Medlive Technology Co., Ltd. — Share Issue/Capital Change 1999

May 31, 1999

Listed Company Information

GUANGDONG KELON<0921> - Announcement GUANGDONG KELON ELECTRICAL HOLDINGS COMPANY LIMITED (a joint stock limited company incorporated in the People's Republic of China with limited liability) NEW ISSUE OF 110,000,000 A SHARES OF PAR VALUE RMB1.00 EACH AT AN ISSUE PRICE OF RMB9.98 PER A SHARE IN THE PEOPLE'S REPUBLIC OF CHINA ("A SHARE ISSUE") The Board is pleased to announce that the approval for the A Share Issue was granted by the China Securities Regulatory Commission on 28th May, 1999. The 110,000,000 A Shares will be offered to public investors in the PRC at the price of RMB9.98 (approximately HK$9.34) per A Share. A summary of the prospectus relating to the A Share Issue will be published in newspapers in the PRC on 31st May, 1999. Upon completion of the A Share Issue, the issued share capital of the Company will be made up of 992,006,563 shares comprising of (i) 337,915,755 legal person shares (representing 34.06 per cent.) held by Guangdong Kelon (Rongsheng) Group Company Limited; (ii) 110,000,000 A Shares (representing 11.09 per cent.) held by the PRC public investors; (iii) 84,501,000 PRC domestic shares (representing 8.52 per cent.) held by employees of the Company; and (iv) 459,589,808 H shares (representing 46.33 per cent.) held by holders of H shares. The legal person shares and the PRC domestic shares held by the employees of the Company will not be listed on the Shenzhen Stock Exchange. The prospectus relating to the A Share Issue will be made available to the public in the PRC on 3rd June, 1999. The 110,000,000 A Shares are expected to be listed on the Shenzhen Stock Exchange on or before 18th August, 1999. The board (the "Board") of directors (the "Directors") of Guangdong Kelon Electrical Holdings Company Limited (the "Company") is pleased to announce the details relating to the A Share Issue: 1. The A Share Issue was duly approved by the shareholders of the Company at the extraordinary general meeting of the Company held on 28th September, 1998 as disclosed in the Company's announcement of the same date, and approval for the A Share Issue was granted to the Company by the China Securities Regulatory Commission on 28th May, 1999. The 110,000,000 new domestic invested shares of par value RMB1.00 each ("A Shares") will be offered to public investors in the People's Republic of China (the "PRC") at the price of RMB9.98 (approximately HK$9.34) per A Share, representing 14.26 times forecast profit of the Company and its subsidiaries (together the "Group") for the year ending 31st December, 1999 of RMB0.70 (approximately HK$0.66) per share (based on a weighted-average issued share capital of 937,006,563 shares). A summary of the prospectus relating to the A Share Issue ("A Shares Prospectus") will be published in newspapers in the PRC on 31st May, 1999 and the A Shares Prospectus will be made available to the public in the PRC on 3rd June, 1999. The A Share Issue will be fully underwritten by a syndicate of PRC underwriters with Guangfa Securities Company Limited as the lead-underwriter. The 110,000,000 A Shares are expected to be listed on the Shenzhen Stock Exchange on or before 18th August, 1999. The sponsor of the A Share Issue is Huaxia Securities Company Limited. 2. Most of the information contained in the A Shares Prospectus which relates to risk factors, business activities of the Group, overview of the air-conditioner and refrigerator industry, corporate information, senior management profile and particulars of the Company have been previously disclosed in the Company's prospectus dated 15th July, 1996 in connection with the Company's H share issue, the Company's annual reports for each of the three years ended 31st December, 1998 and the circular issued by the Company dated 3rd September, 1998 ("Huabao Circular") regarding the acquisition of Guangdong Kelon Rongsheng's (as defined in the Huabao Circular) entire 60 per cent. interest in Guangdong Kelon Air-conditioner (as defined in the Huabao Circular) and of the Fixed Assets (as defined in the Huabao Circular) and the Stock (as defined in the Huabao Circular) from Guangdong Huabao (as defined in the Huabao Circular) and the Huabao Subsidiaries (as defined in the Huabao Circular) respectively. Accordingly, the information disclosed in the A Shares Prospectus will conform to the information already disclosed by the Company in Hong Kong in all material respects, saved for the fact that all financial information contained in the A Shares Prospectus has been prepared in accordance with the relevant generally accepted accounting principles and regulations applicable to PRC enterprises (the "PRC GAAP") and the information set forth below: Production and sales plan of the Company The Directors estimate that the annual sales and production volume of the Group's products will reach the following levels for the year ending 31st December, 2000: Refrigerator : 3.5 million units Air-conditioner : 1.6 million units Freezer : 300,000 units 3. Additional information on the A Share Issue which holders of H shares may find useful is summarised below: (i) Under the Company's articles of association, holders of A Shares will have the same rights and obligations as holders of H shares, except that dividends on A Shares will be paid in Renminbi. The legal person shares and the PRC domectic shares held by the employees of the Company will not be listed on the Shenzhen Stock Exchange. The share capital structure of the Company before and after completion of the A Share Issue is, or will be, as follows: Before A Share Issue After A Share Issue Number of Number of Class of Shares Type of Shares Shares % Shares % Domestic invested i) legal person shares shares 337,915,755 38.31 337,915,755 34.06 (held by Guangdong Kelon (Rongsheng) Group Company Limited) ii) A Shares (to be held by the PRC public investors) - - 10,000,000 11.09 iii) PRC domestic shares (held by employees) 84,501,000 9.58 84,501,000 8.52 Foreign invested H shares 459,589,808 52.11 459,589,808 46.33 shares 882,006,563 100.00 992,006,563 100.00 Net asset value of the Company as at 31st December, 1998 was approximately RMB3.79 (approximately HK$3.55) per share. Upon completion of the A Share Issue, net asset value of the Company will increase to approximately RMB4.45 (approximately HK$4.17) per share (based on an enlarged issued share capital of 992,006,563 shares). (ii) The Company expects to raise (before expenses) approximately RMB1,097.8 million (approximately HK$1,027.9 million) from the A Share Issue. The net proceeds of the A Share Issue of approximately RMB1,071.3 million (approximately HK$1,003.1 million) will be used as follows: (a) as to not more than RMB849.1 million (approximately HK$795.0 million) for settlement of the liabilities assumed from completion of the acquisition of the Fixed Assets and the Stock from Guangdong Huabao and Huabao Subsidiaries respectively (the "Huabao Acquisition"). Investment cost of the Huabao Acquisition is expected to be not more than RMB849.1 million. The pay-back period, profit before tax to investment cost ratio and the internal rate of return of the Huabao Acquisition is 3.40 years, 17.39 per cent. and 33.46 per cent. respectively. Further details of the Huabao Acquisition have been disclosed in the Huabao Circular. (b) as to RMB115.0 million (approximately HK$107.7 million) for expansion of the sales network of the Company by setting up 2,000 sales and service centres in the PRC and sales branches for air-conditioners in major cities in the PRC. The pay-back period and the internal rate of return of this project is expected to be 3.8 years and 25.96 per cent. respectively. Approval on such project was obtained from the relevant PRC authority in April 1998. The Directors believe that quality of installation and after-sales services is a critical factor to the success of air-conditioner business and the establishment of a network of sales and services centres is instrumental to the provision of complete after-sale services and will largely increase the sales of air-conditioners. The Directors also believe that the existing sales network for both "Kelon" and "Huabao" air-conditioners could not satisfy the increasing sales volume of the Company. Currently, Guangdong Kelon Air-conditioner and Huabao Air-conditioner (both as defined in the Huabao Circular) together have about 2,000 sales and service centres in major cities and provinces in the PRC. The 2,000 sales and service centres to be set up will be located in various secondary cities in the PRC, out of which 1,100 and 900 sales and service centres are expected to be set up in 1999 and 2000 respectively. Accordingly, RMB69.0 million (approximately HK$64.6 million) and RMB46.0 million (approximately HK$43.1 million) will be incurred in 1999 and 2000 respectively. The Directors estimate that each sales and service centre will have a capacity of selling 300 units of air-conditioners per annum, the sales of air-conditioners of the Company will thus increase by 600,000 units per annum after completion of the establishment of the 2,000 new sales and service centres. (c) as to the balance of RMB107.2 million (approximately HK$100.4 million) as additional general working capital of the Company. (iii) The A Shares to be issued will rank pari passu with the existing shares of the Company. It is expected that, after the A Share Issue, any declaration of dividend by the Company in respect of the first profit-making year after the A Share Issue will be made and any such dividend will be paid within six months after such year end. However, the shareholders who subscribe for the A Shares pursuant to the A Share Issue will not be qualified to receive the final dividend declared for the year ended 31st December, 1998. (iv) The financial information contained in the A Shares Prospectus for each of the three years ended 31st December, 1998 and the profit forecast for the year ending 31st December, 1999 were prepared in accordance with the PRC GAAP and are summarised below: (a) Summary of financial information The following financial information are prepared under PRC GAAP and audited by Arthur Andersen & Hua Qiang Certified Public Accountants: Consolidated balance sheets As of 31st As of 31st As of 31st December, December, December, 1998 1997 1996 (Renminbi) (Renminbi) (Renminbi) Current assets 4,169,898,273 3,329,589,660 1,650,253,038 Long-term investments 73,099,853 94,654,458 110,640,200 Fixed assets 1,826,811,263 1,238,937,010 852,087,906 Intangible and deferred assets 594,329,598 286,600,198 226,574,673 Total assets 6,664,138,987 4,949,781,326 2,839,555,817 Current liabilities 2,632,191,935 1,507,674,321 692,925,529 Long-term liabilities 292,023,123 204,287,807 174,481,529 Total liabilities 2,924,215,058 1,711,962,128 867,407,058 Minority interests 400,792,672 225,613,147 75,813,559 Shareholders' equity 3,339,131,257 3,012,206,051 1,896,335,200 Total liabilities and shareholders' equity 6,664,138,987 4,949,781,326 2,839,555,817 Company's balance sheets As of 31st As of 31st As of 31st December, December, December, 1998 1997 1996 (Renminbi) (Renminbi) (Renminbi) Current assets 2,793,972,582 2,796,081,324 1,407,606,508 Long-term investments 934,619,697 754,377,145 401,625,877 Fixed assets 701,540,567 679,892,977 623,282,141 Intangible and deferred assets 461,745,435 194,761,282 192,180,912 Total assets 4,891,878,281 4,425,112,728 2,624,695,438 Current liabilities 1,273,516,170 1,223,986,019 559,663,171 Long-term liabilities 277,086,633 185,128,699 163,996,103 Total liabilities 1,550,602,803 1,409,114,718 723,659,274 Shareholders' equity 3,341,275,478 3,015,998,010 1,901,036,164 Total liabilities and shareholders' equity 4,891,878,281 4,425,112,728 2,624,695,438 Consolidated profit and loss accounts As of 31st As of 31st As of 31st December, December, December, 1998 1997 1996 (Renminbi) (Renminbi) (Renminbi) Sales 3,813,189,485 3,409,828,462 2,760,817,033 Less: Cost of sales (2,444,402,313) (2,095,683,065) (1,936,523,113) Selling expenses (440,733,278) (238,539,899) (112,090,913) Administrative expenses (318,606,742) (429,431,368) (247,933,951) Financial expenses (70,098,238) (41,926,672) (37,499,170) (Provision) Reversal of provision for inventory obsolescence (5,000,000) - 5,000,000 Add: Other operating income 26,778,699 19,911,592 27,573,232 Operating profit 561,127,613 624,159,050 459,343,118 Add:Investment income 78,716,114 (14,976,192) - ? Subsidies income 125,443,052 55,099,080? - Non-operating income 33,588,957 20,370,491 19,402,738 Less: Non-operating expenses (110,273,896) (22,848,500) (24,281,833) Profit before taxation and minority interests 688,601,840 661,803,929 454,464,023 Less: Taxation (74,132,021) (65,995,071) (31,804,034) Minority interests (23,764,991) (19,561,918) (8,064,119) Net profit 590,704,828 576,246,940 414,595,870 Company's profit and loss accounts As of 31st As of 31st As of 31st December, December, December, 1998 1997 1996 (Renminbi) (Renminbi) (Renminbi) Sales 3,421,123,392 3,319,066,536 2,687,226,373 Less: Cost of sales (2,321,863,158) (2,135,867,754) (1,944,684,416) Selling expenses (395,680,782) (234,280,073) (111,816,986) Administrative expenses (219,554,833) (384,554,252) (198,359,825) Financial expenses (44,072,455) (30,664,277) (30,496,446) Add: Reversal of provision for inventory obsolescence - - 5,000,000 Other operating income 28,479,305 21,384,619 27,264,169 Operating profit 468,431,469 555,084,799 434,132,869 Add: Investment income 140,702,552 36,908,392 23,072,973 Subsidies income 120,331,467 55,099,080 - Non-operating income 31,528,129 14,800,442 11,515,904 Less: Non-operating expenses (105,118,417) (21,731,886) (22,858,840) Profit before tax 655,875,200 640,160,827 445,862,906 Taxation (65,170,372) (63,913,887) (31,267,036) Net profit 590,704,828 576,246,940 414,595,870 (b) Differences between PRC GAAP and International Accounting Standards ("IAS") Differences between PRC GAAP and IAS give rise to differences in the reported balances of consolidated net profit and shareholders' equity of the Group. The significant differences for the respective periods are as follows: Shareholders' Consolidated net profit for the year ended equity as of 31st December, 31st December, 1998 1997 1996 1998 (Renminbi) (Renminbi) (Renminbi) (Renminbi) Reported under PRC GAAP 590,704,828 576,246,940 414,595,870 3,339,131,257 Adjustment for beginning balance of input VAT - - 31,495,125 - Adjustments on fixed assets revaluation surplus and related depreciation (15,463,682) (15,448,680) (6,290,926) 63,460,723 Adjustment on fixed assets granted by United Nations 17,696,745 - - - Reported under IAS 592,937,891 560,798,260 439,800,069 3,402,591,980 (c) Profit forecast The Directors have prepared the forecast for the profit after taxation and minority interests of the Group for the year ending 31st December 31, 1999 (the "Forecast"). The Forecast, which is compiled on the basis of the assumptions made by the Directors, has been prepared under the basis of PRC GAAP and accounting policies consistent in all material respects with those adopted by the Company as set out in the A Shares Prospectus. The preparation of the Forecast is the sole responsibility of the Directors. The compilation and calculations of the Forecast have been reviewed by the Company's PRC auditors, Arthur Andersen ?Hua Qiang Certified Public Accountants. The Forecast may be subject to adjustment if it were to be compiled based on IAS and has not been reviewed by any independent financial adviser or auditors in Hong Kong. (Renminbi) Sales 7,100,011,400 Less: Cost of sales (4,912,389,100) Selling expenses (939,097,022) Administrative expenses (430,499,217) Financial expenses (35,655,400) Add: Other operating income 33,878,000 Operating profit 816,248,661 Add: Subsidies income 50,000,000 Non-operating income 13,911,700 Less: Non-operating expenses (37,873,034) Profit before taxation and minority interests 842,287,327 Less: Taxation (85,358,000) Minority interests (96,476,318) Profit after tax and minority interests 660,453,009 The major assumptions adopted in arriving the Forecast are as follows: 1. There will be no material changes in existing laws, policies, industry or regulatory treatment relating to the Group; 2. There will be no material changes in the political, economic or market conditions in which the Group operates; 3. Inflation, interest rates and exchange rates will not differ materially from the normal ranges; 4. There will be no material changes in the taxation of the Group companies, including the bases, calculation and rates of taxation; 5. Pursuant to the relevant documents issued by the Guangdong Provincial People's Government, the Company is entitled to a preferential tax treatment and subject to an effective tax rate of 15% (the part of the tax paid over 15% will be refunded). There is no assurance that the Company will continue to enjoy such financial refund in the future. If the Company will not continue to enjoy the financial refund, the Company will be subject to Enterprise Income Tax at a rate of 24% and local tax at a rate of 3%; the taxation of the Group for the year ending 31st December, 1999 will increase by RMB60,000,000 and the net profit will decrease by the same amount. 4. The Company wishes to caution investors that the Forecast has not been prepared with a view to complying with the published guideline of the Hong Kong Society of Accountants or IAS regarding forecasts. The Forecast is, by its nature, subject to significant risks and uncertainties. Actual results may differ materially from the Forecast as a result of a number of factors, including, without limitation: whether any or all of the assumptions underlying the Forecast listed above remain true through the end of 1999 and whether the offering of 110,000,000 A Shares is completed at the price of RMB9.98 each or at all. By the order of the Board of Guangdong Kelon Electrical Holdings Company Limited Lee Kwok Ming, Don Company Secretary Hong Kong, 28th May, 1999 Unless otherwise specified, conversion of Renminbi into Hong Kong dollars is based on the exchange rate of HK$1.00 = RMB1.068.