Dear Shareholders, I am pleased to present the annual report of the Company for the year ended 31 December 2008. At the beginning of 2008, cost-oriented home appliance manufacturers and the Company faced enormous pressure in cost control with the CPI (consumption price index) and PPI (production price index) standing high. From the second quarter of the reporting period onward, the global economic crisis, sluggish real estate industry and a poor consumer sentiment preferring to keep the cash significantly dampened the demand for home appliances both domestically and overseas, which in turn pushed down the sales price to a significant extent. In addition, the air-conditioner market recorded substantial decrease in sales due to the cool summer weather. During the reporting period, the Company generated a sales revenue of RMB8,052,909,000 for the year, of which the sales revenue of refrigerators amounted to RMB4,189,049,000, representing an decrease of 3.14% as compared to the previous year; the sales revenue of air-conditioners business amounted to RMB3,024,028,000, representing an decrease of 5.94% as compared to last year. In 2008, the operating results of the Company unavoidably recorded a decrease to a certain extent under the operating pressure brought by fluctuating raw material prices, shrinkage in domestic and overseas consumption and a severe macroeconomic environment of global economic downturn. In response to this, the Company implemented effective improvements in merchandising management, logistics enhancement, quality control, new product development, adjustment system etc. Consistently upholding an operation strategy of “creating product advantages, enhancing product quality, increasing production capacity, accelerating cash flow, strengthening personnel training”, the Company fully implemented management of benchmark projects, standardization of spare parts and simplification of product series to strengthen quality control; improved the R&D sentiment and increased investments for product pre-research to continuously upgrade its product sales structure; enhanced the supplier system to significantly reduce the purchase cost; streamlined the logistics management and stepped up the adjustment system to increase management efficiency; adjusted the distributor structure and perfected the market feedback system. With the above measures, the overall profitability of the Company’s products recorded a remarkable increase. In 2008, the Company also reviewed the situation of receivables and occupation of capital in inventory, and accordingly executed strict control of capital risks and enhanced the capital efficiency. On 27 April 2008, the Company entered into a strategic cooperation agreement with Whirlpool (Hong Kong) Limited in Qingtao, the PRC for the establishment of a joint venture, Hisense-Whirlpool (Zhejiang) Electric Appliances Co., Ltd. This would enhance the position of the Company in the high-end refrigerator industry and facilitate the development of the washing machine business. Looking forward to 2009, the Company will uphold the operational strategy of “reshaping quality advantages, focusing on market-orientation, strictly controlling operational risks, improving the efficiency per capita, reinforcing quality control, enhancing confidence and passion”, with the objectives to gradually increasing the core competitiveness of its products through implementing in-depth management of benchmark projects, strengthening product quality control, continuously increase investments in product R&D and design; to reasonably adjust and improve resource engagement through enhancing the distribution channels and inventory control; to improve production efficiency through continuously reinforcing project management; to manage capital risk and reduce capital occupation, through enhancing management of receivables and occupation of capital in inventory; to upgrade work efficiency and strategy talent pool through human resources management and assessment system. All of these would fuel the sustained healthy development of the Company. At the same time, many of the Company’s products were qualified for the State’s industry policy “household appliances rural subsidy program”. The Company will aggressively adjust its sales structure and expand its distribution channels to effectively capture the opportunity. On the other hand, the Company will continue its R&D efforts in energy-saving, high-efficiency, environmental-compliant products and forcefully promote its double-efficient and inverter air-conditioners in response to the energy standards newly promulgated by the State. In 2008, the Company’s results unavoidably recorded a decrease to a certain degree as affected by the abovementioned unfavorable factors. However, we successfully achieved significant improvements in our product quality, channel management and product profitability, and our brands have obtained wide recognition. These are attributable to the encouragement and support from our shareholders, and the strong support from the government, financial institutions, our partners, our directors and our supervisors. Our success is also directly built on the outstanding leadership of the management and the continued dedication of our staff. I would like to take this opportunity to express my gratitude to all of them and hope to receive your continued support in the coming year! Affected by the ongoing the global economic crisis, the macroeconomic environment will remain severe both domestically and overseas. Under the new industry policy, the home appliances industry will be exposed to new challenges but at the same time opened up to new opportunities. The pursuit for higher living standard will continue to drive the Company to leverage on its advantages in product quality, technology and branding to further enhance its position in the market. The Board is optimistic about the prospect of the Company in 2009. I also earnestly look forward to sharing a better and brighter future of Hisense Kelon with you all. Tang Ye Guo The PRC, 16 April 2009
Chairman
