1 Corporate Profile. (Stock code: 01169) (the Company ), a subsidiary of Haier Group, is listed on the Main Board of The Stock Exchange of Hong Kong L

. * 2011 Interim Report

1 Corporate Profile. (Stock code: 01169) (the Company ), a subsidiary of Haier Group, is listed on the Main Board of The Stock Exchange of Hong Kong Limited. The Company and its subsidiaries (the Group ) are principally engaged in the research, development, manufacture and sale of washing machines and water heaters in the PRC under the brand name of Haier. The Group is also engaged in the integrated channel services business for other home appliance products such as refrigerators, televisions and air-conditioners, of both Haier and non-haier brands, substantially broadening its sources of revenue and driving its profit growth. 01169 Founded in 1984, Haier Group is headquartered in Qingdao, Shangdong Province, the PRC and is today one of the world s leading white goods home appliance manufacturers engaging in the research, development, production and sale of a wide variety of household appliances (including the white goods) and consumer goods in the PRC. The products of Haier Group are now sold in over 100 countries. 100 Contents 2 CORPORATE INFORMATION 2 CONDENSED CONSOLIDATED: 5 INCOME STATEMENT 5 6 STATEMENT OF COMPREHENSIVE INCOME 6 7 STATEMENT OF FINANCIAL POSITION 7 9 STATEMENT OF CHANGES IN EQUITY 9 11 STATEMENT OF CASH FLOWS 11 12 NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS 12 37 MANAGEMENT DISCUSSION AND ANALYSIS 37 52 CORPORATE GOVERNANCE PRACTICES 52 55 DISCLOSURE OF INTERESTS 55 60 SHARE OPTION SCHEME 60

2 Corporate Information Board of Directors Executive Directors Ms. YANG Mian Mian (Chairman) Mr. ZHOU Yun Jie Mr. LI Hua Gang Non-executive Directors Mr. WU Ke Song (Deputy Chairman) Mr. LIANG Hai Shan Ms. Janine Junyuan FENG Independent Non-executive Directors Mr. WU Yinong Mr. YU Hon To, David Dr. LIU Xiao Feng Alternate Director Mr. GUI Zhao Yu (alternate to Ms. Janine Junyuan FENG) Principal Board Committees Audit Committee Mr. YU Hon To, David (Committee Chairman) Mr. WU Yinong Dr. LIU Xiao Feng Remuneration Committee Mr. WU Yinong (Committee Chairman) Dr. LIU Xiao Feng Mr. YU Hon To, David Mr. WU Ke Song Mr. ZHOU Yun Jie Nomination Committee Mr. YU Hon To, David (Committee Chairman) Mr. WU Yinong Dr. LIU Xiao Feng Mr. ZHOU Yun Jie

3 Company Secretary Mr. NG Chi Yin Legal Advisors As to Hong Kong Law DLA Piper Hong Kong As to Bermuda Law Conyers Dill & Pearman Principal Banker in Hong Kong Industrial and Commercial Bank of China (Asia) Limited Principal Banker in the PRC China Construction Bank Corporation Auditors Ernst & Young Financial Calendar Six-month interim period end : 30 June Financial year end : 31 December Registered Office Clarendon House 2 Church Street Hamilton HM 11 Bermuda Clarendon House 2 Church Street Hamilton HM 11 Bermuda Head Office and Principal Place of Business in Hong Kong Unit 3513 35/F., The Center 99 Queen s Road Central Hong Kong 99 35 3513

4 Principal Place of Business in the PRC Haier Industrial Park No. 1, Haier Road Qingdao, the PRC 1 Principal Share Registrar and Transfer Office Codan Services Limited Clarendon House 2 Church Street Hamilton HM 11 Bermuda Codan Services Limited Clarendon House 2 Church Street Hamilton HM 11 Bermuda Branch Share Registrar and Transfer Office in Hong Kong Tricor Tengis Limited 26/F., Tesbury Center 28 Queen s Road East Hong Kong 28 26 Telephone Number +852 2169 0000 +852 2169 0000 Fax Number +852 2169 0880 +852 2169 0880 Stock Code The Stock Exchange of Hong Kong Limited: 01169 01169 Websites www.haier-elec.com.hk www.haier-elec.com.hk Investor Relations Contact Elite Investor Relations Limited Rm 1701 2, 17/F, The Hong Kong Club Building, 3A Chater Road, Central, Hong Kong Telephone Number: (852) 3183 0225 Fax Number: (852) 2155 9165 E-mail Address: jonathan.kiu@elite-ir.com 3A 17 1701 2 (852) 3183 0225 (852) 2155 9165 jonathan.kiu@elite-ir.com

5 Interim Results The Board of Directors of. (the Company ) hereby announces the unaudited consolidated interim results of the Company and its subsidiaries (the Group ) for the six months ended 30 June 2011 together with comparative figures (restated) for the corresponding period in 2010. These condensed consolidated interim financial statements have not been audited, but have been reviewed by the Company s audit committee. Condensed Consolidated Income Statement For the six months ended 30 June 2011 For the six months ended 30 June 2011 2010 Notes (Unaudited) (Restated) REVENUE 3 24,148,982 14,384,420 Cost of sales (21,325,128) (12,492,331) Gross profit 2,823,854 1,892,089 Other income and gains 4 41,822 43,344 Selling and distribution costs (1,575,392) (1,123,137) Administrative expenses (511,788) (400,743) Other expenses (470) (316) Finance costs 5 (164) (2,453) Share of profits and losses of jointlycontrolled entities 4,329 PROFIT BEFORE TAX 6 777,862 413,113 Income tax expense 7 (178,758) (74,431) PROFIT FOR THE PERIOD 599,104 338,682 Attributable to: Owners of the Company 586,162 327,421 Non-controlling interests 12,942 11,261 599,104 338,682 EARNINGS PER SHARE ATTRIBUTABLE TO OWNERS OF THE COMPANY 8 Basic 25.93 cents 16.13 cents Diluted 23.22 cents 13.99 cents

6 Condensed Consolidated Statement of Comprehensive Income For the six months ended 30 June 2011 For the six months ended 30 June 2011 2010 (Unaudited) (Restated) PROFIT FOR THE PERIOD 599,104 338,682 OTHER COMPREHENSIVE INCOME Exchange differences on translation of foreign operations (5,626) 1,460 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 593,478 340,142 Attributable to: Owners of the Company 580,536 328,881 Non-controlling interests 12,942 11,261 593,478 340,142

7 Condensed Consolidated Statement of Financial Position 30 June 2011 30 June 2011 31 December 2010 Notes (Unaudited) (Restated) NON-CURRENT ASSETS Property, plant and equipment 9 881,365 863,628 Investment properties 20,084 20,800 Prepaid land lease prepayments 168,920 171,229 Intangible assets 10 74,296 962 Available-for-sale investments 6,000 6,000 Deferred tax assets 203,965 234,974 Total non-current assets 1,354,630 1,297,593 CURRENT ASSETS Inventories 1,381,617 1,343,876 Trade and bills receivables 11 5,947,566 3,910,613 Prepayments, deposits and other receivables 693,521 618,532 Pledged deposits 63,136 3,011 Cash and cash equivalents 2,892,493 2,714,666 Total current assets 10,978,333 8,590,698 CURRENT LIABILITIES Trade and bills payables 12 3,993,163 1,532,028 Tax payable 326,762 626,023 Other payables and accruals 3,860,560 4,396,938 Interest-bearing borrowings 5,000 5,000 Provisions 13 348,349 291,963 Put option liabilities 14 12,800 Total current liabilities 8,546,634 6,851,952 NET CURRENT ASSETS 2,431,699 1,738,746 TOTAL ASSETS LESS CURRENT LIABILITIES 3,786,329 3,036,339

8 Condensed Consolidated Statement of Financial Position (Cont d) 30 June 2011 30 June 2011 31 December 2010 Notes (Unaudited) (Restated) NON-CURRENT LIABILITIES Provisions 13 170,702 151,555 Deferred income 43,259 43,609 Deferred tax liabilities 9,169 9,257 Put option liabilities 14 81,200 Total non-current liabilities 304,330 204,421 Net assets 3,481,999 2,831,918 EQUITY Equity attributable to owners of the Company Issued equity 15 2,317,543 2,248,843 Reserves 938,164 348,591 3,255,707 2,597,434 Non-controlling interests 226,292 234,484 Total equity 3,481,999 2,831,918

9 Condensed Consolidated Statement of Changes in Equity For the six months ended 30 June 2011 Reserves Issued equity Capital reduction reserve Capital reserve Merger Share option reserve reserve Put option reserve Capital redemption reserve Reserve funds Exchange fluctuation reserve Retained profits Total reserves Total issued equity and reserves Noncontrolling interests Total equity (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) At 1 January 2011 As previously reported 2,248,843 (1,758,526) 572,005 (1,301,164) 39,060 184 385,449 12,742 2,353,938 303,688 2,552,531 191,343 2,743,874 Effect of business combination 20,300 133 24,470 44,903 44,903 43,139 88,042 As restated 2,248,843 (1,758,526) 572,005 (1,280,864) 39,060 184 385,582 12,742 2,378,408 348,591 2,597,434 234,482 2,831,916 Total comprehensive income for the period (5,626) 586,162 580,536 580,536 12,942 593,478 Issue of shares 68,700 (1,619) (1,619) 67,081 67,081 Capital contributions from non-controlling shareholders 19,600 19,600 Equity-settled share option arrangements 87,724 87,724 87,724 87,724 Transfer of share option reserve upon the forfeiture or expiry of share options (953) 953 Issue of put options (53,268) (53,268) (53,268) (40,732) (94,000) Deemed distributions to holding companies (23,800) (23,800) (23,800) (23,800) At 30 June 2011 2,317,543 (1,758,526) 572,005 (1,304,664) 124,212 (53,268) 184 385,582 7,116 2,965,523 938,164 3,255,707 226,292 3,481,999

10 Condensed Consolidated Statement of Changes in Equity (Cont d) For the six months ended 30 June 2010 Reserves Capital reduction Capital Merger Share option Reserve Capital redemption Exchange fluctuation Retained Total Total issued equity and Noncontrolling Issued equity reserve reserve reserve reserve funds reserve reserve profits reserves reserves interests Total equity (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) At 1 January 2010 As previously reported 1,527,611 (1,758,526) 572,005 (536,614) 7,286 280,626 184 12,066 1,514,270 91,297 1,618,908 131,728 1,750,636 Effect of business combination 10,099 132 18,969 29,200 29,200 28,058 57,258 As restated 1,527,611 (1,758,526) 572,005 (526,515) 7,286 280,758 184 12,066 1,533,239 120,497 1,648,108 159,786 1,807,894 Total comprehensive income for the period 1,460 327,421 328,881 328,881 11,261 340,142 Issue of shares 5,787 5,787 5,787 Equity-settled share option arrangements 15,418 15,418 15,418 15,418 Deemed distributions to holding companies (1,550) (1,550) (1,550) (1,550) At 30 June 2010 1,533,398 (1,758,526) 572,005 (528,065) 22,704 280,758 184 13,526 1,860,660 463,246 1,996,644 171,047 2,167,691

11 Condensed Consolidated Statement of Cash Flows For the six months ended 30 June 2011 For the six months ended 30 June 2011 2010 (Unaudited) (Restated) Net cash flows from operating activities 370,832 248,880 Net cash flows used in investing activities (181,685) (169,660) Net cash flows from/(used in) financing activities (74,233) 3,333 NET INCREASE IN CASH AND CASH EQUIVALENTS 114,914 82,553 Cash and cash equivalents at beginning of period 2,544,722 1,535,162 Effect of foreign exchange rate changes, net (12,143) (1,707) CASH AND CASH EQUIVALENTS AT END OF PERIOD 2,647,493 1,616,008 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Non-pledged cash and bank balances 2,607,115 1,273,530 Time deposits 285,378 441,478 Cash and cash equivalents as stated in the statement of financial position Less: time deposits with original maturity of over three months when acquired 2,892,493 1,715,008 (245,000) (99,000) Cash and cash equivalents as stated in the statement of cash flows 2,647,493 1,616,008

12 Notes to Condensed Consolidated Interim Financial Statements 1. Corporate information. is a limited liability company incorporated in Bermuda. The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. 1. Clarendon House, 2 Church Street, Hamilton HM11, Bermuda In the opinion of the directors, the immediate holding company of the Company is Qingdao Haier Co., Ltd. ( Qingdao Haier ), which is established in the People s Republic of China (the PRC ), and the controlling shareholders of the Company are Haier Group Corporation ( Haier Corp ) and Qingdao Haier Investment and Development Co., Ltd. ( Haier Investment ) (collectively referred to as Haier Group ), which are established in the PRC, by reason of their acting in concert with each other in respect of the Company. Qingdao Haier is a non wholly-owned subsidiary of Haier Corp. During the period, Chongqing New Goodaymart Electronics Sales Co., Ltd. ( Chongqing New Goodaymart ), a whollyowned subsidiary of the Company, acquired a 51% interest in Hefei Goodaymart Electric Appliance Co., Ltd. ( Hefei Goodaymart ), a non wholly-owned subsidiary of Haier Group, at the consideration of RMB5 million. In addition, Chongqing New Goodaymart also acquired a 51% interest in Yantai Goodaymart Electric Appliance Co., Ltd. ( Yantai Goodaymart ), a non wholly-owned subsidiary of Haier Group, at the consideration of RMB18.8 million. Both Hefei Goodaymart and Yantai Goodaymart are principally engaged in the sales of electrical appliances in Mainland China. 5,000,000 51% 18,800,000 51% These transactions are collectively referred to as the Acquisition Transactions and the entities acquired in the Acquisition Transactions are collectively referred to as the Acquired Entities. The principal activities of the Company and its subsidiaries (collectively referred to as the Group ) are described in note 3 to the condensed consolidated interim financial statements. 3

13 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 2. Basis of preparation and accounting policies The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting promulgated by the International Accounting Standards Board. These financial statements are presented in Renminbi ( RMB ) and all values are rounded to the nearest thousand except when otherwise indicated. 2. 34 The condensed consolidated interim financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group s financial statements for the year ended 31 December 2010. Merger accounting for business combinations under common control Pursuant to the Acquisition Transactions, the Company became a holding company of the Acquired Entities. Since the Company and the Acquired Entities were ultimately controlled by Haier Group both before and after the completion of the Acquisition Transactions, the Acquisition Transactions were accounted for using the principles of merger accounting. The condensed consolidated income statements, condensed consolidated statements of comprehensive income, condensed consolidated statements of changes in equity and condensed consolidated statements of cash flows of the Group for the periods ended 30 June 2011 and 2010 include the results, changes in equity and cash flows of all companies then comprising the Group and the Acquired Entities, as if the corporate structure of the Group immediately after the completion of the Acquisition Transactions had been in existence throughout the periods ended 30 June 2011 and 2010, or since their respective dates of acquisition, incorporation or registration, where this is a shorter period. The condensed consolidated statement of financial position of the Group as at 31 December 2010 was prepared to present the state of affairs of the Group and the Acquired Entities as if the corporate structure of the Group immediately after the completion of the Acquisition Transactions had been in existence and in accordance with the respective equity interests and/or the power to exercise control over the individual companies attributable to the Company as at 31 December 2010.

14 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 2. Basis of preparation and accounting policies (Cont d) 2. Merger accounting for business combinations under common control (Cont d) The operating results previously reported by the Group for the period ended 30 June 2010 have been restated to include the operating results of the Acquired Entities as set out below: The Group (as previously reported) Acquired Entities Elimination The Group (combined) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenue 12,692,959 1,899,044 (207,583) 14,384,420 Profit before tax 341,285 71,828 413,113 Profit for the period 282,461 56,221 338,682 The financial positions previously reported by the Group at 31 December 2010 have been restated to include assets and liabilities of the Acquired Entities as set out below: The Group (as previously reported) Acquired Entities Elimination The Group (combined) (Audited) (Unaudited) (Unaudited) (Unaudited) Non-current assets 1,283,783 13,810 1,297,593 Current assets 8,437,080 153,618 8,590,698 Current liabilities 6,772,568 79,384 6,851,952 Non-current liabilities 204,421 204,421 Equity 2,743,874 88,044 2,831,918

15 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 2. Basis of preparation and accounting policies (Cont d) The accounting policies and basis of preparation adopted in the preparation of the interim financial statements are the same as those used in the annual financial statements for the year ended 31 December 2010, except in relation to the following new and revised International Financial Reporting Standard ( IFRS ) (which include all International Financial Reporting Standards, International Accounting Standards and Interpretations) that affect the Group and are adopted for the first time for the current period s financial statements. 2. IFRS 1 Amendment IAS 24 (Revised) IAS 32 Amendments Amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters Related Party Disclosures Amendments to IFRS 32 Financial Instruments: Presentation Classification of Rights Issues IFRIC 14 Amendments Amendments to IFRIC 14 Prepayments of a Minimum Funding Requirement IFRIC 19 Improvements to IFRSs 2010 Extinguishing Financial Liabilities with Equity Instruments Amendments to a number of IFRS issued in May 2010 1 24 32 14 19 1 7 32 14

16 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 2. Basis of preparation and accounting policies (Cont d) Other than as further explained below regarding the impact of IAS 24 (Revised) and amendments to IFRS 3, IAS 1 and IAS 27 included in Improvements to IFRSs 2010, the adoption of the new and revised IFRSs has had no significant effect on these financial statements. 2. 24 3 1 27 The principal effects of adopting these new and revised IFRSs are as follows: IAS 24 (Revised) clarifies and simplifies the definition of related parties. It also provides for a partial exemption of related party disclosure to government-related entities for transactions with the same government or entities that are controlled, jointly controlled or significantly influenced by the same government. 24 Improvements to IFRSs 2010 issued in May 2010 sets out amendments to a number of IFRSs. There are separate transitional provisions for each standard. While the adoption of some of the amendments results in changes in accounting policies, none of these amendments has had a significant financial impact on the Group. Details of the key amendments most applicable to the Group are as follows: (a) IFRS 3 Business combinations: Clarifies that the (a) 3 amendments to IFRS 7, IAS 32 and IAS 39 that 7 eliminate the exemption from contingent consideration 32 39 do not apply to contingent consideration that arose from business combinations whose acquisition dates precede the application of IFRS 3 (as revised in 2008). 3

17 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 2. Basis of preparation and accounting policies (Cont d) In addition, the amendments limit the measurement choice of non-controlling interests at fair value or at the proportionate share of the acquiree s identifiable net assets to components of non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity s net assets in the event of liquidation. Other components of noncontrolling interests are measured at their acquisition date fair value, unless another measurement basis is required by another IFRS. 2. The amendments also added explicit guidance to clarify the accounting treatment for non-replaced and voluntarily replaced share-based payment awards. (b) IAS 1 Presentation of Financial Statements: Clarifies that (b) 1 an analysis of other comprehensive income for each component of equity can be presented either in the statement of changes in equity or in the notes to the financial statements. (c) IAS 27 Consolidated and Separate Financial Statements: (c) 27 Clarifies that the consequential amendments form IAS 27 27 (as revised in 2008) made to IAS 21, IAS 28 and IAS 31 shall be applied prospectively for annual periods 21 28 beginning on or after 1 July 2009 or earlier if IAS 27 is 31 applied earlier. 27

18 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 3. Operating segment information For management purposes, the Group is organised into business units based on their products and services and has three reportable operating segments as follows: 3. (a) the washing machine business segment manufactures (a) and sells washing machines; (b) the water heater business segment manufactures and (b) sells water heaters; and (c) the integrated channel services business segment (c) provides logistics services as well as sells and distributes home appliance and other products procured from subsidiaries and/or associates of Haier Group ( Haier Affiliates ) and other external parties. Management monitors the results of the Group s operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment profit, which is a measure of adjusted profit before tax. The adjusted profit before tax is measured consistently with the Group s profit before tax except that interest income and finance costs, as well as head office and corporate expenses are excluded from such measurement. Segment assets exclude deferred tax assets, pledged deposits, cash and cash equivalents and other unallocated head office and corporate assets as these assets are manage on a group basis.

19 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 3. Operating segment information (Cont d) 3. For the six months ended Washing machine business Water heater business Integrated channel services Total 2011 2010 2011 2010 2011 2010 2011 2010 (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Restated) (Unaudited) (Restated) Segment revenue: Sales to external customers 1,732,399 3,727,168 435,045 932,648 21,981,538 9,724,604 24,148,982 14,384,420 Intersegment sales 3,428,668 942,421 1,318,571 506,740 252,473 207,582 4,999,712 1,656,743 5,161,067 4,669,589 1,753,616 1,439,388 22,234,011 9,932,186 29,148,694 16,041,163 Reconciliation: Elimination of intersegment sales (4,999,712) (1,656,743) Segment revenue 24,148,982 14,384,420 Segment other income and gains 17,460 29,268 8,994 4,692 9,687 4,559 36,141 38,519 Total segment revenue, other income and gains 24,185,123 14,422,939 Segment results 311,566 198,242 153,696 81,985 332,268 152,042 797,530 432,269 Reconciliation: Interest income 5,681 4,825 Corporate and other unallocated expenses (25,185) (21,528) Finance costs (164) (2,453) Profit before tax 777,862 413,113

20 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 3. Operating segment information (Cont d) 3. Washing machine business Water heater business Integrated channel services Total 30 June 31 December 30 June 31 December 30 June 31 December 30 June 31 December 2011 2010 2011 2010 2011 2010 2011 2010 (Unaudited) (Audited) (Unaudited) (Audited) (Unaudited) (Restated) (Unaudited) (Restated) Segment assets 4,336,731 3,109,747 1,824,050 953,467 5,472,744 3,300,679 11,633,525 7,363,893 Reconciliation: Elimination of intersegment receivables (3,237,723) (1,123,368) Deferred tax assets 203,965 234,974 Pledged deposits 63,136 3,011 Cash and cash equivalents Corporate and other unallocated assets 2,892,493 2,714,666 777,567 695,115 Total assets 12,332,963 9,888,291 4. Other income and gains 4. For the six months ended 30 June 2011 2010 (Unaudited) (Restated) Government grants* * 16,390 25,092 Compensation received from suppliers 13,680 9,639 Bank interest income 5,681 4,825 Gross rental income in respect of buildings 3,034 2,176 Others 3,037 1,612 41,822 43,344 * Various government grants were received for conducting businesses in Qingdao, Wuhan and Hefei. There are no unfulfilled conditions or contingencies relating to these grants. *

21 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 5. Finance costs 5. For the six months ended 30 June 2011 2010 (Unaudited) (Restated) Interest on borrowings wholly repayable within five years 164 2,453 6. Profit before tax The Group s profit before tax is arrived at after charging: 6. For the six months ended 30 June 2011 2010 (Unaudited) (Restated) Depreciation of property, plant and equipment 42,204 36,406 Depreciation of investment properties 716 567 Recognition of prepaid land lease payments 2,309 1,533 Amortisation of intangible assets 334 485 Loss on disposal of items of property, plant and equipment 78 329 Equity-settled share option expense 17,724 15,418 7. Income tax No provision for Hong Kong profits tax has been made as the Group did not generate any assessable profits arising in Hong Kong during the period (2010: Nil). 7.

22 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 7. Income tax (Cont d) Tax on profits assessable elsewhere in the PRC have been calculated at the applicable PRC corporate income tax ( CIT ) rates. Certain subsidiaries of the Group are entitled to preferential tax treatments including a reduction of CIT and a full exemption from CIT for two years starting from their first profit-making year followed by a 50% reduction for the next consecutive three years. Certain subsidiaries of the Group are entitled to preferential tax treatments of reduction in CIT rates to 15%. 7. 50% 15% For the six months ended 30 June 2011 2010 (Unaudited) (Restated) Current Mainland China 147,749 75,370 Deferred 31,009 (939) Total tax charge for the period 178,758 74,431 8. Earnings per share attributable to owners of the company The calculation of the basic earnings per share amount is based on the profit for the period attributable to owners of the Company, and the weighted average number of ordinary shares of 2,260,765,535 (unaudited) (2010: 2,029,840,572 (unaudited)) in issue during the period. 8. 2,260,765,535 2,029,840,572 The calculation of diluted earnings per share amount is based on the profit for the period attributable to owners of the Company. The weighted average number of ordinary shares used in the calculation is the number of ordinary shares in issue during that period, as used in the basic earnings per share calculation, and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise of all dilutive potential ordinary shares into ordinary shares.

23 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 8. Earnings per share attributable to owners of the company (Cont d) The calculations of basic and diluted earnings per share are based on: 8. For the six months ended 30 June 2011 2010 (Unaudited) (Restated) Earnings Profit attributable to owners of the Company, as used in the basic earnings per share calculation 586,162 327,421 Number of shares For the six months ended 30 June 2011 2010 (Unaudited) (Unaudited) Shares Weighted average number of ordinary shares in issue during the period used in the basic earnings per share calculation 2,260,765,535 2,029,840,572 Effect of dilution weighted average number of ordinary shares: Warrants 200,939,065 256,120,125 Share options 62,566,380 54,615,109 Total 2,524,270,980 2,340,575,806

24 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 9. Property, plant and equipment During the period, the Group incurred construction costs for production plants and purchased items of property, plant and equipment at a total cost of RMB48,047,000 and RMB18,548,000, respectively (2010: RMB54,572,000 (restated) and RMB2,023,000 (restated), respectively). During the period, the Group disposed of items of property, plant and equipment with a total net carrying amount of RMB6,610,000 (2010: RMB424,000 (restated)). 9. 48,047,000 18,548,000 54,572,000 2,023,000 6,610,000 424,000 10. Intangible assets The balance include the fair values of the management services agreements acquired by the Group during the period amounting to RMB70,000,000, which are amortised over the tenure of the management services agreements. According to the management services agreements, the Group is entitled to receive management fees broadly equal to 2% of the annual purchasing orders (in monetary value) for 2011 to 2018 and 1% for 2019 to 2030 from certain Haier franchise stores. 10. 70,000,000 2% 1%

25 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 11. Trade and bills receivables The Group s trading terms with its customers are mainly on credit, except for new customers, where payment in advance is normally required. The credit period is generally one month, extending up to three months for major customers. An aged analysis of the trade receivables as at the end of the reporting period, based on the invoice date and net of provisions, is as follows: 11. 30 June 2011 (Unaudited) 31 December 2010 (Restated) Trade receivables: Within 1 month 1 457,992 466,046 1 to 2 months 1 2 144,298 178,900 2 to 3 months 2 3 106,734 133,645 Over 3 months 3 195,369 204,345 904,393 982,936 Bills receivable 5,043,173 2,927,677 5,947,566 3,910,613 Included in the Group s trade and bills receivables are amounts due from Haier Affiliates totalling RMB1,099,860,000 (31 December 2010: RMB2,270,764,000 (restated)), which are repayable on similar credit terms to those offered to the major customers of the Group. 1,099,860,000 2,270,764,000

26 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 12. Trade and bills payables An aged analysis of the trade payables as at the end of the reporting period, based on the invoice date, is as follows: 12. 30 June 2011 (Unaudited) 31 December 2010 (Restated) Trade payables: Within 1 month 1 2,690,084 918,379 1 to 2 months 1 2 542,423 40,057 2 to 3 months 2 3 122,016 30,315 Over 3 months 3 104,624 61,327 3,459,147 1,050,078 Bills payable 534,016 481,950 3,993,163 1,532,028 Included in the Group s trade and bills payables are amounts due to Haier Affiliates totalling RMB2,783,956,000 (31 December 2010: RMB595,800,000 (restated)), which are repayable on similar credit terms to those offered by similar suppliers of the Group. 2,783,956,000 595,800,000 13. Provisions The Group provides installation services and warranties of one to six years to its customers on washing machines and water heaters, under which faulty products are repaired or replaced. The amount of the provision for the warranties is estimated based on sales volume and past experience of the level of installation services rendered, repairs and returns. The estimation basis is reviewed on an ongoing basis and revised where appropriate. 13.

27 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 14. Put option liabilities During the period, the Company entered into incentive agreements with certain non-controlling shareholders of subsidiaries pursuant to which the non-controlling shareholders of subsidiaries agreed to meet the prescribed financial and operational performance targets of the non wholly-owned subsidiaries laid down by the Company and the Company agreed to grant put options to these non controlling shareholders of subsidiaries. In accordance with the terms of the incentive agreements and subject to the fulfillment of the prescribed financial and operational performance targets at the relevant financial year ends during the tenures of the put options, these non-controlling shareholders of subsidiaries would be entitled to exercise the put options to require the Company to purchase part or whole of the equity interests in the non wholly-owned subsidiaries at prices to be determined based on the agreed formula. 14. The put option liabilities are carried at fair value. The subsequent change in the carrying amount of the put option liabilities is to be adjusted against the put option reserve. 15. Issued equity 15. Share options During the period, 2,965,000 share options were exercised for 2,965,000 shares of the Company of HK$0.1 each at an exercise price of HK$1.7 per share. 2,965,000 1.7 2,965,0000.1 Warrants During the period, 113,000,000 warrants were exercised for 113,000,000 shares of the Company of HK$0.1 each at an exercise price of HK$0.66 per share. 113,000,000 0.66 113,000,000 0.1

28 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 16. Related party transactions (a) In addition to the related party transactions detailed elsewhere in these financial statements, the Group had the following material transactions with Haier Affiliates during the period: 16. (a) For the six months ended 30 June 2011 2010 (Unaudited) (Restated) Export sale of washing machines and water heaters 619,457 513,180 Domestic sale of washing machines and water heaters 1,310 Purchase of finished goods 14,217,306 7,544,048 Purchase of raw materials 4,248,337 4,049,013 Printing and packaging fee expenses 26,417 951 Mould charges 121,826 89,089 Utility service fee expenses 45,247 37,315 Logistic services income 825,084 800,126 Promotion fee expenses 60,000 67,909 Other service fee expenses 97,618 76,842 Interest expenses 164 5,143 Interest income 3,983 3,440 Other financial service fees 699 Sales of gift products 452 Premise lease expenses 1,353 The above transactions were conducted in accordance with the terms and conditions mutually agreed by both parties.

29 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 16. Related Party Transactions (Cont d) (b) Other transaction with related parties: 16. (b) (i) During the period, the Group acquired a 51% interest in Yantai Goodaymart from Haier Affiliates for RMB18.8 million which was determined with reference to the net asset value of Yantai Goodaymart. Further details of this transaction are included in note 1 to the financial statements. (i) 18,800,000 51% 1 (ii) During the period, the Group acquired a 51% interest in Hefei Goodaymart from Haier Affiliates for RMB5 million which was determined with reference to the amount of paid-in capital of Hefei Goodaymart. Further details of this transaction are included in note 1 to the financial statements. (ii) 5,000,000 51% 1 (c) Compensation of key management personnel of the (c) Group: For the six months ended 30 June 2011 2010 (Unaudited) (Unaudited) Short term employee benefits 1,717 880 Equity-settled share option expense 2,148 2,852 Post-employment benefits Total compensations paid to key management personnel 3,865 3,732

30 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 16. Related Party Transactions (Cont d) (d) In addition to the balances of trade receivables and trade payables due from/to Haier Affiliates as disclosed in the notes 11 and 12 to the financial statements, respectively, the Group had the following material outstanding balances with Haier Affiliates at the end of the reporting period: 16. (d) 11 12 30 June 2011 31 December 2010 Notes (Unaudited) (Restated) Cash and cash equivalents (i) 719,488 691,997 Prepayments, deposits and other receivables (ii) 145,082 316,045 Other payables and accruals (ii) 1,081,921 1,223,008 Interest-bearing borrowings (iii) 5,000 5,000 Notes: (i) The balances represented deposits placed with Haier Group Finance Co., Ltd. ( Haier Finance ), a subsidiary of Haier Group and a financial institution approved by the People s Bank of China. (i) (ii) The balances are unsecured, interest free and are repayable on demand. (ii) (iii) The balance represented borrowing from Haier Finance, which was guaranteed by non-controlling shareholders (iii) of subsidiaries. 17. Contingent liabilities At the end of the reporting period, the Group did not have any significant contingent liabilities. 17.

31 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 18. Operating Lease Arrangements 18. As lessor The Group leases its investment properties under operating lease arrangements, with leases negotiated for terms ranging from one to five years. At the end of the reporting period, the Group had total future minimum lease receivables under non-cancellable operating leases falling due as follows: 30 June 2011 (Unaudited) 31 December 2010 (Unaudited) Within one year 7,181 4,693 In the second to fifth years, inclusive 16,115 17,583 23,296 22,276

32 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 18. Operating lease arrangements (Cont d) 18. As lessee The Group leases certain properties under operating lease arrangements. Leases for the properties are negotiated for terms ranging from one to five years. At the end of the reporting period, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows: 30 June 2011 (Unaudited) 31 December 2010 (Unaudited) Within one year 25,669 20,757 In the second to fifth years, inclusive 19,956 10,954 45,625 31,711 19. Commitments In addition to the operating lease commitments detailed in note 18 above, the Group had the following commitments at the end of the reporting period: 19. 18 30 June 2011 (Unaudited) 31 December 2010 (Unaudited) Authorised, but contracted for: Land and buildings 101,800 129,326 Contracted, but not provided for: Property, plant and equipment 14,168 85,727 115,968 215,053

33 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 20. Fair value and fair value hierarchy The carrying amounts and fair value of the Group s financial instruments are as follows: 20. Carrying amounts Fair values 30 June 2011 31 December 2010 30 June 2011 31 December 2010 (Unaudited) (Restated) (Unaudited) (Restated) Financial assets Trade and bills receivables 5,947,566 3,910,613 5,947,566 3,910,613 Prepayments, deposits and other receivables 693,521 618,532 693,521 618,532 Pledged deposits 63,136 3,011 63,136 3,011 Cash and cash equivalents 2,892,493 2,714,666 2,892,493 2,714,666 9,596,716 7,246,822 9,596,716 7,246,822 Financial liabilities Trade and bills payables 3,993,163 1,532,028 3,993,163 1,532,028 Other payables and accruals 3,860,560 4,396,938 3,860,560 4,396,938 Interest-bearing borrowings 5,000 5,000 5,000 5,000 Put option liabilities 94,000 94,000 7,952,723 5,933,966 7,952,723 5,933,966

34 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 20. Fair value and fair value hierarchy (Cont d) All of the Group s available-for-sale investments were stated at cost less impairment because the range of reasonable fair value estimates is so significant that the directors are of the opinion that their fair value cannot be measured reliably. 20. The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values. Cash and cash equivalents, pledged deposits, other receivables and payables and trade and bills receivables and payables approximate to their carrying amounts largely due to the short term maturities of these instruments. The fair values of the interest-bearing borrowings have been calculated by discounting the expected future cash flows using rates currently available for instruments on similar terms, credit risk and remaining maturities. The fair values of put option liabilities have been estimated using a valuation technique based on assumptions that are not supported by observable market prices or rates. The valuation requires the directors to make estimates about the expected future cash flows of certain non wholly-owned subsidiaries. The directors believe that the estimated fair values resulting from the valuation technique, which are recorded in the condensed consolidated statement of financial position, are reasonable, and that they were the most appropriate values at the end of the reporting period.

35 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 20. Fair value and fair value hierarchy (Cont d) 20. Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments: Level 1: fair values measured based on quoted prices (unadjusted) in active markets for identical assets or liabilities 1 Level 2: fair values measured based on valuation techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly 2 Level 3: fair values measured based on valuation techniques for which any inputs which have a significant effect on the recorded fair value are not based on observable market data (unobservable inputs) 3 Liabilities measured at fair value: As at 30 June 2011 Level 1 Level 2 Level 3 Total 1 2 3 Put option liabilities 94,000 94,000 21. Events after the reporting period On 29 July 2011, the Company and Hawaii Asia Holdings Limited ( Hawaii Asia ), a wholly-owned subsidiary of Carlyle A sia Partners III, entered into a memorandum of understanding, which is legally non-binding in nature, pursuant to which Hawaii Asia intends to establish a strategic cooperation relationship with the Company. 21. Carlyle Asia Partners III Hawaii Asia Holdings Limited Hawaii Asia Hawaii Asia

36 Notes to Condensed Consolidated Interim Financial Statements (Cont d) 21. Events after the reporting period (Cont d) On 31 July 2011, the Company and Hawaii Asia entered into an investment agreement pursuant to which Hawaii Asia has conditionally agreed to subscribe for the Company s convertible bonds (the Convertible Bonds ) and warrants (the Warrants ). The initial conversion price of the Convertible Bonds is HK10.67 per conversion share (subject to adjustments). 21. Hawaii Asia Hawaii Asia 10.67 The Convertible Bonds will initially be convertible into 100,000,000 ordinary shares of the Company. The Convertible Bonds carry convention rights which may be exercised at any time on or after 18 months after issue up to the close of business on the date falling seven days prior to the fifth anniversary of the issue date of the Convertible Bonds. 100,000,000 18 5 The Warrants entitle Hawaii Asia to subscribe for a total of 40,000,000 ordinary shares of the Company. The Warrants exercise price is set at an initial premium of 5% over the conversion price of the Convertible Bonds (subject to adjustments). Each of the Warrants carries the right to subscribe for one ordinary share of the Company at any time on or after 18 months after issue until 5 years after the issue date of the Warrants. Hawaii Asia 40,000,000 5% 18 5 The above transactions were completed in August 2011. 22. Comparative amounts As further explained in note 2 to the financial statements, due to the application of merger accounting for business combinations under common control, the comparative amounts have been restated. 22. 2 23. Approval of the interim financial report The financial statements were approved and authorised for issue by the board of directors on 29 August 2011. 23.

37 Management Discussion and Analysis Overview Benefiting from favourable policies, and a sound economic environment in China, the Group s achieved strong financial performance in the first half of 2011. The Group s revenue amounted to RMB24,148,982,000 during the period, representing an increase of 67.9% as compared to the revenue of RMB14,384,420,000 in the same period of 2010 (restated). Being our highest record ever, profit attributable to owners of the Company during the period was RMB586,162,000, representing an increase of 79.0% from RMB327,421,000 of the first half of 2010 (restated). Basic earnings per share attributable to ordinary equity holders of the Company for the period was RMB25.93 cents, representing an increase of 60.8% from RMB16.13 cents of the first half of 2010 (restated). During the period, the integrated channel services business continued to expand its network layout and the integration of logistic network and distribution network is well on track. Through the introduction of small household appliances suppliers, the Group enriched the product mix in the integrated channel. The carrying-on acquisition of the after sales business and e-haier online sales platform, will strengthen the Group in building its core competitive advantage with a combination of virtual and physical elements, i.e., integrating sales network, logistics network and after-sales service network. With the stable growth of the integrated channel service business and the continual enhancement of the network layout in the 3rd and 4th tier markets, the Group enhanced its service capability to allow distribution partners in the 3rd and 4th tier markets to realize rapid sales turnover with a low capital outlay. The segment breakdown by revenue and earnings for the first half of 2011 were as follows: 24,148,982,000 14,384,420,000 67.9% 586,162,000 327,421,000 79.0% 25.93 16.13 60.8% Washing Machine 18% Water Heater 6% By revenue Integrated Channel Services 76% Integrated Channel Services 42% By results Washing Machine 39% Water Heater 19% Note: The above pie charts set out the aggregate amounts in terms of segment breakdown by revenue and earnings, without taking into account inter-segment eliminations.

38 Management Discussion and Analysis (Cont d) Washing Machine Business The Group s washing machine business comprises the manufacture and sales of top-loading and front-loading washing machines. During the period, the Group s washing machine business achieved a revenue of RMB5,161,067,000, representing a growth of 10.5% compared with RMB4,669,589,000 in the same period of 2010. The gross profit margin of the washing machine business increased from 26.8% in the same period of 2010 to 27.1% during the period. 5,161,067,000 4,669,589,000 10.5% 26.8% 27.1% According to market research reports by China Market Monitor Co. Ltd., the Group s washing machines enjoyed a domestic market share of 25.5% in terms of sales volume for the first half of 2011, continuing to rank No. 1 in the domestic market. Furthermore, the Group s revenue from the export of washing machines recorded a significant growth. Revenue from the export of washing machines grew by 22.5% compared with the same period last year, driven mainly by strong growth in the Asia Pacific and American regions. 25.5% 22.5% With a comprehensive grasp of consumer needs and integration of research and development resources from international partners, a variety of high value-added products launched by the Group had attained outstanding business performance in the high-end washing machine markets, which provided a great momentum for sustainable development of the washing machine business. For example, the Group cooperated with its strategic partner Fisher & Paykel to develop the Uniform Power Washing Machine, with an innovation of using the specially designed hyperbolic whirlpool to eliminate generated vortex flow to solve the conventional technical problem of uneven tumbling of laundry and reaching a washing uniformity of 99.3%. As more than 90% of users need to wash small clothes, the Group also developed the world s smallest (awarded by Guinness World Records recently) fully automatic Mini washing machine, which achieved a world-leading level in terms of size and energy savings. The Group believes the high-end washing machines developed in the abovementioned areas fully met market needs, and will dominate the consumption trends. 99.3% 90% Mini

39 Management Discussion and Analysis (Cont d) Water heater business The Group s water heater business comprised the manufacture and sales of electric, gas and solar energy water heaters. During the period, the revenue of the water heater business amounted to RMB1,753,616,000, representing a growth of 21.8% over the revenue of RMB1,439,388,000 in the same period of 2010. 1,753,616,000 1,439,388,000 21.8% According to data from China Market Monitor, the Group maintained its leading position in the domestic market by holding 27.1% market share in the electrical water heater business in terms of sales volume. 27.1% In the Twelfth Five-year Plan, the government intensified efforts in energy saving and emissions reduction. It is expected that consumers caring on energy saving of water heater products will be further strengthened. During the period, the Group released five energy saving hot water solutions, including gas water heaters, electric water heaters, solar water heaters, air source heat pump water heaters, etc. Through the enhancement of water heater products and services, improvement in product safety, comfort and thermal efficiency, the Group s water heater products continued to maintain a sound sales momentum to further expand its market share and consolidate its leading position. In the future, the Group will continuously innovate energy saving technologies in the water heater industry, and persist in implementing energy-saving solutions, so as to better meet diversified customer needs, grasp the trend of energy saving and emissions reduction, and promote the sustainable development of its water heater business. Integrated channel services business The Group s existing integrated channel services business is targeted at China s 3rd and 4th tier markets and mainly includes the product distribution business and the logistics business acquired from Haier Group last year. The integrated channel services business with the Goodaymart brand has a broad sales network, leading home appliances distribution channels and logistics system, for conducting sales of home appliances and related products of the Haier brand and non-haier brands. The revenue of the integrated channel services business significantly increased by 123.9% from RMB9,932,186,000 (restated) in the first half of 2010 to RMB22,234,011,000 in the first half of 2011. 9,932,186,000 123.9% 22,234,011,000