Kelon to feel pinch from rising costs, shutdowns

Guangdong Kelon Electrical Holdings, a mainland home appliance maker, has warned that it expected a loss for the first three quarters of this year due to increased material cost, production halts at some plants and a drop in orders.

'In view of the continuous surging raw material prices and some subsidiaries which have ceased production, it is expected that loss will be incurred from January 1 to September 30,' said chairman Tang Yeguo.

'As a result of the former chairman being suspected of economic crimes, the confidence of the distributors in our company was significantly affected, causing a huge loss of potential orders from September 2005 to September 2006 as well as a significant drop in sales of air-conditioners and freezers.'

Kelon was rocked by its second financial scandal last year, when Gu Chujun was dismissed as chairman in August and arrested for alleged economic crimes in September.

Trading in Kelon's Hong Kong-listed shares has been suspended since June 16 last year, while its Shenzhen-listed shares may also be suspended under listing rules if it reports a net loss for this year, which would be the firm's third straight annual loss.

For the first half this year, Kelon said net loss shrank to 29.2 million yuan from 448 million yuan in the same period a year ago while sales fell 21.3 per cent to 3.59 billion yuan.