深康佳Ａ(000016)深康佳Ｂ2003年年度报告摘要（英文版）

KONKA GROUP CO., LTD. SUMMARY OF ANNUAL REPORT 2003 §1. Important Notes 1.1 Board of Directors and of KONKA GROUP CO., LTD. (hereinafter referred to as the Company) its 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 summary of annual report 2003 is abstracted from the full text of 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 Mr. Liang Rong, Director of the Company, entrusted Mr. Ren Kelei, Chairman of the Board, to attend the Board meeting and vote on his behalf. 1.4 Shenzhen Dahua Tiancheng Certified Public Accountants and K.C.OH & Company Certified Public Accountants respectively issued standard unqualified Auditors’Report for the Company. 1.5 Chairman of the Board of the Company Mr. Ren Kelei, Chief Financial Officer Mr. Yang Guobin and Person in Charge of Accounting Affairs Ms. Yang Rong hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. 1.6 This report was prepared in both Chinese and English. Should there be any difference in interpretation between the two versions, the Chinese version 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 website of the Company http://www.konka.com E-mail szkonka@konka.com 2.2 Contact person and method Secretary of the Board of Authorized representative in charge Directors of securities affairs Name Mr. He Jianjun Mr. Xu Hongjun 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 szkonka@konka.com szkonka@konka.com 1 §3. Summary of Accounting Data and Financial Indexes 3.1 Major accounting data Unit: RMB Increase/decrease 2003 2002 2001 over last year（％） Income from main operations 12,806,466,103.13 8,041,652,825.33 59.25% 6,748,122,042.36 Total profit 127,379,887.60 54,433,581.62 134.01% -687,254,170.31 Net profit 101,071,037.71 35,590,430.74 183.98% -694,764,270.34 Net profit after deducting 98,067,812.82 28,653,362.49 242.26% -719,894,370.88 non-recurring gains and losses Increase/decrease At the end of At the end of At the end of from the end of 2003 2002 2001 previous year（％） Total assets 9,637,375,732.89 7,005,974,161.16 37.56% 7,211,736,823.48 Shareholder’s equity (excluding 3,053,519,428.94 2,953,508,827.21 3.39% 2,893,912,961.21 minority interests) Net cash flow arising from 351,386,559.94 653,723,377.38 -46.25% 723,225,728.81 operating activities 3.2 Major financial indexes Unit: RMB Increase/decrease over 2003 2002 2001 last year（％） Earnings per share 0.17 0.06 184.58% -1.15 Return on equity 3.31% 1.21% 173.55% -23.97% Return on equity calculated based on net profit after deducting non-recurring gains 3.22% 0.97% 321.96% -24.88% and losses Net cash flow per share arising from 0.58 1.09 -46.25% 1.20 operating activities Increase or decrease At the end At the end At the end from the end of of 2003 of 2002 of 2001 previous year（％） Net assets per share 5.07 4.91 3.39% 4.82 Net assets per share after adjustment 4.90 4.79 2.26% 4.57 3.3 Difference of net profit as audited by Chinese Accounting Standard (CAS) and International Accounting Standard (IAS) √Applicable □Inapplicable Unit: RMB’0000 CAS IAS Net profit 10,107.10 10,439.82 Explanation on the 1. Government grant recognized as income: 299.75 difference 2. Account payables waived by subsidiaries’creditors: 32.97 §4. Changes in Share Capital and Particulars about Shareholders 4.1 Statement of change in shares 2 (Unit: share) Increase / decrease in this Before the time (+, -) After the change change Other Subtotal I. Unlisted shares 1. Sponsors’shares 174,949,746 0 0 174,949,746 Including: State-owned share 0 0 0 0 Domestic legal person’ s shares 174,949,746 0 0 174,949,746 Foreign legal person’ s shares 0 0 0 0 Others 0 0 0 0 2. Raised legal person’ s shares 0 0 0 0 3. Inner employees’shares 42,092 -25,384 -25,384 16,708 4. Preference shares or others 0 0 0 0 Total unlisted shares 174,991,838 -25,384 -25,384 174,966,454 II. Listed shares 1. RMB ordinary shares 224,156,612 25,384 25,384 224,181,996 2. Domestically listed foreign shares 202,837,902 0 0 202,837,902 3. Overseas listed foreign shares 0 0 0 0 4. Others 0 0 0 0 Total listed shares 426,994,514 25,384 25,384 427,019,898 III. Total shares 601,986,352 0 0 601,986,352 4.2 Statement of shares held by the top ten shareholders and the top ten shareholders of circulation share Total number of shareholders at the end of report period 155,267 Particulars about shares held by the top ten shareholders Number of Nature of Increase / Shares held Type of shares share shareholders decrease in at the Proportion Full name of Shareholders (Circulating/No pledged/ (State -owned the report year-end (%) n-circulating) frozen shareholder/foreign year (share) (share) (share) shareholder) OVERSEAS CHINESE TOWN GROUP 0 174,949,746 29.06 State-owned Non-circulating 174,949,741 COMPANY shareholder OVERSEAS CHINESE TOWN (HONG -8,155,889 68,376,683 11.36 Unknown Circulating Foreign shareholder KONG) CO., LTD. HONG KONG CHINA TRAVEL 0 45,416,337 7.54 Unknown Circulating Foreign shareholder SERVICE (GROUP) CO., LTD. TOYO SECURITIES ASIA LIMITED Unknown -165,575 2,195,126 0.36 Circulating Foreign shareholder A/C CLIENT NOMURA TB/NOMURA ITM -950,000 1,500,000 0.25 Circulating Unknown Foreign shareholder XIN MING 4,615 1,254,483 0.21 Circulating Unknown CHINA HIGH-TECH INVESTMENT Unknown 187,601 1,246,618 0.21 Circulating GROUP CO. NATIONAL COMBINATION OF 101 Unknown 1,216,867 1,216,867 0.20 Circulating SOCIAL INSURANCE FUNDS SBCI FINANCE ASIA LED A/C SBC Unknown 918,570 918,570 0.15 Circulating Foreign shareholder HONG KONG LIU FANG 754,764 754,764 0.13 Circulating Unknown 3 Explanation (1) Among the top ten shareholders, Overseas Chinese Town Group Company, the first largest shareholder, held on non-circulating shares. There was no change in shares of the Company held by it in the report period. associated (2) Overseas Chinese Town (Hong Kong) Co., Ltd. is the wholly-owned subsidiary of Overseas Chinese Town relationship Group Company registered in Hong Kong; the shares held by it were changed due to trading in the second market among the in the report period. Except for this, there exists no associated relationship between Overseas Chinese Town top ten Group Company and the other shareholders of circulation share, and they do not belong to the consistent actionist shareholders regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed or consistent Companies. For the other shareholders of circulation share, the Company is unknown whether there exists action associated relationship or consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies or not. (3) The other shareholders are social shareholders, who hold circulation shares. The shares held by them were changed due to trading in the second market during the report period. Particulars about shares held by the top ten shareholders of circulation share Full name of Shareholders Number of circulation shares Type (A-share, B-share, held at the year-end (share) H-share and other) OVERSEAS CHINESE TOWN (HONG KONG) CO., LTD. 68,376,683 B-share HONG KONG CHINA TRAVEL SERVICE (GROUP) CO., LTD. 45,416,337 B-share TOYO SECURITIES ASIA LIMITED 2,195,126 B-share NOMURA TB/NOMURA ITM 1,500,000 B-share XIN MING 1,254,483 B-share CHINA HIGH-TECH INVESTMENT GROUP CO. 1,246,618 A-share NATIONAL COMBINATION OF 101 SOCIAL INSURANCE FUNDS 1,216,867 A-share SBCI FINANCE ASIA LTD 918,570 B-share LIU FANG 754,764 A-share NEITENG SECURITIES CO., LTD. 730,457 B-share (1) Overseas Chinese Town (Hong Kong) Co., Ltd. is the wholly-owned subsidiary of Overseas Chinese Town Group Company registered in Hong Kong; the shares held by it were changed due Explanation to trading in the second market in the report period. Except for this, there exists no associated on associated relationship between Overseas Chinese Town Group Company and the other shareholders of relationship circulation share, and they do not belong to the consistent actionist regulated by the Management among the Measure of Information Disclosure on Change of Shareholding for Listed Companies. For the top ten other shareholders of circulation share, the Company is unknown whether there exists associated shareholders relationship or consistent actionist regulated by the Management Measure of Information of circulation Disclosure on Change of Shareholding for Listed Companies or not. share (2) The other shareholders are social shareholders, who hold circulation shares. The shares held by them were changed due to trading in the second 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 remained unchanged, still was Overseas Chinese Town Group Company (“OCT Group”), which holds 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 under State-owned Assets Supervision and Administration Commission). The registered code of enterprise legal person’s business license: 4403011062068. 4 §5. Particulars About Directors, Supervisors, Senior Executives 5.1 Particulars about changes in shares held by directors, supervisors and senior executives Shares held Shares held at Reason for Name Title Gender Age Office term at the the year-begin change year-end Ren Kelei Chairman of the Board Male 53 Apr. 2001-Apr. 2004 0 0 Zhang Director Male 59 Apr. 2001-Apr. 2004 0 0 Zhengkui He Shilin Director Male 63 Apr. 2001-Apr. 2004 0 0 Liang Rong Director Male 39 Apr. 2001-Apr. 2004 17,850 17,850 Ni Zheng Director Male 36 May 2002-Apr. 2004 0 0 Wei Qing Director Male 51 Apr. 2001-Apr. 2004 0 0 Xiao Zhuji Independent Director Male 70 May 2001-Apr. 2004 0 0 Ye Wu Independent Director Male 65 May 2001-Apr. 2004 0 0 Ma Liguang Independent Director Female 63 May 2001-Apr. 2004 0 0 Nie Guohua Chairman of the Male 61 Apr. 2001-Apr. 2004 0 0 Supervisory Committee Wang Ruquan Supervisor Male 50 Apr. 2001-Apr. 2004 0 0 Wang Supervisor Male 54 Apr. 2001-Apr. 2004 0 0 Xinzhong Hou Songrong President Male 35 Apr. 2002-Apr. 2004 0 0 Yang Guobin Chief Financial Officer Male 34 Mar. 2002-Mar. 2004 0 0 Wang Youlai Vice-president Male 43 Mar. 2002-Mar. 2004 2,640 2,640 Huang Vice-president Male 43 Mar. 2002-Mar. 2004 514 514 Zhongtian Chen Xuri Vice-president Mar. 2002-Apr. 2004 0 0 Male 45 Secretary of the Board Apr. 2001- Mar. 2004 Huang Vice-president Male 41 Mar. 2002-Apr. 2004 0 0 Weigang 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 Since Dec. 1993 No Company President Secretary of the Party Zhang Overseas Chinese Town Group Committee and Since Aug. 1987 No Zhengkui Company concurrently managing vice-president Overseas Chinese Town Group He Shilin Financial Advisor Since 2000 No Company Overseas Chinese Town Group Apr. 2002 to May Liang Rong Assistant President No Company 2003 Overseas Chinese Town (Hong Ni Zheng General Manager Since Dec. 1998 No Kong) Co., Ltd. Hong Kong China Travel General Manager of Wei Qing Service (Group) Co., Ltd. Investment Plan & Since 2000 No Management Dept. Overseas Chinese Town Group Nie Guohua Vice-president Since Feb. 1992 No Company Overseas Chinese Town Group Supervisor of Auditing Wang Ruquan Since Oct. 2000 No Company Dept. 5.3 Particulars about the annual remuneration of directors, supervisors and senior executives 5 Total annual remuneration RMB 1,455,900 Total annual remuneration of the top three RMB 0 directors drawing the highest payment Total annual remuneration of the top three senior RMB 739,200 executives drawing the highest payment Allowance of independent director RMB 0 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 Articles of Association of the Company and Independent Director System. Name of directors and supervisors receiving no Director: Mr. Ren Kelei, Mr. Zhang Zhengkui, Mr. Ni recompense or allowance from the Company Zheng, Mr. He Shilin, Mr. Wei Qing, Mr. Liang Rong, Mr. Xiao Zhuoji, Mr. Ye Wu and Ms. Ma Liguang Supervisor: Mr. Nie Guohua, Mr. Wang Ruquan and Mr. 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 to 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 2003, the Company nailed down the strategic guiding idea of development and promotion in further step and increased input on R&D and marketing, promoting the core competitive edge of the Company and tamped the basis of sustainable development. The Company actively propelled the R&D of products, established and boosted the planning of all series of assembly lines, introduced R&D talents, set up special research institution, innovated the management mechanism of R&D, and established the prior position in the R&D of products. The Company successfully implemented “Digital High Definition Strategy”in the business of color TV, which increased the sale of high- tech color TV products and invigorated the sale of whole products. The Company successfully implemented “Color Screen Pioneer Strategy”in business of mobile phones exerting its up and coming advantages, which grasped the chance of introduction of color screen mobile phones in the market and realized the breakthrough in the sales. The Company executed new evaluation and encouragement mechanism, which encouraged properly, pressed properly, washed out the last one, boosted the work enthusiasm of the staff especially that of the key management team, and provided the continuous impetus for rapid development and management promotion. In 2003, the sales income realized in the whole year was RMB12.8 billion, an increase of 59.25% compared with the corresponding period of the previous year and the sales volume of domestic sales of color TVs was 6,828.6 thousand sets and that of export of color TVs was 1,239.5 thousand sets. The sales volume of mobile phones was 4,064.4 thousand pieces. The net profit realized was RMB101.071 million and earnings per share were RMB 0.1679. 6.2 Statement of main operations classified according to industries or products 6 Unit: RMB’0000 Classified according to Income from Cost of main Gross Increase/decrease Increase/decreas Increase/decrease industries or products main operations profit in income from e in cost of main in gross profit ratio operations ratio (%) main operations operations over over the last year over the last year the last year (%) (%) (%) Manufacture of daily electric appliances 843,552.29 708,468.11 16.01 39.51 38.00 2.10 Manufacture of communication and 387,977.47 338,325.56 12.80 128.77 140.70 -25.25 relevant equipments Other industries 49,116.85 45,511.14 7.34 64.07 60.65 36.74 Including: related transactions 0.00 0.00 - 0.00 0.00 0.00 National sales of color TVs 773,392.09 644,298.20 16.69 38.26 37.50 2.82 Export of color TVs 70,160.21 64,169.90 8.54 55.02 43.24 740.72 Communications: mobile phones 387,977.47 338,325.56 12.80 128.77 140.70 -25.25 Others 49,116.85 45,511.14 7.34 64.07 60.65 36.74 Including: related transactions 0.00 0.00 - 0.00 0.00 0.00 Pricing principle Fair market price Necessity and 1. The Company jointly developed and operated project of “Building D and E of PORTOFINO ·SWAN CASTLE” durative of with Shenzhen OCT Real Estate Co., Ltd., whose 45% equity is held by OCT Group Company, the controlling related shareholder of the Company. According to the cooperative agreement, the Company occupied 60% earnings right in the transactions said project. In 2002, the Company totally invested capital amounting to RMB 165 million to the said project. In 2002, the Company gained profit amounting to RMB 75,000,464.03 and withdrew investment amount of RMB 65 million. In the year, the said project had a good sales and the Company withdrew all the rest investment amount of RMB 100 million. In the report period, the lead group of the said project and directors in the both parties had no resolution on dividends distribution, thus the investment earnings was not confirmed yet. 2. The Company jointly developed and operated project of “The 3rd stage of Jinxiu Garden” with Shenzhen OCT Real Estate Co., Ltd.. According to the cooperative agreement, the Company occupied 20% earnings right in the said project. The Company totally invested capital amounting to RMB 200 million for the said project. The said project has been accomplished and started in sales. However, the settlement has still not been conducted yet. In 2002, the Company withdrew investment amount of RMB 100 million and withdrew the rest investment amount of RMB 100 million in the year. The Board in the both parties of the said project had no resolution on dividends distribution, thus the investment earnings would be confirmed until cash distributed. 3. In 2003, the Company had related transactions with the subsidiary of OCT Group Company, the controlling shareholder of the Company, including payment of storage, lease and property management expenses, water and electricity expenses and land use expenses and purchase of goods etc., which all belonged to fair transactions, being conducted according to the normal market price without harming the interests of the Company and other shareholders of the Company. For details, please refer to the part named “(3) Current with Related Companies” in “Notes to Accounting Statements VI”. 6.3 Particulars about main operations classified according to areas Unit: RMB’0000 Areas Income from main operations Increase/decrease in income from main operations over the last year (%) Mainland of China 1,270,946.82 39.73 Overseas 117,736.18 53.27 All areas within the Company -108,036.38 0.30 6.4 Particulars about the customers of purchase and sales Unit: RMB’0000 Total amount of purchase of the 320,424.76 Proportion in the total 29.56% top five suppliers amount of purchase Total amount of sales of the top 75,397.60 Proportion in the total 5.89% five sales customers amount of sales 7 6.5 Operation of share- holding companies (applicable to the situation where investment earnings takes over 10% of its net profit) √Applicable □Inapplicable Unit: RMB’0000 Name of the share-holding company Shenzhen Konka Telecommunication Technology Co., Ltd. Investment earnings contributed in the period 4,567.23 Proportion in net profit of the listed company 45.19% Share-holding company Business scope Development, production and operation of digital mobile equipments and mobile phone products Net profit 4,567.23 Name of the share-holding company Dongguan Konka Electronic Co., Ltd. Investment earnings contributed in the period 1,489.84 Proportion in net profit of the listed company 14.74% Share-holding company Business scope Production and operation of color TVs and sound products etc. Net profit 1,489.84 Name of the share-holding company Anhui Konka Electronic Co., Ltd. Investment earnings contributed in the period 1,472.48 Proportion in net profit of the listed company 14.57% Share-holding company Business scope Mainly engaged in the production and operation of color TVs Net profit 2,265.35 6.6 Explanation on reasons of material changes in main operations and its structure □Applicable √Inapplicable 6.7 Explanation on reasons of material changes in profitability capability of main operations (gross profit ratio) than that in the last year √Applicable □Inapplicable The gross profit ratio of mobile phones decreased, which was mainly because that the Company reduced the sales price properly in order to expand scale and enhance market share under the intense market competition and the gross profit ratio of the partial model mobile phones was relatively low. 6.8 Analysis to reasons of material changes in operating results and profit structure compared with the previous year √Applicable □Inapplicable The sales income increased greatly, which was because that on one hand, the Company reinforced the R&D input to products and enhanced the competitive capability of products in the market; on the other hand, the Company strengthened the marketing and reinforced the assessment and encouragement mechanism. In the aspect of color TVs, it was influenced by the recovery of the industry. Analysis to reasons of material changes in the whole financial position than that in the last year √Applicable □Inapplicable The assets- liability rate increased, which was mainly because that the Company’ s sales scale was expanded and the turnover demand for inventories increased and at the same time notes receivable increased, resulting in the expansion of assets scale. 8 6.9 Explanation on the past, current and future important effects of the material changes in 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 □Applicable √Inapplicable Particulars about the changed projects □Applicable √Inapplicable 6.13 Application of the proceeds not raised through shares offering √Applicable □Inapplicable Unit: RMB’0000 Name of projects Amount of projects Progress of projects Earnings of projects Real estate project of 16,500.00 In the year, the said project had The Company withdrew all the rest investment amount of RMB “Building D and E of good sales. 100 million. In the report period, the lead group of the said PORTOFINO ·SWAN project and directors in the both parties had no resolution on CASTLE”in OCT dividends distribution, thus the investment earnings was not confirmed yet. Real estate project of 10,000.00 In the year, the said project has In the year, the Company withdrew the rest investment amount “The 3rd stage of Jinxiu been accomplished and started of RMB 100 million in the year. The Board in the both parties Garden”in OCT in sales. However, the of the said project had no resolution on dividends distribution, settlement has still not been thus the investment earnings would be confirmed until cash conducted yet. distributed. Total 26,500.00 - - 6.14 Explanation of the Board of Directors on the “Qualified Opinion”made by the Certified Public Accountants □Applicable √Inapplicable 6.15 Business plan as of the next year of the Board of Directors (If it has) √Applicable □Inapplicable In 2004, the Company shall surround two principal axes, namely “Completely enhancing internally basic capability and completely enhancing externally competitive advantage”, in the operation and plan to accomplish three tasks: (1) The business of color TVs must reach the best level of management and operation in the same industry at home with competitive advantages being established in the new-typed display field; (2) The business of mobile phones must climb up so as to ensure the better living and development; (3) International layout must be accomplished preliminarily in the international business. Based on this, the Company should well do the work in the following five aspects: Firstly, fully push the strategic planning with emphasis on planning of industrial strategy and technical strategy, especially on planning of technical innovation. Secondly, make efforts to push research and development. Reinforce technical reserve and establish technical innovation and pre-research system; completely push R&D system for integrated products and make flow of R&D business smooth; further introduce into superior R&D talents so as to support the future development. Thirdly, innovate marketing and several marketing campaigns must be conducted in color TVs and mobile phone businesses; push separate marketing management of products; 9 continue to push flat channels and strengthen terminal construction in the business of mobile phones. Fourthly, develop management enhancement in a well-knit way; establish departments for flow enhancement and at the same time set up mechanism of registration, check and acceptance and encouragement to the management enhancement projects, such as management project of supply chain, development project of integrated products, marketing project of integrated products, strategic purchase and enhancement project of surveyor’ s pole management etc.. Fifthly, active ly reform and push encouragement mechanism. Based on the existing encouragement project, probe into establishing long-term encouragement mechanism; at the same time, optimize and improve annual assessment mechanism and firmly push foot elimination system. Profit estimation of the next year (If it has) □Applicable √Inapplicable 6.16 The preplan on the profit distribution and capitalization of capital public reserve of the Board of Directors In the year, the Company did not distribute profits or cond uct capitalization of reserve. §7. Significant Events 7.1 Purchase of assets □Applicable √Inapplicable 7.2 Sales of assets □Applicable √Inapplicable 7.3 Significant guarantee □Applicable √Inapplicable 7.4 Related credits and liabilities current √Applicable □Inapplicable Unit: RMB’0000 Related parties supplied funds to the Supply funds to related parties Related parties Listed Company Amount occurred Balance Amount occurred Balance Shenzhen OCT Real Estate Company -19.84 30.34 0.00 0.00 Shenzhen OCT Properties Management 0.00 7.69 0.00 0.00 Company Shenzhen OCT Water & Electricity 0.00 -3.93 0.00 0.00 Company OCT (HK) Co., Ltd. -5,935.33 0.00 0.00 0.00 Shanghai Huali Packaging Co., Ltd. 0.00 0.00 246.11 710.62 Shenzhen Huali Packaging Trade Co., 0.00 0.00 466.82 873.40 Ltd. Shenzhen Konka Energy Science and -20.00 133.00 0.00 0.00 Technology Total -5,975.17 167.10 712.93 1,584.02 7.5 Entrusted assets □Applicable √Inapplicable 7.6 Implementation of commitment items □Applicable √Inapplicable 7.7 Significant lawsuit and arbitration √Applicable □Inapplicable 10 On May 2, 2003, American Five Rivers Electronic Innovations Company, IBEW and IUE-CWA appealed to anti-dumping against the enterprises in the color-TV industry of China. On Nov. 25, American Department of Commerce promulgated the result of the first judgment and the Company was primarily judged the anti-dumping rate of 27.94% and it ha s influence on the export of color-TV of the Company in some degree in the future. The Company published notice on China Securities, Securities Times, Shanghai Securities News and Ta Kung Pao dated Nov. 26, 2003. On Apr. 13, 2004, American Department of Commerce promulgated the final arbitration results on anti-dumping case of color TVs from China and the dumping margin of the Company was confirmed as 11.36%. The Company would actively conduct industrial non-damage deraignment and strive for fair and just results in the follow-up public hearings of American International Trade Committee and the final arbitration made on May 27, 2004. If American International Trade Committee still makes the qualitative judgment according to the judgment of American Department of Commerce, the Company would appeal to American Court of International Trade. 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. 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 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, grounded on rich work experience for years, 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 (I) Work of the Supervisory Committee In the report period, the 4th Supervisory Committee of the Company totally held 2 meetings, namely the 7th meeting and the 8th meeting of the 4th Supervisory Committee. The meetings and the contents of their resolutions are as follows: The 7th meeting of the 4th Supervisory Committee of the Company was held in the Office Building of OCT, Shenzhen, China in the afternoon of Apr. 17, 2003. Three supervisors should attend the meeting and actually all of them were present in accordance with relevant 11 regulations of Company Law of PRC and Articles of Association of the Company. The meeting was presided by Chairman of the Supervisory Committee, Mr. Nie Guohua. The meeting unanimously approved the following resolutions through sufficient discussion. (1) 2002 Annual Report and its Summary of the Company; (2) Work Report of the Supervisory Committee in 2002. The 8th meeting of the 4th Supervisory Committee of the Company was held in the meeting room on 6/F of Office Building of OCT Group, Shenzhen, China in the morning of Aug. 20, 2003. Three supervisors should attend the meeting and actually all of them were present. The meeting was presided by Chairman of the Supervisory Committee, Mr. Nie Guohua in accordance with relevant regulations of Company Law of PRC and Articles of Association of the Company. The meeting examined and approved Semiannual Report for 2003 and its Summary of the Company. The resolutions of the 7th meeting and the 8th meeting of the 4th Supervisory Committee were published on China Securities, Securities Times, Shanghai Securities News and Ta Kung Pao, the newspapers for information disclosure designated by CSRC respectively dated Apr. 21, 2003 and Aug. 22, 2003 and the designated internet: http://www.cninfo.com.cn. (II) Independent opinion of the Supervisory Committee 1. Operation according to laws In 2003, the Company operated in compliance with the relevant laws, legislations as stated in the Company Law, Securities Law and Rules for Stock Listing as well as the Articles of Association. The directors and senior executives could implement various resolutions of the Shareholders’General Meeting and the Board of Directors, worked diligently and responsibly 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 in the intended way. 2. Financial inspection The Supervisory Committee made serious and careful inspection on the financial system and financial status, and believed that 2003 financial report factually reflected the Company’ s financial status and operation results and the standard unqualified auditors’report issued by Shenzhen Dahua Tiancheng Certified Public Accountants was objective and fair. 3. Application of raised capital The Company has no raised capital in the latest three years. The actual invested project of the latest raised capital is in accordance with the promised invested project. 4. Purchases or sales of assets In the report year, the trade price of sale of equity of the Company was reasonable, no internal transaction was found, the interest of the minority shareholder was treated equally and there found no assets ran off. 5. Correlative transactions The Company cooperated and operated real estate item with OCT Real Estate Company and took back investment amounting to RMB 0.2 billion in the report period. It did not damage the interest of the listed company and there was not inside transaction. There were related transactions between the Company and the subsidiaries of the controlling shareholder, including payment of storage, properties management expense, water and electric expense, purchase of goods and so on. They belonged to fair transactions, were disposed as 12 normal market price and did not damage the interest of the Company and other shareholders of the Company. §9. Financial Report 9.1 Auditors’Report We have audited the accompanying balance sheet of Konka Group Co., Ltd. as of December 31, 2003 and the related statements of income, cash flows and changes in equity for the year then ended. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2003 and the results of its operations and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. K. C. Oh & Company Certified Public Accountants Hong Kong : April 16, 2004 9.2 Financial statement was attached 9.3 Accounting policy, accounting assessment and settlement method has no change compared with the latest annual report. 9.4 Compared with the latest annual report, there were changes I the consolidation scope: In the report period, the Company newly established two companies: 1. Dongguan Konka Plastic Muld Co., Ltd., the Company holds its 100% equity indirectly, and bring it into the consolidated scope of financial statement. Date of Registration Legal Registered Equity Investment Main foundation address representative capital owned amount business July 2003 Dongguan Wang Youlai RMB 10 100% RMB 10 Model and million million plastic 2. Anhui Konka Appliances Co., Ltd., the Company holds its 26.75% equity and owns the actual controlling right, so as to bring into the consolidated scope of financial statement. Date of Registration Legal Registered Equity Investment Main business foundation address representative capital owned amount April 2003 Anhui Wang Youlai RMB 10 26.75% RMB 3.5 Sales of appliance million million such as refrigerator Board of Directors of Konka Group Co., Ltd. Apr. 16, 2004 13 Konka Group Co., Ltd. Consolidated income statement for the year ended December 31, 2003 2003 2002 RMB’000 RMB’000 Turnover 5 12,806,466 8,041,653 Cost of sales ( 10,924,570 ) ( 6,822,595 ) Gross profit 1,881,896 1,219,058 Other revenue 6 13,979 166,746 Distribution costs ( 1,442,897 ) ( 899,831 ) Administrative expenses ( 297,938 ) ( 392,789 ) Other operating expenses - ( 1,197 ) Operating profit 155,040 91,987 Finance costs ( 23,981 ) ( 34,620 ) Share of loss from associates ( 351 ) ( 428 ) Profit before taxation 7 130,708 56,939 Taxation 8 ( 15,935 ) ( 8,189 ) Profit before minority interests 114,773 48,750 Minority interests ( 10,374 ) ( 5,627 ) Profit attributable to shareholders 104,399 43,123 Accumulated loss as at beginning of year ( 610,169 ) ( 653,292 ) Accumulated loss before appropriation/reversal ( 505,770 ) ( 610,169 ) Appropriations/reversal Dividend payment waived 1,809 - Accumulated loss as at end of year ( 503,961 ) ( 610,169 ) RMB0.17 RMB0.07 Earnings per share - basic 3 2 The calculation of the basic earnings per share is based on the current year’ s profit of RMB104,399,000 (2002 - RMB43,123,000) attributable to the shareholders and on the existing number of 601,986,352 shares in issue during the year. 14 Konka Group Co., Ltd. Consolidated balance sheet as at December 31, 2003 2003 2002 RMB’000 RMB’000 Non-current assets Property, plant and equipment 9 1,400,005 1,383,137 Goodwill 10 1,311 1,585 Intangible assets 11 7,200 8,674 Interests in associates 12 39,216 53,993 Other investments 13 11,790 211,790 1,459,522 1,659,179 Current assets Inventories 14 3,170,081 2,578,796 Properties held for sale 15 4,172 4,172 Account receivables 16 333,217 277,156 Prepayments, deposits and other receivables 17 156,410 233,277 Note receivables 3,166,448 1,205,139 Short-term investments 18 1,243 - Cash and bank balances 1,331,894 1,044,899 8,163,465 5,343,439 Current liabilities Tax payable ( 9,719 ) ( 3,508 ) Account payables ( 1,232,711 ) ( 872,733 ) Other payables and accrued expenses ( 1,256,385 ) ( 826,732 ) Note payables ( 3,783,822 ) ( 1,903,760 ) Short-term bank loans 19 ( 28,045 ) ( 164,000 ) ( 6,310,682 ) ( 3,770,733 ) (e) Net current assets 1,852,783 1,572,706 (f) Total assets less current liabilities 3,312,305 3,231,885 (cont’d) 15 Konka Group Co., Ltd. Consolidated balance sheet as at December 31, 2003 (cont’d) 2003 2002 RMB’000 RMB’000 (i) Total assets less current liabilities 3,312,305 3,231,885 (j) Non-current liabilities Deferred income ( 16,487 ) ( 19,485 ) Finance lease obligations ( 1,875 ) - Other long-term liabilities ( 4,584 ) ( 24,283 ) ( 22,946 ) ( 43,768 ) (k) Minority interests ( 237,966 ) ( 243,162 ) Net assets employed 3,051,393 2,944,955 Financed by : Share capital 20 601,986 601,986 Reserves 2,449,407 2,342,969 Shareholders’equity 3,051,393 2,944,955 The financial statements on pages 2 to 29 were approved and authorized for issued by the board of directors on April 10, 2004 and are signed on its behalf by : Ren Kelei He Shilin Director Director 16 Konka Group Co., Ltd. Consolidated statement of changes in equity for the year ended December 31, 2003 Reserves Share capital Capital Surplus Accumulated Dividend Exchange Total and total Share capital reserves reserves profit/(loss) reserve reserve reserves reserves RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 As at January 1, 2002 601,986 1,814,313 1,133,044 ( 653,292 ) 11,579 ( 1,690 ) 2,303,954 2,905,940 Profit for the year of 2002 - - - 43,123 - - 43,123 43,123 Dividend paid - - - - ( 11,579 ) - ( 11,579 ) ( 11,579 Difference arising from investment in subsidiaries - 4,477 - - - - 4,477 4,477 Adjustment on revaluation of property, plant and equipment - 1,662 - - - - 1,662 1,662 Exchange difference from translation of foreign operations - - - - - 1,332 1,332 1,332 As at December 31, 2002 601,986 1,820,452 1,133,044 ( 610,169 ) - ( 358 ) 2,342,969 2,944,955 As at January 1, 2003 601,986 1,820,452 1,133,044 ( 610,169 ) - ( 358 ) 2,342,969 2,944,955 Profit for the year of 2003 - - - 104,399 - - 104,399 104,399 Dividend payment waived - - - 1,809 - - 1,809 1,809 Exchange difference from translation of foreign operations - - - - - 230 230 230 As at December 31, 2003 601,986 1,820,452 1,133,044 ( 503,961 ) - ( 128 ) 2,449,407 3,051,393 According to the corporation law and relevant regulations of a joint stock limited company, the Company’ s specified profit should be classified as capital reserves, which include share premium, surplus on revaluation of property, plant and equipment and other investments, etc. Capital reserves are normally used for issue of new shares, or for write-off or permanent provision when foreign investments are revalued. Surplus reserves comprise statutory reserve, statutory public welfare fund and discretionary welfare fund. The Company is required to transfer an amount of not less than 10% of the profit after making up the accumulated loss to statutory reserve until it is up to 50% of the registered share capital. Statutory reserve can be used to cover current year loss or for issue of new shares. The amount of statutory reserve to be utilized for issue of new shares should not exceed an amount such that the balance of the reserve will fall below 25% of the registered share capital after the issue of new shares. The Company is also required to transfer 5% of the profit after making up the accumulated loss to statutory public welfare fund. Statutory public welfare fund shall only be applied for the collective welfare of the Company’ s employees. Discretionary welfare fund is applied in accordance with the shareholders’resolutions passed in the annual general meeting and can be used to make up the accumulated loss or for issue of new shares. 17 Konka Group Co., Ltd. Consolidated cash flow statement for the year ended December 31, 2003 2003 2002 RMB’000 RMB’000 Cash flow from operating activities Operating profit before taxation 130,708 56,939 Adjustment items : Interest income ( 10,922 ) ( 6,371 ) Dividend income ( 72 ) - Income from government grant ( 7,215 ) ( 5,273 ) Interest expenses 5,776 22,165 Depreciation 126,744 173,163 Impairment loss provision on property, plant and equipment - 529 Loss on disposal of property, plant and equipment 2,836 5,302 Amortization of goodwill 321 317 Amortization of intangible assets 2,514 2,672 Profit on disposal of subsidiaries - ( 20,360 ) Impairment loss provision on unconsolidated subsidiaries - 136,567 Impairment loss provision on associates 5,594 5,594 Share of results from associates 351 428 Profit on disposal of other investments - ( 202 ) Provision for inventory obsolescence 22,636 18,821 Provision/(reversal) for doubtful debts on account receivables ( 8,971 ) 46,041 Reversal for doubtful debts on other receivables ( 343 ) ( 1,739 ) Net operating cash inflow before movements in working capital 269,957 434,593 Exchange reserve movement 230 1,332 (Increase)/decrease in inventories ( 613,921 ) 193,227 Increase in properties held for sale - ( 228 ) (Increase)/decrease in account receivables ( 47,090 ) 151,455 Decrease in prepayments, deposits and other receivables 77,210 56,769 Increase in note receivables ( 1,961,309 ) ( 441,605 ) Increase in account payables 359,978 73,389 Increase in other payables and accrued expenses 431,462 156,782 Increase in note payables 1,880,062 356,612 Cash generated from operations 396,579 982,326 Interest paid ( 5,776 ) ( 22,165 ) Corporate and profits tax paid ( 9,724 ) ( 2,993 ) Net cash inflow from operating activities 381,079 957,168 (to be cont’d) 18 Konka Group Co., Ltd. Consolidated cash flow statement for the year ended December 31, 2003 (cont’d) 2003 2002 Note RMB’000 RMB’000 Net cash inflow from operating activities 381,079 957,168 Investing activities Interest received 10,922 6,371 Dividend received 72 - Purchases of property, plant and equipment ( 167,193 ) ( 174,484 ) Proceeds from disposal of property, plant and equipment 23,245 121,882 Purchases of intangible assets ( 1,040 ) ( 4,189 ) Net cash inflow from disposal of subsidiaries - 114,456 Impairment loss provision on unconsolidated subsidiaries - ( 136,567 ) Additional investment in associates ( 2,400 ) ( 14,889 ) Receipts from/(repayments to) associates 11,232 ( 26,890 ) Acquisition of other investments - ( 265,000 ) Proceeds from disposal/return of other investments 200,000 167,202 Increase in short-term investments ( 1,243 ) - Net cash inflow/(outflow) from investing activities 73,595 ( 212,108 ) Financing activities Dividend paid - ( 11,579 ) Government grant received 6 4,217 14,275 Finance lease obligations repaid 22 ( 625 ) - Other long-term liabilities repaid 22 ( 19,699 ) ( 9,807 ) Bank loans repaid 22 ( 135,955 ) ( 683,127 ) Decrease in minority interests 22 ( 15,617 ) ( 4,780 ) Net cash outflow from financing activities ( 167,679 ) ( 695,018 ) Increase in cash and cash equivalents 286,995 50,042 Cash and cash equivalents as at beginning of year 1,044,899 994,857 Cash and cash equivalents as at end of year 1,331,894 1,044,899 Analysis of cash and cash equivalents Cash and bank balances 1,331,894 1,044,899 19