深康佳Ａ(000016)深康佳2002年年度报告摘要（英文版）

KONKA GROUP CO., LTD. 2002 ANNUAL REPORT SUMMARY 1. Important Notes 1.1 Board of Directors and of KONKA GROUP CO., LTD. (hereinafter referred to as the Company) all Directors individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. The 2002 annual report summary is abstracted from the annual report; the investors are suggested to read the full text of annual report to understand more details. 1.2 No director stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of the Annual Report or have objection for this report. 1.3 The whole directors attended the meeting of Board of Directors. 1.4 Shenzhen Dahua Tiancheng Certified Public Accountants provided Auditors’ Report with interpretative explanation for the Company. The Board of Directors and the Supervisory Committee also had detailed comments on relevant issues. Welcome the investors to read carefully. 1.5 Chairman of the Board of the Company Mr. Ren Kelei, Chief Financial Supervisor Mr. Yang Guobin and General Manger of Financial Department Ms. Yang Rong hereby confirm that the Financial Report of the Annual Report is true and complete. 1.6 In the event of difference in interpretation between the two versions, the Chinese report shall prevail. 2. Company Profile 2.1 Basic information Short form of the stock Shen Konka - A, Shen Konka - B Stock code 000016, 200016 Listed stock exchange Shenzhen Stock Exchange Registered address and Office address Overseas Chinese Town, Nanshan District, Shenzhen Post code 518053 Internet web site of the Company http://www.konka.com E-mail of the Company szkonka@konka.com, szkonkas@sz.gd.cninfo.net 2.2 Contact person and method Secretary of the Board of Authorized representative in charge Directors of securities affairs Name Chen Xuri Chen Xuri and Yang Guobin Contact address Konka Group Co., Ltd., Overseas Konka Group Co., Ltd., Overseas Chinese Town, Shenzhen Chinese Town, Shenzhen Telephone (86) 755-26608866 (86) 755-26608866 Fax (86) 755-26600082 (86) 755-26600082 E-mail chenxuri@konka.com yangguobin@konka.com -1 - 3. Summary of Accounting Data and Financial Indexes 3.1 Major accounting data (Unit: In RMB’0000) 2001 (after 2001(before Increase/decrease 2002 2000 adjustment) adjustment) over last year（％） Income from core business ８０４，１６５．２８ 674,812.20 674,812.20 １９．１７ 895,378.10 Total profit ５，４４３．３６ -68,725.42 -68,725.42 - 28,658.47 Net profit ３，５５９．０４ -69,476.43 -69,979.15 - 21,439.23 Net profit after deducting non-recurring gains and losses ２，８６５．３４ -71,486.72 -71,989.44 - 21,515.41 At the end of At the end of Increase/decrease At the end of At the end of 2001 (after 2001 (before from the end of 2002 2000 adjustment) adjustment) previous year（％） Total assets ７００，５９７．４２ 722,095.88 721,173.68 －２．９８％ 998,041.80 Shareholder’ s equity (excluding minority interests) ２９５，３５０．８８ 289,844.74 289,391.30 １．９０ 358,306.64 Net cash flows arising from operating activities ６５，３７２．３４ 72,322.57 72,322.57 －９．６１ -1,344.72 3.2 Major financial indexes 2001 (after 2001 (before Increase/decrease 2002 2000 adjustment) adjustment) over last year（％） Earnings per share (RMB) ０．０５９ -1.15 -1.16 - 0.36 Return on equity (%) １．２１ －２３．９７ -24.18 - 5.98 Return on equity as calculated based on net profit after deducting ０．９７ －２４．６６ -24.88 - 6.24 non-recurring gains and losses (%) Net cash flows per share arising from operating activities (RMB) １．０９ 1.20 1.20 -0.10 -0.02 At the At the end of At the end of Increase or decrease At the end of end of 2001 (after 2001 (before from the end of 2000 2002 adjustment) adjustment) previous year（％） Net assets per share (RMB) ４．９１ 4.82 4.81 １．９０ 5.96 Net assets per share after adjustment (RMB) ４．７９ 4.57 4.59 ４．７４ 5.65 3.3 Difference of net profit as audited by Chinese Accounting Standard (CAS) and International Accounting Standard (IAS) √Applicable □Inapplicable Unit: In RMB CAS IAS Net profit RMB ３５，５９０，４３０．７４ RMB ４３，１２２，３８０．１７ Explanation on the 1. The partial government imbursement was listed into income: RMB –2,997,500.00 difference 2. Adjustment changing of equity of subsidiary company: RMB –4,534,449.43 4. Changes in Share Capital and Particulars about Shareholders 4.1 Statement of change in shares (Unit: share) -2 - Increase/decrease in this time (+, - ) Before the Capitalizatio Additional After the Items Allotmen Bonus change n of public issuance Others Subtotal change t of share shares reserve Ｉ． Unlisted Shares 1. Promoters’shares 174,949,746 174,949,746 Including: State-owned share Domestic legal person’ s 174,949,746 174,949,746 shares Foreign legal person’ s shares Others 2. Raised legal person’ s shares 3. Inner employees’shares (shares held by senior 42,092 42,092 executives) 4. Preference shares or others Total Unlisted shares 174,991,838 174,991,838 II. Listed Shares 1. RMB ordinary shares 224,156,612 224,156,612 2.Domestically listed 202,837,902 202,837,902 foreign shares 3. Overseas listed foreign shares 4. Others Total Listed shares 426,994,514 426,994,514 ＩＩＩ. Total shares 601,986,352 601,986,352 4.2 Statement of shares held by the top ten shareholders Total number of shareholders at the end of report 162,273 shareholders (including 146,370 ones of A-share and 15,903 year ones of B-share) Particulars about shares held by the top ten shareholders Number of Nature of Increase / Holding Type of shares share shareholders decrease in shares at Proportion Full name of Shareholders (Circulating/No pledged/ (State -owned the report the year-end (%) n-circulating) frozen shareholder/forei year (share) (share) (share) gn shareholder) Overseas Chinese Town Group State-owned 0 174,949,746 29.06 Non-circulating 174,949,741 Company shareholder Overseas Chinese Town (Hong Kong) Unknown Overseas Co., Ltd. -10,170,766 76,532,572 12.71 Circulating shareholder Hong Kong China Travel Service Unknown Overseas (Group) Co., Ltd. 0 45,416,337 7.54 Circulating shareholder NOMURA TB/NOMURA ITM Unknown Overseas +1,077,600 2,450,000 0.41 Circulating shareholder TOYO SECURITIES ASIA LIMITED Unknown Overseas A/C CLIENT -8,206 2,360,701 0.39 Circulating shareholder Longyuan Securities Investment Fund Unknown Domestic +1,880,228 1,880,228 0.31 Circulating shareholder Longxin International Co., Ltd. Unknown Overseas -1,219,0 95 1,409,260 0.23 Circulating shareholder Xin Ming Unknown Overseas +1,249,868 1,249,868 0.20 Circulating shareholder -3 - Kai Yuan Securities Investment Fund Unknown Domestic +1,172,828 1,172,828 0.19 Circulating shareholder China High-tech Investment Group Unknown Domestic Co. +59,000 1,059,017 0.17 Circulating shareholder Explanation on associated (1) Among the top ten shareholders, Overseas Chinese Town Group Company, the first largest relationship among the top ten shareholder, held non-circulating shares. There was no change in shares of the Company held by it in the report period. shareholders or consistent action (2) Overseas Chinese Town (Hong Kong) Co., Ltd. is the wholly owned subsidiary of Overseas Chinese Town Group Company registered in Hong Kong, who held circulating shares; the shares held by it were changed due to trading in the secondly market in the report period. Except for this, there exists no associated relationship between Overseas Chinese Town Group Company and the other shareholders, and it does not belong to the consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Company with the other shareholders. For the other shareholders of circulating share, the Company is unknown whether there exists associated relationship, or whether the other shareholders belong to the consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Company. (3) The other shareholders are social public shareholders, who hold circulating shares. The shares held by them were changed due to trading in the secondly market during the report period. 4.3 Particulars about controlling shareholders and actual controller of the Company 4.3.1 Particulars about change in controlling shareholders and actual controller of the Company □Applicable √Inapplicable 4.3.2 Introduction of especial situation for controlling shareholder and other actual controller In the report period, the first largest shareholder of the Company was Overseas Chinese Town Group Company (“OCT Group”), which held 29.06% equity of the Company (frozen). OCT Group was the controlling shareholder of the Company too. OCT Group was incorporated in May 1986, whose legal representative is Ren Kelei, registered capital is RMB 200 million. Its business scope included industry, tourism, real estate, finance and commerce, and etc.. Its structure of equity is State-owned sole corporation as well as ownership by the whole people (large-scale state-owned enterprise controlled by Work Committee for Enterprise of the CPC Central Committee). The registered code of enterprise legal person’s business license: 4403011062068. 5. Particulars About Directors, Supervisors, Senior Executives 5.1 Particulars about changes in shares held by directors, supervisors and senior executives Holding shares (share) Name Title Gender Age Office term At the At the Note year-begin year-end Ren Kelei Chairman of the Board Male 52 Apr. 24, 2001- 0 0 Apr. 24, 2004 Zhang Director Male 58 Apr. 24, 2001- 0 0 Zhengkui Apr. 24, 2004 He Shilin Director Male 62 Apr. 24, 2001- 0 0 Apr. 24, 2004 Liang Rong Director Male 38 Apr. 24, 2001- 13,550 13,550 President Apr. 24, 2004 dimission Ni Zheng Director Male 35 May 13, 2002- 0 0 Apr. 24, 2004 Wei Qing Director Male 50 Apr. 24, 2001- 0 0 Apr. 24, 2004 Xiao Zhuoji Independent Director Male 69 May 13, 2002- 0 0 Apr. 24, 2004 Ye Wu Independent Director Male 64 May 13, 2002- 0 0 Apr. 24, 2004 Ma Liguang Independent Director Female 62 May 13, 2002- 0 0 Apr. 24, 2004 -4 - Nie Guohua Chairman of Male 60 Apr. 24, 2001- 0 0 Supervisory Committee Apr. 24, 2004 Wang Ruquan Supervisor Male 49 Apr. 24, 2001- 0 0 Apr. 24, 2004 Wang Supervisor Male 53 Apr. 24, 2001- 0 0 Employee’ s Xinzhong Apr. 24, 2004 representative Hou Songrong President Male 34 Apr. 26, 2002- 0 0 Apr. 24, 2004 Chen Xuri Vice-president, Male 44 Apr. 24, 2001- 0 0 secretary of the Board Apr. 24, 2004 Yang Guobin Chief Financial Male 33 Mar. 1, 2002- 0 0 Supervisor Mar. 1, 2004 Wang Youlai Vice-president Male 42 Mar. 1, 2002- 2,640 2,640 Mar. 1, 2004 Huang Vice-president Male 42 Mar. 1, 2002- 514 514 Zhongtian Mar. 1, 2004 Huang Vice-president Male 40 Mar. 1, 2002- 0 0 Weigang Mar. 1, 2004 Chen Weirong Original Director Male 43 Apr. 24, 2001- 25,289 25,289 dimission Apr. 24, 2004 Lin Hanhui Original Male 39 Jan. 1, 2000- 95 95 dimission Vice-president Mar. 1, 2002 Note: The shares held by original director Mr. Chen Weirong and original vice-president Mr. Lin Hanhui has been unfrozen for circulation after the report period according to the relevant regulation. 5.2 Particulars about directors and supervisors holding the post in Shareholding Company √Applicable □Inapplicable Drawing the payment Name of Shareholding Title in Shareholding Name Office term from the Shareholding Company Company Company (Yes / No) Overseas Chinese Town Group CEO and concurrently Ren Kelei Dec. 1993 to now No Company President Secretary of the Party Zhang Overseas Chinese Town Group Committee and Aug. 1987 to now No Zhengkui Company concurrently managing vice-president Overseas Chinese Town Group He Shilin Financial Advisor 2000 to now No Company Overseas Chinese Town Group Liang Rong Assistant President Apr. 2002 to now No Company Overseas Chinese Town (Hong Ni Zheng General Manager Dec. 1998 to now No Kong) Co., Ltd. Hong Kong China Travel General Manager of Wei Qing Service (Group) Co., Ltd. Investment Plan & 2000 to now No Management Dept. Overseas Chinese Town Group Nie Guohua Vice-president Feb. 1992 to now No Company Overseas Chinese Town Group Supervisor of Auditing Wang Ruquan Oct. 2000 to now No Company Dept. 5.3 Particulars about the annual recompense of directors, supervisors and senior executives Total annual recompense RMB 1,344,000 Total annual recompense of the top three RMB 0 directors drawing the highest payment Total annual recompense of the top three senior RMB 739,200 executives drawing the highest payment Allowance of independent director RMB 0 -5 - Other treatment of independent directors The Company reimbursed the reasonable charges according to the actual situation, which independent directors exercise their functions and powers in accordance with the relevant laws and regulations and Articles of Association. Name of directors and supervisors receiving no Ren Kelei, Zhang Zhengkui, He Shilin, Liang Rong, Ni recompense or allowance from the Company Zheng, Wei Qing, Xiao Zhuoji, Ye Wu, Ma Liguang, Nie Guohua, Wang Ruquan and Wang Xinzhong Payment Number of persons RMB 200,000 ～ RMB 300,000 5 RMB 300,000 ～ RMB 350,000 1 6. Report of the Board of Directors 6.1 Discussion and analysis of the whole operation in the report period The Company is engaged in the production and operation of color TVs, digital mobile phones and Internet products of LCD monitor etc. and its auxiliary products (such as high frequency connector, mould, plastic injection and packing etc.) and is concurrently engaged in the operation of refrigerators, air-conditioners, washing machines etc. The Company belongs to the industry of electron manufacture and communication manufacture. In 2002, under the background that the market competition was exceptionally intense, according to the whole deployment of strategic transformation, the Company put forward the operating concept of “Only development can lead to survival, only system can lead to remoteness”with development and advance as the main rhythm, steadily pushed the three large business of color TVs, mobile phones and overseas business and emphasized on the development of products, marketing and cost control. All work made progress with breakthrough, thoroughly walked out the declining channels for two sequential years and entered into the period of ascending development. In the aspect of development of products, the Company brought forth S series and T series products of color TVs, including “Super TV”which became the apotheosis of best sales of moderate machine type and brought forth the machine types of A series and AXT series with SCAR interface or RCA interface with pertinence. The Company also brought forth “ High Definition Series” products of HDTV-Ready, LC TVs, Plasma TVs, and TV Wall etc. in succession and gradually set up a high-grade image of Konka. Over ten kinds of new products of 7899, 7388, C688 and C699 were put forth in succession in the mobile phones, of which 7899, 7388, 5238 and KC88 and KC66 had very strong competitive power in the market and had good representation. The Company further strengthened the management of subsidiaries and the integration of marketing network. In ter ms of business of color TVs, based on quashing the regional marketing center, the Company withdrew and incorporating partial subsidiaries with bad achievements and no potential and further cut down the staffs and enhanced the efficiency. In terms of business of mobile phones, the Company cultivated the emphasis market, raised the proportion of input and output and thus drove the mounting up of the whole sales volume. The effect of expense control was obvious and the operating expense, management expense and financial expense decreased by 3.68%, 13.37% and 58.92% respectively compared with the corresponding period of the previous year. Simultaneously, the Company emphasized to reinforce the control of purchase cost, which made the purchase price of cover materials at the end of the report period averagely decrease by 7% than that of the beginning of the report period under the environment that the price of CPT recovered slightly and the materials with the largest margin of decline reached 65.7%. In 2002, the sales income realized in the whole year was RMB 8.0 billion, an increase of 19.16 % compared with the corresponding period of the previous year and the sales volume of color TVs was 5.5 million pieces including export of 738 thousand pieces. The sales volume of mobile phones was 1.6 million pieces. The net profit realized was RMB 35.6 million and earnings per share were RMB 0.0591. 6.2 Statement of core business classified according to industry or product -6 - Income from Cost of core Gross Increase/decr Increase/de-cr Increase/decreas core business business profit ease of ease of cost of e of gross profit (RMB’0000) (RMB’0000) ratio income from core business ratio compared (%) core business compared with the Industry: product compared with the previous year with the previous year (%) previous year (%) (%) Household Domestic ５８９，３１０．５４ ４９６，８９８．２２ １５．６８ ３．０８ －３．９３ ６４．６２ electrical sales appliance color TVs Export ４５，２５９．５３ ４４，７９９．８９ １．０２ －１０．４９ －１６．４４ — color TVs Communication: １６９，５９５．２１ １４０，５６１．３５ １７．１２ ２２１．１２ １９７．５５ ４２１．４９ mobile phones Including: -- -- -- -- -- -- related transactions 6.3 Particulars about core business classified according to area Area/product Income from core business Increase/decrease of income (RMB’0000) from core business compared with the previous year (%) Domestic sales color TVs ５８９，３１０．５４ ３．０８ Export color TVs ４５，２５９．５３ －１０．４９ 6.4 Particulars about the customers of purchase and sales Total amount of RMB Proportion in the total purchase of the top 34.72% 2,387,648,250.84 amount of purchase five suppliers Total amount of sales Proportion in the total of the top five sales RMB 187,278,415.77 2.33% amount of sales customers 6.5 Operation of share-holding companies (applicable to the situation of investment equity’s taking over 10% of net profit) √Applicable □Inapplicable Name of share-holding Shenzhen Konka Telecommunication Technology Co., Ltd. company Investment earnings Proportion in the net profit contributed in the 44,236,161.58 124％ of listed company report period Share-holding Development, production and operation of digital company Business scope mobile communication equipments and mobile phone products Net profit 44,236,161.58 元 6.6 Explanation of reason of material change of core business and its structure □Applicable √Inapplicable 6.7 Explanation of reason of material change of profitability capability of core business (gross profit ratio) compared with the previous year -7 - √Applicable □Inapplicable 1. In 2001 the Company cleaned up large quantities of old inventories in the business of color TVs and the majority of products sold in the report year were new products with certain profitability ability. 2. In the business of mobile communication, since the Company quickened the speed of coming into the market of new products and enriched the product lines, the market competitive power of products was further increased. 6.8 Analysis of reason of material change of operating results and profit structure compared with the previous year √Applicable □Inapplicable 1. The profitability capability of business of domestic sales color TVs and mobile communication increased by a big margin compared with the previous year with a profitability of RMB ７６．５５ million. 2. The real estate investment realized earnings in the report period with a profitability of RMB75.00 million. 3. The Company transferred the equity of Shenzhen Huali Packing Trade Co., Ltd. and Shanghai Huali Packing Co., Ltd. and realized earning of RMB 20.48 million. 4. Since the operation of overseas business incurred a loss, the Company appropriated impairment loss of long-term credit and reckoned in the investment loss totally amounting to RMB136.56 million totally. The aforesaid profit formation took 99% of net profit of the Company in the report period. Analysis of reason of material change of the whole financial position compared with the previous year √Applicable □Inapplicable Since the Company transferred the equity of Shenzhen Huali Packing Trade Co., Ltd. and Shanghai Huali Packing Co., Ltd. in the report period, their statements were not brought into the consolidated scope of the report period, which made the consolidated amount of assets of the Company at the end of 2002 decrease by RMB 314.98.46 million compared with the corresponding period of the year of 2001. Through reinforcing the stock management and management of accounts receivable, the Company strengthened the fluidity of assets, enhance the velocity of assets, reduced the stock scale and quickened the recovery of payment for goods, which resulted in the large quantities of inflow of net cash in the operating activities. The Company repaid the bank loan of RMB 637 million in the report period, at the same time the monetary funds with comparatively strong fluidity and notes receivable still increased by a big margin compared with the previous year. 6.9 Explanation of the past, current and future important effects of the material change of production and operation environment, macro-policies and regulations on the Company’ s financial position and operating results □Applicable √Inapplicable 6.10 Completion of the profit estimation □Applicable √Inapplicable 6.11 Completion of the business plan □Applicable √Inapplicable 6.12 Application of the raised proceeds -8 - □Applicable √Inapplicable Particulars about the change projects □Applicable √Inapplicable 6.13 Application of the proceeds not raised through share offering √Applicable □Inapplicable Name of project Amount of project Progress of project Earning of project Real estate project of The total In the report period, the The Company should share a OCT “ Building D and investment was Company totally put into RMB profit of RMB 75.00 million E of OCT RMB 300 million, 165 million and the area in the report period. The PORTOFINO·SWAN whose 60% equity available for sales was investment earnings had CASTLE” is held by the 590,590,100 sq. m.. An area of been recovered on Dec. 31, Company and 40% 414,433,600 had been sold in the 2002 and had been reckoned is held by OCT report period with sales income in the investment earnings of Real Estate of RMB 372,470,394.00. The the report period. And the Company. realized profit available for Company recovered distribution was RMB 125.00 investment of RMB 65.00 million (calculated as per million in advance. cooperation agreement of the two parties). Real estate project of The total The Company had put into RMB There was no earning OCT “the 3rd stage of investment was 100 million. The project is under realized in the report period. Jinxiu Garden” RMB 500 million, construction and is estimated to whose 20% equity realize sales and gain earnings in is held by the 2003. Company and 80% is held by OCT Real Estate Company. Total -- -- RMB 75.00 million Explanation: Since both the Company and OCT Real Estate Company are controlled by OCT Group, the aforesaid two projects belong to related transactions. 6.14 Explanation of the “Non-standardized Opinion” of Certified Public Accountants by the Board of Directors √Applicable □Inapplicable Shenzhen Dahua Tiancheng Certified Public Accountants provided interpretative explanation for the three issues of the transfer of equity of affiliated companies of the Company in 2002, joint operation of real estate projects and appropriation of 100% impairment reserve of overseas subsidiary due to business suspension etc.. The Board of Directors agreed to the aforesaid explanation and considered this explanation really reflects the actual condition of the Company’ s operation with the following explanation: (1) The price of equity transfer was confirmed according to the profitability situation of the two sold companies of past years and based on the reference of Auditors’Report and assets assessment. The Board of Directors thought the transfer price was fair and its accounting disposal was in compliance with Enterprise Accounting Standards. However, since these transactions belonged to related transactions with comparatively large amount of earnings, in particular reminding the investors to pay attention. (2) The earnings of joint operation of real estate projects took a comparatively large proportion in the total amount of profits of the report year and the projects belonged to related transaction, thus the investors are reminded to pay attention. (3) The Board of Directors approved the overseas subsidiaries to stop business due to the intensified market competition and the resulting serious losses and did not consolidate their statements and appropriated 100% impairment loss. The Board of Directors thought that the -9 - accounting disposal was steady, but the amount was comparatively large and thus reminded the investors to pay attention. 6.15 Business plan as of the new year of the Board of Directors √Applicable □Inapplicable 1. Color TVs business: to enhance the sales volume of high-grade products and further reduce cost and expense The Company will emphasize on the high-grade products from the aspects of technology research and development, market input and sales and enhance the proportion of high-grade products through adjusting structure of products so as to increase the gross profit ratio and push the mounting up of sales. On the other hand, the Company shall thoroughly reduce the cost and expense from enhancing and improving the running mode of the enterprise and realize energy saving and consumption reducing through increasing the level of research and development, innovating the way of purchase and enhancing the manufacture and management level etc. and increase the competitive power. 2. Mobile phones business: To make sales mount up fast and establish and improve the industrial chain from research and development and manufacture to sales In terms of products, the Company will make independent research and development and products of CKD and OEM/ODM to complement each other in the business of mobile phones and control the terminal resources through channels innovation in the marketing, thus to establish the whole industrial chain of from research and development to manufacture and sales. Doing the mounting up of sales well and forming the integration of industrial resources, at the same time, the Company shall set about establishing the business of mobile value increase and dummy running so as to form a large communication industrial structure. 3. International business: to develop OEM business energetically and establish a large framework of international business In 2003, the Company shall aggressive market strategy in the OEM business of color TVs and shall reduce cost with generalization, serialization, standardization and purchase innovation. Simultaneously, the Company should “walk out” unhesitatingly and strengthen the strategic cooperation with craft brothers at home and abroad in order to realize the localization of international business in various areas through forms of establishing representative agency, incorporating sales companies and production bases with customers etc. and set up a large framework of international business. 4. To push the development of three large businesses with six large guarantees The Company shall guarantee the smooth development of three large businesses from starting with the following six aspects: (1) Increase of capability of research and development. To increase the capability of research and development from the aspects of development of research and development teams, management of research and development and mechanism of research and development etc.. (2) Innovation of marketing. To enhance the marketing capability through brand development, channel innovation and reinforcement of management of subsidiaries and after service. (3) To raise the brand image. The Company shall reinforce the input, standardize the running flow of brand management and establish brand management system with grade division so as to strengthen the market promotion both gently and strictly and shape a new image of all new brands. (4) To reinforce the construction of human resources. To introduce into talents rapidly through varied kinds of forms, elect and appoint cadres boldly and establish scientific system of personnel examination and appointment. (5) To establish various encouragement system. The Company shall establish corresponding scientific and effective encouragement mechanism for different business unit and research and development system, sales system and management system. (6) To reinforce the operation forewarning system. To stick to the three “one veto system”of quality risk, inventory risk and risk of accounts receivable. Profit estimation of the new report year □Applicable √ Inapplicable 6.16 The preplan of the profit distribution and capitalization of capital public reserve of the Board of Directors The Board of Directors shall neither distribute profit nor convert capital public reserve into share capital in the report period. - 10 - 7. Significant Events 7.1 Purchase of assets □Applicable √ Inapplicable 7.2 Sales of assets √ Applicable □ Inapplicable Contribution to net profit of the The other party of Date Gains/losses company of the transaction and the assets of Sales price arising from Related transaction or not assets sold from sold sales the sales the year-beginning to the date of sales Hong Kong OCT Co., Ltd. It’ s related transaction and was was transferred 25% equity Apr.8, RMB RMB ensured as 10% premium price at of Shanghai Huali Packing 0 2002 18,200,000.00 2,864,699.38 the base of 25% of audited net Co., Ltd. indirectly held by assets. the Company It’s related transaction and was ensured as RMB 36 million Hong Kong OCT Co., Ltd. premium price at the base of 70% was transferred 70% equity Apr.8, RMB RMB of audited net assets. The of Shenzhen Huali Packing 0 2002 118,724,600.00 17,280,662.39 premium price base was Co., Ltd. held by the calculated based on the estimated Company profit distribution in the future three years since Jan.1, 2002. Note: Through related transaction of equity assignment, the Company got back the monetary fund of about RMB 137 million in favor of developing dedicatedly the main business by the Company and putting capital and energy on the main products. Meanwhile, making use of the redundant capital in the period of changing type to invest real estate items with steady profit and rapid acting helped the Company getting through the hard period of changing type. 7.3 Important guarantee □Applicable √ Inapplicable 7.4 Related credits and liabilities transaction □Applicable √ Inapplicable 7.5 Entrust financing □Applicable √ Inapplicable 7.6 Implementation of commitment items □Applicable √ Inapplicable 7.7 Significant lawsuit and arbitration □Applicable √ Inapplicable 7.8 Particulars about the performance of obligations of Independent Directors Strictly according to Rules of Listed Companies’ Administration, Guide Opinion on Establishing Independent Directors System in Listed Companies, Articles of Association of the Company, Independent Directors System, Detailed Implementation Rules of Special Committee of the Board of Directors, the independent directors implemented their duties, took part in the training of independent directors of listed companies organized by CSRC and got corresponding qualification certification. In the report period, the Company’ s independent directors performed fully their specialty and did a large amount of work in respect of construction of normative operation of the Board of Directors and brewing of significant decision- making: (1) In the process of preparing construction of special committee of the Board of Directors and establishment and implementation of detailed implementation rules, the independent - 11 - directors put forward to many constructive opinions and suggestions and took important posts in Auditing Committee, Nomination Committee and Remuneration Committee. (2) In the process of amendment of internal control system of the Company, the independent directors operated from a strategically advantageous position, actively gave counsels for the improvement and consummation of the legal person administration structure of the Company and urged the mature of every regulations and systems of the Company. (3) In the process of brewing of significant decision- makings of the Company, independent directors actively took part in relevant investigation and research, audit assessment and discussion, expressed pertinent and objective opinions and boosted the scientific decision- making and procedure of decision-making of the Board of Directors. 8. Report of the Supervisory Committee 1. Operation According to Law In 2002, the Company operated in compliance with the relevant laws, legislations as stated in the PRC Company Law, Securities Law and Rules for Stock Listing as well as the Articles of Association. The directors and senior executives could implemented various resolutions of the Shareholders’General Meeting and the Board of Directors, worked diligently and responsibly, ran the business and made decisions in a scientific and reasonable way, and further improved internal control system. The directors and senior executives neither violated national laws, legislations or the Articles of Association when performing their duties, nor damaged the Company’ s interests when they performed their duties. 2. Financial Inspection The Supervisory Committee made serious and careful inspection on the financial system and financial status, and believed that 2002 financial report factually reflected the Company’ s financial status and management results and the auditors’report issued by Shenzhen Dahua Tiancheng Certified Public Accountants as well as the assessment towards relevant issues were objective and fair. 3. Application of Raised Capital The actual investment project of the latest raised capital is in accordance with the promised investment project. 4. Purchases or Sales of Assets In the report year, the trade price of sale of share equity of the Company was reasonable, no internal transaction was found, the interest of the medium and small shareholder was treated equally and there found no assets ran off. 5. Correlative Transactions In order to help the Company to get through the hard period of changing type, in the support of the big control shareholder, namely OCT Group, the Company and OCT Real Estate Company cooperated and operated real estate item and obtained the steady investment return with effect rapidly taken. Meanwhile, the Company developed dedicatedly the main business, put capital and energy on the main products, reclaimed the monetary funds through related transaction of share equity’s assignment and supported strategic type change The aforesaid significant related transactions were fair and did not damage the interest of - 12 - the listed company. There was no internal transaction. 6. Explanation on Auditors’Report with interpretative explanation of the Supervisory Committee The Supervisory Committee thought that Shenzhen Dahua Tiancheng Certified Public Accountants provided domestic Auditors’Report with interpretative explanation segment and its explanation and presentation was objective and fair. Simultaneously, the Supervisory Committee considered that the opinion on this problem of the Board of Directors was correct and agreed to its opinion on the Auditors’Report. 9. Financial Report 9.1 Auditor’ s opinion The financial report of the Company was audited by CPA, Wu Jianhui and Chen Baohua of Shenzhen Dahua Tiancheng Certified Public Accountants, which provided domestic Auditors’Report with interpretative explanation (SH (2003) GSZ No.035) and was audited by Hong Kong K.C.Oh & Company Certified Public Accountants, which provided standard Auditors’Report with non-reserved opinion. 9.2.Consolidated and the Parent Company’ s Balance Sheet, Income Statement and Cash Flow Statement (Attachment). 9.3.No changes in accounting policy, accounting assessment and accounting settlement method compared with the latest annual report. Correction of material accounting mistakes: In 2002, it was found that the Company had transferred 22.15% equity of Shenzhen Konka Electric Co., Ltd. to Shenzhen Shangyongtong Investment & Development Co., Ltd. and meanwhile, Kangdian Investment & Development Co., Ltd., the whole share-controlling subsidiary of the Company transferred 26.85% equity of Shenzhen Konka Electric Co., Ltd. to Shenzhen Shangyongtong Investment & Development Co., Ltd. After the assignment, the Company changed from controlling 100% equity to holding 51% equity. But the Company consolidated the statements of Shenzhen Konka Electric Co., Ltd. in the accounting statements of 2000 and 2001 as 100%. The mistake was corrected in the report period. Due to the influence of this mistake, net profit, remained income, assets and minority shareholders’ equity of 2001 were respectively reduced mistakenly RMB 5,027,183.98, RMB 4,534,449.43, RMB 9,221,993.72 and RMB 4,687,544.29. 9.4.Change of the consolidation scope compared with the latest annual report. 1.Due to the equity assignment, Shenzhen Huali Packing Trade Co., Ltd. was not absorbed into the consolidation scope in the report period. 2.Due to the serious losses caused by the drastic market competition, the four overseas institutions including America Kongka Electric Co., Ltd., Indonesia Konka Trade Co., Ltd., Pacific Konka Co., Ltd. and Konka Electric (Indonesia) Co., Ltd. were approved to go out of business by the Board of Directors and were not absorbed into the consolidation scope in the report period. Board of Directors of Konka Group Co., Ltd. Apr.17, 2003 - 13 - Konka Group Co., Ltd. Consolidated income statement for the year ended December 31, 2002 Note 2002 2001 RMB’000 RMB’000 Turnover 5 8,041,653 6,748,122 Cost of sales ( 6,822,595 ) ( 6,180,730 ) Gross profit 1,219,058 567,392 Other revenue 6 166,746 45,718 Distribution costs ( 899,831 ) ( 934,246 ) Administrative expenses ( 392,789 ) ( 286,440 ) Other operating expenses ( 1,197 ) ( 977 ) Operating profit/(loss) 91,987 ( 608,553 ) Finance costs ( 34,620 ) ( 84,285 ) Share of loss from associates ( 428 ) ( 448 ) Profit/(loss) before taxation 7 56,939 ( 693,286 ) Taxation 8 ( 8,189 ) ( 7,206 ) Profit/(loss) before minority interests 48,750 ( 700,492 ) Minority interests ( 5,627 ) ( 6,526 ) Profit/(loss) attributable to shareholders 43,123 ( 707,018 ) Accumulated profit/(loss) at beginning of year ( 653,292 ) 47,371 Accumulated loss before appropriations ( 610,169 ) ( 659,647 ) Appropriations : Transfers from statutory surplus reserves - 3,178 Transfers from statutory public welfare fund - 3,177 - 6,355 Accumulated loss at end of year ( 610,169 ) ( 653,292 ) Earnings/(loss) per share –basic RMB0.07 ( RMB1.17 ) The calculation of the basic earnings/loss per share is based on the current year’s profit of RMB43,123,000 (2001 - loss of RMB707,018,000) attributable to the shareholders and on the weighted average number of 601,986,352 shares in issue during the year. - 14 - Konka Group Co., Ltd. Consolidated balance sheet as at December 31, 2002 Note 2002 2001 RMB’000 RMB’000 Non-current assets Property, plant and equipment 9 1,383,137 1,575,761 Goodwill 10 1,585 17,435 Intangible assets 11 8,674 7,157 Interests in associates 12 53,993 41,332 Other investments 13 211,790 112,290 1,659,179 1,753,975 Current assets Tax recoverable - 1,688 Inventories 14 2,578,796 2,825,932 Properties held for sale 15 4,172 3,944 Account receivables 16 277,156 528,540 Prepayments, deposits and other receivables 17 233,277 304,686 Note receivables 1,205,139 769,525 Cash and bank balances 1,044,899 994,857 5,343,439 5,429,172 Current liabilities Tax payable ( 3,508 ) - Account payables ( 872,733 ) ( 818,972 ) Other payables and accrued expenses ( 826,732 ) ( 702,687 ) Note payables ( 1,903,760 ) ( 1,579,358 ) Short-term bank loans 18 ( 164,000 ) ( 816,000 ) ( 3,770,733 ) ( 3,917,017 ) Net current assets 1,572,706 1,512,155 Total assets less current liabilities 3,231,885 3,266,130 (to be cont’d) - 15 - Konka Group Co., Ltd. Consolidated balance sheet as at December 31, 2002 (cont’d) Note 2002 2001 RMB’000 RMB’000 Total assets less current liabilities 3,231,885 3,266,130 Non-current liabilities Long-term bank loans 19 - ( 55,127 ) Deferred income ( 19,485 ) ( 10,483 ) Other long-term liabilities ( 24,283 ) ( 34,090 ) ( 43,768 ) ( 99,700 ) Minority interests ( 243,162 ) ( 260,490 ) Net assets employed 2,944,955 2,905,940 Financed by : Share capital 20 601,986 601,986 Reserves 21 2,342,969 2,303,954 Shareholders’equity 2,944,955 2,905,940 The financial statements on pages 2 to 26 were approved and authorized for issued by the board of directors on April 5, 2003 and are signed on its behalf by : Dire ctor Director - 16 - Konka Group Co., Ltd. Consolidated statement of changes in equity for the year ended December 31, 2002 Share Capital Surplus Accumulated Dividend Exchange capital reserves reserves profit/(loss) reserve reserve Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 As at January 1, 2001 601,986 1,811,143 1,139,399 47,371 92,698 ( 348 ) 3,692,249 Loss for the year of 2001 - - - ( 707,018 ) - - ( 707,018 ) Dividend paid - - - - ( 81,119 ) - ( 81,119 ) Over-appropriation in previous years - - ( 6,355 ) 6,355 - - - Goodwill recognition - 3,170 - - - - 3,170 Exchange difference arising from translation of foreign operations - - - - - ( 1,342 ) ( 1,342 ) As at December 31, 2001 601,986 1,814,313 1,133,044 ( 653,292 ) 11,579 ( 1,690 ) 2,905,940 As at January 1, 2002 601,986 1,814,313 1,133,044 ( 653,292 ) 11,579 ( 1,690 ) 2,905,940 Profit for the year of 2002 - - - 43,123 - - 43,123 Dividend paid - - - - ( 11,579 ) - ( 11,579 ) Difference arising from investment in subsidiaries - 4,477 - - - - 4,477 Adjustment on revaluation of property, plant and equipment - 1,662 - - - - 1,662 Exchange difference arising from translation of foreign operations - - - - - 1,332 1,332 As at December 31, 2002 601,986 1,820,452 1,133,044 ( 610,169 ) - ( 358 ) 2,944,955 - 17 - Konka Group Co., Ltd. Consolidated cash flow statement for the year ended December 31, 2002 2002 2001 RMB’000 RMB’000 Cash flow from operating activities Operating profit/(loss) before taxation 56,939 ( 693,286 ) Adjustment items : Interest income ( 6,371 ) ( 26,912 ) Income from government grant ( 5,273 ) ( 2,278 ) Interest expenses 22,165 84,285 Depreciation 173,163 133,604 Provision for impairment loss of property, plant and equipment 529 8,018 Loss on disposal of property, plant and equipment 5,302 3,649 Amortization of goodwill 317 2,489 Profit/(loss) on disposal of subsidiaries ( 20,360 ) 535 Provision for diminution in value of unconsolidated subsidiaries 136,567 - Amortization of intangible assets 2,672 3,058 Provision for diminution in value of associates 5,594 - Share of results in associates 428 448 Profit on disposal of other investments ( 202 ) ( 3,681 ) Provision for diminution in value of inventories 18,821 61,204 Provision for doubtful debts on account receivables 46,041 21,132 Provision/(reversal) for doubtful debts on other receivables ( 1,739 ) 4,940 Net operating cash inflow/(outflow) before movements in working capital 434,593 ( 402,795 ) Exchange reserve movement 1,332 ( 1,342 ) Decrease in inventories 193,227 2,039,251 (Increase)/decrease in properties held for sale ( 228 ) 285 Decrease in account receivables 151,455 404,349 (Increase)/decrease in prepayments, deposits and other receivables 56,769 ( 18,063 ) Increase in note receivables ( 441,605 ) ( 27,081 ) Increase/(decrease) in account payables 73,389 ( 317,844 ) Increase in other payables and accrued expenses 156,782 227,475 Increase/(decrease) in note payables 356,612 ( 1,169,901 ) Cash generated from operations 982,326 734,334 Interest paid ( 22,165 ) ( 84,285 ) Corporate and profits tax paid ( 2,993 ) ( 43,591 ) Net cash inflow from operating activities 957,168 606,458 (to be cont’d) - 18 - Konka Group Co., Ltd. Consolidated cash flow statement for the year ended December 31, 2002 (cont’d) 2002 2001 RMB’000 RMB’000 Net cash inflow from operating activities 957,168 606,458 Investing activities Interest received 6,371 26,912 Purchases of property, plant and equipment ( 174,484 ) ( 381,289 ) Proceeds from disposal of property, plant and equipment 121,882 226,739 Purchases of intangible assets ( 4,189 ) ( 1,015 ) Net cash inflow/(outflow) on disposal of subsidiaries 114,456 ( 7,483 ) Provision for diminution in value of unconsolidated subsidiaries ( 136,567 ) - Additional investment in associates ( 14,889 ) ( 23,773 ) Receipts/(repayments) from/(to) associates ( 26,890 ) 6,347 Acquisition of other investments ( 265,000 ) ( 101,604 ) Proceeds from disposal/return of other investments 167,202 19,025 Net cash outflow from investing activities ( 212,108 ) ( 236,141 ) Financing activities Dividend paid ( 11,579 ) ( 81,119 ) Decrease in minority interests ( 4,780 ) ( 565 ) Bank loans repaid ( 683,127 ) ( 754,474 ) Government grant received 14,275 12,761 Other long-term liabilities raised/(repaid) ( 9,807 ) 21,872 Net cash outflow from financing activities ( 695,018 ) ( 801,525 ) Increase/(decrease) in cash and cash equivalents 50,042 ( 431,208 ) Cash and cash equivalents at beginning of year 994,857 1,426,065 Cash and cash equivalents at end of year 1,044,899 994,857 Analysis of cash and cash equivalents : Cash and bank balances 1,044,899 994,857 - 19 -