234,104,920 (2007: 217,829,528) A shares Total A shares	2008 RMB’000 459,590 298,312 234,105 532,417 992,007	2007 RMB’000 459,590
		314,587 217,830
		532,417
		992,007

(i) Pursuant to the Share Reform Scheme, the transferable A shares that are subject to selling restrictions will be lasted until 28 March 2010. Except for the currency in which dividends are paid and the restrictions as to whether the shareholders can be PRC investors or foreign investors, Domestic shares, H shares and A shares rank pari passu in all respects with each other.
(ii) The Group’s objectives when managing capital are:
to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and
to provide an adequate return to shareholders by pricing products and services commensurate with the level of risk.

The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Group monitors capital on the basis of the debt-to-adjusted capital ratio. This ratio is calculated as net debt divided by adjusted capital. Net debt is calculated as total debt (as shown in the balance sheet) less cash and cash equivalents. Adjusted capital comprises all components of equity.

During 2008, the Group’s strategy, which was unchanged from 2007 was to substantially finance through debts as the Group has deficiency in equity of RMB858,628,000 (2007: RMB629,774,000). At 31 December 2008, the total borrowings were approximately RMB1,814,948,000 (2007: RMB1,310,972,000). (Note 33).

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

35. LEASES

Operating leases — lessee

The Group leases certain leasehold land and buildings and plant and machinery under operating lease arrangements with lease terms ranging from one to five years. The operating lease charges for the year ended 31 December 2008 was as follows:

	2008	2007
	RMB’000	RMB’000
Operating lease charges
— leasehold land and buildings	9,368	40,434
— plant and machinery	54	250

The total future payments under non-cancellable operating leases are due as follows:

Not later than one year Later than one year and not later than five years	2008 RMB’000 1,865 205 2,070	2007 RMB’000 2,196 457
		2,653

Operating leases — lessor

The Group’s investment properties are also leased to a number of tenants for varying terms. The lease rental income for the year ended 31 December 2008 was RMB17,757,000 (2007: RMB 20,721,000).

The minimum rent receivables under non-cancellable operating leases are as follows:

Not later than one year Later than one year and not later than five years	2008 RMB’000 3,776 4,840 8,616	2007 RMB’000 3,523 8,397
		11,920

36. RELATED PARTY TRANSACTIONS

Transactions between the Company and its subsidiaries, which are related parties of the Company have been eliminated on consolidation and are not disclosed in this note.

During the period from 2001 to 2005, the Group had significant transactions and relationships with Greencool Enterprise and its affiliates. The Group also had entered into a series of activities/transactions with companies suspected to be connected with Mr. Gu. On 9 September 2005, Greencool Enterprise entered into an equity transfer agreement with Hisense AirConditioner to transfer 262,212,194 shares of domestic legal person shares representing 26.43% of total share capital of the Company. The equity transfer was completed on 13 December 2006. Upon the completion of share transfer, Mr. Gu, Greencool Enterprise and its affiliates were no

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

longer connected with the Group. Accordingly, no related party disclosure was made in respect of Mr. Gu, Greencool Enterprise and its affiliates for the year.

I. Relationship with related parties

During the year, for the purpose of this report, the directors are of the view that the following companies are related parties of the Group:

Name of related parties	Relationship
Hisense Air-Conditioner	The substantial shareholder of the Company
Hisense Group	The holding company of Hisense Air-Conditioner
Qingdao Hisense Marketing	A subsidiary of Hisense Air-Conditioner
Co., Ltd. (“Hisense Agent”)
Hisense Electric Co., Ltd.	A fellow subsidiary of Hisense Air-Conditioner
(“Hisense Electric”)
Hisense (Zhejiang) Air-	A subsidiary of Hisense Air-Conditioner
Conditioner Co., Ltd.
(“Hisense Zhejiang”)
Hisense (Shandong) Air-	A subsidiary of Hisense Air-Conditioner
Conditioner Co., Ltd.
(“Hisense Shandong”)
Hisense (Nanjing) Electric Co.,	A subsidiary of Hisense Air-Conditioner
Ltd. (“Hisense Nanjing”)
Hisense (Beijing) Electric Co.,	A subsidiary of Hisense Air-Conditioner
Ltd. (“Hisense Beijing”)
Qingdao Hisense Moulds Co.,	A fellow subsidiary of Hisense Air-Conditioner
Ltd. (“Hisense Moulds”)
Guangdong Hisense	A fellow subsidiary of Hisense Air-Conditioner
Multimedia Co., Ltd.
(“Hisense Multimedia”)
Hisense (Qingdao) Import &	A fellow subsidiary of Hisense Air-Conditioner
Export Co., Ltd. (“Hisense
Import & Export”)
Hisense Hitachi Air	A fellow subsidiary of Hisense Air-Conditioner
Conditioning Co., Ltd.
(“Hisense Hitachi”)
Savor Household Electrical	A fellow subsidiary of Hisense Air-Conditioner
Appliance Service Industry
Co., Ltd. (“Savor Service”)

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Name of related parties	Relationship
Hisense International (HK)	A fellow subsidiary of Hisense Air-Conditioner
Co., Ltd. (“Hisense Hong
Kong”)
Hisense Finance	A fellow subsidiary of Hisense Air-Conditioner
Linyi Savor Hisense	A fellow subsidiary of Hisense Air-Conditioner
Technology Park Co.,
Limited (“Linyi Savor”)
Attend Logistics	An associate of the Company
Huayi	An associate of the Company
Jiaxibeila Compressor	A subsidiary of Huayi
Company Limited
(“Jiaxibeila”)
Huayi Compressor (Jinzhou)	A subsidiary of Huayi
Co., Ltd. (“Huayi Jinzhou”)
Jiangxi Combine	An unconsolidated subsidiary of the Company
Chengdu Engine (Group)	A minority investor of Chengdu Kelon before 24 April
Company Limited	2007
(“Chengdu Engine”)
Hangzhou Xileng Group	A minority investor of Hangzhou Kelon before 5
Company Limited	December 2007
(“Hangzhou Xileng”)
Xi’an Gaoke (Group) Limited	A minority investor of Xi’an Kelon
(“Xi’an Gaoke”)

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

II. Transactions with related parties

(a) Transactions with Hisense Group

The Group had the following significant transactions with Hisense Group:

		2008	2007
	Notes	RMB’000	RMB’000
Sales of goods/raw materials to
— Hisense Shandong	(i)	95,459	132,725
— Hisense Agent	(i)	352	192
— Hisense Zhejiang	(i)	21,258	9,693
— Hisense Import & Export	(i)	—	6
— Hisense Beijing	(i)	165,365	110,303
— Hisense Nanjing	(i)	35,356	429
— Hisense Hong Kong	(i)	18,857	—
— Hisense Multimedia	(i)	293	—
Sales of property, plant and
equipment to
— Hisense Shandong		—	8
Sales of moulds to
— Hisense Shandong	(i)	2,723	—
— Hisense Zhejiang	(i)	1,032	—
— Hisense Beijing	(i)	1,294	—
— Hisense Nanjing	(i)	2,173	—
— Hisense Moulds	(i)	2,970	—
Service fee charged to
— Hisense Zhejiang		—	75
Loan interest to
— Hisense Agent		—	8,684
— Hisense Finance	(ii)	358	—
Draft discount services fee to
— Hisense Finance	(iii)	4,493	—
Purchases of goods/raw materials
from
— Hisense Shandong	(i)	119,917	120,923
— Hisense Zhejiang	(i)	485,116	334,424
— Hisense Nanjing	(i)	247,564	105,329
— Hisense Beijing	(i)	88,660	15
— Hisense Electric	(i)	—	32

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

		2008	2007
	Notes	RMB’000	RMB’000
Purchases of property, plant and
equipment from
— Hisense Shandong		—	32
— Hisense Beijing		—	19
Repair and maintenance services
provided by Savor Service		1,113	1,944
Loan and note payables guarantee
provided by Hisense Group Co.,
Ltd.
— amount as at 31 December		1,259,000	1,141,500
Loan provided by Hisense Finance	33(ii)
— amount as at 31 December		500,000	—

(i) Sales and purchases were conducted in accordance with mutually agreed
terms with reference to the	market rates.

(ii) Loan interest was charged by Hisense Finance with reference to the interest rate charged by the normal commercial banks in the PRC for comparable loans.
(iii) Draft discount services fee was charged by Hisense Finance with reference to the normal commercial banks in the PRC for providing comparable draft discount services.

(b) Transactions with associates

The Group had the following significant transactions with associates:

		2008	2007
	Notes	RMB’000	RMB’000
Sales of goods/raw materials to
— Chongqing Rongsheng	(i)	6,208	64,756
— Huayi and Jiaxibeila	(i)	39	18
Purchases of goods/raw materials
from
— Huayi and Jiaxibeila	(ii)	276,058	221,801
Service fee charged to
— Attend Logistics		76	103
Logistics management fee/
warehouse rental to
— Attend Logistics	(iii)	5,621	29,657

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

(i) Sales were conducted in accordance with mutually agreed terms with reference to the market rates.
(ii) Huayi and Jiaxibeila mainly provide compressors to the Group for production of air-conditioners and refrigerators.
(iii) The Group and Attend Logistics entered into a logistics service agreement, pursuant to which Attend Logistics provides transportation and warehousing service to the Group. The service fee is based on the actual volume of goods, the distance delivered, the occupancy space of warehouse and charged at a pre-determined rate agreed by both parties.

(c) Transactions with other related parties

The Group had the following significant transactions with other related parties:

		2008	2007
	Notes	RMB’000	RMB’000
Water and electricity expenses
paid to
— Chengdu Engine	(i)	—	7,057

(i) Water and electricity expenses are charged at cost.

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

III. Balances with related parties

(a) Balances with Hisense Group

Included in trade and other receivables, net — Hisense Agent — Hisense Air-Conditioner — Hisense Zhejiang — Hisense Nanjing — Hisense Beijing — Savor Service — Hisense Electric — Hisense Hong Kong — Hisense Multimedia — Hisense Shandong Included in trade and other payables — Hisense Air-Conditioner — Hisense Shandong — Hisense Agent — Hisense Nanjing — Hisense Zhejiang — Savor Service — Hisense Hong Kong — Hisense Moulds	2008 RMB’000 — — 4,004 779 21,749 3 100 8,104 212 1,135 36,086 — 3,925 35,481 20,026 15,351 475 4,580 152 79,990	2007 RMB’000 47 675 — — 28,066 33 — — — —
		28,821

		58 54,487 38,785 545 109,236 2,073 — —
		205,184

Amounts due from Hisense Group are unsecured, interest-free and are repayable in accordance with normal commercial terms.

Amounts due to Hisense Group are unsecured, interest-free and repayable on demand.

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

(b) Balances with associates

	2008	2007
	RMB’000	RMB’000
Included in trade and other receivables, net
— Chongqing Rongsheng	—	317
— Attend Logistics	5	5
	5	322

Included in trade and other payables
— Attend Logistics	4,556	7,998
— Chongqing Rongsheng	—	207
— Huayi and Jiaxibeila	38,966	31,995
	43,522	40,200

Amounts due from/to associates are unsecured, interest-free and are repayable in
accordance with normal commercial terms.
*Balances with other related companies*
	2008	2007
	RMB’000	RMB’000
Included in trade and other receivables, net
— Kelon Europe	—	5,716

Included in trade and other payables
— Chengdu Engine	—	109
— Hangzhou Xileng	—	2,471
— Jiangxi Combine	5,100	5,100
— Xi’an Gaoke	2,358	2,358
	7,458	10,038

All amounts due from/to other related companies are unsecured, interest-free
and are repayable on demand.

(c) Balances with other related companies

IV. Key management personnel emoluments

Basic salaries, allowances and benefits-in-kind Defined contribution pension cost	2008 RMB’000 6,030 63 6,093	2007 RMB’000 4,692 90
		4,782

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, including directors, supervisors and other senior management, totalling 25 individuals (2007: 18 individuals).

37. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group is exposed through its operations to one or more of the following financial risks:

Interest rate risk
Foreign exchange risk
Liquidity risk
Credit risk

The Group does not hold or issue any financial derivatives for trading purpose.

Interest rate risk

The Group is exposed to interest rate risks due to changes in interest rates of interest-bearing financial assets and liabilities. Interest-bearing financial assets are mainly deposits with banks, which are mostly short-term in nature whereas interest-bearing financial liabilities are primarily short-term bank borrowings. As at 31 December 2008, the Group’s short-term bank borrowings were carried at both fixed and floating interest rates, and therefore were exposed to both fair value and cash flow interest rate risks.

The following table indicates the approximate change in the profit after tax in response to reasonably possible changes in an interest rate to which the Company has exposure at the balance sheet date. In determining the effect on profit after tax on the next accounting period until next balance sheet date, we assume that the change in interest rate had occurred at the balance sheet date and all other variables remain constant. There is no change in the methods and assumptions used in 2007 and 2008.

					2008	2007
					Effect on	Effect on
					profit	profit
					after tax	after tax
					RMB’000	RMB’000
Increase	by	100	basis	points	(4,000)	(3,000)
Decrease	by	100	basis	points	4,000	3,000

Foreign exchange risk

Foreign exchange risk is the risk of loss due to adverse movements in exchange rates relating to investments and transactions denominated in foreign currencies. The Group’s monetary assets and transactions are mainly denominated in RMB, USD, GBP and Euro. The exchange rates between RMB, USD, GBP and Euro are not pegged, and there is fluctuation of exchange rates between RMB, USD, GBP and Euro.

Certain subsidiaries in the Group use foreign exchange forward contracts when major fluctuation in the relevant foreign currency is anticipated to manage their foreign exchange risk arising from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

The carrying amounts of the Group’s monetary assets and monetary liabilities denominated in foreign currency at the reporting date are as follows:

	Liabilities	Liabilities		Assets
	2008		2007	2008	2007
	RMB’000	RMB’000		RMB’000	RMB’000
USD	240,796		174,362	330,380	275,048
GBP	10,504		35,774	9,424	39,541
Euro	2,337		4,572	27,299	15,551

The sensitivity analysis on foreign exchange risk includes monetary financial assets and liabilities that are denominated in a foreign currency, i.e. in a currency other than the functional currency in which they are measured. The following table indicates the approximate effect on the profit after tax in the next accounting period in response to reasonably possible changes in exchange rates to which the Group has significant exposure at the balance sheet date.

	2008	2007
	Effect on	Effect on
	profit	profit
	after tax	after tax
	RMB’000	RMB’000
USD to RMB
Appreciates by 5% (2007: 1%)	3,386	675
Depreciates by 5% (2007: 1%)	(3,386)	(675)
GBP to RMB
Appreciates by 9% (2007: 6%)	(73)	151
Depreciates by 9% (2007: 6%)	73	(151)
Euro to RMB
Appreciates by 6% (2007: 9%)	1,123	662
Depreciates by 6% (2007: 9%)	(1,123)	(662)

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

The following table indicates the approximate effect on the profit after tax in the next accounting period in response to reasonably possible changes in forward rates to which the company has significant exposure at the balance sheet date.

	2008	2007
	Effect on	Effect on
	profit	profit
	after tax	after tax
	RMB’000	RMB’000
USD to RMB
Appreciates by 5%	(6,453)	(19,670)
Depreciates by 5%	6,453	19,670
Euro to USD
Appreciates by 9%	(2,561)	—
Depreciates by 9%	2,561	—
Euro to RMB
Appreciates by 6%	(784)	—
Depreciates by 6%	784	—

Liquidity risk

In the management of liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by management to finance the Group’s operations and mitigate the effects of short-term fluctuations in cash flows. The Group’s treasury department is responsible for maintaining a balance between continuity and flexibility of funding through the use of bank facilities in order to meet the Group’s liquidity requirements. All of the debts of the Group would mature in less than one year as at 31 December 2008.

The contractual maturities of financial liabilities are shown as below:

Current Within six months Within one year	2008 RMB’000 697,147 2,459,833 1,305,138 4,462,118	2007 RMB’000 868,417 2,823,675 1,246,105
		4,938,197

The Group had net current liabilities of approximately RMB2,849,773,000 as at 31 December 2008. Most of the bank financing of the Group is in the form of short-term bank loans. The Group has not experienced any difficulty in renewing the borrowings when they fell due. Besides, the Group has unutilised banking facilities of approximately RMB659,747,300 at 31 December 2008, which the Group can utilise its to meet its short-term cash demands. As a result, the directors are of the opinion that the Group maintains an adequate liquidity reserve.

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Credit risk

It is the risk that a counterparty is unable to pay amount in full when due. It arises primarily from the Group’s trade receivables and amounts due from related parties. The Group limits its exposure to credit risk by vigorously selecting counterparties. There is no concentration of credit risk. The Group mitigates its exposure to risk relating to accounts receivable by dealing with diversified customers with sound financial standing. Certain new customers are required to place cash deposits with the Group to reduce the maximum exposure to credit risk. The Group seeks to maintain strict control over its outstanding receivables and has a credit control policy to minimise credit risk. In addition, all receivable balances are monitored on an ongoing basis and overdue balances are followed up by senior management.

The maximum exposure to credit risk at reporting date is the carrying amount of each class of financial assets is shown on the balance sheet.

38. ACQUISITION OF FURTHER EQUITY INTERESTS IN A SUBSIDIARY

On 24 April 2007, the Company acquired an additional 30% shareholding in a subsidiary, Chengdu Kelon, from Chengdu Engine. After the acquisition, Chengdu Kelon became a whollyowned subsidiary of the Company.

Details of the identifiable assets and liabilities acquired, and the purchase consideration are as follows:

Property, plant and equipment Payments for leasehold land held for own use under operating leases Trade and other receivables Inventories Cash and cash equivalents Trade and other payables Taxation payable Bank borrowings Net assets Net assets acquired Consideration: Satisfied by payment in advance and a note payable Net assets acquired Debited to capital reserve	2007 RMB’000 84,365 19,450 183,516 7,361 7,525 (150,950) (3,981) (24,900) 122,386 36,716 81,388 (36,716) 44,672

— I-72 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

39. DISPOSAL OF A SUBSIDIARY

(a) On 7 January 2008, the Group disposed of its 100% shareholding in a subsidiary, Jilin Kelon Electric Co., Ltd. (“Jilin Kelon”) for a consideration of approximately of RMB30,000,000 in which RMB29,500,000 was used for the settlement of liabilities of Jilin Kelon. The remaining balance of RMB500,000 was settled in cash. Details of the identifiable assets and liabilities disposed and the sales consideration are as follows:

Sale proceeds
Net book value of net assets disposed
Loss on disposal of Jilin Kelon
The assets and liabilities disposed of at the date of disposal were as follows:
Property, plant and equipment
Payments for leasehold land held for own use under operating leases
Intangible assets
Trade and other receivables
Inventories
Cash and cash equivalents
Trade and other payables
Bank borrowings
Net book value of net assets disposed

2008
RMB’000
500
(11,068)
(10,568)
31,563
5,515
4
706
1,186
85
(9,991)
(18,000)
11,068

(b) On 27 August 2007, the Company disposed 70% shareholding in a subsidiary, Kaifeng Kelon Air-Conditioner Co., Ltd. (“Kaifeng Kelon”) to the minority equity holder, Hanan Province Kaifeng Economic Technology Development (Group) Company for a consideration of approximately RMB6,123,000 satisfied by waiver of debt settlement by Kaifeng Kelon. Kaifeng Kelon ceased to be a subsidiary of the Company following the disposal and the Company had no more shareholding interest in Kaifeng Kelon.

— I-73 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

Details of the identifiable assets and liabilities disposed and the sales consideration are as follows:

Sale proceeds satisfied by waiver of debt settlement
Net book value of net assets disposed
Gain on disposal of Kaifeng Kelon
The assets and liabilities disposed of at the date of disposal were as follows:
Property, plant and equipment
Payments for leasehold land held for own use under operating leases
Cash and cash equivalents
Trade and other receivables
Inventories
Trade and other payables
Minority interests
Net book value of net assets disposed
40.
NOTES SUPPORTING CASH FLOW STATEMENT
2008
RMB’000
Cash available on demand
110,216
Significant non-cash transactions are as follows:
2008
RMB’000
Investing activities
Net settlement of liabilities through partial consideration
on disposal of a subsidiary_(Note 39)
29,500
41.
CAPITAL COMMITMENTS
2008
_RMB’000
Capital expenditure contracted for but not provided in the
financial statements in respect of
— acquisition of property, plant and equipment
52,280
— unlisted investment in a jointly controlled entity
87,800
140,080

2007
RMB’000
6,123
(1,614)
4,509
30,310
13,084
23
837
782
(6,542)
(36,880)
1,614
2007
RMB’000
76,395
2007
RMB’000
—
2007
RMB’000
90,831
—
90,831

— I-74 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

42. RETIREMENT BENEFITS SCHEMES

The Group contributes mainly to a defined contribution pension scheme, which is administered by the provincial government, in respect of employees of the Group. According to such scheme, the Group shall pay an amount, calculated at a percentage of the total salaries and wages of the employees, to a retirement fund.

The total cost charged to the consolidated income statement of approximately RMB49,162,000 (2007: RMB41,135,000) represents contributions to the scheme by the Group at rates specified in the rules of the scheme.

43. RESERVES

(a) Statutory reserves

According to the Articles of Association of the Company, when distributing net profit of each year, the Company shall set aside 10% of its after tax profits for the statutory common reserve fund (except where the fund has reached 50% of the Company’s registered capital). This reserve fund can only be used, upon approval by the relevant authority to offset accumulated deficit or increase in capital and is not distributable as cash dividends.

(b) Distributable reserves of the Company

In accordance with the Articles of Association of the Company, the accumulated profits of the Company for the purpose of profit distribution will be deemed to be the lesser of (i) the amount determined in accordance with PRC accounting standards and regulations (“PRC GAAP”) and (ii) the amount determined in accordance with IFRS.

As at 31 December 2008, the Company did not have reserve available for distribution to its shareholders (2007: Nil).

44. CONTINGENCIES

The Group is a defendant in certain lawsuits as well as the plaintiff in other proceedings arising in the ordinary course of business. The amount involved in the litigations against the Group relate mainly to bank loans, purchases and expenditures incurred by the Group and most of them were recorded as liabilities of the Group as at the balance sheet date. While the outcomes of such contingencies, lawsuits or other proceedings cannot be determined at present, management believes that any resulting liabilities will not have material adverse effect on the financial position or operating results of the Group.

45. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF UNCERTAINTY

Impairment

In considering the impairment losses that may be required for certain of the Group’s assets which include property, plant and equipment, payments for leasehold land held for own use under operating leases, intangible assets and interests in jointly controlled entity, recoverable amounts of the assets need to be determined. The recoverable amount is the greater of the fair value less costs to sell and the value in use. It is difficult to precisely estimate fair value less costs to sell because quoted market prices for these assets may not be readily available. In determining the value in use, expected cash flows generated by the asset are discounted to

— I-75 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

their present value, which require significant judgment relating to items such as level of sales, selling price and amount of operating costs. The Group uses all readily available information in determining amounts that are reasonable approximations of recoverable amounts, including estimates based on reasonable and supportable assumptions and projections of items such as sales volume, selling price and amount of operating costs.

In considering the impairment losses that may be required for current receivables, future cash flows need to be determined. One of the key assumptions that has to be applied is the ability of the debtors to settle the receivables. Although the Group has used all available information to make this estimation, inherent uncertainty exists and actual may be different from the amount estimated.

Depreciation and amortisation

Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account their estimated residual values. The Group reviews the estimated useful lives of the assets regularly. The useful lives are based on the Group’s historical experience with similar assets and taking into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.

Warranty provision

As explained in noted 31(i), the Group makes provisions under the warranties it gives on sales of its electrical products taking into account the Group’s recent claim experience. As the Group is continuously upgrading its product designs and launching new models, it is possible that recent claim experience is not indicative of the future claims that it will receive in respect of past sales. Any increase or decrease in the provision would affect profit or loss in future years.

Taxation

Determining income tax provisions involves judgement on the future tax treatment of certain transactions. The Group carefully evaluates tax implications of transactions and tax provisions are set up accordingly. The tax treatment of such transactions is reconsidered periodically to take into account all changes in tax legislations. Where the final tax outcome of these transactions is different from the amounts that were initially recorded, such difference will impact the income tax and deferred tax provisions in the year in which such determination is made.

46. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the Board of Directors on 16 April 2009.

— I-76 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

C. AUDITOR’S REPORTS AND QUALIFIED AUDIT OPINIONS EXTRACTED FROM PUBLISHED ANNUAL REPORTS

(i) Qualified audit opinion on the Kelon Group’s financial statements for the year ended 31 December 2006 (“2006 Annual Report”) as extracted from the Kelon Group’s 2006 annual report. The page references in the following extract are the same as those in the 2006 Annual Report.

Independent Auditor’s Report

TO THE SHAREHOLDERS OF

GUA NGDONG K ELON ELECT R ICA L HOLDI NGS COM PA N Y LIMITED

（廣東科龍電器股份有限公司）

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

We have audited the financial statements of Guangdong Kelon Electrical Holdings Company Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 46 to 118, which comprise the consolidated balance sheet as at 31 December 2006, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation and the true and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the disclosure requirements of the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

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FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these financial statements based on our audit. This report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the content of this report.

Except as described in the basis for qualified opinion paragraph, we conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and true and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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/

— I-78 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

or companies suspected to be connected with the Company’s former chairman, Mr. Gu Chu Jun (“Mr. Gu”). As at 31 December 2006, 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 2006 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 net liabilities as at 31 December 2006 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 2006 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 qualifying our opinion, we draw attention to note 3(b) to the financial statements which indicates that the Group’s current liabilities exceeded its current assets by approximately RMB2,952 million as at 31 December 2006. These conditions, along with other matters as set forth in note 3(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

— I-79 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

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.

BDO McCabe Lo Limited

Certified Public Accountants

Chow Tak Sing, Peter Practising Certificate Number P04659

Hong Kong, 26 April 2007

— I-80 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

(ii) Qualified audit opinion on the Kelon Group’s financial statements for the year ended 31 December 2007 (“2007 Annual Report”) as extracted from the Kelon Group’s 2007 annual report. The page references in the following extract are the same as those in the 2007 Annual Report.

Independent Auditor’s Report

TO THE SHAREHOLDERS OF HISENSE KELON ELECTRICAL HOLDINGS COMPANY LIMITED

（海信科龍電器股份有限公司）

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

We have audited the financial statements of Hisense Kelon Electrical Holdings Company Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 58 to 128, which comprise the consolidated balance sheet as at 31 December 2007, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

— I-81 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

AUDITOR’S RESPONSIBILITY

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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/

— I-82 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

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) 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, indicate 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

— I-83 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

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.

BDO McCabe Lo Limited

Certified Public Accountants

Chow Tak Sing, Peter Practising Certificate Number P04659

Hong Kong, 24 April 2008

— I-84 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

(iii) Qualified audit opinion on the Kelon Group’s financial statements for the year ended 31 December 2008 (“2008 Annual Report”) as extracted from the Kelon Group’s 2008 annual report. The page references in the following extract are the same as those in the 2008 Annual Report.

Independent Auditor’s Report

TO THE SHAREHOLDERS OF HISENSE KELON ELECTRICAL HOLDINGS COMPANY LIMITED

（海信科龍電器股份有限公司）

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

We have audited the financial statements of Hisense Kelon Electrical Holdings Company Limited (the “ Company ” ) and its subsidiaries (collectively referred to as the “Group”) set out on pages 46 to 112, which comprise the consolidated balance sheet as at 31 December 2008, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

— I-85 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

AUDITOR’S RESPONSIBILITY

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

BASIS FOR QUALIFIED OPINION

— I-86 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

affiliates and/or companies suspected to be connected with the Company’s former chairman, Mr. Gu Chu Jun (“Mr. Gu”). As at 31 December 2008, the aggregate amount of receivables due from these companies was approximately RMB285 million (net of an accumulated impairment loss of RMB365 million) which were reflected in the consolidated balance sheet at 31 December 2008 as “Amounts due from Greencool Enterprise and its affiliates” and “Amounts due from companies suspected to be connected with Mr. Gu” within current assets.

During the year ended 31 December 2008, legal proceedings which were previously initiated against Greencool Enterprise and its affiliates and companies suspected to be connected with Mr. Gu have reached court judgements which mostly ruled in favour of the Company. However, certain court judgments are under further appeal and the enforcement of court judgements has not been completed. Due to the uncertainty on the final outcome of the legal proceedings and execution of court judgements, we are unable to satisfy ourselves as to the appropriateness of the accumulated impairment amounts and the recoverability of the carrying amounts of receivable due from these companies. Any adjustments found to be necessary would affect the opening accumulated losses as at 1 January 2008, the net liabilities as at 31 December 2008 and the loss 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 2008 and of its loss 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) to the financial statements which indicates that the Company incurred a net loss of RMB238 million during the year ended 31 December 2008 and, as of that date, the Group’s current liabilities exceeded its current assets by approximately RMB2,850 million. These conditions, along with other matters as set forth in note 2(b) to the financial statements, indicate the existence of

— I-87 —

FINANCIAL INFORMATION OF THE HISENSE KELON GROUP

APPENDIX I

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.

BDO McCabe Lo Limited

Certified Public Accountants

Chow Tak Sing, Peter Practising Certificate Number P04659

Hong Kong, 16 April 2009

— I-88 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The following is the text of a report prepared for the purpose of inclusion in this circular received from the reporting accountants, BDO Limited, Certified Public Accountants.

BDO Limited

==> picture [84 x 41] intentionally omitted <==

==> picture [65 x 34] intentionally omitted <==

The Directors

31 July 2009

Hisense Kelon Electrical Holdings Company Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) regarding the Target Group (as defined herein as below), which were principally engaged in the manufacture and sale of air-conditioners, refrigerators, injection moulds and electrical appliance components in the People’s Republic of China (the “PRC”) for each of the three years ended 31 December 2006, 2007 and 2008 and the four months ended 30 April 2008 and 2009 (the “Relevant Periods”), prepared on the basis set out in note 3(b) of section B below, in connection with the proposed acquisition of the Target Group (“Proposed Acquisition”) by 海信科龍電器股份有限公司 (Hisense Kelon Electrical Holdings Company Limited) (the “Company”, together with its subsidiaries, collectively defined as the “Kelon Group”).

As at the date of this report, the Target Group comprises the following:

(a) 100% of the equity interests of 海信（山東）空調有限公司 (Hisense (Shandong) Airconditioning Company Limited) (“Hisense Shandong”), which acquired 100% of the air-conditioning business and related net assets of 青島海信空調有限公司 (Qingdao Hisense Air-conditioning Company Limited) (“Qingdao Hisense”, and its business is referred to as the “Qingdao Hisense Air-conditioning Business”);
(b) 51% of the equity interests of 海信（浙江）空調有限公司 (Hisense (Zhejiang) Airconditioning Company Limited) (“Hisense Zhejiang”);
(c) 55% of the equity interests of 海信（北京）電器有限公司 (Hisense (Beijing) Electric Company Limited) (“Hisense Beijing”), which in turn holds 60% of the equity interests of 海信（南京）電器有限公司 (Hisense (Nanjing) Electric Company Limited) (“Hisense Nanjing”);

— II-1 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(d) 100% of the business and the related net assets of 青島海信營銷有限公司 (Qingdao Hisense Marketing Company Limited) (“Hisense Marketing”) that are related to the sale and marketing of air-conditioners and refrigerators mainly produced by Hisense Shandong, Qingdao Hisense Air-conditioning Business, Hisense Zhejiang, Hisense Beijing and Hisense Nanjing (the “Hisense Marketing Business”);
(e) 78.7% of the equity interests of 青島海信模具有限公司 (Qingdao Hisense Mould Company Limited) (“Hisense Mould”), which in turn holds 95% of the equity interests of 青島海信塑料製品有限公司 (Qingdao Hisense Plastic Products Company Limited) (“Hisense Plastic”). Hisense Plastic, in turn holds 100% of the equity interests of 青島海平電器配件有限公司 (Qingdao Haiping Electric Parts Limited) (“Qingdao Haiping”); and
(f) 49% of the equity interests of 青島海信日立空調系統有限公司 (Qingdao Hitachi Airconditioning Systems Company Limited) (“Hisense Hitachi”).

— II-2 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

The details of the entities and businesses comprising the Target Group are as follows:

Issued and
fully paid-
up registered
capital as
Name of entity/ Place of
Place of
Date of
at the date
business
establishment
operation
establishment
of this report
RMB
Hisense
Shandong_(i)
PRC
PRC
8 November
2007
500,000,000
Qingdao
Hisense
Air-
conditioning
Business
N/A
PRC
N/A
—(ii)
Hisense
Zhejiang(i)
PRC
PRC
22 April
2005
110,000,000
Hisense
Beijing(i)
PRC
PRC
13 June
2002
85,710,000
Hisense
Nanjing(i)
PRC
PRC
12 January
2005
128,691,500
Hisense
Marketing
Business
N/A
PRC
N/A
30,000,000(iv_)
Hisense
Mould_(i)
PRC
PRC
28 September
1996
27,642,015
Hisense
Plastic(i)
PRC
PRC
17 July
2003
1,000,000
Qingdao
Haiping(i)
PRC
PRC
30 August
2007
9,300,000
Hisense
Hitachi(i)_
PRC
PRC
8 January
2003
100,156,395

Effective equity interests
At 30
At 31 December
April
2006
2007
2008
2009 Principal activities
N/A
100%
100%
100% Manufacture of air-
conditioners
100%
100%
100%
100% Manufacture of air-
conditioners up to
late 2007 and became
dormant since then
51%
51%
51%
51% Manufacture and sale of
air-conditioners
55%
55%
55%
55% Manufacture of
refrigerators
33%(iii)
33%(iii)
33%(iii)
33%(iii) Manufacture and sale of
refrigerators
100%
100%
100%
100% Sale of air-conditioners,
refrigerators and
other white-coloured
household electrical
appliances
78.7%
78.7%
78.7%
78.7% Manufacture and sale of
injection moulds
74.8%(v)
74.8%(v)
74.8%(v)
74.8%(v) Manufacture and sale of
plastic components of
household appliances
N/A
74.8%(vi)
74.8%(vi)
74.8%(vi) Manufacture and sale of
electronic components
of household
appliances
49%
49%
49%
49% Manufacture and sale
of air-conditioning
systems

— II-3 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Notes:

(i) These companies are limited liability companies established in the PRC.
(ii) Please refer to note 26(a)(ii) of section B for details.
(iii) Hisense Nanjing is a 60% owned subsidiary of Hisense Beijing.
(iv) Please refer to note 26(a)(iii) of section B for details.
(v) Hisense Plastic is a 95% owned subsidiary of Hisense Mould.
(vi) Qingdao Haiping is a 100% owned subsidiary of Hisense Plastic.

All entities and businesses comprising the Target Group have adopted 31 December as their financial year end date. The statutory financial statements of entities comprising the Target Group for the Relevant Periods were prepared in accordance with the relevant accounting principles and financial regulations in the PRC and were audited by the following certified public accountants registered in the PRC:

Name of entities	Financial periods	Auditors
Hisense Shandong	Period from 8 November 2007 (date of	山東滙德會計師事務所有限公司
	incorporation) to 31 December 2007
	Year ended 31 December 2008	萬隆亞洲會計師事務所有限公司
Hisense Zhejiang	Years ended 31 December 2006 and 2007	山東滙德會計師事務所有限公司
	Year ended 31 December 2008	萬隆亞洲會計師事務所有限公司
Hisense Beijing	Years ended 31 December 2006 and 2007	山東滙德會計師事務所有限公司
	Year ended 31 December 2008	萬隆亞洲會計師事務所有限公司
Hisense Nanjing	Years ended 31 December 2006and2007	山東滙德會計師事務所有限公司
	Year ended 31 December 2008	萬隆亞洲會計師事務所有限公司
Hisense Mould	Years ended 31 December 2006and2007	山東滙德會計師事務所有限公司
	Year ended 31 December 2008	山東大信會計師事務所有限公司
Hisense Plastic	Years ended 31 December 2006and2007	山東滙德會計師事務所有限公司
	Year ended 31 December 2008	山東大信會計師事務所有限公司

— II-4 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Name of entities	Financial periods	Auditors
Qingdao Haiping	Period from 30 August 2007 (date of	山東滙德會計師事務所有限公司
	incorporation) to 31 December 2007
	Year ended 31 December 2008	山東大信會計師事務所有限公司
Hisense Hitachi	Years ended 31 December 2006 and 2007	山東滙德會計師事務所有限公司
	Year ended 31 December 2008	萬隆亞洲會計師事務所有限公司

No financial statements of the Qingdao Hisense Air-conditioning Business and the Hisense Marketing Business have been previously prepared on a standalone basis as they were an integral part of Qingdao Hisense and Hisense Marketing respectively, of which their statutory financial statements for the years ended 31 December 2006, 2007 and 2008 have been audited by 山東滙德會計師事務所有限公司 and 萬隆亞洲會計師事務所有限公司 respectively.

For the purpose of this report, the management of Qingdao Hisense has prepared the combined financial statements of the Target Group for the Relevant Periods in accordance with International Financial Reporting Standards (the “Underlying Financial Statements”) on the basis set out in note 3(b) of section B for which the management of Qingdao Hisense is solely responsible for. We have performed an independent audit on the Underlying Financial Statements for the Relevant Periods in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) and have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountants” issued by the HKICPA.

The Financial Information set out in this report has been based on the Underlying Financial Statements on the basis set out in note 3(b) of section B. No adjustment was considered necessary for the purpose of preparing our report for the inclusion in the circular of the Company dated 31 July 2009 (“the Circular”).

The Underlying Financial Statements are the responsibility of the management of Qingdao Hisense. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information as set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

— II-5 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

In our opinion, on the basis of preparation set out in note 3(b) of section B below, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Target Group as at 31 December 2006, 2007 and 2008 and 30 April 2009 and of the combined results and combined cash flows of the Target Group for the Relevant Periods.

The comparative combined statements of comprehensive income, combined statements of cash flows and combined statement of changes in equity of the Target Group for the four months ended 30 April 2008 together with the notes thereon (the “30 April 2008 Financial Information”) were prepared by the management of Qingdao Hisense solely for the purpose of this report. We have reviewed the 30 April 2008 Financial Information in accordance with Hong Kong Standards on Review Engagements 2410 “Review of interim financial information performed by the independent auditor of the entity” issued by the HKICPA. Our review consisted principally of making enquiries of the management of Qingdao Hisense and applying analytical procedures to the 30 April 2008 Financial Information and basis thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the 30 April 2008 Financial Information. On that basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the 30 April 2008 Financial Information.

— II-6 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

A. FINANCIAL INFORMATION

Combined statements of comprehensive income

Notes Continuing operations Turnover 5 Cost of sales Gross profit Other income and gains 7 Distribution costs Administrative expenses Profit from operations Finance costs 8 Share of results of jointly controlled entity 18 Profit before income tax expense 9 Income tax (expense)/ credit 12 Profit for the year/period from continuing operations Discontinued operations Profit/(loss) for the year/period from discontinued operations 25 Profit and total comprehensive income for the year/period Attributable to: Owners of the Target Group Non-controlling interests Dividends 13	Year 2006 RMB’000 4,572,029 (3,465,097) 1,106,932 79,165 (934,325) (116,452) 135,320 (16,398) 15,588 134,510 (40,157) 94,353 21,339 115,692 100,805 14,887 115,692 9,985	ended 31 December 2007 2008 RMB’000 RMB’000 5,088,710 4,795,445 (3,907,921) (3,829,567) 1,180,789 965,878 117,103 123,011 (1,007,677) (935,717) (123,057) (135,928) 167,158 17,244 (13,256) (33,434) 32,644 43,148 186,546 26,958 (41,968) 9,312 144,578 36,270 19,985 14,320 164,563 50,590 123,677 38,093 40,886 12,497 164,563 50,590 38,773 7,725	Four months ended 30 April 2008 2009 RMB’000 RMB’000 (unaudited) 1,915,956 1,505,887 (1,480,091) (1,150,394) 435,865 355,493 27,733 39,773 (339,076) (268,124) (45,268) (48,947) 79,254 78,195 (11,901) (5,386) 11,892 13,610 79,245 86,419 3,413 (14,569) 82,658 71,850 4,503 (1,619) 87,161 70,231 78,670 59,763 8,491 10,468 87,161 70,231 5,528 —

— II-7 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Combined statements of financial position

Notes Assets Non-current assets Property, plant and equipment 15 Payments for leasehold land held for own use under operating leases 16 Intangible assets 17 Interests in jointly controlled entity 18 Available-for-sale financial assets 4(a(v)) Deferred tax assets 24 Total non-current assets Current assets Inventories 19 Trade and other receivables 20 Tax recoverable Cash and cash equivalents Assets of a disposal group classified as held for sale 25 Total current assets Total assets	At 31 December At 30 April 2006 2007 2008 2009 RMB’000 RMB’000 RMB’000 RMB’000 760,052 813,010 817,555 787,533 100,359 104,609 109,162 108,402 30,184 29,104 28,485 26,423 43,399 76,043 114,291 118,101 10,103 — — — 167 6,779 12,534 11,571 944,264 1,029,545 1,082,027 1,052,030 433,742 542,999 383,170 620,963 1,045,555 978,566 771,209 1,168,225 — 66 1,594 — 29,156 61,630 40,060 47,888 1,508,453 1,583,261 1,196,033 1,837,076 — — — 7,675 1,508,453 1,583,261 1,196,033 1,844,751 2,452,717 2,612,806 2,278,060 2,896,781	At 31 December At 30 April 2006 2007 2008 2009 RMB’000 RMB’000 RMB’000 RMB’000 760,052 813,010 817,555 787,533 100,359 104,609 109,162 108,402 30,184 29,104 28,485 26,423 43,399 76,043 114,291 118,101 10,103 — — — 167 6,779 12,534 11,571 944,264 1,029,545 1,082,027 1,052,030 433,742 542,999 383,170 620,963 1,045,555 978,566 771,209 1,168,225 — 66 1,594 — 29,156 61,630 40,060 47,888 1,508,453 1,583,261 1,196,033 1,837,076 — — — 7,675 1,508,453 1,583,261 1,196,033 1,844,751 2,452,717 2,612,806 2,278,060 2,896,781
		1,052,030
		620,963 1,168,225 — 47,888
		1,837,076 7,675
		1,844,751
		2,896,781

— II-8 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Notes
Liabilities
Current liabilities
Trade and other payables
21
Trade deposits received
Provisions
22
Bank borrowings
23
Current tax liabilities
Liabilities of a disposal group
classified as held for sale
25
Total current liabilities
Non-current liabilities
Bank borrowings
23
Deferred tax liabilities
24
Total non-current liabilities
Total liabilities
Net current liabilities
Total assets less current liabilities
NET ASSETS
Capital and reserves attributable to
the owners of the Target Group
Combined capital
26
Reserves
Non-controlling interests
TOTAL EQUITY

At 31 December
At 30 April
2006
2007
2008
2009
RMB’000
RMB’000
RMB’000
RMB’000
1,349,803
1,405,001
1,063,995
1,644,363
209,376
164,207
176,382
160,385
60,930
83,257
84,437
88,699
60,506
74,128
55,000
41,034
32,456
9,280
716
8,865
1,713,071
1,735,873
1,380,530
1,943,346
—
—
—
5,474
1,713,071
1,735,873
1,380,530
1,948,820
32,000
22,000
10,000
—
—
5,368
—
—
32,000
27,368
10,000
—
1,745,071
1,763,241
1,390,530
1,948,820
(204,618)
(152,612)
(184,497)
(104,069)
739,646
876,933
897,530
947,961
707,646
849,565
887,530
947,961
387,945
654,995
654,995
654,995
137,193
(12,724)
16,118
66,081
525,138
642,271
671,113
721,076
182,508
207,294
216,417
226,885
707,646
849,565
887,530
947,961

— II-9 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Combined statements of changes in equity

At 1 January 2006 Total comprehensive income for the year Contributions from a non- controlling owner Transfer of retained earnings Dividend paid At 31 December 2006 and 1 January 2007 Total comprehensive income for the year Deemed contributions from the owners of the Target Group_(note 29(a)) Capitalisation arising from reorganisation(note (iii))_ Transfer of retained earnings Dividend paid At 31 December 2007 and 1 January 2008 Total comprehensive income for the year Transfer of retained earnings Share of dividends paid by the jointly controlled entity to the existing shareholders Dividend paid At 31 December 2008 and 1 January 2009 Total comprehensive income for the period Transfer of retained earnings Share of dividends paid by the jointly controlled entity to the existing shareholders At 30 April 2009 At 1 January 2008 Total comprehensive income for the period Transfer of retained earnings Dividend paid At 30 April 2008 (unaudited)	Combined capital (note 26) RMB’000 387,945 — — — — 387,945 — — 267,050 — — 654,995 — — — — 654,995 — — — 654,995 654,995 — — — 654,995	Capital reserve (note (i)) RMB’000 1,245 — — — — 1,245 — — (26,288) — — (25,043) — — — — (25,043) — — — (25,043) (25,043) — — — (25,043)	Statutory reserves (note (ii)) RMB’000 34,890 — — 17,344 — 52,234 — — (39,442) 15,232 — 28,024 — 4,946 — — 32,970 — 663 — 33,633 28,024 — 173 — 28,197	Retained earnings/ (accumulated losses) RMB’000 7,153 100,805 — (17,344) (6,900) 83,714 123,677 16,129 (201,320) (15,232) (22,673) (15,705) 38,093 (4,946) (4,900) (4,351) 8,191 59,763 (663) (9,800) 57,491 (15,705) 78,670 (173) (4,351) 58,441	Capital and reserves attributable to the owners of the Target Group RMB’000 431,233 100,805 — — (6,900) 525,138 123,677 16,129 — — (22,673) 642,271 38,093 — (4,900) (4,351) 671,113 59,763 — (9,800) 721,076 642,271 78,670 — (4,351) 716,590	Non- controlling interests RMB’000 151,462 14,887 19,244 — (3,085) 182,508 40,886 — — — (16,100) 207,294 12,497 — — (3,374) 216,417 10,468 — — 226,885 207,294 8,491 — (1,177) 214,608	Total equity RMB’000 582,695 115,692 19,244 — (9,985)
							707,646 164,563 16,129 — — (38,773)
							849,565 50,590 — (4,900) (7,725)
							887,530 70,231 — (9,800)
							947,961

							849,565 87,161 — (5,528)
							931,198

— II-10 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Notes:

(i) Capital reserve represents the difference between the carrying value of net assets of the entities or businesses comprising the Target Group being invested and capital contributed by the owners of the Target Group.
(ii) As stipulated by the relevant laws in the PRC, the entities registered in the PRC are required to maintain three statutory reserves, being statutory surplus reserve fund, statutory welfare reserve fund and discretionary surplus reserve fund which are all non-distributable.

Appropriations to such reserves are made out of net profit after taxation as determined in accordance with PRC accounting rules and regulations while the amounts and allocation basis are decided by the respective boards of directors. The statutory surplus reserve fund can be used to make up prior year losses, if any, and can be applied in conversion into paid-up capital by means of capitalisation issue.

During the Relevant Periods, the allocation of statutory surplus reserve fund and statutory welfare reserve fund is based on rates as determined by the board of directors and in accordance with the local rules and regulations.

The entities comprising the Target Group have not contributed to the discretionary surplus reserve fund during the Relevant Periods.

(iii) Pursuant to the reorganisation as stated in note 1 of section B, the Qingdao Hisense Airconditioning Business has transferred its 100% air-conditioning business and related net assets to Hisense Shandong. The difference between the paid-up registered capital of newlyestablished Hisense Shandong of RMB500,000,000 and the equity of the Qingdao Hisense Air-conditioning Business in the aggregate amount of RMB473,712,000 at the completion of the reorganisation, comprising the paid-up registered capital of RMB232,950,000, statutory reserves of RMB39,442,000 and retained earnings of RMB201,320,000, was transferred to capital reserve.

— II-11 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Combined statements of cash flows

Notes
Operating activities
Profit/(loss) before income tax
expense
— Continuing operations
— Discontinued operations
Adjustments for:
Share of results of jointly
controlled entity
Interest income
Interest expense
Depreciation of property,
plant and equipment
Amortisation of payments for
leasehold land held for own
use under operating leases
Amortisation of intangible
assets
Loss/(gain) on disposal
of property, plant and
equipment, net
Loss on disposal of available-
for-sale financial assets
Impairment loss/(reversal of
impairment loss) on trade
and other receivables
Write down/(reversal of write
down) of inventories to net
realisable value
Operating profit before
working capital changes
Decrease/(increase) in
inventories
Decrease/(increase) in trade
and other receivables
(Decrease)/increase in trade
and other payables
Increase/(decrease) in trade
deposits received from
customers
(Decrease)/increase in
provisions

Year ended 31 December
Four months
ended 30 April
2006
2007
2008
2008
2009
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(unaudited)
134,510
186,546
26,958
79,245
86,419
24,767
22,630
17,442
5,041
(1,619)
159,277
209,176
44,400
84,286
84,800
(15,588)
(32,644)
(43,148)
(11,892)
(13,610)
(3,370)
(2,186)
(8,368)
(3,091)
(4,614)
17,741
13,256
33,618
12,058
5,386
79,832
88,711
100,629
36,505
34,273
2,204
2,263
2,509
781
828
4,357
4,863
5,646
1,808
2,066
1,811
(1,038)
(1,347)
1,343
138
—
1,025
—
—
—
6,356
(3,409)
(228)
(860)
5,288
604
(5,111)
(2,705)
(1,454)
(3,283)
253,224
274,906
131,006
119,484
111,272
196,625
(104,146)
162,534
(363,961)
(234,510)
282,144
(3,823)
341,904
(675,338)
(494,763)
(141,568)
181,101
(347,502)
783,882
440,520
83,897
(45,169)
12,175
77,016
(15,997)
(13,549)
22,327
1,180
(347)
4,262

— II-12 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Notes
Cash generated from/(used in)
operations
Interest received
Tax paid
Net cash generated from/(used
in) operating activities
Investing activities
Purchase of property, plant
and equipment
29(b)
Payments of leasehold land
held for own use under
operating leases
Purchase of intangible assets
Proceeds from disposal
of property, plant and
equipment
29(c)
Proceeds from disposal of
available-for-sale financial
assets
29(b)
(Advance to)/repayment
from intermediate holding
companies
Repayment from/(advance to)
ultimate holding company
(Advance to)/repayment from
a fellow subsidiary
Repayment from/(advance to)
non-controlling owners
Net cash (used in)/generated
from investing activities
Financing activities
Interest paid
Bank borrowings raised
Repayment of bank
borrowings
(Repayment to)/advance from
ultimate holding company
Advance from/(repayment to)
a fellow subsidiary
Contribution from a non-
controlling owner
Dividend paid

Year ended 31 December
Four months
ended 30 April
2006
2007
2008
2008
2009
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(unaudited)
660,773
325,196
301,297
(59,264)
(189,216)
3,370
2,186
8,368
3,091
4,614
(10,059)
(52,970)
(15,025)
(4,513)
(3,940)
654,084
274,412
294,640
(60,686)
(188,542)
(193,394)
(145,793)
(158,058)
(49,127)
(19,858)
—
(6,513)
(7,062)
—
(68)
(2,086)
(3,783)
(5,027)
(950)
(4)
5,629
13,911
19,365
1,237
10,962
—
329
—
—
—
(330,457)
23,218
32,917
(2,283)
(2,454)
47,140
55,733
(111,620)
(2,066)
71,202
—
—
(20,750)
—
20,750
1,594
(4,730)
—
(2,305)
—
(471,574)
(67,628)
(250,235)
(55,494)
80,530
(17,741)
(13,256)
(33,618)
(12,058)
(5,386)
129,506
264,128
536,227
292,854
37,234
(270,009)
(260,506)
(567,355)
(214,079)
(61,200)
(88,074)
(124,963)
(142,064)
131,010
101,966
940
(940)
148,560
—
43,357
19,244
—
—
—
—
(9,985)
(38,773)
(7,725)
(5,528)
—

— II-13 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Notes Net cash (used in)/generated from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year/period Cash and cash equivalents at end of year/ period representing bank balances and cash Analysis of the balances of cash and cash equivalents Cash at bank and on hand Cash at bank and on hand included in assets of disposal group classified as held for sale 25	Year ended 31 December Four months ended 30 April 2006 2007 2008 2008 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) (236,119) (174,310) (65,975) 192,199 115,971 (53,609) 32,474 (21,570) 76,019 7,959 82,765 29,156 61,630 61,630 40,060 29,156 61,630 40,060 137,649 48,019 29,156 61,630 40,060 137,649 47,888 — — — — 131 29,156 61,630 40,060 137,649 48,019	Year ended 31 December Four months ended 30 April 2006 2007 2008 2008 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) (236,119) (174,310) (65,975) 192,199 115,971 (53,609) 32,474 (21,570) 76,019 7,959 82,765 29,156 61,630 61,630 40,060 29,156 61,630 40,060 137,649 48,019 29,156 61,630 40,060 137,649 47,888 — — — — 131 29,156 61,630 40,060 137,649 48,019
		7,959 40,060
		48,019

		47,888 131
		48,019

— II-14 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

B. NOTES TO THE FINANCIAL INFORMATION

1. DESCRIPTION OF THE TARGET GROUP

The Target Group is principally engaged in the manufacture and sale of air-conditioners, refrigerators, injection moulds and electrical appliance components. It is also engaged in trading of other white-coloured household electrical appliances. The Target Group operated in the PRC during the Relevant Periods. The principal place of business of the Target Group is 山東省青島市東海西路17號海信大廈 and the registered office of each of the entities and businesses comprising the Target Group is as follows:

Hisense Shandong	山東省青島平度南村鎮駐地海信路1號
Qingdao Hisense	山東省青島平度南村鎮駐地海信路1號
Air-conditioning Business
Hisense Zhejiang	浙江省長興縣經濟技術開發區中央大道北側
Hisense Beijing	北京市大興區清源路36號
Hisense Nanjing	江蘇省南京市經濟技術開發區恒飛路19號
Hisense Marketing Business	山東省青島市東海西路17號海信大廈7樓
Hisense Mould	山東省青島市高新區北新產業園
Hisense Plastic	山東省青島市高新區北新產業園
Qingdao Haiping	山東省青島市高新區北新產業園
Hisense Hitachi	山東省青島經濟技術開發區前灣港路218號海信信息產業園

The ultimate holding company and the immediate holding company of Hisense Shandong, Hisense Zhejiang, Hisense Beijing, Hisense Nanjing, Hisense Mould, Hisense Plastic and Qingdao Haiping is 海信集團有限公司 (Hisense Group Co., Limited) (“Hisense Group Co.”) and Qingdao Hisense respectively, both of which are incorporated under the laws of the PRC with limited liability.

The Qingdao Hisense Air-conditioning Business is part of Qingdao Hisense, while Hisense Marketing Business is part of Hisense Marketing, a company incorporated under the laws of the PRC with limited liability and is indirectly owned by Hisense Group Co..

Hisense Hitachi is jointly owned by Hisense Group Co. and three other joint venture parties.

In September and November 2007, the Target Group underwent a reorganisation (the “2007 Reorganisation”) with details as follows:

(a) During the Relevant Periods up to the 2007 Reorganisation, 55% equity interests of Hisense Beijing was owned by 青島海信電器股份有限公司 (Hisense Electric Company Limited) (“Hisense Electric”), a company incorporated under the laws of the PRC with limited liability and is controlled by Hisense Group Co.. On 25 September 2007, Hisense Electric transferred its 55% equity interests of Hisense Beijing to Qingdao Hisense, and accordingly, Hisense Beijing, and Hisense Nanjing, which is a 60% owned subsidiary of Hisense Beijing, became subsidiaries of Qingdao Hisense.

— II-15 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(b) During the Relevant Periods and up to the 2007 Reorganisation, 71.5% equity interests of Hisense Marketing was owned by 青島海信電子產業控股股份有限公司 (Qingdao Hisense Electronic (Holding) Company Limited) (“Hisense Electronic”), a company incorporated under the laws of the PRC with limited liability and is also controlled by Hisense Group Co.. On 21 September 2007, all owners of Hisense Marketing transferred all their equity interests of Hisense Marketing to Qingdao Hisense. Accordingly, Hisense Marketing, being the legal entity owning the Hisense Marketing Business, became a wholly owned subsidiary of Qingdao Hisense.
(c) On 8 November 2007, Hisense Shandong was established as a limited liability company in the PRC. On 27 November 2007, Qingdao Hisense, which holds 100% equity interests of Hisense Shandong and is the legal entity owning the Qingdao Hisense Air Conditioning Business, transferred all the assets and liabilities relating to the Qingdao Hisense Air-conditioning Business to Hisense Shandong as part of its capital contribution.

In May and June 2009, the Target Group underwent another reorganisation (the “2009 Reorganisation”) with details as follows:

(a) During the Relevant Periods and up to the 2009 Reorganisation, 78.7% equity interests of Hisense Mould was owned by Hisense Group Co., of which 77.68% was owned directly and 1.02% was owned indirectly through a subsidiary. In June 2009, Hisense Group Co. and its subsidiary transferred their 78.7% equity interests of Hisense Mould to Qingdao Hisense, and accordingly, Hisense Mould became subsidiaries of Qingdao Hisense.
(b) In May 2009, Hisense Mould transferred its 95% equity interests of Hisense Plastic, which in turn owns 100% equity interests of Qingdao Haiping, to a fellow subsidiary of Hisense Group Co..
(c) During the Relevant Periods and up to the 2009 Reorganisation, 49% equity interests of Hisense Hitachi was directly owned by Hisense Group Co.. In June 2009, Hisense Group Co. transferred its 49% equity interests of Hisense Hitachi to Qingdao Hisense, and accordingly, Hisense Hitachi became a jointly controlled entity of Qingdao Hisense.

As a result of the 2007 Reorganisation and the 2009 Reorganisation, Hisense Hitachi is jointly controlled, and other entities and businesses comprising the Target Group are controlled, either directly or indirectly, by Qingdao Hisense.

The English names by which some of the entities are referred to in the Financial Information represent management’s best efforts in translating their Chinese names as no English names have been registered for these entities.

2. APPLICATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS

(a) For the purpose of preparing and presenting the Financial Information, the Target Group has consistently applied all the new and revised standards, amendments and interpretations (hereinafter collectively referred to as “new IFRSs”) issued by the International Accounting Standards Board (“IASB”) and the International Financial Reporting Interpretations Committee (the “IFRIC”) of the IASB that are relevant to its operations and effective for the annual period beginning on or after 1 January 2009 throughout the Relevant Periods. In addition, the Target Group has also early applied the amendment to IFRS 5 under Improvements to IFRSs issued in April 2009 throughout the Relevant Periods.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(b) Potential impact arising on the new accounting standards not yet effective

The Target Group has not yet applied the following new standards, amendment or interpretations that have been issued but are not yet effective.

IFRSs (Amendment) Improvements to IFRSs issued in May 2008 1 IFRSs (Amendment) Improvements to IFRSs issued in April 2009 other than amendment to IFRS 5 2 IFRS 1 (Revised) First-time Adoption of International Financial Reporting Standards 3 IFRS 2 Amendments Group Cash-settled Share-based Payment Transactions 6 Amendments to IFRC — Embedded Derivatives 4 Interpretation 9 and IAS 39 Amendment to IAS 39 Eligible Hedged Items 3 IAS 27 (Revised) Consolidated and Separate Financial Statements 3 IFRS 3 (Revised) Business Combinations 3 IFRIC — Interpretation 17 Distributions of Non-cash Assets to Owners 3 IFRIC — Interpretation 18 Transfers of Assets from Customers 5

1 Regarding the amendments to IFRS 5, effective for annual periods beginning on or after 1 July 2009
2 Effective for annual periods beginning on or after 1 July 2009 and 1 January 2010, as appropriate
3 Effective for annual periods beginning on or after 1 July 2009 4 Effective for annual periods ending on or after 30 June 2009 5 Effective for transfers of assets from customers received on or after 1 July 2009 6 Effective for annual periods beginning on or after 1 January 2010

The adoption of IFRS 3 (Revised) may affect the accounting for business combination for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. IAS 27 (Revised) will affect the accounting treatment for changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control, which will be accounted for as equity transactions. The management of the Target Group is in the process of making an assessment of the potential impact of the application of the other new or revised standards, amendments and interpretations and it is so far concluded that there will have no material effect on how the results and financial position of the Target Group are prepared and presented.

3. PRINCIPAL ACCOUNTING POLICIES

(a) Statement of compliance

The Financial Information has been prepared in accordance with all applicable International Financial Reporting Standards (“IFRSs”), International Accounting Standards (“IASs”) and Interpretations (collectively referred to as “IFRSs”) issued by the IASB and the IFRIC. In addition, the Financial Information also complies 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.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(b) Basis of preparation

The business resulting from the 2007 Reorganisation and 2009 Reorganisation (collectively referred to as the “Reorganisations”) is regarded as a continuing business since the entities and businesses comprising the Target Group were commonly controlled by Hisense Group Co., the ultimate owner of the Target Group, before and immediately after each of the Reorganisations and that control is not transitory. The management of Qingdao Hisense has therefore applied Accounting Guideline 5 “Merger Accounting for Common Control Combinations” issued by the HKICPA to the entities and businesses comprising the Target Group in preparing the Financial Information, on the basis as if the entities and the businesses comprising the Target Group had formed a group and such group structure had been in existence throughout the Relevant Periods, or since their respective dates of incorporation or establishment.

The combined statements of comprehensive income, combined statements of changes in equity and combined statements of cash flows of the Target Group have been prepared as if the current structure had been in existence throughout the Relevant Periods or since their respective dates of incorporation or establishment where this is a shorter period. The combined statements of financial position of the Target Group as at 31 December 2006, 2007 and 2008 and 30 April 2009 have been prepared to present the assets and liabilities as if the current structure of the Target Group had been in existence as at those dates.

The Qingdao Hisense Air-conditioning Business and the Hisense Marketing Business were directly owned by Qingdao Hisense and Hisense Marketing respectively, and these entities and businesses engaged in extensive intercompany transactions. These businesses have placed reliance on their respective parents for all of their operational and administrative support, and the associated costs attributable to the Qingdao Hisense Air-conditioning Business and the Hisense Marketing Business were allocated on a basis that the directors of Qingdao Hisense believe to be appropriate in the circumstances. The amounts recorded for these transactions and allocations are not necessarily representative of the amounts that would have been ref lected in the Financial Information had these businesses been operated independently of the parents.

All intra-group transactions, balances, income and expenses are eliminated on combination.

The Financial Information has been prepared using the accounting policies which are materially consistent with those of the Company.

The measurements basis used in the preparation of the Financial Information is the historical cost, except for certain financial instruments which are measured at fair value as explained in the accounting policies set out below.

As at 30 April 2009, the Target Group’s current liabilities exceeded its current assets by approximately RMB104 million. The net current liabilities as at 30 April 2009 consisted of trade deposits received from customers of approximately RMB160 million that would not trigger cash outflow in the ordinary course of business. Further, the Target Group finances its operations by short-term and long-term bank borrowings, owners’ capital contributions and loans from the ultimate holding company and a fellow subsidiary. The management of Qingdao Hisense is of the opinion that, taking into account the present available banking facilities and internal financial resources of the Target Group and the continuing financial support from Hisense Group Co., the Target Group has sufficient working capital for its present business requirements. Hence, the Financial Information has been prepared on a going concern basis.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(c) Use of estimates and judgments

The preparation of Financial Information in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other various factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Judgments made by management in the application of IFRSs that have significant effect on the Financial Information and estimates with a significant risk of material adjustment in the next financial year are disclosed in note 31.

(d) Functional and presentation currency

Items included in the financial statements of each of the Target Group’s entities and businesses are measured using the currency of the primary economic environment in which the Target Group operates (the “functional currency”). The Financial Information is presented in Renminbi (“RMB”).

(e) Basis of consolidation

Where the entity or business comprising the Target Group has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The Financial Information presents the results of the entity or business and its subsidiaries as if they formed a single entity. Inter-company transactions and balances between group entities/ business are therefore eliminated in full in preparing the Financial Information.

Non-controlling interests represent the portion of the net assets of subsidiaries attributable to interests that are not owned by the entity or business comprising the Target Group, whether directly or indirectly through subsidiaries, and in respect of which the Target Group has not agreed any additional terms with the holders of those interests which would result in the Target Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. Non-controlling interests are presented in the combined statement of financial position within equity, separately from equity attributable to the owners of the Target Group. Non-controlling interests in the results of the Target Group are presented on the face of the combined statement of comprehensive income as an allocation of the total profit or loss for the year/period between non-controlling interests and owners of the Target Group.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Where losses applicable to the non-controlling interests exceed their interest in the equity of a subsidiary, the excess, and any further losses applicable to the noncontrolling interests, are charged against the owners of the Target Group’s interest except to the extent that the non-controlling interests have a binding obligation to, and are able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the owners of the Target Group’s interest is allocated all such profits until the non-controlling interests’ share of losses previously absorbed by the owners of Target Group has been recovered.

(f)

Joint ventures

A joint venture is a contractual arrangement whereby the joint venture owners undertake an economic activity which is subject to joint control and none of the participating parties has unilateral control over the economic activity.

The Target Group’s share of post acquisition results of jointly controlled entities is included in the combined statement of comprehensive income. The Target Group’s interests in jointly controlled entities are accounted for using the equity method and are initially recorded at cost and adjusted thereafter for the post acquisition changes in the Target Group’s share of the net assets of the jointly controlled entities.

Unrealised profits and losses resulting from transactions between the Target Group and its jointly controlled entities are eliminated to the extent of the Target Group’s interest in the jointly controlled entities, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are immediately recognised in profit or loss.

(g) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

The cost of property, plant and equipment includes its purchase price and the costs directly attributable to the acquisition of the item.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Target Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are recognised in profit or loss during the financial period in which they are incurred.

Property, plant and equipment are depreciated so as to write off their cost net of expected residual value over their estimated useful lives on a straight-line basis. The useful lives, residual value and depreciation method are reviewed, and adjusted if appropriate, at the end of each of the Relevant Periods. The useful lives are as follows:

Buildings	20 to 50 years
Plant, machinery and equipment	5 to 20 years
Moulds	3 years
Motor vehicles	3 to 10 years

An asset is written down immediately to its recoverable amount if its carrying amount is higher than the asset’s estimated recoverable amount.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(h) Payments for leasehold land held for own use under operating leases

(i) Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to lessee. All other leases are classified as operating leases.

The Target Group as lessee

Assets held under finance leases are initially recognised as assets of the Target Group at their fair value or, if lower, the present value of the minimum lease payments. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is recognised in profit or loss over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor.

The total rentals payable under the operating leases are charged to profit or loss on a straight-line basis over the lease term. Lease incentives received are recognised as an integrated part of the total rental expense, over the term of the lease.

The land and buildings elements of property leases are considered separately for the purposes of lease classification.

(j) Intangible assets

(i) Externally acquired intangible assets

Externally acquired intangible assets are initially recognised at cost. Subsequently, intangible assets with finite useful lives are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is provided on a straight-line basis over their useful lives. Intangible assets with indefinite useful lives are carried at cost less any accumulated losses. The amortisation expense is included within administrative expenses in the combined statement of comprehensive income.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

The significant intangibles recognised by the Target Group and their useful economic lives are as follows:

Non-patent technologies 10 years Software 4 years

(ii) Internally generated intangible assets (research and development costs)

Expenditure on internally developed products is capitalised if it can be demonstrated that:

It is technically feasible to develop the product for it to be sold;
Adequate resources are available to complete the development;
There is an intention to complete and sell the product;
The Target Group is able to sell the product;
Sale of the product will generate future economic benefits; and
Expenditure on the project can be measured reliably.

Capitalised development costs are amortised over the period the Target Group expects to benefit from selling the products developed. The amortisation expense is included within the cost of sales in the combined statement of comprehensive income.

Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in profit or loss.

(iii) Impairment

Intangible assets with finite lives are tested for impairment when there is an indication that an asset may be impaired.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(k) Financial instruments

(i) Financial assets

The Target Group classifies its financial assets into the following categories, depending on the purpose for which the asset was acquired.

Loans and receivables: These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade receivables), and also incorporate other types of contractual monetary asset. Loans and receivables are initially recognised at fair value plus directly attributable transaction costs, if any, and subsequent to initial recognition, they are carried at amortised cost using the effective interest method, less any identified impairment losses.

Available-for-sale financial assets: These assets are non-derivative financial assets that are designated as available for sale or are not included in other categories of financial assets and comprise the Target Group’s strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities. Available-for-sale financial assets are initially recognised at fair value plus directly attributable transaction costs, if any, and subsequent to initial recognition, they are carried at fair value with changes in fair value recognised directly in other comprehensive income.

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, they are measured at cost less any identified impairment losses at the end of each of the Relevant Periods subsequent to initial recognition.

(ii) Impairment loss on financial assets

Objective evidence that the asset is impaired includes observable data that comes to the attention of the Target Group including the following loss events:

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
granting concession to a debtor because of debtor’s financial difficulty; or
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation.

For loans and receivables

An allowance for impairment loss is established when there is objective evidence that the Target Group will not be able to collect all amounts due according to the original terms. The amount of provision is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount is recognised in profit or loss. When the asset is uncollectible, it is written off against the allowance account. Impairment losses are reversed in subsequent

— II-23 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

For available-for-sale financial assets

Where a decline in the fair value constitutes objective evidence of impairment, the amount of the loss is removed from other comprehensive income and recognised in profit or loss.

For available-for-sale equity investment, any increase in fair value subsequent to an impairment loss is recognised directly in equity.

(iii) Financial liabilities

Financial liabilities include trade and other payables, loans and borrowings, which are initially recognised at fair value net of attributable transaction costs, if any. Subsequent to initial recognition, financial liabilities are measured at amortised cost using the effective interest method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the combined statement of financial position. Interest expense in this context includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

Gains or losses are recognised in profit or loss when financial liabilities are derecognised as well as through the amortisation process.

(iv) Equity instruments

Equity instruments issued by the entity or business comprising the Target Group are recorded at the proceeds received, net of direct issue costs.

(v) Derecognition

The Target Group derecognises a financial asset when the contractual rights to the future cash flows in relation to the financial asset expire or when the financial asset has been transferred and the transfer meets the criteria for derecognition in accordance with IAS 39.

The Target Group derecognises a financial liability when the obligation under the liability is discharged or cancelled or expired.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(l) Inventories

(m) Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale when:

they are available for immediate sale;
management is committed to a plan to sell;
it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn;
an active programme to locate a buyer has been initiated;
the asset or disposal group is being marketed at a reasonable price in relation to its fair value; and
a sale is expected to complete within 12 months from the date of classification.

Non-current assets and disposal groups classified as held for sale are measured at the lower of:

their carrying amount immediately prior to being classified as held for sale in accordance with the Target Group’s accounting policy; and
fair value less costs to sell.

Following their classification as held for sale, non-current assets (including those in a disposal group) are not depreciated.

The results of operations disposed of during the year are included in the combined statement of comprehensive income up to the date of disposal.

(n) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and sales related taxes. Revenue from sale of goods is recognised when significant risks and rewards of ownership of the goods have passed to the buyer, usually when goods are delivered and title has passed.

Research and development income is recognised when service is rendered.

Repairing income is recognised when service is rendered.

Penalty income is recognised when triggering events to receive payment occur and the amount of payment can be reliably measured.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(o) Income taxes

Income taxes for the year/period comprise current tax and deferred tax.

Income taxes are recognised in profit or loss except when they relate to items directly recognised in other comprehensive income or in equity, in which case the taxes are also directly recognised in other comprehensive income or in equity.

(p) Foreign currency

Transactions entered into by the Target Group in currencies other than the currency of the primary economic environment in which group entities operate (the “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the end of each of the Relevant Periods. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in other comprehensive income, in which case, the exchange differences are also recognised directly in other comprehensive income.

(q) Employee benefits

The entities and businesses comprising the Target Group incorporated in the PRC makes monthly contributions to a state-sponsored defined contribution scheme for the local staff. The contributions are made at a specific percentage on the standard salary pursuant to laws of the PRC and relevant regulations issued by local social security authorities. The contributions are made at a specific percentage on the standard salary set by the provincial government, of which 10% to 20% is borne by the Target Group and the remainder is borne by the staff.

The Target Group accounts for pension contributions on an accrual basis. Accrued contributions are shown as pension liabilities in the combined statement of financial position.

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APPENDIX II

(r) Borrowing costs

Pursuant to the transitional provision of IAS 23 (Revised), the Target Group capitalises borrowing costs for all qualifying assets where construction was commenced on or after 1 January 2009 and expenses all borrowing costs relating to construction projects that commenced prior to 1 January 2009.

(s) Impairment of other assets

At the end of each of the Relevant Periods, the Target Group reviews the carrying amounts of the following assets to determine whether there is any indication that those assets have suffered an impairment loss or an impairment loss previously recognised no longer exists or may have decreased:

property, plant and equipment;
payments for leasehold land held for own use under operating leases;
intangible assets with finite lives; and
interests in jointly controlled entity.

If the recoverable amount (i.e. the greater of the fair value less costs to sale and value in use) of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

(t) Government grants

Government grants are recognised when there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value of the grants is credited to a deferred income account and recognised in profit or loss over the expected useful life of the relevant asset by equal annual instalments.

(u) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Target Group has a legal or constructive obligation arising as a result of a past event, which will probably result in an outflow of economic benefits that can be reasonably estimated. Provisions are not recognised for future operating losses.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(v) Warranty obligation

The Target Group provides free repairing services for its products and free replacement of the major components of its products for one or three years after sales.

The costs of the warranty obligation under which the Target Group agrees to remedy defects in its products are accrued at the time the related sales are recognised. Provision for warranty is accrued based on the estimated costs of fulfilling the total obligation, including handling and transportation costs. The costs are estimated by management based on past experience. The assumptions used to estimate the warranty provision are reviewed periodically in light of actual results.

(w) Dividends

Interim dividends are recognised directly as a liability when they are proposed and declared by the directors of the entities or businesses comprising the Target Group.

Final dividends proposed by the directors of the entities or businesses comprising the Target Group are classified as a separate allocation of retained profits within capital and reserves in the combined statement of financial position. Final dividends are recognised as a liability when they are approved by the owners of the entities or businesses comprising the Target Group.

4. FINANCIAL INSTRUMENTS — RISK MANAGEMENT AND FAIR VALUE

(a) Risk management

The Target Group is exposed through its operations to one or more of the following financial risks:

Interest rate risk
Foreign currency risk
Liquidity risk
Credit risk
Equity price risk

The Target Group does not hold or issue any financial derivatives for trading purpose.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(i) Interest rate risk

The Target Group is exposed to interest rate risks due to changes in interest rates of interest-bearing financial assets and liabilities. Interest-bearing financial assets are mainly deposits with banks which are mostly short-term in nature whereas interest-bearing financial liabilities are primarily bank borrowings and loans from ultimate holding company and a fellow subsidiary. As at 31 December 2006, 2007 and 2008 and 30 April 2009, the Target Group’s interest-bearing borrowings were carried at floating interest rates. The approximate change in the profit after tax in response to reasonably possible changes in an interest rate to which the Target Group has exposure at the end of each of the Relevant Periods is not significant and accordingly the Target Group is not significantly exposed to both fair value and cash flow interest rate risks.

(ii) Foreign currency risk

As substantially all of the Target Group’s monetary assets and liabilities are denominated in RMB and the Target Group conducts its business transactions principally in RMB, the exchange rate risk of the Target Group is insignificant and the Target Group does not employ any financial instruments for hedging purposes.

(iii) Liquidity risk

In managing liquidity risk, the management of Qingdao Hisense monitors and maintains a level of cash and cash equivalents deemed adequate by management to finance the Target Group’s operations and mitigate the effects of short-term fluctuations in cash flows. The Target Group’s treasury function is responsible for maintaining a balance between continuity and f lexibility of funding through the use of bank facilities in order to meet the Target Group’s liquidity requirements both in the short and long term. Most of debts of the Target Group would mature in less than one year as at the end of each of the Relevant Periods. The Target Group also relies on the continuing financial support of the ultimate holding company and a fellow subsidiary.

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

The contractual maturities of financial liabilities are shown as below:

At 31 December 2006 Trade and other payables Bank borrowings At 31 December 2007 Trade and other payables Bank borrowings At 31 December 2008 Trade and other payables Bank borrowings At 30 April 2009 Trade and other payables Bank borrowings	Within 1 year RMB’000 1,349,803 60,506 1,410,309 1,405,001 74,128 1,479,129 1,063,995 55,000 1,118,995 1,644,363 41,034 1,685,397	1-2 years RMB’000 — 12,279 12,279 — 13,778 13,778 — 10,750 10,750 — — —	2-5 years RMB’000 — 23,238 23,238 — 10,750 10,750 — — — — — —	Total RMB’000 1,349,803 96,023
				1,445,826

				1,405,001 98,656
				1,503,657

				1,063,995 65,750
				1,129,745

				1,644,363 41,304
				1,685,397

(iv) Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Target Group. The Target Group has adopted procedures in monitoring its credit risk.

The Target Group mitigates its exposure to risk relating to trade receivables by dealing with diversified customers with sound financial standing. Most of the new customers are required to place cash deposits with the Target Group to reduce the maximum exposure to credit risk. The Target Group seeks to maintain strict control over its outstanding receivables and has a credit control policy to minimise credit risk. In addition, all receivable balances are monitored on an ongoing basis and overdue balances are followed up by senior management. The Target Group’s maximum exposure to credit risk in the event that the counterparties fail to perform their obligations as at end of the financial year in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the combined statement of financial position. In this regard, the management of Qingdao Hisense is satisfied that this risk is minimal and adequate allowance for doubtful debts, if any, has been made in the Financial Information after assessing the collect ability individual debts. The credit risk on liquid funds is limited because the counterparties are reputable banks in the PRC.

The Target Group has no significant concentration of credit risk in respect of the trade and other receivables, with exposure spread over a number of counterparties and customers.

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APPENDIX II

(v) Equity price risk

The available-for-sale financial assets of the Target Group as at 31 December 2006 represented an unquoted long-term equity investment in the PRC, which was carried at cost less impairment loss as its fair value cannot be measured reliably. The investment was subsequently disposed in 2007 (note 29(b)).

(b) Fair value

The management of the Target Group considers the carrying amounts of receivables and payables of the Target Group classified as financial instruments as defined in note 3(k) approximate their fair values.

5. TURNOVER

The principal activities of the Target Group are the manufacture and sale of air-conditioners, refrigerators, injection moulds and electrical appliance components in the PRC. The Target Group is also engaged in trading of other white-coloured household electrical appliances. Turnover, which is also the revenue, represents the amounts received and receivable for goods sold during the year/period. An analysis of the Target Group’s revenue for the year/period is as follows:

Continuing operations Sale of air- conditioners Sale of refrigerators Sale of injection moulds Sale of other white-coloured household electrical appliances Discontinued operations Manufacture and sale of electrical appliance components	Year ended 31 December Four months ended 30 April 2006 2007 2008 2008 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 2,648,013 2,957,585 2,490,235 1,151,835 613,742 1,696,112 1,895,178 2,052,271 685,356 785,909 122,812 133,668 125,175 41,991 63,276 105,092 102,279 127,764 36,774 42,960 4,572,029 5,088,710 4,795,445 1,915,956 1,505,887 514,358 459,122 238,172 172,746 — 5,086,387 5,547,832 5,033,617 2,088,702 1,505,887	Year ended 31 December Four months ended 30 April 2006 2007 2008 2008 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 2,648,013 2,957,585 2,490,235 1,151,835 613,742 1,696,112 1,895,178 2,052,271 685,356 785,909 122,812 133,668 125,175 41,991 63,276 105,092 102,279 127,764 36,774 42,960 4,572,029 5,088,710 4,795,445 1,915,956 1,505,887 514,358 459,122 238,172 172,746 — 5,086,387 5,547,832 5,033,617 2,088,702 1,505,887
		1,505,887 —
		1,505,887

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ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

6. OPERATING SEGMENTS

The management of the Target Group determines the operating segments based on the reports reviewed by the chief operating decision makers that are used to make decisions about resources to be allocated to each segment and assess its performance. The operating segments are managed separately as each segment performs different function and/or offers different products and adopts different operating policies and requires different marketing strategies.

Operating segments are aggregated as one reportable segment if they have similar economic characteristics, similar in products and production processes, and have similar type or class of customers and product distribution method.

The Target Group has six reportable segments. The operations of the Target Group’s reportable segments are as follows:

The marketing and sale of air-conditioners and refrigerators segment refers to selling and distribution of air-conditioners and refrigerators to third party customers. The main source of income is sale of products. This segment also includes sale of other whitecoloured household electrical appliances, which is not significant and does not meet the threshold of being a reportable segment.
The manufacture and sale of air-conditioners segment refers to manufacturing of airconditioners. The main source of income is sale of products to group and related companies.
The manufacture and sale of refrigerators segment refers to manufacturing of refrigerators. The main source of income is sale of products to group and related companies.
The manufacture and sale of injection moulds segment refers to manufacturing and selling of injection moulds. The main source of income is sale of products to group and related companies.
The manufacture and sale of electrical appliance components segment refers to manufacturing and distribution of electrical appliance components. The main source of income is sale of products to group and related companies. This segment was discontinued in 2009.
The manufacture and sale of air-conditioning systems segment refers to manufacturing and distribution of air-conditioning systems by Hisense Hitachi, the jointly controlled entity of the Target Group. The main source of income is designing, manufacturing and selling of air-conditioning systems to third party customers. This segment mainly includes the Target Group’s share of results and interests in jointly controlled entity.

— II-32 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Segment information is presented below:

(a) Information about reportable segment revenue, profit or loss, assets and liabilities and other information

		Year ended 31 December 2006	Year ended 31 December 2006	Year ended 31 December 2006
		Continuing			Subtotal RMB’000 4,651,194 3,086,680 7,737,874 159,638 3,495,422 (2,738,902) 3,370 16,398 180,679 73,642 2,204 2,086 4,357 1,811 6,356 604	Discontinued Manufacture and sale of electrical appliance components RMB’000 519,525 6,377 525,902 23,331 154,662 (133,246) — 1,343 12,715 6,190 — — — — — —	Total RMB’000 5,170,719 3,093,057
Marketing and sale of air- conditioners and refrigerators RMB’000 3,981,739 6,050 3,987,789 (1,874) 1,147,262 (1,218,631) 336 8,233 3,771 2,721 — — — 78 4,242 604	Manufacture and sale of air- conditioners RMB’000 478,266 1,784,432 2,262,698 71,741 1,786,648 (1,263,714) 530 3,584 64,644 43,041 860 2,060 2,598 1,661 2,077 —	Manufacture and sale of refrigerators RMB’000 66,343 1,255,626 1,321,969 26,868 408,246 (216,908) 2,463 4,211 104,629 19,053 1,344 26 1,759 23 — —	Manufacture and sale of injection moulds RMB’000 124,846 40,572 165,418 47,315 109,867 (39,649) 41 370 7,635 8,827 — — — 49 37 —	Manufacture and sale of air- conditioning systems RMB’000 — — — 15,588 43,399 — — — — — — — — — — —
							8,263,776

							182,969

							3,650,084

							(2,872,148)

							3,370 17,741 193,394 79,832 2,204 2,086 4,357 1,811 6,356 604

— II-33 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

		Year ended 31 December 2007	Year ended 31 December 2007	Year ended 31 December 2007
		Continuing			Subtotal RMB’000 5,205,813 3,418,046 8,623,859 216,870 3,008,275 (2,126,892) 2,186 13,256 131,247 82,736 6,513 2,263 3,783 4,863 (1,054) (3,409) 5,111	Discontinued Manufacture and sale of electrical appliance components RMB’000 460,863 12,912 473,775 16,517 159,190 (114,135) — — 23,295 5,975 — — — — 16 — —	Total RMB’000 5,666,676 3,430,958
Marketing and sale of air- conditioners and refrigerators RMB’000 3,919,913 118,333 4,038,246 (11,649) 1,106,449 (1,189,778) — 5,908 1,898 2,635 — — — — 276 (2,338) 1,778	Manufacture and sale of air- conditioners RMB’000 868,375 1,963,363 2,831,738 102,714 1,107,870 (520,946) 749 4,025 26,492 41,716 6,513 919 3,783 3,101 — (1,054) 3,333	Manufacture and sale of refrigerators RMB’000 270,754 1,319,403 1,590,157 54,547 581,635 (374,501) 1,437 3,323 63,383 29,807 — 1,344 — 1,762 (1,330) 10 —	Manufacture and sale of injection moulds RMB’000 146,771 16,947 163,718 38,614 136,278 (41,667) — — 39,474 8,578 — — — — — (27) —	Manufacture and sale of air- conditioning systems RMB’000 — — — 32,644 76,043 — — — — — — — — — — — —
							9,097,634

							233,387

							3,167,465

							(2,241,027)

							2,186 13,256 154,542 88,711 6,513 2,263 3,783 4,863 (1,038) (3,409) 5,111

— II-34 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

		Year ended 31 December 2008	Year ended 31 December 2008	Year ended 31 December 2008
		Continuing			Subtotal RMB’000 4,918,456 2,596,278 7,514,734 29,518 2,778,524 (1,861,347) 8,368 33,434 148,595 95,045 7,062 2,509 5,027 5,646 1,758 (277) 2,705	Discontinued Manufacture and sale of electrical appliance components RMB’000 243,870 — 243,870 13,405 28,552 (17,132) — 184 9,463 5,584 — — — — (3,105) 49 —	Total RMB’000 5,162,326 2,596,278
Marketing and sale of air- conditioners and refrigerators RMB’000 3,472,211 46,468 3,518,679 (46,618) 894,958 (1,025,075) 6,331 15,223 1,993 2,336 — — — — 1,194 695 605	Manufacture and sale of air- conditioners RMB’000 867,220 1,272,553 2,139,773 (22,152) 891,099 (314,621) — 12,233 30,022 45,693 1,548 1,110 3,357 3,815 706 (1,002) 2,100	Manufacture and sale of refrigerators RMB’000 441,910 1,230,543 1,672,453 9,803 635,135 (411,975) 2,037 5,978 27,224 36,721 — 1,344 1,192 1,790 146 (10) —	Manufacture and sale of injection moulds RMB’000 137,115 46,714 183,829 45,337 243,041 (109,676) — — 89,356 10,295 5,514 55 478 41 (288) 40 —	Manufacture and sale of air- conditioning systems RMB’000 — — — 43,148 114,291 — — — — — — — — — — — —
							7,758,604

							42,923

							2,807,076

							(1,878,479)

							8,368 33,618 158,058 100,629 7,062 2,509 5,027 5,646 (1,347) (228) 2,705

— II-35 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

		Four months ended 30 April 2008	Four months ended 30 April 2008	Four months ended 30 April 2008	Four months ended 30 April 2008
		Continuing			Subtotal RMB’000 1,943,689 1,191,962 3,135,651 68,632 3,091 11,901 31,211 781 1,808 1,343 860 1,454	Discontinued Manufacture and sale of electrical appliance components RMB’000 172,774 — 172,774 5,041 — 157 5,294 — — — — —	Total RMB’000 2,116,463 1,191,962
Marketing and sale of air- conditioners and refrigerators RMB’000 1,268,341 16,897 1,285,238 23,151 2,065 5,972 827 — — 199 849 1,454	Manufacture and sale of air- conditioners RMB’000 503,958 743,784 1,247,742 25,084 — 4,768 15,182 332 1,220 1,144 — —	Manufacture and sale of refrigerators RMB’000 129,368 431,281 560,649 4,529 1,026 1,161 12,237 449 588 — — —	Manufacture and sale of injection moulds RMB’000 42,022 — 42,022 3,976 — — 2,965 — — — 11 —	Manufacture and sale of air- conditioning systems RMB’000 — — — 11,892 — — — — — — — —
							3,308,425

							73,673

							3,091 12,058 36,505 781 1,808 1,343 860 1,454

— II-36 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

		Four months ended 30 April 2009	Four months ended 30 April 2009	Four months ended 30 April 2009	Four months ended 30 April 2009
		Continuing			Subtotal RMB’000 1,545,660 1,032,527 2,578,187 162,107 3,997,973 (2,964,723) 4,614 5,386 19,858 32,589 68 828 4 2,066 138 5,288 3,283	Discontinued Manufacture and sale of electrical appliance components RMB’000 129 — 129 (1,619) 25,333 (15,533) — — — 1,684 — — — — — — —	Total RMB’000 1,545,789 1,032,527
Marketing and sale of air- conditioners and refrigerators RMB’000 933,754 42,666 976,420 35,021 1,403,579 (1,498,675) 3,057 2,439 35 614 — — — — 151 4,884 3,283	Manufacture and sale of air- conditioners RMB’000 249,843 594,552 844,395 92,580 1,422,950 (786,759) — 747 7,744 14,362 — 342 4 1,382 (37) 404 —	Manufacture and sale of refrigerators RMB’000 297,810 395,200 693,010 16,670 833,585 (596,582) 655 2,200 11,093 11,934 68 449 — 631 24 — —	Manufacture and sale of injection moulds RMB’000 64,253 109 64,362 4,226 219,758 (82,707) 902 — 986 5,679 — 37 — 53 — — —	Manufacture and sale of air- conditioning systems RMB’000 — — — 13,610 118,101 — — — — — — — — — — — —
							2,578,316

							160,488

							4,023,306

							(2,980,256)

							4,614 5,386 19,858 34,273 68 828 4 2,066 138 5,288 3,283

— II-37 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(b) Reconciliation of reportable segment revenue, profit or loss, assets and liabilities

Total revenue for reportable segments Elimination of intersegment revenue Revenue from discontinued operations Turnover and other income and gains from continuing operations Total profit or loss for reportable segments Elimination of intersegment profit or loss (Profit)/loss before income tax expense from discontinued operations Profit before income tax expense from continuing operations Total assets for reportable segments Elimination of intersegment assets Total assets Total liabilities for reportable segments Elimination of intersegment liabilities Total liabilities	Year ended 31 December 2006 2007 2008 RMB’000 RMB’000 RMB’000 8,263,776 9,097,634 7,758,604 (3,093,057) (3,430,958) (2,596,278) (519,525) (460,863) (243,870) 4,651,194 5,205,813 4,918,456 182,969 233,387 42,923 (23,692) (24,211) 1,477 (24,767) (22,630) (17,442) 134,510 186,546 26,958 3,650,084 3,167,465 2,807,076 (1,197,367) (554,659) (529,016) 2,452,717 2,612,806 2,278,060 2,872,148 2,241,027 1,878,479 (1,127,077) (477,786) (487,949) 1,745,071 1,763,241 1,390,530	Four months ended 30 April 2008 2009 RMB’000 RMB’000 (unaudited) 3,308,425 2,578,316 (1,191,962) (1,032,527) (172,774) (129) 1,943,689 1,545,660 73,673 160,488 10,613 (75,688) (5,041) 1,619 79,245 86,419 N/A 4,023,306 N/A (1,126,525) N/A 2,896,781 N/A 2,980,256 N/A (1,031,436) N/A 1,948,820

— II-38 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(c) Information about major customers Revenue from major customers which individually accounted for 10% or combined revenue of the Target Group are as follows: Reportable segment reporting the revenue Year ended 31 December 2006 Customer A Marketing and sale of air-conditioners and refrigerators Customer B Marketing and sale of air-conditioners and refrigerators Customer C Manufacture and sale of air-conditioners, manufacture and sale of refrigerators, manufacture and sale of injection moulds, and manufacture and sale of electrical appliance components Year ended 31 December 2007 Customer A Marketing and sale of air-conditioners and refrigerators Customer B Marketing and sale of air-conditioners and refrigerators Customer C Manufacture and sale of air-conditioners, manufacture and sale of refrigerators, manufacture and sale of injection moulds, and manufacture and sale of electrical appliance components Year ended 31 December 2008 Customer A Marketing and sale of air-conditioners and refrigerators Customer B Marketing and sale of air-conditioners and refrigerators Customer C Manufacture and sale of air-conditioners, manufacture and sale of refrigerators, manufacture and sale of injection moulds, and manufacture and sale of electrical appliance components Four months ended 30 April 2008 (unaudited) Customer A Marketing and sale of air-conditioners and refrigerators Customer B Marketing and sale of air-conditioners and refrigerators Customer C Manufacture and sale of air-conditioners, manufacture and sale of refrigerators, manufacture and sale of injection moulds, and manufacture and sale of electrical appliance components Four months ended 30 April 2009 Customer A Marketing and sale of air-conditioners and refrigerators Customer B Marketing and sale of air-conditioners and refrigerators Customer C Manufacture and sale of air-conditioners, manufacture and sale of refrigerators, manufacture and sale of injection moulds, and manufacture and sale of electrical appliance components	more of the RMB’000 323,383 390,572 1,100,680

	450,691 496,274 1,604,825

	442,662 406,986 1,436,196

	206,236 213,316 797,940

	157,472 97,773 521,335

Customers under common control are considered as one customer.

— II-39 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(d) Information about geographical areas

The Target Group’s customers and non-current assets for the Relevant Periods are located in the PRC.

7. OTHER INCOME AND GAINS

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

Government grants Gain on disposal of raw materials Gain/(loss) on disposal of property, plant and equipment, net Interest income Repairing income Penalty income Research and development income Others	Year ended 31 December Four months ended 30 April 2006 2007 2008 2008 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 32,573 72,730 56,767 7,127 15,445 35,744 28,749 26,228 15,367 14,570 — 1,054 (1,758) (1,343) (138) 3,370 2,186 8,368 3,091 4,614 — 4,089 3,153 2,217 2,616 2,789 3,564 6,285 282 550 — — 18,000 — — 4,689 4,731 5,968 992 2,116 79,165 117,103 123,011 27,733 39,773	Year ended 31 December Four months ended 30 April 2006 2007 2008 2008 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 32,573 72,730 56,767 7,127 15,445 35,744 28,749 26,228 15,367 14,570 — 1,054 (1,758) (1,343) (138) 3,370 2,186 8,368 3,091 4,614 — 4,089 3,153 2,217 2,616 2,789 3,564 6,285 282 550 — — 18,000 — — 4,689 4,731 5,968 992 2,116 79,165 117,103 123,011 27,733 39,773
		39,773

8. FINANCE COSTS

Interest on: — borrowings wholly repayable within five years — discounted notes receivable Others	Year ended 31 December Four months ended 30 April 2006 2007 2008 2008 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 5,543 10,813 17,398 4,562 3,983 9,629 1,862 15,577 7,164 1,222 15,172 12,675 32,975 11,726 5,205 1,226 581 459 175 181 16,398 13,256 33,434 11,901 5,386	Year ended 31 December Four months ended 30 April 2006 2007 2008 2008 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 5,543 10,813 17,398 4,562 3,983 9,629 1,862 15,577 7,164 1,222 15,172 12,675 32,975 11,726 5,205 1,226 581 459 175 181 16,398 13,256 33,434 11,901 5,386
		5,205 181
		5,386

— II-40 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

9. PROFIT BEFORE INCOME TAX EXPENSE FROM CONTINUING OPERATIONS

Profit before income tax expense from continuing operations is stated after charging/(crediting):

Year ended 31 December Four months ended 30 April 2006 2007 2008 2008 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) Cost of inventories recognised as an expense — included in cost of sales 3,465,097 3,907,921 3,829,567 1,480,091 1,150,394 Staff costs (including directors’ and supervisors’ remuneration), including 267,400 343,996 355,633 124,203 117,926 — Basic salaries, housing and other allowances and benefits 252,465 332,950 317,031 113,167 104,266 — Defined contribution pension costs 14,935 11,046 38,602 11,036 13,660 Auditor’s remuneration 2,976 6,995 782 380 238 Depreciation of property, plant and equipment 73,642 82,736 95,045 31,211 32,589 Amortisation of payments for leasehold land held for own use under operating leases (included in administrative expenses) 2,204 2,263 2,509 781 828 Amortisation of intangible assets (included in administrative expenses) 4,357 4,863 5,646 1,808 2,066 Loss/(gain) on disposal of property, plant and equipment 1,811 (1,054) 1,758 1,343 138 Research and development costs 31,243 29,810 41,578 15,048 14,948 Impairment loss/(reversal of impairment loss) on trade and other receivables 6,356 (3,409) (277) (860) 5,288 Operating lease rental on land and buildings 8,261 14,218 14,061 4,067 4,268 Write down/(reversal of write down) of inventories to net realisable value 604 (5,111) (2,705) (1,454) (3,283)	Year ended 31 December Four months ended 30 April 2006 2007 2008 2008 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 3,465,097 3,907,921 3,829,567 1,480,091 1,150,394 267,400 343,996 355,633 124,203 117,926	Year ended 31 December Four months ended 30 April 2006 2007 2008 2008 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 3,465,097 3,907,921 3,829,567 1,480,091 1,150,394 267,400 343,996 355,633 124,203 117,926
	252,465 332,950 317,031 113,167 104,266 14,935 11,046 38,602 11,036 13,660

— II-41 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

10. DIRECTORS’ EMOLUMENTS

The emoluments paid or payable by the Target Group to the directors of the entities and businesses comprising the Target Group during the Relevant Periods are as follows:

Name of directors Year ended 31 December 2006: 于昕世于淑瑉王士磊王培松王龍友代會嬌石永昌任玉成任立人朱永飛李玎李硯泉肖建林周小天周厚健周嘉禧孫榮賜孫慧正殷敏華袁清林馬明太張士富張立軍張明張長虹張國慶張繼任陳強湯業國程開訓馮鐵青楊雲鐸董淳解思平劉文忠劉春新劉國棟劉景杭劉殿偉蘇玉濤	Fees RMB’000 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —	Basic salary, housing and other allowances and benefits RMB’000 142 — — 203 — 54 — — — — — 464 — — — — — 112 — 96 — — 427 — — — — — — — — 142 176 — 339 — — — — — 2,155	Defined contribution pension costs Discretionary bonus RMB’000 RMB’000 13 — — — — — 13 — — — 4 — — — — — — — — — — — 11 — — — — — — — — — — — — — — — 8 — — — — — 13 — — — — — — — — — — — — — — — — — 5 — 11 — — — 11 — — — — — — — — — — — 89 —	Total RMB’000 155 — — 216 — 58 — — — — — 475 — — — — — 112 — 104 — — 440 — — — — — — — — 147 187 — 350 — — — — —
				2,244

— II-42 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Name of directors Year ended 31 December 2007: 于昕世于淑瑉王士磊王培松代會嬌石永昌任玉成任立人李玎李青龍李硯泉李穗昆肖建林周小天周厚健周嘉禧孫榮賜孫慧正殷敏華袁清林馬明太張士富張立軍張明張長虹張國慶張繼任陳強湯業國程開訓馮鐵青黃國強楊雲鋒楊雲鐸董淳解思平劉文忠劉春新劉國棟劉景杭劉殿偉蘇玉濤	Fees RMB’000 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —	Basic salary, housing and other allowances and benefits RMB’000 318 — — 503 178 — — — — 277 271 — — — — — — — — 64 102 — 204 — — — 15 — — — — — — — — — — — — — — 30 1,962	Defined contribution pension costs Discretionary bonus RMB’000 RMB’000 14 — — — — — 14 — 19 — — — — — 2 — — — 20 — 36 — — — — — — — — — — — — — — — — — 70 — — — — — 12 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 4 — 191 —	Total RMB’000 332 — — 517 197 — — 2 — 297 307 — — — — — — — — 134 102 — 216 — — — 15 — — — — — — — — — — — — — — 34
				2,153

— II-43 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Name of directors Year ended 31 December 2008: 于昕世于淑瑉王士磊王培松代會嬌石永昌任玉成任立人朱永飛李玎李青龍李硯泉肖建林周厚健周嘉禧孫榮賜孫慧正殷敏華袁清林馬明太張士富張立軍張明張長虹張國慶張繼任陳強湯業國程開訓馮鐵青楊雲鐸董淳解思平劉文忠劉春新劉國棟劉景杭劉殿偉蘇玉濤	Fees RMB’000 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —	Basic salary, housing and other allowances and benefits RMB’000 242 — — 335 90 — — — — — 231 278 — — — — — — 98 193 — 105 — — — 15 — — — 61 381 — — — — — — — — 2,029	Defined contribution pension costs Discretionary bonus RMB’000 RMB’000 16 — — — — — 16 — 3 — — — — — 5 — — — — — 21 — 6 — — — — — — — — — — — — — 5 — — — — — 17 — — — — — — — — — — — — — — — 1 — 8 — — — — — — — — — — — — — — — 3 — 101 —	Total RMB’000 258 — — 351 93 — — 5 — — 252 284 — — — — — — 103 193 — 122 — — — 15 — — — 62 389 — — — — — — — 3
				2,130

— II-44 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Name of directors Four months ended 30 April 2008 (unaudited): 于昕世王士磊王培松代會嬌石永昌任玉成任立人李玎李青龍李硯泉肖建林周小天周厚健周嘉禧孫慧正殷敏華袁清林馬明太張士富張立軍張明張長虹張國慶張繼任陳強湯業國程開訓馮鐵青楊雲鐸董淳解思平劉文忠劉春新劉國棟劉景杭劉殿偉蘇玉濤	Fees RMB’000 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —	Basic salary, housing and other allowances and benefits RMB’000 12 — 18 30 — — — — 57 156 — — — — — — — — — 60 — — — — — — — 35 — — — — — — — — — 368	Defined contribution pension costs Discretionary bonus RMB’000 RMB’000 1 — — — 1 — 3 — — — — — 2 — — — 7 — 4 — — — — — — — — — — — — — — — — — — — 9 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 2 — 29 —	Total RMB’000 13 — 19 33 — — 2 — 64 160 — — — — — — — — — 69 — — — — — — — 35 — — — — — — — — 2
				397

— II-45 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Name of directors Four months ended 30 April 2009 于昕世于淑瑉王士磊王培松王龍友代會嬌石永昌任玉成任立人李玎李青龍李硯泉肖建林周小天周厚健周嘉禧孫榮賜孫慧正殷敏華袁清林張士富張立軍張征紅張明張長虹張國慶張繼任郭慶存陳強湯業國程開訓楊雲鐸董淳解思平劉文忠劉春新劉國棟劉景杭劉殿偉劉鋒謝建農蘇玉濤	Fees RMB’000 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —	Basic salary, housing and other allowances and benefits RMB’000 48 — — 21 — 10 — — — — 45 — — — — — — — — — — — — — — — — — — — — — — — — — — — — 56 — 64 244	Defined contribution pension costs RMB’000 5 — — 5 — — — — 2 — 8 — — — — — — — — — — — — — — — — — — — — — — — — — — — — 6 — 5 31	Discretionary bonus RMB’000 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —	Total RMB’000 53 — — 26 — 10 — — 2 — 53 — — — — — — — — — — — — — — — — — — — — — — — — — — — — 62 — 69
					275

— II-46 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Discretionary bonus granted to directors are based on performance and subject to respective boards of directors’ discretion.

No directors waived or agreed to waive any emoluments during the Relevant Periods. No incentive payment for joining the Target Group or compensation for loss of office was paid or payable to any directors during the Relevant Periods.

11. INDIVIDUALS WITH HIGHEST EMOLUMENTS

The five individuals whose emoluments were the highest in the Target Group during the years ended 31 December 2006, 2007 and 2008 and for the fours months ended 30 April 2008 and 2009 included three, two, one, one and nil directors, respectively whose details have been reflected in the analysis presented in note 10.

The emoluments payable to the remaining two, three, four, four and five individuals during the years ended 31 December 2006, 2007 and 2008 and for the fours months ended 30 April 2008 and 2009 are as follows:

					Four months ended	Four months ended
	Year	ended 31 December			30	April
	2006	2007		2008	2008	2009
	RMB’000	RMB’000	RMB’000		RMB’000	RMB’000
					(unaudited)
Basic salaries, housing and other
allowances and benefits in kind	915	1,198		1,799	514	576

The remaining individuals’ emoluments were within remuneration band of less than HK$1,000,000 (equivalent to RMB876,000).

12. INCOME TAX (EXPENSE)/CREDIT

Continuing operations Income tax expense consists of: Current tax — PRC enterprise income tax (“EIT”) Deferred tax_(note 24)_ — Current year/period — Effect of change in tax rate Income tax expense/(credit) Discontinued operations Income tax expense consists of: Current tax — EIT	Year ended 31 December 2006 2007 2008 RMB’000 RMB’000 RMB’000 40,324 43,212 1,811 (167) (1,244) (8,195) — — (2,928) 40,157 41,968 (9,312) 3,428 2,645 3,122	Four months ended 30 April 2008 2009 RMB’000 RMB’000 (unaudited) 1,239 13,606 (4,652) 963 — — (3,413) 14,569 538 —	Four months ended 30 April 2008 2009 RMB’000 RMB’000 (unaudited) 1,239 13,606 (4,652) 963 — — (3,413) 14,569 538 —
			14,569

			—

— II-47 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Details of the EIT rate, after considering exemption and relief granted applicable to the entities and businesses comprising the Target Group, during the Relevant Periods are as follows:

				Four months ended	Four months ended
	Year ended 31 December			30 April
Name of entities/businesses	2006	2007	2008	2008	2009
				(unaudited)
Hisense Shandong	N/A*	33%	15%	15%	15%
Qingdao Hisense Air-conditioning
Business	33%	33%	25%	25%	25%
Hisense Zhejiang	33%	33%	25%	25%	25%
Hisense Beijing	16.5%	33%	15%	15%	15%
Hisense Nanjing	33%	0%	0%	0%	25%
Hisense Marketing Business	33%	33%	25%	25%	25%
Hisense Mould	15%	15%	15%	15%	15%
Hisense Plastic	15%	15%	25%	25%	25%
Qingdao Haiping	N/A*	33%	25%	25%	25%

Not yet incorporated in 2006.

The entities and businesses comprising the Target Group are operating in the PRC and were subject to EIT at statutory rate of 33% for 2006 and 2007, with the following exceptions:

(a) Hisense Beijing was qualified as a newly incorporated labour employment services enterprise (新辦勞動就業服務企業) in 2004 and entitled to a preferential rate of 15% for 2006.
(b) Hisense Mould and Hisense Plastic were entitled to a preferential tax rate of 15% for 2006 and 2007 as being located in high and new technology development region.
(c) Hisense Nanjing was entitled to 100% exemption from EIT as a “high technology” company 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 took effect on 1 January 2008. As a result of the new tax law, the statutory EIT rate in the PRC changed from 33% to 25% with effect from 1 January 2008. The entities and businesses comprising the Target Group were therefore subject to EIT at statutory rate of 25% for 2008 and 2009, with the following exceptions:

(a) Hisense Shandong, Hisense Beijing and Hisense Mould are entitled to a preferential tax rate of 15% as “high technology” companies for 2008 and 2009.
(b) Hisense Nanjing was entitled to 100% exemption from EIT as a “high technology” company for 2008.

— II-48 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

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

Profit before income tax expense
from continuing operations
Tax at the PRC statutory rate of
33% for 2006 and 2007, and 25%
for 2008 and 2009
Effect on opening deferred tax
balances resulting from decrease
in applicable tax rate
Effect of exemption granted and
preferential tax treatment
Tax effect of expenses not
deductible for tax purposes
Tax effect of revenue not taxable
for tax purposes
Tax effect of tax losses and
deductible temporary differences
not recognised
Utilisation of tax losses and
deductible temporary differences
previously not recognised
Income tax expense/(credit)

Year ended 31 December
Four months ended
30 April
2006
2007
2008
2008
2009
RMB’000
RMB’000
RMB’000
RMB’000
RMB’000
(unaudited)
134,510
186,546
26,958
79,245
86,419
44,389
61,560
6,739
19,811
21,605
—
—
(2,928)
(2,928)
—
(8,404)
(13,408)
(4,752)
(760)
(6,903)
22,293
20,192
10,138
95
17,841
(15,981)
(22,857)
(30,067)
(12,395)
(508)
6,479
3,864
11,655
—
—
(8,619)
(7,383)
(97)
(7,236)
(17,466)
40,157
41,968
(9,312)
(3,413)
14,569

13. DIVIDENDS

Dividend represents the dividends paid to the owners of the entities comprising the Target Group during the Relevant Periods.

The rates of dividends and the number of shares ranking for dividends are not presented as such information is not considered meaningful having regard to the purpose of this report.

14. EARNINGS PER SHARE

No earnings per share information is presented as its inclusion is not considered meaningful for the purpose of this report.

— II-49 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

15. PROPERTY, PLANT AND EQUIPMENT

Cost At 1 January 2006 Additions Transfer Disposals/written off At 31 December 2006 and 1 January 2007 Additions Transfer Disposals/written off At 31 December 2007 and 1 January 2008 Additions Transfer Disposals/written off At 31 December 2008 and 1 January 2009 Additions Transfer Disposals/written off Reclassification to assets held for sale At 30 April 2009 Accumulated depreciation At 1 January 2006 Provided for the year Eliminated on disposals/ written off At 31 December 2006 and 1 January 2007 Provided for the year Eliminated on disposals/ written off At 31 December 2007 and 1 January 2008 Provided for the year Eliminated on disposals/ written off	Buildings RMB’000 208,962 4,548 91,099 — 304,609 25 15,790 (42) 320,382 1,870 73,825 (2,385) 393,692 58 2,328 — — 396,078 22,927 7,468 — 30,395 10,015 (42) 40,368 12,352 (623)	Plant, machinery and equipment RMB’000 475,413 15,925 89,241 (8,558) 572,021 20,929 29,625 (16,185) 606,390 16,606 33,240 (65,284) 590,952 853 26,244 (3,926) (4,008) 610,115 132,550 39,430 (2,739) 169,241 46,890 (4,270) 211,861 46,149 (25,360)	Moulds RMB’000 179,527 36,816 2,532 — 218,875 46,305 2,640 — 267,820 29,055 — (27,477) 269,398 9,064 547 — (3,956) 275,053 140,876 30,981 — 171,857 29,912 — 201,769 40,434 (20,258)	Motor vehicles Construction in progress RMB’000 RMB’000 11,870 78,559 2,630 133,475 — (182,872) (1,912) (535) 12,588 28,627 1,890 85,393 — (48,055) (1,027) (516) 13,451 65,449 309 110,218 — (107,065) (1,713) (3,166) 12,047 65,436 656 9,227 — (29,119) (1,243) (9,074) (8) — 11,452 36,470 4,048 — 1,953 — (826) — 5,175 — 1,894 — (585) — 6,484 — 1,694 — (900) —	Total RMB’000 954,331 193,394 — (11,005)
					1,136,720 154,542 — (17,770)
					1,273,492 158,058 — (100,025)
					1,331,525 19,858 — (14,243) (7,972)
					1,329,168
					300,401 79,832 (3,565)
					376,668 88,711 (4,897)
					460,482 100,629 (47,141)

— II-50 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

At 31 December 2008 and 1 January 2009 Provided for the period Eliminated on disposals/ written off Reclassification to assets held for sale At 30 April 2009 Net book values At 31 December 2006 At 31 December 2007 At 31 December 2008 At 30 April 2009	Buildings RMB’000 52,097 4,467 — — 56,564 274,214 280,014 341,595 339,514	Plant, machinery and equipment RMB’000 232,650 16,332 (1,521) (1,912) 245,549 402,780 394,529 358,302 364,566	Moulds RMB’000 221,945 13,024 (547) (1,548) 232,874 47,018 66,051 47,453 42,179	Motor vehicles Construction in progress RMB’000 RMB’000 7,278 — 450 — (1,075) — (5) — 6,648 — 7,413 28,627 6,967 65,449 4,769 65,436 4,804 36,470	Total RMB’000 513,970 34,273 (3,143) (3,465)
					541,635
					760,052

					813,010

					817,555

					787,533

Certain property, plant and equipment were pledged as security for bank borrowings granted to the Target Group as indicated in note 23.

16. PAYMENTS FOR LEASEHOLD LAND HELD FOR OWN USE UNDER OPERATING LEASES

The Target Group’s payments for leasehold land held for own use under operating leases comprise:

Leasehold land in the PRC: — Medium-term lease Carrying amount at beginning of the year/period Additions Amortisation charge Carrying amount at end of the year/period	At 2006 RMB’000 100,359 At 2006 RMB’000 102,563 — (2,204) 100,359	31 December 2007 RMB’000 104,609 31 December 2007 RMB’000 100,359 6,513 (2,263) 104,609	At 30 April 2008 2009 RMB’000 RMB’000 109,162 108,402 At 30 April 2008 2009 RMB’000 RMB’000 104,609 109,162 7,062 68 (2,509) (828) 109,162 108,402	At 30 April 2008 2009 RMB’000 RMB’000 109,162 108,402 At 30 April 2008 2009 RMB’000 RMB’000 104,609 109,162 7,062 68 (2,509) (828) 109,162 108,402
				108,402

Certain payments for leasehold land held for own use under operating leases were pledged as security for bank borrowings granted to the Target Group as indicated in note 23.

— II-51 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

17. INTANGIBLE ASSETS

Cost At 1 January 2006 Additions At 31 December 2006 and 1 January 2007 Additions Disposals At 31 December 2007 and 1 January 2008 Additions At 31 December 2008 and 1 January 2009 Additions At 30 April 2009 Accumulated amortisation At 1 January 2006 Provided for the year At 31 December 2006 and 1 January 2007 Provided for the year Eliminated on disposals At 31 December 2007 and 1 January 2008 Provided for the year At 31 December 2008 and 1 January 2009 Provided for the period At 30 April 2009 Net book values At 31 December 2006 At 31 December 2007 At 31 December 2008 At 30 April 2009	Non-patent technologies RMB’000 39,141 — 39,141 — — 39,141 — 39,141 — 39,141 7,323 3,914 11,237 3,914 — 15,151 3,914 19,065 1,305 20,370 27,904 23,990 20,076 18,771	Software RMB’000 958 2,086 3,044 3,783 (152) 6,675 5,027 11,702 4 11,706 321 443 764 949 (152) 1,561 1,732 3,293 761 4,054 2,280 5,114 8,409 7,652	Total RMB’000 40,099 2,086 42,185 3,783 (152) 45,816 5,027 50,843 4 50,847 7,644 4,357 12,001 4,863 (152) 16,712 5,646 22,358 2,066 24,424 30,184 29,104 28,485 26,423

— II-52 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

18. INTERESTS IN JOINTLY CONTROLLED ENTITY

The carrying amount represents the Target Group’s share of net assets of the jointly controlled entity.

The Target Group’s 49% interests in a jointly controlled entity, Hisense Hitachi, is accounted for by equity method. The summarised financial information of the jointly controlled entity is as follows:

Non-current assets Current assets Current liabilities Net assets Income Expenses Profit before income tax expense Income tax credit/ (expense) Profit after income tax expense	At 2006 RMB’000 125,401 180,650 (217,482) 88,569 516,987 (485,174) 31,813 — 31,813	31 December 2007 RMB’000 113,770 235,578 (194,159) 155,189 707,731 (644,379) 63,352 3,268 66,620	At 30 April 2008 2009 RMB’000 RMB’000 111,638 106,711 295,562 340,110 (173,955) (205,799) 233,245 241,022 815,987 227,418 (718,590) (196,462) 97,397 30,956 (9,341) (3,180) 88,056 27,776	At 30 April 2008 2009 RMB’000 RMB’000 111,638 106,711 295,562 340,110 (173,955) (205,799) 233,245 241,022 815,987 227,418 (718,590) (196,462) 97,397 30,956 (9,341) (3,180) 88,056 27,776
				241,022

				227,418 (196,462)
				30,956 (3,180)
				27,776

19. INVENTORIES

Raw materials Work-in-progress Finished goods	At 31 December 2006 2007 RMB’000 RMB’000 46,558 54,892 16,451 8,535 370,733 479,572 433,742 542,999	At 30 April 2008 2009 RMB’000 RMB’000 33,200 60,685 31,330 27,460 318,640 532,818 383,170 620,963	At 30 April 2008 2009 RMB’000 RMB’000 33,200 60,685 31,330 27,460 318,640 532,818 383,170 620,963
			620,963

A provision of Nil, RMB511,000, RMB2,705,000 and RMB3,283,000 made in prior years against the carrying value of raw materials and finished goods were reversed for the years ended 31 December 2006, 2007 and 2008 and for the four months ended 30 April 2009 respectively. This reversal arose due to an increase in the estimated net realisable value of certain air-conditioners and refrigerators mainly as a result of change in raw material costs.

— II-53 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

20. TRADE AND OTHER RECEIVABLES

Trade receivables_(a) Notes receivable(b) Other receivables Amount due from ultimate holding company(c) Amounts due from immediate/ intermediate holding companies(d) Amounts due from fellow subsidiaries(e) Amounts due from the Kelon Group(f) Amounts due from non-controlling owners(f) Amount due from a former non-controlling owner(f) Trade receivables _Less:_Provision for impairment of trade receivables(g)_ Trade receivables, net	At 2006 RMB’000 19,031 161,604 26,279 60,619 317,676 148,069 310,411 1,866 — 1,045,555 At 2006 RMB’000 35,596 (16,565) 19,031	31 December 2007 RMB’000 137,367 112,812 46,249 4,886 294,458 161,777 214,421 6,596 — 978,566 31 December 2007 RMB’000 150,523 (13,156) 137,367	At 30 April 2008 2009 RMB’000 RMB’000 138,735 216,953 64,721 210,959 41,569 85,301 116,506 43,988 259,130 261,584 69,017 80,161 74,935 262,683 6,596 — — 6,596 771,209 1,168,225 At 30 April 2008 2009 RMB’000 RMB’000 151,663 235,169 (12,928) (18,216) 138,735 216,953

— II-54 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(a) Included in trade receivables are trade debtors (net of impairment losses) with the following ageing analysis as of the end of each of the following Relevant Periods:

Current and less than 3 months past due_(note (i)) Three to six months past due Six months to one year past due One to two years past due Two to three years past due More than three years past due Total(note (ii))_	At 31 December 2006 2007 RMB’000 RMB’000 6,678 112,218 8,470 9,707 3,883 10,613 — 4,270 — — — 559 19,031 137,367	At 30 April 2008 2009 RMB’000 RMB’000 126,089 193,497 10,003 15,944 2,643 7,512 — — — — — — 138,735 216,953	At 30 April 2008 2009 RMB’000 RMB’000 126,089 193,497 10,003 15,944 2,643 7,512 — — — — — — 138,735 216,953
			216,953

Normal credit terms of within 3 months is granted to customers. Sales are usually settled by cash on delivery for small and new customers. Trade receivables are noninterest bearing.

(i) The balances that were neither past due nor impaired relate to a wide range of customers for whom there was no recent history of default.
(ii) There were no trade receivables that were past due but not impaired.
(b) Included in notes receivable were amounts of RMB16,506,000, RMB14,128,000, RMB3,000,000 and RMB23,034,000, which were discounted to banks with recourse as at 31 December 2006, 2007 and 2008 and 30 April 2009 respectively. The balances have been accounted for as short-term bank borrowings. There were also amounts of RMB33,560,000 and RMB81,917,000 which were discounted to a fellow subsidiary with recourse as at 31 December 2008 and 30 April 2009 respectively. The balances have been accounted for as amounts due to fellow subsidiaries.
(c) The amounts included interest receivable and cash deposits placed with the clearing centre organised and managed by the ultimate holding company. The amounts were unsecured, interest-free and repayable on demand, except for the amounts of RMB49,937,000, RMB4,725,000, RMB116,314,000 and RMB40,536,000 as at 31 December 2006, 2007 and 2008 and 30 April 2009 respectively, which born interest rate at approximately 1% per annum.
(d) The amounts were unsecured, interest-free and repayable on demand, except for the amounts of RMB259,130,000 and RMB261,584,000 as at 31 December 2008 and 30 April 2009 respectively, which were interest receivable and advance to the intermediate holding company and born interest rate at 3% per annum.
(e) The amounts were unsecured, interest-free and repayable on demand, except for the amounts of RMB20,750,000 as at 31 December 2008, which were interest receivable and cash deposits placed with a fellow subsidiary and born interest rate at approximately 1% per annum.
(f) The amounts were unsecured, interest-free and repayable on demand.

— II-55 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(g) The below table reconciles the impairment loss on trade receivables for the Relevant Periods:

Balance at the beginning of the year/period Additions/(recovery of impairment loss previously recognised) during the year/ period, net Balance at the end of the year/ period	At 2006 RMB’000 10,209 6,356 16,565	31 December 2007 RMB’000 16,565 (3,409) 13,156	At 30 April 2008 2009 RMB’000 RMB’000 13,156 12,928 (228) 5,288 12,928 18,216	At 30 April 2008 2009 RMB’000 RMB’000 13,156 12,928 (228) 5,288 12,928 18,216
				18,216

The Target Group recognised impairment loss on individual assessment based on the accounting policy stated in note 3(k)(ii).

21. TRADE AND OTHER PAYABLES

Trade payables_(a) Notes payable Other payables and accruals Amount due to ultimate holding company(b) Amount due to immediate/ intermediate holding company(b) Amounts due to fellow subsidiaries(c) Amounts due to related companies of jointly controlled entity(b) Amounts due to the Kelon Group(b) Amount due to a related company of the Kelon Group(b) Amounts due to non-controlling owners(b) Amounts due to the related parties of non-controlling owners(b)_	At 31 December 2006 2007 RMB’000 RMB’000 522,725 602,215 218,165 218,400 299,963 244,709 267,277 142,314 13,052 112,979 11,999 24,694 15,982 5,798 640 28,573 — 6,828 — 11,939 — 6,552 1,349,803 1,405,001	At 30 April 2008 2009 RMB’000 RMB’000 323,126 863,545 252,840 — 213,375 239,647 250 102,069 18,098 13,633 191,783 248,633 2,080 26,988 27,667 84,098 18,498 26,255 7,429 7,429 8,849 32,066 1,063,995 1,644,363	At 30 April 2008 2009 RMB’000 RMB’000 323,126 863,545 252,840 — 213,375 239,647 250 102,069 18,098 13,633 191,783 248,633 2,080 26,988 27,667 84,098 18,498 26,255 7,429 7,429 8,849 32,066 1,063,995 1,644,363
			1,644,363

— II-56 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(a) The aging analysis of trade payables is as follows:

Within one year One to two years Two to three years Over three years	At 31 December 2006 2007 RMB’000 RMB’000 515,159 592,422 6,973 9,793 97 — 496 — 522,725 602,215	At 30 April 2008 2009 RMB’000 RMB’000 317,000 857,625 3,670 3,416 1,783 1,800 673 704 323,126 863,545	At 30 April 2008 2009 RMB’000 RMB’000 317,000 857,625 3,670 3,416 1,783 1,800 673 704 323,126 863,545
			863,545

Normal credit terms ranging from 30 to 120 days was granted to the Target Group. Trade payables within normal credit period are non-interest bearing.

(b) The amounts were unsecured, interest-free and repayable on demand.
(c) The amounts were unsecured, interest-free and repayable on demand, except for the amounts of RMB940,000, Nil, RMB115,000,000 and RMB110,000,000 as at 31 December 2006, 2007 and 2008 and 30 April 2009 respectively, which were interest payable and loans placed with a fellow subsidiary and born interest rate at approximately 6% per annum. The amounts also included RMB33,560,000 and RMB81,917,000 as at 31 December 2008 and 30 April 2009 respectively with notes receivable discounted to a fellow subsidiary with recourse which born interest at 2% to 6% per annum.

22. PROVISIONS

PROVISIONS
At 1 January 2006 Additional provision in the year Utilisation of provision At 31 December 2006 and 1 January 2007 Additional provision in the year Utilisation of provision At 31 December 2007 and 1 January 2008 Additional provision in the year Utilisation of provision At 31 December 2008 and 1 January 2009 Additional provision in the period Utilisation of provision At 30 April 2009	Warranty provision RMB’000 74,479 35,052 (48,601)
	60,930 55,529 (33,202)
	83,257 61,065 (59,885)
	84,437 26,141 (21,879)
	88,699

The Target Group provides free repairing services on its products and free replacement of the major components of its products for one or three years after date of sale. The warranty provision is estimated by management of the Target Group based on past experience. The assumptions used to estimate the warranty provision are reviewed periodically in light of actual results.

— II-57 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

23. BANK BORROWINGS

		31 December			At 30 April
	2006	2007		2008	2009
	RMB’000	RMB’000	RMB’000		RMB’000
Secured_(note (a), (b))_	76,000	82,000		62,000	18,000
Unsecured_(note (a), (c))_	16,506	14,128		3,000	23,034
	92,506	96,128		65,000	41,034

Total current and non-current bank borrowings were payable as follows:

On demand or within one year More than one year but not exceeding two years More than two years but not exceeding five years Amount due within one year included in current liabilities	At 2006 RMB’000 60,506 10,000 22,000 92,506 (60,506) 32,000	31 December 2007 RMB’000 74,128 12,000 10,000 96,128 (74,128) 22,000	At 30 April 2008 2009 RMB’000 RMB’000 55,000 41,034 10,000 — — — 65,000 41,034 (55,000) (41,034) 10,000 —	At 30 April 2008 2009 RMB’000 RMB’000 55,000 41,034 10,000 — — — 65,000 41,034 (55,000) (41,034) 10,000 —
				41,034 (41,034)
				—

(a) During the Relevant Periods, bank borrowings were charged at the following interest rates per annum:

Bank loans Discounted bills	2006 4.8% to 6.3% 2% to 6%	At 31 December 2007 4.8% to 7.3% 2% to 6%	2008 4.8% to 7.7% 2% to 6%	At 30 April 2009 6% to 7.7%

				2% to 6%

(b) At the end of each of the following Relevant Periods, the Target Group pledged the following assets to banks for bank loans granted to the Target Group:

Property, plant and equipment Payments for leasehold land held for own use under operating leases	At 2006 RMB’000 75,292 73,075 148,367	31 December 2007 RMB’000 71,469 86,709 158,178	At 30 April 2008 2009 RMB’000 RMB’000 82,479 83,302 69,864 69,329 152,343 152,631	At 30 April 2008 2009 RMB’000 RMB’000 82,479 83,302 69,864 69,329 152,343 152,631
				152,631

— II-58 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(c) Included in bank borrowings were amounts of RMB16,506,000, RMB14,128,000, RMB3,000,000 and RMB23,034,000 as at 31 December 2006, 2007 and 2008 and 30 April 2009 respectively with notes receivable discounted to banks with recourse.

24. DEFERRED TAX

Details of the deferred tax assets and liabilities recognised and movements during the year/ period are as follows:

Revaluation of prepaid land lease Deferred expenditure Impairment of assets RMB’000 RMB’000 RMB’000 At 1 January 2006 — — — Credit to profit or loss for the year — — 167 At 31 December 2006 and 1 January 2007 — — 167 Credit/(charge) to profit or loss for the year 4,668 764 1,180 At 31 December 2007 and 1 January 2008 4,668 764 1,347 Credit/(charge) to profit or loss for the year 1,050 (467) (1,061) Effect of change in tax rate — — — At 31 December 2008 and 1 January 2009 5,718 297 286 (Charge)/credit to profit or loss for the period (37) 5,246 61 At 30 April 2009 5,681 5,543 347	Tax losses RMB’000 — — — — — 6,233 — 6,233 (6,233) —	Deferred income RMB’000 — — — (5,368) (5,368) 2,440 2,928 — — —	Total RMB’000 — 167
			167 1,244
			1,411 8,195 2,928
			12,534 (963)
			11,571

For the purpose of the presentation of the combined statement of financial position, certain deferred tax assets and liabilities have been offset. The following is an analysis of the deferred tax balances for financial reporting purposes:

Deferred tax assets Deferred tax liabilities	At 2006 RMB’000 167 — 167	31 December 2007 RMB’000 6,779 (5,368) 1,411	At 30 April 2008 2009 RMB’000 RMB’000 12,534 11,571 — — 12,534 11,571	At 30 April 2008 2009 RMB’000 RMB’000 12,534 11,571 — — 12,534 11,571
				11,571

— II-59 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Deferred tax assets that have not been recognised are as follows:

		31 December		At 30 April
	2006	2007	2008	2009
	RMB’000	RMB’000	RMB’000	RMB’000
Unused tax losses	33,027	44,676	91,161	82,405

At the end of each of the Relevant Periods, 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.

No deferred tax asset has been recognised in respect of the unused tax losses due to the unpredictability of future profit streams.

The unused tax losses carried forward not recognised in the Financial Information due to unpredictability of future profit streams are as follows:

Tax losses will expire in 2008 Tax losses will expire in 2009 Tax losses will expire in 2010 Tax losses will expire in 2011 Tax losses will expire in 2012 Tax losses will expire in 2013 Unused tax losses	At 31 December 2006 2007 RMB’000 RMB’000 133 133 2,916 2,916 5,231 5,231 24,747 24,747 — 11,649 — — 33,027 44,676	At 30 April 2008 2009 RMB’000 RMB’000 — — 2,916 — 5,231 — 24,747 24,138 11,649 11,649 46,618 46,618 91,161 82,405	At 30 April 2008 2009 RMB’000 RMB’000 — — 2,916 — 5,231 — 24,747 24,138 11,649 11,649 46,618 46,618 91,161 82,405
			82,405

The PRC tax losses can only be carried forward for a maximum period of five years.

The deductible temporary differences can be carried forward indefinitely. No deferred tax asset has been recognised in relation to such deductible temporary difference to the extent that it is not probable that taxable profit will be available against which the deductible temporary differences can be utilised.

— II-60 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

25. ASSETS AND LIABILITIES OF A DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE

As described in note 1, in March 2009, the Target Group entered into a sale and purchase agreement to dispose its 95% equity interests in Hisense Plastic, which in turn owns 100% equity interests of Qingdao Haiping, to a fellow subsidiary under the 2009 Reorganisation. The transaction has been completed in May 2009. The Target Group recognised a gain of RMB900,000 upon the completion of the transaction. The following major classes of assets and liabilities as at 30 April 2009 relating to this transaction have been classified as held for sale in the combined statements of financial position.

Property, plant and equipment Trade and other receivables Amount due from ultimate holding company Amount due from fellow subsidiary Tax recoverable Cash and cash equivalents Trade and other payables Amount due to ultimate holding company Amount due to intermediate holding company	RMB’000 4,507 1,640 1,316 4 77 131
	7,675

	1,913 146 3,415
	5,474

There is no impairment loss on the measurement of net assets of Hisense Plastic and Qingdao Haiping to fair value less costs to sell. The division constitutes a discontinued operation as it represented a major line of business during the Relevant Periods.

— II-61 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

The revenue, results and cash flows of Hisense Plastic for the Relevant Periods, after consolidating the financial information of Qingdao Haiping, are as follows:

Turnover Cost of sales Gross profit Other income and gains Distribution costs Administrative expenses Profit/(loss) from operations Finance costs Profit/(loss) before income tax expense Income tax expense Profit/(loss) for the year/period from discontinued operations Operating cash flows Investing cash flows Financing cash flows Total cash flows	Year ended 31 December Four months ended 30 April 2006 2007 2008 2008 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 514,358 459,122 238,172 172,746 — (478,670) (432,527) (221,528) (164,367) — 35,688 26,595 16,644 8,379 — 5,167 1,741 5,698 28 129 (5,967) (4,271) (2,379) (1,467) — (8,778) (1,435) (2,337) (1,742) (1,748) 26,110 22,630 17,626 5,198 (1,619) (1,343) — (184) (157) — 24,767 22,630 17,442 5,041 (1,619) (3,428) (2,645) (3,122) (538) — 21,339 19,985 14,320 4,503 (1,619) 36,207 4,947 15,395 4,228 (120) (12,664) (5,241) 28,523 (2,814) — (24,387) — (43,919) — — (844) (294) (1) 1,414 (120)	Year ended 31 December Four months ended 30 April 2006 2007 2008 2008 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 514,358 459,122 238,172 172,746 — (478,670) (432,527) (221,528) (164,367) — 35,688 26,595 16,644 8,379 — 5,167 1,741 5,698 28 129 (5,967) (4,271) (2,379) (1,467) — (8,778) (1,435) (2,337) (1,742) (1,748) 26,110 22,630 17,626 5,198 (1,619) (1,343) — (184) (157) — 24,767 22,630 17,442 5,041 (1,619) (3,428) (2,645) (3,122) (538) — 21,339 19,985 14,320 4,503 (1,619) 36,207 4,947 15,395 4,228 (120) (12,664) (5,241) 28,523 (2,814) — (24,387) — (43,919) — — (844) (294) (1) 1,414 (120)
		— 129 — (1,748)
		(1,619) —
		(1,619) —
		(1,619)

		(120) — —
		(120)

26. COMBINED CAPITAL

(a) The Target Group’s combined capital is as follows:

Hisense Shandong_(i) Qingdao Hisense Air- conditioning Business(ii) Hisense Zhejiang Hisense Beijing Hisense Marketing Business(iii)_ Hisense Mould	At 2006 RMB’000 — 232,950 56,100 47,141 30,000 21,754 387,945	31 December 2007 RMB’000 500,000 — 56,100 47,141 30,000 21,754 654,995	At 30 April 2008 2009 RMB’000 RMB’000 500,000 500,000 — — 56,100 56,100 47,141 47,141 30,000 30,000 21,754 21,754 654,995 654,995	At 30 April 2008 2009 RMB’000 RMB’000 500,000 500,000 — — 56,100 56,100 47,141 47,141 30,000 30,000 21,754 21,754 654,995 654,995
				654,995

— II-62 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(i) As at 31 December 2007, the combined capital included the paid-up registered capital of Hisense Shandong pursuant to the transfer of all assets and liabilities of Qingdao Hisense Air-conditioning Business to Hisense Shandong during 2007 under the 2007 Reorganisation as stated in note 1.
(ii) As at 31 December 2006, the combined capital included the capital contributed to the Qingdao Hisense Air-conditioning Business. Since at 1 January 2006, substantially all of the issued and fully paid-up registered capital of Qingdao Hisense was utilised for the operations of the Qingdao Hisense Air-conditioning Business, the initial capital contributed at 1 January 2006 represented the issued and fully paid-up registered capital of Qingdao Hisense as at 1 January 2006.
(iii) As at 31 December 2006, the combined capital included the capital contributed to the Hisense Marketing Business. Since at the beginning of the Relevant Periods, substantially all of the issued and fully paid-up registered capital of Hisense Marketing was utilised for the operations of the Hisense Marketing Business, the initial capital contributed to the Hisense Marketing Business at 1 January 2006 represented the issued and fully paid-up registered capital Hisense Marketing as at 1 January 2006.

(b) Capital management

The management of the entities and businesses comprising the Target Group manages the respective capital to ensure that the respective entities and businesses will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance.

The capital structure of the Target Group consists of debt, which includes bank borrowings as disclosed in note 23, cash and cash equivalents, amounts due to ultimate holding company and a fellow subsidiary as disclosed in note 21 and equity attributable to the owners of the Target Group as disclosed in the combined statement of changes in equity.

The management reviews the capital structure periodically. As a part of this review, the management considers the cost of capital and the risks associated with each class of capital. The management will balance the overall capital structure through the payment of dividends, increase in registered capital as well as increase in bank borrowings and borrowings from ultimate holding company and a fellow subsidiary. The overall strategy of management remains unchanged throughout the Relevant Periods.

— II-63 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

27. LEASES

The Target Group leases certain of its leasehold land and buildings under operating lease arrangements with lease terms ranging from one to five years.

The total future minimum lease payments under non-cancellable operating leases are as follows:

Not later than one year Later than one year and not later than five years Later than five years	At 31 December 2006 2007 RMB’000 RMB’000 6,821 8,637 6,796 17,070 1,127 135 14,744 25,842	At 30 April 2008 2009 RMB’000 RMB’000 12,590 12,185 10,431 7,145 — — 23,021 19,330	At 30 April 2008 2009 RMB’000 RMB’000 12,590 12,185 10,431 7,145 — — 23,021 19,330
			19,330

28. RELATED PARTY TRANSACTIONS

(a) Relationship with related parties

Hisense Group Co. itself is a state-owned enterprise and is controlled by the PRC Government. As the Target Group is ultimately controlled by Hisense Group Co., it is then considered to be controlled by the PRC Government, which controls a substantial number of entities in the PRC. In accordance with IAS 24 “Related Party Disclosures”, state-owned enterprises and their subsidiaries, other than Hisense Group Co. and its subsidiaries, directly or indirectly controlled by the PRC Government are also deemed as related parties of the Target Group. For the purpose of related party transactions disclosure, the Target Group has in place procedures to assist the identification of the immediate ownership structure of its customers and suppliers as to whether they are state-owned enterprises. Many state-owned enterprises have multi-layered corporate structure and the ownership structures change over time as a result of transfers and privatisation programs. Nevertheless, the management believes that meaningful information relative to related-party transactions has been adequately disclosed.

The transactions with the related parties are entered into by the Target Group at terms mutually agreed by both parties.

— II-64 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(b) Transactions with related parties

Transactions with ultimate holding company Advertising expenses paid or payable Patent rights paid or payable Research and development service fee received or receivable Transactions with immediate/ intermediate holding company Sale of finished goods Patent rights paid or payable Dividend paid or payable Brand usage fee paid or payable Transactions with fellow subsidiaries Sale of goods/raw materials Sale of plant and equipment Purchase of goods/raw materials Purchase of plant and equipment Purchase of software Repairing expenses paid or payable Software development expenses paid or payable Information technology support expenses paid or payable Rent and building management fee paid or payable Equipment rental expenses paid or payable	Year ended 31 December 2006 2007 2008 RMB’000 RMB’000 RMB’000 1,092 1,116 566 1,400 1,680 790 — — 18,000 1,355 15,466 3,431 4,900 12,800 1,060 1,219 14,842 2,196 7,740 — — 1,333,781 1,334,478 614,793 22,787 5,030 38,559 115,699 113,815 87,537 — 25 5,039 11,000 — — — 5,377 11,594 — 3,405 — — 1,623 653 9,865 10,540 5,357 6,766 6,759 1,690	Four months ended 30 April 2008 2009 RMB’000 RMB’000 (unaudited) — — — 634 — — 529 377 — — — — — — 370,130 150,995 4,775 6 70,863 41,660 2,149 — — — 1,651 6,836 — — 424 351 7.552 370 1,690 —	Four months ended 30 April 2008 2009 RMB’000 RMB’000 (unaudited) — — — 634 — — 529 377 — — — — — — 370,130 150,995 4,775 6 70,863 41,660 2,149 — — — 1,651 6,836 — — 424 351 7.552 370 1,690 —

			377 — — —

			150,995 6 41,660 — — 6,836 — 351 370 —

— II-65 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Transactions with the Kelon Group Sale of goods/raw materials Purchase of goods/raw materials Purchase of plant and equipment Sale of plant and equipment Transactions with the related parties of the Kelon Group Purchase of goods/raw materials Transactions with the non-controlling owners of the Target Group Sale of goods/raw materials Rental expenses paid or payable Utilities expenses paid or payable Dividend paid or payable Rental expenses of motor vehicles Transactions with jointly controlled entity Sale of goods/raw materials Purchase of goods/raw materials Transactions with the related parties of jointly controlled entity Purchase of goods/raw materials Transactions with the related parties of the non-controlling owners of the Target Group Purchase of goods/raw materials	Year ended 31 December 2006 2007 2008 RMB’000 RMB’000 RMB’000 77,222 566,016 941,255 7,254 294,556 320,328 300 3,087 7,222 — 57 — — 75,745 114,065 103 1,430 3,556 6,465 6,465 6,465 — 8,474 9,040 — 12,143 — 8,485 928 686 442 165 7,887 311 34 1,669 — — 42,816 — 37,226 84,621	Four months ended 30 April 2008 2009 RMB’000 RMB’000 (unaudited) 436,212 355,767 89,559 187,965 2,393 1,240 — 9,004 71,363 40,938 1,560 — 1,616 2,155 3,412 4,279 — — 365 — 1,220 2,275 163 507 31,821 26,458 40,256 45,593	Four months ended 30 April 2008 2009 RMB’000 RMB’000 (unaudited) 436,212 355,767 89,559 187,965 2,393 1,240 — 9,004 71,363 40,938 1,560 — 1,616 2,155 3,412 4,279 — — 365 — 1,220 2,275 163 507 31,821 26,458 40,256 45,593

			40,938

			— 2,155 4,279 — —

			2,275 507

			26,458

			45,593

— II-66 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

(c) Balances with related parties

Balances with related parties at the end of each of the Relevant Periods are stated in notes 20, 21 and 25.

(d) Others

(i) On 27 February 2007, Hisense Group Co. transferred a piece of land to Qingdao Hisense at a consideration of RMB1,898,000.
(ii) Please also refer to note 29(b) and (c) for other related party transactions.
(iii) Remuneration of key management personnel of the Target Group is as follows:

Short-term employees benefits Post-employment benefits	Year ended 31 December Four months ended 30 April 2006 2007 2008 2008 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 3,584 5,244 5,300 1,732 1,246 148 372 398 136 134 3,732 5,616 5,698 1,868 1,380	Year ended 31 December Four months ended 30 April 2006 2007 2008 2008 2009 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 3,584 5,244 5,300 1,732 1,246 148 372 398 136 134 3,732 5,616 5,698 1,868 1,380
		1,380

29. NOTES SUPPORTING COMBINED STATEMENTS OF CASH FLOWS

(a) Current tax liabilities of the Qingdao Hisense Air-conditioning Business totalled to RMB16,129,000 were taken up by Qingdao Hisense with nil consideration. This was accounted for as deemed contribution from the owner of the Target Group as shown in the combined statements of changes in equity.
(b) On 31 August 2007, Hisense Plastic disposed of available-for-sale financial assets at a consideration of RMB9,078,000. The consideration included RMB329,000 in cash and plant and equipment at an aggregate fair value of RMB8,749,000.
(c) During the year ended 31 December 2008, Hisense Plastic transferred plant and equipment at a consideration of RMB34,866,000, which is the carrying value of the plant and equipment at 31 December 2008, to Hisense Electric, a fellow subsidiary of the Target Group. The consideration was settled through current account with the fellow subsidiary.
(d) The Target Group’s share of interests in the jointly controlled entity was reduced by the dividend the latter declared at amounts of RMB4,900,000 and RMB9,800,000 to the ultimate holding company of the Target Group for the year/period ended 31 December 2008 and 30 April 2009 respectively.

— II-67 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

30. CAPITAL COMMITMENTS

		At 31 December		At 30 April
	2006	2007	2008	2009
	RMB’000	RMB’000	RMB’000	RMB’000
Contracted for but not provided in the
Financial Information in respect of
acquisition of property, plant and
equipment	36,541	12,343	4,099	3,396
Contracted for but not provided in the
Financial Information in respect of
payments for leasehold land held for
own use under operating leases	3,063	—	6,125	3,692

The Target Group’s share of capital commitments on acquisition of property, plant and equipment of its jointly controlled entity amounted to RMB1,288,000, RMB1,414,000, RMB3,351,000 and RMB2,716,000 as at 31 December 2006, 2007 and 2008 and 30 April 2009 respectively.

31. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF UNCERTAINTY

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Target Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal to the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Impairment

In considering the impairment losses that may be required for certain of the Target Group’s assets which include property, plant and equipment, construction in progress, payments for leasehold land held for own use under operating leases and intangible assets, recoverable amounts of these assets need to be determined. The recoverable amount is the greater of the fair value less costs to sell and the value in use. It is difficult to precisely estimate fair value less costs to sell because quoted market prices for these assets may not be readily available. In determining the value in use, expected cash flows generated by the assets are discounted to their present value, which require significant judgment relating to items such as level of sales, selling price and amount of operating costs. The Target Group uses all readily available information in determining amounts that are reasonable approximations of recoverable amounts, including estimates based on reasonable and supportable assumptions and projections of items such as sales volume, selling price and amount of operating costs.

In considering the impairment losses that may be required for current receivables, future cash flows need to be determined. One of the key assumptions that has to be applied is the ability of the debtors to settle the receivables. Although the Target Group has used all available information to make this estimation, inherent uncertainty exists and actual may be different from the amount estimated.

— II-68 —

ACCOUNTANTS’ REPORT OF THE TARGET GROUP

APPENDIX II

Depreciation and amortisation

Property, plant and equipment and intangible assets are depreciated/amortised on a straight-line basis over the estimated useful lives of the assets, after taking into account of their estimated residual values. The Target Group reviews the estimated useful lives of the assets regularly. The useful lives are based on the Target Group’s historical experience with similar assets and taking into account anticipated technological changes. The depreciation and amortisation expense for future periods is adjusted if there are significant changes from previous estimates.

Write-down of inventories to net realisable value

The management of the Target Group reviews the inventory balances and write down obsolete and slow-moving inventory items identified that are no longer suitable for use or have deteriorated in value to net realisable value at the end of each of the Relevant Periods. The management estimates the net realisable value of such inventory items based primarily on the latest invoice prices and current market conditions. The Target Group carries out an inventory review on a product-by-product basis at the end of each of the Relevant Periods and makes allowance for obsolete and slow moving inventory items.

Warranty provision

As explained in note 3(v), the Target Group makes provisions under the warranties it gives on sale of its electrical products taking into account the Target Group’s recent claim experience. As the Target Group is continuously upgrading its product designs and launching new models, it is possible that recent claim experience is not indicative of the future claims that it will receive in respect of past sales. Any increase or decrease in the provision would affect profit or loss in future years.

Income taxes

Determining income tax provisions involves judgment on the future tax treatment of certain transactions. The management of Qingdao Hisense carefully evaluates the tax implications of transactions and tax provisions are set up accordingly. The tax treatment of such transactions is reconsidered periodically taking into account all changes in tax legislation. Deferred tax assets are recognised for unused tax losses and deductible temporary differences. As those deferred tax assets were recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses and credits can be utilised, management’s judgment is required to assess the probability of future taxable profits. Management’s assessment is constantly reviewed and additional deferred tax assets will recognise if it becomes probable that future taxable profits will allow the deferred tax assets to be recovered.

32. EVENTS AFTER THE END OF THE RELEVANT PERIODS

In March 2009, the Target Group entered into a sale and purchase agreement to dispose Hisense Plastic to a fellow subsidiary under the 2009 Reorganisation. The completion of the transaction is subject to certain preconditions as stipulated in the sale and purchase agreement. The transaction was subsequently completed in May 2009.

In May 2009, the Target Group entered into an agreement with the local government of Zhejiang, the PRC to dispose of a land use right to the local government at a consideration of RMB23,133,000. The land use right was included in payments for leasehold land held for own use under operating leases at net carrying value of RMB2,861,000 as at 30 April 2009. The transaction was completed in June 2009.

— II-69 —

APPENDIX II ACCOUNTANTS’ REPORT OF THE TARGET GROUP

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Target Group, the entities and businesses comprising the Target Group have been prepared in respect of any period subsequent to 30 April 2009.

BDO Limited

Certified Public Accountants

Alfred Lee

Practising Certificate Number P04960

Hong Kong, 31 July 2009

— II-70 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX III

MANAGEMENT DISCUSSION AND ANALYSIS

Investors should read the following discussion and analysis in conjunction with the audited financial statements of the Target Group, including notes thereto, as set forth in Appendix II named “Accountants’ report of the Target Group” to this circular. The financial statements have been prepared in accordance with IFRS.

Overview

The Target Group is principally engaged in manufacture and sales of White Goods including air-conditioners and refrigerators as well as moulds in the PRC. The operation of the Target Group is divided into four major segments: 1) air-conditioner manufacturing; 2) refrigerator manufacturing; 3) mould manufacturing; and 4) White Goods sales and marketing. As at the Latest Practicable Date, the annual production capacity of the Target Group was approximately 3 million sets of air-conditioners and approximately 1.8 million refrigerators.

Air-conditioner manufacturing business of the Target Group is primarily undertaken by Hisense Shandong, Hisense Zhejiang and Hisense Hitachi. Besides manufacturing, Hisense Hitachi is also engaged in research and development, manufacture of commercial air-conditioning systems and provision of after-sale services. However, as Hisense Hitachi is a jointly controlled entity, its financial position and results have been accounted for in the combined financial information of the Target Group under the equity method of accounting throughout the period.

Refrigerator manufacturing business of the Target Group is carried out through Hisense Beijing and Hisense Nanjing. Besides manufacturing, Hisense Beijing is also engaged in provision of raw materials and components, equipment, measuring meters, and the export of products and import of technology.

Mould manufacturing business of the Target Group is conducted through Hisense Mould, which is primarily engaged in design of industrial products, as well as the design, processing and manufacture of plastic injection moulds for household appliances in the PRC.

Hisense Marketing is mainly responsible for the sales and marketing of White Goods produced by Hisense Shandong, Hisense Zhejiang, Hisense Beijing and Hisense Nanjing.

— III-1 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX III

By an agreement dated 31 March 2009, Hisense Mould transferred its 95% equity interest in 青島海信塑料製品有限公司 (Qingdao Hisense Plastic Products Limited), together with the 100% equity interest in 青島海平電器配件有限公司 (Qingdao Haiping Electric Parts Limited), to Hisense Optical at a consideration of RMB1,879,456.53. The relevant registration procedures at the relevant PRC authorities have not yet been completed as at 30 April 2009. As such, the financial positions and results of 青島海信塑料製品有限公司 (Qingdao Hisense Plastic Products Limited) and 青島海平電器配件有限公司 (Qingdao Haiping Electric Parts Limited) have been presented as discontinued operations in the combined financial information of the Target Group for the three years ended 31 December 2008 and the four months ended 30 April 2009.

Performance analysis for year ended 31 December 2008 compared to year ended 31 December 2007 and year ended 31 December 2007 compared to year ended 31 December 2006

The Target Group’s 2007 audited turnover amounted to approximately RMB5,088.7 million, representing an increase of approximately 11.3% over 2006 audited turnover of RMB4,572.0 million. The increase in audited turnover in 2007 was mainly due to the introduction of Multi-DC Inverter air-conditioners and Vector Inverter refrigerators by the Target Group in 2006 and the first half of 2007, respectively.

The Target Group’s 2008 audited turnover amounted to approximately RMB4,795.4 million, representing a decrease of approximately 5.8% as compared with 2007, which was mainly due to the decrease in demand for White Goods as a result of the breakout of global financial turmoil in the second half of 2008.

The air-conditioner business accounted for approximately 57.9%, approximately 58.1% and approximately 51.9% of the total audited turnover of the Target Group in 2006, 2007 and 2008 respectively. Audited turnover from the air-conditioner business increased from approximately RMB2,648.0 million in 2006 to approximately RMB2,957.6 million in 2007 and decreased to approximately RMB2,490.2 million in 2008, representing an increase of approximately 11.7% in 2007 and a decrease of approximately 15.8% in 2008. The decrease in segment contribution from air-conditioner business in 2008 was mainly due to the intensive competition in the air-conditioner market, which drove down prices and squeezed profit margins. In addition, as the demands for air-conditioners are sensitively affected by macroeconomic factors, the economic slowdown in the second half of 2008 had adversely affected the sales of air conditioners.

— III-2 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX III

The refrigerator manufacturing business contributed approximately 37.1%, approximately 37.2% and approximately 42.8% of the total audited turnover of the Target Group in 2006, 2007 and 2008 respectively. Audited turnover from the sale of refrigerator business increased from approximately RMB1,696.1 million in 2006 to approximately RMB1,895.2 million in 2007 and further increased to approximately RMB2,052.3 million in 2008, representing an increase of approximately 11.7% in 2007 and a further increase of approximately 8.3% in 2008. The refrigerator business has gained increasing turnover contribution of the Target Group primarily because of the increasing popularity of the newly introduced Vector Inverter refrigerators of the Target Group in the PRC.

The mould manufacturing business contributed approximately 2.7%, approximately 2.6% and approximately 2.6% of the total audited turnover of the Target Group in 2006, 2007 and 2008 respectively. Audited turnover from the mould manufacturing business increased from approximately RMB122.8 million in 2006 to approximately RMB133.7 million in 2007 and decreased to approximately RMB125.2 million in 2008, representing an increase of approximately 8.9% in 2007 and a decrease of approximately 6.4% in 2008. The turnover contribution from mould manufacturing business was relatively insignificant and stable over the years.

The sales of other White Goods products was comparatively insignificant and only contributed approximately 2.3%, 2.0% and 2.7% of the total audited turnover of the Target Group in 2006, 2007 and 2008 respectively. Audited turnover from the sales of other White Goods products has decreased from approximately RMB105.1 million in 2006 to approximately RMB102.3 million in 2007 and increased to approximately RMB127.8 million in 2008, representing a decrease of approximately 2.7% in 2007 and an increase of approximately 24.9% in 2008. The increase in segment contribution from other White Goods products in 2008 was mainly due to a successful startup of washing machine business by the Target Group in mid-2007.

Audited gross profit of the Target Group amounted to approximately RMB1,106.9 million, RMB1,180.8 million and RMB965.9 million in 2006, 2007 and 2008 respectively, representing gross profit margin of approximately 24.2%, 23.2% and 20.1% respectively. The substantial decline in gross profit margin in 2008 was mainly due to significant increase in cost of raw materials during the year, especially for metallic and plastic materials, which in turn drove up manufacturing costs.

— III-3 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX III

Audited net profit attributable to owners of the Target Group increased by 22.7% from approximately RMB100.8 million in 2006 to approximately RMB123.7 million in 2007 and the corresponding margin of net profit attributable to owners of the Target Group improved from approximately 2.2% in 2006 to approximately 2.4% in 2007. The margin improvement was mainly due to the increase in other income and gains and the increase in share of results of Hisense Hitachi. Hisense Hitachi is mainly engaged in the production of high-end inverter VRF air-conditioning systems with higher margin. Due to the continuous improvement in PRC economy, Hisense Hitachi enjoyed increasing demand for high-quality and high performance air-conditioning systems, which in turn resulted in the continuous increase in net profit of Hisense Hitachi over the years.

Audited net profit attributable to owners of the Target Group decreased by 69.2% from approximately RMB123.7 million in 2007 to approximately RMB38.1 million in 2008 and the corresponding margin of net profit attributable to owners of the Target Group decreased from approximately 2.4% in 2007 to approximately 0.8% in 2008. The decrease in margin was mainly due to the substantial decrease in gross profit margin as discussed above and the increase in administrative expenses and finance costs resulting from increased discounted bills during the year.

Performance analysis for the four months ended 30 April 2009 compared to four months ended 30 April 2008

For the four months ended 30 April 2009, the Target Group achieved an audited turnover of approximately RMB1,505.9 million, representing a decrease of approximately 21.4% over the turnover in the corresponding period in 2008 which amounted to approximately RMB1,916.0 million. The decrease in audited turnover for the four months ended 30 April 2009 was attributable to the significant decrease in demand for White Goods as a result of the breakout of global financial turmoil in the second half of 2008.

The air-conditioner business represented approximately 60.1% and 40.8% of the total audited turnover of the Target Group for the four months ended 30 April 2008 and 2009, respectively. The audited turnover from the air-conditioner business decreased from RMB1,151.8 million in 2008 to RMB613.7 million in 2009, representing a decrease of approximately 46.7%. The decrease in segment contribution from air-conditioner business was primarily due to the intensive competition in the air-conditioner business and decrease in demand for air-conditioners as a result of the downturn of the global economy.

— III-4 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX III

The refrigerators business accounted for approximately 35.8% and 52.2% of the total audited turnover of the Target Group for the four months ended 30 April 2008 and 2009, respectively. The audited turnover from the refrigerators business increased from approximately RMB685.4 million in 2008 to approximately RMB785.9 million in 2009, representing an increase of 14.7%. The increase in segment contribution from refrigerators business was attributable to the continuous growth in demand for refrigerators of the Target Group.

The mould manufacturing business accounted for approximately 2.2% and 4.2% of the total audited turnover of the Target Group for the four months ended 30 April 2008 and 2009, respectively. The audited turnover from the mould manufacturing business increased from approximately RMB42.0 million in 2008 to approximately RMB63.3 million in 2009, representing an increase of 50.7%. At the end of 2008, the Target Group successfully secured a large amount order for mould business, resulting in the significant increase in revenue for the four months ended 30 April 2009.

The sales of other White Good products represented approximately 1.9% and 2.9% of the Target Group’s turnover for the four months 30 ended April 2008 and 2009, respectively. The turnover from the sales of other White Good business increased from approximately RMB36.8 million in 2008 to approximately RMB43.0 million in 2009, representing an increase of approximately 16.8%. The increase in segment contribution from other White Good products was attributable to the continuous growth in the sales of washing machines.

Audited gross profit of the Target Group amounted to approximately RMB435.9 million and RMB355.5 million for the four months ended 30 April 2008 and 2009, respectively, representing gross profit margin of approximately 22.7% and 23.6%, respectively. The improvement in gross profit margin in 2009 was mainly due to continuous decrease in cost of raw materials since end of 2008, especially for metallic and plastic materials.

The net profit attributable to owners of the Target Group for the period was approximately RMB78.7 million and RMB59.8 million, respectively, for the four months ended 30 April 2008 and 2009, representing a decrease of approximately 24.0%. The margin for the net profit attributable to owners of the Target Group for the four months ended 30 April 2008 and 2009 were approximately 4.1% and 4.0% respectively, which was relatively stable.

— III-5 —

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

Liquidity and capital resources

The Target Group’s financial position is summarized below:

	As at 31	As at 31	As at 31	As at 30
	December	December	December	April
	2006	2007	2008	2009
	(audited)	(audited)	(audited)	(audited)
	(Unit: RMB million,		except ratios)
Current assets	1,508	1,583	1,196	1,845
Current liabilities	1,713	1,736	1,381	1,949
Current ratio	0.88	0.91	0.87	0.95
Bank borrowing	93	96	65	41

Net current assets/liabilities

As at 30 April 2009, the Target Group had net current liabilities of approximately RMB104 million. The Target Group’s current assets were mainly comprised of trade and other receivables of approximately RMB1,168 million and inventories of approximately RMB621 million. The Target Group’s current liabilities were mainly comprised of trade and other payables of approximately RMB1,644 million. Current ratio maintained around 0.87 to 0.91 between 2006 to 2008 but significantly increased to approximately 0.95 as at 30 April 2009. The significant increase in current assets as at 30 April 2009 was primarily because of the seasonality pattern of the Target Group’s business, which generally has a higher sales in summer and lower sales in winter, resulting in major increase in trade and other receivables.

The Target Group recorded net current liabilities as at 31 December 2006, 2007 and 2008 and 30 April 2009 because the Target Group’s average trade payables credit period of 60-90 days is longer than the average trade receivables credit period of 30-45 days. Therefore, larger trade payables balance was recorded as compared with the trade receivables balance.

Although the Target Group was in a net current liabilities position as at 30 April 2009, it would be able to satisfy its working capital needs and other capital requirements from cash flow from operations and cash on hand and it has the ability to finance these activities through the issuance of equity securities, long-term borrowings and the issuance of convertible and other debt securities.

— III-6 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX III

Borrowing and banking facilities

The bank borrowing increased from RMB93 million in 2006 to RMB96 million in 2007 and decreased to RMB65 million in 2008 and RMB41 million as at 30 April 2009. The decrease in bank borrowing was due to the repayment of loan.

Cash Flows

					Four months	Four months
	Year	ended 31 December			ended 30 April
	2006	2007	2008		2008	2009
	(audited)	(audited)	(audited)	(unaudited)		(audited)
		(Unit: RMB	million, except ratios)
Selected Cash Flow
Statement data
Net cash (used in)/
generated from
operating activities	654.1	274.4	294.6		(60.7)	(188.5)
Net cash (used in)/
generated from
investing activities	(471.6)	(67.6)	(250.2)		(55.5)	80.5
Net cash (used in)/
generated from
financing activities	(236.1)	(174.3)	(66.0)		192.2	116.0
Net increase/(decrease)
in cash and cash
equivalents	(53.6)	32.5	(21.6)		76.0	8.0

Net cash (used in)/generated from operating activities

Net cash generated from operating activities of the Target Group decreased by approximately RMB379.7 million from approximately RMB654.1 million in 2006 to approximately RMB274.4 million in 2007. The decrease in net cash generated from operating activities of the Target Group in 2007 was mainly due to the increase in inventory level by approximately RMB104.1 million in view of the expected increase in demand as compared with the decrease in inventory level by approximately RMB196.6 million in 2006, the decrease in trade deposits received by approximately RMB45.2 million and the increase in tax paid by approximately RMB42.9 million during the year.

— III-7 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX III

Net cash generated from operating activities of the Target Group further increased to approximately RMB294.6 million in 2008, which was mainly due to the decrease in inventory, and trade and other receivables by approximately RMB504.4 million and increase in trade deposits received by approximately RMB12.2 million, offset by the decrease in trade and other payables by approximately RMB347.5 million and the decrease in profit before income tax expenses from both continued and discontinued operation by approximately RMB164.8 million.

Net cash used in operating activities of the Target Group for the four months ended 30 April 2008 and 2009 was approximately RMB60.7 million and RMB188.5 million, respectively. The increase in net cash used in operating activities of the Target Group for the four months ended 30 April 2009 was primarily due to the higher decrease in working capital (net changes in inventories, trade and other receivables and trade and other payables) during the four months ended 30 April 2009 of approximately RMB288.8 million as compared with approximately RMB255.4 million in the corresponding period in 2008. The decrease in trade deposits received from customers of approximately RMB16.0 million in 2009 (as compared with increase of approximately RMB77.0 million in 2008) also contributed to the increase in net cash used in 2009.

Net cash (used in)/generated from investing activities

Net cash used in investing activities of the Target Group decreased by approximately RMB404.0 million from approximately RMB471.6 million in 2006 to approximately RMB67.6 million in 2007. The decrease in net cash used in investing activities of the Target Group in 2007 was mainly due to the decrease in purchase of property, plant and equipment by approximately RMB47.6 million in 2007 and the repayment from intermediate holding companies of approximately RMB23.2 million in 2007 as compared with advance of approximately RMB330.5 million to intermediate holding companies in 2006.

Net cash used in investing activities of the Target Group increased to approximately RMB250.2 million in 2008 from approximately RMB67.6 million in 2007. The increase in net cash used in investing activities of the Target Group in 2008 was primarily due to increase in advance to ultimate holding company and fellow subsidiary with total amount of approximately RMB132.4 million during the year.

The Target Group changed from net cash used in investing activities of approximately RMB55.5 million for the four months ended 30 April 2008 to net cash generated from investing activities of approximately RMB80.5 million for the four months ended 30 April 2009. The change was principally due to the repayments from ultimate holding company and fellow subsidiary of approximately RMB92.0 million during the four months ended 30 April 2009.

Net cash (used in)/generated from in financing activities

Net cash used in financing activities decreased from approximately RMB236.1 million in 2006 to approximately RMB174.3 million in 2007, which was mainly due to the increase in bank borrowings raised by approximately RMB134.6 million in order to finance the capital expenditure and daily operation of the Target Group.

— III-8 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX III

Net cash used in financing activities further decreased to approximately RMB66.0 million in 2008 as compared with approximately RMB174.3 million in 2007. The decrease was principally due to the increase in advance from a fellow subsidiary of approximately RMB148.6 million in 2008.

Net cash generated from financing activities for the four months ended 30 April 2008 and 2009 was approximately RMB192.2 million and RMB116.0 million, respectively. The decrease in net cash generated from financing activities for the four months ended 30 April 2009 was mainly resulting from the decrease in bank borrowings raised by approximately RMB255.6 million in 2009 and the decrease in advance from ultimate holding company from approximately RMB131.0 million in 2008 to approximately RMB102.0 million in 2009, offset by the decrease in repayment of bank borrowing by approximately RMB152.9 million.

Indebtedness

As at 30 June 2009, the capital commitments of the Target Group amounted to approximately RMB5.0 million, which were contracted for the acquisition of property, plant and equipment and payments for leasehold land held for own use under operating lease. The Target Group did not have any significant contingent liabilities as at 30 April 2009. The summary of the bank borrowing of the Target Group as at 31 December 2006, 2007 and 2008 and 30 April 2009 is as follows:

						As at 30
	As at 31 December					April
	2006		2007		2008	2009
	RMB million	RMB million		RMB million		RMB million
	(audited)		(audited)		(audited)	(audited)
Secured:
Bank loans	76.0		82.0		62.0	18.0
Unsecured:
Bank loans on discounted
note receivables	16.5		14.1		3.0	23.0
	92.5		96.1		65.0	41.0

On demand or within one year	60.5		74.1		55.0	41.0
More than one year but not
exceeding two years	10.0		12.0		10.0	—
More than two years but not
exceeding five years	22.0		10.0		—	—
	92.5		96.1		65.0	41.0

_Less:_Amount due within
one year included in
current liabilities	(60.5)		(74.1)		(55.0)	(41.0)
Amount due after one year	32.0		22.0		10.0	—

— III-9 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX III

As at 30 June 2009, the Target Group had outstanding bank and other loans of approximately RMB251,540,000, comprising bills discounted with recourse of approximately RMB98,556,000 and unsecured other loan from a fellow subsidiary of approximately RMB152,984,000.

As at 31 December 2006, 2007, 2008 and 30 April 2009, the bank loans carried interest at 4.8 to 6.3%, 4.8 to 7.3%, 4.8 to 7.7% and 6 to 7.7% per annum, respectively. Discounted bill carried interest at 2 to 6% as at 31 December 2006, 2007, 2008 and 30 April 2009.

Gearing

The gearing ratios of the Target Group, which were calculated based on the amount of total bank borrowing divided by the amount of total net assets of the Target Group, were approximately 13.1%, 11.3%, 7.3% and 4.3% as at 31 December 2006, 2007 and 2008 and 30 April 2009, respectively.

Market risks

Currency risk

As a majority of the transactions of the Target Group are in RMB, no significant currency risk is expected.

Interest rate risk

The Target Group’s exposure to interest rate risk relates to its interest-bearing bank loans.

EMPLOYEES AND REMUNERATION POLICIES

The total number of employees of Target Group as at 31 December 2006, 2007, 2008 and 30 April 2009 was approximately 7,129, 8,314, 6,787 and 8,003, respectively. The total amount of salaries and other allowances (including defined contribution pension costs) for the employees of Target Group during the three years ended 31 December 2006, 2007 and 2008 and the four months ended 30 April 2008 and 2009, was approximately RMB267.4 million, RMB344.0 million, RMB355.6 million, RMB124.2 million and RMB117.9 million, respectively.

For the three years ended 31 December 2006, 2007 and 2008 and the four months ended 30 April 2008 and 2009, the Target Group adopted a remuneration system whereby the salaries paid to the employees of Target Group were linked to employee position and performance and one-off bonuses were paid to certain employees if they achieved their respective performance targets. The Target Group conducted training courses for its employees during the three years ended 31 December 2006, 2007 and 2008 and the four months ended 30 April 2008 and 2009, which focused on matters such as technical skills and the use of new products and new technology.

— III-10 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

A. U NAU DITED PRO FOR M A FI NA NCI A L I N FOR M ATION OF TH E ENLARGED GROUP

Unaudited pro forma statement of assets and liabilities as at 31 December 2008

1. Introduction

The following is the unaudited pro forma statement of assets and liabilities of the Enlarged Group prepared in accordance with the Listing Rules for the purpose of illustrating the effect of the proposed acquisition of the Target Group (the “Acquisition”) by the Company and its subsidiaries (the “ Hisense Kelon Group”) on the financial position of the Enlarged Group (the Target Group together with the Hisense Kelon Group referred to as the “Enlarged Group”) as if the Acquisition had been completed on 31 December 2008. As it is prepared for illustrative purposes only, and because of its nature, it may not give a true picture of the financial position of the Enlarged Group following the completion of the Acquisition.

The unaudited pro forma statement of assets and liabilities of the Enlarged Group is prepared based on the audited consolidated balance sheet of the Hisense Kelon Group as at 31 December 2008 extracted from the published annual report of the Hisense Kelon Group as of 31 December 2008 as set out on pages 6 to 7 in Appendix I “Financial Information of the Hisense Kelon Group” to the circular of the Company dated 31 July 2009 (the “Circular”) and the audited combined balance sheet of the Target Group as at 31 December 2008 extracted from the Accountants’ Report of the Target Group as set out on pages 8 to 9 in Appendix II “Accountants’ report of the Target Group” to the Circular, as if the Acquisition has been completed on 31 December 2008.

— IV-1 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

2. Unaudited pro forma statement of assets and liabilities of the Enlarged Group

The Hisense
Kelon Group
as at
31 December
2008
The Target
Group as at
31 December
2008
Note 1
RMB’000
RMB’000
(Audited)
(Audited)
ASSETS
Non-current assets
Property, plant and equipment
1,363,074
817,555
Investment properties
35,565
—
Payments for leasehold land held
for own use under operating
leases
286,835
109,162
Interests in associates
86,589
—
Interests in jointly controlled
entity
33,750
114,291
Available-for-sale financial assets
4,550
—
Intangible assets
167,135
28,485
Deferred tax assets
13,647
12,534
Total non-current assets
1,991,145
1,082,027
Current assets
Inventories
505,528
383,170
Trade and other receivables
1,050,415
771,209
Taxation recoverable
943
1,594
Other financial assets
6,019
—
Pledged bank deposits
23,240
—
Cash and cash equivalents
110,216
40,060
Total current assets
1,696,361
1,196,033
Non-current assets held for sale
—
—
Total assets
3,687,506
2,278,060

Pro forma
adjustment
Notes 2,
3 and 4
Pro Forma
Enlarged
Group as at
31 December
2008
RMB’000
RMB’000
(Unaudited)
(Unaudited)
—
2,180,629
—
35,565
—
395,997
—
86,589
—
148,041
—
4,550
—
195,620
—
26,181
—
3,073,172
(7,435)
881,263
(102,602)
1,719,022
—
2,537
—
6,019
—
23,240
—
150,276
(110,037)
2,782,357
—
—
(110,037)
5,855,529

— IV-2 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The Hisense
Kelon Group
as at
31 December
2008
The Target
Group as at
31 December
2008
Note 1
RMB’000
RMB’000
(Audited)
(Audited)
LIABILITIES
Current liabilities
Trade and other payables
2,178,071
1,063,995
Trade deposits received
354,243
176,382
Other financial liabilities
13,611
—
Provisions
114,215
84,437
Taxation payable
27,342
716
Other liabilities
43,704
—
Borrowings
1,814,948
55,000
Total current liabilities
4,546,134
1,380,530
Non-current liabilities
Borrowings
—
10,000
Total liabilities
4,546,134
1,390,530
Net current liabilities
(2,849,773)
(184,497)
Total assets less current liabilities
(858,628)
897,530
Net assets/(liabilities)
(858,628)
887,530
Capital and reserves
attributable to equity holders
of the parent
Share capital
992,007
654,995
Reserves
(1,999,929)
16,118
(1,007,922)
671,113
Minority interests
149,294
216,417
TOTAL EQUITY
(858,628)
887,530

Pro forma
adjustment
Notes 2,
3 and 4
Pro Forma
Enlarged
Group as at
31 December
2008
RMB’000
RMB’000
(Unaudited)
(Unaudited)
(102,602)
3,139,464
—
530,625
—
13,611
—
198,652
—
28,058
—
43,704
—
1,869,948
(102,602)
5,824,062
—
10,000
(102,602)
5,834,062
(7,435)
(3,041,705)
(7,435)
31,467
(7,435)
21,467
(292,947)
1,354,055
285,512
(1,698,299)
(7,435)
(344,244)
—
365,711
(7,435)
21,467

— IV-3 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Notes to the unaudited pro forma statement of assets and liabilities

This represents the combined assets and liabilities of the Target Group at 31 December 2008 which are to be acquired by the Company.
The Acquisition is considered as a business combination involving entities under common control because the Company and the Target Group are ultimately controlled by Hisense Group Company Limited（海信集團有限公司）(“Hisense Group Co.”) both before and after the Acquisition, and that control is not transitory. Such business combination under common control is outside the scope of International Financial Reporting Standard (“IFRS”) 3 “Business Combinations” issued by the International Accounting Standards Board (“IASB”). In the absence of a standard under IFRSs in relation to the accounting procedures for business combinations under common control, Accounting Guideline 5 “Merger Accounting for Common Control Combinations” issued by Hong Kong Institute of Certified Public Accountants, being pronouncements of standard-setting bodies other than the IASB that use a similar conceptual framework, is referred to in accounting for the Acquisition. Accordingly, the shareholders’ equity of the Target Group is aggregated with that of the Company rather than eliminated against the assets or liabilities of the Hisense Kelon Group. Pursuant to the Acquisition Agreement (as defined in the Circular), the Company has conditionally agreed to acquire the Target Group at a total consideration of RMB1,238,204,800. The consideration will be satisfied in full by the allotment and issue of not more than 362,048,187 shares of the Company at nominal value of RMB1 each, increasing the issued share capital of the Company by approximately RMB362,048,000 and decreasing the combined capital of the Target Group by RMB654,995,000 and increasing the reserves of the Enlarged Group by RMB292,947,000.

Hisense Group Co. exercises its control over the Hisense Kelon Group through Qingdao Hisense Air-Conditioning Company Limited, the single largest shareholder of the Company, who currently holds 25.22% equity interest in the Company, and upon completion of the anticipated Acquisition holds 45.21% equity interest in the Company, is considered the ultimate holding company of the Hisense Kelon Group. Hisense Group Co. has a control over the Hisense Kelon Group by virtue of Hisense Group Co.’s power to govern the financial and operating policies of the Hisense Kelon Group so as to obtain benefits from the activities of the Hisense Kelon Group through its power to cast majority votes at the meetings of the board of directors of the Company and its de facto control over the majority of the voting rights of the Company’s shareholders’ meetings.

The adjustment represents the elimination of the amounts due by the Hisense Kelon Group to the Target Group of approximately RMB74,935,000 and the amounts due by the Target Group to the Hisense Kelon Group of approximately RMB27,667,000 as at 31 December 2008.
The Pro forma adjustment represents elimination of unrealised profit on sales and purchases of goods, raw materials and components and other services transactions between the Hisense Kelon Group and the Target Group in aggregate amount of approximately RMB7,435,000. The directors of the Company are not aware of any other significant adjustments on the forecast of the Enlarged Group.

— IV-4 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

B. COMFORT LETTER ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

BDO Limited

==> picture [61 x 32] intentionally omitted <==

31 July 2009

The Board of Directors

Hisense Kelon Electrical Holdings Company Limited No. 8 Ronggang Road Ronggui, Shunde Foshan, Guangdong P. R. China 528303

Dear Sirs,

We report on the unaudited pro forma statement of assets and liabilities (the “Unaudited Pro Forma Financial Information”) of Hisense Kelon Electrical Holdings Company Limited (the “Company”) and its subsidiaries (collectively referred to as the “Hisense Kelon Group”), which has been prepared by the Directors of the Company for illustrative purposes only, to provide information about how the proposed acquisition of the Target Group (together with the Hisense Kelon Group referred to as the “Enlarged Group”) might have affected the assets and liabilities, as set out on pages 1 to 4 in Appendix IV “Unaudited Pro Forma Financial Information of the Enlarged Group” to the circular of the Company dated 31 July 2009 (the “Circular”). The basis of preparation of the pro forma statement of assets and liabilities is set out on pages 1 to 4 in Appendix IV “Unaudited Pro Forma Financial Information of the Enlarged Group” to the Circular.

Respective responsibilities of the Directors of the Company and the Reporting Accountant

It is the responsibility solely of the Directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

— IV-5 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagement 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the Unaudited Pro Forma financial information with source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the Directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly complied by the Directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Hisense Kelon Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purposes only, based on the judgments and assumptions of the Directors of the Company, and because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Enlarged Group as at 31 December 2008 or any future dates.

— IV-6 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the Directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Hisense Kelon Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Yours faithfully,

BDO Limited

Certified Public Accountants

Hong Kong

— IV-7 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

C. INDEBTEDNESS

At the close of business on 30 June 2009, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of the Circular, the Hisense Kelon Group had outstanding bank and other loans of approximately RMB1,714,452,000, comprising secured bank loans of approximately RMB330,000,000, trade and bills receivable discounted with recourse of approximately RMB469,692,000, unsecured bank loans of approximately RMB496,000,000 and unsecured other loan from a fellow subsidiary of approximately RMB418,760,000. The Target Group had outstanding bank and other loans of approximately RMB251,540,000, comprising bills discounted with recourse of approximately RMB98,556,000 and unsecured other loan from a fellow subsidiary of approximately RMB152,984,000.

As at 30 June 2009, bank loans of the Hisense Kelon Group amounting to approximately RMB330,000,000 are secured by certain plant and machinery, investment properties and land use rights of the Hisense Kelon Group. Unsecured bank and other loans of the Hisense Kelon Group amounting to approximately RMB914,760,000 are guaranteed by Hisense Group Company Ltd..

The Hisense Kelon Group is a defendant in certain lawsuits as well as the plaintiff in other proceedings arising in the ordinary course of business. The amount involved in the litigations against the Hisense Kelon Group relate mainly to sales, purchases and expenditures incurred by the Hisense Kelon Group and most of them were recorded as liabilities at the close of business on 30 June 2009. While the outcomes of such contingencies, lawsuits or other proceedings cannot be determined at present, management believes that any resulting liabilities will not have material adverse effect on the financial position or operating results of the Hisense Kelon Group.

Save as aforesaid, the Hisense Kelon Group and the Target Group did not have, at the close of business on 30 June 2009, outstanding liabilities or any mortgages, charges, debentures, loan capital, bank overdrafts, loans, liabilities under acceptance or other similar indebtedness, hire purchase of finance lease obligations or any guarantees or other material contingent liabilities.

D. WORKING CAPITAL

The Directors are satisfied after due and careful enquiry that after taking into account the existing banking facilities available, facilities granted by a fellow subsidiary, guarantee to the banks provided by Hisense Group Company Ltd. (the “Hisense Group Co.”), financial support from Hisense Group Co., and the existing cash and bank balances, the Enlarged Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of publication of this circular, in the absence of unforeseeable circumstances.

— IV-8 —

IFRS 2009 PROFIT FORECASTS

APPENDIX V

In compliance with PRC laws and regulations and pursuant to the requirements of CSRC in respect of substantial acquisitions by PRC listed companies, the Company has published the PRC Target Group Profit Forecast and the PRC Enlarged Group Profit Forecast in the PRC. As required under the Listing Rules and the Takeovers Code, the Company disclosed the IFRS 2009 Profit Forecasts in the Announcement. Set out below is an extract of the relevant sections of the Announcement. The Directors consider that the IFRS 2009 Profit Forecasts disclosed in the Announcement remain valid as at the Latest Practicable Date.

Set out below are the forecast figures, bases and assumptions, together with the letters from BDO Limited, the Financial Adviser to the Company and the Independent Financial Adviser.

The IFRS 2009 Profit Forecasts include the profit forecasts of the Hisense Kelon Group and the Target Group as well as the pro forma profit forecast of the Enlarged Group for the year ending 31 December 2009, prepared in accordance with IFRS.

The Directors have prepared the IFRS 2009 Profit Forecasts in compliance with Rules 4.29, 14.62 and 14A.56(8) of the Listing Rules and Rule 10 of the Takeovers Code.

BASES AND ASSUMPTIONS

Pursuant to the Acquisition Agreement, the Company has conditionally agreed to acquire from Qingdao Hisense the Target Group which operates the White Good Business at a total consideration of RMB1,238,204,800 (equivalent to approximately HK$1,404,672,543). The consideration will be satisfied in full by the allotment and issue of not more than 362,048,187 Consideration Shares by the Company at the issue price of RMB3.42 (equivalent to approximately HK$3.88). The Target Group includes the following:

55% of the equity interests in Hisense Beijing, which in turn holds 60% of the equity interests in Hisense Nanjing;
100% of equity interests in Hisense Shandong;
51% of the equity interests in Hisense Zhejiang;
78.7% of the equity interests in Hisense Mould;
49% of the equity interests in Hisense Hitachi; and
Hisense Marketing Business.

— V-1 —

IFRS 2009 PROFIT FORECASTS

APPENDIX V

The profit forecasts of the Hisense Kelon Group, the Target Group and the pro forma profit forecast of the Enlarged Group have been prepared on a basis consistent in all material respects with the accounting policies currently adopted by the Hisense Kelon Group on the following principal assumptions:

(1) the Acquisition had been completed on 1 January 2009;
(2) there will be no material changes in existing government policies or political, legal (including changes in legislation, regulations or rules) or regulatory environment or fiscal, economic or market conditions, or macro-economic measures in the PRC or any of the countries in which the Enlarged Group carries on business;
(3) although the impact resulting from financial turmoil and economic slowdown still exists, the growth potential for the PRC consumer market remains strong. In addition, the PRC government continues to implement macro-economic policies and also increases its support to the household electrical appliance industry;
(4) there will not be any material changes in product pricing as well as cost and expense structure within the industry under which the Enlarged Group operates;
(5) there will be no material changes in the bases or rates of taxation or duties in the PRC or any of the territories in which the Enlarged Group operates except as otherwise disclosed in the Circular;
(6) there will be no material changes in inflation rates, interest rates or foreign currency exchange rates from those currently prevailing;
(7) there will be no material changes in the corporate structure of the Enlarged Group (except for the disposal of 95% equity interest in 青島海信塑料製品有限公司 (Qingdao Hisense Plastic Products Limited), including 100% of the equity interest in 青島海平電器配件有限公司 (Qingdao Haiping Electric Parts Limited) completed in May 2009); and
(8) the operations and business of the Enlarged Group will not be severely interrupted by any unforeseeable factors or any unforeseeable reasons that are beyond the control of the Enlarged Group including but not limited to, the occurrence of natural disasters or catastrophes, epidemics or serious accidents.

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APPENDIX V

A. PROFIT FORECASTS OF THE HISENSE KELON GROUP AND THE TARGET GROUP

Forecast Figures

The Directors forecast that on the bases and assumptions set out below and in the absence of unforeseen circumstances, the forecast profit attributable to equity holders of the Company for the year ending 31 December 2009 will be not less than RMB37.88 million (equivalent to approximately HK$42.98 million) and the forecast profit attributable to equity holders of the Target Group for the year ending 31 December 2009 will be not less than RMB63.81 million (equivalent to approximately HK$72.38 million).

(1) Profit forecast of the Hisense Kelon Group for the year ending 31 December 2009 has been prepared by the Directors based on the results shown in the unaudited management accounts of the Hisense Kelon Group for the four months ended 30 April 2009 and a forecast of the results for the remaining eight months ending 31 December 2009.
(2) Profit forecast of the Target Group for the year ending 31 December 2009 has been prepared by the Directors based on the results shown in the unaudited management accounts of the Target Group for the four months ended 30 April 2009 and a forecast of the results for the remaining eight months ending 31 December 2009.

The profit forecasts of the Hisense Kelon Group and the Target Group are prepared for illustrative purposes only and because of their nature, they may not give a true picture of the results of the Company and the Target Group for any financial period.

B. PRO FORMA PROFIT FORECAST OF THE ENLARGED GROUP

The following is the pro forma profit forecast of the Enlarged Group assuming the Company will acquire:

55% of the equity interests in Hisense Beijing, which in turn holds 60% of the equity interests in Hisense Nanjing;
100% of equity interests in Hisense Shandong;
51% of the equity interests in Hisense Zhejiang;

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APPENDIX V

78.7% of the equity interests in Hisense Mould;
49% of the equity interests in Hisense Hitachi; and
Hisense Marketing Business.

The pro forma profit forecast of the Enlarged Group for the year ending 31 December 2009 is prepared assuming that the Acquisition had been completed on 1 January 2009 and based on the forecast profit attributable to equity holders of each of the Company and the Target Group for the year ending 31 December 2009 as set out under the section “Profit forecasts of the Hisense Kelon Group and the Target Group” to this appendix, with adjustments to reflect the effect of the Acquisition.

The pro forma profit forecast of the Enlarged Group for the year ending 31 December 2009 is prepared for illustrative purposes only based on the judgments and assumptions of the Directors and because of its nature, it does not provide any assurance or indication that any event will take place in the future and may not give a true picture of the results of the Hisense Kelon Group, the Target Group or the Enlarged Group for any financial period.

				Pro
				forma
				profit
				forecast
				of the
	The	The	Pro forma	Enlarged
	Company	Target Group	adjustments	Group
	RMB’000	RMB’000	RMB’000	RMB’000
		(Notes 1
	(Note 1)	and 2)	(Note 2)
Forecast profit attributable to equity
holders for the year ending
31 December 2009	37,883	63,805	(1,360)	100,328

Notes:

The forecast profit of the Enlarged Group for the year ending 31 December 2009 is based on the profit forecasts of the Hisense Kelon Group and the Target Group for the year ending 31 December 2009, details of which have been set out under the section “Profit forecasts of the Hisense Kelon Group and the Target Group” to this appendix.
The respective equity interests percentages of the Target Group in Hisense Beijing, Hisense Zhejiang and Hisense Mould are 55%, 51% and 78.7% respectively and the minority interests have already been excluded in the forecast profit attributable to equity holders of the Target Group for the year ending 31 December 2009. As such, exclusion of the minority interests would not be reflected as pro forma adjustments.
The “pro forma adjustment” represent elimination of unrealised profit on sales and purchases of goods, raw materials and components and other services transactions between the Hisense Kelon Group and the Target Group of approximately RMB1,360,000. The Directors are not aware of any other significant adjustments on the forcast profit of the Enlarged Group that would occur as if the Acquisition was completed on 1 January 2009.

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APPENDIX V

C. LETTERS

Set out below are the texts of letters from BDO Limited, the Financial Adviser to the Company and the Independent Financial Adviser in connection with the IFRS 2009 Profit Forecasts as set out in the Announcement and this appendix.

(i) Letters from BDO Limited

BDO Limited

The Board of Directors Hisense Kelon Electrical Holdings Company Limited

29 July 2009

No. 8 Ronggang Road Ronggui, Shunde Foshan, Guangdong P.R. China 528303

Dear Sirs,

We have reviewed the accounting policies and calculations made in arriving at the forecast profits attributable to the equity holders of each of Hisense Kelon Electrical Holdings Company Limited (the “Company”), the Target Group and the pro forma profit forecast of the Enlarged Group (as defined below) for the year ending 31 December 2009 (the “IFRS 2009 Profit Forecasts”), for which the Directors of the Company (the “Directors”) are solely responsible, set out on pages 1 to 4 in Appendix V of the circular issued by the Company to be dated 31 July 2009 in connection with the proposed acquisition of the Target Group (the “Circular”). The Company and its subsidiaries are hereinafter collectively referred to as the “Hisense Kelon Group”. The Target Group together with the Hisense Kelon Group is referred to as the “Enlarged Group”.

The Target Group comprises of the following:

(a) 100% of the equity interests of 海信（山東）空調有限公司 (Hisense (Shandong) Air-conditioning Company Limited) (“Hisense Shandong”), which acquired 100% of the air-conditioning business and related net assets of 青島海信空調有限公司 (Qingdao Hisense Air-conditioning Company Limited) (“Qingdao Hisense”, and its business is referred to as the “Qingdao Hisense Air-conditioning Business”);

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APPENDIX V

(b) 51% of the equity interests of 海信（浙江）空調有限公司 (Hisense (Zhejiang) Air-conditioning Company Limited) (“Hisense Zhejiang”);
(c) 55% of the equity interests of 海信（北京）電器有限公司 (Hisense (Beijing) Electric Company Limited) (“Hisense Beijing”), which in turn holds 60% of the equity interests of 海信（南京）電器有限公司 (Hisense (Nanjing) Electric Company Limited) (“Hisense Nanjing”);
(d) 100% of the business and the related net assets of 青島海信營銷有限公司 (Qingdao Hisense Marketing Company Limited) that are related to the sale and marketing of air-conditioners and refrigerators mainly produced by Hisense Shandong, Qingdao Hisense Air-conditioning Business, Hisense Zhejiang, Hisense Beijing and Hisense Nanjing;
(e) 78.7% of the equity interests of 青島海信模具有限公司 (Qingdao Hisense Mould Company Limited), which in turn holds 95% of the equity interests of 青島海信塑料製品有限公司 (Qingdao Hisense Plastic Products Company Limited) (“Hisense Plastic”). Hisense Plastic, in turn holds 100% of the equity interests of 青島海平電器配件有限公司 (Qingdao Haiping Electric Parts Limited); and
(f) 49% of the equity interests of 青島海信日立空調系統有限公司 (Qingdao Hisense Hitachi Air-conditioning Systems Company Limited).

The IFRS 2009 Profit Forecasts have been prepared by the Directors in accordance with the accounting policies consistent in all material respects with those adopted in the preparation of the financial statements of the Hisense Kelon Group and the Target Group for the year ended 31 December 2008 and in accordance with the International Financial Reporting Standards (“IFRSs”), issued by the International Accounting Standards Board.

The IFRS 2009 Profit Forecasts have been prepared by the Directors based on the results shown in unaudited management accounts of the Hisense Kelon Group and the Target Group for the four months ended 30 April 2009 and a forecast of the results for the remaining eight months ending 31 December 2009.

We conducted our work in accordance with the Auditing Guideline 3.341 on “Accountants’ Report on Profit Forecasts” and Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants.

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IFRS 2009 PROFIT FORECASTS

APPENDIX V

In our opinion, so far as the accounting policies and calculations are concerned, the IFRS 2009 Profit Forecasts have been properly compiled in accordance with the principal bases and assumptions made by the Directors as set out in Appendix V of the Circular and are presented on a basis consistent in all material respects with the accounting policies adopted in preparing the financial statements of the Hisense Kelon Group and the Target Group for the year ended 31 December 2008 in accordance with the IFRSs.

Yours faithfully,

BDO Limited

Certified Public Accountants

Hong Kong

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IFRS 2009 PROFIT FORECASTS

APPENDIX V

BDO Limited

The Board of Directors

29 July 2009

Hisense Kelon Electrical Holdings Company Limited No. 8 Ronggang Road Ronggui, Shunde Foshan, Guangdong P. R. China 528303

Dear Sirs,

We report on the unaudited pro forma profit forecast of the Enlarged Group (as defined below) set out in Appendix V (the “IFRS 2009 Pro Forma Profit Forecast”) to the circular of the Company to be dated 31 July 2009 (the “Circular”) in connection with the proposed acquisition (the “Acquisition”) of the Target Group (as defined below). The basis of preparation of the IFRS 2009 Pro Forma Profit Forecast is set out on pages 3 to 4 in Appendix V under the section “Pro forma profit forecast of the Enlarged Group” to the Circular.

Hisense Kelon Electrical Holdings Company Limited (the “Company”) and its subsidiaries are hereinafter collectively referred to as the “Hisense Kelon Group”. The Target Group together with the Hisense Kelon Group is referred to as the “Enlarged Group”.

The Target Group comprises of the following:

(a) 100% of the equity interests of 海信（山東）空調有限公司 (Hisense (Shandong) Air-conditioning Company Limited) (“Hisense Shandong”), which acquired 100% of the air-conditioning business and related net assets of 青島海信空調有限公司 (Qingdao Hisense Air-conditioning Company Limited) (“Qingdao Hisense”, and its business is referred to as the “Qingdao Hisense Air-conditioning Business”);
(b) 51% of the equity interests of 海信（浙江）空調有限公司 (Hisense (Zhejiang) Air-conditioning Company Limited) (“Hisense Zhejiang”);
(c) 55% of the equity interests of 海信（北京）電器有限公司 (Hisense (Beijing) Electric Company Limited) (“Hisense Beijing”), which in turn holds 60% of the equity interests of 海信（南京）電器有限公司 (Hisense (Nanjing) Electric Company Limited) (“Hisense Nanjing”);

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APPENDIX V

(d) 100% of the business and the related net assets of 青島海信營銷有限公司 (Qingdao Hisense Marketing Company Limited) that are related to the sale and marketing of air-conditioners and refrigerators mainly produced by Hisense Shandong, Qingdao Hisense Air-conditioning Business, Hisense Zhejiang, Hisense Beijing and Hisense Nanjing;
(e) 78.7% of the equity interests of 青島海信模具有限公司 (Qingdao Hisense Mould Company Limited), which in turn holds 95% of the equity interests of 青島海信塑料製品有限公司 (Qingdao Hisense Plastic Products Company Limited) (“Hisense Plastic”). Hisense Plastic, in turn holds 100% of the equity interests of 青島海平電器配件有限公司 (Qingdao Haiping Electric Parts Limited); and
(f) 49% of the equity interests of 青島海信日立空調系統有限公司 (Qingdao Hisense Hitachi Air-conditioning Systems Company Limited).

The IFRS 2009 Pro Forma Profit Forecast has been prepared by the directors of the Company (the “Directors”) for illustrative purposes only, to provide information about how the Acquisition might have affected the profit forecast presented, for inclusion in Appendix V to the Circular.

R ESPECTI V E R ESPONSIBILITIES OF DIR ECTORS OF TH E COMPANY AND REPORTING ACCOUNTANT

It is the responsibility solely of the Directors to prepare the IFRS 2009 Pro Forma Profit Forecast in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the IFRS 2009 Pro Forma Profit Forecast and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the IFRS 2009 Pro Forma Profit Forecast beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

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IFRS 2009 PROFIT FORECASTS

APPENDIX V

BASIS OF OPINION

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the IFRS 2009 Pro Forma Profit Forecast with source documents, considering the evidence supporting the adjustments and discussing the IFRS 2009 Pro Forma Profit Forecast with the Directors. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the IFRS 2009 Pro Forma Profit Forecast has been properly compiled by the Directors on the basis stated, that such basis is consistent with the accounting policies of the Hisense Kelon Group and that the adjustments are appropriate for the purposes of the IFRS 2009 Pro Forma Profit Forecast as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The IFRS 2009 Pro Forma Profit Forecast is for illustrative purposes only based on the judgments and assumptions of the Directors, and because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of the results of the Enlarged Group for the year ending 31 December 2009 or any future period.

OPINION

In our opinion:

(a) the IFRS 2009 Pro Forma Profit Forecast has been properly compiled by the Directors on the basis stated;
(b) such basis is consistent with the accounting policies of the Hisense Kelon Group; and
(c) the adjustments are appropriate for the purposes of the IFRS 2009 Pro Forma Profit Forecast as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

BDO Limited

Certified Public Accountants

Hong Kong

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IFRS 2009 PROFIT FORECASTS

APPENDIX V

(ii) Letter from the Financial Adviser to the Company

==> picture [64 x 36] intentionally omitted <==

South China Capital Limited 28/F., Bank of China Tower No. 1 Garden Road, Central, Hong Kong

29 July 2009

The Board of Directors Hisense Kelon Electrical Holdings Company Limited No. 8 Ronggang Road Ronggui, Shunde Foshan Guangdong Province China

Dear Sirs,

We refer to the IFRS 2009 Profit Forecasts for the year ending 31 December 2009 set out in Appendix V to the circular of the Company to be dated 31 July 2009 (the “Circular”), of which this report forms part. Unless specified otherwise, capitalized terms used herein shall have the same meanings as those defined in this Circular.

We have reviewed the IFRS 2009 Profit Forecasts for which you as the Directors are solely responsible, and have discussed with you the information and documents provided by you which formed part of the principal bases and assumptions upon which the IFRS 2009 Profit Forecasts have been prepared. We have also considered the letters from BDO Limited dated 29 July 2009 addressed to you as set out in Appendix V to the Circular regarding the accounting policies and calculations upon which the IFRS 2009 Profit Forecasts have been made. In this connection, we have discussed with BDO Limited and noted that BDO Limited is satisfied that the IFRS 2009 Profit Forecasts have been properly compiled in accordance with the principal bases and assumptions made by the Directors and are presented on a basis consistent in all material respects with the accounting policies adopted in preparing the financial statements of the Hisense Kelon Group and the Target Group for the year ended 31 December 2008 in accordance with the IFRS.

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APPENDIX V

On the basis of the foregoing, we are of the opinion that the IFRS 2009 Profit Forecasts, for which you as the Directors are solely responsible, have been made after careful enquiry, due care and consideration.

Yours faithfully, For and on behalf of South China Capital Limited William Ip Manfred Shiu Director Director

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IFRS 2009 PROFIT FORECASTS

APPENDIX V

(iii) Letter from the Independent Financial Adviser

==> picture [100 x 46] intentionally omitted <==

Suite 606, 6th Floor Bank of America Tower 12 Harcourt Road Central Hong Kong

29 July 2009

The Board of Directors

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

Dear Sirs,

We refer to the IFRS 2009 Profit Forecasts set out in Appendix V to the circular of the Company to be dated 31 July 2009 (the “Circular”), of which this report forms part of. Unless specified otherwise, capitalized terms used herein shall have the same meanings as those defined in this Circular.

We have reviewed the IFRS 2009 Profit Forecasts for which you as the Directors are solely responsible, and have discussed with you the information and documents provided by you which formed part of the basis and assumptions upon which the IFRS 2009 Profit Forecasts have been prepared. We have also considered the letters from BDO Limited dated 29 July 2009 addressed to yourselves as set out in Appendix V to the Circular regarding the accounting policies and calculations upon which the IFRS 2009 Profit Forecasts have been made. In this connection, we have discussed with BDO Limited and noted that BDO Limited is satisfied that the IFRS 2009 Profit Forecasts have been properly compiled in accordance with the assumptions

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IFRS 2009 PROFIT FORECASTS

APPENDIX V

made by the Directors and are presented on a basis consistent in all material respects with the accounting policies adopted in preparing the financial statements of the Hisense Kelon Group and the Target Group for the year ended 31 December 2008 in accordance with IFRSs.

Yours faithfully, For and on behalf of Access Capital Limited Alexander Tai Principal Director

— V-14 —

IFRS RESULTS ESTIMATE

APPENDIX VI

The statement in relation to the anticipated substantial increase in the Company’s unaudited consolidated net profits for the six months ended 30 June 2009 prepared in accordance with PRC GAAP as compared with the six months ended 30 June 2008 as disclosed in the PRC Results Estimate Announcement and referred to in this circular, which constitutes a profit forecast of the Company for the purpose of Rule 10 of the Takeovers Code, is set out in the section headed “Financial Information of the Hisense Kelon Group” in this circular. The Directors consider that the PRC Results Estimate disclosed in the PRC Results Estimate Announcement remains valid as at the Latest Practicable Date.

As required under the Takeovers Code, the Company disclosed the IFRS Results Estimate in this circular. Set out below are the estimated figure, bases together with the letters from BDO Limited, the Financial Adviser to the Company and the Independent Financial Adviser.

A. PROFIT ESTIMATE OF THE HISENSE KELON GROUP

Estimated Figures

The Directors estimated that on the bases set out below, the estimated profit of the Hisense Kelon Group attributable to the equity holders of the Company for the six months ended 30 June 2009 prepared in accordance with IFRS was estimated to be approximately RMB149.24 million (equivalent to approximately HK$169.31 million).

Bases

The Directors have arrived at such statement based on the unaudited consolidated results of the Hisense Kelon Group for the six months ended 30 June 2009, which have been prepared based on accounting policies consistent in all material respect with those adopted in the preparation of the audited consolidated financial statements of the Hisense Kelon Group for the financial year ended 31 December 2008 as set out in Appendix I to this circular.

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IFRS RESULTS ESTIMATE

APPENDIX VI

B. LETTERS

Set out below are the texts of the letters received by the Directors from BDO Limited, the Financial Adviser to the Company and the Independent Financial Adviser in connection with such statement for the purpose of inclusion in this circular.

(i) Letter from BDO Limited

BDO Limited

29 July 2009

The Board of Directors

Hisense Kelon Electrical Holdings Company Limited

No. 8 Ronggang Road

Ronggui, Shunde Foshan, Guangdong P.R. China 528303

Dear Sirs,

Hisense Kelon Electrical Holdings Limited (the “Company”) and its subsidiaries (the “Hisense Kelon Group”)

We have reviewed the accounting policies and calculations made in arriving at the estimate of the Hisense Kelon Group’s profit attributable to the equity holders of the Company for the six months ended 30 June 2009 (the “IFRS Results Estimate”), for which the Directors of the Company (the “Directors”) are solely responsible and set out on page 1 in Appendix VI of the circular to be dated 31 July 2009 issued by the Company (the “Circular”).

The IFRS Results Estimate has been prepared by the Directors based on the unaudited consolidated results of the Hisense Kelon Group for the six months period ended 30 June 2009.

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IFRS RESULTS ESTIMATE

APPENDIX VI

For the purpose of issuing this letter, we have conducted our work by reference to the Auditing Guideline 3.341 on “Accountants’ Report on Profit Forecasts” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). Our work is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing issued by the HKICPA and accordingly we do not express an audit opinion.

In our opinion, so far as the accounting policies and calculations are concerned, the IFRS Results Estimate has been compiled on a basis consistent in all material respects with the accounting policies normally adopted in preparation of the audited consolidated financial statements of the Hisense Kelon Group for the year ended 31 December 2008 as set out in Appendix I to the Circular.

Yours faithfully,

BDO Limited

Certified Public Accountants

Hong Kong

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IFRS RESULTS ESTIMATE

APPENDIX VI

(ii) Letter from the Financial Adviser to the Company

==> picture [64 x 36] intentionally omitted <==

South China Capital Limited 28/F., Bank of China Tower No. 1 Garden Road, Central, Hong Kong

29 July 2009

The Board of Directors Hisense Kelon Electrical Holdings Company Limited No. 8 Ronggang Road Ronggui, Shunde Foshan Guangdong Province China

Dear Sirs,

We refer to the IFRS Results Estimate for the six month ended 30 June 2009 set out in Appendix VI to the circular of the Company to be dated 31 July 2009 (the “Circular”), of which this report forms part. Unless specified otherwise, capitalized terms used herein shall have the same meanings as those defined in this Circular.

We have reviewed the IFRS Results Estimate for which you as the Directors are solely responsible. The IFRS Results Estimate has been prepared by the Directors based on the unaudited consolidated results of the Hisense Kelon Group for the six month ended 30 June 2009.

We have discussed with you the bases upon which the IFRS Results Estimate has been made. We have also considered the letter dated 29 July 2009 addressed to you from BDO Limited as set out in Appendix VI to the Circular regarding the accounting policies and calculations upon which the IFRS Results Estimate has been made and noted that BDO Limited is satisfied that the IFRS Results Estimate has been compiled on a basis consistent in all material respects with the accounting policies normally adopted in preparation of the audited consolidated financial statements of the Hisense Kelon Group for the year ended 31 December 2008 as set out in Appendix I to the Circular.

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IFRS RESULTS ESTIMATE

APPENDIX VI

On the basis of the foregoing, we are of the opinion that the IFRS Results Estimate, for which you as the Directors are solely responsible, has been made after due care and consideration.

Yours faithfully, For and on behalf of South China Capital Limited William Ip Manfred Shiu Director Director

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IFRS RESULTS ESTIMATE

APPENDIX VI

(iii) Letter from the Independent Financial Adviser

==> picture [100 x 46] intentionally omitted <==

Suite 606, 6th Floor Bank of America Tower 12 Harcourt Road Central Hong Kong

29 July 2009

The Board of Directors

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

Dear Sirs,

We refer to the IFRS Results Estimate set out in Appendix VI to the circular of the Company to be dated 31 July 2009 (the “Circular”), of which this report forms part of. Unless specified otherwise, capitalized terms used herein shall have the same meanings as those defined in this Circular.

We have reviewed the IFRS Results Estimate, for which you as Directors are solely responsible. The IFRS Results Estimate has been prepared by the Directors based on the unaudited consolidated results of the Hisense Kelon Group for the six months ended 30 June 2009.

We have discussed with you the bases upon which the IFRS Results Estimate has been made. We have also considered the letter dated 29 July 2009 addressed to you from BDO Limited regarding the accounting policies and calculations upon which the IFRS Results Estimate has been made and noted that BDO Limited is satisfied that the IFRS Results Estimate has been presented on a basis consistent in all material respects with the accounting policies normally adopted in preparation of the audited consolidated financial statements of the Hisense Kelon Group for the year ended 31 December 2008 as set out in Appendix I to the Circular.

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IFRS RESULTS ESTIMATE

APPENDIX VI

On the basis of the foregoing, we are of the opinion that the IFRS Results Estimate, for which you as Directors are solely responsible, has been made with due care and consideration.

Yours faithfully, For and on behalf of Access Capital Limited

Alexander Tai Principal Director

— VI-7 —

SUMMARY OF THE PRC VALUATION REPORTS

APPENDIX VII

The Directors wish to advise the Shareholders that the disclosure of the PRC Valuation Reports in the information disclosure website designated by CSRC is a requirement under the relevant PRC regulatory requirements including “上市公司重大資產重組管理辦法” (“Administrative Measures for Major Asset Restructuring of Listed Companies”) and the disclosure herein is to comply with the principle of equality of treatment to the Shareholders in both the Hong Kong and PRC markets. China United Assets Appraisal Co., Ltd. (the “Asset Valuer”) is qualified by the CSRC and the Ministry of Finance of the PRC to undertake assets appraisals in the PRC. The registered address of the Asset Valuer is Floor 22, East Tower, Sichuan Building, No. 1 Fuchengmenwai Street, Beijing, the PRC.

A. SUMMARY OF THE PRC VALUATION REPORTS

In respect of the Acquisition, China United Assets Appraisal Co., Ltd. has been commissioned by the Company and Qingdao Hisense to assess the market value of the assets and liabilities related to each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business, as of the valuation date.

Valuation objective

The objective of the valuation is to determine the market value of all assets and liabilities of Hisense Beijing (including Hisense Nanjing), Hisense Shandong, Hisense Zhejiang, Hisense Marketing Business, Hisense Hitachi and Hisense Mould as of the valuation date, in order to provide a price reference basis for the issue of Consideration Shares by the Company for the Acquisition.

Valuation date

The valuation date is 30 April 2009.

Principal valuation basis

I. Basis in respect of major laws and regulations

《中華人民共和國公司法》(Company Law of the People’s Republic of China) (as amended at the 18th session of the Standing Committee of the 10th National People’s Congress on 27 October 2005);
《中華人民共和國土地管理法》(Land Administration Law of the People’s Republic of China) (as amended at the 11th session of the Standing Committee of the 10th National People’s Congress on 28 August 2004);

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SUMMARY OF THE PRC VALUATION REPORTS

APPENDIX VII

《中華人民共和國城市房地產管理法》(Urban Real Estate Administration Law of the People’s Republic of China) (as amended at the 29th session of the Standing Committee of the 10th National People’s Congress on 30 August 2007);
《企業國有資產監督管理暫行條例》(Interim Regulations on the Supervision and Administration of State-owned Assets of Enterprises) (Order No. 378 of the State Council, 2003);
《國有資產評估管理辦法》(Measures for the Administration of Appraisal of State-owned Assets) (Order No. 91 of the State Council, 1991);
《國有資產評估管理辦法實施細則》(Detailed Rules for the Implementation of Measures for the Administration of Appraisal of State-owned Assets) (Guo Zi Ban Fa [1992] No. 36);
《企業國有資產評估管理暫行辦法》(Interim Measures for the Administration of Appraisal of State-owned Assets of Enterprises) (Order No. 12 of State-owned Assets Supervision and Administration Commission of the State Council, 2005);
《財政部關於改革國有資產評估行政管理方式、加強資產評估監督管理工作的意見》(Opinions of the Ministry of Finance on Reforming the Administration and Management of Appraisal of State-owned Assets and Strengthening the Supervision and Management of Asset Appraisal) (Guo Ban Fa [2001] No. 102);
《資產評估操作規範意見（試行）》(Opinions on Standards for the Operation of Asset Appraisal (Trial)) (as promulgated by China Appraisal Society on 7 May 1996);
《註冊資產評估師關注評估對象法律權屬指導意見》(Guiding Opinions for Certified Public Valuer on Legal Ownership of Subject under Appraisal) (Chinese Institute of Certified Public Accountants, 2003);
《企業價值評估指導意見（試行）》(Guiding Opinions for Valuation of Business Enterprises (Trial)) (China Appraisal Society, 30 December 2004);

— VII-2 —

SUMMARY OF THE PRC VALUATION REPORTS

APPENDIX VII

《關於改革土地估價結果確認和土地資產處置審批辦法的通知》(Notice on Measures for Reforming the Approval of Land Valuation Results Confirmation and Land Assets Disposal) (Guo Tu Zi Fa [2001] No. 44 of the Ministry of Land and Resources);
「關於印發《國土資源部關於加強土地資產管理促進國有企業改革和發展的若干意見》的通知」(“Notice on the Issuance of Certain Opinions of the Ministry of Land and Resources on the Strengthening of Land Assets Management for Facilitating the Reform and Development of Stateowned Enterprises”) by the Ministry of Land and Resources (Guo Tu Zi Fa [1999] No. 433);
《關於印發 < 土地分類 > 的通知》(Notice on the Issuance of Land Classification) by the Ministry of Land and Resources (Guo Tu Zi Fa [2001] No. 255).

II. Basis in respect of valuation standards

1. 《資產評估準則基本準則》(Asset Appraisal Standards — Basic Standards) (Cai Qi (2004) No. 20);
1. 《資產評估職業道德準則基本準則》(Asset Appraisal Professional Ethics Standards — Basic Standards) (Cai Qi (2004) No. 20);
1. 《資產評估準則評估報告》(Asset Appraisal Standards — Valuation Report) (Zhong Ping Xie [2007] No. 189);
1. 《資產評估準則評估程序》(Asset Appraisal Standards — Valuation Procedure) (Zhong Ping Xie [2007] No. 189);
《資產評估價值類型指導意見》(Guiding Opinions for Types of Value under Asset Appraisal) (Zhong Ping Xie [2007] No. 189);
1. 《資產評估準則機器設備》(Asset Appraisal Standards — Machinery & Equipment) (Zhong Ping Xie [2007] No. 189);
1. 《資產評估準則不動產》(Asset Appraisal Standards — Property) (Zhong Ping Xie [2007] No. 189);
《企業國有資產評估報告指南》(Guidelines for Valuation Report of Stateowned Assets of Enterprises) (Zhong Ping Xie [2008] No. 218);

— VII-3 —

SUMMARY OF THE PRC VALUATION REPORTS

APPENDIX VII

《資產評估操作規範意見（試行）》(Opinions on Standards for the Operation of Asset Appraisal (Trial)) (as promulgated by China Appraisal Society on 7 May 1996);
《註冊資產評估師關注評估對象法律權屬指導意見》(Guiding Opinions for Certified Public Valuer on Legal Ownership of Subject under Appraisal) (Chinese Institute of Certified Public Accountants, 2003);
1. 《企業會計準則基本準則》(Accounting Standards for Business Enterprises — Basic Standards) (Order No. 33 of the Ministry of Finance of the People’s Republic of China);
1. 38 specific standards including 《企業會計準則第 1 號存貨》 (Accounting Standards for Business Enterprises No. 1 – Inventories) (Cai Hui [2006] No. 3 of the Ministry of Finance of the People’s Republic of China);
1. 《企業會計準則應用指南》(Accounting Standards for Business Enterprises — Application Guide) (Cai Hui [2006] No. 18 of the Ministry of Finance of the People’s Republic of China);
《房地產估價規範》(Code for Real Estate Appraisal) (GB/T50291-1999);
《城鎮土地估價規程》(Regulations for Valuation on Urban Land) (GB/ T18508-2001);
《城鎮土地分等定級規程》(Regulations for Gradation and Classification on Urban Land) (GB/T18507-2001).

III. Documents on economic behaviour

Resolutions of the board of directors of the Company and Qingdao Hisense relating to the Acquisition.

Valuation assumptions

The specific valuation purposes set out in the PRC Valuation Reports represent the basic assumptions of the valuation;
Each type of asset under the valuation is based on its actual inventory as at the valuation date, whereas the prevailing market price of the asset is based on the effective domestic price as at the valuation date;

— VII-4 —

SUMMARY OF THE PRC VALUATION REPORTS

APPENDIX VII

The valuation assumes that there will be no unforeseen significant changes in the external economic environment after the valuation date;
The valuation assumes that the operation of enterprises is lawful and there will be no unforeseen factors that will cause a cessation of its ongoing operations;
The result of valuation represents the prevailing market values for the purposes of the valuation which has been arrived at based on the premises of continual use and open market. Future possible pledges and guarantees, effects on the valuation by additional prices to be paid as a result of special transaction modes, changes in the State’s macroeconomic policies, and effects on the asset values by natural forces and other forces majeure are not taken into consideration;
The scope of the valuation and data, statements and related information used in this valuation are provided by the enterprises under valuation. The enterprises under valuation are responsible for the truthfulness and completeness for the information provided. The valuation assumes that the abovementioned information and data can truly and completely reflect the actual position of the enterprises;
The documentary proofs and related information of ownership in the PRC Valuation Reports are provided by the enterprises under valuation. The enterprises under valuation bear legal responsibility for their truthfulness and legality. Unless otherwise specifically stated, the valuation assumes that there is no legal defect in the assets of the enterprises;
The assessment parameters used in the valuation have not taken into account inflation factors;
There is no significant change in the prevailing bank interest rates, exchange rates and tax policies of the State; and
There is no significant change in the enterprise’s management team, which manages the business operation responsibly and diligently by using existing operation modes and plans.

In case of occurrence of events which are inconsistent with the aforesaid assumptions, the results of this valuation would generally become invalid.

— VII-5 —

APPENDIX VII SUMMARY OF THE PRC VALUATION REPORTS

Valuation scope and method

The scope and subjects of valuation are all assets and liabilities of Hisense Beijing (including Hisense Nanjing), Hisense Shandong, Hisense Zhejiang, Hisense Marketing Business, Hisense Hitachi and Hisense Mould, including the current assets, long-term investment, fixed assets, intangible assets, other assets and current liabilities and non-current liabilities.

The “book value” as shown in the Asset Valuation Detailed Lists is the data which has been provided by assessed companies and audited and adjusted by BDO Guangdong Dahua Delu Certified Public Accountants. Qingdao Hisense together with its subsidiaries and the jointly controlled entity which were included in the scope of valuation have undertaken their respective legality and truthfulness. On this basis, the Asset Valuer conducted thorough examination and verification on the book amount, quantity and status of property right, etc. of the assets and liabilities of the assessed companies included in the scope of valuation under the cooperation of the commissioning parties and assessed companies, and has examined the significant events that may affect the asset valuation.

This valuation complied with the laws, regulations and valuation standards of the PRC related to asset valuation, and followed working principles of independence, objectiveness, fairness and scientificism, and relevant economic principles such as the principle in respect of change in ownership of property right interests and the principle of substitution. The value was calculated and determined by using the cost approach and income approach based on the actual condition of the assessed assets, the relevant information of market transactions and the prevailing market prices of the assets, with reference to the historical cost and income of the assets, assuming the continual use of the assets and the availability of open market.

The value assessed in this valuation is classified as market value.

— VII-6 —

APPENDIX VII SUMMARY OF THE PRC VALUATION REPORTS

Valuation results

After having performed necessary asset valuation procedures, the valuation conclusion of the net assets of Hisense Beijing (including Hisense Nanjing), Hisense Shandong, Hisense Zhejiang, Hisense Marketing Business, Hisense Hitachi and Hisense Mould as of 30 April 2009, being the valuation date, by using the cost approach and income approach, is as follows:

I. Valuation results derived from the cost approach

1. Hisense Beijing (including Hisense Nanjing)

The book value of assets was RMB475,577,800, with an adjusted book value of RMB475,577,800 and an assessed value of RMB609,724,800, representing a valuation increase of RMB134,147,000 or 28.21%.

The book value of liabilities was R MB326,564,600, with an adjusted book value of RMB326,564,600 and an assessed value of RMB322,689,000, representing a valuation decrease of RMB3,875,600 or 1.19%.

The book value of net assets was R MB149,013,200, with an adjusted book value of RMB149,013,200 and an assessed value of RMB287,035,800, representing a valuation increase of RMB138,022,600 or 92.62%.

2. Hisense Shandong

The book value of assets was RMB1,135,601,900, with an adjusted book value of RMB1,135,601,900 and an assessed value of RMB1,307,612,300, representing a valuation increase of RMB172,010,300 or 15.15%.

The book value of total liabilities was RMB580,153,400, with an adjusted book value of RMB580,153,400 and an assessed value of RMB580,153,400, representing no valuation increase or decrease.

The book value of net assets was R MB555,448,600, with an adjusted book value of RMB555,448,600 and an assessed value of RMB727,458,900, representing a valuation increase of RMB172,010,300 or 30.97%.

— VII-7 —

APPENDIX VII SUMMARY OF THE PRC VALUATION REPORTS

3. Hisense Zhejiang

The book value of assets was RMB312,264,400, with an adjusted book value of RMB312,264,400 and an assessed value of RMB386,577,200, representing a valuation increase of RMB74,312,800 or 23.80%.

The book value of total liabilities was RMB205,902,800, with an adjusted book value of RMB205,902,800 and an assessed value of RMB205,902,800, representing no valuation increase or decrease.

The book value of net assets was R MB106,361,600, with an adjusted book value of RMB106,361,600 and an assessed value of RMB180,674,400, representing a valuation increase of RMB74,312,800 or 69.87%.

4. Hisense Marketing Business

The book value of assets was RMB1,339,006,300, with an adjusted book value of RMB1,339,006,300 and an assessed value of RMB1,375,148,200, representing a valuation increase of RMB36,141,900 or 2.70%.

The book value of total liabilities was RMB1,434,102,500, with an adjusted book value of RMB1,434,102,500 and an assessed value of RMB1,434,102,500, representing no valuation increase or decrease.

The book value of net assets was R MB-95,096,200, with an adjusted book value of RMB-95,096,200 and an assessed value of RMB-58,954,300, representing a valuation increase of RMB36,141,900.

5. Hisense Hitachi

The book value of assets was RMB446,821,000, with an adjusted book value of RMB446,821,000 and an assessed value of RMB574,637,700, representing a valuation increase of RMB127,816,700 or 28.61%.

The book value of total liabilities was RMB205,799,300, with an adjusted book value of RMB205,799,300 and an assessed value of RMB205,799,300, representing no valuation increase or decrease.

The book value of owners’ equity was RMB241,021,700, with an adjusted book value of RMB241,021,700 and an assessed value of RMB368,838,400, representing a valuation increase of RMB127,816,700 or 53.03%.

— VII-8 —

APPENDIX VII SUMMARY OF THE PRC VALUATION REPORTS

6. Hisense Mould

The book value of assets was RMB219,757,800, with an adjusted book value of RMB219,757,800 and an assessed value of RMB259,270,700, representing a valuation increase of RMB39,512,900 or 17.98%.

The book value of total liabilities was RMB82,706,900, with an adjusted book value of RMB82,706,900 and an assessed value of RMB82,706,900, representing no valuation increase or decrease.

The book value of net assets was R MB137,050,900, with an adjusted book value of RMB137,050,900 and an assessed value of RMB176,563,800, representing a valuation increase of RMB39,512,900 or 28.83%.

II. Valuation results derived from the income approach

According to the financial data, market forecast and corporate development planning provided by the commissioning parties, after calculation, the valuation result of the owners’ equity value of Hisense Beijing (including Hisense Nanjing) derived from the income approach was RMB294,255,800; the valuation result of the owners’ equity value of Hisense Shandong derived from the income approach was RMB729,024,600; the valuation result of the owners’ equity value of Hisense Zhejiang derived from the income approach was RMB180,631,200; the valuation result of the net assets value of Hisense Marketing Business derived from the income approach was RMB-57,770,900; the valuation result of the owners’ equity value of Hisense Hitachi derived from the income approach was RMB383,689,700; and the valuation result of the owners’ equity value of Hisense Mould derived from the income approach was RMB181,423,700.

III. Choice of valuation results

Valuation results derived from the income approach are based on the accuracy of forecasts on the future business development and income of a company. In light of the recent volatile economic environment and the uncertainties associated with the forecasts on the future income, and the valuation results derived from the cost approach is the objective reflection of the current

— VII-9 —

APPENDIX VII SUMMARY OF THE PRC VALUATION REPORTS

situation. Therefore, the valuation results derived from the cost approach shall reflect the equity value of the assessed companies more objectively. Therefore, the valuation results derived from the cost approach were adopted as the results for the valuation.

The valuation conclusion presented in the PRC Valuation Reports is valid for the purpose of the Acquisition only.

The valuation results are valid for use for one year from 30 April 2009 to 29 April 2010.

In case of any conflict between the English version and Chinese version of the summaries of the PRC Valuation Reports stated in this Appendix VII, the Chinese version shall prevail.

— VII-10 —

APPENDIX VII SUMMARY OF THE PRC VALUATION REPORTS

B. LETTER

Set out below is the text of the letter received by the Directors from the Financial Adviser to the Company in connection with the PRC Valuation for the purpose of inclusion in this circular.

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South China Capital Limited 28/F., Bank of China Tower No.1 Garden Road, Central, Hong Kong

29 July 2009

The Board of Directors Hisense Kelon Electrical Holdings Company Limited No. 8 Ronggang Road Ronggui, Shunde Foshan Guangdong Province China

Dear Sirs,

We refer to the PRC valuation reports dated 25 June 2009 prepared by China United Assets Appraisal Co., Ltd. (the “Valuer”) in respect of the asset appraisal (the “PRC Valuation”) of Hisense Beijing (including Hisense Nanjing), Hisense Shandong, Hisense Zhejiang, Hisense Mould, Hisense Hitachi and Hisense Marketing Business (individually referred to as the “Enterprise” or collectively referred to as the “Target Group”) and a summary of which is set out in Appendix VII to the circular of Hisense Kelon Electrical Holdings Company Limited (the “Company”) to be dated 31 July 2009 (the “Circular”), of which this report forms part. Unless specified otherwise, capitalized terms used herein shall have the same meanings as those defined in this Circular.

The PRC Valuation including the bases and assumptions as set out in the valuation reports, for which the Valuer is solely responsible, has been (i) compiled with the information provided by the directors of each of the respective Enterprise; (ii) prepared on the basis upon which the best valuation approach has been adopted by the Valuer; and (iii) reviewed by the Directors. The principal bases and assumption have been set out on page VII-1 to VII-5 of the Circular.

— VII-11 —

APPENDIX VII SUMMARY OF THE PRC VALUATION REPORTS

The PRC Valuation has been prepared using a set of assumptions that include hypothetical assumptions about future events and other assumptions that may or may not necessarily be expected to occur. Consequently, readers are cautiously reminded that the PRC Valuation may not be appropriate for purposes other than for deriving the PRC Valuation of the Target Group as at 30 April 2009. Even though the hypothetical assumptions do occur as anticipated, actual results are still likely to be different from the PRC Valuation since the other anticipated events frequently may or may not occur as expected and variations may be possibly occurred to certain extent.

We have reviewed and discussed with the Directors the qualifications of the Valuer and are of the view that the Valuer has skills and understanding to undertake the PRC Valuation competently. We have also reviewed the PRC Valuation and discussed with the Directors and the Valuer the bases and assumptions upon which the PRC Valuation have been prepared.

We are of the opinion that the PRC Valuation has been made after due care and consideration.

Yours faithfully,

For and on behalf of

South China Capital Limited William Ip Manfred Shiu Director Director

— VII-12 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

The following is the text of a letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this circular and received from Jones Lang LaSalle Sallmanns Limited, an independent valuer, in connection with its valuation as at 30 April 2009 of the property interests of the Enlarged Group. As described in section “Documents Available for Inspection” in Appendix IX, a copy of the full valuation report will be made available for public inspection.

==> picture [131 x 42] intentionally omitted <==

31 July 2009

The Board of Directors

Hisense Kelon Electrical Holdings Company Limited No. 8 Ronggang Road Ronggui Street Shunde District Foshan City Guangdong Province The People’s Republic of China

Dear Sirs,

Pursuant to a proposed acquisition, Hisense Kelon Electrical Holdings Company Limited (the “Company”) intends to acquire the Target Group from Qingdao Hisense Airconditioning Company Limited (“Qingdao Hisense”). The Target Group comprises the following equity interests, assets, liabilities and business:

55% of equity interests in Hisense (Beijing) Electric Company Limited which in turn holds 60% of equity interests in Hisense (Nanjing) Electric Co., Ltd.
100% of equity interests in Hisense (Shandong) Air-conditioning Company Limited
51% of equity interests in Hisense (Zhejiang) Air-condition Co., Ltd.
78.7% of equity interests in Qingdao Hisense Mould Company Limited
49% of equity interests in Qingdao Hisense Hitachi Air-conditioning Systems Co., Ltd.

— VIII-1 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

the assets, business operation and liabilities of Qingdao Hisense Marketing Company Limited for and in relation to the operation of sales and marketing of white goods products.

In accordance with your instructions to value the properties in which the Company and its subsidiaries (hereinafter together referred to as the “Group”) and the Target Group (The Group and the Target Group are together defined as the “Enlarged Group”) have interests in the People’s Republic of China (the “PRC”), we confirm that we have carried out inspections, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the capital values of the property interests as at 30 April 2009 (the “date of valuation”).

Our valuation of the property interests represents the market value which we would define as intended to mean “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion”.

We have valued the property interests of property nos. 8 to 13 and 18 in Group I, property nos. 23, 24 and 27 in Group II and property no. 31 in Group III by direct comparison approach assuming sale of the property interests in their existing state with the benefit of immediate vacant possession and by making reference to comparable sales transactions as available in the relevant market.

Where, due to the nature of many of the typical buildings and structures considered by this report and the particular locations in which they are situated, there are unlikely to be relevant market comparable sales readily available, the property interests of property nos. 1 to 7, 14 to 17 and 19 to 21 in Group I and property nos. 22, 25, 26 and 28 to 30 in Group II have therefore been valued on the basis of their depreciated replacement cost.

Depreciated replacement cost is defined as “the current cost of replacement (reproduction) of a property less deductions for physical deterioration and all relevant forms of obsolescence and optimization.” It is based on an estimate of the market value for the existing use of the land, plus the current cost of replacement (reproduction) of the improvements, less deductions for physical deterioration and all relevant forms of obsolescence and optimization. The depreciated replacement cost of the property interest is subject to adequate potential profitability of the concerned business.

— VIII-2 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

In valuing the property interests in Groups IV and V which were under construction as at the date of valuation, we have assumed that they will be developed and completed in accordance with the latest development proposal provided to us by the Group and the Target Group. In arriving at our opinion of value, we have taken into account the construction cost and professional fees relevant to the stage of construction as at the date of valuation and the remainder of the cost and fees to be expended to complete the development.

We have attributed no commercial value to the property interests in Groups VI, VII and VIII, which are leased by the Group, the Target Group and Qingdao Hisense Marketing Company Limited, due either to the short-term nature of the lease or the prohibition against assignment or sub-letting or otherwise due to the lack of substantial profit rent.

Our valuation has been made on the assumption that the seller sells the property interests in the market without the benefit of a deferred term contract, leaseback, joint venture, management agreement or any similar arrangement, which could serve to affect the values of the property interests.

No allowance has been made in our report for any charge, mortgage or amount owing on any of the property interests valued nor for any expense or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect their values.

In valuing the property interests, we have complied with all requirements contained in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong Kong Limited; the RICS Valuation Standards (6th Edition) published by the Royal Institution of Chartered Surveyors; and the HKIS Valuation Standards on Properties (1st Edition 2005) published by the Hong Kong Institute of Surveyors.

As the Enlarged Group is in compliance with paragraph 3(b) of Practice Note 16 of the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong Kong Limited and section 6 of Companies Ordinance (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice, the full details of the individual leased properties under operating lease have been excluded from the valuation certificates in our valuation report to this circular, of which summaries are included in the Summary of Values and the certificates for leased properties.

— VIII-3 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

We have relied to a very considerable extent on the information given by the Enlarged Group and have accepted advice given to us on such matters as tenure, planning approvals, statutory notices, easements, particulars of occupancy, lettings, and all other relevant matters.

We have been shown copies of various title documents including State-owned Land Use Rights Certificates, Building Ownership Certificates, Real Estate Title Certificates and official plans relating to the property interests and have made relevant enquiries. Where possible, we have examined the original documents to verify the existing title to the property interests in the PRC and any material encumbrance that might be attached to the property interests or any tenancy amendment. We have relied considerably on the advice given by the Company’s PRC legal advisers – Beijing Tianyin Law Firm dated 29 July 2009, concerning the validity of the property interests in the PRC.

We have not carried out detailed measurements to verify the correctness of the areas in respect of the properties but have assumed that the areas shown on the title documents and official site plans handed to us are correct. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations. No on-site measurement has been taken.

We have inspected the exterior and, where possible, the interior of the properties. However, we have not carried out investigation to determine the suitability of the ground conditions and services for any development thereon. Our valuation has been prepared on the assumption that these aspects are satisfactory and that no unexpected cost and delay will be incurred during construction. Moreover, no structural survey has been made, but in the course of our inspection, we did not note any serious defect. We are not, however, able to report whether the properties are free of rot, infestation or any other structural defect. No tests were carried out on any of the services.

We have had no reason to doubt the truth and accuracy of the information provided to us by the Enlarged Group and Qingdao Hisense Marketing Company Limited. We have also sought confirmation from the Enlarged Group and Qingdao Hisense Marketing Company Limited that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to arrive an informed view, and we have no reason to suspect that any material information has been withheld.

— VIII-4 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

Unless otherwise stated, all monetary figures stated in this report are in Renminbi (RMB).

Our valuation is summarized below and the valuation certificates are attached.

Yours faithfully, for and on behalf of

Jones Lang LaSalle Sallmanns Limited Paul L. Brown

B.Sc. FRICS FHKIS

Director

Note: Paul L. Brown is a Chartered Surveyor who has 26 years’ experience in the valuation of properties in the PRC and 29 years of property valuation experience in Hong Kong, the United Kingdom and the Asia-Pacific region.

— VIII-5 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

SUMMARY OF VALUES

Group I — Property interests held and occupied by the Group in the PRC

				Capital value
				attributable
			Interest	to the
		Capital value in	attributable	Enlarged
		existing state	to the	Group
		as at	Enlarged	as at
No.	Property	30 April 2009	Group	30 April 2009
		RMB		RMB
1.	A parcel of land, various buildings	73,971,000	60%	44,383,000
	and structures
	No. 1 East Rongqi Avenue
	Shunde District
	Foshan city
	Guangdong Province
	The PRC
2.	2 parcels of land, various buildings	40,300,000	100%	40,300,000
	and structures
	No. 6 East Rongqi Avenue
	Shunde District
	Foshan City
	Guangdong Province
	The PRC
3.	3 parcels of land, various buildings	188,589,000	100%	188,589,000
	and structures
	Nos. 8, 11 and 13 Ronggang Road
	Shunde District
	Foshan City
	Guangdong Province
	The PRC
4.	5 parcels of land, various	182,349,000	60%	109,409,000
	buildings and structures located
	at the northern side of Rongqi Bridge
	Guangzhu Road
	Shunde District
	Foshan City
	Guangdong Province
	The PRC

— VIII-6 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

				Capital value
				attributable
			Interest	to the
		Capital value in	attributable	Enlarged
		existing state	to the	Group
		as at	Enlarged	as at
No.	Property	30 April 2009	Group	30 April 2009
		RMB		RMB
5.	2 parcels of land, various buildings and	49,064,000	100%	49,064,000
	structures located at the northern side
	of Rongqi Bridge
	Guangzhu Road
	Shunde District
	Foshan City
	Guangdong Province
	The PRC
6.	3 parcels of land, various	171,040,000	100%	171,040,000
	buildings and structures
	Nos. 29 and 46 Wenfeng North Road
	Shunde District
	Foshan City
	Guangdong Province
	The PRC
7.	A parcel of land, a warehouse	32,615,000	100%	32,615,000
	and various structures
	No. 2 Fengye Road
	Shunde District
	Foshan City
	Guangdong Province
	The PRC
8.	168 residential units,	14,284,000	100%	14,284,000
	99 commercial units and
	43 car parking spaces
	of Meijing Mansion located at
	Mid Rongqi Avenue
	Shunde District
	Foshan City
	Guangdong Province
	The PRC

— VIII-7 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

				Capital value
				attributable
			Interest	to the
		Capital value in	attributable	Enlarged
		existing state	to the	Group
		as at	Enlarged	as at
No.	Property	30 April 2009	Group	30 April 2009
		RMB		RMB
9.	4 car parking spaces and	1,051,000	100%	1,051,000
	14 utility rooms of Kangfu Garden
	located at Xinghua Road
	Ronggui Town
	Shunde District
	Foshan City
	Guangdong Province
	The PRC
10.	24 residential units of	2,779,000	100%	2,779,000
	Julong Garden located at
	Xihuan Street
	Ronggui Avenue
	Shunde District
	Foshan City,
	Guangdong Province
	The PRC
11.	A unit of a 6-storey residential building	No commercial	100%	No commercial
	in Yaowangmiao Community	value		value
	No. 139 Yaowangmiao Road
	Shenhe District
	Shenyang City
	Liaoning Province
	The PRC
12.	Units 605 and 606 North Block	No commercial	100%	No commercial
	Yuetan Mansion	value		value
	located at
	Xicheng District
	Beijing
	The PRC
13.	Unit 17 of a 7-storey residential building	No commercial	100%	No commercial
	No. 9 Zong Nan Zheng Street	value		value
	Wuhou District
	Chengdu City
	Sichuan Province
	The PRC

— VIII-8 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

				Capital value
				attributable
			Interest	to the
		Capital value in	attributable	Enlarged
		existing state	to the	Group
		as at	Enlarged	as at
No.	Property	30 April 2009	Group	30 April 2009
		RMB		RMB
14.	A parcel of land, various	63,499,000	78.79%	50,031,000
	buildings and structures
	No. 9 Fushengli
	Zhanqian District
	Yingkou City
	Liaoning Province
	The PRC
15.	A parcel of land, various	No commercial	100%	No commercial
	buildings and structures located at	value		value
	Sifangyuan
	Suiyang District
	Shangqiu City
	Henan Province
	The PRC
16.	A parcel of land, various	No commercial	100%	No commercial
	buildings and structures located	value		value
	at the western side of Kaixuan Road
	and the southern side of Nanjing Road
	Suiyang District
	Shangqiu City
	Henan Province
	The PRC
17.	A parcel of land, various	24,688,000	80%	19,750,000
	buildings and structures
	No. 216 Yinhu North Road
	Wuhu Development Zone
	Wuhu City
	Anhui Province
	The PRC

— VIII-9 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

				Capital value
				attributable
			Interest	to the
		Capital value in	attributable	Enlarged
		existing state	to the	Group
		as at	Enlarged	as at
No.	Property	30 April 2009	Group	30 April 2009
		RMB		RMB
18.	Units 20-3-401 and 20-3-402 on Level 4	962,000	80%	770,000
	of Block 20 of Yuanding Community
	Xinwu District
	Wuhu City
	Anhui Province
	The PRC
19.	A parcel of land, various	38,859,000	60%	23,315,000
	buildings and structures
	No. 67 Keji Er Road
	Hi-Tech Industrial
	Development Zone
	Xi’an City
	Shaanxi Province
	The PRC
20.	A parcel of land, various	281,704,000	100%	281,704,000
	buildings and structures
	Nos. 9 and 19 Hongyang Road
	Yangzhou City
	Jiangsu Province
	The PRC
21.	A parcel of land, various	40,048,000	100%	40,048,000
	buildings and structures
	No. 1888 Chenglong Road
	Long Quan Yi District
	Chengdu City
	Sichuan Province
	The PRC
	Sub-total:	1,205,802,000		1,069,132,000

— VIII-10 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

Group II — Property interests held and occupied by the Target Group in the PRC

				Capital value
				attributable
			Interest	to the
		Capital value in	attributable	Enlarged
		existing state	to the	Group
		as at	Enlarged	as at
No.	Property	30 April 2009	Group	30 April 2009
		RMB		RMB
22.	A parcel of land, various buildings and	260,024,000	100%	260,024,000
	structures located at Nancun Town
	Pingdu City
	Shandong Province
	The PRC
23.	A car parking lot of Fushanwan Garden	No commercial	100%	No commercial
	No. 12 Aomen Road	value		value
	Qingdao City
	Shandong Province
	The PRC
24.	5 residential units of Blocks	5,260,000	55%	2,893,000
	38 and 41 of Xing Hua Nan Li
	Daxing District
	Beijing
	The PRC
25.	A parcel of land and portions	45,184,000	55%	24,851,000
	of an office building
	No. 1 Xinghua Avenue
	Huangcun Town
	Daxing District
	Beijing
	The PRC
26.	A parcel of land, various	147,410,000	33%	48,645,000
	buildings and structures
	No. 19 Hengfei Road
	Xingang Development Zone
	Nanjing City
	Jiangsu Province
	The PRC

— VIII-11 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

					Capital value
					attributable
				Interest	to the
			Capital value in	attributable	Enlarged
			existing state	to the	Group
			as at	Enlarged	as at
No.	Property		30 April 2009	Group	30 April 2009
			RMB		RMB
27.	Units 1005 and 1006		2,960,000	33%	977,000
	Entrance 3 Block 1,
	Bei Yuan Zhi Xing Garden
	No. 8 Huafei Road
	Xuanwu District
	Nanjing City
	Jiangsu Province
	The PRC
28.	2 parcels of land, various		108,781,000	51%	55,478,000
	buildings and structures
	located at the northern side
	of Central Avenue
	Economic Development Zone
	Changxing County
	Zhejiang Province
	The PRC
29.	A parcel of land, various		29,868,000	78.7%	23,506,000
	buildings and structures
	No. 1 Shangmaduan
	Aodong Road
	Chengyang District
	Qingdao City
	Shandong Province
	The PRC
30.	A parcel of land, various		97,505,000	49%	47,777,000
	buildings and structures
	No. 218 Qianwangang Road
	Econ-Tech Development Zone
	Huangdao District
	Qingdao City
	Shandong Province
	The PRC
		Sub-total:	696,992,000		464,151,000

— VIII-12 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

Group III — Property interest held for future development by the Group in the PRC

					Capital value
					attributable
				Interest	to the
		Capital value in		attributable	Enlarged
		existing state		to the	Group
			as at	Enlarged	as at
No.	Property	30 April 2009		Group	30 April 2009
			RMB		RMB
31.	A parcel of land located	19,996,000		100%	19,996,000
	at the eastern side of Waihuan Road
	Gaoli Community
	Ronggui Town
	Shunde District
	Foshan City
	Guangdong Province
	The PRC
	Sub-total:	19,996,000			19,996,000

Group IV — Property interest held under development by the Group in the PRC

					Capital value
					attributable
				Interest	to the
		Capital value in		attributable	Enlarged
		existing state		to the	Group
			as at	Enlarged	as at
No.	Property	30 April 2009		Group	30 April 2009
			RMB		RMB
32.	6 buildings and various structures	No commercial		100%	No commercial
	under construction located at		value		value
	Baixi Village
	Zhicheng Town
	Changxi County
	Zhejiang Province
	The PRC

Sub-total: Nil Nil

— VIII-13 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

Group V — Property interest held under development by the Target Group in the PRC

					Capital value
					attributable
				Interest	to the
			Capital value in	attributable	Enlarged
			existing state	to the	Group
			as at	Enlarged	as at
No.	Property		30 April 2009	Group	30 April 2009
			RMB		RMB
33.	2 parcels of land, a building		43,844,000	51%	22,360,000
	under construction and
	a completed building located at
	Baixi Village
	Zhicheng Town
	Changxi County
	Zhejiang Province
	The PRC
		Sub-total:	43,844,000		22,360,000

Group VI — Property interests rented and occupied by the Group in the PRC

		Capital value
		in existing state
		as at
No.	Property	30 April 2009
		RMB
34.	38 leased properties located in	No commercial value
	28 cities in the PRC
	Sub-total:	Nil

— VIII-14 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

Group VII — Property interests rented and occupied by the Target Group in the PRC

Capital value in existing state as at No. Property 30 April 2009 RMB 35. 5 buildings No commercial value No. 36 Qingyuan Road Daxing District Beijing The PRC 36. 34 leased properties located in No commercial value 28 cities in the PRC Sub-total: Nil Group VIII — Property interests rented and occupied by Qingdao Hisense Marketing Company Limited

No. Property 37. 73 leased properties located in 29 cities in the PRC Sub-total: Grand total: 1,966,634,000	Capital value in existing state as at 30 April 2009 RMB No commercial value Nil
	1,575,639,000

Note: According to the information provided by the Enlarged Group, the potential tax liabilities which would arise on the disposal of property interests in Group I, II, III, IV and V are PRC Business Tax of 5% of consideration, PRC Land Appreciation Tax (ranging from 30% to 60 % of the appreciated amount), PRC Enterprises Income Tax (ranging from 0 to 25% of the profit), PRC Urban Maintenance and Construction Tax (ranging from 1% to 7% of PRC Business Tax and PRC Land Appreciation Tax). But the likelihood of any tax liability being crystalised is remote as the Enlarged Group has no intention to dispose of the properties at present.

— VIII-15 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

Group I — Property interests held and occupied by the Group in the PRC

No. Property Description and tenure 1. A parcel of land, The property comprises a various buildings and parcel of land with a site area structures of approximately 43,586.1 sq.m. No. 1 East Rongqi and 16 buildings and various Avenue structures erected thereon which Shunde District were completed in about 1993. Foshan city Guangdong Province The buildings have a total gross The PRC floor area of approximately 68,347.4 sq.m.

	Capital value
	in existing state
Particulars	as at
of occupancy	30 April 2009
	RMB
The property is	73,971,000
currently occupied
by the Group	60% interest
for production,	attributable to
storage, office and	the Enlarged Group:
ancillary facilities	RMB44,383,000
purposes.

The buildings mainly include industrial buildings, office buildings, warehouses and ancillary buildings.

The structures mainly include roads, sewers and greenery facilities.

The land use rights of the property have been granted for a term of 50 years expiring on 31 May 2044 for industrial use.

Notes:

Pursuant to a Real Estate Title Certificate — Yue Fang Di Zheng Zi No. C1485787, 16 buildings with a total gross floor area of approximately 68,347.4 sq.m. are owned by Guangdong Kelon Air-conditioner Co., Ltd. (廣東科龍空調器有限公司, “Kelon Air-conditioner”), a 60% interest owned subsidiary of the Company. The relevant land use rights of a parcel of land, on which the buildings are located, with a site area of approximately 43,586.1 sq.m. have been granted to Kelon Air-conditioner for a term of 50 years expiring on 31 May 2044 for industrial use.
Pursuant to a Mortgage Contract, the property together with the buildings and relevant land use rights mentioned in note 2 of property no. 4 are subject to a mortgage in favour of Bank of China Limited Foshan Branch（中國銀行股份有限公司佛山支行）as security for a loan with the maximum amount of RMB255,220,000 for a term of 6 years commencing from 1 January 2007 and expiring on 31 December 2012.

— VIII-16 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property;
b. The Group legally owns the buildings of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the buildings of the property; and
c. The mortgage with respect to the property is legal and valid and has been registered with the local authority; however, the Group has the liability to notify the aforesaid bank when transferring the property.

— VIII-17 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

No. Property Description and tenure 2. 2 parcels of land, The property comprises 2 parcels various buildings and of land with a total site area of structures approximately 26,449.7 sq.m. and No. 6 East Rongqi 9 buildings and various ancillary Avenue structures erected thereon which Shunde District were completed in various stages Foshan City between 1992 and 2003. Guangdong Province The PRC The buildings have a total gross floor area of approximately 30,689.6 sq.m.

	Capital value
	in existing state
Particulars	as at
of occupancy	30 April 2009
	RMB
The property is	40,300,000
currently occupied
by the Group for	100% interest
production and	attributable to
ancillary facilities	the Enlarged Group:
purposes.	RMB40,300,000

The buildings mainly include industrial buildings and ancillary buildings.

The structures mainly include weather sheds, temporary warehouses and roads.

The land use rights of the property have been granted for terms of 50 years expiring on 30 May 2044 and 31 May 2044 respectively for industrial use.

Notes:

Pursuant to a State-owned Land Use Rights Certificate — Shun Fu Guo Yong (96) Zi Di No. 009481100094, the land use rights of a parcel of land with a site area of approximately 11,739 sq.m. have been granted to Guangdong Kelon Electrical Holdings Co., Ltd. (廣東科龍電器股份有限公司, the former name of the Company, “Kelon Electrical”) for a term of 50 years expiring on 31 May 2044 for industrial use.
Pursuant to a Real Estate Title Certificate — Yue Fang Di Zheng Zi No.C0488538, 10 buildings with a total gross floor area of approximately 30,744.8 sq.m. (including the 9 buildings with a total gross floor area of approximately of 30,689.6 sq.m. of this property) are owned by Kelon Electrical. The relevant land use rights of a parcel of land, on which the buildings are located, with a site area of approximately 14,710.7 sq.m. have been granted to Kelon Electrical for a term of 50 years expiring on 30 May 2044 for industrial use.

As confirmed by the Group, an ancillary building under the above Real Estate Title Certificate with a gross floor area of approximately 55.2 sq.m. had been dismantled before the date of valuation, therefore we have excluded such building from our valuation.

— VIII-18 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property;
b. The Group legally owns the buildings of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the buildings of the property; and
c. The Company has been advised to apply for new title certificates of the property under its present name and there will be no material legal impediment for the application.

— VIII-19 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

No. Property Description and tenure

3 parcels of land, various buildings and structures Nos. 8, 11 and 13 Ronggang Road Shunde District Foshan City Guangdong Province The PRC

The property comprises 3 parcels of land with a total site area of approximately 121,386.9 sq.m. and 34 buildings and various ancillary structures erected thereon which were completed in various stages between 1989 and 2008.

The buildings have a total gross floor area of approximately 137,705.9 sq.m.

The buildings mainly include industrial buildings, office buildings, warehouses and ancillary buildings.

Capital value in existing state Particulars as at of occupancy 30 April 2009 RMB The property is 188,589,000 currently occupied by the Group 100% interest for production, attributable to storage, office and the Enlarged Group: ancillary facilities RMB188,589,000 purposes except for a portion of an ancillary building as mentioned in note 2, which is currently rented to an independent third party.

The structures mainly include roads, bridges, boundary fences and swimming pool.

The land use rights of the property have been granted for various terms with the expiry dates between 30 May 2044 and 31 May 2044 for industrial use.

Notes:

Pursuant to 3 Real Estate Title Certificates — Yue Fang Di Zheng Zi Nos. C5740745, C5740746 and C6296098, 33 buildings with a total gross floor area of approximately 134,627.6 sq.m. are owned by the Company. The relevant land use rights of 3 parcels of land, on which the buildings are located, with a total site area of approximately 121,386.9 sq.m. have been granted to the Company for various terms with the expiry dates between 30 May 2044 and 31 May 2044 for industrial use.
According to a Tenancy Agreement, a portion of an ancillary building (used as kindergarten) of the property with a gross floor area of approximately 1,667.8 sq.m. is rented to Ying Cai Kindergarten（英才幼稚園）, an independent third party, for a term expiring on 31 December 2011 at an annual rent of RMB132,000, exclusive of management fees, water and electricity charges.

— VIII-20 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

Pursuant to a Mortgage Contract, the buildings and relevant land use rights under the 2 Real Estate Title Certificates — Yue Fang Di Zheng Zi Nos. C5740745 and C5740746 together with the buildings and relevant land use rights mentioned in note 3 of property no. 6 are subject to a mortgage in favour of Bank of China Limited Foshan Branch as security for a loan with the maximum amount of RMB166,736,400 for a term of 6 years commencing from 1 January 2006 and expiring on 31 December 2011.
Pursuant to a Mortgage Contract, the buildings and relevant land use rights under the Real Estate Title Certificate — Yue Fang Di Zheng Zi No. C6296098 are subject to a mortgage in favour of Bank of China Limited Foshan Branch as security for a loan with the maximum amount of RMB150,410,000 for a term of 6 years commencing from 1 January 2007 and expiring on 31 December 2012.
In the valuation of this property, we have attributed no commercial value to the remaining building with a gross floor area of approximately 3,078.3 sq.m. which has not obtained any proper title certificate. However, for reference purpose, we are of the opinion that the depreciated replacement cost of such building (excluding the land) as at the date of valuation would be RMB4,001,000 assuming all relevant title certificates have been obtained and the building could be freely transferred.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property;
b. The Group legally owns the buildings mentioned in note 1 and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of such buildings;
c. The mortgages with respect to the property are legal and valid and have been registered with the local authority; however, the Group has the liability to notify the aforesaid bank when transferring the property; and
d. For the building mentioned in note 5, the Group has obtained the relevant Construction Work Planning Permit and Construction Work Commencement Permit, and therefore there will be no material legal impediment for the Group to apply for the relevant title certificate of the building on condition that the Construction Work Completion and Inspection Certificate of the building has been obtained.

— VIII-21 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

No. Property Description and tenure

5 parcels of land, The property comprises 5 parcels various buildings and of land with a total site area of structures located at approximately 68,462.9 sq.m. and the northern side of 11 buildings and various ancillary Rongqi Bridge structures erected thereon which Guangzhu Road were completed in various stages Shunde District between 1989 and 2007. Foshan City Guangdong Province The buildings have a total gross The PRC floor area of approximately 148,293 sq.m.
The property comprises 5 parcels of land with a total site area of approximately 68,462.9 sq.m. and 11 buildings and various ancillary structures erected thereon which were completed in various stages between 1989 and 2007.

	Capital value
	in existing state
Particulars	as at
of occupancy	30 April 2009
	RMB
The property is	182,349,000
currently occupied
by the Group	60% interest
for production,	attributable to
storage, office and	the Enlarged Group:
ancillary facilities	RMB109,409,000
purposes.

The buildings mainly include industrial buildings, office buildings, warehouses and ancillary buildings.

The structures mainly include boundary fences and roads.

The land use rights of the property have been granted for terms of 50 years all expiring on 9 November 2050 for industrial use.

Notes:

Pursuant to 5 Real Estate Title Certificates — Yue Fang Di Zheng Zi Nos. C0005419, C0005473, C0005451, C0005076 and C5265567, 11 buildings with a total gross floor area of approximately 148,293 sq.m. are owned by Guangdong Kelon Air-conditioner Co., Ltd. (“Kelon Air-conditioner”), a 60% interest owned subsidiary of the Company. The relevant land use rights of 5 parcels of land, on which the buildings are located, with a total site area of approximately 68,462.9 sq.m. have been granted to Kelon Air-conditioner for terms of 50 years all expiring on 9 November 2050 for industrial use.
Pursuant to a Mortgage Contract, the buildings and relevant land use rights under the 4 aforesaid Real Estate Title Certificates — Yue Fang Di Zheng Zi Nos. C0005473, C0005451, C0005076 and C5265567 together with property no. 1 are subject to a mortgage in favour of Bank of China Limited Foshan Branch as security for a loan with the maximum amount of RMB255,220,000 for a term of 6 years commencing from 1 January 2007 and expiring on 31 December 2012.

— VIII-22 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property;
b. The Group legally owns the buildings of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of such buildings; and
c. The mortgage with respect to the land use rights and buildings as mentioned in note 2 is legal and valid and has been registered with the local authority; however, the Group has the liability to notify the aforesaid bank when transferring such land use rights and buildings.

— VIII-23 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

Description and tenure

No. Property

2 parcels of land, The property comprises 2 parcels various buildings and of land with a total site area of structures located at approximately 24,988.9 sq.m. and the northern side of 10 buildings and various ancillary Rongqi Bridge structures erected thereon which Guangzhu Road were completed in various stages Shunde District between 1989 and 1996. Foshan City Guangdong Province The buildings have a total gross The PRC floor area of approximately 42,585.52 sq.m.

The property comprises 2 parcels of land with a total site area of approximately 24,988.9 sq.m. and 10 buildings and various ancillary structures erected thereon which were completed in various stages between 1989 and 1996.

Capital value in existing state Particulars as at of occupancy 30 April 2009 RMB The property is 49,064,000 currently occupied by the Group 100% interest for production, attributable to office, storage and the Enlarged Group: ancillary facilities RMB49,064,000 purposes.

The buildings comprise 6 industrial buildings, an office building, a warehouse and 2 ancillary buildings.

The structures mainly include equipment foundations, simple sheds and boundary fences.

The land use rights of the property have been granted for terms of 50 years all expiring on 9 November 2050 for industrial use.

Notes:

Pursuant to 2 Real Estate Title Certificates — Yue Fang Di Zheng Zi Nos. C1119233 and 1119234, 10 buildings with a total gross floor area of approximately 42,585.52 sq.m. are owned by Guangdong Kelon Fittings Co., Ltd. (廣東科龍配件有限公司, “Kelon Fittings”), a wholly-owned subsidiary of the Company. The relevant land use rights of 2 parcels of land, on which the buildings are located, with a total site area of approximately 24,988.9 sq.m. have been granted to Kelon Fittings for terms of 50 years all expiring on 9 November 2050 for industrial use.
Pursuant to a Mortgage Contract, the property is subject to a mortgage in favour of Bank of China Limited Foshan Branch as security for a loan with the maximum amount of RMB55,070,000 for a term of 6 years commencing from 1 January 2007 and expiring on 31 December 2012.

— VIII-24 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property;
b. The Group legally owns the buildings of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of such buildings; and
c. The mortgage with respect to the property is legal and valid and has been registered with the local authority; however, the Group has the liability to notify the aforesaid bank when transferring the property.

— VIII-25 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

No. Property Description and tenure 6. 3 parcels of land, The property comprises 3 parcels various buildings and of land with a total site area of structures approximately 223,443.32 sq.m. Nos. 29 and 46 and 19 buildings and various Wenfeng North Road ancillary structures erected Shunde District thereon which were completed in Foshan City various stages between 1997 and Guangdong Province 2008. The PRC

	Capital value
	in existing state
Particulars	as at
of occupancy	30 April 2009
	RMB
The property is	171,040,000
currently occupied
by the Group	100% interest
for production,	attributable to
storage,	the Enlarged Group:
residential, office	RMB171,040,000
and ancillary
facilities
purposes.

The buildings have a total gross floor area of approximately 148,458.18 sq.m. The buildings mainly include industrial buildings, warehouses, dormitories, office building and ancillary buildings.

The structures mainly include a simple canteen, wastewater treatment facility and boundary fences.

The land use rights of the property have been granted for terms all expiring on 30 December 2045 industrial use.

Notes:

Pursuant to 2 Real Estate Title Certificates — Yue Fang Di Zheng Zi Nos. C5740747 and C5740748, 3 buildings with a total gross floor area of approximately 51,227.3 sq.m. are owned by the Company. The relevant land use rights of 2 parcels of land on which the 3 buildings are located with a total site area of approximately 184,046.8 sq.m. have been granted for a term expiring on 30 December 2045 for industrial use.
Pursuant to a Real Estate Title Certificate — Yue Fang Di Zheng Zi No. C6026406, 10 buildings with a total gross floor area of approximately 29,474.8 sq.m. are owned by Hisense Ronshen (Guangdong) Freezer Co., Ltd. (海信容聲（廣東）冷櫃有限公司, “Ronshen Freezer”), a wholly-owned subsidiary of the Company. The relevant land use rights of a parcel of land, on which the 10 buildings are located, with a site area of approximately 39,396.52 sq.m. have been granted to Ronshen Freezer for a term expiring on 30 December 2045 for industrial use.

— VIII-26 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

Pursuant to a Mortgage Contract, the buildings and relevant land use rights under the Real Estate Title Certificate — Yue Fang Di Zheng Zi No. C5740748 together with the buildings and relevant land use rights mentioned in note 3 property no. 3 are subject to a mortgage in favour of Bank of China Limited Foshan Branch as security for a loan with the maximum amount of RMB166,736,400 for a term of 6 years commencing from 1 January 2006 and expiring on 31 December 2011.
In the valuation of this property, we have attributed no commercial value to the remaining 3 dormitories and 3 warehouses with a total gross floor area of approximately 67,756.08 sq.m. which have not obtained any proper title certificate. However, for reference purpose, we are of the opinion that the aggregate sum of depreciated replacement cost of such buildings (excluding the land) as at the date of valuation would be RMB41,913,000 assuming all relevant title certificates have been obtained and the buildings could be freely transferred.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property;
b. The Group legally owns the buildings mentioned in notes 1 and 2 and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of such buildings;
c. The mortgage with respect to the buildings and land use rights as mentioned in note 3 is legal and valid and has been registered with the local authority; however, the Group has the liability to notify the aforesaid bank when transferring such buildings and land use rights;
d. For the 3 dormitories mentioned in note 4, the Group has obtained the relevant Construction Work Planning Permit and Construction Work Commencement Permit, and therefore there will be no material legal impediment for the Group to apply for the relevant title certificate of the dormitories on condition that the Construction Work Completion and Inspection Certificate of the dormitories has been obtained; and
e. For the 3 warehouses mentioned in note 4, the Group has not obtained any proper title certificate; however, the production and operation activities of the Group will not be materially affected by the absence of title certificate of such warehouses.

— VIII-27 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

No. Property Description and tenure

A parcel of land, The property comprises a parcel a warehouse and of land with a site area of various structures approximately 11,422.1 sq.m. and No. 2 Fengye Road a warehouse and various ancillary Shunde District structures erected thereon which Foshan City were completed in about 1998. Guangdong Province The PRC The warehouse has a gross floor area of approximately 29,884.7 sq.m.

	Capital value
	in existing state
Particulars	as at
of occupancy	30 April 2009
	RMB
The property is	32,615,000
currently occupied
by the Group for	100% interest
storage purpose.	attributable to
	the Enlarged Group:
	RMB32,615,000

The structures mainly include boundary fences, roads and sewers.

The land use rights of the property have been granted for a term of 50 years expiring on 22 September 2047 for industrial use.

Notes:

Pursuant to a Real Estate Title Certificate — Yue Fang Di Zheng Zi No. C5757769, a warehouse with a gross floor area of approximately 29,884.7 sq.m. are owned by the Company. The relevant land use rights of a parcel of land, on which the warehouse is located, with a site area of approximately 11,422.1 sq.m. have been granted to the Company for a term of 50 years expiring on 22 September 2047 for industrial use.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property; and
b. The Group legally owns the warehouse of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the warehouse.

— VIII-28 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

				Capital value
				in existing state
			Particulars	as at
No.	Property	Description and tenure	of occupancy	30 April 2009
				RMB
8.	168 residential units,	The property comprises 168	The residential	14,284,000
	99 commercial units	residential units, 99 commercial	units of the
	and 43 car parking	units and 43 car parking spaces	property are	100% interest
	spaces of Meijing	of a 29-storey composite building	currently occupied	attributable to
	Mansion located at	completed in about 1997.	by the Group	the Enlarged Group:
	Mid Rongqi Avenue		for residential	RMB14,284,000
	Shunde District	The units have a total gross floor	purpose, whilst,
	Foshan City	area of approximately 19,753.15	the commercial
	Guangdong Province	sq.m.	units and car
	The PRC		parking spaces are
		The land use rights of residential	rented to various
		part of the property have been	independent
		granted for a term of 70 years	third parties
		expiring on 30 October 2062 for	for commercial
		residential use.	and car parking
			purposes.

Notes:

Pursuant to 100 Real Estate Title Certificates — Yue Fang Di Zheng Zi Di Nos. C0754094 to C0754120, C0754122 to C0754172 and C0761739 to C0761760, 100 residential units with a total gross floor area of approximately 8,070.5 sq.m. are owned by Guangdong Kelon Electrical Holdings Co., Ltd. (the former name of the Company, “Kelon Electrical”). The relevant land use rights of these residential units with a total apportioned site area of approximately 757.5 sq.m. have been granted to Kelon Electrical for a term of 70 years expiring on 30 October 2062 for residential use.
As confirmed by the Group, the 99 commercial units and 43 car parking spaces of this property are rented to various independent third parties; however, we have not been provided with any tenancy agreements.
In the valuation of this property, we have attributed no commercial value to the remaining 68 residential units, 99 commercial units and 43 car parking spaces with a total gross floor area of approximately 11,682.65 sq.m. which have not obtained any proper title certificate. However, for reference purpose, we are of the opinion that the capital value of such units and car parking spaces as at the date of valuation would be RMB22,698,000 assuming all relevant title certificates have been obtained and the units and car parking spaces could be freely transferred.

— VIII-29 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group legally owns the residential units mentioned in note 1 and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of such residential units;
b. For the residential/commercial units and car parking spaces mentioned in note 3, the Group has not obtained any proper title certificate; however, the production and operation activities of the Group will not be materially affected by the absence of title certificate of such residential/ commercial units and car parking spaces; and
c. For the residential units mentioned in note 1, the Company has been advised to apply for new title certificates under its present name and there will be no material legal impediment for the application.

— VIII-30 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

No. Property Description and tenure 9. 4 car parking spaces The property comprises 4 car and 14 utility rooms parking spaces and 14 utility of Kangfu Garden rooms on the ground floor of three located at 8-storey residential buildings Xinghua Road completed in about 2000. Ronggui Town Shunde District The 4 car parking spaces have Foshan City a total gross floor area of Guangdong Province approximately 268.7 sq.m. The PRC The 14 utility rooms have a total gross floor area of approximately 105.6 sq.m.

Capital value in existing state Particulars as at of occupancy 30 April 2009 RMB The property is 1,051,000 currently vacant. 100% interest attributable to the Enlarged Group: RMB1,051,000

The land use rights of the property have been granted for terms expiring on 31 December 2062 and 31 August 2067 respectively for car parking and residential uses.

Notes:

Pursuant to 4 Real Estate Title Certificates — Yue Fang Di Zheng Zi Di Nos. C0443783 to C0443785 and C0443788, 4 car parking spaces with a total gross floor area of approximately 268.7 sq.m. are owned by Guangdong Kelon Electrical Holdings Co., Ltd. (the former name of the Company, “Kelon Electrical”). The relevant land use rights of the car parking spaces with a total apportioned site area of approximately 40.8 sq.m. have been granted to Kelon Electrical for a term expiring on 31 December 2062 for car parking use.
Pursuant to 14 Real Estate Title Certificates — Yue Fang Di Zheng Zi Di Nos. C0450287 to C0450299 and C0849433, 14 utility rooms with a total gross floor area of approximately 105.6 sq.m. are owned by Kelon Electrical. The relevant land use rights of the utility rooms with a total apportioned site area of approximately 14.9 sq.m. have been granted to Kelon Electrical for a term of 70 years expiring on 31 August 2067 for residential use.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group legally owns the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the property; and
b. The Company has been advised to apply for new title certificates of the property under its present name and there will be no material legal impediment for the application.

— VIII-31 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

				Capital value
				in existing state
			Particulars	as at
No.	Property	Description and tenure	of occupancy	30 April 2009
				RMB
10.	24 residential units	The property comprises 24 units	The property is	2,779,000
	of Julong Garden	of a 7-storey residential building	currently occupied
	Xihuan Street	completed in about 1990s.	by the Group	100% interest
	Ronggui Avenue		for residential	attributable to
	Shunde District	The property has a total gross	purpose.	the Enlarged Group:
	Foshan City	floor area of approximately		RMB2,779,000
	Guangdong Province	1,917.24 sq.m.
	The PRC
		The land use rights of the property
		have been granted for a term of 50
		years expiring on 30 May 2044 for
		industrial use.

Notes:

Pursuant to a Real Estate Title Certificate — Yue Fang Di Zheng Zi No. C1771479, a residential building with a gross floor area of approximately 8,111.8 sq.m. (including this property) is owned by Guangdong Kelon Electrical Holdings Co., Ltd. (the former name of the Company, “Kelon Electrical”). The relevant land use rights of the building with a site area of approximately 2,389.9 sq.m. have been granted to Kelon Electrical for a term of 50 years expiring on 30 May 2044 for industrial use.

As confirm by the Group, portions of the building have been sold and virtually transferred to various independent third parties up to the date of valuation and the remaining 24 units of the building (the property) with a total gross floor area of approximately 1,917.24 sq.m. are currently occupied by the Group for residential purpose.

We have arrived at our valuation on the assumption that the usage of the land use rights of the property is residential and the land use rights of the property can be converted into residential use without any payment of land premium and other costs.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group legally owns the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the property; and
b. The Company has been advised to apply for a new title certificate of the property under its present name and there will be no material legal impediment for the application.

— VIII-32 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

				Capital value
				in existing state
			Particulars	as at
No.	Property	Description and tenure	of occupancy	30 April 2009
				RMB
11.	A unit of a 6-storey	The property comprises a unit on	The property is	No commercial value
	residential building	Level 1 of a 6-storey residential	currently occupied
	in Yaowangmiao	building completed in about 1996.	by the Group
	Community		for residential
	No. 139 Yaowang	The property has a gross floor	purpose.
	Miao Road	area of approximately 155.5 sq.m.
	Shenhe District
	Shenyang City
	Liaoning Province
	The PRC

Notes:

In the valuation of this property, we have attributed no commercial value to the property which has not obtained any proper title certificate. However, for reference purpose, we are of the opinion that the capital value of the property as at the date of valuation would be RMB390,000 assuming all relevant title certificates have been obtained and the property could be freely transferred.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group has not obtained any proper title certificate of the property; however, the production and operation activities of the Group will not be materially affected by the absence of title certificate of the property.

— VIII-33 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

Capital value
in existing state
Particulars as at
No. Property Description and tenure of occupancy 30 April 2009 RMB
1. Units 605 and 606 The property comprises 2 units The property is No commercial value North Block Yuetan on Level 6 of a 26-storey office currently occupied Mansion building completed in about 1998. by the Group for located at office purpose. Xicheng District The property has a total gross Beijing floor area of approximately The PRC 348.29 sq.m.

Notes:

In the valuation of this property, we have attributed no commercial value to the property which has not obtained any proper title certificate. However, for reference purpose, we are of the opinion that the capital value of the property as at the date of valuation would be RMB8,317,000 assuming all relevant title certificates have been obtained and the property could be freely transferred.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group has not obtained any proper title certificate of the property; however, the production and operation activities of the Group will not be materially affected by the absence of title certificate of the property.

— VIII-34 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

Capital value
in existing state
Particulars as at
No. Property Description and tenure of occupancy 30 April 2009 RMB
1. Unit 17 of a 7-storey The property comprises a unit on The property is No commercial value residential building Level 6 of a 7-storey residential currently occupied No. 9 Zong Nan building completed in about 1996. by the Group Zheng Street for residential Wuhou District The property has a gross floor purpose. Chengdu City area of approximately 96 sq.m. Sichuan Province The PRC

Notes:

In the valuation of this property, we have attributed no commercial value to the property which has not obtained any proper title certificate. However, for reference purpose, we are of the opinion that the capital value of the property as at the date of valuation would be RMB576,000 assuming all relevant title certificates have been obtained and the property could be freely transferred.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group has not obtained any proper title certificate of the property; however, the production and operation activities of the Group will not be materially affected by the absence of title certificate of the property.

— VIII-35 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

No. Property

A parcel of land, various buildings and structures No. 9 Fushengli Zhanqian District Yingkou City Liaoning Province The PRC

Description and tenure

The property comprises a parcel of land with a site area of approximately 67,188.31 sq.m. and 26 buildings and various ancillary structures erected thereon which were completed in various stages between 1975 and 2002.

Capital value in existing state Particulars as at of occupancy 30 April 2009 RMB The property is 63,499,000 currently occupied by the Group 78.79% interest for production, attributable to storage, office and the Enlarged Group: ancillary facilities RMB50,031,000 purposes.

The buildings have a total gross floor area of approximately 54,395.54 sq.m.

The buildings mainly include industrial buildings, warehouses, office building and ancillary buildings.

The structures mainly include boundary fences, roads and simple sheds.

The land use rights of the property have been granted for a term of 50 years expiring on 12 June 2047 for industrial use.

Notes:

Pursuant to a State-owned Land Use Rights Certificate — Ying Kou Guo Yong (2005) Zi Di No. 210146, the land use rights of a parcel of land with a site area of approximately 67,188.31 sq.m. have been granted to Yingkou Kelon Refrigerator Co., Ltd. (營口科龍冰箱有限公司, the former name of Hisense Ronshen (Yingkou) Refrigerator Co., Ltd., “Yingkou Kelon”), a 78.79% interest owned subsidiary of the Company, for a term of 50 years expiring on 12 June 2047 for industrial use.
Pursuant to 16 Building Ownership Certificates — Ying Fang Quan Zheng Zi Di. Nos. 100023435, 100023436, 100023438 to 100023442, 100023444, 100023445, 100023447, 100023450, 100023451, 100023452, 100023454, 1000023455 and 100025938, 21 buildings with a total gross floor area of approximately 52,193.54 sq.m. are owned by Yingkou Kelon.
In the valuation of this property, we have attributed no commercial value to the remaining 5 buildings with a total gross floor area of approximately 2,202 sq.m. which have not obtained any proper title certificate. However, for reference purpose, we are of the opinion that the aggregate sum of depreciated replacement cost of such buildings (excluding the land) as at the date of valuation would be RMB1,933,000 assuming all relevant title certificates have been obtained and the buildings could be freely transferred.

— VIII-36 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property;
b. The Group legally owns the buildings mentioned in note 2 and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of such buildings; and
c. For the buildings mentioned in note 3, the Group has not obtained any proper title certificate; however, the production and operation activities of the Group will not be materially affected by the absence of title certificate of such buildings.

— VIII-37 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

No. Property Description and tenure 15. A parcel of land, The property comprises a parcel various buildings and of land with a site area of structures located at approximately 19,449.57 sq.m. and Sifangyuan 8 buildings and various ancillary Suiyang District structures erected thereon which Shangqiu City were completed in various stages Henan Province between 1993 and 2001. The PRC

Capital value in existing state Particulars as at of occupancy 30 April 2009 RMB The property is No commercial value currently vacant.

The buildings have a total gross floor area of approximately 7,242.93 sq.m. The buildings comprise an industrial building, a warehouse, 2 office buildings and 4 ancillary buildings.

The structures mainly include boundary fences and roads.

The land use rights of the property have been granted for a term of 50 years expiring in May 2054 for industrial use.

Notes:

Pursuant to a State-owned Land Use Rights Certificate — Shang Guo Yong (2004) Zi Di No. 2364, the land use rights of a parcel of land with a site area of approximately 19,449.57 sq.m. have been granted to Shangqiu Kelon Electrical Co., Ltd. (商丘科龍電器有限公司, “Shangqiu Kelon”), a wholly-owned subsidiary of the Company, for a term of 50 years expiring in May 2054 for industrial use.
Pursuant to 6 Building Ownership Certificates — Shang Shi Fang Quan Zheng (2004) Zi Di Nos. C009389 to C009394, 6 buildings with a total gross floor area of approximately 7,042.93 sq.m. are owned by Shangqiu Kelon.
For the remaining 2 buildings with a total gross floor area of approximately 200 sq.m., we have not been provided with any proper title certificates.
In the valuation of this property, we have attributed no commercial value to the property as we are informed that the property is subject to a sequestration order by the People’s Intermediate Court of Foshan City dated 17 July 2007.

— VIII-38 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group is legally in possession of the land use rights of the property;
b. The Group legally owns the buildings mentioned in note 2;
c. For the buildings mentioned in note 3, the Group has not obtained any proper title certificate; however, the production and operation activities of the Group will not be materially affected by the absence of title certificate of such buildings; and
d. The Group is restrained to transfer or mortgage the property before the relief of the aforesaid sequestration. However, the Group’s utilization to the property will not be affected.

— VIII-39 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

No. Property Description and tenure

A parcel of land, The property comprises a parcel various buildings and of land with a site area of structures located at approximately 20,473.65 sq.m. and the western side of 6 buildings and various ancillary Kaixuan Road and structures erected thereon which the southern side of were completed in about 1990. Nanjing Road Suiyang District The buildings have a total gross Shangqiu City floor area of approximately Henan Province 9,966.72 sq.m. The PRC

Capital value in existing state Particulars as at of occupancy 30 April 2009 RMB The property is No commercial value currently vacant.

The buildings comprise a composite building, an industrial building, a warehouse and 3 ancillary buildings.

The structures mainly include boundary fences and roads.

The land use rights of the property have been granted for a term of 50 years expiring in May 2054 for industrial use.

Notes:

Pursuant to a State-owned Land Use Rights Certificate — Shang Guo Yong (2004) Zi Di No. 2365, the land use rights of a parcel of land with a site area of approximately 20,473.65 sq.m. have been granted to Shangqiu Kelon Electrical Co., Ltd. (“Shangqiu Kelon”), a wholly-owned subsidiary of the Company, for a term of 50 years expiring in May 2054 for industrial use.
Pursuant to 6 Building Ownership Certificates — Shang Shi Fang Quan Zheng (2004) Zi Di Nos. C009383 to C009388, 6 buildings with a total gross floor area of approximately 9,966.72 sq.m. are owned by Shangqiu Kelon.
In the valuation of this property, we have attributed no commercial value to the property as we are informed that the property is subject to a sequestration order by the People’s Intermediate Court of Foshan City dated 17 July 2007.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group is legally in possession of the land use rights of the property;
b. The Group legally owns the buildings of the property;
c. The Group is restrained to transfer or mortgage the property before the relief of the aforesaid sequestration. However, the Group’s utilization to the property will not be affected.

— VIII-40 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

No. Property Description and tenure

A parcel of land, The property comprises a parcel various buildings and of land with a site area of structures approximately 31,900 sq.m. and No. 216 Yinhu North 9 buildings and various ancillary Road structures erected thereon which Wuhu Development were completed in about 2000. Zone Wuhu City The buildings have a total gross Anhui Province floor area of approximately The PRC 12,354.7 sq.m.

	Capital value
	in existing state
Particulars	as at
of occupancy	30 April 2009
	RMB
The property is	24,688,000
currently occupied
by the Group	80% interest
for production,	attributable to
office and	the Enlarged Group:
ancillary facilities	RMB19,750,000
purposes.

The buildings comprise 4 industrial buildings, an office building and 4 ancillary buildings.

The structures mainly include boundary fences, roads and greenery facilities.

The land use rights of the property have been granted for a term of 50 years expiring on 1 March 2050 for industrial use.

Notes:

Pursuant to a State-owned Land Use Rights Certificate — Wu Kai Guo Yong (2000) Zi Di No. 010, the land use rights of a parcel of land with a site area of approximately 31,900 sq.m. have been granted to Wuhu Ecan Motors Co., Ltd. (蕪湖盈嘉電機有限公司, “Wuhu Ecan”), an 80% interest owned subsidiary of the Company, for a term of 50 years expiring on 1 March 2050 for industrial use.
Pursuant to 2 Real Estate Title Certificates — Wu Jiu Jiang Qu Zi Di Nos. 2007007575 and 2007007577, 9 buildings with a total gross floor area of approximately 12,354.7 sq.m. are owned by Wuhu Ecan.
Pursuant to 2 Mortgage Contracts, the property is subject to a mortgage in favour of Bank of Communications Co., Ltd. Wuhu Branch（交通銀行股份有限公司蕪湖分行）as security for a loan with a total maximum amount of RMB10,050,000 for a term of 3 years commencing from 18 December 2007 and expiring on 18 December 2010.

— VIII-41 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property;
b. The Group legally owns the buildings of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of such buildings; and
c. The mortgage with respect to the property is legal and valid and has been registered with the local authority; however, the Group has the liability to notify the aforesaid bank when transferring the property.

— VIII-42 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

				Capital value
				in existing state
			Particulars	as at
No.	Property	Description and tenure	of occupancy	30 April 2009
				RMB
18.	Units 20-3-401	The property comprises 2 units on	The property is	962,000
	and 20-3-402 on	Level 4 of a 6-storey residential	currently occupied
	Level 4 of Block	building completed in about 2000.	by the Group	80% interest
	20 of Yuanding		for residential	attributable to
	Community	The 2 units have a total gross	purpose.	the Enlarged Group:
	Xinwu District	floor area of approximately 226.43		RMB770,000
	Wuhu City	sq.m.
	Anhui Province
	The PRC

Notes:

Pursuant to 2 Real Estate Title Certificates — Fang Di Quan Wu Jing Hu Qu Zi Di Nos. 2006071102 and 2006071104, 2 residential units with a total gross floor area of approximately 226.43 sq.m. are owned by Wuhu Ecan Motors Co., Ltd. (“Wuhu Ecan”), an 80% interest owned subsidiary of the Company.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group legally owns the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the property.

— VIII-43 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

No. Property Description and tenure 19. A parcel of land, The property comprises a parcel various buildings and of land with a site area of structures approximately 23,756.1 sq.m. and No. 67 Keji Er Road 10 buildings and various ancillary Hi-Tech Industrial structures erected thereon which Development Zone were completed in about 2001. Xi’an City Shaanxi Province The buildings have a total gross The PRC floor area of approximately 25,203.8 sq.m.

	Capital value
	in existing state
Particulars	as at
of occupancy	30 April 2009
	RMB
The property is	38,859,000
currently occupied
by the Group	60% interest
for production,	attributable to
storage, office and	the Enlarged Group:
ancillary facilities	RMB23,315,000
purposes.

The buildings mainly include industrial buildings, office buildings, warehouses and ancillary buildings.

The structures mainly include roads and gates.

The land use rights of the property have been granted for a term of 50 years expiring on 7 October 2048 for industrial use.

Notes:

Pursuant to a State-owned Land Use Rights Certificate — Xi Gao Ke Ji Guo Yong (2004) Di No. 35508, the land use rights of a parcel of land with a site area of approximately 23,756.1 sq.m. have been granted to Xi’an Kelon Cooling Co., Ltd. (西安科龍製冷有限公司, “Xi’an Kelon”), a 60% interest owned subsidiary of the Company, for a term of 50 years expiring on 7 October 2048 for industrial use.
Pursuant to 2 Building Ownership Certificates — Xi An Shi Fang Quan Zheng Gao Xin Qu Zi Di Nos. 1050104013-21-4 and 1050104013-21-6, 4 buildings with a total gross floor area of approximately 18,391.8 sq.m. are owned by Xi’an Kelon.
In the valuation of this property, we have attributed no commercial value to the remaining 6 buildings with a total gross floor area of approximately 6,812 sq.m. which have not obtained any proper title certificate. However, for reference purpose, we are of the opinion that the aggregate sum of depreciated replacement cost of such buildings (excluding the land) as at the date of valuation would be RMB7,571,000 assuming all relevant title certificates have been obtained and the buildings could be freely transferred.

— VIII-44 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property;
b. The Group legally owns the buildings mentioned in note 2 and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of such buildings; and
c. For the buildings mentioned in note 3, the Group has not obtained any proper title certificate; however, the production and operation activities of the Group will not be materially affected by the absence of title certificate of such buildings.

— VIII-45 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

Capital value in existing state Particulars as at Description and tenure of occupancy 30 April 2009 RMB The property comprises a parcel The property is 281,704,000 of land with a site area of currently occupied approximately 729,099.2 sq.m. and by the Group 100% interest 16 buildings and various ancillary for production, attributable to structures erected thereon which office, storage and the Enlarged Group: were completed in various stages ancillary facilities RMB281,704,000 between 2006 and 2008. purposes except for portions of The buildings have a total gross the buildings floor area of approximately as mentioned in 284,183.16 sq.m. note 3, which are currently The buildings mainly include rented to various industrial buildings, office independent buildings, warehouses and third parties or ancillary buildings. connected parties.

No. Property Description and tenure 20. A parcel of land, The property comprises a parcel various buildings and of land with a site area of structures approximately 729,099.2 sq.m. and Nos. 9 and 19 16 buildings and various ancillary Hongyang Road structures erected thereon which Yangzhou City were completed in various stages Jiangsu Province between 2006 and 2008. The PRC The buildings have a total gross floor area of approximately 284,183.16 sq.m.

The structures mainly include boundary fences, roads and bridge.

The land use rights of the property have been granted for a term of 50 years expiring on 4 August 2053 for industrial use.

Notes:

Pursuant to a State-owned Land Use Rights Certificate — Yang Guo Yong (2007) Zi Di No. 0693, the land use rights of a parcel of land with a site area of approximately 729,099.2 sq.m. have been granted to Hisense Ronshen (Yangzhou) Refrigerator Co., Ltd. (海信容聲(揚州)冰箱有限公司, “Hisense Yangzhou”), a wholly-owned subsidiary of the Company, for a term of 50 years expiring on 4 August 2053 for industrial use.
Pursuant to 3 Building Ownership Certificates — Yang Fang Quan Zheng Guang Zi Di Nos. 314132 to 314134, 15 buildings with a total gross floor area of approximately 271,053.16 sq.m. are owned by Hisense Yangzhou.
According to 29 Tenancy Agreements, portions of the buildings of the property with a total lettable area of approximately 60,453 sq.m. are rented to various independent third parties or connected parties for various terms with the expiry dates between 31 October 2009 and 31 December 2012 at a total annual rent of RMB4,995,276, exclusive of management fees, water and electricity charges.

— VIII-46 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

Pursuant to a Mortgage Contract, the land use rights of the property are subject to a mortgage in favour of Bank of China Limited Foshan Branch as security for a loan with the maximum amount of RMB260,288,400 for a term of 6 years commencing from 1 January 2007 and expiring on 31 December 2012; pursuant to another Mortgage Contract, the buildings mentioned in note 2 are subject to a mortgage in favour of the aforesaid bank as security for a loan with the maximum amount of RMB178,032,400 for a term of 8 years commencing from 1 January 2003 and expiring on 31 December 2010.
In the valuation of this property, we have attributed no commercial value to the remaining building with a gross floor area of approximately 13,130 sq.m. which has not obtained any proper title certificate. However, for reference purpose, we are of the opinion that the depreciated replacement cost of the building (excluding the land) as at the date of valuation would be RMB15,409,000 assuming all relevant title certificates have been obtained and the building could be freely transferred.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property;
b. The Group legally owns the buildings mentioned in note 2 and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of such buildings;
c. For the building mentioned in note 5, the Group has obtained the relevant Construction Work Planning Permit, Construction Work Commencement Permit and Construction Work Completion and Inspection Certificate, and therefore there will be no material legal impediment for the Group to apply for the relevant title certificate of the building; and
d. The mortgages with respect to the land use rights and buildings as mentioned in note 4 are legal and valid and have been registered with the local authority; however, the Group has the liability to notify the aforesaid bank when transferring such land use rights and buildings.

— VIII-47 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

				Capital value
				in existing state
			Particulars	as at
No.	Property	Description and tenure	of occupancy	30 April 2009
				RMB
21.	A parcel of land,	The property comprises a parcel	The property is	40,048,000
	various buildings and	of land with a site area of	currently occupied
	structures	approximately 127,131.16 sq.m.	by the Group for	100% interest
	No. 1888 Chenglong	and 9 buildings and various	production, office,	attributable to
	Road	ancillary structures erected	residential and	the Enlarged Group:
	Long Quan Yi	thereon which were completed in	ancillary facilities	RMB40,048,000
	District	various stages between 2007 and	purposes except
	Chengdu City	2009.	for portions of an
	Sichuan Province		industrial building
	The PRC	The buildings have a total gross	of the property
		floor area of approximately	as mentioned in
		38,547.77 sq.m.	note 3, which are
			currently rented
		The buildings comprise 4	to 2 independent
		industrial buildings, an office	third parties
		building, a dormitory and 3	for production
		ancillary buildings.	purpose.

The structures mainly include bicycle shed and temporary warehouse.

The land use rights of the property have been granted for a term of 50 years expiring on 19 June 2057 for industrial use.

Notes:

Pursuant to a State-owned Land Use Rights Grant Contract — No. 2007-00727 dated 19 June 2007 entered into between the State-owned Land and Resources Bureau of Long Quan Yi District of Chengdu City（成都市龍泉驛區國土資源局）and Hisense (Chengdu) Refrigerator Co., Ltd. (海信（成都）冰箱有限公司, “Hisense Chengdu”), a wholly-owned subsidiary of the Company, the land use rights of the property were contracted to be granted to Hisense Chengdu for a term of 50 years expiring on 19 June 2057 for industrial use. The land premium was RMB3,203,705.23.
Pursuant to a State-owned Land Use Rights Certificate — Long Guo Yong (2007) Di No. 81275, the land use rights of a parcel of land with a site area of approximately 127,131.16 sq.m. have been granted to Hisense Chengdu for a term of 50 years expiring on 19 June 2057 for industrial use.
According to 2 Tenancy Agreements, portions of an industrial building of the property with a total lettable area of approximately 1,352 sq.m. are rented to 2 independent third parties for terms expiring on 31 October 2009 and 30 September 2012 respectively at a total annual rent of RMB129,792, exclusive of gas, water and electricity charges.

— VIII-48 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

Pursuant to a Mortgage Contract, the land use rights of the property is subject to a mortgage in favour of China Merchants Bank Chengdu Shi Ji Zhao Yang Branch（招商銀行成都世紀朝陽支行）as security for a loan with the maximum amount of RMB30,000,000 for a term of 1 year commencing from 22 December 2008 and expiring on 21 December 2009.
In the valuation of this property, we have attributed no commercial value to the 9 buildings with a total gross floor area of approximately 38,547.77 sq.m. which have not obtained any proper title certificate. However, for reference purpose, we are of the opinion that the aggregate sum of depreciated replacement cost of such buildings (excluding the land) as at the date of valuation would be RMB48,370,000 assuming all relevant title certificates have been obtained and the buildings could be freely transferred.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property;
b. For the buildings of the property, the Group has obtained the relevant Construction Work Planning Permit and Construction Work Commencement Permit, and therefore there will be no material legal impediment for the Group to apply for the relevant title certificate of the buildings on condition that the Construction Work Completion and Inspection Certificate of such buildings has been obtained; and
c. The mortgage with respect to the land use rights of the property is legal and valid and has been registered with the local authority; however, the Group has the liability to notify the aforesaid bank when transferring such land use rights.

— VIII-49 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

Group II — Property interests held and occupied by the Target Group in the PRC

Capital value in existing state Particulars as at No. Property Description and tenure of occupancy 30 April 2009 RMB 22. A parcel of land, The property comprises a parcel The property 260,024,000 various buildings and of land with a site area of is currently structures located at approximately 203,466.6 sq.m. and occupied by the 100% interest Nancun Town 35 buildings and various ancillary Target Group attributable to Pingdu City structures erected thereon which for production, the Enlarged Group: Shandong Province were completed in various stages storage, RMB260,024,000 The PRC between 1997 and 2006. residential and ancillary facilities The buildings have a total gross purposes except floor area of approximately for portions of 181,729.31 sq.m. the buildings of the property The buildings mainly include as mentioned in industrial buildings, warehouses, note 3, which dormitories and ancillary are currently buildings. rented to various independent third The structures mainly include parties. boundary fences, roads and weather sheds.

The land use rights of the property have been granted for a term of 50 years expiring on 8 September 2048 for industrial use.

Notes:

Pursuant to a State-owned Land Use Rights Certificate — Ping Guo Yong (2007) Di No. 00204, the land use rights of a parcel of land with a site area of approximately 203,466.6 sq.m. have been granted to Hisense (Shandong) Air-conditioning Company Limited (海信（山東）空調有限公司, “Hisense Shandong”) for a term of 50 years expiring on 8 September 2048 for industrial use. Qingdao Hisense held 100% of equity interests in Hisense Shandong as at the date of valuation.
Pursuant to a Real Estate Title Certificate — Qing Fang Di Quan Ping Zi Di No. 16000, 35 buildings with a total gross floor area of approximately 181,729.31 are owned by Hisense Shandong.
According to 3 Tenancy Agreements, portions of the property with a total lettable area of approximately 6,987 sq.m. are rented to 3 independent third parties for various terms with the latest expiry date on 7 March 2010 at a total annual rent of RMB547,003.6, exclusive of gas, water and electricity charges.

— VIII-50 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Target Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property; and
b. The Target Group legally owns the buildings of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the buildings of the property.

— VIII-51 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

Capital value
in existing state
Particulars as at
No. Property Description and tenure of occupancy 30 April 2009 RMB
1. A car parking lot of The property comprises a car The property is No commercial value Fushanwan Garden parking lot of a residential currently occupied No. 12 Aomen Road development known as Fushanwan by the Target Qingdao City Garden completed in about 2000. Group for car Shandong Province parking purpose. The PRC The property has a gross floor area of approximately 20 sq.m.

Notes:

In the valuation of this property, we have attributed no commercial value to the property which has not obtained any proper title certificate. However, for reference purpose, we are of the opinion that the capital value of the property as at the date of valuation would be RMB130,000 assuming all relevant title certificates have been obtained and the property could be freely transferred.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Target Group has not obtained any proper title certificate of the property; however, the production and operation activities of the Target Group will not be materially affected by the absence of title certificate of the property.

— VIII-52 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

				Capital value
				in existing state
			Particulars	as at
No.	Property	Description and tenure	of occupancy	30 April 2009
				RMB
24.	5 residential units of	The property comprises 5 units on	The property	5,260,000
	Blocks 38 and 41 of	Level 6 of two 6-storey residential	is currently
	Xing Hua Nan Li	buildings completed in about	occupied by the	55% interest
	Daxing District	2002.	Target Group	attributable to
	Beijing		for residential	the Enlarged Group:
	The PRC	The property has a total gross	purpose.	RMB2,893,000
		floor area of approximately 604.74
		sq.m.

Notes:

Pursuant to 5 Building Ownership Certificates — Jing Fang Quan Zheng Xing Guo Zi Di Nos. 00003007 to 00003010 and 00003607, 5 residential units with a total gross floor area of approximately 604.74 sq.m. are owned by Hisense (Beijing) Electric Company Limited (海信（北京）電器有限公司, “Hisense Beijing”). Qingdao Hisense held 55% of equity interests in Hisense Beijing as at the date of valuation.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Target Group legally owns the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the property.

— VIII-53 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

				Capital value
				in existing state
			Particulars	as at
No.	Property	Description and tenure	of occupancy	30 April 2009
				RMB
25.	A parcel of land and	The property comprises the land	Except that the	45,184,000
	portions of an office	use rights of a parcel of land	portions of the
	building	with a site area of approximately	office building	55% interest
	No. 1 Xinghua	72,115.53 sq.m. (the “Land”)	are currently	attributable to
	Avenue	which have been granted to	vacant, there	the Enlarged Group:
	Huangcun Town	Hisense (Beijing) Electric	are 5 buildings	RMB24,851,000
	Daxing District	Company Limited (“Hisense	with a total gross
	Beijing	Beijing”) for a term of 50 years	floor area of
	The PRC	expiring on 15 October 2053 for	approximately
		industrial use.	58,671.5 sq.m.
			erected on the
		There are another 2 parcels of	land parcel which
		land adjoining to the Land which	are rented to the
		are held by Beijing Snowflake	Target Group from
		Electric Group Company (北京	Snowflake Group
		雪花電器集團公司, a shareholder	and included in
		of Hisense Beijing, “Snowflake	property no. 35.
		Group”) and an independent
		third party respectively. A
		3-storey office building was
		jointly constructed at the junction
		of the above 3 parcels of land
		(including the Land) by Hisense
		Beijing, Snowflake Group and the
		independent third party, completed
		in 2008 and then apportioned to
		the foregoing landholders. The
		property also comprises portions
		on Levels 1 to 3 of the office
		building with a total gross floor
		area of approximately 2,000.43
		sq.m. which were apportioned to
		Hisense Beijing.

Notes:

Pursuant to a State-owned Land Use Rights Certificate — Jing Xing Guo Yong (2003 Chu) Zi Di No. 473 the land use rights of a parcel of land with a site area of approximately 72,115.53 sq.m. have been granted to Hisense Beijing for a term of 50 years expiring on 15 October 2053 for industrial use. Qingdao Hisense held 55% of equity interests in Hinsense Beijing as at the date of valuation.
Pursuant to a Building Ownership Certificate — Jing Fang Quan Zheng Xing Zi Di No. 00005732, portion of an office building with a gross floor area of approximately 2,000.43 sq.m. are owned by Hisense Beijing.

— VIII-54 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

Pursuant to a Tenancy Agreement, 8 buildings with a total gross floor area of approximately 59,040.25 sq.m. erected on the aforesaid land parcel are rented to Hisense Beijing from Snowflake Group for a term of 3 years commencing from 31 December 2007 and expiring on 31 December 2010 at an annual rent of RMB7,542,391.94, exclusive of management fees, water and electricity charges. As confirmed by Hisense Beijing, 3 buildings under the aforesaid Tenancy Agreement with a total gross floor area of approximately 368.75 sq.m. had been dismantled before the date of valuation.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Target Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property; and
b. The Target Group legally owns the building of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the building of the property.

— VIII-55 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

No. Property Description and tenure

A parcel of land, The property comprises a parcel various buildings and of land with a site area of structures approximately 134,163.3 sq.m. and No. 19 Hengfei Road 3 buildings and various ancillary Xingang structures erected thereon which Development Zone were completed in various stages Nanjing City between 2006 and 2008. Jiangsu Province The PRC The buildings have a total gross floor area of approximately 58,348.58 sq.m.

	Capital value
	in existing state
Particulars	as at
of occupancy	30 April 2009
	RMB
The property	147,410,000
is currently
occupied by the	33% interest
Target Group for	attributable to
production and	the Enlarged Group:
ancillary facilities	RMB48,645,000
purposes.

The buildings comprise 2 industrial buildings and an office building.

The structures mainly include roads and greenery facilities.

The land use rights of the property have been granted for a term of 50 years expiring on 15 February 2050 for industrial use.

Notes:

Pursuant to a State-owned Land Use Rights Certificate — Ning Qi Guo Yong (2005) Zi Di No. 05996, the land use rights of a parcel of land with a site area of approximately 134,163.3 sq.m. have been granted to Hisense (Nanjing) Electric Co., Ltd. (海信（南京）電器有限公司, “Hisense Nanjing”) for a term of 50 years expiring on 15 February 2050 for industrial use. Qingdao Hisense held 33% of equity interests in Hisense Nanjing as at the date of valuation.
Pursuant to 2 Building Ownership Certificates — Ning Fang Quan Zheng Qi Chu Zi Di Nos. 247072 and 264900, 3 buildings with a total gross floor area of approximately 58,348.58 are owned by Hisense Nanjing.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Target Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property; and
b. The Target Group legally owns the buildings of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the buildings of the property.

— VIII-56 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

				Capital value
				in existing state
			Particulars	as at
No.	Property	Description and tenure	of occupancy	30 April 2009
				RMB
27.	Units 1005 and 1006,	The property comprises 2 units on	The property	2,960,000
	Entrance 3, Block 1,	Level 10 of a 12-storey residential	is currently
	Bei Yuan Zhi Xing	building completed in about 2007.	occupied by the	33% interest
	Garden		Target Group	attributable to
	No. 8 Huafei Road	The 2 units have a total gross	for residential	the Enlarged Group:
	Xuanwu District	floor area of approximately	purpose.	RMB977,000
	Nanjing City	364.1 sq.m.
	Jiangsu Province
	The PRC	The land use rights of the property
		have been granted for a term of 70
		years expiring on 7 July 2073 for
		residential use.

Notes:

Pursuant to 2 Building Ownership Certificates — Ning Fang Quan Zheng Xuan Zhuan Zi Di Nos. 278335 and 278336, 2 units with a total gross floor area of approximately 364.1 sq.m. are owned by Hisense (Nanjing) Electric Co., Ltd. (“Hisense Nanjing”). Qingdao Hisense held 33% of equity interests in Hisense Nanjing as at the date of valuation.
Pursuant to 2 State-owned Land Use Rights Certificates — Ning Xuan Guo Yong (2007) Di Nos. 08092 and 08093, the land use rights of the property with a total apportioned site area of approximately 35.9 sq.m. have been granted to Hisense Nanjing for a term of 70 years expiring on 7 July 2073 for residential use.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Target Group legally owns the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the property.

— VIII-57 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

No. Property Description and tenure

2 parcels of land, various buildings and structures located at the northern side of Central Avenue Economic Development Zone Changxing County Zhejiang Province The PRC

The property comprises 2 parcels of land with a total site area of approximately 151,716.96 sq.m. and 7 buildings and various ancillary structures erected thereon which were completed in various stages between 2004 and 2005.

The buildings have a total gross floor area of approximately 63,301.36 sq.m.

	Capital value
	in existing state
Particulars	as at
of occupancy	30 April 2009
	RMB
The property	108,781,000
is currently
occupied by the	51% interest
Target Group	attributable to
for production,	the Enlarged Group:
storage and	RMB55,478,000
ancillary facilities
purposes.

The buildings comprise 4 industrial buildings, a storehouse and 2 ancillary buildings.

The structures mainly include boundary fences, roads and gates.

The land use rights of the property have been granted for terms expiring on 7 October 2053 and 9 December 2056 respectively for industrial use.

Notes:

Pursuant to 2 State-owned Land Use Rights Certificates — Chang Tu Guo Yong (2005) Di No. 1-4120 and Chang Tu Guo Yong (2007) Di No. 1-423, the land use rights of 2 parcels of land with a total site area of approximately 151,716.96 sq.m. have been granted to Hisense (Zhejiang) Air-condition Co., Ltd. (海信（浙江）空調有限公司, “Hisense Zhejiang”) for terms of 50 years expiring on 7 October 2053 and 9 December 2056 respectively for industrial use. Qingdao Hisense held 51% of equity interests in Hisense Zhejiang as at the date of valuation.
Pursuant to 4 Building Ownership Certificates — Fang Quan Zheng Chang Zi Di Nos. 00042246 to 00042248 and Fang Quan Zheng Chang Zi Di No. 00062636, 4 buildings with a total gross floor area of approximately 62,868.86 sq.m. are owned by Hisense Zhejiang.
Pursuant to a Mortgage Contract, the land use rights under the State-owned Land Use Rights Certificate — Chang Tu Guo Yong (2005) Di No. 1-4120 and the buildings under the Building Ownership Certificates — Fang Quan Zheng Chang Zi Di Nos. 00042246 to 00042248 are subject to a mortgage in favour of China Construction Bank Changxing Branch as security for a loan with the maximum amount of RMB60,000,000 for a term of 5 years commencing from 24 February 2006 and expiring on 23 February 2011.

— VIII-58 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

In the valuation of this property, we have attributed no commercial value to the remaining 3 buildings with a total gross floor area of approximately 432.5 sq.m. which have not obtained any proper title certificate. However, for reference purpose, we are of the opinion that the aggregate sum of depreciated replacement cost of such buildings (excluding the land) as at the date of valuation would be RMB352,000 assuming all relevant title certificates have been obtained and the buildings could be freely transferred.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Target Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property;
b. The Target Group legally owns the buildings mentioned in note 2 and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of such buildings;
c. The Target Group has not obtained any proper title certificate of the buildings mentioned in note 4; however, the production and operation activities of the Target Group will not be materially affected by the absence of title certificate of such buildings; and
d. The mortgage with respect to the land use rights and buildings as mentioned in note 3 is legal and valid and has been registered with the local authority; however, the Target Group has the liability to notify the aforesaid bank when transferring such land use rights and buildings.

— VIII-59 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

No. Property Description and tenure

A parcel of land, The property comprises a parcel various buildings and of land with a site area of structures approximately 54,805.5 sq.m. and No. 1 Shangmaduan 7 buildings and various ancillary Aodong Road structures erected thereon which Chengyang District were completed in about 2008. Qingdao City Shandong Province The buildings have a total gross The PRC floor area of approximately 24,610 sq.m.

	Capital value
	in existing state
Particulars	as at
of occupancy	30 April 2009
	RMB
The property	29,868,000
is currently
occupied by the	78.7% interest
Target Group	attributable to
for production,	the Enlarged Group:
office, storage and	RMB23,506,000
ancillary facilities
purposes.

The buildings comprise 2 industrial buildings, an office building, a storehouse, a warehouse and 2 ancillary buildings.

The structures mainly include boundary fences, roads and simple guardhouse.

The land use rights of the property have been granted for a term of 50 years expiring on 29 July 2058 for industrial use.

Notes:

Pursuant to a State-owned Land Use Rights Grant Contract — Qing Tu Zi Fang He (2007) No. 67 dated 30 July 2008 entered into between Qingdao Hisense Mould Company Limited (青島海信模具有限公司, “Hisense Mould”) and the State-owned Land and Resources Administration Bureau of Qingdao City （青島市國土資源管理局）, the land use rights of the property were contracted to be granted to Hisense Mould for a term of 50 years expiring on 29 July 2058 for industrial use. The land premium was RMB5,310,653. Qingdao Hisense held 78.7% of equity interests in Hisense Mould as at the date of valuation.
Pursuant to a State-owned Land Use Rights Certificate — Qing Fang Di Quan Shi Zi Di No. 200818256, the land use rights of a parcel of land with a site area of approximately 54,805.5 sq.m. have been granted to Hisense Mould for a term of 50 years expiring on 29 July 2058 for industrial use.

— VIII-60 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

In the valuation of this property, we have attributed no commercial value to the 7 buildings with a total gross floor area of approximately 24,610 sq.m. which have not obtained any proper title certificate. However, for reference purpose, we are of the opinion that the aggregate sum of depreciated replacement cost of such buildings (excluding the land) as at the date of valuation would be RMB54,002,000 assuming all relevant title certificates have been obtained and the buildings could be freely transferred.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Target Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property; and
b. For the buildings of the property, the Target Group has obtained the relevant Construction Work Planning Permit, and therefore there will be no material legal impediment for the Target Group to apply for the relevant title certificate of the buildings on condition that the Construction Work Commencement Permit and Construction Work Completion and Inspection Certificate of such buildings have been obtained.

— VIII-61 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

No. Property Description and tenure 30. A parcel of land, The property comprises a parcel various buildings and of land with a site area of structures approximately 100,628 sq.m. and No. 218 4 buildings and various ancillary Qianwangang Road structures erected thereon which Econ-Tech were completed in about 2003. Development Zone Huangdao District The buildings have a total gross Qingdao City floor area of approximately Shandong Province 30,348.03 sq.m. The PRC

	Capital value
	in existing state
Particulars	as at
of occupancy	30 April 2009
	RMB
The property	97,505,000
is currently
occupied by the	49% interest
Target Group for	attributable to
production and	the Enlarged Group:
ancillary facilities	RMB47,777,000
purposes.

The buildings comprise an industrial building, a pump station and 2 power distribution stations.

The structures mainly include roads, grounds and water pond.

The land use rights of the property have been granted for a term of 50 years expiring on 1 July 2053 for industrial use.

Notes:

Pursuant to a State-owned Land Use Rights Certificate — Huang Guo Yong (2004) Zi Di No. 056, the land use rights of a parcel of land with a site area of approximately 100,628 sq.m. have been granted to Qingdao Hisense Hitachi Air-conditioning Systems Co., Ltd. (青島海信日立空調系統有限公司, “Hisense Hitachi”) for a term of 50 years expiring on 1 July 2053 for industrial use. Qingdao Hisense held 49% of equity interests in Hisense Hitachi as at the date of valuation.
Pursuant to a Real Estate Title Certificate — Qing Fang Di Quan Jian Zheng Zi Di No. 0013964, 4 buildings with a total gross floor area of approximately 30,348.03 are owned by Hisense Hitachi.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Target Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property; and
b. The Target Group legally owns the buildings of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the buildings of the property.

— VIII-62 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

VALUATION CERTIFICATE

Group III — Property interest held for future development by the Group in the PRC

				Capital value
				in existing state
			Particulars	as at
No.	Property	Description and tenure	of occupancy	30 April 2009
				RMB
31.	A parcel of land	The property comprises a parcel	The property is	19,996,000
	located at the eastern	of land with a site area of	currently vacant.
	side of Waihuan	approximately 12,038.32 sq.m.		100% interest
	Road			attributable to
	Gaoli Community	The land use rights of the property		the Enlarged Group:
	Ronggui Town	have been granted for a term of		RMB19,996,000
	Shunde District	70 years expiring on 22 December
	Foshan City	2072 for residential use.
	Guangdong Province
	The PRC

Notes:

Pursuant to a State-owned Land Use Rights Certificate — Shun Fu Guo Yong (2005) Di No. 1002282, the land use rights of a parcel of land with a site area of approximately 12,038.32 sq.m. have been granted to Guangdong Kelon Electrical Holdings Co., Ltd. (the former name of the Company), for a term of 70 years expiring on 22 December 2072 for residential use.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. The Group is legally in possession of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the property.

— VIII-63 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

VALUATION CERTIFICATE

Group IV — Property interest held under development by the Group in the PRC

No. Property Description and tenure

	Capital value
	in existing state
Particulars	as at
of occupancy	30 April 2009
	RMB

6 buildings and various structures under construction located at Baixi Village Zhicheng Town Changxi County Zhejiang Province The PRC

The property comprises 6 buildings and various structures which were under construction as at the date of valuation.

The property is scheduled to be completed in August 2009. Upon completion, the buildings of the property will have a total gross floor area of approximately 78,438.58 sq.m. and the details are set out as follows:

The property is No commercial value currently under construction.

Use Production Office Storage Total	No. of Item 2 2 2 6	Gross Floor Area (sq.m.) 73,846.48 3,997.00 595.10
		78,438.58

The total investment is estimated to be approximately RMB125,703,000, of which approximately RMB62,087,000 had been paid up to the date of valuation.

Notes:

As confirmed by the Group, the property is invested by the Company and is located on the land parcels mentioned in notes 3 and 4 of property no. 33.

The land use rights of the aforesaid land parcels have been granted to Hisense (Zhejiang) Air-condition Co., Ltd. (“Hisense Zhejiang”). Qingdao Hisense held 51% of equity interests in Hisense Zhejiang as at the date of valuation.

Pursuant to a Construction Work Planning Permit — Jian Zi Di No. 330522200800196 in favour of Hisense Zhejiang, the 6 buildings of the property as well as another building mentioned in note 5 of property no. 33 have been approved for construction.

— VIII-64 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

Pursuant to a Construction Work Commencement Permit — Bian Hao No. 330522200901050101 in favour of Hisense Zhejiang, permission by the relevant local authority was given to commence the construction work of the property and the building mentioned in note 5 of property no. 33.
In the valuation of this property, we have attributed no commercial value to the property which has not obtained any proper land use rights certificate. However, for reference purpose, we are of the opinion that the replacement cost of the property as at the date of valuation would be RMB113,299,000 assuming the property will be completed in accordance with the latest proposal provided to us by the Group and all relevant construction permits/land use rights certificates under the name of the Company have been obtained and the property could be freely transferred.
We had been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers as at the date of valuation, which contains, inter alia , the following:
a. The Group has not obtained any construction permits for the construction of the property and therefore is not permitted to commence the construction work. There is a risk that the Group may be penalized by the relevant government authorities.

— VIII-65 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

VALUATION CERTIFICATE

Group V — Property interest held under development by the Target Group in the PRC

No. Property

2 parcels of land, a building under construction and a completed building located at Baixi Village Zhicheng Town Changxi County Zhejiang Province The PRC

Description and tenure

The property comprises 2 parcels of land with a total site area of approximately 177,014 sq.m. and a building which was being constructed thereon as at the date of valuation. (“Part A”)

The construction of the building of Part A is scheduled to be completed in August 2009. Upon completion, the building will have a gross floor area of approximately 2,893 sq.m.

Capital value in existing state Particulars as at of occupancy 30 April 2009 RMB Part A is 43,844,000 currently under construction, 51% interest whilst, Part B is attributable to currently occupied the Enlarged Group: by the Target RMB22,360,000 Group for office purpose.

The total investment is estimated to be approximately RMB7,289,000, of which approximately RMB3,653,000 had been paid up to the date of valuation.

In addition to Part A, the property also comprises a completed office building with a gross floor area of approximately 7,158 sq.m. erected on one of the land parcels mentioned in Part A which was completed in 2008. (“Part B”)

The land use rights of the property have been granted for terms of 50 years expiring on 29 June 2057 and 18 December 2057 respectively for industrial use.

Notes:

Pursuant to a State-owned Land Use Rights Grant Contract — Chang Guo Rang (He) Zi (2007) No. 370 dated 12 November 2007, the land use rights of a parcel of land with a site area of approximately 50,202 sq.m. were contracted to be granted to Hisense (Zhejiang) Air-condition Co., Ltd. (“Hisense Zhejiang”) for a term of 50 years for industrial use. The land premium was RMB7,890,000.

— VIII-66 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

Qingdao Hisense held 51% of equity interests in Hisense Zhejiang as at the date of valuation.
Pursuant to a State-owned Land Use Rights Certificate — Chang Tu Guo Yong (2007) Di No. (1-4661), the land use rights of a parcel of land with a site area of approximately 50,202 sq.m. have been granted to Hisense Zhejiang for a term of 50 years expiring on 18 December 2057 for industrial use.
Pursuant to a State-owned Land Use Rights Certificate — Chang Tu Guo Yong (2007) Di No. (1-1794), the land use rights of a parcel of land with a site area of approximately 126,812 sq.m. have been granted to Hisense Zhejiang for a term of 50 years expiring on 29 June 2057 for industrial use.
Pursuant to a Construction Work Planning Permit — Jian Zi Di No. 330522200800196 in favour of Hisense Zhejiang, the building of Part A as well as other 6 buildings of property no. 32, which are located on the land parcels of this property and invested by the Company, have been approved for construction.
Pursuant to a Construction Work Commencement Permit — Bian Hao No. 330522200901050101 in favour of Hisense Zhejiang, permission by the relevant local authority was given to commence the construction work of the building of Part A and property no. 32.
We are of the opinion that, the value of the building (excluding the land) under construction in Part A, after the completion, would be RMB7,300,000 as at the date of valuation assuming it will be completed in accordance with the latest proposal provided to us by the Group.
In the valuation of this property, we have attributed no commercial value to the office building of Part B which has not obtained any proper title certificate. However, for reference purpose, we are of the opinion that the replacement cost of such building (excluding the land) as at the date of valuation would be RMB6,383,000 assuming all relevant title certificates have been obtained and the building could be freely transferred.
We had been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers as at the date of valuation, which contains, inter alia , the following:
a. The Target Group is legally in possession of the land use rights of the property and therefore has the rights to use, transfer, lease, mortgage or otherwise dispose of the land use rights of the property;
b. The Target Group can legally commence the construction work of the building of Part A; and
c. For Part B of the property, the Target Group has obtained the relevant Construction Work Planning Permit and Construction Work Commencement Permit, and therefore there will be no material legal impediment for the Target Group to apply for the relevant title certificate of Part B on condition that the Construction Work Completion and Inspection Certificate of Part B has been obtained.
Subsequent to the date of valuation, Hisense Zhejiang entered into a Land Use Rights Purchase Agreement（收購土地使用權協議）with the local government authority to dispose of portion of the land use rights of the property with a total site area of approximately 99,283.25 sq.m.

As confirm by the Target Group, the aforesaid purchase agreement has been implemented. The remaining portion of land use rights of the property after disposal, with a total site area of approximately 77,731 sq.m. under the new Land Use Rights Certificates — Chang Tu Guo Yong (2009) Di Nos. 00106691 and 00106693, has been granted to Hisense Zhejiang for terms of 50 years expiring on 29 June 2057 and 18 December 2057 respectively for industrial use.

— VIII-67 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

VALUATION CERTIFICATE

Group VI — Property interests rented and occupied by the Group in the PRC

Capital value in existing state Particulars as at No. Property Description and tenure of occupancy 30 April 2009 RMB 34. 38 leased properties The properties comprise 38 units The properties are No commercial value located in 28 cities or buildings in 28 cities in the currently occupied in the PRC PRC which were completed in by the Group for various stages between 1987 and office, residential 2007. and storage purposes. The properties have an aggregate lettable area of approximately 10,576.42 sq.m.

The properties are rented to the Group from various independent third parties (the “Lessors”) for various terms with the expiry dates between 4 July 2009 and 1 November 2012.

Notes:

Pursuant to 38 Tenancy Agreements, 38 units or buildings with a total lettable area of approximately 10,576.42 sq.m. are rented to the Group from various independent third parties for various terms with the expiry dates between 4 July 2009 and 1 November 2012 at a total annual rent of RMB3,965,189.83, exclusive of management fees, water and electricity charges for office and residential purposes.
For 18 out of the 38 properties with a total lettable area of approximately 5,327.6 sq.m., the respective lessors have provided to the Group with the relevant State-owned Land Use Rights Certificates, Building Ownership Certificates, Real Estate title Certificates or property owner’s consent to sublease such properties.
For the remaining 20 properties with a total lettable area of approximately 5,248.82 sq.m., the Group has not been provided with the relevant title certificates or property owner’s consent to sublease.
We have been provided with a legal opinion on the legality of the Tenancy Agreements to the properties issued by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. For the 18 leased properties mentioned in note 2, the lessors have the right to lease out the aforesaid properties. The relevant Tenancy Agreements are legal, valid and binding and the Group is legally in possession of the leasehold interests under the relevant Tenancy Agreements;
b. For the 20 leased properties mentioned in note 3, the lessors’ right to lease out the properties can not be validated; and
c. 37 Tenancy Agreements of the properties have not been registered with the relevant government authorities. However, the validity of such agreements will not be affected and the Group will not be subject to any civil liability, penalty or criminal liability arising from the absence of registration, but there is a risk that the Group could not defend against bona fide third parties.

— VIII-68 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

VALUATION CERTIFICATE

Group VII — Property interests rented and occupied by the Target Group in the PRC

No. Property Description and tenure 35. 5 buildings The property comprises 5 No. 36 Qingyuan industrial and ancillary buildings Road completed in about 1994. Daxing District Beijing The property has a total lettable The PRC area of approximately 58,671.5 sq.m.

Capital value in existing state Particulars as at of occupancy 30 April 2009 RMB The property No commercial value is currently occupied by the Target Group for production purpose.

The property is rented to Hisense (Beijing) Electrical Company Limited (“Hisense Beijing”) from Beijing Snow-flake Electric Group Company, a shareholder of Hisense Beijing for a term of 3 years commencing from 31 December 2007 and expiring on 31 December 2010 at an annual rent of RMB7,542,391.94, exclusive of management fees, water and electricity charges.

Notes:

Pursuant to a Tenancy Agreement, 8 industrial buildings with a total gross floor area of approximately 59,040.25 sq.m. are rented to Hisense Beijing from Beijing Snow-flake Electric Group Company for a term of 3 years commencing from 31 December 2007 and expiring on 31 December 2010 at an annual rent of RMB7,542,391.94, exclusive of management fees, water and electricity charges. As confirmed by Hisense Beijing, 3 buildings under the aforesaid Tenancy Agreement with a total gross floor area of approximately 368.75 sq.m. have been dismantled as at the date of valuation.
We have been provided with a legal opinion on the legality of the Tenancy Agreement to the property issued by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. Beijing Snow-flake has the right to lease out the property. The Tenancy Agreement is legal, valid and binding and Beijing Snow-flake is legally in possession of the leasehold interests under the Tenancy Agreement; and
b. The Tenancy Agreement has not been registered with the relevant government authorities. However, the validity of such agreement will not be affected and Hisense Beijing will not be subject to any civil liability, penalty or criminal liability arising from the absence of registration, but there is a risk that Hisense Beijing could not defend against bona fide third parties.

— VIII-69 —

VALUATION REPORT OF THE ENLARGED GROUP

APPENDIX VIII

VALUATION CERTIFICATE

Capital value in existing state Particulars as at No. Property Description and tenure of occupancy 30 April 2009 RMB 36. 34 leased properties The properties comprise 34 units The properties No commercial value located in 28 cities or buildings in 28 cities in the are currently in the PRC PRC which were completed in occupied by the various stages between 1980 and Target Group for 2007. office, storage, commercial The properties have an aggregate and residential lettable area of approximately purposes. 9,397.31 sq.m. The properties are rented to the Target Group from various parties (the “Lessors”) for various terms with the expiry dates between 31 May 2009 and 31 December 2018.

Notes:

Pursuant to 34 Tenancy Agreements, 34 units or buildings with a total lettable area of approximately 9,397.31 sq.m. are rented to the Target Group from various parties for various terms with the expiry dates between 31 May 2009 and 31 December 2018 at a total annul rent of RMB3,996,000.21, exclusive of management fees, water and electricity charges for office, storage, commercial and residential purposes.
For 11 out of the 34 properties with a total lettable area of approximately 6,697.86 sq.m., the respective lessors have provided to the Target Group with the relevant State-owned Land Use Rights Certificates, Building Ownership Certificates, Real Estate title Certificates or property owner’s consent to sublease such properties.
For the remaining 23 properties with a total lettable area of approximately 2,699.45 sq.m., the Target Group has not been provided with the relevant title certificates or property owner’s consent to sublease.
We have been provided with a legal opinion on the legality of the Tenancy Agreements to the properties issued by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. For the 11 leased properties mentioned in note 2, the lessors have the right to lease out the aforesaid properties. The relevant Tenancy Agreements are legal, valid and binding and the Target Group is legally in possession of the leasehold interests under the relevant Tenancy Agreements;
b. For the 23 leased properties mentioned in note 3, the lessors’ right to lease out the properties can not be validated. However, the operation activities and financial status of the Target Group will not be materially affected by the absence of title certificates of the properties or the property owner’s consent to sublease; and
c. The 34 Tenancy Agreements of the properties have not been registered with the relevant government authorities. However, the validity of such agreements will not be affected and the Target Group will not be subject to any civil liability, penalty or criminal liability arising from the absence of registration, but there is a risk that the Target Group could not defend against bona fide third parties.

— VIII-70 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

VALUATION CERTIFICATE

Group VIII — Property interests rented and occupied by Qingdao Hisense Marketing Company Limited

Capital value in existing state Particulars as at No. Property Description and tenure of occupancy 30 April 2009 RMB 37. 73 leased properties The properties comprise 73 units The properties are No commercial value located in 29 cities or buildings in 29 cities in the currently occupied in the PRC PRC which were completed in by Hisense various stages between 1986 and Marketing 2008. for office and residential The properties have an aggregate purposes. lettable area of approximately 15,630.08 sq.m.

The properties are rented to Qingdao Hisense Marketing Company Limited (青島海信營銷有限公司, “Hisense Marketing”) from various parties (the “Lessors”) for various terms with the expiry dates between 7 June 2009 and 31 December 2013.

Notes:

Pursuant to 73 Tenancy Agreements, 73 units or buildings with a total lettable area of approximately 15,630.08 sq.m. are rented to Hisense Marketing from various parties for various terms with the expiry dates between 7 June 2009 and 31 December 2013 at a total annul rent of RMB5,217,300.15, exclusive of management fees, water and electricity charges for office and residential purposes.
For 25 out of the 73 properties with a total lettable area of approximately 6,739.02 sq.m., the respective lessors have provided Hisense Marketing with the relevant State-owned Land Use Rights Certificates, Building Ownership Certificates, Real Estate title Certificates or property owner’s consent to sublease such properties.
For the remaining 48 properties with a total lettable area of approximately 8,891.06 sq.m., Hisense Marketing has not been provided with the relevant title certificates or property owner’s consent to sublease.

— VIII-71 —

APPENDIX VIII VALUATION REPORT OF THE ENLARGED GROUP

We have been provided with a legal opinion on the legality of the Tenancy Agreements to the properties issued by the Company’s PRC legal advisers, which contains, inter alia , the following:
a. For the 25 leased properties mentioned in note 2, the lessors have the right to lease out the aforesaid properties. The relevant Tenancy Agreements are legal, valid and binding and Hisense Marketing is legally in possession of the leasehold interests under the relevant Tenancy Agreements;
b. For the 48 leased properties mentioned in note 3, the lessors’ right to lease out the properties can not be validated. However, the operation activities and financial status of Hisense Marketing will not be materially affected by the absence of the relevant title certificates of the properties or the property owner’s consent to sublease; and
c. The 73 Tenancy Agreements of the properties have not been registered with the relevant government authorities. However, the validity of such agreements will not be affected and Hisense Marketing will not be subject to any civil liability, penalty or criminal liability arising from the absence of registration, but there is a risk that Hisense Marketing could not defend against bona fide third party.

— VIII-72 —

GENERAL INFORMATION

APPENDIX IX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules and the Takeovers Code for the purpose of giving information with regard to the Hisense Kelon Group. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this circular (other than information relating to Qingdao Hisense) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

The directors of Qingdao Hisense jointly and severally accept full responsibility for the accuracy of the information (other than that relating to the Hisense Kelon Group) contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

2. MARKET PRICES

(a) The table below shows the closing prices of the H Shares on the Stock Exchange on (i) the last trading day of each of the calendar months during the Relevant Period; (ii) 26 June 2009 (being the last trading day immediately preceding the date of the Announcement); and (iii) the Latest Practicable Date:

		Closing price
		HK$
(i)	30 January 2009	0.85
	27 February 2009	0.61
	31 March 2009	0.69
	30 April 2009	suspended
	29 May 2009	1.22
	30 June 2009	suspended
(ii)	26 June 2009	1.40
(iii)	Latest Practicable Date	2.02

— IX-1 —

GENERAL INFORMATION

APPENDIX IX

The lowest and highest closing market prices of the H Shares recorded on the Stock Exchange during the Relevant Period were HK$0.435 on 22 January 2009 and HK$2.05 on 28 July 2009, respectively.

(b) The table below shows the closing prices of the A Shares on the Shenzhen Stock Exchange on (i) the last trading day of each of the calendar months during the Relevant Period; (ii) 15 July 2009 (being the last trading day immediately preceding the date of the Announcement); and (iii) the Latest Practicable Date:

		Closing price
		RMB
(i)	23 January 2009	2.57
	27 February 2009	2.71
	31 March 2009	3.52
	30 April 2009	suspended
	27 May 2009	suspended
	30 June 2009	4.94
(ii)	15 July 2009	5.92
(iii)	Latest Practicable Date	5.68

The lowest and highest closing market prices of the A Shares recorded on the Shenzhen Stock Exchange during the Relevant Period were RMB2.54 on 16 January 2009 and RMB6.22 on 22 July 2009, respectively.

— IX-2 —

GENERAL INFORMATION

APPENDIX IX

3. SHARE CAPITAL

As at the Latest Practicable Date, the share capital of the Company was as follows:

RMB

Authorised capital: 459,589,808 H Shares of RMB1.00 each 532,416,755 A Shares of RMB1.00 each Issued and fully paid or credited as fully paid: 459,589,808 H Shares of RMB1.00 each 532,416,755 A Shares of RMB1.00 each	459,589,808

	532,416,755

	459,589,808

	532,416,755

The H Shares and A Shares in issue are ordinary shares in the share capital of the Company. Except for the currency in which dividends are paid and the restrictions as to whether the shareholders can be PRC investors or foreign investors, all existing H Shares and A Shares rank pari passu in all respects with each other, including capital, dividends and voting rights. The H Shares and A Shares in issue are listed on the Stock Exchange and the Shenzhen Stock Exchange, respectively.

Shareholders Nature of share capital Qingdao Hisense A Shares Public A Shareholders A Shares Public H Shareholders H Shares Total	Number of issued shares 250,173,722 282,243,033 459,589,808 992,006,563	Approximate percentage of shareholding 25.22 28.45 46.33
		100.00

No Share has been issued since 31 December 2008 (the date to which the latest audited consolidated financial statements of the Company were made up) up to the Latest Practicable Date.

— IX-3 —

GENERAL INFORMATION

APPENDIX IX

The holders of the Consideration Shares will be entitled to receive all future dividends and distributions which are declared, made or paid after the date of allotment and issue of the Consideration Shares. The Consideration Shares to be issued will, when issued and fully paid, rank pari passu in all respects with the existing A Shares.

In addition, A and H Shares are regarded as different classes of shares under the Company’s Articles of Association. The differences between the two classes of shares, including provisions on class rights, the despatch of notices and financial reports to shareholders, dispute resolution, registration of shares on different branches of the register of shareholders, the method of share transfer and appointment of dividend receiving agents are set out in the Company’s Articles of Association.

The Company does not have any outstanding options, warrants, derivatives or securities convertible into Shares as at the Latest Practicable Date.

4. DIRECTORS’ AND SUPERVISORS’ INTERESTS

As at the Latest Practicable Date, none of the Directors, supervisors and chief executive of the Company had interests and short positions in the Shares, underlying Shares and/or debentures (as the case may be) of the Company or any of its associated corporations (within the meaning of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which any such Director or chief executive is taken or deemed to have under such provisions of the SFO) or which were required to be entered into the register required to be kept by the Company under section 352 of the SFO or which were otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules.

As at the Latest Practicable Date, none of the Directors or supervisors of the Company had any interest, direct or indirect, in any assets which have been since 31 December 2008, being the date to which the latest published audited financial statements of the Hisense Kelon Group were made up, acquired or disposed of by or leased to any member of the Hisense Kelon Group or are proposed to be acquired or disposed of by or leased to any member of the Hisense Kelon Group.

As at the Latest Practicable Date, none of the Directors or supervisors of the Company was materially interested in any contract or arrangement entered into by any member of the Hisense Kelon Group since 31 December 2008, being the date

— IX-4 —

GENERAL INFORMATION

APPENDIX IX

to which the latest published audited financial statements of the Company were made up, and which was significant in relation to the business of the Hisense Kelon Group.

As at the Latest Practicable Date, there was no agreement, arrangement or understanding (including any compensation agreement) existing between Qingdao Hisense or any person acting in concert with it and any Director, recent Director, Shareholder or recent Shareholder having any connection with or dependence upon the Acquisition Agreement, the allotment and issue of the Consideration Shares or the Whitewash Waiver.

As at the Latest Practicable Date, there was no benefit given or agreed to be given to any Director as compensation for loss of office or otherwise in connection with the Acquisition or the Whitewash Waiver.

As at the Latest Practicable Date, none of the Directors had a material personal interest in any material contract entered into by Qingdao Hisense.

As at the Latest Practicable Date, there was no agreement, arrangement or understanding between any Director and any other person which is conditional on or dependent upon the outcome of the Acquisition Agreement, the allotment and issue of the Consideration Shares or the Whitewash Waiver or otherwise connected with the Acquisition Agreement, the allotment and issue of the Consideration Shares or the Whitewash Waiver.

As at the Latest Practicable Date, none of the Directors or supervisors of the Company was materially interested in any contract or arrangement to which any member of the Hisense Kelon Group was a party and which was significant to the business of the Hisense Kelon Group.

— IX-5 —

GENERAL INFORMATION

APPENDIX IX

5. INTERESTS OF SUBSTANTIAL SHAREHOLDERS

Interests in the Company

As at the Latest Practicable Date, so far as the Directors are aware, each of the following persons, not being a Director, supervisor or chief executive of the Company, had an interest in Shares which falls to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO:

						Proportion to
						the relevant	Proportion
						class of	to the total
					Number of	issued share	issued share
				Class of	ordinary	capital of the	capital of the
Name				Shares	shares held	Company	Company
Hisense Group Co.			(Note)	A Shares	250,173,722	46.99%	25.22%
Hisense Electronic		(Note)		A Shares	250,173,722	46.99%	25.22%
Qingdao Hisense	(Note)			A Shares	250,173,722	46.99%	25.22%
China Finance Asset				A Shares	63,923,804	12.01%	6.44%
Management Corporate

Note:

As at the Latest Practicable Date, Qingdao Hisense owns a direct interest of 46.99% in the Company. Hisense Electronic in turn, holds a direct controlling interest in Qingdao Hisense, and under Part XV of the SFO, has a deemed interest in the Company. Similarly, Hisense Group, through its direct controlling interest in Hisense Electronic, also has a deemed interest in the Company.

Mr. Tang Ye Guo and Mr. Zhou Xiao Tian, each of whom a Director, is also a director of Qingdao Hisense.

Interests in other members of the Hisense Kelon Group

As at the Latest Practicable Date, so far as the Directors are aware, the following persons, not being a Director, supervisor or chief executive of the Company, was directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the Hisense Kelon Group:

— IX-6 —

GENERAL INFORMATION

APPENDIX IX

		Percentage
		shareholding of
		shareholders in
	Shareholders holding 10% or	other members
Other members of	more in other members of the	of the Hisense
the Hisense Kelon Group	Hisense Kelon Group	Kelon Group
Guangdong Kelon Air-	Weishi Investments Company Limited	40%
Conditioner Co., Ltd
Guangdong Kelon Mould	Hua Yi Compressor Company Limited	29.89%
Co., Ltd
Foshan Shunde Rongsheng	Hua Yi Compressor Company Limited	29.95%
Plastic Co., Ltd
Guangdong Huaao	Foshan City Shunde District Yun Long	30%
Electrical Electronics	Enquiry Service Company Limited
Co., Ltd.
Hisense Ronshen	Yingkou Yingleng (Group) Bankruptcy	14.74%
(Yingkou) Refrigerator	Liquidation Team
Co., Ltd.
Xi’an Kelon Cooling Co.,	Xi’an Gaoke (Group) Company Limited	29.05%
Ltd.
Jiangxi Kelon Combine	Jiangxi Fadasi Domestic Electrical	45%
Electrical Appliances	Appliances Company Limited
Co., Ltd.
Hua Yi Compressor	Sichuan Changhong Electric Holdings	29.92%
Company Limited	Co., Ltd.
	A-share public shareholders	49.05%

— IX-7 —

GENERAL INFORMATION

APPENDIX IX

		Percentage
		shareholding of
		shareholders in
	Shareholders holding 10% or	other members
Other members of	more in other members of the	of the Hisense
the Hisense Kelon Group	Hisense Kelon Group	Kelon Group
Guangzhou Antaida	Guangzhou Zhongyuan International	30%
Logistic Co., Ltd.	Freight Forwarding Company
	Limited
	China Far Ocean Network Company	25%
	Limited
	Wuxi Small Swan Holdings Company	20%
	Limited
Wuhu Yingjia Electrical	Heavenly King Incorporated	20%
Machinery Co., Ltd.
Sichuan Rongsheng Kelon	Xu Wei Ru	24%
Refrigerator Sales Co.,
Ltd.
Beijing Hengsheng Xin	Foshan City Shunde District Yun Long	11%
Chuang Technology	Enquiry Service Company Limited
Company
Guangdong Kelon Weili	Zhongshan City Fusha Town	20%
Electrical Appliances	Shunchang Industry Limited
Company Limited	Company

Save as disclosed above, as at the Latest Practicable Date and so far as is known to the Directors or chief executive of the Company, there was no other person (other than a Director, supervisor or chief executive of the Company or a member of the Hisense Kelon Group), who had an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Hisense Kelon Group.

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GENERAL INFORMATION

APPENDIX IX

6. SHAREHOLDING OF AND DEALING IN THE SECURITIES OF THE COMPANY AND QINGDAO HISENSE

(a) Save as disclosed under the paragraph headed “Implications of the Takeovers Code and Whitewash Waiver” in the letter from the Board of this circular and in Section 5 in this Appendix, none of Qingdao Hisense and parties acting in concert with it owned or controlled any shares, convertible securities, warrants, options or derivatives of the Company as at the Latest Practicable Date, and none of them has dealt for value in any such securities of the Company during the Relevant Period.
(b) The Consideration Shares acquired by Qingdao Hisense in pursuance of the Acquisition will not be transferred, charged or pledged to any other persons.
(c) No arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code existed (i) between any person and the Company or any person who is an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of an associate under the Takeovers Code or (ii) between any person and Qingdao Hisense or any person who is acting in concert with it during the Relevant Period.
(d) None of the subsidiaries of the Company and none of the pension funds of the Company and/or its subsidiaries, nor any fund managed on a discretionary basis by any fund manager connected with the Company owned or controlled any shares, convertible securities, warrants, options or derivatives of the Company as at the Latest Practicable Date or had dealt for value in any such securities of the Company during the Relevant Period.
(e) None of the advisers of the Company as specified in class (2) of the definition of “associates” under the Takeovers Code, owned or controlled any securities, shares, options, warrants, derivatives or convertible securities of the Company as at the Latest Practicable Date.
(f) None of the Directors and the Company owned or controlled any shares, convertible securities, warrants, options or derivatives of Qingdao Hisense as at the Latest Practicable Date, and none of them has dealt for value in any such securities of Qingdao Hisense during the Relevant Period.

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GENERAL INFORMATION

APPENDIX IX

(g) None of the Directors and their respective associates owned or controlled any shares, convertible securities, warrants, options or derivatives of the Company as at the Latest Practicable Date, and therefore, none of the Directors intends, in respect of his own beneficial shareholdings, to vote for or against the resolutions with respect to the Acquisition and the Whitewash Waiver, and none of them has dealt for value in any such securities of the Company during the Relevant Period.
(h) None of the directors of Qingdao Hisense owned or controlled any shares, convertible securities, warrants, options or derivatives of the Company as at the Latest Practicable Date, and none of them has dealt for value in any such securities of the Company during the Relevant Period.
(i) None of Qingdao Hisense or any persons acting in concert with it had borrowed or lent any shares of the Company as at the Latest Practicable Date.
(j) None of the Directors and the Company had borrowed or lent any shares of the Company as at the Latest Practicable Date.

7. SERVICE AGREEMENTS

As at the Latest Practicable Date, none of the Directors has entered or proposed to enter into any service contract with any member of the Hisense Kelon Group and any associated companies of the Company which is not determinable by the employer within one year without payment of compensation (other than statutory compensation) or which is a continuous contract with a notice period of 12 months or more.

As at the Latest Practicable Date, none of the Directors or supervisors of the Company had any existing nor proposed service contract (including both continuous and fixed term contract) with the Company or its subsidiaries or associated companies which have more than 12 months to run after the Latest Practicable Date, irrespective of the notice period.

As at the Latest Practicable Date, none of the Directors has a service contract with the Company or any of its subsidiaries or associated companies which (including both continuous and fixed term contract) entered into, commenced, or amended within six months before the date of the Announcement and up to the Latest Practicable Date.

— IX-10 —

GENERAL INFORMATION

APPENDIX IX

8. INTEREST IN CONTRACTS OR ARRANGEMENT

(a) As at the Latest Practicable Date, none of the Directors or their associates had any direct or indirect interest in any asset which has been, since 31 December 2008 (being the date to which the latest published audited consolidated financial statements of the Hisense Kelon Group were made up), acquired or disposed of by or leased to or proposed to be acquired or disposed of by or leased to any member of the Hisense Kelon Group.
(b) As at the Latest Practicable Date, none of the Directors or their associates was materially interested in any contract or arrangement entered into by any member of the Hisense Kelon Group and subsisting at the date of this circular which was significant in relation to the business of the Hisense Kelon Group.

9. COMPETING BUSINESS

As at the Latest Practicable Date, the following Directors or their respective associates have interests in the following businesses which are considered to compete or are likely to compete, either directly or indirectly, with the businesses of the Hisense Kelon Group other than those businesses where the Directors were appointed as directors to represent the interests of the Company and/or the Hisense Kelon Group pursuant to the Listing Rules:

Name of Director

Description of Name of entity business of the which business entity which is is considered to considered to compete or likely compete or likely to compete with to compete with the business of the business of Nature of interest the Hisense Kelon the Hisense Kelon of the Director in Group Group the entity

Mr. Tang Ye Guo Hisense Group Co. Production of airDirector or its Subsidiaries conditioning/ electrical products

— IX-11 —

GENERAL INFORMATION

APPENDIX IX

		Description of
	Name of entity	business of the
	which business	entity which is
	is considered to	considered to
	compete or likely	compete or likely
	to compete with	to compete with
	the business of	the business of	Nature of interest
	the Hisense Kelon	the Hisense Kelon	of the Director in
Name of Director	Group	Group	the entity
Mr. Zhou Xiao Tian	The subsidiaries of	Production of air-	Director
	Hisense Group	conditioning/
	Co.	electrical
		products
Ms. Yu Shu Min	Hisense Group Co.	Production of air-	Director and/
	or its Subsidiaries	conditioning/	or senior
		electrical	management
		products
Mr. Lin Lan	Hisense Group Co.	Production of air-	Director and/
	or its Subsidiaries	conditioning/	or senior
		electrical	management
		products
Mr. Zhang Ming	The subsidiaries of	Manufacture and	Director
	Hisense Group	sales of fittings
	Co.	for electric
		appliances

As at the Latest Practicable Date, save as disclosed above, none of the Directors or their respective associates has interests in the businesses which compete or are likely to compete, either directly or indirectly, with the businesses of the Hisense Kelon Group.

— IX-12 —

GENERAL INFORMATION

APPENDIX IX

10. LITIGATION

As at the Latest Practicable Date, so far as the Directors are aware, the following litigation or claims of material importance are pending or threatened against the Enlarged Group:

			Target claim
			amount (in
			RMB’0000,
			unless otherwise	Particulars of the
No.	Name of case	Plaintiff	stated)	case	Status
1.	Litigation initiated	Kelon Air-	4,080	Guangdong	Under the judgment
	by Kelon Air-	Conditioner		Greencool,	of first instance
	Conditioner			taking advantage	received by the
	against Guangdong			from its role as	Company on 9
	Greencool,			a substantial	January 2009, the
	Jinan San Ai Fu			shareholder and	defendants shall
	Petrochemical			as instructed	pay RMB30.1512
	Company Limited			by Gu Chu Jun,	million. The
	(“Jinan San Ai			procured the	opposite party has
	Fu”), Greencool			plaintiff to sign a	lodged an appeal.
	Refrigerant			sale and purchase
	(China) Co., Ltd.,			agreement with
	Hainan Greencool			Jinan San Ai Fu
	Environmental			for the purchase
	Protection			of 300 tonnes
	Engineering Co.,			of environment-
	Ltd. and Gu Chu			friendly
	Jun			refrigerants. The
				plaintiff made
				a payment of
				RMB40.80 million
				on 1 April 2005
				but did not receive
				any delivery of
				the goods. Such
				payment for goods
				was transferred
				to Guangdong
				Greencool
				and other
				related parties.
				Guangdong
				Greencool and
				Gu Chu Jun
				embezzled
				RMB40.80 million
				from the plaintiff
				by misusing
				their controlling
				positions in the
				Company.

— IX-13 —

GENERAL INFORMATION

APPENDIX IX

Target claim amount (in RMB’0000, unless otherwise Particulars of the No. Name of case Plaintiff stated) case Status 2. Litigation initiated Ronshen 9,998.41 The Company by Hisense Refrigerator demanded the Ronshen defendant to (Guangdong) refund the Refrigerator Co., payment for Ltd. (“Ronshen goods in a sum Refrigerator”) of RMB89.1841 against Xi’an million together Kelon Cooling with the interest Co., Ltd. of RMB10.80

The Company The demand was demanded the dismissed pursuant defendant to to the judgment refund the of first instance payment for received by the goods in a sum Company on 23 of RMB89.1841 March 2009 and million together an appeal was with the interest lodged. The case of RMB10.80 is being tried million. in the Higher People’s Court of Guangdong Province.

11. MATERIAL CONTRACTS

The following contracts, not being contracts entered into in the ordinary course of business, had been entered into by members of the Enlarged Group after the date two years before the date of the Announcement and up to the Latest Practicable Date which may be material:

(a) A land use right transfer agreement dated 12 November 2007 entered into between Hisense Zhejiang and Changxing County Bureau pursuant to which Changxing County Bureau agreed to transfer the land use rights of a piece of land located at Baixi Village, Zhicheng Town, Changxing County, the PRC to Hisense Zhejiang at a consideration of RMB7,890,000.
(b) An agreement dated 27 July 2007 entered into between the Company, Hisense Imp. & Exp. Co., Ltd (“Hisense Export”), Hisense Electric Co., Ltd (“Hisense Electrical”) and natural person(s) to establish Qingdao Hisense International Marketing Co., Ltd. (the “JV Company”), a joint venture company, pursuant to which each of the Company, Hisense Export, Hisense Electrical and natural person(s) agreed to invest the sums of RMB3,800,000, RMB10,400,000, RMB3,800,000, and RMB2,000,000, respectively, in cash as capital contribution to the JV Company.

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GENERAL INFORMATION

APPENDIX IX

(c) An equity transfer agreement dated 27 August 2007 entered into between Jiangxi Kelon Industrial Development Co., Ltd (“Jiangxi Kelon”), a whollyowned subsidiary of the Company, and Henan Province Kaifeng Economic Technology Development (Group) Company (“Henan Development”) pursuant to which Jiangxi Kelon agreed to sell and Henan Development agreed to acquire 70% of the equity interest in Kaifeng Kelon Air-Conditioner Co., Ltd (“Kaifeng Kelon”) for nil monetary consideration.
(d) A debt settlement agreement dated 27 August 2007 entered into between the Company and its subsidiaries, Jiangxi Kelon, and Henan Development pursuant to which the Company and its subsidiaries agreed to forgo their rights to debts of RMB37,363,000 owed by Kaifeng Kelon to the Company and its subsidiaries and Kaifeng Kelon agreed to forgo its rights to debts of RMB43,639,200 owed to it by the Company and its subsidiaries.
(e) On 8 November 2007, Qingdao Hisense entered into the “Transfer Agreement” with Hisense Shandong, pursuant to which the assets and liabilities relating to the air-conditioner manufacturing operation of Qingdao Hisense was transferred to Hisense Shandong at a price of RMB150 million, and hence Qingdao Shandong shall exercise the rights under the third party creditors’ rights, or perform the obligations under the third party debts, transferred by Qingdao Hisense.
(f) Hisense Zhejiang entered into the “Land Compensation Agreement of Hisense (Zhejiang) Air-condition Co., Ltd.” with the Management Committee of Changxing County Economic Development Zone for the purposes of the resumption of a land parcel of Hisense Zhejiang with an area of approximately 150 mu by the Bureau of Land and Resources of Changxing County, Zhejiang Province. The compensation shall be paid by the net proceeds from land auction.
(g) On 10 December 2007, the Company entered into the “Contract on the Introducing Refrigerator Technology” (hereinafter referred to as the “Contract”) with Toshiba Consumer Marketing Corporation (hereinafter referred to as “Toshiba”), pursuant to which, through the provision of technical services, sale of moulds and on-site guidance (secondment and training) by Toshiba to the Company on the basis of mutual assistance within five years, the Company shall be equipped the ability of mass production of selected models in the timeframe specified in the Contract and it shall be ensured that the quality of the selected models manufactured shall meet

— IX-15 —

GENERAL INFORMATION

APPENDIX IX

the requirements of the Contract through mutual efforts. As a consideration, the Company shall pay a fee of RMB58 million in aggregate to Toshiba, and shall pay a commission fee calculated based on a certain percentage of sales income of contracted products sold to the regions outside Japan (i.e. household air-cooling refrigerators manufactured with the double-chilling technology provided by Toshiba) to Toshiba.

(h) On 5 December 2007, the Company and Kelon Development Company Limited (hereinafter referred to as “Kelon Development”) entered into the “Joint Venture Termination Agreement” with Hangzhou Xiling Group Company Limited (hereinafter referred to as “Hangzhou Xiling”). Pursuant to the “Joint Venture Termination Agreement”, the shareholders of Hangzhou Kelon Electrical Company Limited agreed to terminate the joint venture relationship of the three parties by way of reduction in the registered capital. Kelon Development and Hangzhou Xiling reduced their respective investment amounts from US$7.23 million to zero and terminated the joint venture relationship through the withdrawal of themselves from the joint venture of Hangzhou Kelon Electrical Company Limited.
(i) On 28 December 2007, the Company entered into the “Agreement for Acquisition of the White Goods Assets of Qingdao Hisense Air-conditioning Company Limited through Issue of New Shares (A Shares) by Hisense Kelon Electrical Holdings Company Limited” with Qingdao Hisense, pursuant to which the Company proposed to acquire the white goods assets from Qingdao Hisense through the issue of shares to it. The subject assets to be acquired included 100% of the equity interests in Hisense Shandong, 51% of the equity interests in Hisense Zhejiang, 55% of the equity interests in Hisense Beijing and the assets for sales and marketing of the white goods of Hisense Marketing held by Qingdao Hisense (hereinafter referred to as the “Subject Assets”). The price of the Subject Assets to be acquired was RMB2,541.4 million. The Company proposed to issue a total of 364,097,421 A Shares for the acquisition of the Subject Assets. The issue of shares for the asset acquisition is eligible for the waiver of tender offer, and is subject to the approval from CSRC.
(j) On 7 January 2008, the Company and Hisense Ronsheng (Guangdong) Refrigerator Co., Ltd. (hereinafter referred to as “Ronsheng Refrigerator”) entered into the “Equity Transfer Agreement” with Jilin Yinqiao Group Co., Ltd. (hereinafter referred to as “Yinqiao Group”), pursuant to which the Company and Ronsheng Refrigerator proposed to transfer the entire equity

— IX-16 —

GENERAL INFORMATION

APPENDIX IX

interest in Jilin Kelon Electric Co., Ltd. (hereinafter referred to as “Jilin Kelon”) (held by the Company and Ronsheng Refrigerator as to 90% and 10% respectively) to Yinqiao Group at a price of RMB30 million. It was also agreed that the Company and Ronsheng Refrigerator shall assume all carrying amounts of the debts of Jilin Kelon as at the date of the agreement.

(k) On 27 April 2008, the Company entered into the “Joint Venture Agreement” with Whirlpool (Hong Kong) Limited (“Whirlpool Hong Kong”) in Qingdao, the PRC to establish a joint venture company Hisense Whirlpool (Zhejiang) Electric Appliances Co., Ltd. (the “JV Company”) with the registered capital of RMB450 million, as to 50% contributed by both parties respectively.
(l) On 19 May 2008, the Company entered into the “Supplemental Agreement to the Agreement for Acquisition of the White Goods Assets of Qingdao Hisense Air-conditioning Company Limited through Issue of New Shares (A Shares) by Hisense Kelon Electrical Holdings Company Limited” with Qingdao Hisense, pursuant to which both parties agreed to terminate the “Agreement for Acquisition of the White Goods Assets of Qingdao Hisense Air-conditioning Company Limited through Issue of New Shares (A Shares) by Hisense Kelon Electrical Holdings Company Limited” entered into between the Company and Qingdao Hisense on 28 December 2007.
(m) On 19 May 2008, the Company entered into the “Framework Agreement for Acquisition of the White Goods Assets of Qingdao Hisense Air-conditioning Company Limited through Issue of New Shares (A Shares) by Hisense Kelon Electrical Holdings Company Limited” with Qingdao Hisense, the Company proposed to acquire the white goods assets, including the production and the sales and marketing operations of refrigerators and air-conditioners of Qingdao Hisense by way of non-public issue of A Shares to Qingdao Hisense. The proposed price of the subject assets shall not exceed RMB1,600 million. The Company proposed to issue not more than (and including) 280,220,000 domestic listed RMB ordinary shares (A Shares) of RMB1.00 each to Qingdao Hisense as the consideration for the acquisition of the subject assets.
(n) On 18 July 2008, the Company entered into the “Agreement for the Suspension of Assets Restructuring” with Qingdao Hisense, pursuant to which both parties agreed to terminate the execution of the significant assets restructuring under the “Framework Agreement for Acquisition of the White Goods Assets of Qingdao Hisense Air-conditioning Company Limited through Issue of New Shares (A Shares) by Hisense Kelon Electrical Holdings Company Limited” dated 19 May 2008.

— IX-17 —

GENERAL INFORMATION

APPENDIX IX

(o) On 8 May 2009, the Company entered into the “Framework Agreement for Acquisition of the White Goods Assets of Qingdao Hisense Air-conditioning Company Limited through Issue of New Shares (A Shares) by Hisense Kelon Electrical Holdings Company Limited” with Qingdao Hisense, which sets out the parties’ intention to further negotiate and enter into a formal agreement in relation to the acquisition by the Company of the Target Group by way of non-public issue of shares (A Shares) to Qingdao Hisense. The proposed transaction price of the subject assets to be acquired shall not exceed RMB1,250 million. The Company proposed to issue not more than 365,500,000 A Shares of RMB1.00 each to Qingdao Hisense. Neither the Company nor Qingdao Hisense has any legal obligations under this Framework Agreement.
(p) On 11 May 2009, Hisense Zhejiang entered into the “State-owned Land Use Right Acquisition Agreement” with the Land Reserve Centre of Changxing County, Zhejiang Province, pursuant to which the Land Reserve Centre of Changxing County, Zhejiang Province resumed certain industrial land use rights of Hisense Zhejiang with respect to a land parcel located at Changxing County Economic and Technological Development Zone with an area of 99,283.25 square metres. The compensation for the acquisition of such land use rights by the Land Reserve Centre of Changxing County, Zhejiang Province was settled after negotiations between Hisense Zhejiang and the Management Committee of Changxing County Economic Development Zone.
(q) Acquisition Agreement.

12. NO MATERIAL CHANGE

— IX-18 —

GENERAL INFORMATION

APPENDIX IX

13. EXPERTS

(a) The following sets out the qualifications of the Experts who have given their opinions or advice as contained in this circular:

Name Qualifications BDO Limited (previously known as Certified Public Accountants BDO McCabe Lo Limited) South China Capital Limited A corporation licensed to conduct type 6 (advising on corporate finance) regulated activity under the SFO

Access Capital Limited A corporation licensed under the SFO to carry on type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO

Jones Lang LaSalle Sallmanns Chartered surveyors Limited Beijing Tianyin Law Firm PRC legal counsels to the Company 中聯資產評估有限公司 (China United Qualified PRC valuer Assets Appraisal Co., Ltd)

(b) None of the Experts has any shareholding in the Company or any other member of the Hisense Kelon Group or the right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in the Company or any other member of the Hisense Kelon Group as at the Latest Practicable Date.

— IX-19 —

GENERAL INFORMATION

APPENDIX IX

(c) As at the Latest Practicable Date, none of the Experts has any direct or indirect interests in any assets which had been acquired or disposed of by or leased to any member of the Hisense Kelon Group since 31 December 2008 (the date to which the latest published audited consolidated financial statements of the Hisense Kelon Group were made up) or proposed to be so acquired, disposed of or leased.
(d) The Experts have given and have not withdrawn their respective written consents to the issue of this circular with the inclusion of their respective advice, letters, reports and/or summary of their opinions (as the case may be) and references to their names and logos in the form and context in which they respectively appear.

MISCELLANEOUS

(a) The registered office of the Company is at No. 8 Ronggang Road, Ronggui Street, Shunde District, Foshan City, Guangdong Province, the PRC.
(b) The principal place of business of the Company in Hong Kong is at Room 3104-06, Singga Commercial Centre, No. 148 Connaught Road West, Hong Kong.
(c) The Company is in the process of identifying a suitable candidate with the appropriate qualifications as its company secretary in compliance with the Listing Rules.
(d) Qingdao Hisense and Hisense Group Co. have undertaken to the Company that they will comply with the relevant PRC rules and regulations, “The notice to standardize on the cash flow between a listed company and its associates and the guarantee to an outside party by a listed company” (Zheng Jian Fa (2003) 56) and “The notice to standardize the guarantee to an outside party by a listed company” (Zheng Jian Fa (2005) 120), in relation to any transaction between Qingdao Hisense and Hisense Group Co. and the Company as well as to any guarantee provided by the Company to Qingdao Hisense and Hisense Group Co.

— IX-20 —

GENERAL INFORMATION

APPENDIX IX

(e) The registered address of Qingdao Hisense is at Changsha Road, Qingdao Hi-Tech Industrial Park, Qingdao City, Shandong Province, the PRC. The board of directors of Qingdao Hisense comprises Mr. Tang Ye Guo, Mr. Zhou Xiao Tian, Mr. Guo Qing Cun, Mr. Li Qing Long, Mr. Gao Yu Ling, Mr. Liu Wen Zhong and Mr. Xiao Jian Lin. The ultimate holding company of Qingdao Hisense is Hisense Group Co.. Hisense Group Co.’s registered address is at No. 17, Donghai Xi Road, Shinan District, Qingdao City, Shandong Province, the PRC. The board of directors of Hisense Group Co. comprises Mr. Zhou Hou Jian, Ms. Yu Shu Min, Mr. Xiao Jian Lin, Mr. Sun Hui Zheng and Mr. Wang Pei Song.
(f) Qingdao Hisense, its associates and parties acting in concert with it will also abstain from voting on the resolutions relating to the Acquisition by issuance of the Consideration Shares, the allotment and issue of the Consideration Shares, the authorisation of the Board to deal with all matters relating to the allotment and issue of Consideration Shares, the Whitewash Waiver and the CSRC Waiver in the EGM, and on the resolutions relating to the Acquisition by issuance of the Consideration Shares, the allotment and issue of the Consideration Shares and the authorisation of the Board to deal with all matters relating to the allotment and issue of Consideration Shares in the CSM.
(g) As at the Latest Practicable Date, none of the Shareholders had, prior to the Latest Practicable Date, irrevocably committed itself to vote in favour of or against the relevant resolutions in relation to the Acquisition by issuance of the Consideration Shares, the allotment and issue of the Consideration Shares, the Whitewash Waiver, the CSRC Waiver and the authorisation of the Board to deal with all matters relating to the allotment and issue of Consideration Shares at the EGM or the CSM.
(h) The financial adviser to Qingdao Hisense is Daiwa Securities SMBC Hong Kong Limited and its registered address is at Level 26, One Pacific Place, 88 Queensway, Hong Kong.
(i) The financial adviser to the Company is South China Capital Limited and its registered address is at 28/F, Bank of China Tower, 1 Garden Road, Central, Hong Kong.
(j) The independent financial adviser of the Company is Access Capital Limited and its office is situated at Suite 606, 6/F, Bank of America Tower, 12 Harcourt Road, Central, Hong Kong.
(k) This circular has been prepared in both English and Chinese. In the case of any discrepancies, the English text shall prevail over the Chinese text.

— IX-21 —

GENERAL INFORMATION

APPENDIX IX

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business in Hong Kong of the Company at Room 3104-06, Singga Commercial Centre, No. 148 Connaught Road West, Hong Kong during 9 a.m. to 5 p.m. (Monday to Friday) from the date of this circular up to and including the date of the EGM:

(a) the memorandum and articles of association of the Company;
(b) the annual reports of the Company for the two years ended 31 December 2008;
(c) the accountants’ reports on the Target Group dated 31 July 2009 prepared by BDO Limited, the text of which is set out in Appendix II to this circular;
(d) the report from BDO Limited dated 31 July 2009 on the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix IV to this circular;
(e) letter relating to the profit forecasts of the Hisense Kelon Group, the Target Group and the pro forma profit forecast of the Enlarged Group for the year ending 31 December 2009 dated 29 July 2009 prepared by BDO Limited, the text of which is set out in Appendix V to this circular;
(f) letter relating to pro forma profit forecast of the Enlarged Group for the year ending 31 December 2009 dated 29 July 2009 prepared by BDO Limited, the text of which is set out in Appendix V to this circular;
(g) letter relating to the profit forecasts of the Hisense Kelon Group, the Target Group and the pro forma profit forecast of the Enlarged Group for the year ending 31 December 2009 dated 29 July 2009 prepared by South China Capital Limited, the text of which is set out in Appendix V to this circular;
(h) letter relating to the profit forecasts of the Hisense Kelon Group, the Target Group and the pro forma profit forecast of the Enlarged Group for the year ending 31 December 2009 dated 29 July 2009 prepared by Access Capital Limited, the text of which is set out in Appendix V to this circular;
(i) letter relating to the profit estimate of the Company for the six months ended 30 June 2009 dated 29 July 2009 prepared by BDO Limited, the text of which is set out in Appendix VI to this circular;

— IX-22 —

GENERAL INFORMATION

APPENDIX IX

(j) letter relating to the profit estimate of the Company for the six months ended 30 June 2009 dated 29 July 2009 prepared by South China Capital Limited, the text of which is set out in Appendix VI to this circular;
(k) letter relating to the profit estimate of the Company for the six months ended 30 June 2009 dated 29 July 2009 prepared by Access Capital Limited, the text of which is set out in Appendix VI to this circular;
(l) the valuation letter, summary of values and valuation certificates for properties of the Enlarged Group as at 30 April 2009 prepared by Jones Lang LaSalle Sallmanns Limited, the text of which is set out in Appendix VIII to this circular, and the full valuation report prepared by Jones Lang LaSalle Sallmanns Limited referred to therein;
(m) the letter from the Board, the text of which is set out on pages 12 to 61 of this circular;
(n) the letter from the Independent Board Committee, the text of which is set out on page 62 of this circular;
(o) the letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 63 to 99 of this circular;
(p) the letters of consent from the Experts referred to in the section headed “Experts” in this Appendix;
(q) the material contracts referred to in the section headed “Material Contracts” in this Appendix;
(r) Asset Valuation Report of Qingdao Hisense Mould Company Limited in Relation to the Proposed Issue of New Shares (A Shares) by Hisense Kelon Electrical Holdings Company Limited for the Acquisition of White Goods Assets from Qingdao Hisense Air-conditioning Company Limited (Zhong Lian Ping Bao Zi [2009] No. 240);
(s) Asset Valuation Report of Qingdao Hisense Hitachi Air-conditioning Systems, Co., Ltd. in Relation to the Proposed Issue of New Shares (A Shares) by Hisense Kelon Electrical Holdings Company Limited for the Acquisition of White Goods Assets from Qingdao Hisense Air-conditioning Company Limited (Zhong Lian Ping Bao Zi [2009] No. 241);

— IX-23 —

GENERAL INFORMATION

APPENDIX IX

(t) Asset Valuation Report of Hisense (Beijing) Electric Company Limited in Relation to the Proposed Issue of New Shares (A Shares) by Hisense Kelon Electrical Holdings Company Limited for the Acquisition of White Goods Assets from Qingdao Hisense Air-conditioning Company Limited (Zhong Lian Ping Bao Zi [2009] No. 242);
(u) Asset Valuation Report of Hisense (Shandong) Air-conditioning Company Limited in Relation to the Proposed Issue of New Shares (A Shares) by Hisense Kelon Electrical Holdings Company Limited for the Acquisition of White Goods Assets from Qingdao Hisense Air-conditioning Company Limited (Zhong Lian Ping Bao Zi [2009] No. 243);
(v) Asset Valuation Report of Hisense (Zhejiang) Air-condition Co., Ltd. in Relation to the Proposed Issue of New Shares (A Shares) by Hisense Kelon Electrical Holdings Company Limited for the Acquisition of White Goods Assets from Qingdao Hisense Air-conditioning Company Limited (Zhong Lian Ping Bao Zi [2009] No. 244);
(w) Asset Valuation Report of Hisense Marketing Business in Relation to the Proposed Issue of New Shares (A Shares) by Hisense Kelon Electrical Holdings Company Limited for the Acquisition of White Goods Assets from Qingdao Hisense Airconditioning Company Limited (Zhong Lian Ping Bao Zi [2009] No. 245); and
(x) letter relating to the PRC Valuation dated 29 July 2009 prepared by South China Capital Limited, the text of which is set out in Appendix VII to this circular.

The above documents will be available at the website of the Securities and Futures Commission at www.sfc.hk and the Company’s website at www.kelon.com from the date of this circular up to (and including) the date of the EGM in accordance with Note 1 to Rule 8 of the Takeovers Code.

— IX-24 —

NOTICE OF EXTRAORDINARY GENERAL MEETING

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)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the fourth 2009 extraordinary general meeting (the “EGM”) of Hisense Kelon Electrical Holdings Company Limited (the “Company”) will be held at the conference room of the Company’s head office, Shunde District, Foshan City, Guangdong Province, the PRC at 2:00 p.m. on 31 August 2009 for the purpose of considering and, if thought fit, approving with or without modification, the following resolutions. Unless otherwise defined, capitalized terms used in this notice and the following resolutions shall have the same meanings as those defined in the announcement of the Company dated 16 July 2009:

Resolutions in relation to the Acquisition by issuance of the Consideration Shares

SPECIAL RESOLUTIONS

“ THAT the resolution in relation to the non-public issue of Shares (A Shares) by the Company for acquiring assets be and is hereby approved, and each of the following resolutions be voted upon item-by-item”
(a) “Method of issue: THAT the non-public issue of A Shares to a specified subscriber be and is hereby approved.”
(b) “Type and nominal value of Shares to be issued: THAT the Shares to be issued under this non-public share issue of the Company are RMBdenominated ordinary shares (A Shares) listed on the Shenzhen Stock Exchange with a nominal value of RMB1.00 each be and are hereby approved.”
(c) “Assets to be acquired pursuant to the issue of Shares: THAT the assets to be acquired under this non-public share issue of the Company are 100% of the equity interests in Hisense Shandong, 51% of the equity interests in Hisense Zhejiang, 55% of the equity interests in Hisense Beijing (including 60% of the equity interests in Hisense Nanjing held by Hisense Beijing), 49% of the equity interests in Hisense Hitachi, 78.7% of the equity interests in Hisense Mould and the Hisense Marketing Business owned by Qingdao Hisense be and are hereby approved.”

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NOTICE OF EXTRAORDINARY GENERAL MEETING

(d) “Consideration for the assets to be acquired: THAT the consideration for the Acquisition is RMB1,238,204,800 be and is hereby approved.”
(e) “Target subscriber and way of subscription: THAT the issue of A Shares to Qingdao Hisense, and the A Shares to be issued shall be fully subscribed by Qingdao Hisense in consideration for the subject assets referred to in resolution 1(c) above, be and is hereby approved.”
(f) “Issue price and pricing method: THAT the issue price of this non-public share issue is the average trading price of the A Shares for the 20 trading days immediately preceding the date of announcement on resolutions passed at the 9th meeting of 2009 of the sixth Board, i.e. RMB3.42 per A Share, be and is hereby approved.”
(g) “Number of A Shares to be issued: THAT the number of A Shares to be issued under this non-public share issue is not more than 362,048,187 be and is hereby approved.”
(h) “Adjustments to number of A Shares to be issued and issue price upon occurrence of “ex-right and ex-dividend” events prior to issue of the Consideration Shares: THAT upon occurrence of any “ex-right and exdividend” events, such as distribution of dividends, bonus issue, capitalization of the capital reserve fund, prior to the issue of the Consideration Shares, the issue price shall be subject to the corresponding “ex-right and ex-dividend” adjustments and the number of A Shares to be issued shall be adjusted accordingly based on any adjustments of the issue price, be and is hereby approved.”
(i) “Lock up arrangement: THAT the Consideration Shares to be issued to, and the A Shares originally held by, Qingdao Hisense, will not be traded or transferred by it for a period of 36 months after the allotment and issue and the registration of the Consideration Shares with the Shenzhen branch of China Securities Depository and Clearing Corporation Limited under the name of Qingdao Hisense be and is hereby approved.”
(j) “Both existing and new Shareholders to be entitled to the accumulated undistributed profit of the Company before this issue: THAT upon the completion of this issue, both existing and new Shareholders shall be entitled to the undistributed profit before this issue be and is hereby approved.”

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NOTICE OF EXTRAORDINARY GENERAL MEETING

(k) “Term of resolution in respect of this issue: THAT the resolution in respect of this non-public share issue shall be valid for a period of 12 months from the date of its consideration and approval by the Shareholders at the EGM be and is hereby approved.”
“ THAT the Acquisition Agreement dated 29 June 2009 and the signature thereof be and is hereby approved.”
“ THAT the (draft) report relating to the non-public issue of Shares (A Shares) by the Company for acquiring assets and connected transactions（海信科龍電器股份有限公司非公開發行股份（A股）購買資產暨關聯交易報告書（草案））required by PRC law (the “Report”) be and is hereby approved and confirmed and the Board be and is hereby authorized to do all things and acts and sign all documents which they may consider desirable or expedient to implement or give effect to any matters relating to or in connection with the Report.”

Resolution in relation to the waiver pursuant to the Takeover Procedures in respect of the obligation on Qingdao Hisense to acquire further Shares by way of an offer and resolution in relation to the waiver pursuant to the Takeovers Code in respect of the obligation on Qingdao Hisense and its concert parties to make a mandatory general offer

ORDINARY RESOLUTIONS

(a) “ THAT the waiver in respect of the obligation on Qingdao Hisense to acquire further Shares by way of an offer (other than those already owned by Qingdao Hisense) be and is hereby approved and an application be made by Qingdao Hisense to CSRC for such waiver in accordance with clause 62.1(3) of the Takeover Procedures.”
(b) “ THAT , subject to the Executive granting to Qingdao Hisense and parties acting in concert with it the Whitewash Waiver and the satisfaction of any conditions attached to the Whitewash Waiver imposed by the Executive, the waiver pursuant to Note 1 of the Notes on dispensations from Rule 26 of the Takeovers Code in respect of the obligation on Qingdao Hisense and parties acting in concert with it to make a mandatory general offer to the Shareholders to acquire Shares (other than those already owned or agreed to be acquired by Qingdao Hisense and parties acting in concert with it) pursuant to the Acquisition which would otherwise arise under Rule 26.1 of the Takeovers Code as a result of the allotment and issue of Consideration Shares be and is hereby approved.”

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Resolution in relation to the authorisation of the Board to deal with, in its absolute discretion, all matters relating to the Acquisition and the non-public allotment and issue of Consideration Shares

SPECIAL RESOLUTION

“ THAT the Board be and is hereby authorised to deal with, in its absolute discretion and to the extent permitted by the relevant laws and regulations, all matters relating to the non-public allotment and issue of the Consideration Shares, as they may consider necessary or expedient, including without limitation:
(a) to determine, including but not limited to, the appropriate manner of issue, and to determine the issue quantity, specific timing of issue and issue price in compliance with the relevant regulations and as approved by the relevant regulatory authorities;
(b) to sign and make appropriate and necessary amendments to each of the documents and contracts in relation to the Acquisition and the allotment and issue of the Consideration Shares pursuant to the requirements of the relevant government authorities;
(c) to handle all matters in relation to the listing of the Consideration Shares on the Shenzhen Stock Exchange and other related application procedures and formalities;
(d) to sign all other documents and deal with all other matters in connection with the Acquisition and the allotment and issue of the Consideration Shares; and
(e) such authorisation will be valid for 12 months following the approval by the Shareholders at the EGM.”

By Order of the Board of

Hisense Kelon Electrical Holdings Company Limited

Tang Ye Guo

Chairman

Foshan City, Guangdong, the PRC, 16 July 2009

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Notes:

(1) H Shareholders intending to attend the EGM shall give written reply slip, as attached, to the Company (which may be delivered in person, by post or by fax) which shall be lodged at the registered office of the Company on or before 11 August 2009. To qualify for attendance at the EGM, all H Shares transfers accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar in Hong Kong, Hong Kong Registrars Limited at Rooms 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, no later than 4:30 p.m. on 31 July 2009 for registration.
(2) Shareholders entitled to attend and vote at the EGM are entitled to appoint one or more persons (whether or not a Shareholder) as their proxy or proxies to attend and vote on behalf of themselves. In order to be valid, the form of proxy, together with any power of attorney or other document of authority, if any, under which the form is signed or a notarially certified copy thereof, must be deposited at the Company’s branch share registrar in Hong Kong, Hong Kong Registrars Limited at Rooms 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 24 hours before the time for holding the EGM.
(3) Holders of A Shares and H Shares whose names appear on the register of members of the Company as at the close of business on 31 July 2009 (including holders of H Shares who have submitted verified transfer forms no later than 4:30 p.m. on 31 July 2009) will be entitled to attend the EGM. The register of members of the Company will be closed from 3 August 2009 to 31 August 2009 (both days inclusive).
(4) The place for registration is: The Securities Department, Hisense Kelon Electrical Holdings Company Limited, No. 8 Ronggang Road, Ronggui Street, Shunde District, Foshan City, Guangdong Province. Postal code: 528303 Tel: (86) 757 2836 2570 Fax: (86) 757 2836 1055 Contact persons: Li Lin, Lv Yan Song, Mei Shi Liang.
(5) Appointment of proxies
(i) Each shareholder who has the right to attend and vote at the EGM is entitled to appoint one or more proxies, whether they are Shareholders or not, to attend and vote on his behalf at the EGM. A proxy of a Shareholder who has appointed more than one proxy may only vote on a poll.
(ii) Proxies of the Shareholders must be appointed in writing and the appointment must be signed by the Shareholders or their agents who have been duly authorised in writing. If the instrument of appointment of the proxy is signed by an agent of the Shareholder, the power of attorney or other document of authority of the agent must be notarially certified. In order to be valid, the notarially certified copy of such power of attorney or other document of authority, together with the instrument of appointment of the proxy, shall be deposited at the Company’s branch share registrar in Hong Kong, Hong Kong Registrars Limited at the address given in Note (1) above, not less than 24 hours before the time appointed for holding of the EGM.
(6) Shareholders attending the EGM are responsible for their own transportation and accommodation expenses.
(7) Voting on the resolutions to approve the Acquisition and the Whitewash Waiver will be conducted by way of poll as required under the Listing Rules and the Takeovers Code, respectively.
(8) Qingdao Hisense, its associates and parties acting in concert with it will abstain from voting in respect of resolutions no. 1, 1.(a) to 1.(k), 2 to 5 proposed to be considered and approved at the EGM.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

(9) Resolutions no. 4.(a) and 4.(b) shall be voted as a single resolution only.

(10) Resolutions no. 5.(a), 5.(b), 5.(c), 5.(d) and 5.(e) shall be voted as a single resolution only.

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

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NOTICE OF CLASS MEETING OF H SHAREHOLDERS

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)

NOTICE OF CLASS MEETING OF H SHAREHOLDERS

NOTICE IS HEREBY GIVEN that the class meeting of the H Shareholders (the “CSM”) of Hisense Kelon Electrical Holdings Company Limited (the “Company”) will be held at the conference room of the Company’s head office, Shunde District, Foshan City, Guangdong Province, the PRC at 3:00 p.m. (or immediately after the conclusion or adjournment of the class meeting of the A Shareholders) on 31 August 2009 for the purpose of considering and, if thought fit, approving with or without modification, the following resolutions. Unless otherwise defined, capitalized terms used in this notice and the following resolutions shall have the same meanings as those defined in the announcement of the Company dated 16 July 2009:

SPECIAL RESOLUTIONS

Resolutions in relation to the Acquisition by issuance of the Consideration Shares

“ THAT the resolution in relation to the non-public issue of Shares (A Shares) by the Company for acquiring assets be and is hereby approved, and each of the following resolutions be voted upon item-by-item”
(a) “Method of issue: THAT the non-public issue of A Shares to a specified subscriber be and is hereby approved.”
(b) “Type and nominal value of Shares to be issued: THAT the Shares to be issued under this non-public share issue of the Company are RMBdenominated ordinary shares (A Shares) listed on the Shenzhen Stock Exchange with a nominal value of RMB1.00 each be and are hereby approved.”
(c) “Assets to be acquired pursuant to the issue of Shares: THAT the assets to be acquired under this non-public share issue of the Company are 100% of the equity interests in Hisense Shandong, 51% of the equity interests in Hisense Zhejiang, 55% of the equity interests in Hisense Beijing (including 60% of the equity interests in Hisense Nanjing held by Hisense Beijing), 49% of the

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NOTICE OF CLASS MEETING OF H SHAREHOLDERS

equity interests in Hisense Hitachi, 78.7% of the equity interests in Hisense Mould and the Hisense Marketing Business owned by Qingdao Hisense be and are hereby approved.”

(d) “Consideration for the assets to be acquired: THAT the consideration for the Acquisition is RMB1,238,204,800 be and is hereby approved.”
(e) “Target subscriber and way of subscription: THAT the issue of A Shares to Qingdao Hisense, and the A Shares to be issued shall be fully subscribed by Qingdao Hisense in consideration for the subject assets referred to in resolution 1(c) above, be and is hereby approved.”
(f) “Issue price and pricing method: THAT the issue price of this non-public share issue is the average trading price of the A Shares for the 20 trading days immediately preceding the date of announcement on resolutions passed at the 9th meeting of 2009 of the sixth Board, i.e. RMB3.42 per A Share, be and is hereby approved.”
(g) “Number of A Shares to be issued: THAT the number of A Shares to be issued under this non-public share issue is not more than 362,048,187 be and is hereby approved.”
(h) “Adjustments to number of A Shares to be issued and issue price upon occurrence of “ex-right and ex-dividend” events prior to issue of the Consideration Shares: THAT upon occurrence of any “ex-right and exdividend” events, such as distribution of dividends, bonus issue, capitalization of the capital reserve fund, prior to the issue of the Consideration Shares, the issue price shall be subject to the corresponding “ex-right and ex-dividend” adjustments and the number of A Shares to be issued shall be adjusted accordingly based on any adjustments of the issue price, be and is hereby approved.”
(i) “Lock up arrangement: THAT the Consideration Shares to be issued to, and the A Shares originally held by, Qingdao Hisense, will not be traded or transferred by it for a period of 36 months after the allotment and issue and the registration of the Consideration Shares with the Shenzhen branch of China Securities Depository and Clearing Corporation Limited under the name of Qingdao Hisense be and is hereby approved.”

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NOTICE OF CLASS MEETING OF H SHAREHOLDERS

(j) “Both existing and new Shareholders to be entitled to the accumulated undistributed profit of the Company before this issue: THAT upon the completion of this issue, both existing and new Shareholders shall be entitled to the undistributed profit before this issue be and is hereby approved.”
(k) “Term of resolution in respect of this issue: THAT the resolution in respect of this non-public share issue shall be valid for a period of 12 months from the date of its consideration and approval by the Shareholders at the EGM be and is hereby approved.”
“ THAT the Acquisition Agreement dated 29 June 2009 and the signature thereof be and is hereby approved.”
“ THAT the (draft) report relating to the non-public issue of Shares (A Shares) by the Company for acquiring assets and connected transactions（海信科龍電器股份有限公司非公開發行股份（A股）購買資產暨關聯交易報告書（草案））required by PRC law (the “Report”) be and is hereby approved and confirmed and the Board be and is hereby authorized to do all things and acts and sign all documents which they may consider desirable or expedient to implement or give effect to any matters relating to or in connection with the Report.”

“ THAT the Board be and is hereby authorised to deal with, in its absolute discretion and to the extent permitted by the relevant laws and regulations, all matters relating to the non-public allotment and issue of the Consideration Shares, as they may consider necessary or expedient, including without limitation:
(a) to determine, including but not limited to, the appropriate manner of issue, and to determine the issue quantity, specific timing of issue and issue price in compliance with the relevant regulations and as approved by the relevant regulatory authorities;
(b) to sign and make appropriate and necessary amendments to each of the documents and contracts in relation to the Acquisition and the allotment and issue of the Consideration Shares pursuant to the requirements of the relevant government authorities;

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NOTICE OF CLASS MEETING OF H SHAREHOLDERS

(c) to handle all matters in relation to the listing of the Consideration Shares on the Shenzhen Stock Exchange and other related application procedures and formalities;
(d) to sign all other documents and deal with all other matters in connection with the Acquisition and the allotment and issue of the Consideration Shares; and
(e) such authorisation will be valid for 12 months following the approval by the Shareholders at the EGM.”

By Order of the Board of Hisense Kelon Electrical Holdings Company Limited Tang Ye Guo Chairman

Foshan City, Guangdong, the PRC, 16 July 2009

Notes:

(1) H Shareholders intending to attend the CSM shall give written reply slip, as attached, to the Company (which may be delivered in person, by post or by fax) which shall be lodged at the registered office of the Company on or before 11 August 2009. To qualify for attendance at the CSM, all H Shares transfers accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar in Hong Kong, Hong Kong Registrars Limited at Rooms 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, no later than 4:30 p.m. on 31 July 2009 for registration.
(2) Shareholders entitled to attend and vote at the CSM are entitled to appoint one or more persons (whether or not a Shareholder) as their proxy or proxies to attend and vote on behalf of themselves. In order to be valid, the form of proxy, together with any power of attorney or other document of authority, if any, under which the form is signed or a notarially certified copy thereof, must be deposited at the Company’s branch share registrar in Hong Kong, Hong Kong Registrars Limited at Rooms 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 24 hours before the time for holding the CSM.
(3) Holders of H Shares whose names appear on the register of members of the Company as at the close of business on 31 July 2009 (including holders of H Shares who have submitted verified transfer forms no later than 4:30 p.m. on 31 July 2009) will be entitled to attend the CSM. The register of members of the Company will be closed from 3 August 2009 to 31 August 2009 (both days inclusive).
(4) The place for registration is: The Securities Department, Hisense Kelon Electrical Holdings Company Limited, No. 8 Ronggang Road, Ronggui Street, Shunde District, Foshan City, Guangdong Province. Postal code: 528303 Tel: (86) 757 2836 2570 Fax: (86) 757 2836 1055 Contact persons: Li Lin, Lv Yan Song, Mei Shi Liang.

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NOTICE OF CLASS MEETING OF H SHAREHOLDERS

(5) Appointment of proxies
(i) Each shareholder who has the right to attend and vote at the CSM is entitled to appoint one or more proxies, whether they are Shareholders or not, to attend and vote on his behalf at the CSM. A proxy of a Shareholder who has appointed more than one proxy may only vote on a poll.
(ii) Proxies of the Shareholders must be appointed in writing and the appointment must be signed by the Shareholders or their agents who have been duly authorised in writing. If the instrument of appointment of the proxy is signed by an agent of the Shareholder, the power of attorney or other document of authority of the agent must be notarially certified. In order to be valid, the notarially certified copy of such power of attorney or other document of authority, together with the instrument of appointment of the proxy, shall be deposited at the Company’s branch share registrar in Hong Kong, Hong Kong Registrars Limited at the address given in Note (1) above, not less than 24 hours before the time appointed for holding of the CSM.
(6) Shareholders attending the CSM are responsible for their own transportation and accommodation expenses.
(7) Voting on the resolutions to approve the Acquisition and the Whitewash Waiver will be conducted by way of poll as required under the Listing Rules and the Takeovers Code, respectively.
(8) Qingdao Hisense, its associates and parties acting in concert with it will abstain from voting in respect of resolutions no. 1, 1.(a) to 1.(k), 2 to 4 proposed to be considered and approved at the CSM.
(9) Resolutions no. 4.(a), 4.(b), 4.(c), 4.(d) and 4.(e) shall be voted as a single resolution only.

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AI assistant

Medlive Technology Co., Ltd. — Proxy Solicitation & Information Statement 2009

50436_rns_2009-07-30_9a49995d-c1c4-439c-87cd-1b3358e03771.pdf

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)

MAJOR AND CONNECTED TRANSACTION: ACQUISITION OF THE TARGET GROUP FROM QINGDAO HISENSE AIR-CONDITIONING COMPANY LIMITED AND APPLICATION FOR WHITEWASH WAIVER

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXCHANGE RATE CONVERSION

PRC COMPANY NAMES

Expected Timetable (Note)

HISENSE KELON ELECTRICAL HOLDINGS COMPANY LIMITED 海信科龍電器股份有限公司

MAJOR AND

CONNECTED TRANSACTION:

ACQUISITION OF THE TARGET GROUP FROM QINGDAO HISENSE AIR-CONDITIONING COMPANY LIMITED AND APPLICATION FOR WHITEWASH WAIVER

INTRODUCTION

THE ACQUISITION AGREEMENT

Parties

Assets to be acquired:

Consideration

Payment method

The Issue Price

Corporate Structure before and after Completion

Structure of the Hisense Group and the Hisense Kelon Group

Immediately before Completion

Immediately after Completion

Conditions to Completion

Completion

LETTER FROM THE BOARD

Undertakings

SHAREHOLDING STRUCTURE OF THE COMPANY BEFORE AND AFTER THE COMPLETION

INFORMATION OF THE COMPANY

INFORMATION OF QINGDAO HISENSE

LETTER FROM THE BOARD

INFORMATION OF THE TARGET GROUP

Air-conditioner manufacturing

(1) Hisense Shandong

1.1 Background

1.2 History

1.3 Operating status

(2) Hisense Zhejiang

2.1 Background

2.3 Operating status

LETTER FROM THE BOARD

(3) Hisense Hitachi

3.1 Background

3.3 Operating status

Refrigerator Manufacturing

(1) Hisense Beijing

(2) Hisense Nanjing

2.2 History

2.3 Operating status

Mould Manufacturing

(1) Hisense Mould

1.2 History

LETTER FROM THE BOARD

White Goods Sales and Marketing

Hisense Marketing Business

Financial Information of the Target Group

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Management’s discussion and analysis of financial condition and results of operation

ASSET VALUATION OF THE TARGET GROUP

LETTER FROM THE BOARD

LETTER FROM THE BOARD

PROPERTY INTERESTS OF THE HISENSE KELON GROUP

LETTER FROM THE BOARD

PROPERTY INTERESTS OF THE TARGET GROUP

LETTER FROM THE BOARD

FINANCIAL EFFECT OF THE ACQUISITION ON THE HISENSE KELON GROUP

Prospective financial information of the Target Group and the Enlarged Group

PRC Target Group Profit Forecast and PRC Enlarged Group Profit Forecast

IFRS 2009 Profit Forecasts

Financial information of the Hisense Kelon Group

IFRS Results Estimate

Pro forma financial information of the Enlarged Group

Medlive Technology Co., Ltd. Proxy Solicitation & Information Statement 2009