A Hong Kong Listed Member of CR Holdings China Resources Logic Limited 2003 Annual Results Announcement A leading technology-oriented manufacturing enterprise

A Hong Kong Listed Member of CR Holdings

China Resources Logic Limited

2003 Annual Results Announcement

A leading technology-oriented manufacturing enterprise in the PRC with Semiconductor Business as its core operation

15 March 2004

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Agenda

• 2003 Business Highlights• Financial Highlights• Strategies & Positioning• Semiconductor Business • Air-conditioner Compressor Business• Future Plans


2003 Business Highlights

Enhanced turnover fuelled by new growth driver – Semiconductor Business

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• Turnover and net profit increased by 71% and 112% respectively, mainly attributed to significant revenue contribution from the Semiconductor Business and strengthened performance of the Compressor Business

• Two acquisitions completed in 2002 enabled CR Logic to become the largest developer and producer of consumer ICs and discrete devices in PRC’s semiconductor industry with integration capacity for design, fabrication, packaging and testing

• In 2003, production capacity of 1.2 million wafers (excluding CSMC-Tech), output of 1.14 million wafers IC design with 0.25μm technology, successful development of IC for high-end audio products such as MP3 indicates CR Logic’s consumer IC products moving towards medium to higher end market

5


• Successful restructuring of CSMC-Tech. Introduction of well-known international investors including 3i, International Finance Corporation, Templeton, etc and Chartered as strategic partners provided funding and technical support to CSMC-Tech, which would benefit CSMC-Tech’s further expansion of its open foundry business

• Phase IV expansion of compressor business completed and effectively

increased production output. In 2003, production and sales volume of compressors exceeded 3 million units, which was more than 10 per cent of PRC’s production and sales volume of compressors of 27.5 million units and 27.8 million units respectively

• Collaboration with Sanyo Electric has further strengthened. The equipment purchase and technology licensing agreements with Sanyo Electric provided the Company with strong technical support. The Company is thus equipped with advanced cooling technology – the capacity for direct current variable speed technology for energy saving and new R410A refrigerant capability for environmental protection


Financial Highlights

Strong financial position to support business expansion

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Year ended 31 Dec 2003(HK$ million)

Year ended 31 Dec 2002(HK$ million)

(Restated)

Increase /

(Decrease)

Turnover 2,044 1,197 71%

Gross profit 486 399 22%

Net cash inflow from Operating activities

469 217 116%

Operating profit 231 162 42%

Profit attributable to shareholders

188 89 112%

Gross profit margin 24% 33% (29%)

Operating profit margin 11% 14% (17%)

Final dividend (per share) 1.50 cents 1.00 cent 50%

Earnings per share (basic) 7.17 cents 4.02 cents 78%

Earnings per share (diluted) 7.13 cents 3.70 cents 93%

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Strong Liquidity and Healthy Gearing

As at31 Dec 2003

As at31 Dec 2002

Interest cover (Times) 8.2 8.9

Debt/Asset gearing ratio 14% 15%

Debt/Equity gearing ratio 25% 27%

Current ratio 1.1 1.4

Shareholders’ fund (HK$) 1.65 billion 1.50 billion

Cash on hand (HK$) 450 million 411 million

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Turnover Contribution by Business Segment


Year 2002Total turnover: HK$1,197 million

CompressorHK$675 million

57%

I.T.HK$38 million

3%

FurnitureHK$146 million

12%

SemiconductorHK$338 million

28%

Semiconductor

Compressor

Furniture

I.T.

Year 2003Total turnover: HK$2,044 million


42%


7%

SemiconductorHK$1,046 million

51%

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Operating Profit (before corporate expenses) by Business Segment


Year 2002Total operating profit

(before corporate expenses): HK$187 million

CompressorHK$133million

71%

I.T.HK$4million

2%Furniture

HK$3million2%

SemiconductorHK$47million

25%

Semiconductor

Compressor

Furniture

I.T.

Year 2003Total operating profit



36%


5%SemiconductorHK$147 million

59%

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Profit For The Year (before corporate expenses) by Business Segment


Year 2002Profit For The Year


CompressorHK$72million

60%

I.T.HK$4million

3%FurnitureHK$4million

3%

SemiconductorHK$41million

34%

SemiconductorCompressorFurnitureI.T.

Year 2003Profit For The Year



20%


5%

SemiconductorHK$163 million

75%


Strategies & Positioning

Clear Direction & Positioning

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• Continued emphasis on expansion of the new growth driver -- Semiconductor Business

• Strengthening of Compressor Business capitalizing on strong partnership with Sanyo Electric

• Stable and strong operating cash inflow from both Compressor Business and Semiconductor business

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Industry

Analysis

Business

Positioning

Semiconductor

Compressor


Industry Analysis and Business Positioning

2

1

StarProblemChild

Dog CashCow

1

2


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China Strategy

• Leverage on China’s

position as the world’s

manufacturing

powerhouse and its

burgeoning consumer

market

ChineseChinese

MarketMarket


16

Business Models

Semiconductor

Mature Technology

Low Capex

Import Substitution products

Steady growth in consumer product

market


17

Business Models


Compressor

Leading Cooling Technology in the PRC

and overseas

High Degree of Localisationin Raw Materials and

Components

Continued Growth in Air-Conditioner Market

Ally with PRC Air-ConditionerManufacturers and Actively Exploring Overseas Market

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Good Corporate Governance & Management

Board of Directors7 Executive Directors

3 Non-executive Directors2 Independent Non-executive Directors

IndependentAudit

Committee

Compensation &Remuneration

Committee

CorporateStrategy

Committee

Management

• All Directors and Senior Management are either graduates, MBA’s degree holders or professionals with an average age of 45 years.


ExecutiveCommittee

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Low Gearing Ratio & Acceptable Market Liquidity


GearingDebt/Asset 14%

Debt/Equity 25%

Total no. of Shares 2.62 billion

Liquid Share in Circulation 680 million


Semiconductor Business

The New Growth Driver for the Group

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Year ended

31 Dec 2003

Year ended

31 Dec 2002

Growth Rate

+/(-)

Turnover HK$1,046 million HK$338 million 209%

Operating profit HK$147 million HK$47 million 210%

Gross profit Margin

25% 29% (14%)

Operating profit margin

14% 14% 0%

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US$100 million

Information on the Semiconductor Industry --The Cyclical Trend in Worldwide Semiconductor Market


Upturn cycle from 2002 to 2006, with forecast CAGR of 8%

CAGR 8%

1500

1400

1256

1494

2044

1388 14101549

18091915

2049

2420

0

500

1000

1500

2000

2500

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: CCID&SIA

Sales Value

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Information on the Semiconductor Industry – The Percentageof Semiconductor Applied in Consumer Products Worldwide


Source: GARTNER

Sales Value

15.9% 16.0%15.1%

14.5% 14.5%

17.1% 16.4% 16.3%15.7% 15.6%

16.9%

18.2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

The relatively small changes in the percentage of semiconductor applied in the consumer products in worldwide market reflects its stable market demand

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Forecast CAGR of sales value from 2002 to 2007 is 22%

Information on the Semiconductor Industry – Enormous Business Potential from Continued Rapid Growth in the PRC Semiconductor Market


US$100 million

5578

110

150

190165

223

267

365

451 440

467

0

50

100

150

200

250

300

350

400

450

500

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

CAGR 22%

Source: GARTNER

Sales Value

25


Source: GARTNER

26.5%

25.9%

23.8%

23.3%

23.8%

24.4%

22%

23%

24%

25%

26%

2002 2003 2004 2005 2006 2007

Information on the Semiconductor Industry – The Percentageof Semiconductor Applied in Consumer Products in the PRC

The percentage of semiconductor applied in the consumer products in the PRC is higher than the worldwide average, with its market share maintains consistently above 20%

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Design & development of digital ICs and SOC systems

Inspection and packaging of IC

and discrete devices

Design and Fabrication of

bipolar IC’s and discrete devices

The largest

vertically

specialised

Semi-

conductor

Business

in the PRC


Digital IC Open foundry

China Resources Semico

China Resources Huajing

China Resources Semiconductor

CR Micro Assemb

Semicon Microelectronics

(Shenzhen)

CSMC Tech

Complete Industry Supply Chain – Strong Integration Capacity

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Industry Position• Design Business

– one of the leading fabless design houses in the PRC, carried out by Wuxi China Resources Semico Co Ltd, Wuxi INTECH Technology Co Ltd and Huake Microelectronics (Shenzhen) Co Ltd

– Sales Value in 2003 reached RMB150 million– core team of 150 experienced design engineers headed by

Dr. Chiadi Lee who came from Silicon Valley, USA. Includes 3 PhD’s, 19 Master Degree holders and 94 Bachelor Degree holders.

– Design mid to high end MOS and SOC systems applied in consumer electronics such as television, hi-fi, DVD, MP3, home appliances, voice synthesisers, calculators, electronic toys, etc.

– with 0.25μm and upwards technology

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Industry Position• Fabrication of bipolar IC and discrete devices

– The PRC’s largest bipolar IC and discrete device manufacturer -- Wuxi China Resources Huajing Microelectronics Co., Ltd and China Resources Semiconductor Co., Ltd

– With the largest number of semiconductor experts in the PRC –more than 1,000 semiconductor engineers (including PhD, Master Degree Holders and Degree Holders)

– Currently operating 3 lines of 4” wafer, 1 line of 5” wafer with total annual production capacity of 1.2 million wafers (excluding CSMC-Tech); through the use of Japan Toshiba manufacturing technology, the Company leads in technological level in similar business segment of the PRC

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Industry Position– Fabricated more than 30 product series with

over 1,000 products of the Company’s branded bipolar IC’s and semiconductor discrete devices used in consumer electronic products such as home appliances, electronic toys, telecommunication devices, precision instruments, energy saving lights and liquid crystal displays

– The sales volume and sales value of bipolar IC’s and discrete devices account for about one third of the total domestic supply in the PRC

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Industry Position• Packaging and testing services

– Currently, the PRC’s leading packaging enterprise – Wuxi CR Micro-Assemb Tech. Ltd. and the largest specialised testing company in South China – Semicon Microelectronics (Shen Zhen) Co., Ltd.

– Annual production capacity of 10 billion leads for IC packaging

– Support Semico, CR Huajing in packaging, while providing open foundry testing and packaging services; growing together with domestic IC design companies and IDM’s

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Industry Position• Open Foundry Business

– The first open CMOS IC foundry operator in the PRC which is carried out by CSMC-Technologies Corporation, a joint venture with CSMC Group, Chartered Semiconductor, 3i, Templeton, IFC (unit of World Bank), etc.

– Business model: With low capex and using mature technology to provide competitive foundry service to its customers.

– High caliber and experienced experts from the United States and Taiwan to form the core management and technical team

– Current monthly production capacity of over 30,000 6-inch wafers with 0.45 μm CMOS technology


Compressor Business

Capacity Expansion in Preparation for Growth

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Compressor BusinessSevere competition of the air-conditioner compressor market

in the PRC has subsided

Significant contribution to the Group’s• Turnover : HK$854 mil • Operating Profit : HK$91 mil

Acceptable and improving levels of gross and operating profit margins:

• Gross Profit Margin: 20%• Operating Profit Margin: 11%

Market position:

• Among the top four suppliers of residential air-conditioner compressor in the PRC

• Over 10% market share

•Products include three major series – 15F, 20F, 25F/33F

•Possess the most advanced cooling technology in the world – direct current variable speed and freon-free refrigeration technology

•Successful implementation of material localisation program

•Tightening cost controls and quality assurance from Sanyo

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Compressor Business

Period

Results

Year ended31 Dec 2003

Year ended31 Dec 2002

Growth Rate +/(-)

Sales volume (Unit) 3.01 million 1.93 million 56%

Turnover HK$854 million HK$675 million 27%

Operating profit HK$91 million HK$133 million (32%)

Gross profit margin 20% 33% (39%)

Operating profit margin

11% 20% (45%)

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Compressor Business

1,397

1,928

3,009

0

500

1,000

1,500

2,000

2,500

3,000

3,500

6/2002 2002 2003

’000 Units

Sales volume continue to increase rapidly


Future Plans

37

Future Plans

• Maintain as the leading technology-oriented manufacturing enterprise in the PRC, with Semiconductor Business as Core Operation

• 3-year fixed asset investment (2004-2006) of HK$2 billion

- invest HK$1.5 billion for

semiconductor

business development

- Invest HK$500 million for compressor capacity expansion to 6,000,000 units

• 2004 fixed asset investment of HK$800 million, of which HK$650 million for semiconductor and HK$150 million for compressor

invest HK$300 million to expand IC design business

invest HK$800 million to expand open foundry fabrication business

invest HK$400 million to expand packaging and testing business

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Future Plans – Semiconductor Business

Focus on developing a vertically specialised design, fabrication, packaging and testing IC business

Recruit more semiconductor experts to enhance core team expertise

Intensify synergistic benefits among internal operations to increase competitiveness

Collaborate with renowned overseas companies to augment technical and management expertise

Develop to be the most competitive developer, producer and supplier of consumer ICs and discrete devices in the PRC

Capitalise on a rapidly growing semiconductor market in the PRC

Development Targets

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Steadily growing consumer IC market

Low Capex

Integrated &

Complimentary

Manufacturing

Capabilities

Mature

Technology

Profit Model


Strength in size and costs

Import Substitution Products

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• Enhance fabless design technology to 0.18μm, develop more life style consumer IC products. Emphasis is on digital multi-media ICs, including ICs for digital audio and visual appliances, High Definition TV (HDTV), household interactive set-top boxes for home market

• Enhance technological level in fabrication; to construct a new production line with a monthly capacity of 30,000 6-inch wafers in 2004 , using 0.35μm technology; annual capacity to increase to over 1.5 million wafers (excluding CSMC-Tech)

• Expand packaging capacity of IC and discrete devices; acquired land of 250,000 square metres in Wuxi New District for the construction of phase I of the new packaging factory with an area of 50,000 square metres, which will be completed in October 2004. During the year, annual capacity to reach 13 billion leads for IC packaging

• Look for renowned overseas companies to form strategic and technical partners, and introduce more advanced technologies and management experts from overseas

• Continue to explore the opportunities for acquiring suitable projects for ongoing business expansion

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Future Plans – Air Compressor Business

Development Targets

Continued growth of PRC’s air-conditioner compressor market – CAGR 15-20%

Low labor cost in northeast area, 90% material localization, ISO9000 Quality Control System

Continued growth of market demand

Low cost, high quality

New technology support

Strong technology development support and technology licensing from Sanyo Electric

Develop into a world-class producer of air compressors for home and commercial cooling purposes and account for over 10% of the global compressor market

42

Low Variable Cost

Stable Clientele

AllianceAdvanced Cooling

Technology

Profit Model


Strength in strong brand name with quality assurance

Selling prices above average market price

Steadily growing PRC air-conditioner compressor market

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Overall Plan • Capacity expansion: - 2004: annual production capacity to increase by 300,000

units to 3,300,000 units - 2006: annual production capacity to increase to 6 million

units

• New Product Development - Fine-tune the requirements of the three major series – 15F,

20F, 25F/33F to satisfy different customer needs - Follow closely the latest world’s cooling technology

development, to strengthen the development of new environmental friendly products and energy saving products

• Continue to promote business cooperation with Sanyo Electric Co., Ltd to obtain strong technology support

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Turnover

2007 (Forecast)

Compressor40%

Semiconductor60%

Future Plans

Year 2002 (Actual)

Semiconductor51%Compressor

42%

Office Furniture

7%

Year 2003 (Actual)

Semiconductor28%Compressor

57%

Office Furniture

12%

IT3%

Documents

A Hong Kong Listed Member of CR Holdings China Resources Logic Limited 2003 Annual Results Announcement A leading technology-oriented manufacturing enterprise